In the first half of 2019, there has been considerable change in the licensing round landscape. Latin America is a notable example.
In Mexico, a five-year run of highly successful licensing rounds has fallen victim to political agendas, at least for the next three years.
“In Brazil, it’s a different story," says James Deckelman, vice president of new ventures at ION E&P Advisors.
"Investor confidence has risen to new levels as a result of the new government; domestic capital is rotating into the energy sector as the Central Bank of Brazil cuts its key Selic rate from 14% to 6.5%, and many new opportunities are available via Petrobras farm-downs, the Brazilian National Petroleum Agency (ANP) permanent offer blocks, transfer of rights blocks, sixth pre-salt PSC round and 16th concession contract round."
Argentina is also back in the limelight, having delivered a successful 2019 offshore licensing round—the first open bid round for Argentinean offshore acreage in more than 20 years.
Understanding acreage value
The investor community is both highly sophisticated and highly selective. It's also accountable to myriad stakeholders including creditors, shareholders, boards, communities and other special-interest holders.
Investors have an enormous slate of opportunities to choose from, too—across the globe and the entire E&P value chain. The result: increased focus, increased risk mitigation and increased due diligence.
“That’s why understanding the value of your acreage is of critical importance, both on the part of the investor and on the part of the host government,” says Brian W. Horn, senior vice president of ION E&P Advisors.
"There are very few places around the world that are sufficiently rich with petroleum resources, and so highly coveted by industry, that the bidders will set the value”.
“At ION, we’re a strong advocate of host governments carrying out the same technical, commercial and economic due diligence as is carried out by the investors,” Deckelman adds.
“It is essential that government’s understanding of risk, volume and value is the same as that of the investors.”
In this way, governments can align contract terms with prospectivity, value and risk. This enables governments to:
- Attract maximum investor interest
- Optimise value for the State
- Target the appropriate investor demographic
- Structure the licensing round appropriately
- Set accurate expectations for the licensing round
In times of sustained oil price oil-price volatility and eroding margins, investors are more focused than ever. To attract the capital required to develop their resources, governments are sharpening their focus as well.