The Mexican government will consider the shallow-water exploration phase of Round One a success if between four to seven blocks – or roughly 30 percent to 50 percent of the 14 blocks on offer – are assigned, analysts said.
On Wednesday, Mexico will receive bids and declare winners for the first 14 shallow water exploration blocks in the Gulf of Mexico. Despite low oil prices, recent shallow water discoveries made by PEMEX and low geological risk should lead to high interest, according to a July 14 analyst note from Tudor Pickering & Holt. The blocks are estimated to hold 1 billion barrels of oil equivalent (boe) P50 reserves or 688 million boe risked.
Thirty-four companies making up seven consortia and 18 individual companies will bid two main criteria for the production sharing agreements: the government’s percent share of operating profit – 90 percent weighting -- and percent additional investment over the minimum work program – 10 percent weighting. Companies participating include ExxonMobil, Chevron Corporation, Eni S.p.A., Total S.A., Hess Corp., Murphy Oil Corp., Tullow Oil Plc and Woodside Petroleum Limited.
The shallow water exploration phase of Mexico’s Round One will be important for setting expectations for the following phases of Round One, analyst firm Wood Mackenzie said in a July 13 statement.
Alfredo Alvarez, EY’s energy sector leader for Mexico, told Rigzone that EY expects bidders to focus on non-gas fields, given the difficulties in making offshore gas project economically viable. For this reason, EY believes that bidding will focus on nine blocks at most.
In terms of bidding, EY expects to see between 10 and 12 “real bidders” in the round, with other participants taking part to better understand the complexity of bidding and prepare for bidding on deepwater blocks, Alvarez said. The focus in deepwater bidding will likely be concentrated in the Perdido area of the Gulf of Mexico, close to current activity on the U.S. deepwater Gulf side.
Four companies – including Ecopetrol and Glencore – pulled out of bidding due to a reconfiguration of consortia and the companies not agreeing to new terms, said Alvarez.
While the defined success of 30 to 50 percent of blocks being awarded is an important metric, it will also be important to focus on the types of companies that end up winning blocks, Wood Mackenzie analysts said in a July 13 press statement.
“A healthy mix of companies of different sizes and expertise levels will help Mexico create a domestic, private oil and gas sector, in addition to welcoming international players.”
The undisclosed minimum acceptable profit split also will dictate the licensing round’s success.
“The potential mismatch of expectations between the government and industry could lead to bids below the government set minimum. For competitive bids, a key metric to observe will be money left on the table, which is the difference between the first and second bids,” Wood Mackenzie noted.
Mexican President Enrique Pena Nieto is “keen and eager” to claim success with his multiple reforms of the energy, telecommunications and other industries and to get results for the Mexican people and the country. Big oilfields are of no direct consequence to the Mexican people, but lower electricity and gasoline prices are, said Alvarez.
Mexico will still need to address issues such as infrastructure and lack of specialized workforce talent as exploration and production investment grows, Alvarez said. He estimates that between 80 and 90 percent of the concerns expressed by foreign private companies looking to bid have been addressed. Not all issues have been solved, but hopefully, Mexican authorities will continue with their openness in hearing feedback from the industry.
WHAT DO YOU THINK?
Click on the button below to add a comment.
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
More from this Author
Most Popular Articles
From the Career Center
Jobs that may interest you