Mexico Cuts Corporate Guarantee For Next Phase Of Oil Auction

Mexico's oil regulator votes to modify bidding rules for the second phase of the country's so-called Round One auction.

MEXICO CITY, Aug 4 (Reuters) - Mexico's oil regulator voted on Tuesday to sweeten rules for the second phase of the country's so-called Round One auction, such as lowering a required corporate guarantee that had spooked investors in the first phase.

In the first concrete step of a sweeping energy sector overhaul finalized last year, last month's inaugural oil auction covering 14 shallow water exploration blocks failed to meet the government's modest expectations when only two were awarded.

The auction's next phase consists of five shallow-water production-sharing contracts covering nine oil fields that contain proven reserves and are set to be awarded on Sept. 30.

A new corporate guarantee - essentially money a consortium of oil companies has to put up front in case of an accident - was set at 18 times the value of the minimum work commitment required by each contract.

The previous rule required that a consortium bidding on oil parcels must have one member act as a guarantor with shareholder equity of at least $6 billion to protect the state's interest in the event of a major accident.

The change will allow companies to post a smaller guarantee and is aimed at luring more bidders.

The commission also tweaked a $2.5 million bid security guarantee which can now be applied to all blocks a bidder wins rather than just one.

"We are presenting new alternatives, a package of guarantees that is more open with new instruments that seek flexibility so that investors can comply with the guarantees that the state requires," said Juan Carlos Zepeda, president of Mexican oil regulator CNH.

Which route companies take on the new version of the corporate guarantee "will depend on the type of block and how the final minimum work program turns out," said Zepeda.

The contract's adjustment mechanism was also modified to allow oil companies a higher upside if the profitability of the contract increases.

The CNH also added a new required insurance policy to each contract to cover possible spills or other industrial accidents set at a minimum $1 billion.

The timing of the auction was also modified, including a change that will allow consortia to restructure as late as one week before the auction if the consortia's operator pulls out.

Zepeda said several changes were made to respond to flaws observed in last month's auction.

Final contract and bidding terms will be published on Aug. 21.

(Reporting by David Alire Garcia; Editing by Bill Rigby and Lisa Shumaker)

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