Further details are continuing to drip out of Mexico related to the country’s planned deepwater bidding round, which remains on course and set to follow on from the first batch of shallow-water exploration blocks being released.
Since the invitation for bids on the shallow blocks was announced in December last year, 38 companies have expressed interest, with 26 of those requesting access to the data room that opened last month, according to Luis Fernando Herrera Fallas, deputy general director of hydrocarbons for Mexico’s energy ministry.
In the current uncertain climate, Fallas said that what the ministry is doing at present is “choosing more carefully the fields that we are going to present in each of the bidding calls. We are going to use the fields that we know are profitable and are going to be of interest”, adding that he noted there were concerns about some heavy oil, unconventional and deepwater fields. “But [given] our conversations with the industry … there are many companies interested even with the low prices in those fields,” he said.
It is unlikely, therefore, that there will be major alterations to the bidding process, such as moving deepwater areas back or extending the exploration phase for the shallow-water blocks.
Mexico is, however, considering changing the order of fields being offered during Round 1, which could actually see deepwater areas brought forward: “We are thinking right now to move ahead with deepwater and have unconventionals and Chicontepec for the last bidding call for this round,” he said during an event on Mexico’s energy reform at Rice University in Houston, Texas. That would mean the invitation for Chicontepec and unconventional areas moving to May this year.
“At the end of the month we are going to announce the second stage of Round One with shallow waters,” he said.
Despite an increase in E&P investment, oil production in Mexico has steadily declined, going from 3.4 MMb/d in 2004 to 2.4 MMb/d in 2014.
This was also touched upon in a separate event in Florence, Italy, where annual E&P spending in Mexico was forecast to double following the country’s oil and gas reforms. Spending is likely to increase from US $25 billion to $50 billion annually, Pemex CEO Emilio Lozoya Austin said at the GE Oil & Gas Annual Meeting 2015.
“Mexico offers an interesting opportunity because our all-in cost per barrel is $23, so even at current prices, Pemex’s total upstream portfolio remains highly competitive,” he said.
For those who may have lost track of the potential that lies in Mexico’s deep waters, the Round 1 Perdido foldbelt area includes 11 blocks with areas ranging from 224-409 sq km, with prospective resources of up to 1.6 Bboe. Pemex is understood to be looking for partners to develop three of its existing discoveries: Trion, Exploratus and Maximino.
In the deepwater Southern Region, there are 17 blocks with areas ranging from 390-960 sq km, with prospective resources of up to 3.2 Bboe. Pemex is looking to joint venture with international operators to develop two gas fields: Kunah and Piklis.
The data room for the deepwater blocks is expected to be opened in May this year, with bids due by October, DI understands.
Mexico is taking a staggered approach to the Round One tender, which will make available 169 blocks covering about 28,500 sq km (11,004 sq miles) with more than 18 Bboe in prospective resources and proven and probable reserves. Currently, of the 169 blocks being proposed, 109 are exploratory assets, while 60 blocks are extraction blocks with 2P reserves.
The first phase features 14 shallow-water areas, ranging in size from 116 sq km to 501 sq km (45 sq miles to 193 sq miles).
Any Mexican, foreign or state productive company may participate in the bidding round. But there are restrictions – no company may take part in more than one joint bidding group for the same contract area; a joint venture of two companies having production of more than 1.6 MMb/d of oil, excluding deepwater, is prohibited; and companies or consortia may only bid on up to five contractual areas during the bidding process.
Local content requirements for E&P companies doing business in Mexico will gradually rise from 25% this year to 35% by 2025. However, this mandate excludes deepwater and ultra-deepwater developments.
At the Houston event, Fernando Cano-Lasa, counsel with Squire Patton Boggs and former vice president of legal and strategy for Pemex Procurement International, said in relation to Pemex: “As we see the bidding rounds for the unconventional and deep water, there are going to be some obligations in the agreement for technology transfer that does not mess with intellectual property, but that require the companies to provide a certain technology transfer so that Pemex, as a partner in a joint venture, can understand what are the best practices to exploit, for instance, deepwater resources.”
Carlos de Regules, executive director for the National Agency for Safety, Energy and Environment of Mexico, added that this new paradigm will cause Pemex to shift its view and start seeing technology as a competitive advantage. “Instead of being part of the state, promoting research and development activities, it will start taking technology very seriously,” he said.
2Bretts retained EnergyNet for the sale of nonop assets and overriding royalty interest plus producing and non-producing minerals across Oklahoma through an auction ending May 1.
De Soto Royalty II retained RedOaks Energy Advisors for the sale of its mineral and royalty interests located in the Delaware and Midland basins within the Permian.
Discovery Natural Resources retained EnergyNet for the sale of Permian Basin assets in West Texas through multiple sealed-bid offerings.