By Velda Addison, Hart Energy
The buildup to Mexico’s first public bidding round was great but the results were called disappointing. Yet, there were some positives.
Fourteen shallow-water blocks in the Gulf of Mexico were made available, but eight of those blocks received no bids and four had bids thrown out because they did not meet the government’s minimum requirement of 40% pre-tax profits. Only two bids were awarded, and both went to same consortium composed of Sierra Oil & Gas, Talos Energy and Premier Oil.
Hopes were high for Mexico’s historic bidding round—the country’s first in more than seven decades. But given today’s market conditions, who really expected bidding wars for coveted blocks? Even Mexico’s government officials lowered their expectations going into the round.
For one, oil prices have plummeted from more than $100 per barrel to about half that since Mexico started the public bidding process for the first phase of Round One. The impact of Iran’s re-entry into the market, whenever that happens, has countries and companies on edge considering no one knows for sure what Iran’s actions will be and their impact on the market.
Then, there are other contributing factors. This was Mexico’s first time out of the gate. Perhaps oil and gas companies that could afford to play wanted to see how the process would work. The same could be said of companies who participated in the round but didn’t bid on any blocks.
In addition, the blocks being offered were exploratory blocks. That means greater risk for oil and gas companies. Some companies clearly weren’t willing to take on such risks at the time. Moreover, the blocks auctioned were smaller than others offered offshore by other countries. Some companies might have been turned off by the terms.
Although the number of bids received was not high, that fact that some companies showed up at all was a start. Seven of the nine companies that showed up placed bids.
Upcoming phases of the multiphase Round One, which also offers unconventional and deepwater acreage, could generate slightly more interest. More than 20 production blocks will be on the table in the next few months.
Analysts have said Mexico’s deepwater blocks have been of highest interest. Mexico’s National Hydrocarbons Commission (CNH) website does not list dates for these blocks yet, but hopefully the timing of the auction will be better with improved commodity prices.
If anything, Mexican officials should have some solace in the fact that the process itself seemed to go smoothly—at least from the perspective of someone watching a live feed of the bid opening process via the webcast offered by CNH. Viewers got to see the clear boxes containing bids and even close-ups of some bid-related documents. Throughout the process, which was broadcast in English and Spanish, moderators provided background on the historic moment, spoke about the resource potential of certain blocks and kept viewers informed on what was happening at the time and what would happen next. That bodes well for transparency.
Hopefully, the upcoming phases of Round One will have better results for all involved.
Velda Addison can be reached at firstname.lastname@example.org or via Twitter @veldaaddison.
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