Mexico revises rules for second phase of Round One auction

Offshore staff

MEXICO CITY – Mexico’s oil regulator has unveiled more attractive rules for the second phase of the country’s Round One oil auction, according to a report in the Latin American Herald Tribune. The changes include lowering corporate guarantees and making other changes after a disappointing first phase.

In late July, Mexican government officials indicated that they would postpone auctions for deepwater oil exploration and production contracts, and adjust the terms of upcoming tenders.

“New alternatives are being presented…so investors can comply with government-required guarantees,” the head of the National Hydrocarbons Commission, or CNH, Juan Carlos Zepeda, was quoted to say.

In the second phase, scheduled for Sept. 30, bidders will be competing for five shallow-water areas off the coasts of the Gulf coast states of Tabasco and Campeche with reserves estimated at 671 MMboe.

Under the new rules, a company that is the operator of a consortium bidding for one production-sharing contract may now also bid individually for a separate contract, Zepeda said.

In another change, the commission also said a $2.5-million bid security guarantee will cover all contracts a bidder is awarded and will not need to be provided for each separate block.

That guarantee, and as well as a performance guarantee that has been set at 50% of the minimum work program, may be reduced annually in proportion to the winning bidder’s progress in fulfilling its contractual obligations, said Martin Alvarez, the CNH’s bids coordinator.

In another change, the CNH added a required insurance policy to each contract to cover up to $1 billion in damage from spills or accidents.

For each block, winning bidders also must hire a service provider that specializes in well control.

The changes come after phase one of the Round One oil auction, the first held since Mexico opened its oil industry to private and foreign investment, ended in disappointment.

The government had expected that between 30-40% of the 14 shallow-water exploration blocks on offer in that July auction would be awarded, but only two were acquired, both by a consortium made up of Mexico’s Sierra Oil & Gas, Houston-based Talos Energy, and Britain’s Premier Oil.

Mexican state-owned oil company PEMEX, which obtained 83% of the country’s proven and probable reserves and 21% of its potential resources in a so-called “Zero Round” of non-competitive bidding last year, did not participate in the initial phase of Round One.

Mexico’s government is looking to the energy overhaul to attract tens of billions of dollars in investment and reverse a roughly 30% decline in Mexico’s oil output, which peaked at 3.38 MMb/d in 2004 and currently stands at roughly 2.3 MMb/d.

Mexico is starting small with its offer of shallow-water fields and onshore blocks this year and saving the potentially bigger deepwater fields in the Gulf of Mexico for later tenders.


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