PetroRock comments on Mexico’s latest bidding round

PetroRock Energy LLC has provided key takeaways regarding Mexico’s second bidding round (Round 1.2), which offered five development offshore blocks in the Gulf of Mexico. On Wednesday, Mexico auctioned off three offshore leases as part of its efforts to open up its long-nationalized oil industry. Neither Block 3 nor Block 5 received any bids.

PetroRock commented, “The results of this round were very encouraging and surprising despite the low commodity price environment and the initial poor results of the inaugural bidding round last July. We attribute this success to: a) release of the minimum government take ahead of bidding, b) more attractive fiscal terms to work around, and c) more relaxed bidding requirements. We think the government took the right steps to make this round more attractive to investors.”

PetroRock reported that:

Block 1 received participation from all nine bidders, and all bids were well above minimum government take of 34.80%. The average government take for this block was 62.3%. Eni was the winner with 83.75%, or 2.4x the minimum take. This block was closest to the shore and with potential geological reads into onshore fields.

Block 2 received five bids or 56% participation. Again, well above minimum government take of 35.9%. This field is also nearby Pemex infrastructure and a potential read into Tajon onshore field to be auctioned on Dec. 15. A consortium between Argentina's Pan American Energy LLC and Mexico's E&P Hidrocarburos y Servicios – an international consortium that includes affiliates of BP – won the bidding war for Block 2.

Block 3 received no bids. This block had the lowest minimum take and was the least attractive in terms of geology and crude oil quality. This block was contiguous to four of the exploratory blocks auctioned last July. 

Block 4 was awarded to a consortium with a Mexican startup, Petrobal. The consortium includes Houston-based Fieldwood Energy LLC. This block had Pemex infrastructure around and was perhaps the one with the greatest “edge” for the Petrobal team that was the only bidder. Block 4 contains two shallow oil fields named Pokoch and Ichalkil.

Block 5 also received no bids. This is an indication that minimum government takes should be lowered further to make it attractive for participants, given the current commodity downturn.

PetroRock noted that the majority of bids were submitted by national oil companies (NOCs) (44%), followed by international oil companies (IOCs)/independents (33%), and the remainder by private-equity-backed ventures (22%). This large participation of NOC/IOCs can be explained by the high capital and production requirements to qualify in this bidding round. However, PetroRock says that it thinks these blocks should be the domain of the large/mid independents.

According to media sources, Mexico is planning to offer two more Round One auctions in the coming months, including an onshore auction in December. In 2016, deepwater fields will be included.

PetroRock Energy is an investment management and advisory firm focused on the oil & gas exploration, production, and oilfield services sector in North America. The firm was founded in 2013, and has offices in New York and Mexico City.

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