Transparency is key to improving the outlook for Mexico's deepwater block auction

As Mexico's first offshore bidding round for already discovered fields saw bids significantly higher than the minimum set up by the government, adding further transparency to the process would be positive for the round as it approaches its deepwater phase, according to an analyst with research and consulting firm GlobalData.

Adrian Lara, GlobalData's Senior Upstream Analyst for the Americas, says that the Mexican government's announcement of the minimum profit oil worked out well, especially in discovered fields, as opposed to the disappointment surrounding the exploration blocks on offer during the previous phase of Round 1.

The minimum for Area 1 of this second phase was established at 34.8% and the bids ranged from 46.7% to 86.7%. GlobalData's assessments suggest that assuming a price of $60 per barrel, these fields would be profitable with bids of up to 65%. Four of the nine bids were above this threshold, and two were significantly higher.

The size of the winning bid indicates that competition drove bidding higher because the floor was known. The previous phase also involved determining the potential floor for bidding, which could have led to negative bidding strategies designed to minimize outlay.

Lara comments: "So far, the particular design of Round 1 with its phases has functioned well, as it incorporates lessons learned in the previous phase.

"The success of the last phase, for example, was in part due to the failures of the first phase, namely that not disclosing the minimum adds uncertainty to the geological risk and ultimately lowers the incentive to bid high, or even bid at all."

While GlobalData believes that the most promising deepwater prospects are the three discoveries Trion, Exploratus and Maximino being offered by Pemex as farm-outs, bidding activity in the next deepwater exploration block phase could be positively impacted if at least the framework for the farm-out agreements is released.

Lara explains: "Building on the premise that disclosing the minimum decreased uncertainty and added a degree of transparency to the process, it would be positive for the next phase if CNH provided more transparency on the terms of the farm-outs.

"This would provide a more comprehensive perspective on the final deepwater phase of the Round 1 and finally set an optimistic precedent for future bidding rounds," the analyst concludes.

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