Mexico awards most deepwater blocks, bidding sparse

Mexico awarded eight of 10 deepwater blocks plus a farm-out with state-run Pemex in closely watched back-to-back auctions that marked Pemex´s debut in the country´s new competitive landscape.

The bidding could not be described as brisk in most cases, but Mexican officials said the results surpassed their expectations in the current oil price environment.

China´s state-owned CNOOC scooped up two blocks in the coveted Perdido Fold Belt in the Gulf of Mexico. The Chinese company was the only winning bidder to go it alone in the auction.

A consortium grouping Norway´s Statoil, BP and Total won two other blocks, located in the Salina basin in the southern part of the Gulf of Mexico.

The remaining four blocks were awarded to an assortment of big foreign oil companies, with one Mexican independent.

Earlier today, Mexico also awarded Pemex's first-ever farm-out to Australia's BHP Billiton for two blocks encompassing the Trion deepwater discovery, also located in the Perdido Fold Belt. BHP Billiton outbid BP in a nail-biting tie-breaker.

In the separate 10-block auction, CNOOC secured Block 1 with an aggressive 17.01pc additional royalty offer, outbidding Pemex with a distant 6.65pc offer. The Chinese firm also prevailed on Block 4 with a sole royalty offer of 15.01pc.

Both blocks won by CNOOC are expected to hold mostly extra light oil.

Block 2 went to Total in a consortium with ExxonMobil, the sole bidder, with a 5pc additional royalty offer.

Chevron, Pemex and Japan´s Inpex won Block 3 with another sole offer of 7.44pc.

According to Mexican official reserves data, Blocks 2 and 3 mostly hold light oil.

The minimum additional royalty for the four Perdido Belt blocks had previously been set by Mexico's finance secretary at 3.1pc. The Perdido trend crosses into Mexican waters from the prolific US side of the Gulf of Mexico.

In the more remote Salina basin, the minimum additional royalty was set at a lower 1.9pc.

There, Statoil, BP and Total secured light oil Blocks 5 and 7, with two 10pc additional royalty offers.

Malaysian state-owned Petronas subsidiary PC Carigali and Mexican independent Sierra offered a royalty premium of 22.99pc for Block 8, outbidding Statoil, BP and Total's less ambitious 13pc offer.

Block 9 attracted the most participation, with four bids. US independent Murphy Sur, the UK´s Ophir, PC Carigali and Sierra won with the tender´s highest royalty premium of 26.91pc, beating the runner-up consortium made of Atlantic Rim and Shell with 19.11pc.

Blocks 6 and 10 in the Salina basin drew no offers.

The 10 blocks hold total estimated reserves of 10.6bn of oil equivalent (boe) and were widely seen as the crown jewel of a staggered bidding round, launched soon after a 2014 energy reform ended Pemex's upstream monopoly. Pemex had stayed on the sidelines of three previous upstream tenders which were focused on shallow-water and onshore acreage.

"On average, the additional royalties offered reached 14.3pc….It's quite favorable," Mexico's deputy finance minister Miguel Messmacher said.

The auction is crucial to help Mexico reverse a decade-long decline in domestic crude production. Since reaching a peak at 3.4mn b/d in 2004, Pemex has seen production fall by more than 1mn b/d, reaching 2.1mn b/d in October.

Production from Trion is expected to begin by 2023 and reach 120,000 b/d of output by 2025. For the 10 other blocks, production should begin within 10 years, officials said today.

All nine contracts are scheduled to be signed within 90 days.