As reported by Reuters, on Tuesday December 15th Mexico’s oil regulator awarded all 25 contracts on offer, beating expectations despite a dramatic plunge in crude prices, in an auction aimed at boosting new Mexican oil companies after a historic sector reform finalized last year.
Peak oil production from the 25 onshore fields will reach 77,000 barrels per day and attract investment of $1.1 billion, Energy Minister Pedro Joaquin Coldwell said in a tweet following the auction. Mexican officials had said they would consider the auction a success if at least five contracts were awarded.
“This is a triumph for Mexico,” Juan Carlos Zepeda, president of Mexico’s oil regulator CNH told local radio after the auction.
Among the 14 consortiums with winning bids, there were a dozen small Mexican oil companies, marking a dramatic shift for a sector long dominated by state-owned Pemex.
No international oil major participated in the auction, which featured relatively small onshore blocks where Pemex has drilled in the past.
The Mexican consortium led by Geo Estratos was the auction’s big winner, nabbing four contracts. Canada’s Renaissance Oil Corp won three contracts, while Mexican start-up Strata Campos Maduros also claimed three.
Diavaz Offshore, a longtime domestic service provider to state-owned oil company Pemex, won two contracts.
“What we like about Mexico is that it’s a place where there will be big opportunities going forward,” said Pablo Christlieb, Renaissance Oil’s lawyer, adding he expected crude prices to recover.
The price of Mexico’s mostly heavy crude export mix has plunged to below $28 a barrel, down more than 70 percent since last year and at its lowest level in more than a decade.
The auction was designed to allow experienced Mexican oilfield service providers the opportunity to operate fields on their own, which is permitted under the reform.
Competing alone and in consortia, some 80 mostly Mexican companies pre-qualified for the onshore auction run by the CNH, while only half registered to bid.
The constitutional overhaul, finalized last year, ended Pemex’s decades-long monopoly on crude production and aimed to reverse a prolonged slide in output by luring new expertise and private investment.
The fields on offer include a mix of mature onshore fields, most of which feature ongoing production and others that have been underdeveloped or abandoned, with combined proven and probable reserves of about 49 million barrels of oil equivalent.
Total production from 19 of the 25 fields currently hovers under 20,000 bpd.
The CNH awards contracts based on which bidder offers the biggest share of pre-tax profits to the government via a weighted formula that also includes an investment commitment.
The share of profits is 90 percent of the formula, while the investment commitment accounts for the rest.
The winning bids ranged from 10.56 percent of pre-tax profits for the San Bernardo field won by Mexican firm Sarreal, to 85.69 percent for the Moloacan field won by a consortium led by the Netherlands’s Canamex Dutch along with two Mexican firms.
The total government take on the contracts will be even higher as it includes other taxes and royalties.
The onshore auctions followed two previous offshore auctions in July and September, in which five of 19 contracts on offer were successfully tendered. (Additional reporting by Noe Torres; Editing by Peter Cooney and Tom Hogue)
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