President Commissioner of the CNH Courtesy Image from OroNegro.mx

President Commissioner of the CNH
Courtesy Image from OroNegro.mx

Despite the seemingly never-ending drop in oil prices worldwide, Mexico’s first-ever licensing round is still a go, and its contenders for the first set of exploration areas in shallow water assets have already been invited to bid. Data room access for each of the interested parties should be made available by January 15th and each of the company’s experts will be able to delve into geologic data for five months in order to scoop up the best prospects in Mexico’s shallow Gulf. While prequalification must be authorized by the CNH, interested companies may still access data through the five-month period. Review of each company’s bid is set to be analyzed during approximately one month; a list of companies that have prequalified to participate in the bidding round will be released by April 27th. After this, if every part of the process runs according to schedule, the winners shall be announced by mid-July and the final decision will be published in the Federal Official Gazette.

Even though the established timeline for Round One to kick-off was a bit delayed, it seems that the CNH has everything under control to lead the bidding of the first 14 exploration areas to success. Financial requirements by interested companies boil down to three main components: Demonstrating total assets with at least US$10 billion in value and an investment-grade credit rating by Fitch, Moody’s, or S&P or shareholders’ equity of at least US$1 billion is a must. These conditions must be met either by a single operator or in the case a consortium is formed, its members, restricted to no more than three participants, must demonstrate that the requirements are met when combined financial capabilities are aggregated; nonetheless, the operator must hold the highest economic interest. Second, proving operating experience in at least three E&P projects through 2010-2014 or total investments involved of at least US$1 billion is also required. Once these conditions are met, another important one comes into play to materialize this first-hand opportunity; corporate entities’ must incorporate a Mexican entity for the contract to be successfully executed.

http://www.ronda1.gob.mx/documents/aguas_someras/SoutheastBasins_ShallowWater-101214.pdf

Courtesy Image from CNH http://www.ronda1.gob.mx/documents/aguas_someras/SoutheastBasins_ShallowWater-101214.pdf

So what role do plunging prices play now when equated into these assets’ profitability? Evidently none according to the CNH’s current forecasts. Apparently, this condition should not impact bidding interest in Mexico’s shallow water assets, because if companies spot valuable prospects, the production costs will still be significantly low when compared to other commercial discoveries elsewhere.  While this may not be the case for other areas, such as deepwater and unconventional offerings in the country’s north, the next in line prescribed by Round One will be extra-heavy oil assets located in the Mexico’s shallow shelf including exploration areas and up-and-coming gems: Ayatsil, Tekel, and Utsil.

Ayatsil has been making the headlines for some time now and evidences great interest not only by PEMEX, but other contractors’ are also setting eyes on this field’s development. Since its discovery in 2008, this extra-heavy oil field is on the industry’s radar to become a good candidate to stabilize Mexico’s heavy crude production plateau. McDermott has lead the development of the Ayatsil’s drilling platforms, where it has already delivered the EPC of Ayatsil-B and has just been awarded the installation of another platform, Ayatsil-A. Similarly, ICA Fluor was commissioned to deliver the Ayastil-C platform and COMMSA is in charge of Ayatsil-D. In total, the field is projected to employ these four production platforms and an FPSO which may even combine outputs from neighboring Ku, Maloob, and Akal fields to maximize its production system. Another important participant in Ayatsil’s development will be GE; just this past June, PEMEX awarded it with a multi-year contract to deliver surface equipment which will include wellheads and surface trees.  Similarly, companies like Swiber Offshore Mexico and General Cable have also supplied other components to put forth the development of this new field. Production is expected to reach 100,000b/d by 2019, where more than 750 million boe of 3P reserves are projected.

Courtesy Image from Vértigo Político

Courtesy Image from Vértigo Político

Upstream endeavors headed by PEMEX portray an optimistic momentum, and if all runs according to plan, the country may be seeing its traditionally shallow water production-driven outputs gain prominence once again. Talks of bartering light crude from the US with Mexican heavy oil are also set to have an effect in the country’s strategy. Although volumes of Mexico’s crude exports should remain unchanged according to PEMEX, its budget of heavy versus light crude may change over the long-term given other priorities to be met in the downstream segment. As Round One continues cruising smoothly, the route looks promising and bright for all parties involved and for now, Mexico’s basket price hovering US$40 still leaves room for profitable ventures in the country’s shallow water assets.

 

 

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