Mexico’s oil regulator announced that PEMEX’s agreed stake in the upcoming Trion farm-out is to be reduced to 40 percent, down from the original 45 percent. The Trion block, located in the Perdido Fold Belt, is set to become the first area in Mexico’s deep waters involved in a joint venture between PEMEX and a private firm.
The decision to decrease PEMEX’s stake in the future partnership was taken by the National Hydrocarbons Commission (CNH), along with a reduction in local content rules and changes to specific contractual clauses. The modifications come after CNH addressed more than 150 questions and concerns raised by private companies interested in the bidding process, as reported by El Economista the Mexican newspaper.
Along with PEMEX’s stake reduction, the designated and non-designated operator’s potential share has broadened, as they will now have a minimum 30 percent and 10 percent stake, respectively. A solely financial partner can take a maximum 10 percent stake in the contract. Additional modifications center on specific terms included in the contracts. CNH confirmed that PEP, the E&P segment of PEMEX, will assume full responsibility for any preexisting damages to infrastructure in the area, rather than all participating members of the farm-out.
Another clause of the contract determining that PEP would continue exercising its vote even if it fell into financial default was removed. It will now be prevented from doing so, except in matters related to the budget and work programs. On a final note, the arbitration headquarters will be moved from Mexico to Calgary, Canada, to avoid possible bias in favor of PEMEX when resolving disagreements between companies.
So far 26 private companies have been short-listed to participate in the Trion farm-out bidding process, due to take place on December 5th of this year. Of those, 16 have been approved as operators and the remaining ten as potential partners in group bids, with consortiums already forming amongst the interested companies. Exxon Mobil Corp, Chevron Corp and Hess Corp are confirmed to be joining forces, whilst Murphy Oil Corp., Malaysia’s PETRONAS and Sierra Oil & Gas are currently in talks to follow suit.
Despite the significant interest in pre-qualifying to bid, this does not guarantee that the interested parties will submit official bids in December. CNH’s modifications to the original contractual terms signal a move to make the proposals more attractive to potential investors, and increase the likelihood that they will submit official bids in December’s farm-out.
The private firms involved are seeking more flexible contractual terms and more reassurance regarding the Mexican government’s share of the risks and responsibilities involved in the farm-out.