[Industry insiders, including executives from Sierra O&G and Talos Energy, which this week announced an historic oil discovery, and heads of PEMEX’s divisions will discuss these results and more at the Mexico Oil & Gas Summit on July 18-19. Click for tickets.]
The end of Round 2 for 2017 culminated with the winners of Rounds 2.2 and 2.3 announced on Wednesday. Rounds 2.4 and 2.5 will take place in 2018. It is time now to reflect on what has changed since 2015.
Round 1 assigned 34 out of 50 blocks, meaning a 68 percent assignation rate. In contrast, Round 2 has seen 31 out of 39 blocks assigned so far, for a 79 percent assignation rate.
There has been a significant improvement since shallow-water Round 1.1, when only two blocks out of 14 were assigned. In comparison, Round 2.1, also in shallow waters, saw 10 out of 15 blocks assigned. The number of participants also increased from Round 1.1 to Round 2.1 from 9 to 20, respectively.
In Round 1.1 the Ministry of Finance did not reveal the minimum royalty to the bidders nor the additional investment prior to the tender, meaning that bidders did not have a solid base for their offers. This showed in bids that did not satisfy the minimum requirements, and blocks were subsequently not assigned. Such was the case, for example, with Block 3 for which Murphy and Petronas offered a 35 percent added royalty, while the nonpublished minimum was 40 percent. The same situation happened on blocks 4, 6 and 12. Round 1.1 had an assignation rate of 14 percent largely for this reason.
In Round 1.2 the Ministry of Finance decided to reveal the minimum royalty and the minimum additional investment a few weeks before the tender, which resulted in a clear increase of blocks assigned, rising 60 percent.
It is also significant that Round 1 saw no ties, while in Round 2 there were nine ties, accounting for a total US$117,871,599.5 in tiebreaking payments. The increase in ties was related to the Ministry of Finance publishing its maximum for additional royalty and additional investment. Taking into account that more companies bid the maximum and went into a tiebreaker round is also a reflection of their interest in investing in the country.
On farm-outs, BHP Billiton was assigned as PEMEX’s partner, on a 60-40 participation basis respectively, for the development of the Trion deepwater field after its higher payment of US$624,000,000 broke a tie with BP. Both PEMEX and CNH are expecting positive results for the coming farm-outs Ayin-Batsil, Cárdenas-Mora and Ogarrio, the first being offshore and the latter two on onshore.
[For more information on the industry and the insiders’ perspective, check out Mexico Oil & Gas Review.]
[For more articles on Mexico’s oil and gas industry, check out our blog here.]