The second, third and fourth farm-outs for PEMEX E&P to partner-up on the exploration and production activities for the Ayín-Batsil, Cárdenas-Mora and Ogarrio fields, held today, resulted in two winning bids, although Ayín Batsil was left deserted. Cheiron Holding Limited won the Cárdenas-Mora farm-out while Ogarrio went to DEA Deutsche Erdoel A.G.

THE PROCESS

For every farm-out, the same participation framework was used. PEMEX E&P will hold a 50 percent participation, leaving the remaining 50 percent for the partner. If the partner is a consortium, the designated operator must have a minimum 30 percent participation in the entire operation, with the remaining participants taking up to 20 percent.

To participate in the bidding process each participant must provide an economic offer and a reliability guarantee. The economic offer consists of an added royalty percentage to be provided to the state, together with a down payment to be used in case of a tie. Minimum and maximum values for the offers are provided by the Ministry of Finance.

During the bidding process the royalty percentage is opened. If it is the maximum asked by CNH and the Ministry of Finance, the down payment is also announced. The winner is the participant with the highest added royalty offered. In case of a tie, the winner is the bidder who offers the highest down payment. In case of a second tie with the down payment, the winner will be determined by the insulation method. If the down payment is used for tie-breaking, and the payment is equal to the minimum asked by CNH, the total down payment goes to PEMEX E&P. If the down payment is larger than the minimum asked by CNH, 80 percent goes to PEMEX E&P and 20 percent is directed to the Mexican Institute of Petroleum (IMP).

THE RESULTS

Due to the lack of bidders, at 9am the Ayín and Batsil fields were declared deserted for any farm-out with PEMEX.

Cheiron Holding Limited won the Cárdenas-Mora farm-out. Its bid consisted of an additional royalty of 13 percent and a down payment of US$41.5 million. Gran Tierra Mexico Energy in consortium with Sierra Blanca P&D came in second after offering an additional royalty of 5.09 percent.

The Ogarrio farm-out went to DEA Deutsche Erdoel A.G. Its offer consisted of an additional 13 percent royalty and a down payment of US$213.87 million. California Resources Corporation in consortium with PetroBal S.A.P.I. de C.V. landed in second place after offering an additional royalty of 13 percent and a down payment of US$52 million.

THE CLOSE

Before the Cárdenas-Mora farm-out took place, Juan Carlos Zepeda, President Commissioner of CNH, confirmed that the Ayín-Batsil farm-out was declared deserted as no participant placed a bid. Zepeda also said that including Wednesday’s results, eight bidding processes have taken place in Mexico, with 70 contracts assigned to both national and international companies and representing a total approximate investment of US$60 billion. Zepeda also pointed out that for the licensing rounds, the Ministry of Energy designs the requirements with which companies must comply to participate in the process. It also designs the contracts. SHCP determines the fiscal regimes and CNH executes the bidding process, designates the winners and signs and administrates the contracts.

During the press conference, Aldo Flores, Deputy Minister of Hydrocarbons at the Ministry of Energy, said the day was extremely good not only for PEMEX, but for Mexico. He also recognized that the Ayín-Batsil result was a reflection of market decisions, so PEMEX needs to learn from this process. Flores also pointed out that the reason the bidding round for unconventional resources (Round 2.5) is taking longer than expected is that the Ministry of Energy is developing, together with ASEA, a regulation and procedures that ensure that the exploitation of unconventional resources will not affect the environment.

José González Anaya, CEO of PEMEX, said he understood the Ayín-Batsil result because it is a complicated field with depths that reach deepwater technologies. He also left open the possibility of PEMEX performing a farm-out on that area in the future, once the company had processed today’s results. Regarding the Cárdenas-Mora and Ogarrio fields, he pointed out that those fields will require US$1.1 billion and US$490 million investments, respectively. The Cárdenas-Mora field will produce 13,000-14,000 boe per day at its peak, and the Ogarrio field will produce 15,000 boe per day when it ramps up operations.

Zepeda added that the costs of starting production phases in both farm-outs is expected to be US$11 for Ogarrio, and US$16 for Cárdenas-Mora.

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