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Mexico's deepwater round ends in success

Written by  Monday, 05 December 2016 08:00

Mexico's highly anticipated deepwater bidding round, Round 1.4, in Mexico City resulted in eight of the 10 deepwater blocks in the Gulf of Mexico awarded. 

Evaluating submitted bids.

OE partnered with Mexico's National Hydrocarbon's Commission (CNH) to bring our readers a live stream of Mexico's phase four of Round One auction.

Starting out the day, BHP Billiton won the bid to develop the Trion deepwater field in Pemex's first-ever farmout deal. 

In a press conference following the deepwater bid round, Juan Carlos Zepeda, CNH president, said that it is estimated that by around 2023, production will start at Trion, and exploration may take another 10 years. The capital investment commitments for all 10 blocks are some US$4 billion, with most investment going into the exploration wells, which will cost about $100 million. 

Mexican Secretary of Energy Pedro Joaquín Coldwell said that there may be another deepwater round, however, Mexico must first finish the three tenders they are working on now in 1H 2017. 

“Before the president’s term is over, we will have an additional three tenders: one in autumn 2017, another in winter 2018; and a final one before the presidential term ends, which is also in the winter of 2018. For this, we are considering new deepwater block and some shallow water blocks and some land blocks,” Coldwell said.

Mexico's deepwater Round 1.4

CNH began with bid proposals for the four blocks in the Perdido Fold Belt, covering 8218sq km, located about 320km south of Texas and 250km from Matamoros. In the end, all four blocks were awarded.

Perdido Fold Belt

Block 1: China National Offshore Oil Corp. (CNOOC) wins Block 1, covering 1678sq km, divided into two areas, in 2515m water depth, with an estimated 458 MMboe of super light oil. The Chinese company bid a 17.01% value of additional royalty; 1.5% of additional investment factor. Pemex was the only other company to bid on Block 1, bidding 6.65% value of additional royalty, and 1% of additional investment factor.

Block 2: The consortium of Total E&P and ExxonMobil was the only bidder, and therefore winner of Block 2 covering 2977sq km in 3237m water depth, with an estimated 900 MMboe. The consortium bid a value of additional royalty of 5%, and an additional investment factor of 1.5%. Total will be the operator with 50% interest. 

Block 3: The consortium of Chevron (as operator), Pemex and Inpex Corp. was the only bidder and winner of Block 3 covering 1687sq km in 1005m water depth, with an estimated 971 MMboe. The consortium bid a value of additional royalty of 7.44%, and an additional investment factor of 0%.

Block 4: CNOOC wins Block 4 covering 1877sq km in 1264m water depth, with an estimated 408 MMboe. The Chinese company bid a 15.01% value of additional royalty; 1% of additional investment factor. No other companies or consortia bid on Block 4.

According to CNH, there is an average success ration of 43% in the Perdido Fold Belt, making it one of the most investment attractive deepwater exploration areas in the world.

Salina basin

CNH followed with proposed bids for Salina basin, consisting of six blocks in the southeast Gulf of Mexico, covering 15,617sq km. A total of four out of the six blocks were awarded. 

Block 1: The consortium of Statoil (as operator, 33.4%), BP (33.3%) and Total (33.3%) have won Block 1 covering 2381sq km in 2437m water depth, with an estimated 1.2 billion boe. The Chinese company bid a 15.01% value of additional royalty; 1% of additional investment factor. No other companies or consortia bid on Block 4.

Block 2: No bids were submitted for Block 2 covering 2411sq km in 2205m water depth, with an estimated 1 billion boe.

Block 3: The consortium of Statoil (as operator), BP, and Total was the only bidder, and therefore winner of Block 3 covering 3287sq km in 1763m water depth, with an estimated 1.18 billion boe. The consortium bid a 10% value of additional royalty; 1% of additional investment factor. 

Block 4: The consortium of PC Carigali (as operator) and Sierra Oil & Gas has won Block 4 covering 2359sq km in 1196m water depth, with an estimated 2.6 billion boe. The consortium bid a 22.99% value of additional royalty; 0% of additional investment factor. In second place, Statoil, BP and Total came in with a bid of a 13% value of additional royalty; 1.5% of additional investment factor.

Block 5: The consortium of Murphy Oil (operator, 30%), Ophir (23.33%), PC Carigali (a subsidiary of Malaysia's Petronas - 23.34%), and Sierra Offshore Exploration (23.33%) has won Block 5 covering 2573sq km in 848m water depth, with an estimated 467 MMboe, with a bid of a 26.91% value of additional royalty; 1% of additional investment factor. According to Murphy Oil, the initial exploration period for the license is four years and includes a work program commitment of one well.

In second place, Atlantic Rim Mexico and Shell bid 19.11% value of additional royalty; 1.5% of additional investment factor. Losing bids consisted of Norwegian giant Statoil with 10.39% value of additional royalty, and 0% of additional investment factor; in addition to the Eni and Lukoil consortium which placed a bid of 3.5% value of additional royalty; 1.5% of additional investment factor. 

Block 6: Block 6 covering 2606sq km in 604m water depth, with an estimated 703 MMboe received no bids.

Statoil comments

Statoil, whose partnership with BP and Total won Blocks 1 and 3 celebrated the win on Monday afternoon. "The award grants Statoil access to significant frontier acreage in an underexplored part of offshore Mexico," says Tore Løseth, Statoil’s vice president for exploration in the US and Mexico. "The blocks are virtually untested, with considerable subsurface uncertainty, but with play-opening potential."

Statoil continued, saying the licenses reinforces the company's exploration strategy. “With the deepwater tender bringing Mexico’s historic Round 1 to a conclusion, we are starting to see the fruits of Mexico’s comprehensive energy reform. Statoil has a long-term perspective in Mexico, and we look forward to contributing to developing the energy sector by assessing the block(s) awarded,” Løseth added.

Total comments

France's Total won participation in three blocks during the deepwater bid round, including one operatorship of Block 2 in the Perdido basin, along with partner ExxonMobil. 

"With our successful bids in these promising deepwater prospects, Total has seized the opportunity to benefit from Mexico’s energy reforms. Our winning bids add high-grade exploration potential to our portfolio,” said Arnaud Breuillac, President Exploration & Production at Total. “We now look forward to launching exploration works and expanding our cooperation with Mexico together with our partners.”

Pemex comments

Pemex, along with consortium partners Chevron and Inpex won Block 3 North in the Perdido Fold Belt, covering 1687sq km in 500-1700m water depth.

"This result represents a historic event, as this is the first block awarded to Pemex in a partnership within a competitive process after the Energy Reform, and it consolidates its strategic position at the Cinturón Plegado Perdido area," Pemex said in a statement. 

"The awarding of this project strengthens the company’s exploration portfolio, which will contribute to the achievement of the goals set forth in the Petróleos Mexicanos 2016-2021 business plan."

Prequalified firms

Several prequalified individual companies and consortia proposed bids in eight out of 10 blocks for Mexico’s first-ever deepwater contract areas consisting of 10 license contracts: four blocks in the Perdido Fold Belt; and six blocks in the southeast Gulf of Mexico in the Salina basin, covering 15,617sq km.

Individual companies included supermajors ExxonMobil and BP, as well as Australia’s BHP Billiton, China’s CNOOC, Malaysia’s Petronas, Mexico’s own Petróleos Mexicanos (Pemex), Norway's Statoil, and France’s Total.

The seven consortia consisted of: Atlantic Rim Mexico and Shell; Chevron, Pemex and Inpex Corp.; Eni and Lukoil; Murphy Oil, Ophir, PC Carigali, and Sierra Offshore Exploration; PC Carigali and Sierra; Statoil, BP, and Total; and Total and ExxonMobil.

During the initial exploration phase of the 10 blocks, the minimum work programs do not include drilling, only seismic acquisition or reprocessing. Besides the additional royalty, a drilling option is included as a bidding variable, allowing interested parties to bid an increment over minimum work program. 

Participants are only allowed to bid up to two exploration wells a part of its economic proposal. National content requirements go from 3-8% during the exploration phase, and from 4-10% in the production phase. 

Trion farm-out

Trion bidding.

The day started with CNH announcing Pemex's first-ever farm-out deal. Australia's BHP Billiton beat out supermajor BP to team up with Pemex for the deepwater Trion field in the Gulf of Mexico, near the US border. 

BHP will now acquire 60% participating interest in and operatorship of the Blocks AE-0092 and AE-0093 containing the Trion discovery. Pemex will hold the remaining 40% stake. 

BHP's bid for Trion included an upfront cash payment of $62.4 million and a commitment to a minimum work program (estimated to be up to a maximum of $320 million).

Should BHP Billiton and Pemex agree to progress the project beyond the minimum work program, BHP Billiton said it would be required to invest the remainder of the $570 million minimum work contribution (which includes the minimum work program spend) and a $624 million cash contribution (which comprises the upfront cash payment of $62.4 million already paid and the balance of $561.6 million as a future carry for Pemex). BHP Billiton’s bid also includes a commitment to an additional royalty of 4%.

“We see attractive potential in Trion and the Perdido trend, and we are pleased to have the opportunity to further appraise and potentially develop this prospective frontier area of the deepwater Gulf of Mexico," Steve Pastor, BHP Billiton president operations petroleum said. “This opportunity aligns with our strategy of owning and operating Tier-1 assets and provides an opportunity for BHP Billiton to leverage its industry leading deepwater drilling, development and operational expertise to create value in Mexico.”

Pemex called 5 December a historic day for both the country of Mexico and Pemex. 

"After 78 years operating by itself, Pemex will carry out an E&P project through a farmout, as a result of the new business schemes brought forward by President Peña Nieto’s Energy Reform. Today’s achievement marks the beginning of a new era for the company and proves that Pemex is an attractive and reliable partner to invest in Mexico," Pemex said in a statement.

BHP and BP were the only two companies to submit bids for the Trion farmout with Pemex. The bids resulted in a tie with both companies offering a 4% of value of additional royalty. As a tie-breaker, a cash consideration envelope was opened.

BP offered nearly US$606 million and BHP offered $624 million, which allowed them to edge out BP and win.

Trion, discovered in 2012, is 200km east of Matamoros and 40km from the territorial waters border with a water depth of more than 2500m.

Unlike other oil fields, it not only has prospective resources but also 3P reserves, which total 485 MMboe, Pemex said, with investments of some $11 billion required for exploration and exploitation. Trion’s farmout deal includes two delineation wells, one exploration well, and a 1250sq km wide-azimuth seismic acquisition. Pemex says that it estimates first production from the field in 2023. By 2025, it expects to reach its production plateau at nearly 120,000 boe/d.

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