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Mexico's Round 2.1 awards 10 blocks

Written by  Monday, 19 June 2017 09:03

Mexico is celebrating its successful shallow water round, Round 2.1, which has awarded 10 of 15 blocks in the Gulf of Mexico today (19 June).

Image of Juan Carlos Zepeda, kicking off Round 2.1. Image from CNH.

OE once again partnered with Mexico's National Hydrocarbon's Commission (CNH) to bring our readers a live stream of Mexico's Round 2.1. 

The day started off slowly, with only one area of interest in the Tampico-Misantla and Veracruz areas. However, bids came rolling in when areas in the Southeast basin were offered. 

Twenty individual companies, and 16 consortia from 15 countries participated in Round 2.1. Below are the results of the shallow water round.

The day belongs to Eni's Mexico subsidiary, which won three areas out of the five on which it submitted a bid, both solo and as part of a joint venture. Eni's wins were in the Southeast Basin, where it already holds acreage from Round 1.2. In March, Eni it had encountered oil at its Amoco-2 well, in the Southeast Basin, some 200km offshore Ciudad de Carmen.

The Round 2.1 also marks Colombia's official entry into the Mexican market, with the state-owned firm Ecopetrol winning two areas in consortium with other state-owned oil and gas firms, Malaysia's Petronas (Area 6) and Mexico's Pemex (Area 8).

Mexico's Energy Secretary Pedro Joaquin Coldwell said that the Mexican federal government is highly satisfied with the results of Round 2.1.

A total of 10 contracts, with nine committed exploration wells were the result of today's round. If results from these blocks prove successful, Mexico expects to reach a production of 170,000 boe/d, Coldwell said in a press conference following Round 2.1.

Juan Carlos Zepeda, CNH president, said that Round 2.1 showed good results to increase activity in the Mexican Gulf of Mexico. 

He said it was a nice surprise to award Area 15 (whereby France's Total, in consoritum with supermajor Shell, was the only bidder), and that the bid round showed Mexico's leading resource is light oil, verus heavy oil and gas.

Mexico’s first shallow water round, Round One, was held in July 2015, and only awarded two areas out of 14. Since then, the country has worked to improve its bidding processes in order to gain more interest from international companies. 

Tampico-Misantla Area

Area 1 No bids were placed. Area 1 is 544sq km at 30-400m water depth, consisting of light oil and dry gas.

Area 2 The joint venture of Germany's DEA and Mexico's Pemex have won Area 2 with state participation of 57.92%, an additional investment factor of 1%, and an economic proposal of 63.493%. Area 2 is 549sq km at 20-250m water depth, consisting of light oil and dry gas.

The joint venture of Eni Mexico and Lukoil came in in second place with state participation of 55.14%, an additional investment factor of 1.5%, and an economic proposal of 63.261%. 

Area 3 No bids for Area 3, which is 546sq km, consisting of light oil and dry gas.

Area 4 No bids for Area 4, which is 557sq km at 35-500m water depth, consisting of light oil and dry gas.

Veracruz Area

Area 5 No bids for Area 5, which is 825sq km, at 50-550m water depth, consisting of wet gas.

Southeast Basin Area (Sureste)

Area 6 The joint venture of Malaysia's Petronas and Colombia's Ecopetrol Global have won Area 6 with a state participation of 65.19%, an additional investment factor of 1%, and an economic proposal of 71.178%. Area 6 is 559sq km, at 30-80m water depth, consisting of light oil.

In second place is the joint venture of Murphy Sur, Talos Energy, and Ophir Mexico placed a bid with state participation of 64.75%, an additional investment factor of 1%, and an economic proposal of 50.150%.

Other bidders for the area included the JV of DEA Deutsche with Pemex; and Repsol Exploration Mexico.

Area 7 The joint venture of Eni Mexico, Capricorn Energy (a Cairn Energy subsidiary), and Mexican independent Citla Energy have been declared the winners of Area 7 with a bid of state participation of 75%, an additional investment factor of 1.5%, and an economic proposal of 84.825%. Area 7 is 591sq km at 150-520m water depth, consisting of light oil.

In second place, the JV of Repsol, Premier Oil, and Sierra Perote placed a bid with state participation of 69.58%, an additional investment factor of 1%, and an economic proposal of 75.819%.

Other bidders for Area 7 included the JVs of Houston-based Noble Energy, Ecopetrol Global, ad Petronas; DEA and Pemex; and lone bidder China Offshore Oil Corp. E&P Mexico.

Area 8 The joint venture of Pemex and Ecopetrol have won the bid for Area 8 with a of state participation of 20.1%, an additional investment factor of 0%, and an economic proposal of 20.1%. The JV was the only bidder in this round. Area 8 is 586sq km at 100-500m water depth, consisting of light oil.

Area 9 The JV of Capricorn Energy (a Cairn Energy subsidiary) and Citla Energy E&P have been declared winners of the tiebreaker for Area 9, with state participation of 75%, an additional investment factor of 1.5%, and an economic proposal of 84.825%. The JV offered a cash bid to break the tie of US$30 million. Area 9 is 562sq km at 80-550m water depth, consisting of light oil.

Eni Mexico lost in a tie, after placing a bid with state participation of 75%, an additional investment factor of 1.5%, and an economic proposal of 84.825%. Eni offered a cash payment of nearly $20.5 million. 

Other bidders for the area included the JV’s DEA and Diavaz G&P; Chevron Energia, Pemex, and Inpex E&P; Noble Energy and Talos Energy; and lone bidder China Offshore Oil Corp. E&P Mexico.

Area 10 Eni Mexico has been declared the winner of Area 10, with state participation of 75%, an additional investment factor of 1.5%, and an economic proposal of 84.825%. Area 10 is 533sq km at 250-500m water depth, consisting of light oil.

The JV of DEA and Diavaz G&P came in second place, after bidding state participation of 68.73%, an additional investment factor of 0%, and an economic proposal of 68.73%.

Other bidders for the area included Pemex, and the JV’s of Noble Energy, Ecopetrol Global, ad PC Carigali; and Murphy Sur, Talos Energy, and Ophir Mexico.

Area 11 The JV of Repsol Exploration and Sierra Perote have been declared the winners of Area 11 with state participation of 62.28%, an additional investment factor of 0%, and an economic proposal of 62.28%. Area 11 is 533sq km at 300-550m water depth, consisting of light oil.

In second place, China Offshore Oil Corp. E&P Mexico placed a bid with a state participation of 35%, an additional investment factor of 0%, and an economic proposal of 35%.

Area 12 Russia's Lukoil has been declared the winner of Area 12 with state participation of 75%, an additional investment factor of 1%, and an economic proposal of 81.55%. Area 12 is 521sq km at 100-500m water depth, consisting of heavy oil. There were no other bidders for Area 12.

Area 13 No bids were placed for Area 13, which is 565sq km at 220-500m water depth, consisting of heavy oil.

Area 14 The JV of Eni Mexico and Citla Energy has been declared the winner with state participation of 37.27% an additional investment factor of 0%, and an economic proposal of 37.27%. No other bids were placed. Area 14 is 466sq km at 50-300m water depth, consisting of heavy oil.

Area 15 The JV of Total E&P and Shell have been declared the winner of Area 15 with state participation of 30.11% an additional investment factor of 0%, and an economic proposal of 30.11%. No other bids were placed. Area 15 is 972sq km and consists of wet gas.

Analysts weigh in

The licensing round was a big success, given the number of blocks licensed and the diversity of participants," Pablo Medina, Wood Mackenzie senior analyst, Latin America Upstream said. "The award of 10 of the 15 blocks on offer was in line with our expectations prior to the round."

He added: "Mexico's shallow waters aren't too small for majors. Chevron, Eni, Repsol, Shell and Total all bid for acreage and most of them were awarded blocks. The key is to offer quality acreage that will potentially offer enough materiality to attract companies of such size.

"Pemex was the most active bidder, but did so very selectively, rarely leaving money on the table. The NOC participated in three different consortia, as well as bidding on an individual basis. Pemex has confirmed its status as one of the world's top shallow-water players. Monday's round clearly shows the evolution of Pemex and how are the company is taking advantage of the tools provided by the Energy Reform to be more competitive."

Medina also said that the successful closing of the first phase of round two shows the energy industry has confidence in Mexico. The calibre of the companies bidding, and the heated bidding for some blocks shows Mexico is as attractive destination for capital. He added: "Mexico must strive to remain competitive given that other countries are also improving their abilities to interest investors."

Medina correctly Wood Mackenzie analyst predicted that around 10 of the 15 blocks up for grabs would be awarded.

Medina said on 19 June: “We expect Ronda 2.1 will be a success, and that around 10 out of the 15 blocks will be ultimately awarded. A record number of consortia have qualified for this offshore licensing round, which signals strong interest from industry to grow their positions in Mexico.”

“The combination of offering industry-nominated areas, competitive fiscal terms and companies' eagerness to qualify signals a successful closing in our view,” Medina said.

Winners comment

The biggest winner of the day was Italian giant Eni, as its Mexican subsidiary Eni Mexico, won three of the 10 blocks awarded. 

“This result boosts Eni’s presence in a market that only opened up to foreign investments in 2014, in line with the country’s Energy Reform, and which has huge growth potential,” Eni said in a statement on 20 June.

Eni will be operator of Block 10 (Eni 100%), Block 7 (Eni 45%, Cairn 30%, Citla 25%) and Block 14 (Eni 60%, Citla 40%), with all of the licenses to be managed through Eni Mexico. The contract awards, which will be production sharing agreements, are subject to final approval by the authorities.

Eni already holds a 100% stake in Area 1 in the Sureste Basin, where the exploration and appraisal campaign is successfully ongoing and a fast-track plan for the development of the Amoca field is being finalized, with plans for an early production phase. The new blocks are joined to Area 1 and, in the case of a successful exploration campaign, will allow Eni to build up a new core area of considerable size with significant operational synergies in Mexico, Eni said.

Eni has been present in Mexico since 2006, and it established its wholly-owned subsidiary Eni Mexico in 2015.

Cairn Energy won two licenses in Round 2.1: Area 7 and Area 9, through its wholly owned subsidiary Capricorn Energy.

Cairn will operate Area 9 with 65% stake, along with partner Citla (35%). In Area 7, Cairn (30%) joins JV partner and operator Eni (45%), and Citla (25%).

The company anticipates exploration drilling to begin in 2019-2020 on both blocks.

“Cairn and its partners have identified and secured our favored blocks with multiple stand-alone prospects and numerous follow-on tie-back opportunities based on 3D seismic data,” says Cairn CEO Simon Thomson. “We are partnered with Eni, an experienced explorer and operator in Mexico, as well as Citla Energy, a Mexican-focused, exploration company and look forward to working with our new partners and the government of Mexico to deliver the work program in the coming years."

Ecopetrol was declared the winning bidder for two blocks in the southeast basins, together with Petronas and Pemex.

The first was Area 6 (559sq km), along with its partner PC Carigali México (a Petronas subsidiary); the firms offered the government 65.19% of operating profits and an additional investment factor of 1%, equivalent to one well.

The second block Ecopetrol won was Area 8 (586sq km). In this block its strategic partner was Pemex de México and the operating profit offered to the government was 20.1%, with an additional investment factor of 0%. The participation of Ecopetrol in both blocks is 50%.

“This achievement is part of the strategy to strengthen and diversify exploration and production activities in Colombia and abroad, thus increasing hydrocarbon reserves. The Ecopetrol Group is active in the US, Brazil, Peru and, as of today, Mexico. Ecopetrol is arriving in this market through the Mexican government’s strategy of attracting foreign investment, with a commitment to implementing high standards of operations, industrial safety and corporate responsibility,” says Ecopetrol.

“The achievement marks Ecopetrol’s entry into the Mexican oil and gas market and is part of the company’s strategy to strengthen and diversify its exploration and production activities,” says Mayer Brown, which represented Ecopetrol in Round 2.1.

The cross-border Mayer Brown team included lawyers from the firm’s Global Energy Group in Mexico City and Houston and was led by partner Pablo Ferrante and associate Jessica Solis.

Read more:

Mexico's big opportunity - an interview with Statoil

Mexico's deepwater round ends in success

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