Mexico’s Comisión Nacional de Hidrocarburos (CNH) revealed that four companies have opted to withdraw from the country’s historic Round One in the southern Gulf of Mexico, according to a Reuters report.
Image from Pemex.
Awards for bids are expected next week (15 July), however, prequalified consortia companies including Noble Energy, Glencore E&P, Colombia’s Ecopetrol, and Thailand’s PTTEP, have requested to exit the competition for the 14 shallow water fields up for grabs.
CNH has not specified why the companies decided they would no longer participate in the initial auction for shallow water exploration blocks, Reuters said.
Round One has a total of 14 shallow water exploration blocks that cover nine fields, with an estimated total of 356 MMboe of 2P reserves.
In May, CNH announced that 26 companies, both private and in consortia, earned the right to submit bids for Round One.
Companies in individual prequalification include: Chevron, ExxonMobil, Atlantic Rim Mexico, BHP Billiton, Cobalt Energy, Spain’s CEPSA, Hess, Hunt Overseas, Russian giant Lukoil, Maersk Oil, Marathon, Nexen, India’s ONGC Videsh, Canada’s Pacific Rubiales, Pemex, Plains Acquisition Corp., Premier Oil, Statoil and Total.
The seven consortia that were awarded prequalification certificates include: BG Group alongside Galp Energia; Italy’s Eni along with CASA Exploration; Murphy Worldwide along with Petronas; Pan American Energy along with E&P Hidrocarburos y Servicios; Talos Energy along with Sierra Oil and Gas; Tullow along with Petrobal; and Woodside Energy along with Diavaz Offshore and Pluspetrol.
GlobalData hinted at Mexico’s first bidding round struggles in April, citing that despite competitive economics at lower prices, companies will likely be reluctant to bid at levels that would give them little upside potential and the effect that the government can have with further revisions to the mechanism is limited.
“Two possible options would be to base the mechanism on post-tax IRR (internal rate of return) rather than pre-tax, or to further increase the IRR thresholds by 5% each. However, the result of either of these options at a $90/bbl oil price would only be to increase the bid that is comparable to Colombia and the US to 20% rather than 15%,” says Will Scargill, the GlobalData senior analyst that covers upstream fiscal and regulatory regimes. “A 20% bid would mean that the state’s share of profit oil would range from 20–80% and contractors will pay royalties, taxes and fees on top of this. If the round is to be successful, the government will need to avoid setting an overly high minimum bid while striking a balance between market conditions and public sentiment.”
In the April OE magazine, David Shields explained that companies wishing to participate for the bid round must prove their knowledge and experience in working in shallow waters by demonstrating their participation in at least three exploration and production projects, or alternatively in one or in two large-scale projects, which together involve capital investments of US$1 billion.
CNH is requiring companies that aim to be the operator of a project must prove equity of $1 billion and assets of $10 billion. If the company forms a group of companies, it must prove equity of at least $600 million, or must prove that it has an investment-grade rating.
When companies form a consortium, their joint equity must amount to at least $2 billion. In a consortium, the operating company must be a member with at least a third of the equity, CNH said.
Find more about Mexico's offshore in OE Region: Mexico Review.