Mexico Awards Three Blocks in Second Oil, Gas Auction

By Emily previous hitPickrellnext hit
Sept. 30 — previous hitMexiconext hit awarded three of its five offshore production fields on offer at its previous hitoilnext hit and gas auction, as energy officials and independent observers acknowledged the sale as largely a success, with the government share of potential profits topping 80 percent in each award.

The three winning bidders Sept. 30 were Eni International, an Italian previous hitoilnext hit and gas company, a consortium made up of Argentinian Pan American Energy and E&P Hidrocarburos y Servicios and a consortium that included Fieldwood Energy and Petrobal. Nine international companies participated in the auction out of the 14 companies that had been pre-qualified to take part.

“This is a signal of confidence in the institutions and the contractual structure we have created for the energy reform,” said Miguel Messmacher, the undersecretary for Revenue at Mexico's Treasury Ministry, which oversees the fiscal terms for contracts, at a press conference. “These offers and the number of participants, especially in a challenging world market, show that this is a clear success.”

Eni International offered the Mexican government 78.25 percent of previous hitoilnext hit profits for its Block One offer, more than doubling the 34.80 percent minimum profit previous hitoilnext hit share the government had requested. Eni International also offered a 33 percent increase over the minimum national content requirement the government had established and which is weighed as 10 percent of a bid's competitiveness.

The Argentinian Pan American Energy consortium gave the lone offer for Block 2: extending a bid of 68 percent previous hitoilnext hit profits and a 100 percent increase over minimum national content requirements. The Texas-based Fieldwood Energy consortium offered a 74 percent previous hitoilnext hit share and 10 percent national content increase.

“Results Are Positive.”

Financiers also gave the results a nod, saying that the participation reflected enthusiasm for both the geology and the process previous hitMexiconext hit established.

“The results are very positive, as the success rate was 60 percent (we expected 2 out of 5),” wrote Marco Oviedo, an analyst with Barclays Research, in a research note. “We believe that both the government and firms feel more confident about the implementation process and the flexibility that the government has shown yielded positive results in this auction.”

Government officials also made a point of emphasizing that the auction was a victory in terms of the transparency they had worked so hard to build in to the process, with awards based strictly on numerical bids provided by the companies in sealed envelopes on the morning of the auction.

“We are finishing the second phase (of Mexico's initial auctions) and we are very content,” said Juan Carlos Zepeda, the president of the National Hydrocarbons Commission, which is responsible for overseeing the auction. “The first objective was to do this with absolute transparency and we achieved this.”

Others said that the success of the auction was furthered by the government's adjustment to how it structured its offerings – the most important of which was the publication in advance of the minimum profit share bid that would be accepted.

“The fact that they were willing and able to adjust the contractual terms from the last round indicates that they will be able to do so as well for the coming rounds, and that is very positive,” said Pablo Zarate, a former senior energy official and energy consultant with previous hitMexiconext hit City-based FTI Consulting.

In the country's historical first auction in July, these terms had been kept secret and several bids were rejected for not having met the minimum threshold.

Deepwater Will Require Flexibility

Further flexibility will be essential in the coming rounds, especially for deepwater, which is considered the crown jewel of Mexico's offerings and is expected to attract the industry's most powerful players.

However, Zarate also emphasized that the success of the auction may not be a good indicator of participation in future offers: the fields on offer were made up of production fields, that is, fields that have already demonstrated their potential and are, as a result, more attractive to companies.

As such, while the government successfully adjusted the terms of the contracts to meet the industries' needs for this auction, the same contractual terms might not be so attractive for exploration sites, which are far riskier.

“These fields already had reserves in place,” Zarate said. “That is important to keep in mind – you can't just swap out the same contractual terms in different types of fields that have more potential downside on exploration and still be confident you'll get the same result.”

The next auction – the third out of five scheduled to place – will be on Dec. 15, and will consist of 25 areas of onshore previous hitoilnext hit fields. The Energy Ministry has said that it will use licenses for the contract model, rather than production-sharing contracts.

To contact the reporter on this story: Emily previous hitPickrellnext hit in previous hitMexiconext hit City at
To contact the editor responsible for this story: Heather Rothman at