Mexico sweetens terms for deepwater drilling auctions

Mexico’s oil regulator voted on Thursday to improve the terms for its first-ever deepwater auction in December, giving energy companies and investors more flexibility to structure their bids as oil prices have slumped over the past two years.

In a meeting that was webcast, commissioners of the regulator known as the CNH voted unanimously to allow companies not involved in the day-to-day operations of a deepwater oil field to hold a larger stake than the project operator.

The previous rule required that the operator hold the largest stake.

The CNH is set to auction 10 potentially oil-rich deepwater blocks on Dec. 5.

“The importance of this rule is it provides flexibility to form consortia,” CNH President Juan Carlos Zepeda said in an interview following the vote. Companies form consortia to handle nearly all such projects to share the high risk and investment needed to drill and develop deepwater wells.

The previous auction rules required bidders to have at least $2 billion in capital per project. Zepeda said the change defines that amount as an average over the past five years.

“Up until today, we hadn’t defined this criteria,” he said.

Crude prices have slumped about 70 percent since 2014, sharply reducing oil companies’ cash flow and capital.

The regulator is taking these market conditions into account, Zepeda said, by adopting a more relaxed rule that should enable more oil companies to meet the requirement.

Four of the 10 blocks up for grabs straddle the maritime border with the United States in the Perdido Fold Belt where oil majors on the U.S. side, including Royal Dutch Shell and BP, have drilled dozens of commercially successful wells.

The remainder are located in the Salina basin along the southern rim of the Gulf. (Reporting by David Alire Garcia; Editing by Richard Chang)