Next Round of Contracts in Mexico’s Open Oil Industry Worth $620 Mil

The next round of contracts in Mexico’s opening of its oil and natural gas industry should bring in about $620 million in investment in the first five years, Energy Minister Pedro Joaquin Coldwell said on Tuesday.

The 26 onshore oil and gas areas to be tendered are spread across five states and are believed to contain 2.5 billion barrels of oil equivalent in remaining resources.

Edgar Rangel, a member of the National Hydrocarbons Commission oil and gas regulator, said the 26 areas would have average production costs of between $10 and $20 per barrel, below previously announced shallow water contracts.

The 26 areas are the third installment of the so-called Round One tender, which features packages of blocks grouped by type of petroleum basin and heralds the opening of Mexico’s oil industry after an energy reform finalized last year.

The reform ended the decades-long monopoly enjoyed by state-run oil company Pemex.

To compete for the onshore contracts, companies must document financial capacity of between $5 million and $200 million, depending on the size of the area, as well as the operational experience of their personnel.

All but eight of the areas are already producing oil or gas, thanks to past exploration and extraction by Pemex.

The 25-year license contracts allow companies extensions of up to two additional periods of five years each.

Officials said the draft license contract makes more sense for smaller oil and gas fields, as a company’s compensation will be based on a percentage of gross profits.

However, the license will not allow for cost recovery unlike production-sharing contracts, which were selected for previously announced shallow water tenders set to be awarded in July.

The hydrocarbons commission will award all contracts based on which company offers the biggest share of profits to the government via a weighted formula that also includes an investment commitment.

The formula’s minimum values, however, will not be known until weeks before bids are due, said Miguel Messmacher, a deputy finance minister.

The onshore tender covers a total of about 311 square miles (807 sq km) and calls for a minimum of 29 wells to be drilled in the first year of the contracts.

The final version of the license contract for the onshore areas as well as the bidding terms will be published in October, ahead of awards set for December 15. (Reporting by David Alire Garcia and Adriana Barrera; Editing by Lisa Von Ahn and Christian Plumb)


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