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First Mexican Shallow-water Oil and Gas Contracts Seen by Mid-July

Source: Reuters 12/10/2014, Location: South America

Mexico's initial shallow-water oil and gas contracts will offer companies a share of output with average production costs estimated at about $20 per barrel, the National Hydrocarbons Commission said.

The tenders mark one of the first concrete steps stemming from a historic energy reform finalized this year that ended the decades-long monopoly enjoyed by state-owned oil company Pemex across a wide range of oil and gas activities.

The 14 exploration and production contracts will cover an area of 4,222 square km containing about 686.6 million barrels of oil equivalent in prospective resources and the first winning bids should be announced by mid-July, the commission added. "There's a great expectation that these areas will be able to produce oil for Mexico in a relatively short period of time," said Juan Carlos Zepeda, president of the commission.

He added that several of the blocks up for grabs likely hold significant quantities of light crude oil. The 14 contracts will cover oil and gas fields in Mexican territorial waters in the Gulf of Mexico at a depth of between 131 and 262 feet (40 to 80 meters) below sea level. Oil companies will be able to access data rooms containing seismic and other geological data for the shallow water areas from Jan. 15 through July 14.

"We are expecting that many companies will be interested in particular in these first tenders," Zepeda added. Winning bids will be based on which companies offer the government the largest share of the value of the produced hydrocarbons by contract, in addition to a minimum required investment. Other bidding details are expected to be disclosed in the new few days.

The energy reform authorized new contractual models for exploration and production of oil and allows Pemex to enter into first-ever joint ventures with private oil majors. The energy ministry has said it will announce in the coming months bidding terms for contracts covering bundles of other onshore and offshore fields culminating with potentially lucrative deep-water areas by October. Last week, Energy Minister Pedro Joaquin Coldwell suggested the government may trim the number of onshore shale and deep-water projects on offer next year due to their higher development costs amid slumping international crude prices.

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