Mexico Lifts Bidding Limits for First Batch of Oil Tenders

Source: Reuters 5/29/2015, Location: South America

Mexico's oil regulator voted to relax rules on bidding terms and contracts that form the first step in a historic sector opening that kicks off this summer with the public auction of 14 shallow water fields. The July auction will mark the first of five packages of oil fields up for grabs, part of a so-called Round One tender that follows a major energy reform approved by Congress last year.

The constitutional reform ended the decades-long monopoly enjoyed by state-owned oil company Pemex and aims to reverse a decade-long slide in Mexican crude output.

Responding to complaints from private and foreign companies, the national hydrocarbons commission, or CNH, eliminated caps on how many contracts firms can bid on. It also reversed a rule that would have required them to destroy the geological data they purchase for fields they are not ultimately awarded.

The CNH voted to give the Finance Ministry more oversight over the long-term development plans and annual work program budgets of each contract. "The modifications strengthen the control of the state and oversight of the contracts, as well as make the contracts more flexible in recognition of geological reality and market conditions," CNH President Juan Carlos Zepeda said.

The regulator also signaled an adjustment in the 14 contracts' fiscal terms by putting greater emphasis on companies' ability to recover costs during the contract's exploratory phase.

In an interview on Friday, Zepeda said that under the new rules, companies would be able to claim back a further 25 percent during the exploratory phase, with the chance of recovering up to 125 percent of their costs if they struck upon a commercial discovery. He added that companies whose profits from the contracts jump above a pre-agreed level would be forced to pay a higher percentage to the government.

Earlier rules would have limited oil companies to making just five bids among the initial 14 shallow water exploration blocks located along the southern rim of the Gulf of Mexico. The CNH also voted to reverse an earlier restriction that would have prohibited oil companies that seek to operate fields as part of a consortium from bidding on additional contracts outside the consortium as an individual company. The commission also scrapped a rule that would have required companies that seek to operate a field within a consortium to hold the largest stake.

The updated rule requires operators to have a minimum one-third stake while the consortium partners may have a larger stake. "Companies are looking for partners to compensate for the reduced cash flows we observe in the market due to the fall in oil prices," Zepeda added.

The CNH previously said the final shallow water production-sharing contracts and bidding terms will be announced on June 9.


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