Thursday 1 October 2015

Mexico awarded three out of five offshore production-sharing contracts on Wednesday in the second phase of its historic oil sector opening, comfortably beating the disappointing results of the first phase and giving a boost to the peso.

The auctions, part of a series aimed at reversing years of falling oil output, this time met the government's expectations and handed potentially lucrative contracts to Italian energy group Eni and two consortiums.

"It's a positive step, but it's too early to tell where this is going," said Miriam Grunstein, a Mexico City-based energy specialist at Rice University. "You still have a small number of companies, small fields and we need more interesting players."

Traders said the outcome lifted the peso, following a sharp depreciation against the U.S. dollar in recent months.

Still, two of the contracts up for grabs, all for oil fields in the southern edge of the Gulf of Mexico, found no takers. The fields on offer had already been discovered by state oil company Pemex, lowering geological risks for private operators. Eni won the contract for the Amoca, Mizton and Tecoalli fields while a consortium of U.S.-based Fieldwood Energy and Mexico's Petrobal secured the Ichalkil and Pokoch fields. Petrobal was launched earlier this year by Grupo Bal, which owns the world's largest silver producer Fresnillo, and is led by Carlos Morales, a former top Pemex executive.

A separate team comprising Argentina's Pan American Energy and E&P Hidrocarburos y Servicios took the Hokchi field. The contract won by Eni boasted the biggest fields on offer at a combined 26 square miles (67 sq km) and the largest amount of remaining oil resources at 628 million barrels. Eni declined to comment, while both Fieldwood and Pan American did not immediately respond to requests for comment.

In July, the first phase of Round One only awarded two of 14 contracts on offer, falling well short of the government's modest expectations. Fourteen oil companies and consortiums pre-qualified for the latest auction, but only nine offered bids. The second part of the so-called Round One tender follows a sweeping energy overhaul enacted last year. The reform ended Pemex's decades-long monopoly across the industry, and aims to lure billions of dollars in new investment.

Deputy finance minister Miguel Messmacher said the auction showed companies had faith in the reform "despite a difficult international situation with relatively low oil prices." Due to a glut of global supply, international crude prices have fallen by more than half since last year.

The contracts awarded should add up to 90,000 barrels per day (bpd) at peak production, deputy energy minister Lourdes Melgar said. The total government take per contract is estimated at between 82 to 90 percent of total profits. At 2.26 million bpd, Mexico's current average crude oil output is down by a third from peak production in 2004. Two more Round One tenders are scheduled in the months ahead, including an onshore auction in December followed by deep water fields next year.

Source: Reuters