Mexico approves auction terms for 15 offshore oil areas

Mexico's oil regulator on Tuesday approved contracts and auction terms for 15 shallow water areas in the southern Gulf of Mexico, to be bid out early next year as part of a series of tenders following a sweeping energy overhaul.

The first phase of the so-called Round Two tender will feature 30-year production sharing contracts, the regulator known as CNH said. Winners will be announced on March 22, 2017.

The auction hopes to draw investment of about US$750 million per block, or about US$11.25 billion in total over the life of the contracts, said CNH president Juan Carlos Zepeda.

Ranging from 375 square miles (972 sq km) to 180 square miles (466 sq km) in size and containing mostly light oil, the blocks lie along the coast of Veracruz, Tabasco and Campeche states, location of most local production. They include nearly 650 million barrels of crude oil equivalent in proven reserves.

Hoping to reverse slumping oil output, Mexico ended the decades-long monopoly of national oil company Pemex in 2013, paving the way for private producers to operate on their own. But a sharp fall in crude prices has made that harder.

To pre-qualify for the auction, firms or consortia must be able to document technical capability from at least three exploration and production projects between 2011-2015, or total investments of at least US$1 billion on such developments.

Eligible bidders must also have experience either as an operator or financial partner in either shallow or deep waters.

To bid alone or in consortium, the companies participating must meet minimum capital requirements of US$1 billion. Or, the bidders can document assets worth at least US$10 billion.

Contracts will be awarded based on which bidders offer the largest government take, using a formula that includes the share of pre-tax profits companies offer the state plus an additional investment commitment.

Local content procurement requirements range from 15 percent to 35 percent of goods and services over the contract lifespan.

The 2017 auction will follow three auctions that began last year covering both shallow water and onshore blocks. The first highly-anticipated deep water auction is scheduled to take place in December.

The three Round One auctions have met with mixed success, with several shallow water fields receiving no bids, while all onshore blocks offered late last year attracted winning bids.