Demand at Mexico onshore oil and gas auction spurs output hopes

Winners are determined based on a weighted formula that takes into account an additional royalty offered to the government in the exploration phase of each 30-year contract

File photo/ EL UNIVERSAL
English 13/07/2017 12:08 Reuters Mexico David Alire García Actualizada 12:08

Mexico auctioned 21 of 24 onshore oil and gas blocks on offer on Wednesday to investors from North America and Asia including tycoon Carlos Slim and Mexican newcomer Jaguar, anticipating a substantial boost for natural gas output.

Monterrey-based Jaguar Exploración y Producción de Hidrocarburos took a stake in over half the areas awarded, which the oil industry regulator said would eventually yield around USD$2 billion in investments over the 30-year lifespan of the contracts.

A tie-up of Canada's Sun God Resources and Jaguar won six out of 10 areas available in the first of two tenders on Wednesday, the sixth and seventh auctions since a 2013-14 energy reform. There were no bidders for three of the areas. Bidding alone, Jaguar also scooped up another five areas in the second tender of 14 blocks, all of which were auctioned.

Sun God Resources is based in Calgary, Alberta, while Jaguar is a Monterrey-based firm whose chief executive is Dionisio Garza, a well-known Mexican businessman.

A consortium made up of Iberoamericana de Hidrocarburos Servicios and PJP4 de México won one block in the initial auction and two in the second for a total of three.

The second auction also saw a fresh push into Mexico by Asian investors, with a consortium of China's Shandong Kerui Oilfield Service Group with Mexico's Sicoval MX and Nuevas Soluciones Energeticas A&P securing three areas.

Slim's Carso Oil and Gas claimed two of the areas in the second tender, which saw a number of fields won by cash offers after more than one company made the maximum possible bid.

Newpek, a unit of Mexican conglomerate Alfa, teamed up with U.S. firm Verdad Exploration Mexico to win two areas.

The auctions are part of a constitutional reform to open up production and exploration to private investors with the aim of reversing a steady decline in oil output since 2004 and boosting anemic economic growth. The reform is starting to bear fruit.

Juan Carlos Zepeda, head of the oil regulator known as the National Hydrocarbons Commission CNH, told a news conference that including the USD$2 billion he expected the new contracts to generate eventually, the reform had now secured projected investments of around USD$60 billion.

The 21 areas should yield an extra 79,000 barrels per day in crude production by 2025 as well as 378 million cubic feet per day of additional natural gas output, Zepeda said. That production should start coming online in 2019, he added.

Deputy Energy Minister Aldo Flores forecast the new blocks would generate about 20,500 jobs over the next seven years.

Earlier, Britain's Premier Oil said it had found potentially more than 1 billion barrels of oil off the coast of Mexico in the first shallow-water offshore well drilled by the private sector in the country since the reform.

The areas on offer on Wednesday were discovered by state oil company Mexican Petroleum (PEMEX), but have been stymied by underinvestment as the former monopoly focuses on mostly shallow and less-costly water oil and gas fields.

They range from areas rich in natural gas in the Burgos basin in northern Mexico to fields that hold promise further south in the Gulf states of Veracruz and Tabasco.

Winners are determined based on a weighted formula that takes into account an additional royalty offered to the government as well as an extra investment commitment in the exploration phase of each 30-year contract.