With just one day to go until awards of production sharing contracts (PSCs) are made under Round One, the Mexican Government has revealed the full extent to which it aims to liberalise its oil and gas industry. The Energy Ministry has revealed that auctions of offshore and onshore exploration blocks are set to total 670, whilst a planned 244 blocks will be auctioned for production. Round One being the first of several competitive rounds of tendering for the rights to explore and develop Mexico’s hydrocarbon reserves.
The announcement detailing the numbers of blocks planned to be auctioned comes against a backdrop of significant discoveries of oil made by Pemex, announced in June 2015. The discoveries are a boost to Mexico’s National Hydrocarbons Commission (CNH), the body responsible for the award of PSCs in the forthcoming tenders, as it seeks to fulfil its mandate of maximising profits from hydrocarbon reserves for the Mexican State. Emilio Lozoya, CEO of Pemex, anticipates an increase of 200,000 bpd from the discoveries with production set to start during 2016.
The discoveries were made off the coast of the southern states of Campeche and Tabasco. Significantly, Round One comprises of 14 blocks, all of which are offshore Tabasco, Campeche and neighbouring Veracruz. The size, depth and location of the recent discoveries are a reminder of the potential rewards available to companies who are awarded PSCs in the forthcoming tender.
Round One may reverse a decade of cumulative decline in oil production for Mexico as it seeks to open up the energy sector. Round One is estimated to bring $62,500 million US dollars and increase oil production by approximately 500,000 bpd by 2018. The Ministry of Energy declared that Round One will be successful if it can allocate 30%-40% of the blocks, which is, a maximum of 6 of the 14 exploration areas in the Gulf of Mexico.
CNH previously announced that 18 individual companies and 7 consortia prequalified for Round One, earning them the right to submit bids for PSCs. Despite the assertion of some commentators that Round One will be more attractive to smaller companies, supermajors including ExxonMobil, Chevron and Total as well as large industry players such as Statoil, Maersk and Lukoil all prequalified.
In addition, 36 companies have shown an interest in Round Two (for PSCs) and 34 companies have shown an interest in Round Three (for licences). Over and above this, 25 of the 36 companies interested in the Round Two and 6 of the 34 companies in the Round Three have initiated the prequalification process. Such resounding interest suggests that the Mexican Government’s bid to seek private investment and increase domestic production is moving in the right direction and with the right participants.