It has been two years since the enactment of Mexico's wide ranging energy market reforms and the government's allocation to Pemex of those exploration and production rights permitted to be retained by the former state monopoly, known as Round Zero. The remaining hydrocarbon reserves* are up for grabs for private investors in bidding rounds, each consisting of several stages.
Bidding Round 1 has had mixed results so far, though it is anticipated that the energy majors will be attracted by its fourth auction, consisting of exploration contracts for ten deep-water blocks, to be awarded in December 2016. In tandem with the fourth auction, Pemex has announced that for the first time in its history it will be conducting a bidding process to develop the Trion field in the Gulf of Mexico, with its estimated reserves of 480 million barrels of oil equivalent lying under more than 2,500 metres of water.
The first three auctions, consisting of shallow water E&Ps and onshore production licences, were viewed as small investments for the energy majors. With the exception of the third (onshore development) auction, the shallow-water blocks failed to attract bids. This may have been because the required 40 per cent minimum government take did not reflect the current economics bearing on heavy oils, while the rules to participate in consortia were also restrictive.
To promote further investment in the midstream and downstream sectors Mexico enacted in September 2015 rules enabling the public listing of asset specific (active projects) unit trusts, known as 'Fibra E'. The idea was to enable players with liquidity restrictions to monetise cash generating assets, allowing resources to be freed up for further investments. It is anticipated that the Mexican Federal Electricity Commission (CFE), who owns and operates Mexico's power grid, will be the first to structure a Fibra E this year with the disposal of transmission lines worth half a billion USD.
Outside the energy sector, the same Fibra E scheme also allows the monetisation of all Public-Private Partnership projects in highways, railways, ports, airports, telecommunication networks, prisons and water with a remaining term of at least seven years. The measure is designed to offer a lifeline to some cash-strapped construction companies holding Mexican investments that might otherwise be unable to participate in new projects.
These post-reform developments are taking place at a time of oil-price volatility, and in which the Mexican peso is being used to make short bets, as a hedge against international turmoil, the currency being perceived as cheaper to borrow than others. The peso is the world's most liquid emerging market currency, with USD135 billion changing hands daily and trading 24/7.
*Of which 977 Mboe are 1P reserves, 4,419 Mboe are 2P reserves, 11,096 Mboe are 3P reserves and 89.4 Bboe are prospective reserves.