Mexico: Round One minimums "competitive" says Wood MackenzieNews // September 18, 2015
On 14 September, Mexico's Finance Ministry announced the minimum acceptable bids for the shallow water development opportunities phase of Round One. Wood Mackenzie says it considers the minimum acceptable bids to be internationally competitive, and expects that around two-thirds of the qualified companies could place bids.
“Ultimately, we think this will result in at least three of the five areas on offer to be awarded,” says Pablo Medina, Research Analyst for Latin America Upstream Oil and Gas at Wood Mackenzie.
The announcement comes two weeks ahead of the shallow water phase's closing on 30 September 2015. Wood Mackenzie’s analysis notes that the minimum government profit share for the five areas on offer ranges from 30 per cent to 36 per cent. There is no minimum work commitment. The bidding formula remains unchanged with 90% of each bid weighted towards government profit share and the remainder towards additional work commitment.
Wood Mackenzie emphasizes that lessons learned in the shallow-water exploration closing have been applied to this phase. Medina explains: “In the previous phase, the government kept the minimum acceptable profit share bid secret. Companies bid under the minimum by just 5 per cent on three of the blocks. Only two out of 14 blocks on offer were awarded so this is why the government decided to disclose the minimums two weeks ahead of the second phase closing. Companies now have time to reconsider their bidding strategies based on the government's announcement.”
Mr Medina continued: “The second phase of Round One was initially perceived as unattractive for some companies given the small field size averaging 68 million barrels of oil equivalent (mmboe) per bid area. However, given the delays with the Pemex migrations and JVs, companies seeking a rapid entry into Mexico may now deem these discovered resource opportunities (DROs) to be attractive.”
Wood Mackenzie’s analysis underscores that companies with the means could acquire operational experience through the development of these fields. Some companies may even be willing to reduce some economic upside through aggressive bidding in order to establish an early foothold in the country and position themselves for later opportunities.
“A diverse range of companies that match this description qualified for this phase including majors, international E&Ps, Asian NOCs and private-equity/Mexican conglomerate-backed companies,” said Mr Medina.
Overall, Wood Mackenzie expects that the terms set for this phase, including the prior announcement of competitive minimum bids, are positive and will result in a successful licensing round. Due to delays in the launch of Pemex's JVs and service contract migrations, some companies perceive these opportunities to be an expedient way to develop operational experience in Mexico while acquiring DROs with potentially attractive economics.
“Now that a reasonable minimum bid level has been disclosed, competitive bidding will have the opportunity to set the market value of these assets,” Mr Medina concluded.