• 1 day Shell Oil Trading Head Steps Down After 29 Years
  • 2 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 2 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 2 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 2 days Venezuela Officially In Default
  • 2 days Iran Prepares To Export LNG To Boost Trade Relations
  • 2 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 2 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 2 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 3 days Rosneft Announces Completion Of World’s Longest Well
  • 3 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 3 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 3 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 3 days Santos Admits It Rejected $7.2B Takeover Bid
  • 3 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 3 days Africa’s Richest Woman Fired From Sonangol
  • 4 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 4 days Russian Hackers Target British Energy Industry
  • 4 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 4 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 4 days Lower Oil Prices Benefit European Refiners
  • 4 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 5 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 5 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 5 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 5 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 5 days OPEC To Recruit New Members To Fight Market Imbalance
  • 5 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 5 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 5 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 6 days GE Considers Selling Baker Hughes Assets
  • 6 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 6 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 6 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 6 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 6 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 8 days The Oil Rig Drilling 10 Miles Under The Sea
  • 9 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 9 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 9 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Mexico Proceeds With Oil Auction Despite Low Oil Prices

Mexico Proceeds With Oil Auction Despite Low Oil Prices

Even with oil prices hitting five-year lows, Mexico has decided to move forward with its historic auction of offshore oil tracts.

President Enrique Pena Nieto followed through on a 2012 campaign promise to overhaul Mexico’s energy sector. The reform opened up Mexican energy for international investment for the first time in over 76 years.

The liberalization of Mexico’s energy sector is intended to halt the slide in oil production. Pena Nieto argues that Mexico needs the capital and technical expertise held by multinational oil companies. Mexico’s oil production has declined by nearly 30 percent since peaking at 3.9 million barrels per day in 2005. The country was only producing about 2.8 million barrels per day as of August 2014.

Mexican Oil Production

The historic and controversial energy legislation was signed into law in August, kicking off a period of intense preparation as Mexican authorities lay the groundwork for the first auction. The first step was the so-called “Round Zero,” in which state-owned oil company Petroleos Mexicanos, or Pemex, was given the chance to hold onto certain assets, while it gave up others for private bidding. Announced only a few days after the law was signed, Pemex was able to hold onto 83 percent of its proven and possible reserves, but was only awarded 21 percent of the country’s prospective oil reserves.

Related: World Proved Oil Reserves Data A Work Of Fiction

Finalizing the law and publishing the results of Round Zero ahead of schedule was a notable achievement, but the optimistic days of August 2014 gave way to several months of unease as the price of oil entered into a rapid period of decline. As of December 12, oil prices were trading in the range of $60 per barrel, a 40 percent decline from the summer highs.

The fall in oil prices forced the Mexican government to consider delaying the first auction, known as “Round One.” That is because much of the assets that the government is putting up for bid will be relatively high cost regions, such as onshore shale. If profit margins for areas up for bid suddenly don’t look very attractive, oil companies may not bid very much. And if that occurs, the government will take in a lot less revenue than it originally anticipated.

Nevertheless, Mexico announced on December 11 its new package of rules for the initial bidding round, which it says will proceed as planned. Bids are due before July 15, 2015.

The government will auction off 14 major blocks that it expects will require investments of about $1 billion each. Together, the shallow water tracts are expected to eventually produce 80,000 barrels per day.

Mexican authorities are confident that the selected blocks will attract significant attention because they are offshore fields that have long lifespans with stable production scenarios, which compare favorably to shale fields that can decline rapidly after only a few years. As such, they are less vulnerable to temporary downswings in prices.

But some of Mexico’s most promising shale, such as the Chicontepec formation northeast of Mexico City, could be delayed as the government considers revising incentives amid falling crude oil prices.

Related: Which Oil Producing Region Loses the Most From Low Prices?

“We must be aware that this bidding round takes place amid volatility in prices in the international crude market, which will oblige companies to be more selective about which countries and areas they invest in,” Energy Minister Pedro Joaquín Coldwell said as he announced the new rules, according to the FT. He went on to add, “[t]his circumstance will showcase the competitive strengths of Mexico’s Round One, which offers a highly diversified portfolio of fields and areas for exploration and extraction, [and] clear and stable investment rules.”

Those rules are designed to encourage competition, and they include such things as forbidding oil majors from making joint bids; bidders must have at least $1 billion in capital; no company can participate in more than one consortium; and consortiums can’t bid on more than five blocks.

It remains to be seen how much interest Mexico will receive from the auction. A lot will depend on where oil prices are heading over the next six months. The International Energy Agency just cut its demand forecast for 2015 for the fourth time in five months, which sent oil prices lower on December 12. In response, oil companies are beginning to make major cuts in spending as many new projects are unprofitable with current prices.

Still, Mexico is plowing ahead with its plans for its first ever oil auction.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News