Mexican state-run Pemex’s 11 July auction of six onshore oil leases in the Chicontepec Formation fell flat, with the three largest concessions receiving no bids despite early interest by more than a dozen companies, including major players like Spain’s Repsol, Schlumberger and China’s Sinopec.
Two of the three contracts awarded went to Mexican companies (Operadora de Campos DWF and Petrolite de Mexico), while Halliburton won the integrated contract for the Humapa area on a bid of production costs plus a maximum of $6.50 per barrel.
All of the winning bids were for service contracts only, not operations, and all for a minimum per-barrel fee of less than $1 per barrel. Halliburton’s was for $0.01 per barrel.
The low bids signaled some companies, like Halliburton, were prepared to take on work just to keep equipment running. (Halliburton already has similar deals going elsewhere in Mexico and a surplus of on-shore oil equipment it can move from dry fields in the US.)
Still, Pemex said that the new contracts will bring in $900 million in investment over the next 12 months, though that depends on production, and Chicontepec, currently pumping just 65,000 bpd, has a history of missing production targets.
The three areas successfully contracted encompass approximately 500 million barrels in proven reserves, which could be extracted at a rate of about 150,000 bpd. One of the non-contracted areas, Amatitlan, has nearly 1 billion barrels of proven reserves awaiting extraction, but got no bids.
The low number of bids is a sign of the market mentality. Most companies want a share of the oil, even if it means shared risk, not just payments.
For a much more detailed report on the Pemex auction and investing opportunities in Mexico – please take a moment to look at our premium analysis: THE Game-Changing Mexico Opportunity
Companies are hedging their bets right now that Mexico will succeed in liberalizing its oil sector and are willing to wait for better contracts to come around. In the meantime, they are withdrawing a bit from the playing field to increase the pressure to privatize.
Related article: Will an End to Pemex’s Monopoly Boost Economic Growth in Mexico?
Opening up the Mexican energy sector to private investment is one of President Enrique Peña Nieto’s top priorities, and we expect that reform to begin in 2013.
Depending on his appetite for conflict, Peña Nieto may avoid a constitutional amendment, instead setting out legislation that would explicitly interpret the state ownership of oil and gas resources as permitting downstream license agreements and joint operations.
Given the preponderance of successful public-private “hybrid” energy companies across the globe (Statoil, Petrobras, Gazprom, Sinopec, Ecopetrol), Mexico has a number of potential models to follow.
Here’s something else some of the big players are waiting on: The US-Mexico transboundary oil and gas agreement, which once ratified would launch production along some very lucrative Gulf of Mexico acreage.
By Charles Kennedy of Oilprice.com