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Have These High-Reward Oil Plays Become Too Risky?

Pipeline Master Limited Partnerships were…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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These Oil Majors Will Bid In Mexico’s $44B Offshore Tender

U.S. oil majors ExxonMobil, Chevron and Hess will bid jointly in the upcoming deepwater oil and gas tender planned by Mexico. The auction, which will take place on December 5, will involve ten deepwater blocks in the Gulf of Mexico. The tender, which is the first one focused on deepwater deposits, is expected to generate US$44 billion in proceeds.

According to a source close to the three companies, they have already signed a Joint Operation Agreement for the bidding process, which means they have already selected the operators for the fields they will operate should they be awarded licenses.

Mexico only allowed foreign oil companies to explore and exploit its crude reserves two years ago, forced by an 11-year decline in production. This tender now is in an area that contains what’s estimated to be 76 percent of Mexico’s prospective crude reserves. The local state-owned energy company Pemex, however, does not have the technology to develop these resources.

A total of 26 companies have qualified to bid in the December tender, including Shell, BP, and Statoil. These too, are expected to submit joint bids because the capital commitment requirements set forth by the Mexican government are too substantial for a single operator to afford, especially in the current market environment.

Deepwater is the new frontier for oil and gas companies with a presence in the Gulf of Mexico. The bulk of operating wells – 82 percent of output – are at depths of 1,000 feet or more and deeper deposits are being tapped as the advancement in drilling and extraction technology allows it.

However, following the Deepwater Horizon disaster from 2010, authorities have tightened control over drilling and production in the area, installing stringent controls that oil companies have complained would not just be ineffective but will also increase their costs uncomfortably.

By Irina Slav for Oilprice.com

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