In what could be the last major oil tender in Mexico for the foreseeable future, supermajors Shell, BP, and Total, along with Eni, Repsol, Lukoil, and German Deutsche Erdoel rushed to snap up shallow-water blocks offered early this week.
The international companies are evidently eager to get their production-sharing contracts signed before the Mexican elections in July, when expectations are for the left wing Morena party to win. If this happens, the next president of the country will be Andres Manuel Lopez Obrador, who has stated he will put an end to oil tenders if elected.
Obrador has also repeatedly warned that all oil contracts signed by the current administration will be reviewed and the country’s oil wealth will be returned in the hands of its people.
Despite the worrying implications of such statements, the supermajors’ willingness to take on more exploration projects offshore Mexico suggests the extent of concern may be overrated. Still, if Obrador stays true to his vow to stop the tenders, it would make sense for the oil companies to take this last chance of growing their booked reserves and future production. If we’re talking expropriation, that’s another story entirely. But tough talk is for the campaign trail, not real life.
Since 2013, when the government launched a sweeping energy industry reform stripping Pemex of its monopoly position on the local market, the National Hydrocarbons Commission has sealed more than 100 contracts for the…
In what could be the last major oil tender in Mexico for the foreseeable future, supermajors Shell, BP, and Total, along with Eni, Repsol, Lukoil, and German Deutsche Erdoel rushed to snap up shallow-water blocks offered early this week.
The international companies are evidently eager to get their production-sharing contracts signed before the Mexican elections in July, when expectations are for the left wing Morena party to win. If this happens, the next president of the country will be Andres Manuel Lopez Obrador, who has stated he will put an end to oil tenders if elected.
Obrador has also repeatedly warned that all oil contracts signed by the current administration will be reviewed and the country’s oil wealth will be returned in the hands of its people.
Despite the worrying implications of such statements, the supermajors’ willingness to take on more exploration projects offshore Mexico suggests the extent of concern may be overrated. Still, if Obrador stays true to his vow to stop the tenders, it would make sense for the oil companies to take this last chance of growing their booked reserves and future production. If we’re talking expropriation, that’s another story entirely. But tough talk is for the campaign trail, not real life.
Since 2013, when the government launched a sweeping energy industry reform stripping Pemex of its monopoly position on the local market, the National Hydrocarbons Commission has sealed more than 100 contracts for the development of oil and gas blocks. This latest one saw another 16 contracts inked, for reserves estimated at 513 million barrels of oil equivalent.
Deals, Mergers & Acquisitions
• Concho Resources has agreed to buy peer RSP Permian for a total $9.5 billion, which includes the assumption of the target company’s debt. At a 29% premium to RSP’s closing stock price on Tuesday, Concho’s offer values the company at $8 billion and its acreage in the Permian basin at about $70,000 per acre.
• Nigerian firms are preparing to bid for Brazilian Petrobras’s assets in the West African country, valued at $2 billion. Nigerian media report that global commodity traders Vitol and Glencore are in talks with the Nigerian bidders and are prepared to back them financially for the acquisitions. Petrobras is selling its Nigerian assets as part of a divestment plan aimed at slimming down its massive debt of over $100 billion. The divestment target for this year totals $21 billion.
• India’s Reliance Industries is selling part of its Eagle Ford acreage to U.S. Sundance Energy for $100 million. The deal should close by early 2019 and follows another asset sale that involved Reliance’s total acreage in Pennsylvania, which it offloaded for $126 million to Kalnin Ventures, a Colorado-based investment firm. The Indian company will retain what remains of its Eagle Ford assets.
• SM Energy has completed the sale of most of its assets in the Powder River Basin in Wyoming for $500 million. The assets produce an average 2,200 barrels of oil equivalent daily and will now be added to the portfolio of Northwoods Operating LLC. The seller will use the proceeds from the divestment to reduce debt.
Tenders, Auctions & Contracts
• Pemex will develop at least two newly awarded shallow-water blocks in partnership with other companies, a senior company executive said. The state-owned Mexican company won rights to seven blocks and expects total investments for the first four years of their development to come in at $300 million.
• India’s Ministry of Petroleum has extended the deadline for submission of bids in the ongoing round of the country’s Open Acreage Licensing Policy to the start of May. That’s almost a month after the initial deadline, with the ministry seeking bids for 55 blocks. At least 12 companies are expected to take part in the bidding round, which is the second under the new policy. During the first round, six companies expressed interest in developing some of the 55 blocks. Now another six have indicated interest but the authorities are hoping for more.
• Argentina’s Tierra del Fuego province launched a tender for the development of two oil and gas blocks on its territory and said it was planning to follow with an offshore auction, to take place later this year. The dead line for the submission of bids is next month and licenses could be awarded as early as June. The two blocks tendered lie in proximity to already producing fields.
• Iraq is tendering exploration rights to 11 blocks in the southern and eastern parts of the country as it seeks to increase its production capacity to over 5 million bpd and—very likely—its actual output as well, despite the OPEC+ deal. Soon after the tender was announced, Energy Minister Jabar al-Luaibi said the country’s proved reserves could be double the current estimate, which is 153 billion barrels. This would make Iraq the country with the biggest crude oil reserves.
Discovery & Development
• China’s Sinopec plans to process an average of 4.81 million barrels of crude this year, unchanged on 2017, although local fuel demand is seen expanding. Peer PetroChina, however, has plans to increase its throughput by 10.4% in 2018, which could take care of the higher demand. Sinopec has a daily processing capacity well over the planned throughput, at 5.92 million barrels daily.
• The first India-bound cargo from Novatek’s Arctic LNG has reached its destination and many more are expected to follow as Asia’s third-largest economy increases its consumption of LNG. To this end, Novatek is building 11 LNG carriers to add to its already existing fleet of four.
• Iraq will exclude liquefied petroleum gas, dry gas and other by-products from the revenues it pays oil field developers, starting this June with the new contracts to be awarded for the development of new fields. This will cut the share of earnings oil field operators make in Iraq as Baghdad seeks to boost its own returns from its oil wealth.
• OPEC and Russia are working on a long-term deal to cooperate on oil supply curbs that could extend controls over world oil supplies by major exporters for many years to come. Two countries are considering extending an alliance on oil curbs that began in January 2017 after oil prices crashed and now they are working to shift from a year-to-year agreement to a 10-20 year agreement.
Politics, Geopolitics & Conflict
• A U.S. District Judge has rejected a bid by Riyadh to dismiss a string of lawsuits against Saudi Arabia on allegations of its involvement in the 9/11 terrorist attacks.
• North and South Korea are preparing to hold historical high-level negotiations in the demilitarized zone between the two countries, to focus on denuclearization and improving bilateral relations.
• Almost 5,300 Syrian rebels and their families have left East Ghouta for Idlib, according to sources from the Russian military.
• Nord Stream 2 has received final permission to start construction and operations in Germany. The EU's eastern European members and Baltic states have tussled with Germany over the pipeline due to concerns it will increase Russia's stranglehold over the EU energy market and cut Ukraine off from gas transit fees. The United States has voiced similar concerns that the Nord Stream project backed by Russian President Vladimir Putin is as much a political tool as an economic one. On the other side, Germany, the largest consumer of Russian gas in Europe, views the pipeline as an economic issue financed by five Western firms and has dismissed geopolitical objections.
