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Low Oil Prices Don’t Daunt Bidders At Mexico’s Oil Auction

Oil may not be the most profitable commodity on the market lately, but that didn’t stop bidders from snapping up all 25 contracts for onshore oil fields offered by Mexico’s National Hydrocarbons Commission, the country’s oil regulator.

“This is a triumph for Mexico,” said Juan Carlos Zepeda, the president of regulatory agency, known by its Spanish initials CNH. Before Tuesday’s auction, expectations were low, with even the most optimistic forecasts envisioning the awarding of no more than five contracts.

Energy Minister Pedro Joaquin Coldwell agreed that the auction was a success. He wrote in a Tweet that production from the fields will peak at an estimated 77,000 barrels per day, drawing $1.1 billion in investments in Mexico’s oil industry.

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The auction represents a major overhaul of how Mexico’s oil industry operates. For decades the industry was dominated by the state-owned energy company Petroleos Mexicanos, or Pemex. But in December 2013 the country amended its constitution to allow private companies to compete.

“This bid round is going to start a domestic oil and gas industry proper,” said Jose Valera, who has studied Mexico’s energy industry as a partner at Houston law firm Mayer Brown. “It’s going to do something that the energy reform needs.”

No multinational oil giants took part in the auction. And of the 14 consortia whose bids were accepted, 12 were domestic oil companies, all of them a small fraction of the size of Pemex.

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Despite the celebratory atmosphere that followed the auction, some analysts expressed concern that the successful bidders, many of them newly formed and therefore inexperienced consortia, may have bid too generously for their contracts, which eventually could cut into their profits. After all, they noted, not only is the price of oil painfully low, but Mexico charges high taxes and royalties for its contracts.

“I think that the issue for some of these companies is inexperience,” said Pablo Medina, an analyst at the commodities consultancy Wood Mackenzie in Houston. “Most of these guys aren’t really exposed to the oil price per se because they aren’t producing anything yet.”

Medina pointed to more experienced oil companies at the auction offered more sober bids for the fields, which once were tapped by Pemex and now contain only residual energy deposits. These bids were dwarfed by those from the newer companies. A high bid, plus taxes and fees, could mean the Mexican government could end up with a 90 percent share in a given field.

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The most successful bidder was a consortium led by Geo Estratos, which won four contracts. Next came Renaissance Oil Corp. of Vancouver, Canada, and Strata Campos Maduros, a Mexican start-up, each of which won three contracts. Diavaz Offshore, which for years has been a domestic service provider to Pemex, won two. One other Mexican bidder was Compania Petrolera Perseus.

Other bidders included Canamex Dutch of the Netherlands, which bid in a consortium with two Mexican companies, and the Texas-based Roma Energy Holdings, which bid together with two partners, one from the United States and one from Mexico.

By Andy Tully of Oilprice.com

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  • Antonio Romero on December 17 2015 said:
    totally agreed with this article. No one company can do money if they will give royalties to government in some cases >90% plus taxes, rights etc.
    That for me means that companies will have costs too high where they can find a "profit"
    Government is saying that round 1.3 was a success, if we consider that 100% of the blocks were awarded then is true. but we need to wait and see if companies will do profits, I see a problem having a lot of different sizes companies bidding for same block , most of the companies who attended this tender are not oil companies they are in some cases just service companies they will never comply with the tender requirements by them selves therefore all of them did JV with foreign companies then at the end the Mexican company was not the winner.

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