Oil Exploration Opportunities Open up in Mexico

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Oil Exploration Opportunities Open up in Mexico

Rossville-Oil Tanks 2 by Joseph Kranak

By the end of 2013, Mexico had opened its state-run petroleum sector after over seven decades of being monopolized by Pemex. Now, the country is taking full advantage of this change in the constitution and preparing itself to become the next frontier to many of the world’s top oil companies.

Lourdes Melgar, deputy minister for hydrocarbons, said, “We are seeing in the first bid round, two areas in deep waters, some areas of shale gas, some areas of the non-conventional Chicontepec (basin), and some areas in shallow waters.” The industry is expecting private investors to be tendered some parts of the highly profitable Perdido Fold Belt and a few offshore heavy oilfields along with technically challenging areas.

In addition, the energy minister is going through the 68-page Round Zero wishlist detailing the fields Pemex wants to hold onto to tender some of those fields by June 2015. The government has until September 17 to determine which fields Pemex will lose, but the decision is expected much earlier to avoid hurdling the state-oil monopoly’s operations. Besides, Pemex is planning to discuss joint-ventures and partnerships for the fields it keeps, so it needs a decision to start its own plans.

While the first step Mexico is expected to open its deep water oilfields to tender starting 2015, Pemex believes that the first international round of bids could start by the end of this December. The bidding will cover 25,000 sq km, enabling international oil majors to get their share of Mexico’s 86.6 billion barrels of oil and gas. This is widely expected as Perdido, Mexico’s deepwater discovery, will be available for bidding despite Pemex controlling a large part of it. However, Melgar expects the Mexican state oil company to require partners since deep water isn’t its specialty.

Melgar also anticipates Chevron and Exxon to express interest in its extra heavy oilfields since both have the experience to do so after developing the Kearl project in Canada. However, it’s Chicontepec that’s causing the most concern. The onshore field has been a disappointment despite constant drilling operations. Regardless, Melgar is optimistic. “We have had a lot of interest in Chicontepec and not just from international companies, but also from firms that are perhaps working as contractors,” she said.

To complement these changes, Mexico is planning a flexible tax framework for the private oil and gas companies coming to the country. The government, along with the conservative opposition, is negotiating this necessary document to give the country a competitive edge in the North American energy sector, define how much the investors will receive, and specify the government’s share of its oil and gas resources.

The tax model is expected to include a sliding-scale royalties system that would differ depending on the type of field, the cost of oil and gas there, as well as the production. In addition, a royalty discount may be offered for shale gas producers to make it more tempting despite its narrow profit margins. However, both the government and the National Action Party are yet to finalize the details.

Mexico will hold at least ten bidding rounds and will be holding them annually unless the authorities plan more frequent shale tenders.

Yet, the complete package of bills to the energy sector is expected to be presented this week.

 

Topics:  Energy Exploration, Mexico, Oil & Gas

Published In: Constitutional Law Updates, Energy & Utilities Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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