Mexico’s Round 3.1

by White & Case LLP
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Key Points:

  • After a robust Round 2, Round 3.1 awarded a total of 16 out of 35 (56%) available contractual areas.
  • Overall, since the implementation of the Energy Reform a total of 107 contracts have been awarded - 71 of which have already been executed and are in effect.
  • Pemex was the most awarded bidder of all with a total of 7 blocks, some individually and others as part of a consortium.
  • Mexico anticipates investment of over $8.6 billion as a result of the contracts awarded in Round 3.1.
  • Production on some areas could commence as early as 2022.

On March 27, 2018, Mexico’s National Hydrocarbon Commission (Comisión Nacional de Hidrocarburos) (“CNH”) completed the Presentation and Opening of Proposals for the First Public Bid of Round Three (“Round 3.1”). Round 3.1 attracted 36 oil and gas companies from around the world (14 individually and 22 in consortia), including Chevron, BP, Capricorn Energy (an affiliate of Cairn), Premier Oil, Total, Royal Dutch Shell, Repsol, Ecopetrol, DEA Deutsche Erdoel, ONGC Videsh, Pan American Energy, PC Carigali, Pemex, and Eni, among others.

Round 3.1 awarded a total of 16 out of 35 blocks (56% of the available blocks) to 12 companies with significant experience in the exploration and development of shallow water projects.

Fewer bids were submitted by participants in connection with the 27 blocks comprising the Burgos and Tampico-Misantla-Veracruz basins; only four contractual areas were awarded in Burgos and four were awarded in the Tampico-Misantla-Veracruz Basins (awarded blocks are within the northern region near the Port of Tuxpan).

The Mexican Government offered a total of 8.2 billion boe of prospective resources and successfully awarded 2.23 billion boe of prospective resources with 780 MMboe1 coming from the Southeast Basins (Cuencas del Sureste) and over 760 MMboe in the once Tampico-Misantla-Veracruz’s Marine Golden Lane. According to public reports, the CNH is expecting production from the awarded blocks to start in 2022, with oil production peaking at 235,000 b/d by 2025, and natural gas production peaking at 220 MMcf/d.

As with prior shallow water rounds, the winning bidders will sign production sharing contracts. Winners were decided upon a formula based on the percentage of operating profit offered to the Mexican Government, proposed additional investment, and the amount of cash bonus offered by the participants. In addition to sharing profit, contractors will pay taxes through a contractual fee for the exploration phase, a basic royalty, taxes on E&P activities, as well as applicable corporate income tax.

Consequently, it is expected that the Mexican Government will receive – on average – between 72% and 78% of profits generated under the tendered contracts and $124 million dollars in cash payments for Blocks 28, 29 and 30, which were the most contested due to the fact that the same lie north of the prolific Zama and Amoca discoveries.

Pemex had at least a share of half of the 8 blocks that were awarded in the Southeast Basins. One it took alone, while two were in a consortium with Total, and another with Shell.

Please see below a summary of the results of the tender corresponding to Mexico’s Round 3.1. Complete details along with the underlying tender packages and model contracts can be found at http://www.rondasmexico.gob.mx/.

Mexico Round 3.1 tender results: (i) Block 5, light oil and wet gas, 175 MMboe, Repsol; (ii) Block 11, light oil and wet gas, 110 MMboe, Premier Oil; (iii) Block 12, light oil and wet gas, 229 MMboe, Repsol; (iv) Block 13, light oil and wet gas, 71 MMboe, Premier Oil; (v) Block 15, light oil and wet gas, 161 MMboe, Capricorn, Citla Energy; (vi) Block 16, light oil, 134 MMboe, Pemex, DEA Deutsche Erdoel, CEPSA; (vii) Block 17, light oil, 130 MMboe, Pemex, DEA Deutsche Erdoel, CEPSA; (viii) Block 18, light oil, 341 MMboe, Pemex, CEPSA; (ix) Block 28, light oil, 100 boe, Eni, Lukoil; (x) Block 29, light oil, N/A, Pemex; (xi) Block 30, light oil, 85 MMboe, DEA Deutsche Erdoel, Premier Oil, Sapura; (xii) Block 31 light oil, heavy oil, wet gas, 173 MMboe; Pan American; (xiii) Block 32, heavy oil and dry gas, 245 MMboe, Pemex, Total; (xiv) Block 33, ultra-light oil, 104 MMboe, Pemex, Total; (xv) Block 34, wet gas, 34.7 MMboe, Total, BP, Pan American; (xvi) Block 35, extra heavy oil, 40 MMboe, Pemex, Royal Dutch Shell.

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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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