Mexico Limits Shallow-Water Bids in Oil Sector Opening

Image courtesy PEMEX

By David Alire Garcia and Adriana Barrera

MEXICO CITY, Dec 11 (Reuters) – Mexico said on Thursday it would cap the number of shallow-water projects companies can bid for as it set out initial contracts for the historic opening of its oil and gas industry, but did not specify the share the government will take.

Following a reform that ended Mexico’s 75-year state monopoly, officials unveiled details of the first production-sharing contracts to an audience that included executives from Chevron Corp and Exxon Mobil Corp .

The contracts are for 14 shallow-water exploration and production (E&P) blocks that will pay winning companies with a share of the output from projects, which the government estimated would cost $20 per barrel on average to produce.

“For the first time, we’re setting in motion public tenders in which both national and international companies can explore for, and eventually extract, fossil fuel resources in shallow waters,” said Energy Minister Pedro Joaquin Coldwell.

Nine-tenths of the formula used to award the 25-year contracts will depend on the share of operating profits a company offers the government, with the rest dictated by how much investment a company pledges.

Companies or consortia will be limited to bidding on up to five shallow-water areas, and will have to show a track record in offshore projects. No company can join more than one consortium in the first round, the government said.

Fabio Ortega, the top executive in Mexico for Colombia’s publicly traded, state-controlled oil company Ecopetrol SA , said the limits are not standard practice.

“We’ll have to see how much of an impact these limits create,” he said, adding the bidding terms were otherwise in line with international standards, and that Ecopetrol is interested in the entire package.

Juan Carlos Zepeda, head of the regulator that manages the process, the National Hydrocarbons Commission, said the limits are geared towards promoting competition among companies.

Those seeking to participate in the tenders must have operated at least one offshore E&P project or have investments in them worth at least $1 billion.

Prospective bidders must also have either operated at least one offshore E&P project or been a partner in at least two within the last five years.

The government, which hopes its reform will reverse a 30 percent slide in crude output over the past decade, said companies can recover up to 60 percent of their production costs provided they make a commercial discovery. (Additional reporting by Christine Murray and Gabriel Stargardter; Editing by Simon Gardner, Marguerita Choy and Andre Grenon)

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