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Mexican deep-water oil blocks to be auctioned in 2016

Mexican deep-water oil blocks to be auctioned in 2016

With 2016 on the horizon, Mexico has announced that the 4th auction in a series initiated by the 2013 energy reform will take place late next year. This round will include ten Mexican deep-water blocks worth an estimated $44 billion USD.

Then & Now

For three quarters of a century, Mexico’s energy industry was under the direct control of the state, which resulted in artificially and consistently high prices, as well as limited exploration efforts. Private foreign companies were banned from entering into contracts with the Mexican government’s energy enterprise, Petroleos Mexicanos (PEMEX), which maintained full control of all oil and gas exploration and drilling operations.

Now, however, thanks to sweeping reforms implemented in 2013, Mexico’s oil and electricity monopolies, Pemex and CFE, have become “productive enterprises.” Private companies around the world are now bidding for licenses and contracts to explore for and produce oil and gas from Mexico’s resources. The first Mexican deep-water blocks auction will take place during the coming year.

Three auctions of oil blocks have occurred to date. This includes a rather successful round of Mexican energy auctions that took place earlier this month in which the National Hydrocarbons Commission, the government’s oil regulator, successfully auctioned off all twenty-five onshore contracts offered at terms that were highly favorable for the Mexican government. While the estimated revenue for these twenty-five sites is only calculated to be at just over $1 billion USD, the government and energy industry celebrated a return of private capital to a declining domestic oil sector, as the large majority of the eighteen winning bidders were local, Mexican firms.

The 2016 Auction

Last week, Mexican officials announced their most ambitious round of auctions yet. The lot will include the tender of ten Mexican deep-water oil blocks with an estimated potential aggregate value of $44 billion USD. In general terms, each block is calculated to be valued at approximately $4.4 billion USD. No firm date for the auctions have been released thus far. Exact information, however, will be provided in the third quarter of 2016. It has been reported that the Mexican deep-water oil blocks auction will happen within ninety days after the announcement is made. Four of the ten blocks are in the Plegado Perdido belt, while the remaining six blocks are off the coast of the eastern state of Veracruz.

Experts believe these particular Mexican deep-water oil blocks will attract some of the largest of the world’s energy companies, as they require much larger capital investments than the shallow- water and land blocks that were offered and auctioned off this year. While tumbling oil prices may have some effect on the bidding, the effect is expected to be minimal, as these projects will take many years to develop. Global firms will be considering these fields in the context of long-term energy trends. The contracts are for exploration, as oil has yet to be found at these sites, but exploration is expected to lead to the discovery of a wealth of crude oil reserves. Additionally, contracts will include mining rights.

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