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Mexican oil block auctions become more successful as experience grows

Mexican oil block auctions become more successful as experience grows

Industry will eventually get a boost from Mexican oil block auctions and lower energy prices that come as a result.

Despite the fact that the industry had been closed to foreign investment for more than seven decades, tenders of Mexican oil block auctions that took place last July were, for all intents and purposes, a failure. Much to the disappointment of the country’s economic policymakers, and industry analysts, the number of bidders and the quality of the offers made to explore shallow water opportunities fell far short of expectations. Out of the Mexican oil block auctions that were held during mid-summer, only two of fourteen offers were accepted.

After having learned some valuable lessons from the first experience in the conduct of Mexican oil block auctions, the country prepared for the second tender that took place on September 30, 2015.

Nine oil fields grouped in five blocks were offered. It had been previously certified that these areas had been previously explored, and were ready to produce. Three of the five of the blocks were bid upon, and the companies that won the right to exploit the Mexican oil blocks included the Italian oil company, ENI; an Argentine oil consortium that include Pan American Energy an E&P Hidrocarburos y Servicios and a partnership between Fieldwood Energy from the United States and a Mexican firm, Petrobal.

As was the case during the first round of Mexican oil block auctions, Pemex sat out of the bid competition due to existing budgetary constraints.

Because of increased flexibility which resulted in greater success during the second round of bidding, Mexico holds the expectation of furthering its success in a third tender that is scheduled to be offered this coming December 15, 2015. Industry watchers, bidding companies and analyst view these beginning Mexican oil block auctions as warm ups for later tenders that will be offered for the rights to conduct deep water exploration and drilling. Although deep water drilling is a riskier proposition than exploration conducted in the shallows, the rewards to be reaped at greater depths can prove to be much more significant.

Although market conditions in terms of supply, demand and pricing have been less than optimal since Mexican oil block auctions began, some see these conditions as having been beneficial. Less than optimal circumstances have forced the Mexican government to behave in a more competitive fashion than might have otherwise been the case.

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