VANCOUVER (miningweekly.com) – Last week's auction of deepwater oil blocks as part of Mexico’ energy reform process was well received by the international market, confirming government’s momentum since 2013 to break State-owned oil firm Pemex’s then 76-year monopoly on the oil sector.

On December 5, Mexico’s government awarded exploration rights for eight out of ten deepwater blocks in the Gulf of Mexico to international oil companies in the fourth auction in which private investors could bid on oil and gas acreage in Mexico.

Three previous auctions for less attractive acreage yielded modest sums of investment from smaller industry players; however, by comparison, the deepwater blocks offered in the latest round were considered prized assets because of their enormous resource potential and proximity to producing fields just across the maritime border in the US Gulf of Mexico.

“The most recent auction Round 1.4 will unlock the largest foreign investment in Mexico ever. It confirms that the world is interested in Mexico’s energy reform,” Canadian oil and gas project developer International Frontier Resources (IFR) president Steve Hanson told Mining Weekly Online in an interview.

Hanson last week participated in the 2016 World Oil & Gas Week as a panel member in the Regional Spotlight: Latin America session. He noted the overwhelming sentiment coming out of the session was that Mexico has become the new buzzword in the global oil industry.

Meanwhile, the positive turnout provides strong momentum for amending the next round of auctions. Mexico’s Energy Secretary Pedro Joaquín Coldwell has stated that the country, which ranks seventeenth in the world by proven oil reserves, plans to hold an additional bid round for a larger package of deepwater blocks sometime in September or October 2017. Following that second deepwater round, two more auctions are slated for 2018.

STRONG INTEREST
Hanson noted that despite the nearly two-and-a-half-year slump in oil prices that has wreaked havoc on the oil industry and resulted in gutted capital budgets, the latest deepwater Round 1.4 auction attracted some of the largest names in the international oil industry, representing the first wave of large-scale foreign investment in Mexico’s oil sector.

Many of the winning bids surpassed the auction’s minimum requirements, with the premiums indicating that firms were willing to pay more to develop resources in Mexico. “Their vote of confidence also provides early vindication for what has been a controversial reform process to open Mexico’s energy sector,” Hanson stated.

Perhaps the biggest winner was China National Offshore Oil Corporation. The State-owned firm took up two blocks as a sole bidder in the Perdido Fold.

Traditional Western heavyweights Chevron, ExxonMobil, Total and BP – four of the so-called ‘supermajors’ – all picked up acreage through a variety of syndicates.

International firms such as Statoil, INPEX and Petronas with experience in deepwater projects also won acreage, while smaller independents such as Murphy, Ophir and Sierra also registered successful bids. Pemex took up a participating interest in one Perdido Fold block in a consortium with Chevron and INPEX.

Further to the eight exploration blocks awarded, Australia-based diversified miner BHP Billiton also won a 60% interest to codevelop the Trion Deepwater field that was previously discovered by Pemex.

MEXICAN MOMENTUM
The next stages of the second round are already under way. IFR intends to register as a participant for the next auction, Round 2.3, for which the data room is expected to open on Thursday.

“We continue to see positive developments coming from Mexico’s energy reform initiative with [the] announcement of 14 oil and gas blocks from the Comision Nacional de Hidrocarburos (CNH). The 14 blocks cover 2 595 km² with a good mix of exploration and extraction opportunities across four of Mexico’s prolific oil and gas basins,” Hanson stated.

On May 12, IFR announced that Tonalli Energia, a Mexican company jointly owned by IFR and one of the largest Mexican petrochemical companies Grupo Idesa, was notified by Mexican authorities that it had been awarded the onshore oil and gas development block 24, named the Tecolutla block. This was as part of the first round and third call of Mexico’s oil and natural gas ‘mature fields’ bid round (Round 1.3). Tonalli was awarded the Tecolutla block, with an incremental royalty of 31.22%.

Tonalli formally assumed operatorship of the Tecolutla block from Pemex on November 23, and Hanson said regulatory processes were now under way with a view to start the operations programme in the first half of 2017.

Tonalli has already initiated oilfield services contracting and we have found service providers to be readily available and competitive in their pricing. Existing drill sites and extensions of existing drill sites will be used to execute the operations programme. Tonalli plans to drill its first well in the first half of 2017.

BUOYANT OIL PRICE
West Texas Intermediate, the benchmark North American crude oil contract, rose to $53.33/bl on Monday, up $0.75 from Friday's closing price to an 18-month high, having hit $54/bl in the early morning hours.

The higher price come on the back of an agreement between the Organisation of the Petroleum Exporting Countries (Opec) and key non-Opec crude producers to cut output in the six months starting January 1. The non-Opec producers have agreed to a combined reduction target of 558 000 bbl/d.