Mexico Removes Bid Limit on Shallow Water Oil Tenders

Maritime Activity Reports, Inc.

May 29, 2015

Mexico's oil regulator voted on Friday to relax previously established rules on bidding terms and contracts that form the first step in an historic sector opening that kicks off this summer with the public auction of 14 shallow water fields.


The July auction will mark the first of five packages of oil fields up for grabs, part of a so-called Round One tender that follows a major energy reform approved by Congress last year.


The constitutional reform ended the decades-long monopoly enjoyed by state-owned oil company Pemex and aims to reverse a decade-long slide in Mexican crude output.


Responding to complaints from private and foreign companies, the national hydrocarbons commission, or CNH, eliminated caps on how many contracts firms can bid on. It also reversed a rule that would have required them to destroy the geological data they purchase for fields they are not ultimately awarded.


The CNH voted to give the Finance Ministry more oversight over the long-term development plans and annual work program budgets of each contract.


The regulator also signaled an adjustment in the 14 contracts' fiscal terms by putting greater emphasis on companies' ability to recover costs during the contract's exploratory phase, without giving additional details.


"The modifications strengthen the control of the state and oversight of the contracts, as well as make the contracts more flexible in recognition of geological reality and market conditions," said CNH President Juan Carlos Zepeda.


Earlier rules would have limited oil companies to making just five bids among the initial 14 shallow water exploration blocks located along the southern rim of the Gulf of Mexico.


The CNH also voted to reverse an earlier restriction that would have prohibited oil companies that seek to operate fields as part of a consortium, from bidding on additional contracts outside the consortium as an individual company.


The commission further scrapped a rule that would have required companies that seek to operate a field within a consortium to hold the largest stake.


The updated rule requires operators to have a minimum one-third stake while its consortium partners can have a larger stake.


"Companies are looking for partners to compensate for the reduced cash flows we observe in the market due to the fall in oil prices," added Zepeda.


The CNH has previously said that the final shallow water production-sharing contracts and bidding terms will be announced on June 9.



(Reporting by David Alire Garcia and Adriana Barrera; Editing by Christian Plumb)

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