Comments: History in Mexico
Authors: Donnelly John 
Published: February 2015

Editor's column

This month, Mexico will begin opening data rooms as it prepares for its first upstream bidding round involving foreign participation. Enthusiasm for the Round One auction—which includes onshore, deepwater, and unconventional acreage in a series of rounds over the next several months—has been dampened by the fall in oil prices, but interest and enthusiasm nevertheless remain high.

Packaged with this issue of JPT is a special supplement examining the bidding rounds and its particulars as well as the historic changes taking place in Mexico’s oil and gas sector. The attention is warranted. The country has been closed to most foreign participation in upstream oil and gas for more than 7 decades, after the industry was nationalized in the 1930s. Despite tremendous potential resources, total ownership of hydrocarbons became a strategy that no longer worked. Production at Mexico’s most prolific field, Cantarell, has declined from more than 2 million B/D to less than 400,000 B/D during the past decade. National oil company Pemex has been straddled with debt as it has tried to make up for falling production while funding a third of government spending.

But everything is changing under the energy reforms initially approved by the Mexican government in December 2013. It has spent the past year filling in the details: awarding Pemex acreage that it could keep for upstream development, deciding which areas to auction off, and finalizing contract details. It all happened more quickly than expected.

Last month, Mexican government officials unveiled the first oil and gas blocks that will be open to foreign bidding: 14 exploratory fields in the Gulf of Mexico. The 14 contracts cover 4,222 sq km in water depths of between 131 ft and 262 ft. Access to data rooms containing seismic and other geological data will be open from 15 January through mid-July. The areas are near two huge oil complexes, Cantarell and Ku-Maloob-Zaap, and have excellent possibilities of containing commercial quantities of oil and gas, particularly light crude, according to the government.

The shallow-water round is the first in a series of rounds that will last until the end of the year. Soon, the government will unveil the basic contract terms for mature fields, unconventional resources, and Gulf of Mexico deep water, which is considered the most valuable play. The government had planned to auction 169 blocks in total between July and September but that schedule may be revised.

Untapped resources in the country would appear to be plentiful. Investment opportunities range from exploration plays in deep water and shale to enhanced oil recovery in mature fields. The auctions will include more than 100 exploration blocks and more than 60 fields either currently producing or with certified reserves. Finding and lifting costs for most plays are estimated to be around USD 22/bbl, while Pemex puts break-even costs for deep water at about USD 50/bbl. The drop in oil prices could even benefit Mexico if companies begin shying away from areas with higher development costs to what looks like a better bet. JPT