The results of Round 1.4 and the PEMEX “Trion Round” have definitely shown that the Mexican oil and gas market is open for business with domestic and foreign investors flocking in to take advantage of new opportunities. CMS, and associate firm Woodhouse Lorente Ludlow, have been at the heart of the recent transformation.
After 76 years of state monopoly, in August 2014 President Enrique Peña Nieto signed the enabling legislation for the opening of the Mexican energy sector. The nine new statutes, and amendments to the original twelve in place, that were passed establish a new legal framework for the implementation of crucial reforms that will allow private sector participation in the oil and gas and electricity industries.
As a result of such reforms in the oil and gas industry, the Mexican Hydrocarbons Commission (“CNH”) has convened several auctions to award contracts to some of the world’s best-known oil majors for the exploration and extraction of Mexican onshore and offshore blocks, known as “Rounds”. The latest Round to be revealed was Phase 3 of Round Two, announced on 15 November 2016.
On Wednesday 7 December 2016, the CNH confirmed the results of the tendering processes for Phase 4 of Round One (“Round 1.4”) and for the PEMEX “Trion Round” (please see details below) where several domestic and international oil companies competed for the deepwater contracts considered to be the crown jewels of the auction process so far.
Round 1.4 and results
The auction of the 10 deepwater blocks in Round 1.4 marked the last phase of the first round and the culmination of the Mexican oil and gas auctions so far. The blocks cover an area of 23,835 Km2, consisting of four blocks in the Perdido Fold Belt near the USA side of the Gulf and six blocks in the unexplored Cuenca Salina basin further south. There are total prospects of 10.5 billion barrels of crude equivalent in the Perdido and Salina blocks.
The auction for Round 1.4 awarded licensing contracts for eight out of the 10 deepwater blocks on offer. The successful bidders were the following six companies and consortia:
- China Offshore Oil Corporation E&P Mexico, was awarded two blocks in the Perdido Fold Belt;
- A consortium consisting of Total and ExxonMobil, was awarded one block in the Perdido Fold Belt;
- A consortium consisting of Chevron, Pemex and Inpex, was awarded one block in the Perdido Fold Belt;
- A consortium consisting of Statoil, BP and Total, was awarded two blocks in the Cuenca Salina area;
- A consortium consisting of PC Carigali and Sierra, was awarded one block in the Cuenca Salina area; and
- A consortium consisting of Murphy, Ophir, PC Carigali y Sierra, was awarded one block in the Cuenca Salina area.
The PEMEX “Trion Round” and results
The PEMEX “Trion Round” consists of the auctioning of the Trion block, but unlike the other Rounds of the Mexican oil and gas market liberalisation (Rounds 1 and 2 and their respective Phases), this is the first tender to allow PEMEX, the state-owned oil company, to explore and extract from fields freely assigned to it, with third party participation.
The Trion block was freely assigned to PEMEX at Round Zero (which took place just after the Constitutional Energy Reform and under which 83% of all 2P Reserves of Mexico were freely assigned to PEMEX, prior to the opening of the sector to the private parties, through a legal vehicle known as “assignments” (asignaciones)). The Mexican Hydrocarbons Law provides that PEMEX and its subsidiaries are allowed to request the conversion of their “assignments” into joint operation agreements so that PEMEX is able to explore and extract from the Trion block with improved financial and technical resources from private participation.
The Trion block covers an offshore area of 1,285 km2 and has an estimated 485 million barrels of oil equivalent of 3P reserves. PEMEX expects that the 60 per cent Trion stake on offer will bring in a total of $11bn in investment. On Wednesday 7 December, it was announced that BHP Billiton was the successful bidder and will become PEMEX’s partner in exploring the Trion fields under a joint operation agreement.
With eight out of 10 blocks awarded in Round 1.4, as well as a joint venture with PEMEX in the “Trion Round”, the tenders have been a huge success. The Ministry of Energy has said that total investment for Mexico would be $41bn over the life of the contracts. For further economic data and figures, please see the news article published by the E&P Magazine here.
CMS in Mexico and in the Mexican Energy Reform
The Mexican oil and gas reform provides an exciting environment for private investment flowing into Mexico. CMS is at the forefront of this development through its association with leading local law firm in Mexico City, Woodhouse Lorente Ludlow S.C. (“WLL”), which has an extensive oil and gas practice and has advised international oil companies in the Mexican oil and gas Rounds.
Co-authored by Ricardo Masferrer Oliveira, trainee solicitor.
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