Mexico Round 2: 10 Blocks Awarded

Ten of the 15 blocks on offer in Mexico's Round 2 licensing round of Gulf of Mexico shallow water acreage were awarded June 19.

Strong competitive bid interest was registered, with two or more bids received on areas 6, 7, and 9-11, with offers there consequently high. However consultancy Wood Mackenzie said that offshore gas potential in areas 4 and 5 "would limit returns given low gas prices" and neither received bids.

Italy's Eni was involved in three winning bids, while UK independent Cairn Energy's Capricorn subsidiary, Mexican state Pemex and Colombian state Ecopetrol were each involved in two areas.

Other IOCs involved were Malaysian state Petronas, Russian Lukoil, with Total and Shell teaming up for a winning bid on area 15 – the most easterly of the areas offered.

Mexican independents Sierra and Citla teamed up with IOCs on their bids, as did Russia-backed producer DEA (with Pemex on area 2). Sierra is backed by US private equity firm Riverstone, while the China-Mexico private equity fund and World Bank last year invested $200mn in Citla.

In contrast there were no bids for areas 1, 3, 4, 5 and 13. Wood Mackenzie had anticipated most activity to centre around areas 6-11 with some bids for areas 12-14 and also accurately predicted that two-thirds of the 15 blocks offered would be awarded. 

Cairn CEO Simon Thomson said: "We are delighted with these awards which we believe provide an exciting opportunity to build a strategic portfolio over time in this highly prolific yet under-explored region." It will operate area 9, with a 65% stake in the non-state interest alongside Citla on 35%. In block 7, Eni will operate with a 45% interest in the non-state equity, alongside Cairn 30% and Citla 25%.

Eni -- present in Brazil since 2006 -- said it will operate area 10 (100% non-state equity), area 7 (see above paragraph) and area 14 (Eni 60% non-state equity, Citla 40%) noting that all are production sharing agreements, still subject to final approval by the authorities.

Citla CEO Alberto Galvis added June 23: "We are delighted with the results of Round 2.1, not only for having been awarded all of the three fields that Citla's team carefully selected and bid for, but for the partnership we formed with high quality operators such as ENI and Cairn." Citla is backed by US private equity fund Acon Investments, China-Mexico Fund and the World Bank.

Firms that just missed out on awards were a consortium of US Murphy Oil, the UK's Ophir and Mexico's Talos Energy for area 6 and China Offshore Oil Corporation for area 11, while other unsuccessful bidders included Chevron and Noble Energy. 

Licences are valid for an initial 30-year period with two possible extensions of five years each. The initial exploration phase lasts four years, with a possible extension of two years; there follows a two-year period for evaluation after any discovery; followed by a 22- to 32-year development phase.

This week's Round 2 awards follow Mexico's successful Round 1 licensing round of deepwater Gulf of Mexico areas in December 2016; that also included a few shallow water block awards to Talos Energy.

Mark Smedley