Mexico signals sweeter Round 1 terms

03 March 2015, News Wires – Mexico will alter terms of oil blocks being auctioned this year in response to criticism from prospective bidders that crude’s rout made original requirements onerous.

mexicoAuthorities will release new fiscal terms for shallow water contracts on Friday, finance minister Luis Videgaray said at an energy summit in London Monday.

He spoke after BP chief executive Bob Dudley said terms “need to be a little more competitive,” echoing comments by Occidental and Mexico’s Grupo Alfa.

“The basic change on the fiscal side is to ensure that adjustment mechanism provides more upside to investors, which was perhaps the most important criticism that we heard in the first round from many sources,” Videgaray said. “We want to make sure contracts are competitive.”

Before oil slumped to the lowest levels since 2008, Mexico laid out production-sharing contracts that included a 60% cost recovery limit and call for 25% percent local content in the first year.

Occidental chief executive Stephen Chazen said on 29 January he’d rather develop US projects than “fool around with some ridiculous contract” in Mexico.

Alfa, which has a partnership with Canada’s Pacific Rubiales for Mexico exploration and production, on a conference call recently called the requirements for participation “extremely high.”

West Texas Intermediate for April delivery rose 35% cents to $49.94 a barrel in electronic trading on the New York Mercantile Exchange at 11:48 a.m. Singapore time. Brent added 83 cents to $60.37.

BP has a record 10 rigs active in the Gulf of Mexico as US offshore investments prove resilient to global cutbacks. The company still sees a “great future” for Mexico as the country opens up its energy industry to private competition for the first time since 1938.

Preliminary contract details for Mexico’s first-ever private block auction were announced in December and won’t be finalised until 29 May, National Hydrocarbons Commissioner Juan Carlos Zepeda said Monday in Mexico City.

Bids will be open in mid-July. Mexico’s National Hydrocarbons Commission, known as CNH, has requested feedback and commentary regarding the fiscal terms.

Chevron and ExxonMobil are among 25 companies that have purchased access to geological and seismic data for the shallow water blocks.

Mexico continues to see interest from international companies even after oil’s plunge, deputy minister Lourdes Melgar told reporters in Mexico City Monday. Mexico last week announced five shallow-water areas to be auctioned this year.

Oil companies around the world have lowered investment plans and are cutting staff amid falling profit margins, including Pemex, which trimmed $4 billion from its annual budget and will announce layoffs in the coming weeks, chief financial officer Mario Beauregard told Radio Formula.

– Bloomberg

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