Weekly Report - 21 July 2016 (WR-16-28)

MEXICO| ‘Round two’ oil auction set for 2017. On 19 July Mexico’s national hydrocarbons commission (CNH), the sector’s regulator, announced that it had authorised the launch of a new public tender process for oil exploration and exploitation concessions in 15 shallow water oil fields in the southern part of the Gulf of Mexico. This will be the first auction of the ‘Round Two’ oil concession tender process, which is part of government plans to reverse the low oil production levels of the past few years by opening up oil production to increased private sector participation under the 2013 energy sector reform. Before the reform, state-owned oil firm, Pemex, had a 75-year monopoly on local oil production. However, as part of efforts to boost investment and production, the government led by President Enrique Peña Nieto pushed through a reform opening up the sector to private participation. The government is optimistic regarding the new tender process despite the adverse international economic scenario, marked by high volatility and low international oil prices. The government expects that this tender will be more successful than last year’s ‘Round One’ auctions (some of which attracted no bids). The government expects this first phase of the Round Two tender (which includes some blocs that previously attracted no bids) will generate investments worth US$11.25bn. Energy Minister Pedro Joaquín Coldwell said these investments could generate up to 30,000 jobs directly and up to 80,000 jobs indirectly. He also said this could boost oil and gas production, noting that five of the 15 blocs up for auction contain proven oil and gas reserves. These blocs are concentrated off the shores of Veracruz and Tabasco states and have the equivalent of 650m barrels of proven light crude reserves. The CNH said the Round Two exploration and exploitation concession contracts would go to bidders offering the largest return for the government via a formula that includes a share of pre-tax profits, plus commitments to future investments. The contracts will be valid for 30 years, after which they can be extended for a further five. The government will be responsible for up to 35% of the capital invested in exploration of the oil fields for a minimum 15-year period. The first Round Two auction is slated for March 2017, following the conclusion of the fourth and final phase of the Round One auction (which comprises deep water fields in the Gulf of Mexico) on 5 December.

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