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Mexico raises close to $100bn in oil sector investment

Mexico secured almost $100bn in investment in its most successful oil tender to date as Anglo-Dutch oil major Royal Dutch Shell positioned itself as the biggest player in deepwater exploration and new companies including Qatar Petroleum burst on to the scene.

Aldo Flores, hydrocarbons undersecretary, said the $93bn secured was 1.5 times the total investment in nine previous tenders since a landmark reform in 2013 that opened Mexico’s oil and gas sector to foreign investment for the first time in nearly 80 years. 

Shell, which is also the biggest foreign operator in Brazil’s deepwater sector, obtained a total of nine contracts — four solo, four in partnership with Qatar Petroleum, the world’s largest liquefied natural gas producer, and one in alliance with Pemex, Mexico’s state oil company. 

In all, 19 out of 29 contracts on offer in three areas of the Gulf of Mexico were awarded. That brought to more than 60 the number of companies committed to developing Mexico’s promising hydrocarbons assets at a time when Pemex’s production is at a four-decade low, underscoring the country’s potential, particularly when oil prices are at $70. 

“This is a vote of confidence in Mexico,” said Mr Flores. Mexico holds presidential elections in July in which hard-leftist Andrés Manuel López Obrador is shaping up as the man to beat. Although he has softened initial opposition to the energy reform, Mr López Obrador and his team have hinted that the pace at which the sector is opened up could slow down if he won.

However, analysts agree that rolling back the reform would be virtually impossible and any changes would not be retroactive. Furthermore, any increase in production at a company that is an important government cash cow would be hard to turn down. 

Juan Carlos Zepeda, head of the National Hydrocarbons Commission, the sector regulator, said that if all the blocks awarded were successful “we’re talking about 1.5m [additional] barrels of oil [per day] — almost doubling the current level of 1.9m”. In gas, the potential for increased prodcution was similar — some 4bn additional cubic feet a day, compared with current output of some 5bn, he said. 

While such a success rate may be a stretch, especially in the largely virgin Salina basin in the Gulf where the potential rewards are high but so are the risks, Wednesday’s successful bidders have committed to drilling 23 wells, bringing to 129 the total number of wells committed since the reform. The $93bn investment is contingent on blocks proving commercially successful. 

The government also stands to gain heavily with a total tax take of 63 to 67 per cent of profits — higher, Mr Zepeda said, than in both US and Brazilian deepwater blocks.

Some companies also offered eye-popping cash bonuses to secure their winning bids, amounting to $525m in all. In the highest single cash offer, a consortium made up of Repsol of Spain, Petronas of Malaysia, Mexico’s Sierra Oil & Gas and PTT Exploration & Production of Thailand committed more than $151m. 

The biggest competition was seen for 10 blocks in the Salina basin, which Mexico believes contains very attractive sub-salt reserves. 

Other winners included Chevron of the US, Inpex of Japan and Eni of Italy. 

“This will translate into real and effective work for Mexcio — we are all winners,” Alberto de la Fuente, Shell’s country chief, told reporters, adding he saw “no impact” from concerns over the future of the North American Free Trade Agreement. The blocks awarded have a lifespan of up to 50 years. 

Cash-strapped state-run Pemex raised some eyebrows by winning four blocks, either alone or with partners. The rationale of the oil reform was to allow private investors into Mexico precisely because Pemex did not have the firepower or experience to develop everything itself, especially costly deepwater projects. 

“In 20 years [exploring in the Perdido], Pemex has not produced a single barrel of oil in deepwater,” noted George Baker, an oil analyst. 

But one senior executive at the company who asked not to be named said the idea was to bring in partners. “They’re looking for us already,” he said. 

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