Friday, 2 February 2018

Petronas sweeps six of 19 blocks awarded in Mexico oil auction

Royal Dutch Shell snapped up nine of 19 Gulf of Mexico oil and gas blocks awarded in a Mexican auction on Wednesday, as the global oil major ramped up its big bet on Latin America's deep waters.

The auction raised an estimated $93 billion in investment for Mexico and was the biggest since the country's energy sector opened to foreign firms in 2014.

The stakes were high for Mexican President Enrique Pena Nieto and his struggling party, which wants to showcase the results of its energy liberalization ahead of a presidential election in July.

With oil prices at a three-year high, conditions were better for this auction than any of the previous eight sales in Mexico since 2015, lending weight to Pena Nieto's argument that opening up the sector would bring the investment needed to turn around a dilapidated state-run oil and gas industry.

Shell bid aggressively despite fears that Pena Nieto, who will not run in July, might be replaced by a leftist leader who may revise the terms of energy contracts.

The company also won blocks in Brazil's Atlantic waters just three months ago, which require heavy investment.

Both Mexico and Brazil have benefited from a revival in interest from the world's top energy firms in big-ticket deepwater projects, as the industry emerges from a three-year recession.

"We wanted a presence in both countries," said Alberto de la Fuente, president of Shell Mexico. "We are a big player in deep water worldwide. This is excellent news for Mexico and is a strong commitment for Shell in Mexico."

The higher oil price helped Shell put together solid bids, de la Fuente said.

Mexican officials called the auction a success. Ahead of the bid round, the government had said it expected only seven of the 29 blocks on offer to be awarded. In the end, nineteen were awarded. Shell secured participation in nine, Malaysia's state oil firm Petronas secured six, and Qatar Petroleum won five in consortia that included other firms.

The results would not give Shell too high a share of Mexico's energy sector, Deputy Energy Secretary Aldo Flores said.

"We have to recognize Shell's enthusiasm in this round," he told reporters after the auction. "We have a diverse oil sector ... I don't believe this means a concentration."

Mexico estimates oil firms will invest $93 billion to develop energy reserves in the blocks, said Flores. Previous auctions have already drawn investment pledges of $61 billion from winning firms.

The government estimates over $600 billion is needed to return the country to record production levels reached in 2004.

The blocks auctioned on Wednesday could pump over 1.5 million barrels per day (bpd) of crude and 4 billion cubic feet per day of gas by 2032, Flores added. Mexico currently produces around 1.9 million bpd.

Even though there was little competition for some of the blocks, the winning bids offered a high percentage of profits to Mexico, said Juan Carlos Zepeda, the head of the country's oil regulator. The government take would be up to 67 percent of profit, he said, comparing that to the 55 percent oil firms pay in the United States.

Mexico also received $525 million in cash from the companies than won blocks, which will be transferred to a government fund.


Shell focused on blocks in the Perdido and Salina basins, which were expected to be the most competitive of those on offer. Perdido is close to U.S. waters where oil firms already operate.

Shell won four blocks as a lone bidder, four more in a consortium with Qatar Petroleum and another in a consortium with Mexican state oil firm Pemex.

Shell would spend more than the minimum investment it pledged in the bids, de la Fuente said.

PC Carigali, a unit of Malaysia's state oil firm Petronas, won two blocks alone and four in consortia.

"We're in, we want to explore and we want to find oil and gas," said Faisal Bakar, Carigali's country manager in Mexico.

Carigali also participated in winning bids for two deep water fields in an earlier auction.

Ten blocks received no bids, so were not awarded.