Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

American Majors Avoid Shallow Water Round

Mexico offered its first auction for oil and gas rights in 77 years today.

It presented a total of 14 blocks in the shallow Gulf of Mexico. A handful of bids were received but only two blocks were sold, a result of some bids not measuring up to requirements from Mexico’s Energy Ministry.

12 of 14 Blocks Go Unsold in Mexico’s First Oil & Gas Auction

Map: World Review

Only nine of the 25 companies who signed up for the auction submitted bids. Supermajors like Chevron (ticker: XOM), ExxonMobil (ticker: XOM) and Total (ticker: TOT) were not part of the nine, but overseas companies like ENI (ticker: E), Lukoil (ticker: LUKOY), Petronas and Statoil (ticker: STO) jumped in on the action. Petroleos Mexicanos (Pemex), the country’s previous nationalized oil producer, qualified to bid but did not participate.

Mexico’s First Independent Wins 2 Blocks

Sierra Oil & Gas, Mexico’s first independent hydrocarbon company, won two separate blocks as part of a consortium with Premier Oil & Gas of the United Kingdom and Talos Energy of Houston. The blocks were won with no incremental investment but the lease requires that Mexico’s government receives 56% and 69% of proceeds, respectively.

According to Mexico’s National Hydrocarbons Commission, nine of the 14 oil blocks have probabilities of commercial success ranging from 20% to 36%, and their prospective resources range from 164 to 384 MMBOE. Two other blocks have higher success probabilities of 42% and 54%, while the lowest has only 6%.

A Tough Market

The results are somewhat similar to the last auction held by the United States’ Bureau of Ocean Energy Management in March. Commodity prices weighed heavily on bids and resulted in less than half of the revenue from the previous Gulf auction. Freeport-McMoRan, a regular bidder, did not even sign up for participation.

Next for Mexico

A deepwater auction will take place in the future, though an official date has not been announced. Interests in deepwater opportunities like Petrobras, for example, have received billions of dollars’ worth of bids.

Midstream Seeing Action

Onshore activity, however, is slowly starting to pick up in the midstream market. Mike Howard, chief executive officer of Howard Energy Partners, spoke at length with Oil & Gas 360® about Mexico’s opportunities in a recent feature interview. His company is planning to build a 200-mile, 30-inch natural gas pipeline connecting its existing Webb County Hub in Webb County, Texas, to Escobedo, Nuevo Leon, Mexico, and the Mexican National Pipeline System in Monterrey. Sempra Energy (ticker: SRE) announced a $108 million project today that would transport more than 1.1 Bcf/d of natural gas to Chihuahua.


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.