The Mexican government announced changes to the requirements for offshore
The Mexican government announced that the second round of offshore bids to be held in 77 years in the Gulf of Mexico will be different of those in the first round, which only saw two of the fourteen blocks offered auctioned off. The second auction, due to take place September 30, will offer five blocks.
In the second round of offshore bids, companies will be able to bid individually for one group of fields and in consortium for a different group of fields, which was prohibited previously, reports The Wall Street Journal. A company may not bid both alone and as part of a group for the same field, however.
The National Hydrocarbons Commission (NHC), which regulates the auctions, also voted to adjust the financial guarantees required from a company that wins a bid. During the first round of bidding, companies were required to post a set $6 billion in equity as a financial guarantee for the contract. The new rule set by the commission for the second round will also give companies the option to post a guarantee equaling 18 times the government-set minimum investment for work on the fields.
That translates to about $2 billion, Juan Carlos Zepeda, president of the NHC told Reuters. Zepeda said companies would still be able to satisfy the corporate guarantee through an open-ended parent company guarantee as well. “We are presenting new alternatives, a package of guarantees that is more open, with new instruments that seek flexibility,” said Zepeda.
If a contract is revoked for willful misconduct, the updated rules specify that companies can keep assets like a mobile jackup rig that were not previously claimed as recoverable expenses, according to the NHC president.
As in the July auction, financial terms were modified to allow private companies to keep more of their profits in the event they find more oil than expected, or if oil prices rise.
The terms are better, but are they good enough?
Jose Valera, an energy lawyer at the Mayer Brown firm in Houston, said the changes make the auctions marginally more attractive but do not address the fundamental issues for some bidders. Private oil firms say the sharp drop in oil prices makes Mexico’s offerings significantly less attractive, and that the government should improve both the contract terms and the financial terms to address the current price environment.
During the first auction, only nine of the 25 companies who signed up 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.