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Mexico’s continuing oil and gas reform:  21 of 24 onshore oil and gas blocks auctioned off in Round 2.3

The winners of the Mexican Energy Reform Onshore Bid Round 2.3 were announced today. Of the 24 blocks available through the most recent auction, 21 were sold to investors from North America and Asia, which Mexico’s oil and gas regulator CNH will eventually amount to $2 billion in investment over the 30-year lifespan of the contracts.

Juan Carlos Zepeda, head of CNH, told a news conference that including the $2 billion he expected the new contracts to generate eventually, the reform had now secured projected investments of around $60 billion. Deputy Energy Minister Aldo Flores added that the most recently auctioned off blocks are expected to generate about 20,500 jobs in the next seven years.

The 21 areas should yield an extra 79,000 barrels per day in crude production by 2025 as well as 378 million cubic feet per day of additional natural gas output, Zepeda said. That production should start coming online in 2019, according to CNH. Many of the areas included in this round are expected to produce light crude and liquids-rich natural gas.

Winners of the bids are determined based on a weighted formula that takes into account additional royalty offered to the government as well as an extra investment commitment in the exploration phase of each contract.

Jaguar Exploracion y Produccion comes out as the big winner of Round 2.3

Of the companies that bid in Round 2.3, Monterrey-based Jaguar Exploration y Produccion de Hidrocarburos was the firm to win most frequently. Bidding alone, the company took five areas in the second tender of 14 blocks and won an additional six of ten areas available in the first two tenders by bidding in conjunction with Calgary-based Sun God Resources. By the end of Round 2.3, Jaguar took a stake in over half of the areas awarded.

Other companies to win bids included Iberoamericana in consortium with PJP4 de Mexico, Newpek in consortium with Verdad Exploration, Shandong in consortium with Sicoval and Nuevas Soluciones, and Carso Oil and Gas.

Previous bid winners beginning to bear fruit

Several companies that won previous bids are beginning the exploration and production process on their acreage as Mexico’s oil and gas reform continues. Calgary-based International Frontier Resources (ticker: IFR) said it plans to commence drilling operations on its previously-won Tecolutla onshore acreage during the third quarter.

“Our internal technical evaluation continues to confirm our original assessments that Tecolutla has the potential to be a highly economic project at current commodity prices,” IFR said in its year-end results. “Tonalli believes that improved drilling technology and production techniques will enable it to increase the recovery factor of its Tecolutla asset.”

Houston-based Talos Energy LLC also announced success on its offshore block Wednesday. The company announced its Zama-1 exploration well, located in 546 feet of water and approximately 37 miles from the Port of Dos Bocas, discovered a large oil reservoir. The well was drilled to a vertical depth of approximately 11,100 feet.

Initial gross original oil in place estimates for the Zama-1 well range from 1.4 to 2.0 billion barrels, according to Talos. Initial tests of the hydrocarbon samples recovered contain light crude with API gravities between 28O and 30O and some associated gas.

The company is currently setting a liner to protect the discovered reservoirs prior to drilling deeper exploratory objectives to a total vertical depth of approximately 14,000 feet. There are no plans for immediate well testing, according to Talos. Further evaluation will be required to calibrate the well with the existing reprocessed seismic to determine future plans and optimal follow-up locations to define the extent of the discovered resource.

Haynes and Boone summary of Mexico Bid Round 2.3

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