Mexico’s Finance Ministry said Monday that the government will require winning oil companies to bid at least 1% of pre-tax profits in the December 15 onshore oil auction.
Next month’s bidding round marks the third phase of the Round One tender process, the series of auctions which are part of the overhauling energy reform finalized last year by the Mexican Congress. The energy reform seeks to reverse a decade-long decline in the country’s oil production.
Juan Carlos Zepeda, President of Mexico’s National Hydrocarbons Commission; Source: houston.org
The minimum pre-tax profits firms must offer to the government in the December auction will range from 1 to 10% over the 25 oil and gas fields up for bidding, according to the Finance Ministry.
The onshore tender will offer license contracts to winning bidders and is mainly directed at new Mexican oil companies that want to gain experience as O&G field operators after Pemex’s E&P monopoly came to an end with the reform.
A majority of the several dozen companies that have sought to pre-qualify for the December tender are Mexican firms, Reuters reports. However, IOCs such as Statoil and ExxonMobil have also started the process.
The percent of pre-tax profits, as well as a minimum work commitment, are the main factors that will determine license winners, Reuters reported. But the newly released terms do not mandate any further work program investment.
The Mexican government’s total take for any contracts will be the fiscal terms of the contract. These include the percentage of pre-tax profits, a variable royalty and income tax.
The first phase of Round One was the July shallow water auction. However, only two blocks out of 14 were awarded. Mexico had hoped to award at least four or five blocks.
In that auction, the government did not reveal the minimum bids prior to the tender. Further, several bids fell slightly short of the minimum. For most of the blocks, the minimum was 40% and the minimum bid established for the rest was 25%.
The second phase of Round One occurred in late September, when Mexico awarded three out of five offshore production-sharing contracts, thus beating the lackluster results of the July tender.
The other upcoming three installments in Round One are as follows:
December 15: The award of 26 onshore fields;
1Q16: Offshore Deepwater blocks and extra-heavy oilfields;
1Q16: Shale prospects
Round Two will take place next year, Round Three in 2017, and so on.