Mexico: Third round of onshore oil and gas licences to be awarded
The Mexican National Hydrocarbons Commission (CNH) took further significant steps towards the liberalisation of the country’s oil and gas industry this month by announcing a third round of tendering for the exploration and development rights for Mexico’s hydrocarbon reserves.
As opposed to the first and second rounds where CNH intends to award production sharing agreements, the third round will award licence agreements for extraction in 26 onshore areas (17 crude oil fields and 9 natural gas fields) across 5 Mexican states, containing approximately 2.5 billion barrels of oil. It will be the first time Mexico will have granted licences for oil & gas exploitation. The licence agreements will have a term of 25 years, extendable for two additional periods of 5 years and winning bids for the third round will be announced in December 2015.
Under the proposed licence agreements, private companies will have a right to the hydrocarbons once extracted. However, private companies will first be required to make economic payments to the Mexican government, consisting of an upfront signing bonus (the amounts will be determined by the Ministry of Finance), a monthly quota during exploration, a royalty on production, and compensation based on operating profit or the contractual value of the hydrocarbons produced.
CNH has reported that 18 of the 26 fields in the third round are currently in production, under the control of the Mexican state-owned oil company, Pemex, and that the current production cost is USD $15 per barrel, which is 34% below the Pemex nationwide average cost. CNH estimates that the equity required for the smaller fields will be approximately USD 5 million and approximately USD 200 million for the four largest fields.
An important change from the first and second rounds, is that the experience requirement for prequalification for the third round has been substantially reduced. CNH requires experience of the "workforce" rather than of an individual company (as operator). This will allow local companies to more readily generate experience as operator and obtain the relevant credentials for future bid rounds. Furthermore, there will be no restrictions on companies bidding, either individually or as part of a consortium, for more than one field.
Although the third round is designed to be an international tender, it will also represent an opportunity for Mexican companies, with 22% of those companies involved in the third round due to be Mexican. After a two-year trial period, the aim is that this figure will steadily increase to 38% by 2025. The hope is to generate more than 6,000 new jobs in the local industry over the next five years in Mexico, 1,600 of which will have direct involvement in the Mexican oil and gas industry.
The details of the third round further highlight the Mexican government’s willingness to follow international practices of the oil and gas industry worldwide, whilst seeking to increase the experience and growth of its domestic companies.
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