Long wait Ends for Big Oil as Mexico Auctions Prized Blocks

Mexico will on Wednesday offer foreign energy firms the right to drill beneath prized deep waters in the Gulf of Mexico that may contain billions of barrels of oil, the climax of an historic energy reform just five months before a presidential election.

 

The auction of 29 blocks is the biggest since the government of President Enrique Pena Nieto enacted a wide-ranging reform that aimed to attract hundreds of billions of dollars of investment to turn around a state-run oil industry in decline.

 

The stakes are high for Pena Nieto and his ruling party, which is keen to showcase the results of the liberalisation ahead of a presidential election in July. Energy reform was his highest profile economic initiative, and the results have been mixed.

 

A successful auction could burnish his legacy and may bolster his struggling political party. Five months before the vote, opinion polls show the ruling party is trailing to a leftist candidate who has said he would revise the energy contracts if he wins the presidency.

 

The world's top energy firms have lobbied for decades for access to Mexico's oil and gas reserves. State oil giant Pemex , whose 75-year monopoly over the energy sector ended under the reform, lacked the cash and the expertise to extract oil and gas from the rock below the country's deepest waters.

 

The titans of the oil industry are registered to participate in the auction in Mexico City. They include Exxon Mobil Corp , Royal Dutch Shell Plc (RYDAF), BP Plc, Total SA (TTFNF) and China National Offshore Oil Corp (CNOOC).

 

With oil prices near a three-year high, energy firms are emerging from a recession. They have more cash now than any time since 2014, so conditions are better than they were for any of the eight auctions Mexico has held since 2015.

 

"There's a high level of interest... We want good companies with investment capacity and willing to develop the industry," said Mexico's Deputy Energy Secretary Aldo Flores.

 

Firms that won in the previous auctions have pledged investment of $61 billion. But Mexico needs 10 times that much to raise oil output back to 2004 levels, the country's Energy Secretary Pedro Joaquin Coldwell said on Tuesday.

 

Mexico faces stiff competition from regional rivals keen to attract cash from global oil majors. Brazil, Argentina, Uruguay and Ecuador are also auctioning oil and gas fields this year.

 

None of the 26 companies and consortia that have registered for Mexico's auction have confirmed whether they would bid, nor given details on which of the oil and gas blocks they favored.

 

Executives from Spain's Repsol SA, Japan's Inpex Corp, U.S. Chevron (CVX) Corp, India's ONGC Videsh and Norway's Statoil ASA (STOHF) all confirmed their companies were considering bids.

 

"We have already signed a memorandum of understanding with Pemex and we are one of the qualified parties to bid for blocks. So we are considering it (bidding)," the managing director of ONGC Videsh, N. K. Verma, told Reuters on Tuesday.

 

Inpex plans to bid in a consortium with Chevron and Pemex, a source close to the matter told Reuters.

 

Strong competition is expected in blocks in the Perdido basin, which is close to U.S. waters where oil firms operate and have infrastructure, executives and industry experts said.

 

The southeastern portion of the Salina basin should also see strong interest, they said.

 

Some of the firms that won in previous auctions have made big finds, adding over 2 billion barrels of oil equivalent to reserves.

 

The reform has delivered brisk business to oil service and seismic firms, which have made sales of $800 million in data packages to the firms considering bidding in the auctions. Some of Mexico's efforts to attract investment have been less successful. The government has tempered aggressive targets to bring in partners to work in joint ventures with Pemex, after foreign firms balked at the high costs of buying into those projects.