What’s new in exploration

	Vol. 232 No. 4
NINA M. RACH, CONTRIBUTING EDITOR

Pemex opens exploration to private sector

In an attempt to reduce the hefty capital outlay to pump oil from its large, maturing fields, Petróleos Mexicanos opened bidding in March for six sites in three onshore blocks in Tabasco state: Magallanes, Santuario and Carrizo, with a total area of about 312 sq km (120 sq mi).

Pemex believes these areas contain total (P1 + P2 + P3) reserves of 182.1 million bbl equivalent of crude oil and 124.7 Bcf of gas. Combined oil production was 12,000 bpd in 2010, and the company predicts potential for 54,000 bopd by 2016, after redevelopment, which may require operator investment of $1 billion.

For more than 70 years, Pemex has been a state-controlled monopoly that was prohibited from accepting private investment, to protect the country’s petroleum resources. Mexico nationalized its oil fields in 1938 and has developed its industry without outside participation, but production has dropped as fields matured, and Pemex has not developed deepwater prospects.

Timeline. In 2008, Mexican President Felipe Calderón promoted legislation to open the oil sector to outside investment, in order to provide the cash and technology needed to effectively exploit the country’s maturing fields. Integrated service contracts were approved, allowing Pemex to assign blocks to private-sector companies and pay them partially based on performance. These contracts are neither concessions nor production sharing contracts, and do not give outside operators rights to buy or sell the hydrocarbons produced. The current contract offering of less controversial, mature fields was reviewed by the Mexican Supreme Court in 2010.

Last month, executives from Pemex, the Mexican Secretariat of Energy and the Treasury went on the road to promote the first comprehensive exploration and production contracts. Pemex CEO Juan José Suárez Coppel told reporters in Houston that, in addition to the onshore areas currently being offered, “We plan to do a fresh round on deepwater contracts at the end of this year or the beginning of next year,” referring to Gulf of Mexico prospects near the Perdido basin. Representatives from about 100 energy firms attended that session.

Many operators are wary, but the new auction structure may offer the only access to Mexico’s tantalizing deepwater acreage, and it will be interesting to see how this initial bidding round transpires.

Tender process improved. The Organization for Economic Cooperation and Development (OECD) is helping Mexico’s Federal Electricity Commission (CFE) and Pemex adopt a set of principles and practices to improve transparency and competitiveness of the tender and procurement processes.

As reported on the information and networking site Mexican Business Web (MBW), on March 3, Suárez, then-CFE Director-General Alfredo Elias Ayub and Rolf Alter, director of the OECD’s Public Governance and Territorial Development Directorate, signed an inter-institutional agreement on the revision of strategies, systems and processes for procurement of goods, services and public works.

 “The calls are one of the most vulnerable government activities. They are vulnerable to waste, fraud and corruption, both in their complexity and in the size of financial flows,” OECD Secretary-General Angel Gurría said in the MBW article.

“The institutions and government agencies of Mexico need to significantly improve the integrity and transparency of public tenders,” Gurría said. “Detecting collusion of these tenders, however, can be complicated, but governments can take steps to implement best practices to prevent fraud, corruption and bid rigging.”

For the new contracts, potential participants are required to have operated fields producing between 10,000 and 30,000
boepd during the past year, and to have spent $35–$100 million on E&P in the last four years. Contracts will be awarded to companies offering the lowest fee per barrel. Winning bids for the performance-based service contracts will be announced in August, with field analysis expected to begin in September or October, and drilling by late 2012. Pemex plans to compensate operators through a tariff for each barrel of oil produced plus partial recovery of costs, as well as bonuses associated with productivity and cost reduction. Payments will be linked to production volumes, not oil prices.

Pemex will take a 10% interest in the new integrated E&P contracts in order to gain experience with new technologies.

Interest. Carlos Morales Gil, Pemex’s director of exploration and production, has reportedly said representatives from the large oil firms BP, Repsol and Argentina’s Tecpetrol have visited Pemex’s data room in Tabasco state to view data from the three field areas, but he stressed in a press conference that this round would be ideal for small businesses. He added that Mexico’s privately held Grupo Carso and Grupo Diavaz and Colombia’s PetroSantander have also expressed interest in participating in the E&P contracts.

Mexican industrialist Carlos Slim Helu, head of Grupo Carso, is eligible to participate in the bidding due to his recent purchase of 70% of the shares of Colombia’s Tabasco Oil Co., a subsidiary of Geoprocesados, a company that has over 10 years’ experience working for Pemex and the first company to locally process seismic data in Mexico, MBW reported in February.

Road ahead. At the Reuters Latin American Investment Summit on March 29, Morales said a second auction for additional fields may kick off in June, followed by additional auctions that would include exploration acreage in deep water. By the end of 2012, he expects Pemex to have licensed more than 20 areas to private operators. Morales also expects rig use to increase to about 80 offshore rigs by the end of this year, up from 54 working now. He said the company is considering adding 15 land rigs to the 120 now operating.

Pemex CEO Suárez said he expects incentive-based contracts to increase Mexico’s production from mature fields by over 400,000 bpd (15%) by 2016. “The new contract models will take production levels to more than 3 million bpd once again over the coming six years,” Suárez said during a presentation commemorating the 73rd anniversary of the nationalization of Mexico’s oil industry.