Border Oil Companies Have an Advantage Over Their Competitors in Round 2.4

31 January 2018 Publication
Author(s): Roberto Arena Reyes Retana Daniel Aranda Andres Alvarez-Cordero

We are excited to share with you the following media advisory released earlier this week in Mexico in regards to Round 2.4 (Deep Water Exploration). This advisory has received significant coverage from some of the most relevant news outlets in Mexico, including Notimex, Noticieros Televisa, El Financiero and Milenio

Results over the next oil bid process will measure investor’s trust in Mexico.

Before Round 2.4, which will be carried out by the National Hydrocarbons Commission Jan. 31, the law firm Gardere, Arena y Asociados identifies Shell, Chevron and BP to have a competitive advantage in what will be the most aggressive offer in Mexican oil fields to date.

The Mexican Government has scheduled the awarding of 30 blocks, nine of which are located in the Perdido Fold Belt area, 10 in Cordilleras Mexicanas, 10 in the Salinas Basin and one more in the Yucatan Platform. According to the Ministry of Energy, if only 25% of these fields receives offers, a $31.5 billion investment would be expected over the next 50 years of the life of each contract.

“The most attractive blocks for the operating companies that will participate will be the nine located in the Perdido Fold Belt, south of the US maritime border and a few kilometers off of the Tamaulipas coast in the Gulf of Mexico,” said Daniel Aranda, attorney and partner specializing in energy matters at Gardere.

“Currently, Shell, Chevron and BP perform deep-water drilling on the United States side of the Gulf of Mexico, which gives them a competitive advantage over other oil companies, because they already have an infrastructure that may be transferred a few kilometers to Mexico hence reducing their costs,” Aranda explained.

As of Jan. 29, 16 companies have registered as operators and 13 as non-operators to participate in the bidding process. Amongst them are oil companies that already have bids in Mexico such as BHP Billiton, BP, Chevron, China Offshore Oil Corporation, ENI and Exxon, which speaks of an unprecedented interest amongst investors.

“We are talking about large oil companies that did not have a presence in Mexico prior to the energy reform, that have an economical and technical capacity to carryout deep-water exploration and drilling, aside from the significantly higher investments compared to other rounds,” notes Aranda.

Roberto Arena, the managing partner of Gardere, Arena y Asociados, said that the results of Round 2.4 will provide insights regarding  to how investors perceive Mexico’s economic climate, which has been marked by the renegotiation of the North American Free Trade Agreement (NAFTA) and this year's electoral scene.

“The great challenge of Round 2.4 is that investing in deep waters implies a long-term recovery period," said Arena. "Therefore it is natural to be concerned about the political scene in Mexico, combined with the effects of a possible termination of NAFTA.”

However, Arena considers that even though there is political uncertainty, from a legal perspective, these awards and the accompanying investments are completely protected as a consequence of Mexico being a party to international treaties that protect business interests.

“The competitiveness of these bidding processes has been proven since Round 1.4 in December 2016. The legal framework for deep-water exploration takes into account international regulations and accepted industry risks, showing that the government has been sensitive to the participants' concerns. It is foreseeable that Round 2.4 will surpass the success achieved two years ago,” Arena estimates.

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