Jeremy Martin
Vice President Energy & Sustainability

As the deepwater oil and gas auction came to a close today, momentous, significant, and historical were but a smattering of the adjectives flying around Mexico City and indeed the global energy world.

With the final block adjudicated just before Mexican lunch hour, the success in terms of winning bids, competition and diversity of bidders was clear for all at Mexico City’s Centro Banamex and watching the livestream to see.

Eight of the ten blocks on auction and the farm-out and partnership with Pemex were successfully tendered exceeding the government’s expectations and estimates of many across the industry. The pensive expressions and slightly stooped shoulders of Mexico’s energy authorities that began the day had turned into wide smiles, upright posture and a spring in their step. Winning bidders could also be seen exchanging hugs and handshakes.

The story lines are plentiful as the ink dries on nine long-term multi-billion dollar bids and opportunities to develop projects in Mexico’s deepwater side of the Gulf. But here are seven immediate takeaways that will be worth watching as the new industry dynamics in Mexico unfold, euphoria ebbs, and the daunting work ahead begins on the massive and challenging projects.

  1. The Mexican government is thrilled. Secretary of Energy Pedro Joaquin Coldwell had indicated they would be happy if four of the ten blocks were awarded. Instead, the authorities awarded eight of the ten to a diverse group of bidders from across the globe. Additionally, the first ever Pemex farm-out and source of much innuendo, Trion, was awarded to BHP Billiton based upon their winning payment to Pemex of $624 Million after the Australian firm’s bid and BP’s had tied in terms of additional royalty commitments – each had bid 4%.
  2. Oil price headwinds and capital constraints remain an important part of the context for today’s auction, but given the diversity and size of the bids tendered, it will not be needed as a scapegoat for the Mexican government. Indeed, today offered a strong argument that in a capital constrained global energy market, large projects can still be successfully tendered when the materiality and fiscal terms line up sufficiently to draw investment.
  3. Mark Twain famously remarked his death had been greatly exaggerated. On the heels of a $624 Million commitment from its new partner, BHP Billiton, plus their contribution to cover Pemex’s roughly $570 Million investment in Trion, the imminent demise of Mexico’s national oil company may have been similarly exaggerated. Yes, the company is struggling financially and with oil production but it proved today that it is still relevant as projects with BHP Billiton and Chevron & Inpex underscore, the latter as part of consortium led by Chevron. For years, many have underscored the imperative for Pemex to work side by side and as part of a major international consortium to learn firsthand the best practices and operational excellence of the oil and gas industry. That appears poised to become reality.
  4. In line with the three preceding auctions and bidding, the National Hydrocarbons Commission (CNH) and Mexican government achieved transparency in how the deepwater auction was conducted. A highly rigorous qualification and adjudication process left few doubts as to the validity of bids and their objectivity. The terms and process also produced an important level of competition, particularly for the Salina Basin opportunities.
  5. China is in the house – CNOOC was the early story with two aggressive bids to win two of the four Perdido Fold blocks. And, in what is a bit of break from its posture in Latin America’s upstream of late, the Chinese NOC was a sole bidder as operator and did not participate in consortium. By itself, it will develop two deepwater projects in the Perdido Fold.
  6. Sierra Oil & Gas has carved out an important role in Mexico’s post-reform upstream landscape with participation in two more blocks bringing their total to four in the Round One auction when added to their success in the first ever auction in July 2015. Indeed, they proved the most aggressive and committed bidder with bids that far exceeded the minimum additional royalty terms established by the government.
  7. The deepwater auction was always supposed to attract the globe’s largest upstream oil and gas firms – the so-called majors — and it delivered on that score with the likes of BP, ExxonMobil, Chevron, Total, Statoil, CNOOC, and Petronas all emerging as winners.

Mexic Energy Winners Bid List

Today was a success but the real metrics and analysis to determine success will not be possible for several years. Indeed, the congratulations and victory laps are well-deserved across the Mexican government and industry, but a dose of realism as to the long-term horizon for these projects and when investments will translate into oil and gas production bears noting.

But there will be plenty of time for our customary Mexico and Pemex navel gazing and hand wringing. Today we celebrate Mexico. Let’s all raise a glass and mark December 5 as a historic day for the future of the country’s oil and gas industry.