In a day of tooth-and-claw bidding, a clear winner emerged Wednesday from the second and third auctions of Round Two of Mexico’s energy reform, which were dominated -- for the first time -- by natural gas-rich blocks.
Mexico City-based Jaguar E&P, in partnership with Calgary-based Sun God, won 11 of the 24 blocks total on offer for Rounds 2.2 and 2.3.
Under the Mexican system, bids are based on the government’s take from royalties, with the Finance ministry setting minimum and maximum offers permitted. Ties are resolved by offers in cash. Jaguar paid $54 million in tie-breakers on Wednesday, a powerful indication of its will to win.
The total amount of tie-breakers that were used in the two rounds amounted to $88 million, quelling analyst concerns that blocks featuring natural gas would have few takers in times of low prices.
The Jaguar-Sun God alliance won six of the seven blocks adjudicated in the 2.2 auction, held early Wednesday. The seventh block was awarded to a consortium of Iberoamericana de Hidrocarburos, a Spanish-Mexican company, and Mexico’s PJP4.
Round 2.2 included nine blocks offering licenses in the Burgos Basin, just across the Texas border and long Mexico’s leading producer of non-associated natural gas. A 10th block in round 2.2 offered extra-light crude and gas in southeastern Mexico.
Round 2.3 featured 14 licenses: four in Burgos; five in the southeast, including one in the Chiapas foldbelt; and four in the southern Gulf state of Veracruz, including in the Tampico-Misantla Basin. The Tampico-Misantla Basin, which extends across east-central Mexico into the shallow waters of the Gulf of Mexico, may be one of 24 global onshore "super basins," much like the Permian Basin with its myriad reservoirs and multiple source rocks, according to a recent report by IHS Markit.
The blocks in Veracruz feature wet and dry natural gas and oil, according to the National Hydrocarbons Commission.
In the Wednesday afternoon auction for Round 2.3, the Jaguar-Sun God alliance snapped up five of the 14 blocks on offer. Two were taken by China’s Shandong Kerui, in consortium with two Mexican companies, Sicoval MX and Nuevas Soluciones Energeticas.
Carso Oil & Gas, a unit of the business empire of Carlos Slim, Latin America’s most powerful tycoon, won two blocks, its first since the series of auctions began. The Carso blocks are expected to produce 400,000 b/d of light crude in the medium term.
However, Petrobal, founded by Grupo Bal’s Alberto Bailleres, failed once again to win any bids. Bailleres, who owns the world’s leading silver producer Peñoles, established the privately held oil company in early 2015 to compete as part of Mexico’s energy reform process.
Alfa Industrial’s Armando Garza had better luck. Newpek, the energy unit of his Monterrey-based conglomerate, won two blocks in 2.3. Alfa, which also has interests in auto parts, petrochemicals and processed foods, has a workforce of close to 70,000 across Mexico, the United States and other countries.
Dionisio Garza, former CEO of Alfa, and his Topaz investment fund, controls Jaguar. The two Garzas are related.
Jaguar Director Javier Zambrano, said he hopes to form “not a series of blocks but a regional strategy” that would include much-needed infrastructure to develop northern Mexico’s natural gas production. U.S. Energy Secretary Rick Perry on Thursday discussed cross-border infrastructure issues with Mexico’s energy officials in a meeting in Mexico City.
In an interview with Mexico’s leading business daily, El Financiero, Zambrano said that, despite the current low prices in North America, Mexico could be competitive in terms of its fiscal system. He said he wanted to join Newpek and others to boost the region’s gas production.
In all, Mexican officials expect to raise about $2 billion from Rounds 2.2 and 2.3. Expectations are that once the new blocks come on stream, they could produce 378 MMcf/d, an increase of about 7% to Mexico’s current output, according to industry regulator, the National Hydrocarbons Commission.