In what will be the largest auction of its type, Mexico's state-owned oil company Petroleos Mexicanos (Pemex) is to offer seven farm-out license contracts in southeastern Mexico, the industry regulator, the National Hydrocarbons Commission (CNH) agreed Thursday.
And on Friday, the E&P reported positive 1Q2018 earnings. Helped by increases in international oil prices and the value in the Mexican peso against the U.S. dollar, Pemex reported a net profit of 113.3 billion pesos ($6.2 billion) in the first quarter, a 14% increase on the same period of last year.
However, the company's production of both crude oil and natural gas continued to slide. Gas output in 1Q2018 was 4.782 Bcf/d, down from 5.337 Bcf/d year-on-year. Crude output in the first quarter was 1.89 million b/d, down from 2.018 million b/d in the 2017 period.
The contracted farm-out areas, which cluster together multiple fields, lie in the states of Veracruz, Chiapas and Tabasco. Five of the areas -- Artesa, Bedel-Gasífero, Giraldas-Sunuapa and Juspí-Teotleco are for contracts of up to 40 years for both exploration and production. Two others -- Bacal-Nelash and Lacamango are on offer for exploration contracts of a maximum of 35 years. The seventh area, Cinco Presidentes, will be on offer for up to 35 years for exploration only.
Together the seven clusters contain 26 fields, including light and heavy crude as well as natural gas, covering 4,580 square kilometers.
Pemex will have a 45% stake in each of the contracts. Winners of the auction will have the remainder if they bid solo. Where a consortium is the winner, the operator will have a stake of up to 30% in the contract.
CNH will receive and open bids for the farmout contracts at the end of October. The auction would take place roughly a month after an E&P licensing round for conventional and unconventional onshore blocks, set for Sept. 27. The regulator had originally planned to hold two separate auctions -- Round 3.2 and Round 3.3 -- but on Friday voted to unify them into a single bidding round.
At present, the seven areas produce 33,000 b/d of crude and 190 MMcf/d of gas, the CNH meeting was told, but the aim is to raise output to 58,000 b/d of crude and 310 MMcf/d. Total investment is calculated at $870 million.
The potential of farmout contracts for Pemex was highlighted during the negotiations of the 2013-14 energy reform, which allocated the state company more than 80% of the nation's probable (2P) and possible (3P) reserves.
Farmouts and other forms of upstream association were touted by senior Pemex and government officials as at least a partial solution to the twin ailments of sharp restrictions on spending and the decline in production, which has dropped since a peak of 3.38 million b/d of crude in 1994 to some 1.9 million b/d at present.
Speaking at a conference in Mexico City earlier this month, Mexican Energy Secretary Pedro Joaquin Coldwell warned that halting the decline of Mexican oil production is not an overnight endeavor. "Oil is a long-term business,” he said. “Exploration takes time. For example, returns are not expected in deep waters within at least seven or eight years.”
Efforts to promote upstream associations have met with mixed success. Some existing service contracts have "migrated" to licenses, while a year ago DEA Deutsche Erdoel AG of Germany and Egypt's Cheiron Holdings Ltd. were winners at an auction a year ago in two areas, Cárdenas-Mora and Ogarrio, respectively.
Earlier, in Mexico’s deepwaters, the Trion prospect close to the maritime border with the United States in the Perdido Fold Belt is being developed by Australia's BHP Billiton Limited, which won a very competitive auction over BP plc. Investment in Trion is estimated at $262 million.
However, no bidders were found for the deepwater Nobilis-Maximino block and Ayin-Batsil in shallow waters.
The current Pemex business plan projects 38 more onshore fields, in addition to the 26 in the seven clusters announced Thursday. The 38 have yet to be clustered.
Meanwhile, also this year, six shallow offshore fields, and 86 of unconventional resources in Burgos, northern Mexico and in the southern Gulf state of Veracruz, are also to be grouped together in clusters for Pemex farmouts.