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Pemex Said Big Winner in Mexico Offshore Auction

Sixteen of 35 of the offshore Mexico blocks on offer by were taken up in Round 3.1 on Tuesday, the first auction in the third round of the country’s 2013-14 energy reform, a result that most analysts said was somewhat disappointing but hardly surprising.

For most of the day, the bidding was nothing if not turgid, but at the end it reached a powerful crescendo that generated gasps of excitement from the audience.

At a press conference following the auction, Energy Secretary Pedro Joaquin Coldwell described the results as "very encouraging,” noting they would generate $8.6 billion in investments over the duration of the contracts.

Mexico's oil industry has shown it has competitive advantages "due to not only the nation's geology but to the transparency in which these bid rounds have been conducted,” he said.

Of the three areas on offer, the first two were relatively unfamiliar to the industry.

The first was Burgos Basin, known as Mexico's leading producer of non-associated gas, but the offshore is relatively unknown. State oil company Petroleos Mexicanos (Pemex) did drill Burgos offshore several years ago but without success.

The second area was a grouping of the Tampico-Misantla and the Veracruz basins. Tampico-Misantla is where the Mexican oil industry began in the early years of last century, but was largely abandoned by Pemex as the Mexican oil boom of the late 1970s generated by the huge discoveries of the Bay of Campeche, further south in the Gulf of Mexico (GOM).

In addition to the modern industry's lack of familiarity of Tampico-Misantla-Veracruz and offshore Burgos, the upstream regulator, the National Hydrocarbons Commission, or CNH, forecast that most of the blocks on offer on both areas were likely to be producers of gas.

But infrastructure to bring gas to market is in very short supply in the region. As a result, the viability in market terms of producing gas in the region has been questioned, not least because of the prevailing prices from shale production in the United States.

Just as hopes of a successful auction appeared to be vanishing, every one of the eight blocks on offer in what is known as the Southeastern Basins were snapped up in fierce bidding.

Of the eight, three resulted in draws, following payment of the maximums for the government take and investment programs. The draws were resolved by cash bonuses totaling $126 million.

Italy's Eni SpA, in consortium with Russia’s Lukoil paid a bonus of $59.8 million to win Block 28. Germany's Deutsche Erdoel AG (DEA), UK-based Premier and Sapura of Malaysia paid a bonus of just above $51 million for Block 30. Pemex, going alone, paid $13 million to win Block 30.

All the bonuses were paid in addition to a government take of 65% in all three cases, completing a day on which the proven areas of the southern GOM’s shallow waters remain a powerful magnet to the modern industry.

Nor did it come as a surprise that Pemex had a least a share of half of the eight blocks that were adjudicated in the Southeastern Basins. One it took alone, while two were in a consortium with Total SA and a third with Royal Dutch Shell plc.

In all, Pemex was the big winner on the day, with a total of seven blocks.

In the round, Joaquin Coldwell said, "Pemex has shown itself to be a very competitive and trustworthy partner with international companies of considerable prestige.”

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