Oil & Gas - Mexico

Pemex's Chicontepec round disappoints, surprises

Pemex's Chicontepec round disappoints, surprises

By -

Mexican national oil company Pemex awarded only three of the six blocks on offer Thursday in a disappointing, bizarre third round of incentive-based contracts in the Chicontepec basin.

Despite a combined 2.47Bboe in possible reserves on the table, bidders shied away from the Amatitlán, Miahuapan, and Pitepec blocks, which were declared void after receiving no bids.

Baker Hughes (NYSE: BHI), Halliburton (NYSE: HAL), Schlumberger (NYSE: SLB), Repsol (NYSE: REP) and Alfasid del Norte had qualified to bid on those blocks, but declined to submit offers.

"I was not shocked," John Padilla from consultancy IPD Latin America told BNamericas.

"These are long-term contracts and the major concern was in respect to the prospectivity. There was big potential but whether you could produce those [resources] economically was the big question," he said.

Officials from Pemex's E&P unit PEP presiding over the award ceremony were confused after receiving no bids on the three blocks and briefly halted the event for a private deliberation.

Pemex said the result was an "unforeseen scenario" and clarified that interested firms would not be able to resubmit bids despite suggesting so earlier.

Pemex announced via its Twitter account that the blocks would be retendered although it did not mention the three voided blocks in a press release issued following the event.

ROCK-BOTTOM BIDS

Perhaps more peculiar than the failure to award those blocks was the manner in which firms won the three other blocks.

Halliburton turned heads when it won the Humapa block with a bid of US$0.01/b and an investment factor of 1.25, despite Pemex setting a maximum price of US$6.50/b.

Weatherford's (NYSE: WFT) local unit Operadora de Campos DWF won the Miquetla block with a bid of US$0.98/b and an investment factor of 1.501. Baker Hughes' unit Petrolite was the runner-up with a US$0.89/b bid and an investment factor of 1.100.

Pemex's maximum price on Miquetla was US$6.50/b.

Finally, Petrolite won the Soledad block with a bid of US$0.49/b and an investment factor of 1.001, while Pemex set a maximum price of US$6.00/b.

The extremely low bids were perplexing.

"Based on the cost-recovery regime and the annual investment you have to make, how do you make money?" asked Padilla. "The numbers certainly don't suggest that you can."

Padilla suggests service companies are "protecting their turf" and that the contracts are unlikely to see their full 30-year life, with major energy regulation changes expected.

NEW ROUND, SAME PLAYERS

Despite attracting new participants like majors Repsol and Sinopec (NYSE: SNP), neither of which tabled bids, the round shows little has changed with Pemex's contracting scheme.

"It's a confirmation of the status quo. This is not a process of openness and the people who know how to work in the system continue holding on to everything," said Miriam Grunstein, energy counsel for law firm Chadbourne & Parke.

Baker Hughes, Halliburton, and Weatherford have all operated exploration field labs in the Chicontepec basin.