Mexico's landmark oil lease sale results disappoint

— Mexico's first upstream auction in 77 years proved to be a disappointment July 16, with the award of just two of the 14 blocks on offer. After months of highly promoted conferences and publicity following last year's energy reform, the weak response came as a surprise.

WHAT HAPPENED?

Only nine of at least two dozen companies or consortiums that had been qualified to bid actually did so, and some failed to even turn up.

Chevron and ExxonMobil were among the no-shows. So, too, was Pacific Rubiales, Latin America's largest privately owned company. Rubiales is listed as a Canadian company, but its operations are all in Latin America, particularly Colombia.

WHY?

It's said to be a combination of factors including lower oil prices and terms that weren't as attractive as some thought they'd be. Also, many companies were sitting out this first bidding to get a feel for how it would go. Mexico has said it expects more participation in subsequent tenders.

WHO BID?

Mexico produced the only winner of the day. Sierra Oil and Gas, a Mexican start-up, won both blocks that were awarded, with a consortium that included Talos Energy and Premier Oil.

Block 2, with an area of 194 sq km, was described as having potential in light oil. The Sierra consortium offered a government pre-tax take of 55.99% and an increase in a minimum work program of 10%. Hunt Oil made an offer of 54.57% and 5%.

The minimum figures for each block were contained in a sealed envelope before the bidding began. In the case of Block 2, they were 40% and zero.

At 465 sq km, Block 7 was one of the largest, and it had four bids. The Sierra-led consortium offered 68% and 10%. Statoil, Eni and Hunt placed bids that were lower. All the other blocks were declared null and void, either because there were no bidders at all or they failed to meet the government's minimum requirement.

WHAT NOW?   

Four public tenders will follow the July 15 event, to be held later this year and into 2016. They are expected to have a better turnout due to less geographic risk.

WHAT ABOUT MEXICO'S OVERALL PRODUCTION PROSPECTS?

It could take four or five years to get production on stream from the exploration blocks tendered in the latest lease sale. Mexico's five-year plan forecasts a resurgence of the country's flagging production. Crude output peaked at 3.38 million b/d in 2004, but has dropped every year since then.

Currently, Mexico produces some 2.3 million b/d of crude. The plan forecasts an increase of 500,000 b/d by 2018 and 1 million b/d by 2025.