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Mexico invites nominations for deepwater blocks to include in December auction

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Houston — Mexico is inviting domestic and international oil companies to submit nominations from among the 119 deepwater blocks available on its side of the Gulf of Mexico, some of which may be included in a bid round this December, the country's deputy energy secretary for hydrocarbons said Monday.

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The nomination process, which began in mid-March and will be open for three months, will help the state decide which and how many blocks to offer in the late-year auction, Aldo Flores Quiroga told an audience at the opening of the Offshore Technology Conference.

Mexico's top energy officials from the Energy Ministry (SENER) and the National Hydrocarbons Commission (CNH) will reveal in June which blocks will be offered, Flores said, adding Mexico also plans a deepwater auction for October 2018.

"We're offering a predictable calendar for tenders, and also on-demand seismic data," he said.



All deepwater blocks will be 1,000 sq km, which is also part of the energy authorities' process that will standardize block sizes.

Flores said that despite low oil prices -- currently teetering slightly under $50/b -- Mexico's deepwater offers an relatively attractive breakeven price under $60/b. Oil prices are widely expected to rise in the next year, and deepwater blocks awarded in 2017 would not likely be developed for at least five years and potentially longer.

Last December, SENER and CNH held the country's first deepwater bid round, with international oil companies and Mexico's state-led Pemex participating. Eight of 10 blocks offered were awarded, won largely in consortia.

At the same time, the country auctioned off a joint development of the Trion block with Pemex -- Australia's BHP won the farm-out block for an upfront cash payment of $62.4 million. It was the first of numerous expected farm-out development blocks that will be offered over the next few years.

On Friday, CNH approved the auction rules to farm out two of Pemex's onshore mature fields, Cardenas-Mora and Ogarrio in the southeast state of Tabasco. Results of that auction will be released on October 4, along with the results for the farm-out of the shallow-water block Ayin-Batsil.

Also, Pemex said Thursday it was likely to launch a farm-out this summer to find a partner to develop the deepwater Gulf of Mexico Maximino-Nobilis Block, in addition to three new shallow water farm-outs off Tabasco.

Mexico's deepwater -- which has barely been tapped by Pemex and not at all by foreign operators, since Pemex was an upstream monopoly for nearly 75 years -- is one of the global bright spots for offshore exploration. Such activity slumped worldwide during the two-year industry downturn and is still sagging.

Oil discoveries fell to 2.4 billion barrels in 2016, the International Energy Agency said in a report last week, a record low that compares to an average 9 billion barrels/year over the past 15 years. And the deepwater offshore sector, which accounts for nearly a third of crude oil production and is vital to future global supplies, has been especially wounded by the sector's sluggishness.

Big players in the US Gulf of Mexico, such as Chevron, are devoting more dollars to their onshore operations in the Permian Basin of West Texas and New Mexico. And while companies have not abandoned all offshore exploration there, it has fallen considerably and the prospects being drilled are typically clustered around existing discoveries that can be easily and cheaply brought online and produced through an existing production hub.

Flores noted that Mexico's historic energy reforms three years ago, which resulted in four upstream bid rounds in 2015-2016 and collectively comprised its Round One auction, took place after oil prices fell from $100/b in mid-2014 to the $50s/b by the end of that year.

But the fact that they occurred demonstrate the country's commitment to an open and globally competitive oil sector, he said.

"We plan to keep this going regardless of [the oil] price," Flores said. "And when the price goes up .... we'll be in a much better place to make the most of the opportunities that the higher prices provide."

--Starr Spencer, starr.spencer@spglobal.com

--Edited by Lisa Miller, lisa.miller@spglobal.com