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Mexico sweetens terms for coming oil fields auction

Mexico sweetened the terms for its September auction of oil fields, setting minimum bids Monday that are generally lower than for the exploratory blocks offered in July, which generated little interest given the weak price environment for oil and gas.

The Finance Ministry said the minimum bids for five groups of shallow-water fields guarantee a fair share of profits for the government while keeping the energy sector competitive for private capital. The ministry said the government’s overall take of the oil profits, after royalties and taxes, will be more than half.

Industry analysts said the government is taking the right steps to make this month’s auction more successful than July’s. Oil regulators had already made some changes to the contract terms for the September auction to generate greater interest.

Among the 14 companies and consortiums qualified to bid in the auction are major oil companies like Chevron Corp. and Royal Dutch Shell PLC, along with Mexican upstarts Carso Oil & Gas and Petrobal, according to the National Hydrocarbons Commission.

“I think a very important thing to notice here is that the government is willing to show flexibility going forward,” said Pablo Zárate of FTI Consulting’s office in Mexico City. “This is a step in the right direction, but it’s not necessarily all that’s needed,” he added, pointing out that some contract terms are still considered burdensome given low oil prices.

The minimum bids set by the ministry run from 30.2% for a grouping of two fields known as Misión and Nak, to 35.9% for the lone field of Hokchi. Bids are due Sept. 30. Bids are submitted in sealed envelopes and can’t be changed.

Mexico opened up its oil sector to private and foreign companies last year after eight decades of control by former monopoly Petróleos Mexicanos. The July auction was the first since the energy overhaul, but only two blocks out of 14 were awarded. Mexican authorities had hoped to award at least four or five blocks.

In that tender, the government didn’t unveil the minimum bids before the auction, and a number of bids fell just short of the minimum, which for most of the blocks was 40% and for the rest was set at 25%.

In the wake of that poor result, oil regulators said they would announce the minimum bids before the auction, and set them based on oil prices.

José Valera, an energy lawyer at Mayer Brown in Houston, said the government has followed through on its promise, and now it is up to the oil companies to run production models for the fields up for auction and decide whether to bid.


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