Lack of new auctions creates secondary market for offshore Mexico acreage

Offshore staff

MEXICO CITY – With Mexico’s government insisting that energy companies increase oil and gas output before it auctions off more of the country’s vast reserves, firms ranging from foreign majors to local players are scrambling to buy and sell blocks they already own.

According to a Reuters report, these negotiations are creating a dynamic secondary market for oil acreage, which could be the only investment opportunity left for firms until President Andres Manuel Lopez Obrador unblocks his predecessor’s flagship energy reform that has seen no new licensing rounds since 2018.

Companies selling stakes include large foreign producers that were awarded blocks in previous rounds such as China’s CNOOC and Germany’s Wintershall Dea. Smaller firms including Hokchi Energy and Grupo Diavaz are also trying to share a portion of their assets.

For sellers, allowing partners to access their projects is a way to limit growing political and financial risks while sharing required capital expenditure. For buyers, this secondary market can open a way into a country whose industry still holds enormous potential although its competitiveness is fading.

Several high-profile negotiations were announced since last year between firms including Italy’s Eni, Qatar Petroleum, Royal Dutch Shell, and Chevron.

Former President Enrique Pena Nieto awarded over 100 contracts to energy firms in 2015-2018 to explore and produce oil and gas in Mexico. His reforms also opened the door for Pemex to form joint ventures.

But Lopez Obrador’s administration has suspended auctions planned for 2019 and halted farm-out opportunities until the existing projects add barrels to Mexico’s dwindling output.

Now, negotiations of stakes have brought opportunities for all types of investors, ranging from promising deepwater areas at Mexico’s Gulf to small onshore fields.

CNOOC, which faces heavy capital investment in Guyana, plans to sell stakes in two offshore blocks at Mexico’s Perdido basin. The negotiations are expected to be completed in January, the company said, without revealing names of the interested buyers.

CNOOC in 2018 said it could sell or swap some of its unit Nexen Petroleum’s US Gulf assets as part of a portfolio rebalancing. But planned stake sales in Mexico are “ordinary trading” of projects for oil exploration unrelated to other regions, the firm added in an email to Reuters.

Wintershall Dea, the oil and gas unit of chemicals giant BASF, is also reportedly reshuffling its Mexican portfolio after buying independent firm Sierra Oil and Gas in late 2018, by offering a stake in an offshore block it shares with Malaysia’s Petronas.

Some of the planned stake sales are driven by the need for investments to start production.

Hokchi Energy, a unit of Pan American Energy, is looking for a partner willing to share investment for the Hokchi oilfield, one of Mexico’s most promising shallow-water projects, the vice president of the firm, Vinicio Suro, told Reuters. Smaller players also are selling stakes to catch needed capital.

Among companies interested in buying more stakes in Mexico are Chevron, Vista Oil & Gas, and Japan’s Inpex Corp., according to the Reuters report.

Shell, which recently sold a 40%-stake in three offshore blocks to Chevron, is reportedly open to more negotiations, while Chevron reportedly continues to be interested in opportunities that meet its investment criteria, according to a spokesperson.

The Mexican government has maintained pressure on oil firms to ramp up production and help reverse 15 years of decline. Yet some analysts say the government is wasting time while providing scant incentive for private firms and Pemex to jointly achieve the goal of adding 1.3 MMb/d by 2024, a 76% increase from current output of 1.7 MMb/d.

12/4/2019