Competitive Advantages of Mexico's Round One

Q: How much of an advantage is it for Mexico to be offering blocks with certified reserves?

A: We are the only country that has areas up for bidding with proven reserves. Traditional licensing rounds include exploration blocks, which we also have as part of the Round One. The first phase consists of 14 exploration blocks, and the second phase includes nine fields with reserves that are certified by international companies. Mexico is able to do this because we just finished Round Zero, and some of the fields that were not awarded to PEMEX are now part of Round One. Mexico will not be able to keep offering fields with proven reserves, which makes this a special opportunity for Mexico and for every oil company in the market. The Energy Reform is bringing additional investment to develop already discovered fields. This gives companies the chance to participate in a bid with no geological risk since the fields already have certified reserves. Therefore, they can immediately go to a bank and ask for financing to develop the area. This will happen only once.

Q: Since this is a unique opportunity, how important is it for Mexican companies to compete in this round?

A: One of our main priorities is to promote the development of the new Mexican oil industry. For 76 years, we had an oil industry dominated by PEMEX, but the Energy Reform will allow Mexican people and entrepreneurs to reshape the oil industry. However, these new companies will have to undergo a steep learning curve. The natural place for a new company to start is onshore, which does not mean that they cannot participate in offshore projects. Apart from some exceptions in Mexico, the natural way to participate in the first two phases of Round One is as a financial partner. However, the third phase will offer onshore projects, which means that we will adjust the technical and financial requirements to enable new Mexican companies to participate. These will be fields that were not awarded to PEMEX in Round Zero, with proven reserves and existing production in some cases, similarly to the offshore fields in the second shallow water phase. CNH is currently looking at 30-40 fields that could be included in the process, in different states such as Nuevo Leon, Tamaulipas, Veracruz, Tabasco, Campeche, and Chiapas. We are not going to discriminate in terms of nationality as these requirements are going to be tailored for new companies in general, but we would like to see many Mexican companies participate.

However, one requirement is changing, namely that companies should have five years of experience before entering into onshore projects. Instead of requiring company experience, we are going to require human capital expertise. We want to see companies with highly experienced Mexican engineers. CNH will require companies to present the resumes of their top engineering staff, which will have to show that these have at least ten years of experience in onshore fields or shallow waters. This is not new as this approach has been used successfully in other countries like Colombia.

Q: What are the main changes that have been made to Round One since it was announced?

A: We switched the order of the biddings. We will announce the onshore fields phase in May, before presenting the fourth phase that will include deepwater and extra heavy oil in June. That fourth phase is the most eagerly awaited by all major companies, because of the risk and the location of the fields in the Gulf of Mexico. In terms of deepwater, we have the Perdido Fold Belt with 11 blocks, a few more blocks in the gas basins, and an unexplored area attracting a lot of interest amongst major companies, the subsalt basins. In June, we will also be releasing the bidding for extra-heavy oil fields. These fields are in shallow water in the areas surrounding Ku-Maloob-Zaap. In that area, we are going to bid new fields and farm-outs from PEMEX, as we are responsible for the bidding process of these projects as well. By combining the extra-heavy oil farm-outs at Ayatsil, Tekel, and Utsil, with others like Pit and Kayab, we reach approximately 1 billion barrels of 2P reserves.

Chicontepec and Unconventionals will be the final bidding in July, in which we will include tight oil, shale oil, and shale gas. In this last category, we have announced that as a consequence of the price drop, we are going to make adjustments to the original number of blocks that we are going to offer. Last summer, we announced nearly 70 blocks in unconventionals, but now we are picking the blocks that we believe could lead to a profitable opportunity on these current prices.