First Round ISCs Awarded

In August 2011, Pemex announced the winners of its first integrated service contracts after considerable national and international interest, including bids from companies such as Halliburton and Schlumberger, who already have contracts in place with Pemex under dierent terms. The contracts only represent 1.5% of Mexico’s total proven reserves, but they marked a milestone, as they were the first to be awarded under the new modality since they were made legal by the 2008 Energy Reform.

Only two of the four proposals for the Magallanes field were below Pemex’s maximum bid price of US$9.75/ bbl, after which the contract was awarded to Petrofac Facilities Management Limited at US$5.01/bbl. The same company also won the contract for the Santuario field with the same financial oer, compared with Pemex’s maximum bid price of US$7.97/bbl, undercutting the eight other participants. While Dowell Schlumberger Mexico unsuccessfully submitted the second lowest proposal for the Santuario field, the company was more successful in the Carrizo field bidding process. Initially, the Carrizo block went to a Mexican firm from Nuevo Leon, Administradoras en Proyectos de Campos (APC), at a bid price of US$5.03/ bbl, but in October 2011 Pemex announced that the company was non-compliant. Subsequently, the contract was passed to Dowell Schlumberger, the only other bidder. Reaction to the new contracts in the Mexican press was mixed. Whilst some sang the praises of the new contracts, and hailed a new era in the development of the Mexican oil and gas industry, other commentators claimed that the contracts were unconstitutional.

After a three-month transition period, Pemex signed the contracts on October 18th 2011, which will last for 25 years and give Petrofac and Dowell Schlumberger a 90% stake in the contract to develop their respective fields, with Pemex accounting for the other 10%. Both Petrofac and Dowell Schlumberger will receive a reimbursement for 75% of the cost of developing the field through a cost recovery mechanism. Petrofac will receive a fee of US$5.01 for each barrel of incremental production at its fields, and Schlumberger will receive US$9.40 per barrel of additional production at the Carrizo field. The framework provides incentives for the companies operating under the integrated service contracts to produce as much as they can, whilst giving Pemex a low cost per barrel produced.

Pemex has operated Magallanes and Santuario since the beginning of the 1960s. The fields have some 1,000 wells total, of which 100 are currently producing. Petrofac will be looking to reactivate and develop both blocks through its recently established company, Integrated Energy Services. Petrofac will send a team of 150 employees to the blocks, with a focus on local employment. Pemex, for its part, will retain responsibility for personnel at the field.