/
Analysis

How the First Round ISCs Played Out

Wed, 01/25/2012 - 14:57

The first round of integrated service contracts in Mexico attracted a respectable number of interested parties, and should prove to be a useful indicator of interest in future rounds. In total, 25 companies applied for the bidding packs for the areas on oer. Ten companies applied for information on only one area, six applied for information on two, and nine companies applied for the information on all three areas: Dowell Schlumberger, Industrial Perforadora de Campeche, Repsol, Pacific Rubiales, Pluspetrol Resources, Bridas, YPF, Oceanografía and Chevron.

The contracts were awarded according to two factors: the lowest bid for the fee-per-barrel remuneration aspect of the contracts, and the percentage increase over the minimum investment requirements for each contract. The Magallanes area received four bids. Pemex had set the fee per barrel ceiling at US$9.78. Whilst companies like Bridas bid over this at US$21 per barrel of oil equivalent, other bids were under the ceiling. Burgos Oil Services bid US$8.65, and Petrofac bid US$5.01, and won the contract as result.

Santuario received the most bids from the first contracts, with nine oers submitted. Some of the bids were well over the US$7.97 fee per barrel ceiling that Pemex set, with the highest bid coming from a Spanish-Argentine consortium of oil producers Repsol and YPF, at US$25 per barrel. The lowest bid was once again Petrofac, at US$5.01 per barrel. At this field, the minimum investment price also played a role in determining who would win the field. Dowell Schlumberger oered to increase the minimum initial investment of US$58.3 million by 65%, but Petrofac beat this oer by proposing to increase the minimum investment by more than double, at 100.5%.

At Carrizo, Pemex only received two bids – one from Administradoras en Proyectos de Campos (APC), and another from Dowell Schlumberger. For this field, Pemex set its ceiling relatively high, at US$12.31 per barrel produced. Schlumberger bid US$9.4 per barrel, and APC bid lower at US$5.03 per barrel, thus winning the contract. However, in October 2011, Pemex announced that APC had been disqualified from the process, because they had failed to arrive at the contract signing with their legal representative or the required performance bond. Reports after the event suggested that APC could not obtain the required bond because they could not prove to their guarantor that they would be able to operate the contract for the specified 25 years. As a result, the contract passed to the only other bidder, Dowell Schlumberger.

Whilst neither Schlumberger nor Petrofac have been particularly vocal about their development plans for the fields, Petrofac announced following the signing of its two contracts that it plans to invest US$200 million of its US$500 million before 2014, with the option to invest more depending on results. Harry Bockmeulen, Director of Petrofac Mexico, said at the time that: “for the current production Pemex pays us 20% of the fee, then really it make sense for us to increase the production of these fields. That benefits Pemex and us. The quicker the oil is recovered, the faster Petrofac will recover its investment.”

Schlumberger has not released any information about its proposed development of the Carrizo field. The field is very small in comparison to the oilfield service company’s other global projects, at just 13km2 and with 3P reserves of only 52 million Boe.

Colin Stabler, a consulting petroleum geologist based in Mexico, suggests that Petrofac might increase its reserve base at the Magallanes field by reprocessing 2005 vintage 3D seismic data in order to look for infill drilling locations, recompletion intervals and deeper exploration targets, but posits that a fresh 3D seismic survey might be required of the area. He suggests that such a survey might provide the incentive for the new operator to relinquish the nonproducing Otates field, once it has been proven unviable. At Santuario, Stabler believes that two mini 3D seismic surveys of 17km2 and 10km2 could be integrated with existing 3D seismic data in order to identify new drilling locations and recompletion intervals. At Carrizo, Stabler recommends a mini 3D seismic campaign to map the unsurveyed 40% of the field.

First Round ISCs