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Analysis

Second Round ISC Progress

Tue, 01/22/2013 - 13:09

In January 2012, Pemex announced the second round of bidding for integrated service contracts (ISCs) with the hopes of attracting private investment to increase production at 22 mature fields, spread across six onshore and o†shore blocks located in Tampico-Misantla Basin. The conditions under which Pemex o†ered these contracts include a fee that the winners will receive for each barrel of incremental production, and 100% of exploration costs and 75% of development costs will be reimbursed. As of December 2011, production at the 22 fields involved amounted to 12,300 b/d.

A total of 31 companies participated in this round, and in June 2012, Pemex announced the results. The four onshore areas – Altamira and Pánuco in Tamaulipas, and San Andrés and Tierra Blanca in Veracruz – were successfully awarded, but allotment of contracts regarding the two marine areas – Arenque and Atún – was unsuccessful. Whereas the NOC failed to receive a satisfactory o†er regarding Arenque, the bidding for the Atún contact was declared deserted.

The Altamira block was awarded to Cheiron Holdings Limited. The Egyptian company placed an o†er of US$5.01 per barrel, with an initial investment of US$33 million. Cheiron is now reactivating the field’s 87 wells – of which only 25 were operating – and drilling new wells in order to increase production. The company created Mexican subsidiary Compañía Petrolera de Altamira (CPA) and chose former CNH Commisioner Alfredo Eduardo Guzmán to spearhead it. Handover of the tendered area was completed in October 2012, after which CPA proceeded to implement an ambitious work program that includes an extensive 3D seismic coverage of the area, optimization and debottlenecking of current production facilities, introduction of new down-hole and drilling technologies (including EOR applications), and exploring promising in-field and near-field plays. However, this aggressive plan has been stalled by the opposition of the local communities to CPA’s incursion. Therefore, production at the asset remains stable at 1,600 b/d.

Petrofac, in joint venture with Schlumberger, was awarded the Pánuco area following a bid of US$7 per barrel and initial investment of US$25 million. The consortium, dubbed PetroPSM, formally took over operatorship on March 27, 2013. Production enhancement works in the block’s four mature fields – where only 200 of 1,600 wells are currently producing 1,500 b/d – are expected to begin this year.

The Tierra Blanca block was awarded to Monclova Pirineos Gas, which proposed a fee of US$4.12 per barrel and an initial investment of US$24 million. The area has a total of 380 drilled wells, of which 49 are currently operating. The same consortium was also awarded the contract for the San Andrés block, where only 50 wells, out of a total of 356, were in operation. The joint venture proposed a fee per barrel of US$3.49 and a startup investment of US$24 million for this tender. San Andrés and Tierra Blanca harbor a combined volume of 137 million boe in prospective resources.

Out of all the blocks included in the second round of ISCs, Arenque is the largest one with 994 millon boe in prospective resources. After the contract was initially not awarded, Petrofac made Pemex a second o†er for the tender, lowering its fee from US$12.50 per barrel – which originally landed the company in second place for the best o†er – to US$7.9 per barrel. Initially, the NOC had established a maximum of US$7.25 per barrel, but accepted the o†er. Petrofac will commit around US$50 million in capital expenditure for the project, to reactivate production at its 51 wells, of which only 17 are currently in operation.

Together, the five contracts awarded will generate investment of over US$2.9 billion throughout the first six years, according to Pemex. The NOC also expects to register a combined production of over 120,000 b/d at the five blocks by 2022, which would have fallen to 40,000 b/d if Arenque was not awarded. Therefore, in spite of the fact that no contract for Atún was awarded, the second round of ISCs can be considered a success.

2ND. ROUND (MBD)