Second Round ISCs to Be Awarded in 2012

In January 2012 Pemex announced a call for bids to companies wishing to participate in Mexico’s second round of integrated service contracts for exploration development and production at six mature fields in the north of Mexico. A data room has been created in Veracruz, where companies can go until April 27th to view information on the fields, and the information is also available online (www.pemex. com/contratos). The contracts are due to be awarded on June 19th, 2012. It was originally thought that these contracts would be announced in October 2011, but this was delayed after a number of setbacks.

There will be six contracts awarded for six dierent areas in Pemex’s northern region: two in Tamaulipas, two in Veracruz, and two oshore areas. Pemex hopes that within three years of the new contracts being initiated, production will increase by 90,000 bbl/day. Given the profiles of the fields on oer, it is expected that the domestic industry will be the most interested, as well as small to mid-sized foreign companies. One new aspect of the second contracting round is that the winners of the contracts will be able to recover 100% of their exploration costs. The term of the ISCs on oer vary from 25 to 30 years. Pemex will retain an option to buy a 10% working interest on the blocks, with the aim of gaining a technical and operational working knowledge from the field. The contracts are divided into two periods: a two-year initial evaluation period and a development period. During the development period, contractors are required to carry out minimum work commitments on blocks that have been declared commercial. An interesting nod to national content means that if the winners of the contractors decide to subcontract any work on the areas they win, then national contractors will be given preference if prices, capabilities and other factors are comparable. On top of this, the contracts have a 40% minimum national content requirement on a value-added basis.

There is speculation amongst analysts and Pemex watchers that appetite for the second round of integrated service contracts could be reduced as a result of the 2012 elections, which will be held in July. If a change in government leads to a liberalization of the energy sector, which is certainly possible, there may be little point in investing in these service contracts if better terms may be oered to third parties following a new energy reform. Pemex has said that the next rounds will be for fields in the Chicontepec region, with the fourth found focusing on deepwater, which may be more attractive than the fields oered in this second round, if the fiscal and commercial terms are correct.