Low risk, technical ease cited as factors in onshore auction success

The low risk of the onshore blocks Mexico put up for auction on December 15 and the less complex technology required to develop them were the main factors in the better-than-expected results, according to an analysis by Grupo Bursátil Mexicano (GBM).

All 25 of the blocks put out to tender were auctioned, a huge improvement on the shallow water auctions on July 15 and September 30, when two of 14 and three of the five blocks on offer, respectively, were successfully awarded.

Of the 25 onshore blocks, 20 were won by Mexican firms or groups featuring Mexican companies, with 40 bidders participating in total.

"The low risk and less complex technology required to pump oil in the area enabled smaller companies to participate, leading to a higher number of players, especially from Mexico," the financial group's report states.

The areas were auctioned off in two categories: one with oil and dry gas reserves totaling 150Mboe and one with oil reserves of up to 650Mboe. A total of 38 fields were awarded, 19 of which are already in production with the remainder having been explored but abandoned by state oil company Pemex.

Mexico's energy reform, allowing for private participation in oil and gas E&P, aims to ramp up the country's crude production, which has seen a decade-long decline.

The fields hold total 3P reserves of 1.8Bboe and stretch across 777km2, and the royalties the Mexican government will receive from them average 55.3% of revenue, compared to the stipulated 5% minimum.

Unlike the shallow water contracts auctioned off earlier this year, which operate on a profit-sharing scheme, the onshore contracts establish a minimum royalty payment to the government.

Oil company majors, which were not awarded any of the onshore fields, are expected to participate in auctions for deepwater and extra-heavy oil fields in 3Q16, the GBM report says.

"2016 is expected to bring better investment opportunities," the analysts wrote.

The report added that unconventional fields, which will also be auctioned next year, are expected to be less interesting, depending on the costs and minimum royalties, due to low oil prices, although both that auction and the deepwater one could attract bigger players from abroad.