Pending exits mark Mexican O&G in Q3

A flurry of exits from Mexico’s oil sector comes despite accelerating M&A activity in energy (including renewables) across Latin America.

Some players that entered the Mexican market after the 2013 energy reform re-adjust their footprint while others find disappointment at exploratory wells. 

This suggests that established foreign firms are reassessing their views of Mexico’s potential as an oil and gas destination. 

In the first three quarters of 2019, US-based firms have made two oil and gas acquisitions, while British, French and Dutch companies each made one acquisition, according to data from Transactional Track Record. 

Here are some of the most significant developments in Q3:

PREMIER OIL'S ZAMA STAKE SALE

In late August, Premier Oil put its 25% stake in the Zama field, in block 7 of offshore Sureste basin, up for sale. 

This move followed a June upgrade of Zama’s recoverable assets, as well as the company’s rising output from its North Sea fields that account for the lion’s share of its daily output, suggesting a bid to trim fringe assets. 

Zama is estimated to have at least 1Bb in recoverable oil and gas.

But Premier will maintain a presence in Mexico. The company said it will begin exploratory offshore drilling at block 30, southwest of Zama, in 2020.  

At the time of the announcement, financial services company Jefferies valued Premier’s Zama stake at US$439mn, Reuters reported.

However, in early October the Zama patch became subject to speculation about Pemex planning to stake a claim to the site, reducing the control of its major minority shareholder, Talos Energy. 

Premier and Talos’ other former partner with Pemex at Zama, Sierra Oil & Gas, has sold its stake to Wintershall DEA.  

PETROFAC SELLS REMAINING STAKE

In late September, Jersey-based oil service firm Petrofac sold its remaining 51% stake at Santuario, Magallanes and Arenque sites to the Anglo-Dutch firm Perenco.

Per the agreement, Petrofac will receive US$37.5mn upfront, and a final payment of US$82.5mn if the deal is approved by Mexico’s competition regulator (Cofece) and is finalized in 2020. 

The deal would complete an exit that began last year when Petrofac sold the first 49% of its assets to Perenco. 

All three sites are mature, operating oilfields. The Magallenes and Santuario sites, discovered by Pemex in the 1960s, are in the state of Tabasco. Arenque is located some 30km offshore from Tampico.  

Petrofac is the longest-established foreign operator in Mexico, having been awarded two offshore blocs from Pemex the year before the country's sweeping energy reforms.  

HOKCHI ABANDONS AREA 2

In early October, Mexican oil firm Hokchi Energy received approval from hydrocarbons regulator CNH to pull out of its assignment at area 2, offshore Veracruz. 

Originally estimated to hold 142Mboe, two exploratory wells drilled at the site from April-July proved disappointing.   

While Sierra Oil & Gas, Talos Energy and Premier Oil, also held stakes at the site, Hokchi’s 47.5% share gave the decision weight; the other partners will abandon the site as well. 

In voting to approve the decision, CNH commissioner Sergio Pimentel said, “that’s how exploration is, and that’s why it’s desirable for there to be more exploratory activity and more operators.”

However, in tandem with speculation that Pemex is looking to dominate the Zama site, news of the abandonment could strain the consortium of private firms of Hokchi, Talos, Sierra and Premier. In recent years, the consortium has worked to develop Mexico’s shallow offshore resources.

As of September 15, 21 firms were working on 80 authorized projects in Mexico’s oil and gas sector.