Sweeter terms hoped for in Mexico’s delayed deepwater auction

Mexico is expected to sweeten terms for bidders of its deepwater oil assets, after energy minister Joaquin Coldwell told local media that the auction had been delayed until around September.

Oil companies are exercising caution with oil and gas assets as depressed crude oil prices are negatively impacting return and heightening risk, an M&A banker told LatinFinance. But potential auction changes are likely to buoy the sentiment of oil and gas companies, a report from JPMorgan said.

Regulatory changes may include relaxing consortium bidding requirements and reviewing minimum shareholders’ equity terms, which currently stands at $6bn, the investment bank said. The energy ministry is also revising corporate guarantee rules and may allow companies to make a second bid, should their first bids fail. It could remove a rule that prohibits a consortium from replacing any pre-selected operators that renege on their initial bid.

The next round of auctions in September, Round 1.2, will be followed by Round 1.3 in mid-December, the M&A source said. Round 1.2 will include the sale of five blocks of shallow water fields, while Round 1.3 will include 26 on-shore fields, which will be granted under license agreements.

Two further rounds are expected and Minister Coldwell told local media that Round 1.4 will mainly comprise the sale of deepwater assets. He said the terms for this round will be announced next month.

Despite the fanfare surrounding the initial auction round, the results were considered “underwhelming”, JPMorgan said. Only two of the 14 fields were allocated after bids for the others were below the minimum levels required by the Mexican government.

Coldwell said the government was evaluating the deepwater assets and needed time to improve the criteria. Mexico’s deepwater sector is the most appealing to foreign oil and gas companies and stressed the importance of getting this stage into the market as soon as possible, the M&A banker said. LF