MEXICO CITY – Mexico’s government confirmed that its historic oil opening will take place on July 15, when an initial batch of 14 shallow-water exploration and production blocks in the Gulf of Mexico will be awarded in the first phase of its Round One auction.

The awarding of the 25-year production-sharing contracts follows a December 2013 oil sector overhaul, a package of constitutional changes that ended state-owned oil giant Petroleos Mexicanos’ 75-year-old monopoly and opened Mexico’s energy sector to private investment.

The initial 14 blocks will be awarded in the first of five phases of Round One, which comprises a total of 169 onshore and offshore blocks.

The call for bids for the first phase of Round One was announced in December 2014; 26 participants have been pre-qualified to place offers, including U.S. oil supermajors ExxonMobil Corp. and Chevron Corp.

Calls for bids for the second and third phases were announced in February and May of this year, respectively.

Unlike the first two phases of Round One, which offer production-sharing contracts, the winning companies in the third phase will receive 25-year license contracts that can be extended by two additional five-year periods.

In a production-sharing arrangement, the government and the company split the “profit oil,” or what remains after capital and operational expenditures.

Under the license contract model, the contractor has the right to receive hydrocarbons in kind at the wellhead in exchange for paying cash compensation to the state in the form of exploratory phase fees, royalties and a percentage of the value of the hydrocarbons produced.

Mexican Deputy Energy Secretary Lourdes Melgar said Thursday that under the department’s five-year plan covering the 2015-2019 period 915 onshore and offshore blocks, which encompass a 178,554-square-kilometer (69-sq.-mile) area and could contain 107.5 billion barrels of oil equivalent, are to be put up for auction.

Local governments and industry participants will have until Aug. 15 to weigh in on the document, and then on Sept. 30 a final version will be published and a proposal for the 2016 oil tenders will be sent to the Finance Secretariat, she said.

The head of the Coparmex business federation, Juan Pablo Castañon, said the plan will give the private sector greater certainty in planning their investments and calculating their risks and expected returns.

Mexico’s government is looking to the energy overhaul to attract tens of billions of dollars in investment and reverse a roughly 30 percent decline in Mexico’s oil output, which peaked at 3.38 million barrels per day (bpd) in 2004 and currently stands at roughly 2.3 million bpd.

Petroleos Mexicanos, known as Pemex, reserved 83 percent of Mexico’s proven and probable reserves and 21 percent of potential reserves for itself in a so-called “Zero Round” of non-competitive bidding last year.

Source: Latin American Herald Tribune - http://www.laht.com/article.asp?ArticleId=2391597&CategoryId=14091