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Majors snap up Mexico's shallow-water offering

Industry heavyweights have piled in after large discoveries in the Sureste Basin, which has emerged as the country's most promising area outside the deep waters

Mexico saw strong interest from international oil companies in its last bid round before presidential elections in July which threaten to hamper energy reforms transforming the country's upstream.

Of the 35 Gulf of Mexico shallow-water blocks put on offer this week, 16 drew winning bids, including from Total, Eni, Repsol, Shell and Mexico's state-owned Pemex.

The clear standout area, as with last year's shallow-water round, was the Sureste (southeast) Basin, where all of the eight blocks offered up drew multiple competing bids.

The Sureste Basin has been a reliable source of production for Pemex over the years, but more importantly has seen two major discoveries from foreign investors since the country's oil opening. A Talos Energy-led consortium, which also includes UK-based Premier Oil and Mexico's Sierra Oil & Gas, hit big with the 2bn barrel Zama discovery in the basin last July. Italy's Eni has found around 1bn barrels at its Amoca prospect in the basin, which it plans to start producing as early as next year.

The discoveries showed that even though the basin was well-trodden by Pemex, there is still sizeable potential with new ideas and exploration technology.

Total was the big winner in the Sureste Basin this time around. The company won blocks 32, 33 and 34, fending off highly competitive bids in each area. Eni also bid aggressively in the basin, where it has seen success and is keen to expand. It won Block 28 in a consortium with Russia's Lukoil, but it just missed out on three more blocks where its offers finished second.

Block 30 was the most hotly contested, pulling in seven bids, with a consortium led by Germany's DEA coming out on top. Shell, which had previously won deep-water acreage in the country, took its first shallow-water block in the round. Pemex and Argentina's Pan American Energy also won blocks in the Sureste Basin.

Critical window

The increasingly likely prospect that an opponent of the energy reforms, Andrés Manuel López Obrador, widely known as Amlo, will win the presidential election didn't seem to scare off investors. Rather, it might have made the round more enticing.

Amlo plans to carry out a top-to-bottom review of the reform process, including contracts signed with private oil investors. If he wins he will likely pause the bid rounds, which have been held at a breakneck pace over the past three years.

Most executives are convinced that even if Amlo wins, that he won't touch contracts which are already sealed. But concerns over future opportunities to acquire new acreage led many to jump into these last rounds before the vote.

There are two more rounds, both for onshore acreage including some with shale potential scheduled for after the election but before the next president takes office in December. Those should go ahead regardless of who wins July's vote. Pemex also hopes to finalise a series of smaller farmouts with private investors before December. Beyond that, the prospects for the energy reforms are murky for now.

Source: Petroleum Economist
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