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Heavyweights lift Mexico's second oil round

Drilling boom offers bright spot in otherwise bleak global oil exploration outlook

After getting off to a rocky start, Mexico's oil opening is gathering momentum. This week's shallow-water acreage offering, the latest in a series of oil tenders started in 2015, was a resounding success. Ten of 15 blocks put up for tender were awarded, drawing winning bids from a healthy mix of international majors, local independents and national oil companies. Two years of oil auctions have now set the stage for an exploration drilling boom in Mexico that should bring billions of dollars of investment and, eventually, lift sagging output. It offers a rare bright spot in an otherwise bleak landscape for global oil exploration.

Eni was the round's biggest winner, snapping up three of the blocks. The Italian major has taken the most aggressive approach of all international companies since Mexico started auctioning acreage to foreign companies in 2015. It won the rights to offshore Area 1 in the Sureste Basin in 2015 and announced a light oil discovery at the block in March this year, the first find by an international company since the industry reforms. The blocks Eni won in this week's round abut Area 1. The company hopes it will develop into a new production hub for the company. So far it is the most promising prospect uncovered since the industry opening.


Eni narrowly missed out on a fourth licence at Block 9, the most hotly contested area. In the most dramatic moment of the round, Eni and a consortium led by Britain's Cairn Energy submitted equal bids. Cairn and its partner Citla Energy won in a tiebreaker by offering a larger bonus payment to the government. The companies have committed to drilling two exploration wells on the block. Cairn and Citla are also minority partners with Eni at Blocks 7 and 14. Citla Energy is backed by the US private-equity firm Acon Investments and IFC, the private investment arm of the World Bank, and is focused on exploring Mexico's newly opened prospects.

State-run Pemex, which sat on the sidelines through much of the earlier bid rounds, won two of the blocks. It will operate Block 8 alongside Colombia's national oil company Ecopetrol and will be a minority partner in Block 2 with Germany's DEA Group. Ecopetrol, which has its own experience with major energy reforms having gone through a similar process at home, also won rights to another areaBlock 6alongside Malaysia's state oil company Petronas.

Spain's Repsol, which had a long-standing, and often troubled, partnership with Pemex before the industry's opening, won its first block in Mexico alongside local explorer Sierra E&P. Total and Shell teamed up to take Block 15 uncontested. Russia's Lukoil won its first licence in the country after missing out in earlier rounds.

In total, the companies committed to invest at least $309m and drill nine exploration wells. The government, though, has much higher hopes. If the exploration efforts are successful, the energy ministry said, investment from the round could ultimately top $8bn and add nearly 200,000 barrels a day to the nation's output.

The most glaring downside to the round was the lackluster interest in its gas-rich prospects. It is a clear signal that the flood of cheap natural gas being piped into Mexico from the US is discouraging investment in the country's own gas resources.

There is also mounting domestic pressure to see more concrete results from the reforms. Oil output is still falling, hitting the national treasury, and local economies in oil-rich states like Tabasco and Veracruz are struggling and haven't seen the promised influx of foreign cash promised by the reforms yet. That is likely to change over time if the reforms stay on track, but the oil industry rarely moves as fast as politicians promise it will.

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