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Latin America lines up bid rounds

Attractive auctions will see the region compete for international investors

2018 will be a busy year in Latin America. As elections loom, threatening a major rupture in the political landscape, several of the region's most prolific oil producers will be hosting hotly-anticipated licensing rounds. Previous waves of nationalism have given way to market-friendly reforms that are enticing international investors back to the region. Now sitting governments are racing to capture majors' dollars before it's too late. But in an era of cautious spending, so many offers at the same time will generate heated competition among these countries for oil companies' investment.

Each country has its pros and cons: Brazil holds the biggest opportunities, with its low-risk and high-potential pre-salt province, but with tougher fiscal terms than others. Mexico's terms are better but carry a potentially higher political risk. And the other three; Argentina, Colombia and Uruguay, are offering some offshore opportunities in underexplored regions where the potential still needs to be proved.

Mexico kicked things off in late January with a blockbuster deepwater bid round. Nineteen new deepwater contracts were awarded in a highly contested round, garnering a commitment to drill 23 exploration wells and billions of dollars of investment. Shell dominated the proceeding, snapping up nine of the blocks, giving it a leading position in Mexico's deep waters, mirroring its large position in the US Gulf of Mexico. Chevron, Eni, Repsol, Petronas and a handful of other international companies also won new contracts in a round that bodes well for the year ahead.

Mexico will look to carry on the success later this year in Bid Round 3, which will offer exploration licenses to 37 onshore blocks and 35 shallow-water areas. According to Mexico's energy ministry, the offshore blocks could hold as much as 2bn barrels of oil equivalent.

Brazil will hope international investors' enthusiasm for Mexico's deep waters carries over to the pre-salt. In March the country will host its 15th round under the tax/royalty system offering 70 blocks across a number of onshore and offshore basins. But international majors are gearing up for the next pre-salt deepwater round, slated for July. Five high potential blocks—Três Marias, Dois Irmãos, Uirapuru, Saturno and Itaimbezinho—located in the prolific Santos and Campos basins are being offered under production sharing contracts. According to Brazil's oil regulators, these five blocks have potential for huge oil discoveries, with estimated resources of as much as 17bn barrels.

International majors piled back into the pre-salt in last year's bid round, the first since the province was discovered, a positive sign for July's round. However, state-owned Petrobras has said it plans to exercise its preferential right in three of the blocks: Três Marias, Uirapuru and Dois Irmãos.

Mexico kicked things off in late January with a blockbuster deepwater bid round

In July, Argentina will also look to make a splash with its first ever offshore oil auction. The bidding round will offer acreage in three basins: Austral Norte, Oeste de Malvinas and North Argentina. Just 2% of Argentina's oil production comes from offshore and the country's waters are largely unexplored.

Given its neighbour Brazil's success with the pre-salt plays, Mines and Energy Minister, Juan Aranguren is optimistic about Argentina's potential: "There is a high probability that the subsalt basin that exists on the coast of Brazil continues south and so we see the discovery of any formation of oil and conventional gas in the area as very attractive."

Uruguay is also promoting its offshore exploration through the sale of 17 offshore blocks in April, opening up yet more waters off South America's Atlantic coast. The three offshore basins in the country are still underexplored, despite significant interest in recent years, and oil and gas accumulations have not yet been identified. Only three wells (two by Chevron in 1976) have been drilled offshore so far—all of them dry.

After a three-year hiatus in oil and gas licensing, Colombia is also returning to the market. The country is offering 15 onshore blocks, including some mature areas, in the Sinú-San Jacinto basin in the northeast of the country, attempting to capitalise on a peace deal with the Farc that it hopes will lure in more foreign investment.

Source: Petroleum Economist
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