Mexico’s finance ministry on Monday announced the minimum fiscal terms companies will be required to meet to win development rights in an upcoming oil auction, as the country seeks to lure investment despite slumping crude prices. The ministry set the minimum value of pre-tax profits for the five offshore extraction contracts up for grabs at a range of between 30.2 and 35.9 percent.
The National Hydrocarbons Commission, known by its Spanish-language acronym CNH, is the oil regulator that will run the September 30 auction, the second such auction to date in Mexico’s so-called Round One tender following a historic energy overhaul finalized last year. The minimum amount of profits required to win development rights varies slightly by contract.
At the high end, the second contractual area, which covers the Hokchi field, is set at 35.9 percent. Bids for the fifth contractual area on offer, covering the Mision and Nak fields, will require at least 30.2 percent of pre-tax profits for the government. The five production-sharing contracts covering nine oil and gas fields will be awarded by the CNH based on which company or consortium offers the biggest share of pre-tax profits to the government via a weighted formula that also includes an investment commitment.
The share of profits is 90 percent of the formula, while the investment commitment accounts for the remaining 10 percent. However, the newly released terms do not require bidders to offer a additional minimum work program investment, although previously established taxes and royalties will also apply. The contracts are for shallow water exploration and production of tracts located along the southern rim of the Gulf of Mexico near the country’s best-producing offshore fields, Ku-Maloob-Zaap and Cantarell.
Mexico’s first Round One oil auction in July offered 14 shallow water exploration blocks but awarded only a few, missing the government’s own modest expectations. The minimum values for that auction were revealed the same day as the tender, despite previous finance ministry assurances that the values would be made known “weeks” earlier to allow companies time to ensure their own bids met the minimum criteria.
The decision to reveal the minimum values ahead of time for the auction later this month is seen by analysts as a way to boost the number of contracts awarded despite a slump in international crude prices that has eroded the appetite of oil companies to take on new projects.