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By Robbie Whelan 

MEXICO CITY -- Australia's BHP Billiton won the bidding to join with Mexican state oil company Petróleos Mexicanos to explore a oil-rich region of the Gulf of Mexico, in the first award of several auctions of deep-water oil blocks on Monday.

Billiton outbid BP PLC to become Pemex's first private partner in exploration and production in a deep-water block containing its Trion oil field, located offshore just south of the U.S. Mexico border, under Mexico's 2013 opening of the oil industry to foreign investment.

China Offshore Oil Corp., or Cnooc, won two other blocks. One of its bids offered an up to 17% additional royalty on oil production to the government.

Other successful foreign bidders include a consortium of France's Total SA and Exxon Mobil Corp., a group comprised of Statoil ASA, BP PLC and Total, and another group including Murphy Oil Corp., Ophir Energy and Malaysia's Petronas Carigali. Mexico awarded eight of the 10 deep-water blocks up for bid, in addition to the Trion joint-venture with Pemex.

Chevron Corp. also was awarded a deep water block in a joint bid with Pemex.

For Trion, both Billiton and BP offered additional royalties of 4%, on top of the minimum royalty payment of 7.5%, while Billiton offered an additional cash commitment of $624 million, higher than the $606 million offered by BP.

Billiton will have 60% of the project and Pemex 40%, and as winning bidder is obliged to make a minimum investment of $570 million.

Timothy Callahan, director general with BHP Billiton in Mexico, said his company became more confident in its bid after Pemex in early November changed certain terms in the Trion joint operating agreement, including the voting procedures governing the contract.

"We had to get comfortable with the JOA. It's not completely in line with international standards...but we look forward to working with Pemex, " he said.

BHP Billiton has collaborated with European exploration companies on the production of two oil fields in U.S. waters in the Gulf of Mexico. "We're a proven operator on the U.S. side of the border," Mr. Callahan said. "We have proven that we can work in deep waters and that we can work in the Gulf of Mexico, and we hope to bring both skill sets to our collaboration with Pemex."

The auction is the fourth under the 2013 opening of the Mexican oil industry, but the first for deep-water reserves and the first to attract the interest of major oil companies.

The Trion field, part of a larger area of oil deposits known as the Perdido trend, was discovered in 2012 and is thought to contain about 485 million barrels of commercial reserves. It is expected to cost about $11 billion to develop the field, with capital expenditures of $7.5 billion, according to Mexico's oil regulator, the National Hydrocarbons Commission.

"We see attractive potential in Trion and the Perdido trend, and we are pleased to have the opportunity to further appraise and potentially develop this prospective frontier area of the deep-water Gulf of Mexico, " said Steve Pastor, president of BHP Billiton petroleum operations.

Pemex's chief executive, José Antonio González Anaya, said the state oil company hopes that by 2025, the Trion field will be producing around 120,000 barrels a day.

BHP Billiton is the world's biggest mining company by market value. Mr. González Anaya called Monday a "great day" for Mexico and said he's confident it will bring significant advantages, such as technology, to Pemex.

"I'm happy that the bids were so close, and that there wasn't a 'winner's curse.' When bids are far apart, sometimes winners may think they offered too much."

Write to Robbie Whelan at robbie.whelan@wsj.com

(END) Dow Jones Newswires

December 05, 2016 16:29 ET (21:29 GMT)

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