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BHP Billiton, Chevron, CNOOC grab offshore blocks in nation's first test of foreign interest

By Robbie Whelan and Anthony Harrup 

MEXICO CITY -- The world's largest oil companies won rights to develop Mexico's offshore oil deposits in an auction that led to twice as many awards as officials expected and could generate $40 billion in investment.

Eight of the 10 exploration blocks available were snatched up in competitive bidding by firms including Exxon Mobil Corp., Chevron Corp., and China's state-run China National Offshore Oil Corp.

Australia's BHP Billiton also made history by becoming the first foreign company to join state oil firm Petróleos Mexicanos in developing the already discovered Trion oil field in the Gulf of Mexico.

The Trion partnership and the deep-water auctions were the centerpiece of President Enrique Peña Nieto's 2013 energy reform laws, which opened Mexico's energy industry to foreign investment for the first time since nationalization in 1938.

"We've very happy that this investment will come to Mexico," said Juan Carlos Zepeda, head of the country's energy regulator, the National Hydrocarbons Commission. "The energy reform initiated by President Pena is a success."

Mexican energy officials said the eight blocks plus Trion eventually should lead to production of 900,000 barrels a day of oil equivalent.

BHP Billiton outbid BP PLC for a 60% stake in the Trion field, believed to contain 485 million barrels of crude oil, by offering a bonus payment $624 million, just $18 million more than its British rival.

Among the biggest winners was China's Cnooc, which won rights to explore and develop two blocks in the oil-rich central portion of the Gulf of Mexico. Cnooc offered some of the highest royalty payments, committing to pay 15.01% of its gross income on one block and 17.01% on another.

"We salute that the Chinese business has come to compete in Mexico and to win," said Pedro Joaquín Coldwell, Mexico's Secretary of Energy. "When we talk about diversification, we don't only refer to the scale of the companies...we also refer to nationalities."

"The way the Chinese are approaching Mexico's energy industry is very similar to the way they approached Brazil," said R. Evan Ellis a Latin American studies professor at the U.S. Army War College, referring to the policy of investing in small companies and setting up investment funds first, then taking exploratory steps to develop caches of resources.

Cnooc couldn't be reached for comment.

Other successful foreign bidders include a consortium included France's Total SA alongside Statoil ASA and BP, and another group including Murphy Oil Corp., Ophir Energy and Malaysia's Petronas Carigali.

Aside from securing a partner for Trion, Pemex won one block in a consortium with Chevron and Japan's Inpex Corp., and lost in another in which it bid alone.

They were the first competitive bids for Pemex, which had a monopoly on oil exploration and production in Mexico since 1938.

"Pemex is realizing the need to change and adjusting to the new reality, " said Pablo Medina, a Latin America upstream analyst at energy research firm Wood Mackenzie.

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

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 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 Mexican oil regulator National Hydrocarbons Commission.

Write to Robbie Whelan at robbie.whelan@wsj.com and Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

December 06, 2016 02:47 ET (07:47 GMT)

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