Mexico raises the bar on oil deals as Latin America vies for investment

FROM: Reuters / Marianna Parraga, Adriana Barrera / 2 de Febrero de 2018

 

MEXICO CITY (Reuters) – Mexico has raised the bar on oil contracts in Latin America after sweetening terms to attract international energy firms, luring $93 billion in future investment in the region’s first big auction this year.

On Wednesday, Mexico awarded 19 of 29 deepwater blocks onoffer, comfortably more than the seven areas expected to be assigned. Anglo-Dutch oil major Royal Dutch Shell emerged as the biggest winner, with nine blocks.

Unique for generous terms such as setting a cap on royalties that oil firms can pledge to the government in bids, Mexico faces off this year with Brazil, Argentina, Ecuador and Uruguay.

They will all hold auctions for oil and gas fields in 2018 that require billions of dollars in investment from foreign firms.

Mexico is due to hold major auctions in March and July.

While Brazil’s prolific deepwater presalt oilfields are expected to attract aggressive bidding from oil majors, other regional rivals could be forced to revise the terms of their auctions if Mexico scores another win in its next auction for shallow water areas in March, analysts said.

Argentina and Ecuador have already changed their terms over the past year in preparation for their 2018 auctions. Argentina has lowered labor costs and some taxes, while Ecuador switched to production sharing from service contracts.

Oil prices have reached three-year highs near $70 per barrel in 2018, giving the world’s top energy companies a cash boost and improving the chances that they will have the funds needed for big-ticket projects in Latin American.

The industry is, however, emerging from a recession that cost tens of thousands of jobs and forced companies to slash spending on expensive projects such as those in deep waters. Oil majors have committed to keeping tight control on costs and will only bid for what they see as the most profitable projects.

Oil executives and industry specialists say the terms on offer in Mexico, as well as the potential for major finds in the country’s deep water, made it attractive on Wednesday.

At the auction, the decisive bidding parameter was the cash bonus that firms pledged. Shell won several bids with cash bonuses that drew surprised gasps from an audience mostly made up of executives from bidding firms and members of the media.

Mexico collected $525 million in cash.

While the government has limited its own take at the auction, the estimated $93 billion in investments pledged to develop the blocks auctioned is about 1.5 times greater than the amount involved in the previous eight auctions.

”COMPETITION FOR CAPITAL’

After the government of Mexico started auctioning oilfields in 2015, it tweaked the terms of the bidding process several times, following a historic energy reform that ended state oil firm Pemex’s 75-year monopoly over the sector.

The liberalization, the most ambitious plank of President Enrique Pena Nieto’s economic policy, started just as oil prices crashed in 2013-2014.

The government had to balance the need for a big enough take for the state to placate opponents of the reform with ensuring there was enough potential profit to attract foreign firms.

“Mexico understood how tough the competition for capital was in a very difficult oil price environment,” consultant Pablo Medina told Reuters.

After failing to award a large number of blocks in previous auctions, the government regarded the results of this week’s deepwater bidding round as a success.

As well as the limits on royalties, sweeteners included allowing foreign firms to propose areas to be included in the bidding rounds and relaxing the qualification process.

Mexico also put a stop to “additional investment pledges.” This makes it harder for small companies to win by making unrealistic promises, but further limits the mandatory investment in projects.

“What we are looking for is that the market tells us how big royalty should be and how much government take is possible to achieve,” Salvador Ugalde, head of the Mexican Finance Ministry’s Hydrocarbon Income Unit, said Wednesday.

Brazil, which plans a busy auction schedule for 2018, does not expect Mexico’s auctions will lower interest in its own offerings, said Marcio Felix, Brazil’s oil and gas secretary.

In Brazil’s last round in October, Shell and BP were the biggest winners.

“We have a set of companies that have an appetite for a certain type of asset,” Felix told Reuters on Thursday.

 

 

FROM: Reuters / Marianna Parraga, Adriana Barrera / 2 de Febrero de 2018

¿Participarás en consorcio con otras empresas en las Rondas de Licitación de CNH? Conoce de qué se trata la Responsabilidad Solidaria.

En 2014, México promulgó  la Reforma Energética y con ello abrió paso a un hecho histórico, por vez primera en 75 años se permitió a la inversión privada participar en las actividades de Exploración y Extracción de hidrocarburos.

Las empresas y consorcios  interesados en participar en los concursos de licitación organizados por la Comisión Nacional de Hidrocarburos (CNH) lo pueden hacer como licitante individual o licitante agrupado (consorcio). Aquellos que deciden participar como consorcio no están obligados constituir una nueva persona moral, sino simplemente a manifestar su voluntad de presentar una propuesta conjunta para la licitación y firmar el contrato correspondiente.

Al permitir este tipo de agrupación, se pretende promover la participación del mayor número de empresas  sin que se quede fuera el capital mexicano. Por eso, pueden licitar empresas que cuenten con experiencia y comprueben capacidad técnica (como operadores) -requisitos que en su mayoría van a cubrir empresas extranjeras- y empresas con capacidad económica y financiera (no operadores).

La participación en consorcio permite que las empresas reúnan las condiciones, que en conjunto  les aseguren mayores posibilidades de éxito. No obstante, es importante considerar que en cualquier caso las empresas adquieren una responsabilidad total solidaria  por las actividades que se ejecuten en el campo.

En primer lugar, será necesario definir su porcentaje de participación, lo cual no implica que asuman solamente en esa medida las obligaciones  establecidas en el contrato, pues las empresas participantes serán solidariamente responsables de todas y cada una de las obligaciones que asume el consorcio, independientemente de su porcentaje de su respectiva participación.

El operador, por su parte, tiene la obligación de cumplir con las obligaciones del contrato en representación de las empresas participantes. Específicamente, se encarga de todos los aspectos operacionales, pero en caso de algún incumplimiento de su parte, como ya dijimos no releva de su responsabilidad solidaria a las otras empresas.

La figura del operador es central, por eso se requiere que cuente por lo menos con una tercera parte de la participación en el consorcio y ningún otro miembro podrá tener una participación económicamente  mayor a  la suya.

En materia de seguros, por ejemplo, el operador es responsable de contratarlos y presentarlos ante la Agencia de Seguridad, Energía y Ambiente (ASEA), de conformidad con lo establecido en las Disposiciones Administrativas de Carácter General   en materia de Seguros (DAGS] para las actividades de Exploración y Extracción de Hidrocarburos, pero si en el momento de un siniestro las coberturas no fueran suficientes y/o adecuadas para responder por el daño, todos los participantes serán legalmente responsables de repararlo.

En NRGI Broker, somos expertos en materia de seguros, así como de la regulación en  materia ambiental, con la que deben cumplir los operadores petroleros. Acércate a nosotros, con gusto te atenderemos.

 

Jefferson Energy Companies Originates the First ExxonMobil Unit Trains of Refined Products to Mexico

From: GlobeNewswire / 11 de Diciembre de 2017

NEW YORK, Dec. 11, 2017 (GLOBE NEWSWIRE) — Jefferson Energy Companies (“Jefferson”), a subsidiary of Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI), is playing an important role in ExxonMobil’s recent Mexico market entry.  With logistics support from Jefferson, ExxonMobil is the first company to provide an integrated product offering along the entire fuels value chain in Mexico.  Unit trains of gasoline and diesel delivered to Central Mexican markets originated at Jefferson’s terminal in Beaumont, Texas.  The unit train loading was done under an agreement with ExxonMobil. These volumes originated at Jefferson were safely delivered through a destination terminal in San Luis Potosi to retail gasoline stations in the Bajio region. ExxonMobil previously announced its intent to spend $300 million in fuel logistics, product inventories and marketing in support of Mobil-branded stations and Synergy-branded fuels, and these unit train shipments are part of that program.

About the Jefferson Energy Terminal

Jefferson Energy CEO and President Greg Binion said, “We are excited to be an integral part of the transformation of the Mexican energy sector. Further, we are very pleased that ExxonMobil recognized the operational flexibility and advantages that our terminal provides. As this opportunity in Mexico expands, we plan to continue to enter into other contracts to provide logistics for refined products export to Mexico. We also plan to continue to invest in associated tanks as well as rail and loading infrastructure in order to meet the rapidly growing demands of this market.”

The terminal is owned and operated by Jefferson Energy Companies, a midstream oil and terminal company that serves the Gulf Coast. The terminal is located on 243 acres in Beaumont, Texas, positioned in one of the largest refinery markets in the U.S., located in the center of the 9.2 million bbdGulf Coast refining market (PAD III). The terminal is a public-private partnership between the Port of Beaumont Navigation District of Jefferson County, Texas and Jefferson Energy Companies. The Port of Beaumont is the fourth busiest port in the United States, according to the U. S. Army Corp of Engineers tonnage statistics, and the busiest military port in the U.S. The terminal is currently served by three Class I railroad carriers, allowing delivery from most origination terminals and plants in North America.

About Fortress Transportation and Infrastructure Investors LLC

Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI) owns and acquires high quality infrastructure and equipment that is essential for the transportation of goods and people globally. FTAI targets assets that, on a combined basis, generate strong and stable cash flows with the potential for earnings growth and asset appreciation. FTAI is externally managed by an affiliate of Fortress Investment Group LLC, a leading, diversified global investment firm. For more information about FTAI, visit www.ftandi.com.

Transporte de combustible con ferrocarril

Ferrocarril

From: GlobeNewswire / 11 de Diciembre de 2017

Latin America´s Energy Reforms will be tested in upcoming elections

FROM: Interamerican Dialogue / Lisa Viscidi / 9 de Enero de 2018

 

2018 will be a pivotal year for energy in Latin America, as the region’s top oil producers are set to hold presidential elections that could lead to sweeping policy changes. Recent market-oriented energy reforms in countries like Brazil and Mexico have increased investment pledges, but the region is still seeing an overall oil production decline.

The upcoming presidential elections could be decisive in advancing policies to maintain oil revenues. However, in the current climate of growing polarization and deeply unpopular incumbents in Latin America, the elections are generating tremendous political uncertainty. Several left-leaning candidates are against current oil policy but not for the same reasons. Some oppose investor-friendly policies based on oil nationalism; others contest the exploitation of energy resources on environmental grounds.

2018 will be a pivotal year for energy in Latin America, as the region’s top oil producers are set to hold presidential elections that could lead to sweeping policy changes.”
In Mexico, independent candidates are allowed to run for the first time in the July presidential election, opening the way for a broad field of contenders. The front-runner, leftist nationalist Andrés Manuel López Obrador (AMLO), has made opposition to Mexico’s 2013 energy reform a cornerstone of his campaign. President Enrique Peña Nieto of the PRI party, who led the reform, is hugely unpopular. The business-friendly PAN party, which provided the critical votes to pass the reform in congress, is divided. Polls show AMLO with over 30 percentof votes, a sizable lead over the PRI and PAN candidates who are polling at about 17% each. Mexico has no second round of elections, so a candidate can win with a relatively small percentage of votes.

The energy reform eliminated Pemex’s decades-long monopoly on oil production, and dozens of private companies have since won contracts in bid rounds that will bring an estimated $59 billion in investment.”
The energy reform eliminated Pemex’s decades-long monopoly on oil production, and dozens of private companies have since won contracts in bid rounds that will bring an estimated $59 billion in investment. But this is only a fraction of the capital needed to return to Mexico’s 2004 peak oil production of 3.4 million barrels per day (mbd) compared to 2 mbd today. The government’s best-case projections see production rising only in 2019, meaning Mexicans will cast their vote before the reform starts to bear fruit.

AMLO has seized on weak oil production as proof that the sector’s opening is not delivering as promised and pledged to hold a public referendum to overturn the reform. Only a two-thirds congressional majority – which AMLO is unlikely to secure – can undo the constitutional reform, and it would be legally difficult to change existing contracts. And, despite his provocative stance, AMLO could choose to support private investment once in office in a bid to generate more oil revenue for his government. However, the president has broad powers to halt the opening of the sector. The energy ministry designs oil auctions and their timelines, selects the contract type for each oil block and can hand any field to Pemex. Many investors fear that an AMLO administration would make terms less attractive or cease holding the auctions that have allowed private firms to enter the country altogether.

In Brazil, the October presidential elections will also be a bellwether for the energy sector. President Michel Temer introduced energy policies making terms more attractive for international investors. He removed onerous local content requirements from bidding criteria, set a regular pre-salt bid round schedule and signed a law allowing companies other than state oil giant Petrobras to operate Brazil’s high-cost offshore pre-salt fields. The results have already been visible; in an October pre-salt auction, six of eight blocks on offer received bids, and signing bonuses totaled $1.9 billion.

While it is too early for formal candidacy announcements, former President Luis Inácio Lula da Silva is currently the clear front-runner despite having been convicted in July on charges of corruption, which he is appealing. If elected, Lula would likely reinstate his previous nationalist oil sector policies. In recent rallies with supporters, he has criticized Temer’s government for selling off Brazil’s wealth to foreign corporations and said Petrobras should be used as an instrument of development and job creation. If Lula is behind bars, he will likely throw his support behind another Worker’s Party candidate with a similar platform. Following Lula in the polls is right-wing nationalist Congressman João Bolsonaro. He has so far focused on security and social issues, and his positions on energy are unclear. Probable centrist candidates Geraldo Alckmin and João Doria – governor and mayor of São Paulo, respectively – favor investment-friendly policy. But both trail Lula and Bolsonaro in polls.

In Colombia, a crowded field of candidates with a broad spectrum of economic and energy policy platforms are competing for the presidency.”
In Colombia, a crowded field of candidates with a broad spectrum of economic and energy policy platforms are competing for the presidency. Colombia has seen a steep decline in oil investment and revenue since the 2014 oil price collapse. Crude production has fallen since 2015. Less drilling has led to fewer discoveries, and at its current production rate, Colombia will run out of oil reserves in about five years. This is due to lower oil prices coupled with widespread local opposition to the oil and mining sectors, as some communities are demanding additional economic benefits and others oppose drilling based on environmental concerns.

Whether or not the sector will return to its former role as a primary driver of Colombia’s economy depends largely on whether the government can generate local community support for oil projects or chooses to prioritize other economic sectors. The field of potential candidates includes conservatives who want to promote oil investment through market-friendly reforms and leftist candidates who say Colombia should wean its economy off of oil, which causes environmental damage and is not a viable long-term driver of growth in a low-carbon economy. With the crowded field and deep divisions over the controversial peace deal with the FARC, no candidate will likely secure a majority in May, and a second round in June is almost inevitable.

In contrast to the other countries, Venezuela is unlikely to elect a new president or substantially change energy policy.”
In contrast to the other countries, Venezuela is unlikely to elect a new president or substantially change energy policy. Its constitution calls for elections next year – and President Nicolás Maduro has promised to hold them – but with the National Electoral Council stacked with Maduro allies and the president’s penchant for circumventing the democratic process, analysts predict he will rig the election to remain in power.

Venezuela’s oil industry – responsible for 96 percent of exports – is on the decline. The global oil price collapse exposed long-standing issues at state oil company PDVSA like underinvestment, lack of maintenance and unsustainable payments to support government programs. Production has plummeted, and with massive payments due to international creditors and much of the country’s oil output being used to pay off oil-backed loans, PDVSA cannot make the necessary investments to turn production around. But rather than introduce the reforms necessary to put Venezuela’s economy and oil sector back on track, Maduro has doubled down on failed policies like exchange rate controls and energy subsidies in a desperate effort to retain power.

Many Latin American presidents are hugely unpopular and voters are looking for change.”
Many Latin American presidents are hugely unpopular and voters are looking for change. This landscape creates tremendous uncertainty for investors and companies in oil and other economic sectors. Energy has long been a politically charged issue in Latin America, leading to erratic approaches between one government and another and politically driven policies that have ultimately resulted in oil production declines. Rather than taking divisive positions on energy policy, the candidates should seek to build consensus and take a sober look at how to maximize productivity and deliver the greatest revenues for the state or prepare for diminished economic returns from the sector.

 

 

FROM: Interamerican Dialogue / Lisa Viscidi / 9 de Enero de 2018

 

Mexico Spent About $1.26 billion on 2018 Oil Hedges

From Oil&Gas People / 1 de Diciembre de 2017

 

Mexico spent some 24.1 billion pesos ($1.26 billion) on contracts to hedge its 2018 oil exports, Finance Ministry Chief Economist Luis Madrazo said on Tuesday, part of government’s efforts to stabilize its budget.

Madrazo did not specify the number of barrels of export production that Mexico had hedged with derivatives contracts nor did he detail the average price per barrel of put options that the government has purchased.

In September, the Finance Ministry proposed a 2018 budget that based expected oil export revenue on an estimate of $46 per barrel. Members of Congress increased that estimate to $48.5 per barrel earlier this month as global oil prices rose.

For more than a decade, Mexico’s government has paid for a hedge every year in a bid to guarantee its revenues from oil exports by state company Pemex. The program is seen as the world’s top sovereign derivatives trade.

Last year, the government bought put options at an average price of $38 per barrel to cover 250 million barrels of crude at a cost of $1.03 billion and underpin the 2017 budget, which was based on an average price of $42 per barrel.

The government set aside $4 a barrel from a special fund to make up the difference between its put options and the budgeted price.

This year, Mexico is on track to not see any income from its oil hedge as prices for Mexican crude are currently near $54 per barrel, well above the put options. In 2016, Mexico saw a $2.65 billion payout from its oil hedge.

Mexico hedges its crude every year and deals are closely watched by the market since the trades are big enough to affect prices. The program is a longstanding part of the country’s strategy for safeguarding oil revenues from market volatility.

Mexico used to receive about one-third of federal revenues from oil sales, but it now funds less than one-fifth of the budget with oil sales after the collapse crude prices in late 2014 and a decline in production.

 

oilhedge

 

From Oil&Gas People / 1 de Diciembre de 2017

 

Mexico expects to hold a third oil and gas auction in 2018

From: Reuters.com / OCTOBER 19, 2017 / 2:04 PM / Mariana Parraga

HOUSTON (Reuters) – Mexico’s oil regulator will likely add another auction in 2018 featuring conventional onshore oil and gas blocks, the head of the National Hydrocarbons Commission (CNH) said on Thursday, potentially teeing up a third tender in an election year. The bid terms will be announced later this year or in early 2018 while contracts will likely be awarded by the summer, said Juan Carlos Zepeda on the sidelines of a forum in Houston.  The onshore tender is in addition to a deepwater Gulf auction expected to attract in January some of the world’s biggest producers, as well as a March shallow water auction.
A landmark 2013 constitutional energy reform championed by President Enrique Pena Nieto paved the way for the auctions, in which private firms can bid to operate oil and gas fields on their own. Before the reform, state-owned company Pemex had a monopoly on hydrocarbons production.
Depending on the winner, Mexico’s July 2018 presidential election could alter the pace and scope of future auctions, which are organized and supervised by the CNH, while the energy ministry designs the contracts and sets the schedule.

Zepeda added that so-called non-conventional blocks to produce shale oil and gas are also being analyzed for inclusion in an additional separate auction.
The CNH has run eight oil auctions to date, awarding 72 exploration and production contracts to more than 60 companies. The contracts are seen generating almost $61 billion in investment over their lifetime.

The 64 blocks to be offered in the two upcoming offshore auctions account for more than 65 percent of Mexico’s estimated resources. Along with the January bidding round, Pemex could also find a partner for the promising Nobilis-Maximino deeepwater project close to the U.S. maritime border.

A development plan for another large deepwater project, Trion between Pemex and Australia’s BHP Billiton, has not yet been submitted to the regulator, Zepeda said, but it is expected before year end.

UNITIZATION UNDERWAY
New regulation to establish how operators of two different blocks should produce oil from a single shared reservoir was recently finished by authorities and is now under public consultation, said Aldo Flores, Mexico’s deputy energy minister.

“The final version (of the regulation) should be ready by November,” Flores said.

The well Zama-1 containing over 1 billion barrels of oil in place discovered in July by U.S. firm Talos Energy and its partners in Mexico’s shallow water could extend into a Pemex area, Zepeda said.
“The first unitization case could be Zama, but it has not yet been officially presented (to authorities),” Zepeda said.

The reservoir unitization regulation will establish the need to nominate a single operator to produce oil in shared reservoirs even keeping two separate companies or consortia for each one of the blocks. The energy ministry will have the final word if the parties do not agree on how to develop the field.

 

From: Reuters.com / OCTOBER 19, 2017 / 2:04 PM / Mariana Parraga