Pemex names bidders for historic auction

Mexico's state oil monopoly Pemex has named the list of companies qualified to bid on the country's first ever oilfield operating contracts in a historic auction to be held in mid-August. The list of 17 companies includes global players like Halliburton, Schlumberger, Repsol and Pacific Rubiales as well as some smaller operators. Pemex wants private industry to help reactivate three small oilfields in southern Mexico, the first step toward opening up the nationalised energy sector. The company hopes outside expertise and capital will help Mexico reverse a dramatic drop in oil output. Mexico, the world's number seven oil producer, lost nearly a quarter of its production capacity between 2004 and 2009 because of aging oil fields and a lack of exploration. Significant investment by foreigners has been barred in the past, protecting national pride around the country's oil resources expropriated by the government in 1938. But a 2008 oil reform allowed Pemex to offer more flexible contracts that incentivise production by offering bonuses when targets are exceeded. The idea is to roll out auctions at mature fields first and then move on to more coveted exploration in deep waters. Twenty-seven companies were interested in the tender for the Carrizo, Magallanes and Santuario fields, after more than 50 bought information packets. Only 17 fulfilled all the requirements. The winners will be chosen on August 18 based on who can produce a barrel of oil most cost-effectively. There is wide international interest from oil companies eager for more access to Mexico's energy sector. Some remain wary of bureaucratic hurdles of working with the state behemoth but others have been impressed. "Obviously there have been some problems, but in general I would say this has been the most orderly process for production and exploration contracting in Mexico's history," said David Enriquez, a lawyer for one of the firms in the contest. "The companies are very happy with the timeframes and the level of information [being provided]," he said. Mexico relies on oil revenues to fund around a third of its budget and Pemex often operates at a loss since the government gobbles up around half of its revenues. Rising oil prices have helped Pemex turn that trend around recently. Two debt rating agencies downgraded Mexico in late 2009, citing its heavy reliance on the declining oil industry and a lack of political will to broaden the tax base. Although Mexico's oil output has stabilised around 2.6 million barrels per day, a renewed decline in production could one day force Mexico to become a net oil importer. Bigger oil players such as ExxonMobil, BP did not bid on the smaller fields but are likely watching how the process unfolds. The three blocks total just over 300 million barrels of oil equivalent, a fraction of Mexico's proven reserves of 13.8 billion barrels. If this round of contracts goes well, Pemex could attract more players for future tenders. From/ Gulf News