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Germany's Dea Deutsche Erdoel and Egypt's Cheiron winners at Pemex's farmouts


German company makes huge offer of $213.8 million to break four-way tie at onshore field and Cheiron Holdings of Egypt place the high bid to partner with Pemex at the Cardenas-Mora field.

By
Kathrine Schmidt

MEXICO CITY
Petroleumworld 10 05 2017

Germany's Dea Deutsche Erdoel ended a farm-out bid round in Mexico with a splash on Wednesday, offering an aggressive tiebreak bid of $213.8 million to best three competitors and offer the high bid to partner with state oil company Pemex on the onshore Ogarrio area.

The tract brought in four maximum offers on one bidding variable, an additional royalty to the Mexican government, of 13%. But tiebreak bonus offers from the other bidders did not come close to touching Dea.

California Resources of the US, along with Mexican independent Petrobal, offered $52 million. Argentina's Tecpetrol, along with Galem Energy, put in $30.1 million and Ogarrio E&P of Chile offered $20.5 million.

"It is a good day for Pemex, it's a good day for the country and is one more step for the energy reform," chief executive Jose Antonio Gonzalez Anaya told reporters in a news conference after the event.

Asked what gave the company the confidence to make the aggressive bid, Dea country manager Juan Manuel Delgado cited the strong evaluation of the tract.

"We see the value and upside of the field," he told Upstream on the sidelines.

Dea will also make a $190 million upfront payment in recognition of the investments already realized by Pemex on the block.

In addition to capturing what was a record tiebreak bid for Mexico's oil and gas acreage offerings so far, Pemex also saw Cheiron Holdings of Egypt place the high bid to partner with Pemex at the Cardenas-Mora field. The shallow-water Ayin-Batsil area, however, went unclaimed.

Pemex has laid out farm-outs of its key assets as a strategy to ramp up investments and projects amid sharply lower oil prices and steep budget cuts from the government.

According to Mexico's energy reform law, that process must take place via a transparent offer process, run by the country's National Hydrocarbons Commission (CNH) instead of direct negotiations.

Looking at the results by the numbers, authorities estimate the process will lead to $539.5 million in initial payments for Pemex in recognition of investments already made, as well as investment of $225 million over the life of the projects. The government will also receive $30 million in payments to Mexico's national petroleum fund and will capture an estimated 84% of the profits.

Earlier in the day, Cheiron Holdings of Egypt placed the winning offer to partner with Pemex on Mexico's Cardenas-Mora onshore field.

The company placed an aggressive offer, proposing the maximum additional royalty of 13% and a cash bonus of $41.5 million designed to break a potential tie. But Canada's Gran Tierra Energy, in partnership with Sierra Blanca P&D - the only other bidder - only offered an additional royalty of 5.09%.

Cheiron will also pay a charge of $125 million in recognition of the investments previously made by Pemex on the block.

"We're extremely happy. We're looking forward to this operation here in Mexico," Shady Kabel, managing director for the company, an affiliate of Pico Energy, told Upstream on the sidelines of the event.

"We trust this partnership with Pemex will be very valuable to us and our presence as operator in this part of the world."

Cheiron partnered with Pemex in prior rounds of onshore service contracts before Mexico's energy reforms allowed it to assume full E&P partnerships. Cheiron has been in the country for about eight years, Kabel said, and the Cardenas-Mora block was attractive because it was a close match with existing assets in the company's portfolio.

The activity came after no companies bid earlier this morning to partner with Pemex on the shallow-water tract of Ayin-Batsil.

At 9am local time in Mexico City that area was declared "abandoned" by leasing officials. The state-led oil company had been hoping to tie in a new partner at the southeast basin field to follow up its successful farmdown of the Trion discovery in deep waters to BHP.

Though multiple players active in shallow-water had pre-qualified, none ultimately placed an offer. One company had struggled with the highly regulated process of exchanging information prior to the bid, a source said, with delays from Hurricane Harvey also contributing.

Trion was also seen as a superior resource in both size and quality, according to another.

Regulators said they had worked hard to work out what they believed were competitive terms for the round, but "the competition has given its own opinion," deputy under-secretary for hydrocarbons Aldo Flores Quiroga said.

Regulators said they would review the bid opportunity and hope to try to find a partner again in a future round.

The company's initial farm-out of the Trion discovery was well-received by industry and was awarded to BHP Billiton, now known just as BHP, in late 2016 with a $624 million offer, adding to a pre-established minimum for investments of $1.19 billion.

The two onshore fields, Cardenas-­Mora and Ogarrio, were bid under a licence contract. The new partner will operate the field in both cases, with a 50-50 stake split with Pemex.

Both are essentially secondary recovery projects in need of revitalisation that are in decline but each producing about 10,000 barrels per day. Production costs are characterized as low, at $16 per barrel for Cardenas-Mora and $11 per barrel at Ogarrio, according to CNH President Commissioner Juan Carlos Zepeda.

He reckoned the interest ran higher for Ogarrio, though it was smaller, because its reserves are located in sandstones where operators globally have more experience, while Cardenas Mora is prospective for carbonates, he said.

The goal will be to raise production to between 13,000 and 14,000 barrels per day in the next two years at Cardenas-Mora and Ogarrio to 13,000 or 14,000 barrels per day in the next year or so.

Ogarrio lies 100 kilometres north-east of Villahermosa and is prospective for a formation called Encanto in both Neogene and Palaeogene zones, with black oil as the target. Estimated possible reserves remaining are 54 million boe.

Cardenas-Mora has targets in both the Upper Jurassic Kimmeridgian and Lower Cretaceous zones, and is prospective for volatile light oil. It lies about 35 kilometres south-east of the city of Comacalco and spans 168 square kilometres.

Remaining possible reserves are estimated at 93.19 million boe from the two fields.

The Ayin-Batsil tract lies off Tabasco state, spanning over 1000 square kilometres in about 160 metres of water.

Pemex would have taken a 50:50 split on the area alongside a partner under a production sharing contract. The area has combined possible reserves of 297.2 million boe, with a further median prospective resource at 224 million boe.

Prospective plays include Pliocene, fractured Cretaceous and Jurassic Kimmeridgian, with main targets being heavy oil, medium oil and dry gas.



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