06 June 2017 /

Q: Has the development of Round One raised investor confidence in the Mexican upstream sector?

A: Unfortunately, one of the main concerns clients had
going into the oil and gas business in Mexico was that
corruption could potentially lead to the awarding of the
contracts under suspicious circumstances. The three phases
of Round One issued so far, however, have been carried
out under absolute transparency by CNH. As we all know,
confidence is a fundamental but fragile factor, and even
though there is confidence in the award methods, this trust
in the institutions and regulators needs to extend to the
whole range of activities that encompass the operation of
a hydrocarbons block. Effective acquisition and recognition
of rights of way and transparency in the accounting and
financial procedures of the oil taxation instruments come
to mind. These factors are especially relevant to give
confidence to present and future investments.

Q: To what extent do you believe that the three first phases of Round One have been successful so far?

A: In R1-L01 only 14% of the blocks were awarded. These
results are explained not by the drop in the price of oil
but because the Ministry of Finance did not publish the
minimum values for the bidding variables before the
proposal presentation date, and some of the bids presented
by participants fell slightly below said values, with a 5%
spread. Had the values been published before, the bids
could have been slightly adjusted for a successful awarding
of more contracts, leading to an award rate over 30%, well
within the success range of 30-50% anticipated by the
CNH. As for R1-L02 and R1-L03, they were successful with
award rates of 60% and 100% respectively, and incredibly
aggressive bids by some of the participants. In R1-L02, ENI
International offered almost 84% of the operating profit as
government take to win the block with the most reserves,
and R1-L03 saw bids of up to 85% of additional royalty.
If anything, it looks like many companies decided to bid
regardless of the price of oil or because they are highly
optimistic about its future.

Q: To what extent do you feel that unnecessary restrictions were hindering conversation with regulators?

A: Indeed, in an effort to promote transparency in the sector,
there are stringent restrictions regarding the interaction
between members of the private sector and CNH
personnel. There are official, institutional communication
channels through which the private sector may express its
concerns, and the Commissioners and other government
officials constantly participate in industry forums where
they listen to investors’ and operators’ opinions.