Mexico to hold auction for oil in violent states

Dozens of energy firms, including some from Australia, Canada and the United States, have signed up to bid Tuesday for onshore oil projects in Mexican regions ravaged by drug violence and pipeline thefts.

The government is offering 25 deposits containing more than 100 million barrels of oil in the violent states of Veracruz (east), Tamaulipas (northeast) and Nuevo Leon (northeast) as well as the southern states of Chiapas and Tabasco.

More than 80 companies, most from Mexico but others from Latin America and Europe as well, have lined up for a chance to win a contract.

The auction is the third organized by the government this year following the 2014 enactment of a historic energy reform bill that opened the sector to private investors for the first time since 1938.

Officials were disappointed with the outcome of the first auctions for projects in shallow waters of the Gulf of Mexico, with fewer investors than expected making bids as company earnings have been hit by falling oil prices.

Only two of 14 sites were awarded in July and three of five in September.

Energy Minister Pedro Joaquin Coldwell told Radio Formula that auctioning off five onshore fields on Tuesday "would be excellent" given the sector's tough international conditions.
The companies participating in the auction include Australia's Armour Energy Limited, France's GDF Suez and several US firms. The new energy company of Mexican billionaire Carlos Slim, Carso Oil and Gas, is among the national start-ups participating in the process.

- Violence doesn't deter firms -

Coldwell said the onshore fields are attractive because they have already produced oil and still have enough left to make it profitable for smaller firms.

Experts estimate that each of the 25 fields are worth between $50 million and $100 million.

Nuevo Leon, Tamaulipas and Veracruz have seen some of the most brutal turf wars between rival drug cartels as well as rampant theft from pipelines operated by state-run firm Pemex.

More than 5,000 illegal taps were discovered in the first 11 months of the year, compared to 3,386 in the same period last year for an increase of 55 percent, according to official figures cited by Milenio newspaper.

Coldwell noted on Monday that Congress is mulling legislation to toughen laws against such theft, which has hit Pemex "very hard."

The oil auction "remains more attractive than the security risk," said Raymundo Tenorio, energy expert at the Monterrey Institute of Technology, noting that companies invest in conflict zones elsewhere in the world.

David Shields, direct of the industry magazine Energia a Debate, said "many companies are minimizing" this issue to avoid driving up the costs.

- Easier terms -

The government has also softened the rules for the auctions in order to lure more potential investors.

The first deals were production-sharing contracts that involve a "sophisticated administrative structure" that smaller firms lack, said David Enriquez, an expert at the consultancy Goodrich, Riquelme and Associates, which represents companies competing on Tuesday.

This time, the companies are vying for license contracts, which are "friendlier for the sector" because the income goes through less bureaucratic red tape, Enriquez said.

Coldwell said this latest auction was aimed at wooing Mexico's burgeoning small- and medium-sized companies in a country that has only known Pemex for nearly 80 years.