Mexico to Hold Oil/Gas Auction in 2018
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, 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.
To date, the CNH has run eight oil auctions, 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 deepwater 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.
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 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.
Eni to Foster Ties With Rosneft
Italian oil and gas group Eni is keen to strengthen ties with Russia’s Rosneft and could forge a partnership in the liquefied natural gas (LNG) sector, its chairwoman said.
In May this year, Eni extended a cooperation agreement with Rosneft to explore the Russian Barents Sea and the Black Sea, and consider further opportunities together.
“We are discussing a series of projects ... and are talking for a possible partnership in LNG,” Emma Marcegaglia said at an energy conference.
Eni, which in recent years has uncovered around 115 trillion cubic feet of gas in Mozambique and Egypt, said earlier this year it was looking to develop its LNG business worldwide.
The state-controlled major recently sold a 30 percent stake in its giant Zohr gas field in Egypt to Rosneft and the Russian energy giant has an option to buy a further 5 percent.
Speaking at the same conference, Rosneft CEO Igor Sechin said the Russian company was happy with its investment in Zohr.
“We are looking positively at the matter to realize this option,” he said.
Sechin said Rosneft would start drilling activity with Eni, and Italian oil service group Saipem, in the Black Sea at the end of December.
Eni has three licenses with Rosneft in the Black Sea and Barents Sea.
Saudi Needs Aramco to Curb Recession
Saudi Arabia’s plans to sell state assets - including a stake in energy giant Saudi Aramco - are becoming even more important to its finances as a recession slows Riyadh’s effort to close a budget deficit caused by low oil prices.
Last December, Riyadh released a plan to abolish the deficit by 2020, cutting it from $79 billion or 12.3 percent of gross domestic product in 2016 via steps such as domestic energy price hikes and tax rises. The plan eased investor fears about Saudi Arabia’s fiscal stability and reduced pressure on its currency.
But in recent weeks, it has become clear from official statistics that the 2020 target is much too optimistic, economists said. Austerity measures so far have pushed the economy into recession, with GDP shrinking for a second straight quarter in the April-June period.
The slump is a threat to ambitious economic reforms announced by Crown Prince Mohammed bin Salman, who wants to boost private sector growth and develop non-oil industries. So the government has delayed further austerity steps that could hurt businesses or consumers.
Riyadh is reconsidering the speed at which it imposes austerity to avoid pushing up unemployment, the International Monetary Fund said. Finance Minister Mohammed al-Jadaan told Bloomberg television in Washington last week that the government would not rush to lift domestic energy prices further.
The result may be a fresh emphasis on raising money from the Aramco sale and other privatization exercises, until the economy recovers enough to let Riyadh proceed at full speed with austerity, economists in the region said.
“The austerity measures have a cumulative impact on economic momentum -- each stage becomes even harder,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “If oil stays at $50 to $60 a barrel, we expect to see deficits way beyond 2020.”
The government faces a chicken-and-egg problem: it needs to spend more to boost growth, but finding more funds to spend is hard when growth is low. By obtaining tens of billions of dollars in funds from abroad, the privatization program could be a way out of this dilemma, Malik said.
Sources told Reuters this month that China was offering to buy up to 5 percent of Aramco directly. Consultancy Eurasia Group said it would be tempting for Riyadh to accept such a proposal in advance of a public offer and international listing of Aramco shares, which could occur in late 2018 or 2019.
“An immediate cash injection through a private placement could prove too attractive to turn down,” Eurasia said.
An Aramco spokesman said a range of options for a public listing of Aramco remained under active review. “No decision has been made and the IPO process remains on track,” the spokesman said without elaborating.
Ecuador to Issue Bonds to Pay Schlumberger Debt
Ecuador’s state oil company Petroamazonas said it will issue some $350 million in bonds to repay part of its debts with oil services company Schlumberger as part of a wider deal that also includes other payment decisions.
Petroamazonas accumulated debt with foreign suppliers as of 2015 in part due to lower oil prices. The company owes Schlumberger some $850 million.
“An agreement with Schlumberger was reached last week for the payment of the total debt ... In November we will issue bonds for $350 million,” Alex Galarraga, Petroamazonas’ boss told reporters during a visit to the country’s oil bloc known as ITT.
“Petroamazonas will issue bonds and several buyers will acquire the paper, and through Citibank the money will be delivered to Schlumberger,” he added.
The agreement also includes payment of $250 million in monthly installments as of next January for two years, at an interest rate of around 4 percent.
The remainder of the debt will be covered in cash and in central bank notes, known by the Spanish acronym TBC.
Ecuador recently negotiated a new fee for service with Schlumberger in an oilfield in the jungle.
Global Refining Capacity May Fall Short of Demand
Global oil refining capacity might not meet demand for oil products after 2020 as consumption continues to grow, boosting profit margins, Roger Brown, chief executive of European refiner Varo Energy, said.
Refining margins are expected to remain strong in the long term due to strong demand for gasoline and diesel as well as a switch to higher-grade bunker fuels after 2020, Brown said at the Oil & Money conference.
“We see very good long-term refining margins at the moment.”
Refining capacity set to come on line in the coming years, including large plants in Kuwait, China and India, might not be enough to meet growing demand, he said.
“At the pace demand is growing… You’ve got to see supply and demand in refining between 2020 and 2025 remaining balanced and maybe a little short,” Brown said.
Varo Energy, a joint venture between the world’s top oil trader Vitol and private equity giant Carlyle Group, operates two refineries in Europe.