Mexico unveils first phase of historic oil reform

[MEXICO CITY] Mexico unveiled rules Thursday for the first phase of its historic opening of the oil sector to foreign investors, pledging transparent auctions in July for 14 shallow-water fields.

The highly-anticipated guidelines were made public four months after Congress gave final approval to legislation allowing foreign companies to drill for oil for the first time since 1938.

"It represents, without a doubt, the coming of a new era in energy in our country. It will be for the good of Mexico," Energy Minister Pedro Joaquin Coldwell said at an event outlining the bidding process.

"The reform arrived on time. Mexico will put an end to its oil and gas decline and will reincorporate the world energy market with more strength and certainty." Mexico has never had auctions for oil exploration contracts. Before the sector's nationalization 76 years ago, contracts were awarded on a discretionary basis.

Companies will be able on Monday to file applications for access to data on the 14 oil fields in the Gulf of Mexico.

They will then have six months from January 15 to prepare their bids, ending with an auction on July 15, when the winner will be announced during a public session of the National Hydrocarbon Commission shown live online.

"Mexico will conduct itself with the highest international standards of fairness and transparency," Mr Coldwell said.

The 14 oil fields cover an area of 4,222 sq m and are located off the states of Tabasco, Veracruz and Campeche.

To qualify for a contract, a company must show at least US$1 billion (S$1.31 billion) in capital, but if it is part of a consortium, the minimum for the lead firm is US$600 million, said Juan Carlos Zepeda, head of the National Hydrocarbon Commission.

Companies must also own assets worth US$10 billion and have participated in at least three exploration projects in the past, Mr Zepeda said.

"These restrictions guarantee the participation of solvent and healthy companies," he said.

The production-sharing contract will last 25 years, renewable for up to 10 more years. Companies will pay a 30 percent income tax, plus 1,150 pesos (US$78) per sq km explored in the first 60 months of the exploration phase. The government will charge 6,000 pesos (US$405) per sq km where oil is extracted.

The 14 oil fields are the first of 169 that will be up for auction in the first round.

The reform aims to reverse declining oil production, which has fallen from 3.4 million barrels per day a decade ago to 2.4 million today.

The state oil monopoly, Pemex, has been hit by huge losses in the past year.

With global oil prices falling dramatically in recent weeks, Coldwell said foreign firms will be "more selective in the areas and countries they invest in." "The current instability in the world price of oil highlights the opportunity that Mexico has seized with the reform," he said. "Faced with this unfavourable environment, the Mexican state will not be the only one taking risks."

AFP