Mexico’s Round One: Lessons learned
Pablo Medina – Latin America Upstream
Trusted commercial intelligence
www.woodmac.com
Round One at US$50/bbl – a new paradigm
Round One offers a variety of upstream opportunities
Mexico needs to compete for capital globally through attractive terms
President Peña Nieto wants results before the end of his term in 2018
Start of
Round One
Qualification
2
Initial
Initial Round
Round
Zero
Zero results
results
Industry
feedback on
assets
Constitution
Energy
-alReform
Reform
Secondary
Secondary
Legislation
legislation
approved
approved
Release of
preliminary
contracts
Shallowwater
exploration
Dec
2013
Aug
2014
Nov
2014
Dec
2014
Trusted commercial intelligence
www.woodmac.com
Shallowwater
development
Feb
2015
Onshore
conventional
opportunities
Deepwater
and heavy-oil
May
2015
Oct
2015
Shallow-water exploration – almost a success
14 explorations blocks in Salinas-Sureste
» Average block size – 300 km2
Extensive prequalification criteria
» Financial
» Operational
An improved PSC
» Secret minimum government profit share
Only 14% of blocks were awarded
Source: Wood Mackenzie
3
Trusted commercial intelligence
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Shallow-water exploration – a diverse crowd
Companies that submitted bids
3
Bids per company
2
1
-
STP stands for Sierra, Talos and Premier Oil
Source: Wood Mackenzie
4
Trusted commercial intelligence
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Shallow-water exploration – the role of the secret minimum
Government profit share bids per block
80%
Govt. profit share bid
70%
60%
50%
40%
30%
20%
10%
0%
Highest govt. profit share bid
Source: Wood Mackenzie
5
Trusted commercial intelligence
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Minimum govt. profit share
Competitive bidding for Block 7
Government profit share bids per company for Block 7
80%
Govt. profit share bid
70%
60%
50%
40%
30%
20%
10%
0%
Bid
Source: Wood Mackenzie
6
Trusted commercial intelligence
www.woodmac.com
Minimum government profit share split
The economics of Block 7 could be tough
Block 7 economics under different discovery size scenarios
$80
100%
90%
80%
$60
70%
$50
60%
50%
$40
40%
$30
30%
$20
20%
$10
10%
0%
$0
40 mmboe
Opex
Capex
Source: Wood Mackenzie
7
Trusted commercial intelligence
www.woodmac.com
80 mmboe
Royalty
Govt. profit oil
Income tax
150 mmboe
Company cash flow
Govt. % share of NPV
Govt. take - undiscounted real
Cash flow/boe - undiscounted real
$70
Shallow-water DROs – a beachhead in Mexico
Nine fields within five contractual areas
» Average field reserves – 40 mmboe
» None have been in production
Similar pre-qualification criteria
» Both financial and operational
» Smaller corporate guarantee
Similar PSC in use
» Minimums disclosed two weeks before
We expect 60% of areas to be awarded
» Consortia will be the most aggressive
» Asian NOCs, Majors and International
E&Ps also present
Source: Wood Mackenzie
8
Trusted commercial intelligence
www.woodmac.com
AMT, Hokchi and Mison-Nak are clearly the most attractive areas
Effect of government profit share bid on company IRR
30%
25%
Company IRR
20%
15%
10%
5%
0%
25%
35%
45%
AMT
Source: Wood Mackenzie
9
Trusted commercial intelligence
www.woodmac.com
55%
65%
Government profit share bid
Hokchi
Mison-Nak
75%
Ichalkil-Pokoch
85%
95%
Xulum
But what about the downside risks?
Company IRR sensitivities to changes in cost, production and oil prices
30%
115 mmboe
65 mmboe
62 mmboe
25%
79 mmboe
Company IRR
20%
15%
18 mmboe
10%
5%
0%
AMT
Hokchi
Base
Source: Wood Mackenzie
10
Trusted commercial intelligence
www.woodmac.com
Costs (+ 20%)
Xulum
Production (- 20%)
Ichalkil-Pokoch
Brent at US$50/bbl flat (real)
Mison-Nak
Deepwater – the attractiveness of Perdido
Deepwater wells drilled in Mexico
96°W
96°W
93°W
Maximino-1
Supremus-1
XI
Exploratus-1
U.S.A.
USA
MEXICO
ME
Trion-1 DL
Trion-1
GOM Shelf
24°N
etre
s
Pemex drilled deep water wells
0m
etr
es
Gas/Condensate
Sabinas - Rio Grande
Basin
etr
es
Oil Shows
0m
Oil & Gas
21°N
21°N
Oil
Catamat-1
Gulf of Mexico
40
0m
MEXICO
Ahawbil-1 Kunah-1
Piklis-1
Nen-1
Lakach-2DL
Lakach-1
Lalaíl-1
Noxal-1
km
Leek-1
11
Trusted commercial intelligence
www.woodmac.com
Field Type
Gas; Gas Condensate
Nab-1
Etbakel-1
Tamil-1
Oil; Oil & Gas
Round One
Exploration Blocks
Source: Wood Mackenzie
93°W
24°N
DevelopmentBlocks
Blocks
Fields
(none)
Development
&&
Fields
(none)
200
96°W
2,0
0
Vespa
99°W
Supremus
Dry Hole
Gas Shows
100
Exploratus
Maximino
1,00
25°30'N
1,500 m
Trion
Gas
50
MEXICO
25°30'N
0m
0m
20
ES
Gulf of Mexico
0
U.S.A.
GOM Deepwater
Vespa-1
40
24°N
O
C
Vasto-1 (currently drilling)
MEXICO CITY
94°30'W
0
25
km
100
50
96°W
PEMEX JV Opportunities
Opportunities
Source: Wood Mackenzie
94°30'W
24°N
99°W
Perdido opportunities in Round One
Europe
Americas
Asia Pacific
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