September 13, 2018 / 9:29 PM / 7 days ago

Oil firm partially returns area won in Mexico energy reform auction

MEXICO CITY (Reuters) - Consorcio Petrolero 5M del Golfo, a small energy firm operating in Mexico, has returned one-third of an onshore area won in a 2015 auction, the country’s oil regulator said on Thursday, citing studies showing limited potential for production.

Companies operating in Mexico have so far returned all or part of three oil and gas areas mostly awarded during early auctions of the country’s flagship energy reform because of similar reasons, as well as high taxes and development program demands. This has cast doubt on the sustainability of some projects in the reform intended to open the industry to foreign investors.

The partial return of the 172-square-kilometer area, which includes the Benavides and Primavera fields in the Burgos basin in Northern Mexico, was approved this week by the National Hydrocarbon Commision (CNH), the regulator said in a statement.

The consortium, based in the state of Tamaulipas, notified regulators of its decision earlier this year.

“Technical studies showed no potential to produce hydrocarbons,” the regulator cited the consortium as saying.

The firm still has to complete the minimum development plan and other commitments approved by the commission.

Canamex Energy Holdings, a consortium of Dutch and Mexican firms, received government approval to terminate a 2015 license to produce crude and gas at the Moloacan field due to difficulties in paying taxes and other fees. Canamex had offered a 85.7 percent royalty, the highest in that bidding round.

In August, a consortium led by UK-based Capricorn Energy and Mexico’s Citla Energy requested to return a portion of a shallow-water area won earlier this year. It told the regulator its block was near an environmentally protected zone.

“Very high royalties jeopardize the projects’ economic viability. Many relatively new operators did this,” said Pablo Medina, research vice president of consultancy Welligence in Houston.

“It would make sense offering these areas again. Questions are under which terms and who would be interested as the country’s political context has changed,” he added.

President-elect Andres Manuel Lopez Obrador, who will take office in December, said in August that auctions for oil and gas areas are suspended until existing contracts are reviewed by his government. It is still unclear if February tenders and a state-run Pemex’s search for a partner will be halted.

Reporting by Adriana Barrera and Marianna Parraga; Editing by Richard Chang

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