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Mexico Awards 10 of 15 Blocks in Oil Auction/WSJ

All of them located in shallow waters of the Gulf of Mexico

Juan Carlos Zepeda, president of the National Hydrocarbons Commission, which is Mexico’s energy regulator and organizer of the auctions, at the auction Monday in Mexico City.

Juan Carlos Zepeda, president of the National Hydrocarbons Commission, which is Mexico’s energy regulator and organizer of the auctions, at the auction Monday in Mexico City. PHOTO: REUTERS

MEXICO CITY—Mexico awarded 10 blocks of oil and gas for exploration and development to bidders from 10 different countries, including some of the world’s major oil companies, at an auction in the capital Monday.

Of the 15 blocks offered, all of them located in shallow waters of the Gulf of Mexico, five went unclaimed, while 10 were awarded to bidders that competed based on the portion of operating profits offered to the Mexican government.

Mexican Energy Minister Pedro Joaquín Coldwell said the auctions were “splendid for many reasons,” including the diversity of countries of origin of the bidders, and because the government was able to place two-thirds of the blocks on offer.

“It’s an indicator that the country is competitive, to capture this type of investment in a global competition,” Mr. Coldwell said. “In Mexico, we’ve developed a system of auctions that is robust and transparent.”

Mexico’s energy sector was closed to foreign investment from 1938, when President Lázaro Cardenas nationalized the industry, until 2013, when constitutional reforms under President Enrique Peña Nieto reopened the sector to outside capital.

Since then there have been five auctions, including Monday’s round. Initial auctions, which focused on less-profitable shallow water and onshore blocks, failed to attract the world’s biggest oil companies. But a December auction of deep-water drilling rights attracted a handful of global energy giants including Exxon Mobil Corp. ,Chevron Corp. , Total SA, Statoil Corp., BP PLC and others.

Juan Carlos Zepeda, president of the National Hydrocarbons Commission—Mexico’s energy regulator and organizer of the auctions—said the availability of geological information and the low prices of natural gas and heavy crude in the U.S. were two major factors determining which blocks attracted the most competition Monday. The areas thought to contain primarily light crude attracted the most bids.

Mr. Zepeda said the first barrels of oil from the fields could be produced by the end of 2018 or early 2019.

“Light oil is where we are seeing the most competition and interest,” he said. “There’s more difficulty in the blocks where there is a lot of gas.”

Mexican state oil company Petróleos Mexicanos won stakes in two of the blocks up for grabs, one in partnership with Germany’s DEA Deutsche Erdoel and another with Colombia’s Ecopetrol SA . In a statement following the auction, Pemex said the two areas it won are close to fields it has already been assigned, which will make it easier to share infrastructure for exploration and development.

“Pemex is maximizing the resources of the country and demonstrating that it’s a competitive company and a highly attractive and trustworthy partner,” the statement said.

Italy’s Eni SpA was the day’s biggest winner, serving as partner in groups that won three blocks. In March, the company said one of its exploratory wells in the Gulf of Mexico, won at an earlier auction, had uncovered reserves that were much higher than previously expected. Mr. Coldwell said representatives of the company had visited with Mr. Peña Nieto in Mexico in recent months to discuss plans to accelerate its production plans in Mexico.

“Eni has basically created a beachhead in Mexico and made it clear that Mexico is a strategic destination for their capital,” said Pablo Medina, an analyst with Wood Mackenzie who covers Mexico. The auction also saw Royal Dutch Shell PLC, the world’s second-largest publicly traded energy company, make its upstream debut in the Mexican energy market. Shell teamed with France’s Total SA to win the final block auctioned Monday, offering the government a share of 30.1% of operating profit, one of the lowest bids of the day.

“It’s very positive for Mexico that people have a long-term strategic interest in the country,” Mr. Medina said.

Other winners of blocks Monday included Russia’s Lukoil, Spain’sRepsol SA working in partnership with Mexican startup Sierra Oil & Gas, Mexico’s Citla Energy, Scotland’s Capricorn Energy, a subsidiary of Cairn Energy PLC and the Mexican unit of Malaysia’s Petronas.

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