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Mexico Expects $14 Billion Spending in First Oil Blocks

Updated on

Mexico Expects $14 Billion Spending in First Oil Blocks

Mexico expects a first package of offshore oil licenses to generate about $14 billion of investment as the country seeks to halt a decade-long output slide.

Production-sharing contracts for 14 new shallow-water blocks will be granted for 25 years, Deputy Energy Minister Lourdes Melgar said today. Together they will produce an estimated 80,000 barrels a day. Tenders for the Chicontepec onshore area northeast of Mexico City may be changed in light of crude’s 40 percent plunge this year, she said.

The terms come a day after Mexico authorized bidding guidelines for the new blocks as the country prepares for investment in its newly opened energy industry. Before crude slumped below $60 a barrel for the first time in five years, Mexico had forecast private investment would bring in more than $50 billion by 2018.

Mexico’s oil monopoly, held by state-owned Petroleos Mexicanos since 1938, ended last year after President Enrique Pena Nieto approved a bill to allow foreign producers to drill.

Each of the 14 shallow-water blocks probably will require investment of about $1 billion, Juan Carlos Zepeda, head of oil regulator CNH, said. The contracts will have two renewal options of five years with terms for other development blocks to be announced in January, Melgar said.

Low Costs

The government expects 26 exploratory wells to be operated in three years in the 14 shallow waters blocks.

Companies will pay 30 percent income tax on the shallow-water blocks, Deputy Finance Minister Miguel Messmacher said at the same Mexico City event today. Contracts may be rescinded in the case of spills or if corruption is detected.

The blocks are expected to contain light crude and have production costs that won’t surpass $20 a barrel, Zepeda said yesterday. Mexico will receive bids for the first blocks by June and award contracts by July, two months behind the original May deadline set by the CNH.

(Updates with production estimate in second paragraph.)