Murphy, BHP submit winning bids in Mexico’s first oil and gas auction

As the Gulf of Mexico enjoys a renaissance in new oil and gas developments, two oil and gas companies with ties to Arkansas announced they submitted winning bids Monday (Dec. 5) in Mexico’s historic, first-ever deep-water oil and gas auction.

El Dorado-based Murphy Oil Corp. said a joint venture led by its Mexican subsidiary was the high bidder on a project located in the Salinas deep-water basin. In bidding on rights to an adjacent Gulf of Mexico development, BHP Billiton said it submitted a winning claim to acquire a 60% stake and operatorship of blocks AE-0092 and AE-0093 in the Trion discovery located in the offshore Mexico play.

Murphy is expected to be awarded Block 5 during round one of the fourth phase of the Mexico’s government’s deep-water auction that kicked off in Mexico City on Monday. There, the country’s National Hydrocarbons Commission held its first tender for 10 blocks of oil and gas acreage ranging in depths from 3,000 to 10,000 feet, officials said.

Under the terms of the joint venture pact, Murphy Sur will be the operator with a 30% working interest together with PC Carinal Mexico (23.34%), the state-owned oil company for Malaysia. Ophir Energy and Sierra Offshore Exploration also each own a remaining interest (23.33%) of the project, respectively. Block 5 is located in the deep-water Salinas basin covering approximately 2,600 square kilometers (1,000 square miles), and water depths in this block range from 700 to 1,100 meters (2,300 to 3,600 feet). The initial exploration period for the license is four years and includes a work program commitment of one well.

FINANCIAL TERMS
Murphy did not provide financial terms of its bid, which generally require an upfront cash payment and a minimum work commitment that typically runs into hundreds of millions of dollars. BHP, which has halted all of its drilling operations in the Fayetteville Shale, will share in its Gulf of Mexico project with Pemex Exploration & Production Mexico, the state-owned oil company of Mexico. Pemex will retain a 40% stake in the two Trion blocks, which Mexican officials estimate has recoverable oil and gas assets of 485 million barrels of oil equivalent (MMboe).

BHP Billiton’s bid for Trion includes an upfront cash payment of $62.4 million and a minimum work commitment up to $320 million. Should BHP Billiton and Pemex agree to progress the project beyond the testing phase, BHP Billiton would be required to invest a remaining $1.2 billion to bring the development to market. BHP Billiton’s bid also includes a commitment to an additional royalty of 4%, officials said.

“We see attractive potential in Trion and the Perdido trend, and we are pleased to have the opportunity to further appraise and potentially develop this prospective frontier area of the deep-water Gulf of Mexico,” said Steve Pastor, president of BHP’s oil and gas operations.

“This opportunity aligns with our strategy of owning and operating Tier-1 assets and provides an opportunity for BHP Billiton to leverage its industry leading deep-water drilling, development and operational expertise to create value in Mexico,” the BHP executive said.

BHP, the third-largest leasehold operator in the Fayetteville Shale, has halted all drilling activity in the Arkansas play. Southwestern Energy and ExxonMobil’s XTO Energy, the first- and second-largest acreage owners in the unconventional play, have also shuttered active drilling programs in the Arkansas development’s operating areas.

CHINESE INVOLVEMENT
Besides Murphy Oil and BHP involvement in the Mexico’ first deep water auction, multinational oil and has conglomerates such as ExxonMobil, Chevron, Total, Statoil and BP also were participants in Monday’s bidding process that will likely bring billions of new revenue into Mexico coffers. For example, a consortium of Norwegian Statoil, Britain’s BP and Total of France submitted also submitted the winning bid for Block 3, a 1,260 square mile deep-water block that Mexican officials say contains 1.66 MMboe in premium grade crude oil and natural gas.

In addition to participation from state-owned oil giants Pemex and Petronas, the historic auction also drew interest from China and Japan’s national oil companies. The China National Offshore Oil Corp., known as CNOOC, which has roamed the globe to purchase energy assets to feed the nation’s growing economy, submitted two of the winning bids in the eight block auction.

The Mexico City auction comes as oil and gas companies look to increase capital spending after sitting on the sidelines for nearly two years due to depressed international commodity prices. Most oil and gas companies are expected to announce their 2017 budgets at the end of the fourth quarter or early next year.

In trading Monday, oil futures touched a one-year high after last week’s agreement by Organization of Petroleum Exporting Countries (OPEC) and non-member Russia to cut oil stockpiles in order to ease the current glut.

West Texas Intermediate for January delivery rose 11 cents, or 0.2%, at $51.79 a barrel on the New York Mercantile Exchange, the highest close for the U.S. benchmark crude since July 2015. In London, international Brent crude for February delivery climbed 48 cents, or 0.9%, to settle at $54.94 a barrel.