Mexico Round 1.4 and Trion Farmout Background and Results

Transcription

1 Mexico Round 1.4 and Trion Farmout Background and Results US Mexico Energy Forum Energy Forum The Woodlands, December 9, 2016

2 Overview Trion the first Pemex farmout Migration of two Round 0 Entitlements to a Licence Bid basis: additional royalty with cap and floor Tie-breaker: cash bonus to State and carry for Pemex Two bids Pemex carried through its 40% share of nearly $2 billion in expenditure Huge success for Pemex and Mexico Round 1.4 Ten deep water exploration blocks Bid basis: additional royalty with optional one or two well commitment Eight blocks attracted at least one bid Winning bids substantially greater than Hacienda-set minimums Huge success for Mexico

3 Trion Location Map Courtesy CNH Bid Document

4 What is a Farmout? 1: The Traditional Deal Assignment of Interest in a Host Government Instrument Typically in exploration phase Usually think of assignment of development opportunities or production as acquisitions, but conceptually similar Consideration paid by farmee to farmor But may be none ( ground floor terms) Typically carried work program rather than cash May include sunk cost reimbursement No change in HGI No change in fiscal terms No change in work obligations Farmor chooses farmee candidates and negotiates terms Rarely competitively bid but often parallel negotiations with multiple parties until exclusivity agreed Often includes transfer of operatorship Typically requires government approval Often formality if farmor technically and financially qualified

5 What is a Farmout? 2: Pemex farmouts of Round 0 Entitlements Requires migration to a new Host Government Instrument Typically in appraisal or development phase Part of consideration paid by farmee to farmor (Pemex), part to State Change in HGI Inevitable change in fiscal terms (Entitlement terms not applicable to Contracts) Change in work obligations also appears inevitable (and possibly biddable) CNH qualifies farmee candidates and sets biddable terms Pemex advises preferred retained working interest, whether to retain operatorship and desired partner characteristics Looks like any other bid round with NOC participation Some aspects comparable to India s First Development Round (1992) Some aspects comparable to Brazil s Round 0 (1998)

6 Trion - Pre-qualified companies (*bidders) Operators BHP Billiton* BP* Chevron ExxonMobil Shell Total Non-operators Inpex Lukoil Misubishi Petronas Carigali

7 Trion - Breakdown of BHP s $624 MM Winning Bid for 60% interest BP s second place bid was $606 MM

8 Fiscal terms and work obligations in Mexico Round 1.1 (Shallow water exploration) Exploration years; First term minimum work program: 1 or 2 wells Production sharing; Bid share of Operating Profit adjusted based on project IRR (with exploration uplift) Round 1.2 (Shallow water exploitation) Evaluation years; First term minimum work program: 1, 2 or 3 wells Production sharing; Bid share of Operating Profit adjusted based on project IRR (without exploration uplift) Round 1.3 (Onshore exploitation) Appraisal year; First term minimum work program: 1, rarely 2, wells Licence; Bid Additional Royalty (additional to State Royalty) with adjustment to State Royalty based on production rate Round 1.4 (Deep water exploration) Exploration 4 + 3; First term minimum work program: optional 1 well commitment Optional second well deferrable to second phase (adds to second phase well commitment) Licence; Bid Additional Royalty with adjustment to Bid Royalty based on profitability

9 Round Pre-qualified companies (*bidders) 16 out of 26 made bids (62%); 12 out of 16 won blocks (75%) Operators Atlantic Rim* BHP Billiton BP* Chevron* China Offshore Oil Corp* Eni* ExxonMobil* Hess Non-operators Galp Inpex* Lukoil* Misubishi Mitsui Murphy* Noble Petronas Carigali* Pemex* Repsol Shell* Statoil* Total* ONGC Ophir* Petro-Canada Petrobras Sierra*

10 Trion Location Map Courtesy CNH Presentation

11 Trion Location Map Courtesy CNH Presenation

12 Competitive Landscape No significant competitive deep water bid rounds since price reset in late 2014 US GOM Lease sales declining competition and declining values New Openings such as Mexico Deepwater create significant anomalies IOC s planning on flat to reduced capital spending budgets for 2017 and 2018 or until prices significantly rebound Companies are rationalizing portfolios so new projects will displace existing projects in budgets Companies are seeking opportunities with a low upfront commitment such as Round 1.4 Globally, most deep water projects are economically challenging The large IOC s will lead bid process and determine bid levels Qualified bidders are expected to consolidate into 5-7 bid groups Non-Operators will fill the gaps and not influence bids Bid Groups will be different at least for North v South Top Prospect in each block will drive bid values Expect 4-5 competitive bids on top block(s) 1-2 bids on second tier blocks Not all blocks will receive bids

13 Round 1.4 Bid Rules Bids have two components Additional Royalty subject to Hacienda minimum: 3.1% in Northern Blocks 1.9% in Southern Blocks Investment Factor of 0, 1 or is for no firm wells in the first four years 1 is for 1 firm well in the first four years 1.5 is for 2 firm wells but only 1 must be in the first four years Tie breaker is signature bonus VPO = 4 [Regalía Adicional + (11.5 (Regalía Adicional /100) ) Factor de Inversión]

14 Results - Perdido

15 Results Salinas (No bids on 2S or 6S)

16 Amount left on the table Winning bid compared to second place or minimum - Additional Royalty

17 Amount left on the table Winning bid compared to second place or minimum - Overall Bid Score