On July 11, 2013, PEMEX took its third steep toward implementing its ten‐year farm‐out strategy that began with the Multiple Service Contracts of 2003. An auction was held at Pemex’s regional headquarters in Poza Rica for a financial interest in future production in six blocks in the nearby province known as Chicontepec.
The contract model was designed to align the interests of Pemex in increased oil production in marginal fields with the interest of the contractor to derive incremental profits from fees linked to production.
The contractor’s interest in the revenue stream from production would be limited to a fee‐per‐barrel. As had occurred during the previous auction, there were blocks in the auction that received no bids: two in 2012, three in 2013. The surprise in 2013 was that some bidders deployed an unimagined bidding strategy: do the work for free—or almost. The winning offers (in US$/barrel) were these: 1 cent (Halliburton), 49 cents (Petrolite) and 94 cents (Diavaz).
The new bidding strategy exploits a loophole in the current, revised contract and allows bidders to ignore Pemex’s maximum tariff. This report examines the problematic consequences for Pemex and traditional oil companies that are likely to follow from the use of this alternative business model.
*Mexico Energy Intelligence® (MEI) is a commercial and policy advisory service offered by Baker & Associates, Energy Consultants, a management consultancy based in Houston.