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Murphy bid wins oil block in Mexico

by Jessica Seaman | December 7, 2016 at 2:13 a.m.

Murphy Oil Corp. has won rights to develop a deep-water block off the coast of Mexico after a successful bid in an auction that's part of the country's initiative to open its energy industry to private and foreign investment for the first time in decades.

The auction, which took place Monday, offered drilling contracts for 10 deep-water fields, eight of which were snatched up by several consortiums made up of companies that included Chevron and Exxon Mobil.

The eight blocks are expected to generate $41 billion in investment over 35 years, Luana Siegfried, an analyst with Raymond James, said in an email.

The Mexican government will receive between 59.8 percent and 66.1 percent of the profits from the projects, The Associated Press reported.

In its bid, Murphy Oil partnered with PC Carigali, a subsidiary of Malaysia's Petronas, Ophir Energy, based in London, and Sierra Offshore Exploration, based in Mexico City.

Murphy Oil will be the operator of the joint venture, with the company owning a 30 percent working interest.

The alliance's bid offered the Mexican government a 27 percent royalty with a commitment to drill one well in the next four years. The offer has a gross amount of $134 million, said Murphy Oil spokesman Kelly Whitley.

The deep-water block Murphy bid on is in the Salinas basin in the Gulf of Mexico. The block covers about 1,000 square miles and has water depths ranging from 2,300 to 3,600 feet.

"It was one of the competitive blocks," Whitley said, adding that the company decided to bid for the block after looking at preliminary seismic data for the area.

"Our team looked at what they were seeing in the seismic and felt that they could be successful in this block," she said.

Monday's auction was the fourth in a series the Mexican government has been holding as part of the country's energy overhaul. More bidding rounds are to be held in 2017 and 2018.

The country's first auction in July 2015 received only two successful bids for oil leases.

The previous auction rounds were less successful because of the downswing in oil prices, and the blocks up for bid were shallow-water, which is not attractive as the deep-water blocks.

"[Monday's] auction should be considered a win given the low expectations at the outset, e.g., the energy minister guided to only four blocks," Siegfried said in the email.

"Nonetheless, there will be minimal near-term impact on supply given the long lead-time nature of all deepwater opportunities, so don't expect any incremental deepwater volumes here until after 2020," she wrote.

Mexico's oil and gas industry largely has been operated by the state-owned oil company, Petroleos Mexicanos, or Pemex, for about eight decades.

Pemex on Monday was awarded its first contract with a private company for a joint operating agreement in deep-water drilling. The company will develop a field called Trion block with BHP Billiton.

Pemex will have 40 percent interest in the venture, while BHP Billiton takes the lead with 60 percent interest, AP reported.

Business on 12/07/2016

Print Headline: Murphy bid wins oil block in Mexico

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