HOUSTON ─ Plummeting oil prices and spending cutbacks by companies have not zapped interest in Mexico’s first bidding round, which offers 14 shallow-water exploration blocks.

Since the invitation for bids was announced in December 2014, 38 companies have expressed interest, and 26 of these companies have requested access to the data room that opened in January, said Luis Fernando Herrera Fallas, deputy general director of hydrocarbons for Mexico’s energy ministry.

In recent months, reduced spending, falling profit and news of job cuts have become more frequent than not as the oil price hovers around $53 (WTI) and $61 (Brent) per barrel, putting high-cost unconventional and deepwater E&P projects at risk.

“What we are doing right now given the reduction in the prices is choosing more carefully the fields that we are going to present in each of the bidding calls. We are going to use the fields that we know are profitable and are going to be of interest,” Fallas said, noting that there were concerns about some heavy oil, unconventional and deepwater fields. “But [given] our conversations with the industry … there are many companies interested even with the low prices in those fields.”

So major alterations to the bidding process such as moving unconventional or deepwater areas to Round Two or even extending the exploration phase for shallow-water blocks, considering how the drop oil prices could impact the profitability of projects, could be unlikely.

Mexico is, however, considering changing the order of fields being offered during Round 1.

“We are thinking right now to move ahead with deep water and have unconventionals and Chicontepec for the last bidding call for this round,” he said during an event on Mexico’s energy reform Feb. 12 at Rice University.

That would mean the invitation for Chicontepec and unconventional areas would move to May 2015.

“At the end of the month we are going to announce the second stage of Round One with shallow waters,” Fallas said referring to the unofficial bidding calendar, which has the first invitation for bids for onshore fields scheduled for March.

Mexico is taking a staggered approach to the Round One tender, which will make available 169 blocks covering about 28,500 sq km (11,004 sq miles) with more than 18 Bboe in prospective resources and proven and probable reserves. Currently, of the 169 blocks being proposed, 109 are exploratory assets, while 60 blocks are extraction blocks with 2P reserves.

The first phase features 14 shallow-water areas, ranging in size from 116 sq km to 501 sq km (45 sq miles to 193 sq miles).

Any Mexican, foreign or state productive company may participate in the bidding round. But there are restrictions—no company may take part in more than one joint bidding group for the same contract area; a joint venture of two companies having production of more than 1.6 MMbbl/d of oil, excluding deepwater, is prohibited; and companies or consortia may only bid on up to five contractual areas during the bidding process.

The potential for hydrocarbon finds is great both onshore and offshore, considering for example plentiful production on the U.S. side of the Gulf of Mexico and from the Eagle Ford Shale.

Companies, including Exxon Mobil and Shell, are among those that have shown interest in the initial round of bidding, according to media reports.

But as of Feb. 12, Pemex has not shown interest in the first stage for shallow waters, according to Fernando Cano-Lasa, counsel with Squire Patton Boggs and former vice president of legal and strategy for PEMEX Procurement International. He thinks the strategy for Pemex going forward is to have a solid basis and diversify.

“They have a solid basis. They acquired, from Round Zero, 2.5 billion barrels of oil equivalent in 2P reserves, which lets them maintain their current production for 20 years,” Cano-Lasa said, noting the company also can do joint ventures through services agreements. “Are they going to bid for each field and each round? The answer is no, of course not. It would be absurd. It would defeat the purpose of the reform. As of today, they have not shown interest in this first stage for shallow waters.”

However, deep water and shale are areas in which Pemex may want to gain expertise, he said. Those are two areas in which Pemex admittedly lacks technical knowledge.

Technology transfer into Mexico will happen naturally as long as there are companies executing activities in the country, he added.

Local content requirements for E&P companies doing business in Mexico will gradually rise from 25% this year to 35% by 2025. This mandate excludes deepwater and ultradeepwater developments.

“Those companies are going to start using Mexican labor and that Mexican labor is going to acquire the expertise in what they are doing,” Cano-Lasa continued before turning to Pemex. “As we see the bidding rounds for the unconventional and deep water, there are going to be some obligations in the agreement for technology transfer that does not mess with intellectual property, but that require the companies to provide a certain technology transfer so that Pemex, as a partner in a joint venture, can understand what are the best practices to exploit, for instance, deepwater resources.”

Carlos de Regules, executive director for the National Agency for Safety, Energy and Environment of Mexico, added that this new paradigm will cause Pemex to shift its view and start seeing technology as a competitive advantage. “Instead of being part of the state, promoting research and development activities, it will start taking technology very seriously,” he said.

Despite an increase in E&P investment, oil production in Mexico has steadily declined, going from 3.4 MMbbl/d in 2004 to 2.4 MMbbl/d in 2014.

Contact the author, Velda Addison, at vaddison@hartenergy.com.