Mexico and Brazil go head-to-head in deepwater licensing rounds

Mexico’s Round 2.4 and Brazil’s PSC Round 3 will duel over deepwater investment capital in the upcoming months

With perhaps the most prospective exploration acreage available this year, Mexico and Brazil will duel over deepwater investment capital in the upcoming months. Companies must weigh each offering with an eye on not only what is profitable or fills long-term resource gaps, but also what is the best use of limited funds. To give you the best intel, our Latin America upstream research analysts have benchmarked the two rounds in terms of prospectivity, fiscal attractiveness and above-ground risk.

Listen to our analyst’s first impressions from Brazil’s Round 14 results in our latest podcast.

Different companies will deploy different strategies in each basin, but we expect incumbents to play a large role in both rounds. Most players will take this opportunity to enhance their existing positions. For investors, will value top potential volume?

  • Prospectivity: Brazil's proven materiality and strong well rates outplay Mexico's deepwater plays. While significant volumes have been found in the mature onshore/shelf portion of Mexico's Salinas-Sureste basin, the deep- and ultra-deepwater portion is seriously underexplored. An opposing trend can be seen in the Santos basin, where large pre-salt discoveries have triggered an astounding pace of growth since 2006.
  • Fiscal attractiveness: Brazil's front-end tax loading trails behind Mexico's more attractive terms. Despite Brazil's regulatory and fiscal improvements, round participants will still need to contend with relatively high signature bonuses, ranging from R$350 million (US$109 million) to R$2 billion (US$625 million) in PSC Round 3. This is a major upfront cash commitment at a time of restricted E&P spending.
  • Above-ground risk: Both Mexico and Brazil have presidential elections scheduled in 2018, which may put some of these favourable trends at risk.

This is only an overview of the data that we cover in our latest insight, Mexico and Brazil deepwater licensing rounds: value versus volume. Our clients have access to the comprehensive research, supporting data and analysis through their exclusive subscription.

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