Thursday, February 5, 2009

China-Mexico: Sinopec competes against Schlumberger Ltd and Halliburton Co. for drilling contracts in Mexico

China's Sinopec Group has become the first Chinese oil company to venture into Mexico's energy industry. Sinopec is competing for two large drilling contracts in Mexico's Chicontepec oil basin according to Compranet, the procurement website of the Mexican Government.

According to this article from the Dow Jones Newswires you can access via Rigzone, "Even if Sinopec loses the upcoming tenders, the Chinese heavyweight appears to be taking a long-term approach in Mexico. Next week, Sinopec executives will give a presentation to state-run Petróleos Mexicanos on the company's land and offshore drilling equipment, said an industry executive familiar with the meeting."

has already expanded into markets in Africa, South America and Russia in order to ensure Chinese refining capacity and oil supplies. If Sinopec wins the bidding process this will be China's first major energy investments in Central America.

Officially Petroleos Mexicanos (PEMEX), the state oil company of Mexico maintains a monopoly on oil sales, thus Sinopec can only be hired as a service contractor. This means, Sinopec must see winning these bids as a sound investment.

PEMEX will in effect be paying the winner cash to develop and drill for oil on behalf of PEMEX. Recent reforms in the oil industry entitle PEMEX to offer incentives to contractors who finish their work ahead of schedule. All in all, Sinopec is hoping to generate a nice chunk of cash from pursuing this deal.

It also doesn't hurt Sinopec's image if it can win the bidding at a fair market price for a assets that both Schlumberger and Halliburton would like to get their hands on.