Dea Deutsche Erdoel of Mikhail Friedman and his partners signed an agreement to purchase the independent Mexican oil and gas company Sierra Oil & Gas, both companies reported. Sierra does not produce yet, the company owns a license to search for hydrocarbons on six offshore blocks in Mexico. The company does not disclose their total reserves.
Only one of them is known, Zama: recoverable reserves – 400-800 million barrels of oil equivalent. Sierra owns 40% in it. Production at Zama is expected in 2022-2023. According to the project operator company, Talos Energy, it will amount to between 100,000 and 150,000 barrels per day.
The deal is expected to be closed in the first half of 2019, following regulatory approval. Dea Deutsche Erdoel is already working in Mexico, last year the company bought shares in two fields – existing and not yet developed. Its partner in both projects is the state company PEMEX.
Sierra will be integrated into the local division of Dea – Deutsche Erdoel Mexico. The combined company’s portfolio will consist of 10 exploration and one production licenses. Within five years, investments in these projects will amount to more than $2 billion.
The amount of the transaction is not disclosed. Bloomberg, citing its source, reports that the $ 500 million deal should be the largest Since Mexico opened its energy sector to foreign investment in 2013.
On the Sierra website it is stated that its funded by EnCap Investment, River Stone, BlackRock. The deal will be financed by the parent company Dea-Letter One, indicates Dea.
LetterOne was created by Friedman together with German Khan and Alexey Kuzmichev in 2013, after they sold their stake in TNK-BP to Rosneft for $14 billion.
In 2015, they bought Dea from RWE, and then its Norwegian division from E.On, and in 2017 they agreed with the German concern BASF to merge the oil and gas divisions – Dea and Wintershall. But this deal isn’t closed yet.
Now the main region of Dea’s production is Norway. But the project returns are low, so companies need to grow. Mexico is a promising region, it is interesting for most oil companies, however, a lot depends on the specific project and its cost.
After reforms that encourage foreign investment in oil and gas production, Mexico could become “the second Brazil”. Dea probably buys Sierra not so much because of current production, but because of the potential associated with the discovery of new reserves. However, new President of Mexico Andreas Manuel López Obrador created uncertainty for investments in the industry saying that he will abandon the previous policy in the energy sector and will check 110 already signed oil contracts with foreign companies, new tenders will not be held yet.