- Tim Cutt (Photo: Nayan SthankiyaéNational Post)

- Tim Cutt (Photo: Nayan Sthankiya/National Post)

According to a report from The Sydney Morning Herald just moments ago, BHP Billiton has signed an alliance agreement with Mexico's state oil company, Pemex.  This marks the first major agreement signed ahead of Mexico auctioning off certain oil and gas concessions next year.

BHP, like most other players in the offshore oil business, is seeking to partner with Pemex to develop Mexico's significant and primarily untapped oil reserves.  Mexico is estimated to hold as much oil as Saudi Arabia yet after 76 years of nationalization the production out of the country has been steadily declining over the past years.

It might sound strange that the iron ore and coal giant would be interested in offshore oil, but they already produce roughly 100,000 boepd in the Gulf of Mexico (US-side).

"What we can offer is absolute focus as Mexico seeks partners to help develop its enormous petroleum resources," Tim Cutt (President of BHP's petroleum and potash businesses) said Friday after speaking at a Mexican oil industry conference.

"Right now, our global offshore organisation is capable of moving with considerable speed, safety, agility and flexibility."

After years of declining production, the Mexican government announced this year that it would open up the country's oil industry to foreign companies in an attempt to gain the expertise of the super majors in developing oilfields.

According to reports earlier this month, Mr. Cutt and his team have been delving into the data at Pemex trying to determine which blocks would be best to bid on when Mexico opens up for auction next year.

Mexico is set to put certain oil and gas blocks up for auction next year after 76 years of national control and corruption has led to declining production (Image: Bloomberg News)

Mexico is set to put certain oil and gas blocks up for auction next year after 76 years of national control and corruption has led to declining production (Image: Bloomberg News)

Mexico’s Energy Ministry plans to auction 169 blocks (109 for exploration and 60 for production) in the country’s first competitive bidding round next year. Of the blocks auctioned, 28 will be in deep waters.  The deep-water resources amount to a prospective 4.8 billion barrels of crude equivalent, according to the Mexican ministry.  This is what BHP and many of the super majors are most interested in.

This is one of the first major alliance agreements announced today and signals the beginning of what will surely be a very competitive process.

A small company that was recently formed called Renaissance Oil (ROE:TSXV)  (backed by Goldcorp`s Ian Telfer) is looking to partner with Halliburton to bid on onshore shale prospects in Mexico next year.  News of the process in Mexico beginning will be good for all participants involved, even the smaller guys.

*More to come as it develops

Read: BHP signs deepwater deal with Mexico's Pemex

Related: BHP Billiton Seeks to Pump Oil From Mexican Waters 

Also: Mexico Plans Roadshow to Promote Oil Bidding Round

Update:

Read: BHP and Pemex Sign Agreement to Exchange Deepwater Expertise (BHP Billiton news release)

Disclosure: I own shares of Renaissance and it is extremely high risk.  Always do your own due diligence. Thank you.