DEA to acquire Sierra Oil & Gas in Mexico

Source: press release, 4 December 2018

Block 7 in the Sureste Basin offshore Mexico
Block 7 in the Sureste Basin offshore Mexico (illustrations: DEA)

DEA Deutsche Erdoel AG has signed an agreement to acquire Sierra Oil & Gas, an independent Mexican oil and gas company. Sierra holds interests in a portfolio of six exploration and appraisal blocks in Mexico, including the world class Zama discovery.

The transaction is an important milestone in DEA’s international growth strategy, fulfilling DEA’s objective of building a significant portfolio in the Mexican upstream market. DEA will add Sierra’s acreage to its existing portfolio of operated production and exploration blocks, to become one of the country’s largest acreage holders. Once completed, it will be the largest upstream M&A transaction in the country since the liberalisation of the petroleum sector in 2013.

DEA’s Chief Executive Officer Maria Moraeus Hanssen comments, “The acquisition of Sierra will allow DEA to achieve materiality in the highly strategic and competitive Mexican upstream market and provide us with a high-quality exploration and appraisal portfolio in one of the world’s most sought-after offshore basins, as well as a strong team. The transaction also underlines our confidence in the future of Mexico’s energy industry. Upon completion of the planned merger of DEA and Wintershall, this acquisition will further strengthen Mexico as a core region for the combined company, which will become one of the major players in Mexico.”

Sierra holds a 40% non-operated working interest in Block 7, containing a significant part of Zama, one of the largest shallow water discoveries in the past 20 years globally. As a whole, Zama is estimated to hold 400 million to 800 million barrels of recoverable oil equivalent and expected to start production by 2022/23. In addition, Sierra owns non-operated interests in five highly prospective exploration blocks. Sierra’s exploration blocks cover approximately 9,400 square kilometres in the core part of Mexico’s Sureste basin.

DEA currently operates the onshore Ogarrio oil field, in partnership with Pemex, and holds interests in exploration blocks in the Tampico Misantla and Sureste Basins. Following the acquisition of Sierra, DEA will hold interests in one onshore production block and ten exploration blocks, including the Zama discovery, which together will attract significant investments from DEA and its joint venture partners over the next five years.

Juan Manuel Delgado, Country Manager for DEA’s Mexican business, says, “As a long-term strategic investor with extensive international oil and gas experience, DEA is fully committed to contributing to the development of Mexico’s oil and gas sector. We are excited to work with our joint venture partners in Block 7 on delivering first oil from Zama on an expedited timetable and to being actively involved in unlocking the significant production potential of the Sureste basin. Sierra’s team has a tremendous track record in Mexico and brings valuable expertise and in-depth knowledge of the Mexican upstream sector to DEA. We look forward to working with them on growing DEA’s business in Mexico in the future.”

The transaction is subject to obtaining government approvals, including from Mexico’s National Hydrocarbons Commission (CNH) and the Federal Economic Competition Commission (COFECE), as well as satisfying other customary conditions, and is expected to close in the first half of 2019. The acquisition will be fully equity funded by LetterOne.