Comments: Mexico Moves Forward

Abstract

Editor's column Later this month, Mexico will auction off 35 shallow-water blocks in the Gulf of Mexico, as its attempt to revive its oil and gas industry moves forward. It will be the ninth auction held under a reform program that began 4 years ago, and will follow the most successful auction to date. The 31 January deepwater auction surpassed expectations, drawing participation from supermajors and national oil companies (see page 42). Along with Argentina, Mexico has emerged as one of the upstream bright spots in Latin America. At the January auction, Mexican regulatory officials expected only 7–10 blocks to be awarded. But the event attracted bids from 11 different firms as 19 blocks were awarded, nine of those to Shell. Although the deepwater auction is thought to have the most valuable acreage, future tenders may also attract heavy interest. Last year, a consortium led by Talos Energy discovered as much as 2 billion bbl in place at its shallow-water Zama-1 well in the Sureste Basin. And Eni found as much as 1 billion bbl at the shallow-water Amoca field; startup is expected early next year, which would make Eni the first foreign company to produce hydrocarbons in Mexico in 80 years. Mexico’s decision to open its oil and gas sector to foreign investment could not have come at a worse time, months before oil prices abruptly declined and operators sharply cut spending. But, after weathering the early bid rounds, which attracted only light participation, Mexico appears on a roll. In addition to the March shallow-water bidding, 37 onshore blocks will be tendered in July, and there are plans of auctioning the first unconventional acreage, located near the Texas border, before the end of this year. The July blocks are located in northeastern and southeastern Mexico, covering 3,668 sq. miles and prospects of reserves for 260 million BOE of light crude and gas. The unconventional blocks are concentrated in the Tampico-Misantla and Burgos basins, south of the prolific Eagle Ford acreage in south Texas. The Mexican government previously announced auctions for unconventional acreage twice, but the first two events were canceled because of questions surrounding the potential regulation of hydraulic fracturing. The money from the bidding and the prospects of increased production are welcome news for Mexico. State oil company Pemex has been heavily strapped for cash, deterring advancement in deepwater and unconventional plays. Mexico’s oil production peaked in 2004 at 3.38 million B/D and has since fallen to less than 2 million B/D. The oil sector’s chief concern now is an upcoming presidential election. Leftist candidate Andrés Manuel Lopez Obrador has a sizable lead in public opinion polls ahead of the July election, and has been a critic of the energy reforms. He has vowed to review all contracts that have been awarded during the recent bid rounds. Many political analysts believe that he could indeed slow the pace of reform but would have a difficult time turning back the clock to the days when only Pemex was allowed to invest in the upstream.