Mexico Battles Bad Timing in 1st Sale of Oil Fields Since 1930s

(Bloomberg) -- Mexico waited 77 years to invite foreign oil producers back into its borders. That was one year too many.

The move to lure tens of billions of dollars from the likes of Exxon Mobil Corp. will be put to the test for the first time at an oilfield auction on Wednesday. With oil prices down by about half since last year, five of 38 potential bidders, including Glencore Plc, Noble Energy Inc. and even Mexico’s state-owned oil producer, have pulled out.

President Enrique Pena Nieto moved to end the state monopoly after poor drilling infrastructure and technology failed to reverse a decade-long production decline that reduced government revenue. To lure investments now, Mexico will probably get a much smaller share of profits than it would have a year ago.

“They shaped expectation at a $100-per-barrel market and we are way off that now,” Wilbur Matthews, chief executive officer of San Antonio-based Vaquero Global Investment, which oversees more than $100 million of assets including oil-producer bonds, said by phone July 10.

Benchmark U.S. crude is trading at about $52 a barrel and Mexico’s Maya for about $51, about half the prices in June of last year. The meltdown has led producers to cut more than 100,000 jobs globally and reduce spending by more than $100 billion.

Tough Competition

This means that Mexico will have to compete for limited global investments with rival producing countries such as Brazil and Colombia, which opened their oil industries years earlier, said David Enriquez, a Mexico-city based partner at energy consultant Goodrich Riquelme & Asociados AC.

“The cost of the uncertainty for new companies entering an unknown environment should be discounted,” he said in an interview at his office on July 6. “Mexico is the new kid on the block.”


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