Mexico's Energy Opening Faces Test In Deepwater Oil Auction



Mexico's Energy Opening Faces Test In Deepwater Oil Auction
An auction of deepwater oil and gas fields in Mexico this month may prove the last major opportunity for President Enrique Pena Nieto's government to capitalize on its opening of the energy sector.

Reuters

MEXICO CITY, Jan 19 (Reuters) - An auction of deepwater oil and gas fields in Mexico this month may prove the last major opportunity for President Enrique Pena Nieto's government to capitalize on its opening of the energy sector, the central plank of its economic agenda.

The Jan. 31 tender of licenses to explore and drill in 29 blocks in the Gulf of Mexico is the biggest chunk of oil and gas wealth on offer since the completion of a 2013-14 legislative overhaul that ended state oil firm Pemex's decades-long monopoly.

Many of the biggest global oil firms have registered to take part, including Exxon Mobil Corp, Royal Dutch Shell Plc , BP Plc, Total SA and China Offshore Oil Corp.

The blocks that Mexico is offering could attract billions of dollars in investment from companies that have long coveted access to the deep waters on Mexico's side of the Gulf.

Looming over the auction, however, is a July presidential election in which the frontrunner, leftist Andres Manuel Lopez Obrador, has attacked the energy reform and vowed to review contracts awarded to companies under Pena Nieto.

Another element of political risk for companies to consider is the potential for disruption to business if U.S. President Donald Trump makes good on threats to ditch the North American Free Trade Agreement (NAFTA).

Energy Minister Pedro Joaquin Coldwell, seeking to temper expectations, said investors may also be influenced by Trump's corporate tax cuts and an increase in exploration and production opportunities in other parts of the world.

The Trump administration has vowed to open up nearly all U.S. offshore waters to oil and gas drilling, while auctions in Brazil and Argentina and new projects in nearby Guyana stake further claims to the capital Mexico is seeking to lure.

"In that context, we estimate that if we assign seven lots - seven blocks at a minimum - from there onward the auction could be highly successful," Joaquin Coldwell told Reuters.

Rising commodity prices and the relatively rare opportunity for global players to gain access to large, untapped fields, have spurred hopes for lively interest. The last deepwater round in Mexico in December 2016 saw eight of 10 blocks awarded.

"You have every ingredient you need for an active sale," said Tim Duncan, president and chief executive officer of Talos Energy, a U.S. company that won contracts in previous Mexican rounds but is not bidding this time around.

UNEXPLORED

Little drilling or exploration has been done in Mexico's deep waters because Pemex lacks the specialist technology needed, as well as the funds. The state energy firm focuses on oilfields in shallow water.

International oil firms are familiar with the geology of the region because it is similar to what is under the Gulf's U.S. waters. The fields on offer are concentrated in three areas, including the prolific Perdido Fold Belt.


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