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Energy reform is not quite dead after all. Energy reform is not quite dead after all.

President’s chief of staff confirms deepwater reserves go to private sector

It is a major reversal for the López Obrador administration, having been a key element of energy reform

The federal government will cede the business of exploration and oil production in deepwater reserves to the private sector, presidential chief of staff Alfonso Romo said on Monday.

Romo’s remark, made at a business summit in Mexico City, confirms a report published in the Financial Times in late August that said that President López Obrador was poised to reopen private exploration in deepwater oil reserves in the Gulf of Mexico.

Romo also said the government will cede gas production to private companies.

The decision to allow private companies to resume deepwater exploration and production is a major reversal in policy direction for the government of López Obrador.

The president has been a staunch opponent of the previous government’s energy reform, which opened up the oil sector to foreign and private companies after almost 80 years of state control.

It was also intended to bring in expertise that state oil company Pemex did not have, particularly in deepwater drilling.

Pemex officials have said in recent months that the state-owned company would no longer invest in deepwater projects in order to focus on the development of onshore and shallow water reserves.

For private companies to resume deepwater exploration and production, the government will either have to hold new oil block auctions or enter into farm-out agreements. Pemex has already signed one deepwater farm-out agreement with the Australia-based mining multinational BHP.

The government’s apparent willingness to reverse its position and allow greater private participation in the oil and gas sector is welcome news for investors concerned about the slowing Mexican economy and stagnating investment.

According to the Financial Times report, López Obrador’s intention is to kick-start investment and production in the oil sector and prevent the possibility of another credit rating downgrade for the beleaguered state oil company, which has debt in excess of US $100 billion.

New oil and gas block auctions certainly could bring in significant investment to Mexico: one auction held in early 2018 attracted potential investment of almost US $100 billion.

Source: El Financiero (sp) 

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