November 2017, Vol. 244, No. 11

Features

Unexpected Move Could Derail Mexico’s Oil Boom

New rules on sharing of proceeds could delay Mexico’s new oil developments and put plans by foreign firms on hold, as the private sector mulls over whether new regulations would be enough disincentive to stop doing business there.

“This is the single most important outstanding issue in the sector,” Raymundo Pinones, director of Mexico’s Association of Hydrocarbon Companies, told Bloomberg. “It could delay activity until there is clarity. In place of drilling or continuing with development, the industry is waiting for this to be resolved,” Pinones noted.

Deputy Energy Minister Aldo Flores believes that “If there’s enough evidence and certainty that the discovery extends into Pemex’s block, then it would have to be shared,” he told Bloomberg.

Mexico would devise rules on sharing and collaboration between private companies with finds extending into neighboring blocks as well – it would not be done just for Pemex, Flores added.

However, this first collaboration would involve the state firm, so there’s some concern among foreign firms and observers that Pemex may get preferential treatment. Another potential setback for international companies willing to explore Mexico’s reserves is the upcoming presidential election next year.

Mexican President Enrique Pena Nieto – the architect of the energy reform – is completing his last term in office, and the front-runner for the 2018 presidential election is a leftist populist candidate, Andres Manuel Lopez Obrador, who has pledged to hold a referendum on the energy reform and review the oil contracts.

Although it’s far from certain that Obrador would undo his predecessor’s reforms, there’s industry concern that the Mexican market could present some difficulties for foreign investors, or that an Obrador presidency could create uncertainties in the regulatory landscape.

Mexico will probably have completed the draft regulation on sharing within neighboring blocks prior to the elections, and that regulation will shape the future of foreign oil exploration and interest in bidding in tenders.

“If they don’t get this right, they are going to jeopardize a lot,” John Padilla, managing director of energy consulting firm IPD Latin America, told Bloomberg.