Oil Companies Press Mexican President to Resume Suspended Auctions

Big oil companies operating in Mexico have launched a drive to convince leftist President Andres Manuel Lopez Obrador to resume auctions of oil and gas contracts he has branded a failure in reviving the industry.Chevron, ExxonMobil and Royal Dutch Shell, among other firms in Mexico’s Association of Hydrocarbon Companies (Amexhi), say they have met output targets and investment pledges worth hundreds of millions of dollars in the initial phases of their contracts.”We’ve been complying (with contractual obligations), and by any metric you look at, we’ve been successful,” Amexhi President Alberto de la Fuente told reporters this week.Now they want the government to restart the auctions initiated under a 2013-2014 energy opening, including those to select partners for state oil firm Petroleos Mexicanos (Pemex).FILE – Mexican President Andres Manuel Lopez Obrador speaks during his daily morning press conference at the National Palace in Mexico City, Mexico, Nov. 21, 2019.Lopez Obrador has strongly criticized the reform, which was enacted under his predecessor and opened the door to over 100 exploration and production contracts for oil companies.Having canceled auctions scheduled for 2019, he points out the reform has failed to lift crude output to the previous government’s target of 3 million barrels per day (bpd).Production is below 1.7 million bpd, the lowest in decades.The government said it will not do more until seeing “tangible” results, without specifying what that means.The president also suspended auctions for the heavily-indebted Pemex to seek private partnerships known as “farmouts.”Amexhi argues output is a poor yardstick because only 29 contracts are in the production stage out of 111 awarded through 2018. The rest still need time to finish exploratory drilling and studies before beginning commercial production, it says.FILE – Alberto de la Fuente, CEO of Shell in Mexico, gestures during Forbes Forum 2017 in Mexico City, Mexico, Sept. 18, 2017.”What we need is to sit down with the energy ministry, with the government and understand which metrics are important to them,” said de la Fuente, a former energy regulator who is now Shell’s country manager in Mexico.Some voices within Lopez Obrador’s administration are trying to convince the president to resume auctions, two officials told Reuters. The task is hard, they said, because he believes the state should hold a prominent role in the sector.Meanwhile, private and foreign oil firms have spent about $11 billion in investment, taxes and payments to Pemex, and plan to invest another $37 billion in the coming years, Amexhi says.”We’re looking to raise awareness in the government about how imperative it is to resume tenders,” said a director of a foreign oil company in Mexico who requested anonymity.”If not, it’s going to be impossible for production to pick up given the state Pemex is in and because the government is racing against the clock to meet its own goals,” he said.Lopez Obrador has pledged to reverse more than a decade of falling crude output at Pemex. The firm’s exploration and production budget has been crimped by its debt, the largest of any oil company in the world.Experts say it will be impossible for Pemex to reach its output goal of 1.8 million bpd by the end of 2019 after October closed with production at 1.66 million bpd.In the private sector, Amexhi expects production to reach nearly 50,000 bpd this year and jump to 280,000 bpd by 2024. But it argues new auctions could produce even faster results.Carlos Salazar, head of powerful Mexican business lobby CCE that helped resolve a dispute between the government and several energy infrastructure firms, said he supports Amexhi’s efforts.”Let’s set the milestones so that everyone, the public opinion, knows the objectives,” he said. 

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