Mexico holds first oil auction in landmark reform

Mexico holds today the first oil auction of a historic energy reform that reopens the industry to foreign investors, with US, European and Asian firms jostling for contracts, reports BSS.

Nearly 80 years after kicking foreign energy companies out of the country, the government is offering 14 blocks in shallow waters of the Gulf of Mexico worth an estimated $17 billion in total.

The auction is the climax of President Enrique Pena Nieto’s top economic reform, which was enacted last year after a heated debate in Congress, with leftist parties warning against giving up a symbol of national sovereignty.

The daylong event could give Pena Nieto’s administration a brief break from the embarrassing fallout of the weekend jailbreak of the country’s most powerful drug lord, Joaquin “El Chapo” Guzman, his second escape in 14 years.

While foreign firms have eagerly-awaited this moment, the government has played down expectations of a big sale, predicting that between a third and half of the 14 blocks will be awarded. Energy Minister Pedro Joaquin Coldwell said the estimate was in line with international experience.

“We won’t squander the nation’s oil resources,” he said.

Analysts say the sharp drop in global oil prices in the past year have affected the plans of energy companies. Raymundo Tenorio Aguilar, an energy expert at the Monterrey Institute of Technology, said Iran’s nuclear deal Tuesday with world powers could also affect the auction.

The accord will lift sanctions on Iran’s oil export, adding 1.5 million barrels of crude per day in the market, causing prices to fall further, Tenorio said.

“This weakens Mexico’s ability to negotiate,” he told AFP. “If only half of the bids are awarded, it would be a success given the current environment.”

But David Shields, an industry analyst and director of the magazine Energia a Debate, said he expected a bigger bonanza.

“I think that there will be interest from many companies that want to be the first to have a foothold in Mexico,” Shields told AFP.

Seven consortiums and 18 individual companies have qualified for the auction. US giants ExxonMobil and Chevron, Anglo-Australian firm BHP Billiton, India’s state-run ONGC Videsh Ltd, Russia’s Lukoil, France’s Total and Chinese-owned Nexen are among the firms bidding individually.

Some of the consortiums include Italy’s ENI, Thailand’s Petronas Carigali and new Mexican firms. The legislation breaks the monopoly on drilling held by state-run firm Pemex since the industry’s 1938 nationalization. While Pemex qualified for the auction, it will sit out this time.

Pena Nieto hopes the reform will reverse years of declining production — from 3.5 million barrels per day in 2004 to 2.3 million now — and give a boost to the economy.

Oil auctions are a new thing for Mexico and officials said they wanted to make them the most transparent in the world. The event will be shown on a live Internet broadcast.

The companies will bid without knowing beforehand the minimum percentage that the government will want to earn for each project.

Analysts say the government made an effort to create a transparent system to ease any concerns over the country’s poor track record when it comes to corruption.

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