Mexico’s Deepwater Auctions
On December 5, 2016, the Mexican government auctioned eleven deep- and ultra-deepwater blocks in the Gulf of Mexico in a bidding round known as Round 1.4. Seven operators won, all credible, highly experienced oil majors and large international exploration and production companies. In a new commentary from the Center on Global Energy Policy, Fellow Adrián Lajous, former CEO of Pemex, explores the efficacy of opening the Mexican upstream to private investment, looking at deepwater Round 1.4 and the limits and shortcomings of its execution.
Despite naïve optimism with respect to production and reserve replacement, as well as the short- and mid-term impact of upstream reform from 2013 energy reform policies in the country, Lajous indicates Mexico is now experiencing a major discontinuity in its oil and gas industry -- a new industrial structure ending a long-established state monopoly. He notes that although Pemex and the Mexican government view the Round 1.4 process and its results as a major success, the timing and sequencing of Round 1 auctions were severely affected by deteriorating global oil industry conditions; compounding impacts of low prices and falling oil production on public finance, and particularly on the financial position of Pemex, forced the oil industry to limit debt and drastically cut expenditures. Lajous recommends that the mid-term consequences of these constraints should not be underestimated and a more rigorous selection of assets, coupled with a slower-paced calendar, could have offered better results, and simultaneously allowed the global oil industry to begin its recovery from what has been a taxing crisis.