Mexico Holds an Auction of Deep-Water Oil Drilling

Mexico Holds an Auction of Deep-Water Oil Drilling

Mexico is holding an auction of deep-water oil and gas fields at the end of this month in what is perhaps President Enrique Pena Nieto’s last opportunity to capitalize on the opening of the country’s energy sector, the backbone of the government’s economic agenda. The 31 January tender that is going to explore and drill in 29 blocks in the Gulf of Mexico is the biggest chunk of oil and gas wealth on offer since the 2013-2014 regulatory overhaul that put an end to the monopoly of state-run company Pemex.

Many foreign companies have signed up to participate, including Exxon Mobil Corp, Royal Dutch Shell, BP, Total and China Offshore Oil Corporation. These blocks for drilling that Mexico is offering could attract billions in foreign direct investment from energy companies that have for long wanted to take advantage of the deep waters on Mexico’s side of the Gulf.

In the run-up to the July presidential elections, the frontrunner, leftist Andres Manuel Lopez Obrador, has attacked the energy reform and vowed to review contracts given to firms under President Pena Nieto. This is considered a political risk and a potential disruption to business especially if US President Donald Trump decides to withdraw from or do a major overhaul of the North American Free Trade Agreement (NAFTA).

Energy Minister Pedro Joaquin Coldwell, seeking to tame expectations, said investors might also be influenced by Donald Trump’s corporate tax cuts and an increased activity around exploration and production opportunities around the world. The Trump administration has also recently made a move to open all US offshore waters to oil exploration and gas drilling. “In that context, we estimate that if we assign seven lots – seven blocks at a minimum – from there onward the auction could be highly successful,” Joaquin Coldwell commented.