Mexico's oil reforms expected to slow down with new government

By Amy Stillman on 7/3/2018

MEXICO CITY (Bloomberg) -- The election of Mexico’s first left-wing president in recent decades is expected to slow the country’s march toward the creation of a private oil market, though not derail it.

Andres Manuel Lopez Obrador won a landslide victory on July 1, riding a wave of disenchantment with the ruling business classes. In his post-election speech, Lopez Obrador said that he will audit oil contracts for graft and bring any anomalies to congress and courts. He could also suspend or cancel Mexico’s bid rounds, the result of 2013 legislative changes that ended state-owned Petroleos Mexicanos’s nearly eight-decade monopoly in the oil market, as the government has sought to reverse long-term production declines.

New oil auctions are likely to be halted during the first year of the administration as “the president fills key roles and resets priorities for the energy reform,” said Ixchel Castro, Wood Mackenzie manager of Latin America oils and refining markets research, in an emailed statement. Even so, reforms should continue on their “current trajectory”, she added.

An important decider will be the voting outcome for Mexico’s new congress, with the final tally still potentially days away. Lopez Obrador’s coalition will gain majority in both houses, according to a projection by Pauta Politica consulting firm. Yet Pauta’s estimate shows that he is unlikely to win the two-thirds congressional majority required to change the constitution and reverse the energy reforms.

“We continue to believe he will likely slow down the oil tenders, and raising local content requirements also looks possible,” said Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics, in a note. Though without the two-thirds majority “the impact on our production forecast through 2025 will be minimal,” he said.

Mexico will auction 37 onshore areas and nine areas in the shale gas-rich Burgos basin on Sept. 27, as well as the farm-out of seven onshore areas with Pemex on Oct. 31. The new president takes office Dec. 1.

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