AMLO sounds death knell for oil reforms with Pemex farm-out halt

By Amy Stillman on 2/21/2019
Photo: Mexico President Andres Manuel Lopez Obrador.

MEXICO CITY (Bloomberg) -- Mexico President Andres Manuel Lopez Obrador has suspended future Petroleos Mexicanos farm-out bids, putting one of the final nails in the coffin for the 2014 energy reforms that promised to reverse years of oil-production declines with private companies’ involvement.

"What is already agreed will continue on course,” said Pemex chief executive Octavio Romero during the president’s morning conference. He also said Pemex’s focus currently is to develop service contracts rather than farm-out deals.

Pemex’s existing farm-outs will continue, but new tenders will not occur until those already awarded show results, Lopez Obrador said during his daily morning press conference. His comments echo a December decision to halt competitive oil rounds for at least three years until the companies involved showed results.

The decision could have repercussions for Pemex, whose annual oil output has fallen to the lowest level since at least 1990, resulting in the decline of Mexican light crude grades such as Olmeca and Isthmus.

The farm-outs would allow Pemex to acquire know-how and technology, and share the financial burden of field development by partnering with top tier international companies, said Pablo Medina, vice president of Welligence Energy Analytics in Houston. “Pemex alone can’t deliver all of Mexico’s production needs from a financial or operational standpoint. Given its stretched finances, it would be wise to leverage its limited capital through partnerships,” he said. Canceling Pemex’s farm-outs, “would be returning to old ways that have been proven completely ineffective,” said Medina.

In December, Mexico’s oil regulator, CNH, postponed Pemex farm-out tenders for seven onshore areas previously planned Feb. 14 until Oct. 9 and canceled two competitive auctions that were also planned for this month.

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