Mexico Set To Lose Billions From Auction Delay

Mexico will lose billions as a result of the new government’s decision to delay oil and gas auctions while it reviews all contracts awarded by the previous government over the three years since it began holding auctions for oil and gas blocks.

"Every year you don't have a bidding, it's going to cost you $1 billion," said a commissioner from Mexico’s hydrocarbons commission, Hector Moreira Rodriguez, as quoted by S&P Global Platts.

Yet the losses would not just be directly financial. A delay in tenders will also interfere with President Andres Manuel Lopez Obrador’s plans to boost Mexico’s oil production to 2.4 million bpd by 2024. According to Rodriguez, with the delay, the country’s crude oil production will grow by 300,000 bpd less over the next ten years than otherwise.

Mexico’s current oil production stands at about 1.84 million bpd, of which 60 percent is exported. Production has been falling steadily and the tenders organized by the previous government were instrumental in reversing the decline.

Now the government is reviewing more than 100 contracts for signs of corruption. It has also had to bail out Pemex, which has turned the company into the most indebted in the world with the load at US$107 billion. Last month, Obrador announced a US$5.5-billion rescue package for the company, including US$3.9 billion in a direct cash injection and US$16 billion in guaranteed revenues.

Yet, according to industry insiders who talked to S&P Global Platts, even if the auctions are renewed before all contracts are reviewed, chances are Mexico will not be able to reach its production growth goals.

The reasons for this are natural depletion at legacy fields and an insufficient number of new discoveries. This should make the resumption of auctions all the more necessary if anything, especially coupled with the government’s ambition to reduce the country’s reliance on imported natural gas from the United States.

By Irina Slav for Oilprice.com

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