After 80 years of being under state control, Mexico’s oil industry is now opening up to both foreign and domestic investors. There were 14 exploration blocks auctioned, but only 2 have gathered successful bids.
In 1921, Mexico provided one third of the world’s oil supply. At some point in history, it also ranked as the fifth largest oil producer worldwide. However, the Mexico’s oil industry was nationalized in 1938, following labor unrest. This resulted to the creation of Pemex or Petroleos Mexicanos which was run under the Mexican government ruling.
For Ten Years
Pemex showed slumping output and the falling oil prices further made it less profitable. Add in the fact that taxes have been eating a huge percent of its earnings and it’s easy to see why Mexico’ oil industry needed reforms.
Before the bidding, Mexico was optimistic that at least 30 per cent of the oil fields are going to be auctioned successfully to the investors. They also anticipated a minimum of 25 private investors would also be joining the auction. However, their expectations fell short as only 2 blocks won the bidding and only nine private investors attended the event.
Aside from the very stringent requirements that bidders must satisfy, falling oil prices is also cited as a reason for the lack of interest of investors. According to Prof. Tim Samples who is an expert analyst of Mexican energy “you don’t have to look far to see companies slashing budgets on exploration and production.”
Other experts also believe that Iran’s nuclear deal also affected Mexico’s oil well auctions. Energy expert Raymond Tenorio Aguilar is convinced that the deal will only weaken the country’s ability to enter negotiations. However, if the country is able to auction off at least half of the wells, it would still be considered a successful event considering the circumstances.
The Commission of National Hydrocarbons aimed to make the bidding transparent so they decided to feed it live via internet streaming. CNH head Juan Carlos Zepeda emphasized that “transparency comes first. The number of contracts awarded is second. We are here for the long-term.”
“transparency comes first. The number of contracts awarded is second. We are here for the long-term.” – Juan Carlos Zepeda
Transparency is an important factor in the bidding process as Mexico has a sordid and public affair with corruption. Potential investors would obviously want to be on the safe side. The Mexican president Peña Nieto has also made it top priority to reform the country’s oil landscape and hopefully increase output with the coming in of investors.
However, the first auction proved to be quite disappointing, but experts agree that the government can work out on more details to make the next four auctions better.
The bids came from oil companies in Norway, India and US. However, it should be noted that private companies from the US, Switzerland, Colombia and Thailand have pulled out from the auction as well.
Despite the disappointing first round of bidding, the Mexican government is still optimistic that the following ones will receive better reception and results.