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Mexico's Lopez Obrador could reconsider restarting upstream auction round in six months

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The president's spokesman declined to confirm or deny information

Cancellation of auction rounds would make Mexico produce 600,000 b/d less in the long term

Mexico City — Mexico could reconsider restarting hydrocarbons exploration and production auction rounds in six months, a senior government official said, according to local press reports

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In six months, the president and senior government officials will meet with contract-holding oil companies to evaluate their investment and production pledges, Alfonso Romo, chief of staff of President Andres Manuel Lopez Obrador, said Thursday.

"If they fulfill (their pledges), benefiting the Finance Secretariat, as they argued, then the president will have to make a decision," Romo told local press at a financial event.

"The president doesn't want deficits, nor problems with fiscal unbalances. This means the private sector will have to become an engine to grow the economy in every front," he added.

Lopez Obrador at the beginning of his term suspended auction rounds by three years, arguing that oil and gas companies had to prove first Mexico's new energy framework by increasing production from already awarded areas.

Jesus Ramirez Cuevas, Lopez Obrador's spokesman, neither declined nor confirmed this information to S&P Global Platts Friday. "This is information the president himself has to confirm," he said. The spokesman declined to tell if the situation was even being considered.

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In recent weeks, credit-rating agencies have criticized this measure taken by Lopez Obrador as well his plan to increase Pemex's oil and gas production without alliances with private operators amid its more than $100 billion net debt.

The president has pledged to boost oil production to 2.4 million b/d by 2024 from 1.6 million b/d registered in June. But the achievement of this goal seems complicated without private participation.

Mexico's crude oil output has been cut in half since reaching a historic peak in 2003 as Pemex's giant offshore fields like Cantarell, Akbatun-Pol-Chuc, and Ku-Maloob-Zaap have entered in terminal production phases.

According to a transition report issued by the outgoing administration of Enrique Pena Nieto in December, a two-year delay in auctions would cause oil output to reach 2.46 million b/d by 2027, compared with 3.07 million b/d if the auctions were held as originally planned.

Similarly, if auctions continue, Mexico would produce 7 Bcf/d of natural gas by 2028, 640 MMcf/d more than if the lease sales are shelved for two years, according to the report.

S&P Global Platts Analytics estimates that a suspension on new auction rounds and Pemex's farmouts will lead Mexico to have a 1.8 million b/d production by 2030.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com