Mexico City — Mexico will halt its hydrocarbon auction rounds by three years, new President Andres Manuel Lopez Obrador said Wednesday.
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"More than an ideological or political situation, it is a practical one," Lopez Obrador said at a webcast press conference. "With the contracts, not a single barrel of oil has been extracted, so we can't continue granting acreage for hydrocarbon extraction if there isn't investment nor production."
Since the energy reform was enacted four years ago, contract-holding operators only invested 2% of Pemex's public investment over the same period, said Lopez Obrador, who took office December 1.
Lopez Obrador's announced halt is a year longer than the two-year pause previously disclosed by the new Mexican energy secretary Rocio Nahle a week ago. Industry sources have told S&P Global Platts they are concerned the new president was ignoring the long-term nature of the upstream sector.
HALT WILL CUT OUTPUT IN LONG TERM
The postponement of auction rounds will have a long-term, material impact on Mexico's oil and gas output, according to a transition report issued by the outgoing administration of Enrique Pena Nieto over the weekend. According to the report, by halting auction rounds by two years, Mexico's output will only reach 2.46 million b/d by 2027, not 3.07 million b/d. 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, it said.
Lopez Obrador said he is going to respect the 111 upstream contracts Mexico has signed to date.
"What we want is for the awarded companies to show they are going to invest and they are going to produce oil," he said.
The great majority of blocks awarded to date are for early exploration acreage in offshore regions. Contract-holding companies will invest $46 billion in exploration and development activities through 2025, according to the report's forecast. As a result, private operators are expected to drill over 100 new exploration and development wells over the coming four years.
Lopez Obrador has historically been an opponent of private investment in Mexico's energy sector and the country's recent historical energy reform.
"Based on results, we are going to make a decision [to continue or not auction rounds]," he said. The new administration is concerned new operators won't invest and instead speculate on the acreage awarded to date, he added.
EXISTING CONTRACTS TO RAMP UP IN COMING YEARS
According to the transition report, the four most advanced projects awarded to date under Mexico's energy reforms -- Eni's Amoca-Mizton-Tecoalli, Pan American Energy's Hokchi, Talos' Zama and BHP's Trion plays -- will produce a combined 290,000 b/d of crude and 185 MMcf/d of gas by 2024 alone.
Mexico's output will average 1.8 million b/d in the 2019-2022 period before increasing to 2.36 million b/d by 2024, data in the report shows.
Gas production will fall to 3.5 Bcf/d-3.6 Bcf/d over the 2019-2022 period before increasing to more than 6 Bcf/d by 2027, according to the report.
Industry sources previously told Platts that if the auction rounds were halted, this would accelerate the development of a secondary acreage market and merger and acquisitions in Mexico.
Blocks awarded to date have a large acreage with some offshore blocks as large as 3,000 sq. km, holding multiple potential exploration targets and thus industry collaboration opportunities.
Vista Oil and Gas farmed in three onshore blocks from Jaguar Exploracion y Produccion in May. In addition, Germany's DEA acquired Sierra Oil and Gas along its 9,500 sq. km exploration portfolio.
-- Daniel Rodriguez, firstname.lastname@example.org
-- Edited by Jeff Mower, email@example.com