Time to reboot in Mexico

Mexico President Andres Manuel Lopez Obrador may have to revisit his nationalistic strategy for developing the nation’s promising Gulf of Mexico assets.

As evidence, analysts cited the subpar performance resulting from a pre-selected bidding round for the drilling of 20 priority fields, orchestrated largely to prop up homegrown service and supply companies. Many of the winning low bids came from local companies that lacked both the expertise and access to needed equipment to carry out the work, analysts say.

Consequently, state-owned operator Pemex reportedly will rebid some of the work this year, which likely will bring in more international companies, unlike the earlier round that closed last May. Pemex is expected to rebid for at least nine rigs, UK offshore drilling contractor Borr Drilling Ltd., told Bloomberg on Jan. 2. Despite the president’s protective measures, Borr has expanded its presence in Mexico and last year reported four contract awards.

“They were supposing that they could bring these fields online quicker, but they haven’t,” Jorge Sierra, a senior analyst at Wood Mackenzie Ltd., told Bloomberg. “The contractors that won the packages for drilling the priority fields haven’t had the experience of managing integrated service contracts, like the big international ones such as Schlumberger and Halliburton.”

After assuming the presidency in December 2018, passionate nationalist Obrador quickly weakened the 2014 energy reforms meant to draw international players into Mexico’s once closed oil and gas sector, which was the centerpiece legislation of his predecessor. Future competitive lease bidding rounds involving international oil companies (IOC) remain suspended with Pemex prohibited from soliciting new field development partners.

Obrador also has emphasized the development of smaller shallow water fields, at the expense of significantly larger deepwater prospects, which he has derided as too expensive. As part of former President Enrique Peña Nieto’s energy reforms, Mexico completed its first deepwater lease auction in 2016, drawing winning bids from a who’s who of international operators, including ExxonMobil, Chevron, Total and Norway’s Equinor. Subsequent drilling results have increased hope that the administration will reverse its stance on the deepwater.

“In Mexican waters, positive results from early exploration activity has further heightened our confidence that activity in the market will increase,” Transocean President and CEO Jeremy Thigpen told investors on Oct. 29. “In addition to the expectation of further exploration work, we’re encouraged that a number of development opportunities appear imminent. People are making discoveries.”

About the author

Jim Redden

Jim Redden is a Houston-based independent petroleum writer, focused largely on the upstream oil and gas industry. He can be reached at jimredden@sbcglobal.net.

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