Mexico opens historic oil auction

Mexico City, July 15

Mexico launched today the first oil auction of a historic energy reform that reopens the industry to foreign investors, with US, European and Asian firms jostling for contracts.

Nearly 80 years after kicking foreign energy companies out of the country, the government is offering 14 blocks in shallow waters of the Gulf of Mexico worth an estimated $17 billion in total.

The auction is the climax of President Enrique Pena Nieto’s top economic reform, which was enacted last year after a heated debate in Congress, with leftist parties warning against giving up a symbol of national sovereignty.

Representatives of 18 individual companies and seven consortiums handed sealed envelopes with their offers to officials of the National Hydrocarbon Commission in an event broadcast live online.

The commission will unseal the offers and announce the winner of each block later in the day.

The daylong event could give Pena Nieto’s administration a brief respite from the embarrassing fallout of the weekend jailbreak of the country’s most powerful drug lord, Joaquin ‘El Chapo’ Guzman, his second escape in 14 years.

While foreign firms have awaited this moment eagerly, the government has played down expectations of a big sale, predicting that between a third and half of the 14 blocks will be awarded.

Energy Minister Pedro Joaquin Coldwell said the estimate was in line with international experience.

“We won’t squander the nation’s oil resources,” he said.

Analysts say the sharp drop in global oil prices in the past year have affected the plans of energy companies.

Raymundo Tenorio Aguilar, an energy expert at the Monterrey Institute of Technology, said Tuesday’s nuclear deal between Iran and world powers could also affect the auction.

The accord will eventually lift sanctions on Iran’s oil exports, adding 1.5 million barrels of crude per day in the market, causing prices to fall further, Tenorio said.

“This weakens Mexico’s ability to negotiate,” he told AFP. “If only half of the bids are awarded, it would be a success given the current environment.”

But David Shields, an industry analyst and director of magazine Energia a Debate, said he expected a bigger bonanza.

“I think that there will be interest from many companies that want to be the first to have a foothold in Mexico,” Shields told AFP.

The legislation breaks the monopoly on drilling held by state-run firm Pemex since the industry’s 1938 nationalisation.

While Pemex qualified for the auction, it will sit it out this time.