Foreign investment in farmouts could fall after Mexico’s election result

2 July 2018 (Last Updated July 23rd, 2018 10:04)

Since the opening of the oil and gas sector to private investment, Mexico’s hydrocarbon regulatory agency, CNH, has already organised three onshore rounds, namely rounds 1.3, 2.2 and 2.3.

Foreign investment in farmouts could fall after Mexico’s election result

Since the opening of the oil and gas sector to private investment, Mexico’s hydrocarbon regulatory agency, CNH, has already organised three onshore rounds, namely rounds 1.3, 2.2 and 2.3.

During the second half of 2018, CNH will carry out three bidding rounds offering conventional and unconventional areas.  Arguably the most expected round will be the one offering 7 different onshore mature clusters under farmout schemes with national oil company (NOC) Pemex as partner.

For all of these coming rounds the number of companies in the process of qualifying to participate is quite low, challenging both the number of areas that will be ultimately awarded and the amount of cash that the government will receive due to less competition in the auctions.

The 2018 bidding round offering onshore areas as Pemex farmouts consist of seven clusters (Bacal-Nelash, Lacamango, Cinco Presidentes, Giraldas-Sunuapa, Juspi-Teotleco, Artesa and Bedel-Gasifero) containing highly mature light oil fields in Tabasco, Chiapas and Veracruz states. A successful enhanced oil recovery (EOR) implementation on all 7 clusters could ramp up their total crude oil production from 45,000 barrels per day (bd) in 2017 to 70,000bd in 2022.

Potential production from farmouts and required capex


Source: Upstream Analytics                                                                                                                                                                                     © GlobalData

The low number of participating companies will surely condition maximising the number of awarded areas in the 2018 onshore rounds. These auctions will be the last ones under current administration of President Enrique Peña Nieto which will end in December of 2018.

As predicted, in the recent presidential election the leftist candidate Andres Manuel Lopez Obrador won with a comfortable margin. During his campaign Lopez Obrador and his team have continuously stated that existing upstream contracts will be reviewed and future oil auctions would be slowed down if he is in charge. This is yet to be seen but for now it seems that the 2018 upcoming rounds are already impacted by the uncertainty generated by electoral campaigns and the upcoming change in government administration.