Following recent statements by Fluvio Ruiz Alarcon, a current advisor to Mexico's president-elect Lopez Obrador team and former Pemex board member,
Adrian Lara, Senior Oil and Gas Analyst at GlobalData, a leading data and analytics company, offers his view on the impact on the upstream sector:
“Maintaining and resuming soon CNH's upstream bidding rounds should be a pragmatic move for the new government. Pemex can directly award drilling contracts for onshore and shallow water, as promised recently by Lopez Obrador to service companies, but even if this is successful in increasing domestic production, this won't be enough for reaching the 3.4 mmbd of oil production that the new government is setting as benchmark. It might not even be enough to revert a decline that is at 147 mbd from the end of Q2 2017 to the end of Q2 2018.
“In any case, Pemex's best option is to combine the strategy of service contracts with the farm outs or partnerships that are an integral part of the energy reform. The previous rounds in the country have shown that private and foreign companies do participate and commit capital investment into future exploration and development. Even if Pemex's investment budget is increased, private capital will still be needed to develop larger fields alone or in partnership with the NOC. Any review of the current contract models and terms should be aimed at complementing the strategy of strengthening Pemex.
Lara continues: “Indeed there have been mixed signals from the so-called transition team on whether the energy reform will remain as is or will face major changes, or for how long bidding rounds will be suspended. Hopefully these contradictions will end once the new government starts next December. Also, if any irregularities are found in already signed contracts, then this would likely mean some adjustment in the process of bidding and awarding, but not necessarily a derailing of the energy reform.”