OECD: Mexico should facilitate private oil investment

Bnamericas Published: Saturday, May 04, 2019

The OECD is the latest critic of Mexico’s plan to use heavily-indebted state oil company Pemex to lift oil output while pushing the private sector aside.

President Andrés Manuel López Obrador’s (AMLO) administration has pledged to lift oil output from less than 1.7Mb/d to 2.4Mb/d by 2024 by increasing Pemex's production investment. AMLO has canceled further upstream bidding rounds and criticized private companies that won blocks during the prior administration for not ramping up production fast enough.

The OECD highlighted the risk to the economy from the decline in oil production in its most recent report on Mexico.

"Fast implementation of investment plans to boost oil production would raise exports and lower the energy trade deficit, but the goal of boosting oil production by the projected magnitude will likely require additional private investment," the OECD report said.

Pemex recently said it would offer service contracts to private companies to exploit mature fields, but the model has been criticized as a step back from profit-sharing and license contracts offered under the prior bidding rounds.

Ivan Rivas, an economic advisor to the president, said at a LatinFinance conference in Mexico City that some members of the administration were calling for a greater role for the private sector.

"We are pushing forward still that there should be other types of contracts in which they could maybe share the risk because the private sector is more interested in those types of projects than just services,” Rivas said. “We are pushing for new rounds to be open soon.”

AMLO’s cabinet has so far been dominated by figures such as energy minister Rocío Nahle and Pemex chief Octavio Romero, who want the state to take the lead in lifting oil production. However, López Obrador’s chief of staff, Alfonso Romo, is a Monterrey businessman who has been lobbying for a revival of the oil auctions to private players.

“Maybe in the first two or three years the push from the federal government should be to lower [Pemex’s] debt, the main thing right now, and the private sector to push forward production,” Rivas said.

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