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For the first time in nearly 80 years, Mexico is holding an oil auction in which energy firms from all over the world will compete. Is this bid for oil going to hold lackluster results or is it the key for Mexico's energy reform? Petróleos Mexicanos, mononymously known as Pemex, virtually controls the entire nation’s oil industry. Nationalized in 1938, Pemex was designed to push out external parties like the U.K. and the U.S. following major labor disputes and their ostensible domination of the energy markets. Therefore, the auctions being held are a step, or leap, in the opposite direction. The bidding marks the first time ever that private oil companies are being allowed to set up in Mexico and that oil contracts are being sold off. For a country whose oil industry has been monopolized for 77 years, the auctioning offers a world of possibilities to both Mexico and its prospective investors. To be exact, the sell-off is estimated to draw in a revitalizing $62.5 billion for the Mexican economy.
The auctions, due to occur in a series of five rounds (one every year through 2019), are intended to sell off just a bit more than a third of Mexico's available resources. The first bid, which occurred on July 15, was a timid 14-block shallow water expedition to kick off the five part offering within the first ‘round’ of bidding in 2015. The other installments will encompass more shallow water blocks in late September, 26 onshore sites in December, and other various items-including deep water blocks and shale prospects. Mexican oil, which might currently seem like the gift that will keep giving, already has a slew of pre-qualified firms hungry for a share of the Gulf. Precisely, at least 25 companies (most of which are multinational) have been cleared for participation.
But there are detractors and hesitant global investors. While there are companies like Exxon and Chevron in the running, many Mexican firms are sitting this one out. Mexico’s goal of hitting 3.5 million barrels of oil a day by 2025 might not be as realistic if this first round of auctioning does not draw the right attention. Its government, following the withdrawal of several Swiss, Russian, and American firms, is softening its expectations. Though bigger global players like Russia and China are not bidding as generously in the initial rounds, it is fairly likely that they will play a greater role as the auction progresses to provide more lucrative shale and deep water block options.
Luckily for Mexico, maximizing profits is not necessarily its current, foremost intention. President Nieto, despite his administration’s recent national security blunder regarding the escape of a high profile drug lord known as ‘El Chapo’, is being hailed as a pioneer for guiding Mexico through a new era of oil and the start of what some are calling an oil revolution. Several generations of Mexicans grew up with a sense of civic pride in Pemex, which is now being replaced with a positive anticipation of the boosted output and revamped energy industry in the country. Revolution or not, the auctions are definitely a historic time for the country and, hopefully, will be successful enough to achieve the country’s economic goals in coming quarters.
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