Mexico oil rush attracts varied group of buyers

Mexico’s oil sector has just become exotic.

From the president of Spanish football club, Real Madrid, to telecoms mogul, Carlos Slim, and companies called Jaguar Exploration and Sun God Resources, new buyers are piling into the country’s industry that for decades had been the undisputed territory of state oil group, Pemex.

This month brought a particularly dramatic oilfield auction, with such intense competition that multimillion-dollar cash bonuses were needed to break eight tied bids, at times eliciting gasps from the audience because of their size.

The tenders came hot on the heels of a discovery that confirmed Mexico as containing world-class assets — a consortium including Talos Energy of the US, Mexico’s Sierra Oil & Gas and Premier Oil of the UK, announced the world’s fifth-biggest oil strike in the past five years, with as much as 2bn barrels of oil. The group has been exploring one of the only two blocks awarded in Mexico’s first tender, in July 2015.

Eni, the Italian oil major, also upgraded a discovery on its Amoca block to having a potential 1bn barrels.

Interest has been building in Mexican oil since a landmark reform in 2014 opened an energy sector that was shut in 1938 when the assets of US and UK companies were expropriated and Pemex, the state oil champion, was created.

But the state group’s finances collapsed after it was bled dry by the government — it had relied on oil revenues for one-third of its income. Blighted by corruption and battered by falling oil prices, its downfall made the need for reform of the sector particularly urgent to bring in new investment, given that production had been declining for a decade.

For the past two years, the Mexican government has been auctioning off assets that once belonged to Pemex, both undiscovered offshore exploration blocks and mature onshore fields that the company either lacked the funds or expertise to develop.

The auction process — designed in 2014 when oil commanded $100 a barrel but launched after the price crashed — initially flopped, with just two out of the first 14 blocks awarded.

But despite low prices, it has gone from strength to strength with increasing numbers of companies making ever higher bids.

Mexico, which supplied a quarter of world oil output in 1921, “is back on the map, without question”, says Pablo Medina, analyst at Wood Mackenzie, an oil consultancy.

All the global big guns — ExxonMobil, Chevron, Total, BP, Shell, Statoil, and BHP Billiton — have been lured by the country’s deepwater promise. Pemex honed its shallow water skills after the discovery of the giant Cantarell field in 1976 but needs the majors’ financial muscle and expertise. China’s Cnooc has also scooped two deepwater blocks and Shandong has picked up onshore fields. 

Mexico has awarded 70 contracts worth an expected $60bn in investment to companies from 17 countries so far, according to Juan Carlos Zepeda, the head of the National Hydrocarbons Commission.


Carlos Slim, Dionisio Garza, Florentino Perez and Miguel Galuccio © FT montage / Bloomberg/Reuters/AP

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