MORE SUPPORTIVE OF INDUSTRYOIL 22 May 2019 | 21:57 UTC Houston Mexico needs more upstream auctions to boost oil production: private operators Author Starr Spencer Daniel Rodriguez Editor Jeff Mower Commodity Oil Topic Mexico Energy Reform HIGHLIGHTS Keep the opportunities flowing: oil executives Would like to see more Pemex acreage available Regular rounds helped diversify operator portfolios Houston Keep the opportunities flowing: oil executives Would like to see more Pemex acreage available Regular rounds helped diversify operator portfolios Mexico should hold more frequent upstream auctions if it wants to boost oil production, executives with private operators active in the country said Wednesday. More frequent bid rounds would lead to more diverse operations as well as an earlier production timeline as companies could keep the pipeline of opportunities flowing, Kartik Mutnuri, Shell's Exploration Manager for Mexico, said at the Association of International Petroleum Negotiators' 2019 International Petroleum Summit. "We support more rounds," Mutnuri said. "More than anything else, it will increase production in the country." Shortly after Andres Manuel Lopez Obrador took office as Mexico's president in December 2018, he halted hydrocarbon auction rounds for three years. Lopez Obrador said private companies would take a long time to digest the acreage they had already obtained from more than a half-dozen rounds in the previous three years. Mutnuri said he would also like to see Mexican state company Pemex open up large swaths of acreage that the government allowed it to keep, even though the 2014 energy reform opened up the country's upstream to foreign investors. The Mexican government granted Pemex the most prospective acreage in the country during its Round Zero auction. Pemex maintained 83% of Mexico's proven and probable reserves, known as 2P, as well as a third of all the prospective resources in the country. However, Pemex was not able to fulfill all its Round Zero pledges to develop the areas due to a $18.5 billion funding shortage since 2014, data from Mexico's energy think tank Pulso Energetico shows. MORE SUPPORTIVE OF INDUSTRY Lopez Obrador has become more supportive of the industry since entering office. He had originally proposed scrapping the energy reform entirely via a public referendum. "We aren't going to cancel any contracts, we want investment and production from those [private companies] who received contracts," Lopez Obrador said Tuesday. The president said his administration is going to ease permitting and help private operators to produce above the current projection by AMEXHI, the association of Mexican hydrocarbon producing companies. AMEXHI expects private operators to produce 200,000 b/d by 2022. AMEXHI expects private companies will produce 280,000 b/d in 2024, Lopez Obrador's last year in office, and 500,000 b/d by 2027. Mexico is trying to raise its falling oil production to 2.5 million b/d by 2024. Currently, the country produces 1.7 million b/d, half the volume it produced at its 2004 historical peak. "The biggest change for us was putting a halt on the rounds," Javier Zambrano, CEO of Jaguar E&P, said Wednesday at the AIPN conference. "We were expecting the rounds to continue which allowed us to plan ahead and diversify our portfolio." "Even though we are comfortable with what we have, we were concerned when they put the halt on [bidding rounds] because the Mexican oil industry will not develop as fast as it should," Zambrano said. "The uncertainty of when and how [more bidding rounds will occur] is the hard part." Jaguar is the largest onshore E&P operator in Mexico. It won 11 blocks in Mexican bidding rounds and hopes to drill later this year or early in 2020, Zambrano said. REGULATORY CONSISTENCY From an investment standpoint, a government's signals are "quite important," Mutnuri said. "If you see consistent changes you get nervous," he said. "If you see consistency in regulatory framework, you can plan and so forth." Even with those concerns, the oil executives gave the Lopez Obrador administration kudos for wanting to learn about the industry. His campaign rhetoric gave way to being willing to listen to oil companies and make sensible changes to the rules where appropriate, the executives said. For example, Mexico not long ago issued guidelines for new exploration plans that Gabriel Gomez, Country Manager-Mexico for Murphy Oil, called "very prescriptive." "You cannot do anything that's not in the [original] plan," Gomez said at the conference. But when Murphy drilled its successful Cholula well and was thinking about a second well, the approval guidelines were still lengthy, he said. As a result, the administration is attempting to shorten those guidelines for approval, Gomez said. "They've allowed for modifying the plans with a much shorter time frame and a much simpler process," he said. -- Starr Spencer, with Daniel Rodriguez in Mexico City, newsdesk@spglobal.com -- Edited by Jeff Mower, newsdesk@spglobal.com