Pemex, Mexico’s state oil monopoly, on Thursday awarded the country’s first private oil-production contracts in more than 50 years to two companies as it attempts to prise open the country’s heavily protected energy sector to private capital.
Petrofac, a UK-based oil services company, won two of the three contracts on offer. Administradora de Proyectos de Campo, a Mexican company, won the third.
The contracts, which involve developing existing onshore fields in southern Mexico, are tiny in scale, representing only about 1.5 per cent of Mexico’s total proven reserves of just under 14bn barrels.
Yet they are the first contracts to be awarded since a 2008 energy reform, which aimed to give a more active role to private companies in Mexico’s oil sector and reverse a sharp fall in national production.
The world’s seventh-largest producer has seen output from its fields plummet from about 3.4m barrels a day in 2004 to about 2.6m today – a decline of 24 per cent. Experts attribute that near collapse to restrictive and antiquated laws, which have so far prohibited Pemex from entering into joint-risk contracts in which third parties share both the risks and rewards of exploring for oil.
As a result, the private sector has been confined in recent decades to fulfilling narrowly defined service contracts without incentive mechanisms or relation to the amount of oil produced.
Pemex, meanwhile, has found itself strapped for the cash needed to carry out exploration itself, and also lacking the technical knowhow to develop deepwater fields in the Gulf of Mexico, where the vast bulk of the country’s reserves are thought to lie.
On Thursday, Pemex officials said the latest contracts, in which Petrofac will receive $5.01 for each barrel produced, were the start of a new and more dynamic era of oil exploration and production in Mexico.
“This is just the beginning,” said Carlos Morales, head of Pemex’s exploration and production unit, at a ceremony in Villahermosa, the capital of Mexico’s oil industry. “We are sure that we will be able to significantly increase the recovery of these reserves for the benefit of all Mexicans.”
Experts were less sanguine. While acknowledging that the contracts showed a new and welcome flexibility in what Pemex could offer companies, George Baker, a Houston-based energy consultant, said they stopped well short of the sorts of incentives that existed in the US and elsewhere.
“As long as ‘made in Mexico’ rules, you are going to exclude the interest of most oil companies,” he said.