Page 4 - LatAmOil Week 36 2019

LatAmOil COMMENTARY LatAmOil
Mexico’s president nds new enthusiasm for reform – up to a point
Lopez Obrador is opening up new opportunities for private investors but still has unrealistic expectations about what Pemex can achieve in a year
WHAT:
The president is ready to let Pemex go back to setting up joint ventures with private companies and awarding deepwater elds to outside investors.
WHY:
At the same time, the government has drawn up a budget for 2020 that makes unrealistic assumptions about the NOC’s ability to increase production quickly.
WHAT NEXT:
TEven though Mexico is guarding against oil price uctuations by launching its hedging programme, it is still running the risk of a credit downgrade.
MEXICAN President Andres Manuel Lopez Obrador has generally been suspicious of e orts to reform the country’s oil and gas sector – in contrast to his predecessor, Enrique Pena Nieto, who worked valiantly to establish a more investor-friendly environment. As such, recent reports indicating that the president is turning to the private sector are welcome.
Signs of a policy shi began emerging in late August, when the Financial Times reported that Lopez Obrador was making a new e ort to drum up investment from the private sector by reviving two reform initiatives. According to an unnamed senior o cial in the Mexican govern- ment, one of these would let Pemex, the national oil company (NOC), resume the practice of set- ting up joint ventures (JVs) with private inves- tors next year.
e other would create new opportunities for international oil companies (IOCs) to invest in deepwater exploration projects in the Gulf of Mexico, the same source said in an article dated August 29.
ese changes are positive developments, in that they represent a departure from the presi- dent’s previous e orts to shore up Pemex, slow the pace of sell-o s and suspend the bidding rounds that bring new investors into the oil and
gas sector. Nevertheless, risks remain.
High standards
For one thing, Lopez Obrador has indicated that he intends to be very selective with respect to signing new deals.
Several days before the FT reported on the resurrection of the reform initiatives mentioned above, the president said his administration would not award new licences to companies that were not meeting expectations with respect to investment and production under their existing contracts. “If there’s no production, if they don’t invest, we can’t hand out contracts,” he said on August 23.
ese remarks are not exactly good news for investors, as they indicate that Lopez Obrador intends to take a hard line on private-sector involvement in oil and gas. But they are not sur- prising, since the president said previously that his government would not be auctioning o any new contracts until it completed a comprehen- sive review of existing deals.
He has also argued that Mexico needs to
spend at least three years conducting this probe
in order to root out corruption and ensure that
the terms of investment agreements serve the country’s interests. 
President Obrador (L) and Finance Minister Herrera (R). Photo: Cuartoscuro
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w w w . N E W S B A S E . c o m Week 36 11•September•2019