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New Mexican President unlikely to reverse country's energy sector reforms

Publication Date: 03 Jul 2018 - By ReachX Team By ReachX T.

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After left-leaning politician Andrés Manuel López Obrador’s thumping victory in Mexico's presidential election on 1 July, there has been plenty of market discourse over whether or not he would reverse the country’s energy sector reforms.

The reforms, instituted in 2013, have led to the state-owned oil and gas company Pemex losing its monopoly, and have seen Mexico award its first oil and gas drilling acreages to private national and international oil companies (IOCs) in over 75 years. 

However, according to one energy analyst, Obrador known domestically as a left-wing firebrand and critic of the reforms, is likely to rein in, not reverse the pace of progress. 

Will Scargill, Senior Oil and Gas Analyst at GlobalData, said Obrador has been a fierce critic of the reforms, but his tone has moderated somewhat in the run-up to the elections. 

"It is now unclear whether he will hold a referendum on reversing the reforms, as previously promised, but it is likely that the pace and scale of new licensing will be reined in." 

The president-elect has stated that he will ask outgoing president Peña Nieto to halt the two onshore bid rounds planned for September, before his term starts on 1 December. 

"Once in office he may limit the new opportunities available to investors, seeking to maintain the dominance of Pemex in its onshore and shallow-water heartlands or tighten the terms for new contracts in favour of the state. However, he has stated that a proposed review of existing contracts will be to check for potential corruption and investment protection provisions will limit his ability to roll-back licensing," Scargill added. 

After nine bid rounds the Mexican upstream landscape looks very different, with a variety of companies from major IOCs to small independents holding acreage. 

"However, production is still declining and the outgoing government overpromised on the timeline for the reforms to have an impact on the output. We expect that the first new field development resulting from the process will start production in 2019. The sector may in fact see the fruits of Peña Nieto’s reforms during Obrador’s tenure as work progresses in existing contracts, even if new licensing slows," Scargill concluded. 


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