March 7, 2018 / 5:23 PM / 10 days ago

Mexico rushes to add heavy oil auction to 2018 calendar: official

HOUSTON (Reuters) - Mexico wants to squeeze in a fifth oil auction this year, racing to put together a new package of shallow water heavy crude blocks for bidders before the current administration leaves office, the deputy energy secretary told Reuters on Wednesday.

Aldo Flores, Mexico's deputy energy minister for hydrocarbons, during an interview in Mexico City, February 2017. REUTERS/Edgard Garrido

The move to add the heavy oilfields to the existing auction calendar is part of the effort to reinforce an ambitious energy reform by the government of President Enrique Pena Nieto. The bidding rounds are designed to bring new investment to the sector and reverse the country’s declining oil production.

“We have three auctions already announced (for this year) and we expect one more before the end of this presidential period, which is for heavy crude in shallow waters,” Aldo Flores said on the sidelines of the CERAWeek by IHSMarkit conference.

Mexico in January awarded 19 deepwater blocks in the first auction of this year, which brought on the table over $93 billion in promised investment for the coming decades.

About half of Mexico’s oil production comes from heavy oil areas in the Gulf of Mexico’s shallow waters. But foreign investment is needed to secure future production aimed to maintain supplies to U.S. refiners, the largest buyers of its Maya crude.

From four mostly underdeveloped heavy oil areas, Mexico’s state-run oil firm Pemex operates two and the government has the remaining two, so a new mechanism could be put in place to auction the whole cluster and maintain Pemex’s participation.

Mexico’s oil regulator and Pemex have started talks to plan the best way to offer the heavy oil areas for foreign investment, Flores added.

“There is a very large potential there. We are seeing this (project) as a package, but have not yet defined the specific model for it. We are evaluating it,” he said.

Mexico’s crude output keeps declining even as demand for the heavy sour oil is growing in the Atlantic Basin due to falling supplies from traditional producers in Latin America.

Reporting by Marianna Parraga; Editing by David Gregorio

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