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Exxon to Chevron Face Two-Year Wait in Mexico Oil Opening

Pemex Offshore Oil Platform
Petroleos Mexicanos signage is displayed on the company's La Muralla IV deep sea crude oil platform in the waters off Veracruz, Mexico. Photographer: Susana Gonzalez/Bloomberg

Oil companies from Exxon Mobil Corp. to Chevron Corp. will have to wait another two years before investing an estimated $20 billion in Mexico’s recently opened oil and gas industry.

Foreign crude producers will be allowed to bid on fields for exploration and begin developing infrastructure and operations as soon as late next year, Deputy Energy Minister Enrique Ochoa said in an interview at the ministry in Mexico City. Prior to granting the operating licenses, the legal framework has to be determined and state oil producer Petroleos Mexicanos must select the fields it plans to continue to develop, he said.

“We estimate that by the end of 2015 or beginning of 2016, we could be in the stage of implementation,” Ochoa said. “We must be professional and careful with the necessary institutional development prior to the following rounds.”

President Enrique Pena Nieto ended the 75-year production monopoly held by Pemex, as the state oil company is known, allowing foreign companies to produce crude in the largest supplier to the U.S. after Canada and Saudi Arabia. The overhaul could bring an additional $20 billion foreign direct investment as soon as 2015, according to Bank of America Corp.

Ochoa’s forecast lags behind the prediction of Victor Herrera, Standard and Poor’s Latin American Managing Director, who said pipeline and shale gas investment could be seen “very quickly” in a Dec. 20 interview. Herrera said Mexico could see economic growth from the reform as soon as the second half of 2014.

‘Wishful Thinking’

“If anyone was predicting that actual deals would be getting signed tomorrow or next month, that was classic wishful thinking,” said Pavel Molchanov, an analyst with Raymond James Financial Inc., in a telephone interview. “This is not something that can be done overnight.”

Exxon, Chevron, Royal Dutch Shell Plc and Repsol SA are among major producers that have expressed interest in Mexican oil fields.

Pemex has right of first refusal on the production areas it will maintain and is well positioned to seek joint ventures in mature oil fields to replenish diminished production, Ochoa said. The new law also opens joint venture opportunities with Pemex and private companies in refining and petrochemicals.

“There is a sufficient amount of mature fields to consider association options to be able to extract more oil and gas,” Ochoa said. “Reactivating mature fields could bring national and international investment.”

Pemex, the world’s fifth-largest oil producer, pumped an average of 2.52 million barrels a day in 2013, the ninth consecutive year of declines. The energy industry overhaul is forecast to increase annual output at Pemex to as much as 4 million barrels a day by 2025, according to the overhaul bill passed in December.

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