Pemex Pulls Out of Mexico Exploration Auction as Oil Slides

Updated on

Mexico’s national oil company withdrew from the country’s first license auction to conserve cash and focus on bringing in partners for its existing operations.

The company known as Pemex, which has battled accidents and faced years of falling production and shrinking revenues, won’t bid in the auction of 14 oil blocks, Energy Minister Pedro Joaquin Coldwell said Wednesday. It’s focusing on the upcoming farm outs and was dissuaded from bidding after falling oil prices crimped earnings, he said at an event in Mexico City.

“Pemex has seen its income reduced by more than 50 percent due to the fall in the price of oil,” he told reporters in Mexico City, adding that the company would participate in later auctions planned for this year.

The unexpected withdrawal leaves 17 companies and seven groups planning to participate in the auction. Glencore Plc and Noble Energy Inc. together with PTT Exploration & Production PCL and Ecopetrol SA also pulled out of the event this week.

Mexico will auction 169 oil blocks in onshore and offshore fields in the so-called “round one,” after last year passing legislation to end Pemex’s monopoly and open the country’s energy industry to private competition.

Withdrawals

Several companies pre-approved to bid on Mexico’s oil blocks have resisted the requirements for each bidding group to have one partner to act as guarantor, and for that company to maintain shareholder equity, or total assets minus liabilities, of at least $6 billion.

The stipulation of a single guarantor, rather than sharing the burden among partners, is proving prohibitive for some companies, according to Alfredo Alvarez, Mexico’s energy sector leader at Ernst & Young LLP.

“For the larger companies and the majors, a parent guarantee isn’t something a lot of them are going to tolerate,” Alvarez said in a phone interview. Mexico “will likely lose a few bidders and that is unfortunate because they would have had a few more bids had they been more open-minded.”

Pemex was expected to participate in the July 15 auction after paying for access to seismic and geologic information on the shallow-water blocks and taking part in a pre-qualification process. It plans to establish joint ventures this year to increase production on 14 blocks.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE