Videgaray Pledges Faster Timeframe for Mexico’s Oil Contracts

Mexico will offer its first oil contracts to private companies by early next year, Finance Minister Luis Videgaray said, pushing up the schedule for the first tenders from the Energy Ministry’s original timeframe.

“Some contracts will be a little more complex and it will take some time, but we expect the first few contracts to be announced to the market early next year,” Videgaray said in an interview on Bloomberg Television yesterday.

Mexico passed a constitutional amendment in December that ended its state monopoly on oil, which represents the biggest legal overhaul since the North American Free Trade Agreement started two decades ago. Congress must pass secondary legislation before the energy law can be put into practice.

Less than a month ago, then-Deputy Energy Minister Enrique Ochoa said in an interview that foreign and private crude producers would have to wait until late next year to bid on oil fields. Videgaray yesterday said contracts will be available sooner.

Ochoa was named this month to lead state-owned electricity company CFE.

Videgaray, 45, helped shepherd President Enrique Pena Nieto’s oil law through Congress last year to attract companies such as Exxon Mobil Corp. and Chevron Corp. The measure will boost foreign investment by as much as $20 billion a year as early as 2015, according to Bank of America Corp.

‘Important Player’

While companies will be able to drill for crude on their own for the first time in 75 years, state-owned Petroleos Mexicanos will remain “an important player” in oil fields when the change comes into effect, Videgaray said yesterday.

The oil overhaul allows companies to drill using licenses, production-sharing and profit sharing contracts. Licenses grant broader operational control than profit-sharing agreements and allow companies to manage oil directly. With production-sharing contracts, companies can register crude reserves as assets for accounting purposes, and the oil remains state property until it is pumped.

Mexico’s government will do everything it can to offer its first contracts before mid-term elections for lower-house lawmakers in July 2015, according to Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.

“That is going to be their big achievement,” Wood said in a telephone interview. “There are folks at the very top who realize that this has to not just be a success, but be seen as a success by the Mexican electorate.”

Moody’s Upgrade

Videgaray also has pushed through new taxes on junk food, measures to boost the nation’s bank lending from the lowest rate among major Latin American economies, and a new law lifting restrictions on foreign investment in telecommunications.

The economic changes led Moody’s Investors Service to boost Mexico’s debt rating last week to A3, the nation’s highest ever. The upgrade comes as the government plans to expand its budget deficit this year to 1.5 percent of gross domestic product, the largest since 2010, to help lift an economy it estimates expanded 1.3 percent last year.

While the government forecasts economic growth will pick up in 2014 to 3.9 percent, analysts in a Feb. 6 central bank survey said it will expand 3.4 percent after some indicators continued to miss economists’ estimates.

Industrial production unexpectedly shrank 0.3 percent in December from a year earlier, prompting Barclays Plc to lower its 2013 growth forecast yesterday to 1 percent from 1.3 percent and to caution that economic risks have increased for this year.

Consumer confidence fell in January to the lowest level since April 2010 and the purchasing managers’ index for manufacturing dropped to 49.7 in January from 50.3 the previous month.

The government wants to have secondary oil legislation approved during the current congressional session ending in April. It estimates the energy law will boost Mexico’s annual GDP growth by 1 percentage point by 2018.