Mexico Front-Runner Sends Mixed Signals on Private Oil Deals

  • Advisers back tenders yet also suggest end of future auctions
  • Lopez Obrador’s finance pick says views aren’t contradictory

Just four months before Mexico’s presidential election, front-runner Andres Manuel Lopez Obrador is keeping all options open regarding the country’s energy opening as a unified message on the topic continues to elude his top advisers.

"At this stage we don’t know who Lopez Obrador is going to listen to because he’s spoken from both sides of his mouth." said Carlos Legaspy, who helps oversee $400 million in corporate bonds for InSight Securities Inc. in Highland Park, Illinois, including Mexico debt.

That’s put investors on edge about the most market-sensitive topic heading into July elections. 

"Obviously I’d love the energy reform to continue, but at least if it’s going to be yanked, knowing in advance would be better than not knowing," Legaspy said.

On Feb. 15, his top business adviser, Alfonso Romo, told Bloomberg that Lopez Obrador’s team has reviewed most of the oil tenders awarded to private drillers and found them to be transparent and beneficial for Mexico. A few days later, economic adviser Abel Hibert said the candidate sees “no drastic change” to the reform allowing private drilling.

‘Grave Error’

Then on Feb. 23, the candidate’s top energy adviser, Rocio Nahle, was quoted in The Wall Street Journal saying she’d halt new auctions at least until positive results are seen from the first tenders, which she doubted would be the case. Nahle, who is the candidate’s pick for energy minister, has been an outspoken critic of the reform and said in December that it was designed to weaken state-owned oil producer Pemex, calling it a "grave error."

The one person who could clarify his stance, Lopez Obrador himself, hasn’t addressed the differences directly. What he did say earlier this month is that he’d end the privatization of Mexican goods and services, and at a separate event that he won’t permit oil to return to the hands of foreigners. That’s called into question Romo’s and Hibert’s assertions that he’s come around to seeing benefits from private investment in the sector.

"AMLO himself needs to corroborate these views," said Marco Oviedo, chief Latin America economist for Barclays Plc, referring to Lopez Obrador by his nickname. "Otherwise markets won’t believe him or his advisers. That tells you that maybe AMLO is unwilling to commit."

‘Optimal Extraction’

Until that happens, the proxies for the front-runner have stood by their statements. According to the candidate’s pick for finance minister, Carlos Urzua, there aren’t contradictions between assertions the candidate would respect current oil contracts while halting future crude auctions.

Urzua explained his views in an e-mailed response to questions from Bloomberg. "Given that the tenders were awarded through well-done auctions, they’ll be completely respected. What’s being said as well is that the process will be detained to evaluate whether the auctions will continue and at what pace. At the end of the day, the optimal extraction of a non-renewable resource doesn’t have to be done immediately."

Urzua had told Bloomberg in December that while contracts won’t be revoked, Lopez Obrador could revise the pace at which future auctions take place. But Urzua also signaled back then that gaining complete clarity on Lopez Obrador’s stance on energy from the man himself may not happen.

Oil ownership in Mexico used to be as sacred as guns are for Americans, he explained. "When a politician speaks about the oil sector in Mexico, no matter who it is, he has to be very careful what he says.”

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