OPINION: The Mexican oil sector showed signs of moving forward this week.

Pemex chief executive Octavio Romero Oropeza announced a gas condensate discovery in Tabasco state and said the state-run company may be willing to take a non-operating position on Zama — a shallow water field — making a joint development with Talos Energy more likely.


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Engineering is advancing for Trion, a deep-water project where BHP is planning Mexico’s first big semi-submersible production unit, and the Australian operator is apparently enjoying a productive knowledge-sharing relationship with partner Pemex.

In reality, however, this picture of focused pragmatism is deceptive.

Romero used the Tabasco discovery to restate the company's strategy of retrenching toward onshore and shallow-water plays, turning its back on the deep water, which he reiterated has “never produced a barrel of oil".

Portfolio management has been embalmed by the resource nationalism of President Andres Manuel Lopez Obrador and further opportunities for private sector companies have been ruled out.

A study by energy consultancy Welligence showed that two-thirds of the 200-plus fields that Pemex operates are either losing money or becoming marginal.

Pemex has been starved of funding in the past and Lopez Obrador’s plans for expanding its production are unsustainable.

Brazil's Petrobras provides a ready-made example of how focusing on more profitable core assets can bring rewards for both company and nation by reducing debt, boosting profitability and bringing a wave of new investment via the secondary market.

Brazil also attracted a wave of new investment after resuming licensing rounds and easing local content

Yet all the mergers and acquisitions activity that Petrobras asset sales has engendered would probably pale into significance if maturing or marginal Pemex assets were made available in the same way.

And Mexico’s opening was so successful that its impetus can still be detected today, even though Lopez Obrador called a halt when he was elected in 2018.

International companies drilled more offshore exploration wells in Mexican waters than anywhere else in 2020, and will drill up to 12 more this year. Around half of these will be deep-water plays.

Closing off the pipeline of investment opportunities was a mistake — but it is not too late to put things right.

In Zama and Trion, Pemex has an opportunity to accrue valuable experience in developing floating production systems and to become more attuned to modern thinking on capital discipline and optimisation.

A real shift toward pragmatism would mean selling off loss-making assets and partnering foreign operators in deep waters.

The Mexican government could pass on much of the risk to private sector companies so often demonised by President Andres Manuel Lopez Obrador, but deeply ideological questions will have to be faced.

(This is an Upstream opinion article.)