AMLO Sounds Death Knell for New Pemex Joint-Venture Partnerships

(Bloomberg) -- Mexico President Andres Manuel Lopez Obrador is freezing new joint-venture contracts with Petroleos Mexicanos, squashing investors’ final hopes that the Mexico energy reforms can be salvaged.

"What is already agreed will continue on course,” said Pemex Chief Executive Octavio Romero during the president’s morning conference. He said the energy company’s focus now is to develop service contracts in the oilfield rather than so-called farm-out deals, the joint ventures where help in developing an oil area is exchanged for a stake.

The decision could have repercussions for Pemex, whose annual oil output has fallen to the lowest level since at least 1990, resulting in the decline of Mexican light crude grades such as Olmeca and Isthmus.

“Pemex alone can’t deliver all of Mexico’s production needs from a financial or operational standpoint," said Pablo Medina, vice president of Welligence Energy Analytics in Houston. “Given its stretched finances, it would be wise to leverage its limited capital through partnerships.”

In December, Mexico’s oil regulator, CNH, postponed Pemex farm-out tenders for seven onshore areas previously planned from Feb. 14 until Oct. 9 and canceled two competitive auctions that were also planned for this month. Pemex has farm-outs in already producing onshore fields, including Cardenas-Mora with Cheiron and Ogarrio in partnership with DEA Deutsche Erdoel AG. BHP Group, which operates the deep-water field Trion in partnership with Pemex, said it struck oil in Nov. and is expanding drilling appraisal.

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