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t the beginning of 2018, Mexico began the latest round of auctioning of oil and gas blocks for exploration. A total of 29 deepwater blocks were up for grabs, attracting huge international attention. It is part of a five-year-long process to reform the country’s energy sector, spearheaded by the then President Enrique Pena Nieto’s government. The reform aimed at ending the three-quarters of a century dominance of state-owned entities by encouraging private and foreign investment.

For some time the restructuring was hugely popular, with supporters heralding a new dawn for the country and its energy model. A total of 112 upstream contracts covering over 30,000km2 were signed off between 2015 and 2018. They comprised 52 onshore, 32 shallow waters and 28 in deepwater sites.

AMLO’s impact on Mexican energy reform

Since taking power, AMLO has suspended further auction rounds until at least 2022, instead favouring to promote domestic production. Arguing such decisions have been fuelled largely AMLO’s “singular focus” on rescuing state-owned producer Pemex and utility CFE, Espinosa warns: “This focus is currently perceived by most energy market participants as being to the detriment of wider energy policy formation, implementation and economic benefit of the nation.”

The difficulties the industry faces are even more acute thanks to a brain drain, she adds, largely of AMLO’s making. “One of the main challenges the country currently faces in the development of its energy industries is the dismissal or loss of highly qualified policymakers and bureaucrats,” she says, adding it is their industry knowledge and openness that would allow Mexico to take advantage of the benefits developments in international energy markets can bring.

Image courtesy of  Presidencia de la República Mexicana 

Since taking power, AMLO has suspended further auction rounds until at least 2022, instead favouring to promote domestic production. Arguing such decisions have been fuelled largely AMLO’s “singular focus” on rescuing state-owned producer Pemex and utility CFE, Espinosa warns: “This focus is currently perceived by most energy market participants as being to the detriment of wider energy policy formation, implementation and economic benefit of the nation.”

The difficulties the industry faces are even more acute thanks to a brain drain, she adds, largely of AMLO’s making. “One of the main challenges the country currently faces in the development of its energy industries is the dismissal or loss of highly qualified policymakers and bureaucrats,” she says, adding it is their industry knowledge and openness that would allow Mexico to take advantage of the benefits developments in international energy markets can bring.

Mexico faces down its challenges

President of Blue Bell Energy, Alma Del Toro, disagrees with the negativity, however, stating the market to international investment is open and active, with international oil companies (IOCs) and national oil companies (NOCs) currently drilling on and offshore wells. “Some of these operators have already accelerated first oil and are in production,” she says.

The government’s aim of promoting smaller, local companies is also gaining traction. “In the case of developing local suppliers, we are receiving a lot collaboration and commitment from all key oil and gas states,” Del Toro says. Adding that the government is doing what it thinks is best to support the industry: “The (states) are working with us looking to transform the landscape of the oil industry in Mexico by helping local businesses understand, develop and transform to meet the required standards to become a supplier to major IOCs, NOCs and large service providers, including engineering, procurement and construction contractors.”

The challenge, however, is overwhelming. Right now Mexican companies lack the required knowledge on health and safety, finances, ethics and compliance. “They need a baseline,” says Del Toro, “an agreed place to start to self-evaluate and prepare to meet all these standards.”

The market to international investment is open and active, with international oil companies and national oil companies currently drilling on and offshore wells.

The involvement of international players is critical, bringing with them expertise and substantial experience that will help promote a safety culture that can protect people, the environment, communities and operations; an area where she accepts Mexico has work to do.

Her view is supported by Espinosa who warns regulators must do their bit too. She believes recent layoffs will hamper the development of a strong regulatory framework at a time when the new government is also embarking on a steep learning curve. She cautions that regulations governing the market still lack sophistication and detail, and the loss of talent means the industry faces questions over the accountability at regulators CNH and CRE.

Preparing the industry for the ‘Blue Wave’

In a bid to help address these concerns within the oil exploration and production sector, Blue Bell Energy has created the Blue Wave Supplier Development Platform, a collaboration with former general manager of global procurement at ExxonMobil Eduardo Nunez. It consolidates the standards of more than ten major international oil operators and service companies, as well as industry best practices and government legislation from around the world in one place.

The automated service will give Mexican suppliers access to self-assessment tools, reports, guides for closure plans and online training, as well as let them input company-specific data that will generate a development plan to meet minimum standards required.

Decisions taken by AMLO rarely lack controversy but there is hope they will result in a market that works for all.”isions taken by AMLO rarely lack controversy but there is hope they will result in a market that works for all.

“Based on a company’s status, the system will provide access to consolidated international and best practices from world-class multinational operators to self-assess their capabilities across six pillars, HSSE, cyber, quality, corporate policies, financials and technical capabilities,” explains Del Toro. A report will be generated highlighting areas in need of attention.

“Once the capabilities and gaps have been understood and assessed, blended teams are formed which can include local suppliers, government, IOCs and funding services.” The initiative is supported by local regulators, state ministries, IOC’s and NGO’s who will sponsor local suppliers’ annual subscription to the platform.

“The system will make a huge difference to the local support available to the oil industry and create opportunities and hope for poorer communities, changing economies and improving lives,” Del Toro adds. “It makes sense for both large international companies and local suppliers and ticks boxes on every level: socially, economically and ethically.”

Is there room for socialism in Mexico’s oil and gas industry?

It’s easy to find commentary on the state of Mexico’s oil and gas sectors, often contradictory but always passionate. Decisions taken by AMLO rarely lack controversy but there is hope they will result in a market that works for all. “The market is attractive, Mexico went from one single operator, Pemex, to now over 40 new operators with large investments. One offshore block in Mexico is the equivalent of around 70-100 US Gulf Of Mexico size blocks,” says Del Toro.

Espinosa agrees, saying that despite the challenges the country faces, ideas proposed by the new administration could end up benefitting market development in the long-term, supporting economic growth and job generation. However, she encouraged the government to clarify its plans for the sector in the coming months.

One offshore block in Mexico is the equivalent of around 70-100 US Gulf Of Mexico size blocks.

For Del Toro, the Blue Wave Supplier Development Platform has a crucial role to play too: “We are creating the opportunities for international operators to build relationships with local suppliers from the start, so they can decide who they want and need to work with locally… For Mexico, it means good, well-paid jobs are created. The local economy becomes stronger and more appealing opportunities are created for investors.”

It is unclear whether the door to international investment in the country’s oil and gas sector is open or shut, but for now, Espinosa says investor patience could mean they “stand to benefit over time”, supported by a domestic sector that’s upskilled and ready to participate.