October 16, 2018 / 5:03 AM / 2 years ago

Mexico's Lopez Obrador pushes Big Oil to hurry, but offers little

    By David Alire Garcia and Marianna Parraga
    MEXICO CITY, Oct 16 (Reuters) - At his first meeting with
foreign oil majors, Mexico's leftist president-elect pushed the
companies to prove themselves by quickly pumping oil from recent
finds, sources say, but gave no sign of offering up new fields
to reverse dwindling output.
    President-elect Andres Manuel Lopez Obrador repeated a
promise to respect more than 100 existing contracts awarded
following a sweeping five-year-old energy overhaul as long as a
review by his team finds no corruption. And he added: companies
must show results, three executives who attended the meeting
    For U.S. independent Talos Energy         , which is
developing a high-profile, big offshore discovery announced last
year along with partners Premier Oil         and Sierra Oil &
Gas, Lopez Obrador's message was clear: quickly bring new
streams of production online.
    "We know we have to exceed expectations and we're trying to
make sure we do that," said Talos Energy CEO Tim Duncan, one of
the executives who attended the session.
    At the Sept. 27 meeting, the president-elect also criticized
the 2013 constitutional reform for failing to stop an extended
output slide.
    Operators such as Talos and Italy's Eni, which also
announced a major offshore find last year, are on Lopez
Obrador's watch list to pump oil quickly, said Carlos Pascual, a
former U.S. ambassador to Mexico who now helps run consultancy
IHS Markit's global energy business.
    "The focus on increased barrels is going to create greater
pressure for some companies," he said.
    The oil and gas blocks awarded in bidding rounds over the
past three years to companies including Royal Dutch Shell and
Chevron will result in $160 billion in new investment, the
outgoing government estimates. 
    Lopez Obrador's pick to be the new oil minister, Rocio
Nahle, did not respond to a request for comment about Lopez
Obrador's presentation.
    At the meeting, Lopez Obrador also explained he intends to
put some 20 idle drilling rigs belonging to a few Mexican
service firms to work for state giant Pemex, according to three
executives who attended the meeting.
    The executives, who asked not to be named to avoid any
ill-will from the incoming government, said they were surprised
at the decision to talk up the service contracts for Pemex
instead of encouraging much bigger investments the oil companies
are capable of making.
    A former senior executive with Pemex said the plan could add
at most 150,000 barrels per day (bpd) to Mexico's 1.8 million
bpd production in a year, far short of the 40 percent increase
to 2.6 million bpd he is targeting during his six year term.  
    Lopez Obrador is a long-time critic of the energy reform
that brought major oil companies to Mexico for the first time in
more than 70 years, and has warned he will not offer up more
areas for auction.
    Oil companies still hope he will soften that position in
order to meet his ambitious production goals. 
    The veteran leftist politician adopted a diplomatic tone at
the industry session, said the company executives, and his team
even pledged to ease regulatory delays companies face.
    "Reality could force pragmatism," said an oil executive who
attended the meeting, arguing it is highly unlikely Mexico could
meet Lopez Obrador's lofty output goal with government spending
    As an indicator, firms are closely watching whether oil
auctions set for February by Mexico's independent oil regulator
will be canceled or postponed after Lopez Obrador takes office
in December.
    If that happens, along with the pledge to focus production
plans on squeezing more out of Pemex fields with local rigs,
outside investment could cool for years in Mexico's oil patch,
home to under-explored shale plays and the country's potentially
lucrative deepwater Gulf of Mexico, according to the executives
and sector analysts.  
    The head of the oil regulator, Juan Carlos Zepeda, has said
Pemex would need to dedicate $20 billion each year to
exploration and production activities to hit Lopez Obrador's
output goal, about double this year's budget.
    Advisor Rocio Nahle, Lopez Obrador's pick to be energy
minister, said last month Pemex will be allocated about $4
billion for "exploration and drilling" in 2019, without going
into detail.
    The nearly two hour meeting between Lopez Obrador and oil
company executives ended with a promise to maintain "continuous
dialogue" going forward
    However, there was no question-and-answer period, and
following the set speeches, Lopez Obrador and his senior energy
aides quickly departed. No new meetings have yet been scheduled.
    One attendee bluntly quipped afterwards: "He really doesn't
like us."

 (Reporting by David Alire Garcia and Marianna Parraga; Editing
by Frank Jack Daniel)
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