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Global Energy Advisory October 6, 2017

Mexico

With new discoveries on the map and a series of auctions, Mexico’s newly liberalized energy sector looks great—on the surface. But there are plenty of things to trip up investors, and next year will be particularly decisive.

While all the news right now is of the latest round of auctions in which an Egyptian and German company signed deals to partner with Mexico’s state-run Pemex for two onshore oilfields, what’s buried in this story is significant.

Yes, Wednesday tender announcements are important: It’s only the second time Mexico has offered outsiders partnerships with Pemex. A third block up for auction in shallow waters garnered no interest at all, but what investors should really be paying attention to is the bigger picture.

Three years ago, Mexico opened its energy sector to private investments in a landmark energy reform that ended more than seven decades of monopoly by state-run Pemex. Supermajors Exxon, Chevron, and BP are opening or planning to open their first service stations to tap into the Mexican refined products market. Shell is the latest Big Oil player to have entered Mexico’s retail market, pledging US$1 billion in investment over the next 10 years.

But the real game here is shale, or unconventional oil and gas. And this is where things get tricky. Mexico has postponed this much more crucial auction twice now. Most recently, it was supposed to get started in December this year. It’s been postponed…




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