Prospects Brighten for Mexico's Upstream Players

Prospects for Mexico’s upstream sector are looking brighter after years under storm clouds. The election of leftist President Andres Manuel Lopez Obrador in 2018 and his nationalist policy quashed much of the industry enthusiasm around the country’s potential after successful mid-2010s bid rounds. But with the new call on supply post-Ukraine, improved commodity prices and marginal flexibility within the government’s nationalist agenda, some projects including the Trion and Zama schemes are taking new steps forward as exploration pushes ahead. National crude production has managed to buck major decline pressures — up 3% from last year at 1.66 million barrels per day. That’s thanks both to new shallow water and onshore Pemex projects as well as private operators, who are kicking in some 65,000 b/d from a trio of new offshore greenfield areas. Mexico’s resources have always been seen as highly competitive, with ultra-low costs in shallow-water and vast unexplored potential in deepwater. But political headwinds, the Covid-19 pandemic and energy transition pressures had dulled that shine more recently. But post-Ukraine, companies may be willing to roll the dice on Mexico more in their hunt for low-cost barrels. Lopez Obrador’s administration has also shown marginal signs of pragmatism towards the private sector, especially as his push to radically re-imagine Mexico in his nationalist image has fallen short in Congress and the courts. A series of meetings with companies last year to address long-running conflicts, including for the Zama development, appeared to be a turning point, offering a path forward in a way that could dovetail with the leader's narrative.