BP Pulls Out of Upstream Activities in Mexico
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BP Pulls Out of Upstream Activities in Mexico

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Conal Quinn By Conal Quinn | Journalist & Industry Analyst - Wed, 08/17/2022 - 19:01

One of the world’s largest energy companies is set to pull out of upstream activities in Mexico, having only entered the market six years ago. Supermajor BP won three exploration contracts during the bidding rounds held in 2016 and 2018 under the previous administration of Enrique Peña Nieto. Of these contracts, CNH-R01-L04-A1.CS/2016 and CNH-R01-L04-A3.CS/2016 are deepwater blocks located in the Salina Basin off the coasts of Veracruz and Tabasco, while CNH-R03-L01-G-CS-03/2018 involves a play in the shallow waters of Campeche.

In February 2022, BP and Equinor announced they would be handing over corporate, management and operational control of the Salina Basin contracts to French energy giant TotalEnergies, as both companies revised their upstream portfolios to reflect greater commitments to zero-carbon initiatives. The private players deemed the requirements to develop the exploration acreage to be incompatible with their long-term investment plans. 

Meanwhile, BP was awarded a third contract in partnership with Total, Hokchi Energy and QPI Mexico. The British company is now expected to conclude its participation in the Round 3 shallow water play by Nov. 26, 2022. 

According to the most recent CNH data, BP only invested US$36 million, or 16 percent of the approved investment plan of US$219 it made with the regulatory body for the two contracts in which it was the operator, CNH-R01-L04-A3.CS/2016 and CNH-R03-L01-G-CS-03/2018.  President López Obrador has been highly critical of the lack of progress in the contracts handed out to private players in the wake of the 2014 Energy Reform and suspended the awarding of new oil and gas contracts to the private sector upon assuming office in 2018. López Obrador stated the possibility of new bidding rounds would not be on the cards until private operators could reach a production target set at 280Mb/d. Currently, private oil companies produce just under 100M/d, which constitutes around 5 percent of the national oil production and represents around one third of the target set by the Mexican president. Despite the government respecting the 111 contracts already awarded, Alfredo García, Managing Director of consultancy firm Siete Energy noted that private operators were “disillusioned” with the current political climate in Mexico, with the sector evolving in a manner that was “not what many expected” when they first invested in Mexico.  

 

However, Gonzalo Monroy, Managing Director, GMEC, argued that decisions made by several IOCs to pull out of Mexico under the current administration say more about changing global strategies, with BP and Equinor just two examples of IOCs pivoting to investment models with more emphasis on renewables as part of a rebrand as energy companies. Speaking with Bloomberg, BP Spokesperson Selene Gonzalez offered a more simple explanation for the supermajor pulling out of Mexico: having conducted extensive seismic studies in the offshore blocks, the company determined that the geological probability of success was too low for development to be economically viable.

Despite this latest move, BP has stated that it will retain an “indirect participation” in some E&P blocks by virtue of its interest in Hokchi Energy. The British energy company holds a 50 percent share in the consortium together with the Argentine Pan American Energy Group. Hokchi currently operates its namesake Hokchi field, one of the private sector’s most productive operations, in addition to two further wells at Xaxamani and Tolteca, contributing 20Mb/d as of June 2022. 


It also remains to be seen what will become of BP’s substantial Mexican downstream portfolio. The company, which produces 2.2MMb/d globally, operates over 500 gas stations in Mexico and supplies 300MMcf/d of natural gas to industrial clients. Commenting in April 2021, Bernard Looney, CEO, BP, explained that while Mexico would remain an important part of his company’s operations, it was no longer a focus of its growth strategy, with BP opting to prioritize  hydrocarbons investments in other markets.

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