Image credits: Talos Energy
News Article

Diplomats Discuss Energy Sector Concerns

By Ricardo Guzman | Mon, 03/09/2020 - 16:46

After PEMEX reported a US$18.3 billion net loss for 2019 two weeks ago, which almost doubled the NOC’s 2018 negative results and showed President López Obrador’s poor results in revitalizing the company, a group of diplomats privately met last week to discuss their concerns regarding energy sector investments in Mexico.

Representatives of the US, Canada and several European nations met on Friday, according to a Reuters dispatch. Participants discussed how the changing Mexican energy sector is impacting investments signed after the 2014 Energy Reform and what they can do to shield ongoing projects worth billions of dollars, just days before one of the sharpest oil prices drops in history was recorded on Monday.

Investors and officials “privately voiced concern that Mexico’s energy policy is eroding the legal foundations of contracts worth billions of dollars signed with the previous administration,” stated the Reuters report. The López Obrador administration has denied undermining those deals but at the same time is still pushing to strengthening the state’s role in the energy sector and limiting private participation, arguing that the Energy Reform has failed to produce positive results for Mexico.

People familiar with the meeting that was hosted by the US Embassy said diplomats from Britain, Canada, the European Union, France, Germany, Italy, the Netherlands and Spain also discussed the best way to express their concerns to López Obrador without starting a confrontation.

After OPEC and Russia’s failed attempt to reach an agreement on a production cut on Friday, Saudi Arabia launched a price war that led global oil prices to plunge over 24 percent on Monday, recording the worst fall in 29 years. Oil’s sharp drop dragged almost every major market with it and clouding investor confidence even further.

One particular dispute on who has the right to operate Zama was also discussed in the meeting. Energy companies are trying to sign a deal with PEMEX for the 700MMboe field discovered in 2017 by a consortium led by Talos Energy. Zama has run into some hurdles after it was found that the deposit spread beyond Talos’s block and into one owned by PEMEX. A decision from the Mexican government on this specific case is still awaited by investors. 

Earlier last week, another Reuters report stated that Mexico’s private sector has been working on a package of proposed energy investments for the government worth almost US$92 billion. So far, no official confirmation has been released regarding this announcement or the long-awaited energy plan that was supposed to be disclosed earlier in the year.

The meeting also addressed Lopez Obrador’s threat to cancel contracts for private gas pipelines, arguing companies had ripped off Mexican taxpayers. The report states that government steps to strengthen the state power utility CFE have also reduced incentives for private capital to invest in energy generation and in renewable energy projects, affecting the sector outlook.

Photo by:   Talos Energy
Ricardo Guzman Ricardo Guzman Editor