Uncertainty Grows in Mexico as Low Prices Linger

With news of the Maya Crude price cut and Mexico’s national basket price falling from US$46.41 per barrel a month ago to just above US$15 per barrel today, Mexico’s oil position looks decidedly shaky. But the country is by no means alone. As reported by S&P Global, G7 financial officials said that they  “support international efforts to promote global economic stability” in the midst of the global COVID-19 pandemic and the recent oil price crash spurred by the Saudi Arabia-Russia price war.

Stability could be far off as world leaders continue to work on containing the fast-paced spread of the virus. With non-essential travel suspended in many of the world’s oil producers, oil and gas activity is rapidly dwindling.

Some of the industry’s major global players have already taken steps to review their expenditure. As reported by Reuters, Chevron cut its capital spending budget by US$4 billion on Tuesday, with CEO Michael Wirth stating “this is an unprecedented oil price environment.” Chevron’s major cuts will be felt in the US’ Permian Basin, one of Mexico’s main sources of imported gas. Meanwhile, ExxonMobil – the world’s largest publicly traded international oil and gas company – is, according to WorldOil, planning to significantly reduce CAPEX and OPEX due to the impact of the price war and the COVID-19 pandemic.

Where does Mexico stand? Not much better, it would seem. Murphy Oil, one of the leading operators in Mexico’s investment-heavy deepwater arena, was one of the early actors to cleave its costs. According to MarketWatch, on March 12 the company released plans to cut its 2020 global budget by 35 percent to US$950 million. Meanwhile, Shell, a company that is involved in nine deepwater blocks in Mexico, announced a reduction of US$5 billion in spending and suspended its US$25 billion share buyback plan, said Reuters.

The best known non-major operator working in Mexico, Talos Energy, has followed suit in cutting its CAPEX for 2020, NaturalGasIntel reports. The company, currently involved in a dialogue with PEMEX over the operation of the Zama reservoir, is “positioned well to weather the current market conditions,” said CEO Tim Duncan.

Operators in Mexico are contractually obligated to continue working in Mexico. But whether they will be willing to spend further to develop faster and deliver financial benefit for both themselves and the Mexican economy remains to be seen. In price-pressured moments like these, unessential expenditure is cut and operators, searching for the best return on their dime, look for the reservoirs that offer the best potential. In this global competition for investment, there may be other reservoirs that are cheaper and quicker to develop than Mexico’s greenfield sites. With Reuters reporting this month that diplomats from several countries had secretly met at the US Embassy in Mexico City to discuss “concerns over Mexico’s energy policy” and last year’s pipeline contract standoff which caused Canada’s Ambassador to Mexico to publicly criticize the federal government, private players may believe other international markets offer more appealing working conditions than Mexico.