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Mexico's Lopez Obrador pushes Big Oil to hurry, but offers little

Tue, 16th Oct 2018 06:00

By David Alire Garcia and Marianna Parraga MEXICO CITY, Oct 16 (Reuters) - At his first meeting withforeign oil majors, Mexico's leftist president-elect pushed thecompanies to prove themselves by quickly pumping oil from recentfinds, sources say, but gave no sign of offering up new fieldsto reverse dwindling output. President-elect Andres Manuel Lopez Obrador repeated apromise to respect more than 100 existing contracts awardedfollowing a sweeping five-year-old energy overhaul as long as areview by his team finds no corruption. And he added: companiesmust show results, three executives who attended the meetingsaid. For U.S. independent Talos Energy , which isdeveloping a high-profile, big offshore discovery announced lastyear along with partners Premier Oil and Sierra Oil &Gas, Lopez Obrador's message was clear: quickly bring newstreams of production online. "We know we have to exceed expectations and we're trying tomake sure we do that," said Talos Energy CEO Tim Duncan, one ofthe executives who attended the session. At the Sept. 27 meeting, the president-elect also criticizedthe 2013 constitutional reform for failing to stop an extendedoutput slide. Operators such as Talos and Italy's Eni, which alsoannounced a major offshore find last year, are on LopezObrador's watch list to pump oil quickly, said Carlos Pascual, aformer U.S. ambassador to Mexico who now helps run consultancyIHS Markit's global energy business. "The focus on increased barrels is going to create greaterpressure for some companies," he said. The oil and gas blocks awarded in bidding rounds over thepast three years to companies including Royal Dutch Shell andChevron will result in $160 billion in new investment, theoutgoing government estimates. Lopez Obrador's pick to be the new oil minister, RocioNahle, did not respond to a request for comment about LopezObrador's presentation. RIG OIL NOT BIG OIL At the meeting, Lopez Obrador also explained he intends toput some 20 idle drilling rigs belonging to a few Mexicanservice firms to work for state giant Pemex, according to threeexecutives who attended the meeting. The executives, who asked not to be named to avoid anyill-will from the incoming government, said they were surprisedat the decision to talk up the service contracts for Pemexinstead of encouraging much bigger investments the oil companiesare capable of making. A former senior executive with Pemex said the plan could addat most 150,000 barrels per day (bpd) to Mexico's 1.8 millionbpd production in a year, far short of the 40 percent increaseto 2.6 million bpd he is targeting during his six year term. Lopez Obrador is a long-time critic of the energy reformthat brought major oil companies to Mexico for the first time inmore than 70 years, and has warned he will not offer up moreareas for auction. Oil companies still hope he will soften that position inorder to meet his ambitious production goals. The veteran leftist politician adopted a diplomatic tone atthe industry session, said the company executives, and his teameven pledged to ease regulatory delays companies face. "Reality could force pragmatism," said an oil executive whoattended the meeting, arguing it is highly unlikely Mexico couldmeet Lopez Obrador's lofty output goal with government spendingalone. As an indicator, firms are closely watching whether oilauctions set for February by Mexico's independent oil regulatorwill be canceled or postponed after Lopez Obrador takes officein December. If that happens, along with the pledge to focus productionplans on squeezing more out of Pemex fields with local rigs,outside investment could cool for years in Mexico's oil patch,home to under-explored shale plays and the country's potentiallylucrative deepwater Gulf of Mexico, according to the executivesand sector analysts. The head of the oil regulator, Juan Carlos Zepeda, has saidPemex would need to dedicate $20 billion each year toexploration and production activities to hit Lopez Obrador'soutput goal, about double this year's budget. Advisor Rocio Nahle, Lopez Obrador's pick to be energyminister, said last month Pemex will be allocated about $4billion for "exploration and drilling" in 2019, without goinginto detail. The nearly two hour meeting between Lopez Obrador and oilcompany executives ended with a promise to maintain "continuousdialogue" going forward However, there was no question-and-answer period, andfollowing the set speeches, Lopez Obrador and his senior energyaides quickly departed. No new meetings have yet been scheduled. One attendee bluntly quipped afterwards: "He really doesn'tlike us." (Reporting by David Alire Garcia and Marianna Parraga; Editingby Frank Jack Daniel)
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