Contents

Introduction

Declining production, exploration activity and the level of oil and gas reserves in Mexico is continuing. However, there are signs that the tendency will be reversed in the medium term. The success of Round 1 auctions and the three Round 2 auctions called by hydrocarbons regulator CNH in the last two years augers well for an increase in production as these projects mature.

The tender program, which will continue at a healthy pace this year and next, is one of the main consequences of the energy reform approved in 2014. With these investments under way, the Mexican government and analysts expect production - which has been falling since 2003 - to start rising from next year.

However, despite the optimism, there are hurdles to overcome. Although eliminating many of the taxes that were burdening state oil company Pemex and its more professional management have improved the company's numbers, the focus on profitability will reduce, at least in the short term, investment in exploration, which raises questions about future production. That is particularly so if one considers that no large discoveries have been made in Mexico in the last four decades.

In addition, there is the political risk factor, which will increase as the presidential elections scheduled for June 3 next year approach. Andrés Manuel López Obrador, one of the leading candidates to succeed President Enrique Peña Nieto, wants to reverse, or at least not implement the rest of the energy reform.

In this report we offer a diagnosis of oil and gas production, exploration and reserves in Mexico, we analyze the effects of the auctions already held and those programmed for the short and medium term, and we focus on the changes being implemented at Pemex and the impact of this transformation on the hydrocarbons industry.

Figure: Production
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