Mexico Energy Reform: 14% allocation rate suggests a slow process of implementation ahead

Today, the National Hydrocarbons Commission tendered the first set of blocks of shallow water oil fields. Only 9 firms out of 25 pre-qualified for this bid participated, as many of then decided to withdraw from this first process, mainly due to a guarantee requirement set by the authorities.

The government was expecting at least a 30% allocation rate. The allocation was only 14% and Sierra Oil, a new Mexican oil company, won the blocks two and seven.  Also, in 8 out of the 14 blocks, no bids were presented, while in four, bids were below the minimum values set by the Ministry of Finance.

Changes in the regulation in order is expected to increase participation and allocation. This is the first time that the government has implemented this type of auction, and the result probably reflects that. 

"We expect that the regulator will adjust rules and requirements in order to maximize benefits in the coming auctions," says Barclays  

More flexible rules might materialize in a gradual manner, as contract types, rules and requirements depend on the nature of the field. The learning process for both private companies and authorities could occur in a very gradual manner, suggesting a rather slow process of implementation. The next auction will be in September.