Mexican President Andrés Manuel López Obrador sent a bill to Congress on March 26 that could enable the government to suspend permits in the oil industry, as part of a drive to bolster state control of energy at the expense of private firms.
López Obrador argues previous administrations skewed the energy market in favor of business interests and were intent on carving up national oil firm Petroleos Mexicanos (Pemex) and power utility the Comision Federal de Electricidad (CFE).
His new initiative, a copy of which was seen by Reuters, set out a series of measures to strengthen state influence over the oil and gas industry and said the government should have the right to suspend permits if a threat to Mexico is perceived.
According to the draft bill, the energy ministry or the energy regulatory commission could temporarily suspend permits “when an imminent danger is foreseen for national security, energy security or for the national economy.”
The bill did not detail what constituted such circumstances.
The authority that issued the permit would then have oversight of the holder's operations while it was under suspension, including the hiring of new personnel, it said.
A permit holder could ask for the suspension to be lifted once it showed that whatever led to the suspension had been “corrected or eradicated, or have disappeared,” unless there were also criminal or administrative offenses.
The bill could have implications for multinational companies with operations in Mexico, including Chevron and Glencore, which entered the country's fuel market in a broad energy sector opening under the previous administration.
Gabriela Siller, analysis director of local firm Banco Base, warned that the draft bill could have "serious consequences" for Mexico's economy and investor confidence.
“It would completely nullify investment in the sector,” Siller said, adding that Foreign Direct Investment (FDI) could fall at least 5% as a result.
López Obrador is attempting to make Mexico energy independent, and said this month his administration would limit oil production to 2 million bbl/d.
He has tried to cast the previous government's opening of the energy market as an illustration of chronic political corruption, and has used the subject to fire up his base ahead of mid-term legislative elections on June 6.
López Obrador this month pushed through a change in the electricity law that gave the CFE precedence over private sector players in crucial aspects of the power market.
He is pressing private power companies to negotiate with the government in the hope that he can secure better terms and savings for the state from existing contracts.
His shake-up of the market has upset business groups and many of Mexico’s top trade partners, who are concerned the government is not respecting investments.
Recommended Reading
Exxon, Chevron Tapping Permian for Output Growth in ‘24
2024-02-02 - Exxon Mobil and Chevron plan to tap West Texas and New Mexico for oil and gas production growth in 2024, the U.S. majors reported in their latest earnings.
CEO: Coterra ‘Deeply Curious’ on M&A Amid E&P Consolidation Wave
2024-02-26 - Coterra Energy has yet to get in on the large-scale M&A wave sweeping across the Lower 48—but CEO Tom Jorden said Coterra is keeping an eye on acquisition opportunities.
E&P Earnings Season Proves Up Stronger Efficiencies, Profits
2024-04-04 - The 2024 outlook for E&Ps largely surprises to the upside with conservative budgets and steady volumes.
Petrie Partners: A Small Wonder
2024-02-01 - Petrie Partners may not be the biggest or flashiest investment bank on the block, but after over two decades, its executives have been around the block more than most.
The OGInterview: Petrie Partners a Big Deal Among Investment Banks
2024-02-01 - In this OGInterview, Hart Energy's Chris Mathews sat down with Petrie Partners—perhaps not the biggest or flashiest investment bank around, but after over two decades, the firm has been around the block more than most.