Sources say that the incoming Mexican government wants to open Pemex up to oil partnerships.

According to four sources with knowledge of the situation, the incoming Mexican government will encourage the state oil company Pemex, to form equity partnerships with private oil firms, a model that is not popular with the president. This move is to increase reserves in the face of a massive debt. These partnerships will be similar to previous Pemex joint-ventures with private oil companies, known as "farm-outs", that Mexico pursued via an energy reform implemented a decade earlier. This reform allowed oil regulators to allow private and foreign oil firms to partner with Pemex in exploration and production.

But President Andres Manuel Lopez Obrador blocked this reform by canceling the auctions that would have allowed Pemex to tie up with private producers and for them to operate their blocks on their own. Mexico's oil industry is likely to be a sticking point for the incoming president Claudia Sheinbaum who will take office on October 1. Her mentor, current President Lopez Obrador, may also have a similar opinion.

Sheinbaum or Pemex did not respond to comments. Sheinbaum is a climate scientist and will push for renewable energy. However, it's unclear what Sheinbaum plans to do about Pemex. The company faces stagnant production, diminishing reserves, and massive debt. Mexico, which is the 11th largest oil producer in the world, saw its oil reserves drop last year from 6,12 billion barrels to 5,98 billion barrels. Crude production also fell to 1.5 million barrels a day, from 3.4 million barrels a day two decades ago.

Three sources claim that the new government will give Pemex's board the power to make decisions about potential partners. This would remove the CNH, the oil regulator, from the process.

Farm-out agreements allow partners to split the risk and reward of oil projects. Two sources stated that the government is studying the Trion field as a potential blueprint. Trion is an ultra-deep oil field in the Gulf of Mexico. It's a partnership with Australia's Woodside Energy (60%) and Pemex (40%). Production is expected to start in 2028. Pemex is in debt for almost $100 billion. It owes its suppliers another $20 billion. And it has only $3.6 billion cash. This leaves little room to invest.

Sources did not specify if partnerships had been discussed with specific companies or in specific fields.

One of the sources, who spoke under condition of anonymity because they were not authorized to speak in public, said: "The idea is that exploration be expanded to more areas." The current administration favors contracts where Pemex pays for services, but does not provide stakes in the projects.

If the constitutional reform proposed by Lopez Obrador, and supported by Sheinbaum, is approved, then a greater role for Pemex's board in determining partnerships could coincide with the possible elimination of the oil regulator. One source said that Mexico's Hydrocarbons law could be amended so as to give Pemex board more power in choosing partners. (Reporting and editing by Ana Isabel Martinez; Stephen Eisenhammer, Rod Nickel and Ana Isabel Martinez)

(source: Reuters)