Nearly a year into President Andrés Manuel López Obrador’s six-year term and three-year suspension of tenders involving blocks held by NOC Pemex, there are clear signs of waning interest in Mexico’s oil and gas sector. 

“There’s been a great slowdown in M&A in the sector, mainly because of no more farmouts with Pemex, and no more oil rounds,” Mergermarket senior analyst Carlos Martínez told BNamericas.

Although hydrocarbons commission CNH reported there were 21 firms working on 80 oil and gas projects as of September 15, most came in the wake of the 2013-14 energy reforms and new entrants are few and far between. 

From January-September, US-based firms made just two oil and gas acquisitions in Mexico, and British, French and Dutch companies just one each, according to Transactional Track Record. 

Long-established firms in Mexico are calling it quits or else narrowing their focus on their most promising fields. 

Q3 EXITS

Perhaps the most telling sign in Q3 was the announcement by UK-based oil service firm Petrofac that it was selling its remaining 51% stake in the Santuario, Magallanes and Arenque sites to Anglo-Dutch company Perenco. 

“Petrofac selling its operations to Perenco is the trend,” Martínez said. “Companies went into Mexico thinking because of the energy reform there were going to be a lot of opportunities, and now with this change in government, perhaps there aren't as many opportunities as they originally thought. And other companies that perhaps have a longer-term vision of the country are willing to stick it out with a couple of exploration assets.”

When the deal is finalized in 2020, it will mark the complete exit from the Mexican market by Petrofac, the longest-established foreign oil operator in the counntry. 

Also, in October Mexican oil firm Hokchi officially abandoned an offshore assignment after drilling two exploration wells that proved disappointing. Then, US-based Talos Energy gave back 50% of an offshore stake to CNH in order to focus its efforts on its highly productive Zama site. 

SECONDARY MARKET 

Mergermarket forecasts M&A activity in the Mexican oil and gas market will pick up in 2020, though not because of any short-term optimism. 

“In the future, we expect an uptick in deal-making mainly driven by companies getting used to the new reality of no more oil contracts; there will be movement in secondary markets,” Martínez said. 

“Companies that originally thought of going into Mexico because they wanted more than five blocks ended up only having three blocks because there are no more oil auctions, and they're deciding to exit the country.” 

Now “those companies are saying to themselves ‘This is not what I thought it was going to be. So, I’m pulling out, and if someone wants my blocks, here they are.” 

As new entrants are forced into the secondary market, buyers who take a longer-term perspective are likely to enjoy an advantage. 

Martínez cited Colombian state oil company Ecopetrol, which gained four blocks in Mexico last year, as a possible new mover in the market.

Source: Business News Americas / BN Americas - Chile