Market awaits auctions in Mexico and Brazil

The major global oil and gas companies are gathering in Mexico and Brazil this week for those who may be two of their last chances to compete for some of the world's greatest reserves before presidential elections this year that threaten Recent reforms in the energy sector of both countries.

An auction of rights to explore and produce oil in shallow water in Mexico and a round of auctions on land and sea in Brazil will occur months before the presidential elections in the two main economies of Latin America.

Left-wing applicants have promised to reverse or reduce the flow of private investments in the oil industry in both countries. The uncertainty of the elections could lead some companies to make bold bids in search of securing access to new areas of exploration. "There is indeed a feeling that these may be the last (auctions) for a while," said an executive from a registered company to bid on both countries, on condition of anonymity.

On the other hand, some companies could avoid competing until they can see whether the elections could lead to changes in the contracts or in the terms proposed in the bids. The left-wing candidate of Mexico Andrés Manuel López coworker, who leads in opinion polls, said he will review more than 90 signed contracts since Mexico passed a law in 2013 interrupting the 75-year monopoly of the state energy company Pemex.

López coworker plans to ask President Enrique Peña Nieto this month to cancel two planned auctions for the second semester of the year if he wins the July election. The support of López coworker is around 29,5%, against 21,2% of his closest rival, according to research.

In Brazil, the most likely left-wing candidate in the presidential race, Ciro Gomes, alerted the potential oil companies participating in the bid by saying that they will expropriate energy assets purchased by private investors if they win the dispute.

Ciro Gomes is behind only the right-wing candidate Jair Bolsonaro when the polls are held without the name of former President Luiz Inácio Lula da Silva, who also promises to participate in the elections, but can be prevented due to a corruption investigation.

"Companies now may want higher return rates, or they can get to a point where they don't want that level of risk," said the head of the energy group in North America and Latin at the EY consultancy in Mexico, Alfredo Alvarez.

Most industry executives and oil analysts told Reuters that they do not expect the reforms to be completely reversed in either country. But many see a calendar of slower bidding rounds and changes in terms of contracts as real possibilities.

"The speed of the auctions could get slower and even stop, but the reform is protected by the Constitution, which requires two-thirds of the Senate and the House to change," said Pemex President Carlos Trevino, earlier this month in Houston.

Offers at stake

Brazil's top quality geology and the history of respect for contracts in the country outweigh the concerns of political instability, but a bidding round Thursday and a subsequent auction in June for pre-salt blocks can be together as Large enough to impair profitability, said consulting Wood Mackenzie.

In September 2017, Exxon Mobil paid a record of 2.24 billion reais for a Brazilian bloc with Petrobras partner at an auction under concession.

In another sign of strong demand, the companies that competed in October to buy stakes in the coveted oil fields of the pre-salt Brazil promised to deliver to the government up to 80% of the oil produced after the costs.

For the Thursday auction in Brazil, 21 companies including Chevron, BP, Exxon, Shell, Statoil and Total have registered to compete in a round where 70 blocks are being offered.

The Giants must concentrate the offerings in a few blocks in the prolific basins of Campos and Santos, with minimum subscription bonuses per block that go up to 1.9 billion reais. There are rumours that some have pre-salt geology.

In Mexico, 14 companies and 22 consortia of medium and large companies have qualified to compete in this week's auction, which will offer 35 blocks in the shallow waters of the Gulf of Mexico. The government expects at least seven to be granted, according to the Minister of Energy.

Pemex will probably be the main participant in the round because it has its own infrastructure and has accumulated a vast knowledge of geology. Source: Exam.

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