Mexican President Andrés Manuel López Obrador has been a fervent critic of the changes that opened Mexico’s oil and electricity sectors to private investors.
Photo: jose mendez/ShutterstockMEXICO CITY—President Andrés Manuel López Obrador is resisting pressure to restart auctions for oil drilling rights and allow private firms to have a greater role in the oil industry, even as his government grapples with a stagnant economy and weak investment.
Senior government officials and private sector leaders have urged Mexico’s nationalist president to resume the overhaul of the energy industry launched by his pro-market predecessor, Enrique Peña Nieto, as crude production by state oil company Petróleos Mexicanos fell 8% last year.
But such efforts appear unsuccessful so far, according to people with knowledge of the situation. Mr. López Obrador plans to announce soon a modest initiative for private companies to provide exploration and production services to Pemex, as the state oil company is known. His government will also seek to attract greater private investment in refining and petrochemical projects, these people said.
“Except for a last-minute change of mind by the president, there won’t be oil rounds nor farmouts this year,” said one senior official, referring to drilling rights auctions and joint ventures between private oil companies and Pemex that were first launched by the Peña Nieto administration.
Negotiations between the government and the private sector over projects are continuing, the people said. Although unlikely, a surprise announcement may still be possible.
Investors are closely watching the energy policy of Mr. López Obrador to gauge how his administration is managing the economy. So far, the president has canceled new oil auctions for private firms and barred Pemex from signing joint ventures with other companies. He also has ramped up investment at Pemex. Last month, he ruled out government plans to restart oil auctions.
Mr. López Obrador, who took office in December 2018, has long been a fervent critic of the historic energy overhaul that opened Mexico’s oil and electricity sectors to private investors in 2013. The revisions offered for the first time in decades risk-sharing contracts where private companies provide investment and share oil production and profits with the government.
More than 100 oil contracts were awarded by the previous administration from 2015 to 2018, including major oil companies such as Chevron Corp. and Royal Dutch Shell PLC.
More on Mexico’s President
After taking office, Mr. López Obrador halted the auctions of oil blocks, part of a broader plan to strengthen the dominant role of Pemex in the oil sector and that of public utility CFE in electricity. But he hasn’t sought to overturn the energy overhaul, aware that such a move would scare off investors.
His decision to call off oil auctions, a monthslong quarrel with natural-gas pipeline firms and the cancellation of a $13 billion airport in Mexico City spooked foreign investors and took a toll on growth. Mexico’s economy contracted slightly last year, while growth for 2020 is seen at just 1%.
Mr. López Obrador is resisting to privatize oil blocks for several reasons, the people familiar with the situation say. First, such a decision would have an important political cost as his opposition to the energy overhaul was a key element of his campaign platform. As opposition leader, he called the oil opening to private investors “the theft of the century.”
And oil blocks tendered by the López Obrador administration would start producing under future governments. “It’s a politically costly decision, with nothing to gain,” the senior official said.
Also, Mr. López Obrador wants to see more output results from the private sector. He has expressed doubts about private companies meeting investment commitments. “Why do they want contracts if they don’t invest?” he complained at a news conference last month.
Private companies have invested $2.6 billion since 2015, government data shows. They produced an average of 38,000 barrels a day last year, or about 2% of Mexico’s total oil output, as it takes years to develop most oil fields.
Mr. López Obrador is also reluctant to tender anything—from oil to infrastructure—that can’t be finished during his presidency, the official said. “He doesn’t want to leave any liability to the next administration,” the person said.
If Mr. López Obrador doesn’t launch new oil tenders this year, it is even more unlikely to happen before midterm elections in July 2021, the people said. That would mean that any decision is likely to be postponed until late 2021.
Write to Juan Montes at juan.montes@wsj.com
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