Private Companies Challenged By Mexico Policies

Since socialist-leaning Andres Manuel Lopez Obrador (AMLO) was elected Mexican president in 2018, it’s been challenging for privately-owned companies like Vancouver-based Renaissance Oil Corp. to operate in the country.

AMLO has reserved policies under former market-friendly President Enrique Pena Nieto, who had sold off Pemex assets to companies from juniors like ROC to super majors like Exxon Mobil Corporation, and had encouraged private sector partnerships with Pemex.

Last week AMLO reiterated his pro-Pemex stance, announcing that his government is not planning to reopen oil and gas auctions this year, ending hopes his government might spur private sector investment in the energy sector.

But despite the heavy debt load Pemex carries, AMLO’s government continues to be determined to renew its past glories, when it produced about three million bbls daily, mostly from shallow offshore finds.

This has made it difficult for companies like ROC, which entered the country in 2014, subsequently gaining ownership of three former Pemex properties in the southern state of Chiapas and forming a partnership with Lukoil to win rights to develop the 243-square kilometre Amatitlan block in central Mexico.

The company planned a 10-well program, initially targeting Chicontepec sands with the potential to produce thousands of bbls/d of oil, mostly using unconventional production methods.

But the real prize on the property is the Upper Jurassic shales under the entire block where the company sees the potential for several “elephants.”

However, the only way to develop those assets is through fracking, which AMLO is opposed to amidst a growing anti-fracking movement in Mexico.

Kevin Smith, ROC spokesperson, said the company believes it still has a promising future in Mexico, despite the policy reversal of the AMLO government.

“The home run opportunity is still in the Amatitlan block, but we think we can still be a substantial producers from our Chiapas blocks,” he said.

The company is continuing its negotiations with Pemex involving ownership stake and production approaches.

The political difficulties in Mexico aside, ROC, which is not yet profitable, has been able to raise millions from wealthy investors. Last March, for example, it announced it had raised $5 million from selling shares at 25 cents each to a wealthy Mexican family.

However, despite the lack of enthusiasm for the company’s shares from retail investors, it has been able to attract interest from well-heeled investors. Recently it had issued 6.57 million common shares, at 20 cents each, to an unidentified investor, raising $1 million, who was revealed to be Pierre Lassonde, chairman of Canadian-based mining and oil and gas giant Franco Nevada Corp.

Meanwhile ROC is concentrating on its Chiapas properties.

“We still think there’s a large role for us in Mexico,” he said.

The company is producing about 1,260 boe/d from the three Chiapas blocks — Mundo Nuevo, Topen and Malva — and has plans for an aggressive drilling program this year.

“We have plans to drill four wells and do three workovers on the blocks this year,” he said. “We think we can increase production by five times.”