Mexico’s Watchdog Goes After Pemex Over Oil Deal

Mexico’s oil regulator and state company Pemex are at odds over how to develop a deepwater natural gas project, eight people close to the matter said, threatening to stall a $1.5 billion energuy deal.

Officials at regulator National Hydrocarbons Commission (CNH) have raised questions about whether Petroleos Mexicanos can shoulder the massive project, the people said.

The Lakach field holds up to 937 billion cubic feet of reserves but rising costs have hindered development. Now, a Pemex proposal to revive development with U.S. liquefied gas company New Fortress Energy is at issue. The project’s fate could depend on the replacement for CNH chief Rogelio Hernandez, who resigned last week, the people said.

Mexican laws stipulate regulatory approval requires projects be both technically and economically viable. The standoff between CNH and Pemex over Lakach lays bare the challenges of Mexico’s effort to self-develop its reserves.

President Andres Manuel Lopez Obrador has sought to champion state companies and keep private investors on the sidelines, an agenda complicated by Pemex’s lack of capital and huge debts.

Pemex has proposed to develop Lakach with New Fortress Energy using a service contract, a formula used prior to the nation’s energy sector opening in 2013-14. Under a service contract, Pemex would retain full ownership but bear the risk if prices fall.

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