Yesterday, the Mexican government auctioned eight out of ten deep-water oil fields, surpassing the low expectations built on the poor previous experiences the country had with oilfield auctions. An estimated $41.0 billion will be spent to bring the areas to full production over the next 35 to 50 years. Output is expected to reach 900,000 barrels a day (42% of current total production).

Despite the government defined a minimum of 1.9% and 3.1% royalties, the bidding companies offered five times that amount, which means that –in addition to the quotas and taxes- the Mexican State will get a benefit of 59.8% on average.

In our view, this is an important sign given that one of the effects of the depreciation of the MXN in 2016 and (specially) after the US election is to make domestic investments more attractive (in pesos) to foreign companies. If proved feasible, this should (at least partially) offset the negative effects of the two exogenous shocks to which the Mexican economy was exposed in 2015-2016 (US and oil).

On top of this, the increase in FDI is welcome in a context of the current account deficit and a significant reliance of bilateral trade with the US and remittances from abroad.