The reign of Petroleos Mexicanos, the government-owned oil producer known as Pemex, is slowly being dismantled after a 2013 overhaul ended its monopoly and opened up the industry to foreign rivals for the first time in more than seven decades. A Dec. 5 auction in which oil majors including Exxon Mobil, Chevron and BP may bid on deepwater blocks marks the most significant step yet in Mexico's effort to reclaim its spot as a global crude-producing powerhouse.

Mexico needs the auction to be a hit. Out of the gate, the industry overhaul suffered a major blow when the country's oil prices collapsed from above $100 a barrel in 2014 to as low as $19 a barrel in January. The drop stymied participation in the nation's debut auctions last year, while accelerating the decline of Pemex, once the world's third-largest producer. All of that raises the stakes for next week's sale.

What we're seeing right now is the ongoing impact of years of neglect of the national oil company,†Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington, said in a phone interview. Without the energy reform, Pemex was on a road to bankruptcy. The country is now trying to right the sinking ship, but it still might be as many as 10 years before the entrance of significant investment can help do that.â€

Today, Pemex's output is falling faster than foreign producers will be able to ramp up production, even if the auction on Monday is a success. Its production is on course to fall to a 36-year low as the Mexico City-based company is hogtied by nearly $100 billion in debt and 16 straight quarterly losses that have decimated investment spending.

The fall in Pemex's oil production can be attributed to the maturation and decline of the Cantarell field, Pemex said in an e-mailed statement. Cantarell was one of the world's largest oil discoveries when found in the Gulf of Mexico in the 1970s.

Reform promises

The most ambitious of the promises included in the oil industry reforms are already at risk. When the law was signed in December 2013, President Enrique Pena Nieto vowed it'd lead to thousands of jobs, increased output and a stronger, more efficient Pemex. Instead, Pemex has reduced its staff by almost 30,000, and local service companies that counted the oil monopoly as its only client were forced to freeze activities or shut down because of delayed payments and cut contracts. One of the energy overhaul...