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Mexico Energy Reforms to Increase Annual FDI by $10 Billion

24 January, 2014

The energy overhaul bill that passed into law last December is expected to attract upwards of $10 billion in additional annual foreign direct investment dollars (FDI) to Mexico, according to Energy Secretary Pedro Joaquin Coldwell. This means there will be a slew of new opportunities for international investors to get in on the economic boom happening in Mexico right now, since the reforms will also impact a number of other sectors.

“This is a watershed moment for Mexico,” stated Standard & Poor’s analyst Lisa Shineller. “Tapping into Mexico’s vast oil potential should energize investment and growth throughout the economy.”

The historic reforms break a 75-year monopoly by Mexico’s state-run energy giant Petroleos Mexicanos (PEMEX). The government organization currently lacks the skills and resources to exploit the nation’s massive onshore and offshore oil and gas deposits, but the new legislation will allow international corporations such as BP Corp. and ExxonMobil to participate in boosting its petroleum output. Analysts expect the energy reforms to expand Mexico’s economy to 3.9 percent in 2014 and predict that future GDP growth will top 4-5 percent.

The overhaul is also expected to attract upwards of $50 billion in new investment dollars over the next five years and this funding will be used to build gas pipelines, along with more than 24 thermoelectric plants, among other projects. The final stages of implementing the new energy legislation should be completed during Mexico’s next government session, which will run from Feb. 1 through April 20.

So how can investors get in now and take advantage of this growth before the market moves? NASDAQ reports that the world’s largest oil companies are a pretty safe bet. In addition to BP and ExxonMobile,Italy’s largest oil company ENI S.A. has announced it will open a new office in Mexico City, while Candadian-based Gran Tierra Energy,Texas-based EOG Resources and Andarko Petroleum are all on NASDAQ’s watch list.

“Opportunities await in the offshore fields and in places where you’d least expect it,” writes NADAQ. “Foreign companies will be bidding on licenses and contracts directly, with proceeds to be deposited into a newly created sovereign fund which will then manage the oil revenue.”

Although it is still to early to tell exactly which foreign oil companies plan to invest in Mexico, it’s safe to assume that most of the world’s largest corporations will be interested. With Mexico’s proven ownership of massive reserves, there is little risk and much to gain for all involved.

Topics: Economy Industry