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Mexico Reforms Attract Billions in New Investment Dollars

25 February, 2014

There has been a flurry of interest in Mexico’s substantial oil reserves following the passing of historic reforms in late 2013, which now permit foreign and private companies to invest in the nation’s energy sector, and some of the world’s largest oil and gas companies are making moves to get in on the action.

Most recently,Mexican state-owned oil company Petroleos Mexicanos (PEMEX) and Russia’s Lukoil signed an agreement that will permit the two nations to work together on both exploration and production activities.

“The deal, which establishes that the companies will share experiences and knowledge pertaining to oil exploration and production, will enable PEMEX to bolster its operating and technological capacity,” stated PEMEX CEO Emilia Lozoya. “PEMEX expects the agreement to enable it to boost oil and gas production at mature fields.”

The recent reforms prompted Mexican Deputy Energy Minister Enrique Ochoa to predict that the nation will begin to see economic growth from the reforms throughout 2014, followed by an additional influx of at least $20 billion in foreign direct investment (FDI) dollars in 2015.

“PEMEX is in discussions with companies about potential joint ventures in deep waters in the Gulf of Mexico,” Lozoya told Bloomberg last week. “PEMEX, the third-largest oil exporter to the U.S.,expects to announce deals by the end of this year.”

Leading Bermuda-based Norwegian-owned offshore drilling company Seadrill has already landed four contracts with PEMEX, with a fifth to be processed during the second quarter of 2014. The six-year contracts reportedly have total revenue projections of more than $1.8 billion.

The reform legislation is also expected to prompt greater cooperation between PEMEX and numerous other foreign energy firms, including a variety of companies from Great Britain, as well as Exxon Mobile,Chevron,Royal Dutch Shell,Danish oil and shipping group Maersk, Brazilian petrochemical firm Braskem, Singapore’s KS Energy and Repsol SA, to name only a few of the potential contenders. In addition,PEMEX announced that it will export its first shipment of extra light Olmeca crude oil to India in late February, and also expects China to become a major market in the near future as production increases dramatically. 

“I think, in the energy sector, there are very few reforms anywhere else in the world which which are as significant as the very bold reforms that [Mexican] President Enrique Peña Nieto has introduced,” shared Britain’s Deputy Prime Minister Nick Clegg in a visit this month to Mexico City.

Despite Mexico’s restricted access in recent years to the nation’s considerable untapped oil resources,PEMEX is already the world’s fifth largest oil producer. In fact, coastal central and southern Mexico contain very productive oil fields that are packed with the same type of carbonate rocks that are found in the giant oil fields of the Middle East. In addition, there are an estimated 10 billion barrels of crude in the Chicontepec Basin, which is one of the six largest untapped oil fields in the world.

“An influx of Mexican oil would contribute to a glut that is expected to lower the price of Brent crude, the benchmark for more than half the world’s crude that has averaged $108.62 a barrel this year, to as low as $88 a barrel in 2017,” writes Bloomberg. “Based on estimates from analysts in a Bloomberg survey, five of the seven who provided 2017 forecasts said prices would be lower than this year.”

According to a separate report by Fox News, experts are also predicting that NAFTA partners Canada, the U.S. and Mexico will likely achieve energy independence from the rest of the world in the near future due to Mexico’s recent reforms, as they attract hundreds of billions in new foreign and private investment dollars in the coming decades, boosting both production and exploration. In fact, oil production in Mexico is expected to reach at least four million barrels a day by 2025, which is nearly double the most recent highpoint of 2.5 million.

Finally, the reforms have prompted Fitch Ratings analysts to predict that PEMEX will benefit long-term from the progressive new legislation, boosting Mexico’s competitiveness internationally and increasing its oil production significantly over the next few years.

Topics: Economy Investment Mexico Pemex