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Mexico Officially Opens State-Owned Oil & Gas Industry to Outside Investment for the First Time in More Than 75 Years

23 July, 2014

In a historic move that promises to change the landscape of North America’s energy sector,the Mexican senate has approved the final piece of legislation needed to implement historic constitutional reforms that will open the nation’s oil and gas industry to outside investment.

In a landslide vote of 85-26 this Monday,lawmakers passed the last of the necessary laws to officially end the monopoly that Pemex,Mexico’s state-owned oil company,has held over the nation’s energy sector for more than 75 years. The change will allow foreign investment and outside exploration of Mexico’s energy resources,in a move that President Enrique Peña Nieto calls an example of the country’s “political civility and maturity.”

The Future

So what does this change mean for the rest of the world,and particularly for North America? It could ultimately mean a new level of energy independence,and it will definitely mean a new array of attractive investment opportunities worldwide. According to the Financial Times,tenders are expected to be announced this year that will total more than $2.8 billion for a variety of new infrastructure ventures,including two new combined cycle power plants,as well as natural gas and electricity projects.

“Mexico’s government and legislators appear to have taken to heart the need for Mexico to provide an attractive enough legal framework to draw investment,” writes the Financial Times.

The new laws will reportedly allow foreign companies to claim around 75 percent of the share on non-deep water oil projects,a number of which are already scheduled to begin in 2015. The changes are expected to increase Mexico’s crude-oil production to around 3.5 million barrels a day over the next decade,compared with just 2.5 million barrels today. In addition,outside companies will now be permitted to book reserves as expected income,which is already leading to an investment push that analysts expect will soon attract upwards of $20 billion each year in foreign direct investment dollars.

Investment Opportunities

According to Bloomberg,foreign investors worldwide are snatching up holdings of Mexico’s peso-dominated government bonds,boosting the numbers to a record high in response to the new oil legislation. 

“Foreign investors see the long-term story,” shared Alejandro Urbina,a money manager at Silva Capital Management,in an interview with Bloomberg. “The process is moving forward. It didn’t stop.”

In fact,international investors have bought around 80 percent of the fixed-rate bonds sold by Mexico that will mature within the next 5-10 years,and they’ve scooped up around 84 percent of the bonds that are due in 20 years or more. In addition,the new laws are expected to add at least 1 percentage point to Mexico’s total gross domestic national product by 2018.

Coming Boom

Considering all of this,it’s no surprise that Mexico’s energy reform is expected to lead to another boom in oil and gas production,as well as investment. In fact,both Chevron and Conoco-Phillips are already rumored to be ready to begin work in the country as soon as the final small details are hammered out.

“Ali Moshiri,Chevron’s Houston-based head of exploration and production for Latin America and Africa,said at an event in Mexico city recently that ‘there’s tremendous opportunity’ in Mexico,” writes Business Daily. “Mexico’s energy reform provides a range of attractive investment possibilities for international oil companies in Latin America’s second-biggest economy.”

Final approval of the remaining details in one section of the bill still remain to be passed,but the legislation is expected to receive final ratification from the lower house without issue by early next month. And then? Expect to see Mexico begin to move with lightening speed into the future of bumper investment and more affordable energy.

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