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Mexico Oil Reforms Open New Markets & Prompt Lucrative New Deals

02 September, 2014

For the first time in more than 70 years,Mexico’s energy sector is allowing private and foreign firms to sign production and profit sharing deals in the oil, gas and electricity industries. Previously managed solely by Pemex, Mexico’s state-owned oil and gas giant, the change is quickly opening up a whole new realm of possibilities that could ultimately lead to a new era of energy independence for North America.

In addition, this historic move is already creating a wealth of new opportunities for investors and corporations worldwide, including the creation of new markets for local businesses in the U.S.,a slew of lucrative energy deals with South Korea and other nations worldwide, and new investment opportunities in Mexico’s energy sector.

Investment Options

More than just energy-specific, the reforms are actually designed to attract major corporations and new investment capital to Mexico in a much broader way. In fact, the package includes modifications to the banking system that are expected to continue expanding credit availability, make electricity more affordable, improve antitrust legislation, reduce the power of the national Teacher’s Union, broaden the tax base and break up monopolies in the nation’s telecommunication’s industry.

“This is a radical and transformational set of developments,” states Alan Purintin, a Milwaukee-based money manager with Oarsman Capital, in a recent interview with the Wisconsin-Madison Journal Sentinel.

According to the article, Purintin believes the package could drive Mexico’s already strong economy to new heights, and an improved economy would help boost the peso. This move will prompt investors to snatch up peso-dominated certificates of deposit and Mexican government bonds, but for now Oarsman’s exposure is mainly focused on energy sector stocks.

“Opening up the sector to private investment will allow fresh capital and technical expertise to come in,” states Purintin. “There’s a lot of deepwater drilling off the coast of Mexico and shale formation work in the north that Pemex hasn’t been able to do.”

South Korea Bids for Contracts

The reforms will also mean new opportunities for Korean companies, especially in the electricity generation sector, but also in the oil and gas sector. According to Mexican Ambassador to South Korea Jose Luis Bernal, South Korean power plant construction companies led by the Korea Electric Power Corporation (KEPCO) will likely land lucrative contracts totaling billions of dollars to develop Mexico’s power generation network.

Throughout the rest of August and into September, the Mexican Embassy has scheduled four preliminary seminars to give Korean energy execs the opportunity to learn about the many new business opportunities in Mexico. This comes on the heels of news that a KEPCO-led group of Korean corporations has already targeted contracts for two combined-cycle power plants near the U.S.-Mexico border.

“This year,Mexico’s national power company, CFE, will offer $2.8 billion in contracts covering a natural gas and electricity infrastructure project aimed at boosting economic growth,” writes the Korea Herald. “A seminar on the energy sector reforms will be organized in late September to better inform Korean executives and entrepreneurs on the new changes.” 

New Markets for U.S. Businesses

The reforms in Mexico are also expected to prompt several new types of business ventures for oil and gas industry corporations that are focused in the U.S.

“One is a joint venture in which companies partner with the national oil company in a non-operator capacity, primarily providing external capital,” said Steve Pruett, president and CEO of Elevation Resources, a Midland, Texas, based independent energy company, in an interview with the Midland Reporter-Telegram. “Second is a partnership developing undeveloped resources, and the third is partnerships improving production in marginal producing fields, providing capital and expertise and being assigned interest in portions of those fields.”

Bidding will begin in February to allow private firms vie for rights to explore the remaining oil fields where reserves are suspected to exist.

Topics: Industry Pemex