Mexican reform opens energy sector to investment, competition

Posted on 08 January 2014

Mexico’s energy reform bill formally became a law on 21 December. PEMEX has controlled 100% of Mexico’s oil/gas market, allowing only compensation to private-sector companies on a set fee per unit of work or unit of production. The reform is expected to bring about the most significant overhaul of the sector since 1938, as it opens Mexico’s energy market to investment and competition.

“While PEMEX has been operating a monopoly, it has not had the technology to fully develop Mexico’s territory, especially taking into account different resource prospects,” Jose Valera, partner of law firm Mayer Brown, told Drilling Contractor. “Mexico has resources in deepwater and shallow-water areas of Mexico, and onshore they have hydrocarbons in both unconventional and conventional reservoirs.”

PEMEX estimates the Mexican Gulf of Mexico could hold as much as 27 billion bbls of oil of potential resources. In the past five years, PEMEX’s monthly petroleum statistics have shown domestic crude oil production declining from 3.8 million bbls/day in 2008 to 2.5 million bbls/day in 2012.

“One of the objectives of the reform is to permit the private sector to explore and produce more, especially from areas PEMEX has historically not had the opportunity to give attention to,” Mr Valera explained. “This means that the very purpose of the reform is for more drilling.”

According to Mayer Brown, the reform will:

  • Open the upstream oil and gas sector to private investment and competition by ending the PEMEX monopoly and introducing a new contractual framework in which private parties can be awarded licenses or contracts either directly by the government or in association with PEMEX;
  • Give PEMEX the opportunity to retain some acreage that it already has under production or that it is actively exploring in a “Round Zero”;
  • Allow private parties to book reserves;
  • Introduce corporate governance changes and more financial independence to PEMEX and state-owned power utility (CFE); and
  • Create the Mexico Oil Fund, a sovereign natural resources fund, to administer, distribute and invest the country’s oil revenues.

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