Mexico’s president seeks to open PEMEX to foreign investment

Offshore staff

MEXICO CITY – President Enrique Peña Nieto has unveiled a historic energy reform proposal that he said would allow foreign companies to invest in Mexico’s state-owned Petróleos Mexicanos (PEMEX) without ceding state ownership of the country’s petroleum resources.

The proposal would allow private companies to negotiate profit-sharing contracts with the government to drill for oil and gas. Under such a scheme, the reserves would continue to belong to the Mexican state, but investors would get a share of the profits. Private investment would be allowed in refining, oil pipelines, and petrochemical production.

Taxes and fees charged to the outside companies remain an open question, as do other details.

Observers note that the proposal appears to rule out the production-sharing mechanisms preferred by private companies, which would allow them to take a portion of the oil.

The energy proposal is arguably the most important element of a package of reforms that Peña Nieto’s government is hoping will transform Mexico into a more modern and efficient country. Production has been declining for nearly a decade, and if current trends are not reversed, the country could become a net energy importer by 2020.

PEMEX, which was long an important source of crude imports into the US, is now spending more to pump less. As Mexico’s giant Cantarell oil field in the shallow-water GoM has declined, production has dropped 25% from the peak in 2004, to just over 2.5 MMb/d of oil.

With those supplies running out, analysts say PEMEX needs the investment and expertise of foreign oil countries to help it go after deposits that are more difficult to access. Peña Nieto said the goal is to produce 3 MMb/d of oil and to double gas production. These new reserves are expected to be found in the deepwater GoM areas and onshore shale development.   

The reform is sure to be complicated by Mexico’s deeply held conviction that the people’s ownership of the country’s petroleum resources, which is enshrined in the constitution, should not be altered or adulterated. 

The proposed reform would change two articles of the Mexican Constitution, including Article 27, which states in part that “All natural resources in national territory are property of the nation.” Among other things, the proposal calls for restructuring PEMEX, making it more transparent, and introducing fiscal reforms.

The measure will need the support of opposition political parties, including the National Action Party, which has introduced its own reform proposal. That measure would theoretically open the Mexican oil and gas sector to even greater foreign investment.

08/13/2013

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