On Aug. 11, President Enrique Pena Nieto opened up Mexico’s state-run energy industry to private investment when he signed legislation that ends the energy monopoly held by Mexico’s national oil company, Petroleos Mexicanos (Pemex), since 1938.
The new law sets guidelines for private companies to produce oil and electricity, and also allows the government to assume pension liabilities from Pemex.
Pena Nieto said that the first private contracts could be announced in the first quarter of 2015. Pena Nieto had said that 49% of its prospective resources, or 26.6 billion bbls. of oil equivalent, were in the deepwater Gulf of Mexico. Peña Nieto wants Mexico to get at this oil.
For Mexico, the legislation is designed to stem years of declining oil output and boost economic growth. In spite of controlling the third largest proven oil reserve in Latin America, Mexican production has dropped by a quarter since 2004. Bloomberg reported that Pemex cut its 2014 production forecast to the lowest level in at least 24 years, trimming estimates to 2.44 million bbls. a day from 2.5 million.
As Max Hardberger wrote last year in our October issue, the legislation acknowledges that only foreign expertise can reverse this trend. In addition, Pena Nieto and his administration — envying the dynamic deepwater oilfield in the U.S. Gulf — recognize that Mexico will need foreign investment and expertise to extend its own oilfield to the limits of its exclusive economic zone (EEZ).
As Hardberger reported, new techniques for extracting gas from shale that have spurred predictions that the U.S. could become the world’s leading exporter of natural gas in a few years have also raised expectations for Mexican production. However, Pemex has only drilled a couple of shale-gas wells. Although Mexico has the world’s fourth-largest shale gas reserves, the country is still importing expensive liquefied natural gas. And, in a country where oil and gas production account for up to 70% of its GNP, failure to develop the far-offshore oilfield will be tantamount to leaving money under the ocean floor.
Pemex has been contracting with private parties for oilfield services for some time, including foreign companies. Schlumberger and Halliburton have contracts with Pemex, and several workboat operators, including Hornbeck Offshore Services, Tidewater and Gulfmark Offshore, have chartered vessels to Pemex for work in the Bay of Campeche.
If the new reforms work, expect these and other U.S. OSV operators to relocate more vessels to Mexico.