You are here

Mexico passes historic energy reform to boost investment

13th December 2013

Pemex’s monopoly over Mexico’s rich deepwater and shale reserves has been broken in a landmark ruling

Approval of a radical reform of the country’s energy sector will allow foreign companies to invest and help develop shale resources
Approval of a radical reform of the country’s energy sector will allow foreign companies to invest and help develop shale resources

Mexico’s legislators on Thursday passed the most sweeping energy reform since the sector was nationalised in 1938 to encourage private companies to invest and share the burden of developing new oil and gas resources, especially deep water and shale reserves.

 

Mexico has huge oil reserves but Pemex has struggled to exploit them because of a lack of financial resources. Crude output peaked at 3.4 million barrels per day in 2004 but has fallen by about a quarter since.

 

Reserves were almost 14 billion barrels of oil equivalent at the start of 2013, according to the US Energy Information Administration. Several of these lie in deepwater reservoirs.

 

The reform formally ends Pemex's monopoly in oil and gas and will allow companies to be paid in barrels of oil, unlike current contracts in which they are paid a fee and some costs, Reuters reports citing industry experts.

 

Investors will need to study details of investment conditions, on royalties, taxes and national content requirements, but the reform is seen as opening a new era.

 

“Given Mexico's market has been mostly closed to investment for so long, this is really a transformative change. The lion's share of the excitement is on the upstream side," Carlos Sole, energy specialist with US law firm Baker Botts, told Reuters.

 

William Colton, Exxon Mobil Corp vice president of corporate strategic planning, said the reform would be good for Mexico and investors.

 

"We believe that would be very good for the people of Mexico... We think that would be a win-win if ever there was one," he said before final approval of the reform on a webcast from Washington cited by Reuters.