Another look at Mexico’s landmark energy reform

The landmark energy reform took center-stage at the just concluded 2014 Offshore Technology Conference in Houston. It has been less than a year since the landmark energy reform came into effect, but the effects of the restructuring are already being observed.

Gustavo Hernandez Garcia, acting director of E&P, Pemex, discussed how the company is adapting to these reforms at the topical industry breakfast, “Mexico Energy Reform: Challenges and Opportunities”.  According to Garcia, “the goal of this energy reform is to make energy cheaper, more sufficient, and more available.”

Since 1938, Pemex was Mexico’s only operator.  Following the passage of the reform, Pemex must now compete and partner for acreage in an open market environment for the first time.  As a result, Pemex’s financial autonomy relies on a new regime of debt, capitalization, and financial flexibility. The reform is also providing a special acquisition and compensation scheme to Pemex to ensure an equal level of competition with other companies.  This new format creates obvious challenges for Pemex, but Garcia reassured the audience that “Pemex aims to transform itself to be able to compete and maintain a leading position in a competitive landscape.”

Unconventionals will play a significant role in providing joint-venture opportunities for Mexico’s newfound private sector.  This sector, which is largely defined by smaller companies with a different structure than state-owned companies, will find increased opportunities to partner with Pemex in developing Mexican resources.  

Pemex currently has E&P partners in both deepwater and unconventional resources, but not in shallow water, conventional onshore gas, or conventional onshore oil.

However, secondary legislation which is expected to be taken up by Mexico’s Congress in a special session in June will most likely cause significant changes to a number of laws while still enacting new ones relevant to Mexico’s oil and gas industry.  The legislation package containing these changes was presented to Congress on April 30, 2014 and is currently awaiting approval.

Waiting in the wings

  If Mexico opens up its deepwater and shale resources like many anticipate, it could lead to yet another boom in oil and gas production with Chevron and Conocophillips better positioned to take advantage of the situation than other international oil companies. There are a small set of traits that put Chevron and Conocophillips ahead of other big oil players as well as American independent drillers.

Ali Moshiri, Chevron’s Houston-based head of exploration and production for Latin America and Africa said at an event in Mexico City “there’s tremendous opportunity here.” Mexico’s energy reform provides a range of attractive investment possibilities for international oil companies in Latin America’s second-biggest economy, he added.

Chevron, the third-largest deep water crude producer in the U.S. Gulf of Mexico, currently has a technology collaboration agreement with Pemex but no other commercial tie-ups with the Mexican state oil giant.

Frank Uzuegbunam