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Page added on May 30, 2014

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Mexican Energy Reform Seeks to Reverse Decline in Oil Production

Public Policy

graph of Mexico total liquids production, as explained in the article text

Source: U.S. Energy Information Administration

In late 2013, Mexico’s congress approved historic legislation that altered the 1938 ban on private sector participation in the Mexican energy sector. These reforms, that end the 75-year monopoly of Petroleos Mexicanos (Pemex) and allow for greater foreign investment, are the first to include constitutional change, and promise to address many of the challenges that have resulted in a decade-long decline in Mexico’s oil production.

Last year, Mexico produced 2.90 million barrels per day (bbl/d) of total liquids, continuing the decline from its peak of 3.85 million bbl/d in 2004. Crude oil is the most significant component of Mexico’s liquid fuels production, accounting for at least 85% of production in the past two decades. Preliminary estimates indicate April 2014 production of crude oil was about 2.5 million bbl/d, the lowest monthly average since 1995.

The new reforms include the following:

  • Create four oil and gas exploration and production contract models, including service contracts, production-sharing, profit-sharing, and licenses.
  • Give Pemex first refusal on developing Mexican resources before private companies begin bidding rounds (round zero), in which Pemex can provide financial and technical plans to develop the resources within three years.
  • Give regulatory authority over the oil and gas sectors to the Energy Regulatory Commission, the Secretary of Energy, and the National Hydrocarbon Commission, and create the new National Agency of Industrial Safety and Environmental Protection.
  • Keep Pemex as state-owned but with more administrative and budgetary autonomy, and allow the company to compete for bids with other firms on new projects.
  • Establish the Mexican Petroleum Fund to manage contract payments and oil revenue.

Before the reforms can take effect, Mexico’s legislature must finalize the secondary laws detailing the fiscal regime, including the contract terms for the exploration and production models and local content requirements. It is expected that Mexico will finalize the secondary legislation by early August.

Unlike the contract terms and local content requirements, which require legislative action to implement, Pemex is already moving forward with its proposal to retain oil and gas assets in the deepwater oil fields in the Perdido Fold Belt and offshore gas fields in Lakach. These proposals have been submitted to the energy ministry. A final decision will be announced in September.

EIA



4 Comments on "Mexican Energy Reform Seeks to Reverse Decline in Oil Production"

  1. rockman on Fri, 30th May 2014 10:17 am 

    The one significant factor that has been holding back investments by the big public companies is the timing of the title transfer of the oil. Previously a partner in any oil production wasn’t issued title (essentially ownership) until it came out of the wellhead. A company might be entitled to $500 million of proved reserves in the ground but until they receive title they can’t book it as an asset according to SEC regs. While some pubcos might have been willing to accept PEMEX as operator but wouldn’t find it acceptable to wait years to get book credit for their assets. That could typically kill the possibility of participation.

    I still haven’t seen where this Mexican LAW has been changed. It might not be a as easy for México to change the protocol if they are using those unproduced but proven reserves as collateral in their international borrowing activities.

  2. Dave Thompson on Fri, 30th May 2014 2:17 pm 

    Not reading the article, but let me guess, privatization will solve all of Mexico’s energy woes, according to the puppet masters.

  3. Juan Pueblo on Fri, 30th May 2014 4:14 pm 

    I doubt the decline in production will be reversed significantly or for long.

  4. wildbourgman on Fri, 30th May 2014 9:39 pm 

    I think it all depends on if companies can replicate what has happened in America if the oil is there. With less bureaucracy and overhead some smaller players can go in there and do things that even the Majors are too big to do.

    Energy 21 in the GOM is a good example of that offshore. Thousands of good ole boys in Texas, Oklahoma, Mississippi and Louisiana, ETC can run pump jacks getting only 1 to 5 bbls a day and be very happy. It all adds up.

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