International oil companies and foreign investors are excited by the huge step Mexico has taken to open up its energy sector to private participation.
Natural resource-rich countries in need of both capital and technology often promise to undertake this effort, but many don’t actually follow through. Mexican president Enrique Pena-Nieto has, however, stuck to his guns, said Dallas Parker, a partner in the law firm of Mayer Brown in Houston, and in early August, he signed into a law a series of new measures that will make it easier for international oil and gas exploration and production companies to come into Mexico.
“Mexico isn’t just opening the door a little bit. It’s pushing it wide open, and that’s an extremely exciting prospect for the oil and gas industry, as well as for the Mexican economy,” Parker said.
The energy reform plan is aimed at beefing up Mexico’s lagging oil and gas production. Mexico was “blessed with a number of large and very prolific shallow fields, both onshore and offshore, in the Bay of Campeche, and these worked great for 60 years of nationalization,” Parker said. However, after those fields ran out, there were no new ones to replace them, and over time, oil production has dropped significantly and continues to decline.
The current and first round of the energy reform program, Round Zero, allocates a number of prime oil and gas fields to Mexico’s state-owned oil company PEMEX, which has already made it clear that it intends to joint venture with international oil and gas companies to develop those, Parker said.
The Mexican government’s commitment to energy reform is already having positive repercussions on the economy. The value of the Mexican peso has increased and for investors like Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, the reform program also promises to open up many new investment opportunities in a range of different sectors.
“I think this will move the needle for growth for Mexico as a whole, and will open up the consumer discretionary sector, the industrials sector and other areas that can benefit from rapid growth, including the financial sector, which is another area that Mexico is trying to open up for more foreign investment.” Jacobsen said. “So from a portfolio perspective, energy reform means that Mexico becomes more interesting.” One major positive change Jacobsen expects to see is the increased competitiveness of Mexican manufacturing.