On January 1, historic reforms to Mexico’s energy sector took effect following constitutional changes approved by the congress in December 2013. The reforms put forth measures to open Petróleos Mexicanos (Pemex) to investment for the first time in nearly 100 years. Three articles modified in the constitution will allow for foreign private investment into Pemex for extraction and refinement of oil.
However, many gray areas remain and secondary laws still must be approved to further clarify the details of the changes such as profit and production-sharing contracts, licenses, foreign investment terms and regulator responsibilities. These are pivotal laws that will either incentivize private investment and elevate the long stagnant Mexican energy sector or, if mismanaged and bogged down in bureaucracy, will turn investors to projects with less uncertainties and continue the decline in oil production.
Mexico produced 2.5 million barrels per day in 2012, down from 3.4 million during its height in 2004. Government estimates show production capacity to be 4 million. The under utilization of resources comes from a lack of technology to reach deep reserves. This is where the opportunity lies for foreign partners. Some of the energy behemoths thought to be lining up for the partnerships include Spanish oil company Repsol, Chevron and China National Petroleum Corporation.
Demand for both technological equipment and technical expertise grow sharply if the tough reforms are indeed pushed through by President Pena Nieto and the congress.