Mexico Senate approves energy reform bill

President Enrique Pena Nieto’s economic reform agenda received a boost as Mexico’s senate gave general approval to a key bill to regulate the opening of the oil and gas industries to private investment. The Senate voted 90-28 to approve the general outline of the hydrocarbons law, which details the rules for private contracts and fines, but lawmakers reserved dozens of articles for further debate before a final vote.

The bill fleshes out a historic overhaul of the state-run energy sector approved late last year and it will pass to the lower house from the senate. The Senators are set to vote on three more energy bills, including one that opens up the electricity market to private companies.

The reform is the fulcrum of Pena Nieto’s plan to boost growth in Mexico’s economy, which has lagged behind more dynamic emerging markets.

Following a decade of falling oil and gas output, Pena Nieto pushed through a reform in December 2013 to end state oil giant Pemex’s 75-year monopoly and allow for production and exploration by private companies.

Pemex must shape up

Since 1938, Pemex, the country national oil company 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 and equal level of competition with other companies.  

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

A boom waiting to happen

The Mexican energy reform would most likely lead to yet another boom in oil and gas production in the country 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 recently said that “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