Former PEMEX CEO: Ball Rolling on Mexican Energy Reform
While PEMEX got 100 percent of the 2P reserve resources they asked for, they only received 67 percent of the prospective resources they requested, meaning that significant investment opportunities remain, said Reyes-Heroles. First mature fields, then extra-heavy oil, then onshore plays and the Chicontepec field, and then finally deepwater acreage will be assigned.
“The Mexican government is moving faster than its own timetable to the surprise of all of us,” said Reyes-Heroles.
Jorge Castilla, partner with Deloitte Consulting Mexico LLP, is seeing two trends among companies interested in energy investment in Mexico: those companies that already have a presence and want things to move quickly, and other companies just now showing up in Mexico who think things are moving too fast.
Caveats of Mexico Energy Reform
Mexico’s energy reform does present a number of caveats, said Reyes-Heroles. The biggest caveat is that the reform keeps PEMEX as part of Mexico’s budget, and will face restrictions on spending from the ministries of the treasury and finance. Another major caveat is that, unlike oil funds seen in other countries, Mexico’s oil fund is, at end of day, a mechanism for distributing revenues among contractors and government, not inducing and the custody of real long-term savings so Mexico can use this oil rent as part of its savings and to funnel into new assets. Regulations of the transport and storage of fuel oils also are needed to account for private investment in this underfunded area.
The amount of taxes and duties paid by PEMEX also will need to be reduced for it to successfully operate in the future, which implies raising revenues from new players and from other sectors, said Reyes-Heroles. Mexico will need to strengthen its regulatory bodies, and improve security in Mexico to ensure the nation achieves its economic goals. On average, Mexico has had 920 homicides a year across all states; some states have recorded averages higher than the national average. Corporate governance, auditing and managerial capabilities also will need to be strengthened.
Mexico’s energy sector also faces a number of challenges in terms of water availability. The tension between food, energy and water requirements and the rising middle class and their demand also is creating business continuity issues for industries such as oil and gas. According to the CDP, 68 percent of the companies surveyed identified water as a business risk at this time.
Mexico’s reform represents a complex, ambitious process not seen anywhere worldwide, and the amount of investment and development required in pipeline infrastructure and deepwater will take time. Mexico’s government will have to learn by moving forward, said Reyes-Heroles.
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