Will The Promise of Mexican Energy Reform Be Realized?

But to get there, "You need a regulator that works, contracts that are rock solid, legal certainty and an open oil and gas sector," Wood said.

"However, a partial reform will be the most likely scenario to occur," Wood believes, noting that Mexicans are not ready to discuss completely opening up Mexico's oil and gas sector to private investment.

To reform Mexico's Constitution to allow for private investment and joint ventures with PEMEX, two-thirds majority votes are needed in both of Mexico's congressional houses. The PRI holds slightly less than 50 percent interest in both houses, and needs the cooperation of the other two parties to achieve energy reform. PAN will likely seek to get whatever it can out of agreeing to cooperate.

Mexico's shale resources are attractive due to their oil and natural gas liquids, but a significant increase in production is not possible without opening the sector up to investment – or with global standards of compensation – a move that is unlikely to happen at this time, Wood noted.

International oilfield service companies such as Schlumberger Ltd. and Petrofac Ltd. have been involved in Mexico – with Schlumberger active in Mexico since it relocated to the United States in 1940 – where they are paid on a fee-per barrel basis. However, the investment vehicle offshore by PEMEX for the upstream sector since 2003 has failed to attracted major investment by oil and gas operators.

"Mexico must find a way to make the Mexican contract work on the terms of the U.S. Securities and Exchange Commission and provide the bounce that companies see in stock prices when a big discovery is made," Baker commented.

Reform could take place in two areas: public oversight and governance and commercial operations. However, the Mexican government is unlikely to invest the political capital needed to invest political capital to re-establish the legal figure of a private mineral interest, which is needed to generate large scale investment in its deepwater and shale, said George Baker, managing principal of Baker & Associates, Energy Consultants and publish of Mexico Energy Intelligence newsletter, in an interview with Rigzone.  Baker also spoke on the Mexico panel at the Mayer Brown conference, where he and Wood offered complementary perspectives on Mexico energy reform.


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