Private Ownership Key to Birth, Investment in Mexico's O&G Industry

The concept of private oil mineral interest allowed for the establishment and growth of Mexico's oil and gas industry, an energy industry consultant told Rigzone in a recent interview.  

The re-introduction of private mineral interest ownership is needed to attract major investment by international upstream oil and gas companies, said George Baker, managing principal of Baker & Associates, Energy Consultants and publisher of Mexico Energy Intelligence newsletter, in an interview with Rigzone. 

Baker spoke on the Mexico panel at the 8th Annual Mayer Brown energy conference in Houston earlier this month.

Bringing Mexico's state energy monopoly Petroleos Mexicanos (PEMEX) out of the backwater is especially critical as companies such as Ecopetrol move forward with exploration in the deepwater Gulf of Mexico.

Mexico's 1884 mining code opened up investment by British and U.S.-based oil and gas companies in Mexico in the upstream and downstream oil and gas sectors. From 1884 to 1917, Mexico was an on legal par with Texas, and this incentive created Mexico's oil and gas industry, Baker told attendees at the Mayer Brown conference. By 1920, Mexico was the world's largest oil exporter after the United States.  

The Mexican Revolution of 1910 would shift the nation's attitude towards foreign investment, eventually resulting in changes to Mexico's constitution regarding energy. In 1917, the constitution was amended with Article 27, which gave the state ownership of subsurface minerals, and that private exploitation could only be carried out through concessions. Private investment by foreign upstream operators was still allowed provided that they were actively exploring the acreage they held.

The Calles-Morrow agreement of 1928 reaffirmed the rights of oil companies to continue working in areas where they had worked before 1917. However, a national strike set off over oil and gas wages paid to Mexican workers, which were half those of other employees working in similar jobs, resentment of foreign oil companies by Mexican workers, and declining oil production in Mexico and declining oil revenues for the Mexican government, led to President Lazaro Cardenas in 1938 to expropriate assets owned by nearly all foreign oil companies operating in Mexico. He also created PEMEX, which would hold a monopoly over the Mexican oil industry, and barred oil and gas companies from operating in Mexico. 

Meanwhile, the British government broke off diplomatic relations with Mexico, as a protest to the expropriation.


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