Mexico's Energy Reform to Bring Significant Benefits, Challenges

“We expect the first meaningful boost from outside investment in the second half of 2015 with star steps in 2016, 2017 and 2018. This spending increase would rival the current massive investment cycle underway in the Middle East and add legs to the oil-service cycle,” Barclays noted.

Major oil companies that could be immediate contenders in Mexico’s deepwater following reform include Exxon Mobil Corp., BP plc, Chevron Corp., Hess Corp., and Anadarko Petroleum Corp. Oilfield service companies that could benefit from deepwater activity include Diamond Offshore Drilling Inc., FMC Technologies, Seadrill Ltd., Transocean Ltd., Baker Hughes Inc., Schlumberger Ltd. and National Oilwell Varco.

EOG Resources Inc., ConocoPhillips and Chesapeake Energy Corp. are among the companies that could lead Mexico’s shale gas transformation. According to BBVA Compass, the portion of the Eagle Ford Shale formation that extends into Mexico is part of the Burgos Basin, where technically recoverable shale gas is currently projected at 343 trillion cubic feet, two thirds of Mexico’s technically recoverable shale gas resources. The Sabinas, Tampico and Veracruz basins account for most of the remaining reserves.

Mexico has significant shale potential, but shale exploration might take longer as time is needed to establish the supply chain in Mexico. Wood Mackenzie analysts noted that shale production would start playing a more significant role in Mexico’s production by the end of this decade.

Nava predicts the reforms will pump around $1.2 trillion into the Texas-Northern Mexico region in the next decade. In the United States, Mexico’s reforms will create faster growth, helping to narrow the socio-economic disparities between Texas’ border cities and metro areas like Houston, Dallas and Austin.

“If these border towns effectively seize the opportunity,” Nava said, the U.S.-Mexico border “could see one of the most dramatic transformations in its history.”

Spillover to Mexican households in the form of lower energy prices and more jobs will greatly benefit both Mexico and the United States. More jobs in Mexico will also translate into higher demand for U.S. goods and services and further reduce incentives to immigrate to the United States.


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