Mexico May Allow Investment in Their Oil Industry

Mexican President Enrique Pena Nieto would like to change the Mexican constitution in order to allow private companies to invest it its oil industry. The ban on private investment has been in place since 1938 following worker protests against foreign owned oil companies when the then President, Lazaro Cárdenas, formed the state owned company Pemex by expropriating fields from US and British companies. Since then all stages of the energy chain from production, refining and distribution are the legal property of the people.

The forming of Pemex, a state oil monopoly, is a source of great pride to the Mexican people and they celebrate this on the 18th March every year and the company provides one third of government revenues. The downside is that this has led to years of under investment in the company and output has fallen by 25% over the past ten years. Mexico’s oil fields are drying up and they lack the equipment to explore for new reserves in deep water or to extract shale gas. Pemex’s oil pipelines are old and insufficient and are often drilled into by fuel thieves. A lot oil is is transported in tanker trucks which is a lot more expensive than using an oil pipe.

Mexico has to change it’s approach or risk becoming a net energy importer a few years down the line. They already allow private contractors to operate drills and wells, provide supplies and maintenance but these contracts are not attractive to investors. The President’s plan is to invite companies such as Exxon Mobil and Royal Dutch Shell to sign profit sharing contracts with Pemex where they could explore and extract oil and could also apply for permits for refining and transportation. These companies would have the equipment and expertise. However, these companies would normally have production sharing contracts where they can book reserves.

President Enrique Pena Nieto may well have the political clout to have the constitution changed but it remains to be seen if profit sharing rather than production sharing contracts will secure the right investors.

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Sources for this article were the FT and Latino Fox News