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Mexican Energy Reform

Opportunity knocks


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Mexico has large and potentially accessible oil and gas resources and is also known for one of the largest, yet currently untapped reserves. Petroleos Mexicanos (Pemex), Mexico’s state owned energy company, estimates that there are 29 billion barrels of oil equivalent (BBOE) in conventional and deepwater and another 60 BBOE in shale. However, Mexico’s oil production has declined 25 percent to 2.5 million barrels per day (bbl/d) from a peak of 3.3 million bbl/d in 2004. Mexican oil exports have dwindled and the country has also become a significant importer of natural gas and petroleum products. In the recent past, the Mexican government has attempted incremental reforms to its energy market. For example, in 2008, Pemex gained more flexibility in its procurement process and allowed incentives for upstream service contracts based on contractor performance. Even with these modest changes, overall oil production continued to decline.

Pemex has the ability to pick areas to explore and produce during Round Zero. Private domestic and international companies can collaborate with it during that process. Pemex Chief Executive, Emilio Lozoya, was quoted in the Wall Street Journal as saying, “As of the first or second quarter of next year, we’ll be ready to listen to investment proposals,” adding that the first barrel of oil coming from a partnership with a private firm could be out of the ground as soon as late 2014 or early 2015.7 The areas with the greatest potential are technologically challenging and will require Pemex, who has not invested sufficiently in new technology in the past, to partner with more innovative companies.8 Currently, many elements of the reform are uncertain and there are numerous regulations that need to be drafted which will take time. Nonetheless, there are numerous regulations that need to be drafted and it will take time. For instance, there are nearly 30 secondary regulations that need to be drafted from scratch. The secondary regulations are supposed to be ready by April 19, 2014 (120 days since promulgation).

Companies will need to strike a balance between being bold and prudent. Whether you are Pemex, a supermajor, an independent, an NOC or oil field service company, there are opportunities for all. You just need to understand what your competitive advantage is, find the play (and partner), plan and organize and then execute. The new Mexico should be a rewarding and interesting place to do business!

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As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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