Mexico’s Energy Reform Critical For That Nation’s Economic Growth

HOUSTON, Texas — The prosperity of Mexico is a key issue for Texas. The Mexican oil & gas industry is a major factor in the productivity of Mexico. On April 28, the Mexico Center at the Baker Institute at Rice University offered a comprehensive program on Mexico’s Energy Reform, with 15 speakers and 300 attendees sponsored by the law firm Haynes Boone.

Mexico Center director Dr. Tony Payan noted private companies are being invited to invest in Mexican oil & gas. Mexico has changed its constitution to develop oil & gas leases for a fixed period of time in production and profit sharing contracts. These are not concessions in which investors can book oil reserves as their assets.

Dr. Ken Medlock referenced a study he completed several years ago, demonstrating Mexico’s PEMEX was one of the least efficient nationally-owned oil companies. A major reason for this inefficiency is the Mexican federal government’s habit of draining PEMEX of its assets.

PEMEX has never retained sufficient capital to replace its quality reserves. The fall in crude oil prices from $119 to the $40s and $50s has hurt the gross income of PEMEX substantially. The result has been oil production falling from over 3.4 million barrels a day in 2002 to 2.3 million barrels today. Several years ago, Dr. Medlock realized that without substantial reforms, Mexico would be an importer of crude oil in 2020.

One participant, George Baker of Energia.com, noted such reforms would be enacted slowly, so we may see Mexican oil production falling below 2 million barrels daily. Last year, Mexico imported LNG at $22 per mfc, and is also importing considerable natural gas from Texas, with plans to build additional gas pipelines.

The Mexican Senate has formed CNH, the Hydrocarbon Commission, to open Mexico’s oil & gas upstream industry to international investment. The program is to be totally transparent, with a public website, www.Ronda1@gov.mx. All directors’ meetings will be televised live.

The first step in this program was inviting several seismic companies to shoot seismic on Mexican offshore territory in the Gulf of Mexico. Contracts for the first 4 companies have been let, with 20 more companies awaiting contracts. This contract work will be paid at 13 times the normal rate for seismic analysis in Mexico. There are current and future bid programs for substantial blocs of oil and gas fields, some of which have been “proven,” but not developed due to lack of capital.

Brad Richards of Haynes Boone noted there would be great advantages to increasing the efficiency of the Mexican oil industry. It would contribute to a unified US, Canadian, and Mexican energy market. It would be the centerpiece of a program to develop the potential of North American and Latin American energy markets, which show great promise in Canada, US, Mexico, Venezuela, Colombia, Ecuador, Brazil, Argentina, and other regions. There are political and security reasons the Latin American energy markets have not achieved their full potential, but it certainly isn’t due to a lack of oil reserves.

It is essential for Mexico to attract substantial international capital to realize the vast potential of its oil and gas industries. Is Mexico willing to make the necessary reforms?

For the entire program video go to www.bakerinstitute.org, click on the entry for Mexico Center at the bottom of the page, pull down the Multimedia menu, choose Videos, and look for the Featured Video near the bottom of the page, “Mexico’s Energy Reform – Powering the Future.”

Peter C. Maffitt is a news contributor for Breitbart Texas.