The drag of historically high energy costs on Mexico’s economy is in the process of being addressed.
Mexican energy privatization arrived via the energy sector reforms of 2013, but only recently has begun to be implemented. Prospects for success are positive, as companies around the world bid for oil and gas field exploration rights on Mexican territory, both on and offshore.
Energy Reform in Mexico
For many years, the growth of the Mexican economy was burdened by excessively high energy prices. This state of affairs developed over the years, as a result of the across the board nationalization of the country’s energy industry in 1938 by then president, Lázaro Cárdenas. In fact, in recent years, Mexican manufacturing industry firms have paid nearly fifty percent more on average for electricity than its US manufacturing counterparts. In 1938, Petroleos Mexicanos (PEMEX) assumed full control of all operations, banning private foreign companies from entering into contracts with the Mexican government oil monopoly for oil and gas exploration and drilling.
In 2013, the aforementioned status quo changed thanks to sweeping reforms implemented by incoming president Pena Nieto, and his generally business friendly administration. The reform allowed for Mexico’s oil and electricity monopolies, Pemex and CFE, to become “productive enterprises,” opening the door for private companies around the world to bid for licenses and contracts to explore for, and to produce, oil and gas.
Bidding begins under the Mexican energy privatization regime
Bidding for offshore gas and oil fields began early this year. The latest round opening onshore sites has attracted the attention of potential investors from around the world. The National Hydrocarbons Commission of Mexico has recently approved the auction of 26 land-based sites in five Mexican states located in both southern and northern Mexico. Estimates place the potential daily yield of these 26 sites at 35,000 barrels of oil and 225 million cubic feet of gas.
These 26 fields are the third set of sites to be auctioned under the newly reformed Mexican energy privatization structure, and the first onshore projects being offered by the government. The fourth auction is already scheduled for this July. It will consist of both offshore and shallow-water projects.
Industry’s interest has been awakened
UK-based MX Oil plc, an oil and gas investment company, has invested greatly in this newly opened market and is named as one of 16 interested parties in Phase 3 of the auctions. Reflecting on their plans for the company, particularly as regards to newly available Mexican opportunity, the company’s Chief Executive Officer, Stefan Olivier, made the following optimistic statement:
“This is a highly exciting period for MX Oil. Not only is excellent progress being made in Mexico as we look to deliver on our objective to secure potentially transformative assets in the vast reopening Mexican energy sector, but also with regards to our due diligence on a near term, cash generative investment opportunity outside of the Americas… which would provide MX Oil with a strong platform from which to build a leading Mexican focused oil and gas company, and in the process generate significant value for our shareholders.”
It is estimated that this round of auctions will bring in $620 million in fresh investments to move the Mexican energy privatization process along. This is according to the nation’s energy minister, Pedro Joaquin Coldwell, who is the official that identified the onshore sites to be auctioned in the states of Nuevo Leon, Tamaulipas, Veracruz, Tabasco, and Chiapas.
Companies and individuals that are interested in getting in on the “ground floor” of Mexican energy privatization can tap into the expertise to be found in the Tecma Group of Companies.