As the world’s 15th largest economy and 9th in crude oil production, Mexico stands in a unique position to elevate their economic status on the international market after a monumental shift in national policy Monday. Mexican President Enrique Pena Nieto signed new policies into law, opening the energy sector to private and foreign investment for the first time since 1938. This was preceded by a Congress vote in December, approving the bill 353-134, that will lead to the end of the monopoly by state-owned oil and gas company Petroleos Mexicanos, or Pemex. This new bill provides both foreign and private companies the opportunity to drill, explore, and extract resources that were previously out of their reach.
Wednesday, the allotment of oil and gas fields that Pemex will retain were announced, dubbed “Round Zero.” Subsequent bidding off of remaining current and probable future projects will follow, predicted to be settled by June 2015. Pemex was granted the rights to 83% of current sites, and a mere 21% of probable sites, which was a much lower percentage than what they were hoping for.
Recently, Mexico’s oil production has dropped to its lowest levels in nearly 25 years, primarily due to Pemex’s inability to integrate modern deep-water and shale gas extraction technologies into practice. Eduardo Medina Mora, Mexican Ambassador to the United States, was quoted in an article Tuesday stating, “We need more resources, different technologies and a much more decentralized approach…We need — you name it — geologists, petroleum engineers, welders, regulators.” It goes without saying that foreign investment via Chevron, Royal Dutch Shell, Exxon-Mobil or other big oil will help to bring all of those into fruition.
Critics however say that this step will strip Mexicans of the profits that Pemex has earned for the government since 1938 and place more hardship on common citizens. For instance, one tenet of the legislation sets aside a portion of Pemex pension liabilities to be covered by federal government, leading to higher taxes. One political analyst predicts the bailout will cost roughly $850 per taxpayer, which is more than a month’s earnings for many.
Only time will tell how these policies will truly be put into action, but they will almost assuredly have a huge effect on the Mexican economy as well as open up new opportunities in the oil and gas industry.