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Mexican energy reform and oil production

Hydrocarbon Engineering,

Late last year, Mexico’s congress approved historic legislation that altered the 1938 ban on private sector participation in the Mexican energy sector. These reforms, that end the 75 year monopoly of Pemex and allows for greater foreign investment, are the first to include constitutional change, and promise to address many of the challenges that have resulted in a decade long decline in Mexico’s oil production.

Mexico produced 2.90 million bpd of total liquids last year, continuing the decline from its peak of 3.85 million bbl in 2004. Crude oil is the most significant of Mexico’s liquid fuels production, accounting for at least 85% of production in the past 20 years. Preliminary estimates indicate April 2014 production of crude oil was approximately 2.5 million bpd, the lowest monthly average since 1995.

Key reform points

  • Create four oil and gas exploration and production contract models, including service contracts, production sharing, profit sharing and licenses.
  • Give Pemex first refusal on developing Mexican resources before private companies begin bidding rounds, in which Pemex can provide financial and technical plans to develop the resources within three years.
  • Give regulatory authority over the oil and gas sectors to the Energy Regulatory Commission, the Secretary of Energy, and the National Hydrocarbon Commission, and create the new National Agency of Industrial Safety and Environmental Protection.
  • Keep Pemex as state owned but with more administrative and budgetary autonomy, and allow the company to compensate for bids with other firms on new projects.
  • Establish the Mexican Petroleum Fund to manage contract payments and oil revenue.

Next steps

However, before the above can take effect, Mexico’s legislature must finalise the secondary laws detailing the fiscal regime, including the contract terms for the exploration and production models and local content requirements. It is expected that Mexico will finalise the secondary legislation by the beginning of August.

Unlike the contract terms and local content requirements, which require legislative action to implement, Pemex is already moving forward with its proposal to retain oil and gas assets in the deepwater oilfields in the Perdido Fold Belt and offshore gas fields in Lakach. These proposals have been submitted to the energy ministry. A final decision is expected in September.

Adapted from press release by Claira Lloyd

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