Mexico is one of the leading oil producers in the world, and the third largest in Latin America. Roughly 32 percent of the total government revenue in 2016 came from earnings from the oil industry. It is evident that oil is important for Mexico’s overall economy and, in 2013, President Enrique Peña Nieto approved oil reforms opening up Mexico’s oil and natural gas sector to foreign private investment for the first time in 80 years. Before then, the industry was completely controlled by national oil operator Pemex and business handed out to state-run oil companies. Recently, significant interest has sparked in this industry because of the deep water lease auction that took place on 31 January 2018 and assigned 19 of the available 29 oil development contracts on offer to various companies providing great opportunities for Mexico and the companies involved.
The contracts are being offered in 3 locations on the Gulf of Mexico. Some of the companies who have earned the contracts include industry giants such as Shell, Qatar Petroleum, Spain’s Repsol and BP. An estimated 513 million barrels of crude oil are believed to be included in the 16 production-sharing contracts that were concluded on Tuesday. The auction had seen fierce competition between the major companies in gaining the deals because of the huge potential for oil development across the region. To put it into perspective, in Mexico there is a total reserve of roughly 8.483 billion barrels of crude oil equivalent.
What Are the Business Opportunities in Oil for Mexico?
The new opportunities in oil for foreign investors not only affects the buyer but also the seller. Mexico secured close to $100bn in investment this year in their most prosperous oil release to date. This means more income pumped into the Mexican economy providing new wealth opportunities as the government is expected to capture of between 64.7% and 67.2% percent of the profits generated by the contracts. This development could lead to further investment of up to 92.8 billion dollars in the next 35 years in Mexico.
Investment Opportunities to Come?
Uncertainty is looming as the elections for a new president commence on 1 July 2018 and Andres Manuel Lopez Obrador, one of the favourites in the presidential race, pledges to review existing oil and gas contracts. This is in contrast to the remaining candidates whose political views are in line with the current structural reforms throughout Mexico. Challenging this however there has been discussion that Lopez Obrador supposedly changed his mind as regards the contracts.
Regardless of this, the said legal process to reverse the oil and gas contracts is expected to extend outside the power of any single political party. With two-thirds of both chambers of congress needed to be in favour for the motion to succeed. It is also expected that there would be vast costs associated with the next administration to change these energy reforms. Peña Nieto has made it more difficult for a successor to undo the leasing progress to date and seemingly the uncertainty has not put off buyers, with the auction in January exceeding the government expectation.
Two companies that have already taken on ‘blocks’ from the auction have seen reserves triple since they took them over from Pemex, who had seen reserves of crude oil slide more than 40% due to lack of discoveries. The energy reforms allow foreign and private producers to make their own discoveries and generate their own profits.
Find Out More About LATAM Business Opportunities in 2018
If you are interested in learning more about the oil or natural gas industry in Mexico and how you could benefit from these opportunities then please contact us. At Biz Latin Hub we have a team of local and expat professionals with the knowledge and expertise of Latin American markets required to ensure your business venture is a success. If you are interested or want to know more then please contact our country manager, Alex Mahoney at [email protected] and find out how we can support you and your business with your back-office needs.
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