Mexico's energy reform: challenges and opportunities

It has been less than a year since Mexico’s landmark energy reform, but the effects of this major restructuring on one of the world’s largest economies are already being observed.  Gustavo Hernandez Garcia, acting director of E&P, Pemex, discussed how the company is adapting to these reforms at the topical industry breakfast, “Mexico Energy Reform: Challenges and Opportunities” presented at the 2014 Offshore Technology Conference in Houston. 

“The goal of this energy reform is to make energy cheaper, more sufficient, and more available,” Garcia said.  Perhaps the most pertinent result of the nationwide energy reform is the introduction of competition.  Since 1938, Pemex was Mexico’s only operator.  Following the passage of the reform, Pemex must now compete and partner for acreage in an open market environment for the first time.  As a result, Pemex’s financial autonomy relies on a new regime of debt, capitalization, and financial flexibility. 

The reform is also providing a special acquisition and compensation scheme to Pemex to ensure and equal level of competition with other companies.  This new format creates obvious challenges for Pemex, but Garcia reassured the audience that “Pemex aims to transform itself to be able to compete and maintain a leading position in a competitive landscape.” 

Garcia also made it clear that “although there will be challenges and obstacles throughout this transformation, there is also opportunity.” Pemex is working on various fronts to capitalize on the opportunities associated with the reform, such as deals evolving from procurement of goods and services driven by Pemex to petroleum contracts, he said.

Unconventionals will play a significant role in providing joint-venture opportunities for Mexico’s newfound private sector.  This sector, which is largely defined by smaller companies with a different structure than state-owned companies, will find increased opportunities to partner with Pemex in developing Mexican resources.  Garcia emphasized the importance of these partnerships, reinforcing the idea that they “are an essential element to Pemex’s post-reform strategy.”  

Pemex currently has E&P partners in both deepwater and unconventional resources, but not in shallow water, conventional onshore gas, or conventional onshore oil. 

Secondary legislation will most likely cause significant changes to a number of laws while still enacting new ones relevant to Mexico’s oil and gas industry.  The legislation package containing these changes was presented to Congress on 30 April and is currently awaiting approval.

Garcia stated that Pemex’s next steps are to guarantee an adequate transfer of technical data to CNH (Comision Nacional de Hidrocarburos), prepare information and data for the establishment of strategic partnerships, and to identify and comply with the mandatory actions derived from the secondary legislation. 

Image: Gustavo Hernandez-Garcia/OTC

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