Companies Lining Up to Profit on Mexican Oil

The landmark energy reform passed last year as part of Mexican President Enrique Pena Nieto's agenda opened up Mexico's oil sector for the first time in 76 years. The state had held a monopoly over oil exploration and development, but the recent liberalization will allow private companies to begin to invest. Bloomberg News reported on the wave of companies lining up to profit off of the move. They are raising cash as fast as they can in hopes of beating out their competitors. "It seems like an opportune moment," Fox said at the Bloomberg Economic Summit in Mexico City on March 20. "Many people are already moving based on the real expectations for the secondary laws and what comes next."

For example, Alfa SAB, one of Mexico's largest petrochemicals producers, raised $1 billion in bond sales on March 20 with the goal of funding its energy business. A state-owned utility, Comision federal de Electricidad, hopes to reform its business operations in order to sell natural gas, a move that is now viable for the company under the energy form legislation. And former Mexican President Vincente Fox is raising $500 million for a fund to invest in Mexico's oil sector.

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It is not just Mexican firms lining up. International oil companies like ExxonMobil and Chevron Corporation have shown great interest as well. Bank of America has projected that the energy reform could boost foreign direct investment by $20 billion per year. Citigroup estimates that oil production could double to 5 million barrels per day, although it will take years to lift production from new fields. The energy reform has lifted the economic prospects for Mexico, with the long-term growth rate projected to climb by 1%. Moody's Investors Service also raised Mexico's credit rating to A3 as a result.

By Charles Kennedy of Oilprice.com