Mexico’s New Oil Bill Could Attract $20 Billion a Year in Foreign Investment

Pemex’s monopoly over Mexico’s oil industry will finally come to an end after 75 years, following a two-thirds majority win (353-134) in a vote yesterday, in the lower house of Congress. The decision will create the most significant economic reform since the North American Free Trade Agreement, and potentially generate as much as $20 billion a year in additional foreign investment.

The energy reform will change national legislation, allowing foreign companies such as Exxon Mobil and Chevron, to begin operating in the largest explored crude oil region outside of the Arctic Circle. According to Bloomberg, with sufficient investment Mexico could soon become one of the top five crude exporting countries in the world.

Carlos Capistran, the chief Mexican economist at the Bank of America Corp., said that “the reform will energize Mexico’s economy.”

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By offering production sharing contracts, which allow oil companies to own the oil they pump out of the ground, and let them log their shares in Mexico’s crude oil reserves on their books for accounting purposes, Mexico could attract massive foreign investment. JPMorgan Chase has predicted that annual foreign investment could increase by $15 billion, and economic growth could jump by half a percentage point. Capistran claimed that the reform could even attract an additional $20 billion.

Tony Garza, former US ambassador to Mexico under George W. Bush, explained that “it’s an extraordinary moment. There’s potential to attract additional investment into shale and ultra-deep waters so that those resources can be exploited in a way that’s ultimately good for the country.”

Eloy Cantu, a lawmaker for the ruling Partido Revolucionario Institucional (PRI) political party, said that the reform “will increase the availability of energy for Mexicans, at more affordable prices, and increase oil and natural gas production,” generating “greater economic growth that will lead to job creation.”

The US Energy Information Administration claims that Mexico is the ninth largest oil producer in the world, and accounts for the largest region of unexplored oil fields outside of the Arctic Circle, yet due to a lack of finance and expertise Pemex has experienced a decline in output over the last eight years. it is thought that the new reform will allow production to increase by as much as 4 million barrels a day by 2025.

By. Charles Kennedy of Oilprice.com