Exclusive rights rule extends for two decades, covering vast geographical area
In the first implementation of new national energy legislation which became effective yesterday (Peña Nieto: "No more barriers to our economic growth"), Mexico's former state oil monopoly PEMEX - now open to private capital investment and foreign technical participation - has been granted sole and exclusive rights to extract 83% of the country's proven oil resources, together with another 21% of probable petroleum assets, within a defined region.
The exclusive rights guarantees spelled out in the PEMEX legislation, which is based upon historic constitutional amendments adopted last December (Mexico's PEMEX enters the 21st century), will last for two decades, and awards the reformed and modernized energy entity more than two billion barrels of crude oil in an area covering some 90,000 square kilometers.
The areas granted to PEMEX - everything it had asked legislators for - are in shallow Gulf waters, or under tierra firme where the company has extensive experience and needs no outside assistance.
As future contracts are negotiated with the participation of foreign hydrocarbon extractors and developers, PEMEX will enjoy full rights to participate and bid on the same terms offered to all. According to this Mexican press report, Exxon, Chevron, Shell, British Petroleum and Brazil's Petrobras are among the most interested in signing exploration and development contracts. As many as 80 companies from abroad are purportedly in contact with Mexican officials, as PEMEX changes from a strict state monopoly to a state run energy provider with opportunities for private participation.
Foreign participants will focus on drilling in ultra-deep waters where great technical expertise is essential, costs are extraordinary and recovery of petroleum assets is often highly speculative.
As Forbes magazine noted last November,
"Without reforms, much of Mexico’s estimated 30 billion barrels of oil and 500 trillion cubic feet of natural gas (about the same as Brazil) will simply remain locked in the ground. Pemex, despite being one of the world’s biggest oil companies, does not have sufficient technical expertise to explore and develop promising prospects in the deepwater Gulf of Mexico or in the tricky shale layers just south of the border from Texas’ booming Eagle Ford fields. What’s more, Pemex has virtually no hope of acquiring or borrowing such expertise under the status quo, which allows the company to enter into only service contracts.
"Big Oil companies like ExxonMobil or Chevron won’t even consider taking on the massive risks of drilling complex wells without a guaranteed cut of whatever oil and gas they find. And with Mexico relying on Pemex revenues to fund a third of the federal budget, Pemex is chronically starved of the capital it needs to develop the expertise to do it itself."
Opponents of the historic PEMEX changes - principally Mexico's far Left - have long argued that president Enrique Peña Nieto and his coalition of energy reform supporters on both the political center right (PAN) and the center left (PRI) were selling out the industry to foreign oil interests. "The fix is in" on energy reform. Former (then Democratic Revolution Party) two time presidential candidate Andrés Manuel López Obrador called the reforms "treason," and filed a federal criminal complaint against the president with Mexico's attorney general in February.
Indeed, the Left is still determined to reverse and rescind the PEMEX reforms, and hopes to carry out a national plebiscite in June 2015 to that end. MORENA opens campaign to repeal PEMEX reforms.
Today's announcement will lend no aid to their claims, however, just as the president has repeatedly assured citizens. On 76th anniversary of Mexican oil expropriation, Peña Nieto says "the State remains the sole owner of energy."
Jan. 26, 2014 - Russians are the first to benefit from PEMEX reforms
Mexico's far Left huffed and puffed over the PEMEX reforms, and even partially disrobed in protest. In the end it was all for naught. Then they petulantly announced they would no longer cooperate with Mexico's two main centrist parties in advancing key legislation. PRD: "The Pact for Mexico is dead."
PRD national chair Jesús Zambrano: "We're not going to just stand around with our arms crossed. We're going to keep working to throw out the energy reforms" - December 2013
© MGR 2014. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.