Mexico Begins to Share Its Oil Prize

Understanding the connection between energy and economic growth, Mexico’s President Enrique Peña Nieto set out to reform his country’s energy policy and invite outside intelligence and investment to boost slumping oil output. In late 2013, he succeeded in getting the constitution amended to allow private and foreign companies to explore and produce oil and gas in Mexico—for the first time in nearly eight decades. The amendments put an end to the government monopoly. Foreign companies can now compete with, or partner with, Pemex—the national oil company. Nieto hopes his reforms will bring in $50 billion in investment by 2018.

The wheels of reform move slowly, but on July 15, the first international investors put their toes in the shallow water of Mexico’s oil prize—which could be “as big as the proven reserves of Kuwait.” The Financial Times (FT) calls Mexico’s potential 107.5 billion barrels of oil: “quite a feast.” FT adds: “The country is viewed as one of the dwindling number of opportunities to add substantial reserves to portfolios after several years when the oil majors have struggled to make big discoveries.”

Disappointing Start
Yet, despite the possibilities, Mexico’s first of three auctions expected this year, being called round 1.1, was disappointing, at best. In round 1.1, 14 shallow water blocks were offered. Only two had successful bids: block 2 off the coast of Veracruz and block 7 off of Tabasco. The winning bidder for both blocks was Sierra Oil & Gas—a Mexican company in a consortium with U.S. company, Talos, and Britain’s Premier Oil.