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Nieto Promises Pemex Reforms


President Nieto isn’t wavering in his commitment to reform Pemex, Mexico’s national oil firm. Though he estimated the specifics won’t be sussed out for another “two to three months,” he told the FT that he remains confident the reforms “will be transformational.”

A transformation is just what Pemex needs, because the state-owned oil company has proven itself to be an exceptionally poor manager of Mexico’s oil. Like many monopolies, it has little incentive to innovate, and in recent years it has overseen stagnating oil production. Since 2004, the company has added 22,000 employees, but production has fallen a staggering 23 percent.

This decline comes in spite of the shale boom. Mexico has the eighth-largest shale oil reserves in the world—an estimated 13 billion barrels—and the sixth-largest shale gas reserves. It has access to the southern portion of the Eagle Ford formation, a shale play that has been drilled with great success in Texas. And it shares the US “wedding cake” geology that is particularly well-suited to horizontal well drilling, a key method for extracting shale oil and gas.

The US shale boom happened in large part because of America’s large pool of capital resources. Foreign investment played a particularly valuable role. But Pemex has closed itself off to these cash flows, and it is struggling to maintain its current output. Expanding production hasn’t seemed realistic without reforms that would open up Pemex to joint ventures with private companies.

President Nieto promised to change that. He campaigned as a reformer, and shortly after his election last year he announced his intentions to reform the energy sector in a document called the Pact for Mexico. The country’s three main political parties signed on, and in March Nieto’s own political party unanimously pledged to pave the way for Mexico’s much-needed energy reforms.

We wish Nieto the best of luck in this endeavor. Many Mexicans take great pride in their stake in Pemex and will see these reforms as a clash of money and culture. But the country needs the expertise and the resources that foreign firms can provide. If permitted, oil and gas companies in the US will be chomping at the bit to invest in Mexico’s plays. That’s good for Mexico, good for the US, and good for North America. The continent’s energy future has never looked brighter.

[Oil barrels image and Mexican Flag image courtesy of Shutterstock]

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  • Dexter Trask

    It should be noted that the ‘Peña’ in Peña Nieto is not the Mexican president’s middle name but his paternal surname (‘Nieto’ being his maternal surname). By hispanophone convention, if only one of the two surnames is to be used, it should be paternal. (Nobody referred to Pres. Felipe Calderón Hinojosa as ‘Pres. Hinojosa’, for example.)

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