mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Spend Money to Make Money
Mexico's Pemex Beefs Up Spending

Mexico’s national oil behemoth is ramping up reinvestment in the country’s oil fields both onshore and off. Pemex intends to invest a near-record $28 billion over the next year, 85 percent of which will go towards exploration and production.

This is crucial for Mexico’s energy future. Over the past decade, Mexico’s Pemex has calcified into your prototypical state-run oil monopoly. It oversaw a 23 percent drop in production, despite hiring an additional 22,000 employees. This is the nature of the oil industry: wells dry up, plays get played out, and companies are forced to spend more to produce more. In that respect, Pemex hasn’t been up to the task, but it hasn’t been easy for the firm to direct its revenues inward, given that the Mexican government relies on Pemex for roughly a third of its national budget.

The $28 billion isn’t enough, but it’s an increase of more than 7 percent over last year’s numbers, and that’s a decent enough start. Still, “to maximize the value of [its] resources, Mexico needs investments in the industry to more than double what Pemex will invest this year,” Pemex’s CEO Emilio Lozoya admitted.

Of course, the real hope for Mexico’s energy future is coming from external pressure. Mexican President Enrique Peña Nieto pushed through historic energy reforms last year that opened up the country’s previously nationalized oil sector to outside competition. Much of the resources Mexico has yet to plumb will require the kind of expertise, risk-taking, and technical know-how that only foreign firms can provide, as the FT reports:

International oil majors are expected to be keen to enter Mexico’s offshore, deepwater exploration, as well as to develop shale prospects, but are waiting to hear the details not only of which fields will be up for grabs first, but also key rules on tax and national content that will be spelt out in secondary legislation due to be presented to Congress in the coming weeks.

Pemex will have to keep ramping up its spending to compete with these private companies. A more liberalized Mexican energy market will likely mean more deepwater and shale drilling, and therefore higher production. That’s good news for Mexico, and it adds a third burgeoning supply to the North American energy boom.

Features Icon
show comments
  • Boritz

    Da bueno.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service