When Mexican President Enrique Peña Nieto unveiled a proposal to reform his country’s state-owned and grossly mismanaged oil and gas monopoly Pemex last week, he was careful to reassure the public that “all hydrocarbons will remain the property of the Mexican people.” Peña Nieto promised to open up Mexico’s oil and gas reserves to foreign companies via profit-sharing (not production-sharing) agreements, ensuring that the state retains ownership while capitalizing on the expertise of foreign firms. But as Quartz reports, the plan might allow the President to cede more rights to oil and gas companies than his rhetoric seemed to indicate:
”If you actually look at the wording of the constitutional reform, it leaves the possibility of production-sharing open,” director of the Woodrow Wilson Center’s Mexico Institute, Duncan Wood, told Quartz….
The ambiguous wording [of the reform proposal document] could effectively allow Mexico to act as it pleases, on a case by case basis. “If that’s the constitutional change, a lot is actually possible. It’s really, really unclear,” Duncan said.
The distinction between production-sharing rights and profit-sharing rights is an important one. US-based oil companies can’t book reserves without production-sharing agreements, per the US Security and Exchange Commission. Lacking the rights to produce the oil might not be a deal-breaker to some companies if they have contracts in place to share in the profits, but, as Quartz puts it, they’ll have “a lot less incentive to take part.”
But Mexico needs these reforms, and can benefit greatly from the technical know-how and business acumen that foreign firms will bring. Foreign oil and gas companies were key catalysts in the US shale boom, and can play a similar role in Mexico to help the country take advantage of its massive shale oil and gas reserves, which are the 8th- and 6th-largest in the world, respectively.
We’re still too early on in the process to know what the final bill will look like, but Peña Nieto was smart to leave himself wiggle room in this initial document. Encouragingly, Pemex isn’t sitting idly by while politicians wrestle over its fate. The company recently announced plans to create a new company that will expand production into US shale oil and gas fields, as well as deepwater operations in America’s gulf waters. That project, combined with the reforms currently on the table, has a real shot at igniting a Mexican, and in turn a North American, energy boom.
[Image of President Nieto at 2010 WEF courtesy of the World Economic Forum]