America’s southern neighbor seemed on the verge of turning a corner three years ago when its then newly-elected president Enrique Peña Nieto began rolling through some much needed reforms for the country, starting with an overhaul of the energy sector. Mexico’s problem was its state-owned oil company, Pemex, which had owned and presided over the country’s oil resources for three-quarters of a century. Inefficiencies grew, as they often do in these state-owned enterprises, so there was plenty of excitement both within and outside of Mexico when Peña Nieto began his privatization push.
Unfortunately, things didn’t start out smoothly. Initial lease auctions produced meager to middling results, and Mexico’s reform-minded president started to feel the pressure of denationalizing the country’s oil reserves—resources with deep cultural significance—without much to show for it. This summer, Mexico’s energy prospects brightened considerably after an international consortium of private companies hit it big with a “world-class” find in a shallow water region in the Gulf of Mexico that they had won the right to explore through a government auction. Premier Oil, Talos Energy, and Sierra Oil & Gas estimate that the Zama field they discovered may contain between 1.4 billion and 2 billion barrels of oil. There were two other encouraging signs for the fledgling privatization movement in Mexico on that very same day: Mexico auctioned off 21 of the 24 offshore oil blocks on offer, while the Italian firm Eni upped its estimates of a March discovery to more than 1 billion barrels.
Naki Mendoza, the director of energy for the Council of the Americas, recently wrote about that historic day for the FT with an eye for future growth in Mexico, and for stronger Mexican-American relations:
Since July 12 the government has been anticipating a boost in interest. The National Hydrocarbons Commission has already pushed back the date of Mexico’s next deepwater auction by one month to January 2018 to allow companies more time to analyse the blocks on offer. […]
The discoveries also come at an auspicious moment for Mexico to advance broader political discussions. Announced one month before the start of Nafta renegotiations, they provide a strong impetus to embed the same guarantees of open investment and cross-border commerce that are underwritten by the country’s energy reforms into a revised trade agreement.
President Trump has strained the Mexican-American relationship, to put it mildly, but growth in the newly-privatized Mexican oil industry could help bandage those wounds. Plenty of American producers already have experience drilling for crude in the Gulf of Mexico, and can bring that expertise to bear in underutilized offshore Mexican formations. Mexico has shale hydrocarbons, too, so there’s potential for U.S. frackers down south as well. There’s a path forward here that could help everyone in North America win.