Overall, the nation has roughly 13.87 billion barrels of proven oil reserves according to state-run oil firm PEMEX. However, that number could only be the beginning, considering the country’s vast, unexplored regions.
Fracking and shale exploration could add 460 trillion cubic feet of gas, and deepwater drilling could add another 27 billion barrels of crude to Mexico energy supplies.
Yet there is a slight problem. Mexico’s vast oil wealth is closed to international investors as decades-old policies keep foreign oil companies such as Chevron (CVX) from drilling in the nation.
Well, after years of falling production, that could be changing.
A historic bill in Mexico would finally open up the nation’s vast energy wealth to foreign investors and help increase that stagnant and dwindling production.
For energy stock investors, this landmark decision by the Mexican government could the opportunity of a lifetime as Mexico oil production finally gets serious.
Changing The Charter
According to the U.S. Energy Information Administration, Mexico possesses the biggest unexplored crude oil reserves after the Arctic Circle. Unfortunately, much of that area continues to be unexplored as the nation’s charter essentially states that this Mexico oil “belongs to the people.” That means the drilling must be done by state oil producer PEMEX and its subsidiaries.
Even more problematic is that PEMEX doesn’t have the right technology to tap any of this vast oil wealth. Without advances in deepwater drilling and hydraulic fracking, Mexico oil production has fallen about 25% to hit just 2.5 million barrels per day.
Legacy oil wells and natural gas fields go continue to dry up at an alarming rate in Mexico. Without a boost in technology, Mexico’s energy sector — which funds about one-third of the nation’s federal budget — could be in serious trouble sooner than later.
Which is why newly elected President Peña Nieto has made opening up Mexico’s energy sector a cornerstone of his campaign.
Nieto realizes that in order to save his nation, he needs the fracking muscle of international firms. To that end, he’s set forth a series of proposals to help put Mexico’s oily empire into the hands of global energy industry.
The biggest part of that plan just passed a major hurdle in Mexico’s lower house.
Last week, Mexico’s congress approved to change the nation’s charter in order to allow foreign energy producers access to its oil fields. Some analyst are calling the decision the biggest to hit Mexico since the adoption of NAFTA back in the 1990’s. This recent energy bill will end the 75-year old monopoly that PEMEX has enjoyed and generate as much as $20 billion in additional foreign investment each year.
Under the terms of additional proposals, international producers will be offered production-sharing contracts or licenses where they get to own the oil they pump from Mexico’s ground. PEMEX would still a partner in each well, but the international firms would control the show. Additionally, for the first time, foreign energy firms in Mexico would be allowed to record these crude reserves for accounting purposes.
All in all, these efforts to finally allow Mexico’s energy bounty to be tapped by foreign firms should help push the nation’s output to 4 million barrels and 10.4 billion cubic feet of natural gas per day by 2025. That will help move Mexico into the top five energy exporting nations.
Needless to say, this is great news for energy firms looking to stake a claim in Mexico. But not all of the energy industry will benefit. Some will have an upper hand when it comes to fracking Mexico.