Politics

Companies from U.S., China, Other Nations Bid for Access to Mexico's Oilfields After 76 Years

By | Jul 15, 2015 02:29 PM EDT
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Juan Carlos Zepeda, commissioner of Mexico's National Hydrocarbons Commission (CNH), speaks during the first round of an oilfield auction in Mexico City, Mexico, on Wednesday, July 15, 2015. Mexico's move to lure tens of billions of dollars from the likes of Exxon Mobil Corp. will be put to the test for the first time at an oilfield auction today.(Photo : Getty Images)

July 15 will mark a new event in the history of Mexico, and might provide a new lease of life for its dwindling economy and crumbling infrastructure.

After 76 years, the Mexican government has opened up its 14 oilfields for foreign direct investment (FDI). These oilfields cover an area of 4,222 square meters and are located off the states of Tabasco, Veracruz, and Campeche.

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Mexico hopes that the opening up of its gas and energy sector will improve the financial stability of the country and also create jobs for its residents. From the first round of bidding, the government is expecting to generate 16.76 billion U.S. dollars in investment and 168,000 jobs in the next five years.

"It represents, without a doubt, the coming of a new era in energy in our country. It will be for the good of Mexico," Energy Minister Pedro Joaquin Coldwell said at an event outlining the bidding process.

In December 2014, President Enrique Peña Nieto garnered majority support from the Mexican Congress to make an amendment in the constitution and allow investment from national and international companies into the energy sector.

According to International Energy Outlook 2014, the oil production in Mexico will decline further from 3.0 million barrels per day (MMbbl/d) in 2010 to 1.8 MMbbl/d in 2025 and then struggle to remain in the range of 2.0 to 2.1 MMbbl/d through 2040. The report clearly states that though the new reforms could help in stabilizing the oil production at 2.9 MMbbl/d through 2020 and then rise to 3.7 MMbbl/d by 2040, the results will depend on the success of reforms, developments in infrastructure and world oil market prices.

Since 1938, only Pemex, the government-owned oil company, has had the exclusive rights to the oilfields of Mexico after private and international oil companies were banned from entering the Mexican oilfields. Oil revenue of Pemex is the largest contributor to the Mexican treasury and takes care of one-third of the national budget. In addition to opening up the Mexican oilfields to national and international investors, the government also plans to reform and revive Pemex, which has rusted due to lack of ideas, the will to augment the infrastructure, monopoly and corruption.

Though the oil companies from Argentina, China, Colombia, Denmark, England, France, India, Italy, Malaysia, Mexico, Norway, Spain and the United States are geared up to bid for the Mexican oilfields that reportedly have the world's sixth biggest technically recoverable shale gas and the eighth largest shale oil reserves, the national oil company Pemex has decided to withdraw due to financial limitations and prior commitments.

"At this point, Pemex wants to explore the north-south pipeline at the narrowest point in the country between the Gulf of Mexico and the Pacific Ocean to send increasing amounts of Mexico's oil west to China, other parts of Asia, and California. Another is to build a pipeline ferrying Mexican oil and gas down to Guatemala and beyond," says Emilio Lozoya, Chief Executive Officer of Pemex.

"Think about the impact this will have on immigration. It will create a much more competitive region."

By the end of 2019, over a third of Mexico's resources would have been auctioned. A blueprint is already ready and the government plans to conduct one auction per year.

"On July 15, regardless of the number of contracts awarded, success will be achieved if we convince Mexican society that the National Hydrocarbons Commission has carried out a fully transparent bidding process," says Juan Carlos Zepeda, head of the CNH, which is operating the tenders.

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