Dealing with Mexico’s energy industry has proved problematical for American companies since the approval of encouraging oil and gas reforms in 2013 and ’14.
Texas’ southern neighbor has had hydrocarbons for about as long as everyone else has and its Congress passed a constitutional amendment in 1938 that nationalized the industry, prohibiting development contracts with private companies.
Faced with drastically falling production and drooping tax revenues, the Mexican Congress passed reforms under President Enrique Pena Nieto, who served from 2012-18, to allow profit-sharing or production-sharing contracts with American companies; but current President Andres Manuel Lopez Obrador dislikes that prospect and is trying to prevent it from happening. Lopez Obrador has also said he wants to stop all oil exports to the United States.
Many of Mexico’s oil and gas wells around the country are about tapped out and the nation confronts the need to develop its western oil shale with fracking near Campeche Bay and to drill off-shore there because its oil output has decreased from 3.59 million barrels per day in 2003 to 1.857 mbd last year and 1.7 mbd now, according to the U.S. Energy Information Administration.
Aindriu Colgan, senior manager for tax and trade policy with the American Petroleum Institute in Washington, D.C., says the situation has reached a point of great frustration because American oil and gas companies have invested billions of dollars in Mexico since the reforms, mostly in the midstream and downstream sectors.
However, as leader of the minority Morena, or “National Regeneration Movement,” party, Lopez Obrador has as yet been unable to persuade the more powerful PRI and PAN parties to rescind all the reforms, although he has changed some regulations to make the necessary permitting more uncertain, Colgan said Wednesday.
“He is trying to renationalize Mexico’s energy industry by eliminating the reforms of 2013 and ’14 and making PEMEX, the state oil company, and CFE, the electric utility company, the national monopolies,” Colgan said. “There is a lot of concern in the U.S. about unfair treatment and retaliation from the Mexican government.”
He said the American companies’ investments were based on confidence that Mexico would follow the terms of the North American Free Trade Agreement and the United States-Mexico-Canada Agreement on trade, which went into effect last year after being negotiated by former President Trump.
Colgan said a new day in Mexico’s oil and gas business was also expected because PEMEX lost $11 billion last year and ended 2021 owing $109 billion, making it the most indebted national company in the world with 58 percent of its government’s revenues coming from taxes on PEMEX and CFE. “They lack expertise in things like fracking and deep water projects,” he said.
Mexico has six oil refineries, including one it bought from Royal Dutch Shell last year in Deer Park, east of Houston, and it is building a new one in Tabasco, the home state of Lopez Obrador, whose one six-year term will end in 2024.
Texas Alliance of Energy Producers President Jason Modglin said the very productive Eagle Ford Shale Play “doesn’t end at the border.
“There are incredible opportunities in Mexico to modernize the fields and add to the North American energy industry,” Modglin said from Austin Tuesday. “The current administration in Mexico has been particularly challenging in terms of foreign investments in pipelines to modernize delivery both to the citizens of Mexico and potentially leverage cross-border traffic so both countries can take advantage of the natural resources that exist on both sides of the border.
“It’s a very big country that is adjacent to the most important places in the world, the Permian Basin and the Gulf of Mexico, so it’s natural that there should be opportunities in both countries, which are looking for energy security and affordable energy. So hopefully the Biden administration will move forward and we will find a way to make this new free trade zone with Mexico and Canada work.”
Midland oil and gas attorney Bill Kelton said PEMEX exemplifies the adage “that absolute authority and control corrupts absolutely.
“It has been a source of money for Mexico and has funded various projects and social programs,” Kelton said Wednesday. “As a result, it is perpetually broke. As oil technology has moved on and the scale and difficulty of projects have increased, PEMEX does not have the capital or the expertise to produce oil and gas in deep waters or in other high-risk challenging environments.”
“No oil company wants to become a partner with PEMEX because they cannot provide money and expertise and may not be able to pay for basic necessary services. PEMEX has been required to obtain a guarantee of payment from the Mexican government through legislative action to obtain basic supplies and contract services because it is regarded as a bad credit risk.”
Kelton said the situation “reached the crisis stage in the early 2000’s when it became obvious that Mexican oil reserves were rapidly depleting with no prospect of new production.”
