After a whirlwind final passage through Congress, President Enrique
Pena Nieto's bill will offer companies the chance to operate oil
wells, commercialize crude and partner with state oil giant Pemex as
Mexico seeks to revive flagging output.
It aims to entice oil majors such as Exxon Mobil Corp <XOM.N> and BP
Plc <BP.L> with production- and profit-sharing, service contracts
Mexico's two biggest parties faced down accusations they were
betraying their homeland to foreign oil firms, and approved a series
of changes to the constitution that could radically transform the
fortunes of the world's No. 10 oil producer.
At more than 10 billion barrels, Mexico has Latin America's
third-largest proven oil reserves after Venezuela and Brazil. It
also has nearly 30 billion barrels of prospective resources in
territorial deep waters of the Gulf of Mexico.
"The energy reform marks a fundamental transformation that will
allow us to increase our energy sovereignty and self sufficiency in
Mexico," Pena Nieto said in a Tweet after the reform's approval.
"It will also drive productivity, economic growth and job creation
in Mexico," he added.
Pemex has struggled to exploit Mexico's oil reserves due to a lack
of investment, high taxes and persistent allegations of corruption.
Mexico's crude output peaked at 3.4 million barrels per day in 2004,
and has fallen by more than a quarter.
Proponents of the reform said Mexico would fall further behind its
peers without finding new investors to help exploit its deep water
and subterranean oil and shale reserves.
"Today, the name of the game is greater economic competitiveness,"
Javier Trevino, a lawmaker in the ruling Institutional Revolutionary
Party (PRI) on the lower house energy committee, said in a debate
that went through the night.
U.S. oil giant Exxon sees an opening up of Mexico's oil sector as a
"To put it bluntly, we believe that would be very good for the
people of Mexico," William Colton, the company's vice president of
corporate strategic planning, told reporters on a webcast from
Washington before the reform's final approval.
Experts said the world's leading oil companies will need to see
final investment terms and new regulations before deciding whether
to do business in the country.
"We have to keep an eye on those," Tim Cutt, head of petroleum at
resources giant BHP Billiton <BHP.AX>, said of Mexico's reforms.
Both the Eagle Ford shale and Permian Basin in Texas as well as the
U.S. Gulf of Mexico abut Mexican borders.
END OF AN ERA?
Pena Nieto first presented his bill in August, and after weeks of
negotiations with the center-right opposition National Action Party
(PAN), the PRI unveiled a revised plan at the weekend in the Senate
that was far more radical.
The new draft bore the stamp of the PAN, which had urged the
government to offer companies full concessions at a time the
president was only talking about profit-sharing contracts.
The revised bill did not go that far, but it opened up the prospect
of production-sharing contracts and licenses, and both parties were
keen to pass it this week.
Barely 24 hours had elapsed since Senate approval when PAN and PRI
lower house deputies signed off on the reform. They packed a smaller
chamber of the house after a group of left-wing legislators of the
Party of the Democratic Revolution (PRD) tried to derail the reform
by blocking access to the main floor.
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Supported by the Green Party, a group allied to the PRI, lawmakers
from the three parties gave final approval to the bill with 353
votes in favor and 134 against after rejecting a long list of
objections to the bill argued by left-wing opponents.
Critics lamented the energy reform as an act of submission and the
end of an era, tapping into the pride many Mexicans still feel over
the 1938 move by then-President Lazaro Cardenas to expropriate
foreign oil companies' assets and create Pemex.
"Today is a black day," said Ricardo Monreal, a trenchant critic of
the government and leader of the leftist Citizens' Movement in the
lower house. "More poverty for everyone, which has been the rule for
One leftist lawmaker stripped down to his underwear on the podium
during the overnight debate, accusing the backers of the reform of
leaving Mexico naked without its oil wealth.
OPENING THE DOOR
The floor of the lower house started to debate the bill just a few
hours after it arrived from the Senate. In a swipe against the PRD
and other left-wing lawmakers trying to derail the reform,
legislators from the PRI, PAN and Green Party voted to bypass the
committees usually consulted.
Following congressional approval, the constitutional changes must be
ratified by a majority of the 32 regional assemblies in Mexico, most
of which the PRI and the PAN control.
However, experts say the shake-up is some time away from yielding
fruit. The government must still draw up secondary legislation to
implement the reform.
"They removed the lock from the door, but do you want to go
through?" said Alberto Ramos, an economist at Goldman Sachs.
Seeking to lure billions of dollars to Mexico, the reform formally
puts an end to Pemex's monopoly in oil and gas and will offer
companies the right to be paid in barrels of oil.
That is a big departure from the service contracts now on offer, in
which firms are paid a fee and can recover costs.
But how lucrative the new regime will be is not yet clear.
"They still have to determine royalty rates and tax structures and
national content requirements," said Carlos Sole, an energy
specialist with law firm Baker Botts in Houston.
"All that will determine the scope of potential investment," he
added. "But given Mexico's market has been mostly closed to
investment for so long, this is really a transformative change. The
lion's share of the excitement is on the upstream side."
(Additional reporting by Gabriel
Stargardter, Miguel Gutierrez, Ana Isabel Martinez, Tomas Sarmiento,
Lizbeth Diaz, David Alire Garcia and Michael O'Boyle in Mexico City
and Terry Wade, Anna Driver and Kristen Hays in Houston; editing by
Simon Gardner, Alden Bentley, Andrew Hay and David Gregorio)
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