Opening Mexico: A Bold Initiative at a Critical Time

Abstract

Political instability, resource nationalism, civil conflict, and economic downturns hurt all nations. Growth in energy revenues, on the other hand, represents an increase in resources for societal investment. Modern nations depend on energy to fuel economic growth, yet production and commercialization of energy is capital and technology intensive. In today's tough operating environments, it is difficult for a single national oil company to bear all the risk by going it alone.

With these factors in mind, in late 2013 Mexico changed its constitution after 75 years and opened its borders to external investment in the energy sector. Some of the objectives of the Mexican government include maximizing government revenues from oil and gas, increasing and/or replacing resource base and production, attracting foreign investment, transferring technology, developing infrastructure, and creating jobs. Some of the benefits for the potential external investor include a return on capital commensurate with commercial, technological, and political risks, as well as the ability to increase and replace hydrocarbon reserves.

Keys to success for Mexico's endeavor include rule of law, division of responsibility, accountability, transparency, and integrity. Challenges to success include the design of secondary legislation, efficiency among government entities, overregulation versus strong regulation, and the embracing of competition. Further risks to reform include regulatory frameworks that do not keep up, external companies that circumvent rules, regulatory agencies that are ineffective or opaque, basins that are less prolific than anticipated, lack of public support, and false expectations. If successful, however, this bold initiative will be transformative to Mexico, as well as represents tremendous opportunities for future generations both inside and outside the country's borders.

AAPG Datapages/Search and Discovery Article #90219 © 2015 GCAGS, Houston, Texas, September 20-22, 2015