Mexico Congress approves oil bill breaking 75-year monopoly

Falling Production

Mexico’s oil production has fallen 25% to 2.5 million barrels per day from a high of 3.3 million in 2004, according data from Pemex. Should Mexican output reach 4 million barrels daily by 2025, it could surpass Canada to become the world’s fifth-largest producer, given current production levels.

Natural gas production would almost double to as much as 10.4 billion cubic feet by 2025 from current output of 5.7 billion feet, according to the bill. The initiative could push Mexico to become one of the top-five crude exporting countries in the world and a natural gas exporter, Morse said.

Pena Nieto’s government forecasts the initiative will attract investment and spur production that will boost Mexico’s annual gross domestic product growth by 1 percentage point by 2018. The Finance Ministry projects the economy will expand 1.3% this year, down from 3.9% in each of the past two years and the least since the 2009 recession.

Board Changes

The bill also removes all five representatives of the Pemex workers’ union from the company’s board. Under the new legislation, Pemex’s board will be trimmed to 10 from 15. It will consist of five government members, including the energy minister as board president, and five professional advisers.

Easing restrictions that have barred the largest international oil explorers from drilling in Mexico for three- quarters of a century will help Pemex revive output and crack vast shale formations, said Brian Youngberg, a St. Louis-based analyst at Edward Jones & Co., who covers oil producers including Chevron and Occidental Petroleum Corp.

Opening the oil industry to foreign drillers may unleash a wave of exploration equaling Iraq in recent years, Youngberg said. Mexico’s deep-water prospects in the Gulf of Mexico would be attractive to Exxon and Chevron, while shale tracts would probably lure EOG Resources Inc. and ConocoPhillips, he said in a telephone interview on Dec. 9.

‘Right Direction’

Enticing foreign investment “should jump-start production and get it moving back in the right direction,” he said.

Oil at all stages of production, refining and distribution has been the legal property of the Mexican people since 1938, when then-President Lazaro Cardenas seized fields from U.S. and British companies and changed the nation’s charter. The expropriation is celebrated every March 18 and trumpeted as a point of pride in schoolchildren’s textbooks. Cardenas was from Pena Nieto’s PRI party, which ruled Mexico uninterruptedly for seven decades until 2000.

“The issue of oil is embedded in the Mexican soul, in the Mexican tradition, in Mexican history,” said Jorge Chabat, a political scientist at the Center for Economic Research and Teaching, a Mexico City-based university. Passing the overhaul through Congress “was the mother of all battles for the Mexican government, and the most important success of the Pena Nieto administration so far,” he said in a phone interview.

Oil production has stagnated partly because energy didn’t get the competitive impulse from Nafta that other industries did, said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.

“What this reform does is it now exposes the Mexican energy sector to national and international competition,” said Wood. “It marks a fundamental paradigm shift in the mentality of the energy sector. Now we get beyond 1938.”

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