Changes Could Bring Oil Boom To Mexico 12/16/13
CBS 7 News
December 16, 2013
Yesterday, Mexico’s Congress approved a measure allowing international businesses to share in the profits of oil exploration, and it could lead to the next big boom.
The sound of rigs and pump jacks is familiar in the Basin but not quite so familiar in Mexico. The country's state-run and sole oil company, Pemex, has seen a decline in production over the last decade. Experts say a decision yesterday by Mexico’s congress could change that.
"There will be a commercial framework for oil companies to invest capital and generate a return through profit sharing contracts or potential service contracts,” said Elevation Resources President and CEO Steven H. Pruett, also Chairman-Elect of the Permian Basin Petroleum Association.
For the first time in nearly a century—private, international companies can invest in Mexico’s massive shale deposits and gulf resources. A JPMorgan Chase study cited in Bloomberg News today estimates it could bring $15 billion dollars a year into Mexico.
"The potential in Mexico is even greater than that of the Permian Basin in terms of remaining oil to be recovered,” Pruett said.
But tapping into Mexico’s resources is a risk.
“Companies will consider if there is instability in the government, which appears to be stable today, but an election could change that,” Pruett said.
Pruett says the basin boom is here to stay, and many basin companies will not have the resources to move operations overseas.
"I don’t think the opening of Mexico to private companies will affect the Permian Basin activity at all,” Pruett said. “I don’t see companies like Pioneer diverting capital away from the Permian Basin to develop that. They’ll be able to raise other sources of capital to pursue that.”
Our expert says international companies like Shell will have an edge over U.S. based companies in breaking into the new, Mexico market. He says Mexican businesspeople are traditionally more hesitant to strike deals with U.S. companies.