Business

Mexico Opens Oil and Gas to Private Investors

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Mexico passed laws that have opened its electric, gas and oil industries to private as well as foreign investors after 76 years of being under state control.

Experts have said that the hope of Mexico is for tens of billions of dollars of foreign investment and the possibility of a boom in shale gas like is occurring in Texas.

However, that all hinges on the country being able to design the type of contracts, tenders and concessions that could actually prove attractive to these companies that are already busy drilling in ocean water and hydro fracking in other places.

Mexico says it has stepped into a new era after the final bills were approved on Wednesday. The country was placing its hopes on becoming a manufacturing center with low wages, but growth has thus far been limited due to unusually high rates for electricity and the necessity to import huge quantities of natural gas that is extremely costly.

Mexico’s production of gas and oil peaked during 2004 at more than 3.4 million barrels daily. Since that time, it has fallen at a steady rate to its current output of just over 2.5 million barrels per day.

With this latest reform, the government is hoping to increase the output to more than 3 million barrels per day by 2018, then eventually to 3.5 million before 2025. Their hope is to attract private enterprise with the technology and expertise to exploit the deep water and vast shale reserves.

The first concessions and contracts for drilling blocks should be in 2015 and Mexico’s government hopes to attract between $10 billion to $15 billion of private investment per year in the industry.

However, hard realities are blocking some of those hopes. The government in Mexico and the oil company that is state owned have little or no experience in putting together attractive contracts for bid or in managing them with transparency and clarity.

Mexico has been struggling for more than a decade to push for more limited openings, such as contracts high in incentives that paid outside contractor’s performance bonuses.

However, those received little interest since the oil firms could not book reserves, or receive a percentage of the gas and oil produced or any profits.

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