Mexico’s energy reforms may provide new opportunities for investment
A recent article published in The American Interest references Mexico’s newly-privatized oil industry as a bright spot for the Mexican-American relationship. The author states: “Plenty of American producers already have experience drilling for crude in the Gulf of Mexico, and can bring that expertise to bear in underutilized offshore Mexican formations.”
Mexico’s shift towards open investment and cross-border commerce may be positive for intergovernmental relations—but how do investors perceive Mexico’s oil and gas industry?
Our 2016 Global Petroleum Survey shows investor confidence in Mexico has improved in recent years. The survey measures investor perceptions and how various policies (royalties and taxes, duplicative regulations, political stability, etc.) might attract or deter investment in jurisdictions worldwide.
According to the latest report, Mexico experienced a positive shift from 2014 to 2015, as its survey rank increased by twenty spots, from 83rd to 63rd. During the same time period, Mexico’s policy perception index score improved from 37.27 to 58.32. Mexico’s rise in the rankings in 2015 can be attributed to improvements in labour availability and skills, uncertainty concerning disputed land claims, and security.
Mexico’s rank dropped slightly in 2016, falling five spots to 68th, as investors cite security, the legal system, and the cost of regulatory compliance as deterrents to investment. As a result, there’s still policy and regulatory work to be done to improve investor perceptions in Mexico.
In 2014 Mexican President Enrique Pena Nieto (pictured above) codified an energy reform plan that was designed to lure investors to the country’s ailing oil, gas and electricity sectors. The plan dismantled the monopoly held by Mexico’s two-state owned energy giants, national oil company Pemex and electric utility CFE.
All major political decisions require trade-offs. The denationalization of the country’s reserves was a tough political decision, but provides ample opportunity for new investment across Mexico’s energy industry.
Mexico is an example of a jurisdiction that provides great potential for the development of hydrocarbons. Recent reports suggest Mexico’s energy sector is seeing results after an international consortium of private companies “hit it big with a world-class find... that they had won the right to explore through a government auction.” Thus, unlocking Mexico’s energy resources may, in fact, be a positive step towards attracting new oil and gas investment.
If countries such as Mexico are eager to improve investor perceptions and attract investment dollars, implementing policy and regulatory reforms that encourage competition and openness is a good start.