Wide-Reaching Energy Reform Could Be Within Reach
BMI View: Mexico's ruling Partido Revolucionario Institucional and centre-right opposition Partido Acción Nacional may be negotiating a far more radical change to Mexico's energy laws than had previously been indicated, including the option to allow for more flexible contract terms to take into account the level of risk faced by IOCs. While still unconfirmed, we note that if true, this would represent a massive step forward for the country's hydrocarbon sector, and encourage us to take a more optimistic long-term stance on the country's oil reserves and production.
While we had previously noted that the risks to energy reform in Mexico were for a more rather than a less aggressive bill, the scope of the changes which may be under debate behind the scenes between the ruling Partido Revolucionario Institucional (PRI) and opposition Partido Acción Nacional (PAN) are nothing less than monumental. Specifically, local and international news sources are now reporting that the two parties may be considering going beyond the PRI's initially proposed profit sharing scheme and allowing for a more flexible system, in which terms are offered on the basis of the risks involved in resource production. This could range from offering profit-sharing contracts in lower risk scenarios (wherein companies would share a percentage of any discovery but receive it in cash and not own direct rights to the oil) to production sharing contracts in the more geologically complex plays, such that firms would own the rights to their share of the oil, and be able to book reserves. The Wall Street Journal even indicates potential for a third type of contract for ultra deepwater fields and shale gas, whereby companies would fully control the oil after paying royalties and taxes - seemingly very similar to a concession model.
Stepping Left On Fiscal Policy To Go Right On Energy
|From Exporter To Importer Without Significant Reform|
|Mexico - Oil Production, Consumption And Net Exports|