All eyes on Mexican energy reform

Staff Writer
Columbus CEO

(For use by New York Times News Service clients)

c.2013 San Antonio Express-News

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By Lynn Brezosky

San Antonio Express-News

SAN ANTONIO -- There may be fisticuffs over the form it will take, but there's consensus among leaders in Mexico that opening oil and gas production to foreign investment is crucial to growing the economy, that nation's secretary of economy said during a San Antonio visit Thursday.

"To me, it's very clear that the future of Mexican manufacturing depends on the access of sufficient cost-effective energy," Ildefonso Guajardo Villarreal said. "Today, Mexico has to import 40 percent of the (natural) gas we have to use in the industrial sector. We were not able to invest enough to produce our own gas. And we have plenty of gas in the underground."

Proximity alone has Texas' energy industry leaders eying opportunities to invest in what remain largely untapped mineral resources.

The booming Eagle Ford Shale may be even more abundant in northern Mexico, though there's already debate over the enormous investment costs and potential effects on the environment.

Guajardo, appointed secretary of the economy by President Enrique Peña Nieto last Dec. 1, was in town to meet privately with business leaders and Mayor Julián Castro, and to address the Association of Mexican Entrepreneurs. His visit coincided with a Border Energy Forum attended by U.S. and Mexican energy sector leaders.

Texas companies are watching closely, but interest in Peña Nieto's efforts to open Mexico's energy industry to foreign investment is global.

Petróleos Mexicanos, or Pemex, is the nationally owned oil and gas company and a historic source of Mexican pride and identity.

Pemex, however, hasn't kept up with the times. Its infrastructure is outdated, and public coffers can't support the sort of investment needed to mine shale plays or drill beneath deep waters.

Funds are lacking even for a pipeline to import gas directly from the United States, Guajardo noted.

Foreign companies' hopes, meanwhile, are piqued by recent proposals by the National Action Party (PAN) to allow for production-sharing agreements that are less understood than profit-sharing agreements.

Mexican industry experts at the energy forum in San Antonio were confident Mexico's Congress would pass energy reform in the next few weeks.

"Depending on what kind of amendments to the constitution take place, that will impact the opportunities that our clients will have," said John Dorsey, an Austin-based attorney who practices international law.

In profit-sharing arrangements, companies would contract with Pemex to explore and produce oil and gas, and receive a percentage of the profits.

Production-sharing contracts would give an oil firm the right to explore and develop the field and reap profits from the oil.

"It would receive payment in barrels of oil vs. payment of profit after the barrels of oil are sold," he said.

Dallas Parker, a Houston attorney who specializes in oil and gas law, said the production-sharing model has a "much clearer meaning and much brighter image in the global industry.

"These reforms are being watched closely all over the world," Parker said.

Guajardo told the San Antonio Express-News it's the profit-sharing model that's still on the forefront, but politics can bring about last-minute surprises.

"We know that the position with PAN is a much more aggressive one, but so far what is on the table stays where it is right now," he said.

He said Peña Nieto, a member of the Institutional Revolutionary Party (PRI), is under pressure for reforms to happen while in his first year in office, and has been clear on his basics for energy reform.

"I think what the people are demanding is that the oil belongs to the Mexicans, . . .," he said. "What the people want is that this abundance is eventually exploited rationally, transparently, and is producing jobs and opportunities."