Saturday, April 2, 2011

Foreign Oil Companies to Invest in Mexico

Reuters reports that Mexico will kick off its first auction next February for oil field operation rights for the first time in more than 70 years. This means private firms will be allowed to operate Mexican oil fields, taking a tentative step toward opening up the sector after it was nationalized in 1938 and opening the opportunity to further increase the already vast amounts of foreign investment in Mexico.

State oil monopoly Pemex said on its website it would be offering three blocks off onshore mature oil fields in the hopes they can be redeveloped with modern technology to maximize the recovery of the oil still locked in the earth. Oil and gas reserves in the three blocks total just over 300 million barrels of oil equivalent, a tiny fraction of Mexico's reserve base. 

The auction is also the first of new contracts permitted under reforms to Mexican energy legislation enacted in late 2008 to further aid the industry. Although the contracts do not grant private companies ownership over the oil and gas they produce they do represent a significant break with Mexico's long-held reluctance to allow international oil companies to operate in the country. 

Mexico, the world's No. 7 oil producer, relies on crude oil exports to fund around a third of the federal budget but years of underinvestment in exploration have left it with few options to quickly replace production capacity lost at its aging oil fields such as the super-giant Cantarell complex. 

International oil giants like Exxon Mobil, BP and Repsol have been eyeing Mexico closely although some analysts believe smaller firms may be more interested in the first round due to the small size of the fields on offer, Reuters reported.

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