LatinFinance - March/April 2014 - 51

MEXICO
ENERGY

Mexico's radical energy reforms will affect far more than oil and gas
production. But much must be done before the benefits of a new Pemex are felt.
By James Fredrick

Oil's new era

wo developments this year have underscored more than anything else the
significance and widespread approval of last December's landmark energy reform in Mexico.
The first came in January when national oil company Pemex issued its largest ever bond, selling $4 billion in dollar-denominated notes with demand four times the amount sold.
As Pemex chief financial officer Mario Beauregard tells Latin Finance: "The bond is clear
evidence of the benefits investors are seeing in this reform, not only for Mexico but for Pemex
as well."
The second came a month later when Mexico's sovereign rating was upgraded in by
Moody's, largely in recognition of the reforms to its energy sector. The upgrade from Baa1
to A3 means that Mexico is the second country in Latin America behind Chile to achieve an
A-level rating from Moody's.
It is no hyperbole to say Mexico's energy reform is radical for the country's oil industry.
Since the 1990s there have been openings for the private sector in the transport and sale of
natural gas and propane.
But Pemex has remained the only firm allowed to drill, refine, or sell hydrocarbons in
Mexico from the 1950s - until now, after reforms were signed
into law by president Enrique Peña Nieto on December 20.
Private firms will now be allowed to tap the 45 billion barrels
of possible oil reserves in Mexican territory and take a slice of the
$61 billion of hydrocarbons products that Pemex sold in 2013.
Congress has until April 30 to pass secondary legislation on
energy, at which point many details will become clearer, including the framework for licensing, production sharing, and profit
sharing contacts.
But the existing changes already eliminate Pemex's monopoly
over the hydrocarbons industry. While Pemex has long been the
administrator and sole operator in oil, the reform will send most
power to state energy regulator CRE (Comisión Reguladora de
Energía) and upstream regulator CNH (Comisión Nacional de
Hidrocarburos) and make Pemex compete with private firms
across the entire chain.
Beauregard says new players will enter the sector and "in a
gradual process, Pemex will begin to invest only in those projects and areas where it has a competitive advantage."
For the immediate future, the most anticipated piece of

BURNING BRIGHT: Mexico's energy
revolution brings great promise

Source: media.proceso

T

reform allows the Mexican state to enter
exploration and production contracts
with private firms, although the state will
maintain ownership of the hydrocarbons
below the wellhead. Further on, legislative
guidance stipulates that licensing and profit
sharing agreements will also be options.
Midstream and downstream activities
are similarly no longer exclusive functions
of the state. Although natural gas transportation and distribution has been open to
private firms since 1995, now refining and
retailing of gasoline, for example, will also
be open, with the CRE managing auctions
or contracts.
Two new regulators will be created.
One is to oversee industrial safety and environmental standards, the National Agency
for Industrial Safety and Environmental
Protection (Agencia Nacional de Seguridad

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