In a landmark legislation on Thursday, Mexican lawmakers gave the final approval to a contentious energy bill that will open up the country’s oil and natural gas fields to investment by foreign companies. The historic move – aimed to counter falling output – will see private entities operate in Mexico’s vast energy sector for the first time since 1938, when the industry was nationalized.
A key agenda of President Enrique Pena Nieto's sweeping reform efforts, the measure will end seven decades of monopoly by the state-owned oil firm Petróleos Mexicanos, or Pemex. However, the bill still needs to be ratified by the majority of the country’s 32 state assemblies – expected in early 2014 – to become a law.
Despite the strong approval given by both houses of Congress this week, the proposed energy sector overhaul was met with fierce protests from leftist lawmakers who saw it as a means of surrendering Latin America's No. 2 economy’s precious oil wealth to foreigners.
The backers of the bill, though, argue that it is necessary to attract state-of-the-art technologies and the financial muscle of overseas players to arrest falling output at the existing wells as well as develop promising deepwater reserves in the Gulf of Mexico. In fact, Pemex’s crude production has dropped sharply in recent years from nearly 3.4 million barrels a day in 2004 to around 2.5 million barrels a day currently, largely on account of the decline at the large offshore Cantarell oilfields.
Once transformed into law, the energy bill aims to lure multinational firms like Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell plc (RDS.A) and BP plc (BP) to explore oil and gas independently in one of the world’s largest energy markets, or under contract/license with the state oil giant Pemex.
However, the benefits of the reform will depend on Mexico’s ability, will and transparency in properly implementing the safeguards and regulations keeping in mind the interests of both the potential investors as well as the public. Therefore, the historic passage of the energy bill can only be seen as a very promising start that has to be followed with concrete steps.
Among the companies mentioned above, Exxon Mobil, Chevron and BP are all Zacks #3 Rank (Hold) stocks, while Shell retains a Zacks #4 Rank, which translates into a short-term Sell rating.
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