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Mexico oil reform appears to take approach of Iran, Ecuador

August 12, 2013|By Richard Fausset and Nancy Rivera Brooks
  • Mexican President Enrique Pena Nieto, left, talks with Energy Secretary Pedro Joaquin Coldwell in Mexico City.
Mexican President Enrique Pena Nieto, left, talks with Energy Secretary… (Ronaldo Schemidt / AFP/Getty…)

MEXICO CITY -- Reforms to Mexico's energy sector proposed Monday by President Enrique Peña Nieto will limit private companies to sharing profits with the state oil monopoly, an approach used only by Iran, Ecuador and Bolivia, said Energy Secretary Pedro Joaquin Coldwell. 

Those are not exactly models of cutting-edge economic performance, and some analysts wondered whether the proposal would amount to a real change once it had gone through the legislative meat grinder.

Major oil companies such as BP, Exxon Mobil and Chevron Corp. have expertise that Pemex lacks in drilling for oil and natural gas in deep waters and in shale formations. And they have expressed clear interest in doing business with Mexico.

Production-sharing agreements are standard in the energy industry, and a partnership that involves profit-sharing is likely to fall short of what oil companies had hoped to see.

As a result, analysts say, the key to how strongly major oil companies respond will be the details of the overhaul, which will be hashed out in Mexico's Congress. Oil companies will be looking for details of how profits will be determined and for some measure of legal certainty that their investments will be protected.

David Shields, an energy analyst based in Mexico City, said the bill presented by Peña Nieto was sorely lacking in the kinds of details that investors need to have. Only when the so-called secondary laws, the legislation that implements the reforms, are finished will it be clear whether Peña Nieto’s proposal is far-reaching.

“What we got today is what we call in boxing a shadow round,” Shields said. “They weren’t really answering what investors want to know. How do you develop a shale gas industry? What are the contracts really going to look like?”

Enrique Ochoa, deputy energy minister, defended the scope of the reform.

“There has not been a constitutional reform on hydrocarbons in Mexico in more than 40 years,” Ochoa said. “This is indispensable for Mexico. It is a substantial change for Mexico.”

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Fausset reported from Mexico City and Rivera Brooks from Los Angeles.

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