For the first time in over 80 years, Mexico held an auction for developing oil prospects — with offerings for 14 shallow-water blocks. The downsides included the drop in the world oil price, the escape of the notorious cartel leader El Chapo (adding to distrust over Mexico’s political stability), and the U.S. deal with Iran that opens up its oil to world markets. The upside — these were among the least likely to be profitable blocks that the Mexican government has available to offer.
What with national oil and gas revenues in decline, and the lack of incentives for exploration by the state-owned company Pemex, Mexico’s new President Enrique Pena Nieto has pushed through legislation that will allow profit- and production-sharing contracts and licenses to find and develop new oil and gas reserves in the nation to our south. Mexico has traditionally relied on oil and gas revenues for a third of its federal budget — and yet many Mexicans are fearful of the new arrangement that promises to lower energy prices and create jobs and economic growth. Coupled with reforms in energy policy, these changes could signal a major expansion of the Mexican economy — if the President can win the political battle to bring these reforms from paper to production.