South of the Border, Down Mexico Way: The Past, Present, and Future of Petroleum Development in Mexico, Part I

Abstract

Mexico is estimated to have 9.8 billion barrels of untapped oil reserves, or about 10 percent of the world’s crude oil; however, much remains undeveloped and production is declining as a result of dysfunction in the structure of Mexico’s petroleum regime. Until recently, Mexico’s Constitution and laws limited oil and gas activities to those of its state oil company, Petróleos Mexicanos (Pemex), which struggled to invest in new drilling and technology. In 2013, however, Mexico reopened its petroleum sector to foreign investment. Although 75 years in the making, Mexico is taking a bold new path toward developing its petroleum resources. Mexico stands to benefit from foreign investment and new technology to develop its remaining resources, which include shale deposits, deepwater reserves, and reserves only recoverable through modern enhanced recovery techniques.

This two-part article has two objectives: Part I reviews the history of petroleum in Mexico—much of it unhappy—as a reminder of the long and tortuous pathway that led to Mexico’s current initiative to open its petroleum sector to foreign investment. The Mexican economy was built on oil in the early 1900s, but a combination of nationalism, petroleum-investor arrogance, and eventual overdependence on petroleum revenues all served to undermine the Mexican oil industry. It is important for petroleum investors to understand and appreciate this history in order to ease the transition of new oil production in Mexico. At the same time, the people of Mexico should take a long-term, forward-looking view of Mexico’s oil and gas future, which should be bright.

Part II, published in another journal, discusses the current reform of Mexico’s petroleum laws, including its initiative to resume direct foreign investment in the upstream petroleum sector.§

§ Owen L. Anderson & J. Jay Park, South of the Border, Down Mexico Way: The Past, Present, and Future of Petroleum Development in Mexico—Part II, 61 ROCKY MTN. MIN. L. INST. 20–21, 20–22, 20–33 to 20–34 (2015).