Boston, MA -- (SBWIRE) -- 06/06/2014 -- We see the recently passed Mexican energy sector reform as the start of a fundamental paradigm shift for the country's hydrocarbons sector. While it does not challenge the national narrative that hydrocarbons belong to the state, working within these constraints the landmark bill takes steps to incentivise private sector involvement through the creation of a flexible contract system. As such, although we stress that it will take a number of years before results are felt in the country's production and reserves data, over the long term we believe this will bolster investment and could reverse a nearly decade-long decline in oil production.

- Late last year, Mexico passed landmark energy reform, which we believe is likely to begin to revive the long-moribund sector over the long term. The country's hydrocarbons production has long been hamstrung by the resource nationalism engrained in its energy policy. At the heart of the problem lies the wording of the constitution which, reinforced by the Petroleum Law of 1958, clearly identifies the Mexican nation as the sole owner of the country's hydrocarbons, and leaves little room for the private sector. While the new reform does not challenge the idea that the oil belongs to the state, it does take aggressive steps forward to open the sector to greater private investment. Specifically, it allows for the creation of a multi-tiered system in which a range of contracts, from profit sharing to licences, can be granted.
- There are still a number of questions yet to be answered, with secondary legislation (unpassed at the time of writing) likely to have an important impact on the implementation of the reform. That said, overall, the bill's passage has encouraged us to take a more positive stance on Mexican liquids production over the long term. Indeed, after a steady decline in crude, natural gas liquids (NGL) and other liquids production, from 3.79mn barrels per day (b/d) in 2003 to an estimated 2.88mn b/d in 2013, we forecast output will begin to stabilise over the coming years, hitting a low of 2.85mn b/d in 2016 before bouncing to 3.19mn b/d in 2023. Meanwhile, we see reserves expanding from 10.26bn bbl in 2013 to 10.40bn bbl in 2018 and 10.59bn bbl in 2023.
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