For the first time since 1938, Mexico’s oil frontier is open for business.

Mexico’s newly privatized oil industry was officially signed into law on August 11, 2014, ending Petróleos Mexicanos’ (Pemex) 76 year nationalization reign on the country’s hydrocarbon resources. Pemex provides roughly one-third of Mexico’s tax revenue, but years of corruption and inefficiency have cut sharply into its production.

The company has lost roughly $8 billion to date in 2014, according to Reuters. Volumes for Q2’14 dipped to 2,468 MBOEPD, and management expe...

Analyst Commentary

Barclays Capital Management (9.2.14)

A Substantial Opportunity, but Terms and Opportunity Set Will Tell: As recently highlighted in the Barclays Commodities 'Blue Drum', we continue to think the opportunity presented by energy reform in Mexico is substantial, as PEMEX estimates that the proven, probable, and possible reserves (3P) are equivalent to 44.5bn barrels of oil, and prospective resources total 114.8bn barrels. However, the extent of investor interest should be dependent on contract terms, particularly for Round 1, in our opinion. Contracts are expected to be finalized from May to September 2015, with foreign companies enhancing production from mature fields (with Pemex) and developing some new fields.

Enough Opportunity for E&Ps Onshore in Lower 48: The proliferation of horizontal drilling in the Lower 48 has created an opportunity-rich environment for U.S. E&Ps. We estimate that inventory is currently at all time highs. We think it will be challenging for onshore terms in Mexico to outweigh the opportunity set presented in the U.S. As a result, we do not anticipate new onshore exploration opportunities in Mexico to garner meaningful early-stage interest from the U.S. Independents.

Offshore Opportunity More Compelling: We expect the offshore exploration opportunities presented by reform to garner higher levels of interest from IOCs (versus onshore). Continued exploration successes in the U.S. GOM coupled with economies of scale with existing U.S. facilities should help buoy interest. While the offshore opportunity seems initially more compelling relative to onshore, contract terms will ultimately dictate the level of IOC drilling interest offshore.  

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