'India is a Crucial Market for Mexican Crude Oil'

Jamie Nualart
Ambassador of Mexico to India
Mexican constitutional reforms to the energy sector under the leadership of President Enrique Peña Nieto has paved the way for foreign & private firms to invest in oil and other hydrocarbon exploration and extraction activities in the country. His Excellency Jamie Nualart, Ambassador of Mexico to India, shares his view on this Pro-Growth structural reforms agenda in detail, in an exclusive interaction with Rakesh Roy.

After a more than 75-year hiatus, Mexico has opened up its acreages for foreign companies to explore hydrocarbons. Please appraise the reason behind it and what are the responses of global oil majors into it?
Currently, Mexico is going through a Pro-Growth structural reform agenda which main goal is to foster productivity and growth in all sectors. This Agenda, under the leadership of President Enrique Peña Nieto, has been one of the most ambitious reform agendas in Mexican history.

In the past, Mexico's economic performance has not met its potential, and one of the main reasons behind it is the lack of productivity growth. From 1980 to date total factor productivity growth was -0.7 per cent on an annual average.

The reforms include measures that tackle inhibitors of productivity in key sectors of the economy, and encompass areas such as labor, education, financial intermediation, telecommunications, energy, among others.

The legislative changes incorporate deregulation in the labor market, the protection of creditors’ rights, and the exposure of sectors to competition where the entry of private participants is either completely banned, such as in most areas of the energy sector, or restricted to different degrees, such as in telecommunications. As regulation improves and obstacles to competition diminish, higher efficiency may emerge in related areas, with eventual benefits to our people in terms of higher quality and lower prices for goods and services.

In terms of the Energy Reform and Hydrocarbons, the key element is that the State may participate in oil and other hydrocarbon exploration and extraction activities through assignments granted to our State-owned oil company Petróleos Mexicanos (PEMEX), contracts with PEMEX, and with the private sector. There will be four types of combinable contracts for hydrocarbons: services, profit sharing, production sharing and licenses. The last three will allow transferring contractors geological and financial risks for exploration and extraction. The National Hydrocarbon Commission will be in charge of performing the public biddings, as well as signing and administrating contracts.

Foreign companies will also be allowed to book oil and gas reserves for financial reporting purposes. Reliance and BPCL from India and Exxon Mobil, Chevron, Shell, British Petroleum and Brazil's Petrobas, among others, have already approached PEMEX and are likely to participate in the first round of biddings. The first private contracts are expected to be announced in the first quarter of 2015.

How Mexico's historic opening of the oil sector for the foreign and private players will help in technology transfer?
The Pro-Growth structural reform agenda - especially in the energy sector - implies not only transfer, but development and implementation of new technologies as well. One of the main objectives of the Energy Reform is to provide our country with the required technology and experience to exploit our natural resources, this means technology transfer not only with PEMEX, but with other related sectors in Mexico, giving ways to technology development and innovation which will translate into a modern, competitive and productive sector.

Please brief us about the overall potential of oil & gas sector - both conventional & unconventional - of Mexico that will attract the global oil majors to invest in the hydrocarbon sector of the country?
We are expecting the attraction of more than USD 50 billion in new private and foreign investment by 2018 as a result of the participation of private sector in the first round of contracts that will be open in mid 2015.

Currently our Government, through the Ministry of Energy has assigned, under the 'Round Zero', 83 per cent of the Country's proved and probable reserves to PEMEX and has also granted 21 per cent of prospective resources. This allocation covers 90,000 sq. kilometers and contains an estimated 20.6 billion barrels of oil equivalent (BOE). The following Round of contracts - expected for mid 2015 - will offer foreign and private oil companies the rights to invest in 60 fields covering 3.78 billion BOE in proven and probable reserves and 109 fields covering 14.61 billion BOE in prospective resources.

Accordingly to data from PEMEX, the prospective resources in Conventional are 54.8 billion barrels of oil equivalent, and 60.2 billion barrels of oil equivalent in Non Conventional.

What are the future plans of Mexico government to encourage the more investment in oil & gas sector in the country?
We haven't started with the promotion of the sector. Just past August 13, SENER (Ministry of Energy) gave the results of Round Zero which already has identified projects that PEMEX will maintain as a productive State enterprise, while the rest will be tendered in the first half of 2015.

It is understood that around the fourth week of November 2014 will be announced the pre-bidding that will include the final areas for investment and contracting modality as well as economical and fiscal approach; once this information is out we will be able identify investment opportunities .

Mexico is playing a pivotal role to meet the energy requirement of India, especially as a substitute oil supplier during the western economic sanction on Iran. Moreover, as per report, over 85 per cent of Mexico's exports to India were crude oil in 2013, so can you brief our readers about how will Mexico play its role as a secure and stable partner towards India's energy security vision?
The comprehensive reform opened up the energy sector to private and foreign investors for the necessary modernization of the oil, gas and electricity sectors as well as to drive forward the country's renewable energy sector. Foreign companies - Indians included -, as it was mentioned, will be able to bid on profit-sharing contracts to either jointly or individually participate in Mexican oil and gas exploration, production, refinement, transportation and storage which up to now have been controlled by PEMEX.

In that context, several opportunities will be available for Indian companies in Mexico's energy sector, especially in all the stages of oil and gas production.

It's worth noting that crude oil is the main export of Mexico to India. With the recent energy reform, Mexico will effectively increase its role as a secure and important supplier of oil to India, thus strengthening our bilateral trade. Nonetheless, there has been a substantial increase in our commercial exchanges, from 1.8 billion in 2006 to almost USD 7 billion in 2013. In 2012, for example, India was our 7th most important trade partner in the Asia Pacific region and the 19th worldwide.