Why Mexico’s energy reform matters

Mexico reform opened the energy sector to foreign investment in 2013 for the first time in 75 years, but weak oil prices and politics continue to pressure the country’s energy industry, Dimitra DeFotis writes in barrons.com.

Oil prices were up roughly 0.3% at midday Monday Sept. 12, with the U.S. oil price benchmark hovering at roughly $46 per barrel, while the international Brent price was near $48. The United States Oil Fund (USO) was up 0.4%; the fund is down more than 3% this year.

As for oil production in Mexico, it is at its lowest level since 1981. Production peaked in 2004, and has tumbled by a third to 2.49 million barrels per day from 3.82 MMbpd since, according to Raymond James analysts Pavel Molchanov, Luana Siegfried and Garrison Allen.

Pemex tanker trucks. (PHOTO: elarsenal.net)

Raymond James held conference call last week with the director of investor relations at Petróleos Mexicanos (Pemex), the state-controlled oil producer, and compares the company to counterparts, which include Petroleo Brasileiro (PBR) in Brazil, YPF (YPF) in Argentina and Ecopetrol (EC) in Colombia. Their main takeaway: “Mexico is a prime example of a country where the theory of potentially lucrative drilling economics is running up against the reality of what the industry calls “above-ground” risk, i.e., complicated and uncertain government policy.” Here are more excerpts:

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Source: barrons.com