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For 75 years, Mexico’s upstream industry has been off-limits to private/foreign operators, with state firm Pemex responsible for all activity. All oil and gas exploitation has been the Mexican state’s legal property since 1938, when then-President, and PRI party leader, Lázaro Cárdenas seized oil fields from U.S. and British companies and changed the constitution.
Sudden, rapid change. Now, in the blink of an eye, all of that has changed. Mexican President Enrique Peña Nieto, the current PRI leader, took office on Dec. 1, 2012, making economic reform, particularly energy sector overhaul, his presidency’s “cornerstone.” During his first nine months, Peña Nieto, despite often-violent protests from union members, students and teachers, was able to pass several economic reforms through the Mexican Congress, covering education, labor, telecommunications and banking.
Peña Nieto pressed on, and convinced a coalition of his own party (holding only 38% of the legislative seats), the National Action Party and the Green Party, to support a package of energy reform measures, affecting Pemex’s role, and amending the Mexican constitution. As a precursor in October, he persuaded Congress to pass a tax overhaul that reduces governmental reliance on Pemex revenue, which has funded a third of Mexico’s federal budget.
On Dec. 10, in a dizzying process, supporters sent the president’s energy package to the floor of the Mexican Senate. Later that evening, the Senate approved the legislation, 95–28, and sent it to the lower house, the Chamber of Deputies (COD). At this point, the opposition coalition—including the left-leaning Democratic Revolution Party (PRD) and several smaller parties—was in a panic to stop the legislation. Leftists occupied the COD speaker’s podium and piled up chairs to block access to the chamber, and padlocked doors. Undeterred, congressional leaders favoring reform moved deliberations on the bill to a nearby auditorium. In response, leftists on the podium unfurled a banner that shouted, “Traitors!”
On Dec. 11, the anti-reform silliness continued, as Citizens’ Movement deputy Ricardo Monreal, screamed, “You’re traitors to your country.” PRD lawmaker Antonio Garcia demonstrated his opposition by stripping down to his underwear, saying that it symbolized how the reform bill would strip the nation of its wealth. All the histrionics proved useless, as the pro-reform group won a 353-134 vote. Remarkably, within just three days, a majority of Mexico’s state congresses had ratified the package, a condition required to amend the constitution. Accordingly, on Dec. 20, Peña Nieto signed the bill into law, completing a remarkable process.
Main components. While the legislation does not allow private and foreign operators to obtain full-blown concession contracts, it goes further than one might expect. Constitutional changes require the Secretary of Energy to manage Mexican oil and gas reserves, and identify areas for exploitation. Contracts will be awarded by the National Hydrocarbon Commission (CNH) to Pemex and private firms through “allocated entitlements.” In the first “round” of entitlements—“Round Zero”—issued during a 90-day window, Pemex holds priority. Tracts awarded to Pemex during that window must be developed in three to five years. Pemex can develop the resources on its own or enter into a JV with private companies, perhaps U.S. independents.
After Round Zero, CNH can award four different types of contracts to private companies. These include service contracts, profit sharing, production sharing, and licenses. Operators are likely to be allowed to “book” crude reserves for accounting purposes. Private firms also will be able to compete with Pemex, to conduct midstream and downstream activities. There are many more details, some yet to be worked out. We will have more on this reform in next month’s issue. Meanwhile, congratulations to President Peña Nieto for standing his ground and doing the right thing.
Eagle Ford activity spurs town’s growth. Last month, this editor participated in an Eagle Ford shale tour, hosted by Frost Bank and the leadership of the South Texas Wildcatters Host Committee. While the tour provided ample opportunity to see the great expanse of activity underway, it also afforded a window on how Eagle Ford development is positively impacting towns in the play.
A case in point is Pleasanton. Just two-and-a-half years ago, when City Manager Bruce Pearson took over running the town, the 2010 Census results showed that Pleasanton had 8,934 residents. “Today, we have roughly 13,000 people, and we continue to grow,” said Pearson. The biggest challenge the town has, he adds, is providing enough middle-income housing, plus hotels. “We’ve built six hotels in the last year-and-a-half, and we have two more in the works,” noted Pearson. Yet, the demand for hotel rooms in Pleasanton is so high, that the average room rate is $209/night, while long-term corporate leases fetch $179/night. On the permanent housing side, the town has several developments actively building homes. “We also have marketed ourselves to developers from Miami, Phoenix and other places,” explained Pearson, to generate further construction of housing.
In addition to Halliburton’s new operations center built to the north of town, a number of specialty service firms have opened new offices, yards and warehouses in Pleasanton. To support all these workers, a wide variety of new commercial establishments, from grocery stores to gas stations, dry cleaners and restaurants, is being built. Not surprisingly, the town has seen a tremendous increase in sales tax and property tax receipts. All of that revenue has allowed officials to make much-needed improvements to local governmental facilities. So, for most of Pleasanton, Eagle Ford activity has been a blessing. “We are the largest city in the middle of this play and couldn’t be happier,” said Pearson. 
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