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Mexico May Finally Get a Modern Oil Industry

President-elect Enrique Peña Nieto wants to open oil fields to outside investors
Mexico May Finally Get a Modern Oil Industry
Illustration by 731

When it was discovered in 1976, Mexico’s offshore Cantarell oil field was one of the world’s largest, and it quickly became a money machine for Petróleos Mexicanos (Pemex), the giant state-owned oil company. Thanks to this bonanza, Mexico became one of the top three sources of crude for the U.S. and Pemex became the biggest source of tax revenue for the government. Cantarell seemed to justify Mexico’s expulsion of the big British and American oil companies in 1938, and its policy ever since of forbidding outside investors from exploring and producing in the country. The ban on major outside investment in Pemex is even enshrined in the Mexican constitution.

Today, Cantarell’s output is shrinking. Pemex’s total production declined to 2.5 million barrels a day last year, from 3.4 million in 2004, and in the last quarter oil exports to the U.S. hit the lowest quarterly average since 1993. Pemex estimates it has 27 billion barrels of untapped oil in the deepwater Gulf, but it is relying on limited in-house experience and third-party technology to exploit it. So far it has failed to find any commercially viable crude after 20 attempts. Pemex lost $7.4 billion last year on $126 billion in revenue, its fifth consecutive annual loss.