Impact of the Reforms Package on the Oil Industry

Wed, 01/22/2014 - 12:53

After seven years of the Mexican Revolution, a new Constitution was enacted. Enclosed in the 27th Article of this document signed on February 5, 1917, the first building blocks regarding the establishment of a national oil industry were contrived, under the main premise of ‘rescuing all national resources from the grip of foreigners.’ These ideas were put into effect during the oil expropriation of 1938 following the order of former President Lázaro Cárdenas. The Mexican oil and gas industry has abided by this framework for over 75 years until the Energy Reform was passed in December 2013.

It is not only the Energy Reform and its secondary laws that are reshaping the industry as all the recent reforms are having an impact on the industry’s development. “Although Mexico has had a functioning hydrocarbon industry for more than 100 years, the changes we will see in the next few years will essentially create an entirely new industry,” claims Erik Legorreta, President of AMIPE. “All the recent reforms work toward the construction of this new industry. The rules have changed, as well as the ways in which business is done in the energy sector.” The Labor Reform, the Educational Reform, the Fiscal Reform, the Financial Reform, and the Energy Reform have changed the skeleton of the industry, while the secondary laws aim at reconstructing its operating nucleus. This revamp will bring private companies to the industry, many from foreign countries. “These companies are used to the types of financing schemes that Mexico will now have. The Financial Reform will provide companies with the elements they need to compete,” says Legorreta. However impactful the Financial Reform might be, Legorreta voices his concern at its lack of specific financial schemes for the energy sector. He believes that additional tools should create certain advantages for Mexican SMEs to compete with larger companies entering the market. “The secondary legislation might help soothe such effects over time.”

Legorreta also addresses the influence of the Labor Reform on the Mexican energy sector. “With the entry of new players and new contracting possibilities for engineers in the country, oil professionals will now be more valued by the Mexican oil industry,” he explains. “We might start seeing retired executives returning to work for larger international companies, under new employment schemes that benefit them, since their knowledge is now more valuable than ever.” Legorreta adds that jobs in the oil industry are now some of the best paid in the country because of the high degree of specialization they require. “There are not enough skilled workers to meet the needs of the industry, and companies are starting to realize they have to really take care of their staff.”