Political Trends in Latin American Oil: Mexico and Venezuela

Mexican President Enrique Peña Nieto has responded to over a decade of declining oil and gas production with vocal support of reform of the Mexican energy sector. While the Mexican Constitution provides PEMEX a monopoly in the upstream oil and gas sector, the new president’s vision would amend Articles 27 and 28 of the Constitution to allow foreign participation in the sector, as well as eliminate the various state-controlled oil and gas monopolies. Such changes should facilitate an influx of capital, technology and international market participation that could create an energy revolution on par with the American shale phenomenon.

Despite the promise of an economic boom, in order to effectuate constitutional reforms Peña Nieto must win support from the opposition PAN. Constitutional change, however, is just the beginning of the reform process - the real work will be drafting the actual text of the implementing legislation. Some critics argue that Peña Nieto’s proposed reforms do not go far enough1 because any new legislation is unlikely to impact PEMEX’s position as the sole entity controlling the Mexican upstream sector. However, in the context of PEMEX’s seventy five year history and progressive origins, the young leader’s approach is remarkably bold. This fact is made even more apparent when contrasted to the more recent trend of resource nationalism seen in Venezuela.

Though Venezuela’s PDVSA faces a similar set of challenges as PEMEX (declining production and a weakened balance sheet), rather than consider market based reforms, Venezuelan President Nicolas Maduro seems to have doubled down on the nationalist energy policies of former president Hugo Chavez. This political position has manifested itself recently in a string of high profile expropriations of American E&P assets.

Earlier this month, Superior Energy Services Inc. released information that Maduro’s government had seized two of its hydraulic snubbing units from a facility in Anaco and defaulted on a nine million dollar debt.2  Only a little more than a month before Superior’s press release, Venezuela’s navy seized a vessel owned by Anadarko Petroleum Corp. and held the ship’s crew in custody for one week.  In September, the World Bank's arbitration panel, the International Centre for Settlement of Investment Disputes, ruled that Venezuela illegally expropriated ConocoPhillips’ Petrozuata, Hamaca, and Corocoro projects.3 Despite this international censure, there is reason to believe similar expropriation will worsen in the near future, as the Venezuelan legislature has recently granted the incumbent president “decree” powers to combat the country’s historically high rates of inflation.4

1 http://www.forbes.com/sites/doliaestevez/2013/08/13/investors-unimpressed-with-mexican-president-pena-nietos-energy-reform/

2 http://online.wsj.com/article/BT-CO-20131104-713463.html

3 http://www.bizjournals.com/houston/blog/drilling-down/2013/11/venezuelan-strong-arming-could-drive.html

4 http://www.washingtonpost.com/world/the_americas/venezuelan-president-maduro-given-power-to-rule-by-decree/2013/11/19/af304c3c-516b-11e3-9ee6-2580086d8254_story_1.html


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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