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Mexico right in wanting to open oil industry to investors

Aug 21, 2013 - By The Dallas Morning News

Mexican President Enrique Pena Nieto still needs to fill in details about his intriguing proposal to open up more of Mexico's energy industry to foreign investment. The fine points will determine whether the plan he announced last week will indeed attract outside capital.

But based upon early reports, the new leader's ideas for reforming an industry that Mexico long ago nationalized are significant.

First, a substantial opening of the nation's energy operations could flow more capital into Mexico so it could produce more of its undeveloped reserves. The production would almost surely translate into an uptick in Mexico's economy. In turn, that would help the United States. A more stable Mexico means a more stable border.

Second, allowing foreign investors to produce Mexican oil reserves would give U.S. firms greater access to a nearby market. Foreign firms have some rights there already, but they are limited. As a result, energy companies in the U.S. largely have chosen not to work with Pemex, Mexico's state-owned oil company.

Pena Nieto's plan won't give American companies total access to Mexico's reserves. American companies couldn't own the reserves, as foreign energy companies can do in the U.S. But international companies could start drilling more in Mexico. And they could participate in profit-sharing contracts, much as foreign companies do in places like Ecuador, Iraq and Malaysia.

If successful, a profit-sharing arrangement could boost the U.S. energy industry, which includes many Texas companies. U.S. firms particularly have the expertise in drilling for shale gas reserves that Mexico lacks.

Third, greater energy production in Mexico would open up greater supplies of oil close to the United States. Even if oil flows through world markets, it is nice to have the potential of a stable source of energy in this hemisphere. Mexico reportedly has as much as 30 billion barrels of oil and gas offshore that awaits production

Fourth, the fact that Pena Nieto is making this move is eye-catching. As the leader of the PRI, he comes from the political party that once controlled Pemex. Now, he is proposing to open up that very operation. If the details get worked out correctly, this would be a Nixon-goes-to-China move on his part.

Of course, there are many moving parts in this plan. That's why former U.S. Ambassador to Mexico Tony Garza rightly urges both optimism and caution. Many regulatory details need working out. They will determine how interested companies in Texas and elsewhere are in expanding operations in Mexico.

Still, Pena Nieto's step toward economic liberalization is encouraging. We hope it opens a path of pursuit for energy companies in Texas and beyond.

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