7 ‘Refined’ Ways to Trade Mexico’s Oil Industry Reforms

Mexico may hold the world’s largest unexplored oil reserves outside the Arctic. Our southern neighbor could also have some of the world’s largest recoverable natural gas shale reserves, too.

Despite its tremendous reserves, Mexico’s actual output has been falling during the last decade. In fact, Mexico’s oil exports dropped for the last eight-consecutive years. Exports to the U.S. dropped below a million barrels per day in 2012, the lowest in 20 years.

But this story could be about to have a much-happier ending. That’s because …

Energy Independence Might be Becoming

More-Important Than the Status Quo

Mexico nationalized its energy industry 75 years ago, and "Pemex" suffered under the weight of corruption, inefficiency and incompetence ever since. The industry’s poor condition was a major issue in the country’s last presidential election.

Newly elected President Enrique Peña Nieto proposed to reverse slumping economic growth in part by opening the country’s energy markets to foreign investment. It was a gutsy position — even after he won the election, over 60% of Mexico’s electorate opposed Peña Nieto’s reform plan.

The state-run oil industry holds tremendous national pride for Mexico. The country even has a national holiday to commemorate the 1938 seizure of foreign-owned oil fields from foreign companies.

In the last month, Mexico’s Congress approved Constitutional amendments that will help open the country’s energy market to foreign companies. I believe this will have a profound effect on Mexico and likely lead to North American energy independence within the next five years.

The Entire International Oil

Market Will Feel the Change.

Backers of reform argued that developing the country’s enormous energy reserves is impossible without help from international giant oil companies.

Many of the richest deposits will require costly, incredibly deep sea drilling. Mexico needs the biggest and most technologically efficient oil companies to develop them.

The reforms will likely set off a frenzy of foreign investing in Mexico’s oil and natural gas resources. The constitutional changes will allow the government to award franchises, contracts and royalty agreements.

Critically, some foreign oil and natural gas companies will be able to log selected crude and natural gas development projects directly on their balance sheets. This should make project financing much easier.

Foreign companies wishing to take advantage of Mexico’s energy reforms must still go through Pemex, but the impact will still be enormous. Citigroup estimates Mexico’s crude oil exports could jump by about 2.5 million barrels a day.

Which Companies Will Benefit the Most?

U.S. and major international oil companies will be first in line, including …

  • ExxonMobil (XOM)
  • Chevron (CVX)
  • British Petroleum (BP)
  • Anadarko Petroleum (APC)

I also expect intense interest by firms from Asia – particularly China. I think Chinese President Xi Jinping will launch a full-blown charm offensive in Mexico. President Peña Nieto is already planning to visit Beijing next year.

Energy Service Companies Will Win Big, Too!

Service companies supply everything needed to pull oil from the both offshore and land deposits. This also includes the companies that will build new pipelines and transport oil and natural gas by rail and boat. 

The possible big winners include …

  • Hornbeck Offshore Services (HOS)
  • Kinder Morgan Management (KMR)
  • Halliburton (HAL)

I think firms like these will win even if they don’t gain new business from Mexico. Why? Mexico-driven demand should fatten prices and margins across the board.

I think this shot in the arm can drive up these stocks as much as 35% in 2014.

Good luck and best wishes,

James DiGeorgia

P.S. My subscribers are positioned in several of these stocks throughout my gold and natural-resource trading and investing services — including Global Resource Hunter, Junior Resource Millionaire and Gold and Energy Investor.

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