Last week in
Income & Prosperity
I presented a thesis for investing in
Mexico's energy market
. My thesis was predicated on the fact you CAN invest in
Mexico's energy market, which for 75 years was closed to
Details regarding the
Mexican energy reform
still need to be hashed out, such as which regions will be
available for development and how the contract and licensing
procedures will work. Nevertheless, it's possible to
intelligently game where foreign business will first arise and
which U.S. energy companies stand to benefit.
Offshore drilling in the Gulf of Mexico and oil-and-gas
exploration in Mexico's portion of the Eagle Ford shale (which
extends from Southern Texas into North Mexico) offer immediate
The Gulf is home to one of the world's great unexplored
. The state energy company Petróleos Mexicanos (PEMEX) estimates
that 50 billion barrels of oil reside in the deep waters off
Mexico's shores. This is more than all PEMEX's proven reserves on
land and in shallower waters.
The problem for PEMEX is that it lacks the money and expertise
to exploit this offshore bounty created by the Mexican energy
reform. Fortunately for PEMEX, plenty of money and expertise
resides north of the border. ExxonMobil (
), BP PLC (
), and Chevron (
) all have the wherewithal to lend an immediate hand.
That said, there are better opportunities. These
behemoths report annual revenue in multi-billion-dollar
increments. Expanding into Mexico's deepwater fields will help
their bottom line, to be sure. The impact, though, would be more
meaningful to a smaller, more-concentrated enterprise.
I refer specifically to offshore oil drillers. These companies
supply the large integrated oil companies with the platforms and
rigs to drill for oil and gas in deep water.
Mexican Energy Reform: 3 Great Income
In the offshore drilling space I like
High Yield Wealth
Diamond Offshore Drilling (
For one, it's one of the larger offshore drillers.
also has a significant presences in the Gulf, with 12 rigs.
What's more, six of these rigs are already contracted to PEMEX
for its shallow-water drilling operations. Diamond has
aggressively expanded its ultra-deepwater fleet in recent years,
so it has the capacity to move quickly into the Gulf's deeper
Best of all, Diamond is value priced and already high yield.
Its shares trade at only 10 times next year's EPS estimate of
$5.15, while its $3.50 annual dividend per share generates a 6.8%
On land, I like energy companies that have an extensive
presence in Texas Eagle Ford shale. These companies can easily
expand across the Rio Grande into Mexico.
Chesapeake Energy (
is one such company.
Chesapeake's oil production from Eagle Ford shale has grown by
44% over the past two years, elevating it to the second-largest
oil producer in the region. A move into Mexico would be
logistically and geographically feasible… and potentially very
From an income investor's perspective,
doesn't provide an exceptional yield, at only 1.3%. But its
exceptional growth and low payout ratio - less than 30% - means
it has the potential to turn into a strong dividend grower as it
expands into new markets.
Energy Transfer Partners LP (ETP)
High Yield Wealth
recommendation well positioned to exploit Mexico's vast energy
Like Chesapeake, ETP has an extensive Texas presence. The
partnership owns 7,800 miles of natural gas pipeline in Texas
alone. Much of this network is associated with Eagle Ford shale.
Also like Chesapeake, ETP is well-positioned to move into
Mexico's side of Eagle Ford shale.
ETP is already a high-yield investment, with a 6.8% yield. A
move into Mexico could transfer ETP into not only a high-yield
investment but a high-distribution-growth investment as well.
The Mexican energy reform will offer abundant opportunity for
U.S. investors, but some opportunities will materialize before
others. The Gulf of Mexico and Eagle Ford shale are the most
likely to materialize first, which is why investors should first
look at companies with a significant presence in these
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