For the past five years, investment opportunities in
have dominated financial-media headlines. This is
understandable. The paradigm shift brought about by fracking has
South of our border, a less obvious and possibly more
monumental shift is occurring. Mexico has opened its oil and
to foreign investment.
This is a big deal - a very big deal. Here in the States
technology was the primary obstacle to energy exploration and
expansion. In Mexico, government was the primary obstacle.
The latter is considerably more difficult to overcome than the
For 75 years, Mexico's
has been dominated by government-run monopolist Petroleos
Mexicanos, or PEMEX. There was no one else, as any tourist can
attest by recounting the ubiquitous, singular presence of the
PEMEX gas station.
Allowing foreigners into Mexico's energy market required the
Herculean task of amending the country's constitution, which
occurred on Dec. 23. I rarely do this for a politician, but I
must tip my hat to President Enrique Pena Nieto for his tenacity
and skill for doing what many thought could never be done.
Now comes the fun part. Over the next two years, PEMEX is
required to transform itself into a profitable (though still
state-owned) corporation. PEMEX's revenue and earnings will
depend on its own operations and its contracts with foreign
The good news is that PEMEX, its eventual partners, and
independent licensees have a lot to work with. PEMEX is the
world's fifth-largest oil producer and third-largest source of
U.S. oil imports. But there is plenty of room for improvement.
Much of PEMEX's girth is flab that needs to be transformed to
muscle. In 2013, PEMEX pumped an average of 2.52 million barrels
a day. In 2003, it pumped 3.5 million barrels a day, such has
been the decline.
Potential Exists Everywhere in Mexico's Energy
In short, there is huge opportunity. The Brookings Institute,
an economic think tank, estimates oil production could be raised
to three million barrels a day by 2018 and 3.5 million by
is another fertile field. PEMEX is estimated to be sitting on
approximately 500 trillion cubic feet of natural gas reserves.
Despite swimming reserves, Mexico has become a net importer of
Mexico's historical energy reform, if executed as planned, is
expected to ratchet up annual GDP to the 4%-to-5% range from less
than 2% in 2013. Additional investment opportunities will surely
arise in roads, commercial real estate, retailing, home-building,
and other infrastructure projects.
More immediately, though, energy production is the
focus. Within the next year, we should see significant
foreign investment in oil and natural gas development. Offshore
drilling and oil-and-gas exploration in northern Mexico offer
immediate return possibilities.
In both arenas, PEMEX's acumen is woefully lacking.
In the U.S.-controlled area of the Gulf,
extract more than 300,000 barrels of crude per day. In Mexico's
area: none. On land, the booming Eagle Ford shale in Texas
extends deep into Mexico, and yet there are only 15 wells in
Mexico's territory, and none are commercially viable. By PEMEX's
estimates, it's sitting on $300 trillion cubic feet of natural
gas in its portion of Eagle Ford alone.
Extraordinary opportunity exists for U.S.-based
companies - thanks to capital, technology, and know-how - to haul
Mexico's energy market into the 21
century. On Monday, I'll reveal the top U.S. energy income
investments positioned to gain a first-mover advantage in the
Mexican energy market.
Income From Pipelines: the Safest Energy
Most investors hope to "catch a flier" on small, risky
exploration companies who usually don't have a drop of oil in
their wells. But in our experience, people don't build pipelines
until they know when and how much oil they'll pump. Which makes
pipeline stocks the least risky investments in the entire energy
sector. No pipes - no oil.
Click here to read my full write-up
on two American pipeline stocks paying big (and growing)