Using our new Asset Risk Index Service, we identify the risks affecting oil and gas field development in Mexico and Argentina
In Latin America, the last decade has been defined by the nationalisation of resources with heavy state intervention and the return of the National Oil Companies (NOCs).
However, we are now seeing a shift towards foreign investment within the oil and gas industry with the region's two most strident resource nationalists – Mexico and Argentina –introducing reform and incentives in a bid to maximise value.
This ebb and flow in the regulatory environment continues to evolve, as governments seek a fine balance in incentivising investment while best capturing the upside.
Governments are recognising the need for more foreign investment due to escalating technical and capital requirements in their domestic oil and gas sectors. In parallel, declining hydrocarbon output is placing fiscal accounts under pressure with falling oil rents, and fuel import bills are rising and threatening trade balances.
In light of this, we use our new Asset Risk Index Service to identify the specific risks that affect oil and gas field development in both countries.
President Enrique Pena Nieto has already passed ambitious energy reform that liberalises the oil and gas sector and discussion is underway regarding associated secondary legislation.
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Mexico offers significant investment opportunities in deepwater, tight oil, heavy oil and unconventional plays, with the first licensing round expected in 2015.
Forecasts from our Asset Risk Index (ARI) Service show Mexico’s risk environment improving in the near term. However, the increase in oil and gas activity will also likely raise risks over the period to 2020 which will be important for new entrants to monitor.
Months after the renationalisation of YPF in May 2012, the government sought to re-engage with the oil and gas industry.
Over the last 18 months, the administration has introduced incentive programmes in addition to Oil Plus and Gas Plus and critically reached a resolution with Repsol over compensation for its nationalised interests.
Such efforts have resulted in YPF signing agreements with Chevron, Dow and Pampa Energia, whilst the Fernandez de Kirchner administration plans an expansion of E&P incentives later this year.
While there is downside side risk in the near term due to economic uncertainty, we anticipate further improvement within Argentina’s risk environment over the forecast period which will be defined by the result of next year's presidential elections.
Latin America Renaissance: Mexico and Argentina drive shift to resource maximisation [Complimentary insight for Wood Mackenzie clients including detailed breakdown of risk forecasts]
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