Former Mexican President Vicente Fox has joined the ranks of government officials traveling the United States to promote the end of Mexico’s seven-decade ban on foreigners controlling energy production.
The 72-year-old politician was in Dallas on Monday representing Mexico City private equity firm EIM Capital for a series of private meetings with unnamed investors and oil and gas companies. He and EIM executives were on a three-day tour that also is to include Houston and Oklahoma City.
In an interview Monday, Fox said he was surprised and impressed by the expediency with which Mexico’s government has moved since constitutional reforms late last year. And he said he expected drilling to begin quickly once the government begins taking bids in 2015.
“The game has already started. The offices are open. It’s now or never,” Fox said. “Being late to the game is not the best. But it has some advantages. We got a chance to look at what Norway has done. What Brazil and Peru have done … All of them were considered in creating what I believe to be a vanguard set of regulations.”
EIM, which counts Fox as a member of its advisory board, is seeking to raise $500 million to fund development in Mexico’s energy sector with a focus on its shale fields, considered an extension of Texas’ Eagle Ford. The firm was founded in 2012 by Francisco de la Concha Hamdan, 29, who previously worked with the Mexican private equity firm iCuadrada and is a “distant relation” of Mexico’s attorney general under Fox, the company said.
Analysts have been mixed on shale prospects in Northern Mexico due to concerns about cost and the drug cartels that control the region.
But Fox was bullish, arguing that Mexico’s cheaper labor costs and the government’s willingness to accept less royalties than U.S. landowners would make drilling cheaper in Mexico than in Texas. The details are still being finalized, but EIM executives said the government would accept a sliding scale on royalties between 11.5 percent and 15 percent, depending on the price of oil.
The former president dismissed fears over security, which he said had been overblown by the media.
“The crime rate in Mexico is much lower than in Colombia or Brazil or Libya and other parts of the Middle East,” he said. “Mexico is not hell. You can walk on the streets and do business.”
The Mexican energy ministry is preparing to bid out drilling rights to foreign companies for 11,000 square miles of oil and gas fields representing more than 18 billion barrels of oil equivalent. It estimates that will bring $50.5 billion in investment to Mexico by 2018.
Contract details are expected to be released in November. Oil companies from around the world are watching closely, but projections that crude prices will stay low into next year could turn some away, said Benjamìn Torres-Barròn, an energy attorney in Juarez with Baker & McKenzie. West Texas Intermediate, the U.S. benchmark, closed at $80.66 Monday.
“We don’t have a crystal ball, but there is big interest from a lot of the main players in the industry,” he said. “A lot of it will depend on the economic terms the Mexican government releases.”
EIM is already in the process of identifying prospective fields through deals to look at geologic data held by mining companies operating in Mexico, said COO Patrick Hoogendijk.
“If you wait for the seismic and [Pemex’s] data rooms to open it’s going to be too late,” he said, referring to the offices where the Mexican oil company’s geologic data is stored. “We know from our research what are some of the interesting spots.”
Hanging over Mexico’s bid to expand its energy sector are questions about corruption that has hobbled other reform efforts.
Fox’s party, the National Action Party or PAN, has taken criticism for its connection to Mexican oil field contractor Oceanografia. The company’s CEO, Amado Yáñez Osuna, is now facing charges of defrauding Banamex, the Mexican arm of U.S. bank Citigroup, for $400 million.
On Monday, Fox said if the energy reforms were to be successful it was critical that corruption was rooted out, “not just in the law, but in practice.”
“The doors of the public functionaries are open now. You can go in and present your plan,” he said. “Before it was one guy deciding, the president.”