U.S. policymakers are closely monitoring the implementation of the December 2013 constitutional reforms and August 2014 implementing laws that, among other things, allow Mexico's Petroleos Mexicanos (Pemex) to partner with international companies and other industry entrants to boost Mexican production. At his inauguration, President Peña Nieto announced a reformist agenda aimed at bolstering Mexico's competitiveness that included energy sector reform. Key elements of the reforms include
Maintaining state ownership of subsoil hydrocarbons resources, but allowing companies to take ownership of those resources once they are extracted and to book reserves for accounting purposes; Creating four types of contracts for exploration and production: service contracts (companies are paid for activities done on behalf of the state), profit-sharing contracts, production sharing contracts, and licenses (enabling a company to obtain ownership of the oil or gas at the wellhead after it has paid taxes); Opening refining, transport, storage, natural gas processing, and petrochemicals sectors to private investment; Transforming Pemex into a productive state enterprise with an autonomous budget and a board of directors that does not include union representatives; Strengthening four federal entities with regulatory roles in the hydrocarbons industry (the Ministries of Energy and Finance, the National Hydrocarbons Commission or CNH, and the Energy Regulatory Commission) and creating a National Agency for Industrial Safety and Environmental Protection; and Establishing a sovereign wealth fund, the Mexican Petroleum Fund for Stabilization and Development, to be managed by the Central Bank. Even though Round Zero did not open up new fields for private companies to bid on, it did increase the opportunities for private involvement in exploration and production in Mexico. On December 14, 2014, the Mexican government announced the terms under which companies already incorporated in the country could bid on production-sharing contracts to explore 14 shallow-water fields of prospective light crude in the Gulf of Mexico. On July 15, 2015, Mexico's Energy Ministry announced the bidding results. The results have been deemed disappointing by energy analysts, as only 2 of the 14 blocks available were awarded. While analysts concur that there is still interest in Mexico's remaining "round one" offerings even though oil prices are low, they predict that the government will have to offer more competitive terms in order to garner greater interest. As a free trade partner, exports of U.S. natural gas to Mexico are assumed in the public interest by U.S. statute and permitted without delay, which has spurred U.S. natural gas exports to Mexico. Although Mexico is one of the world's largest crude oil exporters, it is a net importer of refined petroleum products. Since Mexico remains a top U.S. crude oil supplier and many of its untapped resources lie in deep waters in the Gulf of Mexico and in shale formations abutting the U.S. border, the countries want to ensure that Pemex (or other companies) develop those resources in an environmentally responsible way. Although Mexico is trying to diversify its energy sources, it, like the United States, is likely to continue relying on oil and natural gas from traditional and unconventional (i.e., shale) sources. Now that the United States and Mexico have approved the Agreement, the moratorium is considered moot. Impact on the U.S. Oil and Natural Gas Sectors and the Bilateral Energy Trade

The opening of Mexico's oil and natural gas sector to foreign investors poses significant changes in the U.S.-Mexico energy relationship that may have advantages and disadvantages for both sides. Reversing Mexico's production decline would add more oil to the global market and enhance U.S. energy security. The House approved a related bill on January 21, 2015 ( H.R. 161 ). The most important of those reforms may be the energy reforms promulgated on December 20, 2013, and implemented by secondary laws signed on August 11, 2014, that allow for private participation in Mexico's oil and gas sector in ways not possible since the sector was nationalized in 1938. This report will be updated periodically to inform the U.S. Congress on the implementation of oil and gas reforms in Mexico and to analyze how the reforms may impact Mexico's economic performance, the U.S. oil and natural gas sector, and bilateral energy relations.
The future of oil and natural gas production in Mexico is of importance for both Mexico's economic growth, as well as for U.S. energy security, a key congressional interest. Mexico is a top trade partner and the third-largest crude oil supplier to the United States. Mexico's state oil company, Petroleos Mexicanos (Pemex) remains an important source of government revenue even as it is struggling to counter declining oil production and reserves. Due to an inability to meet rising demand, Mexico has also significantly increased natural gas imports from the United States. Still, gas shortages have hindered the country's economic performance.
On December 20, 2013, Mexican President Enrique Peña Nieto signed historic constitutional reforms related to Mexico's energy sector aimed at reversing oil and gas production declines. On August 11, 2014, secondary laws to implement those reforms officially opened Mexico's oil, natural gas, and power sectors to private investment. As a result, Pemex can now partner with international companies that have the experience and capital required for exploring Mexico's vast deep water and shale resources. Leftist parties and others remain opposed to the reforms.
The energy reforms transform Pemex into a "productive state enterprise" with more autonomy and a lower tax burden than before, but make it subject to competition with private investors. They create different types of contracts for private companies interested in investing in Mexico, including production-sharing and licensing; allow companies to post reserves for accounting purposes; establish a sovereign wealth fund; and create new regulators. In December 2014, the Mexican government announced the terms of part one of Round 1, under which shallow-water offshore exploratory blocks available for public bidding would be auctioned. On July 15, 2015, Mexico's Energy Ministry announced that only 2 of the 14 blocks available were awarded to successful bidders. The government has altered the terms of the second round of bidding on September 30, including lowering the amount of upfront investment required by companies to bid and increasing the size of the blocks available, in order to attract more interest.
The U.S. Congress has legislative and oversight interests in examining the implications of Mexico's oil and natural gas reforms on U.S. hydrocarbon imports and exports, bilateral trade and investment, and economic conditions in Mexico. In December 2013, Congress approved the U.S.-Mexico Transboundary Hydrocarbons Agreement (P.L. 113-67), which aims to facilitate joint development of oil and natural gas in part of the Gulf of Mexico. The 114th Congress is likely to consider legislative proposals to speed up energy infrastructure development, including cross-border natural gas pipelines, as was approved by the House on January 21, 2015 (H.R. 161). Congress may also consider proposals to revise U.S. crude oil export policy. See also CRS Report R43442, U.S. Crude Oil Export Policy: Background and Considerations, by [author name scrubbed] et al.
The opening of Mexico's oil and natural gas sector could expand U.S.-Mexico energy trade and provide opportunities for U.S. companies involved in the hydrocarbons sector, as well as infrastructure and other oil field services. If these reforms accelerate growth and investment in Mexico (as the government has stated), they could also benefit North American competitiveness. Industry analysts maintain that the reforms are generally well-designed, but that the way they are implemented will likely determine their impact. The success of the reforms may also depend on trends in global oil prices. Should oil prices remain at current levels, shale resources and other unconventional fields may not be feasible to develop at this time.