Over the past decade, Mexico's hydrocarbon production has significantly declined, dropping from 3.7 million barrels of oil equivalent per day (boepd) in 2013 to 2.4 million boepd last year, a decrease of 35%. During this period, Pemex has consistently contributed approximately 97% of total annual production. However, over the past decade, the national oil company’s debt balance has surged by 52%, while its output has fallen by 38%. Pemex operates under a unique fiscal regime, where a significant portion of its operating profit is transferred to the Mexican government. Fiscal reforms over the past five years have included a progressive reduction in the Shared Utility Tax (DUC) rate from 65% to 30% between 2019 and 2024. As a result, the company's debt has slightly decreased from 2020. However, the company's debt remains relatively high. The decline in production over the past decade has also led to a significant drop in revenue, which is a concerning issue for both the company and the country. In response to all these challenges, new energy reforms are being implemented to strengthen Pemex's role in the energy landscape. These reforms aim to grant Pemex key decision-making power, thereby reinforcing the company's position in the sector.

The 2025 LSH focuses on re-nationalization, strengthening Pemex, limiting the private sector and repealing market liberalizing rules. In contrast, the 2013 Energy Reforms (LH) emphasized liberalization, opening the sector, diversifying players, and modernizing Pemex. While both models aim to secure Mexico’s energy needs, they differ sharply in their approach: one bets on competition, the other on state-led development.

A key and contentious aspect of the 2025 reforms is the elimination of independent regulators, such as the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH). These agencies were initially established to ensure fair competition and transparency, acting as watchdogs to keep state and private energy players in check. Now, government ministries will absorb their responsibilities. Critics warn this could increase corruption and inefficiency. The administration claims this move cuts costs and streamlines decision-making, but skeptics fear it removes critical oversight and makes energy policy more vulnerable to political interference.

There have been volatile regulatory shifts which contributed to a 30% production decline rate and 4% drop in the hydrocarbon sector compound annual growth (CAGR) over the last decade. The 2013 reform, under President Enrique Peña Nieto, opened the hydrocarbon sector to extensive private participation. This reform ended the monopolies of Pemex and CFE, allowing private and foreign investment in the oil, gas, and electricity sectors. However, this liberalization was short-lived. When President Andres Manuel Lopez-Obrador (AMLO) took office in 2018, he did not introduce a new reform law immediately, but a significant political shift occurred. He froze oil bidding rounds and halted further liberalization, shifting policy towards energy sovereignty and protectionism for Pemex and CFE. This resulted in volatile regulatory changes.

The recent energy reforms aim to ramp up Mexico’s production to 2.6 million boepd during the latter half of the decade, including 1.8 million barrels per day (bpd) of oil and condensate volumes coupled with 5 billion cubic feet per day (Bcfd) of gas. However, due to the current decline rate, these reforms must boost production by 625,000 boepd annually from 2025 to 2030 to meet the production targets. This ambitious goal presents a challenging path ahead.

Pemex's initial steps and the impact on the hydrocarbon sector
Under the new legal oil framework, Pemex will play a leading role in shaping the country's oil resource exploitation. It will have priority in selecting oil fields and the freedom to choose its partners. Pemex can pursue two types of development: its own development and mixed development. In the own development framework, Pemex can enter service contracts with private entities, with compensation paid in cash. In the mixed development framework, Pemex and its partners will enter parallel mixed contracts. Pemex must maintain at least 40% participating interest, and this will be defined on a case-by-case basis by the company's board of directors and ensure cost recovery does not exceed 30% of the income obtained, unless approved by the Ministry of Energy, in which case it must not exceed 40%.

If Pemex maintains a minimum 40% stake and allows existing or new players to farm in, Rystad Energy believes the company needs to focus on one key aspect: It should create an environment that maximizes value for the farm-in players. This approach will reduce the development investment burden on Pemex. For instance, if Pemex reduces its stake to 40% in select fields, it will lower its investment needs by $1.5 billion during the 2025-2028 period. This amount is comparable to what Pemex spent on 300 small fields last year, which contributed nearly 600,000 boepd or 25% of the 2024 output. Alternatively, Pemex can reduce its debt burden and pay rig suppliers, ensuring they continue drilling more wells in existing fields. Pemex faced issues making payments to suppliers in the last two quarters, while more muted drilling activity has also led to a drop in production.

In a nutshell, the future of the hydrocarbon sector hinges on Pemex's financial health, investment choices, and willingness to engage in joint ventures. The company must streamline its processes and foster a positive environment for other companies. Since many decisions are regulated by the Ministry of Energy and heavily influenced by Pemex, their choices could either make or break the future of Mexico’s oil and gas sector.

Authors: 

Radhika Bansal

Vice President, Upstream Research
radhika.bansal@rystadenergy.com

Vadranam Sai Krishna

Analyst, Upstream Research
vadranam.krishna@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy's, and the opinions are of the authors.)