Mexico's Congress sounded the starting gun this week for a rush of potentially billions of dollars in oil and gas investment when it passed energy reform legislation that would let foreign companies operate there for the first time since 1938.
U.S. businesses are poised to benefit, as the state-owned Mexican oil giant Pemex advocated for the monopoly-busting measure as a means to tap onshore shale plays and deepwater deposits in the Gulf of Mexico.
The amount of investment in the Mexican side of the Gulf could be "a factor of 10" greater than what's been spent on the U.S. portion, said Ken Medlock, an energy fellow at Rice University's James A. Baker III Institute for Public Policy.
But for deepwater drilling — the Gulf can reach depths of 10,000 feet — only the major oil firms have the resources to compete. That means giants such as BP and Royal Dutch Shell could be some of the bigger benefactors.
"That opportunity exists for those groups, for those companies that already exist offshore. It's a limited group of companies that are large and that know how to do that that will take advantage of it, but it's a great opportunity for those companies," said Luis Gomar, a partner with Dallas law firm Strasburger and Price LLP.
Deepwater drilling has evaded the Mexican portion of the Gulf, meaning the entire infrastructure — floating drilling rigs, wells and all the parts in between — must be installed. That creates space for cradle-to-grave services and construction for U.S. companies — and they're already looking to dive in.
"Although we do not expect a material impact next year, the recent reform discussions signal a strong opportunity in Mexico shale and deepwater markets," Halliburton CEO Dave Lesar said in the company's third-quarter earnings call.
It's also a great opportunity for Pemex, the oil company reasoned.
Pemex said awarding foreign firms drilling licenses and allowing them to enter into contracts and profit-sharing agreements with the state-owned oil company would help buoy Mexican production, which has fallen from 3.4 million barrels per day in 2004 to about 2.5 million now.
Pemex said it lacks the technical knowhow to access deepwater hydrocarbons that have become the lifeblood of major oil firms. ExxonMobil, underscoring the emphasis major drillers have placed on those areas, predicted Thursday that global deepwater production would grow 150 percent between 2010 and 2040.
And since the Gulf is a known geologic play -- oil production on the U.S. side hit 1.3 million barrels per day in September, according to the U.S. Energy Information Administration -- the risk and guesswork that surrounds exploration decisions is less of an issue.
"The Gulf of Mexico is a prolific oil resource, a prolific basin, and there's always new resources being discovered," said Sam Ori, executive vice president of energy security group Securing America's Future Energy.
In all, Pemex said Mexico's share of the Gulf could hold 29 billion barrels of oil.
U.S. firms positioned along the Gulf are most likely to benefit, depending on how the law is implemented, Medlock said.
At issue is whether service firms will need to be based in Mexico, he said. The Mexican government has an interest in developing its own industry, rather than relying on the slew of American companies that assemble drilling rigs, shuttle workers and provide other functions for offshore energy production.
It's also uncertain what Pemex's role will be in the partnerships it strikes with foreign drillers. Must it be a majority stakeholder? Does it need to operate the rig?
It will be some time until all that is known — next, a majority of Mexico's 31 states still must approve the law. After that, Mexico's government must install a regulatory regime.
The regulatory portion will be tricky, Medlock said, suggesting it would need to largely mirror U.S. practices.
That's because a disaster such as the 2010 Deepwater Horizon disaster — in which a Transocean-owned rig exploded when drilling BP's Macondo well, killing 11 people and dumping nearly 5 million barrels of oil into the Gulf — would come back to harm companies, as whatever spews into the Gulf would end up on U.S. shores.
"You're probably looking a decade out for production to change dramatically," Medlock said, adding that "you'll see investment flowing in" in the shorter term.
Gomar said he expects the legal dust to settle in 2015, providing a launching pad for investment.
"There's still a lot of work to be done, but this is still a significant opportunity," he said.
Gomar is also bullish on the potential for large independent drillers and medium-sized firms to begin shale drilling in Mexico.
Pemex doesn't have the expertise that U.S. drillers pioneered to unlock those hard-to-reach hydrocarbons buried deep underground, Gomar said. That drilling process -- hydraulic fracturing, or fracking, involves injecting a high-pressure mixture of water, chemicals and sand to blast away tight-rock formations to access oil and gas.
The method has sparked the U.S. energy boom, positioning it to become the world's top oil producer by 2015, according to the International Energy Agency. But it faces opposition from environmental and public health groups because of concerns about groundwater pollution.
One of the lucrative shale plays in Texas — the Eagle Ford — is thought to extend into Mexico, making it a potentially attractive field, Gomar said.
But the security concerns are likely too large at the moment for anyone to seriously consider investing in onshore production, Medlock said. That's because the area is "prime Zeta territory," he said, referring to the dangerous drug cartel.
"I've talked to the big companies that are active in the Eagle Ford, and the message I get is they're not touching it with a 10-foot pole until those issues are resolved," he said.