Executive Summary
Mexico is one of the largest oil producers in the world (1.7 million barrels per day 2018) and the fourth largest in the Americas after the United States, Brazil and Canada. In 2018, Mexico had proven natural gas reserves of an estimated 17 trillion cubic feet (Tcf). Mexico amended its constitution in 2013 to allow local and foreign private investment for the first time since its nationalization in 1938. The reform created the National Hydrocarbons Commission (CNH), responsible for regulating, overseeing, and evaluating all hydrocarbons exploration and production activities in the country. As a result of the energy reform, at the end of 2018 there were 67 new drilling and exploration companies that won 107 onshore, shallow, and deep water oil and gas projects by means of international tenders. Source: www.sener.gob.mx.
Current Market Trends
For 2019, PEMEX has an estimated budget of $23 billion and it is no longer the only drilling and exploration player in Mexico. Mexico’s energy reforms are driving the market growth of the current 67 drilling and exploration private sector companies whose estimated $59 billion worth of investments are to be allocated over the next three years in order to comply with award schedules for shallow water, onshore, deep water heavy oil and gas projects. Private sources have commented that by the third quarter of the present year, their investment program will start being implemented to comply with award schedules. Source: www.sener.gob.mx.
Competitive Landscape
U.S. exporters have 60 percent of the upstream equipment and services market, followed by Korea, China, Germany, Canada and Japan.
Best Prospects for U.S. Exporters
The demand for imported upstream oil and gas equipment and service is estimated to increase in an average of 2.0 percent annually from 2019 to 2024. Source: www.sener.gob.mx. Equipment needed includes derricks for oil and gas fields, drilling equipment for land, shallow and deep water projects, oil and gas field equipment, Christmas tree assembles, drilling rigs, oil and gas field machinery and equipment, marine seismic exploration services, jack-ups, platform rigs, drillships, equipment and services for environmental protection and spill cleanups and security systems and geological services.
Market Entry
In addition to developing strong working relationships with Mexican partners (distributors, and representatives), U.S. firms should use Spanish-language materials and communicate in Spanish whenever possible while doing business in Mexico. After-sales support is important. Selecting a local distributor or a rep can help facilitate and provide U.S. companies with insight on selling to upstream drilling contractors or Pemex.
Regulatory Environment/Registration Process
In order to participate as a supplier to Pemex, companies must first complete the registration process at the Pemex procurement International (PPI) website (www.pemexprocuremet.com). Selling to private sector/contractors in general also is needed to be registered. In both cases companies that wish to become registered suppliers must submit copies of articles of incorporation, audited finical statement, and commercial and financial references.
Technical Barriers to Trade
Under NAFTA, there are virtually no tariff barriers for U.S. exports of upstream equipment to Mexico. In 2018, the United States, Mexico and Canada signed the U.S.-Mexico-Canada Agreement. Ratification by the U.S., Mexican, and Canadian legislatures is pending.
Procurement & Tenders: Companies interested in selling to the government-owned petroleum company PEMEX must register as a supplier. Mexico has a public works law that requires government agencies to bid on equipment and services. There are three types of tenders: by invitation (minimum of three companies); local’ and international. Current international tenders require a Mexican local content of 25 percent and it will reach up to 35 percent by eh end of 2025. Selling to the 67 private companies/contractors that are also now in the Mexican market, companies must also register with each one of them. The requirements are basically to meet the local content requirements and provide articles of incorporation, financial statements, clients and financial references.
Getting Paid / Trade Finance: U.S. exporters for upstream equipment should be aware that Mexican lending rates are significantly higher than in the United States. Requiring payment either by confirmed letter of credit or cash in advance can potentially disrupt sales. While favorable payment terms are important, U.S. exporters should consider all financing options available to be as competitive as possible. U.S. exporters are advised to protect themselves from the risk of default by obtaining foreign buyers financing or export insurance from the U.S. Export-Import Bank.
