Development of shale and tight resources in Mexico has hitherto been hampered by a highly nationalized oil and gas regulatory framework, one buttressed by a constitution prohibiting most forms of private-sector involvement. This framework, coupled with a high tax burden on national oil company Pemex—whose tax payments comprise nearly a third of the government's revenue—has effectively prevented intensive development of frontier areas. The country has continued to rely on the lowest hanging fruit in its resource base, eg, the shallow offshore fields of Campeche Bay such as Cantarell, whose continued production decline has prompted much of the deliberation on energy sector reform.

President Enrique Peña Nieto has made liberalizing the energy sector a key initiative and, after nearly 12 months in office, he appears to have delivered. The final version put for a vote was actually more aggressive than Peña Nieto had reportedly pushed for, thanks in large part to a number of provisions inserted by the Mexican senate fairly late in the legislative process. This version, which has also been ratified by the required minimum of 17 state legislatures, removes the monopoly on exploration and production from Article 28 of the constitution. Though it also amends Article 27 to read that concessions per se shall not be granted, it sets up a variety of license agreements and production-sharing and profit-sharing contracts with the government. These provide resource access and operational autonomy akin to that of a concessions regime.

Also important is the provision allowing E&P companies in Mexico to book reserves as long as they clearly state that ultimately, the hydrocarbons in place belong to the nation, not the company itself.

The country boasts large shale plays, such as the Sabinas Basin (the continuation of South Texas' Eagle Ford formation across the border), and the Tampico/Misantla and Burgos basins farther south. An April 2011 EIA-sponsored assessment of international shale plays had estimated the country's recoverable unconventional resources at 681 trillion cubic feet (Tcf). A June 2013 update of this exercise pared the gas estimate to 545 Tcf and identified 13.1 billion barrels of tight oil, mainly in the Sabinas and Burgos basins (see graphic).

Pemex's own assessment of Mexico's resource base has piqued interest in liquids potential in the Tampico Basin. A preliminary 2011 assessment of 297 Tcf equivalent, presumed to be mainly natural gas, was refined in a 2012 follow-up study to 140.5 Tcf of gas and 31.9 billion barrels of oil, primarily in the Tampico Basin. Meanwhile, the company has drilled several horizontal wells in the Sabinas Basin, and its growing pains in developing Chicontepec Field in the Burgos Basin will prove useful in deciphering other light, tight-oil opportunities (like Tampico).

Deep offshore potential and enhanced oil recovery could further supplement the country's resource base, with development slowing or halting the country's march towards becoming a net petroleum importer. Thus, substantive progress in creating a more supportive environment for E&Ps could pay off handsomely in Mexico.

Even so, the progress made by Peña Nieto so far needs to be placed in proper context. A number of important details still must be fleshed out in enabling legislation. The constitutional reform sets a deadline of 120 days for the deliberation and passage of these supporting measures. This provision portends greater clarity in relatively short order, but what is actually accomplished in that time frame remains to be seen.

Further into the future, other issues include the ronda zero (I.e., the selection of which exploration areas beyond those currently under development and production Pemex gets to keep); a re-examination of the country's tax code to reduce the burden on Pemex and/or any potential new entrants to the E&P sector; and the government's stance on incentives for unconventional resource development.