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Spotlight on oil production in Mexico

With an average daily production of 2,186,877 barrels per day in 2016, Mexico is ranked number 12 for oil production. Back in 2006, though, Mexico was pumping well over three million barrels a day of crude oil and was the seventh-largest producer in the world.

Mexico’s early oil industry developed in tandem with its rail network in the 1880s and 1890s. Prior to this, the lack of a domestic market and a means to export it efficiently made oil production somewhat pointless.

In the early days of production, much of Mexico’s large estates and communal land had been privatized and subdivided into smaller lots. This made it easier for foreign oil companies to buy or lease land from smaller landholders. Leasing in particular was often regarded as easy money for the landholders, who could generally remain on the property.

While commercial crude production began in 1901, the game changed when the British entrepreneur Weetman Pearson was encouraged by Mexican President Porfirio Díaz to develop the country’s petroleum reserves. This resulted in the very successful Compañia Mexicana de Petróleo El Águila (The Mexican Eagle Petroleum Company, which later became a subsidiary of Royal Dutch Shell) and sparked a fresh influx of foreign oil companies.

The process of nationalisation began with Mexico’s 1917 constitution, which gave the government full and permanent rights to the country’s subsoil resources. While this was not immediately applied retrospectively, factors such as poor working conditions and defiant behaviour from oil companies led to Mexican President Lázaro Cárdenas nationalising all oil reserves and facilities in 1938, including all equipment, buildings, refineries, ships, and pipelines. In addition to the Mexican Eagle Petroleum Company, American oil firms were also dominant at the time, including Jersey Standard, which is now ExxonMobil – the maker of the anti-wear hydraulic oil Mobil DTE 25.

Later in 1938, state-owned company Pemex was formed to take over oil production and given exclusive rights over petroleum-related areas. Pemex managed to increase production through the remainder of the 20th Century, and in the late 1970s, the government used its oil reserves as collateral for large international loans, most of which was used by Pemex to enlarge its facilities and build offshore drilling rigs, leading to higher production.

By 2005, production plateaued, and recent years have seen regular declines in oil production as existing oil fields naturally decline. Recent reforms, however, have allowed foreign oil companies to invest in Mexico once more, and these projects are expected to yield results by the end of the decade.

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