Salient to Investors:

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields.

Ed Morse at Citigroup said Mexican oil output could double from inviting international explorers to drill there, the equivalent of adding another Nigeria to world supply.

Pablo Medina at Wood Mackenzie sees a huge opportunity for any kind of player in the energy sector as all the companies have to start analyzing Mexico, and said the first assets to attract foreign investment will be mature oil fields drilled decades ago and reservoirs that need injections of steam or CO2 to coax more crude out of the ground, followed by deep-water prospects, shale and other technically challenging endeavors. Medina said the level of investor interest will be partly determined by which assets Pemex chooses to keep and which to auction.

Analysts expect an influx of Mexican oil lower the price of Brent crude to as low as $88 a barrel in 2017; 5 of the 7 analysts said prices would be lower than this year.

JPMorgan Chase said the reform could increase foreign investment by as much as $15 billion annually and boost potential economic growth by 0.5 percent.

The US EIA said US crude production will expand to 9.5 million bpd in 2016, the highest since the all-time high of 9.6 million bpd in 1970.

Riccardo Bertocco at Bain said a doubling of Mexico’s output may be slower to realize than the most bullish predictions as companies confront barriers in accessing capital and human resources needed for development – an increase of 1 million bpd is the most realistic upper limit by 2025 based on the cost for new infrastructure, competition for new fields and opportunities all over the US.

Kurt Hallead at RBC Capital Markets is not expecting any significant impact from the reform in the next two years as Mexico will need to decide on tax rates, royalty structures, standards for booking reserves, etc., and conduct bidding rounds for licenses, and additional exploration, such as seismic tests.

Jose Antonio Prado at Holland & Knight said Chicontepec is just one of the over-budget, long-delayed projects for which Pemex will be eager to find partners, while Mexico will be able to incorporate private participants in existing projects as well as new opportunities. Prado said US and European banks and investment funds will be in Mexico next year in various forms trying to seek new opportunities.

Carlos Solé at Baker Botts said the reforms are especially important to open up exploration in Mexico’s deep-water fields, where additional capital and better technology and expertise are needed.

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