Aubrey McClendon, former CEO of hydraulic fracturing (โfrackingโ) giant Chesapeake Energy and current CEO of American Energy Partners (AEP), has signed a joint venture with a private equity firm led* by former Mexico president Vicente Fox.*ย
In a joint press release, AEP and EIM (Energy and Infrastructure Mexico) Capital announced a โlong-term, landmark partnership to explore the vast exploration and development opportunities offered by Mexico’s abundant oil and gas energy resources.โย The deal serves as another case study ofย U.S.-based companies cashing inย on the Mexico energy sector privatization policy the U.S. State Department helped make possible under both theย Obama Administrationย and theย Bush Administration.
EIM Capital was โfounded in anticipation of Mexico’s historic Constitutional Reform of 2013,โย according to its website.
โThis is a significant vote of confidence in the Energy Reform program championed by current Mexican President Enrique Penaย Nieto,ย and in the myriad possibilities offered by Mexico’s unconventional resources,โ hailed the press release. Among those resources: Mexico’s side of the Eagle Ford Shale basin.
McClendon, one of the main characters featured in the book โThe Frackers,โ also recently announced AEP‘s entrance into Australia.
A State Department diplomatic cable published by Wikileaks shows that Fox, president of Mexico from 2000-2006, helped pave the way for the constitutional amendments passed in December 2013, which resulted in the privatization of Mexico’s energy sector. The amendments opened up the country for international companies to sign joint ventures with state-owned oil company Petrรณleos Mexicanos (PEMEX).
And Fox, like others in the U.S., has since passed through the government-industry revolving door to profit from the policy apparatus he madeย possible.
The Foxย Cable
An October 3, 2005ย State Department diplomatic cable about Fox’s first visit to Alberta, Canada stated that Fox introduced a โplan for expanding the organizationโs role, including a new provision forย energy.โย
โ[T]he Mexican Trade Consul in Calgaryโฆ[said] there continues to be much interest in investing in Mexico’s energy sector,โ reads the cable. โThe Trade Consul said it is ‘painful’ to let Mexico’s resources sit in theย ground.โ
Eventually that โpainโ receded, with Mexico’s energy sector totally revamped in the decade that would follow. Foxย reacted to the EIM–AEP deal withย elation.
โThis is a major opportunity for Mexican energy production,โ Fox said in the press release. โWe look forward to working closely with the Mexican government to advance this monumental project and enhance Mexico’s current energyย policy.โย
Royaltyย Ripoff?
One of the promising aspects of Mexico’s energy sector privatization packageย โ from the vantage point of the oil and gas industry and capital investment firmsย โ is the lower amount of royalty payments due to landowners, as compared to in theย U.S.ย
Fox spoke of โMexicoโs cheaper labor costs and the governmentโs willingness to accept less royalties than U.S. landowners would make drilling cheaper in Mexico than in Texas,โ in an October 2014 Dallas Morning News article. โThe details are still being finalized, but EIM executives said the government would accept a sliding scale on royalties between 11.5 percent and 15 percent, depending on the price ofย oil.โ
Shale gas producers in particular, such as McClendon’s AEP, will benefit from a discount handed to them in Mexico as a result of the constitutional amendments. The logic behind the discount, explained the Brookings Institution, is due to higher capital investment costs associated withย fracking.
Chesapeake Energy is currently mired in a class-action lawsuit in Texasย for allegedly short-changing landowners on royalty payments. Andย Jefferson County, Ohio landowners suedย AEP subsidiary American Energy-Utica in June in another class-action lawsuit filed by 50 landowners, alleging much theย same.
Mexico may be the perfect frontier for McClendon, who has made a career out of โland grabโ as a business planย and preferring to make money by flipping overย land.
Perhaps it’s only appropriate, then, that McClendon has crossed the border despite the fact it remains unclear when bidding will actually take place for shale drilling in Mexico, which according to the country’s energy secretaryย Joaquin Coldwellย has been โsuspendedโฆpending a future evaluation.โ
*Correction: This post originally stated that EIM was โowned byโ Vicente Fox.ย President Fox serves on the board of directors of EIM and leads the firm along with its CEO, but Fox does not own it. We regret theย error.
Photo Credit: Wikimediaย Commons
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