An Evaluation of Mexico's Declining Oil Production and Waning Petroleum Reserves

Since nationalizing its oil industry in 1938, Mexico has maintained high levels of fiscal dependency on oil revenues. However, oil production in Mexico is quickly declining. In fact, oil production levels in 2010 were at their lowest levels in 20 years. Petroleos Mexicanos Pemex, Mexicos state-owned oil monopoly and cash cow, currently provides the Mexican government with approximately 40 of its total revenues. Mexican oil revenues have long been exploited and mismanaged by successive administrations rather than invested in exploration projects, infrastructure modernization, or process efficiency improvement. Decades of severe financial constraints placed on Pemex by the Mexican government, coupled with a weak corporate culture, have left Pemex unable to deal effectively with the oil production crisis at hand. This thesis examines the factors that explain why Mexican oil production has dwindled, despite the governments tremendous economic and political incentives to preserve revenues generated by oil rents.