Released June 09, 2014 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Mexico's liberalization of its Oil & Gas Industry has drawn the interest of companies in the U.S., Canada, China and Europe. But before executives from those countries pack their bags for a site visit, they might want to hire some bodyguards. Although Mexico has significant undeveloped oil & gas resources, it also has deep-seated security problems.
"Organized crime is alive and well in Mexico," Tony Payan, director of the Mexico Center at the Baker Institute for Public Policy at Rice University, told Industrial Info in an interview. "Security definitely is a problem in Mexico, though the government is working hard to uproot gangs. The security situation is bad, but not as bad as doing business in Nigeria or Libya. Companies that want to operate in Mexico should be prepared to face threats and harassment."
So why would oil & gas companies go to Mexico? "There are large opportunities there," Payan continued. "There is more oil and gas there than Petroleos Mexicanos (Pemex), the Mexican national oil company, could ever tap. Companies go where there are opportunities. Pemex doesn't have the technology or the financial resources to develop Mexico's oil and gas reserves."
One of the world's 10 largest producers of oil and gas, production in Mexico has steadily dropped over the last 20 years, largely because profits from Pemex were used to fund the government, rather than being reinvested in new technology. For 75 years, Pemex was granted exclusive rights to develop and extract Mexico's oil and gas deposits. Foreign companies could provide services to Pemex for a fee, but foreigners were not permitted to own reserves or production.
Click the image at right to see Mexican crude oil production from 1990 through 2013.
Last December, a constitutional amendment began the process of opening Mexico to foreign exploration & production companies. This summer, the details of the liberalization are being hammered out in Mexico's House and Senate. The expectation is that by year-end 2014, the rules will be finalized, opening the way for bidding on acreage and offshore blocks to begin in 2015.
Mexico is not privatizing Pemex, Payan notes. Also, that company will get first right of refusal on any acreage or blocks before bidding it opened to foreign companies.
Widely seen an inefficient and corrupt, Pemex employs about 151,000 people, roughly four times more than comparably sized oil companies, Payan noted. "Employment in Pemex has been social employment--it was one way for the government to prop up the middle class. It is too bloated, and there's a lot of corruption at Pemex. Still, it is very profitable."
That profitability could be further enhanced by one of the measures being considered by the Mexican Congress--separating Pemex's earnings stream from the national treasury.
Mexico has significant Oil & Gas resources. A recent estimate from the Oil & Gas Journal said that Mexico had 10 billion barrels of proved crude oil reserves and 17 trillion cubic feet (Tcf) of proved natural gas reserves at year-end 2013. The nation is thought to have considerably more probable and possible oil and gas reserves. Pemex estimated Mexico's shale resources hold 60 billion barrels of oil equivalent, more than the country produced during the 20th Century.
The majority of Mexico's oil is located in the deepwater Gulf of Mexico, while the largest gas field lies in largely lawless northeast Mexico, an extension of the Eagle Ford Shale. But that formation, the Burgos Basin, is still largely unexplored. While more than 5,000 wells have been drilled in the Texas' portion of the Eagle Ford Shale, only about 25 wells have been drilled in in the Burgos Basin, according to a report in The Washington Post. The scant exploration activity that has been done there has turned up dry gas that is not economic to produce.
Despite its rich gas resource, Mexico is a net importer of gas, mainly via pipeline from the U.S. Demand for gas is growing in Mexico, particularly as the country adds new gas-fired power generation. Prices for gas are as much as four times the prevailing price at Henry Hub, Louisiana.
"A lot of companies are keeping a close eye on Mexico's liberalization of its oil & gas markets," remarked Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "It looks like an attractive market. But the devil will be in the details--not only how the enabling legislation is written, but how it is implemented and enforced. Most of the oil and gas being extracted from shale formations in the U.S. came from independent companies and wildcatters. They have a high tolerance for risk, but the presence of Mexican gangs pose a whole different set of risks. Will the rewards be worth the risks?"
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
"Organized crime is alive and well in Mexico," Tony Payan, director of the Mexico Center at the Baker Institute for Public Policy at Rice University, told Industrial Info in an interview. "Security definitely is a problem in Mexico, though the government is working hard to uproot gangs. The security situation is bad, but not as bad as doing business in Nigeria or Libya. Companies that want to operate in Mexico should be prepared to face threats and harassment."
So why would oil & gas companies go to Mexico? "There are large opportunities there," Payan continued. "There is more oil and gas there than Petroleos Mexicanos (Pemex), the Mexican national oil company, could ever tap. Companies go where there are opportunities. Pemex doesn't have the technology or the financial resources to develop Mexico's oil and gas reserves."
One of the world's 10 largest producers of oil and gas, production in Mexico has steadily dropped over the last 20 years, largely because profits from Pemex were used to fund the government, rather than being reinvested in new technology. For 75 years, Pemex was granted exclusive rights to develop and extract Mexico's oil and gas deposits. Foreign companies could provide services to Pemex for a fee, but foreigners were not permitted to own reserves or production.
Click the image at right to see Mexican crude oil production from 1990 through 2013.Last December, a constitutional amendment began the process of opening Mexico to foreign exploration & production companies. This summer, the details of the liberalization are being hammered out in Mexico's House and Senate. The expectation is that by year-end 2014, the rules will be finalized, opening the way for bidding on acreage and offshore blocks to begin in 2015.
Mexico is not privatizing Pemex, Payan notes. Also, that company will get first right of refusal on any acreage or blocks before bidding it opened to foreign companies.
Widely seen an inefficient and corrupt, Pemex employs about 151,000 people, roughly four times more than comparably sized oil companies, Payan noted. "Employment in Pemex has been social employment--it was one way for the government to prop up the middle class. It is too bloated, and there's a lot of corruption at Pemex. Still, it is very profitable."
That profitability could be further enhanced by one of the measures being considered by the Mexican Congress--separating Pemex's earnings stream from the national treasury.
Mexico has significant Oil & Gas resources. A recent estimate from the Oil & Gas Journal said that Mexico had 10 billion barrels of proved crude oil reserves and 17 trillion cubic feet (Tcf) of proved natural gas reserves at year-end 2013. The nation is thought to have considerably more probable and possible oil and gas reserves. Pemex estimated Mexico's shale resources hold 60 billion barrels of oil equivalent, more than the country produced during the 20th Century.
The majority of Mexico's oil is located in the deepwater Gulf of Mexico, while the largest gas field lies in largely lawless northeast Mexico, an extension of the Eagle Ford Shale. But that formation, the Burgos Basin, is still largely unexplored. While more than 5,000 wells have been drilled in the Texas' portion of the Eagle Ford Shale, only about 25 wells have been drilled in in the Burgos Basin, according to a report in The Washington Post. The scant exploration activity that has been done there has turned up dry gas that is not economic to produce.
Despite its rich gas resource, Mexico is a net importer of gas, mainly via pipeline from the U.S. Demand for gas is growing in Mexico, particularly as the country adds new gas-fired power generation. Prices for gas are as much as four times the prevailing price at Henry Hub, Louisiana.
"A lot of companies are keeping a close eye on Mexico's liberalization of its oil & gas markets," remarked Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "It looks like an attractive market. But the devil will be in the details--not only how the enabling legislation is written, but how it is implemented and enforced. Most of the oil and gas being extracted from shale formations in the U.S. came from independent companies and wildcatters. They have a high tolerance for risk, but the presence of Mexican gangs pose a whole different set of risks. Will the rewards be worth the risks?"
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
