New Energy Legislation Will Transform Mexico
E&P, Pemex

By John Donnelly | 27 March 2014

Pedro Silva LopezNew energy legislation in Mexico offers significant E&P investment opportunities and also promises to transform Mexican state oil company Pemex, participants in a special Country Session said Wednesday at OTC Asia.

OTC Asia is offering eight Country Sessions throughout the conference, providing in-depth coverage of issues and developments in various countries around the globe. The Mexico session featured representatives from Pemex, the Mexican government, and Ernst & Young.

“All of a sudden, Mexico is a very attractive investment environment. Things are beginning to change very rapidly,” said Pedro Silva Lopez, deputy director of technical resources for Pemex Exploration and Production. He discussed some of the reforms the Mexican Congress is currently deciding and what the future might look like for Pemex under a Mexican energy sector that will allow upstream investment.

Last Friday, Pemex submitted to the government the exploratory blocks and producing fields it would like to keep for itself under the new regime. The Congress will determine if the state-owned company has the resources to develop those properties and which upstream areas will be available for private investment.

Under “round zero,” the Congress is debating what types of contracts will be available for investment and other financial terms as the country’s 76-year-old monopoly on upstream investment comes to an end. Those details are expected to be announced by the end of April, but both profit-sharing and production-sharing contracts are expected to be offered. Formal licensing rounds will follow.

Silva said two particularly attractive upstream areas are in shale and in deep and ultradeep water. Pemex has drilled 25 deepwater wells, 14 of which are viable, he said.

The shale trend in southern Texas in the US, including the Eagle Ford and Woodford plays, extends into Mexico. There are at least six potential shale oil and gas plays, he added, noting that the US Energy Information Administration lists Mexico as having the world’s sixth largest unconventional reserves.

Pemex welcomes international competition into the E&P sector because it will make Pemex a stronger company in the long run, Silva said. “The new context in the Mexican oil and gas sector opens important opportunities for new players and Pemex as well,” he said. “Pemex will have to transform itself and will face a lot of challenges.” The company wants to be managed “like a regular company,” not a state-owned monopoly, and wants “to learn from IOCs and NOCs.”

The new energy landscape may allow Pemex to invest internationally or partner with firms outside of Mexico, he said, but whether or when that happens is unclear.

Pemex is currently split into four companies—E&P, refining, gas, and petrochemicals—with E&P the largest. Pemex crude production peaked at 3.3 million b/d around 2004 and has since fallen to 2.5 million b/d as its most prolific field, Cantarell, has rapidly declined. Cantarell, discovered by a fisherman in 1976, and Ku-Maloob-Zaap together account for half of Mexico’s oil production.

Exploration spending was literally abandoned for 20 years after Mexico’s big oil finds, but Pemex has convinced the government that it needs to spend heavily to bring production back to its target of 3 million b/d. Pemex is spending $28 billion this year with the vast majority of that going toward exploration.

In an earlier presentation, Jose Flores, Mexico’s trade commission to Malaysia, listed the reasons why Mexico is an attractive place to invest, including its shared border with the United States, access to two oceans, its 117 deep-sea ports, and the fact that it is the “gateway to Latin America.” Mexico has the 14th largest economy in the world and “is on its way to major, historical change.”

John Donnelly is the editor for the Journal of Petroleum Technology.

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