New energy legislation will transform Mexico E&P, Pemex

New energy legislation in Mexico offers significant exploration and production (E&P) investment opportunities and also promises to transform Mexican state oil company Pemex, said participants at one of several special sessions at OTC Asia focusing on individual countries.

OTC Asia offered eight country sessions during 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 foreign upstream investment.

Pemex recently 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 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 in the second quarter, 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 the southern United States, including the Eagle Ford play in Texas, extends into Mexico, he said. 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 (international oil companies) and NOCs (national oil companies).”

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

Pemex is currently split into four companies—E&P, refining, gas, and petrochemicals—with E&P the largest. Pemex’s 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 USD 28 billion this year, with the vast majority of that going toward exploration.

New energy legislation will transform Mexico E&P, Pemex

John Donnelly, JPT Editor

01 May 2014

Volume: 66 | Issue: 5