Comments: Mexico's Next Step

Abstract

Editor's column The opening of Mexico’s energy sector to private foreign investment continues to move forward, with more details of the landmark legislation expected soon. The potential impact this will have on Mexico, its state oil company, and the upstream industry in general is hard to overestimate. Mexico, with all its hydrocarbon riches, has essentially been closed to outsiders since 1938, when the country declared that all mineral and oil reserves in Mexico belong only to the nation. Mexico has watched its neighbor to the north, the United States, reap the benefits of shale development and ultradeepwater production in the Gulf of Mexico with oil prices hovering around USD 100/bbl. The country now would be reversing decades of resource nationalism, allowing foreign oil firms access to potentially world-class fields. In March, national oil company Pemex submitted to the government its list of fields and acreage that it would like to keep under the new energy reform regime. Fields not on the list are expected to be offered in auctions, with Pemex allowed to bid on those as well. The first licensing round is not expected to be held until 2015 with production-sharing and profit-sharing contracts both under discussion. Acreage would likely include conventional resources, unconventional, and deep water. Pemex may also seek partnerships with foreign firms for acreage under deals that could be signed as soon as this year. Published reports say that Pemex requested acreage containing 83% of Mexico’s proved and probable hydrocarbons reserves and 31% of its prospective resources. The acreage includes conventional onshore and shallow water fields, in addition to deepwater fields already under development as well as deepwater areas where discoveries have unveiled attractive prospects, such as in the Gulf of Mexico Perdido Fold Belt. Mexico’s energy ministry has a September deadline to decide what acreage Pemex can keep and what will be available for bidding. International oil companies may be particularly interested in prospective unconventional acreage, such as in the northern part of the country near south Texas, and the unexplored deep water. The state oil company is thought to have neither the finances nor the technology to develop those areas on its own. Pemex is trying to shore up its declining oil production. Current crude output is averaging slightly more than 2.5 million BOPD this year, the same level of production since 2012, and down significantly from a peak of almost 3.4 million BOPD in 2004. Enhanced oil recovery methods at mature fields and plateauing production at the main offshore Cantarell complex are helping keep output from falling further. Crude oil exports average approximately 1.27 million BOPD. Mexico’s once-prolific Cantarell field is producing about 355,000 BOPD, down from 2 million BOPD a decade ago, and the offshore Ku-Maloob-Zaap complex is expected to start declining soon from its current 860,000 BOPD output. JPT