By: Charles B.
Published: May, 2014
Mexico’s Energy reform has received a lot of attention in international media. This is hardly a surprise for a country that at the end of 2012 had proved oil reserves of around 11.4 thousand million barrels. No doubt oil in Mexico is a magnet for attention given that more exploration may yield profitable productive areas. Deep waters projects are almost negligible in Mexico’s waters, but you should not forget Mexican shallow waters may also offer attractive points for oil and gas production. It is hard to imagine that you will discover an enormous oilfield as happened in the late 1970’s, when Cantarell field was found in the Bay of Campeche. Nevertheless, modest oilfields in shallow waters could be overlooked by a giant state-owned firm as PEMEX, hungry of finding a new Cantarell in order to overcome Mexico’s declining output.
Technology specialists also have a role to play in Mexico´s liberalized energy sector. During reform debates, we heard PEMEX wasn’t able to use the best technologies for a number of reasons. Oil companies who master the most advanced technology may find profitable trying wells or lots abandoned by PEMEX for technological and/or financial reasons. The end of the 19th century witnessed Mexico’s oil industry birth in a zone that runs from the port of Tampico to the city of Poza Rica (meaning “rich well”). This zone gradually lost attractiveness for PEMEX as new oilfields developed south and in the shoreline. However, one century later, Mexico’s Hydrocarbons Commission considers this same zone as the one with the best prospects in terms of quantity and fluid quality, among non-conventional oil and gas sources.
March 21st was the date PEMEX submitted to Mexico’s Department of Energy the firm’s proposal on which locations it wants to keep for itself (although Pemex may shop around looking for partners to develop them). This period is known as “round zero” because it takes place before any auction of lots suitable for oil and gas exploration. PEMEX requested to keep all fields currently in operation. For exploration, the firm wants to be awarded lots where investments are already taking place, including some in deep waters. For shale oil/gas zones, PEMEX’s request seems modest but even this could be beyond its financial and technical limits. Besides, it is not unlikely this kind of fields could be conflicting with PEMEX’s optimal market niche. In summary, the Department of Energy states that PEMEX wants to keep 83% of 2P reserves. The deadline for the Mexican government to answer this petition is September 17. Auctions for available zones are expected to happen during the second half of 2015 and afterwards.
Talking about oil and gas, opportunities opened by Mexico’s energy reform are wide, so strategy is the word to be considered by potential entrants. For some, going alone for shale deposits is the correct movement; some others may look for a partnership with PEMEX in specific projects. Small and big firms have a place in the wide Mexican geography, but in any case, they should not overlook aspects besides geology, and seismic features. Before entering any auction it is good to know about your future neighbors or landlords; about availability of people, jobs, water, or roads. All this will require direct, specifically tailored guidance on formulating and executing an entry plan to Mexico’s energy sector.
All opinions expressed are those of the author. Strategy Business Group Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and industry agendas.