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Mexico’s energy reform to rekindle foreign investment

28th November 2013

President’s historic energy reform stirs foreign appetite for Mexico’s deepwater and shale opportunities

Mexico’s energy reform to rekindle foreign investment
If approved, the reform could help catapult the country’s oil output to levels not seen since its peak in 2004

Mexico’s long awaited energy reform could be approved by congress as early as this month, The Financial Times reported this week, a move which seeks to lure oil majors and multinationals like Royal Dutch Shell and ExxonMobil back into the country to revitalise its oil and gas industry.

 

President Enrique Peña Nieto unveiled the historic energy reform proposal in order to allow foreign companies to invest in Pemex and enter into profit-sharing contracts with the state-owned behemoth to help exploit harder-to-develop deepwater and onshore oil and gas resources, including shale gas.

 

The investment required to develop these resources is too large even for Pemex, especially in the deepwater sector. The oil company, which accounts for a least a third of the government’s spending budget, invested around USD 5.3bn in deepwater exploration between 2002 and 2012 and has allocated almost USD 26bn in its upstream spending programme for 2013.

 

“The probability of commercial success in deep waters ranges between 20 and 50 per cent… This implies that for every 100 exploratory wells, there is a loss on average of between USD14bn and USD8.75bn in dry wells,” the government’s energy reform plan document says, stressing that “this level of risk is unmanageable for public finances”.

 

The country boasts massive hydrocarbon reserves, estimated at almost 14 billion barrels of oil equivalent at the start of 2013, according to the US Energy Information Administration. Several of these lie in deepwater reservoirs. 

 

"Out of the potential the country has... the contribution of deepwater could be as high as 30 per cent," the FT quoted Carlos Morales, Pemex's head of exploration and production as saying. "Right now it is zero."

 

If approved, the reform could help catapult the country’s oil output to levels not seen since its peak of 3.455 million barrels per day (bpd) in 2004.

 

"With this reform we could reach 3 million bpd in 2018, and 3.5 million bpd by 2025,” Morales told national newspaper El Economista in September.

 

Foreign expertise is needed now more than ever to revitalise and develop the country’s oil and gas sector. Many of Mexico’s reserves are located in shallow and deep waters, and so drilling rigs, FPSOs, FLNGs and all the associated equipment, technology and infrastructure required to build, maintain and supply these massive platforms will be required to maximise production in the years to come.

 

Companies like Keppel, Prosafe and others have already ramped up their operations in the country in anticipation of the reform’s potential effect.