Mexico readies to open door to foreign investment

Handshake and a Mexican flag
Source: DollarPhotoClub

For the first time in 75 years Mexico is opening up to foreign investment for its energy market. Constitutional reforms carried out in December 2013 eased restrictions on investment and effectively ended the monopoly of the state-owned oil giant Pemex. Following this seismic shift in the country’s policy, the first state contract tenders are likely to take place in 2015.

It seems that there is a lot to fight for. Mexico is ranked sixth by EIA when it comes to technically recoverable shale gas deposits – after China, Argentina, Algeria, US, and Canada. The most obvious place to look to is the Mexican part of the Eagle Ford shale – already a proven producer of oil and gas for the country’s northern neighbour.

So far only four exploratory wells have been drilled – all of them by the recent monopolist Pemex, which released data for two of them.

The first well, the Emergente-1, was drilled in late 2010 a few miles south of the Texas-Coahuila border along a continuation of the Eagle Ford trend from South Texas. The initial horizontal well, drilled in the dry-gas window of the formation, reached a true vertical depth of about 8,200 ft with an 8,366-ft lateral. Pemex completed it using a 17-stage fracture stimulation treatment. It tested at a modest initial production rate of 2.8 MMcfd of gas. EIA estimates the well cost $20-25 million to drill and is uneconomic at current gas prices.

Results were also released for Pemex’s Habano-1 in the Eagle Ford’s wet gas window. The well had an initial production rate of 2.771 MMcfd of gas and 27 b/d of crude.

Initial production rates are not available for the Nomada-1 well drilled in the oil window or the Montanes-1 well drilled in the wet gas window. Pemex plans to drill up to 75 shale exploration wells in the Burgos basin through 2015.

A fifth Eagle Ford shale exploratory well, the Percutor-1, tested the formation in the more geologically complex Sabinas basin to the southwest. That well, drilled in a dry gas area, had an initial production rate of 2.17 MMcfd.

With the constitutional reform passed, the government is now tasked with creating a legal framework that will attract foreign investors. Foreign firms will gain more clarity on the subject when secondary legislation is finalised by 19 April 2014.

With an estimate of 545 trillion cf. of recoverable gas and 13 billion bbl of shale oil, Mexico’s shale deposits are certainly a prize fighting for. Especially that due to the country’s proximity to the US, Mexico’s shale gas explorers have less chance of encountering difficult geology which blighted many similar projects in Europe and China.

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