Mexico seeking investment to unlock its vast shale potential

Mexican flag
Source: DollarPhotoClub

At 545 trillion cubic feet of recoverable shale gas and thirteen billion barrels of shale oil, Mexico is among the top shale-energy-rich countries in the world, but legislative hurdles and the lack of technological know-how have so far made these deposits unreachable. This is all likely to change.

Constitutional reforms, enacted in December, ease investment restrictions and tax obligations for state oil company Pemex and open a path for investment from outside the country for the first time in 75 years – although secondary legislation is still necessary for the reforms to be fully implemented.

Mexico courts Canada for energy investment

As a result of the reforms, the Mexican government is now in a position to look for foreign investors. Last week, a delegation of Mexican government and business officials came to Calgary to court Canadian expertise and investment.

“Mexico is fully committed to the transformation of the energy sector and if we are to take advantage of these resources, we can do it with many people, but better we do it with friends” – Leonardo Beltran Rodriguez, Undersecretary of Planning and Energy Transcription at Mexico’s energy department said in a meeting with Canadian business executives.

At the same time, a report by the Canada West Foundation and Mexican economic think-tank Insituto Mexicano Competitividad stated that “Canada’s strong position in the energy sector and its political, geographic and economic ties to Mexico could benefit Canadian companies across the value chain”. The report pointed to Mexico’s large shale and tight gas and oil reserves that could be attractive to Canadian service and equipment companies.

There are, however, some downsides as well. One of which would be a potential “unintended consequence” of increased Mexican production creating intense competition with Canadian oilsands crude in the market, the report said.

So far, Canada has seen its exports to the U.S. soar by 25 per cent over the last six years – some of it at the expense of Mexican exports which dwindled by 41 per cent during the same time. In this context, developing Mexico’s rich resources might not be in Canada’s best interest.

“If Canadian services help to rehabilitate the Mexican industry, Canadian sales expectations to the U.S. might have to be revised,” the report says.

BHP Billiton considers buying acreage in Mexico’s Eagle Ford formation

Canada is not the only country eyeing Mexico’s rich energy resources. Anglo-Australian BHP Billiton has spent $US20 billion buying shale acreage on the American side of the Mexican border and is now considering purchases in Mexico. Especially since the energy-rich Eagle Ford formation continues south into Mexican territory, giving good grounds to suspect that it may be as productive as it’s northern counterpart.

“Oil and gas-prone windows extending south from Texas into northern Mexico have an estimated 343 tcf and 6.3 billion bbl of risked, technically recoverable shale gas and shale resource potential,” U.S. Energy Information Agency reported.

In a briefing this week, BHP’s shale president Rod Skaufel said the company would continue to buy and sell shale acreage rapidly in search of the sweetest spots, and could therefore join the rush into Mexico.
“We are going to churn our acreage; we will sell stuff that isn’t as prospective to us and we will look to acquire in the areas that we feel like we can grow our footprint, and that includes Mexico,” he said.

Mr Skaufel said he expected the Mexican oil and gas scene to develop ”slower rather than faster” given the security challenges around the US border, but he said BHP was ”looking at it” nonetheless.

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