Mexico downsizes shale tenders in the wake of low oil prices

Oil price falling
Source: DollarPhotoClub

As low oil prices reduced the profitability of the difficult-to-reach hydrocarbons, Mexican government decided to downsize tenders of shale oil and gas blocks to oil companies.

The rules for the new shale tenders will be announced in August or September, following the launch of tenders for shallow-water, onshore and deep-water blocks, but it is not yet known exactly how many blocks will be offered. A source close to the government told Wall Street Journal that it is likely that only half of the 70 blocks originally planned will be put up for tender.

At 545 trillion cubic feet of recoverable gas and 13 billion bbl of shale oil, Mexico is ranked sixth by EIA when it comes to technically recoverable shale gas deposits, and eighth when it comes to shale oil.

After, in December 2013, constitutional reforms opened the country to foreign firms for the first time in 75 years, Mexico became a major destination for investment. Investors came from far and wide. Japanese energy major; Mitsui, SapuraKencana; Malaysia’s biggest oil and gas services company, and the Anglo-Australian mining giant BHP Billiton were all among the early entrants into the Mexican oil and gas market.

But the country is a prime example that a year can be a very long time in oil and gas business.

After oil dropped 45 per cent from last July, trailing at $55 per barrel, the attractiveness and profitability of shale gas and oil have fallen dramatically, prompting Mexico to change the size and the timetable for the tenders.

The original plan included 70 blocks of shale resources out of a total of 169 blocks being offered in the first round of oil bids. Speaking to WSFJ, one of the officials said some of the original shale blocks could be transferred to a second round of oil tenders to be announced in 2016.

The downsizing of shale tenders is likely to deal a further blow to President Enrique Peña Nieto, who will most likely have to go back on his promise to increase oil production by 500,000 barrels a day by 2018. Mexico currently produces about 2.3 million barrels a day.

While shale exploration is being put on the back burner, there is still interest in Mexico’s deep-water prospects, as well as the shallow-water blocks in the Gulf of Mexico. It seems that unconventional projects will have to wait until oil prices rebound.

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