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A New Oil Boom Is Underway in Mexico As Firms Prepare to Drill

09 November, 2014

Although the major long-term boost that’s on the way from Mexico’s oil industry following the implementation of historic reforms this summer is most likely going to come from new deepwater fields in the Gulf, it could be up to 10 years before companies actually start pumping in the newly charted areas, which means the immediate spike in production will come from existing onshore fields in the same region.

“A boom is coming,” Joel Vazquez, head of Mexican-Canadian drilling company DCM told the Wall Street Journal. “Not a week goes by without an oil company contacting us asking about making a joint venture or saying they’re interested in investing here.”

Under the new law, state-run oil company Petroleos Mexicanos  (Pemex) is busy turning its previous fee-based service contracts into more profitable deals that permit the sharing of oil production. This, in turn, is spurring a landslide of new investments and will significantly increase drilling over the next five years.

What’s Next

The Mexican government is expected to unveil terms on the first wave of auctions this month for oil-exploration blocks under the new energy law, with bidding set to begin in early 2015. Heavy interest is expected from both large and small oil companies, which will vie for rights to the 169 blocks that are up currently for grabs.

The installment of new technologies, including horizontal drilling and hydraulic fracturing, will be required In order to boost oil recovery in existing fields. Large energy companies like BP and Royal Dutch Shell are expected to focus mainly on the as-yet-untapped deepwater fields, while smaller companies are expected to go for the existing mature fields, which hold little interest for Pemex, which does not have the expertise to boost output.

“We know there is a lot of potential here, but for Pemex, the enhanced recovery from wells wasn’t economically viable,” shared Deputy Energy Minister Lourdes Megar in an interview with the Wall Street Journal. “Mature fields, along with shallow gulf waters and onshore fields in southeastern Tabasco state, are expected to contribute most of Mexico’s expected 500,000 barrels a day in increased output between now and 2018.”

Partnerships Increase Production

Also of note,Chevron and BP announced this year that they had located a “significant oil pay” in the Gulf of Mexico, prompting IG Markets analysts to report that dealers are expecting to experience “significant production growth over the next two years.” On the Mexico side, the search for deepwater oil and natural gas reserves is just beginning, with Mexico’s regulator, the National Hydrocarbons Commission, scheduled to hold the country’s first open auctions for oil and gas fields within one year.

In an Oct. 30 interview with the New York Times,Pemex CEO Emilio Lozoya Austin says his priority of late has been to attract partners who can facilitate production at two new fields. He also confirmed that major corporations like Exxon Mobil,Chevron and Shell, which have experience developing existing deepwater fields on the American side of the gulf, were “clear candidates” for these new ventures.

In addition, Lozoya shared that he is actively seeking partnerships for projects involving other types of deposits, including mature fields and extra-heavy offshore crude. These partnerships would allow Pemex to increase production as it attempts to develop its own updated deepwater strategy. Pemex will not receive any special privileges during the coming auctions and will be required to compete in the bidding process just like any other company, whether operating alone or with partners.

“There’s one thing that will persuade all of us: Money,” stated Vasquez. “You can make a lot of money here.”

Topics: Industry Pemex