Mexico energy reform good news for Pemex - lawyer

Friday, December 19, 2014

The opening up of Mexico's oil and gas sector to private investment as a result of the energy reform spells good news for Pemex, an industry lawyer told BNamericas.

The state oil and gas firm will be able to acquire specialist know-how and experience through working with private sector players, said José L. Valera, a partner at Houston law firm Mayer Brown.

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Pemex "has been given the tools to keep up with everybody else and a nice cushion of reserves in production in round zero to get it started, and it may compete for new areas and enter into joint ventures," Valera added.

"It is a fact that Pemex has now lost its monopoly, that other companies will come in, and that Pemex is not going to be the only company producing. So, in that sense, its share of production will drop by design. Whether Pemex will see its share of production to continue declining by a much smaller amount depends on Pemex itself," he said.

Pemex "has all it needs" to maintain itself as an important and relevant player, he added.

"No country needs a dominant company and Pemex will benefit from the efficiency that competitiveness brings about," Valera said.

He added that one of Pemex's biggest gains will be the ability to enter into "true" partnerships.

On the question of whether the drop in Mexico's crude oil prices, which dipped below US$50/b this week, risks delaying round one, Valera said only oil industry feedback would prompt such a decision.

"Mexico is still heavily reliant on oil revenues and needs more production and not less. It therefore needs to keep up with this program and keep encouraging companies to come in. The only scenario for delaying a particular region is if they get industry feedback that nobody is interested," he said.

He added that firms looking to invest in Mexico's oil and gas sector have confidence that the prospective reserves are as plentiful as the energy ministry (Sener) claims.

"Firms are comfortable enough to go in and explore new areas, believing that prospects are relatively high," he said. "There are many areas that are relatively untouched but have been drilled. Pemex itself has drilled in deep water and some drilling has taken place in unconventional gas, in Chicontepec, and there is a lot of oil known to exist onshore in southeast Mexico"

He pointed to the US energy information agency's (EIA) assessment of technically recoverable oil and gas reserves in Mexico as evidence of the prospective reserves that are whetting investors' appetites.

"Firms have been carrying out seismic, geophysical and geological surveys for Pemex and there are many parts of the country that are fairly well known to the prospection industry, so there is enough data out there to create confidence that exploration work should take place," he said.

On the question of whether Sener's calculated production cost of US$20/b is realistic, he said the figure should be taken with a grain of salt and that firms looking to invest in Mexico are experienced enough to make their own assessment of production costs.