Mexico's oil, gas reserves could be second only to Arctic - EY

Friday, September 26, 2014

Mexico's potential oil and gas reserves, including shale, could be second only to the Arctic region in size and scope, and offer a wide range of opportunities for foreign firms in the wake of its reforms, according to a report by Ernst & Young (EY).

The report points to the potential for shale oil and gas extraction as a result of the country's energy reforms being implemented, with potential reserves of 60Bb of oil, significantly more than the 14Bb of oil and 481Bm3 of natural gas reserves that state-owned oil firm Pemex estimates.

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These estimates, and Mexico's proximity to the epicenter of the North American energy industry, have captured the attention of US oil companies, especially since Mexico's energy reforms open the doors to private investment.

"Among industry insiders there is a great deal of optimism surrounding upstream opportunities in Mexico," the report states.

Mexico is more attractive than other locations due to the availability of personnel with know-how of operations in the Gulf of Mexico, the presence of proven equipment and technology and the relatively easy access to oil and gas-producing areas, it adds.

But while Mexico's energy reforms are a landmark in the country's energy policy by allowing private investment, their impact will depend on how Pemex executes its contracts with private firms, and on the country's tax and legislative landscape. As such, investors and taxpayers should pay close attention to the possible effects of the changes, according to EY.

Continued monitoring will be necessary to determine the depth and breadth of the amendments.

The amendments provide for small percentage payments to landowners for oil or gas produced on their property, an increase in the amount of oil revenue transferred to state and local governments, and the removal of regulations that barred profit sharing by oil company employees.

"Pemex holds the key to the success of this ambitious experiment," the report states.

The firm will seek 10 strategic partnerships to develop 14 of the total fields granted to it during round zero.

The acreage awarded to Pemex in round zero totals almost 90,000km2, with production potential of 20.6Bboe, equivalent to 15 years' production and five years of exploration at the current output rate of 2.5Mb/d.

"The negotiation and execution of these agreements will send a strong signal to the industry. If the initial deals are handled with minimum complexity and bureaucratic delays, it will be a good sign that Pemex is on board and that the company is willing to work hand-in-hand with companies all over the world," according to EY.

The bolstering of the firm's long-term financial position should go a long way toward making it amenable to foreign participation, the report states.

The regulatory bodies overseeing private participation, the national hydrocarbons (CNH) and energy regulatory commissions (CRE) will also play an important role in the reform's success, it said.

BNamericas will host its 11th Southern Cone Energy Summit in Lima, Peru, on November 12-13. Click here to download the agenda.