Friday , 23 March 2018

Mexican Oil Fields Emerging as the Most Lucrative Investment Destination for Leading Oil Companies

The Mexican authorities have recently decided to vote on rules that would put an end to the state oil monopoly, which had lasted for 76 years, could not have come at a better time for some of the leading global energy companies.

Companies such as Royal Dutch Shell Plc. and Exxon Mobil Corp. are on the lookout for new destinations that will become their latest source of energy revolution that has taken a grip on countries such as U.S. and Canada in the recent years. In fact, United States is in the middle of a 26-year-old high in their crude oil production while Canadian production is also setting new records. Thus, the estimated US$1.3 trillion of crude reserves that Mexico holds at yesterday’s prices can encourage deep-pocketed producers, in association with power and pipeline companies to mimic the energy revolution happening among her northern neighbors.

An infusion of foreign investment can revolutionize the crude oil exploration and extraction scenario in Mexico and enable the country to double its daily output to 5 million barrels a day. This will enable Mexico to come up to the fourth spot in the list of world largest producer of crude oil, and help stabilize the market against growing uncertainties in other parts of the world.

Sanctions threatening the expansion of output in Russia, and growing instability in many of Africa’s leading oil producing nations have jeopardized the heavy investments made by many leading oil companies in those countries. Mexico can take a leading part in North American energy boom, which includes the goal set by U.S. to reduce trade deficits by becoming energy self-sufficient.

The U.S., Canada, and Mexico can come close to becoming energy independent if they play it right according to Tony Payan who is the director of the Mexico Center at Rice University’s Baker Institute for Public Policy in Houston, Texas. These countries can even become significant players in the export market for crude oil and natural gas, scenario greatly desirable for the United States.

Mexico provides potential windfall for oil companies across a number of fields, which stretch across the border into the U.S. Gulf of Mexico, and the Eagle Ford shale formation in south Texas. Some of the leading names among global oil companies such as Bp Plc, Chevron Corp., Petroleo Brasileiro SA, and Total SA that are likely to bid for tens of millions of dollars into Mexico. They are going to form joint ventures and invest in contracts to help extract more oil from the country having the third largest oil reserves in North America.

Proximity to the United States is among the prime reasons behind the enhanced lure for Mexican oil to many of the leading oil companies. Companies such as BP, Shell, and the Chinese giant China National Petroleum Corp. have already formed agreements with Mexico’s state owned Petroleos Mexicanos, better known as Pemex to collaborate and boost their chances of forming joint ventures. Many of these companies are already operating in the U.S., which has much of geological proximity with the fields in Mexico. Therefore, the expertise and technical information gained there is going to provide a huge advantage for these companies when they begin operating in Mexico.

The head of Deloitte LLP’s energy sector practice in Mexico, Jose Castilla, while speaking by phone from Mexico City, has once again reiterated the potential of Mexico to emerge as the alternative investment destination for oil companies who have investment quite significantly in various African nations such as Nigeria and Angola. Greater stability in North America compared many of the African nations can boost Mexico’s chance of becoming the favored investment options for many oil companies. According to Castilla, the drug violence plaguing the northern Mexican regions pales in comparison to the turmoil that is taking place on a global scale.

According to Fadel Gheit, who is a New York based analyst for Oppenheimer & Co., Mexico must encourage leading oil companies to invest in Mexico by striking deals with them. This is the only way to reverse the decline in oil production from Pamex that this nation has witnessed in the recent past. The country is in desperate need of capital, technology, and capital if they are to exploit the enormous potential that is present in the Gulf of Mexico resources, added Gheit in the phone interview. Only the largest oil companies are deep-pocketed enough to be able invest the millions of dollars that is necessary to make a perceivable difference in the functioning of Pemex.

Spokespersons form some of the leading oil companies including Shell and Exxon have released comments, which bolsters these companies’ commitment towards being perceptive to the rapid developments taking place in the crude oil scenario in this North American nation. All these companies are keeping an eye out for making the most of the opportunities presented to them since the reserves in Mexico have come as a sort of relief from all the wars raging on in part of Africa, Ukraine, and the Middle East.

However, many of the big names in the oil industry such as BP and Chevron have declined to comment openly on the reforms taking place in Mexico because of the overhanging doubts regarding the sustainability of these reforms. Many are skeptical because of the potential of the ruling party losing control in the 2018 elections, and the reforms overturned by the new government. In spite of that, the oil companies are likely to invest because of the rewards for such investments offered by Pemex is going to outstrip any of the political risks, Gheit added.

The largest political blocks in Mexico including the Institutional Revolutionary Party of President Enrique Pena Nieto and the National Action Party have provided express support for the energy overhaul. In fact, the slow economic growth in the country is giving rise to a lot of unhappiness and the 2018 presidential election is going to be extremely fierce because of that. Thus, the new initiatives are likely to lead to a surge in production and need for additional infrastructure. According to the parent company of Sempra Energy based in San Diego, which is one of the largest private energy company in Mexico, around 1000 miles of new pipelines in the next three years is going to be among other infrastructural needs for the expected surge in oil production.

The Mexican Government has released estimates for the investment they would require for the next five years to make the most of their oil and gas resources. The investments required for building the required energy infrastructure are likely to be in the region of US$ 13 billion in natural gas, US$ 7 billion in electric lines, and US$ 14 billion in power plants.

Moreover, the addition in the oil production from Mexico is not likely to affect adversely the oil refiners along the U.S. Gulf Coast, many of whom are drowning in oil and making calls for exports. This is because the Pemex would ideally want to enhance its own refining capabilities since it imports nearly half of the nation’s yearly requirement of refined products. The shutting of many other countries in the Americas such as Brazil, Venezuela, and Argentina is promising Mexico as the next most happening spot for oil production in western hemisphere. 

by Redacción Gas Shale México

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