If imitation is the greatest form of flattery, then Mexico has paid Norway and Brazil a great compliment with the recent passage of constitutional reform to its energy policies. The approach toward responsible energy development by both countries provided significant inspiration in bringing about Mexican energy reform.
Christmas came early for the many around the world watching the passage of the bill through the congress and swift ratifying vote of “yes” from 17 of 31 state legislatures. On Dec. 20, 2013, Mexican President Enrique Peña Nieto signed the bill into law, and in doing so he effectively swept away more than 75 years of expropriation just in time to start dusting off the welcome mat to private investors in the New Year.
The four-phase reform process began with the passage of the constitutional reform. Phases two and three are currently under way, with legislators working to firm up the implementation framework while PEMEX officials identify the exploration and production areas the company would like to retain in a “round zero” process. The final phase will see the first bid rounds for new oil and gas exploration in the country’s deepwater and shale plays.
Participants from the University of Texas and the Atlantic Council recently presented their views in Houston at the “Mexico’s Energy Reform: What’s Next for Business?” meeting. David Goldwyn, one of the presenters and author of the Atlantic Council’s report Mexico Rising, noted three commercial opportunities for international oil companies and private investors.
The first is through the formation of partnerships with PEMEX as the company migrates its existing fields retained in round zero to joint ventures, the report found. Application of EOR techniques in the mature shallow-water fields and development of existing deepwater acreage are designated as key investment opportunities.
The second is the need for extensive high-quality seismic analysis of new areas to help the government effectively manage new acreage development – the third area of opportunity – effectively.
“The bulk of the opportunity for international oil companies to develop Mexico’s deepwater reserves will likely come with the first bid rounds in early 2016,” the report stated. “Mexico’s Gulf of Mexico potential is virtually untouched.”
These opportunities do not come without challenges, the greatest of which will be the management of expectations. The report notes that the public expects rapid growth but cautions the ramp-up may be slow.
“Early investment in shallow-water fields and EOR will show gains. But deepwater exploration can take a decade to reach production, and the ramp-up in land bases and collateral industry is incremental,” the report stated.
And just like Christmas Day, management of expectations is key when unwrapping a gift, be it from under a tree or under the sea.
Be sure to check out the extended regional report on Mexico in next month’s issue of E&P for a deeper look into the geology, activities, and insights from key players.
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