Is Mexico the Next Frontier for Oil & Gas?

On May 27, 2014, I attended the Petroleum Connection’s, “Mexico Oil & Gas Opportunities Update.” The focus of the event was to provide companies with insights into the changing landscape of the oil & gas industry in Mexico as the industry is reformed and deregulated. Big changes are occurring rapidly in Mexico. The outlook for Mexico and companies moving in to assist Mexico has substantial upside.

A key topic during the conference was the ripe environment for US and Texas-based companies, especially those with experience in unconventional exploration and production. Conventional sources in Mexico are becoming depleted, with production down from 3.5 million barrels per day to a projected 2.5 million barrels per day. PEMEX and the Mexican government are keen to increase economic benefits within Mexico through partnering for expertise, especially within shale and deep water production.

The timeline for finalizing deregulation actions are still being framed, but will happen over the next one to two years. US companies looking to make a move will want to gear up now. Bid opportunities are forecast to open up in early 2015, and possibly with Round One in late 2014. Opportunities to support PEMEX with its Round Zero (closed to outside companies) will begin opening in 2014, with pipeline expansion having been identified explicitly during the conference.

When the discussion turned to security, my ears perked up, but the panelists downplayed the security concerns for US operators. We were told that the government has the situation under control and there was no mention of cartel activity at all.

The positioning presented at the conference on security is a very different view than the one we at Butchko, Inc. have taken. In our paper, “Security Challenges to the Oil & Gas Industry in Mexico,”we identified a number of specific risks to US companies doing business in Mexico. While reports of cartel murders and kidnappings may have declined, it would be naïve to think that the risk has completely disappeared – cartel control and corruption is still rampant within Mexico. The cartels have simply shifted their gaze to other activities such as illegal tapping, equipment, and supply chain theft. The result is that it is even more imperative for companies who are moving into Mexico to keep their eyes wide open and to have a clear picture of the risks they may face.