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Mexico moving forward with energy reform

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Mexico isn’t letting low oil prices slow its energy reform — it will try to lure investors to more of its oil and gas fields in the second half of the year.

The country, which is opening up to foreign investment into its vast oil and gas reserves for the first time in 75 years, plans to put more shallow-water Gulf of Mexico and onshore conventional fields out for bid soon.

Shale fields will follow after that — as soon as the country finalizes regulations specific to shale drilling, said Marco Cota-Valdivia, general director of exploration and production at Mexico’s energy ministry. Cota-Valdivia spoke Wednesday at the second Mexico Gas Summit at the Sheraton Gunter Hotel, a two-day event delving into the details of the reform.

A few years ago, most in the oil industry were wary of Mexican energy reform. “Everyone was saying, ‘Yeah, they’ve got these big plans. It will never happen,’” said Duncan Wood, director of the Mexico Institute at the Wilson Center.

But that’s changed in the last year. A back-and-forth dialogue between the Mexican government and the oil industry, and the willingness of the government to adjust and take feedback from oil companies, has been a bright spot for the country, Wood said.

Mexico’s state oil company Petróleos Mexicanos, or Pemex, has controlled nearly every aspect of Mexico’s oil production and distribution since its creation in 1938, but is getting its first competition. Mexican officials decided in 2013 to end the monopoly.

Oil prices have tanked since that historic decision, dropping from $107 per barrel in June 2014 to above $40 this week. But Mexico remains an enormous opportunity for the energy industry. There’s an estimated 112.8 billion barrels of prospective resources — 60.2 billion in shale, 27.8 in deep-water Gulf of Mexico and 24.8 in conventional onshore, according to the country’s energy ministry.

Cota-Valdivia issued something of an invitation to Texas shale drillers, some of whom he has already met with, to be part of the conversation as Mexico works out which shale blocks to put out for bid and how big they should be.

The reason is simple. The comparison of shale activity in Texas and Mexico is like day and night, literally. The Texas side of the border is lit up at night with drilling rigs, fracking crews and gas flares, and it’s dark in Mexico, as seen in widely circulated NASA satellite images.

“It has very modest activity when you compare with the U.S. side of the border,” Cota-Valdivia said.

On a day when the talk was about the increasing ties between the energy industries in Mexico and Texas — including the increasing number of pipelines taking Texas natural gas south to be sold in Mexico — Commissioner Christi Craddick of the Texas Railroad Commission, the state’s oil and gas regulator, was asked about Republican presidential hopeful Donald Trump’s idea of a border wall between the U.S. and Mexico. Dashboard 1

Craddick chalked it up to political rhetoric. “It’s just an election cycle,” she said. “This is political season, and we all get a little crazy.”

Craddick called Mexico the state’s most important trading partner, and said Texas border communities are excited about what might happen with Mexican energy reform. A vibrant energy industry on both sides of the border could help the security situation in Mexico, Craddick said.

The crash in oil prices, from around $107 in June 2014 to around $41 Wednesday, has slowed investment in Mexico, but likely has other implications.

When shale drilling starts in Mexico, there won’t be the same sort of hiring frenzy that happened in places such as Texas and North Dakota, where truck drivers were making six-figure salaries and workers could job-hop at will. Wood said shale drillers also have had to get more efficient — and have shed jobs — because of the oil bust. They’ll take that lesson across the border into Mexico’s shale fields when that starts to develop.

“In Mexico, there’s going to be less of a jobs boom than some of us were hoping for,” Wood said.

Read Taylor of Sierra Oil & Gas, which won two shallow-water blocks offered in Round One, said companies entering shale fields in Mexico will face a challenge of their own — economics. It’s not easy to be the first into an emerging shale field. It’s expensive and inefficient in the early days, Taylor said.

“Someone is going to pay the price in the beginning,” Taylor said.

But Taylor said the opportunity in Mexico is too big for companies to bypass.

“I can’t find a better resource opportunity than Mexico,” Taylor said.

The Mexico Gas Summit, organized by Industry Exchange LLC, continues through Thursday.

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