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U.S. oil companies eye Mexico despite challenges, low prices

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Written by Rye Druzin

Click HERE to Read the Article by the Publisher.


Mexico’s energy reforms continue to move forward and American oil companies still see opportunity there despite low crude prices and major logistical issues facing the country.

“It’s a challenge though, managing expectations,” cautioned Carlos Garcia, the president of San Antonio-based advising firm Frontera Energy, said at a forum on the topic Friday hosted by the AEM Bi-National Energy Committee in Eagle Pass. “People look at Mexico and think everything looks open and then boom, they get down there and well, it doesn’t quite work that way.

He would know — for three years Garcia was the international business development manager for Lewis Energy, a San Antonio-based exploration and production company. Its operations included work in Mexico and Colombia.

Mexico opened up its oil and gas industry to competition in 2014 and sought to deregulate state-owned petroleum company Petróleos Mexicanos, or Pemex, after nearly eight decades of state control.

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The auctions for the northern Mexican oil fields could reopen in the first quarter of 2017, Mexico’s secretary of energy Pedro Joaquin Coldwell said in a speech at Rice University Friday,

But the oil price crunch that started in June 2014 and dramatically reduced drilling budgets make it hard for U.S. companies to make the case to their boards that they should spend money south of the border, says Darin Turner, a portfolio manager for Atlanta-based Invesco.

“Our belief is that those people are going to be extremely timid to go back in front of the board and say, ‘oil’s been range bound, but we’re going to take capital and we’re going to go invest and we’re going to start drilling in Mexico,’” said Turner.

Turner sees Mexico’s lack of an energy infrastructure — natural gas pipelines — as an avenue for stalled American companies to move into Mexico. While returns average eight percent for a U.S.-based pipeline, Turner said those returns can rise to 14 percent in Mexico.

“Mexico’s one of the few areas that needs just pipelines to support their existing economy, and so as it relates to ability to invest dollars in what we believe to be attractive returns, we think it makes a lot of sense for those companies to be going to Mexico,” he said.

Opportunities may also open up for experienced workers from the U.S. oil and gas industry, Garcia said, as Mexican companies “want to implement U.S. sort of best practices.

“There’s not that safety culture” in Mexico like there is in the U.S., he said.

Garcia believes that the next round of onshore blocks up for auction — at least some of which will be located in the northern Mexico extension of South Texas’ Eagle Ford shale play — will draw significant attention due to the size of acreage. He estimated that the blocks could be upwards of 85,000 contiguous acres, much larger than an earlier onshore offering of blocks of less than 5,000 acres.

Regardless of the type of work companies will look to do, HY-BON president and CEO Inayat Virani said payment and consistency in regulations will remain to be the biggest issues to working in Mexico.

Virani’s company builds vapor capture equipment to capture natural gas being produced on oil wells and being lost on oilfield equipment. His company, which has offices in Midland and Belpre, Ohio, has done work in Mexico in the past, and is currently doing work in Kazakhstan.

He said Pemex in particular is “a tough nut to crack.”

“They’re complex, they’re a large organization, decisions are generally made by committee rather than two or three individuals and the thing with a committee is everybody has to say yes, but only one person has to say no to kill a deal,” Virani said.


Tags: oil, gas, natural gas, energy, crude, petroleum


Written by Rye Druzin

Click HERE to Read the Article by the Publisher.

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