Insight – Mexico's need for upstream oil and gas solutions

By Manuel Barbera, Business Development Manager, Austrade Mexico

Mexico’s oil production has taken a 34 per cent dive over the past 10 years,[1] with the country producing and exporting less crude oil and importing more.

And when it comes to natural gas, Mexico has depended heavily on imports to meet local demand.

But some analysts now hold the belief Mexico has one of the best energy futures in Latin America. Recent energy reforms have abolished strict state controls over the oil and gas (OAG) and electricity sectors. Future deepwater discoveries are said to be ‘key to pushing Mexico’s production back to sustained growth into the next decades.’[2]

Mexico is currently the world’s 11th largest producer of petroleum and other conventional fuels, and the fourth largest in the Americas, after the US, Canada and Brazil.

Most crude oil reserves are found in the offshore Campeche basin (Gulf of Mexico) and the onshore basins in the country’s north. The deepwater area of the Gulf is home to significant undeveloped hydrocarbon resources.

The local industry is increasingly drawing on international expertise to access these resources and to ramp up production, particularly in shale and deepwater oil.[3]

This all leads to significant opportunities for Australian OAG technology, equipment and services companies to work with the local industry, as well as new international entrants keen to get in on the action.

Foreign investment activity intensifying

Mexico’s energy reforms have generated a wave of foreign investment in the upstream sector. Committed investment in exploration and production in the country surpassed US$161 billion in early 2018.[4]

While the former state-owned Pemex has exclusive rights to produce or develop 83 per cent of Mexico’s reserves, the remainder is being put out to bid, including 183 blocks comprising 109 exploration blocks, 60 production blocks and 14 farm-out blocks.

Shell, Jaguar, Petronas, Total, Eni, Sierra Oil and Gas, Sun God Energy, Repsol Exploración Mex, Qatar Petroleum, and Premier Oil PLC have secured blocks to explore and produce oil and gas from shallow water, deepwater, onshore and unconventional resources. Notably, deepwater has received the most investment.[5]

Australia investing in Mexico’s deepwater

Australia’s BHP is already active in Mexico. In 2016, the company acquired a 60 per cent participating interest and operating rights in Trion, the deepwater offshore block in the Gulf. Pemex retains a 40 per cent interest. BHP outbid some of the world’s largest oil companies to win the block.

Discovered in 2012, Trion is part of a large area of deposits in the Perdido Trend and is estimated to have reserves of 475 million barrels. BHP’s winning bid included a cash payment of US$624 million and 4 per cent additional royalties (on top of the minimum royalty payment of 7.5 per cent).[6] The investment necessary to develop the field is estimated at around US$11 billion.

The deal is significant for both BHP and the Mexican Government as it is the first joint venture in the Mexican petroleum sector since it was nationalised more than 70 years ago. Energy Minister Joaquin Coldwell described it as ‘…a transcendental step that turns Pemex into a 21st century company’.[7]

Perdido, however, has particular challenges, including extreme water depth, rugged sea-floor terrain and low-temperature, low-pressure reservoirs. The joint venture provides Pemex with much needed deepwater technology.

BHP started exploration drilling in late 2018. Expenditure for FY2018 on Trion is anticipated to be approximately US$75 million.[8]

Opportunities for Australian companies

Mexico has a well-developed upstream supply chain. However, as Mexican companies have only worked with Pemex for the past 70 years, they lack skills, processes and technologies that meet international standards.

Local companies are now looking to partner with international OAG firms to address these knowledge gaps. This opens up opportunities for Australian companies to work with local operators and share global best practice.

Additionally, Mexico lacks the expertise and technology needed to develop deepwater and unconventional energy resources. Its local content requirements are consequently not too high, compared to other energy markets in the region.

Niche opportunities for Australian OAG technology, equipment and services companies include:

  • support equipment and services, from environmental protection and spill clean-up to helicopters, fire response and security systems
  • marine seismic exploration services
  • platform rigs, drill ships, tender assist rigs, jack-ups and semi-submersibles
  • inland barges
  • well control and pressure management systems for drilling activities
  • mooring and dynamic positioning systems for station keeping
  • current and vessel hydrodynamics
  • pipeline construction and maintenance
  • processing, control, well maintenance and seafloor processing systems for subsea completions.[9]

Political Landscape

According to the Mexican Association of Hydrocarbons Companies (Amexhi), the incoming López Obrador administration will face two main challenges in the energy sector: increasing oil production and securing natural gas supply.

Reuters reported in August 2018 that the new President may indefinitely halt exploration and production tenders, and allow Pemex to directly select its own partners without a tender process. He may also recommend that Mexico withdraw from the International Energy Agency and create stronger bonds with the Organization of the Petroleum Exporting Countries (OPEC).

While there are challenges in OAG in Mexico – security issues, corruption and lack of infrastructure – there are enormous opportunities, particularly for Australian companies with world-leading capabilities in oil equipment, specialist technologies and services.

To learn more about the business opportunities and potential in oil and gas in Mexico and to access Austrade’s business matching services in the market, contact Ruth Keane, Trade Adviser and Team Leader, Resources and Energy, in Australia and Manuel Barbera, Business Development Manager at Austrade Mexico.

____________________________
1 Emerging Markets Political Risk Analysis, 2018
2 Wood Mackenzie, 2018
3 Energy Information Administration, 2017
4 Roca, 2018
5 Comisión Nacional de Hidrocarburos, 2018
6 BHP, 2017
7 Ker, 2016
8 Reuters, 2018
9 Top Markets, 2017

References

BHP. (2017, March 4). BHP Billiton and PEMEX sign agreement for deep-water oil discovery in Mexico . Retrieved from BHP: https://www.bhp.com/media-and-insights/news-releases/2017/03/bhp-billiton-and-pemex-sign-agreement-for-deep-water-oil-discovery-in-mexico

Comisión Nacional de Hidrocarburos. (2018). Esdísticas. Retrieved from Comisión Nacional de Hidrocarburos: https://portal.cnih.cnh.gob.mx/estadisticas.php

Energy Information Administration . (2017, October 17). Mexico . Retrieved from Energy Information Administration : https://www.eia.gov/beta/international/analysis.php?iso=MEX#note

Ker, P. (2016, December 6). BHP Billiton beats 'Big Oil' to Mexico discovery. Retrieved from Sydney Morning Herald: https://www.smh.com.au/business/bhp-outbids-bp-to-secure-oil-farmout-deal-with-pemex-20161206-gt4m9q.html

Reuters. (2018, February 2018). BHP Billiton to drill two new deepwater wells in Trion this year. Reuters. Retrieved from https://www.reuters.com/article/us-bhp-pemex-exploration/bhp-billiton-to-drill-two-new-deepwater-wells-in-trion-this-year-idUSKCN1FZ333

Roca, J. A. (2018, February 16). Las inversiones de México en la reforma energética superarán los 200.000 millones de dólares en 2018. El Periódico de la Energía. Retrieved from https://elperiodicodelaenergia.com/las-inversiones-de-mexico-en-la-reforma-energetica-superaran-los-200-000-millones-de-dolares-en-2018/

Top Markets. (2017). 2017 Top Markets Report. Upstream Oil and Gas Equipment. International Trade Administration.

Wood Mackenzie. (2018) A new era for oil and gas in Mexico.