I have seriously wondered the viability of Mexico’s offshore industry in this low price environment? Mexico knows now I does not have the knowledge and abilities resident in their state owned energy company PEMEX but how can it attract that outside expertise if, 1] it does not offer a greater percentage of the ownership of the fields to the operators it is trying to partner with, 2] that there just is not that much money to be made due to low prices and 3] the regulations Mexico imposes are so onerous to comply with? Why would any major want to invest a single dollar in Mexico in such an environment? I’d be much more interested to be across the border in the USA where everything in total is much more favorable to one’s bottomline.
By MarEx 2015-08-10 18:33:01
By Iva Brkic, Douglas-Westwood
After almost eight decades of Pemex monopoly, the Mexican energy sector is entering a new era of foreign oil company participation. A decade of steady decline in domestic oil and gas production has incentivized the Mexican government to lift the regulations and allow international companies to start developing offshore projects in Mexican waters. The government is keen to attract private investors to its energy sector with the hope of kick starting its struggling economy.
Over the last decade Mexico’s oil production decreased at a compound annual growth rate (CAGR) of -3.3 percent. This was driven by a drop in drilling activity, which declined at a CAGR of -2.7 percent 2005-2014.
In spite of the country’s offshore potential, Douglas-Westwood continues to take a conservative view on the country’s future oil production. Whilst the drilling activity is expected to soar over the balance of the decade at a CAGR of 13.3 percent (as a function of Pemex offshore projects that are expected to come on stream in next years), Mexican production is expected to grow only at a modest CAGR of 0.3 percent through to 2020. Operating fields are mature, and additional drilling activity is only expected to offset the loss in production.
Despite the low oil price environment, the government has remained committed to auctioning its offshore blocks, keen to drive international investment. Recent tenders failed to meet government expectations; out of 14 shallow water exploration blocks only two were awarded to a consortium of Sierra Oil & Gas, Talos Energy and Premier Oil, leaving the pre-qualified majors without new acreage despite previous recorded successes and infrastructure already in place.
Following a disappointing result in the first upstream tender for shallow water exploration, lessons have been learned. Raising the domestic flagging oil output is President Peña Nieto’s key economic target. The Mexican government will need to revise its expectations if it is to see more success for its subsequent auctions. Although it has been reported that the contract terms and requirements for future tenders have been improved, it remains to be seen if those are attractive enough for operators to splash their exploration budgets in Mexican offshore projects.