Pemex Shale Gas Investing

Brian Hicks

Written By Brian Hicks

Posted August 20, 2013

Just about every country that wants to develop its shale resources is interested in the drilling boom in North America. Mongolia has sent representatives to Europe and North America to observe oil exploration, and Chinese companies have an interest in U.S.-based companies like Frac Tech. India’s Oil and Natural Gas Corp. (NSE: ONGC) has even formed a joint venture with ConocoPhillips (NYSE: COP) to learn more about natural gas exploits.

mexico mapIn terms of your investment dollars, shale boom in North America is the place to be.

It is the model that nations around the world are trying to emulate.

And now Mexico is doing the same.

President Enrique Peña Nieto not only seeks to open Mexican fields to foreign investment, but also plans to tap deep-sea and shale resources in the U.S. through the creation of a new company.

Investment banker Emilio Lozoya will serve as CEO of this new company, which he hopes will be created by the end of 2013, as the Wall Street Journal reports. Even though Pemex has little experience in shale drilling and other exploration endeavors, the implementation of these enhanced drilling techniques is a new beginning for Mexico as a whole.

And learn from seasoned companies that know their way around shale territory will be part of the company’s strategy.

With foreign investment and exploration in the U.S., Pemex will have the know-how and capability to explore these resources in due time. And it is a potential investment hub if you are looking for the next best energy hotspot.

Mexico has the world’s fourth largest shale gas reserves, holding 681 trillion cubic feet of natural gas.

The nation needs all the natural gas it can muster to fuel a robust manufacturing sector that sends goods abroad to Central America, South America, and around the world. We hear a lot about Mexico’s desperate poverty and drug conflicts, but it is also home to job growth and a thriving middle class.

Natural gas production in Mexico has been declining for the past decade, which is why there is an effort on the part of the president to revitalize the country’s energy economy.

Energy Politics

But before you get too excited about Mexican investing, remember that the nation’s energy market still has to go through a liberalization process.

President Nieto will introduce a bill next week that would make Mexico open to outside investment.

Nieto’s bill needs to be approved by Mexico’s Congress and state governors, but it already appears it will receive the votes it needs. Nieto has right-wing support in Congress, and his party plans to support the bill without question. Of course, this may mean the bill will be revised, but its passage will be a milestone for foreign investors and Mexico.

But Nieto may have a tougher time with public opinion. Mexican citizens have been raised on the idea that Pemex is the symbol of energy independence.

Nieto has fought for profit-sharing for oil companies, but the opposition party known as the PRD has already managed to strike that provision out of the bill. Like Congress here in the U.S., the bill requires a two-thirds vote to get passed.

And it is enshrined in Mexico’s constitution that private energy companies are forbidden from exploiting or sharing resources with Pemex. It would take massive political capital to amend Mexico’s constitution, so don’t hold your breath for any major changes just yet.

Even if Nieto’s bill passes, foreign companies will still not have ownership of Mexico’s resources. According to the bill, there will be no sharing of any resources that are extracted – only the cash value of oil pumped to the surface.

Mexican Campaigns

Pemex already has a stake with Royal Dutch Shell (NYSE: RDS-A) in a Texas refinery, but one place Mexico is looking to exploit is the Eagle Ford shale of South Texas. In 2012, a three-year, $200 million project ensued, with the intention of seeing whether or not any Eagle Ford resources extend into Mexico.

Exploration found that the South Texas formation reached into the northeastern portion of Mexico and Coahuila.

Mexico has had a good rate of success, discovering numerous shale areas to be exploited on Mexican soil. And Pemex believes there are 29 billion barrels of oil within the Mexican waters of the Gulf of Mexico.

So far, Pemex has tested ten successful shale wells, and the company also drilled its first successful production well in late April.

But the company does not want to rely on domestic production alone. Its efforts to tap into the U.S. shale boom, if successful, could bring on a huge wave of business opportunities for the nation. And it would begin to secure Mexico on the world energy stage with the implementation of the nation’s first international oil company.


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