Mexico’s 'two markets' bewilder and reward global O&G operators

A year after taking office, Mexican President Andres Manuel López Obrador’s (AMLO) sweeping reform agenda, dubbed the fourth transformation, has reshaped the country's oil and gas market, with independent operators seizing on each morning statement for signs of regulatory change. 

“The fourth transformation is radical,” said Thibaud Cadieu, general manager for Mexico at XWells, speaking Thursday at the EIC Connect Energy Mexico conference in Mexico City. “There's a strong focus on energy. And die-hard support for Pemex,” said Cadieu. “This is something to bear in mind,” he reiterated, saying that the market was developing in a distinctly different manner to three years ago.     

The implication of the shift has bifurcated the Mexican oil and gas market, Cadieu noted, leading to separate Pemex and independent-driven markets that offer different opportunities and pose differing challenges for operators.  

PEMEX AS END-USER

AMLO’s support for Pemex, displayed repeatedly over the past year by his termination of private sector farm-outs with Pemex and steep injections of government cash to help the debt-addled NOC, has stirred uncertainty among independent oil companies and other investors. 

Pemex has taken its privileged position to put forward a plan for “20 priority” fields which the company sees as the key to a sustained turnaround in its flagging output. 

That has driven Pemex’s capex higher, Cadieu noted, but the degree to which that has opened up opportunities for private partners looking to work with Pemex has proven frustrating. 

Beyond the centrality of energy, the fourth transformation is also characterized by “republican austerity” Cadieu said, which meant less money for Pemex contractors and was putting pressure on the energy supply chain. 

Not only are the opportunities getting smaller, but, as several speakers at the conference noted, in recent months there have been reports of delays in payments from Pemex.   

NEW PARADIGM FOR INDEPENDENT OIL COMPANIES

However, while doubts persist about working with Pemex, the success of the 111 private operator contracts shows Mexico’s energy sector in a different light. To date, at least 60 independent oil companies, led by BHP Billiton and Fieldwood Energy, have invested US$11bn in Mexico’s energy sector. Based solely on existing signed contracts, investment will rise to US$37bn over the coming decades.

Exploratory wells are nearing production and this signifies “a new supply chain for suppliers.”  

Crucially, Andy Aston, global managing director at Turner & Townsend, pointed out that, in regard to IOC contracts, “100% are moving forward.” 

Unlike Pemex’s operations, which are based on onshore and shallow water fields that are decades old, as a consequence of auctions for new developments held in the four years before AMLO took office, exploration activities are just now moving toward recovery.     

Six weeks ago, US-based Talos Energy announced an independent assessment that validates the size – 670 million barrels of oil equivalent (Mboe, 2P) – of its 2017 discovery of the Zama field in block 7. According to Talos, Zama could be operational in 2023.

A week ago, Eni announced a find at its Saasken offshore site that indicates 200-300Mb. 

As noted during a conference discussion, Shell is aiming to ramp up its investment in Mexico’s offshore this year. 

Though country knowledge is critical, Cadieu said that the opportunities that have opened up for private partnerships as exploration has transitioned to field development were creating a new “paradigm for IOCs".