Groundbreaking changes to Mexico’s energy regime are expected to take effect throughout the coming 12 months. Essentially, the Energy Reform and its Secondary Laws will enable private participation in the oil and gas sector’s exploration, production, and distribution of hydrocarbons. Dynamic activities in all of the industry’s segments is set to kick in sooner than later, primarily in midstream and downstream initially and followed by increased drilling and production activities.
According to the latest EIA report from April 24, 2014, the country’s oil reserves are estimated at 10 billion barrels of proved oil reserves, or 1P reserves. In terms of natural gas, Mexico has 17 tcf of proved reserves. Moreover, the agency’s latest production data capped PEMEX yields at 2.9 million b/d of total oil liquids, of which 2.5 million b/d correspond to crude oil outputs and 1.6 tcf for 2013.
This week, the EIA has released a preliminary assessment of Mexico’s energy regime which puts forward significant production changes as a result of the recent reforms. In contrast to last year’s prediction published in the agency’s International Energy Outlook, the new outlook projects an increase of roughly 75% to the country’s total oil liquids production. To understand the extent of this radical shift in the EIA’s production forecast, it is important to highlight that last year’s prediction called for a decrease from 3 million b/d of total liquids in 2010 to 1.8 million b/d in 2025; almost 50% over a 15-year period. Now, outputs are set to stabilize at 2.9 million b/d of total liquids through 2020 to then increase up to 3.7 million b/d by 2040.
The optimistic assessment of the EIA is based on the premise that the Energy Reform’s changes are implemented according to the proposed legal and fiscal framework for JVs and other contracting regimes. The introduction of PSAs, Profit-sharing agreements, as well as Licenses, are set to boost production volumes over the next decade. The first two contracting regimes will most likely involve low-risk projects in onshore and offshore fields whereas licenses will probably be useful for projects that involve high-risk and significant investment, which is the case of deep to ultra-deep water ventures and shale development in Mexico’s north.
It is important to keep in mind that the US-Mexico Transboundary Hydrocarbons Agreement is yet another recent milestone that may revolutionize hydrocarbon exploration and production in the Gulf of Mexico. After a long reviewing process, it was finally enacted by President Barrack Obama on December 23, 2013 thus paving almost 1.5 million hydrocarbon-rich acres in the western Gulf of Mexico. This agreement establishes the legal framework to develop oil and gas reservoirs located within the maritime boundary that is shared by both countries, where US companies and PEMEX are now able to engage in joint development ventures. The first three leases subject to this agreement were awarded in the first quarter of 2014 by the US Bureau of Offshore Energy Management (BOEM) to ExxonMobil. These leases are located in the Alaminos Canyon, a prominent oil region in the Gulf of Mexico, and the area given to the IOC is expected to hold up to 1725 million boe and 304 bcf, according to the BOEM.
Opportunities as these will probably set the stage for increased foreign investment and development of the Mexican oil and gas industry over the next decade in the deepwater segment. Through licenses and JVs with PEMEX, production is set to increase. However, the lack of infrastructure and the challenges it poses for the positive development of future projects is a key and recurring element in most conversations throughout the industry’s top key players. Revamping and tackling developments in production and distribution endeavors are critical for the country’s energy sector to bloom; Mexico’s economic forecast will depend greatly on the extent to which these issues can be addressed on time.