HOUSTON—Mexico is poised to take full advantage of its untapped deepwater potential after ending its decades long oil industry monopoly, according to Aldo Flores-Quiroga, the country’s undersecretary of hydrocarbons.
As oil prices continue to stabilize and the industry emerges, Mexico’s oil sector has become a highly attractive investment destination. And with round one of the country’s energy reform under its belt, Mexico is ready to unleash more of its coveted resources to foreign investors with another deepwater auction set for this year, Flores-Quiroga said during an OTC breakfast on May 1.
“Mexico is perhaps the most important opportunity in the world,” he said, adding that the country’s untouched resource base is something that is rare to find at this stage of the game. “This is a very large emerging market, but the first time it’s opening in the energy sector.”
LISTEN: Robert Ziegler, global director of well control technology, Weatherford, discusses Mexico's reforms.
Mexico has some of the world’s largest, intact, oil and gas resources available for tender. In the deep water in particular, the country has 2,601 MMboe of 2P reserves still yet to be auctioned, Flores-Quiroga said.
As an example of the country’s untapped potential offshore: 2,366 oil platforms exist in U.S. federal waters whereas only 46 wells are in Mexican federal waters.
In addition, Mexico’s breakevens are globally competitive. In particular, Mexico deepwater projects are projected to have lower development costs compared to the rest of the world, he said.
Another reason to choose Mexico is that the country is a strong global partner.
“We’re fostering free markets, and we’re aiming for the most efficient competitive market that we can have … Investing in Mexico means investing in North America as a platform,” Flores-Quiroga said.
Mexico already has seen an influx of eager foreign investors. To date, foreign investors have committed about $38 billion to the country’s energy sector—86% of which has been in deepwater plays.
Investment interest since the reform has been worldwide, with 37% coming from Asia-Pacific, 36% from Europe and Eurasia, 13% from the U.S., 12% from Mexican players and 2% from South and Central America.
“In just three years, we have transformed how Mexico’s industry works. After 80 years of having only one company in upstream, we finished last year with 48 additional companies—all of them with contracts signed to begin working,” Flores-Quiroga said.
During the first round (Ronda 1.4) of its Plan Quinquenal in December, Mexico’s deepwater blocks attracted majors and national oil companies alike. Capital investment commitments made by companies on the blocks totaled about $4 billion with each exploratory well expected to cost about $100 million, according to Mexico’s National Hydrocarbons Commission.
Flores-Quiroga acknowledged Mexico’s energy reform hasn’t been without its challenges.
“Few governments [and] few countries have attempted a reform of this kind when prices are high. Even fewer sustain the effort when prices are low,” he said. “We started the opening when prices have crashed, and we have continued the pace of implementation and this opening even in a low price environment. What that means is we’re doing this because it makes sense regardless of the price environment.”
Further, Mexico’s commitment to its energy reform is strong because the potential investment and industry development will be what’s best for the country’s economy and energy security, he said.
“Incidentally, when the price goes up, it will go up for everyone, and given our reforms we know we’ll be much better placed to best of the opportunity that higher prices will provide,” he said.
Mexico is accepting nominations for its next round (Ronda 2.4) of deepwater and unconventional blocks. The launch of the round will begin in June with bids due the first week of December 2017.
Emily Patsy can be reached at email@example.com.