Page 139 - STRATEGY Magazine

“You Need to Participate Now”
In 2013, Mexico ended Pemex’s 75-year state monopoly over the oil and gas industries, opening up opportunities for private foreign investors. Four years later, momentum is growing, as oil prices edge up and the government reforms become tangible.
“If you want to participate in Mexico’s oil and gas sector, you may find three years from now the best opportunities will be gone. If you want to be in this country and take advantage of the best oil fields, you need to participate now,” advises Alejandro Villarreal, the CEO of Cotemar, a Mexican oil and gas E&P offshore services company.
Citing energy reforms as “the best thing that could have happened in the sector,” Villarreal explains that Pemex has had restricted resources for many years and has not been
able to fully develop Mexico’s potential. “This government did
a terrific job to make the reform happen,” he says, pointing out that several previous administrations
had tried and failed and that
political and social opposition
was fierce. “To get the most from opportunities presented by the reform, international companies entering Mexico will need local partners with relevant experience and infrastructure.”
Economists and industry experts saluted Mexico’s energy reforms
as a step in the right direction.
Today the question is whether
the reforms, markets, technology,
and geology combine to make a compelling case for risking capital
to develop fields and process fuels. The short answer is yes, based
upon spreading sentiments in the global oil and gas sector.
GULF OIL RUNS DEEP
The prize for drillers is always rich, exploitable deposits, and the relatively unexplored deepwater fields of Mexico have global majors and independents bidding for acreage. Historically, Pemex has not had sufficient resources to develop the abundant opportunities
in the Gulf, but a new era dawned in December 2016 when Mexico auctioned 12 deepwater blocks for development,
including eight in the Gulf’s Perdido Basin, which is said to mirror geology found in U.S. deep waters. The winning bidders included multinationals such as: BP, Total SA, CNOOC, Chevron, and ExxonMobil.
In addition, BHP Billiton won a joint- development right to develop the Trion field in concert with Pemex. Terms suggest the potential of the Trion: BHP Billiton offered a 4 percent additional
the energy sector, comments Villarreal. “NAFTA is not particularly relevant
to the energy industry, and besides, Mexico is an importer of U.S. produced natural gas and gasoline.” He goes
on to note that Mexico will do what
is necessary to attract investment to the energy sector and protect those investors. Indeed, as Mexico converts power plants away from oil to cheaper natural gas, U.S. exports of natural gas
to Mexico are likely to increase, possibly reducing trade tensions.
The rapid development of oil and gas resources by foreign investors has also incurred some social resistance in Mexico. Yet officials in Mexico have moved
to practically resolve, not exacerbate, tensions. “Social problems often need to be handled on a per-case basis, and I think Mexico has done very well in that regard,” says Villarreal.
TECHNOLOGY LIFTS CRUDE
The shale oil revolution in
North America and deep-drilling successes in the Gulf of Mexico in recent decades are examples
of the ever-increasing technical prowess of extractors—yet these advancements in oil recovery
did not reach the entire Gulf of Mexico in recent decades, leading to falling output.
“Energy companies have to deal with increasingly stricter regulations, many of which did not exist even five years ago. However, I think that Mexico
is a leader in this field, and I believe our industry is proving you can be successful and protect the environment.” —Alejandro Villarreal,
CEO, Cotemar
royalty and US$624 million upfront to acquire a 60 percent stake in Trion and will invest US$1.2 billion.
A WALL AGAINST INVESTMENT?
The inclination of the current U.S. government toward NAFTA has raised concerns that Mexico might respond in kind. Energy is perhaps the one industry in which U.S. interests are most exposed.
But so far Mexico is inclined to encourage, not dissuade, investment in
The energy reforms have
placed new exploration and recovery techniques into the nation’s oil and
gas fields, with tremendous promise, both onshore and offshore. “There is
a lot of technology that makes it so much simpler to find and drill for oil,” observes Villarreal. “These techniques now coming to Mexico are proving quite valuable and are enhancing potential
in both old and new oil resources. This is why the reform has made Mexico
the number one global destination for energy investment.”
INTERVIEW: COTEMAR
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