As Mexico moves closer to again welcoming foreign energy companies to its oil fields, American firms are weighing whether the nearby development is worth the risk.
Mexico’s congress late last year took steps to end the country’s 75-year monopoly by state-owned Petroleos Mexicanos, or Pemex.
The reforms promise to allow foreign oil companies to enter into production and service contracts in a move the government hopes will spur development throughout the country.
American and international oil companies have developed fields in the Gulf of Mexico that are believed to extend into Mexican territory. The booming Eagle Ford shale in south Texas is one of the fastest-growing and most prolific fields in the country. The field also is believed to extend across the Rio Grande.
Development in Mexico would open up a new territory that has nearby access to pipelines, other infrastructure and service companies already on the American side of the border.
“There are certain geological trends we have explored right up the border,” Devon Energy Corp. Chief Operating Officer Dave Hager said at the Oklahoma State University energy conference last month. “There are a lot of prospects from that side.”
There also are many challenges.
“My personal feeling is it will be slow,” Hager said. “Sometimes we don’t get too excited about exploring in a country that still celebrates a national holiday for when they kicked out the foreign oil companies.”
Mexican President Lazaro Cardenas in March 1938 seized the assets of nearly all the foreign oil companies operating in Mexico.
At the time, about 90 percent of the country’s oil production was led by a division of Royal Dutch Shell Co. and Standard Oil Co. of California, which is now Chevron Corp.
Oil production in Mexico peaked in 2005 at about 3.85 million barrels per day. Production has since slipped, dropping to 2.9 million barrels per day last year.
Besides the geological and political issues, Mexico’s Eagle Ford development also poses additional challenges because of the ongoing drug and gang violence in the area. There is hope that the influx of oil money, American and international businesses and possibly private security forces could help stabilize the region.
Of course, those same influences in the wrong hands could lead to even more instability.
Despite the challenges, look for American and Oklahoma companies to expand south of the border if Mexican reforms continue.