Source: Houston Chronicle Updated: October 21, 2016
Exxon Mobil, Chevron and other global oil giants have taken a keen interest in Mexico's untapped offshore stores of crude, three years after the country opened its state-run oil industry to outsiders.
Despite low oil prices, these major producers have paid the government more than $120 million combined for a close look at the 10 deep-water blocks Mexican officials plan to auction Dec. 5. The industry's deep curiosity suggests drillers will shell out hefty sums in rival bids to explore fields that could hold hundreds of millions of barrels of oil.
"This looks exciting," Juan Carlos Zepeda, president of the Mexican National Hydrocarbons Commission, told the Houston Chronicle this week. "We know oil prices are still not as high as we would like. But we see a lot of interest, and there's quite an expectation for this bidding."
A commercially viable discovery in Mexico could entice oil companies to bulk up their work forces in Mexico and in U.S. energy centers like Houston, and start buying equipment and services they need to build expensive offshore facilities over several years. Economists consider the development positive for Houston's energy hub, where most of the companies bidding on the offshore blocks have a sizable foothold.
"There's a momentum shift coming in Mexico," Paal Kibsgaard, chief executive of the world's No. 1 oilfield-service company Schlumberger, told investors this week. Kibsgaard said he expects drilling to begin to rise in Mexico next year after the first deep-water bidding round and other auctions next year, though the increase may not be dramatic at first.
A few years ago, after it became clear that cash-strapped Pemex couldn't reverse the decade-long decline in Mexico's oil production, the Mexican government passed constitutional amendments opening its energy industry to foreign investors, allowing international oil companies to plow cash and drill into Mexico's untapped resources for the first time in seven decades.
Mexico's reforms could offer large U.S. and European oil companies a chance to strike a big pocket of oil and natural gas, which would help make up for years of decline that forced producers to push drilling technology perilously deeper into difficult ocean depths, even in the remote Arctic, as they ventured farther from the easily exploitable oil patches locked in Middle Eastern monopolies.
In the throes of the downturn last year, Exxon Mobil replaced two out of every three barrels it extracted from the earth by finding or buying new proven reserves, marking the first time in more than two decades the company hasn't refilled its store of oil. BP and Royal Dutch Shell also failed to fully replenish their oil reserves last year.
"The long-term survival of all these companies depends on continuing to acquire or develop new assets," said Karr Ingham, a Texas economist who studies the state's oil activity. "They're playing the long game. Most of these guys aren't looking at next week, but five years from now. It's these sorts of things that can propel them into the future."
Mexico estimates the 10 deep-water fields, around 750 square miles on average, hold between 260 million and 1.2 billion barrels of oil equivalent in so-called probable reserves, industry shorthand for oil that engineering data suggests is buried in underground deposits. In a separate auction the same day, state-run Petróleos Mexicanos, or Pemex, will offer its first joint venture to develop the Trion deep-water field near the U.S. border.
That and four other offshore blocks up for auction are in the so-called Perdido fold belt. Oil companies have already thoroughly excavated the Perdido region on the U.S. side of the Gulf of Mexico, making those blocks far less risky investments than the other six farther south, in the Salina Basin near the Yucatan peninsula.
Zepeda said the list of energy companies set to bid on 10 deep-water Mexican oil fields includes Anadarko Petroleum Corp., Chevron Corp., Exxon Mobil Corp., Hess Corp., Murphy Corp., Noble Energy, BP, France's Total, Royal Dutch Shell, Spain's Repsol, Italy's Eni, Malaysia's Petronas, and Australia's BHP Billiton.
Anadarko and Noble are based in the Houston area. Hess is headquartered in New York, and Murphy is based in Arkansas.
The $120 million these companies paid Mexico for geological data from the fields is much larger than what firms paid for access to Mexico's three previous auctions of shallow-water fields and smaller oil patches, building hope that it will bring in larger investment commitments from the industry, Zepeda said.
"This is the auction that really matters for American companies," said Francisco Monaldi, a fellow in Latin American energy policy at Rice University's Baker Institute for Public Policy.
Still, the many unknown variables that come with partnering with financially troubled Pemex or investing in a country with scant energy infrastructure have given some companies pause.
Over the past decade, the energy industry has learned hard lessons about investing in Latin America after Venezuela, Argentina and Brazil moved to seize oil company assets. But Mexico, in part because of its ties to the U.S. through the North American Free Trade Agreement, is likely to prove an exception to the rule, Monaldi said.
"It'd be a bad signal if Mexico acted like its neighbors to the south," he said.
Mexican officials have taken steps to sweeten the deep-water auction and other deals for international companies, including restructuring contracts and agreeing to more flexible terms in partnering with Pemex in the Trion field.
"We feel that we've finally got it," Zepeda said. "We're ready to go."
On Thursday, Zepeda and other Mexican officials will speak at the Hyatt Regency in Houston's Galleria area about other auctions set for next year.