Eagle Ford Shale in Mexico
Take a look at any map of Eagle Ford Shale activity and you will notice the abrupt cutoff that exists along the U.S.-Mexico border. However, the hydrocarbon-rich geology of the Eagle Ford Shale, now considered the sixth largest oilfield ever discovered in the U.S., does not stop at the banks of the Rio Grande. In fact, the formation extends far into northern Mexico’s Burgos Basin and nearly reaches Monterrey. Mexico’s portion of the Eagle Ford is estimated to be 343 trillion cubic feet of shale gas and 6.3 billion barrels of oil. Yet, development of the Eagle Ford Shale south of the border has been virtually non-existent. A recent decision by the Mexican government indicates this may soon change.
In December, Mexico’s Congress voted to end the 75-year monopoly of the Petroleos Mexicanos Company (Pemex), Mexico’s state-owned energy company. The 353-134 vote came amid fierce political opposition and dramatic protests, with leftist and nationalist politicians attempting to block the measure and even accusing its backers of treason. Pemex has maintained exclusive control over Mexico’s oil and gas resources since 1938, when Mexico became the first major oil producing country to nationalize its energy industry. It is revered by many Mexicans as a symbol of national sovereignty and freedom from foreign corporate control.
The landmark bill aims to open up development of Mexico’s massive oil and gas reserves to private, foreign energy companies. While the government will maintain ownership of the minerals in the ground, the new policy will enable the state to contract with private operators to explore and drill for oil and gas. Such deals were previously prohibited under Mexico’s constitution.
Given the massive Eagle Ford Shale economic boom happening just north of its border in Texas, it is no surprise that Mexico has felt renewed pressure to reform its energy policies. Production in the Eagle Ford across south Texas is now well established, with an average of 3,000 wells being completed each year. One estimate determined that the economic impact of Eagle Ford Shale activity has generated over $61 billion and produced around 116,000 jobs in the area. Across the border in northern Mexico, however, only a few test wells have been drilled despite the same continuous geology.
There are various reasons for the lack of Eagle Ford development in Mexico. These include an absence of investment capital, weak infrastructure (pipelines, storage facilities, refineries), and a lack of technical expertise with regard to hydraulic fracturing and horizontal drilling. In a recent statement, Mexico’s former energy minister, Jordy Herrera Flores, confirmed that Pemex simply does not have the experience with fracking and horizontal shale wells. Mexico’s latest reform demonstrates its willingness to bring in outside help to lift its declining oil industry and keep pace with the rest of North America.
Mexico’s decision to liberalize its vast energy sector is a welcome move that will likely energize Mexico’s sluggish economy by attracting billions of dollars of foreign investment. It will also raise the country’s total energy output, which has recently been in decline. The move provides a valuable opportunity for U.S. energy companies to take part in new, previously untapped, oil south of the border. Texas producers, in particular, with their expertise and experience in drilling unconventional wells, are in a prime position to take advantage of this opportunity based on their proximity to Mexico. The move promises to be a mutually beneficial prospect for both sides of the border.
However, this change in Mexico’s energy policy is not without its own set of difficulties and challenges. The problems associated with boomtown areas are well known: traffic, pollution, strained infrastructure, housing shortages, and so on. More significantly are serious concerns of political corruption and drug violence, particularly in the border regions, which plagues the country. Therefore, Mexico must address these issues by implementing the new policy in an open and transparent fashion. It must also demonstrate a real commitment to combating drug cartel violence. In short, the government must assure that Mexico is a safe place to invest and conduct business.
Despite major challenges ahead, Mexico’s latest decision demonstrates a tangible commitment to adopt significant economic reform. In turn, this development in Mexico stands to greatly benefit oil and gas operators in Texas. Whether Mexico can fully capitalize on its slice of the Eagle Ford pie and replicate the economic boom seen north of its border still remains to be seen. For now, this appears to be a step in the right direction.
- “Mexican Energy Reform Likely to Benefit Eagle Ford Shale Producers”
By Thomas Tunstall
Apr 24, 2014
- “Mexico Oil and Gas Shales Need Texas Money and Know-how Now”
By Nicholas Sakelaris
Mar 6, 2014
3. “MEXICO’S PUSH FOR A NEW ENERGY ERA: WILL THE BORDER BE READY?”
(Fall 2013 Issue)
4. “MEXICO APPROVES HISTORIC ENERGY BILL”
By ADRIANA GOMEZ LICON and KATHERINE CORCORAN
Dec. 12, 2013
- “Mexico Congress Passes Historic Energy Bill”
By JUAN MONTES, LAURENCE ILIFF and DAVID LUHNOW
Dec. 12, 2013
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