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Shell cautious on Mexico's oil reforms

Oil major Shell hasn’t been won over by Mexico’s oil reforms yet, with much public sector work to be done

The government needs to do more to make investment in the country attractive ahead of the deep-water licensing round, says Greg Guidry, an executive at Shell's upstream Americas business.

“It’s a very difficult time to be opening up a country given the macro conditions, but I would also say that the framework at this point just does not generate the attractiveness that you really need to enter a country,” Guidry told the North America Gas Conference in Washington DC in October.

Guidry pointed to the security risks in particular as well as the lack of infrastructure needed to develop major new projects. Security has been a major concern for companies looking to enter Mexico’s oil patch as the country’s notorious drugs cartels have targeted the industry.

Pemex estimates it lost nearly $800m through August this year alone from pipeline thefts, a sharp rise from last year, according to local news reports. Mexico’s congress has pledged to tackle the issue, but not take action.

Kidnapping rackets looking for quick cash from flush energy companies have also begun to focus on oil workers. Many worry that the problem will only grow as more foreign companies enter the country. “You need terms that are attractive enough to manage the risk that is inherent in the security and some of those types of issues because that is not going to be corrected overnight. And most of the framework needs to move quite a bit,” Guidry said.

Shell did not take part in the first two oil auctions held as part of Mexico’s Round One multi-phase licensing round, but it has pre-qualified for both, giving it access to geological and other data.

The first round was widely seen as a flop, with just two of 14 blocks awarded. The second auction, though, was more successful and saw three of five blocks awarded.

Guidry’s comments indicate that Mexico’s regulators will have to do much more to draw the international majors off the sidelines ahead of the deep-water licensing round, expected in the first half of 2016. Shell has widely been tipped to be an active participant in that first deep-water round.

It is expected to cover acreage around the multi-billion barrel Perdido oilfields, which straddle the US-Mexico maritime border. Shell is an operator at Perdido on the US side of the border, and would bring deep understanding of the field into Mexico, but Guidry comments indicate the company is taking a cautious view on the opportunity.

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