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Pemex eyeing shale round in late 2013

Mexico’s Pemex is hoping to launch a shale-gas exploration tender in late 2013 in a bid to attract foreign investors to help it tap the country’s potentially large unconventional oil and gas resources

“(Unconventional gas) is a very important area that we would like to get into because of the reserves potential and its importance to the industry,” Jose Antonio Perez Chavez, a business development manager at the state-run company, said at the Latin Oil & Gas conference in Miami.

Early estimates have pointed to potentially huge shale reserves in Mexico. The US Energy Information Administration (EIA) has said that the country holds 681 trillion cubic feet (cf) of recoverable shale-gas reserves, the fourth largest in the world.

Pemex’s own estimates are somewhat more conservative, putting reserves between 150 trillion cf and 459 trillion cf. Even those more conservative figures, though, indicate that shale-gas reserves could be two and a half to seven times larger than current 3P gas reserves.

And Perez Chavez said that shale gas holds more resource potential than deep-water exploration, making up about half of the country’s 113.9 billion barrels of oil equivalent (boe) of estimated untapped prospective resources.

But exploration progress has been slow as Pemex has prioritised deep-water exploration over shale. Pemex drilled its first shale-gas well – Emergente-1 – last year, which it said discovered 112 billion cf of gas. And the company is in the process of drilling three more wells – Montañes-1, Nómada-1 and Percutor-1.

The company has said that it plans to drill 175 shale-gas wells by 2015, though thousands of wells would be needed to effectively develop the country’s shale plays.

One of the first shale plays that Pemex is eyeing is the Eagle Ford, which extends south across the border from Texas. As an indication of how many more wells Pemex would have to drill to match the pace of development activity across the border, Texas authorities have issued permits to drill over 5,700 wells in the Eagle ford since the start of 2010.

In addition to the Eagle Ford, Pemex has said that the well-known Haynesville and Woodford shale plays also extend south across the US-Mexico border. There are undoubtedly a number of North American shale explorers that would be keen to snap up additional acreage in these shale plays, and explore other shale plays identified in the south of the country.

Pemex has said that its studies show that an intensive shale development programme could triple current gas production to 20 billion cubic feet a day.

But Pemex is likely to struggle to find partners to help it carry out that programme and does not have the technology or capacity to do it itself.

Mexico instituted reforms in 2008 that for the first time allowed Pemex to issue tenders to work with foreign companies.

The first two tenders under this scheme, though, have disappointed. Pemex has been unable to attract the kind of industry majors with the deep pockets and technology that it needs to help it reverse Mexico’s declining oil production, instead attracting service companies more comfortable with the fee-per-barrel contract model.

Perez Chavez acknowledged that further reforms will be needed if Pemex hopes to attract investors for more challenging deepwater and unconventional projects. “I believe (the reforms) are the first step for Mexico’s E&P industry... for deepwater, for example, we will have to make some pretty big adjustments,” he said.

“Pemex has to improve its execution capabilities and that is why we are implementing new legal and contract schemes in order to joint-venture with oil and gas companies.”

President-elect Enrique Peña Nieto has said that pushing through more significant reforms is the “signature issue of his presidency.” He hopes to remake Pemex in the mould of Brazil’s Petrobras.

Peña Nieto will, however, have to work with his opposition to pass those reforms after his Institutional Revolutionary Party (PRI) failed to win the two-thirds majority in congress needed to pass changes to the constitution that would allow private ownership of the country’s oil and gas reserves.

Peña Nieto, though, remains confident. “I’m convinced we’ll achieve an accord with other political forces,” he said after his election victory this week.

 

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