Crackdown on Mexico Corruption could make it a Oil superpower again

The supply of oil and gas from Mexico over the next decade will depend very much on political decisions made in the next few years, but it is important to realize that the geological potential is very great and the economics are very favorable. The history of relying on a xenophobic ideology which until recently restricted resource development to the national oil company, Pemex. The company suffered from the usual challenges faced by state mineral enterprises, including political interference in decision-making and hiring, as well as a volatile and unpredictable budgetary process.

The result is that Mexico’s resource base has been underexploited compared to what would occur in a country operating to maximize revenue. The table below shows both proved reserves and estimates of recoverable resources for oil and gas, and it is clear that the country has significant potential, especially when realizing that these estimates tend to be conservative. (Data is from the IEA’s 2016 World Energy Outlook.) Given the estimate of 70% of recoverable resources remaining, after a century of exploitation (mostly in the past four decades), the country’s petroleum resource base can be said to be relatively immature.


This is reinforced by recent discoveries, such as the AMT fields found by ENI in 100 feet of water, with about 1 billion barrels of oil-in-place, and the Zama field, in approximately 500 feet of water and containing nearly one billion barrels of oil. (Again, these estimates are likely to increase over time.) This is approximately 40 times the size of fields found in the U.S. Gulf of Mexico at similar depths in recent years (the average reserves in water depths of 500-1000 feet is 24 million barrels).

And it is a truism that the size of a large discovery is indicative of the resources in an area, as some put it, there is a king field, several queens and many jacks. In Mexico, the Canterall field, one of the world’s largest, is clearly the king (at least in the Campeche Basin), but the recent new discoveries by private companies, AMT, Zama and Hokchi, are all world class and demonstrate that the Mexican Gulf of Mexican is more prolific than the U.S. Gulf of Mexico, as the table below shows.

While Pemex and private companies focus on finding elephants, as giant fields are called, the possibility that smaller companies could undertake rehabilitation of marginal fields, as happened twenty years ago in Venezuela, where about 500 tb/d of production was added. This is an endeavor that would benefit from the attention of small companies, who find the scale of investment suits them and the profits acceptable, whereas Pemex prefers to operate on larger projects. At present, Pemex is seeking to develop farmouts with private companies, most probably Mexican.

For those with long memories, in the early 1980s at the height of the oil scare, many thought that Mexico would be an oil superpower based on reports that the Chicontepec deposit might contain as much as 100 billion barrels of oil, making it one of the world’s largest oil fields. World Oil editor Thomas Stewart-Gordon was an early skeptic, noting that Pemex budgets seemed to be ignoring the field, and that proved prescient, as the difficult geology could not be overcome at the time.

Since then, research has been undertaken in improving well productivity, but to date production remains relatively minor. Farmouts might allow companies with experience in more varied geology to improve production methods, and ongoing research could also allow advances that will make production profitable.

Mexico Oil and Gas Operations MX Oil

Finally, Mexico has unexploited shale resources, as the first table showed. The Eagle Ford shale, which produces 1.5 mb/d of oil and 7 bcf/d of gas in the U.S. extends into Mexico, and could make a contribution to Mexican production, although not necessarily as great as in the U.S. Small companies were the pioneers in U.S. shale production, and could do so in Mexico as well.

Ultimately, while Mexico might achieve the production growth of 250 tb/d/yr that Venezuela did after reform in the 1990s, but this will require a continuation of the New Energy Model that the previous administration enacted. If so, Mexico could be a much bigger player on the world oil market, as well as seeing a welcome boost to government revenues and economic growth.

[This post is derived from my report on Mexico’s energy future, found here.}

Michael Lynch

Michael LynchContributor

I spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies. I then spent several years at what is now IHS Global Insight and was chief energy economist. Currently, I am president of Strategic Energy and Economic Research, Inc., and I lecture MBA students at Vienna University. I’ve been president of the US Association for Energy Economics, I serve on the editorial boards of three publications, and I’ve had my writing translated into six languages. My book, “The Peak Oil Scare and the Coming Oil Flood” was just published by Praeger

Source: Forbes

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