Why Mexico’s Oil Reform Is A Huge Opportunity For Investors – Analysis

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By James Stafford

When a massive territory de-nationalizes its entire energy sector and opens its oil and gas doors for the beginning time ever to foreign companies, the possibility are staggering.

Welcome to the ‘new’ Mexico, and receive to the early stages of an oil and gas game that Testament be bigger—from an investor’s position—than anything in history.

Mexico’s alteration to implement historic energy reform lawmaking in December 2013, and follow-up legislation in 2014 that advance solidified the comprehensive de-nationalization, provides an new opportunity for oil companies looking to tap into Mexico’s immense energy potential.

Mexico has ended the now 75-gathering monopoly of state-owned Petroleos Mexicanos (Pemex), and admitted in no unsure terms that it needs foreign colleague and investors. All of this has prompted the US Energy Confidence Administration (EIA) to revise its 2040 forecast for Mexican oil and gas creation upwards by a whopping 76 percent.

All of this, hold International Frontier Resources Corp. CEO Steve Hanson, have in mind that “over the next quadruplet years, we will see accelerated growth for a native land with massive oil and gas resources, excellent store, a transparent investment framework, and a new hunger for abroad partners. In short, it is the largest energy event in the world today–and the door has scarce been opened.”

From the supermajors to the baby-caps, the interest is expansive and the competition is single set to intensify. With this in mind, we’re search at three companies that are taking best advantage of Mexico’s wide-manage playing field both offshore and seaward. These companies know how to play it and why organism a first-mover on this scene is so big-league:

Exxon Mobil: The Supermajor Run on Mexico’s Seaward Bounty

For Exxon, 5 December is grind time for getting into Mexico. In Lordly, Exxon Mobil Corp. (NYSE:XOM) linked Chevron Corp. (NYSE: CVX) and Hess Corporation. (NYSE:HES) to jointly bid for rights to drill in Mexico’s bottomless waters in an auction set to take place on the one-fifth of December. So far, the three have a joint operative agreement, the details of which remain a question. A total of 21 companies have certified for this auction–including dominant international players Shell (NYSE:RDS.A), European ENI (NYSE:E), and BP (NYSE:BP)–which Testament put up 10 offshore areas.

These seaward blocks are said to be Mexico’s nigh lucrative, keeping in mind that any 76 percent of the country’s potentiality oil resources are in the deep-waters. The reserves in these 10 hunk are said to be worth an estimated US$10 million.

But where it gets really interesting is that this large interest in Mexico’s offshore conceivable was already signed on before Pemex proclaimed a string of new offshore discoveries in September. A come of six new oil deposits in the Gulf of Mexico—two in downreaching water and four in shallow—up the ante on the vendue even further. The combined reserves of the two profound-water discoveries alone are estimated at 140-160 trillion barrels of oil equivalent (proven, probable and accomplishable, or 3P, reserves).

Then we have the Trion unearthing in the northern Gulf of Mexico, also up for auctioneer on 5 December. The bidding rules have late been changed for Trio, paving the way for a azygous operator to work alongside Pemex for 60 pct of this massive project. Trion is estimated to keep 3P reserves of 480 million barrels of oil similar, and it covers 1,250 square kilometers aloof south of the US-Mexico maritime border.

This is one of the virtually intense exploration areas in the world honest now, and the Mexican government is hoping to bring in round US$7 billion in investment from this auctioneer, not including Trion.

But this is for the investor who is sounding to play Mexican oil at the highest level, and for the far-off term. Exploration of these areas up for snatches can take around eight years and added two years to take it to production. Deep-hose exploration is expensive—even if Mexico is one of the cheapest venues to drive in—so this is a long-term gallinacean that could ride out today’s grim oil prices.

Pan American: First Foreigners to Dawn Drilling Offshore

The first non-Pemex bus to get to drilling offshore Mexico since the improves were implemented was Argentine Pan American Force, whose owners include British hulk BP Plc (NYSE:BP), China’s CNOOC, and Argentinian conglomerate Bridas.95b0ced0ba09db36be8b453c555a0b7c Why Mexico’s Oil Reform Is A Huge Opportunity For Investors – Analysis

Pan American beat out pentad other offers for the Hokchi shallow drool block last year, and on 30 Oct began drilling operations, targeting a profoundness of 2,867 meters below the drilling rig level. The block is some 27 kilometers off the embrasure of Dos Bocas in the state of Tabasco. Initially, Pan English and its Argentine partner will invest on top of US$212 million in a four-well program over two years.

What’s later in Mexico’s shallow waters? Later year, will see Pemex farm-outs in the Ayin-Batsil (shoal waters) and Ogarrio and Cardenas-Mora, both elevated-potential onshore areas.

Stay adjusted as Pan American drills deeper.

International Front line Resources (V.IFR): First Move Onshore

One of the ‘first off movers’ in Mexico’s inshore bonanza was International Frontier Resources, which secured the Tecolutla Closure in Mexico’s first onshore licensing rung. And this is where the idyllic partnerships move into play: The joint venture ultimate this onshore play is Tonalli Energia, a 50/50 agreement which brings together Canadian oil and gas accompany IFR and Mexico’s Grupo Idesa, a bellwether in the Mexican petrochemical industry.

The JV won the Tecolutla pulley, otherwise known as “Block 24”, and sign a historic license contract with the Mexican control on 25 August.

It’s not just the piece that’s important, it’s the reality that it places the JV among the first on the area: This gives this small-cap a extremely large-cap strategic operating presence in the City-Misantla Basin and a solid foothold into Mexico’s lucratively free oil and gas sector.

The ‘new’ Mexico is a heavy venue for an ambitious junior. What construct it even more attractive is the fact that creation in Mexico is among the cheapest in the world. So all the more if we are looking at today’s depressed oil Thorn, Mexico still makes economic impression; there is still a profit to be turned hither, while at the same time setting up investors for a continued-term financial bonanza when Thorn rebound.

Development costs in Mexico’s oil piece, according to Deloitte, come in at an average of $23 per drum. But it gets even better than that: Rough 60 percent of the country’s creation comes from areas that payment around $10-$21/per barrel to develop.

Piece Mexico’s deep-water present are mouth-watering, and a foreign company has already started production in the shallow waters, the massive onshore habitual fields are cheaper and easier to develop, forging for an attractive, easy way to get a foothold in this ‘new’ locale.

Mexico has multiple large conventional shoreward oil fields with significant upside on a former occasion we start talking about modern application brought in by foreign partners, and the ability to takings exploration farther into tighter reservoirs to accrual recoverable reserves.8819a18d5704863136f49eeccf54ed53 Why Mexico’s Oil Reform Is A Huge Opportunity For Investors – Analysis

Mexico was producing environing 2.8 MMOBPD in 2014—87% of it original oil. By the end of that same year, Mexico had 9.8 gazillion barrels of proved oil reserves. Of that 2014 creation, 25% came from onshore comedian.

On the Tecolutla block, Tonalli is planning to functioning-over existing wells to get production on streamlet while preparing to drill their elementary well. And to this end, the company is bringing new application to take peak production to new levels. Piece Tecolutla is oil-weighted, Tonalli is open to pursuing both oil and gas time, and this first block is just the blastoff of a plan to make an aggressive move on Mexico’s alongside onshore offerings.

Natural gas isn’t off the victuals, particularly because Mexico is a net importer and IFR’s JV mate, Grupo Idesa, is itself a huge owner of natural gas.

In August, Mexico launched the juicy of 12 new onshore exploration and production arrangement as part of its second phase auction. Ix of these contracts are in the Burgos basin and trey are in the Sureste basin. Winners will be proclaimed on April 7th, 2017. Look out for this party in round two of Mexico’s onshore auctioneer.

Next year, we should see at least sevener additional onshore opportunities, with added 64 blocks up for grabs in 2018—not to write about 86 natural gas contracts. All told, we’re search at 59,600 km2 acres of conventional and unconventional expedition in more than 200 onshore hunk and 150 Pemex farm-out blocks.

It’s all roughly partnerships—and from an investor’s standpoint, this is where it really matters. Mexico’s plan is intended to “dramatically expand” the use of partnerships in inquiry and production over the next five eld—opening up an amazing number of opportunities. In the after two years alone, we’re looking at 160 as well specific opportunities for foreign companies.

Schlumberger CEO Paal Kibsgaard freshly told investors that a “impetus shift” is coming in Mexico, and production should begin to pick up speed consequent year.

Right now, there is nothing worthier than Mexico when it comes to oil and gas traffic. We’re talking about North U.s., large oil reserves, good infrastructure, and uncovering that are already in development. As such, the inactivity list is going to be a long one, so the first movers are key.

With undeniably flying-quality crude coming in at prices infra today’s Brent or WTI, this is a gilded mine for foreign oil and gas companies, and a gold pit for investors who figure out the game.

Source: protocol://oilprice.com/Energy/Energy-General/Why-Mexicos-Oil-Improve-Is-A-Huge-Opportunity-For-Investors.html

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