Bidding in Reformed Mexico Energy Sector Could Move Ahead of Schedule

The Mexican government decided to include deepwater projects in its local content requirement targets as a means of further developing Mexico’s energy sector. Under the new energy sector laws, oil and gas projects would have a local content requirement would start at 25 percent and increase to 35 percent in 2025.

However, Medina said that Wood Mackenzie doesn’t see the local content requirement as a challenge due to the competitiveness of Mexico’s service companies with global peers. The local content requirements also are very flexible, with content requirements as low as desired for offshore projects with higher local content requirements for onshore projects. Medina sees the move as “very pragmatic” in terms of enhancing Mexico’s deepwater fiscal terms so it can compete for deepwater investment dollars with other countries. In addition to expertise, PEMEX also will need significant capital to finance new development projects.

“Mexico has one opportunity to get investors to come to the country,” Medina commented.

Even though the current fiscal terms are not yet known, Wood Mackenzie expects the terms to be on the same par with deepwater Brazil, Africa and the U.S. Gulf of Mexico. As one of the last countries to reform its energy sector, Mexico has the opportunity to learn from different lessons seen throughout the globe.

Security concerns are localized in northern Mexico, home to unconventional resources in the Burgos Basin. However, development of Mexico’s onshore shale resources will take a little longer than most people think due to lack of infrastructure and water. Attractive economics also will be needed; to date, PEMEX has found mostly dry gas instead of liquids that could justify the construction of infrastructure.

While Mexico’s government has not yet announced any specific program to address security, Medina said the government is “very aware” that security could pose a problem for oil and gas development.

The role of the Comision Nacional de Hidrocarburos (CNH) in Mexico’s energy sector remains a significant challenge for implementing reform, Medina commented. The biggest challenge remaining is the fact that PEMEX has not transferred all of its subsurface data to CNH. Medina said Wood Mackenzie would like to see the pace at which PEMEX is sharing all sub-surface data with CNH pick up so the agency has everything it needs.


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