Mexican Energy Reform: deals and opportunities

September 15, 2017

Hydrocarbons Mexico

Important companies showed their interest to compete for Mexico’s Oil Round 3, as well as to enter the newly liberalized fuel and gas markets.

The National Hydrocarbons Commission (CNH) published the list of companies registered for the prequalification process to bid on the next three farm-outs announced by Pemex for Round 3.

According to the entity, at least 15 international companies want to collaborate with the NOC (National Oil Company).

Among the companies that asked to participate in the tender that will take place on October 4th are: California Resources Corporation, Cheiron Holdings, China Offshore Oil Corporation (SHA: 600583), DEA Deutsche Erdoel, Ecopetrol (NYSE: EC), Geopark (NYSE:GPRK), Gran Tierra Energy(NYSE: GTE) and Sierra Oil & Gas.

The areas that aroused the firms interest are Ayin-Batsil, Cárdenas-Mora and Ogarrio, all located in the State of Tabasco.

BHP Billiton (NYSE: BHP) also announced that it will invest US$700M to explore new fields in the Gulf of Mexico, where it will develop the Trion field together with Pemex.

“Trion’s exploration costs for the 2018 financial year are expected to be approximately US$75M,” said BHP’s chief financial officer, Peter Beaven.

Energy Secretary (Sener) Pedro Joaquín Coldwell also spoke about Energy Reform and said that as a result of new storage terminals, pipelines, investments to transport fuel by rail and new service stations, US$16B will come into the country during the next five years.

Coldwell added that the entity has granted 224 permits to import fuel and 324 for diesel since 2016.

“Energy Reform represents diversity, competition, opportunities for workers and entrepreneurs, and freedom of choice for consumers,” he said.

The main brands that have come to the country are OxxoGas, Shell (LON:RDSB), Hidrosina, Petro 7, Grupo G500 and Chevron (NYSE: CVX), among others.

Shell announced that it will invest US$1B to open service stations in Mexico and Repsol’s (MSE: REP) representatives said that the firm is analyzing options to enter the newly liberalized Mexican fuel market.

When it comes to gas, CFEnergia, subsidiary of the Federal Electricity Commission (CFE), announced that will supply gas to Iberdrola Mexico.

Iberdrola signed a contract to receive gas at El Carmen plant during the next 24 years; CFEnergia will be in charge of sending the natural gas to El Carmen, by building the necessary infrastructure to connect the new Iberdrola Mexico plant to the national electricity system.

The project represents investments of US$450M. (HCM: Pemex should follow this example and be more active to recover its metrics. What is the NOC waiting for? Or what does it lack?)

Bottom-Line: Companies continue to show their interest in working with Pemex in Mexico. Even though alliances are Pemex’s hope to recover its performance, the firm must offer attractive contracts and conditions to achieve this.

Mexico’s production has been declining and recently reached a historic low.

In this context, and taking into account that Mexico’s ‘star field’ Cantarell is no longer producing what it used to, Trion is definitely an important asset that will not only increase national production but will provide Pemex with a much needed farm-out experience with an important international company like BHP.

When it comes to gas, even though coming investments are great news, the government still needs to resolve problems regarding cross-border pipelines if it wants to assure the success of the next Open Seasons.

When it comes to downstream, Pemex’s difficult situation is a great opportunity for other companies, as the Mexican gasoline market is huge and offers many business opportunities, despite the short-term challenges caused by ‘Harvey’.

Tags: energy, energy reform, hydrocarbons, latam, mexico
Posted in LatAm, Energy, Energy