Sweeping energy reforms in Mexico should spur more oil drilling in the Eagle Ford Shale south of the border, a high-ranking Mexican congressman said during a visit to Dallas.
Javier Treviño Cantú said only three wells have been drilled in Mexico in the Eagle Ford, which stretches from South Texas beyond the Rio Grande into several Mexican states. In Texas, some 12,000 well permits have been issued in the vibrant field.
But Treviño, the No. 2 ranking member on the Mexican Congress’ Energy Commission, doesn’t expect that situation to last long as new rules open the nation’s oil fields to foreign companies.
Since 1938, when Mexico nationalized its oil industry, state-owned Petroleos Mexicanos, or Pemex, has been the sole developer of oil and gas reserves.
Sharply declining production from those reserves helped change public opinion about allowing foreign participation once again.
“This is a dramatic, historical event” in Mexico, Treviño told reporters Friday before speaking at Southern Methodist University. Treviño, who represents the Mexican state of Nuevo Leon, said he has been visiting U.S. cities to pitch the reforms and hear the views of foreign investors.
Just how dramatic the changes will be remains to be seen. Policymakers still have to write rules governing the terms of contracts that foreign investors can negotiate, such as royalty rates and prices.
Bank of America analysts have estimated that foreign companies could invest $20 billion once the rules are written.
While that could take two years or more, Ken Morgan, director of the TCU Energy Institute, said he’s reasonably optimistic that foreign investors will find Mexico attractive.
“You have to see what the first two or three deals look like,” Morgan said. “Are they good deals for the investors that are flexible?”
A senior executive with Irving-based Exxon Mobil said last month that the reforms are “very good for the people of Mexico” and “a win-win.” Australian energy giant BHP Billiton said that the Mexican portions of the Eagle Ford and the Permian Basin are promising but that the final investment terms are important.
The reforms begin with a so-called Round Zero, in which Pemex will pick the fields it wants to develop.
But Treviño said Friday that Pemex is going to be just one operator, not the only operator. “They don’t have to go with Pemex necessarily,” he said of foreign operators.
Treviño said his nation has watched the economic impact associated with energy development, such as job growth, as well as the environmental impact. The most important environmental issue, he said, “is going to be how to manage water resources,” but he also expects hydraulic fracturing to be used to develop Mexico’s reserves.
The nation also needs to get “really, really good people in our regulatory bodies,” he said.
Treviño said Texas Railroad Commissioner David Porter is scheduled to visit Mexico in February, while the director of Mexico’s version of the Environmental Protection Agency will visit Texas.