Why Mexico's Oil Reform Is A Huge Opportunity For Investors

by James Stafford, Contributing Author : When a massive country de-nationalizes its entire energy sector and opens its oil and gas doors for the first time ever to foreign companies, the opportunities are staggering.

Welcome to the 'new' Mexico, and welcome to the early stages of an oil and gas game that will be bigger—from an investor's perspective—than anything in history.

Mexico's move to implement historic energy reform legislation in December 2013, and follow-up legislation in 2014 that further solidified the comprehensive de-nationalization, provides an unprecedented opportunity for oil companies looking to tap into Mexico's huge energy potential.

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

All of this, says International Frontier Resources Corp. CEO Steve Hanson, means that "over the next four years, we will see accelerated growth for a country with massive oil and gas resources, excellent infrastructure, a transparent investment framework, and a new hunger for foreign partners. In short, it is the largest energy opportunity in the world today--and the door has just been opened."

From the supermajors to the small-caps, the interest is expansive and the competition is only set to intensify. With this in mind, we're looking at three companies that are taking optimal advantage of Mexico's wide-open playing field both offshore and onshore. These companies know how to play it and why being a first-mover on this scene is so important:

Exxon Mobil: The Supermajor Run on Mexico's Offshore Bounty
For Exxon, 5 December is crunch time for getting into Mexico. In August, Exxon Mobil Corp. (NYSE:XOM) joined Chevron Corp. (NYSE: CVX) and Hess Corp. (NYSE:HES) to jointly bid for rights to drill in Mexico's deep waters in an auction set to take place on the fifth of December. So far, the three have a joint operating agreement, the details of which remain a mystery. A total of 21 companies have registered for this auction--including major international players Shell (NYSE:RDS.A), Italian ENI (NYSE:E), and BP (NYSE:BP)--which will put up 10 offshore areas.

These offshore blocks are said to be Mexico's most lucrative, keeping in mind that some 76 percent of the country's potential oil resources are in the deep-waters. The reserves in these 10 blocks are said to be worth an estimated US$10 billion.

But where it gets really interesting is that this massive interest in Mexico's offshore potential was already signed on before Pemex announced a string of new offshore discoveries in September. A total of six new oil deposits in the Gulf of Mexico—two in deep water and four in shallow—up the ante on the auction even further. The combined reserves of the two deep-water discoveries alone are estimated at 140-160 million barrels of oil equivalent (proven, probable and possible, or 3P, reserves).

Then we have the Trion discovery in the northern Gulf of Mexico, also up for auction on 5 December. The bidding rules have recently been changed for Trio, paving the way for a single operator to work alongside Pemex for 60 percent of this massive project. Trion is estimated to have 3P reserves of 480 million barrels of oil equivalent, and it covers 1,250 square kilometers just south of the US-Mexico maritime border.

This is one of the most intense exploration areas in the world right now, and the Mexican government is hoping to bring in around US$7 billion in investment from this auction, not including Trion.

But this is for the investor who is looking to play Mexican oil at the highest level, and for the long term. Exploration of these areas up for grabs can take around eight years and another two years to take it to production. Deep-water exploration is expensive—even if Mexico is one of the cheapest venues to operate in—so this is a long-term game that could ride out today's depressed oil prices. . . . Read More
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James Stafford is Editor, OilPrice.comARRA News Service. OilPrice.com, the leading online energy news site.

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