Today, Mexico's state owned oil company Petroleos de Mexico (PEMEX) has full responsibility for exploration, production and distribution of the nation's oil and gas. Yet due to the pressures of the global marketplace and recommendations from the World Bank which encouraged foreign investment, Mexico's oil industry is expected to change.
In a recent article published in Energy Pulse, Jeremy Martin, The Director of the Energy Program at the Institute of the Americas, says that he believes that the Mexican oil industry is at a critical juncture for the economy of the country. "While Mexico has for some time seen important results and growth ... critical issues remain to be dealt with if Mexico is to truly consummate the positive potential of recent years."
One third of the federal income
The energy sector plays an important role in the Mexican national economy. It provides about 30 percent of the gross national product, but represents eight percent of the total Mexican exports. When it comes to federal income and total investment, the figures are much higher. The energy sector provides 37 percent of the federal income and 56 percent of its yearly budget on energy related investment.
Mexico recently lowered its reserve estimate to 20 billion barrels from 60 billion barrels originally forecasted. With the same production as last year, the reserve life will be a disturbingly short - only 13.7 years. Mexican authorities have already taken action to revise upwards this estimated reserve life and have established a growth strategy to achieve 100 percent replacement, offsetting production with new reserves addition by 2006.
To help achieve this goal, greatly increased drilling activities are expected to take place offshore Mexico in the months and years to come. This effort will require increased foreign investment, a strategy that has already been embraced by PEMEX. "PEMEX has implemented a new strategy of hiring specialized companies to perform a wide variety of service under a new type of contract," says Martin. "The Multiple Services Contracts were first issued in 2003. They indicate a step in a new direction even if they do not grant exclusive exploration or production rights or ownership of oil and gas for the foreign companies."
High expectations
In mid 2001 only five drilling rigs were operating on the shelf. Today some 40 rigs are drilling regularly and another 15 to 20 units are likely to start drilling by mid 2004. Approximately 140 - 250 offshore wells are expected to be drilled per year through 2006 to offset production declines and increase production to the desired level.
Analysts have high expectations for new discoveries. Mexico's deepwater areas are relatively unexplored. The northern part of the Mexican shelf has seen less than 10 percent well penetrations so far compared to the other side of the border - the US Western Gulf of Mexico. Considering the geology of the region, the Northern Mexico offshore region is clearly a favourable option at this point in time.
Achieving the goals set by PEMEX will be challenging and require a significant increase in drilling activity and capital spending compared to prior years. However, PEMEX has indicated they are committed to growth, and most analysts are confident that the company will manage this change successfully.