Outside oil companies getting a foot inside Mexico; Shell, others get deals

Mexico’s spluttering moves to open its doors more widely to international investment have yielded some benchmark deals covering technology, research and training.

Earlier in October state-owned Pemex agreed with Royal Dutch/Shell to study increasing productivity and recovery techniques for oil wells, followed by separate agreements with Calgary-based Nexen and Chevron to probe exploration and production methods, especially for offshore deepwater and coalbed methane.

It’s now anticipated that ExxonMobil, Saudi Aramco and Total will add their names to the list of outsiders, whose expertise is needed to reverse a drop in Mexico’s production as the country lowers a 70-year-old barrier against western oil and gas companies investing in the industry.

The Economist Intelligence Unit in London said in a recent report that Mexico’s proven crude reserves have shrunk over two decades to 13.7 billion barrels at the start of 2006. Although Pemex has been urging reforms to allow limited private investment to offset slumping production from the Cantarell field in the Gulf of Mexico, which accounts for about 75 percent of production, the “strength of nationalist feeling makes it highly unlikely these sectors will be privatized soon.”

However, the unit said comprehensive reforms are essential to generate the US$20 billion a year of capital investment Pemex requires to sustain production at about 3.1 million barrels per day.

Nexen’s pact, the first by a Canadian company in Mexico, involves a framework for collaboration in a wide range of research, training and E&P areas.

Dwain Lingenfelter, the Canadian independent’s vice president of government relations, said Nexen is now working on other types of contracts to gain entry to opportunities in the deepwater and marginal fields in Mexico.

“This is a very important step in our plans to work in Mexico,” he said.

Lingenfelter said Nexen’s experience on the U.S. side of the Gulf with deepwater and sub-salt drilling technology have direct application in Mexico.

He said it took about 40 meetings for Nexen to convince Pemex that Canadian technology could achieve benefits.

Lingenfelter also noted that Nexen’s technology developed in the marginal fields of Alberta and Saskatchewan, which pump eight to 10 to barrels per day, offer scope in Mexico, where a marginal field is rated at 80 to100 bpd.

In addition, Nexen is hoping to deploy its coalbed methane technology to both produce Mexican gas from conventional onshore and offshore areas, as well as coalbed methane.

—Gary Park