Jennifer Hiller, The San Antonio Express-News
SAN ANTONIO — Foreign companies may have a crack at contracts to drill in the Eagle Ford Shale in Mexico as early as next year.
But with lingering questions about geology, security, regulation and how much money could be made, it’s unclear whether or when the South Texas energy boom will follow the formation across the Rio Grande.
Guillermo Dominguez-Vargas, a commissioner on Mexico’s National Hydrocarbon Commission, said last week in San Antonio that national oil company Petróleos Mexicanos, known as Pemex, will offer foreign drillers a shot at 85 percent of the country’s shale areas, including the Eagle Ford.
“I’m sure on the first round there will be some shale areas to be offered, maybe on the border with the States,” said Dominguez-Vargas, who spoke at the Eagle Ford Consortium’s annual conference.
The Burgos Basin
Across the Rio Grande, the Eagle Ford extends into the Burgos Basin, the territory between the Rio Grande and the city of Monterrey, which now provides up to 20 percent of Mexico’s natural gas from conventional formations.
It’s not clear what foreign companies can expect in Mexican shale, though.
In Texas, companies have a wealth of data at this point on the Eagle Ford, and it’s no secret what it produces and where it mainly produces it: crude oil on the northern band of the arc, condensate in the middle of the band and natural gas to the south. Every PowerPoint presentation on the Eagle Ford includes a now-iconic nighttime NASA photo from space that shows the bright swoosh from rigs, fracturing spreads and flares lighting the region.
But wells even in the same county can be radically different. Some companies – mostly notably Shell Oil Co. – have exited the Texas Eagle Ford when they found mixed results.
A mystery so far
So far, the shale in Mexico remains dark, literally and geologically. Its gas reserves are something of a mystery.
“All I know is what I have read on Pemex’s website,” said Eric Potter, program director for energy research at the University of Texas at Austin’s Bureau of Economic Geology.
A handful of shale test wells on the Mexican side of the border have produced oil and gas. But the structural conditions are different from most of the Texas Eagle Ford. The area has more anticlines, or folds. Millions of years ago, the Eagle Ford was also buried deeper in the border area than in the rest of South Texas. It was later elevated, and about a mile of rock above it was eroded.
“Whether this is helpful or not for Eagle Ford productivity remains to be seen,” Potter said.
New laws allow Pemex to propose which fields it will develop, with the rest available for exploration and production by private investors. Dominguez-Vargas said the company initially told the government it “wanted to keep everything.”
Now it appears that Pemex is most open to foreign companies bringing technology for deep- water drilling and shale. Contracts will allow partners to share a percentage of profits or production, and, in some cases, operate under independent licenses.
Any foreign investment is a radical shift for a country that nationalized its energy sector in the 1930s. Last year’s overhaul to let foreign companies invest met with street protests.
“We were very proud as a company as the only operator there,” said Dominguez-Vargas, a Pemex official for 34 years. “Now they say it’s not enough to have just one player in a country as big as Mexico.”
Mexico has an estimated 681 trillion cubic feet of technically recoverable shale-gas resources, the world’s fifth-largest reserves, according to the U.S. Energy Information Administration.
Yet Mexico imports U.S. natural gas, and pipelines are being built so it can purchase even more. Both oil and natural gas production have dropped.
“This is a problem that the government is facing, and it’s one of the reasons for these new policies,” said Antonio Juarez Alvarado, an economist with Universidad Nacional Autónoma de México.
Constitutional amendments and 26 secondary laws are being revised. But Juarez said the country also needs more infrastructure such as pipelines, storage tanks and gas-processing plants – tens of billions of dollars in investment beyond the cost of sinking new wells.
Advice from Texas
Mexico has to revamp its regulatory structure to deal with more than one company. Texas Railroad Commission officials recently met with their counterparts in Mexico, explaining how the commission regulates thousands of oil and gas companies that are registered with the state.
Foreign companies would also have to deal with security concerns and drug cartels that already have disrupted gas production from the Burgos Basin.
Mexican energy officials have said Pemex will release years of oil exploration testing data, which it has long kept confidential, as it opens to international investment.
‘We need to be prepared’
Rogelio Montemayor Seguy, ex-governor of Coahuila, said the conditions that help explain the success of the Eagle Ford in Texas aren’t yet present in Mexico.
“Here you have a market for gas. We don’t have a market for gas. Here you have mature regulation. Here you have human resources,” Montemayor said. Mexico has those things, but not to the same extent the U.S. does. But universities, research centers, local governments and companies are talking with each other about how to get ready for the sweeping changes.
“The point is that Mexico has potential,” he said. “This is huge, and we need to be prepared.”
Express-News and Houston Chronicle archives were used in this report.
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