Luis Domenech
Director of the International Trade Office in Mexico
Oklahoma Department of Commerce
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Insight

Sooner State Extends Helping Hand to Mexico

Wed, 01/22/2014 - 13:05

Oklahoma is no stranger to the oil industry, with a production history dating back to the 19th century. The Woodford field, located in the Oklahoma Shale, might not be as large as Eagle Ford but it contains very thick shale gas reservoirs, between 50 to 300 feet, making it highly suitable for extraction. Over 2,461 wells were drilled in the Woodford Shale between 2004 and 2012. The developed expertise in drilling and exploration of shale reservoirs could easily be transferred to Mexico, especially considering the changes brought about by the 2013 Energy Reform. “There will be great opportunities in Mexico for Oklahoma-based companies,” says Luis Domenech, Director of the International Trade Office in Mexico of the Oklahoma Department of Commerce. “These companies have been waiting for such a scheme for years, although the new Mexican landscape remains far from perfect since these companies can own 100% of the production when they drill in the US.” The Oklahoma Department of Commerce, through its Mexico Trade Office, plays an important role in helping SMEs from its home state engage in business in Mexico. Domenech says these companies can decide to enter the Mexican market on their own as they have enough resources to set up an office, hire staff, win tenders for contracts, and rely on their own technology. However, the trade office is here to support them as needed, reducing the barrier of entry to the market.

In the middle of the 20th century, Oklahoma’s oil production peaked and afterwards saw many old wells being shut down. Domenech mentions that these wells still hold value because of recent technological advancements. He cites this as an important example as he sees a parallel with the situation facing wells in Mexico’s southeast. Contracts have been awarded to private companies to recover oil from existing wells but the current conditions lack the incentives for these firms to bring in new technologies. “There is still room for improvement in the process of extraction from existing wells, but the contractual framework needs to be adjusted.” It is common for such companies to own top-notch technology, which can be sold to operators such as PEMEX. The goal of Oklahoma’s Mexico Trade Office is to create more awareness of the potential that Oklahoma’s SMEs could offer PEMEX and other possible operators in Mexico. Yet, SMEs are not the only Oklahomabased companies that are eyeing up Mexico. Companies such as Chesapeake Energy and Devon Energy have vast experience in the Eagle Ford Shale, which shares geological characteristics with Mexico’s northern region. Furthermore, Oklahoma is home to various companies specializing in EOR. For instance, Chaparral Energy focuses in CO2 injection, and currently has over 386 miles of pipelines that deploy 90 million m3/d of CO2. “Experienced players such as this could certainly help PEMEX exploit Mexico’s oil and gas to the fullest,” says Domenech.

“Such support is particularly important for Mexico as it seeks to become a shale gas producer,” explains Domenech. “Most of the technology for the shale gas industry is patented and owned by a handful of companies. These firms seek to maximize the value from their services, which means Mexico has to come up with profitable schemes in order to attract them. The idea is to cause a snowball effect in which the availability of shale gas technology detonates a market, which will increase the number of companies that are willing to participate in the Mexican shale gas sector even if the contracting schemes are different to the ones in the US.”

“Companies from Oklahoma have also been important suppliers of components and technology for the Mexican petrochemical sector. There are five refineries in Oklahoma, as well as large engineering companies that can build a refinery from scratch. If new refineries are built in Mexico, our companies will definitely be involved, directly, through partnerships, or through supply contracts with local engineering companies,” Domenech asserts. The state is also strong when it comes to manufacturing parts for pipelines, such as compression stations. Equipment suppliers from Oklahoma usually work with large private companies in the Mexican market such as Sempra Energy and TransCanada. The planned expansion of the pipeline network in Mexico could present another opportunity of mutual benefit

Domenech believes Oklahoma-based companies are most interested in being suppliers for companies that have been awarded contracts rather than working directly with PEMEX. Even though these companies are competent enough to work with PEMEX directly, Domenech warns that they view the many restrictions and requirements as a strong deterrent. The larger companies follow events in the Mexican oil and gas sector closely, but they may have more attractive opportunities in other parts of the world. “Once the Energy Reform is fully implemented, partnerships between local companies and Oklahoma based service providers will begin to develop, although the dust from the Energy Reform will have to settle for these to become visible,” says Domenech.