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News Article

The Time to Capitalize on Mexico's Oil & Gas Resources is Now

By Cas Biekmann | Wed, 07/14/2021 - 11:09

Mexico, considered a country rich in oil and gas resources, has many opportunities to make good use of them. Merlin Cochran, General Director of AMEXHI, kicked off Mexico Oil and Gas Summit 2021 by saying that the time to make good on this promise is now. By spreading the social benefits of hydrocarbons and channeling investments into expanding Mexico’s reserves, this can be achieved.

AMEXHI is an industry association that was established as a consequence of both the Energy Reform and CNH bidding rounds. It is considered the most important industry association for private oil and gas operators in Mexico, representing all major bidding round winners. Seventy-two percent of its partners are foreign companies stemming from 17 countries. The majority of them are active in offshore operations: 62 percent. Even though only 30 percent of the association has reached production, many others are getting close to this stage. “Promoting best practices in the hydrocarbons sector is essential to the association. We aim to make the oil and gas business a pillar for development in Mexico,” said Cochran.

AMEXHI reported that investment in the hydrocarbons has picked up after a difficult 2020, adding US$1,44 billion in the timespan of one year. US$41,86 billion in investments have been approved so far, of which US$17,5 billion have already been carried through. “The investment executed so far by Mexico's oil and gas operators is equivalent to two Mayan Trains,” Cochran illustrated.

Investment and project development are paramount to the oil and gas industry, but the social benefits that the industry can provide for a country like Mexico need to be highlighted too. Regarding the environment, Cochran reported that the sector’s efforts to go beyond compliance with regulation, such as around methane. The industry’s work to impulse the green energy transition using natural gas as transition fuel will be essential up to 2050. The industry furthermore has a lot to offer in the social dimension. Other than providing employment, the sector helps Mexico move forward by providing education and infrastructure. Community engagement is of particular importance to companies, stressed Cochran. “Communities are partners in projects for the long term. It is therefore important to work hand in hand with them.”

Nevertheless, if the industry wants to spread these benefits, it needs to make optimal use of the potential Mexico possesses. “Exploration is where Mexico can make best use of its resources,” Cochran said. Allowing new discoveries to add to the country’s oil and gas reserves is paramount. Private industry plays an important role here: “Private operators assume all exploration risk and contribute benefits for Mexico regardless of whether or not they find oil,” he continued. Especially in the area of offshore exploration, Mexico can be found at the global vanguard due to its accomplishments. “Mexico has been an international success case for the past years,” explained Cochran, emphasizing its strong comparative competitiveness. The country has drilled 21 offshore exploratory wells, nine of which come from private players. This means that Mexico beats even the US. As of May 2020, oil contracts already assured a production of 65.24mb/d. The bidding rounds, contract migrations with partners and farmouts have all contributed to this production.

“There is certainly a lot of uncertainty, but the results are there,” Cochran said. “And if there are results, this means that both operators and the government are working hand in hand.” Of these positive results, Cochran highlighted that in May 2021, oil production had increased by 38 percent compared to production at the end of 2020. Oil and gas production remains the second most important industry contribution to Mexico’s GDP. 6 new oil fields were discovered in the past year that could help stop the decline in production. “If we consider that the majority of contracts, 61 percent, are still in the exploration phase, this is really only the beginning,” concluded Cochran. Even excluding the important Balam field, Mexico could be producing 280 mb/d of oil and 355 mscf/d.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst