Posted on 09/04/2014 10:18:40 AM PDT by thackney
The ongoing energy reform in Mexico has been touted as opening the possibilities for a massive production increase from shale formations in the Burgos and Sabinas basins, largely because the assessments of technically recoverable resources reported by the US Energy Information Administration are so substantial. But, we should be careful not to put the proverbial “cart in front of the horse.” Specifically, as the US success story shows, although the geology (the cart in this case) might be very promising, there are a number of above ground issues (the horse) that must be aligned for large-scale successes to be realized. Thus, it only seems fitting to begin looking for lessons for Mexico by posing an oft asked question, “What made the US energy renaissance possible?”
First, to state the obvious, geology matters. The geologic scale of the technically recoverable oil and gas resources locked up in shale in Mexico and other regions is assessed to be very large. But, while necessary, the right geology is unfortunately not sufficient for successful upstream development. In fact, despite large assessments of shale oil and gas resources, in many locations outside the US production from shale formations is small to virtually nonexistent. This stark reality follows because a very unique set of market institutions and regulatory frameworks across the energy value chain that convey sufficiency for upstream development is missing in regions outside the US. As laid out in a recent publication on the prospects for North American energy security, these include:
A set of regulatory and legal institutions that allow upstream firms to negotiate directly with landowners for access to mineral rights on privately-owned lands.
A market in which liquid pricing locations, or hubs, are easily accessed through liberalized transportation services that stipulate pipeline capacity rights are unbundled from pipeline ownership.
...well-developed pipeline-network...
(Excerpt) Read more at forbes.com ...
This is an article worth reading in its entirety at the source. It does a great job of explaining why US is unique in driving the shale production revolution.
Who the heck is gonna invest huge sums of money in Mexico on oil exploration and extraction when corrupt and greedy government officials stand ready to expropriate those investments, backed by a corrupt and greedy Mexican electorate with a perennial chip of the shoulder about gringos supposedly taking advantage of them?
Shell, ExxonMobil, and Chevron
The general director of Pemex Exploration and Production (PEP), Gustavo Hernández García said he has met with representatives from companies such as Chevron, Shell, Exxon , British Petroleum, Petrobras, Ecopetrol, Petronas, PetroChina, the Iranian National Oil Company, Cubapetroleo, Petroleos de Venezuela, among others.
http://www.cnnexpansion.com/economia/2014/08/17/shell-y-exxon-entre-la-lista-de-pemex
I’m sure they’ll meet with the guy. Putting up cash is another matter.
Agreed. But some like Shell already have Joint Ventures with Pemex in other locations. This isn’t the first rodeo with an Bull not to be trusted for most majors.
http://www.shell.us/aboutshell/projects-locations/deerpark/about-deer-park.html
Who the heck is gonna invest huge sums of money in Mexico”
Venezueala?
If Venezuela had money, they would use it to stock up on toilet paper.
which would sort of be like purchasing pesos....
Somewhat missing from all this is the ability of an operator to make a profit from his work.
Only countries that do not extort excess shares for themselves have even a remote chance of an operator willing to invest the risky and large amounts of capital needed.
One can count those countries on one hand, and Mexico is not even on the toes being counted.
I’m pretty sure I can name more than half a dozen countries where oil/gas companies invest their capital.
I’m certain there will be significant investment by non-government run oil/gas companies at the first round of lease auctions. Do you really think differently?
“I’m pretty sure I can name more than half a dozen countries where oil/gas companies invest their capital.”
Of course they do, but not big time in unconventionals.
Govt of Nigeria can command a large share of production take, but would not allow the large operator production take that the operator would need to exploit unconventional play there.
The way the production contract works causes the operator to receive too much take in the govt’s mind.
Without trying to bore you, here us an explanation of the dominant form of contracts between countries and operators.
I call your attention to the last of the discussion at bottom of p 87 and 88.
Among other roles, I was responsible for a number of years as an economist in international venues.
Thanks for the info. Some reading for me this weekend.
Cheers!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.