Planned reforms intended to help restore oil, natural gas
Mexico’s oil industry is hungry for change.
And Oklahoma oil and gas company executives who do business or want to do business there wouldn’t mind seeing more improvements, either.
Issues the country faces, reforms it already has made and the goals of a new administration under President-elect Andrés Manuel López Obrador were discussed this week at an Oklahoma Department of Commerce event. State oil and gas company representatives were invited to hear from Luis Domenech, director of the agency’s Oklahoma International Trade Office in Mexico.
“The country is making cuts to lower its spending, and it plans to use those dollars to boost the nation’s infrastructure,” Domenech told representatives of the about a half-dozen companies that attended.
Mexico, he said, would welcome the help.
“They want you to invest in a plant in Mexico and sell equipment made in Mexico. They want you to create jobs in Mexico,” Domenech said. “We have seen several companies succeed in this.
“Selling to Mexico’s oil and gas sector can be done. You will find a lot of opportunities, if you enter into partnerships with local players that will compliment your equipment.”
Mexico, he observed, faces many challenges related to every segment of its oil and natural gas industry, even with energy reforms approved in 2013 by the country’s congress and outgoing administration.
He said the country’s oil production has fallen to 1.8 billion barrels of oil per day, the lowest since 1980, and that its shallow-water mega field Cantarell is now a marginal field, while the Ku-Maloob-Zaap field also is declining.
Domenech said Mexico’s refinery system is outdated and inefficient (it, like most
U.S. refineries, isn’t engineered to handle the oil the country produces) and hasn’t undergone any modernization work in more than 10 years.
Data shows Mexico imports 73 percent of its fuels, 69 percent of its diesel and 73 percent of its natural gas, creating an annual trade deficit nearing $20 billion.
Domenech said previous policies had prioritized imports over investments.
That meant Pemex, the country’s national oil company (Domenech said it still owns 83 percent of the country’s prospective resources), faced significant financial challenges that forced it to stop its exploration and development projects so that it could try to maintain its producing assets.
Domenech said there are unconventional production
areas both on- and offshore in Mexico that could provide the country with significant new sources of oil and natural gas.
And while he said the government has entered into contracts over the past several years with more than 100 other exploration and production companies to begin new development projects, he also said those still are in early stages of needed work.
“Under energy reform, Pemex went through a cycle of not having money,” Domenech said. “But we want to decrease our dependence on energy imports.
“We have gone from being a net exporter, to being an importer.”
Under Obrador, he said it is expected the government will boost Pemex’s available funds in 2019 by $4 billion for new development projects.
Orbrador’s administration, which takes office in December, also has said it intends to revamp services contracts so that Pemex will have autonomy to select its service suppliers and business partners and hopes to embark on enhanced oil recovery projects involving several onshore fields.
The energy reform package also created a new state-run company to operate and maintain the country’s pipeline and tank infrastructure system for oil and natural gas. That firm has partnered with numerous outside companies to more than double the system’s pipeline miles.
Obrador also seeks to revamp the country’s refining capacity, with plans to spend $2.7 billion to modernize existing refineries and to spend billions of dollars more to build two more.
As for the near future, Domenech predicted Mexico’s upstream market
will be dynamic as new drilling projects and enhanced oil recovery technologies are introduced into legacy fields.
He said he expects to see a strong demand for processing and refining equipment, too, with potential deals involving the integration of local components and raw materials getting preference from regulators.
“The opportunities we see ... will drive investment in needed equipment and infrastructure faster,” he said.
“The big difference is that, before reform, Pemex could not offer partnering firms a share production or field benefits. Now, it can, so we expect that will provide some beneficial incentives to partnering firms.
“The number of opportunities for Oklahoma companies (especially those that make gear for downstream applications) are multiplying in the coming years,”
Domenech said. “I believe it is great news.”
Oklahoma Citybased Kimray Corp., which manufactures oil and natural gas control equipment, exports to partnering distributors in Canada, Germany, Australia, South America, the Middle East and Mexico.
In Mexico, the company distributes its products to field operators through a firm called Flow Control & Measurement.
A representative of Kimray’s international trade unit attended the Commerce Department event.
Dustin Anderson, Kimray’s vice president of sales and marketing, said his firm has seen a nice increase in the amount of business it has been doing in the country in the past year, following several previous years of tougher times.
Total sales there for
new Kimray equipment and repairs through FCM had climbed by 300 percent during that time, he said.
Anderson said FCM also has informed Kimray that Pemex seeks to modernize one of its older, onshore fields, meaning more potential business.
“Revamping older fields is a big opportunity for us,” Anderson said.
Another firm checking out this week’s event was Oklahoma City-based Echo Energy.
Cory King, the company’s inside counsel, said the growing firm sought to learn more about potential opportunities south of the border.
“We are interested in what’s going on in the industry, where the needs are and what the supply is to meet the demands,” King said.
“We want to be at the forefront ... value adders in everything we do, so that we can disrupt the market in positive ways.”
A truck passes by a giant refinery in Salamanca, 170 miles northwest of Mexico City. Mexico’s state-run oil company, long viewed as an overgrown, wasteful dinosaur, has grand plans for a more efficient, profitable future.
Workers assemble valves at Kimray in 2017. The company partners with Flow Control & Measurement in Mexico to sell and maintain its products there.