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Will Shell Transform Mexico’s Oil Production?

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Will Royal Dutch Shell plc (RDS.A) Transform Mexico’s Oil Production?

Bidness Etc looks at how Shell’s expertise and experience could help revolutionize Mexico’s energy sector


Published: Dec 8, 2014 at 3:55 pm EST

Ever since Mexican President Enrique Pena Nieto revoked the ban on foreign investment in the country’s energy sector, Mexico’s state-owned oil company, Petroleos Mexicanos (PEMEX), has seen competition popping up after having enjoyed a 76-year-long monopoly.

One major oil giant that is optimistic about future projects in Mexico is Royal Dutch Shell plc. (ADR) (NYSE:RDS.A). Shell has been involved in oil exploration and production on the US side of the Gulf of Mexico for over 30 years and is among the top producers there. Currently, the company is operating at the Perdido Fold area on the Gulf of Mexico.

PEMEX happens to have discovered huge amounts of oil on the Mexican side, which it is not ready to deal with, it appears. Almost 76 years of foreign-investment restrictions have meant PEMEX has not been exposed to new drilling techniques and innovations; it is looking for foreign partners to help tap these resources and Shell seems to be one of its best bets. The two companies have entered into a 20-year partnership over a Houston oil refinery.

Shell’s director of America’s upstream operations, Marvin Odum, said, “We basically built, developed and operate the Perdido development, which, potentially, is an advantage in these circumstances. We bring not only a broad set of skills but a very specific set of skills that might be very close to some resources that have been discovered on the Mexican side.” Shell has been in Mexico for 60 years, he added.

Mr. Odum said compared to the US side of the Gulf of Mexico, the Mexican Gulf is underdeveloped, with significant amount of unexplored reserves, which Shell aims to explore. He said these projects take a long time to initialize; by then, crude prices will have stabilized, he believes.

Mexican authorities are currently determining the percentage of national reserves that will be available for foreign exploration. Regulators are also developing model contracts to specify certain requirements foreign companies will have to undertake to engage in exploration and production in Mexico. Parts of the model contract will then be incorporated in final contracts when the first tender is issued next year.

This development could be highly beneficial for the Mexican economy; not only will oil production increase but PEMEX will also have a chance at learning and adopting latest techniques of drilling and production from the several foreign companies that will potentially work in the region.

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