Mexico is the 11th largest oil producer in the world and the 4th largest oil producer in the Western Hemisphere (behind the USA, Canada, and Venezuela). It has 9.8m barrels of proven oil reserves, almost half of which lie in the Gulf of Mexico, and has potentially vast offshore resources that remain underdeveloped. However, the industry has suffered over the last decade due to a number of factors and as a result has recently been opened up to foreign investment.
In this article, we look at the history of oil and gas in Mexico, including the role of Petróleos Mexicanos (Pemex), the recent energy reform that look to address current production difficulties, and what it means for oil and gas jobs in Mexico.
A history of oil and gas in Mexico
Oil was drilled in Mexico as early as 1869 by both Mexican and individuals from overseas. In 1889 legislation was passed that gave the opportunity for state land to be passed into private ownership, making it easier for oil prospectors to gain leases due to the bonuses that they would offer private landowner. It was only in 1901 that the commercial production of crude began and exports began ten years later in 1911.
The big change begins with the Constitution of 1917 which granted the Mexican government permanent rights to all subsoil oil, giving rise to concern amongst operators in Mexico, most of who were foreign by around 1935, including a subsidiary of Royal Dutch Shell and American companies such as Jersey Standard (now Exxon Mobil) and Standard Oil of California (now Chevron). In 1938, the Mexican government finally announced expropriation of lands, nationalising all oil resources and facilities (machinery, pipelines, buildings, and even ships). This happened due to a number of factors that had been unravelling for years, including struggles with unions, problems with saltwater intrusion, an increased interest in the Middle East and Venezuela and the refusal of the US to recognise the new post-revolution Mexican government.
Although the Mexican government agreed to pay compensation, various companies and governments then began an attempt to boycott the oil industry in Mexico, by refusing to sell them critical equipment and chemicals, and in some cases by raising taxes on Mexican imported oil. Mexico subsequently made trade relationships with European countries such as Italy and Germany, although this deteriorated during the war and ultimately ended after the attack on Pearl Harbor.
Pemex was founded in 1938 as a state owned company with exclusive rights over all production, refining and commercialisation of oil in Mexico. The country’s oil production boomed from 1938 to 2004, with output increasing vastly from efficiencies made by Pemex and various large-scale discoveries in Baja California, Veracruz, Chiapas, and Tobasco. In 2006 Pemex was the second largest non-publicly traded company in the world.
However, due to a number of factors including the global oil price crash, the high tax levy placed on the company and thus the lack of appropriate funds to invest in exploration to meet the increasing Mexican demand, revenues at Pemex have been dropping since (-38% in 2015). As a result, oil production in Mexico declined from a peak of 3.3m barrels-per-day to 2.5m barrels-per-day, a reduction of roughly 25%, and once more the company needed a $4.2b government bailout in April 2016.
The Energy Reform
The Energy Reform was signed in December 2013 and implemented officially in August 2014. They allowed Pemex to partner with foreign companies that have the appropriate capital and experience to explore Mexico’s oil and gas resources, opening up Pemex to international competition but also granting the company more autonomy and lessen its tax burden. Its goal is to increase oil production to 3.4m barrels-per-day by 2040 and the government believes they will net $50b investment by 2018, with a staggering one-third of the country’s resources to be auctioned by 2019. Without the reform, it is estimated that Mexico’s GDP would have shrunk by 4% by 2040 with a total economic loss of $1 trillion.
In December 2014, the Mexican government announced the terms of the exploratory blocks available and in July 2015 reported that 2 of the 14 blocks were awarded in round 1.1. Many commentators praised the transparency of the bidding process which raised confidence for the next rounds (1.2 in September 2015 and 1.3 in December 2015).
The long-anticipated round 1.4 auction was for larger deep-water blocks and was held in December 2016, which gained more interest as a result. It was actually the fourth auction in total but the first involving deep-water resources. Ten blocks were put on offer, which the government said contained 11bn barrels of oil and natural gas. Eight offshore blocks were successfully awarded to multiple operators, including Total, Exxon Mobil, Chevron, and China National Offshore Corporation (Cnooc). Two blocks received no bids.
BHP Billiton also became the first company to join Pemex to develop the existing Trion oil field in the Gulf of Mexico, taking a 60% stake in two blocks whilst Pemex retains 40%. The Trion field is believed to contain 485 million barrels of crude.
The auction was seen as a success in Mexico and analysts suggested it indicated medium to long term optimism in the industry given the current low price of oil but a willingness to invest in new exploration projects.
Six more auctions are planned before late 2018 and three auctions are already scheduled between March and July 2017, with the second deep-water auction most likely happening next fall with at least 20 blocks on offer. The government aims to have given 100 oil contracts by the end of 2018.
It’s not just deep-water oil projects either. There is a big opportunity for pipeline infrastructure, with an estimated $10.1b needed to be invested in between 2015 – 2019 to build 3,205 miles of new pipelines. And although much of the focus of the reform has been on oil reserves, there is also a significant opportunity for renewable energy operators. Currently renewables account for 3.9% of the country’s total power generation, but this could rise to 9.9% if proven resources were developed.
The reform also has a knock on effects for other countries. For example, Raven Petroleum in South Texas is building a $500m refinery to export all of its fuels to Mexico, taking advantage of the deregulation of the Mexican market and the surplus of Texas crude.
Oil and gas jobs in Mexico
Mexico’s Energy Reform is about seeking not only international capital, but also international expertise. The government has indicated that 2,700 direct jobs and 2,700 indirect positions will be created for every $1bn, meaning $50bn will create a total of 270,000 jobs by 2018. Although Pemex employs 130,000, many will be coming to retirement age and there is already a lack of technical skills needed to drive the sector forward.
Pedro Joaquin Coldwell, the Energy Minister for Mexico, commented:
“In the Energy Sector, around 50% of the global workforce is about to retire. Mexico is no exception. We need new talent, and it’s important that our young people commit to train themselves, and also that the business leaders start to understand these investment opportunities that are becoming more and more obvious every day in Mexico.”
Although Mexico will be looking to fill the talent gap and will strive to employ Mexican nationals, there will still remain a huge opportunity for contract work within the country for the foreseeable future for those who possess the necessary knowledge and skills.
NES Global Talent is an international specialist technical and engineering recruitment agency and are in an extremely strong position to offer contractors the best opportunities across the world, including Mexico. We were one of the first specialised suppliers to operate in Mexico since the reform and have a dedicated office in Mexico City. We recruit for a range of positions in onshore and offshore operations, drilling, and exploration for a range of clients currently operating in Mexico. View our oil and gas vacancies, or register with us to be considered for future positions.