How to Play Mexico Shale

n August 11th, Mexican President Enrique Pena Nieto created an unprecedented investment.

After years of declining production, the president signed into reforms into law that end the 75 year old monopoly on Mexico’s oil and gas reserves.

For those seven decades, Petroleanos Mexicanos (PEMEX) had complete control over all of Mexico’s oil and gas assets. But as their production declined in recent years so too did the revenue that Mexico’s government relied on.

Remember, Pemex’s daily oil production has declined by nearly 1 million barrels per day in as little as ten years.

Even with the reforms they will still have a huge presence there, but now other oil companies can have a crack at Mexican fields.

And many vying for the newly opened oil and gas real estate are American companies with experience in the Eagle Ford Shale.

The Eagle Ford of South Texas has been a hotbed of drilling activity in the last few years, and now produces over 1.5 million barrels of oil every day. But what many people don’t realize is that the Eagle Ford extends across the border deep into Mexican territory.

And now that foreign oil companies can finally get in on the action, U.S. drillersĀ are looking ahead to the next raw resource play.

It’s called the Boquillas and it is apart of the much larger Burgos Basin, but the formation is essentially Mexico’s arm of the Eagle Ford.

And with the experience of U.S. companies at unlocking tight oil and gas from shale rock, it’s likely to become a powerhouse for oil production in the next few years, adding yet another wrinkle to North America’s energy prowess.

The EIA predicts that the field will help increase Mexican oil output for decades to come…

And as you know the EIA always underestimates their projections to make themselves look better once their estimates are beaten, so expect this timetable to decrease rapidly.

Be wary though…

These reforms still require a lot more work.

Even though the oil monopoly is over, many companies are unsure whether the investment in Mexico is a good one.

In fact, the University of Texas San Antonio, who has previously studied the Eagle Ford and Cline Shale, will be completing an in-depth study of Mexico’s Boquillas in 2014.

And if their findings show that there is enough money to be made in Mexico, expect to see companies flocking to exploit the country’s shale resources.

Plus the Mexican government still has yet to stipulate a tax structure on foreign companies that wish to drill in the new terrain.

Clearly this is going to take some time, but the best positioned companies are going to be those in the Eagle Ford in Texas.

Since much of the geology will be similar, it only makes sense for investors to find players in South Texas who have been able to glean the most from their operations.

And even if those companies don’t move across the border, the Eagle Ford still presents many strong growth opportunities in Texas.

Until next time,

Alex Martinelli

via How to Play Mexico Shale.