Editorial

Mexico hopes to benefit from its own shale boom

How does this relatively unexplored area stack up against the Permian?

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Mexico announced a licensing round scheduled for this June, opening up its unconventional acreage just as we're heading out of the downturn. But can the country attract operators to this relatively unexplored area? In our latest report, our analysts explore the likelihood of Mexico experiencing its own shale boom.

Relative to 2013, when the Energy Reform was initially passed, this timing could in fact be better for potential shale explorers as they emerge from the downturn instead of heading into one. A positive outcome for this licensing round would also build on the success of Mexico's Round One deepwater offering, which included bids for the Salinas Sureste, Trión and Perdido blocks. However, attracting the right companies will remain an uphill battle.

International shale exploration projects were initially driven by the majors trying to be the first to invest. This countered how they pursued US shale gas and arguably leveraged their international experience to navigate the logistical and regulatory landscape. However, due to the current dominance of the Permian, we do not see a compelling reason for the largest IOCs to look abroad to establish key shale positions.

To attract bidders, the Mexican government will attempt to reduce the historically high cost of appraising international shale assets, looking at countries like Poland, Colombia, Sweden, Australia and the Ukraine as case studies. In order for Mexico's unconventional sector to attract attention away from the Permian — one of the lowest cost yet still scalable opportunities — the terms and conditions of any deal will need to be extremely favorable.