The latent potential is already becoming apparent. In the northern part of the Gulf of Mexico, in the deepwater Sabina Rio Grande play, PEMEX has already made a series of discoveries in the Perdido area, on trend with commercial fields on the US side of the border.
Each may hold up to 400 million barrels of oil. Further south in the Salinas Sureste basin, US independent Talos (with Premier) last year found oil at Zama (500 million barrels); Eni has quadrupled its oil reserves to 700 million barrels.
In the Tampico Basin, also in the south, explorers are attracted by structures offshore, on trend with material onshore discoveries and which may be prospective for giant light oil or gas finds. Mexico also has big IOR and unconventional opportunities.
Second, Mexico recognised that it needed to attract external capital to revivify its industry.
Oil exports’ contribution to Mexico’s GDP has halved from 6% in 2004 when production peaked at 3.8 million b/d to just 3% today. Oil production this year will be 2.1 million b/d on our forecasts, and still in decline into the early 2020s. PEMEX was not in shape to turn things around on its own.
The dominant former monopoly is the most financially stretched NOC in our Corporate Service coverage. Despite spending cuts and the government injecting cash and taking US$10 billion of pension liabilities off the balance sheet, principal analyst Ruaraidh Montgomery estimates PEMEX will generate US$15 billion of negative upstream cash flow through 2022.
Third, regulation and fiscal terms.
The government has created a competitive fiscal regime, shaped in part through engagement with the industry. The 2013 Energy Reform was a critical step, opening up Pemex’s monopoly to private investment. One measure of success is the number, quality and range of companies now active in the country's upstream space.