Mexican energy reform: follow “first movers” to find oil and gas opportunities in the south
International Frontier Resources (IFR) was one of the first Canadian companies to become part of Mexico’s energy reform.
International Frontier Resources (IFR) Corp. was one of the first Canadian companies to embrace Mexico’s energy reform, a sweeping and historic energy reform bill that provides a legal framework for Mexico's energy industry. “We began taking a close look at the energy reform almost three years ago,” said Steve Hanson, president and CEO of International Frontier Resources. Members of the company consider themselves “first movers” to take advantage of the reform. “We believe that the Mexican energy reform is one of the largest global energy opportunities, if not the largest.” The Mexican energy reform is defined as the de-nationalization, or privatization, of oil and gas assets in the world. Pemex, the national oil company in Mexico, has held a monopoly on the energy industry in Mexico since the 1930s. Now, the field has opened to the world.
“This was a constitutional change directed by the president four years ago to attract new investors to the oil and gas industry,” said Hanson. The unprecedented reform has created opportunities for companies across the globe. “The goal was to attract not only local companies, but foreign oil and gas companies.”
In spring of last year, IFR was awarded Tecolutla or Onshore Oil and Gas Development Block 24, which was previously owned by Pemex. “We are the first Alberta company to be awarded an onshore field in Mexico,” said Hanson. Over the past few years, IFR has worked with the Alberta and Canadian governments, as well as other Canadian companies, in looking for business for Canadians in Mexico.
IFR’s Block 24 is a former producer. “There is currently no production on the block. There were wells that had been drilled historically, and there was some infrastructure in place,” Hanson said. The opportunities vary between blocks. “It’s a very interesting opportunity.”
The Mexican energy reform is one of the largest global investment opportunities in the world. A huge potential for resources is waiting for global companies in the recently de-nationalized area. Many of the oil and gas fields have been previously underdeveloped.
“We like Mexico for a number of reasons,” said Hanson. “There’s good infrastructure in place; it’s near port facilities; it’s part of North America and NAFTA; there’s a transparent regulatory framework that is healthy and favourable for foreign investment.” Canada also has a history of positive business dealings with Mexico. Cost efficiencies for production in Mexico are attractive for Canadian companies as well.
What does this mean for Canada?
Canadian innovation is world-renowned. IFR is one of many Canadian companies sharing its expertise with Mexican oil and gas companies. IFR hopes that other Canadian companies follow to take advantage of the growing opportunities in Mexico. “We truly believe that Canadian companies could play a major role in the energy reform,” said Hanson. “Canadian companies are known to have some of the best technical teams in the world.” Aside from Canada's reputation, the success rate is high as well. “We are used to going into new areas around the world, and certainly have made many discoveries around the world—not just in Canada.”
Canadian modern technology can be applied to these underexplored, previously monopolized properties in Mexico. “We believe that there is a huge opportunity for Canadian companies to develop the oil and gas business partnerships in Mexico,” Hanson said. “There are opportunities for service companies to go down to provide services. Already there’s a fair presence by Canadian companies in Mexico.”
The fields in question range in size and type. “There’s over 900 blocks coming available over a five-year period. These blocks are deep water, shallow water, onshore, unconventional and conventional,” Hanson said. IFR is focused on onshore blocks, but opportunities for other Canadian companies are definitely present. “We expect to be in operations on the field in the first half of 2017.”
Positive business relationships will continue to develop in Mexico if Canadian companies jump on the opportunities. IFR has formed a joint venture with a major Mexican company, creating Tonalli Energia. “We are taking our Canadian oil and gas experience, and combining it with in-country experience,” said Hanson. “We have also added key executives to our team this past year. The former CFO and director of Pemex has joined our board; the director general of TransAlta Canada who ran operations in Mexico has joined our board.”
IFR believes that other Canadian companies can take advantage of the energy reform as well. “The government of Mexico has announced Round 2.3. That auction will take place in July of this year,” said Hanson. This auction, and those that follow, will open up resources and jobs for Canadians in foreign territory.