Mexico is betting on ‘complex geology’ development to reverse the fortunes of its state-owned oil and gas giant Pemex, which has been struggling with declining production and enormous debts in recent years.
A return to unconventional exploration could be a boon to the Mexican firm’s production and profits and to the state’s finances.
New Mexican president Claudia Sheinbaum is open to shale resource development, unlike her predecessor Andrés Manuel López Obrador, who had cancelled previous contracts and ruled out fracking during his term in office between 2018 and 2024.
Mexico’s Pivot to Shale Development
Earlier this month, Mexico and Pemex unveiled a 10-year plan to reverse a years-long decline in oil and gas production by tapping more unconventional resources through fracking, in a U-turn in energy policy.
Petroleos Mexicanos, or Pemex, the world’s most indebted energy firm, has seen declines in its output in recent years as old shallow-water conventional fields mature.
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Now the government and its state-controlled energy giant want to revitalize production via fracking.
In the late 2010s, then-President Enrique Peña Nieto sought to open shale basins, including the Burgos Basin, a shale-rich basin in northeastern Mexico, for natural gas exploration and development by private companies. But Peña Nieto’s successor, López Obrador, cancelled the contracts.
Now Sheinbaum has agreed to give the green light to increased fracking despite a campaign pledge last year that she would not allow it.
Mexico’s Energy Department, the Treasury Department, and Pemex unveiled in early August a ten-year strategic plan—a strategy aimed at energy sovereignty and attracting private investment, if it is aligned with the national interest.
The key parts of the plan include financial instruments to reduce Pemex’s huge debt and accounts payable to suppliers, as well as an Investment Fund for Pemex to help it fund investments in exploration and production.
A revival of ambitions to tap unconventional resources is a major part of the strategy in operations in the new plan through 2035.
Two unconventional formations could launch a true shale revolution in Mexico. These are the Pimienta and the Eagle Ford plays, according to analysts at Wood Mackenzie.
The two shale formations could yield more than 250,000 barrels per day (bpd) of liquids and 500 mmcfd of gas production capacity by the early 2030s. They have the potential to become Mexico’s first tight oil and gas plays. Pimienta and Eagle Ford have known geology, and each of them could deliver both oil and gas, WoodMac reckons.
Challenges To Fracking in Mexico
While the potential is there, the investment needed to tap it is not. And it is not certain that the funds would be there for a revival of the shale development.
“The strategy needs major capital investment and international operators working under profitable contract terms,” Ismael Hernandez, Research Associate at Wood Mackenzie, says.
“However, it’s encouraging that the government and Pemex leadership are tackling natural gas production challenges by promoting development of the nation’s extensive unexploited unconventional reserves.”
Mexico has an estimated 545 Tcf of technically recoverable shale gas resources, the sixth largest in the world, per U.S. government data.
Pemex carried out shale exploration activities in the past, with only partial success, said Marcos Bernabe, Research Associate at Wood Mackenzie.
“Collaboration with international operators can significantly enhance horizontal drilling, multi-stage fracturing, field development optimization and environmental management,” Bernabe added.
International operators are likely to wait and see what the so-called Investment Fund for Pemex will look like.
The fund is intended to boost confidence in the private sector by enabling Pemex to meet supplier obligations incurred in 2025 and to finance upstream investments, Moody’s Ratings said on Monday. The rating agency has placed the Pemex ratings under review for a potential upgrade by up to two notches, following the presentation of the 2025-2035 strategic plan.
Under President Sheinbaum, Mexico and Pemex would be more open to private partnerships. It’s uncertain, however, whether the country could offer attractive enough terms to the international firms interested in cooperating with Pemex in both conventional and unconventional resource development.
Mexico’s new so-called association model involves 21 announced projects structured as mixed contracts where Pemex maintains at least 40% participation while partnering with private operators.
No projects have launched under this scheme yet, and the absence of competitive bidding rounds raises transparency concerns about the selection process, according to WoodMac.
“Our analysis suggests that to optimize production, most of these projects must either initiate production or launch secondary recovery programs without delay,” said Sergio de la Cruz, Research Associate at Wood Mackenzie.
The Pimienta and Eagle Ford shale formations have the potential to significantly contribute to achieving Pemex’s targets to reverse output decline and boost oil and gas production, the energy consultancy reckons.
“However, unconventional production is still in its initial pilot phase. Reaching commercial viability will take years to develop the required specialized supply networks and recruit experienced unconventional operators,” WoodMac noted.
By Tsvetana Paraskova for Oilprice.com
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