OIMT03Since the country’s oil reserves were nationalised by Lázaro Cárdenas in 1938, the state ownership of Mexico’s oil production has been an issue of totemic pride for Mexicans. For years, the bounty provided by the Cantarell project minimised the need to think about other options. But as the decline of ageing Bay of Campeche fields accelerates, increasing investment has been needed by Pemex both to shore up existing fields and also to appraise future areas of production.

Exploring Investment Expansion

The Graph of the Month shows the extent of the growth in Pemex’s Exploration and Production budget, as greater focus has come on developing new areas of oil production, some involving deeper waters or more complex development types than the fixed platforms found on Cantarell or Ku-Maloob-Zaap. Pemex’s E&P budget in 2013 was around 74% greater than five years earlier, and its projection for total expenditure is for further growth in its CAPEX budget through to 2018 at a rate of 3.8% per annum. Although this forecast is at an aggregate level, including all business units, the line on the graph shows the level of E&P spending that this implies given the share which the latter has been in recent history.

A Landmark Policy Change

On December 23rd, in the face of not-inconsiderable political opposition, the Mexican president signed a constitutional reform which, will end the 75-year old state monopoly on Mexican production, and allow private investment in Mexican developments. This could add to Pemex’s already substantial $149bn five-year investment plan.

Supporting Structures

This is, of course, all positive news to owners of offshore structures, raising the potential for greater future demand for structures off Mexico. Mexico is already beginning to generate demand for increasing numbers of rigs and OSVs. A number of Mexico-based companies have attracted investment from US and Asian sources of finance looking to gain exposure to the Mexican market (notably the expected need for additional high-specification jack-ups: at least 18% of the current orderbook is for deployment there).

As well as continued work to shore up output on the major fields, plans for new fields are underway. These include the FPSO development on the Ayatsil heavy oil field (targeting 2016 start-up) and Lakach, Pemex’s first deepwater project (2015). This field has been followed by several other finds in the Catemaco fold belt off Veracruz, results of the recent step-up in exploration by Pemex. Hub development may be possible, although falling American gas prices could be an issue. Looking further to the future, potential further deepwater activity could include a SPAR in the Perdido fold belt near US waters.

So, the future for investment offshore Mexico looks relatively bright, with optimistic projections for the levels of state investment. The lack of local experience in deep or more complex fields could be an issue, but as private investment and more third-party offshore contractors get involved, these challenges may be solved. All together, this makes Mexico an attractive prospect, as the drive towards new production stimulates additional demand for offshore units.