Barclays Capital Analyst James West says Pemex is likely to devote more resources to exploration and production over the next several years as a result of energy reform in Mexico.
“After the reforms go through, Pemex will increase overall spending, because it will no longer have the same pull on its capital from the government as they had before,” West says. “Currently it is the primary supplier of capital to the government due to taxes, and once that situation is changed, Pemex will have more money to allocate to exploration and production.”
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West says Pemex has been spending roughly $20 billion annually on exploration and production. He says the company’s CEO recently commented that he’d like to increase that spending to $30 or $35 billion a year.
“What I think we will see moving forward is Pemex focusing on shallow-water activity where they have good expertise, the conventional oil and gas plays in Mexico, and then taking equity stakes and more or less leaving the new entrants from outside Mexico or even new Mexican startups alone to tackle shale activity. Mexico could have significant shale reserves,” West says. “There are five shales in Mexico, including the Eagle Ford which doesn’t stop at the Texas border. They also have some potential deepwater fields, and I think they will leave development of those fields to the major oil companies.”
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