“I was with the energy minister,” Tillerson recounted in a speech to the Greater Houston Partnership, “and he took note that Texas now has surpassed Mexico in oil production. He says they’re going to fix that.” Photo Credit: Greater Houston Partnership / David Brown
Earlier this month, ExxonMobil CEO Rex Tillerson visited Mexico City to discuss Mexico’s energy reforms with members of President Enrique Peña Nieto’s government.
“I was with the energy minister,” Tillerson recounted in a speech to the Greater Houston Partnership, “and he took note that Texas now has surpassed Mexico in oil production. He says they’re going to fix that.”
Geologists believe Mexico’s shale plays may be some of the richest in the world. Pemex, the state-owned oil giant, lacks the technology and the expertise for fracking and horizontal drilling. The recent changes in Mexican law mean U.S. companies will soon be able to fill the gap.
“Our forecast is that Texas will add about 217,000 jobs,” says Nathaniel Karp, chief U.S. economist for BBVA Compass, “and [the state’s] GDP will increase $45.4 billion between 2015 and 2018.”
But there’s a catch. Mexico’s shale plays are located in states overrun by organized crime. “The Burgos Basin, which is the continuation of the Eagle Ford Basin, is actually one of the most unstable and crime-riddled areas in Mexico,” says Tony Payan, director of the Mexico Center at Rice University’s Baker Institute for Public Policy.
While the cartels are best known for drug trafficking and kidnapping, many are branching out into fuel theft. “Gangs are tapping into pipelines in virtually every state of Mexico that has substantial fuel traveling underground,” says Tristan Reed, Mexico security analyst with global intelligence firm Stratfor. “However, northeast organized crime groups are the chief culprits – specifically, Los Zetas and the various Gulf Cartel gangs.”
The cartels are fighting turf wars from the border south to Veracruz for control of the stolen-fuel trade. Pemex workers and subcontractors are getting caught in the crossfire. “Any foreign workers that are going to have to be operating in these areas, they’re going to be exposed to this violence,” Reed says.
Such threats are nothing new for the oil business. The Baker Institute’s Tony Payan says that’s especially true of the companies hoping to explore the waters off Mexico’s Gulf Coast. “They work in very difficult conditions much worse than Mexico — Iraq, Nigeria, Libya, and places like that,” Payan says. “But the corporations that tend to do shale are smaller, and these companies are going to have to look very, very hard at their security costs.”
The Mexican government is now leading a two-pronged assault on fuel theft — cracking down both on gangs stealing crude oil and on big wholesale buyers. It’s hoping to reassure potential investors before holding the first auction of drilling rights in 2015.