Mexico Energy - October 2014 by Mexico Energy

I nves tm en t oppo rtunities in th e ne w e ra

Economic profitability of blocks and fields of Round One

Mexico to Boost Texas Economy by $45.4 Billion â&#x20AC;&#x201C; BBVA Vol. 1 No. 8 October 2014

The Financial Reform Powering the Electricity Industry

Business Opportunities in Mexico’s Energy Sector

1st Mexico Energy and Business Forum Presented by Mexico Energy and Business Magazine Dallas, Texas November 10, 2014

8 am- 2:30 pm InterContinental Dallas (Addison) 15201 Dallas Parkway Dallas, TX, 75001

Find out the latest developments in Mexico’s energy sector and take part in the official launching of Mexico Energy and Business Magazine. Our panel of US and Mexico experts will provide information on business opportunities, research findings and highlight the major breakthroughs, as well as challenges facing the sector today. Mexican lawmakers and senators will explain the latest regulatory and legislative laws approved by Mexico’s Congress. We hope you join us and take part in these unprecedented growing business opportunities in today’s Mexican energy sector.

For more information, please contact: José Escobedo Dallas, (214) 206-4966 ext 227 jescobedo@latinoleaders.com Javier Senderos Mexico City, Sales P&E (52) 559136-5100 jsenderos@petroleoenergia.com

Letter from the Editor

I’m happy to announce, and invite everyone to, the 1st Mexico Energy and Business Forum, Strengthening Ties Between our Nations. The event is scheduled for Nov. 10 at the InterContinental Hotel in Dallas, Texas. The forum will consider initiatives relative to the energy sector in Mexico. Our panel of experts will discuss research findings and underline major investment opportunities in today’s Mexican energy industry. Over the past month, I have been busy planning the forum along with Petroleo&Energia’s staff, and many prominent representatives from Mexico’s government, as well as industry leaders and analysts from Mexico and the U.S., have confirmed their participation. One of our forum panels will feature representatives from Ainda Consultores and CBM Ingeniería Exploración y Producción. They will present their latest findings, including key information on the economic profitability of blocks and fields of Round One. In this edition we highlight a report on their findings. It’s a presentation you will not want to miss! For our October edition, we present Special Section: Texas. We report on how Mexico is expected to boost the Texas economy by $45.4 billion and create over 217,000 jobs in the next three years. We also provide a closer look at the topics to be discussed in November’s forum. The Financial Reform, approved last year emerges as the strong arm that can consolidate the benefits of a successful Energy Reform. In this report, we examine how the Financial Reform can help medium and small businesses gain an economic advantage and become successful in Mexico’s power generation industry. Also in this issue, we report on the grand state of Coahuila, Mexico, which is not only known for its majestic landscape and beautiful scenery, but also for its potential to become a shale gas powerhouse. According to government officials, the state expects to receive $64 billion U.S. in investments for the exploration and production of unconventional hydrocarbons over the next 15 years. Experts believe Coahuila will see as many as 240,000 jobs and 8,000 shale wells developed through hydraulic fracking. I’m looking forward to seeing everyone at the forum in November, and I hope you’ll find the event both enjoyable and enlightening. If you have an opportunity, stop by and say hello. It’s always a pleasure to meet our readers!

Mexico Energy and Business Magazine Volume 8 october 2014 Publishers

Managing editor

Reporters

Raúl Ferráez & Jorge Ferráez José Manuel Escobedo

Flory Anette Dieck Assad

Photography

Editor in Chief Co-editor

Translations:

Art and Design

Administration Treasury Circulation/Distribution Sales Sales and Public Relations Sales and Advertising

Director Operations Sistems Public Relations Auditions Distribution

Milton Méndez Maribel Zavala Rivas

Pamela Rogers

Fernando Izquierdo Romero Rodrigo Valderrama Viveros Carlos Cuevas Martínez Luis Enrique González Piceno Cathy Lopez Claudia Garcia Bejarano Carlos Anchondo Gabriel Torres Origel Javier Senderos Francisco Abad Carlos Pozos

Diego Amauri Plaza Alex Prida Miguel Ángel Muñoz Karen Arriaga Iván Castelán Raúl Hernández

DALLAS 15443 Knoll Trail, Suite 210, 75248 Dallas, TX, USA Tel: (214) 206-4966 Fax: (214) 206-4970 MÉXICO Insurgentes Sur 1898 Siglum 12, Col. Florida. Delegación Álvaro Obregón C.P. 01020, México D.F. Tel. 91365100 NEW YORK

Sincerely,

José Manuel Escobedo Reachi Managing Editor jescobedo@latinoleaders.com (214)- 206-4966 ext. 227

October 2014 Mxe Mexico Energy and Business Magazine

4 Lexington Ave. Suite 1A New York, NY 10010 Tel: 646-641-5068

CIRCULACIÓN CERTIFICADA POR EL INSTITUTO VERIFICADOR DE MEDIOS Registro No. 248/02

INDEX OCTOBER 2014

06 Special Section: Texas 10 The Energy Reform’s financial arm: The Financial Reform emerges as the strong arm that can consolidate the benefits of a successful Energy Reform. Here we take a closer look at how the Financial Reform can open the door to investments within the power generation industry. Information, consumer advice and protection, as well as services that facilitate the rapid and transparent access to financial resources are fundamental concepts that define the Financial Reform of 2013.

18 Economic profitability of blocks and fields of Round One in Mexico: In preparation for Round

One, Ainda Consultores and CBM Ingeniería Exploración y Producción put together a multidiscipline team of experts in the industry including: geoscientists, engineers, economists, attorneys, businessmen, among others, to conduct an evaluation of the preliminary value creation potential of representative blocks and fields of the areas considered in Round One.

24 Coahuila – A shale gas powerhouse:

The Secretary of Economic Development and Competitiveness for the Mexican state of Coahuila, Antonio Gutiérrez Jardón, expects the state to receive U$64 billion in investments for the exploration and production of unconventional hydrocarbons over the next 15 years, anticipates 8,000 shale wells to be developed through hydraulic fracking and hopes the state will generate as much as 240,000 jobs.

28 Critical Point for Energy Reform: Former US ambassador to Mexico, Antonio Garza, writes how U.S. companies and their deep economic relationship with Mexico are particularly well positioned to take advantage of the new opportunities the Energy Reform offers and how bilateral trade is expected to increase even more this year.

28 4

October 2014 Mxe Mexico Energy and Business Magazine

Texas Special Section:

October 2014 Mxe Mexico Energy and Business Magazine

A Mutual Benefit Mexican Energy Reform is expected to increase Texas economy by $45.4 billion At a recent Senate Hearing in Austin, Texas, industry leaders outlined the positive economic impacts of the Mexican Energy Reform on the state. Thanks to the enactment of the Secondary Laws in August, U.S. companies are taking a closer look at the benefits these laws might bring to Texas, as well as to states close to the border and the Gulf of Mexico. Experts agreed that Mexico is entering a state of rapid economic growth as a result of the private and foreign investments in the oil and gas and electric power industry, and that Texas would benefit greatly from this financial growth. As to when this development would happen and by how much, experts were not able to come to a consensus. Mexicoshalegas.com reported that Nathaniel Karp of BBVA Compass Bank suggested that Texas may add 217,000 jobs from Mexico’s opening of its energy sector to foreign and private investments over the next three years. This could mean a $3.4 billion increase to state revenues and a $45.4 billion boost overall to Texas’ economy, according to the report. The bank predicts that Mexico will spend annually up to $10 billion in Texas energy-related goods and services. BBVA’s representatives said that returns on investment from Texas oil companies investing in Mexico would cause a ripple effect back home in the form of increased spending.

Despite the expected delays and obstacles to get trade and businesses started up and running, every expert during the hearing agreed that a period of robust economic growth should occur as a result of the Energy Reform, and that Mexico and Texas together would greatly benefit. “Faster economic growth at the border will narrow the socio-economic disparities between Texas’ border cities and big metropolitan areas,” Karp said in the mexicoshalegas.com report. “If these border towns effectively seize the opportunity, the Texas-Mexico border could see one of the (most) dramatic transformations in history.”

investment opportunities in the new era

Special Section: Texas

Karp continued by saying that south Texas and the Mexican states of Tamaulipas, Nuevo León, and Coahuila have a combined (gross domestic product) of more than $300 billion. “If the energy reform adds an extra 1 percent to real GDP growth, the region would generate $60 billion in additional economic activity during the next 10 years,” he said in the article.

October 2014 Mxe Mexico Energy and Business Magazine

1st Mexico Energy and Business Forum Strengthening Ties Between Our Nations Dallas, TX – On behalf of the The Ferraez Group and Petroleo&Energia magazine we would like to invite you to the 1st Mexico Energy and Business Forum Strengthening Ties Between our Nations to be held at the InterContinental Hotel, Dallas, Texas on November 10, 2014. In December the Mexican government ratified breakthrough constitutional changes that after 75 years would finally allow private and foreign investment in the country’s energy sector. Due to this landmark event in Mexico’s history, it is with great enthusiasm that we present to you the official launching of Mexico Energy and Business Magazine “Investment Opportunities in the New Era”. Mexico Energy is a monthly digital magazine specializing in providing information to investors and industry leaders that would like to do business in Mexico. Our easy to read format provides information on current issues, business updates legislative regulations and investment opportunities. The Forum will consider initiatives relative to the energy sector in Mexico. Our panel of experts will discuss research findings and underline major investment opportunities in today’s Mexican energy industry.

Topics to be discussed: A) The Energy Reform and the Enactment of the Secondary Laws. B) Welcoming the Private Sector and Foreign Firms to the Energy Industry. C) How to Do Business in the Energy Sector in Mexico Perspectives and Opportunities.

D) Economic Attractiveness of Round One. Please join us for a breakfast followed by four panel sessions and be part of an emerging market of unprecedented opportunities. For more information please contact managing editor Jose Escobedo at jescobedo@latinoleaders.com

Mexico Shale Summit - The Leading Oil and Gas Event for the Mexico Shale Play The Ministry of Energy in Mexico has estimated a $100 billion in investment is needed over the next 10 years to develop Mexican shale resources. The prolific Eagle Ford shale formation in Texas extends south across the border into Mexico’s Burgos Basin and accounts for two-thirds of Mexico’s shale gas resources, which are estimated to reach approximately 600 trillion cubic feet of recoverable shale gas and ranks 6th largest in the world. Mexico is also estimated to have 13 billion barrels of recoverable shale oil resources and ranks 8th largest in the world. With the development of Eagle Ford in Texas and the ongoing energy reform, many believe that Mexico could replicate the success. The Mexico Shale Summit is a two-day oil and gas event in San Antonio, Texas on February 17 and 18, 2015 that will bring together internationally recognized industry speakers, investors, government officials, and C level executives from the energy, infastructure, and transportation industries. The geographic scope for the event will cover Mexico as a region with a strong focus on the opportunities and challenges associated with Northern Mexico. The article was written by the reporters of www. mexicoshalesummit.com

investment opportunities in the new era

THE

Flory Anette Dieck Assad* fdieck@itesm.mx

ENERGY

October 2014 Mxe Mexico Energy and Business Magazine

Reform’s Financial Arm

The enactment of the Energy Reform’s secondary laws on August 11 was similar to an official flag starting the process of energy change in Mexico. Business organizations welcomed this transformation gladly and with the expectation to capitalize on it for Mexico’s benefit.

The key will be to stimulate the formation of value chains among large companies and SMEs (small and medium-sized enterprises). The imminent dilemma will be how to implement this energy change in a measured, solid, and sustainable way. Against this backdrop, the Financial Reform emerges as the strong arm that can consolidate the benefits of a successful Energy Reform. It was a smart move by President Enrique PeĂąa Nieto to link the Energy Reform with the Financial Reform of 2013. The modernization of Mexicoâ&#x20AC;&#x2122;s financial institutions, namely organization as well as regulation, was a key piece to support the success of the Energy Reform. The Development Bank, economic development funds, the market, credit organizations, investment funds, and insurance and bonding institutions among others are the building blocks that will construct a solid energy reform.

October 2014 Mxe Mexico Energy and Business Magazine

Understanding the role of electricity

Explaining all relevant points is difficult in a limited space. Because of this, we will address an aspect of the Energy Reform and identify possible financial instruments. In this case we will focus on a financial analysis of power generation. According to the enactment of the Secondary Laws, the private sector can now invest in power generation as well as commercialization. That is, any company can generate electricity without being required to sell it back to the Federal Electricity Commission (CFE). A wholesale power market is also being promoted as

companies that meet certain requirements can sell and buy energy. To achieve this, companies will need resources to finance power generation and commercialization and to have access to the most efficient and cost-effective new generation technologies that are also eco-friendly. You can imagine a scenario in which small and medium-sized enterprises can co-invest in power plants that help them achieve greater profitability by lowering the cost of producing electricity. Also you can visualize the possibility of public-private partnerships building hydroelectric power stations in states that have this non-polluting energy resource. At the same time, it is necessary to develop Mexican power industry suppliers for national as well as international companies, among others. To achieve all of this, how do we open the door to investment? Precisely here is where the Financial Reform will play an important role given its improved structure and financial

To achieve this, companies will need resources to finance power generation and commercialization and to have access to the most efficient and cost-effective new generation technologies that are also ecofriendly.

October 2014 Mxe Mexico Energy and Business Magazine

institution regulations so that financial resources flow in abundance. Companies should prepare themselves in time to take advantage of the benefits that the Energy Reform offers. Information, consumer advice and protection, as well as services that facilitate the rapid and transparent access to financial resources are fundamental concepts that define the Financial Reform of 2013. Albeit with distinct nuances, these concepts are used by diverse financial institutions. I propose in this article the first concrete action that could take place so that companies are better prepared to invest.

Get to know the Development Bank Get informed to find out if the business transaction qualifies to receive support for developing sustainable energy projects. Identify some of the institutions of the Development Bank by their acronyms, for example, NAFIN, BANOBRAS, and FINADES, among others. The Development Bank is interested in channeling credits through credit institutions such

as the â&#x20AC;&#x153;banca de segundo pisoâ&#x20AC;? (a second-tier bank) to those who really need the credit and with the quickness that the market demands. Sustainable development requires attention to the financial needs of small and medium-sized enterprises, export companies, public sector suppliers, companies that enter new markets, and import companies of capital goods that increase productivity. We are referring in particular to the Nacional Financiera, Sociedad Nacional de CrĂŠdito (NAFIN), which as a first-tier bank offers direct assistance to credit applications. This can be achieved with the objective of supporting SMEs that undertake projects that improve the environment and promote the development of renewable energy, efficient power, and the use of clean energies that address climate change. Among its objectives are to promote the industrial use of natural resources that have not been exploited or insufficiently exploited. For example, NAFIN has already put in place agreements with several entities,

Companies should prepare themselves in time to take advantage of the benefits that the Energy Reform offers. Information, consumer advice and protection, as well as services that facilitate the rapid and transparent access to financial resources are fundamental concepts that define the Financial Reform of 2013.

Mar keting energético

MANOLO GUTIÉRREZ Proximity Cordinator mgutierrez@lideresmexicanos.com www.ferraezconecta.com

October 2014 Mxe Mexico Energy and Business Magazine

organizations, and public sector companies to provide, without any intermediation from a credit institution, financing to suppliers that already have a supply request or contract; among these companies are the CFE as well as Petróleos Mexicanos. NAFIN can also participate as a direct partner of SMEs up to 25 percent in social capital, for periods no greater than five years and indirectly with risk capital since it participates in diverse capital investment funds which allow it to undertake temporary equity investments in SMEs. NAFIN also promotes multinational investment funds that include the participation of national and international investors interested in temporary investments in Mexican SMEs. BANOBRAS (National Bank of Works and Public Services, National Credit Society) ties its operations with development programs and government policies at several levels, causing it to be called the “Federalist Bank” as it provides financial support and technical assistance to public investment that strengthens the capacity of states and municipalities to further their own development. It also supports public-private partnerships for the construction of hydroelectric stations, wind farms, geothermal power plants, as well as projects that improve overall community well-being. With strong support from the federal government, BANOBRAS can now seek out international funds from multilateral organisms such as the World Bank, the International Bank for Reconstruction and Development (IBRD), and the Inter-American Bank of Development (IDB) to finance geothermal and hydroelectric projects, among others. One notable use of green funds with support from international organisms and the World Bank is the case of Conduit Capital Partners, LLC,

a private capital investment fund focused on the significant investment opportunities presented by the independent electric power industry in Latin America and the Caribbean. BANOBRAS can also finance the private sector under special programs promoted by the government or projects derived from a concession, permit, or contract with government approvals as long as energy is one of the operational areas. In January 2014 FINADES (National Finance of Agricultural, Rural, Forestry and Fisheries Development) was established to fill a gap that remained after liquidating BANRURAL and replacing FINRURAL. Its objective in rural agricultural development is to provide first-tier and secondtier financing to rural communities with less than 50,000 inhabitants for any economic activity that would improve their well-being. The electrification of these zones is of great importance to integrate them into Mexico’s economic development. For now, you can contact any of the institutions that are a part of the Development Bank to get a picture of the potential benefits the Energy Reform offers to companies, its employees, and for the well-being of Mexico and its sustainable development. The Energy Reform’s financial instruments are just getting off to a start. *Member of the National System of Investigators at CONACYT, author of Instituciones Financieras: estructura y regulación, coauthor of Energy and Sustainable Development in Mexico, awarded National Prize for Ethics, professor and principal investigator at Monterrey Institute of Technology and Higher Education (ITESM).

Round One

José Pablo Rinkenbach Lizárraga(*)

Economic profitability of blocks and fields of Round One in Mexico

T October 2014 Mxe Mexico Energy and Business Magazine

hroughout the last eight decades, the hydrocarbons energy sector of Mexico was developed through a State monopoly (i.e. Petróleos Mexicanos). The depletion of proven reserves and the gradual but yet constant production decrease of the large reservoirs, together with increased difficulties to discover and develop new reserves, as well as the limitations of the contractual models and the availability of resources to improve PEMEX´s capacity and quality of execution, rendered it impossible to sustain the monopolic model, giving rise to the Energy Reform of 2013. The Reform opened up this sector to direct participation of the private industry through the so called Round One, where 109 exploration blocks and 60 production fields in different geographical areas, both onshore and offshore, as well as conventional and non-nonconventional reservoirs will be put out to tender.

Map of blocks and fields to be put out to tender in Round One

Source: SENER

In preparation for Round One, Ainda Consultores and CBM Ingeniería Exploración y Producción put together a multi-discipline team of experts in the industry (geoscientists, engineers, economists, attorneys, businessmen, among others) 9 months ago, to conduct an evaluation of the preliminary value creation potential of representative blocks and fields of the areas considered in Round One. The study was performed based on the public information available to date and on the experience and knowledge in the different areas of a group of experts. The intention of this study is to answer a set of fundamental questions that future investors might have: • How attractive the oil business is in Mexico and which are the most attractive areas or blocks for the different profiles and types of investors? • What is the level of profitability expected from each block or field to be put out to tender and how to compare them vis a vis to other international projects? • How do the different contractual schemes and levels of government take impact the profitability of the projects? For that purpose, 12 representative blocks / fields (i.e. clusters) were selected from the areas chosen by SENER for Round One.

Ratio of Round One Blocks/fields vs. Analyzed blocks/fields Source: CNH / Ainda-CBM Analysis

would allow investors to have a better understanding of the appeal of the areas included in Round One. The classification system was developed based on ranges of different parameters such as: profitability, economic risk, financing needs, operating complexity, operating risk, climate risk and social risk. One of the areas of major interest in this round is the Area of Chicontepec, due to the fact that, it virtually represents 40% of the overall domestic reserves. For this area, a preliminary technicaleconomic evaluation of an average representative block was conducted. It is important to highlight that the Chicontepec area has high heterogeneity, as it can be seen from the sand discontinuity, the stage of the field in its production life cycle, the crude characteristics Representative blocks / fields and grade, the initial production classification system criteria and well decline, level of reserves, Source: Ainda-CBM Analysis among others.

October 2014 Mxe Mexico Energy and Business Magazine

In order to facilitate the comparison of the evaluations of the different blocks and fields, a rating and classification system was developed based on the following parameters: (i) technical, (ii) economic, and (iii) sufficiency and quality of public information available. This approach

October 2014 Mxe Mexico Energy and Business Magazine

Summary of technical characteristics of the average representative block of Chicontepec

Result of probabilistic simulations of the NPV

Source: Ainda-CBM Analysis

Although it would not be until November that the SENER (Ministry of Energy) and the SHCP (Ministry of Finance) announce a blueprint of the contractual model and the economic-fiscal scheme, it is still feasible to make an initial estimate of the potential, assuming reference parameters both at the domestic and international level. The evaluation of Chicontepec was made assuming a joint production model, at a cost oil of 60%, which replicates the same parameter outlined in PEMEX allocation under the new fiscal regime. Furthermore, a starting point regarding the Government take of production was set at 40%, ensuring that the oil income that belongs to the Government is maintained in the order of 85%, which is the current situation of the projects assigned to PEMEX. Another key parameter in the evaluation was the definition of a reference price to appraise its production. During the last five years, the WTI price has varied between US$70 and US$110 per barrel, whereby 50% of the instances, the price was within a range of US$93 to US$107 per barrel, with a weighted average of US$100. Due to this uncertainty, a conservative price of US$85 per barrel was used. The results of the evaluation of Chicontepec allowed an estimation of a value creation within a range of US$ -340 to US$ 600 million, measured as the Net Present Value (NPV), at an Internal Return Rate (IRR) between 9.5% and 42%, with an expected value of 14.5%.

ity, but it is also one of the assignment variables for the tenders. Due to the importance of this parameter, scenarios with different levels of Government take of production were considered; in such a way that the potential investor can define its offer strategy in the tenders, always trying to maximize its value creation and its likelihood of winning the contract. It stands out that those scenarios where the production granted to the Government is 30% or more, there is the risk of losing the value creation potential if the investment increases over 20% of what was estimated. Finally, and with the objective of increasing the level of certainty for investors, the study uses value creation and profitability ranges in a probabilistic manner, for which purpose a Montecarlo simulation of 5,000 scenarios was made. The results of the simulation show a likelihood of 67% for the NPV to be positive. The foregoing suggests the convenience for authorities to consider the potential economic attraction of certain blocks vis a vis the profitability of international projects. This could be achieved by means of the size of the blocks, sufficiency and quality of information, term of the contracts, among other variables. In summary, the study developed by Ainda and CBM is of substantive importance and a reference point for any corporation interested in participating in the new Mexican E&P market. ●

Ratings of an average representative block in Chicontepec Source: Ainda-CBM Analysis

In the joint production contracts, the percentage of the Government take of production is critical, since it does not only impact the profitabil-

(*) José Pablo Rinkenbach Lizárraga holds an M.B.A. from Rochester University and several specialized studies regarding contractual and fiscal matters in the oil industry. He is the CEO of Ainda Consultores, a specialized consulting firm in business, contractual and fiscal strategies, mainly in the energy sector; Ainda was recently recognized with the “2014 Mexican Company” award from the Latin American Quality Institute.

COAHUILA

Coahuila A Shale Gas Powerhouse Coahuila estimates U$64 billion investment and 240,000 jobs from shale gas industry

October 2014 Mxe Mexico Energy and Business Magazine

The Secretary of Economic Development

and Competitiveness for the Mexican state of Coahuila, Antonio Gutiérrez Jardón, expects to receive U$64 billion in investments for the exploration and production of unconventional hydrocarbons over the course of the next 15 years. During this time, he anticipates approximately 8,000 shale wells to be developed through hydraulic fracking. As a result of the investments and related industrial activity, Coahuila hopes to generate as much as 240,000 jobs. The 8,000 wells have been identified through seismic testing performed by the Instituto Mexicano del Petróleo, which included roughly 500 km2 in the Northern part of the state. At the moment, Coahuila maintains three important unconventional basins that hold the shale gas and shale oil: Sabinas, Burro-Picachos y Burgos. These basins also cross over into the two neighboring states of Nuevo León and Tamaulipas. It is estimated that the prospective reserves in these basins amount to the equivalent of almost 25 billion barrels of petroleum crude, or 40% of the total hydrocarbon reserves estimated for the entire country of Mexico. As a result Round Zero and the energy reform implementation, Pemex will continue

its activities in the region and will add the nearby fields of Hidalgo, Monclova y Pirineo to its list. In addition to this and related to Round One, a public concession of eight blocks has been opened to private investors that include 1,500 square kilometers, located in the municipality of Jiménez, close to Ciudad Acuña. Texas companies like Lewis Energy Group, who maintain collaboration agreements with Pemex to operate certain wells in the Northern part of the country, can now operate directly through 100% ownership of a Mexican corporate entity for the purpose of exploration and production of shale gas. According to Antonio Gutierrez Jardon, “nothing is guaranteed but (Lewis Energy) understands exploration and production in the area, which means they have the capability to drill in as little as 15 days.” There is essentially no other shale gas operator in Northern Mexico at the moment that can say the same. For the above reasons, the government of Coahuila is confident that the Mexican state will become the most important area for the unconventional hydrocarbons industry and that in the midterm will be one of the largest recipients of related investment.

The only key that opens business opportunities in the energy and petroleum sector in Mexico and the United States Watch the video

For membership information please visit:

www.potentiaclub.com

COAHUILA Real Estate prices in the North of Coahuila spike due to shale gas speculation Land for sale in Coahuila! Real estate companies are preparing for an increased interest in land purchases related to the shale gas speculation in the area. Once hundreds of drilling wells and exploration activity was announced, land owners have started to list their properties at a rapid rate. The increase in listings started in the municipalities of Guerrero and Nava, Coahuila, the principal area where they have started drilling in an effort to extract shale. Geokinetics recently started their seismic testing and general activity in the area, which triggered the real estate bonanza. Mexican, Texan, and local investors are said to be interested in the purchase and high probability of upcoming development. It is not clear at this early stage what land owners can charge for the purchase of their property, as they still do not own the mineral rights of the underlying shale gas. However, the overall economic impact from the oil and gas industry’s investment will undoubtedly

be significant. With the increased jobs and economic growth, restaurants, housing, and service industries will flourish which is another reason to expect a significant increase in land values.

Expo Forum Energy Coahuila 2014

The First Expo Forum Energy Coahuila 2014 is a two-day Conference focused on “Shale Oil and Gas in Mexico.” The event is scheduled on November 11, 12 and 13, 2014. The conference will bring together industry professionals, internationally recognized industry speakers, high government officials, and top-level executives from Gas & Oil’s related industries.  The conference is aimed at bringing key speakers of the Oil industry, from Texas and Mexico, together on one platform. As a result, a lot of information, ideas, knowledge and business will be shared, and the future of the Shale Gas and Oil industry in Mexico will be discussed.   The conference will also explain the legal framework just approved under the Energy Reform that Mexico is developing. The articles were written by the staff reporters of www.mexicoshalegas.com and www.exposhalegasmexico.com

Mexican, Texan, and local investors are said to be interested in the purchase and high probability of upcoming development.

sección

Escritor

Fotografo

October 2014 Mxe Mexico Energy and Business Magazine

Critical Point for

Energy Reform I’ve been following Mexico’s energy reform closely— from the lead-up to the constitutional reform through the passing of the secondary legislation. Almost one year in, what Mexico has accomplished is nothing short of historic. The reform went far beyond what many believed possible and international energy companies are already busy announcing their investment plans and partnerships with Pemex.

ut this doesn’t mean that the work is done. And in fact, for many companies the game is just beginning. Though not grabbing the headlines, today’s process of designing contracts and bidding rounds, will be, in many respects, far more critical. Mexican officials will be hitting the road over the next weeks, meeting with investors and companies in Houston, New York, and beyond. Their job will be to explain the rules of the bidding rounds and seek input on the

investment opportunities in the new era

October 2014 Mxe Mexico Energy and Business Magazine

fiscal terms, which could be announced as soon as November. Getting these terms right, and implementing the other parts of the secondary legislation, will be critical to laying the reform’s foundation (something I’ve written about before here). It will also be important for bringing in the foreign investment necessary to reverse declining oil production and develop new fields (estimated to be around $8.5 billion annually).

Some of this investment will come from Mexican companies and their counterparts in Europe, Asia, and Latin America. But U.S. companies, given their deep economic relationship with Mexico, are particularly well positioned to take advantage of these new opportunities. U.S. companies have a long history of doing business in Mexico, sending south an average of $10 billion a year between 2002 and 2012. Up until now, much of this money was channeled into Mexico’s manufacturing sector (helping create today’s North American manufacturing platform) But the energy reform opens up entirely new sectors for investment, and not just for major oil and gas production companies. Midstream infrastructure gaps and opening competition in the electricity sector are just two more possible opportunities. The two countries also sent back and forth a total of $57 billion in oil and gas products in 2013, totaling some 12 percent of the $500 billion in bilateral trade. While this was the highest amount of total trade ever for the two countries, 2014’s exchanges look to be even larger. From January through July of this year, bilateral trade was $15 billion more than during the same period in 2013 (equaling $74 million more in goods every day). And Texas is front and center as the number could grow further with the completion of the Ramones Pipeline, which some are calling the future backbone of Mexico’s natural gas pipeline network. Stretching from Agua Dulce in Texas to Central Mexico, the pipeline will connect the Texas’s natural gas fields to Mexico’s manufacturing heartland and begin funneling cheap gas south starting in December 2015. Bottom line, there is a lot to be watching in Mexico and along our border. So, if you are thinking of investing here in country, or are already doing business in Mexico, I’d like to hear from you. And don’t forget to stay in touch on Twitter, Facebook, and LinkedIn.

The article was written by Antonio Garza - Counsel, White & Case, Mexico City.

investment opportunities in the new era