Louisiana oil, gas companies eye growth south of border

10 28, 2013 by The Advocate

Mexico’s national oil company is reaching beyond its borders for financial and technical help to develop its vast but hard-to-get reserves, a development that could mean further good news for an already booming Louisiana oil and gas sector.

To get the billions of dollars needed to boost production, Petróleos Mexicanos, the Mexican national oil company called Pemex, will need to undergo cultural and legal changes. Though American service companies have always worked for Pemex, for the last 75 years no one but Mexico has been allowed to own the oil pulled from the ground in that country.

The decades of going it alone has yielded a bloated Pemex that does not now have the money or know-how to stem waning oil and gas production, even though there are billions of barrels of oil and trillions of cubic feet of gas in Mexico.

That may soon change. The Mexican Senate currently is debating reforms for Pemex, including changing the country’s constitution to allow foreign investment in Mexico’s state-owned company. The measure needs a two-thirds vote in both the Senate and the House.

“We’re monitoring that very closely,” said Chris John, who heads the Louisiana Mid-Continent Oil and Gas Association. “We would benefit tremendously from any kind of opening up or partnership.”

James Doré, chief executive officer for Javeler Marine Services LLC in New Iberia, said more Louisiana contractors would follow major and independent oil companies to Mexico if Pemex opens its doors.

“And as (Pemex) opens up in deeper waters, they’re going to need assistance in the newer technologies,” Doré said. “I think it’s a natural progression that they’ll be looking toward ExxonMobil, Shell, ConocoPhillips for guidance.”

In 1938, President Lázaro Cárdenas nationalized Mexico’s oil company, throwing out British and American companies and seizing the vast oil fields that funded the country for decades.

But now Pemex suffers from lagging production, according to the U.S. Energy Information Administration.

“EIA expects Mexican oil production to continue declining over the next decade, assuming no dramatic changes in policy or technology,” the agency said in an October 2012 report.

Speaking at the LAGCOE energy conference last week in Lafayette, Pemex executives Froylan Gracia and Sergio Guaso said Mexico needs foreign investors.

Pemex now is a major source — one-third — of Mexico’s government revenue. But its tax burden of 70 percent of profits cripples the company’s ability to fund new developments and technology, Gonzalez, Gracia and Guaso said.

If Mexico’s legislators approve the constitutional changes, it will open up more business for already bustling companies in Louisiana, where many who work in international oil and gas live, LMOGA’s John said.

John said the job of extracting hydrocarbons would fall to large service companies such as Schlumberger and Lafayette’s Frank’s International, which perform specialized work for the large risk takers in the industry such as ExxonMobil, Shell and Anadarko.

All those companies have sizable work forces that live in Louisiana.

“They have all the crews, the have all the technologies that will be needed,” said John, a former Louisiana legislator and congressman.

Mexico last year elected President Enrique Peña Nieto, whose Institutional Revolutionary Party and Mexico’s two other main political parties agreed on the concept but not the details of opening up Pemex.

Nieto sent the Pemex amendment-change proposals to Congress last week.

“Pemex is in danger of going bankrupt if they don’t reform,” said Hernan Gonzalez, a Louisiana Economic Development representative in Mexico. But he said it’s uncertain if Mexico’s Congress will approve the reforms.

“The only thing they agree on is to disagree,” Gonzales said.

John said Mexico must allow reforms or risk remaining a sub-par economic country.

“Mexico will play a huge role in providing (North America) energy security along with the United States and Canada,” he said.

John said the energy boom in the U.S. has raised incomes for hundreds of thousands of workers and their families and pushed the U.S. to become the world’s dominant energy producer.

“They (Mexico) know they’re missing out,” John said. “We have it (the technology). They need it. We’re here to help.”

There are obstacles to getting the reforms passed because it would mean making changes that are certain to be opposed by the politically powerful unions that represent Pemex workers.

Union opposition to Pemex reforms will be loud as Mexico’s Congress debates changes to the constitution, said Gonzalez, the Louisiana Economic Development representative in Mexico.

“They just want to protect their turf,” he said.