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Mexico's Next Costly Energy Debacle

By Matt Badiali, editor, S&A Resource Report
Wednesday, November 30, 2011

Mexico is looking north... and it likes what it sees.
As longtime Growth Stock Wire readers know, the U.S. is in the midst of a natural gas renaissance. New drilling technologies have opened up "unconventional" reserves so vast, the U.S. is becoming the "Saudi Arabia of natural gas."
The businesses that pioneered these technologies are raking in millions of dollars in new revenue... and making shareholders rich. And with Mexico just getting started on what could be a similar boom, these companies might soon have access to a huge new market...
Right now, Mexico is in bad shape. Its "conventional" natural gas reserves have fallen from 77 trillion cubic feet (tcf) in 1985 to just 12 tcf today.
But Mexico has some of the same kind of "unconventional" fields that are fueling the U.S. gas boom... The U.S. Energy Information Administration (EIA) estimates that 681 trillion cubic feet of gas is trapped in shales along the Gulf coast.
It has just begun to tap into that. In 2010, there were 107 rigs drilling for shale gas in the Eagle Ford play in southeastern Texas... literally up to the border with Mexico. Across that line, there wasn't a single rig operating.
That ended earlier this year. In February 2011, Mexico's state-run oil company, Pemex, drilled its first shale gas well.
The thing is... Pemex is notoriously inefficient. It produces about as much crude oil as U.S.-based Chevron. But it has three times as many employees and more than five times as much debt.
Pemex has mismanaged the country's oil fields so badly, production has plummeted. Mexico may soon go from being an oil exporter to a net oil importer. (This is a huge deal. Most people don't realize it... but Mexico is a big player in the global oil market. At approximately 3 billion barrels of oil produced per day, it's the world's seventh-largest producer.)
So now, this corrupt, creaky oil company is stepping into the most technically challenging arena in oil and gas exploration... shales. I don't expect it to go well.
If Mexico wants to get the most out of its unconventional oil deposits, it's going to have to turn to international oil services companies. It's not unprecedented. The country licensed some outside oil companies to explore and produce oil earlier in 2011.
Energy Minister Jordy Herrera thinks Mexico's shale gas is worth $10 billion a year in new investment. If the country gets tired of its slow pace of production and expansion, a lot of the money will end up going to companies like Halliburton, Schlumberger, Helmerich & Payne, and Nabors, which have rigs and equipment within walking distance to Mexican Eagle Ford acreage.
Right now, the official position is "wait and see." But if Mexico opens its doors to foreign oil services companies, it would be a huge windfall for the same companies that are cashing in on the U.S. energy boom.
At the very least, Mexico's big, projected spending plans show just how much shale fields are starting to factor in the global energy supply.
Good investing,
Matt Badiali

Further Reading:

Learn more about the U.S. natural gas boom here...
Following the massive downturn this summer, many natural gas companies are trading at record-low prices...
With the amount of drilling expected to take place over the next five to 10 years, profits for these companies should skyrocket...
Pretty soon, every heavy-duty truck in the world will run on natural gas...

In The Daily Crux
Market Notes
Cigarette giants Philip Morris and Altria both hit new highs yesterday.
Electric car battery maker Ener1 is down 98% in the last 12 months.
Discount retailer Dollar General is up 27% from its August low.
Natural gas pipeline company Kinder Morgan hits a new high for the year.
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