Oil shale drillers in Texas have had to contend with environmental opposition and soaring costs. A few miles south of the border in Mexico, Angel Torrez and co-workers duck gunfire sprayed by drug traffickers.
When gunmen pulled up in April in a makeshift tank and riddled the Hotel Asya with bullets, Torrez dropped to the floor. After the attack, the 21-year-old machine operator for Weatherford International Ltd. and his crew of about 30 left town under police escort. Ciudad Mier, in the gas-rich region along the Texas border known as the Burgos Basin, had already become a ghost town after most of its inhabitants had fled after years of bloodshed.
"My girlfriend says she doesn't want me here," Torrez said as he rested on a bench outside his new hotel a few miles away, dressed in a red boiler suit and work boots. "I tell her I have to work, there's no other option."
Torrez's predicament reveals the challenge facing Mexico as it attempts to replicate the kind of shale bonanza taking place in Texas. As thousands of troops battle a recent surge of violence by drug traffickers and fuel thieves, lawmakers 450 miles away in Mexico City are preparing rules to allow foreign companies to drill for the first time since 1938. Drilling in Mexico would seem a natural next move for the thousands of wildcatters who have created a boom in Texas, yet until the violence abates that's not likely to happen.
"Shale will not take off in Mexico like it did in Texas in the near future," Dwight Dyer, a senior analyst at the consulting company Control Risks, said by telephone from Mexico City. "Unless the security situation along the northeastern border improves significantly, smaller companies will probably take their time before jumping in."
The Eagle Ford sedimentary rock formation underlying much of southern Texas also extends into northern Mexico's Tamaulipas, Nuevo Leon and Coahuila states. While conventional fields that don't require hydraulic fracturing, like the one Torrez's crew is servicing, have been exploited for decades, just 18 shale wells have been drilled south of the border. All have been in partnership with the state oil company Petroleos Mexicanos, or Pemex.
North of the border, scores of wildcatters such as Pioneer Natural Resources Co., Chesapeake Energy Corp., and Chestnut Exploration & Production Inc. have been responsible for accelerating the shale boom. These companies have had to overcome intense opposition from environmentalists and communities over wastewater pollution as well as spiraling costs. Spending on U.S. exploration and production is poised to rise 8.5 percent this year, according to a Barclays PLC report.
Those firms, however, don't have to deal with the levels of violence in Tamaulipas that sometimes resemble a war zone. While Chestnut would be interested in looking at opportunities in Mexico at some stage, it won't be among the first to enter, Chairman Mark Plummer said from Dallas. Security is one of the turnoffs.
"There's a big difference between Laredo and Nuevo Laredo, but once you get underneath the ground, it's all the same," he said, referring to the cities on either side of the border. "Hopefully over time some of that will subside."
Gunbattles raged this spring, with dozens shot dead on highways and businesses burned down in the Gulf of Mexico port city Tampico. The capture of a Gulf Cartel founder and the arrest last year of Zetas chief Miguel Trevino left a power vacuum that's renewing fighting between the two groups and within the Gulf Cartel.
Mexican congressional committees are drafting regulations to implement last year's legislative overhaul that broke a 75-year state monopoly on oil, with the ruling party pushing to vote through the rules by mid-July.
After 15 years of congressional gridlock on energy, President Enrique Pena Nieto was able to push through a more extensive oil law than many investors expected, allowing companies to drill independently in Mexico. Bank of America Corp. estimates it will increase foreign investment by $20 billion a year as soon as 2015.
Violence notwithstanding, shale deposits are the "low-hanging fruit," with new exploration expected as soon as the second half of the year, according to Victor Herrera, managing director of Latin America at Standard & Poor's. The legislative overhaul comes as output at Cantarell, the nation's largest oil field when it was discovered, is down almost 90 percent since it began production in 1979.
Pena Nieto beefed up the army presence in Tamaulipas last month, where soldiers are escorting Burgos workers such as Torrez to and from their wells. As it turns out, none of the Weatherford oil workers were injured in the April attack when s a black Chevrolet Silverado fitted with steel sheets and dual wheels, known as a monster truck, pumped the dome-roofed Asya with about 20 rifle blasts. Weatherford thinks the assault was unrelated to the workers' presence, a company spokesman said.
"It does raise the cost of doing business when you have to face the threats of kidnapping and extortion," said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. "For the bigger companies that's not a big deal, but for the smaller companies, it is something they have to factor in."
Business on 06/13/2014