XOM and SLB – Your Best Ways to Play a Mexico Oil Boom

mexico oil stocks xom slbThe energy opportunity in Mexico oil  is truly staggering.

Overall, the nation has roughly 13.87 billion barrels of proven oil reserves according to state-run oil firm PEMEX. However, that number could only be the beginning, considering the country’s vast, unexplored regions.

Fracking and shale exploration could add 460 trillion cubic feet of gas, and deepwater drilling could add another 27 billion barrels of crude to Mexico energy supplies.

Yet there is a slight problem. Mexico’s vast oil wealth is closed to international investors as decades-old policies keep foreign oil companies such as Chevron (CVX) from drilling in the nation.

Well, after years of falling production, that could be changing.

A historic bill in Mexico would finally open up the nation’s vast energy wealth to foreign investors and help increase that stagnant and dwindling production.

For energy stock investors, this landmark decision by the Mexican government could the opportunity of a lifetime as Mexico oil production finally gets serious.

Changing The Charter

According to the U.S. Energy Information Administration, Mexico possesses the biggest unexplored crude oil reserves after the Arctic Circle. Unfortunately, much of that area continues to be unexplored as the nation’s charter essentially states that this Mexico oil “belongs to the people.” That means the drilling must be done by state oil producer PEMEX and its subsidiaries.

Even more problematic is that PEMEX doesn’t have the right technology to tap any of this vast oil wealth. Without advances in deepwater drilling and hydraulic fracking, Mexico oil production has fallen about 25% to hit just 2.5 million barrels per day.

Legacy oil wells and natural gas fields go continue to dry up at an alarming rate in Mexico. Without a boost in technology, Mexico’s energy sector — which funds about one-third of the nation’s federal budget — could be in serious trouble sooner than later.

Which is why newly elected President Peña Nieto has made opening up Mexico’s energy sector a cornerstone of his campaign.

Nieto realizes that in order to save his nation, he needs the fracking muscle of international firms. To that end, he’s set forth a series of proposals to help put Mexico’s oily empire into the hands of global energy industry.

The biggest part of that plan just passed a major hurdle in Mexico’s lower house.

Last week, Mexico’s congress approved to change the nation’s charter in order to allow foreign energy producers access to its oil fields. Some analyst are calling the decision the biggest to hit Mexico since the adoption of NAFTA back in the 1990’s. This recent energy bill will end the 75-year old monopoly that PEMEX has enjoyed and generate as much as $20 billion in additional foreign investment each year.

Under the terms of additional proposals, international producers will be offered production-sharing contracts or licenses where they get to own the oil they pump from Mexico’s ground. PEMEX would still a partner in each well, but the international firms would control the show. Additionally, for the first time, foreign energy firms in Mexico would be allowed to record these crude reserves for accounting purposes.

All in all, these efforts to finally allow Mexico’s energy bounty to be tapped by foreign firms should help push the nation’s output to 4 million barrels and 10.4 billion cubic feet of natural gas per day by 2025. That will help move Mexico into the top five energy exporting nations.

Needless to say, this is great news for energy firms looking to stake a claim in Mexico. But not all of the energy industry will benefit. Some will have an upper hand when it comes to fracking Mexico.

SLB & XOM – Two Of The Best

For investors looking to cash in the opportunity in Mexico, two of the best plays are industry stalwarts Exxon Mobil (XOM) and Schlumberger (SLB). The key is the oil stocks already big positions in helping PEMEX.

XOM already is a huge player in the U.S. waters of Gulf of Mexico. However, Exxon is quickly becoming a big player just cross the border. The integrated giants drilling technology is some of the best in the world— thanks to its purchase of natural gas giant XTO for $41 billion in 2009 — and it’s been partnering with PEMEX on technology swaps.

Back in August, XOM signed a five-year technical agreement that will see Exxon and PEMEX collaborate on drilling technology and human-resources training. While the agreement is “non-commercial” in nature, it’s still a big win for E&P giant. It basically shows Mexico just what XOM is capable of. That should provide XOM with the opportunity to get it hands on Mexico’s oil and gas, both onshore and off.

Not to mention that XOM’s deep pockets should help out muscle smaller players as land leases go up for auction. All in all, the venerable oil play should be one of the best ways to gain access to Mexico’s bounty from an E&P stand point.

And speaking of needed technology, Schlumberger has it in spades- especially the kind Mexico needs.

As the international king of fracking over rival Halliburton (HAL), SLB has already made headway in Mexico’s energy markets with technology deals with PEMEX. After the first round of energy reform took place back in 2009, SLB was one of the first firms to partner with PEMEX on enhanced oil recovery and is one of the major reasons why energy production in the nation hasn’t fallen further.

With early drafts on reforms predicting that PEMEX will still control about 70% of each oil well, its preference for SLB technology could still carry over into the future. With plenty of land still variable to drill, SLB’s pockets could get very fat indeed.

The bottom line is Mexico is finally taking the necessary steps to unlock its energy bounty and both XOM & SLB could be the top plays in the nation.

Disclosure: None

Article printed from InvestorPlace Media, https://investorplace.com/2013/12/mexico-oil-stocks-xom-slb/.

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