Sunday, April 20, 2014

Big oil prepares to cross the border into bandito territory

A worker walks up to the floor of Orion Drilling Co.'s Perseus drilling rig near Encinal in Webb County, Texas. The Perseus is drilling for oil and gas in the Eagle Ford Shale Play, a sedimentary rock formation under an area of south and east Texas. Credit:Eddie Seal/Bloomberg News

The Eagle Ford Shale Play is one of the biggest oil bonanzas in American history. In southern Texas, thousands of rigs are tapping it but drilling into the formation on the Mexican side of the border has been slim. That’s about to change due to a
landmark energy bill approved by Mexico’s Congress in December that has opened the country’s oil industry to private and foreign investment for the first time in 75 years.
The Washington Post reports that “lawmakers will be hashing out the nuts and bolts of the law over the coming weeks, but expectations are that U.S. and other global companies will be able to bid on oil and gas projects by the end of this year, beckoning the fracking crews across the border — into some of Mexico’s most violent areas.”
A potential for great rewards but risks, too

Industry estimates say Mexico’s shale formations hold the energy equivalent of 60 billion barrels of oil, an amount exceeding the entire volume the country has pumped out by conventional means since 1904.

The problem is that the Eagle Ford underlies territory run by the Zeta drug cartel that 
specializes in kidnapping and extortion. When Mexican geologists and survey crews need to look for new well sites, they often travel in the company of a military escort.  
A group of Weatherford employees came under fire at their hotel in the nearby town of Ciudad Mier this month during a cartel gun battle, though none of the workers were hit.

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“You can hire private security to keep workers safe, but all of that implies cost and slows down business,” said Duncan Wood, an energy expert and the director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.

“And if a company has a shipment of supplies hijacked, that’s lost time,” Wood said. “It’s something they wouldn’t have to deal with in Texas.”

Industry experts say the current rate of return on the Eagle Ford shale is so high, and the backlog of pending drilling permits so large, that it may take years for U.S. companies to begin moving crews into Mexico.

“The first step will be getting land in the right places, and the rest of the operation will follow,” said Chris Robart, a consultant at PacWest Consulting Partners in Houston. “It’ll depend how interested people are in bringing equipment over the border.”

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