Photographer: Eddie Seal/Bloomberg
Floor hands make a pipe connection on Orion Drilling Co.'s Perseus drilling rig near Encinal in Webb County, Texas. Drilling in Mexico would seem a natural next move for the thousands of wildcatters who have brought a boom to Texas, yet until the violence abates that’s not likely to happen.
By Nacha Cattan and Adam Williams
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 from 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 following 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 (720 kilometers) 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 brought a boom to 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 myriad hurdles stemming from intense opposition from environmentalists and communities over waste water pollution to spiraling costs. Spending on U.S. exploration and production is poised to rise 8.5 percent this year, according to a Barclays Plc report.
Even though considerable, those obstacles pale in comparison to 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.”
Gun battles raged this spring, with dozens shot dead on highways and businesses burnt down in the Gulf of Mexico port city of Tampico. The capture of a Gulf Cartel founder and 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.
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 reform, 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 boost 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 oilfield when it was discovered, is down almost 90 percent since it began production in 1979.
Still, even Pemex, which has pushed ahead with some shale drilling, is fending off fuel thieves siphoning gasoline and condensates. Bunkering, as the thefts are known, led to a pipeline blast in the state of Puebla that killed 28 people and injured 52 in 2010.
The crime wave has also been hitting the national oil company’s bottom line. More than $300 million in stolen natural gas condensate from the Burgos basin was smuggled across the U.S. border by drug cartels from 2006 to 2010, according to a lawsuit filed by Pemex in a Houston federal court in 2010.
Many of Burgos’s wells are on unpaved roads off a highway running parallel to the Rio Grande less than a mile from the border. Highway 2 is notorious for violent attacks, narco-blockades and disappearances as rival gangs seek to secure drug routes to the U.S. Sorghum farmers in 18-wheelers share the two-lane blacktop with souped-up pickups acting as drug scouts. Few other vehicles were on the road one May afternoon.
Pena Nieto beefed up the army presence in Tamaulipas last month, where soldiers are escorting Burgos workers like Torrez to and from their wells. As it turns out, none of the Weatherford oil workers were injured in the April attack as a black Chevy Silverado fitted with steel sheets and dual wheels, known as a monster truck, pumped the dome-roofed Asya with about 20 rifle blasts. Weatherford believes the assault was unrelated to the workers’ presence, a company spokesperson said.
Since the shooting, police have captured and killed cartel leaders and tracked down the men who shot at Torrez’s hotel, pumping their vehicle with over 200 rounds. At least four men were killed as they tried to flee the makeshift tank.
“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.”
Words are powerful weapons, be careful how you use them.
@DD: I just knew that the narco problem couldn't be all bad. The last thing northern Mexico needs is fracking. A lot of people are already running out of drinking water, and in some areas there is no water for livestock, much less for irrigation. A typical fracking well requires 80 million liters of water a year to operate. That's over 20 million gallons of water!
The big problem, aside from using up valuable water, is that there is growing evidence that fracking contaminates already scarce ground water. You go down around Muzquiz, Coah., and streams that previously ran year round are drying up or carrying trickles instead of streams. This has forced many ranchers and farmers to resort to underground water, which is very expensive since the aquifers lie very deep. One of my friends had to drill down about 300 meters before he hit the aquifer.
All is not lost, however; there are so many vultures circling over Pemex that climatologists predict that large areas of Mexico's territory will undergo cooling because sunlight cannot reach the ground.
DD and JLopez: Thanks for the heads up info on this important topic and development. Apart from the oil and gas issues in Northern Mexico, I was especially disturbed to learn about the poisoned and diminished potable water linked to fracking.
Rhetorical Q: Why am I "especially disturbed"?
Answer: Because thirst, hunger, desperation, hopelessness mixed with immorality, warped ideologies, greed and corruption trumps rational solutions to large problems.
Just so it's clear, Mexico follows a pattern in these periodic "constitutional reforms" that seek to invite private investors to put money into telecommunications, railroads, electric, or any other industry that was previously a government monopoly. The ruling party simply sells its assets to politically connected insiders for peanuts and the previously government owned monopoly becomes a privately owned monopoly. Prices go up and the quality of the product or services goes down. Some examples: Mexico has some of the most expensive gasoline, natural gas, water, telephone service, television, electricity--- the list is long---, coupled with the worst quality. Of course there are benefits to this: more billionaires are made, the fortunes of a few billionaires grow even more, and everybody at the top of the food chain is happy. That's how it has been and that's how it is. That's how it will be with Pemex.
It doesn't matter which political party is in power because, frankly, "conservative" or "liberal" labels are irrelevant when one small group of oligarchs controls the country and has controlled it for a couple of centuries. The political system is carefully set up so that the electorate has no real power to influence the government. In my opinion, this is the root of Mexico's problems, because this condition leads inevitably to corruption and impunity. As well-known cartoonist and writer Rafael Barajas, aka "El Fisgon", points out, the government has been very careful not to touch the financial infrastructure of the drug cartels in its U.S.-mandated "War Against Drugs". For good reason: there is only one financial infrastructure! As the respected American philosopher Bart Simpson would say, "Well, duh!". (A little detour: don't you find it the slightest bit curious that Mexican financial crooks are always prosecuted in the U.S., never in Mexico? After all, it's in Mexico where they steal the loot they then try to launder in the U.S.)
It's no coincidence that Pena Nieto/PRI scheduled the debate and vote on the energy reforms on the same week that the World Cup is being held in Brazil. In fact, last week, SEGOB/Osorio Chong announced that the government would not require television networks to broadcast the legislative debate because that would be unduly burdensome for these poor, cash-strapped networks.
Frankly, when it comes to corruption, the drug traffickers could take lessons from the PRI. Or any political party, for that matter, but the PRI is the undisputed master of corruption. Like they say in Mexico, "Mas sabe el diablo por viejo que por diablo", and the PRI has a huge head start on everybody else. (For the linguistically challenged among you, the "dicho" translates roughly as, "the devil knows more because he's old than because he's the devil.")
I, for one, am grateful that the narcos are slowing down the fracking projects in Coahuila and Tamaulipas. Maybe Chihuahua will get lucky, too. There is simply not enough water to go around, and the consequences should be fully understood before the oil companies are allowed to privatize the profits and socialize the costs, as they have done in Texas. Now, I realize that Texans and Texas cattle are starting to enjoy natural gas-flavored water (eau flambe?), but that is an acquired taste that I'm not yet sophisticated enough to enjoy.
In reply to this post by DD
The fracking that would be done down there would likely be at around 3700 to 4000 meters deep, or more. They are starting to use saltwater brought up. Most of the water that deep is salty to begin with. There are layers and layers of rock and other minerals that would separate the shale that is fracked from water tables.
As a country Mexico desperately needs fracking, otherwise Pemex keels over and dies at some point soon. You all do realize that amount of money Pemex, even after graft and stealing, kicks into the full Federal operating budget in Mexico? The devaluations of the 80's had as an underlying cause the crash of the price of oil. Currently Mexico as a country has no way to replace the revenue that is drying up as the easy access oil fields go dry.
In reply to this post by jlopez
JLopez: Very educational, clear, concise, and focused sketch of the issues at hand in this thread.
I enjoy the historical reference, satirical gems, use of "dichos" and generally the ways that you present information and opinions.
I assume that you are a professional of some kind for the depth of your knowledge. BB is fortunate to have you.
P.S. I saved this particular post in my ClipMate files on Mexico and credit you, if I ever use it.
In reply to this post by jlopez
I agree that is very good description, I agree wholeheartedly with what you write about how things are, how things will be and especially the PRI and Oligarchs. You all used my favorite Spanish saying......
But I do not think fracking is all bad, fracking has been going on 30+ years in many locations, if it were the devil incarnate it would not still be happening. There is likely some issues and problems, there always is with fossil fuels, but that is the reality. Realistic alternatives are not present as of yet.
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