Mexican officials are hoping that an area of sun-soaked hills about 90 miles south of the border can become the next Eagle Ford Shale.
Tamaulipas state officials gave the Business Journal an exclusive look at oil and natural gas leases in the Burgos Basin, a vast region named for a hydrocarbon-rich geological formation that extends from Piedras Negras, Coahuila, to Tampico, Tamaulipas.
Sorghum farming and ranching are the primary economic activities in the region, and Mexican officials hope that opening it to the oil and natural gas industry will bring high-paying energy jobs and greater prosperity there.
Earlier this year, Mexican officials released two auctions for developing projects in the Burgos Basin between the border city of Reynosa and the agricultural hub of San Fernando.
The Ronda 3.2 auction opened 21 blocks with more than 1.4 million acres to develop conventional oil and natural gas wells in the border states of Nuevo Leon and Tamaulipas.
Ronda 3.3 opened nine blocks with more than 668,000 acres for horizontal drilling and hydraulic fracturing projects in Tamaulipas. If the auction is successful, the wells drilled on those blocks could be the first major hydraulic fracturing project in Mexico.
Mexican officials are expected to award both auctions on Sept. 27. So far, 13 companies have shown interest in Ronda 3.2 while three have shown interest in Ronda 3.3.
Firsthand look
Although the leases are managed by the federal government, the Texas Tamaulipas Trade Office was established in September 2017 to help companies from Texas operate there. Part of that work includes bringing energy companies and service companies to the region, Texas Tamaulipas Trade Office Director Ruben Lozano told the Business Journal.
“Once the blocks are designated to a possible local company, we would definitely be a local facilitator to ease the flow of establishing operations in the area,” Lozano said. “Governor Francisco Garcia-Cabeza de Vaca has instructed us to be aware of local technology used here next door at the Eagle Ford and to try and bring those innovators to Tamaulipas so the timeline of getting fields producing is shortened — giving the state and region a much anticipated economic impact.”
Lozano and other state officials gave the Business Journal a firsthand look at the property involved in both auctions. Escorted by state police, the convoy weaved through dirt roads, sorghum farms, hills and tangled mesquite brush to find the remote sites.
Block 13 of Ronda 3.2 is near a small sorghum farm town named Ejido Francisco Gonzalez Villarreal, where Mexico’s national oil company Petroleos Mexicanos, or Pemex, had previously drilled natural gas wells. At their peak, vertical wells in the area produced up to 2 million cubic feet of natural gas per day, but they lasted only five to six years before they had to be shut in. Companies that win the auction will be able to recomplete the old wells and drill new ones. Some 13 companies have shown interest in the leases, but only 10 have been certified to proceed to the next level of the process.
A dirt road northwest of San Fernando cuts through ranches and thorny brush to the foothills of the Sierra Madres, where Block 19 and other leases issued under Ronda 3.3 will be opened for horizontal drilling and hydraulic fracturing. Mexican officials have seismic data suggesting the leases hold large amounts of natural gas and a light form or crude oil known as condensate. Three companies have expressed interest in the leases, but only Pemex has proceeded to the next level of the process.
Companies that bid on the leases will have to demonstrate technical and financial capability. They will also have to secure their own sources of water, build their own infrastructure, procure supplies and pay landowners up to 3 percent royalties, Tamaulipas Ministry of Energy Project Manager Marco Manzo said. Under Mexican law, the federal government owns the oil and natural gas resources underground but property owners hold surface rights.
High hopes
San Fernando was one of the most contested areas in Mexico’s drug war, with reports of numerous carjackings, robberies, kidnappings, gun battles, murders and mass graves that made it one of the most dangerous places in that country. Years later, many businesses remain closed, although federal and state police have restored order along highways, enabling some roadside vendors to return — a sign of life.
Shortly after taking office in October 2016, Gov. Garcia-Cabeza de Vaca increased state police patrols, established checkpoints and pledged to make the state safe for foreign investment. Taking another step forward, the pro-business governor is expected to join U.S. Department of Homeland Security officials in the Rio Grande Valley on Thursday morning to launch a binational law enforcement coalition to dismantle criminal organizations.
While full details will be released late Thursday morning, officials confirm that the coalition will work under the name “Campaña de Seguridad y Prosperidad” — or the Security and Prosperity Campaign. The coalition’s stated goals are to enhance security and improve the quality of life for residents on both sides of the border.
In an interview with the Business Journal, Tamaulipas Secretary of Energy Andres Fusco said law enforcement is one important strategy and that high-paying energy jobs will prove to be an even more effective tool in fighting crime. And as Mexico moves its power grid away from coal- and oil-fired power plants to cleaner-burning natural gas, Fusco said the development of the Burgos Basin is vital to realizing those goals.
“It’s going to transform San Fernando, but it will also have an impact on a national level,” Fusco said. “Natural gas production is a national security issue for Mexico. It’s the cleanest fossil fuel, and Mexico is ranked sixth or seventh place worldwide in proven natural gas reserves. The goal here is to create a nation that has energy security.”
Potential
There are already some foreign energy and service companies operating in the area under previous contracts with Pemex. The largest is Iberoamericana de Hidrocarburos SA, a consortium between Mexican company Monclova Pirineos Gas SA de CV and Spanish company Cobra Instalaciones y Services SA.
Known as ISHA, the consortium won a 15-year contract from Pemex in 2007 to develop the Nejo block about 9 miles southeast of San Fernando. IHSA has drilled hundreds of wells over the years, and in a 2012 test, the company tapped oil field service giant Schlumberger Ltd. (NYSE: SLB) to test how hydraulic fracturing technology could boost productivity on five wells. The tests were successful, with Schlumberger reporting 86 to 132 percent increases in productivity.
Nelson Balido, a San Antonio businessman who is a government affairs and energy adviser to Gov. Garcia-Cabeza de Vaca, believes the Burgos Basin has huge potential.
“This area is equal to what the Permian Basin was 50 years ago,” Balido said. “You have a large and undeveloped area here. Fifty years ago, you had wildcatters and a lot of people moving into the Permian Basin and not knowing what it really had. We have enough information to know there’s a lot here, but there could be much more.”
