Mexico liberalizes its energy sector – but will Alberta benefit?
AltaCorp Capital thinks drillers and frackers will see the most upside. But which ones?
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
As far as alarmist headlines go, the one attached to a story in today’s Financial Post is a good one: “North America to drown in oil as Mexico ends monopoly.” Not quite, according to Dana Benner, AltaCorp Capital’s managing director of institutional equity research and the head of research in its oilfield services division. “The fear is that North America will get swamped with Mexican production,” he says, “but that will take a long time. You have infrastructure issues and you have safety issues – northern Mexico is still one of the riskiest places to operate globally. With all that, I think it’s going to take a long time for Mexican production to have a material impact on the North American balance.”
Who could benefit from that impact? While Canadian E&P companies will almost certainly be muscled aside by super majors like Shell, BP and ExxonMobil, service companies aren’t likely to face the same kind of competition. Indeed, many of them are already operating equipment in Mexico. Calfrac Well Services, for one, has 40,000 fracking horsepower already in the country, and Benner says that will likely get put to work as Pemex, Mexico’s state-owned petroleum company, embraces multi-stage fracking in earnest. Benner also thinks Alberta’s drilling companies will do well as Pemex and the companies it contracts to prove up and develop its neglected resources. “Trinidad has seven drilling rigs in the country. They were recently all laid down – through 2013 they were all laid down – but I think there’s a good chance we’ll see some or all of those rigs back to work in 2014,” he says. CanElson Drilling is in similarly good shape. “They’ve got four rigs down there drilling in service, and then they operate a fifth. I think they’re very interested in putting more rigs into Mexico, and that would be material for them.”
And while the ramp will be slow, it should be steady, Benner says, with much of that coming in the form of new (to Mexico’s oil fields) drilling and fracking technologies. “They need better rigs, and they’re going to need much more technical fracking. It’s been a lot of plain-vanilla operations down there – Pemex hasn’t wanted a whole bunch of technology invested, nor have the companies been incentivized to use it.”Related