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Mexico's Eagle Ford Holds Hydrocarbons, Challenges

There is more to the Eagle Ford Shale yet to be explored and exploited by drillers -- the part that lies south of the U.S.-Mexico border. It's not a sure thing, though, and there will be challenges to face, speakers at a San Antonio conference said last week.

"All shales are different...We're talking about stepping across the river into Mexico, and what works here in the Eagle Ford may or may not work in Mexico in the Eagle Ford, and it's going to take a lot of capital and a lot of time to figure out what does work," Abraxas Petroleum CEO Bob Watson said at the 2nd Mexico Gas Summit.

The Texas side of the Eagle Ford is well drilled and widely understood. South of the border, only a relative handful of wells have been drilled. These were projects of Mexico's Petroleos Mexicanos (Pemex). Some information has been released on some of the wells, Watson said.

"They haven't released information on all of them. But they haven't quite had the success that we've had here. A lot of that is a function of lack of infrastructure," Watson said. "The cost of doing business in Mexico is considerably more than here in Texas. This is a very, very financially critical play. Oil prices are very important as well as service costs. Anything you do to increase your service costs is going to have a significant impact on the overall economics. Oil prices are going to be the same on both sides of the river."

PetroRock Energy COO Steve Baldwin said he knows why costs in Mexico are higher than in the United States, and he also knows that they will be coming down as the upstream market develops there.

When Baldwin started working in Mexico on behalf of the investment management and advisory firm, he thought it was "going to be a lot like Texas," he told the audience. "One of the things that I suddenly came to realize was because Pemex had been a monopoly for the last 75 years, the service companies weren't competing. They had a nice run for a lot of years because they had one client. They had long-term contracts. I had never seen a jack-up [rig] with a seven-year contract or a five-year contract, or a service company that's been given contracts for multiple years. I came from an industry where you had to earn it. You really had to hustle to work. The service companies there didn't have that."

That will change, he said, as the upstream market in Mexico evolves. Producers that have been successful in the Texas Eagle Ford will bring their practices and pricing expectations to Mexico, and possibly make a success of it.

More needs to be known about the play, though, Watson said. The Pemex wells drilled to date give limited visibility, and the results that are known are rather underwhelming, he said.

"The problem with getting finance people excited about the Eagle Ford in Mexico is why did these [Pemex well] results happen the way they did," Watson said. "It's very critical to start to drill these wells the right way, to complete them the right way. So did Pemex do it the right way or did they just go out and try to experiment? We don't know. Or is it something to do with the rocks themselves?

"The Eagle Ford in Mexico is still very much in the air. It's a great resource. There's a lot of hydrocarbon there, but it's yet to be proven whether it can be extracted economically or not."

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