Tips from the Executive Director

Juan A. Navejar Jr.

The largest economic impact to Texas has been the Eagle Ford Shale. The shale play boomed for a couple of years causing small towns in its footprint to rethink, rebuild and resurge life in these communities.
No one expected a drastic slowdown so early in the game.  Organization of the Petroleum Countries (OPEC) was left looking in as the Texas gold mine was having a ripple effect throughout the U.S. South Texas communities experienced tremendous growth and saw significant economic impacts. The shale play saw companies moving closer to its sites to keep costs down. As a result the Hub City saw major players rethink and reshuffle its assets to make their business more lucrative.
Shale plays throughout the U.S. are struggling, it’s not just in Texas. OPEC controls the market and the price per barrel is hitting U.S. companies in their pocketbooks. International oil companies operate independently of OPEC, but because OPEC controls a larger percentage of world crude oil exports its policies impact the price of oil worldwide.  While oil companies might benefit from OPEC’s supply constraints, they do not participate in OPEC’s decision-making process, and could just as easily be hurt by OPEC’s policies if OPEC decided to attempt to increase the supply of oil worldwide.
“What we have in the shale plays is that companies cannot operate at $40 per barrel and will not participate. It’s a war the United States has to play against Saudi Arabia,” Dr. Thomas Tunstall, Research Director, UTSA Institute for Economic Development said. “What we need is a constant $65 per barrel to able to keep drilling and be profitable.”
Fracking companies can no longer generate enough revenue to pay their debts due to low oil prices. The only possible solution at this time is to implement cost-cutting measures the unfortunately affect all who depend on the oil industry.
The timing in the drop has been unfortunate for small communities who built hotels, stores and permanent housing for a shale that promised to be drilling for up to 30 years.
“The shale continues to drill, however, the drilling footprint has become smaller,” Dr. Tunstall said. “We will see a turnaround but how far out depends on OPEC.”
The Mexican Shale play has also taken a drastic change but not from OPEC. The shale in Mexico is controlled by PEMEX, the state-owned petroleum company. PEMEX was organized to by nationalized petroleum and the expropriation of all private, foreign, and domestic companies at that time.
Pemex has a total asset worth of $415.75 billion, and is the world's second largest non-publicly listed company by total market value. The majority of its shares are not listed publicly and are under control of the Mexican government, with the value of its publicly listed shares totaling $202 billion in 2010.
“Dealing with Mexico is a whole different animal as U.S. drilling is done on private lands. While in Mexico you are dealing with everyone in the government.” Alberto Garcia Jurado with Mexico Energy Sector & PEMEX said. “U.S. companies wishing to deal with PEMEX will have to change the way the normally do business in the U.S. and adapt to their ways.”
In February 2015, the PEMEX board approved a $4.16 billion spending cut, pulling the company’s budget down 11.5 percent from the 2015 budget approved by Mexico’s congress. The company also said it would delay deep water exploration plans and cut jobs in response to weak oil prices.
Most recently PEMEX through its Corporate Office of Procurement and Supply signed an agreement with the Organization for Economic Cooperation and Development (OECD) that will enable PEMEX to adopt the best international practices in procurement, and promote the efficient and transparent management in its processes.
While the efforts to drill in Mexico primarily in Coahila, Nuevo Leon and Tamailpas are slow in coming, efforts from the Mexican government are being made to assure drilling will commence in the coming years.
“Companies in the U.S. can start by changing to a more personal level with Mexico. Personal relationships have to step up greater and will take some time to develop these interpersonal relationships,” Garcia Jurado said.