Latin America swaps oil flag for welcome mat

Big Oil is roaring back into Latin America, sweeping past the detritus of resource nationalism to scoop up acreage once reserved for national oil companies. Ho hum shifts the pendulum, but with a twist: most of the focus is now offshore.

Witness Mexico’s historic auction this week. ExxonMobil, Chevron, BP, Statoil, and Total, plus a smattering of independents, were awarded deepwater acreage in the Gulf of Mexico, some tantalizingly close to prolific developments on the US side of the maritime border. That includes Trion, the Perdido fold belt field that state-owned Pemex will develop with its new farm-in partner BHP Billiton. This wasn’t just a private-sector affair. China’s state-owned CNOOC picked up two blocks, the only bidder to go it alone.

Shell was conspicuously absent from the Mexican winner’s circle, even though it presented an offer for one of the blocks. The European major already has a full plate of offshore assets in Brazil, where it is the largest private-sector producer after state-controlled Petrobras, thanks to its BG acquisition early this year. Expect the gap to narrow as Petrobras’ legacy Campos basin fields decline and foreign firms prepare to operate sub-salt projects, a role that had been, until recently, the exclusive domain of Petrobras. A series of upstream tenders are scheduled for 2017. Oil companies like Shell, Statoil, and Chevron are keeping a close eye on Brazil’s evolving regulations and still-tumultuous politics. 

In Colombia, US independent Anadarko is leading an offshore campaign focused on natural gas. Others in the Caribbean gas play are ExxonMobil, Shell and Repsol. Shell and Chevron are dipping their toes off Venezuela, encouraged by Repsol and Eni’s development of the 17 Tcf Perla gas field that kicked off last year. Contrary to the rhetoric in Caracas, Perla is effectively a full private-sector operation, with state-owned PdV as the offtaker. This is why it is the only big energy project to get off the ground in Venezuela in two decades.

Then again, Perla is not on the ground. As in Mexico and Brazil, the big prizes for Big Oil in this part of the world are now mainly offshore, far from popular scrutiny, direct security risks, labor unrest and the kind of lightning seizures notorious in Venezuela and (landlocked) Bolivia. Note that Argentina’s onshore shale play is still moving at a glacial pace as the year-old government there struggles to implement unpopular reforms.

The offshore rush into Latin America coincides with the twilight of national oil companies that were pummeled by the 2014 oil price collapse. Except for the deepwater experience of Petrobras, none have the technological prowess and capital to tap their offshore reserves on their own. Most can barely manage the easier onshore stuff either, never mind extra-heavy crude reserves and money-losing refineries. Restructuring and divestitures are in vogue, as governments appeal to foreign oil companies with tax breaks and regulatory reforms. Even Cuba wants a piece of the action. No surprise that Opec’s recent overtures to its non-Opec brethren here fell on deaf ears. No one would risk alienating investors by suggesting future production restraints.

Barring the risk of a catastrophic offshore accident, the renaissance of Big Oil in Latin America is poised to endure, propelled by disenchantment with nationalist policies, and the discrediting of politicians who peddled them.

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