Steelmaker AHMSA eyes shale gas opening in Mexico

NEW YORK/MEXICO CITY, June 18 Tue Jun 18, 2013 6:59pm EDT

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NEW YORK/MEXICO CITY, June 18 (Reuters) - Mexico's top steelmaker is hoping to tap the country's ample shale gas reserves if an energy sector overhaul expected this year provides an opening, a senior executive with the company, Altos Hornos de Mexico (AHMSA), said on Tuesday.

"I hope...we are going to start drilling in the next year," Alonso Ancira, AHMSA's executive chairman, said at the Steel Success Strategies conference in New York.

"I hope I'm the next Marathon Oil," he added, referring to the former oil and gas producing unit of U.S. Steel.

While Mexico's constitution mandates that only the state can own and extract oil and gas resources, President Enrique Pena Nieto has promised a reform to attract new investments from private oil companies aimed at boosting lagging production.

While details of the reform have yet to be revealed, a formal proposal is expected by September.

Industry officials and lawmakers hope the reform will at least contain measures to permit profit-sharing production agreements between state oil monopoly Pemex and private firms.

Mexican government officials have repeatedly suggested that the plan could also set out a framework for allowing private capital to help exploit Mexico's shale resources.

Based in the northern, shale-rich state of Coahuila, AHMSA operates iron ore and coal mines and is Mexico's top manufacturer of steel products, according to company estimates.

AHMSA holds some 6 million acres (2.4 million hectares) of mining concessions near the U.S.-Mexico border in areas where shale deposits are believed to be concentrated.

"It makes sense that AHMSA has an interest in having access to reliable, cheap sources of gas in the long term, and that's something they could gain from an opening in the shale industry," said Pablo Ferrante, a Houston-based partner of law firm Mayer Brown in its corporate and global energy practice.

Ferrante added that other industrial users of natural gas as a raw material for production or power generation would also benefit from a potential shale boom in Mexico.

Mexico, a leading oil exporter to the United States, boasts the world's fourth-largest reserves of shale gas in deposits that may contain rich pockets of both natural gas and oil, according to the U.S. Energy Information Administration.

However, it has been slow to exploit them.

At the end of April, Pemex announced its first ever production of shale gas from a test well in the country's northern Burgos basin, just across the border from Texas.

The company said it showed that the Eagle Ford geological formation in south Texas extends into northeastern Mexico, including Coahuila. In the United States, Eagle Ford shale gas and oil production has been booming in recent years.

Pemex plans to drill a total of 10 shale test wells this year as the company continues to study its reserves.

"Non-conventional (reserves) are going to play a bigger and bigger role," Carlos Morales, Pemex's exploration and production chief, told Reuters in late April. "If not by Pemex, then as part of the country's overall oil policy."

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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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