One of the unknowns about the Clinton administration is how it will handle the pending North American Free Trade Agreement (Nafta).
The three way treaty between the U.S., Canada, and Mexico is due to go to Congress for a vote next year, but President-elect Clinton has urged addenda ensuring greater environmental protection along the U.S.-Mexican border and additional training for displaced U.S. workers.
President Carlos Salinas de Gortari recently said Mexico is willing to consider Clinton's concerns about Nafta's environmental affects but would not renegotiate the pact and that each country should solve its own labor problems.
U.S. SERVICE/SUPPLY BENEFITS
Meanwhile, the U.S. oil service and supply industry-excluded from the Mexican market for decades-argues Nafta would benefit both countries' oil industries.
The Petroleum Equipment Suppliers Association told a recent U.S. International Trade Commission hearing Nafta would "significantly improve the position of U.S. oil field equipment manufacturers over the status quo."
PESA said the plunge in U.S. drilling has crippled the service and supply industry, sending many jobs overseas.
"Five years ago, the oil and gas equipment, service, and supply industry's domestic activity accounted for about 65% of its sales. Today, international sales are nearing 70% of total revenues."
It said Mexico has proved oil reserves double those of the U.S., but its underinvestment in exploration and production has resulted in flat production.
"Mexican drilling operations are commonly held to be highly inefficient. The average well in Mexico is almost 12,000 ft deep but takes 15 months to drill and complete, roughly five times the norm for this depth well in the U.S.
"In 1991, Mexico had an average of 109 rigs working, which drilled a total of 141 wells. Compare this with the U.S., in which an average 860 rigs drilled 30,000 wells.
"Another difference between U.S. and Mexican operations is that Mexico performs workover or remedial operations on only about 10% of its wells each year, half the number which is considered the ,rule of thumb' in the U.S.
"Finally, the quality of many locally produced goods and services is considered inferior to those produced in the U.S. and other countries. Much of the technology Pemex needs is simply not available from Mexican manufacturers, such as horizontal drilling and 3-D seismic technologies."
CLOSED MARKET
PESA said Pemex's preference for domestic suppliers has closed the Mexican market to most U.S. firms and "Those companies that do provide products and services to Mexico face an unclear tariff system.
"The Mexican government charges a tariff of up to 20% on imported oil field equipment, but other duties and taxes can increase this effective amount to as high as 33%.
"As a result, foreign suppliers cannot predict profitability and often find themselves increasing prices to hope to cover these tariffs."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
