Many people have heard of Pemex, the state-owned Mexican oil giant and largest oil producer in the country. However, most don’t know who the second largest oil producer in Mexico is, though. It’s Renaissance Oil Corp. (TSX-V: ROE) (OTC: RNSFF), a little-known Canadian-based company whose management has a history of raving successes and rubbing elbows with some of the world’s biggest resource companies. Co-founders Craig Steinke and Ian Telfer have a playbook that they’ve used in the past to build tremendous value and they’re pulling from that playbook again in what could literally be a first in Mexico’s oil and gas industry.
To lend a bit of color to those who don’t know the names Steinke and Telfer, they both have great successes in building resource companies as part of their C.V.s. Steinke, who serves as ROE’s CEO, has spearheaded the acquisition of more than 25 million acres of domestic and international petroleum and gas rights, as well as financing and developing the assets. He previously was Executive Chairman and CEO of Realm Energy International Corp., a company he formed with Telfer to develop shale plays in Europe. After collaborating with Halliburton (NYSE: HAL) in acquiring properties across Europe and partnering with ConocoPhillips (NYSE: COP) to develop a potential flagship property, Realm was gobbled up by another European shale player for a big profit for shareholders (NTD or “early investors”?).
Telfer, a household name in mining circles, member of the Canadian Mining Hall of Fame and co-founder and current Chairman of the Board at Goldcorp (NYSE: GG) (TSX: G), built Goldcorp from a penny stock into the $11 billion mining juggernaut it is today. Know where he started? Buying resource properties in Mexico.
Mexico: The Next Shale Oil Boom?
Shale oil deposits, the sedimentary rock that is the geological kitchen transforming kerogen and organic deposits into oil and gas with heat and pressure, have made the U.S. a dominant force in the global energy market due to the fact that producers have figured out how to economically recover oil and gas from these huge resources. In fact, the International Energy Agency recently predicted in its World Energy Outlook that the pace of U.S. shale oil production will increase by a whopping 8 million barrels per day from 2010 to 2025, a pace that outstrips oil production growth in Saudi Arabia at its peak of expansion. Moreover, the increases in natural gas production for these shales will exceed that of the former Soviet Union during its fastest period of growth.
In Mexico, shale oil has never been commercially extracted from the ground. Ever. That’s not because it isn’t there. It is actually well documented but certainly not well publicized. Pemex had often drilled through thick layers of shale resources, recording well logs and bringing core samples up to surface. This vast resource in Mexico simply has never had the proper technology and capital applied to it to be made commercial, and Renaissance intends to be the first to do so. Already the second largest oil producer in the country, albeit by a large margin with production of ~1,600 barrels of oil equivalent per day, Renaissance Oil is 100% focused on remaining the largest public pure play in Mexican oil and gas with a plan to tap into basins that have the same geology as the Eagle Ford shale play in Texas and the thickness of the vaunted Permian Basin.
Considering production at Eagle Ford peaked at 1.7 million barrels per day and the Permian Basin is still producing about 2.2 million barrels per day, there’s certainly something to be optimistic about in Mexico.
World-Class Reserves Demand a World-Class Team, Partner and Plan
This is more than just a theorized plan for Renaissance; the foundation is laid. When Mexico scrapped its oil monopoly to Pemex and opened bidding for on-shore property, Renaissance was there, acquiring the choicest three pieces of property up for auction in December 2015 by narrowly beating a chorus of other bidders.
Shortly after, Lukoil, the Russian energy behemoth approached Renaissance about developing a world-class hydrocarbon resource in Mexico, with a partnership officially struck in February 2017. Craig Steinke told Baystreet.ca in a phone conversation that Lukoil, who is not known as a shale player, was looking for a bona fide operator in Mexico that is nimble and understands shale, three qualities that his company possesses that made Renaissance an ideal partner.
Per the pact, Renaissance bought 25% of Lukoil’s contract to develop the large Amatitlan block in Veracruz, Mexico with an option to up the stake to 62% moving forward. What the agreement does is gives Renaissance access to a proven property (over 175,000 barrels of light oil produced), with a huge undeveloped resource and the financial might to expedite development ahead of everyone else.
Amatitlan is believed to hold a massive 6.2 billion barrels of oil in place in the shales, according to ROE’s extensive evaluation of rock samples and test wells in the area. In order to get it, or even a portion of it, Steinke and Telfer did what any resource magnates would do; they put together the technical Dream Team. The core of this new team are the industry pioneers that “cracked the shale code” while at Mitchell Energy. A few decades ago, many geologists hypothesized that the Barnett Shale in the Bend Arch-Fort Worth Basin might have the largest recoverable on-shore reserves in the U.S., but it was going to be very difficult to extract because the rock was very “tight” and reluctant to release its huge stores of hydrocarbons. Nick Steinsberger, Drilling & Completions Engineer at Mitchell at the time (and at Renaissance now), designed and implemented what was coined the first “slick water frac,” the technique that literally changed the rock structure of the reservoir to liberate the reserves from the tight Barnett Shale. What Steinsberger’s invention also changed was the trajectory of the oil and gas industry, making the Barnett Shale the world’s first ever shale play and starting a shale revolution. Others involved with the success of Mitchell Energy, which was later acquired by Devon Energy Corp. (NYSE: DVN) for $3.1 billion, that are now part of Renaissance included ROE’s Chief Geochemist Daniel Jarvie and Senior Geologists Daniel Steward and Kent Bowker.
When asked about how it was possible to lure this type of impeccable talent to a start-up, Steinke said they just had to see the data from the Mexican properties and they immediately wanted to be a part of it.
Now, the plan is for Renaissance to become the first international oil company to drill a shale well in Mexico, which is expected to happen with r the spud of the first well in the first quarter of 2018. “We’re in early and we’re here for the long haul. We have been picking the low-hanging fruit by improving production at existing wells with the focus of producing the first ever commercial Mexican shale oil,” said Steinke. “It’s certainly not hyperbole to say that this is a once-in-a-lifetime opportunity.”
The thing is that while companies are flocking to shale plays in the U.S. and driving property prices into the stratosphere, Mexico is still woefully underexplored on-shore due to Pemex’s lack of resources, investment and modern technology. If big energy will follow its traditional pattern of allowing smaller players to do the heavy lifting and then come in and pay a premium to acquire reserves, it’s looking more and more like that road leads to Renaissance as a true pioneer in the shale industry and the leading independent on-shore producer in the country.
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