Mexico Plans Coalbed Methane Auction in Wake of Massive Land Grab

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Mexico Plans Coalbed Methane Auction in Wake of Massive Land Grab

By Tim Wood
06 Sep 2007 at 09:19 PM

St. LOUIS (ResourceInvestor.com) -- Mexico’s Minister of Mining has compounded uncertainty about the motivation behind a secretive project that has ensnared more than 320 million hectares of prospective mineral concessions in the country. Dr. Norberto Roque addressed industry stakeholders at a hastily convened meeting in Vancouver, as we reported late yesterday (Wed. 5 Sep.)

Roque said the government had elected not to announce the process publicly because of political sensitivity. He mentioned the privatization of the national hydrocarbons giant Petróleos Mexicanos (PEMEX) as one pressure point.

Roque said the staking was precipitated by legislation codified in April 2006 by the previous government. Acknowledging that that legislation had an error requiring correction, Roque said they wanted to avoid having to re-legislate the issue. In order to “protect the mining industry from oil companies” his officials had decided to stake all areas thought to have potential for coalbed methane.

A source who attended the briefing described the explanation as perplexing. “The Ministry has effected what it sought to avoid. At least oil companies might have been more discreet and selective in their staking.”

The Mexican government is set to embark on a program of fine-tuning the stakings so that only coalbed methane deposits are locked into the state portfolio. It then intends to auction those assets.

A geologist scoffed at the idea that the government or anyone else could efficiently distinguish between concessions as being more prospective for coalbed methane than other minerals. Indeed, the implication is that coalbed methane will always carry the benefit of the doubt, especially given the size of the land packages involved and the limited staff relies on.

Highlighting the risk of arbitrary decision-making, a geologist attending the meeting asked the Minister who would decide what qualified as coalbed methane. The answer he received did not instill any confidence as the Minister merely repeated his assertion that the government was acting to protect miners from oil companies.

It is unclear how Mexico’s staking activity comports with NAFTA agreements.

It is possible that Mexico is considering revising its minerals legislation to separate exploitation rights so that gas exploration and development could be conducted on concessions earmarked for development related to other minerals. Doing so could create a “double-dipping” opportunity for the government since it could effectively levy fees twice over from the same land.

There is already a precedent in Canada where firms are squabbling over the definition of coalbed methane as a natural gas with separate drilling rights. As such, companies with mineral rights to coal beds would have to allow companies with natural gas rights to prospect on their land even though the gas is embedded in the ore they have title to.

In the meantime, hard rock mining and exploration companies are frozen out of massive areas of Mexico because the ostensible “coalbed methane” concessions that have been staked do not allow for any other activity unless new legislation is written.

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