Mexico places hopes in reform to boost oil and gas production

Less than a year after the enactment of Mexico’s new energy reform law, which was promulgated in June 2014, the Director General of national oil company Pemex, Emilio Lozaya, announced significant new oil and gas discoveries in the country. Considering the short time span and the size of the reservoirs discovered, the largest since Tsimin-Xux and Ayatsil in 2010-2011, this marks a great success for Pemex. These major new discoveries include four new fields with great production potential in Tabasco, near Cantarell. The fields are expected to begin production in about 16 months and reach full production within 20 months. Production is forecast at about 200,000 bpd of crude oil and 170 MMcfd of natural gas. Additional discoveries off the coast of Tabasco should add another 100,000 bpd of light crude oil and 90 MMcfd of gas to production totals. Studies estimate total reserves of up to 350 MMboe.

Fig. 1. Round One map.

Round-one disappointments. However, not everything that glitters is gold. At the beginning of July, a few weeks before the Round One auction of oil and gas leases was set to begin, Fig. 1, four of the companies involved in the bidding for E&P contracts backed out due to strong reservations. These companies were: Glencore of Switzerland, PTT Exploration and Production of Thailand, Noble Energy of the U.S. and Colombia’s Ecopetrol. They all requested to retire from their respective consortiums, which were bidding for 14 leases in the Gulf of Mexico. The CNH (National Commission of Hydrocarbons), which approved their withdrawal, did not give an official explanation of the companys’ motives. Premier Oil, which had qualified independently, will replace Glencore in the consortium that it shared with Talos Eneregy and Sierra Oil, Mexico’s first independent oil company.

According to first analyses, the reasons for this decision are rooted in the fear that the government has too much discretionary power to terminate contracts in cases where serious negligence leads to loss of life or curtailed production, or when companies provide false information to the government.

Pemex itself withdrew from participation in the lease sale, reportedly to focus on developing its own existing resources and to preserve cash.

The Premier/Talos/Sierra consortium gave the only winning bids in the first round, securing the rights to Blocks 2 and 7 offshore Veracruz.

Five-year tender plan. In late June, the Energy Ministry (SENER) published the 2015–2019 five-year plan for E&P tenders. This document is of vital importance to achieving the objectives of energy reform. One of these objectives is to increase oil production by 500,000 bpd in 2018 and 1 MMbpd by 2025, which assumes an oil price close to $100/bbl. The plan establishes four bidding rounds in 914 areas, 670 for exploration and 244 files that are in production, comprising 178,554 km².

Of the 244 oil fields that are already in production, 182 are in onshore areas (12 in the prolific Chicontepec basin), 13 fields containing extra-heavy oil, 45 are in shallow waters, and four are in deep water. This means that the government is signaling that Mexico can provide a stable and profitable market for companies that want to invest in the short- and medium-term. These fields hold estimated reserves of 68.2 Bboe in an area of 7,960 km².

The government also expects to tender 379 blocks for conventional hydrocarbon exploration in an area totaling about 136,630 km². Of that total, 130 blocks are onshore, 108 are in shallow waters and 141 in deep water. The total prospective resources are 14.643 Bboe.

For exploration of unconventional hydrocarbon resources, SENER has considered 291 areas for tender, of which 124 are in the province of Burgos, 9 are offshore at Burro Picachos platform and 158 are in the province of Tampico Misantla.