The opening of Mexico’s oil industry will give a company, or several companies, an opportunity to develop reserves in the Gulf of Mexico that aren’t on the US side of the border. It’s been a frustrating task so far but the possibilities are significant, as Robert Perkins reviews in this week’s Oilgram News column, New Frontiers.
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With Mexico’s historic oil industry opening edging ever closer, oil companies are jostling for position ahead of one of most highly-anticipated upstream rounds in Latin America’s history.
Out of the total 113 billion barrels of prospective resources up for grabs, the big-ticket items are likely to be Mexico’s extensive but little-explored deepwater areas in the Gulf of Mexico.
Almost a quarter of Mexico’s oil resources, or 27 billion barrels, lie untapped in deepwater plays in the Gulf of Mexico, according to state-run Pemex.
But up until now, the area has been largely untouched as Pemex — despite being the sole operator for 76 years — has lacked the financial muscle and technical skills to unlock the spoils.
Pemex has had only limited drilling success in Mexico’s Gulf deep waters over recent years and has yet to achieve any commercial deepwater production.
That’s not surprising given the scant activity. Mexico has only four deepwater drilling rigs in the Gulf, compared with 53 currently on the US side, according to US oil services company Baker Hughes.
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To date, Pemex has focused on five regions in the deepwater Gulf of Mexico: the Catemaco fold belt, south subsalt provinces, the continuation of the Campeche Bay, the Cordilleras Mexicanas area, and the Perdido fold belt.
The first target was the Catemaco belt where multi-Tcf gas finds confirmed the area as a gas-prone basin. In 2011, Pemex took advantage of more advanced drilling rigs which allowed it to venture down to 3,000 meters. Three wells were drilled in the Cordilleras Mexicanas with the deepest reaching 7,632 meters. Although it proved hydrocarbons, Pemex was thwarted by high pressures and failed to test the rocks.
The real focus since then has been the Perdido fold belt where Pemex made its first light oil discovery, Trion, in 2012. The resource base in the area is estimated by Pemex to be up to 13 billion barrels.
Pemex has said it wants to retain large parts of Perdido, which is about 200 miles east of the Texas-Mexico border in the Gulf of Mexico. But deepwater is not Pemex’s specialty and it has acknowledged it would need partners with deep pockets and existing skills.
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The 11 blocks available in Perdido will garner the most attention given Pemex’s success on the Mexican side of the Gulf and the commercial development in US waters, according to analysts.
Pemex is looking for joint venture partners in the Trion and Exploratus deepwater fields in the Perdido area for next year. A third find, Maximino, may also be up for grabs.
That’s good news for oil companies including Chevron, BP, Shell and ExxonMobil who have already made a number of prominent discoveries and developments in the US Gulf of Mexico close to Mexican waters.
Shell’s producing Perdido Hub, world’s deepest offshore facility, is a relative stone’s throw from the marine border, and ExxonMobil is developing South Hadrian field also near Mexican waters. The ability to tie-back and produce further resources through existing infrastructure would be a major benefit for such players.
Indeed, Pemex has said majors working on the US side of the Gulf are “clear candidates” for its own ventures as they can offer technology, experience and capital.
Despite the obvious read-across appeal for US Gulf players in Mexico’s deepwaters, a number of as-yet unknowns could sour appetites for the acreage.
The fiscal and contracting terms for the blocks on offer will be key. Mexico’s terms will have to be competitive with Brazil, Angola and other costly deepwater plays all vying for upstream budgets. Blocks will also need to match potential returns from across the border where the US takes between 47% and 53% of revenue from deepwater projects in the Gulf.
Contact terms will also need to sweeten a likely unpopular requirement that Pemex holds a 20% stake in all deepwater and “trans-boundary projects” in the Gulf, market watchers say.
Detailed geology and the likely reserve potential of each of the deepwater blocks is also unknown. While Mexico’s multi-billion barrel deepwater resources estimates look enticing at first glance, stricter 2P, or proven plus probable reserve estimates, are more sobering.
Mexico estimates that 1.6 billion barrels of prospective resources lie in the Perdido area. But, on a 2P basis, all deepwater reserves on offer are pegged at just 400 million barrels.
Others have expressed concern that, despite Mexico’s radical overhaul of its former state monopoly, the corporate culture and potential for corruption could still stymie the implementation of its ambitious reforms.
Concerns also persist over the elevated cost of operating in Mexico, with security threats adding to uncertainties over creeping project costs. Globally, some deepwater oil projects are already falling victim to weaker oil prices and certainty over breakeven margins is far from assured.— Robert Perkins in London
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