When the World Shale Oil Summit met in Dallas last month, North America (the United States and to a lesser extent Canada) naturally took center stage. However, sponsor CWC promotes this annual gathering, now in its fifth year, as an international event so shale opportunities around the globe were also discussed. While an entire morning was devoted to Asia, Mexico tended to dominate many of the international discussions. Small wonder since the country is perennially ranked among the top 10 in terms of shale resources and is opening its doors to international E&P players for the first time in three quarters of a century. It is also is just across the Rio Grande from Texas and its vast network of pipelines and service contractors. Furthermore, geology doesn’t recognize international borders and one of the hottest plays in the US, the Eagle Ford, extends into Mexico.
In the 12 months since Mexico adopted the changes to its constitution necessary to allow international players in, the country has made remarkable progress implementing them. Following Round Zero, in which national oil company Pemex chose the acreage it will retain, Mexico’s Energy Secretariat (Sener) has moved quickly to outline the blocks to be offered in Round 1. This call for bids, which will kick off in January 2015, includes tracts in two unconventional plays: eight blocks with dry gas potential on the Burro-Picachos trend and 62 blocks with shale oil potential in the Tampico-Misantla Basin. The former, located just south of Del Rio, Texas, cover 900 sq km and hold prospective resources of about 142 million boe. Meanwhile the Tampico-Misantla Basin acreage comprises 7,401 sq km on the Gulf Coast near Tampico; shale oil potential is estimated at 8.9 billion boe in prospective resources.
Robert Clark, manager of unconventional oil and gas at Wood Mackenzie, told attendees at the shale summit his company believes the Jurassic play in the Tampico-Misantla Basin has the better potential. Known as the Pimienta tight oil play, it is believed to be an analog to the Barnett and has shown better productivity. Also this acreage is close to established operations and therefore should be cheaper to drill.
In Round Zero, Pemex had to relinquish most of its unconventional acreage, keeping only specific areas both on the Eagle Ford trend and in the Tampico-Misantla, where they drilled a well in 2012 that is to date Mexico’s oil shale oil producer. Located in the Tamaulipas province, Anhélido 1 had an initial production of 429 bo/d and 1.3 MMcfg/d from the Jurassic Pimienta Formation. Final recovery is expected to be in the range of 250,000 to 500,000 boe. As is the case with much of the acreage Pemex retained in Round Zero, there is a good chance the company will be looking for partners with technical expertise to further explore and develop its leasehold in this play.
Regarding opportunities in the Mexican extension of the Eagle Ford, Clark sees a number of problems facing operators who are thinking of crossing the Rio Grande. First of all, in Mexico the Eagle Ford is gas prone. It is also in a very isolated and waterless terrain. And, being close to the border, it is also in one of the most dangerous places on earth. Security will prove tough and very expensive. In other words, it is no country for old men.
“Don’t put your money in the Eagle Ford basket,” Clark advised. “The Pimienta trend isn’t in Cancun but it is far enough south to be safer.”
Clark also pointed out that as it stands now, Mexico’s taxes will destroy any project returns, but quickly added those issues are being resolved.
Out on Halloween
Robert Downing, a shareholder with the international law firm of Greenberg Traurig, also emphasized how dedicated the Mexican government is to encouraging international investment.
“The regulations (for oil and gas licensing, etc.) were expected in February or March 2015,” he said. “Instead they came out on Halloween. “ To draft those rules, Downing said Mexican officials talked to regulators in Texas (the best in the world according to a couple speakers), Norway, Colombia, Brazil and Peru. And, while the Mexican states will eventually be involved, operators will for the most part be dealing with one regulator – the federal government. Of course, he added, it is a given that in Mexico operators will have to address social issues, similar to Canada’s First Nation’s Law.
Reiterating Clark’s point about the Eagle Ford, Downing said right now Mexico has one agency for casing and well integrity and another for water usual, an overlap that present potential problems. “Water is going to be a big issue just across the Texas border,” he warned.Of course there are going to be problems as Mexico moves forward, but one speaker after another noted the country’s determination to get it right. And its shale potential is huge, with just 20 unconventional wells drilled as opposed to 17,000 in its neighbor directly to the north.
While taking the shale revolution to Mexico, or anywhere outside the US and Canada, will not be easy, the general consensus at the World Shale Conference was it will happen. “The shale gas revolution is a global phenomenon and participation is a must,” Anish Jain with FTS International said. He is the vice president of finance and strategic initiative for FTS International, a hydraulic fracturing company started by two brothers in Texas that is now working in China. “Not a single country will be untouched by the shale revolution,” Jain predicted.
Eni is also committed to taking the revolution abroad. The company’s vice president of unconventional exploration, Davide Calcagni, conceded shale is still high risk but Eni finds it attractive nonetheless. “Eni is determined to export and apply what has been learned in the US beyond its borders.”
DrillingInfo’s Northern Latin American Manager, Tom Liskey, also noted that the Pimienta shale could prove attractive to investors. “Pemex has known about the Pimienta tight oil play for a number of years,” he said, “but its potential has become more important as Mexico looks to new areas to help ramp up oil production for the first time in nearly a decade.”
Mexican oil production, according to the last official data, hovered around 2.36 million bo/d in October 2014. Mexican crude oil output peaked at 3.38 million bo/d in 2004.
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