Enverus Blog

Insights across the energy value chain

After more than a decade of decline in oil production, Mexico is beginning to see light on the horizon.

 

The Comision Nacional de Hidrocarburos (CNH) recently highlighted that Mexico’s struggling E&P sector will see US$ 20 billion in new investment in the coming decades. Thanks to President Enrique Peña Nieto’s energy reform, Mexico has awarded 107 contracts to 73 companies from 20 countries since 2015 in its now suspended licensing process.

 

Recently installed Mexican President Andrés Manuel López Obrador (AMLO) has been a harsh critic of his predecessor’s energy reform, suggesting that efforts to date have failed to substantially revive the country’s E&P sector. AMLO’s roadmap for Mexico differs in that he wants to free up more cash for state oil interest Pemex, but a raft of companies like Eni are also releasing funds to bring new oil production online in Mexico.

 

Mexican crude oil output peaked 3.38 MMbo/d in 2004 but has declined to 1.7 MMbo/d as maturing oil fields produce less crude. In December 2018, Mexico produced 1.7 MMbo/d.

Mexico Eyes US Billion in New E&P Investment

Fig 1: Mexico cumulative oil production

 

As of late 2018, the investment approved by the CNH (in both exploration and development) amounted to US$ 20.571 billion. The breakdown thus far is:

  • US$ 3.441 billion (2015-2018)
  • US$ 8.948 (2019-2024)
  • US$ 8.182 billion (2025-2041)

In all, 91.2 percent of the approved investments are concentrated in the Sureste (Southeast) Basin, while 7.1 percent will go to deepwater Gulf projects. Additional, planned expenditures are earmarked for:

  • US$ 3.574 billion exploration activities
  • US$ 16.997 billion development activities
  • US$ 18.326 billion shallow water contracts
  • US$ 1.467 billion deep and ultra-deepwater
  • US$ 778 million onshore

The CNH statistics help to highlight the contribution that newcomers will provide to the oil-hungry nation, particularly in the infrastructure-ready Bay of Campeche.

Mexico’s upstream will get a major shot in the arm as explorers’ contract services and marine infrastructure kick off development. While still in the exploration phase, the Talos-operated Zama-1 (Zama-1SON), located on Block 7 (Contracto CNH-R01-L01-A7/2015), discovered initial gross original oil in place estimates for the Zama-1 well in the range of 1.4 billion to 2 billion barrels. In late 2018, Talos kicked off an appraisal program for the Zama 2DL well — which has resulted in a discovery.

Talos is the operator of Block 7 offshore Mexico with 35 percent working interest (WI). Premier Oil (25 percent) and Sierra Oil & Gas (40 percent) are Talos’s partners in Block 7. McDermott’s Mexico City office is assisting in the pre-FEED analysis of the potential development options post-appraisal.

One of the most interesting transactions to emerge is that of Eni of Italy. In December 2018, the company secured a partnership with Qatar Petroleum, to aid it in developing one of Mexico’s most important post-energy reform projects: the CNH-R01-L02-A1/2015 (Amoca-Mizton-Tecoalli) shallow water contract area. The Qatari company will hold 35 percent in the contract. That calls for a floating production, storage, and offloading vessel (FPSO) to be moored in the Production Sharing Contract (PSC) area.

Japanese floater expert Modec, announced on October 11, 2018, that it signed a Letter of Intent (LOI) with Eni’s Mexican subsidiary to supply it with an FPSO. The FPSO will have the capacity to handle 90,000 bo/d of production from the Mizton and Amoca fields.

Mexico Eyes US Billion in New E&P Investment

Fig 2: Bay of Campeche licences and infrastructureThe FPSO will also have the capacity for 75 MMcfg/d and 80,000 bw/d. Eni said production will plateau in 2021 (102,000 boe/d). Output from the Tecoalli Field is forecast to begin in 2024. The PSC contract area is estimated to hold 2.1 Bboe in place (90 percent oil). Eni is already a partner with Qatar Petroleum in the deepwater Block 24 (CNH-R02-L04-AP-CS-G05/2018). That Round 2.4 tract is located in the Salina de Istmo Basin.

Other companies like Pan American Energy-led Hokchi Energy will invest to bring new oil and natural gas production on line. One of the most important offshore projects in 2019, the Hokchi Field (CNH-R01-L02-A2/2015), calls for drilling new wells and completion work on an existing borehole (Hokchi 4DL). A broader development plan envisions two platforms tied back to an onshore facility known as Hokchi Paraiso. Sapura has the contract for the engineering, procurement, transportation, installation, pre-commissioning, and commissioning for the Hokchi Field.

The oil group won the 39.598 sq km lease at Round 1.2 after it bid an additional 70 percent royalty rate for the contract on September 30, 2015. That’s not the only development making waves in the Mexican shallow water sector. Recently, the CNH approved Fieldwood Energy’s US$ 7.5 billion development plan (over the lifetime of the contract) for the CNH-R01-L02-A4/2015 in the Pilar Reforma-Akal Basin. The contract encompasses the Pokoch and Ichalkil fields.

The scope of the dual-field development plan calls for the U.S. company and its Mexican partner, PetroBal, to harvest a total of 455 MMbo and 567 Bcfg. The Pokoch 1DL and the Ichalkil 2DL delineation wells will be tied back to the Pemex-operated Tumut-A platform in the A-0354-Campo Tumut contract.

This early production scheme is forecast to be 20,000 bo/d in 2020. Output will ramp up to 40,000 bo/d in 2021. The project’s later phase is more ambitious, and output is expected to jump to 110,000 bo/d. Oil will be transported to the Dos Bocas maritime terminal. Natural gas will be fed into the CP-Litoral A marine platform.

Mexican 3P reserves have slipped to 19.42 billion bo in 2018, versus 19.97 billion bo the previous year. The country’s 3P reserves stand at 25.47 billion boe.

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Tom Liskey