There was an interesting press release out of Mexico a few weeks ago regarding a Pemex-operated Eagle Ford well. Followers of unconventional resources, and the Eagle Ford specifically, should find this worth discussing. Pemex is a state-owned petroleum company and also one of the world’s largest oil producers. However, Mexico imports natural gas, refined products, and other petrochemicals to meet its internal demand. Recently, El Paso Corporation announced plans to provide a total mainline of 185 MMcf/d of natural gas for electric power generation projects in Mexico. The demand for natural gas in Mexico is expected to increase as Mexico continues to turn to gas power generation. Also, with the Cantarell Field continuing its drastic decline in oil production, Mexico is expected to become a net importer of oil within the next 10 years. The combination of aging fields and increasing demand demonstrates the importance of unconventional production to Pemex and Mexico and their economic future.
In March, Pemex announced initial results for the Emergente well in Hidalgo, Coahuila, which is in the northeastern part of the country. The well had 17 frac stages in a 4500-foot lateral at 2500 meters (~8,200 feet). Hidalgo sits just across the US/Mexico border near the US city of Laredo and across from the US Eagle Ford activity in Webb County. Pemex stated the dry gas well tested at 2.9 MMcf/d.
When first reading the news of the results of the Pemex well, the Energy Strategy Partners group at Drilling Info asked two questions. How does this well compare to others wells in the Eagle Ford? And does Pemex plan to look for potential JV partners as part of their unconventional development strategy?
To answer the first question, we took a pretty quick sample set from the Drilling Info database. If you’re not familiar with Drilling Info or the Unconventional Platform from DI-ESP, we like to use a statistic called MaxIP (or Peak Monthly Production) instead of the quoted operator IP rate from press releases or investor presentations. We’ve found in the past the Peak Production has a strong correlation to cumulative production in many unconventional plays, so we use this value to compare operators and well results (note: the use of restricted rate drilling could alter that correlation). The first chart belows shows Peak Production over time. As operators move up the learning curve, Peak Production naturally increases. Because gas is not as valuable as oil to operators in this pricing environment, gas Peak Production has decreased in 3Q10 and 4Q10 as operators focus on the oily areas. But, the important item to notice is that Peak Production in 2009 and 2010 average between 2,500 Mcf/d and 3,000 Mcf/d. The test/initial rate of 2,900 Mcf/d of the Emergente well falls into the range of the average peak production for an Eagle Ford well in the US. However, it must also be noted that Peak Production is the average rate for an ENTIRE month. The rate quoted from Pemex is a test rate and could be the rate for 1 week, 1 day, or 1 hour.
The next chart shows key operator measures for Webb County. The quoted rate for the Pemex well falls well below the average full peak production month of Webb County.
Finally, the most interesting item from the Pemex press release was that Pemex drilled the well on its own. Since 1938, oil and gas assets have been nationalized by Mexico and foreign oil companies have been forbidden from operating in Mexico. Most non US companies who have entered the unconventional world, have done so through a joint venture in order to minimize risk and learn the technology (ex: Statoil, KNOC, CNOOC, ENI, Reliance, and many others). Mexican President Felipe Calderon has been actively pursuing oil and gas reform and said Mexico will start awarding performance-based contracts with foreign companies, with the first round coming in August, to help offset the decline of Mexico’s biggest oil fields. Furthermore, Hector Moreira, Pemex Board Member, stated last year that the development of unconventional reserves would include “hiring private companies”.
Although its too early to tell how the Mexican Eagle Ford shale will compare to the US version, it will be an interesting development to follow. Even though the limited information made public from the Emergente well is far from “eye-popping”, the Mexican Eagle Ford Shale could quickly develop into a great resource for the Mexican people with the right people, technology, and development strategy.
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