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Analysis

Exploring New Areas, without Forgetting the Familiar Ones

Sun, 07/01/2018 - 09:18

Mexico has suffered a steep decline in its oil and gas reserves. From 2013 to 2017, 1P, 2P and 3P reserves have decreased by 33, 36 and 41 percent to 9.16, 16.76 and 25.85 billion boe, respectively. Production has also dropped, but at a lower rate of 17 percent to 1.11 billion boe in 2017. The national 1P reserve-production ratio went from 10.2 to 8.2 years, meaning a drop of 19 percent in 1P reserves. If these values continue to fall at the same pace, the ratio could decline to 0.91 years of reserves by 2057. The decline is even steeper when looking at the ratios of 2P and 3P reserves, which dropped by 21 and 29 percent, respectively.

OPPORTUNITY

With this in mind, the government has set the country on a track to stop the production-reserves decline. Pedro Joaquín Coldwell, Minister of Energy, is confident that the discoveries coming from the licensing rounds will help Mexico reverse the decline in its reserves. “The blocks awarded in shallow water during Round One have already provided the first private discoveries from ENI and the consortium conformed by Talos Energy, Sierra Oil & Gas and Premier Oil, which announced the discoveries of up to 4 billion boe,” he points out. Nevertheless, Joaquín Coldwell also says it will take time for the country to see a significant change, which is an inherent result of the long time frames of the oil and gas industry.

Bernardo Cardona, Partner and Resources Industry Leader at Deloitte Consulting Mexico, also believes that the Mexican oil and gas industry still has a way to go before it really reaches maturity and is able to reverse the negative trends. “To reach a transition stage, reversing trends in reserves restitution and drilling activities is vital,” he says. “For that to happen, the field development plans of blocks awarded in the licensing rounds must be carried out, and the continuous launch of new rounds is crucial.”

Onshore E&P is an area in which PEMEX has a long track record. Because of that, onshore rounds have focused on activities that involve production in mature fields and exploration of new ones. PEMEX’s expertise in the onshore area is highlighted by the NOC’s announcement of the biggest onshore oil discovery of the last 15 years at the Ixachi-1 well, located in Veracruz. In September 2017, it was believed that the Ixachi-1 discovery could contain up to 1.5 billion boe. As of May 2018, it was reported that the well had a certified total of 97 million boe, 201 million boe and 366 million boe in 3P, 2P and 1P reserves, respectively, of which over 50 percent corresponded to natural gas. While a lower bet has been placed during the rounds in these fields, their potential is still high. As reported by CNH, discovered onshore fields in Mexico are, on average, three times larger than those in Colombia and four times larger than those in Brazil. 

Offshore has also already proven itself as an attractive opportunity thanks to the significant discoveries of Sierra Oil & Gas and ENI International with the Zama and Amoca wells. In recoverable reserves, offshore fields have an average recovery factor seven times greater than that of US fields and two times higher than that in Brazil. The potential in the country is reflected by the fact that during the rounds 132 well have been committed, 67 of them onshore and 65 offshore.

OIL

PREPARATION

Before wells can be drilled, seismic data needs to confirm that there is an attractive potential discovery. In Mexico, the underdeveloped Gulf of Mexico, together with the big opportunity for reprocessing seismic for onshore areas has become a magnet for investment.


As proof of the potential present in offshore areas since 2015, 332,050km of seismic data have been acquired using 2D seismic technology via 10 authorized Recognition and Surface Exploration Activities (ARES). This has meant a three-fold increase in the country’s 2D-seismic data of the Gulf of Mexico in the last three years, all of which is stored and available for consultation in CNIH’s archives. Meanwhile, two studies using Wide-Azimuth technology (WAZ) have been authorized to acquire 87,096km2 of additional data, an amount that will quadruple the 3D-seismic WAZ information held at the archives.

Onshore seismic activities have developed at a slower pace. According to Oscar Roldán, Director General of CNIH, this is not due to low attractivity but to legal hurdles. He says that, while CNIH has granted many permits to reprocess onshore data, there have not been too many for new data acquisition. “The main factor making operators reluctant to acquire onshore data falls into the legal arena, related specifically to land rights,” he explains. “The Hydrocarbons Law specifies the rules for land use by PEMEX or contractors. Only the last article includes superficial activities but it does not specify how geological and geophysical companies are allowed access to the land. If it is not solved soon, geological and geophysical companies will not be interested in acquiring more onshore seismic data and the onshore licensing rounds will not prosper in Mexico.” He also mentions a possible way to solve the issue. “If we change the Reglamento, which is done by the President rather than by Congress, then onshore seismic data acquisition can move forward. This is essential for the success of future onshore licensing rounds.”

GAS

CONTINUITY

With a market that just recently allowed the entry of more players, Mexico has a great opportunity along the entire oil and gas value chain. But for the opportunities to materialize it is crucial that exploration activities continue. Considering that 70 percent of the 110 contracts assigned during the rounds are in the exploration phase, the continued development of the rounds can be seen as crucial to growth in the Mexican oil and gas industry. “We need much more exploration activity to make sure that our reserve recovery rate increases and that we return to levels of production that are in line with the needs of the Mexican people,” says Aldo Flores, Deputy Minister of Hydrocarbons at the Ministry of Energy. “We should remain committed, play by the book, respect local communities, be as transparent as possible and, most of all, we must have full confidence in Mexico and its potential.”