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Analysis

Field Profile: Burgos

Wed, 01/22/2014 - 10:15

Located in northeast Mexico, Burgos has historically been the country’s main producing natural gas asset. The area extends over 109,000km2 and stretches across virtually the entire northern region of Tamaulipas as well as crossing into Nuevo Leon and Coahuila. It is bounded by the US to the north and the Gulf of Mexico to the east, while covering 34 municipalities of which 12 are located in Tamaulipas, 12 in Nuevo Leon, and 10 in Coahuila. Between 1997 and 2010, 26,967km2 of 2D seismic data was acquired along with 26,787km2 of 3D seismic, while 342 exploratory wells and 3,917 development wells were completed. The infrastructure at Burgos includes a pipeline network that extends for 2,037km with 228 different pipelines and 3,791 discharge lines that cover a 9,621km length. Since 2000, Burgos has yielded an average 22% of the country’s total natural gas production and 60% of the country’s total non-associated gas production, with an average production of 1.24bcf/d. This amounts to more than double the production of MacuspanaMuspac, another crucial region for the production of nonassociated gas. Half of the Mexican basins that produce non-associated gas are included within the Burgos asset, in the Burgos and Sabinas basins. Burgos’ three most prolific wells during 2013 are Nejo yielding 180.63mcf/d, Cuitlahuac with 92.88mcf/d, and Culebra with 69.83mcf/d. During the first trimester of 2014, these fields’ production respectively evolved to 198.31mcf/d, 78.06mcf/d, and 65.66mcf/d. The Sabinas basin, with 49tcf, and the Burgos basin, with 44.3tcf, constitute the most important regions for dry gas. As of January 2013, 3P reserves for Burgos were estimated at 3.7tcf of gas and 8.4 million barrels of crude, while data from January 2014 shows an evolution in 1P reserves from 1.86tcf of natural gas and 1.72 million barrels of crude in 2013 to 1.68tcf of natural gas and 6.97 million barrels of crude.

Burgos saw significant discoveries during 2013 that identified reservoirs extending into Mexican territory located in the Late Cretaceous Eagle Ford formation. This formation is already being exploited in the US and has yielded significant hydrocarbon production. Related to this, COMESA, IMP, and PEMEX have been involved for some years in a project funded by the CONACYT-SENER Hydrocarbon Fund to perform seismic surveys in geological provinces expected to hold shale hydrocarbon reserves. This strategy is also enabling PEMEX to identify areas with greater short-term potential for profitable shale oil and gas development. At the same time, it will allow the company to establish a hierarchy of projects based on these factors. During the first stage of PEMEX’s shale exploration strategy, drilling operations for a total of 175 wells were planned. As of today, various wells have been completed, primarily containing condensate reserves. The Emergente-1 and Habano-1 wells originally confirmed the continuity of the Eagle Ford play’s dry and wet gas resources into the Mexican subsurface. The most prominent unconventional well, however, is Chucla-1, yielding 24b/d of condensate and 1.9mcf/d. Similarly, Gamma-1 produced 12b/d and 0.3mcf/d. On the other hand, no condensates were found in Durian-1, although it did yield 1.9mcf/d. Percutor-1 also proved the extension of the play into the Sabinas basin, while Nómada-1 and Montañés-1 have not yielded any results so far. Moreover, there have been other significant gas discoveries: Nuncio-1, Tangram-1, and Kernel-1 in a Late Jurassic micritic limestone, Gato-1001 in Early Cretaceous carbonates, and Lempira-1 and Silo-1 in Oligocene sandstones and shales. Similarly, Santa Anita-401 yielded an important initial production of 90.2b/d of condensates from an Eocene reservoir.

The annual investment budget for the Burgos project was US$1.3 billion in 2013, creating attractive business opportunities for companies with expertise in the development of non-associated gas fields. Field development and production in Burgos has allowed the participation of different private companies since the introduction of multiple service contracts (MSCs) for different blocks over a decade ago. The Reynosa-Monterrey, Misión, Cuervito, Fronterizo, and Olmos blocks were awarded in the first round, the Pandura-Anáhuac and Pirineo blocks followed in the second round in 2006, and the Nejo and Monclova blocks were awarded in the third round in 2007. An important part of Burgos’ total production is currently yielded by the blocks awarded in these contracts. Even though Burgos has already produced around 12tcf of natural gas, much gas is left to be extracted from the area, especially in basin’s unconventional reservoirs. An important part of the region’s operational success is The Burgos Natural Gas Processing Complex (CPG Burgos). Since 2004, PEMEX’s strategy at CPG Burgos has revolved around two main objectives: increasing the national supply of non-associated gas through exploration and production efforts and setting up the necessary infrastructure to manage larger volumes of gas in the Reynosa area. The complex’s main activity is to recover liquid hydrocarbons from wet gas and separate its components, through natural gas liquids’ recovery and fractionation. Once the wet gas is processed, dry natural gas, liquefied gas, and natural gasoline are obtained. The complex is able to process over 1.2bcf/d and is expected to remain an integral part of the domestic gas supply as extraction operations continue in the region.

Grupo Diavaz is one of the companies currently working at Burgos in partnership with Petrobras and Teikoku Oil. Luis Vázquez Sentíes, President of Grupo Diavaz, believes that the next step for field development at the asset is to change the current contractual terms of MSCs to Integrated Service Contracts (ISCs). Enlarging the role of the private sector appears to be aligned with PEMEX’s evolving focus as the company transforms into a productive company of the state. “During 2013, PEMEX did not invest in areas where the costs of production were higher than the retail prices of hydrocarbons produced, which resulted in the slowdown of operations in Burgos despite Mexico’s growing demand for natural gas, which is increasingly met by relatively cheap imports from the US. To reduce import dependence, the PEMEX administration decided in favor of producing at higher production costs than retail prices in Burgos. Production costs in this area are around US$4.70 while the Henry Hub price fluctuated between US$3.50-4. For every additional btu produced, we need to pay and additional dollar. Yet this is cheaper than importing LNG at US$16 to US$21 per million btu,” says Gustavo Hernández García, Acting Director General of PEMEX E&P. “This underpinned PEMEX’s decision to reallocate capital expenditure to gas fields in Burgos to reactivate operations. This measurement took time and the decision was not made when it was most needed. If PEMEX would have been a value driven company, we might have stopped the gas developments in Burgos a long time ago. However, given our social responsibilities as a company we cannot lay off the 10,000 people who are working for both PEMEX and service providers in the Burgos area. Since we could not make this decision, we moved to a minimum level of activity in Burgos in spite of knowing that our production costs were higher than the retail price.” As proven by shale gas development in the US, large integrated oil companies such as PEMEX are unlikely to be the most cost effective and efficient producers of shale oil and gas, which means that the growing role of the private sector that Vázquez Sentíes called for might become a reality sooner rather than later.