Carlos Morales
Director General

The Lakach Project Moving Forward

Tue, 01/22/2013 - 13:52

When Pemex finally decided to begin deepwater exploration, its first target was located in the Catemaco folded belt, within the Holok-Temoa asset. The NOC focused on two geological targets: Noxal and Lakach. Located 131km northeast of Coatzacoalcos, within the coastal waters of the Gulf of Mexico, Lakach-1 became the deepest well that Pemex had ever drilled, at a water depth of 988m.

While companies on the US side of the Gulf of Mexico had been exploring the Catemaco folded belt since the end of World War II, Pemex only started drilling during the final presidential term of the 1990s. The di·culty that deepwater drilling presented, because of its tough conditions and the little experience the NOC had in this area, meant that the profitability of the project was low, and eventually Pemex decided to delay the project. Pemex finally began drilling operations on the Lakach project, which covers 100km2, on July 10, 2006. After 131 days, Pemex discovered two di†erent reservoirs: the first anticipated to produce 25 mcf/d of non-associated gas, while the second had a forecasted production of 30 mcf/d.

The Lakach field currently holds 451bcf of 1P reserves and 850 bcf of 3P reserves, giving Pemex a vast supply of natural gas for the future. The challenges of developing the field are similar to the challenges that the NOC faced at its first projects in Catemaco: current natural gas prices in the US limit the profitability of deepwater gas projects, especially given the high investments required. However, Pemex has decided to move forward with the development of Lakach. “While it might not be the best time to develop Lakach in terms of profitability, the field o†ers a strategic opportunity to progress along the learning curve for deepwater development,” says Carlos Morales Gil, Director General of Pemex E&P.

Nevertheless, in May 2012, the CNH rejected Pemex’s development plan for Lakach, citing the need for detailed geophysical studies, further information on the contracts and administrative tasks related to each of the stages of the project, development of industrial safety aspects and a revision of the NOC’s financial outlook on the project. In fact, one of the biggest concerns of the upstream regulator was its profitability. Whereas Pemex considered it to be a positive project, basing its numbers on an expected natural gas price of US$5.93/MMBtu, the CNH believed Lakach could not be profitable if international estimations of US$2.50/MMBtu were taken into account.

Despite the setback of the CNH report, the front-end engineering and design (FEED) stage of the project is now complete. According to Emiliano Pescador, Mexico Country Manager for Technip, the EPC company that was awarded the pre-front and engineering contracts for the field, the Lakach project holds both financial value and the prospect of technical learning for Pemex: “It is a marginally positive project that could become even more positive if gas prices increase, which I think they will, since they are at the lowest levels they could be, and if Pemex follows through on its plan to link other gas fields to the Lakach infrastructure, the project could become even more valuable.”

Morales Gil reveals that “the breakeven natural gas price for the development of Lakach is US$3, which means that if gas prices rise above this figure, then the project could be profitable.” With the proximity of Lakach to other recently discovered gas fields in the Catemaco folded belt could justify the initial investment. On one hand, the subsea infrastructure planned for Lakach could be used in the future to transport natural gas from other fields to the shore for processing. Recent discoveries in the region, at Kunah and Piklis, might serve to raise the profitability of producing gas in deepwater, according to Gustavo Hernández García, Subdirector of Planning for Pemex E&P: by sharing infrastructure for production, transportation, storage and processing, gas production would be more profitable than it would be if the three fields were developed separately. On the other hand, being Pemex’s first deepwater project, Lakach could become an important precedent for other deepwater projects, such as the reservoirs at Perdido.

Production for the field is expected to start during 2014 under an average rate of 400mcf/d and with the objective to extract 650bcf by the end of 2023.