Mizton-Amoca-Tecoalli Bringing Optimism to Private Sector

Between political uncertainty putting off investors, the price of oil dropping to historic lows in 2015 and 2016 and a worldwide pandemic that paralyzed operations, initial production targets and investment plans from the bidding rounds held under the presidency of Enrique Peña Nieto have failed to come to fruition. However, 2022 gave the sector cause to celebrate when the 21 private companies active in Mexico collectively surpassed the 100Mb/d production milestone in May. While this figure still accounts for only 6 percent of total domestic output, and is a far cry from the 280Mb/d figure set by López Obrador upon assuming the presidency in 2018, the performance of Italian IOC Eni, in particular, has offered some room for optimism at least. 

Eni has long led the way for private players in Mexico, becoming the first operator other than PEMEX to produce oil in almost 70 years when Miztón-2DEL came online in July 2019. Since then, the production from Eni’s Area 1 assets, which consists of three producing fields, Mizton, Amoca and Tecoalli, has only grown. When the aforementioned milestone was reached in June this year, Eni’s total contribution sat atop private players with production peaking at 31.527Mb/d from Mizton-Amoca-Tecoalli alone.

Eni acquired the 67km² Area 1 asset, which is located within a much larger shallow-water block off the coast of Tabasco owned by PEMEX, in bidding round 1.2 in 2015. An appraisal campaign was completed in 2018, placing estimated reserves over 2MMboe, of which 90 percent is believed to be oil. An early production phase was launched at Mizton in July 2019, while full production of the field was reached in 4Q21. But, it was not until the long-awaited arrival of the Miamte floating production, storage and offloading (FPSO) vessel at the start of 2022 that production truly took off. The Miamte is the first FPSO to be deployed by a private operator in Mexican waters and boasts a processing capacity of 90Mb/d for oil and 75MMcf/d for natural gas, with storage room for 700Mb/d of crude and a “zero-flaring philosophy.” Adding to the WHP-1 wellhead platform already in place at Mizton, the boost provided by the FPSO was felt immediately. Across the three producing Area 1 fields, production totaled 18.881Mb/d in March, doubling the output of 9.336Mb/d just one month before. 

It has not all been plain sailing for Eni, however. Despite being the first private player to develop the complex offshore infrastructure required to export its oil to the international market, Eni´s operations were temporarily halted due to regulatory permits. Although the IOC had signed a joint production contract with the Mexican state, which enables it to export crude without state intervention, as well as an active crude export permit issued by the Ministry of Energy (SENER), delayed authorization from the National Customs Agency for the entry and exit of goods (believed to be the result of changes made to trade regulation by the federal government) prevented Eni from exporting its crude. Therefore, when the FPSO reached full storage capacity, production was put on hold for two weeks until the first shipment of crude could be processed and delivered to a buyer. 

More controversy came In May of this year when CNH gave PEMEX permission to pursue exploratory drilling at a shallow water field that encroaches on Mizton. The discovery of the Atoyatl-1EXP exploratory well, which falls under assignment AE-0149-M-Uchukil, infringes upon Eni’s contractual area. CNH proposed for the shallow water conventional reservoir to be shared by the two oil giants. This would represent the second case of unitization between PEMEX and a private operator, the first being the controversial Zama oil field, which led to a drawn-out arbitration case with American service provider Talos Energy. 

Alma América Porres, Commissioner, CNH, brought up the possibility that PEMEX and Eni would share a participating interest in the oil field. “There seems not to be much change, we do not see major missteps, but it is important to say explicitly if there was a shared oil field. If the site’s conditions are the same, then (PEMEX and Eni) should clarify that,” said Porres.

The distance between the exploratory activity set to be carried out by PEMEX and Eni’s Mizton assignment is only 3.7km, according to the authorization released by CNH on May 10. Many industry commentators have voiced their concern that Eni could face the same fate as Talos, losing out entirely on the operation. The Houston-based service provider felt politics had more to do with the CNH’s ruling than technical experience or financial considerations. Having made the discovery of the almost 1Bboe field, Talos expected to be awarded at least a 50 percent share but failed to come to an agreement with PEMEX as CNH eventually intervened in favor of the state-owned company. SENER then determined that of Talos’ 35 percent participating interest before the verdict, it will only retain 17.35 percent.

There are, however, major differences between Zama and Mizton. Most notably, Eni already has its operation up and going, with significant production output. It therefore does not have to rely on PEMEX infrastructure to collect and transport output, as would have been the case for Talos. Instead, in the event of unitization, it would be PEMEX who would have to pay Eni to extract its oil and use its facilities, assuming the NOC chooses not to invest the significant time and money required to set up its own production framework. 

Once the relevant information is gathered, both parties will have the opportunity to make a proposal detailing how investment and production costs are shared. PEMEX is required to deliver survey data obtained from drilling at the Atoyatl-1EXP well to SENER, which will then request the corresponding geological information from Eni’s side. The data is then passed on to CNH to issue a decision regarding the nature of the shared reservoir. 

Andrés Armijos, Head of Latin American Research, Welligence Energy Analytics, noted in an interview with S&P Global Commodity Insights that it is perhaps too early to speculate on the nature of the potential unitization, as PEMEX first needs to start drilling at Atoyatl to prove it does indeed extend into Mizton. There is a widespread market perception, however, that rather than sharing the reservoir, PEMEX might choose to make use of existing infrastructure to develop several small pockets as a more cost-effective and commercially viable option. 

Regarding future development plans for Area 1, Eni has already been given the greenlight to expand the operation to include “33 wells connected to three wellhead platforms plus one monopod, in addition to the FPSO,” according to Eni’s press release. At present, there are only two wellhead platforms in operations at Mizton and Amoca, but the company expects to start operations at Tecoalli and further development at Amoca soon. In August 2022, CNH approved Eni´s updated investment plan for Area 1 which foresees total expenditure of US$483 million up to December 2022. This additional investment seeks to speed up the spudding and completion of the Amoca-7, Amoca-9, Amoca-8 and Amoca-11 wells, with the latter two targeting an area more shallow than previously planned. The revised plan also comprises the purchase of new seismic information across an area spanning 110km², with the IOC aiming to extract an additional 10.5Mb and get Mizton-Amoca-Tecoalli back on tracks with its November 2021 production forecast of 65Mboe/d by the end 2022 and a plateau of 90Mboe/d by 2025. 

However, in August 2022, Eni faced further delays due to what the CNH described as "an unexpected behavior of the wells.” Rogelio Hernández Cázares, President, CNH, voiced concerns previously in December 2021 that the fields´ quality was damaged when the pandemic, amongst other factors, caused Miamte´s arrival to be delayed from Singapore. FPSOs are a crucial piece of infrastructure in offshore natural gas plays to stabilize reservoir pressure. However, Eni decided to go-ahead with natural gas production in Area 1 without the vessel in an attempt to compensate for previous delays. 

Out of all private players, Eni has invested the most in Mexico since its contracts were awarded in 2015, with the sum totaling around US$1.5 billion. Speaking with MBN, Giorgio Guidi, Managing Director, Eni México, reaffirmed that Mexico is a “core country in Eni’s global portfolio.”  In addition to its 100 percent share in Area 1, Eni has seven other exploration and production blocks in the Gulf of Mexico and currently holds the position of operator in five out of these. The IOC made two significant discoveries in its Block 10 contract located in deeper waters between the Salina and Southeast Basin, with the Sayulita Exploration Project announced in August 2021 following the discovery of the Saasken Exploration Prospect in February 2020 just 15km away. The former is believed to contain between 150MMboe and 200MMboe, while the latter may contain up to 300MMboe, according to preliminary estimates.