Image credits: PEMEX
/
Analysis

New Reality, New Plans: Offshore Operators Adapt for 2021

By Pedro Alcalá | Tue, 07/20/2021 - 17:57

The disruptions of 2020 delayed the race to become the next offshore operator to reach production in Mexico after ENI made history in 2019. Adjusting their time frames in the wake of COVID-19 and the oil price turmoil, operators are back in the game and signaling positive expectations. “We continue to do everything necessary to advance our assets in the country to the next phase,” says Talos Energy CEO Timothy Duncan. 

ENI’s success in becoming the first private operator in Mexico to reach an early production phase in an offshore project spurred all other major offshore operators to accelerate their field development plans with the hopes of reaching a similar phase by the end of 2020. With those expectations dashed, attention turned to 2021. Barring any unforeseen events, ENI is projected to have company sooner rather than later with operators like Fieldwood Energy on the hunt.

“During the first half of 2021, we focused on the drilling, construction and installation programs in Pokoch and Ichalkil to achieve commercial production operations during the second half of 2021. Every day, we work relentlessly toward achieving this goal and to reduce the impact that COVID-19 has on our operations and suppliers,” says Andrés Brügmann, Mexico Country Manager of Fieldwood Energy.

Earlier in 2020, Brügmann had highlighted that the COVID-19 pandemic and the corresponding reduction in oil prices were challenges that few anticipated. Fieldwood spent 2Q20 occupied with the drilling of additional wells at both of its fields in Ichalkil and Pokoch. During this first drilling campaign, the company expected to drill and complete six new wells and tie back two appraisal wells drilled in 2017. At the time, Brügmann was positive despite the pandemic being in full swing. “We are doing everything possible to maintain the project schedule and complete the commissioning of the facilities during 4Q20. Nonetheless, we acknowledge the numerous challenges that contractors are facing due to the pandemic, including equipment and permitting delays.” 

Brügmann is quick to point out that the pandemic is not over yet and that Fieldwood expects the challenges to continue this year. However, he maintains that 2021 will represent a historic milestone for the Ichalkil and Pokoch projects. “After five years of intense work and significant investments required to appraise and develop these fields, we will start the early production phase of the project.”

Other operators have also noted the importance of early legwork to keeping them on track to reach their productive phases. “We have continued to make significant advancements on the Zama project despite what was an extremely tough environment in 2020, which was impacted by the COVID-19 crisis and associated commodity price drop,” says Duncan. 

Despite the hardships, Talos has advanced its project toward its Final Investment Decision (FID), running the Front-End Engineering and Design (FEED) in parallel with unitization discussions with PEMEX. “We are working hard to reach conclusions on both of those fronts and take the project to its next phase post-FID. Capital spending on Zama is expected to be light this year as we wrap up the FEED and unitization discussions but we are preparing for FID and, thereafter, the start of construction and field development,” Duncan says.

Some operators were able not only to make preparations for the crises that defined 2020 but to also reach a productive phase in the midst of the pandemic as they originally intended. The most prominent example is Hokchi Energy, which announced at the end of May 2020 that it had opened the valve of its Hokchi-4DEL well to begin production at the Hokchi field in the shallow waters about 27km northwest of the Dos Bocas port. 

The company began its drilling campaign in October 2016, drilling five wells, including Hokchi-4DEL. Its drilling campaign was finished in only 343 days, three months ahead of schedule. The construction infrastructure around the development of the Hokchi field, including the Satellite and Central platforms used to drill Hokchi’s wells, involved 4,500 direct and indirect jobs. 

Investment in the field so far stands at US$1 billion. The company did enjoy an advantage as the Hokchi field was first discovered by PEMEX in 2009. Two wells, Hokchi-1 and Hokchi-101, were drilled in 2009 and 2011 respectively by the NOC and later indefinitely abandoned, which provided a solid base from which the private operator was then able to build a decisively successful project. 

Maintaining Drilling Activity

Brügmann notes that the challenges presented to drilling campaigns in 2020 were extensive even without the circumstances that emerged during the year. “In addition to COVID-19, we also had to face significant challenges characteristic of drilling in deep and high temperature environments with variable pressure regimes. Fortunately, we were able to overcome these issues successfully,” he said. 

Fieldwood began drilling just after the pandemic was declared in March 2020. Since the company decided to adapt its drilling operations to the circumstances, instead of stopping and deferring operations altogether, it modified its financial plans to reflect the incremental costs related to COVID-19. This led to its entering 2021 with a completed drilling agenda that includes Ichakil-4 and Pokoch-2, along with the drilling start date of the Ichakil-6 well. The structural design of these wells required specifications that fit Fieldwood’s Cretaceous and Jurassic objectives, meaning they were quite complex regardless of the context. Now, the company expects to complete four wells, including its original two appraisal wells and two development wells, to bring production online while continuing the drilling of Ichalkil-6.

Another significant offshore operator that was able to maintain a drilling campaign throughout 2020 as part of its field development efforts was Citla Energy. The company’s plans were adjusted following initial well results, considering the effects of COVID-19 and 2020’s extreme oil price environment. “Some wells that we expected to drill in 2020 and, in some cases, 2021 were rescheduled,” says CEO Alberto Galvis

Citla learned a great deal from three wells it drilled in blocks seven and nine, according to Galvis, which led the company to modify the ranking of the remaining prospects according to new technical information. “Each well drilled in the area helped us to further understand the regional geology in a province where few wells have been drilled and information available is scarce. Through this process, we have significantly enriched our knowledge of this basin,” said Galvis. 

The company’s journey through 2020 was further energized by a discovery in Block 14. “Our studies are focused on demonstrating the commercial viability of that discovery and identifying additional prospects in this block that could potentially yield additional discoveries,” says Galvis. 

Merlin Cochran, Director General of AMEXHI, sees the continuation of drilling campaigns as a sign of private operators’ unwavering commitment to Mexico. “Regardless of the pandemic, the industry achieved important results (at the end of 2020): US$40 billion of approved investment and US$16 billion of executed investment.” 

Cochran’s optimism is not gratuitous. In 2020, Mexico’s private upstream industry reported six discoveries of resources which, coupled with further studies, delimiting and field development activities, raised reserves by 40 percent. Those same reserves have also continued to be developed and further proven throughout this period. 

Fieldwood spent part of 2020 finalizing the process of certifying the reserves for its contractual area. The company’s auditor estimated 3P reserves totaling 772MMboe, of which 81 percent is crude oil. “This is great news for Mexico because the project continues to be attractive even with the downturn in oil prices,” said Brügmann.

2021 Earmarked for Growth

Galvis believes that 2021 will see the emergence of growth opportunities, especially when linking up previous discoveries to new offshore developments. He highlights the discovery of several midsize fields, which creates the opportunity for integrated developments and hubs. “Such opportunities can help to reduce the minimum field size required for commercial viability.” 

He does highlight, however, that the unlikelihood of further bidding rounds has had an important impact on Citla Energy’s plans for portfolio expansion. “The suspension of new bidding rounds and tenders, including PEMEX’s farmouts, meant that such growth plans had to be equally adjusted.”

Duncan forecasts bullish results for Talos’ operations in Mexico, nonetheless. “Talos is focused on numerous potential catalysts as we look forward. First of those is Zama: this is a generational asset that will ultimately provide decades of production and cash flow once it comes online. Another of those is our ability to find future discoveries through exploration investment.” 

Adding credence to the growing optimism in the sector is the recent announcement of a major discovery in the US GOM from BP and Chevron that could potentially represent a transboundary opportunity.

Photo by:   PEMEX
Pedro Alcalá Pedro Alcalá Journalist and Industry Analyst