Gustavo Hernandez
Director General
PEMEX E&P
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View from the Top

PEMEX Prepares for Deepwater Farm-Outs, PEMEX E&P

Wed, 01/21/2015 - 22:33

Q: How have Round Zero and Round One affected PEMEX’s deepwater exploration plans?

A: In the plan we had before Round Zero, we were to drill 14 deepwater wells in 2015. We now have a reduced area in deepwater basins, meaning we will only drill seven wells there with the main objective of confirming the previously discovered areas in order to plan a potential farm-out in the future. We already have started drilling delineation wells for our deepwater fields so our priority is now to declare them commercially viable by ensuring they have materiality. This will make them be more attractive when we present them for farm-outs as the de-risking process will have been performed. As a result, we will get higher value expectations and therefore higher monetary offers, so we are working on making sure that our deepwater basins and fields have been properly de-risked.

Q: Is the drop in PEMEX’s reserves replacement rate from over 100% two years ago to 67% in the last two years explained by a shift in exploration focus to deepwater?

A: We were focusing on our four deepwater drilling rigs. Last year, 25% of our efforts went toward development wells in the Lakach area where half of our deepwater drilling fleet was dedicated to determining the natural gas production potential, while our other two rigs were exploring in Perdido, where they drilled the Maximino and Vasto delineation wells. This strategy is aimed at reducing risk ahead of the farm-outs. At the same time, we were unable to convert 3P reserves into probable or proven reserves. According to the guidelines for converting to 2P reserves, we need to have a pre-approved financial development project. The only such project that is already approved is Lakach, where reserves have been converted into 2P. Trion, Exploratus, and Maximino are still at the 3P level but they will be transferred to 2P or even 1P once we complete the delineation and drill the first development wells.

Q: What would the perfect farm-out partner for Perdido bring to the table apart from capital?

A: Potential players would be those who have been producing in deepwater in the US. Perdido has synergies with the Great White block, which is operated by Shell for the consortium also including Chevron and BP. ExxonMobil has a project that is located just northeast of Perdido and BP has been allocated projects right on the trans-boundary area. At Chinook, BP also brought the first FPSO into the US Gulf. While we have these big players in mind, there are other potential partners. For example, Anadarko has just installed a spar in the Lucius field near the center of the Gulf. Such companies are performing well and can move faster than large IOCs due to a more rapid approval process. Anadarko, Noble Energy, and Cobalt are all companies that are well positioned to enter Mexican deepwaters and we are open to talk to all of them. Furthermore, the Mexican jurisdiction is a little easier to comply with than its US counterpart, which will encourage companies to invest here. The Great White field has been developed using a spar. We could use a spar, an FPSO, or both to develop the first three fields that will be farmed out, Trion, Exploratus, and Maximino, while we must also consider Supremus and Vasto.

Q: Does PEMEX have the ambition to independently explore deepwater blocks that may be included in future licensing rounds?

A: Exploring in deepwater is a risky business that nobody wants to do on their own. A single well can cost US$200 million so sharing the risk is always preferable. PEMEX previously operated alone in that scenario because it was the only operator by constitutional mandate. That is no longer the case so we have the chance to share the risks, and we will do so.

Q: What is the target date for first production at Lakach?

A: We expect first production at the end of next year, as all contracts have been approved by the board and awarded to the companies. We are building two pipelines to bring the natural gas to land and an onshore plant where liquids and gas will be separated. The construction of the plant is already in progress and the contract to build the subsea trees and the subsea infrastructure is being executed, so we are just waiting for the infrastructure to be finished. We have also finished the drilling of six development wells and are now waiting for the subsea trees to start the completion phase, before putting the gas into stream.

Q: Does this also means that two of your deepwater drilling rigs will be moved elsewhere?

A: Yes, we would like to move those rigs to look for more oil, most likely in the Deep Coatzacoalcos area, which is in the eastern part of the Gulf and northwest of the Yucatan peninsula. There could well be some activity there as the big players are interested in this area, which according to CNH will be offered in the deepwater phase of Round One. They are attracted by the prospective resources that could be located there. The Coatzacoalcos Deep is also interesting because PEMEX did not focus its limited resources there prior to the Energy Reform. However, we will now add execution capacity in that area. Since the Reform, we have allocated semi-submersible rigs to the four deepwater areas: the Coatzacoalcos Deep, Perdido, the Mexican Ridges, and the gas basin.

Q: What is the timeline for these first development wells to be drilled in Perdido?

A: Trion, Exploratus, and Maximino should be farmed out in June or July 2016. We expect to receive offers for the farm- outs by January or February 2016 at the latest, which should include an initial commitment to start drilling in 2016.