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Analysis

Perfect Time to Re-Evaluate Mexico's Potential

Tue, 01/21/2020 - 11:46

The downward trend in Mexico’s oil reserves that began in 2013 has continued throughout 2018 and 2019. The first decade of the 21st century was marked by a decrease that took Mexico’s 3P reserves from 56.15 billion boe in 2001 to 43.07 billion boe in 2011, with the most marked single year decrease of over 30 percent taking place in 1P reserves from 2002 (30.83 billion boe) to 2003 (20.07 billion boe). This can be mostly accounted for through the overexploitation of Cantarell combined with a lack of exploration investment. While 1P reserve depletion has proven severe in recent years, from 9.16 billion boe at the end of 2017 to 7.89 billion boe reported so far in 2019, 2P and 3P reserves have decreased by a comparatively smaller margin during the same time period, from 16.76 billion boe of 2P reserves and 25.85 billion boe of 3P reserves in 2017 to 15.83 billion boe and the aforementioned 25 billion boe, respectively, in 2019.

COMMITMENTS

The significant decrease in 1P reserves is the result of a PEMEX upstream strategy that has not prioritized investment in reserve replacement practices during these recent years. If PEMEX meets its production goals in the coming years, the company would deplete over half of its 1P reserves by 2024. Due to this looming issue, PEMEX has made extensive commitments to increase its reserve replacement and reserve incorporation rates through a combination of new exploration campaigns and increased recovery investments in its mature fields.

The slower decrease in 2P and 3P reserves shows that despite PEMEX’s lack of investment in exploration and new technological applications, significant flagship discoveries are starting to offset the decrease. In the offshore category, it contextually merits mention to note that between 2015 and 2017, the Gulf of Mexico was the most explored oil and gas region in the world, with over US$3.1 billion in investments generating a threefold increase in information stored in 2D seismic databases and a fourfold increase in 3D seismic wide azimuth (WAZ) information, according to CNH.

Onshore reserves have actually increased. 2P and 3P reserves for Mexico’s onshore fields have gone from 5.87 billion and 9.23 billion boe in 2017 to 6.12 billion and 9.91 billion boe in 2019, respectively, notably representing almost 40 percent of those years’ total reserves. This increase can be significantly attributed to the discovery of Ixachi. Replicating the success of onshore discoveries such as that in Ixachi can only happen if certain onshore exploration and data acquisition issues in Mexico are resolved. These include permit acquisitions, land ownership and community social engagement. Robin Ellis, Vice President of Sales and Marketing for seismic acquisition technology leader Sercel Inc, says “the Mexican onshore arena is one of the most difficult regions in the world to carry out seismic surveys.” Nevertheless, Ellis says he is optimistic about the future.

“The last 18 months were quiet. But the company hopes that multiple seismic projects will launch this year and we predict the sale of spare parts will grow as mothballed crews get back into operation. Of course, all this depends on the government providing projects in a timely fashion and while those have been promised, they must come to fruition. We remain hopeful that there will be an upturn in activity as President López Obrador has suggested.” Removing obstacles to increase onshore exploration is an example of how Mexico can take advantage of reevaluating its hydrocarbon resources. Another example, this time in shallow waters, are the discoveries found in the Zama reservoir, whose boundaries were recently successfully negotiated between private operator Talos Energy and PEMEX. This generated optimism among investors who clearly see the Campeche Basin still has more untapped potential than previously thought, as proven by all of this abundance of new exploration data from all of these sources. Mexican law dictates that all of this geological information, regardless of whether it was generated through PEMEX’s investment or not, belongs to the state and must thus be centralized in the CNIH, which now houses between 11.5 and 14 petabytes of information depending on varying criteria and the large volumes of additional information that continue to come in every day, four times as much data as its analogue public institution in Norway and six times as much as Brazil.

INFORMATION

Its former Director General Oscar Roldan explains the importance of 2019 to consolidating the CNIH’s central importance thusly: “In general, the new administration has been receptive to our arguments and our work, in particular the finalization of CNIH’s creation and integration process, which began in August 2014 and ended with the recent inauguration of our two lithoteques in Hidalgo and Yucatan, along with the coming publication of our latest information provisions from CONAMER.” The availability of this information in both digital and analog formats, in particular through the litoteques inaugurated this year which CNIH and CNH manage in collaboration with SENER, CONACYT, IMP, UNAM, and other state and local universities and research centers, also facilitates data reprocessing and reinterpretation, which plays an enormous role in the reappraising of Mexico’s resources.

New processing technologies such as super-highfrequency FWI (full-waveform inversion) applied with higher computing performance enabled by cloud-based platforms allows for the increasingly quicker generation of new geological and geophysical assessments. Javier Rubio, General Manager of Mexican geoscientific company Geoprocesados, is quick to confirm the large role that these activities are now playing in the industry’s exploration developments: “We have found a significant business niche in the processing and reprocessing of this new proprietary data and also of PEMEX’s old legacy data.” Reassessments of deepwater resources are also imminent. While 1P and 2P deepwater reserves have remained static since 2017 at 63.54 and 164.74 million boe, respectively, 3P reserves have actually decreased in that same period, from 1.16 billion boe to 891.24 million boe. When these types of reserves have such uneven fluctuation, it means that geological potential continues to be measured from uneven data that could greatly benefit from a more systematic and rigorous approach. PEMEX’s business plan is very clear on placing deepwater development outside of its list of priorities.

DEVELOPMENT PLANS

CNH and SENER have stepped up to the plate in this regard through strategic actions, such as CNH’s approval of deepwater exploration plans from prominent private operators such as Eni, Total and Shell. Development plans include companies like the China National Offshore Oil Corporation (CNOOC) that will deliver significant investment to ports in the state of Tamaulipas.

“The industry must also begin to explore unknown areas, or areas that have been drilled without solid knowledge,” adds Faustino Monroy Santiago, President of the Mexican Association of Petroleum Geologists (AMGP). “Pre-salt plays are an example of this and we must look to and learn from companies like Petrobras in Brazil that have drilled these plays with success. Geological expertise is vital in finding evidence of rock properties that give life to a hydrocarbon system. This exploration of unknown areas must also commence as soon as possible because fields can take between four and 10 years to be brought online.”