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Shale Oil & Gas Exploration

Wed, 01/21/2015 - 12:27

the Energy Reform, this does not mean the country can get away with anything. Any list of private sector concerns before investments are triggered will include regulatory transparency, set environmental protection rules, and clearly defined contracts. However, for the exploitation of shale, these lists will lengthen. The country’s shale reserves are mainly in the states of Coahuila, Tamaulipas, and Veracruz, all of which are plagued by security problems. Coupling uncertain reserves, large upfront investments, and the risk of insecurity may put certain companies off. Additionally, Mexico’s Burgos and Sabinas basins stretch across largely undeveloped areas, meaning that the government will have to invest in building infrastructure such as pipelines and roads, while also ensuring companies have access to a steady supply of water, which is essential to fracking. Finally, the lack of development in shale areas means that local communities have not had much experience negotiating with operators and developing a social license protocol. However, Mexico has received a measure of help from the US, which has been advising it on its own experience with resource assessments, environmental protection, and regulatory policies. Furthermore, the government has been taking steps to mitigate certain areas of concern. According to CNH, no unconventional blocks which lie in zones affected by violence will be allocated in Round One and all areas selected will be analyzed to confirm they are safe for bid winners to operate in.

Given these hurdles, SENER and CNH are considering tweaking the fields that were originally chosen to make them more appealing. In the first and second phases of Round One, various fields have either been bunched together or further divided as the case may be. According to Lourdes Melgar, Undersecretary of Hydrocarbons at SENER, this ongoing analysis will be carried out at every stage, including unconventionals. “Future oil prices will have a greater influence on shale projects because these have a different timeframe from the conventional fields included in Round One,” says Melgar. Furthermore, Lozoya Austin has stated that the business model needed to develop Mexico’s shale fields would be suitable for smaller, agile companies. While this would enchant a Mexican government that wants to see Mexican operators arise, large players are not turning their noses up. This is evidenced by Guillaume Ropars, Director General of Total Mexico, who says that “we are aware that PEMEX has not prioritized the exploration and production of unconventional resources. However, we strongly believe that it should be a priority that could be materialized with a strong partner like Total.”


Spread across the states of Veracruz, Puebla, and Hidalgo, Chicontepec is Mexico’s largest hydrocarbon reserve to
date, with around 17.7 billion boe and 28.4tcf of probable gas reserves. Such was the enthusiasm for its potential that President Vicente Fox once announced that PEMEX would invest US$37.5 billion by 2026, including the drilling of 13,500 wells to reach a production target of 1 million b/d by that year. The field was even seen as the heir apparent to Cantarell in being Mexico’s go-to location for oil production. However, Chicontepec would be dogged from the start, preventing it from meeting its foreseen potential. After a period of heavy investment from PEMEX, all of Chicontepec’s wells produced  22,700b/d in 2007, 29,300b/d in 2008, and 29,500b/d in 2010. Furthermore, the complex geology at Chicontepec and the combination of extra-heavy crude interspersed by pockets of light and extra-light crude made a single drilling plan difficult. Determined to improve, 2010 saw PEMEX entrust five field laboratories to companies experienced in production enhancement, including Tecpetrol, Weatherford, and Halliburton. A range of technologies were deployed to various degrees of efficiency, including multifracking, water injection techniques, horizontal wells, and different combinations of these. Certain success stories emerged from this period, such as Weatherford’s work on the President Alemán field lab, which raised production from 836b/d of oil and 2mcf/d of gas in 2009 to 8,762b/d and 17.81mcf/d in 2012. Chicontepec’s total production seemed to be on the up, reaching 41,000b/d in 2010, 52,800b/d in 2011, and 68,600b/d in 2012. To date, this 2012 result has never been topped as production was down to 48,800b/d for 2014 and 43,600b/d for the first quarter of 2015. Another blow to the hopes for Chicontepec was the lukewarm market response to the round of ISC contracts in the area. Only three of the six blocks on offer were awarded, with Halliburton taking the right to operate Humapa, Grupo Diavaz’s subsidiary Operadora de Campos DWF winning Miquetla, and Baker Hughes’ Petrolite winning Soledad. After that, the market was shocked at the fee per barrels these companies had dared to table. Operadora de Campus DWF had won with a bid at US$0.98 per barrel, Petrolite stood at US$0.49 per barrel, but Halliburton had trumped everyone by successfully winning a bid at US$0.01 per barrel. This was explained by legal experts as the winning companies being willing to take a gamble to secure contracts for their integrated services. According to David Enríquez, Partner at Goodrich, Riquelme y Asociados, these companies will produce enough to make their operations sustainable but will focus on drilling wells, sell registry lines, and acquiring seismic data and other types of geological information.

Shortly after this, the Energy Reform kicked off, splitting up Chicontepec’s assets. In its wishlist for Round Zero, PEMEX signaled to the markets that it would not be focusing on unconventionals, as it focused on shallow and deepwater. Ultimately, PEMEX was awarded 3.82 billion boe in proven and probable reserves across the fields of Chicontepec, Ebano, Panuco, and Faja de Oro. This left 8.93 billion boe of prospective resources and 2.68 billion boe of proven and probable reserves for companies to bid on in Chicontepec and nearby unconventional fields as part of Round One. To what extent companies will be interested in doing so is tricky to ascertain. The geological variations within Chicontepec mean that production costs have been as low as US$20 per barrel whereas in other areas these can rise to US$40-50.