Gustavo Hernández
Director General
View from the Top

Shallow Water Remains Crucial for Mexico’s Production, PEMEX E&P

Wed, 01/21/2015 - 12:32

Q: How do you think potential operators will view shallow water exploration phase of Round One?

A: Major companies have already acquired the information, obtained access to the data room, and are evaluating the bids they want to make. They must decide whether to invest and explore in areas where PEMEX did the same for nearly 40 years, or whether to put their capital toward an offer for deepwater or extra-heavy oil. Shallow waters could be attractive as the 14 blocks are located in an area where PEMEX has produced 47 billion boe. We have reserves of 21 billion barrels and prospective reserves show 15 billion more. Companies that win those 14 blocks will initially be focused on exploration, and it will take about four years to see first production, according to CNH.

Q: Would PEMEX be interested in buying a field from a private company after it has made a promising discovery in one of the shallow water blocks?

A: There are small, agile companies out there that are focused on exploration. They are very good at finding hydrocarbons, but they then sell the fields and keep exploring. We view the whole spectrum of exploration activities and keep an eye on the behavior of the market. If someone makes a discovery close to our facilities and is not interested in producing, we are open to offers.

Q: How close do you think companies participating in the second phase of Round One can come to matching PEMEX’s overall production costs?

A: Our shallow water production costs are among the lowest in the world at below US$10 per barrel. Reaching US$10 per barrel would be very attractive for companies, but even US$15 per barrel would be a good result. Our shallow water fields are de-risked, they are very productive, and they have large reserves and prospective reserves. They are essentially calling companies to go there.

Q: The second phase of Round One offers the opportunity buy reserves in Mexico, which influence do you expect this rather unique situation to have on the participants?

A: For the moment, we are going to do what the Energy Reform has stated, which does not allow companies to book reserves. However, the attractiveness of investing in the Mexican market remains. The government will get its share through the fiscal regime or from taxes and royalties. If companies can see the opportunity to turn a profit under the fiscal regime, or after they have paid their taxes and royalties, they will come.

Q: What level of production do you expect the fields included in the second phase of Round One to deliver within three to five years?

A: These nine blocks contain partly oil and partly gas. In terms of oil equivalent, every field could produce 10- 20,000b/d with a few wells. I imagine we will see good production levels in 5 years, however.

Q: Do you see any obstacles for Cantarell to meet its production target for this year?

A: We have seen what we expected from Cantarell. Our simulators anticipated what the oil output would be, but the field is behaving better than what the simulation indicated. We do not have any doubt that our reservoir engineers are delivering good work in Cantarell. Its different fields, Akal, Nohoch, Chac, Kutz, and Sihil, are positioned at different production stages, with Akal being the most advanced. It has been producing since June 23, 1979, and is moving towards depletion so we are working on a project to maximize recovery at Akal by a driving mechanism known as double displacement, which consists of injecting gas on the gas cap and water on the aquifer. Once implemented, this double displacement scheme should allow us to improve current production levels in years to come. Furthermore, the production rate was affected by two back to back cold fronts that hit in early 2015 and the change to summer time. We will be working hard to recover that production.

Q: Tsimin-Xux is a rapidly rising star in PEMEX’s portfolio. How would you assess the progress made over the last year and what should we expect for the coming years?

A: Tsimin-Xux was only discovered a few years ago. After we implemented the infrastructure, we drilled some wells and reached a production of 70,000b/d last year. It even spiked at 110,000b/d because we completed certain wells in advance. This was because PEMEX bet on reducing drilling times and entering into the production stage earlier than expected. After this worked, we figured we could get early production from other wells that were to be finished by the end of 2014. Today, Tsimin is producing 80,000b/d and Xux can contribute another 60,000b/d. Our initial target for 2015 was 120,000b/d but we now believe we could reach 140,000b/d by the end of the year.

Q: Even with this increase, will it not be difficult for PEMEX to bring its production back to 3 million b/d?

A: If we add financial muscle to our current projects, we can increase activities and raise production. For example, Ek, Bolontiku, and Sinan are currently producing at a certain level but, with the farm-out, an experienced partner with the right technology could double production there. The same goes for many of the farm-outs. Furthermore, we are planning to increase production at Ayatsil, Holok, Campeche Oriente, Perdido, and Chalabil. Lakach can also count as it will soon get into stream.