Image credits: Flickr, Kees Torn
/
News Article

Shell Relinquishes Block 15: A Sign of the Times?

By Peter Appleby | Wed, 05/13/2020 - 16:41

Yesterday, Shell’s transfer of its 40 percent participation of Round 2.1’s Block 15 to partner Total Energy was confirmed. Total will now own 100 percent of the block. Shell still has many assets to work on in Mexico. Despite the loss of Block 15, the company has full or partial participation in 10 offshore blocks from Mexico’s bidding rounds 2 and 3, making it the IOC with the greatest participation in offshore blocks in the country. Outside of PEMEX, only Jaguar E&P, a Mexican onshore operator, owns more blocks.  

The Dutch company’s decision to relinquish participation in the shallow water block, which sits off the coast of the southern oil hub of Ciudad del Carmen, might be an indication of the sorts of movements that operators will make in the coming months or years as they look to balance their portfolios following the oil price collapse and the depressed demand for oil that is expected to last the rest of the year.

In response to the price environment, IOCs initiated a series of budget cutting measures. Shell, along with Chevron, ExxonMobil, Talos Energy and Murphy Oil, among many others have reduced their CAPEX budgets for 2020 by up to 25 percent, while oil field service companies like Halliburton have let thousands of workers go. Companies will be looking more closely at their investments and analyzing in greater detail where their investment dollars will generate a better enhanced return.

This may point towards Shell’s reasons for stepping away from Block 15. The shallow water area, though requiring a lesser investment, may not be where the company believes it can deliver greatest value. Shell’s other blocks in Mexico are all in deep waters, an area that requires heavier investment and a greater development over time. But this is also an environment in which Shell has ample experience. The Stone’s project in the US Gulf that operates in 2,900m of water, the Gumusut-Kakap project in Malaysia that includes 19 deepwater wells and the Parque Das Conchas in Brazil’s Campos Basin are just a few of the company’s current global deepwater developments.

Mexico’s Director General of Shell Alberto de la Fuente explained the company’s progress on its deepwater blocks to Mexico Business News earlier this year. The ultra-deepwater Chibu-1 well, which is targeting depths of 6,000m was begun in January. Meanwhile, another ultra-deepwater exploratory well, Max-1EXP, was given permission to go ahead in February, said De la Fuente.

Shell has committed to drill between 10 and 13 wells in its deepwaters, almost half of all deepwater wells committed by operators. According to De La Fuente, this minimum well commitment may increase if prospects are found and considered to be promising. The wells and the development of its fields will see Shell invest a minimum of US$800 million in Mexico, which could rise to US$2.4 billion depending on what is found.

The relinquishing of Block 15 suggests that Shell has firmly fixed its focus on the potential of Mexico’s deepwater basins which, due to PEMEX’s traditional focus on shallow water resources, remain for the most part underexplored.

Shell is not alone in changing its plans in Mexico. According to Offshore Magazine, Murphy Oil, operator of Mexico’s deepwater Block 5, has deferred its investment in Mexico until 2021. In 2019, the company drilled the Cholula-1 exploration well and gained positive results. Speaking to Mexico Oil and Gas Review 2019/20, Country Manager Gabriel Gómez said that the company was “very excited about our discovery.” He continued: “Not only is this the company’s first exploration well in Mexico but it is also one of the first deepwater wells to be drilled by IOCs following the Energy Reform. While we are still evaluating the results, this discovery has de-risked the block and will lay the foundations for our future plans there.”

However, with Murphy’s budget being adjusted by some US$740 million,   the company has reconsidered the investment and, perhaps propelled by the uncertainty oil prices are currently seeing, has decided to delay the drilling of two further wells.

Outside of Mexico, other oil companies are feeling the heat of the oil price crash. Saudi Aramco, Saudi Arabia’s NOC, reported a 25 percent drop in 1Q20 profits. Shell’s decision, then, may be a sign of the choices operators in Mexico make in the short-term as investment decisions are made across blocks. Mexico’s place in global market means the country is competing against other oil fields of the world.

The data used in this article was sourced from:  
BN Americas, Expansíon, Offshore-Mag
Photo by:   Flickr, Kees Torn
Peter Appleby Peter Appleby Journalist and Industry Analyst