Taking Up the Onshore Mantle in Mexico’s NorthWed, 01/22/2020 - 07:37
Q: How have the developments on Strata BPS’ onshore blocks 5, 18 and 20 progressed?
A: Strata BPS was awarded blocks at the end of 2015 and signed the contracts in May 2016. We started operating blocks in August 2016. Through 2016 and 2017, we worked on optimizing the fields to raise production levels and validate the data we had received, much of which was incomplete or contained errors. We began collecting the low-hanging fruit of the fields. On some wells, we only had to open a valve to gain more production. Other wells required minor intervention work and small-scale projects that offered results without large investment costs. As a result, Strata BPS became one of the few round winners to complete the Minimum Work Program.
In parallel, we have carried out our preliminary and secondary development plans approved in 1Q19. Now we are at the stage where production is our primary concern. Though the company decided to be cautious regarding investments at the beginning of the year, we appreciate that the government understands the necessity to involve private industry and the reality that everybody wins if the oil and gas market grows. If the administration is to achieve its 2.6MMb/d goal, then support from the entire industry is needed.
Q: What is the next round of development for Strata BPS’ fields?
A: Between the Peña Blanca, Carretas and San Bernardo fields, we have identified the need and potential for around 15 recompletions and 15 to 25 new wells. The next phase of development is much more expensive, with each new well expected to cost approximately US$2 million. While recompletions are cheaper, they still cost US$150,000 each. We hope to begin this next phase by 1Q20 at the latest. An ongoing project is the construction of a processing plant to process the gas we produce in order to acquire LPG and natural gas liquids. The processing will also give us dry gas, which we can inject directly into the SISTRANGAS network, due to its proximity to our fields, and deliver it directly into the open market. We have finished the engineering work for the processing plant and expect it to cost US$4 million in total.
Q: How is the company optimizing drilling operations for profitability across its fields?
A: Deciding which wells to drill requires sound engineering consultancy. The well that produces the most may not necessarily be the well that offers the best return on investment. Drilling a well on the deepest formation and then working back up makes the most engineering sense, but the increased production a company receives from drilling so deep, with the costs this implies, may not justify going to this depth. Therefore, the recuperation and recovery factor, which CNH is focused on, is a vital consideration. CNH also understands that when a company makes decisions, it must consider the economic factor. If it does not make economic sense to recover every last drop of gas, then for the present time it can be forgone and revisited again when gas prices are higher.
Q: What are Strata BPS’ production goals across its three blocks?
A: When we first received the blocks, we had little production. We increased production to 8MMcf/d for a substantial period but have now dropped down to 6.5MMcf/d. However, with the initiatives we have carried forward, the fields should see production of up to 15MMcf/d. While we could increase production, the company believes that it makes economic sense to stick between 10 and 15MMcf/d. This will be particularly true when we have a processing plant due to the added value of the associated liquids that will be produced: when we sell in the open market there are various hedging tools we can use to our benefit and we will have access to other financing methods to increase profitability. The plant is modular, with the ability to add 4 MMcf/d modules, so we also have the option to extend it as time goes by.
Strata BPS is a Mexican company specializing in E&P in northern Mexico and Texas. It wholly owns Strata Campos Maduros, which was awarded Blocks 5, 18 and 20 covering the Peña Blanca, Carretas and San Bernardo areas in Round 1.3.