Working Conditions at Burgos

The Burgos Basin plays a central role in Mexico’s natural gas production, yielding average production of 1.287bcf/d during 2013. The project, however, is still using PEMEX’s first service contracting models that were introduced over a decade ago. “Multiple service contracts (MSCs) are still in effect at Burgos, nothing has really changed in that respect,” says Luis Vázquez Sentíes, President of Grupo Diavaz. “We are currently discussing alternatives with PEMEX in order to migrate these projects to a more advanced contracting scheme.” Another company that has been present at Burgos since the MSCs were tendered is Monclova Pirineos Gas (MPG). Luis Velázquez, Director General of MPG, describes work conditions at the Burgos basin. “PEMEX designed the MSCs to increase production in the Burgos Basin. These contracts included the combination of being an operator, choosing where to drill, and then providing drilling services and well-testing services. PEMEX’s objective was to ensure the strategic location of wells in productive gas zones,” he adds. During the bidding process, MPG was awarded the Pirineo block in 2005 and the Nejo block in 2007. Grupo Diavaz, on the other hand, formed a joint venture with Petrobras and Teikoku Oil and was awarded the Cuervito and Fronterizo blocks in Burgos. “We were producing around 20mcf/d when we started operations there and have increased production to above 60mcf/d,” Vázquez Sentíes comments.

The future for Burgos holds interesting prospects, given the fact that the basin is believed to hold a large amount of prospective resources. However, both Vázquez Sentíes and Velázquez agree that the contracting framework for the area has to be updated. “Natural gas production has always been an important subject on the political agenda of Mexico,” says Velázquez. “We have not seen any real action taken until now. We have heard that some rounds will be opened for gas production in the Burgos Basin.” Vázquez Sentíes, on the other hand, continues to push to update the contracts Grupo Diavaz has in Burgos to make it more of a win-win situation for PEMEX, private operators, and service providers alike. “We believe that within a year and a half, we will manage to evolve from MSCs to profit-sharing contracts in Burgos, since the Energy Reform already allows it.”

According to Velázquez, Mexico is currently importing around 3tcf of gas every year, at prices of US$3-4 per million btu. “The country is also importing liquefied natural gas in Manzanillo, at around US$14 per million btu,” he explains. “Private companies are moving their projects to the US to get cheaper and easier access to natural gas. One example of this is Grupo Alfa which moved its projects from Mexico to Texas to produce polyethylene terephthalate (PET).” As demand increases, prices continue to rise as well. “If gas reaches a price of about US$7-10 per million btu, Mexico should probably reconsider purchasing gas from the US, since it would cost the same for PEMEX to produce it domestically,” advises Velázquez. This will be something to think about when drafting the future strategy for gas production under the targets of producing 8mcf/d by 2018 and 10.4mcf/d by 2025.