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Mexico Bid Round Winners Could Supply 280,000 b/d of Crude by 2024, AMEXHI Says

Hydrocarbon projects awarded through bid rounds in Mexico from 2015 to 2018 can reasonably be expected to add 280,000 b/d of crude output by 2024, according to the director of upstream association AMEXHI, Raymundo Piñones.

President Andrés Manuel López Obrador proposed the 280,000 b/d goal during a meeting with AMEXHI this month, Piñones said during a webcast interview last Monday (Jan. 21) with Pulso Energético, an AMEXHI-funded think tank.

Based strictly on the projects that have so far obtained approval for their development plans from Mexico’s Comisión Nacional de Hidrocarburos (CNH), 280,000 b/d “sounds like an achievable goal,” said Piñones, a petroleum engineer who spent 10 years at A.P. Moller-Maersk A/S in various oil and gas roles.

Piñones emphasized AMEXHI’s view, however, “that the success of the implementation of the contracts should be measured by the fulfillment of the contractual obligations, and by investment.” He also cautioned that the continuation of bid rounds, which López Obrador has suspended for three years, is essential for maintaining investment levels and output increases after 2024.

“We need a diversification of independent producers as they do in the U.S.,” Marcos y Asociados energy consultancy partner Luis Miguel Labardini told NGI’s Mexico GPI. “In the U.S. you have thousands of independent producers of both natural gas and crude oil. And we don’t have that in Mexico.”

About 110 contracts have been awarded through bid rounds, migrated oilfield services contracts and farmout tenders conducted under the framework of Mexico’s 2013 constitutional energy reform. The reform ended the upstream monopoly formerly held by state oil company Petróleos Mexicanos (Pemex).

The four most advanced projects are expected to provide $6 billion/year in royalties to the Mexican government over their lifespans, Piñones said, citing a report by the Energy Policy Research Foundation’s Michael Lynch. This amount equals half the yearly revenue collected through gasoline taxes, Piñones said.

Pemex, which still supplies essentially all of Mexico’s hydrocarbon output, reported crude production of 1.9 million b/d in November, down from a peak of 3.4 million b/d reached in 2004. Gross natural gas output averaged 3.76 Bcf/d, down from a high of 6.52 Bcf/d attained in 2009.

Pemex CEO Octavio Romero Oropeza has pledged a 50% increase in natural gas output by the state-owned firm by 2024, to be driven mainly by associated gas from oil wells.

The four most advanced bid round projects comprise Area 7, which was awarded through Round 1.1 in 2015 and resulted in the Zama discovery, as well as the Amoca-Tecoalli-Miztón, Hokchi and Ichalkil projects awarded through Round 1.2, which also was held in 2015.

Multiple projects awarded through the reform have reported advancements in recent days.

Zama Appraisal Well Completed

Talos Energy Inc. said earlier this month it successfully completed with its partners the Zama-2 shallow water appraisal well at Area 7 in the Sureste Basin. Zama-2 was drilled about 1.3 miles to the north of the Zama-1 well, which struck oil in 2017.

Talos was “able to achieve our primary goals of understanding the depositional environment and the presence of thick sand bodies needed for robust aquifer support, both of which help with ultimate recovery, CEO Timothy S. Duncan said.

“We are staying focused on working with urgency to meet the project timeline to achieve first oil by the second half of 2022.”

Houston-based Talos is forecasting full-year capital expenditures (capex) of $465-485 million for 2019, which includes the Zama appraisal campaign and four additional exploration tests offshore Mexico.

“We believe offshore Mexico has become one of the most sought-after exploration basins in the world,” Duncan said, adding, “We will provide additional details of our 2019 capital program and progress on our ongoing offshore Mexico activities in the coming weeks.”

The Zama discovery contains an estimated 400-800 million boe of recoverable hydrocarbons. Area 7 was awarded to a consortium comprising Talos, Sierra Oil & Gas S. de RL de CV and Premier Oil plc through Mexico’s Round 1.1 bidding process in 2015.

Trion Appraisal Success

In related news, Australia’s BHP Group plc said last Tuesday the first appraisal well at the Trion deepwater asset struck oil, “in line with expectations.” BHP claimed it is “the first well drilled by an international operator in the Mexican deepwater.”

BHP holds a 60% operating interest in Trion, which is in the Perdido Fold Belt, with the remaining stake held by Pemex. BHP acquired its Trion stake for $624 million in 2016 through Pemex’s inaugural farmout auction.

Through a subsequent farmout tender in 2017, CNH awarded 50% operating stakes in the Ogarrio and Cardenas-Mora onshore blocks to Germany’s DEA Deutsche Erdoel AG and Egypt’s Cheiron Holdings Ltd., respectively.

CNH in December postponed for six months a third farmout tender for stakes in seven Pemex blocks that was previously scheduled for next month.

CNH Approves Jaguar Exploration Campaign

These developments follow the approval this month by CNH of a five-well, $33 million appraisal and exploration campaign in Veracruz state planned by Jaguar Exploración y Producción. The plan comprises four appraisal wells to evaluate and delineate the Guzmantla and Orizaba formations, and one exploration well with the goal of adding gas reserves in the San Felipe and Guzmantla formations, according to CNH.

Jaguar, in partnership with Canada-based Sun God Resources Inc., secured 11 of the 24 gas-rich blocks on offer in Mexico’s onshore Round 2.2 and 2.3 tenders in 2017.

Dionisio Garza Sada, CEO of Jaguar’s parent company Grupo Topaz, told El Financiero that Jaguar plans to invest about $200 million over the next two years in the 11 areas won through the bid rounds.

Jaguar also announced last May a joint venture with Vista Oil & Gas SAB de CV, through which Vista obtained a 50% stake in three of Jaguar’s gas blocks in Veracruz and Tabasco states. Vista is helmed by Miguel Galuccio, former CEO of Argentine state oil company YPF SA, which has pioneered development of the Vaca Muerta formation in the South American country.

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