Mexican upstream hydrocarbons regulator Comisión Nacional de Hidrocarburos (CNH) on Tuesday approved five exploration plans for deepwater and ultra-deepwater areas operated by Shell Exploración y Extracción de México, S.A. de C.V., a local unit of Royal Dutch Shell plc.

The plans require combined investment of at least $397 million by the Anglo-Dutch supermajor and its partners, and the drilling of at least four exploration wells over the next four years.

If the initial drilling campaign is successful, the plans allow Shell to drill an additional four exploration wells, which would bring total investment during the exploration phase to approximately $1.361 billion.

Four of the blocks are located in the Perdido fold belt, a formation that straddles the Mexico-U.S. maritime border in the Gulf of Mexico, while the fifth pertains to the Cuenca Salina basin off Mexico’s southeastern coast.

Shell is the sole operator of the Cuenca Salina block. Of the four Perdido fold belt areas, three are in consortium with QPI México, S.A. de C.V., a subsidiary of Qatar Petroleum, while one is a joint venture with Pemex Exploración y Producción (PEP), the upstream arm of Mexican national oil company Petróleos Mexicanos (Pemex).

Shell obtained exploration rights for all five blocks via Mexico’s Round 2.4 deepwater tender in early 2018, a process through which CNH awarded 19 of the 29 areas on offer. Of the 19, nine went to Shell.

After approving five of the Shell-operated blocks on Tuesday, CNH was scheduled to vote on the remaining four at a session late Thursday afternoon.

Since no wells exist in the five approved contractual areas, the blocks “can be considered to be in the very early stages of exploration,” said Faustino Monroy Santiago, head of CNH’s exploration technical unit, during the Tuesday session.

He added that the Cuenca Salina block could be considered “frontier” acreage.

Cost of Delaying Rounds ‘Incalculable’

Since Mexico’s government changed hands last December, President Andrés Manuel López Obrador and Pemex CEO Octavio Romero Oropeza have eschewed bid rounds and deepwater E&P in favor of oilfield services (OFS) contracts at shallow-water and onshore fields operated by PEP.

López Obrador has suspended the rounds, saying that the already-awarded projects must reach the production phase before tenders can continue.

Since the rounds conducted from 2015-2018 exclusively offered fields that were in the exploration phase, the private oil industry has asked the government for patience as development advances.

By contrast, Pemex, whose bonds were downgraded to junk status last week by Fitch Ratings, was awarded 90% of Mexico’s 3P (proved, probable and possible) oil and gas reserves via CNH’s Round Zero process in 2014.

The Asociación Mexicana de Empresas de Hidrocarburos (Amexhi), or Mexican association of hydrocarbons companies, has said that its members can be expected to add 280,000 b/d of new crude production by the end of López Obrador’s term in 2024.

If Shell discovers commercially viable hydrocarbons, production would not begin until after 2023 at a minimum, CNH commissioner Néstor Martínez Romero said, in line with lead times globally for deepwater projects.

Commissioner Sergio Pimentel has often cited the technical complexity, relatively low success rate, and capital-intensive nature of deepwater exploration and production (E&P) as arguments for resuming upstream bid rounds in Mexico as soon as possible. He says that Pemex can benefit from the expertise and deep pockets of majors such as Shell, Chevron Corp. and BHP.

He warned in a tweet on Tuesday that the opportunity cost of delaying the rounds is “incalculable.”

A month ago, a local unit of Chevron, in consortium with PEP and Japan’s Inpex Corp., obtained CNH approval for a deepwater exploration plan in Cuenca Salina that entails investment of up to $354.2 million for the acquisition and processing of 3D seismic data, and the drilling of at least one well.

Like Shell’s acreage, the Chevron block was obtained through Round 2.4.

Last month also saw the approval by CNH of a delineation well at the BHP-operated Trion deepwater prospect in the Perdido fold belt. BHP secured a 60% operating stake in Trion with a $624 million bid in Pemex’s inaugural farmout tender in 2016, making BHP Pemex’s first-ever deepwater partner.

Drilled in 8,250 feet of water 24 miles south of the maritime border, Trion in 2012 marked the first-ever discovery on the Mexican side of the Perdido fold belt.