The winners of oil and gas contracts under Mexico’s 2013-2014 energy reform are fulfilling their commitments, and are on track to reach production of 50,000 b/d of oil and 240 MMcf/d of natural gas by year’s end, according to a new report from the Asociación Mexicana de Empresas de Hidrocarburos (Amexhi) trade group.
Amexhi expects those figures to reach 280,000 b/d and 450 MMcf/d by the end of 2024.
State oil company Petróleos Mexicanos (Pemex) held a monopoly in the upstream segment until the reform, which opened the industry to private sector participation.
However, since taking office in December 2018, Mexico President Andrés Manuel López Obrador has suspended oil and gas auctions, and said that the 111 exploration and production (E&P) contracts awarded from 2015-2018 under the framework of the reform must begin to “show results” before bid rounds can resume.
In the meantime, he has pinned the country’s oil and gas hopes on Pemex, the world’s most indebted oil company, which has seen its crude output fall by more than half since 2004.
Despite the president’s mistrust of the reform, the Amexhi report shows that operators are fulfilling their contractual commitments within the established timeframes.
Oil production from the contracts awarded so far stood at 45,339 b/d as of October, Amexhi said. Of this total, 33% came from contracts awarded in bid rounds, 25% from farmout tenders for operating stakes in Pemex acreage, and 42% from the migration of oilfield services contracts to E&P contracts.
Of the 111 contracts, only 29 pertained to projects already in the production phase at the time of signing, while “the vast majority” of the contracts were for projects in the exploration stage, Amexhi said.
For this reason, production is not the only metric by which the success of the contracts should be measured, the group said, citing that the exploration periods for the projects range from two to eight years.
Authorities also should take into account the addition of hydrocarbon reserves, acquisition of geophysical data, fulfillment of work plans, and income generated for the state, Amexhi said.
“The big winner of the oil rounds is Mexico,” Amexhi said, citing that the industry already has transferred $11 billion to the government as a result of the contracts.
Upstream regulator Comisión Nacional de Hidrocarburos (CNH), meanwhile, has approved upstream work plans calling for $37 billion of investment by the contract winners.
“Considering these benefits, we can conclude that the rounds have been an important complement to the activities and investment of Pemex, guaranteeing that the state does not assume risks in exploration -- where the global success rate averages between 20-30% -- nor losses under any circumstance,” Amexhi said.
Private sector operators in Mexico “have broken records in terms of execution times” between the awarding of contracts and the drilling of wells, the report said.
Amexhi said the contracts have resulted in new discoveries, such as the Zama shallow water reservoir, and the booking of new reserves at existing fields.
The three contracts awarded through the Round 1.2 process in 2015, for example, now boast 1.043 billion bbl of 2P (proved plus probable) oil reserves, 3.4 times the areas’ estimated amount when they were awarded in 2015.
The 2P reserves of the Ogarrio and Cárdenas-Mora contracts, operated by Wintershall DEA GmbH and Cheiron Holdings Ltd, respectively, have “increased by 25 million bbl, reversing the decline that had been observed since 2011.”
Pemex ceded operating stakes in Ogarrio and Cárdenas-Mora through the farmout tenders.
The third Pemex farmout stake pertains to the Trión ultra-deepwater field in the Gulf of Mexico’s Perdido Fold Belt, where Pemex joined forces with Australia’s BHP.
BHP, which holds a 60% operating stake in Trión, said in November that it expects to invest upwards of $5 billion at the project, with potential first production in 2025.
In its 2019-2023 business plan, Pemex pledged to reach natural gas output of 4.916 Bcf/d and oil production of 2.7 million b/d by end-2024, up from 3.74 Bcf/d and 1.64 million b/d in October, respectively.
Experts have expressed widespread skepticism of these goals, however.
Independent energy analyst Eduardo Prud’homme said recently that, in the best-case scenario, gas production five years from now will stabilize at current levels.