Analyst highlights Mexico’s energy reform accomplishments

May 16, 2018
Mexico has managed not only to attract interest from a broad range of companies but is also poised to reverse years of declining production by the early 2020s, according to Wood Mackenzie.

Offshore staff

HOUSTON/EDINBURGH/SINGAPORE – Mexico has managed not only to attract interest from a broad range of companies but is also poised to reverse years of declining production by the early 2020s, according to a new report by Wood Mackenzie.

In 2013,Mexico initiated historic reforms to open its energy industry for the first time in 75 years.

Matt Blomerth, Head of Latin America Upstream at Wood Mackenzie, said: “In less than five years, Mexico’s energy reform has dramatically altered the country’s upstream landscape and production outlook. These significant accomplishments are all the more impressive given this occurred during an historic oil price downturn.

“The most immediate sign of the reform’s impact has been the flourishing of a diverse upstream landscape. Leading exploration and production companies have been drawn by the country’s hydrocarbon prospectivity and competitive fiscal terms, fostered by a government that has listened to industry concerns.”

Across the country’s eightlicensing rounds held to date, more than 80 blocks have been awarded. More than 30 E&P companies, ranging from supermajors and foreign national oil companies to regional independents and new local operators, are now active in Mexico’s offshore.

Blomerth said: “The E&P companies entering Mexico’s offshore bring the financial capacity and technological expertise the country needs to fully realize its hydrocarbon potential.

“Limiteddeepwater drilling in Mexico has left many play types underexplored. Subsalt plays have only recently begun to be explored aided by new seismic data and advanced interpreting techniques. New players will bring a fresh pair of eyes to some of Mexico’s most promising hydrocarbon prospects – a change from PEMEX’s historical focus on single-play concepts.”

PEMEX’s legacy offshore activity has delivered some of the largest shallow-water discoveries ever made. Yet it also left the national oil company little impetus to explore deeper or riskier plays, leaving much of Mexico’s offshore unexplored.

In the future, Mexico’s offshore exploration will likely center on clastic play types, resembling the primary target in the US Gulf of Mexico for decades. As a result, the country will benefit from the transfer of geological play knowledge and technologies pioneered and perfected in the US. The potential here is already evident through theZama discovery in 2017.

More importantly, the fields coming onstream are anticipated to halt years of declining production by the early-2020s. Leading the charge will be the four shallow-water assets awarded duringRound One in the Salinas Sureste basin – i.e. Zama, Hokchi, Ichalkil-Pokoch, and the Amoca complex.

According to theComisión Nacional de Hidrocarburos, Mexico’s regulatory agency, billions of barrels more await discovery. The agency estimates 19 Bboe of prospective resources in Mexico’s deepwater.

The Trion joint venture withBHP and PEMEX, Mexico’s first-ever deepwater JV, is expected to pump more than 300 MMbbl of production starting in the mid-2020s.

Blomerth said: “Future deepwater discoveries will take longer to come online and will ultimately hold the key to pushing Mexico’s production back to sustained growth into the next decades.

“However, in the interim Mexico’s treasury will get relief by faster-turnaround production from shallow water fields. We expect production decline to halt by early next decade before starting the long climb upward.”

Although Mexico has made incredible progress over the past few years, the analyst claims, it will take more time for the benefits of the energy reform to come to full fruition. With upcoming presidential elections, Mexico’s energy future is at a crossroads.

Blomerth said: “Strong government backing has underpinned success thus far. The level of interest in recent rounds suggests that companies remain committed to Mexico despite near-term political uncertainty.

“Nonetheless, sustained government support by the next administration will be needed to help Mexico reach sustainable production growth faster and increase revenue for the country earlier.”