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Mexico Oil & Gas News from DIT

Mexico Oil & Gas News from DIT

27 July 2017

The latest oil & gas and marine highlights on the Mexican market from the DIT.

Round 1 yields first large scale dividend: massive discovery in Zama-1 well

On July 12, a consortium led by Talos Energy and conformed by Premier Oil and Sierra Oil & Gas made a large discovery in Zama-1 well. This wildcat drill has been described by a range of sources as "one of the 20 largest shallow-water fields discovered globally in the past 20 years”.

To put this in perspective, Zama is currently believed to be as twice as big as Trion - the first ever deepwater PEMEX farm-out, for which investment is estimated in $11 billion USD.  The development of Zama-1, however, will not be as expensive as Trion since shallow water resources are more easily accessible. Light oil 3P reserves are envisaged to be around 1.4 and 2 billion barrels of oil equiva¬lent.    

Mexico to become 30th member of the International Energy Agency    

In June, the governing board of the International Energy Agency (IEA) approved Mexico’s adhesion to the group. This implies that Mexico will now have full access to policy advise and technical assis¬tance from the IEA experts and member countries.

The Mexican senate has not ratified the agreement yet, but this topic will become one of the head¬lines of the agenda when legislative sessions begin. Fatih Birol, head of the IEA, acknowledged Mex¬ico’s progress in the implementation of the Energy Reform and praised member countries for their willingness to support Mexico’s adhesion.  

Energy Reform keeps moving forward: Results on Round 2.1, 2.2 and 2.3

Round 2.1 (shallow water blocks)

The National Hydrocarbons Commission (CNH) tendered 15 Production Sharing Agreements for shallow water blocks; 10 were awarded to more than 10 companies from around the globe. Accord¬ing to the Ministry of Energy (SENER)  investment for these areas is estimated in $8 billion USD. The CNH announced these blocks contain between 66 and 426 million of barrels of oil equivalent (mboe) on 3P reserves. Exploration will require at least four years and development three more. Commercial production will consequently begin by 2021, at the earliest.

Total and Shell won one block containing humid gas, whereas Capricorn, a Cairn Energy company was awarded three blocks in different consortia. PEMEX presented one successful bid for light oil blocks with DEA Deutsche and another with Ecopetrol. Other successful companies were PC Cari¬gali, Citla Energy, Repsol and Sierra Perote.

Round 2.2 (onshore blocks)

In both Round 2.2 and 2.3, the CNH tendered onshore fields in the States of Tamaulipas, Nuevo Le¬ón, Veracruz and Tabasco.

For Round 2.2, CNH awarded 7 out of 10 blocks tendered, with wet gas being the predominant re¬source. Mexican company Jaguar E&P, in consortium with Canadian company Sun God, had a re¬markable participation by obtaining six of the seven awarded licenses. The remaining block was allo¬cated to Iberoamericana de Hidrocarburos in consortium with Servicios PJP4.

Round 2.3 (onshore blocks)

In Round 2.3, CNH tendered 10 blocks and 100% of them were awarded. Again, Jaguar E&P won four blocks and Iberoamericana de Hidrocarburos two, respectively. Chinese company Shandong, in partnership with Sicoval and Soluciones Energéticas, was awarded  licenses for two blocks, whereas Mexican company Newpek, subsidiary of Grupo Alfa, was entitled to the remaining two licenses.

These results are a tangible proof that the Energy Reform is moving forward and that the industry network of stakeholders is becoming increasingly vigorous. This not only gives more certainty to the long term presidential mandate of raising oil & gas production in Mexico, but is also leading to the creation of a competitive market stemming from a previously monopolized industry.  

CNH announces Round 2.4: second tender for deepwater licenses

The CNH has announced the second tender for deepwater blocks in the Gulf of Mexico. The opening of proposals will take place on January 31 2018. CNH will tender 30 deepwater blocks containing estimated 3P reserves of 4.2 barrels in an area of 7,844 square kilometres. The Mexican government envisages investments above $31.5 billion USD, with an average of $4.5 billion USD per area award¬ed.

As in previous onshore and deepwater tenders, Round 2.4 contracts will be awarded under a license model. As an attempt to avoid red-tape, companies that prequalified for Round 1.4 will be automati¬cally prequalified for 2.4 if technical and financial requirements are still met.  

Upstream: Mexico implements the "Pick Your Block System” (PYBS)    

To enhance and promote interest and participation in Mexico’s recently opened upstream sector, CNH has implemented the PYBS, whereby participants can formally request the CNH to auction a specific block or field. "Picked blocks” are to be auctioned at the earliest following bidding Round called by CNH.

Through the PYBS, CNH has put up for auction the entire portfolio that Mexico is willing to offer dur¬ing the next  five years; consisting of 509 and 82 fields. Interested companies will have access to all available information on the entire portfolio upon request, so that each company will be able to identi¬fy projects that are aligned with their technical and financial profiles.