Mexico's Deepwater Future Must Balance Gov't Revenues, Bidding Terms
Believing the future of Mexico’s production lies in its deepwater acreage, Mexico must ensure that it attracts oil and gas majors needed to establish a private Mexico exploration and production (E&P) sector. But Mexico faces challenges not only due to a lack of deepwater infrastructure, but in balancing the nation’s financial interests with attractive bidding round fiscal terms.
Wood Mackenzie expects Round One’s deepwater phase to be critical not only for Mexico’s government to ensure it has future production sources for Mexico in the medium term, but also attracting majors and large companies needed.
Mexico’s deepwater is underexplored compared to the U.S. side of the Gulf of Mexico, according to analysis by Wood Mackenzie. On the U.S. side, more than 1,200 deepwater exploration wells have been drilled, while fewer than 35 exploration wells have been drilled in Mexico’s deepwater. Wood Mackenzie estimates Mexico’s deepwater Sabinas-Rio Grande basin to have a yet-to-find resource range of 15 to 20 billion barrels of oil equivalent.
As a result of a lack of Petroleos Mexicanos (PEMEX) funds, technological know-how, technical complexity of reservoirs and long lead time on deepwater projects, no production has resulted from the deepwater exploration done so far. Producing Mexico’s deepwater oil and gas would likely have to be done through a floating production, storage and offloading vessel (FPSO) – or through a standalone development such as a spar – as building pipelines to bring production onshore would be cost-prohibitive. An FPSO already is in use in the shallow water Gulf on the Mexican side, so operators wouldn’t face red tape in using this development solution, according to Wood Mackenzie.
The current low oil price environment makes selling exploration opportunities difficult, and the government faces a challenge in maximizing government revenue while ensuring fiscal terms for bidding are attractive, Pablo Medina and Matt Blomerth, Mexico analysts at Wood Mackenzie, told Rigzone. The Mexican government has incorporated lessons from previous Round One phases for the deepwater phase by increasing block sizes, allowing acreage nomination by industry and establishing an investor-friendly fiscal regime.
Large oil and gas companies, particularly Asian exploration and production companies, are expected to be interested in Mexico’s deepwater round. Many Asian E&P firms are looking for reserves and having a stake in a major deepwater project, either as a partner or an operator, Medina and Blomerth said.
According to rumors, the award of the 10 blocks being offered will take place in this year’s fourth quarter or in early 2017, Medina and Blomerth said. Four Perdido blocks in this area, not far from existing discoveries on the U.S. side, are being offered in the deepwater bidding round. The four Perdido blocks being offered are oil-prone; the other six blocks being offered are located further south, closer to where deepwater exploration has already occurred, and are expected to produce both oil and gas.
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