Collaboration needed to meet Mexico’s hydrocarbon ambitions

May 24, 2019
While there hasn’t been a dramatic change for the energy industry in Mexico since President Andres Manuel Lopez Obrador took office in 2018, progressive collaboration between the industry and country regulators is needed to fulfill the country’s hydrocarbon ambitions.

While there hasn’t been a dramatic change for the energy industry in Mexico since President Andres Manuel Lopez Obrador took office in 2018, progressive collaboration between the industry and country regulators is needed to fulfill the country’s hydrocarbon ambitions.

Before his election, Lopez Obrador had been critical of energy-law reform, made by outgoing President Enrique Pena Nieto, that opened Mexican exploration and development to private and foreign investment.

Participants of a panel discussion on Mexico May 22 at the Association of International Petroleum Negotiators International Petroleum Summit in Houston said concerns about plans had recently been assuaged, but that challenges remain.

Gabriel Gomez, Murphy Oil Corp.’s Mexico country manager said that after the election, then President-elect Lopez Obrador “softened the speech a little bit,” assuring oil and gas executives that existing contracts would be honored. A year ago, companies wondered if they’d remain in the country, he said, and now, regulators are looking for results.

Regulators have been flexible, allowing companies to continue operations, but production isn’t going to meet expectations, he said. Noting current activity consists of appraisal wells, “development plans are years away,” he said.

In February, Murphy drilled Cholula-1EXP in deepwater Block 5 Salina basin as operator with partners Petronas, Wintershall Dea, and Ophir Energy (OGJ Online, May 7, 2019). The well discovered 185 ft net hydrocarbon pay, validated the block potential, and derisked the Upper Miocene play in the southeast corner of the block, according to the company. Additional exploration is planned for 2020.

Mexico’s 2.5 million boe/d production goal is ambitious, panelists agreed, requiring a 1 million boe/d increase in deep water and sizeable investment, said Kartik Mutnuri, Shell’s Mexico exploration manager. For comparison, Murnuri noted, the US Gulf of Mexico spent $80 billion over 6 years to increase production by 600,000 b/d. Current capital investment in deepwater Mexico is under $1 billion/year with some uptick expected in coming years, he said.

For its part, Shell plans to move quickly to execute its Mexico portfolio. Over the next 2-3 years, said Mutnuri, the company plans to drill some 10 exploration wells. In early 2018, Shell Exploracion y Extraccion de Mexico SA de CV dominated Mexico’s Round 2, Phase 4, picking up nine key blocks—four on its own, one with partner Pemex Exploracion y Produccion, and four with partner Qatar Petroleum International Ltd. (OGJ Online, Feb. 1, 2018).

Panelists agreed that while collaboration appears to be ongoing, challenges—including administration budget cuts and the preservation of the independence of regulators—remain. The biggest change, as well as the biggest challenge, said Javier Zambrano, former chief executive officer of Jaguar E&P—a company incorporated to pursue onshore opportunities provided by Mexico’s energy reform—is that companies expected additional bid rounds for acreage. Without them, “the industry will not develop as fast as it should.”