Mexico: Reassurance Or Uncertainty?

Italian major Eni (E) received approval this week for a $7.49bn development of the Amoca, Mizton and Tecoalli fields offshore Mexico, and the first such approval since the election of the new administration under President -elect Andres Manuel Lopez Obrador (Amlo).  Last week, Amlo unveiled his plans to boost the country’s energy sector, with $4bn set aside for state operator Pemex to drill new wells in 2019, and with the goal of increasing production by 600,000bbl/d over the next two years. Also included are plans to build a new refinery and rehabilitate six existing refineries, but no reference was made to the fate of future bid rounds, which he pledged during campaigning to pause and review.

Mexico’s National Hydrocarbons Commission (CNH) has indeed delayed two upcoming bid rounds due this autumn to February 2019, intimating it would give companies more time to consider the blocks on offer. Round 3.2 for onshore acreage had generated interest from 12 companies that initiated the process for pre-qualification, while only Pemex signed up for the onshore unconventional Round 3.3. Delaying the process until after Amlo is sworn-in in December could generate more interest if the industry is reassured by the direction of the new government, however it is also prolonging the uncertainty generated by the electoral campaign. The focus on refineries has also been criticised, with Moody’s warning that investment in refinery development would divert funds currently earmarked for increasing oil and gas production.

107 contracts have been signed since the previous administration opened up the sector to investment as part of its 2013 Energy Reform. Following on from the initial shallow water bid rounds in 2015, international companies were quick to get to work, with appraisal drilling underway by 2016. As a result, Eni has this week received approval for its development plan for Amoca, Mizton and Tecoalli, with first oil due from an early production scheme at Mizton in Q1 2019. Pan American Energy’s development plans for Hokchi were approved earlier this year, while Fieldwood Energy is expected to submit its plans for Ichalkil in the coming months. Meanwhile, the first non-Pemex exploration well in over 80 years was drilled in 2017 by a JV including Premier Oil, and discovered 400-800mmbbls. Premier will drill a Zama appraisal well in Q4 2018, while Pemex will also drill an appraisal well, Asab-1, in Q3 in an adjoining block. This activity has all been focused in the shallow waters of the Sureste Basin. By the end of the year, this will switch to the deepwaters of the Perdido fold belt where the geology is expected to be similar to that seen in the US Gulf of Mexico. BHP is expected to drill an appraisal well on the Pemex discovered Trion field, while Total is planning to drill its Etzil prospect, targeting significant unrisked resources of almost 2.7blnbbls.

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