Deep promise in shallow waters

 By Peter Ward

In 2014, Mexico took a gamble. It ended a 76-year-old state monopoly over the energy sector and allowed foreign and private investment into the industry. The hope was to invigorate the country’s oil and gas sector, to benefit from international expertise and help the economy prosper…

When the government made the decision to bring in the international players, it estimated that by 2018 the move would create 500,000 new jobs, increased oil production by 20 percent, upped gas production by 20 percent, and add a whole point to GDP growth.
Mexico’s oil output was 2.159 million barrels per day in 2016, and the country set a production target of 1.944 million barrels per day for this year. That’s relatively small pickings in the context of the whole world but now major international firms are drilling in Mexican waters, the gamble to let them in appears to have paid off.

Initial auction disappointment

In July 2015, the country began auctioning off exploration blocks in the Gulf of Mexico. Initially, not as many companies as the country would have liked were interested, but after some encouraging results this year, everyone is starting to pay more attention, and those companies that gone in on the action early have found themselves with real gems.
The Mexican side of the Gulf of Mexico is relatively untouched compared to American waters, despite the area being geologically similar. This is mainly because of the monopoly enjoyed by Petróleos Mexicanos, or Pemex. That means there are shallow waters still unexploited. Shallow water oil is cheap to extract, especially when it’s close to the shore.
In 2015, Eni was awarded a block in Mexico’s shallow waters and in July this year the company successfully drilled and tested a well in the shallow waters of Campeche Bay, a 6,000 square foot bay which is surrounded by the Mexican states of Campeche, Tabasco, and Veracruz. The well is found at 25 meters of depth and was drilled to 4,330 meters. The drilling found that there was more than 1 billion barrels of oil present, more than was previously estimated.

Eni's Alleygheny platform in Gulf of Mexico

An accelerated plan

Following the discovery, Eni submitted an accelerated development plan, which would look to produce 30,000 to 50,000 barrels of oil per day, and a start of operations planned for early 2019.
“We are very pleased with the results of our exploration and appraisal campaign in Mexico which demonstrates the validity of our design to cost exploration approach. The Amoca field, which is located at a water depth of only 25 meters, represents an optimal opportunity for a phased development approach with a low breakeven,” Claudio Descalzi, Eni CEO, said.
“It is an ideal project in this low oil price environment. Eni’s objective is to become the first international company to establish operating production in Mexico, which would be the first tangible success of the country’s important ‘Reforma energetica’ campaign.”
A separate project involving a consortium of companies, including Premier Oil, Talos Energy and Sierra Oil and Gas, also discovered a field containing more than 1 billion barrels of oil in shallow water just 40 miles off the Mexican coast. “We believe this discovery represents exactly what the energy reforms intended to deliver: new capital, new participants and a spirit of ingenuity that leads to local jobs and government revenues for Mexico.” Tim Duncan, President and Chief Executive Officer of Talos said.

Eni's awarded blocks in the Gulf of Mexico

A new round of bidding

Since the first auction disappointed, a number of companies have successfully moved into Mexico. The country’s National Hydrocarbons Commission (CNH) has run eight oil auctions to date, and has awarded 72 exploration and production contracts to more than 60 companies. These contracts are expected to generate almost $61 billion in investment.
Next year the CNH will host three more auctions, including a shallow water auction in March. There will also be a deepwater auction in January and one of onshore projects at some point during the year. The two offshore auctions will offer up 64 blocks in total, which account for more than 65 percent of Mexico’s estimated resources, according to Reuters.
Mexico’s shallow waters are an ideal resource. They are underdeveloped, easy to access and full of promise. Opening up a country’s oil and gas to outside development is always a large step, but the country and its people stand to benefit for years to come.

READ MORE: Heading to offshore Mexico by Peter Ward

about the author
Peter Ward
Business and technology reporter based in New York. MA in Business Journalism at Columbia University Journalism School 2013. Five years experience reporting in the U.S., the U.K., and the Middle East.