The Future of Deepwater Oil Exploration in Mexico

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Mexico faces challenges not only in a lack of deepwater infrastructure but in bringing together the nation’s financial interests with promising bidding near fiscal terms.

Combined with a lack of Petroleos Mexicanos (PEMEX) funds, technological know-how, technical complexity of reservoirs and long lead time on deepwater projects, low production has resulted from Mexico’s deepwater exploration so far.

Mexico’s deepwater is much more underexplored compared to the U.S. in of the Gulf of Mexico, according to analysis by global energy consultancy group Wood Mackenzie. In the U.S., more than 1,200 deepwater exploration wells have been drilled, while fewer than 35 exploration wells have been drilled in Mexico’s deepwater.

These numbers come as a surprise since Mexico has so much potential for deepwater exploration. 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.

There are tactics that could increase Mexico’s deepwater exploration such as a floating production, storage and offloading vessel (FPSO) which is a more cost-effective alternative to building pipelines. An FPSO already is in use in the shallow water Gulf on the Mexican side. No need to cut the red tape for development.

Mexico’s Round One deepwater phase is anticipated to be critical to ensure the country has production sources in the near future and can attract majors and large companies needed. 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.

There has been talk that large oil and gas companies, particularly Asian exploration and production companies, are 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 Mexico analysts at Wood Mackenzie Pablo Medina and Matt Blomerth said.

There have been additional rumors that the award of the ten blocks being offered will take place in this year’s fourth quarter, 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 along with six blocks that are also closer to where deepwater exploration has already occurred and are expected to produce both oil and gas.

Article written by HEI contributor Aliyah Cole.

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