The first semester of 2020 brought challenges to organizations and industries across the world. While COVID-19 and the subsequent economic downturn led many companies to shut their doors, the twin crises inspired others to innovate and explore.
For operators working offshore Mexico, activities and strategies developed during 2019 and 2020 have positioned them for success in 2021.
Discoveries During the Pandemic
In May 2020, Repsol Mexico SA announced two deepwater oil discoveries: Polok-1 and Chinwol-1, in Block 29 of the Salinas Basin in the southeast Gulf of Mexico near the Veracruz and Tabasco states.
An international consortium led by Repsol Mexico SA (Spain), operating in partnership with PC Carigali Mexico Operations (Malaysia), Wintershall DEA (Germany) and PTTEP México (Thailand), was the first to announce significant oil discoveries in Mexico deepwater areas awarded during the 2.4 bid round in early 2018.
Tomás Zapata, director of exploration-Americas at Repsol, said the discoveries represented a victory, not only for exploration, but also for successful operations during a global pandemic.
“The wells were completed in less time and at a lower cost than initially planned, and operations maintained the highest safety standards and under strict health protocols implemented to prevent the spread of COVID-19 at both the onshore and offshore facilities,” he said.
Polok-1 reached a total depth of 2,620 meters and discovered more than 200 meters of net pay. Chinwol-1 well, with a total depth of 1,850 meters, more than 150 meters of net pay.
A Great Place to Explore
Zapata said that the variety of opportunities available makes Mexico’s offshore attractive for explorers.
“(In Mexico) you can find multiple play types ranging from near field to frontier basin opportunities, so you can build a very comprehensive portfolio,” he said.
Zapata added that the hydrocarbons found so far point to enormous potential in the basins.
“Several billion barrels (more than 17) have been discovered in the Salinas shallow water alone, and the deep water is still open for more,” he said.
For Zapata, the basins have varying degrees of potential given the current business environment and operating conditions.
“At this moment the Sureste (Salinas) Basin stands out as having the most attractive opportunities because they are the ones that potentially could be developed relatively quickly. The Perdido fold belt needs to be further assessed, and the Cordilleras remain as the frontier,” he said.
Repsol and partners operate six licenses offshore Mexico: two in the Burgos Basin bordering the United States, two in Mexican Ridges in the mid-Gulf of Mexico and two in the Salinas Basin in the southeast.
Plans for 2021
Repsol’s 2021 drilling program is focused on Salinas, where the company plans to drill appraisal wells at Polok and Chinwol and explore additional opportunities in the basin.
“The discoveries have opened the door to allow us to expand what we’ve learned so far to other near field opportunities, particularly in Block 29,” he said.
The company plans to drill two wells in Block 29 with the Stena IceMax during the second quarter of this year.
Benefits of Near Field Exploration Offshore
Zapata acknowledged that, though offshore exploration can be risky and expensive, it continues to be important both for energy companies and the countries where they operate.
“(Offshore projects) still produce value and bring new cash flow, especially in near field opportunities,” he said.
Zapata noted that projects with a quick turnaround are key to helping Mexico increase production over the next five years, and creating opportunities for both for PEMEX, the national oil company, and for independent operators.
“We have to focus our exploration activities in areas where we can bring the discoveries onstream relatively quickly, within a short period of time,” he said.
Development in Ultra-Deep Waters
While Repsol eyes near field opportunities, Australia-based BHP is working on appraisal and development of the massive Trion field located in the ultra-deepwater Perdido fold belt of the Gulf of Mexico near the Mexico – U.S. border.
PEMEX discovered Trion in 2012, and BHP acquired a 60-percent participating interest and operatorship in March 2017 as part of Mexico’s 1.4 bid round. Pemex continues to hold 40-percent interest in the field, whose gross recoverable resources are estimated to be approximately 485 MMboe.
BHP’s Stephan Drouaud serves as director of the Trion Project and is responsible for delivering the first deepwater oil and gas development in Mexico’s history.
Navigating the Current Business Environment
Drouaud recognized that the past year has been a challenging one for the energy sector, both globally and in Mexico.
“The COVID-19 pandemic caused a fall in the oil price in 2020, and that has impacted the oil and gas business. Oil and gas companies, both international and national oil companies, had to adjust their business plans to the new market conditions and mainly reduce capital investment to protect cash flow. Mexico is no exception,” he said.
He added, however, that the same business environment that creates challenges for operators also brings opportunities for investment.
“The low oil price environment is also creating opportunity for investment as cost escalation for equipment and services is limited, while major engineering, procurement and construction contractors and fabrication yards have capacity due to the reduction in major capital investment,” he said. “Another positive impact of the current environment is that it is forcing the industry to really focus on value optimization with the objectives of increasing the resilience of investment to low commodity prices.”
Drouaud noted that megaprojects like Trion, which are big and risky investments, need certainty in order to protect the value of the investment.
“The regulatory and legal environment is dynamic and changing in Mexico. A stable regulatory and legal environment is key for the O&G industry,” he said, “We are monitoring key regulatory and policy changes that could impact the value of Trion and are willing to work with key stakeholders to share our concerns on the potential impact of these decisions on development.”
Hope for the Future
Drouaud noted that, in addition to the investment opportunities created by the current business environment, he sees positive signs that oil price will recover over the next few years as demand grows to the pre-pandemic level or above. All these signs bode well for Trion and for BHP, he said.
“BHP is looking at growth opportunities and Trion, which will produce for the next for 30 to 40 years, is a strategic fit for our company. We have made a commitment to invest in Mexico and BHP is committed to Mexico for the long-term,” he said.
“We believe that our business plan supports PEMEX and the Mexican government’s plan to increase production over the next few years, and that we will be supported by all the key stakeholders in Mexico as we move forward through the Trion phases of investment and execution,” he said. “At BHP, building longstanding, sustainable relationships with our partner is an integral part of who we are as a company, and we are proud to have built a trusting and collaborative relationship with PEMEX and a fully integrated best-in-class team for Trion.”
Benefits for Mexico
Drouaud said that developments like Trion not only help to reach Mexico’s production goals, but also will provide a boost to Mexico’s energy sector and overall economy.
BHP’s license agreement generates revenue for the government through contract fees, royalties and taxes and creates jobs through supply chain expansion and through the field’s development and operation. Independent operators like BHP also benefit the country through knowledge transfer and through educational and social programs.
“BHP has also committed to transferring technology with the objectives of developing deepwater capabilities within PEMEX and the oil and gas industry in Mexico,” he said. “In addition, IOCs are committed to creating long-term social value through scholarships and support for local programs in the communities where they operate.”
BHP and Repsol are two of 10 operators to be featured at AAPG’s inaugural Mexico Offshore Exploration Summit taking place virtually on April 21.
The executive-level event organized by AAPG’s Latin America and Caribbean Region highlights results of recent exploration campaigns and reviews strategies for 2021 and beyond. The program includes panel discussions and interactive Q&A with operators and special presentations by Mexico’s National Hydrocarbon Commission and the Mexican Hydrocarbon Association.
Other operators participating include PEMEX, Chevron, Shell, Total, BP, Eni, Fieldwood and Murphy Oil.
Zapata plans to discuss Repsol’s experience accelerating the appraisal and development of discoveries during his panel discussion.
“We will share our view about how to fast track a discovery into production using current technology and knowledge of a productive basin,” he said. “We also look forward to hearing other operators’ experiences and points of view.”
Drouaud said he is looking forward to participating.
“It is an honor to be invited to this forum and being able to participate in this important industry event in Mexico,” he said. “We are delighted to share the progress we have made so far on Trion, share our experience working in Mexico and how we could generate wealth in the country through our investment.”
For a program schedule and additional information about the Mexico Offshore Exploration Summit see aapg.to/mexico2021.