Editor's column

In August, Mexico’s National Hydrocarbons Commission delayed the date of its next deepwater auction by a month to January 2018 to give companies more time to study the acreage on offer. Although postponing bid rounds is usually taken as a sign of lack of interest by private firms, the opposite is true in Mexico. Discoveries announced over the past few months have validated Mexico’s historic energy reform effort and may propel the oil industry there to reverse years of decline.

In a sector hampered by the downturn in oil prices, Mexico’s offshore has emerged as a bright spot. In July, US independent Talos Energy, Sierra Oil and Gas of Mexico, and Premier Oil of the UK announced one of the largest shallow-water finds of the past 20 years. The block, located off the coast of Tabasco state, holds an estimated 1.4 billion to 2.0 billion bbl of oil. The find, which came with Talos’ first exploration well, was the first since Mexico began auctioning off onshore and offshore properties in 2013. The block found up to 650 ft of oil-bearing reservoir of light crude around 28–30 °API. That same month, Italian major Eni announced the discovery of the shallowwater Amoca field in the bay of Campeche, which it said holds 1.3 billion BOE, of which 90% is oil. It is fast-tracking the development with hopes to produce from 30,000 to 50,000 B/D of 25–27 °API crude in early 2019. Consultancy PIRA Energy expects the discoveries to add up to 200,000 B/D of crude production, and believes they are economic at a $50/bbl oil price, but not for at least another decade.

Although deepwater and perhaps unconventional reserves hold the most promise for reviving Mexico’s oil sector, the country does not have a lot of time. Years of blocking the private sector out and underfunding the state oil company Pemex have taken their toll. The country’s oil and gas output is down 40% from its peak; oil production is 2.0 million B/D compared with its peak of 3.4 million B/D in 2004. That led the government to finally open the entire oil and gas sector to private money, but the reform launch could not have come at a worse time. Oil prices soon lost more than half their value, severely curtailing companies’ exploration budgets.

But the discoveries of Talos and Eni have breathed new life into Mexico’s upstream and attracted the interest of independents and supermajors. That is in contrast to the early bid rounds, which attracted only light participation. To date, seven auctions have been held—three covering onshore, three for shallow offshore, and one for deep water. Pemex has also negotiated farmout agreements with private firms. Another three are scheduled for next year. The key will be interest in the January auction. Thirty deepwater oil and gas blocks will be up for bid in areas thought to be potentially lucrative. Mexico’s deep water has been off limits to private firms and barely explored by Pemex. If resources there are anything like those found in the neighboring US Gulf of Mexico, the country’s upstream sector may become one of the globe’s offshore bright spots.

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