Mexico has long been in the world’s top 10 in terms of oil production. For years, that was buttressed from the massive flows from one huge gusher: the Cantarell field. At one point Cantarell was one of the largest oil fields in the world, by some estimates second only to Saudi Arabia’s Ghawar.
Production originally started at Cantarell in 1979. But after several decades of producing well over 1 million barrels per day, Cantarell began to decline. Mexico’s state-owned oil firm Pemex undertook nitrogen injections to keep up pressure, and that worked for a while. The company managed to boost production in the early 2000s, with output hitting a peak in 2004 at 2.1 million barrels per day.
But since then, production from Cantarell – which has been the core of Mexico’s oil production – has gone into swift decline.
A Turnaround is Here
However, the Mexican government has gone to great lengths to repair its flagging oil sector and stop the hemorrhaging. The monumental energy reform package pushed through by President Enrique Peña Nieto, while controversial, could attract the international investment needed to turn things around.
And just as the first major auctions are set to kick off, a dramatic announcement was made that couldn’t have come at a better time.
Pemex announced on June 10 that it had succeeded in discovering a major new oil field in the shallow waters off Mexico’s Gulf…
Mexico has long been in the world’s top 10 in terms of oil production. For years, that was buttressed from the massive flows from one huge gusher: the Cantarell field. At one point Cantarell was one of the largest oil fields in the world, by some estimates second only to Saudi Arabia’s Ghawar.
Production originally started at Cantarell in 1979. But after several decades of producing well over 1 million barrels per day, Cantarell began to decline. Mexico’s state-owned oil firm Pemex undertook nitrogen injections to keep up pressure, and that worked for a while. The company managed to boost production in the early 2000s, with output hitting a peak in 2004 at 2.1 million barrels per day.
But since then, production from Cantarell – which has been the core of Mexico’s oil production – has gone into swift decline.


A Turnaround is Here
However, the Mexican government has gone to great lengths to repair its flagging oil sector and stop the hemorrhaging. The monumental energy reform package pushed through by President Enrique Peña Nieto, while controversial, could attract the international investment needed to turn things around.
And just as the first major auctions are set to kick off, a dramatic announcement was made that couldn’t have come at a better time.
Pemex announced on June 10 that it had succeeded in discovering a major new oil field in the shallow waters off Mexico’s Gulf Coast. The field could be produced in a short time period, bringing up to 200,000 barrels per day online in less than two years. Half of that production would come from a field in the Campeche Sound, and the other half from a field in Litoral de Tabasco.
Pemex’s CEO says the collection of fields that it has stumbled upon could hold as much as 350 million barrels of oil equivalent and the discovery could be the largest in half a decade.

That could be just the beginning for a new era for Mexico’s oil sector. Let’s take a look at some of the most promising regions that international companies are poised to bid on and develop in the coming months and years.
Bay of Campeche
Maybe it shouldn’t come as a surprise, but the Bay of Campeche – home to the Cantarell, as well as three-quarters of Mexico’s overall oil production – still holds a lot of promise. That is where Pemex just made its most recent discovery, which it says was made possible because of improved seismic data. For all the excitement surrounding some of Mexico’s untouched regions, a lot of the potential still lies with the Bay of Campeche, Mexico’s bread and butter. The shallow water fields still hold a lot of oil.
Perdido Fold Belt
But one of the more intriguing spots to look out for is the Perdido Fold Belt, a deepwater offshore play in Mexican waters near the U.S. maritime border. Offshore drillers are excited about this one because the geology is similar to some major offshore oil fields on the U.S. side of the border. There wouldn’t be much of a learning curve (more than normal that is) for international companies to move a few hundred miles south into Mexican waters. There are a little under 30 rigs on the U.S. side, and only 4 in Mexico, a quirk that demonstrates not geological shortcomings, but simply political barriers.
And there is every reason to believe that Mexico is blessed with the same oil that the U.S. has long developed. In 2012 Pemex scored a major discovery at the Trion field, which could hold between 250 and 500 million barrels of oil. The discovery has generated a lot of interest, but Pemex has been unable to take on the project alone. It is seeking international partners to provide the much needed capital to develop the field, which could cost as much as $8 billion.
In January 2014, Pemex also discovered oil with the Exploratus well, which could hold 150 to 200 million barrels of oil.
“Practically in all the areas, with the exception of the Trion farm-out, we want to be the operators,” a Pemex official said in late 2014. “In the deep water is where we want technology, experience and capital in a partner. In Trion, we don’t want to be the operating partner.”
Royal Dutch Shell (NYSE: RDS.A) is the likely partner here for both Trion and Exploratus. Shell’s Perdido platform, the world’s deepest, is on the US side of the Perdido Fold Belt. If Shell ends up developing Trion, it will be operating close to its existing operations.


ExxonMobil (NYSE: XOM) also has a major project – South Hadrian – in US waters nearby. In addition, Chevron (NYSE: CVX) is close to the border and would be interested as well. All of this existing infrastructure will make it much easier to develop deepwater Mexican oil.
Burgos, Tampico-Misantla
If you head southwest from the Perdido Fold Belt and hit the shore, there is potential for oil and gas. The Tampico-Misantla basin is Pemex’s next largest oil producing region after the Bay of Campeche. Tampico accounts for about half of the onshore shale potential in Mexico. The US Geological Survey estimates that region holds somewhere around 776 million barrels of shale oil, but the upside potential is much bigger.
A partnership between Pemex and Schlumberger (NYSE: SLB) is currently conducting 3D seismic surveying in order to get a better handle on the unconventional assets.
North of Tampico is the Burgos Basin, another highly sought after area for its potential shale reserves.
Burgos and Tampico are thought to have similar geology to their American neighbors in the The Eagle Ford and the Barnett Shales.
Obstacles
Mexico recently revised some of its auction terms in order to attract more investment, particularly from smaller players. It will auction off 26 sections in the Burgos and Tampico-Misantla basins. But for now, the onshore assets will likely take a back seat to the shallow and deepwater sections, which hold out the promise of a much bigger payday. Mexico plans on auctioning off shallow water fields first, with the first round in July.
The obstacles to development are a lot smaller than many might think, particularly when compared to other more speculative plays around the world that we look at from week to week. Mexico is a known quantity to some extent. The terrain is similar, if not entirely familiar. Companies have a large presence just across the border. To the extent that drillers can leverage some of the infrastructure in the U.S., that should help speed things along.
Mexico has finally opened up its oil sector and has made the financial terms much better. However, that is the biggest stumbling block at this point – the results of the first auction will reveal a lot about whether or not companies think of the government’s offers are sufficiently attractive.
Conclusion
Mexico has a lot to sort out. But it is much farther along than skeptics might have thought a few years ago. With energy reform finalized, it is now down to implementation and proving that it was all worth the trouble. Pemex’s recent discovery will add a huge dose of momentum for the country’s oil fortunes, raising the eyebrows of corporate executives on the sidelines who are considering getting in. We’ll find out more in a few weeks after the first auction round closes.