Deepwater exploration appears to be the focus of major investments in Mexico in Q3. As state-controlled oil company Pemex focuses on easy-extraction shallow water projects, private players set their sights on deepwater alternatives. International companies are seizing the opportunity to explore Mexico’s reserves, with two exploration projects from Shell and one from China National Offshore Oil Corporation (CNOOC). According to Mexico's National Hydrocarbons Commission (CNH), exploration of deep and ultra-deep waters accounted for 45% of investments and 80% of reserves in the last quarter.
Companies drilled 33 new wells, 30 of which were by Pemex, in Q3; with CNH approving 14 new wells. The deepwater exploration saw an investment of $117.2 million from Shell Xochicalco and $91.6 million from CNOOC. According to CNH, Ameyalli holds 1,318 million barrels of oil equivalent (BOE) and Xochicalco holds 562 BOE, totalling 80 percent of the authorized prospective resources for exploration for the quarter.
In a panel discussion from June this year, Bud McGuire, COO at Alpha Deepwater Services, explained that due to the unexplored nature of Mexico’s deepwater, the exploration success ratio is very high. However, he highlights the fluctuation of the price of oil and gas and the political environment in Mexico as potential barriers to this exploration.
Aside from these developments, an investment of $207.4 million was seen in land projects, around 38 percent of total investments, and $92.4 million in shallow water, equivalent to 17 percent.
The investments come after a rocky start to the year as production stagnated at 1.67mbpd and exports declined significantly in the first two quarters of 2020. Due to the Covid-19 pandemic and a general decrease in demand. In 2020, for gasoline, Mexico could be as much as 120,000 barrels below 2019 levels. For diesel, there is an expected demand decrease of around 80,000 barrels.
A 2018 election pledge by President Lopez Obrador, known in Mexico as AMLO, to increase Mexican crude production to 2.6mbpd by 2024 is looking increasingly unlikely based on these recent figures. The market slump brought about by Covid-19, as well as the impact of several tropical storms on Mexican Gulf exploration, is making AMLO’s promise appear ever more distant.
Pemex continues to be the largest explorer of the Mexican Gulf, accounting for 112 of the 130 new wells drilled in the first three quarters of 2020. By moving to focus on shallow water projects, the company is aiming to extract crude more rapidly and economically.
The government continues to use anticompetitive practices to maintain Pemex’s market share, Alejandra Palacios, head of Cofece, the Mexican antitrust watchdog, said in a webinar on 6th November. Palacios explained how Pemex uses regulatory discrimination to maintain its market position, including delaying permits. With apparently 600 permits in the gasoline, diesel and jet-fuel markets currently pending approval from Mexico’s Energy Regulatory Commission. There have been several complaints to the Mexican regulator surrounding these practices and the lack of competition in the Mexican market.
However, with Pemex moving to explore shallow water, leaving private companies to develop projects in the deep and ultra-deep waters of the Mexican Gulf, there is hope for greater discoveries and greater market competition in the coming years.
By Felicity Bradstock for Oilprice.com
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