Mexico’s oil and gas regulator said last week that the country’s proved hydrocarbon reserves will drop by 10.6 percent in 2017. This forecast, coupled with the lower oil production that state company Petroleos Mexicanos (Pemex) reported for yet another year in 2016, is painting a rather bleak picture of Mexico’s reserves.
Without resumption in investments and more drilling, and if no significant finds occur, Mexico will be running out of reserves within 9 years, according to an official from the National Hydrocarbons Commission.
However, the energy reform that ended Pemex’s monopoly and allowed foreign companies to invest in Mexico’s oil exploration and production is expected to start yielding results by the end of this decade. The deepwater bidding round last December attracted major international oil companies, and Mexico awarded blocks to consortia including Chevron, Exxon, Statoil, BP, Total, and China Offshore Oil Corporation.
In addition, the analysts are now largely calling the end of the downturn and expect deepwater investment to pick up in coming years.
Mexico’s National Hydrocarbons Commission said last week that as of January 1, 2017, the country’s proved oil and gas reserves are estimated at 9.16 billion barrels of oil equivalent, down by 10.6 percent from the 10.243 billion boe as of the beginning of 2016. Proved oil reserves were down 7.9 percent to 7.037 billion barrels from 7.641 billion barrels estimated as of 2016.
In its 2016 results release, Pemex reported crude oil production of 2.154 million bpd last year, down by 5 percent over 2015, mostly due to natural declines of a number of producing fields.
According to the EIA, Mexico’s crude oil production has been steadily dropping since 2005 as a result of natural production declines from Cantarell and other large offshore fields.
Surely, the oil price slump has not helped Mexico’s output either, and has complicated the energy reform that the country started implementing in 2013.
But now, steadier prices and new projects involving international oil companies are expected to start offsetting declines after 2020, according to the International Energy Agency (IEA). Related: Is An Iraqi Production Slowdown Inevitable?
Projected crude oil production bottoms out at under 2 million bpd towards 2020 and then rises as the reform efforts bear fruit, new projects – notably deepwater developments – start operation and higher oil prices improve profitability, the IEA said in its Mexico Energy Outlook last year.
Mexico is already seeing its first international offshore drilling success, after Italy’s oil major Eni said last month that the first well drilled by an international oil major in Mexico since the 2013 reform “indicates a meaningful upside to the original estimates”.
A Rystad Energy analysis from last month compares the potential of the Brazilian and Mexican E&P markets to attract foreign investment. According to Kjetil Solbraekke, Head of Rio Office at Rystad Energy, currently planned exploration activity in Mexico and Brazil point to increased capex in both countries, and “numbers indicate that Mexico can reach the same level of investments as Brazil in 15 years.”
In addition, Rystad Energy says that “there are reasons to believe that the exploration play types are fairly similar in Mexico as they are in the U.S. There is also reason to believe that the discoveries might be in the same range as in the U.S. and more or less of similar productivity.”
Potential discoveries aside, the deepwater drilling industry is emerging leaner and more cost-competitive from the oil price slump, according to a Wood Mackenzie report from last week. Global deepwater project costs have dropped by 20 percent since 2014, WoodMac has estimated. The energy consultancy reckons that “the playing field between tight oil and deepwater is about to get a lot more level”, with deepwater breakevens pushed down, while cost inflation is “back with a vengeance” in tight oil projects. Related: Saudi Arabia Alters Oil Pricing To Attract European Buyers
According to the IEA’s Mexico outlook report, the main source of future growth in crude production is projected to come from deepwater fields.
So Mexico’s hopes for offsetting production and reserves decline are pinned on higher oil prices, the landmark energy reform, and the international oil majors resuming deepwater investment after the downturn.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Is An Iraqi Production Slowdown Inevitable?
- Oil Jumps On Growing Support For OPEC Deal Extension
- When Will Russia Run Out Of Oil?
No need to go searching for reserves when battery production capacity can replace reserves for less than $1/boe.