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Oilfield Technology
June
2016
Mexico
Mexico offers themost intriguing opportunities in all of Latin America.
Under President Enrique Peña Nieto, federal reforms have eliminated
Pemex’s monopoly. Oil firms are being allowed to participate in
exploration and production, as well as direct private investment in
midstreamand downstream sectors. The potential is huge; in addition to
10 billion bbls of proven crude reserves (and 2.3million bpd production)
the country has over 17 trillion ft
3
of proven gas reserves. Also, the
unconventional oil and gas revolution that has taken place in Texas
extends across the Rio Grande into Mexico; the EIA estimates that the
country may hold as much as 555 trillion ft
3
of recoverable shale gas.
Mexico has already held several lease auctions. Participation in
the first round was relativelymuted (partly due to low oil prices, and
partly due to growing pains at CNH, the federal agency overseeing
privatisation), but the action has picked up. Mexico has awarded three
out of five offshore production sharing contracts in the second round,
and all 25 blocks of producing, land-based assets were picked up in the
third round.
Still to come later this year; bidding rounds for shale oil and gas
fields, as well as 10 deepwater blocks in the Gulf of Mexico. Four of the
blocks are located adjacent to the prolific Perdido Fold Belt, in which
majors such as Shell and BP have developed a host of prolific fields.
Analysts estimate that the Mexican portion of the belt could hold
15 - 20 billion bbls of recoverable oil.
Pemex, which will continue to be the dominant player in Mexico’s
O&G sector for many years to come, faces significant challenges. After
years of functioning as the federal government’s piggy-bank, it is now
strapped for cash. In addition to US$100 billion in corporate debt, the
company also owes US$7 billion to service providers. It has scrambled
to cut costs, including deferring US$4 billion in capital projects and
US$1.6 billion in efficiencies. In addition, it is negotiating with its 100 000
unionmembers to control labour costs.
Regardless, Moody’s downgraded the oil behemoth’s credit rating to
two rungs above junk. Industry observers are concernedwhether it will
be able to access sufficient capital tomeet its host of JV and deepwater
exploration commitments under the newopen regime. Others are
speculating that the oil giantmay be forced to divest itself of significant
upstream, midstreamand downstreamassets in order to avoid insolvency.
On the plus side, Mexico is taking corruption allegations seriously,
putting in transparent O&G regulations and policies. The federal
government is committed to reversing the downward production trend
for both oil and gas, and increasing revenues.
And, thanks tomodern seismic, Pemex has also discovered four new
shallow-water oilfields off Tabasco and Campeche states, holding as
much as 350million recoverable boe. They are the first major discoveries
in the post-reformperiod, and could add as much as 200 000 bpd of
crude output in a relatively short time span.
Mexico hopes to eventually reach 3.5million bpd production by
2025. Analysts estimate that it would take annual O&G sector investment
of US$15 billion, or US$150 billion in total, to reach that target. While no
one doubts there aremany challenges ahead, the country can be lauded
for the immense reforms that have already been successfully achieved,
withmanymore to come.
Colombia
Colombia serves as a shining example of how a country can turn its O&G
sector around. During the late 1990s, a lack of investment, hostilities with
FARC guerrillas, and a generally hostile attitude toward international
investment had cut the country’s 990 000 bpd output in half. Following
a series of fiscal and regulatory changes in 2003 under the Uribe
government, the sector was opened up to privatisation. Since then,
investments exceeding US$5 billion annually have resulted in a rise
in production to 1million bpd, with themajority of new production
earmarked for export to the US, China and Europe.
Even with the current low commodity price regime, Colombia
continues tomake headway. Petrobras made a significant gas discovery
in the country’s deepwater Caribbean Sea. Ecopetrol and JV partner
Anadarko discovered a nearby natural gas field in their shallowwater
Fuerte Sur block. The exploration well, situated 53 kmoffshore,
encountered up to 70mnet pay of porous sandstones. Geopark
discovered heavy oil in its Jacana prospect near the large Tigana oilfield
in the Llanos basin. The Jacana 1 exploration well flowed 1880 bpd of
15 API gravity oil. A second well flowed 1100 bpd of 30 API oil froma
different formation.
Resistance groups like FARC remain a problem, however. Attacks
upon pipelines have exceeded 100 annually for the last several years,
eliminating approximately 45 000 bpd through unplanned production
outages. In March, US Secretary of State John Kerrymet with FARC
representatives in Havana in order to facilitate talks, but until peace
negotiations succeed, industry observers expect production growth in
Colombia to slow significantly.
Argentina
Argentina’s ham-fisted approach to theO&G sector over the last decade
has resulted in destructive consequences. Production has fallen from
over 900 000 bpd in 1998 to current levels of 523 000 bpd, and gas from
4.5 billionft
3
/d in 2007 to 3.5 billionft
3
/d. The nationalisation of Repsol’s
subsidiary YPFwas a particularly egregious blow; in 2012, President
Cristina Fernandez de Kirchner seized control of the busiest explorer in the
country.
A bright note in Argentina’s favour is its unconventional potential.
The EIA estimates that the country could contain up to 774 trillion ft
3
of recoverable shale gas and 21 billion bbls of shale oil, mostly in
the Vaca Meurta formation in the Neuquen basin in western-central
Argentina.
Even with the nationalisation of YPF, several international players
have stepped in to invest. Sinopec has partnered with YPF to explore a
region in the western Argentine province of Mendoza. The US$300million
JV includes 3D seismic surveys, wildcat wells and the refurbishment of
existing infrastructure. German-basedWintershall plans to drill up to six
horizontal wells in its Neuquen province block to test the potential of the
Vaca Muerta.
By early 2016, the Vaca Muerta was producing 50 000 boe/d (mostly
oil). YPF and Chevron aremajor JV players, accounting for more than
90%of the production. Low crude oil prices have put some of their
exploration plans on hold, but work is underway to reduce costs per well
fromUS$16million to US$10million. YPF estimates that it will take up to
US$200 billion in oil shale investments to reverse the country’s declining
oil production.
Although below-ground prospects are good, the political and financial
realms remain uncertain. President Kirchner has been replaced by
MauricioMacri (who ran on a platformof economic reform), butmassive
debts, lowgrowth and a stunted economy remain. Argentina has taken
some steps to encourage international investment; a newpolicy features
a reformed bidding process, more numerous offshore licensing rounds,
longer exploration periods and tax exemptions to companies that invest
more thanUS$250million over a three year period.
Argentina’s offshore potential, which couldmatch Brazil’s, has been
complicated by an ongoing feud with the UK. In 2015, the Argentine
government filed a suit against five energy companies that are drilling
near the Falkland Islands, including UK’s Rockhopper Exploration,
Premier Oil and Falkland O&G, as well as US company Noble Energy and
Italy’s Edison International. An Argentine judge subsequently ordered
the seizure of assets totalling US$156million (Most of the companies
