With private operators now able to explore in Mexican waters the region is readying itself for a burst of activity, writes Selwyn Parker
In July 2017, Talos Energy made the first discovery by a privately-owned oil and exploration company in Mexico’s history. The Houston-based independent found a substantial field known as Zama-1 offshore that is expected to yield between 1.4Bn and 2Bn barrels of oil equivalent in a long-running operation that will help keep the offshore support industry busy for years.
A fleet of drillrigs, semi-submersibles, jack-ups and floating production and support vessels among others are being steadily contracted to these waters in the Gulf of Mexico as the country launches a belated push for hydrocarbons.
The discovery followed the Mexican government’s reforms of the energy sector four years ago that allowed private operators into its territorial waters for the first time. Until then, state-owned Pemex had sole exploration and production rights. But the historic 70-year monopoly held by Pemex is now very much over as Talos and a score of other operators launching activities off these shores.
Following its discovery, Talos is due to mount an extensive drilling programme in the Zama area in late 2018, using Ensco’s 8503 rig. First oil is expected in 2022, heralding the arrival of many support vessels around this time, as other exploration and production companies follow similar timetables.
The Zama find, which may contribute as much as 10% of Mexico’s total oil production by 2024, is part of a scramble by other privately-owned operators for Mexico’s black gold, albeit in profit-sharing arrangements with Pemex. At current estimates there are enough reserves to keep the support industry going for decades. Aside from oil, the country’s gas reserves alone are some of the richest in the world. According to government figures, there is about 17Trn cubic feet of proven natural gas waiting to be exploited.
Premier Oil contracted the Ensco drillrig in the Zama field (image Premier Oil)
Wave of interest
The decision to permit international energy companies to operate in Mexican waters has unleashed a wave of interest that is gathering momentum. In 2017, a total of 107 companies won bids on development blocks offered by the National Hydrocarbons Commission, the main government agency for the industry. “The Pemex budget [about US$14Bn in 2018] and significant investment from these bids make the upstream oil and gas sector attractive for growth over the next few years,” predicts Mexico’s export ministry.
“Now the offshore support industry is pouring into these waters; fields have been sold off, contracts signed with the government”
That means the prospects for the support industry are extremely rosy. “Significant oil reserves have been documented in Mexico, which will drive investments from the private sector and offer US companies opportunities, either as project developers, operators, contractors, sub-contractors, or suppliers of equipment and/or technology,” according to the ministry.
As the majors such as BP, Chevron, ExxonMobil, Italy’s Eni, America’s Marathon Oil and Russia’s Lukoil join mid-sized exploration and production companies, like the American groups Murphy Oil and Premier Oil, Australia’s BHP Billiton, Colombia’s Ecopetrol and Pacific Rubiales, Japan Oil and Japan Petroleum, there are lucrative opportunities for the global offshore fleet.
In the appraisal phase, drillrigs such as the Ensco 8503 will be in high demand. Drillships are deployed mostly for exploratory work in new oil and gas wells located in deep water, which will be the main activity in these new fields for the next two or three years. A proprietary design, the Ensco 8503 is a semi-submersible designed to operate in waters 7,500 feet [2,280 metres] deep or more and can drill as low as 37,500 feet [11,430 metres].
In a well-timed move, in October the UK’s Ensco established a merger with America’s Rowan Group, another offshore specialist whose ultra-deepwater drillship, the Rowan Renaissance, has been contracted by Total to drill up to three wells in Mexican waters over a minimum period of 60 days. The Renaissance will be moved to Mexico in early 2019 from offshore Louisiana where it has been warm-stacked since ending a contract for Spain’s Repsol in late 2016. Built in 2014, the drillship is capable of drilling wells to depth of 40,000 feet [12,100 metres] in waters up to 12,000 feet [3,650 metres] deep.
According to Rowan’s latest report on the status of its fleet, the Renaissance is the only drillship being deployed to Mexico for the moment. But it is unlikely to be the last, given the rapid increase in activity there. Rowan’s merger with Ensco creates a giant pool of assets that include ultra-deepwater drillships, versatile semi-submersibles, and a range of jack-ups, some of which are certain to be put to work in these waters.
Already one of the largest oil producers in the world, with production running in 2017 at 2.1 mbpd, Mexico largely relies on its hydrocarbons. Last year it exported 212M barrels of heavy crude to the US, most of which came back as refined products. In 2017, oil accounted for nearly a third of total government revenues. The general consensus of organisations such as the OECD, IMF and International Energy Agency is that Mexico must become much more independent of imported oil by developing its own reserves. In 2018 the country will spend about US$7.14Bn on imports, considered by many as far too much. The current energy reforms are intended to reverse a drastic decline in oil production over the last 15 years.
Despite fears that new president Andres Manual Lopez Obrado and his National Regeneration Movement would reverse the 2013 reforms, it seems he will abide by them. His four main priorities for the energy sector include a boost in domestic oil and gas production, something that Pemex has finally accepted it cannot do by itself.
Pemex offshore vessel in Mexican waters
Land of opportunities
Now the offshore support industry is pouring into these waters; fields have been sold off, contracts signed with the government - the international industry is moving in and achieving quick results.
Talos Energy may have been the first private company to drill for oil in Mexican waters, but it is not the first to operate there. Diversified oilfield services group Petrofac can claim that accolade, starting operations in the Arenque field 30 km offshore from Tampico, a city and port in the south-east of Tamaulipas. As early as 2012, two years before the energy reforms took effect, the American company struck a deal with Pemex. Petrofac thus became the first foreign company to operate a shallow-water field in Mexico for more than 70 years.
A multi-faceted operation, Petrofac has now been engaged in sub-surface, drilling and related work for six years. But in another indication of the fast-rising interest in offshore Mexico, in late 2018 Petrofac cashed in 49% of its operations, including the Arenque field, in a deal with Perenco, the Anglo-French exploration and production company. In a sign of the industry’s new-found optimism about offshore Mexico, Perenco chief executive Benoit de la Fouchardiere described Mexico as “a land of opportunities, a new play, a new country and an exciting new challenge for Perenco.”
Justifying Perenco’s faith, the new entrants are discovering oil where reserves were thought to have been depleted. One such place is Campeche Bay, a bight in the southern area of the Gulf of Mexico. A vast bay of 16,000 square kilometres, with a maximum depth of just 180 feet, its five oil fields were rated in 2003 as some of the most productive in the world. Operated by Pemex, they supplied about two third of Mexico’s entire crude output before running steadily dry in the ensuring years.
However, in mid-2017 Italy’s Eni discovered resources of an estimated 1Bn barrels of oil equivalent in the Amoca field in Campeche Bay. Since then, Eni has doubled its estimates to 2Bn barrels on the basis of more exploration below the seabed. Even better for the support industry, the discoveries were made in accessible water depths of just 25 m. Speaking at the time, Eni chief executive Claudio Descalzi said, the shallowness keeps down the cost of production, making it “an ideal project in this low oil price environment”.
Companies such as Eni are bringing new skills and equipment into Mexican waters. Although the seabed is just 25 m below the surface, the hydrocarbons were found at depths of 4,330 m, a testimony to current drillship technology. Eni is still drilling in Campeche Bay and hopes to make further important discoveries.
The Italian group is in a hurry. It plans to start full-scale operations in early 2019 and beat all the other newcomers into production. Eni’s objective is to become the first international company to establish operating productions in Mexico in a way that would justify the country’s energy reforms, said Mr Descalzi.
Most of the black gold though may lie in the deeper waters largely avoided by Pemex until now. That is where most of the offshore support contracts will be handed out. For comparison, US federal waters in the Gulf of Mexico host no less than 2,350 platforms, while just 50 wells have been drilled in Mexico’s territorial waters.
Meantime the energy reforms have given the international offshore and exploration industry the confidence it needs to invest in Mexico. As Pemex chief executive Carlos Trevino Medina, who has been assiduously wooing the majors and mid-sized independents, told an international forum in September: “I believe that the reforms… will continue to bring great benefits to Mexico.”
Fuel thieves target oil industry employees
The new investment in Mexico’s oil and gas industry brings with it security risks for the offshore support industry. Violent and organised fuel-thieving gangs, dubbed ‘huachicoleros’ target employees for intelligence they can use to identify when deliveries are to be made. Armed with this information (among other things), they steal the gasoline, usually by tapping Pemex’s pipelines, and sell it at a heavy discount. As an investigative report by Reuters noted earlier this year, employees of Pemex refineries have been threatened, tortured and even killed by the gangs.
But the fuel-thieving continues, despite assurance by new Pemex chief executive Jose Antonio Gonzales, who believes the state-owned oil group is getting on top of the problem. In 2017, the federal auditor reported that incidences of unauthorised taps had risen nearly five times between 2011 and 2016. Most of the trouble has occurred in the city of Salamanca, but it appears to be a general problem that puts oil and gas employees at risk.