Assessing Mexico’s geological potential

Heather Saucier examines the potential of deepwater plays to be auctioned in Mexico’s next offshore round, including the most prized area in the Perdido Fold Belt.

Shell’s deepwater Perdido spar in the US Gulf of Mexico. Photo from Shell.

So far, Mexico’s Round One oil auction, which has included shallow offshore blocks in the Gulf of Mexico, has not made a big splash among international investors. In fact, just five of 19 shallow-water blocks have been leased to date, according to the National Commission of Hydrocarbons (CNH) of Mexico.

Is this a sign that international operators are skeptical to enter territory that has remained unknown to everyone except for the country’s national oil company, Pemex, for the last 77 years?

The short answer is: No. Investors are likely waiting for the Mexican government to open 10 deepwater exploration blocks for bids – a move expected in Q3 2016 – that will include four blocks on the Mexican side of the Perdido Fold Belt.

The geology of the Perdido Fold Belt, which has been partially developed on the US side, is understood in great detail by the majors and super majors that have developed unparalleled deepwater drilling expertise there. A move into the Mexican Perdido Fold Belt is not as risky, geologically speaking.

“It is a mistake to think of the Gulf of Mexico as the same on both the US and Mexican sides once the Gulf opened sufficiently to establish independent petroleum systems. The exception is the Perdido play,” says Dan Bendig, a geologist and director of Consulting at IHS in Houston. “This play extends from the US into Mexico. It is a proven play and will be the hot play for Round One.”

Even at times when oil hovers around US$30/bbl, most majors are likely willing to gamble that by the time they are ready to produce from Mexico’s deep waters, prices will be on the uptick again. “The price now is irrelevant compared to when the oil comes onstream,” Bendig says.

The US government has long said that the Mexican side of the Gulf of Mexico is resource rich. Now that Mexico is opening up its geological vault, it is validating US estimates in many cases.

“The Mexican side of the Gulf of Mexico has the most prolific offshore plays,” says Alfredo E. Guzmán, a geologist and director for Exploration and New Ventures, Mexico, for Casa Exploration, a former executive with Pemex, and former commissioner for the CNH. “Comparing the density of exploratory wells in the Northern Gulf and in the Saline Basin in the South to the well density in the Campeche area, it is clear that there are hundreds, if not thousands, of untested opportunities.”

Installation work at Pemex’s Ayatsil. Photo from Pemex.

Mexico’s offshore geology

Of the seven Mexican geologic basins assessed for conventional and unconventional resources by Pemex, the deepwater Gulf of Mexico basin, which includes the Perdido Fold Belt, contains the greatest amount of undiscovered resources with a mean of 27.1 billion boe.

In fact, Pemex charts no cumulative production in this basin, as it has lacked the capital and technology needed to explore and operate in water depths of 2800m and deeper, Guzmán says.

In this oil-rich basin, “It’s going to be interesting to see who’s going to grab Perdido,” Bendig says. “Anadarko, BP, Statoil, Chevron and Shell – there’s not a lot of companies that are able to operate in deepwater.”

Pemex soon may be able to explore its deep waters as well under Mexico’s new energy laws, which were enacted after the country’s 2013 constitutional amendment that put an end to the nationalization of oil and gas in the country. “Pemex will be able to partner and/or do farm-outs to reduce risk and exposure,” Guzmán says.

The Sureste Basin, which includes the offshore province of Campeche, boasts Mexico’s largest and most exploited offshore oilfield – Cantarell – to date. Despite the fact that Pemex has been exploring in this area for more than 50 years, Pemex contends that it still holds a considerable amount of undiscovered resources, with a mean of 16.8 billion boe.

“Pemex has done a good job finding what is there,” Bendig says, speaking of the heavily explored areas. “Now, it will be an exercise in extending the field’s life. This could be attractive to companies who have the technology needed for EOR (enhanced oil recovery).”

Considering that only a handful of the more than 600 fields – many of them offshore – discovered in Mexico have been subject to EOR, Guzmán says that much room exists for specialized companies to participate in future projects.

The Sureste Basin also includes the Salina del Istmo and Comalcalco provinces, which were part of the Round One bidding process for shallow water exploration blocks. Three of five extraction blocks that contained relatively modest fields were leased to small and mid-sized companies – with the exception of Eni – and are considered to have the lowest engineering risks and production costs, Bendig says.

“We will see operators drilling wells there and building platforms,” he adds. “It is great fodder for smaller companies. It’s cheaper to drill in shallow waters.”

Guzmán also points to the Tampico-Misantla Basin as an area with healthy potential. According to Pemex, it contains 2.4 billion boe that should be relatively easy to explore because of its geology.

Rather than pursue this basin, Pemex put its offshore exploration efforts into the Campeche and onshore Sureste basins after the 1970s because the wells were more productive and the return on the investment was better. “As a result, the Tampico-Misantla still holds a lot of potential. There will be important discoveries made there,” Guzmán says.

Map of US and Mexico producing fields. Image from IHS.

Other areas of interest are in the deeper waters of the Gulf in the Campeche-Sigsbee Salt Basin, an area described as “exciting” by Christopher Schenk, a Denver-based geologist who has overseen the US Geological Survey’s (USGS) South American and Caribbean assessments for nearly 20 years.

With an estimated mean of 2.8 billion bo, according to the USGS, this underexplored and relatively unknown basin could be a new highlight on Mexico’s unfolding geological map.

“There could be a lot of potential around the salt structures, as they can form ideal traps for oil and gas,” Schenk says.

He adds that there also might exist the potential for a sub-salt play.

“Companies are shooting spec seismic there now, so we will have to wait and see,” Bendig says. Having already looked at a few 2D seismic lines, Bendig says the geology appears similar to that of north Arkansas and north Louisiana – the northern flank of the Gulf of Mexico Basin.

“A play should exist conceptually,” he says. “But production here will be years down the road.”

Guzmán says the Campeche area has “little relation” to the United States’ producing plays in the Gulf of Mexico, which predominantly come from reservoirs formed in the Mississippi Delta. “But, there is still huge potential in the Saline Basin where the subsalt has not yet been explored,” he says.

Gas, and a future, in the making

Surveying the Ayatsil project, which is near the historic Cantarell field. Photo from Pemex.

“If there is anything that is overlooked in Mexico, it is the offshore gas potential,” Schenk says. “And, it’s in all the basins.”

In fact, Mexico is in the process of building a 45mi pipeline to an onshore gas conditioning plant to transport gas from the Lakach Field – discovered by Pemex in 2007 – in the deepwater offshore of the Veracruz Province. The field, the first deepwater project for Pemex, is estimated to hold proven and probable (2P) reserves of 850 Bcf of gas.

Potential for gas also exists in the Mexican Cordilleras of the Western Central Gulf, Guzmán says.

While some plays are currently being developed, some will no doubt remain on hold until the price of oil looks upward again.

“There aren’t that many offshore plays available around the world,” Bendig says. “This is one of the few that’s there, and that’s good. But it’s very challenging in this price environment.”

When adding up Mexico’s offshore potential, the USGS estimates a mean total of 19.3 billion bo. “It’s not Saudi Arabia, but it’s pretty good.” Schenk says. “It’s a considerable amount of resource no matter how you look at it.”