Mexico’s last deep-water offering in January, before July’s presidential election, saw the government award 19 out of 29 contracts on offer in three deep offshore areas. Of those, nine went to Shell, either alone or in partnership with other bidders. The total prospective investment under the tender neared $100bn, as modifications to the tender terms made the round the most successful to date.
“We’ve seen more pragmatism in the Mexico leasing process,” says Julie Wilson, head of global exploration research at consultancy Wood Mackenzie in Houston. This, she adds, is in line with similarly increased flexibility from Latin America’s other large rising oil producer, Brazil.
It remains to be seen whether that pragmatism continues, as newly-elected Mexican President Andrés Manuel López Obrador has indicated his administration will review Mexico’s energy reforms following his inauguration in December.
Mexico’s next deep-water exploration tenders have already been postponed until February 2019. New deep offshore programmes under the tender have yet to begin, but expectations are high. Significant shallow-water discoveries have already been made under the energy reform tenders. Shell believes geological insights obtained from its Whale discovery in the US Gulf of Mexico—not far from the blocks it won in January—suggest very favourable prospects for the blocks it obtained in the latest Mexican auction. Shell’s signature bonuses in the round were reportedly $343m, or 65% of the total winning signature bonuses.
Output set to rise
Offshore prospects are expected to add significantly to Mexican oil production. According to the BP Statistical Review of World Energy, the country produced only 2.2m barrels a day of oil in 2017, down from a peak of 3.8m b/d in 2004, and output has reportedly continued to fall this year. Some analysts estimate that total output from new discoveries could add over 1.5m b/d to current production levels.
On the US side of the Gulf of Mexico, Chevron and Total early this year announced a major find on their Ballymore prospect, showing 670ft (204 metres) of net pay. Shell’s and Chevron’s Whale discovery reportedly features more than 1,400ft (427 metres) of net pay and recoverable reserves of up to 700m barrels. According to the US Energy Information Administration, seven new deep-water fields are expected to come on stream this year, and a further three in 2019. The EIA expects US Gulf of Mexico oil output of 1.7m b/d in 2018 and 1.8m b/d in 2019, up from 1.65m b/d in 2017.
“In the US, the interesting thing is the change in the mix of players,” says one analyst. She notes that many larger US independents, including Marathon Oil, Noble Energy and Anadarko Petroleum, have been focussing on onshore activity.
Activity in the deep US Gulf is split between major oil companies and independents specialising in such plays such as LLOG Exploration and Kosmos Energy, which this month agreed to acquire Deep Gulf Energy Companies from private equity firm First Reserve.
Analysts say cost-reduction measures have included improved project management, which involves simultaneously undertaking many actions that previously were done sequentially. Such moves have made deep-water plays competitive with onshore US plays, where many exploration and production companies are concentrating their resources. But analysts point out that much depends on reservoir quality and infrastructure availability.