Mexico City — Mexico's Pemex announced March 18 it has discovered over 1.2 billion boe of oil and natural gas in an onshore complex in the state of Tabasco, near the site where the company is planning to build a new refinery.
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The complex, named Francisco J Mugica, comprises three main reservoirs -- Dzmipona, Valeriana and Racemona -- where Pemex has struck mainly condensate and gas, Pemex CEO Octavio Romero Oropeza said during a ceremony that coincided with the anniversary of Mexico's expropriation of foreign oil assets in 1938.
The discovery is the third in the administration of President Andres Manuel Lopez Obrador, and will contribute to reducing the drop in the country's reserves, Romero Oropeza said.
The complex is expected to produce 289,000 b/d of crude and 1 Bcf/d of gas through 33 wells by the end of 2021, according to a Pemex presentation at the event. Pemex expects crude output from the complex to rise to 323,000 b/d in 2023, and total Pemex crude output to reach 2 million b/d at the end of 2021.
"Mexico will increase its gas production and start generating 60% of the gas it consumes by 2023," Romero Oropeza said, adding that he expects Mexico to produce 4.287 Bcf/day by 2023.
"1.2 billion boe of recoverable resources is certainly large and being onshore has advantages regarding costs to develop and timing to get it on production. We would need to see details on well productivity, crude quality and the split between oil and gas," said Rene Santos, analyst at S&P Global Platts Analytics.
Platts Analytics expects Mexico's oil production to remain at around 1.7 million b/d for 2021 and 1.75 million b/d for 2022.
It is possible the 1.2 billion boe estimate will be revised lower, as has happened in the past.
The CEO listed the improvements that have been made at Pemex during the current administration and reiterated Mexico's commitment to process all the crude produced in the country by 2024 to stop importing fuels.
Mexico imports the bulk of its refined products as its refineries operate well below capacity. In January, Mexico produced 260,000 b/d of gasoline while importing roughly 400,000 b/d, data from the Energy Secretariat shows.
"We have been able to lower the extraction cost by over $2/b mainly through savings and efficiencies, and we have been able to supply our refining system with light crude that was previously imported," he said.
RENEWING TULA COKER PROJECT
Romero Oreopeza also said Pemex plans to revive a coker project at the Tula refinery located near Mexico City in Hildalgo.
Lopez Obrador, speaking at the event, reiterated that Pemex's 230,000 b/d Dos Bocas refinery project, which is currently being constructed in Tabasco, will be completed by June 2022. Lopez Obrador also said the government would take on $6.4 billion of Pemex's debt, which currently totals over $100 billion.
Despite government efforts to stabilize Pemex operations by injecting roughly $17 billion in the last two years, the state oil company has been unsuccessful in increasing its crude production.
During 2020, the company managed to keep output close to 1.6 million b/d, but consistent underinvestment in exploration has led to a dramatic drop in the country's reserves from almost 45 billion boe in 2001 to less than 16 billion boe in 2020, according to the National Hydrocarbons Commission.
When coming to power in late 2018, president Lopez Obrador canceled the upstream auctions that had attracted foreign investment in the sector after over seven decades of monopoly in an attempt to strengthen Pemex. The reluctance to bring in private capital has remained despite the huge investments needed to develop the resources available in the country.
LACK OF PRIVATE INVESTMENT
Some companies have been "gun shy" because of the policies of Lopez Obrador, who took power in December 2018, Chris Mylde, senior vice president of corporate development at Sproule, a Canada-based energy consulting firm, said at a March 17 energy outlook webinar hosted by the Institute of the Americas.
Even so, the opportunities are palpable, he added.
"There is no question that the resource is there and if you are prepared to be patient and play the long-term game in Mexico, there is money to be made," Mylde said.
He added that there is a lot of "unfulfilled potential" in Mexico. While there are short-term hurdles, he said that in the long term "Mexico will be forced into making some decisions about what works and what doesn't" in terms of the energy reform. That's because the number of discoveries and some of the momentum of the energy reform has been stalled, he said.
"That is going to swing the pendulum back to a better point and a better policy environment going forward," Mylde added, without estimating by when. "Mexico will come good ultimately."
"Pemex has identified 20 priority opportunities that they are trying to develop. The company has been doing a remarkable job in trying to continue and pushing for an exploration model for development both onshore and offshore," Jorge Milanese, regional director for Latin America at Sproule, said at the webinar. "It is plainly evident there is so much to be done in Mexico that the role of private companies is definitely very, very important. There is enough space both for the national company and the private companies to continue adding value in Mexico."
Milanese said that one opportunity is to increase gas output to feed the local market, helping to replace imports from the US.
The key to attract private investment is for the Mexican government to have "the will to create the right conditions in order to do that."