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Shell official outlines obstacles facing producers exploring Mexican waters

The portion of the Gulf of Mexico under Mexican control holds great potential for oil and gas production, but many obstacles to success remain, a Royal Dutch Shell PLC executive said May 22.

Speaking during the AIPN International Petroleum Summit in Houston, Shell Exploration Manager for Mexico Kartik Mutnuri described the hurdles his company is facing as it attempts to begin producing offshore Mexico. That country's private hydrocarbon production segment is still in its infancy, and exactly what foreign companies will find in the Mexican section of the Gulf is undetermined. Still, the success producers have experienced in the U.S. portion of the Gulf has made Shell optimistic.

"It's largely unexplored across the deepwaters of Mexico," Mutnuri said. "The U.S. Gulf of Mexico keeps delivering. There's new discoveries every year."

Shell has purchased 11 blocks in the Mexican portion of the Gulf, nine of which are in deepwater. Mutnuri said Shell's portfolio "covers the entire offshore of Mexico," including blocks that are an extension of the Perdido spar operated in U.S. waters.

"There's a lot of technical knowledge there," Mutnuri said.

Mexican oil production has been in a long-term decline, dropping from more than 2.5 million barrels per day in 2013 to just 1.6 million bbl/d earlier this year. The administration of President Andrés Manuel López Obrador wants to see that trend reversed, but doing it will not be easy.

"You need a significant amount [of new production] to come from deepwater, about a million barrels per day," Mutnuri said. "It costs you about $12 billion to $15 billion a year to get to this level. Right now, deepwater investment in Mexico is about $1 billion. That's a big gap."

Newly arrived offshore producers will face the dual challenge of learning about the geology of their regions while dealing with a government that is ambivalent at best. Foreign companies have found themselves frustrated not only with the heated rhetoric of López Obrador — who campaigned against opening Mexico's oil and gas resources to foreign investment — but also with a regulatory authority still struggling to get on its feet.

"In the U.S. Gulf of Mexico, there's a lot of uncertainty. The uncertainty is caused by the subsurface [geology]. In Brazil, the uncertainty is caused by fiscals. In Mexico, the uncertainty is a combination of both," Mutnuri said.

Even with those significant uncertainties, Shell and other companies believe that they can work with Mexico to produce profitably. Patience will be required, as will a willingness to work together.

"It's going to take collaboration of companies … across the industry and with the regulator," Mutnuri said.