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Premier Oil gets go-ahead to increase exploration at second block in Mexico shallow waters

Highlights

Premier to explore the Mesozoic formations

Pemex plans approved for Pokche and Teca

Dispute over Talos' Zama a key factor for output

Mexico City — Premier Oil has been allowed to increase exploration activities at a second block in the shallow-water Gulf of Mexico as the company aims for a new geologic formation.

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On April 29, Mexico's National Hydrocarbons Commission (CNH) approved a request by Premier, owned by UK-based Harbour Energy, to modify its exploration plans for block B-60, in the marine part of the Burgos Basin, to explore the Mesozoic formations in the block. CNH had approved a similar request from the company for the adjacent block B-57 on April 22.

Just like in block B-57, Premier will be spending roughly $2 million more than the originally planned $10.29 million at block B-60, as it extends activities into 2023, CNH said.

"The total area that will be explored after the modifications has almost doubled; this change is good news," CNH commissioner Hector Moreira Rodriguez said during the meeting.

The number of exploration wells that private companies have been allowed to drill in 2021 will exceed the record set in 2019, after the slight pullback in 2020 due to the coronavirus pandemic, CNH data shows.

Given the high amount of prospective resources believed to be in the fields being explored by private companies, success could be a game changer for the country, said Aditya Ravi, vice president of upstream research at Rystad Energy, on April 29.

"2021 will be a crucial year for Mexico, for companies and for the future," said Ravi during a virtual seminar.

According to Rystad data, international oil companies are responsible for 40% of the resources discovered in Mexico during the last five years.

However, despite the surge in exploration activity by Pemex and private companies, Mexico´s expected production is not likely to meet the expectations of the current administration, and has not reached Rystad's previous estimates, the data shows.

Rystad's is projecting Mexico's crude production to edge lower by 2025 from 1.7 million b/d in 2020, well below the administration's 2025 forecast of roughly 2.3 million b/d.

S&P Global Platts Analytics expects Mexico's crude production to grow marginally to 1.75 million b/d by 2025, also coming in below the government's forecast.

"We believe success at shallow water exploration is critical to offsetting existing declines in Mexico," said Ashutosh Singh, Platts Analytics manager of non-OPEC oil and gas production. "Shallow water projects can come online in a much shorter timeline compared to deepwater projects. They are also less expensive, closer to infrastructure and less technically challenging to bring online."

But a key factor in the future development of the country´s resources will be the resolution of a dispute between Pemex and US-based Talos Energy.

Pemex is disputing the right to operate Talos' Zama discovery, which is located inside one of Pemex's blocks.

If Talos is allowed to operate their discovery, other companies will feel comfortable investing in the country. If not, little interest will be left for others to invest in exploration, Ravi said.

"Timely start of the Zama field in the coming months is critical to our outlook," said Singh, pointing out that Talos is planning its final investment decision by year-end.

"If there are further delays in reaching an unitization agreement between Pemex and Talos, the FID timeline could slip, putting even reaching the 1.75 million b/d level by 2025 at risk," he said.

Pemex plans approved for Pokche and Teca

During the April 29 meeting, CNH also approved plans presented by state oil company Pemex at two of the Uchukil blocks it operates in the shallow-water Gulf of Mexico.

At block Uchukil 0151, the company was allowed to spend $64.6 million drilling a delimiting well called Pokche-4. At the site, the company expects to find 44.6 million boe, CNH said.

At block 0009-5M, Pemex was allowed to begin production at a new field called Teca where it will drill eight wells and spend $941 million through 2048 looking to recover 47.67 million barrels of crude and 131 Bcf of gas, CNH said.

Block 0009-5M, made up of three small areas, is located inside Uchukil 0148. At 0009-5M, Pemex holds production rights at the Miocene formations, while at Uchukil 0148 it holds exploration rights in all formations except the Miocene, CNH data shows.