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Significant exploration potential continues to exist in Mexico
and though opportunities are slowing down, the region will continue
to be attractive for long-term players. During my recent visit to
Mexico, conversations centered around three key topics:
Opportunities for investment
Mexico's future energy outlook
PEMEX, Mexican state-owned petroleum company's development
activity
Several discussions centered around the fact that overall
exploration opportunities in Mexico are slowing. The long-term
outlook for Mexico is uncertain and a slowdown in investments has
impacted the country's supply. Bid rounds are expected to be
delayed for at least another 2-3 years and though PEMEX's CNH-A6-7
Asociaciones/2018 farm-out is still ongoing, additional farm-outs
are unlikely in the near term.
PEMEX is focused on development activity to stabilize their
portfolio and improve their financial outlook. Mexico's near-term
liquid output is approximately 900-1000 million barrels of oil
equivalent (MMboe) or 1.8-2.1 thousand barrels per day (Mbbl/d) of
oil. Without additional investments, we expect Mexico's production
to decline after 2026 (Figure 1).
Figure 1: Near term Mexico production showing PEMEX
contribution
PEMEX and the winners of recent bid rounds aim to quickly bring
projects online, as they look to steady production declines. The
urgency set forward by the new administration to improve the
production and reserves portfolio, and thus financial situation,
has already been set into motion with the current proposal by PEMEX
to begin developing 20 new fields in 2019. Accelerated approvals by
CNH have already occurred for fields, including Xikin, Esah and now
Cheek.
We conducted a sensitivity analysis on a subset of PEMEX's 20
new fields that are now planned to be developed in 2019. 13 of 20
fields were chosen for this review due to their similar
shallow-water terrain and more than 10 MMboe reserves volumes.
Figure 2 shows the 13 fields selected for this analysis, with their
current "non-expedited" outlook. We adjusted the development start
dates to begin in 2019 ("expedited") to determine which approach is
more favorable (Figure 3).
Figure 2: Non-expedited production - current Vantage
forecast
Figure 3: Non-expedited production compared with expedited
production
Overall economics improve when the 20 new fields PEMEX plans to
develop in 2019 are expedited (Figure 4). Total investments for the
expedited fields scenario significantly increase in 2019 as these
projects require significant capital to start up but overall
capital is reduced in comparison to the non-expedited approach.
Assets become cash flow positive within a year, as opposed to the
non-expedited fields which would require 3 years. In addition,
break-even prices are also significantly reduced for several
assets.
Figure 4: Non-Expedited vs.
Expedited ATCF and total investments.Total investment includes
capital total (including E&A), operating cost total, and
decommissioning total (MMUSD. Oil priced at $60, with 2%
inflation
Emily McClain is a Technical Research Analyst at IHS
Markit.