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Forget Paris – Billion-Barrel Mexico Find Could Spur Oil Majors to Rush In

July 12, 2017

By Paul Homewood

 

News from Bloomberg:

 

A billion-barrel crude discovery in Mexico could be just the lure the country needs to boost investment from oil majors as it lacks the wherewithal to reverse years of sagging output.

At a time when global oil prices were cratering, and drillers were nervously cutting exploration funds, Mexico’s earliest auctions drew spotty interest. Since then, however, European drillers led by Italy’s Eni SpA have increasingly become involved. The find in Mexico’s shallow waters could drive added interest — and higher bids — in future auctions as the government seeks to boost production that’s fallen by a third in the past decade.

On Wednesday, Premier Oil Plc, Sierra Oil & Gas and Talos Energy LLC announced the first Mexican discovery by explorers other than state-owned Pemex in 80 years, a reservoir with an estimated 1.4 billion to 2 billion barrels. With new auctions set for the end of the year, the find promises to rev up interest in Mexico’s energy riches moving forward, said Pablo Medina, an analyst at the consulting firm Wood Mackenzie Ltd.

“Future bids will likely be more aggressive,” Medina said in a telephone interview. “This obviously increases the attention people will pay. The area contiguous to this block is going to go up in value, no question.”

About a fifth of Mexico’s public budget relies on oil revenue, with production averaging 2.15 million barrels a day last year, the lowest level in more than three decades. That drop in output, combined with lower oil prices, forced the government to cut spending, causing growth in the $1.1 trillion economy to decelerate to the slowest pace since 2013.

The Mexican government will receive a 68.99 percent profit share from every barrel produced in the block, and as much as 80 percent when considering taxes and fees over the life of the project, Sierra said in a statement. “It is of great importance for Mexico,” Mexico Oil Commissioner Juan Carlos Zepeda wrote in an emailed statement.

President Enrique Pena Nieto embarked on an ambitious reform of the energy sector in 2013, aiming to revive flagging output at a time when oil prices were in the triple digits. The reforms, which didn’t kick in until after oil prices had fallen, involved amending the constitution to allow foreign investors into the country’s oil industry for the first time since it was nationalized in 1938.

The first auctions came in 2015, with outside investors invited to bid on fields that were previously only accessible to Pemex. Eni SpA was one of the first oil majors to win a bid in Mexico and has stood out in the race by winning several contracts.

Since then, some of the world’s largest oil companies, including Exxon Mobil Corp., Chevron Corp., and BP Plc, signed contracts in the country. European majors Repsol SA, Royal Dutch Shell Plc, and Total SA also won leases earlier this year in shallow-water fields.

The find has “de-risked a little bit some of these shallow-water opportunities” in Mexico as it confirms that other explorers have the potential to find assets that Pemex either overlooked or couldn’t develop, said Jeremy Martin, director of the energy program at the Institute of the Americas, speaking over the phone from La Jolla, California.

“There are a host of companies on the U.S. side of the Gulf that may now consider participating in upcoming auctions because this is a way of showing them that the process works, and can lead to a discovery,” Martin said.

The next auctions, in deep water and for shale blocks, will likely come at the end of this year or the start of 2018.

The new find will “certainly create more buzz” around the next auctions, said John Padilla, Managing Director of energy consulting firm IPD Latin America in an emailed response to questions.

The shallow field holding the billion-dollar find is located 37 miles (60 kilometers) offshore from the Mexican port of Dos Bocas in 546 feet (166 meters) of water and contains light oil, Premier Oil said in a statement. The discovery comes just two years after the three companies jointly won the exploration license.

In an interview on Wednesday, Premier CEO Tony Durrant listed the potential of the site at 1 billion to 1.5 billion barrels. Sierra said the primary target reservoir contains 1.4 billion to 2 billion barrels, and could extend into a neighboring block.

Mexico “took a really difficult decision for them politically after 40 years of 100 percent Pemex-ownership,” Durrant said. The opening up of the country’s industry “caught them at absolutely the worst time because of the collapse in oil prices. But to be fair to them, they persevered and they have now got very strong industry interest.”

https://www.bloomberg.com/news/articles/2017-07-12/sierra-oil-led-group-announces-oil-discovery-in-mexico-waters

 

Did not Mark Carney tell us that oil is a stranded asset?

Meanwhile Mexico shows that its commitments to the Paris Agreement are worthless. As the article points out, the Mexican govt will get 68.99% of the profit from all new oil development.

One final point. This analysis comes from Bloomberg, but we all recall reports from Bloomberg’s New Energy Finance division, which regularly shills for renewable energy interests. Clearly they are not on the same page.

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8 Comments
  1. John F. Hultquist permalink
    July 13, 2017 12:41 am

    Many South American countries have amazing resources.
    The governments are amazing, also — in the wrong way.
    If they ever get rid of the liars and cheats the world will be a better place.

    Latest news:
    Luiz Inácio Lula da Silva, Former Brazilian President, Convicted of Corruption
    Brazilian judge sentences one of the most popular leaders in history to 9½ years in prison

  2. Athelstan permalink
    July 13, 2017 9:29 am

    Peak Oil?

    What limits to growth? and should the Club of Rome go now; first, second, third and forth and multiply, and get on with it.

    For fooks sake, we haven’t even begun to exploit the crustal resources of our mighty planet but the neo-puritans [green lunatics] – for surely that is what they are, determine to reverse all the great discoveries mankind has made involved in making all our lives better, comfortable, warmer, safer, healthier and fossil fuels enable it.
    Britain, the home of the industrial revolution what do they [neo puritans] want to do…… go backwards that’s what! Regress history, reverse to windmills and other puny palliatives and reduce a nation to rationing electricity!
    But in the same moment as they require the nation to drive electric cars and wish away gas fired heating and cooking in domestic households! They neo-puritans are – puddled fekkers and never do the neo-puritans do any joined up thinking – just watch any interview by Caroline Lucas/Bryony Worthington.

    We need to box em up and boot em off into the outer universe [wherever] – neo-puritans before they destroy what could be named ‘western industrial and technological progress’ and on what: our whole civilization is vitally interdependent.

    Backwards and at increasing velocity per second per second.

    I grind my teeth when I think back, that we actually thought mother theresa might [just get her lumpen arse into gear]……….. just be sceptical of the green mania – no chance she is such a brainshrunken gullible eejit and more beholden to the green blob than was cast iron dave!

    On the horizon – no hope and er, when the Communists get into power – jezza you ain’t seen nothing yet, the neo-puritans given free rein will destroy what remains of, Britain.

    • July 13, 2017 10:16 am

      Athelstan ……. calm down, dear. It’s only an oil find

      On second thoughts hysterical laughter is perhaps allowed!

      As you say we’ve barely pricked the surface of the planet. If we can get rid of the eco-warrors and their shills (but make sure there is some sensible international regulation to avoid genuine pollution problems) the best for humanity is yet to come.

      And well done, Mexico! Just try to avoid the Venezuela route.

      (Incidentally, my phrase of choice for neo-puritanism has always been “unpicking the industrial revolution”. Be my guest!)

      • Athelstan permalink
        July 13, 2017 11:03 am

        You’re quite right Sir, I need to calm down a tad:-)

        “unpicking the industrial revolution” indeed!

        Hmm and but in the same time as they do unpick these twerps feel evah so easy about using the fruits’ of the industrial and technological revolution namely Jets, Cars, smart phones, computers etc and btw it is a well honed phrase Mike – I do rather like it.

  3. Bitter&twisted permalink
    July 13, 2017 11:05 am

    Peak Oil?

  4. dribble permalink
    July 13, 2017 1:49 pm

    I’ve got nothing against oil or carbon dioxide but if you’re not a Mexican is this something to get excited about? The world’s daily oil consumption is approx 100 million barrels per day, therefore this 1 billion barrel oil field will power the world for.. wait for it…10 days.

  5. Greg permalink
    July 14, 2017 12:51 pm

    I find it amusing that Mark Carney’s main claim to fame and current job are based on his good stewardship of the Canadian economy as Bank of Canada governor. Yet much of his success, if not all, can be attributed to Alberta’s oil sands propping up the entire Canadian economy in those years.

  6. July 15, 2017 2:51 pm

    Putting this into perspective, it would take ~3-4 of these discoveryies each year just to replace the remaining depletion in the Ghawar field, which will be fully depleted by ~2035 and which in 2012 supplied 6% of the world’s crude.

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