This is a Guest Post by George Kaplan
In dollar terms, since mid 2015 Mexico has been a net importer of hydrocarbons (oil, natural gas, petroleum products and petrochemicals combined). To date it has been a relatively small and fairly constant amount, but with their oil production declining, and oil prices apparently continuing to fall while natural gas prices may be on the rise, the net cost could now start to increase.
2017 reserve numbers were issued in early June. These used to come from PEMEX, but now look like they come from the government through the National Hydrocarbon Commission (probably as a result of the initiative for oil industry deregulation). Overall all categories of reserves have been falling for some years. The chart below shows oil and total (i.e. including condensate, NGL and natural gas) for proved, probable and possible. The production, discoveries and revisions for total petroleum (no figures for crude alone) are also shown – a bit fiddly but the trends can be seen – falling production, small and declining discoveries and some big recent revisions.
Note that the usual confusion holds here in that reserves are for crude only (condensate is included in the total numbers), but total flow rates (discussed further below) have crude and condensate numbers included (but clearly specified). To add to the confusion the datasets below are labeled P1, P2 and P3, but because the charts are stacked they should be read on the axis as 1P, 2P and 3Ps (the bar chart increments don’t really work out very well like this because the revisions can be positive or negative).
Mexico has four oil producing regions, Northeast Marine, which includes KMZ and Cantarell – the biggest fields, Southwest Marines, Northern Region onshore and Southern Region Onshore. The changes from 2016 to 2017 for these are shown below.
Note that usually KMZ includes all fields in Northeast Marine that are not Cantarell, but sometimes I think KMZ is used only to refer to the three specific fields of Ku, Maloob and Zaap (I’ve separated these three out in the production numbers presented later).
Cantarell must be quite complicated as it is very mature, in steady decline and yet has almost 1 Gb of proved, and more than that (still), of probable reserves. By contrast Southern onshore is almost all proved. KMZ is mostly proven as shown, but the three big fields (K, M and Z) together are over 80% proved with 6% probable and 14% possible (i.e. well understood even though only about halfway through their life cycle). Based on 2P numbers and average production over the last twelve months Cantarell has R/P of 48 years and KMZ of 13. There must be some question about the Cantarell stated numbers, unless there is a major brownfield development in progress, which would allow them to be recovered in the nearer term.
The noticeable (i.e. against trend) changes for 2017 are the addition of the undeveloped new licences (I think involving mostly Pemex, BHP and Eni) and the big increase in P2 and P3 for Northern Region onshore. This last might have something to do with shale developments, though the indications are that these are mostly rich gas (e.g. part of them is an extension of the Eagle Ford gas plays from Texas).
Overall the proved crude reserve changes from 2016 to 2017 consisted of 44 mmbbls discovery; -72.4 delimitation (I think these would be downgrades from proved to probable based on appraisal drilling results); -224 mmbbls revision (probably partly price related); 458 mmbbls development (i.e. new projects with verified development plans so upgraded from P2 and P3 to P1); and -789 mmbbls produced.
I fitted simple probability distributions for each of the six areas that meet the normal definitions of proved (greater than 90%), probable (greater than 50%) and possible (greater than 10%) and then used a simple Monte Carlo simulation to combine them. As below. As expected the mean and median come out close to the 2P numbers – actually slightly lower which either means my fitted distribution curves weren’t very good or that the ratio of proved to possible is lower than ‘normal’, at least for the moment.
Production figures are released monthly. All regions except KMZ are in overall decline, though over the last three months production has been on a plateau: for May C&C was up 9000 bpd (0.4% on the month, the chart below shows y-o-y changes against the individual areas).
A key to near term production is the performance of the three main KMZ fields, highlighted below. In 2012 Pemex presented some forward looking scenarios (in green) that predicted a lot of new discoveries, which haven’t happened yet, and KMZ coming off plateau about now, which might. KMZ was developed using nitrogen injection from Cantarell, which then started accelerated decline, as would be expected. KMZ is likely to follow the same decline once gas breakthrough gets going. Therefore a key for the field in the near term is likely to be balancing the gas from each field to maximize production. A decline rate of around 12% as indicated in the PEMEX forecast might be a bit higher than expected given the current 2P numbers.
In terms of developments for the near term they have Abkatun (60 kbpd nameplate) due in 2019 (a replacement for a platform lost to an explosion), plus a few discoveries like Trion and Tobasco, which will be developed in partnership with outside companies (Trion may have been formally approved, but if not it is highly likely to proceed, will give around 120 kbpd and involves BHP and Pemex). There were five small shallow field discoveries in 2016 amounting to 160 mmboe (2P), and touted as a big success. Other developments depend on discoveries through the new licensing rounds and onshore shale. All licencing rounds are always announced as successes, no matter what happens, so it’s difficult to know what to make of them sometimes. The last one in mid June attracted attention from Eni, but a third of the blocks were not bid on, and most of the others were single bids. For shale PEMEX has drilled some wells, I think less than ten, and about half have been dry with the others rich gas – so no great success yet, but there may be more recent wells that haven’t been reported (or at least seen by me).