Mexico’s production has been following a declining trend, which is not expected to be reversed before at least 2025. Despite high hopes for new developments and the recent years’ exploration success, Mexico will likely continue to face falling production volumes, given the current resources and development plans. This article assesses the outlook for Mexico, illustrated by three key drivers: production, breakeven prices for new projects, and total spending.
Figure 1 shows Mexico’s production, split by projects and life cycle from 2010 to 2025. Production is in decline, a trend driven mainly by the country’s supergiant offshore oil fields, Ku-Maloob-Zaap, Cantarell and Litoral De Tabasco. Despite new projects coming on-stream, production is expected to continue declining until 2025, and the recently announced goal of 2.4 million bbl/d in crude oil production in 2024 seems unlikely to materialize. Nevertheless, the decline in production post 2018 is expected to be mitigated by contributions from new development projects such as the deepwater project Lakash, and the redevelopment of the Ek-Balam field. Further contributions post 2020 are expected from key discoveries yet to be sanctioned. These include Eni’s Area 1 fields, Amoca FFD, Teroalli and Mizdon FFD, Pemex’s 2015 discoveries in the Litoral De Tabasco Integral Business Unit, as well as the Talos Energy-operated Zama field discovered in 2017 – slated to be one of Mexico’s largest discoveries of the decade.
Figure 2 depicts estimated economically recoverable resources for the top ten discoveries in Mexico. Breakeven oil prices for each field are also displayed on the graph. The field holding the largest resources of 509 million boe is the second phase of Ayatsil-Tekel operated by Pemex and forecasted to come online in 2026. The field is estimated to have a breakeven oil price of $29 per barrel, thus being commercial to develop under the prevalent oil price environment. Zama and Ixachi fields, both discovered in 2017 by Talos Energy and Pemex, are estimated to hold 468 and 380 million boe in resources, respectively. These discoveries marked the success of exploration industry in Mexico bringing total discoveries to the highest level witnessed since 2008. Both fields are anticipated to be brought on stream already in 2022-2024 and produce 160,000 boe/d at plateau. In terms of field economics, Ixachi is estimated to have the lowest breakeven oil price among all discoveries selected, standing at $18 per barrel. On the other hand, like most of the discoveries in Mexico, Zama is an offshore field, development of which requires higher capital investments. Thus its breakeven is estimated to stand at around $41 per barrel. Furthermore, the majority of currently unsanctioned fields in Mexico are oil fields with relatively little gas resources, yet Ixachi is the only gas-condensate field that made it to the top in our analysis. The most expensive field to develop with a breakeven oil price of $56 per barrel is an ultra-deep water field Exploratus, operated by Pemex and holding 153 mmboe of resources. Maximino, discovered in 2014 by Pemex and holding 138 mmboe in resources, completes the top ten fields in Mexico waiting to be sanctioned.
Figure 3 displays total spending in Mexico over the period 2010-2025. Investments (capex and exploration capex) have declined steeply from the peak levels in 2013-2014. A substantial increase is not expected before 2021. The main drivers behind the growth post 2020 are investments in the recent discoveries, Xikin, Esah and Batsil (Litoral De Tabasko), and deepwater Trion and Maximino fields. Additionally, exploration capex is expected to grow after 2020 due to higher exploration spending forecasted for the blocks to be awarded in future licensing rounds.
Mexico’s production is expected to continue to decline into the future, driven by country’s supergiant offshore fields in decline phase. Despite sanctioned projects coming online in the next couple of years, the decreasing trend can hardly be reversed. By 2025, however, Mexico’s output will stabilize as a result of several discoveries being brought into production. Zama and Ixachi, discovered last year and making up top 3 unsanctioned fields by resources, will be among the first to be developed and put on stream. Investments into Mexico’s E&P industry will start to increase by early 2020s, driven by spending into development of new discoveries and higher level of infill drilling.