March 16, 2016
Authors: Olga Kerimova, Senior Analyst, and Theodora Batoudaki, Analyst, Rystad Energy
Publisher: PESGB Newsletter, April Edition
Mexico’s production is in a decline phase. Great exploration success is the highlight of 2015 for Mexico E&P. This article discusses the impact of discoveries, with a special focus on the 2015 discoveries, and the Round One tender on Mexico’s production and spending outlook.
Figure 1 shows Mexico’s production, split by projects, life cycle and onshore/offshore 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. From 2016 and onwards, production is expected to continue declining, but at a slower pace, thanks to substantial contribution from the new discoveries in the Litoral De Tabasco (Xikin, Esah and Batsil) and Cantarell (Cheek), infill drilling at Ku as well as the deepwater project Lakach. Round One tender could have a game-changing role for Mexico’s E&P future, with a growing contribution from 2025 and onwards. Even though the impact of Round One is barely visible in 2025, it is expected to balance out the decline in the long-run.
Figure 2 shows the discovered volumes for Mexico from 2005 to 2015. The year with the highest discovered volumes in the last decade was 2008. Two major discoveries, Ayatsil-Tekel and Tsimin (Litoral De Tabasco), make up around 60% of the 2008 discovered resources. After three years of low exploration success, Pemex discovered the deep water Kunah, Trion and Puskon fields in 2012. None of these discoveries, however, are expected to be put into production before 2025 and are not considered to be commercial at the current oil price forecast (and are not shown in Figure 2). In June 2015, major shelf discoveries were made by Pemex in the Litoral De Tabasco area (Xikin, Esah and Batsil) as well as the Cheek discovery in the Campeche field, accounting for over 800 million boe in resources. These are estimated to be Mexico’s largest discoveries since 2008 and are expected to contribute to production volumes post-2020.
Figure 3 displays total spending in Mexico over the period 2010-2020. Investments (capex and exploration capex) are projected to increase over the next five years, reaching around $23 billion in 2020. The main drivers behind this growth post 2017 are investments in the latest discoveries, Cheek, Xikin, Esah and Batsil, and infill drilling in Ku-Maloob-Zaap. Additionally, exploration capex is expected to grow after 2018 due to higher exploration spending forecasted for the blocks to be awarded under Round One. The operating costs (opex) are expected to remain at around $10 billion per year on average accounting for inflation (decreasing in real terms), consistent with declining production from mature fields shown in Figure 1.
Mexico’s oil and gas production has been declining over the past years with most of the country’s production volumes coming from mature fields such as Ku-Maloob-Zaap and Cantarell. The major shelf discoveries made in 2015, along with infill drilling in the Ku-Maloob-Zaap fields, are expected to contribute to a slower production decline going forward. The blocks offered in the Round One tender may further mitigate Mexico’s production decline in the longer term, depending on the intensity of foreign investments from 2018 and onward.
Olga Kerimova, Senior Analyst
Phone: +47 24 00 42 00
Theodora Batoudaki, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.