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Mexico—zero to hero

A string of successful auctions has set the stage for an exploration boom in Mexican waters

Mexico's energy reforms are opening vast areas of the country to explorers, and if early results are any guide it may prove to be fertile hunting grounds.

The first post-reform exploration well in Mexico was a blockbuster. A consortium led by Gulf of Mexico specialist Talos Energy found as much as 2bn barrels in place at its shallow-water Zama-1 well in a lightly explored area of the Sureste Basin.

It is likely one of the three largest offshore discoveries in the world over the past five years, comparable to ExxonMobil's Liza find off Guyana's coast. Unlike Guyana and other frontier areas, however, Zama is near shore in a country with an already developed oil and gas infrastructure, reducing the need to build facilities from scratch.

The consortium, which also includes Britain's Premier Oil and local outfit Sierra Oil & Gas, are marching toward a final investment decision and say the find could support a 100,000-barrel-a-day development. The economics of the shallow water project look promising, even at today's oil price, potentially making it an attractive buy should any of the smaller partners look to cash out ahead of a heavy financial push to get to first oil. RBC, the investment bank, reckons it would return more than 20% at $50 oil.

Italy's Eni is also making a splash in Mexico. The company has found as much as 1bn barrels at the shallow-water Amoca field, a prospect previously identified by state-run Pemex but proved up by Eni's drilling this year. Eni says the field holds oil around 25°API, slightly higher than the main Mexican Maya export crude grade that is coveted by US Gulf refiners. The company is moving fast to develop the find. It plans to start early production at between 30,000 to 50,000 barrels of oil equivalent a day by early 2019, making it the first foreign firm to produce in Mexico in more than 80 years.

These are unlikely to be the last of the discoveries to result from the oil reforms. In the oil auctions so far, 49 new exploration contracts have been awarded to 54 new companies. The contracts include high-profile, deep-water blocks in the Perdido area, along the US-Mexico maritime border, awarded to global supermajors like Chevron, BP, ExxonMobil and others. However, as the early exploration results show, there is likely to be more action than expected in Mexico's shallow waters, which have drawn a mix of majors like Eni and smaller independents from the US and at home. The government expects the contracts awarded so far to generate close to $60bn in investment and to help Mexico boost national oil output.

There's more to come. The latest five-year plan for licensing rounds envisions more than 500 new exploration areas being put up for bidding. They run the gamut from sought-after deep-water areas in the Perdido Basin, to frontier deep-water basins, to shallow-water areas in established producing basins to onshore blocks that could allow companies to tap into Mexico's section of the prolific Eagle Ford shale.

This article is part of a report series on Top 10 upstream bright spots. Next article is: Greenfields galore for Russia

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