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Mexico discovery strengthens Eni portfolio

European firm returns oil from block acquired in landmark bidding round. But progress towards first production at Zama faces renewed uncertainty

Offshore Mexico was already a key component of the upstream strategy of Italian E&P company Eni. But another important discovery in the region, announced on 17 February, means its involvement is set to significantly deepen.

The assets it acquired in the country’s first bidding round—launched under former president Enrique Pena Nieto to end the hegemony of state-owned energy giant Pemex and fast-track offshore oil production—achieved start-up ahead of schedule last year and is progressing towards its target of 100,000bl/d oe.

The arrival of oil means Eni has been able to turn its attention back to its exploration programme, in the blocks awarded in Mexico’s second bidding round. A consortium led by operator Eni, with a 65pc stake, Russian firm Lukoil (20pc) and a subsidiary of UK-based Cairn Energy (15pc), made its first major discovery in block ten at the Saasken prospect, off the coast of Veracruz. The mid-to-deepwater discovery is projected to hold 200-300mn bl oe in reserves, according to preliminary data, and has the potential to reach maximum output of c.10,000bl/d.

The prospect is also believed to extend into neighbouring block nine, which Eni also has a stake in (15pc), as part of a consortium with operator Cairn (50pc) and Mexican independent Citla Energy (35pc).

200-300mn bl oe - Saasken reserves estimate

If the extension is proven, it would be the first confirmation of the presence of crude oil in block nine. Last year, focused drilling on Pleistocene targets in the Alom prospect failed to return oil, despite an earlier prospective estimate of c.140mn bl oe. Cairn says it will next drill the Bitol prospect, adjacent to Alom in the block, which would take around 75 days from spud to completion. Prospective reserves are estimated at c.180mn bl oe and operator Cairn is targeting stacked Tertiary layers.

Eni is shifting its drilling campaign to block seven, where it is also operator and holds a 45pc stake in partnership with Cairn (30pc) and Citla Energy (25pc). The Ehecatl prospect is scheduled to be drilled following the completion of Saasken and will take around 70 days to complete. The partners will investigate a Lower Miocene target with expected resources of c.140mn bl oe.    

Looking even further ahead, Cairn has identified another 25 prospects across the three blocks it shares with Eni. While it has not created a timetable, it expects to drill them over the next five years. Eni also has a stake in a further four offshore blocks that it could target for drilling: blocks 12, 14, 24 and 28.

Zama slowdown

While development of the field at Saasken should avoid unitisation issues, with Eni holding a stake in both blocks, the same cannot be said for the similarly promising Zama prospect. The consortium awarded block seven (which borders the block ten that includes part of Saasken) in Mexico’s first bidding round had earlier announced a major oil discovery at the Zama. However, it has had far less success in progressing to first oil due to a unitisation dispute.

The block seven partners—US independent Talos Energy (operator, with 35pc), Germany’s Wintershall Dea (40pc) and UK company Premier Oil (25pc)—commissioned an independent assessment of the field’s oil that indicated 60pc of it falls in block seven and the remaining 40pc in a neighbouring block held by Pemex.

"During Rocío Nahle’s time in office at the energy ministry [Sener], she has been accused of undermining the independence of regulatory institutions" - Strong, Control Risks

This division is disputed by Pemex despite it failing to carry out its own assessment of the field’s size. The company claims that the majority of the field extends into its own block and therefore Pemex should be named operator. Yet it is unclear how the company would achieve first oil, even if it achieved its demand.

“Given Pemex’s lack of technical and financial wherewithal to exploit such a field alone, it appears that the company simply wants to put the estimated 700m barrels in question against its name,” says Gavin Strong, director at risk consultancy Control Risks. “However, it is extremely unlikely that it would be able to develop them by itself.”

High hopes

Pemex, under the de facto leadership of Mexican president Andres Lopez Obrador, has publicly stated its ambition of reversing the country’s sliding crude production. The administration set an output target of 2.6mn bl/d by 2024.

Its actions, however, are not contributing towards meeting this goal. Obrador has been heavily critical of his predecessor’s liberalising reforms and last year indefinitely cancelled future bidding rounds. While he said his government would review existing contracts, he pledged to respect agreements. The latest Zama episode, though, casts doubt on the government’s willingness to work closely with international firms.

Adding to the growing distrust of the government, the companies may be fearful that the decision on operatorship will go to the ministry for approval and they will not receive a fair hearing. “During Rocío Nahle’s time in office at the energy ministry [Sener], she has been accused of undermining the independence of regulatory institutions, such as the National Hydrocarbon Commission (CNH), including by filling them with political appointees with little-to-no sector-relevant experience,” says Strong.

If operatorship is awarded to Pemex there will be growing sentiment in the sector that the administration only has the interests of the state-run company in mind, to the detriment of private enterprise.  

One of the partners in the block, Premier, had planned to divest its stake in the field to help pay down its debts. The uncertainty surrounding operatorship—and therefore the timeline of the field achieving FID and first oil—may well deter companies from taking an interest in the asset.

Zama will serve as the yardstick for future negotiations between the government and international third parties. If the Obrador administration proves to be obstructive and attempts to go it alone, Pemex will face a daunting task in developing fields without the deepwater expertise of international companies. Equally problematic for Pemex is that it is financially constrained by the government’s pledge not to allow the company to add to its already enormous $99.6bn debt.

 

Source: Petroleum Economist
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