Pemex’s Deepwater Ambitions Return

Abstract

Pemex, Mexico’s state oil company, is laying the groundwork for a new round of deepwater exploration in the Gulf of Mexico in hopes to land a new elephant or two that could play a meaningful role in reversing the country’s downward production trajectory in the coming years. The company has seen its crude oil production cut in half since 2004 when production peaked at around 3.8 million B/D. By 2019, that number had fallen to nearly 1.8 million B/D. Levels have stabilized in recent years with the current estimate being just over 1.9 million B/D. Since taking office in 2018, Mexico President Andrés Manuel López Obrador has directed the operator to concentrate its drilling activity on less costly areas such as shallow water and onshore. Pemex is the world’s most indebted oil company with a debt load in excess of $100 billion. “We haven’t heard of any really large discovery recently,” said Diego Becerril, research manager, global analyst upstream team with Wood Mackenzie. “It’s been a couple of years since they last announced a giant discovery. They used to do it every year. “They were able to kind of control the production decline for a few years—2022 and 2023—I think by continuing to explore near areas that they already know, which in the end, doesn’t have that much prospectivity, but they can bring it online in a relatively short term and add volumes into the production portfolio. But moving forward they still need more resources. That is probably part of the reason we’re seeing a change of strategy going into deep water,” he said. The operator’s early deepwater exploration campaign in the mid-2000s was greeted with mixed results. The program yielded one known commercial gas discovery at Lakach. Other wells—Nab-1 (oil), Lalail-1 (gas), and Noxal-1 (gas)—all yielded hydrocarbons, but none of those finds were thought to be standalone development candidates. The debt burden has not prevented Pemex from planning more than $1 billion in investment in deepwater drilling to be conducted over the next several years. In February, hydrocarbons regulator CNH approved an updated plan for drilling in the Holok-Han area. The $400 million-plus investment plan follows 20 years of drilling in the area, during which 14 wells were drilled over that time—13 exploration wells and one delineation well—but no development plans emerged as a result of the program. The revised plan has Pemex drilling up to seven additional exploration wells in Holok-Han targeting Lower Eocene, Lower Pliocene, and Lower Miocene-aged reservoirs. CNH also approved plans for fresh drilling in the Perdido area. The $680 million program would see Pemex drill exploration wells in seven blocks near the US/Mexico maritime border and on trend with large finds on the US side. The bulk of the drilling would take place in 2026, likely utilizing Transocean drillship Deepwater Invictus, which will be under contract with Pemex for a 1,080-day period starting in late 2025. Pemex has identified more than 2 billion BOE in Perdido, according to CNH. The operator drilled 28 exploration wells from 2012 to 2019 in the area.