Plans for a delimiter at one of Pemex’s supposedly low cost “new fields” drew criticism before Mexico’s hydrocarbons regulator CNH approved it, the latest sign that the NOC has yet to adequately grasp the reality of the global oil market since COVID-19.
“This well, as I mentioned, has an objective to corroborate the vertical and lateral JSK [Upper Jurassic Kimmeridge] finding discovered by Quesqui-1EXP well, and also to guarantee the information acquired during its drilling, and finally to offer certainty on the volumetry of the well,” said CNH technical advisor Hector Silva.
On that basis, Pemex Exploracin y Produccin (PEP) plans to drill Quesqui-4DEL on its onshore assignment, AE-0053-4M-Mezcalapa-03.
PEP will spend an estimated US$47.5mn on the well, which shares geophysical properties with the Quesqui-1 well some 4km away.
PEP plans to reach its JSK play at a depth of 6,852m, where it hopes to find oil and condensate at 42° API. It seeks reserves of 80Mbcoe, with a high 80% geological probability of success.
Commercial viability, though, seems less certain.
Source: CNH
Initially presented for authorization to CNH on April 29, the Quesqui delimiter well plan is among the first that PEP has presented to CNH since the onset of the oil crash, perhaps making it a leading indicator of how the NOC plans to cope with the reality of dramatically lower oil prices than it enjoyed in February.
CNH recessed through most of March and during its intermittent sessions since April it has largely heard plans proposed from late February or early March.
Since then though, COVID-19 has stirred a vicious dynamic of reduced oil demand and global fear of emerging market currencies like the Mexican peso.
In a matter of weeks, a spate of private E&Ps and NOCs through Latin America revised exploratory plans and cut capex for the remainder of 2020 as a means of balancing their books.
Pemex though kept up its plans, only announcing significant cuts on April 30, the same day it disclosed hemorrhaging 562bn pesos in losses in 1Q2020.
That day, Pemex executives announced 45.5bn in capex cuts for 2020, of which PEP is expected to absorb 40.5bn pesos in cuts.
In the call, Francisco Flamenco, acting director general at PEP, said the company was well-positioned to execute on profitable activities: “Mainly due to the incorporation of early production of the new fields: Quesqui, Ixachi, Xikin, Hok, Chejekbal, Mulach and Tlacame.”
He added the production at the new fields averaged less than US$5/b.
Yet, during the Quesqui-4 presentation before CNH commissioners, Silva noted that the cost of drilling was “2% above the established range” of US$24/b, a figure that CNH appears to have recently begun using as a soft benchmark for the viability of well drilling plans.
It remains unclear exactly where Pemex can produce oil profitably at scale given current oil prices.
A late March assessment by CNH of one Pemex field, Perdiz, showed that while some of the 10 wells had production costs as low as US$2.73/b, the 10-well field had on average production costs of about US$24/b.
Energy analytics firm Welligence has estimated that about 80% of Pemex’s fields have a breakeven above US$35/b. On May 11, the Wall Street Journal reported that at current prices Pemex loses US$9/b at its Xikin field. Like Quesqui, it is one of the fields that PEP’s Flamenco touted as helping the company profitably extract oil.
Despite doubts about commercial viability, PEP won the approval for Quesqui-4DEL.
PEP is now expected to begin drilling on May 14 and terminate the well on October 22, 2020.