Mexico regulator says Pemex can frack four wells

Mexico's state-owned Pemex can move ahead with hydraulic fracturing in four unconventional exploration blocks in the Tampico-Misantla basin, oil regulator CNH said.

Pemex will drill up to two exploration wells, using hydraulic fracturing, in each of its Pitepec, Amatitlan, Soledad and Miahuapan blocks located northwest of Poza Rica, Veracruz, according to the modified exploration plans that CNH approved today.

The company has previously said it could produce up to 60bn barrels of oil equivalent (boe) in unconventional resources, mainly located in northern Mexico's Burgos Basin just south of the US Eagle Ford shale play, but the future of fracking remains uncertain.

President Andres Manuel Lopez Obrador has repeatedly ruled out fracking and lawmakers in the senate have called for a ban. But energy minister Rocio Nahle confirmed last month that the ministry is analyzing new fracking techniques.

"There is regulation that permits fracking and, while there has been talk of prohibiting it, for the time being we are acting in accordance with the law by approving this practice," commissioner Gaspar Franco said today.

Pemex will invest up to $203mn in the exploration plans under the two-well drilling scenario, with the potential to incorporate up to 201mn boe into national reserves.

Each of the blocks were assigned to Pemex following the 2014 energy reform that ended the company's monopoly and they are being considered for migration without a partner. This contract form that would allow Pemex to benefit from more attractive fiscal arrangements, thereby freeing up more resources for exploration activity.

Pemex has so far migrated just one contract without a partner, the Ek-Balam shallow-water cluster contract in which it expects to invest $6.6bn in achieving a peak production of 109,440 b/d.

Migration of the contracts would allow Pemex to drill two exploration wells per block, rather than one well per block envisaged under the original exploration plans.

The proposals included in the exploration plan represent the first time Pemex would explore these plays through fracking, commissioner Alma Porres said during today's meeting.

Mexico's state-owned Pemex has used hydraulic fracturing in around 22pc of all wells developed in conventional resources and "without fracking there will be no production on these blocks," commissioner Nestor Martinez said today.

Oil production in Mexico has been in decline for a decade amid maturing fields and lower investment in exploration and production but Lopez Obrador has pledged to increase production from 1.71mn b/d in December to 2.6mn b/d by 2024 when his administration ends.

Mexico's 3P oil reserves dropped by 40pc to 25.5bn boe from 42.2bn boe between 1 January 2014 and 1 January 2018, according to the annual reserves report published by CNH last week.

Meanwhile, Jaguar Exploracion y Produccion 2.3 can move ahead with its $29.6mn investment in exploration of its block 5 onshore field in Mexico's Tampico-Misantla basin, CNH said.

Jaguar plans to drill up to four wells, carry out exploratory studies, geophysical studies and two major well repairs under the 2018-2020 exploration plan and evaluation plan approved by CNH today.

Jaguar expects to incorporate reserves of around 10.6mn bl of oil and 10.3 Bcf of natural gas in the event that its first exploration well, Jaguar-001-EXP proves successful.

Jaguar, owned by Mexico's Grupo Topaz, secured development rights to block 5 and 10 other blocks in the second round of upstream auctions administered by CNH following the energy reform.

CNH has held three upstream rounds for onshore and offshore blocks as well as three farm-outs in which Pemex has partnered with the private sector to develop acreage awarded under the reform. More than 100 contracts have been signed with 73 companies from 20 countries, while total investment is expected to reach $161bn if all licenses prove viable.