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Jaguar cuts a path to Mexican oil and gas exploration

09 Feb 2018 13:00 GMT
Jaguar cuts a path to Mexican oil and gas exploration

Mexico City, 9 February (Argus) — Mexican independent oil firm Jaguar is becoming a major player in the country's recently opened upstream sector one auction at a time.

Jaguar currently owns 11 onshore blocks that spread across the Gulf of Mexico, and is eyeing more acreage in future onshore rounds, including potential new farm-outs to partner up with state-run Pemex, Jaguar's chief executive Javier Zambrano, told Argus.

Jaguar came out as the big winner of Mexico's second onshore auction in July 2017, snapping up 11 of the 21 license contracts on offer. This included five gas blocks in the Burgos basin, three in Tampico-Misantla-Veracruz, and three in the Macuspana area. The company was planning on both early production — and cash flow — and longer-term exploratory activities.

"The idea was to implement a cluster strategy," Zambrano said. "We were going for a balanced portfolio, with regional diversification. But if you look at the balance between oil an gas it is also very good."

Five of the blocks were already producing small volums, some 200 b/d of crude and 10mn cf/d of natural gas, with two more that should enter in production in the next few months. The remaining four are more exploratory, with production expected to begin in late 2019 "if everything goes well", said Zambrano.

Jaguar won't share expected peak production for its 11 blocks but says total investment could reach $500mn. The first stage, which should bear fruits towards the end of the year, is to start optimising production in blocks already in operation and delimit and quantify reserves in exploratory blocks.

Phase two, the implementation of various perforation campaigns, will depend on the existence and scale of proven reserves.

For transport the company is currently using Pemex's existing infrastructure, paying a "reasonable" tariff negotiated directly with the company, but would consider investing if it was to make larger discoveries.

Jaguar was funded in 2014 by Mexican investment fund Topaz. Topaz co-founder Dionisio Garza Medina is the former chief executive of Mexican conglomerate Alfa, where he oversaw the launch of Newpek, another independent oil and gas company.

Jaguar was born in the wake of the country's sweeping energy reform that ended decades of monopoly held by state-run Pemex, paving the way for outside investment. But it also coincided with a severe downturn in global oil prices, lower oil and gas activity, unprecedented layoffs, and the prolonged struggle of mom-and-pop type oil field services firms.

"The idea was to rescue Mexican talent," Zambrano said.

The company is divided in three layers: senior advisors, mostly retired Pemex workers and professors at some of Mexico's top universities; technical professionals hired from companies such as Schlumberger and WorleyParsons; and an army of young, recently graduated employees to do the administrative heavy lifting.

"We got together and decided that onshore [acreage] was the most adequate given our appetite and budget," Zambrano said.

Jaguar participated in Mexico's first onshore tender in 2015, but won none of the dozens of awarded contracts. Many blocks were snatched up by companies that offered government takes of up to 85pc, which many saw as unviable. Several winning firms did not end up signing the contracts, which were then transferred to runner-ups with more reasonable offers.

"We told regulators, it's best for the state to get 40pc of a lot than 70pc of almost nothing," Zambrano said.

In subsequent tenders to avoid unviable bids the government introduced a new fiscal mechanism with a set maximum threshold for additional royalties.

To gain experience, Jaguar turned to Trinidad and Tobago and won in 2016 a small mature onshore block broadly similar to those on offer in the Mexican auction. A year later, Jaguar was competing again in Mexico's second onshore auction, winning 11 blocks, some individually and others with its Canadian partner Sun God.

Looking forward, Zambrano said he would like to see more blocks on offer, and a faster administrative process to obtain permits. Right now, even though licence contracts are promoted for their lighter administrative load, he says the company has to file over 400 reports annually.

"We've seen some improvement, but it's still very heavy," Zambrano said.