Mexican state-owned oil company, Pemex, announced that it has made its biggest onshore oil discovery in 15 years in the Gulf coast state of Veracruz. The discovery at the Ixachi-1 well holds an original volume of 1.5 billion barrels of crude equivalent which could equate to 350 million barrels of oil equivalent in proved, probable and possible reserves.
The location of the Ixachi-1 well is particularly advantageous due to its proximity to the National Pipeline System and other infrastructure. This allows the reserve to be exploited more quickly with production expected to commence by late 2018 or 2019. Although the 350 million barrels of oil equivalent in total estimated reserves lie nearly 8 kilometres below the ground, onshore extraction costs are significantly cheaper than offshore, making this a particularly lucrative discovery. Based on preliminary studies, Pemex anticipates that this reservoir could be extended further to double in size.
Pemex was assigned the Ixachi-1 well by the Mexican government, through the Ministry of Energy, during Round 0 of the Oil & Gas licensing rounds and is the sole operator. However, Pemex CEO José Antonio González Anaya said that there is a possibility Pemex will develop the discovery with an equity partner.
At present, the majority of Pemex’s oil and gas output comes from its offshore projects where the largest fields are in decline. This discovery will help cater to the domestic demand of wet gas and light crude oil for both the short and medium term.
This is the third significant oil discovery, though the first onshore, to be announced in Mexico this year following discoveries at the Zama-1 well by Talos Energy (see our Law Now here) and the Amoca-3 well by ENI.
The 2013 energy sector reforms, which opened the industry to private foreign and local investors after 76 years of state monopoly, have created a wealth of opportunities. Following the success of shallow water Round 2.1 (see our Law Now here) and the start of fuel-price liberalisation, investors are increasingly looking to Mexico with its vast untapped reserves and attractive business framework.
According to González Anaya, Pemex's financial risk has been reduced by 2% and most ratings agencies have changed their prospects from negative to stable.