Unconventional Resources of Mexico Opportunities and Challenges

Unconventional Resources of Mexico
Opportunities and Challenges
CSUR Technical Luncheon
September 12, 2012
Presentation Outline
Technical Luncheon
Presentation
 Why Mexico
 The Size of the Prize
 Unconventional Gas Potential
 Northern Mexico Basins
 Burgos Basin
 Sabinas Basin
 Tampico Basin
 Tuxpan Platform
 Veracruz Basin
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
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Natural Gas Market in Mexico
PEMEX Plans for Development
Mexico Dilemma
Challenges Facing Mexico
The Final Word
September 12. 2012
Why Mexico ?
Technical Luncheon
Presentation
Eagle Ford Fm of the Maverick Basin
Northern Basins – gas prone
Southern Basins – oil prone
Unconventional Resources
Geographic Setting
September 12. 2012
Technical Luncheon
Presentation
Why Mexico ?
Geology does not stop
at the Border
Mexico
From USGS Geological Map
of North America
The prospects for
unconventional hydrocarbon
resources in northeast Mexico
are essentially undeveloped yet
have very high potential
September 12. 2012
Why Mexico ?
Technical Luncheon
Presentation
Eagle Ford Analogue
The Eagle Ford Unconventional
Resource Play in West Texas in 2011
produced > 40 MM bbls of oil, > 24 MM
bbls of Condensate and 290 Bcf of
natural gas
The Eagle Ford geological equivalent
can be found in northern Mexico in the
Burgos Basin. While different, the
geological equivalent strata are of
similar or greater thickness and initial
tests has demonstrated gas production
September 12. 2012
Why Mexico ?
Technical Luncheon
Presentation
Mexico produced 2.1 Tcf of
gas in 2011 but consumed
2.2 Tcf with the differential
being supplied by LNG and
exports from United States
As the country continues
to move towards a natural
gas powered electrical
sector, the differential is
expected to increase
In the short term it is
economically attractive to
import gas from the US
when North American gas
prices are low but this is
not sustainable in the long
term
September 12. 2012
The Size of the Prize
Technical Luncheon
Presentation
 Mexico is projected to have the 4th largest resources of unconventional gas worldwide with over
681 Tcf defined (EIA 2011)
 Increased reliance on natural gas for electrical power generation will increase the domestic
demand for natural gas
September 12. 2012
Major Unconventional Resources Basin in Mexico
Technical Luncheon
Presentation
Pemex has identified 5
basins that have shale
gas potential:
 Chihuahua
 Sabinas
 Burgos
 Tampico/Misantla
 Veracruz
Pemex has ambitious
plans to evaluate and
develop the country’s
shale gas potential
One well, Emergente-1 has
been completed and
stimulated and an
additional 2 more wells are
in the planning or early
stages of drilling
From PEMEX Investor Presentation, 2012
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
From EIA website
September 12. 2012
Technical Luncheon
Presentation
Geological Setting and Prospective Basins
Burgos Basin
 Southern extension of the Maverick Basin in
West Texas that contains the Eagle Ford and
Pearsall formations
 Covers approximately 63,000 sq km
 Eagle Ford shale ranges in thickness from 100 to
300 m
 Depth between 1000 to > 5000 m (in the east)
 TOC estimated at 5% and an Ro of 1.3%
 Resource concentration of Eagle Ford estimated
at 210 Bcf/sq mile and total OGIP estimated at >
1500 Tcf
 Deeper Pearsall Formation up to 400 m of which
70 m is organically rich
 Average depth 3800 m
 TOC of 3% and Ro of 1.3%
 Resource concentration of 75 Bcf/sq mile and an
OGIP estimate of 272 Tcf
From EIA World Shale Gas Report
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
From EIA World Shale Gas Report
September 12. 2012
Technical Luncheon
Presentation
Geological Setting and Prospective Basins
Sabinas Basin
 Total area of 62,000 sq km
 Conventional gas production since 1974 with
current output of 8 to9 MMcf/d
 Structurally complex with evaporite fold structures
associated with the Laramide uplift and subsequent
salt withdrawal tectonics in Tertiary
 Much of basin may be too structurally complex to
be considered prospective for shale gas
 Two formations Eagle Ford and deeper La Casita
have some potential for shale gas resources
 Eagle Ford shale up to 300 m thick
 Estimated TOC at 4% and Ro of 1.3%
 Estimated depth of up to 3000 m but the reservoir
may be underpressured
 Eagle Ford Fm estimated resource concentration
of 113 Bcf/sq mile with OGIP of 218 Tcf
From EIA World Shale Gas Report
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
Sabinas Basin
 Upper Jurassic La Casita Fm
ranges from 60 to 800 m thick
 Depths range from 2,000 to 4,000
m but highly variable due to
structural complexity
 TOC ranges from 1 to 3% and Ro
of 2 to 3%
 Structural complexity limit
resource area to 31,000 sq km
 Gas concentrations of 55 to 60
Bcf/sq mile
 Total OGIP estimated at 56 Tcf
From EIA World Shale Gas Report
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
Tampico Basin
 Prospective area covers ~ 36,000 sq km
 Basin bounded by the Sierra Madre Oriental on the
west and the Tuxpan Platform on the east
 Prospective shale formation is the Pimienta shale
at depths from 1400 to 3000 m (mainly in the south
part of basin
 Three large NE trending geological structures
dominate the center of the basin
 Conventional wells intersected thick section of
Pimienta encountering up to 200 m thick but
variable in thickness due to paleohighs
 Shale has TOC of about 3% and an RO of 1.3%
 OGIP estimated at 63 Bcf/sq mile with a total
resource estimate of 215 Tcf
From EIA World Shale Gas Report
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
Tuxpan Platform
 Tuxpan platorm is a basement high with overlying
Cretaceous age formations of which two are
prospective for shale gas
 Prospective area about 5000 sq km
 Lower Cretaceous age Tamaulipas Fm averages 68 m
at a depth of 1800 to 3000 m
 Cretaceous age Pimienta Fm ranges from 140 to 350
m thickness at a depth of 2400 to 3300 m
 TOC of the Tamaulipas Fm ~ 3% with an RO of 1.25%
 Shale formation may be absent in some areas due to
sub aerial exposure and erosion
 OOGIP estimates suggest that up to 72 Bcf/sq mile
for the Pimienta Fm with a total of 28 Tcf
 Tamaulipas Fm is estimated to hold 65 Bcf/sq mile of
OOGIP and a total resource estimate of about 20 to
25 Tcf
From EIA World Shale Gas Report
September 12. 2012
Geological Setting and Prospective Basins
Technical Luncheon
Presentation
Veracruz Basin
 Onshore area~ 23,000 sq km
 Bounded on west by Sierra
Madre Oriental thrust zone
 Asymmetrical basin with the
thickest section along western
margin
 Upper Cretaceous age Maltrata
Fm up to 80 m thick potential
shale gas reservoir
 Lithology is mainly shaly marine
limestones
 TOC exceeds 2% and Ro of 1 to
1.3%
 Resource concentration
estimated to be 29 Bcf/mi2 with
a OGIP of 38 Tcf
From EIA World Shale Gas Report
September 12. 2012
Basin Properties and Resource Potential
Technical Luncheon
Presentation
From EIA, February 2011
September 12. 2012
Basin Properties and Resource Potential
Technical Luncheon
Presentation
From EIA, February 2011
September 12. 2012
Natural Gas Market in Mexico
 Mexico currently imports about 1.4
Bcf/day from United States by pipeline ,
the majority coming from Texas
Technical Luncheon
Presentation
$/mcf
 Price averaged $4.18/mcf for 2011 but
has dropped to less than $3.00/mcf in
2012
 Imports of US sourced natural gas are
increasing due to low cost and
decreasing domestic supply
Mmcf/month
September 12. 2012
Technical Luncheon
Presentation
Natural Gas Market in Mexico
PEMEX Natural Gas Production
MMcf/day
8,000
7,000
6,000
5,000
4,000
3,000
Total Production
2,000
Northern Production
Southern Production
1,000
Offshore Production
0
2007
2008
2009
2010
2011
2012
From PEMEX Website
September 12. 2012
Pipeline Infrastructure for Natural Gas Development
Technical Luncheon
Presentation
September 12. 2012
Technical Luncheon
Presentation
PEMEX Plans for Development
PEMEX has plans for an aggressive strategy to understand and develop the
unconventional resources of northern Mexico. The strategy is to:
 Focus on oil and wet gas areas
 Improve estimation through the drilling of 175 wells
 Characterize and delineate main areas
Ranking of areas
Basins
Chihuahua
5
Sabinas
Aceite
3
1
Tampico Misantla
34.7
Oil
Wet Gas
2
Burgos Mz
8.9
Wet Gas
Dry Gas
3
Burro
Picachos Sabinas
16
Wet Gas
Dry Gas
4
Veracruz
0.6
Oil
5
Chihuahua
In
evaluation
Dry Gas
Gas y condensado
2
Burgos MZ
Gas seco
Gas
y aceite en
En
estudio
estudio
TampicoMisantla
1
Veracruz
0
200
400
Product
Boe)
Burro-Picachos
República Mexicana
Resources
(Billion
800 Kilómetros
4
From PEMEX 2011
September 12. 2012
Technical Luncheon
Presentation
PEMEX Plans for Development
Phase 1
Phase 2
Geological characterization
and reduction of uncertainty
Evaluation of prospects and
test of concept
Sabinas
2011
12 13 14
15
25 wells
Burgos Mesozoico
30 wells
Tampico-Misantla
80 wells
2016 17 18 19
10 wells
20 21 2022
100 wells
30 …2045
4,050 wells
13,500 wells
240 wells
50 wells
23 24 25 26 27 28 29
2,700 wells
90 wells
10 wells
Veracruz
Full scale development
Total of wells 27,000
Total of wells 590
Total of wells 172
Area / Basin
Phase 3
1,350 wells
50 wells
1,350 wells
Chihuahua
September 12. 2012
PEMEX Plans for Development
Technical Luncheon
Presentation
PEMEX has initiated a 3 well test program in the northern part of the Burgos Basin
to test the shale gas potential of the Eagle Ford equivalent geological formation
The first well drilled by PEMEX in the northern area of the Burgos Basin (State of
Coahuila) was completed in February 2011
 Emergente #1 tested at 3 Mmcf/day
 TVD of 2500 m with a 1372 m lateral
 Well completed in the Eagle Ford equivalent
 Cost to drill, complete and fracture stimulate about $20 Million US
 Horizontal leg completed with 17 stages
 Second well drilled in second half of 2011 but no results have been
released
 Expectation that wells 2 and 3 will cost about $10 Million each in
comparison to Eagle Ford wells in Texas that are between $4.5 - $6 Million
September 12. 2012
PEMEX Plans for Development
Technical Luncheon
Presentation
September 12. 2012
PEMEX Plans for Development
Technical Luncheon
Presentation
September 12. 2012
The Mexico Dilemma
Technical Luncheon
Presentation
The Mexican government recognizes the need to expand the country’s oil and
gas production
 The Canterall field which is the backbone of the Mexican oil industry is declining
rapidly and replacement reserves are more difficult to find and produce resulting
in higher costs
 In order to meet the demand by the electrical sector, substantial increases in
natural gas production will be required or Mexico will become more dependent on
US exports
 Collectively in order to develop the potential resources that have been identified in
the country significant amounts of capital will be required 9in the order of more
than $100 billion over the next 10 to 15 years
 PEMEX does not have the technological nor financial capacity to undertake this
major exploration and development strategy even though they have aggressive
plans
 There is a clear need for foreign investment into the country to provide not only
the capital but also the technology
BUT HERE’S THE PROBLEM ………………………………..
September 12. 2012
The Mexico Dilemma
Technical Luncheon
Presentation
The Mexican government and PEMEX recognize the need to explore and develop the
unconventional gas potential of the country to meet the growing demands from the electrical
sector but there are significant challenges in achieving this goal
September 12. 2012
The Mexico Dilemma
Technical Luncheon
Presentation
September 12. 2012
The Mexico Dilemma
Technical Luncheon
Presentation
By law within the Mexican Constitution, only the State can have ownership or hold leases for
oil and gas in the country
The biggest challenge is to find a mechanism by which foreign companies are incented to
invest in Mexico given that they will not be able own or control any of the resources into
which they are investing
The Mexican government has over the past two years introduced a number of reforms to the
oil and gas sector to try and create an environment that will be attractive to foreign
investment
 PEMEX has been instructed to create and award integrated E&P contracts whereby
foreign companies will be paid a tariff for each barrel of oil or BOE extracted, plus
partial recovery of costs.
 In addition there are performance based bonuses for improved productivity and cost
savings
In August PEMEX successfully offered and granted a number of exploration blocks for
development, primarily in existing oil prone basins
September 12. 2012
The Mexico Dilemma
Technical Luncheon
Presentation
Mexico and PEMEX also recognize that there will be an internal
competition for capital within PEMEX
In the short term, the focus has been directed towards offsetting the
decline of conventional oil production by exploring for new basins
offshore as well as employing new technologies on some of the onshore
basins where oil production has lagged.
This now puts the government in a position to rely heavily on natural gas
imports from Texas and LNG to offset the declining natural gas
production and the increased demand. This is a “band aid” solution that
works temporarily due to low gas prices in the North American market
This import solution is not sustainable in the long term as demand
increase and projected price recovery will negatively impact the
economics of import supply
The import solution doe buy Mexico a little time to get their regulatory
house in order and allow PEMEX to acquire some preliminary data
regarding the unconventional gas potential of the prospective basins
September 12. 2012
Mexico Dilemma
 Mexico currently imports about 1.4
Bcf/day from United States by pipeline ,
the majority coming from Texas
Technical Luncheon
Presentation
$/mcf
 Price averaged $4.18/mcf for 2011 but
has dropped to less than $3.00/mcf in
2012
 Imports of US sourced natural gas are
increasing due to low cost and
decreasing domestic supply
Mmcf/month
September 12. 2012
Technical Luncheon
Presentation
Challenges Facing Mexico
Other Challenges that may impact the
growth of the unconventional resource
industry in Mexico

Permitting and Bureaucratic Delays

Environmental standards
Detail of the fracture
Infrastructure
Fractured
Horizontal Well
Vertical
well
fractured
Vertical
well

High number of personnel and drilling rigs

Daily fracturing services

Intensive traffic of drilling rigs and heavy
equipment

Liquids separation plants
Safety and Environment



Safe operations
Wildlife protection and restoration of areas
Aquifer protection, recycling water, metal
containers, deep latrine wells
September 12. 2012
Technical Luncheon
Presentation
Challenges Facing Mexico
Industry is expected to adopt much more rigorous
operational and environmental standards than have
been the norm in the past all of which add to the F & D
cost of any project
34
September 12. 2012
Challenges Facing Mexico
Technical Luncheon
Presentation
State of the art drilling and completion
equipment will be necessary to
effectively explore and develop the
unconventional resource potential –
This technology and expertise in most
cases, will need to be sourced from
outside Mexico
September 12. 2012
Challenges Facing Mexico
Technical Luncheon
Presentation
The Cartel has become very
adept at utilizing the
expansion of the oil and gas
activity in the northern border
region to assist in the export
of their product into United
States
They have also recognized the value of condensate
and have diversified into the “acquisition” and sale of
hydrocarbon products on the black market
Of course the safety risks of working in the northern
border region still exist as the Cartel Zetas have
effectively created their own local government
September 12. 2012
Challenges Facing Mexico
Technical Luncheon
Presentation
The northeast part of Mexico is very arid and should shale gas development grow at rates
necessary to provide the natural gas needed by the country, accessing water for drilling and
fracturing operations may be an issue
Concerns by local
residents in the
northern region have
already been
expressed about water
usage and
groundwater
protection
Even though the area
is relatively remote,
social media attention
surrounding hydraulic
fracturing will
potentially be an issue
September 12. 2012
Key Messages
Technical Luncheon
Presentation
 Mexico has tremendous potential for onshore unconventional resource development
 OGIP resource estimates are conservatively placed at 681 Tcf
 The Eagle Ford Formation of west Texas of the Maverick Basin extends into Mexico into the
northern extent of the Burgos Basin providing a reasonable analogue for early stages of
exploration and development
 Early results from PEMEX drilling suggest that shale gas potential is high in the northern
Burgos Basin but still in the early stages of knowledge capture
 Significant exploration capital will be required to effectively explore for these resources
 PEMEX does not have the capital nor technical expertise to undertake effective exploration
and development for unconventional resources including shale gas, tight gas , tight oil and
coalbed methane while at the same time developing their conventional oil resources
 Foreign investment of capital and technology will be necessary for Mexico to achieve their
energy goals
 Current system of resource ownership and leasing is not conducive for foreign investment
but the government continues to move towards fundamental changes in the system
 Safety issues and the presence of the Cartel in the northern border regions will still be a
challenge
 Access to water and groundwater protection will be issues on the horizon should the
industry expand dramatically going forward
September 12. 2012
Muchas Gracias por su Atención
Gracias nuevamente por su apoyo
Buenas Tardes y Hasta la Vista
Unconventional Resources of Mexico
Opportunities and Challenges
CSUR Technical Luncheon
September 12, 2012