In 2013, when Mexico initiated historic reforms to open its energy sector for the first time in 75 years, few could have imagined the transformation the country's upstream sector would undergo in less than five years.
According to a new report by Wood Mackenzie, which analyses the impact of Mexico's energy reform on its upstream sector, Mexico has managed not only to attract interest from a broad range of companies, including the majors, but is also poised to reverse years of declining production by early next decade.
Matt Blomerth, Head of Latin America Upstream at Wood Mackenzie, said: "In less than five years, Mexico's energy reform has dramatically altered the country's upstream landscape and production outlook. These significant accomplishments are all the more impressive given this occurred during an historic oil price downturn.
"The most immediate sign of the reform’s impact has been the flourishing of a diverse upstream landscape. Leading exploration and production companies have been drawn by the country's hydrocarbon prospectivity and competitive fiscal terms, fostered by a government that has listened to industry concerns."
Across the country's eight licensing rounds held to date, more than 80 blocks have been awarded. More than 30 exploration and production (E&P) companies, ranging from supermajors and national oil companies to regional independents and new local operators, are now active in Mexico's offshore.
Mr Blomerth said: "The E&P companies entering Mexico's offshore bring the financial capacity and technological expertise the country needs to fully realise its hydrocarbon potential."
He added: "Limited deepwater drilling in Mexico has left many play types under-explored. Subsalt plays have only recently begun to be explored, aided by new seismic data and advanced interpreting techniques. New players will bring a fresh pair of eyes to some of Mexico's most promising hydrocarbon prospects – a change from Pemex's historical focus on single-play concepts."
Pemex's legacy offshore activity has delivered significant shallow-water discoveries. Yet it also left the national oil company little impetus to explore deeper or riskier plays, leaving much of Mexico's offshore unexplored.
In the future, Mexico's offshore exploration will likely centre on clastic play types, resembling the primary target in the US Gulf of Mexico for decades. As a result, the country will benefit from the transfer of geological play knowledge and technologies pioneered and refined in the US. Last year's Zama discovery shows the potential of this approach.
More importantly, new fields coming onstream are expected to halt years of declining production by the early 2020s. The four shallow-water assets awarded during Round One in the Salinas Sureste basin – Zama, Hokchi, Ichalkil-Pokoch and the Amoca complex - will contribute to this output growth.
According to Mexico's regulatory agency, the Comisión Nacional de Hidrocarburos (CNH), billions of barrels more await discovery. The agency estimates Mexico's deeowater holds as much as 19 billion barrels of oil equivalent of prospective resources. The Trion joint venture (JV) with BHP and Pemex, Mexico's first-ever deepwater JV, is expected to pump more than 300 million barrels starting in the mid-2020s.
Mr Blomerth said: "Future deepwater discoveries will take longer to come online and will ultimately hold the key to pushing Mexico’s production back to sustained growth into the next decades.
"In the interim, Mexico’s treasury will get relief by faster-turnaround production from shallow-water fields. We expect production decline to halt by early next decade before starting the long climb upward."
Although Mexico has made significant progress over the past few years, it will take more time for the benefits of the energy reform to be fully realised. With upcoming presidential elections, Mexico's energy future is at a crossroads.
Mr Blomerth said: "Strong government backing has underpinned success thus far. The level of interest in recent rounds suggests that companies remain committed to Mexico despite near-term political uncertainty."
He added: "Nonetheless, sustained government support by the next administration will be needed to help Mexico reach sustainable production growth faster and increase revenue for the country earlier."