Mexico’s plans to develop its shale oil resources have finally taken a step forward following years of largely fruitless efforts by the state owned company Pemex.

Canada’s Renaissance Oil and Russia’s Lukoil are joining forces to develop the Amatitlan block of the Chicontepec region. They aren’t interested in the shallower tight oil, but in the stack’s deeper Pimienta shale formation, which is what they consider Mexico’s Eagle Ford.

Renaissance and Lukoil agreed to a $60 million accelerated development plan for the Amatitlan block for 2017, which will include workovers of existing wells, and the drilling of new wells.

The Pimienta formation, located in the Upper Jurassic layer of the Chicontepec, is an important play for the future production of Mexico, as output has been trending lower.

Renaissance estimates original oil in place in the Amatitlan block at 4.2 billion barrels of oil equivalent, and estimated the Pimienta section at 564 boe per acre-foot, compared with Eagle Ford at 598 boe. Also, both formations have similar pore pressure.

Despite being discovered in 1962, the Amatitlan is largely underdeveloped. The field has produced about 175,000 barrels of light oil, ranging from 34 to 44 API.

Pemex estimates that the entire Pimienta holds 20.8 billion boe, mostly liquid hydrocarbons. In 2014, Pemex explored for the first time the Pimienta formations by drilling three conventional exploratory wells.

According to Nick Steinsberg, director of engineering with Renaissance Oil, one of these wells has produced close to 800 b/d.

Renaissance is bringing shale experience to the project. Steinsberg pioneered horizontal drilling in the US Barnett Shale with Devon Energy. Dan Jarvie, Renaissance’s chief geochemist, was the former chief geochemist of EOG Resources, Eagle Ford’s largest shale producer.

The biggest challenge for the Amatitlan is cutting costs, Luis Miguel Labardini, country manager for Renaissance, told S&P Global Platts.

Labardini said that key to bringing costs down have to do with good project management—reducing rig time and reaching the technical optimal rate of drilling.

The structure of Mexico’s oil service industry also presents a cost challenge, said Labardini.

Renaissance has developed some bidding guidelines and will auction all the operating service contracts later this year, he said.

Pemex’s exploration plan for Amatitlan shows that the state oil company will drill an exploratory unconventional well named OPS-1 at the cost of $8.9 million.

The well will have a depth of 12,112 feet and a horizontal length of 6,561 feet to exploit a target point at 9,465 feet in the Pimienta formation. Drilling and completing the well would take 122 days.

Similar to Eagle Ford geology, not costs

In contrast, Sanchez Energy said in September it was able to reduce per-well drilling costs in the Eagle Ford down to $3.5 million, while Chesapeake Energy said at the same time it was able to drill a well in as little as eight days.

Pimienta is the Chicontepec region’s biggest prize, said Colin Stabler, a geologist contractor with Pemex in the 1960s and later Shell E&P director for Mexico from 1997 to 2004.

Stabler studied Pimienta and other Mexican Jurassic formations with Pemex. In 2013, during Pemex’s Chicontepec auction round, he analyzed the Pimienta for a participating company as a consultant.

“We recognized Amatitlan is the best block for Pimienta,” Stabler told Platts, adding that there are key differences between Pimienta and Eagle Ford including its depth and proximity to mountains.

Stabler said he shares Renaissances optimism for Pimienta’s geology. However, “geological similarities between Eagle Ford and Pimienta doesn’t translate as well to economic similarities.”

“Renaissance’s biggest challenges are on the surface,” Pablo Medina, Latin America upstream research analyst at Wood Mackenzie, told Platts.

Medina said the block has great potential, but access to water and roads, dealing with indigenous communities, migrating the service contract, a regulatory framework on the making, and low energy prices will need to be overcome.

“It could be a game changer, but not because it is Amatitlan, but because they are the first. They will be trailblazing,” said Medina.

Fulfilling Mexico’s need for sweet crude oil will be an interesting market in the near future, said Labardini, adding that Pemex might need to import as many as 100,000 b/d of light oil in the coming years.

Author

Daniel Rodriguez, Foreign correspondent with Platts

Daniel is a business journalist who has covered Canada, the US, and Mexico. His main area of focus is reporting on oil and gas, renewable energy, electricity markets, immigration, politics, and international issues.

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