As Mexico’s Deepwater Beckons E&P Companies, New ‘Super Basin’ Analysis from IHS Markit Says Onshore Tampico-Misantla Basin Has Large, Untapped Potential

HOUSTON–(BUSINESS WIRE)–New research by IHS Markit (Nasdaq: INFO) finds that theTampico-Misantla Basin in Mexico could be one of 24 global onshore‘Super Basins’ that IHS Markit has identified. Exploration andproduction (E&P) companies investing in Mexico’s upstream industry haveshown strong interest in the country’s offshore basins, but the onshorepotential in Mexico is not fully tapped and is potentially huge. TheTampico-Misantla Basin is primarily located onshore in east centralMexico and extends into the shallow waters of the Gulf of Mexico.

In its Super Basins: The Basins that Keep on Giving analysis,which is derived from the IHS Markit Basin Insights Service, IHS Markit— a world leader in critical information, analytics and solutions —identified the Tampico-Misantla as one of 24 onshore ‘super basins’worldwide. The ‘super basins’ have multiple reservoirs and source rocks,diverse play types across numerous geologic horizons, infrastructurewith access to markets, and established service sector and supply chains.

“In searching for super basins, we looked for at least 5 billion barrelsof oil equivalent (BOE) in conventional remaining reserves in basinsthat had already produced at least 5 billion BOE,” said Robert Fryklund,chief upstream strategist at IHS Markit and a lead author of the report.“We did a global assessment of basins where our study criteriaexisted—looking for basins with multiple plays and at least two maturesource rocks—basically basins that keep on giving and giving. Existingproduction indicates that there is extensive existing infrastructure.”

The Tampico-Misantla Basin, which has been producing oil since the early1920s, has those characteristics, Fryklund said. “In many ways, it maywell mirror America’s model super basin – the ever-resilient PermianBasin.

IHS Markit analyzed the Permian Basin and looked at the current view ofthe estimated ultimate recoverable resources (EUR) for the basin, andcompared that with the view of the EUR in 2000, 10 years before theshale boom in the Permian began. Before the horizontal drilling andfracture completion boom, the EUR for the Permian Basin was 35 billionbarrels of oil. Remarkably, the current view is 104 billion barrels,almost three times the previous estimate – and some put the numberhigher.

The ability to target smaller horizons and take advantage of themultiple stacked pay zones (as many as 45 units) found in the basin madethis significant EUR increase possible, the IHS Markit analysis said.

This three-fold uplift for the Permian Basin, Fryklund said, prompted ateam of IHS Markit upstream professionals to look at other basinsoutside the United States to assess where governments could takeadvantage of similar basins to get more out of their existing productionareas. While IHS Markit does not expect the same dramatic increase inproduction in other basins as witnessed in the Permian, theTampico-Misantla Basin fits the study’s definition of a ‘super basin.’It has produced 7.4 billion BOE (mostly oil). It still has 5.2 billionBOE in discovered conventional fields (which does not take into accountthe basin’s unconventional potential).

IHS Markit has identified 23 conventional reservoir horizons in theTampico-Misantla basin, and it has three mature source rocks: the AguaNueva Formation, the Huayacocotla Formation and the Pimienta Formation.At least two of these, Fryklund said, are potential shale reservoirs. AnIHS Markit evaluation of the Agua Nueva and Pimienta shales for shaleoil resource potential resulted in an estimate of 3.8 billion BOE oftechnically recoverable resource in this basin. The Pimienta shale hasnot been tested in the Tampico-Misantla Basin, Fryklund said, but it hasbeen tested in eight other wells in the Burgos and Sabinas Basins, whereit flowed gas.

The Tampico-Misantla Basin is also under-explored, according to IHSMarkit. The last discovery in the Tampico-Misantla Basin was in 1988.There are relatively few discoveries that are more than approximately100 million BOE, but IHS Markit estimates that as much as 2.5 billionBOE might be found in multiple conventional fields. Most are likely tobe relatively tight reservoirs that could benefit from horizontaldrilling.

“Between the remaining reserves in existing fields, conventionalexploration potential, and opportunities in shale and other tightreservoirs, the basin offers something for everyone—a diversity ofupstream opportunities for large and small companies, national oilcompanies and investors,” Fryklund said.

Despite the geologic promise, Fryklund said that, while the resourcepotential is high, turning it into proven reserves is not withoutsignificant challenges. “The local service sector infrastructure wouldneed substantial investment. We at IHS Markit believe that theinvestment capital is available if there is clarity around theinvestment opportunity.”

With a relatively high-cost structure for horizontal drilling activity,the current fiscal terms, which govern Pemex’s entitlements (licensesawarded to Pemex in Round Zero, or production licenses held at the timeof Round Zero) in the Tampico-Misantla Basin, are inadequate to offsetthe higher costs associated with the preliminary phases of developmentof tight reservoirs.

Currently Pemex is the only producer in the Tampico-Misantla Basin, andit faces financial and technical challenges to develop the wholepotential of the basin, according to Alejandra León, Mexico energyanalyst at IHS Markit. “Increasing resources and capabilities beyondPemex is critical for developing the basin,” León said. “The challengeis to increase the number of qualified operators investing in the basinand improve the fiscal terms. These changes could be achieved through atleast two scenarios. The National Hydrocarbons Commission (CNH) may needto redraw or repackage acreage and blocks to create the scale needed toachieve the synergies conducive to success in operational strategiesemployed in this type of E&P basin.”

Mexican crude production, which is still the main source for financingthe government budget, continues to decline, and according to CarlosPascual, senior vice president for global energy at IHS Markit and oneof the study authors, is unlikely to see 2.5 million barrels of crudeoil production per day again under current conditions.

“Another key factor favoring Tampico-Misantla is timing, which could bevery constructive for Mexico,” Pascual said. He explained that “theTampico-Misantla Basin could help offset a declining Mexican productionsupply profile in the near-to medium-term, much like the Permian Basinhas done for the U.S. The potential to get near-term results could bringbig benefits to government revenue, the local services sector andemployment.” This is because, in part, the cycle time for substantialsuccess in the deepwater would not generate related volumes until themiddle of the next decade and beyond.

“Tampico-Misantla offers a near-term opportunity that could positivelyimpact the Mexican economy in the current oil-price environment,”Pascual said. “There are other significant risks to attracting investorsin Tampico-Misantla, including security and aging infrastructure, whichshould not be underestimated. Still, if the government takes positivesteps to address the needed terms for unconventional exploration andproduction, the potential is significant.”

“Exploration and appraisal of unconventional and tight conventionalresources is a critical component to sustaining long-term production,and the Tampico-Misantla Basin is a potential source of significantdiscovered resources that could make the difference for Mexico,”Fryklund said. “While the government has several challenges to addressit also has the power and authority to resolve those challenges, atleast in some areas, and to chart the path for the next phase ofdevelopment for this super basin.”

To speak with Bob Fryklund, Alejandra León, or Carlos Pascual, pleasecontact Melissa Manning at melissa.manning@ihsmarkit.com.For more information on the IHS Markit Basin Insight Service and itsanalysis entitled, Super Basins: The Basins that Keep on Giving,please contact clare.fletcher@ihsmarkit.com.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information,analytics and expertise to forge solutions for the major industries andmarkets that drive economies worldwide. The company deliversnext-generation information, analytics and solutions to customers inbusiness, finance and government, improving their operational efficiencyand providing deep insights that lead to well-informed, confidentdecisions. IHS Markit has more than 50,000 key business and governmentcustomers, including 85 percent of the Fortune Global 500 and theworld’s leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. All othercompany and product names may be trademarks of their respective owners ©2017 IHS Markit Ltd. All rights reserved.

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