Mexico is experiencing a tectonic shift in its energy regimen, and AAPG Vice President-Regions Alfredo Guzmán is at the core of the vortex of change.
Energy reforms went into effect last November that are hoped to give the state-owned Petróleos Mexicanos (PEMEX) the flexibility it requires to halt an ongoing and alarming slump in production.
A key provision is the formation of a five-person “Comisión Nacional de Hidrocarburos” (CNH), a new federal agency under the secretary of energy’s purview that has the expertise and authority to regulate and supervise exploration and production decisions.
Guzmán is one of the five, all appointed by Mexico’s President Felipe Calderón.
“I had just hung up the phone hearing that I was elected as an AAPG vice president Cregious when the phone instantly rang again – it was from the (Mexico) Energy Ministry,” Guzmán said, “telling me of the appointment.”
The commission’s charge will set technical exploration strategies and standards for Mexico oil and gas fields, including rules on reservoir management and production practices.
The new law confirms PEMEX’s monopoly over the country’s oil and gas, but the secretary for energy has seen broader authority over energy planning and policy.
Previously, decisions on projects have been based on the Ministry of Finance’s assessments of the likely short-term revenues, since PEMEX provides about 40 percent of the country’s budget revenues.
One of the aims of the energy reform was to improve regulatory supervision of PEMEX while focusing the company more on being an operator, with the CNH playing a significant role in attracting private companies as contractors.
The reform also has given the CNH a hugely significant tool – relaxation of the rules governing how PEMEX contracts for services.
While the law expressly bars production sharing agreements, risk service and other similar agreements, PEMEX now will be permitted to give incentives to contractors for achieving set goals such as cost savings or productivity improvements, and clauses to compensate for variations in market prices of supplies, equipment and the acquisition of new information.
This is a sea-change from the previous regimen, which shackled potential PEMEX project partners.
The reforms come none too soon. For instance, PEMEX has reported the offshore Cantarell Field in 2008 was producing 974,000 bod, slumping 37 percent from the previous year. Cantarell, discovered in 1976, was producing about 60 percent of the oil production of Mexico, the world’s number six oil producer. At its peak in 2004, Cantarell was producing 2.193 million bod.
With 10 productive basins and two that are highly prospective – including the deep Gulf of Mexico – Guzmán is confident a turnaround is possible.
“Look at the Chicontepec Field onshore in central Mexico,” Guzmán said. “Geologically, the Chicontepec is highly analogous to the Spraberry Trend Field in the Midland Basin in Texas.
“The Spraberry was discovered in 1948 and, like Chicontepec (discovered in 1931), was considered to be uneconomic,” he said. “The geology is similar, but the development histories are hugely different.
“Both are located in mature producing regions where numerous other fields, including fields with significantly less original hydrocarbon in place but with better reservoirs, have produced millions of barrels of oil and billions of cubic feet of gas,” he said.
Similarly, Guzmán continued, both Spraberry and Chicontepec are giant oil fields contained within extensive, low porosity and low permeability submarine fan reservoirs. Each field has a gross interval of approximately 1,000-1,500 feet, with multiple reservoirs less than 10,000 feet deep. Sand-prone intervals are laterally extensive and can be correlated regionally, but do have localized channeling. Both fields produce from solution-gas drive.
“Over 18,000 wells have been drilled in the Spraberry,” Guzmán said, “and less than 2,000 in Chicontepec.”
A 2002 paper Guzmán co-authored with AAPG member Chris Cheatwood of Pioneer Natural Resources, stated “Managing drilling costs, fracturing technology and controlling production costs along with economies of scale have allowed the Spraberry to be developed. Developing the Chicontepec field using similar methods would add significant reserves and production volumes for Mexico.”
Chicontepec is estimated to contain 140 billion barrels of original oil in place and 35 trillion cubic feet of associated gas in a series of stacked Late Paleocene to Eocene-age reservoirs covering approximately 3,800-square kilometers.
Another AAPG member, Noel Tyler, wrote in a 2004 paper, “Like its close analog, the Spraberry Trend of the Permian Basin, the Chicontepec is pervasively saturated, and like the Spraberry, is considered a candidate for secondary recovery.”
Both Guzmán and Tyler agree there are many challenges to be overcome before waterflooding can be initiated in the Chicontepec – including the indigenous population’s small villages and diverse cultures that need to be approached in an appropriate manner, Guzmán said.
“To be sure, there is a lot of geology to be done,” Guzmán said, “but with the right technology and the appropriate exploration and production plan, the Chicontepec is an example that Mexico can reach the potential that has been envisioned.”
As a member of Mexico’s newly formed Comisión Nacional de Hidrocarburos, Alfredo Guzmán knows first-hand how high-level policies can affect exploration and production success.
As a member of the new commission, Guzmán will be sitting on a panel of five scientists that will be overseeing exploration and production decisions – and advising contracts – for PEMEX.
Guzmán is living in Mexico City and working long hours during the week, then making the two-hour drive home to Veracruz for weekends.
The tasks ahead are formidable.
As exploration vice president of PEMEX from 1999-01 and North Region vice president in 2002-07, Guzmán knows the potential of the country’s undiscovered resources.
He also has experienced the frustration of policies that blocked progress – and has an established track record in exploration and production success when progressive policies are applied.
In 1992, when he was PEMEX’s sedimentology studies superintendent in Northeast Mexico, gas production from the Burgos Basin was about 200 mmcfd. Guzmán talked with upper management about how production could be improved through new processes and technology – and allowing explorationists to choose drill sites rather than others that would opt for “safe” and “economic” choices.
In 1994 Guzmán was named the Burgos Basin Integral Project team leader. Production began to climb dramatically as the ideas he brought to the table began to take hold (see accompanying graph), and in 1997 he was named exploration manager for the PEMEX northern region.
With that success, Guzmán was named PEMEX exploration vice president for all of Mexico in 1999. In 2002 as regional vice president Guzmán took the Veracruz Basin, which was producing less than 200 mmcfd – but given some latitude and again applying new technologies and adapting new business models when allowed, the production began to climb.
When Guzmán retired in 2007, the Burgos Basin was producing at about 1,550 mmcfd and the Veracruz at about 1,000 mmcfd – a more than five-fold increase in production.