Uncovering Mexico - JPT

MEXICO
UNCOVERING
A GUIDE TO THE COUNTRYS

HISTORIC E&P OPENING
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UNCOVERING MEXICO
STABLE AND PREDICTABLE FRAME CONDITIONS WITH

GLOBALLY COMPETITIVE TERMS IS THE SOLUTION
Energy reform success in Mexico, writes 2015 SPE President Helge Hove
Haldorsen, will depend on upholding the rule of law, providing safety
and security for investors personnel and property, transparency, zero
corruption, and upholding strong ethics and code of conduct in all
energy business practices.
MEXICO RUSHED TO OPEN OIL SECTOR IN 2014, CAN IT

MAINTAIN THE PACE IN 2015?
The opening of Mexicos energy market came suddenly, surprising even
longtime observers who lived through unfulfilled promises of change.
10
ANTICIPATING SUCCESS
Mara de Lourdes Melgar Palacios, undersecretary of hydrocarbons
at the Secretariat of Energy of Mexico, and Edgar Rangel German, a
commissioner of the National Hydrocarbons Commission, outline the
steps Mexico has taken so far in its energy transformation and explain
what next years bidding process will look like.
COVER PHOTO
A boat sails away from the
Petroleos Mexicanos (Pemex)
Centennial deep sea crude
oil platform in the waters off
Veracruz, Mexico. Photo by
Susana Gonzalez/Bloomberg
via Getty Images.
14
DEEPWATER RESULTS WILL NOT COME QUICKLY

The vast, unrealized deepwater potential in the southern half of the Gulf
of Mexico was a catalyst for the transformation of Mexicos generationsold energy laws.
20 PEMEX BEGINS TO ADAPT TO NEW LANDSCAPE

One of the biggest transformations in Mexico will come at state oil
company Pemex.
26
PEMEX WILL THRIVE

Gustavo Hernndez Garca, general director of E&P for Pemex, argues
that the company not only will survive, but thrive, in the new energy
landscape.
28
WITHIN REACH: SHALLOW WATERS OFFER QUICK

ROUTE TO BOOSTING PRODUCTION
Approximately 87% of the countrys remaining proven reserves are in a
southeastern shallow-water basin, which is cause for optimism.
32
JPT Staff
Glenda Smith, Publisher
John Donnelly, JPT Editor
Abdelghani Henni, JPT Middle East Staff Writer
34
Stephen Rassenfoss, JPT Emerging Technology Editor
Trent Jacobs, Technology Writer
Jack Betz, Staff Writer

Dennis Denney, Contributing Writer
Ngeng Segalla, Copy Editor
Anjana Narayanan, Proofreader
Alex Asfar, Senior Manager Publishing Services
Mary Jane Touchstone, Print Publishing Manager
Stacey Maloney, Print Publishing Specialist
Laurie Sailsbury, Composition Specialist Supervisor
Allan Jones, Graphic Designer
Craig Moritz, Assistant Director Americas Sales & Exhibits
BIGGEST ONSHORE OPPORTUNITY PRESENTS EQUALLY

LARGE PUZZLE TO SOLVE
More than 90% of Mexicos onshore blocks offered in Round One are
concentrated in Chicontepec, a region with enormous potential that has
frustrated drillers.
Joel Parshall, Features Editor
Stephen Whitfield, Staff Writer
NEW ENTRANT
Read Taylor, executive director of upstream exploration and production
at Sierra Oil and Gas, explains how his new company can take
advantage of the Mexican opportunity
38
CANTARELL: THE RISE AND DECLINE OF AN OILFIELD

SUPERGIANT
The Cantarell field complex can no longer carry the Mexican oil industry.
46 CANTARELL THEN AND NOW: AN IN-DEPTH LOOK AT

THE FIELDS HISTORY
An interview with Pedro Silva Lopez, vice president of technical
resources at Pemex and president of the SPE Mexico Section.
50 EXPORTING SHALE EXPLORATION WILL REQUIRE

ADJUSTMENTS
Northern Mexico holds shale potential but it may not be realized in
Round One.
SPE Bookstore
54
BRINGING ENHANCED OIL RECOVERY TO MEXICAN

FIELDS
The plan to rejuvenate the countrys oil production means it must
attract companies with enhanced oil recovery experience to help make
the most of its mature fields.
E
TL
I
T
N
56
LOW PRICES DAMPEN INTEREST IN GAS DEVELOPMENT

As domestic production declines, Mexico needs a rapidly growing
supply of imported natural gas to deliver on its promise of more
electrical power for consumers and industry.
EW
59
GENERATING VALUE
Vinicio Suro Perez, General Director of the Mexican Petroleum Institute,
outlines how his organization can help new entrants to the energy
sector through its research and expertise.
61
MEXICO TO START SHOWING THE SEISMIC

One of the most important components of the bidding process in
Mexico will be access to geological data that the government acquired
from Pemex.
62
Mexicos opening is designed to create a surge of activity by bringing in

private companies from outside and inside Mexico able to significantly
increase upstream investment and solve problems that Pemex cannot.
Print and Digital Versions Available
Fundamentals of Enhanced
Oil Recovery
64 A SIGNIFICANT STEP
Cancine McGarry, vice president of marketing, Mexico and Central
America, Schlumberger, explains how the reforms in Mexico will affect
the business environment in the country.
Larry W. Lake, Russell Johns, Bill Rossen &

Gary Pope
A revision of the 1989 classic, Enhanced Oil
Recovery by Larry Lake, this new text retains
the original works emphasis on fractional
ow theory and phase behavior to explain
enhanced oil recovery (EOR) processes. With
its frequent reinforcement of two fundamental
EOR principles, lowering the mobility ratio and
increasing the capillary number, it is an excellent
resource for the undergraduate audience.
Contents
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and order your own copy by visiting our
online bookstore at www.spe.org/go/books.
MEXICOS OPENING CREATES SERVICE COMPANY

OPPORTUNITIES
65
WINDS OF CHANGE
Juan Castaneda, vice president of Mexico at Halliburton, says the new
energy reforms in Mexico will bring big changes to the oil and gas
industry in the country.
66
BALANCING RISK
The former chief financial officer of Pemex sees potential risks in the
new energy reform policies that must be handled adeptly.
TECHNICAL PAPERS
68
ADVANCED FEA MODELING PRODUCES FIRST

DIRECTIONAL TANDEM-REAMER BHA: ELIMINATES TRIP
ON DEEPWATER EXPLORATION WELL
71
UNLOCKING THE POTENTIAL OF MEXICAN OFFSHORE

FIELDS THROUGH REAL-TIME OPTIMIZED PLACEMENT
OF CARBONATE ACIDIZING TREATMENTS
74
ENGINEERED APPROACH TO ISOLATE INTERVALS

INVADED BY WATER OR GAS IN NATURALLY FRACTURED
CARBONATE FORMATIONS
77
FULL-FIELD DYNAMIC RESERVOIR CHARACTERIZATION

TO DIRECTLY IMPACT FIELD-DEVELOPMENT DECISION
OF A CRETACEOUS AGE NATURALLY FRACTURED
RESERVOIR IN MEXICO
80 SUCCESSFUL EXTENDED INJECTION TEST FOR

OBTAINING RESERVOIR DATA IN A GAS/OIL SHALE
FORMATION IN MEXICO
83
SPE IN THE MEXICO REGION

An overview of SPEs involved in Mexico and throughout Latin America.
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Solving challenges.
Mexico: Offering
Stable and Predictable Frame
Conditions With Globally Competitive
Opportunities And Terms Isnt The
ProblemIt Is The Solution
HELGE HOVE HALDORSEN, 2015 SPE PRESIDENT
Introduction
Exploration wells were first drilled in
Mexico in 1869, with commercial oil
production commencing in 1901. Hence,
we are speaking about a nation with
114 years of exploration and production
(E&P) history. Since 1938, however, EPN
has stood for E&P (in Mexico) Not allowed on equal terms
with the Mexican state oil company, Pemex. From September
2012, EPN suddenly meant Mexican President Enrique Pea
Nieto and from December 2013, EPN also meant E&P Now
allowed on equal terms with Pemex (for all pre-qualified
companies) in open areas to be awarded through transparent
and competitive bid rounds.
This massive and impressive legislative achievement
by the EPN Administration took: Headstatesmanship and
collaboration 2.0 between the two largest political parties in
the Mexican Congress, PRI (EPNs party) and PAN; Heart
the noble driver for all involved was the desire to lift Mexico
and Mexicans through the energy reform; and Gutsafter
76 years of E&P monopoly, pushing for such far-reaching
constitutional amendments took considerable courage.
I want to congratulate everyone involved in the Mexican
energy reform with its achievements to date and wish Mexico
good luck with all facets of the reforms implementation:
Pemex reorganizing and transforming itself, the building
of new regulator institutions, the streamlining of new work
processes, and the staggered bid rounds that add up to
Round One in 2015.
The country has designed its very own Mexico E&P
model and the grand opening date is almost here.
Lessons Learned Over 40 Years in Norway

Coming from Norway, with its own E&P model, these are
some of the key lessons learned over the past 40 years with
competition and collaboration on the Norwegian Continental
Shelf (NCS), namely
UNCOVERING MEXICO
Foreign operators were invited in from day one since

there were no Norwegian oil companies (including
a Norwegian state oil company) in 1965 to secure,
for Norway, the best global technology and E&P
experience as well as sufficient capacity and activity
level to find and develop the hydrocarbon resources,
thus allowing a much more rapid monetization rate
than one company could have delivered alone.
Regardless of which political party was in charge,
wise politicians with a long-term view understood
that the key to success was to offer investor security
through stable and predictable frame conditions
for the players in an industry in which it can take 10
years and billions of invested dollars from the time a
discovery is made to the first drop of oil is produced.
The governments risk/reward setup and the
government take vs investor take were balanced well
over the cycle. Strong incentives for more exploration
and more research and development (R&D) were
key catalysts for the high-activity level and the
technology focus observed.
Competition and collaboration among all the species
in the E&P ecosystem (authorities, operators,
partners, academia, service companies, R&D
institutes, etc.) led to a strong petroleum cluster
in which the output was new E&P technology,
new technology and service companies, and new
employment all over Norway.
The owners (the people of Norway by way of their
elected officials) of the state oil company, Statoil,
decided that the smartest way of getting the highest
efficiency, the lowest operating costs, and the most
value creation out of their state oil company would
be to list it on the stock exchange (when it was
ready in 2001, some ~30 years after its formation in
1972), because of the independent governance, total
transparency, and competitive benchmarking against
peers that listed companies operate under.
PRESIDENT'S COLUMN
Having recently decided to again invite foreign and

domestic companies to participate in the E&P value chain
alongside Pemex, Mexico has a totally different and a very
advanced starting point compared to Norway. Yet, the key
four dimensions of the energy reform success compass in
Mexico will probably be similar in spirit to those described
above, only built up in a way that fits the Mexican nation.
Defining SPEs Role in Mexico by Listening Loudly

As many companies enter Mexico to participate in Round
One and later rounds onshore and offshore during the
next five or more years, Mexico will see a steep rise in its
overall E&P activity level both onshore and offshore, from
seismic surveying and exploration to field reactivation and
green-field developments. This in turn will lead to many
more geological and geophysical scientists and petroleum
engineers (and other types of engineers) being needed and
Mexico will have to ramp up its E&P education and R&D effort
to supply the new demand for E&P ecosystem personnel.
Mexico has long, proud traditions in geology,
geophysics, petroleum engineering, and other disciplines
with most Mexican E&P professionals being members of
one of the four main professional societies: The College
of Petroleum Engineers of Mexico (CIPM), the Association
of Petroleum Engineers of Mexico (AIPM), the Mexican
Association of Petroleum Geologists (AMGP) and the Mexican
Association of Exploration Geophysicists (AMGE). SPE has
a Mexico Section with approximately 500 members and its
chairman Pedro Silva, Deputy Director of technical resources
management at Pemex.
SPE wants to be an E&P force for good in Mexico in
getting best practices, tools and methodology, the latest
technology, and very instructive multidisciplinary case
studies out to our members working in Mexico as fast as
possible and in close cooperation with the existing Mexican
societies. We are currently discussing how best to proceed
in Mexico listening loudly to our SPE members in Mexico,
Pemex E&P, the Mexican professional societies, The Mexican
Petroleum Institute (IMP) and the various companies
planning to engage in E&P in Mexico.
The vision is that in a short time, SPE in cooperation
with the Mexican professional societies, will arrange training,
workshops, forums, seminars, and even new conferences,
complementary to the important Mexican Petroleum
Congress (MPC) arranged in June each year.
It is important to note that while SPE can bring a lot
to Mexico, the country can also bring a lot to SPEs global
membership. Mexicos experiences with offshore carbonate
fields, offshore massive nitrogen injection for improved
oil recovery, operating floating, production, storage, and
offloading vessels in deep-water Gulf of Mexico, and exploring
for oil in 9,000 ft of water to mention a few, are some of the
Mexican lessons that SPEs global membership can learn a
lotfrom.
SPEs Mexico Vision: To Make a Big Difference

SPE wants to help Mexico and practicing E&P professionals
make the Mexican energy reform and the transformation
of Pemex a huge success. I recently visited Aberdeen and
was very impressed with how SPE locally can make a huge
difference. SPE can only be a great global organization
if we are great locally. My vision is that down the road,
SPE sections in Mexico, in cooperation with the Mexican
professional societies, are looked upon as the rising tide that
lifts all the E&P boats in so many positive ways.
In Closing
It is not just what is done post energy reform in Mexico.
How it is done is equally important. To echo a key theme
in President Nietos and Energy Minister Pedro Joaquin
Coldwells recent speeches, energy reform success also
depends on upholding the rule of law, providing safety
and security for investors personnel and property, 100%
transparency, zero corruption, and upholding strong ethics
and code of conduct in all energy business practices and
personal conduct. JPT
SUPPLEMENT TO JPT
JANUARY 2015
Mexico Rushed to Open

Oil Sector in 2014,
Can It Maintain its Pace in 2015?
TRENT JACOBS, JPT TECHNOLOGY WRITER, AND
STEPHEN RASSENFOSS, JPT EMERGING TECHNOLOGY SENIOR EDITOR
he opening of Mexicos energy

market came suddenly, surprising
even longtime observers who
have lived through unfulfilled promises
ofchange.
Lawmakers in Mexico City rewrote
the nations energy laws in 6 months and
regulators worked ahead of schedule
to decide what assets would be opened
to international oil companies and how
they would be auctioned. Oil companies
have lined up to explore offshore Mexico
where the buzz is most intense.
Mexico has big-time
opportunities. Things are happening
in Mexico, said Pete Stark, senior
research director and adviser at IHS.
Mexico is one of the A+ opportunities in
the worldright now. It is the only game
likeit.
The energy reform is designed
to bring in new ideas and competition
into a country where the national oil
company, Petrleos Mexicanos (Pemex),
has controlled all aspects of the oil
business for 76 years, and was the
dominantcustomer.
I worked for Pemex for more
than 12 years, and as someone who is
part of the Mexican oil and gas industry
and looking at this for years, this is the
most exciting thing ever for the industry
there, said Fernando Cano-Lasa, an
attorney at Squire PattonBoggs.
At the time of his comment,
Mexicos energy ministry had decided
what assets Pemex could keep and
what would go up for bid in the so-called
Round Zero, and completed it a month
ahead of schedule, thus allowing a rapid
push toward opening up data rooms
this month ahead ofaseries of auctions
starting thisspring.
UNCOVERING MEXICO
Mexico's oil and gas opening is attracting global interest because its basins are huge, with
many prospects to explore.
Lourdes Melgar Palacios,

undersecretary of hydrocarbons at the
Secretariat of Energy of Mexico, said her
agency will be drafting and signing the
contracts with private companies on
behalf of the federal government. She
added that with Round Zero over, Pemex
has been granted all the entitlements
it will be given and now must compete
with the newcomers. (Pemex) is an
important player, but basically, it has
to play by and honor the same rules of
the game as the rest of the companies
participating, she said.
The swift drive to market hit a
bump in December. CNH detailed terms
for bidding on 14 shallow-water blocks,
and redrew some of them. The agency
also said that it may change the terms
for tenders for the onshore Chicontepec
field, and the sale in that hard-toproduce play at sale may be delayed by
falling oil prices.
A driving force behind the
landmark legislation was the
staggering loss of production from
the Cantarell, Mexicos largest oil
field, which was pumping out 2.1
million B/D in 2004 and 340,000
B/D a decade later. Starting in 2017,
Pemex plans to investUSD6billionto
stabilizeproduction.
A report from global research
firmWood Mackenzie said the
legislation passed last summer to
implement the law proposes a simple,
transparent, andprogressive system
setting competitive fees and a range
of contracts allowing companies to
bookreserves.
OPENING MEXICO'S ENERGY MARKET
Lourdes Melgar Palacios said her regulatory

agency is adding staff and has been granted
new powers to oversee the development of
Mexico's oil and gas sector.
The southeastern basin is by far the biggest producer in Mexico because it includes the
Cantarell Field.
It really is an attractive
environment for petroleum
investors, Cano-Lasa said. What the
governmentis saying is we are not doing
this thing as a project for the future. We
believe we need to start doingthings
as soon as possible to create a
competitivemarket.
For Read Taylor, executive director
of upstream exploration and production
at Sierra Oil and Gas, an independent
Mexican exploration company created
to take advantage of the opening, the
country offers a wealth of conventional
oil and gas opportunities.
This is Texas back 50 years ago,
with limited drilling, limited completion
expertise, and field developments that
are probably looking at 15% [recoveries]
instead of recoveries of 30%, said
Taylor, who spends his career seeking
international opportunities.
Coming Soon
Beginning early this year, the data
rooms will open and auctions will begin,
providing a true test of demand for what
Mexico has to offer. Most of its offerings
are, by design, difficult cases judged to
be beyond Pemexs technical capabilities
or its available resources. There are
prospects offshore that are among the

deepest in the world, hard-to-produce
heavy oil reserves in shallow waters,
and complex unconventional onshore
formations in which production has
generally been frustrating.
The strongest interest has been in
the deepwater Perdido blocks, just south
of enormous finds on the US side of the
border. I get very enthusiastic about
that because I see huge potential there,
Marvin Odum, director of upstream
Americas at Shell, said in an interview
with Reuters in November.
The deepwater resource along
the US/Mexican border has been proved
by Shell to the tune of 100,000 B/D,
but much of the technology needed for
these high-pressure/high-temperature
prospects is still being developed.
Other supermajors, such as Chevron
and ExxonMobil, have also shown their
interest in the Mexican deepwater
opportunity through the signing of
cooperation agreements with Pemex.
The interest bodes well for
restoring Mexico as a major oil producer.
Currently, nearly 74% of its output is
from offshore fields and new deepwater
production from Perdido and other
areas to the south could add 33% to its
production, according to Gaffney Cline.

But the time needed to find and develop
reserves in the frontier area means that
it is unlikely to contribute to Mexicos
goal of pushing production up from the
current 2.4 million B/D to 3 million B/D
of oil by 2018. The low-hanging fruit is
underdeveloped conventional reservoirs.
One such opportunity is shallowwater plays along the coast. While
there is a lot of hard-to-develop heavy
crude, some higher-quality oil has
been found there. Taylor pointed out
that when explorers in Brazil used
advanced exploration methods to
take a second look near older heavy oil
fields, they found pockets of light oil at
deeperdepths.
When Pemex was awarded 83%
of the countrys reservoirs, it held
on to most of the conventional ones.
But in the first round of bidding, it is
offering to bring in some international
companies as partners, and more of that
is expected in the future.
Two companies with experience in
enhanced oil recovery (EOR) at mature
fields, Occidental Petroleum and Pacific
Rubiales, see Mexico as a growth market
because so little has been done to
extend the life of its fields.
Steve Chazen, president and
chief executive officer of Occidental,
expressed interest in partnering with
Pemex to apply EOR technologies,
suchas CO2 injection, to redevelop
mature assets. We think Mexico is
oneof the prime opportunities for this
kind of activity left in the world, hesaid.
SUPPLEMENT TO JPT
JANUARY 2015
Tampico- Burgos
Misantla 4.2%
11.8%
Veracruz
1.3%
Sabinas
0.2%
TampicoMisantla
39%
South Eastern
82.5%
Veracruz
0.4%
South Eastern
55.8%
Cumulative production (BBOE) by basin
Reserves by basin (MMBOE)
The shallow waters of the south eastern basin off the Yucatan
have produced the most oil and gas in Mexico.
While Tampico-Misantla has large estimated reserves, it is in

difficult-to-produce rock.
Unconventional Questions
Unconventional resources also offer
an enormous, potential resource, but
possible bidders have not been talking
up those shale plays. When asked, most
company officials decline to comment
or say they are monitoring opportunities
onshore in Mexico.
The most specific statement
on the subject came from Tim Tirlia,
international exploration drilling
manager at Anadarko Petroleum, who
initially said, We're staying out of
onshore in Mexico. In a Reuters story
from Mexico City, he qualified that by
saying, We're still evaluating (onshore
projects), but we're heavily focused on
deepwater opportunities here."
Mexico is one of six countries
holding two-thirds of the worlds
technically recoverable oil and gas
shale resources outside the US,
according to the US Energy Information
Administration (EIA). Its assessment
shows that Mexico has 545 Tcf of gas
potential and 13 billion bbl of oil that
could be technically produced. Those
estimates are based on what might be
technically possible, not a measure of
what can be extracted profitably.
The countrys major shale plays
include the equivalents of the Eagle
Ford, Haynesville, and Niobrara that
have helped drive the unconventional
exploration boom in the US, said
Scott Stevens, senior vice president
at Advanced Resources International,
which did a shale assessment for the
EIA, and is now working on a more
detailed study.
Deepwater Yucatan
GOM
Plaorm
Burgos
1.6%
1.1%
1.8%
UNCOVERING MEXICO
But information is based on

extremely limited exploration. Almost
all of the 23 shale wells drilled by Pemex
to date are located in the Burgos and
Sabinas basins of northern Mexico, close
to the US border, said Pablo Medina, an
upstream analyst at WoodMackenzie.
One shale well produced oil and
four others produced condensates in
minor quantities. The rest produced
either dry gas or were dry holes. The two
can be lumped together because the
price in Mexico is based on US Henry Hub
gas prices, which have been low enough
to discourage gas-only production
except in areas close to major markets,
such as the Marcellus Shale formation
near US easternmarkets.
Some of the most promising oilrich shale formations are found beneath
the Chicontepec field in southern
Mexico. That reservoir is classified as
conventional, but has produced little
oil and likely will require the drilling
and completion techniques used in
unconventional formations.
Previews of the energy sectors
opening played up the idea that US
unconventional development could spill
across the Rio Grande River into similar
formations in Mexico. But in the first
bidding round, the only areas near the US
border on offer are eight blocks located
near the Mexican city of Acua. While
the size and likely discovery of dry gas
reduce their appeal, the blocks offer a
glimpse of working under the new rules
for onshore operations.
One is security. Mexican regulatory
officials said very interesting shale
exploration areas were not considered

for Round One because of the risk that
drug cartels in the area might pose to
companies and workers. We have to
admit it, there are serious challenges
regarding securityand organized crime,
saidMelgar.
Melgar said over the past
year, companies have approached
regulators to say they have experienced
adverse security conditions in Africa
and indicated that they would be
comfortable operating with military
support in northern Mexico. I think
that is not the model that we Mexicans
want to follow. We really want to
have conditions where there is full
acceptancefor theparticipation of the
industry, shesaid.
Melgar said that local governments
are working with the Mexican army and
navy to improve security conditions.
As we can really assess that things are
getting better, then we will be able to
put those areas in the following rounds,
shesaid.
The second problem is that
those eight blocks are likely to
produceonlygas. Mexico imports
40%of its gas, and that is unlikely
to change so long as long as outside
sources offer cheap fuel to support
economic growth by expanding
electrical generating capacity and
supportindustrialexpansion.
For me, it is a cost/benefit
decision, said Esther Escobar Montero,
a petroleum economist at RPS Group in
London. With long-term US gas prices
expected to remain down, Mexico is
Millions of Barrels of Oil/ Oil Equivalent Per day
3.5
3.0
2.5
Oil producon: Million Bbl per Day
2.0
Gas Producon: Million Bbl of Oil Equivalent per Day

1.5
1.0
0.5
0.0
2012
2010
2008
2006
2004
2002
2000
buying gas cheaper (than producing

it domestically) and using more and
moregas.
In southern Mexico,
unconventional formations offer oil and
lots of it. The bulk of the onshore blocks
offered in the first bidding round are in
the Chicontepec area west of Tampico.
So far, Pemex has sunk approximately
USD 3 billion into developing Chicontepec
only to achieve current production
levels of approximately 45,000 B/D and
a recovery factor of less than 4%, said
Medina. Chicontepec is a big challenge,
he said. [It] has a big potential. Who
is going to unlock it? That is the
keyquestion.
A prime argument behind Mexicos
energy opening is that it will attract
exploration and production companies
that can solve problems that Pemex and
the international services companies
it has hired to drill and complete wells
have not. As an added incentive, there
are other oil-bearing shale horizons in
those spots. As of late last year, the fall
of oil prices caused US shale producers,
most of which are independents, to
generallyeliminate growth plans in
US areas, where they have learned
to produce formations in which
manyyearsof development lie ahead
ofthem.
We have to see what they (US
independent oil companies) do. Are the
ones drilling in the US going to be eager
to do more on the other side [of the
border]? Montero asked.
The problems to solve in Mexico
go beyond figuring out how to best drill a
fracture in rock. Roads are a huge issue.
Water is a huge issue. Security is a huge
issue. Gathering infrastructure is a huge
issue, said Grant Poeter, a specialist
leader at Deloitte Consulting who has
studied the services and supply side of
the Mexican energy opening.
Drilling costs are also significantly
higher in Mexico, where capacity is short.
While exploration is expected to expand
rapidly, independents such as Sierra are
not going to commit until they have won
a lease.
YEAR
Pemex has been only able to slow the decline in production due to the drop in the output
from the Cantarell Field.
Higher costs and the delays

caused by holes in the infrastructure
are a serious negative for
independents,particularly those
considering shale plays demanding highvolume drilling.
The majors have deep pockets
and can go into a country and do not
have a problem if they do not make
money for 5 to 10 years. An independent
needs to make money pretty quickly,
Stevens said.
Over time, filling those gaps
could expand service companies now
in Mexico, which includes all the big
international names, as well as some of
the thousands of Mexican companies
that will benefit from laws requiring

operators to buy locally for a growing
percentage of their needs. There is a
real opportunity for Mexico with local
content rules, we see over time the
establishment of companies created
andgrowing to serve the industry,
hesaid.
Many of the established names
in US shale formation were unknowns
5 years ago. There are entrepreneurs in
Mexico seeking opportunities in a place
where large formations have been lightly
drilled compared with the US.
Chances are you can create
value, Stark said. Things are
happening in Mexico. JPT
On August 11, 2014, Mexican President Pea Nieto, center-left, signed into law the energy
reforms that have opened the country's oil and gas sector to private companies for the first
time in almost 80 years. Photo courtesy of Mexico's Secretariat of Energy.
SUPPLEMENT TO JPT
JANUARY 2015
ANTICIPATING SUCCESS
Mara de Lourdes Melgar Palacios, undersecretary of hydrocarbons
at the Secretariat of Energy of Mexico, and Edgar Rangel German,
a commissioner at the National Hydrocarbons Commission, outline
the steps Mexico has taken so far in its energy transformation and
explain what this years bidding process will look like.
JPT interviewed them on the sidelines of the 2014 SPE Annual
Technical Conference and Exhibition in Amsterdam.
JOHN DONNELLY, JPT EDITOR
Can you clarify the role of the National Hydrocarbon

Commission? Is this a permanent regulatory body?
German: We had previous energy reforms in Mexico in
2008 and that reform created the Comisin Nacional de
Hidrocarburos Mexico (CNH). It acts as a regulatory agency
similar to the Norwegian Petroleum Directorate, the former
Minerals Management Service in the United States, and ANH
or ANP in Brazil or Colombia. Under the new reform, the CNH
will have two main activities: the typical regulatory activities,
such as overseeing well integrity, licenses, reserves, etc.,
and we also have the role of managing the contracts. The
constitution now allows for production profit sharing,
license contracts, and service contracts in the upstream,
and the CNH will be signing those contracts on behalf of the
Mexicanstate.
all sorts of companies, from the majors to medium-size to

smaller companies that are involved in shale resources in the
US, show a lot of interest. Mexico has a very diverse geology,
so we have opportunities in deep water, shallow waters,
extra-heavy crudes, inland, and unconventionals. So there
should be a lot of interest from different types of companies.
Melgar: The constitutional reform that was approved in

December 2013 was based on several basic principles. One of
them is that the hydrocarbons in the subsurface belong to the
Mexican nation. And another one, which I believe is the major
transforming element of our reform, is introducing marketbased free competition, including the same rules of the game
for all participants. So in order to implement this aspect of the
reform, it was fundamental that we strengthen our regulatory
bodies. And for that reason, the CNH oversees regulation of
E&P activities and the Energy Regulatory Commission (CRE)
oversees midstream and downstream activities as well as
the electricity sector. These are regulatory bodies at the
constitutional level, coordinated entities of the energy sector,
and were granted additional powers and greater autonomy and
will really become central in the implementation of this reform.
German: In total, Mexico has close to 112 billion BOE in

prospective resources and 60 billion are in unconventionals, so
more than half are unconventionals. You have approximately
25 billion BOE in deep water, 25 billion BOE in conventional
resources, and 60 billion in unconventional resources. Slightly
more than half of that is liquids. So we have a good amount of
areas that contain shale oil and, as the undersecretary was
describing, you move toward the Gulf of Mexico, more toward
the south, in Veracruz and central Puebla, and Tamaulipas, and
there are areas that have good prospectivity for shale oil. In the
northern part, it is more gas, and some of that will be included
in Round One.
What has been the general reaction of foreign companies to

the reforms?
Melgar: It has been pretty good and there has been a lot
of interest. I would say there has been interest in all the
aspects of the reform but, of course, what is attracting the
most attention right now is the opening in E&P. We have had
10
UNCOVERING MEXICO
How would you assess the potential of Mexicos

unconventional resources?
Melgar: Well, of course, we have this continuation of the
Eagle Ford Shale in the southern US through Coahuila. We
have the Tampico area, Tampico-Misantla, which is the
farther southern part of Tampico in the state of Veracruz.
We have all the area of Chicontepec and we have a little bit
inPuebla.
Why are there only a few gas blocks on offer in the north near
the Eagle Ford in Round One?
Melgar: Part of the reason for doing so is that we are still
in the process of developing the needed infrastructure. The
government of the state of Coahuila is working speedily in
building the new roads, pipelines, and the infrastructure to
be able to house the people who will be working there. But
we expect that in upcoming rounds, we will have more areas
offered there.
GOVERNMENT OFFICIALS Q&A
Is access to water an issue?

Melgar: Yes. That is a very important issue because you
need to get a water concession and in order for the National
Commission for Water to grant you a concession, it needs
to make sure that the water, first of all, is available for
human consumption, and only thereafter can it be used
for other type of usages. So one of the issues that we are
foreseeingis that, particularly in the northern part of the
country, we will need to get water from the deeper wells
where itisnondrinkable water, with a high content of salt
orbrackish.
Can you describe how the initial bid rounds will proceed?
Melgar: In January, we will be opening up the data rooms for
those companies that prequalified. And then, we will have
the bidding process conclude several months later. We have
been refining the schedule, but by the end of October or
perhaps November, we hope to have signed the last contract
of RoundOne.
German: There is a large diversity of opportunities because
Mexico has a very unique geology. There are opportunities
for deep water, shallow water, onshore, unconventionals, and
extra-heavy oils. This should attract different kinds of players
for different kinds of opportunities. The idea of Round One is
not to mix everything up and make everyone confused, but to
offer a variety of opportunities. We think many companies will
be interested in the shallow waters, but fewer for extra-heavy
oil and unconventionals.
Are the bid rounds based on the experiences of other
countries, such as Brazil or Colombia?
Melgar: In defining the Mexican model, we looked at the
experience of several countries including the ones you
mentioned. We learned from what we thought had been
positive experiences and also from the things that we
thought perhaps were not so favorable to the outcome that
we are looking for. We adopted and adapted some of the
practices in other countries. For instance, from Norway, we
took the idea of the directorate, which is something that
happened in 2008 with the creation of the CNH. We took
their idea of a sovereign fund and we created the Mexican
Petroleum Fund. From Colombia and Brazil, we took the idea
of Round Zero and granted Pemex the areas where it will
work as sort of a floor from which it can grow if it decides to
participate in otherrounds.
What has been the public reaction in Mexico to thereforms?
Melgar: I would say so far, so good. It is a very important
change. It is a change that we tried somewhat in the past,
butwe did not have a government that was willing to go
through the challenge of passing a constitutional reform.
That is why the 2008 reform, even though it was a good
effort, was unsuccessful in its results, because it was
very limited. This reform is comprehensive because it also

includes the electricity sector.
If I were to say anything about the public reaction,
the first thing that comes to mind is surprise. I think people
did not expect that we would be able to pass such a wideranging and profound energy reform. I think the success has
to do with the political work that was done by the president
himself from the very beginning, even before he took office, of
getting all the different actors from all the different political
parties and being able to negotiate the agreement and get to
a consensus as to what kind of reform we needed. The 2008
reform, the fact that oil production had been declining, that
we are increasingly importing natural gas and the impact that
this is having on electricity rates and industrial productivity, all
of this has generated a consensus in society that we needed
to change. One of the big issues that we have had to work
through and something that is a significant part of the whole
reform is the issue of transparency and accountability. This is
something that society has been demanding, and I think there
is some skepticism about the transparency and accountability
and making sure that this reform benefits Mexican society in
general and not just a limited group ofpeople.
Has it been difficult to convince people of the potential
economic benefits?
Melgar: Yes, that the benefits will trickle down and affect
all people. I think that in some ways, that is one of the
hardest points that we have to deal with because the
perception in Mexico is that similar reforms in the past have
benefitted only a small number of participants. The major
concernhasbeen that we make sure that this benefits all
ofsociety.
German: If you look at the countries where reform has been
successful, it is when you have the executive power of the
president, the ministry of energy, the ministry of finance,
the regulators, the CEO of the national oil company, when
everyone is on the same page is when these reforms have been
successful and that is what has happened in Mexico.
Do you think the recent fall in oil prices will affect the bidding
in Round One?
Melgar: I think we have to follow very carefully the evolution
of the oil market, and we see this adjustment as something
that in some ways was expected. We think current levels are
within the range. Most oil companies, especially the serious
players, are used to volatility in the oil market and they have a
long-term view ofprojects.
What suggestions would you give international companies
deciding on whether to bid?
Melgar: They should look at this opportunity taking into
account the fact that that our model is based on international
best practices and there are no surprises. We are offering
SUPPLEMENT TO JPT
JANUARY 2015
11
GOVERNMENT OFFICIALS Q&A
the type of contracts that companies are used to and will

be successful. We have made a major effort to generate
positive conditions in Mexico for these investments and
we are generating good social and political conditions for
accepting these projects. We have a stable democracy. We
have a lot of things to offer even in the sense of developing
the industrial base to supply the energy companies that will
be participating in Mexico. It is indeed a very interesting
prospect to come to Mexico now.
What kind of inquiries are you getting from companies?
Melgar: Some questions have to do with fiscal terms. But
companies seem to be quite pleased with what they have
seen. In terms of the contracts, even though the law allows
for four different types of contracts, really three when
it comes to these rounds, we are mostly concentrating
on production-sharing agreements and licenses. Some
companies have addressed issues about the size of the
blocks; some have said they are too small and want to see
bigger sizes. But other than that, I think we have not heard
anything that takes us aback.
German: Most of the questions at this point are on the details:
the timeline, the wording variables, the block size. I think we
have passed skepticism over in the full implementation of
thereform.
What about the local content requirements?
Melgar: Our constitution mandates that we have local
content objectives in the contracts. What the law
establishes is that we go from an average of 25% in 2015
to an average of 35% in 2025 for all the contracts, except
for those in deep water and ultradeep water. And this has
been an issue of concern and oil companies want to know
more and understand better. In terms of the numbers, we
think that these are reachable numbers. It is not really an
extremepercentage that we are trying to meet over the next
10 years.
What we foresee is that this is really a very good
opportunity to have Mexican companies and companies based
in Mexico start producing supplies for the energy industry,
not only for Mexico but for the world. This is key to our model.
We have been following international best practices, and
we have looked at what works in terms of standards and
regulations and all of these types of technical requirements.
We are following international standards and we think that
this cangenerate very interesting industrial developments
inMexico.
12
UNCOVERING MEXICO
Some companies have expressed concern that perhaps

we will look like Brazil, but we will not look like Brazil at all. We
do not have this very high percentage that will make things
unreachable. We are creating something that is the seed
that will ensure that we start becoming central suppliers not
only for Mexico, but for the industry in general. I personally
believe that the positive experience Mexico has had with the
automobile industry and with the aeronautical industry gives
us an outlook of what we can expect in the future for the
energy industry in Mexico. This is not based on wishful thinking.
Our government is implementing an entire strategy for
industrial development in the energy industry where we have a
fund to train and certify small and medium-sized companies.
We are also investing a lot in scholarships not only for graduate
school, but undergraduate as well in technical training. We
are working to generate the conditions within Mexico that will
supply the human capital and the goods and services needed
for the industry.
Looking at the first bid round, how will you define success?
Melgar: I think success will be to be able to attract the
types of companies that we have in mind to bid and to
have a competitive process. That will be very important for
the Mexican state. It will be really difficult to say what the
number of companies we are expecting because the different
areas are varied, so in one case, you may get five participants
and five is good enough for, say, extra-heavy crudes, and
thenthere are other areas where you may get a lot of
participants. I know that from a perception point of view,
it will raise questions if we do not get 100% of the blocks
awarded, although people in the industry know that that is
unlikely and hardly ever happens. I think, for me, success
will be being able to get outstanding companies to qualify
andbid.
German: We are in the process of finding the right contract
model for all of these opportunities. So is shallow water going
to be a license contract or a production-sharing contract? For
deep water, extra-heavy crude, and the other areas, we want
to find the right type of contract, then the right fiscal terms
for that contract, and then find the right company for that
opportunity and contract model. We want companies to come
and commit to the minimal work program, to develop the fields,
increase reserves, and of course, increase national production.
To me, that will be success, to find that right company, the
right investment, and the right commitment for the long term.
And we will see in 10 years if that new production actually
became a reality. JPT
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Deepwater Results
in Mexico Will Not
Come Quickly
TRENT JACOBS, JPT TECHNOLOGY WRITER
A sixth-generation semisubmersible drilling rig, the West Pegasus drilled one of the deepest offshore wells in Mexicos limited deepwater
history. Technical challenges combined with a new regulatory framework may delay widespread development of Mexicos deep water for more
than a decade. Photo courtesy of Petrleos Mexicanos.
DEEPWATER RESULTS
he vast, unrealized deepwater

potential in the southern half of
the Gulf of Mexico was a catalyst
for the transformation of Mexicos
generations-old energy laws. But those
deepwater prospects are not expected
to play a role in reversing the countrys
downward trend of oil production for
more than a decade.
Under the best of circumstances,
a deepwater development takes 4
to 5 years to begin producing oil.
Unfortunately for Mexico, observers say
those circumstances are not in place.
Ivan Cima, head of upstream
research for Latin America at Wood
Mackenzie, said the new shortto medium-term growth in crude
production that Mexico is hoping
to benefit from will not come from
deep water. Until the deep water is
contributing significantly to Mexicos
overall production, I do not think a
15- to 20-year time frame is that
unrealistic of a scenario, he said.
One variable that could extend
this timeline would be the financial
terms offered by the Mexican
government for deepwater projects
that are not seen as competitive on a
global scale by potential bidders. This
prompted Robert Daniels, executive vice
president of Anadarkos international
and deepwater exploration, to ask, Can
we make money?
Daniels shared his view on what
he sees as the tremendous potential
for the southern Gulf of Mexico at the
World National Oil Companies Congress
Americas held in Cancun, Mexico, in
September. The meeting was hosted
by Petrleos Mexicanos (Pemex) and
attended by executives from national
and international oil companies who
spoke about the importance of a
transparent and predictable regulator.
The deepwater blocks are
expected to draw significant interest
from big-name operators such as
ExxonMobil, Shell, BP, and Chevron.
Themost attractive blocks are
offshore, in the deep waters of the
Gulf of Mexico and 40 km off the
US coast. These are the jewels in

the crownaspired to by the large
international companies, the only ones
able to bid for them given the high
costs and the technical sophistication
required, said Ignacio Paz, a lawyer
who advises oil and gas companies
at international law firm Herbert
SmithFreehills.
The deepwater companies hoping
to include Mexico in their portfolios
will be dealing with one of the worlds
youngest upstream regulatory
agencies, the Comisin Nacional de
Hidrocarburos (CNH).
Paz said the success of CNH will
depend on creating the institutional
structure and systems to carry out the
auction, licensing, and supervision of
contacts as a standalone regulator.

The primary challenges faced by the
CNH will be to ensure its independence,
transparency, and autonomy, remaining
free from political pressure and
influences, as well as overcoming
financial and economic challenges,
hesaid.
Given all the challenges
companies face with a new regulator,
Daniels expects project delays. Delays
drive up project costs and reduce return
on investment. There is no doubt that
in the early phase, the risk is going to
be higher [in Mexico] because it has not
been done before, he said.
The specific concerns regarding
CNH, established in 2008 to oversee
the operations of Pemex, are that it
Demonstrating the potential of Mexico's deepwater future, Shell's Perdido spar produces
100,000 B/D only 8 miles north of the maritime border in the US Gulf of Mexico. It is also
the deepest spar in the world, moored at a depth of 8,000 ft. Photo courtesy of Shell.
SUPPLEMENT TO JPT
JANUARY 2015
15
DEEPWATER RESULTS
Representing the most attractive deepwater area of Round One, the 11 Perdido blocks
are expected to be pursued by the largest and most technically capable offshore oil and
gas companies. If oil is found, transboundary agreements between the US and Mexico
will enable subsea pipelines to transport the product north of the border to Texas. Map
courtesy of the Comisin Nacional de Hidrocarburos.
may be understaffed, underfunded,

and unprepared for the coming wave
of private oil and gas companies, both
foreign and domestic.
An article written by Stephen
Zamora, executive director of the
Center for United States and Mexican
Law at the University of Houston Law
Center, said that CNH has a professional
staff of 120 employees to write and
enforce regulations covering Pemex
and hundreds of privatecompanies.
Mexicos new energy laws
pose aformidable challenge to the
government regulators who will
administer them and to the private
sector players who will operate in a
completely new legal and economic
environment, Zamora wrote last
September. In the rush to open
its doors to foreign investment,
the Mexican Congress has not yet
appropriated the funds needed to hire
and train the professional staff needed
to regulate such a sophisticated and
volatile industry as energy.
One step the Mexican government
has taken to improve the economics
and help prevent deepwater project
delays is the exemption from any local
content requirements for deepwater
areas. This is in contrast to the 25%
local content rule for onshore and
shallow-water areas in Mexico, which
will increase to 35% by 2025.
Lourdes Melgar Palacios,
undersecretary of hydrocarbons at
the Secretariat of Energy of Mexico,
said the energy reform legislation is
very clear about excluding deepwater
developments from mandated Mexican
labor or equipment quotas. The
information we have thus far shows
that if we were to put a certain [local
content] requirement for deep water or
ultradeepwater, we would not be able to
meet it, she said.
Northern Deepwater
Mexico's southern deepwater area is an unexplored frontier where much less is known
compared with the Perdido area. The blocks in the Mexican Ridges are all thought to be gas
plays, while the blocks in the Salina Basin are believed to be either condensate, light oil, or
heavy oil plays. Map courtesy of the Comisin Nacional de Hidrocarburos.
16
UNCOVERING MEXICO
Of the 28 deepwater blocks set to

be auctioned, 11 are in the northern
extent of Mexicos deepwater region,
which includes the Perdido fold belt.
DEEPWATER RESULTS
CNHcommissioner Alma Amrica

Porres Luna described Perdido as the
most important area of the deep water
being offered. She said the blocks
up for auction are 100% covered by
either 3D or 2D seismic technology.
Acquired by Pemex before the energy
reform, theseismic survey information
was used by CNH to create the blocks
available in Round One and will be
available when data rooms open for the
deep water in May.
CNH estimates that there is
3.2 billion BOE of primarily light and
extra-light oil in the northern area
blocks it is offering. Within them,
the commissioners said there are
18prospective locations that they think
have the highest chance of success
for commercial development. The
prospects are based on exploratory
information obtained from Pemex,
which CNH said explains why the blocks
offered are somewhat discontiguous
and not uniform in shape or size.
The President Commissioner
of CNH, Juan Carlos Zepeda, said
each block in the Perdido area,
which averages 115 sq miles in size,
contains an estimated 150 million
BOE. These areas have different plays
that are proved, either from the work
that Pemex has done, or by other oil
companies in the Perdido fold belt on
the other side of the border, he said.
The philosophy followed for
outlining the northern blocks was
dictated largely by the geological
structures containing the hydrocarbons
and the areas where Pemex is already
working to create what Zepeda termed
clusters of development. According to
its investor presentations, Pemex has
completed four exploratory wells in the
northern area, three in the Perdido area
where 8 of the 11 northern blocks are
located, and one in the adjacent subsalt
belt area.
Zepeda said that the exploratory
success rate in the area is quite high
at 35%. By comparison, BP reported
in 2013 that it had a deepwater
exploratory well success rate of just
Drilling into Perdidos rich oil reserves means that companies will be tasked with using
the latest offshore technology and working in an area where breaking deepwater records
are becoming routine as dictated by the extreme depths of the fields. Photo courtesy of
Petrleos Mexicanos.
more than 40%, while independent

deepwater operator Anadarko reported
a 67% success rate for the same year.
The Promising Perdido

If the most recent lease sale on the
US side of the Perdido area is an
indicator, expectations are high for
the areas resource potential. Held in
August, the US auction netted almost
USD 110 million for exploratory blocks
in the western Gulf area. Companies
showed the highest interest for the
Perdido blocks along the maritime
border between the US and Mexico.
Those areas were opened to leasing
with the enactment of a transboundary
hydrocarbon reservoir treaty between
the two nations in 2013.
Perdido is not only one of the
worlds deepest development areas,
with fields ranging from 8,000 ft to
9,600 ft in water depth, but much of
the target hydrocarbons are trapped
in subsalt Lower Tertiary reservoirs.
Operators are using the latest
technology and continue to develop
new subsea systems designed for the
extreme conditions found there. As
a result, work in the area to date has

netted several world records including
the deepest operating spar and deepest
subsea well ever drilled.
The first company to grab the
prize on the US side of the Perdido
area was Shell, which brought on line
its 100,000 B/D peak capacity on the
Perdido spar in March 2010. Since then,
the area has been an object of desire
for many deepwater Gulf players and
those sentiments are expected to carry
south when bidding begins in Mexicos
Round One. This is in spite of a lack of
production information from Pemex on
the deepwater wells that it has drilled
thus far in the area.
Daniels of Anadarko explained
that there is enough information from
the US side of the area for companies
to be confident in discovering economic
resources. It is completely set up from
a subsurface standpoint that this is a
good place to do business, he said. We
do not have to answer the questions
about source rock, thermal generation,
does it have reservoirs? What is the
tectonic history? A lot of that has been
put together.
SUPPLEMENT TO JPT
JANUARY 2015
17
DEEPWATER RESULTS
The Mexican government has said that every option for the transportation and storage of oil found in deep water is on the table. Floating,
production, and offloading vessels may be one option that a company may choose to develop new fields. Photo courtesy ofPetrleos
Mexicanos.
Tim Cutt, president of petroleum

and potash operations at BHP Billiton,
has been one of the most outspoken
executives on the potential of the
Perdido area on both sides of the
border. He said his company is
optimistic about operating in the
areabased on its experience workingin
deepwater subsalt reservoirs offshore
Louisiana that share similarities
to those found in the Perdido play.
These discoveries in the deep water
have further advancedour geological
and engineering understanding and
encouragedustoexplore further west,
he said.
Cutts comments, also made
in Cancun, came on the heels of an
announcement by BHP that it had
signed an agreement with Pemex to
exchange deepwater expertise. In the
agreement, BHP said it was looking
to establish a long-term relationship
with Pemex. The opportunity to share
knowledge, work together on developing
these fields excites us, said Cutt.
Uncertainty to the South

CNH is offering 17 deepwater blocks
in two areas to the south known as
18
UNCOVERING MEXICO
the Mexican Ridges and the Salina

Basin. Far less is known about
the potential of these areas than
Perdido, but CNH estimates that the
prospective resources total more than
3.2billionBOE.
Despite the considerable
volume of potential resources, Melgar
acknowledged that there are fewer
assurances involved with the southern
areas. By comparison, Perdido really
looks more interesting in the sense
that it has more transportation
infrastructure (nearby) and having
much more information, she said.
The blocks also appear to be less
oil rich than those in the Perdido area.
Eleven of the 17 blocks are listed as gas
fields and all the blocks in the Mexican
Ridges are categorized as either dry
or wet gas fields. All the oil potential
for the southern deep water lies in six
out of eight blocks in the Salina Basin,
which contains light, heavy, and extraheavy oil.
The southern deepwater blocks
range significantly in area from 148
sq miles to 373 sq miles. CNH said
the size and orientation of the blocks
were determined by the extent of
the geological hydrocarbon-bearing

structures they overlie. Altogether, the
regulator said there are 38 prospective
drilling locations in the southern
deepwater blocks, more than double the
number in the northern area.
The blocks farther to the east in
the southern area are located along
a formation known as the Campeche
Escarpment and are believed to
contain mostly light to heavy oil.
These are alsothe largest blocks that
the government is offering and the
leastassessed.
Yes, they are kind of frontier,
said Zepeda. But not comparable to
the frontiers in Africa. Here we have
3D seismic, 2D seismic, and he added
that between one and three prospects
per block have been identified by
Pemex. The prospective resources of
these blocks are close to 200 million
BOE, which Zepeda believes is a large
enough volume to make the fields there
economically feasible.
BHP is one of the few companies
that has publicly expressed interest
in these areas. Cutt said his company
would like to participate in the early
exploration phase of the southern
DEEPWATER RESULTS
deepwater areas, but the limited

activity thus far brings its own set
ofproblems.
There are geologic unknowns of
the blocks available near the Campeche
Escarpment. Cutt called the prospects
in this area unique and explained that
is partly because these reservoirs were
formed by the meteor that wiped out
the dinosaurs, and caused the Yucatan
carbonate shelf to collapse 65 million
years ago.
Operating and Transportation

Zepeda said the deepwater contracts
will probably require companies to drill
the areas awarded within 5 years, with
a possibility of an extension if there has
been progress made in exploring the
field. He said if a commercial discovery
is made, companies would have 6
months to submit a development plan
and the overall operating contract
thereafter would be between 25 years

and 30 years.
Once oil or gas has been
discovered offshore, exploration
companies are permitted by the new
laws to bring in other companies to
develop the area and operate it for
them. This arrangement will require
CNHs approval. We have to make sure
the people coming in to operate the
field have the technical capability,
Zepeda said. Companies are also free
to use any type of production facility
or transportation system to bring the
product to market. Zepeda said he
sees two likely choices for operators:
a floating production, storage, and
offloading unit, or a subsea production
system and pipeline to Texas via subsea
tiebacks, which are available across the
maritime border.
Williams, the gas and oil
pipelinecontractor for Shells
operationstothe north, said

the closest subsea tiebacks are
approximately30miles from
the Mexican side of the border.
There is spare capacity in these
production lines,but thecompany
is studying howit can add more
capacity to account for the
anticipated productionfrom
Mexicanoffshorefacilities.
A third possibility that
Zepedaoutlined would be to
use apipeline to bring the oil
ashore to the coastal stateof
Tamaulipas. Localofficials there
and Mexican federal governmentare
consideringwhether to build intake
facilities at the Port of Matamoros,
which is across theborder from
Texas.CNH is also working with
the Mexican transportation
authoritiestohelp facilitate
pipelinepermitting. JPT
SUPPLEMENT TO JPT
JANUARY 2015
19
Pemex Begins
to Adapt to New
Landscape
Gas is flared off a tower on an oil platform complex operated by Petrleos Mexicans (Pemex) in the Ku-Maloob-Zaap oil field at Campeche Bay off
the coast of Ciudad del Carmen, Mexico in 2014. Photo by Susana Gonzalez/Bloomberg via Getty Images
EVOLUTION OF PEMEX
exicos hydrocarbons were

not the only thing protected
during the countrys 70-plusyear monopoly. For decades, national oil
company Petrleos Mexicanos (Pemex)
was sacrosancta cash cow for the
government and lifelong employer for
many. But that is all changing under the
new energy reform.
One of the most dramatic
changes under the new regime will
occur at the state oil company. Chief
Executive Officer Emilio Lozoya Austin
has the job of transforming Pemex
into a more efficient firm that can
compete with international firms for
upstream exploration and production
(E&P) as it attempts to turn around
decliningproduction.
The transformation has
already begun. In November, the
company finalized a plan that will
take its current four divisions of E&P,
refining, petrochemicals, and gas and
replace them with two: upstream and
downstream. The companys board of
directors voted to keep its financially
healthy E&P division intact and group
less financially successful divisions
that focus on natural gas, refining, and
petrochemicals into one division called
Industrial Transformation.
The company will also create
five business units within the two
divisions that will start up in 2015
and focus on drilling services,
transportation including pipelines,
electric cogeneration, fertilizers, and
ethylene. Under the new regime, Pemex
promises to be more transparent and
efficient and run itself as a state
productive enterprise, Lozoya said
when the restructuring was announced.
He pointed out that Pemex will not
beprivatized.
The companys compensation
system will change from a civil servant
type of arrangement to a performancebased one seen at private companies. In
addition, the company is already saving
money by streamlining procurement
and other systems, Lozoya has said.
The government will gradually ease the
Pemex CEO Emilio Lozoya Austin. Photo courtesy of Pemex.
companys tax burden and give it more

freedom in decision making.
Pemexs road to renovation is
not coming without a boost from the
state. Before Round One, in which
foreign companies will compete for
acreage offshore and onshore this year,
there was Round Zero in 2014, in which
Pemex requested acreage for itself
and got most of what it requested. The
government let the company name the
areas it wanted to keep, with the rest
set to go up for bid to outside firms.
Pemex is keeping a reserve base
that will allow it to produce 2.5 million
BOEPD for more than 20 years, and it
retained 83% of Mexicos 2P reserves

and 21% of the countrys prospective
resources. Pemex also will be able to
bid against foreign companies in each
of the upcoming Round One auctions if
it chooses, and will remain the partner
of choice for outside firms that know
Pemex has the best knowledge of
Mexicos geology.
But the government has
emphasized that Pemex will have to
compete on an even playing field with
foreign companies beginning this year.
It will be a dramatic change for the
company that has become a source
of national pride since its creation
A statue of former Mexican President Lzaro Crdenas, who nationalized the country's oil
industry, sits outside the Pemex headquarters building in Mexico City.
SUPPLEMENT TO JPT
JANUARY 2015
21
EVOLUTION OF PEMEX
shortly after the nationalization of the

oil industry by Mexican President and
Gen. Lazaro Cardenas in 1938. A huge
bust of Cardenas sits outside Pemexs
headquarters in Mexico City and the
date of nationalization is celebrated
annually throughout the country.
Unlike many other state oil companies,
Pemexhas never participated in a
competitive E&P tender in Mexico or
outside thecountry.
It is not yet clear how many of
the 14 blocks in the first Round One
auction Pemex will bid for, and whether
it will bid by itself or go with partners.
Maria de Lourdes Melgar Palacios,
undersecretary of hydrocarbons at the
Secretariat of Energy of Mexico, said
during the blocks unveiling in December
that Pemex did not present adequate
development plans for some blocks and
so did not get them. Pemex did not
justify keeping these areas, she said.
Pemex is reportedly trying to farm

out stakes in 10 contracts that it was
assigned in Round Zero. They include
six mature fields: the onshore Rodador,
Ogarrio, and Cardenas-Mora fields,
and the offshore Bolontiku, Sinan, and
Ek fields. Other farm-out possibilities
for private companies are the AyatsilTekel-Utsil extra-heavy crude fields,
Kunah-Piklis deepwater gas project,
and two deepwater crude discoveries,
Exploratus and Trion, located in the
Gulf of Mexico Perdido fold belt. The
company has also indicated that
it will migrate 11 existing service
contracts to new contract models
that it will negotiate with private
companypartners.
The state companys expertise
is drilling in the shallow-water Gulf
of Mexico. However, over the past
decade, Pemexs production at its
most prolific shallow-water field,
Cantarell, has dropped sharply from

more than 2 million B/D to less than
400,000B/D, and it has not been
successful in bringing online deepwater
and unconventional prospects.
Meanwhile, production to Mexicos
north in the US is booming with the
development of shale and is growing in
the south in Brazil as Petrobras exploits
deepwater fields. Both countries are
leaders in applying technology for the
development of resources. The fact
that Mexicos neighbors saw booming
production at a time of USD 100/bbl
oil while Pemex was struggling was a
factor cited in the crafting of the new
reform legislation.
Monthly production numbers tell
the story. In October, the latest data
available, Mexicos crude production
fell by 27,000 B/D or 1.1% monthon-month to 2.36 million B/D, with
the decline reflecting a lower output
Workers prepare drilling pipe on the Petroleos Mexicanos (Pemex) La Muralla IV deep sea crude oil platform in the waters off Veracruz,
Mexico. Photo by Susana Gonzalez/Bloomberg via Getty Images
22
UNCOVERING MEXICO
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EVOLUTION OF PEMEX
RECENT PEMEX AGREEMENTS

Ahead of the first bidding round, Pemex has signed agreements with several companies
interested in exploring oil and gas opportunities in Mexico.
Memorandum of Understanding (MOU)
April 2014
GDF SuezExplore development projects such as natural gas infrastructure,
gas liquefaction facilities, and natural gas for power generation.
from its southern fields. Octobers

production was 7% lower than
output in October 2013. In August,
Pemex revised down production
numbers, acknowledging that it
was counting water content in its
crude as hydrocarbons. Oil exports
also fell inOctober by 20,000 B/D to
1.4millionB/D.
TotalCooperation on E&P technologies (in particular deep water), shale gas,

industrial safety, occupational health services, and fostering local Mexican
economy. Also planned cooperation on refining best practices and sulfur
recovery.
September 2014
BHP BillitonExchange technical knowledge, practices, and experiences
relating to oil and gas.
OGNC VideshCooperation and collaboration on upstream operations,
technology, human resources, and research and development.
PetronasExchange of experience and best practices on heavy and extraheavy oil, deepwater projects, mature fields, and possible collaboration on
natural gas projects and infrastructure.
October 2014
ExxonMobilDiscussion of upstream and downstream business opportunities,
and commitment to industrial safety and sustainable development.
KeppelJointly develop, own, and operate a yard facility in Mexico. First phase
involves construction of six jackup rigs for Pemex.
Pacific RubialesCooperation on upstream activities, oil transport, and power
generation. Also industrial safety, training, and human capital.
ChevronCollaboration on heavy oil, deep water, and enhanced recovery
in mature fields. In addition to operational agreements, human capital,
sustainable development, and emissions reduction.
EniCooperation on best practices, E&P, refining, petrochemicals, human
capital, training, and emissions reduction.
November 2014
Kuwait Foreign Petroleum Exploration Company (KUFPEC)Oil and gas E&P
collaboration in Mexico and worldwide.
CNOOCDiscussion of business opportunities for heavy crude and mature
fields.
Contracts
FMC, January 2014Three-year contract for manufacturing and supply of
surface wellheads. Contract worth up to USD 64 million.
GE, June 2014Supply and installation of subsea wellheads at deepwater and
ultra-deepwater projects. Contract worth USD 84 million.
Saipem, October 2014Development of the Lakach deepwater project,
including connection of the field to an onshore conditioning plant via umbilicals
and flowlines. Contract worth USD 750 million and has target completion date
of 2017.
OneSubsea, October 2014Contract for subsea production systems at
Lakach, including installation and commissioning. Contract worth more than
USD 270 million.
Foster Wheeler, October 2014EPC contract for ultra-low sulfur diesel project
at the Salina Cruz. No dollar value given for the contract.
24
UNCOVERING MEXICO
Government Burden
In fairness, Pemex has never been
given a shot at become a leading oil
and gas firm, despite its abundant
resources, because of its close ties
to the state. While its E&P side has
been financially successful, as an arm
of the government it was forced to
pour millions of dollars into refining
and petrochemicals at a loss. The
government also leaned on the state
company to underwrite social services.
Revenue from Pemex provides a third of
the national budget.
Faced with a sharply declining
Cantarell this decade, Pemex spent
millions trying to prop up the fields
production and attempted to develop
other prospects to make up for its
decline. It spent more than USD 70
billion between 2008 and 2012 with
disappointing results. Despite an
abundance of gas resources, Mexico is
now importing gas at record levels. It
spent USD 13 billion in the Chicontepec
Basin alone, but the geology was too
difficult. It struck oil in the deepwater
Gulf of Mexico in 2013 after 23
attempts and heavy investment,
but recoveries have been small. The
company is hoping to partner with a
major to develop those fields under the
new regime.
Mexicos energy reform also
opens up its downstream and retail
sectors. Retail gasoline prices have
been set by the state. Beginning in
2016, companies besides Pemex will be
able to sell retail fuel and the complete
state control of retail gasoline and
diesel prices will end in 2018. JPT
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EXPAND YOUR POSSIBILITIES
PEMEX WILL THRIVE

Gustavo Hernndez Garca, General Director of E&P for
Pemex, argues that the company not only will survive, but
thrive, in the new energy landscape.
What are Pemexs current strengths in exploration and

production (E&P)?
Pemex is a leader in shallow-water exploitation, and its
current activity in this area is the most aggressive around
the world. Today, Pemex is developing several projects for
light and extra-heavy oil in the Gulf of Mexico. Most of the
production comes from carbonates and naturally fractured
reservoirs. Pemex has good experience in the modeling and
characterization of this type of field, using the latest software
technology for this purpose.
Pemex has been exploring all basins, from onshore
up to deep water, with successful outcomes. As a result,
during the past 5 years Pemex incorporated over 1 billion
BOE/year, mainly those discovered in deepwater basins.
Our current production cost is one of the lowest in the oil
industry compared with other national and international
petroleumcompanies.
How well do you think Pemex will do under the new regime?
We expect to improve our operational efficiency as we focus
on those areas where our business is more profitable. We
will be able to accelerate the exploration and development of
those fields based on new associations with different partners
and diversify our investment portfolio.
Pemex has confidence in its technical and operational
people in those areas, which represent different challenges
especially taking into account those joint ventures where
Pemex shares the risk. Pemex has confidence that it will do
well, as we did up to now.
What will be Pemexs upstream focus be in the short term?
The medium term?
In the short term, we want to keep current production at
around 2.4 million B/D, complete the current development
projects onshore and offshore and start their production on
time, and continue exploration activity, mainly in deepwater
basins. In addition, we want to adequately put our organization
structure into one new alignment, and develop associations
26
UNCOVERING MEXICO
with the partners that represent the best option for us to

achieve our goals.
In the medium term, we want to increase oil production
to 2.8 to 3 million B/D, obtain incremental production coming
from the association scenarios in both onshore and offshore
projects, and start the first oil development deepwater
project in Mexico through some association scope.
Will there be an emphasis on Pemex increasing its
technological expertise? If so, how will this happen?
Pemex is interested in increasing its expertise in different
areas, including enhanced oil recovery projects, deepwater
oilfield development and operational skills, subsalt exploration
projects, exploitation of extra-heavy oil fields mainly in
offshore areas, etc. These opportunities will be achieved by
reinforcing people and technical skills, diversifying our current
portfolio, and achieving the associations that bring the best
technology required.
You have been permanent director for Pemex Exploration &
Production for only a short time. What has been your main
focus so far during this short tenure?
I was nominated as acting general director in February and
appointed by the president of Mexico as general director
of E&P in June, so I have been involved in one of the major
restructurings of the oil industry in the country. We have
been engaged in preparing the transition of the Pemex
upstream organization into one that will compete with the
industry, as well as reorganizing the team to participate in the
bidding rounds that will be offered in Mexico by government
authorities. We have also focused on:
Meeting the Round Zero requirements in order to
nominate and gain awards for those exploratory
areas and production fields that will keep our current
strategy position in the country.
Improving operation and maintenance conditions to
stabilize current oil and gas production.
PEMEX Q&A
Keeping the investment flows through the projects to

guarantee their optimal execution.
Preparing the organization to foresee some jointventure scenarios in different strategic areas.
Letting the organization know that it has a good and
experienced team leading it to face the challenges
arising from energy reform.
Pemexs current oil production is approximately
2.5millionB/D. What do you anticipate the companys
production will be 5 years from now?
Pemex expects to increase oil production mainly based on
its current development projects, new discoveries located in
onshore and shallow-water areas, fresh production coming
from association scenarios, and some oil production from
deepwater fields.
What is the E&P capital spending budget for your company
this year? How does that compare with previous years? Do
you anticipate that number to rise over the next 2-3 years
now that Pemex has more freedom in its spending?
The budget for 2015 will be very similar to 2014around USD
25 billion for E&P activities. This budget could be increased
within the next few years mainly because of possible
association scenarios. Based on the energy reform, Pemex will
have more flexibility and freedom with its financial resources
according to the projects needs.
What was Pemexs strategy in Round Zero? Are you
satisfied with the results?
When the energy reform bill was approved at the
constitutional level in December 2013, we knew we had to
nominate those exploration areas and production fields
that we would like to retain, provided we met the technical,
execution, and financial capabilities required by the Ministry
of Energy. We nominated our proposal after carrying out a
very detailed and strategic analysis. Pemex is satisfied with
the Round Zero results because the 2P reserves that Pemex
requested were fully assigned to it. That will allow Pemex
to maintain its strategic position in the country. Pemex is
keeping enough acreage to grow as an operator in those areas
where the best petroleum business is identified. The acreage
assigned will allow the company to maintain exploratory
activity, mainly in deepwater basins.
This must be a disruptive time for Pemex, not only in E&P
but throughout the organization. How are you working to
ensure as little disruption as possible to key activities?
Pemex is working every day, as we did before now, and our
organization knows the goals that we need to achieve and
what our commitments and responsibilities are, and Pemex is

focused on meeting its commitments. The issues related with
the energy reform of course are relevant but the organization
has enough experience to avoid any disruption that affects
operational efficiency. Pemex will adapt, as it did in the past,
to the new scenario and will try to be more competitive to
keep its strategic position.
We will be a major player in Mexicos oil industry
because of the current 2P reserves that were awarded
us through Round Zero. This is our starting point to grow,
and we are pretty excited about this new coming era so
we can expand our current awarded acreage by winning
some bidding blocks given our experience and knowledge of
Mexicosbasins.
Now that Pemex will have to be more competitive, how
difficult will it be to change the mindset among employees
and managers in the organization?
Pemexs personnel has proved it can adapt to different
conditions, and their own skills will provide the tools to
encourage meeting the new challenges and goals. On the
other hand, the technical and professionals in the core areas
will face a fierce fight to capture talent. We are preparing the
organization to retain those identified experienced and skilled
people and also to scout for new talent from outside Pemex.
We will compensate them according to industry salaries.
A final comment. We are preparing the organization to
compete and win! JPT
Gustavo Hernndez Garca is general director of E&P for

Pemex. He has more than 34 years of experience in the oil
and gas industry. He started his professional career at the
Mexican Petroleum Institute in1979 where he worked as
a senior researcher. He also spent 2 years at the Ministry
of Energy (1983-1985) as subdirector on hydrocarbon
investments. In 1992, he joined Pemex where he has held
several positions including department head, exploitation
vice manager, planning manager, asset manager, vice
president of an offshore region, and vice president
forplanning.
He has served as president of the Petroleum
Engineering Commission at the Academy of Engineering,
national president of the College of Petroleum Engineers of
Mexico, and was the recipient of the 2011 National Petroleum
Engineering Award. He has written more than 60 technical
papers. He holds a BS degree in petroleum engineering
and an MSc degree in reservoir engineering, both from the
University of Mexico.
SUPPLEMENT TO JPT
JANUARY 2015
27
Within Reach:
Shallow Waters
Offer Quick Route to
Boosting Production
Jackup territory: Many of the Mexican governments shallow-water offerings in the Campeche Sound are located in water depths between 131ft
and 262 ft and should be among the easiest to access oil for companies making their way into the countrys energy sector. Photo courtesy of
Petrleos Mexicanos.
SHALLOW WATER
exico emerged as one of the

worlds top oil producers in
the 1980s, thanks to the rich
shallow-water reservoirs offshore
its southern coast. But this good
fortune has faded as Cantarell, the
countryssupergiant offshore oil
field, began a rapid fall from grace,
with production plummeting from
approximately 2.1million B/D in 2003
to less than 340,000 B/D in 2014, or an
80% decline.
Despite it all, there is plenty of
optimism because 87% of the countrys
remaining proven reserves are in the
southeastern shallow-water basin,
according to figures from Petrleos
Mexicanos (Pemex). The Mexican
government is betting that through
increased development of the shallowwater areas, new oil production will help
offset the precipitous declines from
Cantarell and other legacy assets, such
as the countrys current top producer,
the Ku-Maloob-Zaap (KMZ) field, which
is also in decline.
The big bet is riding in large part
on the discovery of significant deposits
of oil within the 14 shallow-water
blocks that the National Hydrocarbons
Commission of Mexico (CNH) has
designated for Round One. CNH originally
offered 11 blocks, but in December the
regulator eliminated the offering of one
block and split other blocks into smaller
ones. Data rooms for the 14 blocks will
open in Mexico City on 15 January with
all bids due before 15 July.
In December, CNH also finalized
the requirements to bid on the 14 blocks.
No company will be permitted to bid on
more than five blocks in Round One, and
each company is limited to joining only
one consortium. Each block requires a
minimum investment of USD 1 billion
over the 25-year production-sharing
agreement and companies must pay a
30% income tax to operate the block.
Around 80% of the investments
are expected to be made in the first
3 to 4 years. This means that Mexico
stands to benefit from USD 12 billion
in annual investments for the shallow-
Compared with the areas that Mexico's shallow-water production has historically come
from, the 14 exploratory blocks included in Round One have seen far less exploration
activity. Most of the blocks lie southwest of the former supergiant Cantarell field and
consist of light, heavy, and extra-heavy oil reservoirs with some gas. Map courtesy of the
Comisin Nacional de Hidrocarburos.
water blocks, which would nearly double

current spending on upstream projects
in Mexico.
Companies will be allowed to

explore the blocks for a maximum of
5 years and when hydrocarbons are
Mexicos vast network of offshore infrastructure and pipelines will help support the
rejuvenation of shallow-water fields as companies will be allowed to transport newly
produced oil and gas through existing systems. Photo courtesy of Petrleos Mexicanos.
SUPPLEMENT TO JPT
JANUARY 2015
29
SHALLOW WATER
Mexico has long depended on oil production from its shallow-water fields and will likely continue to do so in the future. Interest in the first
shallow-water blocks on offer is expected to be high, and the government is hoping that it will boost the countrys oil production. Photo
courtesy of Petrleos Mexicanos.
discovered, awarded operators must

determine whether or not they can
commercially develop the reservoir in
less than a year. CNH said it estimates
that production from the first shallowwater blocks could reach 80,000 B/D.
The shallow-water areas will be the
first to be offered in Round One, which
will be staggered throughout the year
with several auctions for each type of
area. CNH said that the primary reason
that the first auction of Round One is for
shallow-water properties is to shorten
the time frame between discovery and
first production.
The exploration and exploitation
of hydrocarbons is most attractive in
shallow waters as less investment is
required and they generate greater
profitability, said Ignacio Paz, an
infrastructure and energy lawyer at
Herbert Smith Freehills, an international
commercial law firm.
Paz expects a showing of
substantial interest and private
investment in the shallow water
30
UNCOVERING MEXICO
because those areas should have among

the lowest costs of production and,
therefore, the highest profitability. As
a result, a large number of companies
are expected to bid for these blocks,
hesaid.
With a total area of 2,623 sqmi,
the 14 shallow-water blocks hold a
prospective resource volume of 686.6
million BOE, which CNH believes is
mostly light oil. Located in water depths
between 131 ft and 262 ft, the blocks
are well within jackup territory and the
government expects that the break-even
cost of production will be USD 20 per bbl.
CNH hopes that the auction will
result in quick deliveries of crude oil that
will increase the countrys production
levels by the end of Mexican President
Enrique Pea Nietos term in 2018.
The president commissioner of
CNH, Juan Carlos Zepeda, said Pemex
wanted to keep many of the areas set for
auction after identifying 42 prospective
drilling locations within them. But CNH
denied Pemex the requests in Round
Zero. They were not granted because

Pemex cannot handle everything, he
said. There were restrictions in terms of
execution and financial capabilities.
One of the key attractions to
Mexicos shallow-water offerings is
its proximity to an existing network
of pipelines and production facilities.
In the Campeche Sound, there are
approximately 2,200 miles of pipelines
and Pemex has installed more than
a dozen production and processing
complexes to handle oil and gas from
more than 560 wells.
As other companies move
into the area and begin producing,
they willhave open access to this
transportation network, which should
accelerate development. With lost
production from Cantarell, there is
presumably plenty of slack capacity in
the pipelineinfrastructure.
Survey maps from CNH show
that the vast majority of the shallowwater blocks have been covered with 3D
seismic. To a significantly lesser extent,
SHALLOW WATER
ROUND ONESHALLOW WATER

Block No.
Prospective
Resources
(million BOE)
Type of
Hydrocarbon
Area
(sq mile)
Well
Prospects
Maximum
Probability of
Commerical
Success
Block 1
94
Heavy/Light Oil
75
31%
Block 2
87
Light Oil/Dry Gas
75
20%
Block 3
70
Heavy/Light Oil
90
24%
Block 4
56
Heavy/Light Oil
90
33%
Block 5
30
Light Oil
180
14%
Block 6
47
Light OIl
180
32%
Block 7
53
Light oil
180
14%
Block 8
117
Extra Heavy/
Heavy Oil
45
54%
Block 9
49
Extra Heavy Oil
45
23%
Block 10
100
Light/Heavy Oil
90
28%
Block 11
121
Extra Heavy/Heavy
Oil
120
36%
Block 12
71
Heavy Oil
142
42%
Block 13
64
Extra Heavy/
Heavy Oil/Gas
193
31%
Block 14
64
Wet Gas
120
6%
Source: Comisin Nacional de Hidrocarburos
the shallow-water blocks have 2D

seismic information.
The structural information of
the shallow water reveals that the
discovered oil fields are associated
with much more faulting than those to
the west where very little exploration
efforts have been made. Representing
the edge of Mexicos shallow-water shelf,
all but one of the exploration blocks
are locatedwest of the Cantarell and
KMZfields.
Pemex has prided itself for being
the worlds largest shallow-water
producer, and it is investing billions

to retain that title. The company
announced last summer that it plans
to commit USD 6 billion to maintain
current production levels in the Cantarell
fieldover a 10-year span beginning
in2017.
In a sign of its general
commitment to shallow water,
Pemex has ordered 19 jackups worth
USD 3.8 billion and a 150,000 B/D
capacity floating production, storage,
and offloading (FPSO) vessel that
is estimated to cost USD 1.5 billion
to USD2 billion upon completion.

Tenders for its construction were
issued late last year. In 2007, the
company commissioned its first
600,000 B/D capacity FPSO, which is
on a 15-yearlease from Norway-based
BWOffshore.
Pemex-operated assets of
Tekel, Ayatsil, and Utsil, which the
new FPSO will help develop, are being
offered as one of 10 joint ventures
in Round One. The company expects
this years investments in these areas
to be approximately USD 6.2 billion.
Discovered in 2008, the Ayatsil and
Tekel fields are located in the Campeche
Sound approximately 80 miles offshore
Cuidad del Carmen and not far from the
waning Cantarell field.
These fields are large, they are
near infrastructure, and in shallow
waters, said Pablo Medina, an
upstreamresearch analyst at Wood
Mackenzie. We are talking about
less than 200 m. But the challenge
there isyou have API gravities of less
than11.
Wood Mackenzies research
showed that the development of this
area would represent an industry first
as the largest shallow-water, heavy oil
project in the world. Pemex hopes that
Ayatsil, found in 410 ft of water, alone
will boost the countrys production by
150,000 B/D.
Medina said the poor quality
oftheoil is the driver behind
Pemexssearch for a joint venture
partner. Their sizejustifies for
Pemextowant to keep them, but
at the same time, theyreally need
capitalfor technologies,particularly
from othercompanies, tobe able to
deliverwhat is there, hesaid. JPT
SUPPLEMENT TO JPT
JANUARY 2015
31
SIERRA OIL AND GAS
NEW ENTRANT
Read Taylor, Executive Director of Upstream
Exploration and Production at Sierra Oil and Gas,
discussesopportunities for his firm, Mexico's first
E&Poiland gas company to be formed after the 2014
energy reforms.
Why is Mexico a good place to start an oil and gas company

from scratch?
There is this tremendous opportunity to come in and do
something with the existing landscape. When we look at the
worldwide opportunities, Mexico is really a rare exception
for offerings because proven reserves and fields are being
offered as well as the exploration upside. In West Africa, for
instance, you cannot find this size of proven resources and
get quality acreage at this level. Mexico has many aspects of
what you want to have for a startup company, including stable
institutions, professional workforce, and it has the materiality
that all of us are very excited about.
Mexicoexperience. As a new operator, how will

youparticipate?
We are going to be partnering with like-minded, high-quality,
and the brightest offshore operators in the Gulf of Mexico for
that very reason. We are happy that the government wants
to qualify people up to a production level, under a balance
sheet, and up to an experience level because it keeps the
promoters out and the long-term players in. We thought that
was a good move. In any case, we believe Sierra is capable of
qualifying as a new operator for select exploration blocks. It is
not uncommon to see strong new companies qualify in other
countries, so we dont think it should be an issue in Mexico.
What is your overall impression of Mexicos implementation

of its energy reform?
I dont want to sound overly optimistic, but this is something
that is part of the attraction, in the sense that the
government has done a very quick and very transparent job
of getting information out to the public. They have smartly
followed the example of the Colombia opening bid rounds and
they have sought expertise from the international industry
and governments on how to structure the bid rounds. There
has clearly been a push by the government to get this thing
right and done quickly. Quite frankly, I am very impressed.
In the shallow-water area especially, the blocks on offer

are a mix of condensate, light, and heavy oil. What are you
most interested in developing?
We are most interested in light oil and a higher-quality oil. The
interesting thing we are still working out is how that mix really
relates to gas vs. light oil vs. heavy oil. I do not think anyone
knows the answer to that. It is a situation much like Brazil
was where maybe you find some heavy oil shallow and light oil
deep. Where the light oil begins and the heavy oil ends, there is
not a real firm line yet, but our focus will definitely be on light
oil and primarily conventional.
Your company has so far raised USD 525 million with

commitments to double the investment. Where do you plan
on investing the lions share of your capital expenditure
over the next couple of years in Mexico?
This is something that we are looking at now. We plan to be
very aggressive in the coming bid rounds for the right assets.
We can see ourselves spreading our capital over a portfolio of
mature fields and exploration potential. We have some ideas
of what it is going to cost to do something like that, but we are
going to make a strong long-term commitment to Mexico.
From an oilfield service and equipment standpoint, are

Mexican contractors ready to support new players after
having just one customer, Pemex, for the better part of
acentury?
That is our biggest challenge and the short answer is no. Ive
been through this before with the opening of Brazil and it is
still a challenge in Brazil. The problem is that all the good rigs
are tied up in long-term service contracts with Pemex. You
have a shortage of equipment, and you have a shortage of
on-the-ground technologies. It is the No. 1 challenge and if
you talk to the American independents looking at Mexico, it
is also one of the biggest hurdles they see. The good news is
that you can drive trucks across the border and the northern
The Mexican government is only awarding shallowwater blocks to companies with relevant Gulf of
32
UNCOVERING MEXICO
SIERRA OIL AND GAS Q&A
Gulf of Mexico is not really that far away. So it is a solvable

problem, but in 2016 and 2017, there is going to be a bit of
crunch on services.
What kind of role will Sierra play in the redevelopment
ofMexicos mature onshore fields?
In terms of technology, this is a huge opportunity. If you look
at the history of Mexico and you look at how some of these
fields were developed and the technologies used, there is
still low-hanging fruit that requires new methods. It is the
Permian Basin all over again where you either go shallow or
deep, or you go to this fault block or that fault block, or you
just start producing the reservoir more efficiently. There
has been good attempts at enhanced oil recovery (EOR), but
not across the board so there are walk-in opportunities for
40, 50, 100 million bbl of reserves that were just left behind.
Using technologies to get that out at better recovery rates is
the first half. There are field technologies, such as horizontal
drilling, and some basic things that are done worldwide that
just have not come to Mexico yet at scale. There are also
offshore in seismic processing and different interpretation
methods that can help. Drilling and completing technologies,
definitely EOR, water flooding, and CO2 injection can all add
tremendousvalue.
Do you have a production growth goal for the next
fewyears?
In general, we are here for the long term. We would aspire to
have two or three fields in the next 5 years and maybe that is
30,000 B/D to 50,000 B/D. Those kinds of numbers are very
attractive to us.
Do you have anything else you would like to add?
There is an unconventional opportunity in Mexico but that
is not a focus of ours at the moment, and I do not think that
the acreage being offered this round is the best. My guess
is that SENER (Secretariat of Energy of Mexico) and CNH
(National Hydrocarbons Commission of Mexico) will probably
do an unconventional round in a couple of years and offer the
better sweet spots. Unconventionals will happen in Mexico,
but being the first one to do that, you are going to lose an
arm and a leg if the acreage quality and size and location are
not optimal. Our first focus is on the many great conventional
opportunities out there. JPT
SUPPLEMENT TO JPT
JANUARY 2015
33
Mexicos Biggest Onshore Opportunity

Presents Equally Large Puzzles
to Solve
ore than 90% of Mexicos

onshore blocks offered in
Round One are concentrated in
Chicontepec. The name is synonymous
with enormous potential, and also with
the frustration experienced by those
who have drilled thousands of wells
trying to extract oil from there.
This field in the Tampico-Misantla
basin has nearly 40 billion bbl of oil
in place and holds 40% of Mexicos
estimated hydrocarbon reserves,
according to the Mexican energy
ministry (SENER) website description
of the blocks offered in the first round
ofbidding.
But after a decade of intensive
effort by Pemex and service company
partners, the return on a USD 3 billion
investment is only about 40,000 B/D
of production, said Pablo Medina, an
upstream Mexico analyst at consultants
Wood Mackenzie. Chicontepec is a
big challenge, he said. [It] has a big
potential. Who is going to unlock it? That
is the key question. Mexico officials
added another unknown in December,
when they said the auction may be
delayed in light of low oil prices.
The level of difficulty in this basin
led Pemex to open the area to drilling
by international service companies in
2008. But the stepped-up exploration
did not appear to solve the problem.
Chicontepec statistics per field show
that the nearly 2,800 wells drilled
generated 86 million BOE in cumulative
production, an average of 31,000 BOE
per well.
The output by area within
Chicontepec ranged from an average
per well of nearly 100,000 cumulative
BOE from the 459 wells in the Presidente
34
UNCOVERING MEXICO
Alemans area down to no cumulative

production from 207 wells drilled
inTenexcuila.
While the recovery rate so far has
been in the single-digit range, far better
results are predicted in the Round One
summary from SENER. A map of the
blocks in Chicontepec area shows that
the proved and probable reserve total
(2P) in the blocks offered is nearly 30%
of the 8.9 billion BOE estimate of the oil
and gas in the ground. While the wells
there have generally performed like
those in unconventional formations, the
reserve estimate suggests the amount
of oil and gas that can be profitably
produced is several times greater than is
normal in those plays.
There Is More
While the area is known as Chicontepec,
there are multiple targets within the
blocks, including a second conventional
one, Poza Rica Altamira, and unexplored
layers of oil-rich source rock in the
Tampico-Misantla basin.
The shale is present in 62 blocks
that are being offered, and holds nearly
9 billion bbl of oil and gas in the ground,
according to the bidding website. It
is expected to produce mainly oil and
gas liquids from a formation up to
200mthick.
The shales are source rocks to
Chicontepec, but otherwise not related,
said Scott Stevens, senior vice president
at Advanced Resources International
(ARI), which estimated Mexicos huge
shale potential as part of a global
survey for the US Energy Information
Administration (EIA). He said these
deeper shales hold more promise than
the shallow Chicontepec.
There are source rocks to target,

particularly the Tithonian, which he said
is the equivalent of the Bossier in the
US. But these have never been explored.
The estimate in the recent US EIA global
assessment of shale potential was
based on 50 wells drilled, near the city
of Tampico, through the layers of source
rock to reach other targets. ARI is now
following up its previous assessment
with a more in-depth evaluation
oftheunconventional resources
inMexico.
Where Pemex is already producing,
Comisin Nacional de Hidrocarburos
(CNH) President Juan Carlos Zepeda said
the contracts to produce will be limited
to areas where Pemex is notproducing.
In cases where we have
overlapping areas in which
Pemex is already working, then it
could benecessary to define the
depthof[acompanys] activity,
Zepedasaid.
South of Simple
On the face of it, onshore Mexico
looks like an extension of what oil
companies have learned about drilling
unconventional reservoirs north of the
border in Texas.
The same basins continue into
Mexico. The whole Gulf of Mexico basin
from Haynesville to the Barnett to
the Eagle Ford extends into Mexico,
Stevens said.
But there are some significant
changes south of the border. In Mexico,
mountains are a complicating factor,
which become more significant as
the onshore formations come closer
to large uplifts, such as the Sierra
MadreMountains.
onshore opportunities
Unconventional resources in Mexico appear concentrated in the

Tampico-Misantla basin, near Mexicos first oil production. But the
estimates are based on limited drilling.
In the US, most of the shale plays

are very simple structures with few faults.
Even when operators complain about
faults in places like the central Marcellus,
the faulting there is pretty mild, said
Stevens of ARI. It becomes much more
structurally complex as you continue
inland in Mexico and as you gosouth.
While Chicontepec is considered
a conventional reservoir, it performs
like an unconventional one with modest
initial production rapidly declining to low
levels. Chicontepec is made up of tight,
low-pressure sandstone mixed with
large parts of carbonates, which create
barriers. It has been lifted, folded, and
faulted by the forces that created the
Sierra Madre Mountains to the west.
The reservoir mainly comprises
very fine to fine grained sandstones,
with significant amounts of cement and
the channelized sands are usually not
well connected, said Quentin Fisher,
Shale plays likely to produce oil cover a much larger area in

southern Mexico, than along the US border. But the boundaries on
this map are likely to be altered as more data in released by Pemex
and gathered while drilling.
professor of petroleum geoengineering

at the University of Leeds. Core sample
studies reported in a recent paper
(IPTC 17813) said the calcite, which
precipitated into pore spaces after the
rock was deposited, occupied space
between and also limited the volume of
the area drained by each vertical well
drilledthere.
His group is currently conducting
research into the production impact
of fluids used during drilling and
fracturing on formation damage in these
reservoirs. They concluded that the
poor reservoir quality combined with
reservoir pressures rapidly falling below
the bubble pointreducing the solution
gas drive enabling oil productionare
the main reasons for the low production
rates. They did not find strong evidence
that formation damage is a major
influence on what they are seeing,
hesaid.
Many of the wells he observed

were vertical holes that were
hydraulically fractured. From what I
can tell, production starts up at up to
500 B/D and quickly falls often to an
average of 20 B/D . And they produce
at a low level for a long time, he said,
adding that recent SPE papers have
reported significantly better results
using horizontal drilling and multistage fracturing, which are standard for
developing unconventional formations.
While shale operations depend on
creating networks of small fractures,
large fractures can limit production
by dividing reservoirs, limiting the
area produced by a well. They can also
cause abrupt changes in the depth of
the reservoir rock, making it hard for
drillers to remain in the productive
zone. You end up with a lot of short
laterals thatare 500 ft or 1,000 ft,
Stevens said. You paid for a vertical
SUPPLEMENT TO JPT
JANUARY 2015
35
ONSHORE OPPORTUNITIES
Opening up some Mexico fields to bidding could spark exploration onshore. Photo courtesy
of Petrleos Mexicanos.
well and gota short lateral; it is not

veryeconomic.
There have been shale plays in the
United States, such as one in the Black
Warrior basin in Alabama, where faulting
stifled interest. And those features are
also present in Mexico where formations
get complicated.
A technical paper describing the
geology of the Chicontepec by Baker
Hughes (SPE 139374) said, While the
potential economic viability of the fields
in the Chicontepec Basin are influenced
by the technologies available and the

level of investment for development,
perhaps the most important factor
that defines its operations are its
geologicalfeatures.
Unconventional Possibilities
There is evidence that the methods
used to maximize production in
unconventional US fields can also yield
far better results in Mexico. Halliburton
reported last year (SPE 167755) that
it drilled a pair of horizontal wells in
By fracturing pairs of horizontal wells using advanced completion methods, Hallliburton

has produced oil from the Chicontepec formation at rates far greater than past wells. If
what it has achieved on six wells works on a large scale the outlook for the formation could
be brighter than its past. Photo courtesy of Halliburton.
36
UNCOVERING MEXICO
the Chicontepec, each completed

with a 16-stage fracture and together
produced more than 8,300 B/D
initially. While it declined from there,
theystillproduced 240,000 bbl over
90days.
It attacked the problem by
locating the wells and timing the
fracturing to create stress that
maximized the density of the
fracturesknown as a zipper fracture
to try to increase production. It also
employed an advanced array of tools
to plan the job and monitor the work.
The zipper fracture was the first
stimulation treatment of its kind
in Mexico, and Halliburton said it
would be extending the practice to
other areas of the field. A second
paper from Halliburton (SPE 167756)
reported significant production gains
using similar methods on another
pair of Chicontepec wells, resulting in
production of 700,000 bbl of oil from
the two during the first 12 months,
according to Halliburton, which followed
that with two similar pairs of wells
completed. The second pair, fractured
using sand rather than ceramic
propppant, produced about half as
much during the first 120 days, but
the 672BOE/D average reported by
Halliburton is strong for the area.
Replicating those results will
be critical in Chicontepec, where past
successes have often been followed
byfailures.
Pemex reported that it drilled 23
horizontal wells in Chicontepec, and 14
of them were producing 700 B/D after
90 days, said Pete Stark, senior research
director and advisor for IHS. He said if
those results can be replicated widely,
the Chicontepec potential looks much
more favorable than thought from prior
Pemex recovery efforts.
Still, given the geological risk and
the higher cost of finding and developing
reserves in Mexico, Stevens said that
in Mexico, If I were advising someone,
I would say go and get conventional
prospects and look at the shale as
anadd-on. JPT
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Aftermarket Parts & Services

Integrated Projects
Cantarell: The Rise and Decline

of an Oilfield Supergiant
JOEL PARSHALL, JPT FEATURES EDITOR
A helicopter lands on a platform in the Cantarell field in 2005. Photo courtesy of Alberto Rosales.
CANTARELL HISTORY
udesindo Cantarell Jimenez, a

commercial fisherman, pulled up
his nets after fishing a favorite
spot in Mexicos Bay of Campeche
during 1961 and noticed they were
covered with an oily substance. He
assumed there had been an oil spill and
informed officials of Pemex, the Mexican
national oil company, in hopes of being
compensated for his ruined nets.
However, after checking their records,
the officials politely told Cantarell there
had been no spill from any company
installation or ship in the area at
thattime.
Cantarell continued to fish in
the area, continued to find the oily
substance on his nets at times, and
continued to press his case with Pemex.
Eventually, after he brought in his oily
nets to a Pemex office, the company
examined the substance on the nets,
and concluded it was crude oil.
Pemex asked Cantarell to take a
company geologist to the spot where
he had fished. The slick they found on
the water strongly suggested an oil
seep, the oldest type of evidence known
to mankind of a potential subsurface
oilaccumulation.
A Field Beyond Dreams

In 1976, Pemex finished drilling an
exploration well there in 115 ft of water
about 50 miles offshore the Yucatan
Peninsula and the results proved to be
beyond anyones wildest dreams. What
the drill bit discovered, subsequent
analysis confirmed, was the biggest
oilfield in Mexicos history and of one of
giant fields of the world in a reservoir
that many earth scientists believe was
formed by an asteroid some 6 miles
in diameter colliding with the earth 65
million years ago. The impact created
the massive Chicxulub crater beneath
the Yucatan Peninsula and may have
been the event that brought about the
extinction ofdinosaurs.
The field was to transform
Mexico and have a major effect on the
economics and politics of global oil.
And it was named Cantarell in honor of
the fisherman who wouldnt take no for

an answer. Production began in 1979,
and by 1981 the Cantarell field was
producing 1.16 million B/D of oil.
In his book The Prize: The Epic
Quest for Oil, Money & Power, energy
scholar Daniel Yergin wrote, Mexico
had become a major new force in the
world oil market, as it had not been
since the 1920s, and it would provide
yet another alternative source of supply,
undermining the OPEC Imperium.
While this was not the result
of Cantarell alone, it would not have
happened nearly as fully without it.
The nationalization of the Mexican oil
industry in the late 1930s had turned
the countrys oil outlook inward toward
meeting the needs of the domestic
market. With less emphasis on exports,
Pemex focused less on expanding
reserves. Its development program
was directed by cautious engineers, who
were guided by a conservationist ethic
based on the conviction that resources
should be husbanded for future
generations, Yergin said.
As the Mexican population and
economy grew over the decades
following nationalization, domestic
demand absorbed an increasing amount
of the countrys oil production. By the
early 1970s, exports had essentially
ceased and finding new reserves was
becoming critical to ensuring adequate
future domestic supplies.
Deep drilling in the onshore
Reforma fields of Tabasco proved a
major success in adding reserves. Still,
some Mexicans argued that boosting
exports ran counter to the ideals of
Mexican nationalism, notwithstanding
the increase in foreign revenue
stemming from the oil price shock
of1973.
A Crisis and Turnaround

However, by 1976, Mexico was facing its
worst economic crisis since the Great
Depression. The economy had ground
to a halt, unemployment was sky high,
international lenders looked at Mexico
as a bad credit risk, and the peso had
plummeted. Against this backdrop, the

discovery of Cantarell could not have
been more welcome.
Mexicos newly elected President
Jos Lpez Portillo embarked on a
different strategy designed to exploit
the countrys new-found oil wealth as
a driver of foreign earnings to revive
the economy. With oil prices gaining
momentum, the strategy began to work.
Soon Lpez Portillo was saying that
Mexicos economic problems had ended
and all that was necessary was to learn
how to administer abundance.
In reality, the government and
Pemex were engaged in more than
administration. Oil was the worlds
preferred collateral for borrowing, and
for Mexico it became a magnet for
foreign loans. From having been shunned
previously by the international finance
sector, Mexico was now the darling of
lenders worldwide. The borrowing only
added to economic vitality, at least for
a while.
Mexicos Dependable Workhorse

However, this is not a story of Mexicos
recent economic and political history.
Suffice it that Mexico had its ups
anddowns over the subsequent
decades, but Cantarell was the
dependable workhorse of Mexicos
oil production and a bulwark of
theeconomy.
While often referred to as a
field, Cantarell as an operating entity
is a complex consisting of four major
fields, Akal, Nohoch, Chac, and Kutz.
Collectively, the four include 10
smallersubfields.
Production began from Nohoch
in 1979, followed by Akal 2 years later.
Akal, is the largest by far of the major
fields, holding 90% of the estimated
reserves when Cantarell production
began. The productive section of Akal,
while a relatively small area of 10km
by 4km, was one of the worlds most
concentrated oil accumulations, with an
estimated thickness of 1200m. It held
50% more oil than Alaskas Prudhoe Bay
accumulation, which covered an area
SUPPLEMENT TO JPT
JANUARY 2015
39
CANTARELL HISTORY
60
Reserves (Billion BOE)
50
40
30
20
P1- Proved
10
P2- Proved + Probable

P3-Proved + Probable + Possible
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Year
The decline trend in Mexicos oil and gas reserves since 2001 is shown. As reserves are produced, their quantity diminishes if not offset
by reserve additions, chiefly discoveries. As Cantarell reserves continue to be produced, Mexican reserve additions have not kept pace.
Since 2002, Pemex has used the definition of the United States Securities and Exchange Commission for proved reserves. The reserve
levels graphed are as on January 1 of each year. Graph by Samuel Limerick.
20 times larger but was only 100m thick

(Standing 2006).
In 1984, Cantarells reservoirs
were estimated to hold 17 to
20billionbbl of recoverable reserves
out of 35 billion bbl of oil in place.
Laterestimates narrowed the
recoverable reserves figure to
18billionbbl.
Production from the Cantarell
complex held steady at more than
1.1million B/D through 1994, helped
bythe startup of the Chac field in 1991.
Several years earlier, Pemex had begun
to put wells on gas lift to counter the
declining pressure in the Cantarell fields.
By 1994 almost 90% of Cantarells wells
were using gas lift.
As reliably prolific as Cantarell
was, the company was already looking
ahead to address the fields inevitable
production decline. Akal by this time
was operating with 150 gas-lift assisted
wells, compared with 40 unassisted
40
UNCOVERING MEXICO
wells when it had reached full production

in 1981.
Reversing the Inevitable Decline

To stem and reverse the projected
long-term production decline, Pemex
in the mid-1990s decided to undertake
a number of concurrent, complex
integrated projects (Kettles et al.
2001). Among them were
The modernization of 39
platforms and construction of
26 new ones to debottleneck oil
and gas production and handling
capacity.
The development of the Akal L
and B complexes.
The construction of a floating
storage-and-offloading vessel.
Additions to the fields subsea
pipeline network.
The expansion of gas handling
capacity.
The addition and improvement of

offshore processing facilities to
generate lift gas.
The modernization of safety and
control systems throughout the
offshore infrastructure.
These improvements and the
startup of the Kutz field in 1999
boostedproduction to approximately
1.4millionB/D by the end of the decade.
The Boldest Decision

However, the boldest decision was
to build the worlds largest nitrogen
generation facility to enable nitrogen
injection into the field reservoirs for
pressure maintenance. The plant and
infrastructure for the project would
be constructed and installed over
several years and placed in service
in 2000. When fully operational, the
system was predicted to increase
Cantarell production over a 4-year
CANTARELL HISTORY
period to 2 million B/D, almost double

its previous level, before a decline trend
wouldbegin.
At that point, some of the plants
nitrogen output could be redirected
for injection at the nearby Ku-MaloobZaap (KMZ) field to maintain reservoir
pressure there.
The decision to inject nitrogen
at Cantarell was simultaneously
impressive and controversial, as some
industry observers questioned whether
increasing production so much and so
rapidly would soon precipitate a much
steeper decline. Pemexs reservoir
studies and technology analyses, on
the other hand, led the company to
concludethat nitrogen injection was
the preferred method for optimizing oil
recovery and maximizing the economic
value of the specific Cantarell fields
(Sanchez Bujanos et al. 2005).
Before choosing nitrogen

injection, Pemex considered a number
of pressure maintenance options. It
rejected waterflooding because the
predicted recovery factor was 20%
lower than was achievable through gas
injectionmethods (Limon-Hernandez
etal. 2001).
Pemex considered a number of
gas injection options that have been
summarized by Guzmann (2014).
Natural gas injection was rejected
because insufficient volumes were
available from nearby fields, given
the precedence of commercial gas
production. Carbon dioxide for injection
was not sufficiently available and
presented corrosion risks that would
have had major impact on operating or
capital spending. In addition, the contact
of CO2 with crude oil asphaltenes would
have risked plugging the formation.
Flue gas injection was rejected because

of corrosion risks and additional
processingneeds.
The final selection of nitrogen
injection was based on availability,
cost, infrastructure needs, and
environmentaland safety issues. The
estimated delivered cost of nitrogen,
before biddingfor services, was almost
80% lower than that for the No. 2 option
of natural gas, and the final bid price was
more than 86% lower (Sanchez Bujanos
et al.2005).
The core of the Cantarell nitrogen
system is a shore-based plant that
usesa cryogenic air-separation
processto produce nitrogen from
ambient air. The air is cooled until
liquefied, then selectively distilled
in cold boxes thatseparate the
components byboilingtemperature.
Pipelines supply the nitrogen to
Oilfield workers are transferred from a service boat to a Cantarell field platform during 2005. Photo courtesy of Alberto Rosales.
SUPPLEMENT TO JPT
JANUARY 2015
41
CANTARELL HISTORY
the field,where it is injectedby

dedicatedwells into the reservoir
(Guzmann 2014).
The nitrogen production system
was built and is owned and operated
bya consortium led by the Linde
Group/BOC, which won the contract
bid in 1997 and bore the USD 1
billion investment cost for the initial
facilities and the USD 275 million cost
of a subsequent expansion. With this
project structure, Pemex did not need
to invest its owncapital. Construction
began in 1998.The systemwent
online in June2000, 4months ahead
of schedule,and was fully operational
byDecember.
Under nitrogen injection,
field production soared almost
immediately,reaching 1.7 million B/D
by year-end 2000, and continued
steadily to climb. Production reached
1.85millionB/D in 2002 and surpassed
2million B/D in 2003 and 2004, peaking

at 2.2millionB/D.
Production fell slightly in 2005
andwas expected to begin a steep
14% rate of decline in 2006, based
ona Pemex projection in mid-2004.
The actual decline was 13.1% in
2006, butthat was the last morsel of
goodnews.
level more than 2 years ahead of

prediction. During the same year, KMZ
surpassed Cantarell as Mexicos biggest
producing field.
In April 2012, Cantarell production
had dropped to 408,000 B/D, and by
June of 2013 had fallen to 388,000B/D.
A year later, production stood at
340,000B/D.
Crisis Returns
National Energy Reform
By July 2007, production had fallen

approximately 16% to 1.53 million B/D.
A year later, production had dropped by
36% to 974,000 B/D. Pemex forecasted
that the decline would continue but
that production would stabilize at
approximately 500,000 B/D in 2012.
If only it had taken that long.
Production fell to 772,000 B/D in
January 2009, a 21% drop in 6 months,
and plummeted another 35% by
Septemberhitting the 500,000B/D
As Cantarell was hitting new lows,

Mexico initiated a fundamental reform
of its energy laws to open parts of its
oil and gas sector to investment by
international oil companies. Following
the proposal of the reform by President
Enrique Pea Nieto on 12 August
2013, the Mexican Congress rewrote
those laws over a 6-month period to
implement it.
While most of the Cantarell
complex assets are expected remain
A gangway extends from the Prosafe semisubmersible accommodations vessel Safe Britannia, left, to a production platform during a
2005 project at the Cantarell field. Photo courtesy of Alberto Rosales.
42
UNCOVERING MEXICO
CANTARELL HISTORY
in Pemexs portfolio for the long

term, rather than being opened to
international investment bidding,
there is little doubt that the collapse of
production at Cantarell was a strong
impetus for Mexicos energy reform.
The sharp decline that weve
seen in Mexicos overall production has
been largely caused by the progressive
but steep decline in Cantarell, said
Pablo Medina, Latin America upstream
research analyst at Wood Mackenzie.
Shortly before President Peas
reform proposal announcement,
Pemex presented a 14-year Cantarell
production plan to the Comisin Nacional
de Hidrocarburos (CNH), Mexicos
upstream oil and gas regulatory agency.
The plan included a continuation of
nitrogen injection, especially at Akal, and
the application of double displacement
recovery at certain wellsa method in
which gas is injected into water-invaded
oil zones under certain conditions to
improve oil production (Daltaban et
al.2008).
Specific projects in the plan
included the completion of 161 wells,
197 major well interventions, and a large
number of well repairs in addition to
the installation of an Akal field pressure
maintenance system, eight platforms,
and 34 pipelines. The CNH ruled
favorably on the plan (Fredrick 2013).
New Investment at Cantarell

In July 2014, Pemex announced it
would invest an additional USD 6 billion
at Cantarell beginning in 2017 to
maintain current levels of production
over the following decade. The intent
of the effort is to carry out secondary
recovery programs to counteract the
fields production decline by recovering
an additional 100,000 B/D, with the
focus on stabilizing production at Akal.
By doing this, we can make sure
that Akals output will remain steady at
between 180,000 and 200,000 B/D for a
longer period of time, said Miguel ngel
Lozada Aguilar, Cantarell administrator
at Pemex. Akal produced 189,000 B/D
in May.
The sun rises over the Bay of Campeche with Cantarell field platforms in the foreground.
While Lozada provided no

specifics on anticipated technology
applications at Cantarell at the time of
the announcement, he discussed these
at some length in an interview published
last year (Mexico Oil & Gas Review 2014).
More than 95% of the Cantarell
budget is dedicated to IOR [improved
oil recovery], to improve the recovery
factor and optimize production without
significantly increasing production
costs. . Pressure maintenance is
our first priority and fields without a
strong aquifer are supported through
secondary recovery methods, either
the injection of gas or water.
We are also improving the
drainage area and the production
index by drilling horizontal wells in
unconsolidated sandstone reservoirs
in the Ek-Balam field and in the Early
Cretaceous formations in the Akal field.
We are deploying new completions in
openhole situations with instrumented
tubing tails in the Akal field in order to
facilitate gravity drainage and to follow
fluid contacts in very thin oil rims.
We have been working for several
years to develop a new EOR [enhanced
oil recovery] method to be applied for
long-term exploitation processes at
Akal. We have been working together

with IMP [the Mexican Institute of
Petroleum] and several American
universities, including Rice, Stanford,
the University of Texas, and the
Colorado School of Mines.
Together we defined foam
injection with surfactants as the best
option for the Akal EOR exploitation
process. We are now designing a pilot
test to be performed as soon as readily
possible, and we are also working to
define whether injecting surfactants,
polymers, or a combination of both
in the waterflooding process of the
Ek-Balam field is the best option.
Discussing the key elements of
Pemexs reservoir management strategy
for extending the life of the Cantarell
field, Lozada said:
The approach is to execute the
correct exploitation plan according to
the reservoirs nature, rock and fluid
characteristics, physical mechanisms,
and economical assessment.
Applying new technologies in all the
exploitation processes and working
in multidisciplinary teams are also
vital to this purpose. In the case of
the Akal field, which has 68% of the
total reserves of the asset, the most
SUPPLEMENT TO JPT
JANUARY 2015
43
CANTARELL HISTORY
important physical mechanism is

the gravity drainage process. This
expels the oil from the matrix rock and
makes it flow down through the porous
fractured rock within the gas cap. Due
to the differences between the oil
and gas densities, the gravitational
forces surpass the capillary forces. The
exploitation plan for this field is to take
advantage of this strong process by
targeting those wells that can benefit
from it.
There is also a strategy for
monitoring fluid contacts in order to
place the wells in the right position for
capturing the gravity drainage effect.
This process can last for a long time
and lead to a recovery factor as high
as 60%.
However, the most important
long-term project in this field will
certainly be the double displacement
process. This also involves the gravity
drainage, as the main objective is to
move the oil-water contact 600m
downwards to its original position in
order to put the gas cap in contact with
this invaded zone. . We think there
are still 1 billion barrelsofrecoverable
oil in this invaded zone.
That notwithstanding, cost is
anissue.
To apply this double
displacement process, we need an
investment of around MXN 50 billion
(USD 3.5 billion), which is the entire
Cantarell budget for a year. Therefore,
this investment will have to be made
gradually and allocated overtime.
With all the measures that
Pemex plans to employ, what
percentage of Cantarells petroleum
riches will the company be able
toproduce?
Our recovery factor expectations
border around 50% and we are
currently at 42%. No field in Mexico
presents similar recovery factors or
expectations. Regarding Cantarells
future, it remains the second most
important asset of the country behind
KMZ, after having been the first for
many years. We expect it will remain in
this position for years tocome.
44
UNCOVERING MEXICO
Taking the long view, the Cantarell

field made history with its discovery
and made more history a quarter of
a century afterward with a nitrogen
injection project of unprecedented scale.
While Cantarells glory days have passed,
it may still have the opportunity to be
an industry trendsetter in IOR and EOR
and remain a significant producer for
another couple of decades and quite
possibly longer. JPT
References
Daltaban, T.S., Lozada, A.M., and
Villavicencio, P.A. et al. 2008.
Managing Water and Gas Production
Problems in Cantarell: A Giant
Carbonate Reservoir in Gulf of
Mexico. Presented at the Abu Dhabi
International Petroleum Exhibition
and Conference, Abu Dhabi, 36
November. SPE-117233-MS.
http://dx.doi.org/10.2118/117233-MS
Fredrick, J. 2013. Pemex Lays Out
14-Year Cantarell Production Plan.
BN AmericasBusiness Insight in
Latin America, 9 August, http://www.
bnamericas.com/news/oilandgas/
pemex-lays-out-14-year-cantarellproduction-plan (accessed 5
December 2014).
Guzmann, M.S.P. 2014. Review of
a Forgotten Technology With
High PotentialThe Worlds
Largest Nitrogen IOR Project in
the Supergiant Field Cantarell,
Mexico. Presented at the SPE
Russian Oil and Gas Exploration and
Production Technical Conference and
Exhibition, Moscow, 1416 October.
SPE-179239-MS.
Kettles, R., Kuo, J.C., and Rubio, J.
2001. Cantarells Akal C Complex:
the Worlds Largest Offshore Gas
Treating and Lift Gas Generation
Platforms. Presented at the Offshore
Technology Conference, Houston, 30
April3 May. OTC-13177-MS.
Limon-Hernandez, T., Garza Ponce,
C., and Lechuga Aguiaga, C.
2001. Status of the Cantarell
Field Development Program: An
Overview. Presented at the Offshore

Technology Conference, Houston, 30
April3 May. OTC-13175-MS.
Mexico Oil & Gas Review. 2014.
Expert Interview: The Future
of Mexicos Supergiant Field
Miguel ngel Lozada Aguilar,
Cantarell Administrator, Mexico
Oil & Gas Review, http://www.
mexicooilandgasreview.com/2014/
interviews/interview5_3.html
(accessed 5 December 2014).
Sanchez Bujanos, J.L., Amado, V.,
Astudilla, A. et al. 2005. Nitrogen
Injection in the Cantarell Complex:
Results After Four Years of
Operation. Presented at the SPE
Latin American and Caribbean
Petroleum Engineering Conference,
Rio de Janeiro, 2023 June.
SPE-97385-MS.
Standing, T. 2006. Mexicos Cantarell
Field: How Long Will It Last?
Resilience. 11 October, http://www.
resilience.org/stories/2006-10-11/
mexicos-cantarell-field-how-longwill-it-last (accessed 5 December
2014).
Recommended reading at
OnePetro: www.onepetro.org
SPE 153942 Understanding Foam
Flow With a New Foam EOR Model
Developed From Laboratory and
Field Data of the Naturally Fractured
Cantarell Field by F. Skoreyko,
Computer Modeling Group, et al.
SPE 153468 Instrumented Deep Tubing
Tail Completion: A Good Practice
for Monitoring Cantarell Reservoirs
Behavior by T. Ladrn de Geuvara,
Pemex, et al.
SPE 129867 Single-Well Simulation
Study of Foam EOR in Gas-Cap Oil
of the Naturally Fractured Cantarell
Field by M. Abbaszadeh, Innovative
Petrotech Solutions and University of
Texas at Austin, et al.

PE
15
SPE Latin American and Caribbean
Petroleum Engineering Conference
1820 November 2015 | Quito, Ecuador
www.spe.org/events/lacpec
CALL FOR
PAPERS IS
OPEN!
Submit your
paper proposal
in English by
9 APRIL 2015!
LACPEC is the must-see
technical event for
exploration and production
in the Latin American and
the Caribbean region.
CANTARELL THEN AND

NOW: AN IN-DEPTH LOOK
AT THE FIELD'S HISTORY
An interview with Pedro Silva Lopez, Vice President
of Technical Resources at Pemex and president of the
SPEMexico Section.
JOEL PARSHALL, JPT FEATURES EDITOR
Is the story true about the fisherman in 1961 who noticed oil
seeps where the future Cantarell field was discovered? If so,
what happened between that point and the discovery of the
field in 1976?
Since the early Sixties, Pemex geologists began to
demonstrate that the Mesozoic geological structures that
were exposed in the Sierra de Chiapas plunged toward the
coastal gulf region, where a structural trend with porous and
permeable Mesozoic carbonate rocks could be buried beneath
a thick section of Tertiary age shale and sandstones. At the
end of that decade, advances in geophysical technologies,
such as the common-depth point method and digital
processing, enabled the identification in the subsurface of a
higher velocityreflector below the Tertiary section that could
correspond to the trend of Mesozoic carbonates postulated by
the geologists.
This geophysical interpretation was supported by
gravimetric and magnetometric data, as well as by the
understanding of the regional geology and the presence of
various oil seeps. The integration of all of that data led the
explorers to infer that in the Chiapas-Tabasco area, near
the town of Reforma, the Mesozoic rocks could be reached
by drilling into the geological structures delineated in the
subsurface of that particular area. As a result, three of these
structures were selected to confirm this geological hypothesis.
It should be emphasized that the petroleum engineers used
indirect exploration methods, but also took on the challenge
of drilling and recovering cores in carbonate rocks at depths
greater than 4000 m, which was unusual at that time
inMexico.
In February 1971, drilling began on the wells Sitio
Grande-1, Cactus-1, and Pichucalco-1, which were completed
between May and August 1972. Although the Pichucalco-1
well turned out not to be a producer, the Sitio Grande-1 and
Cactus-1 wells proved to be oil and gas producers in Middle
Cretaceous dolomitized limestones. Within the next 2 years,
the fields Samaria, Sabancuy, Cunduacan, Iride, Nspero,
Ro Nuevo, and Agave were discovered, which confirmed the
magnitude of this new petroleum province.
46
UNCOVERING MEXICO
With the information obtained, the paleogeographic

and regional structural maps were updated and new 2D
seismic data were acquired both onshore and offshore to
improve the imaging and seek the extension of this new oilprolific structural trend further north and northwest. So, the
aforementioned wells were actually the precursors to the
great discoveries in the provinces of Chiapas-Tabasco and
CampecheSound.
During this very exciting time of exploration activity,
in February 1971, a fisherman named Rudesindo Cantarell
Jimenez from Ciudad del Carmen in the state of Campeche,
showed up at Pemexs exploration offices in Coatzacoalcos,
Veracruz, to report that he had seen what he expressed in
Spanish as an oil stain at sea many years ago. Additionally,
he said that he had been reporting the oil stain for a long
time, but nobody had really paid attention to it. Mr. Cantarell
was assured that his information was appreciated and that
actions would be taken immediately. Soon afterward, geologist
Narcizo Paz Rivera was assigned to verify the information and
substantiate if this slick coincided with some seeps previously
reported in the Bay of Campeche.
On the morning of February 28, 1971, Mr. Cantarell
and Paz Rivera left Ciudad del Carmen in search of the oil slick
on board the Centenario del Carmen, a shrimp boat owned by
Mr. Cantarell. Once at the site, Paz Rivera observed that the
slick was bubbling constantly in an area of approximately 50
sq km. Then, with Mr. Cantarells help, he estimated the waters
depth to be 35 m, collected 2 L of samples from the oil seep,
and labeled the containers PZ-30 and PZ-31.
The resulting report of this trip increased Pemexs
optimism about the idea that the Mesozoic producing trend
could extend offshore toward the north/northwest, and in
1972, the geological/geophysical interpretation of seismic
reflection lines, gravity and magnetometry data, and the
new paleogeographic and structural maps allowed for the
identification of 30 geological structures offshore Campeche
and Tabasco. One of these structures was named Chac after
the Mayan god of rain and was selected for drilling because
it presented a well-defined structural uplift, 30 km long by
CANTARELL THEN AND NOW Q&A
8 to 12 km wide, and the higher velocity reflector was at an

approximate depth of 3300 m.
In June 1974, drilling began on the Chac-1 well, and
in March 1976, a total depth of 4934 m was reached. The
well went through rocks from the Plio-Pleistocene-Jurassic
(Oxfordian) age and produced in the Lower Paleocene dolomitic
breccia located at a depth of 3500 m. The initial production
without stimulation was 952 B/D with an oil density of 20 API.
Between 1976 and 1979, the following discoveries
contributed to dramatically changing Mexicos petroleum
status: Akal, Bakab, Nohoch, Kutz, Ku, Maloob, Abkatun, and
Ixtoc. And the producing fields of Chac, Akal, Nohoch, and Kutz
compose what is now known as the Cantarell complex.
When the discovery was drilled, was it evident as to how big
the field development would be? Or did that only become
clear some years later?
Two years after the discovery of Chac-1, the first 3D seismic
study was performed in the area now known as Cantarell
complex using conventional streamers on the sea surface. This
is how Mexicos giant oil reservoir was discovered. With the well
Cantarell-1A, the Akal field was discovered, which is the main
and largest field throughout the project. Its oil is classified as
22 API (Maya Oil in Mexico). The pay zones are in the Mesozoic
formations, between 650 m and 1000 m thick, and the field
extends over an area of 122 sq km. The Akal field began
operations with flowing wells averaging up to 30,000 B/D.
How important was the Cantarell field to Mexicos rise to
the status of a major oil exporter in the era of the oil crises
of the 1970s? What has Cantarell meant to the Mexican
oilindustry?
At the beginning of the 20th century, Mexico was an oil
exporter. But in the 1960s, because of the increasing demand
for energy from its developing industry, Mexico transitioned
from being an oil exporter to a net oil importer. However,
because of successful production operations, Mexico in 1974
was able to cease importing oil meant for producing petroleum
derivatives for the internal market and began exporting around
100,000 B/D. After the discovery of Cantarell, Mexico became
an important player in the international oil market exporting
200,000 B/D by 1979, and in 1980, production stabilized at
more than 500,000 B/D.
The Cantarell project is one of the main oil complexes
that has yielded Mexico most of its profits, and in the
early 1980s, Cantarell became Mexicos top ranking oil and
gas producing asset, which was achieved by keeping the
production rate steady for more than 20 years at about
1million B/D. By 2003, through the incorporation of new fields
and the implementation of always state-of-the-art operational
plans, peak production was reached at more than 2 million B/D.
It is important to mention the urban development
and industrialization that took place in the 1970s, where
transnational businesses related to the oil industry and
financial institutions were carrying out activities as a result

of the rising oil production. Also, an additional wave of
industrialization took place when the strategy on imports
was changed, resulting in steel and energy investment
projects that were developed by the government. With the
rapid industrial development, the abundant workforce, the
advantageous tax regime for exports, and the favorable
international market and demand, Mexican industrial exports
were bolstered, increasing from 12% in 1960 to 52% in 1975.
Before the discovery of Cantarell, Mexico was earning
profits of around USD 4 billion per year from oil exports. But
after adding in the production from Cantarell, Mexicos cash
flow increased exponentially with oil export profits tripling by
1981 at approximately USD 13.2 billion. Currently, crude oil
exports yield more than USD 30 billion.
What technologies have been used to produce Cantarell's
reservoirs through the evolving life field?
State-of-the-art technology, environmental protection,
and workplace safety are the combination that has yielded
excellent results in the Cantarell complex. For example, to
achieve higher oil production rates, which was necessary for
Mexicos development as well as to keep up with the pace of
production in the international market, in 1997 Pemex E&P
implemented the project called Upgrading and Optimization of
Cantarells Infrastructure. The aim was to maintain reservoir
pressure by injecting N2 into the gas cap, drilling new oilproducing wells and gas-injection wells, upgrading facilities,
and building new infrastructure. The project met the rising
challenges and opportunities to increase the long-term
economic value of the oil and gas reserves.
The following is a timeline of the various technologies
that have been applied at Cantarell:
1987
Gas lift implementation, resulting in increased well
productivity.
2000
Nitrogen injection into the gas cap to maintain
reservoir pressure.
2004
Hydrocarbon gas injection to support reservoir
pressure.
2007
Installation of permanent gauges in monitoring wells
to evaluate reservoir parameters.
2008
Design of production strings with inflow control
devices to control unwanted fluid production.
Drilling of unconventional (horizontal) wells to expose
more area to flow and increase well productivity.
2009
2011
Implementation of mud cap and liner drilling

techniques to optimize drilling time and resources.
Application of chemical treatment (foams, gels, and
ultralight cements) to control gas and water.
Multiphase gauges for more accurate liquid
measurement.
Standard Cantarell tail and instrumented Cantarell
tail completions to capitalize on gravity drainage,
SUPPLEMENT TO JPT
JANUARY 2015
47
CANTARELL THEN AND NOW Q&A
2013
2014
extend well production life, and manage the oil

window (the location of the pay zone).
Dehydration and desalting techniques.
Use of fiber optics in wells to monitor reservoirs.
Selective simple completions with sliding hangers.
Tools to optimize building times of larger simulation
models, EVOLFRAC and CALIPTO.
The Akal field faces several challenges, which

management is currently working on.
Static characterization of naturally fractured
carbonate reservoirs.
Dynamic characterization of complex heterogeneous
systems.
Production and well productivity engineering for high
water-cut wells.
Optimization of production systems.
Drilling and completion of unconventional wells.
Were the timing and size of Cantarells production decline

accurately predicted?
In 1996, it was deemed necessary for changes to be made
to the production plan in order to maximize the economic
value of the reserves, because the numerical simulation
modelsathand at that time forecasted a production decline
for 20042005. The forecast predicted that peak production
would be reached in late 2002 with volumes just over 2 million
B/D and that the production decline forecasted for 2004
would bring the production rate back down to approximately 1
million B/D by late 2007. However, because of work delays, the
forecasted peak production was actually reached in mid-2003,
and consequently the decline trend began in 2005.
During the development of the project to upgrade and
optimize Cantarells infrastructure, new seismic information
was acquired and additional wells were drilled. From 2003
to 2005, the information gathered from these activities was
used to perform an integral analysis of static and dynamic
characterization. As a consequence, a simulation model was
built with Athos [software], which would provide more accurate
production forecasts.
Various actions have been implemented to reduce
Cantarells production decline. These include
Well drilling and workovers in the sweet spots
Horizontal wells with special completions
Special instrumented completions in open hole to
decrease water/gas channeling and coning effects and
to capitalize on the gravity drainage
Maintenance of the production rate by continuously
optimizing well operations
Increase in minor workovers (cleaning and stimulation)
to maintain the production level
48
UNCOVERING MEXICO
Construction and modernization of infrastructure

Injection of N2 and sour gas to ensure pressure
maintenance in Akal
Oil dehydration and water management
Development of a project based on the double
displacement process in the Akal field
Development of lower layers in the JurassicKimmeridgian formation in the Akal field
Development and extraction of proven reserves in all of
the fields in the Cantarell project
Can the Cantarell infrastructure be used for production of oil
from nearby reservoirs or for processing other production?
The Cantarell projects infrastructure does in fact support
the production development in much of Pemexs Northeast
Offshore Region (Regin Marina Noreste). One of the
strengthsof the Cantarell project regarding infrastructure is
the projects flexibility in operations. It is this flexibility that
allows all of the Cantarell fields to operate. The infrastructure
initially built to manage the Akal fields production has
been employed for the other fields incorporated into the
Cantarell project: Nohoch, Chac, Kutz, Ixtoc, Sihil, Takn, and
Kambesah, as well as fields that belong to the Ek-Balam
projectwhose pay zones are in the Upper Cretaceous
breccia and Upper Jurassic (Oxfordian) formations. This
has positively influencedthe financial yield of the Cantarell
project, by processing and handling the production of
other fields withminimal infrastructure and at a minimum
investmentcost.
Some of the Cantarell projects facilities are used for
the Ku-Maloob-Zaap asset to aid in management of wet and
sour gas. Cantarells infrastructure has enabled operational
flexibility in oil, water, and gas production management, which
has been economically beneficial to Pemex. Cantarells total
average oil production is approximately 351,000 B/D, with
water production having increased to about 225,000 B/D and
gas is close to 1.1 Bscf/D. Cantarells infrastructure, with its
current size and reach, is being used as efficiently as possible
to handle the produced fluids.
Does the Cantarell field still have a significant number of
years left as a producer?
The certified remaining 2P reserves for the fields that make
up the Cantarell project add up to more than 3 billion bbl.
Therefore, a production program is in place that will implement
secondary and enhanced recovery processes. The forecasts
indicate a sustained level of production similar to current
levels for the next 5 years with a moderate production decline
by the end of this period. Oil production at Cantarell will remain
above 200,000 B/D, and Cantarell will continue to be one of
Mexicos most important fields in both reserves and production
for many years to come. JPT
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Exporting Shale Exploration

Will Require Adjustments
STEPHEN RASSENFOSS, JPT EMERGING TECHNOLOGY SENIOR EDITOR, AND
he opening of Mexicos onshore

shale formations is not playing
out according to the expectations
of those who looked for a surge south of
the big plays in Texas.
In the first bidding round, what
is being offered in northern Mexicos
onshore amounts to an appetizer, andis
not for everyone. There areonlyeight
blocks offered near the US/Mexico
border, near Acuna, covering a
total of 220,000 acres (900km2).
Given the current low price paid for
natural gas,that is a significant
economicnegative.
But the unconventional
auction, scheduled for this year,
could be delayed. In light of the
downturn in global oil prices that
has US shale producers slashing
budgets, the Mexican government
signaled in December that it is
considering postponing the bidding on
unconventional resources until market
volatility is resolved.
Unconventional drilling in the
United States has targeted higher-value
liquids such as oil or gas condensate,
which are likely to be found in shale
reservoirs along the border, and in
formations in the south along Mexicos
Gulf coast. The initial offerings in
the north were limited by security
concerns, according to Mexican energy
officials who say that more acreage will
be offered in future rounds as areas
aresecured.
In terms of exploration, what
we have here in Round One is around
10% of the prospective resources
already quantified in Mexico, said Juan
Carlos Zepeda, president commissioner
50
UNCOVERING MEXICO
Sabinas, 9.8,
16%
Burgos, 15,
25%
Veracruz, 0.6,
1%
TampicoMisantla,
34.8, 58%
The largest share of Mexico's unconventional resources (million BOE), as estimated by

Pemex, are found in the basins in southern Mexico, but the two northern basins (Sabinas
and Burgos) are near US production.
of theNational Hydrocarbons
Commissionof Mexico (CNH), which
is managing theupstream auctions.
We will be ableto offer every year
a round on a similar scale with an
increasingshareof exploration blocks,
he said.
For bidders, this offers a way
to get a taste of working in northern
Mexico, where two major basins offer
large oil and gas potential. It will be
an education in both the rocks and
regulations onshore.
The first blocks, in a formation
known as Burro-Picachos, have been
covered by 3D seismic, but national
oil company Pemex has drilled only a
handful of wells around the outer edges
of the acreage offered.
Winning bidders will need to
negotiate deals with landowners
for land use and royalties. Mexican
lawmakers included terms to allow

payments for land use and royalties if
there is production. These payments
offer an incentive for farmers and
ranchers to allow drilling and production
on theirland.
Land use payments are supposed
to cover expenses such as rent and
fees for changes to the land, or
adverse effects caused by drilling
and production. If a deal cannot be
struck between the two sides, a
summary of the law on the Secretariat
of Energy of Mexico (SENER) website
stated, The government will take
part when alternative resolutions
are neededinorder to protect the
ownersrights.
Royalty payments to
landownersare limited by the law to
a set range from 0.5% to 3% if only
gas is produced,and from 0.5% to
EXPORTING SHALE EXPLORATION
The eight blocks offered in Round One (upper left corner) are northeast of exploration wells
drilled by Pemex that have generally produced dry gas.
Resources per Basin (million BOE)
2% for allother wells, according to

thesummary.
In Mexico, water is owned by
the state. Obtaining the quantity of
water needed for fracturing is likely to
require a concession from the National
Water Commission. In arid northern
Mexico, relying on brackish aquifers or
reusing produced water can help ensure
securesupplies.
The chair of this commission
has been very clear about the fact that
the laws in Mexico require that water
goes first for human consumption
and then for other usages, said
Maria de LourdesMelgar Palacios,
undersecretary of hydrocarbons
at SENER. Even hydropower plants
havebeen shut downwhen supplies
aretight.
CNH is working with Pemex
and the countrys environmental
ministrytostudy how the oil and
gas industry can use alternatives
to freshwater. What we see is
that for shale production, you can
use water that is much deeper in
the subsoil thatis not good for
human consumption, Melgar said.
Their findings may be included
in future regulations governing
shaledevelopment.
Onshore development also
requires a social impact assessment to
assure sustainable development and
protection of human rights, which will
be reviewed and approved by SENER.
Shale extraction has
generatedcontroversy seemingly
wherever it has been proposed, and
Mexico is no exception. To address
the matter, the Mexican government
is carrying out social evaluations.
Melgar likened the process to an X-ray,
which allows CNH to observe what
the oil andgas industry will need to
do to obtain the license to operate in
different areas.
There has been a lot of
discussion in the press about whether
or not it is sound from an environmental
perspective, and whether or not we are
going to be taking away water from
communities, she said. While Pemex
80
ARI
60
Pemex
40
20
Pemex
0
Burgos
Sabinas
ARI
Tampico-Misantla
Veracruz
Advanced Resources International (ARI) and Pemex estimates of the unconventional

basins potential differ widely. ARI did the assessment on behalf of the US Energy
Information Administration.
SUPPLEMENT TO JPT
JANUARY 2015
51
EXPORTING SHALE EXPLORATION
has only drilled a small number of shale

wells in northern Mexico, she said there
has been public speculation that lowintensity earthquakes in the Monterrey
area have been a result of shale
production. Which always surprises
us, because we are not quite there yet,
she said.
To bring private companies up
to speed regarding how the new laws
will work in terms of unconventional
development, CNH said it is planning
a seminar prior to the bidding round.
On the agenda is the law concerning
negotiations between operators and
the communities and landowners near
the shale fields. The government will
establish a registry recording payments
that might be made, such as the cost
of tree removal or moving cattle away
from a drillsite.
Finally, there are local-content
requirements, which start at 25%
of themoney spent on projects,
The US-Mexico border crossing at the Amistad Reservoir, near eight unconventional gas
blocks offered by Mexico, holds fresh water in a place where it is a scarce commodity.
Access to such sources of water is likely to be prohibited by the Mexican government which
is in favor of using brackish-water sources for shale development. Photo courtesy of the
Texas Department of Transportation.
rising to 35% in 2025. As with most

of the Mexican law, compliance
is notexpected to be a problem,
If knowledge is power, get ready

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52
UNCOVERING MEXICO
but details are lacking and it is

too early tosee how it will all work
inpractice.JPT
Dig deeper without

leaving your desk.
Too busy to be away from the ofce? Take yourself to greater depths
right from your desktop with SPE Web Events. Join our industry experts
as they explore solutions to real problems and discuss trending topics.
View a list of available web events at
www.spe.org/events/webevents.
Connect, share with us on

@SPE_Events
#SPEWEBEVENTS
Bringing Enhanced Oil Recovery

to Mexican Fields
he Mexican governments plan

to rejuvenate the countrys
oil production means it must
attract companies with enhanced oil
recovery (EOR) experience to help
make the most of its mature fields.
Thus far in the Mexican experience, the
countrys lone operator, Pemex, has
not implemented EOR in a significant
way. Where it has done so, largely in its
shallow-waterfields, the results have
beenmixed.
In the past, investing in pulling the
last oil from aging reservoirs simply was
not required in Mexico. In the light of
having Cantarell and Ku-Maloob-Zaap,
these huge reservoirs, there was no need
for (EOR), said Edgar Rangel German, a
commissioner at the Comisin Nacional
de Hidrocarburos(CNH) responsible for
overseeing mature field development
and EOR.
But those fields began rapidly
declining a decade ago; in the case of
Cantarell, the field experienced an 80%
decline in a decade. Because offsetting
the lost production from those fields has
proven to be difficult, German said now
is the right time for Mexico to look at
how EOR can be used effectively in its
large inventory of mature assets. We
have to be focused on recovering the
last drop of oil reservoirs, economically
obviously, he said.
German explained that the two
biggest challenges facing Mexicos EOR
future involves access to technology
and human capital. In general, the
[domestic] industry does not have
enough geoscientists and petroleum
engineers that specialize in chemical
EOR, for example, or thermal recovery,
he said. They are very spare and it is
54
UNCOVERING MEXICO
Retrieving the remaining reserves of Mexicos depleted oil fields will require the
use of enhanced oil recovery technologies, which have not been widely applied
there. These fields are attracting companies that specialize in maximizing the
production from aging assets such as Occidental Petroleum.
very hard to find these people, but the
opportunities are there.
He said joint venture partnerships
with Pemex after Round One might
helpbring in the technology and
people from service companies

and academia that could help the
countryovercomethe hurdles that
it faces withaccessing remaining
oildeposits.
EOR OPPORTUNITIES
And because EOR has not been

heavily used in Mexico, he added that the
CNH may have to adopt new regulations
for such operations, similar to what has
been done in the US and Canada, where
EOR use is a small, but growing part
ofproduction.
Two companies with EOR
expertise, Occidental Petroleum and
Pacific Rubiales Energy, are already
looking for opportunities in Mexico.
Occidental Looking Mexicos Way

Tim Borgerding, senior vice president of
worldwide engineering and operationsat
Occidental Petroleum, noted that
Mexicos oil production has largely
relied on primary development. So for
a company that achieves 90% of its
production from secondary andtertiary
recovery, Mexico representsasignificant
businessopportunity.
It takes a bit of a different
skillset and mindset as you move into
IOR (improved oil recovery) and EOR,
Borgerding said. Rejuvenating maturing
fields is not always the sexiest thing
it does not make the headlines like a big
deepwater discovery or unconventionals.
But I think it is a very critical part of the

growth in Mexico and we look forward to
being a part of that.
He said that one of those skills is
the ability to handle water, noting that
many EOR operations, including CO2
flooding, depend on water usage and,
therefore, it is important to develop
long-term plans for dealing with it. He
noted that Occidental produces more
than 12 million B/D in fluid, of which
only 750,000 B/D is oil. How to handle
that water, how to separate and reuse
that water is very critical to all the
techniques, he said.
Steve Chazen, president and chief
executive officer of Occidental, echoed
Borgerdings optimism for Mexicos
EOR potential. We think Mexico is
one of the prime opportunities for this
kindofactivity left in the world, he said.
One specific EOR technique that
Chazen discussed is CO2 flooding, which
he said takes approximately 2 years
to improve recovery. He noted that his
companys experience with CO2 EOR in
west Texas has shown that good quality
reservoirs are the best performers for
this type of treatment. And we think
that in Mexico, there is a lot of that,
hesaid.
To access Mexicos mature fields,
Chazen said his company will need to
establish a partnership with Pemex. We
need to work together, he said, adding
that companies like his need to ensure
that the localities quickly see value in
bringing outside oil companies into their
regions. Redeveloping mature fields will
be the quickest way todo that, hesaid.
Pacific Rubiales Sets its

Sights on Mexico
The Potrero del Llano No. 4 well being
drilled near the Gulf of Mexico coastal
city of Tuxpan in 1910. In the next year,
Mexico became the world's largest
exporter of oil. Because the country
has not widely applied enhanced oil
recovery, the government believes its
older fields can have a lot of oil left
to give. Image courtesy of DeGolyer
Library, Southern Methodist University.
Pacific Rubiales is a Canadianlisted,Colombia-based oil producer

ledby former executives of Petrleos de
Venezuela. The company touts itself as
the fastest growing oil company in the
world after achieving a totalproduction
of more than 330,000B/D in only 7
years of existence, which came about
as a resultof Colombias energy reforms
passed in 2003. Since then, the company
has risen to become the second-largest
Chief executive officer of Occidental

Petroleum, Steve Chazen, said
in September said that Mexican
production from mature fields may
be boosted through CO2 flooding,
a technique his company is very
experienced with.
producer in the country, behind only 80%
state-ownedEcopetrol,
Chief Executive Officer Ronald
Pantin said that Pacific Rubiales already
has 130 staff members in Mexico who
are looking at offshore, onshore, heavy
oil, light oil, and natural gas fields. We
are very glad to be here in Mexico. We
think there are a lot of opportunities,
he said at the recent World National Oil
Companies Congress Americas held in
Cancun, Mexico.
The company has secured
USD1billion in credit for its
expansioninto Mexico, which it hopes
will help to double its crude production
by 2020. He indicated that the ambitious
goal might in part be achieved through
the use of the companys broad
experience in EOR technologies and
techniques, much of which came from
its employees experience in producing
heavy oil fromVenezuelas Orinoco Belt.
In the companys largest field,
the Rubiales, Pantin said it increased
production from 14,000 B/D to
210,000B/D in 4 years using EOR
techniques that included horizontal
drilling and pumping technologies.
He said that part of the challenge
is planning for what to do with
the produced water, which totals
4millionB/D from the field. The company
treats some of the water so it can be
used to provide water for 30,000 acres
offarmland. JPT
SUPPLEMENT TO JPT
JANUARY 2015
55
Low Prices Dampen

Interest in Gas Development
Despite falling domestic production, the outlook for Mexican natural gas exploration and development is weak because of the abundance of
natural gas from Texas and elsewhere in the United States. Photo courtesy of Petrleos Mexicanos.
GAS PRICES
s domestic production declines,

Mexico needs a rapidly growing
supply of imported natural gas to
deliver on its promise of more electrical
power for consumers and industry. The
timing is fortuitous as shale producers
across the border in the Permian Basin
and Eagle Ford Shale of Texas are eager
to find a long-term customer for their
abundant supply of natural gas.
And despite Mexicos own massive
natural gas reserves, Ivan Cima, head
of upstream research for Latin America
at Wood Mackenzie, does not see rising
domestic demand driving Mexican gas
production upward. The problem with
Mexican gas exploration is the low price
in the US, which is also the basis of the
price paid for gas produced in Mexico.
Mexico always viewed gas as
kind of an area of national interest, and
there has historically been placed a lot
of need to have sufficient development
and reserves of gas and production,
Cima said. With the availability of cheap
imports from the US, that ischanging.
Round One will test demand for
gas-only properties in Mexico, with 89
out of 169 Round One blocks believed
to contain mainly dry or wet gas
resources, according to the Mexican
government.All but eight of those
areoffshore.
Natural gas prices in Mexico are
pegged to the benchmark US Henry Hub
price, which has remained low. It was
approximately USD 4/Mcf late last year,
which is within the range it has been
since early 2009. The market-based
formula, which is a bit higher, reduces
margins for gas producers, but it has
provided a low-cost source of fuel to
generate more electricity for consumers
and industry. Mexico imports liquefied
natural gas (LNG), but the main source
of import growth since 2006 has been
pipelines from the US.
The price was so good at that
moment up in the US that it was a
buying opportunity for Pemex, whose
exploration program was focused
on finding more offshore oil, said
Esther Escobar Montero, a petroleum
Mexico natural gas production vs. consumption (19802013)

billion cubic feet
2,750
2,500
2,250
2,000
1,750
1,500
1,250
1,000
750
500
1980
1985
1990
1995
production
2000
2005
2010
consumption
Consumption of natural gas in Mexico is rising while peak domestic production was
reached in 2010. Graphic courtesy of the US Energy Information Administration.
New pipelines are being built across Mexico and across the border from Texas into the
country to supply its burgeoning energy demand from homes and to boost industrial
output. Photo courtesy of National Hydrocarbons Commission.
economist at RPS Group. For me, it was

a cost/benefit decision.
Imports supply 40% of Mexicos
demand, which is expected to grow
rapidly as new energy laws open up
the electricity generating sector to
bring in new competitors. From 2009
to 2013, imports of pipeline gas from
the US doubled to 1.9 Bcf/D and the
Mexican government expects that
figuretodouble again to 3.8 Bcf/D

by2018.
When gas prices are low and are
expected to remain so, it is an attractive
option for electricity generation because
gas-fired plants cost less to build than
coal or nuclearplants.
The record output of natural gas
from shale fields in Texas should be
enough to meet growing demand well
SUPPLEMENT TO JPT
JANUARY 2015
57
GAS PRICES
into the next decade. While much of

the current gas production in Texas is
associated with oil wells, drillers in the
Eagle Ford Shale in Texas are expected
to increasingly target the formations
gas-rich window to feed the new
transboundary pipelines.
When all phases are fully built in
mid-2016, the multibillion dollar NET
Mexico and Los Ramones project will
deliver 2.1 Bcf/D of natural gas from
south Texas 700 miles away to Mexicos
third-largest city of Monterrey. Other
pipelines are expected to be built across
the border as Mexico seeks to reduce
reliance on higher-cost LNG imports,
which are at an all-time high and come
with a per-unit price of three times that
of pipeline gas.
Mark Houchen, head of global new
ventures at BG Group, said Mexican gas
developments will remain dependent
on the US market in the foreseeable
future, and to a lesser extent on the
fiscal terms offered by the Mexican

government to companies seeking to
develop its hydrocarbon reserves. We
are all probably aware of the glut of
gas that is available over the border
in the US, Houchen said, I think that
will probably impact the economics of
straight-gasdevelopments.
One notable investment in
Mexican natural gas production is
Pemexs Lakach offshore gas field. In
October, Pemex awarded OneSubsea,
a joint venture between Cameron
and Schlumberger, a USD 270 million
contract for the construction and
installation of a subsea production
system for seven deepwater gas wells.
The regulated gas price in Mexico
currently presents a challenge for
development, but that could change.
Gas prices historically have been volatile
and unpredictable. Low US oil prices
are slowing the drilling that created the
gasglut.
Mexicos gas market offers

opportunities compared with the US. For
one, there is a premium built into the
pricing formula. We did some research
for a paper published in 2012 saying on
average, Mexican consumer pay 30%
more than the Henry Hub price, said
Grant Poerter, a specialist leader at
Deloitte Consulting.
Another is that there are places
in Mexico where pricing for the local
producer is based on the value of
imported LNG, which costs about three
times the US spot gas price.
To promote the development of
gas, the government will not collect
any royalties when prices are less than
USD5/Mcf. But Cima said that a small
break is not enough to change the
outlook for gas exploration in Mexico.
At the end of the day, if the government
wants to provide incentives to the sector
to develop gas, there is plenty there to
be done, he said. JPT
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58
UNCOVERING MEXICO
MEXICO PETROLEUM INSTITUTE
GENERATING VALUE
Vinicio Suro Perez, General Director of the Mexican
Petroleum Institute, outlines how his organization can help
new entrants to the energy sector through its research
andexpertise.
What is the Mexican Petroleum Institutes (IMP) role in the

Mexican oil and gas sector?
The Mexican Petroleum Institute, after the Mexican energy
reform, is a national entity for technological innovation in
the Mexican petroleum sector. Our goal is to generate value
for the different participants in the Mexican market. The
IMP will provide technical and research services for anyone
interested in the work that we do. As any company, we have
contracts with confidentiality clauses preserving knowledge
and practices generated exclusively for our clients. Likewise,
our contracts have performance clauses and specified
deliverables according to well-established practices. We
prefer projects that challenge our capacities, experiences, and
knowledge related to the entire value chain of the petroleum
industry from upstream to downstream.
How will energy reform affect the IMP?
Well, now the Mexican energy market is open and, therefore,
the IMP will pass from having almost a unique client, Petrleos
Mexicanos (Pemex), to a larger number of operators that
potentially can be clients too. To capture this market, we have
had a major reorganization, which puts emphasis on research
and the connectivity of research results with the actual
subsurface problems, for example, or connecting what we are
finding by providing technical services in terms of usefulness
of certain chemical products being applied to Mexican crudes.
Of course, the energy reform is updating our business
and research lines and the way that we offer our services and
products. We have to refine and update our business models,
and adapt ourselves to a more competitive and demanding
market. We recognize that the Mexican market of services
and goods is changing, and with that, we are too. There is no
question in my mind that this change is positive for IMP and
for Mexico.
How will IMPs relationship to Pemex change?
Our relationship with Pemex is in evolution and changing.
Today, Pemex has the legal framework to execute research
projects. Before the energy reform, IMP was the so-called

technological arm of Pemex. But we are ready to compete
and this is coming from an experience of 50 years in Mexican
basins and fields.
Additionally, we are moving forward in terms of
identifying the correct problems to solve. For example, we
have announced the construction of a technology center for
deep water, and it will be ready at the end of the year. Our
intention is to provide services to anyone interested in our
research lines or in specific projects. The way to operate
is based on a collaborative model in which the industry
can participate with us framing the problem or solving it
with us. We have already alliances looking to complement
our capacities to generate knowledge and solutions to
specific problems identified in exploration, development,
andproduction.
What kind of relationship will IMP have with foreign oil
companies?
A quite respectful relationship based on a technological
agreement or a commercial contract. Accordingly, IMP is
ready to work with third parties besides Pemex, and we
are ready to generate value to these parties. After all, we
have sound experience dealing with different geological
environments, different lithologies, and different oil types.
And this knowledge is an asset for IMP. And when I am talking
about value generation for our clients, what I am saying is
that these experiences can be used to improve, for instance,
well productivity or actual well completions. Therefore, it is
up to these parties to choose us as a company to help them
develop technical skills for some of the particularities of
Mexicanfields.
What is your budget for this year?
Our board of directors has approved about USD 500 million
in multiyear research investments this year. Our projected
total sales this year will reach around USD 300 million, and we
maintain a quite healthy financial condition. This is helping
SUPPLEMENT TO JPT
JANUARY 2015
59
MEXICO PETROLEUM INSTITUTE Q&A
us initiate a vigorous recruiting campaign to expand our

capacities to take on new projects.
What will your spending priorities be this year?
Our strategy is not changing, it is being updated and being
adjusted to face an open and more competitive market.
Our business plan recognizes these factors, and we are
reinforcing our capabilities and identifying new participants
in the Mexican energy sector. We expect a lot of new work
in the following months and in the following years and, I
insist, we are preparing ourselves and we are ready at the
same time.We have already made decisions in different
aspects such as organizational structure, incentives,
humanresources, new facilities, performance indicators,
andothers.
What technology areas or developments are you

focusingon?
There are several ones, and I will emphasize one particular
area where we are making great progress. This one
corresponds to chemicals capable of modifying reservoir
rock properties. This rock alteration helps produce additional
oil and increases the recovery factor. These chemicals can
be produced by a biological avenue or through chemical
synthesis. Until today, we have achieved two production
tests in naturally fractured reservoirs, at a giant and a
supergiant field, and the results have been quite encouraging.
The next step is to have a wider and longer duration test
before full field application. We are convinced that this is an
efficient waytoimprove the recovery factor of some mature
Mexicanfields. JPT
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60
UNCOVERING MEXICO
Mexico To Start Showing the Seismic

ne of the most important

components of the bidding
process in Mexico will be
access to geological data that the
government has acquired from Pemex.
The transfer of data to the Comisin
Nacional de Hidrocarburos (CNH)
marks a significant change in Mexico
where Pemex has held a tight-gripped
monopoly on field information.
Pete Stark, a senior research
director and adviser at the energy
information firm IHS, said: Data
is tough to get. That is supposed
to change with the opening of the
data rooms for the blocks available
Long held in the tight grip of Pemex, the

new energy reforms in Mexico have paved
the way for the sharing of seismic and
logging data with private companies. Data
rooms will be established in Mexico City
and online for companies to assess the
potential of the 169 blocks to be auctioned.
Photo courtesy of Petrleos Mexicanos.
for auction to outside companies in

RoundOne.
Juan Carlos Zepeda, the president
commissioner of CNH, said that most
of the 169 initial blocks up for bidding
in the inaugural round have 2D or 3D
seismic survey data, or both in some
cases. Furthermore, Pemex has
already identified prospects, specific
spots in which we are expecting to
find oil that can be extracted on an
economical basis, Zepeda said, adding
that this detailed information will be
available to bidders.
Companies will be allowed to
take packages of raw data home
with them for , for example shallow
water data packages are USD
360,000, so that theycan run it
through their own computers and
interpretationprograms.
CNH said it will have physical data
rooms in Mexico City, and virtual data
rooms will be established online so the
geological information can be accessed
by companies located anywhere on
the globe. The opening of the first data
room for shallow-water areas was
moved up by a month to 15 January by
CNH. We thought the schedule was not
tight enough, Zepeda quipped.
A new data room will open up in
each subsequent month after January,
ending with the deepwater areas in
mid-May. In order to promote interest in
the auction, Zepeda also said that there
will be no prequalification requirements
to look at or buy the data packages.
Regarding the data rooms in Mexico
City, Zepeda said that CNH felt they
were equally important because it
happens that people like to talk directly
to the specialists, the geologists, to

thegeoscientists.
He added that the data rooms
will feature geographical information
about each basin, as well as some well
log information collected by Pemex.
Before opening the data rooms, the
government said it has made the
macro-basin information available
tooffer companies a general sense
of the areas that are up for bidding.
Zepeda said this preliminary data will
help shed light on what lies below the
countrys deserts and oceans. In
Mexico, the industry has been closed
for 8 decades, he said. So there
is nobasic geological information
outthere.
The Mexican government, through
the CNH, will establish a data room for
each area several months before the
contracts are awarded. For shallowwater areas, that means the data rooms
will open in the first half of January,
along with bid registration, and the
blocks will be awarded in July.
Increasing the available
information could change perceptions.
A study from the US Energy Information
Administrations global assessment
of shale resources was based on
news releases and presentations
they decided to publish. It was pretty
sketchy, said Scott Stevens, senior
vice president at Advanced Resources
International, which conducted
thestudy.
In the shale formations, We were
able to map windows for oil, liquids, and
gas crudely. If you had access to all the
Pemex data, you could really nail it,
hesaid. JPT
SUPPLEMENT TO JPT
JANUARY 2015
61
Consumption of natural gas in Mexico is rising while peak domestic production was reached in 2010.
Photo courtesy of Petrleos Mexicanos.
Mexico's Opening Creates Service

Company Opportunities
pening up exploration and

production (E&P) opportunities
in Mexico is expected to be a
big growth business. The opening is
designed to create a surge of activity
by bringing in private companies
from outside and inside Mexico able
to significantly increase upstream
investment and solve problems that
Pemex cannot.
This could create shortages
of key assets, such as drilling rigs
in areas of high interest, in shallowwater plays being offered in Round One.
And technically difficult reservoirs,
from heavy oil offshore to bad-quality
reservoir rock onshore, will require
skilled people and advanced hardware
now in short supply.
The new reform law requires a
growing share of local content, which will
take time to develop in a country where
Pemex has been the only customer.
Several observers said E&P costs
in Mexico are significantly higher than in
the United States. Generally, costs are
not what they should be, so we need to
get better equipment and better crews,
said Read Taylor, executive director of
upstream exploration and production
of Sierra Oil and Gas, a recently created
independent exploration company in
Mexico. The service side is a challenge
definitely, both from the availability
standpoint as well as the cost.
For service companies, this is a
positive. There is going to be a huge gap
to fill in the service business, he said.
If I was in the service business, I would
come down to Mexico.
It marks a significant change in
the nature of the industry. It really
comes down to the point that Mexico is
at inflection point in onshore plays and

offshore plays, said Grant Poeter, a
specialist leader at Deloitte Consulting
who has studied the logistics and
services side of opening up the Mexican
oil and gas sector.
Not that Mexico is lacking in
services. At the top of the list are
Schlumberger and Halliburton, which
have large, long-established operations
in the country. Both have carried out
major projects for Pemex and a search
of the SPE technical paper database
shows the two companies have deployed
advanced drilling, completions, and
diagnostic technology in Mexico.
But the opening will change the
structure of the market. It will go from
a market in which the focus was on a
single customer, Pemex, to one with
multiple customers that have a wide
range of needs, and an increasing range
of suppliers seeking to fill them.
As the only oil company in
Mexico, Pemex has had major buying
strength. It will be different if there are
many customers buying oil services in
Mexico, said Fernando Cano-Lasa, a
counsel at Squire Patton Boggs. The
former Pemex procurement attorney
said the national oil company will now
have a more flexible procurement
regime allowing different agreements
with major providers.
Local Talent
While none of the big names in service
and supply have come from Mexico,
the country has thousands of small
companies supporting its E&P sector,
Poeter said.
The local content rules in the law
require that E&P operators allocate 25%
of their spending on local content in

2015 and up to 35% by 2025. The details
about how that would be measured
are not settled, but a wide range of
needs associated with development is
expected to support growth.
On the Secretariat of Energy
of Mexico website, the summary
of the national content rule says,
Preference shall be given to Mexican
companies that offer a similar price,
quality, and lead time conditions.
With local content rules, we
see over time the establishment of
companies created and growing to serve
the industry, said Rick Carr, principal
at Energy & Resources in strategy and
Operations at Deloitte Consulting.
Mexico is home to large, diverse
industrial groups that have shown
they can compete internationally, such
as Grupo Alfa, a diversified industrial
company that has built up a small
oil production and oilfield services
operation in the US.
The Mexican companies that
could benefit from the reform are
the large consortiums, said Ignacio
Paz, a lawyer who advises oil and gas
companies at Herbert Smith Freehills,
an international law firm. One area
exempt from local content rules is
deepwater offshore projects. For all
but the biggest players, the technical
and financial barriers to entry offshore
make onshore the best option. And for
small suppliers working in south Texas,
if operators begin moving across the
border, they are also likely to make that
short trip.
There are a large number
of companies looking at this huge
opportunity, Poeter said. JPT
SUPPLEMENT TO JPT
JANUARY 2015
63
SCHLUMBERGER
A SIGNIFICANT STEP
Cancine McGarry, Vice President of Marketing, Mexico and
Central America, Schlumberger, explains how the reforms in
Mexico will affect the business environment in the country.
ABDELGHANI HENNI, JPT MIDDLE EAST EDITOR
How long has Schlumberger been operating in Mexico?

Schlumberger has been operating continuously in Mexico
since 1936, within a decade of our company being founded.
The companys global leadership position is also reflected in
Mexico, which is a result of our long commitment to Pemex
and the Mexican oil and gas industry.
What major projects are you currently involved in? Is there
any project that you wish to highlight?
In Mexico, we have already started executing our mega
tender work on land, following our award of USD 1.9 billion
worth of integrated project contracts. We are currently
operating 10 onshore rigs in various projects. We have also
started executing our USD 240 million deepwater integrated
servicescontract.
Do you expect Mexicos new energy reforms to have an
effect on your business in the country? If so, how?
We consider the energy reform process in Mexico as a
significant step in the evolution of the countrys oil and gas
industry. We are encouraged by recent developments related
to the signature of secondary laws, and the announcements
regarding Round Zero assignments to Pemex, as well as the
Round One bidding.
64
appraisal of unconventional shale work that Pemex is doing.

These have turned out to be very successful.
In drilling, we also introduced the PowerDrive Orbit
rotary steerable system and Stinger conical diamond
element to deliver best-in-class drilling. For reservoir
characterization, our Saturn 3D radial probe tests low API
flow offshore.
What are the immediate technology needs in the country?
Technologies and workflows for unconventional shale
exploitation to optimize well placement and completion, and
to better characterize the shale reservoir. When shale gas
and oil exploitation first started, the approach was very much
based around maximizing horsepower and the focus was to
fracture everything that was available. Our approach involves
characterizing and understanding the reservoir and the
location of the sweet spots and then focusing the completions
on these spots in order to save time, resources, and money,
resulting in economic developments that are more valuable
for the customer. This approach maximizes the productivity of
the wells, and also ensures an optimized use of resources.
What opportunities and challenges do you expect in Mexico

with its new energy reforms?
We are generally optimistic in regard to the various business
opportunities, both in the near term and as a result of the new
reforms, across all environments that will be impacted by the
reform, including deep water as well as future shale projects.
Do you have plans to set up a research and development

(R&D) center in Mexico?
We have established a Regional Technology Center in Mexico
City as a key conduit for input to R&D projects from E&P
customers in their geographic regions, to provide support
for regional technology watch and petrotechnical expertrelated university relations, and to create strong visibility
within professional societies and the Schlumberger
technicalcommunity.
Is there any technology you are trying to promote in the

Mexican market?
We have introduced new well completion technologies, such
as the latest generation of HiWAY flow-channel fracturing
technique and broadband technologies for the exploratory and
What is your strategy for hiring and training local people?

We have the same strategy in Mexico as we have in all
other countries where we operate. We hire engineers and
technicians from local universities, then develop these
individuals technically, geographically, and functionally. JPT
UNCOVERING MEXICO
HALLIBURTON
WINDS OF CHANGE
Juan Castaneda, vice president of Mexico at Halliburton,
says the new energy reforms in Mexico will bring big
changes to the oil and gas industry in the country.
ABDELGHANI HENNI, JPT MIDDLE EAST EDITOR
How long have you been operating in Mexico?

Hal de Mex was registered in Mexico in 1956 but was
operating before this time.
What major projects are you currently involved in?
In Mexico, the trend for the past several years has been
an increase in bundled services, integrated project
management,and project outline proposal projects.
Currently, we have a very strong position in Mexico with
bundled services projects in southern and offshore Mexico
like Tsimin-Xux. We have the biggest IPM project in Mexico,
Mesozoic in south Mexico, and we are also involved in
the Humapa POP project in north Mexico. We have been
very successful in showing our customers the benefits to
working with just one company that can provide solutions
totheirchallenges.
Do you expect the new energy reforms to have an effect on
your business in the country?
No doubt, the energy reforms will bring big changes to the
industry in Mexico. Our customer portfolio will increase
substantially from independents to supermajors, with each
requiring different ways of operating and doing business.
All of them will look for the best technology, system
solutions, and service quality with high health, safety, and
environmental standards.
Is there any particular technology you are trying to
promote in the Mexican market?
As the industrys leading integrated services provider, we
have technological capabilities for Mexicos mature fields,
deep water, and unconventionals markets. We are offering
huge economic advantages to operators interested in
maximizing efficiencies while improving recovery. Our

offerings include state-of-the-art products and services
such as directional drilling, strong and durable cutting
tools, drilling fluid systems, data gathering services (such
as logging, coring, and logging while drilling) in harsh
environments, among others.
In mature fields, we are focusing on well integrity, gas
and water control, stimulation treatment optimization using
fiber optics, enhanced oil recovery, and well intervention
capabilities with wide coiled-tubing solutions to further
optimize efficiency and reduce risks. We offer an excellent
technology portfolio for mature field life extension
technologies. In deep water, we are concentrated with
demonstrating our potential in reservoir evaluation to
manage risk, integrity, and uncertainty.
In the unconventionals market, our efforts are
concentrated on using free-residue fracture fluid and
technologies that will enhance the performance and
economics of unconventional oil and natural gas projects.
Finally, I would like to mention that we want to make
significant contributions to Mexicos heavy oil market with
our flow assurance solutions portfolio provided by MultiChem, a relatively new Halliburton service line.
What is your strategy for hiring and training local people?
Is there a shortage of technical talent in the country?
We have a very robust hiring and talent management system
in the country, and today the nationalization of our workforce
is 95% plus. We will continue with our university relations
program to identify and hire the best local talent. This,
coupled with our training centers and competency systems,
will provide the professional workforce that our company will
require to face future challenges. JPT
SUPPLEMENT TO JPT
JANUARY 2015
65
Balancing Risk
The former chief financial officer of Pemex sees potential risks in
the new energy reform policies that must be handled adeptly.
STEPHEN WHITFIELD, OIL AND GAS FACILITIES STAFF WRITER
or the past year, Mexicos energy

sector has been in the midst of
a major sea change whose ripple
effects could be felt the world over.
Butas the country adopts reforms
designed to open its current and
future resources to foreign investors,
questions remain as to how it will
all work, for both the investors and
the country, says IgnacioQuesada,
a managing director with Alvarez &
Marsals Mexico Cityoffice.
Speaking recently at the Rice
University Global Engineering and
Construction Forum in Houston,
Quesada, the former chief financial
officer for Pemex, outlined the
challenges facing the Mexican
government and first movers in this
new frontier. These challenges fall
primarily under two categories, clarity
and support: the government needs to
provide further clarity of purpose and
clarity of policy that helps maintain the
support of business and the Mexican
people as energy reform moves to the
implementationstages.
One of the more critical points
centers on domestic pricing policies,
primarily retail gasoline subsidies. As
part of energy reform, the government
is phasing out subsidies and moving
the sector into one driven by marketcompetitive pricing. However, the
phase-out is gradual, and Quesada said
it is still not clear how, exactly, it will
work. If there is not enough competition
for resources, the lack of a subsidy may
have an adverse effect on prices.
Additionally, the elimination
of the gasoline subsidy means a
corresponding increase in gasoline
prices for the Mexican people. The
66
UNCOVERING MEXICO
average citizen could see this as a sign

that the opening is a failure, when in
actuality it is an expected consequence
of a targeted action. While emphasizing
the long-term view, Quesada said the
Mexican government has to be mindful
of how its citizens might interpret a
negative short-term impact in this area.
Im a firm believer in free
economy and market-driven prices, but
when you are coming from a situation
where you have subsidies, you have to
take out those subsidies in a very clever
way because, if not, all people will see
is that gasoline prices are going up.
They wont see that [progress] 10 or
20 years down the road. In the short
term, the risk of seeing prices go up is a
significant one.
In the exploration and production
(E&P) space, Quesada said the
development of contracts and litigation
processes also needs to be addressed.
While the government has decided
to award E&P contracts to private
companies, the economic model of
the contractsfor instance, whether
or not there will be a revenue-sharing
mechanism with private companies and
the government, or how much risk a
private company will assumeis still a
work in progress.
There is still an administrative
challenge in terms of shaping E&P
contracts in a way that will benefit
the Mexican economy while still
remaining internationally competitive
and economically attractive to the
companies bidding for them, Quesada
said. The downside of an open market
is the possibility of another country
offering better deals and siphoning
potential business.
Ignacio Quesada, managing director for the

Mexico City office of Alvarez & Marsal and
a former CFO at Pemex, speaks at the Rice
University Global E&C Forum in Houston.
In the end, you are going to be

offering these contracts to companies
that have the opportunity to go to any
other market in the world, Quesada
said. They can go to Africa, they can go
to Brazil, they can go to Colombia, and
they will compare in their budgets [and]
in their projects the attractiveness of
the Mexican contracts. This thing has to
be internationally competitive.
Other threats to the
attractiveness of the Mexican energy
sector are the potential conflicts of
interest within the organizational
structure. Quesada said that, unless
Pemex and the Federal Electricity
Commission completely remove
themselves from government
influence, private companies may be
more hesitant to invest in the country
BALANCING RISKS
especially as it bids against those

companies for contracts.
Quesada mentioned a
couple of specific examples: the
board of directors and the CEO of
both companies remain political
appointments at the discretion of
the Mexican president, and also the
president of Pemexs board is the
Mexican minister of energy.
You have the energy minister of
Mexico giving out the permits for new
blocks in Round One, but at the same
time hes the president of the board
of Pemex, he said. On the one hand,
he has all the resources that are left
in Pemex, but on the other hand hes
giving away the rest of the reserves
in all of these rounds in which Pemex
can also participate. So there is a clear
conflict of interest.
Conversely, if the Mexican

government is not careful, its industry
could turn into a free-for-all for foreign
companies looking to make a profit.
Quesada said a vibrant, organic industry
of Mexican owners, contractors,
and operators outside of Pemex is
necessary if the country wants to
maximize its financial takings from the
opening. He said he did not want Mexico
to follow the example of countries like
Brazil, which enforces stringent local
content quotas.
You need to have a Mexican oil
industry, Quesada said. If not, this is
not going to be sustainable because
people are going to be talking about
foreigners coming back and taking
money out of Mexico. So you need to
have a Mexican oil industry, and that
industry has to go way beyond Pemex.
Creating an industry of that scale,

however, requires alot of people, and
Quesada said that Mexico still has a
longway to go to develop the amount of
skilled labor he thinks the country will
need. The countrys schools will have to
adapt to the new reality and establish
the programs that identify future
workers and connect them with the
rightcompanies.
One of the main challenges going
forward from the perspective of the
market, is the lack of talent, Quesada
said. The amount of geologists, the
amount of chemical engineers, the
amount of physicists, and the amount
of petroleum engineers that are going
to be needed in Mexico ishuge. Right
now, the educational system is not
prepared forthat, so where are you
going to find these people? JPT
N
EW
SPE has formed a Technical Section for sharing technical knowledge, experiences, best practices,
and solutions in Drilling Performance Simulation and Prediction. This new section seeks to promote
awareness of key industry challenges, work with relevant SPE groups to develop necessary training
initiatives, identify areas for collaborative problem-solving, and address gaps between operators
requirements and available solutions.
Deepen your learning and share your insights on the subject during discussions at monthly virtual
meetings, forums, and workshops.
Enjoy the convenience of online collaboration and the benets of at least one face-to-face meeting a year.
Learn more and join today at connect.spe.org/dpsp.
SUPPLEMENT TO JPT
JANUARY 2015
67
Directional Tandem-Reamer Bottomhole

Assembly for Deepwater Exploration
he deepwater region east of the

state of Tamaulipas, Mexico,
remains effectively unexplored. Pemex
launched an initiative to develop a
deepwater-exploratory strategy, assess
risks, and classify hydrocarbon types
by area. Comprehensive geological
modeling enabled identifying several
key play elements including reservoir
presence/quality and hydrocarbonsource rocks, -migration patterns, and
-trapping mechanisms. The shale/sand
section from 2900 to 3400 m has low
unconfined compressive strength (UCS),
but engineers wanted to drill out the
18-in.-casing shoe without tripping for
a bottomhole-assembly (BHA) change
out while retaining adequate clearance
to run the subsequent 16-in. string
without nonproductive time (NPT).
This technique would eliminate an
extra 12-in. pilot hole, significantly
reducing the number of rig days. The
challenge was to build a tandem-reamer/
directional BHA.
Introduction
The BHA provider recommended a
121620-in. tandem-reamer BHA
including a rotary-steerable-system
(RSS) -driven 12-in. polycrystallinediamond-compact (PDC) bit, a 12
16-in. fixed-blade hole opener, and an
expandable reamer. The BHA would prevent internal damage to the 18-in. casing and allow the operator to set 16-in.
casing in the next run, while the 20-in.
hydraulic opener would create adequate
clearance for cementing. Real-time
measurement-/logging-while-drilling
Fig. 1Reamer cutter blocks in poor dull condition after attempting to enlarge
an 8-in. pilot hole with a 1417-in. BHA.
(MLWD) data would be used for formation evaluation and well placement. A
finite-element analysis (FEA) was performed to balance the cutting structures,
minimize the vibration potential, and set
the optimum operating parameters. On
the basis of the simulations, a 716-type
PDC bit was selected.
seeps and discovered fields to identify

prospects in the subject area. A 2D-/3Dseismic-acquisition program focused on
the most-prospective areas. The initial
drilling phase will concentrate on areas
with the greatest potential to produce
high volumes of light oil (2837API) and
natural gas.
Deepwater Exploration
Deepwater-Drilling Challenges
The operators deepwater-exploration

strategy included regional geochemical
modeling that identified source rocks
and the types of expected hydrocarbons.
The study identified a strong relationship
between abundant natural hydrocarbon
Deepwater drilling presents challenges that the operator has not encountered. The most critical in the area of
interestinclude
Time/cost efficiency while
maintaining safe operations.
Rig costs, including associated
services, may exceed
USD1.2million/D.
Directional control in extremely
soft formations and hole
enlargement while drilling in
nonconventional scenarios that
can include a high probability of
BHA shock and vibration.
This article, written by Dennis Denney, contains highlights of paper SPE 167925,
Advanced FEA Modeling Produces First Directional Tandem-Reamer BHA: Eliminates
Trip on Deepwater Exploration Well, by Agustin Jardinez and Gumaro Guzman,
Pemex, and Cesar Karrer, Ricardo Murillo, Fernando Verano, Juan C. Araujo,
and Juan Ramon Lopez, Schlumberger, prepared for the 2014 IADC/SPE Drilling
Conference and Exhibition, Fort Worth, Texas, USA, 46 March. The paper has not
been peer reviewed.
68
UNCOVERING MEXICO
Fig. 212-in. PDC bit in poor dull condition after attempting to enlarge the
12-in. pilot hole on a 1417-in. BHA.
Recording and collecting as much

high-quality information as
possible from downhole lithology
and in-situ fluids for regional and
reservoir characterization.
Extreme-weather environments
and conditions such as hurricane
season.
Narrower mud-weight windows
compared with traditional wells.
Hole-Enlargement. The customary
process for enlarging a well section begins by drilling out with a smooth BHA
and then drilling the section with a
128-in. reamer, creating a pilot
hole while running LWD tools to capture
data in real time. Next, an additional trip
is required to enlarge the predrilled hole

to accommodate the next casing string.
The goal of this study was to optimize
the process to reduce rig-time usage and
NPT as much as possible by eliminating
one trip in the hole.
From experience, the cutters on
an expandable reamers cutter blocks
(Fig. 1) and the shearing elements on
the PDC pilot bit (Fig. 2) show excessive
dulling after drilling and enlarging a predrilled section. Improving the dull condition of these tools became an additional
objective for a new BHA.
BHA before drilling commenced. The

exerciseincluded
Extensive multidisciplinary
risk assessment in the planning
stage, paying special attention
to drilling parameters used in
previous wells
Dynamic BHA modeling to
select the most appropriate
configuration, considering
stability and shock/vibration
avoidance
Directional Plan
The exploratory well, Caxa-1, approximately 150 km offshore Tamaulipas
(Fig. 3) in 1820-m water depth, presents unique challenges. The plan called
for a vertical wellbore to penetrate a
thick section of Pliocene/Miocene shale
overburden to evaluate two sequences
of Miocene sands before reaching total
depth. Most of the difficult shale/sand
section between 2900 and 3400 m has
a relatively low UCS of 25 ksi, but the
tubular program would make it particularly difficult to drill and case the
sectionefficiently.
Engineered Approach
Fig. 4Staged opener would be

positioned directly below the
expandable reamer at the top of the
BHA for a balanced tandem-reamer
configuration.
Fig. 3Location of exploration Well

Caxa-1.
To address these issues, a holistic approach was implemented that included collaboration between the operator
and the service providers drilling group.
Rather than the use of trial and error
for drillstring and BHA adjustments, a
dynamic FEA-based modeling system
was used to design a fit-for-purpose
Spring cover
Stop ring
Cutter block
Upper cap
Spring
retainer
Spring
Drive-ring
retainer
Lower cap
Lower
mandrel
cap
Drive ring
Nozzle
Piston
Fig. 5Expandable reamer at the top

of the BHA.
SUPPLEMENT TO JPT
JANUARY 2015
69
Fine tuning operations on the

basis of downhole and surface
high-frequency measurements
and correlations between drilling
parameters
The service provider recommended a 121620-in. tandem-reamer
BHA with a 12-in. PDC bit, an RSS, a
1216-in. fixed-blade staged hole
opener (Fig. 4), and an expandable reamer (Fig. 5) with a maximum opening diameter of 20 in. The BHA would prevent
internal damage of the 18-in. casing and
allow setting the 16-in. casing efficiently in the next run, while the 20-in. hole
opener would create adequate clearance
for cementing.
To ensure acquisition of high-quality
log data for formation evaluation and
accurate well placement, the operator
wanted to use real-time MLWD tools. An
in-depth engineering analysis and modeling study would be required to balance
the cutting structure on the bit and two
reamers to minimize vibration and allow
the sophisticated suite of logging tools to
function properly.
BHA Modeling. A team of field and design engineers analyzed the dynamic effects of the two-reamer BHA by studying four PDC bits. The objective was
to determine the best cutting-structure
configuration and operating parameters for dynamically stable drilling. An
existing rock-strength analysis from an
offset well in Tamaulipas was used to
determine the appropriate rock samples to simulate field formations. On the
basis of gamma ray and sonic log data,
the Lower Pliocene shale between 3100
and 3400 m was selected as a suitable
case for the bit/reamer/reamer modeling analysis.
Dynamic BHA comparisons were
used to determine the degree of bit/
reamer vibration and the response to applied downhole/surface torque. The four
70
UNCOVERING MEXICO
121620-in. BHAs were modeled

to determine bending stress, build-rate
capabilities, and walk tendency. To optimize operating parameters, a series of 20
simulations was run to observe how four
weight-on-bit (WOB) and rotation revolutions/minute (RPM) values would affect
vibration and torque levels.
Simulation Results
Simulations were run to determine lateral, axial, and torque response between
the PDC bit, the staged hole opener, and
the expandable reamer. Simulations were
also run to analyze surface torque, bending stress, and BHA steering tendencies.
To determine drilling-parameter sensitivity, a series of simulations was performed to observe how different WOB
and RPM values would affect lateral vibration and torque at 3100 m and at
3400 m during transition drilling.
Recommendations. On the basis of
the analysis at 29,000 lbf WOB and
140 RPM, only two bits (713 and 716)
displayed acceptable behavior in terms
of delivering low values of torque and
vibration. However, additional analysis revealed that PDC Bit 713 would be
more stable in the parameter combination analysis, but Bit 716 would provide
better rate-of-penetration (ROP) potential. Also, Bits 713 and 716 showed the
lowest surface-torque values of the four
designs. The 12-in. 716 bit was recommended because of its higher ROP potential when used in combination with
the balanced tandem-reamer-BHA configuration and the recommended operating parameters.
Caxa-1 BHA Solution

The tandem-reamer BHA kicked off from
3.67 and built angle to 6 inclination,
drilling tangent for approximately 382m
at an average ROP of 18.6 m/h. No vibration issues were recorded, resulting
in high-quality MLWD data with the en-
tire operation completed in one trip. The

18-in. casing was undamaged, enabling
the 16-in. casing to be run successfully on
the first attempt. The BHA configuration
eliminated an additional trip to drill out
the 18-in. casing shoe, while efficiently
delivering all directional objectives and
allowing the use of advanced MLWD tools
(i.e., resistivity, gamma ray, density, neutron, and sonic) in the surface section.
Finally, use of these tools and the operational technique eliminated the requirement of the additional 12-in. pilot hole,
saving many days of rig time. This was
the first directional 121620-in.
tandem enlargement recorded. The BHA
was pulled at section total depth and
found to be in excellent dull condition,
with essentially no wear on any of the
three tools cutting structures.
Conclusion
Use of the dynamic modeling program
enabled engineers to predict the drilling
systems behavior accurately in the problematic wellbore sections. The modeling
program demonstrated the ability to predict bit/reamer interaction during holeenlargement-while-drilling applications.
The quantitative measurement provided
the operator with valuable data to make
the final bit/reamer selections.
Balancing the two reamers cutting
structures with a stable PDC-bit design
eliminated vibration while producing
high average ROP, even while transitioning from shale to sandstone during holeenlargement-while-drilling operations.
Controlling drilling parameters, particularly WOB and weight-on-reamer, had
a significant effect on increasing stability of the entire BHA. Stable drilling
enabled the sophisticated suite of logging tools to deliver reliable high-quality
data for accurate formation and wellbore measurements. The dull condition
of the three cutting structures was very
good, and a quality full-gauge hole section wasachieved. JPT
Real-Time Optimized Placement of

Carbonate-Acidizing Treatments
roduction from mature fields

offshore Mexico has entered
a downward trend. Workover
operations involving matrix-acidizing
interventions in carbonate formations
for damage removal and stimulation
purposes have been performed. A
carbonate-acidizing-workflow and
-interpretation method was developed
that improved offshore-Mexico
workovers. This technique assesses
and controls the matrix-acidizingtreatment coverage while the treatment
is being pumped to ensure optimum
performance and maximum return on
cost. The workflow relies on the use
of a fiber-optic line enclosed inside a
coiled-tubing (CT) string to acquire
distributed-temperature-sensing
(DTS)data.
Introduction
Production from highly permeable carbonate formations offshore Mexico is
in decline, leading to problems such as
high water cuts or uneven producing intervals. Carbonate formations offshore
Mexico are highly heterogeneous, with
many fissures and fractures. Treatments
pumped from the surface follow the path
of least resistance, usually into the old
zone with good connectivity. Forcing acid
down the annulus tends to overstimulate those zones, while leaving the lowerpermeability (tight) or more highly damaged zones only moderately stimulated,
especially when tight zones are at the bottom of the well. Even with the use of a diverter, it is very difficult to know whether
the fluid went to the correct zone.
New methods of placing matrixstimulation fluids and of treatment evaluation were explored. More attention is
placed on the intervention design, carefully planning the pumping program on
the basis of a thorough analysis of downhole parameters (e.g., downhole fracturing pressure, wellbore and formation
damage, extent of damage, formation
thickness, and formation characteristics) and taking surface limitations into
consideration (e.g., maximum allowable
wellhead pressures, maximum injection
rate achievable, and even the availability of stimulation vessels or continuousmixing units). The aim was to reduce
the number of days required for the
intervention, thus reducing costs and
offshore-environment effects.
Diverting fluids into specific sections of the wellbore can be achieved by
mechanical (e.g., bridge plugs and packers) or chemical (e.g., particulate diverters, self-diverting acids, and foams)
means. The use of CT strings that enclose a fiber-optic line enables assessing treatment performance in real time,
and tracking where fluids go during the
intervention. Downhole data (e.g., pressure, temperature, casing-collar locator, gamma ray signals for depth correlation, and tension/compression for
downhole integrity) are transmitted
to surface in real time. Acquiring DTS
data helps to visualize treatment performance while the treatment is being
pumped. This assessment helps optimize the matrix-stimulation treatment
during the intervention by taking steps
to remain as close as possible to the
jobdesign.
Unlocking the Potential of Mexican Offshore Fields Through Real-Time Optimized
Placement of Carbonate-Acidizing Treatments, by A. Inda Lopez, L.A. Inda
Herrera, SPE; and E.O. Soto Lopez, Pemex, and P. Ramondenc, SPE; A.L. Murillo
Vallejo, I. Rosado Rivero, and S. Worden, Schlumberger, prepared for the 2014
SPE Latin American and Caribbean Petroleum Engineering Conference, Maracaibo,
Venezuela, 2123 May. The paper has not been peer reviewed.
Monitoring and Evaluating

Fluid Placement
DTS is used to monitor where injected fluid enters the formation. Techniques range from tracking thermal tracers (or thermal fronts) traveling down
the wellbore to qualitative and quantitative analysis of warm-back or cool-down
events during shut-in periods immediately following fluid injection. The method used here leverages the acquisition
of downhole parameters and DTS data
through the use of fiber-optic-enabled CT
(FOECT) to monitor and optimize fluid
placement in real time. The intervention
workflow was as follows.
Step 1. Run the FOECT into the well
to total depth (TD), and shut in the well.
The first DTS survey records the geothermal baseline to be used for the later DTS
analysis. This acquisition lasts until a stable geothermal trace is obtained or up to
3 hours, whichever is less.
Step 2. While keeping the FOECT
static, a preflush of inert fluid (solvent or
diesel fuel) is pumped at a constant rate
down the production-tubing/FOECT annulus at a pressure below the maximum
wellhead pressure (or below the fracturing pressure, whichever is lower). A new
DTS survey is acquired during this pumping phase.
Step 3. Pumps are stopped, and DTS
data are recorded to observe the wellbore- and reservoir-temperature recoveries (or warm back) toward the geothermal baseline.
Step 4. Data interpretation enables
determining whether the preflush fluid
reached all sections of the targeted interval, and helps to identify thief and
tightzones.
Step 5. The acid stage is pumped
down the annulus or is pumped down the
FOECT and the annulus. This can include
a first-stage acid wash.
Step 6. After the whole treatment
has been pumped, the temperature recoveries of the wellbore and reservoir are
recorded by use of DTS.
SUPPLEMENT TO JPT
JANUARY 2015
71
MD
(m)
1:1200
Well schematic
End of Warm back

C
112
124
Start of Warm back
C
112
124
Inverted Injectivity Profile
Geothermal Baseline
M3/M
0.3
112
124 0
C
3550
3600
Fig. 1DTS acquisition of the preflush stage. The tracks from left to right
are MD, schematic of Well A, DTS warm-back evolution, and zonal coverage
obtained from the inversion algorithm. The zonation corresponds to the
perforated intervals.
Step 7. A final assessment of the

treatment efficiency is made by comparing DTS analyses performed before and
after the reactive stage.
Note that in different interventions,
some wellbore or reservoir limitations
may force deviations from the workflow;
however, efforts are made to stay as close
as possible to the defined steps. During
all steps, the annulus bottomhole pressure and temperature are recorded at the
end of the FOECT string along with other
CT-intervention parameters (i.e., depth,
run speed, weight, wellhead pressure,
pump pressure, and pump rate). Complementing distributed measurements with
point measurements can help in the quality checking of the temperature data and
add additional information to the later
temperature-evolution evaluation.
DTS-data analysis included qualitative interpretation and a quantitative
study that used an inversion algorithm.
Coupled with a fluid-placement simulator, use of the algorithm enabled determining the volume of fluid injected during each stage on the basis of DTS data
recorded during the subsequent warmback period.
Case Study
The first of two case studies detailed in
the complete paper used the proposed
workflow to evaluate zonal coverage during matrix-stimulation treatments in car-
72
UNCOVERING MEXICO
bonate formations offshore Mexico. Well

A is a deviated cased-hole perforated oil
producer. TD is approximately 3680-m
measured depth (MD), with the deviated
section extending from 1780-m MD to
the bottom of the well. Maximum deviation is approximately 45. The producing zone is completed with a 7-in. casing
and has two perforated intervals: 3518to 3565-m MD and 3580- to 3625-m MD.
The formation is limestone, mixed with
small amounts of dolomite and clay. The
downhole flowing temperature is approximately 125C, with a reservoir pressure estimated at 2,550 psi. Before the
intervention, the well was producing
mostly water. The objective of the intervention was to stimulate the two perforated intervals to improve oil production
and to implement DTS monitoring and
analysis to identify the strategy to follow
for upcoming interventions in wells with
the same characteristics.
Intervention. The FOECT was run to TD
without pumping any fluid through the
string. After shutting in the well, the first
DTS acquisition obtained the geothermal
baseline, which lasted 3 hours. Then, a
preflush (5 m3 of solvent) was pumped
down the well-tubing/FOECT annulus,
followed by recording the warm-back
survey for 3 hours. Next, an acid-wash
stage was pumped through the FOECT
while it was moved along the two perfo-
rated intervals. This first acid stage (7 m3

of hydrochloric acid) was enhanced by
the use of a high-pressure jetting nozzle
at the end of the FOECT string. During
this pumping stage, real-time downholepressure data from inside and outside the
FOECT were used to make sure the nozzle
was being used with an optimum pressure differential to ensure efficient energizing of the acid downhole. After pumping stopped, the FOECT was returned to
TD and the DTS warm-back acquisition
was initiated for a 3-hour period. It was
decided to bullhead the remainder of the
acid treatment at high rate down the annulus. Because of the combination of this
high pumping rate and use of acid, the
FOECT was retrieved to reduce its exposure to increased corrosion risks. Therefore, no DTS data were recorded for the
remaining treatment. After completing
the stimulation treatment, nitrogen was
pumped through the FOECT to lift the
well and put it back on production.
DTS Analysis. Fig. 1 shows the DTS information gathered during the initial
survey to determine the geothermal
baseline and the shut-in warm back subsequent to the preflush injection. The
evolution of the wellbore temperature
is in the third track from the left. The
green trace corresponds to the geothermal baseline identified during the initial phase, while the blue and red traces
represent the temperature profiles in
the wellbore at the beginning and end of
the warm-back period subsequent to the
preflush injection, respectively. The additional gray traces correspond to representative intermediate times during the
warm-back period.
The geothermal baseline was approximately linear along this portion of
the wellbore, as expected. On the basis
of the blue trace (temperature gradient
in the wellbore at the end of the preflush
injection), all the fluid bullheaded from
surface reached the bottom of the wellbore, as indicated by the uniform temperature decrease. The gray traces indicate the warm-back period, with two
zones (3518- to 3540-m MD and 3610- to
3625-m MD) exhibiting very fast recoveries toward geothermal values, while the
rest of the section recovered at a more
moderate rate. This pattern suggests that
the first two zones accepted less preflush
End of Warm back

C
124
Start of Warm back
C
112
124
Inverted Injectivity Profile
Geothermal Baseline
M3/M
0.3
112
124 0
C
112
MD
(m)
1:1200
Well schematic
Double your
exchange rate.
3550
3600
Fig. 2DTS acquisition of the acid-wash stage. The tracks from left to right
are MD, schematic of Well A, DTS warm-back evolution, and zonal coverage
obtained from the inversion algorithm.
fluid compared with the rest of the interval. The warm-back DTS data were used
in the inversion algorithm to obtain the
fluid-injectivity profile in the far-right
track of Fig. 1. Most of the preflush was
accepted by the lower portion of the top
perforated interval and the upper portion
of the bottom perforated interval.
The second stage of this intervention
was dedicated to pumping an acid wash
through the FOECT into the two perforated intervals. The DTS acquisition related to the warm back subsequent to this
stage is shown in Fig. 2. Both the third
(temperature evolution) and fourth (injectivity profile) tracks show a response
similar to that of the preflush. The same
two zones, which presented fast temperature recoveries after the preflush, are noticeable here, although the difference in
recovery rates compared with the rest of
the intervals is not as large this time. This
may be the result of the exothermic reaction of the acid with the carbonate rock in
the rest of the interval, which makes for a
faster apparent recovery in the lower portion of the top perforated interval, and
the upper portion of the bottom perforated interval. Running the inversion algorithm, which can take the exothermic
reaction into account numerically and
quantify it, confirmed this analysis, yielding an injection profile that is very similar
to that obtained after the preflush injection, which was expected because no diverting method was used.
Discussion. DTS data indicated an imbalance of injectivity across the two

perforated intervals. Typically, such a
case would require the use of a diverting method to properly open the upper
portion of the top perforated interval
and the lower portion of the bottom interval. This could have been achieved
by pumping a chemical diverting agent
(e.g., a self-diverting acid) through the
FOECT, which would enable spotting
the diverting fluid as close as possible
to the thief zone and provide real-time
downhole readings that would indicate
the effectiveness of the diversion (typically, an increase in the annulus bottomhole pressure). After spotting the
diverter, the main acid stage could be
applied (i.e., by pumping through the
FOECT or bullheading in the annulus).
Unfortunately, a diverting fluid was not
available at the time of this intervention. It was decided to bullhead the remaining main acid stage at the highest
possible rate, which precluded the use
of the FOECT because of the risk to its
physical integrity. However, the use of
FOECT provided real-time visualization
of downhole phenomena, confirming or
invalidating assumptions made during
the job design, and provided information necessary to take immediate action
to optimize the outcome of the intervention (in this case, a uniform stimulation
rather than overstimulating the alreadyconnectedzones). JPT
Communicate. Collaborate. Connect.

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to meet, collaborate, and discuss
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in the E&P industry.
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Isolating Naturally Fractured Carbonate

Intervals Invaded by Water or Gas
xcessive water cut or a high

gas/oil ratio (GOR) in a
productioninterval reduces
oil production, often requiring
a workoverto re-establish oil
production.Wells in the Cantarell
field,a mature field in the Bay of
Campeche in the Gulf of Mexico, are
experiencing severe decreases in
production and an increase in either
water cut or GOR. The high water
cutand gas increments have affected
the production strategy. New solutions
to isolate or abandon production
intervals invaded by gas or water were
studied to continue production from
other zones.
Introduction
pore-pressure gradient is equivalent to

0.55 g/cm3, and the fracture-pressure
gradient is equivalent to 0.65 g/cm3 in
the pay zone. The temperature ranges
from 90 to 115C.
Three main mechanisms have been
identified for the increasing water and
gas production:
Poor cement bond behind casing
that enables communication of
the gas or water zones with the
productive intervals
Highly conductive natural
fractures that connect the
reservoir with the gas or water
zones
Normal advance in water/oil
or gas/oil contacts that occurs
during the productive life of the
well
In Mexicos Regin Marina fields, oil

is produced primarily from carbonate formations through a complex network of natural fractures that provides most of the fields permeability
and favors production of water and gas
over oil. Typically, a rapid advance in
water/oil and gas/oil contacts occurs.
Movement rates as high as 20 m/a have
been reported for the water/oil contacts and as high as 8 m/month for the
gas/oil contacts.
The thickness of the carbonate
breccia is 150 to 900 m, with permeability as high as 5 darcies and porosity averaging 10%. There is a very narrow window between the fracture- and
pore-pressure gradients that results
in partial or total losses during drilling and cementing operations; the
Because of the low fracture gradient of the pay zone, it is not possible to
keep the well full of control fluid, resulting in unavoidable losses and overdisplacement of treatment fluids when conventional displacement is applied. The
static equilibrium fluid level in the wells
is approximately 1300- to 1500-m true
vertical depth.
Conventional workovers pumping
only gas-tight slurries through a retainer had not solved isolation problems;
therefore, a new solution was engineered
by integrating a polymeric gel and lostcirculation material with the gas-tight
slurries. The solution also used underbalanced displacement on the basis of the
hydrostatic pressure that could be supported by the formation.
Engineered Approach To Isolate Intervals Invaded by Water or Gas in Naturally
Fractured Carbonate Formations, by J. Lpez, A. Martnez Ballesteros, R.
Miranda, C. Garca, and C. Deolarte, Pemex, and B. Vidick, SPE, R. Girn Rojas,
SPE, A. Milln, J.G. Rivas, SPE, A. Lpez, SPE, and E. Miquilena, SPE, Schlumberger,
prepared for the 2014 SPE International Symposium and Exhibition on Formation
Damage Control, Lafayette, Louisiana, USA 2628 February. The paper has not been
peerreviewed.
74
UNCOVERING MEXICO
Problem Scope
The main challenges faced in producing
oil in the Regin Marina are as follows:
Surface water-handling
limitations limit hydrocarbon
production, especially at the
Ku-Maloob-Zaap field where
water content greater than 5%
cannot be handled. Facilities in
other fields, including Cantarell,
can handle higher water cuts, but
oil production suffers.
Cantarell is a depleted mature
field that produces by use of a
nitrogen-injection system to
pressurize the reservoir.
In the Cantarell field, approximately
100 wells have been shut in as a result of
high GORs and high water cuts, and the
Ku-Maloob-Zaap field is starting to show
incipient profiles of unhandled water and
high GORs.
Solution
In the first phase of this project, workovers were performed through drillpipe
with a workover rig in the Ku-MaloobZaap field. The production pipe was
pulled out of the well, and a mechanical
retainer was set in the top of the interval to be isolated. A solution of organically crosslinked polymeric gels, lostcirculation technologies, and gas-tight
slurries was applied. To increase the potential for successful zonal isolation, the
fluids were underdisplaced according to
the hydrostatic column the formation
could withstand, thus avoiding overdisplacement too far into the formation.
The second phase took place in
the Cantarell field, where isolation jobs
were performed without a workover rig,
and the production assembly remained
in place. The treatments were pumped
through the production tubing and coiled
tubing because it was not possible to run
and set a mechanical retainer. In this
phase, the underdisplacement method
was used only for the placement of the gel
ment that would support the upcoming cementing stage and prevent losses
into the formation, this stage consisted of a lost-circulation system with an
added solids package designed to plug
the pores by creating a 3D network arrangement of the pills dual-fiber system.
Last well test performed in

June 2009 (100% water cut)
100
Total Fluid Rate (B/D)
90
80
70
60
50
Water cut (%)
40
30
20
10
0
01/06 10/06
04/07
11/07
06/08
12/08
07/09
04/10
Date
Fig. 1Water-cut profile in Cantarell Well 475.
and the fiber pill, which were bullheaded

through the production tubing. The cement was pumped through coiled tubing, which reduced the risk of slurry contamination. The solution was executed in
three main stages.
First Stage: Two Batches of Organically Crosslinked Polymeric Gel. Divided into two substages, the target of
this stage was to block the influxes of

water and gas by activating the gel in
the fracture network of the reservoir.
It would also keep the next fluids (second and third stages) in place near the
wellbore to overcome the challenge of
total losses.
Second Stage: Lost-Circulation-Fiber
Pill. Intended as an intermediate treat-
MD
0m
204 m
495 m
Conductor
204-m MD
length 204 m
Surface
795-m MD
length 795 m
795 m
Intermediate
casing
2082-m MD
length 2082 m
2009 m
2082 m
2200 m
Zone 2
thickness 15 m
Midperforation
2792.50 m,
3967.04 psia
Zone 1
thickness 30 m
Isolated
interval
2800
2830 MD
2785 m
2793 m
2800 m
2815 m
2830 m
2922 m
Fig. 2Cantarell Well-475 schematic after isolation job.
Midperforation
2815.00 m,
3999.00 psia
Production
liner
2922-m MD
length 913 m
New
Interval
2785
2800 MD
Third Stage: Gas-Tight Slurry. The final

hydraulic seal, not completely achieved
during the primary-cementing job (between hole and casing), would be provided by the gas-tight slurry, acting with the
gel and lost-circulation pill to prevent
slurry loss into the formation.
This design considered the synergic performance of all the technologies
and the best method of displacement for
each stage. The gel and lost-circulation
pill were displaced according to the hydrostatic pressure supported by the
formation either through drillpipe
(workover rig) or by bullheading (rigless intervention). The slurry was displaced either through drillpipe (underbalanced method) or by use of coiled
tubing to minimize the contamination
risk, depending on the volume of slurry
in thetreatments.
Cantarell Field: Rigless

Isolation in Well With High
Water Cut
This well was originally perforated from
2800- to 2830-m measured depth (MD)
and produced from a Cretaceous formation (containing 48% dolomite, 47% calcite, and 5% limestone) with 7% porosity. In 2009, the well was shut in when
the water cut reached as high as 100%,
as shown in Fig. 1. A rapid increase in
the water cut was observed in the last
months before the shutdown.
In 2011, an intervention was performed to isolate the invaded interval
and perforate a new interval from 2785to 2800-m MD, as shown in Fig. 2. The
synergic solution was applied without a
rig. The first two stages (polymeric gel
and lost-circulation pill) were bullheaded, and the slurry was placed through
coiled tubing because the production
tubing was not pulled.
First Stage: Organically Crosslinked
Polymeric Gel. On the basis of successful interventions performed previously
on the well with workover equipment,
SUPPLEMENT TO JPT
JANUARY 2015
75
two batches of polymeric gel were displaced by bullheading through the production tubing in accordance with the
underbalanced method. In this case, a
downhole-pressure log was run just before the treatment.
First, 100 bbl of gel was pumped,
allowing 12 hours activation time. This
batch was displaced with the amount of
seawater needed to achieve a hydrostatic pressure of 1,500 psi, a value acquired
from a previous downhole log. After displacement was completed, the cementing line was vented and good suction
strength was observed.
After activation of the first batch,
another 100 bbl of the same gel was
pumped and displaced with the same
amount of seawater used in the first
batch. An activation time of 12 hours was
allowed, and almost the same suction
strength was observed in the well.
Second Stage: Lost-Circulation Pill.
The second stage consisted of bull-
heading a 100-bbl lost-circulation pill

through the production tubing and use
of the underbalanced method to displace the pill with seawater according
to the hydrostatic pressure of 1,500 psi
supported at the base of the open interval. After the displacement, the cementing line was vented, but the well
was no longer showing suction. The
line was closed and reopened 1 hour
later, with only a small amount of suctionobserved.
The behavior in the well indicates
the progressive and effective plugging action of the fluids. The coiled tubing was
run into the well in a calibration trip to
ensure that the last stage of the treatment
could be performed (slurry placement).
In this run, the top of the lost-circulation
pill was found at 2797-m MD (3 m above
the top of the perforated interval) by applying 1,500 lbm of set-down weight.
A cleaning trip with nitrogen cleared a
length of 15 m along the interval to ensure that the slurry could be placed prop-
erly to provide a seal in the casing/hole

annular space.
Third Stage: Gas-Tight Slurry. Coiled
tubing was run to 2815-m MD and 8bbl
of gas-tight slurry (right-angle set)
was placed as the final stage of this
intervention.
Results. After the cement had set, the
well was filled with seawater. The top of
the cement was observed at 2768-m MD,
32 m above the top of the isolated interval. The cement was milled out with
coiled tubing, and the new interval from
2785- to 2800-m MD was perforated. A
production test showed an average oil
production of 1,400 B/D with 1% water
cut, exceeding the client expectation of
1,000 B/D with 50% water cut. A decision was made to stimulate the interval, and the oil production increased to
3,400 B/D. However, the water cut also
increased to 24%, a value that is still
within tolerance. JPT
Carbon dioxide capture, utilization and storage (CCUS)

involves capturing CO2 emissions from large point sources
such as power plants and either reutilizing or storing the
emissions to keep them from entering the atmosphere.
Expanded Career Opportunities for Petroleum Engineers
Possessing the know-how for evaluation, selection, and
monitoring of underground storage sites garnered through
decades of experience in the elds of CO2-enhanced oil
recovery (EOR) and gas storage operations, the E&P
76
UNCOVERING MEXICO
EW
SPE has formed a Technical Section to give members the

opportunity to focus on Carbon Dioxide Capture, Utilization
and Storage (CCUS), an area of interest for petroleum
engineers worldwide. Industry interest in CCUS as a way to
reduce emissions and for sequestering or storing carbon
dioxide, has increased over the past decade. In response,
SPE has stepped up programming in this area.
Carbon Dioxide Capture, Utilization

and Storage (CCUS) Technical Section
segment of the oil and gas industry is anticipated to play a

major role in the advancement of CCUS including broader
application of CO2-EOR.
Moreover, lessons learned in the ongoing commercial
activities within the oil and gas disciplines of underground gas
storage and CO2-EOR are directly transferrable to CCUS, thus
expanding career opportunities for petroleum engineers.
Join the CCUS Technical Section
This SPE group seeks to bring the above-mentioned
activities together in one place for those interested in this
developing subject. You will have opportunities to deepen
your learning and share your insights through online
discussions, web events, virtual meetings, forums, and
workshops, and enjoy the benets of at least one
face-to-face meeting a year.
Learn more and join today at connect.spe.org/ccusts.
Reservoir Characterization Aids Development

of a Naturally Fractured Reservoir
30
400
350
25
300
20
B-3
200
B-43
B-23
10
B-41
150
B-62
5
B-24
100
B-21V
B-21
50
3
n1
Ja
n11
9
n0
Ja
07
Ja
05
nJa
n-
03
Dry Oil Production
Ja
01
nJa
99
nJa
nJa
97
95
nJa
nJa
93
nJa
91
n-
The Bacab field is approximately

100 km north of Ciudad del Carmen,
Campeche, Mexico, and 12 km northeast of the Ku-A production platform
in the KMZ complex. Production from
the BKS reservoir started in December
1991 with Well B-21 at an initial rate of
8,280 BOPD and 3.28 MMcf/D of gas.
Oil gravity is 15.5 API, and oil viscosity is 11.7 cp at bubblepoint pressure.
The field cumulative oil production as
of 1 January 2014 was 56.45 million BO
and 17.04 Bcf of gas, mainly from the
BKSreservoir.
The breccia comprises mudstone,
wackestone, packstone, and grainstone.
Oil trapping is mainly by a broad anticline structure, elongated in the east/
west direction, and limited to the northeast by a southeast/northwest reverse
fault. The vertical limit is controlled
on the southeast side by the oil/water
B-43V
Three-Phase
Separation
Ja
Introduction
250
B-1D
15
Pressure (kg/cm2)
Qw (100 B/D)
Constant Pressure
Qo (1,000 B/D)
he Bacab field is in the Bay

of Campeche, Mexico. The
main producing reservoir is
the BKS, a Cretaceous naturally
fractured reservoirwith aquifer
support. Mostofthe producing
wells were completed near the
formation top toavoid water
encroachment throughchanneling
or coning. However, several
producers experienced early
water breakthrough,affecting well
performance and shortening well life.
Pressure-transient-test and production
data were analyzed to identify flow
regimes in the Bacabwells.
Water Production
Fig. 1Production history of the Bacab BKS reservoir. Qo=oil rate; Qw=water
rate.
contact (OWC)3444-m true vertical

depthsubsea.
The BKS formation is composed of
highly dolomitized carbonate rock, with
an effective porosity of 8 to 10%, and an
average irreducible water saturation of
10 to 20%. The clay volume is very low
(5 to 10%). Permeability ranges from 2
to 8 darcies [determined from pressuretransient-analysis (PTA)] and is associated with natural fractures and dissolution of the rock (vugs).
Field Development
The Bacab BKS reservoir has 12 wells,
four of which are producers (B-1D,
B-3, B-21V, and B-43V), producing
6,750BOPD with 20% water cut. Wells
This article, written by Dennis Denney, contains highlights of paper SPE 169476, FullField Dynamic Reservoir Characterization To Directly Impact Field-Development
Decision of a Cretaceous-Age Naturally Fractured Reservoir in Mexico, by Antonio
Rojas-Figueroa, Ernesto Prez-Martnez, and Juan Jess Rivera-Zumaya, Pemex,
and Chih-Ying Chen and Yuanlin Jiang, QRI International, prepared for the 2014
SPE Latin American and Caribbean Petroleum Engineering Conference, Maracaibo,
Venezuela, 2123 May. The paper has not been peer reviewed.
shut in because of high water production include B-23, B-24, B-41, and B-62.
Other wells were exploratory wells and
a delineation well. Fig. 1 shows the production history of the Bacab BKS reservoir divided into six stages according to
the oil- and water-production events. In
the first stage, exploitation, Wells B-21
and B-24 were drilled and flowed naturally with oil production of approximately 6,000 and 4,000 BOPD, respectively, during the first year of operation.
The second stage experienced a rapid
increase in oil production to more than
20,000 BOPD, with Well B-21 producing
up to 16,900 BOPD, causing significant
withdrawal and water breakthrough.
Wells B-24, B-41, and B-62 also experienced water breakthrough. The production facility lacked water-handling capacity; therefore, production from these
wells was reduced to a controlled rate or
the wells were temporarily shut in to reduce the total water cut.
The third stage showed rapid oilproduction decline along with water encroachment to all producers because of
SUPPLEMENT TO JPT
JANUARY 2015
77
OWC at 3444 m
Partial bounding of the reservoir

by impermeable faults, with
conductive faults within the
reservoir
Fig. 2Simulation model for Well

B-24.
ineffective reservoir management and

poor dynamic reservoir characteristics.
Wells B-1D and B-43 were brought on line
during the fourth stage. Well B-43 experienced water breakthrough soon after
production commenced, and was shut
in permanently. Well B-1D produced at a
controlled rate of 2,000BOPD to avoid
water coning or channeling. In the fifth
stage, Wells B-21, B-24, and B-1D produced intermittently because of water
production. Only Well B-3 produced
continuously until water breakthrough.
At the end of this stage, a three-phase
separator was installed on the Bacab-A
platform to handle produced water.
The sixth stage is characterized
by well workovers and improved reservoir management. Two sidetrack wells
(B-21V and B-43V) added production
without water production, as a result of
a better understanding of the BKS reservoir. However, the efficiency and continuity of the three-phase separator enabled Wells B-3 and B-1D to produce oil
with water cuts as high as 60%. By integrating dynamic and static reservoir
characterization, several other wells are
scheduled for workovers to restore production by use of sidetrack drilling.
PTA
Integrating Bacab PTA and geological
interpretation revealed the following
characteristics of the BKS reservoir:
A very strong aquifer (constantpressure boundaries)
Channel-flow geometry in the
central portion of the reservoir
78
UNCOVERING MEXICO
After integrating the interpretation of the geological model, PTA,

and production analysis of key wells,
numerical-simulation models were built
to represent flow conditions of wells
near the conductive faults and flow conditions of wells within the flow channel
formed by two impermeable faults identified in the central portion of the reservoir. This effort enabled evaluating the
different well-operation options and optimizing operation conditions to extend
production life of the wells and to maximize hydrocarbon recovery.
Numerical Simulation
PTA can help determine the location
of reservoir boundaries; however, PTA
cannot incorporate water-breakthrough
information directly. To use the waterbreakthrough information, simulation
models were built to study the production performance of Wells B-21 and
B-24 and their surrounding geological features. Determining the waterproduction mechanism was the focus.
The field covers an area of approximately 15.9 km2, and fewer than five wells
produced concurrently during most of
its history. The oil column has an average thickness of 200 m, and the drainage area of the wells is much smaller
than the well spacing; therefore, interference between the wells is very small.
A single-well-sector model fit the wellperformance study.
Conductive-Fault Model. A simulation
model was built for Well B-24 and its
surrounding area. Fig. 2 shows the tartan-like grid used in the model. This
grid offers high resolution in the nearwell and fault regions. The grid dimensions of 323142 correspond to physical dimensions of 19001900393 m.
The bottom 240 m of the zone is below
the OWC. Because the BKS reservoir is
highly fractured, the dual-porosity option was used in the model.
Other model parameters, such as
rock properties, fluid properties, and
production histories, were modified
from a corresponding full-field simula-
tion model. From PTA results, a conductive fault was inserted into the model of
Well B-24. The conductive fault was represented by sliding the vertical grids.
The slide was 0.5 m wide with 200-darcy
permeability. A vertical well was placed
in the center of the model. The 30-m
perforation interval was placed at the
top of the reservoir to keep it as far away
from water as possible.
The distance between the well and
the conductive fault was the primary
tuning parameter to match production
history. The best match was achieved
with a 50-m distance, which was close
to the PTA result of 90 m.
To understand the detailed process
of water coning and breakthrough and
to define a safe zone for future wells,
three scenarios were simulated with
well-to-fault distances of 50, 250, and
500 m. The starting time of the simulation runs was 1 January 2014. The following conclusions were drawn from
this study:
Development of the water
cone is slow. For a well with
a conductive fault within 50
m of the well, the water cone
required more than 8 months
to developed fully. Cones in the
other scenarios required longer
times to develop.
If the conductive fault was less
than 250 m from the well, the
fault had significant influence
on development of water coning
and oil production. Channeling
was the major mechanism of
water breakthrough.
If the conductive fault was
500 m or more from the well,
the fault had little effect on
well production. Coning was
dominated by local geological
features.
Channel-Flow Model. According to the
PTA on Wells B-21 and B-41, two impermeable faults could be causing channel flow for both wells. The interpreted fault-to-fault distances were 210 m
for Well B-21 and 170 m for Well B-41.
Because these wells are in a line that is
parallel to the four major faults on the
surface map, it is likely that the two impermeable faults follow the trend and
that the two wells are in the same com-
Fault D
???
1 km
Fault A
Conductiva
Fault C
???
Production Well
Fault B
Conductiva
Well Producing With Water Cut
OWC at 3444 m
Shut-In Well
Injection Well
Fig. 3High-risk water-breakthrough regions (red) in the Bacab BKS reservoir.
partment. However, there may be other

impermeable or semipermeable faults
in the reservoir. Therefore, it is critical
to understand the faults effect on water
coning and well production.
A simulation model was built to
study the performance of Well B-21.
The well is in the middle of the grid,
and the perforations are at the top.
The grid dimensions of 323275
correspond to physical dimensions of
19001900527.6 m. The bottom
242 m of the zone is below the OWC.
The dual-porosity option was used in
the model. The impermeable faults were
modeled by setting the transmissibility
of two vertical slides to zero. By tuning
the distance between the faults, it was
found that 200 m between the faults
matched the Well B-21 history very well.
This result is consistent with the PTA result of 210 m.
Unfortunately, Bacab-platform production is restricted by water-handling
capacity, so dry production is preferred.
According to the sensitivity analysis, a
production rate of less than 2,000BOPD
was determined to be the optimal operation strategy, because water breakthrough will require at least 3 years.
This time frame could allow adding new
water-handling capacity on the platform.
Another sensitivity analysis was
conducted to study the relation between
channel width and water-breakthrough
time. The results showed that for

a given rate, wider channels delayed
waterbreakthrough.
Results
On the basis of the production-data
review, PTA, and simulation work, a
high-water-risk region was identified
in the Bacab BKS reservoir. The region
covers most of the southeastern portion
of the reservoir and 250 m around the
known faults, as shown in Fig. 3. The
rest of the area is considered to be the
low-riskzone.
Therefore, Well B-43 was sidetracked to the middle of two interpreted faults in December 2009 and Well
B-21 was sidetracked to the northwest
of the original wellbore in March 2013.
Both wells were completed in the lowrisk region. The new wellbores are designated B-43V and B-21V, respectively, in
Fig. 3. Given the current water-handling
capacity and on the basis of the sensitivity analysis, to avoid early water
breakthrough, a producing rate of less
than 2,000 BOPD is maintained. At
the time this paper was written, Well
B-43V had been on line for more than
3 years and Well B-21V had been on
line for 10 months, and neither well
had produced water. Another sidetrack,
Well B-24V, designed with a dip-tubecompletion technique, was proposed in
the low-riskzone.JPT
Health,
Safety, and
Environment
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Extended Injection Test for Obtaining

Reservoir Data for a Shale Formation
n extended fracture-injection test

(FIT) was performed in a well
completed in an oil-shale reservoir in
Mexico. The Upper Jurassic reservoir is
in the Burgos basin in the northern part
of Mexico. The test was performed in an
exploratory horizontal well perforated
with abrasive hydrojetting. Reservoir
properties had been established
previously with the information
from correlation logs. The primary
objective of this FIT was to estimate
fracture-parameter information critical
to designing the main fracturing
treatment and to characterizing
theformation.
Introduction
An FIT analysis was made of a prefracture test (minifrac) that used a low injection rate and a very low volume injected into the formation followed by
an extended shut-in period. This treatment initiates a very small fracture in
the formation before the main fracturestimulation treatment is performed.
The injection is followed by monitoring the pressure decline for an extended time period, the data from which
are analyzed to obtain information concerning several important parameters.
Various analyses were performed on
the data to
Identify the type of leakoff
mechanisms (i.e., normal,
pressure dependent, height
recession, or wellbore storage).
The leakoff mechanism
facilitates quantifying the
magnitude of the pressure
decline, can imply the presence
of natural fractures and possible

growth outside the pay area, can
help identify possible very-lowpotential areas to be exploited,
and aids mitigating problems
during fracturing.
Estimate closure stress.
Obtain a permeability value,
which can be calculated from an
empirical equation developed
for use when no radial flow is
observed after formation closure
is registered.
Analyze fracture gradients,
fracture-extension pressures,
and net pressures.
Identify transient-flow regimes
after formation closure is
observed, enabling estimation
of formation permeability and
reservoir pressure.
Reservoir
The Pimienta shale formation is considered to be the first true shale formation
to be explored in Mexico. Little is known
about this formation because development is still in the early stages. To estimate as many parameters as possible, it
was essential to perform an FIT on one
of the first wells drilled in this formation. Estimating prefracture parameters
provides critical information for both
the fracture design and the formation
characterization; it also helps with obtaining reliable results for production
engineering. FITs are particularly effective in ultralow-permeability formations (k<0.1 md). Analysis of a minifrac
injection test pumped in the Eagle Ford
extension of the Burgos basin in 2011
provided valuable information for es-
Successful Extended Injection Test for Obtaining Reservoir Data in a Gas/Oil Shale
Formation in Mexico, by O. Araujo, SPE, E. Lopez-Bonetti, SPE, and D. Garza,
Halliburton, and G. Salinas, Pemex, prepared for the 2014 SPE Latin American and
Caribbean Petroleum Engineering Conference, Maracaibo, Venezuela, 2123 May.
The paper has not been peer reviewed.
80
UNCOVERING MEXICO
tablishing the final design of the multistage fracturing operation. The FIT was
performed in a horizontal section of the
well for which reservoir logs were adjusted throughcorrelation.
FIT
The FIT consisted of pumping 4,912 gal
of treated water, with clay inhibitors, at
an average rate of 7 bbl/min for 15 minutes. Then, pumping ceased and the
pressure decline was monitored with
two pressure sensors positioned at the
surface. The pressure decline was monitored for 48 hours; analyses were performed at 6-hour intervals to identify
possible closure and the type of leakoff mechanism. Once all data were obtained, analysis of the pressure decline
was performed to identify flow regimes
according to the slopes of the derivative
curve and the overlay curve.
The G-function graph in Fig.1 shows
a characteristic pressure- dependentleakoff (PDL) mechanism. This mechanism indicates the presence of fissures,
along with height recession or wellbore storage, which is also characteristic when transverse fractures are being
generated. The red dotted line on the
graph represents the fracture-closure
point at approximately 4,904 psi. The
blue dotted line marks the pressure at
which the fracture fissures wereclosing.
Fig. 2 shows a graph of the PDL
coefficient. A coefficient value greater
than 0.002 is considered high. The coefficient for this test was 0.0063. In this
case, the use of fine-mesh proppant,
such as 100- and 40/70-mesh proppant,
is highly recommended to help prevent
the generation of additional geometry.
Results
The estimated upper limit for the reservoir pressure was 4,671 psi, with a
formation flow capacity of 0.78 mdft,
resulting in a permeability value of
0.006 md. However, this permeability
value can be regarded as an upper limit
Bottomhole calc pressure (psi)

Smoothed pressure (psi)
Smoothed adaptive first derivative (psi)
Smoothed adaptive G*dp/dG (psi)
A
A
D
D
1=End of PDL
2=Closure
Time
4.92
30.12
BHCP
5379
4904
SP
5382
4906
6600
DP
964.0
1439
FE
72.31
94.13
D
2000
6400
1800
6200
1600
1400
6000
1200
5800
1000
5600
800
5400
600
5200
400
5000
200
4800
10
15
20
25
30
G Time
Fig. 1Minifrac-test G-function graph.
that probably is influenced by the presence of cracks or natural fractures in

the system. The estimated permeability,
considering the possible primary closure, is 0.00058 md.
Unfortunately, a radial-flow regime could not be observed during the
monitoring, and only an extrapolated
value for pore pressure was calculated.
A permeability correlation related to the
G-function and other parameters was
used to estimate a permeability value,

as shown in Fig. 3. Table 1 shows the
parameters calculated with an analysis
of the FIT.
Eq. 1 in the complete paper was
developed empirically. In many cases,
it provides a good estimate of permeability when after-closure radial-flow
data are not available. The final design
was adjusted because natural fractures
were discovered after the FIT was run
and because the shale-log interpretation, coupled with triaxial tests, indicated a brittle formation. There was a high
probability that a complex fracture geometry could be created by pumping a
hybrid-treatment design.
Conclusions
If performed correctly, the FIT
can help to obtain important
reservoir parameters, such
ln(Cp /Co)
6
6,281, 5.707
5
3
PDL Coefficient=0.0061
2
Fissure Opening Pressure=5,379

Y=0.818
5,250
5,500
5,750
6,000
6,250
6,500
Bottomhole Pressure (psi)
Fig. 2PDL-coefficient graph. Cp=leakoff coefficient; Co=original coefficient.
SUPPLEMENT TO JPT
JANUARY 2015
81
G-Function Analysis
Closure Events
G Function Outputs
Fluid efficiency (%)
93.805
Time at closure (min)
2235.98
Closure gradient (psi/ft)
0.707
R/P area ratio
0.574
Permeability from G closure time (md)
5.826E04
PDL found
True
G time at end of PDL (G time)
3.981
BHP at end of PDL (psi)
5394.23
dP at end of PDL (psid)
2721.93
Time at end of PDL (min)
109.174
Pressure (psi)
538.090
PDL
850 1700 2550 3400 4250 5100 5950 6800 7650
dP at closure (psid)
f (p,G)
4918.13
30.283
BHP at closure (psi)
200
G time at closure (G time)
BHP
DP
4918.13 538.090
5422.77 33.443
400
True
G Time
C=Closure
30.283
PDL=End of PDL 3.981
1800 1600 1400 1200 1000 800 600
Closure found
BHP (psi)
First derivative dp/dG
G*dp/dG
3:00 6:00
9:00 12:00 15:00 18:00 21:00 24:00 27:00 30:00 33:00
G Time
Fig. 3Screen shot of the minifrac-test G-function results.
as reservoir pressure and

permeability.
FIT analysis is especially useful
in ultralow-permeability
reservoirs.
According to leakoff mechanisms
observed during this work,
and considering the values
calculated for Youngs modulus
and Poissons ratio, it was
possible to assume the presence
of fissures in the system. These
mechanical-rock-property values
were calibrated through triaxial
tests. It was suggested that this
particular well is in a highly
brittle formation.
The use of bottomholepressure gauges and
longer monitoring times is
recommended to improve data
82
UNCOVERING MEXICO
Parameters
Correlation Well
FIT
Porosity
(%)
Permeability
(md)
0.0019
0.00058
Fluid gradient
(psi/ft)
1.02
0.92
Stress
(psi)
6,349
4,910
Pore pressure
(psi)
5,286
4,672
Table 1Parameters calculated by analysis of the FIT compared with a correlation well.
quality. A monitoring time

ranging from3to 5 days is
recommendedto obtain more
and better data.
It is important to maintain
aconstant pump rate
duringinjection to observe
a proper break of the
formation. Knowingwhen
the formation breaks helps

avoid creating multiple
fractures, thus improving
confidence at the time of
data interpretation.Also,the
volume of fluid injectedinto
the formation must be low
to avoid extended fractureclosingtimes.JPT
SPE IN MEXICO
he Society of Petroleum Engineers (SPE) has an active

presence throughout Latin America and the Caribbean,
serving members through sections, student chapters,
publications, conferences, workshops, and training sessions.
In Mexico, SPE has 534 professional members and 952
student members and a section headquartered in MexicoCity.
At the end of 2013, SPEs total professional and student
membership stood at 124,528, and it is anticipating great
growth in Mexico. SPE has organized several successful
events regarding Mexico recently, including a workshop on
Applied Geomechanics in the E&P Industry in Guadalajara,
Jalisco; a workshop on Well Integrity in Tuxtla Gutierrez,
Chiapas; and a workshop on South Extension of the
Eagle Ford Shale: A Cross-Border Collaboration in Corpus
Christi,Texas.
In addition, Gustavo Hernandez-Garcia, Pemex E&P
General Director, spoke at both the Offshore Technology
Conference in Houston and the 2014 SPE Annual Technical
Conference and Exhibition in Amsterdam. Jeff Spath, 2014
SPE President, spoke at a plenary session during the Mexican
Petroleum Congress in Acapulco.
SPE has planned several important events in Mexico
in 2015. In June, the SPE Board of Directors will hold its
quarterly meeting in Mexico City. In addition, three workshops
are scheduled:
Energy4me energy education workshop, 10-13 June
2015 in Guadalajara, Jalisco
Water Management workshop, March 2015, location
to be determined
Improved Oil Recovery in Naturally Fractured
Reservoirs workshop, October 2015, location to
bedetermined.
Training courses are also scheduled. For more
information on any of these events, please go to
www.spe.org/events/calendar.
Among the many activities and opportunities that SPE
provides to support the industry are several publications,
such as the Journal of Petroleum Technology, Oil and Gas
Facilities, and The Way Ahead; conferences, workshops,
and forums; a Distinguished Lecturer program; an annual
international awards program; and scholarships to help
students in pursuing their studies. SPEs many conferences,
exhibitions, workshops, and section meetings serve to help
increase the technical knowledge of participants and provide
networking opportunities for professionals to meet and
exchange ideas with their peers.
SPE welcomes new members throughout the region

and encourages industry professionals to join their local
section or to learn how they can start a new section in
geographic locations not currently supported. Visit the SPE
website, www.spe.org/join, to become a member and you will
immediately benefit from the following:
Discounted member registration to attend
conferences, workshops, and training courses with
direct access to innovative technologies, technical
knowledge, and interaction with colleagues to help
you continue your professional development
Special pricing on books and subscriptions to SPE
periodicals
Access to OnePetro, one of the industrys largest
online technical libraries, allowing you to search,
purchase, and download more than 90,000 technical
documents from multiple professional societies
Opportunities to present technical papers in a journal
or at a conference to share knowledge with your peers
Leadership and volunteer opportunities to help you
build industry relationships
A number of career development tools, from training
to technical sections to e-mentoring and more
Complimentary subscription to the Journal of
Petroleum Technology (JPT).
UPCOMING EVENTS IN LATIN AMERICA

(Volunteer Speak Attend Exhibit):
1113 March 2015 Bzios, Brazil
SPE Subsea Processing Workshop
1517 April 2015 Cartagena, Colombia
SPE Energy AlternativesShallow and Deep Water Workshop
2223 April 2015 Puerto Vallarta, Mexico
SPE Water Handling Workshop
2728 May 2015 Salvador, Brazil
SPE Artificial Lift Conference: Latin America and Caribbean
1618 June 2015 Rio de Janeiro, Brazil
SPE Managed Pressure Drilling and Underbalanced Drilling Workshop
2326 June 2015 Macae, Brazil
Brasil Offshore Conference
SUPPLEMENT TO JPT
JANUARY 2015
83
78 July 2015 Bogot, Colombia
2729 October 2015 Rio de Janeiro, Brazil
SPE Latin American and Caribbean Health, Safety,
OTC Brasil
Environment and Sustainability Conference

1820 November 2015 Quito, Ecuador
1920 August 2015 Bucaramanga, Colombia
SPE Latin America and Caribbean Petroleum Engineering Conference
SPE Reservoir Characterization Workshop

1011 September 2015 Lima, Peru
1517 June 2016 Port of Spain, Trinidad and Tobago

SPE Biennial Energy Resources Conference and Exhibition
SPE Produced Water Handling Workshop

For more information on SPE events, please contact
Solange Ferreira at sferreira@spe.org.
Fuel for Thought

Energize your career with training courses
from the Society of Petroleum Engineers.
Get up-to-date industry knowledge from the
people who wrote the book on E&P. Courses
are offered at multiple locations around the
world. Learn more at www.spe.org/training
where you can browse the schedule and
register for courses that meet your interests.
84
UNCOVERING MEXICO
Push the
boundaries.
You want to optimize your completion and production (C&P) processes and increase the
value of your reservoir. We get that. We can help you do that too.
Our decades of eld-proven experience push traditional boundaries. This experience
reproduces success and helps avoid costly mistakes. Our Total Systems Approach to your
C&P challenges also includes meticulous planning and the efcient implementation of the
worlds most reliable technologiesspecically designed to improve access to reserves,
maximize production, and increase your ultimate recovery.
Call us or visit BakerHughes.com/GoM-pushtheboundaries and learn how our Total
Systems Approach pushes the boundaries of what was previously thought possible.
+1 713-268-6218
2014 Baker Hughes Incorporated. All Rights Reserved. 40430 12/2014
Mexico is
REVITALIZING THE
ENERGY INDUSTRY
& PEMEX is leading the way
MEXICOS
#1
In Offshore
SOLE PRODUCER
HYDROCARBON
of Crude Oil, Natural Gas

and Rened Products
PRODUCTION
HAS
13
TH
63,630 KM
of Pipelines
In CRUDE
OIL RESERVES
AMONG
TH LARGEST
TOP
Oil Company
IN THE WORLD
10
Crude Oil
Production Companies
WITH REFORM COMES SUCCESS

PEMEX WILL REMAIN THE
LEADING COMPANY IN MEXICO,
With greater access to technology,
PEMEX will embark on a gradual
course to a much more solid
nancial position.
OVER THE NEXT THREE YEARS,

PEMEX will introduce a more
dynamic and efcient corporate
structure built to seek operational
efciency, eliminate redundant
processes and maximize revenues.
PEMEX WILL WORK MORE

LIKE A CORPORATION, and
less like a government agency
by developing an arms length
relationship with the federal
government.
Sources: Forbes, BP Statistical Review of World Energy 2014, The International Energy Outlook 2013 (IEO2013), BP Energy Outlook 2035
Lets Transform The Industry Together.

www.pemex.com

Uncovering Mexico - JPT

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MEXICO

A GUIDE TO THE COUNTRYS

QRI knows Mexico.

Quantum Reservoir Impact

Dr. Nansen G. Saleri

STABLE AND PREDICTABLE FRAME CONDITIONS WITH

MEXICO RUSHED TO OPEN OIL SECTOR IN 2014, CAN IT

DEEPWATER RESULTS WILL NOT COME QUICKLY

20 PEMEX BEGINS TO ADAPT TO NEW LANDSCAPE

PEMEX WILL THRIVE

WITHIN REACH: SHALLOW WATERS OFFER QUICK

Stephen Rassenfoss, JPT Emerging Technology Editor

Trent Jacobs, Technology Writer

Jack Betz, Staff Writer

BIGGEST ONSHORE OPPORTUNITY PRESENTS EQUALLY

Joel Parshall, Features Editor

Stephen Whitfield, Staff Writer

CANTARELL: THE RISE AND DECLINE OF AN OILFIELD

46 CANTARELL THEN AND NOW: AN IN-DEPTH LOOK AT

50 EXPORTING SHALE EXPLORATION WILL REQUIRE

BRINGING ENHANCED OIL RECOVERY TO MEXICAN

LOW PRICES DAMPEN INTEREST IN GAS DEVELOPMENT

MEXICO TO START SHOWING THE SEISMIC

Mexicos opening is designed to create a surge of activity by bringing in

Print and Digital Versions Available

Larry W. Lake, Russell Johns, Bill Rossen &

MEXICOS OPENING CREATES SERVICE COMPANY

ADVANCED FEA MODELING PRODUCES FIRST

UNLOCKING THE POTENTIAL OF MEXICAN OFFSHORE

ENGINEERED APPROACH TO ISOLATE INTERVALS

FULL-FIELD DYNAMIC RESERVOIR CHARACTERIZATION

80 SUCCESSFUL EXTENDED INJECTION TEST FOR

SPE IN THE MEXICO REGION

SAVE TIME, SAVE MONEY, WORK SAFER, WITH

2014 Halliburton. All rights reserved.

Lessons Learned Over 40 Years in Norway

Foreign operators were invited in from day one since

Having recently decided to again invite foreign and

Defining SPEs Role in Mexico by Listening Loudly

SPEs Mexico Vision: To Make a Big Difference

Mexico Rushed to Open

he opening of Mexicos energy

Lourdes Melgar Palacios,

OPENING MEXICO'S ENERGY MARKET

Lourdes Melgar Palacios said her regulatory

prospects offshore that are among the

production, according to Gaffney Cline.

OPENING MEXICO'S ENERGY MARKET

Cumulative production (BBOE) by basin

Reserves by basin (MMBOE)

While Tampico-Misantla has large estimated reserves, it is in

But information is based on

exploration areas were not considered

OPENING MEXICO'S ENERGY MARKET

Millions of Barrels of Oil/ Oil Equivalent Per day

Oil producon: Million Bbl per Day

Gas Producon: Million Bbl of Oil Equivalent per Day

buying gas cheaper (than producing

Higher costs and the delays

that will benefit from laws requiring

JOHN DONNELLY, JPT EDITOR

Can you clarify the role of the National Hydrocarbon

all sorts of companies, from the majors to medium-size to