An in-country advantage in Mexico’s upstream

Mexico

Alberto Galvis, CEO of Citla Energy, talks to The Energy Year about the changes Mexico’s upstream sector has experienced in recent years and the E&P developments and integrated dynamics anticipated for 2022. Citla Energy is an oil and gas exploration and production company based in Mexico City.

What changes has Mexico’s E&P sector experienced in recent years?
In recent years plenty of things have changed in Mexico’s upstream sector, but one thing that has not is its geology. Mexico remains one of the main oil and gas reserves-rich countries in the region. That is the basis of opportunity here. In addition, upstream laws and regulations haven’t changed greatly. Private entities have continued carrying out exploration and production activities.
However, the pace of some of these activities has been altered since the beginning of this administration. We haven’t seen new exploration or contract rounds. A moratorium, of three years so far, on these bid rounds was established until private firms prove results; we have yet to see what will happen. The administration will monitor the performance of the existing 110 contracts in place. Their delivery will be a determinant for new rounds to occur. This is a long-term game and we will witness different administrations take different approaches to this matter in the future.

What key E&P developments have emerged and what integrated dynamics will we see in 2022?
With the kind of resources that Mexico has, the best way to move forward is to develop them together, with everyone working in the same direction. A single company, namely Pemex, can’t do this alone due to financial and organisational constraints, among others. This is the rationale behind the Energy reform from December 2013. There are 110 contracts in the pipeline, billions of dollars of investment and several key wells that are being drilled as we speak. As a result, we have seen an array of discoveries being made, such as Repsol’s Polok and Chinwol in the Salina Basin in Block 29 and Eni’s Saasken and Sayulita in Block 10.
On the production side, we see that the three main fields that were awarded in the first round are on the path to full production: Hokchi Energy through its Hokchi field, Fieldwood at the Ichalkil and Pokoch fields, and Eni via its AMT complex. We will see more production activity moving forward.
At the same time, we will see a new dynamic where we will have medium-sized discoveries, which will open the door for integrated developments. This is because there are plenty of neighbouring discoveries. This will lead to a momentum which will spur activity in the E&P sector.

How does Mexico’s bet on fossil fuels fit within the bigger picture of the energy transition?
There is a market momentum where we see prices hover at USD 80 per barrel. This is a testament to how the demand has risen and how supply has been constrained because of under-investment; that situation will remain with normal fluctuations. The world now realises that the energy transition is necessary, yet it has to be a gradual process. While we seek the next energy source, oil and gas will remain for a long time.
This also means that further investment is needed. If not, we will see extreme consequences such as gas prices in the US and Europe doubling and quadrupling as we saw recently. For this reason, the exploration opportunity that we see in Mexico couples very nicely with what we are seeing in the world in terms of needing oil and gas to support a rational transition.
For example, if you had a security box full of dollars, but you knew these would go out of circulation sometime in the near future, what would you do? You would open it and try to make use of those resources before they lapse. The same goes for Mexico’s rich oil and gas resources. If we wait too long, the energy transition will happen and it will be too late to exploit them. All of these resources will stay in the ground and will never be monetised. There is a call for countries in similar situations to Mexico to accelerate the monetisation of their resources, in a clean and responsible manner, in support of the energy transition.

What are the latest developments carried out by Citla Energy in its shallow-water assets?
We continue to work on our shallow-water blocks 7, 9 and 14 in Salina del Istmo and Block 15 in Tampico-Misantla. There are a number of prospects in Block 7, where we partner with Eni and Capricorn Energy as an operator. We have drilled one well and we have a second one pending which is planned for 2022.
In Block 9, we have finished our commitments regarding the two wells we have drilled so far. We are now focusing on the remaining opportunities along with our partners Capricorn Energy and Eni, the latter of which in June 2021 acquired 15% of equity in this block. We are currently studying an extension to the exploration period and the possibility of drilling additional wells.
When it comes to Block 14, where we are important stakeholders with 40%, and Eni holds 60%, the block has an existing discovery which we have been assessing along with further opportunities such as neighbouring prospects. In 2022, we will decide whether to drill. Considering the potential of these southeast blocks, we want to do the remaining drilling activities in a phased manner.
Lastly, regarding Block 15, seismic works have been completed, but we relinquished around 50% of our interest in that block early on as it was environmentally sensitive. We are still working on the remaining 50%. We will communicate decisions on whether or not to continue during the following year.

What does Citla bring to the table when partnering with strong IOCs such as Eni and Capricorn Energy?
Citla Energy was conceived to play in the Mexican energy reform. Our playground is and will be in Mexico. As a result, we have managed to form a very strong technical team, which is what we bring to the table when it comes to partnering with international companies such as Eni and Capricorn.
We have a team of people who have experience in operating in Mexico and know Mexican geology very well. That knowledge and know-how on how to operate in Mexico is fundamental. Also, being financially robust becomes an important feature for potential partners seeking to distribute and diversify risk. We are very proud of having the operators we have, as they are world-class. It’s a win-win for all.

What potential is held by the reservoirs where Citla Energy’s assets lie?
When one studies the areas where our blocks are located, there is tremendous potential. North of us, we have Repsol, which has made two very interesting discoveries. In the east, Eni has done the same in Block 10, discovering the Saasken and Sayulita fields, holding several hundred million barrels, according to operator announcements.
The giant shallow-water Zama field is also found to the east, whereas to the south the Amoca, Mizton and Tecoalli fields are being developed by Eni. There is no doubt that the region has increased in value after all of these discoveries. In the case of Tampico-Misantla, it has been a region where, historically, billions of barrels of reserves have been discovered and it’s been producing for almost 100 years. We’re looking at deeper prospects there.

Given the positive trends in the upstream sector, what strategy is the company following for the coming years?
There is a lot of capital yet to spend in our blocks. However, we are open to delving into new opportunities once the exploration rounds open up again. Likewise, we are looking at secondary-market opportunities as they come up. Yet, we look at those individually and opportunistically.
In the medium term, we aim for Citla Energy to be a leading private local company, having a number of discoveries that will be developed in the coming years. So, we are looking to expand and consolidate in-country, becoming a leading local firm par excellence.

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