Source: U.S. Energy Information Administration, based on Petróleos Mexicanos and Natural Gas Intelligence
In July 2017, Mexico’s national energy ministry (SENER) opened the onshore portion of the Burgos Basin, a shale-rich basin in northeastern Mexico, for natural gas exploration and development by private companies. This is the first time non-state entities were offered access to the Burgos Basin for development since the creation of the national oil company Petróleos Mexicanos (PEMEX) in 1938. SENER hopes that private investment will help to reverse the decline in natural gas production and offset decreasing PEMEX investment in the region.
Production from the Burgos Basin accounted for 15% of total natural gas production in Mexico in 2016, and the basin holds the largest undeveloped shale resources in the country. Increasing production from the region would help meet growing natural gas demand, particularly from new natural gas-fired generation in Mexico’s Northeastern region, and make Mexico less reliant on natural gas imports in the long term.
Located in the state of Coahuila, south of the Rio Grande River, the Burgos Basin covers an onshore area of approximately 24,200 square miles. Offshore, it extends onto the continental shelf of the Gulf of Mexico. The Burgos Basin is the southern extension of Texas’ Western Gulf Basin, which encompasses the Eagle Ford shale play. PEMEX initiated exploration activities in the Burgos Basin in 1942 and it has discovered some 227 fields, mostly rich in natural gas. The basin currently has more than 3,500 active natural gas wells in non-shale formations.
Source: U.S. Energy Information Administration and Advanced Resources International, World Shale Resource Assessments
Many reservoirs in the Burgos Basin have low permeability and high decline rates typical for tight formations, which require significant investment from PEMEX to maintain or increase production. In response to decreasing natural gas prices over the past five years and energy reforms introduced in 2014 that gave priority to oil development, PEMEX has decreased its exploration and production spending in Burgos. In 2017, PEMEX plans to spend $51 million (0.9 billion pesos) in the Burgos Basin, down 92% from the $657 million (11.7 billion pesos) it spent in 2012. At the same time, natural gas production in the basin has dropped by 32%, from 1.2 billion cubic feet per day (Bcf/d) in 2012 to 0.87 Bcf/d in 2016, all from nonshale formations.
Although PEMEX has conducted shale exploration activities on its own in the Burgos Basin, they have yet to reach commercial production, as many of the early wells have low production rates. The companies that were awarded licenses in the Burgos Basin are expected to stabilize or reverse the declining natural gas production in the region. High levels of production in the U.S. Eagle Ford shale play to the north could indicate similar production levels in the Burgos Basin region.
The Mexican government is planning to open more acreage in Burgos and other shale basins to private companies before the end of 2018.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)