(Bloomberg) — Latin America’s two biggest oil companies are betting on a high-risk effort to unlock crude from deeply buried Jurassic rocks offshore Mexico.
Petroleo Brasileiro SA and Petroleos Mexicanos have teamed up to evaluate a pre-salt play beneath the Gulf of Mexico that is older, deeper and potentially richer in oil than many existing fields. The technical and financial risks are substantial, given the challenges of drilling miles beneath the seabed through unstable, high-pressure salt formations.
The target is a geological area off Mexico’s Campeche state that Pemex explored unsuccessfully in 2018. Unlike younger producing formations on the U.S. side of the Gulf, Petrobras and Pemex are targeting rocks formed roughly 160 million years ago.
The potential attraction is that the older formations include so-called source rocks, where organic material was transformed into petroleum. Teams from both companies began assessing seismic and other geological data in recent weeks as they consider whether Petrobras can replicate the pre-salt exploration success it achieved offshore Brazil.
“Petrobras is entering uncharted territory,” said Pedro Zalan, a geologist who worked on exploration projects during a 34-year career at the company. The geology on the Mexican side of the Gulf “makes it particularly favorable for oil accumulation.”
Petrobras has extensive experience developing pre-salt resources offshore Brazil. A series of major discoveries beginning in 2006 transformed the country’s offshore industry and drove a sharp increase in crude production. Efforts by operators to replicate that success in pre-salt formations elsewhere, including Angola, Gabon and the Republic of Congo, have largely fallen short.
“Pemex alone doesn’t have the technology or the capital for this kind of play,” said Mark Rowan, a Colorado-based geologist and consultant specializing in deep Gulf of Mexico discoveries. “But just because it’s high risk doesn’t mean the hydrocarbons aren’t there.”
In 2018, Pemex drilled more than 7,800 meters (25,600 ft) below the seabed and penetrated the Campeche salt layer. Although the exploratory well was declared unproductive, data gathered during drilling could provide clues as Petrobras and Pemex assess the play.
“Apparently what Pemex found did not scare them away,” Rowan said. “That suggests there was no absolute play-killer, and possibly something that gave them real reason to keep testing.”
Any discovery would still face significant development challenges. Salt behaves more like a liquid than a solid under the high temperatures and pressures encountered deep underground, requiring specialized drilling equipment and techniques. Deepwater exploration wells can also cost hundreds of millions of dollars.
In addition to the pre-salt zone, the companies plan to explore beneath sedimentary rocks formed by deepwater mud and sand flows, as well as beneath younger, shallower salt formations, Petrobras exploration and production chief Sylvia Anjos said during an Aug. 7 media briefing.
Major operators including Chevron Corp. and Shell Plc have produced from sub-salt Gulf of Mexico fields for decades, but the much older pre-salt resources targeted by Petrobras and Pemex present a different level of geological and drilling complexity.
A major discovery could provide a significant boost for Pemex as the state-owned producer struggles with declining output and seeks to rebuild its resource base. For Petrobras, the effort provides an opportunity to apply the pre-salt expertise that helped transform Brazil into a major offshore producer.
Tupi, discovered by Petrobras in 2006, has produced approximately 4 billion barrels of crude since coming online in 2010.
“So much depends on what the data from Pemex’s 2018 pre-salt well actually shows, and they’ve kept the results of that study a guarded secret,” said Jon Blickwede, a geologist and owner of Houston-based Teyra GeoConsulting. “If Pemex found any hydrocarbon shows, either gas or oil, under the salt, it would be extremely significant.”
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