Lukoil #342 (July-August 2018)

A senior US StateDepartment official said countries buying oil fromIran should halt all imports starting NovemberastheUnitedStatesreimposessanctions against Tehran. “We’re going to isolate streams of Iranian fundingand lookingtohighlight the totality of Iran’s malign behavior across the region,” the official, speaking on condition of anonymity, told reporters.In response, Iranian officials threatened US requests to cut oil import from Iran to close the Strait of Hormuz and not allow the Gulf States to export their oil. A fifth of global oil consumptionpasses through the Strait fromMiddle Eastcrudeproducerstomajormarkets.TheU.S.Fifth Fleet, based in Bahrain, is tasked with protecting commercial ships in the area. U.S. officials have said closing the Strait would be crossing a “red line” and havepledged to take action to reopen it. In less than five years, LUKOIL has grown into a leading player in Mexico’s oil market as the country has become one of the company’s key areas of international expansion. THE DEAL IS CLOSED! L UKOIL’s history in Mexico dates back to the summer of 2015, when the company entered a service agreement with local state-owned PEMEX on the Amatitlán Block. This onshore project is located near the town of Poza Rica, in the State of Veracruz. LUKOIL is continuing work in Veracruz on the Amatitlan block, as well as bidding such, it’s already well explored: over 70% of the offshore blocks offered to investors have already been scrutinized by geologists via 3D seismic tests. Pemex had already discovered several large shallow-water deposits in the basin’s south, but lacked the resources to develop them independently. essionalism among people on the ground here. Following a major energy reform announced in December 2013, Mexico’s government offered these deposits to private companies for commercial development. ENI drilled two successful exploratory wells at one of the deposits, Amoca-Mizton-Tecoalli, in 2017, thereby raising its estimated reserves to 900 million barrels That same year, US-based Talos Energy discovered the Zama reservoir at Salinas Sureste with estimated reserves at 1.4-2 billion barrels of oil, marking one of the biggest offshore discoveries worldwide over the last 20 years. Developing offshore will allowMexico to reverse negative production dynamics in its oil sector. Since 2004, the country’s oil output has fallen by 1.5 million barrels per day. Experts predict that production will stabilize in the early 2020s and eventually begin to increase thanks to new deepwater offshore projects coming online (Source: Wood Mackenzie). New Administration According to current plans, Mexico’s National Hydrocarbons Commission will hold four licensing rounds during 2015- 19; most of the work has already been completed. Despite the oil price drop of 2014-15, Mexico was able to attract investors to over 100 onshore and offshore developments. The potential investments under existing contracts could total over $7 billion over the coming four years. The future of the industry, and, specifically, the ongoing energy reform, will nonetheless depend largely on the new administration (due to be formed in December 2018). On July 1, Andrés Manuel López Obrador was elected Mexico’s next president. One of his promises during the campaign was to check existing rounds and licenses for any signs of corruption Most experts believe it’s unlikely any current contracts will be canceled, but new licensing rounds may be delayed due to check-ups. Hence Obrador’s otherwise ambitious plans to increase oil output may have to be corrected. Regardless, LUKOIL remains eager to help the nation of Mexico profit from its vast reserves of black gold. ANDRÉSMANUEL LÓPEZ OBRADOR Andrés Manuel López Obrador (born 1953) is a Mexican politician and head of the National Regeneration Movement (MORENA). He was elected the country’s next president on July 1, 2018, after running unsuccessfully in 2006 and 2012. During 2000-05, he served as Head of Government of Mexico City. His 2018 platform included increasing social welfare payments, fighting corruption and developing domestic industry.. OBRADOR’S ENERGY POLICIES • Increase oil production to 2 million barrels daily by 2024 and to 2.5 million by 2035 • Check existing contracts for signs of corruption • Stop the process of extending and reassigning Pemex’s existing contracts • Increase state funding for Pemex • Construct and expand new and existing oil refineries, respectively • Increase gas tax • Increase utilization of oilwell gas • Increase society’s role in regulating the energy sector • Increase hydro power output • Increase lifespan of existing thermal power plants via partial transition to gas • Increase usage of renewable sources of energy * from his electoral manifesto “Proyecto de Nacion 2018-2024” DECEMBER 2013 JANUARY 2014 DECEMBER 2016 JULY 2015 Mexico opens oil industry to private investors LUKOIL and PEMEX signed cooperation agreement LUKOIL took part in 1.4 deep-water licensing round but failed Lumex Holding (JV of LUKOIL and Marak Capital) signed service agreement for Amatitlan block in new licensing rounds for offshore assets in the southern part of the Gulf of Mexico. Whi le LUKOIL hasn’t won any deepwater bids in Mexico yet, the company has obtained licenses for the shallow-water Blocks 12 and 28. The contract for the former was signed in September 2017 (see Oil Journal ¹09 (339), October 2017) and the first exploration well is expected to be drilled in 2019. Meanwhile, LUKOIL and ENI won the rights to Block 28 in licensing round 3.1 on March 28 of this year. While five different bids had been under consideration, the main competitors were joint bids by LUKOIL/ENI and DEA/Premier. Mexico’s National Hydrocarbons Commission assesses bids based on several criteria, including the state’s share in a consortium, commitments to drilling exploratino wells and bonus payments. Both consortia offered Mexico’s government a 65% share in profits and promised to drill two wells each. The deciding factor was the bonus payment (LUKOIL/ENI offered a more generous option), which finalized the deal. A Strong Start The Salinas Sureste Basin is one of Mexico’s historical centers of oil production. As 4 Business