Spain’s Repsol SA hopes to take a final investment decision (FID) to develop a recently announced oil and gas discovery offshore Mexico within the next two years, according to CEO Josu Jon Imaz San Miguel.
Imaz recently hosted a conference call to discuss second quarter earnings for the Madrid-based integrated energy firm. Repsol operates throughout the world, with core upstream assets in North and South America, Europe and Africa.
In early July, Repsol and joint venture partner Eni SpA announced a discovery at the Yopaat-1 EXP exploration well in Block 9 of the Cuenca Salina in the Sureste Basin. The discovery could hold 300-400 million boe of recoverable hydrocarbons, according to the firms. Eni operates the block with a 50% stake, while Repsol controls the remaining 50%.
Repsol management is “very happy with Mexico,” Imaz told analysts. “You know that we have our two wells that were positive,” he explained, a reference to the Polok-1 and Chinwol-1 exploration wells at neighboring Block 29 where Respol made discoveries in 2020. “We already have an area to be developed. And thanks to this discovery of the project operated by Eni, where we have a 50/50 stake, we see opportunities to optimize the whole area.
“We have, of course, to talk and to discuss about that, but I think that we have a clear case for a new FID…”
As for Block 29, development “is currently in the conceptualization phase and this new discovery increases the potential to consolidate this basin along with our growth plans in the region,” Imaz said.
Blocks 29 and 9 were awarded under bid rounds held by the previous government. Current President Andrés Manuel López Obrador suspended new rounds after taking office in 2018 as part of his promise to “rescue” state oil company Petróleos Mexicanos (Pemex).
Asked about the macro-political outlook in Mexico under President-elect Claudia Sheinbaum, Imaz said she has “her own personality that [brings] of course, some kind of continuity in the best sense of the word” with respect to López Obrador. “So our perception is that these Mexican authorities then and now, they are fully focused [on] promoting the local resources, and to increase the power of Mexico as a country [that is] relevant in terms of producing hydrocarbons.”
He added, “We have been part of that. We have discovered resources. And it seems to me that we are fully focused [on]...recovering the oil production in the country. I mean, we want to be part of this history, of this narrative of Mexico in the future.”
Private sector firms account for 5% of Mexico’s oil and natural gas production, with state oil company Petróleos Mexicanos (Pemex) supplying 95%.
‘Ongoing Weakness of Natural Gas’
Repsol produced 2.10 Bcf/d of natural gas in 2Q2024, versus 2.18 Bcf/d in 2Q2023. The company fetched an average realized gas price of $3.10/Mcf, compared to $3.30 a year earlier.
The commodity scenario during 2Q “was characterized by a less favorable refining environment, stronger oil price, and the ongoing weakness of natural gas,” said Imaz. He added, “Year-over-year, the negative impact of lower gas prices was more than offset by higher oil realization and higher volumes sold.”
Imaz also noted that, “The hedging policy implemented for our North American gas production is helping us to [protect] profitability in this depressed natural gas price scenario. Around 20% of our volumes in 2024 have been covered with a floor of $3/MMBtu.
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"And roughly speaking, this structure allows us to fully compensate, in the second-quarter results, the decrease in the Henry Hub compared to the same period in 2023.”
In the United States, Repsol operated one rig in the Eagle Ford Shale and one in the Marcellus Shale during the quarter.
The Marcellus rig was released “with the aim of protecting value in this gas price environment,” said Imaz. “In [the] Eagle Ford, we agreed the divestment of our stake in the southwestern portion of our acreage as part of ongoing optimization of our position.”
North America and Latin America accounted for 41% and 50% of natural gas production, respectively. The remaining gas volumes came from Europe, Africa and the rest of the world.
Repsol reported net income of €657 million (€0.54/share) or $713 million in 2Q2024, compared to a profit of €308 million (€0.23/share) or $334 million in the same period of 2023.
