International Frontier Upholds its First-mover Advantage in Mexico's Energy Reform
International Frontier Resources ("IFR") was early to identify the oil and gas opportunities offered by Mexico's historic energy reform. IFR, through its joint venture (JV) Tonalli Energia ("Tonalli"), has now achieved its initial goals, in partnership with Mexican petrochemical leader Grupo IDESA S.A. de CV ("IDESA").
Through its JV with Grupo IDESA, IFR became one of the first foreign companies to participate in Mexico's energy reform in the first bid round of the onshore blocks ("Round 1.3"). Moreover, it was one of the first foreign companies to be awarded an onshore oil and gas development block through a license contract.
The Tecolutla Block
On May 12, 2016, Tonalli Energia was notified by the National Hydrocarbons Commission (CNH) that it had been awarded Block 24 ("Tecolutla block") in Round 1.3, with an incremental royalty of 31.22%. Tonalli's royalty was modeled to allow for a competitive rate of return and compares favourably to royalties for other winning bids. On 10 of the 25 blocks, the incremental royalty was more than 60% with three of these blocks having incremental royalties in excess of 80%.
The Tecolutla block is a 7.2 km2 block in the Tampico-Misantla Basin located within the state of Veracruz. In 2017, IHS Markit identified Tampico-Misantla as a potential "Super Basin." The producing carbonate oil reservoir in the Tecolutla block is the El Abra formation.
3D seismic has been acquired over the entire block and seven existing vertical wells have been drilled by PEMEX to bring the field into production. Since reaching total depth, Tonalli has utilized modern well logs from TEC-10 to perform a pre-stack depth migration of the 3D seismic volume ("PSDM Seismic") to give a more precise image of the top of the El Abra. The PSDM Seismic has resulted in a clearer image of the reef edge, which matches Tonalli's original interpretation of the reef edge and confirms the areal extent of the reef. For additional information, please review our technical support graphics.
Like many oil and gas fields in Mexico, International Frontier's technical team believes oil production from Tecolutla has yet to be optimized. To execute the plan, the team intends to deploy advanced carbonate drilling, completion, stimulation and recompletion techniques at the Tecolutla block.
click on image to enlargeIDESA to Become a Strategic Investor in IFR
IFR has entered into a share option agreement (the "Option") with its JV partner, IDESA. The Option gives IFR the right to acquire a 100% stake in Tonalli by acquiring, through its wholly owned subsidiary, the outstanding shares of Tonalli held by IDESA prior to the expiry date of September 25, 2020.
The Option aligns IFR and IDESA's long-term strategy to build IFR into an energy leader in Mexico. Upon exercise of the Option:
