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International Frontier Resources Corporation

Projects

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Mexico

Mexico is the ninth largest producer of oil in the world and the eleventh largest in terms of net exports. Mexico 's main upstream attraction is a potentially vast resource base. Pemex estimates that yet to be discovered oil & gas reserves could total as much as 115 billion barrels of oil equivalent, roughly three times as much as current proven, probable and possible reserves (3P). According to some preliminary estimates, investment needs will range between US$35 billion and US$100 billion over the next decade.

Mexico's historic energy reform announced in 2014 has established a new legal framework for Mexico's energy industry and is expected to attract the billions of dollars in foreign investment needed to revitalize Mexico's oil and gas industry. The Secretaria de Energia (SENER) has issued a five -year, four round tender plan (2015-2019) for the denationalization of 914 oil and gas blocks. IFR believes that there are a significant number of under exploited oil & gas fields in Mexico that will be issued in these bidding rounds.

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In August 2014, SENER began the bidding process for assets by announcing that Round One would include: (i) 169 blocks, comprised of 109 exploration blocks and 60 production blocks and (ii) 14 blocks under joint ventures with PEMEX. The tender process commenced in the first quarter of 2015, and license agreements were awarded throughout 2015 and into 2016.

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 ("Grupo IDESA").

This strategic JV enabled IFR to be the first foreign company to:

  • Drill onshore in Mexico within the bid round framework of Mexico's energy reform;
  • Drill onshore conventional oil in Mexico in over 80 years;
  • Reach total depth at its historic first well, TEC-10; and
  • Secure drilling authorization permits for the TEC-10 well.

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 Project

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, HIS 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. On May 7, 2018, IFR announced that its JV has successfully and safely reached total depth at its first evaluation well, TEC-10. The TEC-10 directional development well was drilled to the target depth of 2,453 meters (total vertical depth, TVD, 2,490 meters measured depth).

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.

TEC-10 Highlights

  • Encountered the top of the El Abra reef at 2,315 meters total vertical depth (TVD) and drilled 138 meters of gross reef thickness.
  • Wireline logs indicate 57 meters of the penetrated El Abra reef has above 3% porosity with an average porosity of 5.7%.
  • Multiple prospective intervals including a primary target interval in the upper El Abra with 13 meters of net reservoir with a porosity range of 6-18% (average 10.7% porosity). Tonalli is encouraged by the high porosity identified in the TEC-10 wireline logs. Furthermore, a visual inspection of the core taken from within this primary target interval has visible porosity and oil staining.
  • Three intervals in the lower El Abra had indications of oil while drilling and porosity values indicated on wireline logs of between 3-6%. The lowest identified interval is at 2,408 meters TVD which is 70 meters below the lowest produced interval at Tecolutla. It is encouraging to encounter oil indications deeper than originally expected in the El Abra reef. Ongoing completion operations are expected to determine the presence and deliverability of hydrocarbons at these deeper depths.
  • Commencement of completion and production testing of the TEC-10 well is expected in mid-May and will determine production rates and recovered fluid properties.

Continuing analysis of wireline, imaging logs and core analysis will be utilized to verify the above interpretations, characterize the El Abra reservoir, refine the 3D seismic model, and identify the further potential of the Tecolutla block.

Partnering to be the Next Energy Leader in Mexico

IFR, through its Mexican subsidiary Petrofrontera, and Grupo IDESA formed a 50/50 joint venture company in Mexico "Tonalli Energia, S.A.P.I de C.V." This agreement and formation of Tonalli Energia represented a significant milestone for IFR, allowing the company to enter the Mexican oil and gas industry in partnership with a leading Mexican downstream corporation. IFR believes that the combined strengths of the JV partners are complementary in the pursuit of building a successful exploration and production company.

Gaining Momentum

Through its JV, IFR has now entered the largest onshore bid round of the energy reform. Tonalli has registered and been granted access to the data room for the second tender of Round Three ("Round 3.2") of Mexico's energy reform by CNH. Please see the news release of May 9, 2018.



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