VANCOUVER (miningweekly.com) – The TSX-V-listed equity of oil and gas explorer International Frontier Resources (IFR) has gained about two-thirds this week after it announced on Thursday that it has received a drilling permit for its Tecolutla onshore oil and gas block, which it is developing with its Mexican joint venture (JV) partner Tonalli Energia.

The Calgary, Alberta-based company reported that Tonalli was granted the right to operate, develop and produce hydrocarbons at Tecolutla through a licensing contract with the Mexican government.

The Tecolutla block was awarded to Tonalli as part of the first round and third call of Mexico's oil and natural gas mature fields bid round (Round 1.3), the first in almost 80 years. Each of the blocks offered in Round 1.3 attracted multiple bids.

The producing carbonate oil reservoir in the Tecolutla block is the El Abra formation at a depth of 2 340 m. To date, 1.9-million barrels of oil have been recovered from four previously producing wells at Tecolutla. The wells at Tecolutla were drilled by Pemex between 1956 and 1972 and had initial production rates up to 473 bbl/d.

The proposed TEC-10 directional development well will be the first Tecolutla well to target new locations within the reservoir, drawing on recently obtained three-dimensional (3D) seismic data developed by the previous operator and has now been reprocessed by Tonalli.

“Based on our interpretation of the 3D seismic, we believe the Tecolutla field has been significantly underdeveloped,” IFR president and CEO Steve Hanson told Mining Weekly Online in a recent interview.

According to him, IFR has proven itself in Mexico. “Management has recently exercised warrants, showing its belief in the Mexican business model, especially because of the low-cost nature of the Mexican assets,” he said.

With permits in hand, and with no debt on the balance sheet, the company is now fully funded to see through the first phase of production. Hanson said the company is looking forward to capitalising on a smaller discount from Mexican oil production than what Canadian crude receives when compared with the West Texas Intermediate benchmark. He believes prices might fetch up to $12/bl more than Canadian crude, while the production costs are also significantly lower.

“One just cannot find assets like these anywhere else in North America,” Hanson advised.

NEXT STEPS
Tonalli intends to initiate its new Tecolutla development programme using modern drilling and completion techniques to increase productivity and recovery from the reservoir. Further, offsetting field data obtained by Tonalli in Round 2.3 indicated reservoir properties and well productive capabilities of the El Abra that increased its confidence in the economic viability of the Tecolutla block.

While awaiting the drilling permit, Tonalli has started construction of the infrastructure to allow services access to drill TEC-10, which includes completing a high-grade access road leading to the TEC-10 drilling location. This critical piece of infrastructure provides year-round access to the Tecolutla field and allows development of the asset.

Tonalli has also started initial site preparations after completing engineering and surveying of the TEC-10 drilling site. The site is designed to accommodate the central production facility in addition to four horizontal and directional oil wells.

IFR advised that potential production from TEC-10 will initially be trucked to existing Pemex facilities in the area. These facilities all have idle capacity, favourable usage terms and have historically accepted crude oil drilled at Tecolutla. As the Mexican crude oil marketing framework emerges, Tonalli intends to pursue new markets for its production. The company is already engaged in discussions to explore markets for its future production.

Further, the National Agency of Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA) has approved Tonalli’s administration plan, resulting in Tonalli being officially recognized by ASEA as an operating company in Mexico. The next step in satisfying ASEA requirements is to gain approval of the Industrial Safety Management System, Operational Safety and Environmental Protection, commonly referred to as the ‘implementation plan’. 

The implementation plan is an operations safety system manual used by Tonalli for oil and gas operations in Mexico. Tonalli and ASEA are working together diligently to finalise the implementation plan,” IFR advised.

IFR and Tonalli will provide an update, including a spud date, as further approvals are received.

IFR was one of the first foreign companies to participate in the historic reform of Mexico’s oil and gas sector. Last year, IFR assumed operatorship of the Tecolutla block from State-owned Pemex. Tecolutla was acquired through a 50/50 JV with Mexican petrochemical leader Grupo IDESA.