Pemex and Petrobras join forces to target ultra-deep oil formations in Campeche Bay

Mexico’s state oil company Pemex and Brazil’s Petrobras have formed a strategic partnership to explore ultra-deep Jurassic formations beneath Mexico’s Campeche Bay. The collaboration targets source rock formations that are miles deeper and eight times older than those currently producing in the U.S. Gulf. By combining their resources, the two Latin American giants aim to unlock significant oil reserves from a high-risk offshore environment.

The partnership leverages Petrobras’ two decades of experience in pre-salt drilling to mitigate the execution risks associated with the Mexican project. Petrobras has previously opened prolific offshore oil plays in the Santos and Campos Basins in Brazil, efforts that propelled the country into the top ten of the world’s biggest oil producers. The companies signed a memorandum of understanding in June to assess, develop, and jointly execute projects, including opportunities in exploration and production in deepwater and ultra-deepwater areas.

This initiative follows Pemex’s 2018 exploratory drilling, which penetrated the Campeche salt layer at a depth of more than 7,800 metres but was declared unproductive. Although Pemex has not publicly shared the geological results of that campaign, industry experts believe the company may have found something of great potential. Mark Rowan, a Colorado-based geologist and consultant, noted that the lack of an "absolute play-killer" in 2018 suggests there was a reason for Pemex to keep testing the area.

The move is critical for Pemex, which has seen output decline in recent years and has relied on government financial support to refinance its heavy debt obligations. In the second quarter, the company reported a net profit down by 70% from a year earlier, despite a rally in oil prices driven by the Middle East crisis. During that period, Pemex and its partners pumped an average of 1.66 million barrels per day of crude oil and condensate, falling short of the Mexican government’s target of 1.8 million barrels per day.

The targeted Jurassic formations present a complex challenge, as they lie much deeper and are significantly older than the formations in U.S. waters, where supermajors like Chevron, Shell, and BP have operated for decades. These U.S. Gulf operations currently account for about 14% of total U.S. crude oil production. While the risks in Mexican waters are higher, the potential rewards are substantial, with a successful discovery potentially opening a major new province of oil and gas.

A successful drilling campaign could significantly alter the financial trajectory of Mexico’s oil giant. By accessing these deep resources, Pemex hopes to reverse years of declining domestic production from legacy wells. The partnership represents a significant bet on high-risk, high-reward exploration, with the ultimate goal of stabilising Pemex’s fortunes and reducing its reliance on state bailouts.