State Oil Giants Bet Big on Deepwater Drilling Off Mexico

State-owned energy giants Pemex of Mexico and Petrobras of Brazil are joining forces to explore high-risk, high-reward deepwater prospects in the Mexican Gulf of Mexico. The partnership aims to tap into ancient Jurassic source rock formations located miles beneath the seabed in the Campeche Bay. These target formations are significantly deeper and eight times older than the active producing fields in the U.S. portion of the Gulf.

While the geologic risks are substantial, the potential payoff is massive. In 2018, Pemex drilled an exploratory well more than 7,800 meters (25,600 feet) deep through the Campeche salt layer. Though the well was deemed unproductive and Pemex kept the geological data private, experts believe the findings were promising enough to prevent the company from abandoning the play. Geologist Mark Rowan noted that the results likely showed no “play-killer,” giving Pemex a strong reason to continue testing the area.

To mitigate the technical challenges and high costs of drilling beneath the salt layer, the heavily indebted Pemex has partnered with Petrobras. The Brazilian state firm brings over two decades of specialized experience from its highly successful pre-salt deepwater projects in the Santos and Campos basins, which helped elevate Brazil into the ranks of the world’s top ten oil producers.

In June, the two Latin American oil majors signed a memorandum of understanding to collaborate on strategic and technical initiatives, focusing on exploration and production in deepwater and ultra-deepwater areas of the Gulf of Mexico.

For Pemex, the stakes are incredibly high. The company has struggled with declining domestic production from legacy fields and remains burdened by heavy debt, requiring consistent financial support from the Mexican government. During the second quarter, Pemex and its partners produced an average of 1.66 million barrels per day of crude and condensate—falling short of the government’s 1.8 million barrel target—while net profits plunged 70% year-over-year despite strong global oil prices.

If the collaboration successfully unlocks these deep Jurassic reserves, it could establish a major new hydrocarbon province and reverse Pemex’s long-term production decline.