Mexico Oil & Gas Review 2021 by Mexico Business Publishing

2021

Introduction The Mexican oil and gas industry was not immune to the various challenges that have affected the sector globally since 2020. However, the industry has been greatly shielded against the worst of these circumstances thanks to its status as an essential sector. The Mexican government declared the oil and gas sector an essential economic activity at the outbreak of the COVID-19 pandemic in Mexico and decreed that its operations were to remain uninterrupted throughout the crisis. Major IOCs made significant commitments to their operations in Mexico despite the necessary delays they had to absorb as new health and safety measures were implemented and populations at risk were sent home to prevent contagions. Meanwhile, the sector’s regulators have also been able to clear the backlog that accumulated during the most difficult times of the pandemic when mobility and gathering restrictions were at their strictest, sometimes achieving faster response times with reduced personnel and fewer material resources. Thanks to these and other efforts, Mexico’s oil and gas value chain has remained productive throughout this uniquely difficult time in history. PEMEX has even started addressing the necessary reduction of its debt and the stabilization of its production levels. The government’s plans for the NOC remain as ambitious as ever — and the results in 2020 suggest these plans are feasible, having survived the worst and most unexpected of setbacks. Meanwhile, the legal resources that companies in the sector are using to protect their activities against sudden changes in the sector’s regulatory framework prove that rule of law in the Mexican oil and gas industry remains reliable. The industry has already seen enough positive results in 2021 to suggest that the worst is behind it. What remains to be seen is whether or not the arc of recovery and renewed growth can be completed by the end of this year. Mexico Oil & Gas Review 2021 focuses on the developments that defined the upstream segment, which was arguably the most challenged and also the most rewarded in 2020 and 2021. While the midstream and downstream sectors also achieved significant gains throughout this period, most of the attention was firmly on the upstream segment due in part to the government’s use of related metrics, such as production levels, to measure the degree to which it achieved its goals.

Table of Contents

Introduction

State of the Industry

Exploration & Drilling

Field Development

Production & Mature Fields

State of the Industry In 2020, and into 2021, oil and gas companies faced two dilemmas: absorbing the shock of the pandemic and evolving into the post-pandemic era. The challenges have been complicated by the varying levels of technology available to the upstream sector to implement remote operations and automation amid pandemic-related crew reductions. Further muddying the waters are oil price volatility and an uncertain regulatory landscape. Yet, despite the hurdles, the industry enjoyed exploration successes in the past year and finally pushed its technology adoption to greater heights. The sector’s digital transformation, in particular, had been on the table for years but the pandemic forced its hand, accelerating the process. With that, the industry finally executed a transformation that it had desired and planned for the last decade. Evolving into the post-pandemic landscape will come with its own challenges, and at the heart of that evolution is PEMEX and its future. The government is still pressing for the NOC to secure its position as the foremost company in the industry, despite its mounting debt. While the government’s efforts to support and prioritize the NOC through regulatory updates continue, global conditions, including oil prices, are looming over the company, putting pressure on PEMEX’s profitability and production volumes.

State of the Industry 7

Analysis Surviving Multiple Crises, Thriving in the Aftermath

Infographic Oil Contracts and Rounds

Expert Contributor Fluvio Ruíz Alarcón | Independent Oil and Gas Analyst and Former Independent Advisory Board Member at PEMEX

Conference Highlights Reading Between the Lines of Mexico’s New Energy Policies

View From the Top Rafael Espino | Independent Advisor to PEMEX

View From the Top Arturo Carranza | Energy Advisor at CFE

Conference Highlights Creativity Needed When Handling the Industry’s Finances

View From the Top Merlin Cochran | Director General of AMEXHI

Analysis Building A New COVID-19-Proof Industry

View From the Top Héctor Moreira | Commissioner at CNH

View From the Top José Luis González | Head of the Supervision, Inspection and Industrial Surveillance Unit at ASEA

Conference Highlights Risk Management, Compliance a Priority for All

Roundtable The Impact of COVID-19: Associations, Regulators

View From the Top Eckhard Hinrichsen | Mexico Country Manager of DNV

Spotlight A Case of Successful Streamlining in E&P Regulation

Conference Highlights Could Refining Be the Path to Profitability for PEMEX?

Content Links

State of the Industry | 7

Surviving Multiple Crises, Thriving in the Aftermath As participants in the oil and gas industry continue executing their plans for 2021, they can look back at the impossible odds faced in 2020 and take comfort knowing they emerged mostly intact, if somewhat scathed. It was not just COVID-19, however, although that had the biggest impact. In fact, the industry was already on the brink when the pandemic hit. The drama playing out in the sector was clearly evident when the price of oil turned negative in the spring, led not only by lower demand levels brought by the pandemic but also by a global production crisis that international organizations were still attempting to mediate. Mexico’s economy was hit particularly hard due to the role that PEMEX plays in its public finances. By the time the production crisis was coming to an end and after a politically contentious negotiation process, the government had to let Mexico join the list of oil-producing countries agreeing to a decrease in production for the sake of the market’s health. Even in the midst of the crisis, however, MBN experts pointed to an imminent recovery. “Everybody is affected by the crisis and it would be unwise for anyone to say they know the outcome. Unquestionably, there is huge competition now to gain a large part of the global energy market. This is happening in response to the impact that the rise of the US shale market had on global prices. What has happened is a direct expression of that competition and what I perceive, compounded by the effects of COVID-19, is a huge market overreaction,” said QRI Chairman and CEO Nansen Saleri in April 2020. However, not everybody was similarly certain. “Previous forecasts were made based on assumptions of a specific price for oil but this price has changed dramatically. As the dust settles, the industry will be able to reassess its position,” said Merlin Cochran, Director General of AMEXHI, in May 2020. By April 2021, Cochran had a clear-eyed view on the path to recovery that the industry had embraced: US$40 billion of approved investment and US$16 billion of executed investment, along with US$1 million invested in national

Oil and Gas Production in 2020-2021 (Mb/d, MMcf/d)

content, six resource discoveries 1,800

5,200

— Oil

— Gas

and a 40 percent increase in reserves. “Many people asked us about production levels but we

5,000

1,750

4,800

1,700

emphasized that approximately 70 percent of our members’ contracts are still in their exploration phase. We chose to highlight metrics that are not only more relevant given

1,650

4,600

the kind of development taking place in these fields but also due to the conditions imposed by the

2021/May

2021/Apr

2021/Mar

2021/Feb

2021/Jan

2020/Dec

2020/Oct

2020/Nov

2020/Sep

2020/Aug

2020/Jul

2020/Jun

2020/May

2020/Apr

2020/Mar

2020/Feb

1,600

2020/Jan

4,400

pandemic that affected 2020. Some figures included numbers on employment created by our members’ activities. Surprisingly, job numbers increased in 2020

Sources: Comisión Nacional de Hidrocarburos,

when compared to 2019.”

State of the Industry | 8

Cochran’s narrative has become a standard for the industry. An understanding has developed of the recovery that the industry experienced toward the end of 2020 and its advances to meet its goals in 2021. Most major operators have made it clear that 2020 might have changed certain points of their strategy but it did not change their positive outlook on Mexico. “One of the most important lessons that we learned was to improve the adaptability of our operational processes. We concentrated our efforts on protecting the health of our employees and contractors,” said Andrés Brügmann, Mexico Country Manager of Fieldwood Energy, in April 2021. This understanding of the industry’s recovery curve was not limited to the country’s major operators. The more independent service providers, whose collective support for the industry is indispensable, also found a path forward through the crisis. In May 2020, Kasoil Director General Jeimy Mathison already understood the adaptation process in terms of a positive outlook: “Despite the crises, we have been able to continue our work remotely through a variety of digital tools. In fact, through these new working methods we have been able to make our delivery times more efficient without increasing costs.” Saleri added: “I am convinced that the industry at large, not only in Mexico, has entered a new phase of efficiency. To simply have the intention of becoming efficient is no longer accepted. Companies and people must try to be efficient.” Both capital and operational efficiency require significant sophistication to analyze different alternatives, which cannot be done with conventional, pedestrian methodologies. “I am encouraged to say that the response we are receiving from PEMEX is that the company is eager to embrace the new generation of techniques and the new methods of doing business.” Despite the fact that companies in the industry have been able to restructure their activities to increase their resilience through these difficult times, it is also true that the actual recovery arc of the industry, in terms of market indicators, continues to be slow. “So far, the government has been able to fulfill its price commitment because, after the world oil market crisis of April 2020, demand has not fully recovered and international prices, which were down for several months, are just beginning to recover as the economy recovers too. The financial, industrial and operational difficulties of PEMEX Transformación Industrial have led to an accelerated loss of market share for fuels imported or produced by the stateowned company,” stated former PEMEX independent board member and current adviser to the Senate in matters of Energy Fluvio Ruiz Alarcón. Still, 2021 is certain to be defined by the successes of public and private organizations in the industry that had an opportunity to learn many lessons in 2020, according to Cochran. “The last time we had this price drop it was due to increased production from shale producers. When prices dropped, everybody thought that the shale industry was dead. Shale managed to thrive, but it did so within the new reality of oil prices. This is the same for oil: it will thrive but it must reinvent itself. It is time to seek new technologies and to apply Read the complete article More about this topic

them. This reinvention will not happen overnight, but as some of the industry’s foundations are now shaking, there will be many more opportunities to innovate.”

State of the Industry | 9

Infographic Oil Contracts and Rounds

107

Exploration and extraction contracts awarded

OIL ROUNDS

OIL CONTRACTS

38 1st round 50 2nd round 16 3rd round 3 associated

48 Onshore 31 Shallow water 28 Deepwater

76 Licenses 31 Shared production

State revenues accumulated through March 2021 (billion)

US$2.872

MAY 2021 PRODUCTION

51 Onshore

28 Deepwater

76 Licenses

32 Shallow water

35 Shared production

111

Investment accumulated through May 2021 (billion)

US$7.487

106 rounds

Current hydrocarbon exploration and extraction contracts

5 migrations

103 Contractual areas 3 Partnerships 1 Migration without partner 4 Migrations with partner

NUMBER OF BIDDER COMPANIES BY COUNTRY 1 Russia

Contracts in production phase

1 Norway 1 Germany

1 Netherlands 1 France

2 Canada

142.4

5 UK 8 US

Oil Mb/d

35 Mexico

2 Spain

3 Colombia

2 China 1 Qatar

1 Egypt

219.4

1 Japan

1 Italy

1 Thailand 2 Malaysia

1 Australia

Natural gas MMcf/d 2 Argentina

t the end of the last ordinary session, the Congress of the Union amended the Thirteenth Transitory Article of the Hydrocarbons Law. This article subjected “the firsthand sales of Hydrocarbons, Petroleum or Petrochemicals to

asymmetric regulation principles with the objective of limiting the dominant power of Petróleos Mexicanos (PEMEX), while a greater participation of economic agents is achieved to promote the efficient and competitive development of the markets.” According to the amendment approved by Congress, this article now establishes that since “a greater participation of economic agents that favor the efficient and competitive development of the markets has been achieved, the power granted to the Energy Regulatory Commission to subject to asymmetric regulation principles the firsthand sales of Hydrocarbons, Petroleum or Petrochemicals, as well as the commercialization carried out by persons controlled by Petróleos Mexicanos or its

State of the Industry | 10

subsidiary companies, is no longer in effect.”

Hydrocarbons Law: The Other Reform Fluvio Ruíz Alarcón Independent Oil and Gas Analyst and Former Independent Advisory Board Member at PEMEX

It also defines that the “sale carried out by Petróleos Mexicanos, its subsidiary productive companies, or a legal entity, on behalf and order of the State, will be considered as commercialization in terms of the provisions of this Law and its Regulations, for which reason the principles of generality and non-undue discrimination set forth therein must be observed.” Regarding the means, it is striking that if the material conditions were already in place to dispense with the asymmetric regulation of PEMEX, this article would not have been simply and plainly repealed. The first paragraph of the article in question could have been part of the statement of reasons for the repeal and the second paragraph could have been one of the transitory paragraphs of the respective decree. Something like this alternative route was done in the last legislation during the discussion of the economic package for 2017, when the Fourteenth Transitory Article of the same Hydrocarbons Law was repealed, with the purpose of advancing the process of liberalization of fuel prices. The argumentation to promote this reform was based on data summarized in the statement contained in the approved opinion, that the “competitors of the state-owned productive company have strengthened and have the capacity to cover 30 percent of joint sales of gasoline and diesel, a condition imposed to reverse the asymmetric regulation.” From a political perspective, the approved reform can be placed in the context of the following points of the “Presidential Memorandum” of July 22, 2020: + Maintain the policy of not increasing, in real terms, the price of gasoline, diesel, gas and electricity. + Stop granting permits or concessions to individuals in the energy sector. + Support PEMEX and CFE in the distribution of energy, so that they do not lose market share or become financially weak. The financial, industrial and operational difficulties of Pemex Transformación Industrial have led to an accelerated loss of market share for fuels imported or produced by the stateowned company.

In addition to containing this loss of market share suffered by PEMEX, the combination of the two reforms made to the Hydrocarbons Law last April, is also designed to give the federal government more room to maneuver in complying with its commitment not to increase, in real terms, fuel prices. In this sense, the restrictions on the granting of oil import and marketing permits to private operators, together with the elimination of asymmetric regulation of PEMEX, will strengthen the dominant position of the state-owned oil company in the fuel market, making it a more efficient instrument for moderating prices, in line with the government’s policy in this area. So far, the government has been able to fulfill its price commitment because, after the world oil market crisis of April 2020, demand has not fully recovered and international prices, which were down for several months, are just beginning to recover as the economy recovers too. In this context, the only direct mechanism available to the government to counteract the recovery of international reference prices is the “stimulus” to the IEPS. However, this tax subsidy would be limited in the event of a significant increase. The Hydrocarbons Law does not foresee the possibility of returning to a scheme of maximum prices established by agreement of SENER or SHCP. Article 82 establishes that gasoline and diesel prices in retail outlets will be determined according to market conditions (international prices). That mean that if the government wants to increase its capacity to comply with the presidential commitment regarding fuel prices, in addition to the reform made to the Transitory Thirteenth, the Hydrocarbons Law must be amended to provide for the possibility of the government setting maximum prices by agreement with SENER or CRE, without having to wait for the entire process established in article nine of the Federal Economic Competition Law, which grants such generic power to the Ministry of Economy, but only once COFECE has declared the non-existence of effective competition conditions. Another possibility would be to add an article 43 to the Law of Coordinated Energy Material Regulatory Bodies, so that CRE could intervene when it has evidence that the evolution of domestic fuel prices deviates significantly from that of international reference prices, as has been done in the past, but through the Federal Revenue Law, which by its nature only applies to a given fiscal situation. The objective would also be to establish mechanisms to prevent a drop in international fuel prices from generating extraordinary income for distributors, without such reduction being adequately reflected in final consumer prices. In any case, it is important to note that, according to the experience of recent years, in the face of a sharp increase in reference prices, the government has opted to sacrifice state revenues by subsidizing the IEPS on fuels, thus weakening public finances. In 2017, for example, due to the social reaction provoked by the so-called “gasolinazo,” the fiscal subsidies granted by the government to fuel consumption reached MX$70 billion (US$3.5 billion) which, in that year, was equivalent to the sum of the budgets of UNAM, IPN and the University of Veracruz. Read the complete article More about this person More about this company

It is worth asking how far should the government go in regulating consumer prices and what should be the optimal taxation to distribute the cost of the country’s energy security equitably?

Conference

State of the Industry | 12

Highlights

Reading Between the Lines of Mexico’s New Energy Policies John Padilla Managing Director of IPD Latin America

Yolanda Villegas Founding Partner of Oleum Servicios y Dictaminaciones

David Enríquez Senior Partner of Goodrich, Riquelme y Asociados

Rafael Espino Independent Advisor to PEMEX

exico’s regulatory framework remains unchanged, albeit not because of a lack of effort. With changes still looming over the industry, leading specialists discussed Mexico’s legal landscape, its context and what this means for the industry. “Constitutional

reforms have become less likely after the midterm election due to the difficulty of forming the necessary coalitions. However, we can expect that the attempt will be made nonetheless,” said Yolanda Villegas, Founding Partner at Oleum Servicios y Dictaminaciones. According to John Padilla, Managing Director of IPD Latin America, the main drivers of change behind the oil and gas industry are: the cancellation of asymmetric regulation in natural gas, modifications to permits of imported and exported energy products, changes to the Hydrocarbons Law, 700 protections in the energy sector, a decree from SAT regarding imports and exports of fuels, the announced creation of Gas Bienestar, the attempted Electricity Reform and SENER’s recent decision regarding the unitization of Zama. From an international perspective, however, the first cases of COVID-19 reported in China were the spark that triggered the current industry landscape, as these had an immediate impact on oil demand at a global level, said Villegas. The global context also had an impact on the industry’s legal circumstances throughout 2020. This included fluctuations in demand and prices spurred by the pandemic, coupled with the increasing urgency for an energy transition supported by the election of US President Joe Biden. The acceleration of this energy transition reshapes all incentives in the global energy market, explained David Enríquez, Senior Partner at Goodrich, Riquelme & Asociados. The problem at the moment is the disconnect between Mexico’s international commitments and the changes proposed by the current administration. “All of this government’s energy sector policies have been regressive and inconsistent with Mexico’s international climate change agreements, not to mention international climate change targets,” said Enríquez. For Rafael Espino de la Peña, Founding Partner of Fernandez, Espino & Asociados and Independent Adviser to PEMEX, however, the political handover that occurred in 2018 has to be analyzed considering the desire for institutional changes that strengthen PEMEX and provide Mexico with energy sovereignty. He highlighted the current increase in oil prices as an example of accomplishments achieved through current policies, especially given the positive impact that this will have on PEMEX’s operational

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flow. “Mexico has an energy deficit, which is what the new energy reform tries to fix. It wants PEMEX to watch over companies working in the country,” said Espino.

VIEW TOP State of the Industry | 13

from the

Q: How did you become an independent adviser to PEMEX? A: As a lawyer and businessman, I was a committed supporter of President López Obrador throughout his political career, including his three presidential campaigns. He knew I was the head of a number of administrative boards for the public and private sectors, in addition to my legal experience, which has been significantly focused on tax law and federal revenue. This experience is what I think made him consider me for PEMEX’s independent advisory board. I also have experience in public administrative finance and the structuring of treasuries, in addition to having experience with how these matters are handled in Mexico at the federal level. I also supported the president politically in my home state of Chihuahua. I believe I was chosen for this position given my extensive professional experience on fiscal matters, which are crucial to the health of PEMEX. Q: What are some of the most pressing issues the NOC needs to address? A: There is particular urgency for the NOC to increase its margins of profitability. After PEMEX was designated a productive enterprise of the state by the 2014 Energy Reform, this prioritization of profit was actually inscribed into the legal framework that governs it. However, inertia and antiquated

Rafael Espino

customs in its internal processes and protocols have prevented it from really adapting to this need for revenue. There is a social dimension to a lot of PEMEX’s operations that sometimes comes into conflict with better business practices. These conflicts need

Independent Advisor to PEMEX

to be resolved. In addition, operational efficiency is a pressing issue. My most important concern is to conciliate the president’s vision of PEMEX as a vehicle for energy sovereignty with the need to manage the NOC like a private corporation that should not be affected by political interests.

Fixing PEMEX’s Finances From the Inside

Q: Would you say PEMEX’s debt is or is not an insurmountable challenge? A: The key is understanding PEMEX’s tax regime. Despite years of promises to lighten the NOC’s fiscal burden, no such change has taken place. It is a confiscatory regime that goes beyond the company’s operational flow. PEMEX cannot develop conditions necessary to ease itself from its debt burden before its tax burden is restructured. Maintenance, exploration and production operations can benefit in the short term from the larger available investment funds that could result from a reduction in taxes. The magnitude of PEMEX’s debt is quite substantial but it is not insurmountable, especially when you consider that it is not coupled with a federal or sovereign debt of a comparable size. This means that there is space for the fiscal restructuring that would be necessary to allow the NOC some breathing room. The president has been explicit in his mandate for SHCP to support PEMEX. This support became available in 2021 when direct financial packages from the federal government went straight to SENER and PEMEX. The ultimate objective here is to take an oppressive debt and

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make it sustainable and comparable to that of other oil majors. PEMEX’s current debt costs Mexico a considerable amount of money; it needs to be turned into an asset that allows the NOC to operate under a normality that can increase its profit margins. This vicious circle can be broken.

VIEW TOP State of the Industry | 14

from the

Q: What is your general appraisal of PEMEX’s finances? A: Based on PEMEX’s latest financial reports, we can appreciate a degree of improvement in certain metrics and indicators. However, this does not mean that the NOC is fixing its overarching structural issues. PEMEX admits it is not yet on a path to fixing its central issue, which is its debt. In fact, total financial debt increased in the first three months of 2021 by 4 percent when compared to the last months of 2020. Until the NOC addresses this, it cannot tackle all the other problems it faces. This includes the relationships it has with its suppliers and service providers. If the NOC’s indicators do not improve significantly in the short to midterm, the governmental financial support it receives could become a money pit that threatens the integrity of public budgeting. It is debatable whether SENER’s transfer of more than $2.26 billion to PEMEX, which is to be invested directly in the Dos Bocas refinery project, could have been better spent elsewhere in an effort to support the country’s economic recovery after the pandemic. Q: To what degree can PEMEX significantly reduce its debt without reducing its production levels? A: That is the dilemma that the NOC finds itself in. This is what the credit rating agencies are talking about when they say that PEMEX needs to reexamine its business model. The message they are getting is that the NOC cannot meaningfully reduce its debt

Arturo Carranza

without greatly reducing its investment program or at least adjust it so that it is focused on the most profitable segments of the oil and gas industry’s productive value chain. This business model should be focused on the tools that PEMEX gained from the 2014

Independent Energy Advisor at CFE

Energy Reform, instead of ignoring those tools with the strategy that has been adopted since December 2018. The NOC’s current involvement in the industry’s value chain is inefficient. It is spread out in a way that results in a low-quality service offering that has less benefits for consumers.

Addressing PEMEX’s Future Roadblocks

Nevertheless, PEMEX’s strategy is producing some positive results. For example, national processing of crude oil at refineries is increasing. In 1Q21, production levels of oil products increased 42 percent when compared to 1Q20, which is a significant increase that highlights the government’s efforts to have a nationally productive industry that can provide energy sovereignty and independence. Another question to consider is whether these upward trends in production levels, whether upstream or downstream, can be maintained. Increases in oil production do not always correspond to increases in investment. One could even argue that investments so far have not resulted in the expected amount of production increases. In addition, calculating these figures is extremely difficult given the unique situation the oil and gas industry experienced over the last 12 months. Q: What other obstructions could occur in the future that could prevent PEMEX from maintaining a positive production trend? A: I believe PEMEX still wants to cover the entirety of the industry’s value chain on its own, despite the fact that these ambitions do not fit into its financial and operational realities. This leaves the NOC

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with two options: to focus its operation on specific segments and activities within the value chain that are best-suited to increasing its revenue, particularly in the upstream category, or to make its operations as efficient as possible using the tools that the Energy Reform provides.

Conference

State of the Industry | 15

Highlights

Creativity Needed When Handling the Industry’s Finances Rodolfo Rueda Ballesteros Houston and Mexico Partner at Thompson & Knight LLP

Arturo Carranza Independent Energy Advisor at CFE

Manuel Rodríguez Founder and Director General of Ainda Energía & Infraestructura

Lucas Aristizabal Senior Director, Latin America Corporate Ratings of Fitch Ratings

Over the years, oil and gas finances in Mexico have had a complicated connection to fiscal policies and public budgeting. One company that has struggled for many years, both in terms of its debt and investments, is PEMEX. Rodolfo Rueda Ballesteros, Partner for Houston & Mexico at Thompson & Knight LLP, emphasizes that the No. 1 concern is getting the NOC to escape its “rock and a hard place” situation caused by the combination of its elevated tax burden and its sky-high debt. PEMEX, however, is measured by the credit rating agencies in terms of its operational flows and debts, not its assets, says Manuel Rodríguez Arregui, Founder and Director General of Ainda Energía & Infraestructura. “Everything that PEMEX has received after the Energy Reform through assignments and Round Zero represented business as usual for them. But associations, farmouts and contract migrations to licenses that they control are a different kind of game,” says Rodríguez. According to Rodríguez, the NOC has a great deal to offer, especially if it develops new ways of interacting with the free market. “PEMEX has an advantage in the current market. It can participate in joint ventures, where it can be the main beneficiary, but not the only one.” PEMEX can also be much more creative regarding its accounting practices, using associations to move its assets around for financial convenience. Rodríguez Arregui suggests that PEMEX should get used to sharing responsibility and to develop projects with more stakeholders involved. “Nobody in the infrastructure sector undergoes a large-scale project with a sole stakeholder. So why should PEMEX? They are an infrastructure company too, at the end of the day.” Rodríguez believes the NOC has a bright future ahead simply because the demand for oil will continue. “Despite the increased use of renewable energy, oil will continue to be the main fuel.” Accordign to Lucas Aristizabal, Senior Director of Latin America Corporate Ratings at Fitch Ratings, the production decline has also been stabilized successfully by the government, especially where there have been new discoveries that make up for production declines at flagship mature fields like KMZ. Arturo Carranza, Energy Advisor at CFE, is not as optimistic about the NOC´s financial status, however. “PEMEX presents two challenges: its financial debt and its tax burden. These do not allow it to improve its performance, despite its efforts.” Despite the negatives, Carranza sees many opportunities with the incoming

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energy transition. “PEMEX must take advantage of it to increase investor confidence. This will be essential for its transition from a fossil company to a greener company,” says Carranza.

VIEW TOP State of the Industry | 16

from the

Q: What were the most positive aspects of 2020 for your members? A: It is important to evaluate the state of our industry at the end of 2020. Regardless of the pandemic, overall, the industry achieved important results: US$40 billion of approved investment and US$16 billion of executed investment. Almost US$1 million were invested on National Content. In 2020, the private industry presented six discoveries of resources and reserves have raised 40 percent. In fact, we hosted an event at that time where we talked to government officials, including senators, and explained to them the latest progress that our members have made with their projects and fields. Many people asked us about production levels but we emphasized that approximately 70 percent of our members’ contracts are still in their exploration phase. We chose to highlight metrics that are not only more relevant given the kind of development taking place at these fields but also due to the conditions imposed by the pandemic that affected 2020. Some figures included numbers on employment created by our members’ activities. Surprisingly, job numbers increased in 2020 when compared to 2019. We also have numbers regarding social impact and the benefits that originate from our members’ activities. Oil and gas contracts do not have strict stipulations or requirements when it comes to social engagement and community management, outside of local

Merlin Cochran

content requirements. I say this to illustrate the actions in support of social welfare that our member companies have undertaken are not the result of a need for contractual or regulatory compliance but because they understand that their long-term commitment

Director General of AMEXHI

to Mexico, especially in a year as difficult as 2020, needs to be expressed in meaningful ways. Q: What concerns your members?

The Light and Shadow of a Year Like No Other

A: One major concern was how to operate safely in this new normality brought on by COVID-19. Offshore platforms and vessels present unique environmental and spatial risks when managing personnel operations and activities, especially in regard to anti-contagion industrial safety precautions and protocols. Many of these workplaces can be quite confined, with recirculated air that creates additional risks for accelerating the infection rates in certain cases. To implement safety protocols as effectively as possible in offshore environments, we have partnered with state governments and port APIs. Entities such as SENER, CNH and SE have also played a significant role in doing the work necessary to make this possible. Long-term uncertainty is another prevalent concern. This is not only based on observations of our upstream subsector or exploration and production activities but also, we are seeing rules change in this industry in a manner that is worrying. Many of our members’ contracts carry 30-year terms, some even 50 years. For the most part, operators have some degree of visibility into the future in terms of strategy and decision-making, provided the rules of the game stay the same. The ROI time frames that our members are working with target the long-term, so they are understandably

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concerned about the changing policies and rules happening in Mexico’s energy industry. In this regard, I acknowledge the work of SENER, which has been receptive to addressing these concerns, as well as to our requests for transparency and further information regarding the government’s intentions and plans.

State of the Industry | 17

Building A New COVID-19-Proof Industry The beginning of the pandemic was marked by simultaneous challenges for the industry, of which COVID-19 was only one. However, as the government declared all hydrocarbon activities economically essential, it became clear that maintaining operational continuity past April 2020 and throughout the entire year in the midst of a pandemic would take a collective effort that would be unique in the industry’s history. José Luis González, who heads up ASEA’s Supervision, Inspection and Industrial Surveillance Unit, believes the agency was successful in adapting to an ever-evolving timeline: “At the beginning of the pandemic, we were told that all activity would be regularized by May at the latest. We all know normality was not restored by then. However, we began adopting online modalities and receiving all the training necessary to manage them,” he told MBN. ASEA’s existing and internationally compliant SASISOPA protocols established criteria that was analyzed to assess hygienic operational risks in a way that was applicable to situations created by COVID-19 in isolated offshore worksites. In a sense, ASEA already had weapons in its arsenal to battle the pandemic. All it had to do was align new guidelines and standards to these previously established bases. This also speaks positively to the preparedness of Mexican authorities in the face of this unprecedented global event. This, however, does have to be balanced with the actual results PEMEX delivered during the worst of the pandemic. The NOC was, at a global level, the company with the most COVID-19 contagions and the highest rate of COVID-19 mortality as it was unable to shut down its operations completely. By the end of August 2020, PEMEX was reporting 110 new COVID-19 cases daily, totaling 7,232 confirmed cases among the NOC’s workforce, out of up to 20,157 suspected cases that were reported, resulting in a contagion rate of 35.9 percent and 1,225 deaths. Of those who had passed away, 534 were retired, 385 were members of a worker’s family, 300 were onsite workers and six were external suppliers. PEMEX had a COVID-19 mortality rate of 16.94 percent. In August 2020, PEMEX also launched its “Phase 3” protocol, which entailed the disembarking of 3,094 offshore workers. By February 2021, however, all projects that had been suspended for any reason were reactivated, despite the fact that contagion rates were again rising at 17 percent. All home office protocols were concluded by April and even though progress was reported regarding PEMEX’s vaccination program, even the oil workers’ union issued official complaints that the NOC was not being forthcoming at the time with its sharing of information regarding its own internal COVID-19 bookkeeping. Private Sector Contributions For private operators to implement safety protocols as effectively as possible in offshore environments, AMEXHI partnered with state governments and port APIs. Other regulating entities such as SENER, CNH and SE have also played a significant role in doing the necessary work to make this possible. “Thanks to their efforts,

State of the Industry | 18

we have had the flexibility to implement these protocols,” added Merlin Cochran, Director General of AMEXHI. However, the larger historical question is, how successful were these collective efforts in terms of protecting the industry from the worst impacts of the pandemic and ensuring a steady recovery? Hermes Aguirre, Mexico Country Vice President of Halliburton, believes that one of the fundamental parameters by which the state of the industry can be judged is the rate at which the global economy is recovering. “Global COVID-19 policies, such as travel restrictions, had an enormous impact on oil and gas operations. But one recovery indicator for our industry is consumption and those rates are beginning to climb.” It seems that the industry is on its way to recovery and economic cooperation is accelerating this. Halliburton recognizes the government’s investments, financial status and national oil asset portfolio as Mexico’s defining element. Aguirre believes that thanks to this investment remaining steady throughout the pandemic, a degree of activity continued throughout 2020 despite difficult market conditions. “We successfully braved this difficult time by implementing protocols to keep workers safe while maintaining operational continuity. Fortunately, the ongoing fall of production levels eventually stabilized and reverted,” said Aguirre. Lessons Learned? A main takeaway from the pandemic is the further implementation of digital and remote monitoring and operational technologies. “A great deal of realtime monitoring technologies and systems had to be implemented so specialized knowledge would not be wasted. Operators are planning to accelerate their activities but they are also aware that they have to cope with a whole new landscape,” said González, highlighting that these technologies are not only necessary to prevent contagions but to achieve industry efficiency. This is crucial as drilling platform day rates for offshore operators, particularly those working on deepwater projects, are again hovering around US$500,000. Also, those platforms now have to adjust to longer offshore shifts, which have increased to 28 days from 14, plus any number of additional quarantine-derived delays for specialists from abroad. “All of this, plus new and strict hygiene protocols to prevent COVID-19 contagions, changes the economic logic of development plans.” COVID-19 did not create many problems but merely highlighted what already were existing concerns in the industry. “(The) digital transformation began before the pandemic and its main objectives have always been to increase client and customer satisfaction, not just to adapt to the needs dictated by safety measures related to COVID-19,” said Tania Cerda, Vice President of Marketing and Sales for Mexico and Central America at Schneider Electric.

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from the

Q: What have been the most important developments regarding natural gas production? A: I would like to say there have been many developments but, quite frankly, I have failed to see any substantial changes in the matter, especially in regard to incentivizing natural gas production. The question of whether or not the Texas winter snap resulted in a complete interruption of natural gas supply into Mexico is more complex than it seems; it is both true and not true. It is true because there was a degree of localized shutdowns but there was never a complete interruption of service as the media narrative seemed to suggest. What this tells us is that midstream infrastructure needs to be more appropriately distributed and diversified than we anticipated and that inputting national production into it might be more convenient than expected if a large enough effort is made to develop such production capabilities. However, there is definitely a new urgency to the subject of natural gas. I am hoping that this new urgency can lead us to a deeper debate about this commodity. In general, I believe Mexico’s institutions have yet to grasp the importance of natural gas. There is an inkling of an understanding but not yet a complete one. For example, there is a lack of fiscal policies that directly incentivize natural gas production. There is a general rejection of fracking and I believe

Héctor Moreira

that will have to be reassessed. Fracking in Mexico could take place according to a new extraction model, which would have to be more efficient, profitable and environmentally friendly than that used in other parts of the world. Nevertheless, the openness

Commissioner at CNH

to finding that new methodology needs to be here first. A willingness to debate the matter and invest in research are the first steps needed toward a future where Mexico can be selfsufficient in its natural gas supply.

CNH Maintains Criteria, Technical Standards Despite Pandemic

Some of the underlying legal issues need to be resolved as well. For example, the mining industry lobby in the state of Coahuila has paralyzed the efforts to tender areas for exploration. All of the unconventional richness of Texas has considerable geological continuity into Mexico’s northern states, so the resolution of legal controversies such as this one is essential, not just to tender areas for private operators but also to allow PEMEX to do its exploration and research work without external obstacles. Q: What have been the most important developments in terms of discoveries? A: I think there has been progress in this category. Private operators, in particular, have seen discoveries and exploration success increase significantly. As a result, reserve incorporation has become a much more important subject to tackle. We are seeing operators increase the scope and ambition of their exploration and development plans. 2021 has seen large investments as reflected by these plans. Many private operators are also reaching their production phases, which in turn can motivate the development of their exploration intentions. An

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example is Fieldwood Energy, whose proximity to production is also leading the company to increase its exploration investments. We are also seeing a great many reevaluations of areas that were previously thought to be depleted. These reappraisals are also producing positive results.

VIEW TOP State of the Industry | 20

from the

Q: What role has ASEA played during the pandemic as a regulator for the oil and gas industry? A: We were successful in adapting to an ever-evolving timeline. At the beginning of the pandemic, we were told that all activity would be regularized by May at the latest. We all know normality was not restored by then. However, we began adopting online modalities and receiving all the training necessary to manage them. These efforts allowed us to continue operating, executing evaluations and issuing authorizations. Now, these online modalities are quotidian and, for the most part, we have been able to maintain a reasonable continuity in our operations. During the worst times of the pandemic, we put together protocols that enabled us to open during certain days of the week and receive permit applications for the most demanding subsectors of activity within the hydrocarbons industry. Fortunately, this allowed industry entities to operate with legal certainty. Our regulation, inspection, supervision and surveillance departments were able to support operators throughout the industry’s value chain, from upstream to downstream projects, to make sure no shutdowns of their activities occurred. In that sense, I would say that we were a successful regulator throughout 2020. Q: What are the most important items in your agenda given the changes in leadership that the agency experienced in 2019 and 2020?

José Luis González

A: On March 1, 2021, we celebrated our sixth anniversary. We are considered the youngest regulator in Mexico, so we are experiencing a continuous learning curve. We are on our third

Head of the Supervision, Inspection and Industrial Surveillance Unit at ASEA

administration and on our third executive director. Our director’s agenda is simple: to keep our operations going. His main focus is to increase interdepartmental communications so that more projects can be addressed by the entire agency instead of by individual offices. He is also interested in addressing companies

A Framework to Maintain Industrial Safety Post-COVID-19

that might be experiencing anomalous incidents in their permitting and authorization procedures. In general, he wants us to target regulatory processes that were left inconclusive and that need to be addressed with updated standards and new procedures. Another focus is to broaden our channels of communications with companies and all regulated entities and stakeholders. Q: How was the regulation of the oil and gas sector affected by the federal government’s decision to prioritize its operational continuity as essential throughout the pandemic? A: We understood the centralization of the hydrocarbons sector because there was no other viable industrial engine for the country’s economy. At the same time, this fixation also represented a hard blow to the sector’s regulators. Industry personnel in all segments of its value chain, including myself, were vulnerable to COVID-19. Many experts had to be sent home as a result, and a great deal of real-time monitoring technologies and systems had to be implemented so that their specialized knowledge would not be wasted. This centralization meant that our regulatory services were equally in demand in all segments of the value chain and thus had to be equally applied; one segment could not become

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more important than the other. We could not execute inspections and issue authorizations faster for exploration and production projects than we did for fuel transport or retail. Slowing down on one segment created ripples down the road that halted production continuity. This all proved incredibly demanding.

Conference

State of the Industry | 21

Highlights

Risk Management, Compliance a Priority for All Benjamín Torres-Barrón Partner of Baker McKenzie México

Jose Bosch

he hydrocarbons industry has been subject to increasingly rigid standards in recent years. For oil and gas companies, this means finding the best way to comply with regulations while addressing their inherent risks. “It is not only upstream oil operations that should

prioritize these issues but the entire value chain of the industry,” says Benjamin Torres-Barrón, Partner at Baker McKenzie Mexico. The newest changes brought by the pandemic, have allowed safer operations and provided greater protection to personnel, says José Bosch, Director General of Oleum Energy. Bosch explains that it

Director General of Oleum Energy

has not been easy to understand Mexico’s regulation, especially

Eckhard Hinrichsen

in environmental and basic hydrocarbons matters. However, the

Country Manager of DNV México

Graciela Álvarez Chief Executive Officer of NRGI Broker

Rodolfo Alfonso Esquivel Director of Grupo Roales

Francisco Javier Hoces-Moral Director of International Consultancy at INERCO

authorities have implemented new mechanisms and frameworks to adapt to the challenges. “The authorities have been receptive and have been understanding about delays, giving us additional time to comply with new regulations,” Bosch says. In an interview with MBN, Eckhard Hinrichsen, Country Chair of DNV Mexico, says the pandemic has created new trends within the industry, such as remote inspection techniques that now have been fully accepted by clients and provide continuity to projects that otherwise would have been severely affected. “We expect that this will continue even after the pandemic is over. Risk analysis often requires multidisciplinary sessions and we are doing those remotely now, using special cameras. We have come a long way in how we go about these projects since the beginning of the pandemic.” ASEA is playing its part with an initiative to include not only operators in the regulations but also contractors and subcontractors. Graciela Álvarez, Chief Executive Officer of NRGI Broker, says this is critical to the industry as contractors often do the riskiest jobs. “The oil and gas sector is highly specialized. Processes require a great deal of risky work by contractors. If we are not careful, these can affect people and the environment.” Regulated parties are responsible for everyone who works with them. However, the implementation of a broader regulation is a better guarantee for all. “Even though operators have insurance that covers companies they subcontract, adequate risk management calls for even wider coverage to protect income. You never know when an accident will occur because of fragile equipment,” says Álvarez. Having a policy that covers the work that contractors will provide is the best way to mitigate risks, according to Esquivel

Alfonso Esquivel, Director of Grupo Roales. “As contractors, we have to standardize practices to raise the level of operation in this highly specialized sector. Also, we need to integrate more technology and have more insurance advisory.” Compliance with new parameters has created challenges within the industry, nonetheless. “The process of modernizing the regulatory framework was necessary but the authorization has caused problems and delays. It is important to be able to unburden that process,” says Hinrichsen. Authorities have asked operators to present their insurance policies, which is not a problem in itself, except for the deadlines that companies must comply with, explains Alvarez. Bosch adds that the policies that companies need are also not available in the market, making it difficult to be an operator in Mexico. The now infamous Eye of Fire incident in the Gulf of Mexico is an example of the importance of risk management and compliance. According to Hinrichsen, the accident caused no injuries and was contained within five hours. “Its impact appears to be minimal. However, it is necessary to analyze its environmental effects, as well as the systems present to see if they can be improved.” Hinrichsen says that an important consideration in these operations is that fields and resources change, so a structure that was implemented years ago will not be effective today. “Updating and maintaining the structures is key to avoiding these types of accidents,” he says. Alvarez also emphasizes that PEMEX should be careful with maintenance, processes and aging infrastructure so that it can protect the environment and prevent incidents. One helpful avenue are the new technologies that can improve performance and safety in operations, in addition to mitigating the impact and frequency of these accidents. “New technologies will allow us to change an old solution, which no longer adapts to the current opportunities and challenges of the industry,” says Esquivel. The integration of new technology for best practices based on staff training will also be key in ensuring compliance. “Technology gives us new dynamics for risk assessment and remote supervision,” adds Francisco Hoces, Director of International Consultancy of INERCO. Although Mexico has regulations and laws that force companies to better protect people and the environment, these have not necessarily been put into practice. The challenge is in enforcing them in daily activities, while taking advantage of technology to promote best practices within the industry. “These practices are coming to Mexico and we have the opportunity to improve our operations and avoid future problems,” says Hoces.

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State of the Industry | 23

The Impact of COVID-19: Associations, Regulators

Public sector authorities spent the majority of the pandemic coordinating a massive shift in direction for the entire industry. Entire new organizational strategies and cultures needed to be adopted, with minimal disruption and downtime, after President López Obrador announced that oil and gas activities would not cease. In the wake of these changes, leading voices, from federal regulators to industry associations, provide their unique perspective on what was lost, what was gained, what will need to be rebuilt from the ground up and what will need to be rethought completely.

Offshore platforms and vessels present unique risks when managing personnel operations and activities, especially in regards to anti-contagion industrial safety. Many of these workplaces can be quite confined, with recirculated air that creates additional risks for accelerating the infection rates in certain cases. To implement safety protocols as effectively as possible, we have partnered with state governments and port APIs. SENER, CNH and SE have also played a significant role in doing the work necessary to make this possible. Thanks to their efforts we have had the flexibility to implement these protocols. Long-term uncertainty is another prevalent concern. 2020 has made us question what role we play

Merlin Cochran Director General of AMEXHI

in the work of health and medical institutions, which have been strained tremendously. We are studying how our members can contribute and invest in these institutions.

Industry personnel in all segments of the value chain, including myself, were vulnerable to COVID-19. Many experts had to be sent home as a result, and a great deal of real-time monitoring technologies and systems had to be implemented so specialized knowledge would not be wasted. This centralization meant that our regulatory services were equally in demand in all segments of the value chain and thus had to be equally applied; one segment could not become more important than the other. We could not execute inspections and issue authorizations faster for exploration and production projects than we did for fuel transport or retail.

José Luis González Head of the Supervision, Inspection and Industrial Surveillance Unit at ASEA

Slowing down on one segment created ripples down the road that halted production continuity. This all proved incredibly demanding. Operators are planning to accelerate their activities but they are also aware that they have to cope with a whole new landscape.

We are institutionally mandated to follow SENER’s decisions and, in that sense, we have been successful. Evaluations and permitting have continued normally. While SENER continues to mediate PEMEX’s exploration and production plans, our responsibilities remain the same. Permitting needs have increased during the pandemic and there has been a tremendous amount of activity for all upstream operators throughout this difficult time. The drilling of wells and the execution of assorted exploration and development tasks has increased. The authorization of new superficial exploration studies, in the geological, geophysical and geochemical categories, has

Alma América Porres Commissioner at CNH

increased in the past two years despite the global circumstances. Special agreements had to be reached with all operators so that delivery dates could be delayed due to the pandemic.

State of the Industry | 24

Many service providers and contractors found themselves entering dry periods and many operators delayed their plans. CNH allowed a first period of suspension of terms for 124 days to the contracts that had associated compliance with mandatory activities so they could execute them. Later on, as we realized that the pandemic was going to last much longer than everyone expected, a second period of 90 days was implemented. We began implementing broader flexibility when it came to delivery dates. It is important to highlight that no plans were modified as a direct result of the pandemic, apart from the delays. Our

Héctor Moreira Commissioner at CNH

evaluation criteria and strict technical standards did not change. Dates and investment volumes needed to be considered in a new context but technical specs had to be kept at the same level.

Prior to the pandemic, the fuel retail sector was extremely reliant on not just location but the broader concepts of locality and localization. There were overwhelming physical and geographical aspects to the relationship between service station managers and their suppliers. Our members were concerned that the pandemic would terminate new business, since their relationships with their customers migrated to a remote modality that their standing business practices could not support. In that sense, we are proud to have switched to digitalized platforms. As we enter the second year of the pandemic, digitalization is extremely common in all

Andrés Gutiérrez President of AMPES

industries, since it has been accelerated by these circumstances. Nevertheless, the process of adopting these practices was much more complicated for us.

Like many other associations, one of the items that is at the top of our agenda is what will happen to the Mexican Petroleum Congress (CMP). The next CMP had been scheduled for June 2021 but we realized that we could not guarantee the safety of all attendees by this time, given how the pandemic grew in strength. The decision was made to once again delay the event to late November 2021. This forum gives us the opportunity to share experiences and knowledge among members of similar associations. It is also a great introduction to the industry for students and aspiring geologists. If the event cannot be held

María De Lourdes Valdés President of AMGP

in November due to a lack of safety protocols, we are fine with delaying it once again to 2022. The safety of our members and of all attendees is paramount.

To be honest, our most pressing matter right now is taking care of the association’s financing resources. Our main source of income is the Mexican Petroleum Congress (CMP), whose funds have been heavily affected by the pandemic. We expect finances to return to normal levels in 2022, at the earliest. Another issue that became increasingly relevant for us during the pandemic was the safety of our members. We are using this time to generate educational material and organize workshops to generate alternative income. We also want to focus on educating young physicists on the value of promoting sustainability at worksites and the sectors they work

Gerardo Clemente Martínez President of AMGE

in. We have to keep in mind that the association’s member pool is aging; the average member’s age is above 40. This is why student outreach and the creation of student chapters is so essential.

VIEW TOP State of the Industry | 25

from the

Q: What is the significance in carrying out a Frame Contract for different type of risk analysis for PEMEX PEP? A: We have been in Mexico for 25 years and have always offered risk analysis services. For the past 15 years, we have also worked with PEMEX PEP, under different umbrella contracts. However, these contracts covered specific regions and areas. This new contract covers all of PEP’s installations, which include the entire country, onshore and offshore assets. This is a huge scope of PEP installations and will require strong logistics planning. There is a great deal of work to be done here, as risk analyses need to be updated every five years as is required by SEMARNAT. Some installations are coming close to that five-year period so must be reviewed quickly. There are also some ASEA requirements involved, including well design assessments that are needed for their drilling permits. There is a wide variety of work to be done in parallel and that will be quite demanding. When we enter a new geographical region, we automatically look for opportunities within them and try to maximize these contracts whenever possible. Q: How will DNV carry out classification, verification and independent analysis of BHP’s Trion FPU? A: The Trion farmout is pioneering in what is the first partnership

24ch Interviewee Eckhard Hinrichsen Named

of this kind between PEMEX and a private company, as well as the first deepwater development in Mexico. It made important news when it was signed and now it is coming to fruition. Our involvement comprises classification, verification of the topside

Position 79ch Max - lksd dunturem andio Mexico Country Manager of DNV plaborias auda dolorehentd kjhdsa kjsad

systems and independent analysis of the whole unit. This will include revision of the hull, as well as navigation and safety systems. This will be done with colleagues from the maritime business area of the company. Meanwhile, the oil and gas specialists will verify and certify the topside installations and offer

DNV Goes Back to Its Roots, Shifts Outlook

independent analysis of the FPU. The hull will be constructed in Asia and a pre-FEED competition is underway at present. This will decide the contractor and construction location. The type of FPU units that will be used are quite new in Mexico so we are excited to learn from the entire process. The main regulator is ASEA and DNV Mexico is approved as a Third Party for these types of project. But then there are various NOMs that will apply, and we will ensure that BHP is compliant. Some of these NOMs are old or even obsolete and they have not been written with deepwater in mind, so this poses a challenge. Our expertise in Mexico will help BHP, which only arrived in the country following the Energy Reform, to be aligned with all regulatory requirements. Q: What trends have you seen since the pandemic started? A: Remote inspections techniques that we developed even before the pandemic started have now been fully accepted by our clients and provided continuity to projects that otherwise would have

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been severely affected. We expect that this will continue even after the pandemic is over. Risk analysis many times requires multidisciplinary sessions and we are doing those remotely now, using special cameras. We have come a long way in how we go about these projects since the beginning of the pandemic.

SPOTLIGHT

State of the Industry | 26

A Case of Successful Streamlining in E&P Regulation One of the regulatory instruments issued by ASEA to regulate and supervise industrial and operational safety and security, along with environmental protection, hydrocarbon exploration and production, is the legal package known as the “Hydrocarbon Exploration and Production Guidelines.” These guidelines include 19 procedures that must be completed, divided into two sequential modalities: three must be completed as “Commencement of Activity Announcements” and the other 16 as “Operational Change Announcements.” These requirements were later changed with the “Modifying Agreement to the Hydrocarbon Exploration and Production Guidelines,” which was the result of incorporating both the concerns of operators and also the experiences of ASEA working with those operators. The “Modifying Agreement to the Hydrocarbon Exploration and Production Guidelines” calls for the obligatory completion of only eight procedures, also divided into two sequential modalities: two “Commencement of Activity Announcements” and six “Conclusion of Activity Announcements.” These procedures improve delivery dates to the benefit of operators and reduce the number of unnecessary requirements. The original guidelines also called for a “Risk Analysis Technical Dictum” and an “Engineering Technical Dictum” to be submitted for each well. However, in the modified agreement, ASEA recognizes important differences in processassociated risk and engineering that depend on the type of well. Considering this, the modified Read the complete article More about this company

agreement only requires that technical dictums be submitted for exploratory, model, deepwater and ultra-deepwater wells.

Conference

Highlights State of the Industry | 27

EMEX is ramping up its efforts in refining to achieve the government’s goal of energy security in Mexico. Whether or not the NOC can be profitable in this new role will depend partly on balancing the economics of various refinery projects, says independent oil and

gas analyst and former Independent Advisory Board Member at PEMEX Fluvio Ruiz Alarcón. During its first years, “PEMEX’s stabilizing development focused on supplying the domestic market in an abundant and timely manner,” explains Ruiz. For this reason, the NOC only exported marginally. Meeting internal demand was its main objective. This situation changed in the 1970s when Mexico began to rely more on exporting crude to maintain its economic models and imported refined gasoline instead. The oil shock in that decade played an important part in this development. The concept of extractivism, the act of extracting natural resources to sell them on the global market, began gaining strength. “Over time, PEMEX became the main source of tax revenue for the government,” says Ruiz. As the 2014 Energy Reform began gaining steam, extractivism reached its peak, explains Ruiz. Getting as many resources out

Could Refining Be the Path to Profitability for PEMEX? Fluvio Ruiz Alarcón Independent Oil and Gas Analyst and Former Independent Advisory Board Member at PEMEX

of the ground as possible appeared to be a main objective. “The Energy Reform focused on rent-seeking, nonstrategic refining. In addition, the law establishes asymmetric regulation,” says Ruiz. Rent-seeking was defined by Mexico’s new focus to gain money from rent fees rather than through using its own production to accumulate wealth. The Hydrocarbons Law subjected PEMEX to an asymmetric regulation, allowing private players to gain more prominence, shifting the balance away from PEMEX. Trying to establish a free market in the oil and gas sector was not a great success, Ruiz argues. The promised wealth and development the reform touted did not came to fruition. “In general, I would say that the Energy Reform was necessary but its implementation ended up being needlessly aggressive toward the productive enterprises of the state,” says Ruiz. With the entry of the López Obrador administration, a new vision for Mexico’s oil and gas sector began to take shape. “Today, we see PEMEX being positioned as the core and center of the oil and gas sector. It seeks to regain its self-sufficiency in fuels and bet on projects like Dos Bocas and Deer Park,” Ruiz said. PEMEX is once again meant to become the cornerstone of the sector in the government’s mission to establish energy security and become self-sufficient in fuel. To this end, the government seeks to boost the country’s refining system. The new Dos Bocas refinery and the acquisition of the Deer Park refinery in the US are key to this mission. Revamping Mexico’s six existing refineries will also be important but attending to all six appears to be off the agenda. “Reconfiguring three of these refineries has been dropped from the discussion, which I think is a mistake,” Ruiz says. Since most of Mexico’s oil is heavy crude, Mexico’s refineries would need to be reconfigured so that they can refine this straight away to save costs. Refining should add value but if the economics are not balanced correctly, the process can end up costing money.

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Mexico’s fiscal policy toward trying to balance consumer prices would have to be examined as well. “They should go together but not be as unbalanced as they have at times,” says Ruiz.

Helping Industries Adapt to Imminent Transformation Tania Cerda Vice President of Marketing and Sales for Mexico and Central America at Schneider Electric

Managing Old Risks in New Circumstances Michael Günther Senior Vice President and Executive Director of Marsh JLT Industry Specialty Mexico

Growing in the O&G Sector During These Times of Uncertainty César Vera CCO of Naviera Integral

Is Sustainable Energy Really an Option for Everyone? Warren Levy CEO of Jaguar E&P

Mexico’s Dilemmas in Facing the Energy Transition Fernando Cruz Galván Director of the Energy Segment at Kannbal Consulting

When Will the Opportunities in Hydrocarbons Emerge? Alfredo García Mondragón Executive Managing Director of SIETE ENERGY

A Year of Changes Guido Van Der Zwet General Manager of iPS Powerful People

Origins of the Hydrocarbon Law, Part 1 Rajan Vig Founder of Indimex Marketing and Trading, LLC

Diversification, Future Outlook Key to Wood’s Strong Performance Antonio Villaluenga Manager of Wood

Industry Giant Blazes Downstream Path Alejandro García Fuels Marketing Manager of ExxonMobil

Exploration & Drilling Exploration success was the prominent silver lining in the past year for the Mexican oil and gas industry. A record number of exploration and development plans were approved by CNH while those plans approved and executed in 2019 achieved significant results. In 2019, the Mexican side of the GOM became the most explored oil and gas region in the world. This milestone translated to enormous dividends in 2020, with the average rate of exploration findings two digits above the global average. A significant number of these successes took place in deepwater regions, which are among the most unexplored areas at a global level. The findings renewed interest in the possible treasures held within these basins while at the same time highlighted the future of Mexican deepwater development beyond PEMEX. The NOC also enjoyed significant exploration success, netting two major onshore discoveries, one in 2020 and another in 2021. This success lays the foundation for further investment in similar exploration campaigns. With each success, the nation’s knowledge of its own geological richness increases exponentially. Thanks to the involvement of CNH throughout the entire exploration pipeline, Mexico generates collective benefits through the commercialization of its data, the capitalization of its exploration market and the increasing interest generated by its prospective resources and reserves.

Exploration & Drilling

Analysis A New Era of Discoveries

View From the Top Alma América Porres | Commissioner at CNH

View From the Top Rossy Pérez | Mexico General Manager of Beicip-Franlab

Analysis Deepwater Continues on Track

Conference Highlights Potential Surpasses Challenges in Deepwater

View From the Top Emry Hisham Yusoff | Mexico Country Head of PC Carigali (PETRONAS)

View From the Top Pedro Regino | Mexico Country Manager of Fugro

View From the Top Lazaro Sousa | Mexico Managing Director of Gulf Marine Contractors Manuel Hesse | Corporate Adviser at CrossDock Supply

View From the Top Jose Ferreira | Business Development Manager of Yinson

Expert Contributor Niels VersfeldVCEO of Simmons Edeco

Spotlight Schlumberger: 85 Years of Operational Excellence in Mexico

Conference Highlights Results-Focused Exploration Technology, Innovation

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A New Era of Discoveries Despite the Mexican oil and gas industry’s rocky journey throughout 2020, exploration activities exhibited not only resilience and continuity but also historic success. PEMEX strengthened its reserves past investors’ expectations, while private companies proved their contribution to domestic oil and gas exploration and eventual production. PEMEX’s Success PEMEX’s latest report to Congress said the NOC had increased its 1P oil and gas reserves for a second year in a row, with a total of 7,382MMboe added to its portfolio from Jan. 1, 2020 to Jan. 1, 2021, which represents an annual increase of 4.8 percent, according to the report. PEMEX Director Octavio Romero wrote in the report that these numbers represented “a reserve-production relationship of 8.7 years for 1P reserves.” Most of this increase in 1P reserves came from the Ixachi, Kayab, Pit, Onel and Xanab fields, while reductions in reserves came from the Ayatsil, Julo-Tecominoacan and Xikin fields. By comparison, 1P reserves increased by 1,019MMboe in 2019. The achievements came despite the NOC’s significant debt burden, which limited its investment in exploration activities. In fact, this limitation is what originally led Moody’s to state that it was unlikely that PEMEX reached a reserve replacement rate of 100 percent given the NOC’s “lack of investment strategies and appropriate cash flow, coupled with a weak market affected by various global crises.” These results put PEMEX’s reserve replacement rate at almost 120 percent, blowing past Moody’s forecast. Additionally, 2020 and 2021 saw significant discovery announcements. Among the main ones was the entirely new field of Quesqui announced in 2020. In 2021, PEMEX and President López Obrador celebrated another discovery at the onshore well Dzimpana-1 that is expected to contribute between 500MMboe and 600MMboe to PEMEX’s reserves and production levels. The newly discovered field is located in the areas of Valeriana and Racemosa, Tabasco. Its development could potentially result in the ground-up construction of infrastructure that would eventually amount to an entirely new oil production complex. Impact Whether these discoveries represent a positive addition to PEMEX’s portfolio or if the degree of investment that they need will end up turning them into burdens, more than assets, is still to be defined. The discoveries in Quesqui and Ixachi do have the advantage of being onshore discoveries located in close proximity to existing PEMEX infrastructure, so the degree to which drilling success can translate to productivity through a relatively fast and efficient transition timeline is ample. While PEMEX’s major draws in terms of day-to-day production remain in flagship fields in the Campeche Basin, the rate of depletion in these fields is accelerating. Ku-Maloob-Zaap’s mature and depleted nature has now reached the same status as Cantarell seven years ago. A transition to a majority onshore production portfolio could greatly benefit the NOC in terms of efficiency, considering these exploration and drilling successes are not complicated by high pressure, high temperature wells proving too challenging.

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Given its financial status, PEMEX’s priorities should be in finding fields and reservoirs with the potential of lowering the cost per barrel extracted to levels that are eventually comparable to those of Ku-Maloob-Zaap and Cantarell. This is especially true since fewer barrels will be entering the international market as more are fed into the national refining system and other downstream processing facilities for the purpose of national self-consumption. According to Rafael Espino, Independent Adviser to PEMEX during the López Obrador administration, PEMEX has accomplished a great deal in terms of efficiency, getting the price for each barrel extracted down to US$14 in some cases. “This will drive its profitability to even higher levels.” By focusing on production levels and national consumption, the government is prioritizing a direct capitalization in the nation’s own currency that reduces the negative impact of the exchange rate. The president wants to stabilize national production levels around 2MMb/d, while prioritizing exploration and production projects that can boost profitability and continue reducing the average price for extracting each barrel. As Espino highlights: “Increasing production is only important when each barrel is worth more to the company.” Private Sector Contribution Private operators also generated value through exploration activities. One of the more emblematic came from a company already famous for being the first private offshore producer in Mexico in almost a century: Eni. CNH approved the company’s multimillion-dollar exploration plans to extend its search of the Saasken field at the end of 2020. The discovery the company announced in February could hold up to 300MMboe. CNH approved the exploration plan modification, which allows Eni to invest approximately US$126.71 million to widen the reserve potential from Block 10, located in the Cuenca Salina area of the Sureste Basin. There are two areas with potential that Eni could drill within Block 10: Sáasil and Sinaán. Following the company’s characterization work, four other prospects have been named: Celestún, Sayulita, Holbox and Mazunte. There is a 39 percent chance of success finding light oil at the prospects, the drilling of which will be decided either in 2021 or 2022. Exploration success came from steady private investments in Mexican projects throughout the pandemic. As Merlin Cochran, Director General of AMEXHI, explained to MBN: “Regardless of the pandemic, overall, the industry achieved important results: US$40 billion of approved investment and US$16 billion of executed investment.” Cochran highlighted that while the president and other public officials have impatiently demanded private operators increase their production levels, 70 percent of their members’ contracts are still in their exploration phase, where they have demonstrated tremendous success. Even operators famous for being close to their production phase tallied up significant exploration achievements. Timothy Duncan, CEO of Talos Energy, said that although he remains focused on Zama, which is a generational asset that will ultimately provide decades of production and cash flow once it comes online, that project is only one of numerous potential catalysts for the company’s operation in Mexico. “We recently announced a major discovery in the US Gulf of Mexico with BP and Chevron.” Read the complete article More about this topic

According to Duncan, Talos Energy will aim to enter more projects like that in the coming months that could result in significant discoveries.

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from the

Q: What were some of your most important experiences as CNH regulator in the midst of the challenges in 2020? A: We were able to maintain normal functioning within our role and responsibilities as a regulator, given the circumstances, and when we consider that we cannot assume an authorship role over Mexico’s hydrocarbon policy. We are institutionally mandated to follow SENER’s decisions, and in that sense, we have been successful. Evaluations and permitting have continued normally. While SENER continues to mediate PEMEX’s exploration and production plans, our responsibilities remain the same. Permitting needs increased during the pandemic, and there has been a tremendous amount of activity for all upstream operators throughout this difficult time. The drilling of wells and the execution of assorted exploration and development tasks has increased. The authorization of new superficial exploration studies, in the geological, geophysical and geochemical categories, has increased in the past two years despite the global circumstances. Special agreements had to be reached with all operators so that delivery dates could be delayed due to the pandemic. We expected onshore exploration to be the area most affected in terms of delays, but the impact was more generalized at the

Alma América Porres

end of the day. Q: What were the key success factors that defined the increase in discoveries during the pandemic?

Commissioner at CNH

A: It is important to note that exploration activities were an important part of the overall agenda in the years before the pandemic, and this gave us a solid base to continue our successes throughout 2020 and 2021. If we go back to 2019,

Exploration Activity Surpassing Limits, Boundaries

around 101 exploration plans were approved that year. Twelve appraisal programs were also approved. In this case, an appraisal program is comprised of studies that appraise the reservoir and are focused on delimiting the well and its resources. In 2020, 66 exploration plans and 10 evaluation plans were approved. So far in 2021, 22 exploration plans have been approved, including modifications to previously approved plans, plus seven approved appraisal programs. This means that between 2019 and this year, we have approved a total of 189 exploration plans and 29 appraisal programs. This is an industry that has simply not stopped working throughout this time. The discoveries that defined 2020 and 2021 cannot be understood outside of the context of all previously approved exploration plans, which speaks to the importance of our industry as an ongoing process. Exploration plans included the drilling of 29 deepwater wells, which focused mostly on private operators. A total of 81 shallow water wells are to be drilled as part of these plans, 56 of which came from PEMEX entitlement areas and 25 came from contractual areas with private operators. Additionally, 140 onshore wells are also to be drilled as part of these exploration plans, 72 of which came from PEMEX entitlement areas and 68 that came from contractual areas with private operators.

We need to consider the question of how many of these wells have actually been drilled. In 2019, 147 total wells were authorized to be drilled. 53 of those were drilled in 2019, 56 in 2020 and 38 in 2021 so far. This shows that despite operational delays, the industry has continued to work to fulfill its goals and has generated an immense amount of activity as a result. Fourteen deepwater wells have been drilled already, representing significant investments, all of them drilled by private operators. PEMEX, despite its limitations, has drilled 40 shallow water wells and 40 onshore wells, while private operators have drilled 11 shallow water wells and 42 onshore wells. Throughout this drilling, the rate of exploration success has been quite astonishing: our average is at 54 percent. This figure is incredibly high when you consider that the global average for deepwater activities, for example, is around 30 percent, which is already considered significantly high. In Mexico, we are looking at an average drilling success rate for deepwater activities of 56 percent. If we distribute that average between PEMEX and private operators, PEMEX has an average drilling success rate in shallow water, its main area of expertise, of 62 percent, while private operators are maintaining an average of 44 percent. In onshore wells, PEMEX’s average is at 50 percent while private operators’ average is at 60 percent. Q: What do you expect the future value of Mexican geological information will be and what will be the CNH’s role as an arbiter and authority regarding that data? A: When we ask ourselves where our oil and gas will come from in the future, the current political agenda would seem to suggest that our efforts will be directed toward conventional resources in shallow waters and onshore areas, despite the great richness of deepwater and unconventional resources we possess. This is not necessarily a misdirected strategy if we consider that fossil fuels are supposed to be globally phased out to some significant degree by 2050. Mexico’s energy matrix is too heavily focused on hydrocarbon resources. Natural gas could be our bridge to the energy transition but that would also require a strategic plan for natural gas asset development in all categories, in addition to the infrastructure development that we would require to become self-sufficient in this regard. A plan for natural gas extraction would need to consider unconventional resources. In the end, Mexico is the biggest beneficiary in how the value of that data has evolved. Three years ago, the country that gathered the most information concerning its hydrocarbon regions was Mexico. This included the acquisition of new geological, geophysical and geochemical data. As a result, this created an enormous collective benefit, despite the fact that a large degree of it was gathered by private companies, thanks in part to the industry’s regulatory structure through which this information comes through the CNH. Sharing this Read the complete article More about this person More about this company

information with us is one of the most important commitments that private companies operating in Mexico make. We expect to continue to play a significant role in the management of this information, thanks to the centrality granted to us by the industry’s legal framework.

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from the

Q: What role is your software suite playing in the development of exploration campaigns authorized by CNH throughout 2020 and early 2021? A: Beicip-Franlab has developed multidisciplinary technologies and methodologies allowing to define new plays and prospects and to reduce risk in exploration. Our software solutions for Petroleum System modeling TemisFlow or stratigraphic modeling DionisosFlow have become industry standards and are widely used around the globe to evaluate the oil and gas potential of sedimentary basins. They are the tools that allow Beicip-Franlab explorationists to ‘think differently’. From 2020 we have focused more on helping our clients in Mexico to implement and use DionisosFlow solutions in exploration, field development and reservoir projects. Our Beicip-Franlab consultants have a widely recognized experience in regional exploration around the globe. We would also like to highlight that our experts have practical experience in a very large number of basins and plays around the world. This experience is constantly enriched by new studies, incorporating the most recent data and applying new methodologies. It is important also to highlight that our regional exploration studies have gained a reputation for excellence around the world. Our track record includes a large list of oil and gas discoveries made by our customers and

Rossy Pérez

successful promotion studies carried out for governments. Q: How have you de-risked exploration for operators in Mexico during the last 12 months?

Mexico General Manager of Beicip-Franlab

A: In exploratory matters, we have focused on the reclassification of prospective resources into reserve. Meanwhile, in production matters, our focus is on the increase in the recovery factor of fields. In particular, it is necessary

Adapting Flagship Exploration Technologies to New Realities

to increase the application of improved recovery methods in mature fields and take advantage of the tools offered by the Energy Reform and inside the operator’s contracts to develop the potential in deepwater and ultra-deepwater, in extraheavy oil reservoirs and other reservoirs. To face it successfully, a great effort will be required to increase execution and investment capacity, adopt the best practices in risk management involved in investments and use the most appropriate technology for the exploration and exploitation of new reservoirs. The adequate exploration and sustainable extraction of hydrocarbons that belong to the nation represents an opportunity for economic development as well as a benefit for Mexicans, since it is intended to expand the energy supply at competitive prices. Q: As the industry adopts a more sustainable approach, where do you see Beicip-Franlab adding the most value to the industry? A: Beicip-Franlab is working on an aligned strategy together with the IFP Group in a new strategy to be involved in a

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working consulting group that will be supporting our current and future clients focused on developing and accelerating R&D and technology innovation on specific domains related to Energy Transition. The working group is formed at a management level by Beicip-Franlab, IFPEN, Axens and IFP.

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Deepwater Continues on Track Hopes that deepwater operations would gain in relevance have been a part of Mexico’s oil and gas industry since the passing of the Energy Reform. When President Andrés Manuel López Obrador announced his intentions to divest PEMEX from these activities, he appeared to shoot down these ambitions. That now seems an erroneous assumption. Deepwater drilling activities ramped up in 2020, even with the pandemic, with a record number of exploration plans approved by CNH. Almost half of all of Mexico’s conventional prospective resources are contained in deepwater assets, making them an integral part of the country’s oil and gas future, according to MBN experts. “Deewater is a great example of the fact that we continue to believe that Mexico’s offshore energy industry has enormous potential. Clearly the industry interest is there with super majors, NOCs and others developing exploration plans and drilling wells. These companies can and will unlock major discoveries in due time, assuming that the business climate remains supportive,” says Timothy Duncan, CEO of Talos Energy. IOC Success Paving the Way Deepwater success can be framed by the activities of some of the most prominent operators in the field. One of the most successful oil giants involved in the Mexican deepwater arena is Malaysia’s PETRONAS, also known in Mexico by its active subsidiary PC Carigali. PETRONAS has a total of 10 blocks in Mexico, five as an operator and five as a partner. These blocks are within the main three basins in the Gulf of Mexico: one block in the Perdido Basin, three blocks in the Mexican Ridges and six blocks in the Salina Basin. Country head Emry Hisham Yusoff describes PETRONAS’ entry to Mexico’s deepwater arena as a strategic fit for the company’s business growth, focusing on upstream exploration opportunities and a portfolio with potential to provide long-term value. “Our partnership with CNOOC will bring together our capabilities and expertise for a successful collaboration toward developing this basin,” Yusoff says. PETRONAS began its offshore drilling campaign with the Moyote-1 well in Block 6, according to its development plan with partner ECOPETROL. The companies successfully spudded the well in mid-November 2020 and the exploration campaign was estimated to last for 90 days. PETRONAS’s future plans for Mexico include a focus on the 10 blocks the company holds and the continuous search for new opportunities that suit its portfolio, which might increase in the secondary market given the fact that some IOCs, such as Equinor, are letting go of their Mexico deepwater assets. PETRONAS was also the first IOC to establish a drilling base in the port city of Coatzacoalcos, Veracruz. Yussof believes that “the city’s strategic location and infrastructure will become even more relevant with the Transisthmic Corridor project that will connect the Gulf of Mexico and the Pacific Ocean.” PETRONAS also operates its deepwater well Yaxchilan Este from Port Pajarito. Mexico’s major shallow-water private operators are also beginning to notice the country’s many deepwater opportunities. Talos is one of many shallow water American operators in Mexico that already has extensive experience with deepwater production on the American side of the GOM. “The potential (in Mexico’s deepwaters)

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is significant and could be a major source of job creation, revenue and physical commodity supply for Mexico for decades if successful,” says Duncan. Safety, Talent Concerns As PEMEX moves away from deepwater activities, it is expected that the subsector’s safety standards will become defined by the private sector. Although this creates concerns regarding transparency, a great example of the way in which this approach is guaranteeing world-class standards and best industry practices is the classification, verification and independent analysis of BHP’s Trion FPU carried out by DNV. PEMEX is still involved in the Trion farmout project; at the time of its original launch, the project became the first partnership of this kind between PEMEX and a private company, as well as the first deepwater development in Mexico. Now, this agreement represents a unique model for collaboration and verification of safety standards and operational working conditions between entities in the public and private sectors, as it will involve a complete coordination between DNV, BHP, PEMEX and ASEA. “Our involvement comprises classification, verification of the topside systems and independent analysis of the whole unit. This will include revision of the hull, as well as navigation and safety systems,” said Eckhard Hinrichsen, Mexico Country Manager of DNV. The project will be divided between DNV’s maritime and oil and gas specialists. The latter will verify and certify the topside installations and offer independent analysis of the FPU. The hull will be constructed in Asia and a pre-FEED competition is underway, which will decide the contractor and construction location. Hinrichsen pointed out that the FPU units that will be used are quite new in Mexico, “so we are excited to learn from the entire process.” As an ASEA-approved third party for these kinds of projects, DNV is aware that some existing NOMs might apply while others will need to be updated for deepwater projects so BHP complies with all the necessary requirements. “Some of these NOMs are old or even obsolete and they were not written with deepwater in mind, so this poses a challenge,” he says. The question of safety and expertise also extends to the wider availability of applicable Mexican talent. Companies involved in deepwater activities will have incentives to increase Mexican worker participation to meet national content requirements. National talent development authorities like María De Lourdes Valdés, President of AMGP, are aware of the challenges ahead. AMGP has collaborated with other associations to put together a brief that was submitted to CNH to evaluate the most interesting prospective resources being explored and studied and the role of deepwater within these. Several Ph.D. members of the association participated in the drafting of these briefings, demonstrating the capabilities of available Mexican talent. Read the complete article More about this topic

Conference

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Highlights

Potential Surpasses Challenges in Deepwater Valeria Vazquez Energy and Resources Leader Mexico and Central America of Deloitte

Alma América Porres Commissioner at CNH

Carlos Ortiz Chairman IADC LATAM and Marketing Director at Transocean

Chris Brinzer Exploration Manager of Petronas

Luiz Feijo Director of Global Offshore Production of ABS

Bud McGuire COO ADS Consultoría Petrolera of Alpha Deepwater Services

he latest results from deepwater operators have generated a renewed interest in deepwater activities. In recent years, there have been a number of deepwater discoveries in the Perdido fold belt, as well as in the Salinas Basin. Alma América Porres, Commissioner at

CNH, explained the role the Commission has played as a regulator in incentivizing the recent exploration success that deepwater operators have enjoyed. “Since 2019, operators have explored 11 prospects and discovered resources in five wells in the southern Gulf of Mexico. This demonstrates a 45 percent success rate.” In regard to deepwater activities, there have been major players that have contributed with their technological developments, such as Transocean, a company that has been involved in Mexico’s deepwater sector bringing its Invictus vessel to develop deepwater assets in Mexico. The company drilled a number of important wells in the Trion asset, among them the first ultra-deepwater well in the country’s history. “Transocean has been instrumental in the technological development of Mexico’s deepwater from the beginning,” said Carlos Ortiz, Director of Marketing for Latin America at Transocean. Other comapnies have also played an important role in developing Mexico´s deepwater sector. Chris Brinzer, Exploration Manager for Petronas, said the company considers Mexico an important international investment. Mexico represents the largest exploration portfolio for Petronas’ international assets. Other important factors to consider for deepwater investments are asset evaluations, highlighted by Luiz Feijo, Director of Global Offshore Production at the American Bureau of Shipping for ABS. Feijo said the criteria used by operators to determine which asset to develop was extremely complex and that safety has always been at the top of those priorities. “Profitability is important but you cannot risk the safety of your people or the environment.” Alpha Deepwater Services has spent 12 years working in Mexico and Bud McGuire, the company’s COO, is aware of Mexico’s deepwater richness and assets, especially after working together with PEMEX and witnessing those prospects mature up close. “Mexico has world-class deepwater potential, most of it remains unexplored. This is a great opportunity to use new technology to improve drilling.” The richness of deepwater resources found on Mexico´s side of the GOM, are only matched by their unexplored nature. This is an area that must be studied. Valeria Vázquez,

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Energy and Resources Leader for Mexico and Central America at Deloitte, said there is a notable lack of knowledge and geological data when compared to the US side.

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from the

Q: How is PETRONAS positioned in Mexico? A: PETRONAS is an energy and solutions partner that was established in 1974 with a reputation as a trusted and successful operator across the globe. The company first entered Mexico in 2015, through its Mexican affiliate PC Carigali Mexico Operations (PETRONAS Mexico) and we are now the second-largest acreage holder in the country behind PEMEX, with 10 exploration blocks across Mexico’s three main basins, with a total area of approximately 22,000km2. PETRONAS’ entry into Mexico’s deepwater arena provides a strategic fit for our business growth, focusing on upstream exploration opportunities and portfolio with potential for longterm value. At the same time, it demonstrates our deepwater capabilities. Mexico is very important to us as it forms part of our extensive search for resource addition. Q: What is the makeup of the company’s upstream portfolio in Mexico and how have these positions progressed? A: PETRONAS Mexico has 10 blocks in the country, five as an operator and the other five as a partner. These blocks are within the main three basins in the Gulf of Mexico: one block in the Perdido Basin – Block 4 (with 30 percent participation (PI)); three blocks in the Mexican Ridges – Block 10 (40 percent PI), Block 12

Emry Hisham Yusoff

(60 percent PI) and Block 14 (50 percent PI); and six blocks in the Salina Basin – Block 4 (50 percent PI), Block 5 (30 percent PI), Block 6 (50 percent PI), Block 25 (100 percent PI), Block 26 (100 percent PI) and Block 29 (28.33 percent PI).

Mexico Country Head of PC Carigali (PETRONAS)

PETRONAS Mexico’s entry into Block 4 - Perdido Basin in Mexico’s deepwater provides a strategic fit for our business growth, focusing on upstream exploration opportunities with potential for long-term value. This opportunity allows us to extend our portfolio

IOC Uses International Knowledge to Push Offshore Progress

into the prolific Perdido Basin. Our partnership with CNOOC will bring together our capabilities and expertise for a successful collaboration toward developing this basin. We began the drilling campaign for the Moyote-1 well in Block 6 as per plan together with our partner, ECOPETROL. We successfully spudded the well in mid-November 2020 and the exploration campaign was estimated to last for approximately 90 days. Q: How has PETRONAS invested in Mexico so far? A: PETRONAS Mexico has invested substantially in Mexico as the country holds substantial material opportunities and is largely underexplored. We are pleased to be one of the early movers in this basin and look forward to growing our portfolio here. Currently, PETRONAS Mexico is one of the most active oil and gas companies in the country. To date, PETRONAS Mexico and its partners have completed drilling of five deepwater exploration wells and two more wells will be spudded in the near future. As for future plans, PETRONAS Mexico will focus its investment in the 10 Blocks and will continuously look for opportunities that suit its portfolio, governed by our Statement of Purpose and Sustainability Agenda that are aligned with SDGs 2030. PETRONAS Mexico is the first IOC to establish a drilling base in the port city of Coatzacoalcos, Veracruz. Home to the Pajaritos petrochemical complex, the city’s strategic location and infrastructure will become even more relevant with the Trans-

Isthmus Corridor project that will connect the Gulf of Mexico and the Pacific Ocean. PETRONAS Mexico also operates from Port Pajarito for its first operated deepwater well Yaxchilan Este and continues to operate for the Moyote-1 shallow water well. Mexico is one of PETRONAS’ focus countries and we aspire to drive long-term business value creation through responsible investments here. We hope to continue building our portfolio of resources as well as leveraging emerging opportunities toward supporting and growing together with Mexico in realizing its energy aspirations. Q: How did PETRONAS aid local communities during the pandemic? A: When the pandemic hit Mexico, PETRONAS Mexico contacted the mayor of Coatzacoalcos to seek perspective on the potential problems that the community would face while fighting COVID-19. The mayor expressed two major concerns: the lack of infrastructure to ensure access to clean water to the community and the need for a large quantity of PPE for health personnel in Coatzacoalcos. Guided by our sustainability lens and emphasis on positive social impact, our primary focus was the wellbeing of the Coatzacoalcos community, the area of our operations. In collaboration with Coatzacoalcos Ministry of Economy, PETRONAS Mexico contributed five water pumps to the city, which allow the local government to supply clean water to 80,000 people. With access to clean water, the community can curb the spread of the virus through basic hygiene measures. In addition, we also collaborated with IMSS and contributed 80,000 units of PPE, comprising of facemask, face shield, gloves and coveralls, which were distributed to the Coatzacoalcos health sector, including hospitals. We are also involved in various social programs unconnected to the pandemic. PETRONAS Mexico recognizes that students are the future of the community and seeks to enhance the national education agenda to meet the expectations of the job market, in line with our sustainability lens and positive social impact, combined with SDG 4 quality education. For this reason, PETRONAS Mexico aims to support the national education agenda by enhancing the students’ potential, which will help them to meet the current expectations of the working market. On Dec. 17, 2019, PETRONAS Mexico organized an event with stakeholders and students called “PETRONAS: Connecting with Community and Academia in Coatzacoalcos” where a series of presentations showcased PETRONAS’s activities in Mexico, and presented our technical knowledge-sharing on topics addressed to the student community.

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from the

Q: How is Fugro responding to the changing discussion surrounding the importance of data in the sector? A: Fugro is incorporating new technologies worldwide and working to integrate them into digital solutions for our clients which are quickly changing the environment. At the moment, Fugro is using many tools based on visualization, robotics, data analysis and connectivity, amongst others, and this is giving us an advantage to provide more efficient and safe services to a higher quality standard. We would like to enhance our current approach and utilize all these technologies in Mexico. Fugro is investing heavily in remote operations as well. We are trying to minimize the risk exposure of our personnel, while promoting the sustainability of our planet. Fugro’s remote operations centers are a good example of this. Here, we can manage our operations from a center without having any crew in the field. We have worked as well with virtual software and hardware that allows clients to visit and supervise installations without actually being physically there. Furthermore, Fugro has technology to remotely operate underwater vehicles and other unmanned vehicles. Q: What is the balance in Fugro’s Mexican portfolio between exploration, field development and EOR/IOR?

Pedro Regino

A: We have very balanced operations for both of our business lines, site characterization and asset integrity. In Mexico, the entirety of our operation is dedicated to the oil and gas sector where we support exploration, field development and

Mexico Country Manager of Fugro

construction. What we are seeing at a global level is that the oil and gas sector accounts for half of our revenue and we are seeing a rapid worldwide increase in the area of renewable energies like wind, solar and others.

Surface Data Leader Sees Future in Remote Operations Centers

Q: How can Fugro provide added value during the transition of oil and gas companies toward sustainable goals? A: There has been a gradual transition in many parts of the world where some traditional oil companies are changing their portfolios towards renewable resources and Fugro has quite a lot of experience worldwide participating in this market, especially in Europe and the United States. Mexico has started its transition and advancing in sustainable energy goals, we know it is a long road but we expect to see the development of more projects in this industry like offshore wind farms where Fugro is in a great position to bring this experience to the country. Q: What are Fugro’s development plans for Mexico’s oil and gas market in 2021? A: The pandemic has paused our business development to some degree; however, our plans continue to move forward with our vision to be the specialist in Geo-data solutions and become the preferred provider for our clients in this regard. Fugro can provide appropriate solutions at every stage of the project. We

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have the resources and technology to participate from the initial design through the construction phase and thereafter, when assets need to be monitored. Our plan is to take Fugro to this level so clients will be able to fully rely on our data through the project’s lifecycle to make it a success.

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from the

Q: What incentives attract Gulf Marine contractors to the Mexican market? LS: Our interest in Mexico began with requests from our US clients, many of whom are operators of blocks obtained through the Energy Reform’s bidding rounds. We offer our services in Mexico with the same quality we offer them on the US side of the GOM. This leads to the company’s first plans for international expansion. Our COO, Clark Buffam, has shared these plans with me to mirror our US operations in Mexico and that is what led to the establishment of our Mexico office. It is a decision led by our existing clients and their needs as the Mexican market became a larger part of these companies’ portfolios.

Lazaro Sousa

Once we established ourselves in Mexico through three companies, which were a customs agency, a technical maritime agency

Mexico Managing Director of Gulf Marine Contractors

and the Mexico office of our US company, we realized that our concept was actually new and somewhat innovative. Five years ago, operations were still defined by PEMEX. All services were ultimately provided to PEMEX, and the strategies of all the service providers in the market were aligned to the needs and schemes of PEMEX. Most of the company’s personnel, myself included, had previous experience with international companies and with international maritime regulations, so there was a learning curve involved in adapting to this Mexican model. However, even then, we still perceived a considerable number of important opportunities in Mexico. When we began integrating the work of those three companies into one turnkey service for our clients around 2017, we realized that the availability of that modality of business was quite limited in Mexico. Even foreign companies entering Mexico see us as a unique choice. We are also one of the few service providers that can provide clients with international compliance services, particularly anti-corruption measures and systems based on the

Manuel Hesse

US’ FCPA standards and the UK’s Bribery Act standards. Q: How would you describe the process of aligning Mexican companies and institutions with these

Corporate Adviser at CrossDock Supply

international anti-corruption standards? MH: Although I have worked in other industries connected to these authorities throughout my career as well as in the oil and

Best Standards Needed to Face New Era at Mexico’s Ports

gas industry for the last three years, it is true that adapting to working in Mexico has represented a significant amount of work for my office. When you look at the physical border between the US and Mexico, onshore and offshore, as well as the larger legal and regulatory space in which companies from both sides convene every day, you are looking at the most transited boundary of its kind. The gap that this border might represent has been somewhat closed over the years through certain homologation policies; nevertheless, it continues to exist. There are still some pretty vast differences between these two judiciary systems, which pose extensive challenges to us. Our compliance to norms and procedures is tightly adjusted to what the law demands in Mexico, and is also overseen by quality control and documentation management systems set forth by our US office, where I have been in charge of adapting to the Mexican context. I also have to follow up on any red flags that might appear throughout the compliance process. I am happy to say that my position does not give me the authority to bend any of these anti-corruption standards and

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principles to anybody’s benefit, and the solidity of that framework has greatly helped us navigate the Mexican environment, without the pitfalls that we see others falling into.

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from the

Q: What projects and opportunities originally attracted Yinson to Mexico’s oil and gas industry? A: We became interested in Mexico after the enactment of the Energy Reform in 2014. The enormously wealthy blocks that had been offered in the Gulf of Mexico immediately sparked our interest to become a prominent provider of FPSOs for operators. Yinson understood from the very start that FPSOs represented a great and cost-effective solution for many of the logistical issues that operators would face when dealing with Mexico’s existing offshore infrastructure. However, we did not get involved until we saw companies such as ENI, Shell and Equinor begin to invest great sums of money into the procurement and development of these blocks. In 2017, we entered a bidding tender for the supply of an FPSO for ENI’s shallow water blocks in Mexico. We came in second place after MODEC, whose vessel is in the final construction stages and will likely begin operations in Mexico during the second half of 2021 or the beginning of 2022. Throughout that process, we acquired experience working in Mexico’s local market. Q: What were some of the most important items on your agenda when you joined Yinson a few months ago?

Jose Ferreira

A: I joined Yinson because the company is aware that in all Latin American markets, despite COVID-19, you need a person on-site who can meet with clients and regulators to oversee the company’s agenda. This was at the top of my to-do list: Ensure

Business Development Manager of Yinson

Yinson gained a greater physical presence in Mexico. It also led us to secondary conversations with other customers and clients regarding the need for FPSOs in two to three years. Some of these clients are already working on exploration permits granted by CNH.

The Moment Is Right For FPSOs In Mexico

Q: What are the advantages of FPSOs? A: The events of 2020 forced companies like Yinson to diversify their commercial strategies. This means we now offer more attractive long-term leasing contracts to our clients, sharing responsibilities, risks and penalties with private companies in order to work more as a team. This has allowed us to provide our clients with some reassurance, both from a technical and from a commercial standpoint. This modality seeks to create long-term relationships between us and our clients and, in the process, make FPSOs more attractive as an option. We also feel that the Mexican oil and gas industry has become increasingly receptive to the way in which we have presented the advantages of FPSOs: They eliminate the need for costly long-distance oil pipelines to an onshore terminal; the FPSO concept is often the preferred solution in remote and deepwater areas, because it is more cost-efficient than a platform plus FSO or platform plus pipeline concept; in areas prone to heavy weather, such as hurricanes and cyclones, FPSOs can be designed with the ability to disconnect from

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the subsea infrastructure, sail away from the storm’s path and reconnect when the storm has passed, increasing safety but also limiting downtime; finally, upon field depletion, FPSOs can be relocated. These are all great advantages over fixed installations.

hile technological advancements matter over the long term, when it comes to specific projects, human-centered processes, aka the “tortoise,” often are faster, more efficient and safer than the automated “hare.” A simple

example is the mobile phone, which can dramatically increase productivity but is not much help if the batteries are dead. Technology - The Hare Clearly there is a case for automation in the drilling industry. Unconventional drilling manufacturing techniques have increased the productivity of drilling substantially. Beyond improvements in the rigs themselves some of the key advancements have been in the quality of preparatory work conducted ahead of time, including geology and geophysics assessments, which have advanced radically due to increased computing power and the application of innovative techniques such as AVO (amplitude versus offset). Similar improvements have been made in reservoir

Exploration & Drilling | 45

engineering and production techniques, which are working to

The Tortoise or the Hare? Niels Versfeld CEO of Simmons Edeco

increase recovery rates. In the last 10 years alone, oil production per employee has increased substantially over all sectors of oil and gas, from 47 percent overall up to 72 percent within oilsands production in Canada. To add to this, many feel that oil and gas is a laggard in technological adoption and there is a strong focus on the “digitalization” of the oilfield to further drive innovation. Reliability - The Tortoise Certainly, new technologies are great when they work. But often, or at least sometimes, they do not. This is especially true in oil and gas, where the work locations are often remote and extreme. The risks to safety, environment and economics are high if systems fail while drilling. We are all familiar with the computer that fails, overheats, or new to many this year, freezes. By their nature, new technologies do not have all the “bugs” worked out and often face barriers when trying to integrate into legacy systems. This speaks directly to reliably testing processes, using technologies built for the field and experience-based improvements. At Simmons Edeco we are extremely proud that we have had mechanical rigs ranked in the Top 5 worldwide by a customer even when compared against highly automated cyber rigs using pad drilling. How did we do this? Quality crews with consistent training, teamwork with the customer, continuous improvement and great project management. Both - Quality While I am arguing that reliability is important and non-negotiable in drilling operations, there is no question that innovation can and will drive success. So how do we as an energy company and, more broadly, as businesses within Mexico manage this tradeoff between innovation and reliability? To further compound this question, how do we achieve this in an increasingly digital world where the risk of distraction is extremely high? Being distracted is not an option. To combat this, companies must develop quality processes and systems that integrate the “hare” and the “tortoise.” Bureaucracy in a binder should not be confused for quality. At the heart of quality is continuous improvement and any management

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system focused on quality must be people-focused, practical and adaptable. In high-risk businesses such as drilling, we need to ensure this continuous improvement is safe, well thought out, and effective, which is done through planning, testing and regular evaluation of performance.

SPOTLIGHT

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Schlumberger: 85 Years of Operational Excellence in Mexico 2021 represents a year of achievements, lessons and innovations for Schlumberger in Mexico. Throughout the years, the evolution of the country’s hydrocarbon sector has brought with it challenges that have turned into opportunities to strengthen the industry. With pride and dedication, Schlumberger has been an integral part of this transformation. Throughout its history, the development of new technologies has been fundamental to the company’s constant growth, built on a world-class service offering, a commitment to its clients and a constant striving to benefit the country. To this day, Schlumberger has contributed over a billion dollars of investments to Mexico’s economy, not to mention average imports and exports volumes that surpass 4,300 exchanges a year that have opened the doors to new international relationships and economic exchanges within the industry. This 85-year path represents Schlumberger’s commitment to Mexico and its people. The company’s national team consists of over 1,200 local suppliers collaborating in its two manufacturing centers, six operational bases and its central office in Mexico City. Schlumberger also maintains a close collaboration with Mexico’s universities and research centers, which are focused on the development of technologies aligned with the strategic needs of Mexican oil and gas reservoirs. This relationship has generated investment in the recruitment, Read the complete article More about this company

training and development of the nation’s talent, resulting in a national workforce that is 90.5 percent Mexican.

Conference

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Highlights

Results-Focused Exploration Technology, Innovation Gustavo Hernandez International Vice President of the Mexican Union of Engineering Associations

Gerardo Clemente Martínez President of AMGE

Jeimy Mathison General Director of Kasoil

Eduardo Arriola Operations Manager of Golfo Suplemento Latino

hile some segments of the oil and gas industry suffered setbacks in 2020 as the pandemic expanded, it was a positive period for exploration activities. PEMEX and a number of private operators announced

discoveries, while more drilling plans were approved by CNH. But success in exploration is a collaborative effort and innovation and technology play a significant role. The age of digital transformation in the industry includes the surveying of data generated through drilling to the incorporation of high tech in processes like rock core sampling and analysis. The end game, besides exploration success, is to reduce risk. “The technology allows mitigating risks in the oil extraction chain,” says Jeimy Mathison, General Director of Kasoil. Yet, all of this technology would be useless if companies did not invest in developing and training human resources, a point with which Eduardo Arriola, Operations Manager at Golfo Suplemento Latino, agrees. “Training of personnel combined with adequate technologies are the key to success in exploration efforts,” he says. Great technological breakthroughs in recent years, especially when it comes to seismic data software, have only upped the ante in the drive to adopt the digital transformation. “The role of technology in the sector has evolved from 2D seismic data software to 3D and to 3C4D,” says Gerardo Clemente, President of AMGE. Martínez says these developments have allowed companies to generate a knowledge base that can be transmitted and for more operations to focus on time optimization. Clemente also highlights the human factor in digital adoption, saying that those people who are familiar with these software models that govern the geological evolution are considered a real advantage for an innovative company. Without them, he says, “innovation would just exist but would not be used.” Among the most-repeated protestations in the era of technology, of course, is cost, but one positive outcome of the pandemic is that it taught the industry to work with different budgets. “Whether limited of sufficient, our budgets will tell us what we can do and in which areas we can assign it; however, availability of equipment and technology, workforce and money must converge to have the true skills for success,” says Arriola. Part of reining in the cost factor is understanding what is needed. Not every company requires the same software

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package or technology. It is better, Clemente says, to tailor packages to particular functions. To do that, companies need to know how to select the technology they need.

Certifying Safe Operations in Unsafe Times Ian Rutherford | Mariene Gutiérrez Vice President of Technical Business Development at ModuResources | Mexico Representative of ModuResources

Taking as Much Exploration Advantage of Drilling as Possible Jeimy Mathison Director General of Kasoil

Technology Playing New Role in Safety Readiness Mark Denkowski Drilling Services Manager for the Gulf of Mexico at RelyOn Nutec

Drilling Service Providers Close Waste Management Loops Emmanuel Montaño Director General of Consorcio EMCRO

Full-Suite Core Analysis Leads the Way Christian Rodríguez Mexico Country Manager of Core Lab

Delays Cannot Stop Future Deepwater Hub Jesús de la Garza Director General of API Tamaulipas

Innovation and Disruption, Keys to Enhanced Subsea Surveying Kevin McBarron CEO of Sulmara Subsea

Offshore Compliance Complicated but Not Impossible Luis Alcalá | Irwing Esqueda Becerril Business Development Manager for Strategic Offshore Projects in the Americas Region of Lloyd’s Register | Drilling Specialist Leader for Wells of Lloyd’s Register

A New Era for Mudlogging Technologies Frank Matute Managing Director of Pacific Oil Tools

Deepwater Promise Cradles New Venture Diego A. Aguilar Founder, Vice President and CCO of E-NAV Offshore

Field Development In 2019, Eni became the first private operator in Mexican history to reach production. Similar successes were expected to follow in 2020. By March, it was clear that this would not be the prevailing story of the year and by April it became obvious that private operators would have to adjust their plans and expectations as the COVID-19 pandemic spread. For many in the industry, just surviving the year seemed like enough of a milestone. Yet, while operators were forced to move their earliest production dates to 2021 and beyond, they were hardly struggling to survive, using the year instead to further invest in their field development tasks and the development of their workforce. Although larger and more logistically complex field development services, such as offshore platform installations, had to be rescheduled, fabrication yards continued the work of developing the needed infrastructure to ensure uninterrupted operations at fields. The question of commercializing early production was also solved in the year, as many operators finalized the terms of their infrastructure-sharing agreements with PEMEX or, alternatively, further developed field designs that called for their own infrastructure to bring production to market. Even operators of deepwater fields, which are still in the exploration phase, are thinking ahead to making their field designs profitable and sustainable.

Building Upon Our Continued Success

How Tall is the Zama Core? Talos strives to bring our own high level of technical expertise to all of our Mexico and U.S. oil & gas operations. As part of the Zama appraisal program, Talos Energy successfully extracted 431 meters of whole core (a record in the history of offshore Mexico) from two wells, which will aid in maximizing oil recovery from the field. In March 2020, Talos delivered the core to Mexico, where it will be studied by academia and industry for generations to come.

www.talosenergy.com 333 Clay St., Suite 3300 Houston, TX 77002

431 Meters

324 Meters 214 Meters

TORRE EJECUTIVA PEMEX

EIFFEL TOWER

TALOS ZAMA CORE LENGTH

Field Development

Analysis New Reality, New Plans: Offshore Operators Adapt for 2021

View From the Top Stephan Drouaud | Trion Project Director of BHP

View From the Top Timothy Duncan | CEO of Talos Energy

View From the Top Andrés Brügmann | Mexico Country Manager of Fieldwood Energy E&P Mexico

View From the Top Alberto Galvis | CEO of Citla Energy

Conference Highlights BHP Molds Mexico’s First Deepwater Development with Trion

View From the Top Alma América Porres | Commissioner at CNH

Conference Highlights Adjusting Expectations for Increased Production

Analysis Expanded Infrastructure Needed for Field Development

Expert Contributor Brad McNeill | CEO of Frontera Offshore

View From the Top Octavio Navarro | Mexico Country Manager of Heerema Marine Contractors

View From the Top Harold Velazquez | Americas BD Manager of Boskalis Offshore Energy

View From the Top Giuliano Cacciatore | Mexico Director of DG Impianti Industriali

View From the Top Graciela Álvarez | CEO of NRGI Broker

Spotlight Ambitious Change Needed to Ensure Energy Transition: DNV

Content Links

Field Development | 52

New Reality, New Plans: Offshore Operators Adapt for 2021 The disruptions of 2020 delayed the race to become the next offshore operator to reach production in Mexico after ENI made history in 2019 reaching first oil. Adjusting their time frames in the wake of COVID-19 and the oil price turmoil, operators are back in the game and signaling positive expectations. “We continue to do everything necessary to advance our assets in the country to the next phase,” says Talos Energy CEO Timothy Duncan. ENI’s success in becoming the first private operator in Mexico to reach an early production phase in an offshore project spurred all other major offshore operators to accelerate their field development plans with the hopes of reaching a similar phase by the end of 2020. With those expectations dashed, attention turned to 2021. Barring any unforeseen events, ENI is projected to have company sooner rather than later with operators like Fieldwood Energy on the hunt. “During the first half of 2021, we focused on the drilling, construction and installation programs in Pokoch and Ichalkil to achieve commercial production operations during the second half of 2021. Every day, we work relentlessly toward achieving this goal and to reduce the impact that COVID-19 has on our operations and suppliers,” says Andrés Brügmann, Mexico Country Manager of Fieldwood Energy. Earlier in 2020, Brügmann had highlighted that the COVID-19 pandemic and the corresponding reduction in oil prices were challenges that few companies anticipated. Fieldwood spent 2Q20 occupied with the drilling of additional wells at both of its fields in Ichalkil and Pokoch. During this first drilling campaign, the company expected to drill and complete six new wells and tie back two appraisal wells drilled in 2017. At the time, Brügmann was positive despite the COVID-19 pandemic being in full swing. “We are doing everything possible to maintain the project on schedule and to complete the commissioning of the facilities during 4Q20. Nonetheless, we acknowledge the numerous challenges that contractors are facing due to the pandemic, including equipment and permitting delays.” Brügmann is quick to point out that the pandemic is not over yet and that Fieldwood expects the challenges to continue this year. However, he maintains that 2021 will represent a historic milestone for the Ichalkil and Pokoch projects. “After five years of intense work and significant investments required to appraise and develop these fields, we will start the early production phase of the project.” Other operators have also noted the importance of early legwork to keeping them on track to reach their productive phases. “We have continued to make significant advancements on the Zama project despite what was an extremely tough environment in 2020, which was impacted by the COVID-19 crisis and associated commodity price drop,” says Duncan.

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Despite the hardships, Talos has advanced its project toward its Final Investment Decision (FID), running the Front-End Engineering and Design (FEED) in parallel with unitization discussions with PEMEX. “We are working hard to reach conclusions on both of those fronts and take the project to its next phase post-FID. Capital spending on Zama is expected to be light this year as we wrap up the FEED and unitization discussions but we are preparing for FID and, thereafter, the start of construction and field development,” Duncan says. Some operators were able not only to make preparations for the crises that defined 2020 but to also reach a productive phase in the midst of the pandemic as they originally intended. The most prominent example is Hokchi Energy, which announced at the end of May 2020 that it had opened the valve of its Hokchi-4DEL well to begin production at the Hokchi field in the shallow waters about 27km northwest of the Dos Bocas port. The company began its drilling campaign in October 2016, drilling five wells, including Hokchi-4DEL. Its drilling campaign was finished in only 343 days, three months ahead of schedule. The construction infrastructure around the development of the Hokchi field, including the Satellite and Central platforms used to drill Hokchi’s wells, involved 4,500 direct and indirect jobs. Investment in the field so far stands at US$1 billion. The company did enjoy an advantage as the Hokchi field was first discovered by PEMEX in 2009. Two wells, Hokchi-1 and Hokchi-101, were drilled in 2009 and 2011 respectively by the NOC and later indefinitely abandoned, which provided a solid base from which the private operator was then able to build a decisively successful project. 2021 Earmarked for Growth Alberto Galvis, CEO of Citla Energy, believes that 2021 will see the emergence of growth opportunities, especially when linking up previous discoveries to new offshore developments. He highlights the discovery of several midsize fields, which creates the opportunity for integrated developments and hubs. “Such opportunities can help to reduce the minimum field size required for commercial viability.” He does highlight, however, that the unlikelihood of further bidding rounds has had an important impact on Citla Energy’s plans for portfolio expansion. “The suspension of new bidding rounds and tenders, including PEMEX’s farmouts, meant that such growth plans had to be equally adjusted.” Duncan forecasts bullish results for Talos’ operations in Mexico, nonetheless. “Talos is focused on numerous potential catalysts as we look forward. First of those is Zama: this is a generational asset that will ultimately provide decades of production and cash flow once it comes online. Another of those is our ability to find future discoveries through exploration investment.” Adding credence to the growing optimism in the sector is Read the complete article More about this topic

the recent announcement of a major discovery in the US GOM from BP and Chevron that could potentially represent a transboundary opportunity.

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from the

Q: Which geological characteristics of the Trion field best exemplify the technical challenges that the project presents? A: As compared to other reservoirs in the GOM, Trion is a shallower and lower pressure reservoir with very good seismic imagery and data. However, the reservoir needs pressure support since day one. Confirmed by our SCAL and core analysis, water and gas will be injected into the reservoir to maintain the pressure and enhance the oil recovery. These secondary recovery mechanisms are driving the size of the Floating facility, which will be a large semisubmersible with a Topsides dry weight close to 20,000 metric tons. The seabed topography with many cliffs and mountains is also increasing the complexity of the subsea architecture with multiple drill centers required to drill our wells. The slope stability of these cliffs will be tested through geotechnical surveys and results will inform the best anchoring design for our floating structures. Q: What would you consider to be the most important aspects of the projects’ current drilling and development plan? A: The D&C scope for phase 1 includes approximately 18 wells and the logistics and pace will be challenging. Being able to consistently execute with flawless execution will take a tremendous amount of teamwork and engagement with our 3rd party partners. Equally important will be the wells performance and our ability to

Stephan Drouaud

learn through surveillance as the development progresses. This is accomplished with our fit for purpose well design that has been collaboratively developed.

Trion Project Director of BHP

Q: How much interest have you seen in BHP’s EOIs from both national and international companies and what gaps are still pending to address? A: Over the last two years, we issued numerous EOIs to the market

Unique Deepwater Project Moves Forward

for a variety of scopes of work. Trion is a high priority project for many companies. The pool of companies who have the capabilities and experience for such large Deepwater projects is limited but the interest of these companies in Trion is very high. We have actually progressed quite well our contracting plan and awarded key contracts recently. As we are engaging with national and international companies, we are confident that we will partner with the right companies to help us deliver the project. Q: How would you describe your plans to fulfill the project’s upcoming investment and infrastructural needs? A: We have a road map to continue progressing the Trion project towards a Final Investment Decision in 2022, which includes the finalization of the infrastructure plan. To date, we have met all our development and investment milestones and targets. Our team is fully committed to the project and fully appreciates the requirement to continuously improve the value of the investment and reach a high level of cost and schedule predictability at FID. Our plan is to continue our collaboration and engagement with our partner PEMEX and other key stakeholders in Mexico so they can support us in achieving our near and long-term objectives.

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Likewise, we have collaboratively worked with our contractors to progress the engineering work in readiness for execution. I am confident and excited that we have the plans and people to deliver on our commitment, which is to deliver the first Deepwater development in Mexico.

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Q: What is your position regarding the most recent announcements made by PEMEX and SENER regarding the distribution of resources within the Zama reservoir? A: We have published a statement regarding the release where we addressed not only the third-party engineering firm’s viewpoint, but that of Netherland, Sewell & Associates (NSAI) as well. There are different data points out there and negotiations on many key commercial points in the unit agreement are ongoing, including the initial tract participation splits. That said, it is our expectation that the unit agreement will be finalized in accordance with international best practices and will carry standard redetermination provisions. In that case, the initial tract participation will be corrected over time as more data becomes available. So, in summary, the discussions on many points are ongoing and there will be a mechanism to ensure that the “true” tract participation prevails in due course. Q: Although the original March 26 deadline has passed, what are your current plans and hopes for a unitization of Zama being agreed to in the short term? A: It is in the best interest of all stakeholders to advance the unitization discussions diligently and commercially, including the Mexican people, the government, investors and job creators. While we have not published any firm dates or deadlines, we

Timothy Duncan

trust that we are working as hard as we can to reach resolution and take this project to the next phase. Q: How has the Zama negotiation impacted investor

CEO of Talos Energy

confidence in the oil and gas sector and what can be done to take this to a win-win resolution? A: First and foremost, Zama is an incredible asset, not just for Talos, but for the Mexican state and the economy. Its discovery

Essential Conclusions for Operators in Mexico

is a great example of the power of private enterprise to unlock new resources and create value in society in numerous ways. For Talos, we have delivered the discovery well with tremendous success, completed the appraisal on-time and under-budget, and are advancing the FEED as rapidly as possible. We are doing everything in our power to bring the project to fruition. That said, the entire industry, investors, stakeholders, and other governments are watching the Zama unitization very closely. They want to see that private enterprises are treated fairly, in accordance with law and best practice, and that Mexico is a good place to do business. It is hard to understate how important this perception is to the future of Mexico’s private energy industry. Q: How are field development activities progressing in 2021 and adjusting to your significant reduction in investments during 2020? A: At Talos, we responded to the COVID-19 and commodity price crisis by scaling back our capital investment budget and stabilizing our core business. That said, our activities around Zama and more broadly in Mexico were not impacted by this.

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We continued to do everything necessary to advance our assets in the country to the next phase. Capital spending on Zama is expected to be light this year as we wrap up the FEED and unitization discussions, but we are preparing for FID and, thereafter, the start of construction and field development.

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from the

Q: How did Fieldwood adapt to the circumstances of such a difficult year? A: One of the most important lessons that we learned was to improve the adaptability of our operational processes. This includes offshore operations of the two drilling rigs, construction activities taking place at fabrication yards and the construction and installation of subsea pipelines. We concentrated our efforts on protecting the health of our employees and contractors. We went from not knowing anything about the COVID-19 disease to adapting our processes of embarkment, disembarkment and medical evacuation to deal with COVID-19 on a daily basis. We are incorporating new information and updating our procedures in real time. Advances in testing technology were remarkable. The availability of rapid antigen tests in Mexico allowed us to speed up our operations by eliminating quarantine periods for embarkation. Fortunately, we have not stopped operations throughout the entire pandemic. Q: What do you consider to be the most important differences between 2021 and 2020, from an operational viewpoint? A: During the first half of 2021 we will focus on the drilling, construction and installation programs in Pokoch and Ichalkil

Andrés Brügmann

in order to achieve commercial production operations during the second half of 2021. Every day, we work relentlessly toward achieving this goal and to reduce the impact that COVID-19 has on our operations and suppliers. The pandemic

Mexico Country Manager of Fieldwood Energy E&P Mexico

is not over yet and we expect the challenges to continue this year and we must continue to be vigilant and react quickly. Despite vaccination efforts, we expect to see more COVID-19 cases during 2021, therefore, our number one priority, to preserve the health of our employees and contractors, is to

Surviving 2020 to Produce in 2021

ensure that everybody follows strict testing and isolation protocols to prevent contagions. 2021 will represent a historic milestone for the Ichalkil and Pokoch projects. After five years of intense work and significant investments required to appraise and develop these fields, we will start the early production phase of the project. Q: How would you describe your experience throughout the drilling of the Ichakil-4 and Pokoch-2 wells? A: We began drilling these wells just after the pandemic was declared in March 2020. We decided to adapt our drilling operations to that circumstance, instead of stopping and deferring operations altogether. We also modified our financial plans to reflect the incremental costs related to COVID-19. Currently we have completed drilling Ichakil-4 and Pokoch-2 and we started drilling our Ichakil-6 well. In addition to COVID-19 challenges, we also had to face significant challenges characteristic of drilling in deep and high temperature environments with variable pressure regimes. Fortunately, we were able to overcome these issues successfully.

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The structural design of the wells required for our Cretaceous and Jurassic objectives is quite complex. During 2021 we expect to complete four wells (our original two appraisal wells and our two development wells), bring production online and continue drilling Ichalkil-6.

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from the

Q: How did the events of 2020 change Citla Energy’s vision regarding growth and development? A: Our strategy focused on building a diversified portfolio in Mexico has remained intact, supported by our investors. We aim at pulling together a set of assets distributed across different stages of maturity, from exploration and appraisal to field development and production. 2020 provided challenges and obstacles to the entire industry, and we have been no exception, but these problems have not changed our strategy. However, our activity plans were adjusted following the initial well results coupled with the effects of COVID-19 and 2020’s extreme oil price environment. Some wells that we expected to drill in 2020/21 were rescheduled. Another relevant change was around the expansion plans of our portfolio. The suspension of new bidding rounds and tenders, including PEMEX’s farm-outs meant that such growth plans had to be equally adjusted. Q: What lessons did you learn from the three wells you drilled in blocks seven and nine? A: We learned a lot from these wells. We modified the ranking of the remaining prospects according to new technical information. Each well drilled in the area helped us to further understand the regional geology in a province where few wells have been drilled, and information available is scarce. Through this process, we

Alberto Galvis

have significantly enriched our knowledge of this basin. Q: What synergies have you created with partners ENI and Cairn?

CEO of Citla Energy

A: We are proud to have formed a partnership with exemplary companies such as ENI and Cairn. They have demonstrated an excellent array of skills and technical competencies in areas such as geological analysis and operations management. All their

Key Operator Reschedules but Does Not Falter

experiences in operations and activities in the world make it back to these blocks in the form of applied expertise. This expertise has played an important role when facing challenges in 2020. Q: What is the drilling strategy for block 14? A: We continue to be very optimistic about block 14. The block already presents a discovery, so our studies are focused on demonstrating the commercial viability of that discovery and identifying additional prospects in this block that could potentially yield additional discoveries. Still a lot of work must be done before reaching a drill decision. Q: To what degree did the events of 2020 determine whether a discovery or prospect is commercially viable or not? A: I would argue that it changed very little. There is always the discussion around future oil prices, but history teaches us that it is always fluctuating, so it is best to plan conservatively. In addition, despite the accelerated energy transition, hydrocarbons will be needed for decades to come. In this sense, we still analyze the commercial viability of discoveries with the same eyes.

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Having said that, one element that has emerged in the south east region is the discovery of several mid-size fields, which creates the opportunity for integrated developments and hubs. Such type of opportunities can help reduce the minimum field size required for commercial viability.

Conference

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HP is widely known for its global mining experience but it is just as entrenched in the oil and gas industry. Recently, the company has flexed its hydrocarbons muscle with its progress working on one of the sector’s most anticipated

projects: Trion. “PEMEX’s original discovery of the field meant that we had a lot of available data to work with when we first became involved in Trion,” says Stephan Drouaud, Director of the Trion project at BHP. The company is the project’s operator and has a 60 percent interest. PEMEX retains a 40 percent share. “The Trion field’s remote location makes it a quite exceptional and challenging project, with a unique scale and magnitude that we find very exciting,” he adds Trion is located 180km off the Mexican coastline, 30km south of the maritime border between the US and Mexico. Ninetyfour percent of the deepwater field is oil, the project’s most valuable resource. With no nearby infrastructure, BHP faces an interesting challenge in its field development plan concept. “We have now defined the development concept as one that calls for a subsea field connected to a semi-submersible Floating Production Unit,” says Drouaud, adding that, “the

BHP Molds Mexico’s First Deepwater Development with Trion Stephan Drouaud Director of the Trion project at BHP

reservoir requires pressure support from day one so that the oil does not become gas too early.” Drouaud predicts that the field could produce 100,000b/d, increasing up to 120,000 or even 130,000 eventually. Most of the gas produced will be re-injected. “We were struggling to find a location to export the gas,” he said. Luckily, the field can use this resource itself. “The need for water and gas injection has driven an important number of our design and engineering decisions in the development of Trion.” Trion is showing good progress in its study phase, with CNH approval expected in 2022 and a likely successful second investment decision coming soon. Various milestones, such as finalizing the field development plan and tendering important elements of the project, will be completed in 2021. “Our goal is to think big and make history by delivering the first deepwater development in Mexico,” says Drouaud. The timeline outlined by the company shows it hopes to reach first production in late 2025 or early 2026. Developing the field is estimated to cost between US$7 and US$10 billion, but the partners are trying to narrow this range. “I hate to say it but 80 percent of these projects do not deliver on budget and on schedule,” Drouaud says. He has asked for more time to do everything the right way in his mission to ensure Trion will be a landmark success. The core foundation of the project’s success lies within the power of collaboration and Drouaud lauds BHP’s successful cooperation with PEMEX, which he says has been built on “trust and respect.” Aligning business and project objectives early on and developing relationships on all levels in their respective organizations helped build a bond. “Treat your partner the way you want to be treated,” he says. A transfer of technology and knowledge further strengthens the partnership. BHP said it benefits greatly from PEMEX’s knowledge and capabilities, so it wanted to transfer its technology and know-how regarding deepwater developments

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to PEMEX and academia as well. “It is not an obligation but a commitment because it is something we really wanted to do. In a way, it underpins our success,” says Drouaud.

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from the

Q: To what degree can exploration be translated into more efficient development and production plans? A: Certainly, the fluctuations in the price of oil have had a great impact in our evaluation criteria and in the criteria applied by all regulated entities. At US$70 or even US$60 per barrel, most of these exploration activities still make sense. We also need to consider the incoming energy transition, which has to be balanced with the degree of untapped hydrocarbon resources that still remain to be exploited in Mexico, which include a significant degree of deepwater and unconventional resources. Meanwhile, other flagship fields that we have relied on for too long have become very mature. This points to the need for an integrated strategy in which oil price fluctuations are only one of several factors taken into consideration when it comes to shaping the future of Mexico’s oil and gas industry. Q: To what extent is Mexico’s approach to its development strategies integrating these energy transition concerns? A: Several political questions would need to be addressed before that approach can be taken. Fifty-seven percent of Mexico’s 112.9 billion boe of prospective hydrocarbon resources, which represent 64.2 billion boe, are in the unconventional category, but no amount of potential richness will uncover

Alma América Porres

that potential if there is a political mandate not to allow unconventional development and production in the first place. These political questions would have to be considered in our integrated model. Meanwhile, of the remaining 43 percent of

Commissioner at CNH

conventional resources in Mexico’s prospective hydrocarbon resources, between 48 and 49 percent is located in deepwater. Most deepwater resources were not assigned or tendered during the previous bidding rounds. Therefore, our energy policy would need to address that. Most of our unconventional resources

Priorities For Future Productive Field Design

are focused on the Tampico-Misantla region, with a general distribution across the states of Veracruz, Tamaulipas, San Luis Potosi, Hidalgo and Puebla. Fifteen new areas were assigned to PEMEX in this region recently but the NOC will not be focusing on the available unconventional resources. Q: How should PEMEX drill the wells to correctly delimit its claim over the Zama reservoir? A: The well that PEMEX was planning on drilling near the disputed boundary, which did not appear in its latest evaluation plan, needs to be drilled to settle these disagreements. This means that a well that is close to a boundary would arguably address the geological characteristics present on both sides of such boundary. This type of well can significantly reduce uncertainty when it comes to determining the percentage distribution between two operators in a transboundary reservoir such as Zama. I have a great deal of experience in these types of agreements, since I spent many years working on the GOM hydrocarbon resource transboundary agreement between the US and Mexico, which was defined by similar strategies. The path forward is to reduce uncertainty as much

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as possible. This also reduces the likelihood of negotiations being interrupted by the further intervention of third parties. The agreement should be ideally reached by Talos and PEMEX, and no one else, although in this case it is SENER that will have the final say on the matter.

Conference

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Highlights

Adjusting Expectations for Increased Production Niels Versfeld Chief Executive Officer of Simmons Edeco

Alexandro Rovirosa Chief Executive Officer of Roma Energy Holdings

Iván Galbán Commercial Director of Exterran

Héctor Moreira Commissioner at CNH

Before the discovery of Cantarell in the 1970s, Mexico’s oil and gas resources were understood mainly through its onshore fields. Today, major players in the onshore arena are trying to recapture that focus by addressing the many advantages offered by these developments. “We all know Mexico has great resources but it takes time before results show up in production,” says Niels Versfeld, CEO of Simmons Edeco. The vast geological richness that characterizes Mexico’s onshore reservoirs and basins should be enough to drive the industry’s full attention toward onshore activities. However, Versfeld acknowledged that offshore activity and discoveries dwarf onshore operations. His research has also found that the last few years have been characterized by a depression in rig use, in part because of the temporary halting of all onshore development wells. Nevertheless, onshore reserves in the states of Veracruz and Tabasco have been increasing lately, according to Versfeld. The success in onshore development in the US could easily be mirrored in Mexico, given the two countries’ symmetric geologic conditions. “The geology on the US and Mexican side of the border is exactly the same, so both regions have the same great potential. Operators are working hard to try and make good on this promise,” says Alexandro Rovirosa, CEO of Roma Energy Holdings. For this to become a reality, progress must be made to reach maturation in onshore activity, particularly for private operators. While investment in exploration is still needed to make the most out of the country’s onshore potential, success has already permeated the industry since the establishment of the Energy Reform. “Mexico has invested more money in exploration in the past five years than it has in the 70 years before that. Its reserves are larger than expected. The question now is how to get to production,” says Héctor Moreira, Commissioner at CNH. Infrastructure will be a key topic in boosting onshore operations, especially regarding gas production, and its growth could be boosted through slight changes to the regulatory framework to ease private participation, explains Iván Galbán, Commercial Director of Exterran. “New private operators entering the country have been able to use PEMEX’s infrastructure. But not all plan to rely on PEMEX in the long term and are looking for other ways to connect to SISTRANGAS.” Gas will be an essential component in onshore operations as the country moves toward a gas economy, according to Moreira. “Gas is the cheapest way to generate

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electricity and a major driver for economic growth. Every Mexican state should have natural gas available for manufacturing and production.”

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Expanded Infrastructure Needed for Field Development The infrastructure and facilities utilized for upstream field development in Mexico were significantly impacted by the economic effects of the pandemic: ports were emptier and operated with fewer personnel, while ducts and pipelines administered less traffic while having less access to maintenance and repair services. Even the offshore drilling market experienced a dip in day rates despite drilling activity barely being reduced. However, as many new operators transition to field development and production phases, demand for new oil and gas infrastructure has increased. A number of industry trends have contributed to this scenario, while a group of industry players has also risen to the ensuing challenge. “The COVID-19 pandemic and the corresponding reduction in oil prices are challenges that few anticipated at the beginning of 2020. Nevertheless, our project execution efforts continue full steam ahead,” Andrés Brügmann, Mexico Country Manager of Fieldwood Energy, told MBN. Operators’ Needs As part of the operational continuity that private operators secured after oil and gas activities were declared essential amid the pandemic, more offshore infrastructure than ever before in Mexico was constructed and installed over the past 12 months to support these companies. Brügmann, for example, said the company constructed two fixed production platforms to connect to PEMEX’s Tumut platform. Interconnection to existing PEMEX infrastructure for the purpose of early production commercialization is a necessary transitional step for operators like Fieldwood Energy that had to do everything possible to maintain a project schedule and complete the commissioning of facilities during 4Q20. Brügmann acknowledges the numerous challenges that contractors are facing “due to the pandemic, including equipment and permitting delays,” but he also highlighted another key milestone in the path toward the development of infrastructure. “Finalizing agreements with PEMEX to utilize the Tumut platform and the execution of purchase and sale agreements for oil and gas were necessary to start the early production phase of the project.” By connecting to PEMEX’s offshore infrastructure, Brügmann believes that Fieldwood will be able to accelerate production by two to three years, thus contributing to the production goals set by the Mexican government. New infrastructure has also been necessary to comply with new technological and sustainability standards. “We adopted technologies and procedures that minimize environmental impact during construction and installation operations to honor our commitments,” said Brügmann. Fielwood’s adoption of standards issued by the International Finance Corporation (IFC) has demanded more detailed analysis to identify the full extent of environmental impacts caused by the company’s infrastructure and to implement strict mitigation measures. Fieldwood selected reel-lay technology for the installation of subsea pipelines, allowing welding, coating and testing activities to be conducted onshore so that once the pipeline is ready, it is spooled on board a lay vessel, hence minimizing environmental impacts offshore. “It is my understanding that we are the first company to use this technology in Mexico. In addition

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to technology selection, we also hired marine-biologists to supervise installation activities and ensure that habitats of protected species are not disrupted.” Shifting Incentives at Ports and Yards With growing infrastructure needs from private operators, ports and fabrication yards need to balance the new position of these current and future clients when compared to that of PEMEX. EPC mainstay McDermott spent 2020 building and installing jackets for Fieldwood, building the CASSIA-C platform for BP that will go to Trinidad and Tobago, collaborating with ENI on the engineering and fabrication of the infrastructure for the Amoca field and collaborating with MODEC in its handling of the FPSO that will be doing all the processing for ENI, mainly focusing on building their modules; this is in addition to additional FEED work for a number of these and other operators on both sides of the GOM. Despite this growth in contracts from private operators, the company has not neglected PEMEX. After all, 2020 saw the post-delivery finalization of the globally renowned Abkatun-A2 project, a platform which is now processing that asset’s production. Alfredo Carvallo, Mexico Director General of McDermott, considers PEMEX a satisfied customer. “It is clear that the company is satisfied with the results. It (Abkatun-A2) was a worldclass project, as I am sure PEMEX would agree.” However, Carvallo understands that a shift is underway when he looks at the kind of work that now occupies the majority of his Altamira fabrication facilities. “This is a question of cycles. The government talks about the lack of production from private operators in Mexico but they had to go through their exploration phases before they could reach their work capacity.” Projects that began with the bidding rounds that took place between 2015 and 2017 are now entering their field development phase after concluding their own processes of evaluation. Meanwhile, Mexico’s oil and gas ports are seeing not only increasing business from private operators but also a demand for new types of services that the events of 2020 made much more relevant. Italian engineering, project management and maintenance firm DG Impianti Industriali built onshore facilities to receive ENI’s early production in a relatively isolated section of Tabasco’s shoreline. Now, for a similar early production management project for Hokchi Energy, DG Impianti is now working in Paraiso, close to the Dos Bocas port and its unfinished refinery. “Our work (with ENI) continues to expand and evolve in various directions. We continue to assist the company with engineering supervision, particularly at its plant in Paraiso, Tabasco. One challenge was to begin early production while the plant was still being built, which we executed successfully,” said Giuliano Cacciatore, Mexico Director of DG Impianti. Read the complete article More about this topic

ever before has vessel crew and project technician logistics been so critical as in this age of COVID-19. The potential impact of entire vessel and equipment spreads on standby due to an infection to a team member requires extraordinary efforts and focus to

mitigate. Our mission is to meet our clients’ demand for the highest “standard of care” in terms of safety planning. Consider you are mobilizing your project team and midway through the in-country quarantine period, your Offshore Project Manager tests positive for COVID-19 and the vessel is due to be mobilize three days later to go offshore. This key position offshore is no longer able to mobilize with the vessel and you are unable to replace that position without repeating the same 14-day isolation protocol. Of course, the primary concern is the health of your OPM, and the protocols for such an event are activated, and the medical attention is given. However, what is unavoidable is that vessel, equipment and remaining personnel will have to proceed

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as scheduled, as these commitments can’t be delayed. The result is

Safety Planning Critical to On Schedule, Under Budget Projects Brad McNeill CEO of Frontera Offshore

that you have an operation, generating tens of thousands of dollars per day in cost, ready to go offshore and perform the contracted work scope without the most senior project position. This is a worst-case scenario for last-minute change of project positions and not only a concern to the contractor, but also for the client. The question is, what can be done to mitigate? At Frontera, we determined that there are basically three key areas to on which to focus.A detailed journey management plan is the first key. Testing or evaluation at point of origin is the first step, followed by using all available tools for mitigating potential infection during the journey, and then strict isolation protocols after arrival. It is important that there is emphasis on each individual doing whatever they each can do to keep themselves safe, and adhering strictly to the requirement of the safety plan. When Frontera puts together a project team, careful consideration is given to the overlapping skill sets that will be onboard. The idea is that each individual team member will have a shadow competency or skill from another teammate. If the lead surveyor is unable to perform, the second surveyor should have the ability to fill those shoes to a level of competency that allows work to continue. Careful evaluation of experience is key, and multidisciplined project personnel are an additional insurance policy. Much like an aircraft has a co-pilot aboard as a full contingency measure to counter the situation where the captain is incapacitated, an OPM can also have this shadow position. Mobilize duplicate personnel for the key positions onboard and have the backup team mobilize the vessel while the first team remains in quarantine. The mobilization is closely, albeit remotely, monitored by the first team and the second team takes maximum allowable precautions while carrying out vessel mobilization activities, in such a way that, ideally, both team members are safe to go offshore, even if only one will do so. Even beyond the pandemic, careful safety planning is key not only

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to protecting all the stakeholders, but to delivery of services on time and on budget. For too long, these aspects have been seen as additional burdens and costs but the opposite is true. The potential negative consequences should be unacceptable to both contractor and clients.

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from the

Q: How was Mexico’s marine sector progressing prior to the arrival of COVID-19? A: The marine sector has not been too heavily impacted by the arrival of the pandemic, nor has it had an overly large influence on the work we have done. Offshore platform installation, along with the general oil and gas industry, was specified by the federal government as an essential activity and we have not stopped. Prior to COVID-19, PEMEX was working on its projects and since the arrival of the pandemic it has continued working as much as it can. The economic matters that restrict the company remain but it has commissioned other platforms to be built and they will need installation services. The main change for Heerema is that we now have a contract after having four years of very little activity in Mexico. We expect the future to provide more continuity in terms of contracts and activity. Nevertheless, considering the changes to the industry this year, we do not expect it to be extremely busy. Heerema used to work directly for PEMEX but recently the company decided to give the responsibility of the transportation and installation to manufacturers. Now, we work through the manufactures as sub-contractors. IN MEMORIAM

Q: How has COVID-19 complicated the logistics side of Heerema’s operations and how has the company overcome them?

Octavio Navarro

A: COVID-19 has made the logistical side of the industry more complex. One of the main problems we have had is with crew changes, which is a necessary and frequent requirement when

Mexico Country Manager of Heerema Marine Contractors

working offshore. Each and every country has its own regulations regarding how crew changes must be carried out. Understanding the complexities of each situation has proved a great task. We recently had a situation where we were transporting a

Speed, Experience Differentiate Heerema in the Offshore Sector

chartered plane full of workers from the Netherlands to Canada. When we left the Netherlands, Canada was open but the Canadian government decided to change its stance while we were in the air. This decision forced us to return to the Netherlands. We were able to go to Canada some days later but the crew had to quarantine in a hotel for 14 days. This meant we lost over a month of work time. Q: How competitive is the Mexican offshore market in a post-COVID-19 environment? A: Mexico has always been a good market and Hereema has been successful here because it has demonstrated its ability to finish projects. We enjoy a solid reputation around the world and we have been able to capture the majority of installation jobs in the country. Mexico will continue to be a good market despite the uncertainty over the future of the country’s industry given the economic situation PEMEX faces and whether privates will be able to become more involved here. PEMEX must continue exploring for more oil and making discoveries. That is its primary purpose after all. However, the way that the company accomplishes these goals may change. It

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could get financing elsewhere – outside of the government – but the company will continue searching. This means that offshore platforms will be constructed and need to be installed. Hereema will be happy to support that. None of the private companies will stop their work in Mexico.

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from the

Q: How are your acquisitions continuing their consolidation process under the umbrella of Boskalis? A: Marine survey companies Horizon Geosciences and Gardline are the latest acquisitions of Boskalis and are now part of the Boskalis Offshore Energy division. These companies provide an opportunity for Boskalis to get involved in the very early phases of offshore oil and gas projects and renewable energy projects. These are projects that can transition into important offshore energy infrastructure developments for which Boskalis can offer services that include transportation, installation and seabed intervention. This is why Horizon and Gardline are an important complement to the services portfolio of Boskalis. Q: How have your expectations regarding Mexico changed in 2021? A: From the perspective of our Survey Services, we are still looking at many projects that have a high degree of potential despite the general CAPEX drop in the Mexican oil and gas industry. We interpret this drop to be a delay in the commitments that companies made when acquiring their blocks, rather than anything permanent.

Harold Velazquez

There are about 29 shallow water blocks awarded during the bidding rounds that are being developed by both international and Mexican oil and gas companies. Drilling commitments were made by these companies in terms of their exploration

Americas BD Manager of Boskalis Offshore Energy

campaigns. Some of these workplans have already been launched, while others are moving at a slower pace, but they present opportunities for us. Wells that will be drilled as part of those exploration plans will

Field Development Leader Switches to Earlier Life Cycle Phases

require appraisals and marine surveys that both Horizon and Gardline are ready to offer. Q: How would you describe the state of your portfolio for fields’ initial development cycles? A: The work in the initial exploration phase is definitely of our interest. Exploratory and appraisal well drilling surveys will be required in Mexico and these services are an important focal point for us. The segment at the end of the development cycle, that of construction of offshore field infrastructure, has yet to become more active. We need to see more exploratory wells transition into production wells. The potential is there, and as an example you have the major fields in development by Fieldwood, Hokchi, ENI and Talos. We are following the exploration of the new fields and are searching for opportunities where we can participate. Some of these operators may have delays on their programs but we expect them to pick up the pace toward the start of 2021.

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Both Horizon and Gardline have been busy surveying in the Gulf of Mexico and the Atlantic coast of the US, not only for oil and gas activities but also for offshore renewable energy projects. We have the capability to mobilize these vessels for survey work in Mexico if needed.

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from the

Q: What are the most important lessons learned from 2020? A: COVID-19 affected all companies in the sector equally. The biggest lesson we learned was perseverance and we were able to keep all of our projects at a global level. We kept operational interruptions to a minimum. We faced challenging situations in different parts of the world but we began working through a framework based on adaptation to the unusual environmental and contextual challenges that we find in different working locations. We were able to sail through 2020 without absorbing any substantial negative impacts. We also avoided any major setbacks in terms of health and safety, while maintaining regulatory compliance with all environmental matters. In general, we closed the year with positive results considering the circumstances. Q: What were the most important challenges the company overcame with its ongoing work with Hokchi? A: We continue to assist the company through engineering supervision, particularly at their plant in Paraiso, Tabasco. One challenge was to begin early production while the plant was still being built, which we executed successfully. But we did experience unexpected roadblocks on this project in 2020. For example, the number of our personnel on-site had to be limited as testing protocols were put in place.

Giuliano Cacciatore

In general, our work became more challenging than we expected due to the pandemic but we were able to make sure that work was unaffected. We are known to work with speed and agility, especially when it comes to delivering projects. The pandemic

Mexico Director of DG Impianti Industriali

forced us to adjust to delays. We had to guarantee the constant onsite presence of certified experts who could supervise and approve engineering operations at the highest standards. Our ability to do so was limited by quarantines and travel restrictions, so we had to broaden the networks of experts that we could rely on. We also

Perseverance, Adaptation Drive Success in Challenging Year

received assistance from our personnel in Italy. As a result, our response time became quicker than usual during the pandemic. Q: How is the company increasing its local content? A: We begin with training programs for local personnel to build a base of common knowledge that makes communications and coordination more agile. We work under a flexible and efficient model that minimizes meetings and redundant orders, messages or other forms of communication. Sometimes, that can result in a bit of a culture clash with local business customs, which has happened in Mexico. We also make sure to have senior experts oversee the process as each project enters a critical phase and to train personnel during our work. This structure has allowed us to increase our local content levels, since every employee gets involved in training sessions, from managers to technicians and manual laborers. The percentage of Mexican workers in our projects now ranges from 93 to 96 percent. When it comes to local content for material used in construction and engineering, we find Mexico to be an incredibly resourceful location. The technologies and the qualified talent we need have

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all turned out to be readily available. We have also found service providers that help us fulfill our projects’ needs. By combining this local procurement with carefully planned logistics that could absorb the delays caused by quarantine and testing periods, we were able to normalize our operations in the midst of the crisis.

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from the

Q: How has the Mexican oil and gas industry’s risk profile changed over the last year and how has that impacted your current and potential client base? A: The risk profile of our industry has not changed, since oil and gas are hydrocarbons and have explosive and flammable characteristics. Therefore, the activities concerning these are legally defined as “highly risky.” For this reason, our industry is regulated by rigid industrial and operational safety standards set by entities designed to issue such regulations, such as in the case of ASEA. What we have noticed in the past year is a notable change in regard to the investment financial risk perspective. This has occurred in large part because of the global economic contraction due to the pandemic, which has completely shifted market dynamics. Another significant factor is that the federal administration has initiated legislative actions that have affected the legal certainty for investors. This has resulted in a temporary suspension of activities or projects for some clients, who are waiting to restructure their investment models and reduce their costs and adapt to the industry’s new political reality. Nevertheless, many entrepreneurs who decided to carry out large investment projects in Mexico, such as those related to oil exploration and production, have a long-term vision and know that

Graciela Álvarez

returns on investment do not occur immediately. Q: What educational and networking initiatives are urgently needed to further unite the public and

CEO of NRGI Broker

private sectors in the oil and gas industry? A: I am wholeheartedly convinced of the importance of entrepreneurial ties with the public sector. With the creation of my “Voices of Energy” initiative, businessmen from the industry are

Insurance Broker Supports Entrepreneurs, Spreads Knowledge

meeting periodically with public actors from various institutions. The premise is based on establishing communication networks that transmit technical knowledge and financial risks regarding the success of energy projects. In my personal experience, I have always found that both sides of the coin have been willing and empathetic. We must continue working in a coordinated manner with associations and industry chambers, forums, congresses, seminars, universities and the media. If there is more information exchanged and a better understanding of this vast sector, it will lead to a more equitable development of the industry. In this regard, a new project called “Energy Vision” was launched in 2021, in which I share my opinion on relevant issues within the oil and gas industry. My goal is to spread industry knowledge to all levels of society. Q: What is your view of the idea that the industry’s overall positive curve of activity is being maintained or will return in the short term? A: I see an industry that continues to believe in our country and entrepreneurs who fight daily to maintain their operational structures and keep their projects running. We cannot deny that there were uncertain months as the economy contracted and regulatory decisions influenced business actions. Just as in other markets, there is no set future. In life in general, change and risk are constant. Since we chose to be entrepreneurs, we risk our capital

to obtain profits. If profits are threatened, the challenge is to minimize all risks and confront issues by making decisions that ensure our survival. Q: How do the latest actions taken by SENER and PEMEX regarding the NOC’s strategy and future vision impact your perspective on the industry as an insurer? A: The new law promoted by SENER and approved by Congress was challenged in court and, therefore, has been suspended until judges resolve the matter. However, this has not halted the signing of new contracts under the previous scheme of service contracts. After all, one thing is certain: we need crude oil to refine in Mexico or to export to the international market. At NRGI Broker, we believe that a paralysis in the industry is the worst-case scenario because everyone loses. Q: How will recent discoveries by both PEMEX and private companies impact the sector’s development and the NOC’s priorities for the short and medium term? A: Our country has been a hotbed for offshore drilling and exploration since 2020. This has allowed Mexico to become a leader in offshore activity. The main drivers here are private companies committing to investment in exploration and drilling in accordance with their CNH contracts and PEMEX’s strategy of assigning turnkey drilling contracts to national players. As we can see, interest in Mexico’s shallow water has remained solid despite the pandemic. Speaking of PEMEX’s coordinated efforts with private operators, the Zama-1 field comes to mind. US-based Talos Energy, a partner of Block 7 and PEMEX, is working with SENER to determine the terms of a Unitization and Unit Operating Agreement (UUOA), based on international best practices. Currently, the parties are concluding the final definition of interest divisions regarding participation in the field and who will operate them, among other key issues. We are confident that the final agreement will benefit all parties involved, as well as Mexico. Recent PEMEX discoveries, such as Dzimpona-1, Miztli1EXP and Uchukil, represent potential resources of around 14.5MMBOE, representing a definite impact on Mexico’s oil reserves with high probabilities of geological success. Our industry’s activity persists. PEMEX continues to work with large national and foreign private service providers, such as Halliburton, Schlumberger, Baker Hughes, Diavaz, Cotemar and Protexa. Therefore, NRGI Broker will continue to successfully provide the support and security that oil activities require, at both onshore and offshore oil fields.

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SPOTLIGHT

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Ambitious Change Needed to Ensure Energy Transition: DNV Companies in the energy sector are beginning to recognize that to ensure a successful energy transition, a more ambitious and impactful change is needed beyond dropping certain fuels and power generation technologies while favoring others. “The 2020s have been called the decade of transformation or the ‘exponential decade,’ where the pace of the energy transition will be set and where food, health and transport systems will change immensely,” says Peter Lovegrove, Media Relations and Video Production Manager at DNV. This change will create new demand for services such as DNV’s. Assurance will be essential when certifying the authenticity and effectiveness of decarbonization measures and risk management will play a key role in making sure operations are executed safely. As part of its rebranding and restructuring efforts, DNV will be merging its oil and gas business with its other energy areas to create a new division called DNV Energy Systems. This business will seek to become a renowned global resource for independent expertise in energy, the energy transition and related certification processes. Ditlev Engel has been named the leader of this new department, which will offer certification, advisory and digital monitoring services to all assets in the energy value chain. “The creation of Energy Systems is our answer to an energy market that changes rapidly as it searches for a deeper decarbonization,” DNV Group President and CEO Remi Eriksen said. The company is following the Read the complete article More about this company

same strategy in Mexico, where it will continue to offer its complete range of services aligned to its new strategy and the needs of its clients.

Swiber: Diversifying in the Face of a Changing Industry Antonio Villegas Director General of Swiber Offshore Mexico

Secondary Markets for Fleets Emerge Pavel Hernández Director General of OH Maritime

Campeche Basin Port Development at a Crossroads Salvador J. Preciat Director General of H&R Naviera

How the Pandemic Contributed to Mexico’s Offshore Future Rodolfo Alfonso Esquivel Director General of Grupo Roales

Mexico Is Now Aligned With the Highest Safety Standards Pablo Rivera Director for the Americas of Frictape

Light at the End of the Tunnel for Pipeline Maintainers Óscar González Vice President for Latin America of NDT Global

New Chapter for Siemens Energy Begins Now Patrice Laporte Head of North America Industrial Applications Products at Siemens Energy

Digital Transformation of Offshore Oil, Gas Logistics a Must Enrique González CEO and Co-Founder of Nautech de México

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A Survival Manual From Onsite Experts Francisco Ruiz Galván CEO of ASISPET

Production & Mature Fields PEMEX’s production levels and President López Obrador’s production metrics were thrown for a loop in 2020 after the pandemic triggered a concurrent crisis that saw doubledigit negative oil prices. The world bore witness to the sight of hundreds of tankers all over the world floating unmoored a few miles from ports, waiting for the return of a market in which unloading their contents would not result in a massive loss. An intense and controversial round of negotiations between Mexico government officials and OPEC+ authorities also resulted in Mexico agreeing to months of production cuts, considered the country’s “fair share” in helping to stabilize the market. Mexican production levels also took a hit as a result of other complications related to the pandemic. But as the year progressed, production stabilized, entering a steady upward trajectory from the second half of 2020. As a result, production is on its way to reaching the 2MMb/d benchmark that represents one of the most visible political goals of the presidential administration. On the journey to that benchmark, many questions remain regarding the way in which Mexico will manage to diversify its production portfolio, both within PEMEX and on a broader canvas. This will prove necessary to achieve what the president calls his true production goal toward energy self-sufficiency, which is sustainable production at or above 2MMb/d.

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The Future of Mexico’s Production Portfolio Despite Mexico’s agreement with OPEC+ to cut down production levels, Mexican oil production survived 2020 with only a minor impact. According to CNIH data, production never dipped below 1.6MMb/d, with a nadir of 1.604MMb/d in July 2020, which was the month immediately following the OPEC+ agreement. While production levels have yet to reach the pre-pandemic 1.7MMb/d benchmark, continuous increases since August 2020 indicate that reaching the milestone is only a matter of time. The government’s insistence on raising production levels clashes with the prevailing uncertainty and discussion that surrounds the question of the future value of oil. All of this raises questions for Mexico regarding where its oil will come from and whether its sourcing will have to respond to a new structure for the national industry and for the global oil and gas market. Diversification will prove to be essential in this process, experts told MBN. PEMEX, SENER: Opportunities Clash With Ideologies PEMEX’s flagship fields, such as Ku-Maloob-Zaap, are now categorized as mature. Their faster-than-expected depletion is now considered a certainty by the company’s upstream engineers. Besides increasing its production levels, PEMEX’s No. 1 mandate is to reduce its debt, which implies the urgent need to make its production processes and commercialization as efficient as possible. How PEMEX can significantly reduce its debt without reducing its production levels is the dilemma that the NOC finds itself in, according to renowned energy sector analyst Arturo Carranza. “This is what the credit rating agencies are talking about when they say that PEMEX needs to reexamine its business model.” The key is in collaborating with the private sector, says Carranza. “This new business model should be focused on the tools that PEMEX gained from the 2014 Energy Reform, instead of ignoring those tools with the strategy that has been adopted since December 2018.” This includes the use of farmouts, associations and alternative contractual models that allow it to share risk with more ease. The prevailing political climate in Mexico shows no indication of changing enough to allow SENER to organize the restarting of bidding rounds. However, SENER has the opportunity to respect these political limits while also finding a way to make some of these contractual tools available to PEMEX without creating unnecessary conflict. This would allow PEMEX to diversify the sourcing of its production levels, especially when considering the steady rhythm of discoveries that the NOC has been making since 2019, such as that of the Quesqui field. Otherwise, the only degree of support that SENER will be able to give the NOC will be limited to direct financial support, according to Carranza. “If the NOC’s indicators do not improve significantly in the short to midterm, the governmental financial support it receives could become a money pit that threatens the integrity of public budgeting. It is debatable whether SENER’s transfer of more than US$2.26 billion to PEMEX could have been better spent elsewhere,” he says.

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Nevertheless, Carranza says PEMEX’s strategy is producing some positive results in the form of increasing crude oil processing at refineries. In 1Q21, production levels of oil products increased 42 percent when compared to 1Q20. “This is a significant increase that highlights the government’s efforts to have a nationally productive industry that can provide energy sovereignty and independence.” The question is whether these upward trends in production levels, both upstream and downstream, can be maintained. “Increases in oil production do not always correspond to increases in investment. One could even argue that investments so far have not resulted in the expected amount of production increases.” Carranza also observes that calculating these figures is extremely difficult given the unique situation the oil and gas industry experienced over the last 12 months, but he remains skeptical that PEMEX will be able to maintain a positive growth curve as far as its production metrics are concerned. “Oil demand and prices are likely to continue their recovery, which will increase PEMEX’s income and corresponding financial maneuverability. However, the situation remains too complex for the company to safely continue its course without any significant change in its business model,” says Carranza. Private Operators’ Contributions While production contributions of private operators to national levels have been modest, they have done nothing but rise throughout 2020 and 2021. Hokchi Energy began early production right in the middle of the pandemic by developing a shallow water field originally discovered by PEMEX in 2009 and holding 178.1MMb in total crude. According to AMEXHI Director General Merlin Cochran, the field is likely to produce 15Mb/d to add to overall production figures this year. Hokchi’s output can be added to the 25Mb/d that Cochran believes could be produced by Fieldwood and Petrobal at the Ichakil and Pokoch fields by the end of 2021 and Eni’s 22Mb/d from the AMT complex since 2020. These offshore operators have also continued with their exploration activities, incorporating significant volumes of reserves that could be added in the short to midterm to the country’s production portfolio. At the end of 2020, CNH announced that it had approved Eni’s multimilliondollar exploration plans to extend its search of the Saasken field, a discovery the company said could hold up to 300MMboe. Onshore operators have also contributed significant production volumes to Mexico’s portfolio. Onshore projects reached productive phases sooner than expected, especially those that began as abandoned PEMEX fields and that were easier to connect to PEMEX’s commercialization infrastructure. Many might not represent the large volumes handled in the shallow waters of the Campeche Basin but their contributions are collectively significant nonetheless, especially due to their relatively lower extraction costs. One example is provided by Yann Kirsch, COO of Perseus Energy, who highlights the company’s cleanup activities at the Tajon reservoir, which revealed the reservoir’s great energy and pressure, reaching a production potential of 7Mb/d. “Tajon’s upcoming well remediation has led us to discussions with top oil field services companies to make sure that this process is as successful as possible,” says Kirsch. In Perseus’ other major block, Fortuna Nacional, the production potential has motivated Read the complete article More about this topic

what Kirsch calls “an aggressive drilling campaign.” “We believe that Fortuna Nacional is a field with tremendous potential and a royalty scheme that enables high ROI and profitability.

he Mexican petroleum industry is the stuff of legends. Let us consider two of our most famous ones. Near a small town in northern Veracruz lies the Cerro Azul #4 Well. It produced the astonishing amount of 260,858b/d when it initially came online. Discovered in

1916, this prodigious well accumulated over 64MM barrels by 1922 and continues to produce small amounts of oil today. Now we go off to the giant oil fields beneath the Gulf of Mexico, off Campeche, Tabasco and Veracruz. The largest one by far — the Cantarell Field — is one of the five-largest oil fields ever found. At its peak, it supplied over 2MMb/d to Mexico. This level of production is larger than all but the world’s 10 principal oil-producing countries. Mexico is also the ninth-largest consumer of natural gas. The country has abundant hydrocarbon resources. During the 1980s and 1990s, domestic natural gas production grew as consumption ramped up. From 2006 onward, the story changes: drilling

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activity suffered a dramatic drop as PEMEX turned its attention

Natural Gas and the Stuff of Legends Warren Levy CEO of Jaguar Exploration & Production

away from natural gas and toward drilling for offshore oil. The fall has resulted in domestic production first leveling off then entering into a steep decline, and imports soaring to meet the ever-increasing demand. Mexico’s demand for natural gas continues to grow. Growth is a sign of an economy interested in moving toward cleaner forms of fuel to generate power and develop it. When thinking of a growing economy, increased demand for natural gas and the potential under the Mexican soil, it would seem logical to explore and develop more natural gas. The importation of almost 6Bcf/d of gas from the US represents around MX$90 billion (US$4.5 billion) in money that could be invested in Mexico and benefit the Mexican economy that is going to producers in the US. Experts everywhere agree that natural gas plays a vital role in the energy transition. Power generation with natural gas burns cleaner and more effectively than other options used in Mexico today. Beyond the immediate need to reduce emissions associated with power generation, and even as the world makes great strides to increase the use of renewable energy sources, natural gas is essential for manufacturing petrochemicals for an ever-cleaner global grid and is essentially in the transition to a cleaner and better world. Mexico has made strides in indexes such as the Social Progress Index and the Environmental Progress Index. Nonetheless, its efforts have been insufficient. Governments alone cannot take the necessary steps to improve these indicators.It is my view that companies should take a more active role in driving social and environmental change. Companies have come to realize that doing things the right way — that is, engaging with communities, working with all stakeholders and finding better ways to do business — are the keys to achieving long-term sustainable and profitable businesses. In Mexico, natural gas is an excellent place to start; it is a global necessity, especially in Mexico. We are blessed with an exceptional

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endowment of natural resources that remain underdeveloped. Once responsibly developed, these resources will generate significant social benefits, employment, tax revenue and could guarantee a cleaner, more sustainable future. I am confident the stuff of the future Mexican legends will originate in natural gas.

Conference

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Highlights

Collaborative Push to Redesign Offshore Operations Luis Vielma Lobo President and General Director of CBMX

Sonia Castellanos Geomarket Manager Mexico and Central America of Schlumberger

Hermes Aguirre Mexico Country Vice President of Halliburton

Cesar Vera

Offshore suppliers and service providers faced a double-edged sword in 2020. As an essential sector, core operations continued uninterrupted but the delay and cancelation of various projects, coupled with the oil price crisis, sent others out of business. The offshore supply chains have experienced major adaptations as a result. “The pandemic has transformed the global village of the oil and gas industry,” says Luis Vielma Lobo, CEO of CBMX. In this process, digitalization played an important role, determining the rate at which companies could adapt to new concepts as the pandemic began taking its toll, says Javier Cabrales, Coating InfluXpert O&G at PPG Comex. “The big challenge of the energy sector is to use digitalization to keep the supply chain moving and take advantage of opportunities. It is all about speed,” he says. The acceleration of technology adoption forced the hand of many companies in the industry, whether big or small and across the chain. One example is Schlumberger. New process redesigns the

COO of Naviera Integral

company had been discussing for years had to be implemented

Joel Vladimir Ulloa

in a matter of weeks, or months at the most, once the pandemic

Global Business Operations Director of Grupo Cemza

Javier Cabrales Coating InfluXpert O&G of PPG Comex

started, says Sonia Castellanos, Geomarket Manager for Mexico and Central America at Schlumberger. Fortunately, the landscape has shifted for the better, Castellanos says, with the offshore sector in a state of reliable recovery. “Higher crude prices and economic reactivation are a reason for cautious optimism. Nevertheless, the sector needs to carefully navigate the current opportunities to benefit.” Another issue the offshore sector faced was a reduction in the available qualified workforce. Coupled with a scarcity of materials, this meant that available resources needed to be rationed, including in contracts with suppliers and service providers. These contractual practices needed to become more flexible and open to proactive solutions while remaining reliable. To create a truly healthy and consistent service economy in Mexico´s offshore segment, Cesar Vera, CCO of Naviera Integral, adds that a move away from a top-down perspective is needed because the sector changes in a recursive fashion. Everything that happens in the industry has a direct impact, one way or another, week after week. Vera believes, however, there is an opportunity to support constant offshore activity but fleet managers’ clients will need to take a chance with longer term contracts if they want to promote economic health and growth. “Fleets do not work with the Uber model. Leasing a vehicle is not the same as contracting a ship.

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Long-term contracts with efficient costs and operational provisions are essential,” he says, adding that longer term contracts enable the coordination and planning to navigate contingencies.

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Q: What are the latest updates on Jaguar’s operations in Mexico? A: Last year started with a plan to pick up a rig in March and then a second and a third rig over the course of the year. These plans had to be changed due to COVID-19 and the need to modify operational processes safely. We picked up the first rig in March, just before the shift to remote work began, and kept the rig drilling throughout the year. We did not end up picking up the second rig until November. We were able to complete six wells by the end of the year. Our plans have effectively been delayed by a couple of months. Our original plans remain in place and in 2021 our drilling campaign will ramp up. The results from 2020 were successful. The most important achievement for Jaguar was a complete year LTI-free. We had not drilled with these rigs before and we incorporated all the different and new service providers into our ranks, which was a great feat. We were also able to improve drilling times throughout the year and have seen some promising initial results. Only one is producing and tied in but we are testing others. We have focused more on maximizing production in existing fields. During 2020, we reactivated a number of wells. This allowed us to more than double our production. Given that these fields had legacy infrastructure, we are pleased with the result. Aside from this, we have worked hard to consolidate our position with

Warren Levy

the communities in our project areas, as well as accelerating the work we are doing on the environmental side. 2021 is a key year for Jaguar to deliver exploration results.

CEO of Jaguar E&P

We have also prepared a development program that we are in the process of permitting with the government that mostly encompasses our acreage in the Burgos Basin. The goal is to raise production via development wells and additional facilities.

Jaguar: Pandemic Delays Used to Refine Planning

Q: What will be the company’s next steps with its onshore blocks? A: We have just finished the drilling on Pikit and the VC02 block in Veracruz and are in the process of completing and testing the well. We have three operating areas that are divided by scope. The northern part of the Burgos Basin, which includes Blocks 4, 5, and 7, is well characterized and includes infrastructure. Here, we are doing evaluations and extensions ahead of small incremental investment. Blocks 8 and 9 in southern Tamaulipas are considered highimpact exploration, including new geological play concepts. These blocks are higher risk and higher reward, with potential of reservoirs of 1TCF of gas. We are evaluating results from one well we drilled on these areas last year. In Veracruz on Blocks VC02, VC02 and TM01, we are looking for new play concepts and proven hydrocarbon systems. There are both shallow and very deep prospects. The challenge is assuring that we have evaluated enough of the shallow prospects to justifying taking the depth risk. In Tabasco, we have two blocks in the Sureste Basin with well-known play types. Because of the complexity of accessing

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these two blocks, PEMEX did not look at them. Nevertheless, Jaguar believes the potential is there.

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We want to get one well drilled on every block. This is a priority and will help us workout any pending technical issues in the plan.

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Q: How did Perseus adapt its operations to the pandemic event of 2020? A: The lack of information and certainty that existed at the time in regards to the pandemic made communities in the vicinity fearful and that had an impact both with the suppliers and on-site operations. We made sure to follow all WHO recommendations, Mexican Health Ministry protocols and QHSE protocols. We also had to adapt to the additional expense that COVID-19 tests represented. In this sense, you could say that there were internal and external components to all of this. The internal component had to do with adapting our company culture and protocols to the needs resulting from the pandemic. The external component dealt with communicating our compliance to the communities, so they were aware that our operations posed no risk to their health. Q: What conversations did you have with contractors and financial institutions to distribute the economic burden resulting from the pandemic? A: The pandemic really brought the financial community almost to a standstill that extended to state and local governments, as well as local organizations and industry associations. Even regulators like CNH closed their offices for some time, which affected us greatly. While we are very much in contact with financial institutions, there was no denying that those same institutions had to act according

Yann Kirsch

to the uncertainty that took place in the markets during the early stages of the pandemic. Today, many believe that matters are more under control than they used to be. This confidence has continued to increase with each announcement regarding the vaccine

COO of Perseus Energy

rollout, which has opened the door to additional project financing, should that prove necessary. The operability of suppliers and service providers was definitely greatly affected by the pandemic, particularly during the first months, but we believe that the industry has recovered, especially as PEMEX relaunches a crucial

An Operator’s Silver Linings From a Difficult Year

number of its ongoing projects. Q: How have your field development expectations changed? A: We reached the well cleanup phase in the Tajon-2. Unfortunately, this cleanup process led to the discovery of a mechanical problem in the well during the drilling process. This has led to a suspension of activities at Tajon-2 and we are in the process of performing well remediation. Fortunately, the cleanup revealed the reservoir’s great energy and pressure, reaching a production potential of 7Mb/d. This upcoming remediation has led us to discussions with top oil field services companies to make sure that this process is as successful as possible. When it comes to Fortuna Nacional, in our last interview we spoke about the need for an aggressive drilling campaign. These were plans we shared before the pandemic. Unfortunately, all of those plans had to be delayed, as expected, given the pandemic. However, the execution of that drilling campaign is still very much a priority for us. We believe that Fortuna Nacional is a field with tremendous potential and a royalty scheme that enables high ROI and profitability. Both Tajon and Fortuna Nacional also have

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the advantage of the interconnectivity to PEMEX’s infrastructure, which allows for an effective commercialization of all produced hydrocarbons. We expect to reactivate production in Fortuna Nacional by March and work on some targets in the FN-19 previously drilled well.

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Q: How did the pandemic change how you implement digital tools in the company’s operations? A: The priority during any implementation of our solutions has been the preservation of our employees’ health. Now, the reality is that we had already built and had the experience implementing new work processes using digital technology before the pandemic, with our DELFI cognitive E&P environment. Before the pandemic, I am not sure we really understood the stakes of applying those technologies or fully appreciated the economic gains and growth that this digital environment could provide to industry. This led to a general shift in the mindset of the company, regarding the urgency to provide our clients the capabilities to use digital technology. The degree to which some of these digital technologies have been implemented varies by country, so adaptations and customizations have been necessary. However, the favorable macroeconomic effects of digitalization and of the use of a digital ecosystem and tool technology, became apparent almost immediately. Q: How have digitalization projects in Mexico accelerated as a result of the events in 2020? A: Projects that were heavily focused on remote operations and decentralized decision-making processes had to be prioritized as our employees began working from home. We considered field and on-site operations to reduce on-site crew size while

Janeth Jaimes

still maintaining operational continuity, building new levels of instrumentation, automation, and autonomy directly into the existing drilling operations.

Digital Manager for Mexico and Central America of Schlumberger

One example of this transition is the implementation of digital twins, which enable remote work. Another example, was the accelerated adoption of a virtual environment for a project, with more than 50 experts from different specialties and working remotely around the world, working through this pandemic with no

The Importance of Applying Digital Tools

interruptions and deep collaboration by identifying and de-risking exploration opportunities, adding ML algorithms for time reduction in specific workflows supported by DELFI environment. This exploration process increases effectiveness by at least 30%. Q: What elements are needed in Mexico’s oil and gas industry to accelerate the use of digital platforms? A: The situation in Mexico is interesting in this regard. One of the areas where we can accelerate the use of digital technologies are in data handling, security and processing. The way data moves throughout oil and gas assets in Mexico present us a few areas of opportunities concerning data management, infrastructure and security. This is normal considering the maturity of many Mexican oil and gas assets and facilities. Fortunately, more and more companies are co-developing new digital platforms to improve data handling processes. To address these important elements, Schlumberger has expanded its partnership with strategic companies like Microsoft, to continue introducing and increasing the use of its industry-first, AIenhanced cloud-native solution “DELFI” through the OSDU™ Data

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Platform. This partnership will allow us to expand the use of cloudbased technologies in Mexico despite existing obstacles. The most important thing for our clients and for us, when it comes to using cloud-based technologies, is reliability and security. Data must always be accessible and secure in any situation.

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“Reframing the Role of Recovery Methods, Technologies” PEMEX spent a considerable portion of 2019 talking about the significant role that EOR and IOR applications would play in its path toward achieving its production objectives, but the hype was lost during 2020 and 2021. While this was mainly because of COVID-19, the industry was also preoccupied with the discovery of new assets, which became more prominent than a strategy based on increasing recovery rates at existing and mature assets. EOR and IOR applications, however, have not disappeared. “Mature fields are of critical importance in Mexico’s production portfolio. We are heavily involved in the application of new processes and technologies that can optimize production in these fields,” says Hermes Aguirre, Mexico Country Vice President of Halliburton. Even the development approach to mature fields of a company as large and recognizable as Halliburton can be highly experimental. Aguirre says that oil field service companies like Halliburton are looking to improve their business lines in Mexico by seeking alternatives to the traditional methods of mature field exploitation. In general, Aguirre’s expectations regarding market interest for these kinds of services are quite high, both for PEMEX and private operators. However, demand for EOR and IOR services is often related to price conditions: field operators need to see a very high advantage in costs per barrel extracted to consider exploring all the recovery services that could be at their disposal. This favors a low-price environment, which is not ideal as EOR and IOR service providers would need to lower their prices, as well. These companies benefit from a high-price environment because that allows them to charge a higher premium for their services. “With lower prices, regardless of how much more appealing our services might become, our prices still have to go down, which means our entire supply chain might have to be compressed and rearranged to keep profits coming,” explains Chairman and CEO of SERTECPET Eduardo López. “Our advantage in this context is that we possess the technological capabilities that can adjust our tools and solutions to each well. This flexibility gives us more options to make our operations more efficient.” The ability of operators and EOR/IOR service providers to adapt to new price conditions is as important as their ability to adapt to the different and evolving conditions of each reservoir. Vicente González Dávila, Director General of Geo Estratos, argues that price and general industry conditions unfavorable to recovery technologies actually predate the crisis of 2020 in Mexico. “Our company is dedicated to the development of new recovery technologies and to adapting to market conditions where the added value of cost reduction has not been as much a requisite as it should be. This has been the unfortunate case of the Mexican context since 2017.” In Dávila’s view, the price crisis might have steered the industry in the right direction. “The entrance of new operators into the market has created a new and more positive outlook regarding costcutting technologies that we see growing over time. This growth has been exacerbated by the recent oil price crisis.”

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Dávila believes that the degree to which costs can be cut using EOR and IOR technologies also depends on the degree of customization to each individual customer and production system. “This kind of customization will only become more necessary over time.” He adds that PEMEX is going to require the kind of EOR and IOR services that companies like his can provide. This is especially true for the use of water as a tool to improve recovery factors in reservoirs through displacement. “The efficient use of water for the displacement of oil and gas in assets and reservoirs will become a focal point of companies’ finances and investment strategies. This is a niche that we are quite well-specialized to address.” The Importance of Policy Incentives Public sector authorities can also play a role in creating additional incentives for the application of EOR and IOR tools. Former CNH Commissioner Gaspar Franco highlights that one of the proven mechanisms to allay the additional risks and investment that EOR demands from operating companies is the granting of fiscal incentives, providing flexibility to regulatory frameworks and thereby generating win-win scenarios. Franco believes that EOR and IOR have proven their worth as important tools in numerous countries around the world, leveraging higher production and recovery factors despite higher investments and risks involved. The use of incentives has boosted the application of EOR and IOR projects, leading nations to significant benefits, such as greater incorporation of reserves, larger local investments that benefit communities and their economy, increased production and improved recovery factors, adding attractiveness to investments, which results in better credit ratings as oil income grows, begetting an overall higher tax collection. Still, Franco sees a bear market for EOR and IOR in the country. “Mexico practically does not have any EOR projects. Consequently, the country’s average recovery factor barely reaches 20 percent, which is almost half of the worldwide average. The granting of incentives for the application of EOR methods is still incipient and scant.” Franco points out that Canada, Brazil and Norway have all created a comprehensive incentive program for EOR and IOR projects, with the general aim of increasing recovery factors, which have all proved significantly successful. In Norway, recovery factors for some of the fields exceed 60 percent. “Ekofisk, one of Norway’s main and most famous examples, began its productive life in the 1970s. Production increased and declined but due to the judicious application of an EOR process, it generated a second peak of productivity. This effect had a positive impact on profitability, contributing to an increase in the value of its Government Pension Global Fund to about US$1 trillion.”

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Conference

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Highlights

New Urgency for Automation, Remote Operations After COVID-19 Amanda Duhon Regional Director of North & Central America at Energy Industries Council

Laurent Pagnon Vice President of Digital, External Technology at Technip FMC

Ricardo Velazquez Manager Application Engineering of Belden

Manuel Arroyo Industry Solutions O&G Director of Emerson

Augusto Borella Hougaz Vice President of O&G Products of Intelie

Eugene Spiropoulos Global Systems Business and Consulting Leader of Yokogawa

Fernando Arcos Director of PMO at W-Industries

n every industry, technology adoption became essential for business continuity during the COVID-19 pandemic. However, there is still an urgency for digital maturity, says Manuel Arroyo, Industry Solutions O&G Director of Emerson. “It is not just adopting technology; companies need to mature and develop

a coherent integration of processes.” Despite over a decade of automation that integrated technology into operational processes, there are still people in the field gathering information manually, which is why it is important to implement automation at this stage. But it is about more than just simply using technology. Technology needs to be integrated to ensure business continuity in the delivery of products and services, according to Laurent Pagnon, Vice President of Digital, External Technology at Technip FMC. “We have integrated new technologies and procedures like video assistance, which has changed the landscape of onshore operations, allowing us to connect with operators in the field.” The next step for technology adoption and integration relates to sensors and real-time screening during operations, allowing for faster automation and real-time decision-making, says Augusto Borella Hougaz, Vice President of O&G Products at Intelie. “Moreover, we need to adopt simulators to run in real time, coupled with machine learning to have a mathematical approach that supports our decisions.” Data gathering is another element to this trend and with that comes the challenge of filtering the information appropriately, says Eugene Spiropoulos, Global Systems Business and Consulting Leader of Yokogawa. Among the breakthrough trends in 2021 is adoption of the cloud as an integral piece to operations going forward, but even here there are still needs, says Ricardo Velazquez, Manager Application Engineering at Belden. “Cloud-based and edge computing with solutions for remote vulnerability assessment are what we, as companies, need.” Like every other industry, the digital transformation has also highlighted cybersecurity as a major concern. Adding more devices provides a bigger surface area for criminal hackers, posing a greater threat to companies. “Monitoring and identifying your threats is a necessity,” says Spiropoulos. “Companies need to have visibility and a strategy to respond.” With greater automation and technology adoption, the need arises for a regulatory framework to set necessary standards. Fernando Arcos, Director of PMO at W-Industries, calls on companies to help

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ensure regulatory requirements “have equal, safe practices that favor an innovative environment and that allow automated and remote practices without breaking the rules.”

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Q: What elements of PEMEX’s development priorities represent the most significant areas of interest for Halliburton? A: Exploration is an area of significant interest for us that we continue to pursue. Lately there has been an incorporation of a number of new fields into the market portfolio, and so, these need to transition from an exploration phase to a field development phase. Significant effort and investment are still needed in each of those fields to complete their transition. These fields require state-of-the-art technologies due to the technical challenges they present, such as high-pressure, high-temperature wells. Sophisticated yet effective well designs and configurations are crucial. At the same time, exploration is a category that we consider more broadly. There are many private operators in Mexico with CNH exploration and development plans that we help who achieve positive results and even unexpected discoveries sometimes. We play a central role in maintaining Mexico’s shallow-water fields in the country’s overall production portfolio. In the deepwater segment, the NOC is winding down its participation but we are working closely with all the operators involved in the exploration and development of these assets. We have global and renowned deepwater experience and success that is valuable and necessary for Mexico. In fact, we established

Hermes Aguirre

an additional operational base in the northern half of the country’s Gulf coast to be closer to our Mexican clients and projects. Deepwater opportunities are substantial in Mexico, even though none of these projects will be capitalized on in the short term.

Mexico Country Vice President of Halliburton

Finally, our services are important for the NOC’s latest discoveries, particularly in the initial phases of the exploration process. As I said, these are all complex fields with difficult development paths ahead of them, and we are working closely with the NOC in the

Potential for Upstream Growth Remains Strong

design of its development plans. The challenges can include wells of Mesozoic depths with high structural and geological complexity. Our technical teams work with the NOC on these wells, and we define their dimensions so the transition from exploration to development is successful. Defining the technological procurement and application strategy for each well is essential. Q: How is your work in mature fields defining your operational portfolio in Mexico? A: Mature fields are of critical importance in Mexico’s production portfolio. We are heavily involved in the application of new processes and technologies that can optimize production in these fields. Our development approach of mature fields can be highly experimental; we are always looking for alternatives to the traditional methods of mature field exploitation. Digital transformation plays an increasingly important role in this search. Through new technologies, we can incorporate enormous amounts of historical data on these fields into new reservoir models. Digital tools also allow us to acquire new data using innovative exploration techniques and completely accurate evaluations in shorter time frames,

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which leads to more effective intervention strategies. The more we use digital tools to analyze available data on these fields or even generate additional data, the more we can explore the applicability of the latest technologies to each well and potentially increase overall recovery.

exico is at a crucial point to assert foresight and promote the rejuvenation of its oil industry. Improvements are required in many of the activities of its value chain, starting with a paradigm shift on the methodology related to the development of its

new fields, which must reflect the constant improvement of the regulatory framework advocated by the 2013 Energy Reform. In this sense, Enhanced Oil Recovery (EOR) has proven its worth as an important tool in numerous countries around the world, where its application has been essential for the optimum development of oil fields, leveraging higher production and recovery factors despite higher investments and risks involved. One of the proven mechanisms to allay the additional risks and investments that EOR demands of operating companies is the granting of fiscal incentives, providing flexibility to regulatory frameworks, thereby generating win-win scenarios, under the premise that for the state to win, companies must win as well.

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The use of incentives has boosted the application of Enhanced Oil

Incentives Needed to Promote EOR Gaspar Franco Professor at UNAM

Recovery projects, leading nations to significant benefits such as greater incorporation of reserves, larger local investments that benefit communities and their economy, increased production and improved recovery factors, adding attractiveness to investments, which result in better credit ratings as oil income grows, begetting an overall higher tax collection. Mexico practically does not have any EOR projects. Consequently, its average recovery factor barely reaches 20 percent, which is almost half of the worldwide average. The granting of incentives for the application of EOR methods is still incipient and scant. A recent thesis, “Comparative analysis of regulatory schemes for promoting Enhanced Oil Recovery Processes in Mexico,” published by UNAM, presents an extensive analysis of the benefits for countries and the relevance of granting incentives for the application of EOR. In the case of Norway, through contractual restructuring and the search for profitability before and after taxes, the government has promoted the extended use of EOR, despite the fact that its oil fields are mostly mature fields. Recovery factors for some of the fields exceed 60 percent. Ekofisk, one of the main and most famous examples, began its productive life in the 1970s. Production increased and declined but due to the judicious application of an Enhanced Oil Recovery process, it generated a second peak of productivity. This effect had a positive impact on its profitability, contributing to an increase in the value of its Government Pension Global Fund to about US$1 trillion (2020), making it one of the most valuable funds in the world. Another case is the Canadian province of Alberta, known for having large accumulations of unconventional resources that must leverage EOR processes and which in winter conditions can reach temperatures of -40°C. These conditions demand large investments and represent greater risks. However, through attractive contracts that contemplate a decrease in the royalties paid to the province for the application of EOR processes, the Alberta oil industry has become so attractive that the government

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organizes bidding rounds every two weeks on average, holding about 24 per year. It is essential for Mexico to emulate those experiences to accelerate the modernization and increase the efficiency of its oil industry, and in that way promote greater wellbeing for the country.

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Q: How did Schlumberger deal with the most recent downturn? A: Prior to the pandemic we had defined a new direction, with a new vision and a return focused strategy centered around customer performance. It was designed to prove resilience through different cycles and the unexpected changes in the world gave us the opportunity to accelerate its implementation and demonstrate its relevance. Now more than ever, we are closer to our customers, working as partners to eliminate costs and to have a better performance and productivity, which benefits both. Our focus is centered on customer performance. We deliver Fit-For-Basin technologies with a clear collaboration that aims to transform the relationship between operators and the service company, Schlumberger, into partners, which will allow us to understand first-hand the challenges our customers face, and enable a more effective allocation of resources that will translate in time and money savings. We must recognize that some of the fundamentals of the industry have shifted priorities, which simply requires a new approach regarding investment discipline and asset allocation, so we have greater discipline with CAPEX. There has been a reduction in the capital spending budget, but this is happening at an industry wide level around the world, it is not specific to Mexico nor to Schlumberger.

Sonia Castellanos

Q: How can you achieve the reduction of Authorized for Expenditure (AFE)? A: We have several examples from other geographies in our

Geomarket Manager of Schlumberger Mexico and Central America

Basin that are being implemented and will continue to be deployed in Mexico. These might sound basic but, in general, the best method to achieve AFE reduction is solid collaboration between all the parties that are involved in the drilling process. Although there are some gaps in the industry that we still need

Schlumberger: Collaboration Rather than Service Provision

to bridge, we already have the technologies, tools and skills we need. Nevertheless, the real key is in how the collaboration of all parties come together in the drilling process, and this can be simple things like a selection of the drilling bits to how drilling fluids are managed. Also, integration with the drilling contractor, which is fundamental but was perhaps not given the importance it requires, is now absolutely essential. We do not want to be a service company working independently but a collaborator with our customers and the other parties participating in the execution of the drilling of the well. With this collaboration and efficient data management, we can provide our customers with the biggest savings. Q: WesternGeco Multiclient Seismic Data License Sales dropped last year. How was that mediated? A: The lack of rounds is still impacting the licensing of multiclient data as clients do not need immediate access to seismic data. Nevertheless, there were 58 blocks that were awarded in the past four years in the offshore rounds. These blocks have a commitment and this translates into drilling campaigns, so even though we are not seeing many sales on licensing today, there

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is activity happening due to the rounds from previous years. The evaluation of the blocks in order to drill wells and acquire high-quality data access is extremely important in reducing associated risks. Therefore, these developments will deliver activity for us in the future.

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Q: What opportunities do you see in Mexico’s natural gas market in sectors like deep-water, onshore, shallow water, mature field and unconventional? A: Currently we are more focused, due to the current strategies and regulations, in projects related to onshore, shallow water and mature fields. We believe that in the future we will continue supporting our clients in Mexico with our experience, methodologies and technologies in all these required areas. We put special attention in the future to start working inside deepwater and possible unconventional areas where Beicip-Franlab has a successful track record for deepwater and ultra-deepwater offshore exploration in the world’s most active basins and we also have significant expertise in unconventional resources assessment, exploration and production. In the subject related to natural gas in Mexico we see significant rapid growth and a continued vertical integration of PEMEX. The natural gas market in Mexico will be attracting international investments and Beicip-Franlab could help with our global experience on this subject to optimize the reserves and production inside this business. Q: How was your demand disrupted by production cuts seen in 2020? What are your views regarding the

Rossy Pérez

industry’s recovery both globally and in Mexico? A: 2020 was a year with significant impact on all subjects. First, as I mentioned, there was an impact on the production

Mexico General Manager of Beicip-Franlab

cuts seen in 2020 that affected all governments and private investments, leading to a clear obstacle in the planning of budgets and projects negotiated with clients. The impact of the pandemic in 2020 also had significant

Advancing Digitalization in All Industry Segments

influence in global investment, generating also a significant reduction in business. The ongoing increase in oil prices, which have soared by 75 percent since November 2020 and around 26 percent since the beginning of the year, marks a dramatic change from last year and a significant contribution to the recovery of oil-producing emerging markets. Beicip-Franlab relied on internal support during this critical phase to prevent significant losses globally and in Mexico to maintain strategic business plans going. Due to the pandemic and mobility restrictions, we approached our logistics through a proactive remote work solution to continue the most important projects. Q: What role did your products and services play in the industry’s accelerated interest in the digital transformation process? A: Beicip-Franlab’s OpenFlow Suite is ready to be adapted to the accelerated remote operation transition, from accessing all our technology through VPN remote access to the implementation of our currently operational cloud-based services. In the subject of consulting and training services, we have also made significant progress to help our clients remotely in projects and also adapt all our knowledge transfer and

VIEW TOP from the

training to online remote sessions with significatively good results from 2020. Specifically with PEMEX, in 2020 we started online remote On-the-Job Training (“Aprender Haciendo”) projects and also remote short training sessions to ensure a complete knowledge transfer. Q: How far along is PEMEX in its migration to cloud-based services and infrastructure? What are the main obstacles to overcome in this regard? A: Beicip-Franlab has ready cloud-based technologies to serve PEMEX, along with technologies and services for our complete OpenFlow Suite platform. The current status and delays with PEMEX’s implementation relate to the need for norms and standards of IT policies and regulations regarding implementation and adoption, ensuring that they respect the security of their information above their current policies. The main obstacles could be the plan to complete all the requirements and short-time expectations to improve current internet services to establish a good internet communication to monitor all applications and projects in real time for final users in PEMEX. Q: As the industry adopts a more sustainable approach, where do you see Beicip-Franlab adding the most value to the industry? A: Beicip-Franlab is working on an aligned strategy together with the IFP Group to support our current and future clients going through the energy transition, focused on developing and accelerating R&D and technology innovation on specific domains related to this area. The topics to be covered through this alliance include CCU and carbon chain, H2 value chain, energy storage and batteries, Low Carbon Mobility and Connected Mobility, recycling of plastic and petrochemicals, wind tech and grid tech. The working group is formed at a management level with Beicip-Franlab, IFPEN, Axens and IFP Group. It will focus on training from mid of June 2021 and BeicipFranlab will be working, in addition, together with Axens to attend the needs for E&P and Downstream Consultancy and Technologies. We are starting our Road Map Strategy with some topic like CCUS and CO2, H2 Road Maps and Markets, a Green Road Map, Geothermal and its global potential along with a pilot design, decarbonization of E&P operations at both the global and local level, flaring mitigation, emission tracking, updating of oil contracts to account for energy transition constraints, among other things.

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SPOTLIGHT

Production & Mature Fields | 89

ROC Asset Management’s Place In A New World In many systems and configurations, ROCs are considered the central nervous system through which operational benefits are made clear to the end user. Before 2020, ROCs were already trending toward higher degrees of technological sophistication and maneuverability, especially as AI and IoT applications opened new possibilities for remote operations. However, after weeks and months of lockdowns to contain the COVID-19 pandemic, ROCs became the most essential tool to help managers maintain operational continuity. Premium service and technology providers with ROCs of their own enjoyed an enormous advantage over their competitors. A perfect example is Fugro’s world-class ROC in Aberdeen. Fugro’s clients could track the status of any service they recently contracted, such as the ongoing progress of inspections and surveys or the real-time status of ROVs on the ocean floor. Remote solutions could be offered through a minimal amount of bandwidth and additional equipment. More remote monitoring and management options translate into fewer onsite inspectors and managers, which became crucial during the pandemic. The remote operation enabled by Fugro’s ROC also has a sizable impact on the company’s carbon footprint, which is now considerably smaller. An increase in remote communication and decisionmaking also means fewer vessels and less travel for experts to specific on-site locations around the world. Alastair McKie, Fugro’s Director of Remote Operations for Europe and Africa, says that, Read the complete article More about this company

“remote operations and the ROC in Aberdeen bring significant industry benefits in terms of operational efficiency, enhanced safety and the environment.”

Conference

Production & Mature Fields | 90

Highlights

Adapting to Several Storms at Once Rafael Daryanani Regional Manager of Mexssub

Guido van der Zwet General Manager of iPS Powerful People

Christian Eduardo Heras OPITO Coordinator of Relyon Nutec

Daniela Nava Human Resources Manager of Vopak

The human resources segment of Mexico’s oil and gas industry has navigated treacherous waters since March 2020, dealing with both the pandemic and the government’s moves to modify labor laws. Although every sector suffered the recessionary effects of the pandemic in terms of human resources, there was particular confusion in the oil and gas sector, says Rafael Daryanani, Regional Manager of Mexssub. The efforts of the Mexican government to modify existing labor laws with the objective of limiting outsourcing schemes added to this confusion and compounded the stress placed on human resources managers and the larger recruitment sector within the industry. One company that became a leader for safety training was Relyon Nutec. Christian Heras, an OPITO Coordinator of Relyon Nutec who’s perspective comes from training current and prospective industry employees, adds that WHO recommendations became a useful tool to stay ahead of the curve as Mexican authorities developed their own protocols. Relyon Nutec was one of the industry’s innovators when it came to the adoption of digital practices for safety training purposes, which proved crucial to improving the safety standards among offshore workforces. “Hygiene, social distancing and protection measures are important training elements to ensure safety amid the pandemic,” says Heras. Throughout the pandemic, safety strategies changed frequently, especially during the first few months of the pandemic. Daniela Nava, Human Resources Manager of Vopak, says a lack of relevant information was common during this time, so developing leadership qualities that were more general and adaptable among employees became crucial. As a result, crisis management training became necessary and common. In regard to safety protocols for vessel crewmen, Guido Van der Zwet, General Manager of iPS Powerful People, says that all companies that worked in more than one state across the country had to obey a variety of rules and standards enforced by public authorities when trying to adapt to pandemic safety protocols. These rules had a particular impact on offshore crewing and activities, since necessary quarantine measures for vessel crewmen drastically altered the logistical preparations and time frames of operators and other clients of companies like iPS Powerful People. Van der Zwet believes that one of the decisive success factors was the ability of recruitment agencies and human resources consultants to find quick practical solutions to the many problems

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that were encountered. “We will continue to learn more about how to handle the third wave of infections. People have to adapt and follow instructions as they move forward.”

Advanced Technology: Oil’s Way Forward Post-COVID-19 Nansen Saleri Chairman and CEO of QRI

Recovery Through Technological Development Vicente González Dávila Director General of Geo Estratos

The Path of a Well Doctor Noemí Pérez Well Stimulation Manager of Repstim

Tech Solutions Make Light Work of Costly Workovers Yosafat Esquitin Well Completions Sales Director USA and MCA of Welltec

Long-Term Commitment Marks Pietro Fiorentini’s Mexican Outlook Paolo Gaffuri Director of Pietro Fiorentini de México

Industry Veteran Diavaz Adapts, Advances Luis Vázquez Chairman of the Board at Diavaz

Mexican Player Committed to Supporting PEMEX Jesús Tadeo Acosta CEO and Director of Geoil Company

Comprehensive Mexican Knowledge Makes NSAI Top Consultancy Pick Eric Stevens Senior Vice President of Netherland, Sewell & Associates, Inc. (NSAI)

Gas Resources Key to Sectoral Energy Program Gaspar Franco Professor at UNAM

Productivity Through Family Expertise Francisco Cazares Director General of Repstim

Acronyms /b

Per Barrel

Proven Reserves

Probable Reserves

Possible Reserves

AIM

Asset Integrity Management

API

American Petroleum Institute

Construction, Installation and

APM

Asset Performance Management

Commissioning

ARES

Surface Recognition and

ESP

Electrical Submersible Pumps

Exploration Authorization

FID

Final Investment Decision

Safety, Energy and

FMP

Mexican Petroleum Fund

Environment Agency

FPSO

Floating, Production, Storage and

ASEA

ASME

EPC

Engineering, Procurement and Construction

EPCI

Engineering, Procurement, Construction and Installation

EPCIC

American Society of

Engineering, Procurement,

Offloading

Mechanical Engineers

G&G

Geological and Geophysical

AUV

Autonomous Underwater Vehicles

HPHT

High Pressure, High Temperature

AWS

American Welding Society

HVDC

High Voltage Direct Current

b/d

Barrels Per Day

IEA

International Energy Agency

B2B

Business to Business

IFC

International Finance Corporation

B2C

Business to Customer

ILO

International Labor Organization

BCF

Billion Cubic Feet

IMP

Mexican Petroleum Institute

BOE

Barrels of Oil Equivalent

IoT

Internet of Things

BOP

Blow Out Preventer

IPN

National Polytechnic Institute

CAPEX

Capital Expenditure

ISO

International Organization for

CENAGAS

National Center of Control for

Standardization

Natural Gas

ISP

Internet Service Providers

CFE

Federal Electricity Commission

Information Technologies

CIEPs

Integral Contracts for Exploration

ITAM

Autonomous Technology

and Production

Institute of Mexico

CITI

Industrial Innovation Center

CKD

Capital Development Certificates

CNH

National Hydrocarbons Commission

JIP

Joint Industry Project

CNP

National Productivity Committee

Joint Venture

COFECE

Federal Commission of Economic

LBA

Environmental Baseline

Competition

LNG

Liquefied Natural Gas

Federal Commission for Regulatory

LPG

Liquefied Petroleum Gas

Improvement

LWD

Logging-While-Drilling

National Commission of Science

MAC

Main Automation Contractor

and Technology

MLC

Marine Labor Convention

CONAGUA

National Water Commission

MLP

Master Limited Partnerships

CONALEP

National College of Professional

MMcf

Million Cubic Feet

Technical Education

MMcf/d

Million Cubic Feet per Day

COPFs

Contracts of Financed Public Works

MPLS

Multiprotocol Label Switching

CRE

Energy Regulatory Commission

MSA

Master Service Agreements

DP2

Dynamic Positioning

Mega Watts

DPO

Dynamic Positioning Operators

MWD

Measurement-While-Drilling

E&C

Engineering and Construction

NAFIN

Nacional Financiera

EHS

Environment, Health and Safety

EOR

Enhanced Oil Recovery

COFEMER

CONACyT

ITESM

Institute of Technology and Superior Studies of Monterrey

Development Bank

Acronyms NAFTA

North American Free

SCADA

Trade Agreement NBBI

National Board of Boiler and

Supervisory Control and Data Acquisition

SCT

Pressure Vessel Inspectors

Ministry of Communications and Transport

NDT

Non-Destructive Testing

SEDATU

NOM

Official Mexican Norm

NSF

National Science Foundation

SEDENA

Ministry of National Defense

OBO

Operated By Others

SEDESOL

Social Development Ministry

OECD

Organization for Economic Co-

SEMARNAT

Ministry of the Environment and

Urban Development

operation and Development OHSAS

Occupational Health and Safety

Natural Resources SIPAC

Assessment Services OPEC

Organization of the Petroleum

Ministry of Agrarian, Territorial and

System for the Payments of Assignments and Contracts

SISTRANGAS

National Integrated System

Exporting Countries

of Transport and Storage of

PMC

Protective and Marine Coatings

Natural Gas

Public Relations

SPV

Special Purpose Vehicle

PSI

Pounds Per Square Inch

STEM

Science, Technology, Engineering

PSV

Platform Supply Vessel

Quality Control

QHSE

Quality, Health, Safety &

and Mathematics SURF

Subsea Umbilicals, Risers and Flowlines

Environment

TAD

Tender Assisted Rig

ROI

Return of Investment

TAPS

Trusted Asset Protection Survey

RO-RO

Roll on – Roll Off

TCF

Trillion Cubic Feet

ROV

Remotely Operated Vehicle

UNACAR

Autonomous University of Carmen

SAGARPA

Ministry of Agriculture,

UNAM

National Autonomous

Livestock, Rural Development,

SAT

University of Mexico

Fishing and Food

UTT

Tabasco Technological University

Mexican Tax Authority

VSAT

Very Small Aperture Terminal

ZEE

Special Economic Zone

Advertising Index Mexico Business Publishing 1

Talos 50

Goodrich, Riquelme y Asociados 5

DNV 62

Exterran 18

Fronteraalos 68

ASEA 20

IPS 72

Fugro 22

DG Impianti 82

Pegaso 30

Beicip-Franlab 88

Alpha Deepwater Services 41

Index ABS 39

DG Impianti 51, 62, 66

Ainda Energía & Infraestructura 15

DNV 6, 21, 25, 38, 51, 62, 69

Alpha Deepwater Services 39

Emerson 83

American Bureau of Shipping 39

Energy Industries Council 83

AMEXHI 6, 7, 16, 17, 18, 23, 33, 75

Eni 33, 49, 75

AMGE 24, 47

ENI 44, 52, 57, 62, 65

AMGP 24, 38

Equinor 37, 44

AMPES 24

Exterran 60

API Tamaulipas 48

Fieldwood Energy 8, 19, 51, 52, 56, 61

ASEA 6, 17, 20, 21, 23, 25, 26, 38, 67, 92

Fitch Ratings 15

Baker McKenzie 21

Frontera Offshore 51, 63

Beicip-Franlab 31, 36, 73, 87-88

Fugro 31, 42, 89

Belden 83

Geo Estratos 81, 91

BHP 25, 38, 51, 54, 58

Golfo Suplemento Latino 47

Boskalis 51, 65

Goodrich, Riquelme y Asociados 12

BP 33, 53, 62

Grupo Roales 21, 22, 70

Cairn 57

Gulf Marine Contractors 31, 43

CBMX 77

Halliburton 18, 68, 73, 77, 81, 84

CEMDA

Heerema 51, 64

CFE 6, 10, 14, 15, 92

Hokchi 53, 62, 65, 66, 75

Chevron 33, 53

Hokchi Energy 53, 62, 75

Citla 51, 53, 57

Horizon 65

Citla Energy 51, 53, 57

IEA 92

CNH 6, 16, 17, 19, 23, 24, 29, 31, 33, 34-35, 36, 37, 38, 39,

IFC 61, 92

44, 47, 51, 58, 59, 60, 68, 75, 79, 82, 84, 92 IFPEN 36, 88 CNIH 74 IFP Group 36, 88 CNOOC 37, 40 IMSS 41 COFECE 11, 92 Intelie 83 Core Lab 48 International Energy Agency 92 Cotemar 68 International Finance Corporation 61, 92 CrossDock Supply 31, 43 IPD Latin America 12 Deloitte 39

Index iPS Powerful People 28, 90

Roma Energy Holdings 60

Jaguar 28, 73, 76, 78

SAT 12, 93

Kasoil 8, 47, 48

Schlumberger 31, 46, 68, 73, 77, 80, 86

McDermott 62

Schneider Electric 18, 28

Mexssub 90

SE 16, 17, 23

MODEC 44, 62

SENER 11, 12, 13, 14, 16, 17, 23, 34, 55, 59, 68, 74

Naviera Integral 28, 77

SERTECPET 81

Netherland, Sewell & Associates 55, 91

SHCP 11, 13

NRGI 21, 51, 67-68

Shell 44

NSAI 55, 91

Simmons Edeco 31, 45, 60

Oleum Energy 21

SISTRANGAS 60, 93

Oleum Servicios y Dictaminaciones 12

Talos Energy 33, 37, 51, 52, 55, 68

OPEC 71, 74, 93

Technip FMC 83

OPEC+ 71, 74

Thompson & Knight LLP 15

PEMEX 4, 6, 7, 8, 10-11, 12, 13, 14, 15, 17, 19, 22, 23, 25, 27,

Transocean 39

29, 32, 33, 34, 35, 37, 38, 39, 40, 43, 47, 49, 53, 54, 55, 57, 58, 59, 60, 61, 62, 64, 68, 71, 74, 75, 76, 78, 79, 81, 82,

UNAM 85

84, 87, 88, 91 Vopak 90 Perseus 73, 75, 79 WHO 79, 90 Petronas 40-41 W-Industries 83 PPG Comex 77 Yinson 31, 44 QRI 7, 91 Yokogawa 83 RelyOn Nutec 48 Repstim 91

Photo Credits Cover Transportes aéreos Pegaso

47 MOGS

48 Transportes Aéreos Pegaso

Transportes Aéreos Pegaso

10 Senate of the Republic

49 Transportes Aéreos Pegaso

12 MOGS

54 BHP

13 Fernández, Espino y Asociados

55 Talos

14 Energy Sector

56 Fieldwood

15 MOGS

57 Citla

16 AMEXHI

58 BHP

19 CNH

59 CNH

21 MOGS

60 MOGS

23 AMEXHI

63 Frontera Offshore

23 ASEA

64 Heerema Marine Contractors

23 CNH

65 Boskalis Offshore Energy

24 CNH

66 DG Impianti Industriali

24 AMPES

67 Transportes Aéreos Pegaso

24 AMGP

68 NRGI Broker

24 AMGE

70 DNV

25 DNV GL

71 Transportes Aéreos Pegaso

26 Oleum Servicios y Dictaminación Técnica

72 Transportes Aéreos Pegaso

27 PEMEX

77 Jaguar Exploration & Production

28 Transportes Aéreos Pegaso

78 MOGS

29 Transportes Aéreos Pegaso

79 Jaguar E&P

34 CNH

80 Perseus Energy

36 Beicip-Franlab

81 Schlumberger

39 MOGS

84 MOGS

40 Petronas

85 Halliburton

42 Fugro

86 UNAM

43 Gulf Marine Contractors

87 Schlumberger

43 CrossDock Supply

88 Beicip-Franlab

44 Yinson

90 Fugro

45 Simmons Edeco

91 MOGS

46 Schlumberger

92 Transportes Aéreos Pegaso

Credits Senior Journalist & Industry Analyst: Pedro Alcalá Journalist & Industry Analyst: Peter Appleby Senior Writer: Daniel González Editor: José Escobedo Senior Editor: Mario Di Simine Managing Editor: Alejandro Salas Publication Coordinator: Carolina Morales Publication Coordinator: Mirjam Schipper Graphic Designer: Tania Aguiñiga Graphic Designer: Marcela Muñoz Senior Graphic Designer: Mónica López Design Director: Marcos González Web Development: Omar Sánchez Collaborator: Cas Biekman Collaborator: Paloma Durán Collaborator: Miriam Bello Director General: Jeroen Posma

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Mexico Oil & Gas Review 2021

Articles inside

Introduction