2015 HIGHLIGHTS
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Mexico Oil & Gas Summit is the premier event that brings together the key Mexican and international players who are shaping the development of the country’s oil and gas industry at this time of change. The objective of this conference is to discuss the challenges and opportunities across the industry’s value chain in the current operating environment, which is characterized by low oil prices, budget cuts, and regulatory changes, as well as to analyze the critical success factors for the development of the Mexican oil and gas industry and its key players.
After extensive consultation with insiders, it was determined that topics to be discussed will include
Mexico’s energy policy and implementation strategy, government and industry perspectives on factors that will make the Energy Reform and the current licensing rounds a success, and PEMEX’s ambitions as a productive enterprise of the State. Mexico’s production strategy will also be addressed through talks on the role of joint ventures in PEMEX’s production strategy, the necessary steps to ensure that Mexico’s oil production returns to 3 million b/d, and technology trends. Finally, there will be room to exchange thoughts on business strategies and challenges in the supply chain, PEMEX’s new procurement model, and the future of local content and available talent. Overall, Mexico Oil & Gas Summit will offer insights of the utmost value to all industry stakeholders.
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The Mexico Oil & Gas Summit will also mark the launch of Mexico Oil & Gas Review 2015, which provides the most relevant and comprehensive overview of the Mexican oil and gas industry based on face-to-face interviews with 150-200 business and political leaders who are shaping the industry’s development. Mexico Oil & Gas Review 2015 is destined to serve as an essential decision-making tool at this time of change and opportunity.
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Carlos Ortiz, Director General for Research, Technological Development and Human Resources of the Ministry Of Energy
Moderator: César Vera Méndez, Region Manager of GE Oil & Gas & Surface PC Latin Panelist:AmericaArturo Henríquez, Chief Procurement Officer of PEMEX Panelist: Hugo Espinosa, Vice-President Mexico and Central America Geomarket of Baker Hughes Panelist: Héctor Márquez, Head of the Procurement Unit of the Ministry of Panelist:EconomyJosé Luis Pérez Meseguer, Project Leader and Coordinator at UTCAM
Carlos de Regulés, Executive Director of ASEA
14:30 International Best Practices in Deepwater
09:30 Networking Coffee Break
15:30 Mexico’s Human Capital Development Strategy
10:45 Effectively Navigating the Legal Framework & Opportunities for Improvement
Moderator: Aurora Pierdant, Managing Partner at WISE Business Development Panelist: Raúl Romero, Partner at Rodríguez Dávalos Abogados Panelist: Carlos Morán, Partner at Cogan & Partners
Edgar Rangel, Commissioner at CNH
Juan Carlos Zepeda, President Commissioner of CNH
12:00 Round One - L2&3: Shallow Water Production & Onshore Fields
10:00 Round One – L1: Shallow Water Exploration Blocks
17:30 PEMEX’s Ambitions as a Productive Enterprise of the State Gustavo Hernández, Director of Operations at PEMEX E&P
13:00 Regulator Perspective: ASEA’s Role in the Upstream Industry
Lourdes Melgar, Deputy Secretary of Energy for Hydrocarbons at the Ministry of Energy
Moderator: Guillermo García Alcocer, Chief of the Unit of E&P Policies at the Ministry of Energy
Panelist: Randall Stilley, President and CEO of Paragon Offshore Panelist: Oscar Roldán, Director of Economic and Statistical Evaluation at CNH Panelist: Ricardo Arce, CEO of Grupo Mexico Oil and Gas
PROGRAM
Panelist: Jaime Martínez, Business Development Director of ERM Panelist: Alberto Ochoa, Engineering Manager at Grupo Diavaz
Panelist: Rodrigo Hernández, Assistant Director General of Exploration and Extraction at the Ministry of Energy
17:00 Future Outlook of the Mexican Oil & Gas Industry
08:00 Mexico’s Energy Sector: Moving Forward
09:00 Regulator Perspective: Highlights of Round One
Moderator: Claudio De la Cerda, Chief Operating Officer of Jaguar E&P Panelist: Fabio Ortega, Director of Ecopetrol Mexico
18:00 Networking Cocktail
Moderator: Chris García, Mexico International Account Director and Deepwater Adviser of Schlumberger Oilfield Services Panelist: James Buis, District Manager Mexico of Nalco Champion Panelist: Bill Heiam, NSAM Sales Director of OneSubsea Panelist: Oscar López Velarde, Partner - Mexico Oil & Gas Tax Leader at Ernst & Young
16:00 PEMEX’s New Procurement Model & the Future of Local Content
08:30 Optimizing the Role of the Oil and Gas Industry through the Mexican Petroleum Fund
Julio Santaella, Executive Coordinator of the Mexican Petroleum Fund
11:30 Networking Coffee Break
In 2014, Melgar commented, Round Zero took place, and the Ministry of Energy awarded PEMEX the areas that it will be working on during the coming years. This Round was conducted bearing in mind PEMEX’s technical, financial, and operational capacities, criteria that is stated in the Constitution. PEMEX was awarded 83% of 2P reserves, which equals an area of 90,000km2 and can reach production levels of 2.5 million barrels.
The speaker said income for the FMP will come from the revenues generated by contracts with PEMEX and private E&P companies. The main two outcomes will be the shared profit intended for the companies, and the portion planned to contribute to the federal and local governments, comprising 4.7% of Mexico’s GDP. The rest will be deposited in the long-term savings reserve.
The governance behind the FMP is composed of a Technical Committee conformed by seven entities, including the Ministry of Finance, the Ministry of Energy, and the Governor of the Central Bank. There are also four independent members that are appointed by the Senate with an eight-year appointment.
Deputy Secretary of Energy for Hydrocarbons at the Ministry of Energy
The summit began with a presentation from the Ministry of Energy’s Deputy Secretary for Hydrocarbons, Lourdes Melgar, who began her speech by thanking Mexico Business Publishing and Mexico Business Events for organizing the event. After reminding the audience of the processes embedded in the Constitutional Amendment, such as the creation of ASEA, strengthening institutions like CNH, and creating new contract models for the upstream segment, Melgar highlighted the importance of ensuring transparency for the private sector in the now open industry. “It is well known that the Reform aims at increasing the production of oil and gas and the restitution of reserves. It aims to become a model that will foster the development of the country as it has a clear strategy for local content and it fosters a strong industrial base,” she stated.
| OPTIMIZING THE ROLE OF THE OIL AND GAS INDUSTRY THROUGH THE MEXICAN PETROLEUM FUND
Julio Santaella’s presentation focused on the Mexican Petroleum Fund (FMP), a public trust where the Central Bank is the trustee and the Ministry of Finance is the principal. After the 2014 Energy Constitutional Reform, the fund was created to receive, administer, and distribute revenues exclusively from oil and gas exploration and production activities (E&P). Performing as a sovereign wealth fund, the FMP has roles such as managing the financial aspects of the contracts given after the biddings, and receiving and distributing petroleum revenues, while it is also tended to stabilize the government’s income stemming from petroleum.
Lourdes Melgar
As for the success of Round One, she mentioned that the authorities established three elements to benchmark. One of them was that transparency was carried throughout the whole process and this was achieved. Another important factor was to create an ecosystem in the Mexican oil industry and have a rich variety of participants. “Now we have two companies in the energy landscape that can do E&P,” she boasted.
PEMEX can migrate these assigned fields to some contracts. The first way is through farm-outs and this is one of the areas that the Reform did not follow international practices, leading to some confusion in the private sector, Melgar mentioned. “Our legislators decided to make sure that finding the right partners was done in a transparent process through a bidding process. We need to design a mechanism for the farm-outs that complies with legislation, while having flexibility in order to make it attractive for players that wish to participate in the farm outs.”
It is important to reiterate that there is a group of entities that play a hand in awarding the contracts. The Ministry of Energy is in charge of designing the contracts and giving the bidding guidelines. CNH offers the Ministry its technical support and is in charge of conducting the biddings and providing access to the Data Room. The Finance Ministry determines the economic and fiscal terms. It is important to point out that once a contract from PEMEX is migrated, CNH will represent the State in every stage and in all contracts. The Ministry of Economy will ensure that there is compliance in matters of local content.
She explained PEMEX decided not to participate in Round One L-01 because the NOC is under financial duress due to the declining oil prices. “PEMEX must be very selective in terms of what it invests in. PEMEX has signaled that it will not participate in the first, second, and third bids. However, it has expressed interest in the fourth bid, which will include farmouts and synergies.” Melgar moved on to addressing some concerns of industrial players, one of them being the rules of consortia participating in the bids. “Regarding this matter, we will follow international practices that give the industry freedom to have all sorts of consortia. We are looking at other issues troubling the industry such as corporate guarantee and administrative rescission.”
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“When Round One was designed, the context was vastly different since the oil prices oscillated at US$100, which is no longer the case. Yet one cannot forget Mexico’s rich geology and resources,” said Melgar. “Our objective is to have an ecosystem of key players and attract new players. In simpler terms, we want to have diversity in terms of business opportunities.” Melgar admitted her disappointment regarding the awarding of two contracts in Round One L01. Nonetheless, she pointed out the positive aspect, “The good side of the story is that we have strong companies with global recognition participating and these two blocks went beyond the government’s expectations. The public sector is going through a learning curve and the industry is no exception.”
MEXICO’S ENERGY SECTOR: MOVING FORWARD
Lourdes Melgar was appointed in 2014 as Undersecretary of Hydrocarbons at the Ministry of Energy, where she previously held the position of Undersecretary of Electricity. Between 1993 and 2007, she held several diplomatic positions, including Minister of the Permanent Mission of Mexico to the OECD. Melgar was also a Founding Director of the Center for Sustainability and Business of the EGADE Business School at ITESM. She is also a National Researcher at CONACYT.
Julio Santaella
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Executive Coordinator of the Mexican Petroleum Fund
Santealla was keen to point out that all these procedures are done with the objective of promoting and developing a fair and stable oil industry. He also stressed the importance of enhancing transparency and government accountability, which at the end of the day will benefit future generations. Through this fund the exposure of public finances to the volatility of oil revenues will be reduced. He also boasted that in the long term the reserve will play a role in supporting the investment in human capital development, which will ultimately promote a sustainable development of Mexico’s economy.
ONSITE, AROUND THE WORLD, DAILY COLLABORATION WITH OUR CUSTOMERS SOLVES COMPLEX CHALLENGES IN EVERY PHASE OF THE PRODUCTION LIFE CYCLE.
Santaella reiterates that all information received will also be cross-checked with CNH. There will be quarterly reports of activities (which include prices, production and costs), financial statements financial statements, transfers made to the government, fiduciary feed charged, and statistical information related to assignments and contracts. Santaella delineated the four steps that will be taken in the implementation of Round One. The first step is taken when CNH summits the contract for the round and once this is in place the FMP contacts the contractor to start the procedure required to gain access to the technological platform. This platform will be used to share information with authorities and exchange payment instructions. The second step takes place one month after the contract is signed. At this stage, the FMP will start to receive the first payments due to exploration fees. Santaella then described the third step, where CNH approves the first work pan and its associated budget. Contractors cannot lie on their laurels, as they must submit the accumulated costs information that can potentially be recovered on the condition of finding a commercial discovery. The very last step is when production starts and the FMP calculates the full set of contractual duties based on the information presented by all involved parties and it then instructs respective payments.
Santaella mentioned that the relation of the Fund with contractors and assignees vary. The fund will only receive the amount of oil rights the assignees determine, and for contractors, the FMP will estimate and instruct the payment for each party. “Income will come from royalties, exploration fees, and profit shares, depending on the type of contract signed by the operating company.”
THANK
“One of the roles of the Technical Committee is to appoint the Executive Coordinator, which manages the financial aspects of oil contracts, including the calculation and execution of the payments derived from them,” explained Santaella. The Executive Coordinator will also propose to the Congress the allocation of additional transfers like universal pension or investment in science.
Julio Santaella is currently the Executive Coordinator for the Mexican Petroleum Fund (FMP), where he is responsible for receiving, distributing, and investing the revenues from new E&P contracts in Mexico’s oil and gas sector. Previously, he worked in different national and international organizations, such as the Ministry of Finance (SHCP), the International Monetary Fund, ITAM, and Banco de Mexico. He has published on inflation and stabilization programs, fiscal policy, economic growth, and financial crises, among other subjects.
The consortium will have to summit its exploration plan within 120 days. If there is a commercial discovery, it will have to obtain certificate and present a development plan. Zepeda said that in the following days, CNH will transfer the information on the exploration areas. “We are going to establish the baseline in terms of environmental standards and infrastructure along with ASEA. Our main goal is to deliver a fully transparent process, in order to earn the trust of the Mexican people and build a reliable procedure,” he concluded.
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With nearly 20 percent of ERM’s work being performed for the oil and gas industry, we have completed more than 5,000 projects working with some of the world’s largest and most recognized oil and gas firms worldwide.
The CNH Commissioner admitted that the government still has lessons to learn. “We did not achieve the 30% goal regarding the awarding of contracts. Only five enterprises and four consortiums were present at the bidding, but most participants will be joining in during the subsequent tenders, as many have registered for the next phases.” Zepeda pointed out that pre-qualifiers’ noticeable lack of confidence was driven by aspects such as the novelty of the opening of the Mexican oil and gas industry, the fact that Iran’s nuclear settlement will increase oil production to an additional 1 million b/d in the following year, predominant interests in deepwater, and oil prices at a decade-low. In the current short-term scenario, companies do not have unlimited capital to invest, meaning that players will bid for the best possible option. Also, large companies seem more inclined to invest in deepwater blocks in the Gulf of Mexico and oil fields in Arabic countries. Deepwaters represent an opportunity to employ the latest technology to maximize production and profit, while operating in the Middle East symbolizes a geopolitically opportunity to supply China’s increasing oil demand. “These decisions have to be made in an oil price slump that is not showing short-term signs of recovery, partly due to the companies’ high inventories and OPEC’s great Zepedaproduction.”mentioned
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• Occupational Health & Safety Services
• Oil Spill Contingency Planning
The approval of drilling and the regulation ruling these wells have to be registered on CNH’s platform. This will include metering systems, development plans, and drilling permits. “As the entity in charge of managing the contracts, CNH has the necessary infrastructure to keep track of this information. We will be signing the first two contracts before August 21,” explained Zepeda.
Juan Carlos Zepeda REGULATOR PERSPECTIVE: HIGHLIGHTS OF ROUND ONE
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• M&A Advisory Services
• Process Safety Management
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that participants have to present a development plan and metering system. CNH will be in charge of reviewing compliance with these requirements. The steps following the signing of the contract will have to be stated in the plan, and the operational information will be presented to COFEMER in real time. “Communication will be a key component since the information emanating each contract will be useful for several organizations,” Zepeda stressed.
past three years we have worked for more than 50 per cent of the Global Fortune 500 delivering innovative solutions for business and selected government clients helping them understand and manage the sustainability challenges that the world is increasingly facing.
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Juan Carlos Zepeda’s career in the hydrocarbons industry includes positions at the Ministry of Finance and the Ministry of Energy. At the Ministry of Energy, he was Head of the Exploration and Production Department and was member of the Board of Directors of PEMEX subsidiaries for Exploration and Production, Refining and Gas. In 2009, he was appointed President Commissioner of the National Hydrocarbons Commission of Mexico by former President Felipe Calderón.
President Commissioner of CNH
Juan Carlos Zepeda talked about Round One and said the most important element of the first phase is that the authorities confirmed that the legal framework and the regulations are viable and solid. “Phase 1 endorses our perspective that we are following the right path, yet there still are remarkable improvements to be made. Nevertheless, the process was transparent, giving future tenders the confidence needed to present important and serious bids.” For Zepeda, it is worth highlighting the level of interest and competition in the six blocks that were bid on. The two awarded contracts expressed an optimistic first step and a viable operating framework. “The degree of achieved transparency was CNH’s main objective. We broadcasted the entire event and close to 112,000 people followed the bid. Such interest in a tender has not been seen in any other country,” expressed Zepeda.
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Guillermo Garcia Alcocer
When Garía Alcocer asked Arce about the route Mexican companies might take to shift from service providers to operators, the Grupo Mexico representative stressed that not all service providers want to become operators. He did point out that Round-L3 will open the door of the oil and gas industry to many Mexican companies, as the requirements are lower than in the two previous rounds. Stilley commented that the fact that PEMEX did not participate in the round was not a surprise.
To conclude, García Alcocer asked about the participants’ perspective on the future of oil prices. Arce said the current environment is allowing companies to evaluate opportunities with a conservative approach. Roldán gave an optimistic perspective by reminding the audience that Mexico has diverse resources, so it is possible to produce even if the price per barrel remains at US$50. However, this would halt the development of unconventional resources. Stilley made the last contribution, saying that the drop in oil prices made the industry focus more on costs. “The industry is always struggling with decline rates, and this will eventually fix the price of oil.”
Randall Stilley
Oscar Roldán started out his career in the hydrocarbons industry at the Ministry of Finance where he was part of the team involved in the new fiscal regime for PEMEX. While at the Ministry of Energy, he participated in the Energy Reform, specializing in contracts for E&P, and forecasting oil and gas production. In May 2009, he was appointed by CNH as Director General of Planning.
Arce admitted seeing a selective industry in terms of the blocks that were bid on, concluding that the type of block will determine the type of company that bids for it. He suggested that the fact that only seven out of 25 companies that entered the round participated on actual bids could be the result of exaggerated requirements.
Gacría Alcocer proceeded to ask Stilley about the attractiveness of Mexico for international companies. The Paragon Offshore representative said, “Just because there is a dividing line between Mexico and the US does not mean the geology varies that much. There is plenty of interest in Mexico’s geological prospects. The first bidding round is important because of its historical implications, but the best is yet to come.”
The moderator, Gillermo García Alcocer, began by asking panelists about the positive aspects of the first biddings round. Arce highlighted the evident transparency entailed in the process, and showed confidence in CNH and the Ministry of Energy maximizing participation in the following rounds. Roldán said, “It is true that the results were not what we expected, but this was not due to structural issues. Instead, I would point out to several restrictions from the government and the global situation affecting the industry. The media gave an unflattering impression of the round without digging into the structural issues.” Finally, Paragon Offshore’s Randy Stilley showed optimism because the lessons learned will be applied in subsequent rounds. “There are many opportunities moving forward from this round. As a drilling contractor, this is where my main focus is. An obvious element of this round is the impact of the global economic situation. In this sense, he most economically viable drilling programs are the ones that will thrive.”
President and CEO of Paragon Offshore
Director of Economic and Statistical Evaluation at CNH
“PEMEX has its plate full with the fields it was awarded in Round Zero. Its absence from the round does not send a negative message, but it rather opens opportunities for others, contributing to a level playing field.”
Ricardo Arce is an executive at Grupo Mexico, a leading Mexican Corporation that participates in the mining, transportation, and infrastructure sector. He is currently the CEO of the Oil & Gas Sector within the company. Before joining Grupo Mexico in 2007, he was a management consultant at A.T. Kearney, a position he held for more than nine years, where he achieved the level of Principal at the Mexico City office. Arce is a member of the Mexican Commission of Foreign Trade, and he is also a mentor at Endeavor, a non-profit organization.
Currently, he is in charge of the Operational Unit for Economic Evaluation and the National Data Repository.
Chief of the Unit of E&P Policies at the Ministry of energy
| ROUND ONE – L1: SHALLOW WATER EXPLORATION BLOCKS
Guillermo García Alcocer is currently Head of Public Policy on Exploration and Extraction of Hydrocarbons at the Ministry of Energy. He is in charge of designing the contract and the technical aspects of the bids for the exploration and extraction of hydrocarbons under Mexico’s new energy framework. He was previously Director General for Exploration and Extraction of Hydrocarbons, and headed up the Ministry’s technical group charged with negotiating with Congress about the sections of the Energy Reform relevant to the hydrocarbon sector.
Oscar Roldán
Randall Stilley served as President and Chief Executive Officer of Seahawk Drilling and as Chief Executive Officer of the mat-supported jack-up rig business at Pride International. Previously, Stilley served as President and Chief Executive Officer of Hercules Offshore. Prior to that, he acted as Chief Executive Officer of Seitel, an oilfield services company, and as President of the Oilfield Services Division at Weatherford International. Stilley is a registered professional engineer in the state of Texas and a member of the Society of Petroleum Engineers.
Roldán pointed out that restrictions in the submission bases, such as partnerships and economic requirements, will ultimately impact profitability and thus the companies’ appetite for participation. “The market focused more on profitable areas that are easier to produce. We have to make information available before calling for submissions in order to reduce uncertainty. CNH already has all the data for the rest of Round One, and we are in the process of structuring it.” Along this line, García Alcocer commented on Block 7, which companies did not show interest in in spite of its geological attractiveness. García Alcocer explained that this was the outcome of the governments’ view differing greatly from that of the industry.
When Roldán was asked about the implications of authorities removing barriers for the gathering and acquisition of seismic data, he pointed out that Mexico is in a technical transition. “There is plenty of information that has been gathered throughout many years, and now geological companies are actively requesting authorization to gather information.” He mentioned that there is data on over 20 deepwater blocks, which is valuable for companies. This data was gathered by PEMEX and is now managed by CNH. “The purpose of transferring data was to make the information available to private players with the goal of increasing participation.”
CEO of Grupo Mexico Oil and Gas Ricardo Arce
Raúl Romero is a Senior Associate at RDA who is regularly engaged in projects for the distribution, storage, and transportation of natural gas and LPG. He played a leading role in the drafting and closing of all contracts for the first private ethane pipeline in Mexico. Among other strategic projects, he led the negotiations of the TSA, O&M, and EPC contracts of the three phases of the Los Ramones pipeline and the Transoceanic Project. Romero created the first physical SWAP in Mexico and has negotiated several hydrocarbons purchase agreements. In addition to leading public bids before CRE, CFE, and PEMEX, he has been involved in the execution of NAESB agreements for power producers, natural gas distributors, and industrial clients in Mexico.
| EFFECTIVELY NAVIGATING THE LEGAL FRAMEWORK & OPPORTUNITIES FOR IMPROVEMENT
Having a background in law, Aurora Pierdant served as Director General of Juridical Affairs at the Ministry of Energy and as Contract Manager at PEMEX E&P. With a breadth of experience in contractual law, Pierdant has participated in several legislative processes pertaining to the mining and energy sectors. From 2003-2011 she was involved in the design and implementation of PEMEX contracts that allows private investment in exploration and production activities, and she acted as an advisor for the design of the legal framework for contracting in PEMEX. Since 2012, Pierdant has been dedicated to advising the oil and gas industry in Mexico and the analysis of oil systems in Latin America.
Partner at Rodríguez Dávalos Abogados
Aurora Pierdant
Managing Partner at WISE Business Development
Piedrant said the removal of obstacles like the administrative rescission is extremely complicated, so she suggested that the authorities should soften and clarify the terms. Then she asked the panelists about barriers they have identified. Morán
Partner at Cogan & Partners
Aurora Pierdant began by reminding the audience about the intricacy, complexity, and attention to detail in the new legal framework for the oil and gas sector. In her view, this framework opted for transparency and flexibility, one of the achievements in the Reform. There are a couple of things to consider when navigating the upstream sector. Mexico is creating new rules, contracts, norms, regulations, and features in a market that is not yet mature. In this sense, there are many rules and no market where to implement them. “How should the communication channels be opened even further between the public and private sector in order to encourage an open dialogue?” she asked.
“The main task for this sector is to attract investment and the authorities must ensure they create the right investment conditions. It is crucial to have an efficient regulatory framework in order to develop strong economic models.” He also pointed out that CRE must enter the industry and learn how the operations of midstream work, and PEMEX is the one with the knowledge. “CFE and PEMEX have had control of natural gas in Mexico for some time and CRE must take this into account when regulating these two players,” he concluded.
Carlos Morán is a Mexican lawyer specializing in energy, infrastructure and natural resources. Throughout his career, Carlos has been actively involved in the representation of multinational companies conducting business in Mexico, specifically with PEMEX and CFE.Morán has participated extensively in major transactions involving mergers and acquisitions, offshore energy projects, and public procurement procedures for the construction of port, airport, security, and oil and gas infrastructure. Prior to joining Cogan & Partners, Morán practiced in Mexico City as a firm partner in the corporate and energy departments of Goodrich Riquelme.
said the processes could be improved by incorporating experts and technical advisors into the dialogue and implementing international standards. Piedrant pointed out the tribunals’ lack of experience with the new types of contracts, leading to a discussion on successful litigations of matters related to administrative rescissions. According to Morán, there are no legal precedents in Mexico for this issue, and Mexico should smooth out the barriers of entry for players who have decided to enter the bidding rounds if it wishes to compete against other attractive countries. Raul Romero claimed that layers have to support the tribunals in their learning process. “The lack of knowledge from behalf of the tribunals may be a barrier for obtaining financing because of the fear of the unknown. At the end of the day, our job is to support the authorities and tribunals in order to uphold transparency throughout.”
Raúl Romero
The conversation about the complexity of the framework for the upstream sector raised questions about the framework for midstream. Piedrant asked what should be done to reduce uncertainties and support the midstream sector. Romero noted that midstream has been dominated by natural gas and LP, and now it will include poly-ducts and a series of other goods.
Carlos Morán intervened and claimed the framework has been created from scratch and has been delivered piece by piece. This means there is a lot of spaces of uncertainty and makes it difficult to discern which regulator takes charge and when it has to work together with another regulator. Sometimes, operators find it difficult to see who to request the permits to. This is time consuming, creates uncertainty, and it is ultimately inefficient. It is a learning process not only for the regulatory bodies, but for every company participating within the market. “Historically, the government has been very slow in creating regulatory frameworks and today this cannot occur; the faster these regulations are issued, the better the industry will fare. Regulators are working really hard to solve issues and concerns; however, some go beyond their capabilities and must be addressed at a legislative level. For companies participating in Round One, a salient concern was the administrative rescission and if Mexico wishes to maximize revenues in hydrocarbons and see the Reform bear fruit, it must remove the requirement of administrative rescissions.”
Carlos Morán
To conclude, De La Cerda asked Jaime Martínez, from ERM, what are the main social, safety, and environmental aspects operators should anticipate. Martínez began by pointing out that the best way to deal with social matters is to anticipate them. “There is available information that can give us an insight on the social context of several areas, so I suggest establishing contact and involving the communities at the earliest stages.” As for safety, he mentioned the fatal accidents the industry has witnessed this year both in PEMEX and in platforms in the US. “In Mexico we do not have an optimal performance in terms of safety, an area that entails high costs. Regardless of how much companies we spend, the safety performance is still not optimal, and low oil prices might tempt companies to cut budgets for safety.” However, he sees opportunities to reduce costs and achieve better security performance in areas such as corporate culture, effective management systems, and adherence to procedures.
Alberto Ochoa is an Engineering Manager at the Diavaz E&P Division, a position he has held since 2012, where he works in the planning and development of heavy oil in naturally fractured carbonates and tight light oil sand reservoirs. From 2007 to 2012, he worked as technical manager at Petrobras. Ochoa has had numerous technical, operations, and planning assignments within exploration and production activities in Mexico, Venezuela, Argentina, Brazil, and the US. He has been involved in oil and gas field development for conventional and unconventional reservoirs.
Alberto Ochoa Rodrigo Hernández currently serves as Assistant Director General of Exploration and Extraction at the Ministry of Energy. Having spent over seven years at the Ministry, Hernández has developed his experience in the industry through several prestigious positions such as Deputy Director of Hydrocarbons Reserves, Director of Petroleum Resources, and Director of Project Development. In addition to his current position at SENER, he also teaches classes on Reservoir Fluid Geology at the Engineering Faculty of UNAM, and has frequently been involved in PEMEX activities over the years.
Chief Operating Officer of Jaguar E&P
Director of Ecopetrol Mexico
| ROUND ONE - L2&3:
Jaime Martínez, Business Development Director of ERM México, has over 36 years of experience in a wide variety of environmental and safety matters, including Process Safety. He has performed and coordinated over 200 environmental assessments and audits for a wide variety of industries in Europe, the US, Peru, Argentina, Brazil, and Mexico. Martínez has a BS in Chemical Engineering from the National Polytechnic Institute of Mexico and an MS in Environmental Sanitation from the State University of Ghentin, Belgium. His wide portfolio of expertise includes the design and operation of water treatment plants, site investigation and remediation of large projects, environmental impacts studies, and Mexican environmental regulations, among others.
De La Cerda addressed Rodrigo Hernández to ask him about the necessary steps to attract companies to R1-L03. The member of the Ministry of Energy confidently said the requirements for L-03 would differ from those in the two previous rounds. “The third phase consists of smaller fields that were left aside because PEMEX needed larger fields to meet its production goals,” he said, adding that their size do not make these fields lees interesting for other types of companies. Hernández mentioned that the authorities might offer the license model for the third round because production-sharing contracts could result in less efficient participation or complicates operations. He also stressed that in the criteria for the onshore round will be different than in the previous rounds, as the authorities will focus on the experience of people comprising the company rather than the company’s capabilities. “This is the path to develop a market of Mexican operators,” he explained.
Fabio Ortega
Hernández
Fabio Ortega has been working for Ecopetrol for several years in which he held positions such as E&P International Business Development Leader and E&P International Business Development Manager, before being appointed as Ecopetrol Representative in Mexico. Before joining Colombia’s national oil company, he worked as a consultant in this country’s oil industry. Ortega has significant experience in managing and implementing international business strategies for E&P, identifying and evaluating new business opportunities, carrying out feasibility studies of new international areas, and evaluating technical, operating, and economic risks in conventional and unconventional plays.
Ortega commented about the reforms that opened the oil and gas sector in Colombia a few years back. He said these, indeed, helped increase production, but this took four years. In his view, the shift in production happened because Colombia implemented rather simple contractual and regulatory models. The type of reform also allowed the entry of new players that greatly contributed to the increase in production. “Something we should not undermine,” he stressed, “is the participation of the NOC, which is responsible for 60% of the country’s production.” Ortega said the productive levels of Ecopetrol were also the result of the autonomy the company gained after the reforms. He finalized by saying that increasing production should always go hand-in-hand with finding prospective resources that can be exploitable throughout the duration of the contracts.
Jaime Martínez SHALLOW WATER PRODUCTION & ONSHORE FIELDS
Engineering manager at grupo Diavaz
Claudio De la Cerda
Business Development Director of ERM
Claudio De La Cerda asked Alberto Ochoa from Grupo Diavaz about the characteristics of the companies participating in Phase 2 of Round One. Ochoa said the characteristics are stated in CNH’s guidelines, but he would add traits like having participated in analogous fields, skilled personnel, and environmental compliance. “Innovation is important under the current low-price environment. Also, unconventional resources make innovative companies stand out.” He concluded saying the characteristics are there and now the industry should apply the lessons learned from R1-L01 and promote participation, which depends on contractual terms.
Claudio De la Cerda has been recently appointed as Vice President of Operations and Business Development at Jaguar E&P. He worked for Schlumberger for 18 years in various positions, starting as a Production and Reservoir Engineer in Mexico, before moving to Houston, Caracas, and Paris, where he held the positions of Project Manager, Country Manager, and Area Vice President respectively. Most of his career has been dedicated to Reservoir Studies under the Petrotechnical Services Group in Schlumberger, where he led projects in several countries. His areas of interest include production optimization, heavy and extra-heavy oil, business administration, planning, and strategy.
The panel on shallow waters and onshore production began with a question on how to achieve the goal of producing an additional 500,000b/d. Fabio Ortega from Ecopetrol said the goal was established before the price of oil dropped, thus is no longer a realistic target but rather a reference. As a second point, he said competition is fierce at the moment and Mexico, as many other countries, is competing for capital. However, companies are meticulously examining their options.
Assistant Director General of Exploration and Extraction at the Ministry ofRodrigoEnergy
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Executive Director of ASEA
“This is a moment to stand back and reflect about the enactment of the Reform and especially Round One,” Carlos de Regules, Executive Director of ASEA, expressed during the introduction of his presentation. This contemplative moment led De Regules to add that the main message carried by Round One is that markets demand certainty in all processes. With this in mind, ASEA aims to ensure the healthy development of the industry and certainty is inscribed in its DNA. “The results show that we are on the right track, but we have to pick up the speed,” he added.
De Regules continued by explaining that the industry and the regulatory bodies have one goal in common: to ensure the security of the operations and the protection of the environment. All the regulations that will be created will be done in collaboration with the industry. De Regules was adamant that ASEA would not close its doors to dialogue and it would strive to work closely with all parties involved. He also recalled Article 19 of the Constitution, which mandates ASEA to regulate and supervise the industrial safety, operative safety, and protection of the environment. “We are totally focused on the hydrocarbons sector and Congress has made it clear to separate the administration of oil resources from environmental security.” In his eyes, this distinction will lead to positive results. The reach and scope of ASEA is quite vast and it goes from industrial security to environmental protection. For De Regules it is not only about creating the rules of the game but supervising their implementation as well, from the drilling to the very logistics.
De Regules delved in depth to explain the Risk Management Model, which is the third pillar of ASEA. “When one speaks of people safety and environmental protection it is important to address risk management,” he added. ASEA will help the industry manage risk through two main tools: administrative systems of industrial security and environmental protection. In this endeavor De Regules highlighted the importance of financial responsibility, because unfortunately accidents do happen and the agency has to be prepared. The authority will have to supervise that all these regulations are upheld and that they are aimed at minimizing risk. “This is an industry that lives and breathes innovation, so it is impossible for the regulations to be rigid and unbending.”
Carlos de Regulés
With this in mind, De Regules explained that there are several layers in its inspection platform that is oriented to minimizing risk. The inspectors must be creative when drafting inspection models that are efficient and innovative. He also described the several actors involved in risk management. The first actor on the stage is obviously the company, as it knows that there will be inspections and it has to ensure that things are carried out correctly. Companies must communicate the inspection carried out by the agencies. The second layer of inspection pertains to insurance companies as these will see if the insurance cover is viable or not. De Regules notes that this information is shared with the authorities as well. The third layer is the verification from behalf of the regulators and the inspectors are well prepared, selected, and trained. De Regules explained the final fourth layer which is integrated permits. “This is a one stop shop that eliminates bureaucracy. It will be only one entity in charge of giving permits, rather than having several departments or actors.” De Regules concluded his presentation with the uplifting image that Mexico is at the right moment to seize all the opportunities to come in the hydrocarbons industry and ASEA will be a pillar to incentivize environmental responsibility and innovation.
www.mexicobusinesspublishing.com
On August 19th 2014, President Enrique Peña Nieto appointed Carlos de Regulés as the first Executive Director of the National Agency for Safety, Energy and the Environment of Mexico (ASEA), an entity in charge of industrial safety and environmental protection in the hydrocarbons sector. He specialized in industrial safety and environmental protection of the oil industry. He served as Deputy Director of Strategic and Operational Planning, where he bolstered, among other projects, PEMEX’s sustainable development policy and social responsibility annual report.
Throughout the presentation, De Regules pointed out the four main elements that constitute the institutional model of ASEA. He explained that the first element is the Strategic Framework that aims to guarantee the safety of people and the integrity of the environment. “We want to make the hydrocarbons industry cleaner and safer. There are four main values ASEA holds close to its core: professionalism, transparency, impartiality, and opportunity.” The second element is the administrative processes. ASEA carries out integrated processes in order to bring in added value to the sector, and these range from planning, regulations, management, permits, programs, and inspection to data that tracks the work and performance of the sector.
| REGULATOR PERSPECTIVE: ASEA’S ROLE IN THE UPSTREAM INDUSTRY
Ernst & Young is a global leader in inssurance, tax, and advisory services. Its in-depth insights have enabled Ernst & Young to build trust and confidence in the capital markets and economies the world over. One of the outstanding leaders the firm has developed is Oscar López Velarde, a Tax Partner and Leader of the Oil & Gas Industry in Mexico and of the American Business Center in Houston. He has provided more than 12 years of services to a wide array of companies, from drilling and shipping to all types of oilfield services operating in Latin America. His practice also includes tax advice on exploration and production contracts.
The moderator, Chris García, explained some basic elements of deepwaters, mentioning activity in the US side of the Gulf to highlight the importance of this segment. He did point out that one in ten wells in Perdido results in a commercial success, so the investment risk is high. However, the US side has 70% success rates. Furthermore, a deepwater project creates close to 30 inland jobs to support operations in the rig. He proceeded to ask how Mexican deepwaters compare to those of countries like the US, Angola, and Brazil.
| INTERNATIONAL
James Buis joined Champion Technologies back in 2001 as Technical Representative for South and Central America, where he provided technical laboratory support and technical support to the GMO Region. Between 2006 and 2012, he took on the position of Technical Manager of the Gulf Coast Region, overviewing onshore, offshore, and deepwater projects in Louisiana, Mississippi, Arkansas, Southern Texas, and Mexico. In 2012, Ecolab acquired Campion Technologies, thus creating Nalco Champion. During the merger process, Buis became the company’s District Manager for Mexico, where he is in charge of budgets, product development, and technical sales, among others.
District Manager Mexico of Nalco Champion
Oscar López Velarde BEST PRACTICES IN DEEPWATER
Heiam said that given the small differences between the US and Mexican side of Perdido, Mexico is likely to have attractive resources and now there is a framework to do so in place. García pointed out that a significant difference between Perdido and Brazil and Angola is that the latter do not have hurricanes, thus they can rely on FPSOs. Also, the US side of Perdido deals with sandstone basins, Brazil with pre-salt basins, and Angola has small reservoirs, making the use of FPSOs rather useful. Mexico should learn the lessons from the area it will work on, so it should look at the US, not Brazil. In addition, wells in Perdido have a lower recovery and flow rate than wells in Macondo because these two belong to different geological formations. “Perdido is one of the extreme deepwater areas in the world. Given the challenging depths and conditions, what innovative technologies are available today, and which will play a crucial role in the development of Mexico’s deepwater market?”
Chris García
James Buis answered that the main element is infrastructure. “Things in Mexico will have to be built from the ground up to address challenges such as flow assurance.” He said his company, Nalco Champion, likes to be involved at the early stages of a deepwater project because it enables his firm to anticipate challenges, increasing the success rates. “Nalco Champion provides solutions for asphaltenes and paraffins, ensuring a quality output. Chemicals have to be designed and selected with the movement of the fluid in mind.”
James Buis
Bill Heiam
Bill Heiam first set foot in the oil and gas industry back in 1980 with Schlumberger as a Wireline Engineer. Over the past 35 years, he has held assignments with Schlumberger in the US, Australia, Scotland, Colombia, Venezuela, Denmark, and Angola, at least half of that time being involved offshore. In this company, he managed several important accounts including ConocoPhillips, Esso, and BP. In April 2015 he took on his newest assignment, this time with OneSubsea, as Sales Director for North & South America. He is a member of several societies and associations, such as the Society of Petroleum Engineers and the Society of Professional Well Log Analysts.
Heiman commented that Lakach has a water depth of 1,000m and is a gas reservoir. However, wells in Perdido have crude, which means a different well pressure level, and water depths of 3,000m. “Deepwater projects in Perdido have reservoir
pressures that cannot handle flows of 3,000m. OneSubsea has a boosting pump for the seafloor that will be necessary from day one for any well in the Mexican side of Perdido. Boosting systems will be critical in Mexico.”
García stirred up some controversy by asking what would be the consequences, particularly in terms of local content rules, of using US infrastructure to accelerate production in Mexico. López Velarde said Mexico lacks infrastructure, so it makes sense from an economic perspective to use infrastructure in the US. “After all, most oil produced in Mexico will touch Houston at some point. However, the key word is ‘regulation’. If we do not work on regulation for sharing infrastructure, we will probably have a painful learning curve.”
López Velarde spoke about the differences in the bidding processes between Mexico, Brazil and the US, saying that the US has a more mature deepwater segment with fixed royalties. He mentioned that Mexico still does not have fiscal terms for deepwaters, and companies have shown a preference for licenses over profit-sharing agreements. López Velarde then spoke about the environment in Brazil, which has more uncertainty regarding fiscal and regulatory matters, but these are mitigated with the contract models. In addition to signature bonuses, local content requirements are crucial in Brazil. “In Mexico the main challenges will be to find a way to account for or measure local content. All the equipment required for the projects is not manufactured in Mexico, so complying with a simple 13% will be difficult,” he stressed. García added that in order to comply with local content rules, companies need to comply with certain experience requirements.
NSAM Sales Director of OneSubsea
Partner - Mexico Oil & Gas Tax Leader at Ernst & Young
Mexico International Account Director and Deepwater Adviser of Schlumberger Oilfield Services
After obtaining his BS in Petroleum Engineering from the University of Texas, Chris García spent three years working with Zapata Offshore, a deepwater drilling contractor. The next 28 years were spent leading the typical Schlumberger oilfield life, working mostly in offshore and deepwater projects in 11 different countries. His present responsibilities as International Account Director and Deepwater Adviser consist of working primarily with IOC clients that are arriving to Mexico. As a deepwater adviser he has multiple deepwater-themed initiatives that include internal training and competency development, peer reviews, and R&E.
“A successful sector needs trained human capital and one of the biggest ambitions is for the Mexican workforce to bring added value and drive innovation. The extraction of the hydrocarbon and the generation of power should fall second to the creation of innovation and added value services that drive the global energy industry,” Ortiz expressed. He mentioned there are strategic conditions that the program deals with, such as information for decision making, trained personnel, personnel that generates knowledge, and lastly, an energy sector that attracts talent. “During the analysis, we wanted to know which processes in the sector we operate in and which areas we should be dominating after the opening of the market. This means we need to have well-defined competencies and critical profiles in order to attend the challenges.”
MEXICO’S HUMAN CAPITAL DEVELOPMENT STRATEGY
Ortiz highlighted that the document is open to feedback and the Ministry of Energy has received support from the private sector. “The degree of openness is crucial in making sure that the development of human capital is aligned with the realities of the industry and those of the decision makers. With these initiatives we hope that companies, academic institutions, and governmental entities will use this information and tools in order to make strategic decisions based on the monitoring of human capital needs in the hydrocarbons industry.” Ortiz identified the program as the baseline of knowledge regarding the capacities of Mexico’s human capital in the energy sector. Companies can learn in a qualitative manner the actual offers, careers, study programs, and flow of graduate or undergraduate students. Ortiz concluded his presentation telling the audience the Ministry of Energy is calling for submissions in FISH, which unites universities and companies, which collaborate to create educational programs and support projects.
PublicidadOil&GasReview_Final_Marcas.pdf 1 25/06/15 11:59
Carlos Ortiz is responsible for the development of human resources for Mexico’s energy sector.
Director General for Research, Technological Development and Human Resources of Ministry Of Energy
Carlos Ortiz
Before joining the Ministry of Energy, Ortiz worked as a consultant on the urban development energy strategy with Cornfields Arroyo Seco and Hunters Point in California, as well as in several cogeneration projects in Mexico and the US. Since 2009, Ortiz has been involved in Research and Technological Development Funds for the Mexican Energy Sector. He was appointed Director General of Information and Energy Studies at the Ministry of Energy back in 2013, and in 2015 he took on the position of Director General of Research, Technological Development, and Human Resources at the Ministry.
The Ministry of Energy, alongside other agencies such as the Ministry of Education, universities, academic bodies, and industrial players, is developing the much needed human capital, said Carlos Ortiz. He mentioned a heightened interest from all companies in the market to develop a strong strategy for human capital. The Strategic Program for Human Capital Development in Energy will be implemented across the whole of Mexico and it is tailored to those generations that need the support. There are six main points that form part of the strategy: background, prospective talent in the energy sector, analysis of volume in the value chains of the hydrocarbons sector, tools for the planning of the labor force, and a national system of identification of human capital specialized in the Mexican energy sector (FISH). The Ministry of Energy collated all the data and information from all agencies and companies in order to have indepth knowledge of the human capital pool and address the challenges. “This program seeks to integrate all governmental agencies and identify main challenges in the human capital development and direct our efforts in the right direction. The program obviously has a normative framework and a general diagnostics,” Ortiz stressed.
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Héctor Márquez is responsible for developing methodology for national content and designing policies to promote value chains resulting from the Energy Reform. Previously, he acted as Commercial Representative Minister of Mexico in the US, where he drafted innovative commercial promotion strategies. He held the position of Director General of Commercial Agreements at the Ministry of Economy between 1990-2002. His career in the private sector includes working as an Associate Economist at Wasserman & Associates in Washington DC, where he identified business opportunities in key countries.
Arturo Henríquez Autrey has been involved in the creation and management of multinational companies in the areas of logistics, commercialization, and real estate. He has worked in renowned international firms such as Goldman Sachs and KPMG. He has worked as Financial Director and advisor at Maxim Oil and Gas, General Director of PEMEX Procurement International, and advisor for Repsol. Currently, Henríquez Autrey serves as Chief Procurement Officer of PEMEX.
Pérez Meseguer acts as Project Coordinator at the Campeche Technological University (UTCAM) and actively promotes automation projects for CNH. As a retired PEMEX employee, he is an expert in IT, strategic planning, and large-scale project development. He contributed considerably to the Mexican oil company’s IT, software, and industrial automation strategies. He is credited as the creator and head of the information systems for the control and monitoring of wells under drilling process, as well as the digital office system, among others. Pérez Meseguer directed the Change of Century activities in PEMEX Petrochemicals, which adapted administrative and technical systems of industry control.
Coordinator and Project Leader at UTCAM
Vice President Mexico and Central America Geomarket of Baker Hughes
César Vera Méndez
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The microphone went to Pérez Meseguer, who told that UTCAM has been working for PEMEX for ten years under the public entity legal figure. “UTCAM students started working in the oil industry due to the university’s location. Then we saw an opportunity to provide training and system development services to PEMEX E&P.” He said that the impact of the drop in oil prices can be felt across PEMEX’s supply chain, thus the university is looking for ways to diversify. An option is to cater to the new players that will arrive in Mexico soon. For this purpose, UTCAM has opened offices across Mexico’s oil and gas states and an office in Houston to offer services to IOCs.
Vera then asked Henríquez how PEMEX integrates the local content requirements. The chief of procurement claimed local content is not new to PEMEX, and in fact, the NOC collaborated with the Ministry of Economy in defining local content rules, which apply to upstream only and are valid throughout the working life of a well. “Now that PEMEX has to create value, the focus is not to strengthen national content as a government entity, but as another player abiding to the rules. We look for ways to benefit local suppliers in a way that benefits PEMEX as well, forcing us to look for support schemes in our procurement.”
Chief Procurement Officer of PEMEX
Arturo Henriquez
César Vera proceeded to ask Hugo Espinosa how the private sector has reacted to PEMEX’s new procurement model. The Baker Hughes representative responded by admitting that his company has implemented a similar model. “Our new approach to procurement has eliminated redundancies that were preventing us from taking advantage of economies of scale. Now we know our suppliers better, and our relationship with PEMEX has improved as well.”
Hugo Espinosa
Head of Procurement Unit of the Ministry of Economy
Hugo Espinosa is a professional in the petroleum industry with international management experience and excellent results in top management positions. Espinosa has held several positions in Baker Hughes in Houston, Texas. He also gained extensive experience in the Mexican and Latin American oil and gas market while working at Baker Oil Tools, where he held several marketing and management positions in Mexico, Venezuela, and Ecuador. Espinosa also worked as Account Manager for Shell and Chevron in Venezuela. Having worked across several divisions in Baker Hughes, Espinosa has a well-rounded perspective of the Latin American oil and gas industry.
PEMEX’S NEW PROCUREMENT MODEL & THE FUTURE OF LOCAL CONTENT
Espinosa asserted that the Mexican industry is comprised of local professionals and technicians even in the case of international companies like Baker Hughes. He claimed new procurement models and the entry of new companies will diversify the supply chain and force players to find their niche. “We will have to fight the large companies, but will also learn about smaller markets. Small operators will provide opportunities for suppliers and will give them the needed experience to grow.”
Héctor Márquez
José Luis Pérez Meseguer
The panel began with a presentation by Arturo Henriquez, who wanted to give the audience an idea of the magnitude of PEMEX’s procurement operations. “PEMEX spends close to US$30-40 billion in procurement. This number is even larger than the NOC’s budget because the expenses are spread out throughout many years,” he explained, adding that PEMEX signed an average of 300,000 contracts in the 20122013 periods. Henríquez talked about PEMEX’s new procurement model, which is based on three axes: strategic sourcing and category management, strategic business procurement, and suppliers. “The Procurement Division was created in 2014 and has resulted in US$6.2 billion savings by implementing strategic sourcing.” He told the audience that procurement was historically focused on low prices, but the new model emphasizes elements such as quality, availability of spare parts, maintenance, etc. to avoid unnecessary long-term expenses. Finally, the relationship between PEMEX and its suppliers was mainly transactional. Now, as a result of the supplier base, PEMEX can establish long-term relationships, while gaining a deeper understanding of what each supplier offers.
César Vera joined Schlumberger Mexico as a field engineer and technical support engineer in 1988. In 1996, he served as a sales engineer for the company in Scotland. Afterwards, Vera went to M-I SWACO, where he took on different management positions in the Americas for 12 years. From 2001 to 2014, he acted as Nabors’ Director General for Mexico and Guatemala. In 2014 Vera became General Manager for Pressure Control Latin America at GE Oil & Gas. Diversely experienced in operations, technical support, safety, contract management, business development, and supply chains, Vera has proven results, by creating solutions that improve market share and financial growth.
Region Manager of GE Oil & Gas & Surface PC Latin America
Márquez, who was representing the Ministry of Economy, talked about how his division is in charge of developing a methodology to measure local content inclusion in the oil and gas sector. “We opted for a neutral and unbiased methodology that would acknowledge different activities. The Ministry of Economy is looking at the consumption of national goods and services –labor- that a contractor used. We noticed that ‘services’ was an ambiguous and confusing term that distorted metrics, so we decided to go down the production chain.” Given the law’s emphasis on closing gaps in technology and training, the Ministry decided to include concepts such as training expenses, technology transfers, and even investments on innovation and new developments as ‘local content consumption’.
Commissioner at CNH
Gustavo Hernández
| FUTURE OUTLOOK OF THE MEXICAN OIL & GAS INDUSTRY
As for the third round, Rangel said the onshore fields that will be tendered amount to 2,500 million boe. He stressed that all the tendered fields have certified 1p, 2p, and 3p reserves. Conversely, most extra-heavy oil fields tend to be certified for 3p reserves only, although Kaya, the fourth largest oil field in Mexico, has certified 1p reserves of 7 billion barrels of actual crude. Regarding heavy-oil fields, Rangel said that today only Ayatsil, which has an average output of 5,500b/d, produces extra-heavy crude.
Edgar Rangel was appointed as CNH Commissioner by Former President Felipe Calderón in 2009. He holds a BSc in Petroleum Engineering from UNAM, as well as MSc and PhD degrees in Petroleum Engineering from Stanford University. He has worked as a research associate at Stanford University, an engineer at PEMEX, Chief Technical Advisor to the Undersecretary of Hydrocarbons at SENER, and Director General for Hydrocarbons, Electricity and Water Project Evaluation at the Ministry of Finance in Mexico. His areas of interest are static and dynamic fractured reservoir characterization, enhanced oil recovery, physics of fluids, heavy oil reservoir simulation, and economic evaluation of oil and gas, electricity, and water projects.
Edgar Rangel
Gustavo Hernández said that before talking about PEMEX’s ambitions, we should look at the company’s work regarding its transition into a business-oriented enterprise. “The Energy Reform states that PEMEX has to compete with other oil companies in order to attain exploration areas, associations, migrations and more. We have to invoke the best practices for recruitment, procurement and all of this with competitive salaries.” Hernández admitted that managing a competitive human capital was a difficult area for the NOC, but important advancements are being made in this regard. He said PEMEX’s biggest problems at the moment are the low oil prices and a reduced budget, which makes the company more selective when it comes to investments and pushes PEMEX to look for partnerships. “Since capital expenditure has been changing after the Reform, it is important to take advantage from PEMEX’s competitive production prices that round US$8-9 per barrel. This is a key competitive advantage for the company, and projects that we have been tracing the right track,” Hernández
Rangel told the audience it was important to go over a few aspects of Chicontepec. “Some of the fields in Chicontepec that will be tendered are already under production, which can be attractive for operators. Chicontepec’s reserves amount to 42 billion boe, although recovery factors will be small.” According to Rangel, farm-outs can help raise the 15% recovery factors stated in the development plan to 20%. “The idea behind a farm-out is to find an experienced partner, thus creating a transfer of knowledge, technology, and economic resources, while reducing risks,” Rangel commented and highlighted the potential of farm-outs with exploration and production rounds in increasing production.
The CNH Commissioner began by noting that companies will have to present their reserves before CNH. He identified Akal as the field with the largest 3p reserves in the country, followed by Maloop and Zaap. After showing maps and tables with the country’s reserve inventory, he emphasized on the opportunities for improved reserve replacement, farm-outs, and contract migration. “On the production side, the State will keep 17% of the available blocks. The percentage for exploration, however, is much larger, as it consists of most of the national territory, mainly in deepwaters.” Rangel then said the authorities are working on schemes to allow geophysics companies to explore using different kinds of methods and technologies. He mentioned that the largest deepwater exploration project entails a US$1 billion investment and will take place in two years. “A one billion-dollar seismic exploration project is probably the largest project of its kind,” he expressed, adding that this shows interest from service companies in the Mexican market. “Reserves continue to decline, so we need to think of new ways to replace them,” Rangel said as he showed a map of Mexico’s potential reserves.
Rangel moved on to Round One, saying the ideal scenario would be between assigning 15-30% of the contracts. In order to achieve a realistic percentage, the contract models should be revised, as well as the requirements and times companies had to comply with. “There are many factors that should be considered and incorporated into the model if we want to achieve better results.” He said CNH is already working on these matters, as reserve restitution is crucial. Rangel went on to talk about the second tender, explaining that large companies try to produce 1 billion barrels per year, thus reserve replacement should amount to a similar number.
PEMEX is working on the migrations of contracts and establishing partnerships. “After Round Zero, we decided to do farm-outs in 16 blocks so that other companies can assist PEMEX. Some of the players that we had as contractors could now be competitors or partners in future rounds. It will all depend on the objective and the opportunities found during each round,” Hernández detailed.
Hernández then said PEMEX is seeking better-planned operations, which will improve its risk management capabilities, thus maximizing every investment. Part of PEMEX’s strategy is to further develop the deepwater and unconventional segments, which the NOC has not fully seized. Likewise, Hernández said the midstream segment should be given more attention, as it is the gate to materialize production into sales. “After the regulations were set, we have found around a US$100 billion in logistics opportunities,” he admitted.
The speaker invited the audience to keep in mind that the regulation has become stricter and the industry now has new and more competitive players. In this sense, the main topic to address, according to Hernández, is the administration of licenses for exploration and production. “Avoiding practices such as cross-subsidiaries, activity segregation, and multiple reporting is crucial. Different regulators tend to ask for the same information, so CRE, ASEA, and CNH, among others, will have to determine a unified information gathering platform.” Hernández commented that sharing regulatory information to any given entity will expedite procedures and reduce the workload for the parties involved.
Atcommented.themoment,
Director of Operations at PEMEX E&P
Before replacing Carlos Morales Gil as Director General of Pemex E&P, Gustavo Hernández García was Subdirector of Planning and Evaluation at PEMEX E&P beginning in July 2010, after spending most of his career ascending the corporate ladder of the NOC. He was also named as President of the Colegio de Ingenieros Petroleros de México (CIPM) for the period from 2010 to 2012 and is recognized as a technical expert. At CIPM he proposed the introduction of certifications for all engineers to create a standard under which engineers update their knowledge every number of years, boosting the nation’s competence base.
| PEMEX’S AMBITIONS AS A PRODUCTIVE ENTERPRISE OF THE STATE
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TABLE OF CONTENTS
• Dedicated editorial team with an in-depth understanding of the Mexican oil and gas industry
• Customized readership ensuring unprecedented reach among key decision makers in Mexico and around the world
7 DEEPWATER 14 FUTURE OUTLOOK 6 SHALLOW WATER & HEAVY OIL 13 DOING BUSINESS & HUMAN CAPITAL 5 DEVELOPMENT & PRODUCTION 12 REFINING & PETROCHEMICALS 4 DRILLING & WELL SERVICES 3 EXPLORATION 11 NATURAL GAS & PIPELINES 1 STATE OF THE INDUSTRY 10 TECHNOLOGY & NATIONAL CONTENT 2 ROUND ONE 9 INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE 8 ONSHORE & UNCONVENTIONAL RESOURCES
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