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Since taking office in 2018, President López Obrador has sought to restore PEMEX’s position as a pillar for national development through the construction of the Olmeca Refinery in Dos Bocas. The project was completed earlier this year, representing a key piece in the energy sovereignt y puzzle.
If the ambitious production targets set by the current administration are to be sustained however, the vast geological potential of the Gulf of Mexico’s must be harnessed. Indeed, the issue of deepwater exploration and production is sure to dominate discussions concerning Mexico’s oil and gas self-sufficiency.
As the oil and gas industry works to retain its leading position in Mexico’s economic scene, industry leaders met at Mexico Oil & Gas Summit 2022 to discuss some of the key events of the past year, as well as some of the biggest projects set to take place over the next 12 months. Our panelists debated the surest investment partnerships to bring deepwater projects forward and achieve first oil in the not-too-distant future. Meanwhile, as some of PEMEX’s most productive assets enter terminal decline, panelists considered the latest technological advancements in IOR and EOR to get the most out of mature fields.
Finally, in light of notable industry-wide progress to adopt international HSE and ESG best practices, panelists discussed how the oil and gas sector in Mexico can become greener and safer. In short, Mexico Oil & Gas Summit 2022 provided the platform for industry leaders to engage in mutually enriching conversations that will allow the sector to plot a course for continued growth and innovation.
Acclaim Energy
Aeromexico
ALDITI GROUP
AMEXHI
Aosenuma
Argus Media
ASEA
ATIO Group
AVEVA
Axess Group
Baker Hughes
Balam Energy
Brella Ltd
CAMEXA
CEMZA
Centek Group
ChampionX
Cluster de Energía Coahuila
CMS Woodhouse Lorente Ludlow SC
Combured
Constructora y Perforadora Latina SA de CV
Control Union - Industrial Inspections
Cotemar
Cuatrecasas
CV Credit Inc
• DENER PROy ECTOS ENERGETICOS S.A. DE C.V.
Diavaz
DNV
Emerson
Endress + Hauser
Enermar
Eni Mexico
Environmental Resources Management (ERM)
ERM
Ernst & young
Exterran
Fermaca Marine SA de CV
Fieldwood Energy
Galicia Abogados
GDM SAPI DE CV
Gonzalez Calvillo
Goodrich Riquelme y Asoc.
Grupo Industrial Águila
Grupo TMM
Harbour Energy
Hokchi Energy
Holland & Knight
Holland House Mexico
INERCO
iPS - Powerful People
Jaguar
John Crane
KPMG
Lukoil Upstream Mexico
Marinsa
Market Intelligence Latin America
MARSH
Mexico View
Mitsui & Co. Power Americas
Modec
Murphy Oil Corporation
Muvoil Consulting
Naviera Integral
Newpek Exploracion y Extraccio SA de CV
Noatum Logistics
O’Gorman&Hagerman
OLAM ENERGy, S.A DE C.V
Oleum Energy
Onexpo
Onexpo Nacional
P&A Integrity Management Company
PEMEX
PetroBal
Petronas
PJ Piping Inc
PPG
R9 Holdings
Recherche Exploitation Produits
Relyon Nutec de México
Repsol
Rocaport
Roll Group
Schlumberger
Schneider Electric
Senate
Servicios Integrales Nuevo Santander
SGS de México
Shawcor
Sinopec International Petroleum Service Mexico
Smart Fiscal Solutions
Southern Pulse
Subsea 7
SUMIMSA
Summum
Tecnogolfo SA de CV
Tlalli Energia
TMM
Top Management México
Tundra
Valaris
Vysus group
Walworth
Wamex PE
Weatherford
Woodside Energy
WTS Energy
XWELLS
Zeeco-Therme
09:30 A GROWING ROLE FOR PRIVATE OPERATORS
Speaker: Merlin Cochran, AMEXHI
10:00
10:20
MURPHY’S UPCOMING EXPLORATION IN DEEPWATER
Speaker: Gabriel Gómez, Murphy Oil Corporation
PRIVATE OPERATORS IN MEXICO’S OFFSHORE PORTFOLIO
Moderator: Javier Mundo, KPMG
Panelists: Gabriel Gómez, Murphy Oil Corporation Andrés Brügmann, Hokchi, Fieldwood Energy
12:30 KEEPING UP WITH CHANGES IN THE RULEBOOK
Moderator: Teresa Souza, CMS
Panelists: David Enríquez, Goodrich, Riquelme & Asociados Eckhard Hinrichsen, DNV Luis Guillermo Colin, Jaguar Benjamín Torres, Baker McKenzie Carlos Ochoa, Holland & Knight Diego Bustamante, Petronas
15:00
15:30
DETERMINING A DEEPWATER FID IN MEXICO
Speaker: María Lupi, Petronas
CRUCIAL UPSTREAM TECHNOLOGIES & OPERATING FRAMEWORKS
Moderator: Fernando Cruz, Dolphin Drilling
Panelists: Ulises Oliva, Weatherford Javier Robalino, Schlumberger
16:30
SUCCESS FACTORS BEHIND THE LOGISTICS OF THE OLMECA REFINERY CONSTRUCTION
Speaker: Carlos Pérez, Noatum Logistics
09:00 THE INSIDER PERSPECTIVE ON MEXICO’S HYDROCARBON POTENTIAL
Moderator: Carla Quiñónes, EY Mexico
Panelists: Carlos Morales Gil, PetroBal Pol Palacios, XWELLS
Óscar Roldán, R9 Holdings Gustavo Hernández, UMAI
10:00
RISK FACTORS SHAPING THE OIL & GAS INDUSTRY’S OPERATING ENVIRONMENT
Speaker: Daniel Linsker, Control Risks
11:30 KEY FRAMEWORKS & TECHNOLOGIES IN ONSHORE DEVELOPMENT
Moderator: Arianna García, Servicios Integrales Nuevo Santander
Panelists: Iván Galbán, Exterran Eugenio Cortina, TechnipFMC Warren Levy, Jaguar EP José Bosch, Oleum Energy
12:30
HUMAN RESOURCES, SAFETY AND PRODUCTIVITY
Moderator: Raúl Manrique, Exterran
Panelists: Maribel Colin, RelyOn Nutec Adara Zavala, Lukoil Guido Van der Zwet, IPS Lennart Rietveld, WTS Energy
15:00 DOS BOCAS AS 21ST CENTURY OIL & GAS HUB
Moderator: Alexander Braune, ERM / ANZMEX
Panelists: Fluvio César Ruíz Alarcón, Senate of the Republic Pablo Nieto, Roca Ventures Javier Cabrales Mendoza, PPG César Vera, Naviera Integral
16:00 DOWNSTREAM INFRASTRUCTURE GROWTH & INTEGRATION
Moderator: Roberto Díaz de León, Combured
Panelists: Francisco Hoces , INERCO Iris Pineda, EY Mexico
Cleantho Leite, Braskem Idesa Enrique Robelo, Onexpo Nacional Pablo Gualdi, Atio Group
UNASSIGNED NATURAL GAS RESERVES KEY TO ENERGY SO VEREIGNTY
Annual extreme weather events and political instability have compromised sustained natural gas pipeline exports to Mexico. The resulting price hikes and rippling macroeconomic impact have outlined a clear need to move away from dependency on imports and toward domestic energy sovereignty. Considering this federal ambition, the Mexican Association of Hydrocarbon Companies (AMEXHI) proposes that the state should begin the process of leveraging its more than 500 blocks of unexploited natural gas reserves.
“As observed from past events, natural gas supply chain disruptions in the US had and will continue to have important social and economic consequences in Mexico. Untapped natural gas reserves present Mexico with the opportunity to become an energy-sovereign country, to the benefit of its people and economy,” said Merlin Cochran, General Manager, AMEXHI.
“As observed from past events, natural gas supply chain disruptions in the US had and will continue to have important social and economic consequences in Mexico. Untapped natural gas reserves present Mexico with the opportunity to become an energy-sovereign country, to the benefit of its people and economy”
Merlin Cochran General Manager, AMEXHIChannel and Henry Hub pricing, the gas markers the country uses to import gas through p ipelines.
Consequently, the spot price of natural gas that is paid in Mexico has tripled, while the margin between LNG and natural gas has shortened. This is of major consequence to Mexico’s prominent manufacturing industry, one of the largest consumers of energy, incurring a knock-on effect on the country’s GDP. In short, after a 300 percent increase in the price of gas and no other means to diversify consumption, the domestic production of natural gas has become a matter of national interest.
Disruptions to the supply of natural gas to Mexico “generated temporary suspensions of power production, which in turn caused temporary stoppages of productive activities. The Bank of Mexico estimated that these disruptions could have subtracted 0.22 percentage points from the country’s GDP growth rate,” according to a Banxi co Report.
Mexico currently depends on the US for over 70 percent of its natural gas imports, a figure in complete contradiction with the state’s push toward energy sovereignty. The US is liquifying its gas and exporting more, specifically to countries looking to diversify their energy inputs considering the recent upheaval in Eastern Europe. For Mexico, this means the price of liquefied natural gas (LNG) is getting closer to that of natural gas, as per Houston Ship
In light of these evolving circumstances, it is necessary for the federal government to begin exploring the use of unconventional resources like unassigned reserve zones. Harnessing them to increase production just four times over would make Mexico completely gas independent, according to AMEXHI estimates. “We are sitting on a gold mine and we are not doing anything about it,” said Cochran. Furthermore, clear indicators from the federal government can mobilize the flow of private investment expected to bring an estimated US$56 billion over the next two decades, according to the AMEXHI 2020 report, as well as foster an income of US$104.52 billion for the state.
“This industry has proven its worth and the industry is committed to Mexico for the long term. We hope that there are many opportunities in the future,
otherwise, Mexico will enter a phase of consolidation that is in nobody’s best interests. AMEXHI hopes that the results
in terms of production, royalties and even social license have proven this,” Cochra n told MBN
GULF OF MEXICO’S DEEPWATER EXPLORATION OPPORTUNITIES ENDURE
The oil potential in the Gulf of Mexico presents interesting opportunities for Mexico to strengthen its production capacity in the coming years. Exploiting this promise requires close collaboration between authorities and the private sector. The creation of synergies between both groups opens up unique business opportunities for the country’s oil sector, said leading IOC M urphy Oil.
Murphy Oil is an independent exploration and production company, with an advanced portfolio of projects, onshore in the US and Canada and offshore in the deep waters of the Gulf of Mexico. Production is split into three areas, including the unconventional onshore US-based Eagle Ford Shale, where the company produced 36.4Mboe/d in 2Q2022, comprised of 72 percent oil volumes and 86 percent of liquids volumes. Murphy also produces from two onshore unconventional plays in Canada: Tupper Montney, which produced 275MMcf/d in 2Q2022, and Kaybob Duvernay, which produced 7.3Mboe/d in 2Q2022. Finally, in the US Gulf of Mexico’s deepwater, Murphy is
the fifth-largest producer with 70.2Mboe/d in 2Q2022. Here, it is executing major projects on schedule: like the clustered development of the Khaleesi, Mormont and Samurai fields.
Murphy has a global presence in exploration, with an estimated 1 billion Boe of risked mean resources and more than 24,000km ² across the Gulf of Mexico, offshore Mexico, Brazil and Vietnam. Murphy’s oil production by 2Q22 was equivalent to 163Mboe/d. The company’s proven reserves at the end of 2021 stood at 699Mboe, with Canadian onshore fields representing half of the figure. Meanwhile, the US onshore and Gulf of Mexico-based offshore fields account for the other half, with equal shares between the two areas.
The company’s strategy is based on three pillars: Deliver, Execute and Explore. “Despite being a small company, Murphy has demonstrated the quality of its operating capacity over the past few years, which is comparable to that of the oil supermajors. We are able to be faster and more efficient at times, even,” said Gabriel Gomez, Country Manager Mexico, M urphy Oil.
Murphy’s worldwide deepwater experience includes the drilling of over 150 global offshore wells, having demonstrated the capacity to drill in water depths in excess of 3,000m and 8,500m below the seabed. The company has a history of innovation and technical expertise. “All these experiences and innovative methods are what Murphy is looking forward to bringing to Mexico,” said Gómez.
The company has established itself as a mid-sized player with excellent results in its exploration and exploitation operations. One of Murphy’s great success stories is the Malaysian operation, carried out in conjunction with Petronas. The company made the first deepwater discovery in that country and was able to bring it into production in five years.
A recent project was the development of the Khaleesi, Mormont and Samurai fields, which reached production in April 2022. The King’s Quay floating production system (FPS) interconnects the three fields via a cluster model. The development was brought online in a record time of 32 months, in contrast to the expected 36 months, and below budget. The FPS is currently producing 91Mboe/d gross from five wells, with 25Mboe/d net, of which 89 percent is oil. Completions are progressing on the sixth well, with one more remaining to be completed.
Murphy entered Mexico at the beginning of the oil rounds resulting from the 2014 Energy Reform, participating in the first
shallow water round. At the first deepwater round, Murphy together with its partners Petronas and Wintershall Dea were the top bidders for Contract Area 5 of the Salina Basin.
The Block 5 contract was signed in March 2017 with its Exploration Plan approved in May 2018, starting the initial exploration period of 4 years. In 2019, the consortium drilled a discovery in the Cholula well which, together with G&G work, satisfied the minimum work program for this initial period. In advance of the initial expiry, Murphy and partners applied for the first additional exploration period of three years, which was approved by CNH, making Murphy the first private operator to be granted such an extension in a deepwater block.
During the additional period, Murphy committed to drill an additional exploration well, which will be fulfilled with the drilling of Tulum-1EXP. In June, Murphy received approval from CNH for the drilling permit for this well, which has an estimated cost of US$57 million. The mean to upward gross potential resource of the Tulum well ranges between 150MMboe and 350MMboe. The Valaris DPS-5 rig is expected to arrive in Mexico at the end of October 2022 toward this end.
Through the exploration of Contract Area 5 in the Salina Basin with the drilling of the Tulum well, Murphy hopes to progress towards consolidating its operation in Mexico.
PRIVATE OPERATORS DRIVE MEXICO’S OFFSHORE PORTFOLIO
Of the bidding rounds that took place under the previous administration, both shallow and deepwater fields were put up for auction, noted Javier Mundo, Development and Energy Specialist, KPMG. “Of the more than 100 contracts awarded, 57 of these were offshore,” he added. According to statistics from CNH, in July 2022, national crude production currently sits at 1.6MMb/d of which 1.3MMb/d comes from offshore fields. Of these figures, private operators contribute 57Mb/d.” Compared to PEMEX, this figure may seem minute, but it is significant, as private operators are advancing some of Mexico’s most emblematic offshore projects, especially in d eepwater.
With offshore set to figure more in Mexico’s oil and gas future, the importance of private operators is set to grow, as Mundo explained: “Offshore activity is by far producing most these days, as well as leading investment in exploration. This is because of the nature of offshore projects which tend to be much larger and require the most investment, first in the exploration and evaluation phases and then development. In this regard, private operators have adopted some of the important strategies that serve as points of reference for the industry to advance offshore p rojects.”
Hokchi Energy, a Mexican oil & gas company and subsidiary of Argentine IOC Pan American Energy, is one of these private players advancing offshore projects. Andrés Brügmann, Vice President, Hokchi Energy, shed light on some of his company’s recent activities in Mexico. “We participated in four blocks following the bidding rounds. Of these, we invested in the exploration stage for two of these, which proved to be unsuccessful. We also operate our namesake currently-producing Hokchi block, off the coast of Tabasco in the shallow water Southeast basin, in addition to Block 31, in the same basin but located off the coast of Coatzacoalcos, Veracruz,” he said. Brügmann added that the company was awarded Block 31 in June 2018. It then drilled two exploratory wells in 2019, of which one, Xaxamani-2EXP struck oil. “Hokchi has since progressed onto the evaluation face of Xaxamani this year, with plans to drill two delineation wells, Xaxamani 4 and 5, sometime between October and November. This will allow us to carry out tests to corroborate the future productivity and commercial viability of these wells,” noted Brügmann.
The company’s Hokchi block, meanwhile, is already in the development and production phase, with an output of 26Mb/d and a target to surpass 32Mb/d of crude by the end of
2022. “We drilled 14 wells in total, 7 of which are for producing and 7 for water injection. Hokchi is also served by two offshore platforms connected to an onshore facility where the separation process takes place,” he added, noting that water re-injection water is crucial for maintaining pressure at the field: “By 1Q2023, in line with sustainability commitment, we plan to ensure all the water used is treated and conditioned to remove salt on site and then re-injected back into the seabed. As production increases, so will the quantity of water used.”
“Hokchi has designed unconventional well completions for wells located in tertiary rock formations where production does not typically reach beyond 1Mb/d. Hokchi, however, is now averaging a rate of 6Mb/d per well on average, owing to the wellcompletion techniques employed. Production therefore depends on a combination of the geology of a formation and the strategies and techniques employed to maximize this potential. That is how we set our benchmarks,” Brügmann c oncluded.
“By 1Q2023, in line with sustainability commitment, we plan to ensure all the water used is treated and conditioned to remove salt on site and then re-injected back into the seabed. As production increases, so will the quantity of water used”
Andrés Brügmann Vice President, Hokchi Energy
handed out between 2016 and 2018, with an initial phase contemplated of 3 to 4 years, “we are now reaching crunch time with a real spike in activity as companies scramble to satisfy their contractual obligations.”
Gómez noted that the COVID-19 pandemic and other delays meant that many companies have not drilled all the wells set out in their approved plans. “Now, we are really going to have a much clearer idea of the reserves out there and the potential productivity of these fields,” he added.
“As an international company, Mexico is an interesting country for Murphy since for years, foreign investment was shut out of the oil and gas industry. That is until the opportunities afforded to us by the previous administration,” Gómez continued. “In my view, PEMEX has done an admirable job developing the industry, but it is very difficult to take on this task alone, especially with regards to exploration and the investment required. With our global footprint and interest in diverse areas, we manage a dynamic portfolio,” he added, noting that “each dollar invested is therefore screened by a process of project evaluation and comparison. So, if we make a discovery in Mexico, this is going to compete for resources e lsewhere.”
As to how operators justify well development strategies from a financial perspective, Gabriel Gómez, Country Manager, Murphy Oil, said “just over half of these contracts awarded were offshore and to international companies. Aside from Hokchi and Amoca-Mizton-Tecoalli awarded to Eni, both discovered by PEMEX, all the contracts handed out were for exploration. IOCs were more interested in these offshore opportunities, while Mexican companies tended to focus on onshore projects.” Given these contracts were
Brügmann explained how Hokchi evaluates prospects and assesses development plans, focusing on incorporating as many resources as possible with the least cost, though the reality of the statistics behind often-unprofitable exploration makes this a more complicated effort. What is more, external factors like the availability of processing ships to carry out production tests complicate the efforts of the company. “That is why we try to strike a balance between exploration and developing the fields with proven resources already in our portfolio.” Gómez concurred, adding that “worldwide, one in every five wells drilled strikes oil. And if we factor in which of these are commercially viable, this figure falls to as low as one in 10. So, in the case of Mexico, one in every three wells drilled being successful is very p romising.”
How can offshore-focused private operators align their own success with that of the government’s plans for energy independence, however? “Much of what is reported is not how issues are seen by the industry. The reality is our interests are much more aligned than what is described. In terms of energy self-sufficiency, for example, this does not mean private companies have to reduce production. The recent reforms make clear that resources belong to the nation, and all the contracts we have as private operators are based on this principle, to guarantee the benefits for the Mexican people,” said Gómez, highlighting how between two-thirds and three-quarters of the developed resources go back to the state. Because of the risk of investment, the government stands to gain from private participation: “It is more of an art than a science,” said Gómez about developing oilfields. Therefore, private companies are better positioned to gamble on a field. “If we add together the contractual quotas and government taxes, we pay US$5 million each year with our associates for the right to run the risk of looking for oil. PEMEX may have a vital role, but we play our part too, especially when you consider the work we are doing in deepwater, which has not been carried out before to this level. In that sense, our interests and that of the government are perfectly aligned,” he concluded.
As Mundo concurred, Brügmann highlighted how public-private interests are more aligned than some make out: “If we look at what the government takes from private offshore projects, it is currently more than 90 percent. Therefore, our investment complements their efforts to achieve energy security. Every business worldwide has some limitations: money, technical resources and expertise, as well as supplies. We bring all this to Mexico
with our international connections,” he said. Unlike other businesses, the upstream sector does not compete once the fields have been awarded. “On the contrary, we share resources, costs and expertise. We find out how we can work together for the benefit of the industry overall. PEMEX still carries out most upstream activities in Mexico, but now they can benefit from our presence as well. It is an ecosystem with a lot of synergies.”
For now, new bidding rounds have been suspended nevertheless. “We need to reactivate the bidding process as soon as possible, since the most important resource in our industry is finance. PEMEX simply cannot exploit all the geological potential that exists in Mexico alone. And the time to extract these resources is now, in the most sustainable manner possible of course, since we are set to undertake an energy transition over the next twenty years. At the end of this, oil will be a niche commodity,” explained Brügmann. The vast amount of geological data acquired via the exploration activities of companies awarded contracts from 2015 onward is a further benefit that Mexico could acquire.
“The rounds are fundamental to the development of offshore infrastructure,” noted Gómez, adding that “unlike the US Gulf, where operators benefit from infrastructure transferal, outside of the area of the Bay of Campeche where PEMEX has worked for years, the infrastructure is non-existent. We are lucky that our Tulum well in Block 5 is located right in the heart of the Salina Basin next to other contractual areas awarded to major operators such as Shell and Repsol. As neighbors, we can develop this much-needed deepwater infrastructure together, sharing costs and expertise and interconnecting our development projects.
REGULATORY VOLATILITY IS CHALLENGING BUT SURMOUNTABLE
Over the past 12 months, regulators have introduced numerous regulatory amendments and norms with important implications for Mexico’s Oil and Gas industry. Nevertheless, despite a short window to achieve compliance, industry participants have faith in the potential of Mexico’s oil and gas industry and are preparing to overcome this latest hurdle. In the short term, industry experts recommend that market participants and stakeholders prepare for the proximate mass of changes with proactive market analysis in lockstep with legal advisors, as well as internal and external risk-management advisors and partners.
“Oil and gas companies are being increasingly subjected to a growing volume of regulations and compliance standards meant to augment market competition and curb the sector’s environmental impact. While necessary for the long-term health of the sector, most of these regulatory changes lack procedural clarity and authority,” said Benjamín Torres-Barron, Principal, Baker McKenzie.
Mexico’s oil self-sufficiency has become one of the key aspects of the industry’s policy direction, a vision that demands strict compliance and oversight mechanisms. However, it is often a process that lacks transparency and authoritative direction. This is a market characteristic that echoes throughout Mexico’s industries, forcing many companies to defer to expert
advice to navigate and meet regulatory compliance requirements. Nevertheless, it is fundamental that organizations do not “overestimate the changes brought by the new reforms, but really look at the advantages and disadvantages they offer,” said Diego Bustamante, Senior Legal and Compliance Officer, Petronas. Ultimately, during this adjustment process it is about adapting regulation to the market reality.
Delving deeper, recent regulatory changes with strong impact power include NOM 001-SEMARNAT-2021, which establishes the permissible limits of contaminants in wastewater discharges in receiving bodies owned by the nation. This will have resounding implications for Mexico’s oil and gas industry and beyond, affecting infrastructure, agriculture and mining as well. In addition, the alignment of hydrocarbon collection will fundamentally change contractual obligations and direct the construction of infrastructure. Overall, parameters will help reduce emissions, reduce infrastructure costs and encourage the implementation of better business practices.
“Sharing infrastructure would allow us to have stricter security controls while adding value to all actors involved,” added B ustamante.
Despite the public sector’s best intentions, there are still technical and operational disconnects that have limiting repercussions
for the private sector. One example of this is the regulation for volumetric control “have not been adapted for upstream use,” said Luis Guillermo Colin Villavicencio, Corporate & Public Affairs Manager, Jaguar. This has forced companies to implement haste system patches that are ineffective and potentially dangerous. As such, there needs to be a greater effort on behalf of policymakers to keep up with technical and operational changes in the industry.
“We need regulation to stay in line with technological changes and operational realities. Instead of keeping up with the rulebook, we should perhaps be asking how the rulebook keeps up,” said Teresa Souza, Senior Associate, CMS, adding that the rules of the game should become clearer over time instead of murkier. In that sense, the recent resignation of CNH President Rogelio Hernández Cázares is some cause for concern for the industry, although the panelists expect that the commission’s quorum will soon be re-established.
For private players, it is essential to stay up to date, too. After all, the experts agree that many of the regulatory changes hold benefits for the industry and the environment. “It is important to review the technical part of safety-oriented rules, as well as the new regulatory challenges brought by the current administration,” said Carlos Ochoa, Partner, Holland & Knight. “Since the energy reform, companies must implement stricter measures and quality standards,” he added, noting that this is a positive development that enables Mexico’s industry to mature.
While uncomfortable, the legal outcome of the Zama offshore oilfield discovery frames the administration’s posture toward private operators. Furthermore, it “served to dismantle illusions in the administration’s adherence to precedent, an important consideration for private participants moving forward,” said David Enríquez, Partner, Goodrich, Riquelme & Asociados.
MEXICO’S DEEPWATER EXPLORATIONS REMAIN PROMISING
Mexico has vast oil reserves that remained unexplored for years. After the 2014 Energy Reform, unprecedented opportunities opened for international operators to embark on attractive deepwater exploration projects through the oil bids organized by the Mexican government. Seven years later, this exploration starts showing promising results, shared Malaysian IOC Petronas.
Founded in August 1974, the company has 48 years of experience, much of it in global operations. Petronas entered Mexico in 2015 on the back of the Energy Reform, as this regulatory change represented Petronas with the opportunity to position itself in a new market, contributing to its mission of embodying a progressive energy and energy solutions partner, enriching lives toward a sustainable future.
This incursion into the Mexican market occurred through the licensing rounds.
“These rounds were a transparent and open process,” explained María Lupi, Head of Business Planning & Petroleum Agreements Management, Petronas. This openness was something completely new for Mexico’s oil and gas industry, which was used to more closed processes, making Mexico a landmark for the future of the industry.
The oil rounds provided opportunities throughout Mexico for onshore, shallowand deepwater plays, both conventional and unconventional. “This variety of opportunities provided an attractive platform for multiple companies to participate in the Mexican oil and gas market,” said Lupi. For Petronas, it was extremely appealing to be able to enter the frontier area of offshore exploration that was opening for the first time in th e country.
Petronas focuses on pursuing value-driven growth, and Mexico brings high value to the table. The country is one of the largest producers and other liquids in the world. It is also the fourth-largest oil producer in the Americas, just behind the US, Canada and Brazil. Entering Mexico allowed Petronas to consolidate a strategic portfolio in line with the company’s strategic plans for the future.
Petronas’ exploration opportunities materialized in 10 diversified blocks throughout the Gulf of Mexico. The company has a presence in the Perdido Area, the Mexican Cordillera and the Salina Basin. Of these 10 blocks, Petronas operates five together with eight partners.
Here, Petronas has drilled 10 wells and spudded nine exploration wells as well as one appraisal well. The company committed to nine wells within its portfolio of which it has already drilled seven. “Apart from that, we have drilled two wells that were not in our commitments at the time we entered the exploration rounds,” Lupi explained. By the start of 2023, Petronas is scheduled to drill another well i n Block 4.
Petronas is the second largest company in Mexico in terms of contract acreage, with more than 22,099 km2. Of the company’s 80 employees working in the territory, more than 50 percent of those hired are Mexic an talent.
Petronas’ exploration history in Mexico began in February 2019 with the Cholula well, then continued in June with yaxchilan East in the same year. Despite the pandemic, Petronas, together with its partners via consortia, managed to drill four wells. In February 2020 it started with Chinwol and Polok 1, then during the shutdown continued with Juum in May and Moyote in November. In 2021 Petronas maintained the drilling pace of the previous year, starting in January with Xakpun. It then continued the campaign during May with two wells, Polok 2 and Chak, and ended the year with the Bacalar well in September. This year, the company will start with the Tulum 1 well in October. In December, the company will drill its last well commitment in Block 26. Then, during 1Q23, it will drill a new well i n Block 4.
Measuring exploration success is complex. Petronas measures the efficiency of its performance in this area through the safety of its workers. “For Petronas, safety comes first, we measure our exploration success by making sure all our personnel can go back home safe and sound,” said Lupi.
In addition to meeting the agreed targets, Petronas maintains plans to operate in Mexico beyond 2022. “The company has a vision of staying in Mexico for the long term,” Lupi said. The strategy includes continuing exploration efforts with the drilling of highimpact wells that will allow the company to have basin mastery for its long-term targets.
The second part of the strategy is to monetize existing discoveries that the company already has in its portfolio along with future discoveries. Finally, with the third pillar of the strategy, the oil company aims to continue its value-based growth. Petronas wants Mexico’s energy
ecosystem and support the entire supply chain, as it continues to strengthen its relationship with its partners, regulators, authorities and co mmunities.
“Petronas is always open to opportunities that may present themselves in the future and to continue our history in Mexico for many years to come,” Lupi concluded.
CRUCIAL UPSTREAM TECHNOLOGIES AND OPERATING FRAMEWORKS
Behind each forward step in the oil and gas industry is technological advancement, as Fernando Cruz, Business Director Mexico, Dolphin Drilling said: “The IEA calculated that US$3 billion is to be invested in exploration before the end of the decade, and this is likely to increase further in light of current oil prices. As Elon Musk, amongst others, has noted, continued innovation and exploration in this industry are crucial to meeting the world’s energy demands. Without oil and gas, everything else collapses.”
Javier Robalino, MCA Sales and Marketing Manager, Schlumberger, concurred. “The energy industry continues to depend heavily on oil and gas to meet demand. Moreover, in Mexico and other parts of the world, we are still dependent on coal, so if we are still using coal the idea that we will suddenly stop using oil and gas soon is out of the question,” he said, adding that Mexico’s industry therefore “has a pivotal role in developing the future of energy. We are bombarded daily by news of the latest technological innovations What is not talked about, however, is technological innovation in oil and gas. It is not the case that
our industry is not advancing technologically, quite the contrary.” Robalino used AI and IoT as examples that the oil and gas industry uses. Nevertheless, there are some risks associated with adopting technological developments, though there is also much to be gained.
“However, when the stakes are this high, operators want to use the most advanced technology out there to minimize risk,” he concluded.
Cloud computing and automation are two areas that have been incorporated wholesale by the industry, Robalino noted, not least during the COVID-19 pandemic to keep operations running. “Technology has been fully embraced by the oil and gas industry, not just in the development phase but increasingly in exploration projects, because ultimately, that is where the future lies,” explained Robalino. Ulises Oliva, Latin America Geozone Business Manager, Weatherford, concurred:
“Our technology, infrastructure and personnel are constantly evolving. Our challenge is to make use of non-renewable resources in the most efficient manner possible. The innovations you hear about in other sectors
are also part of everyday operations in oil and gas, especially with new projects.”
New trends and innovations are changing the exploration stage. “It all goes hand in hand with how we approach new challenges. Technology allows us to gather more information and adapt our processes to make the most out of the resources available with the least effect on the environment possible. Our geologists have a much better idea nowadays of which prospects are viable before we commit to drilling. Implementing new tools and the latest tech at each start, from exploration and evaluation to development and production makes everything safer and more efficient. Automated systems, in particular, have made the industry much safer for our personnel and minimize damage caused to the environment,” explained Oliva.
“This is one of the main services Schlumberger offers nowadays, since making better quality images available before an operator starts drilling allows them to reduce the risk”
Javier Robalino
MCA Sales and Marketing Manager, Schlumberger
nowadays, since making better quality images available before an operator starts drilling allows them to reduce the risk,” he added. While 4D images are by no means a guarantee that oil will be struck, they support operators much better than before. “The same software we use for CAPTCHAs to assess images is employed in oil and gas. Our computers are smarter than ever before. By increasing automation, we make drilling smarting and can make the adjustments necessary to reduce risks, which in turn, reduces emissions. This brings lots of value to the exploration phase when gathering information is key,” Robalino said.
Another innovation Robalino pointed out is the prospect of switching diesel-powered generators out for hydrogen engines. Cruz also mentioned the processes of carbon capture, management and storage, and how oil and gas companies are financing new technologies to this end.
“Regarding the energy transition, it all boils down to reducing emissions. Exploratory drilling, accounts for around 20 percent of all of the industry’s emissions. One way to reduce emissions in this initial phase is drilling more quickly, thereby limiting the amount of diesel used by our machines,” said Robalino. He also pointed to seismic studies, which have been improved through modern technology and therefore speed up operations. “This is one of the main services Schlumberger offers
Operators and even service companies are investing more and more of their profits into R&D, even for renewables. “When we invest in solar power, for example, it is not simply a question of investing in photovoltaic solar cells, but administering the data obtained from these cells to see how you can produce the most energy with adaptations and different orientations. We call this big data, and as we learn to manage such data more efficiently, we can apply the same principle to oil and gas where we manage thousands of gigabytes of data daily,” said Robalino. The software created to deal with this issue combines the recommendations made by a wide range of experts across a diverse set of projects. “Therefore, techniques developed in other sectors of the energy industry can be applied to streamline and add value to oil and gas processes too,” he stated.
THE SUCCESS FACTORS BEHIND THE DOS BOCAS REFINERY’S CO NSTRUCTION
The Olmeca refinery in Dos Bocas has long been promoted as the answer to Mexico’s economic woes and stands as the centerpiece of López Obrador’s plan
to restore PEMEX as the lever for national development. Once fully completed, the refinery in the port of Dos Bocas will join the country’s six other refineries that are
undergoing renovation. This will increase oil-processing capacity by 20 percent with a target of 340Mb/d of heavy crude oil to be processed by the end of López Obrador’s six-year ter m in 2024.
The Noatum Project Cargo team in Mexico is currently working at Olmeca, managing the shipment of oversized cargo needed for the development of the project. Therefore, Noatum has a four-year contract, with which it provides more than 4,000 twentyfoot equivalent units (TEU), over 1,000 customs processes, six points of entry and three delivery locations. Carlos Pérez, Dos Bocas Project Manager, Noatum Logistics, explained that the project will have required three years for the stage of site preparation and construction. “For the operation and maintenance stage, a useful life of 20 years is estimated,” he said.
Noatum currently has five plants under construction for Dos Bocas. This comprises the Diesel Hydro-Treatment Plant the Naphtha Reforming Plant, the Diesel Hydro-Desulfurization Plant, the Nafta Hydro-Desulfurization Plant and the Catalytic Disintegration Plant. “The process from the tender to the actual execution has presented many challenges that we have learned to overcome through
teamwork, trust and intensive training,” Pérez explained.
Noatum had the previous advantage of working on other projects like the refining projects Al Zour and GT5 in Kuwait, TouatFaz in Algeria, La Rabida in Spain and others in Qatar and South Korea. “We are experts in all maritime, land and air issues at a global level and have an extensive knowledge of the oil and gas upstream and downstream environments, as we provide assistance in several countries,” said Pérez.
Through its experience, Noatum has reached the milestone of US$1.5 billion in merchandise handled, which according to Pérez, reflects the trust clients have in the company. “From May 2021 to May 2022 we have moved 3,300,000m 2 , moving 161,000 tons by sea and land, which is highly complex. We have received 358 ships with loose cargo. This still requires a lot of complicated logistics,” he added.
These numbers, Pérez said, are achieved through close communication with clients, timely follow-ups on each one of the shipments, daily reports, direct communication with those assigned by contract, constant training in the field and office and seeking out improvement and
time reduction in all processes, as well as looking for the best, qualified personnel in projects. Supplier development, due diligence and process reviews add to the company’s value proposition.
Along the challenges of Olmeca are the environmental, community and security issues of the area. Dos Bocas has a population 94,741 inhabitants. The lacking housing, expensive offices, insufficient local transportation, little skilled labor, limited roads for heavy transportation, grid blackouts, a failing telephone network and few parking opportunities proved to be difficult, but not impossible, to overcome.
“We had to be smart, so we decided to have more efficient preoperative meetings between each shipment. We arranged greater cooperation with ASIPONA regarding port operations as well as greater coordination between all unloading operators to make maneuvers more
GAINING AN INSIDER PERSPECTIVE OF MEXICO’S OIL AND GAS POTENTIAL
Experts agreed that a higher level of investment and firm political support for market players are essential if Mexico is to maximize its potential to develop hydrocarbons in abundant deepwater and unconventional areas.
As Carla Quiñónes, Oil & Gas Consultant, Ey Mexico, noted, the oil and gas industry has a long and successful history in Mexico, but as it looks toward the future, the question of reserves and hydrocarbon potential becomes paramount. Carlos Morales Gil, General Manager, PetroBal, shared in celebrating the industry as a storied and primary driver for economic development, which allowed Mexico to position itself as one of the world’s top producers in the past century. Morales sought to clarify, however, that the wealth of hydrocarbon reserves in Mexican territory also belonged to the nation, even before the 1938 Oil Expropriation. What changed under President Cárdenas with the creation of PEMEX was ownership of installations and
efficient,” said Pérez, adding that it was in close contact with PEMEX for operations and customs authorities for inspections of the merchandise it had already imported.
Customs was indeed a fundamental part of the success that Noatum has had so far with Dos Bocas. Pérez explains that Puerto Dos Bocas, without an inspection area, made it difficult to carry out visual inspections of merchandise: “The port does not have an area for unloading or storing containers, inspections were difficult due to lack of space, few personnel, limited working shifts and no activity on weekends,” he said.
“Therefore, Noatum Project cargo developed on-site inspection schemes within the refinery with the support and mutual agreement of ASIPONA, PTI and customs authorities, obtaining the relevant authorizations for the free transit of imported goods through a prebuilt bridge directly to the refinery without the need for further steps,” Pérez shared.
the means of extracting these resources. Since then, there have been plenty of changes in legislation, none more notable than the 2014 Energy Reform that allowed private companies to participate once again in the upstream sector for the first time since the 1920s.
Morales also highlighted the important role played by CNH as a regulatory body to administer this new operating framework. With the “great advantage” of the presence of all these private companies, it is important to have such a body to align private interests with those of the state, outline clear regulatory norms and foster best practices.
“This historical perspective helps us set the scene for a discussion on reserves, which is ultimately an economic topic and a question of investment. Mexico undoubtedly has vast resources to exploit, but now we also have the robust regulatory legislation necessary to make the most of this potential,” explained Morales, adding that “reserves boil down to
finances. It is not enough to know there are accumulations of hydrocarbons in the subsoil. This must be accompanied by the intention of extracting them, which only comes with the necessary investment. Therefore, we need to make sure the incentive is there to invest.”
Pol Palacios, CEO, XWELLS, also approached the topic of reserves from a financial viewpoint: “Despite certain difficulties and challenges, Mexico undoubtedly remains an attractive destination for investment given the wealth of resources available here,” he said. “As a foreigner, my voice has often been valued within the local industry as offering a balanced opinion on such issues regarding Mexico’s appeal to foreign capital in the oil and gas industry,” added Palacios. In his view, Mexico’s oil and gas industry often suffers from low self-esteem. “Mexicans demand much from their oil and gas sector, and sometimes this leads them to underestimate how attractive the industry is for foreign investment.” Palacios shared Morales’ outlook that global participation in the development of strategic reserves is the key to the continued success of Mexico’s oil and gas industry, especially when it comes to new technologies.
Palacios also noted the role the government has in funding exploratory activities: “It is no secret I have long pushed for increased public spending in deepwater exploration. Until very recently, this has not been a priority for the government but deepwater simply
cannot be ignored much longer.” Palacios cited the example of the Lakach gas field, the development of which was forestalled as gas was of no interest to investors in Mexico as it could be purchased cheaply from the US for around US$3/MMbtu. “At that time, I felt like I stood alone. Now, with the situation in Ukraine, the whole of Europe is starving for gas that Mexico could have supplied if we had not neglected investment in the past,” Palacios explained, adding that “my message to the industry now is: invest in new technologies, invest in new talent and do not underestimate Mexico’s potential to become a major player in deepwater with the necessary investment. These are the steps necessary to maintain Mexico’s position as a first-rate global producer.”
On the topic of legacy perspective and the evolution of Mexico’s oil and gas reserves, Gustavo Hernández García, International Vice President, Unión Mexicana de Asociaciones de Ingenieros, drew attention to some key dates. “Before 1941, practically all the oil produced in Mexico was exported. With the Mesozoic discoveries in Chiapas and Tabasco in the 1960s, production started to really take off. In 1976, with the discovery of the Cantarell field that entered production in June 1979, Mexico’s production surpassed 1 billion barrels annually for the first time in 1982. Current production levels of around 600MMb annually have us back at 1979 levels, which was before Cantarell started producing.”
“There is no secret formula or quick fix for reserves. That is why it is important we have plenty of dialogue surrounding Mexico’s hydrocarbon potential,” noted Hernández Aside from the role played by PEMEX, he pointed toward some of the privatelyoperated fields from the Energy Reform’s bidding rounds, including Eni´s Amoca and Mizton, Fieldwood Energy and PetroBal’s Ichalkil and Pokoch and Hocki Energy’s namesake field.
According to Hernández García’s estimates, 3P reserves sit at 22.2 billion boe as of January 1, 2022. Of prospective resources, an estimated 64.2 billion boe are to be found in unconventional reserves, “more than what we produced over the course of 116 years,” he noted, with a further 48.7 billion boe in conventional plays. “What concerns me most is that the aforementioned 3P statistics have not changed in the last four years,” said Hernández. Notably, crude oil accounts for 6.05 billion barrels of the total 8.01 billion barrels of 1P reserves, while condensates make up 30MMboe and gas 10.78Bcf. Hernández praised the work of all operators incorporating 7MMb of 2P and 16MMb of 3P reserves this year through discoveries, as well as the success of all businesses, including those in the private sectors, in maintaining 1P levels consistent since 2016, a difficult task considering each year the number of barrels produced is subtracted from 1P figures.
Óscar Roldán, Director Oil & Gas Division, R9 Holdings, used the US as a point of reference for Mexico’s own hydrocarbon reserves, given the similarities in both geography and geology. “Our countries share the Gulf of Mexico, a province rich in reserves. Notably, Mexico managed to achieve the lion’s share of its historical production with just one operator, compared to the hundreds of businesses active on the American side. For this reason, we should feel proud of what PEMEX has accomplished as a Mexican institution.” While Roldán highlighted that at least offshore, Mexico has got more out of the Gulf of Mexico historically than its neighbor to the north, onshore production tells a different story. “Unconventional resources are the biggest difference between US and Mexican onshore operations. While Mexico has evaded the issue, the incorporation of unconventional resources has allowed the US to transition from a net importer of oil and gas to an exporter.” Some practical benefits to unconventionals cited by Roldán included the shorter time frames to get projects producing as well as the flexibility they offer for such a volatile market. “When prices are lower, you can slow the pace of production much more easily and ramp it back up again when prices inflate,” noted Roldán.
While voicing concern about how water shortages could dissuade the development of Mexico’s unconventional Burgos basin,
Palacios agreed wholeheartedly with Roldán’s comments on offshore’s potential.
In terms of eventually developing such infrastructure, Roldán praised the wealth of information acquired by private players. This has enriched the upstream sector in Mexico, especially in the case of the seismic studies carried out in deepwater of the Gulf of Mexico. “I am particularly intrigued by the outcomes of Shell’s exploratory drilling in Mexican deepwater, given the infrastructure and success they have already achieved on the US side in shared basins such as Perdido Fold,” added Palacios. Deepwater exploration takes time, however: “With the
most diplomatic intentions, it does not help when there are political hurdles that make an investment in such projects less attractive. By comparison, I worked on similar projects with BP in Egypt, and with government support, we were able to speed up the process.” Palacios also called attention to Wintershall Dea’s activities in deepwater, as well as the alliance between PEMEX and Woodside. The latter could become a model for how the federal government can work with private companies to bring the necessary foreign technology and capital to advance high CAPEX and risk-intensive deepwater projects going forward.
MANAGING INDIRECT RISKS FUNDAMENTAL TO OPERATIONAL FLUIDITY
Foreign investment toward the realization of onshore and offshore operations in Mexico has begun to pick up, necessitating a revaluation of the existing risk landscape. While many of the external vulnerabilities are preexisting, their intersection and severity will depend on a project-by-project basis. As such, to ensure operational safety and uninterrupted fluidity, project supervisors should anticipate the management of indirect risks to fluctuate in composition.
“Despite the high level of uncertainty in the country and the sector, there are still many opportunities in upstream, midstream and downstream activities. To maintain the inflow of foreign investment, companies should prioritize their exposure to indirect risks, the source of most safety challenges”
Daniel Linske Control Risks Consulting“Despite the high level of uncertainty in the country and the sector, there are still many opportunities in upstream, midstream and downstream activities. To maintain the inflow of foreign investment, companies should prioritize their exposure to indirect risks, the source of most safety challenges,”
said Daniel Linsker, Partner, Control Risks Consulting.
There are three main evolving tendencies that companies should consider when forming their strategy road-map for an operation: the ESG “tsunami,” new labor and social regulatory provisions as well as domestic institutional failures. The first issue concerns a cross-cutting and inescapable tendency toward the global economy’s nurturing of better social and labor relationships and the establishment of better business practices. This tendency is closely tied to regulatory initiatives, including the enforcement of labor standards and practices established by the International Labor Organization (ILO), as agreed upon through the USMCA.
Since their implementation, these labor standards have encouraged contributors to participate in collective bargaining activities, which is changing the dynamics of employeremployee relationships. Other regulatory considerations include the protections and rights of Indigenous communities enshrined in Convention 169 of the ILO. Similarly, the protections outlined have given communities the ability to bar the development of projects, fundamentally changing the approach and relationships companies are looking to develop with local communities.
Lastly and most concerningly is the erosion of regulatory capacity on behalf of the state, rooted in interacting elements including republican austerity, unqualified leadership take-overs, corruption and further issues. This dysfunction has led to the arbitrary use of state institutions like the SAT, UIF and FGR, which in turn has complicated compliance roadmaps and impacted operational timelines, leading to millions in added costs. This is also occurring in parallel to a general deterioration of security in the country that has emboldened organized crime to extort companies.
Since these risks do not unfold in a vacuum, the challenge for companies is to identify
the degree to which these risks overlap and control them through thorough investigation and efficient allocation of resources. In practice, this demands the identification of project-specific risks according to geographic specificity and the draft of a clear “map of power” so that personnel can reference, understand and act on contingency plans. Furthermore, active listening and communication should be avidly encouraged throughout the chain of command to avoid and identify risk oppo rtunities.
“Altogether, these risk-management mechanisms will enable companies to remain operational and even grow despite unfavorable circumstances,” said Linsker.
NEW TECHNOLOGIES DRIVE TRENDS IN ONSHORE DEVELOPMENT
Recent environmental and geopolitical events have led to a revival of interest in the exploration and exploitation of hydrocarbons, mainly natural gas. The increase in prices has renewed the attraction of investing in new projects to increase the supply of this key fuel, though oil remains an important resource too. However, the way of operating has changed, as sustainability and decarbonization in the industry must be prioritized. These objectives are reachable thanks to new technologies that are
transforming trends for the development of onshore fields in Mexico and elsewhere.
“As operators and producers continue to seek greater efficiency and make their investments more profitable, they are looking to adopt cutting-edge technology trends that reduce production costs and the environmental impact while increasing safety and reliability,” said Arianna Garcia, Business Development Manager, Servicios Integrales Nuevo Santander.
Trends both global and local influence the transformation of onshore operations. The global availability of hydrocarbons has been affected by the geopolitical events triggered by the Russian invasion of Ukraine. Gas has established itself as the base fuel of the energy transition and plays a central role in global decarbonization efforts. The reduction in its supply due to the Russian invasion of Ukraine has increased the need to diversify international gas supply sources. This impacts new onshore project development.
“The price of a gas molecule and oil barrel is trending upward, which encourages national and private operators to develop exploration and production projects that perhaps were not attractive a couple of years ago,” said Iván Galbán, Director of Sales and Business Development, Exterran.
In Mexico, a trend guiding the sector is the search for energy sovereignty as a pillar of the government’s policy. “In this quest for energy sovereignty, heavy investments are allocated to increase refining capacity and to grow domestic production of both oil and gas along with the infrastructure associated with this,” said Galbán.
Mexico has large reserves of natural gas coming from unconventional sources in the north. These onshore reserves represent more than 60 percent of the 3P national natural gas reserves. However, the country currently imports around 70 percent of its
gas from the US. However, the exploitation of unconventional onshore reserves requires heavy capital investments. The search for energy sovereignty, together with the increase in hydrocarbon prices, generates a favorable environment to attract the required funding and opens the door to the development of new onshore exploration and production projects in this region.
Another trend to consider is the appetite to invest in Mexico, which has slumped since 2014’s Energy Reform. ESG trends and a clear path to net zero carbon emissions will be favored by major financial institutions. Deloitte’s survey, published in its Oil and Gas Outlook, shows that technologies such as Carbon Capture Utilization and Storage (CCUS) and hydrogen will help companies in the sector to stay co mpetitive.
“One of the main allies in reducing emissions and implementing sustainable solutions is digitalization,” explained Eugenio Cortina, Business Development Director Mexico, TechnipFMC. By automating processes and incorporating technology to monitor and operate onshore activities, operations in hydrocarbon fields are optimized, making them more efficient. This greater control over operations allows for better measurement of areas of opportunity, which in turn helps achieve the sustainability and decarbonization objectives that global trends demand. In addition, digitization and automation
provide other benefits to operators, as it contributes to the reduction of CAPEX in the long term and maximizes their profi tability.
“The country has significant oil and natural gas wealth that has not been tapped to its full potential,” said Warren Levy, CEO, Jaguar Exploration and Production. In addition, the country’s energy needs are only increasing. Despite this potential, Mexico presents several challenges, including difficulties to access capital on a glo bal level.
“In Mexico, capital is not flowing as it should,” explained Levy. Among the reasons for this is PEMEX’s overindebtedness. The bureaucracy surrounding paperwork and permits is also not helping to attract more investment, making it difficult to develop potential new onshore projects. “If Mexico fails to participate in this new oil boom, it runs the risk of being left behind in the generation of wealth and competitiveness in favor of greater welfare for its population,” Levy said.
Part of the reason why the sector’s scarce capital is not opting for Mexico is the lack of investor confidence. This hinders the implementation of new technologies
that would make onshore exploration and operation more efficient and p rofitable.
Another challenge hampering investment is regulation. Fiscally, the outlook has changed for hydrocarbons investments. This creates additional challenges for operators to implement projects quickly. Regulatory changes in favor of stronger measures against climate change demand that operators adapt quickly to the acquisition of new technologies. This would allow them to reduce the emission of polluting gases and optimize production. However, “the difficulty in accessing capital delays their ability to make the large investments that these implementations require,” said José Bosch, General Manager, Ole um Energy.
Finally, the social impact of companies in the sector and their commitment to social responsibility is a growing trend. Part of the objectives of sustainability is to consolidate better operational dynamics that favor the well-being of the communities where they operate. “In addition to investing in technology to optimize operations and reduce polluting gases, operators must prioritize their social responsibility programs. Our operation must generate wellbeing in the communities where we stay,” Bosch concluded.
MEXICO’S UNIQUE AND MOST PRESSING HR NEEDS
Since Mexico’s oil and gas industry is unique, so are its requirements for human resources (HR), agree industry insiders. To tackle the most urgent local challenges, HR as well as health, safety and environment (HSE) strategies must be aligned.
“The importance of human capital cannot be underestimated. Around 30 percent of oil and gas expenditure goes to personnel, but with one human error a whole project can collapse causing untold costs to an operator,” highlighted Guido Van der Zwet, President, IPS America. As for the panorama of human resources in Mexico, Van der Zwet noted that Mexico has a younger labor force:
“Of the almost 60 million-strong Mexican workforce, 45 percent are between the ages of 20 and 49 and just 7 percent over 65.”
Addressing HR concerns unique to a Mexican oil and gas context, Van der Zwet noted that to meet ambitious production targets, the sector needs to incorporate more talent and train personnel as quickly as possible. However, one obstacle is the fact that Mexico is home to just a few OPITO training centers. HR agencies therefore have a pivotal role to play in bringing expertise and experience from abroad to the domestic market, especially when it comes to newer disciplines within an everevolving industry. “We are seeing Mexico move more toward deepwater exploration now, an area that has seen underinvestment in recent decades. As a result, Mexico is lacking the relevant experience and expertise to bring projects forward without outside help.” Nevertheless, Van der Zwet emphasized that bringing human capital over from abroad must be seen as an opportunity to train locals, not to replace them. “For projects in areas where Mexico lacks the relevant experience, we often see an initial spread of 80 percent foreign and only 20 percent local personnel. However, we want to flip this around soon.” Van der Zwet praised the increased participation of foreign operators and service providers in the domestic market, something he believes has greatly enriched local talent by bringing international experience and technical
know-how. While recent federal labor reforms have made flexible solutions harder to come by for oil and gas companies, by focusing on short-time frames Van der Zwet believes outsourcing still has a role to play in the future of the oil and gas industry.
Recruitment Processing Outsourcing (RPO) is one such area Van der Zwet cited as a success story, facilitating the participation of international companies in Mexico since the passing of the 2014 Energy Reform. To this end, Van der Zwet emphasized that foreign companies must be wary not to infringe on Mexico’s labor laws, especially regarding taxes, and must therefore be fully informed and equipped with all the relevant information when drawing up new contracts for employees. “Subcontracting HR firms such as ourselves helps companies new to the Mexican market comply with regulations, ensuring employees are treated fairly and all operations are legitimate. We can advise on suitable salaries for any given position, and ensure no laws are infringed upon,” noted Van der Zwet.
Lennart Rietveld, Regional Americas Director, WTS Energy, concurred with his compatriot´s assessment that the added value HR agencies offer is local knowledge, especially for an industry with regulations as complex as oil and gas. “In terms of the scale of complexity for starting a new business across the world, Mexico is consistently ranked between second and fourth place.
For international companies with set practices, we help them adjust to make the landing softer,” he added.
These two seemingly separate issues of HR strategies and compliance need not be seen as completely different, however. “We must look for possible synergies that can be fostered between human resources strategies and safety training and compliance efforts,” said Raúl Manrique, Business Development Mexico & Caribbean, Exterran.
Adara Margarita Zavala Coboj, HSE, Lukoil, agreed: “For businesses to work like clockwork, everything must be synchronized. Of course, in any business, some departments are more collaborative in nature than others, but HR and safety always go hand in hand.”.
“To guarantee a safe environment for our personnel, HR and HSE must work together and adopt integral solutions to minimize the risks inherent to all operations within oil and gas. Indeed, both the onshore and offshore sectors carry much greater risks and hazards than other industries due to certain external factors. For example, operations often take place in remote locations, where access to emergency services is not always available”
Adara Margarita Zavala
HSE, Lukoil
operations often take place in remote locations, where access to emergency services is not always available,” sh e noted.
In many ways, HSE starts from the recruitment process overseen by HR, which determines if prospective employees have the necessary skills and competencies so as not to endanger themselves or others. While praising the role the entry of IOCs has played in raising training standards, Zavala addressed the gender disparity in the oil and gas industry, as giving women more opportunities is still a challenge HR must fully embrace. She sees HR’s role as an intermediary between regulators and businesses and emphasized that HR departments should encourage companies to not just do the bare minimum to meet their commitments. Instead, they should go beyond mere compliance in all aspects, from diversity initiatives to safety procedures.
“No matter the size of any business, or the industry in question, human capital is always the most important factor,” noted Maribel Colin, Commercial Manager, RelyOn Nutec. Colin agreed that safety procedures have become much more robust since the entry of private players into the Mexican market: “Private companies brought highlevel training standards with experience operating in diverse environments all across the globe.” Colin also praised the efforts taken by the government to improve safety standards, as well as the new regulations put in place to make compliance p aramount.
Regarding Mexico’s notoriously complex regulatory frameworks, Zavala noted that at the heart of the latest wave of federal reforms lies a desire to ensure the well-being of workers and protect the environment.
“To guarantee a safe environment for our personnel, HR and HSE must work together and adopt integral solutions to minimize the risks inherent to all operations within oil and gas. Indeed, both the onshore and offshore sectors carry much greater risks and hazards than other industries due to certain external factors. For example,
Coming out of the pandemic, operators were keen to kick-start activities and ramp up operations to meet ambitious production goals Therefore, the demand for HR services to recruit personnel with the necessary expertise is greater than ever. While the pandemic undoubtedly forced HR to adapt to a new normal, core methodologies have remained constant.
“Knowledge absorption is key to ensuring personnel, especially those working on offshore platforms, are well-equipped to
manage hazardous situations they might face, protecting both their lives, those of their co-workers and the integrity of expensive installations. We now have a platform that incorporates both virtual and hybrid training for a range of disciplines,
but we have kept our principles and commitment to excellence the same. These changes are here to stay, since, in addition to being more convenient for our personnel, they are also more efficient and cost-effective,” Co lin said.
DOS BOCAS ANTICIPATED TO BECOME VIBRANT ECONOMIC HUB
Despite runaway costs and multiple logistical hurdles, industry leaders remain highly positive about “one of the most important public work projects in recent years,” said Javier Cabrales Mendoza, Senior Key Manager Oil & Gas, PPG. Instead, they look forward to the regional and macroeconomic potential that the Olmeca Refinery in Dos Bocas represents, mobilizing to play their part in strengthening Mexico’s national refinery system as needed to reinforce energy security, industry experts told MBN.
“Energy is always a matter of national security,” said Alexander Braune, Consultant Director, ERM and ANZMEX. He explained that Mexico’s national refining system has six refineries already in operation, but that the government wanted to add to this portfolio to produce refined fuel products and wean the country off expensive exports. “A new refinery has been pursued for years as a way to reduce Mexico’s energy vulnerability. Finally, with the construction of the Olemca refinery, it is possible for the sector to work
toward this objective,” added Fluvio Ruíz Alarcón, Advisor, Senate of the Republic, as he added that oil and oil products are crucial for Mexico’s income. “The refinery is completely in line with President López Obrador’s desired energy sovereignty,” he concluded.
The Olmeca refinery was constructed with the purpose of connecting onshore and offshore facilities and opening the prospect of expanding offshore infrastructure, a fundamental capacity needed to augment Mexico’s crude processing capacity. Current estimates anticipate that once at full capacity, the hub will contribute an additional 340Mb/d to Mexico’s supply, an important prerequisite to fortifying energy security in the face of rising import costs. Building up this capacity has not been an easy feat, however, presenting costly challenges that ultimately eclipsed budgeted funds by billions, as reported by MBN.
“Dos Bocas has gone through an impressive evolution. Very important engineering challenges, including flooding, energy
distribution and network infrastructure construction, have been solved within the logistics of the project,” says Pablo Nieto, Vice President of Business Development, Roca Ventures.
That being said, “remaining challenges present industry participants and stakeholders with a wide range of opportunities to transform the oil and gas industry,” said César Vera, CCO, Naviera Integral. To drive the sector forward, the industry must depend on the collaboration of industry partners, the adoption of new technologies and the reconceptualization of processes around them. During this progression, the state has an important oversight role in expediting the administrative process so they are equally agile as needed by the private sector.
“Logistics efficiency has been the goal with technological innovation to meet the growth of production at Dos Bocas,” said Nieto.
In return, the Olmeca refinery is expected to generate reverberating economic benefits for the local economy and Manzanillo, as well as the greater national economy. “Dos Bocas has always been important. However, with the creation of the refinery, the port has gained relevance and exposure worldwide,” said Mendoza. As envisioned by the government, in the long-term the project is expected to generate additional benefits including the development of goods, services employment, procurement of materials and the accelerated development of supporting infrastructure. If stakeholders can demonstrate results, it is in turn to also augment foreign investment.
REGULATORY CERTAINTY NEEDED TO IMPROVE DOWNSTREAM INFR ASTRUCTURE
The value chain that the midstream and downstream areas of the oil and gas industry contribute to the Mexican economy is of the utmost importance. Amid post-pandemic and geopolitical challenges, the Mexican industry faces infrastructure and regulatory obstacles that it must overcome to maximize its productivity and take advantage of opportunities arising from the international environment, exp erts said.
At the macro level, Mexico must adapt to a challenging international context regarding energy security and business development in the oil, fuel and petrochemicals value chains. The geopolitical challenges arising from the post-pandemic economic reactivation, the disruption of supply chains and the Russian invasion of Ukraine, the volatility of the economic and financial frameworks that must adapt to these changes and the
pressure to continue driving the global energy transition to net zero are some of the many challenges the country must tackle if it is to take advantage of oppo rtunities.
“Society truly wants to move toward more sustainable energy models. However, the implementation of the energy transition has been hindered by geopolitical events and the socio-cultural realities of each region,” said Francisco Hoces, Director of Consultancy, INERCO Group.
The momentum of the energy transition should be seen as a benefit: “We must see the energy transition as an opportunity to modernize the oil and gas sector, to
make it more productive and competitive,” explained Hoces.
The development of the midstream downstream and petrochemical has several hurdles to overcome. The first of these is the application of government decisions through current regulations. The operation of the fuels and petrochemicals market in Mexico is highly regulated, so regulatory changes negatively impact the industry’s business models. “In Mexico, no midstream or downstream activity can be carried out without prior permission from the CRE. Regardless of how many projects there may be, regulation itself sometimes acts as an obstacle to industry growth,” explained Iris Pineda, Senior Manager Oil & Gas, E y Mexico.
One of the main bottlenecks faced by the midstream and downstream industries has been the delay in the granting of permits by the regulator, CRE, as the industry regulator is still grappling with the effects of the pandemic. Justified by the closure of operations due to COVID-19, the issuance of permits for the entire energy value chain has been at an impasse. In addition, the government has made several attempts at regulatory changes that have increased the difficulty of completing administrative procedures.
On the other hand, the midstream and downstream industries require investments in infrastructure to improve their operations. Petrochemical feedstock needs storage if it is to be viably transformed into high-valueadded products. These industries require regulatory frameworks adapted to the needs of their main players to allow them to be competitive.
“Excessive permit requests and a lack of capacity to resolve them swiftly are not in tune with the need to implement projects for the industry. Discussing regulation with stakeholders would allow the authority to create more competent regulatory frameworks that would boost the development of the petrochemical sector,”
said Cleantho Leite, Director of Energy and Business Development, Braskem Idesa.
Eighty-five percent of petroleum products are transported across the country and beyond. This requires Mexico to have a robust distribution and storage infrastructure policy to maintain its energy security. In 2017, Mexico established the obligation of a storage policy meaning that players selling fuel must have a minimum storage inventory of between eight and 11 days’ worth of these products. This prompted investments in infrastructure to provide this storage service.
“In 2019, they reduced the minimum capacity in the regulation to five days, which sends a bad signal to the market because it throws off the long-term investments made a couple of years earlier,” Pineda explained. “Having enough days of fuel inventory in storage strengthens the country’s energy security,” Enrique Felix Robelo, Vice President, Onexpo Nacional, added.
The consolidation of midstream and downstream infrastructure and its further development will depend on reducing the redundancy and administrative silence that has prevailed during the past two years, the experts agree. CRE has warned that there is a significant delay due to the closure of operations due to the pandemic, but its administrative processes do not show a sway in favor of the private sector’s requests, either.
In addition to optimizing administrative processes, regulatory certainty is key to boosting business opportunities in the midstream and downstream environments. This regulatory certainty must come above all from the autonomy and transparency of the regulatory bodies.
“The dialogue with SENER must be strengthened, as it is responsible for promoting compliance with public energy policies that impact the midstream and downstream sector,” explained Robelo. Through these conversations, it will be possible to strengthen the processes so that companies can carry out procedures
efficiently and advance the construction of the distribution and storage infrastructure necessary to strengthen the country’s energy security.
The lack of private sector participation in the industry affects market dynamics, at times to the detriment of the end consumer. “The government must become aware of the need for private sector participation and move forward with the release of permits to allow the sector to increase its operational and infrastructure capacity,” said Pablo Gualdi, CEO, Atio Group.
However, greater private sector participation does not mean a weakening of PEMEX. In open markets, the private sector needs to complement the public sector to optimize the market’s dynamism. PEMEX needs to have the capacity to invest in storage and distribution infrastructure and explore new opportunities together with the private sector to create alliances that allow the sector to become more competitive and productive. “PEMEX must be a strong industry in and of itself,” Robelo stated, adding that “neither the state nor the private companies can do it alone, it requires the participation of both cooperating with a long-term vision. “Regulatory stability and certainty is a necessary constant for the development of the midstream and downstream industry and the attraction of the necessary investments to strengthen its competitiveness,” concluded Roberto Díaz de León, Director, Combured.