2021 and Beyond - We Are All In This TogetherBy Niels Versfeld | Fri, 01/22/2021 - 09:14
There is so much talk these days, especially now, about how divided we are. In energy, this apparent division is best seen when you bring up climate change and Environmental, Social and Corporate Governance (ESG). It has been made out to be a battle between the world and the evil oil and gas industry. But this conflict is not the full story and we all know that. There is not an us or them; increasingly, we are realizing there is only “we.”
In the Mexican energy industry, we need to work together to solve the problems of 2021 and beyond. With low commodity prices and societal demand for rapid improvements in ESG performance, all actors in the energy industry are grappling with change. Added to that, we have COVID’s uncertainty and the changes to the world economy to come. In Mexico’s oil and gas sector, these are issues for PEMEX just as much as for independent oil and gas producers. As service providers to these companies, large to small companies have also been impacted. As the world transforms to lower carbon sources, this is true even for renewable energy producers and financers grappling to create sound business models in a fast-moving environment.
All these issues – prices, ESG and decarbonization – are critical for the future of Mexico and the rest of the world. Here are examples where people across the spectrum are working together to create solutions. While these examples are drawn from the people and companies that we work with, I know that all of you can think of similar examples from the amazing teams around you.
Prices – It is no secret that in a low-price environment service providers and producers need to work together to reduce inefficiencies in their relationship. Our company, Simmons Edeco, has been altering our business models to share risk and facilitate funding for customers’ programs to drive activity. These changes have moved us from the simple drilling day-rate model, which is set up in conflict with our customers’ objectives, toward long-term relationships with our customers that require collaboration to build ongoing value for both parties. Beyond the service industry within Mexico, the Zama field unitization exemplifies the collaboration that will be required within Mexico. While the process has created friction between the parties, that is to be expected when we form new relationships with different stakeholders. While I won’t comment on the eventual outcome of the Zama unitization, I strongly believe the model will be required for Mexico in the future. What is important is that all of us realize that we are stronger when working together than when we fight each other.
ESG – It is no secret that the oil and gas industry has received a bad reputation regarding ESG performance. I argue that that reputation does not properly reflect the industry’s strong background in spill prevention or health and safety. However, historically, community engagement has at times been adversarial and short term. In Mexico, many communities and environments have felt this short-term approach has left them with few benefits. An excellent example of collaboration and improvement in relationships with communities is Jaguar’s Transformaccion program through Accion Jaguar. The program clearly communicates tangible results to date and supports environmental protection, local infrastructure and community education. Only by working together with the communities where we operate can a company understand the negatives it has on the community or the positives that the company can contribute. For Simmons Edeco, that has meant actions such as reforestation efforts in areas where we have had an impact and tangible contributions toward food or infrastructure in the areas where we are working.
Decarbonization – The world is and will move toward increased electrification and there will be a focus on low carbon sources for that energy. However, renewable energy operators themselves know this transition will not occur overnight. As such, oil and gas producers will play a key role in the energy mix for years to come. But rather than give up on efforts to improve, producers are working to reduce or eliminate their impact, especially greenhouse gases. The easiest way to do this is to be more efficient with your operations. A simple example from our world is Cordax Evaluation Technologies, a sister company of Simmons Edeco. Cordax maximizes a producer’s BOE per carbon emitted by helping to reduce trips and equipment on-site and by maximizing production through tailored completion programs. Beyond reducing emissions, some energy companies have taken the next step and have begun to actively reduce carbon emissions beyond the impact of their operations. An example of this from Canada is Whitecap Resources, which is an oil producer with negative carbon emissions due to an active carbon sequestration project. The carbon is sourced from existing local coal power projects, helping to support the objectives of local governments and communities as well. The project is an excellent example of collaboration between producers, communities and governments.
Mexico has a rich tradition of overcoming challenges together; we need to honor that tradition in 2021. I challenge all of us to build at least one new relationship with a party you thought was an adversary or to take a deeper step to work together with a current stakeholder in your world. Beyond that, I encourage us all to share these stories of collaboration and partnership, so that the larger society in which we all live can see the true story.