News Article

Adjusting Expectations Towards a Production Timeline

By Pedro Alcalá | Thu, 07/15/2021 - 16:27

You can watch the video of this panel here.

Before the discovery of Cantarell in the 1970s, Mexico’s oil and gas resources were understood mainly through its onshore fields, many of which preceded the creation of PEMEX. Today,  major players in the onshore arena are trying to bring back that framework by addressing the many advantages offered by onshore development and the potential shortened path that it can offer towards productive phases. However, in the fourth panel of Day 2 of Mexico Oil and Gas Summit 2021, titled “Onshore Oil & Gas Production Outlook”, these advantages were balanced against some unique challenges that the sector still faces. 

Niels Versfeld, CEO of Simmons Edeco, moderated the panel and began his statements by underlining the vast geological richness that characterizes Mexico’s onshore reservoirs and basins. He also highlighted that the country’s regulatory framework can enable significant collaboration between the public and private sector, while also generating collective benefits. Despite these facts, Versfeld acknowledged that offshore activity and offshore discoveries dwarf their onshore counterparts. He also found, in his research, that the last few years have been characterized by a depression in rig use, in part because of the temporary halting of all onshore development wells. However, he also found that onshore reserves in the states of Veracruz and Tabasco have been increasing lately.  “We all know Mexico has great resources but it takes time before results show up in production.”

Alexandro Rovirosa, CEO of Roma Energy Holdings, made clear that onshore operators were among the biggest winners of contracts during the bidding rounds, and that unlike operators in other categories, many onshore operators were born in Mexico and represented national entrepreneurship and talent. He also noted that the success in onshore development in the US could be easily mirrored in Mexico, given the two countries’ symmetric geologic conditions. “The geology in the US and Mexican side of the border is exactly the same, so both regions have the same great potential. Operators are working hard to try and make good on this promise.” At the same time, Rovirosa made many observations regarding how much progress is yet to be made to reach the maturation of onshore activity, particularly for private operators. One of the examples he gave is that there are no private onshore storage terminals for crude oil, given the large degree to which onshore operators rely on PEMEX for all of these kinds of infrastructure needs. However, Rivorsa also made it clear that he was in no way opposed to collaborating more closely with the NOC, and that he believed that the onshore sector’s future depended on a much larger degree of participation from PEMEX. 

Most of the panel’s time was taken up by a presentation led by Dr. Héctor Moreira, Commissioner at CNH, on the subject of gas production. Moreira has been a long-time advocate of developing a national plan for natural gas development given that commodity’s nature and considered a fuel of the future. He addressed some of Rovirosa’s and Versfeld’s claims that more exploration onshore was needed. “Mexico has invested more money in exploration in the past five years than it has in the seventy years before that. Its reserves are larger than expected. The question now is how to get to production.” Moreira also made it clear that his emphasis was on gas because, in his view, “we are moving toward a gas economy, so it is my opinion that gas is more important than oil. Gas is the cheapest way to generate electricity and a major driver for economic growth. Every Mexican state should have natural gas available for manufacturing and production.”

Moreira has been a long-time critic of Mexico’s overreliance on natural gas imports from the US, but does place it in a sound historical context: “When the Energy Reform was passed, barrels of oil were worth more than one hundred dollars, while Texas was right in the middle of the shale boom, so natural gas prices were at the lowest they had been, historically. In this context, it made sense to focus on oil and leave natural gas for later.” However, Moreira said that the current status quo in terms of natural gas supply is unsustainable, explaining that “Almost all the natural gas in Mexico not used by CFE comes from the US. We need more exploration, production and distribution infrastructure. A time for incredible growth is coming up.” Moreira believes that specific public policy mechanisms need to be put in place. 

When asked about the kind of technical challenges onshore operators were currently facing, Moreira quickly replied by saying that the number one current obstacle is COVID-19, and Rovirosa agreed, adding that “onshore, the social aspect plays a significant role as a project intersects with so many people. The pandemic adds new obstacles in this area.” Unlike offshore operators, onshore operators need to do a lot more community engagement to keep their fields open; social risk factors can cause a very quick interruption to your activities. These tensions escalated significantly during the pandemic because in many cases communities became distrustful of oil and gas workforces coming in and out of their towns and villages. 

Panelist Iván Galban, Commercial Director of Exterran, approached the question of onshore development from an infrastructure growth and construction point of view, which he believes could be easily incentivized with slight changes to the regulatory framework. “New private operators entering the country have been able to use PEMEX’s infrastructure. But not all plan to rely on PEMEX in the long term and are looking for other ways to connect to SISTRANGAS.”

Pedro Alcalá Pedro Alcalá Journalist and Industry Analyst