In the oil and gas industry it is vital that companies are prepared to share risks, especially in the uncharted territory of Mexico’s new industry. According to Alberto Galvis, CEO of young operator Citla Energy, the fact that his company has a strong financial backing and local knowledge makes it the perfect partner to not only share risks, but also benefits. “Citla knows the ins and outs of how to work in Mexico,” he explains. “We know the regulation, the people and the geology. That is our added value to big operators coming to the country, because to be successful in Mexico, you need to know Mexico very well.”
Citla was only born in 2015 but by offering financial muscle and local expertise, it was able to enter into partnerships with two strong international companies, ENI and Capricorn Energy, which led to it acquiring three blocks during Round 2.1. According to Galvis, these partnerships prove not only Citla’s capabilities but also its ability to offer companies strong synergies from which partners can benefit, especially in the area of local knowledge. “The fact that we have three blocks with two fantastic operators means that our strategy is working,” he says. “We are very proud of what we have accomplished and we want to continue combining our strengths.”
Galvis says the three awarded blocks were carefully selected due to their huge potential. “The blocks are located in a prolific, underexplored and underdeveloped area,” he says. “The fact that the Talos-Sierra-Premier consortium and our partner ENI have already discovered oil is a confirmation that the area has a great deal of value to offer.”
Experience includes both ups and downs, and while Round 2.1 was a big success for Citla, Galvis recognizes that Round 1.3 also offered useful lessons. “During that round, the balance between winning a bid and making money was broken,” he says. “Some companies had to withdraw from signing their contracts once they got fields awarded, as those contracts were not viable at such high bidding variables.”
While this is certainly bad news for the companies, he highlights that it is also bad news for the country. “Companies withdrawing from contracts means that the country is losing not only the investment in the field but also the time and money that the authorities invested in the bidding process,” he says. However, Galvis also believes the authorities have quickly learned from previous experience and are incorporating adjustments to ensure that companies do not fall into the same trap again. “The Mexican government has been very active and professional in the whole process of designing the bidding rounds. Of course, we could not expect everything to be perfect from Day One but the close interaction with the industry has ensured transparency and constant improvement,” he says.
While he commends the commitment of the authorities in the bidding rounds, Galvis suggests the selection of the fields to be auctioned should be evaluated. “The offshore opportunities that were put on the market are of greater magnitude than those presented onshore,” he says. “There are still many onshore opportunities that have not yet been put on the market, and that is a lost opportunity.”
According to Galvis, onshore can result in production faster than offshore, which is what the country needs right now. “Mexico has to ramp up production as soon as possible. The fact that we have many onshore fields close to existing infrastructure makes them even more attractive,” he says. “We need the authorities to work faster to bring these opportunities to the market so companies, and the country, can take advantage of them.” Galvis says Citla is looking with interest into both onshore and offshore, be it via bidding rounds or through farmouts with PEMEX.
Farmouts have long been cited as one of the best mechanisms to get the state enterprise back on its feet, and Galvis explains how important it is to help PEMEX reach its goals. “A key success factor in the Energy Reform is PEMEX’s transformation,” he says. “As the biggest player in the country, if PEMEX is successful, the Energy Reform is successful, and we should aim for that. There is no scenario whereby PEMEX does not succeed and the country does.”