STORY INLINE POST
“It is important for Mexico to develop a unified approach to introducing a comprehensive regulatory framework, and the Mexican oil and gas industry is in a slow transitional period toward achieving this objective,” says Rafael Parrilha, Director General of Bureau Veritas.“The industry’s new agents are taking longer than initially predicted to introduce new regulations, but it is important to place this fact in the general context,” he argues. “We have to understand that the previous model has been broken, and creating a rupture from the past is not an easy endeavor. The rhetoric from the authorities so far does not lead us to believe that the new regulatory framework will be particularly different to what currently exists on the US side of the Gulf of Mexico.”
The industry is eager for these new rules to be issued and published by ASEA, and until then, Parrilha believes that it will be difficult for the different actors in the market to have a good overview of the situation. “It remains unclear exactly how the responsibilities will be distributed among the different agents, including CNH. Its role in the establishment of safety regulations for new players is still undefined,” Parrilha adds. “As a certification company, it is essential for us to understand how CNH and ASEA will carry out their role in this area.”
Bureau Veritas has been working with PEMEX over the past 35 years, helping it reach a certain level of homogeneity in terms of regulations across its different areas. A few years ago, the company began an important project with the NOC to audit different assets, from upstream to downstream activities, to verify compliance with its own standards. “This allowed us to gauge PEMEX’s standards, and we found that while some abided by worldclass guidelines, others showed room for improvement,” Parrilhas shares. The Director General believes that the attractiveness of Mexico’s oil and gas sector is also heavily reliant on PEMEX, which will keep its leading position in the industry for years to come. “Although it is well-known that PEMEX is undergoing a troubling period regarding cash flow, the opportunity for farm-outs and association schemes still remains solid. The impact of new players in the market will only be felt in five to ten years, once these have become mature companies that are well established in the economy, which means that short-term industry growth is in the hands of the NOC.”
Another problem that the uncertain regulatory market could create may be the reluctance of investment from new international players, Parrilha fears. “International companies select their portfolio of investment by evaluating the different global options available. This leaves Mexico in a position where it has to actively compete for investment.” However, he also believes that Mexico has an excellent offering for international companies in terms of reservoirs, plus the geology is not particularly complex, which eases and fosters investment in E&P. Moreover, the internal market is in a positive state, and Mexico’s free trade agreements mean the country is very receptive to foreign investment. “Transparency, which is a key requirement for an effective market, has been achieved, but the lack of definition of the regulation surrounding Mexico’s oil and gas market is creating uncertainty and is hindering it from becoming consolidated,” Parrilha asserts.
The main challenge faced by players in the market is to reduce costs, without increasing risk, while negative environmental externalities are no longer acceptable. Despite the many challenges in Mexico’s oil and gas environment, Parrilha remains optimistic about the future of the sector. “The results of the second bid of Round One were extremely positive, exceeding the expectations set by R1-L01 by far. This news was particularly surprising for global investors, given the fact that just two weeks before, Brazil, a country with a similar economy to ours, had experienced a disastrous bidding round,” Parrilha conveys. Although Parrilha admits that many developments have been made, he thinks that more can be done in the bidding process. “I believe Mexico is on the right path, but the process needs to be accelerated.” Bureau Veritas is open to accepting invitations to participate more actively in this endeavour by helping ASEA and CNH, while also helping them retain their independence.