Authorities Succeed in Luring New PlayersWed, 01/20/2016 - 16:02
Q: How does the profile of the companies that won blocks in the first three phases of Round One compare to the type of companies you were hoping to attract?
A: The prequalification requirements changed from one round to the next, and these were drafted in a way that would attract the types of companies we thought we needed. The Ministry was criticized at some point for the stringent requirements for the shallow water blocks, but there are two important elements behind this decision. Firstly, we wanted to ensure that the companies that are going to work in the Gulf of Mexico had the knowledge, experience, and capabilities needed to develop these areas and bring them to production in a safe and sound manner. The requirements for the second tender, the shallow water extraction round, were higher than those of R1-L01 because we wanted to make sure that the participating companies had the ability to produce a barrel in offshore setting. I find the shallow waters phase particularly important because I am convinced this is where the fastest increase in production will come from.
I am quite pleased with the results from the offshore rounds, particularly in terms of benefits for the state. There was a lot of criticism in R1-L01 because we only awarded two contracts out of 14, but the consortium that won is a serious company and is moving its activities forward according to schedule. In addition, a Mexican company was created, which is always good news. In the case of R1- L02, awarding a block to a company like ENI was a signal that our contracts are good enough for a major player.
The third phase was entirely different, and the contrast with the other rounds can be seen because R1-L03 was designed to be the seed for a new Mexican oil industry. Our contracts do not discriminate, and even though a Canadian company won three contracts, the idea was for Mexican companies that had worked with PEMEX to demonstrate that they had the needed capabilities. The government was surprised with the results of R1-L03, as 25 contracts were awarded in spite of the low oil price. It is safe to say we succeeded in attracting new companies in, many of which had been PEMEX contractors for years and were aspiring to operate their own fields.
Q: What would happen if the companies in R1-L03 fail to make their operations profitable enough to pay the government share they agreed on?
A: It is important to point out that the Mexican government is not willing to renegotiate contracts, as some companies did with PEMEX in the past. If a company miscalculated its proposal, it has two options. In the first, it can opt for not signing the contract, paying a penalty for doing so, and allow the second closest bidder to step in. The second option consist of the authorities revoking the contract. If we get a contract back, we would tender the area again. It is not the ideal scenario, but it will not be a serious blow to the production targets in the case of R1-L03. I would be concerned if something like this happened in the deepwater round, but the mature fields round was meant to create a new industry in Mexico, so it is part of a learning process.
Q:What are the challenges in moving the unconventional resources round forward?
A: R1-L05 is a difficult round. At first we decided to postpone the tender due to current oil prices, especially because the country has no experience in these types of fields nor the needed infrastructure to develop them. However, my main concern is the lack of appropriate regulations.
Unconventional resource development has specific needs that are indispensable, such as the right regulations for the wells, water usage, disposal of waste materials, and even roads that have to be frequently repaired due to the constant back-and-forth transportation of materials. We are working hard at full speed, and we have specific teams for each subject, ranging from technical matters to communication strategies. The government should put more effort into approaching the communities and give them the certainties they need to allow this activity to take place. If we can make the case that the development of unconventional resources follows international best practices, that the authorities are sensitive toward issues of industrial safety and environmental protection, and that we have a regulation and obligations stated in the contracts for companies to deal with the waste that comes from these processes, then the whole round can move forward.