Luis Vielma
Director General
View from the Top

Challenges and Opportunities Within the New Framework

Wed, 01/20/2016 - 12:23

Q: When do you believe Mexico will be able to regain its production levels of 2.5 million b/d, and later 3 million?

A: I predict that Mexico will begin to reap the benefits of the opening of the oil industry in around three and a half years. In terms of production levels, when using Venezuela as an example, this country required six years to reach 450,000b/d under the same model, and in Colombia and Brazil, this took six to eight years. Judging by these timescales, it may take Mexico around six to seven years to get to this level, with another year or so required to reach an additional 1 million barrels. The target of 2.5 million is not considerably far off, and I predict we can reach this level between 2020 and 2021. After that point, it would depend on resources, but a conservative prediction to reach 3 million barrels would be around 2024 to 2025.

Q: What is the current position of Mexico in the global oil industry, and how will the opening of the industry impact its standing?

A: For several years during the 1990s, the country was considered within the top ten countries in terms of reserves, production, and markets, and PEMEX was always considered within the top ten national oil companies. Reaching a production of 3.4 million b/d in 2004 and maintaining more than 3 million b/d from 2000 to 2005 have been outstanding achievements for the country. However, for the last ten years, Mexico has entered a spiral of production decline that has reduced its production capacity to 2.3 million b/d, mainly due to the extreme decline in production of its main field, Cantarell. The reform process has placed the country in a state of uncertainty, because it opens the oil industry to private investment, and restricts PEMEX obligations to certain areas allocated to the NOC during Round Zero. Although PEMEX received more than 80% of the existing 2P reserves and close to 30% of the 3P reserves, this marked the end if its 70 year monopoly.

Q: What is the main focus of ongoing projects with PEMEX?

A: Mainly, the projects are related to engineering processes. It is important to have an adequate methodology to develop the well planning and engineering design that has not only the right people in terms of competence, but also the multidisciplinary team approach to maximize the value creation of each opportunity. The same example applies to production optimization, because that is the fundamental aspect of the business. Each field has a large number of productive wells, but some of these wells may have various problems that affect their real potential, and in many cases the wells collapse. For that reason, monitoring is crucial and CBM has developed evaluation methodologies, engineering solutions, and repair processes. Finally CBM has developed other types of projects related to talent development, contracting strategies, and asset evaluation, among others.

Q: In the case that PEMEX was unable to adapt adequately to the market conditions, what would be the fallout from its capitulation?

A: I believe it is going to take at least two more years for PEMEX management to fully understand the kind of change the company requires to be competitive in a completely new arena. International companies will be working and producing in close proximity to PEMEX and in some fields, they will act as partners through the farm-out processes. The life of the industry is cyclical, and although new players will come into the market, I do not believe that PEMEX will capitulate totally, but within the next three to four years, the face of the company will have changed completely.

Q: How can the regulations facilitate processes for CBM and other companies across the oil sector in Mexico?

A: Regulations are going to be the heart of the oil sector development in the future. CNH has been working intensively to establish a complete regulatory frame that covers all the components of the E&P value chain, which will set the practices to be followed for all the companies, including PEMEX. CNH has been extremely strict with the regulations for reservoir, well drilling, well identification, and well integrity in addition to all the security and environmental themes. The framework follows international regulatory practices that will not represent any obstacles for entering companies, as they are accustomed to the standards in other countries and regions.