Gustavo Hernández
Director General
PEMEX E&P
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View from the Top

Creating a Fair Market for All Types of Energy

Wed, 01/21/2015 - 09:34

Q: How is the transformation of PEMEX into a productive enterprise of the state influencing PEMEX E&P’s upstream strategy and priorities?

A: During the last year, we have been focusing on the challenges that PEMEX E&P is facing, such as the effects of the Energy Reform, Round Zero, and Round One, and the transformation of the company. The main challenge is to align the reorganization of the upstream division with the rest of the company. These are two parallel efforts that are taking place concurrently and we have devoted resources to both our operational strategy and the tactical exploration of the limits and boundaries of the responsibilities of each division within the new PEMEX organization to define which current responsibilities of PEMEX E&P are moving to the finance, planning, alliances and new business, and R&D divisions of PEMEX. Within PEMEX E&P we have a very clear division for our upstream activities: exploration on one side, and development and production on the other. We seek to bring both to the same level, granting them the same efforts, imaging, and resources. At the same time, we have to keep working on Round One and on the blocks we got in Round Zero.

Q: Certain activities that were not core to PEMEX E&P have been centralized within PEMEX. How will this help PEMEX E&P truly focus on exploration, development, and production?

A: We have always been focused on exploring and producing. While maintaining this focus, PEMEX E&P must be aligned with procurement requirements. Our procurement has to be smart, as it includes the business intelligence unit that monitors the market behavior. The market is rapidly changing due to the current oil prices, which means our procurement area must seek to reduce the costs of certain services, especially those for which a daily rate applies, and obtain better conditions for our operations. The finance area will also play an important role for us, as we need it for our day-to-day operations. We are in the process of aligning our service level agreements (SLAs), to ensure everyone within PEMEX E&P understands what needs to be done both operationally and financially. We cannot just receive a budget; we have to make sure it is carefully and properly allocated to keep operations running. Finally, we are focusing on our new business development area. Besides this, we are trying to align our new businesses and alliances with the migration of the COPFs and CIEPs service contracts with the current operators. The corporate directorate analyses the creation of alliances and new business while we operate and manage the alliances. We are in the process of clearly defining who will supervise what areas.

Q: What are your ambitions for farm-outs in the near future?

A: We sent our first initial unofficial proposal for farm-outs in shallow waters to SENER on August 13, 2014 when the Round Zero results were presented. Three of our intended 16 farm-outs are in shallow waters: Ek, Bolontikú, and Sinán. It is now up to SENER to analyze our proposal and decide whether to do the farm-outs concurrently with the second bidding phase of Round One. We have also submitted the onshore farm-outs for Ogarrio, Rodador, Cárdenas, Mora, and Samaria, and the three extra-heavy oil farm-outs of Ayatsil, Tekel, and Utsil. That means we have submitted proposals for 11 out of the 16 potential farm-outs. The five that have not seen proposals so far are the deepwater fields of Kunah, Piklis, Trion, Exploratus, and Maximino.

Q: How does the drop in oil price and PEMEX’s budget cut affect the appetite for farm-outs?

A: All of PEMEX’s farm-outs currently being considered are existing production fields with proven reserves. This means companies definitely have the desire to invest there. The risk is very low due to certified proven reserves and infrastructure is already deployed. These fields are easy to handle, the production can rapidly be put into stream, and the initial investment can quickly be recovered. Additionally, the first farm-outs will be in shallow waters, which have low production costs.

Q: Is it attractive for PEMEX to consider farm-outs beyond the original 16 fields in order to access capital?

A: All players in the Mexican oil and gas industry are going through a learning curve. This means we would like to see how the farm-out process goes before thinking about extending it to more fields. Apart from the 16 fields already listed, we could consider Supremus in deepwater, and unconventionals.