Critical Success Factors for a Healthy Supply Chain

Moderator: Jaime Martínez, Business Development Director of ERM
Panelist: Javier Estrada, Director Oil&Gas at PwC México
Panelist: James Buis, District manager Mexico of Nalco Champion
Panelist: César Acosta, Manager for Analysis, Regulation and Public Affairs of Statoil México
Panelist: Claudio César de la Cerda Negrete, Deputy Director General of Investment Promotion and Industry Liaison at the General Direction of Exploration and Extraction of Hydrocarbons, Ministry of Energy 

Jaime Martínez, Business Development Director of ERM, told the audience at the Mexico Oil & Gas Summit 2016 in Mexico City that deepwater exploration and production is high risk but also highly profitable, hence the importance of managing risks. The ERM executive moderated the panel R1-L04: Transforming Deepwater Ambitions into Projects and Production at the Sheraton Maria Isabel Hotel.

Claudio de la Cerda, Deputy Director at the General Direction of Exploration and Extraction of Hydrocarbon at the Ministry of Energy, specified that there are several points regarding deepwater exploration and production that need to be taken into consideration. The first is that oil demand will remain strong for the coming years, and that deepwater accounts for 25 percent of global offshore oil production. Mexico has substantial prospective resources in deepwater and is determined to attract investment through the licensing rounds to explore and produce this oil with the support of the private sector in the near future. .

While the Energy Reform has been a success, Cesar Acosta, from Statoil Mexico, said the country has to challenge conventional wisdom if it wishes to remain competitive. According to Acosta, there are three important elements for the future success of the reform: first, blocks that are going to be offered in the bidding processes need to be correctly mapped. The second element is related to the need of creating a business environment that is friendly and predictable. Finally, regulations must be reasonable, if they keep increasing the requirements needed, companies might restrain from doing business in Mexico. The Energy Reform’s success must be measured by the number of exploration wells that are drilled in the first years of implementation. Mexico should have intensified exploration activities years ago, according to Acosta.

For Javier Estrada, Director of Oil & Gas at PwC Mexico, Pemex has taken interesting risks regarding deepwater exploration in the country. However, extraction is a venture that the Mexican company cannot undertake on its own. The presence of Trion farm-out in Round 1.4 is important for attracting international investment. It is estimated that Trion will require an investment of US$11 billion.

Javier Estrada stated that any development on deepwater implies high costs. Trion’s proximity to the border will help US companies to initiate economies of scale and might accelerate early production. However, common regulations between the US and Mexico are needed. But Mexican authorities also need to realize that alliances are not only about economic and financial terms, Estrada added. They pose interesting challenges such as defining who will be the operator and companies’ responsibilities.

James Buis from Nalco Champion stated that deepwater poses production challenges and that the chemical industry can help to overcome. Innovative chemistry is needed to reduce costs. For him, working to improve the flow of fluids is one of Mexico’s biggest challenges. That is where most technology is focusing on, he said.

Turning to Mexico’s appeal as an investment destination, Acosta said the country is very attractive and has great potential but that it is experiencing a hard time. Mexico must not forget that it is competing with other countries that are also looking for investment capital. The regulations are critical; they need to help the industry to reduce production costs by being efficient and economical. Acosta emphasized that Mexico needs to encourage deepwater exploration activities. For him, without exploration there are no discoveries and without discoveries, there are no royalties.

De la Cerda, stated that the global oil industry has been waiting for the Mexican industry to allow private participation. The government is working to renovate regulations. PEMEX, considering its restrictions, has proven it has the necessary technologies to succeed in the industry.