Direct Involvement Required for Success

Q: What have been the year’s highlights for Renaissance?

A: Renaissance’s goal was to establish itself in two different onshore plays: unconventionals and mature fields. This is where our expertise lies and where we see the biggest onshore opportunities in Mexico. In keeping with that strategy, we were delighted to be successful bidders in Round 1.3, winning our three prioritized blocks in the state of Chiapas. In February 2017, we announced our partnership with Lukoil on the Amatitlán property located in the Tampico-Misantla Basin. We hold a 25 percent interest in this contract with an option to increase the interest to 62.5 percent based on successful development of the property. For Amatitlán, we see the biggest opportunities in the Upper Jurassic shale.

Those two key events are consistent with our goals to establish the company in these two play types. We were very aggressive bidders in Round 1.3 because it was an aggressive auction. Our objective was to establish ourselves as a international oil-producing company in Mexico. We realized we had to pay high royalty rates to succeed. We were willing to do so because we want to be a leading operator in Mexico and we knew we could not learn much by staying on the sidelines. If a company wants to succeed in a country that is reforming its industry with a new set of regulations, it must be directly involved in operations. Active involvement means we can take part in interpreting the hydrocarbons law and in developing new oil and gas regulations. That is exactly what Renaissance is doing.

Renaissance has a unique expertise in shale development and we have been asked by AMEXHI to head its unconventional technical committee. This allows Renaissance to liaise with the Ministry of Energy and the Ministry of Finance. Our status as a bonafide operator led us down this path.

Q: How do alliances with associations like AMEXHI help to strengthen Renaissance’s presence and reputation?

A: The unconventional opportunities in Mexico are significant and to date untapped. We are willing to enthusiastically share our thoughts with the government on how to best commercialize these opportunities. We want to help shape a proper platform for sharing this knowledge. Furthermore, we believe the Mexican government is working diligently with the Alberta government, as advisers, with the objective of incorporating some of Alberta’s already well-established unconventional regulations. The timing is perfect for the upcoming unconventional auction.

Q: What are Renaissance’s plans for onshore Round 2.2 and 2.3, scheduled for mid-2017?

A: We are encouraged to see the government’s recent changes, where industry can now nominate areas for each round. This is extremely important because we can now bid on areas we have already evaluated and chosen. For Round 2.2 and 2.3 the state has made a unilateral decision on which blocks will be auctioned. For this reason, we are more enthusiastic about Round 2.4.

We bid aggressively in Round 1.3 to establish ourselves. These areas are more of a learning ground for Renaissance to become a competent and efficient operator in Mexico. We are an aggressive and progressive company, so we will be bidding in the future rounds. Importantly, we anticipate seeing a bidding formula that places more emphasis on the workplan than royalties. We are happy to be an aggressive bidder.

Q: Do you believe there will be continued focus on royalty rates?

A: It has been proven around the world that a heavy focus on royalty rates is not a sustainable formula. It is basically a short-term formula that leaves a lot of resources in the ground. We understand the industry has voiced that concern and we anticipate the Ministry of Energy and the Ministry of Finance will listen and will come up with a new formula. If we see that new formula we will be bidding aggressively.

Q: Along with learning the ropes in an evolving market, how does Renaissance mitigate the operational challenges?

A: We recognize that every country is different and even communities in the same country can have different sensitivities. In the areas where we operate, we are doing our best to learn about the unique sensitivities of each community. Our goal is to educate ourselves on the environmental impact and various engagement issues and to deal with them in a professional and sensitive manner. The goal is to create a good working relationship with the stakeholders in the communities where we operate. We plan on being one of those companies that improves relationships and has a positive impact on the environment. We are in discussions with various national Mexican corporations to create alliances. We know that Mexico’s national corporations are well acquainted with the culture and understand the local sensitivities that a Canadian company may not be initially aware of. These alliances help us on our learning curve.

Q: If you could ask CNH or the Ministry of Energy to improve the process, what would you request they change?

A. One of the things that will have to happen is a streamlining of the well permitting process. It is administratively onerous and inflexible. It needs serious surgery. There are enough challenges in this low oil-price environment so the state has to revisit the well permitting process. Right now, it takes three to six months to obtain a drilling permit. This is far too long. In Canada, which has a well-established oil and gas regime, with the proper notification to the government, a permit can be obtained within one to two weeks.

Q: How does an international company assess the risk of a different government coming to power in 2018 in Mexico?

A: Since it is something completely out of our control, it is a difficult risk to manage. We will focus on being a professional and efficient operator and look forward to working productively with whichever party is running the government. There may be some adjustments to the Energy Reform but it will be hard to roll it back completely. For important reasons, the state and PEMEX need the Energy Reform. They need capital and expertise, otherwise they will revert back to pre-reform days -- but in those days oil was priced around double what it is worth today. Therefore, in the current environment, the reform is especially important.

Q: What is your goal for Renaissance in the next few years?

A: Our goal is to establish Renaissance as a major operator in Mexico. Importantly, we are here for the long term. We are willing to do what it takes to establish ourselves for the long term in a responsible manner. Renaissance will concentrate on growing reserves and production in its two play types while becoming a respected operator in Mexico’s industry and communities.