The Early Bird Catches the BlockWed, 01/20/2016 - 12:31
Strata, a familiar name in the mining industry, decided to expand its scope when the Energy Reform was announced, taking the necessary actions to become a knowledgeable operator. “We began operations in Texas in order to gain experience before delving into the Mexican market. This was necessary so that we could assess whether or not we wanted to participate in Mexico’s bidding rounds,” explains Rogelio Montemayor, Director General of Strata BPS. The company’s shale and conventional mature field projects in Texas allowed it to understand how the industry functions and to assemble its own technical team, which Rogelio believes later became a crucial element to the company’s successful participation in Round One.
Having gained sufficient experience from Mexico’s northerly neighbor, Strata BPS decided to participate in Round One. “We opted for R1-L03 because moving offshore would not make sense for a company of our size, as it would require more capital and different skillsets,” Montemayor clarifies. The company considered mature fields attractive because of their proven reserves, but also because the fact that the fields were already in production reduced the financial risk, as opposed to Mexico’s shale options, in which companies will need to test the formations and evaluate the resources.
When commenting on the factors that led to Strata BPS’ success in its selection for the allocation of Block 18, Montemayor claims the quality of the company had a deep influence in the results. “We managed to take advantage of the industry’s downturn by putting together a team consisting of several talented engineers and geologists that were available because other companies, including PEMEX, had let them go.” Strata BPS began analyzing the blocks in 2014 when the tender was pre-announced. The Mexican firm was one of the first three to access the data package, giving it six full months to analyze the fields and optimize the economic and the production models. Montemayor claims that Strata BPS’ early-bird status was an important factor in its success, allowing it to see opportunities and aspects of the play that later-comers may have overlooked.
The contracts for the fields awarded in R1-L03 are expected to be signed in May, after which there will be a 90-day transition period before the fields are officially passed over to their respective winners. During this period, Strata BPS will begin to take control of its field’s operations, a task that is far from void of challenges. Montemayor shares his concerns in this regard, “First of all, there are new regulators, new laws, and a new approach to the industry as a whole, as well as a culture change from regulating one public entity to several private ones. Even the regulators have to learn how to manage their new responsibilities, which presents a significant challenge, not to mention the fact that ASEA will have to approve all the permits in a short time in order to allow companies to begin production as soon as possible.” The only challenge he is not concerned about is security, given the company’s extensive mining experience in northern Mexico.
When it comes to the future of the company, Montemayor indicated that it is looking into R1-L05. He even admits that unconventional resources might come into the plans much earlier, as Block 18 is not constrained in terms of depth, meaning Strata BPS could access a shale formation in its existing fields if this makes sense financially. Depending on the way the conditions and the fiscal terms are presented, Montemayor thinks that the unconventionals round could be attractive for a company like his. “If the authorities give a reasonable timeframe for the exploration phase, companies will be able to adjust their strategies while the industry’s cyclical nature helps increase the prices, making the fields attractive by the time developments begin,” he maintains. In addition to these opportunities, Strata BPS is considering working with PEMEX on a farm-out, but the company is waiting to evaluate the structure of the contractual terms before furthering its interest.