Guillermo García Alcocer
Chief of the Unit of E&P Policies
View from the Top

How SENER Can Help Speed up Oil Production

Wed, 01/21/2015 - 10:00

Q: How has the Energy Reform changed the approach SENER takes to exploration and production?

A: First of all, SENER is implementing the bidding rounds in a very efficient way. Most countries conduct one round per year, concentrating on a specific type of field. We shied away from that model and chose a more aggressive approach by offering a good mix of different types of geologies in every round. This will allow Mexico to secure the interest of a wide range of potential operators ranging from IOC and NOCs to experts in shallow waters, mature fields, unconventional resources, tight oil, and more. Another opportunity was created by opening the seismic market to private investment in multi-client seismic surveys. Companies that conduct seismic surveys in Mexico and identify good prospects can then be granted the right to commercially exploit that information for a certain period of time. However, that information also becomes available to CNH and SENER. So, if a company finds good prospects and suggests they be included in Round Two, we will consult with CNH and define the feasibility of including this opportunity in the next bidding round. Essentially, SENER has helped to create an embedded market system in which private companies will inform us of potential interest in certain areas. We are introducing market incentives for the industry to guide our energy policy.

Q: One of the priorities of the Energy Reform is to allow companies that win the blocks to start production as fast as possible. Which role can SENER play in accelerating the timeline to first oil?

A: We can do many things to accelerate this process. In cooperation with CRE, we can provide access to infrastructure that PEMEX is not using at full capacity. For example, a lot of pipeline infrastructure exists in shallow waters. However, this system was built to move 2 million b/d but PEMEX is currently moving only half of that figure. This spare capacity could be used by new operators, allowing them to concentrate on oil and gas production rather than pipeline infrastructure. If SENER can enable companies to access pipeline infrastructure at competitive rates, then production could quickly be connected and brought to the market. The third solution we can provide is to fast track the issuing of the permits needed for exploration and production activities. The new contracts seek to make this process faster to allow companies to concentrate on their development plans, once these are approved. At the same time, we do not want companies to sit on the blocks, so the contracts contain certain rules that stipulate companies will have to give back areas that have not seen a minimum level of development after a certain time. That will provide a good incentive for companies to promptly move towards production. Mexico is offering reserves, which is very rare in bidding rounds around the world, but we demand investment in return. We offered five contracts in the second phase of Round One, and only one of these does not include 1P reserves, while the other four have reserves that are almost ready to produce.

The law lays out very clear guidelines on how to treat local communities with respect. Once a company wins a block, the operator will have to carry out an in-depth social study that will be presented to SENER, based on which we will make recommendations about what actions to carry out. A supportive social environment will certainly lead to faster production. Furthermore, a good relation with the community can be a good source of human capital. 

We carried out an experiment with IMP, which conducted a seismic study in the north of Coahuila. This is a very dry area with little economic activity and only a small town present. We had around 100 people up there for a number of months and the community was delighted because business picked up, commerce evolved, and a supermarket was even set up. That seismic study led to a block that PEMEX kept in Round Zero. The community learned how the oil industry could work with them, which led to more intensive activity to the gain of the community. This illustrates how SENER can play a positive role in this process. Initially, we did not anticipate that SENER would play such an important role in these social processes, as we thought this was the responsibility of other entities such as SEDATU. However, once we began undergoing this process, we realized that the social license is essential for companies to optimize their projects. Social issues will now have the ear of the Minister of Energy, which provides a good system of checks and balances within SENER.