Industry Veteran Diavaz Adapts, AdvancesBy Pedro Alcalá | Tue, 07/28/2020 - 09:50
Q: How has Diavaz responded and adapted to the COVID-19 and oil price crises?
A: The drop in oil prices definitely took us by surprise. The immediate impact is that we are forced to make some adjustments to the development plans of our four fields. At the Ebano field, we were producing around 6,200 bpd. When the oil prices declined, we were forced to shut down some wells and adjust the production level between 4,200 and 4,500 bpd. It was also a surprise that prices bounced back so quickly. Thanks to the price reversal, we were able to push back the production at Ebano to around 4,700 bpd, and we plan to get back to 5,500 bpd soon just by reopening all of the wells that were shut down. We will not be drilling any new wells for the rest of the year. In mid-June, we finished the acquisition of complex seismic exploration survey at Ebano and employed 160 people working in brigades all over the field. The survey yielded great initial results pending the completion of our interpretation process. Part of the reason we launched this survey is to define other production plays at lower formations (1,700m). These are all signs of a positive response, so we are definitely recovering. In mid-April, we were hit by the pandemic and were not doing well, but projects are now going forward as planned. Throughout this process, we have precisely followed the strictest COVID-19 sanitary measures and have not had a single positive case among our workforce.
Our development plan for Ebano was approved by CNH at the end of 2019, and it was adapted to the industry’s new realities. This plan originally contemplated the drilling of 45 new wells in 2020. We started in January 2020 and drilled seven wells, achieving great results while maintaining a low budget. This was all suspended when prices dropped. The crude oil produced in Ebano is heavy and extra-heavy, and its price per barrel went as low as US$3 to US$4 at a certain point. We own a 55 percent operating interest in that field. The rest is owned by our partners in PEMEX. We had to negotiated with our partners the need the shut down some wells due to their low profitability, while at the same time we convinced CNH to let us make some adjustments to our development plan. Now, we are negotiating with PEMEX to adjust our development plan to the new reality. This means spending a lot of time and effort just dealing with the paperwork involved. One issue is that PEMEX is strongly incentivized to prioritize production over profitability. That said, PEMEX has accepted to act like an oil company and not like a state monopoly. They listened and responded to our concerns and we are happy with the way things have move out. We will also continue to push forward with the authorizations to drill our first exploratory well based on the results of the new geophysical information provided by the seismic survey. The exploration well is called Tavin-1 and we are planning to start drilling in January or February 2021.
Meanwhile, at our Catedral gas field in the state of Chiapas, operations have been suspended but production is continuing at a rate of 3MMcf/d. We are discussing the next step of development with CNH. We have yet to define whether or not we will drill more wells in this field or merely follow on with workover works in the existing wells. Either way, we are satisfied with that field’s current status and performance. Regarding our Miquetla field, it has tremendous production potential. We suspended the planned infield wells drilling there when prices dropped, but have maintained a degree of well workover and maintenance activities. Unfortunately, we cannot stimulate the wells in that field through fracking techniques like we would like to, as President López Obrador banned this stimulation methodology. The Barcodón field is the fourth field that completes our current portfolio of assets as operators. Barcodón is a smaller field located near Ebano producing lighter crude. We are the sole owners of the concerns that operate the Catedral and Barcodón, while at Ebano and Miquetla we are the operators with an interest of over 50 percent. In those two fields, PEMEX owns the remaining interest. We are the only PEMEX partner that owns more than 50 percent. All other private companies that own fields in partnership with PEMEX, such as Petrofac or Tecpetrol, own non-operating interest of less than 50 percent.
Q: How have you managed your relationship with PEMEX given their role in the management of your transportation, commercialization and storage infrastructure?
A: We work together to solve problems as they arise. For example, we had an issue in Ebano because of a terminal in Cacalilao. PEMEX does not have the budget necessary to do the renovations that terminal urgently needs. We adapted and now fill that transportation gap with trucks. We are having conversations with PEMEX Logistics, which is in charge here instead of PEMEX Exploration and Production, which partners with us on the field’s development. Our service company within Diavaz, is looking forward to partner with PEMEX Logistics so that we can provide service to the Cacalilao facility, which is both a terminal and a conditioning plant. This facility receives production not just from our Ebano field, but also from nearby fields such as Arenque, Pánuco and Altamira that belong to other stakeholders that include PEMEX.
Q: What would you consider to be your growth and development priorities as an operator for the rest of 2020?
A: We need to be ready and adapt quickly to oil prices volatility. The fact that the rebound was so quick does make me nervous. Our plan will involve workovers and well maintenance. Our relationships with PEMEX, CNH and other regulators such as ASEA and CRE are in great shape, so that helps a great deal. We are also involved in the commercialization of natural gas, so the management of infrastructure assets will also be a part of our plan. This includes a natural gas distribution utility in Monterrey, and CNG distribution concern operating in Puebla and Jalisco. I will be soon handing the leadership of the Mexican Natural Gas Association (AMGN) to my successor in November. Our worries are and have been to produce locally most of the natural gas consumed in Mexico and to export it as well. Despite the immediate economic advantages of importing natural gas from the USA, we should not depend on our northern neighbor. Not just for political reasons, but because of medium term economic considerations too. Once the US develops its LNG export infrastructure and begins to sell its natural gas to Europe or Asia, prices will rise and we will be stuck in a difficult position. We also need to be a part of the LNG development, but we cannot export sustainably without national production levels that address our current and future demand. Many of us in the industry have repeated this many times and we will continue to do so. We need a national natural gas development plan that takes all of these needs into consideration. We used to be self-sufficient in terms of natural gas production and consumption, now we import around 7bcf/d. Despite this grim picture, we see positive signs on the horizon. For example, other onshore operators such as Jaguar have used the recent drop in oil prices as an opportunity to focus on natural gas production and invest in natural gas assets.
Diavaz is a Mexican company whose business units focus on exploration and production, gas, marine operations and integrity of installations in the oil sector. It was jointly created through strategic and commercial alliances among energy-sector leaders