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Analysis

Industry Welcomes Deepwater Rules

Wed, 01/18/2017 - 10:58

With the entry of the deepwater players in December 2016, the industry speculated how Mexican regulations will hold up to international standards. In response, regulator ASEA published a set of guidelines based on industry best practices. 

Last December, Mexico’s energy, safety and environmental regulator ASEA published a long-awaited set of safety and environmental guidelines covering hydrocarbon exploration and production activities in Mexico, including specific rules for deepwater ventures. Coming just one day after the winners of deepwater Round 1.4 and the Trion farm-out were announced, the rules were welcomed by an industry in search of certainty as it delves into Mexico’s unexploited deepwater reserves for the first time.

“These are cutting edge, robust and consistent rules, formed on the principle of risk-based regulation,” said Carlos de Regules, ASEA’s Executive Director, in a press release announcing the publication. The details of the framework were inspired by accepted international standards, he said, including best practices such as the American Petroleum Institute (API), the Norwegian system NORSOK, International Electrotechnical Commission (IEC) and International Organization for Standardization (ISO).

The rules stipulate a range of requisites that E&P companies now have to follow in Mexico. Among them is risk analyses, guaranteeing well integrity and the reliability of critical equipment such as blow out preventers and remotely operated vehicles (ROVs), which are fundamental tools used in deepwater projects. Companies must also take measures to detect the presence of protected species in areas where they operate, particularly exclusion zones that could be home to mammals such as whales or dolphins.

Regulated entities must also establish a mitigating boundary around protected areas, whether they are designated on a federal, state or municipal level. Burning and venting natural gas is also prohibited in the new regulations. Additionally, the guidelines set out the mandatory insurance coverage companies must obtain, including well control insurance that can be implemented immediately in emergency situations.

At the end of January, ASEA held an informative workshop for Round 1.4’s winners regarding the processes and requirements for beginning deepwater activities, in collaboration with AMEXHI . More details regarding the time frames for each procedure were given to participants, which included winners of Round 1.4 such as BHP Billiton, Total, BP and China National Offshore Oil Corporation (CNOOC).

Mexico's safety regulator not only solicited the opinions of other Mexican governmental entities such as the Ministry of Energy and CNH in the rules’ creation, it also incorporated the voices of international public bodies and the private sector. In total, ASEA obtained 500 comments that helped shape the 45- page document.

The inclusion of the US Bureau of Safety and Environmental Enforcement (BSEE) and Bureau of Ocean Energy Management (BOEM) in the list of entities contributing to the regulation offers a glimpse into the close ties being fostered between the two countries’ deepwater sectors. De Regules highlighted that the deepwater provisions were closely aligned with US deepwater standards, reinforcing the idea of regulating the Gulf of Mexico as one single ecosystem.

A quarter of the 12 companies to win stakes in Round 1.4 were from the US. Exxon, Murphy and Chevron featured on the list of successful bidders, with the latter partnering up with PEMEX and Japanese non-operator INPEX to operate Contractual Area 4 of the Perdido Fold Belt. The strong presence of companies hailing from north of the border further points toward budding links between the US and Mexico in deepwater developments. In regulatory and safety terms, the US’ advanced deepwater safety standards will go a long way as Mexico forms its version from scratch.

In a sector with stakes as high as deepwater, international collaboration is a given. Global expenditure is forecasted to total US$120 billion for the period 2017-2021 by international energy research firm Douglas-Westwood but the safety risks are as high as the financial risks when operating in deepwater, a lesson 2010’s Deepwater Horizon disaster showed the world. The catastrophe on the US side of the Gulf of Mexico killed 11 people and spilled millions of barrels of crude into the ocean. Calculating the cost of such an incident is virtually impossible and preventing a similar accident is at the forefront of the industry’s mind.

Graciela Álvarez, CEO of NRGI Broker, sees the Deepwater Horizon disaster as a warning for Mexico. “This allows us to grasp the challenging environment for deepwater operators and the regulating authorities, to ensure activities are carried out under best practices with the goal of protecting people, installations and the environment,” she says.