Juan José Hinojosa
Director General
View from the Top

Key Goals: Generate Efficiencies, Maintain Competitive Cost

Sun, 07/01/2018 - 16:29

Q: What is your assessment of PEMEX’s performance in Round Two and the progress made in the Round 1.4 blocks?

A: After the awarded E&P contract from Round 1.4 was signed on Feb. 28, 2017, the exploration plan for this block was delivered on Aug. 23, 2017 and approved by CNH on March 14, 2018. The consortium conformed by Chevron, PEMEX E&P and INPEX operates the contractual area, complying with the requirements established by the regulators. The first exploration period is being executed, in which exploratory prospects are being identified and integrated with the aim of drilling the first exploratory well in 2021 within the first additional period of exploration. 

Regarding the Trion farmout, the E&P contract was signed on March 3, 2017, the exploration and evaluation programs were delivered on Aug. 29, 2017 and CNH approved both on Feb. 15, 2018. The first exploration period is underway, and the first delimitatation well is scheduled to be drilled in September 2018. During Round 2.1, PEMEX participated in six blocks, one individually and five in consortium, winning contract areas 2 and 8, both in consortium. This outcome means PEMEX obtained prospective resources to the amount of 270mmboe without risk. Deepwater Round 2.4 saw PEMEX participate in 10 blocks, four individually and six in consortium. The NOC was awarded two blocks individually and two in a consortium.

Q: How did PEMEX benefit from its partnerships in terms of best practices?

A: PEMEX has complemented its technical, operational and administrative capacities and has shared the risks associated with the execution of projects that require material investments. Practices related to corporate communication, social responsibility, compliance, ring fencing, estimation of labor costs and negotiation have been strengthened. Practices that will help PEMEX in its internal processes have been identified, such as procurement, cost of labor assessments and costs allocation, among others. PEMEX has benefited from observing and learning from the practices of its partners, from the process of forming alliances, joint participation in licensing rounds and the operation of contractual areas. PEMEX’s staff has incorporated best practices into the operation of alliances through its active participation in its partners’ committees and subcommittees. 

Given the success of the Trion evaluation stage, PEMEX, together with its partner, will develop the first deepwater oil project in Mexico, the Trion block. PEMEX has defined an assignment-migration plan, which considers the reconfiguration of the assignments to speed up future management considering geological conditions, degree of knowledge and natural limits. In a parallel process, PEMEX has defined a farmouts schedule to complement its technical capabilities and share the risks. The first phase of the onshore cluster includes seven contractual areas, 4,508km2 of extension and 3P reserves of 405mmboe. These blocks are undergoing a bidding process and the proposal revision will be carried out on Oct. 31, 2018. 

Q: What main factors will shape the strategic priorities and investment strategy of PEMEX E&P for the 2018-19 period?

A: To achieve compliance with the outlined objectives, it is necessary to develop a series of previously-studied steps. The success of these specific objectives will depend on a wide variety of factors. Among the most relevant objectives, we can highlight the strengthening of efficiency and profitability in exploration performance, consolidating the real value in areas assigned to PEMEX, to ensure the characterization and delimitation of new discoveries and strengthening the portfolio of exploration projects through access to new areas. Included in the performance objectives are increasing operational efficiency, improving performance in reliability operations, and labor productivity, as well as executing infrastructure modernization projects. The strategy will be to generate efficiencies and maintain competitive costs. 

PEMEX is the eighth-largest oil producer worldwide. The short-term challenge is to adjust the cost structure and the business strategy to a low oil price scenario. All this will be done by using all the instruments and the flexibility offered by the Energy Reform. PEMEX is focusing its efforts on strategic activities such as farmouts and associations, where it will obtain improvements in its processes through synergy with its partners, combining the experience of PEMEX and the best practices of its partners.

Q: What technologies and best practices will be instrumental in maintaining production in mature fields?

A: Among the most important challenges in the medium and short terms is the increase of the recovery factor through secondary and improved recovery processes for naturally fractured reservoirs. They must be adapted or developed considering the inherent specificities of Mexico’s oil fields. 

These aspects will allow for better production levels and increase hydrocarbons reserves, as well as recovery factors. In terms of costs, a reduction is expected, as well as a counteraction of the production decline due to the implementation of best practices in the processes.

Q: What role will shallow-water, deepwater, onshore and unconventional E&P play in PEMEX’s upstream future?

A: The roles are focused on the growth of the industry at a global level and in Mexico. These specific roles are assumed by resources in deepwater and unconventional reservoirs, which are shale oil and gas reservoirs with very low permeability. 
For PEMEX to remain at the forefront of the technological frontier and for it to maintaion high levels of growth, it must consolidate and strengthen its capabilities in both areas. This can be done by allowing private investment to contribute to the growth of the Mexican oil and gas industry