Licensing Rounds Illustrate Private-Sector Confidence

Q: What have been the most perceptible differences in the licensing rounds and how has CNH learned from them?

A: We believe that every licensing round has been successful because they have pushed up investment, increased the number of new operators, extended the number of kilometers awarded for exploration and production and they are resulting in a larger number of new contracts. Every licensing round has been increasingly competitive as each has raised Mexico’s attractiveness, illustrating the private sector’s confidence in the industry. Of course, the rounds also have involved a knowledge and learning curve that we will apply to improve practices in future rounds and to raise their scope. We have set up a symmetrical provision of information for operators to adopt according to their own interpretation, which is a departure from using the same information. We have also adopted the feedback from previous rounds to perfect the future rounds.

Q: How is CNH progressing in revising the development plans from operators?

A: The development plans are being updated to improve the guidelines regarding their structure. We are constantly improving our dialogue with the industry and we have uncovered several opportunity areas in those exchanges. We are trying to implement a learning-oriented process so every single player in the market operates according to the highest world-class standards. These guidelines work for the benefit of the industry and we recently granted the first approval of a foreign company’s development plan to Hokchi Energy, which presented a highly competitive plan that will certainly benchmark the future proposals CNH receives. We carried out a similar process with PEMEX for the Xanab, Ek Balam and Ixtal projects in shallow waters.

Q: What hurdles has PEMEX faced in meeting its commitments from Round Zero?

A: Regarding the extension for its exploration process, when PEMEX was awarded these assignations, market conditions were significantly different with barrel prices above US$100. After the downturn, the NOC’s investment availability was reduced. Not having the necessary capital to cover exploration activities at all its fields pushed PEMEX to allocate resources to what the company deemed were the most productive and strategic assets. It is important to note that PEMEX did not suspend exploration and partially fulfilled its obligations in spite of low oil prices. I honestly doubt PEMEX will be able to meet its commitments if the company continues down the same path.

Q: How did the different contract fulfillment mechanisms change PEMEX’s approach to its commitments?

A: PEMEX has a business plan that entails making the most of the opportunities brought by the Energy Reform. One is migrating, without any licensing process, all the CIEPs and COPFs contracts it wants to. Another is the chance to create farmouts. So far, CNH has helped the NOC to tender five farmouts, obtaining successful results in three. These contract migrations to farmouts will help PEMEX obtain capital, stretch its financial capabilities and raise its execution and technical capacities. The third option is participating in the licensing rounds. PEMEX holds the largest number of contracts awarded, with 14, and the company will continue consolidating as the country’s leading oil and gas company. The Energy Reform is an ever-changing process that is moving slowly but surely. There are 75 E&P companies from 20 different countries, 35 of which are new Mexican players. The reform is a long-term benefit for Mexico and its people.

Q: What will Round 3.3 imply for the development of unconventional resources?

A: The nine blocks set to be tendered in this round include uncertainty over the amount of resources that might be found. They must be explored, evaluated, delimited and incorporated based on the reserves they have. Unconventionals can take up to nine years to develop. From Round 3.3 winners, we expect to bring in people who possess the knowledge and experience related to these types of resources, which could reduce production time by as much as four years.