Mexican Service Company Has Operating Goals

Q: How has Diavaz developed alongside the Mexican oil and gas industry and how will it continue to evolve?

A: On March 2017 Diavaz celebrated its 44th birthday and although we plan to grow we will still offer the same services as all those years ago. The only difference will be an offshoot company we have created called DEP Petróleo y Gas. This company will manage Diavaz’s three oil fields and three gas fields. In five years Diavaz will be two completely separate companies.

Diavaz waited many years for the Energy Reform and we seized every opportunity we could before it was implemented. In 2003 we partnered with Petrobras and Japanese company Teikoku to operate the Cuervito and Fronterizo gas fields. In 2006, we participated in the Multiple Service Contracts with PEMEX. We won our first production CIEP to provide all necessary services at PEMEX’s Ebano and Miquetla fields together with China’s Sinopec.

Although we had been active in the Mexican oil and gas industry for many years, that contract taught us that a service company has a different mentality than an operator. We realized Diavaz had a lot to learn to become a full-fledged operator. For that reason, Diavaz and our new company, DEP, will have two different strategies and leadership teams. We have been preparing to separate the organization into these two branches since the Energy Reform was announced and have been legally separated into two companies since April 2016. Adhering to CNH’s transparency rules and to ensure a competitive market, DEP will be able to contract any service company for the blocks it operates.

Q: What opportunities will DEP pursue?

A: DEP’s mission is to seize new opportunities where perhaps Diavaz lacks experience. For example, we plan to join with a foreign company to bid in the offshore rounds in June and July 2017, a move that will allow DEP to learn vital offshore skills. Partners are not choosing DEP because they lack money or technology; they are entering into partnerships with us because of our excellent reputation and experience in Mexico. We offer vital knowledge of the Mexican oil and gas industry to incoming international players, which realize that through our previous work with PEMEX we developed skilled personnel and invaluable expertise.

Q: What is the outlook for Diavaz’s six fields?

A: Once our four current contracts are fully migrated, they will produce 28 million b/d. The Barcodón and Catedral fields we won in Round 1.3 will also allow us to boost production and we expect to launch drilling operations there soon. We are now deciding which wells to drill first and are negotiating the sale of petroleum and gas to PEMEX. CNH has been receptive to our plans for the two fields. Our three-year target is to produce a total 45,000b/d of crude equivalent at the Barcodón and Catedral fields. Development of Diavaz’s six fields will require investment of around US$2 million over the next three years. After winning Barcodón and Catedral in Round 1.3, we contracted a company to certify the reserves because without this certification the fields are worth zero. We plan to fully certify the reserves at those two fields in the first quarter of 2017. The other four fields we operate are already certified.

Q: How have delays in contract migrations impacted Diavaz’s business?

A: The Energy Reform has been a success so far, especially the deepwater round in December 2016, which featured many international winners. We applaud the interest of foreign players in Round 1.4, which attracted impressive amounts of money. Despite this, of the 22 contract migrations, zero have been completed so far. We know they will be migrated but CNH is already two years behind schedule, due to the length of negotiations. The delay is problematic and led to financial losses for PEMEX and Diavaz last year. Since we could not advance on the fields involved in the contracts, we lost around US$15 million and the NOC lost US$98 million.