Mexico Attracts US$49 Billion in Round One

Q: What is the Ministry of Energy’s perspective on the results of Round One and which parameters are used to measure its success?

A: In spite of the volatility of international crude oil markets, the results obtained in Round One were successful, transparent and highly competitive. With the four bidding rounds and the first PEMEX farm-out concluded with Trion, we have achieved a result of 70 percent of the available areas awarded, well above the registered rate in the region. In addition, the best conditions have been guaranteed by the state, which will be receiving a 60 percent average profit during the commercial life of the contracts. The US$49 billion investment commitment by the 48 companies from 14 countries reflects the confidence of new operators in the Mexican bidding system, which has also been recognized by international experts.

The Energy Reform opened the hydrocarbons industry to private participation and achieved certainty in the rules, transparency in the allocation of contracts and in tenders and free competition for both PEMEX and private operators. Private investments are expected to complement those that PEMEX has been making over the past seven decades to access deep, ultradeep, unconventional and mature fields, in which Mexico has resources that it was previously unable to take advantage of. In transport, storage and marketing of oil, private participation will allow us to expand the existing infrastructure and strengthen the country’s energy security.

Q: What is the expected result from the decision to allow companies to nominate areas in Round Three?

A: We expect to receive feedback from those that have shown interest in tenders and to ultimately increase the number of blocks to be auctioned, based on technical justifications regarding potential production. The industry selects areas in which it is interested in carrying out exploration and production activities and proposes the configuration of areas with a greater surface area to reduce geological risk. With the information received and the technical support of CNH, the Ministry of Energy analyzes the nominations to include them in the tenders, considering the investment strategy of the industry and the viability of the projects.

Q: What are the objectives of the licensing rounds planned for each year?

A: One of the objectives we have in hydrocarbons is to create a diversified industrial system, in which companies of different sizes, origins and specialties coexist. Under this premise, we have carefully designed the rounds so that every tender targets specific goals, either to boost the domestic industry, such as Round 1.3, or to attract the world’s largest oil companies that have the proven ability to venture into deep and ultra-deepwaters, as in Round 1.4.

For the remainder of this administration, we will design two new tenders for Round Two: one in deepwater and one in unconventional onshore. We will then start Round Three, which will include a tender for shallow waters and conventional onshore areas and another for deepwater and unconventional onshore areas.

Q: Why prioritize exploration areas with reserves over pure exploration areas for future licensing rounds?

A: In Mexico, the production of crude oil from mature fields represents between 40 percent and 60 percent of total production. Due to our urgency in reversing the decline in production, tenders have focused on areas where we know there is better potential for success. This is why we follow the logical path to tackling this problem through seeking to increase reserves with exploration activities.

There may now be exploration in areas with more data available just as there may be exploration that involves greater risks due to lack of information that would reduce those risks. However, it is important to note that this does not mean that there is no value in other areas but until now we just could not carry out the proper evaluations with the data we had at hand.

However, the operations of the new companies in Mexico, the new information obtained by exploration companies and all the new eyes looking at Mexico allow us to glimpse new horizons. This new environment will compel us to turn to those areas in which new potential is detected based on new information and naturally to take another step: to expand exploration into frontier areas.

Q: What is the Ministry of Energy’s perspective on the progress made by PEMEX in its transformation into a productive enterprise of the state?

A: The new legal nature that the Energy Reform granted to PEMEX laid the foundations of a more modern, competitive and a stronger company. Now, the NOC is free to choose the business priorities that its directors feel would have the potential to generate the greatest economic value and to partner with other companies to share geological risks, attract capital, human resources and state-of-the-art technology to consolidate itself in the international market. PEMEX is efficiently taking advantage of all the investment tools and opportunities that the current regulatory framework allows to enhance the development of the assignments it was granted in Round Zero. It can now compete, in equal conditions and on an equal footing, with other private companies and oil Majors entering Mexico for the oil areas that the state is putting up for auction.

Q: What will be done to accelerate the migration of COPFs and CIEPs and what role should this play in reversing Mexico’s declining oil production?

A: The migration of the existing exploration and production service contracts: Financed Public Work Contracts (COPFs) and Integral Exploration and Production Contracts (CIEPs) to the new modalities of Hydrocarbons Exploration and Production Contracts definitely allows PEMEX to establish more profitable alliances. Moreover, they allow PEMEX to establish alliances with those players who normally only act as contractors, allowing it to share risks, technology, skills and knowledge.

The migration of these contracts has entered a stage of greater mutual understanding between PEMEX and its contractors. In addition, a number of operational issues have been addressed that were not originally considered because PEMEX controlled all processes from exploration to commercialization, a situation that is very different under the new contractual scheme with a new partner.

These alliances are focused on allowing PEMEX to counteract the natural decline in field production and at the same time accelerate the pace of reserves replacement. All these contracts are in known, developed and in some cases even mature areas, where raising the levels of production and reserves replacement can take place over a period of months, which is why it is crucial to complete these migrations.