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Analysis

Mexico a Fertile Field for National, International Companies

Sun, 07/01/2018 - 16:17

CNH’s licensing rounds have attracted international attention thanks to their competitiveness and transparency. A total of 113 companies took part in the first nine editions, 73 of which were awarded at least one block.


In terms of assigned blocks, PEMEX has emerged the biggest winner with 14 highly competitive blocks – three as a lone player and the rest as part of a consortium. Jaguar and Shell tied for second, each with five blocks they will operate independently. 


In terms of committed investment, PEMEX grabbed fourth place with US$413.7 million. Shell took top spot with US$711.1 million, while ENI International is in second and PC Carigali third, with US$529.3 million and US$436.9 million, respectively.


The attractiveness of the country comes as no surprise considering its considerable E&P potential. This is supported by the fact that during the 1976-2016 period, only 316 offshore exploratory wells were drilled in Mexico, while Brazil drilled 2,420 and the US drilled 6,076 wells on its side of the Gulf. Despite its relatively small number of wells, Mexico still produced 30.5 billion boe of crude during that period, 1.6 times more than the US and 2.8 times more than Brazil produced from their exploratory wells during the same time span.


PEMEX’S PRESENCE REMAINS STRONG

PEMEX’s achievements highlight the important role that the NOC will continue to play in the Mexican oil and gas market, especially in the upstream sector. “The Energy Reform has provided PEMEX with the necessary tools to build associations and to venture into technologicallychallenging or financially-robust projects along with partnering companies,” says Pedro Joaquín Coldwell, Minister of Energy. “The reform has provided PEMEX with the possibility to compete for E&P contracts in CNH’s licensing rounds and the NOC has obtained 11 contracts in partnership with seven IOCs so far, with a projected investment that totals US$17.5 billion.” He points out that PEMEX has been awarded three independent contracts, proving its capacity to win blocks on its own. While strengthening its partnerships.


PEMEX’s role as the leading company in the upstream Mexican sector will last for quite some time. Besides the work it was assigned during Round Zero, it also won the most blocks assigned at CNH’s licensing rounds. The NOC adopted a new philosophy of focusing on the areas to which it could add value, which appeared to have paid off as it was awarded nine blocks in shallow waters and five in deepwater. The assigned blocks are complementary to the 489 blocks the company was awarded during Round Zero, where it still has much work to do, according to Héctor Moreira, Commissioner at CNH. “The main problem faced by PEMEX is its financial capacity to make up for the 489 direct E&P assignations it received during Round Zero,” he says. “Even though for some blocks the technical plans for E&P were properly delivered to CNH within the three-year deadline, for many others the NOC requested two additional years to cope with these requirements.” 


To offset these Round Zero difficulties, the company is increasing its farmouts and migrations. “PEMEX is also clustering its farmouts into groups of five or more fields to make them attractive for potential partners,” Moreira continues. “When it comes to contract migrations, these imply basically the same requirements as the farmouts, although certain parts of their process might be slightly more complicated. Overall, both experiences should help PEMEX to strengthen its assignation exploration and development capacity.”

LOCAL-INTERNATIONAL BALANCE

The bet IOCs have placed in the country is significant. As of September 2017, IOCs proffered a total of US$1.03 billion in both approved and committed investment into the fields awarded in Rounds 1.1 to 2.3. The entry of IOCs into the country was expected, and it comes as no surprise that it is this group that has been awarded the highest number of blocks during the licensing rounds, with Shell, PC Carigali, Total, Repsol, Sun God, ENI International and Qatar Petroleum being awarded a total of 50 blocks of the 104 assigned from Rounds 1.1 to 3.1.


Nevertheless, the presence of Mexican companies is tangible, especially as they registered a total approved and committed investment of US$689 million in the country as of September 2017, which represents 67 percent of the total investment coming from IOCs. Not surprisingly, the preferred investment destination for Mexican companies is onshore, where the majority of local expertise lies. Of the approved and committed investment from Rounds 1.1 to 2.3, 99.6 percent is directed to onshore blocks.
Cooperation between IOCs and Mexican companies is clearly visible, as from Rounds 1.1 to 2.3 associations between Mexican and international companies have approved and committed a total of US$667 million. Seventy-five percent of that figure is directed toward shallow waters, where there is a perfect meeting point between national knowledge on shallowwater basins and technological and financial capabilities from international companies.


INTO THE FUTURE

As Rounds 3.2 and 3.3 are being prepared, the cooperation between national and international companies is expected to grow. PEMEX is certainly looking at the experience and best practices IOCs can provide it in terms of EOR, secondary recovery technologies and expertise in previouslyunderdeveloped resources. For example, Round 3.3 will contain the first unconventionals to be offered in the licensing rounds. “In terms of unconventional fields, we are very interested in highly experienced partners,” says Ulises Hernández, Director of Prospective Resources, Reserves and E&P Associations of PEMEX. 
PEMEX is not the only company looking at the potential of unconventional resources. Luis Vázquez, Chairman of the Board of Diavaz, also sees great potential and is interested in developing strong partnerships. “We are also interested in a partnership for the development of unconventional resources. We will be looking for a partner to work with and from whom we can learn how to properly produce from unconventional plays,” he says.