Luis Vázquez Santíes
Chairman of the Board
Grupo Diavaz
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View from the Top

National Champion About to Become an Operator

Wed, 01/20/2016 - 12:24

Q: How is Grupo Diavaz advancing in the migration of its COPF and CIEP contracts?

A: The Energy Reform has given us the option to migrate our long-term contracts with PEMEX, so now we are working on this for our Miquetla and Ébano fields. For this purpose, we have worked closely with PEMEX, the Ministry of Energy, and the Ministry of Finance. This is something that no one in Mexico had done previously, so we are familiarizing ourselves with this new scheme. Neither the government nor our company has experience in migrating contracts, thus the process has been somewhat challenging, but we see this is part of moving the Energy Reform forward. PEMEX is going to be our partner, so we have had to establish the agreements, such as the percentage allocated to each company, the fiscal regime, costs, and government take.

Out of the 22 contracts eligible for migration, two are close to completion, providing us with a precedent and parameters for the migration. The authorities have successfully negotiated the learning stage, and now it is time to act. Our Cuervito and Fronterizo fields will also be migrated soon, but for now I am only referring to the other two contracts. One of the contracts that will be migrated is for a gas field, and the other is an oilfield in the southern region, so the main difference will be the tax regime, which differs for light oil and heavier crudes. The oilfields will have production-sharing agreements and for the gas fields, we might be able to obtain a license, but this is still under discussion. We are excited by the possibility of becoming a formal operator. Once our contracts are properly migrated, Grupo Diavaz will be producing 25,000b/d. It will take less time for this to happen than that required by the five winners of R1-L02 to begin production.

Q: Why was Grupo Diavaz absent from the first two phases of Round One?

A: Grupo Diavaz has limited experience operating offshore fields, although we considered entering the bidding rounds. After thorough assessment of the tendered fields, we decided not to participate even though we qualified for R1-L01 and R1-L02. We would definitely have liked to have participated in Round One R1-L01 and R1-L02, particularly because we would have gained much-desired knowledge and experience in operating offshore fields from our potential partner. However, the implied risks were too significant.

Players coming to Mexico do so with the intention of producing oil but Grupo Diavaz already has fields in production, so the conditions are different. By failing to participate in the shallow water phase, we have had time to focus on other potential projects and contractors, and study other fields. Nonetheless, we participated in R1-L03, where we were interested in four large blocks out of the 25 that were tendered. Ultimately, we won the Borcodón and Catedral fields. Grupo Diavaz could participate with a partner, although we plan on working independently at this moment.

In the near future, there are going to be several oil companies operating in Mexico, including companies from the migrated contracts, companies that have been awarded contracts in Round One, and PEMEX. In this sense, Grupo Diavaz is preparing to become a contractor for those new operators. Now, Grupo Diavaz has production and services divisions. Our goal is to separate the oil and gas division and form two companies, an operator and an oilfield service company, a process on which we are already working.

We are definitely interested in participating in the farm- outs, and we are already analyzing the opportunities. A farm-out entails partnering with PEMEX, with whom we have worked for years. As opposed to Round One, the fields are already in production, enabling us to get started in a six-month period. There are fields we know have attractive resources because we have worked in them for some time.

Q: What will be the role of your exploration division once the two companies are created?

A: The exploration segment will be part of the operations company. Out of the 22 CIEPS, Ébano is the most productive field, where Grupo Diavaz has increased production by 10,000b/d. This is a staggering number considering other companies increase their production by only 300b/d on average. Our success can be measured by the increase in production and reserve restitution levels. Miquetla was awarded to us a year ago, and Ébano was given to us on January 1, 2013. When we began operating Miquetla, this field was producing 400b/d, and we have now increased this figure to 2,600b/d. In other words, we have managed to extract more oil, and this is the same strategy we want to apply to PEMEX tenders.

Lifting systems will be crucial. So far, Mexico has been lucky in the sense that it had easily extractable oil. Now that increasing production will rely on mature fields, we will need to implement artificial lifting systems and every available resource to maximize output at competitive costs. The current oil prices will also force us to do this efficiently, first and foremost, and at the lowest cost. Grupo Diavaz has carried out various tests to find the most effective way to produce according to the various conditions in the country. For instance, we have used vapor to extract heavy oil. We are well-positioned to provide artificial lifting services in mature fields, and we are studying the 25 blocks tendered in R1-L03 to determine where we could increase production at the lowest cost.

Q: What will be the pillars of Grupo Diavaz’s mid-term growth?

A: We definitely want to become an operator, but the migration has taken longer than expected. Once the migration is completed, Grupo Diavaz should be producing 25,000b/d, so we are eager to begin. We want to win a block or two at some point in the near future through the tendering processes. There will be plenty of new and even some inexperienced players joining R1-L03, some of which believe being an operator means having plenty of capital and subcontracting everything, which in my experience is far from the truth. Conversely, Grupo Diavaz has been investing time, money, and educational support since 2003, when we began acting as an improvised operator.

We need to find a way to finance our growth, and that is the reason why we are restructuring the company. We also need to ensure the necessary talent, which is why we are approaching several universities in order to influence the courses they offer. After all, Grupo Diavaz will need enough experienced personnel to operate six fields. Our goal for ten years from now is for our new companies and subsidiaries to hold the same position in the country as Grupo Diavaz enjoys right now as a prestigious and knowledgeable player.