Gustavo Hernandez
Director General
View from the Top

New Contracts Set to Revitalize Onshore Fields

Wed, 01/21/2015 - 14:36

Q: What are the main trade-offs that have to be made to properly manage the migration of the COPFs and CIEPs, and what will be the role of PEMEX and the operators in these alliances?

A: We had to decide who would financially evaluate the 22 existing COPFs and CIEPs. Along with the current operators, we picked five financial institutions to perform a financial analysis, which allowed us to determine the fairest way to handle the migration. Under the previous COPF and CIEP model, only one operator was allowed. Under the new PSA model, we can form alliances, for which we need to establish what will be the working interests for each company involved. Whereas for some fields, particularly those governed by COPF, we have the majority of the working interest, that is not the case for CIEPs. As such, we are discussing how much the working interest should be for PEMEX and the companies. We presented our joint operation proposal to the Minister of Energy and we are now discussing the fiscal terms with the Ministry of Finance and Public Credit, the Ministry of Energy, PEMEX, and the operators. We need to guarantee that the migration of contracts will not reduce the revenues originally estimated for those companies. This new approach involves fresh investments that translate into more production and more revenue. However, the new fiscal conditions must be fair to the three parties involved: the Mexican Petroleum Fund, PEMEX, and its partners.

Q: How does PEMEX feel about being a partner in such an alliance without being the main operator?

A: When we launched the COPFs and CIEPs, we decided not to be the operators in those fields as they were considered to have the lowest priority in our project portfolio. Since then, we decided that our participation in those projects was going to be limited. We maintain the same perspective for the contracts that have to be migrated. While PEMEX needs to play a part as these fields were awarded to us in Round Zero, it will work with a partner that is already operating and agree on the working interest. We have not had any problem in establishing the working interests so far.

Q: From a practical point of view, would you prefer not to be involved in any of these contracts?

A: Under the PSA regime, we are interested in all the contracts because they will help us produce more oil, more gas, or both. Previously, these fields were indeed at the bottom of our priority list but this new scheme will provide benefits for the State and maximize value generation. We are more than happy to participate in these fields.

Q: The third phase of Round One will include similar onshore fields. Is PEMEX interested in entering into alliances with an operating partner for these fields?

A: That phase of Round will include 26 onshore fields, including some that we requested in Round Zero but were not awarded to us. Naturally, we may well be interested in participating in those fields that we originally wanted to keep.However, this third bidding phase will not be suited for big operators as it contains marginal fields with small production volumes and scattered production facilities. This means that smaller companies and onshore operators may well stand a chance. If some of them are interested in partnering with PEMEX, we are open to exploring the possibility. The fiscal regime for this round will be similar to a license, in which companies pay a signing bonus depending on the size of the reserves to be produced. This license model will differ from the fiscal models used for the first two bidding phases, which are closely aligned with the migration process. We will have to see what happens. We are not expecting any IOC to participate in this round as they are clearly focused on deepwater and extra-heavy oil. In comparison, PEMEX needs to have a balanced portfolio and be present in different geological basins, in order to reduce overall risk.