Ulises Neri
Chief for the Extraction Technical Unit
View from the Top

New Measurments for a Restructured Market

Wed, 01/20/2016 - 13:09

Q: What are the duties of CNH’s Technical Extraction Unit?

A: The Unit’s mission is to maximize the recovery factor and economic value of hydrocarbon reservoirs by implementing regulations and overviewing compliance, as well as addressing internal and external technical requirements based on the production value chain. In this sense, our main task is to provide technical assistance to issue regulations related to the five areas of reserves, development plans, measurement, gas flaring, and commercialization. Likewise, our tasks include supervising the enforcement of the regulations. The Unit also follows up on PEMEX assignations and contracts from R1-L02 and R1-L03, as the first phase is currently in the exploration stage.

Q: What is the Unit’s relationship with the companies that won contracts in the second and third phases of Round One?

A: Regarding operators from R1-L02, we are only analyzing specific elements of their extraction plans, including the reserves associated with these blocks. According to each contract, operators have a certain period to submit a development plan after signing the contract, so we are waiting to verify the information in the aforementioned plans and their compliance with the extraction regulation. Conversely, we have a lot of interaction with the operators from R1-L03 because the first stipulation of the contracts is related to the provisional plan. This plan helps operators maintain their production and adds certain requirements with regards to a few key elements, such as well maintenance, workovers, and valves. It describes how a company will act once it takes over a field, not how it plans to develop the field over time, which is more complex. The development plan has the objective of maximizing the recovery factor using technical strategies. It will ultimately indicate what opportunities exist for suppliers and service providers that are working for the companies, according to the regulation.

Q: What is CNH’s responsibility in the commercialization of oil production?

A: Our involvement in the commercializing of production from production-sharing agreements comes from the fact that there is a government share, so we oversee this aspect on behalf of the government. The percentage of oil production the government obtains is mostly sold through PMI. The elements pertaining to commercialization are defined according to the contracts, and there are also tenders where specialized companies can bid for the right to commercialize. The law states that a company only needs a contract in order to commercialize oil. However, CNH wants more details in order to have a better idea and precise statistical information about every oil transaction in the country.

Q: How advanced are you in working with PEMEX to make sure that all relevant information is available for CNH?

A: As stated in the secondary legislation, CNH has access to all the information from PEMEX on production and reserves. However, most of the information we have comes in the old format, which structured the information using each field as the basis. The new model groups the data according to assignations, with the main difference being that an assignation can include several fields. We are just starting to receive data on assignations.

In the previous model, PEMEX organized the information by asset, which could include several fields, regional administrations, and even different datasets. Now, the NOC is in the process of defining the limits of each field, block, and the number of wells in each area, in addition to distributing this information. Moreover, the company has included data on oil and gas production, sulphur contents, API gravity, and the different components in gas because these variables are directly linked to the fiscal terms that the Ministry of Finance establishes. Taking this into consideration, CNH is working with PEMEX, the Ministry of Finance, and the Ministry of Energy to define the variables that are needed to define the fiscal terms and compare these to the previous requirements, which only involved the field and type of hydrocarbons.

Q: How is the process of reaching agreements on reserves between CNH and PEMEX advancing?

A: The new regulation on reserves is like the previous one, but the main difference is that in the previous regulation, reserves were estimated according to the asset’s productive life, while the new one calculates reserves according to what can be produced in the duration of the assignation. This is how it is done in other countries, and the challenge for the NOC is to develop the resources in a determined period. We are in the process of communicating the benefits of this model to PEMEX, as it will be able to define the elements it needs to develop its reserves in advance, prioritizing the most profitable fields.

Q: How have the PEMEX pipelines and metering points been organized in the past year to prepare the network to receive production from new operators?

A: CNH worked with PEMEX and CRE to define the number of metering points and fiscal points in the network. It was important to work with CRE because it has been hard to identify the limits of certain activities and the areas that are to be regulated by this entity or by CNH. We established 48 fiscal points or sales points, and correlated more than 200 operational points. In addition, we have been working with CRE to determine which pipelines and facilities will be used by PEMEX and which will be used by other operators. Let us keep in mind that PEMEX created a logistics subsidiary, so we have discussed the assets that will be used by PEMEX E&P and PEMEX Logistics. Another task consisted of working with CRE, PEMEX Logistics, and new operators that have signed contracts to identify the infrastructure they need and set tariffs for the use of transportation infrastructure. It is necessary to clear the big picture so that operators can get an idea of what the new landscape will be like. It was decided that the infrastructure located before the fiscal metering point belonged to PEMEX E&P and will be monitored by CNH, while everything beyond that is part of PEMEX Logistics and will be supervised by CRE. Other operators will be able to use it under certain terms.

Q: How is CNH going to select external assistance in new areas such as deepwater and shale resources?

A: We will need expertise that complements the capabilities of our current team, which is why CNH is considering consultancy services. We have a wide range of consultancy companies to choose from, and we are identifying the agencies that have sufficient international experience. We are also looking at companies individually because we need to ensure that their staff is prepared to manage certain tasks.

Ideally, every type of project will be supported by external consultants, but time may limit this type of flexibility. More energy and resources are going to be allocated towards companies that win bigger blocks in comparison to those that have recently won onshore projects that do not have as many details to evaluate. Another element behind this reasoning is the amount of liability that each field may represent, as it is not the same to have operations in deepwater or unconventional blocks. Value is also an important piece of the puzzle, since this will vary depending on the amount of risk involved, as in the case of deepwater projects where risk matches the potential value.

Q: How are you working to address the new operators’ main concerns?

A: For the most part, operators are interested in learning more about our regulations. With this in mind, we are launching a series of workshops for PEMEX, other operators, and services companies in order to explain how to implement and observe the regulations. While the information is evidently important for operators, including PEMEX, services companies will be invited to learn about the procedures needed to sell their services. In addition, CNH can hold hearings with operators in order to address questions on issues that concern both sides, as stated in the normativity.