Now Comes the Harder, More Expensive Work

Q: What progress has been made on the three blocks Strata BPS’s subsidiary Strata Campos Maduros won in Round 1.3?

A: From our participation in Round 1.3, Strata Campos Maduros ended up with three fields: Peña Blanca, Carretas and San Bernardo. We signed the contracts in May 2016 and have been operating these fields since August 2016. We have increased production by around 50 percent since we began operating the fields. The company is still carrying out studies, well and pressure testing to better evaluate the fields’ potential and create an intervention plan. For now, our plan to increase production will mostly involve well interventions and reopening wells previously drilled by PEMEX rather than drilling new ones. Our goal is to produce around 15MMcf/d of gas and right now we are producing around 8 million. Hopefully we can hit our target by the end of 2017. We are also reinterpreting the seismic studies provided by CNH, to see if we can find more undrained areas.

Boosting production by 50 percent by focusing on maintenance work that had been neglected and picking the low-hanging fruit of wells that had been shut are things that are easy to fix. Now comes the harder and more expensive work of studies and interventions and perhaps drilling in the next few years. We are the second-largest producer of natural gas from Round 1.3.

Q: Do you have plans to participate in the upcoming licensing rounds?

A: Yes, we are looking at possible participation in Round 2.3 but we have not decided yet. Future rounds are always of interest to us and our investors have a lot of appetite to expand our portfolio. At the same time it is important to consolidate what we already have.

Q: How is the recovering oil price changing Strata Campos Maduros’ plans to delve into unconventional resources? 

A: Strata has a project in Texas but at current price levels it is not profitable. In Mexico we would need to find the prime spots, which would require a process of trial and error. Our fields are more natural gas-focused, so we are looking more at the developments in LNG. We want the US to export all of its surplus gas so we can achieve a better gas price in Mexico. Due to the geographical location of our fields in the north, we already offer very competitive gas prices for US buyers. The same would not be the case if we were operating in the south of the country.

Q: How does being a Mexican company benefit Strata Campos Maduros in terms of national content?

A: We see the national content rules as affecting suppliers more than operators. The rules are in place to ensure that companies select as much input from Mexican suppliers as possible. This is difficult because a lot of the input equipment is manufactured elsewhere. The Ministry of Energy has many plans for supplier development in the country. Having a lot of players is better for suppliers because it simplifies the business process and streamlines prices and negotiations. The advantage of being Mexican is more in knowing how to navigate regulation and the way of generally doing business in Mexico.

The Ministry of Energy, ASEA, CRE and the Ministry of Finance all have something to do with the process and for foreigners it is sometimes difficult to understand that process.

Q: What is your opinion on the balancing of royalty rates and investment amounts in Round 1.3?

A: I agree that the current system values royalty rates over investment amount but there is no perfect way of doing this. This is why the government has been persistent; it is not so easy to find the right balance. In Round 1.3, I think the government got the balance right in the requirements to qualify. For 2.2 and 2.3 the equity requirements are too high. Demanding half a billion dollars from companies that want to prequalify is too much. In Round 1.3 they required US$5 million per field and now they require US$100 million or US$500 million.