Onshore Potential Must not Remain Untapped

As offshore development continues to occupy more of the spotlight with Tuesday’s publication of PEMEX’s business plan that shows the NOC focused almost exclusively on shallow waters, it becomes increasingly necessary to highlight the successes and potential of Mexico’s onshore fields, particularly those developed though previous bidding rounds, as highlighted by panelists on Thursday in Mexico City during Day 2 of Mexico Oil & Gas Summit 2019.

Gaspar Franco, former CNH commissioner and current UNAM professor, moderated the panel Onshore E&P Developments. He began by asking about the general experience that operators have had developing onshore blocks awarded through the bidding rounds. All panelists agreed on the experimental and evolutive nature of their initial operations, but were also quick to highlight the admirably quick adaptation process that they witnessed from regulators and suppliers. 

Director of Tonalli Energía and President and CEO of International Frontier Resources Steve Hanson put this adaptation in concrete terms. “Lawyers and the government were learning with us; our first drilling permit took 16 months to get. The second one took under 90 days; now we are selling crude on a daily basis.” However, he did compare Mexico’s regulatory environment to Canada’s in order to identify areas of opportunity in the former. “In Canada, I get a simple, five-page document that explains regulatory requirements and expectations. But it is issued by a firm regulator that does not accept negotiations on these standards. Mexico needs that: a tougher but also much more streamlined regulator. That will help address the chief criticism from the current government of the private operator model, which is that is does not appear to be increasing production as much as promised.”

Vice President of the Board of Directors Administration at Jaguar E&P Ángel Casán underlined the degree to which Jaguar’s commitment and vision in Mexico was enough to pull it through its initial failures; as he put it, “Jaguar’s successes in Round 2 are usually highlighted, but the truth is we lost all 12 blocks that we bid on in Round 1, and we used what we learned to show up again for Round 2, because our belief in Mexico goes beyond any one bidding round.”

As Franco steered the discussion toward present and future challenges, the community engagement issues that can notoriously generate downtime at onshore oil and gas worksites did get mentioned, although all operators were quick to portray their relationships with local communities as positive and supportive. Chief Business Development Officer of Perseus Yann Kirsch characterized the Macuspana area where Perseus operates a number of its awarded blocks as “very demanding in terms of community engagement,” but he also made it clear that Perseus was committed to addressing any issue in this area promptly. Added Hanson: “We treat the local community as an important partner. We are proactive in social efforts and in involving the community and landowners. This has been very central to our success. We are here to be a good corporate citizen; we have created many jobs and we pay our royalties. We want to continue to grow and benefit Mexico and its people.”

Operators agreed that the more pressing issue for them was technological and infrastructural development. President for Mexico and Central America of Baker Hughes Robert Pérez listed the numerous infrastructural elements yet to be built as part of the development of Baker Hughes’ Soledad block, while also commending authorities for the ongoing finalization of infrastructural requirements. “PEMEX is more than technologically capable on delivering results, it simply suffers from internal issues regarding the delegation of authority and the alignment of goals and objectives,” he said. Kirsch doubled down on the structural issue at hand. “Leaving infrastructure in the hands of PEMEX was the Achilles’ heel of the Energy Reform,” he said. “PEMEX tends to see us as contractors, but we are their partners and they are our medium to commercialization. For example, right now we cannot move production out of one of our fields because a compression station remains to be built. This distribution of economic and logistics responsibilities must be addressed going forward.”