Q: How have previous farmouts influenced the way PEMEX selects its assets for this type of partnership?
A: The farmout process, in which a company looks for a partner to jointly perform exploration and production activities, is done for several reasons, but mainly because the company needs to complement its technical, financial and/or execution capabilities as well as to share risks, so it can execute a project. Not doing so may delay the activity and lose value. PEMEX started farming out areas awarded in Round Zero two years ago. The first was Trion, a 2012 deepwater discovery. For this field, PEMEX needed to complement its technical and financial capabilities to complete the appraisal stage and eventually carry out development. Similarly, the Nobilis-Maximino and AyinBatsil blocks contain discoveries with significant technical and financial challenges that require joint efforts to make them happen. Cárdenas-Mora and Ogarrio are fields that require the implementation of new techniques and technology to enhance and accelerate oil recovery.
Now the farmout process is better understood and we have gained momentum. We have learned a lot not only from Trion, Cárdenas-Mora and Ogarrio, which were awarded, but also from Ayin-Batsil and Nobilis-Maximino that were unsuccessful. These lessons will be integrated into the re-tendering of AyinBatsil and Nobilis-Maximino, as well as in future farmouts. We have identified more blocks where a partnership through a farmout will bring a higher added value to the asset and will allow PEMEX to spread risk. Since the blocks we are considering contain fields of different sizes, some of them with exploratory upside, we can expect both small and large independent companies to take part in the bidding process.
Q: What criteria does PEMEX use to select its farmouts?
A: Assets to be farmed out are selected according to several elements. The most important for PEMEX is the need to complement its technical, financial and execution capabilities and share risks to execute a project. Assets that require the application of practices and technology in which PEMEX has little or no experience, that demand significant investments and/or are high risk are candidates for farmout. The assets PEMEX is currently farming out are mostly mature fields that require the application of enhanced oil recovery techniques to recover more oil, in which we have little experience. Some of these blocks require additional investment for exploration activities. PEMEX does not have the capacity itself to take full advantage of these assets. For years, PEMEX had been working alone and assuming the technical and financial risks, so the possibility of establishing partnerships gives the company traction. All the previous elements are considered in conjunction with PEMEX’s objectives of meeting its production, reservereplacement and profitability goals.
In terms of our strategy for the licensing rounds, we have established a series of partnerships that are strategically aligned with us. PEMEX has been competing, in partnership or independently, for assets that complement our portfolio and that can contribute to meeting future reserve restitution and production goals. In terms of unconventional fields, we are very interested in highly-experienced players in this arena.
Q: How have PEMEX’s activities developed with BHP Billiton in Trion?
A: The relationship and activities with BHP have been very smooth. Both teams have worked very closely, and BHP has been very open to discuss all the aspects of the process PEMEX has never before experienced. In terms of field activities, we are in the early stages of the plan. Still, we have been learning a great deal, mostly in the sense of how to manage a partnership, how to control expenses and how to hire products and services according to international best practices. PEMEX has already sent three professionals to Houston to work as part of an integrated project team. Of course, there are always aspects in which we have different points of view, but the healthy and positive communication channels we have developed allow us to reach mutuallybeneficial conclusions.