Home > Oil & Gas > View from the Top

Preparing the Road for Drilling

Ricardo Arce - Perforadora México (PEMSA)
Former CEO

STORY INLINE POST

Wed, 01/18/2017 - 23:45

share it

Q: How have the bidding rounds shaped Perforadora México’s E&P ambitions?

A: Our objective is still to become an E&P player and we are carefully moving toward that goal. 2016 was a difficult year for the industry, mainly for shallow water drillers like us. We are participating in the rounds but we have not yet won a block, which is not necessarily a bad result. We tried to qualify in Round 1.2 but we could not submit a bid because CNH ruled that our partner did not meet the criteria to become the field’s operator, so we had to withdraw our prequalification. But this experience helped us to understand how the process works.

We then submitted three bids for the onshore Round 1.3, selecting three of the four largest blocks. Grupo México is a large operation; if we win a block, we need one of a certain size. We also put together a good business case with the objective of developing the fields to their maximum potential. One of our problems was that CNH placed little importance on the additional investment criteria, which totaled less than 10 percent, because it had a cap. In our model, we allocated six times the required investment to develop the fields, which was not considered in the CNH criteria. Another issue was that most of the winners placed high bids.

These high bids do not necessarily mean they will lose money. It depends on the business model. In a model where production rates remain the same as current levels, 99 percent can feasibly be given to the government because the bidder will still earn 1 percent with zero investment. For that company, it may have been a good business model but we are certain this was not the best result for Mexico.

Q: How should the government balance the relative weight of the royalty and work plan in allocating the contract?

A: The government should favor the investment commitment. The role of the government is not necessarily to attract more money but to promote the development of a higher oil production environment. I do not know what percentage should be taken into account but I do not believe a ratio of 10/90 is adequate. A greater balance should be struck and ratios like 50/50 or 40/60 would make more sense. No contract has been migrated to the new system yet and one reason is that the government is used to receiving a 65 percent share, which is not sustainable.

Q: What percentage of your fleet has been operational this year and how does that compare to the market?

A: We have five jack-ups, four of which are new. The four new rigs were in use during practically the entirety of 2016. So far we have had a utilization rate of 3.9 out of the four rigs in 2016. We also have two platform rigs. Our current critical point is the Tamaulipas rig, for which we have been waiting since April 2015 for a location. We are in conversations with PEMEX to negotiate the costs for this waiting period. While the costs are relevant, for us it is important to obtain a long-term contract to recover our investment. The Sonora rig is also suspended because it is a relatively old rig but still in very efficient performance condition: a good option for the newcomers in the shallow water rounds.

Q: What will happen with the Mexican drilling operators in three, four or five years?

A: What I foresee is alliances. Most of the Mexican companies have state-of-the-art equipment but many do not have highly trained crew, which could lead to a need for alliances. Grupo Mexico is already prepared for this scenario.

We are participating in a complementary vertical integration alliance with an international oil services company. We have the state-of-the-art drilling equipment and cementing services and they provide the rest of the components needed to offer turnkey services to the operator. We have jointly approached some of the companies that have won blocks and offered them integrated services.

 

You May Like

Most popular

Newsletter