Private Sector Technology Crucial in Deepwater

Q: What is your perspective on the current situation of the oil and gas industry in Mexico?

A: One of the main reasons for the oil expropriation was to force the retreat of foreign oil companies. Nowadays, when we analyze the operating environment, we find that there are countless domestic and foreign consulting firms, equipment manufacturers, service providers and drilling operators that are working with Pemex in all areas of exploration and production. Mexico has succeeded in the development of fields, stabilizing production, and is now focusing on the challenges that the future of the industry will bring, such as the decline of Cantarell and the logical sequence that KMZ will follow. Pemex is taking the appropriate measures in order to compensate for these declines through schemes such as the integrated service contracts (ISCs), Chicontepec’s reassessment, heavy oil field developments, increasing investment in exploration, new discoveries in the South Region, and the discovery of both oil and gas in deepwater, which becomes tangible in Lakach, Mexico’s first deepwater development.

Q: What is your opinion on the ISCs?

A: In order to talk about ISCs, we must first talk about the 2008 Energy Reform, which was a giant step for our government as all political parties agreed on creating the National Hydrocarbons Commission (CNH) to regulate the industry, allowing the entry of professional board members, and developing a new contracting model. However, I must say that the opportunities offered under the new contracting model are still limited in comparison with international contracting practices, but the ISCs are a step in the right direction.

Q: Do you believe that the ISCs could be used as a model for deepwater development?

A: My perception is that more modifications still have to be made to these contracts before they could be successfully applied to deepwater development, which represents a much higher risk for investors, and they would therefore probably like to share this risk. We have had feedback from some producers, who indicate that it would be very difficult to participate in deepwater projects under the current contracting model. This would leave Pemex in a vulnerable position because potential partners will ask to share the projects’ risks and profits. Furthermore, the ability to book reserves normally is a requirement for the oil majors, which suggests that a model to attract private investment for deepwater projects would need to find a way to match this requirement with ensuring that all hydrocarbons remain property of the Mexican state. However, we all know that this will not happen. Therefore, it is necessary to find a mechanism that allows Pemex to partner and share profit with producers in a way that allows them to invest in the development of deepwater projects, and contribute the essential experience and deepwater technology that they possess.

Q: What could an appropriate mechanism for deepwater development look like?

A: This will be a key topic for the next energy reform. Our government will have an arduous work in order to convince the different political parties, and public opinion, that Pemex will not be privatized. On the contrary, it will stay as it is and will become a stronger state company. Likewise, we must strengthen both the CRE and the CNH by giving them more resources and authority. Another relevant aspect will be how to attract sufficient foreign investment to these projects, which will require US$5-10 billion per year. Also, we must understand that even though Pemex has ample experience in onshore and shallow water fields, it has no experience in deepwater, and developing this experience will take many years. This is the main reason why Mexico cannot risk investing public money in these projects, as it could be better used for investment in the Mexican states, education and other public services.

Q: How can FMC Technologies help Pemex to develop its deepwater discoveries, particularly in the Perdido area?

A: We are the company that developed the US side of the Perdido area, and we are the only organization that has all the required technology, such as subsea separation and boosting systems for ultra-deepwater, manifolds, and enhanced vertical deepwater subsea trees that were developed especially for Perdido. We are the leaders in this field and our target now is Perdido, which will be a profitable ultra-deepwater project. We have the experience to develop this field. We are sure that Pemex will need a lot of training, support and expertise, and we are ready to offer this support and to pass on our experience gained on the US side of Perdido.

The upcoming energy reform might allow Pemex to establish a consortium with experienced operators. The outcome will determine how Perdido will be developed. Moving forward without any experience in ultra-deepwater will present Pemex with a tremendously steep learning curve. With our experience, and the experience from others, we can start production in five years based on proven technology and solutions. We would probably be using existing subsea hardware for the development of such fields, and topside facilities, which could be a spar, most likely in combination with an FPSO. These three elements would be key for the development of this project, as well as working with companies that have the required experience. Developing such a project with the companies that offer the cheapest solutions is not the proper way to do it, having access to the right technology and experience is crucial.

Q: If the energy reform would not allow Pemex partner with private companies, or if Pemex would not be allowed to offer attractive terms to these companies, would Pemex be able to execute this project alone?

A: I do not think that Pemex can develop these fields alone at this moment, since they require a lot of experience. Pemex is most experienced and efficient in onshore, shallow water and subsea projects that are not too complicated. Probably, shale gas, transportation and ultra-deepwater projects should be moved to a new entity that is dedicated to strategic projects and can enter into agreements with outside partners. This would enable Pemex to continue to focus on the areas in which it has expertise, while it could attract the required outside experience in the other areas. If Mexico does not open the door to private participation in the upstream oil and gas industry, then IOCs and technology leaders will invest in other countries where they can optimize their return on investment. Africa presents a huge opportunity, Brazil is also interesting, and Colombia is coming fast. Mexico could be the least attractive opportunity, which means that it would not be able to attract the required expertise and capital. We are currently training a team of Spanish speaking people in Houston who are ready to come to Mexico and take on deepwater projects.

Q: If the energy reform does allow private participation in deepwater development in Mexico, then what would this mean for FMC Technologies?

A: We have worldwide alliances with Shell, BP, and Anadarko, frame agreements with Statoil and Petrobras, and good relations with Chevron and ExxonMobil. The opportunities for us are huge. Of course, we will also continue supporting Pemex, which is our main customer. The industry just has to be patient, something will happen and that is the reason why we are here. There is great potential in the deepwater Gulf of Mexico and expectations for the future in Mexico are good. The benefits of deepwater projects will be for the country, and they will start to be delivered during the next presidential term. The energy reform will define how that will be done. We will continue to focus on Mexico. My feeling is that this is the year of changes.