Ian Telfer
Chairman of the Board
Renaissance Oil
View from the Top

A Pure Mexico Play for Investors

Wed, 11/08/2017 - 10:08

Q: How did your experience with mining giant Goldcorp influence your decision to co-found Renaissance Oil?

A: Goldcorp has had a positive experience in Mexico. We have been here for 15 years and over that period we have invested over US$2 billion. We have bought some exciting mines and have spent a lot of money to expand and modernize them. We have also built two mines from scratch from ore bodies that we were able to acquire. Operating in Mexico, as in every country, has its challenges but Goldcorp is very happy with how it has been treated here. We think it is a great country for foreign capital. The company can get its money in and out and it can get its people in and out, so it has been a fabulous experience.

Because of the success we had with Goldcorp and our experience learning how to operate in Mexico, when PEMEX announced it was going to launch multiservice or integrated service contracts to privatize some of its activities in the oil and gas industry, we thought that might be an interesting area for us to get involved in. We set up Renaissance Oil specifically to gauge the market. The first thing we did was raise US$5 million and employed Halliburton, which has operated here for a long time, to help walk us through all the questions we had. Through that process, we learned what the government was trying to do and we thought it was a very exciting time to be involved.

Q: Could you describe your relationship with the Mexican government during the process of entering the Mexican energy sector?

A: The government wanted to know that the principles behind the company were credible and that it had experience operating in foreign jurisdictions. We certainly had that. It wanted to make sure that the technical group we put together was of the highest quality and could really bring a benefit to Mexico. Then it wanted to make sure that financially we were going to be able to live up to the commitments that we would have to make going forward. We were able to get through all of that with the government and then got involved in the first onshore licensing round over two years ago. That was an incredible experience because of the concerns outsiders had about Mexico privatizing its natural resources. It turned out to be the fairest licensing round anybody had ever seen. I have been involved in tenders all over the world in mining and I had never seen anything like it.

There were plastic boxes, the rounds were broadcast live on the internet, and the regulators opened the envelopes and announced the winner, with no privacy. It was spectacular and we were thrilled because this is the kind of tender that we could participate in, knowing we were going to be treated fairly. There were 75 companies bidding on 25 blocks and we ended up with four. We were the biggest winner and we were the only foreign winner. We won those areas because we paid high royalty rates but we were making a statement.

Q: What is the background of Renaissance’s strategy for Mexico?

A: We wanted the Mexican government and PEMEX to know we were serious. We really wanted to get involved in this recently opened industry, so it worked perfectly for us. Since that time, the privatization process has slowed down a little bit, which has been a challenge for us.

We decided at the very beginning that we were going to have a pure play in Mexico. We could have partnered with existing oil companies in Canada. There are thousands of them in Calgary and many were interested. But our whole focus is here in Mexico and the rationale for that is that investors around the world are hearing about Mexico’s new oil and gas industry and wondering how they can invest in it. At the moment we are the only way to invest purely in Mexico’s hydrocarbons’ industry after the Energy Reform. An investor with this focus will not invest in ExxonMobil for example. For ExxonMobil, Mexico is a very small percentage of its revenues. Meanwhile for us it is 100 percent of our revenues.

Now we are starting to see interest from the big banks in New York and some European investors want to know more about what we are doing. When talking to investors, Mexico’s energy sector does not get that much publicity because the private sector is still so small and none of the companies are producing yet. For the moment all the activity is in exploration, which is great for Mexico.

I had initially expected to get more credit for focusing solely on Mexico because that is a risky thing to do for a public company. I thought that we would get more traction out of our commitment to the country, but we keep working away.

A big part of our strategy was always to be aggressive and to do what we can to help Mexico. We wanted to bring the best technical team in the world, and we have it; we were going to bring the best specialist in unconventional resources and we have him; and we have people willing to give us capital.

But the process has been frustrating. When we decided to do this the oil price was at US$110/b and then it dropped to US$27/b. Trying to attract investors in the oil and gas business when the oil price was at US$27/b was a challenge but we had to raise more money to keep our obligations. Now everybody is feeling better with oil prices around US$50-60/b.

Q: What is the perception of global financial markets and how has Renaissance Oil’s linkage to the Mexican hydrocarbons sector been received?

A: It has been good but our lack of progress is making people hesitate. We won the blocks in Chiapas two years ago. These are tiny little wells but since their renovation they are doing a little better. We are producing oil but we thought that by now we would have been able to get involved in some of the blocks that have to migrate and to expand our business in general. We thought that was going to move much more quickly. Investors are cautious because they want to start seeing some progress down here.

I think that there is a chance for a company to become a Mexican major and I want to try to achieve this for Renaissance. Our competition is these big companies for whom Mexico never will be a huge part of their production. By getting an early start, having access to capital and having credibility in Mexico, I think we have the potential to be the biggest Mexican oil company after PEMEX.