As Mexico’s new oil and gas regulator CNH moves forward to optimize the terms of each bidding round and learning from past successes and experiences, Javier Zambrano, Executive Director of Jaguar E&P, believes collaboration with participating E&P companies is vital to ensure its efforts are successful.
His company, an independent Mexican exploration and production firm, was one of 40 that submitted bids for the onshore blocks up for grabs in Round 1.3 in December 2015. Despite failing to secure a block, many lessons were learned in what Zambrano describes as “an insightful process.” Although he is keen to highlight areas of improvement to maximize the rounds’ success, he emphasizes that Jaguar E&P remains dedicated to growth in the Mexican oil and gas market, predicting 2017 will be “the tipping point for the industry’s development.”
The first issue Zambrano points out is the high royalty rates offered for the blocks in Round 1.3. “Jaguar’s target is to be a long-term player in the Mexican market but that is not possible if you are paying 80 percent royalty rates to the government because it leaves no room for future investment,” he says. Jaguar E&P’s obligations to its stakeholders mean it must take the profitability and sustainability of any venture very seriously, he adds. For this very reason the company has been forced to explore and deploy capital in Latin America and the Caribbean despite being created specifically to capitalize on the promising potential of Mexico’s Energy Reform, a reminder of the central role that bidding terms play in attracting investment into the country’s oil and gas market.
“Round 1.3 saw ultra-high bids from different players who were likely taking advantage of the low walk-away costs and investment commitments just to learn more about bidding processes,” Zambrano says. He worries that, in terms of the awarding variables, the limited weight given to the work programs of awarded blocks threatens to derail the Energy Reform’s goal, which is ultimately to maximize the potential of Mexico’s hydrocarbon resources. The company is pleased to see higher pre-qualification standards CNH set for the next tenders, which he hopes will result in fewer “irrational” bids hindering the process.
Zambrano does give credit to CNH for the transparency of Round 1.3. “If I had to rate the process on transparency, I would give them a 10/10,” he says. His protests do not center on the way the process was conducted but on specific regulations set out in the bidding contracts, where he calls for more cooperation. “We all have to be more collaborative and more proactive with feedback to CNH,” he says.
Zambrano remains positive that the authorities are moving in the right direction by listening to players and modifying the terms based on their comments, albeit slowly. “Instead of the baby steps we are observing, we need a quantum leap,” he says.
Despite the problems, the company remains focused on succeeding in the Mexican oil and gas industry. Jaguar E&P, he says, is working with the government and universities in Nuevo Leon to provide training and certifications for students wishing to enter the oil and gas industry. The majority of its staff actively offer undergraduate and graduate level courses in institutions such as UNAM, which makes him worry less about a talent gap in the country.
“We built Jaguar from the ground up, and we are here for the long run,” Zambrano assures. Jaguar E&P is a relatively new company, founded in 2013. It belongs to private equity fund Grupo Topaz and is therefore financially secure. The promise of Mexico’s oil and gas industry in 2017 makes Zambrano optimistic about the year ahead. As Jaguar E&P looks for partners who reflect its values of technology, talent and new ideas, he is convinced that the best is yet to come.