News Article

The Recipe for O&G Success: Continuity, Transparency, Competition

Thu, 07/19/2018 - 16:28

With so much speculation on the potential changes that could be introduced by the new administration, according to Raymundo Piñones, Director General of industry association AMEXHI, it is more important than ever to rely on facts and figures based on solid research such as the 2040 Agenda. He shared some observations with the audience of the Mexico Oil & Gas Summit 2018 held at the Sheraton Maria Isabel hotel in Mexico City on Thursday.

Launched in 2015 to represent the new companies entering Mexico after the Energy Reform, the association now has 45 oil and gas members. According to Piñones, 37 of these companies have signed one or more contracts in the licensing rounds and farm-out processes.

He says the association’s differentiator is that, although it is focused in Mexico, its network is worldwide. “What makes AMEXHI really relevant is that our global network of members brings international experience to the table,” he said. “Authorities and regulators, through our association, can easily identify and disseminate best practices from other global jurisdictions.”

AMEXHI’s 2040 model is based on the time frames required to carry out oil and gas projects. “Around 25 years is a reasonable expectation for a project to be able to really bring tangible benefits,” he said.

Particularly with the changing administration, Piñones believes it is more important than ever to continue following the New Mexican Energy Model (NMEM). “If we follow this model, the IEA estimates our production by 2040 could rise to around 3.5 million b/d and could contribute around 4 percent to GDP,” he said. “But if we revert the reform and fail to follow the new model, it could cost the country US$1 trillion.”

To develop its plan, AMEXHI followed a wide scope, hosting roundtables, interviews, sending questionnaires and hosting consultations over the course of a year among different industry players, including academia, private industry, consultants and the government.

There are four main pillars for the Agenda: continuity, transparency, competition and knowledge economy. In terms of continuity, Piñones explained that oil companies already take a great deal of risk and must be given regulatory and legal certainty in return to incentivize investment. He added that transparency is the most sought-after element in the industry. “This not only means publishing fiscal and spending information, but it is also articulated through the existence of checks and balances in the system,” he stressed

Piñones said that healthy competition would involve ensuring the companies entering Mexico are operating on an even playing field and that the deciding factors for awarding projects are based on tangible execution capacity and willingness to take risks. “Finally, knowledge economy involves placing knowledge transfer and research at the center of the industry, not only among the industry but the example should be set by policymakers,” he says.

To support these four pillars, AMEXHI’s 2040 agenda proposes 10 key issues focused on annual licensing rounds, interagency coordination, regulatory autonomy, infrastructure development, elimination of entry barriers, incentives for the development of PEMEX, a focus on digital platforms, guarantees of safety and security, priority given to unconventional resources and an emphasis on knowledge economy.

He concluded that the NMEM allows investment to come from different sources, maximizing the value of state-owned assets through competitive bidding rounds and strong execution capacity. “We know PEMEX has been very successful in shallow waters and some companies are efficient in onshore, some in deepwater,” he said “This allows other companies to come to Mexico and efficiently develop resources to the benefit of its citizens.”