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News Article

Regulator Perspective: Highlights of Round One

Wed, 07/22/2015 - 10:19

Juan Carlos Zepeda talked about Round One and said the most important element of the first phase is that the authorities confirmed that the legal framework and the regulations are viable and solid. “Phase 1 endorses our perspective that we are following the right path, yet there still are remarkable improvements to be made. Nevertheless, the process was transparent, giving future tenders the confidence needed to present important and serious bids.” For Zepeda, it is worth highlighting the level of interest and competition in the six blocks that were bid on. The two awarded contracts expressed an optimistic first step and a viable operating framework. “The degree of achieved transparency was CNH’s main objective. We broadcasted the entire event and close to 112,000 people followed the bid. Such interest in a tender has not been seen in any other country,” expressed Zepeda.

The CNH Commissioner admitted that the government still has lessons to learn. “We did not achieve the 30% goal regarding the awarding of contracts. Only five enterprises and four consortiums were present at the bidding, but most participants will be joining in during the subsequent tenders, as many have registered for the next phases.” Zepeda pointed out that pre-qualifiers’ noticeable lack of confidence was driven by aspects such as the novelty of the opening of the Mexican oil and gas industry, the fact that Iran’s nuclear settlement will increase oil production to an additional 1 million b/d in the following year, predominant interests in deepwater, and oil prices at a decade-low. In the current short-term scenario, companies do not have unlimited capital to invest, meaning that players will bid for the best possible option. Also, large companies seem more inclined to invest in deepwater blocks in the Gulf of Mexico and oil fields in Arabic countries. Deepwaters represent an opportunity to employ the latest technology to maximize production and profit, while operating in the Middle East symbolizes a geopolitically opportunity to supply China’s increasing oil demand. “These decisions have to be made in an oil price slump that is not showing short-term signs of recovery, partly due to the companies’ high inventories and OPEC’s great production.”

Zepeda mentioned that participants have to present a development plan and metering system. CNH will be in charge of reviewing compliance with these requirements. The steps following the signing of the contract will have to be stated in the plan, and the operational information will be presented to COFEMER in real time. “Communication will be a key component since the information emanating each contract will be useful for several organizations,” Zepeda stressed.

The approval of drilling and the regulation ruling these wells have to be registered on CNH’s platform. This will include metering systems, development plans, and drilling permits. “As the entity in charge of managing the contracts, CNH has the necessary infrastructure to keep track of this information. We will be signing the first two contracts before August 21,” explained Zepeda.

The consortium will have to summit its exploration plan within 120 days. If there is a commercial discovery, it will have to obtain certificate and present a development plan. Zepeda said that in the following days, CNH will transfer the information on the exploration areas. “We are going to establish the baseline in terms of environmental standards and infrastructure along with ASEA. Our main goal is to deliver a fully transparent process, in order to earn the trust of the Mexican people and build a reliable procedure,” he concluded.