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Analysis

Regulator Prepares Ground for Deepwater Round

Wed, 01/20/2016 - 15:13

The opening of Mexico’s deepwater segment has been a milestone in the global industry due to the opportunities it presents to operators, but it also provides CNH with a considerable challenge. The regulator has to issue guidelines to ensure that operations are done according to the highest standards, but the fact that this is a new area for Mexico’s upstream segment poses the chance of a trial-and-error scenario where the slightest mistake cannot be afforded. Sergio Pimentel, Commissioner at CNH, highlights that the authorities are not trying to reinvent the wheel when drafting the regulations for deepwater operations, adopting international best practices instead. For instance, the Ministry of Energy and the Ministry of Finance opted for licensing contracts, which is an international practice in deepwater operations and is in line with the provisions allowed in the Constitution. The licensing contracts will include large areas with the largest volume of prospective resources in the Gulf of Mexico: the Perdido Fold Belt and the Isthmus Basin in the southern portion of the Gulf’s central region.

Even though the market is not under ideal conditions at the moment, Pimentel notes that the long-term scope of the contracts makes the segment attractive to companies. “The current oil price is not an indicator of the interest companies could have in Mexico’s deepwater industry, as the oil price will not be the same ten years from now, which is the time it will take for the first commercial barrel to be produced in Mexican deepwaters. Furthermore, the geological conditions in the Gulf are attractive in spite of current situation.”

The regulations are being drafted by the Ministry of Energy, the Ministry of Finance, and CNH with the participation of other actors, such as the Ministry of Economy, which manages matters related to national content, SEMARNAT, and ASEA. In fact, CNH's Alma América Porres says the Commission has worked closely with the environmental agency, helping it with the regulations for deepwater activities. Pimentel explains that every party works in its domain under the Ministry of Energy’s coordination, which establishes the contracts’ terms, while the Ministry of Finance sets the economic conditions related to the fiscal terms, and CNH provides technical assistance in the selection of the blocks that will be tendered. The contracts, as legally stated, are reviewed by the Federal Competency Commission. “Evidently, there was an information exchange between the private sector and the Ministry of Energy as a consequence of the Five Year Plan. Companies of all sizes approach the Ministry to voice interest in certain areas they find appealing, as the Ministry can change the areas to be tendered according to the private sector’s interests. The private sector did have an influence in the round, as the authorities listened to suggestions as stated in the law.”

Many wonder how CNH will prepare to manage the deepwater round, considering that the bidding companies are international experts. Commissioner Héctor Acosta comments that CNH has qualified people to deal with the administration of these contracts and is also carrying out analyses to complement the talent it already has. The Commission will use financial resources obtained from the bidding rounds to carry out specialized consulting in order to support its activities and strengthen its capabilities as a deepwater regulator. In addition, Acosta says the authorities will continue working on adapting regulatory measures to the sector’s changing circumstances in order to avoid any conflict of interest

Acosta says the fourth tender is the ultimate test for Round One, given the characteristics of the competing firms, the level of investment, and the potential of the contractual areas, as these hold 11 billion barrels of prospective crude oil equivalent resources. “We are trying to guarantee success by bestowing as much information as possible about the contractual areas. Almost all of these have prospective resources and seismic information. In addition, we are taking a very agile approach to the modification of the tenders’ conditions in order to send signals of certainty to the market,” he comments.