Revolutionizing PEMEX to Become a Productive Enterprise

The legal and fiscal modifications to the Constitution brought about by the Energy Reform will reshape PEMEX’s operating framework and areas of focus. Edgar Rangel Germán, Commissioner of CNH, has been contemplating the upcoming changes that the Mexican oil and gas industry will undergo and PEMEX’s transformation as the secondary laws kick in. First and foremost, he believes that Mexico’s natural gas deficit demands a “gasification” of the country. Even though natural gas is not as profitable as oil, he stresses the need for the country to extract its potential gas resources to trigger the development of other industries including the petrochemical, chemical, cement, and steel industries among others. “Increasing domestic natural gas availability will facilitate the industrialization of Mexico. I have been calling for the gasification of Mexico because I believe that the value of putting gas on the table is critical. CNH will help Mexico attain that goal,” states Rangel Germán. Moreover, he estimates that the relevance of mature fields in the country’s overall hydrocarbon production will play an important role. “In order to increase Mexico’s oil production, mature fields must be taken advantage of since these can serve to boost production through the application of IOR and EOR technologies, so we need to use the new contracting models to attract companies specialized in revitalizing mature fields.” On the other hand, medium to long-term solutions to increase oil production will depend heavily on the incorporation of reserves from deepwater and shale reservoirs and putting these into production through partnerships between PEMEX and the private sector.

“There is a huge amount of resources in the deepwater areas of the Gulf of Mexico as well as potential conventional and unconventional reservoirs within the states of Chihuahua, Coahuila, Tamaulipas, and Nuevo Leon, and PEMEX has just explored a tiny fraction of it all. For this reason, I would venture to say that PEMEX should keep the majority of its producing fields, but a smaller share of the exploration areas that are not fully understood yet,” says Rangel.

Rangel explains the Constitutional terms by which the federal government will determine which areas for exploration and production PEMEX will keep after Round Zero. He points out a specific characteristic that is included in the 6th Article, which is related to the depth at which exploitation will take place. According to Rangel, this paragraph says that apart from the state’s power to say what PEMEX will keep, it will delineate at which depth the company will be able to operate. Therefore, areas can be delimited and separated from one operator to another, according to different depth ranges. “This will help to define the different geologic formations that operators can explore and develop. This is the first vertical split. Then, the government will use the areas and fields it decides to keep in order to carry out Round One, Round Two, and the subsequent rounds. Mexico has a huge amount of unexplored resources: 60 billion boe of unconventional, 28 billion boe of conventional, and 27 million boe of prospective deepwater resources. These amounts are much larger than anywhere else in the world in terms of concentration and geological understanding,” Rangel outlines. After Round Zero, there will be a round in which PEMEX can offer fields for joint ventures under farmout agreements. “This will concern ultra-deepwater fields, shale oil fields, and extra-heavy oil fields. In that case, the government would determine the partners and the Constitution points to CNH to handle this process,” claims Rangel.

Rangel is certain that PEMEX will partner in every exploration project in deepwater. “One of the most important factors for such a decision is based on managing the geological risk. This aspect is 60% of the work. The remaining challenges deal with technology application, technical experience, and financial and operational management. Geological risk is a key factor that must be well-dominated but very few companies have geoscience divisions with experienced professionals in charge of frontier areas. At the same time, not many firms have the right expertise to manage all of the geological information available in order to minimize exploration risk. This includes PEMEX, which still has to close the gap in that respect,” says Rangel. “By partnering with companies that have the right experience to undertake exploration projects in the Gulf of Mexico, PEMEX will be able to learn and grow as a company.” In essence, Rangel states that, in order for the new productive enterprise of the state to become the successful company it aspires to be, it must partner up for every opportunity in areas deeper than 600m.