News Article

Round One – L1: Shallow Water Exploration Blocks

Wed, 07/22/2015 - 10:25

Moderator: Gullermo García Alcocer, Chief of the Unit of E&P Policies at the Ministry of Energy
Panelist: Randal Stilley, President and CEO of Paragon Offshore
Panelist: Ricardo Arce, CEO of Grupo Mexico Oil and Gas
Panelist: Oscar Roldán, Director of Economic and Statistical Evaluation at CNH

Guillermo García Alcocer, Oscar Roldán, Ricardo Arce, and Randal Stilley

The moderator, Gillermo García Alcocer, began by asking panelists about the positive aspects of the first biddings round. Arce highlighted the evident transparency entailed in the process, and showed confidence in CNH and the Ministry of Energy maximizing participation in the following rounds. Roldán said, “It is true that the results were not what we expected, but this was not due to structural issues. Instead, I would point out to several restrictions from the government and the global situation affecting the industry. The media gave an unflattering impression of the round without digging into the structural issues.” Finally, Paragon Offshore’s Randy Stilley showed optimism because the lessons learned will be applied in subsequent rounds. “There are many opportunities moving forward from this round. As a drilling contractor, this is where my main focus is. An obvious element of this round is the impact of the global economic situation. In this sense, he most economically viable drilling programs are the ones that will thrive.”

Roldán pointed out that restrictions in the submission bases, such as partnerships and economic requirements, will ultimately impact profitability and thus the companies’ appetite for participation. “The market focused more on profitable areas that are easier to produce. We have to make information available before calling for submissions in order to reduce uncertainty. CNH already has all the data for the rest of Round One, and we are in the process of structuring it.” Along this line, García Alcocer commented on Block 7, which companies did not show interest in in spite of its geological attractiveness.  García Alcocer explained that this was the outcome of the governments’ view differing greatly from that of the industry.

Arce admitted seeing a selective industry in terms of the blocks that were bid on, concluding that the type of block will determine the type of company that bids for it. He suggested that the fact that only seven out of 25 companies that entered the round participated on actual bids could be the result of exaggerated requirements.

Gacría Alcocer proceeded to ask Stilley about the attractiveness of Mexico for international companies. The Paragon Offshore representative said, “Just because there is a dividing line between Mexico and the US does not mean the geology varies that much. There is plenty of interest in Mexico’s geological prospects. The first bidding round is important because of its historical implications, but the best is yet to come.”

When Roldán was asked about the implications of authorities removing barriers for the gathering and acquisition of seismic data, he pointed out that Mexico is in a technical transition. “There is plenty of information that has been gathered throughout many years, and now geological companies are actively requesting authorization to gather information.” He mentioned that there is data on over 20 deepwater blocks, which is valuable for companies. This data was gathered by PEMEX and is now managed by CNH. “The purpose of transferring data was to make the information available to private players with the goal of increasing participation.”

When Garía Alcocer asked Arce about the route Mexican companies might take to shift from service providers to operators, the Grupo Mexico representative stressed that not all service providers want to become operators. He did point out that Round-L3 will open the door of the oil and gas industry to many Mexican companies, as the requirements are lower than in the two previous rounds.

Stilley commented that the fact that PEMEX did not participate in the round was not a surprise. “PEMEX has its plate full with the fields it was awarded in Round Zero. Its absence from the round does not send a negative message, but it rather opens opportunities for others, contributing to a level playing field.”
To conclude, García Alcocer asked about the participants’ perspective on the future of oil prices. Arce said the current environment is allowing companies to evaluate opportunities with a conservative approach. Roldán gave an optimistic perspective by reminding the audience th

at Mexico has diverse resources, so it is possible to produce even if the price per barrel remains at US$50. However, this would halt the development of unconventional resources. Stilley made the last contribution, saying that the drop in oil prices made the industry focus more on costs. “The industry is always struggling with decline rates, and this will eventually fix the price of oil.”