Round One Outlook Remains Cloudy for Leading IOC

Wed, 01/21/2015 - 12:13

Shell sees Mexico as a long-term opportunity and the company is busy planning for upcoming bidding rounds over the next years. “CNH expects to have bidding rounds for the next couple of years. With this in mind, we are hard at work in Mexico and we are planning internally in order to be ready. Even if we lose on certain bids, we can rely on our workforce to prepare for the following tender,” explains Alberto De La Fuente, President and Director General of Shell Mexico. He adds that a company like Shell needs to complement itself internally. If the company’s Mexican office lacks certain technical competencies to prepare for a bidding round, the firm will seek support from its Houston office, which is constantly working on different projects around the world. De La Fuente would like to see Shell create a diversified portfolio in Mexico so that the country can become a priority area for the company’s growth and development, just like Brazil, Oman, and the US. “Mexico competes against other options around the world, so I would like the country to be a Shell heartland for the right reasons, including competitiveness and prominence. We will analyze the opportunities ahead by taking into consideration our shareholders’ outlook,” tells De La Fuente

The oil company is currently developing the Stones ultradeepwater project, among other deepwater developments in the Gulf of Mexico, giving it a definite advantage. Shell is involved in 11 out of the 15 deepwater fields in the US Gulf, producing 400,000b/d from these. Among them, the multinational operates Perdido, which is directly north of the analogous area in the Mexican Gulf. “The US is our reference on bringing expertise and knowledge to Mexico. Our work in Perdido in the US Gulf of Mexico is an excellent example of what we could do here,” states De La Fuente. While deepwater is definitely an option for the experienced oil company, it is also looking at opportunities in shallow water, heavy oil, and unconventional resources. “We cannot say no to an opportunity we have not looked into before, so we are analyzing all relevant indicators at the moment to evaluate if there is something we find interesting,” comments De La Fuente, who emphasizes that his company will make decisions only after considering the technical, economic, and legal aspects relevant to each opportunity. “Things will evolve because this dynamic market is new to Mexico. There will be many changes with consortiums and partnerships being formed depending on the opportunities at hand,” comments De La Fuente. He also points out that bidding processes around the world are usually headlined by companies uniting to bid on a specific opportunity while also agreeing to compete for other options. “That is the nature of the oil and gas business and that is how we would expect the process to work in Mexico as well.” As for any potential collaboration with PEMEX, De La Fuente acknowledges the huge advantage the NOC has due to its in-depth knowledge of Mexican assets and its technical expertise. However, while PEMEX will be considered as a potential partner for Shell, the IOC will view it just as any other oil company.

Given current oil prices, De La Fuente does not believe PEMEX will be able to participate in all of the 169 blocks being put up for tender while simultaneously handling its farmouts. “We might face a situation in which Shell and PEMEX could be competitors or partners, just as we are at the Deer Park Refinery,” says De La Fuente, adding that PEMEX might have an advantageous position in shallow water areas but is not experienced enough in deepwater and unconventional fields. “The magnitude of the opportunities is such that every player will be able to take a piece of the cake. In this industry, no company can go do it all alone. Companies joining forces will happen in future tenders.”

The current contract model states that, in case a consortium is formed, a company is obliged to participate with the same partners if it wishes to bid for multiple blocks in any given tender. Furthermore, it may be that these consortiums will be restricted in the number of blocks they can bid on. De La Fuente understands that the government is trying to create a very competitive market with many participating actors but Shell is evaluating the potential risks of this condition. For instance, if a company is only able to bid on five out of 14 available blocks, all companies might only bid on the most promising five blocks and abandon the others. “Unless companies analyze the opportunities in a radically different way, the situation could result in no one bidding on the other nine blocks,” he explains.