Alma América Porres
View from the Top

Shaping a Future for Mexico's Resources

Mon, 03/09/2020 - 09:00

Q: How have the recent changes in Mexico’s government and energy policy impacted CNH?

A: We are still working in the same framework since the constitutional framework remains unchanged. The 111 hydrocarbon contracts in place represent a stable base for our operations. The new government’s energy policy is focused on strengthening PEMEX. While future bidding rounds have been put on hold, this in no way represents a negative development from CNH’s perspective. In fact, we see it as positive for Mexico because we have attempted to reach this dual model where there are operators who have won contracts through licensing rounds, and PEMEX works with entitlements. Unfortunately, what had become evident in the last few years was that while PEMEX’s technical, administrative and project execution capacities met international standards, its financial capacity lacked support resulting in PEMEX’s struggle to meet its obligations and objectives for several projects, among them some of the Round Zero. There were external and internal factors that influenced the creation of these conditions, such as the global downturn in oil prices and PEMEX’s budget cuts in recent years. The current administration’s energy policy calls for the reversal of these budgetary limitations and greater fiscal support for the NOC. The majority of the commissioners have a favorable view of this policy and how it allows PEMEX to plan its working strategy. We have requested that the federal administration take an integrated approach toward the management of the country’s hydrocarbon prospective resources. Mexico’s prospective hydrocarbon resources total 112.9 billion boe, of which 22-23 percent have been assigned to PEMEX. This volume will remain unchanged. Apart from PEMEX, the contracts awarded in the licensing rounds represent only 11 percent of the prospective resources. This means that approximately 67 percent of Mexico’s total prospective resources are on standby, with nobody looking after the incorporation of reserves or their extraction. For this reason, we are calling for a more integrated approach one that is not structured around PEMEX or foreign operators, but rather one that takes a holistic view of the entirety of these prospective resources and takes the necessary actions to make them profitable for Mexico. Protecting Mexico's sovereignty and strengthening PEMEX are great ideas but in the end, an integrated vision is essential to develop Mexico's prospective resources.

Q: What has been CNH’s advice to SENER regarding the future of these prospective resources?

A: The awarding of the remaining 67 percent of these prospective resources must be put into action. This percentage is, in large part, composed of deepwater and unconventional resources. The latter represents a critical issue that needs to be resolved, where clear and effective communication by the government will play a key role. Unconventional resources represent an ever-increasing potential, as each new exploratory campaign seems to reveal greater volumes of available resources in these types of plays, but the political and social tensions that surround them must be very carefully addressed. However, our role as technical advisers, rather than politicians, is to communicate to SENER the importance of the potential these resources represent, as well as the importance of diversifying the country’s hydrocarbons production portfolio. More diverse competition would be a contribution as well. This includes crafting a much more concrete policy for the production and processing of natural gas, which will continue to play a significant role in the country’s energy mix. Therefore, a serious evaluation of the national production strategy is necessary.

Q: To what degree has CNH’s position and authority as a regulator of PEMEX changed as a result of the new administration’s policies?

A: The technical guidelines and standards we apply to PEMEX are the same as those we apply to international operators. Everybody participates on a level playing field and we have not treated PEMEX differently when it comes to our evaluation processes. Both PEMEX and private operators have to fulfill the same requirements, but not all within the same time frames. This means that in November 2018, PEMEX expressed to us a need to accelerate some of our evaluation operations in regards to the 20 discovered fields that have been listed as crucial in order to comply with production goals and accelerate the process of transitioning those fields into early production stages. Instead of following protocol, evaluation processes that can take up to 120 days had to take place in third of that time. Since then, our relationship with PEMEX has become closer. We have had to take a much more active role by holding frequent meetings to make sure PEMEX is delivering the required data on time and that this process runs as smoothly as possible.

Q: What is your assessment of the main challenges to reach Mexico’s production target given the lifecycle stage of the entitlements and contracts?

A: PEMEX’s portfolio is dominated by mature fields, and large operators tend to reduce investment in fields as production declines to levels that challenges profitable production. Smaller operators, however, still are very interested in these mature fields. Today, PEMEX holds 96 exploration entitlements and 16 entitlements for exploration and production that are currently in the evaluation and development stage. However, it holds 258 entitlements for production and 45 temporary entitlements for fields that have already seen steep production declines. In reality, of the 258 production entitlements, only 12 are in the beginning of the development stage as of now, 19 fields are currently producing without any decline and 13 have already been abandoned. All other production entitlements are already in decline, 214 in total. That means that PEMEX’s portfolio mostly consists of mature fields.

If we take the exploration stage in its entirety, there are an additional 111 contracts. Of which, some are moving rapidly from exploration or evaluation to development and production stages. The fields assigned in Round 1.2, such as the blocks held by Hokchi and Eni, are about to start production. This illustrates the difference between the PEMEX portfolio of largely mature fields and the private operators portfolio.

Q: What would the private companies like to see improved by the CNH?

A: Private companies are trying to cut down their timeframes toward production too. What they have asked for the most, however, is to have more licensing rounds. The companies have had a more direct interaction with the government, even with the president. This is something we do not seek to intervene in. The process has been very positive. The president has asked them to start production as soon as possible. When this becomes a reality, the government promised to put the licensing rounds back on the table.


Alma América Porres has broad experience in geophysics and the technical aspects of the oil and gas industry. She was appointed Commissioner at CNH in 2010 and is currently serving in the 2016-2022 term.