Talanza Energy: Smoothing the Road to ComplianceBy Peter Appleby | Thu, 08/20/2020 - 09:26
Q: What was the impetus behind the founding of Talanza Energy and what is its value proposition?
A: Talanza Energy was founded in March 2017 because we knew that companies would face many regulatory obligations, a burden that many companies were not yet prepared for. This was mainly because these companies were new, having sprouted during the Energy Reform. These were companies along the supply chain that required permits to carry out their work, or to become operators, which work through contracts.
During that time, I had been working in Mexico’s energy sector for about 15 years, at the Ministry of Energy, the National Hydrocarbons Commission (CNH) and the Ministry of Finance. This gave me a view into a hermetic sector where PEMEX decided who did what along the value chain. I was witness to the first attempt to open the sector to private companies after the arrival of President Felipe Calderón with the incentivized service contracts for E&P in 2008. This gave service companies access to payments according to their performance, with consideration given to PEMEX joint ventures for transboundary reservoirs that may be shared between Mexico-US, Mexico-Guatemala or Mexico-Cuba. This was a timid opening.
I was later involved in CNH from its inception, and after almost five years moved back to SENER as the Director General for E&P during the enactment of the Energy Reform. My involvement varied from the institutional change that was required, to legal definitions, regulations, bylaws and seven of the first nine bidding rounds in Mexico.
All this experience led me to found the company. Talanza Energy consists of a team with a strong technical background, with experts from geology and geophysics, to top-level lawyers and some of the best petroleum engineers in the country. But one of the major criteria for working with us is having played a prominent role in the design and creation of the new energy model and having experience working for the government in the regulatory approval process.
This mix of technical expertise and intimate knowledge of the governmental rationale, processes and permitting means we can ensure our clients are compliant with regulations in the fastest way possible. We know exactly what companies must turn in for any regulation or approval. We mainly review and recommend steps to build documents for the fastest route to approval. This route is the government’s route, and our fluency in the governmental language is very helpful. This can be difficult even for Spanish speakers.
Q: What are the firm’s standout successes of its years in operation?
A: Talanza Energy has worked with super-majors’ companies working in deep water of the Gulf of Mexico. We have helped them with all of their regulatory compliance procedures since day 1 until they were ready to drill their first well. We would review our clients’ compliance and raise flags when we found something that was considered on the margins of acceptability. They would then correct and polish the document so that it could win approval on the first attempt. This knowledge exists thanks to the experiences we already have in Mexico, and can therefore save time and money for our clients.
Of course, judgement in public service can be very subjective because it depends on the employee who is reviewing the project. We make sure that this subjectivity does not come into play. This is vital because, with the government changing every six years, new staff and new rules enter. This increases the cost of compliance for businesses. At the moment, we are also involved with oil and companies that are emerging as new operators in upstream and midstream sectors, although their process were delayed due to the pandemic. We have completed an auditing exercise with these clients to see the information and data they have received. We have noticed that many companies are not being very serious about how to protect and conserve information that demonstrates their compliance. Poorly maintained compliance records are dangerous and can be problematic in the future, so we press for better record-keeping.
Unlike other compliance firms, Talanza Energy explains to its clients that our relationship will not go on forever. We have a start and end point, and within that time the client’s team will be trained on how to keep pristine regulatory compliance practice and records so that it can be independent from third parties in the future. A growing area for Talanza is midstream and we are working with companies building storage facilities. Industrial groups have plans for terminals nationwide, and we are helping them with regulatory compliance on these plans.
Q: How can Talanza Energy provide strict compliance during the price pressures of the industry downturn?
A: Talanza aims to make compliance as efficient as possible. To this end, we have developed a SaaS tool, Regtech, that we have just begun to sell licenses for. This grants users their own cloud (or local) hosted site for a personal regulatory space that can reduce the need for interaction with consultants, and therefore reduces costs. We have several Regtech users already, including leading operators in Mexico. Talanza is delighted to have clients that work in partnership with PEMEX for appraisal and development activities in deep water projects. They may be the first to deliver production from Mexico’s deepwater environment. We are not talking only of major companies, but also that have intimate knowledge of compliance. We are delighted to have them onboard. We are also in talks with other super-majors, as well as smaller companies.
With a monthly fee per use, Regtech is a low risk alternative in comparison to other compliance platforms, which require a high upfront payment. Considering the governmental expertise and personalized service we offer; we believe our costs are extremely competitive. Regtech is suitable for the “new normal” period that we are moving into. Companies will need to minimize meetings with the government bodies, with industry authorities and with other consultants or law firms. All regulatory data a company must review is accessible on Regtech.
Q: How could permitting be adapted to allow Mexico to reach its energy goals quicker?
A: When the current government took office there was a loss of trust between the public and private sectors. In the previous administration, there was a strong confidence between the two. Public servants had an interest in reaching out to the private sector to ensure that what Mexico was planning would be appealing to them so that investments would arrive to the country. The process was an enriching one for the government and for smaller companies in Mexico.
This has been lost and we understand that the government is not very open to speaking to private companies or addressing their concerns. While high-level public servants are invited to various industry events, they generally do not attend. The eagerness to solve problems no longer exists. We will not see any more bidding rounds, but the government needs private investment because PEMEX is broke. It has a debt of over US$100 billion. To spend more of the federal budget on oil exploration is ridiculous: Mexico needs more schools and hospitals first. Therefore, I would expect more farmouts to happen soon.
CSIEEs contracts are being spoken about but they are service contracts and will not deliver what Mexico needs. We had the same experience in the Calderón administration in 2008 with the CIEPs. The two models are effectively the same. Whereas in Calderón’s administration any other contract model was illegal, now it is not. We can use any type of contract because the Constitution has been changed. While the CSIEEs will not invest in major proven oil companies, the usual suspects will go for them. These will be service companies that do not have an adequate business model to manage risk.
Q: What are Talanza’s main objectives?
A: Regtech is our focus for the rest of the year. We believe that Regtech will change the way the industry complies with regulations. We have the platform set for upstream and are currently customizing it for the midstream. We are also working on a government platform we call Ventanilla Unica (One-Stop Shop) that will be targeted at the energy sector at a national level. This will be a complete compliance management system, where private companies can have transparent access to every aspect of a project they must comply with. With this, we hope to make communication between the public and private sectors more efficient, as the government is reducing its size.
Talanza Energy is a Mexican compliance consultancy founded in 2017. The firm takes oil and gas operators by hand and walks them through government and regulations in order to avoid unnecessary damages like penalties and delays in complying with all of the requirements within the law.