Understanding Field EconomiesMon, 10/23/2017 - 17:09
Q: How has Wood Mackenzie positioned itself in Mexico’s new business context?
A: Wood Mackenzie is a consultancy that helps operators and financial entities understand the economics of each field proposal and this requires our data and intelligence to be as objective as possible. We strive to make our information and intelligence 100 percent objective, which is the added value Wood Mackenzie brings to the table in these kinds of projects. Another added value is that all our analysis is done in-house with information developed in-house. All the information we provide comes from our internal analyses, including the prospects of the fields, and our data is not subject to what either operators or authorities say.
Q: Among Wood Mackenzie’s services, what proposals have you been emphasizing?
A: We have a database of economic valuations of oil and gas fields in Mexico and around the world that allow us to carry out an evaluation of those fields under different scenarios as far as upstream is concerned. We can calculate the CAPEX and OPEX under different scenarios and our clients can play with all those different assumptions. We are also inaugurating a new product on natural gas and power in Mexico, in which we do an analysis of the demand for energy and natural gas per region in Mexico, the interrelation with the US, the provenance of the natural gas and so on.
Q: Where are the greatest opportunities in the upstream oil and gas sector?
A: PEMEX farmouts represent the greatest opportunity for reversing the decline of oil and gas production in Mexico. Farmouts can certainly help the country make a direct change in this area. Of course, the blocks auctioned in the licensing rounds, especially in deepwater, have great projections but that is for the long term. In the near term, the most essential event for Mexico is the PEMEX farmouts.
Q: What is the best opportunity for investors in the Mexican oil and gas sector?
A: That depends on the kind of investment. The dynamic we are seeing now is that there is little market information on downstream areas, such as the transport and storage of products. Although there is little market information regarding midstream, there are many infrastructure investment opportunities. For small investment funds, the downstream sector for refined products is where a lot of activity is taking place and investments could be very profitable. Now, the boom is in refined fuel products.
Q: How competitive are the distinct fields PEMEX licensed in the last farmouts compared with other fields globally?
A: The PEMEX farmouts received a good response but participation was also moderate. This means there are certain legal and economic conditions that need to be improved to attract a wider range of companies. As far as the fields PEMEX has won in partnership with other operators, the NOC was very intelligent in its negotiations, offering the indispensable minimum amount of royalties and winning several blocks this way, while not leaving any money on the table. Its assessments and valuations were accurate, so it did not offer more than necessary. In my view, the farmouts need to improve their terms and conditions to attract other kinds of companies but the manner in which PEMEX crafted its proposals to win blocks was intelligent.
Q: How do you view PEMEX’s transformation in the course of the post-reform reality?
A: The new CEO has implemented great improvements, including greater control of the finances. There has also been a highly significant top-down initiative to prioritize partnerships with private companies. Also, the mandate before the Energy Reform focused more on production volumes, not economic value generation. The mentality had to change, which was not easy. PEMEX realizes that it should not produce for production’s sake. It understands it has to generate economic value and therefore start prioritizing projects. This mentality has definitely changed for the better and this top-down directive is what made the difference.