'Unprecedented' Opportunity a Clear Attraction

Q: What elements of the Energy Reform attracted you to the Mexican market?

A: When the Energy Reform was first announced four years ago, we took an interest and were among the first foreigners to come to Mexico and investigate the opportunity. We quickly learned that the situation really was unprecedented, that this was a historic reform on a scale that was unheard of anywhere in the world. Obviously, PEMEX had been a national oil and gas company for 80 years and we discovered the government had created a transparent, investor-friendly environment for companies to pursue business opportunities. In particular, we found the opportunity represented by the quality of the assets was in many cases exceptional, in particular onshore, where our focus is.

Many of the fields had been under-capitalized, underdeveloped and for Canadians such as ourselves, the Energy Reform represented an opportunity to use current technology, provide foreign investment capital and in partnership with the Mexican government create a winning strategy in the oil and gas sector. The scale was what really interested us. The Mexican government was creating opportunities not only for the super majors in deepwater and large companies in shallow waters; it was creating opportunities for small, medium and large companies onshore. For a company like ours, whose team has worked globally, this was a perfect opportunity.

Q: What made Grupo IDESA the perfect choice as a local partner?

A: Although we have worked in Latin America, Asia, Africa and throughout North America, we realized that it is critically important to have a strong operational and executive team with a history of success in Mexico on the ground. We chose to seek out a local partner with a strong track record. We met with many companies early on and we had the good fortune of being introduced to Grupo IDESA, one of the leading petrochemical companies in Mexico with a long history of success in the downstream petrochemical business. We began discussing our business strategy for becoming an energy leader in Mexico. We felt that if we could combine the talent of Mexican business people with Canadian knowledge of the oil and gas industry that we could create a strong joint venture. As a result, we could combine our strong technical expertise and knowledge of upstream oil and gas, with IDESA’s track record of government relations, regulatory work and building large projects from scratch. Obviously IDESA has a strong interest in the energy sector and a great relationship with PEMEX.

Q: How do you plan to improve the Tecolutla field’s productivity?

A: This field was drilled between 1956 and 1957 and technology obviously has changed since then. In that period there was no 3D seismic, for example. Now, there are new and enhanced recovery techniques, engineering design and equipment. But we also have new human capital that knows what is below the ground, what is above the ground and how to ensure top productivity and recovery in a field like this. We have been able to take a technical team that has a history of success and apply that human capital and expertise. We believe that this field can be highly productive as pressure is as good as it was back in the 1970s with thick pay zones. These kinds of fields cannot be found in the US and Canada anymore, which is what makes Mexico attractive. In many cases, a field like this would have been drilled out over the last two decades if it was in Canada or the US. PEMEX is focused on the larger assets and the major discoveries, leaving these kinds of opportunities for companies such as Tonalli.

Q: What have you learned from the Tecolutla process that you hope to apply to the licensing rounds?

A: We have learned a great deal about the regulatory process in Mexico, which is very different than in Canada and which has been a lot of work. The regulatory agencies here are very thorough and the process is all new to them. They are learning at the same time we are, so this process should become easier, making it less expensive for us in the future.