Matt McCarroll
President & CEO
Fieldwood Energy
View from the Top

US Experience Invaluable for Mexican Offshore

Wed, 01/20/2016 - 13:12

Q: What are the particular traits of Fieldwood Energy that have led to the success of Fieldwood Energy?
A: Fieldwood Energy is the largest operator in the shallow waters of the Gulf of Mexico. Our goal is not to be only the largest but also the best company in this sector. The company’s staff is largely composed of former Apache or Dynamic Offshore employees who have spent a large part of their careers working in the Gulf of Mexico. The employee base has grown significantly, both organically and through acquisitions, increasing from three employees three years ago to the current 750. We have operations in over 500 leases in the Gulf of Mexico, and employ approximately 2,500-3,000 every day through our partnerships with vendors and contractors. In our view, the operational opportunities in Mexico are similar to those of the US side of the Gulf. We are confident that we can apply our drilling, completion, production, and infrastructure expertise in the US to the shallow waters of Mexico.

Q: What would be your flagship project when entering new markets like Mexico?
A: In the US, most of our projects are mature fields that have been in operation for several years. In the past five years, we have made a few new discoveries, but I would say that at least 80% of the productive fields we have today are fairly mature. In the past couple of years, we have drilled new wells in the existing fields, but for the near future, we plan to focus on the two Area Four fields that were awarded to us in the bid round, which were discovered by PEMEX in the last ten years but were never developed. These fields are located at a depth of 100-150ft, so they are operationally similar to those in which we work in the US. Over the next couple of months, we will be finalizing an appraisal plan that will outline our plans to drill two or three wells. Once those wells are successfully drilled and tested, we will commence an aggressive drilling and development program over the next three to five years, depending on the fields’ potential.

Q: What has been your experience with mature field development in the US?
A: For the last 25 years, people have believed that shallow waters in the Gulf of Mexico are running out of reserves.

Nevertheless, every year over the last three years, we have increased reserves and production in fields throughout the last leg. We are always finding new ways to make use of our older infrastructure. For example, we have tied back many new discoveries to older platforms, which significantly reduces the amount of new capital required. Due to the commodity price environment, we are not drilling many new wells in the US, but while we wait for the right opportunity, we have identified many new drilling targets in some of our existing fields. Particularly, we see great opportunities in undrained fault blocks and salt domes, and once the oil and gas prices recover we will be ready to develop these new opportunities.

Q: How do you manage to acquire more assets and maintain your productivity in the current environment? A: We have the fortune to possess assets that have a great deal of proven reserves, so we have been able to maintain production simply by accelerating our recompletion program in existing wells. Most of our fields have more than five or ten years of proven reservoirs, and 40% of our proven reserves are identified in existing wells. When a well in an existing field is depleted, we can move up hole and perforate or recomplete a new zone. Until we see a recovery in commodity prices, we plan to follow that strategy to maintain our production levels for the next couple of years.

Q: What is your perspective on the process and schemes used by the Mexican government for the bidding rounds? A: We were first attracted to the Mexican market by the opportunity to develop offshore assets that have not had a great deal of capital allocated to them. PEMEX is an extremely successful company with a number of qualified staff, but we and other US operators feel that we have been able to implement much more efficient processes in the US. Therefore, we saw a major opportunity to apply our expertise in the shallow waters off the Mexican coast. The contract for the Mexico properties is complicated and unlike anything we are accustomed to the US. For example, under our contract for Area Four we will spend all of the money upfront, recover the costs after first production, and the government will receive a 74% profit share thereafter. In the US, we only provide a bonus amount upfront and a fixed royalty share. Although it will take some time to resolve the nuances and provisions, we are excited to partner with the Mexican government to make this a successful endeavor for all parties involved.

Q: What are the opportunities that you see in Mexican shallow waters that are not available in the US?
A: One of the most attractive characteristics of the Mexican shallow water fields is the cost structure. Offshore fields have a high degree of fixed operating costs. In other words, it costs relatively the same amount to operate a platform producing 100b/d as one that is producing 1,000. An average Mexican well can produce up to 1,500b/d, which provides ample revenue to cover the fixed platform costs. Considering this landscape, our goal is to operate as much production as possible from as few platforms as possible. Furthermore, we expect to share some of the existing infrastructure with PEMEX, so we do not have to duplicate pipelines and facilities. The handling and disposal of the produced water is a challenging aspect of offshore oil and gas activity, but we have effective processes in place in the US to do so in an efficient manner. To our knowledge, these services are not currently available in Mexico and we feel that this is a great opportunity to introduce a more efficient process to protect the environment 

Q: How has your experience with CNH and PEMEX been in terms of trasnparency and information sharing? 

A: Our primary contact for information has been CNH, which provided us with the initial data for our bid analysis and we have worked directly with the agency to gain access to additional information. This is a new venture soMY there have been certain trials and tribulations but I feel likeCY we have solid working relationship so far. Our discussionsCMY with PEMEX have been limited as it is focused on its own operations. However, we see a great deal of potential to develop joint operations with the NOC as it has a number of oil fields located near ours. Although we have been extremely happy with the support that we have received from the Mexican agencies, I think all of the processes could be accelerated slightly since we did not sign the contract until about three months after the bid round. We would like more shallow water blocks to be introduced sooner to accelerate the PEMEX farm-out project opportunities, and clarity in this regard will increase activity in shallow waters.

Q: What kind of reservoirs are you interested in acquiring through PEMEX farm-outs?
A: Our specialty is to take mature fields, recapitalize them and increase their lifespan. We think we can apply many of our production processes to their fields in order to increase profitability. Additionally, the new seismic technology developed over the last 20 years has allowed us to fine tune our analysis and increase the amount of recoverable reserves from reservoirs. Applying our knowledge to older, existing PEMEX fields could offer a great deal of advantages. We have already identified some fields that we are interested in but we need to wait and see how the process and terms develop.