2016 Oil and Gas Summit: COPFs & CIEPs, Timeline and industry impact

Continuing our second day of Mexico Oil and Gas Summit 2016, Gustavo Hernández, the Director of Prospective Resources, Reserves, and Associations at PEMEX E&P begins a presentation on COPS and CIEPS, for which he offers a timeline and analyzes the expected impact on Mexican operations.

Having witnessed the materialization of the Secondary Laws in 2014, Hernández explains the basis of the activities in explorations and operations. He states that 9 percent of field assignations produce more than 75 percent of crude oil, and 35 percent of natural gas. These fields receive 55 percent of the investments from Pemex Exploration and Production (PEP). “On the other hand,” he continues, “5 percent are in Financed Public Work Contracts (COPS) and Integral Production and Exploration Contracts (CIEPS).”

After his overview, the Director of Prospective Resources, Reserves, and Associations demonstrates the reason for said assignations. PEMEX E&P has made Mexico’s expertise in shallow water clear to the world. Campeche stands out as a concentrated area for this production area.

“We have a balanced project portfolio, which we want to hold on to,” Round Zero ensured the company could identify the most effective sites, and clarify objectives. This analysis showed the additional potential that any field might have to increase short-term production.

Hernández states that Mexico has a large amount of mature fields, of which more than half their potential has been extracted. This shows the extensive expertise that the country has in oil and gas extraction. Moreover, these mature fields have been mapped against virgin oil fields, and the territory continues to have plenty of potential.

“Creativity has been a recurring theme in the company,” he continues, to demonstrate how PEMEX is innovating in field exploration. New processes are beginning, such as associates and partnerships. Crucially, PEMEX wants to migrate toward an exploration and extraction contract (CEE) with partner companies.

The existing 22 COPS and CIEPS should be transferred to CEEs, which would share profits, risks, and knowledge most importantly.

Round 1 explored shallow waters and onshore fields separately in line with the new processes. Reflecting this, the previously used COPF and CIEP contracts will shift to CEE following negotiations with existing associates or new partnerships. Hernández clarifies that COPFs and CIEPs have different maturity levels, of which six areas are non-conventional CIEPs, and 16 conventional fields divided 10:6 between CIEPs and COPS.

Expounding on the overview of CIEPS and COPS, the Director focuses in on the total CIEPS for crude oil. In 2014, these reached a high of 46 million cubic feet. In gas fields, CIEPS wells reached 269 million cubic feet and COPS in the same year topped 212 million cubic feet. To date, these productions have dropped across the board, and possibly need injections of new technology and competition. “The assignations already operating under CIEPS and COPS have the potential to be exploited from several perspectives.”

“The potential that PEMEX has is incredible, and we need to maximize the production with the latest technology.”

Fracking, as needed in new areas, will require non-conventional teams and solutions. Hernández states that there are possibilities of extracting resources from several wells from one location. Today, conventional wells can take up to 10 months to complete operations. However, state of the art technology is allowing companies to complete projects in 5-20 days.

PEMEX is working on valuing projects with new pricing scenarios. As prices have dropped, the entity will have to ensure these COPS and CIEPS are profitable, through reducing costs. His colleague Rodulfo Figueroa previously stated that costs are enviably low, but can always be reduced. The programs are being adjusted to the new state of the industry, reiterates Hernández.

The company will present cases that take changing economic premises into account, as well as an adjusted development plan, risk reevaluations, fiscal incentives, and the value of exploration blocks.

The Director states that PEMEX E&P needs flexibility from the state, and agility during the migration process. The regulator, CNH, must also ensure efficiency to ensure that PEMEX E&P can join forces with a competitive business associate. The company’s responsibility will be to offer attractive long-term cases, specifically those in which PEMEX can offer competitive advantages. Hernández comments on the company being open to handing fields in which they cannot maximize the potential over to companies that can do so.

Through intelligent decision making and teamwork between CNH, PEMEX E&P, and the State, oil fields can be better exploited, and the three entities can reach a state of perfect information. The offering of increased data availability will allow the country’s industry to grow, as well as PEMEX. Hernández points out their intention to promote technology transferal and business development.

The company aims to be the best option with whom incoming companies can create partnerships.

PEMEX offers advantages because of its long experience, as well as existing infrastructure for transport. Its economies of scale permit more efficient costing for exploration and extraction operations. A closing note refers to the communities located near to operational wells, and job creation as a socioeconomic point as to how the company gives back to society.

The company is secure in its employee retention, and confident it has the right personnel and the best training programs for those who need to close the gap in their knowledge.