2016 Oil and Gas Summit: R1-L04, Transforming deepwater ambitions into projects and production

Moderator: Jaime Martínez, Business Development Director of ERM
Panelist: Javier Estrada, Director Oil&Gas at PwC México
Panelist: James Buis, District Manager Mexico of Nalco Champion
Panelist: César Acosta, Manager for Analysis, Regulation and Public Affairs of Statoil México
Panelist: Claudio César de la Cerda Negrete, Deputy Director General of Investment Promotion and Industry Liaison at the General Direction of Exploration and Extraction of Hydrocarbons, Ministry of Energy

Jaime Martínez, Business Development Director of ERM, began the panel by stating that deepwater is high risk but also highly profitable, hence the importance of risk management. 

Claudio de la Cerda, Deputy Director at the General Direction of Exploration and Extraction of Hydrocarbon at the Ministry of Energy, stated that there are several points in deepwater to take into consideration. The first is that oil demand will remain strong, and that deepwater accounts for 25% of global offshore production. Mexico has more than 20 billion potential oil barrels that the government is willing to bid on.  At the moment, there are 26 companies interested in participating on R1-L04 process in December.

Cesar Acosta, from Statoil Mexico, considers conventional wisdom a challenge for the country. He believes that the blocks that are going to be offered in the need to be correctly mapped, and that there is a need of creating a  friendly and predictable business environment. If regulation increases, company may restrain from doing business in Mexico. The energetic reform success must be measured by the number of wells that are explored in over the first  couple years. Mexico should have begun an exploration process years ago.

For Javier Estrada, who is the director of Oil&Gas at PwC Mexico, Pemex began taking some interesting risks regarding deepwater in the country. The presence of Trion on the Round 1.4 bidding process is important for attracting US enterprises. It is estimated that Trion will require an investment around US $11 thousand million. The participation of US enterprises poses interesting questions regarding the regulations. Mexico will need to implement practices that are used in the US, as well as the implementation of the same safety measurements.

James Buis from Nalco Champion stated that deepwater poses production challenges, and that the chemical industry can help in overcoming them. Cutting edge chemistry is needed to reduce costs. Working to improve the flow of fluids is one of Mexico’s biggest challenges, that is where most technology is focusing on.

After that, Jaime Martínez shifted the conversation to the appeal Mexico has as an investment destination. Cesar Acosta said that Mexico is very attractive and has great potential, but that the country is experiencing a hard time. Operator enterprises are living cost-reduction situations, and even though the country’s potential, Mexico must not forget that it is competing with other countries that are also looking for investment capitals.

The regulations are critical; they need to help the industry to reduce costs of production, by being efficient and economical. In a scenario wherein exploration is high, the industry revives. Without exploration there is no discovery and without discovery there is no royalties.

De la Cerda, stated that the world oil industry has been waiting for the Mexican industry to allow private participation. The government is working to renovate regulations and set them at the same level as international standards. Pemex, considering its restrictions, has proven it has the necessary technologies to succeed in the industry.

Trion’s importance on the bidding process was discussed on a deeper level. Javier Estrada stated that any development on deepwater implies high costs. Trion’s proximity to the US will help US companies to initiate scale-economies and might accelerate early production. However, common regulations between the US and Mexico are needed. Mexican authorities also need to realize that alliances are not only about economic terms, and they pose interesting challenges such as defining who will be the operator, which are the responsibilities of companies. Trion will take us to a new level of regulations.