NOCs Strive Through Price, Production Challenges

Cautious optimism and determination characterized talks at the National Oil Company Forum hosted by Pemex Director General José Antonio González Anaya at the AAPG/SEG International Conference and Exhibition in Cancun recently.

“Pemex has a long term, historic opportunity,” González said, referring to Mexico’s energy reform that President Enrique Peña Nieto initiated in 2013. He noted how, up until that point, joint ventures in Mexico were both impossible and unconstitutional.

“Before the reform only Pemex could explore, produce, drill and sell petroleum,” he said. “Now any company can do so. This is a huge change.”

González added that, while he supports the reform, he understands the transition comes at a challenging time for the industry, both in Mexico and worldwide.

“Production has been declining steadily in the past 10 years,” he said, “we have to figure out how to produce more.”

González spoke following presentations from Ecopetrol, Petrobras and Saudi Aramco executives, each of whom talked about how their companies have made tough choices during challenging price environments.

“I feel like we’re not in such bad company,” he said.

A Challenging Start

The 49-year-old MIT and Harvard-educated economist joined Pemex in February 2016 when the world oil price hovered around $29 per barrel.

“When I arrived, we had to make drastic adjustments,” he said. “We had been planning based on $50 a barrel, which was less than the current price on the global market. We clearly had to make a very large budget cut – about 20 percent of overall budget.

“To you it may sound like every day conversation, for us it was deep change,” he said to the audience.

González and his team implemented a series of austerity adjustments and reassessed investments to limit impact on production.

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Cautious optimism and determination characterized talks at the National Oil Company Forum hosted by Pemex Director General José Antonio González Anaya at the AAPG/SEG International Conference and Exhibition in Cancun recently.

“Pemex has a long term, historic opportunity,” González said, referring to Mexico’s energy reform that President Enrique Peña Nieto initiated in 2013. He noted how, up until that point, joint ventures in Mexico were both impossible and unconstitutional.

“Before the reform only Pemex could explore, produce, drill and sell petroleum,” he said. “Now any company can do so. This is a huge change.”

González added that, while he supports the reform, he understands the transition comes at a challenging time for the industry, both in Mexico and worldwide.

“Production has been declining steadily in the past 10 years,” he said, “we have to figure out how to produce more.”

González spoke following presentations from Ecopetrol, Petrobras and Saudi Aramco executives, each of whom talked about how their companies have made tough choices during challenging price environments.

“I feel like we’re not in such bad company,” he said.

A Challenging Start

The 49-year-old MIT and Harvard-educated economist joined Pemex in February 2016 when the world oil price hovered around $29 per barrel.

“When I arrived, we had to make drastic adjustments,” he said. “We had been planning based on $50 a barrel, which was less than the current price on the global market. We clearly had to make a very large budget cut – about 20 percent of overall budget.

“To you it may sound like every day conversation, for us it was deep change,” he said to the audience.

González and his team implemented a series of austerity adjustments and reassessed investments to limit impact on production.

They implemented a new strategy for the Perdido fold belt, a deepwater basin near the U.S. border that Pemex previously planned to develop alone.

“We didn’t develop (the basin), and there’s no budget to develop it, so we have to find a new way,” González said.

The company is preparing to have a joint venture in the basin’s Trion field in December.

“Instead of not doing the activity, we are now doing the same activity in a different way, he said. “We are going to do them like everyone else does.”

Accelerating Implementation

González’s plans include improving Pemex’s financial situation.

“We have to accelerate the implementation of the legislative changes that took place, which will help to increase reserves, increase production, improve fiscal regime,” he said.

González noted that Pemex has close to 23.9 million barrels of proven, probable and possible (3P) reserves in its 490 assignments. He estimated 500 million barrels of 3P reserves in Trion field alone.

“There’s no question that the oil is there,” he said.

González described Mexico as an attractive place to do business. The country’s proximity to the United States, particularly South Texas, provides advantages. The southern Gulf of Mexico has great potential, though it has not been explored as much as the northern portion.

“When you look at a map, you can tell where the border is because that’s where the drilling activity stops,” he said, “But God didn’t draw the borders.”

González said that new partnerships and new technologies will help the company continue to develop the fields in the Campeche Sound, home to the country’s emblematic Cantarell well, named after a fisherman who complained about finding oil in the sea.

Pemex has increased investment in the area sixfold in the past 15 years.

“Geology gets more and more difficult as time goes on, so you have to look harder and harder,” he said. “Perhaps we didn’t start early enough; perhaps we did.”

* * *

Lowering exploratory risk and maximizing portfolios were common themes throughout the NOC Forum, which featured presentations from Colombia, Brazil and Saudi Arabia.

Ecopetrol: Eyes on the Offshore Prize

Max Torres, vice president of exploration for Ecopetrol, showed maps of company assets in deepwater and ultra deepwater areas of the Colombian Caribbean.

“That is where the action is,” he said.

Torres projected that in the next 10 years, Ecopetrol’s portfolio will be 50 percent onshore and 50 percent offshore, 50 percent oil and 50 percent gas.

Current activities include preparing to drill a deepwater prospect on the Purple Angel Block, an appraisal well with partners Statoil, Anadarko and Repsol, a new play prospect operated by Repsol and an Ecopetrol operated shallow water prospect in partnership with the Oil and Natural Gas Corporation.

Petrobras: Prioritizing Pre-salt

Mario Carminatti, executive manager of exploration for Petrobras, shared how industry is shifting the focus from production growth to value generation, including competitiveness and cost reduction.

“Petrobras is following the trend,” he said. “We are using our extensive database to lower the exploratory risk.”

Carminatti described how the company is taking advantage of the outstanding productivity of the country’s pre-salt reservoirs, a priority due to their high profitability.

“Pre-salt is the most competitive play in our portfolio,” he said, noting that Petrobras deployed more than 1 million barrels per day in pre-salt reservoirs in July 2016.

Carminatti also noted how Petrobras is working closely with Brazil’s National Agency of Petroleum, Natural Gas and Biofuels to move the regulatory agenda.

This collaboration is increasingly important as demand rises, Carminatti said, noting that Brazil is the world’s fourth largest consumer of automotive fuels.

Saudi Aramco: Unconventional Exploration

Ibraheem Assa’adan, vice president of exploration at Saudi Aramco, shared how his company, which produces one in eight barrels of the world’s oil supply, is exploring strategies for staying competitive in changing markets.

He described exploration efforts in Rub’ al Khali and the Red Sea, two of Saudi Arabia’s least explored areas that have huge potential. There are also challenges, including massive sand dunes reaching up to 700 feet in height, and complex Red Sea bathymetry that makes seismic acquisition and data processing an onerous task.

Assa’adan noted that Saudi Aramco started an unconventional resources program three years ago.

“Gas is becoming a major component of the energy mix, and we’re trying to use it as much as we can to substitute other hydrocarbon forms,” he said. “We feel it’s a matter of time until we get a good handle on the cost.”

Aramco is exploring tight gas in the northern part of Saudi Arabia, and they have set up technology development centers across the world to establish a global network.

Continued Partnerships

González said he hopes to see enhanced collaboration in the future.

“It’s going to be an interesting time for Mexico, and it’s going to be an interesting time for Pemex. That is why we are so excited about being a part of this change.”

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