In a world with shifting politics, fluctuating commodity prices and economic uncertainty, Mexico’s energy sector provides promise.
So affirmed Gaspar Franco, one of seven commissioners at Mexico’s National Hydrocarbons Commission (CNH), the authority tasked with bidding, signing and regulating hydrocarbon contracts and advising Mexico’s Secretary of Energy.
Addressing students and professors at the National Autonomous University of Mexico (UNAM)’s Earth Science Days in Mexico City recently, Franco explained how the nation’s energy reform is transforming industry today and offering opportunities for the future.
“In Mexico we have everything that could exist, deep water, shallow water, shale gas and more,” he said. “The geology is very diverse.”
The government made a variety of fields available during Round 0, the bid round organized exclusively for state-owned company Petróleos Mexicanos (Pemex).
Franco explained how Round 0, held in August 2014, provided the opportunity for Pemex to select areas of interest for exploration and production. CNH awarded Pemex 100 percent of blocks requested for extraction and 67 percent of areas requested for exploration.
The next step was Round 1, a series of four auctions conducted over a two-year period.
Franco explained that the CNH wanted to strike a balance when deciding which contracts to auction. Offering large deepwater projects at the outset could create the impression that the government was only interested in attracting large foreign companies. Offering only small blocks could make some think that the reform was designed for small operators or Mexican companies only.
The solution was to offer a diversified round, with options available for large and small operators, he said.
At the time of the UNAM talk in November, CNH had completed three of four auctions in Round 1, which Franco deemed successful overall.
He noted that of the 44 contracted areas, 30 have been finalized and signed. Seven operators or consortia other than Pemex are producing in 23 areas.
“They are operating, paying royalties to the state and producing oil,” he affirmed.
Deepwater Bid Round
The final phase in Round 1 focused on deepwater and involved several firsts, including Pemex participation.
“Obviously Pemex can bid whenever it wants, but the first time they decided to do so was in Round 1,” Franco said.
The deepwater auction held Dec. 5 gave Pemex the historic opportunity to seek a partner to operate in the Trion field in deepwater Gulf of Mexico, near the U.S. border.
Franco noted that partnerships, prohibited prior to the 2013 Energy Reform, allow Pemex to operate like companies throughout the world.
“In these types of projects around the world, not even the largest companies operate alone,” he said.
Round 2, initiated in July 2016, marked Mexico’s first shallow water bid round. In bidding 1, CNH offers 15 contracted areas in the Tampico-Misantla Basin, Veracruz Basin and Sureste Basin. In bidding 2, CNH offers 12 contracted areas, nine in the Burgos Basin, two in the Chiapas fold belt and one in the Sureste Basin. In bidding 3, CNH offers 14 contracted areas in the Burgos Basin, Tampico-Misantla Basin, Veracruz Basin and Sureste Basin.
Round 2 is part of a five-year plan that the CNH has implemented to ensure that Mexico continues to develop reserves and to maintain financial stability long-term.
“We need to figure out how to have a margin independent of the oil price,” he said.
During his talk at the UNAM, Franco projected maps showing more than 1,400 reservoirs, including black oil, volatile oil, gas condensate, wet gas and dry gas.
He described how the Commission aims to help Mexico reach its potential through the five-year plan, which is designed to help companies participate in production of both conventional and unconventional exploration projects.
Extraction projects focus on 237 oil fields: 169 onshore, 12 in Chicontepec, 39 in shallow water, four in deepwater and 13 heavy oil fields.
Exploration focuses on 72 conventional areas: 29 deepwater, 17 shallow water, 26 onshore and 24 unconventional areas including five in the Burgos Basin, two in Burro-Pachos and 17 in Tampico-Misantla.
The fields available provide numerous opportunities both for Mexican companies familiar with the geology and foreign companies bringing outside expertise to areas not previously explored.
Benefits of the Reform
Franco noted that progress is being made, and quickly.
“In the past two years, we have had more seismic run than in 70 years prior,” he said.
He explained how, in addition to opening Mexico to outsiders, the country’s energy reform provides benefits to Mexican companies.
Of the 37 companies who participated in the first three Round 1 auctions, 24 were Mexican. Companies from eight other countries help Mexico by assuming financial risk for projects and by bringing in local operators.
“This is a business. When other companies risk their capital the (Mexican) government doesn’t have to risk its own,” he said. “Who runs the seismic registries? Who gets the oil out of the ground? Who brings the rigs in? The foreign companies work with local companies.”
He noted that Mexican companies benefit from the federal government’s policy of promoting national content.
The “Made in Mexico” legislation, adopted in 2009, requires companies operating in Mexico to purchase goods and services in order to promote the use of national products.
The policy provides an opportunity for aspiring entrepreneurs, even recent graduates, Franco said.
Challenges and Opportunities
Franco urged against discouragement from the current low price environment and noted that geoscientists and engineers have a key role in helping the country develop its energy potential.
“We need to understand naturally fractured reservoirs. We have to understand the reservoir in order to extract the hydrocarbons. We need to reach out to the local communities in areas where we are looking for shale oil and shale gas,” he said. “People have questions, and geoscientists can help to answer them.”
Franco also highlighted opportunities for wells that have been operated since 1900 and need strategies for well abandonment.
“In Mexico, we don’t have a single project involving secondary or enhanced recovery yet,” he said. “The projects may be expensive now, but we have to be ready so we can move forward when prices go up. They’re not going to be this low forever.”
Mexico is a great place to work and do business, Franco said.
“People have said there is no work, there are no employment opportunities in Mexico, but now we have many companies interested in doing business in Mexico,” he said.