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A decade has passed since President Enrique Peña Nieto’s Energy Reform. Since then, the Mexican oil and gas industry has undergone profound changes. In the initial four years following the reform’s implementation, market participation expanded significantly and CNH’s bidding rounds generated valuable subsurface data for Mexico. However, concerns arose after the cancellation of bidding rounds in 2018 and PEMEX’s resurfacing as a favorite in the government’s energy policy. Despite some operators scaling back their operations, the industry has shown remarkable resilience. Operators have found innovative ways to collaborate with PEMEX and there are promising developments on the horizon, including projects like Zama and Trion. Experts highlight substantial potential in Mexico’s upstream sector, with major oil companies persevering and continuing their operations while adhering to strict regulations. These companies keep placing their bets on long-term investments in the country. The upcoming 2024 elections represent a decisive moment for the industry. Mexico has fallen significantly short of its oil production and refining targets, which were revised downward during the administration. These factors pose considerable investment risks to Mexico. Nonetheless, in the global context, Mexico has emerged as an attractive option for reconfiguring commercial routes and global trade strategies. At the same time, both public and private industry participants must start looking at more environmentally friendly operations, should they wish to remain relevant in the years to come. Months before a new change in administration and possibly further transformation to the national industry, experts shared their insights and perspectives on the state of the national oil and gas industry at Mexico Oil and Gas Summit 2023, as well as strategies to remain competitive and navigate the specific particularities of the country’s industry.
4
C on f erence I mpact
150
10
35
companies
sponsors
speakers
268
3,464
10th
conference participants
visitors to the conference website
edition
Breakdown by job title Conference social media impact 33% Manager/VP 24% CEO/CM/GD/MD 23% Partner/Associate/ Leader/Specialist 19% Director
Pre-conference social media impact
9,735 direct impressions during MOGS
77,264 direct pre-conference LinkedIn impressions
3.14% click through rate during MOGS
2.42% pre-conference click through rate
5.25% conference engagement rate
3.09% pre-conference engagement rate
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138
participants
Matchmaking intentions
423
matchmaking communications
56
1:1 meetings conducted
808 Trading Total
1,126
33 Recruitment 105 Investment 180 Networking
5
C ompan y Attendance
•
ABB México
•
Emerson
•
Administración del Sistema Portuario Nacional de Manzanillo
•
Endress + Hauser Mexico
•
Eni Mexico
Administración del Sistema Portuario Nacional Tuxpan
•
Eseasa Offshore
•
Fieldwood Energy
•
AGBB RASARE
•
Frontera Offshore
•
Agencia Estatal de Energía
•
Fueltrax
•
Ainda, Energía & Infraestructura
•
GADM
•
Akali Marine
•
Geodis
•
ALCON Laboratorios
•
GESA Supplies and Services
•
AMEXHI
•
GOLFO ENERGY AMERICAS SA DE CV
•
API Tamaulipas
•
Gonzalez Calvillo
•
Apollo X
•
Goodrich, Riquelme y Asociados
•
Aqueos
•
Grupo Cofli
•
ASEA
•
Grupo Diavaz
•
Baker Hughes
•
Grupo Industrial Águila
•
Balam Energy
•
GRUPO KONJIC
•
Biaani’ Energy
•
Grupo roales
•
Blin Co.
•
•
BME Shipping
GRUPO WALWORTH INDUSTRIAL DE VALVULAS SA DE CV IVA760914GV5
•
BP
•
Gulf Supply
•
Brilliant Energy
•
Heerema
•
Buckman
•
Hitachi Energy
•
BUPA México & BUPA Global Latin America
•
Hokchi Energy
•
CBM Ingeniería Exploración y Producción
•
Holland & Knight
•
Cemza
•
Holland House Mexico
•
Champion X
•
HR Ratings de Mexico SA de CV
•
Cheiron Holdings LTDA
•
IGSA
•
Citla Energy
•
In Hole Solutions
•
Coast Oil Dynamic
•
Indumar
•
Comisión Nacional de Hidrocarburos
•
Inerco Consultoría México
•
Consultant
•
Instituto Mexicano del Petróleo
•
Control Union
•
Integralia Consultores
•
Core Laboratories
•
IPD Latin America
•
Cotemar
•
IPS powerful People
•
CSIPA
•
J RAY MCDERMOTT
•
Cuatre Casas
•
Jaguar Exploration and Production
•
Diavaz E&P
•
John Crane
•
DNV Energy Systems Mexico
•
Kepler Oil & Gas
•
Dubai Chamber
•
Kiewit
•
Educatrade
•
KPMG
•
Embajada de los Estados Unidos
•
6
C ompan y Attendance
•
LATIN AMERICAN RAINMAKERS BUSINESS MANAGEMENT SERVICES
•
RenaissanceOil Corp
•
Repsol
•
Lean Energy & Automation
•
Repsol
•
Lifting
•
Roca Port
•
LRQA
•
ROSEN Group México
•
Lukoil Lubricants Mexico
•
S&P Global
•
Lukoil Upstream Mexico
•
Samson Group
•
M&L Estudio Legal
•
SECRETARIA DE DESARROLLO ENERGÉTICO
•
McDermott
•
Secretaria de Desarrollo Energético de Tamaulipas
•
McKinsey & Company
•
Secretaria de Energia
•
Mexico Pacific Limited
•
SEVEN SEAS ENERGY MEXICO S.A. DE C.V.
•
Moody
•
SGS
•
Moody´s Investors Service
•
Shell
•
Murphy Oil
•
SICK Sensor Intelligence
•
Naviera Integral
•
SLB
•
Noatum Project Cargo
•
Sotaog
•
NRGI Broker
•
SUMIMSA
•
OCA Global
•
SUMMUM
•
OH Maritime Services
•
The Mudlogging Company
•
OILMEX ENERGY
•
TIP
•
Oleum Energy
•
Total Energies E&P México
•
Oracle
•
TREBOTTI
•
PC Carigali Mexico Operations
•
Tubería y Válvulas del Norte (TUVANSA)
•
PEMEX
•
U.S. Commercial Service
•
Perenco
•
Vera & Associates
•
PETRONAS MEXICO
•
Vista
•
PGS
•
VMS Energy de México
•
Picarro
•
Wamex
•
Porter Dos Bocas
•
Wesco Anixter
•
Porter Holding
•
Westland Americas Offshore
•
Prime Marine Services
•
Wintershall Dea
•
Protexa
•
Woodside Energy
•
Qualitech
•
Worldwise Consulting
•
R.H Shipping
•
Xincheng Special Steel America, Inc
•
R9 Holdings
7
P rogram D ay 1
08:55
WELCOME TO MEXICO OIL & GAS SUMMIT 2023
09:00
THE POLITICAL SCENARIOS OF 2024 AND THEIR IMPACT ON ENERGY POLICY
Speaker: Carlos Ramírez, Integralia 09:30
PEMEX’S FINANCIAL, DEBT AND CASH FLOW OUTLOOK
Moderator: Alejandra León, S&P Global Panelists: Roxana Muñóz, Moody’s Investors Service Félix Boni, HR Ratings México José Pablo Rinkenbach, AINDA John Padilla, IPD latam 10:30
A LOOK INTO THE FISCAL REGIMEN OF LICENSING AND SHARED PRODUCTION CONTRACTS
Speaker: Elizabeth Castro, CNH 11:00
NETWORKING COFFEE BREAK
12:00
THE ROLE OF PRIVATE OPERATORS IN MEXICO’S UPSTREAM OIL & GAS INDUSTRY
Moderator: Ivan Sandrea, Westlawn Americas Offshore (WAO) Panelists: Alma América Porres, CNH Giorgio Guidi, Eni Mexico Andrés Brügmann, Hokchi Energy Warren Levy, Jaguar Exploration and Production Martin Jungbluth, Wintershall Dea
13:00
STRATEGIC ALLIANCE WITH PEMEX: DEVELOPING ZAMA
Speaker: Sylvain Petiteau, Wintershall Dea 13:30
NETWORKING LUNCH
15:00
SUPPLY CHAIN OUTLOOK ON BUSINESS OPPORTUNITIES AND INDUSTRY TRENDS
Moderator: Alberto Galvis, Citla Energy Panelists: William Antonio, SLB Miguel Carreón, Baker Hughes César Vera, BME Shipping Daniel Zuluaga, SUMMUM
16:00
PROCUREMENT PRIORITIES, LOCAL CONTENT OPTIMIZATION AND SUPPLIER DEVELOPMENT STRATEGIES
Moderator: Miriam Grunstein, Brilliant Energy Consulting Panelists: Marcos Ávalos, Tubería y Válvulas del Norte (TUVANSA) Héctor Canizales, Baker Hughes Joel Zúñiga, Fieldwood Energy Rafael Rodríguez, Grupo Industrial Águila 17:00 NETWORKING COCKTAIL
8
P R O G R A M D AY 2
08:55
WELCOME TO MEXICO OIL & GAS SUMMIT 2023 - DAY 2
09:00
A REVIEW OF MEXICO’S ENERGY REFORM AFTER 10 YEARS
Speaker: Óscar Roldán, R9 Holdings 09:30
PERSPECTIVES ON ESG FROM THE SUSTAINABILITY COMMITTEE IN PEMEX
Speaker: Lorenzo Meyer, PEMEX 10:00
THE CHALLENGE OF OPTIMIZING PRODUCTION AND DELIVERING ON ESG OBJECTIVES
Moderator: Ignacio Quesada, McKinsey & Company Panelists: James Buis, ChampionX Eckhard Hinrichsen, DNV Energy Systems Mexico Brad McNeill, Frontera Offshore Sara Landon, Inerco 11:00
NETWORKING COFFEE BREAK
12:00
SUPREME COURT AND ENERGY SECTOR: WHAT ARE THE CONSTITUTIONAL LIMITS ON LEGISLATIVE, EXECUTIVE POWER
Moderator: David Enríquez, Goodrich, Riquelme y Asociados Panelists: Claudio Rodríguez-Galán, Holland & Knight Enrique González Calvillo, González Calvillo 13:00
TRANSFORMING MEXICO’S DEEPWATER POTENTIAL INTO RESERVES AND PRODUCTION
Speaker: Stephan Drouaud, Woodside Energy 13:30
END OF MEXICO OIL & GAS SUMMIT 2023
9
C on f erence H ighlights THE POLITICAL SCENARIOS OF 2024 AND THEIR IMPACT ON ENERGY POLICY Mexico’s energy landscape has undergone
The suspension of bidding rounds in 2018
significant changes over the last decade.
created uncertainty for private operators.
About four years after the implementation of
While the prevailing sentiment in 2018 was
new regulations to follow the Energy Reform,
one of continuity. By 2019 and 2020, this
the oil and gas industry started to develop
shifted to cautious optimism. The current
as private operators won blocks to carry
a d m in is tratio n h a s m a d e su bs t a ntia l
out exploration activities. The cancellation
i nve s tm e n t s i n P E M E X a n d re fi n i n g ,
of new bidding rounds and the government’s
injecting capital and providing tax breaks.
favoritism toward PEMEX, however, are
However, the refining sector has proven to
creating a challenging scenario for the
be unprofitable, as the Dos Bocas refinery
future of the overall industry. Now, with a
project has experienced significant cost
new presidential election on the horizon,
overruns and multiple delays. At the same
understanding the different visions of the
time, energy price volatility in 2022, driven
two main candidates is key to preparing
by the Russian-Ukraine conflict, heightened
for future changes in industry policies and
the importance of energy self-sufficiency for
regulations.
governments.
The arrival of the new government in 2018
Mexico has fallen significantly short of its oil
marked a significant shift in the direction
production and refining targets, which were
of the oil and gas industry, prioritizing the
revised downward during the administration.
rescue of state-owned companies. However,
These factors pose considerable investment
this move came with numerous challenges,
risks to Mexico. Nonetheless, in the global
particularly given PEMEX’s substantial debt
context, Mexico has emerged as an attractive
burden, a problem the administration has
option for reconfiguring commercial routes
been grappling with for the past five years.
and global trade strategies. Disruptions caused by the pandemic and European conflicts have prompted a reevaluation of supply chains and trade routes. Given its proximity to the world’s largest consumer market, the US , Mexico has become an obvious choice for companies seeking to relocate operations closer to their target markets. In 2023, Mexico has experienced a substantial increase in foreign direct investment (FDI). This surge, according to experts, underscores the potential that companies perceive in Mexico, driven by the nearshoring trend. In 2024, the country is scheduled to hold presidential elections. Typically, during an election year and the first year of a new administration, investment tends to decrease as stakeholders await clarity on the strategies of the incoming government. With the announcement of the two primary presidential candidates, Claudia Sheinbaum a n d Xó c h itl G á lvez , ex p e r t s i n iti a l ly
10
C on f erence H ighlights
anticipated that energy policy might not be
participants: Sheinbaum, Gálvez, a candidate
a central focus of their campaigns. However,
from Movimiento Ciudadano and other
both candidates have openly articulated
independent candidates. Ramírez notes
their energy strategies and viewpoints,
that having more than three candidates is
including their willingness or lack thereof,
the least likely scenario. Another scenario
to engage with the private sector.
anticipates an election featuring only Sheinbaum and Gálvez, which is also an
The next few years will be a pivotal period for
unlikely occurrence. Finally, he underscores
investors seeking opportunities in Mexico.
that the most probable scenario involves
The country will also need to determine
Sheinbaum, Gálvez, and a candidate from
how best to leverage this heightened
Movimiento Ciudadano, with Nuevo Leon
investor interest.
Governor Samuel García emerging as the most likely candidate.
In this context, Carlos Ramírez, Political and Economic Risk Consultant at Integralia,
In the latter scenario, Ramírez emphasizes
emphasizes the importance of monitoring
that the coalition led by Gálvez would be
not only the federal elections but also
the most affected team, as García has the
considering various other factors that
potential to attract votes from Gálvez’s
influence the Mexican political landscape.
supporters. Under these circumstances,
These factors include elections in both
the scenario where Sheinbaum emerges
the Chamber of Deputies and the Senate,
as the winner appears to be the most likely
as well as elections in 31 local congresses.
outcome. However, Ramírez cautions that
Additionally, changes in city halls and
nothing is set in stone and various factors
governor elections in nine states, including
could lead to different results. According
Mexico City, contribute significantly to the
to Integralia’s analysis, the most probable
overall political dynamics.
scenario is Sheinbaum winning the election by a moderate margin, accompanied by
When considering these pivotal factors,
a balanced congress. “Another factor to
Ramírez directs attention to potential
consider is the Mexico-US relationship. If the
scenarios for the federal presidential
republicans win the elections in the US, the
election. The first scenario envisions a
upcoming Mexican government will have a
presidential race with more than two
difficult scenario,” he added.
11
C on f erence H ighlights Ra m írez s a id th at wh o eve r win s th e
CFE. Ramírez also notes the unlikelihood of
elections will inherit both positive and
oil bidding rounds, with a small probability
negative factors. The positive ones being a
of farmouts occurring. “Sheinbaum may
nearshoring momentum, relatively robust
continue with López Obrador’s agenda, but
macroeconomic indicators, improvements
with a tighter maneuvering margin that will
in some social indicators and a society that
force her to make hard decisions, very soon,
trusts more on the government. On the
including a fiscal reform,” he noted.
negative side, he highlights tight public finances, significant liabilities like PEMEX’s
G álvez is anticipated to prioritize
debt burden, bottlenecks in the energy
m a cro e co n o mic s t a bilit y, a lb e it with
sector and low governance capabilities to
associated costs. Regarding hydrocarbons,
make public policies.
Ra m í rez h ig h lig ht s th at , d e s p ite h e r reser vations about the sector, Gálvez
Ramírez emphasizes that a Sheinbaum
recognizes its significance for attracting
presidency means a continuation of President
new investment s and resources . This
López Obrador’s policies but in a different
acknowledgment may lead to the
context. While maintaining macroeconomic
retention of the 2013 oil legal framework.
stability is a priority, it will involve additional
I n t h e e n e r g y s e c to r, G á l ve z m i g h t
costs due to the changed circumstances.
e m p h a s ize re g i o n a l iz a ti o n , e n a b l i n g
The same challenges apply to social-focused
greater involvement of state governments
policies, which may encounter budgetary
under the guidance of the federation.
constraints. Ramírez points out that although
Additionally, she is likely to enhance
Sheinbaum is expected to uphold energy
regulatory agencies by granting them more
nationalism, her clearer stance on climate
autonomy and changing the commissioner
change and a constrained maneuvering
nomination process, while ditching the
margin may prompt a reevaluation of the
country’s current hyperfocus on refining.
sector, potentially opening the door to
Gálvez may also encourage increased
negotiations with private companies. Still,
private sector participation in PEMEX and
it is likely that she will maintain support for
CFE and a diminished emphasis on refinery
state-producing companies like PEMEX and
operations.
PEMEX’S FINANCIAL, DEBT AND CASH FLOW OUTLOOK President Andrés Manuel López
our society, especially in energy security
Obrador’s energy strategy has focused on
matters,” says Alejandra León, Latin America
strengthening state-owned companies.
Upstream Director, S&P Global. The NOC,
However, PEMEX’s debt has raised concerns
however, is the most indebted state energy
due to the lack of liquidity to continue with
company in the world, with US$25 billion in
projects. Its infrastructure continues to age
short-term debt and US$4 billion in bonds
and despite significant capital injections to
that are still due in 2023. Overall, PEMEX’s
develop new projects, projects have faced
total debt amounts to over US$100 billion.
various setbacks. The following years will be crucial for the NOC as it grapples with
Credit rating companies have closely
mounting debt and difficulties in securing
monitored the NOC, warning of the potential
further financing, say experts.
risk that the company may become unable to meet its financial obligations. To continue
PEMEX produces 90% of the oil and gas
dealing with this massive debt, PEMEX has
in the country and holds 75-80% of the
received significant injections of federal
discovered resources in the country.
capital. Still, according to Fitch Ratings, PEMEX represents the greatest concern
“The company is a dominant player and its
in terms of liquidity and debt among Latin
performance has a significant impact on
American oil companies.
12
C on f erence H ighlights
The size of the debt is a significant issue,
government ’s spending control “more
reflects Roxana Muñoz, Vice President and
rigid.” These spending dynamics will limit
Senior Analyst, Corporate Finance Group,
the fiscal room for the government in the
Moody’s Investors Service and achieving
future. For the next fiscal year, the federal
a sustainable balance by cutting capital
government plans a total net expenditure of
expenditures (CAPEX) by 32% is not a
MX$9.06 trillion (US$526 billion), which is
sustainable solution. Muñoz highlights the link
4.3% higher in real terms compared to what
between PEMEX’s debt and its tax burden,
was approved for this year.
noting instances where it has struggled to make Shared Profit Right (DUC) payments
The NOC has refinanced its debt over the
due to its tax obligations. Reducing this
last couple of years. However, growing
tax burden, she suggests, could improve
concerns driven by accidents in PEMEX’s
PEMEX’s cash flow and financial stability.
installations, delays in flagship projects and other factors have affected the company’s
Félix Boni, Chief Credit Officer, Economic
credit rating, which has made acquiring
Analysis, HR Ratings Mexico, points out
more debt increasingly costly. PEMEX’s debt
that in 2021, after accounting for CAPEX,
with its suppliers has also triggered a series
PEMEX had a net income of MX$18 billion
of complaints to the SHCP. At least three
(US$1 billion). Still, it had to pay taxes of
affected companies have already notified the
MX$260 billion (US$14.5 billion). Moving on
start of the dispute resolution process due to
to 2022, which was significant in oil price
lack of payment, suspending their services,
levels, PEMEX generated a net cash flow
or lodging angry complaints.
after CAPEX of MX$186 billion (US$10.3 billion). However, it had to allocate MX$367
Muñoz mentioned that, as part of Moody’s
billion (US$20.3 billion) to debt payments,
ratings, the firm considers a standalone
while receiving MX$219 billion (US$12.1
rating of caa3. However, given that the
billion) from the federal government. With
NOC is so intrinsically tied to the federal
such a substantial tax burden, it becomes
government and the support it can offer, its
challenging to manage its debt payments.
rating is boosted to B1.
Moody’s Investors Service has warned
The firm estimates that in 2023-24, PEMEX
that consistent support for PEMEX and
will require around US$14 billion in assistance
priority programs such as pensions and
to close the year. However, José Pablo
flagship projects are making the federal
Rinkenbach, Executive Director of Asset
13
C on f erence H ighlights further straining PEMEX’s resources. The refinery has also raised questions regarding its profitability. Rinkenbach suggests that, in terms of refining, the most prudent course of action is to exit this sector. What truly matters is the efficiency at which operations are conducted. Refineries must operate at a 96% rate to be profitable. In contrast, PEMEX has historically operated at an efficiency rate of only 30-40%, a performance level that “burns cash, rather than generating it,” Rinkenbach adds. John Padilla, Managing Director, IPD Latin America, mentions that the NOC’s production costs have also increased by 60% in just the past two years. For years, PEMEX had maintained a low production cost against the international benchmark, comparable only to Arabian countries. However, in 2022, costs surged to US$18/b against 2020 and this upward trend is expected to continue. As the global oil industry faces mounting pressure to meet demand while transitioning to more sustainable practices, experts caution that Mexico’s heavy reliance on fossil fuels without a clearly defined mitigation Management and ESG at AINDA Energía &
and long-term strategy, including a gradual
Infraestructura, argues that the Ministry of
reduction in fossil fuel dependence, could
Finance and Public Credit (SHCP) has now
prove to be exceedingly costly for the nation.
exhausted its options for assisting PEMEX
Muñoz highlights PEMEX’s risk of accessing
since, over the past five years, the SHCP has
refinancing opportunities both in the short
seen a net debt increase of US$6 billion for
and long term, as some banks, especially in
PEMEX. Over the years, the ministry has had
Europe, are closing financing lines for the
to inject US$42 billion into the company. This
sector in favor of greener alternatives.
financial infusion was divided into 50% to pay off debt, 45% for the Dos Bocas refinery and
To improve PEMEX’s cash flow and address
5% for other expenses. SHCP has resorted to
balance-related issues, Rinkenbach calls
capital injections, reducing PEMEX’s profit-
for a systemic change. This could entail a
sharing tax rate from 60% to 35%, granting
government bailout where the government
tax credits and deferring profit-sharing taxes.
assumes the debt and makes it sovereign, formalizing the current situation where
The state company is expected to fall
PEMEX accumulates debt through the federal
short of meeting the administration’s initial
government. Alternatively, transitioning from
production, export and refining objectives,
assignments to contracts could be a solution.
including the president ’s commitment
This transition would enable PEMEX to secure
to achieve energy self-sufficiency. This
financing not at the corporate level but on a
commitment received strong support through
project-by-project basis using its reserves as
the construction of the Dos Bocas refinery,
assets to back up financing. This approach
which experienced multiple delays and
would lower the financing costs for PEMEX
nearly doubled its original budget allocation,
and help it face its upcoming obligations.
14
C on f erence H ighlights
FISCAL REGIMEN OF LICENSING, SHARED PRODUCTION CONTRACTS The past five years have been marked by the
contract). Companies can then calculate the
suspension of bidding rounds and farmouts
project’s profit by subtracting the Project
and numerous personnel changes at the
Costs (investment and operating expenses)
head of PEMEX and regulatory agencies.
from the VCH.
However, rather than rip up private contracts as feared, the government instead re-stated
Profit comes from exploration and extraction
its commitment to honor those contracts after
activities and is distributed between the State
a period of review. A closer look into the fiscal
and the Operator. The State receives income
regimen of the two contracts through which
from compensatory payments and taxes. The
operators function in Mexico is necessary to
Operator receives the remainder after making
understand the fiscal importance of operators
these payments to the State and covering the
in the industry.
project’s costs.
Private production and exploration have
T h e r e f o r e , c o n c e p t u a l l y, t h e F i s c a l
yielded significant results for the development
Regime is the mechanism that defines
of the industry. At the same time, these
the distribution of oil profits between
companies can represent an important
the State and the Operator, meaning the
part of income to public finances regarding
way in which the State collects income
hydrocarbon management. In Mexico, the
derived from hydrocarbon exploration and
legal framework allows operators to carry
extraction activities.
out exploration and extraction activities under four contractual modalities: License,
Ac c o r d i n g to C a s t ro , p l aye r s i n t h e
Shared Production, Profit Sharing and
hydrocarbon industry can reach out to
Services contracts, explains Elizabeth Castro,
the National Hydrocarbon Commission
Head, National Hydrocarbon Information
(CNH) for specific guidance regarding
Center (CNIH).
the fiscal regime. Audits are a mechanism through which operators can receive this
Operators normally work under either a
guidance. Currently, in Mexico, there are
License or Shared Production contract,
108 assigned contracts from which 76 are
both of which are subject to the concept
under a License and 31 under a Shared
of Contractual Hydrocarbon Value (VCH),
Production regime.
defined as the volume of each type of hydrocarbon (oil, gas, and condensates)
C a s tro e m p h a s ize s th a t it i s c r iti c a l
produced, multiplied by its corresponding
that the State generates efficient and
Contractual Price (stipulated in each
effective fiscal models for collection in
15
C on f erence H ighlights the hydrocarbon sector. As the Mexican oil
the country. In its technical evaluation for
and gas industry opened to private players,
the updated 2023 Five-Year Exploration
the Energy Reform made clear the ownership
and Production Plan, CNH revealed that
of the nation’s resources as this holds a heavy
there is 23% of the territory that currently
political weight in Mexico’s context.
lacks activity but holds characterized and available remaining reserves for development.
As of 2023, the government has benefited
Moreover, during the 12th extraordinary
state-owned companies like PEMEX and CFE,
session of the governing body, CNH pushed
despite concerns about public finances and
to increase this potential an additional 5%,
energy market management. This situation
represented by unconventional resources
coincides with a turbulent political landscape
ready for extraction.
in Mexico, particularly in the lead-up to the 2024 elections.
I n 2 02 2 , m o re th a n 2 0 b l o c k s we re abandoned, although CNH stated that this is
CNH has previously urged SENER to analyze
a normal process as operators decide to focus
the possibility of reactivating oil tenders in
on the most promising projects.
THE ROLE OF PRIVATE OPERATORS IN UPSTREAM OIL & GAS Private offshore operators have played
private participation from scratch and
an important role in advancing flagship
approximately 80% of contracts awarded to
projects and striving to meet production
private companies were for exploration, a
targets. However, since 2019, these players
venture that represents high risk in itself. This
h ave f a ce d n u m e ro u s o b s t a cl e s a n d
opened the door to gain greater knowledge
uncertainties, as the current administration
of previously untapped areas for Mexico.
has made PEMEX the focal point of their
However, it should also be considered that
energy strategy. Nevertheless, companies
usually this exploration must go further and
have adopted various strategies to curb the
the granting of more areas serves to move
growing uncertainty.
the industry forward as companies can progress and decide which areas are more
“Despite the challenges, it is important
promising, thus driving the entire industry.
to r e c o g n i ze w h e r e M e x i c o s t a r te d from,” says Alma América Porres Luna,
Experts concur that it would be a mistake
Former Commissioner, CNH. She explains
to assume that no progress has been made
that M exico craf ted regulation for
in Mexico’s oil and gas ventures. For Warren
16
C on f erence H ighlights reflects the emergence of a brand-new industry in Mexico, despite the presence of a well-established service chain for the oil and gas sector. We transitioned from having just one company to about 70,” mentions Andrés Brügmann, Vice President, Hokchi Energy. Regulation for the industry was initially created without prior experience, but now, after several years of hands-on involvement, operators have the opportunity to refine and adapt them for greater clarity and efficiency. “The learning curve during this period has been quite fascinating and we have received substantial support along the L ev y, C E O , J a g u a r E x p l o r a t i o n a n d
way. However, an area for improvement
Production, it is important to highlight that
lies in the opportunity to streamline these
regulation in Mexico can be also seen in a
regulations,” says Giorgio Guidi, Managing
positive light, as a strict approach can make
Director, Eni Mexico. “We are not new to oil
operators more attention-to-detail oriented,
but we are new to Mexico.”
especially given the specific context of the country. Moreover, private players can
Moreover, despite the substantial support
enhance Mexico’s industry and some changes
that PEMEX has received in managing its
are indeed necessary for it to happen.
debt, the state-owned company has also struggled to meet its financial commitments
“When we discuss the Mexican industry within its unique context, it becomes evident that merely restarting bidding rounds may not suffice. The reason being, the industry calls for more experience and expertise to navigate this intricate landscape”
Warren Levy CEO | Jaguar Exploration and Production
to certain stakeholders, which puts strain on the company’s performance and the country’s overall production targets. Still, experts agree on the potential there is to develop a strong oil and gas industry in Mexico, including a strong and skilled workforce. In the words of Ivan Sandrea, Co-Founder and CEO, Westlawn Americas O ff s h o re ( WAO), “ M exi co s ti l l h o l d s great potential and that shows through the presence of important oil majors in
The promise of the 2014 Energy Reform
the country.”
h a s b e e n p a r t i a l l y r e a l ize d . P r i v a te operators entered the Mexican oil and
Being PEMEX a key player in this industry, its
gas market with enthusiasm, attracted
development is also of interest for all parties
by the prospect of accessing previously
with stake in oil and gas, be them public or
inaccessible reserves. However, they have
private. Furthermore, private players can
faced challenges along the way, such as
also help the company to leverage Mexico’s
complex regulatory frameworks, security
resources. As Levy mentions, all private
concerns and logistical hurdles. Despite
operators work with PEMEX in some shape
these obstacles, private operators have
or form. “I firmly believe that the key to
made substantial investments and achieved
success lies in collaboration between the
significant milestones in terms of production
private and public sectors. When these two
and exploration. “In my view, this situation
entities work together, progress can be
17
C on f erence H ighlights achieved harmoniously. It is evident that in
one of the particularities of the Mexican
recent years, the industry has witnessed a
industry is the delays in PEMEX’s payments
profound understanding of exploration and
to suppliers, which in turn drive up prices.
production (E&P) among its participants,”
If this could get corrected, it would mean
mentions Martin Jungbluth, Managing
an improvement in Mexico’s industry’s
Director, Managing Director of Mexico,
competitiveness.
Wintershall Dea. A great example of this collaboration is the Zama field, which after
Sandrea highlights that the operators that
a few years of negotiations both the private
remain in Mexico do so because there are
and public sectors reached an agreement
things they do correctly. Porres agrees,
that could benefit both parties.
mentioning that operators held up to regulator’s standards committing to their
Still, it is critical that PEMEX can also meet
development plans and timings, even in
privates in the middle. Experts mention that
difficult times such as the pandemic.
STRATEGIC ALLIANCE WITH PEMEX: DEVELOPING ZAMA Zama is considered to be one of the most
was the first unitization process carried out
promising shallow water fields in the world.
in Mexico. Nevertheless, this past October
However, its development has followed a
2022, following President López Obrador’s
rocky path, as it was later discovered that
intervention, the situation was resolved. It was
the reservoir extended into PEMEX’s Uchukil
announced that the Joint Development Plan
project. Still, a resolution came in due time
of the Zama Field would be presented to CNH
and now the field is line to become one of
by March 2023, with the NOC as the leading
Mexico’s most important developments.
operator of the block.
The development of the Zama field stalled
PEMEX included the development of the
due to the disagreement between PEMEX
Zama field as one of the Top 5 priority
and the consortium formed by Wintershall
projects for its 2023-2037 investments. The
Dea, Talos Energy and Harbour Energy. This
38 projects contemplated for PEMEX’s 20232037 Business Plan consider an estimated investment of MX$1.1 trillion (US$58.613 billion). Wintershall Dea is focusing on actively contributing as a partner to the Zama asset to ensure that the field is developed in the most efficient timeframe and in the best possible technical manner. According to Block 7 ’s approved Unit Development Plan, the project consists of 46 wells, of which 29 are producers and 17 water injectors that could be developed with Tender-Assisted Drilling or Modular Platform rigs, featuring double frac-pack in all wells with the option of artificial lifts using ESPs when needed. Sylvain Petiteau, Management Office at Zama Integrated Project Team, Wintershall Dea, highlighted that the project aims
18
C on f erence H ighlights to incorporate two offshore platforms.
capitalizing talent and capabilities of the
These could include a gas-liquid separator,
different companies’ teams, building trust
sending the separated components to the
and simplifying the companies’ decision-
shore. Additionally, there will be a seawater
making processes, among others. “The
treatment plant to treat and inject water
idea is to work as Zama, not as individual
for onshore energy production. The project
companies. I am not saying this is the ideal
would need the construction of two 63.5km
model and all companies must follow it.
pipelines for transporting gas and liquids
Every project has its specific features, but
to the shore. Furthermore, a power cable
exploring the capabilities and differences
extending from the shore is required.
between the Zama team’s members, this
“Both the cable and the pipelines will be
is something we perceived as positive,”
connected to newly constructed, exclusively
Petiteau said.
Z a m a - d e dic ate d o n sh o re p ro ce s sin g facilities along the Dos Bocas coast. This
The next phase of the plan is taking action
comprehensive infrastructure is designed to
by conducting engineering studies, which
support the efficient processing of resources
are currently in the pre-bidding process.
from the Zama project until achieving
The team expects to get the green light by
delivery objectives,” he highlighted.
the end of 2023 and conduct the studies by 2024. The Zama team is set to create
Petiteau stressed that the Zama partners
a trust to give the project a bit more
d e c i d e d to c re ate w h at th ey c a l l a n
independence from PEMEX’s finances.
Integrated Project Team (IPT) to foster
“There will be a lot of challenges as in
collaboration in a more efficient way.
every project, but we proved that after
Among the objectives of this partnership
previous challenges, we are here talking
are to execute activities related to the Unit
about the development of Zama, which
Development Plan, complying with the
proves the team’s capacity to deliver,”
obligations of the Unification Resolution,
Petiteau stated.
SUPPLY CHAIN OUTLOOK ON BUSINESS OPPORTUNITIES, INDUSTRY TRENDS In the wake of recent disruptions and
juncture. Enhancing resilience and agility
challenges in global supply chains,
in supply chain operations is paramount to
companies operating in the Mexican oil and
mitigating risks and maintaining operational
gas industry find themselves at a critical
continuity, experts point out.
19
C on f erence H ighlights Fluctuating oil prices and market
In 2014, during the last industry upswing,
uncertainties have made it imperative for
the Top 5 service companies worldwide
companies to manage cash flow effectively.
invested nearly US$9 billion in CAPEX. This
T h e b e g i n n i n g o f 2 0 2 3 ex p e r i e n c e d
year, they will only invest US$3 billion, one-
low prices due to expectations of lower
third of the previous amount. One of the
economic activity on China’s side, while
reasons for this significant reduction is that
OPEC kept pushing oil production cuts
the cash flow is lower than before.
to increase prices. This year was vastly different to 2022, where oil prices were at
Miguel Carreón, Regional Leader Mexico
an all-time high due to the Russian war on
& C e ntra l A m e ric a at B a ke r H ug h es ,
Ukraine, which also affected supply chains,
emphasizes that high-interest rates and
underscoring once more a lesson learned
a green finance philosophy have made
through the pandemic: moving production
upstream projec ts less at trac tive for
closer to consumption.
investment. This situation has prompted companies to emphasize the importance
The pandemic’s impact on the industry’s
of cash flow to their institutional investors
supply chain was profound, as noted by
and to carefully manage it. Managing cash
William Antonio, Managing Director of
flow involves ensuring efficient billing
Mexico and Central America, SLB. Delays
and collection processes , proactively
of up to 18 months in obtaining electronic
collaborating with customers to anticipate
components and nearly 12 months in
payment issues and working together
international shipping logistics disrupted
o n r e s t r u c t u r i n g s t r a te g i e s t h ro u g h
production chains significantly. Investment
credit or factoring in case of unforeseen
in terms of capital expenditure (CAPEX)
circumstances.
for new equipment decreased from 2020 to 2021 and there is now a concerted effort
Companies must strive toward a cost-
to revitalize CAPEX.
e ff e c ti ve o p e r a ti o n to p ro te c t t h e i r operations against negative fluctuations. Collaboration and partnerships within the supply chain are crucial drivers for innovation, cost reduction and overall competitiveness in the Mexican oil and gas industry. Selecting the right suppliers and vendors is critical to a resilient supply chain and , when evaluating potential par tners , companies should consider supplier reliabilit y, qualit y standards and ethical practices. Effective supplier relationship management involves continuous assessment, communication and collaboration. Daniel Zuluaga, Country Manager, SUMMUM, highlights this collaboration as essential. It is crucial to create spaces where multiple companies from the same industry but with different specializations can exchange their insights and address common challenges. This fosters an environment conducive to innovation and to the sector’s overall development, while strengthening the supply chain. Building strong partnerships
20
C on f erence H ighlights with suppliers can lead to long-term cost
service for projects. Third, Antonio points
savings, improved product quality and
out that process variability can incur high
enhanced supply chain resilience, as well.
costs, making standardization necessary
Embracing digital technologies and data-
to enhance efficiency. Lastly, he addresses
sharing platforms can facilitate real-time
how effective cash flow planning is vital
communication and collaboration, enabling
for achieving efficient production and
more efficient supply chain management
operational processes. Without proper
and decision-making.
financial planning, it is challenging to maintain efficient operations.
Both communication and establishing strong partnerships are key to the efficient
These are not nearshoring’s only challenges,
development of nearshoring, especially
however. Alberto Galvis, CEO, Citla Energy,
since, according to Antonio, within five
highlights insecurity, community relations
years, the expectation is that an additional
and the industry’s major player, PEMEX,
US$150 billion in income will flow into
facing financial difficulties that directly
M exico due to nearshoring , primarily
impact cash flow as major elements to take
through exports to the US. He also suggests
notice of. César Vera, Managing Director
four important points to face nearshoring
of BME Shipping, also stated that in terms
and be more competitive. First, he highlights
of changes in sustainable regulations,
creating a sufficiently stable and high-
it is incentivized to reduce greenhouse
quality supplier base, avoiding overreliance
emissions and invest in alternative energy
on a single provider and having multiple
sources to better cater for nearshoring
options . This prac tice not only helps
opportunities.
foster the growth of the industry but also nurtures local talent. Second, he mentions
Carreón also addresses another significant,
that strategic planning is indispensable in
yet often overlooked, issue in the energy
any industry, particularly within the supply
industry: human capital. With so many
chain. Visibility is key because a significant
new and diverse industries emerging, the
part of the production process depends
upstream sector does not seem appealing
on having the right inventory at the right
to young professionals. The boom across
time. Hence, enhancing communication
various industries will demand a skilled
with both state-owned and international
workforce, and there will not be enough
private companies is crucial. This not only
talent to meet the growing production
leads to cost reduction but also ensures
and development needs. Additionally, he
the deliver y of qualit y and improved
points to a lack of adherence to international
21
C on f erence H ighlights sta n da rds , a t wo -way p ro cess a n d a
the Regulatory Energy Commission, and
substantial need for a diversified supplier
the National Hydrocarbons Commission
base that complies with all regulations
to ensure that regulatory issues act as
and ensures efficiency and safety in their
catalysts for business growth in Mexico,
operations.
rather than hindrances. Conducting a global benchmarking analysis to understand
O n t h e s i d e o f r e g u l a t i o n , A n to n i o
successful regulatory implementations
underscores
of
in other countries is crucial, he says. This
collaborating with various government
analysis can provide valuable insights into
agencies, including the Ministry of Energy,
enhancing Mexico’s regulatory framework.
the
importance
BOOSTING LOCAL CONTENT AND SUPPLIER DEVELOPMENT STRATEGIES In the oil and gas industry, procurement
worth MX$25.77 billion (US$1.51 billion)
plays a pivotal role in ensuring optimal
to MSMEs in 2022, underlining its role in
supplier selection, cost efficiency and
supporting these businesses. “Within the
q u a l i t y a s s u r a n c e . To a c h i eve t h e s e
next year, local content will become one
objectives, operators in the industry must
of the most important variables not only
navigate a complex web of challenges
for the public sector but also for privates.
and opportunities, keeping in mind the
We need to learn how to navigate this new
need and requirement for a stronger local
environment,” said Marcos Ávalos, General
supply chain.
Director, TUVANSA.
O ne of the primar y objec tives for
Local content goes beyond components,
operators in the M exic an oil and gas
however. According to Héctor Canizales,
industr y is to foster local content
Mexico Country Sourcing Manager, Baker
participation. Given this administration’s
Hughes, the lack of specialized workers in
emphasis on strengthening PEMEX as the
the US is urging Mexico to develop this
linchpin of its energy policy, local content
workforce, which also works to attract
has taken on significant importance. The
more investment to the countr y. “ The
development of the Dos Bocas refinery,
conditions are set, now it is our time to
for instance, was executed with a mandate
work on harnessing this environment,”
to employ as much local labor as feasibly
Canizales added. Similarly, Joel Zúñiga,
possible. According to data from the
Purchasing Manager, Fieldwood Energy,
Commission of Economy of the Chamber
maintains that education is for workers,
of Deputies, PEMEX awarded contracts
but also for companies. Zúñiga emphasized
22
C on f erence H ighlights that Fieldwood Energy focuses on getting
policy consisting of training programs and
to know each of the areas of the operation
resources.
in which suppliers can be educated to comply with local content requirements.
The digital revolution is also transforming the procurement landscape within the
“We let companies know that if they hire 100% Mexican staff, the company will be treated as national”
Mexican oil and gas industry. Operators are now leveraging digital platforms, such as supplier portals and e-procurement systems, to streamline their operations,
Joel Zúñiga
enhance transparency and foster effective
Purchasing Manager | Fieldwood Energy
collaboration with suppliers. “Digitalization of operations has boosted our capabilities to understand what our final client is looking
Canizales said that investing in engineering
for. Moreover, it has provided us with access
majors over these years has finally paid off,
to reliable and valuable information, thereby
as supply chains are relocating. He said
contributing to our overall operational
that under this scenario, Mexico is set to be
effectiveness,” Rafael Rodríguez, Board
a western supply hub for the sector. “We
Member Consultant, Grupo Industrial
are creating a China in Mexico from where
Águila added.
we will sell to everyone, even to China and the Middle East,” he added.
Nonetheless, Mexico has not performed well in the digital economy. Ávalos noted that
While developing a stronger local
Mexico ranks 49 among over 50 countries
content network, operators can enhance
in the operation of digital platforms. Under
their supplier diversity by engaging in a
these circumstances, experts recommend
combination of local and international
not only investing in technology but in
suppliers . This strategy enables them
proper training to manage such systems,
to s a t i s f y l o c a l c o n te n t r e g u l a t i o n s
which will impact the decision-making
w h i l e c a p i t a l i z i n g o n c o s t- e ff e c t i ve
process of companies when choosing a
global sourcing. To this end, long-term
supplier. “It is a fact that we will not be
partnerships with suppliers are important.
able to do business with a supplier that
During this process, Ávalos stressed the
cannot prove its ability to manage digital
importance of developing an industrial
platforms,” Canizales added.
A REVIEW OF MEXICO’S ENERGY REFORM AFTER 10 YEARS Mexico’s Energy Reform has ushered in
According to Óscar Roldán, Director of the
significant changes that have transformed
Oil and Gas Division, R9 Holdings, the origins
the country’s oil and gas industry. Right
of the Energy Reform can be traced back to
after Enrique Peña Nieto’s administration,
the change of government in 2000, which
the buzzword was continuity, to keep
brought increased scrutiny to PEMEX. While
on track with the new concessions that
no substantial changes were initially made to
the reform brought for private players
reform the regulation of PEMEX, these ideas
to participate in the industry. The López
bore fruit in altering the way public contracts
Obrador administration, however, changed
functioned, as well as the establishment
that buzzword to disruption as bidding
of regulatory agencies like the National
rounds were canceled and PEMEX regained
Hydrocarbon Commission (CNH). Among
its position as the government’s golden
some of the biggest changes in PEMEX was
company. Ten years af ter the Energy
the change in its fiscal contributions, the
R e fo r m , th e i n d u s tr y l a n d s c a p e h a s
NOC used to pay almost 100% of its income
transformed, although some challenges
to public finances, which later transformed
remain unchanged.
into the Right of Shared Profit (DUC).
23
C on f erence H ighlights data increased significantly, as well: 2D seismic data tripled, while 3D seismic coverage with WAZ technology quadrupled and new studies were conducted around the country. “All of this without the government spending one dollar,” mentions Rodán. Regarding the expansion of hydrocarbon exploration and production, the goal was to increase the availability of reserves to drive the country’s economic growth. In 2019, the Mexican side of the Gulf of Mexico became the most explored oil and gas region globally. This milestone translated into substantial dividends in 2020, with the average rate of exploration findings significantly exceeding the global average. A substantial portion of these successes occurred in deepwater regions, some of the least explored areas. These findings renewed interest in the potential treasures within these basins and highlighted the future of Mexican deepwater development beyond PEMEX. In 2014, the Energy Reform proposed a
Still, reserves face a challenging landscape
fundamental transformation to how the
in Mexico. Despite increasing reserves
industry operates. This involved a series of
and strengthening PEMEX were two of
significant changes, including the ability
the most significant goals of the reform, a
for PEMEX to compete in the industry and
weaker PEMEX that owns 86% of 2P oil and
become a world-class company. Corporate
gas reserves in Mexico proves challenging.
governance and transparency rules were
Enrique Peña Nieto’s administration marked
also implemented to ensure efficient and
PEMEX with a 163% increase in its debt
responsible management of the company.
and very low levels of investment, which
The Reform had seven crucial objectives
decreased by 50%. Furthermore, Roldán
at its core, which included increasing oil
identifies transparency as a transversal
and gas production as soon as possible,
c h a ll e n g e th at th e i n d u s tr y a n d th e
increasing reser ves and transforming
NOC faces.
PEMEX, explains Roldán. Th e En e rgy Refo rm e s t a b lish e d th at On the private sector’s side, company
hydrocarbons would continue to be owned
participation yielded important results.
by Mexico, ensuring the country’s energy
Onshore, 48 contracts were awarded and 4
sovereignty. In 2018, however, president
migrations from previous service contracts
López Obrador raised uncertainty as his
were concluded. Meanwhile 59 offshore
new administration insisted on restating
contracts were awarded and one migration
Mexico’s ownership of hydrocarbons. The
from PEMEX (entitlement) was concluded.
president put the rescuing of PEMEX at the
Private companies have invested US$14
center of his energy strategy, which has
billion and plan to invest about US$50
proven to be a big challenge due to PEMEX’s
billion more, while these operations have
level of indebtedness. Meanwhile, with the
also yielded US$3 billion for public finances
cancellation of bidding rounds in 2019, no
in the form of taxes. Mexico’s oil and gas
more areas are granted for exploration,
24
C on f erence H ighlights
while operators have begun to abandon
wh il e e n h a n cin g it s d e cisio n - m a k in g
several blocks.
capabilities. Resuming bid rounds is also crucial, with a focus on PEMEX’s existing
Moving into 2022, the industry once again
reserves and production areas. These bid
faced significant challenges. The US and
rounds should also incorporate provisions
Canada initiated an arbitration process
to assist the NOC by reducing its capital
against Mexico arguing that the latter was
requirements through farmouts for natural
not honoring its commitments to the free-
g a s fi e l d s i n key b a si n s l i ke B u rg o s ,
trade agreement and was hindering fair
Veracruz and Macuspana, with a maximum
competition with its latest energy reforms,
royalty rate of 10%. Farmouts for mature
brought by the current administration. At the
onshore fields in the southeast basin could
same time, the Russian-Ukraine war disrupted
also be an attractive option, with a royalty
supply chains and drove up energy prices. In
rate not exceeding 20% . Additionally,
response, oil companies had to redefine their
bid rounds should encompass PEMEX’s
investment plans. High oil prices, however,
discoveries in deepwater areas like Doctus,
helped stabilize the industry’s investments.
Maximino and Nobilis, with a royalty rate around 18.5%. In cases where areas remain
Roldán explains that the main challenges
unallocated, Roldán says PEMEX should
for the oil and gas industry in Mexico , at
have the option to participate and benefit
the moment, is in regulation, which is very
from investment contributions.
difficult to navigate in the country and very time consuming. An improved fiscal regime
Enhancing the regulatory framework is
is needed that could spark more interest and
essential, states Roldán . Streamlining
make many interesting areas more viable.
r e g u l a to r y a g e n c i e s o r e s t a b l i s h i n g
The country needs to change its view of
government committees with a unified
the oil and gas industry as a mere source of
platform for addressing industry issues
fiscal revenue.
could prove advantageous. A renewed commitment to transparency and
Moving forward, Roldán mentions that
accountability is also imperative, as it
bolstering PEMEX and addressing its debt
is evident that combating corruption
to secure financial autonomy is a priority,
requires these fundamental principles.
PERSPECTIVES ON ESG FROM THE SUSTAINABILITY COMMITTEE IN PEMEX Over the past couple of years, PEMEX
A l t h o u g h t h e c o m p a ny s aw a s l i g h t
has grappled with numerous challenges,
i m p r ove m e n t i n i t s fi n a n c e s d u e to
including high levels of debt and
surging oil prices last year, it still grapples
accidents often attributed to inadequate
with mounting pressure to align with
m a i n te n a n c e a n d r a p i d p r o d u c t i o n .
environmental, social and governance
25
C on f erence H ighlights (ESG) standards. The recent creation of
is responsible for recommending the
a Sustainability Committee is a nascent
NOC comprehensive policies, guidelines
sign of change inside the NOC.However,
and best practices related to ESG. The
uncertainty still lingers.
commit te e’s duties involve assessing E S G ris k s , i d e ntif yi n g o p p o r tu n iti e s ,
P E M E X a n n o u n ce d to th e S e c u r iti e s
proposing relevant strategies, overseeing
Exchange Commission the creation of the
reports and management plans, as well as
PEMEX Sustainability Committee of the
encouraging transparency and disclosure
Board of Directors in March 2023. This
regarding ESG.
committee underscores the company’s commitment to sustainable practices and
“ Sti l l , o u r re co m m e n d a ti o n s a re n ot
responsible energy production, as it aims
binding. We advise and PEMEX needs to
to integrate ESG considerations into the
make a decision,” he added.
NOC ’s decision-making processes and contribute to a more sustainable future.
Despite the creation of this committee, ESG efforts on PEMEX’s side, particularly
While benchmarking and reporting ESG
regarding sustainability, are still a work
metrics is not mandatory, these criteria are
in progress. President López Obrador’s
now essential for measuring risk regarding
e n e rg y s tr ate g y h a s d r awn c r iti c i s m
how sustainable a company is.
fo r p rio ritizin g th e re scu e of P EM E X and showing a general preference for
Furthermore, it is becoming increasingly
fossil fuels . While it is acknowledged
relevant for investors that business models
in rese a rch a n d a cce pte d by va rio us
align with sustainability standards.
g ove r n m e nt s , i n cl u d i n g th e U S , th at the world will continue to rely on oil for
Lorenzo Meyer, Member of the Board of
decades, the oil industry is compelled to
Directors and President of the Sustainability
advance the energy transition. Several
Committee, PEMEX, acknowledges that,
p r i v a te o i l c o m p a n i e s h ave a l r e a d y
at the beginning, the PEMEX board did
reported investments in renewable energy
not recognize ESG as a priority. “ This
technologies. In contrast, PEMEX’s ESG
not a trend anymore, however. We need
efforts remain vague, as the company
ESG now,” he added. Meyer pointed out
grapples with issues like high levels of
that the sustainability team, consisting
flaring, oil spills and unprofitable refining
of members from PEMEX, the Ministry
o p e r a ti o n s , w h i c h a l s o r e s u l t i n t h e
o f F i n a n c e (S H C P ) a n d S E M A R N AT,
production of low-value, polluting fuel oil.
26
C on f erence H ighlights ESG efforts are necessary if PEMEX wants
goals to address the development of the
to keep investors happy, which is something
NOC’s Sustainability Plan.
that Meyer highlights as a priority. The NOC has announced several measures to update
Meyer pointed out that PEMEX’s goals during
its safety and environmental procedures to
his time leading the committee remain to
ensure it can attract financing from banks
drive a sustainable operational strategy and to
and investors demanding more robust ESG
construct business models that ensure profit,
standards from fossil fuel companies. “The
considering energy efficiency, GHG emissions
most contentious goal we have in the mid-
reduction, health and safety protocols and
term is a roadmap for our Sustainability Plan.
an anticorruption and transparency policy.
We must have very clear goals to present to
Goals also include aligning with international
investors, regulators and banks,” stressed
best practices and adopting new regulatory
Meyer. The committee has met with several
frameworks like SEC and EC. “I think PEMEX
stakeholders including BBVA, JP Morgan,
is slowly realizing that it needs a robust
Sumimoto, Standard & Poors and Swiss Re.
sustainability strategy if it wants to survive in
to analyze the perspectives on each of these
the long run,” he concluded.
THE CHALLENGE OF OPTIMIZING PRODUCTION, DELIVERING ESG OBJECTIVES The oil and gas industry faces increasing
Addressing these complex issues requires
scrutiny in its environmental, social and
a m u l t i f a c e te d e c o s y s te m i nvo l v i n g
governance (ESG) practices. ESG standards
customers, corporations and regulatory
have evolved into a critical factor for
bodies, says Ignacio Quesada, Partner,
companies in determining their access
McKinsey & Company. Solutions must be
to financing. Balancing the imperative to
approached from diverse perspectives and
optimize production in mature fields with
encompass a range of elements.
the responsibility to uphold ESG principles is a critical challenge for all operators,
In this regard, Brad McNeill, CEO, Frontera
agree experts.
Offshore, emphasizes that the primary
27
C on f erence H ighlights fo cu s sh o uld b e o n tra n sp a re n c y, a s
establish public policies and collaborate
capital markets exert influence on both the
with governmental bodies and educational
accessibility and cost of capital allocated
institutions, while promoting social and
to support oil and gas initiatives. It has
economic development.
become crucial for companies seeking capital or operating within the market to
Preparing for the future through a well-
express their dedication to ESG, exhibit
defined strategy, collaborative efforts and
transparency in their commitments
a diversified portfolio of business ventures
a n d d e m o n s t r a te t a n g i b l e ev i d e n c e
b e co m e s e s s e nti a l . T h i s p re p a r ati o n
in the application of these prac tices .
i nvo lve s a d o pti n g th e b e s t ava il a b l e
He also underlines the impor tance of
technologies and evaluating the feasibility
systematically assessing strategies for
of ongoing projects, particularly regarding
reducing carbon emissions and integrating
energy efficiency, monetization, storage,
cutting-edge technologies to enhance
effluent and emission management.
o p e r a t i o n a l e ffi c i e n c y, e s p e c i a l l y i n ongoing projects or mature fields.
Eckhard Hinrichsen, Country Manager and Market Area Manager, DNV Energy Systems
Ensuring success in the implementation
M exico, s t ate s th at th e fo cu s sh o uld
of ESG methodologies requires a close
not primarily be on cost considerations
examination of available tools and
when deciding how to implement such
f a c i l iti e s . R e co g n izi n g s u s t a i n a b i l it y
measures, as ESG initiatives are no longer
c o n c e r n s i n a n ex i s t i n g o p e r a t i o n a l
discretionar y. Instead , it is crucial to
framework also differs significantly from
proac tively seek oppor tunities within
incorporating such measures into entirely
social assets and invest in community-
new projects, especially when existing
centric endeavors. These opportunities
assets are already deployed.
should be viewed as yielding more advantages than mere financial costs.
Th e oil a n d g a s se c to r f a ce s seve ra l challenges due to its nature and impact on
The journey to minimize carbon emissions
the environment and local communities.
continues and requires the oil industry to
Th e n e g ative e nviro n m e nt a l im p a c t s
innovate based on how oil-based products
frequently associated with fossil f uel
are used in various industries. Investors
ac tivities have led to global concern ,
a re n ow h e avily fo cu se d o n a lig n in g
especially over the climate change crisis.
their portfolios with renewable or green-
C o n s e q u e n tl y, s eve r a l c o u n t r i e s a r e
focused investments. ESG has emerged as
considering or have already implemented
a central theme in investment decisions.
measures to transition away from fossil
The oil industry, often seen as a climate
fuels. They are even contemplating or have
adversary, can play a pivotal role in the
announced plans to ban the hydrocarbon
decarbonization transition , especially
industry from their territories.
with government incentives. James Buis, District Manager - Mexico, ChampionX,
Sara Landon, Executive Director, Inerco,
emphasized that diversifying portfolios
mentions that the objectives for the year
is also imperative to address emerging
2 0 5 0 a re cl e a rly d e fi n e d a n d , b a se d
challenges effectively.
on these, there will be a decrease in oil consumption. Technology will gradually
Landon notes that approximately 50%
integrate into the industry and only the
of greenhouse gas emissions originate
most efficient and profitable reservoirs
from the oil and gas industry. However,
will endure, considering not only
com pre h e nsive g uidelin es have b e e n
economic but also environmental and
issued to provide a clear roadmap for
social factors. However, to achieve this
addressing this challenge. Most companies
transition successfully, it is imperative to
within the petroleum sector are affiliated
28
C on f erence H ighlights biodiversity and compensating for any remaining significant impacts.
ESG in Mature Operations Oil and gas operators in mature fields face a dual challenge: optimizing production while upholding E SG responsibilities . By considering environmental impacts and implementing mitigation measures, i nte g r ati n g E S G p r i n c i p l e s i nto fi e l d rejuvenation projects , embracing technology for efficiency and sustainability and employing advance d reser voir management techniques with an ESG perspective, operators can navigate this challenge successfully. The innovative integration of technologies, s u c h a s c o m b i n i n g O ff s h o r e W i n d w i t h E n h a n c e d O i l R e c ove r y ( EO R), represents a forward-thinking approach, according to Hinrichsen. This involves electrifying offshore operation platforms to minimize carbon footprint and gradually transitioning toward renewable energy sources. Additionally, using solar energy is a strategic measure aimed at reducing carbon emissions within the industr y. Furthermore, incorporating biodegradable agents in fracking underscores with the Global Reporting Initiative (GRI).
a commitment to environmental
As of January 2023, oil and gas enterprises
sustainability.
must adhere to Sectoral Standard Number 11. This standard is closely aligned with the
McNeill stated that significant technological
fulfillment of SDGs and underscores the
opportunities persist in Mexico, particularly
necessity for industrial activities to be
in bridging existing gaps. There is a growing
sustainable, not only from an economic
awareness among individuals regarding
standpoint but also environmental
available technologies, although challenges
and social perspectives . Within these
persist in their adoption. Nevertheless, it
standards, best practices are articulated,
is undeniable that continued progress is
ser ving as a framework for sec tor
essential, encompassing the incorporation of
companies to establish their commitments
AI, data analytics and augmented reality for
in the years ahead.
training and various applications.
L a n d o n u n d e r s co re s th at to o l s h ave
Moving forward, a strategic approach for
been developed for mitigating significant
mature fields should involve a comprehensive
effects within the oil sector. These tools
assessment of the current landscape. This
involve a structured four-step process:
assessment should aim to determine feasible
proactively preventing the occurrence
and cost-effective actions and identify
of a dve rse im pa c t s , minimizing th eir
technologies that can be deployed to execute
m a g nitu d e , re m e dyin g a n d re s to rin g
these plans effectively.
29
C on f erence H ighlights THE CONSTITUTIONAL LIMITS ON LEGISLATIVE AND EXECUTIVE POWER The dynamics of Mexico’s hydrocarbon
to private companies involved in first-hand
market have been under scrutiny throughout
hydrocarbon sales. This shift in regulations is
this administration. In July 2022, the US
believed to have favored PEMEX, hindering
and Canada initiated dispute settlement
other market players.
discussions with Mexico under USMCA, concerning the latter country’s energy
According to experts, rule of law is a very
policies. The following month, Mexico’s
important pillar in any economy. David
Minister of Economy, Raquel Buenrostro,
Enriquez, Partner, Goodrich, Riquelme
stated that there was no conflict with the
y Asociados, states that Mexico’s recent
US and Canada because reforms to the
e n e r g y d i s p u te s a n d a m p a ro s a re a
Electricity Industry Law were suspended
reflection of contradictions with what
by the judicial power due to amparo
is established in the Constitution itself.
lawsuits filed by various affected parties.
“Giving greater preponderance to state
US President Joe Biden, however, recently
energy companies violates the principles
requested companies to document
of competition in businesses that are valid
violations of USMCA in the energy sector,
and are the cornerstone of any market in
wh i c h m e a n s th e d i s p ute co nti n u e s .
the world,” adds Enrique González Calvillo,
Disputes remain unresolved and now, the
Partner, González Calvillo.
Supreme Court must definitely rule on the constitutionality of reforms proposed by the
The elimination of asymmetric measures
López Obrador administration.
in 2021 raised concerns among private companies, who said that this change
During former President Peña Nieto’s
allowed PEMEX to exert even greater
g ove r n m e n t , a s y m m e t r i c l aw s we r e
dominance over the hydrocarbon market.
introduced to counterbalance PEMEX’s
Companies challenged the regulator y
dominant position in the market and
changes and secured a protective order
provide an opportunity for private operators
u n d e r th e A /01 5/2 02 1 a g re e m e nt ,
to enter the sector. However, the 2021
e ff e c tive ly n ullif ying th e tra nsitio n a l
amendment resulted in CRE losing its
article that stripped CRE of its authority
authority to apply asymmetric regulations
to apply asymmetric regulations. However,
30
C on f erence H ighlights the protective order faced opposition
matters to create an expansion wave and
from Congress, the Executive and the
come to a fairer conclusion for the market.
commission itself.
“The strength of institutions is critical because they are designed to preserve the
In response to lingering concerns, Judge
constitution. All of this is based on the law,
Javier Laynez of the Mexican Supreme Court
so we can be optimistic that the outcome
(SCJN) plans to propose a constitutional
will be the best for the market.” discusses
revision to the Hydrocarbons L aw to
Rodríguez.
level the playing field. His proposal aims to declare PEM E X’s advantage in the
These changes have escalated and reached
hydrocarbon market as unconstitutional,
the Supreme Court through the amparos
potentially allowing private entities to be
presented by different companies to defy
regulated by the previously established
what they identif y as unconstitutional
asymmetric laws without needing to seek
unfair competition. According to González,
individual legal protection.
Mexico is going through a decisive moment regarding a possible outcome to these
Laynez’s argument centers on the principle
discussions, as this could affect the entire
that Congress does not possess the authority
energy industry, including oil and gas.
to determine the competitive development level of specific markets, which justifies the
Nonetheless , exper ts concur that the
elimination of asymmetries. Laynez’s goal
fact that these disputes have reached the
is to confirm the declaration that a part of
Supreme Court and are being decided
the reform is unconstitutional, particularly
there represents a “light at the end of the
regarding granting an advantage to PEMEX
tunnel.” However, this also means that it is
in the hydrocarbon sector. Laynez’s proposal
the “last line of defense” toward ensuring
seeks to uphold the 2021 protective order
fair competition and against favoring state
and establish a more balanced regulatory
companies in detriment of private ones,
environment within the hydrocarbon sector.
explains Enriquez. “The good news is that all of this is based on the Energy Reform, the
Enriquez explains that J udge L aynez
Constitution and trusting in the impartial job
wisely knew how to connect a previous
that the Supreme Court must exercise. We
case of market competition regarding the
have a very strong case to defend what is
telecommunications sector to argue his
right constitutionally and by law,” mentions
case, and that, in the same way, the law
Pa n e lis t Cla u dio Ro d ríg u ez , Pa r tn e r,
can use the outcome of amparos in energy
Holland & Knight.
31
C on f erence H ighlights CONVERTING MEXICO’S DEEPWATER POTENTIAL INTO RESERVES, PRODUCTION Mexico’s oil production has been on a steady
projecting a peak output of 100-120Mb/d of
decline for years. With the Energy Reform,
oil and 145MMcf/d of gas.
Mexico sought to expand hydrocarbon exploration and production to increase the
Woodside shares that delivering a deepwater
availability of these resources and drive the
development is a complex undertaking and
country’s economic growth. One of the key
therefore takes more time to achieve first
opportunities is in Mexico’s deep waters,
production when compared to onshore or
which PEMEX had left mostly untouched
shallow-water developments. According
but that private players see as a greenfield
to Stephan Drouaud, Vice President Trion
venture. Trion, a Woodside-PEMEX venture,
Mexico, Woodside Energy, the complexity
is the first major discovery in these areas and
of such investment has been compounded
is now entering its development stage.
by pandemic-related supply chain issues and the current geopolitical challenges that
Woodside is one of Mexico’s most prominent
drive a high level of volatility in commodity
oil industry players and is currently working
prices, as well as in the cost and delivery
in the ultra-deepwater Trion farmout project
time of goods and services. While some
with PEMEX. The Trion field was discovered by
of these elements are outside operators’
PEMEX Exploration and Production (PEP) in
control, Woodside focuses on providing
2012. However, development was put on hold
cost and schedule predictability through its
due to the substantial investment required,
contracting strategies and by engaging with
along with technological capacity limitations.
the market to find beneficial solutions for all
Now, in partnership with Australian Woodside,
involved.
both entities anticipate oil production by 2028. Trion’s prospects include substantial
According to Drouaud, the merger of
hydrocarbon production, with estimates
Woodside with BHP’s oil and gas business has delivered a stronger balance sheet, increased cash flow and financial strength to fund planned short-term developments and new energy sources in the future. Following the merger, Woodside became the largest energy company listed on the Australian Stock Exchange (ASX). Woodside is now a global company with a truly international footprint and secondary listings on the London Stock Exchange (LSE) and New York Stock Exchange (NYSE). Woodside’s larger, more diversified portfolio is expected to deliver significant cash flow to help fund growth, Woodside’s participation in the energy transition and shareholder returns. “We believe in energy transition and in climate change. We are proud to be able to provide affordable energy to our clients while developing new energies,” Drouaud added. Over a decade after its discovery, the Trion ultra-deepwater field in the Gulf of Mexico will be developed following CNH’s approval of Woodside and PEMEX´s plan proposal: a
32
C on f erence H ighlights meticulous strategy tailored to the field’s
According to Drouaud, this kind of floating
characteristics and sustained operability.
facility is a technology never before seen in
This marks the first development plan for
Mexico, which makes it a bit more challenging
the extraction of an oil field in ultra-deep
to develop. “The complexity of this project
waters in Mexico. “This also marks the first
made it difficult to comply with the local
time we work together with a national oil
content requirements of Mexico, so we had
company,” Drouaud mentioned.
to negotiate and make PEMEX understand that this technology could not be acquired
T h i s m i l e s to n e w i l l co n tr i b u te to a n
or developed in Mexico. We would have
increased understanding of the subsurface,
loved to do it, but the complexity of the
f a c i l i t a t i n g a d d i t i o n a l d e ve l o p m e n t
project requires us to look at it globally,”
activities in the Perdido Basin, a region
Drouaud added.
presently characterized by the presence of exploratory assignments or contracts,
According to CNH projections, the estimated
emphasizing the strategic importance of
volume of hydrocarbons to be recovered
this forward-looking initiative. The project
during the contract’s validity period from
is also expected to establish infrastructure
2023 to 2052 is approximately 434MMb of
in the Perdido Basin, which currently has
oil and 790Bcf of gas. Of this gas volume,
not any infrastructure development.
570Bcf will be reinjected into the reservoir, leaving 219Bcf planned for sale and self-
I n te r m s of n u m e r i c a l p ote n ti a l , th e
consumption. Collectively, Trion is one of the
Trion deepwater field holds remarkable
most interesting projects presented to the
signific ance. Woodside repor ts gross
commission, says CNH Commissioner Héctor
proved undeveloped reserves totaling
Moreira. Its projected production will generate
324.7MMboe. Of these, the Australian
an income of MX$80 billion (US$47.7 billion)
IOC holds 194.8MMboe. When factoring
for the Mexican government.
in probable undeveloped reser ves , th e site ’s total re a ch es 478 .7M M b o e ,
For 2H23, Drouaud’s priorities for Trion
with Woodside’s share accounting for
consist of progress-detailed engineering
287. 2MMboe. To realize the field´s full
and procurement across FPU, FSO, as well
p o te n ti a l , t h e p ro j e c t w i l l e m p l oy a
as Subsea, Umbilicals, Risers and flowlines
floating production unit (FPU) with an oil
(SURF) developments. Other priorities
production capacity of 100M/d. This FPU
include initiating preparations for regulatory
will be connected to a floating storage and
permits for execution activities and continuing
offloading (FSO) vessel capable of storing
to award key contracts, working toward the
up to 950Mb.
first oil in 2028.
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