Since 2004, oil and gas production has been steadily declining to the point that Mexico is producing 49% of what it used to 15 years earlier. Unfortunately, Pemex has been uncapable of reversing the production decline (Figure 1) despite of an increasing investment.
As an additional effort to reverse this declining tendency, the Energy Reform of 2013 opened E&P activities to private companies. The result so far includes 111 Contracts, an increase in activities, investments and the first oil discoveries by private companies.
According to AMLO, the reform has not delivered the results promised by the former administration and therefore he suspended new bidding rounds. However, it is hard to make a good evaluation of its performance as it is barely a 6-year-old kid in an industry where life expectancy is up to 50 years and maturity is achieved by the age of 10-15 years.
Fortunately, AMLO has stablished an open dialogue with the private sector where both parties have committed to each other to define the future of this industry. A key moment will take place next month.
The Asociación Mexicana de Empresas de Hidrocarburos (AMEXHI) is the largest association of oil and gas operators in Mexico with more than 50 companies of different sizes and nationalities. During January’s meeting, AMLO said that new bidding rounds would be suspended until private companies started investing and producing what they were supposed to. As a response, AMEXHI claimed that one of the main obstacles for increasing investment and production was the regulatory burden and committed itself of producing 50 thousand barrels per day (kbpd) by the end of 2019 and up to 280 kbpd by 2024.
Despite the regulatory burden and according to CNH’s information, private operators will fulfill their 2019’s commitment and they will go beyond the 2024’s one:
AMLO and AMEXHI will meet again in November 2019, where AMEXHI will show the accomplishment of its commitments raising a new hope for relaunching bidding rounds which would be critical for reverting declining production and increasing reserves more rapidly. Private investments (mainly in exploration and appraisal) will be crucial if we consider a more extraction-centered strategy from PEMEX.
Private companies already provided investment (USD$10 billion), royalties to government (USD$2 billion) and new activities in exploration and development (642 planned wells). On one hand, the 84 exploration and appraisal plans approved will contribute with reserves incorporation derived mainly from new oil and gas discoveries. On the other, the 56 development plans approved will contribute with earlier production and reserves incorporation via revisions or new engineering approaches (Figure 3).
As in January 2019, regulatory compliance burden is still the main obstacle to accelerate investments and production. For instance, under an optimal compliance and project execution, it can take more than 20 months between signing the contract and drilling the first well. More than 250 obligations administered by ten different authorities give low flexibility and delays operations. A transition to a more flexible regulation is key for achieving higher and faster goals.
Figure 1: From peak production in 2004, there has been a decrease of 1,708.4 kbpd.
Figure 2: CNH’s estimated production in 2024. It does not consider migrations from Entitlements to Contracts and migrations from CIEPS and COPFS.
Figure 3: CNH has approved 140 plans of private operators, most of them for Exploration and Appraisal phases. The highest percentage of the approved investment relies on Round 1.2 (Development Plans of ENI, Hokchi and Fieldwood).
Mr. Cota is the founder and CEO of TALANZA where he assists international energy companies in the design and implementation of tailor-suited strategies for their regulatory compliance adjusted to the applicable geopolitical context, considering current and upcoming regulations.