Talanza Energy Consulting

octubre, 2019

AMLO, AMEXHI and the future of the oil and gas industry

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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.

COMMITMENTS FROM JANUARY’S MEETING

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 :

  • 15 Contracts operated by private companies  produced 44 kbpd by September 2019 and it is  expected to achieve 50 kbpd by December.

The estimated prtoduction of Contracts (without  Migrations) for 2024 is 394 kbpd (Figure 2).

  • USD$9,629 million invested in E&P activities and  approved investments of USD $36,000 million for the following years.
  • More than 600 wells approved in Plans.

COMMITMENTS FOR NOVEMBER’S MEETING

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).

Talanza Energy is a consulting  firm specialized  in  regulatory compliance in the Mexican energy sector. We guide our clients into achieving a fast and  seamless execution of their projects as we align their  operation objectives with the compliance of all  regulatory requirements.

Analistas

Marco Cota

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.

Ricardo Alcudia

Mr. Alcudia provides specialized advice to our clients in terms of development stage obligations, focusing in aligning our client’s objectives to the national requirements in order to achieve a successful compliance of their contractual and regulatory requirements.