OTC: Mexico implementing energy reforms, stressing transparency

May 9, 2016
Mexico plans to issue updates on its bidding process on May 15 for its Round 1 fourth bid involving deepwater and ultradeepwater blocks, panelists told a May 3 session of the Offshore Technology Conference in Houston.

Mexico plans to issue updates on its bidding process on May 15 for its Round 1 fourth bid involving deepwater and ultradeepwater blocks, panelists told a May 3 session of the Offshore Technology Conference in Houston.

The licenses and production-sharing contracts are being offered as part of Mexico's energy reform, ending a decades-old monopoly held by Petroleos Mexicanos (Pemex).

Maria de Lourdes Melgar Palacios, Mexico's undersecretary of hydrocarbons, said 10 blocks will be involved in the deepwater and ultradeepwater bidding, scheduled for Dec. 5. She said 14 companies already have signed up for the process. The bidding is for a 50-year contract, she said.

"Pemex faces the transformation of becoming a state enterprise," she said, adding the energy reform continues despite the oil price slump, which has caused some delays. "We are on a learning curve," regarding contracts, a process that also has caused a few delays, Melgar said.

She expects an announcement on Round 2 shallow water blocks by the end of August as well as an announcement on unconventional blocks by yearend.

Melgar emphasized that hydrocarbons in the subsoil still belong to Mexico, which is opening up exploration and production to free-market access and competition between Pemex, a state-owned enterprise, and private companies.

She said Mexico is working to join an international standards of transparency organization for the extractive industry, and she hopes that the membership can be finalized yet this year.

Mexico also has applied to become a member of the International Energy Agency.

During the now-completed Round Zero, the Mexico government awarded certain assets to Pemex and determined which assets were open to competitive bidding. As part of the reform, Pemex is allowed to partner with companies from outside Mexico (OGJ Online, Sept. 23, 2014).

Christine Healy, Statoil Mexico vice-president of exploration, told the OTC session that Statoil has participated in bidding on Mexico oil and gas blocks but has not yet been successful.

Healy said Statoil is very interested in Mexico, which she described as being relatively underexplored.

"We see more exploration is required in Mexico by international companies along with Pemex," Healy said, adding Mexico is establishing "a clear and predictable energy policy. I think this is a sign of a clear, robust system."

Service companies respond

Mexico's energy reforms will mean changes for international service companies as well as for oil and natural gas operators and investors, a separate May 3 OTC panel said.

Service companies having a history of working in Mexico must adapt, grow, and integrate their services to fit with the nation's emerging energy reforms, speakers said.

Service companies have evolved in response to energy reforms in other countries, said Ian Cook, Weatherford International Inc. vice-president of secure drilling services. He compared reforms in Brazil and Iraq with Mexico.

"The three had very, very different ways of implementing energy reform and different contracts for service companies," Cook said of Brazil, Iraq, and Mexico. "Offshore drilling has been very low in Mexico. What is the risk for the service companies and who will the service companies be?"

Mexico's contract strategy has yet to be fully outlined. International service companies will have to figure out how to manage risk, he said.

"I think the important part is that everyone stays level headed," Cook said.

Luis Escalante, general manager of FMC Technologies Mexico, said he foresees many new players coming onto Mexico's energy market, and service companies will need to be ready to work with multiple customers having different management and different contracts.

"Things have changed in Mexico," he said. "We are living that already. I see a big difference. Pemex is still the biggest customer, but that is going to change. Pemex also is changing, especially the way they do contracts."

Energy reform will bring about changes involving procurement, expansion of clients, competition, and local content, panelists said.

About the Author

Paula Dittrick | Senior Staff Writer

Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.

Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.