Alberto Galvis, CEO of Citla Energy

Removing competition and removing the ability to associate with other companies and work together will not help Pemex.

Alberto GALVIS CEO CITLA ENERGY

Progress through competition in Mexico

January 17, 2019

Alberto Galvis, the CEO of Citla Energy, talks to TOGY about the importance of diversifying competition instead of consolidating it, the model Pemex should be following for greater success and the impact of cancelling new rounds for offshore development. Established by Acon Investments in 2015, Citla is a Mexican E&P company with offices in Mexico City and Houston.

• On the offshore outlook in Mexico: “The previous administration bid almost everything that was available – the majority of the areas that were available according to the five-year plan. As a result, the offshore landscape is unlikely to be affected by the suspension of bid rounds. Offshore activity will have its own dynamic now, and exploration plans will be executed.”

• On the Pemex approach: “We cannot have a major reform where Pemex is not successful. However, Pemex can be more successful not by removing its competition, but by actually embracing it – embracing working and associating with other companies. That’s how the oil industry works. Companies associate with each other; they sell part of their assets and bring others to share geological risk, to minimise the amount of money they put at risk and bring in additional expertise.”

• On competition: “Association and competition are part of the strength of this industry. If you look at the boom that shale experienced in the United States, it is the result of thousands of companies competing and being more efficient. The most efficient is whoever is the most successful, and it prevails. This is a good thing. Removing competition and removing the ability to associate with other companies and work together will not help Pemex.”

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What implications will the halt of new E&P rounds have on offshore development?
There will be changes in some areas, but others will remain the same. With respect to onshore, there is going to be a change. Part of the plan was a number of important farm-outs that Pemex was going to carry out onshore, which will be suspended most likely.
In the case of offshore, where we are playing, I don’t see much change. The previous administration almost everything that was available – the majority of the areas that were available according to the five-year plan. As a result, the offshore landscape is unlikely to be affected by the suspension of bid rounds. Offshore activity will have its own dynamic now, and exploration plans will be executed.
Currently, there are at least three or four processes in place to buy and sell stakes in blocks already awarded. This dynamic will strengthen in the upcoming years, with some people achieving discoveries and wanting more, others who are not as successful wanting less and companies shifting their focus to another region and wanting to sell their assets here.
The offshore has its own dynamic. Contracts are awarded; the rules are there. There will be some changes, but these contracts are for 25 years and can be extended for another 10. That means we will have at least four to six administrations until they expire.

 

What is Pemex’s role within the new administration’s plans?
The new administration wants to ensure that Pemex is successful, and I do not disagree with that. We cannot have a major reform where Pemex is not successful. However, Pemex can be more successful not by removing its competition, but by actually embracing it – embracing working and associating with other companies. That’s how the oil industry works. Companies associate with each other; they sell part of their assets and bring others to share geological risk, to minimise the amount of money they put at risk and bring in additional expertise.

What has been Citla’s experience in working with oil majors?
We want to continue working with the fantastic operators we have. Eni has consolidated as one of the – if not the – best explorer in the last 10 years, and we are partnering with them for exploration purposes. Secondly, they are the best oil major in terms of moving faster from discovery to development. They proved it in different places of the world, including Mexico. They just did it in the Amoca-Miztón-Tecoalli development. We are the only Mexican company partnering with an oil major, and we are very proud of that.
Cairn Energy has also been quite successful in similar activities – exploration in the North Sea and developing fields in Africa, Senegal in particular. We really are comfortable with where we are and how we are moving ahead in terms of our plans.
Normally, oil majors look at companies with significant size. As a local partner, I think Citla offers local special knowledge about operating in Mexico. Combined with that is our very robust financial status, because our shareholders are strong institutional investors, thus adding a lot to the table when it comes to operations such as this.

What can the domestic upstream industry learn from oil majors?
If you look at the oil majors, ExxonMobil does not operate an important percentage of its production. That means that it, by definition, tries to leverage the knowledge, capacity and financial capability of other companies that operate for it. That is the same with everybody – the same with BP, the same with Shell, with any other company.
Association and competition are part of the strength of this industry. If you look at the boom that shale experienced in the United States, it is the result of thousands of companies competing and being more efficient. The most efficient is whoever is the most successful, and it prevails. This is a good thing. Removing competition and removing the ability to associate with other companies and work together will not help Pemex.

How are industry players approaching the new administration?
Amexhi [Mexican Association of Hydrocarbons Companies] is the voice of the industry. One of its roles is to convey messages to the new government. Amexhi informs the government of any potential impacts a given policy may have or makes suggestions on how to make it better.
The experience with the launch of the energy reform with the [previous] administration was quite successful in the sense that there was a lot of consultation. The administration does not always have to do what the industry suggests, but listening is an important part of the whole process. I am optimistic that the new administration will listen to what the industry has to say.

What is the activity outlook for the industry over the next few years?
The coming years are going to be very exciting because the last three years [as of October 2018] have been about contract awards. The majority of these have been exploration contracts, which normally have initial periods of four years. In the case of deepwater, it is a bit longer, but the first wells will be drilled in 2019 and 2020.
Imagine what will happen in 2019 and 2020, when awarded blocks will see wells being drilled. We alone are going to do four. Others – Total, BP, Equinor, Talos Energy, Sierra – everybody will start. This is the time when we will see the results of the energy reform. When the results of Round 2 start occurring, that is going to be quite exciting. We’ll have to prepare for what is to happen in the next couple of years, because this is going to be transformational for the country and the industry.

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