TOGY talks to
Reason for excitement upstreamNovember 9, 2017
Raymundo Piñones de la Cabada, director of the Mexican Association of Hydrocarbons Companies (Amexhi), talks to TOGY about the evolution of Mexico’s upstream sector, the association’s role in promoting development and the goals that have been achieved through the E&P bidding rounds.
Amexhi is a non-profit organisation that was established in 2015 to provide support for the domestic oil and gas industry and facilitate its development according to international standards. To achieve this goal, the Amexhi collaborates with government, academic, business and civil society entities.
• On regulatory strengths: “The first step in improving something is to be aware of the problem. There are no gaps in this respect. The regulators are very conscious. Mexico has worked a lot on the design of its energy institutions and regulatory framework.”
• On bidding round success: “Mexico has managed to have good competitive terms and transparent processes. The country can compete at a global level. The upcoming rounds are attractive for any international company.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Raymundo Piñones de la Cabada below.
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How does Amexhi contribute to the success of Mexico’s oil and gas industry?
Amexhi’s most important objective is to assist the development of the Mexican industry. We want to support all the different entities in Mexico for this to happen, with the highest standards in terms of transparency and efficiency. Based on this, we will continue supporting authorities in all the tasks in which we can add value, such as Mexico’s initiative to join the EITI [Extractive Industries Transparency Initiative].
We will also continue sharing the industry’s experience through all available channels and forums, so that the terms that the government implements are sustainable, competitive and encouraging. These should really put Mexico at the front. All relevant authorities have forums in which the industry is consulted and we participate in all of them.
Our strength comes not from our size, but from our relevance. We have a wide range of members, which helps us to have a strong voice in any matter regarding the upstream sector. Amexhi has about 50 members from 19 nationalities working in 90 countries. We bring together experiences from many different operators all around the world and we put them on the table as options and alternatives. We will continue doing this.
What have been the main lessons learned from deepwater Round 1.4?
When you analyse the evolution of the conditions of the bidding rounds from 1.1 for shallow-water areas to 1.4 for deepwater, you can notice the learning curve the industry has overcome. Deepwater requires huge investments. The first deepwater tender constitutes a milestone due to how it was done. It was very transparent and the terms were competitive. The round was competitive and the results were solid. Eight blocks were awarded, [in addition to the Trion farm-out]. It is going to be very relevant due to the size of the projects.
One of the most relevant matters was the Trion farm-out. It was the first time that Pemex managed to partner with a private company for an upstream project. These associations will allow Pemex to decrease risk and monetise its assets while partnering with global companies. This means there will be a greater value at a non-risk for the state oil company.
Mexico has managed to have good competitive terms and transparent processes. The country can compete at a global level. The upcoming rounds are attractive for any international company. Mexico’s capacity to attract investments and develop resources without risks is something that should be noted. There has been great diversity in the companies that participated in the second rounds. Now, the task at hand is to ensure continuity in the coming years.
How have the relevant regulatory agencies performed during the bidding rounds?
Our main regulators are ASEA [National Agency for Safety, Energy and Environment] and the CNH [National Hydrocarbons Commission]. Both have been walking this road since the first E&P tender. They have worked a lot and have managed a great execution in the consolidation of the new contract model and tender terms. It is part of their DNA to check things and rethink the regulation. They are already working on regulation 2.0, closing the continuous improvement loop and aiming to make Mexico even more attractive.
The first step in improving something is to be aware of the problem. There are no gaps in this respect. The regulators are very conscious. Mexico has worked a lot on the design of its energy institutions and regulatory framework. One of the most relevant outstanding issues is the institutional strengthening of ASEA. It should have an independence and capacity similar to the CNH.
What is the significance of the Pemex’s farm-outs and contract migrations?
All analysts and players agree that it is vital to accelerate farm-outs. Pemex is working very hard on its terms. In the next few months, we should see an acceleration of all these projects.
In terms of migrations, we need to reach a tipping point. I would hope that once we do, everything will accelerate. It is good for Pemex and for all companies. We need the right contractual scheme to develop those mature fields more efficiently.
What can be done to improve Mexico’s E&P competitiveness on a global level?
The race for investments in upstream projects is global. Therefore, Mexico competes with every other opportunity around the world. This highlights the need to maintain what we have, build on that and improve it. We need to find efficiency sources and continue the improvement of regulations and overall terms. Nobody should sit down and relax. We have to avoid changing terms that work.
We need to find the right contractual models for each asset. There are many variables that the Mexican government could manage to increase competitiveness of the opportunities. We could then assure that we occupy the first spots in the race for investments.
The role of the government will be very important in setting the right terms and regulations to allow the industry to do what it knows how to do best. We are still waiting for the unconventional bidding round because everything has to be in place for these projects to succeed.
Does the NAFTA renegotiation pose any potential challenges to the continued consolidation of the energy reform?
Our position with NAFTA has been to support its revision. The world has changed in the past 23 years. However, we should be careful not to damage current protections provided by this treaty. When the energy reform was developed, NAFTA created special synergies that allowed companies to come in and invest vast sums of money to projects with very long maturity times. Any changes should be done very carefully.
What is the short- to medium-term outlook for Mexico’s energy market?
In the short term, we need to continue with the bidding rounds. We have to continue attracting investment and look for more activities that generate regional development.
We will evolve in the midterm. Amexhi needs a more operative role. Mexico’s upstream sector already has terms that work. Now, it is entering a second stage where companies have projects and are focusing on their operations. Amexhi will have to look for a way to add value to the industry, focusing on operational matters. The common denominator is the interest to come to Mexico, invest and see the industry develop with the highest standards of transparency, efficiency and sustainability.
For more information on the work that Amexhi’s members are doing in Mexico, see our business intelligence platform, TOGYiN.
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