Ingredients for Mexico’s success

What elements do companies need to be successful in offshore exploration in Mexico?
Mexico has a unique operating environment for companies interested in establishing a foothold in the upstream sector. However, some complexities and challenges go along with this. For offshore, companies that have previous expertise working in deepwater projects and are familiar with the requirements of these kinds of operations have a competitive advantage.
More specifically, previous project experience in the US’ Gulf of Mexico is viewed very favourably. Although there are geological differences across the whole gulf, it is generally the same basin with the same evolutionary history. Companies with the right fit can successfully navigate the risks of deepwater and shallow-water exploration.

How can partnerships help in executing exploration and exploitation projects?
In the upstream sector, partnerships are valued. Deepwater, shallow-water and onshore heavy oil assets all require a different kind of association. Mexican partners that have long-term experience and financial capacity provide a key advantage to be successful in this market. Pemex, as the NOC, provides a competitive advantage due to its long-established presence and knowledge of the country’s industry environment.

How has the regulatory and contractual model evolved during Round One’s phases?
The Mexican reform is consolidating, even though low prices are unfavourable to the development of new projects. The authorities have been receptive to the sector’s comments, and we have seen how the contractual models and tax terms have been improved compared to just a year ago.
However, plenty of room is left for further improvement, so investors get proper returns for their risk-taking. Maintaining a balance between the upside and downside is important. The risk factor depends on the asset type, be it exploitation of a known basin, or a new exploration block. The industry will assess whether there is a good balance between risk and reward on subsequent rounds, including Pemex’s farm-outs.
In this regard, Mexico is competing with the whole world. In 2016, a significant number of upstream assets are expected to be marketed worldwide with a total value of USD 300 billion. The competition for capital will be strong, requiring each host country to offer the right balance for investors. The energy reform is consolidating and all of the players involved, including the regulatory bodies, investors or operators, are keen on doing things the proper way.

How has the domestic private sector adapted to support upstream development?
Mexico has a mature oil industry that has worked under monopoly rule for decades. The services sector will need to adapt, modernise and become more efficient to keep up with the liberalisation process. Implementing new processes and technologies is vital.
Services companies will have to compete under similar terms with northern neighbours that have developed unconventional plays, enhanced recovery projects and offshore areas in a very cost-efficient manner. This is healthy for the industry as a whole. Local companies will have to develop a more aggressive cost optimisation to build on the foundation and know-how to compete.
Regarding national content policies, the Mexican model has taken a moderate and progressive approach in comparison to Brazil’s, which places stricter requirements for foreign companies, resulting in fines and projects delayed. Mexico’s policies are based on a more realistic approach, which takes into account the local realities of the country and the acknowledgement that it needs further development. The industry expects it to remain this way.
It is legitimate for countries to wish to develop industries through the exploitation of natural resources, but the compulsory minimum quota cannot be the only policy in that direction. Mexico is a country with a sizeable services sector and important level of industrialisation, so further growth, and greater capabilities are sure to come.

For more news and features on Mexico, click here.