Mexico’s Oil & Gas Apertura
Shallow Waters and Above-Ground Risks
In spite of the decline in oil and gas prices over the last year, Mexico’s oil opening continues to attract international oil and gas companies interested in the country's vast oil reserves. More recently, signs of higher oil and gas prices and dwindling stockpiles, may cause companies and investors to pay even more attention to Mexico’s Apertura.
Since the release of the first 14 exploration blocks last December (Round One Exploration), and the tendering of 9 shallow-water fields bundled in five blocks in February of this year (Round One Extraction), over 35 companies have initiated the pre-qualification process, and additional players are expected in the coming days. The latest release of onshore blocks last week will attract national companies and locally savvy international oil and gas companies.
The same safety and environmental requirements are included in the contracts for shallow water exploration and extraction, and somewhat similar requirements are included for the onshore bidders. In order to prequalify for the bidding process, companies (or the proposed staff in the case of onshore blocks) have to demonstrate experience in industrial and operational safety and environmental protection management systems and programs. Local content requirements are included as well.
While Oil & Gas International Companies (IOCs) can manage the technical risks; there are concerns in regards to the IOCs’ ability to manage above ground non-technical risks, including those associated with “shorebase” locations and facilities, supply chain and logistics. Non-technical risks that are inadequately managed often translate into project delays and cost overruns, and operational interruptions during the project life cycle.
The area encompassed by the Apertura Round 1 Blocks is geographically extensive and environmentally diverse, and it includes sensitive areas with high biodiversity as well as communities that rely on natural resources.
Initial engagement with stakeholders has identified environmental and social concerns, as well as many needs among those living closest to the oil and gas areas. Sustainability concerns include impacts to ecosystems due to spills and leaks and wastewater discharges. There are also concerns related to increase in vehicular and vessel traffic, impact on existing local infrastructure and services, community health and safety, and the provision for local content. Communities’ needs include income generating opportunities, skills training, education, and basic services.
Mexico’s Oil and Gas industry has been and continues to be a pillar of the country’s economy, politics and society (oil revenue represents a third of public sector income). It is therefore not surprising that these recent prospects have further heightened expectations among communities and institutions in the oil producing states, as well as other local, national and international stakeholders.
The situation is not unlike many other experiences in Latin America and other newly opened regions, in which environmental protection and community relations continue to emerge as critical issues for the energy sector. Experience says that those projects that have suffered delays and cost overruns during the initial phases are likely to be overwhelmed with problems during subsequent project phases.
Successful bidders and the new international companies operating in the Mexican oil and gas sector will face challenges that have the potential to escalate very rapidly. This is mainly due to the lack of appropriate and timely information that is available to communities and local stakeholders who may also feel their grievances in the past have not been adequately considered.
To avoid these situations, which are ultimately damaging Mexico's oil and gas sector and companies entering it, there is a need for the Government to conduct strategic assessments, promote good international industry practices and sustainable development goals for the Apertura.
The IOCs need to develop and adopt "entry strategies" that consider socio-economic-environmental factors and early stakeholder engagement, as well as a clear vision for how to contribute towards sustainable development in the area. These challenges and expectations require a contextualized and integrated approach, and innovative solutions to manage the sustainability non-technical risks to ensure the success of the Apertura and oil and gas business ventures in Mexico.
The Sustainable Development Framework
Sustainable development frameworks integrate the result of social, economic, environmental, and institutional analysis to improve the understanding of the linkages between development dynamics and social structures that shape development outcome.
Sustainable development frameworks are designed with input from communities and other key stakeholders so as to address local realities, develop actionable “locality strategies”, encourage collaboration, and promote co-responsibility among diverse stakeholders according to their knowledge, capacity and expertise. The goals of the framework are to:
- Establish and communicate a set of principles for how the operating company implements its oil and gas activities and investment programs in the region;
- Generate a common vision for development among stakeholders, addressing common interests to help communities, individual institutions and organizations achieve their own specific sustainable development agendas;
- Select, execute and monitor the investment programs in such a way that they fit into local and regional priorities and have tangible, near-term benefits for communities and other key stakeholders;
- Establish a plan for sustainability into the future, an exit strategy that includes decommissioning and closure, and that includes social, environmental and economic components; and
- Integrate feedback and continuously improve the overall framework
It is challenging to justify partnership exploration from the onset - during project planning. However, community and local engagement is complex. An early start increases the chance of creating partnerships built on mutual trust and strategic interests, rather than collaborations compelled by controversy later in the project cycle. It also provides time to explore desired outcomes, design and adjust strategies, and ‘test’ competencies prior to a formal agreement.
Companies that participate in the Mexican Oil & Gas Apertura will have the opportunity to plan over a 25-year timeline, a prospect that is well worth the investment involved with adopting a sustainable development framework. To this end, companies can leverage environmental and social best practices and lessons learned from operations in challenging areas of South America and across the globe.
Developing and implementing a sustainability framework that addresses these issues early in the project cycle, will help manage the above-ground risks and impacts, and contribute to earning and maintaining the regulatory and social licenses to operate.
Fernando Rodriguez, Founder and Managing Director of HSE International, has promoted sustainable development in the Oil and Gas industry in Latin America and across the globe. He has worked in the Mexican oil and gas sector since 2008, as well as in over 35 countries worldwide.
HSE International provides environmental, social, health and safety risk management consulting and sustainability services to the energy sector, global industries, and investors. We partner with local experts to promote local content, and our fusion integrates local knowledge with international expertise and assurance. https://www.hseinternational.com