Mexico: four more Oil & Gas auctions for 2018

HSE International, LLC

Mexico could launch up to four more oil and gas auctions before the end of 2018. The tender could include shallow-water fields as well as gas-rich shale areas. The government had previously mentioned three more tenders were planned, but a fourth could be a mix of fields including some deep-water areas.

Round 2.3 - Depp Water

This bid round includes 30 deep-water blocks for exploration in the Perdido Area, Salinas Basin, Mexican Mountain Chains (Cordilleras Mexicanas) and the Yucatan Platform, collectively an area three times the area for deep-water Round 1.4. Most of the blocks have an area of 2,000 square kilometers. The blocks in this Round will be awarded based on a license contract and include wet gas and dry gas, which will help reduce imports. The presentation and opening of proposals is scheduled for January 31, 2018.

Round 3.1 - Shallow Water

35 shallow water contractual areas under Production Shared Contracts integrate round 3.1. These contractual areas are divided into three sectors: Burgos, Tampico-Misantla-Veracruz and Cuencas del Suereste basins. These blocks have a range of prospective resources ranging from light to heavy crudes, as well wet and dry gas blocks. The auction is scheduled for March 27, 2018.

HSE International has performed dozens of offshore and onshore assignments in Mexico providing H&S, Environmental and Social (HSES) support services to the Oil and Gas industry. Some examples include:

• Risk assessment and regulatory advice
• Permitting planning and compliance (ASEA, SENER, CNH, other agencies)
• Social and environmental baseline and impact assessment
• Strategic social and environmental performance project
• Sustainability-seeking management systems with IFC PS and WBG EHS Guidelines
• Locality strategy design and implementation for sustainable development
• Due diligence
• In-country support to offshore and on-shore oil and gas activities
• Training

HSE International supports clients with a contextualized, integrated and cost-effective approach, delivering innovative solutions and helping clients manage their risks in a way that is culturally and locally savvy.  Learn more about the services we offer and our extensive international experience spanning 35 countries, including Mexico.

solutions@hseinternational.com (+1) 281.971.5909 www.hseinternational.com

What's next for Mexico’s Oil and Gas E&P “Apertura”

The next bidding round in the opening of Mexico's oil and gas sector, named 2.1, will be called by the end of July and consist of 15 shallow-water blocks for exploration and extraction work in the Gulf of Mexico.

The following round, or 2.2, would be called by the end of the summer and consist of of 14 onshore blocks for E&P work in the gas-rich Burgos Basin in the north of the country, as well as in southeast Mexico, according to government officials.

Rounds 2.1 and 2.2 may result in a higher proportion of contracts being awarded. However, companies will remain cautious, seeking to secure more attractive conditions for unconventional contracts, due to low oil prices ($44 per barrel as of July 19th), and social and security risks of operating in Mexico.

The situation is not unlike many other experiences in newly opened regions of Latin America and other continents, in which community relations and security risks 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 (specially the international oil companies - IOC, to be operating in Mexico’s 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 engagement and 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, there is a need for the Government to conduct strategic assessments and engagement, and promote the implementation of good international industry practices.

The IOCs need to develop and adopt “entry strategies” and early engagement with communities and other stakeholders. The strategy should be based on a sustainable development framework that integrates the result of social, environmental, political, and institutional analysis, to improve the understanding of the linkages between development dynamics and social structures that shape development outcome. 

These challenges and stakeholder expectations require a contextualized and integrated approach, and innovative solutions to manage the sustainability non-technical risks to ensure the success of the oil and gas business ventures in Mexico.

How HSE International, LLC can help

HSE International uses its sector-focused approach, deep knowledge and experience of the oil and gas industry operating in complex social settings, and international delivery capabilities, including local strategic partners to help our clients.

HSE International has worked in the Mexico’s oil and gas sector since 2008, including supporting IOCs, NOCs and Regulators, along the oil and gas value chain. We have developed a process to address social, environmental, security and safety risks each step of the way, and are eager to contribute to a more sustainable development of the oil and gas sector in Mexico. 

For more information email us at: solutions@hseinternational.com  

Mexico Oil & Gas “Apertura" - Round 1 Update: Deep Water Exploration

Mexico's deep water round contractual and regulatory requirements are complex and untested. It is important to clearly understand these requirements, the interrelations, and develop a detailed regulatory road map to ensure a smooth and timely execution synchronized with the technical exploration requirements and milestones.

Thus far, 26 Oil & Gas Companies have initiated the prequalification process for Mexico's deep water exploration round according to official information. This bidding round follows the three conducted so far under the Mexican Oil & Gas E&P Round 1 "Apertura", including rounds for shallow water exploration and extraction, and onshore mature blocks. The process has been accessible to all interested stakeholders, with typical (standard) contract models, the names of bidders and successful awards publicized through social media and dedicated internet web pages. 

The deep water bid round will feature 11 largely unexplored blocks in the Perdido and Cuenca Salina areas located in the Mexican side of deep waters of the Gulf of Mexico.  Oil companies have paid Mexico's oil regulator, the National Hydrocarbon Commission (Comisión Nacional de Hidrocarburos – CNH), nearly $80 million for seismic data ahead of the auction for deep-water fields. This sum reflects a fraction of companies’ spending in the past year to acquire geological data ahead of the Dec. 2016 auction.

Contractual and regulatory requirements include an HSE Management Program to manage risks (Programa de Administración de Riesgos: Conformación e Implementación del Sistema de Administración); conducting environmental and social impact assessments; determining environmental and social existing ("as is") conditions by executing baselines, and monitoring and reporting on industrial and operational safety, environmental protection, occupational health, and socio-economic conditions.

The regulatory approval process is complex and untested, and given the lead time required for offshore deep drilling equipment and associated logistics and facilities, it is important to clearly understand these requirements, the interrelations, and develop a detailed regulatory road map to ensure a smooth and timely execution synchronized with the technical exploration requirements and milestones. 

HSE International, LLC participated at the SPE E&P symposium on Health, Safety, Environment, and Sustainability, March 30 - 31 in Mexico City.  Presentations and panel discussions during the event, included key HSES regulators, notably the Industrial Safety and Environmental Protection Regulatory Agency for the Hydrocarbon Sector (Agencia de Seguridad, Energía y Ambiente – ASEA) and Mexico’s Energy Ministry (Secretaria de Energía – SENER) charged with social impact assessment and prior consultation. 

Regulations are in the process of being developed, with some to be released shortly and others to follow over the next months. Close coordination with ASEA, SENER and CNH is necessary to ensure adequate - timely approvals, while also seeking potential beneficial synergies. 

How HSE International, LLC can help

HSE International uses its sector-focused approach, deep knowledge and experience in the oil and gas industry, and international delivery capabilities to help our clients. HSE International has worked in the Mexican oil and gas sector since 2008, including supporting IOCs, NOCs and Regulators, along the oil and gas value chain. We have developed a process to address environmental, social and safety risks each step of the way and are eager to contribute to a more sustainable development of the oil and gas sector in Mexico. 

For more information email us at: solutions@hseinternational.com

Fernando Rodriguez, Founder and Managing Director of HSE International

HSE International LLC provides environmental, social, health & safety risk management consulting and sustainability services to industries, investors and institutions worldwide. We partner with local experts to promote local content, and our fusion integrates local knowledge with international expertise and assurance. http://www.hseinternational.com

Mexico’s Oil & Gas Apertura: Shallow Waters and Above-Ground Risks

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