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

HSE International LLC at SPE Symposium on Health, Safety, Environment, and Sustainability, 30 – 31 March, Mexico City, Mexico.

HSE International LLC’s Managing Director Fernando Rodriguez, a member of the Conference Committee, will moderate along with Mary Beth Snodgrass (Local Contenect LLC), the following Panel: Operationalizing Sustainable Development.

Speakers at this panel will include: Juan Carlos Belausteguigoitia with the Mexico Institute of Technology, Nayelli Garcia with Schlumberger, Mark Thorpe with Torex Gold, and Karla Torrez with Shell.

Often times O&G industry discussions on sustainable development topics are focused on strategy, policy, guidelines and other key high-level statements, while often the biggest challenge for operators and service companies is implementing good international industry practices (GIIP) to achieve sustainable development. This panel will focus on operationalizing solutions to social, economic, environmental and security risks and impacts.

Panelists will share stories of their successes as well as on-going challenges and how they are being addressed. With local and international experience structuring and implementing sustainable development practices, the panelists will discuss operationalizing sustainable development in Mexico at a pivotal time: at the beginning of the country's “Apertura” and during a low oil price environment. 

The SPE Mexico Health, Safety, Environment, and Sustainability Symposium: Collaboration for Future Growth, will get together operators, regulators, and new entrants to Mexico as they collaborate on how to identify and establish the best practices and protocols each has to offer to achieve sustainable, secure, and safe operations in an expanding market.

Interested in meeting with Fernando to discuss a particular topic during the symposium? Please send him a note ahead of the event to: fernando.rodriguez@hseinternational.com

For more information visit http://www.spe.org/events/lahs/2016/pages/schedule/tech_program/thursday_techprogram.php

Mexico's Oil & Gas "Apertura"

Mexico is making concerted efforts to bring in the private sector into its potentially lucrative hydrocarbon sector. This “apertura” or “opening” is a process that much like the one in Venezuela in the early 1990s brought in considerably foreign investment and technology to the national industry.

The Country boasts large reserves and massive resources of conventional and unconventional hydrocarbons both onshore and offshore, and the new energy reform approved in December 2013 is intended to provide the flexibility necessary for the opening of the hydrocarbon sector to private and foreign participation, and to produce them wisely.

The initial phase of the Mexican Oil & Gas “Apertura” involves transferring producing assets that are currently under service contract arrangements. Pemex is then planning to enter into joint venture arrangements with private or foreign sector entities (i.e. farm-out agreements) for mature fields, deep water, and extra heavy crudes requiring capital investment and technological expertise. In addition, the Mexican government will go through a bidding round (Round 1) in which 109 exploration blocks and 60 producing fields, including deep and shallow water, and unconventional blocks will be offered up for investment. All this is expected to happen fast, started in 2014 and will continue in 2015.

The energy reforms also established a new HSE regulatory body for the oil and gas sector, and the Decree enacting the Law of the National Agency of Industrial Safety and Environmental Protection of the Hydrocarbons Sector became effective August 12, 2014. The ASEA (Spanish acronym for the Agencia) was created under the Ministry of Environment and Natural Resources (SEMARNAT), with technical and procedural autonomy, tasked with regulating and supervising industrial and operational safety, as well as environmental protection of the Hydrocarbon Sector. In summary, HSE risks and impacts of oil and gas will be regulated and supervised by ASEA.

The Energy Reforms only provide generalized conceptual legislation, but they also specify that detailed legislation must be enacted within 12 months for the development of additional environmental regulations governing the energy sector.

This “opening” of the Mexican hydrocarbon sector can lead to important positive benefits, including considerable increase in production, reserves, GDP growth, creation of jobs, provision of goods and services, additional injection of foreign investment, and infrastructure growth.

It is also possible to concurrently obtain those positive benefits while ensuring that the Apertura is implemented protecting the environment, safeguarding the people, and guaranteeing sustainability. This requires the use of good international industry practices and available technologies, and to have proper regulation and a rigorous and effective supervision. Legislation is in place and implementation is unfolding.

Now is the time for foreign investors to engage, understand the HSE and sustainable development context within the country oil and gas sector, and prepare to capitalize on the Mexican opportunity provided by this important episode in Mexico’s hydrocarbon sector.