Chief executives of Mexico’s Petroleos Mexicanos (Pemex) and Argentina’s YPF SA are both seeing energy reforms within their respective countries, and both emphasize the need for investment from international oil and gas companies to achieve their new goals.
“Pemex is transforming itself from a government organization to an enterprise” and is tasked with the new challenge and luxury of financial autonomy, explained Emilio Lozoya Austin, the company’s chief executive officer, at IHS CERAWeek on Apr. 21 in Houston.
Four new agencies and five new spinoff companies have been created in Mexico over the past year, including transportation and services companies that will serve international participants following their entrance into the country (OGJ Online, Aug. 21, 2014).
Over the next year, the biggest steps forward will come through partnerships created with international companies in the Round One bid round and ensuring contracts are up to international standards, including the ability to execute farmouts in a timely manner, he said.
“World-class partners” will mitigate the risks that come with venturing into economic and operational territory not seen since Pemex was nationalized in 1938, Lozoya stated. Pemex also is assigning more of its budget to exploration, so solid partnerships and advanced technology are critical.
Lozoya said his company will stop its declining oil production by next year. Mexico’s total oil production fell 22% from its peak in 2004 to 2009, but the decline has since remained at less than 1%/year, according to data from the US Energy Information Administration. Crude production in 2013 was at its lowest since 1995.
Earnings from the oil industry in 2013 accounted for 32% of Mexico’s total government revenues, EIA says.
Mexico advancing
Pemex’s launch as a company focused on profits came in last year’s Round Zero noncompetitive bid round in which Pemex was granted 90% of the country’s proved and probable reserves, totaling 21 billion boe; and 83% of its prospective resources, totaling 23 billion boe—including 4 billion boe in unconventional reserves (OGJ Online, Sept. 23, 2014).
At the time, the company said it had identified 50 fields that it would like to develop with partners and was tentatively seeking to form 10 joint ventures.
In December, Mexico opened Round One bidding on production-sharing contracts for exploration of 14 shallow-water areas to domestic and international companies (OGJ Online, Dec. 19, 2014). Blocks will be awarded on July 15.
Lozoya explained that unconventionals will be up for bid toward the end of the bid rounds because they’re not as cost competitive as offshore development. “We will enter unconventionals at a slower pace” when the economic environment improves, he said.
He added that Mexico has underinvested for decades on midstream and downstream. “Our issue is cash flow,” he said.
Lozoya sees North America as one energy market, as Mexico exports 900,000 b/d of heavy crude to the US, which in 2010 received 71% of Mexico’s overall oil exports. Pemex in January sought approval from the US Department of Commerce to allow the company to swap heavy crude it produces in exchange for as much as 100,000 b/d of US-produced light crude.
Federal approval by the US for crude swaps with Canada and Mexico may be easier to obtain because they are immediately adjacent countries (OGJ Online, Apr. 6, 2015).
Argentina looks on
Miguel Galuccio, chief executive officer of YPF, has observed the monumental changes undertaken through energy reform in Mexico, which he describes as the “most important thing to happen in oil and gas over the last 50 years,” and “the biggest oil and gas opportunity today.”
YPF, meanwhile, once a top-20 international oil company, is attempting under Galuccio to get back to that level. He emphasized that lots of recent government policy changes have been made to encourage investment from international companies.
Published last October, Argentina’s reforms “provides investors with offshore exploration opportunities and encourages foreign ventures in unconventional plays,” according to EIA’s country brief.
The new policy incentivizes foreign investment by reforming the national bidding process, increasing the frequency of offshore licensing rounds, allowing for longer exploitation periods, and offering tax exemptions to companies that invest more than $250 million over a 3-year period.
“The reform will also reinforce national oil company [YPF’s] position while reducing the impact of provincial oil companies,” EIA says.
Argentina’s unconventional resources are perhaps its most attractive asset to dangle before outside investors. The country boasts the world’s second-largest shale gas reserves, much of which lies in its largest play, Vaca Muerta, EIA indicates. Residing in the Neuquen basin, Vaca Muerta holds an estimated 308 tcf of recoverable natural gas and 16.2 billion bbl of recoverable oil.
Galuccio this week was expected to sign a memorandum of cooperation with Russia’s OAO Gazprom stipulating “future bilateral cooperation, including exploration, production, and transmission of hydrocarbons in Argentina.” Vaca Muerta is the primary focus of the deal.
YPF also last August signed a $550 million agreement with Malaysia’s Petronas detailing terms and conditions for development of the shale play (OGJ Online, Aug. 28, 2014). Companies already present in Vaca Muerta include Chevron Corp., ExxonMobil Corp., Petroleo Brasileiro SA (Petrobras), Royal Dutch Shell PLC, Total SA, and Wintershall Holding GMBH.
Just 3% of Vaca Muerta resources have been recovered thus far, Galuccio noted, but Argentina is “ahead of the learning curve” compared with the early stages of the shale revolution in the US because Argentina has that template from which to learn. “There are no limits to what we can recover,” he stated.
Contact Matt Zborowski at [email protected].
