Mexico Oil & Gas Summit 2021 - Impact Report

IMPACT REPORT

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Stakeholders in the Mexican oil and gas industry have had to face an unprecedented situation over the past 12 months. Even though the industry suffered as much as any other in the country, companies kept on going without interruptions by presidential decree. The upstream subsector in particular had to modify its processes and practices drastically to keep business running normally, even amid other market-driven crises unrelated to the COVID-19 pandemic. Major upstream players have come out of this gauntlet of challenges with rewritten business strategies and new wisdom regarding the crucial importance of flexibility and adaptability.

This persistence is beginning to pay off in the form of higher oil prices and renewed interest in prospective resources and upcoming infrastructure projects.The industry’s urgent development and technological needs were laid bare by the pandemic, but this also means that industry leaders are actively and enthusiastically looking for the right partners and talent to move forward and make the most of the current opportunities. As has happened before in this industry, however, these opportunities are clouded by uncertainty, assumptions and media noise.

Mexico Oil & Gas Summit 2021 brought together industry leaders who can identify these opportunities to share the strategies that were proven to be the most successful in guaranteeing the industry’s survival while still looking toward the future during one of the industry’s most stressful periods.

132 companies

411 conference participants

50 speakers 10 sponsors

4,644 visitors to the conference website

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• 3M

• Acclaim Energy

• Ace Oil Tools

• ADS

• Aeromexico

• Ainda, Energía & Infraestructura

• alterpraxis

• American Bureau of Shipping

• AMEXHI

• Arendal

• ASESArO, S.A. DE C.V.

• AVEVA Software México

• Baker McKenzie

• Balam Energy

• Beicip- franlab

• Belden, Inc.

• BHP Mexico

• Buckman

• BUHLMANN Mexico, S.A. de C.V.

• BU r EAU VErITAS MEXICANA SA DE CV

• CAPE Holland

• CAyrOS G rOUP

• Cayros Group Corp.

• CDT

• ChampionX

• CNOOC Mexico

• Comisión Nacional de Hidrocarburos

• Comisión Nacional de Hidrocarburos

• Construplan

• Consultec International

• Copiisa Offshore

• COSL Mexico S.A. de C.V.

• Cotemar

• Cotemar

• Diavaz Servicios de Produccion

• DNV

• ECO Direccion Profesional

• Emerson Automation Solutions

• Energy Industries Council

• ENGIE

• Eni México

• Ernst & young

• Evonik Industries

• Exterran

• E y Mexico - Mancera SC

• Galicia Abogados

• GH Energy Consulting

• Golfo Suplemento Latino

• Gonzalez Calvillo

• Goodrich riquelme y Asoc.

• Grupo Construcciones Planificadas

• Grupo fapin

• Grupo Gasolinero Gaspeed

• Grupo roales

• Grupo TMM

• Halliburton Mexico

• Heerema Marine Contractors

• Holland House Mexico

• Huasteca Ventures

• ICA fLUO r

• IEnova

• IHS Markit

• Independent Consultant

• Indimex Group

• INErCO

• INTEG rIT y MANAGEMENT COMPAN y

• Intelie

• International Cluster of Energy in Mexico

• International frontier resources

• IPD Latin America

• iPS - Powerful People

• Jaguar E&P

• Kas Oil Integrated Services

• Kiewit

• KLB Group México

• K rIMTEK Solutions

• Lao strategy and leadership

• MAPfr E Mexico

• MCDEr MOTT

• Mexico Business

• MexicoView

• Mexssub International

• Mitsui & Co Power Americas

• Murphy Oil Corporation

• Muvoil Consulting

• NAVIEr A INTEG r AL

• N rGI Broker

• NTheetherlands Embassy

• Nuevas Soluciones Energéticas

• OCA Global

• OCEAN MArINE SA DE CV

• offshore services

• Oiltanking Mexico

• Oleum Energy

• OPITO

• P&A Integrity Management Company

• P&A INTEG rIT y MANAGEMENT COMPAN y

• P3 GLOBAL PErSONNEL

• PEMEX

• Perseus S.A de C.V

• PETrONAS Mexico

• PM Offshore S.A. de C.V.

• PPG INDUSTrIES

• Protehus, LLC USA

• Public Power Utility

• relyOn Nutec de Mexico

• repsol

• r EPSTIM S.A. de C.V.

• roma Energy

• rOSEN Group Mexico

• Safelift Offshore Ltd

• Schlumberger

• Servicios Tecnicos Consutec

• SGS

• Shallow and Deepwater Mexico

• Subsea 7

• Talos Energy

• Technip fMC

• Thompson & Knight LLP

• TMM

• Tonalli Energia

• Transocean

• Vallourec Oil and Gas Mexico

• Verisk Maplecroft

• Vista Oil and Gas

• Vopak

• Walworth

• Wellbore Integrity Solutions

• W-Industries

• Wintershall Dea

• Worley

• yokogawa Europe Solutions BV

JULY 14 TH , 2021

08:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

08:55 WELCOME ADDRESS

09:00 TIME TO CAPITALIZE ON MEXICO’S OIL & GAS RESOURCES

Speaker: Merlin Cochran, General Manager - AMEXHI

09:45 MEXICO’S EVOLVING LEGAL & REGULATORY LANDSCAPE

Moderator: John Padilla, Managing Director - IPD Latinamerica

Panelists: Yolanda Villegas, founder & Partner - Oleum Servicios y Dictaminaciones

David Enriquez, founder & Partner - Goodrich, riquelme y Asociados

Rafael Espino, Independent Advisor to PEMEX

10:45 PRIVATE OPERATORS’ PRODUCTION PLANS

Moderator: Schreiner Parker, Senior Vice President & Head of Latin America - r ystad Energy

Panelists: Andres Brugman, Country Manager Mexico - fieldwood Energy

Sylvain Petiteau, Vicepresident reservoir, Development, Engineering Non-operated Assets - Wintershall Dea México

12:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

12:30 INDUSTRIAL SAFETY PERFORMANCE AND PRIORITIES

Speaker: Lic. Jose luis Gonzáles González, Head of the Supervision, Inspection and Industrial Surveillance Unit - ASEA

13:15 HR, OUTSOURCING AND SAFETY: CREWING THE INDUSTRY IN 2021

Moderator: Rafael Daryanani, regional Manager - Mexssub

Panelists: Guido van der Zwet, General Manager - IPS Powerful People

Christian Eduardo Heras , OPITO Coordinator - relyon Nutec

Daniela Nava, Human resources Manager - Vopak

14:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

15:00 RESULTS-FOCUSED EXPLORATION TECHNOLOGY INNOVATION

Moderator: Gustavo Hernandez, International Vice President - Mexican Union of Engineering Associations UMAI

Panelists: Gerardo Clemente Martínez, President - AMGE

Jeimy Mathison, General Director - Kasoil

Eduardo Arriola, Operations Manager - Golfo Suplemento Latino

16:00 PROJECT PRESENTATION: TRION BHP

Speaker: Stephan Drouaud, Director of the Trion project - BHP

16:00 “DEEPWATER: WHO, WHERE AND WHEN?”

Moderator: Valeria Vazquez, Energy and resources Leader Mexico-Central America - Deloitte

Panelists: Dra. Alma América Porres, Comissioner - CNH

Carlos Ortiz , Chairman IADC LATAM and Marketing Director at Transocean

Chris Brinzer, Exploration Manager - Petronas

Luiz Feijo, Director of Global Offshore Production - ABS

Bud McGuire, Chief Operating Officer ADS Consultoría Petrolera - Alpha Deepwater Services

17:30 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

19:00 END OF DAY 1

JULY 15 TH , 2021

08:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

08:55 WELCOME TO DAY 2

09:00 NEW URGENCY FOR AUTOMATION & REMOTE OPERATION AFTER COVID-19

Moderator: Amanda Duhon, regional Director – North & Central America - Energy Industries Council

Panelists: Laurent Pagnon, VP Digital, External Technology - Technip fMC

Ricardo Velazquez, Manager Application Engineering - Belden

Manuel Arroyo, Industry Solutions O&G Director - Emerson

Augusto Borella Hougaz, Vice President Of O&G Products - Intelie

Eugene Spiropoulos, Global Systems Business & Consulting Leader - yokogawa

Fernando Arcos, Director of PMO at W-Industries

10:00 SUPPLIER PRIORITIES IN THE OFFSHORE SERVICES MARKET

Moderator: Luis Vielma Lobo, President & General Director- CBMX

Panelists: Sonia Castellanos, Geomarket Manager Mexico and Central America - Schlumberger

Hermes Aguirre, Mexico Country VP - Halliburton

Cesar Vera , Chief Commercial Officer - Naviera Integral

Javier Cabrales, CoatingInfluXpert O&G - PPG Comex

11:00 REGULATORY COMPLIANCE & RISK MANAGEMENT

Moderator: Benjamín Torres-Barrón, Partner - Baker McKenzie México

Panelists: Jose Bosch, General Director - Oleum Energy

Eckhard Hinrichsen , Country Manager- DNV México

Graciela Álvarez, Chief Executive Officer - N rGI Broker

Rodolfo Alfonso Esquivel, Director - Grupo roales

Francisco Javier Hoces, Director of international consultancy - INErCO

12:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

12:30 FUTURE ROLE OF NATIONAL GAS PRODUCTION IN SATISFYING NATIONAL DEMAND COMPETITIVELY

Speaker: Warren Levy, Chief Executive Officer - Jaguar Exploración & Producción

13:00 ONSHORE OIL & GAS PRODUCTION OUTLOOK

Moderator: Niels Versfeld, Chief Executive Officer - Simmons Edeco

Panelists: Alexandro Rovirosa, Chief Executive Officer - roma Energy Holdings

Iván Galbán , Commercial Director - Exterran

Dr. Héctor Moreira, Comissioner - Comisión Nacional de Hidrocarburos CNH

14:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

15:00 PEMEX: PRODUCTION PERFORMANCE AND THE PATH TO PROFIT

Speaker: Fluvio Ruiz, Independent Oil and Gas Analyst and former Independent Advisory Board Member PEMEX

15:30 PRESENT MARKET OVERVIEW

Speaker: Pietro Ferreira, Senior regional Analyst - Americas - Energy Industries Council EIC

16:00 FINANCING THE FUTURE

Moderator: Rodolfo Rueda Ballesteros, Partner Houston & Mexico -Thompson & Knight LLP

Panelists: Arturo Carranza, Independent Energy Advisor - Comisión federal de Electricidad CfE

Manuel Rodríguez, founder and Director General - Ainda Energía & Infraestructura Lucas Aristizabal, Senior Director, Latin America Corporate ratings - fitch ratings

17:00 NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS

19:00 END OF DAY 2

THE TIME TO CAPITALIZE ON MEXICO’S OIL & GAS RESOUR CES IS NOW

Mexico, considered a country rich in oil and gas resources, has many opportunities to make good use of them. Merlin Cochran, General Director of AMEXHI, kicked off Mexico Oil and Gas Summit 2021 by saying that the time to make good on this promise is now. By spreading the social benefits of hydrocarbons and channeling investments into expanding Mexico’s reserves, this can be achieved.

AMEXHI is an industry association that was established as a consequence of both the Energy reform and CNH bidding rounds. It is considered the most important industry association for private oil and gas operators in Mexico, representing all major bidding round winners. Seventytwo percent of its partners are foreign companies stemming from 17 countries. The majority of them are active in offshore operations: 62 percent. Even though only 30 percent of the association has reached production, many others are getting close to this stage. “Promoting best practices in the hydrocarbons sector is essential to the association. We aim to make the oil and gas business a pillar for development in Mexico,” d Cochran.

“The investment executed so far by Mexico’s oil and gas operators is equivalent to two Mayan Trains.”

Merlin Cochran General Director of AMEXHI

Investment and project development are paramount to the oil and gas industry, but the social benefits that the industry can provide for a country like Mexico need to be highlighted too. regarding the environment, Cochran reported that the sector’s efforts to go beyond compliance with regulation, such as around methane. The industry’s work to impulse the green energy transition using natural gas as transition fuel will be essential up to 2050. The industry furthermore has a lot to offer in the social dimension. Other than providing employment, the sector helps Mexico move forward by providing education and infrastructure. Community engagement is of particular importance to companies, stressed Cochran. “Communities are partners in projects for the long term. It is therefore important to work hand in hand with them.”

AMEXHI reported that investment in the hydrocarbons has picked up after a difficult 2020, adding US$1,44 billion in the timespan of one year. US$41,86 billion in investments have been approved so far, of which US$17,5 billion have already been carried through. “The investment executed so far by Mexico’s oil and gas operators is equivalent to two Mayan Trains,” Cochran illustrated.

Nevertheless, if the industry wants to spread these benefits, it needs to make optimal use of the potential Mexico possesses. “Exploration is where Mexico can make best use of its resources,” Cochran said. Allowing new discoveries to add to the country’s oil and gas reserves is paramount. Private industry plays an important role here: “Private operators assume all exploration risk and contribute benefits for Mexico regardless of whether or not they find oil,” he continued. Especially in the area of offshore exploration, Mexico can be found at the global vanguard due to its accomplishments. “Mexico has been an international success case for the past years,” explained Cochran, emphasizing its strong comparative competitiveness. The country has drilled 21 offshore exploratory wells, nine of which come from private players. This means that Mexico beats even the US. As of May 2020, oil contracts already assured a production of 65.24mb/d. The bidding rounds, contract migrations with partners and farmouts have all contributed to this production.

“There is certainly a lot of uncertainty, but the results are there,” Cochran said. “And if there

are results, this means that both operators and the government are working hand in hand.”

Of these positive results, Cochran highlighted that in May 2021, oil production had increased by 38 percent compared to production at the end of 2020. Oil and gas production remains the second most important industry contribution to Mexico’s GDP. 6 new oil fields

were discovered in the past year that could help stop the decline in production. “If we consider that the majority of contracts, 61 percent, are still in the exploration phase, this is really only the beginning,” concluded Cochran. Even excluding the important Balam field, Mexico could be producing 280 mb/d of oil and 355 mscf/d.

READING BETWEEN THE LINES OF MEXICO’S NEW ENERGY POLICIES

Given the relative degree to which Mexico’s regulatory framework for its oil and gas industry has remained consistent throughout last year, conversations about its context cues and the future is what dominated the first panel of Mexico Oil & Gas Summit 2021, entitled “Mexico’s Evolving Legal & regulatory Landscape”.

The panel was moderated by John Padilla, Managing Director of IPD Latin America, who began his remarks with an analysis of the macro global context that had impacted the industry’s legal circumstances over the last year. This included the fluctuations in demand and prices that the pandemic created, coupled with the increasing urgency of the energy transition expressed by the US Presidential election of Joe Biden. Padilla balanced these contextual elements considering recent and nationally specific ones such as the results of Mexico’s midterm elections. Padilla combined these into a list of eight main factors that he identifies as the main drivers of change in the industry at this current time, which were, in his own words, “the cancellation of the asymmetric regulation in natural gas, modifications to the permits of imported and exported energy products, changes to the Hydrocarbons

“Mexico has an energy deficit, which is what the new energy reform tries to fix. It wants PEMEX to watch over companies working in the country.”

Rafael Espino de la Peña Founding Partner of Fernandez, Espino & Asociados and Independent Adviser of PEMEX

Law, 700 protections in the energy sector, a decree from SAT regarding imports and exports of fuels, the announced creation of Gas Bienestar, the attempted Electric reform and SENEr ’s recent decision regarding the unitization of Zama.”

The first panelist to comment was yolanda Villegas, f ounding Partner at Oleum Servicios y Dictaminaciones. She began by explaining the context for the current legal circumstances beginning with the first cases of COVID-19 being reported in China, which had an immediate impact on oil product demand at a global level. Villegas said this was the main catalyst for everything that was to follow because from this event came a chain reaction or a domino effect that led to everything else. regarding the legislative initiatives that have taken place in Mexico throughout 2021 to change the energy sector’s regulatory framework, Villegas highlighted the impact of the midterm elections, saying that “constitutional reforms have become less likely after the midterm election due to the difficulty of forming the necessary coalitions; however, we can expect that the attempt will be made nonetheless.”

Panelist David Enriquez, Senior Partner at Goodrich, r iquelme & Asociados, agreed with Padilla on the importance of Biden’s election as a catalyst for the acceleration of the energy transition, which reshapes all incentives in the global energy market. Enriquez made a particular emphasis on how the energy transition influences the way in which banks and institutional investors behave in relation to the oil and gas sector. In the case of Mexico, Enriquez coupled this international context with his personal

estimation that “all of this government’s energy sector policies have been regressive and inconsistent with Mexico’s climate change international agreements, not to mention international climate change targets.” One of the examples that he used to illustrate this evaluation is the way in which C fE power plants have reversed course in terms of phasing out fuel oil since they are now taking in more of this commodity than previously accepted and being reconverted to take in even more in the future, a process that in Enriquez’s view damages the plants, while also challenging global environmental trends.

A counterpoint to this critical perspective was presented by panelist r afael Espino de la Peña, founding Partner of fernandez, Espino & Asociados and Independent Adviser of PEMEX, who said the political handover that occurred in 2018 has to be understood in terms of its broad mandate and its desire for institutional changes that strengthen PEMEX and provide Mexico with energy sovereignty in addition to energy policies that generate wider collective benefits through more ethical processes. He mentioned the currently increasing price of oil as an example of accomplishments achieved by current policies, given the positive impact that it will have on PEMEX’s operational flow. “Mexico has an energy deficit, which is what the new energy reform tries to fix. It wants PEMEX to watch over companies working in the country,” said Espino.

In regards to the kind of tools industry players have to protect their legal and contractual rights, Enríquez stated that in the upstream sector he has yet to see the more “radical” approaches to policy changes that occur in the downstream sector or in regulators

such as the C r E, but that that does not mean that they will not happen in the future. Enríquez also identified weaknesses in the institutional design of the sector as decreed by the Energy reform, since the events of the last two years have made it clear that policy makers do have the capacity to disrupt the normal functioning of regulators, which in theory should not be possible. Enríquez reported that in the upstream sector, most of the private operators’ projects are currently in an exploratory phase but that general activity in this sector is mostly focused on extraction, so it is worrying to see the fragile case of Zama discouraging future investment and possibly becoming a benchmarked criteria that will be extended to other similar situations. In this regard, the question for investors becomes, how to trust SENE r ’s standards to be objective.” This becomes, in Enríquez’s view, an additional concern for investors who are already being kept up at night by the industry’s debt situation. He also made it clear that the question of contractual rights was a tricky one because “solving problems in court is not a healthy standard or expectation for any industry to adopt.”

Villegas agreed with Enríquez’s points, adding that legal battles over contractual terms were usually long-term affairs that put all future investment in jeopardy and turned current investments into a conflict over damages and pending payments. She also addressed Espino’s statements by saying that political policies are not necessarily inherently positive or negative in ethical terms, but instead have to be understood in terms of their results. “More than 40 percent of COfECE’s investigations are in the energy sector. This tells us something. We have to establish better communication with the government to attract investment,” said Villegas.

PRIVATE OPERATORS’ PRODUC TION PLANS

Mexico’s most important private offshore operators were struck by the pandemic at a decisive moment. Some had achieved or were close to achieving an early production stage relying on their field development plans. While COVID-19 caused delays in some production start dates in 2020, operators continued to stride forward with their production goals. r eaching a production phase brings additional questions regarding commercialization, operational efficiency, and even further exploration. It will also come with hard choices in terms of investment volumes and the valuation of assets. Mexico Oil and Gas Summit 2021 presented the panel “Private Operators’ Production Plans” on July 14, where experts of the industry aimed to clarify the kinds of variables that operators are dealing with while approaching the production stage.

“Oil companies have had to deal with the new reality of the pandemic and have managed to attract new talent. We continue to adapt to the new opportunities and challenges,” said Schreiner Parker, Senior Vice President & Head of Latin America of r ystad Energy and moderator of the panel. Even the few operators who might already be producing on some scale, are still wondering about the timing of their next step; maximum advantage must be taken in every each decision to expand outputs in a way that generates the most benefits when combined with market forces.

Andrés Brügmann, Country Manager Mexico of fieldwood Energy made a recap of the events currently shaping private operations

“To date, prices are also coming back, which is the reflection of the reactivation of economic activity, thus we see a bright future for our industry.”

Andrés Brügmann

Country Manager Mexico of Fieldwood Energy

plans. He commented that today’s scenario is based on the events of 2020, when the industry was already facing low prices, and soon after, COVID-19 took center change and changed the way they operated. “We had to update our offshore operations, while still developing an offshore campaign.”

Brügmann explained that having over 6,000 people offshore became harder to manage, as the entire world faced situations like the borders closing. “Over a year after the pandemic started, operators have learned how to cope and vaccination has helped, however, we should keep the guard up.”

Brügmann said that the industry has to learn how to deal with COVID-19, but that this is based on intensive testing prior to embarkation, during and randomly. “To date, prices are also coming back, which is the reflection of the reactivation of economic activity, thus we see a bright future for our industry,” said Brügmann.

Sylvain Petiteau, Vicepresident reservoir, Development, Engineering Non-operated Assets at Wintershall Dea México added that during these changing times and based on the length of the projects of the industry, the adjustment on onshore production operations is critical. “The time frames of each project asks of us to be reactive, which for instance, this is something we can do at our Ogarrio project, as Wintershall Dea operates directly from the country we have activities.”

In addition, Petiteau addressed SENE r ’s unification of Zama oil field to be shared between the Zama field, discovered through Contract CNH- r 01-L01-A7 / 2015 in charge of Talos Energy Offshore, and the assignment with number AE-0152-Uchukil whose ownership is a cargo of PEMEX. On May 2020, Wintershall Dea announced two significant oil offshore discoveries on the Zama oil field.

“Zama in particular has different parties operating and is not easy to align, however, despite the disagreements, we have to recognize all stakeholders need to define

a plan to keep maturing this project, which will not bring production in 2021. We need to mature partnerships to have the common goal of the project.”

Petiteau continued by saying this project required large investment, which means more stakeholders in the project, which raises the complexity. This, assimilating the data of the platforms after they are build is essential for this and every project. “Zama is an example of the significant value of the profit, the investment has been very large. We need to see the whole picture, from the results of the first wells, we can have an idea of how the others will develop, but everything has to be on the most optimum time frame.”

Alligned with Petiteau commets was Brügmann’s comments on the time scale of the projects. “The execution today was planned 5-10 years ago. for instance, fieldwood, is seeing the results from 2015, from all those years on investing and planning. We are just starting commercial market next month.” He said the company has a project on Phase 2, which is ramping up the production of the fifth largest research field, “there is a lot of activity that will take more than US$2 billion dollars of investment.“

Brügmann also presented the importance of geological understanding, which will inform for future drillings. “In 2017 we began wells for our Cretaceous and Jurassic fields. “The structural design of the wells required for our objectives is quite complex. During 2021 we expect to complete four wells (our original two appraisal wells and our two development wells), bring production online

“We need to see the whole picture, from the results of the first wells, we can have an idea of how the others will develop, but everything has to be on the most optimum time frame.”

Sylvain Petiteau Vicepresident Reservoir, Development, Engineering Non-operated Assets at Wintershall Dea México

and thus continue drilling our Ichalkil-6 well.” The more data, the better the certainty to locate future wells.

Important changes on capital market are also happening, according to Brügmann. “The authorities are strict regarding governance and transparency, there are also additional requirements related to I f C, with social activities and community relationships, which is a significant change with the past model of Mexico.” He also said that ESG standards are something oil regulators should put at the top of the list, as it could generate a positive change in the industry.

Petiteau complemented the changes happening with the relevance of good stakeholder management, “without it, a project cannot happen. Taking all the parts that make up a project into account is necessary for it to be successful.” He added that long term view of things, is critical when going into a country that has a changing environment, such as Mexico with the Energy reform. “Everyone working on this industry has the same goal: develop a project and collect resources, but this is not an easy task.”

Parker recapped the pipeline of development and planning for private operators, as asked the experts about the incoming challenges they see in Mexico. f or Brügmann these are two: technical and regulatory. “On the technical side, drills are complex and deep, almost 6 km in high temperature and varying pressure. r egulation wise, for projects that are doing things for the first time we become pioneers.” He used the example of fieldwood being the first company to sell oil for the Mexican market, the first on the new regulation of wells, the first one to lay a pipeline with a single campaign, the first operators to lease the Tumut platform from PEMEX, and the first offshore lease in Mexico ever. “However, there are a lot of synergies among layers. Operators do not complete developing the fields, we work together to find solutions.” Lastly, Petiteau added that within the collaboration of the industry, “we

cannot be naïve, and must have the goal of the project very present, because that is shared by all the stakeholders.”

Brügmann closed by saying that private operations can focus on the potential of

reserves, “we need to continue pushing and helping PEMEX as it is the largest operator in Mexico, the resources of the country are much larger than PEMEX capabilities, which is where the private sector comes to support.”

ASEA’S REGULATIONS IMPROVE SAFETY IN A RISK Y INDUSTRY

The implementation of health and safety measures in the industry, especially during the pandemic, was not only the result of internal efforts, but also of external changes that came from regulators. Jose Luis Gonzáles González, Head of the Supervision, Inspection and Industrial Surveillance Unit at ASEA, presented the panel “Industrial Safety Performance and Priorities” at Mexico Oil and Gas Summit 2021, in which he highlighted the role of regulators such as ASEA in improving compliance and safety within the hydrocarbon industry.

National Industrial Safety and Environmental Protection Agency (ASEA) is one of the youngest agencies within the sector. It was created in 2015 and is in charge of disseminating related regulations and enforcing compliance for public and private sector companies in the hydrocarbons industry. “We carry out supervision, inspection, surveillance and verification so that all activities related to the hydrocarbon industry can be carried out safely, in

addition to respecting regulations and the environment.”

In 2020, the COVID-19 pandemic affected the tasks performed by ASEA as it was difficult to go to the different facilities for inspections. fortunately, ASEA’s capacity has increased, as it has learned to work despite the pandemic. ASEA’s regulation, inspection, supervision and surveillance departments were able to support operators throughout the industry value chain to ensure no accidents or business interruptions occurred.

“We began adopting online modalities and receiving all the training necessary to manage them. These efforts allowed us to continue operating, executing evaluations and issuing authorizations. Now, these online modalities are quotidian and, for the most part, we have been able to maintain a reasonable continuity in our operations,” González told MBN.

ASEA implements corrective, urgent and safety measures based on the status of the inspected activities and facilities. Corrective measures are usually minor infractions that do not put staff at risk; urgent measures are a priority due to their possibility of causing accidents; and security measures are to prevent accidents. from 2017-2021, the corrective measures have been the most implemented. However, there is a downward trend due to multiple requests for supervision that have allowed companies to better understand the regulation. The implementation of urgent measures also follows a downward trend, while security measures have remained at a similar level since 2017. “We are modifying a number of industry norms that we inherited from previous

administrations, since their timeframes need to be adjusted,” said González.

ASEA also carries out inter-institutional operations to combat illicit hydrocarbon trafficking, in which it works in conjunction with P r O f ECO, C r E, the National Guard, SEDENA and the Navy. from 2019-2021, ASEA has worked in 21 states across Mexico, carried out inspections in more than 125 facilities, made 34 temporary closures, suspended 21 temporary activities and implemented 55 urgent and corrective measures. González explained that during 2021, ASEA’s activities in Hidalgo have intensified as it is a priority state in the fight against illicit trade.

“We carry out supervision, inspection, surveillance and verification so that all activities related to the hydrocarbon industry can be carried out safely, in addition to respecting regulations and the environment.”

Jose Luis Gonzáles González

Head of the Supervision, Inspection and Industrial Surveillance Unit at ASEA

which the company has 180 days after the event to deliver it. “We do not sanction. We promote compliance with regulations and support companies in the event of an accident. Our purpose is to learn to prevent a ccidents.”

In 2020, there was a significant increase in accidents. In the commercial and transportation area, accidents increase by 70 percent due to the closure of multiple pipelines and the different risks posed by the types of transportation. However, ASEA continues to address these issues. “Since April 2021, ASEA has been on a communication campaign to share lessons learned from the latest incidents in the sector, which include major accidents in hydrocarbon transportation and storage,” said González.

regarding incidents and accidents, ASEA has classification criteria that depend on the magnitude of it. Type 1 is for accidents where personnel were injured, there were damages to the facilities and failures in the operation of the equipment; Type 2 is for when the accident caused fatalities, disrupted operations, and hazardous material was released within the facility; and Type 3 is for when there was a death, the personnel and the population had to be evacuated, operations are interrupted and a dangerous substance was released outside the facilities.

f or these situations, there is the r oot Cause Investigation (IC r) process, where the company must report the event and classify it according to its severity. Subsequently, the situation is also analyzed by ASEA, which makes recommendations. At the end, a final report is presented, in

recently, there was a controversial accident in Campeche called an “eye of fire,” in which an underwater gas leak caused a fire on the ocean surface. During his presentation, González said that he wanted to clarify some facts that have been incorrectly reported. On July 2, a leak in an underwater pipeline and fire on the ocean were reported at 5.15 am, for which safety protocols were activated, resulting in the extinction of the fire at 10:45 am.

According to González, there was a loss of containment in the gas pipeline, which released gas. However, weather conditions in the area are believed to be the cause of the fire. After the accident, PEMEX identified and reported the event as Type 3 and in accordance with ASEA protocols, PEMEX must submit a report of the event and its cause within 180 days.

González concluded the panel by highlighting that ASEA’s priority objective is to strengthen supervision, inspection and surveillance in the hydrocarbon sector to maintain the safety of processes, people, environment and facilities. “We work with a model based on lessons learned, IC r recommendations, and measurements we make during inspections.”

ADAPTING TO SEVERAL STORMS OF CHANGE ALL AT ONCE

Between the pandemic and the government’s efforts to modify labor laws, the human resources and crewing segment of Mexico’s oil and gas industry have navigated a treacherous route for the last 12 months. The lessons they have learned throughout this journey were touched upon in the third panel of the first day of Mexico Oil & Gas Summit 2021, entitled “H r , Outsourcing and Safety: Crewing the Industry in 2021”.

The panel was moderated by r afael Daryanani, regional Manager of Mexssub, who explained the circumstances of the industry during 2020: “Mexico suffered an economic recession during the pandemic which affected all industries, but even within that context, there was particular confusion in the oil and gas sector.” Daryanani further explained the efforts the Mexican government has made to modify existing labor laws with the objective of limiting outsourcing schemes, which added to this confusion and compounded the stress being put on human resource managers and the larger recruitment sector within the industry. Throughout all of this, Daryanani commended the essential role that the H r sector played in allowing the sector to maneuver through these troubled times successfully, adding that “leadership from companies has been crucial in ensuring the safety of human resources in the oil and gas industry.” He began the panel discussion by asking panelists to characterize what their experiences were as they tried to guarantee the safety of employees amidst the pandemic.

Panelist Christian Eduardo Heras, OPITO Coordinator of r elyon Nutec, offered his

“...leadership from companies has been crucial in ensuring the safety of human resources in the oil and gas industry.”

Rafael Daryanani Regional Manager of Mexssub

perspective as a trainer of current and prospective industry employees, saying that their first reference as an international company became WHO recommendations, which became a useful tool to stay ahead of the curve as Mexican authorities developed their own protocols. r elyon Nutec was one of the industry’s innovators when it came to the adoption of digital practices for safety training purposes, which proved crucial to improving the safety standards among offshore workforces. “Hygiene, social distancing and protection measures are important training elements to ensure safety amid the pandemic,” said Heras.

While Heras focused on the certainty of his company’s response, panelist Daniela Nava, Human resources Manager of Vopak, focused her response on the prevailing uncertainty that characterized this period and how her company addressed it. Nava made clear that the question of their strategy to face the pandemic has a variable answer because such strategy has changed quite frequently, especially during the first months of the pandemic. A lack of relevant information was common during this time, so developing leadership qualities that were more general and adaptable among employees became crucial. Crisis management training became necessary and common. The high unemployment rate was creating new anxieties among the workforce, therefore, Nava explained that Vopak’s human resources department focused on making sure that the company’s employees would know that all payroll promises would be kept and that everybody’s work was appreciated; these efforts would come to significantly strengthen the organization as a whole. “We learned a lot during the pandemic. Pretty much everyone became an expert in safety protocols, which has helped to keep everyone safe,” said Nava.

Panelist Guido Van der Zwet, General Manager of IPS Powerful People, also highlighted that all companies that worked

in more than one state had to contend with a variety of standards and attitudes from public authorities when trying to adapt to pandemic rules. This had a particular impact on offshore crewing and activities, since necessary quarantine measures for vessel crewmen drastically altered the logistical preparations and timeframes of operators and other clients of companies like IPS Powerful People. Van der Zwet believed one of the decisive success factors during the pandemic was the ability of recruitment agencies and human resources consultants to find practical solutions in tight deadlines to each problem that arose, especially since oil and gas was a critical industry for Mexico that was not able to halt its operations. Van der Zwet hopes that this can-do attitude can remain applicable as Mexico moves into the third wave of COVID-19 infections. “We will continue to learn more about how to handle the third wave of infections. People have to adapt and follow instructions as they move forward,” said Van der Zwet.

Daryanani concluded that institutional flexibility was crucial to surviving the pandemic, which led the discussion towards the question of regulatory changes. Nava believed that the impact of limiting outsourcing was relatively limited for companies with a high degree of established presence in Mexico. “ for large, well-structured companies, the changes in outsourcing regulation will not be a big deal. This will affect smaller, family-based companies much more,” said Nava. However,

Nava did admit that these legal changes made a lot of institutional processes take much longer, since decisions now needed to be approved from the perspective of more stakeholders; for example, STPS was now taking a closer look at all the moves that companies were making to formalize all their employment arrangements. As a result, all timeframes have been extended and extensions of deadlines have been sought from public authorities.

Van der Zwet believed that the limiting of outsourcing could actually have a much larger and more complicated impact than Nava’s claims would suggest, especially since payroll departments “do a lot more regulatory compliance work than everybody thinks; they are doing much more than simply calculating salaries, and in many companies their importance is underestimated.” Van der Zwet characterized the “prohibitive” approach to outsourcing reflected in recent regulatory changes as “radical”, but he also understood it within a broader historical context, explaining that “Outsourcing has been a bit of an ugly word in recent years, associated with dirty practices like reducing salaries and preventing payments, even wage theft. However, there are many outsourcing companies that follow the rules and pay well, including benefits.” Van der Zwet claimed that out of all outsourcing companies that operate in Mexico, most pay one hundred percent of salaries, which in the oil and gas industry are quite high in general.

RESULTS-FOCUSED EXPLORATION TECHNOLOGY INNOVATION

While certain sections of the industry had to adjust to the events of 2020, exploration activities experienced a positive period. PEMEX and private operators made a number of important discoveries and prominent exploration and drilling plans were approved by CNH.

These results need to be deeply understood if they are to be replicated. It is important to highlight that that successful exploration campaigns are a collective effort, and that innovation and new technologies can play a significant role in any number of the many processes that make up such a campaign.

“Mexico has more than 70 years in extraction exploration and has incorporated exploration software.”

Jeimy Mathison

General Director of Kasoil

companies did not invest on development and training of human resources.

“Training of personnel combined with adequate technologies are the key to success in exploration efforts,” said Eduardo Arriola, Operations Manager at Golfo Suplemento Latino. Arriola explained that much of the use and advantages of technologies have to do with the experience of a talented Mexican workforce.

To understand the surveying of increasing the data generated through drilling, and even the importance of more traditional and analogue, but still extremely relevant processes, such as rock core sampling and analysis, experts met at Mexico Oil and Gas Summit on July 14 and presented “results-focused Exploration Technology Innovation.”

Moderator of the panel, Gustavo Hernandez, International Vice President of the Mexican Union of Engineering Associations (UMAI) kicked off the discussion by asking the experts about the current role of technology for extraction activities.

“The technology allows mitigating risks in the oil extraction chain,” explained Jeimy Mathison, General Director of Kasoil. “Mexico has more than 70 years in extraction exploration and has incorporated exploration software, it is the starting point in the production chain to reduce risks,” Mathison added. However, she said that all of this technology would be useless if

The role of technology in the sector has evolved from 2D Seismic Data Software, to 3D Seismic Data Software and to 3C4D Seismic Data Software, said Gerardo Clemente Martínez, President of AMGE. “These have allowed us to generate a knowledge base that we can transmit, to have more conscious operations focused on optimizing times.” In line with Arriola’s comment, Clemente said that there are people who are familiar with these software models that govern the geological evolution of the areas, thus they are considered the real advantage for an innovative company, as without them, innovation would just exist, but would not be used. Clemente also recognized that while the oil industry has contracted as a result of the pandemic, private companies are still open to hiring, “it is important to create quick hiring mechanisms so that people do not lose their skills gained in the sector.”

Arriola said that this contraction also helped the industry to refocus their efforts and stick to collaboration toward achieving the set strategies for exploration success. He added that the pandemic taught the industry to work with different budgets, “whether limited of sufficient, our budgets will tell us what we can do and in which areas we can assign it, however, availability of equipment and technology, workforce, and money must converge to have the true skills of success for our campaigns.” Mathison added that Mexico has unique geological conditions, which makes the trained workforce of the country even more valuable.

f ocusing on the impact of innovation on their campaigns, Clemente presented other key aspects for exploration activity, “companies have to know how to select the technology they need, it must be consistent and tailored so that it works precisely for what they want it.” He said that, just as the workforce, technology has to respond to the specific conditions of Mexico. “In AMGE, we take good technological experiences and tropicalize them to fit out needs.”

The use of data is also a watershed for operations, Mathison explained that “drilling a well is the result of much analysis and specialized studies that allow timely decision making, these processes allow operators to achieve geological and commercial success to maximize the value of the hydrocarbon.” Thus, Mathison encouraged companies to continue working sequentially, “the difference that the bit makes a mistake is associated with the studies that we are doing to guarantee operational success”,

she said that it is always important to carry out sequence studies and evaluate projects to reduce uncertainty and to meet their goals as well.

In regards to further innovation in the industry, Arriola sees technology as a constant evolver, therefore, “if a new paradigm shift occurs it will likely use the same technology, but feature different models that manage to optimize results.” Clemente believes that digital information will allow standardization of data and provide a better access to the information in the way companies need it, “it would also make it easier, from home, from our cell phone in a simple way to support decision-making.”

Mathison concluded that technology will also begin to optimize the time of human hours and machine hours, therefore, studies of 3 to 6 months can be shortened to something more immediate.

BHP MOLDS MEXICO’S FIRST DEEPWATER DEVELOPMENT WITH TRION

The Trion project, discovered by PEMEX in the deepwaters of the Gulf of Mexico in 2012, is considered one of the most exciting prospects in the Mexican oil and gas sector. Stephan Drouaud, Director of the Trion project at BHP, outlined the project’s history and progress in Mexico Oil and Gas Summit 2021.

BHP might be mostly known for its global mining experience, but its oil and gas arm displays its excellent capabilities of its own. More than just being a technological powerhouse, the company is keen to show how its projects can add value anywhere. “Integrity, respect and outstanding performance are crucial for the company. We

“Our goal is to think big and make history by delivering the first deepwater development in Mexico.”

Stephan Drouaud Director of the Trion project at BHP

are also fully committed to environmental safety, decarbonization and social values. We want to leave a positive legacy and support communities,” said Drouaud.

With the Trion field, BHP hopes to display all these values. The company is the operator and has a 60 percent operating interest, the other partner is Mexico’s NOC PEMEX with it a 40 percent share. “PEMEX’s original discovery of the field meant that we had a lot of available data to work with when we first became involved in Trion,” Drouaud further explained.

The field is quite unique,” Drouaud said. The Trion’s field remote location makes it a quite exceptional and challenging project, with a unique scale and magnitude that we find very exciting,” he continued. Trion is located 180 km off the Mexican coastline, 30 km from the south of the US and Mexico’s maritime border. Ninety-four percent of the field is oil, the project’s most valuable resource. With no nearby infrastructure,

BHP faces an interesting challenge in their field development plan concept. “We have now defined the development concept as one that calls for a subsea field connected to a semi-submersible floating Production Unit,” said Drouaud, adding that “the reservoir requires pressure support from day one so that the oil does not become gas too early.”

Drouaud predicts that the field could produce 100,000 b/pd, increasing up to 120,000 or even 130,000 eventually. Most of the gas produced will be re-injected. “We were struggling to find a location to exporting the gas,” he said. Luckily, the field can use this resource itself. “The need for water and gas injection has driven an important number of our design and engineering decisions in the development of Trion.”

Trion is showing good progress in its study phase, with CNH approval already expected in 2022 and a likely successful second investment decision coming soon. Various milestones such as finalizing the field development plan and tendering important scopes of the project will be completed in 2021. BHP is ambitious: “Our goal is to think big and make history by delivering the first deepwater development in Mexico,” explained Drouaud. On the current timeline, the company hopes to reach first production in late 2025 or early 2026. Developing the

field is estimated to cost between US$7 and 10 billion, but the partners are trying to narrow this range. “I hate to say it, but 80 percent of these projects do not deliver on budget and on schedule,” he said. Drouaud has asked for more time to do everything the right way in his mission to ensure Trion will be a landmark success.

Another key part of the development is the floating Production Unit (fPU) contract, for which BHP decided to work with McDermott.

“This drives pretty much the whole project, so it was incredibly important,” Drouaud said. The core foundation of the project success lies within the power of collaboration, however. Drouaud lauds its successful cooperation with PEMEX, which he says has been built on “trust and respect”. Aligning business and project objectives early on and developing relationships on all levels in their respective organizations helped build a bond. “Treat your partner the way you want to be treated,” he stated.

A transfer of technology and knowledge further strengthens the partnerships. BHP said it benefits greatly from PEMEX’s knowledge and capabilities, so it wanted to transfer its technology and know-how regarding deepwater developments to PEMEX and academia as well. “It is not an obligation, but a commitment because it is something we really wanted to do. In a way, it underpins our success,” said Drouaud. Developing the capabilities of Mexico’s oil and gas sector as well as supporting university research are dedications BHP is proud of. “We believe that we are a proven operator in the Gulf of Mexico, so we can provide a lot of expertise in the training of Mexican talent.”

With a solid social program on its shoulders, BHP aims to use donations to build goodwill with Mexican communities and establish a great relationship early on. Its efforts include poverty relief, training, health care services and laptop donations, among others. “We are entirely committed and excited for the bright future ahead of us,” Drouau d decided.

POTENTIAL SURPASSES CHALLENGES IN DEEPWATER

f or many years, the speculative nature of deepwater development in Mexico has rendered discussions surrounding its potential into somewhat vague and even at times repetitive musings, nevertheless, the latest results from operators in this category has generated a renewed interest for this type of activities. Appropriately, the new balance between opportunities and challenges ahead for this subsector was the main subject of discussion during the last panel of Day 1 of Mexico Oil and Gas Summit 2021, titled “Deepwater: Who, Where and When?”.

The panel was moderated by Valeria Vázquez, Energy and resources Leader for Mexico and Central America at Deloitte. She began by establishing the richness of deepwater resources in the Mexican side of the GOM, only matched by their unexplored nature. There is a notable lack of knowledge and geological data when compared to the American side, despite the fact that the Mexican side might prove to have much more potential. With this in mind, Vázquez began by asking panelists what role they have each played to contribute to the further growth of this breadth of knowledge.

Panelist Dr. Alma América Porres, Commissioner at CNH, explained the role the Commission has played as a regulator in incentivizing the recent exploration success that deepwater operators have enjoyed. “Since 2019, operators have explored 11 prospects and discovered resources in 5 wells in the southern Gulf of Mexico. This demonstrates a 45 percent success rate,” said Porres. Most of these discoveries have

“Since 2019, operators have explored 11 prospects and discovered resources in 5 wells in the southern Gulf of Mexico. This demonstrates a 45 percent success rate.”

Dr. Alma América Porres Commissioner at CNH

been in the Perdido fold belt area, but have not been exclusively limited to it, since the Salinas basins can also be included as a prominent area.

An operational role was detailed by panelist Carlos Ortiz reguer, Chairman for IADC at LATAM and Marketing Director for Transocean, who narrated the history of his company’s involvement in Mexico’s deepwater sector. Transocean broke ground by bringing in their Deepwater Invictus vessel to develop deepwater assets in Mexico, which drilled a number of important wells in the Trion asset, among them the first ultra-deepwater well in the country’s history. “Transocean has been instrumental in the technological development of Mexico’s deepwater from the beginning,” said Ortiz reguer.

Panelist Chris Brinzer, Exploration Manager for Petronas, highlighted their role as an NOC that contemplated Mexico as a worthwhile international investment. As a 100 percent state owned oil company, Petronas has to evaluate its international portfolio through specific criteria, and the fact that Mexico has not only fit that criteria, but become a key part of that portfolio, has gone a long way towards promoting investment in this particular segment of Mexico’s oil and gas industry, according to Brinzer. “Mexico is very important to our international portfolio, as we believe it has significant exploration and deepwater potential.” In fact, Brinzer claims that Mexico, represents the largest exploration portfolio for Petronas’ international assets.

This question of asset evaluation was also brought up by panelist Luiz feijo, Director of Global Offshore Production at the American Bureau of Shipping or ABS. feijo explained that, in his experience, the criteria used by operators to determine which asset to develop was extremely complex, but that safety has always been at the top of those priorities, and Mexico has fulfilled those expectations. “Profitability is important, but

you cannot risk the safety of your people or the environment.” He also mentioned that as deepwater activities continued their progress towards a productive phase, many elements had to be considered by operators when it came to determine what kind of production facilities they would be working with. These factors include the type of storage they would need, the choice between offshore processing and the use of pipelines and underwater ducts, the kind of weather they would be dealing with (which in the GOM means contending with hurricane season), the expected longevity of the assets, and the way in which technology would be applied to integrity asset management and the mitigation of risk.

Panelist Bud McGuire, Mexico COO of Alpha Deepwater Services, also noted Mexico’s deepwater richness in the context of the 12 years that his company has spent developing deepwater assets in Mexico working together with PEMEX and witnessing those prospects mature up close. “Mexico has world-class deepwater potential, most of it remains unexplored. This is a great opportunity to use new technology to improve drilling.” This led to the question of technological challenges and applications that this category of activity represented, and here McGuire highlighted the importance of the latest seismic technologies, which

include improved imaging of complex and subsalt structures and the use of full wave inversion to better understand resources located below salt formations. These kinds of exploration applications can also help operators understand the difference in reservoir pressures, which can sometimes make data interpretation much more difficult according to McGuire. Brinzer agreed with McGuire, adding that the amount of data that has been made available through these and other exploration technologies, such as wide azimuth seismic, has been decisive in the success of operators.

regarding technological challenges, Ortiz r eguer explained the new hardware that has become common in deepwater vessels and platforms, which in some cases includes components originally designed and developed for use by NASA space shuttles. This included a number of robotic and AIbased applications that removed the need for human intervention and interpretation in certain high-risk areas of work, adding that “robotic consistency enhances efficiency which translates to big cost savings.” In general, Ortiz reguer expressed enthusiasm about the technologies being developed. “There are new technologies that offer great economic and efficiency advantages. The key to success in these investments is having a long-term commitment.”

NEW URGENCY FOR AUTOMATION & REMOTE OPERATION AFTE R COVID-19

In every industry the adoption of various technologies became essential for business continuity during the COVID-19 pandemic. During the first three months of confinement, due to the sanitary restrictions, the digital transformation for all companies had to be

“It is not just adopting technology; companies need to mature the way we use it and have a coherent integration of processes.”

Manuel Arroyo Industry Solutions O&G Director of Emerso

implemented at great speeds to ensure their activity. f or the oil and gas industry, this was no exception. Currently, technology has been integrated into a cost saving processes, decision making support and greater operational efficiencies, however, this transition was taken step by step. Today, the urgency for automation and remote operations faces other challenges beyond its adoption, where experts of this industry presented during Mexico Oil and Gas Summit on July 15.

During the panel “New Urgency for Automation & r emote Operation After

COVID-19” moderator Amanda Duhon, r egional Director for North & Central America at Energy Industries Council asked about the role of automation and remote operation and how that has changed the approach to investment in new technologies.

Manuel Arroyo, Industry Solutions O&G Director of Emerson said despite the massive growth of technology use, there is still urgency for digital maturity. “It is not just adopting technology; companies need to mature the way we use it and have a coherent integration of processes.” Arroyo said despite over a decade of automation integrating into operational processes, “there is still people on the field gathering information manually, thus you can see the need to continue implementing automaton specially at this stage.” Arroyo highlighted that one of the benefits of automation and technology adoption was the ability to have more eyes on the process and to use cloud technology that enables remote access to company ’s assets.

Aside from using technology, integrating technology is key for business continuity to deliver products and services, said Laurent Pagnon, VP Digital, External Technology of Technip f MC. “At the company, we integrated new technology and procedures like video assistance, which has changed the landscape of onshore operations, as we are able to connect to the field with operators.”

Pagnon said COVID-19 catalyzed automation, which, in the future, “will allow us to remove field personnel from the red zone and track the operations remotely.” He also explained that automated equipment, products and solutions will allow for this remote operation.

“...new technology and procedures like video assistance, which has changed the landscape of onshore operations, as we are able to connect to the field with operators.”

Laurent Pagnon VP Digital, External Technology of Technip FMC

r egarding the next step of technology adoption and integration, Augusto Borella Hougaz, Vice President of O&G Products at Intelie said that more sensors and real time screening during operations will allow for a faster automation and thus, real time decisions. “Moreover, we need to adopt simulators to run real time, coupled with machine learning to have a mathematic approach that supports our decisions.” Borella stressed the importance of allowing champion engineers apply emerging technologies, “the human factor would be the key to success here, as it is what makes things happen.”

f or his part, Eugene Spiropoulos, Global Systems Business & Consulting Leader of yokogawa explained that this technology adoption will collect sufficient data, thus, there is the challenge of filtering the right data information. He said that a solid data infrastructure platform, will face the challenge to deliver information on different formats for the customer. “What we are seeing after COVID-19 is a difference of standards, particularly engineering standards, so additional costs in infrastructure needs to be considered,” said Spiropoulos.

Duhon asked the panelists about the most significant breakthrough in 2021 after the massive tech integration, to what r icardo Velazquez, Manager Application Engineering at Belden said that vulnerability assessment is becoming a trend, “cloud base and edge computing with solutions access for remote vulnerability assessment is what we, as companies, need.”

r egarding trends on services, Velazquez said that OT networks and services will be driving agreements for oil and gas facilities. Nevertheless, he mentioned that there is a lack of training that hybrid engineers can handle innovation for the OT Networks, and he urged companies to start focusing on that, which, as Borella had previously mentioned, make technology benefits really palpable. A challenge regarding assets is its security, Velazquez said that a network

operation centered or a security operation centered (in house or outsourced) will be the drivers for public and private sector.

f ernando Arcos, Director of PMO at W-Industries introduced other industry trends regarding automation and remote operation. “Companies are looking for cost reduction and increased profits,” said Arcos. He mentioned that current companies’ strategies center around keeping their facilities running all the time with no downtime; “once that objective is fixed, we can build a solution that responds to that need,” said Arcos. He also stressed on the need of training engineers. In terms of services, Arcos recommended to remotely find people to look at what operators in the field are doing. “Take advantage of the chance to have experts from different parts of the world to give an input on your activities.”

Arcos added to what Velazquez previously said about assets’ security, “it is highly essential to invest in cybersecurity, technology should not function without continuous evaluation of your data security.”

r egarding cybersecurity, Spiropoulos explained that adding more devices adds a bigger surface area, thus, “monitoring and identifying your threats is a necessity. Companies need to have visibility and a strategy to respond, building that strategy will make operations more secure.” At this point, Pagnon added that to permeate a cybersecurity strategy, this needs to be fully integrated and embedded in the team to avoid it filtering from simple emails.

Duhon asked the panelist about how the future will look like when technology is integrated, to what Pagnon mentioned that investing on data management to connect the business unit at different levels will support the process of each project. However, looking at a bigger picture, he said that the industry must align and standardize technology integration to achieve successful operations overall. He said that when unifying technology use for the entire industry, there are three points to consider; “data infrastructure, storage and transformation of data to handle it efficiently and data governance to own it and use it securely.” f inally, Pagnon recommended companies to align their use of technology with their business value proposition, “if the technology we intend to use resonated without business value proposition, then we will really materialize the benefits it offers.”

Borella said that in the future he expects to see companies having an inclusive innovation process with people, paying attention to their training and on building understandable and safe IT Architecture for their productive chain.

Arcos mentioned the importance of regulation and how it needs to respond in order to have the standardized practices that all panelist where mentioning. He called on companies to be the ones asking for the regulatory requirements they want to see to have equal, safe practices that favor the innovative environment and that allow automated and remote practices without fearing breaking the rules.

A COLLABORATIVE PUSH TO REDESIGN OFFSHORE OPERATIONS

Offshore suppliers and service providers had to contend with a double-edged sword during 2020; on one hand, the designation of the sector as an essential economic activity meant that core operations were to continue uninterrupted. On the other hand, the delay and cancelation of various projects, coupled with the oil barrel price crisis, led to a very competitive environment that not all companies survived. This, coupled with the fact that Mexico’s offshore sector was in a recovery curve of its own from the crisis created by 2015’s downturn. It is in this context that the second panel of Day 2 of Mexico Oil & Gas Summit 2021, titled “Supplier Priorities in the Offshore Services Market”, incentivized a sharing of lessons learned in the path to achieve this survival.

The panel was moderated by Luis Vielma Lobo, CEO of CBMX, who began by explaining the nature of the industry and its context with the following remark: “The pandemic has transformed the global village of the oil and gas industry, and all offshore supply chains have experienced major processes of adaptation as a result.”

Vielma Lobo began the discussion by asking panelists about the most important lessons learned in 2020 and the way in which these lessons impacted on how they draw up their contracts with their clients.

Panelist Sonia Castellanos, Geomarket Manager for Mexico and Central America at Schlumberger, began her remarks by adding to Vielma Lobo’s context, stating that the process of navigating the pandemic and the

“Higher crude prices and economic reactivation are a reason for cautious optimism. Nevertheless, the sector needs to carefully navigate the current opportunities to benefit.”

Sonia Castellanos

Geomarket Manager

for Mexico and Central America at Schlumberger

overall crisis it has created in the offshore oil and gas sector is still ongoing and by no means has been left in the rearview mirror of 2020. for Castellanos, the key term was, at first, acceleration: any new process redesign that Schlumberger had been discussing for years had to be implemented in a matter of weeks or months at the most once the pandemic started. Practices and strategies that had been languishing in the pipeline without a clear view of their use were either implemented or discarded quickly.

Castellanos was clear in saying that the current prospects for the offshore sector were in a state of reliable recovery. “Higher crude prices and economic reactivation are a reason for cautious optimism. Nevertheless, the sector needs to carefully navigate the current opportunities to benefit.” One of the impacts of 2020 that Castellanos needed to adapt to right away was a reduction in the offshore sector’s available qualified workforce, which coupled with a scarcity of materials meant that available resources needed to be mathematically rationed, including in contracts with suppliers and service providers. These contractual practices needed to become more flexible and open to proactive solutions and also less distributed so that they could be more solidly reliable; the times of contracts that included “a little bit of everything” were over, and less moving parts at a time of crisis has meant less risk. According to Castellanos, one of the most important changes that Schlumberger made in its offshore activities was to increase the amount of remote operations the company did, from 39 to 61 percent. This was achieved through intense planning and coordination, and a clear and transparent communication policy. Castellanos believes these types of changes will have to become more general in the industry. “All indicators point to increased activity in the industry. Companies will need to adequately and flexibly use tools and technologies to get optimal returns.”

Panelist Cesar Vera, CCO of Naviera Integral, was asked not just about lessons learned but about what must be done in Mexico’s offshore sector to create a truly healthy and consistent service economy. Vera explained that change in Mexico’s offshore sector is hard to direct or even influence from a top-down perspective, because it changes in a recursive fashion, meaning constantly; everything that happens in the industry impacts it directly one way or another, week after week. Even the recent news of SENEr giving PEMEX control over Zama will have large ramifications for the sector. for Naviera Integral, entering into a versatile mode of operation has allowed them to thrive not just the last 12 months but the last five years, since the offshore crisis of 2015 and 2016.

Vera believes that the current path of the industry has the chance to support constant offshore activity, from strengthening PEMEX to increasing the needs of private operators. However, the clients of fleet managers will have to take a chance with longer term contracts if they want to promote economic health and growth in the sector. “ fleets do not work in the Uber model. Having a vehicle in lease is not the same situation as contracting a ship. Here, long-term contracts with efficient costs and operational provisions are essential,” Longer term contracts enable the coordination and planning necessary to navigate contingencies. Vera believes that the industry must have a clear view of its objectives; decarbonization goals have to be balanced with production goals in a way that makes sense.

The way in which the offshore sector contracted was hard to measure and explain precisely, argued panelist Hermes Aguirre, Mexico Country VP of Halliburton. Aguirre understood his company’s responsibility to be the continuity of all operational flows. This, however, meant restructuring their finances; as he explained it, “Despite the pandemic, we maintained our same quality level. Nevertheless, we had to make several adaptations, increase our efforts and costs in the process,” Aguirre made it a priority to maintain open channels of communication with all contractors and clients, so that emergencies could be attended promptly. Continual improvement policies were implemented so that investment capital was never lacking. The importance of not cutting down on human resources and talent development amidst a crisis was also highlighted by Aguirre.

f or panelist Javier Cabrales Mendoza, Coating InfluXpert O&G at PPG Comex, the rate of adaptation to all the circumstances that presented themselves in 2020 depended on the rate of digitalization. “The big challenge of the energy sector is to use digitalization to keep the supply chain moving and take advantage of opportunities. It is all about speed.” In Cabrales Mendoza’s view, digitalization determined the rate at which organizations could absorb and adapt to new concepts as the pandemic began, and this turned out to be the key success factor during this crisis. He also mentioned the question of communication and coordination as being facilitated by this same adoption of digital technologies.

REGULATORY COMPLIANCE & RISK MANAGEMENT

During the pandemic, it became clearer that the parameters that determine regulations and standards within the oil and gas industry can change. These modifications have added more risk factors to an industry that had already been hit by a financial recession and a slump in oil prices. The best ways for companies to stay productive and prevent risks were the main topics discussed during the third panel of the second day

of the Mexico Oil and Gas Summit 2021, entitled “ r egulatory Compliance & r isk Management.”

The panel was moderated by Benjamin Torres-Barrón, Partner at Baker McKenzie Mexico, who explained that the hydrocarbon industry has been subject to very rigid standards in recent years, and these have only been increasing. Consequently, mining

companies must find the best way to comply with these regulations and address their main risks. “It is not only upstream oil operations that should prioritize these issues, but the entire value chain of the industry.”

“The process of modernizing the regulatory framework was necessary, but the authorization has caused problems and delays. It is important to be able to unburden that process.”

Eckhard Hinrichsen Country Chair of DNV Mexico

Alvarez, Chief Executive Officer of N r GI Broker, said it is critical to the industry as contractors often do the riskiest jobs. “The oil and gas sector is highly specialized. Their processes require a lot of risky work that contractors do. If we are not careful, these can affect people and the environment.”

The whole industry was affected by the COVID-19 pandemic. However, these new changes have allowed safer operations and provided greater protection to personnel, said José Bosch, CEO of Oleum Energy. In addition, Bosch explained that it has not been easy to understand Mexico’s regulation, especially in environmental and basic hydrocarbons matters. However, authorities have implemented new mechanisms and frameworks to adapt to the current challenges. “Authorities have been receptive and have been understanding about delays, giving us additional time to comply with new regulations,” B osch said.

In an interview with MBN, Eckhard Hinrichsen, Country Chair of DNV Mexico, said the pandemic has created new trends within the industry, such as remote inspections techniques that now have been fully accepted by clients and provided continuity to projects that otherwise would have been severely affected. “We expect that this will continue even after the pandemic is over. risk analysis many times requires multidisciplinary sessions and we are doing those remotely now, using special cameras. We have come a long way in how we go about these projects since the beginning of the pandemic.”

regarding ASEA’s initiative to include not only operators in the regulations, but also contractors and subcontractors, Graciela

The regulated usually have the responsibility of everyone who works with them. However, the implementation of a broader regulation is a better guarantee for all. “Even though operators have insurance that covers companies they subcontract, adequate risk management calls for even wider coverage to protect income. you never know when an accident can occur because of fragile equipment,” said Alvarez.

r odolfo Alfonso Esquivel, Director of Grupo roales, agreed that having a policy proportional to the work that contractors will provide is the best way to mitigate risks. “As contractors, we have to standardize practices to raise the level of operation in this highly specialized sector. Also, we need to integrate more technology and have more insurance advice.”

However, panelists also agreed that the new parameters have created challenges within the industry. “The process of modernizing the regulatory framework was necessary, but the authorization has caused problems and delays. It is important to be able to unburden that process,” said Hinrichsen. Another challenge has been that the authorities have asked to show these insurance policies, which is not the problem but the time lapse they provide, explained Alvarez. Bosch added that the policies that companies need are not on the market, making it difficult to be an operator in Mexico.

In order to show the importance of risk management and compliance, the famous Eye of f ire was discussed, an accident that has given the industry a bad image. According to Hinrichsen, the accident caused no injuries and was contained within five hours. “Its impact appears to be minimal. However, it is necessary to analyze its

environmental effects, as well as the systems present to see if they can be improved.”

Hinrichsen said that an important factor to always consider in these operations is that fields and resources change, so a structure that was implemented years ago will not be effective today. “Updating and maintaining the structures is key to avoiding these types of accidents,” Hinrichsen said. Meanwhile, Alvarez emphasized that PEMEX should be careful with maintenance, processes and aging infrastructure so that it can protect the environment and prevent incidents.

Esquivel said that there are new technologies that can improve performance and safety in operations, in addition to mitigating the impact and frequency of these accidents. “New technologies will allow us not to stay with an old solution, which no longer adapts to the current opportunities and challenges of the industry.”

f rancisco Javier Hoces, Director of International Consultancy of INErCO, added that the integration of new technology for best practices based on staff training is the new trend. “Technology gives us new dynamics for risk assessment and remote supervision.”

Hoces concluded the panel by saying that there is a great challenge for the oil and gas industry in Mexico. He explained that the country already has regulations and laws that give obligations to companies to better protect people and the environment. However, these have only remained on paper. The challenge remains to implement it in daily activities. Hoces highlighted that the pandemic boosted technological development, thus promoting best practices within the industry. “These practices are coming to Mexico and we have the opportunity to improve our operations and avoid future problems.”

FUTURE ROLE OF NATIONAL GAS PRODUCTION FOR MEXICO’S DEMAND

When Texas´ natural gas infrastructure was damaged by an unprecedented climate event at the beginning of 2021, it did not take long for Mexico to be greatly affected. The magnitude and scale of this impact became the last of many wake-up calls for Mexican leaders to address the country’s overwhelming dependence on natural gas imports.

There are immediate measures that must and can be taken, such as the diversification of the sources from which this natural gas is to be imported, nevertheless, another matter hangs in the air: national natural gas

“Mexico’s electric power generation is driven by gas with a 64 percent, renewable energies by 13 percent, and bunker fuel by 8 percent.”

Warren Levy CEO of Jaguar Exploración y Producción

production could rid the country of this dependence altogether.

This question used to be ignored given the economic advantage Mexico enjoyed through natural gas imports, due to the constant low price of American natural gas. Nevertheless, this new context demonstrates that this status quo must be challenged more vigorously.

Considering a government that continues to emphasize the importance of energy independence, sovereignty and self-reliance but at the same time continues to delay the development of a comprehensive national natural gas plan, a space is much needed to explore the most important scenarios and opportunities that national natural gas production currently presents.

To contextualize Mexico’s current scenario and future opportunities, Warren Levy, CEO of Jaguar Exploración y Producción was part of Mexico Oil and Gas Summit on

July 15 and presented clear opportunities for Mexico to succeed if supported by the right company’s strategies. Jaguar is the largest oil and gas company that is focused on material natural gas development and exploration in the country. The company is also the largest holder of government’s contracts, with 10 blocks acquired in licensing rounds; 5 blocks in Burgos, 2 in Veracruz, 2 in the southeast of the country, and 1 block in Tampico-Misantla. Jaguar has almost 200 employees, which, according to Levy, act based on the company’s core values “be the energy for positive change.”

Jaguar is the only significant independent onshore acreage holder in Mexico, “an attractive country with huge potential to continue to invest in,” said Levy. He explained that Mexico’s state’s own oil company, PEMEX, dominates the Mexican oil and gas industry, meaning that 92 percent of the Mexican onshore blocks are owned by PEMEX and 8 percent of those blocks are distributed among private companies. from that 8 percent, half of those blocks belong to Jaguar contracts.

Levy mentioned that Mexico has onshore potential yet to be unlocked as it is one of the largest hydrocarbon resources based in the Americas with significant untapped onshore potential. Mexico is considered the 19th country with the largest recoverable reserves; it has a 1.7 daily oil production and a 4.7 daily gas production. Moreover, the country is number one on the Ease of Doing Business raking by the World Bank Latin America and Caribbean. “The Oil and gas market is closed for new investors

given the current administration’s strategy where bidding rounds have been cancelled until awarded contracts show production results,” explained Levy.” Private operators have grown production while PEMEX’s production is in decline.

On the other hand, according to Levy, despite natural gas being a critical source of energy for the country and its enabler for energy transition, 40 million Mexicans do not have access to natural gas for domestic consumption, thus, they use traditional energy sources such as lighting fires. “Mexico generates 21 percent of electrical power from renewable sources, but less than 2 percent of total energy consumed comes from renewables.” Levy exposed Mexico’s natural gas consumption by sector; which is driven by power generation by a 67 percent, industrial and petrochemical use take up 31 percent, residential use 2 percent and transport and services just 1 percent. Germany, the UK and Sweden head the list of countries using renewable energies at a higher percentage.

“Mexico’s electric power generation is driven by gas with a 64 percent, renewable energies by 13 percent, and bunker fuel by 8 percent,” said Levy. The rest of the technology or fuel used is divided between hydroelectric energy (7 percent), carbon (4 percent), nuclear energy (3 percent) and geothermal energy (1 percent).

Levy also exposed Mexico’s dependency on natural gas production. “The Northern half of Mexico is connected to US’ grid and trades at US references, plus transportation.” The cold waves that froze Texas’ natural gas at the beginning of the year left between 30 and 40 million Mexicans without electricity and affected the country´s economy as a result, this highlights the dependence on the US. He pointed out that the southern region of the country is isolated from these resources facing steep declines in gas production “remote areas in Mexico have a higher cost and consumption of energy, while still having lower income levels.” The places with the largest natural consumption

are Monterrey, Veracruz Guadalajara and Mexico City.

Levy explained that Mexico loses US$6.7 billion per year for the amount of gas imported from the US. As gas demand continues to rise, Jaguar exploration prospects (11.6 Tcf) equal to almost 22b years of current domestic production.

“Energy is the hidden challenge for Mexico, thus, it is important to introduce sustainability strategies, such as Jaguar’s work in the country,” explained Levy. Jaguar’s Sustainability Strategy compresses gas at well head, commercializes via trucks direct to consumer, leaves a minimal footprint, has a faster set up, facilitates production from wells that cannot justify a

pipeline, and additionally, it is the CNH’s first time approved virtual pipeline.

“Mexico needs more companies like Jaguar, willing to invest on its assets and potential industries,” said Levy, “Jaguar is currently building a future for Mexico through natural gas.” To get a more sustainable future, private companies have a key role to play. Natural Gas is the only source of energy available for Mexico that can make a positive impact today. As Levy said, this would keep more money flowing in the Mexican economy, reduce emissions immediately, provide cheap and reliable power where it is needed, build a bridge to future energy matrix that is greener, and would ultimately be a key source of fuel to drive economic growth and create jobs.

ADJUSTING EXPECTATIONS TOWARDS A PRODUCTION TIMELINE

Before the discovery of Cantarell in the 1970s, Mexico’s oil and gas resources were understood mainly through its onshore fields, many of which preceded the creation of PEMEX. Today, major players in the onshore arena are trying to bring back that framework by addressing the many advantages offered by onshore development and the potential shortened path that it can offer towards productive phases. However, in the fourth panel of Day 2 of Mexico Oil and Gas Summit 2021, titled “Onshore Oil & Gas Production Outlook”, these advantages were balanced against some unique challenges that the sector still faces.

Niels Versfeld, CEO of Simmons Edeco, moderated the panel and began his statements by underlining the vast geological richness that characterizes Mexico’s onshore

“Gas is the cheapest way to generate electricity and a major driver for economic growth. Every Mexican state should have natural gas available for manufacturing and production.”

Dr. Héctor Moreira

Commissioner at CNH

reservoirs and basins. He also highlighted that the country’s regulatory framework can enable significant collaboration between the public and private sector, while also generating collective benefits. Despite these facts, Versfeld acknowledged that offshore activity and offshore discoveries dwarf their onshore counterparts. He also found, in his research, that the last few years have been characterized by a depression in rig use, in part because of the temporary halting of all onshore development wells. However, he also found that onshore reserves in the states of Veracruz and Tabasco have been increasing lately. “We all know Mexico has great resources but it takes time before results show up in production.”

Alexandro rovirosa, CEO of roma Energy Holdings, made clear that onshore operators were among the biggest winners of contracts during the bidding rounds, and that unlike operators in other categories, many onshore operators were born in Mexico and represented national entrepreneurship and talent. He also noted that the success in onshore development in the US could be easily mirrored in Mexico, given the two countries’ symmetric geologic conditions. “The geology in the US and Mexican side

of the border is exactly the same, so both regions have the same great potential. Operators are working hard to try and make good on this promise.” At the same time, r ovirosa made many observations regarding how much progress is yet to be made to reach the maturation of onshore activity, particularly for private operators. One of the examples he gave is that there are no private onshore storage terminals for crude oil, given the large degree to which onshore operators rely on PEMEX for all of these kinds of infrastructure needs. However, rivorsa also made it clear that he was in no way opposed to collaborating more closely with the NOC, and that he believed that the onshore sector’s future depended on a much larger degree of participation from PEMEX.

Most of the panel’s time was taken up by a presentation led by Dr. Héctor Moreira, Commissioner at CNH, on the subject of gas production. Moreira has been a longtime advocate of developing a national plan for natural gas development given that commodity’s nature and considered a fuel of the future. He addressed some of rovirosa’s and Versfeld’s claims that more exploration onshore was needed. “Mexico has invested more money in exploration in the past five years than it has in the seventy years before that. Its reserves are larger than expected. The question now is how to get to production.” Moreira also made it clear that his emphasis was on gas because, in his view, “we are moving toward a gas economy, so it is my opinion that gas is more important than oil. Gas is the cheapest way to generate electricity and a major

driver for economic growth. Every Mexican state should have natural gas available for manufacturing and production.”

Moreira has been a long-time critic of Mexico’s overreliance on natural gas imports from the US, but does place it in a sound historical context: “When the Energy r eform was passed, barrels of oil were worth more than one hundred dollars, while Texas was right in the middle of the shale boom, so natural gas prices were at the lowest they had been, historically. In this context, it made sense to focus on oil and leave natural gas for later.” However, Moreira said that the current status quo in terms of natural gas supply is unsustainable, explaining that “Almost all the natural gas in Mexico not used by C f E comes from the US. We need more exploration, production and distribution infrastructure. A time for incredible growth is coming up.” Moreira believes that specific public policy mechanisms need to be put in place.

When asked about the kind of technical challenges onshore operators were currently facing, Moreira quickly replied by saying that the number one current obstacle is COVID-19, and rovirosa agreed, adding that “onshore, the social aspect plays a significant role as a project intersects with so many people. The pandemic adds new obstacles in this area.” Unlike offshore operators, onshore operators need to do a lot more community engagement to keep their fields open; social risk factors can cause a very quick interruption to your activities. These tensions escalated significantly during the pandemic because in many cases

communities became distrustful of oil and gas workforces coming in and out of their towns and villages.

Panelist Iván Galban, Commercial Director of Exterran, approached the question of onshore development from an infrastructure growth and construction

point of view, which he believes could be easily incentivized with slight changes to the regulatory framework. “New private operators entering the country have been able to use PEMEX’s infrastructure. But not all plan to rely on PEMEX in the long term and are looking for other ways to connect to SISTr ANGAS.”

COULD REFINING BE THE WAY FORWARD FOR PEMEX’S PATH TO PROFIT?

f luvio r uiz Alarcón, Independent Oil and Gas Analyst and f ormer Independent Advisory Board Member at PEMEX focused his presentation on the NOC. What has been PEMEX’s role over and how did it change from its early history down to the current reforms, and how could its newly envisioned role as a refining giant become profitable?

“Over time, PEMEX became the main source of tax revenue. Its goals are based on the short-term needs of Mexico.”

Fluvio Ruiz Alarcón Independent Oil and Gas Analyst and Former Independent Advisory Board Member at PEMEX

This situation changed in the 70s, when Mexico began to rely more on exporting crude to maintain its economic models and imported refined petrol instead. The oil shock of the decades played an important part in this development. The concept of extractivism, the act of extracting natural resources to sell them on the global market, began gaining strength. “Over time, PEMEX became the main source of tax revenue. Its goals are based on the short-term needs of Mexico,” said r uiz. Toward the 90s, this extractivism only intensified when the country’s governments saw this tax income as a way to avoid unpopular fiscal reforms. More and more refined products were imported and Mexico’s refining system began to deteriorate, its importance began to drop.

After PEMEX was founded in 1938 on the back of the nationalization and expropriation of Mexico’s then-privately operated oil and gas sector, the company’s mission was rather straightforward. “PEMEX’s main role in its existence was simply to survive,” said r uiz. f irst modeled after a more socialist system in which workers played a main role, PEMEX eventually became a parastatal entity. Its role in Mexico’s economic model has often been essential, especially during the 60s.

“During its first years, “PEMEX’s stabilizing development focused on supplying the domestic market in an abundant and timely manner,” explained r uiz. f or this reason, the NOC only exported marginally. Meeting internal demand was its main objective.

When the 2014 Energy r eform began gaining steam, extractivism reached its peak. Getting as many resources out of the ground as possible appeared to be a main objective. “The energy reform that came after focused on rent-seeking, non-strategic refining, in addition the law establishes asymmetric regulation,” said ruiz. This rentseeking was defined by Mexico’s new focus to gain money on rents rather than through using its own production to accumulate wealth. ruiz explained that no other country in the world structured its industries so that private companies would carry the brunt of investments.

The Hydrocarbons Law established that PEMEX was subjected to an asymmetric regulation, allowing private players to gain more prominence with the playing field,

shifting its balance away from PEMEX’s favor. Trying to establish a free market in the oil and gas sector was not a great success, ruiz argued. The promised wealth and development the reform touted did not came to fruition. “In general, I would say that the Energy r eform was necessary but its implementation ended up being needlessly aggressive toward the productive enterprises of the state, said ruiz in an interview with MBN last year.

With the entry of the López Obrador administration, a new vision for Mexico’s oil and gas sector began to take shape. “Today, we see PEMEX being positioned as core and center of the O&G sector, it seeks to regain its self-sufficiency in fuels and bet on projects like Dos Bocas and Deer Park,” r uiz said. PEMEX was once again meant to become the cornerstone of the sector in the government’s mission to establish energy security and become self-sufficient in fuel. To this end, the government seeks to boost Meintxico’s refining system. The new prominent Dos Bocas refinery and the acquisition of the Deer Park in the US are key to this mission.

revamping Mexico’s six existing refineries will also be of importance. “ reconfiguring

three of these refineries has been dropped from the discussion, which I think is a mistake,” ruiz argued. Since most of Mexico’s oil is heavy crude, refineries would need to be reconfigured so that they can refine this straight away to save costs. After all, refining should add value, but if economics are not balanced correctly the process can end up costing money. Mexico’s fiscal policy toward trying to balance consumer prices would have to be examined as well “They should go together, but not be as unbalanced as they have at times,” said ruiz.

But the sweeping changes in the oil and gas sector have caused disputes between the public and private sector. On the other hand, a split between government goals and existing regulation would be harmful. To this end, r uiz says that reforms in the energy sector should be carried by an analysis of how the sector dynamic actually works. “A reform needs the biggest possible social and political backup possible,” stated r uiz. The endgoal of energy sustainability in the energy sector should be carried by three pillars, concluded r uiz his presentation: energy security, equal access and environmental susta inability.

MARKET OVERVIEW FOR THE OIL AND GAS INDUSTRY

After a year marked by a decrease in oil prices and a pandemic that took the world by storm, the oil and gas sector experienced changes that affected severely their

projects. To understand the current state of the oil and gas industry, Pietro ferreira, Senior regional Analyst of the Americas at Energy Industries Council (EIC) presented the topic “Present Market Overview for the Oil and Gas Industry” during Mexico Oil and Gas Summit on July 15.

The Energy Industries Council is a trade association that represents the energy supply chain which covers all energy sectors. They support close to 70 countries and help to identify business opportunities and expand into new export markets. The council maps three business intelligence data bases: COPEX, OPE X and EIC.

ferreira began his presentation by listing the countries with the highest market

opportunities for the energy sector. The US is number one, with more than a third of projects associated with renewables, followed by midstream and downstream at a low measure. Brazil is the second country in the list, with also, the majority of its projects focused on renewable energies.

Canada takes third place, similar as Brazil, which has the majority of its projects focusing on renewables. Mexico places fourth, with the largest number of projects concentrating around renewable energies. “Here is important to note that despite the variety of the projects, or despite the majority of projects being on renewable energies, the majority of the investment is still going to the oil and gas projects for up, mid and downstream, which takes more than 50 percent of the projects in the US and Canada,” said ferreira.

Information regarding projects in Mexico indicate that the majority of them focus in the upstream sector and combined make up a CAPEX of US$70 billion with close to 50 projects. The downstream sector is the second in terms of CAPEX, compared to renewables, which has a rather low CAPEX.

Mexico’s energy project pipeline has increased recently, with renewables at the top of the list, nevertheless, oil and gas are still accountable for most of the projects.

Mexico had a contracting activity in 2020 compared to the previous year, activity in the upstream, power and renewables were reduced, and there were more contracts in midstream and downstream sectors. These projects were led by MPL’s project Low Pacific and PEMEX’s Dos Bocas refinery.

The majority of Mexico’s upstream projects focus on PEMEX, as it has a long standing to

“One

of these projects is Pokche, where PEMEX is expected to invest over US$800 million in exploration campaigns.”

Pietro

Ferreira

revert production decline and the company has prioritized the development of 20 oil and gas fields, most of them located offshore. “One of these projects is Pokche, where PEMEX is expected to invest over US$800 million in exploration campaigns. r ecently, the NOC announced they will be operating the Zama field, instead of Talos Energy.

f or midstream projects, Mexico has a great opportunity for export gas produced in the US, as there is no need to transfer through the Panama Canal. for midstream projects, Mexico counts on Energia Costa Azul, LNG Export Project in phase 1 by ECA LNG, Amigo LNG Export Plant in phase 1 by AMIGO LNG, Amigo LNG Plant phase 2by Amigo LNG, North American Pacific Coast LNG by Mexico Pacific Limited, and Vista Pacifico LNG Terminal by IEnova.

f or downstream projects, Mexico is ramping-up the construction of the massive Dos Bocas refinery, which is expected to produce 340,000 barrels a day, coupled with the revamping of Mexico’s six existing refineries. These seven projects will require a combined CAPEX of US$15.8 billion. Beyond Mexico, ferreira explained that Brazil also had very keen projects in developing reserves. for downstream projects, Brazil has 11 key projects going on.

Aside from Brazil and Mexico, the oil and gas industry should keep looking at Guyana and Suriname. After the Liza field discoveries in 2015 in Guyana, the country´s potential sits next to Mexico, Brazil and the US. “Aside from its upstream potential, the Guyanese government and ExonMobil have partnered to carry out a gas to power project in the country, to bring gas produced on the Liza field to the shore, as a gas processing plant.

Senior Regional Analyst

of the Americas at Energy Industries Council (EIC)

The US has many types of upstream and exploration projects, nevertheless, ferreira emphasized on Shell’s Whale f ield, which hopes to be ready by the end 2021, one which started in 2004. “The country has other projects, some large ones with

petrochemicals and some small ones with renewable diesel.“

In general, there are opportunities for countries in Central and South America. for instance, in upstream, onshore reserves with Colombia, where the country also has much exploration on its Caribbean coast. “Despite the renewable projects in the region, CAPEX for midstream and downstream is massive. Along the region we see a variety of things, from very mature fields with strict policies

and to other countries that are starting to implement regulations. “

There are opportunities beyond activities, many of the opportunities are to diversify and innovate in order to generate a cleaner energy matrix or network. Overall, ferreira concluded that the region offers a positive emerging energy transition panorama, with a great opportunity for supply chain diversification, collaboration and in novation.

CREATIVITY NEEDED WHEN HANDLING THE INDUSTRY’ S FINANCES

Oil and gas finances in Mexico have a complicated connection with fiscal policies and public budgeting. A large part of the sector is dominated by state entities and political actors that are not always easy to reach and understand in their financial maneuvers. However, participants of the last panel of Mexico Oil & Gas Summit 2021, titled “ financing the future”, managed to have an objective conversation about the current state of the industry´s finances.

The panel was moderated by rodolfo rueda Ballesteros, Partner for Houston & Mexico at Thompson & Knight LLP, who quickly threw down the gauntlet by centering the subject around PEMEX, both in terms of its debt and also in terms of its investments. rueda Ballesteros made it clear that the number one concern was getting the NOC to escape its “rock and a hard place” situation caused by the combination of its elevated tax burden and its elevated debt burden.

Panelist Manuel rodríguez Arregui, founder and Director General of Ainda Energía & Infraestructura, focused on the positive,

“Incentive contracts can benefit the industry in the long term, but only if they are accompanied by migrations to new licenses with different tax schemes.”

Lucas Aristizabal Senior Director of Latin America Corporate Ratings at Fitch Ratings

given his acknowledgement that so much of these discussions usually took place under a “doom and gloom” type of context.

PEMEX is measured by the credit rating agencies in terms of its operational flows and debts, not its assets. This is an opportunity for PEMEX because it turns these assets into an ace in the hole for them. “Everything that PEMEX has received after the Energy r eform through assignments and the round Zero represented business as usual for them. But associations, farmouts and contract migrations to licenses that they control are a different kind of game.”

rodriguez Arregui believes that PEMEX can have many things to offer if it develops new ways of interacting with the free market. “PEMEX has an advantage in the current market. It can participate in joint ventures, where it can be the main beneficiary but not the only one.” PEMEX can be much more creative regarding its accounting practices, using associations to move its assets around its own financial convenience. The current regulatory framework gives the NOC the right to do this. Based on this experience in the infrastructure market, r odríguez Arregui suggested that PEMEX should get used to sharing responsibility more and to develop projects with more stakeholder involved. “Nobody in the infrastructure sector undergoes a large-scale project with a sole stakeholder. So why should PEMEX? They are an infrastructure company too, at the end of the day.”

r odríguez Arregui cautioned that there are no easy answers. “We are not going to improve PEMEX’s situation by reducing its taxes and giving it more money. What we have to do is take advantage of private investment” Arregui went one step further by saying that Mexico is paying for PEMEX’s debt, in a way that leads to public medicine supply not being paid for, and this is a public policy that can only be referred to as completely unsustainable. r odríguez Arregui also mentioned that in this estimation, PEMEX still had a bright future ahead of it because oil demand “is nowhere near reaching its maximum point, especially when you consider the future of natural gas, as both a fuel and also a feedstock for vast segments of industrial activity, as well as most, if not all, of the petrochemical sector.”

As r odríguez Arregui said the energy transition is not on the way towards making hydrocarbons irrelevant in the short term: “Despite the increased use of renewable energy, oil will continue to be the main fuel. We have to take advantage of it, before it is displaced,”

Panelist Lucas Aristizabal, Senior Director of Latin America Corporate ratings at fitch ratings, agreed with rodríguez Arregui in the sense that PEMEX’s production horizon was much brighter than most people think, especially since the production decline has been stabilized successfully by the government so far, especially when successfully using new discoveries to make up for production declines at flagship mature fields like KMZ. These include new fields like Ixachi, which have represented

a significant added wealth for the NOC. PEMEX is also increasing its reserves and helping its financial situation through these kinds of reserve incorporation practices. Aristizabal also considers SENE r ’s direct support to PEMEX as a positive development in regards that they made more visible the issue of PEMEX’ debt. In the long run, however, Aristizabal believes that contracts need to come with enough commercial incentives to attract the necessary investment or the numbers would never make sense: “Incentive contracts can benefit the industry in the long term, but only if they are accompanied by migrations to new licenses with different tax schemes.”

Panelist Arturo Carranza, Energy Advisor at C fE, was similarly blunt about PEMEX’s issues: “PEMEX presents two challenges: its financial debt and its tax burden. Both do not allow it to improve its performance, despite its efforts.” Carranza mentioned that the NOC’s tax burden represented the loss of 20 percent of its internal sales in the first three months of 2021, considered a devastating blow. At the same time, Carranza sees many opportunities with the incoming energy transition, stating that “PEMEX must take advantage of the energy transition to increase investor confidence. This will be essential for its transition from a fossil company to a greener company. The world needs to ramp up its climate transition to avoid dramatic increases in temperature. The energy sector contributes two thirds of carbon emissions, so the oil and gas sector needs to step in to support.”