International Shale Development Challenges & Opportunities: Mexico & Argentina October 5, 2016 Chuck Whisman, Global Energy Market Director, CH2M Charles.Whisman@ch2m.com
Upstream Oil & Gas Impact in Mexico & Argentina Significant growth in many markets: O&G Exploration & Production Pipelines Compression, Storage, & Processing Power Petrochemicals & Refining Exporting & Shipping 2
Environmental Aspects/Concerns Overall environmental impact Water sourcing/use/availability Waste management & disposal Spill prevention Air quality Seismic activity Supply of materials Data management Social and community affairs 3
Lessons Learned w/ US Shale is Helping Manage Risks in Other Countries Best Practices Risk Reduction Strategies and Programs Ecological Data Management Water Management Waste Management (inc. NORM) Spill Containment and Response Methane Monitoring (stray gas, well pad, compressions, pipelines) Social & Economical Impacts Remote Monitoring/Sensing Air Induced Seismicity Restoration HSSE This allows us to perform very efficient due diligence and risk reduction, regardless of regulatory framework. - We moved fast - We developed best practices - We responded to regulatory changes - We performed R&D - We involved our best scientists - We developed programmatic solutions 4
Oil & Gas Development in Mexico
Deregulation in Mexico PEMEX - 169 blocks Round 1, Phase 1 (July, 2015-23 blocks) Round 1, Phase 2 Round 1, Phase 3 (onshore) Round 1, Phase 4 (December, 2016) Round 2, Phase 1 (2016-15 blocks) Round 2, Phase 2 6
Relevant O&G Mexican Legislation The Energy Reform bill (Reforma Energetica) was passed by the Mexican government to open the previously state owned O&G market to privatization. All O&G and Power related projects will be subject to Federal EIAs (MIAs) The Agencia de Seguridad, Energía y ambiente (ASEA) is the new institution independent of the SEMARNAT (Secretaría de Medio Ambiente y Recursos Naturales), technical and administrative self sufficient, with the responsibility to administrate and supervise environmental and safety within the O&G sector. According to the new Hydrocarbon Law (Ley de Hidrocarburos), all O&G and Power projects will require a Social Impact Assessment (SIA) in addition to EIA The SIA is submitted to Secretaria de Energia (SENER) 7
ASEA Regulations May 13, 2016 Management Systems (MS) registered and authorized Registration Submission must include: Application Design of Management System Bridging Document Opinion on Conformity by Authorized Third Party on Bridging Document Responsible Persons for Management System Notarized transcript of legal status Legal Representative Taxpayer ID and Proof of Payment 8
ASEA Regulations - May 13, 2016 Large focus on Asset/Integrity Management inc. management of risks, safety, & competency Implementation of MS: Biannual compliance reports Monitoring reports Biannual report on external audits MS Design Policy Hazard Identification and Risk Analysis Legal Requirements Objectives, Goals and Indicators Duties, Responsibilities and Authority Competency, Qualification and Training Communication, Participation and Consultation 9
SIA and MIA/EIA Approval Process in Mexico Social Impact Assessment Approval Environmental Impact Assessment (MIA) Approval 10
The Crown Jewel - R1-L04 26 companies prequalified for the upcoming (December 6, 2016) Deepwater bidding round. This will be the first time PEMEX competes as a productive stateowned enterprise against other operators. Companies will seek to win drilling rights for one of the 10 offshore blocks to be auctioned in R1-L04, the fourth and last licensing phase of Round 1. The blocks are distributed across the Perdido area and in Cuenca Salina, vary between 1500m and 3000m of depth and will be productive for up to 50 years. Such interest from industry leaders highlights the appeal that Mexico s largely unexploited offshore reserves pose to potential investors. US-based oil giants Exxon Mobil Corp, Chevron Corp and Hess Corp will form a group to bid in Mexico s deepwater round next December 5, according to a direct source cited by Bloomberg. Other bidders will also form partnerships (Murphy Oil Corp., Malaysia s PETRONAS and Sierra Oil & Gas are currently in talks). 11
Risks Risks with O&G Development in Mexico Safety Security Theft Extortion Access (inc. pipelines) New Regulations Skilled workforce* Transition from Government/PEMEX control * 135,000 jobs set to be created as result of the Mexican Energy Reform, 20 percent of which will require a graduate level qualification, according to Inter-American Dialogue. 12
Oil & Gas Development in Mexico
Why Argentina? Large volume of recoverable oil & gas Long history of oil & gas exploration & production Government interest and support Existing industrial/petrochemical markets Existing pipelines Ease to add infrastructure (pipelines, separation/processing facilities, ) ROI government incentives for unconventional development 14
Risks with doing business in Argentina Growing dependence on foreign fuel has been a main driver of economic instability. From 2011-2013 Argentina s reserves dropped ($56Bil to $37 Bil) while energy imports increased from $9.4Bil to $14Bil. Oil and gas imports have drained currency reserves, and large energy subsidies have contributed to a soaring inflation rate (and booming black market). History of debt/default (inc. 2002 default on nearly $100Bil in debt). High taxes and strict currency controls. Nationalization history a culture and long history of nationalizing oil & gas. Government price controls on energy exports and high export taxes. 15
Worldwide Recoverable Shale-Gas Reserves Argentina World-class potential According to EIA, Argentina ranks 4th in shale oil reserves at 27 billion barrels, and second in shale gas with 802 trillion cubic feet. The report focused on 41 countries, 96 sedimentary basins, and 137 tight shale formations. For the last two years, Argentina has drilled more than 270 unconventional wells. 16
Argentina 2 nd Highest in Unconventional Wells Drilled 17
The History of O&G in Argentina In 1907, oil was discovered by accident along the Patagonian coast by Afrikaner immigrants (who were drilling for water), who settled there just after the Boer War ended in South Africa. The Boers were moved elsewhere and the government took over the oil. In 1922, the government established a company called Yacimientos Petroliferos Fiscales, or YPF, as the world s first state-run oil company, which subsequently served as a model for nationalization in other Latin American countries. Drilling contracts with foreign companies enabled YPF to increase production from five million barrels in 1934 to 109 million barrels in 1998, roughly three-fourths of total Argentine production. Madrid-based Repsol S.A. paid $15 billion for YPF in 1999 (Repsol-YPF.) In 2014, following arbitration by the World Bank, Argentina nationalized YPF paying Repsol $5 billion for the share nationalized. The federal government subsequently agreed to share ownership of YPF with the provincial governments. 18
YPF Continues to be the Leader in Argentina O&G and Petrochemical companies are investing billions of $ in Argentina (DOW, Chevron, Shell, PETRONAS, ). YPF, the largest shale operator in the country, reported production in April 2015 of 22,900 barrels per day (b/d) of oil and 67 million cubic feet per day (MMcf/d) of natural gas from three joint ventures in Vaca Muerta: one with Chevron at the Loma Campana field, one with Dow Chemical at the El Orejano field, One venture with Petronas at La Amarga Chica field In addition, China's national oil company Sinopec and Russia's national oil company Gazprom have recently signed a memorandum of understanding with YPF to jointly develop shale from the same basin. In Oct. 2015, YPF increased their forecast projections after better than expected results. Plan to produce 50% of it s NG from unconventional shale by 2020 (15% currently). 19
Argentina Shale Gas Estimates by Basin 20
Environmental Aspects/Concerns Overall environmental impact Water sourcing/use/availability Waste management & disposal Spill prevention Air quality Seismic activity Supply of materials Data management Social and community affairs 21
Pipeline & Downstream Infrastructure 22
Midstream Development in Vaca Muerta 23
Vaca Muerta (Neuquen) Basin 24
Vaca Muerta 2014 and 2015 25
Loma Campana 26
El Orejano and Rincon del Mangrullo 27
International Shale Development Challenges & Opportunities: Mexico & Argentina October 5, 2016 Chuck Whisman, Global Energy Market Director, CH2M Charles.Whisman@ch2m.com