Mexican Energy Reform, The Case for a New Geophysical Data Market Rafael Alférez February 18st, 2014 www.cnh.gob.mx 1
OUTLINE Mexico Hidrocarbons Facts Energy Reform (upstream) Oil and Gas Potential of Mexico New Oil and Gas model Creating Value through Exploration www.cnh.gob.mx 2
OIL PRODUCTION Despite an increase in investment in exploration and extraction, Mexican oil production has declined from 3.4 million barrels per day in 2004 to 2.5 million in 2012. 3.4 Investment in exploration and extraction (Billions of dollars) 20.7 25 20 3.0 15 11.7 Oil Production (Million of barrels per day) 2.5 10 4.7 5 1.5 0 Price of Mexican Crude Export Mix (Dollars per barrel) www.cnh.gob.mx 3
NATURAL GAS Between 1997 and 2012, natural gas imports increased from 3% to 30% as a percentage of national consumption; this trend has deepened since 2008, due to the decrease of the price of natural gas in North America. 9,000 8,000 7,792 8,007 (100%) Million cubic feet per day 7,000 6,000 5,000 4,000 3,000 4,576 (100%) 4,467 (97%) Natural Gas Consumption Natural Gas Production 6,534 5,651 (70%) 2,356 (30%) 2,000 1,000-1,258 Natural Gas Imports 109 (3%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* www.cnh.gob.mx 4
NEW OIL AND GAS MODEL For the first time since 1960, the Mexican oil and gas model embedded in article 27 was amended. The constitutional amendment was published in the Diario Oficial de la Federación the 21 of December of 2013, once 26 State Congresses voted it favorably (16 were needed). Ended the age of the state monopoly on oil & gas www.cnh.gob.mx 6
WHAT IT WAS REFORMED CONSTITUTION Art. 25: - Introduces the concept of Productive Enterprises of the State. Art. 27: - Activities of Exploration and Production will be made by means of entitlements to: - Productive Enterprises of the State. - Private Companies. Art. 28: - Mexican fund of Petroleum was created for stabilization and development. (makes payments and manages government cash flows) www.cnh.gob.mx 7
REFORM: DIFFERENT OPTIONS OF CONTRACTS Type of Contract Licenses contracts Services contracts Production sharing contracts Profit sharing contracts Hydrocarbons Cash Payment Percentage of production Percentage of utilities www.cnh.gob.mx 9
GEOGRAPHY DISTRIBUTION OF RESERVES Billion barrels of oil equivalent Basin Acum. Prod. Reserves 1P 2P 3P Southeast 45.4 12.1 18.0 24.4 Reserves as of January 1, 2013 Tampico Misantla 6.5 1.2 7.0 17.4 Burgos 2.3 0.4 0.5 0.7 Veracruz 0.7 0.1 0.2 0.3 Sabinas 0.1 0.0 0.0 0.1 Deep Water 0.0 0.1 0.4 1.7 TOTAL 55.0 13.9 26.2 44.5 www.cnh.gob.mx 10
11 513 618 660 679 681 739 775 806 810 851 935 935 945 988 1028 1015 1121 1196 1200 1230 1495 1698 1783 1798 1928 1933 2093 2154 2187 2535 2572 2874 2918 2922 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Chuktah Puskon-1 Tamil-1 Nab-1 Etbakel-1 Kabilil-1 *Vespa-1 Lalail Chelem-1 Leek-1 Noxal-1 *Lakach-21 Talipau-1 Lakach-1 Holok-1 *Lakach-2 Tamha-1 Lakach-2DL Hux-1 Catamat-1 Nen-1 Labay-1 *Piklis-1DL Caxa-1 Piklis-1 *Ahawbil-1 *Yoka-1 Kunah-1 *Kunah-1DL *Trión-1 *Trión-1DL *Supremus-1 *Pep-1 *Maximino-1 Metres Deep water drilled wells
Deep water drilled wells Deepwater 0 1000 Chuktah (2003) Nab-1 (2004) Noxal-1 (2006) Lakach-1 (2007) Lalail (2007) Chelem-1 (2008) Tamil-1 (2008) Etbakel-1 (2008) Tamha-1 (2008) Catamat-1 (2008) Kabilil-1 (2009) Leek-1 (2009) Holok-1 (2009) Labay-1 (2009) Lakach-2DL (2010) Piklis-1 (2010) Puskon-1 (2011) Talipau-1 (2011) Nen-1 (2011) Caxa-1 (2011) Kunah-1 (2011) Hux-1 (2011) Supremus-1 (2012) Trión-1 (2012) Kunah-1DL (2012) Maximino-1 (2012) Pep-1 (2013) Ahawbil-1 (2013) Piklis-1DL (2013) Lakach-21 (2013) Yoka-1 (2013) Vespa-1 (2013) Trión-1DL (2013) Lakach-2 (2013) 513 679 935 988 806 810 660 681 1121 1230 739 851 1028 1698 1196 1928 618 957 1495 1798 2154 1200 2874 2535 2187 2922 2918 1933 1783 935 2093 775 2572 1015 Ultra deepwater 2000 3000 4000 5000 6000 7000 8000 Wells on drilling Wells to be drilled Producer wells Non commercial producer wells Non producer wells 9000 12
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Top Ten- shale gas and shale oil Recoverable Shale Gas (Tcf) Mexico: EIA estimated resources of 545 Tcf (6 th place, and 7.46% of global resources). Recoverable Shale Oil (Bbbl) Source: U.S. EIA. 14
MÉXICO HAS A LOT OF OPPORTUNITIES Reserves and Prospective resources MMBOE Total Potential Unconventional Shale gas and Shale Oil 159,400 Gas Oil 28,300 31,900 47% 53% Conventional 54,700 Total Reserves 44,500 www.cnh.gob.mx 15
TIME FRAME Start Round Zero PEMEX submit to SENER fields of Its interest SENER and CNH resolves PEMEX proposals of round Zero Constitutional Reform (21/dec/2013) 120 days 90 days 180 days Adequate 26 secondary laws Round 1 + n www.cnh.gob.mx 16
The image part with relationship ID rid8 was not found in the file. The image part with relationship ID rid7 was not found in the file. ROUND ZERO 1 Pemex will submit to the Ministry of Energy, the entitlement applications for the exploration areas and the production fields that it is able to operate. Pemex will maintain entitlements on: Exploration entitlements. Areas where has made commercial discovers or investments on exploration. Pemex has to submit an Exploration Plan for each of the entitlements (3-5 years period) Extraction entitlements. Pemex will maintain the rights on the field on production. (deadline 21 march) 2 The Ministry of Energy, with technical assistance of the National Hydrocarbons Commission (CNH), shall review Pemex s request, and issue the corresponding resolution. (deadline 17 sept) 3 Once the resolution on the entitlements has been issued, Pemex may propose to the Ministry of Energy the migration of the allocated entitlements into new contracts. The Ministry of Energy with the technical assistant of the National Hydrocarbons Commission (CNH) will migrate the entitlements into contracts www.cnh.gob.mx 17
E&P CONTRACTUAL FRAMEWORK 2 1 Selection of the areas Technical guidelines of the bidding rounds. Technical design of contracts. 4 3 Conducts the bidding rounds. Decides on the winning bids. Fiscal terms of contracts. 7 6 5 Mexican Petroleum Fund for Stabilization and Development makes payments and manages government cash flows. Technical management of contracts. Awards and signs the contracts on behalf of the Mexican State. www.cnh.gob.mx 18
E&P REGULATORY FRAMEWORK Constitutional mandate Technical assistance to the Ministry of Energy Regulating the execution of geological and geophysical services applied to hydrocarbons exploration Authorizing exploration activities Collect, organize and manage the geological, geophysical and operational information of the country Conduct the bidding rounds. Award and sign the contracts Technical management of the contracts and entitlements Supervise the exploration and extraction plans Issue regulation regarding the E&P activities www.cnh.gob.mx 19
SAFETY AND ENVIRONMENT Upstream and downstream activities National Agency for Safety and Environment Regulate and supervise safety issues as well as the protection of the environment: installations, operations, disposals, Abandonment, among others www.cnh.gob.mx 21
TRANSPARENCY AND ANTI-CORRUPTION POLICIES 1 2 3 4 Bidding rounds and their guidelines will be public. Transparency clauses will be included in oil and gas contracts. Full disclosure of all payments associated to oil and gas contracts. External audits to supervise cost recovery and accounting aspects. The reform mandates the establishment of legal mechanisms to prevent, investigate, identify and punish actions or omissions against the law, as well as acts of corruption in general in the energy sector. www.cnh.gob.mx 23
Creating value through exploration Exploration Wells Apprasing Transition to Development Development Mature fields PEMEX PEMEX + J.V. Operators 24
Multiclient Libraries CNH Select areas Round n Eval. Bids Area Adj. IAGC Makes Survey Market the Data Potential methods 2d seismic 3d seismic WAZ 3d 3c Processing Operators Buy data Eval. areas Prep. of Bid
CNH Exploration Model Best Practices MEX Govt. CNH Operators Geophysical contractors CNH Acquires Geophysical Data Potential methods Seismic Methods Survey wells CNH dispose existing E&P data Contractor: Geophysical Survey under own financial risk Multiclient Model. Data is owned by the Mexican Govt. Exclusive rights to market the data Sell untransferible licenses to use the data Operators: Exploration team estimates risk and resources.. Rigorous technical and Commercial evaluation to compete for portfolio 26
Mexican Energy Reform, The Case for a New Geophysical Data Market Rafael Alférez February 18st, 2014 www.cnh.gob.mx 27