During Friday’s morning (February, 7th), news broke of Carlos Morales Gil stepping down as Director General of Pemex E&P for “personal reasons”. This comes at a moment of change for the Mexican NOC, just between the approval of the Energy Reform and the deadline for Congress to delineate the scope of the secondary laws that will abide to said framework – with Pemex preparing to select which fields it would like to keep in Round Zero. Emilio Lozoya Austin accepted Morales Gil’s resignation and confirmed the news both on Twitter and on an official announcement, appointing Gustavo Hernández García as his replacement.
Lozoya Austin had gentle words to recognize Morales Gil’s contributions to the NOC in his nine years at the lead of Pemex E&P. At the same time, the CEO of PEMEX reemphasized that the NOC’s biggest strength relies on its human resources – to which Morales Gil was the perfect example: leading the E&P subsidiary through the declining phase of Cantarell and towards production stabilization and the deepwater endeavors of recent years.
“In a world of increasing global competition, the result of a process of rapid technological change, the ability of individuals, each worker, has become a key element in the competitiveness of enterprises.” – Emilio Lozoya Austin, CEO of PEMEX at the inauguration ceremony of PEMEX’s Corporate University.
While his resignation might sound as an expected step towards the modernization of PEMEX and a certainly late aftermath of the change of Federal administration, Mexico owes a lot of its energy security to Morales Gil’s efforts as he headed Pemex E&P towards a new era. He was the person in charge of drafting the first service contracts – the MSCs in Burgos – and one of the main responsible people in devising and directing the diversification strategy to get its first results in deepwater.
Moving towards a rejuvenation of Pemex’s executive staff, however, requires fresh minds behind the NOC’s main operations – and with E&P becoming the core activity for the company, it was somewhat predictable that its Director General would change. As Lozoya Austin eloquently stated, the need to push forth and promote innovation has been much of the driving force in the recent energy reform. The discontinuation of a 75-year-old monopoly has potential to bring forth a new era in which Mexico could become center stage as the world’s largest untapped oil reserve. This need, further influenced by the significant decrease in Mexico’s crude-oil production by more than one quarter in the last decade, has been a key motivating factor in propelling Mexico’s energy to the next stage.
Carlos Morales Gil
During his tenure as Pemex E&P’s Director General, Morales Gil experienced intense criticism due to the yearly decrease in oil production in his first years. His long standing administration assisted in catapulting Mexico to the forefront of energy exploration and will surely contribute to the overall growth and modernization of the industry in the future. His legacy can be now evidenced in the recent organizational restructuring, the emphasis on deepwater exploration, and the late production surge that has allowed Pemex to fulfill production stabilization.
In 2011, still under his term of office, PEMEX was proud to announce having a 1P reserve replacement rate of more than 100%. This meant that, for each barrel of oil that the company extracted, there was one barrel ready to be produced. The company also continued boasting a 3P replacement rate of more than 100% – first obtained in 2008 hitting an almost 108% in 2011.
Production during his last few years remained unfluctuating – a very drastic reality from the previous period of 2004 to 2008 when Cantarell declined, dragging overall production figures 25%. He oversaw the field lab strategy in Chicontepec, enabling Pemex to better understand the paleochannel’s complex geology. This helped to drive production in the ATG up from 40,000 b/d to 65,000 b/d, which was a considerable achievement, even when the asset is still to reach its targeted production. “This shows you one thing,” Morales Gil stated, “that the oil industry is not a short term business.”
During Morales Gil’s last years in office, the internal organization of Pemex E&P was changed, from being focused solely on regions to having specific subdivisions for Exploration, Development, and Production – putting up more emphasis on a specialized operational structure. This was one of the first steps towards the NOC’s modernization, which included younger people in charge of acquiring and developing newer technologies for the more difficult challenges ahead.
In his 2013 interview with Mexico’s Oil & Gas Review, Morales stated that Pemex’s recent success could be attributed to a government and business’ understanding of oil’s time cycles and the gas process, allowing for an increase in financial resources centered on exploration and development. This budgetary increase has contributed to technological improvements which include the contracting of high-resolution seismic information, four deepwater rigs that facilitate depths of 3,000m, and fracking techniques for onshore activities – mainly in unconventional fields.
Deepwater in particular has been a long-term evolution that has just recently proved to be considerably successful. The deepwater project began in 2004 with a rig that proved limiting; since then, 25 wells have been drilled with a success rate of 55%. Benchmarks set by international companies indicated success rates from 33 to 35%. While many continue to criticize deepwater exploration efforts – citing the apparently ceaseless potential in shallow waters – Morales took a stance and became a key figure in further promoting deepwater exploration. Since 2006, he envisioned a diversified PEMEX that could readily assess available resources. Misunderstandings and confusion have further driven critics to raise concerns over deepwater, but growth and potential for growth have given rise to the need and belief in a sector driven by innovation.
Gustavo Hernández García
The recently appointed successor for Carlos Morales Gil is not new to the administrative duties of the oil and gas business. Gustavo Hernández García was named Subdirector of Planning and Evaluation at Pemex E&P on July 2010, after spending most of his career ascending through the corporate ladder of the NOC. He was also named as President of the Colegio de Ingenieros Petroleros de México (CIPM) for the period from 2010 to 2012 and is widely recognized by his peers as a top researcher and technical expert. At CIPM he proposed to have a certification for all engineers – his purpose: to create a standard under which engineers update their knowledge every number of years, boosting the nation’s competence bases.
Hernández García’s career has been focused on the hydrocarbon side of energy ever since he finished his studies in petroleum engineering (both bachelor and master’s degrees) by 1983. By 1984, he became Subdirector of Investment in Hydrocarbons and Derivatives at SENER, where he later served as advisor to the Undersecretary of Energy. On the side, he spent his earlier years in the Mexican Petroleum Institute (IMP), where he also ascended the corporate ladder – going from being an intern in 1979, to a specialized researcher in 1985, project leader in 1987 and finally level II researcher in 1989.
He entered PEMEX in 1992 as a Superintendent in Reservoir Characterization for the Marine Region. After working as an Assistant Director in Production Design for KMZ in 1996, he was promoted to Planning Director in 1997 and Asset Administrator by 2003. In 2005, Hernández García became Director of Planning and Evaluation of the Southwest Marine Region, which he later directed as an official Subdirerctor (2009). It was at this moment, after having overseen increases in production at KMZ and the Southwest Marine Region that Carlos Morales Gil decided to include him in his team as Subdirector of Planning and Evaluation at Pemex E&P.
He has been paramount in Pemex E&P’s recent successes, supervising the problems with fuel theft, the work done at recent deepwater exploration projects, and the discussions for the development of Lakach, among other projects. Hernández García will now be in charge of preparing and collecting all information needed, headed to Round Zero.
What is next?
While it has been rumored that President Peña Nieto will name the official successor for Carlos Morales Gil once the secondary laws are passed and Round Zero is tendered, it is this writer’s opinion that Gustavo Hernández García will stay in his current position for long. Hernández García is part of the youth movement coming forward in Pemex and bringing fresh ideas to the field. He has also been a role model in professional development at the NOC, working his way up from the operational levels into an administrative pathway at the top of the hierarchy. On the other hand, PEMEX has long been campaigning for a higher level of autonomy and management independence, which has been finally granted under this year’s Energy Reform. Even if President Peña Nieto is entitled to select the new E&P Director – as the government will probably have a seat on PEMEX’s Corporate Board of Administrators as a stakeholder – doing so would mean a misstep on the path to the NOC’s increased autonomy to remove a highly capable professional as Hernández García from a well-deserved position.