Ulises Hernández has worked at PEMEX for over 19 years and was appointed to his current position in March 2018. He holds a Ph.D in geology from Reading University. He has been the President of the Petroleum Geologists Mexican Association and Vice President of the Mexican Geology Society. Last year, he spoke to Mexico Oil & Gas Review about the first farmouts.
Q: How have previous farmouts influenced the way PEMEX selects its assets for this type of partnership?
A: The farmouts started two years ago. Now that the processes are well understood, we have gained inertia. Although Ayin-Batsil and Maximino-Nobilis were not successful, we have learned a lot from Trion, Cárdenas-Mora and Ogarrio. These lessons will be implemented in the retendering of Ayin-Batsil and Maximino-Nobilis, as well as future farmouts that will complement PEMEX’s technical and financial capabilities to capture more value. Thanks to these processes, we have learned how to accelerate technical evaluations and have identified more blocks where a partner could provide PEMEX with a higher added value through a farmout. Since the blocks we are considering are a variety of sizes, we can see both small and large independent companies taking part in the bidding process, depending on their financial capacity and their ability and willingness to assume risks together with PEMEX.
The process of selecting the seven blocks for the upcoming farmout on Oct. 31, has taken us over 12 months. CNH has published the bidding rules as well as the technical and financial requirements and companies interested in these assets can access that information.
Q: What criteria does PEMEX use to select its farmouts?
A: Assets to be farmed out are selected according to several elements. One of the most important is related to PEMEX’s inexperience in the application of EOR and secondary oil-recovery technologies. The capacity to execute and finance these technologies is also an important matter when selecting a block to farm out. Since some blocks may have great potential to increase their production rates or also to find more resources through further exploration, sometimes PEMEX does not have the capacity itself to take full advantage of these assets. Risk is also an important factor to consider. Geologically-complex areas may force companies to share risks and find partners with which to work and reduce the individual risk of each party. For years, PEMEX had been working alone and assuming the technical and financial risks, so the possibility to enter into farmouts gives the company traction. All the previous elements are considered in conjunction with PEMEX’s objective of meeting its production and reserve-replacement goals.
Farmouts will continue focusing on the areas where PEMEX needs to complement its capacities, meaning mainly deepwater, high-risk onshore assets that need costly execution capacities to capture value and for unconventional resources. Of course, PEMEX will be extremely focused on how to define the prequalification criteria so that it can attract the partners that are most suited for the type of asset to be farmed out.
In terms of our strategy for the licensing rounds, we have developed a series of partners that are strategically aligned with us. This means that now we can be more selective according to the different types of assets that we will bid on with the goal of complementing our portfolio. In terms of unconventional fields, we are very interested in highly-experienced players in this arena.
Q: How have PEMEX’s activities developed with BHP Billiton in Trion?
A: We are still in the very early stages with BHP. Still, we have been learning a great deal, mostly in the sense of how to manage a partnership, how to control expenses and how to hire products and services according to international best practices. PEMEX has already sent three professionals to Houston to work more closely with BHP, to integrate with its team there and to get more involved in every activity. Of course, there have been aspects on which we disagree but the healthy and positive communication channels we have developed have allowed us to reach mutually-beneficial conclusions.
BHP has a very different set of rules for selecting and reporting reserves and prospective resources. Since it has not performed any activity in the field, it has decided not to report the volumes underground. Once BHP starts drilling the first well and gathers all the required information about the size and type of reservoir to support the information it already has, it will report it.
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