Mexico Oil & Gas Highlights 2023

Highlights | June 2023

Introduction

Years after the opening of the Mexican oil industry to private players, significant transformations have unfolded. The government made the decision to stop further bidding rounds for new exploration and production (E&P) projects. Meanwhile, as the projects that were already granted evolved, operators chose to focus on their most promising ventures, leaving less viable blocks behind.

The industry also saw PEMEX regain its former prominence in the Mexican market as the López Obrador administration sought to keep the NOC as the premier company in the national oil and gas scene. Significant investments have been poured into boosting production, especially in priority fields like Quesqui and Ixachi, as well as the recovery of the National Refining System (SNR). Furthermore, remarkable progress has been made in the development of the landmark Zama field, with the government and private investors successfully reaching an agreement for its advancement.

Nevertheless, despite the administration’s aim to achieve energy selfsufficiency by the end of this term, the NOC struggles to hit its original production targets, pushing the realization of this goal further into the future. Moreover, the NOC’s debt plays a pivotal role in determining PEMEX’s certainty of operations within the oil industry in Mexico.

Many opportunities and challenges lay ahead in the industry. As the world prepares for a shift in the energy paradigm, it becomes increasingly evident that the oil industry must play a crucial role in supporting and guiding this transition. An escalating focus on emissions control is shaping the path ahead for the oil and gas industry in the coming years. Environmental, Social, and Governance (ESG) responsibility has become a top priority for companies in all industries, including oil and gas, with the measurement of emissions and implementation of mitigation methods becoming paramount for the industry’s future.

WE ARE EXCITED TO WELCOME YOU BACK WITH AN INNOVATIVE IN-PERSON EVENT!

Mexico’s main oil and gas conference will bring together the key players shaping the future of the Mexican oil and gas industry. Check out our program!

IN-PERSON DAY - TUESDAY, OCTOBER 03, 2022

09:00

09:30

10:30

12:00

13:00

15:00

16:00

16:15

Mexico’s Exploration, Development and Production Priorities

PEMEX’s Financial, Debt and Cash Flow Outlook

The Role of Private Operators in Mexico’s Upstream Oil & Gas Industry

Block 30: Important shallow water discovery offshore Mexico DEA Wintershall presentation

Supply Chain Outlook on Business Opportunities, Cash Flow and Industry Trends

The Technology Trends that are Shaping the Future of the Mexican Oil & Gas Industry

Operator Procurement Priorities, Local Content Optimization and Supplier Development Strategies

Deepwater As Springboard for Regional Development

PEMEX’s Deepwater Choices

WEDNESDAY, OCTOBER 04, 2022

Onshore Upstream Projects Update

Preparing the Environmental Regulatory Framework for Oil & Gas Industry of Tomorrow

Optimizing Production in Mexico’s Mature Fields

Energy Policy Perspectives, the Regulatory Framework and How to Stay Ahead of the Game

Transforming Mexico’s Deepwater Potential into Reserves and Production

The Next Wave of EPC projects: Why, Who, Where and How?

What Could Energy Policy Look like in 2024-2030, and What Would That Mean for the Industry?

End of Mexico Oil & Gas Summit 2023

THURSDAY, OCTOBER 05, 2022

1 State of the Industry

PEMEX’s Financial Outlook for 2023

Luis Miguel Labardini

Senior Partner | Marcos y Asociados

2023 so far has been a roller-coaster of statements by both the Ministry of Finance and PEMEX Corporation. Mexican President Andrés Manuel López Obrador himself expressed at one point the idea that PEMEX’s debt should be converted into sovereign debt, highlighting the fact that its excessive debt is the most compelling problem the state oil and gas company has to face.

It must be said that the PEMEX debt problem was not created by this administration. During the Peña Nieto administration, PEMEX’s debt grew from US$50 billion to more than US$100 billion. In the second quarter of 2020, PEMEX had to face the perfect storm, with the pandemic and a historic collapse in the price of crude oil, resulting in PEMEX losing its investment grade.

Fitch and Moody’s lowered PEMEX’s rating to “junk,” with only Standard and Poor’s maintaining the investment grade for the national oil company, based on the assumption that the support of the Mexican federal government would not be withdrawn.

According to PEMEX’s 1Q23 report, the company’s debt amortization schedule includes payments of US$4.6 billion in 2023, US$10.9 billion in 2024, US$4.9 billion in 2025, and US$8.8 billion in 2026. The Ministry of Finance recently announced that PEMEX will delay the payment of the DUC (Derecho de Utilidad Compartida, or Right of Shared Utility) royalty, which would free resources to partly amortize payments in 2023.

This measure should bring some comfort to the markets; however, it is likely that further measures will be required for PEMEX to take care of accounts payable to contractors.

PEMEX had been receiving significant direct transfers and other financial aid from the federal government in the last two years. However, assuming that the price of crude oil would remain at the high levels it had during 2022, the federal budget for 2023 did not consider any further financial assistance to PEMEX.

For fiscal year 2022, PEMEX was able to produce profits after a long period of losses. During the first quarter of 2023, PEMEX produced positive numbers in spite of lower prices for crude oil in international markets.

PEMEX has a very good exploration and production operation, but it has to deal with the debt problem and with an inefficient refining operation. In fact, during the first quarter of 2023, PEMEX ranked only third in the world in terms of EBITDA as a percentage of sales. This is no minor achievement. All other companies in the ranking are publicly traded companies, making PEMEX the only state-owned company to make the Top 10 in this category.

It must be clearly understood that PEMEX is too big to fail, and that aside from the debt issue, PEMEX does have a very promising future ahead. It must be also understood that the national company’s structural problem requires a long-term structural solution.

The president hinted at the possibility of turning PEMEX’s debt into sovereign debt, but the impact of such a measure on the sovereign´s own investment grade would be very harmful. A structural solution would have to include a renegotiation of existing debt, based on a commitment on the part of the government to capitalize the entity in a way that would bring the balance sheet to a healthy state.

It is relevant to mention that the negative equity on PEMEX’s balance sheet went from an all-time negative of US$122.3 billion in 2020, to negative US$95.1 billion in 1Q23, which means that for the first time in the history of the company, PEMEX received an injection of fresh capital from the federal government of US$27.2 billion.

This is definitely an important step in the right direction; however, the government cannot stop now. Further support in the form of fresh capital injections are required to improve the state of the NOC’s balance sheet, which was neglected for too long.

Throughout PEMEX’s history, government after government forced the company to acquire additional debt, mainly because of the very high dependence on oil revenues to finance public expenditure. Today is a good time to act, since the Mexican economy has grown and diversified in a way that oil revenues are not as critical for government finances as they were in the past.

I am a strong proponent of an IPO for PEMEX, but an IPO would require a profound restructuring, for which both the government and creditors must agree on the PEMEX that will emerge from such restructuring.

PEMEX must take advantage of its strength in exploration and production, and rethink its strategy regarding downstream operations, which are a burden to the entity.

Most observers would point out that downsizing downstream at PEMEX would never take place under this administration, because self-sufficiency in fuel production is paramount to the López Obrador government. However, it must be said that even considering that from an energy security and balance of payments perspective, the government perspective might have some merits, it is definitely damaging for the future and long-term viability of PEMEX.

Refining is a complex business, with thin margins, high volatility and seasonal behavior. Mexico is still illprepared to have a competitive refining sector, among other things because there is no storage capacity for all practical purposes.

Of course, there are success stories in refining throughout the history of the industry, such as Jurong Island in Singapore, but that would require a carefully designed strategy that would include the participation of the private sector.

In any circumstance, these subjects are so important for the Mexican oil and gas sector that they should be openly discussed without prejudice regarding what should be the optimal solution.

PEMEX Cliffhanger: The Good, the Bad and the Ugly in 2023

Alejandro Valerio Founder | Valerio Consulting Group

Despite the ongoing uncertainty still impacting global energy markets, oil prices remained resilient at the beginning of 2023. Although oil prices are not at the peak of 1H22 after Russia’s full-scale invasion of Ukraine, the trend indicates that oil prices will still be high in 2023, mainly driven by China’s economic reopening and tight inventories in H2.

This intro is meant to set the stage for expectations for PEMEX. Mexico’s state-owned oil firm is likely to have a “Good, the Bad, and the Ugly” year, with the good coming from still resilient oil prices, the bad from lackluster output, and the ugly coming from its crippling debt, which will vex the next government’s budgets. Let’s start with the ugly.

The ugly for PEMEX, particularly its finances, continues to be its staggering debt. The state-owned firm remains the most indebted oil company in the world, with a US$105 billion burden at the end of 2022, almost 10% of Mexico’s GDP. In an international context of high interest rates, it is unlikely that PEMEX will substantially curtail its ballooning debt in the short to medium-term without significant cost-cutting measures, such as dealing with its pension system and headcount. However, recent positive news for PEMEX was the successful issuance of a bond to refinance its stifling debt. In January, PEMEX raised US$2 billion with a new bond that has a 10-year maturity. The company will use this money to fulfill its immediate debt commitments, which range between US$5 billion and US$6 billion in 1Q23. Firms should interpret the successful bond issuance as a vote of confidence from capital markets in the López Obrador administration’s statement that it will continue to prop up the financially embattled company.

The good for PEMEX continues to stem from high oil prices and the amount of revenues obtained from its external sales. Indeed, PEMEX’s external sales ended on a high note in 2022, amounting to US$31 billion (27%YOY) thanks to high oil prices, with the Mezcla averaging US$90 per barrel. Yet, monthly, oil sales have been declining since September, ending in December at US$1.9 billion (-7%MOM, -16%YOY) as oil prices moderated and PEMEX’s production stalled. In 2023, we believe PEMEX’s sales will moderate vis-à-vis 2022, but will be higher than 2020-2021 levels, as the Mezcla is poised to average US$87 per barrel, 27% more than the US$68.45 per barrel that was estimated in the federal budget.

The bad for PEMEX will be that the choppy output expected in 2023 will not let it capitalize on another year with resilient oil prices. With partners and condensates, PEMEX’s output has increased but the reality is that by itself, without partners and condensates, PEMEX’s output has stalled. That is a more effective benchmark to analyze the state-owned company’s performance, as it indicates how badly structural reforms and a pro-business approach are needed.

Like everything in life, PEMEX’s outlook is not black and white, but gray in 2023. Firms and executives operating in the sector will continue to find opportunities in the upstream and refining segments, as the company’s spending priorities will be focused on those sectors. However, PEMEX’s “ugly” data, its crippling debt, will be a fiscal challenge for the next administration.

What Will Happen to PEMEX After López Obrador?

President López Obrador has showered PEMEX with attention, lightening its tax burden and providing financial injections, which garnered the attention of emerging market bond buyers. However, analysts warn that this attention might not last once López Obrador leaves office, making the NOC’s future unclear.

Pramol Dhawan, Head of Emerging Market Debt, Pacific Investment Management Co. (PIMCO), suggested that Mexico’s next government may not be “Pro PEMEX,” which could hamper the NOC’s plans to be self-sufficient. PIMCO, the world’s biggest bond investor, is reducing its exposure to PEMEX debt and maintaining a lower investment compared to other options. “The current administration is perhaps the most Pro PEMEX one could probably get. The subsequent government may not be so credit friendly,” says Dhawan.

Recently, JPMorgan analysts recommended investing in the NOC’s bonds, considering the impact of global risk aversion on prices. Additionally, Goldman Sachs sees an attractive entry point in the front end of the PEMEX bond curve, contingent on a reduction in market volatility. However, despite these recommendations, the company’s debt has performed poorly, causing investors to suffer losses of 2% in the past month. This stands in contrast to the 0.4% average return for Latin American corporate bonds.

“After the elections, the investors will be very worried,” says Dhawan. He highlights other technical concerns, including the low production levels and substantial debt of over US$100 billion. Furthermore, the Salina Cruz refinery, a crucial component of PEMEX’s ambitious plans to modernize and enhance its refining capabilities, is likely to miss its targeted completion date of 2024. According to the company’s estimates, the refinery may not be completed until 2025, significantly surpassing the initial deadline. This acknowledgment highlights the magnitude of the delays and the challenges faced in executing the construction project.

Despite this, Octavio Romero, Director General, PEMEX, stated earlier this year that the country is on track to achieve energy selfsufficiency by 2024, as it aims to produce 26.2Mb/d of fuel. This target is being driven by the significant repairs already scheduled and the successful performance of the Deer Park Refinery.

As oil prices skyrocketed last year, the NOC benefited from extraordinary profits reaching US$9.63 billion during the first three quarters of 2022. After years of receiving financial government aid to free up some liquidity for exploration and production investments, the company started paying its own debt when oil prices increased. However, as oil prices stabilized and lowered by the end of 2022, PEMEX announced that it was in talks with the government to receive support once again. Although the government said it would fully support the state company, it did not clarify how. Following these statements, the NOC resorted to releasing more debt into the market. The government is expected to grant support to PEMEX but only if it was necessary and oil prices tumbled. Meanwhile, the NOC plans to pay its upcoming amortizations out of its pocket.

Communication, Collaboration Key for Energy Autonomy

Gamaliel Corral Flores

CEO| Gasoducto de Morelos

On March 18, 2023, the government of Mexico celebrated the 85th anniversary of the expropriation of the oil industry in Mexico with a message from the preponderant actors responsible for the public policies related to the energy sector, who explained the importance of sovereignty, self-sufficiency, and autonomy both in the hydrocarbons sector and in the electricity sector in our country. From the context of the message, we must understand the importance of the strategic role that this represents for Mexico. The preponderant projects in the hydrocarbon, renewable, electricity and other sectors, such as the exploitation and production of lithium, will be fundamental for potential development and the role that this will represent for Mexico in the next six to 10 years.

From the trench of the private sector, the implementation of public policies, strategies, plans and specific objectives on the part of the government will be essential to establish and implement the necessary foundation for sustained growth, which will guarantee the availability of energy in our country. I fully agree with the projection of the strategic plans and their implementation; in the end, the priority is surely to bet on self-sufficiency and autonomy in production, generation, distribution, transportation, and storage in all branches of the energy sector in Mexico and for its end users. Although it seems that the message may be ambiguous or in some cases difficult to understand, if we take into consideration that expectation versus reality seems to be far apart, in the end, having good communication and coordination will be fundamental for both the public and private sectors for these projects to be fruitful and have an impact in the long term.

Strategic projects like those mentioned in public speeches are already underway and will begin generating and producing energy from different sources and means in the coming years ( the Puerto Peñasco photovoltaic project, the Olmec Refinery, natural gas quinquennial plans and Oaxaca’s Transisthmic project). Certainly, we cannot anticipate the impact or result of these projects on all strategic areas, such as the oil and gas and electricity industries in Mexico. Surely and given the nature of the current projects and investments already underway, as mentioned by Minister of Energy Rocío Nahle, they will be essential and crucial with the respective relevant impacts for the electricity, oil and gas, and renewables industries in our country. The message is clear, and it is necessary to understand which policies and strategies within the sector will be maintained in the medium and long term. Therefore, there must be a clear and concise commitment between the parties (government entities responsible for the implementation of these projects and the key private players). With the same consideration, the private sector will have to do its part. The impact of the message from the minister of energy is clear and consistent, I think, with the understanding of the key players within the energy sector in Mexico. Therefore, the preponderant actors within the energy industry must take the corresponding measures to contribute what is necessary for these projects to come to fruition.

It is impossible for these projects to coexists if there are no clear and consistent rules and no public policies in place from the government and private energy investors in

Mexico. If the message is clear, there will be more and more participation and, eventually, this will set the foundation for a coordinated effort to increase direct and indirect involvement to consolidate the industry. It is more than understandable that strategic participation within all branches of the energy sector by private industry is and will be essential in the coming years. In one way or another, the correlation between the strategy and the scope of the projects converges within the same sphere, although in some cases different barriers or strategies persist, including the fact that each segment of the energy industry in Mexico operates differently. At the end of the day, both projects in the electricity or hydrocarbons sectors are intertwined within the same sphere. Regardless of the complexities and barriers within the respective areas of the energy sector in Mexico, we must not lose focus so that together we can carry out the implementation of all active primary and secondary projects, which are not minor, to meet the demand for energy in our country. Examples include those strategic natural gas infrastructure projects in the southeast or northwest, or the construction projects of LNG liquefaction plants or everything related to interconnection throughout the route of the Isthmus of Tehuantepec, or the consolidation and growth of electricity distribution networks and other strategic projects and plans.

From the perspective and trench of the private sector, especially the oil and gas sector, I believe that today more than ever, we must bet on better communication, understanding, openness and consolidation between both the governmental strategies and the strategic participation of the private sector., effectively seeking the alignment and achievement of all those primary and secondary projects, which will be strategic in the long run and indispensable to increase the installed capacity to cover the demand of energy so important and necessary in this country. Although the political message from March 18 seemed to focus merely on energy autonomy and self-sufficiency, we cannot lose sight of the fact that for this to be achieved and carried out by the government, the private sector must always participate actively, consolidating as key participants and strategic role-makers.

The long-term vision cannot be different or be traced in separate ways, and, of course, the message of autonomy, sovereignty and self-sufficiency is important. Mexico has a high potential to consolidate itself gradually in the years to come as a country with the necessary self-sufficiency and capacity to continue covering its energy demand. But it is important to understand that it will always be subjected to external factors and macro and geopolitical issues, and, of course, that the road to achieve this won’t happen in the blink of an eye; it will take a lot of resilience and openness from the parties involved to have a clear and concise path drawn in the coming years, and there will have to be a strategic opening by the government, so that the private industry and investors will continue investing hand in hand in each of these secondary and primary projects. Clearly, the message given by the preponderant participants on March 18 must not affect the global strategic vision and active participation of the private sector in the coming years in Mexico. On the contrary, more than ever, the private sector must raise its hand to continue participating and contributing in the consolidation of the message given on this anniversary.

The Journey to New Oil in Mexico’s Offshore Scene

Private oil investments remain stagnant in Mexico due to the suspension of bidding rounds for more private E&P projects. Nevertheless, private companies continue to strike oil in previously granted areas.

Eni announced on March 17, 2023, that it discovered oil offshore in Mexico once more. The Italian oil giant found a 200MMboe deposit in Block 7 of Yatzil in the Southeast Basin. The discovery is 65km away from the coast and 30km away from other discoveries.

Eni drilled the well using the Valaris DPS5 semi-submersible drilling rig in water 284m deep. The well was drilled to a total depth of 2,441m. The Yatzil-1 EXP discovered over 40m of good-quality net oil production, with excellent petrophysical properties confirmed by extensive subsurface data collection.

“[The discovery is] located in the mid-deep water of the Cuenca Salina in the Sureste Basin, offshore Mexico. According to preliminary estimates, the new finding may contain around 200MMboe in place,” wrote the company.

“The successful result comes after the Saasken and Sayulita discoveries in Block 10 and confirms the value of Eni’s Mexican asset portfolio, contributing to the potential synergic cluster development of several prospects located nearby,” announced the IOC.

The Block 7 exploration project is composed of Eni with a 45% stake, Capricornio with 30% and Citla Energy with 25%. ENI is among the three private operators that drive 80% of private production in Mexico.

“Eni has been present in Mexico since 2006 ... Currently, Eni holds rights in eight exploration and production blocks, six as the operator, all located in the Sureste Basin in the Gulf of Mexico,” reads the statement.

Meanwhile, On Tuesday, April 25, 2023, Wintershall Dea announced a significant oil discovery at the Kan exploration prospect in Block 30, located in the shallow waters of the Cuenca Salina in the Sureste Basin, offshore Mexico.

The company’s preliminary estimates suggest the discovery may contain between 200 and 300 million barrels of oil equivalent in place. The Kan prospect, situated approximately 25km off the Tabasco coast in a water depth of around 50m, is within a zone of several Miocene discoveries, including the Zama, Polok, and Chinwol discoveries. Wintershall Dea holds significant working interests in these discoveries. The discovery is the first of two commitment wells on Block 30.

Hugo Dijkgraaf, Wintershall Dea’s Chief Technology Officer and Executive Board member responsible for global exploration, called the Kan discovery “a great success” and stated that it confirms the attractiveness of Block 30, complementing the company’s outstanding Mexican license portfolio.

Martin Jungbluth, Managing Director, Wintershall Dea in Mexico, referred to the discovery as “the next important milestone for the company in Mexico,” following the recent submission of the unit development plan for the Zama field and the acquisition of a material share in the producing Hokchi field.

The Block 30 consortium, consisting of Wintershall Dea, the operator with a 40% share, as well as Harbour Energy and Sapura OMV, both with a 30% stake, will evaluate the extensive subsurface data collection to prepare the Kan discovery appraisal plan. The plan is expected to be submitted to CNH before the end of July 2023.

“As part of this Block 30 campaign, we will then drill backto-back another well named Ix. In addition, we will drill more wells during 2023 and 2024 in Block 4 in the Sureste basin, with Petronas as operator, and also in Block 2 in the TampicoMisantla region, with PEMEX as operator,” Jungbluth told MBN in a previous interview.

Moreover, Jungbluth said that Mexico remains a core country for Wintershall Dea’s global portfolio. The company withdrew from its Russian assets following Moscow’s invasion of Ukraine in 2022, driving it to diversify elsewhere, including in Latin America. Moreover, the company has a promising and attractive portfolio throughout the E&P value chain, with auspicious projects in the exploration and development stages, including Zama, its Polok discovery and the production projects Ogarrio and Hokchi.

Not everyone has been lucky, however, as Shell and Chevron, two major oil companies operating in Mexico, announced their decision to withdraw from projects in the country due to the lack of commercially viable hydrocarbon reserves.

Shell, under the leadership of Chairman Alberto de la Fuente, has started the process of relinquishing two contractual areas located in the deep waters of the Gulf of Mexico. “The companies indicated that the contract area, Max-1XP had limited hydrocarbon potential due to insufficient thickness and immaturity, making oil and gas production economically unviable,” said Valeria Bautista , Legal Representative, CNH.

A similar outcome was observed at the Alux-1EXP well, which revealed a restricted presence of reservoirs and thermal immaturity, further impeding production possibilities. These abandoned assets are situated in the Cuenca Salina oil province, offshore Tabasco and Campeche, and had a 35-year license.

Commissioner Héctor Moreira Rodríguez, CNH, expressed regret over the resignation of Shell and Chevron. He emphasized that oil exploration activities involve a significant level of uncertainty, despite the efforts and investments made by companies. “They invested around US$200 million and found no commercial resources. They are doing the logical thing which is to leave the area,” said Moreira.

Mexico has recently witnessed a series of prominent oil companies, including BP, Equinor, Repsol and Total Energies, abandoning their assets, indicating challenges and unfavorable outcomes in the sector. It remains to be seen whether the government will take over these abandoned fields in the future.

Zama Field Reports Delay in Production

López Obrador announced during his morning conference a delay in production at the Zama field, a significant oil reservoir located in the Gulf of Mexico. While PEMEX had initially planned for production to start in 2024, López Obrador stated that it would be postponed until 2025, when the next administration takes office. During the announcement, López Obrador also commended Grupo Carso’s recent acquisition of approximately 49.9% of Talos Mexico, which holds a 17.4% participation in the Zama megafield. The transaction was valued at US$124.7 million.

According to López Obrador, production at the Zama oil field is now expected to start in 2025 and reach its peak in 2029. The president anticipates that daily extraction will range between 150Mb/d and 180Mb/d of light crude oil. Although the current administration will not oversee the production phase, López Obrador emphasized that significant quantities of high-quality Olmeca crude oil will be extracted starting in 2025. Regarding the ownership structure in the Zama field, Talos holds a 17.35% participation, while PEMEX retains a 50.43% stake. Wintershall Dea possesses 19.83% and Harbour Energy holds 12.39% interest in the field.

Private production in the region has been declining due to the limited availability of jack-up platforms. These, essential for offshore drilling operations, have experienced a surge in demand. According to S&P, jack-up rig utilization rates have increased from 75% to 95% in 2023. In the US, usage stands at 82.8%, while in South America, it reaches full capacity at 100%.

As the current administration remains committed to fulfilling its promises of energy self-sufficiency by 2024, the necessity for additional jack-up platforms becomes increasingly evident in order to support the country’s energy objectives. Addressing this challenge will be crucial for the upcoming administration to ensure the efficiency and success of oil extraction operations in the region.

PEMEX expects liquid hydrocarbon production to average 2MMb/d in 2023. Director general Octavio Romero presented this target as part of the company’s strategy to achieve energy self-sufficiency.

The company also aims to increase its production of hydrocarbon gas from 4.224Bcf/d to 4.811Bcf/d by 2024, while reducing the national refining deficit of 901Mb/d in 2018 to only 34 Mb/d by 2024. In November 2018, only 300Mb/d of gasoline, diesel and jet fuel were produced, compared to the 720Mb/d produced in March 2021. The improvement was attributed to the contributions from the National Refining System and the Deer Park Refinery.

Moreover, In January 2023, PEMEX reported a total production of 2MMb/d, seemingly reaching the two-million-barrel threshold promised by the administration. However, the NOC’s production figures included natural gas condensates. This is not a common practice in the hydrocarbons sector as stipulated by the Petroleum Resources Management System. PEMEX also announced that it will retrieve up to 180Mb/d, 10% of national production, from the Zama field.

Wintershall Dea Establishes Full E&P Value Chain in Mexico

Q: How have the acquisition of Sierra Oil & Gas and the merge of Wintershall and DEA added value to the company’s Mexican portfolio?

A: Wintershall Dea entered Mexico in 2017 – at the time as DEA Deutsche Erdoel AG - when it was awarded operatorship of the Ogarrio oilfield in a PEMEX farmout process, along with its first offshore license. By 2018, the company was awarded more blocks in rounds 2.1 and 3.1.

At that time, the company acquired Sierra Oil & Gas, which already held six exploration licenses and discoveries. This made a great addition to our Mexican portfolio. Following this, the two German companies then merged in 2019 to form Wintershall Dea, Europe’s leading independent natural gas and oil company.

Today, we have a portfolio of 12 licenses both onshore and offshore, including material participations in the Zama, Polok and Chinwol discoveries, as well as in the producing Hokchi oil field, where we recently acquired a 37% interest.

Q: How is Wintershall Dea involved in the development of the much-discussed Zama field?

A: The Block 7 consortium for the Zama field involves three companies: Wintershall Dea, Talos and Harbour Energy. Wintershall Dea holds the largest percentage with 40%, Talos has 35% and Harbour Energy 25%. As Zama’s reservoir extends beyond the license borders and into PEMEX’s neighboring area, a formal unitization process was necessary.

This was the first unitization process carried out in Mexico. An evaluation by an independent reserves auditor resulted in an initial tract participation of 50.4 % for PEMEX and 49.6% on the Block 7 side. Subsequently, the Mexican government decided that PEMEX would be the operator of the Zama field, working to develop the field along with the three private companies.

We are focusing on actively contributing as a partner to the Zama asset to ensure that the field is developed in the most efficient timeframe and in the best possible technical manner.

Q: How are the developments of the onshore Ogarrio field advancing?

A: The Ogarrio field was acquired in 2017 as a farmout from PEMEX through a 50-50 license contract, with Wintershall Dea acting as the operator. Ogarrio is a very mature oil field which started production in the 1950s, with over 500 wells drilled in that area. Due to the nature of such reservoirs, we are now facing a production decline. Wintershall Dea has been trying to stabilize and improve production levels since we took over the operatorship in 2017. Since then, we have been working on production optimization to offset the natural production decline of the field.

Wintershall Dea is also looking into improved oil recovery operations, such as waterflooding. This project is currently under evaluation, but we have observed promising results from our pilot projects.

Martin Jungbluth

Managing Director Mexico

| Wintershall Dea

Q: What expertise can Wintershall Dea offer as an experienced IOC in developing Mexico’s deepwater potential?

A: Wintershall Dea currently participates in the deepwater area of the Gulf of Mexico through Block 29, where we have partnered with the Spanish company Repsol as operator. Our intention is to be always an active partner. We clearly see a benefit for a consortium by bringing our expertise to the table to develop this deepwater field in the best possible and safest way.

Wintershall Dea has extensive knowledge from other parts of the world, such as Norway, Germany and North Africa. We are always seeking to transfer this know-how to other Wintershall Dea projects around the world, including to Mexico.

Q: How is the company planning to reduce its CO2 emissions and contribute to the energy transition?

A: Wintershall Dea is actively working on these matters and the energy transition and reducing CO2 emissions are key topics for us. Achieving net zero greenhouse gas emissionsScope 1 and 2 - in all our upstream activities by 2030 is one of our goals. Carbon management and hydrogen are important pillars of our strategy, which is a logical evolution to who we are and what we can do.

Wintershall Dea has the necessary natural gas reserves, subsurface and engineering expertise, to use depleted reservoirs to store CO2 , supported by our experience in the midstream business.

Our initial focus is on North-Western Europe, where we currently see the greatest dynamic in this area and where we are already pursuing concrete projects. However, our goal is to translate that experience, know-how and technologies to other regions, including Latin America. Globally, we are working on a carbon management and hydrogen business which will reduce CO2 emissions by 20-30 million tons a year between 2023 and 2040.

Q: What are the future plans for the company in Mexico?

A: Mexico is and remains a core country for Wintershall Dea’s global portfolio. The company has a promising and attractive portfolio throughout the E&P value chain, with auspicious projects in the exploration and development stages, including Zama, our Polok discovery and ultimately the production projects Ogarrio and Hokchi.

We are currently drilling our first own operated offshore wells, the first being the so-called Kan well, and we are expecting the final results by the end of April 2023. As part of this Block 30 campaign, we will then drill back-to-back another well named Ix. In addition, we will drill more wells during 2023 and 2024 in Block 4 in the Sureste basin, with Petronas as operator, and also in Block 2 in the Tampico-Misantla region, with PEMEX as operator.

Wintershall Dea came to stay. We see a strong market for the future and we believe in the potential and opportunities to continue growing our business in Mexico.

Private Companies Play Key Role in Democratizing Natural Gas

Q: What role would Jaguar E&P like to play in supporting Mexico’s growth in the new global natural gas market?

A: In Mexico, we have a unique opportunity since natural gas has been underdeveloped and underexplored. Jaguar E&P is taking an active role in exploring the areas of Mexico that have not received the attention they deserve to increase the domestic production of natural gas. At the end of the day, there is an energy balance issue between Europe, Asia and North America, where natural gas is abundant, particularly in the US. Some of the US can be brought to Mexico and eventually made available to the world. Nonetheless, issues closer to home are in the southern part of Mexico and in Central America, which is similarly underserved. The company works to increase production and to be able to assist to locate the gas where the consumption is needed. The goal is not just to supply Monterrey, Guadalajara or Mexico City, it is also about getting gas to remote communities that consume wood or biomass for micro-industrial processes. This way, they too can have access to a cleaner, more cost-effective fuel.

Jaguar E&P has been working on the idea of disconnecting gas production from pipelines. We have the first-ever commercial virtual pipeline project in Mexico where we are compressing gas at the wellhead and selling it via truck. We want to expand that process, as it will allow the commercialization of gas that otherwise would not be economically viable. It would also bring gas to the consumer without the consumer needing to be connected to the pipeline network.

Q: How can the company help to develop an efficient natural gas infrastructure?

A: The company has planned strong investments. Jaguar invests in midstream activity, taking advantage of the existing large regional pipeline network and making sure customers can connect to it with smaller-scale pieces of production. The time required to connect to the market in Mexico is challenging because of the regulatory framework but Jaguar E&P is making headway where it can connect to the existing network in the Burgos Basin and will continue to do that. What the company sees going forward when talking about distribution to end consumers is partnering with companies that already know what to do. Our core business is exploring, producing and processing natural gas. Nevertheless, we want to make sure our gas is used for good purposes and getting it to the end consumers, displacing dirty crude oil, charcoal or wood.

Q: How could smaller LNG projects add value to distribution?

A: The concept of massive LNG projects and giant regasification facilities to just deliver natural gas has fundamentally changed over the past 15 years. Now, compressed natural gas (CNG) and LNG can replace propane and diesel. The cost to be able to have very small-scale LNG projects has changed and what is known as microLNG is now feasible by producing 1Mcf/d of gas by loading one truck a day so communities can consume the LNG directly instead of having to regasify with expensive equipment.

We see a displacement over time of massive LNG projects by making a place for these smaller projects. The company wants to be involved in the production, exploration, processing and midstream side of the business and then do the distribution by partnering with established players.

Warren Levy

CEO | Jaguar E&P

Q: How is the implementation of proven hydrocarbons production systems and new play concepts evolving in Blocks VC02 and TM01?

A: The company announced a discovery last year in TM01, which is the largest discovery by a private company on land in Mexico over the last few years. It also has the advantage that it is close to the coast and an area where there is strong demand for natural gas and oil. The area holds a mix of natural gas and condensates. Jaguar E&P will do more work in that field next year, drill another well to delineate the discovery and try to figure out the commercial viability of the project. In 2021, the company also acquired 50 percent of a block that immediately neighbors TM01 and has a legacy field in it. At VC02, the company is excited about a prospect called Uxu and plans to drill during 2H23. Uxu is on the same geological trend with Ixachi and the recent Tum discovery.

Q: What have been the results from the recent 50 percent acquisition of the Tecolutla field?

A: Tecolutla is a block that was owned by a Canadian company in Round 1.3. It was one of the marginal blocks for redevelopment and the company drilled two wells, complying with all the work commitments. It was then looking for a local partner to take over the 50 percent working interest and operate the field on its behalf. Jaguar E&P was already working closely with this player because we have some shared operational activities.

In the adjacent TM01, 100 percent owned by Jaguar E&P, we have three legacy fields that were drilled by PEMEX over 50 years ago. We still have some production in those fields and are now effectively operating the complex of four fields together. There is not a huge amount of production, between 150boe/d and 200boe/d. However, we can ramp up production to between 700 and 800boe/d with some investments that we plan to make in 2H23.

Q: How are your exploration efforts developing in the Burgos Basin?

A: The company has two areas and three blocks in the northern part of the Basin, all of which are in the development phase. Moreover, Jaguar is drilling a new development well in block four. We plan to drill four or five development wells in Burgos next year and we are installing our first gas plant in Block 4, which should be operational by 2H23. Following this, we will move forward and place a pipeline at Block 7, where the company has production through virtual pipelines because there is no pipeline infrastructure in the area. So, in those three blocks we have development activities. Our objective over the three years is to ramp up this production.

In the southern part of Burgos, Jaguar E&P has Block 8 and 8.9, which are much more frontier exploration. The company drilled a couple of unsuccessful wells over the past years. It is planning to drill three or four more exploration wells between those two blocks in the coming 18 months. Nonetheless, it is still trying to identify the best areas to drill there. There have been some discoveries offshore in the Burgos Basin and similar geological trends but we are far away from any commercial production there, as projects are much more in the early-stage exploration phase.

Collaboration Key to Meet Gas Demand: Rystad Energy

Q: What are the main challenges faced by oil and gas companies today and how should they tackle them?

A: Despite its more than 100 years of history, upstream oil and gas still has a great deal of untapped potential in Mexico, for both onshore and deepwater activities. An example of a Latin American country that has benefited from cooperation with the IOC’s is Brazil, where Petrobras had a monopoly in the oil and gas industry many years ago, and then opened up to the wider market. Now, the company leads E&P efforts in Brazil with international partners, benefiting from the knowledge transfer.

Cooperation also opens up new routes to capital. The way to tackle the issues that private E&P companies are facing in Mexico will be through a mixture of patience and pragmatism. There are several pragmatic ways to work with and alongside PEMEX but patience is required to understand that the current administration is still learning and understanding what the oil business could and should be in Mexico going forward. Hopefully, the administrations that follow will accelerate their learning when compared to this administration. Increasing the understanding and knowledge of how the international oil industry works and how a diversification of operators and players in the sector can serve the same purpose will allow PEMEX to be the driving force that it strives to be.

Q: How can Mexico develop its unconventional resources?

A: Mexico is in a very unique situation. It is dependent on a single supplier for the majority of its natural gas, the US, both for piped gas and LNG. Almost 85-90 percent of Mexico’s demand is met by the US. That creates an issue when it comes to security of supply, or energy security as it’s called today. If the US, for some reason, is unable to fulfill those contracts and send gas to Mexico either via pipeline or LNG cargos, Mexico would find itself in a very precarious position.

The crisis in Ukraine has taught us that energy security is paramount. The government should recognize that Mexico’s overdependence on the US needs to be mitigated somehow and one of the best ways is through the development of shale resources in Mexico. The issue with shale development in Mexico is twofold, however. First, there has not been enough shale exploration activity to understand how viable production is. The second is the above-ground political debate. The problem is that in Mexico, all underground resources are owned by the state, while in the US most of these resources are owned by private citizens or companies. In Mexico, this means that the government must get the community involved.

Gas demand in Mexico is set to grow, driven by power generation and industrial needs. Over 60 percent of the country’s electricity is generated by natural gas and the majority of it is imported. Even considering efficiency gains in gas power plants and ambitious growth in wind and solar capacity installation, gas demand is set to grow by 353Bcf/y, which cannot be met through conventional resources alone. Companies would have to drill shale in a really significant way to even offset the legacy production decline. Even with a hundred shale gas wells drilled per year and productivity remaining competitive, Mexico would still need incremental pipeline imports to meet demand. Yet, shale development would take the country one step closer to ameliorating its dependence on the US.

Schreiner Parker

Senior Vice President and Head of Latin America | Rystad Energy

Mexico Continues to Offer Opportunities: Bonatti

Q: How is Bonatti participating in highprofile natural gas projects in Mexico?

A: We were a key player in the growth of Mexico’s natural gas industry, specifically regarding the pipeline network. Now, we are exploring opportunities to connect with export facilities and service the power plants that CFE is constructing, most of which are gas-fired combined cycle projects. Bonatti aims to continue participating in the market as a key player in enabling the continuous growth of Mexico’s pipeline network.

Q: What project does Bonatti have on its agenda to develop liquefied natural gas (LNG) infrastructure in Mexico?

A: Bonatti pursues every project that might transport natural gas to any of the LNG export facilities Mexico is considering to develop. The company is mostly active in the construction of infrastructure for gas transportation rather than working on the LNG export facilities themselves. For Bonatti, it is key to start collaborating with these projects at an early development stage. This allows the company to increase the magnitude of its contribution to its clients.

Q: The company has said it wants to start operations in Mexico’s southeast. How is this expansion going?

A: Some of the projects planned in the southeast have been greenlighted and the company is closely involved in these developments, while some other projects are stalled. Nevertheless, we want to establish ourselves as an essential player in the first stretch of the construction of such pipelines. These are the first large natural gas pipeline systems that Mexico will build in the southeast in almost 30 years. Bonatti seeks to strengthen its local experience in the region.

Q: What are the tenets of Bonatti’s sustainability efforts to reduce its environmental impact?

A: We started our Green Systems business unit in 2021 and its activities have increased steadily. The expertise gained over the years by Bonatti and its subsidiary Carlo Gavazzi Impianti, specialized in power gen and E&I projects, empowers our group to supply EPC know-how to power plants, including renewable energy projects. The latest green-energy projects we acquired are mostly in Europe, the Middle East and Africa.

Bonatti is pursuing opportunities to develop environmentallyminded projects across its whole geography. In the Americas the most advanced projects are located in Canada and Chile. The company is pursuing participation the fields of green hydrogen, green ammonia and methanol, among other technologies.

In Chile, we are participating in engineering, procurement and construction (EPC) projects and recently we awarded a water transportation project. This meant ending our reliance on inshore water and harnessing ocean water obtained through desalination. The technology enables countries to utilize valuable resources like drinking water for human consumption and for the agricultural industry. Such projects could be beneficial for Mexico as its northeastern region suffers from severe droughts.

Gustavo Blejer

Managing Director Americas | Bonatti

In Mexico, we would like to see more dynamism in the green energy sector akin to the European and South American markets. The country is lagging behind the progress of these regions. However, we would like to be one of the first players in this area once environment-focused projects start to gain steam once again.

Q: How have green hydrogen and greenfield projects grown globally and what opportunities does Bonatti perceive in the Mexican environment?

A: Bonatti believes that these projects are the way to go for every company that wants to stay ahead of the construction industry’s curve. In Europe, these projects were accelerated after the COVID-19 pandemic and the war in Ukraine, along with the growing global consciousness regarding sustainability.

We can bring these projects to the Americas, especially to Chile. Unfortunately, Mexico is trailing these regions. Bonatti is also closely looking at the conversion of gas pipelines onto hydrogen transportation systems, and the development of projects involving other sources of renewable energy.

Q: What opportunities does Bonatti see in the development of projects for the downstream sector after the completion of the Olmeca Refinery in Dos Bocas?

A: Dos Bocas will boost Mexico’s refining capacity greatly. However, we do not see this as the driver for growth in our sector as the expansion will mainly reach the retail industry. We would love to see these refined products being transported through the safest, most efficient and environmentally friendly way: pipelines. However, in Mexico, security concerns still prevail over other considerations when it comes to the transportation of refined products, and this issue must be addressed before the development of more liquids pipelines can move forward.

Q: What were the milestones Bonatti achieved in 2022 and what are the next goals it is pursuing in 2023?

A: We completed a hydrocarbon storage terminal in Topolobampo. We also got involved in the Rosarito gas pipeline expansion, meant to serve the Energía Costa Azul LNG export facility. This facility already exists but it is being transformed from an import to an export facility.

We also obtained an EPC contract in Chile from the most important private group in the mining industry for the development of the facilities required to transport seawater to the mine play. The company also increased its engineering capacity, enlarging its footprint in the water transportation sector.

We expect to see many of the projects that are still in the design stage to go to implementation in 2023 and 2024. We also want to bring our experience and wide range of skills to non-traditional sectors for the company. Bonatti aims to continue transforming while servicing existing and new clients with the same spirit of collaboration, adaptability and passion for project execution following its One-Team-Approach philosophy.

PEMEX Moves Forward With Refining Strategy

PEMEX reported losses from refining of MX$177.857 billion (US$6.56 billion) in 2022, an MX$5.137 billion (US$285.77 million) increase compared to 2021. Rating agencies such as Moody’s have repeatedly signaled that PEMEX’s refining strategy is flawed and contributes to the negative financial outlook and credit ranking for the company.

Despite lackluster refining results, the administration has bet heavily on investing in strengthening the National Refining System (SNR). The landmark project, the Olmeca Refinery in Dos Bocas, has received billions more in funding than initially predicted. Recently, the government approved MX$47.234 billion (US$2.362 billion) more for the refinery’s construction. this provision will increase the refinery’s costs to MX$313 billion (US$15.65 billion), a 75% increase from the original US$8.918 billion budget. However, President López Obrador defended that the cost of the refinery will be US$11.65 billion; and according to sources contacted by El Universal the recently-approved US$2.234 billion are part of this previously authorized budget.

The Superior Audit of the Federation (ASF) found irregularities during the construction of the refinery in 2021. According to the ASF, these anomalies could amount MX115.48 million (US$5.774 million) in overpayments. The ASF reported payments for contracts that ended up being terminated, abnormalities in contracts and irregularities in assigning contracts. Rocío Nahle, Mexico’s Minister of Energy, said that SENER will liquidate the amount over the next 30 days and pointed out that this represents 0.07% of the resources used for the construction in 2021. She added that on July 1, 2023, the total cost of Dos Bocas will be revealed and that the first barrel of gasoline will be produced.

Following delayed construction, López Obrador and Nahle promised that the Dos Bocas Refinery will go online in July 2023. Nahle had previously delayed the launch of operations at Dos Bocas to December 2022.

The López Obrador administration also invested in the purchase of the Deer Park refinery in Texas, which, according to Octavio Romero, CEO, PEMEX, has yielded solid results. “The profits at the end of the year are estimated to reach US$1 billion. This implies that PEMEX not only recovered its investment in less than a year but also obtained a profit of US$400 million,” reported Romero.

The addition of the refinery has also helped to increase national refining production. “When we started (the administration), only 600Mb/d were processed. We rehabilitated and invested in our refineries and went from 600Mb/d to 800Mb/d. However, if we consider the production of Deer Park, which PEMEX already owns, we are close to 1.1MMb/d,” Oropeza said.

PEMEX aims to produce 244Mb/d of fuel by 2023, of which 118Mb/d are gasoline, 99Mb/d diesel and 27Mb/d jet fuel. The company aims to increase refined fuel production to 262Mb/d in 2024 and maintain crude oil processing capacity of 298Mb/d.

IMP Catalyst to Boost UltraLow Sulfur Diesel Production

Q: How has the industrial production of the IMP-DSD-30 catalyst evolved?

A: The IMP-DSD-30 catalyst was born out of research funded by the Energy Ministry (SENER) and National Council for Science and Technology (CONACyT). Subsequently, IMP decided to boost its investment and further research this catalyst, leading to the creation of a prototype. While working on this phase, we encountered more challenges during the lab work and the methodology of using analytical reagents.

IMP found a manufacturer that could help with the preparation of the catalyst at an industrial level, but we needed to optimize the synthesis procedure first. This took time because the materials used were not entirely feasible for industrial production as their toxicity posed a health risk. IMP had to review the synthesis procedure. Another challenge was the economic aspect because the cost of the material was not competitive compared with similar materials that already existed in the market. Taking it back to the lab, we optimized the synthesis and enhanced its preparation to make it cheaper and found a material that was technically and financially viable.

Q: What role does this catalyst play in the production of ultra-low sulfur diesel (ULSD)?

A: PEMEX is committed to complying with low-sulfur regulation by 2025 when NOM-016-CRE-2016 comes into effect. From that moment, Mexico will only allow ultra-low sulfur diesel to be produced. IMP-DSD-30 is therefore crucial: It enables the NOC to produce this type of diesel. For example, the hydrotreating plants at the new Olmeca Refinery in Dos Bocas are highpressure units, meaning they can produce ultra-low-sulfur diesel without any issues. In locations where there are no high-pressure plants available, some changes in operating conditions and feed composition are required to produce ultra-low-sulfur diesel, thus affecting catalyst life and diesel production. IMP’s catalyst can solve this issue and boost Mexico’s plans for energy self-sufficiency.

Currently, ultra-low-sulfur diesel is produced by just a few refineries but the government’s goal is to make sure all refineries are capable of producing the fuel by 2025. In Mexico, not only diesel but also gasoline are imported in high amounts, so over 50 percent of the fuel we consume comes from elsewhere. To tackle this issue, PEMEX is investing to revamp refineries, improve their operations and recover their previous production levels. The IMP-DSD-30 catalyst is designed to produce ultralow-sulfur diesel in all PEMEX’s plants without the need for further investment, allowing it to meet its 2025 commitment and reducing Mexico’s reliance on imports.

Q: How will IMP contribute to the renovation of the country’s refineries?

A: IMP is PEMEX’s technological branch. Since its beginning, technological support for the NOC has been the main objective. PEMEX validates and analyzes all the projects IMP develops. In the case of the IMP-DSD-30 catalyst, PEMEX Industrial Transformation knows the product and participated in meetings to verify its performance and results. They are aware of the benefits its application could bring and thereby approve of the industrial application.

Jorge Ancheyta

Product Manager for Crude Oil Transformation | IMP

Data, Information Imperative for Efficient Fuel Production

Q: What differentiates S&P Global Commodity Insight from other companies offering strategic analysis?

A: The company’s global vantage point as well as the fact that it is not only focused on energy, power or renewables but that it also works with other industries, such as automotive, are important differentiators. In the end, all these industries interact with each other, which gives us a very comprehensive view of what is happening in the market. S&P is consistently reasoned, whether it is operating globally, regionally or locally. It considers all relevant economic and political risks when reviewing the energy sector.

Q: What has been the impact of sustainability and ESG goals on S&P Global Commodity Insight’s analyses?

A: This is one of the main business opportunities and one of the particularly important questions we receive from our clients. It has also represented a big opportunity to demonstrate the company’s ability to impact sustainability through its analyses. For example, in the hydrocarbons industry, most emissions do not come from production but from the consumption of oil and gas in the transportation sector. This is one example of why the company places ESG as an extremely critical factor. S&P Global Commodity Insight can evaluate what oil and gas-producing companies can do by also following the transportation sector and the penetration of electric vehicles (EVs) because as a society we should all be interested in reducing emissions. All the projects we have regarding ESG issues are growing in scope and size.

Q: What importance does the company place on sustainability and how does it help its clients strengthen their efforts in that regard?

A: S&P Global is a data and analysis provider. Going further, it also provides tailor-made consulting. Using its data, S&P builds the best information bank regarding emissions in every sector so that clients can compare their portfolios with others around the world. This includes emission intensity per barrel of oil or cubic feet of gas so that companies can compare which assets have higher emissions and evaluate investments to tackle this issue. S&P also provides the solution in this case. Other than E&P, the company tracks industrial activity and closely monitors the development of hydrogen.

Q: What main industry trends have emerged in recent years in Mexico?

A: Upstream activities in Mexico have been continually active as all projects are going forward in their exploration work. Amazingly, non-PEMEX operators have made around 22 discoveries since 2015. PEMEX has naturally done more during this period but the total 2P reserves estimated from those 22 discoveries represent more than 50 percent of the total resources that have been incorporated. Exploration contracts are doing great and there are still many wells to be drilled. Looking at deepwater activity, it has been all about private operators in the past years. PEMEX changed its strategy and is focusing its activities on shallow-water and onshore developments, while private operators are tackling the deepwater environment and generating a wealth of information about the basins there.

Alejandra León

Research and Analysis Associate Director | S&P Global Commodity Insights

However, Mexico has not seen any new licensing rounds, which has created a hole in development because the activity we see now is inherited from previous rounds. In the next six years, that activity will slow down dramatically due to the lack of new contracts.

Q: In terms of natural gas, what new challenges do you see, especially in the sourcing and distribution area?

A: Natural gas is the fuel of the energy transition, so it could therefore be a great business. Nevertheless, Mexico’s problem has been legal uncertainty in a market that is starting to open but still very concentrated on CFE, which has the largest contracts with pipelines and power generation. This has made it extremely complicated to compete. What is more, the steps Mexico took to increase competition are being backtracked. This does not create the most favorable conditions, even though the market’s potential remains stellar, even more so because gas is very likely to remain important in the future. Since the completely clean renewable power coming from wind and solar sources are intermittent, gas may be needed for backup electricity generation, and given the size of Mexico and its power and gas market, there will still be significant room for gas. Furthermore, natural gas should replace the liquefied petroleum (LP) gas used in homes. In all our scenarios, gas is the most resilient fuel for the coming 30 years, unlike oil, which is expected to decline.

Q: How has the imminent operation of the Dos Bocas refinery impacted the mid- and downstream markets?

A: The reality is that Mexico will continue to import gasoline and diesel, even if the demand for these fuels is not picking up and the other six refineries are working to their full potential. Refining is a complex business, making it competitive in a world that is looking forward reducing hydrocarbons consumption is not easy. S&P has high expectations for Dos Bocas, which could operate to the highest operational standards, but the challenge is to look into the whole Pemex refining business, if it could improve efficiency, cost and profitability in a market which is reshuffling globally. .

Q: How has the relationship between PEMEX and S&P Global evolved?

A: The concerns of PEMEX are often the same as any other client, so we are still working closely with the NOC on issues of costs, low-carbon initiatives and finance mechanisms. PEMEX is also looking to become more competitive in refining. S&P Global is helping PEMEX understand long-term scenarios regarding the demand for gasoline, natural gas, oil and diesel. One of the key drivers in the long term is oil remaining in the market linked to the petrochemical and chemical sectors, as oil shifts away from the transportation sectors. PEMEX is not in a bad position to make these changes but the NOC must move now to survive in the long term.

S&P Global is working with PEMEX in several areas, especially surrounding the energy transition. We want the NOC to succeed as a crucial player in Mexico. Moreover, S&P still works with CNH, and has a collaborative relationship with SENER since years ago.

How AI Is Impacting Business Management in the Oil and Gas Sector

Afew weeks ago, I made a site visit to a semisubmersible platform. Quite a bit of time had passed since I had last spent more than a day on a vessel or rig. The plan was to spend a couple of days but due to adverse weather conditions, I practically spent a week offshore. I should mention that my background is in finance and I held CFO and Country Manager positions. For the first half of my career, working for two of the top international accounting andaudit firms. In the last 18 years, I have been involved in the energy sector, having the opportunity to learn a lot of “engineering stuff” and attaining a broader knowledge of the energy industry.

While at the platform, I talked to many valuable people in different positions, including technicians, mechanics, electricians, HSE and crew. At lunch one day, a Norwegian colleague said that sometimes we can have an idea of the business we lead but seeing how people behave and focus on making the right calls is where the money really comes from.

Recently, artificial intelligence (AI) solutions have ramped up on a mass scale. These tools have become more accessible to improve not only business but basically every single aspect of life. It is not new, as we already use AI in many business processes and increasingly in the oil and gas industry, but, lately, AI basically has become accessible to anyone with access to the internet. As AI becomes even more capable through use, feedback, and, especially, on-the-go auto-learning, I’d like to share some thoughts on how AI is impacting and will impact the oil and gas industry over the coming months and years.

My first thought is related to my two initial paragraphs and whether AI is a threat to take over the jobs of many people. The answer is yes but no. In the first instance, automatization of certain equipment is reducing headcounts and remote operations require less involvement of people while leading to more efficient operations. An example would be an ROV system installed on a rig in the Gulf of Mexico and driven by operators in a control center located in Aberdeen, who can also manage different systems in different places at the same time. On the other hand, fewer people in the field means less exposure to risk and does not necessarily mean fewer jobs. For me, it also means different types of jobs in the future and a call to evolve the way we manage talent and to increase the technical capabilities within our teams.

Unlike other sectors (renewables, financial, healthcare, for example), the oil and gas industry started a bit later with the adoption of new technology, including AI, but it is now a reality in the day-to-day. We do many things using AI now, but this does not mean human interaction, and especially many jobs, will be replaced. It means we will have to adjust to the new reality, getting the best from technology while incentivizing creativity in our talented people to evolve our business.

Embracing AI as part of a company’s evolution can be a significant step forward for improving efficiency, decisionmaking, and customer experience but for oil and gas companies this requires a strategic approach that considers

Former Director Mexico

| Dolphin Drilling

the unique needs and challenges of each company, with proper planning and execution. In this way, companies can leverage AI to gain a competitive edge and drive innovation.

Here are some steps that a company can take to leverage AI:

1. Identify potential use cases. We need to analyze where AI can be applied to solve business problems or improve operations and automatize a process. Use AI to sort valuable information from the bulk set of information, among other uses.

2. Develop a strong data foundation. To benefit from AI, we need to be sure we have a solid base of data, with enough quality and accuracy. This is difficult to achieve as we tend to think we have a lot of data, CRM systems, accounting systems, QHSE systems, production data, and so on, but having tons of data is not the same as having all that information properly organized and connected.

3. Talent investment. After the pandemic, we understood that people in an organization require a set of technical skills to manage their dayto-day, either working remotely or at the office. We also learned that a leader’s profile changed from a focus on traditional models where technical/market knowledge and financial awareness were prominent to now require a whole set of human skills, such as communication and motivational capabilities. We also need to think in terms of skills that can help to design, develop, and deploy AI solutions.

4. Scalability. We need to consider that deploying AI into our processes is not a big one-off effort and then manage from there. It requires a scalability approach where we start with small pilot projects, test, and gain experience on the go so we can deploy AI solutions gradually, moving to larger projects with more successful results.

5. Ethics is another big discussion topic, and specific articles have been written regarding the ethical aspects of AI, but at this time, let’s just consider that implementation of AI triggers ethical implications; for instance, the use of private information and the security of that information. Therefore, a set of guidelines and policies are necessary to ensure that AI is used responsibly.

6. Continuous learning process. We must be constantly updated on the latest AI trends, which are rapidly evolving, and companies should be up-to-date to ensure they are leveraging the latest technology.

For the many challenges the oil and gas industry is facing, such as changing demand for energy, volatility of prices, government regulations, environmental impact, cybersecurity, access to resources, aging of infrastructure, competition, security, and politics, the use of AI will become part of the solution, helping us with decision-making, expediting processes and helping to leverage value and efficiency, ultimately pumping up profits by rationalizing resources and costs.

And finally, just as an example of how AI is a present reality, to write this article, I used AI to help me suggest some of the addressed items. It is not yet good enough to conduct the main idea and to write the article for me, but it is good enough to suggest information and organize items by asking the right questions. I even had to correct some of the AI’s responses that did not consider a source that I had in mind.

After I told the AI it was missing this source, it apologized and immediately checked the link I shared and corrected its response, using the new information and an auto-learning feature. That is impressive. I’m sure if I ask how to fix certain problems in a real situation in the field it probably will help with some suggestions but definitively, I still rely much more on the operator with a name (and of course a nickname) and who has been there for many years and can fix a problem based on experience. Let’s see how far this goes in the future.

Offshore Oil and Gas: Autonomous Operations Mean Lower Emissions

Welington Cintra

Local Division Manager | ABB México

The 2015 United Nations Climate Change Conference in Paris began the wave of more ambitious efforts to contain climate change, as representatives from 193 countries pledged to reduce their greenhouse gas emissions (GHG) by 45% by 2030, and in full by midcentury. Moreover, thousands of companies agreed to reductions in their GHGs, including some of the world’s largest oil and gas companies, which have agreed to achieve net-zero emissions by 2050.

A key sector is offshore platforms, which extract offshore oil and gas, because more than 600 are located worldwide. Such facilities are energy intensive due to powering activities such as engines that move the platform at sea, pumps that extract fluid from the seabed, as well as running heating, cooling, and habitability systems for their crew. ABB research found that over 15 years of life, operating an oil rig can reach 173.6 megatons of CO2, the best-known GHG. This is equivalent to the emissions required to manufacture 7.985 million packages of cement.

Automating the operations of an oil rig not only reduces the number of personnel working offshore, in potentially risky conditions, it also decreases greenhouse gas emissions. The ABB Energy Transition Equation for Offshore Oil and Gas report reveals automation allows a maritime platform to reduce its GHG emissions by up to 320,000 tons per year while reducing its operating costs by 30 to 50%.

Since the 1980s, technology has made it possible to automate the activities of an oil rig. In countries like the United Arab Emirates around half of the most remote oil platforms are managed remotely, while in the North Sea, this proportion is 25% and in the Gulf of Mexico 10%.

Some key processes of the operation of an offshore platform are already automatable, improving its efficiency and reducing the risk to personnel: well drilling, process control, power transmission, technical improvements and measurement of operational variables.

In summary, the average carbon savings on floating and fixed platforms adopting automation solutions are up to 27%, according to the ABB Energy Transition Equations. This equates to:

1. 1. Removing up to 160, 000 cars off the road.

2. 2. Powering up to 210,000 homes.

3. 3. Reducing the amount of CO2 responsible for 5 billion kilograms of glacier mass lost each year.

Digitalization presents additional advantages, such as the reduction in the speed of restarting activities after a one-day power failure up to about three hours, as well as a reduction in maintenance costs of up to 50% – moving from a reactive maintenance paradigm to a predictive one.

The commitments established by nations in the Paris Agreement seem distant but involve radical transformations in industries like oil and gas. The digitization, electrification, and automation of oil rig operations will be increasingly important trends to ensure compliance with environmental commitments. It also improves the operational performance of an industry facing what will be perhaps the most important transformation in its history.

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„ 04/18/2023

Mexico Imported more Gasoline From Asia than From the US

„ 04/14/2023

LNG Industry Must Reinforce Emission Mitigation Measures

„ 03/22/2023

López Obrador Asks for Further Compensation in Odebrecht Case

„ 05/09/2023

PEMEX, Talos Energy Reach Agreement on Zama Development

„ 03/24/2023

PEMEX to Pay Debt on Its Own

„ 02/16/2023

Oil Investments Stalled in 2022

„ 02/13/2023

PEMEX’s Credit Rating Backed by Federal Support

„ 02/09/2023

PEMEX Flared US$342 Million of Resources at Ixachi, Quesqui

„ 01/20/2023

Oil Investments Reach 27 Percent of the Approved Amount

„ 01/12/2023