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Why we need a strong upstream regulator
Dr. Edgar Rangel Germán
Energy Reform in Mexico
New Directions and New Opportunities
November 2013
www.cnh.gob.mx 1
Agenda
• Mexico’s Potential
• What we have done
• What we haven’t been able to do
• Upstream Regulators in the World
• The Biggest Challenges
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Mexico’s Potential
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Reserves and Resources
Reserves vs. Consumption
Some Comparisons
Complexity of resources
Mexico’s Potential
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Recoverable
Resources
Annual
Consumption
Mexico’s Potential
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124 12
159
318
68 17 43 0
1688
14
1,115
802 707 665
573 545 437 390
285 245
0
200
400
600
800
1000
1200
1400
1600
1800
China Argentina Argelia Estados Unidos Canada México Australia Sudáfrica Rusia Brazil
Reservas Probadas Gas Natural
Reservas Técnicamente Recuperables Shale Gas
Proved Reserves of Natural Gas Technically Recoverable Reserves of Shale
Gas
4 2 3 24 6 2 2 24 1
4.6 1.6 1.1
24.4 3.2 2.4 1.2 0.2 18.0 0.9
Production Consumption
Selected Basins June 2013 Trillions of cubic feet
= 250 501 643 27 179 227 364 1950 16 275
Source: CNH and US Energy Information Administration
Years
Mexico’s Potential
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(bcfs)
Conventional 3P Reserves 62,811 Prospective Resources 56,175
No Conventional
3P Reserves 419 Prospective Resources 141,500
CBM (from SGM) 17,025
Methane Hydrates* ~50,000
CBM= Coal Bed Methane SGM= Servicio Geológico Mexicano 2010 *Center of Golfo of Mexico y Northeast of Yucatán Península Source: Tesis UNAM “Los hidratos de metano, una fuente de gas natural no convencional” (2009).
Mexico’s Potential
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Fuente: eia, DOE (2013). Pemex (2013)
In other countries, energy reform meant a big change:
Production in Mexico, Brazil and Colombia
Tho
usa
nd
s o
f b
arre
ls p
er d
ay
Year
Mexico
Brazil
Colombia
Reform in 1997 Reform in 2010
Reform in 2003
Mexico’s Potential
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Colombia
Mexico
Cumulative production
Cumulative production
Mexico’s Potential
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ECO
PET
RO
L Colombia’s Production
360, 471 boe
Others = 649, 161 boed
TOTAL = 1’009,632 boed
bo
ed
Mexico’s Potential
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Source: Pemex and Petrobras
Mexico’s Potential
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0
2
4
6
8
10
12
14
16
18
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
OIL
(
Bill
ion
s o
f B
arre
ls)
YEAR Brazil (Others) Brazil (Petrobras)
Brazil’s Reserves
Mexico’s Potential
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There are
enough
molecules
to produce
more than
4 mmbd and
10 bcf.
Who is
going to
do this?
What we have done
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Reserves EOR-IOR Chicontepec
What we have done
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For the first time ever Mexico’s reserves are within 10% of
Certifying companies’ numbers at both Asset and Region level for 1P and 2P&3P, respectively
What we have done
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What we have done
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What we have done
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IOR-EOR Potential of Mexico is estimated for the first time
Production could increase by 1
million bpd
Proved reserves can be doubled or tripled
What we have done
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Recovering an additional 10% would triple our 1P reserves.
Access to technology and human resources are crucial.
43 reservoirs in clastic / 85,611 mmb
86 reservoirs in carbonates/ 102,482 mmb
What we have done
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• CNH defines Chicontepec as Tight oil
• Urge Pemex to use different Project management
• Recommend putting strong emphasis on Subsurface understanding: sedimentology and petrophysics
• Suggest considering new fracturing techniques: zipper frac, multifrac, etc
• Urge the use of IOR/EOR: water and gas (HC and CO2) injection
What we have done
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Pemex E&P
Proved Probable Possible
• 2010: CNH’s first ruling: Give Pemex E&P a year to review numbers under new Reserves Guidelines
• 2011: CNH’s second ruling: Negative sanction, declaring contingent resources for Chicontepec, urge Pemex to consider IOR/EOR
• 2012: CNH’s third ruling: For the first time, Chicontepec’s numbers are within 10%. Possible reserves supported by IOR/EOR
Ryder Scott
17,988 17,836 17,714 17,715 17,393 17,192 17,098 17,037 16,753
2005 2006 2007 2008 2009 2010 2011 2012 2013
16,050
12,267 11,482
10,864 10,249
9,525
7,090
15,820 15,633
2005 2006 2007 2008 2009 2010 2011 2012 2013
What we have done
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Lack of Planning
What we haven’t been able to do
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Project Sanctioning
Lawsuits and Injunctions
Incidents in Deepwaters
Historic Accidents
What we haven’t been able to do
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As January 1st, 2013
KUNAH
Categoría Pemex
(mmmft3)
Certifying Company (mmmft3)
1P - -
2P 1,059.0 -
Field Discount
rate
NPV (Certifying Company)
Kunah 10% < 0
Lakach 10% < 0
Kunah 12% < 0
Lakach 12% < 0
Lakach EUR per well: Pemex: 121 mmmft3 Certifying company: 68 mmmft3
LAKACH (January 1st, 2013)
Econ Indicators Pemex Tercero
CAPEX (million USD) 1,044 3,104
OPEX (million USD) 243 391
What we haven’t been able to do
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By means of its regulation, CNH required: i. Insurance policy ii. BOP / Capping Stack iii. Certified Personnel iv. Proof of debris removal capabilities v. FEL process vi. Risk analysis/ Worst case scenario vii. Oil spill containment capabilities
Pemex E&P has sued CNH on a number of
occasions, resulting in extremely time-
consuming processes and diverting attention from
the real issue:
Ensuring SAFETY in DEEPWATERS
President Peña Nieto enacts the new Injunction Law
Approval from the Congress of the new Injunction Law
April 1st March 30th April 2nd April 3rd
PEMEX files the very first Injunction under this new law - against CNH
New Injunction Law is published in the Official Gazette
What we haven’t been able to do
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Water Colum: 2,922 m
Total Depth : 6,669 m
Very high risk!
Maximino Well (2013)
What we haven’t been able to do
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Date Well Facility Description
2012 1 Platform 1 Anticipated completion of well because of high pressure. Well was plugged.
2012
2 Platform 2 Well collapsed.
2012 3 Helicopter X Helicopter fell into the sea trying to reach Platform.
2012 4 Platform 2 Failure of BOP’s shutdown system.
2012 5 Platform 3 Wire that secures ROV broke. ROV reached seabed.
2012 6 Platform 4
Subsea BOP accumulator break affected other 5 accumulators,
the hydraulic circuit and BOP power line. Suspension of
operations.
2013 7 Platform 3 Drilling operations were suspended because high pressure. Well was plugged.
What we haven’t been able to do
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Platform Date Place Field Death
Toll Institution
(In charge or Created)
Alexander E. Kielland
March 1980
Norway North Sea
Ekofisk 123 Petroleum Safety Authority (PSA, 2004)
Piper Alpha July 1998
U. K. North Sea
Piper 167 Health and Safety Executive – Energy Division (HSE-ED, 1991)
Deepwater Horizon
April 2010
U. S. A. Coast of Louisiana
Macondo 11 Bureau of Ocean Energy Management Bureau of Safety and Environmental Enforcement (BOEM, BSEE, 2010)
What we haven’t been able to do
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We cannot let the bull out of the ring!!
Well Terra 123…
Upstream Regulators in the World
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Norwegian Petroleum Directorate
Petroleum Safety Authority of Norway
Department of Energy and Climate Change
Health Safety Executive
Bureau Ocean Energy Management
Bureau of Safety and Environmental Enforcement
Agencia Nacional de Hidrocarburos
Agencia Nacional do Petróleo, Gás Natural e
Biocombustiveis
Upstream Regulators in the World
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Norway U.K. U. S. A.
NPD DECC BOEM
• Since 1972, NPD contributes to the higher value of PA, with prudent resource management based on safety, emergency response and environmental protection.
• Advise Ministry of Petroleum and
Energy, through their professional and interdisciplinary experience.
• Manage the national database of Norway.
• Boost resource potential through long-term solutions
• Monitor PA.
• Secure energy supply • Mitigate climate change. • Supply secure and low-carbon
energy with the lowest cost • Take advantage of oil and gas
reserves to develop policies for the benefit of the economy
• Manage energy resources safely and profitably
• Manage oil and gas safely and profitably
• Regulate development of
offshore reserves, subject to environmental protection.
: http://www.npd.no/
https://www.gov.uk/government/organisations/department-of-energy-climate-change
*PA = Petroleum Activities
http://www.doi.gov/index.cfm
Upstream Regulators in the World
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Colombia Brazil
ANH ANP
Functions • Identify and evaluate the hydrocarbon potential of
the country. • Design, evaluate and promote investment in
upstream development. • Assign areas for upstream development, subject to
the terms and types of procurement that the ANH adopted.
• Follow up on implementation of technical standards related to the upstream development leading to the optimal use of resources.
• Perform any other activities related to the management of national hydrocarbon resources.
Functions
• Promote the regulation, contracting and supervision of economic activities of the oil industry, natural gas and biofuels.
• Establish guidelines for specific programs, such as the use of natural gas, coal, thermonuclear energy and other energy sources.
• Implement the national policy of oil, natural gas and biofuels, with emphasis on ensuring their supply throughout the nation.
• Implement best practices for the conservation and wise use of hydrocarbons and biofuels and environmental preservation.
• Organize and maintain the information and technical data relating to the regulated activities of the oil industry, natural gas and biofuels.
Source: http://www.anp.gov.br/
*PA = Petroleum Activities
http://www.anh.gov.co/es/index.php
Upstream Regulators in the World
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Norway United Kingdom U.S.A.
PSA HSE/DE BSEE
• Independent government monitoring body.
• Regulate safety, emergency process and working conditions in depth waters.
• Cover planning, engineering, construction, use and abandonment.
• Ensure total monitoring of deep waters.
• Assist the Ministry.
Source: http://www.ptil.no/?lang=en_US
• Non-departmental public body (NGO).
• Regulate health risks and safety arising from deep waters.
• Enforce rules, advise, assess security cases, research and develop, influence and develop policy standards.
• Help define standards and actively participate with industry players.
Source: http://www.hse.gov.uk/offshore/priorities.htm
• Promote safety, environmental protection and conservation of marine resources through rigorous regulatory oversight.
• Has the power to inspect, investigate, punish and cancel or suspend activities, and monitor security.
Source: http://www.doi.gov/index.cfm
*AP = Actividades Petroleras
The Biggest Challenges
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Importance of a Strong Upstream Regulator
Assessing capabilities and contracting
Post-Reform CNH
The Biggest Challenges
What should a strong upstream regulator do?
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• PDO • Reserves • Seek maximium RF • Industrial Safety • Gas flaring • Measurement • Shale gas regulation • Data bases • Supporting SENER in hydrocarbon policy
definition • Supervision/ Inspection • Etc.
Regulatory agencies provide order, efficiency, transparency and security to energy resources exploitation
The Biggest Challenges
A strong regulator should also protect:
• People’s life and health
• Environment
• State’s investments and incomes
To do this, a strong regulator requires:
Regulations
Supervision
Research
Capability to apply regulations
To influence the industry to improve
To advise the Secretary of Energy
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Source: PSA Norway
The Biggest Challenges
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ParameterOnshore
Shallow water
ATG Burgos Deepwaters
Shale gas/oil
Human Resources B B D C D D
Technology B A D C C D
Cost per barrel B A D C E D
Infrastructure B B C B D D
A=Excellent, B=Very Good, C=Good, D=Fair, E=Poor
The Biggest Challenges
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Independence not guaranteed
CNH Decentralized
In either case, CNH needs a “strong” law
Autonomy
CNH
Autonomous
CNH as other
CNH as Office of Sener
Status quo
Final remarks
• Mexico has very large reserves and vast resources (both conventional and unconventional).
• Mexico has enough molecules to considerably increase reserves and bring back oil production to 3 or 4 mmbd and 10 bcfd.
• However, lack of planning and limited execution capabilities have made our production decline and our reserves decrease. Other countries are doing it right.
• It is obvious that we need more hands.
• The role of the upstream regulator is fundamental for the success of the Energy Reform; therefore, CNH requires a “Strong Law”, so it becomes a “strong regulator”, with a strong Minister and a strong Operator.
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Final remarks
• CNH’s internal activities and attributions might be quite similar after the reform, but most likely strengthened.
• The complexity and variety of our resources demand ad-hoc contracting figures and specialized fiscal regimes.
• The best chapter in the history of our Industry is about to begin, and CNH will be a key player.
• Human resources, access to technology, financing and infrastructure development are crucial.
• We urgently need specialized human capital to face the post reform era.
• Mexico has the potential to become an energy hub!
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Thank you!
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