Building a New Regulatory

Framework for E&P in Mexico

Javier Estrada

August 2010
1
Subjects

1. The CNH

2. Regulations adopted and next steps

2
1

The CNH

3
The E&P sector before the reform
Declining reserves and oil production
The super-giant Cantarell reached its peack production in 2004
Risks of “holes” in the public finances
Years with low investments in exploration translated in low reserves
Mexico has ample petroleum ressources offshore and in land

Pemex needed a profound reorganization:

Several simultanous projects upstream and downstream
Consensus about the need to restructure the financial framework
Imperative to expand Pemex’s capacity to execute large projects
Governing structure and legal framework adapted to the oil business

National R&D in the petroleum sector were insuficient

Financial needs in univerities and research institutions
Development of companies ofering petroleum services

4
Energy Reform

• To execute Nation’s rights

related to Hydrocarbons’
topics.
• To define production’s platform Technical and
trajectory. regulatory agency in
• Reserves’ restitution definition. the hydrocarbon
• To authorize exploration and sector -check and
production projects balance system
• To approve, refuse, modify, between PEMEX and
revoke and/or cancel The Energy Ministry.
hydrocarbons’ exploration and
exploitation grants.

5
Mexican E&P Outlook

Mature
Exploration
fields
Hydrocarbons
Policy

Highly
technical
fields
6
Mexican E&P Outlook
Mature fields
Status of oil and associated gas fields**

Size* Declining Plateau Development Total

Supergiant 1 0 0 1
Giant 5 2 0 7
Big 44 8 3 55
Medium 32 7 7 46
Small 62 16 36 114
Total 144 33 46 223
*Size: Supergiant original 2P reserves > 5,000 MMBPCE; Giant > 1,500 MMBPCE; Big > 250 MMBPCE;
medium > 80 MMBPCE.
** Status: Declining if production is less than 85% of the max; plateau if production reached its peak
but hasn’t declined more than 85% of the peak.

México has 223 oil and associated gas fields with production and reserves, from
which 177 are already declining or will be in the next 2 years. From the 46 fields
in development, 29 are Chicontepec fields. 7
Mexican E&P Outlook
Highly technical fields: Chicontepec

Golfo de
México

Large reserves
but big
technical
Veracruz

challenge

Hidalgo

Puebla

8
Mexican E&P Outlook
Exploration
World’s sedimentary basins with 2,000 exploratory wells in the last 25 years

SOURCE: Article by Leonardo Maugeri, Scientific American.

In the whole country, PEMEX has drilled 1,228 exploratory wells in the last 25 years. 9
 20
40
60
80

0
100
120
140
160
180
1938
1940
1942
1944
1946
1948
1950
1952
Exploration
1954
1956
1958
1960
1962
1964 4,844 Wells
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
Exploration wells

1986
Mexican E&P Outlook

1988
1990
80%

1992
1994
1996
1998
2000
2002
2004
2006
2008
seismic
Old technology

10
Located with no 3D
Mexican E&P Outlook
Exploration: Prospective Resources (MMMOBE)

56.6
MMMOBE
43.8 Depth
MMMOBE (m)
Offshore
43.8
19.7 > 1,500
Deep Waters
27.7
MMMBOE 3.7 1,000 – 1,500
4.3 500 – 1,000
Onshore
16.1 < 500
12.8

Total Offshore
Onshore and Offshore shallow waters(< 500 m) resources account for 51% of 11
total prospective resources (28.9 MMMBOE).
Mexican E&P Outlook
Exploration: The Gulf of Mexico
Baha-1
Jack-1 CRETACICO SUPERIOR
Turbiditas laminares
White-1 no confinadas Lutita
Trident-1 Calcárea Piso
de Cuenca

Área
Perdido

Flujos de
Brechas
Turbiditicas

Golfo de
México
Sur
Golfo de
México “B”

Tamha-1 Nab-1

Lakach-1
Lalail-1 Tamil-1 MIOCENO MEDIO
Chuktah-201
Chelem-1 Apron piso de Cuenca
Noxal-1 Pobre Arenoso Apron Piso de
información Cuenca
Sísmica
Turbiditas laminares
no confinadas

Lutita
Simbología Calcárea Piso
de Cuenca
Complejo
Extra-heavy oil (<12° API) Cañón-Abanico

Heavy oil (13-22° API)

Heavy oil (22-27° API)
Light oil (28-37° API)
Extra-light oil (38-42° API) Complejos
Canalizados
Dry gas / Extra-light oil Turbiditicos

Source: Ing. Carlos A. Morales Gil. “El Potencial Petrolero de México”. 24 November 2008.
12
Mexican E&P Outlook
Exploration: Not explored areas (subsalt province)

Reynosa

Subsalt Plegado Perdido

Belt Belt

Poza Rica

Salt Gulf Province

Veracruz
0 100 200 300
13
Cd. Carmen km
Increasing production costs
The “maturing” of our producing fields, together with the incorporation
of new production from highly technical and complex fields, implies an
increase in lifting costs.

“Maturing ” of oil fields Incorporation of more complex fields

“Complex”
Cost/bbl Cost/bbl
Fields

2010
C2010 “Easy”
fields
1990
C1990

Young Mature Acum. Prod. Acum. Prod.

14
 2

Regulations adopted and next steps

15
Defining the hydrocarbons policy
To identify the opportunity areas for the proper exploitation of our
oil and gas fields: hydrocarbon reserves

Distribution of the oil and gas reserves*

(% - MMBOE)
Our reserves are in fields
of smaller size than the
declining fields
74% of our reserves 14,961
require secondary 15%
recovery and improved 34%
6,667
recovery.

The reserves not being

40% 4,568
exploited are spread in
11%
17,319 medium size and small
fields

Chicontepec Declining In production Without production

16
Defining the hydrocarbons policy
To identify the opportunity areas for the proper exploitation of our
oil and gas fields: prospective resources
Burgos Opportunities:
512 MMBOE: 2,719
Litoral de
Tabasco

Salina
Sabinas del Itsmo Chiapas-
Tabasco-
Opportunities: 92 Comalcalco
MMBOE: 438

Gulf of Mexico
Opportunities: 640
MMBOE: 31,485
Tampico Misantla
Opportunities: 239
MMBOE: 2,435

Yucatan Shelf
Veracruz Opportunities: Opportunities: 40
361 MMBOE: 1,570 MMBOE: 1,389

Sureste Opportunities:
1,108 MMBOE: 16,703
17
Defining the hydrocarbons policy
To identify the opportunity areas for the proper exploitation of our
oil and gas fields: Subsalt potential

Litoral de Tabasco
Opportunities: 190
MMBOE: 3,047
Macuspana
Salina del Itsmo Opportunities: 218
Opportunities: 321 MMBOE: 1,453
MMBOE: 6,824
Litoral de
Tabasco
Salina
Chiapas-Tabasco-
del
Comalcalco
Itsmo

Chiapas-Tabasco-Comlacalco
Opportunities: 379
MMBOE: 5,379

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Regulation and supervision
Examples of regulation enacted by the CNH:

Rules to reduce the flaring and venting December 4, 2009

of natural gas

Technical guidelines for the design of December 21, 2009

new projects

Guidelines to acknowledge the certification

August 4, 2010
of oil and gas reserves

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Guidelines for the design of new projects
(FEL methodology)

Design phase

Visualization Conceptualization Definition Execution Operation

Identificaction of valuables
Value Identification Performing the values
Good
Good execution
Definition (several scenarios)
A

Poor
execution
Value

Poor
DD
Definition (limited scenarios)

Identification of Evaluation of
Plan approval Execution Plan Operation
opportunities options

Time

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Oil Production scenario (illustration)

Expected production by type of

Associated investments
resource or reserve
(million US dollars)
(thousand bbl day)
4,000 30,000
Observed Observed
3,500
25,000
3,000
Recursos
Prospectivos
20,000 Recursos
2,500
Prospectivos
2,000 Posible 15,000
1,500 Probable
10,000
Probada
Reserva Total
1,000

500 5,000

0
0
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
21
Gas production scenario
(illustration)
• A stable supply of natural gas is expected in the future
Natural gas production
(million cubic feet per day)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2011
2008
2009
2010

2012
2013
2014
2015
2016
2017
2018
Reforma Inercial

Source: SENER
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Forthcoming regulations and evaluations
from the CNH

Guidelines for deep water projects (1st package) October, 2010

Recovery factors March, 2011

Metering December 2010

2P and 3P Reserves 2010 September, 2010

Renewal of Pemex E&P assignments (project September 2011

evalautions) to July 2013

23
CNH Approach
Regulation hybrid approach towards
Performance Based – Case Assessment
3 Tier Strategy ACTIONS

1 Internal standards of Assess all the E&P to:

Pemex • Revise the internal standards
and procedures of Pemex, as
well as the management
2 Design specific regulation systems to enforce them.
• Introduce specific technical
regulation.
Technical assessment of the • Provide technical
3
E&P projects assessments and follow up.

24
Regulation is complemented with supervision, inspections (and drilling permits, when required)