We have seen a deep-water bounce back globally with cost reductions. With 9 deep offshore blocks, how do you see this trend positively impacting the Mexican upstream sector over the next 2-5 years?
- Costs have come down by about 50% since the market peak. Deepwater costs continue to decline (Average pre-FID project NPV15 breakeven now US$48/boe, versus US$78/boe in 2014)
- The industry had become very inefficient, high structural costs, inflation, etc
- The downturn was a good thing for industry in the sense of getting back to basics, focusing on costs and bottom line results. It allowed the industry to focus on discipline, affordability and resilience
- Key reasons behind cost improvements include portfolio High-grading (smaller and simpler projects, focus on near infrastructure, etc), simplification, replication and standardization, phasing, innovative contracting strategies and efficient project execution.
- There are 2 components that drive costs, those that are cyclical (rig rates, service rates, equipment pricing) and those that are structural. Key question going forward is whether those cost reductions will stick. There are different views out there. Cyclical costs will come back (we are already seeing some parts of the supply chain like DW rig market, FPSO construction, Subsea Equipment to start heating up) but we believe the structural changes will stay and will be sustained by the 3 pillars of:
- Competitive Scoping
- Efficient Execution
- Supply Chain Excellence
- What does this mean for places like Mexico? Affordability means we can drill more wells, be competitive with the rest of the portfolio, potentially accelerate investments and be resilient to low price environments
For those members and readers of ours who are not so familiar with Mexico. What is it about the subsurface that really excites you, what time frames are we talking and how do you plan to use Shell expertise to optimize well design on the licenses you were recently awarded?
- Mexican Subsurface is very exciting. There is a lot of history behind the Mexican O&G industry. Mexico is one of the top producers in the world thanks to its shallow water production but the potential of its Deepwater needs to be proven. Luckily subsurface does not understand of lines drawn in maps
- In terms of specific plays, we expect a continuation of some of the plays being produced in the US GoM like the Miocene, Paleogene and even some additional potential like the pre-salt
- We plan to utilize our global DW expertise in 3 different areas:
- We are using our global DW center of excellence in Houston (Exploration, Wells, Projects) to leverage learnings and best practices
- We are also leveraging technology implementation (seismic acquisition and processing, wells, risers, materials, Subsea Equipment, etc)
- Leveraging Supply Chain
- And we are doing that while starting to develop local expertise and skills with the intent to be here long term
Shell has been highly successful in lowering costs and making many wells highlight resilient to lower prices (even in the deep-water). In your role, are you seeing standardization and digitalization impacting cost-efficient and operating success?
- Digitalisation provides huge opportunities in multiple areas of our business from exploration to production including safety
- We are spending significant efforts and budget on digitalization both internally and externally to take advantage of its potential
- Standardization will be a key tool in order to reduce costs, simplify and accelerate developments and make our operations safer. But there are other elements which will continue to play a role in keeping costs down like simplification, replication, portfolio high grading, leveraging global best practices and technologies, optimization of supply chain, phased developments, etc
Pablo Tejera Cuesta
Pablo is the General Manager – Upstream Development for Shell Mexico. He has 19 years experience with a major integrated oil company in Exploration and Production as well as an extensive track record of leading flagship project delivery including the management/integration of complex NTRs and commercial aspects. Read full bio