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Steve Hanson, a director of Tonalli Energía and president and CEO of one of its parent companies, Calgary-based, TSX-listed International Frontier Resources (IFR), says rising commodity prices coupled with low production costs make him optimistic of development opportunities at the company's Tecolutla block in Mexico, and in the country's energy sector as a whole.
BNamericas: Tonalli Energía this month received the drilling authorization permit at the onshore Tecolutla block in Mexico it was awarded in May 2016 folliowing the auction in December 2015, so the project appears to be moving forward.
Steve Hanson: We're one of the first onshore companies to receive our drilling license, and it's been a slower process and a learning process for us. It's not just for the oil and gas companies, but also for the various agencies and government departments.
There have been some challenges, but I would say that the hydrocarbons regulator [CNH] is working hard to move this along and I expect things to be streamlined in time, and our team has worked very hard to get this over the finish line. We're excited to get operational and are excited about the year ahead.
BNamericas: Many companies have said that leaping the regulatory hurdles has been slow, but that the auctions have been a success and there have been discoveries, so things are looking good.
Hanson: And commodity prices are looking good, so all in all there are a lot of positives to the energy reform, and the rise in prices is making Mexico one of the best energy opportunities in the world today.
BNamericas: Latin America is seen as leading the upstream recovery, according to a recent report by Wood Mackenzie, in terms of recovery of investment in E&P, and as an increasingly solid investment destination.
Hanson: We believe the assets in Mexico are very good. They are underdeveloped and in many cases the smaller and medium-sized fields haven't had investment over the last couple of decades, and that underdevelopment is a great opportunity for Mexican and foreign companies that can invest capital and develop new resources. I think there will be many more discoveries made, and I think we're going to see reserves increase and positive development, and we expect to be one of those companies, being very active and aggressive in developing our projects.
We continue to believe that the economics of Tecolutla are very good. The field has an oil pool that is larger in size than we originally anticipated. It has six pay zones, great pressure and it's conventional drilling, so it's perfect for a team like ours in partnership with our Mexican colleagues to advance this project.
BNamericas: Tecolutla also has the advantage of having existing infrastructure in place.
Hanson: It does. The funding and developing costs of a block like this are the lowest compared with other regions. Our operating costs should be under Cad$10/b, which is good for this price environment. It's flat, there's infrastructure, a highway, It's close to Poza Rica, which is a production hub. We expect to announce a timeframe for spudding the well soon.
BNamericas: How do you see the Nafta renegotiations shaping up? Canada has been very supportive of Mexico's proposal to include an energy chapter, for example.
Hanson: Canada and Mexico have a longstanding history of trade and a great relationship, and there are a number of bilateral agreements that the two countries have signed over and above Nafta. Texas has a very strong energy relationship with Mexico, with multiple pipelines being built, as Mexico is very much in need of cheap gas from the US, while US refineries need the Mexican market.
We don't see the Nafta discussions significantly affecting the energy sector. At the end of the day, Mexico has declining production and reserves and they need investment to move forward with their energy reform, and we believe that our number one customer for the oil we produce at Tecolutla will be Pemex, but we will also have the opportunity to market to other large agencies and countries around the world.
We have a global market for our commodity and we think there'll be great demand for it. We get a significantly higher price for our commodity in Mexico than we do in Canada, almost US$20 more, so Mexico is a great place to be working and we think there will be continued demand for the commodity.
About Steve Hanson
Steve Hanson is president of International Frontier Resources and a director of Tonalli Energia. He has served as president of PanAsian Petroleum, and as a director at Lion Petroleum, a company focused on East Africa, and has served on numerous other private and public company boards.
About the company
Tonalli Energia is a 50/50 joint venture between listed Canadian company International Frontier Resources and Mexican petrochemical firm Grupo Idesa.