Pilot Program in Mexico Classifies Oil and Gas Projects Using UN Framework
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A pilot project was initiated to classify oil and gas projects in Mexico using the United Nations Framework Classification (UNFC). The UNFC assists in identifying key social and environmental factors that could impede the movement of oil and gas volumes higher up the value chain. To the authors’ knowledge, this is a unique project with significant value-adding outcomes that can be replicated in other countries.
For proper assessment of discovered and undiscovered hydrocarbon volumes, Mexico adopted the Petroleum Resources Management System (PRMS) as its official classification framework. The country features a wide spectrum of cultures, indigenous identities, and social organizations, and in some cases, industry activities could represent a threat to these aspects of Mexican life. As an effect of the nation’s geographical location, a diversity of ecosystems exists, from deserts to regions rich in flora and fauna such as rainforests and wetlands. This reality emphasizes the need for robust legislation guaranteeing the protection of the environment.
The UNFC is a system for classifying resources including petroleum, minerals, and renewables. Quantities are classified on the basis of a 3D, three-axis system (Fig. 1). Each axis assesses different factors on the basis of three fundamental criteria: economic and social viability (E), field project status and feasibility (F), and geological knowledge (G), using a numerical coding system.
Categories and subcategories of each axis are the building blocks of the system and are combined in the form of classes. A class is defined by a combination of categories or subcategories sourced from each of the three criteria.
A classification made according to the UNFC will be expressed with a three-digit code providing the location of the project in the 3D system, starting with the E, then the F, and finally the G axis. Additionally, the three-digit code can be expressed in terms of categories (E1, F1, G1) which will be read as classes, as well as in terms of subcategories that are read as subclasses.
The three-digit code provides information on the maturity status of a project. When category level is used, projects can be classified as Commercial, Potentially Commercial, Noncommercial, Exploration, and Additional Quantities in Place associated with known and potential deposits. When the subcategory level is used, projects can be subclassified. The relationship between the PRMS and the UNFC can be explained better in terms of the linkage between the evaluation processes of the range of uncertainty and chance of commerciality in both systems. The PRMS categorizes the volumes to size the range of uncertainty present in the estimates, while the UNFC does the same through G-axis evaluation.
The link between the PRMS and the UNFC in terms of project maturity is more complex. On one hand, the PRMS evaluates according to the chance of commerciality of the project, while the UNFC uses evaluation of two axes, E and F, to define this point properly. The 2D relationship between these axes will define the level of commercial maturity established in the PRMS. The UNFC does not replace use of the PRMS but complements it.
Description of the Pilot Project
Phase 1: Forum and Workshop on UNFC. After its justification and funding, the pilot project comprised three phases. Phase 1 consisted of a forum and a workshop to outline the objectives and scope of the project. Different stakeholders within the industry participated in the forum, providing feedback about their experience. For the workshop, a multidisciplinary working group was formed with the goal of understanding the technical, economic, social, environmental, and regulatory conditions to classify projects using the UNFC and to apply the methodology in previously selected blocks. After the workshop, a better understanding of the methodology was achieved; thus, a new selection of blocks was needed because the initial one did not have defined associated projects.
Phase 2: Project Selection, Tools Generation, and UNFC Classification. From criteria provided in the complete paper, 19 blocks were selected. With this block selection, the National Hydrocarbons Commission (CNH) defined main types of projects in Mexico by analyzing activities in the plans for each block and the status of regulatory approvals, considering the evaluation of the entire geologic column in each block.
To identify projects within the selected blocks, the CNH analyzed exploration, appraisal, and development plans for each block. The review included the committed activities (base scenario) and incremental activities (incremental scenario) within each plan so that the volumes associated with these activities could be differentiated given their different level of maturity and certainty. Likewise, conventional-resources-potential and unconventional-resources-potential estimates were considered as other types of projects. On the basis of these considerations, 75 projects were identified, and nine project groupings with similar project attributes were identified.
As part of the evaluation and classification of the 75 projects per the UNFC system, two tools were created: a matrix to assess the socioeconomic, environmental, and legal viability considered on the E axis and a flow diagram (gate process) to define the project feasibility assessed in the F axis. The matrix created for the evaluation of the E axis considers the Mexican legislative and regulatory framework, as well as the socio-organizational and environmental factors. The assessment of these variables was performed with a multivariate geospatial analysis, allowing the identification of the spatial distribution of the quantitative and qualitative variables. For economic factors, the indicators considered were the net present value and the internal rate of return.
The matrix has three levels of viability for the development of the projects: high or most likely, best or likely, and low or unlikely. The final evaluation assumed that all factors considered are crosslinked and equally important for determining project viability.
The second tool is a flow diagram, presented in the complete paper, created for the evaluation of the F axis; it is based on the regulation issued by the CNH for approval of plans. However, it was adjusted appropriately with the definitions of categories and subcategories of the UNFC. The flow diagram consists of binary responses (yes or no) and a gate typology that allows a direct categorization on the F axis for projects ranging from those with high commercial uncertainty to those with established commerciality. The projects were classified by applying the UNFC system with key differentiating components related to project feasibility (F axis) and social or environmental issues (E axis), such as the social license to operate. One key advantage of the UNFC is that the E axis is directly linked to the social and environmental aspects present in areas related to oil and gas projects.
Phase 3: Report Generation. On the basis of the analysis of each project, several of the UNFC classes and subclasses were evaluated. Considering that the evaluation of the projects was also performed at the subclass level to add granularity to the classification, and using the bridging document between the PRMS and the UNFC, the linkage between project subclassification according to both systems was achieved.
Because the UNFC works as a 3D system, a table to present the results was created to display the E/F classification with their associated volumes (G axis), obtaining the complete visualization of the classification results. Results demonstrated that the UNFC and the PRMS are complementary systems. Proof of this was visualized in some projects that featured different levels of maturity according to the UNFC from those seen in a PRMS assessment. This is the result of the fact that the UNFC offers more granularity and provides more weight to social and environmental aspects than the PRMS. However, a UNFC assessment requires the range in resource volumes estimation and categorization that the PRMS can provide for the G axis.
- The use of the UNFC system required a multidisciplinary, interdisciplinary, and interinstitutional approach.
- The pilot project entailed capturing considerations of aspects other than purely technical ones and enabled the identification of probable barriers or obstacles to moving the project to higher levels of maturity.
- The holistic approach used indicates an integrated use of both the UNFC (for the E and F axes) and the PRMS (for the G axis), suggesting the complementary nature of the systems.
- The tools created for evaluation of the E and F axes enabled the identification of social, environmental, and legal factors and their relationships that could influence directly and indirectly the development of oil and gas projects.
- The tools developed in the pilot project and their demonstrated application may provide useful material guidance for entities in other countries to use and implement the UNFC according to specific needs.
Pilot Program in Mexico Classifies Oil and Gas Projects Using UN Framework
01 August 2020
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