As the largest operator in the shallow waters of the U.S. Gulf of Mexico (GoM), diving into water of similar depth in Mexican territory was a no-brainer for Fieldwood Energy.

Calling the country’s offshore opportunities a natural fit, Fieldwood Energy CEO Matt McCarroll told Hart Energy that Mexico presents a long-term opportunity. The Houston-based company, backed by private equity firm Riverstone Holdings LLC, officially entered Mexico on Jan. 7 when its Mexican subsidiary signed a production-sharing contract for Area 4, securing development rights for the Ichalkil and Pokoch fields which could hold up to 250 million barrels of oil.

But given today’s market conditions, McCarroll admits the company is in no rush to reach first oil.

Lower commodity prices, which are the result of high supplies and unmatched demand, continue to dent the profits of oil and gas companies worldwide. Just like its older peers, large and small, Fieldwood—which turns four years old in December—has reduced spending and pulled back on drilling activity. Yet, unlike most of the others, the company has managed not to lay off its employees, though offshore contractors laborers have been let go. The company employs more than 730 people.

As it copes with the present, Fieldwood is thinking long term and Mexico is in the picture.

During a Jan. 12 phone interview with Hart Energy, McCarroll shared his thoughts, which have been edited for length and clarity, on entering Mexico, the GoM’s future and the current downturn.

Hart: What attracted Fieldwood Energy to Mexico’s Area 4?

McCarroll: We felt like there were a lot of efficiencies and development tools that we use here that hadn’t been deployed by Pemex. We were interested in looking at the opportunities. We then met and formed a joint venture with partner PetroBal who are former Pemex executives, one of the largest Mexican conglomerates in the business. It was a great fit. We actually bid on three blocks in Call 2 of Round 1; we were only successful on contract Area 4. Area 4 was our favorite from the beginning.

Hart: How did you meet up with PetroBal? What expertise does PetroBal bring?

McCarroll: PetroBal is a subsidiary of a company called Grupo Bal, which is involved in mining and financial services, insurance and education. It’s the Baillères family. Petrobal is run by a gentleman named Carlos Morales, who was president of Pemex E&P for a number of years. His staff includes a number of former Pemex staff and executives so they know Mexican oil and gas as well as anyone. They drilled a lot of the wells around Area 4 and other areas that we’ve looked at. Carlos was actually at Pemex when the initial wells were drilled on this block, so he knows them very, very well, and has worked offshore Mexico for a long time. So it’s a great fit.

Hart: About how much oil and gas are the Ichalkil and Pokoch fields producing? If there is no current production, what is the potential for these fields?

McCarroll: They are not producing. Call 2, which is what we participated in and the bids were opened on Sept. 30, are called extraction blocks. These were five areas that had had exploration wells drilled that found hydrocarbons but never produced. We have wells on each of these two fields that were drilled somewhere in the last five to 10 years. They were tested successfully with hydrocarbons. So there are proved reserves. There’s never been any production. The fields were never developed, and there is no current infrastructure on these blocks. According to the Mexican government, there are 150 to 250 million barrels on the blocks.

Hart: What does the appraisal plan include for the fields, and when will appraisal work begin?

McCarroll: We signed our contract Jan. 7. We have 90 days to submit our appraisal program and have a two-year period, starting Jan. 7, 2016, to complete our appraisal program. But you can get a one-year extension if you ask for it. We currently have a minimum commitment of two wells during that appraisal plan. We haven’t submitted our appraisal plan yet. There might be a few more wells than two, but not many. We’ll start that work in late 2016, early 2017.

Hart: What subsurface challenges do you anticipate, if any, and how do you plan to address them?

McCarroll: The good news is successful wells were drilled on both of these blocks. We have both Crustaceous and Jurassic objectives on the blocks, and we’re talking about wells that are going to be subsurface depths of 15,000 to 17,000 feet. We’re only in water depth of about 100 feet. So operationally this is a very easy area to operate but we are drilling deep wells. These wells will take from 75 to 95 days to drill. The wells on the block have already been successfully tested, so we know there is oil there. So our goal in the appraisal plan is to figure out the most cost-efficient way to drill and complete these, and then determine how big of a development program we might need. We could see production in 2019 or 2020. Frankly, at these oil prices, we’re not in a hurry to achieve first production.

Hart: How is Fieldwood currently weathering the current downturn? What are some of the ways you are cutting costs?

McCarroll: We have cut back on capital spending, particularly in drilling. We’re not drilling any new wells currently. We have two rigs under contract that are doing well recompletion and workovers. We have a very good inventory of new drilling prospects, but it just doesn’t make sense to drill them at these oil and gas prices. We are very well hedged in 2016. We’ve got over 50% of our oil and about 70% of our gas for 2016 hedged at attractive prices so that helps a lot. And we’ve cut back a lot of operating costs. We haven’t done it just through asking our service providers to cut their costs by 20% or 30%. We’ve become more efficient. We’re using less people to operate offshore. We’ve consolidated transportation. It’s been across the board, focused on costs. [But] we haven’t had any layoffs for any of our employees, while we’ve reduced contract labor offshore. The takeaway from all of that is these are cost reductions that we will be able to sustain even when prices recover.

Hart: How do you see oil and gas activity, particularly the Gulf of Mexico, evolving for the industry in 2016?

McCarroll: I think it’s going to be very slow this year. I think there were eight rigs working in the shallow water this week and most of those were doing something other than drilling. I think it’s going to be very difficult. Our industry, especially in the Gulf of Mexico, can’t operate at sub $40 oil for very long. The only work that is getting done is work that absolutely has to be done. My big concern, amongst other things, is that the service providers that are in the Gulf of Mexico and the trained staff that we have from those service providers are going to lose their jobs and are not going to be around when things turn around.

When do you think things could turn around? Maybe by 2017? I hope so. I hope it’s somewhere in the next six to 24 months and hopefully closer to six. People ask me that all the time and my response is nobody predicted where we are a year ago so I don’t know how anyone’s prediction for where we will be a year from now is any more accurate. You hear people say you’ll see $70 oil by the end of year and you hear people say people say you’ll see $25 at the end of the year. That’s a big range. Unfortunately, I think the only thing that is really going to turn this around is a reduction in production volumes both domestically and internationally. And despite low prices, production just hasn’t fallen off as much as it needs to.

Velda Addison can be reached at vaddison@hartenergy.com.