2016
“Round One in general has been extremely successful, and it sends the message that Mexico is truly a ripe environment for investment” Edgar René Rangel Germán, Former Commissioner of CNH
Mexico is on its way to becoming one of the world’s most attractive upstream investment destinations as a result of the opening of the hydrocarbons market through the Energy Reform approved in 2013. Over the past year, the first three phases of Round One have overseen the allocation of 30 contractual areas, welcoming into the market many foreign players in addition to detonating a national onshore oil industry, a success achieved despite the low oil prices. At the same time, PEMEX has been transforming its structure and strategy to adjust to both of these new situations, undergoing everything from a change in Director General to a budget cut, all in the context of becoming a productive enterprise of the state.
As the Mexican oil and gas industry changes, PEMEX, private operators, suppliers, and service providers find themselves at a turning point, where success will depend on their ability to adapt to the workings and needs of an entirely new market, which is still being defined today. Mexico Oil & Gas Review 2016 provides readers with a in-depth understanding of the new industry settings, which are key to succeeding in the new environment and leveraging the multitude of emerging opportunities. The topics presented in this year’s edition are those that matter most to the key stakeholders driving the evolution of the industry from a political, regulatory, business, and technological perspective, making Mexico Oil & Gas Review 2016 not only an essential read, but also the ultimate industry reference.
ALL RIGHTS RESERVED Š Toguna, S. de R.L. de C.V., 2016. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Toguna S.A. de C.V. Mexico Oil & Gas Review is a registered trademark. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
ISBN: 978-0-9968026-2-8
TABLE OF CONTENTS
1
STATE OF THE INDUSTRY
8
ONSHORE & UNCONVENTIONAL RESOURCES
2
ROUND ONE
9
INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE
3
EXPLORATION
4
DRILLING & WELL SERVICES
5
DEVELOPMENT & PRODUCTION
12
REFINING & PETROCHEMICALS
6
SHALLOW WATER
13
DOING BUSINESS & HUMAN CAPITAL
7
DEEPWATER
14
FUTURE OUTLOOK
10 11
TECHNOLOGY & NATIONAL CONTENT
NATURAL GAS & PIPELINES
1
STATE OF THE INDUSTRY
The past year marked the beginning of a new era for the Mexican oil and gas industry, initiated by the first licensing round that allowed private operators to enter Mexico. Over the course of the past twelve months, three licensing rounds have been completed, attracting the private investment, expertise, and technology that Mexico needs to reverse its 13-year decline in oil production. While administrating Round One, CNH has transformed itself into an effective industry regulator, creating a strong foundation for the countless challenges it is destined to face in the coming years. PEMEX has found itself in a perfect storm of low oil prices, a new operating framework, and the organizational transformation to become a productive enterprise of the state. After a change in leadership, the restructured national oil company is gearing up to play a central role in the competitive market that has been created through the Energy Reform.
This chapter presents analysis of the events, strategies, and ambitions that defined the development of the Mexican oil and gas industry through the eyes of Mexico’s political leaders, regulators, and industry executives. Collectively, these diverse perspectives offer a comprehensive insight into where the Mexican industry stands today, and where it will be heading in the months and years ahead.
5
| CHAPTER 1: STATE OF THE INDUSTRY 8
VIEW FROM THE TOP: Pedro Joaquín Coldwell, Minister of Energy
10
ANALYSIS: The Year in Review
13
IN MEMORIAM: Edgar Rangel Germán
15
VIEW FROM THE TOP: Edgar Rangel Germán, CNH
16
VIEW FROM THE TOP: Nestor Martínez, CNH
18
VIEW FROM THE TOP: Guillermo García Alcocer, Ministry of Energy
19
EXPERT INSIGHT: Pablo Medina, Wood Mackenzie
20
INSIGHT: Óscar González, ARHIP
21 INSIGHT: Mauricio Herrera Madariaga, Mexican Petroleum Fund 22
VIEW FROM THE TOP: Salvador Ugalde, Ministry of Finance
24
VIEW FROM THE TOP: José Antonio González Anaya, PEMEX
26
VIEW FROM THE TOP: Juan Pablo Newman, PEMEX
27
ANALYSIS: A Closer Look at PEMEX's 2015 Financial Performance
30
VIEW FROM THE TOP: David Enríquez, Goodrich, Riquelme y Asociados
31
ANALYSIS: Update of the Pension Scheme
32
VIEW FROM THE TOP: Gustavo Hernández, PEMEX E&P
35
VIEW FROM THE TOP: Raymundo Piñones, AMEXHI
37
VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico
38
VIEW FROM THE TOP: Ernesto Marcos Giacoman, AMESPAC
40
VIEW FROM THE TOP: Wallace Pescarini, Schlumberger
42
EXPERT OPINION: Tim Samples, University of Georgia
43
VIEW FROM THE TOP: Jesús Rodríguez Dávalos, Rodríguez Dávalos Abogados
7
| VIEW FROM THE TOP
A FRAMEWORK THAT ENDURES TURBULENT TIMES PEDRO JOAQUÍN COLDWELL Ministry of Energy
8
Q: What is the short and medium-term impact of the drop
satisfied with the results. Even during the current national
of the oil price on Mexico’s energy policy decision-making
and international oil market volatility, many national and
at this time, and how will this impact the implementation
foreign companies, alone or in partnerships, have shown
of the Energy Reform?
interest and have participated in the bidding proceedings,
A: While this new price scenario represents a challenge
confirming that blocks and fields offered in Mexico are
for Mexico, it should be noted that the Energy Reform has
attractive and competitive. As a result of these process, so
granted the country new tools and mechanisms to adapt
far we have awarded 30 contracts to 30 companies from
to the current circumstances and also take advantage
seven countries, including 20 Mexican players. The winning
of what these conditions present throughout the entire
proposals guarantee excellent conditions for Mexico, with
energy value chain. As a result of Energy Reform, Mexico
high profit margins above 70%.
has taken some important steps toward positioning itself as one of the most attractive countries to invest in exploration
Q: Which steps must be taken to ensure that PEMEX
and production activities. There are companies capable of
successfully
takings risks even in these economic conditions. Currently,
productive enterprise of the state that has the financial
these companies have significant financial strength and
and human resource needed to optimize value creation?
are the ones we are looking to attract with Mexico’s
A:
exploration and production bidding rounds. The most
accelerating its transformation to take better advantage
important thing for companies in this situation is to have a
of the opportunities brought by the Energy Reform, taking
solid institutional and regulatory framework, transparency,
environmental sustainability into account, and at the same
and contractual conditions that can provide legal certainty
time, achieving financial and production improvements
to investors in the long term. There are also attractive
during an international dip in oil prices. Efficiency and
business opportunities in other hydrocarbon areas, such
profitability are a priority in all the procedures in order to
as the transportation and storage of natural gas, pipeline
achieve international competitiveness. Therefore, PEMEX
construction, industrial transformation, and importation
is adjusting its cost structure, looking into its expenses
and commercialization of fuels, among others.
program, and strengthening its investment procedures
PEMEX
completes
is
facing
its
two
transformation
fundamental
into
a
challenges:
according to the new schemes of association and private The fall in oil prices requires us to make moderate
sector investment brought about by the Energy Reform.
adjustments to ensure public finances remain strong, but it also presents us with an opportunity to make this juncture
Q: What are the respective roles that PEMEX and private
a catalyst for the full implementation of our Energy Reform
operators should play in Mexico’s oil and gas industry?
and a new age for PEMEX as a more efficient productive
A: Mexico’s Energy Reform established a whole new legal
enterprise of the state.
and institutional framework, setting the basis for the development of open and competitive markets throughout
Q: What is your assessment of the success of Round
the energy sector. In the hydrocarbons sector, companies
One to date, and what are the main lessons learned and
can participate in upstream activities through competitive
actions taken to continuously improve the framework for
bidding rounds or in partnerships with PEMEX. In the natural
Mexico’s licensing rounds?
gas sector, companies can participate in the expansion of
A: The three tenders of Round One have been recognized
the natural gas network through competitive processes for
by experts around the world, as these have relied on the
the development of strategic or social interest pipelines,
highest transparency standards. These proceedings were
as well as participating in the development of merchant
public, transparent, open to national and international
pipelines at their own cost and risk when they deem supply
participation, and streamed live. We are thoroughly
and demand conditions favorable. As for the midstream
and downstream sectors, companies can participate in
in case the recommendations favor the establishment of
industrial transformation activities, transportation and
fair, competitive platforms. Some companies have emitted
storage, and commercialization and retail activities by
comments about R1-L04 which are being considered.
obtaining the corresponding permits. In terms of access
The Mexican government is committed to providing new
to infrastructure, it is worth highlighting that the new legal
and existing companies with competitive investment
framework establishes open access principles and the use
opportunities while guaranteeing maximum operational
of competitive service fees, established by the CRE.
standards and public safety.
The Mexican Energy Reform started from the premise that
Q: What should be the respective contributions of PEMEX,
it was essential to introduce competition and specialized
PEMEX farm-outs, COPS & CIEPS, and private operators
operators. This competitive environment will allow Mexico
toward achieving Mexico’s future production targets?
to attract the capital and specialized technology required
A: Mexico’s Energy Reform addresses, among other issues,
to boost upstream activities, as well as the development
the fact that after decade of continuous investment in
of much needed infrastructure and the provision of high-
E&P, oil and gas production continued to decline. Mexico’s
quality energy services. In this scenario, PEMEX, as a state-
new energy model allows for the participation of private
owned enterprise with the mission of creating value for
companies as well as PEMEX, now as a productive enterprise
Mexico, must focus on its key strengths to play a strategic
of the state, individually or in partnership with third parties,
role in the development of the new Mexican energy
in this strategic area. Through Round Zero, PEMEX was
industry.
granted 83% of Mexico’s 2P reserves and 21% of the nation’s prospective resources. Therefore, the company’s activities
Q: How is the Ministry of Energy optimizing the
will be the key to stabilizing and eventually increasing our
competitiveness of Mexico’s upcoming deepwater round
current oil and gas production levels. PEMEX will have to
in terms of resource availability, fiscal regime, operating
optimize its operations in order to maximize productivity
environment, and long-term investment protection?
in different locations and multiple types of fields. The
A: The Energy Reform set clear rules and proceedings
Energy Reform has granted PEMEX new tools, such as the
for the contract design and award process. It also
farm-outs, that will allow the company to build strategic
strengthened
established
partnerships. We see farm-outs as an excellent opportunity
clear interaction mechanisms, and accountability and
for PEMEX to access fresh capital and state-of-the-art
transparency standards throughout the process. The
technology as the company moves into frontier fields to
Ministry of Energy leads the design of the contracts,
address its productivity challenges. CIEPS and COPS can
establishing terms and conditions aimed at attractive top
also contribute to boosting the company’s productivity, but
companies for the development of deepwater fields. We
these are limited in number while farm-outs have a much
want to ensure that we are providing the most accurate
greater potential to bring the production numbers back
available data for companies to make the right decision,
up. The company must also enhance its own performance,
and also that companies can operate under the best
particularly in strategic fields.
the
regulatory
bodies,
operational and environmental standards. We also expect this bid to accelerate the technology transfer process
Private operators can choose between participating
while establishing national content requirements that the
individually, partnering up with PEMEX, or working in
Ministry of Economy will keep track of.
partnership with other companies in the bidding rounds organized by the state. So far, we have completed
Q: How is the dialogue between the Ministry of Energy and
Mexico’s first three E&P bidding rounds with positive
potential deepwater operators shaping the conditions of
results in terms of allocations, contract design, and
R1-L04?
transparency. In December 2016, we will complete the
A: To ensure the best possible long-term conditions
much anticipated fourth bidding round for exploration
for both the Mexican state and companies, we have
and production in deepwater blocks. We are also moving
maintained a constant dialogue with several industry
forward in the planning of the upcoming bidding rounds
associations through established mechanisms, enabling us
and have issued a Five Year E&P Plan outlining our plans
to offer flexible contractual conditions that are consistent
up to 2029. It is worth mentioning that different types of
with international best practice. Our objective is to design
projects will yield first oil at different times. In the mid and
and award competitive and sustainable contracts that are
long term, shallow water and deepwater resources will
attractive to the industry, but also aligned with Mexico’s
incorporate more barrels. We are working in the design
best interest in the longer term. Companies can provide
of upcoming bidding rounds, taking into account this
feedback through the Round One website. This information
difference in time and the conditions each field demands
is reviewed on a regular basis, discussed and incorporated
for its optimal productivity.
9
| ANALYSIS
THE YEAR IN REVIEW
10
The year 2015 marked a historic change in Mexico’s oil and
natural decline in Cantarell’s production, as well as an
gas industry, with the awarding of the first blocks in the
increase in the fractional water flow of its wells, led to an
newly open market. R1-L01, which tendered shallow water
8.9% drop in heavy crude production. Secondly, the country
exploration blocks, took place on 15 July 2015 and oversaw
experienced a 7.5% decrease in the production of extra-
the allocation of two out of 14 blocks. The two following
light crude as a result of an increase in the fractional water
bidding rounds, which respectively concerned shallow
flow at the Pijije, Sen, and Terra fields in the Samaria-Luna
water production blocks and onshore production blocks,
business unit, as well as a natural decline in production
each experienced an increase in the award rate, eventually
in the fields of the Bellota-Jujo and Macuspana-Muspac
reaching 100% for R1-L03. Not only was 2015 marked by
projects. Finally, the production of light crude oil was hit by
the opening of the country’s hydrocarbons market, but
a 3% drop due to delays in production that occurred as a
also by record-low oil prices. The year started with the
result of the Abkatún Alfa platform explosion in April 2015.
WTI crude oil spot price at US$52.69 and continued falling
In general, fields in Bellota-Jujo, Cantarell, and Litoral de
until February, when it hit a low of US$29.44/b, while the
Tabasco, as well as the Samaria field, experienced a natural
Mexican Mix, trading at a discount compared with WTI,
decline in production. The decrease in crude production
dropped below US$20 in early 2016. WTI has been crawling
was partially offset by a 36.6% increase in production
back up since then, with the Mexican Mix following this
at the Onel and Chuhuk fields of the Abkatún-Pol-Chuc
upward trajectory, reaching US$45.22/b at the end of April.
asset, the Tsimin, Xux, and Xanab, fields in the Litoral de
Although the industry does not expect to see it return to
Tabasco asset, the Kambesha field in Cantarell, and the
US$90-100/b, it does have its hopes set on US$50/b in the
Homol field in Abkatún-Pol-Chuc.
medium term. Throughout this period, Mexico has proved to remain an attractive investment destination, although
During the first quarter of 2016, total crude oil production
companies have been forced to rethink their strategy and
averaged 2.230 million b/d, a 3% decrease compared
priorities, with PEMEX being no exception.
to the same period in 2015. The variation was caused by a 4.1% decrease in heavy crude output resulting
In addition to a budget cut of US$5.52 billion, which
from a natural decline in production and an increase
represents 20.9% of the company’s 2016 budget, PEMEX
in the fractional water flow of wells in highly fractured
also announced a change in Director General. José Antonio
reservoirs in Cantarell. When excluding this field, heavy
González Anaya, former Director of IMSS, will be in charge
oil production remained stable based on the 850,000b/d
of deploying a sustainable strategy in order to strengthen
produced from Ku-Maloob-Zaap. Light oil production
the NOC’s financial position and help it reach its potential.
experienced a 4.5% decrease due a decline in the Tsimín field off the coast of Tabasco and in Ixtal in the Abkatún-
CRUDE OIL PRODUCTION
Pol-Chuc unit. Additionally, the Abkatún Alfa 2 incident
Crude oil production for 2015 totaled 2.267 million b/d,
led to production deferrals. This decrease was partially
which is 162,000b/d or 6.7% less than in 2014. Several
offset by a 42% increase in light crude oil production at
factors contributed to this production drop. Firstly, the
the Xanab, Chuhuk, and Onel fields. These fields reached
CRUDE b/d) (thousand b/d) CRUDEOIL OILPRODUCTION PRODUCTION(thousand PERFORMANCE 2,500
2,300
2,225
2,266
2,277
2,230
11.7%
12.5%
12.8%
12.9%
32.7%
35.8%
37%
37.4%
37.1%
50.6%
52.5%
50.4%
49.8%
50%
1Q15
2Q15
3Q15
4Q15
1Q16
11.8%
2,000 1,500 1,000 500 0
Extra-light extra-light
Source: PEMEX Source: PEMEX
Light
light
Heavy
heavy
78% offshore 78% offshore 22% onshore 22% onshore
an average production of 202,000b/d by the end of the
Mexican crude oil basket was at US$25.85/b in the first
first quarter of 2016. Production in the Xux field, which
quarter of 2016, a decrease from the US$45.38/b seen in
began production in June 2014, also helped offset the
same period in 2015.
production decline, contributing 63,000b/d.
CRUDE PROCESSING EXPLORATION Exploration
Crude oil processing totaled 1.06 million b/d in 2015, a 7.8%
activities
in
PEMEX
led
to
discoveries
decrease compared to 2014, due to scheduled maintenance
amounting to 1.1 billion boe during 2015. However, the low
and non-scheduled operations, as well as overhaul works.
oil price had a negative impact on deepwater resources
Operational issues resulting from the quality of the oil
due to their development costs. Approximately 400
supplied at the end of 2014 also contributed to the annual
million boe in deepwater resources were reclassified as
decrease. During the first quarter of 2016, total crude oil
contingent resources. On the bright side, the company
processing increased by 2.3%, amounting to 1.08mbd, due
drilled 30 exploration wells in 2015 with a 45% success
to an increase in light crude oil processing. The ratio of
rate. PEMEX’s work in shallow waters led to the discovery
heavy crude oil to total crude oil processed by the National
of six fields, which amount to 650 million boe. Some of the
Refining System decreased by 3.6 percentage points.
fields discovered in 2015 include Xikin-1, Batsil-1, Esah-1,
However, the ratio increased by 4.8 percentage points at
and Cheek-1 in shallow waters, which are estimated to have
the three revamped refineries, Minatitlán, Cadereyta, and
combined reserves of 350 million boe, while Cratos Hem
Madero, as part of an effort to take advantage of highly
were discovered in deepwaters. In January 1, 2015, Mexico’s
specialized equipment to convert residuals and maximize
1P reserves stood at 9.711 billion barrels of oil, 15.290tcf of
the output of middle distillates.
gas, and 13.017 billion boe. These figures decreased during the year, and on January 1, 2016, the country’s 1P reserves
NATURAL GAS PRODUCTION
were 7.640 billion barrels of oil, 12.651tcf of gas, and 10.242
Throughout 2015, the production of natural gas dropped by
billion boe.
2%, totaling 6.40mcf/d, mainly as a result of an 8% reduction in non-associated gas production due to scheduled
CRUDE OIL EXPORTS
reductions in drilling activities and in the completion
The volume of crude oil exports increased from 1.142
of wells in the Veracruz and Burgos business units. The
million b/d in 2014 to 1.172 million b/d in 2015, representing
latter decreased natural gas production in those areas by
an increase of 2.6%. Although the volume of export of
approximately 7.6%. The southern region experienced a
light oil decreased, Olmeca and Isthmus, both heavy
13.4% drop in production. As a portion of total production
crudes, saw respective increases in their export volumes
during 2015, associated gas production represented 75%.
of 36.2% and 45.1%. The latter two are PEMEX’s priciest
The production of associated gas remained relatively stable
crude exports, with values of US$51.36/b and US$48.78/b.
between 2014 and 2015, with respective production of
In the first quarter of 2016, revenues from crude oil exports
4.81mcf/d and 4.82mcf/d. Natural gas production decreased
totaled MX$69 billion, representing a 35% or MX$37 billion
by 10.1% during the first quarter of 2016, amounting to
decrease. The drop in total export sales was driven by
5.17bcf/d. This was due to a decrease in associated gas
low oil prices and a 28% reduction in export volumes. The
production caused by the natural decline in production of
NATURALGAS GASPRODUCTION PRODUCTION(million PERFORMANCE (MMcfd) NATURAL cf/d) 6,000 5,000
5,753 30.2%
5,399 29.8%
5,501 27.3%
5,369
5,174
27.1%
27.3%
72.7%
72.9%
72.7%
3Q15
4Q15
1Q16
4,000 3,000 2,000
69.8%
70.2%
1,000 0
1Q15
2Q15
Non-Associated non-associated
Source: PEMEX 1 Does not include nitrogen Source: PEMEX
Associated associated
54% onshore 54% onshore 46% offshore 46% offshore
11
crude oil and closing of wells with higher gas-oil ratios at the
production inputs due to preventive maintenance works at
Akal field in Cantarell. Production referrals in Abkatún-Pol-
the continuous catalytic regeneration plant in the Cangerjera
Chuc also had a toll in natural gas output levels. In addition,
complex. The ultra-low sulfur diesel and gasoline plants in
a natural decline in production in Burgos and Veracruz
the Cadereyta and Madero refineries strated operations in
negatively impacted non-associated gas production.
2015. Total petroleum products output decreased by 1.3% in the first quarter of 2016 compared the same period of 2015,
NATURAL GAS PROCESSING
which is explained by a decrease in production of natural gas
In 2015, natural gas processing decreased by 6.2% as
and thus lower LPG availability.
compared to the previous year. This reduction is attributed to a decreased availability of sweet and sour gas from the
PETROCHEMICALS PRODUCTION
offshore and southern region resulting from the Abktatún
The production of petrochemicals amounted to 4.5 million
incident in April 2015 and a natural decline in the output
tonnes in 2015, decreasing 14% compared to the 5.25
from mature fields. Dry gas production decreased by 6.7%,
million tonnes produced in 2014. This is explained by lower
242mcf/d, while natural gas liquids production decreased
availability of raw materials due to maintenance and overhaul
by 9.8%. The production of condensates experienced a
works in the Morelos ethylene plant and the Nohoch-
7.1% decrease explained by a reduction in the supply of
Ciudad PEMEX-Nuevo PEMEX sour gas transportation
sweet condensates in Burgos and sour condensates in
system. During the first quarter of 2016, the production of
the southern region. In the first quarter of 2016, natural
petrochemicals decreased by 9.2% compared to the same
gas processing saw a 10.5% decrease to 3.8bcf/d as a
period of 2015. Additionally, ethane supply was reduced and
consequence of the decreased availability of sour and
initial operations in Etileno XXI had a negative impact in the
sweet gas from the Burgos onshore and offshore assets.
production of high-density polyethylene and ethylene oxide.
This also led to a 9.5% decrease in the production of
The decrease in production of petrochemical products was
dry gas and a 12.3% decrease in the case of natural gas
partially offset by a 79,000-tonne output increase in the
liquid. The insufficient supply of sweet gas condensates
aromatics and derivatives chain due to an increment in the
from Burgos also affected the processing of condensates,
production of high octane hydrocarbons resulting from
which saw a 5.6% reduction during the first quarter of
higher demand from the Minatitlán refinery.
2016, as compared to the same period of 2015.
PEMEX FINANCIAL PERFORMANCE PETROLEUM PRODUCTS
PEMEX has taken important structural measures to adapt
The total production of petroleum products decreased by
its financial strategy and operational priorities to the
8.8% in 2015 compared to 2014, mainly due to non-scheduled
current price environment, planning its budget based on
maintenance and inspection operations, operational issues
a US$25/b oil price. In addition to the February 6, 2016,
resulting from the quality of the oil supplied in the last
budget cut of US$5.6 billion, PEMEX will also benefit from
quarter of 2014, and a decrease in the supply of gasoline
the Federal Government Support Plan, which includes a cash flow injection of US$4 billion and a Fiscal Regime Improvement representing US$2.8 billion in permanent
PEMEX TOTAL REVENUES (US$ billion) TOTAL REVENUES (US$ BILLION) 150 120 83.5 0.4
52.6
55.2
45.7
55.3
55.7
66.6
billion as compared to a net loss of US$15.4 billion in 2014. 107.8 0.8
42.8
69.6
BUDGET ADJUSTMENT ADJUSTMENT PLAN PLAN (MX$ (MX$ billion) billion) BUDGET 81.5 1.0
500
29.2
400 300
64.2
51.3
Exports salesDomestic domestic sales exports Source: PEMEX Source: PEMEX
LTM 3Q15
2014
2013
Services services revenuesTotal Revenues
478.3 100
Adjustment Plan
329.1 100
200 100
2012
0
123.0 0.8
tax relief. In 2015, PEMEX recorded a net loss of US$30.3
37.4
2010
30
126.6 0.6
59.4 48.0
60
111.4 0.4
2011
90
103.8 0.4
2009
12
378.3 229.1
0 (149)
-100 -200
Income from operations
Source: PEMEX Source: PEMEX
Allocated expenses
Financial balance
| IN MEMORIAM
EDGAR RENÉ RANGEL GERMÁN
13
Q: Why was CNH established, and which role did you play
acted as the president of the board of PEMEX. This helped
in the process?
in training us how to establish regulations, how to avoid
A: The National Hydrocarbons Commission (CNH) started as
overregulation or abuse, and how to comply with certain
a sort of back office of the Ministry of Energy, let us call it CNH
rules. CNH 2.0, which exists since December 2013, is the real
beta, and I wrote the first charter of this commission in 2005
one, the independent, autonomous, technical agency.
under the title Consejo Tecnico de Producción y Extracción de Hirocarburos, which was one of my first assignments at
Since I had been working on the creation of CNH for
the Ministry of Energy. The idea was to strengthen the Energy
many years, I wanted to be a Commissioner. The first
Regulatory Commission (CRE) and create a new regulatory
regulation that we issued focused on gas flaring, followed
agency for upstream to participate in strategic parts of
by project sanctioning. We were very few, with only five
the 2008 Energy Reforms such as the opening of refining,
Commissioners and a staff of five people, and we were
deepwater, and transborder fields. At that time, Francisco
growing very slowly because we were part of the Ministry
Salazar was President of CRE, and he provided a great deal
of Energy. After we had our first meeting, we received
of support in working with the legislative powers. Having
correspondence from various organizations, including
been involved since its inception, I feel like the godfather of
the Senate and PEMEX board members to request advice
this organization and am very proud that it is now maturing.
on topics ranging from Chicontepec and deepwater to PEMEX’s exploratory strategy. We started creating
The first real manifestation of CNH, CNH 1.0, emerged
documents that were very uncomfortable, which is why
following the 2008 Energy Reform. In my humble opinion
we were constrained since it became apparent that if we
with respect to other ideas, the creation of CNH was the only
were given more money and more people we would be
aspect of the 2008 Energy Reform that created real value
reporting on more problems. Nowadays, the situation is
for the country. Initially, CNH’s operations consisted of a type
very different, and we are a different entity. We are creating
of simulation, with CNH regulating PEMEX, both of us being
important units dedicated to exploration, extraction, the
part of the Federal Government and reporting to the Ministry
administration of entitlements and contracts, and the
of Energy, while the Ministry of Energy simultaneously
National Center of Hydrocarbons Information (CNIH).
Dr. Edgar René Rangel Germán passed away on March 23, 2016, leaving an impressive legacy in the country’s energy sector in the short time that he was given. Before graduating with a Ph.D. in Petroleum Engineering from Stanford University, he became the only student to score a perfect 10 in UNAM’s Petroleum Engineering program. After returning to Mexico, Dr. Edgar René Rangel Germán subsequently worked at PEMEX, the Ministry of Energy, and the Ministry of Finance and Public Credit before becoming a Founding Commissioner of CNH. He took great pride in being its second employee, and was an exceptional ambassador of the Energy Reform, as well as the CNH’s technical center of gravity. His passionate contribution to the development of the Mexican oil and gas industry was greater than the recognition he received, and his legacy is destined to transform the country he loved.
ONSITE, AROUND THE WORLD, DAILY COLLABORATION WITH OUR CUSTOMERS SOLVES COMPLEX CHALLENGES IN EVERY PHASE OF THE PRODUCTION LIFE CYCLE. FROM PLANNING IN PRE-FEED THROUGH RISK MANAGEMENT IN THE FACE OF DECLINING PRODUCTION, WE APPLY UNPARALLELED GLOBAL REACH, AN EXTENSIVE PORTFOLIO AND DEEP EXPERIENCE TO OPTIMIZE YOUR OPERATIONS — SAFELY AND EFFICIENTLY. THANK YOU FOR YOUR CONTINUED TRUST AND PARTNERSHIP.
nalcochampion.com
| VIEW FROM THE TOP
THE CHALLENGE OF CREATING A WORLD-CLASS REGULATOR IN RECORD TIME EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH
15
Q: What are the main challenges facing CNH today?
Q: How would you ensure that, in the case of a conflict
A: One of our main challenges today is hiring the best
with a foreign company, the participation of a foreign CNH
people because it is difficult to find excellent people who
representative would not create a conflict of interest?
are willing to work as tough regulators, while salaries
A: We have considered this issue, and we realize that
are not fantastic. It is difficult to find committed people
we need to find a balance between internal employees,
who are willing to sacrifice future prospects of working
consultants,
in PEMEX and accept a cut in salary compared to private
companies. Ultimately, board members must be highly
sector standards. It seems to me that we are leaving the
qualified, as there is a mandate to serve the needs of the
technical part of operations and are moving more toward
country. There is no objection to recruiting board members
an administrative office, in which we receive and approve
from other parts of the world, as long as assurances are
wells, exploration plans, and development plans. This is
made that potential conflicts of interest will not arise. We
some of the risk that I see today, and this might bite us
also must place emphasis on training in order to create
eventually as we move forward. There are 20 operators
experts.
and
outsourcing
through
independent
right now, but by the end of this administration, we will have between 30 and 40 operators in the country. Until
Q: What are the main constraints that prevent CNH from
now, we have only seen the nice, kind, gentle face of these
functioning optimally?
companies that want to invest in Mexico. Due to probability
A: The technical strength is a point of concern, and
alone, we will be facing problems or disagreements with two
there is a risk that CNH may become an administrative
or three if we are working with over 30, PEMEX included.
body, a rubber stamper, due to lack of understanding
Without the technical and legal strength when confronted
of the technical details that we may face or due to tight
by the ugly face of an operator for the first time, then CNH
deadlines. This is holding us back from being an optimal
may not be in a position to contend with these players.
organization. Ultra-deepwater is an example of more
For instance, in the event of a deepwater discussion with
technical and advanced problems that we may not be
billions of dollars at stake, these big operators are not going
able to optimally address. In terms of processes, we have
to bring two lawyers, they are going to bring the entire legal
learned a lot from our membership of entities such as the
department to ensure that they win, as they do all over the
International Regulators Forum, and we have specialized
world. We have to plan to face these kinds of problems.
staff that are well-versed in the protocols.
Q: How are you able to plan for such situations, given that
We have not yet received all relevant information that
you cannot build the world’s best legal team in-house?
PEMEX is supposed to transfer as part of the Energy
A: First of all, we have to plan how we are going to grow,
Reform, we do not have the necessary technical capability
define what capabilities will be most relevant, and gauge
in terms of people, and we have neither the hardware
whether we have the required talent in Mexico. For instance,
nor the software required. When requesting information
there are very few experts in E&P contracts in Mexico,
from the National Center of Hydrocarbons Information,
because this was not necessary in the country. When PEMEX
sometimes the response is that this information is not
began to oversee the CEIPs, only a small department was
available and the request is placed in a queue that can take
required and small contracts were tendered. However, there
months. This lack of access to information is a weakness
are Mexican people who have been carrying out this kind of
of the agency. At the moment we have to still request
work in other parts of the world, and there is no requirement
information from PEMEX to prepare the data rooms on a
to hire exclusively Mexicans. We need to develop a human
case by case basis. This is not the way this should be done
resources strategy that allows us to hire experts from around
and we should have access to all the information to create
the world.
a strong position for the Mexican state.
| VIEW FROM THE TOP
MAXIMIZING VALUE FOR THE MEXICAN ECONOMY NESTOR MARTÍNEZ Commissioner of CNH
16
Q: What is the most effective way in which the State can
strategies. This means that each field must have a plan for
maximize the value created from hydrocarbon reserves?
optimal production that allows the hydrocarbons’ potential
A: Hydrocarbon reserves have to be managed in a way
to maximize revenues in the long term. Poorly planned
that creates prosperity for the Mexican people, and there
hydrocarbon exploitation can generate losses in the future.
are several mechanisms to make this happen. Firstly, local content has to be used to its full extent, and the law
Q: How can the hydrocarbons sector create direct value
clearly states minimum percentages. Therefore, a natural
for the Mexican economy?
progression would be for Mexico to create goods that
A: The hydrocarbons sector plays a crucial part in tax
are internationally competitive so that operators will use
collection, so the sector’s growth will create jobs and foster
Mexican equipment, materials, and employees, generating
employment synergies because taxes are used to pay for
wealth and jobs for the country. The requirements are
health and other services that also create jobs, industries,
adequate given the sector’s development conditions.
and infrastructure. In this sense, adjacent industries can also
Norway’s oil and gas industry is an excellent example of
grow alongside the oil and gas sector, such as the food,
best practices in capturing oil revenues, and if we compare
cement, and barite industries. This sort of collective growth
Norway to countries like the UK with whom the North Sea
creates value for the nation. It is often said that the shale
reservoirs were shared proportionally, we will see that the
industry is not profitable, but the industries surrounding
former has accumulated about 50% more than the latter.
shale operations are strong and contribute greatly to the
In this sense, the local content rules established for Mexico
states where these operations take place. The key is to find
are appropriate, as the country cannot ask for a higher
the growth synergies in the oil and gas industry.
percentage given that it does not yet have the necessary competencies. A second element to take into account
Competitiveness is an essential component, especially
is the fact that exploration and production plans have to
considering the fact that operators seek to maximize value.
maximize value in the long term. Maximizing value in terms
In this sense, competitiveness among operators will be
of hydrocarbon reserves does not only mean incorporating
crucial so that these players can capture different markets.
new reserves, but also includes well-considered production
This situation entails materials, talent, and infrastructure, so
United States Mexico
Existing CSEM New Acquisition
EMGS MEXICO REPROCESSING MULTI-CLIENT PROJECT.
the government has to invest in the development of high-
Q: What are some fiscal implications of PEMEX turning
quality talent, which is lacking in Mexico and the rest of the
into a productive enterprise of the State?
world. There are several initiatives at the government level
A: In order for PEMEX to create value, it has to operate
to foster competitiveness in the sector, many of which
in a competitive environment where the same rules apply
involve scholarships. CONACYT is the main party involved,
to the NOC as to other operators. Those rules are already
and this entity also funds the development of technologies,
established, and there is a transition period, which should
as competitiveness entails the use of the best technologies
be as short as possible. PEMEX has autonomy that enables
in hydrocarbon production and exploration activities. CNH
the NOC to draft policies aimed at creating value, and
is involved in validating exploration and production plans,
despite any issues the company might be facing at the
so it is well-positioned to make suggestions regarding the
moment, this is possible in the short and medium term.
use of certain technologies to companies, thus improving
During the transition period, PEMEX will continue paying
their competitiveness.
a fiscal contribution that is much larger than that of
17
most NOCs. This is why the transition must be as swift Q: How is Mexico faring in maximizing hydrocarbon
as possible, as it will relieve PEMEX of its fiscal burden,
reserves with a long-term approach?
allowing it to reinvest its resources. Although PEMEX is
A: As a country, it is important to increase reserves
experiencing financial complications, the government
because this creates a pipeline for project development
has thoroughly discussed ways to provide the NOC with
and future production, and because reserve replacement
a platform that will enable it to be profitable in the long
will ultimately have an impact on the job market and the
term. These are the types of actions and interventions
economy. So far investment has been restricted, so reserves
needed to help PEMEX become the productive company
have not been replaced at the pace that technology allows
contemplated in the Energy Reform.
in other countries. However, with the Energy Reform, the entry of more operators, and the willingness of financial
Q: How do Mexican upstream opportunities compare with
institutions, we will certainly see an increase in the level
other options operators have around the world?
of reserves. Every guideline CNH has developed has
A: The main obstacles companies encounter globally
been crafted in a way that makes it the least invasive for
are burdensome bureaucracy for field development and
operators in order to enable an efficient development of
a lack of coordination and common objectives between
operations. In addition to the issuing of guidelines, we are
governments and regulatory agencies. Other countries have
currently working with PEMEX on the migration of many
had a clear vision of the way operators and governments
fields that the NOC might want to develop in partnerships,
should coordinate, because these will ultimately become
either technological or financial. CNH’s role is to be
partners seeking value. Mexico possesses these traits,
efficient, that is, to reduce the amount of procedures
as evidenced by the strong relationships between CNH,
and paperwork to the largest possible extent in order to
ASEA, the Ministry of Finance, and the Ministry of Energy,
assign these processes and allow the companies to begin
and operators are aware of this. However, operators also
operations promptly. Previously, CNH was overseeing one
notice other situations, such as the country’s social and
operator, PEMEX, which is now changing and this forces us
security issues. When balancing all the elements, Mexico
to think more openly.
becomes a location in which operators want to invest.
Data example from US GOM program
EMGS is currently reprocessing over 16,000 km2 of CSEM data to be available in advance of Round I. New acquisition is scheduled for 2016-2017 Rounds 1 and 2. Pre-commit now and make EMGS your competitive advantage for the Mexican bid rounds. nsa@emgs.com Seismic courtesy of
| VIEW FROM THE TOP
ADJUSTING ENERGY POLICY TO NEW OPEN MARKET CONDITIONS GUILLERMO GARCÍA ALCOCER Former Chief of the Unit of Exploration and Production Policies at the Ministry of Energy
18
Q: Has the drop in oil prices affected the Ministry of
enthusiastic and planning to offer contract areas with
Energy’s approach to upstream policy, and what does this
3,200m of water depth, and we were promptly advised
mean for the Mexican oil and gas industry?
by companies that only two or three of them would
A: The global hydrocarbons market has been affected
be capable of working at such depths. Therefore, if we
by several structural changes in the last few years, thus
included those kinds of areas in the round, there would
impacting in the entire industry. When we launched the
be a very limited number of possible participants, so we
first phase of Round One, the oil prices were around
introduced more shallow deepwater sites of just over
US$80/b but have dropped significantly since then. In
500m and left the ultra-deepwater fields for future bids
spite of this fact, companies and investors are still seeing
in order to attract a larger number of companies. Due
Mexico as an interesting playing field. Many companies
to this feedback and ongoing dialogue with the industry,
have established offices in the country and technical
blocks changed before the tenders were launched, and
teams are for the first time carrying out massive geological
we remain open to adjusting our offering according to
studies in our country’s side of the Gulf of Mexico, which
the industry’s reasonable requests.
is still relatively underexplored. For many companies, Mexico holds a strategic long-term importance, which
Q: What is the impact of the drop in PEMEX’s production
is good news for us, as some companies are bound to
on Mexico’s federal budget and the country’s ability to
be extremely selective about the countries in which they
meet its medium and long term production targets?
will invest and the kind of fields they intend to explore
A: A high percentage of our federal budget comes from
and develop due to the shift in prices. Mexico has an
the petroleum industry, but this has decreased sharply
extremely attractive and diversified offering in this
over the last few years. Ten years ago, 40% of the budget
regard. In seismic studies that are currently being carried
came from oil income, whereas today it is about 19%. Our
out with an investment of almost US$2.5 billion, almost
income dependency is now lower due to the Fiscal Reform
all of the Gulf of Mexico is being covered, and that is a
that was implemented in 2013, and this is important
solid way to gauge the interests that companies have in
because, although oil production is a substantial part of
Mexico.
Mexico’s federal income, we have also diversified into other sources of financing.
Q: What types of market incentives is the Ministry of Energy introducing to guide energy policy, and how is
We estimate that first oil from the phases of Round
this process advancing?
One will be coming on stream in 2017, and from then
A: We presented our first version of our Five Year Plan in
onwards production from the ongoing bidding rounds
July, and afterward, we opened a forum for nominations,
will start to pick up. In the midterm, this new production
a process in which companies approached the Ministry of
will begin to compensate the drop in production from
Energy to present feedback on the outline. After a careful
PEMEX. As for PEMEX, we must remember that through
look at what companies brought forward, when feasible
Round Zero, the productive enterprise of the State was
and convenient for the state, we adjusted the Five Year
awarded substantial reserves that allows it to sustain an
Plan issuing the definitive version in October. The process
important production platform for over 20 years without
will be carried out each year, with a revised version to
considering future discoveries and participation in the
be published after the yearly nomination process. This
public bidding rounds. In an open market, like the one we
interaction proved to the companies that the Ministry is
now have in Mexico, it is not possible to establish fixed
not only willing to listen to their input but within law and
production targets, and much less intervene directly in
reason, implement changes for the benefit of all parties
order to achieve them. Long-term production depends on
involved. For example, in the first plan, we were extremely
a series of external and internal factors, most of which are
I EXPERT INSIGHT: WOOD MACKENZIE not under the control of any modern government. Current
The past 12 months in the Mexican oil and gas industry were quite
and
breakthroughs,
dynamic, to say the least, given the closing of the first three bidding
abundance or lack of geological information, as well
expected
prices,
technological
rounds and the launch of the deepwater round. “Although the first
as changes in fiscal, technical, safety, or environmental
bidding round gave way to mixed results, those that followed
regulation profoundly affect production targets. The
were successful,” Pablo Medina, Latin America Upstream Research
Ministry of Energy can foster an environment that is as
Analyst at Wood Mackenzie, claims. He believes this success was
friendly and predictable as possible in order to attract
driven in part by the government's willingness to incorporate
investments in E&P. In this regard, we have conducted
industry feedback into its propositions and to amend terms based
three bidding rounds within Round One with very good
on observed results. According to Medina, “The undisclosed
results. Thirty new companies have been awarded
minimum acceptable profit share splits in the first bidding round
exploration and production areas, and the first private-
were one of the reasons why only two of the 14 blocks were
produced oil will soon enter the market. Nonetheless, the
awarded. However, I believe that the government’s disclosure of
increase in private production will be a slow process and
these figures just two weeks before the second bidding round is
thus, significant results will only be seen in the medium
part of the reason why the majority of the areas were awarded.”
to long term. The past year has also seen a new Director General taking the lead PEMEX is in the midst of a profound restructuring that we
at PEMEX, with the aspiration to make the corporate structure
hope will only affect short-term production due to budget
more agile and streamlined. Medina believes that González
cuts and the implementation of a new strategy. PEMEX
Anaya can bring a fresh perspective to the NOC and achieve
will have to focus on low-risk fields in shallow waters and
a similar success to the one he achieved in his previous role as
look for farm-outs for other kinds of fields that will allow
Director General of the Mexican Social Security Institute (IMSS).
for the participation of companies with the capital and
“González Anaya’s new job requires a double focus,” Medina
technology necessary to develop these resources in the
explains. “Internally, he will focus on cutting costs, optimizing
most efficient way possible. We are committed to offering
processes, and reducing the pension liability, and externally he
competitive contracting schemes, attractive bidding
will take care of partnerships with other companies in order to
blocks both onshore and offshore, and long-term certainty
gain access to capital, technology, and expertise.” Medina also
so that PEMEX and private companies invest heavily in
credits the new Director General’s solid working relationships with
these kinds of projects.
key government officials in securing the financial aid package for PEMEX announced by the Federal Government.
Q: What is your view on PEMEX’s recently announced adjustment plans? A: With the comprehensive and sweeping reform that was carried out in 2013, PEMEX is no longer solely responsible for every activity in the value chain. In this new scenario, PEMEX can concentrate activities on the most profitable areas, and leave the rest of the market to specialized private entities. For instance, any authorized company may freely import petroleum products from April 2016 onwards, as well as build storage facilities and pipelines. With this fundamental change, PEMEX can now leave those markets to companies that are more efficient and specialized, and thus concentrate on its core upstream business. PEMEX will concentrate its resources on shallow water and onshore fields, the areas in which Mexico’s NOC is a world champion. PEMEX will postpone some activities, for instance in deepwater, and these can be revisited when it can find a suitable partner through the bidding process the law allows. Although PEMEX has experience in deepwater exploration,
the
next
stage
in
its
current
areas,
development and production, requires a completely separate set of skills that are not available to the NOC at the present time.
| INSIGHT
A TRIPLE-HELIX STRATEGY TO ENSURE THE INDUSTRY’S FUTURE various companies in our organization, keeping sensitive data private. AON Consulting holds the confidentiality information, and directly provides clients with deliverables,” he reassures. The opening of Mexico’s oil and gas sector 20
ÓSCAR GONZÁLEZ
has led ARHIP to invite international players, such as
President of ARHIP
Shell, BP, and Schlumberger into its association. González reports that this has been somewhat challenging because certain concepts had to be tropicalized, such as variable
Mexico’s energy market has placed emphasis on addressing
compensation.
various disparities, the most impacting of which may be the gap between the oil and gas industry’s needs in terms of
In order to smooth the transition to a new oil and gas
human capital, the pool and pipeline of avasilable talent,
industry for its members, ARHIP also works with educational
and government and industry initiatives to solve this
institutions, governments, and the private sector to create
challenge. “Certain universities have failed to grasp the
a triple helix synergy. “The triple helix synergy involves the
importance of soft skills in the new market, for instance,”
tripartite participation of the government, the educational
says Óscar González, President of the Association of Human
institutions, and companies in the industry, and the general
Resources for the Petroleum Industry (ARHIP), adding that
aim is to create a cluster between these so they can work
this is exactly the challenge that his association is tackling.
together,” González expounds. He gives the example of
ARHIP came into being in 2010 and was specifically
the new technological innovation centers in Tabasco,
created after the founders observed a lack of regulation in
which came into existence through cooperation between
the compensation area of Mexico’s energy market, which
the local government, the Ministry of Energy, and private
González claims was a result of PEMEX’s position as the
companies. “Our aim is to support the industry and to
industry’s main client. “The NOC’s different business lines
provide companies with any tools they may need. To do
did not have a common homologated tabulator for the
so, ARHIP also looks to take advantage of the resources of
private industry, leading to disparities in salaries. Our aim
countries that have open, developed, and successful energy
was to homogenize and regulate this aspect,” he states. The
markets, and brings them to Mexico. Recently, we were
Association’s main success so far has been the completion
invited by the Ministry of Energy to an initiative in Canada
of an inquiry with over 236 positions, divided by business
where we were able to exchange online courses with the
lines, and the fact that it has taken care to match profiles
University of Calgary in Alberta,” González discloses. “We
properly. “To do so,” González reports, “we mainly worked
also work with more than 30 local universities involved in
with international firms, including AON Consulting, in
the oil and gas industries, such as the National Polytechnic
order to gain credibility. We worked together to collect the
Institute, UNAM, and UNACAR. We are pushing for
required information and to carry out individual matching
educational institutes to renovate their teaching programs
by company. The use of a third party allowed us to avoid
so they are in line with current market needs. This also
having to transfer and filter information between the
involves an upgrade of their facilities and equipment, as well as installing simulators and well schools.”
“The triple helix synergy involves
ARHIP also seeks to have a close collaboration with
the tripartite participation of
students across the country’s universities that have
the government, the educational
prepare students to enter the labor market. “We like to
institutions, and companies in the
can learn how to sell themselves to the industry,” González
industry, and the general aim is to create a cluster between these so they can work together” Óscar González, President of ARHIP
courses related to the oil and gas industry, in order to call these personal branding sessions, because students mentions. “One of the skills that we believe to be crucial for success in today’s globalized oil and gas industry is the mastering of English, which is why we are pushing for universities to offer this as a basic course within all industry programs. Soft skills such as leadership, communication, and intra-personal capabilities are also becoming increasingly important.”
| INSIGHT
FUNDING MEXICO’S PRESENT AND FUTURE The Mexican Petroleum Fund, known as Fondo Mexicano del Petroleo (FMP), was created as an instrument derived
MAURICIO HERRERA MADARIAGA
from the Energy Reform to manage oil and gas revenues
Executive and Administrative
and wealth. This makes one wonder why Mexico had not
Coordinator of the Mexican
implemented such a mechanism before. Indeed, other oil-
Petroleum Fund
wealthy countries have had hydrocarbons funds for decades. “It is important to point out two things,” Mauricio Herrera, Executive and Administrative Coordinator of Fondo Mexicano
payments being made, the Ministry of Finance can audit the
del Petróleo interjects. “The FMP is not Mexico’s first and
information and instruct adjustments to the payments. For
only oil fund. The Stabilization Fund for Budgeted Income
this purpose, it can rely on SAT as the state auditor, or on
(Fondo de la Estabilización de los Ingresos Presupuestados),
a third party. Finally, SAT directly receives and supervises
and the Stabilization Fund for Federal Entity Revenues
the payment of any fiscal obligations. “All information
(Fondo de Estabilización de los Ingresos de Las Entidades
and documentation will be submitted electronically using
Federativas) preceded the FMP as hydrocarbon funds and
electronic signatures,” Herrera remarks. He notes that the
continue operations alongside it.” Should Mexico experience
information available on the platform will be accessible to
turbulent times, the first line of defense would be these
the Ministry of Finance, CNH, SAT, and the Ministry of Energy,
stabilization funds, and the funds from the FMP’s long-term
as well as the contractor, which is an important element of
reserve would only be available once all other resources
oversight and transparency, as the authorities are required to
have been depleted. “The Federal Government will only have
notify each other of any irregularities they detect.
access to the FMP’s long-term reserve provided there has been a decrease, in real terms, of federal revenues for at least
Having paid Mexico’s operators, the FMP makes transfers
two years in a row,” Herrera points out. “Secondly, the FMP
to the stabilization funds, as well as several funds that
is not an exact replica of the typical oil funds found across
promote research in the sector. Once these transfers
the world. Unlike these, the saving of hydrocarbon wealth
are made, the flow of resources is directed toward the
for future generations is not its sole purpose. It is also in
federal budget. Until the fund accumulates 3% of the GDP,
charge of receiving and administering the revenues arising
the government is granted discretion for its spending,
from Mexico’s hydrocarbons production, acting as a treasury
and after that threshold has been reached, the FMP is
within the oil scheme. The Mexican Petroleum Fund has the
entitled to make recommendations. The second limit
obligation to transfer the revenues it receives following an
is set at 4.7% of the GDP, subsequent to which the FMP
order that was established by law.” Practically speaking, the
will start to accumulate its long-term reserve to benefit
FMP has two modus operandi. Depending on the type of
future generations. “This commitment toward limiting
contract, it either receives all of an operator’s income and
the hydrocarbon revenues available to finance the
gives the latter back its share, or the operator sends the FMP
federal budget was made possible thanks to the efforts
only what it owes to the government.
of the current administration to reduce the government dependency on revenues from the oil and gas industry. different
The authorities accomplished this through a fiscal reform
governmental organisms and the operator, Herrera explains
that significantly increased tax revenues,” Herrera asserts.
Looking
at
the
interaction
between
the
that the Ministry of Energy establishes the technical qualifications for potential contractors and the Ministry
“The widespread belief among the industry seems to be
of Finance defines the economic terms and establishes
that the FMP has failed its objectives so far. This belief,
the economic variables that determine the winner of the
however, stems from a misunderstanding of the fund’s
bidding rounds. “Focusing on the financial aspects, the
operations,” Herrera insists. “At the start of each year, the
most important payments commence during the production
fund establishes a goal in the form of a certain percentage
phase,” Herrera tells. “The contract establishes a mechanism
of GDP that it expects to retain, based on the oil price
of monthly payments, and any adjustments will be reflected
at the time. At the end of the year, we then redo these
in the future stream of revenue. Every month contractors
calculations, using the historic oil price at the time of each
and CNH will submit the information the FMP requires
transaction. Given the sharp drop in oil prices that the
to calculate its payments using the fund’s technological
industry has been experiencing, it is normal that the final
platform.” He goes on to explain that subsequent to the
results do not match our initial intentions.”
21
| VIEW FROM THE TOP
FUNDAMENTALS OF OIL REVENUE SALVADOR UGALDE Director of the Income Unit of Hydrocarbons at the Ministry of Finance
22
Q: What role does the Ministry of Finance play in the oil
Q: What are the differences between the Ministry of
and gas sector?
Finance’s Income Unit and the Mexican Petroleum
A: The Ministry of Finance and Public Credit has a deeply
Fund, and what are their respective responsibilities and
relevant set of responsibilities, mainly on the side of
missions?
the hydrocarbon contracts and the way in which these
A: The Ministry of Finance is in charge of designing policies.
should be calibrated and measured when it comes to the
We look at how to tax each particular contract depending
secondary legislation, which were issued in August 2014.
on geophysical conditions, whether it is deepwater, shallow
These responsibilities are also related to the economic
water, tight oil, or shale gas. We have to carry out an extremely
and fiscal conditions of the bidding processes and the
technical analysis to decide upon the parameters involved
contracts themselves, and to following up on the execution
in the contracts, the minimum price to be implemented
of those contracts from the point of view of the payments
in the bidding rounds, and the formula to determine the
and their financial results.
winning parties. The latter allows us to promote not only the companies that offer the most competitive economic
Despite the Ministry of Finance’s long and intense
proposal, but also the ones that are most willing to provide
relationship with PEMEX, it lacked a unit with the specific
financing to back up their pledges. After doing this, we let
capabilities to execute its new attributes under the Energy
the contract run and monitor its execution.
Reform for the oil and gas industry. For this reason, the Hydrocarbons Income Unit was conceived and then
The Mexican Petroleum Fund, on the other hand, is in
established on November 1, 2014. The unit is in charge
charge of collecting the proceeds from the contracts,
of developing the fiscal and economic conditions for the
calculating each party’s revenue when necessary, and
contractual models. Those conditions are contained in four
informing the general public of the outcomes of each
specific annexes that the Ministry of Finance is in charge of
contract. This includes proceeds, payment instruments,
developing, which focus on the structure of the payments,
the composition of these collections, and the way in which
including the way in which companies will make payments,
they are spent. The MPF must also inform the public of how
the procurement of items, goods, and services, and the
much is channeled into each of the different stabilization
accounting procedures. The income unit is responsible for
funds, how much is directed into the general budget, and
creating that design, calibrating the contracts’ economic
what surplus is placed into the fund’s core. The latter fund
parameters, and then, once they are running, it must
is then invested in order to generate a long-term savings
monitor and review the results. Should anything unusual
account for the entire country. On a daily basis, we are
appear, we launch audits to determine what is happening.
the ones overseeing the fund’s operations, while the fund
The unit has also played an important role in the fiscal
carries out the day to day executions of the financial
structure, not only from the point of view of the contract,
aspects of the contract.
but also on the corporate income tax, VAT, and all aspects that are related to the operations of oil companies. In the
Q: How has the drop in oil prices influenced the whole
past, there was no need for us to do so because PEMEX
financial plan for the different phases of Round One?
was not subject to corporate income tax, and adhered to
A: When we started designing the contractual framework,
special rules when it came to VAT and import/export duties.
we strived to develop a contract that could work
We work in collaboration with SAT and other areas within
independently to the exogenous oil price factor. We
the Ministry of Finance and Public Credit to create this
put a system in place that is progressive in the sense
framework that would not only be applicable to PEMEX,
that whenever rent appears, we can collect it and the
but to the entire set of new participants, with the purpose
contract adapts to it. If such rent is somewhat lower
of generating certainty for the investments.
because the gap between costs and prices is narrow, we
allow the project to continue using to several contractual
level of 14%. We distinguish between condensates, natural
mechanisms. These are the result of the fiscal design of
gas, non-associated natural gas, and crude oil. One of the
the contract, or the bidding process itself. The contracts
most interesting things in our contracts is the possibility
have the flexibility to adapt to different circumstances
of integrating these differentiated royalty rates. By using
thanks to the mechanisms contained within them. This
the price of production that is effectively observed in a
system allowed us to receive solid results for R1-L01, with
particular contract, we are able to capture the implied
bids moderately higher than we expected, despite the
quality of oil, as higher quality will fetch higher prices.
fluctuations experienced by the price of oil between the date when the contracts were launched and awarded.
Q: Could you interpret PEMEX’s budget reduction plans from the Ministry of Finance’s perspective, and what does
Q: Given the fact that the design of the financial side
it mean in terms of PEMEX’s future ability to invest and
of the contracts was heavily influenced by international
meet its financial obligations?
best practices, in what areas has Mexico innovated and
A: The Ministry of Finance has carried out many analyses
created its own financial scheme?
of PEMEX’s fiscal regime, and on average, it looks solid,
A: We have innovated with regards to the progressiveness of
but this average contains a vast amount of extremely poor
basic royalties. Typical fiscal frameworks around the world
and extremely promising projects. The NOC has a variety
have a basic royalty tax, which is a percentage that must be
of cross-subsidies to optimize its costs, but over the past
applied to income. We built a small progressivity based on
few years, these have spiraled upward. One of the items
price into this basic royalty. Whenever prices are under a
that PEMEX can use to promote efficiency and adequate
certain level, royalties are fixed, but should they rise above
terms is the migration to the contractual framework. This
it, royalties start increasing as well. For example, when oil
can be requested at any time, meaning that if a certain
price is under US$48, the royalties are fixed at 7.5%, but
area is not economic because of a fiscal constraint, the
above that price, royalties start increasing, meaning that
NOC can request to migrate it to a contract with more
for a price of US$100, we would observe a royalty at the
adequate terms, and those new economic terms would be drafted by the Ministry of Finance. The best case scenario for us would be for the organization to eventually undergo
WHERE DOES OUR OIL REVENUE GO?
this process, which will provide not only enhanced transparency but also greater budget flexibility.
Money from oil and gas E&P
Q: To what extent will there be any kind of special fiscal treatment for local content, due to the fact that the objective of the Energy Reform is to create value for the nation? A: Mexico is subject to several treaties around the world, and we must abide by those first, before implementing
Contractors that
measures to support local content. That being said, if
participate in E&P
we were to input similar clauses as other countries into
activities Stabilization fund Funds that promote research in the sector
contracts, this would immediately trigger non-conformity warnings from a partner in another country. We are being careful and doing our best to avoid distorting the local market, as what has happened in other latitudes has shown this is a potential danger. We are developing
Federal Budget 4.7% of GDP
the competitiveness of companies in Mexico using other MPF Long-Term
instruments. The contracts foresee that, under matching
Reserve
conditions, firms have to give preferential treatment to
Source: Mexican Petroleum Fund
local content, but because that is difficult to enforce in practice, there are a few elements within the reform that encourage national companies to become competitive,
WHERE DOES OUR OIL REVENUE GO?
avoiding them from having to rely on preferential
The Mexican Petroleum Fund receives, manages
treatment. We participate in a group with the Ministry
and distributes income from Mexico’s assignments
of Economy in promoting these value chains, trying to
and contracts for the exploration and production of
transform small local companies into fully-grown service
hydrocarbons.
firms through training and credit support, among other instruments.
23
| VIEW FROM THE TOP
FRESH ENERGY AT THE HELM OF PEMEX JOSÉ ANTONIO GONZÁLEZ ANAYA Director General of PEMEX
24
Q: As the new Director General of PEMEX, in which direction
can take advantage of the tools provided by the Energy
will you take the company’s transformation process?
Reform, which allow PEMEX to form strategic alliances
A: PEMEX’s transformation is a necessary step to ensure
and access improved technologies while sharing risks.
the company’s viability and the generation of value for
PEMEX, as the main oil and gas company in Mexico, is
the country. Therefore, we are shaping a new stage in
the most attractive partner when it comes to investing
the NOC’s history. Our main objective is to become a
in the country due to its infrastructure and proven
profitable and highly competitive company that plays a
reserves, as well as the accumulated experience of its
key position in developing Mexico’s energy industry, while
engineers and technicians. These elements will be the
strengthening our role as a productive enterprise of the
basis to negotiating in a competitive fashion with players
state to consolidate PEMEX as one of the most important
that qualify as the best partners, striving to obtain the
oil companies in the world. The cultural shift in all PEMEX
best conditions for the country. In this way, PEMEX will
employees and the implementation of a new work
be able to attract a third party’s resources, share the
system, which is based on a more efficient use of assets
risks, and thus increase production levels. Costs will
and infrastructure, will translate into higher operational
be ultimately reduced by operating according to the
excellence. The ultimate objective is to generate more
highest international industrial standards that, under
revenues that will benefit the Mexican people from
shared schemes, will allow us to generate revenues and
production, processing, transportation, distribution, and
maximize the country’s resources.
commercialization activities.
In the short term, PEMEX
will have a flexible and agile organizational structure that,
Q: How is PEMEX facing the global downturn resulting
through corporate governance practices, will guarantee an
from low oil prices?
efficient and transparent management.
A: The global oil and gas industry is going through a difficult time, and PEMEX is not exempt from this.
Q: What is PEMEX’s production strategy, given the
Therefore, just like other companies in the sector,
company’s budget restrictions?
PEMEX had to adopt stringent measures to guarantee its
A: Taking the current oil price into account, the
viability. PEMEX’s financial priority is to consolidate its
exploration strategy consists of delaying or reevaluating
structure to ensure stability and credibility in the market.
certain investment projects, such as for deepwater
We have insisted on the fact that the NOC is facing a
developments and fields that are not profitable at the
liquidity issue, but this is not the case for the company’s
moment due to high production costs. In addition, we
solvency, so its viability is safe. Just like in other low
2016 BUDGET ADJUSTMENT Lines of Action MX$ billion
Corporate
Other SPEs
Industrial Transform.
Generate efficiencies and reduce costs to increase operational productivity and promote a rational use of resources
13.1
1.9
Defer / reassess investments minimizing the impact on future production based on profitability and availability of budgetary resources
0.0
Adjust CAPEX and OPEX from an average of 50 to 25 US$/b, channeling budgetary resources to profitable activities under a low hydrocarbons price scenario TOTAL Source: PEMEX
E&P
Total
0.8
13.1
28.9
2
35.4
27.5
64.9
0.0
0.0
0.0
6.2
6.2
13.1
3.9
36.2
46.8
100.0
oil price cycles, PEMEX is addressing a challenging scenario responsibly, adjusting the budgets for each one of its areas by MX$100 billion. This adjustment has been implemented in practice, as accounts for several anticipated programs have been shut. This, however, does not have a negative impact on the company in the long term. Most importantly, the adopted measurements will not affect the NOC’s employees and facilities. I would like to stress PEMEX’s commitment to our financial and work-related obligations.
25
Q: How is PEMEX adapting its operations to the financial adjustment plan? A: The adjustment, far from weakening the company, makes it stronger by forcing us to accelerate the necessary changes and restructure costs and efficiencies. PEMEX will take advantage of the flexibility it was offered by the Energy Reform, and implement instruments such as contract migrations and farm-outs, which will allow us to attract financial resources, technology, processes, and experience.
AVERAGE PERCENTAGE OF SAVINGS EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN KEY ACTIVITIES IN KEY ACTIVITIES Marine logistics Seismic acqusition Drilling services Drilling equipment Marine services Maintenance and operational
Q: What strategies has the government put in place to
20%
assist PEMEX in this challenging moments?
24%
A: The NOC received resources of MX$73 billion from the
20%
federal government, through the Ministry of Finance, in 30%
April of 2016 with the goal of helping the company face the challenging times the industry is facing. Considering
20%
Engineering
this significant capitalization, and with previous approval of its Board of Directors, PEMEX committed to clear and
18% 20%
normalized payments to suppliers and contractors in the short term, so that current liabilities can be aligned with the company’s operations. In order to carry on with this
Source: PEMEX && Total Investor Day Sept 2015 Source: PEMEX Total Investor Day Sept 2015
effort and adding to the request of credit lines for MX$15 billion with the development bank, PEMEX paid its 2015 As part of the measures that complement the budgetary
debt according to the schedule agreed on by its clients.
adjustment presented in February 2016, we are directing PEMEX to improve its financial indicators though concrete
Since
actions such as the saving strategies the company
strengthening of PEMEX’s assets, the NOC’s fiscal regime
implemented last year by changing its pension schemes.
has been modified, resulting in more cost deductions and
We are already generating efficiencies, as we have
lower taxes, which are estimated at MX$50 billion for the
reduced administrative costs through actions such as
2016 fiscal year. This will lead to higher liquidity indexes
merging three supporting areas in the Director General’s
by strengthening the cash balance, as well as an improved
office into one and eliminating two corporate divisions,
capital structure and debt track record for the rest of the
Human Resources and Technological Research and
year. All these measurements, paired with a lower amount
Development, which were reassigned to the Corporate
of debt, improve the company’s capital structure in order
Administrative Division and PEMEX E&P respectively.
to face the challenge of adjusting its costs and its business
In
expenditure
strategy to the current reality as quickly as possible.
and expenses related to personal services, travelling
PEMEX is seeking greater efficiency levels to consolidate
allowances, and general expenses, which alleviates the
itself as an attractive and reliable partner that will help
company’s liquidity.
develop the national energy sector.
addition,
we
have
reduced
overall
the
government’s
support
considers
the
| VIEW FROM THE TOP
ADJUSTING AND BALANCING TO SOLVE PEMEX'S LIQUIDITY CHALLENGE JUAN PABLO NEWMAN CFO of PEMEX
26
Q: What are your main priorities as the CFO of PEMEX?
throughout PEMEX to understand what is profitable at
A: The most important thing is to move forward, and
current prices and stopping anything that is not. Those
we are now a productive state company, which requires
investments will be delayed. This price environment gives
changes in all areas, the first of which is our corporate
us the opportunity to start incorporating the present and
culture. Secondly, we have to find efficiencies and be
future profitable investments into the budget.
more competitive with regards to the investment that new Energy Reform will foster. We must also be transparent
Q: What still needs to be done in order to overcome your
and become an international reference for the future as
liquidity challenge as fast as possible?
an oil company.
A: We have already carried out the adjustment, and now we have the support of the Federal Government. That
Q: What are the main changes to be carried out in order
comes in two parts. The first one is liquidity to pay our
to become a value-seeking company?
contractors and providers. We have an outstanding
A: Since we have to become more efficient, we must
debt that is quite high for the company’s dynamics, and
conduct a comprehensive analysis in terms of the value
US$4.29 billion will be used to decrease that debt up to a
that is created for the company. We will no longer be
functional balance. The second support mechanism gave
merely focusing on production, but this does not mean
us a floor for the cost cap. Following the Energy Reform,
we will produce less. On the contrary, we have to analyze
instead of being in nominal terms expressed in US dollars,
which of our investments are profitable in order to reach
it became relative to the price. When the reform was
the new expectations set for us by the Energy Reform.
approved, the oil price was over US$80/b, so we were
This means forming associations and alliances with private
allocated 10.5% of the price, which increased to 11.075%
partners, which will bring more value not just in terms of
this year. However, because the oil price is at US$20/b, we
investment and costs but also in terms of efficiencies.
actually have less than we used to. One of the measures of support was putting a floor, which is US$6.10/b for
Q: How are the low oil price environment and resulting
shallow water fields and US$8.30/b for onshore fields. This
budget cut impacting your strategic priorities?
fiscal relief of around US$2.92 billion, estimated at current
A: The adjustment that was implemented was not only a
price levels, will be used to decrease our financial needs
budget cut, but a redefinition of the company. We carried
and deficit with the end aim of improving the company’s
out a deep analysis with three objectives: cost reductions,
financial health. We will not use it to increase our budget.
finding new areas of focus, and adapting to the new
Our primary focus is on improving our current and future
low-price environment. When it comes to new areas of
health using the permanent support of the cost cap.
focus, there are two main components. The first one is the reconfiguration of refineries, for which PEMEX will
The Energy Reform instruments come next. We can
look for partnerships and alliances, as we no longer plan
migrate our fields, which might help us in fiscal terms. As
to invest in that area. The second area we are looking at
the rounds have come up, the cost cap is approximately
is deepwater, which is not yet in place, but for which we
60% of the price. Even though this currently stands at
expect to begin production in eight to ten years. Here, we
US$6 in a low price environment of around US$30/b,
will look for operational partnerships given the high level
60% is US$18, which means we can carry out three times
of risk involved. Unlike the refining area, which we can
more deductions. That does not come for free, however. In
operate, in deepwater we need technology and expertise,
order to achieve that, we need to improve our efficiency
as well as investment. As I mentioned before, we are also
and costs to reach an international benchmark. The
trying to adapt to the new low oil price environment,
government is able to give us that support because it
which is poised to stay. We are carrying out an analysis
would provide them with incremental production.
Q: What are the main financial benchmarks that you use
Q: What is your response to potential deepwater partners’
to compare PEMEX to NOCs or IOCs?
concerns about PEMEX’s liquidity challenge and its ability
A:
We
first
benchmark
against
other
state-owned
to make the agreed contributions to the development of
companies because we do not have equity, after which
the projects over time?
we compare to the major private companies. We want to
A: What we have done in the recent months has allowed
become one of the best Latin American oil companies. I
us to regain some trust, which has been reflected in the
think PEMEX has operated well for 70-80 years, and now
spread reduction that we have experienced lately. It is very
we have to learn to operate as a state-owned company
important for everyone to be confident in the fact that
and not a monopoly.
things are being taken care of. This year, our CEO made a commitment to outline and implement an analytical and
Q: To which extent will these changes be driven by the
reliable business plan. Investors are starting to see this
financial and operational angles?
new commitment that will give them the possibility to
A: PEMEX is not a financial company or a bank. We are
invest in PEMEX.
an oil company. We are going to focus on our business, which will improve our finances with solid management
Q: What should suppliers expect from PEMEX in 2016,
practices. We will look to become extremely efficient in the
and what sort of payment behavior will the NOC adopt
operational part and selective in the investments we make.
in the future? A: This is an ongoing process, and PEMEX is paying off
Q: Which areas will be the core business of PEMEX and
its 2015 debt to suppliers. The important thing is the
will receive capital investment, and which areas can be
net balance. Being a large company, we have payment
operated in partnerships or be divested completely?
processes that are naturally delayed. This creates a natural
A: We will continue investment in the upstream sector as it
amount of debt with which we function. In a couple of
is our main focus. PEMEX has done great work in shallow
months, all of the 2015 debt will be covered. Our more
waters so far, and although we are used to exploiting very
recent payment behavior has been much more typical for
large fields, the small ones pose certain challenges that
the new contractors we are hiring, and we expect to pay
could be solved through partnerships. In onshore fields,
them in October-November. 180 days is the timeframe
we will do the same. In deepwater, we want operational
that is naturally implemented. As for 2016, we are going to
partners. We do not just want them to bring investment,
start working with this process so that no one is affected.
but also to operate so that we can learn and improve our
Lately, however, we have been delaying more than the
capacities.
natural process requires.
| ANALYSIS
A CLOSER LOOK AT PEMEX'S 2015 FINANCIAL PERFORMANCE Mexico was not exempt from the crisis resulting from the
by the end of the first quarter of 2015 to MX$17.40/US$1
precipitated drop in the oil price, and in 2016 the average
in April 2016.
price of the Mexican crude basket stood at US$25.92/b, almost half the price budgeted by the government for that
PEMEX was forced to lower its expectations in terms
same year, and 43% less than a year previously. Gasoline
of revenues and revise the forecast to a more realistic
prices evidenced the impact of the oil price soon after,
figure of US$25/b, which was chosen because it was
as these tumbled down 30% in the northern coast of the
thought to suit a conservative scenario in terms of current
US Gulf of Mexico during the first quarter of 2016. The
expectations in the industry. This revision led to a cut in
average price of gas based on the Henry Hub also suffered
revenue of approximately US$5.6 billion.
a decrease, as it was down by 32% compared to the same period in the previous year. However, this is attributed to
MEASURES TO ADJUST TO A NEW ENVIRONMENT
different causes, such as an increase in inventory buildups
On February 26, 2016, the Board of Directors of PEMEX
and warmer than average temperatures in Japan, Europe,
decided that in order to comply with the maximum deficit of
and the US. In addition to dropping commodity prices,
US$8.3 billion established by the Federal Revenue Law and
the industry was also hit by a depreciation of the Mexican
meet the financial balance goal set for the year, the company
peso against the US dollar, which went from MX$15/US$1
would have to enforce a Budget Adjustment Plan that
27
would cut over US$5.6 billion to its allocated expenditures.
attributed to a reduction in export volumes. Domestic
The NOC understands that there is no other way to adapt
sales, on the other hand, decreased by US$900 million
to the new unfavorable price environment and is following
or 10% mainly as a result of a decline in the international
the footsteps of its competitors with the budget cut and
reference price of gasoline and diesel, and to a lesser
its redefinition as a company that prioritizes profitability,
extent by a decrease in the sales volume of LPG.
stability, and sustainability. In line with these new objectives,
28
the Adjustment Plan also requires the deferral or cancellation
COST OF SALES
of projects that do not add value at current prices and the
The cost of sales decreased by 21% in majority because
implementation of efficiencies in several expenditure items.
of a reduction in the “other” item, which englobes
In addition to the aforementioned internal changes, PEMEX
depreciation, amortization, impairment, net cost for
is seeking to use the figures and mechanisms offered by the
the period of employee benefits, preservation and
Energy Reform. “We will strive to strategically collaborate
maintenance, exploration expenses, non-successful wells,
with third parties to diversify sources of working capital
inventory variation, and subsidiary entities consolidation
and share risks, monetize assets to increase our financial
net effect. The ones that impacted the cost of sales most
flexibility, and migrate assignment contracts to the new
during the first quarter of 2016 were inventory variation,
exploration and extraction contracts that offer more
which suffered a US$800 million decrease due to the
attractive fiscal conditions. The new business model will
lower value of products in different periods, as well as
maximize value creation by focusing on profitable projects
depreciation and amortization, down US$600 million
to stabilize production,” Juan Pablo Newman, CFO of
because of a lower calculation base that followed from
PEMEX, expounds.
declining prices, fixed asset impairment, which represented a US$300 million drop as a result of no-asset re-evaluation
The Federal Government announced two support measures
during the quarter and compared to certain assets’ re-
aimed at strengthening PEMEX. The first involves a capital
evaluation during the first quarter of 2015, and the net
increase of US$4.1 billion, comprised of an exchange of
cost of employee benefits that amounted to a decrease
US$2.6 billion in non-negotiable government certificates
of US$200 million for the period due to the modifications
received in December 2015 for negotiable ones, and
in the pension scheme. The gross income, calculated by
US$1.47 billion in an equity injection through certificates
deducting cost of sales from total sales, totaled US$3.5
of participation. In addition to this, the government put
billion, a US$600 million or 15% decrease compared to the
forth a decree on raising the tax-deductibility ceiling
first quarter of 2015. The reduction in cost of sales was the
applicable to the profit-sharing duty, setting minimums of
main reason in reverting the gross loss experienced at the
US$6.10/b and US$8.30/b respectively for shallow waters
end of 2015.
and onshore fields that could generate up to US$2.8 billion in savings, subject to the prices of hydrocarbons.
GENERAL EXPENSES
It is hoped that these measures will help reduce PEMEX’s
General expenses are broken down into distribution,
liquidity constraints, therefore reducing accounts payable
transportation
to suppliers and the financial debt, and eventually
expenses, and other expenses. In the first quarter of 2016,
guaranteeing the sustainability of the company. Moreover,
general expenses stood at US$1.7 billion, down US$300
the revision of PEMEX’s pension scheme is also having a
million or 15% from 2015. The drop is mainly attributed
positive impact on the company’s financial results.
to a 33% decrease in the distribution of expenses and a
and
sales
expenses,
administrative
6% decrease in administrative expenses, mainly related
SALES
to the variation in personal services from the reduction in
During the first quarter of 2016, total sales amounted
personnel that occurred throughout 2015. Consequently,
to US$12.5 billion dollars. Broken down, this equates to
operating income fell to US$1.7 billion, 16% less than in
US$3.8 billion in exports, US$8.5 billion in domestic sales,
2015. Newman reminds that the operating loss observed
and US$0.2 billion in revenues from services. The 19% or
at the end of 2015 was able to be reverted thanks to
US$3 billion decrease compared to the same period in
improvements in the gross income and a reduction in
2015 can be explained by a decline in the average sale
general expenses. Interest expenses went up by US$2
price of oil and its derivatives.
million following an increase in financing activities and the depreciation if the Mexican peso against the US dollar.
Looking into the individual causes, exports dropped 35%
Interest income grew by US$1 million mainly due to the
or US$2.1 billion due to a US$1.4 billion decrease in crude oil
investment in securities.
exports as well as US$600 million reduction in petroleum products exports. These lower prices accounted for 72%
Income from financial derivatives experienced a positive
of the decrease in total export sales, while the rest was
variation of US$1.4 billion, which represents an increase of
155% compared to the same period in 2015, largely thanks
total of US$13.3 billion that could be raised through the
to the appreciation of the US dollar against other currencies
communicating vessels mechanism.
in which PEMEX has entered into through cross currency swaps. Nonetheless, the NOC also recorded a foreign
To date, PEMEX has tapped both the local and international
exchange loss of US$1.1 billion, US$100 million more than in
markets, raising approximately 54% of total allocated
2015 due to the depreciation of the Mexican peso against
financing for the year. In January 2016, it accessed the
the US dollar. As a result, the difference between operating
local debt markets and entered into a bank loan for
income and net financial cost provides an income before
US$400 billion, and in March, the company issued Stock
taxes and duties of US$170 million, or 134% more than the
Certificates amounting to US$300 million and obtained
amount recorded during the first quarter of 2015.
US$800 million through three credit lines with Mexican development
banks.
The
company
already
tapped
Taxes and duties during the first quarter of 2016 added up
international debt markets in January 2016 and issued
to US$3.6 billion, which is US$1.5 billion or 29% less than
securities for an aggregate amount of US$5 billion in three
in the first quarter of 2015, a drop that can be attributed
tranches, maturing in 2019, 2021, and 2026. In February
to a combination of drop in the crude oil price and lower
it accessed the market for US$2.25 billion. In March, it
production, which lowers the tax base. Despite the new
raised US$2.6 billion in two tranches, maturing in 2019 and
fiscal regime to which PEMEX was subject as of 2015, the
2023, and in April, PEMEX entered into a bilateral loan for
company is still unable to deduct all of its operating costs
US$571.6 million due in seven years.
and expenses from its calculations of taxes and duties. In order to reduce this impact, on April 18, 2016, the Federal
Thanks to the support measures granted to PEMEX by
Government published a decree that grants certain tax
the Federal Government, financing needs are expected to
reliefs to assignment operators, which are expected
decrease, primarily benefitting the domestic market and
to reduce the payment on the profit-sharing duty and
giving the company more flexibility regarding operating
to improve the financial condition of the company. In
execution. The company expects to receive approximately
consequence, PEMEX recorded a net loss of US$3.4 billion,
US$2.8 billion from this scheme, which it will use to pay off
38% less than the one recorded last year, in majority due
US$200 million out of the US$1.7 billion it has to allocate
to the effect of prices and exchange rates discussed
for the year. These US$2.8 billion that PEMEX received
previously. The comprehensive loss, however, amounts to
were part of a pension reduction agreement drafted in
US$3.5 billion, 34% less than last year's as a result of the
2015 that amounted to US$10.4 billion, the rest of which is
conversion between the different currencies and PEMEX’s
still under revision by the Ministry of Finance. The company
functional currency, the Mexican peso.
might receive this latter amount in liquid form or under the form of securities that will help it reduce its pension
LIABILITIES
liability. Moreover, PEMEX hopes to access international
PEMEX’s financial debt went up by US$7.2 billion while
markets again in the next quarter to raise dollars, Swiss
the reserve for employee benefits increased by US$900
francs, or Japanese yen in order to diversify the sources of
billion. Moreover, the NOC recorded a US$2.3 billion or
funding. In the time period from February to April 27 2016,
26% decrease in supplier liabilities during the quarter, and
the spread between PEMEX’s financing costs in dollars
an increment in the remaining liabilities of US$600 million.
and the Mexican government bonds in dollars narrowed
As a result, total liabilities as of March 31, 2016 stood at
by 59 basis points, while the spread with the US Treasury
US$177 billion.
bills decreased by 116 basis points.
PEMEX and PMI’s total financial activities during the first quarter of 2016 added up to US$11.7 billion, with total debt
2016 FINANCING PROGRAM1 Sources of Funding
Allocated US$ billion
billion. The impact generated on the company’s debt
Domestic Markets
6.0 – 9.0
from exchange variation added up to US$900 million. The
International Markets
8.0 – 11.0
evolution of equity was subject to a decrease of US$3.5
Bank Loans
0.5 – 1.5
billion during the first quarter of 2016 as a result of a net
Export Credit Agencies
(ECAs) 1.0 – 2.0
loss of US$3.4 billion during the period.
Other
3.0 – 3.5
Total
21.1
According to the 2016 Federal Revenue Law that was
Debt Payments
5.4
approved by the Board, PEMEX has an internal net
Net Indebtedness
15.7
payments made during that period amounting to US$5.3
indebtedness ceiling of US$6.1 billion and an external net indebtedness ceiling of US$7.2 billion, amounting to a
Source: PEMEX 1 Estimated, based on 2016 Budget Proposal
29
| VIEW FROM THE TOP
THE FUTURE OF PEMEX LIES IN CAPITAL MARKETS DAVID ENRÍQUEZ Partner at Goodrich, Riquelme y Asociados
30
Q: Which factors have put PEMEX in the challenging
Congress to change the fiscal regime of the assignations,
position it finds itself today?
but this is an unlikely option. The second revision that
A: The reason PEMEX has reached such a low point is
should be made lies in the firm’s financial structure.
because the lack of preparation before the Energy Reform,
Although this is a sensitive topic, it is a perfect time to
and the drop in oil prices led PEMEX to crash in a short
bring it up given the fact that Saudi Arabia is breaking the
period. The accumulation of these situations has created
taboo of opening public national oil companies to financial
a perfect storm for the productive enterprise of the state.
markets. I have always said that PEMEX will eventually die
The exceptional talent that it holds is not enough to save
if it does not enter capital markets. PEMEX must avoid
the NOC, which urgently needs to undergo a culture shift.
sinking further into debt at all costs. Naturally, before it can
PEMEX must start working with partners and not only
consider floating a certain percentage of its shares, it must
contractors, and realize it will be just another player in
revitalize itself to make private investment an attractive
Mexico’s oil and gas industry. In addition to updating its
option. The first step toward this is to restructure the
culture to reflect the current industry structure, it also
company, after which the NOC can work toward making
needs to readjust two of its fundamental aspects.
its culture more partner-oriented and eliminating the assignations that are constraining it.
One of the flaws of the Energy Reform was the absence of consideration of a transitional tax regime for PEMEX,
Q: Under which circumstances could the Mexican
leaving the parastatal void of any incentives to continue
government consider floating PEMEX shares?
functioning
A:
efficiently.
The
fiscal
regime
for
the
We will see the impact of the Energy Reform in
assignations is deeply confiscatory, and it is destroying all
the medium and long term, as IOCs and independent
of the NOC’s competitiveness and value. I believe these
operators will eventually catch up and contribute the an
should be overturned, either through farm-outs or through
overall production increase. Only a certain percentage of
the migration of contracts. Another solution would be for
this production will come from the NOC, decreasing the
MEXICO LIFE EXPECTANCY
PEMEX PENSION OBLIGATIONS
In 1942, PEMEX's retirement conditions were established:
ACCRUED OBLIGATIONS (MX$ BILLION)
• 55 years of age MEXICO: LIFE EXPECTANCY • 25 years of work
• Up to 80% of wage
58
61
66
71
74
74
The life expectancy increase has had an
47 34
48% Cur pension
75
exponential effect on
39
Accrued obligations
MX$1,517 billion
the pension liability
48% current pensions
Source: PEMEX Source: PEMEX
2013
2010
2000
1990
1980
1970
1960
1950
1940
1930
Source: PEMEX
42% reform objectives 10% active employees
42% Ref
objectiv
10% Act employe
dependence of the federal budget on PEMEX. Once we
from Round One. If the NOC could at least raise capital
reach that point, the productive enterprise of the state will
on its own for these enterprises, it would become much
have become a more efficient competitor and the political
more attractive for IOCs, which would then contribute the
class will have more pragmatism. The concept of floating
experience lacked by PEMEX.
a percentage of PEMEX shares in the near future is not as drastic as the Energy Reform was back when it was
Q: How could corruption impact the Mexican oil and gas
announced. A capital intensive industry needs capital, and
industry, and what are its implications for the licensing
when capital cannot be accessed due to reasons such as
rounds?
debt, a company restructuring and a change in the fiscal
A: In the energy sector, the impact of corruption is mostly
regime is needed. Once PEMEX restructures and the fiscal
felt in public procurement by the state-owned enterprises.
burden is reduced, it will be attractive enough to float its
When it comes to the opening of the sector, I have to
shares. Such an action cannot come from desperation, but
recognize the authorities’ standards in Round One in terms
rather must be the result of a sound longitudinal exercise
of transparency and the perception of the round, which is a
that will take at least five to ten years. Going public will
positive signal because the tenders are the key component
be the next natural step for PEMEX, which is also positive
to the success of the Energy Reform. Nonetheless,
because the pressure imposed by investors will lead to
corruption in other areas is far more complex. Whenever
greater efficiency and transparency. It would be a disaster
there is a crisis there is room for corruption, and the
if PEMEX shares were floated right now, but it should
current woes of the oil and gas industry are no exception
happen in the near future, especially if the company
to this rule. People find a way to loot spoils when there is
manages to restructure successfully.
a vulnerable entity. I am afraid this could be happening or could happen if PEMEX and CFE and not careful in
Q: How could PEMEX best improve its access to capital?
their restructuring processes because the conditions for
A: PEMEX should float shares in the segments of the
corruption are there. We have different scenarios, such as
industry where it is most difficult to raise capital. The
the successful achievement of transparency seen in Round
market is open for all three segments of the oil and gas
One, and a negative scenario, in which certain people see
industry, and there are different financial vehicles for
a vulnerable PEMEX and want to take advantage of the
the hydrocarbons value chain. For instance, Fibra E was
situation. In the case where corruption were to take over
created for the midstream sector, as the availability of a
PEMEX, companies that are not directly interacting with
market, a transportation system, and off-takers make this a
the NOC would not be significantly affected, but it would
stable and sound business. For the upstream segment, the
be naïve to underestimate this statement. In the first few
natural course is to enter capital markets because PEMEX
years of the reform, all companies in the Mexican oil and
does not have much to offer in this regard. PEMEX can add
gas industry will be interacting with PEMEX because they
value in terms of human capital and experience in certain
will be using the NOC’s infrastructure, particularly the
assets, but it cannot contribute much in projects such as
winning companies from R1-L03 and the CIEP and COPF
deepwater operations, since it does not have any fields
contracts.
UPDATE OF THE PENSION SCHEME PEMEX has implemented drastic changes to its pension scheme as a part of its budget reduction plan, aimed at decreasing the US$90 billion debt it has accumulated to date. One of the most contested changes is the increase in retirement age for relatively new employees, a measure that was approved by the Union of Petroleum Workers of the Mexican Republic (STPRM) in November 2015. Indeed, pension payments represent a large part of PEMEX’s expenditure, but the modification of the pension plan is expected to result in an annual liability decrease from US$51.7 billion to US$17.1 billion between 2015 and 2021. Should PEMEX employees with less than 15 years of seniority want a pension equivalent to 100% of their salary, they will now have to stay until they reach an age of 60 instead of 55, in addition to ensuring at least 30 years of service. New employees will be under an individual accounts scheme, which includes certain advantages such as a complementary contribution from PEMEX, the possibility of transferring it to other accounts, and voluntary saving with fiscal benefits.
Based on the following conditions, the Federal Government will recognize with an amount equal to the savings achieved through the negotiation and amendment of the Collective Bargaining Agreement: • Individual account regime for new employees • Gradual adjustment of the retirement parameters of active employees
31
| VIEW FROM THE TOP
PEMEX TO BOOST PRODUCTION THROUGH PARTNERSHIPS GUSTAVO HERNÁNDEZ Director of Prospective Resources, Reserves, and Associations at PEMEX E&P
32
Q: What are your responsibilities of the Prospective
A: Some service contracts that were signed under a
Resources, Reserves, and Associations division at PEMEX,
bidding process prior to the reform can be transferred
and how do these differ from PEMEX Alliances & New
to E&P contracts under the new framework, and at the
Business?
moment there are 16 CIEPS and six COPS looking to be
A: PEMEX E&P was reorganized into three areas. One
migrated into the new scheme. Initially, we split these
division is dedicated to exploration, discovering new
contracts into two sets of 11. The first set of migrating
prospective resources. On the production side, one
contracts consisted of COPS that have existed since
division will manage the development of existing
2003-2004 and some CIEPS that were signed in 2011,
fields. However, a third area will focus on fields where
such as Santuario, Magallanes, Pánuco, Arenque, Altamira,
third parties are involved in the production process.
San Andrés, Ebano, Nejo, Misión, and Olmos. The second
The reason this third division was created is that the
set was composed of Tierra Blanca, Carrizo, and the last
E&P divisions have plenty of work on their plate, and
five Chicontepec blocks, Amatitlán, Miahuapan, Pitepec,
managing partnerships requires different skills and
Humapa, and Soledad, as well as other four COPS like
approaches than only working within PEMEX. That
Cuervito, Fronterizo, Monclova, and Pirineo. Although
being said, alliances, partnerships, and joint ventures fall
Miquetla belongs to the second set, it was included in the
under the responsibility of the Prospective Resources,
first due to a request from the company operating it.
Reserves, and Associations division, and the teams that work in fields under a JV will report to this division. While
There are 22 blocks and each entails a different learning
CNH will define our partners through a bidding process,
process. When we submitted the initial request to migrate
we have to decide who the operator will be. If PEMEX is
the contracts, there was a need to make some amendments
going to operate, then PEMEX E&P will be responsible for
to the entitlement blocks that were awarded to PEMEX in
the project because technical details and the allocation
Round Zero, such as modifying the entitlement to include
of CAPEX fall on the operator’s side.
the whole block. In other cases, some assigned areas overlapped, which we noticed when we began the process
The main difference between the Prospective Resources,
and had to request the correction. In the meantime, the
Reserves, and Associations division of PEMEX E&P and
Ministry of Energy and CNH issued new guidelines for
the corporate division Alliances and New Business is that
E&P plans that were not considered when the Round Zero
the latter is in charge of defining the alliances that will
fields were awarded.
maximize PEMEX’s performance, define the people who will be members of the board in a JV, and decide which role
To start the process, PEMEX had to sign a letter of consent
PEMEX people will play in each case. On the other hand,
with its future partners, and then undergo a financial
Prospective Resources, Reserves, and Associations will
assessment, as each party will have its own working
focus on technical aspects and on the actual production
interests, so we had to establish the shares. Also, changing
processes. In this sense, my area deals with associations
the type of contract entails demonstrating to the Ministry of
in existing contracts, such as the migration of CIEPS
Finance that the migration will improve government take,
and COPS, and future partnerships, such as farm-outs.
increase reserves, and increase production by decreasing
In addition, we are responsible for validating discovered
the fiscal obligations. Part of the negotiation process
volumes and certifying hydrocarbon reserves according to
included carefully defining reserves, area extension,
CNH’s guidelines and our internal procedures.
facilities, infrastructure, and royalties. For this purpose, we hired five international financial entities that used different
Q: What has been holding back the process of the
methodologies, which were aligned and standardized at
migration of CIEPS and COPS?
the end of the process. The next step was to summarize
the development and production plans, as well as the
in its 60 fields, while ATG (Chicontepec) produced 41,000 in
minimum work commitment that will be included in the
28 fields. The Veracruz asset yielded 14,000b/d, and Burgos
new E&P contracts. It was a long discussion because with
is not producing oil at the moment. In the group of fields
the cost recovery at 70% and sometimes 100% of eligible
with contracts awaiting migration, Ébano is the largest oil
costs. We went to the basics determining what eligibility
producer, with 11,000b/d, Santuario produces 5,000b/d,
meant and what was an eligible cost. After this learning
Arenque 4,000b/d, and 6,000b/d came from Ogarrio-
process, I can assure you that all the service contracts,
Sánchez Magallanes. In the case of offshore assets, Litoral
except for the ones in blocks with a pending amparo will
de Tabasco is responsible for 363,000b/d, including the
be migrated.
Tsimin-Xux field. Abtakún-Pol-Chuc produced 200,000b/d across 16 fields, and the eight fields in Ku-Maloob-Zaap
We started with Santuario operated by Petrofac, Misión
produced 860,000b/d. Cantarell produced 232,000b/d
operated by Techpetrol, Ébano, and Miquetla, operated by
with its ten fields. While some fields like Samaria Luna are
Grupo Diavaz. Companies have already submitted their
declining, other like Abkatún-Pol-Chuc, Litoral de Tabasco,
requests before the Ministry of Energy and ten contracts
and even Ku-Maloob-Zaap are yielding positive results.
have received a green light. Olmos, a COPF for a gas field
Highly productive new fields were discovered in Abkatún,
in the northern region, cannot be moved further because
such as Onel, Kuil, Homol, and Chuhuc, which are helping us
of an amparo from a mining company. We have talked
counter the decline rate. In the Cantarell complex, Ixtoc and
about this with Lewis Energy, the company requesting the
Kambesah produced 15,000b/d, Ek-Balam 46,000b/d, and
migration, who understands that not much can be done
Chac, Kutz, Nohoch, and Takin contributed with 27,000b/d.
at the moment. As for the rest of the blocks, we decided
Sihil had an output of 31,000b/d, but the most important
to move on different fronts but we found that all the
producer in Cantarell was Akal with 78,000b/d. If we only
players in the process, the Ministry of Energy, the Ministry
focus on the scope of the farm-outs, Cárdenas, Mora, and
of Finance, CNH, and PEMEX, needed to learn a new
Samaria produced 48,000b/d, Ek-Balam 46,000b/d, and
process. In the past, every actor tried to advance in the
Bolontiku-Sinan had an output of 43,000b/d. Ogarrio
best direction, and these were not always fully aligned, but
yielded 10,000b/d and Rodador 3,000b/d. Ayatsil-Tekel
now we have assembled a task force that includes a legal
produced 3,000b/d, which is not bad considering the asset
counsel, New Business, Associations, the finance area, and
has recently started production.
many others in order to align and streamline the process. Santuario is close to being successfully migrated, and all
Regarding gas production, the largest output came from
the CIEPS and COPS should be migrated before the end
Cantarell in the 2007-2008 period, which amounted to
of this year.
1bcf of formation gas. Cantarell now produces 10% of the total gas production. There are considerable natural gas
Q: What are the overall production trends, and what
producers, such as Ogarrio, which produced 33mcf/d.
context does this create for the attractiveness of COPS,
Rodador is not a gas producer, but it had an output of
CIEPS, and additional future partnerships?
5mcf/d of associated gas. Nejo is worth mentioning, as
A: PEMEX’s total production reached 3.383 million b/d
it produces 200mcf/d. Back in 2013, we began reporting
in 2004, but has dropped to 2.259 million b/d in 2016.
Nejo’s production as condensates, but now it is reporting
Since 2004, when production at Cantarell peaked at
liquids. Cuervito and Fornterizo have an output of
2.125 million b/d, an extended decline reduced this field’s
15mcf/d, and we are in talks with the operators, Grupo
production to 230,000b/d by March 2016. However,
Diavaz, Petrobras, and Teikoku because even though
the other fields in PEMEX’s portfolio have experienced
the production is significant, we want to make sure it is
an overall production increase as a result of our
profitable under the current regime. In the exclusive case
effective diversification strategy that compensated a
of CIEPS and COPS, the former produce 273mcf/d, a
substantial proportion of Cantarell’s production decline.
higher number than that of the COPS, which are natural
Compensating the production decline of a super-giant
gas producing assets and have an output of 147mcf/d.
field and increasing production by 60% is something no other company in the world has done. The challenge
At their peak in 2009, Monclova produced 1bcf, making
remains, but the numbers herald good news.
it an important asset. Burgos produced 90mcf/d, Nejo 80mcf/d, and Misión 1.1bcf/d. There are significant gas
In terms of annual averages, the 15 entitlements in Samaria
producers but it is important to take the Henry Hub
Luna contributed with 142,000b/d, Bellota-Jujo produced
price reference for future estimates. If we find a great
96,000b/d across 26 fields, Cinco Presidentes 88,000b/d
production potential, we could allocate CAPEX and get
in 21 fields, and Macuspana-Muspac produced57,000 b/d
some fields to the production levels they experienced
across 37 fields. Poza Rica was able to produce 57,000b/d
back in 2009-2011.
33
| VIEW FROM THE TOP
THE JOINT VOICE OF MEXICO'S NEW OPERATORS RAYMUNDO PIĂ‘ONES Director General of AMEXHI
Q: What type of representation and action does AMEXHI
A: The first three calls of Round One have demonstrated
strive to undertake on behalf of its members?
that the government is able to deliver a very ambitious
A: AMEXHI is the only association which gathers the upstream
program. Having said that, Round One will only be the first
players in the industry; that means the companies whose
step of this program, and we are already halfway there.
activities are only exploration and production. We currently
The successful implementation of the Energy Reform will
have 42 members, an excellent mix of nationalities and sizes
depend on the long-term creation of a new hydrocarbons
which gives us a global perspective, a large array of company
industry with a variety of players along the whole value
types, and also a capacity for technological advancement
chain. Seven of our members are or will soon be operators
and innovation. We have the major IOCs, large independents,
or are in a consortium with an operator. We have enabled
firms specialized in unconventional resources, NOCs, and
the sharing of a common vision, and that has been AMEXHI’s
eight new Mexican companies. AMEXHI is organized by
great delivery. We have been able to gather the opinion of
a general assembly, where all members are represented,
the upstream hydrocarbons industry giving one more voice
a board of directors that looks at daily decisions, four
to the government and different decision makers on which
committees that handle finance, technical issues, external
policies to adopt to turn this into a success. We will keep
affairs, and legal affairs, along with my position. All members
working and doing what we have been doing. I would not
are able to contribute through the committees in generating
say there is one specific challenge. Everything has a certain
the position of AMEXHI which is the one that eventually
degree of difficulty to it, given the amount of changes the
is shared with consultation councils and authorities, and
industry is experiencing.
it is through their opinion and technical expertise that the committees agree on a common voice of the industry which
Q: What are your priorities for the following years?
is then shared with the different authorities.
A: Since we are a new organization, we will work on continuing the institutionalization of AMEXHI, which means finding
At this point, AMEXHI is assisting different public and
the right connection mechanisms with other associations,
private entities in order to shape the new hydrocarbons
international entities, NGOs, and the government. More
industry, considering the challenges that will come
importantly, we will continue to gather the view of the
when companies start operating. At the moment, these
industry assisting the long term process of creating a new,
challenges are strictly theoretical until companies have
safe, sustainable, and responsible hydrocarbons industry. In
a local operation. Nonetheless, we are focusing on the
ten years, AMEXHI would also like to see Mexican companies
creation of a new sustainable and responsible hydrocarbons
becoming competitive globally; not only the upstream
industry. Although ensuring the attractiveness of Mexico
players, but also the Mexican service providers.
as an investment destination is not one of our direct objectives, we support the government through technical opinions in choosing the right policies to achieve this goal. We do that by sharing best practices and acting as the common voice of the industry to the authorities. We interact with authorities and the ministries through the formal consultation processes, for which we are part of their consultation committees, and work with them on most pieces of regulation they issue. Q: How have AMEXHI and its members contributed to the success of Round One so far?
35
Maximum Efficiency, Minimum Cost.
EPC
+52 (55) 2487 0283, 84 y 85
www.grupohosto.com.mx
Engineering, Procurement & Construction.
contacto@grupohosto.com.mx
| VIEW FROM THE TOP
FROM SOURCING HUB TO STRATEGIC OPERATIONAL ENVIRONMENT ALBERTO DE LA FUENTE President and Director General of Shell Mexico
Q: What have been the highlights during your four years
were unenthused at the idea of sourcing from Mexico, as
as Shell Mexico’s Director General, and how different has
they were used to working with their own suppliers. Now,
this experience been from what you expected?
however, they have no choice, and that makes Mexico
A: Although I initially entered Mexico with prudent
much more competitive. This comes in addition to our
expectations in order to avoid frustration, I believed that
exceptional geographic location, as well as the quality
even if nothing were to happen in the energy sector, it
and the cost of our labor force. Another important factor
would still be a rewarding experience. As a matter of fact,
when it comes to having a sourcing office in Mexico is
it has turned out to be completely different to what I had
that it is now not only evaluating opportunities for export,
expected, with each year being notably different from the
but it would also provide significant savings should Shell
previous one. The main highlight for Shell was of course the
decide to undertake a project locally. So far, our sourcing
Constitutional Reform. Mexico had been waiting for this shift
office has been disseminating the market. The office has
for a long time, and when it happened, it left everyone with
become extremely relevant because it allows us to compete
a great feeling of satisfaction and with the assurance that
even more successfully with projects outside of Mexico,
the country was moving forward. The next highlight was
and it allows us to deepen our understanding of sourcing
the day when the government awarded the first exploration
opportunities for projects within the country.
contract. This was the manifestation of all the hard work
Shell has been present in Mexico since 1954,
that the country contributed to the constitutional and legal reforms. Finally, the announcement of the deepwater bidding round and a date by which offers must be placed was the third most significant event. Q: How competitive is Mexico in the context of Shell’s global portfolio of opportunities? A: Two aspects should be considered when attempting to rank the attractiveness of opportunities. The first one
when it began distributing, commercializing
petrochemicals and eventually lubricants
is materiality, which is the country endowment, without which little can be done. In this respect, PEMEX’s work
Q: What would you advise the Mexican government to
over the years has made Mexico an attractive location. Only
do today to make sure that the national content debate
now are we starting to look into the country’s seismic data,
makes sense in the future?
but we believe that there is materiality and a promising
A: It should apply the lessons learned from other industries,
source of hydrocarbons, which piqued our interest. The
such as the manufacturing sectors, be it automotive or
other aspect relates to a country’s terms and conditions
aerospace. I believe the government is already looking at
and its global competitiveness. Despite the attractiveness
them. Mexico is becoming increasingly open to global
of opportunities elsewhere, we believe that Mexico holds
markets, namely with the Trans-Pacific Partnership. This
several promising prospects.
is an opportunity for the government to look at the way in which these agreements affect other industries, and
Q: Which role does its global sourcing hub in Mexico play
apply the lessons learned the oil and gas sector, allowing
in Shell’s global and local strategy?
it to compete internationally. It is also important that
A: Our hub has reinforced the merits of strategic sourcing
local content requirements remain transparent in terms of
in Mexico. We have noticed that in times of high oil prices,
administration. This is in the best interest of all players, given
companies lack the incentive they now have in seeking
the number of people and processes involved. We must not
the most cost-efficient supplier. In those times, players
get lost in the bureaucracy of administering the system.
37
| VIEW FROM THE TOP
STRIVING TO KEEP SERVICE COMPANIES AFLOAT ERNESTO MARCOS GIACOMAN President of AMESPAC and Founding Partner of Marcos y Asociados
38
Q: What are the main priorities for AMESPAC at the
Q: What concrete actions is AMESPAC taking to help its
moment?
members to mitigate the effects of the industry’s current
A: The first and most urgent matter is the problem
financial reality and PEMEX’s overdue payments?
resulting from PEMEX’s liquidity constraints restraining its
A: The problem is not limited to companies not being
ability to pay its suppliers and contractors. AMESPAC has
paid for services provided a year ago; the real issue is
been deeply involved in addressing this problem, looking
that PEMEX no longer has the budget to operate as
for solutions, and approaching PEMEX to face this issue so
planned this year, so it is cancelling contracts. Some of
that the government can finally take actions. The first step
these are three-year contracts that PEMEX is cancelling
has been injecting capital so that the oil company can get
with less than 20% of the work being completed. Even
up to date with its overdue invoices that it has been unable
though the oil company had an assigned budget for those
to pay due to budget cuts, affecting jobs and services
contracts, it has no available resources. Companies that
that have been effectively provided. The second action
had such contracts with PEMEX have had to invest in
consists of organizing meetings with the new operators
obtaining certifications and preparing their staff, and now
that have being assigned contracts in Round One in
their contracts were cancelled without the possibility of
order to promote our associates’ services so that these
obtaining a new contract in the short term. Of course, this
can diversify their markets. We have already arranged
is greatly due to the low oil price, which has left the State’s
meetings with the winners of the first two phases, and our
oil company without liquidity. However, this is also the
members have presented their service offerings.
consequence of a structural issue that had a cumulative effect over the years, because an important part of the
Some of the other problems we are revising include the
NOC’s budget was spent on unrelated activities.
delay in migrating CIEP and COPF contracts. In the case of the latter, we want the migrations to happen as soon as
The current situation is deeply affecting companies in the
possible, because the companies that provide services to
sector, and even though AMESPAC members are large
PEMEX and are looking to become operators are members
companies that do not run the risk of disappearing, many
of AMESPAC. Farm-outs are also behind schedule,
of our service providers and suppliers are going through a
as PEMEX, the Ministry of Energy, and the Ministry of
difficult situation that sometimes forces them to shut down
Finance have not yet agreed on the financial and fiscal
operations. The association is working on helping the largest
terms related to the entry of private investment in fields
possible number of these smaller players to survive, but it
awarded in Round Zero. Finally, we are also developing
is not an easy task as the banks are also worried because
new project finance schemes, an area of expertise for
PEMEX is the only source of payment these companies
Marcos y Asociados, which is assisting in promoting
have, and therefore their financing guarantee.
private investment in the sector. In the light of this situation, AMESPAC is looking for We are seeking all sorts of modalities in which private
new financing schemes, for which we have approached
players can participate in the energy sector, both in oil
NAFIN, which has a supply chain program that finances
and gas and the electricity industries, within the new
contracts from large companies going through a rough
legal framework. Even though AMESPAC congregates
patch that hire service companies. NAFIN is offering
companies that work with PEMEX, we have some
factoring, so once PEMEX validates an invoice, this is sent
affiliates involved in electricity generation too. Therefore,
to NAFIN, or any commercial bank that obtains financing
the association is interested in promoting all kinds of
from NAFIN. The invoice is paid and the bank collects
direct participation of private investment in the energy
from PEMEX through NAFIN, which provides liquidity
industry.
to the NOC while commercial banks assume the risk.
It is worth commenting that the risk entailed in having
secondary market will emerge. I have met with all sorts of
PEMEX pay once the invoice is due, is a significant one,
players, from private equity funds to family offices, who
and even though PEMEX is now a productive enterprise,
want to invest in the oil industry, so there is an evident
the government will have to make sure that PEMEX does
appetite. However, an actual market is still missing, so
not fall behind on its payments.
investors cannot buy assets, for example.
We are also working on financing schemes so that the
Q: What are some initiatives the private sector is
private sector can approach PEMEX and operate, be it
undertaking in order to enhance its participation in the
through service contracts, associations, or farm-outs. In
energy sector?
other words, we are trying to find ways to inject private
A: A new milestone is the creation of the Mexican Energy
investment into PEMEX so that it can continue with its
Council (COMENER). AMESPAC was a key sponsor of
projects. In parallel, we are approaching the new operators
the creation of this entity, and the idea behind it is that
that are entering the market with concrete work programs.
there are several organizations and industry chambers
Back in 2014, PEMEX’s budget amounted to MX$300
across the energy industry, which includes oil, gas, and
billion, but there were budget cuts in 2015, and the NOC’s
electricity, that share common interests and concerns.
budget for 2016 is MX$216 billion, a 27% decrease. When
Many members of this organization belong to both
including overdue payments from past years, known as
AMESPAC and COPARMEX. In fact, Juan Acra, President
Due Payments from Previous Fiscal Exercises (ADEFAS),
of COPARMEX’s Energy Commission, was selected as the
and the recently announced budget cut, PEMEX is left
head of the Council. Another important matter relates
with little money to invest. Our only alternative is to look
to the TPP, as it will consolidate the changes that have
for private investment.
been made in the energy sector’s legislative framework and provide legal certainty to contracts signed with
Q: What can be done to keep the industry afloat until the
the government, both in the oil and gas and electricity
new operators begin operations, considering that PEMEX
industries. We have been working with experts who
is not in a position to drive growth?
were advisors to the business sector who are drafting
A: The Energy Reform was intended to create markets. The
some clauses in the TPP, so we feel optimistic about
electricity market is moving according to schedule and
the additional benefits this will bring to international
without major complications. The oil and gas market has
investments in Mexico’s energy industry. For the first
revolved around the blocks offered in Round One, but this
time, investments are being protected beyond the
is just a primary market. We also need secondary markets
companies, spanning all the way to contracts with the
with liquidity, and the only way to support this task is by
public sector. The TPP will also protect investments and
migrating the COPS and CIEPS, speeding up the farm-
contracts against future changes in the legislation, so
outs, and for PEMEX to find financing mechanism that
everything that has been achieved so far is irreversible,
will enable it to continue operating its fields regardless of
as these changes are valid before international treaties.
budget constraints, which can only be achieved through
The objective is to protect the Energy Reform beyond the
private investment. Once the conditions are provided, a
current presidential term.
39
| VIEW FROM THE TOP
ADJUSTING STRATEGY FOR THE MEXICAN MARKET WALLACE PESCARINI President Mexico & Central America of Schlumberger
40
Q: How are you planning to turn your arrival as President
that was initially expected when the new legislation was
of Schlumberger Mexico into an opportunity at such a
introduced.
challenging time? A: Positivity is crucial in times like these. I have a breadth of
We are also taking advantage of this crisis in order
experience operating in the Middle East, Europe, Africa, and
to accelerate our “transformation program”, which is
Latin America, and even though there is no strong country
driven by our CEO Paul Kibsgaard, and this involves
in which to be operating at the moment, Mexico is one of the
careful examination of our operations, and our methods
most solid options due to the positive future perspective. All
for generating business success. In 2011, when we
countries are suffering a great deal due to the low oil prices,
began to notice that the industry required a complete
especially those that are highly dependent on oil and gas,
transformation, we saw an opportunity to accelerate this
but the Energy Reform has generated great anticipation of
by improving efficiency and drilling performance, which is
the future changes. I worked in Mexico 15 years ago, and I
helping greatly to mitigate the effects of the low activity
was positively surprised by the impact that the government
level and the resulting pricing pressure. Simultaneously,
made with the Energy Reform in such a short period of
we are passing on these savings to our customers, as we
time. Last year, the bidding rounds were the key milestone
strive to become the best-run company in the oil and gas
of the Energy Reform, and due to their success, I strongly
industry.
believe that the future of Mexico’s energy industry is bright. Q: To what extent will Schlumberger’s structure and Q: How is Schlumberger modifying its global business
strategy have to be modified in order to operate
strategy in an environment characterized by low oil prices
effectively in the country, given the transformations in
and increasing price pressure on suppliers and service
PEMEX’s structure and the entrance of new operators?
providers, and how is the positioning of Mexico within
A: Schlumberger has always been able to adapt well
your global portfolio changing?
to local cultures, even though our transformation
A: Mexico has always played an important role in
program has been introduced at a global level. We
Schlumberger’s operations, both at a global level and
have customized many services to adhere to Mexican
within Latin America. A few years ago, we decided to
needs and, due to PEMEX’s importance in our global
separate Mexico and Central America from our Latin
vision, we have tried to align ourselves as closely as
American bracket in order to provide the appropriate
possible with the NOC’s changing structure. Lately, we
visibility merited by the strengths of both regions. In the
have participated in interactions with PEMEX wherein
context of the current business environment, Mexico is
both parties share details of restructuring plans in
suffering on the same scale as all other countries due to
order to find synergies and provide mutual support
the pressure imparted by the current low oil prices. PEMEX
in accelerating both transformations. Regarding the
faces challenges in terms of its budget restrictions, decline
newcomers to the market, we have a global presence,
in production, and the limited amount of additional debt
meaning that many potential partners are accustomed
that the NOC can adopt. Despite these challenging times,
to the way we work, so we are trying to localize the
Schlumberger is keen to negotiate this market, having
performance and efficiency levels to operate under
been operating in the country for 80 years. We have a
Mexican conditions. As a result, our global standard
deep understanding of operations in Mexico. As a result,
means we can provide the same experience whether
we have been gradually adjusting to the new environment,
working in the Gulf of Mexico, or in other countries like
limiting our activities somewhat, but constantly keeping
Brazil, and we can provide assurances that we use the
in mind the potential that the future holds, especially as
same state-of-the-art technology that we implement in
the Energy Reform begins to attract the level of activity
other countries around the world.
Q: To what extent do you expect other private companies
these factors will be vital to our continued success in the
to have the same appetite as PEMEX for integrated
country. This year, we are finalizing investment in a base
solutions?
in Villahermosa in order to provide support not only for
A: In my experience, even outside of Latin America,
onshore operations, but also for offshore. We are also
the tendency in the industry has always been to seek
expecting to complete the multi-client seismic program
integrated solutions, so our customers, regardless of
by mid-2016, and we are working with new customers
whether they are small independent players, IOCs, or
entering the market to guarantee a smooth transition.
NOCs, realize that the creation of synergies is conducive to generating savings. Another positive aspect of integrated
One important contributing factor to our success is
services is risk management, and if there is anything the
our diversity, and the fact that we do not only focus on
Macondo incident has taught the industry, it is the value
oil and gas but also on working closely with the local
in allowing the operator to focus on the well integrity
communities. We make concerted efforts to develop large
and the reservoir. I am confident that the new players
quantities of national content, and 90% of our employees
coming to Mexico will have an appetite for this kind of
are Mexican. In addition, more than 500 Mexicans work
approach, mainly due to the fact that they will not yet have
for Schlumberger in other parts of the world, and we
established the critical mass necessary in the country to
always make sure we maintain this quota. We have also
liaise with several suppliers. In this way, integrated service
been focused on social programs, such as Schlumberger
suppliers like Schlumberger can facilitate the establishing
Excellence in Education Development (SEED), a volunteer-
of operations in a new country, and we have already
based initiative designed to invest in education and is
witnessed this demand in places like Africa, for example.
focused on underserved communities where Schlumberger operates. The SEED action-learning methodology is
Q: What are your main priorities for 2016, and how are
based on science and technology experience through
you planning to achieve these?
our volunteers, to inspire teachers and students to seek
A: With a volatile market, there is the need to focus on
innovative ways, like robotics, to solve the world’s common
the aspects over which we have control, and it is difficult
problems, such as water scarcity, environmental issues and
to predict what oil price fluctuations may occur over
safety. To date 13 schools and more than 15,000 students
the next few months. In the last 12-18 months, erroneous
have benefited from this program. In summary, success in
predictions have been made regarding oil price recovery.
Mexico requires a multi-faceted approach, which includes
The foundations of our business are Health, Safety, and
a close collaboration with local communities in the vicinity
Environment (HSE), service quality, and investment, and
of the areas where we operate.
41
| EXPERT OPINION
CONFLICT BETWEEN THE CASH COW AND SACRED COW TIM SAMPLES
42
successful auctions and attract some quality bids. People
Assistant Professor of Legal
quickly forget previous efforts in Mexico to hold bidding
Studies at Terry College
rounds for oil projects, namely the integrated service
of Business, University of
contracts after the 2008 Energy Reform and the multiple
Georgia
service contracts before that, which failed to reach the expected outcome. One encouraging sign is that some early mistakes in the contracts and the bidding process
For years, the future of Mexico has been closely linked to
were corrected after regulators responded to market
the oil industry, and more specifically, to the state-owned
feedback. There is much work to be done, but there
oil company, PEMEX. That relationship is based on the
are some positive signs too. The upcoming and highly
government’s heavy reliance on the NOC for tax revenues.
anticipated deepwater auctions are a major test.
Historically, taxes from PEMEX accounted for about one third of the Mexican government’s income. However, changes
Any sovereign government setting out on this path faces
are afoot. Mexico has reduced reliance on oil revenues to
tradeoffs between maintaining sovereignty and attracting
below 20% of the tax base, but this reduction has not been
private investment on favorable terms. A similar game
entirely pre-planned and voluntary. While the government
of give and take occurs in trade negotiations between
deserves some credit for easing PEMEX’s tax burden, the
sovereign nations themselves. In that sense, Mexico’s
NOC also suffered over $30 billion in losses during 2015 and
current sovereignty tradeoffs are par for the course and
faces record levels of debt. The good news is that Mexico
approximate industry-standard international practices.
has increased non-oil tax revenues through a fiscal reform
That said, with more attractive price conditions, Mexico’s
and, as a percentage of Mexico’s gross domestic product,
regulators could certainly be more aggressive in setting
oil constitutes half of what it did a couple of decades ago.
the tone for auctions as far as fiscal terms, government
Manufacturing and other sectors are helping to fill the fiscal
take, and other bidding and contractual terms. Economic
gap that PEMEX left behind. Looking ahead, the government
conditions have impacted the standard for what constitutes
needs to build on these successes by consolidating the fiscal
“good enough” terms for the Mexican government, as well
reform and improving tax collection practices.
as for the private companies bidding on these projects. Today’s energy industry is certainly a bidder’s market.
In order to successfully attract necessary investment in the energy sector, Mexico needs to create (1) a clear framework
I characterize the historic role of PEMEX as simultaneously
for private investment with attractive economic terms, (2)
serving as a cash cow and a sacred cow in Mexico. As a
competent and independent regulatory authorities, and
cash cow, the NOC shouldered a disproportionate and
(3) an efficient bidding process with balanced contracts
unsustainable share of the government’s fiscal base. As a
and adequate transparency. Nevertheless, we have to
sacred cow, it has existed in a highly protective but stifling
evaluate the outcomes of Mexico’s Energy Reform in
legal environment. PEMEX was asked to do the impossible.
the context of the worldwide collapse in oil prices. It is
Responsible for covering all of Mexico’s needs, it was run
also worth remembering that the reform ventures into
much like a ministry of the government, while prohibited
uncharted territory for Mexico. What we are witnessing is
from forming partnerships with other energy companies.
certainly a historic landmark, but the practical implications
The weight of these dual roles was even heavier before the
are just as real. Relatively inexperienced regulatory
Energy Reform, which has eased some of the burdens on
agencies are navigating brand new legal frameworks while
PEMEX. Nevertheless, many questions about the future of
engaging the private sector on multiple fronts in unfamiliar
PEMEX remain unanswered. For instance, we have yet to
ways. The learning curves are steep and numerous. After
see how the farm-outs or joint ventures between the NOC
some early setbacks, the regulators have done relatively
and other energy companies will take shape. A significant
well so far, all things considered. Despite extraordinarily
amount of progress is needed before it can become an
difficult market conditions, Mexico has managed to hold
internationally competitive enterprise.
Tim Samples’ research is focused on sovereign debt and energy in international investment. His articles have been featured in several notable journals, including the Stanford Journal of Law, the Northwestern Journal of International Law and Business, and the Law and Business Review of the Americas
| VIEW FROM THE TOP
THE STEPS TOWARD BETTER CONTRACTING JESÚS RODRÍGUEZ DÁVALOS Founding Partner of Rodríguez Dávalos Abogados
Q: How would you rank the attractiveness of Mexico as an
Q: How successful has the government been in structuring
oil and gas investment destination?
and administering E&P contracts so far, and what learning
A: It is difficult to compare the current state of the Mexican
curve have you identified from R1-L01 to R1-L03?
oil and gas industry, which has very recently opened
A: CNH has restructured and adapted the model contract
up to private investment, and is still in the process of
several times to address the concerns of the industry
implementing all of the secondary and tertiary regulations
regarding several issues, such as the possibility of
of the Energy Reform, with other industries that have
superficial recognition and exploration data trading and
allowed private participation for decades. Nevertheless,
transfer. These changes have resulted in a more polished
Mexico’s legal regime applicable to oil and gas activities
contract model that has served and will serve as the
has been modified after studying and identifying the
basis for future tenders. Likewise, it has refined the bid
successes and failures of several types of regimes on
presentation event to include faster bid valuation methods
a global level, the best international practices, and the
that take into account electronic means, without sacrificing
particular circumstances and potential of our country.
the transparency in the process. As for the administration
Therefore, in general terms, the regime is designed to be
of the contracts, it is in its infancy since most, if not all, of
competitive and attract foreign investment.
the R1-L03 contracts have yet to be executed, and the R1L01 contracts will remain in exploration phase for at least
Q:
What
are
the
main
highlights
regarding
new
a few more years.
opportunities in the Mexican market? A: An example of some of the newest local opportunities
Q: What are the main advantages of Mexico’s upstream
would include the fact that, as laid out in President Peña
contracts for the private sector?
Nieto’s announcement in February, as of April 1, 2016, any
A: The advantages depend on the type of contract.
company that meets the applicable legal requirements
Production sharing contracts and license contracts give
may import gasoline and diesel, an activity previously
title and possession of the hydrocarbon production, as
reserved to PEMEX. Due to the price spread between
opposed to profit sharing and services contracts that
the national price of gasoline and diesel and that of
only grant economic interest in the production. In this
other countries, there could be an interesting business
sense, it is important to note that so far, only production
opportunity here if the traded volumes are high enough.
sharing and license contracts have been tendered and
Another thing to take into account is that practically all of
awarded. One concern regarding license contracts is that
the refined products storage and pipeline transportation
the main bidding variable is a percentage of additional
infrastructure in Mexico is owned by PEMEX, due to the
royalty over gross revenues instead of a percentage of
fact that prior to the Energy Reform, PEMEX was the
the operating profit. This is a variable that does not share
only user of these facilities. Much of this infrastructure
the risk of higher costs between the government and
dates a few decades back and has not received proper
the contractor, and therefore, it might not be considered
maintenance over the years. Furthermore, some of the
attractive for some investors. I would recommend that the
pipelines have a significant illegal tapping problem. All
government carefully select the type of contract for each
of these circumstances present a scenario of interesting
block, a responsibility of the Ministry of Energy, instead of
opportunities in which to improve and provide maintenance
changing the nature of contracts, which would require the
to existing infrastructure in Mexico.
legislators to modify the law.
Rodríguez Dávalos Abogados is a legal consultancy firm that provides both legal and business advisory to national and international clients in the Mexican oil and gas industry; another Q&A in the next chapter is dedicated to Jesús Rodríguez Dávalos perspective on Round One.
43
ROUND ONE
2
High hopes have been raised in Mexico’s Round One on the part of both the Mexican government and the nation, not to mention private investors. R1-L01 only succeeded in awarding two out of 14 exploration blocks, a setback that the authorities recognized as a learning opportunity. Following a successful revision of the contract terms, R1-L02 resulted in the allocation of three shallow water production fields out of five tendered. The third phase was a roaring success, with 100% of the 25 onshore contracts awarded to predominantly Mexican companies with the ambition to become operators. The next bidding round, and the one that has IOCs tingling, is the deepwater phase. This fourth bidding round will be concluded on December 5, 2016, and includes fields in both Perdido and Cuenca Salina. The final phase of Round One, which had been on standby, has now been put back on the table, and is expected to soon be launched to enable companies to bid for unconventionals.
This chapter offers insight into Round One, focusing on the activities of the authorities and regulators, as well as the undertakings of winners of the bidding rounds. It will also review the role of PEMEX, including upcoming farm-outs and potential joint ventures. In addition, it provides an overview of the fields included in each phase as well as their characteristics, and an analysis of each bidding round.
45
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The key elements in our strategy are: • Commitment to provide customers with safe efficient operations • Combination of state-of-the-art mobile drilling units with experienced and skilled employees
• Growth through target alliances, purchase of newbuilds, mergers and acquisitions • Development of our rapidly growing fleet of premium jack-up rigs • Further growth in conventional waters as well as deepwater areas
| CHAPTER 2: ROUND ONE 48
VIEW FROM THE TOP: Lourdes Melgar, Ministry of Energy
49
VIEW FROM THE TOP: Sergio Pimentel, CNH
50
VIEW FROM THE TOP: Héctor Acosta, CNH
50
INSIGHT: Alberto de la Fuente, Shell Mexico
52
ANALYSIS: Round One in Brief
54
VIEW FROM THE TOP: Guillermo García Alcocer, Ministry of Energy
56
VIEW FROM THE TOP: Edgar Rangel Germán, CNH
58
MAP: Round One Overview
60
MAP: Round One Winners
62
MAP: Round One Winners
63
INSIGHT: Iván Sandrea, Sierra Oil & Gas
64
VIEW FROM THE TOP: Timothy Duncan, Talos Energy
66
VIEW FROM THE TOP: Mariano Hernández, Nuvoil
67
VIEW FROM THE TOP: Craig Steinke, Renaissance Oil
68
VIEW FROM THE TOP: David Enríquez, Goodrich, Riquelme y Asociados
69
INSIGHT: José Pablo Rinkenbach, AINDA Consultores
70
VIEW FROM THE TOP: Derek Woodhouse, Woodhouse Lorente Ludlow
71
VIEW FROM THE TOP: Benjamín Torres-Barrón, Baker & McKenzie
72
INSIGHT: Carlos Pascual, IHS Energy
73
VIEW FROM THE TOP: Jesús Rodríguez Dávalos, Rodríguez Dávalos Abogados
74
VIEW FROM THE TOP: Eckhard Hinrichsen, DNV GL - Oil and Gas
74
INSIGHT: Sebastián Aguayo, Marsh
75
Rosa Morán, Marsh INSIGHT: Alberto Jones Tamayo, Moody’s Rosa Maria Morales Cid, Moody’s
47
| VIEW FROM THE TOP
AUTHORITIES SUCCEED IN LURING NEW PLAYERS LOURDES MELGAR Undersecretary of Hydrocarbons at the Ministry of Energy 48
Q: How does the profile of the companies that won blocks
Q: What would happen if the companies in R1-L03 fail
in the first three phases of Round One compare to the
to make their operations profitable enough to pay the
type of companies you were hoping to attract?
government share they agreed on?
A: The prequalification requirements changed from one
A: It is important to point out that the Mexican government
round to the next, and these were drafted in a way that would
is not willing to renegotiate contracts, as some companies
attract the types of companies we thought we needed.
did with PEMEX in the past. If a company miscalculated
The Ministry was criticized at some point for the stringent
its proposal, it has two options. In the first, it can opt for
requirements for the shallow water blocks, but there are
not signing the contract, paying a penalty for doing so,
two important elements behind this decision. Firstly, we
and allow the second closest bidder to step in. The second
wanted to ensure that the companies that are going to work
option consist of the authorities revoking the contract. If
in the Gulf of Mexico had the knowledge, experience, and
we get a contract back, we would tender the area again.
capabilities needed to develop these areas and bring them
It is not the ideal scenario, but it will not be a serious blow
to production in a safe and sound manner. The requirements
to the production targets in the case of R1-L03. I would be
for the second tender, the shallow water extraction round,
concerned if something like this happened in the deepwater
were higher than those of R1-L01 because we wanted to
round, but the mature fields round was meant to create a
make sure that the participating companies had the ability to
new industry in Mexico, so it is part of a learning process.
produce a barrel in offshore setting. I find the shallow waters phase particularly important because I am convinced this is
Q:What are the challenges in moving the unconventional
where the fastest increase in production will come from.
resources round forward? A: R1-L05 is a difficult round. At first we decided to postpone
I am quite pleased with the results from the offshore
the tender due to current oil prices, especially because the
rounds, particularly in terms of benefits for the state. There
country has no experience in these types of fields nor the
was a lot of criticism in R1-L01 because we only awarded
needed infrastructure to develop them. However, my main
two contracts out of 14, but the consortium that won is
concern is the lack of appropriate regulations.
a serious company and is moving its activities forward according to schedule. In addition, a Mexican company
Unconventional resource development has specific needs
was created, which is always good news. In the case of R1-
that are indispensable, such as the right regulations for
L02, awarding a block to a company like ENI was a signal
the wells, water usage, disposal of waste materials, and
that our contracts are good enough for a major player.
even roads that have to be frequently repaired due to the constant back-and-forth transportation of materials.
The third phase was entirely different, and the contrast
We are working hard at full speed, and we have specific
with the other rounds can be seen because R1-L03 was
teams for each subject, ranging from technical matters
designed to be the seed for a new Mexican oil industry.
to communication strategies. The government should put
Our contracts do not discriminate, and even though a
more effort into approaching the communities and give
Canadian company won three contracts, the idea was
them the certainties they need to allow this activity to
for Mexican companies that had worked with PEMEX to
take place. If we can make the case that the development
demonstrate that they had the needed capabilities. The
of unconventional resources follows international best
government was surprised with the results of R1-L03, as
practices, that the authorities are sensitive toward issues of
25 contracts were awarded in spite of the low oil price. It
industrial safety and environmental protection, and that we
is safe to say we succeeded in attracting new companies
have a regulation and obligations stated in the contracts for
in, many of which had been PEMEX contractors for years
companies to deal with the waste that comes from these
and were aspiring to operate their own fields.
processes, then the whole round can move forward.
| VIEW FROM THE TOP
THE BALANCE BETWEEN LICENSES AND PROFIT-SHARING CONTRACTS SERGIO PIMENTEL Commissioner of CNH
49 49
Q: How do the conditions of Mexico’s bidding rounds fare
The main difference between the first two rounds and the
against those offered in other countries?
third is that the very nature of the contract model changed
A: The Energy Reform allowed competition in Mexico by
in the latter. The first two awarded production-sharing
opening exploration and production activities beyond
agreements, while R1-L03 offered licenses. All 25 blocks
PEMEX, but it also opened the door for Mexico to compete
were awarded in the third phase, but we have to keep in
in an international arena against countries that also offer
mind that these were smaller fields than the ones offered
hydrocarbon resources. The Mexican side of the Gulf of
in the shallow water rounds.
Mexico presents an attractive basin for international players mainly because it has not been thoroughly
Q: How can you balance the attractiveness of production-
explored. Superficial exploration has been carried out
sharing contracts with licenses?
recently, and the results suggest positive prospects
A: Both models can be equally attractive given the right
regarding the resources that could be extracted. It is
fiscal terms, the drafting of which falls under the Ministry
widely known that the Gulf of Mexico is a world-class
of Finance’s jurisdiction. We should look at profit-sharing
geological area that is rich in hydrocarbon resources, and
agreements and licenses alike and make both attractive for
Cantarell, the largest offshore discovery, is proof of the
participants. The distinctive difference with licenses is that
region’s wealth. The superficial exploration activities and
these entail a transfer of ownership of the hydrocarbons
production operations that will take place in the Gulf will
at the wellhead, which then belong to the contractor,
generate greater interest from international companies.
who pays the considerations established in the law. The profit-sharing scheme is more complex, as the contractor
Q: How have contracts evolved in the first three phases
will only own the percentage indicated in the contract.
of Round One?
Licenses were chosen in the third tender because this
A: The first phase comprised 14 exploration blocks in
entailed many contracts for smaller and mature fields,
shallow waters in the Gulf of Mexico. The element that
and licenses are easier to administer from the regulators’
drastically changed the results from R1-L01 to R1-L02
perspective. For instance, licenses do not deal with cost
was the fact that, for the exploration round, the Ministry
recovery matters, unlike profit-sharing agreements.
of Finance revealed the minimum share for the state the same day the participants’ offers were disclosed. For
Q: What are the main concerns of the private sector, and
the second tender the, Ministry of Finance decided to
how can these be addressed?
reveal the minimum share 15 days in advance, providing a
A: The industry has voiced concerns regarding the
significant advantage for the participants, who considered
possible reversal of the Energy Reform, but it is highly
this information and submitted proposals above the
unlikely that this would happen. An important aspect in
established value. In the first round, there were offers that
the Energy Reform is that its key premises were included
were only slightly below the established value. The first
in a Constitutional Amendment. Only three Constitutional
phase resulted in two out of the 14 blocks being awarded,
Articles were modified, but there is an extensive transitory
but if the information about minimum share had been
regime supporting the reform. The fact that the reform
revealed earlier, it is probable that six contracts would
was made in and through the Constitution makes it
have been awarded. The Ministry of Finance established
difficult to revert the changes that have been made.
appropriate fiscal terms, although we have to understand
There are additional instruments, such as the Trans-Pacific
that companies always want better conditions and the
Partnership, which has clear rules in terms of international
Ministry will always work to maximize value for the state.
arbitrage. Nonetheless, it would be quite difficult to
Achieving this balance is a significant challenge that the
once again reach the political climate that led to the
Ministry of Finance will face in every tender.
Constitutional Amendment.
| VIEW FROM THE TOP
ENERGY REFORM DEPENDS ON TRANSPARENT ROUNDS HÉCTOR ACOSTA Commissioner of CNH 50
Q: What have been the biggest and most important
the state interests that we are in charge of protecting.
successes of the Energy Reform to this date?
This balance allows us to reach a point where contracts
A: The Energy Reform’s biggest success was the time
are attractive for the private sector from an investment
taken for the implementation of Round Zero and Round
and utilitarian point of view, as well for the government
One. The year 2013 was characterized by the constitutional
in terms of revenue. In this regard, we have done well. I
reform, 2014 marked the year of the secondary reform and
recently conducted an evaluation of the benefits that the
Round Zero, and 2015 saw Round One and the allocation
state will receive through royalties and remunerations,
of the first contracts. That means that in just two years, the
which showed that R1-L01 contracts were in favor of the
legal reform took place, as did the allocation of the first
state with a majority of 62.49%. These contracts were for
contracts. Looking back, we waited 50 years before we
the exploration area and also included those for shared
were able to bring up the topic of private investment in the
production. R1-L02, which also involved production-
energy sector, after which we discussed it for 18 years. Yet,
sharing contracts, favored the state at a rate of 75.90%,
it only took two years to implement. The biggest success
and R1-L03, which awarded licenses, favored it at a rate of
is this implementation speed, which was enabled by the
55.27%. All of these percentages have been a result of bids
long period of discussion that preceded it.
from the private sector, but they hinge on process from governmental entities.
Q: How can you ensure effective dialogue between CNH, the Ministry of Energy, the Ministry of Finance, and the
Q: Many people believe R1-L01 did not meet the
private sector on the design of the contracts?
expectations. What were the main mistakes of this
A: When it comes to drafting contract models, we have
bidding round, and how did you learn from that?
many rules to follow, including the way we can incorporate
A:
recommendations from the private sector. We also
and the assessment must be carried out in relation to the
believe we have a duty to establish equilibrium between
entire process of Round One. However, I must admit that
the suggestions we receive from the private sector and
Round One should not have begun with exploration blocks,
Bidding phases cannot be evaluated independently,
| INSIGHT
AWAITING THE CROWN JEWEL ALBERTO DE LA FUENTE President and Director General of Shell Mexico
la Fuente, Director General of Shell Mexico. “We did not participate in the third mature onshore field bid phase, as it was never one of our considerations, but we will look into the unconventional resources phase and we
Shell is looking to develop a diversified upstream
are definitely interested in deepwater,” he explains. Shell
portfolio in Mexico, and to this end, the IOC bought the
is currently actively participating in the bidding round
data pack and pre-qualified for R1-L02, but has yet to
preparations for the deepwater phase and has moved to
move forward with a bid because it has not found the
the prequalification phase. “In addition, we continuously
materiality needed to invest, as reported by Alberto de
evaluate opportunities along the entire value chain. The
but rather with production blocks with proven reserves.
the social consequences resulting from the international
This was a strategic error, rather than a mistake related
community gaining knowledge of its participation in
to the content of the contractual areas or the contracts.
corrupt activities.
We have nonetheless made modifications that would render the contracts more flexible without diminishing state
protection.
R1-L02,
which
offered
production
blocks, was much more successful and gave insight into the discouragement observed in R1-L01. One of CNH’s greatest successes has been its quick reaction in making the needed changes after each tender. R1-L01 did not send
“We have to be relentless in the face of any deviation from proper ethical conduct” Héctor Acosta,
out the message we hoped it would, but this was rectified
Commissioner at CNH
by R1-L03. I believe that this wobbly start, which was more a strategical error than a failure, will stay in the records as
When it comes to CNH, the administrative sanctions
an anecdote. Fortunately, long-term results weight more
would correspond to the cancellation of the contracts
than anecdotes.
and possibly conventional sentences. The disqualification from public auctions would be executed by the Ministry
Q: What is the role of the country’s anti-corruption
of Civil Service. Moreover, the individuals involved
institutions in the implementation of the Energy Reform,
in these illegal activities could also be criminally
and how are they connected with the Ministry of Energy,
prosecuted. Members of CNH are legally prohibited
CNH, and CRE?
from liaising with bidding companies during the entire
A: The Mexican institution in charge of combatting
tendering process, and afterward, contact can only be
corruption from an administrative point of view is the
established through audiences where there must be at
Ministry of Civil Service. Its activities are transversal,
least two commissioners present in the CNH premises.
meaning it does not distinguish between topics related
The audience is videotaped and we draft an act of
to the Energy Reform or any others. Nonetheless, the
agreement, sign it, and make it public. We are the first
National Hydrocarbons Law established a few measures
Mexican agency to put together a declaration of interests.
to combat corruption and promote transparency, which
The government entity is consciously ensuring that the
cannot be found in any other Mexican regulation.
processes are carried out with full transparency, and we
Unlike many other measures, these are preventive.
are transferring this culture to all of our collaborators.
The Hydrocarbons Law is linked to the anti-corruption
It would be a shame for an act of corruption to tarnish
legislation in the public contracts area, which establishes
the Energy Reform, as it is a reform that was achieved
a series of sanctions and bans. The worst sanction for
amidst a divided public opinion. Allowing for such an
an operator engaging in acts of corruption would be
act to occur would provide validation to those who were
a prohibition to its continued participation in tender
opposed to it and would disappoint those who believed
auctions.
in it. We have to be relentless in the face of any deviation
In
addition
to
the
economic
sanctions,
depending on the incurred offense, IOCs would face
from proper ethical conduct.
oil prices have not changed our interest in Mexico,” de la
options could be part of most company’s strategy when
Fuente reassures. In addition to participating as operators
entering Mexico, timing must also be considered. Indeed,
on deepwater blocks, Shell is also interested in farm-outs in
if a company has a limited budget that only allows it to
the deepwater segment with PEMEX or private companies.
select one of the options, then farm-outs and licensing
“I do not think it is a choice between one or the other,
rounds will compete with each other.
but rather, they are different opportunities,” de la Fuente states. He discloses that Shell could be interesting in
De la Fuente has no preference between partnering with
working with PEMEX on certain fields in the Perdido area
the NOC or with private companies. “Shell has experience
because of the fact that these already have 2P reserves.
across the globe, to the extent that it is unlikely that there
“This means less uncertainty and faster development than
is a single company that we have not either partnered
the fields awarded through Round One. We believe that
or competed with. We are interested in partnering with
three to four years could be gained, but this is not to say
PEMEX, and in fact I believe we are the only IOC to date
that the Round One blocks would not prove interesting
to already have a partnership with the NOC, in Deer Park
and fruitful.” He goes on to clarify that, although both
Refinery, Texas,” he points out.
51
| ROUND ONE IN BRIEF
WHAT OUR INTERVIEWEES ARE SAYING "The bidding process was excellent. It was transparent and efficiently run." Iván Sandrea, CEO of Sierra Oil & Gas
52
R1-L01 SUCCESSES & LESSONS LEARNED: R1-L01 only saw two blocks out of 14 awarded. Most of the industry agrees on the reasons behind the substantial gap between expectations and reality. According to many players, the main reason was a strategic error, whereby the government should not have begun bidding rounds with exploration fields, which carry a great deal of uncertainty, but should have rather moved directly to production blocks. Indeed, the authorities had prepared the bidding rounds in a very different oil price context to that in which they were carried out. Another widely agreed-upon factor is
R1 - L01
the Ministry of Finance’s lateness in publishing information
14.3% fields a
related to the minimum values for the bidding variables. These were published on the same day as the proposals were presented. Industry experts and government officials
14.3%
both agree upon the fact that an award rate of at least 30% could have been reached had these figures been released
fields awarded
with more time in advance, making the round a success. In the midst of the industry turmoil created by this news, Enrique Peña Nieto, President of Mexico, hailed it as a learning experience.
R1 - L02 R1-L02
60% fields aw
SUCCESSES & LESSONS LEARNED: The biggest relief from R1-L02, apart from the higher success rate than R1-L01, was the industry’s realization that CNH listened to the potential new operators and took their concerns and suggestions into consideration in a fast and efficient manner. In the second bidding round, three blocks out of five were allocated. The two main reasons cited for this success seem to be the fact that these were production blocks with 2P reserves, which are more attractive in a low-oil price environment than exploration ones, but also the Ministry of Finance’s revelation of the minimum government take 15 days before the disclosure of participants’ offers. This allowed each bidder to take this figure into consideration in their proposals, increasing their chances of success. Although the industry expressed few complains, it did express its desire for improvements in the contract type, which remained similar to the productionsharing contracts awarded in R1-L01, particularly with regards to lack of flexibility.
60%
fields awarded
R1-L03 SUCCESSES & LESSONS LEARNED: R1-L03 was hailed as a resounding success, but it is important to consider the definition of success used in this widely-used statement among the industry. It was a great accomplishment not only in the sense that all of the 25 tendered blocks were awarded, but also because most of these fields were won by Mexican firms, achieving the government’s objectives of creating a national oil industry. It is worth noting, however, that only 19 of those contracts were signed, as a few companies failed to meet the requirements for their blocks. The industry believes that the success is closely related to the increased flexibility of the contracts. R1-L03 awarded licenses, which was extremely helpful in generating
R1 - L03
industry interest, as they entailed much less burdensome 100% fields awarded
administrative processes than the previously awarded production-sharing contracts, as well as a modification to the requirements relating to guarantees and collaterals. Not only was it the contract type that contributed to such
100%
a high award rate, but also the field characteristics. The release of the minimum share for the State in advance is
fields awarded
also believed to have contributed to the high award rate. The controversy surrounding the so-called success of R1L03 is related to the royalties bid by a grand majority of bidders, which certain experts claim to be uneconomic.
R1 - L04 ?% fields awarded
R1-L04 WHAT TO EXPECT: Although R1-L04 has only recently been announced, the industry has been building expectations and speculating
?
fields awarded
about its outcome for months. The blocks will be awarded on December 5, 2016, and the most commonly heard opinions revolve around a flood of investment that will enter Mexico’s deepwater reserves, believed to be of a similar quantity and quality as the ones found on the US side of the Gulf. Though many players in the industry expect a tremendous impact both on the industry and the economy, one factor threatens this perception. Mexico’s deepwater market will be mainly controlled by Houston, despite the national content element, and instead of direct investment, the country will receive money in the form of royalties for the Ministry of Finance. R1-L04 will certainly bring more investment into the country than R1L03, but the geographical location of the former blocks will not allow for as strong an impact on the economy as the public expects.
53
| VIEW FROM THE TOP
GOVERNMENT PREPARES THE INDUSTRY FOR ROUND TWO GUILLERMO GARCÍA ALCOCER Former Chief of the Unit of Exploration and Production Policies at the Ministry of Energy 54
Q: What initiatives does the government use to push the
These onshore projects have significantly lower costs
development of local operators in Mexico’s upstream
due to the fact that the reservoirs are onshore, enabling
segment?
them to benefit from existing infrastructure, and it would
A: The Ministry of Economy has created a fund in order
only be necessary to carry out drilling before connecting
to promote the Mexican oil industry. Nevertheless, the
production to a system based on a tariff that would be
strategy that has been most successful is the design of
set by CRE. We believe that the unconventional round will
attractive tenders for the national industry, as in the case
take place, but we are still measuring the most appropriate
of the third phase of Round One. This tender was designed
areas that are to be offered in the tenders. Chicontepec
to become the entry point by which new operators can
is still an option, but it must be tendered along with
begin working in Mexico and learn about the market as a
other fields. Regarding unconventionals, in addition to
whole. There will be more opportunities to participate in
the market conditions, we need ASEA and CNH to have
further phases of the bidding rounds.
established relevant regulations in order for the bid to be launched.
Q: How does the Ministry of Energy anticipate the role of onshore fields in meeting the national production
Q: How much of a direct impact do you expect the
targets?
deepwater round to have on the Mexican economy?
A: These fields are extremely attractive, and there are
A: There is a great need for ports to support these
several companies that are shifting their focus from shale
activities, and the closest port to the Perdido deepwater
gas areas in the US to onshore conventional oil in Mexico.
area is Matamoros, located adjacent to Brownsville, which
We believe that they can bring their experience in low-
is currently being developed to serve as a supplier hub for
cost production techniques, knowledge, infrastructure,
the area. The local content that we require in deepwater
and drilling equipment to establish a solid business in
bids is slightly low in comparison to the first three bids,
Mexico’s onshore fields. Given the market conditions at
but could be demanding according to the oil industry.
the moment, an opportunity to move into conventionals is
Nevertheless, we think that the 4% local content goal that
interesting for these companies, and when prices rise once
must increase to 10% over the course of the projects is
again, unconventionals will again be an option.
attainable, and the time schedule is designed to allow the local industry to build the capacity and capability that is
Q: What is the Ministry of Energy’s perspective on
needed for deepwater projects.
including tight oil formations in the unconventional resources round to counter the impact low oil and gas
Q: Which role will the Ministry of Energy play in evaluating
prices have on shale developments?
the potential fields that could be tendered as part of
A: The unconventionals tender is still a work in progress,
PEMEX farm-outs?
but we have heard from the industry that it would be
A: We have a small role in defining the areas that are to
attractive for them if we tender different resources that
be farmed out. PEMEX is evaluating its portfolio with a
share the same area within this bidding round, such as
clearly-defined strategy of carrying out the least costly
tight oil, conventional, and unconventional oil. It would
independent activities and looking for partners to
be a matter of testing the entire stratographic geological
provide technology, CAPEX, and expertise for the more
column and obtaining the right to produce, and depending
complex areas. In this process, the Ministry of Energy
on the market situation, the different stages of the project
receives the proposals for the areas in which PEMEX
could be initiated. When the market is fully recovered, we
intends to carry out farm-outs, and when authorized,
could then capitalize on unconventionals, or this can be
CNH is in charge of the bidding process for the partner
kept as a reserve while we capitalize on conventionals.
companies. There has been a significant amount of
learning in this process, and the external market effects
awarded on December 5, and we intend to launch R1-
have been an additional factor to contend with. We
L05, R2-L01, and R2-L02 in order to retain the interest
began the farm-out process with an oil price of US$80.
of industry in Mexico’s upstream activities. We stipulated
The drop in oil prices means that the areas identified may
in the Five Year Plan that R2-L01 would again include
not be as attractive to potential investors. For instance,
shallow water blocks. These tenders continue to provide
Chicontepec at US$18/b is not attractive. Internally, the
new opportunities for the industry, and that message has
difficulty lies in the fact that Mexico has never conducted
been heard by the private sector. For this reason, many
farm-outs before, and the main issue is the way in which
interested parties, even those who have so far failed to
costs and assets are distributed within the PEMEX areas
obtain contracts, are establishing offices in Mexico. They
to be farmed-out. PEMEX is an integrated company,
are beginning to understand and trust the process and
and the whole southeast region is managed as if it were
realize that if they do not win in the first bids, there are
an all-inclusive project. When farming out a subset of
further opportunities for which to prepare. At the Ministry
fields from this region, its current accounting methods
of Energy, we are open to understanding the industry’s
make it difficult to allocate the corresponding fraction
concerns
of the service contracts, the assets in the region, and
Government is committed to creating a win-win scenario
the maintenance expenditures for each field. Therefore,
both for companies and for the state.
PEMEX must adjust its accounting so that the relevant economic and legal elements are allocated within a given asset. This is something PEMEX is still working on, and although it is trying to speed up the process, there are
and
receiving
its
feedback.
The
Federal
“PEMEX must adjust its accounting so that the
complex variables at work.
relevant economic and legal
Q: What will the Ministry of Energy’s E&P unit be focusing
elements are allocated within
on for the remainder of 2016? A: We will be carrying out R1-L05 and have started planning for the first phase of Round Two, which
a given asset” Guillermo García Alcocer,
will probably be carried out at the same time as the
Former Chief of the Unit of Exploration and
aforementioned unconventionals phase. R1-L04 will be
Production Policies at the Ministry of Energy
55
| VIEW FROM THE TOP
PAVING THE PATH FOR PEMEX'S NEW ASSOCIATION SCHEMES EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH 56
Q: Which role do you expect the farm-outs to play in the
resistance and, at some point in those discussions, PEMEX
development the Mexican oil and gas industry?
suggested following the Malaysian-Indonesian model
A: I would like to highlight the huge importance of farm-
that would allow the NOC full control over the tenders,
outs, as the silver bullet for PEMEX. I have been saying this
farm-outs, and all other factors. Thankfully, the legislator
for many months, and now people are starting to agree,
separated this responsibility and allocated it to CNH.
but we left too much in PEMEX’s hands during Round
Although this is purely speculation, I believe that PEMEX
Zero. Everyone wanted a smooth process, but now realize
resents the fact that CNH is overseeing the bidding for the
that PEMEX cannot handle this volume. We do not want
farm-outs.
to take this from PEMEX, but this year’s announcement of stringent budget cuts will imply a reduction in production
Q: What would be your recommendation for the new
and reserves. Therefore, the investment capital, expertise,
Director General of PEMEX in order to rectify these issues
and technology must be provided by partners. PEMEX has
and get the farm-out process back on track?
to come up with an aggressive farm-out strategy because,
A: I would advise the new Director General to allow CNH
despite the fact that the hydrocarbons volumes are there,
to support PEMEX. It is unthinkable that anyone from
they cannot be exploited for decades without the necessary
the government side would not want more reserves and
investment. Mexico has reserves until 2100, and it would be
higher production levels. Why would we not help PEMEX?
beneficial for the country to accelerate the exploitation of
It does not make sense that there is a lack of trust over
those reserves, which will require an increase the country’s
this issue, and it bothers me that some people criticize
execution capacity. This is why farm-outs are the key. PEMEX
the Ministry of Energy and CNH for the fact that the farm-
must decide which fields it can exploit independently and
outs have not advanced. We have the technical expertise
where it requires partners. The fields that PEMEX does not
necessary to manage the farm-outs, although PEMEX
need should be returned to the state to be included in the
has more accurate information due to the fact that the
tenders, but this is PEMEX’s decision. In my opinion, it would
information transfer has not been completed. Therefore,
be prudent for PEMEX to farm out the EOR of Cantarell or Ku-
I would like 2016 to see PEMEX and CNH collaborating to
Maloob-Zaap, because these reserves would go untapped in
finally launch a large number of farm-outs.
either case without the help of private investment, meaning that it can only create a value for PEMEX.
This is mere speculation, but I have seen that the old school establishment in PEMEX see the Minister of Energy,
Q: Why has it taken so long for PEMEX to launch its farm-
the Undersecretaries, and the Director General of PEMEX
outs, and how do you see this being resolved?
itself as temporary players within the sector. They are the
A: I attribute this to lack of capabilities and timidity.
owners, they are the petroleum engineers, and they have
There was the flurry of the reforms, after which PEMEX
been working at PEMEX for many years. They know that
announced it would carry out 12 farm-outs, but this was
we are leaving at the end of an administration, and this
over a year and a half ago and we still have not seen any
is one of the more pronounced problems. Changes must
progress. There was also no explanation of why these
be made, and the new Director General seems to intend
blocks were chosen, and I was surprised that so few were
to make considerable modifications. On the other hand,
offered when there was the opportunity to farm out 50
PEMEX is extremely militarized, which could be used to
fields, meaning the NOC would still have another 300 that
González Anaya’s favor by ensuring that this segment
it could operate independently. I suspect that this decision
is on board with the reform process. I have been in the
lay in the fear of managing so many contracts concurrently,
industry for 20 years, and I am witnessing a low level of
and the lack of knowledge and experience regarding the
motivation in PEMEX employees, with people losing their
entire farm-out process. The reform was met with a lot of
jobs and investment being reduced.
It is necessary to convert PEMEX into a more robust,
be coming to the country, with supermajors expected to
compact, efficient, productive state-owned company. The
participate in R1-L04, and smaller companies who recently
public needs to realize is that the NOC is not a branch of
established a presence in the country. Another major
the government or an employer, but a machine to generate
success of the energy reform is the boom in seismic surveys.
money for the country. For some reason, this is viewed as a
So many companies are investing their own money in
negative aspect, despite the fact that we have all received
multi-client seismic surveys because they believe they will
something from the NOC, whether that is scholarships,
be able to sell this information. One of these companies
infrastructure, or health care. I believe it will be necessary
has disclosed to us that they have 60 potential clients. The
for PEMEX to cut between one third and 50% of its
geographic location of Mexico is privileged. This is one
workforce in order to remain a viable company. Examples
of the most prolific, privileged geological basins, yet it is
can be drawn from the number of employees retained by
largely unexplored. A reservoir in Mexico can have exactly
similar oil companies, such as Saudi Aramco or Iran’s NOC,
the same geological conditions, volumes, and API gravity
as well as those of IOCs like Exxon, Shell, and Statoil.
as a reservoir in a more hostile country, and Mexico’s environment could make the difference between investors
Q: As opposed to the farm-out process, PEMEX does
deciding to devote their attention to the country. In general,
controls the migration of the COPS and the CIEPS and
these factors are accurate metrics of the commitment to
progress is slow in this area as well. How would you
invest. As of yet, I have not witnessed many failures, but
explain this?
the lack of speed of the farm-outs is certainly a negative
A: In my opinion, the economic benefits that could be
aspect of the reform. In R1-L01, there was a lot of room
brought by the contract migrations remain unclear, and
for improvement, but I would not call it a failure. However,
this reduces the urgency to implement the CIEPS. For
I am glad we started in this way, and that the fields from
PEMEX, the fiscal terms are more favorable, and new
R1-L02 were tendered in a more effective way and were
operators will be able to contribute to new technology,
not used as a learning experience. Ultimately, the reason
but for me, the added value in terms of production is
for the success of R1-L02 was because we made changes
not substantial enough to create an incentive for PEMEX.
based on the feedback received from R1-L01.
There is also uncertainty regarding the preferred operator, and in a recent presentation, it was suggested that the NOC is considering switching operators, since companies that can see the benefits the CIEPS present have since approached PEMEX with more favorable terms. I believe PEMEX is still assessing its options for the migrations, but I agree that the process should have moved slightly faster. Q: What do you consider to be the main successes and failures of Energy Reform to date, and why? A: In terms of successes, I would pinpoint R1-L02, not only because I was in charge of recommending the fields to the Ministry of Energy. This round showed the world that we listened to the industry’s feedback, making adjustments from R1-L01. We sent the message that we listened, and we attracted the operators that Mexico wanted for R1-L02. The winners are professional companies with solid reputations.
Q: Bids were won for 25 blocks in R1-L03. How many
This is extremely important, especially since they can
contracts from this round do you expect to be signed?
introduce new technologies and create a benchmark for
A: I believe that almost all of them will be signed, because
PEMEX. The tender was competitive, the bids were solid, and
we are in contact with the companies and most have their
R1-L02’s winners are already working with CNH to prepare
files almost complete in terms of the required paperwork.
their plans. R1-L03 was a fantastic demonstration of the
It may be the case that, eventually, the companies will try
presence of an appetite among Mexican industry to operate
to negotiate a pass into the second place of the tenders,
in the Mexican landscape. Eventually we will see these
but from what we see, the companies are all extremely
companies get their feet wet in shallow water.
willing to participate. We have been running some seminars to pass on information regarding the baseline
I believe that Round One in general has been extremely
and environmental studies, as well as other potentially
successful, and it sends the message that Mexico is truly
complicated aspects, so I predict that the majority of the
a ripe environment for investment. Large companies will
companies will ultimately sign those contracts.
57
| ROUND ONE OVERVIEW I ROUND ONE OVERVIEW
c
58
d
e
R1 - L1 awarded blocks R1 - L1 non-awarded blocks R1 - L2 awarded blocks R1 - L2 non-awarded blocks R1 - L3 awarded blocks R1 - L4 Round Zero fields and exploration areas awarded to PEMEX Hydrocarbon fields
59
a
b
I| ROUND ONE RESULTS WINNERSTO DATE R1-L01 took place on July 15, 2015, and was referred to as
that the 60% award rate effectively confirmed the
a learning experience by President Enrique Peña Nieto.
successful advancement of the Energy Reform. Most
Out of 14 shallow water exploration blocks, only two were
companies participated as part of a consortium in order to
awarded, leaving the authorities with a 14% success rate,
meet the bidding round’s stringent requirements.
well below the 30% threshold for success. The Mexican consortium between Sierra Oil and Gas, Talos Energy, and
R1-L03, which took place on December 15, 2015, was a
Premier Oil came out as the winner of this round.
resounding success as all of the 25 fields were awarded. Tenders were done in two phases, with the fields with most
60
On September 30, 2015, R1-L02 oversaw the allocation
reserves, known as type 2, allocated before the smaller type
of three out of five shallow water production blocks,
1 fields. Of these, however, only 19 were signed for, leaving
an achievement that Juan Carlos Zepeda, President
the six remaining ones open to the second bidders as a
Commissioner of CNH hailed as satisfactory. He claimed
result of certain companies’ inability to meet requirements.
R1 - L1
Company
Country of origin
Minimum added value
Added value offered
Increase over the minimum work program
L1 - 2
Sierra Oil and Gas Premier Oil Talos Energy
Mexico UK US
40%
55.99%
0%
L1 - 7
Sierra Oil and Gas Premier Oil Talos Energy
Mexico UK US
40%
68.99%
10%
Block
Field name
a
L2-3 L1-7
L2-2
L2-1 L1-2 R1 - L2 Block
Field name
Company
Country of origin
Minimum added value
Added value offered
Increase over the minimum work program
L2 - 1
Amoca Miztón Tecoalli
Eni International
Italy
34.80%
83.75%
0%
L2 - 2
Hokchi
Pan American Energy E&P Hidrocarburos y Servicios
Argentina ArgentinaMexico
35.90%
70.00%
100%
L2 - 4
Ichalkil Pokoch
Fieldwood Energy Petrobal
US Mexico
33.70%
74.00%
0%
R1 - L3 SOUTH REGION b
23 61
13 16
14
15
4
7
9 25
22 11 6
Block
Area name
23
Tajón
Company
Country of origin
Compañía Petrolera Perseus
Mexico
Minimum added value
Added value offered
Increase over the minimum work program
5%
60.88%
100%
1%
36.88%
100%
9
Fortuna Nacional
14
Moloacán
Canamex Dutch Perfolat de México American Oil Tools
Mexico Mexico Mexico
5%
85.69%
0%
7
Cuichapa Poniente
Servicios de Extracción Petrolera Lifting de México
Mexico
2.5%
60.82%
99%
25
Topén
10%
78.79%
25%
15
Mundo Nuevo
10%
80.69%
25%
11
Malva
4%
57.39%
100%
4
Calicanto
5%
81.36%
18%
13
Mayacaste
10%
60.36%
0%
6
Renaissance Oil Corp
Canada
Grupo Diarqco
Mexico
Catedral
Diavaz Offshore
Mexico
1%
63.90%
0%
16
Paraíso
Roma Energy Holdings Tubular Technology Gx Geoscience Corporation
US Mexico US
10%
35.99%
100%
22
Secadero
Grupo R Constructora y Arrendadora México
Mexico Mexico
1%
60.74%
100%
| ROUND ONE WINNERS R1 - L3 NORTH REGION c
20 18 5
62
12 21 8 2
3
Block
Area name
18
Peña Blanca
5
Carretas
12
Mareógrafo
3
Calibrador
2
Minimum added value
Added value offered
Increase over the minimum work program
5%
50.86%
100%
1%
50.86%
100%
4%
34.25%
100%
3%
41.77%
100%
Mexico Mexico Mexico
2.5%
40.07%
75%
Mexico
3%
20.08%
88%
Company
Country of origin
Strata Campos Maduros
Mexico
Consorcio Manufacturero Mexicano
Mexico
Benavides Primavera
Sistemas Integrales de Compresión Nuvoil Constructora Marusa
8
Duna
Construcciones y Servicios Industriales Globales
20
Ricos
Not assigned
21
San Bernardo
Not assigned
R1 - L3 CENTER REGION d
e
24 1
10 19
17
Block
Area name
Company
Country of origin
Minimum added value
Added value offered
Increase over the minimum work program
1
Barcodón
Diavaz Offshore
Mexico
1%
64.50%
100%
17
Paso de Oro
24
Tecolutla
19
Pontón
10
La Laja
Not assigned
| INSIGHT
ONE SMALL STEP FOR SIERRA, ONE GIANT LEAP FOR MEXICO The consortium formed by Sierra Oil & Gas (Sierra), Talos Energy, and Premier Oil emerged as the only winner of R1L01, being awarded Blocks 2 and 7. When it comes to the proceeds of this tender, Iván Sandrea, CEO of Sierra Oil &
IVÁN SANDREA
Gas has only praises. “The bidding process was excellent.
CEO of Sierra Oil & Gas 63
It was transparent and efficiently run,” he reports. He is also reassured in the choice of the consortium to bid on Block 7, as the amount of interest it attracted from world-
companies that have currently been awarded an exploration
class bidders corroborates its appeal. Sierra’s analysis had
or production block in Mexico. It excels in bringing discoveries
revealed that the two blocks won by the consortium were
into production in a fast, inexpensive, and responsible way,”
particularly promising in terms of resource materiality,
he applauds. Premier Oil, on the other hand, is a 90-year-
standing out from the rest of the blocks offered in R1-L01.
old independent with a global portfolio. It boasts the most
Sandrea believes that the bids placed by other companies
extensive experience of the three, and, despite its larger
were a powerful validator for Sierra’s geological analysis
scale, Sandrea emphasizes that it is also efficient and fast-
and business strategy.
paced. Sierra, in turn, has a strong and talented team that was hand-picked to ensure its specific focus on Mexico. “We
Despite the many complaints lodged by operators
are a young company,” he admits, “but we are certainly not
regarding the running of the R1-L01 tendering process,
new to Mexico or the oil and gas industry.” The company’s
Sierra
were
role in the consortium will be to focus on the Mexico-
certainly not alone,” Sandrea explains, “even despite the
specific aspects of the project, be it geology, commercial
contractual framework that had been established at the
understanding, or regulatory interpretation.
saw
a
considerable
opportunity.
“We
moment. Statoil, ENI, and Hunt, all world-class companies, competed with us for the opportunity. Undeterred by concerns regarding the contract’s administrative burdens and CNH’s levels of involvement, Sierra, along with its partners, bid for blocks in R1-L01, and it is now convinced that our analysis proved to be correct. Moreover, all initial angst concerning CNH has dissipated as it has proven to be an extremely professional and efficient agency.” When it comes to Sierra’s own bid, the CEO rests assured that
So far, the company has conducted an amplitude velocity analysis on the data on the seismic
surveys
the results were as positive as Sierra could have hoped for. “Not only did we emerge as the winners, but we did
After winning and signing the contract, Sierra started
so by placing a well-balanced bid, without either under- or
working on a new plan for the short and long term using
over-bidding, which has been of concern in other bidding
32 Terabytes of high quality data. So far, the company has
rounds,” he remarks. In his opinion, success was achieved
conducted an amplitude velocity analysis (AVO) on the
thanks to science-based decision making, as well as the
data on the seismic surveys. “This is helping us identify and
group’s strengths. “While most companies adopted a
calibrate direct hydrocarbon indicators and sweet spots,
conservative stance and decided to wait for later bidding
and we are currently mapping geological structures more
rounds, we trusted our deep understanding of the Mexican
accurately. Early results have been promising,” Sandrea
landscape and bid for a couple of blocks.”
asserts. After the AVO and seismic reprocessing, Sierra plans on carrying out further remapping and illumination collectively
studies, and it will eventually use this information to
accumulated years of experience working with world-class
optimize the locations of the consortium’s exploratory
companies. Despite some similarities, we are all different
wells. “Mitigating exploratory risks is a crucial component
companies,” the CEO clarifies. He explains that Talos Energy
of our business strategy,” Sandera adds. While it might
has a remarkable exploratory track record on the US-side
be slightly early to discuss the drilling process itself, he
of the Gulf of Mexico, where it has focused all its efforts so
believes that there is significant room for innovation using
far. “It is an efficient, well-run company, and perhaps the
new reservoir modeling through leading software. Sandrea
one with the lowest average production costs among the
is planning to begin drilling operations in 2017.
“Our
group’s
strengths
stem
from
its
| VIEW FROM THE TOP
PARTNERSHIP OPENS DOOR TO THE OTHER SIDE OF THE GULF TIMOTHY DUNCAN President and CEO of Talos Energy 64
Q: What motivated Talos Energy to be among the earliest
When we partnered with Sierra Oil & Gas, it was able
participants in Round One?
to provide us with a geological framework of the basin,
A: We have had quite a bit of success in the shallow
which saved us several months of work. We are extremely
waters of the US Gulf of Mexico so we were compelled by
comfortable working with geophysical data, making
the unique opportunity that was generated by the end of
inferences about the resource potential and geology,
PEMEX’s almost 80-year monopoly, during which shallow
defining the prospect and shaping this into an economic
water exploration and production has been such a rich
model. We are proud of our track record of building
part of its history. Our main objective was to understand
companies on the US side of the Gulf, but until this point
how large the resource potential was, and the territory
we had not branched out internationally. Premier Oil used
met all of our expectations, but we knew that early
its experience in projects around the word to confirm that
participation was going to be critical if we were going to
our ideas could compete with international projects. For
be successful. Everyone was still learning and the process
a smaller company like ours, this project could potentially
was brand new, with fewer players making bids due to
underpin the success of our company in Mexico, the US,
lack of clarity regarding the rules. We hoped limited
and other basins. Our initial term on the lease is four years,
participation would give us a better chance at being
but we anticipate being well ahead of this timeframe.
successful with our bid structures. The minimum bids
We expect to drill our first test in Block 7 in 2017, and
are helpful for the medium-sized prospects that cannot
subsequently in Block 2 in 2018.
handle a competitive cost-sharing bid, but the larger, more compelling blocks will always be more competitive,
Q: How did your path progress from exploratory expertise
and those on which we bid did not require a minimum
to operational expertise?
bid because of their attractiveness. The success of R1-
A: The common themes in every company we have built
L02 has helped to generate confidence in the popularity
are exceptional operational and technical teams, strong
of these bid rounds, and the achieved transparency
commercial acumen, and deep experience in brokering
is important for lending credibility to the investment
deals and partnerships. The only difference is scale, and
community regarding future projects.
each subsequent project has become more ambitious. Talos was our first company where we began to enter deepwater as well as shallow water, and we started to consider projects on an international scale rather than just locally. Our priorities are to continue to use the latest in seismic technology, employ a solid operating team that can compete with companies around the world regardless of size, and strengthen ourselves commercially in order to understand capital markets and form partnerships. This has been the common thread that has allowed us to become more ambitious and expand with each new
Blocks 2 and 7 are estimated to have 263 million boe and 341 millon boe respectively
project we undertake. Q: What is your approach to exploring shallow waters on the Mexican side of the Gulf? A: There are some subtleties in the geophysics between the US and the Mexican side of the Gulf, but generally they are more similar than they are different. We work in the
same age of rock, mainly Pliocene and Miocene sandstone rocks at a similar depth and pressure as those on the US side. In future opportunities, we will start evaluating deeper carbonate plays. We were initially working with the same data as all the bidders that purchased the data packs for Round One, but now that we have won the tender, we have the time to reprocess that seismic data, which is something that we simply did not have the time to do before entering the bidding round. On each of the blocks, we developed a geophysical model based on the data we had, knowing we expect to improve the geophysical model after we signed the PSC but before we drilled our first well. As much as we all prefer brand new seismic data, we have had significant success in reprocessing old seismic sets in the US side of the Gulf, which are similar to those shot by PEMEX. An example of what we are trying to accomplish with our reprocessing is to image the most accurate view of local salt bodies, which can provide the trapping mechanism for a productive oil accumulation. Rather than spending US$20 million on a new seismic shoot over a lease, we can spend US$2 million on reprocessing seismic data and, due to our techniques, this potential generates a similar result. If not, we will consider some new shoots and participate in industry shoots. We have built our strategy around focusing on reprocessing before reshooting, and in our previous company, Phoenix, we were able to take two old data sets from the mid-1990s that were shot by different companies and we merged the data sets together, reprocessed the data, and we ultimately found one of the largest discoveries in the last 20 years in Atchafalaya Bay, in shallow water offshore Louisiana. We therefore seek to reprocess old seismic data and attempt to improve the image before we think about shooting new seismic, and this will be no different in Mexico. Q: What are some innovative approaches to specialized drilling and completion techniques that you can bring to Mexico? A: We anticipate the use of relatively traditional methods, but I think where we excel is in our planning and execution. In terms of directional drilling and completion techniques, we are certainly using the most up-to-date methods on par with our colleagues on the US side of the Gulf of Mexico. In such a competitive basin as the US Gulf of Mexico, understanding and using the very latest techniques are essential in order to generate attractive returns in the current environment and continue to attract capital. When our private equity providers underwrote our management team, they were underwriting a highly technical group with a deep understanding of the geology and best operational practices of the US Gulf of Mexico. Therefore, requesting funding for a project to which our skillset could be transferred to the Mexico side of the Gulf proved an attractive financing option for the company.
| VIEW FROM THE TOP
EXPECTED PRODUCTION BOOST FOR BENAVIDES-PRIMAVERA MARIANO HERNÁNDEZ Director of Nuvoil 66
Q: What reasons drove you to establish a consortium to
The project’s timeframe has already been established by
participate in R1-L03?
CNH, and according to the agenda, we expect to sign
A: We feel that our company has great potential to learn
the contract on May 8 and take control of the field within
and grow in the new environment created by the Energy
the subsequent 90 days as laid out by the guidelines.
Reform. The size of our company complied with the
Afterward, we will have 120 days to deliver the evaluation
requirements established by the Mexican authorities for the
plan, and a further 240 days to begin the execution plan.
Round One auctions, and we presented a wise proposal, bidding for three gas fields and one oilfield. Fortunately,
Q: What are your expectations for the use of EOR
we were awarded the Benavides-Primavera field, which
methods in Mexico?
has already been in operation for 20 years. Despite the
A: Imagine that the oil field is a soccer ball filled with oil
field’s age, we are confident that our knowledge and
and gas. The gas keeps the ball pressurized, providing the
skills will make the operations profitable and that we will
energy needed to push the oil out. If the ball gets perforated,
acquire important expertise in exploration and drilling
the pressure of the gas and the density difference will
from this project, which will complement the expertise
remove the oil first. As the pressure decreases, so does
we already have in shallow waters. Constructora Marusa
the ball’s energy, which makes extracting oil from the
is a partner company with a strong focus on infrastructure
inside more difficult. At the beginning of the process,
development, a sector where it is a leading actor.
the product extracted is mostly oil, but the percentage of gas in the mix increments with time as the pressure
Q: What are the main challenges that you expect to face
decreases in the interior. Therefore, in well-exploited fields,
during the operation of the Benavides-Primavera field?
companies need to inject gas at the same pace they are
A: Firstly, we were already familiar with the field conditions
extracting oil to maintain the constant energy levels, and
as we have experience working in that region for more
this can be done by injecting gas in the field’s cap or the
than 20 years. This experience provides us with in-depth
oil column. Both techniques are included in the artificial
knowledge about the field’s challenges and strengths and
services that we provide to oil and gas fields. We believe
gives us the operational expertise required to operate
that EOR techniques will be crucial to boosting Mexico’s
the field successfully. For us, the challenge will not be
oil and gas industry, and we are already starting to observe
to maintain the current production rates, but rather to
an increased prevalence in the use of this method.
increase them by 25%. It is important to highlight that we are not an EPC company but an operator. Our core
Q: What is your flagship project, and what is your strategy
business is to handle oil in artificial lift equipment and gas
to become a leading operator in Mexico?
in compression systems, in both onshore and offshore
A: Currently, our most important project is the Agosto 12
facilities.
platform, a specially constructed jackup that is designed to support five gas turbocompressors with a capacity
We are certain that we will maintain the production rates.
of over 200mcf/d. The rig will contribute around 8.8bcf
However, in order to increase production, we will need
of gas to the Mexican oil and gas industry, which will be
to perform minor and major repairs in the following two
incorporated into the national gas distribution system.
to three years. We are planning to adopt the Jet Frac
Generally speaking, the most important projects are
technique, which consists of using a drilling system called
still in the pipeline, rather than the ones we are already
Abrasive Jet Cutter in an existing field to reach productive
undertaking. We are now looking to consolidate our
rocks that remain unexploited. We have never used this
company as an operator, and will continue offering our
technology before, but it has proven to be efficient and
services to PEMEX and private companies seeking to get
cost-effective in the other fields where it has been utilized.
the best out of their fields.
| VIEW FROM THE TOP
THE REBIRTH OF MEXICO’S ONSHORE INDUSTRY CRAIG STEINKE CEO of Renaissance Oil
67 67
Q: What prompted you to create a company focused on
Q: What challenges have impacted your entry to Mexico?
the Mexican upstream sector?
A: There is a lack of information in terms of logging of
A: Mexico has a world class hydrocarbons base, and
data. More developed hydrocarbon provinces tend to
the fact that this industry has been monopolized by an
have a more centralized database and greater access to
underfunded national oil company for many years creates
it and, in time, it is something that Mexico should strive
promising opportunities for foreign companies to work
to develop in order to help all operators. Indeed, the fact
with PEMEX and the government in order to help develop
that we do not have access to all of the existing data is
the resource base. We are structuring Renaissance to
problematic. I realize it is a process that takes time, where
be an operator in Mexico, and we are going to develop
the data is passed from PEMEX to CNH, and then CNH
the company into a significant player in the local oil and
makes it available to the industry, but this is an area where
gas sector in the next five years. We believe that our sole
there is room for improvement.
focus on this country will be an important success factor. The bidding round provided a solid opportunity for us
Q: What potential do you see in Mexico in terms of
to become an operator, learning the regulations as they
unconventional reserves, and to what extent are you
are being developed, and we are happy to influence the
planning on taking advantage of this?
regulations to benefit operators and the state. We bid on
A: Renaissance intends to participate in R1-L05 and has
the onshore round, for which we spent considerable time
carried out extensive evaluations in preparation for the
evaluating all blocks made available. We felt that those
opening of Mexico’s shale opportunities. The lead time
opportunities, mainly the mature fields, were in line with
for shale development is much longer than what is typical
the portfolio we intended to build in Mexico. The actual
for conventional onshore resources. A detailed study
process of the third phase was remarkably professional
of the geology and the rock characteristics is crucial to
and we were delighted with its execution.
identifying and exploiting a commercial unconventional oil and gas play, and this analysis requires a substantial
Q: What was the reason behind your decisions to
amount of time. We are reassured by the fact that Mexico
participate as a stand-alone company rather than with
will be moving forward soon with R1-L05, and expect
longstanding partners such as Halliburton?
these resources to be a major contributor to the nation’s
A: We think that it is important to have a domestic
petroleum production and a significant economic driver
partner in Mexico but we are in no hurry to establish that
for the country in the long term.
relationship. Although we are creating dialogues with various companies about potential partnerships, this is not a decision we want to rush into. We are fully capable of taking over operations, as we have the technical and financial capabilities to do so. We do not rule anything out when it comes to a possible partnership with Halliburton, our relationship with which has involved the use of its consultancy services. Halliburton has been established in Mexico for close to 70 years and has a great deal of empirical knowledge on the ground that a new company coming from another country usually lacks. We therefore felt that utilizing its services would allow Renaissance to hit the ground running in Mexico, enabling us to quickly negotiate the learning curve.
| VIEW FROM THE TOP
READJUSTING INFLATED EXPECTATIONS FOR R1-L04 DAVID ENRÍQUEZ Partner at Goodrich, Riquelme y Asociados 68
Q: What were the factors behind R1-L03’s 100% allocation
an atmosphere of frustration for many players within the
rate, and is this the best measure for success?
market, particularly the experienced operators. These had
A: Like in any other phase of Round One, success is
the level of sophistication and technology necessary to
multifactorial. The winning bidders of R1-L03 can be
efficiently control the awarded assets and create value
divided into three categories in terms of experience. There
for the country, but were not awarded any blocks at
are the operators of various nationalities with experience
this stage. This frustration does not negate the prospect
in different jurisdictions, who offered a 35-50% additional
of their participation in further rounds, and in fact, they
royalty rate and were able to leverage their economic
are the most appropriate companies to engage in the
propositions particularly well thanks to their experience.
production of heavy oil.
As for the remaining bidders, we can divide them into two further categories. There are the oilfield service companies,
Q: What should be done to ensure that companies
such as Diavaz, with decades of experience in the market
bidding in R1-L04 will create value for the economy and
that have partnered with funds and will be running non-
what impact should Mexico realistically expect?
sophisticated assets with a relatively low level of investment.
A: Bidding phases cannot be compared, as each of them
The 85-95% royalty rates should not hinder these firms from
is completely independent, and the success of one does
being successful in their undertakings as they know how
not guarantee the success of the others. Companies that
to be efficient in the way they structure their organization.
will participate in R1-L04 are robust companies with a
The final category of bidding companies, however, may
high level of sophistication, market share, and market
seem more unreasonable in submitting proposals, with
capitalization. Although the vast majority of participants
no prior experience in the fields they were awarded and
will be IOCs, a small amount of NOCs may enter the tender,
should thus be more cautious than the aforementioned
but the prequalification standards will be nowhere near as
companies when it comes to operations and controlling
low as those of R1-L03. The good news is that potential
their cost structure. A proposal of a 90% royalty rate added
participants will have sufficient time to review not only
to the rest of the fiscal obligations leaves the companies
the geophysical data but also to make comments on the
with payouts of over 100%, which makes no economic
various components of the tender.
sense. Unlike major NOCs or IOCs, these companies cannot subsidize this project or cover the losses using other, more
When it comes to the impact on the economy, there is
profitable undertakings. In all cases, the level of revenue that
a misconception as to the outcomes of R1-L04. Mexico’s
companies can generate from R1-L03 blocks is substantially
deepwater market will be mainly controlled by Houston,
low, and I am particularly skeptical when it comes to the
despite the national content element. Rather than direct
success of this latter category. I believe the winners will
investment into the country, it will bring money to the
be those that were awarded the larger blocks, as they
Ministry of Finance in the form of royalties, which will not
have experience as oilfield service providers and have the
impact the economy as a whole as much as the public
necessary knowledge to substantially reduce costs.
expects. The main factor causing this is the geographical location of these blocks. Whereas onshore fields are in
The economically unsound bids were made possible
direct interface with the Mexican economy, calling for
because of the absence of a maximum restriction as to
direct investment for the construction of roads, hotels,
the economic proposal. Bids were only required to be
restaurants, and other infrastructure, deepwater fields are
lower than 100%, as such a figure would be unrealistic.
offshore and require global procurement. The latter blocks
Companies were allowed to bid as long as they passed
will have semi-submergible rigs and vessels from different
the prequalification standards, which were much lower
jurisdictions around the world, but will be mainly controlled
in R1-L03 than in the previous phases. These results left
from Houston both in terms of the economic model and
business structure, and of the real implementation of the
its lifecycle, as has been the case with PEMEX’s COPS and
project. Despite these financial specificities, R1-L04 will
CIEPS. The authorities need to bring clarity in terms of how
bring considerably more investment into Mexico than
this should be done. Compared to any other country, and
R1-L03. In order to compensate for the relatively low
particularly Brazil, local content requirements in Mexico
direct impact of R1-L04 on the Mexican economy, the
are not a challenge. No IOC has expressed criticism toward
government will be tendering fields that have a direct
Mexico’s approach to local content, only toward a lack of
interface with the local economy, including heavy oil,
information when it comes to compliance methods.
onshore, and shallow water. Q: Why is it important for Mexico to carry out the Q: How will the local content requirement work on
unconventional resources round, and to develop this
69
a practical basis, and do you believe it will impact the
resource?
69
decision of IOCs to enter Mexico?
A: I am certain that Mexico’s unconventional resources
A: Local content requirements are divided into two main
will be developed at some point, but one has to take into
categories. The first category is for deepwater activity and
consideration the impact of the dramatic drop in oil prices,
is determined in the structure of the bid, and the second
as well as the way in which it will impact the country in
category will be applied to all other block types. Although
the long term. This latter consideration will be essential
this tertiary regulation indicates who has to comply with
to determining the occurrence and order of the remaining
it, and how it has to be reported, there is a need to further
phases. It would be disastrous if Mexico decided to go
develop the components of this requirement, as the
ahead with a phase and there were no bidders because of
industry does not yet understand its nuances. So far, it is
the oil prices. In this regard, it is important to be pragmatic,
clear that compliance does not necessarily have to be met
not dogmatic, and to consider each phase of Round One
from the beginning of the project, but rather throughout
separately, as each one is a planet in itself.
| INSIGHT
GEOLOGY, THE KEY TO SUCCESS
There is much speculation surrounding the incremental award rate that Mexico has experienced for the blocks tendered from the first to the third bidding round of Round
JOSÉ PABLO RINKENBACH Director of AINDA Consultores
One. José Pablo Rinkenbach, Director of AINDA Consultores, does not believe that this success is so much a part of the
country’s 50 production sharing contracts, but Mexico
government’s learning curve, but rather that it is related
only has 218,” he explains. While the third bidding round
to the geological risk of each type of block. He explains
was hailed as successful by the entire industry, Rinkenbach
that the first bidding round’s relatively low 14% award rate
warns that the success attributed to this phase depends on
can be explained by the fact that the fields awarded were
one’s definition of the word. “If considering the number of
exploratory ones, which generally present a probability of
blocks awarded, then it was successful,” he acknowledges
success that is lower than 20%.
before pointing out that one of the reasons for the higher award rate could be linked to the absence of the gold
The second bidding round, on the other hand, made
plating issue in licenses. He believes this contract model
available fields with proven reserves. “In this case, it was
to be technically more feasible, and administratively
no longer an exploration game that was involved, but a
cheaper, because the regulator does not have to
production one, and that is why it was more successful.
monitor profits. He considers this bidding round to have
However, it did not reach a success level of 100% because
experienced an extreme over-bidding in terms of royalties,
the fields awarded were offered under production sharing
which could complicate field development. “The same
contracts, which are administratively problematic and
occurred in Colombia, where although many fields were
provoke gold-plating,” Rinkenbach analyzes. Moreover,
awarded, very few were developed,” he recalls. However,
he believes that Mexico does not have the state structure
Rinkenbach admits that if one takes into consideration
to monitor and follow up on those contracts. “Indonesia
the government’s aim to develop an industry of national
has around 1,000 people in charge of administering the
operators, then R1-L03 has to be viewed as successful.
| VIEW FROM THE TOP
TESTING THE WATERS FOR R1-L04
DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow 70
Q: What makes the contracts drafted by the Mexican
the most out of the opportunities presented by the sector
authorities attractive for major oil companies?
while balancing the different interests involved in the
A: It seems that the Mexican authorities have used the
process. The participation of the different actors heralds
first three phases of Round One as an exercise to learn
the success that Mexico will achieve as it overcomes the
from trial and error and test the industry in preparation
challenges it currently faces.
for R1-L04. With this strategy, the government managed to obtain important feedback from IOCs that helped in
Q: The basis for R1-L03 resulted in the allocation of 100%
restructuring the legal framework used for the bidding
of the fields. To what factor do you attribute this success?
rounds. This is why the license agreements were chosen
A: The success of R1-L03 was the result of the trial-
for R1-L04. The government has assimilated the lessons
anderror strategy the government implemented, as the
learned from the past rounds and put together legal
basis for this phase was built on the experience from the
documents that are attractive to large oil companies,
previous phases. R1-L01 is said to have been a failure, but in
which coincide unanimously with the accuracy of the legal
reality it was really just the first trial. In the second phase,
framework. Considering the short timeframes, the Mexican
the government managed to improve its procedures for
government managed to step up the required mechanisms
the bidding round, and by R1-L03, it was already able to
and provide what these players need to invest in Mexico,
understand the nature of the business. Moreover, in phase
and most international companies were surprised by the
three, the government acquired enough credibility from
outcomes and the parameters in the new legal instruments.
its performance in the past phases, attracting a great deal
In this regard, I believe that the government has taken real
of investment from different companies. However, R1-L03
advantage of the learning experience of the first three
can also be considered part of the preparation process
phases, testing the waters and seeing how far they could
for the round that will significantly change the shape of
address some issues in preparation of the most important
the Mexican oil and gas industry, R1-L04, the deepwater
element in the opening of the oil and gas sector, which is
phase.
R1-L04. Q: What could be some of the consequences of a delay Q: What are the main contributions made by IOCs
in R1-L04?
to shaping the type of contracts, the blocks, and the
A: To date, the government has managed to stick to
allocation of risks?
the timetable of Round One and avoid any delays, so it
A: It was clear from phases one to three that oil companies
would be surprising if this phase is not conducted within
were able to get a seat at the table with the Ministry of
the established timeframe. Nevertheless, considering the
Energy and build a close relationship with decision
importance of this phase, it would be understandable
makers. This approach allowed the development of
if
communication lines between the government and the
time to organize the process and ensure its proper
IOCs, which made it easier to take the industry’s concerns
implementation. However, the schedule established by
and worries into consideration when designing the legal
the government is reasonable, so I do not believe that it
framework. In this way, IOCs have been shaping the
will be delayed as it provides enough time for all actors to
nature of the legal instruments for R1-L04. The important
prepare and participate in a timely fashion. Furthermore,
decisions were not made by the government alone, as
the government has devoted a lot of effort to keeping the
the process entailed listening and discussing the main
round on track as a way to foster credibility. The Ministry
subjects with the rest of the actors involved in the sector,
of Energy and the other entities involved will continue to
which is not an easy task. Now, the Mexican oil industry
build on that, as IOCs’ confidence is essential to ensuring
is properly represented within the government, making
the success of the next rounds.
the
Mexican
authorities
decided
to
take
more
| VIEW FROM THE TOP
SUCCESS FACTORS OF L-03 AND HOPES FOR L-04 BENJAMÍN TORRES-BARRÓN Partner at Baker & McKenzie
71 71
Q: What factors led to a 100% success rate in R1-L03, and
the competitiveness of oil companies. One example of
what challenges will the operators face?
this situation can be seen in oil rig leases, since day rates
A: Baker & McKenzie believes that the authorities’ concern
have dropped to almost half of what they were two years
over the relatively disappointing response in previous
ago and only the most technically advanced rigs may be
phases led to them to increase the attractiveness of R1-
contracted at higher rates. Access to low-cost equipment
L03. Firstly, the license model adopted in this tender was
for long-term projects is one of the reasons there is still a
extremely helpful in generating renewed interest, as it
great deal of potential and interest in deepwater projects.
entailed much less burdensome administrative processes
Be this as it may, it is too early to make predictions on how
than the previous production-sharing models and a
the sector will develop in Mexico.
modification in the requirements relating to guarantees and collaterals. The latter created greater flexibility in the
Q: What factors exist intrinsically within PEMEX and are
new contracts, a characteristic we believe to be one of the
exacerbating the unfavorable oil-price situation for the
reasons for the success of R1-L03. Also, the release of the
NOC?
minimum bidding requirements in advance simplified the
A: Despite the many challenges, PEMEX remains an
task for the participating companies, in contrast to R1-L01,
intrinsic part of the oil and gas sector in Mexico. A market
in which the bidders were only informed of the minimum
without any public players to offset private companies
values after delivering their submissions.
would lead to an imbalance within the sector. PEMEX has a long payment history and the NOC has never defaulted.
The projects present a number of challenges for
Given current conditions, the new contract requirements
operators, including real estate regulations in Mexico and
are understandable, meaning the parastatal is still a viable
the intricacies of rights of way. This is made even more
partner for collaboration. As long as a project is sound
difficult due to the Social Impact Assessment, which now
and cash flows are based on viable financial models,
includes a new component that must be addressed before
working together will generate savings. Nonetheless,
the commencement of work. Compliance with these
the impact of PEMEX’s struggles on the general industry
regulations will require time and money, and possibly
cannot be ignored. There are many solutions that could be
investment in infrastructure in order to transport and store
implemented. The parastatal has downgraded its payment
the hydrocarbons that will be produced.
obligations and is currently renegotiating certain contract terms while terminating others. For new contracts, it is
Q: What are your expectations for Mexico’s deepwater
requesting a 120-180 day payment term and is offering
development?
factoring opportunities to its contractors to help them
A: Mexico is currently undergoing a difficult situation due
finance their work. Another solution for companies in the
to the low oil prices causing a decline in market growth.
industry has been to rely on redundancies to cut costs.
In the case of the deepwater sector, the crisis is not
PEMEX has sought alternative ways of cutting costs
particularly relevant since projects will not be producing
and contractual obligations by delaying or suspending
oil for at least six years, and by the time the exploitation
new projects. In addition, the NOC is using its affiliate
activities begin, we expect the prices to have begun to
companies to diversify and enter into the power generation
recover. As a result, investors are focusing on strategically
business, especially in terms of cogeneration since it has
placing themselves in areas that will provide them with a
5,000MW of potential for this energy source, but this is
competitive advantage in the future. Current conditions
evolving slowly. The lack of proposals for shallow water
are allowing companies interested in deepwater projects
projects could be capitalized on by PEMEX through CEIP
to secure more competitive prices for services and goods
contract migrations, an alternative that could increase its
from subcontractors, suppliers, and vendors. This increases
production and efficiency.
| INSIGHT
LOW OIL PRICES POSE A STUMBLING BLOCK FOR TENDERS stress in the energy industry with low prices, relatively weak demand, and extremely high supply, driven by
CARLOS PASCUAL
improvements in productivity in the US and aggressive
Senior Vice President of
marketing strategies from Saudi Arabia and other OPEC
IHS Energy
members,” Pascual laments. “There has been downward
72
pressure on prices, forcing companies to cut costs and make difficult decisions concerning capital expenditure.” “The competitiveness of Mexico’s resources is going to
As a result, he concludes that these companies must
depend on how the government groups together the
carefully select the areas that will receive capital
resources and fiscal terms for each bid round. In each one
expenditure, basing their choice on expected rates of
of the phases, companies’ assessment of the resource
return. If Mexico determines it is not willing or ready to
possibilities vis-à-vis other global options will be critical.”
offer attractive terms, it should do so in a conscious and
The words of Carlos Pascual, Senior Vice President of IHS
strategic way by structuring bid rounds intelligently and
Energy, highlight the tremendous resources Mexico can
proceeding when it is able to offer bidding terms that will
offer in the wake of the Energy Reform, which will be
secure the serious investors the country expects.
decisive in the development of the investor base in the country. R1-L02 and R1-L03 place a strong emphasis on
“If the oil price were US$100/b today, I suspect that the
attracting Mexican companies to bid, a relatively untested
outcome of Mexico’s Round One would be different,”
market because, to this day, Mexican companies have
claims Pascual. “There would be more clients operating
typically been service providers, but may now have re-
here and, consequently, there would be a wider range of
establish themselves as operators. Internationally, the
companies with which we could work.” Those are realities
critical test will be R1-L04, which concerns deepwater
to which the company must adapt. One of the key parts of
blocks. “The Mexican government understands that it
IHS’s business is to help companies understand and adapt
has to put sufficient resources on offer, together with
to a low-cost environment. As such, part of the challenge
attractive fiscal terms, and evaluation criteria that will
faced is in helping companies understand how they can
make its deepwater offerings competitive in comparison
increase efficiency in the current environment.
to investment opportunities elsewhere,” according to There is significant hope that the unconventional resources
Pascual.
development across the border in the US could extend into R1-L01 indicated that the competitiveness of Mexico’s
Mexico in the northern and central parts of the country, as
resource base will heavily depend on the quality of
well as the coastal zones near Tabasco and in Veracruz.
resources being offered, Pascual argues. In R1-L01, only two
Those resources have not been extensively developed at
blocks were awarded, affecting the further development
this stage as they are generally expensive and, considering
of the supply chain that will provide those companies
the
with services and equipment, and potentially prompting
investments in the country, have not been the highest
the biggest test of Mexico’s supply chain through several
priority for companies. In the US, unconventional and shale
other mechanisms. One of these will be the migration of
resources continue to be developed because the history of
technical service contracts to productionsharing contracts,
investment and cost-effective management allows for lower
whereby Mexican companies, such as Grupo Diavaz and
costs. Drilling rigs, other services and infrastructure support
Perforadora Mexico, are seeking to become operators in
are widely available. Through the use of data management
the hydrocarbons sector. R1-L03 may result in a number
on each well developed, it is possible over time to target
of other service companies establishing themselves as
investments to the most productive fields and reduce the
operators too.
investment required to develop shale resources. “In Mexico,
current
cost
environment
and
other
potential
the initial costs will be higher because companies will have A critical challenge in Mexico, and everywhere in the
to create the entire industry, first drilling numerous wells to
world, is to understand the dynamic and challenging
gauge the quality of the resource base,” Pascual explains.
international
accordingly
IHS expects the exploitation of shale and unconventional
develop a combination of competitive resources and fiscal
oil and gas to come at a later point in the development of
offerings. “We are going through a period of tremendous
Mexico’s resources, when market prices begin to recover.
cost
environment,
and
to
| VIEW FROM THE TOP
MORE LESSONS LEARNED FROM ROUND ONE JESÚS RODRÍGUEZ DÁVALOS Partner at Rodríguez Dávalos Abogados
73 73
Q: Has the development of Round One raised investor
by participants fell slightly below said values, with a 5%
confidence in the Mexican upstream sector?
spread. Had the values been published before, the bids
A: Unfortunately, one of the main concerns clients had
could have been slightly adjusted for a successful awarding
going into the oil and gas business in Mexico was that
of more contracts, leading to an award rate over 30%, well
corruption could potentially lead to the awarding of the
within the success range of 30-50% anticipated by the
contracts under suspicious circumstances. The three phases
CNH. As for R1-L02 and R1-L03, they were successful with
of Round One issued so far, however, have been carried
award rates of 60% and 100% respectively, and incredibly
out under absolute transparency by CNH. As we all know,
aggressive bids by some of the participants. In R1-L02, ENI
confidence is a fundamental but fragile factor, and even
International offered almost 84% of the operating profit as
though there is confidence in the award methods, this trust
government take to win the block with the most reserves,
in the institutions and regulators needs to extend to the
and R1-L03 saw bids of up to 85% of additional royalty.
whole range of activities that encompass the operation of
If anything, it looks like many companies decided to bid
a hydrocarbons block. Effective acquisition and recognition
regardless of the price of oil or because they are highly
of rights of way and transparency in the accounting and
optimistic about its future.
financial procedures of the oil taxation instruments come to mind. These factors are especially relevant to give
Q: To what extent do you feel that unnecessary restrictions
confidence to present and future investments.
were hindering conversation with regulators? A: Indeed, in an effort to promote transparency in the sector,
Q: To what extent do you believe that the three first
there are stringent restrictions regarding the interaction
phases of Round One have been successful so far?
between members of the private sector and CNH
A: In R1-L01 only 14% of the blocks were awarded. These
personnel. There are official, institutional communication
results are explained not by the drop in the price of oil
channels through which the private sector may express its
but because the Ministry of Finance did not publish the
concerns, and the Commissioners and other government
minimum values for the bidding variables before the
officials constantly participate in industry forums where
proposal presentation date, and some of the bids presented
they listen to investors’ and operators’ opinions.
| VIEW FROM THE TOP
BRINGING A WORLD-CLASS REGULATORY REGIME TO MEXICO ECKHARD HINRICHSEN Country Manager for Mexico of DNV GL - Oil and Gas 74
Q: How have the Energy Reform and Round One impacted
the mandate given to them by the state. CNH and the
the market in which you operate?
other authorities are concerned with transparency, which
A: The new agencies CNH, ASEA, and CENAGAS, have
is extremely reassuring, although this may complicate the
good intentions, but the enactment of these will depend on
exchange of ideas during the critical initial phase. Complying
the budget they receive. The implementation of a modern
with these regulations will be a challenge for PEMEX and
regime for operating and safety standards will also largely
we plan to apply our extensive experience to help the NOC
depend on the influence of companies. DNV GL is in contact
adapt to these changes. Modern regulations are usually
with the authorities, offering help to establish a world-class
more competitive, typically goal-oriented in nature, allowing
regulatory regime, given our knowledge of international
companies to be more innovative and find more appropriate
standards and the work conducted with regulatory bodies
solutions. I consider Mexico to be one of the most interesting
worldwide. So far, these organizations have not been
investment opportunities worldwide, and the interest shown
as responsive to our offer as hoped, as they are in the
in each phase of Round One, and particularly the second
process of establishing their structures and implementing
phase, was quite promising. Last year, we worked to identify
| INSIGHT
MARSH-R1 ENERGY PACKAGE viable. Therefore, the company expected that the main concerns for companies participating in the rounds would Sebastián Aguayo Marine and Aviation Leader Energy Practice of Marsh
Rosa Morán Oil and Gas Leader - Energy Practice of Marsh
be to comply with the contract requirements and to contain costs, which were both addressed in the insurance program. The Marsh-R1 Energy Package is designed to help
The worldwide insurance industry has developed coverage
companies on the most basic level of compliance with the
to cater to upstream, downstream, and midstream specific
contract. “An important number of licensees and operators
requirements in order to protect the patrimony of investors
have gained experience in the Mexican market by working
and companies associated with these activities. Sebastián
with PEMEX, which used to ease the companies’ concern of
Aguayo, Marine and Aviation Leader - Energy Practice of
acquiring an insurance product,” states Aguayo. “However,
Marsh, believes that the current main drivers for the oil and
they will now have to work on their own or in joint ventures
gas industry in Mexico are the rounds, particularly as many of
with other private actors, which has motivated us to
PEMEX’s investment activities have been delayed, which is a
develop an insurance program that is as user-friendly as
situation that is expected to continue for the next couple of
possible.” He adds that one of the main challenges given
years. “We decided to develop an innovative product called
the low oil price environment is the optimization of costs.
Marsh-R1 Energy Package aiming to serve the new needs of
Marsh-R1 has been designed not only to comply with the
the market,” he explains. In this program, Marsh considered
CNH contract requirements, but it also oversees one of
that the blocks and fields awarded in the last tender will
the key objectives of any insurance program, which is to
be highly dependent on cost containment to be financially
protect the company’s patrimony in case of an incident.
projects and companies of interest, and have moved to offer
underway that aim to standardize equipment, and subsea
our services to these companies. For example, we have
infrastructure in particular.
strong links with CENAGAS and are supporting the pipeline system operator in the takeover of 12,000km of previously
Q: How will the market adapt to R1-L04, and what does
PEMEX-owned gas pipelines.
this phase mean for DNV GL? A: The fourth phase, which tenders deepwater blocks, is
Q: How can DNV GL help companies winning contracts in
the most important, and the one that will attract most
Round One to be successful in Mexico?
investment. The exploratory drilling performed by PEMEX
A: Success in the current environment requires knowledge
so far corroborates the presence of significant volumes
of the industry and a supportive network. DNV GL can offer
of oil, similar in quality to the ones found on the US side
75
companies over 20 years of experience in the Mexican oil
of the border, in the Perdido area. The country has some
75
and gas industry, as well as contacts with PEMEX and the
of the world’s deepest waters, reaching depths of over
authorities. We are expecting strong demand from foreign
3,000m. The development of these fields will require
companies, such as ENI, Shell, and Statoil, which work
companies with considerable technology, experience,
with us in Europe. Locally, we can support newly formed
and capital to support the risk. DNV GL’s experience is
companies and elevate these unexperienced firms to the
extensive, having worked for Shell in the Perdido area
required level by certifying their management systems or
and in most other deepwater fields around the world. As
training their personnel. Mexico should have world-class
a leading consultant in deepwater, we are working with a
standards, and we can help all firms conform to these. We
large group in Houston, Norway, and Petrobras in Brazil.
expect our Reliability Availability Maintainability (RAM)
Rig supply is a real concern, given that rigs reaching
solution to be particularly valuable in the present and the
3,000m are sparse, but PEMEX is currently working with
near future. We plan to apply the same technique as the
Seadrill and Grupo R. Local service companies will race to
operations of US shale gas companies, which battle in a
offer their support to winning operators, but only the large
competitive industry, to operations in PEMEX. Moreover,
companies will have sufficient expertise and resources to
we have various initiatives 74 and joint industry projects
compete with the majors.
| INSIGHT
FINANCING OPTIONS FOR WINNING BIDDERS It has been suggested that the contracts negotiated for Round One are more beneficial for the government than the companies. For Rosa María Morales Cid, Senior Analyst Oil and Gas Latin America of Moody’s, the situation is slightly more complex than this. “When R1-L01 was
Alberto Jones Tamayo Director General of Moody's
Rosa María Morales Cid Senior Analyst Oil & Gas Latin America of Moody’s
carried out, the prices were elevated, there were certain expectations, and I believe the authorities had prepared
be impossible to open an asset-backed trust using PEMEX
the rounds in a different context,” she explains.
receivables as collateral, because the credit rating of PEMEX may deteriorate further. Secondly, this approach would not
The ratings agency’s Director General, Alberto Tamayo,
provide companies with an enhancement in terms of credit
shares that there has not been a great deal of demand for
ratings, and the prudent approach may be to take time to
rating services from Round One winners just yet. “I think
become established in the country. This also depends on the
that, at this stage, new entrants already have their funding
off-taker, because selling natural gas to PEMEX would differ
in place and want to establish their operations and become
in terms of ratings than if it was sold to CFE, whose rating
stable for a few years before considering any bond activity,”
is Baa1 with a negative outlook. “However,” he concedes,
he states. “This applies unless the company desires to put
“in the international markets, the spreads may not be as
together a structured transaction, but in this environment,
favorable as they were one year ago due to volatility and
the typical way to do so would be to use the asset backing
depreciation of emerging market currencies. Companies in
from long-term contracts and receivables to issue a bond
this industry are probably currently referring more to the
with an SPB or a trust.” However, he surmises that it would
banking industry or using their own capital.”
EXPLORATION
3
The combination of budget limitations and PEMEX’s position as the upstream monopolist have left Mexico underexplored over the past decades. In order to increase Mexico’s oil production by 500,000b/d in the coming years, and ensure the long-term sustainability of Mexico’s desired production levels, an increase in exploration activity will be crucial. In 2015, PEMEX announced the discovery of four shallow water fields off the coast of Tabasco, which are expected to contribute additional production of 200,000b/d in the short term. In the words of the Emilio Lozoya, former Director General of PEMEX, these were “the first discoveries achieved using the new tools provided by the Energy Reform”. Despite this success, PEMEX’s reserves represent 9.6 years of production at the current production level, a number that is destined to drop when production increases.
PEMEX will no longer be the sole player carrying out exploration activities in Mexico. It has already created a multi-client seismic market which resulted in a boom in both seismic data acquisition and the reprocessing of existing data. This chapter provides an overview of the direction Mexico’s exploration activity might take in the coming years, takes a closer look at PEMEX’s exploration strategy, and assesses the ambitions of private companies in this newly opened market.
77
ALCANZAR UN DESEMPEÑO DE PRIMER NIVEL SIGNIFICA Transformar radicalmente las operaciones para una nueva realidad
Emerson.com/Reliability
El diseño de Emerson es una marca registrada de Emerson Electric Co. © 2016 Emerson Electric Co.
| CHAPTER 3: EXPLORATION 80
VIEW FROM THE TOP: Alma América Porres, CNH
82
VIEW FROM THE TOP: José Antonio Escalera, PEMEX E&P
84
VIEW FROM THE TOP: Oscar Roldán, CNH
85
VIEW FROM THE TOP: Edgar René Rangel Germán, CNH
86
MAP: PEMEX's 2015 Exploration Achievements
86
INSIGHT: Wallace Pescarini, Schlumberger
88
TECHNOLOGY SPOTLIGHT: 3D CSEM, EMGS
89
VIEW FROM THE TOP: Juan M. Santana, EMGS
90
VIEW FROM THE TOP: John D. Lawrence, Petricore
91
VIEW FROM THE TOP: David Pring, PGS
92
TECHNOLOGY SPOTLIGHT: GeoTag, Sercel
93
VIEW FROM THE TOP: Duane Dopkin, Paradigm
94
VIEW FROM THE TOP: Pavel Hernández, OH Maritime
95
INSIGHT: Karim Lassel, CGG
96
VIEW FROM THE TOP: Brian Hanson, ION Geophysical
97
INSIGHT: Alberto Galvis, Citla Energy
98
INSIGHT: Matt Bell, IKON Science
99
INSIGHT: Javier Rubio, Geoprocesados
100
VIEW FROM THE TOP: Robert Hobbs, TGS
101
VIEW FROM THE TOP: Robin Ellis, Sercel
79
| VIEW FROM THE TOP
THE NEW FACE OF MEXICO’S EXPLORATION MARKET ALMA AMÉRICA PORRES CNH 80
Q: How has the decision to release all the exploration
exploring onshore basins. In fact, the Gulf of Mexico
data repositioned Mexico as an exploration destination,
was the first focus of acquisition service companies. 2D
both for companies that want to produce in the future
seismic is being used to recognize additional areas of
and those who want to reinterpret the data?
the Gulf of Mexico. PEMEX had acquired deepwater data,
A: The exploration segment in Mexico advanced in the
but just for areas close to Perdido and in the southern
past year because of the regulatory changes and now it
basins were the large gas reservoirs were identified. Now
is well positioned to discover new resources in the near
companies are collecting data in the remaining areas
future. The Mexican exploration sector is oriented toward
through 2D seismic.
data acquisition and special reprocessing, which allows the possibility of playing around with the evolution of
Although it might seem that there is an overlap in data
technologies and available information. At the moment,
acquisition activities in the Gulf, the objectives are different
the information and processes are being upgraded with
in each study, as some intend to examine the seabed while
new technologies, reprocessing, and new data acquisitions.
others are trying to determine depths. Electromagnetic studies shed light on the type of fluid combined with
The interest companies are showing in carrying out
information from seismic and drilled wells, and hundreds of
exploration activities is amazing, particularly in studying
square kilometers are being explored with this approach.
the Gulf of Mexico, and there is a smaller interest in
Geochemistry studies provide important data to improve modeling and to identify hydrocarbons in the basins.
RESERVES INCORPORATION (billion BPCE) 3P3P RESERVES INCORPORATION (billion boe) 1.7
companies that might be interested in deep or shallow water blocks. New results are showing something similar to Brazil’s pre-salt formations, which we will see more of
1.5
1.4
Integrated geochemical data also reduces uncertainty for
average 1.3
1.1
1.2
in the next few months. This means that, in addition to the usual formations, there is a continuous salt layer under which there could be hydrocarbon resources. Overall, all
0.8 0.7
these endeavors will allow us to have a deeper perspective on the Gulf, thus reducing uncertainty, in no more than two years. Onshore is also more complicated than exploration in
2010 2011
2012
unconventional unconventional deepwater deepwater
2013
2014 2015
shallow water shallow water onshoreland
discovered resources discovered resources Investment2010 US$ constant Investment billion 2.9 US$ billion Discovery cost Discovery cost 2.0 Source: PEMEX US$/b Source: PEMEX
the Gulf of Mexico because operators have to carry out social impact assessments that can delay the permitting process. In addition, no large-scale studies have been made to date. Shale is another complex area because the current oil price is not conducive to production in these
2011
2012
2013
2014
2015
3.0
2.9
2.8
2.8
2.4
fields, but the Ministry of Energy will ultimately determine when the round will take place. Most of the exploration activities in the south region were given to PEMEX, and the NOC left the rest for future bidding rounds. There are
2.0
1.7
2.4
3.4
3.7
also areas that have been barely explored or not explored at all, such as Chiapas and some portions of the state of Veracruz.
Since PEMEX works by asset, the intersection of
onshore conventional resources, which will require new
several areas lacks reliable studies. Most of the onshore
technologies and creativity. Mexico is focused on the
exploration being carried out right now consists of studies
offshore resources where we knew we had resources in
and reprocessing, although data acquisition activities are
the Cretaceous formations, so we neglected the Tertiary
gradually increasing, changing the exploration perspective
formations in the southeast, which might have interesting
for the next few years. There are a few companies
volumes waiting to be uncovered.
reprocessing the existing seismic information for onshore blocks, ultimately increasing the value of the information
Q: How has access to information evolved, and what can
we have and saving time in improving the quality of the
companies expect from the Data Room in future rounds?
available data.
A: The Data Room had to be developed because there was a lack of knowledge about the information that existed
Q: How do you see the evolution of exploration
in Mexico. In fact, we had to make geological atlases.
technologies and the entry of new technologies now that
However, it was important to develop a Data Room at the
the market is open?
initial stage to incorporate all the information needed to
A: The technology operators have in their R&D centers gives
support technical decisions. For onshore blocks, we had
them a unique competitive advantage, and R&D centers also
to gather information directly from the asset, which is
tend to go the extra mile when developing solutions to new
different from having integrated information, performing
problems. Most people think about seismic acquisition when
quality control as a single component, and managing it
talking about Authorization for Hydrocarbons Recognition
in advance or evaluating the missing components with
and Superficial Exploration (ARES). However, this also entails
sufficient time to obtain it.
superficial recognition studies for the exploration side. Many of these studies have employed geochemistry, gravimetric
The process for the following rounds will be different, since
analysis, magnetometry, and geology studies used to relate
a massive data transfer is being carried out already. Future
already-drilled wells with seismic and the electromagnetic
data rooms will be more improved than the ones we have
side, which deals with fluids. Seismic might be the most
today, as we will use our acquired experiences and apply
impressive aspect due to its scope, but geochemistry studies
the lessons we have learned. We are going to modify the
are the second most frequently requested service. For me,
membership requirements for the Data Room because the
successful and state-of the-art technologies will be those that
state might have information on drilled wells that will be
enable the possibility of drilling in high pressure conditions
publicly available, so having a data room for each phase
at significant water depths. If the pre-salt formations are
will not be necessary. Information will always belong to the
confirmed, then the technological side will also encounter
state and will be contained in the Hydrocarbons Information
more challenges, as these characteristics will not be found in
Center, but it will be available to operators. Almost 80% of
other markets. These are areas that will evolve significantly
the operators that want to enter Mexico will have access to
in the coming years.
the information in the next three rounds, which is the goal. It is difficult to maintain control of the data when this is
Onshore presents a different scenario, as the technology
not integrated and an inventory is lacking, but if we have
used leads to increased efficiency levels in the production
the complete volumes, we have the chance to go over it in
stage. This will be the case for shale reservoirs, which
advance for future rounds. As reprocessing activities take
hold significant volumes. Confirming the volumes and the
place, companies will help complement the information.
hydrocarbon potentials is the next challenge, as well as finding the sweet spots so that barrels do not cost US$40
Q: What are some changes the industry can expect as a
each. There are seismic and characterization technologies
result of CNH’s current endeavors?
that allow location of those sweet spots at lower costs that
A: ARES will be modified and a new version will be issued
the ones that rule the industry today.
this year, which will include well integrity, which will look at exploration wells, deepwater drilling, and standard model
In the current climate, there is a play between prices and
wells. Another aspect relates to royalties, as the previous
efficiency. Operators in the US are drilling natural gas
version did not detail how the purchase of information
wells and they are turning a profit. The price of a cubic
should be paid for. This is important to specify as clearly as
foot of natural gas is relatively cheap, yet the US is making
possible in the new multi-client market. A company might
a business out of it and there is no reason why Mexico
purchase a seismic or electromagnetic block, reprocess
should not be able to develop a profitable shale industry.
it with its in-house technology, and sell the reprocessed
It is speculated that the southern region could have oil
information several times. In a multi-client market, if the
in addition to gas, which would create a more attractive
company did not acquire the original data, it has to pay a
business for everyone. Much remains to be explored in
percentage to the state.
81
| VIEW FROM THE TOP
PEMEX EXPLORATION ADAPTS TO THE NEW ENVIRONMENT JOSÉ ANTONIO ESCALERA Director of Exploration at PEMEX E&P 82
Q: PEMEX spent MX$35 billion on exploration in 2015.
we will begin the development stage once the project
How was this amount spent, and what are the most
is sanctioned. Another discovery worth mentioning is
outstanding results?
the Tetl field, which was found through the Tecoalli-1001
A: If exploration activities are meant to turn non-discovered
well. We will drill a delineation well in Tetl to learn more
prospective resources into prospective resources, we
about this field and plan the future production. Finally,
had a successful year, as we discovered 1.1 billion boe.
Jaatsul is another discovery where we are about to start
However, 400 million boe in deepwater resources became
appraisal drilling operations with the objective of reducing
contingent resources because at the average 2015 oil
uncertainty in reservoir size and then define the wells and
prices, these discoveries are not commercial. We also did
facilities needed to exploit it.
some delineation activities in the southern deepwater Gulf of Mexico gas province and in some reservoirs in Perdido,
Q: To what do you attribute the 45% success rate of the
such as Exploratus. We also found oil in Cratos, but we will
30 exploration wells you drilled last year?
have to wait for higher prices before developing this field.
A:
This
success
international
pozos • Increase in drilling
efficiency and well completion
geología y geofísica administración 75%
• International efficiency standards were met
• Tariff negotiations in drilling equipment
• 15-30% adjustments
• Innovative schemes in seismic data acquisition and processing
• Reduction in costs per acquisitions (km2)
• Optimization of administrative expenses
10%
within
during
the
the last
average five
of
years.
low oil prices, the success rate would have been 38%. Achievements
The most important factor is the fact that we know the geology, although it is also worth mentioning that we are harvesting the benefits of our investments in technology and high-quality seismic data. For shallow water blocks in the Gulf, we acquired close to 2,000km2 of seismic data, including multicomponent, full-azimuth, long offset
Deepwaters 60% Shallow waters 30%
15%
operators
lies
Considering discoveries that are not commercial due to
PEMEX EXPLORATION INVESTMENT Average Investments in MainINVEST Efficiency PEMEX EXPLORATION Exploration 2012-2015 Initiatives
rate
• 25% reduction
and high-density ocean bottom cable, and wide azimuth variable depth high-density streamer surveys. These allowed us to improve subsurface imaging in areas where prospective resources were unclear. A multidisciplinary approach to geological knowledge paired with the application of cutting-edge technologies have enabled us to continue advancing with positive results. Any
wells
geology and geophysics
management
Source: PEMEX Source: PEMEX
company with a commercial success rate of 30% or more can be considered an accomplished player.
Last year we carried out some important work in shallow
The current oil price is forcing us to focus in areas with
waters that led to the discovery of six fields, which amount
lower investment risk, mainly in smaller but more profitable
to 650 million boe. The six fields we discovered last
areas. This means we have decelerated our deepwater
year can start producing in two or four years and yield
activities and moved to shallow water and onshore plays.
around 200,000 boe that will allow it to maintain the
Nonetheless, Mexico’s potential in deepwater is enormous,
country’s production platform. There are two fields that
just like that in unconventional resources. PEMEX’s
seem particularly promising: Xikin and Esah. In the first,
challenge is to work efficiently in these resources,
we will drill a new delineation well this year to generate
especially given the potential for shale we have identified
more certainty and accelerate its development. Esah is
in the Tampico-Misantla basin. Although the current
also a significant discovery that is easier to manage, so
economic landscape does not allow for these resources
to be developed, we need to advance with prudent
investments. Previously, PEMEX used to pay for the full
investments in a strategic way so that we can obtain the
cost of an exploration study, but now we can get a study
necessary knowledge and be ready to produce once the
for 20-30% of what it cost in the past. A lot of the studies
oil price settles.
being conducted are 2D seismic. From what we have seen, it is a high-quality seismic that was acquired using
Q: What are the drivers behind your shift form large
the most appropriate design parameters for a regional
reservoirs to more profitable ones?
analysis of the Gulf. However, due to our limited resources
A: Our current exploration strategy responds to the oil
and our existing knowledge of the country’s basins, these
price. In times with limited financial resources, just as
studies are not a priority for us at the moment. As for the
the rest of the industry, PEMEX has to focus on the most
3D seismic that is being acquired in the Salina del Istmo
profitable areas that can contribute reserves to support
Basin, we are going to wait until more reprocessing has
production in the short and medium term. However, we
been done before making a decision.
83
cannot lose sight of the medium and long term, especially when unconventional and deepwater resources will
Q: Where are you going to focus your exploration
play an important role in Mexico’s production. Trion and
activities for 2016, and what are your priorities?
Maximino have been delineated, and we are drilling a well
A: Our main focus will be the Southeast Basin, both
in a prospect close to the latter. While the profitability of
onshore and offshore. In the latter, we have five drilling
deepwater fields is low right now, this will not be the case
rigs operating and by the end of the year we will have two
in seven years.
more. As for the onshore areas, the budget is limited, but if the tide turns at the end of the year, we will put three more
The inclusion of exploration opportunities close to our
drilling rigs into operation. Regarding deepwaters, the goal
fields gives an important upside to our farm-out areas.
is to scale down from four to two semi-submersible drilling
It is worth mentioning that in the case of deepwater
rigs by the end of the year and accelerate the farm-out
exploration, PEMEX was acting on its own because we did
process so that we can share risk and benefits in Perdido.
not have another option. However, it is clear to everyone that we need partners to develop those fields. Just like
The Tampico-Misantla Basin has a considerable potential
we are adjusting our strategy based on the low oil price,
for unconventional shale oil resources with the advantage
we will also leverage on the reform to change the way
of having existing facilities and people who have the
we operate in deepwater fields so that we can share the
technical knowledge on how to extract oil. The goal is to
risk and the rewards with other parties. Even though
reach the same efficiency levels as companies in the US. In
deepwater activities have decelerated, we have been
2014, the extraction cost of a barrel from unconventional
analyzing farm-out areas in order to start the migration
reservoirs was US$90, and now these companies can
process with the Ministry of Energy and CNH. Once our
produce a barrel at US$40-50. In addition to speeding
partners are selected, we will jointly define the exploration
up the learning curve, we need a special fiscal regime for
and exploitation program for every area. We also want to
this kind of resources, which the authorities are aware of.
participate in the fourth phase of Round One, where we
Even though Mexico’s shale resources are not profitable
will enter into a partnership and bid on blocks that are in
right now, we need to be prepared for the next turn in
line with PEMEX’s oil-focused exploration strategy.
oil prices.
Q: How is PEMEX going to interact with the multi-client market? A: At some point carrying out seismic studies was
MEXICO RESERVES DISTRIBUTION 2015 (billion boe) Basin
Cum. Prod.
PEMEX’s duty because the law mandated it, but now multi-client campaigns are an important instrument that
Reserves
Prospective Resources
1P (90%)
2P (50%)
3P (10%)
Conv.
10.8
14.2
18.2
12.5 2.4
Southeastern
47.8
the geology and evaluate the petroleum potential at lower
Tampico-Misantla
6.3
1.0
5.9
10.6
costs. PEMEX’s efforts in deepwater basins should not
Burgos
2.5
0.3
0.4
0.6
be overlooked, as we acquired over 100,000km2 worth
Veracruz
0.8
0.2
0.2
0.2
of 3D seismic from wide-azimuth and narrow azimuth
Sabinas
0.1
0.0
0.0
0.1
Deepwater
0.0
0.1
0.4
1.8
will allow many players, PEMEX included, to understand
using a single vessel, which allowed us to reduce costs considerably. The new way of operating in Mexico, the multi-client market, is important because it allows us to share
Un Conv.
3.3 1.5
0.6 0.4 5.2
Total PEMEX
57.5
12.4
21.1
31.5
20.7
5.2
Total Mexico
57.5
13.0
23.0
37.4
52.61
60.21
Source: PEMEX 1 As of January 1, 2014.
| VIEW FROM THE TOP
NATIONAL DATA REPOSITORY AMIDST ROUND ONE OSCAR ROLDĂ N Head of the National Hydrocarbons Information Center 84
Q: How has the process of the data transfer developed,
transparent process, meaning that all data is available to
and how is this helping the progress of the Energy
any individual who requires it. The only exception is raw
Reform?
seismic data, since this constitutes a considerable amount
A: One of the objectives of the Energy Reform is to boost
of information, so instead it is granted through the ARES
the exploration activities in the country, which highlights
regulation.
the need for more data. Since we started to operate the bidding rounds, we realized that in order to be successful in
Q: What would be the impact if companies in Round Two
the implementation of the Energy Reform we had to create
purchase the relevant information from the private sector
an efficient information industry in Mexico. We have three
instead of accessing the Data Room?
instruments that will enable us to achieve this: data packs
A: Companies that have access to the data through the
for bidding rounds, a licensing system for access to data,
license system will later have no need to buy data packs
and data generation through a multi-client system.
in order to participate in the future bidding rounds. So far we have data from two different areas of the Gulf of Mexico
Q: What feedback did you receive from companies
available in the National Data Repository: deepwater
regarding the data available for R1-L01, and how did this
blocks and shallow water blocks in the southeast basins.
impact the subsequent phases?
For deepwater, we have 20 seismic surveys, all of which
A: We received considerable suggestions on all aspects
are final products and migrated acquisitions, as well as the
of process oversights, ranging from data and technical
data from 55 wells. For shallow waters, we have 15 seismic
aspects to contracts. During R1-L01, we received great
3D surveys, four packs with information on 165 wells, and
feedback from companies, which was addressed in the
one pack with 23 seismic 2D surveys. The shallow water
future bids.
wells include Ek, Balam, Sinan, Bolontiku, Ayatsil, Tekel, Pit, and 40 exploration wells around the area. We have
Someone expressed disappointment due to the fact that
given licenses to 13 companies and delivered more than
the data was cut. The comment expressed concern about
25 licensed data packs in the first seven months following
the need to connect the wells to the appropriate surveys.
the issuing of the guidelines in October 2015. In terms of
Although this was a relatively basic issue, it was something
data packs for bidding rounds, we have delivered 143 data
we overlooked. Therefore, we decided to open all the
packs for the first four tenders of Round One, and hosted
data without cutting or filtering any of it. All the data
312 visits to the Data Room.
transferred from Pemex and IMP has to be made available to any interested company, which we continue to work
Q: What are the new rules regarding the passing of
on. This is the reason why we develop the instrument of
acquired multi-client seismic on to CNH?
data access through a license model. Like all governmental
A: The rules have remained basically the same. Companies
activities, however, regulations had to be created. Issuing
give CNH the data they collect and we keep it confidential
the regulation that granted access to all the seismic
for a 12-year period in the case of new data, and six years
surveys and well data took a considerable amount of
in the case of reprocessed existing data. The multi-client
time and effort. Nonetheless, we managed to succeed
system has been extremely successful, as evidenced by
in launching the regulation and obtaining the price of
the fact that we have authorized 31 different projects: 22
the data. The process entailed creating the data packs,
for the acquisition of new data and 11 for reprocessing
checking the surveys and the variations, working with
existing data. This amounts to approximately 350,000km
the Ministry of Finance, and obtaining approval for the
of new 2D seismic data, 111,800km2 of new 3D WAZ
price. Finally, we managed to release the licensing system
seismic data, and the reprocessing of 387,000km2 of
at the end of September, and we created an extremely
existing data.
| VIEW FROM THE TOP
ISSUES PERTAINING TO MEXICO'S RESERVES EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH 85
Q: What is your perspective on the development of
that not only deepwater projects, but also other projects
Mexico’s reserves volumes?
will be affected.
A: Reserves pose a significant problem, because our most important mature fields are declining more than
The third potential problem is Chicontepec, which has tight
expected. Most of the production around the world
oil, meaning that it is not possible to drill a well that continues
comes from mature fields and everyone is concerned
to drain oil. Chicontepec has small sand lenses and thousands
about where new production will be coming from, which
of reservoirs from a technical point of view, so many wells
is why unconventional resources are so relevant. There
must be drilled to reach each of those reservoirs. The most
are no real alternatives to replace current production
significant development plan that PEMEX developed for
volumes, and we might reach 100 million b/d soon. Given
Chicontepec included 50,000 wells, which is beyond the
that mature fields are declining faster than expected,
capabilities of any company on the planet.
there will be a substantial drop in reserve levels in the next two to three years.
Many people will say that Chicontepec is extremely important because 40% of Mexico’s 3P reserves are
Deepwaters could also pose a problem. Although the
located here, but only a tiny piece, less than 1 billion
volumes are there, we have not developed the right
barrels, are 1P reserves. To produce the 3P reserves, all
strategy for deepwater. We can validate this since it
50,000 wells must be drilled. Of course, following the
is never clear why well locations have been selected.
migration of the COPS and CIEPS, new operators are not
However, it is not within our remit to assess or evaluate
going to want to drill the quantity of wells required to
PEMEX’s exploration strategy, so we must receive the
produce the 3P reserves of Chicontepec. For example,
proposal and treat the submission like that of any other
new operators might plan to only drill 200 wells instead
company. In the year when a well is drilled, typically a huge
of the 5,000 planned by PEMEX for the same area,
volume of reserves is announced. In the years following
which would have a detrimental effect on future reserve
this announcement, PEMEX then makes revisions that
calculations, and we will see this development during
often substantially reduce reserves, in some cases down
the current and next year. As we move forward, we must
to zero, since the volume is there but production is not
develop a strategy to prevent the loss of those reserves.
economical. Another factor that will affect reserves is that some of Adding the oil price factor given that prices dropped from
the mature fields have not seen their development plans
US$100 to US$30, then many of the deepwater reserves are
delivered in terms of advanced and enhanced recovery.
contingent resources, and when resources are contingent
Most of these cases are in the southern region, in fields
to price then oil companies are unlikely to make the
such as Samaria or Jujo-Tecominoacán, where PEMEX
large capital investments necessary to start production.
only drilled a fraction of the planned wells due to budget
This means that we are expecting another large drop in
constraints. If PEMEX is ultimately only able to deliver one
reserves this year and next. In order to evaluate reserves,
well instead of 20 for several years in a row, then this also
producibility is calculated as the unweighted arithmetic
affects the production profiles of these fields.
average of the price of the Mexican mix on the first day of each month within a 12-month period. Therefore, when
In some cases, private operators taking over such fields
calculating the reserves for January 1, 2016, we still have a
and increasing investment will support a recovery of the
good oil price since the average of the Mexican mix is over
reserve levels to a certain extent, but I do not see this
US$50, and for light crude oil it surpasses US$60. But the
happening in Chicontepec. In summary, in the short term,
average for 2016 will be less than US$30, which means
poor reserves numbers are coming in 2016 and 2017.
| PEMEX'S 2015 EXPLORATION ACHIEVEMENTS
1
86
3 2
9
10
11 12
5
4
8 Well producing oil, gas, and condensate Well producing wet gas Hydrocarbon fields
6
7
2015 SUCCESFULL EXPLORATION WELLS 1.
Cratos -1A
4.
Tecoalli-1001
7.
Licanto-1
10.
Jaatsul-1
2.
Hem-1
5.
Xikin-1
8.
Tsimin-3DL
11.
Esah-1
3.
Nat-1DL
6.
Licayote-1
9.
Batsil-1
12.
Cheek-1
From February 2015 to the same month in 2016, a total of 25
marine region of the Gulf of Mexicosaw the completion of
wells were completed, 11 of which were unsuccessful. Of the
11 wells during the aforementioned period. Wells in these
successful wells, two were located onshore in the southern
offshore fields produce oil and gas, and they include Batsil-1,
region. Licanto-1 was completed in August 2015 and has
Cheek-1, Tecoalli-1001, Jaatsul-1, and Tsimin-3DL, which
a depth of 4,030m, while the second one, Licayote-1, was
were respectively completed in March, April, September,
completed in December 2015 and is 2,585m deep. Both
November, and December of 2015. Their respective depths
produce oil and gas for commercial purposes. Two other
amount to 5,150m, 4,530m, 4,900m, 5,075m, and 6,900m.
wells were completed in the northern marine region of the
There are also two wells that produce wet gas: Hem-1, which
Gulf of Mexico. The only commercial field out of these two
is 4,429-meters deep and was completed in March, and Nat-
offshore ones, Cratos-1A, was completed on November 2015,
1DL, completed in October with a depth of 4,569m. Xikin-1
produces gas and condensates, and has a depth of 5,952m,
and Esah-1 are also commercially viable, have respective
compared to the 5,779m of Corfu-1, a non-commercial well
depths of 5,279m and 3,930m, and were completed on
completed in August 2015. The northeastern marine region
August and September of 2015. The two last productive
of the Gulf of Mexico saw the completion of just one well,
wells are non-commercial. Alaw-1 is 5,279m deep and was
Kayab-101. This offshore, non-commercial well has a depth of
completed in May, and Miztรณn-101 has a depth of 3,930m
3,510m and was completed in March 2015. The southeastern
and was finished in August.
| INSIGHT
MULTI-CLIENT SURVEYS ATTRACT INVESTMENTS “The project has been wellperceived by CNH because
WALLACE PESCARINI President Mexico & Central
this is exactly the kind of
America of Schlumberger
activity the government
87
needs in order to attract new
vessels. The colossal investments required for this endeavor
investors”
investment, we must always consider the ROI as a long-
are solely provided by Schlumberger. “For this level of
Wallace Pescarini, President Mexico & Central
America at Schlumberger
term goal. Our decision to make this significant investment is based on research with operators and research with PEMEX, bearing in mind that the NOC could benefit from the data,” comments Pescarini. He says that CNH has
When the oil price drops as it has done in the past years,
provided excellent visibility with its Five Year Plan, and
the first thing companies cut back on is investment in
Schlumberger has also conducted its own research in terms
large E&P projects. However, in Mexico, there is a balance
of the appetite for investment of international companies.
and, while PEMEX was reducing investment in exploration,
“The project has been well-perceived by CNH because
Schlumberger
in
this is exactly the kind of activity the government needs
welcoming new customers. An example of this can be
in order to attract new investors. The combination of the
witnessed in the seismic campaign the company is currently
transparency and professionalism implemented by CNH,
carrying out in the Campeche Bay, which is one of its largest
our customers’ trust, and our belief in the country makes
multi-client programs and the biggest in Mexico by far.
the investment extremely attractive for the company.” The
has
made
significant
investments
project strengthens Schlumberger’s position in the Mexican “The program is Schlumberger’s biggest seismic campaign
exploration sector, which now enjoys a prestigious position
in the world. We have a strong belief in the country’s energy
due to the company’s participation in preparing the data
sector and the benefits of the reform, and we are already
rooms and creating the National Data Repository alongside
beginning to reap the rewards of this investment,” shares
CNH. Meanwhile, Schlumberger has been a valuable partner
Wallace Pescarini, Schlumberger’s President Mexico &
in ensuring transparency and data security, meaning that
Central America. This project has been undertaken by the
both parties were able to benefit from the collaboration.
company’s exploration arm in order to offset the losses
“We are delighted to have been given the opportunity to be
caused by the current situation in PEMEX, and the company
involved in the history of the oil and gas industry in Mexico
managed to sell some of the multi-client data to customers
outside of PEMEX operations, and I believe that this is only
such as Statoil, demonstrating that government policies can
the beginning for us.”
lead to success. The project’s scope goes beyond R1-L04, as the collected data will be useful for Schlumberger and its
Some
people
could
believe
the
multi-client
survey
customers over the next five to ten years. Pescarini explains
might create a conflict of interest, given Schlumberger’s
that he is increasingly seeing customers who acquire the
collaboration with CNH. However, Pescarini stressed that
data, win a bid, and subsequently require a more in-depth
CNH has a clear set of guidelines in terms of Schlumberger’s
analysis of the allocated fields. In this sense, Schlumberger
access to certain information, and the information obtained
can work with these customers in reprocessing the data
through the multi-client surveys is being provided directly
and creating a much more detailed report. He adds that
to the Commission, as stipulated in the license. “Ultimately,
in the current environment, these services are particularly
the scenario is more of a partnership rather than a
attractive due to their ability to minimize risk.
conflict of interests, as CNH also needs us to make this type of investment in order to attract newcomers to the
The project, which began in August 2015, has been divided
country,” explains Pescarini. There are clear lines between
into five phases, of which 60% had been completed by early
Schlumberger’s duties helping CNH with transparency and
2016. Schlumberger is using its latest seismic technology
data security, and access to the data that would provide an
for the program in Mexico and two fleets comprising 14
advantage in the bidding rounds.
| TECHNOLOGY SPOTLIGHT: 3D CSEM Measuring wellbore resistivity has been a fundamental
of the subsurface, often called a temperature-compaction
formation
Marine
model, typified by resistivity that gradually increases with
Controlled Source Electromagnetic (CSEM) surveying
evaluation
depth. Using all the navigation parameters of the 3D CSEM
uses the same principles to illuminate resistive bodies,
survey, forward modeling is performed over the input 3D
such as commercial-scale hydrocarbon reservoirs, from
resistivity volume to generate a synthetic dataset, which
the seabed. When integrated with other data, 3D CSEM
is quantitatively compared to the acquired data. If the
data helps distinguish prospects with high hydrocarbon
mismatch between the synthetic data and the observed
saturation
from
tool
prospects
since
with
the
low
1920s.
hydrocarbon
data is larger than a given threshold (derived from the
saturation. When a CSEM survey is performed, a horizontal
measurement uncertainty), the 3D resistivity model will
electric dipole (HED) source is towed above the seafloor.
be updated based on the mismatch. This process iterates
The dipole source emits a continuous, time-dependent
until the synthetic data matches the observed data within
EM signal that yields a specific frequency spectrum.
the specified misfit threshold. The output of 3D CSEM
The resulting EM fields are measured by receivers that
inversion is a 3D resistivity volume, which can be loaded in
are deployed on the seafloor. The receiver grid has a
any interpretation software environment, and thus can be
3D configuration, which enables recording data from all
correlated and integrated with other available geophysical
azimuths. The water depth of operation for a CSEM survey
information.
ranges from 20-3,500m. The depth of penetration into the subsurface is between 0-3,500m, depending on the
3D CSEM inversion provides a subsurface 3D resistivity
electrical properties of the overburden.
distribution that delineates prospects and reservoirs, and places them accurately both laterally and in depth. The
3D CSEM inversion is EMGS’s standard imaging product
incorporation of full-azimuth data acquired in 3D grids
for CSEM data. The firm’s 3D CSEM inversion has been
enhances the spatial resolution and accuracy of the final
successfully used to image formation resistivities with
3D resistivity volume. Ultimately, when clients integrate
CSEM data acquired in a variety of geological settings such
the provided resistivity volumes with seismic, well log, and
as shallow water blocks, continental slopes, deepwater
other data, they are able to upgrade their Probability of
blocks, and salt basins, as well as for a range of E&P
Success (PoS) and Volume in Place assessments. These
applications. The goal of CSEM inversion is to estimate a
improvements are often possible when CSEM data is part
subsurface resistivity volume that explains the acquired
of the prospect evaluation workflow, whether integrated
CSEM data within the measurement accuracy and which is
into a customer’s current practice or by using the tools
geologically meaningful.
offered by EMGS. By using CSEM data in combination with other subsurface measurements, users can increase their
To conduct a 3D CSEM inversion, EMGS creates an initial 3D
success in exploration, de-risk and polarize their prospect
resistivity model. This model is a simplified representation
portfolio, and optimize their development programs.
| VIEW FROM THE TOP
COMBINING DATA SETS FOR MORE ACCURACY JUAN M. SANTANA President of EMGS North and South America 89
Q: Which distinctive technologies will you implement in
a new deal in 2013. This contract, and its extension, is an
your multi-client programs in Mexico?
endorsement of our technology and the value that CSEM
A: We have integrated seismic and controlled source
delivers in hydrocarbon exploration. Moving forward we
electromagnetic survey (CSEM) data, and as a result,
will further develop the relationship and support PEMEX in
we are able to deliver reliable solutions to explore leads,
its exploration efforts in the Gulf of Mexico. As far as this
rank prospects, and make more informed decisions. The
project’s impact on the Mexican bidding rounds, EMGS
advantages of CSEM surveys lie in their ability to provide
has a permit from CNH authorizing the acquisition of up
information about the subsurface resistivity that, in
to approximately 88,000km2 of 3D CSEM multi-client
conjunction with seismic, provides powerful information to
data in the Salina del Itsmo Basin. In addition, we have
explore a variety of scenarios. These include the presence
an agreement to reprocess the existing 3D CSEM data in
or absence of hydrocarbons, their estimated volumes,
Mexico, as part of a multi-client model.
characteristics on the seal, lithology differentiators in terms of shale and salt, and salt imaging, among others features.
Q: How would you rate the mechanisms that allow collaborating with CNH, and Mexico’s new multi-client
The 3D CSEM integrated products take interpretation
approach to exploration?
further
by
A: The process for the multi-client program with the CNH,
establishing correlations between seismic and CSEM
called ARES B, was relatively straightforward. I admit
data. By utilizing joint indicators of reservoir properties,
this was somewhat lengthy, as ASEA and the Ministry of
one can qualify geophysical data and enhance structural,
Energy also had to be included, which required separate
stratigraphic, and fluid property interpretations for a region
procedures. However this is understandable, as it was a
or zone of interest. Notably, combining 3D CSEM surveys
pioneering project and several doubts had to be allayed by
with seismic data provides the hydrocarbons industry with
the relevant authorities. We expect the process will become
an additional and independent dataset, which previously
more streamlined, meaning that these kinds of projects will
could only be obtained with an extremely costly well bore.
be accelerated in the future. It will be beneficial for CNH to
Moreover, EMGS’s technology allows the hydrocarbons
implement mechanisms for the multi-client projects so that
industry to incorporate its measurements over large
they have greater impact in acquiring further knowledge.
areas in 3D. This means that, when integrating 3D CSEM
Moreover, we have made considerable advancements in our
techniques with traditional hydrocarbons exploration
multi-client seismic and CSEM integration program, the main
tools, companies can make a more accurate interpretation
objective of which was to reduce exploration uncertainty by
of the exploration potential of an area, optimize their
contributing the significant added value that CSEM brings
portfolio and drilling schedule, and ultimately increase
to the existent multi-client seismic. In this way, integrated
their probability of success.
exploration workflow, including the CSEM data is established
and
provide
a
competitive
advantage
in conjunction with an exploration company’s technical team. Q: What have been the main lessons learned from your 3D CSEM multi-year contract with CNH?
We consider that the main area of opportunity for
A: EMGS will prioritize acquiring CSEM data for the future
exploration companies in subsurface comes in the form
bidding rounds in Mexico as outlined in the Ministry of
of 3D, and because challenges are inherent with this type
Energy’s Five Year Plan. The plan for future licensing rounds
of technology, integration is vital. Our approach has been,
in the offshore fields of Mexico aligns well with our plans
and will continue to be, the combination of 3D CSEM with
in the region and the received CNH permits, and we are
seismic data, in order to reduce exploration uncertainties
now actively seeking funding for our projects. We signed
and more accurately and efficiently identify, assess, and
a contract with PEMEX in 2010, and subsequently signed
rank plays in a potentially productive area.
| VIEW FROM THE TOP
LABORATORY SERVICES AT THE INDUSTRY’S FRONT DOOR JOHN D. LAWRENCE CEO of Petricore 90
Q: How are you managing to maintain your relationship
Due to geological similarities in the sediments, these
with PEMEX in the current environment?
resources could prove just as fruitful as those already
A: I have been involved with PEMEX since 1978, and I have
extracted in the US, although I believe we are still a long
never experienced a situation as critical as that in which
way away from seeing major shale development in Mexico.
the NOC finds itself at the moment. The main problem we are seeing is the delay that can last up to several months
Q: How is Peticore benefiting from an environment in
in terms of billing for services, and now the payment
which companies look for low-cost, integrated services?
conditions have been changed for a period of up to 180
A: Offering both well services and rock analysis gives
days, which essentially means that the suppliers and
us a particular benefit since the services are intrinsically
service providers must finance PEMEX over this time. The
linked. In the future, our regional, geological knowledge,
costs of factoring are relatively high, so this has been a
a consequence of our range of services, will be our main
particularly problematic situation for our company. On the
competitive advantage in the emerging market, as our
other hand, we have a contract with PEMEX E&P, which
competitors lack the experience in Mexico that we have.
is also available for use by production assets, providing
In the specific case of Mexico, we have a full-service
rock analysis for PEMEX interests across the breadth of
laboratory established in the region where most activity
the country. The project is running slowly, mainly due to
is seen, whereas most competitors do not have the same
PEMEX’s current low levels of activity and the lack of wells
facilities, and their local provisions are limited. They then
that are providing samples for analysis.
tend to send samples back to their main laboratory, which is normally located in Houston, Texas, or Aberdeen,
Q: What will be the implications of the fact that PEMEX
Scotland, and there tends to be a long waiting list for
returned 95 wells to the authorities for Petricore?
analysis due to the fact that the laboratory acts as a global
A: Firstly, there will be a lack of productivity due to
hub for the company. However, we have a lab dedicated to
decreased PEMEX activities in the country. Presumably,
the sample analysis here in the heart of the oil community,
the reason for the return is the fact that these fields are
exclusively for the Mexican oil market, meaning that we
not overly attractive to PEMEX, meaning their appeal for
can provide the results much quicker.
private players in the case of new bidding rounds may be limited. However, the principal reason for the return of
Q: How do you plan to demonstrate your capabilities to
the fields is PEMEX’s lack of resources, meaning that the
IOCs that are expected to enter the market?
fields are not necessarily unattractive, but that the NOC
A: We have invested in marketing in order to increase
simply does not have the resources to establish effective
visibility and make the oil community aware of our presence
operations. The whole sedimentary base of the Gulf
on a global level. Timeliness is crucial in this industry as many
of Mexico, from Florida to Campeche holds a wealth of
operations are time sensitive, and the data must be provided
opportunity for hydrocarbon exploration. Moreover, it is
as quickly as possible so that companies can quantify
likely that the south side of the Gulf has been exploited to a
reserves and determine production methods. Moreover, this
much lesser extent than the north due to intense activities
business has a reputation for its delays, so at Petricore we are
in US offshore drilling practices, meaning that new players
very much focusing on the speed at which we can deliver our
should not make the mistake of underestimating the
services, while maintaining quality. Competitors have always
potential of these fields. There are certainly conventional
seen establishing a laboratory in Mexico as a highly risky
fields awaiting discovery and, although I do not anticipate
venture, due to a high investment requirement and relatively
we will discover any more behemoths like Cantarell,
few contracts. In this way, we have gotten a head start, and
the unconventional and shale sources are relatively
will be well-positioned to offer our unique local knowledge
underdeveloped, especially compared with the US side.
to any companies entering the new landscape.
| VIEW FROM THE TOP
THE OPPORTUNITY LIES IN DETAILED IMAGING DAVID PRING Country Manager Mexico of PGS 91
Q: What strategies are you implementing to cope with
true broadband data and produce some extraordinarily
the stringent economic environment in the industry at the
high-quality images when we process, as well as giving us
moment?
access to pre-stacked data that facilitates extremely high-
A: The focus at the moment lies mainly on the control of costs
quality reservoir characterization work.
and implementation of meticulous risk analysis. In addition, we have effectively adjusted the size of the company, both in Mexico and internationally, in an effort to rebalance the current supply and demand situation. In order to move ahead, spending has to be strictly controlled. We have an agreement with Schlumberger and Spectrum in Mexico that allows us to work together, essentially to promote and sell multi-client data, specifically related to the 2D seismic, which provides an example of controlling risk. Q: Based on your experience of 2D studies, what do you expect to be the role of 4D technologies for seismic in the Mexican market? A: Among our successfully completed projects is a large 2D regional study, and this has been acquired, processed, and is now being sold on the international market. As soon as all the permits were in place from CNH last year, we were able to begin and complete this study. To date, there has been no 4D in Mexico, and that is mainly due to the fact that the most promising reserves in the country tend to be in
To date, there has been no 4D in Mexico, and that is mainly due to the fact that the most promising reserves in the country tend to be in
carbonates
carbonates, and there is uncertainty regarding the viability
Q: What is the importance of detailed exploration in field
of the 4D signature that can be recovered from these types
developments?
of reservoirs, especially those that are extremely deep.
A: In spite of our focus on large-scale exploration, PGS
However, there is no reason why this cannot be attempted
has advocated high-density surveys for a long time. A few
by a company who believes that the risk is worthwhile. In
years ago, we implemented a program called High-Density
our experience, when we model 4D and subsequently shoot
3D (HD3D), which was essentially an attempt to produce
4D, we usually find that there is a significant improvement in
high-density, spatial sampling, both in-line and cross-
the signal, since we tend to model conservatively. Therefore,
line, and this produces the most favorable circumstances
if the model displays a minimal chance of success, there is a
for obtaining a high-quality image. When looking at a
solid opportunity when the seismic is shot.
reservoir-scale survey, the area under consideration would typically be hundreds of kilometers rather than thousands
Q: What are some of the advantages both the company
of kilometers, but the detail that can be extrapolated is
and its clients have obtained from your fleet?
greatly improved. Regarding processing in smaller-scale
A: For our marine acquisition and processing, we base
surveys, much more effort is applied to building the
processes around the Ramform platform, which is a
required velocity model for pre-stacked depth migration,
specialized, safe, and highly efficient seismic vessel
which can produce extremely high-quality imaging and
design. The acquisition equipment is based around dual-
detail on a scale that facilitates development of the
sensor Geostreamer technology, which allows us to record
reservoir.
| TECHNOLOGY SPOTLIGHT: GEOTAG The French company Sercel, a global leader in seismic acquisition with 50 years of experience, is continuously developing technologies that help companies in the hydrocarbon exploration industry. One of the company’s leading technologies is GeoTag, an acoustic positioning system for seabed seismic acquisition. In order to conduct a seismic or ocean bottom survey, companies cannot simply send a surveyor equipped with a GPS, as this would not provide any accuracy. GeoTag is the latest generation of positioning devices with the highest degree of accuracy, which is ensured thanks to a twoway communication of time-distance measurements from the GeoTag transponders located on the seabed and the GeoTag transceivers found on a vessel. The AC powered transceiver is connected to the INS via a junction box and can receive up to ten simultaneous replies and absolute positioning is then computed with a precision of 0.2m after processing. One of the challenges faced by similar devices but overcome by GeoTag is saturation. Thanks
be it OBC, transition zones, or ocean bottom nodes, and
to its ability to handle up to 10,000 units per crew, the
its size provides customers with considerable advantages.
positioning device provides an extremely high quality
While competitors’ transponders are 442mm long with a
resolution for large 3D surveys.
diameter of 63mm, Sercel offers the smallest transponder on the market with a length of 370mm and a diameter of 60mm. Maintenance is also simplified by the transponder’s
range of 1,000m and can function up to a water depth
simple design that allows the customer to perform basic
of 500m, making it a suitable option for both shallow
repairs independently, including changing the alkaline
water and deepwater surveys. It is an extremely adaptable
battery pack that has a typical six-month long life in
technology as it can be used with any kind of equipment,
operation.
ISO 9001
Certified
The submarine positioning device has an operating
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| VIEW FROM THE TOP
BRINGING NEW TECHNOLOGY TO OLD WELLS DUANE DOPKIN Executive Vice President, Geoscience Product Management of Paradigm 93
Q: What main elements of your software allowed to
azimuth imaging and characterization system, geologically
reduce the time between seismic acquisition and first oil
constrained velocity models, and software to develop
by nearly 40%?
challenging anisotropic velocity models in deepwater
A: Paradigm developed this solution for its software and
and onshore shale basins. These technologies have had
support licensing arrangement with COMESA, which
a major impact on the quality and resolution of both 2D
includes software updates and maintenance services.
and 3D seismic acquisitions. We have a rich portfolio
This arrangement is strengthened by a collaborative
of seismic imaging applications that include Kirchhoff
relationship where we prioritize and deliver enhancements
operators, reverse time migration propagators, and local
that improve COMESA’s productivity and the solutions
angle domain operators that can be adapted to different
that are relevant to its customers and assets. The
subsurface conditions. Our “diffraction imaging” extracts
Paradigm seismic processing and imaging solution is
discontinuous subsurface features not observable with
a field tested solution that incorporates continuous
conventional seismic methods. Our full azimuth imaging
improvements, enhancements, and innovations reflecting
solutions are ideal for both deepwater and shale resource
the requirements of a large global customer base. This
plays for deriving anisotropic models and carrying out
solution, which led to the aforementioned time reduction
inversions for fracture intensities and orientations.
of 40%, combines the best of high performance computing with high levels of interactivity, interpretation, and
Q: As operators move from appraisals to beginning to plan
modeling, significantly reducing the time to results even
their drilling phase, what can Paradigm’s technologies
for the most challenging projects. The comprehensive
and software do to reduce uncertainty, and translate that
footprint of this solution means the customer does not
into increased productivity?
have to leave the solution, avoiding costly time losses
A: One of the activities that we do quite well to reduce
going in and out of third-party applications. It is a good
exploration and development risk is to carry out projects, not
match for the COMESA geoscientists who need to deliver
only with borehole and seismic data, but also with knowledge
quality results in challenging project timelines. Moreover,
of the stratigraphy and structure of the subsurface. Many of
the solution is optimized for the latest hardware, compilers,
the projects that we execute synchronize the geological and
and operating systems so that COMESA can predict and
geophysical model, which is something many traditional
plan these project schedules more easily.
seismic contractors are not able to do routinely because they do not have access to the subsurface geological modelling
Q: What type of demand are you seeing from PEMEX to
technology. We use the geology to guide and constrain our
reprocess and reappraise some of its legacy data?
geophysical operations while ensuring that both data sets are
A: It is important to understand that Paradigm is not a seismic
consistent with each other. The end result is a seismic image
acquisition or oil field services company. Consequently, the
volume that is consistent with both seismic and geologic
opportunity for taking legacy seismic and borehole data,
invariants, such as travel times and well markers, and a
upgrading it, and exposing it to new technologies and
higher resolution velocity model constrained with azimuthal
workflows can bring substantial returns and cost savings
measurements. Additionally, our subsurface models are
for operators like PEMEX. Paradigm provides an oil field
generated in chrono-stratigraphic (depositional) space,
independent solution with best-in-class science to ensure a
accommodating any level of structural and stratigraphic
successful outcome for its operators.
complexity, and providing a platform for velocity, structural, stratigraphic, facies, and reservoir property modeling. All of
In this area, we have brought many innovative contributions
these not only drive a better seismic imaging workflow, but
to the seismic processing and imaging market, including an
also drive a better quantitative interpretation solution with
innovative broadband seismic deghosting solution, a full
seismic inversion procedures.
| VIEW FROM THE TOP
NEW MARITIME MANAGEMENT IN THE GULF OF MEXICO PAVEL HERNĂ NDEZ Director General of OH Maritime 94
Q: How has your company evolved in the last year, and
A: There are few companies in Mexico that can fulfill
what challenges have you faced and overcome along the
the financial, technical, and human capital criteria that
way?
is demanded by our clients, some of which have even
A: We had an interesting and challenging year due to the
higher standards than PEMEX. Most of the international
new payment protocols and the new technology that our
companies that carry out seismic services on a large scale
clients are demanding. The main obstacle has been the
are public companies from the US and Europe, which
changes in policy that allows payments to be made in
have a level of compliance that is much higher than what
terms of 180 days, and although this was just announced
PEMEX requires. Preparing our first bidding proposal was
in November 2015, it has already been implemented. It
a challenge, but fortunately, our successful compliance has
has been challenging for us because we are accustomed
provided us many references from other companies that
to a payment delay of 30 to 90 days, but not of 180
want us to offer the same services. This is our competitive
days without notice. As a company, we had to learn to
advantage, and although we would like to inform more
overcome this situation and we ended up being one of the
clients about our services, we provide a niche service in a
few businesses still under contract for seismic services last
narrow market. Therefore, our references generally come
year. Our clients were also demanding a change in logistics
in the form of word of mouth. Last year, we started working
due to the fact that different types of new technology
with Seabed Geosolutions, a joint venture between CGG
were being brought to Mexico. One of them is based on
and Fugro, who was looking for a reliable partner with
seabed surface recognition, and its cables are laid directly
knowledge on compliance because the seismic industry is
on the seabed to analyze the components underneath. We
relatively dynamic.
had to do this in a high-traffic density area in Campeche, and we provided personnel that were involved in the day-
Q: What kind of services do you expect to provide in
to-day logistics to help with this new stumbling block.
activities in the Gulf, and which of these services do you expect will experience the most demand in the coming
Q: Is OH Maritime considering potential clients that are
years?
carrying out multi-client services in the Gulf of Mexico
A: One of the main services that the operators will
with the authorization of CNH?
need is reliable port agency services that are able to
A: We are definitely looking into those players. In fact, one
maintain communication while offering cost-effective
of the companies that already have CNH authorizations is
practices across all operations because the seismic
a client of ours, CGG, which uses our consulting services.
market is depressed. In order for port operations to
At the moment, the industry is not yet in a position where
maintain stability, there is a need for talented port
there is a great demand or need for seismic studies, as it is
agents. These operators are demanding more of these
still dependent on contracts for the Round Zero reservoirs,
services in general, and looking for Mexican suppliers
of which PEMEX retained about 80% of the sites that have
that can provide quality services. We have a port agency
to be explored, and some of them require an update on
license and our objective is to improve and increase our
seismic data. R1-L04 is going to be interesting for our
operations in the ports of Coatzacoalcos and Tuxpan,
clients because it will auction areas that have not yet been
which have a high demand for services. Operators will
tapped into, and this means that these areas must see
also be demanding legal advisory services, as foreign
investment before exploration wells are developed.
personnel requirements are always being reviewed. These players want to start operations in Mexico and they want
Q: How can you take advantage of being able to follow
to know if they can become a local company, establish
and comply with PEMEX’s complex requirements to stay
a permanent branch, and the terms and conditions for
ahead of the competition?
having foreigners in the contract.
| INSIGHT
ACCOMPANYING EXPLORATION IN THE NEW MARKET “The name of the game is imaging, and the more a company can provide accurate and reliable images, the better positioned it will be”
KARIM LASSEL Geomarket Director & Country Manager Mexico of CGG 95
“The name of the game is imaging, and the more a company Karim Lassel,
can provide accurate and reliable images, the better
Geomarket Director & Country Manager Mexico of CGG
positioned it will be.” In this sense, CGG will conduct high-end, wide-azimuth acquisition, supported by a host of advanced processing technologies, to offer the very highest-resolution
Service companies have several ways to demonstrate
subsurface images. Lassel is also confident that CGG’s team,
an outstanding track record, and one of CGG’s flagship
made up of an imaging center in Villahermosa and offices in
projects is the high-res, broadband wide-azimuth marine
Houston, which has gained unique experience in deepwater
seismic survey it completed for PEMEX in 2014. In the
processing techniques by working on the US side of the
words of CGG’s Director & Country Manager for Mexico,
Gulf, will provide the company a distinct advantage. Lassel
Karim Lassel, “this survey was one the most high-profile
comments that CGG’s acquisition of Fugro’s Geoscience
projects in terms of volume of data that the industry
Division back in 2013 brought world-renowned geoscience
has seen, both inside and outside Mexico. CGG supplied
brands to the company’s existing portfolio, which means
PEMEX with an end-product of high added value that was
that CGG now has high-end products and services that have
beneficial for the NOC in proceeding with its exploration
not been fully deployed in Mexico yet and is in the process
program, particularly in Centauro.”
of making them better known to transform data into more valuable, actionable information.
Exploration activities look set to accelerate in the country due to the development of a new multi-client market.
In Lassel’s view, the opening up of Mexico’s oil and gas
Additionally, the licensing rounds generate the need to
sector has provided a new landscape for the industry in
revisit existing data and integrate different data types and
the unconventionals and deepwater sectors, in addition
vintages where possible; interested companies will most
to shallow water. Even though CGG is renowned for
likely have to use their internal resources as well as call for
its expertise in Mexican offshore projects, the onshore
external services. CGG has been granted several permits
segment has some appeal for analysis and reinterpretation.
by CNH that allows the geoscience expert to acquire
The company has gained plenty of knowledge in the US on
and process data in Mexican waters. Lassel expects the
how to process onshore data for sweet spot identification
company to acquire and process approximately 240,000km
and unconventional reservoir characterization, which will
of high-resolution, airborne magnetic and gravity data over
be helpful for operators in R1-L01. Lassel comments that
six large areas. CGG already has the backing of a number
his company intends to play a role in the development
of investors who have expressed interest in participating
of these potential reserves by importing cutting-edge
in this venture and is looking for more clients. In addition,
technology and processes developed mainly in the US into
CGG has initiated a multi-client reprocessing project for the
Mexico. Although CGG is well positioned, Lassel is aware
Centauro deepwater. This is the only reprocessing project
that competition will be fierce and his company is not
CGG has decided to do in Mexico for the moment.
protected from the industry’s downturn. Nevertheless, CGG will benefit from its reputation as a strategic partner,
The industry in Mexico is reinventing itself, and Lassel points
and as a technology leader and high-quality service
out that the trend in acquisition technology is moving
provider. “Every survey we have conducted puts us in a
away from 2D seismic, as Mexico is already well covered,
very strong position in terms of service performance, HSE,
and focusing more on high-tech broadband wide-azimuth
social responsibility, and innovation. I see great windows
acquisition that can image deep structures combined with
of opportunity, as the market will be driven by more than
the latest advanced processing, interpretation, and analysis
just one operator, although PEMEX will definitely remain
techniques to support the exploration and drilling phases.
our main client in Mexico.”
| VIEW FROM THE TOP
MAPPING THE MEXICAN TERRAIN BRIAN HANSON President and CEO of ION Geophysical 96
Q: What factors led to the extension of ION’s multi-year
and significant experience with Mexican geology make us
contract with PEMEX for onshore and offshore surveys?
the preferred imaging partner for many new operators in
A: Our biggest achievement to date, however, have been
Mexico. We are currently working on a number of projects
offshore. The recent changes in the regulatory regime
to deliver continuous high-quality 3D data over large areas
in Mexico have created enormous opportunities for E&P
in critical regions such as Perdido and Campeche. These
companies in Mexico, and ION has been a significant
data sets will be available in time to reduce geologic risk
player in getting data into their hands to help them
for the impending lease sales.
develop their exploration strategies in the region. First, in 2012, we gained access to the University of Texas data
Q: What experience gained from your data in the US
in Mexico and reprocessed the seismic data shot in the
sector of the Gulf of Mexico will be translated into its
1970s and 1980s. The uplift we achieved on that data
Mexican counterpart?
was remarkable. We named the project YucatanSPAN ,
A: Drilling activity in the US has been high, and our
and it enabled our customers to identify key prospective
GulfSPANTM and FloridaSPANTM programs provide our
areas ahead of their competitors. In 2015, we acquired
customers with the data and knowledge they need
22,000km of new data entitled MexicoSPANTM, and this
to develop their E&P programs in Mexico. The level of
covers the southern half of the basin and ties directly
competition in the US Gulf of Mexico has also driven a
to our GulfSPANTM program in the US. MexicoSPANTM
tremendous wave of innovation. Our pioneering work to
images the prospectivity of the sedimentary section
develop and apply Reverse Time Migration (RTM) and
and also the deepest part of the basin, providing the
other technologies gives us a substantial edge in imaging
framework to understand the basin evolution and
complex areas such as the salt related discoveries of
potential petroleum systems that are present. We
the Perdido fold belt. In Mexico, the knowledge that we
provides our customers most of
gained from the YucatanSPANTM reprocessing project
TM
believe MexicoSPAN
TM
the 2D data they need.
was invaluable because it allowed us to develop the MexicoSPANTM program with a clear focus on answering the key questions, whereas our competitors had to acquire dense regular grids to sample the geology. Our unconventional reservoir characterization ResSCANTM workflow was developed over several years of evaluating and characterizing multiple onshore US reservoirs. The integration of the various disciplines, such as geophysics,
In 2015, ION acquired
22,000km of new data entitled MexicoSPANTM
petrophysics,
geomechanics,
rock
physics,
reservoir
engineering, drilling, and completion operations, provides the context for our customers to optimize well and field development plans. These workflows can focus on well orientation by using the latest wide-azimuth and multicomponent seismic technology, seismic inversion to
Exploration success in the US Gulf of Mexico has been
identify completion or production sweet spots or azimuthal
driven by large volumes of multi-client 3D data. The next
anisotropy to better understand fracture orientations.
step for Mexico is to develop prospects by applying the latest geologic knowledge and processing technology to
Q: What are the advantages of ION’s BasinSPANTM over
the existing 3D data. Our leading edge imaging technology
conventional multi-client survey libraries?
A: BasinSPANTM programs are designed at the basin scale
seismic data across the whole Gulf of Mexico as part of
in order to deliver knowledge across an entire basin, from
BasinSPANTM and complemented that with potential field
margin to margin. They are designed and acquired to
data. Our coverage extends from Dallas, Texas to the
provide the complete exploration framework and connect
Yucatan peninsula.
conjugate basins, which are basins that formed when the continents were in a different location than today. That
Q: What are the benefits of Reverse Time Migration (RTM)
means delivering seismic lines that are not just longer
in ION’s technology portfolio, what have been its results
than those of our competitors but that also provide the
in exploration activities in the Gulf of Mexico, and what
highest quality image of deeper strata at 40km or more.
improvements has ION made to this technology?
This allows geoscientists to unravel the geologic evolution
A: About ten years ago, ION was the first company to
of the basin. The BasinSPANTM library allows us to make
commercialize the large-scale use of RTM. It delivered
interpretations across entire continental margins, and we
accurate images in the presence of steeply dipping or
can correlate the geology in Brazil to similar age rocks in
even overthrust reflectors that are encountered in complex
West Africa, for instance. We tied our Mexican program
subsalt plays. RTM has continued to evolve, and today we
to the Caribbean region. BasinSPANTM programs are never
can use much more realistic anisotropic representations of
TM
just regular grids of lines. Each line in a BasinSPAN
the subsurface. Our implementation of RTM is extremely
program is designed to answer a specific question about
efficient, allowing us to deliver RTM images at high
the basin architecture. Typically, we shoot orthogonal
resolutions, without any of the limitations of traditional
to the bathymetry and parallel to the syn-rift extension
Kirchoff migration. ION’s major differentiator is not just
direction. We also take care to tie existing well control.
our algorithms, but our leading experience in successfully
We have acquired or reprocessed over 96,500km of 2D
implementing technology for our customers.
| INSIGHT
NEWLY CREATED PLAYER SEEKS THE RIGHT PARTNERS Much of the talk on the restructuring of the oil and gas industry involves the creation of local operators. However,
ALBERTO GALVIS CEO of Citla Energy
the risky and capital intensive exploration sector does not come up in conversation as often. ACON Investments saw the potential of the exploration segment and decided to
added to the skills and assets that we already have within
fund Citla Energy, which was created to participate and
our company, such as our financial muscle,” says Galvis,
invest in the national exploration and production sector. “The
who also highlights his 15 years of experience in several
Energy Reform brings huge opportunities for the private
countries as an asset that will serve his company.
sector, as the government structured a way for investment to flow in an orderly and organized fashion. An event of this
Galvis lists the reasons why companies should consider
magnitude happens every couple of decades in the global oil
partnering with Citla, “Firstly, we have a strong and robust
and gas industry, and we created Citla as a vehicle to be part
financial backing, which many local companies are lacking.
of it,” shares Alberto Galvis, CEO of Citla Energy.
Secondly, we are contributing international standards that will help the industry operate in a responsible manner
So far, Citla has secured significant funds from reputable
and with higher technical capabilities. Finally, we will
institutions, including the World Bank, through the
bring international experience that will contribute to the
IFC, the China-Mexico Fund, and Mexican pension
industry, as this was closed for 75 years and will benefit
funds, as well as ACON Investments, its sponsor private
from new ideas and ways of doing business.” Galvis hopes
equity firm. In addition, Citla is working on building its
that these capabilities and assets will allow his company
operating capabilities, for which it is negotiating with
to participate in R1-L05. “We find those onshore blocks
potential partners that have had activities in Mexico for a
are quite attractive, given the large volume of resources.”
considerable time. “We will soon have proven operational
He also mentions once the timing of the farm-outs is
capabilities through our partners that will provide us with
confirmed, Citla Energy will look into this opportunity
the necessary knowledge and experience. This will be
seriously.
97
| INSIGHT
GEOMECHANICS OPEN THE DOORS TO NEW FRONTIERS When deepwater drilling was more active, Ikon Science was focused on helping companies understand formation pressures offshore in Mexico. Bell comments that wells
MATT BELL
targeting prospects in Mexican waters adjacent to high-
President of Ikon Science
profile discoveries in the Wilcox play, such as Tiber, Cascade, and Jack, may cost up to US$250 million to drill,
98
and are likely to encounter high pressures, often while Over the past year, Ikon Science, a global leader in
dealing with narrow drilling margins. Following recent
Quantitative
(QED),
changes in legislation, Bell has noticed increased interest
onshore
in applying Ikon Science’s technology in Mexico, both
has
been
Exploration developing
unconventional drilling its
and
traditional
and
new
resource
completion geophysics
Development
workflows
plays,
providing
engineers, and
for
in
geology
value
to
onshore and offshore, especially in the Joint Impedance
addition
to
and Facies Inversion technology (Ji-Fi), which was
customers.
launched internationally just over a year ago. “We are
According to Matt Bell, President of Ikon Science,
seeking pilot studies in Mexico, and would be happy to
the application of quantitative seismic interpretation,
hear from any companies interested in trialing this radical
particularly in combination with geomechanics and
technology on those fields.”
geopressure prediction, is relatively underdeveloped in Mexico, which provides Ikon Science an opportunity
Ikon Science has developed a series of case studies
to help unconventional resource developers identify,
from deepwater wells drilled in the Gulf of Mexico that
drill, and complete ‘sweet spots’ within the reservoir.
demonstrate the value of the company’s pore pressure
“Unconventional reservoirs face a different set of
prediction and time-based data analysis methods. Given
production challenges from conventional reservoirs.
that geology does not change as activity moves across
Some of the major questions operators have surround
the US-Mexican border, Ikon Science can bring significant
the effective use of hydraulic fracture stimulation to
regional expertise to bear on local Mexican prospects.
deliver economic production rates,” Bell explains. He
During drilling, it is critical to calibrate borehole stability
points out that the answers to these questions are rooted
and pore pressure predictions to known events, such as
in geomechanics, as geomechanics plays a critical role in
connection gases, tight hole conditions, and pack off
understanding the direction in which a stimulated fracture
tendencies. By performing its analysis on time-based
will grow, how far the fracture may grow horizontally and
data, much of which is done in real-time, Ikon Science can
vertically, and whether the stimulated fracture will be a
produce robust and accurate pore pressure predictions.
simple planar fracture or a complex network of fractures.
In accordance to the company’s mantra, “the regional informs the local”, Bell expects that the understanding
Bell notes that a fracture contained within a resource layer
Ikon has gained in developing regional geopressure and
during stimulation is likely to yield higher production than
rock property studies in the US Gulf of Mexico will transfer
a fracture that grows out of zone. The major control on
successfully to clients on the Mexican side.
fracture containment is the stress contrast between the resource layer and adjacent rock strata. This stress contrast
In addition to regional, multi-client studies, Ikon Science
can be captured by a calibrated geomechanical model.
is also willing to work on smaller, detailed investigations.
“Reservoir stimulation may result from new fractures
The company’s 1D geomechanics workflow produces a
being generated during the hydraulic stimulation process,
highly detailed profile of strength and stress along a given
from pre-existing fractures and planes of weakness being
wellbore in order to predict wellbore stability, fracture
reactivated, or from a combination of both,” he details.
permeability, and fracture orientation. Depending upon
The magnitude and orientation of the principal stresses,
the scope of the project, these 1D models can be used to
captured in a calibrated geomechanical model, and the
populate highly complex 3D models, driven by seismic
relative orientation of pre-existing planes of weakness will
attributes, geostatistics, or both. The 3D models can be
determine whether new fractures are generated or pre-
used for predrill stress and strength predictions, or as
existing fractures are reactivated. Similarly, the amount
a part of more sophisticated models to address issues
of stress anisotropy within the reservoir will govern the
such as complex structure, salt dynamics, fluid flow, fault
complexity of stimulated fractures.
reactivation, subsidence, or changes in permeability.
| INSIGHT
GEOSCIENCE HELPS OPERATORS INCREASE PRODUCTION As the fall in oil prices shakes the entire industry, Geoprocesados
has
adapted
its
strategy
by
first
identifying the services that reduced the highest incidence
JAVIER RUBIO
of risk for its clients. Javier Rubio, General Manager of
General Manager of
Geoprocesados, explains that oil companies have reduced
Geoprocesados
their investments, but they should opt for the studies 99
his company is conducting because these will reduce the uncertainty of their wells, exploration sites, and
reduction of PEMEX’s budget. Rubio claims the geological
operations. “We are looking to provide services that can
and geophysical studies his company carries out belong to
incorporate production at a faster rate, reduce risk, and
the industry segment that has been less directly impacted
increase the success rate of wells.” He also points out that
by the budget cuts. “The types of studies we conduct tend
people tend to confuse geological and geophysics studies
to have medium- to long-term results, especially when it
with exploration projects, although some of the former are
comes to exploration. PEMEX is cutting down on operations
often carried out with the aim of improving production.
and services with a short-term impact and when it comes to exploration, the NOC tends to view everything from a long-
Although Geoprocesados’ expertise encompasses most
term perspective.” According to Rubio, Geoprocesados’
oil and gas areas found in Mexico, the company provides
structure is based on ways in which it can provide PEMEX,
a significant added value in naturally fractured formations
its main client, with the most effective service. He says the
and fractured carbonates, and is currently acquiring more
entrance of new operators provides opportunities for his
experience in unconventionals. “If a well does not correctly
company, but he will only offer services in those projects
cross the highly fractured zone, the production will not be
where Geoprocesados can provide an added value. Rubio’s
optimal, and the differences between the numbers of oil
team molds its services to fit the clients’ geological strategy
barrels could be immense,” Rubio explains. Geoprocesados
and helps them adapt to the Mexican terrain. The company
has assembled a multi-disciplinary team with experience
has already worked alongside players that participated
in naturally fractured carbonates, which is able to
in the shallow water round, and is looking forward to
significantly reduce uncertainty in the characterization
continuing working with new clients.
of fractured deposits, and assist petroleum companies in creating wells in productive zones.
Maintaining its positioning at the technological forefront is crucial for a geoscience studies company, and one of
Rubio says Chicontepec is a challenging location to
the best ways to achieve this is through partnerships.
develop due to its complex reservoirs, but it is full of
Geoprocesados collaborates with Paradigm, a company
potential for the industry to exploit if the characterization
whose core business is developing software. Conversely,
is properly completed. “The geological composition
Geoprocesados is a full service provider, which strengthens
of Chicontepec, which is a Tertiary formation, and
the partnership on both sides of the spectrum. Rubio
unconventional resources, which are deeper, could be
explains that Paradigm invests money in the development
highly profitable if the portfolios are balanced correctly.
of new technologies, whilst Geoprocesados invests
If companies focus on implementing local technologies
in training team members and optimizing processes.
in the upcoming onshore rounds, the benefits would be
Geoprocesados also has a meaningful association with
greater,” Rubio suggests. In addition, new salt formations
TEEC, a German technology developer, which gives Rubio’s
and the possibility of discovering pre-salt formations will
company an idea of the European trend in geological
change the game. Mexico has an abundant amount of salt
and geophysical technologies, as the Mexican sector is
in its geology, with locations such as the Salina del Istmo
significantly influenced by North American technology.
Basin, and Rubio argues that salt increases the complexity
Geoprocesados’
of any geological formation so it is important to possess
technologies from TEEC and Paradigm, something that
knowledge on how to work on these formations and of the
few companies can do due to the complexity entailed
different process applications.
in using these solutions. “We are constantly integrating
wide-azimuth
services
incorporate
innovative technologies into our depth imaging algorithms, Even though Geoprocesados has adapted to the low oil
new topographies, and tools for the construction of speed
price, the company did not change its strategy due to the
models,” Rubio comments.
| VIEW FROM THE TOP
QUALITY DATA BOOSTS INTEREST IN THE INDUSTRY ROBERT HOBBS Former CEO of TGS 100
Q: How could your services optimize the purchasing
Q: How does TGS stand out from its competitors in the
activities of the Mexican market?
Mexican market?
A: Our data library is economically compelling, as a multi-
A: In Mexico, we were the first company to announce
client model allows companies to access seismic information
the development of an offshore seismic program. We
in a far less expensive way than paying a geophysical
decided to undertake what is probably one of the largest
company to acquire proprietary data. Seismic information
single offshore 2D programs in the world. The project
will be especially important for areas located in the Mexican
comprises
offshore sector of the Gulf of Mexico as they are just now
offshore sector, from the Perdido fold belt to the coast
becoming available to international investors in the oil and
of Yucatan. The dataset resulting from this project will
gas sector. For companies entering this sector, it would
allow geoscientists to obtain an in-depth overview of the
be necessary to access a relatively inexpensive source of
entire basin, and no other company has that. We can make
seismic data to understand the sub-surface conditions of
that commitment because we are confident about the
the area and decide whether they are worth the investment.
potential of the Mexican Gulf, especially considering the
Having access to accurate seismic data is also beneficial for
prolific exploration that has taken place on the US side. To
any government thinking about offering its hydrocarbon
complete the project we have hired almost the entire fleet
resources for bidding or exploration, as national authorities
of a major 2D seismic company and we currently have four
need to create a competitive atmosphere for companies
of the company’s 2D vessels working on our project.
186,000km,
covering
the
entire
Mexican
willing to exploit those resources. This is precisely the case of Mexico. One way to assure a competitive environment
Q: How do you balance new and acquired information in
is to provide companies with the information they need
your database?
about the basin's potential, as it will boost interest and
A: All the data we acquire is brand new. Obviously, there is
participation from the industry.
published information in the public domain that is useful for us to plan our activities prior to acquiring a program.
Q: How do you manage to obtain the technology for
Additionally, in our approach, we are not only acquiring
seismic assessment acquisition in remote areas?
seismic data but also looking to acquire complimentary
A: The great thing about TGS is that we can access
geoscience data sets that will aid exploration companies
any acquisition technology currently available on the
in assessing the active petroleum systems and reducing
market and optimize the technology to solve a particular
drilling risk. Included in our data offering in Mexico are
geological problem. Traditionally, our biggest competitors
multibeam data and piston core samples. Multibeam
are vessel providers. Full service geophysical companies
data provides detailed mapping of the seafloor and its
owning the vessels will typically carry out some level of
physiography.
multi-client acquisition. The reason behind this strategy is that they need to keep their vessels operational all the
We use this information to locate optimal sites for seafloor
time as they are costly to maintain. Therefore, if they are
coring of potential hydrocarbon seep sites. From the cores
not generating revenues on that asset they are losing
we conduct a chemistry-based study that analyzes the
money, and so the motivation for these companies is to
hydrocarbons in the sea bottom. The results are a chemical
keep their vessels operational, and that is how they make
chromatography that helps companies understand the
their investment decisions. We, on the contrary, make our
hydrocarbon systems. The most important feature about
investment decisions based on the prospective reserves
this information is that it is all integrated with the seismic
of the basin and we never acquire a project without
data. The success of the strategy is confirmed by the level
assurances of the commercial attractiveness for our
of risk reduction it provides in validating prospects and
customers.
petroleum systems.
| VIEW FROM THE TOP
ONE STEP AHEAD IN SEISMIC ACQUISITION ROBIN ELLIS Vice President of Sales and Marketing of Sercel 101
Q: How can you use new technologies, especially in
that the percentage of high-technology vessels is likely to
seismic acquisition, to inform companies of the value of
be stable. We would expect our proven technology, which
conducting a new study?
has already had a tremendous amount of success in the
A: The new technologies we have developed in recent
US, to be more widely employed on the Mexican side of
years are concentrated on the next step forward in seismic
the Gulf of Mexico. In fact, CGG has already employed this
acquisition. Industry milestones include the transition from
technology for PEMEX. Furthermore, we have developed a
2D seismic to 3D seismic some 15 years ago. We are once
new generation of Sentinel called Sentinel MS, an innovative
again at the forefront of the next step, which is broadband
multi-sensor streamer featuring two additional acceleration
acquisition, something that we already have considerable
components that offers directional measurements for both
experience with in the Middle East and the US. Seismic
cross-line and vertical wave fronts, as well as improved noise
surveys conducted in recent years have generally been
cancellation. This new version of Sentinel will herald the next
based on a 10-100Hz window, but a lot of energy can be
leap forward in marine seismic acquisition. There are also
acquired at frequencies out of this range. Doing so results
several OBC surveys currently up for tender and Sercel's
not only in significantly higher quality image resolution
SeaRay428 will surely be offered, having already built a
but data obtained at frequencies below 5Hz can be used
positive reputation with multiple successful ocean bottom
to carry out seismic inversion, thus gaining valuable
surveys completed in Mexico. We also plan to launch the new
information about the rock properties within the reservoir.
508XT in Mexico in the near future, and this should provide a
In the last few years, we have introduced several products
new paradigm in land seismic acquisition by allowing a new
to facilitate this process, including the Nomad 65 Neo
level of acquisition flexibility and operational reliability for
and Nomad 90 Neo seismic vibrators, both of which are
all types of geographies, climates, and environments. Our
capable of delivering stronger low frequency content.
successful collaboration with Grupo Núùez remains active and we are currently exploring other partnerships with which
On the receiver side, we have broadband products, such
to strengthen our position in the country.
as the DSU1-508, featuring QuietSeis Sensors which are the industry's lowest noise MEMS based sensors. As an
Q: To what extent do you believe that there will be an
alternative, the SG5 is a high-sensitivity analog geophone
increase in exploration activity, as certain inland blocks
with a 5Hz natural frequency. We also recently introduced
in the southern region begin to be reappraised for the
the 508XT, a new generation land seismic acquisition
rounds and eventual farm-outs?
system featuring cross-technology (X-Tech) architecture,
A: I expect a certain amount of recovery following the
which combines the best of cabled and wireless system
success of R1-L03. There is a great deal of legacy seismic
characteristics to optimize crew productivity and reduce
available, which was used in the decision-making process
operational downtime. It is a product that we are sure will
of awarding of the blocks. The question becomes whether
be ideally suited for high-production vibroseis operations
the new players will drill based on the existing information
in northern Mexico.
or whether they will see value in carrying out new studies in order to acquire more detailed pictures of specific areas
Q: How do you expect your activity to be divided in terms
within the block. In the areas that are already producing,
of projects and technologies?
the aim of any new seismic study would be to find ways to
A: Although there is certainly the potential for large-scale
increase levels of production, and high resolution seismic
multi-client seismic studies in the North, the previous
can contribute greatly to that. An alternative is downhole
bidding round will undoubtedly generate demand for high-
seismic, which can generate an extremely high resolution
density albeit smaller surveys. In the marine sector a lot of
subsurface image of the area close to the well site and allow
the older vessels are being laid up at the moment, meaning
interpreters to better assess how to enhance recovery.
4
DRILLING & WELL SERVICES
Companies’ drilling budgets have been slashed dramatically and drilling companies are actively pursuing all potential opportunities to succeed in the challenging drilling market. The name of the game is survival until the anticipated upturn in drilling activity in the Mexican oil and gas industry. The two blocks awarded in R1-L01 are estimated to contain roughly 142 million boe and 102 million boe respectively, representing an opportunity for drilling and services companies. The fields awarded in R1-L02 are expected to produce 90,000b/d in the next two years, and the totality of those tendered in R1-L03 are believed to have an average production potential of 14,000b/d and 94mcf/d over the coming two to three years, also creating the need for efficient drilling services to help operators achieve both of these estimates. It is undeniable that the reduced budgets have created a heightened need for cost-effective drilling services, innovative technologies, operational excellence, the streamlining of the supply chain, and the integration of services.
This chapter will explore the opinions of the key stakeholders in the drilling and well services segments regarding the critical success factors in today’s challenging operating environment, as well as offering their proposed solutions to problems encountered in the fields.
103
We deliver, No excuses.
is committed to providing “local solutions for local drilling needs”. We offer solutions in drilling and completion fluids, solids control, transportation services, technical testing and analysis services.
Houston Office: 11700 Katy Fwy, Suite 200, Houston TX, 77079. Phone: +1 832 672 4459 Mexico Office: Prolongación 27 de Febrero, Edificio 3017, Colonia Tabasco 2000. C.P. 86035, Villahermosa, Tabasco. Phone: +52 199 3310 67 60
www.qmax.com
| CHAPTER 4: DRILLING & WELL SERVICES 106
ANALYSIS: PEMEX’s Drilling Strategy
107
VIEW FROM THE TOP: Wallace Pescarini, Schlumberger
108
VIEW FROM THE TOP: Ricardo Arce, Perforadora México
110
TECHNOLOGY SPOTLIGHT: GeoSphere, Schlumberger
111
INSIGHT: Guido Rivas, QMax
112
VIEW FROM THE TOP: Bruno Lima, Halliburton
113
INSIGHT: Juan Castañeda, Halliburton
114
VIEW FROM THE TOP: Fernando Ortiz, Seadrill
116
INSIGHT: Steve Walker, Loadcraft
117
INSIGHT: PJ Pendlebury, Global Drilling Support
118
VIEW FROM THE TOP: Myles Woloshyn, Turbo Drill
119
TECHNOLOGY SPOTLIGHT: Steady Scout, Turbo Drill
120
TECHNOLOGY SPOTLIGHT: PowerDrive Archer RRS, Schlumberger
121
VIEW FROM THE TOP: Tony Solis, TSC Offshore
122
VIEW FROM THE TOP: Wang Sheng, COSL
123
INSIGHT: Jorge González, ALS Wellvention
124
VIEW FROM THE TOP: Rodrigo de Vivanco, Kratus Energy
125
INSIGHT: Oscar Suárez, DM Ingenieros
105
| ANALYSIS
PEMEX'S DRILLING STRATEGY SERVICES & PLATFORM DAILY COSTS (US$ thousand/d 2015) DAILY RIG RATES 2015 (US$ thousand) 503
International reference
451
1st quartile 384
2nd quartile PEMEX
365
previous average actual average
106
60
88
72
66
55
water depth 250ft International Source: PEMEX
81
97
75
water depth 300ft
reference
1st quarter
146
130 112 105 117
water depth 350ft
163 167
140
water depth 400ft
S/S 10,000ft
PEMEX last average
2nd quarter
actual average
Source: PEMEX 1 The semisubmersible platforms of 1,000 were excluded ' and 7,000 ' for lack of comparable base
PEMEX is putting efforts in achieving efficiency in all its
DESCRIPTION OF IMPLEMENTED INITIATIVES
exploration-related activities. Between 2012-2015, 75% of the company’s exploration investments went to drilling.
Seismic Data Acquisition
IMPLEMENTED INITIATIVES
The main efficiency-seeking initiatives in this area included
• In deepwaters, acquisitions costs were reduced through a dedicated INITIATIVES vessel scheme IMPLEMENTED (daily fee) negotiating tariffs for drilling equipment. In this sense,
increasing efficiency in well drilling and completion and
Deepwaters (streamer) thousand US$/km2
12
PEMEX succeeded in reaching drilling efficiency levels similar to the international standards and adjusting tariffs IMPLEMENTED INITIATIVES by 15-30%.
• For shallow waters, a payment per delivered seismic image scheme allows deffered payments and enhanced savings due to the volumes entailed
Given the fact that drilling activities tend to receive the most investments, PEMEX defined an initiative to improve
90 12
Seismic Data Processing • Cost reduction through the use of high-performance computing equipment and latest generation algorithms
in shallow waters, and 58m/d in deepwater assets. The first quarter of 2016 throws optimistic numbers that meet
deepwaters.
-58%
90 950
900
-5%
-33%
60 -5%
950 2 900 US$/km
Source: PEMEX
the international benchmark, with an average of 69m/d for onshore, 86m/d in shallow waters, and 88m/d in
60
5 -33% 60
90
in deepwaters. The following year, the NOC improved these figures, reaching 58m/d in onshore wells, 52m/d
-58%
12
Shallow waters5 thousand US$/km2-33%
drilling efficiency in 2014. In 2014, PEMEX drilled 43m/d in onshore areas, 26m/d in shallow waters, and 40m/d
-58%
5
-5%
950
900
Source: PEMEX Source: PEMEX
PEMEX DRILLING EFFICIENCY (drilled meters by day Source: - m/d)PEMEX PEMEX DRILLING EFFICIENCY (m/d) 25th percentile (89 m/d)
25th percentile (81 m/d)
86
88
10th percentile (68 m/d) 69 58
52
60% 43
58
+100%
+200% 40
26
onshore Source: PEMEX Source: PEMEX
shallow waters
2016 (1T) 2016 (1T) 2015 2015 2014 2014 deepwaters
| VIEW FROM THE TOP
INTEGRATED APPROACH TO DRILLING IMPROVES EFFICIENCY WALLACE PESCARINI President Mexico & Central America of Schlumberger
Q: How advanced is Schlumberger in transitioning from a
services, not only for PEMEX, but also for any new players
service provider to a company that offers solutions such
entering the market.
as increased production, higher recovery rates, and lower cost per barrel?
Q:
A: Through our Schlumberger Production Management
Schlumberger to become more efficient in Mexico, and
business, we partner with operators to develop a field, with
pass the resulting cost savings to your clients?
the investment provided by our company and payment is
A: We have implemented several mechanisms, such as
returned through a dollar per barrel quota. We have applied
our internal KPIs we use to measure efficiency within the
this model across Latin America and in other continents,
company. Our Center for Liability and Efficiency in Veracruz
and the system has proven extremely successful both for us
is a state-of-the-art engineering center that supports our
and for the operators. As a result, I believe we are inherently
operations. We established this center in 2011, and to date
programmed at Schlumberger to try to constantly change
we have managed to improve maintenance turnaround
the way in which the field operates and place ourselves in a
times more than fivefold. This generates savings that
position to create extra value. One thing that has remained
allow us to be much more competitive and some of these
steadfast between our beginnings in 1927 and now is our
savings have been translated to PEMEX. We then have
approach toward technology, and this is the case regardless
external KPIs that gauge the efficiency in terms of PEMEX
of whether it is single segment, integrated solutions, or
and other customers and this can be witnessed through
Schlumberger Production Management. We have witnessed
our drilling performance here in Mexico, which is between
increased efforts by our competitors to follow our footsteps,
30-40% more efficient than that of our competitors.
but we have always remained ahead of the pack due to
Any saving PEMEX can make in the current operating
our drive to change the environment combined with the
environment can be vital to its operations.
What
implemented
measures
have
allowed
company’s emphasis on technology and human resources. Q: In the current environment, what are the most Q: How will the integration of Cameron into the
successful technologies and international best practices
Schlumberger family impact the value proposition you
you are planning to introduce in Mexico?
can offer in the Mexican market?
A: Nowadays, in an environment of low budgets, the customer
A: The Cameron acquisition is one example of the fact that
is constantly seeking new technology and processes that
we are trying to modify the playing field once more. This is
can improve drilling performance and efficiency. Improving
one of the most eagerly anticipated acquisitions we have
our drilling performance has been a process of continuous
planned, and although it is still awaiting approval by certain
evolution, and several factors have contributed to our ability
regulatory boards, we are interested in creating a wave in
to cut costs, such as the release of new technologies like the
the industry in terms of offerings and integrated services.
PowerDriveÂŽ and GeoSphereÂŽ systems that help optimize
Schlumberger has been well-known as a solutions provider
and target drilling. We have also opted for a more integrated
with a comprehensive portfolio, catering from sub-surface
approach, and are able to capitalize on several synergies we
to drilling, but now it will be possible to provide services
have created internally across our business areas. In the short
for surface facilities. No other competitor can match this
term, we are much more focused on improving efficiency.
strategy. PEMEX has always been at the forefront of the
The second challenge for newcomers to the market lies in
industry in terms of integration, so we are trying to bring
understanding the potential of the reservoir, and much of our
a unique model that will benefit the NOC by offering it the
characterization technology will play an important role for
opportunity to maintain current operations and integrate
these new players. In this way, we have by far the leading
well construction with surface facilities. Mexico is one of
technology in the industry, as well as a substantial portfolio
the countries with the most potential for value-added
to cater to each phase.
107
| VIEW FROM THE TOP
MEXICAN MAINSTAY’S AMBITIONS TO BECOME E&P MAJOR RICARDO ARCE CEO of Perforadora Mexico
108
Q: How did Perforadora Mexico perform so impressively
create redundancies due to downtimes for the company,
in the last 12 months, with five of its seven rigs under
we find it important to explain the motivations and the
contract?
bigger picture to the workers. We follow all the legal
A: We had a positive year compared to our expectations
requirements, we pay the required salaries and bonuses
at the beginning of the year. We were able to grow in
without negotiation, and we help them find a new job. This
comparison to 2014 and finished the year with all our
is the most ethical way to carry out the optimization of the
equipment under contract, mainly due to the fact that we
company. In some cases, I speak to employees personally,
were able to negotiate with PEMEX. We gave the NOC
and in the remainder of cases the human resources
the rate reductions it requested, but in return we were
department helps them through the process and explains
able to obtain an extension of all our current equipment
the situation. Last year, we reduced the workforce by 10%,
contracts. In terms of numbers, we were forced to cut
but we have been cutting costs for the last three years,
some costs and we reduced our staffing levels to become
and the most significant redundancy was made when our
more efficient, which is always an important action to take
onshore drilling contract expired for the northern region,
at the beginning of a turbulent period.
and we lost around 400 people.
Depending on the kind of equipment, we offered a
Q: Who are your main partners, and what are the
discounted rate of between 15-22% to PEMEX, in return
additional services that they help add to your portfolio?
for a one-year extension in all of our contracts. The most
A: Confirming partnerships would be premature at the
important ones were those that were due to expire in
moment, as we are still evaluating all our options due to
the next few months, which were the Chihuahua and
PEMEX’s current situation. With these kinds of cuts, we
Zacatecas rigs, and now both will be operating for at
expect PEMEX to seek more projects, so we are unable
least another year. All the rigs are currently active with
to align ourselves to only one company. We are drillers,
the only exception of our older Sonora rig, which finished
so any contract works better for us if it is a mixed-
operations in March. Since then, we provided maintenance
REMI (Equipment Lease with Integrated Maintenance),
to the rig to prepare it for new contracts, and we have
including drilling operations. We also have a great deal
recently tendered it to one of the Round One winners. I
of expertise in cements, meaning there is a significant
believe there is a great deal of opportunities for the Sonora
amount of room for partnerships with companies that
rig, and even though its depth capacity is much lower than
can provide the remaining services to complement our
that of other rigs, it is ideal for work-overs. At this point
offering. Although we have the capabilities to carry out
in time, we are preparing to participate in some of the
many of these operations independently, we are able
bidding processes with the new operators that are going
to recognize the fact that other companies have more
to enter the shallow water fields. Campeche, Chihuahua,
expertise in certain areas than we do, especially in terms
Veracruz, Tabasco, and Zacatecas are all drilling, and
of fluids, directional drilling, and well completion. Some
Tamaulipas is ready but PEMEX has not yet given us a
companies are integrated and provide all of these services,
location to install our equipment.
but we would not rule out the possibility of contracting different companies that specialize in these individual
Q: How do you manage a situation where you must
areas. Normally, we would not seek to work with large
simultaneously make people redundant and make the
service providers, as these companies tend to want to
remaining workforce more efficient?
serve as the owners of the contract and subcontract
A: For me, it is clear that everything we do is ultimately for
tenders to companies like ours, whereas our aim is to own
the benefit of the entire company and we will never forget
the contract, or in some cases, to form alliances with equal
that employees are an important part of it. If we need to
power and responsibility.
109
Q: What were Perforadora Mexico’s intentions in the three
would rather wait than win a project while losing money,
phases of Round One so far, and how did you participate?
and this strategy is the reason why Grupo Mexico is a well-
A: In the first phase, R1-L01, we did not evaluate the
established company in the Mexican market.
opportunities because the risk profile of these fields was too pronounced for a company like us, which would
Q: What would be your ideal type of E&P project, and
essentially be a newcomer in this sector. In R1-L02, we
what characteristics would these fields hold?
evaluated two fields in depth, we entered into negotiations,
A: First of all, we are interested in PEMEX’s farm-outs,
and even signed with an operator. We delivered the
and we know that one of PEMEX’s priorities is to promote
prequalification documents, but we ultimately decided
the farm-outs as soon as possible. We still need a solid
not to proceed due to the discovery of certain elements
operator to partner with in the endeavor, but we can
of risk. However, after having processed the numbers,
provide all the equipment to work there. Subsequently,
I am confident that we would not have won any fields
we will be evaluating more onshore projects and lower
because the numbers were far too high. In R1-L03, we
risk shallow water fields with proven reserves rather than
prequalified independently through one of our companies
exploration blocks. We will need to enter the farm-outs
called Controladora de Infraestructura Petrolera Mexico,
in partnership with an operator because I am certain that
a company that is the owner of all the assets in the oil
CNH’s prequalification criteria will not only be related to
and gas sector. We evaluated around seven fields through
size and financial capabilities, but also to a breadth of
a high-level screening process, ultimately focusing our
expertise in specific processes and technology.
efforts on three of the four larger fields, and we delivered these three proposals.
The Bolontiku and Sinan shallow waters fields are two promising fields that will be included in the farm-outs,
Although we did not win, we are sure the reason behind
although they will be difficult to drill and develop due to
this was price, because we know that the prices proposed
the levels of pressure and the high temperatures. However,
by the winners were too high and this was confirmed
our performance has been solid in a considerable number
when six contracts were not signed by the winners. We
of wells in this area, and we know the region well. In the
created strong business cases for each field, and we were
Ayatsil-Tekel field, we currently have the Veracruz drilling
planning to invest between US$50-75 million in each,
rig, and hopefully soon the Tamaulipas rig will also be
increasing production from around 240b/d to aproximately
positioned in this field, so due to the level of investment
3,000b/d or more. In some cases, we may have been
we have already placed in this field, we will be evaluating
slightly conservative due to individual field characteristics,
it carefully. Ayatsil-Tekel is difficult due to the heavy oil
but ultimately our assumptions were realistic. We were
it produces, so we will need to seek the correct partner
not requesting a significant ROI on each of the fields
to ensure success in this field. We also still believe that in
and when we delivered the proposals, the numbers were
onshore, there are a significant amount of opportunities to
within the average. We are not worried at the moment
continue growing, or at least to maintain PEMEX’s current
because, although we want to become an E&P player, we
level of production.
| TECHNOLOGY SPOTLIGHT: MAPPING WHILE DRILLING SERVICE Schlumberger’s GeoSphere service uses deep, directional
drilling a tight inclination above the reservoir also makes
electromagnetic measurements to reveal subsurface-
completion operations challenging; landing too deep
bedding and fluid-contact details more than 100ft from
creates a slump in the wellbore that can lead to early
the wellborn. Allowing operators to map while drilling, this
water breakthrough or more attic oil. Furthermore, a high
service provides a depth of investigation that changes the
pressure difference between the overburden rock and the
game for steering capabilities within complex reservoirs.
top of the reservoir can lead to severe well integrity risks.
Typical logging-while-drilling measurements detect only
Due to its accurate mapping capabilities, the GeoSphere
the first nearby geological boundary, while the GeoSphere
service helps ensure optimal landing by extending the
service’s scope maps reservoir layers in the horizontal
radial depth of investigation more than 100ft around the
section over 100ft around the wellbore. In fact, operators
wellbore.
have successfully mapped the upper and lower boundaries of a reservoir simultaneously in real time. The acquired
In addition, the GeoSphere service reveals subsurface
data enables an accurate prediction of upcoming strata
layers and fluid contents at the reservoir scale, which
or formations in both high-angle and horizontal wells.
has a significant impact on field development strategies.
Geoscientists and drilling engineers can then interpret
Real-time mapping data enables operators to stay in the
reservoir data and steer wells for maximum reservoir
sweet spot by steering the well strategically and avoiding
exposure.
unplanned
reservoir
exits.
Conventionally,
logging-
while-drilling tools provide downhole measurements a The GeoSphere mapping-while-drilling service can also
few inches from the wellbore, but GeoSphere’s 100-feet
improve well-landing operations, reducing drilling risks,
scope improves reservoir characterization and reduces
eliminating the need for pilot holes, and increasing
geological uncertainties. Data provided by the service
reservoir exposure. Pilot holes are often used to evaluate
can be integrated with seismic data to help operational
formations before landing the horizontal, but this costly
engineers analyze the reservoir, adjust well paths while
method does not always mitigate risks in complex
drilling, and deliver smoother wellbores. The GeoSphere
reservoirs where shallow or deep landings can occur. In
mapping-while-drilling
the case of a shallow landing, a long part of the reservoir
details at the reservoir scale to help refine geological
section is drilled in the overburden, compromising lateral
and structural models, ultimately enabling operators to
exposure and impacting well productivity. Likewise,
maximize production.
service
reveals
subsurface
| INSIGHT
FLUIDS LIFEBLOOD OF DRILLING SERVICES A well is like the human body, and in this system, drilling fluids are often referred to as the lifeblood. In the same way that blood is needed to survive, drilling operations also require quality drilling fluids as an integral component
GUIDO RIVAS
of the system, and these drilling fluids must be correctly
Vice President of QMax
adapted to individual well conditions. One of the critical factors for success is circulation, and lost circulation is a major problem for some areas in Mexico, costing a
Moreover, Rivas believes that, with the changes in the
considerable amount of money due to the loss of thousands
Mexican oil and gas industry, PEMEX will be forced to
of cubic meters of fluid. Therefore, QMax has implemented
become more efficient in the face of increased competition.
technical efforts in order to address these problems in
This applies to all aspects of the E&P operations, including
the country, and the company has developed several
reservoir engineering and exploitation, as well as drilling,
customized solutions to manage this issue. “At the moment
whereby the NOC will be forced to drill faster, at a lower
there is a particular offshore well that is losing circulation
cost, and with the most advanced technology. “PEMEX,
and the customer is currently on the verge of replacing a
along with new players in the market, will be looking to
competitor with us due to our breadth of experience and
partner with leading companies that can help them achieve
past success,” boasts Guido Rivas, Vice President of QMax.
these new objectives,” he states. “They will be looking for
“This is the result of our focused attention to problems,
companies that can act fast in applying technology to
development of new formulations in our laboratories,
common drilling problems to lower costs and improve
country-wide distribution, and our ability to continue
efficiency.” Because of the company’s problem solving
working until an effective solution is achieved.” The focus
approach, the quality of its people, and the effectiveness
the company has on ensuring delivery of efficient services
of its infrastructure, Rivas believes QMax is an ideal partner
at the lowest possible price is a clear strength for QMax.
for both PEMEX and new companies entering the market.
The company has a total capacity of approximately
Although interested in new partnerships, Rivas concedes
23,000m3, spread over seven mud plants throughout the
that 2016 will be a difficult year and the market might be
country, but unfortunately, only around 30-40% of that
down by around 20-40% compared to 2015. “We hope
capacity is currently in use. In the past, QMax has run up
to prove our capabilities to a number of new and existing
to 80 rigs simultaneously and, although Rivas shares that
players and be able to deliver on our promises of top quality
this was challenging, he is confident of the company’s
services, lower costs, and increased efficiency,” he explains.
capability of capturing this percentage of the total market share. The landscape at the moment is incredibly difficult to negotiate across all sectors of the oil and gas industry, so Rivas believes there is a need to adjust accordingly in order to become leaner and cut costs where possible. QMax has made adjustments, not only in operations, but also in staff numbers and investments, while maintaining motivation among the workforce and technology development. “We have made some mistakes along the way, and as a result, we must continuously modify our strategy,” Rivas admits. “After the weak year in 2015, I think 2016 will follow this pattern. Consequently, we are preparing for a modest level of activity, a more aggressive level of competition, and as a result, we have placed a concerted focus on technology, processes, and development of human talent.” As an agile and flexible company, he shares that QMax is able to respond quickly to any market fluctuations and make the necessary adjustments, whereas other competitors do not have the capability to implement such a fast response.
QMax has run up to 80 rigs simultaneously
111
| VIEW FROM THE TOP
BASICS OF A SUCCESSFUL INTEGRATED PROJECT MODEL BRUNO LIMA Project Manager – Mexico Country Manager of Halliburton
112
Q: What are your service divisions structured in the
of different stakeholders, for which the customer usually
Mexican market?
is seeking to simplify the number of interfaces and ensure
A: Halliburton comprises two divisions, the Drilling and
project deliverability through an enhanced integration of
Evaluation Division, and the Completion and Production
service-quality capacities. A second tier is to naturally add
Division, with 12 product service lines (PSLs) between them.
the local knowledge on both engineering and procurement
One additional PSL, Consulting and Project Management,
to the integrated package, considering the long-term
is the nucleus of our integrated services strategy and
experience and capture of lessons learned to be deployed
works
collaborative
immediately to the project planning and execution,
early engagement and an inclusive process, our Project
across
both
shortening the learning curve and increasing overall project
Management
team
divisions. develops
Through
innovative
performance. While the previous models are usually charged
solutions to produce effective well designs and completion
and
applies
according to time and materials, there are high tiered models
plans. To achieve a detailed understanding of the challenges
for which the risk allocation is spread among the stakeholders,
at hand, the Halliburton well construction and completion
therefore capping the customer’s exposure and aligning the
project teams encompass a wide range of disciplines and
project performance to its financial outcome. Certainly, the
job functions, from geology, geophysics, and engineering
biggest value generated by the integration is the alignment
to operations, supply chain, safety, regulatory compliance,
of objectives among the stakeholders. Such alignment is key
and management. The goals of our Project Management
to controlling the project variables, such as cost, quality, and
team fall into the three main categories of improvement
schedule, and to ensuring that all stakeholders participate
of well construction rates, rigorous risk assessment and
proactively to assure optimal project performance.
mitigation process, and the reduction of non-productive time. Halliburton Project Management has already built a
Q: How could new customers originating from the Energy
network of providers, which are continuously assessed
Reform profit from the utilization of integrated projects?
on their quality assurance and quality control processes
A: There are four different outcomes that customers
and practices. The governance is exercised through a
would like to achieve during periods of low barrel prices:
bridge document, which controls the responsibility and
reduction of CAPEX and OPEX, decrease in project
accountability of the parties, and also establishes the
footprint, simplification of interfaces, and ensuring project
management of change process. Currently, in Mexico we
performance indicators are fully met without compromising
are present with high-value, high-performance, integrated
any eventual boundary condition. The Integrated Project
projects
Model generates a variety of opportunities to meet and
in
deepwaters,
shallow
waters,
exploration,
unconventional resources, and deep HPHT land wells.
overcome all four customer-driven challenges. Halliburton’s unique capacity and expertise in the Mexican market
Q: What is the most effective business model for an
allows our customers to better dimension their CAPEX
integrated project?
from the time of the bidding process, through exploration
A: Halliburton Project Management can tackle any phase of
execution and throughout the asset’s productive life. We
the asset life cycle, spanning from exploration to appraisal,
provide a method to acquire best-in-class technology, local
development, and lately the plugging and abandonment of
expertise, and a simplified interface with all necessary third
fields. The work is structured in a scalable fashion that can
parties for the project, while having total alignment and
encompass a single rig or entire set of assets, both onshore
trust among stakeholders. The level of synergy we have
and/or offshore The level of integration or coordination
with stakeholders allows infrastructure to be designed
required is assessed according to the customer’s needs
and built according to the required specifications, such as
for each project. The simplest model, Integrated Services,
the top tier 3600 HP rigs currently working for one of our
comprises purely the planning and operational coordination
customers in the south region of Mexico.
| INSIGHT
MEXICO’S PLACE IN THE HALLIBURTON FAMILY With a breadth of activities and a portfolio that spans the breadth of the sector, from deepwater, to mature fields, and unconventional resources, Halliburton has
JUAN CASTAÑEDA
a presence in six of the seven continents of the world.
Vice President of
Regardless, according to Juan Castañeda, the company’s
Halliburton Mexico
Vice President of Mexico, the country is one of the most significant
markets
for
Halliburton
worldwide.
“The
Halliburton Mexico team and its continuous focus on
tier drilling rigs currently deployed and drilling the deep
safety, value-driven solutions, performance and providing
HPHT wells in the south region of Mexico,” Castañeda
a lower cost per barrel for our customers is positioning
claims. These, according to the Vice President, are
Mexico for long-term growth,” he asserts.
creating groundbreaking results for well construction and operations. True to form, Halliburton has implemented
He shares that, since 2013, Halliburton Mexico has had a
innovations across all sectors of the oil and gas industry,
differentiated structure compared to other traditional
and has deployed cost saving initiatives in deepwater,
markets, which is more focused on the wide span of
shallow waters, onshore, and unconventional reservoirs.
local operational necessities and tailored to provide the support necessary to the on-going activities of Halliburton
Castañeda comments that Halliburton is working hard on the
customers in Mexico, as well as to CNH, and supporting
development of new solutions to strength these synergies,
the process of Energy Reform. “Such early engagement
as the company is continuously working to enable our
with core stakeholders and new players has allowed us
customers to maximize production from existing reservoirs,
to support our customers through the decision making
while reducing downtime and risk, therefore reducing
process with a dynamic and rapid response team in
significantly the cost per barrel. “We are innovators and
place,” Castañeda explains. Since Halliburton has had a
problem solvers, and our technologies are geared toward
long-term presence and investment in Mexico, it has been
addressing specific challenges throughout the oil and gas
able to create an infrastructure and a resource capacity
value chain,” Castañeda says of this diversified strategy.
to support the geographical and technical diversity
Another significant example of the strong synergy with
of its customers’ assets and operations. The company
its customers in Mexico is the shared vision and value of
has implemented a Journey to ZERO program, wherein
sustainability to its communities, including customers, the
it strives to eliminate safety incidents, environmental
Halliburton employee community, the local communities
incidents, and nonproductive time. “We have implemented
where we work, and the global community.
a strong cultural value proposition with our Journey to ZERO, improving our performance on key metrics, which
One of the benefits to emerge from the current environment
help generate additional savings in terms of overall cost
of capital preservation across the upstream sector has been
per barrel.” To demonstrate this, Halliburton’s business in
the ability to facilitate innovation and a deep focus on value
Mexico is American Petroleum Institute (API) Q2 certified
in a pronounced effort to reduce CAPEX and OPEX. “The
for service quality in upstream operations.
Mexican market is a leader in innovative solutions and we expect to continue to see the establishment of technology
Halliburton has had a preponderant role in Mexico’s oil
deployment,
processes,
and
integrated
solutions
to
and gas industry for years, and Castañeda believes the
reduce capital costs across all projects, while working
company has had a hand in shaping the industry, given its
together with our customers on innovative business
strong long-term relationship with PEMEX, which has in
models to re-shape and optimize current contractual
turn enabled the creation of new technologies, processes,
industry benchmarks,” Castañeda explains. He is confident
business models, fully integrated projects, and sustainable
that Halliburton’s presence remains strong, and shares
solutions. “Since the introduction of the Halliburton 221,
that the company prides itself on listening to customer
the first stimulation boat in Mexican waters 37 years
concerns and challenges and finding appropriate solutions.
ago, the development of solutions has evolved through
“Halliburton’s focus is on generating customer value, and we
a great number of wellbore and reservoir technologies
have structured the organization to support the historical
for drilling, logging, fracking, and pumping, as well as the
transformation that will lead to a myriad of opportunities in
engineering and construction of high-performance, high-
the Mexican market,” the Vice President concludes.
113
| VIEW FROM THE TOP
SETTING THE STANDARDS IN DRILLING FERNANDO ORTIZ Commercial Director of Seadrill
114
Q: What specific competitive advantages allowed Seadrill
Q: What factors allowed the West Pegasus platform to
to achieve 150% excess capacity?
achieve a 90% uptime, while being more reliable than
A: Seadrill has the youngest and most modern fleet among
your competition?
all drilling contractors. We operate a versatile fleet of 68 rigs
A: West Pegasus can achieve high performances and
that comprises drillships, jack-ups, and semi-submersibles,
set the record for drilling here in Mexico. Thanks to
and tender rigs for operations in shallow to ultra-deepwater
its capabilities, we were able to drill the Maximino-1
areas in harsh and benign environments. Our headquarters
well located in the Perdido area, the most challenging
are in London and we operate from six regional offices
deepwater project in the country. It was located at a
around the world. Ciudad del Carmen is our main base of
depth of 2,922m, and required the drilling of a delimiter
operations in Mexico. We work with some of the largest oil
well of 3,016m. This represents not only the deepest
and gas companies, and we have a clear goal when it comes
water well for PEMEX to date, but also for Seadrill.
to safety in the protection of our personnel. Our total injury
Maximino-1 is considered the crown jewel of deepwater
frequency is the lowest among our competitors, and this can
projects for the Mexican state-owned oil company. In
be attributed to our use of the most advanced safety tools
October 2015, the performance of West Pegasus was
in the market, and the most professional workforce in the
at 99%, practically 12 points above that of our local
country. As forecasted, we successfully achieved our goal of
competitors. The maintenance of our equipment is
a 150% surplus, which translates into the management of up
carried out above the minimum requirements, and runs
to 12 rigs in our new operational hub in Ciudad del Carmen.
at the highest standards, allowing us to avoid downtime.
It is worth mentioning that we are currently managing seven others rigs from this hub, with six located in the Gulf of Mexico
The rig has specific characteristics that allow it to reach
and one in Venezuela. Seadrill also strives to be part of the
impressive performance rates, such as its equipment
country’s development, and in line with this, we are pleased
with an NOV drilling package. The derrick and top drive
to say we have achieved a level of 80% nationalization as of
are capable of lifting 1,000 short tons and utilize range 3
Q3 2015, demonstrating our commitment to Mexico and the
pipes, as well as having the ability to build stands of DP
development of local content.
or casing offline without interrupting the main operations
of the well center. This is due to the fact the drill floor is
framework, as well as the same service quality standards
equipped with two iron roughnecks and has two powered
we deliver worldwide. These companies may feel held back
mouse holes to build stands offline. This additional
by their lack of knowledge of the Mexican environment,
equipment also adds to the redundancy of the rig floor,
but we have been here since 2011 and understand the local
reducing the risk of downtime for our clients, while at the
market’s dynamics. As such, we expect our experience and
same time increasing the efficiency of the operation. The
safety operational standards to act as an advantage for
rig floor is kept over the well thanks to eight Rolls Royce
securing contracts with these IOCs.
Aquamaster azimuth thrusters operating at a constant pitch and variable speed. These are designed to maintain
Q: How is Round One affecting your company, and how
the West Pegasus drilling operations in 70 knots wind
will you manage to improve your position in the industry?
conditions and waves up to 7m high. Should there be an
A: We do not consider R1-L01 to be the disappointment it
issue with the well, it can be controlled with a 6 ram 2
has been hailed as, but rather we believe it is to be viewed
annular NOV Schaffer BOP rated for 15k pressure. The BOP
to a certain extent as a test. We were glad to see the
is connected to the subsea wellhead with a riser system
results of this phase lead to adjustments in the bidding
capable of reaching water depths of 3,000m.
process of future rounds. Even with disappointing results, it is also reassuring to observe that global players have
Q: How has your cooperation with PEMEX fared, and what
maintained their interest in the Energy Reform. Seadrill
future partnerships are you looking forward to?
has special interest in the fourth phase, which we believe
A: Our cooperation with the parastatal is an ongoing
will be successful and provide tremendous opportunities
commitment, as we are also seeking to provide continuous
for our company. Our target is to bring one of our new drill
improvements
ships to Mexico in order to show companies how much
to
new
PEMEX
affiliate
productive
companies, focusing on exploration and drilling. Our
money, space, and material this technology can save.
cooperation can be seen through our work standard permit authorized by PEMEX in all joint operations in
Our aim is to secure contracts with IOCs, to consistently
Mexico, as well as common drilling practices in terms of
be the region’s best deepwater performer, and sustain our
well control to optimize current operations. Just recently,
vision of “Setting the Standard in Drilling”. We aim to achieve
our West Pegasus semi-submersible deepwater rig was
the latter objective thanks to Seadrill’s three main pillars.
awarded a provisional commitment for a 2+1 year contract
We focus on people, constantly training and developing a
extension with PEMEX, despite the delicate business
safety culture within fluctuating boundaries, the technology,
environment. West Pegasus is also used as a school rig for
providing the most modern fleet and components with top
Mexican deepwater exploration.
maintenance systems in place, and the processes, which respect a strict and systematic philosophy. We persistently
Seadrill is extremely interested in securing contracts with
assess opportunities, both traditional and non-traditional,
ExxonMobil, Chevron, BP, and all other major oil companies
from a technical and commercial point of view, evaluating
investing in Mexico, as we are currently doing in other parts
partnership offers, expansion opportunities into new
of the world. Our goal is to approach foreign companies
geographical and technological markets, and keeping
and accompany them into Mexico, providing a secure
abreast of changes in global regulatory regimes.
115
| INSIGHT
REMAINING COMPETITIVE IN A LOW OIL PRICE ENVIRONMENT are primordial to its operations given the requirements of many of its customers, including PEMEX.
STEVE WALKER Managing Director of
“Our presence in Mexico is very much concentrated
Loadcraft
according to our clients’ needs, and at the moment, we are focused on the southern region. In addition to the Mexican NOC, our clients include CP Latina, IHSA, Key Energy,
116
Terry Mclver, now the owner of Loadcraft, took a leap
Petroalfa, San Antonio, Setin, and Weatherford,” Walker
of faith one day when he went to purchase a rig at a
states. At the moment, the company’s main aim is to make
repossession facility and decided to buy the entire
contact with companies in Mexico, which makes R1-L03
facility instead. From there, he then brought in two of
extremely attractive for Loadcraft. Overall, Walker believes
his sons, and his son-in-law, to work with the employees
that Round One will contribute to an increase in the demand
from the previous company that went bankrupt, and built
for the company’s rigs. “We believe companies will get
Loadcraft from scratch. “His main mantra has always been
in touch with us given our precedent for exceeding client
‘take care of your people’, and that is something he has
expectations when it comes to quality and service, which
done well,” explains Steve Walker, the firm’s Managing
we provide 24/7,” Walker clarifies. “We have found that 99%
Director. Thanks to word-of-mouth and continuous
of the time, when a client buys a rig from us, he or she will
marketing of the company’s abilities, Loadcraft was able
return.” In order to remain competitive in the current low
to sell a record 270 rigs in its ten years of experience. “At
oil prices, Loadcraft is offering its clients the opportunity
the moment we are operating in 22 countries, with a little
to purchase second-hand rigs, and if need be, to refurbish
over 270 rigs, 111 of which are located in Latin America.
them, bringing them up to today’s standards. Nonetheless,
Since 2005, we have had 27 rigs in Mexico for work-
this does not distract the company from more demanding
over and drilling,” Walker discloses. The domestic to
clients who may require rigs made on demand. “PEMEX
international distribution ratio of Loadcraft’s rigs varies
prefers the latest in draw-works, which include discs and
each year, although the past few have been difficult
design services. So far, we have designed and produced four
from the standpoint of the price of oil. “We have had to
of those rigs for the Mexican NOC,” Walker explains.
reduce our human capital due to the low oil prices, but when operating at full capacity, we can have over 300
Walker
employees,” he continues. Loadcraft’s employees are
problems, but should a client require any assistance, the
divided among the company’s two plants, one of which
company has a local partner that can respond to service
is a manufacturing plant under API 4F, and the other that
needs. Loadcraft’s Brady plant can also provide additional
manufactures draw works and operates under API 7F.
assistance when needed, as its technicians are able
The company prides itself on these certifications, which
to travel to any location in Mexico as required. Walker
claims
Loadcraft’s
rigs
seldom
experience
relishes the new importance that Mexico has gained in the international hydrocarbons industry, given its proximity to Loadcraft’s manufacturing facility. “Looking into the future, it is important to meet with new clients in Mexico, since many new companies will be entering the Mexican oil and gas market as a result of the Energy Reform and Round One. We will also strive to maintain our relationship with our existing clients, while keeping an eye open for new opportunities,” Walker asserts. In fact, the company is currently in touch with its clients right in order to better understand how it can support them during these
Since 2005, Loadcraft has had 27 rigs in Mexico for work-over and drilling
challenging times. Loadcraft’s main goal for the next few years will be to place as many rigs as possible locally to support the development of the newly open Mexican market. The company’s goal is to almost double the amount of rigs it has in Mexico, going from 27 to 54.
| INSIGHT
EXPERIENCE TURNS SERVICE COMPANY INTO MANUFACTURER Global Drilling Support (GDS) started as a service company that wanted to offer its customers a competitive
PJ PENDLEBURY
alternative to the OEMs in repairing their drilling
Vice President of Sales &
equipment, specifically top drives. The company turned
Operations at
a diverse group of technicians and experts into a team
Global Drilling Support
who were experienced in the different models of top drives, including Tesco and National Oilwell Varco. With service at the forefront and manufacturing in mind for the
asserts. The company opened an office and utilizes a fully
future, GDS focused on getting its API 8C license, QMS,
functional workshop in Villahermosa to support its current
and ISO certifications. For GDS’s Vice President of Sales &
and future operations. “Service and equipment reliability
Operations, PJ Pendlebury, shifting from a service company
are our differentiators in these market conditions, so being
to a manufacturer was a natural progression. “One of the
able to respond to our customers’ needs at all times is our
advantages in servicing different brands of top drives is
priority. PEMEX is such a prestigious and growing company
that GDS obtained a holistic look at all of the other OEMs’
with many opportunities, that we need to ensure that our
equipment from the inside out. We were able to evaluate
products and services meet the NOC’s high expectations.”
things that worked and, more importantly, things that did not work on competitor top drives,” he asserts. GDS
Mexico’s openness to technological advancements suits
was able to update the stagnant 20-year old top drive
GDS’s approach to technology, which Pendlebury says
technology, making a robust but simplistic machine that
fuels and develops the industry. As part of its pursuit for
was reliable and more capable of the current and future
innovation, the company incorporated the Global Display
drilling demands. Pendlebury claims being involved in the
Panel (GDP) touchscreen into its top drive. “The GDP has
service side and getting to know equipment from different
cutting-edge technology that helps the clients, drillers,
OEMs helped his company in building its own product.
and maintenance crews focus on their job with a smart top drive system that lets them know what needs to be
GDS’ business began to expand into Mexico in 2013 with
serviced and when,” says Pendlebury about the system,
one client, a national company, who bought over a dozen
which has built-in maintenance scheduling. Built-in alarms
top drive units. In the same year, another customer moved
provide alerts of issues or potential issues, so GDS is
several rigs to the region, which gave GDS more exposure
moving its customers from scheduled maintenance, to
to PEMEX. “The Mexican oil company liked our product,
preventive and predictive maintenance.
as the NOC saw through its rugged use in the region that it was user friendly, reliable, and performed well in the
The equipment manufacturer recently partnered with
climate. Regarding the crossover from the competitor’s
GE so that the latter can assist with remote monitoring
equipment that PEMEX was using at the time, the client
capabilities and cloud-based data collection. Powered by
found that GDS’ top drive provided a more advanced
GE’s leading Proficy® software and rugged RXi IPCs, GDS
approach to drilling,” shares Pendlebury. At the moment
Equipment Insight allows the company to securely collect
GDS has equipment with drilling contractors that work
and analyze fleet data, and then share that information
for PEMEX. “The NOC has been a solid partner that has
with key people in the organization, optimizing asset
embraced our equipment and helped us understand the
performance,
marketplace,” Pendlebury expresses and explains that his
significant technological addition to GDS’ portfolio is
company has been given a great opportunity to showcase
its Equipment Insight Solution. Pendlebury says his
the strength and the ease of using its equipment in Mexico.
company was looking for a solution that would take its
processes,
and
profitability.
Another
data management to the next level, as customers were A factor that has greatly helped GDS in Mexico is the
asking for more data and accessibility. “Equipment
Energy Reform, and Pendlebury claims that the country has
Insight allows us to bring real-time data to the right
been open to embracing new technology and upgrading
person, wherever they are, on any device. Now, we not
outdated equipment that does not meet the demands
only provide visibility on our GDP onsite, but we are able
of today’s drilling standards. “GDS has a commitment
to take it globally to maintenance crews and management
to maintaining a high level of service to our clients and
teams on computers, tablets, and phones,” Pendlebury
PEMEX as we navigate through this slowdown,” he
proudly states.
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| VIEW FROM THE TOP
TECHNOLOGIES TO REVOLUTIONIZE THE FACE OF THE INDUSTRY MYLES WOLOSHYN CEO of Turbo Drill
118
Q: What led to the foundation of Turbo Drill, and what
diamond thrust bearing for another tool and used our
gap in the market was the company addressing?
knowledge to further develop the diamond technology for
A: Turbo Drill Industries (TDI) is a manufacturing and
mud motor applications.
downhole tool technology company that was founded in 2007. The first product line offered by TDI was radial
In the past, when drilling horizontal wells, typical build
bearings for downhole mud-lubricated drilling motors
rate angles were 6° or 8° per 100ft. However, with the
and flow restrictors for oil-sealed drilling motors. In 2009,
dramatic increase in shale drilling, many US operators
we created a downhole tool rental division called Scout
wanted to get from vertical to lateral in less distance and
Downhole Inc. (SDI). SDI rents downhole drilling tools to
started planning wells with build rates of 14° to 16° per
directional drilling service companies, drilling contractors
100ft. TDI realized that the standard longer bit-to-bend
and oil, gas and geothermal operators.
motors were not designed for this application and that considerable problems would soon ensue in the drilling
Q: What makes Turbo Drill’s technology unique, and what
industry if this antiquated technology was employed. As
gap has this bridged in today’s market?
more operators designed well plans with higher build
A: We quickly realized that we had developed industry
rates, our assumptions about increased downhole failures
leading technology that lasted up to four times longer
pertaining to outdated drilling motor technology proved
than the conventional technology. Our business grew
to be correct.
rapidly and then our customers suggested that we take advantage of our vast knowledge of downhole drilling
Q: How do you assign investments for R&D in a low oil
motor technology and develop a revolutionary bearing
price environment?
and transmission assembly for the newly emerging high
A: All the companies we have created or acquired have
torque motor power sections. This led to the development
been focusing on the technologies that would be needed
of our patented diamond bearing assembly, high-torque
if the price per barrel went below US$60. The new
transmission assembly, and revolutionary fixed bend
technologies we are working on are being directly targeted
assembly. TDI's advantage was we had developed a
to the low cost drilling environment. In 2014, there were
Scout Downhole is a privately held company founded in 2009 to provide innovative oilfield products, high quality manufacturing and excellence in customer service. New product development and continuous improvement are at the heart of our business philosophy. Scout Downhole offers industry leading patented technology, encompassing comprehensive run analysis and drill system optimization.
Innovative Solutions to Downhole Problems
I TECHNOLOGY SPOTLIGHT: RELIABLE SYSTEM ELIMINATES STICK SLIP 2,000 drilling rigs operating in the US, by December 2015, there were approximately 750 rigs working, and between
Operators are familiar with the difficulties entailed in maintaining
January and February 2016, we went from 750 to 500 rigs.
steady weight on the bit when drilling long-reach horizontals,
Our projections suggest that this number will decrease to
mainly due to the interplay between drill string flexibility and
400 operating rigs in the US by the third quarter of this
wellbore friction. Stick slip occurs when uneven slack off weights
year. Nonetheless, we are increasing revenue from last year,
and drill string buckling varies the weight on the drill bit. The
which is possible due to new technology. The conventional
torsional energy variations in the drill string will reduce drilling
directional drilling technologies that are out there now
efficiency, among other factors, because the bit will drill at a
are designed for oil prices of US$70-80 per barrel, and
faster speed than it was ever designed for, ultimately turning
the only thing that will help the entire industry survive is
intermittently or no longer turning at all.
technology. There are virtually no current technologies that can be used for drilling at US$35 per barrel except the
Developed by SDI, a company of Turbo Drill Industries, the
Turbo Drill motor Lower End, and if this is combined with
Steady Scout uses a mud motor to maintain constant torque at
a gear-reduced turbine and a gear-reduced motor, we can
the bit, thus minimizing bit-induced stick slip. This instrument
obtain technologically advanced versatility.
allows operators to increase the weight on bit from surface to increase the rate of penetration. The system has a long soft
Q: What innovative technologies have you developed,
shock section to absorb the cycling forward momentum of the
and how will this mitigate the consequences of the low
drill string, and its ability to vary the weight on bit downhole
oil price environment?
maintains constant differential on the mud motor, which
A: Our Vertical Scout is the only mechanical, vertical
minimizes stick slip.
seeking tool on the market. It operates based on gravity, and no one has invented a tool like this in the past. We
The Steady Scout reacts to changes in the internal drill string
developed the first design in 2008 and by 2016 we now
pressure, and as the pressure drop across the motor fluctuates
have nine different revisions of this tool that have changed
in accordance with torque required at the bit. An increase or
it completely from when it was originally conceived. We
decrease in torque and/or pressure drop across the motor and/
are quick to identify our flaws in the first designs and then
or changes in bit weight will cause the Steady Scout to react or
we change constantly and make the technology more
extend. The result of using the Steady Scout in conjunction with a
effective.
drilling motor is constant torque, constant pressure, and constant weight on bit, which ultimately equates to a more constant RPM.
Another thing we have that other companies do not is
The benefits are simple. Less stress on the BHA components,
that our engineering team has a phenomenal background
increased ROP, reduced bit wear and damage all lead to reduced
in manufacturing, and this is the reason why we are
drilling costs and reduction in NPT. The Steady Scout is designed
able to launch new technologies with oil at US$35/b.
to be incorporated in a bottom-hole assembly with a PDC bit and
Collaboration between engineering, manufacturing, and
positive displacement drilling motor. Unlike most stroking tools,
servicing is the only formula a service company can
which extend from drilling string internal pressure, the Steady
employ to deliver revolutionary, affordable technology
Scout closes until the resisting force and hydraulic closing force
when oil is at US$35/b.
are equal.
Tel. 1-936-756-3210 | 1125 Beach Airport Road, Conroe, Texas, USA 77301
| TECHNOLOGY SPOTLIGHT: ROTATING RELIABILITY Schlumberger is placing significant efforts on improving
increased rate of penetration. The PowerDrive Archer
drilling efficiencies, for which it has developed cutting-
RSS can extend the distance to which horizontal sections
edge technology. The PowerDrive Archer RSS combines
are drilled, facilitating running casing and performing
the benefits of a motor and RSS in a single tool, which
intelligent completions. The PowerDrive Archer RSS’
delivers complex 3D well profiles while maintaining high
hybrid steering system has demonstrated reliability due to
ROP and wellbore quality. This fully-rotating system is
the fact that its moving components are internal and are
the only RSS that builds high angles from any deviation
not exposed to harsh environments. This hybrid system
in one run, increasing hydrocarbon production potential
has internal pads that push against an articulated sleeve
and reducing risk.
pivoted on a universal joint to point the bit in the desired direction. The system also enables openhole side-tracking
The PowerDrive Archer RSS assures operators that wells
at any point in the well because of reduced dependence
can be drilled with increased dogleg capability, which
on wellbore contact.
gives control in unconsolidated formations and punches through
open-hole
The fact that all the external components have rotating
sidetracking decreases rig time on multilateral wells, while
hard
stringers.
The
directional
qualities improves penetration rates, borehole quality,
the deep kick-off points enable reduction of inclination in
and hole cleaning, while reducing the risk of mechanical
unstable formations, as well as a reduction of footage to
or differential sticking. The geostationary electronics
the reservoir.
package, which relies on the PowerDrive X6 RSS control system, rotates a control valve to divert a small
The solution’s accurate and precise control allows it to
percentage of the drilling fluid to energize the internal
land the well trajectory in the reservoir’s sweet spot and
pads. The latter then pushes against the insider of the
extend the horizontal to total depth. It can also maintain
steering sleeve, which subsequently pivots on the
verticality at greater depths due to its higher build rate
universal joint to point the bit in the desired direction.
capabilities. In horizontal sections, the system can drill
Through this unique mechanism, PowerDrive Archer RSS
through hard, interbedded formations at high angles
is able to deliver high dogleg severities of up to 18°/100ft.
of incidence. High-quality wellbores produced by the
In addition, these traits allow the system to perform fast,
high build rate RSS offer reduced friction and tortuosity,
reliable open-hole sidetracks in any direction, without the
allowing a considerable weight transfer to the bit for
need for a cement plug.
| VIEW FROM THE TOP
PATHS OF SUCCESS FOR DRILLING CONTRACTORS TONY SOLIS Vice President International Sales and Operations of TSC Manufacturing and Supply
Q: How has TSC Offshore negotiated its goals with the
easily see the solutions we offer, and we can tailor those
realities of the downturn and their effect in the drilling
to fit any customer’s needs.
market? A: We have met our objectives in terms of growth in our
Q: How have you advanced with PEMEX's US$63 million
market share and visibility. Although during the past year
contract to carry out refurbishment works, mechanizations,
the price of oil has dropped drastically, we have been able
and automation on several 2000 HP land rigs?
to overcome that obstacle. We have succeeded in getting
A: We were hired to serve four land rigs. The work for each
the TSC brand recognized and accepted by most of drilling
rig is planned to be developed into four main phases: surveys,
contractors, including PEMEX. We had plans for expanding
purchases, performing the work on the rig, which includes
workforce and preparing ourselves for a couple of projects
refurbishment,
that we had in our sights. However, due to the drop in oil
delivery services. At this point, we have finished the survey
prices, we had to put those plans on hold. It is true that
phase for two of the four rigs. Due to the market conditions,
we have been affected tremendously by the drop in the oil
the project has suffered a tremendous impact in terms of
price. Since we depend highly on drilling operations, our
following the schedule. However, PEMEX has been clear in its
business suffers an immediate impact when these activities
desire to maintain this project in its priority portfolio.
modernization,
automation,
and
post-
slow down. When we detect a lag in business, which we can anticipate, we start looking for ways to reduce our costs.
When this project is completed, it will enable PEMEX to add
The type of necessary efficiencies can be mostly found in
modernized rigs to its current land drilling rig fleet. These
transportation and logistics, so we start looking for ways
modernized rigs will be more efficient, which in turn will
to consolidate shipments. This keeps our costs down and
allow PEMEX to drill wells quicker without putting safety
helps in passing on our savings to our clients.
at risk. We will continue to work closely with PEMEX, and we hope to secure other contracts in the near future. This
Q: How has your client base changed recently, and what
contract has a central effect on PEMEX’s operations, as the
are some of the most important aspects of your services
NOC has 21 rigs operating in the same conditions as the
that you highlight to new clients?
four rigs awarded in our contract. Therefore, investing in
A: Because of the downturn, we have not seen any new
its fleet and acquiring state-of-the-art technology will help
drilling contractors entering the Mexican market, or at
PEMEX improve its operational efficiency substantially,
least none that we are aware of. Our most important clients
while also having a tremendous impact on its QHSE
continue to be the main drilling contractors, specifically
variables.
CP Latina, Oro Negro, Seadrill, and Perforadora Mexico, among others. We also do quite well with a couple of
Q: What are your main objectives for 2016, and what
service companies that have maintenance contracts
upcoming projects do you have in the pipeline?
with PEMEX. TSC Offshore has helped them reduce their
A: One of our main objectives is to survive the difficult
operating costs by offering products with the benefit
environment that we are all seeing in the oil and gas market.
of superior quality, compared to what they have been
We are looking to bring a new product to market, for which
offered, at a much lower cost.
we have high expectations. We are starting to see some activity with it in the US and will soon be marketing it in
We are also offering new services, such as the new TSC
Mexico and all of Latin America. We remain optimistic about
app which gives access to an array of information. This
the market in Mexico, as we know it will gain momentum,
can be done from any smartphone or tablet device.
and when it does, we will be ready to act immediately. We
The application allows users to find TSC’s full range of
will continue to proactively promote TSC and its product and
products, news, presentations, and more. Customers can
service offerings to all our current and potential customers.
121
| VIEW FROM THE TOP
CHINESE OILFIELD SERVICE COMPANY ADAPTS TO MEXICAN MARKET WANG SHENG Marketing Manager of COSL
122
Q: As a Chinese company working in Mexico, what have
service providers, which means we offer more to our clients
been the main challenges and opportunities identified in
than specific providers could. This is also a more cost-
the local market, and what services do you offer?
effective solution, because we provide all the services our
A: China Oilfield Services, or COSL, our parent company,
clients need in a bundle and at a reasonable and competitive
is one of the leading comprehensive service providers in
price. Opting for this type of service also reduces the cost
China, where we cover almost 90% of the market share in the
in terms of management and communication, as clients
upstream oil and gas offshore services. We have four core
only have to work with a single company. With this in mind,
sections, namely Geophysical Services, Offshore Drilling
COSL believes integrated services will become increasingly
Services, Well Services, and Maritime Transport. We have
popular in the current environment in Mexico.
been in the Mexican market since 2006, offering offshore drilling equipment, employees, and crews. Developing
The second advantage we have over other market players
our activities in this region required overcoming various
is that we maintain relatively low production costs. With
challenges. Entering a new country is never easy at first, and
COSL, clients benefit from a cost reduction of at least 20%
the biggest test for COSL in Mexico was communication.
compared to established US or European firms. Thirdly,
In order to ensure an easy transition for our employees
we enjoy a good safety record and reputation throughout
to Mexico, we offer them cultural sensitivity training
the industry. Finally, because COSL is a state-owned
before they are expatriated, and since 2014, our Chinese
company, we have a healthy cash flow thanks to the strong
employees can also undertake Spanish language classes.
support from the Chinese government, allowing us to face
Another challenge we faced concerned the sourcing of
risks and challenges in unfavorable market conditions. In
human capital, but with time, we have become renowned
spite of the adversity, we will maintain our participation
in the Mexican market and no longer need to actively seek
prospects in the deepwater phase of Round One. Five
out talent. Making the most of this opportunity, we now also
years ago, our parent company started developing its own
offer HR services for new market entrants. We have worked
business in this segment, and we continue constructing
in places such as Australia, Indonesia, the Middle East, and
more and more deepwater drilling units in preparation for
Norway, allowing us to offer extensive and relevant training
better times.
programs for employees, both onshore and offshore. Rather than adopting a country-focused approach, we take
Q: Apart from relying on the financial support you receive
a global approach.
from the Chinese government, what is your strategy for continued growth?
Q: How has the low oil price impacted your offerings and
A: Our strategy is to sell one of our ideas to our international
activities?
clients. This approach began in 2014, as we had already
A: Just like it has with any company, the current oil climate
predicted the drop in oil prices to a certain extent. The idea
has brought us its share of challenges. As a response to
is that oil companies should establish close ties with offshore
the fall in oil prices and consequent budget cuts, we had to
service providers. COSL is preparing for this new structure
suspend two out of our eight offshore drilling units, leaving
of partnerships by supporting everything our client may
us with no more than six in the Gulf of Mexico. Nonetheless,
need. We are adopting a reactive approach to the fall in
we maintain a confident and optimistic attitude to the
oil prices and the ensuing budget cuts, showing our clients
future, and for this reason, we have chosen to avoid making
we understand their concerns. We now accept delayed
redundancies. In fact, we are hiring more recruits to prepare
payments, increasingly use financial programs, and help oil
for a future recovery in the market. Our four competitive
companies find financial funds or support from different
advantages allow us to adopt a strategy quite different from
institutes so our clients can maintain their business activities.
that of most companies. First of all, we are comprehensive
We strive to understand client needs and future outlooks.
| INSIGHT
WELL MAINTENANCE TO CUT COSTS More than 50% of the wells drilled in Mexico have some type of mechanical problem, which greatly impacts the day-to-day production of oil or crude. Since the drilling
JORGE GONZÁLEZ
and exploration services are the most sought after services
Director General of ALS
in the industry. According to Jorge González, Director
Wellvention
General of ALS Wellvention, while much of the industry is focusing on drilling for oil, PEMEX is beginning to place 123
importance on repairs and maintenance, with the purchase of a new coiled tubing unit due to the fact that its previous equipment was over 20 years old. Many companies like Schlumberger, Halliburton, and Weatherford have coiled tubing services, and ALS decided to bring the tools to participate in this market and focus on the repair of wells. “Once a company has finished drilling a well and prepares it for production, it will need maintenance within a year and it is easier to remove a coiled tube than a drill,” González asserts. Contrary to common misconceptions, González argues that the industry still has money, but players have begun to invest it differently. “Cash flows are prolonged, and investors have no idea how any of these tools work, focusing instead on ROI, so oil and gas companies now have to carefully analyze how and where they will invest capital,” he declares. “In Mexico, prices are highly biased, but ALS Wellvention has decided to offer an average, because our services, tools, and workforce are of high quality and we are a global company.” González claims companies with
More than 50% of the wells drilled in Mexico have some type of mechanical problem
the most economical prices do not offer the full range of services or an added value, while companies with the
targeting the repair of wells to increase the production
highest prices do not want to invest. Customers are looking
levels, and as a result, the most demanded tools right now
for more than just a quality product, but they want superior
are wellhammers, downhole motors, and shifting tools.”
customer service and support in the event of a problem or mechanical failure within the well.
Although the company is broadly known in the south of the country, the first step for Wellvention in 2016 is to create a
For González, the events in Mexico in 2015 were
greater presence and visibility in the market. Once PEMEX
unprecedented, and although there have been lows,
is aware of its services and personnel, the next step will
nothing has come close to the current landscape. A US$12
be to increase the company’s portfolio with two processes
million market share has been reduced by 70%, and many
called Coring and Omega. These present a significant
companies have been forced to halt operations, even those
opportunity that could be of considerable importance
with many years in the market. The operations PEMEX is
to the industry, as it represents a previously overlooked
currently demanding the most are well cleanings, and
market to develop and exploit. Part of the strategy is
opening and closing of the lining, but most of the focus is
bringing these two divisions to Mexico, supported by
on recovering production, even though PEMEX’s goal for
other areas like drilling. “A few months ago, we proposed
daily barrel production has been reduced. Wellvention’s
the idea of Omega to IMP, which was extremely interested
most popular tools are shifting tools, technology that
in the idea of a joint development of certain technologies,”
involves cleaning with special motors. “Two years ago,
González reveals. “This is also an attractive situation
there were bigger budgets and PEMEX was focused on
for Omega, because Mexico is a country with highly
maintenance, therefore scrappers and overshots were
experienced engineers who have developed prototypes
commonly used,” González admits. “Now, PEMEX is
for innovative tools that will transform the industry.”
| VIEW FROM THE TOP
GAINING ACCESS TO VITAL INTEGRATED SERVICES FOR NEW OPERATORS RODRIGO DE VIVANCO Co-Founder of Kratus Energy
124
Q: What are the main problems in the Mexican oil and gas
Q: What are the main challenges in ensuring that the
industry supply chain that Kratus Energy can help solve?
services offered by Kratus Energy have more value than
A: Mexico has an oil and gas industry but not an oil and gas
the sum of their parts?
market, so there are many opportunities for companies to
A: Let us say that a company needs to hire a directional
come to the country and provide different services for all
drilling contractor. If this company also needs to hire
the value chain, from geophysics to production. Kratus is
a service related to directional drilling, it might incur
trying to bring different companies that can provide the
downtime until they can get the service. Kratus will
various services needed in the energy market’s activities
provide the whole package, so our model allows solving
and work as a consolidating actor for these companies as
problems faster due to our service consolidation. Our
they enter the country.
model is built in a way that allows companies to be able to collaborate with each other, since they are part of a chain.
Kratus Energy's two types of clients are the companies we
Being integrated makes it easier and it helps everyone
represent and the end customers, who are energy-related
save money and time, which is essential when drilling, or
companies. If one of these needs production-pumping
producing. Of course, a number of steps must be taken
equipment, directional drilling services, or logistics, we will
to position Kratus as the most efficient and cost effective
provide a solution. Market conditions have provided the
solutions provider in the Mexican oil and gas industry,
opportunity to consolidate these groups because money
and the first step is the platform. The companies must
is scarce at the moment in the oil and gas industry and
then optimize operations in the right way so that we can
by working together, companies can prove more cost-
provide the services on time with attractive prices and
efficient.
outstanding quality.
Q: What are the unique characteristics of your business
Q: How are you taking advantage of the entry of new
model, in which you bring together several service
operators?
providers to offer integrated services?
A: Mexico went from a single client market to a multi-client
A: We have the technical team and business acumen to
market. As blocks are awarded, many more companies
bring to successful completion many types of projects
will come. The price of oil might not recover this year.
based on more than 15 years of experience in the industry.
Regardless, oil has to be produced and companies will
Logistics will be the most difficult aspect for players
do their best to do so. With this in mind, right now costs
working in Mexican fields, where they will have to deal
are the most important aspect for these companies, and
with landowners, build roads, and be able to negotiate
the players that will enter the country will need someone
with the communities adjacent to exploration and drilling
to help them reduce costs. Kratus Energy has a unique
sites. Some of the companies we already have with us
formula for reducing costs that is built from years of
know how to deal with this, so half the work is already
experience working in the industry.
done for our end customers. Kratus can help a foreign company entering Mexico access all these services and
Kratus Energy will capture not a single company but
consolidate them, and we can also help it establish an
create a significant mass that ultimately contributes to
office in the country for its initial operations. We want
developing the domestic industry. Different sizes and
to help companies come to Mexico and start their
different profiles are in fact our advantage, if properly
business as easily as possible. Kratus is able to provide
managed. We envision private equity funds and other
the services large oilfield service companies offer at
financial institutions ultimately becoming part of the
a considerably lower cost through the integration of
platform in order to consolidate those projects that
specialty companies.
require outside investors.
| INSIGHT
IN SEARCH OF JOINT VENTURES IN NEW MARKET Oscar Suárez, Director General of DM Ingenieros, describes his business as a multifaceted company that offers a wide range of services, from outsourcing and supervision, to
OSCAR SUÁREZ
engineering development. The company is also developing
Director General of DM
a construction and infrastructure division, as part of a
Ingenieros
diversification strategy. In Suárez' view, consolidating the company’s presence in the Mexican oil and gas industry has been a difficult process. However, DM Ingenieros has a
alliances with companies that have the financial and
marketing strategy tailored to each industry, and the firm
technical capacity to tackle larger challenges. Suárez
has identified areas of opportunity as well as limitations. In
says his company is ready to compete in rounds, but he is
order to address these, DM Ingenieros seeks support from
aware that the firm requires support to achieve its goals.
companies that can provide solutions to suit its needs. Suárez tells that the company’s engineering, technical
The quest to position a company as a reliable service
assistance, and supervision activities decreased, which
provider often leads to pursue certifications. DM Ingenieros
is precisely why DM Ingenieros decided to develop other
was awarded the ISO-9000 certification for engineering
areas of expertise. “At the moment, our focus is on the
monitoring, which is divided across several branches, and
development of infrastructure, including exhaust cooling,
the firm recently received certification for the infrastructure
pig traps, and separators. These separators are used to
division, which in turn requires certification of the
dislodge contaminating elements in the crude oil, such as
components within it. Suárez explains this by using the
water, gas, sulfuric acid, and oil.”
example of the company’s separators, which are subject to the ASME stamping certification, and this includes pressure
The engineering firm offers a variety of services for
vessels. “As we broaden our specialties, we must obtain new
offshore applications. Suárez says DM Ingenieros provides
certifications, and our intention is to expand our areas where
infrastructure
engineering,
we are certified, which we have done with enthusiasm in
including design of interconnection lines and platforms.
recent years.” He adds that DM Ingenieros is in the process
“The firm can handle the construction of an entire offshore
of obtaining certification for S stamping in reference to
infrastructure, and although we still lack certain experience
steam processes, as well as for P printing of piping. “This
in terms of exploration, we have seen that greatest area of
is a transition that leads from the technical management
opportunity in the submarine division in Mexico lies in drilling
of a given project to its execution, and engineering
and production structures.” Currently, this type of platform
and supervision play essential roles in implementation,
burns large amounts of gas, meaning that great benefits
meaning that they cannot be overlooked. These areas are
could be derived from its sale, or from the generation of
complementary to our operations’ infrastructure, meaning
electricity. Another problem is the amount of operational
they must be based on international standards, and there
wells that are not connected to the network. “Due to lack
can be no doubt that, as new certifications arise, DM
of government support, the underwater lines for crude
Ingenieros will strive to meet them.” Suárez asserts
services
and
construction
oil required to carry this out have not been developed. Once new foreign companies begin entering the Mexican
Given the specifications of the contracts that PEMEX is
market, it will be more expensive, and more challenging for
issuing, mid-size companies are seeking to create alliances
companies such as DM Ingenieros to compete,” he worries.
with multinational companies that have greater financial and technical capabilities. Suárez finds the contracts
When it comes to constructing marine infrastructure,
offered to be lucrative, but these often require billions
Suárez claims DM Ingenieros is a company that generates
of dollars, forcing companies such as DM Ingenieros
fewer costs for its customers than the competition. “It is
to create alliances. “Added to this, the reluctance of
difficult to find a company operating at the levels we do,
financial institutions to provide credit plays an important
at the same competitive cost. We are a company with
role in creating strategic partnerships with international
promising development opportunities, with staff that has
companies,” he highlights. In terms of the new criteria issued
extensive industry experience, having worked in some of
regarding local content, this could present a considerable
the largest companies in the sector,” he boats, adding that
opportunity for DM Ingenieros, especially when looking to
this knowledge has allowed DM Ingenieros to consolidate
work in partnership with foreign multinationals.
125
5
DEVELOPMENT & PRODUCTION
The decline of Cantarell, which was Mexico’s most productive field for decades, has negatively affected the national petroleum output, but was partially compensated by production increases in other fields in PEMEX’s portfolio as a result of its diversification strategy. While Cantarell produced 227,000b/d in 2015, Ku-Maloob-Zaap remained at its production plateau and yielded 853,000b/d. The long-awaited production from Ayatsil-Tekel amounted to 3,000b/d, which serves as a starting point for a rapid production increase in 2016. Over the past year, PEMEX has focused on its most profitable and productive assets while slowing down investment in high-risk activities, such as deepwaters, in order to remain solvent in a low oil price environment. Following the launch of Round One, PEMEX is no longer solely responsible for increasing Mexico’s hydrocarbon production level as private operators will gradually bring their newly obtained fields into production.
This chapter describes Mexico’s production strategy and highlights, paying close attention to PEMEX’s priorities as a productive enterprise of the state. It will also look at the plans and operations of private companies, both operators and service providers, and how these aspire to help Mexico increase its production level.
127
| CHAPTER 5: DEVELOPMENT & PRODUCTION 130
VIEW FROM THE TOP: Juan Javier Hinojosa, PEMEX E&P
132
VIEW FROM THE TOP: Luis Vielma Lobo, CBM
133
VIEW FROM THE TOP: Vernon Murray, Emerson
134
VIEW FROM THE TOP: Lo Van Wachem, ADIL
135
INSIGHT: Edward Hernández, io Oil & Gas Consulting
136
VIEW FROM THE TOP: Carlos Sandoval, Arendal
137
INSIGHT: Juan Manuel Pineda, McDermott
138
VIEW FROM THE TOP: Peter Armstrong, HB Rentals
139
VIEW FROM THE TOP: Manuel Flores Buendía, Taylors
140
TECHNOLOGY SPOTLIGHT: Petrotek, iStore
141
VIEW FROM THE TOP: Arturo Flores, Hempel
142
VIEW FROM THE TOP: Regina Oliveira, Dow
143
INSIGHT: Richard Blackett, National Oilwell Varco
144
INSIGHT: Gabriel Dávila, Hoerbiger
145
VIEW FROM THE TOP: César Ruiz, Tekna Services
146
VIEW FROM THE TOP: Coen van Munster, Petrogas
Maurice van der Meer, Petrogas
147
INSIGHT: José Luis Uriegas, Grupo Idesa
147
PROJECT SPOTLIGHT: PB-Litoral-A, McDermott
129
| VIEW FROM THE TOP
STRIKING A PRODUCTION AND SAVINGS BALANCE JUAN JAVIER HINOJOSA Director General of PEMEX E&P
130
Q: What has been the impact of the recent budget cuts
portfolio such as deepwater assets, extra-heavy oil fields,
on PEMEX’s production outlook in the short and medium
and unconventional reservoirs, which require costly
term?
technology compared to the conventional reserves we
A: PEMEX Exploration and Production will contribute to
have in the shallow waters fields and onshore fields.
the budget cuts with a reduction of almost MX$47 billion.
PEMEX is focused on improving project execution and
Although it is a substantial reduction of our original budget
therefore is reviewing different processes in our value
the impact on oil production output has been minimized.
chain to deliver more efficiency in the execution of new
The strategy is to generate efficiencies and reduce costs
projects. For example, PEMEX is reviewing the processes
in order to allocate the budget to the most profitable
to optimize drilling cost, improve efficiency of offshore
production opportunities. The estimated production for
logistics, and increase well productivity.
2016 is 2.13 million b/d. We expect to maintain production at the current levels for the next few years but PEMEX’s
Q: What has been the evolution of PEMEX’s production
production platform will depend on the price evolution
and development costs since 2014, and how is this
and the CAPEX available. The strategy being implemented
benchmarked against IOCs and NOCs?
by PEMEX is focused on three elements. Firstly, PEMEX
A: The increment of production costs from 2010 to 2014
will develop the most attractive onshore fields, which will
was due to the high cost of services and more complexity
allow the NOC to take advantage of existing infrastructure
of the fields due to the fact that they are mature fields.
and deliver production in the short term. Secondly, the
The production cost for 2015 is almost US$10/boe,
development of recent discoveries is in the process of
an increment that is due basically to the addition of
optimization with the purposes of reducing cost and starting production in the short term. Finally, we are improving the process of reservoir management in order to mitigate the decline of base production. The program considers a strict monitoring of the reservoir and well performance as well as an intensive workover program. Q: What criteria are used in the selection of fields and projects where planned investments will be deferred to achieve MX$27.5 million cost saving without impacting the short term production? A: The selection of deferred projects considers the generation of economic value and the risk involved in its execution. We delayed activities in exploration that deliver reserves in the long term, like activities in deepwater and unconventional areas. In addition, we deferred activities in high-cost projects. The activities in the development of the Lakach deepwater gas project and extra heavy projects like Ayatsil-Tekel-Utsil were delayed until the price scenario improves. The main challenge is to develop profitable projects under the scenario of limited budget yield by low prices. Therefore, the strategy is to delay the development of the more complex reserves of PEMEX’s
a royalty that was not included prior to 2015. The total
required technology to optimize production and increase
effect of this royalty accounts for almost US$3/boe.
ultimate recovery. PEMEX’s objective is to become one of
Therefore, if we consider similar conditions for 2015 with
the main producers in deepwater in the long term, so it
respect to 2014, the production cost was almost US$7/
is looking to partner with the most important operators
boe, which is a reduction of more than US$1/boe in the
in this segment and develop the capabilities to become
production cost. These results were obtained because of
one of the main players as quickly as possible. In summary,
the optimization of several processes and we expect that
PEMEX’s strategy is to attract partners both for new
additional reductions can be obtained in the future. In
developments, which are extremely complex, and to
terms of the development cost for 2015, we expect this to
optimize production of legacy assets to increase ultimate
increase because low prices affected the new addition of
recovery. I believe there are plenty of opportunities in the
proven reserves. Once the reserves certification process is
PEMEX portfolio, and we want to take advantage of the
completed, the final cost will be released.
new mechanisms established by the Energy Reform in order to attract more partners. 131
The international benchmarking of costs has not been completed for 2015 but based on preliminary figures,
Q: What is the strategy being implemented to keep Ku-
PEMEX’s production cost will continue to be one of the
Maloob-Zaap at its current production plateau, and what
lowest in the industry. In terms of finding and development
new technologies will be implemented to achieve this
costs, we expect that PEMEX’s cost will rank in the second
objective?
quartile and the NOC’s efforts will be concentrated on
A: The main strategy is based on a strict control of
improving this. The current low price scenario represents a
reservoir and well performance in order to minimize
substantial challenge to launching new projects, so we are
decline rate of existing production. Gas reinjection will
optimizing different processes in order to execute these
be implemented as a complement to nitrogen injection
projects, add more reserves, and improve the finding and
for pressure maintenance. In addition, newly designed
development cost.
wells will be drilled in order extend their economic limit of production by delaying water or gas eruptions, and
Q: What is the possibility of PEMEX increasing its
artificial lifting methods are being optimized to keep
hydrocarbon production without farm-outs?
operations stable. Electric submersible pumps are being
A: The production increment is feasible if additional
installed, so combined with gas lifting methods, this will
execution capacity, technology, and financial capabilities
guarantee the operation of producing wells. In order to
are implemented to develop new reserves. Therefore,
improve water handling, we will install a dewatering and
the challenge is to define the opportunities that can be
desalination system with electrostatic technology, with a
developed under the current circumstances and guarantee
capacity of 200,000b/d. Finally, PEMEX is also analysing
that they are profitable under any adverse price scenario.
new potential areas that can be developed in the next year,
PEMEX can increase production, but CAPEX is limited so
and as a result the NOC acquired seismic information to
the expected growth under this situation would be very
define the areas that will be added to the development
slow. Therefore, farm-outs are a mechanism to accelerate
plan of Ku-Maloob-Zaap.
the development of new projects by bringing in new technologies that, combined with our expertise, would
Q: What will be the anticipated production contribution in
increase the economic value of our projects. In addition,
2016 of fields under development or recently producing,
increased CAPEX will be added from potential partners,
and their anticipated short and medium-term contribution
which would help to deliver production faster than PEMEX
to Mexico’s production portfolio?
could by itself.
A: The production of new fields for 2016 is minimal because
of
limited
CAPEX
available
for
2016,
so
Q: What are PEMEX’s objectives and trade-offs in selecting
development is not possible at this time. However, we
fields for farm-outs in terms of attracting investment,
expect that new discoveries will contribute in the next few
production technology, and execution capacity?
years with at least an additional 10% of current production
A: PEMEX’s strategy is to attract partners for developing
levels. Onshore fields are key assets in PEMEX’s strategy
mainly high-cost and complex reservoirs. Therefore,
for future production since there are existing facilities
PEMEX is analysing both situations. PEMEX selected
in close proximity to these fields, and taking advantage
extra heavy and deepwater fields in the first set of farm-
of this situation, PEMEX can deliver production faster in
outs, which require more technological capabilities than
onshore fields than in offshore fields. Therefore, PEMEX is
conventional reserves for development. Similarly, we
updating development plans of onshore fields in order to
chose some medium size mature fields, which are not
take advantage of all available opportunities and maintain
as important as Cantarell and Ku-Maloob-Zaap but that
competitive costs.
| VIEW FROM THE TOP
CHALLENGES AND OPPORTUNITIES WITHIN THE NEW FRAMEWORK LUIS VIELMA LOBO Director General of CBM
132
Q: When do you believe Mexico will be able to regain its
not only the right people in terms of competence, but also
production levels of 2.5 million b/d, and later 3 million?
the multidisciplinary team approach to maximize the value
A: I predict that Mexico will begin to reap the benefits of
creation of each opportunity. The same example applies to
the opening of the oil industry in around three and a half
production optimization, because that is the fundamental
years. In terms of production levels, when using Venezuela
aspect of the business. Each field has a large number of
as an example, this country required six years to reach
productive wells, but some of these wells may have various
450,000b/d under the same model, and in Colombia
problems that affect their real potential, and in many cases
and Brazil, this took six to eight years. Judging by these
the wells collapse. For that reason, monitoring is crucial
timescales, it may take Mexico around six to seven years to
and CBM has developed evaluation methodologies,
get to this level, with another year or so required to reach
engineering solutions, and repair processes. Finally CBM
an additional 1 million barrels. The target of 2.5 million is
has developed other types of projects related to talent
not considerably far off, and I predict we can reach this
development, contracting strategies, and asset evaluation,
level between 2020 and 2021. After that point, it would
among others.
depend on resources, but a conservative prediction to reach 3 million barrels would be around 2024 to 2025.
Q: In the case that PEMEX was unable to adapt adequately to the market conditions, what would be the fallout from
Q: What is the current position of Mexico in the global oil
its capitulation?
industry, and how will the opening of the industry impact
A: I believe it is going to take at least two more years for
its standing?
PEMEX management to fully understand the kind of change
A: For several years during the 1990s, the country was
the company requires to be competitive in a completely
considered within the top ten countries in terms of reserves,
new arena. International companies will be working and
production, and markets, and PEMEX was always considered
producing in close proximity to PEMEX and in some fields,
within the top ten national oil companies. Reaching a
they will act as partners through the farm-out processes.
production of 3.4 million b/d in 2004 and maintaining more
The life of the industry is cyclical, and although new players
than 3 million b/d from 2000 to 2005 have been outstanding
will come into the market, I do not believe that PEMEX will
achievements for the country. However, for the last ten
capitulate totally, but within the next three to four years, the
years, Mexico has entered a spiral of production decline
face of the company will have changed completely.
that has reduced its production capacity to 2.3 million b/d, mainly due to the extreme decline in production of its main
Q: How can the regulations facilitate processes for CBM
field, Cantarell. The reform process has placed the country
and other companies across the oil sector in Mexico?
in a state of uncertainty, because it opens the oil industry
A: Regulations are going to be the heart of the oil sector
to private investment, and restricts PEMEX obligations
development in the future. CNH has been working
to certain areas allocated to the NOC during Round Zero.
intensively to establish a complete regulatory frame that
Although PEMEX received more than 80% of the existing 2P
covers all the components of the E&P value chain, which
reserves and close to 30% of the 3P reserves, this marked
will set the practices to be followed for all the companies,
the end if its 70 year monopoly.
including PEMEX. CNH has been extremely strict with the regulations for reservoir, well drilling, well identification,
Q: What is the main focus of ongoing projects with
and well integrity in addition to all the security and
PEMEX?
environmental themes. The framework follows international
A: Mainly, the projects are related to engineering processes.
regulatory practices that will not represent any obstacles
It is important to have an adequate methodology to
for entering companies, as they are accustomed to the
develop the well planning and engineering design that has
standards in other countries and regions.
| VIEW FROM THE TOP
US EXPERTISE EXPORTED TO MEXICAN MARKET VERNON MURRAY Vice President and Director General of Emerson
Q: What are the key aspects that Emerson has used to
during the operation of Mexican fields. For this initiative,
introduce the “perfect execution” initiative?
Emerson put the instrumentation in place and organized
A: One of the keys for successfully introducing the
some training to ensure that the variables were properly
“perfect execution” approach is the early engagement
read, helping to improve the operation of the wells. In
of all the players involved in the project, including the
the national industry, it is well known that there is a high
end customers and the EPC companies. For instance,
content of water associated with the oil being extracted
the automation tasks for reconfiguring a refinery can
from mature fields. For this reason, Emerson provided
represent up to 7% of the total work needed for a project
the equipment and training solutions for measuring water
of this kind, involving the construction of several cabinets
content, allowing PEMEX to react accordingly to the
with a considerable amount of cabling and signaling that
values that are identified in a particular well.
need to be configured. With electronic marshaling, an innovative design that Emerson has been mastering for
Q: Can you provide examples of lessons learned from the
years, the refinery could significantly reduce the amount
US shale boom that Emerson can apply in Mexico?
of cabling and signaling associated with this type of
A: North Dakota is a strong base for our Rosemount
cabinet. Moreover, the system facilitates the late changes
pressure transmitters, with which we have collected
around I/O requirements that may occur at different
an important amount of knowledge about pressure
stages, saving time and avoiding startup delays.
measurement in wells. When the pressure of a well is properly measured, the well’s oil and gas extraction rate
Q: What are the lessons learned from the company’s joint
can then be incremented. Apart from North Dakota,
venture with PEMEX in this area?
we have proven our expertise in other locations with
A: There is a need to centralize the information circulating
companies such as Schlumberger and Halliburton, which
between the EPC companies, suppliers like Emerson, and
both have a strong presence in onshore sites in Mexico.
PEMEX, the end customer. If information is withheld by any
In this way, pressure measuring is one area of expertise
of the parties, the results of the project are not likely to be
that we have brought into the Mexican market. Another
favorable, so it is crucial to guarantee that the information
example of knowledge transfer is the work that we
is centralized and easily accessible to all those involved.
performed in collaboration with CNH for developing
There is strong competition among solutions providers
national parameters of measurement certainty based on
for the automation market in Mexico, but for us, being a
international standards.
trusted advisor means using our technical capabilities to advise our partners in more streamlined operations. For
One application in which our expertise can be valuable is the
example, we can advise companies on how to improve
cash registers that will be used to measure the quantities
their EOR techniques in the fields that they are going to
private companies are selling to PEMEX or placing into the
operate in Mexico since Emerson obtained a tremendous
oil and gas market, and which will need to comply with a
amount of knowledge and experience working with EOR
defined certainty level set by CNH. In this specific area,
during the shale gas boom in the US.
Emerson can help with the selection of an appropriate technology to meet the certainty guidelines provided by
Q: What are the highlights of Emerson’s participation in
CNH. The company can also conduct the installation of the
helping PEMEX improve its production levels?
equipment to ensure that this is carried out in time and
A: In Mexico, one of Emerson's initiatives consisted
with the right mechanical and structural integrity. Emerson
of highlighting the importance of measuring key well
can help the companies with the equipment startup and
parameters, such as pressure, temperature, and level
decommissioning, and provide them with all the required
flows, as it was found out that they were being neglected
life cycle services for that particular solution.
133
| VIEW FROM THE TOP
OFFERING NEW PERSPECTIVES FOR NEW FIELDS LO VAN WACHEM Vice President Mexico, and Global Manager of Projects and Developments of ADIL
134
Q: How does ADIL support newcomers in the oil and gas
that the system is rooted in our server, and we take care of
industry?
the maintenance for them.
A: ADIL is a ten-year old company that offers full life-offield consultancy services for the oil and gas industry.
Q: What would you consider some of your biggest
We offer support across all stages, from exploration,
international success stories?
through development and production operations to
A: In 2007, we deployed a five-person team in the North
decommissioning. Our clients generally have no idea how
Sea on a US$2 billion development in the harsh weather
to develop projects that could provide the greatest value,
conditions west of Shetland. The Dana-operated project
so we are present from the initial processes. The company is
sought to develop two discovered oil fields, with a subsea
relatively unusual as it does not own equities in oil and gas,
development of at least five production and four water
or participate in production itself. The assistance we offer
injection wells plus two exploration wells tied back to a
is generated from our offices in Aberdeen and London.
newly built FPSO with oil export using shuttle tankers.
Providing support for entering players usually means
ADIL worked with Dana on the project select phase,
working on limited projects that have technologically
considering a number of alternatives including tieback to
and commercially challenging fields, and in this respect,
a leased FPSO, before deciding on construction of a new
innovation helps us improve production efficiency. Lately,
build FPSO. We undertook overall management of the
there has been an increase in due diligence work requests
execution plan including supervision of construction of
around asset acquisition either in bidding rounds or expert
the FPSO in China, integration of subsurface and drilling
witnessing.
into an integrated development plan, developing the project contracting strategy, and taking responsibility for
In 2007, we deployed a five-person team in the North Sea on a US$2 billion development in the harsh weather conditions west of Shetland
subsurface, drilling and wells, subsea activity, facilities, and operations. Q: What are some of the most significant challenges operators will encounter in the development phase? A: The biggest challenges they face will be community issues, and a shortage of experienced people in Mexico is certainly problematic for companies in the industry. CNH estimates that it will need thousands of engineers in the next five years, a gap that will be difficult to satisfy. Lastly,
Q: What are the characteristics of the individualized
understanding how to access existing infrastructure and
management system that ADIL offers?
negotiate clear terms will be particularly problematic,
A: Our services are part of an exhaustive development
as players must consider the conditions, reliability, and
management program that varies from exploration to
access opportunities that are available before making
developing and operating fields, and managing partners.
an investment in order to guarantee smooth processes.
Our stage gate system is tailored toward the type of
With Mexican partners, ADIL is in the process of providing
development stage of a given client, because first time
diligent infrastructure assistance clients may have to
developments require a different approach than a billion-
use in the future in order to make sure they receive
dollar project. ADIL operates with an internal system
reasonable fees for using their equipment and include
that fits the norms of an operator. Through personal
details about maintenance, inspections, and repairs. We
experience, our company can easily teach our clients how
see considerable potential for the development industry in
to use it, with best practice procedures. Players appreciate
Mexico and we hope to be heavily involved.
| INSIGHT
A SUSTAINABLE FUTURE FOR OFFSHORE PROJECTS Io Oil & Gas Consulting is an independent entity whose recent creation came as a result of a collaboration between
EDWARD HERNÁNDEZ
McDermott and GE Oil and Gas, and it is concerned with
Vice President of Operations
grappling with the legacy of inefficiency in the planning
for the Americas of io Oil &
and execution of offshore projects. As Edward Hernández,
Gas Consulting
its Vice President of Operations for the Americas puts it, “When the market was selling oil at US$80-100 per barrel, operators could work in the same old ways but at US$30-
integral solutions package that they offer their clients.
60 a barrel companies are forced to become increasingly
"Companies
efficient and find new ways of working.”
businesses and maximizing value of capital. Operators are
are
outsourcing
operations
to
other
leaning toward service contracts to avoid high-capital out The firm is greatly concerned with the way offshore
of pocket investments,” Hernández explains. The routes
projects hinder the integration of their engineering and
of investment in the industry are also changing in ways
procurement planning divisions by having departments
relevant to operators and to companies such as io Oil &
and companies employed for different aspects of a
Gas Consulting. “Entities are also less likely to invest in
project’s EPC work, in what he is quick to refer to as
high development cost assets such as in remote area, oil
“silos”. This term refers to organizational structures
shales, or places with extraordinary operating conditions
of isolation that do not contemplate the way in which
without more certainty, which is exactly what io Oil & Gas
comprehensive communication between these divisions
Consulting is trying to bring to clients,” he points out.
could result in a much more needs-based and efficient approach to sourcing and design of engineering plans.
Mexico represents an important segment of activity for
As a consequence, Hernández believes, “The owner ends
io Oil & Gas Consulting, and Hernández is positive about
up having assorted teams that are devising separate
its future. “Our company views Mexico as a primary focus
strategies around subsurface, subsea, and facilities.
and as the most important Latin American market at the
Engineering companies are separated from equipment
moment.” The firm is particularly interested in the ways in
providers that have experience and know what is required
which it can assist the NOC in handling its transition into
technologically in the design. This execution philosophy
this new market. Hernández specifies, “PEMEX is facing
often causes delay and rework, and is more likely to arrive
the challenge of developing fields that have complex
at a solution that is not very cost effective.”
fluids, deeper water depth, and tougher environmental regulations. Utilizing the best technology, methodologies,
Io Oil & Gas Consulting is also identifying trends among
and industry knowledge in order to meet these challenges
offshore operators that can be implemented into the
will be key, and io Oil & Gas Consulting can offer that.”
135
| VIEW FROM THE TOP
PROVIDING INTEGRATED MEXICAN EPC SERVICES CARLOS SANDOVAL Commercial Vice President of Arendal
136
Q: Where does your main differentiator lie, and what are
Q: How do you source your employees and ensure they
your most emblematic projects?
are up to date on the latest industry standards?
A: Arendal has emblematic projects in the downstream,
A: We recently opened Oaxaca’s first school of welders for
midstream, and upstream segments. In downstream,
the use of PEMEX in conjunction with the local community.
we have two main projects, namely the ultra-low sulfur
In agreement with the NOC, we are providing all of the
diesel project that we are working on with AMEC Foster
equipment and teachers in Salina Cruz, Oaxaca. We
Wheeler for the Salina Cruz refinery, which will significantly
are effectively creating the labor force we will need to
boost economic development in the area. We are also
achieve the next step, while being socially responsible and
reconfiguring a catalytic conditioning plant in Minatitlán, and
nurturing the growth and development of a community.
although this is a medium sized project in economic terms,
Furthermore, we also have a program called Professionals
it is an extremely complex one that focuses on the heart of
in Development whereby we hire 60-70 of the brightest
the refinery. In the midstream sector, we are completing the
young professionals from various universities and allow
Los Ramones project in collaboration with an international
them to rotate throughout the various layers of our
consortium. In the upstream segment, we are working on the
company, undertaking different positions, each of which
construction of a gas collection station in Lakach, which is a
lasts six months. Our trainees can then decide in which
tie back to shore-type projects where all of the extraction is
area they would like to begin their career. Finally, last year
carried out at a depth of 1,500m and the gas is sent directly
we launched Arendal University with specialized programs
to land without having to pass through any platforms. We
to train our people.
are building the collection facility that controls, centralizes, and coordinates the gas extraction. One of our biggest
Q: What is your M&A strategy planned for the Mexican
achievements for 2015 was the acquisition of the Mexican
market and the rest of Latin America?
branch of In-Dive, an international firm specialized in
A: Arendal prefers organic growth. In this specific case,
offshore submarine construction.
we chose to carry out the acquisition of In-Dive because we needed to obtain certain capabilities in the short term.
Q: How is Arendal transitioning from an EPC company to
The timeframe that we had to develop that capability
a developer?
had passed, and we needed it to secure a certain place
A: The main challenge has been changing the perception
in the industry, which is why we turned to non-organic
of our work. As a developer, we will no longer approach
growth methods. In the future, we will not resort to this
a project as a finite job, but rather as a long-term
option for growth, but rather for the acquisition of certain
investment. This changes our areas of investment, our
capabilities within a specific timespan. We understand that
expectations, and the impact of our activities on different
we can contribute to other companies with knowledge,
stakeholders. The Energy Reform served as a catalyst for
expertise, and national content. Our focus is currently
the company’s decision to become a developer since an
on expanding our developer business in the oil and gas
open sector and the need for investment created the right
industry, and expanding our EPC presence in the offshore
scenario for us to go after this type of project. We started
market through our acquisition of In-Dive, using a pay-
out as a specialized contractor 20 years ago doing civil
by-service approach. Our main markets for expansion
work. We quickly grew in revenue and complexity, and our
will be offshore, O&M, and EPC projects, and our third
main strategy today is to undertake complicated projects,
priority will be to further our investment in the industry.
which is where we believe we can add extra value. In our
Moreover, we are going to reopen our power generation
company, we have people from various industry sectors,
and transmission segment as part of our expansion plan.
including CEMEX, Vitro, and Aeroméxico, and different
In terms of projects, we will look to undertake extremely
parts of the world.
complex developments, as this is our area of expertise.
| INSIGHT
MEXICO IS EPC’S KEY TO THE ATLANTIC MARKET With the Energy Reform looming in the mid-2000s, McDermott, a global EPC leader in offshore and subsea
JUAN MANUEL PINEDA
developments, saw an opportunity to become more
Vice President of Mexico,
competitive by serving the Atlantic market as well as
Latin America, and the
both sides of the Gulf of Mexico with a new, shore-
Caribbean of McDermott
side yard in Altamira, Tamaulipas. Juan Manuel Pineda, McDermott’s Vice President of Mexico, Latin America, and the Caribbean, stresses that Altamira plays an extremely
Out of all the projects McDermott has carried out in
important
Mexico,
role
within
the
company’s
international
Pineda
believes
the
PB-Litoral-A
platform
investment portfolio, as it is one of its three main global
in the Tsimin-Xux fields serves as the best example
pillars. The other two yards are situated in Jebel Ali, near
of the company’s capabilities. The project involved
Dubai, which principally serves the Middle East and India,
engineering, procurement, construction, transportation,
and in Batam Island, located in Indonesia, which responds
and installation, all of which was carried out directly by
to the needs of the Pacific region and Southeast Asia.
McDermott. “The basic engineering work was conducted
The Altamira yard is the company’s primary base for the
by our office in Houston, while more detailed engineering
supply of projects in the Atlantic Ocean.
was left to our Chennai office in India,” Pineda shares. Procurement was shared between the Houston and
The Mexican offshore sector will see heightened activity
Mexico offices and the fabrication was carried out entirely
due to the blocks awarded in Round Zero and Round
in the Altamira yard. The main structure was transported
One. Pineda claims that if the market were suddenly
using McDermott’s Intermac 600, and the Derrick Barge
to require more capacity, McDermott would be able to
50 was used to install the structures and execute the
nimbly respond to that need once its current projects are
float-over, a technology in which PEMEX is now investing
concluded, as the Altamira yard is being built in various
after McDermott introduced it in Mexico. “The float-over
steps. “Expanding the yard would simply require us to build
operation involves constructing the platform in the middle
on what we already have, and in fact, the engineering work
of the ocean rather than onshore. PEMEX awarded us the
is practically completed.” Although McDermott’s Altamira
first contract for float-overs at the end of 2012 for the PB-
yard is considered to have the greatest capacity in Mexico,
Litoral-A project. This allowed PEMEX to become slightly
the company is ready to invest in its expansion if needed.
more independent from its suppliers, as there are now
Pineda notes that there are yards of similar capacity in
various ways to install its platform.” The EPC company is
both Altamira and Tampico, but these do not have as
now working with PEMEX on the offshore commissioning
many prefabricated workshops, meaning that in terms of
process of the platform so that operations can soon be
productive man hours, McDermott is one step ahead.
started. “One of the particularities of this project is that McDermott was able to provide all services surrounding
The Altamira yard was built to respond to the potential
construction activities throughout the full three-year
needs of any client regarding deepwater projects, an area
duration,” highlights Pineda.
in which McDermott has plenty of international experience. Pineda explains that deepwater platforms have specific
Pineda says that McDermott’s work depends to a large
infrastructure requirements, as they need a floating part
extent on its clients and their ability to invest, a strength
called a hull. “Since these need to be built in a shipyard, a
highly linked to the price of oil, and at the moment, the
resource that Mexico does not have, they are generally
turbulent environment poses many difficulties to market
sent to us from East Asia. The superior structure is called a
players. Fortunately, McDermott signed a few contracts
topside, which consists of modules used to generate energy
back in 2012, before the price of oil fell, ensuring projects
or process oil and these components can be built in Altamira.
throughout 2015. In addition, the company was able
We expect these construction activities to begin in seven to
to renew one of its contracts with PEMEX. “We are
ten years, as there are several steps to be taken beforehand.
withstanding the storm by continuing previous projects.
Until then, we will continue our focus on shallow water
It is important for companies to realize this industry
infrastructure.” Pineda expects substantial work in the Bay of
requires a long-term focus, and in difficult circumstances,
Campeche, which has many fields, and also in all the blocks
companies must adapt and withstand the challenges,”
allocated in the different phases of Round One.
Pineda advises.
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| VIEW FROM THE TOP
FARSTAD ALLIANCES IDENTIFY INDUSTRY LEADER PETER ARMSTRONG Former Vice President of Business Development of HB Rentals
138
Q: How have you diversified your client base in Ciudad
and it highlights the importance of successful project
del Carmen and Villahermosa?
management in the execution of offshore projects.
A: Transferring our capabilities to Mexico’s onshore sector is a diversification effort. We have one service center in
Q: What kind of projects do you hope to be working on in
Ciudad del Carmen that will easily service and support the
Mexico when industry activity regains momentum?
country’s southern region, as well as a number of centers in
A: One of the benefits for any company when going through
southern Texas that could service northern Mexico, should
a cycle like this is that it is forced to look more broadly and
opportunities arise. Given the expansion of the country’s
understand what the market opportunities might be. One
pipeline network, we believe this is a real possibility. We
of the strongest markets we have identified in the long-
opened our Ciudad del Carmen service facility in 2013, and
term might be offshore wind. This development is already
previously, we supported the local offshore industry for
relatively strong in the North Sea and is now beginning to
decades from Louisiana and Texas. We achieved a strong
grow in popularity in the eastern US. We believe it is only
volume of rental business in the offshore market to the
a matter of time before it arrives to Mexico, as the country
point where it was advantageous to expand the Ciudad del
is interested in renewable energy. Pipeline construction
Carmen facility with the goal of increasing the service level
is another opportunity that we are actively investigating,
for our rental base of offshore accommodation installations.
along with the maritime industry in general, and we have
Once we established our local base of operations we
already undertaken a variety of projects in this market. As
developed more products for the Mexican market and
Mexico goes through the transformation of deregulation,
started using them in the onshore market as well. Since
we believe the country will receive significant economic
then, we have continued to leverage and expand.
investment, which goes hand in hand with innovation. The key market driver will be cost of production, and
Q: Which creative solutions have you developed as a
in this regard, Mexico is competing with Saudi Arabia,
response to the challenging market environment?
Russia, Venezuela, and all other NOC markets. In order to
A: One example of our capabilities is the Farstad project.
compete in the global market, Mexico has to embrace new
The company took a calculated risk in winning the
technologies and lower its production cost.
inspection, maintenance, and repair bid to bring one of its vessels from port in Norway to Mexico, and contacted
Q: What could your expertise bring to the deepwater
us, among other offshore accommodation providers, so
segment?
that the vessel could be modified with a TLQ installation
A: Although there are only a handful of competitors in
upon its arrival. For this to be possible, we asked them
the offshore accommodation industry, the deepwater
to divert the Far Sentinel to Newcastle, England, which is
sector has an even more limited number of temporary
near our Aberdeen facility, to carry out a site survey. We
accommodation providers, given the strictness of the
quickly gathered the necessary technical information and
regulations and the more challenging risk factors. We
transferred it to our US facilities as the vessel was sailing
believe HB Rentals is one of the strongest, if not the
to dock at the Port of Fourchon, Louisiana, where there
strongest, when it comes to deepwater support capability.
are several offshore accommodation suppliers. Farstad
One of the aspects that makes the offshore market easier to
interviewed a number of companies and eventually
support is there are only a finite number of companies that
selected us, after undergoing a lengthy qualification
have the expertise to service it, regardless of the specific
process. We carried out the installation for the Norwegian
geographic region. As new regions and basins open up
company in the US port, which is typically a challenge
with the various rounds in Mexico, the large international
when a vessel is under contract and adhering to a strict
vessel and oil field service companies will incorporate us
schedule. The Far Sentinel project is not an isolated case,
into projects as part of their strategic supply chain.
| VIEW FROM THE TOP
CATERING TO ROUND ONE WINNERS MANUEL FLORES BUENDĂ?A Country Manager of Taylors
Q: What role does Mexico play in your global portfolio,
A: In 2015, our sales were composed of 50% PEMEX and
and how is this evolving with Round One?
50% private players, but in 2016, I believe that 30% will be
A: We operate in Mexico and in the US, and we plan to make
PEMEX and the remaining 70% of business will come from
strategic commercial alliances with the US companies
private companies. PEMEX also has multi-year contracts,
before they enter the Mexican market, therefore gaining an
and our contract runs from 2014 until 2017, but with these
advantage. Right now, the focus is on finding out PEMEX’s
other companies no mistakes can be made as contracts
plans, and once we have that information, we will be able
can be terminated at any point. We have a quality control
to develop the correct strategy. At the moment, we also
team that always oversees our operations, and success is
want to concentrate on those entering in Round One and
measured by baseline indicators to help us to continue
Round Two, and map the kind of participation we want to
improving our services. We are constantly striving to offer
attract for this year.
new features, with updated menus and healthier meals, while taking into account the habits and preferences of the
Q: To what extent do you take into account culture, and
workers. It also helps that we have a global presence, as
what role do you have in adapting the local offering?
generally the practices and standards on an international
A: What we offer depends on the clients, for example we
scale are much higher than those in Mexico. We have to be
cater to any dietary restrictions, and we can provide gluten
aware of the standards and requirements companies bring
free, vegetarian, and halal options. After we obtain the
with them and customize our services to those levels. In
contracts, we hold meetings with operations staff on the
terms of budget, regardless of the size of the company,
platforms in order to establish dietary requirements and
the budgetary restrictions cannot be presumed and
desired style of food based on the workforce. We agree
sometimes major companies have small budgets for these
on a meal for each day of the week from a different part
kinds of services, especially in current market conditions.
of the world, meaning that for at least one day per week, each staff member should be able to eat the type of food
Q: Speaking of the budgetary restrictions, how have
to which they are accustomed. At the end of the week, we
Mexico’s recent cuts impacted your company, and which
gather feedback from the workers and substitute, when
services will see a drop in demand?
necessary, any unpopular styles of food with any requests.
A: All the companies that are entering will require catering
From the medical center, we obtain information about
services, and this is a promising opportunity for us. It is
the demographics to which we are catering, such as age,
important to create a market and generate as many clients
nationality, weight, and dietary restrictions. We also have
as possible, as the profit margin on this type of service
nutritionists designing our menus so they are carefully
is minimal. Right now, we have been affected by PEMEX
tailored to provide nutritional, tasty food for the workers.
redundancies since, of the 60 or 70 platforms that were
We redesign menus based on weather conditions, for
operating, 15 have closed, having a significant effect on
instance, and if the employees are working in extremely
offshore E&P activities. However, in 2016-17, we hope that
hot temperatures, we offer menus with a higher caloric
new companies will enter, and the demand for our services
content to compensate for the amount of energy burned
will increase with a renewed E&P focus. We also hope for
and the amount required to effectively carry out their
a greater profit margin, as PEMEX consumes extremely
work. Each week, the medics on the platforms are given
high volumes so the margins are low. Normally, the ratio in
the menus and they sign to confirm medical approval
the private market is 1:10, but with PEMEX the margins are
regarding the nutritional content.
squeezed to 1:5, so the cost to the company is extremely high. Hopefully, when the PEMEX structure is more secure,
Q: What percentage of participation do you hope to
the contracts we can offer it will be similar to the terms
achieve from PEMEX?
offered to private companies.
139
| TECHNOLOGY SPOTLIGHT: PETROTEK The lack of integration of data management tools has
optimizing decision-making, it also improves NPV. The
created many headaches across the industry, as it does
cycle time can also be reduced thanks to the facilitation
not provide easily accessible data for rapid and efficient
of collaboration and knowledge sharing across the
decision-making. Acknowledging this barrier to success,
organization, and productivity can be increased, given the
iStore created a solution that creates business value by
faster access to information. Finally, the technology allows
improving asset management and decision-making, which
firms to rapidly deliver enterprise intelligence.
then translates into tangible net benefits for production, reserves,
operational
As mentioned previously, the technology integrates
safety. The company’s PetroTek technology helps E&P
exploration,
productivity,
and
data from across the petroleum enterprise and delivers
organizations jump-start their Digital Oilfield initiatives
information via a single website, allowing for the full
easily, as it is a solution that is fast to deploy and extremely
spectrum of technical, financial, and operational data,
adaptable to each business context. The main advantage
from SCADA and facility data to documents and external
to be gained from this technology is the ability to tap
data feeds to be combined for just-in-time analysis and
hidden potential of data assets through access-in-place
decision support. This allows any user with access to the
integration and intuitive presentation.
program to monitor, report, graph, extract, and map the information the company needs to reach the next level.
iStore’s approach facilitates the speedy deployment and
This approach can be applied to many areas of a petroleum
development of business-focused decision-support tools,
firm’s activities, from operational dashboards, to drilling
including KPIs, production roll-ups, electronic well files,
operations and GIS, as well as joint-ventures and PPDM-
operations reports, and joint venture workspaces. It does
driven data management solutions. With Round One
so in six ways. With iStore’s development, companies can
and beyond, the fundamentals of providing easy access
count on an increased ROI, as it operates with minimal IT
to information from various systems and improving the
overhead. This leads to lower implementation costs while
quality of data and data management remains unchanged,
creating additional value. Enhanced decision-making
Barry Irani, istore’s CEO believes. The new challenges
is also one of the outcomes because the technology
will be working with both internal and external partners,
provides a decision-support framework, merging strategic
helping to collaborate both effectively and efficiently,
and operational decisions. By improving exploration and
and at the same time providing regulatory agencies with
production asset management, reducing cycle time, and
timely reports.
| VIEW FROM THE TOP
PROTECTING THE INDUSTRY’S INVESTMENTS ARTURO FLORES Mexico, Central America & Caribbean Sales Director of Hempel
Q: What is the role of Hempel in Mexico’s oil and gas
depths, which poses specific ultra-high pressure and ultra-
industry, and how do you plan to grow in the market?
high temperature challenges. We have also tightened
A: Our customer base extends throughout the entire
our relations with Subsea Companies that build robots,
value chain and Hempel products are available for each
flowlines Christmas trees and manifolds. One of the
industry segment. In fact, one of our main achievements
vanguard products that we have is one that offers
so far has been the securing an 85% market share in the
atmospheric protection for the parts of the infrastructure
platform coating sector. We offer added value, such as
that is not immersed in water, known as the tidal and surf
long-term anti-corrosive protection, reduced maintenance
area including the drilling equipment. This product offers
costs, ecologically responsible and versatile products, and
not only anti-corrosive protection, but also cathodic
effective communication. We have become renowned in
protection and isolating materials so that the fluid can flow
the Mexican market through our painting of the country’s
despite the very low temperature. The smallest thermal
two biggest platforms, in collaboration with the Spanish
shock could cause the pipeline to rupture. At these depths,
yard fabricator, Dragados Offshore. This capability, along
pumps also need to be included so that the crude can cool
with our established global expertise, will allow us to grow
down upon contact with water when it is drilled.
and work with international companies entering the market. Q: How is Hempel responding to the decrease in oil price, Q: What specific capabilities and skills differentiate you
and how do you plan to work with PEMEX?
from your competitors?
A: The oil price decrease has led to significant constraints
A: Hempel differentiates itself by heavy R&D investment.
in the industry, particularly for PEMEX, one of our main
We are opening new development and technology centers
clients. We work with the NOC to find the best solution
on top of the existing 11. Our latest acquisition, Jones Blair,
in terms of warranty, duration, and performance, carrying
is working on the development of fast-drying primary
out a cost analysis per year and per square foot. Paint is
epoxy-rich zinc that allows for the application of one
crucial, and only represents 5-6% of the project’s total
coat in just one day. The use of fast-drying and high-gloss
cost, a small weight in the decision-making process. This
polyurethane and polysiloxane finishing technologies
investment should last 30 years, including the pipelines.
leads to reduced waste and downtime, and to an extension
Hempel offers some middle priced coatings that have
in the asset’s lifetime. Our Hempaguard silicon technology
been tested on other projects, and would represent
for the marine sector won an award in 2014 for the best
a solid technological and economical alternative. By
technological product in the world, and it helps to avoid
contracting us, the NOC will be working with a reliable
inlay, increment speed, and reduce fuel consumption by
and trustworthy service provider, with proper capabilities
up to 8% for vessels. This translates into economic savings
in technology and technique. Rather than focusing on
and reduced emissions of CO2 into the atmosphere. In two
the price per liter, PEMEX should use a long-term, cost-
years, we have painted over 350 vessels with this coating
benefit analysis. We also provide the after service, which
at an international level. We have had a few applications of
is a key advantage that local companies cannot provide,
Hempaguard in Campeche and in the Pacific region, and
and allows PEMEX to receive global expertise, supplied
I believe this product has already started to be successful
locally.
in Mexico. Q: What offerings will allow Hempel to work with service companies in Mexico’s challenging deepwater areas? A: We are developing technologies with our alliances at a global level for equipment that can sustain extreme
Hempaguard can reduce fuel consumption by up to 8%
141
| VIEW FROM THE TOP
CHEMICAL TECHNOLOGIES ENHANCING PRODUCTIVITY REGINA OLIVEIRA Commercial Director for Oil & Gas and Mining in Latin America of Dow
142
Q: What is Mexico’s role in your portfolio of investment
the deposit and identify the type of microorganism, after
and growth, both internationally and in Latin America?
which we can suggest products for advanced sustainable
A: Dow has one of the industry’s most complete portfolios
microbial control, such as UCARCIDE™ and KATHON™,
for the oil and gas industry. The position of Mexico in
that are adapted to the well’s needs. Our product lines also
our global context is high because the country has many
include both our FILMTEC™ membranes for the sulfate
important resources when it comes to deepwater and shale
removal from injection water and our VERSENE™ products
gas. The Energy Reform also influences the importance of
for the control of incrustations through intercalations of
Mexico at Dow, as it will allow the country to improve its
different nature that are pertinent to the deposit and
production performance, opening more business areas for
its characteristics. The latter product line also offers
companies like ours. The Energy Reform will reverse the
incrustation inhibitors.
declining production and allow for the development of the country’s deepwater and shale industry in the short and
Another recently launched solution was the Embark™
medium term.
RM210 HEC Slurry, Dow's new and more sustainable rheology modifier for completion fluids. The product does
When we examine all of Latin America, Mexico is without
not harm the environment as it is biodegradable, and it has
a doubt one of the key countries where we are currently
the capacity to collapse the foam more effectively without
focusing our efforts to grow our business. Mexico also
forming lumps, thus assisting oil companies during the
plays an important role from a global perspective because
wells’ cleaning process. We believe this product will be
it holds one of the world’s largest shale reserves. The main
successful, especially since PEMEX and other companies
challenge is increasing the efficiency of production. To
are expected to increase exploration activities.
do so, it is important to use technology-based solutions, which is what Dow offers. We are hoping to place these
Q: Mexico is continuously discovering and exploiting
productivity-oriented solutions with the companies that
heavy oil deposits. What products can you offer operators
are entering Mexico as a result of Round One, which
for the extraction and processing of this challenging type
is extremely important because it defines PEMEX’s
of oil?
participation, and it opens up possibilities of increasing
A: We have solvents that are used to help dissolve paraffin
production from existing wells.
and biopanthene, depending on the type of heavy crude to be treated. Dow is strongly focused on that area and
Q: What are some of the technological advantages you
plans to introduce new products to the market soon. Our
offer in the upstream water separation area throughout
chemical technology for heavy oil is similar to the ones
the different stages of a well’s life cycle?
used for other types of crude, except they are slightly
A: In upstream crude production, we have solutions
more robust. We have some clients and operators that
that can enhance the water separation process in an
work with heavy oil and find a significant challenge in its
efficient manner. One of our most complete lines is called
transportation, for which they need thermal insulation,
DEMTROL™, which offers emulsifiers and demulsifiers for
be it onshore or offshore. In this case, our HYPERLAST™
all types of crude. It separates the crude from water and
product can fulfill this need, which is so prevalent in
produces the least amount of gas possible, thus optimizing
operations surrounding the handling of heavy oil. We have
production.
had positive experiences so far with this product in Latin America, and our aim is to transfer its success to Mexico
In addition to this leading water-separating technology,
when new projects are confirmed and their investments
we also have a complete portfolio of additional options
made. We see opportunities in offshore pipelines, where
that address this issue. Dow offers services that can map
the flow of the crude will need optimization.
| INSIGHT
REDEFINING PRODUCTION TECHNIQUES As an equipment and solutions provider, NOV focuses both on M&As, and various internal R&D initiatives for the oil and gas
RICHARD BLACKETT
industry. Currently, there are three business Segments in the
Global Account Vice President
company: NOV Rig Systems, NOV Completion & Production
for Offshore Production of
Solutions (CAPS), and NOV Wellbore Technologies. Within
National Oilwell Varco (NOV)
NOV Completion & Production Solutions the company has been actively participating in deepwater and shallow water production projects for many years. As a partner inside
each client. The company seeks to be innovative through
Mexico’s oil and gas environment for quite a few decades,
organic, as well as inorganic growth, forming strategic
NOV has established facilities throughout the country. “We
alliances with partners that are complementary to NOV’s
see a strong push toward the production market in Mexico,
business strategy. “Our research and development teams
as well as the need for drilling in areas included in the
are constantly searching for new ways to align existing
bidding round initiative,” asserts Richard Blackett, Global
products with the flow of the ever-changing oil and gas
Account Vice President for Offshore Production at NOV
industry,” Blackett shares. He explains a recent trend,
Completion & Production Solutions. NOV is eagerly awaiting
where wells are becoming deeper and more complex,
the development of the bidding rounds and the entry of the
and temperature and pressure levels are bordering what
winners for shallow water and deep-water fields.
is available using current technology. These shifts are
“We are redefining how offshore production contracts
creating demands for new technology and intelligence that can improve production levels. As a result, NOV is creating solutions that combine proven
will be written for the benefit
technologies with concepts offered across the globe. “Our
of all parties”
energy transition, specifically in shallow areas and fields that
Richard Blackett, Global Account
Vice President for Offshore Production at NOV
technology helps operators feel more confident about the need to be developed or enhanced,” says Blackett. In terms of technology, NOV offers solutions like the innovative Rig Wizard online tool that allows the customer to adapt the drilling equipment to its demands by adjusting elements such
Considering the current condition of the market, Blackett
as power, with a range of 700-3,000hp. Large, independent
finds that players are often surprised to find that investors
companies that discovered new tools after hiring NOV
are eager to invest based upon the recovery of oil prices.
as their equipment supplier are now partnering with the
“The investment community is longing to contribute
company. “Strategic alliances can save money and improve
to the oil industry, and by having well-planned shallow
production since the supplier and operator can address the
and deepwater prospects our industry will move past
needs of the field at an earlier stage,” Blackett explains.
the current downturn,” he explains. Given the elements that are required to initiate contracts, funding, and field
The NOV Completion & Production Solutions Segment is
development plans for deep and shallow water production
focusing on land, shallow water, and mature opportunities.
opportunities, a substantial amount of work is required to
“The entrance of 3D technology made the industry realize
reach first oil. However, Blackett is certain that the price per
that wells in general were only partially exploited, sometimes
barrel of oil today will not be the same as what the market
only to 10%, and an old well that was declining to the point
offers once an offshore artifact reaches the field to begin
of being shut in can be surveyed with new technology and
producing. “Having NOV as a key equipment supplier helps
operators often find new potential that was not previously
our customers attain and attract investors,” he boasts. “We
understood,” he highlights. Likewise, NOV is actively involved
are a strong company with a strong balance sheet and here
in the floating production arena. Blackett is confident that the
to help our industry thrive again.”
company’s business model defies the current, broken, and traditional system. “Simply put, we offer a different strategy
NOV distinguishes itself from its competitors by being one
that is more efficient and effective. We are redefining how
step ahead of the market, with divisions that work together
offshore production contracts will be written for the benefit
to create packaged solutions that can meet the needs of
of all parties,” he illustrates.
143
| INSIGHT
RISING DEMAND FOR ARTIFICIAL PRODUCTION SYSTEMS moment, we offer the most reliable components on the market,” the regional manager maintains. Instrumental
GABRIEL DÁVILA
to this success is the group’s R&D laboratory in Vienna,
Area Manager for Latin
in which it invests between US$17-US$23 million every
America of Hoerbiger
year in order to keep pace with the latest technological developments in the industry. The group also has a longstanding history of operations with PEMEX. Through
144
Hoerbiger Compression and Technologies is present around
its three locations across the Mexican territory, namely
the world, offering its clients cutting edge technology in
Reynosa, Villahermosa, and Mexico City, it has contributed
the fields of compression and drive technology, as well as
value to the NOC’s production. “In the first two cities, we
hydraulics. Of the four emerging areas where the company
focus entirely on exploration and production, providing
is present, Latin America generates the most business for
reciprocating compressors and gas engines, specifically
the group. Mexico, along with Brazil, Argentina, and the
with a brand called Waukesha,” Dávila explains. The group
Andean Area, are the company’s four principal pillars in
has been developing multi-year contracts in the Cinco
that region. Gabriel Dávila, Area Manager for Latin America,
Presidentes, Bellota-Jujo, and Samaria Luna fields for
believes that a major part of the company’s achievement
services for the products it has supplied to PEMEX.
can be attributed to PEMEX, as Hoerbiger has embarked on a wide array of projects with the NOC’s various divisions
The company has an extremely specific contract with PEMEX
throughout the years. “Even now, despite the NOC’s woes
in Reynosa, as well as ISHA and Tecpetrol for wellhead
and their widespread consequences for the entire industry,
compression, a technology that artificially lifts gas from the
we believe Mexico will maintain its prominent position
well. So far, it has rented 32 compressors, and Davila believes
within the Hoerbiger Group,” he posits.
that demand for this product will increase in the near future, given the rapid production decline in the majority of the wells
Dávila proudly makes it known that, “Hoerbiger has around
in Veracruz, Poza Rica, and Reynosa. “The need for artificial
15-20 brands of reciprocating compressors around the
production systems will only increase from hereon in, and
globe, 85-90% of which are directly integrated into units
in fact, we are already in touch with many of the winning
by the OEMs.” In the past decade, the group has been
companies from R1-L03 in order to offer them these types
working assiduously to develop new technologies in order
of services,” he mentions. Dávila mentions the industry’s
to maintain the inventor and pioneer image that led to its
urgent need for cost-savings, and points to the fact that,
fame in 1895, when Hanns Hoerbiger invented the steel
“Hoerbiger’s compressors allow for an extra 1.5-1.6 standard
plate valve. “We are focusing on finding new materials to
cubic feet a day more than those of its competitors, which is
increase the reliability of our products in the field. At the
a massive difference in production.”
| VIEW FROM THE TOP
INCREASED PRODUCTION WITHOUT ADDITIONAL EQUIPMENT MADE POSSIBLE CÉSAR RUIZ General Manager of Tekna Services
Q: How can Tekna Services help its partners increase
Q: How does Tekna work with heavy crudes?
production without incorporating additional equipment?
A: The difficulty in some wells with optimal conditions
A: Our approach is to initially evaluate the historical
relates to heavy and extra-heavy oil. Reservoirs with oil of
record of the well or field, which includes information
6-12° API lack enough pressure. In this cases, the solution
on operations and production. The parameters are then
involves breaking the paradigm, and one option we see
correlated to make a diagnostic on production, which
consists of taking gas from the lines or the well itself when
allows us to examine the initial conditions and determine
possible and after heating it to high temperatures and
if it is possible to reactivate the well without adding
pressurizing it, we inject it back into the well. The gas will
equipment. Sometimes it is just a matter of conditioning
not change the physical characteristics of the oil, but it will
the infrastructure already in the wellhead. These are the
make it flow easily, reducing friction and making it more
first steps in helping clients focus on optimization and
manageable. Once the oil reaches the surface, the same
improved production with minimal investments. The
technology is applied to the pipelines, and with some
collected information is also useful to model systems aimed
additional pumping, the heavy crude can be transported
at optimizing the client’s existing pieces of equipment.
to the separator or even the refineries. Other technologies
In these cases, we carry out geological studies to learn
do not use gas, using siphon-like automated mechanisms
about the well’s history. Some areas have 2,500 wells that
instead. These tools are installed in the bottom of
need to be rehabilitated, but this has to be done according
the well and allow the oil to move up, but it cannot go
to the operating conditions and the wells’ productive
back to the reservoir, so the oil accumulates, ensuring
life. Currently, operators are favoring the optimization
a constant output. This instrument reduces operation
of existing wells over the construction of new ones. It is
and maintenance costs by preventing the installation
not feasible to think about building a new well that will
of additional machinery, increasing the efficiency of
cost US$20 million without looking at ways to optimize
production. Similar technologies will not yield 60 barrels
the available resources, and a small improvement on an
as everyone would like, but they will produce an additional
existing well will yield profitable results.
10 barrels that are much appreciated in the current landscape, particularly if the production is constant.
Q: Where does secondary recovery fit in your approach to increasing production?
Q: What is the application of your microorganism-based
A: Secondary recovery comes into play when we quantify
technology?
the necessary values during a feasibility study. By running
A: This is a secondary recovery method that places
the data through specialized software, we see the reservoir’s
enzymes in the reservoirs to feed on paraffin and
development and determine if this will produce large
asphaltenes, preventing the oil from getting stuck in the
amounts of water, if it will be invaded with gas, or if the oil
pipe or the formation. As a result, production becomes
needs mechanical assistance to ensure its flow. This allows us
stable under regular conditions, artificial lifts become more
to determine if the well needs a secondary recovery method
efficient, and the flow becomes more efficient in wells
based on fluid injection or wellhead optimization. Secondary
with difficult conditions. As the microorganisms grow,
recovery has to be tailored to the well’s specific traits so that
they develop colonies that migrate where there are more
it can be done in a profitable way, since nobody will invest
nutritional resources (paraffin and asphaltene), so they
a single dollar that will not yield returns. If we understand
move adjacent reservoirs. At the moment, this approach
this and work under these market conditions, companies like
is too costly considering the industry’s situation, but it will
Tekna will be successful and over time, operators will adopt
become an important secondary recovery method soon
different business models based on efficiency. That is the
and we are already looking for wells where this technology
role of secondary recovery.
could be applied.
145
| VIEW FROM THE TOP
GAS DEHYDRATION AS TOOL FOR EFFICIENCY
Coen van Munster Manager of Petrogas for US and Latin America (CM)
Maurice van der Meer Senior Sales Engineer of Petrogas Netherlands (MM)
Dehydration Units are compact, and with a high efficiency and availability rate. We have had plenty of success stories where the use of our gas dehydration units brought about great results. For example, we have a loyal client in Oman
146
Q: What are some of the solutions Petrogas provides in
who has been using Petrogas Gas Dehydration Units for
the upstream segment?
more than 20 years and has expanded into new large
MM: In the upstream segment, we can supply Gas
fields using these same systems.
Dehydration Units. These work using glycol, which absorbs and collects moisture from the gas. The glycol absorbs
Q: How do you emphasize the value of investing in your
the water particles from the gas, thus creating wet glycol.
solutions to your clients in a low oil price environment?
We then boil the glycol to a certain temperature until it
CM: The situation is challenging at the moment, and even
becomes green glycol. In order to obtain additional purity
though a lot of low-price contractors are entering the market,
levels, we strip the glycol. The process is continuous, so we
we still focus on quality. We have had several projects where
actually have a glycol regeneration unit.
our clients went for the provider who offered the lowest price and came back to us after a year because the solution they opted for turned out to be less effective. MM: We are known for our quality and we sometimes receive requests that we have to decline because we will not be able to properly serve these clients. However, the fact that we are not a considerably large company enables us to be flexible. Q. What is your stance toward developing local talent?
The water found in gas from reservoirs can lead to problems in processing
equipment
CM: In most of the installations in which we have been involved, we have conducted training sessions with local operators. In general, we avoid bringing our own operators, since it is much easier to find the staff locally and train them properly, so that they can continue operating and maintaining the installation. Local people speak the language and know where to find any needed parts, whereas bringing people from abroad is more expensive
Failure to properly dehydrate gas creates a variety of
and does not help the local market. Wherever we go, we
consequences. The gas consumers cannot handle liquids
use local people, and even when installing abroad, we send
in the gas such as water and hydrocarbons. Therefore, it
only one or two of our site engineers and they work with
is very important that all liquids are removed from the gas
the local team, which has been a productive approach.
before it is routed to the consumers. In general, this is done at larger centralized locations where multiple gas wells
Q. In what kinds of projects would you like to be involved
meet. At the more remotes wells, small Gas Dehydration
in the Mexican energy industry?
Units are used near to the gas well. The recovered liquid
CM: We are one of the main players in the power industry, and
hydrocarbons are sent to a refinery for further processing
a lot of gas-fired power stations are being built, providing
into various hydrocarbon products.
plenty of opportunities for our company. We want to get more involved in the upstream segment, but investments in
CM: Petrogas' gas dehydration technology provides
this area are low even though the market is now open. The
plenty of additional advantages when compared to similar
cost of extracting the oil is the same as or less than the retail
products and processes in the market. The Petrogas Gas
price, which I believe will be a long-term situation.
| INSIGHT
FROM PRODUCERS TO OPERATORS Recently, Grupo Idesa, famous for its participation in Etileno XXI, entered into a joint venture with International Frontier Resources Corporation, a Canadian company Luis
JOSÉ LUIS URIEGAS
Uriegas, CEO of Grupo Idesa explains, “The group
CEO of Grupo Idesa
with
considerable
upstream
experience.
José
considers the opening of Mexico’s energy sector an extremely interesting opportunity for many companies, and particularly those that have experience locally, like
“If this venture is successful, Grupo Idesa would separate
us.” In fact, the group hopes to seize the opportunity
into two different business lines, possibly remaining
to gain experience in upstream activities, and to gain a
dependent on the same holding,” Uriegas reveals. “On
few fields in the bidding rounds, which it will develop in
the one side, we would have our petrochemical basis, and
cooperation with its new partner, upon which it will rely
on the other, we would have production of feedstocks.”
to help it understand the obstacles and challenges faced
In ten years, Grupo Idesa hopes to have grown in the
in production. “In our 60 years of experience, we have
petrochemical sector. To fuel this growth, the company
had five joint ventures, three of which are ongoing, and
has decided to issue an IPO, a plan that should start
all of these have been successful. We have dealt with a
between 2016 and 2018. Uriegas states that the group will
Brazilian partner, a German one, and a Canadian one in
only become public once Etileno XXI and the CyPlus Idesa
the past, showing we have experience in international
projects are completed. “As a capital-intensive company,
partnerships,”
when
we can no longer finance our projects through loans, as
deciding upon this joint venture, Grupo Idesa met with
Uriegas
explains.
Furthermore,
has been done in the past, and the most convenient way
International Frontier Resource Corporation and found
to receive additional capital is through an IPO,” Uriegas
that their cultures were complementary, leading to many
explains. The group has already changed its financial
synergies between both companies. “This will be an
information to become an IFRS and the CEO claims that
asset that will be invaluable when we face unavoidable
its corporate governance can be smoothly adapted to
challenges,” the CEO insists.
comply with public market requirements.
I PROJECT SPOTLIGHT: PB-LITORAL-A In January 14, 2013, McDermott announced that one of
float-over method, while the latter was used to install key
its subsidiaries was awarded a turnkey contract for the
platform components and provide additional support. It
commissioning of the PB-Litoral-A production platform
is worth pointing out that McDermott’s prides itself in its
that would be used by PEMEX E&P in the Tsimin-Xux fields
advanced float-over technology for heavy topsides, as it has
off the coast of Tabasco to produce high-quality, light oil for
proven to be a reliable and cost-effective method for topside
export. With a water depth of 85 ft, PB-Litoral-A consists of
installation. FEED and detailed engineering of the jacket and
a 13,838 ST platform, one flare tripod, and two bridges. In
topsides were carried out in Chennai, India, and Dubai, UAE.
addition to commissioning, the PB-Litoral-A project scope included the start-up of an eight-legged 1,800-tonne jacket.
The project, which had an estimated cost of US$230 million, reaffirmed the importance of McDermott’s fabrication yard
McDermott has the global resources and capabilities to
in the Altamira port in the Mexican upstream segment.
support the EPCI entailed in this project, which were further
The 4,500-tonne topsides, and 2,000 tonnes of tripods,
supported by the company’s experience designing and
bridges, and piles were manufactured in the Altamira yard.
fabricating crude oil conditioning facilities. The company
McDermott also worked on bridge and piping tie-in, as well
carried out the front-end engineering design (FEED) with a
as brownfield work on the CA-Litoral-A HP compression
float-over solution to install a 7,707-tonne production deck.
platform. The project engaged more than 550 craft
In order to complete the project, McDermott was not shy
personnel. This was the first project McDermott carried out
in employing its Intermac 600 and Derrick Barge 50 heavy-
for PEMEX, and the EPCI company also provided training to
duty vessels. The fist was used to install topsides with the
its client’s personnel for operations and maintenance.
147
SHALLOW WATER
6
Shallow water has long been the main focus of PEMEX’s upstream activities. Production costs amounting to less than US$10/b ensure the continued competitiveness of PEMEX’s shallow water production activities, while the fact that shallow water fields account for more than 50% of the country’s probable reserves provides the Bay of Campeche with an extended production pipeline. PEMEX is currently focusing on its most productive assets, which means shallow water fields like Ku-Maloob-Zaap, Abkatun-Pol-Chuc, Tsimin-Xux, and even the declining Cantarell, will continue to be at the core of the NOC’s activities. Two phases of Round One, L01 and L02, tendered shallow water blocks, and the Ministry of Energy has announced that the first PEMEX farm-outs will involve mature fields in shallow waters. In spite of its continued competitiveness, shallow water exploration and production needs a fresh approach in order to maintain overall production levels, increase output in mature fields, and manage the challenging heavy oil fields.
This chapter will focus on the role shallow water activities play in helping Mexico reach its production targets. We will look at the way operators and service companies of all types seize business opportunities and overcome challenges in Mexico’s most popular upstream segment.
149
151
| CHAPTER 6: SHALLOW WATER & HEAVY OIL 152
VIEW FROM THE TOP: Ulises Neri, CNH
154
VIEW FROM THE TOP: Matt McCarroll, Fieldwood Energy
156
VIEW FROM THE TOP: Jesús Patiño, Oceaneering International
158
INSIGHT: Ernesto Iniesta, FMC Technologies
159
INSIGHT: Erika Pino, Venus Offshore
160
INSIGHT: Ana Chávez, CHM Maritime
161
INSIGHT: Rudolf Hess, R.H. Shipping
162
TECHNOLOGY SPOTLIGHT: TLQs, HB Rentals
163
VIEW FROM THE TOP: Roberto Maury, Marítima Internacional
164
VIEW FROM THE TOP: Florence Kosmala, InterMoor
165
VIEW FROM THE TOP: Sergio Arroyo, OOS Mexico
167
INSIGHT: Juan Pablo Vega, Naviera Integral
| VIEW FROM THE TOP
NEW MEASUREMENTS FOR A RESTRUCTURED MARKET A: Our involvement in the commercializing of production from production-sharing agreements comes from the
ULISES NERI
fact that there is a government share, so we oversee this
Chief for the Extraction
aspect on behalf of the government. The percentage of oil
Technical Unit of CNH
production the government obtains is mostly sold through PMI. The elements pertaining to commercialization are defined according to the contracts, and there are also
152
Q: What are the duties of CNH’s Technical Extraction
tenders where specialized companies can bid for the right
Unit?
to commercialize. The law states that a company only
A: The Unit’s mission is to maximize the recovery factor
needs a contract in order to commercialize oil. However,
and economic value of hydrocarbon reservoirs by
CNH wants more details in order to have a better idea and
implementing regulations and overviewing compliance,
precise statistical information about every oil transaction
as well as addressing internal and external technical
in the country.
requirements based on the production value chain. In this sense, our main task is to provide technical assistance
Q: How advanced are you in working with PEMEX to make
to issue regulations related to the five areas of reserves,
sure that all relevant information is available for CNH?
development
and
A: As stated in the secondary legislation, CNH has access
commercialization. Likewise, our tasks include supervising
plans,
measurement,
gas
flaring,
to all the information from PEMEX on production and
the enforcement of the regulations. The Unit also follows
reserves. However, most of the information we have comes
up on PEMEX assignations and contracts from R1-L02 and
in the old format, which structured the information using
R1-L03, as the first phase is currently in the exploration
each field as the basis. The new model groups the data
stage.
according to assignations, with the main difference being that an assignation can include several fields. We are just
Q: What is the Unit’s relationship with the companies that
starting to receive data on assignations.
won contracts in the second and third phases of Round One?
In the previous model, PEMEX organized the information
A: Regarding operators from R1-L02, we are only analyzing
by asset, which could include several fields, regional
specific elements of their extraction plans, including
administrations, and even different datasets. Now, the
the reserves associated with these blocks. According to
NOC is in the process of defining the limits of each field,
each contract, operators have a certain period to submit
block, and the number of wells in each area, in addition to
a development plan after signing the contract, so we are
distributing this information. Moreover, the company has
waiting to verify the information in the aforementioned
included data on oil and gas production, sulphur contents,
plans and their compliance with the extraction regulation.
API gravity, and the different components in gas because
Conversely, we have a lot of interaction with the operators
these variables are directly linked to the fiscal terms
from R1-L03 because the first stipulation of the contracts
that the Ministry of Finance establishes. Taking this into
is related to the provisional plan. This plan helps operators
consideration, CNH is working with PEMEX, the Ministry of
maintain their production and adds certain requirements
Finance, and the Ministry of Energy to define the variables
with regards to a few key elements, such as well
that are needed to define the fiscal terms and compare
maintenance, workovers, and valves. It describes how a
these to the previous requirements, which only involved
company will act once it takes over a field, not how it plans
the field and type of hydrocarbons.
to develop the field over time, which is more complex. The development plan has the objective of maximizing the
Q: How is the process of reaching agreements on reserves
recovery factor using technical strategies. It will ultimately
between CNH and PEMEX advancing?
indicate what opportunities exist for suppliers and service
A: The new regulation on reserves is like the previous
providers that are working for the companies, according
one, but the main difference is that in the previous
to the regulation.
regulation, reserves were estimated according to the asset’s productive life, while the new one calculates
Q: What is CNH’s responsibility in the commercialization
reserves according to what can be produced in the
of oil production?
duration of the assignation. This is how it is done in other
153
countries, and the challenge for the NOC is to develop the
A: We will need expertise that complements the
resources in a determined period. We are in the process of
capabilities of our current team, which is why CNH is
communicating the benefits of this model to PEMEX, as it
considering consultancy services. We have a wide range
will be able to define the elements it needs to develop its
of consultancy companies to choose from, and we are
reserves in advance, prioritizing the most profitable fields.
identifying the agencies that have sufficient international experience. We are also looking at companies individually
Q: How have the PEMEX pipelines and metering points
because we need to ensure that their staff is prepared to
been organized in the past year to prepare the network
manage certain tasks.
to receive production from new operators? A: CNH worked with PEMEX and CRE to define the number
Ideally, every type of project will be supported by external
of metering points and fiscal points in the network. It was
consultants, but time may limit this type of flexibility. More
important to work with CRE because it has been hard
energy and resources are going to be allocated towards
to identify the limits of certain activities and the areas
companies that win bigger blocks in comparison to those
that are to be regulated by this entity or by CNH. We
that have recently won onshore projects that do not have
established 48 fiscal points or sales points, and correlated
as many details to evaluate. Another element behind
more than 200 operational points. In addition, we have
this reasoning is the amount of liability that each field
been working with CRE to determine which pipelines and
may represent, as it is not the same to have operations
facilities will be used by PEMEX and which will be used by
in deepwater or unconventional blocks. Value is also an
other operators. Let us keep in mind that PEMEX created
important piece of the puzzle, since this will vary depending
a logistics subsidiary, so we have discussed the assets
on the amount of risk involved, as in the case of deepwater
that will be used by PEMEX E&P and PEMEX Logistics.
projects where risk matches the potential value.
Another task consisted of working with CRE, PEMEX Logistics, and new operators that have signed contracts
Q: How are you working to address the new operators’
to identify the infrastructure they need and set tariffs for
main concerns?
the use of transportation infrastructure. It is necessary to
A: For the most part, operators are interested in learning
clear the big picture so that operators can get an idea of
more about our regulations. With this in mind, we are
what the new landscape will be like. It was decided that
launching a series of workshops for PEMEX, other
the infrastructure located before the fiscal metering point
operators, and services companies in order to explain
belonged to PEMEX E&P and will be monitored by CNH,
how to implement and observe the regulations. While the
while everything beyond that is part of PEMEX Logistics
information is evidently important for operators, including
and will be supervised by CRE. Other operators will be
PEMEX, services companies will be invited to learn about
able to use it under certain terms.
the procedures needed to sell their services. In addition, CNH can hold hearings with operators in order to address
Q: How is CNH going to select external assistance in new
questions on issues that concern both sides, as stated in
areas such as deepwater and shale resources?
the normativity.
| VIEW FROM THE TOP
US EXPERIENCE INVALUABLE FOR MEXICAN OFFSHORE Nevertheless, every year over the last three years, we have increased reserves and production in fields throughout
MATT MCCARROLL
the last leg. We are always finding new ways to make
President & CEO of Fieldwood
use of our older infrastructure. For example, we have tied
Energy
back many new discoveries to older platforms, which significantly reduces the amount of new capital required. Due to the commodity price environment, we are not
154
Q: What are the particular traits of Fieldwood Energy that
drilling many new wells in the US, but while we wait for
have led to the success of Fieldwood Energy?
the right opportunity, we have identified many new drilling
A: Fieldwood Energy is the largest operator in the shallow
targets in some of our existing fields. Particularly, we see
waters of the Gulf of Mexico. Our goal is not to be only
great opportunities in undrained fault blocks and salt
the largest but also the best company in this sector. The
domes, and once the oil and gas prices recover we will be
company’s staff is largely composed of former Apache or
ready to develop these new opportunities.
Dynamic Offshore employees who have spent a large part of their careers working in the Gulf of Mexico. The employee
Q: How do you manage to acquire more assets and
base has grown significantly, both organically and through
maintain your productivity in the current environment?
acquisitions, increasing from three employees three years
A: We have the fortune to possess assets that have a great
ago to the current 750. We have operations in over 500
deal of proven reserves, so we have been able to maintain
leases in the Gulf of Mexico, and employ approximately
production simply by accelerating our recompletion
2,500-3,000 every day through our partnerships with
program in existing wells. Most of our fields have more
vendors and contractors. In our view, the operational
than five or ten years of proven reservoirs, and 40% of
opportunities in Mexico are similar to those of the US side
our proven reserves are identified in existing wells. When
of the Gulf. We are confident that we can apply our drilling,
a well in an existing field is depleted, we can move up hole
completion, production, and infrastructure expertise in the
and perforate or recomplete a new zone. Until we see a
US to the shallow waters of Mexico.
recovery in commodity prices, we plan to follow that strategy to maintain our production levels for the next
Q: What would be your flagship project when entering
couple of years.
new markets like Mexico? A: In the US, most of our projects are mature fields that have
Q: What is your perspective on the process and schemes
been in operation for several years. In the past five years, we
used by the Mexican government for the bidding rounds?
have made a few new discoveries, but I would say that at
A: We were first attracted to the Mexican market by the
least 80% of the productive fields we have today are fairly
opportunity to develop offshore assets that have not
mature. In the past couple of years, we have drilled new
had a great deal of capital allocated to them. PEMEX
wells in the existing fields, but for the near future, we plan
is an extremely successful company with a number
to focus on the two Area Four fields that were awarded to
of qualified staff, but we and other US operators feel
us in the bid round, which were discovered by PEMEX in the
that we have been able to implement much more
last ten years but were never developed. These fields are
efficient processes in the US. Therefore, we saw a
located at a depth of 100-150ft, so they are operationally
major opportunity to apply our expertise in the shallow
similar to those in which we work in the US. Over the next
waters off the Mexican coast. The contract for the
couple of months, we will be finalizing an appraisal plan that
Mexico properties is complicated and unlike anything
will outline our plans to drill two or three wells. Once those
we are accustomed to the US. For example, under our
wells are successfully drilled and tested, we will commence
contract for Area Four we will spend all of the money
an aggressive drilling and development program over the
upfront, recover the costs after first production, and the
next three to five years, depending on the fields’ potential.
government will receive a 74% profit share thereafter. In the US, we only provide a bonus amount upfront and
Q: What has been your experience with mature field
a fixed royalty share. Although it will take some time
development in the US?
to resolve the nuances and provisions, we are excited
A: For the last 25 years, people have believed that shallow
to partner with the Mexican government to make this a
waters in the Gulf of Mexico are running out of reserves.
successful endeavor for all parties involved.
Q: What are the opportunities that you see in Mexican shallow waters that are not available in the US? A: One of the most attractive characteristics of the Mexican shallow water fields is the cost structure. Offshore fields have a high degree of fixed operating costs. In other words, it costs relatively the same amount to operate a platform producing 100b/d as one that is producing 1,000. An average Mexican well can produce up to 1,500b/d, which provides ample revenue to cover the fixed platform costs. Considering this landscape, our goal is to operate as much production as possible from as few platforms as possible. Furthermore, we expect to share some of the existing infrastructure with PEMEX, so we do not have to duplicate pipelines and facilities. The handling and disposal of the produced water is a challenging aspect of offshore oil and gas activity, but we have effective processes in place in the US to do so in an efficient manner. To our knowledge, these services are not currently available in Mexico and we feel that this is a great opportunity to introduce a more efficient process to protect the environment. Q: How has your experience with CNH and PEMEX been in terms of transparency and information sharing?
C
M
A: Our primary contact for information has been CNH,
which provided us with the initial data for our bid analysisY and we have worked directly with the agency to gainCM access to additional information. This is a new venture soMY there have been certain trials and tribulations but I feel likeCY we have solid working relationship so far. Our discussionsCMY with PEMEX have been limited as it is focused on its ownK operations. However, we see a great deal of potential to develop joint operations with the NOC as it has a number of oil fields located near ours. Although we have been extremely happy with the support that we have received from the Mexican agencies, I think all of the processes could be accelerated slightly since we did not sign the contract until about three months after the bid round. We would like more shallow water blocks to be introduced sooner to accelerate the PEMEX farm-out project opportunities, and clarity in this regard will increase activity in shallow waters. Q: What kind of reservoirs are you interested in acquiring through PEMEX farm-outs? A: Our specialty is to take mature fields, recapitalize them and increase their lifespan. We think we can apply many of our production processes to their fields in order to increase profitability. Additionally, the new seismic technology developed over the last 20 years has allowed us to fine tune our analysis and increase the amount of recoverable reserves from reservoirs. Applying our knowledge to older, existing PEMEX fields could offer a great deal of advantages. We have already identified some fields that we are interested in but we need to wait and see how the process and terms develop.
155
| VIEW FROM THE TOP
ESSENTIAL TECHNOLOGIES FOR MEXICAN SUBSEA DEVELOPMENT JESUS PATIÑO Manager of Strategy Development at Oceaneering International
156
Q: How do you see th potential in Mexicio for subsea field
controlled vessels from which an ROV or an AUV can be
production changing?
deployed. One of the main problems with subsea vehicles
A: Lakach represents Mexico’s first significant subsea field
is the impedance of the water. It is hard to send a signal to
development. We are familiar with the project and its
a vehicle through water, so without a cable that connects
challenges. The field should be producing in 2017, but we
the control with the system, it is difficult to exert control
do not expect other deepwater fields to start producing
over that system. Today, when sending an AUV to collect a
soon. We should see some drilling activity in the shallow
pipeline survey, the mission has to be preprogrammed and
water blocks awarded during R1-L02, and this prospect
the vehicle “flies” far from the seafloor in order to avoid
has already motivated companies to enquire after our
collisions. If the AUV is intelligent enough to change its
products and services. The sector, however, will receive a
trajectory and avoid those collisions independently, then
significant boost as a result of R1-L04, which will tender
it is possible to “fly” closer to the pipeline, enabling more
deepwater blocks. I expect the investment to be truly felt
precise measurements. These issues will be solved, and we
in 2018.
believe that along the way, systems such as resident ROVs will emerge onto the technology roadmap, meaning that
Q: How can your ROV and automated underwater vehicles
the intervention of vehicles will become part of the subsea
(AUV) technologies be used for the development of fields
infrastructure.
like Lakach, and how far could these technologies go when it comes to the completion of such projects?
Q: What was the initial intention behind the acquisition
A: Our vehicles and technologies are used to support
of C&C Technology? To what degree was it buying an
development activities in offshore fields. We understand,
extensive client knowledge base of the Mexican market?
however, that our customers need solutions, not only
A: Despite the fact that the presence of C&C, now known
equipment. An ROV is an asset that enables the delivery
as Oceaneering® Survey Services, was not the main driver
of those solutions subsea. Looking at the breakdown of
of the transaction, we made the decision to acquire this
capital expenditure associated with field development, 30-
company because the survey business is a clear offshoot of
40% is spent in the drilling phase, a huge upfront cost to
Oceaneering’s main business. We operate across a variety
which we have exposure through ROV and tooling services.
of niches, from drilling vessels and multi service vessels
Without taking Brazil into account, our market share in the
(MSVs) to support drilling and IMR activities. The idea was
deepwater drilling segment is about 65%, although we do
to establish a survey company in each of our markets. On
not drill, instead enabling certain operations associated
top of that, Oceaneering Survey Services is a leader in the
with this activity. We also provide Inspection, Maintenance,
AUV segment, which is the next frontier when it comes to
and Repair (IMR) services to the installed base subsea,
subsea robotics. Oceaneering Survey Services’ operation
and we manufacture umbilicals, valves, and connection
also provided us with a complement to our company in
hardware that is deployed in fields throughout the world.
Mexico, especially given the changes underway. Our team
We do not develop fields, instead supporting operators
has a solid presence and strong brand recognition. Having
by providing solutions to specific challenges ranging from
access to Oceaneering’s ROV capabilities gives clients
installation to pipeline remediation and incident response.
leverage to further develop business opportunities in the Mexican market.
Q: How is your R&D investment structured so as to reflect the expected demand in AUVs?
Q: ROV procurement and contracting are relatively
A: We are investing and developing technologies for AUVs.
expensive, particularly in the current low oil price
We also have a stake in a company called ASV, which
environment. How can the advantages of such a
makes automated surface vehicles. These are remote
technology be made attractive right now?
A: This current environment has led companies to focus
(COP) of our customers’ operations. We offer the whole
on cost efficiency. It is easy to simply ask suppliers to
solution, from installing the communication antennas,
lower their prices, but there is only a certain amount of
all the way down to corrosion reports and maintenance
the profit margin that can be sacrificed, which is why it
programs.
is important to innovate and change the cost structure of field developments. In order to survive in a US$40
Q: What would you like to see in the Mexican market that
per barrel environment, companies have to innovate and
will facilitate the offering of your services?
change their appetite for risk.
A: The right elements are in place for positive developments in the sector. A common concern for everyone is the rule of
We believe that deepwater will be a critical component
law, and the ability of the different institutions to function
of the future energy mix. The deepwater prospective
the way they should. Compliance and safety are top
resources in Mexico are extremely attractive and we are
priorities, and therefore corruption is a big concern. Other
confident that drilling activity will be strong in the near
than that, in Mexico a great deal of competitive talent and
future. We have the capacity available to operate in this
solid infrastructure can be found. Mexico is extremely well
market, and we will encounter no difficulties in responding
positioned to attract investment in the oil and gas sector,
quickly and delivering our value proposition to the country.
and we are confident that when prices recover, we will see an increased degree of activity.
Additionally, our experience with PEMEX has been positive. Contracting with NOCs is in general more
Q: What would you like IOCs entering Mexico to know
challenging, not because of the companies themselves
about the services you can offer to them?
or their people, but mainly because the restrictive nature
A: The major IOCs know us well and we are going to
of their processes. The new legal framework and the fact
operate with the same standards as we do elsewhere.
that PEMEX is no longer the sole industry player changes
Oceaneering will be in it for the long run and we plan
the whole conversation. As suppliers are now trying to
on being relatively active. We have been present in the
position themselves strategically in anticipation of an
country long enough to understand the challenges and
upcycle in the coming years, Oceaneering will be looking
also the prospects, and we will be ready to respond when
to work with new entrants to the market as well.
the right opportunities come along.
Q: How much do you expect the inspection segment for existing subsea assets to grow? A: Most of the subsea pipelines in Mexico are buried or entrenched so there is not much for us to inspect on the seafloor without resorting to internal inspections or dredging to expose the pipelines. There are, however, many
opportunities
in
platform
inspection.
After
AbkatĂşn Alfa, it became clear that the existing integrity management systems can be improved, and this problem is not exclusive to Mexico. We are in the asset integrity management business because we understand that the offshore infrastructure is not only growing, it is also getting older. Our added value is being able to predict when things are going to fail, to avoid those failures, and maintain the quality of the assets beyond their design life. Our inspection and monitoring services and our technologies stand out from our competition in a number of ways. For example, through our Global Data Solutions business, we have the ability to consolidate integrity and asset tracking information to generate a Common Operating Picture
Oceaneering is connecting what is needed with what is next as the subsea connection specialist for global offshore operators seeking applied engineering expertise in dynamic and unconventional environments.
157
| INSIGHT
OPPORTUNITIES IN SHALLOW WATER EFFICIENCY generated by the farm-outs. However, sustaining 2.1-2.2
ERNESTO INIESTA
million b/d requires a lot of effort in work-over or enhanced
Commercial Director of FMC
oil production. Additionally, PEMEX’s need to reach the
Technologies Subsea Systems
necessary efficiency to develop its fields, which require
Latin America
equipment and technology, is where Iniesta sees a sizeable opportunity for FMC Technologies and the entire industry. “We estimate that PEMEX will contribute with 30% of
158
In spite of the plethora of challenges in the oil and gas
the industry’s growth over the next few years, because
arena at the moment, many companies still consider
production from the blocks awarded in Round One will not
participation in Mexico’s industry interesting. One of
start until 2017,” Iniesta predicts. “The remaining 70% will
these companies is FMC Technologies, which also sees
be brought in by efficiency improvements outside of the
opportunities in the global industry, and Ernesto Iniesta, the
traditional business.”
company’s Commercial Director, believes that companies will be excited to obtain a portion of the Perdido area
Given the conditions in which PEMEX finds itself, Iniesta
due to its production potential, although he concedes
believes PEMEX’s new Director General is taking the
that these projects will not occur for at least five to ten
company in the right direction. “One of the best decisions
years. “The IOCs are only interested in deepwater fields.
he has taken is to stop all non-profitable activities, because
When examining the results of the first three tenders of
this is the only way for PEMEX to become competitive in
Round One, the absence of most of the majors is evident,”
the open market,” he adds.
he points out. “That is perfect, because we understand that they are seeking deepwater and ultra-deepwater
Going forward, FMC Technologies has some ideas on how
opportunities and we are aligned with their thinking.”
to improve efficiency to develop some fields, especially in shallow water. “When it comes to solutions to improve
time advantage of approximately one year, and cost savings of up to 40%
We can offer a
shallow water efficiency, in terms of traditional fixed production platforms with subsea solutions, we offer a production cost that is 30-40% lower than current competition,” Iniesta boasts. Instead of building more platforms, the company connects a subsea solution and pipeline to an existing platform, and in this vein, Iniesta indicates that a reduction in its number of platforms and an increase in subsea infrastructure would be a promising strategy for PEMEX. “The arguments we plan on using to convince the NOC of the viability of our plan are early production, competitive traditional platforms, and lower costs, with a time advantage of approximately one year,
The company already has other business in Mexico, with a
and cost savings of up to 40%,” Iniesta explains.
new unit called surface integrated systems that regroups surface completion, fracking systems, and all other
In Iniesta’s opinion, when considering the capital the NOC
requirements for reaching optimal production. Although
will have to pay in the following 15 years and the size of
Iniesta admits that the company will be impacted by the
the investment ahead of it, combined with the financial
low oil prices, FMC Technologies is preparing to adapt to
support it will receive from partnering companies, PEMEX’s
the current climate and he pinpoints PEMEX as a client that
production should begin to increase in the second half of
could particularly benefit from the company’s technologies.
2017 or in early 2018. The supply chain should be turning
“We believe that we can continue working with PEMEX in
around beforehand, or else PEMEX’s production cannot
some manner, and would like to work on farm-outs with
increase. “Reducing investment related to the opportunities
other companies, supporting them,” he explains.
is necessary in order to increase production, and we will adapt to whatever is needed for this year,” Iniesta outlines.
Iniesta believes that, according to the last news on
“Next year will be about maintaining that, and in 2018, the
PEMEX, the NOC will rely a great deal on financial support
industry will begin its recovery.”
| INSIGHT
FLEXIBLE CONTAINERS FOR A CHALLENGING MARKET Being a young company with a knack for innovation, the primary motivation of Venus Offshore was the growing demand for transportation for offshore equipment. This
ERIKA PINO
was followed by the need for the structures required to
General Manager of
protect the materials, machines, and equipment during
Venus Offshore
transit. At this point, Erika Pino, General Manager of Venus Offshore, explains that the decision was made to create installations within containers, equipped with meeting
a traditional building would involve much more materials,
rooms, laboratories, offices, and dining areas, and any
consultation, and paperwork. “One company requested a
other features required by a client. Last year, the company
building consisting of four asymmetric vertically-stacked
grew by 80%, and this year it plans to triple that growth,
containers, with stairs linking the four floors, and each
fueled by its recent expansion to Tampico, and operations
one was designed for a different production segment. We
scheduled to start in Dos Bocas, Tabasco. “These are
installed facilities like sliding doors and a roof garden, but
strategic locations as they serve as the main ports in terms
we can also design simple containers if the client requires,”
of activity in Mexico, and the containers serve an essential
Pino discloses.
need for those working offshore,” Pino claims. Venus Offshore is investing in personnel and more offices in order
Despite this year’s environment of uncertainty, Pino
to be close to the client base. After the current Tampico and
shares that the company has seen a growing demand,
Dos Bocas expansions, it is looking to establish operations
mainly due to the increase of foreign companies entering
in Oaxaca and Baja California, and then it wants to begin
the market in the Yucatan. “The first thing we are doing
exporting the containers.
is preparing data based on the participants in the round, and we are arranging to visit them directly before they
Venus Offshore’s integral service means that all the
arrive in Mexico,” she asserts. “At the moment, most of
components linked to the container such as logistics
the companies have operations in Houston, and we would
assessments, electric installation, and transport services
like to establish links with these companies in anticipation
are included in the price. If the client requires maintenance
of their market entry.” Pino shares that Venus Offshore
for the container, the company provides it, at a much lower
has overcome the odds and managed to close around
cost than other suppliers. At the moment, according to Pino,
40-60% of the contracts. Given the stale prices in the
customers tend to rent the containers due to the current
market where Venus Offshore operates, Pino strives to
hostile environment and the expense of the containers at
offer a competitive pricing scale in addition to high quality
up to US$40,000. She highlights the savings clients can
customer services, for which the company’s logistics team
obtain from Venus Offshore products, as construction of
is in constant contact with the customer.
159
I INSIGHT
ANTICIPATING CUSTOMER NEEDS FOSTERS INNOVATION
ANA CHÁVEZ
adds that the situation has impacted CHM Maritime in the
General Manager of CHM
past two years. “We were only able to complete 50% of the
Maritime
projects intended for 2015. In order to adapt to this new situation, we have reviewed our prices and offered more tailored options to our customers in order to help them
160
In order to serve the increasing demand of the Mexican
obtain contracts with PEMEX.” Despite the industry turmoil,
market, Cashman Equipment, a Boston-based company
CHM Maritime is maintaining a positive outlook. At the
specialized in leasing vessels and maritime services, created
moment, the company has eight tugboats in Mexico and
CHM Maritime. Cashman manages a global fleet with bases
four barges, with an extra one to be added next year. The
in Africa, South-East Asia, Australia, the Caspian Sea,
company is currently working in structure transportation
and Kazakhstan, moving vessels according to the needs
projects, mainly with McDermott and CIPM.
identified its affiliates, such as CHM Maritime. Their role is also to anticipate long-term demand, and inform us on the
Adjusting its business model is one of the ways CHM
usage of tugboats and barges. Back in 2014, CHM Maritime
Maritime will survive the industry’s financial crisis, but
introduced new vessels to Mexico, a decision based on
innovation is at the core of its success. “In our business,
the industry’s evolution. Ana Chávez, General Manager
when there is a lack of cutting edge innovation, a company
of CHM Maritime, says this was a timely move due to the
risks being left behind, so it is our goal to continue
competition the company will now face. However, she is
innovating in the maritime industry,” states Chávez.
not worried about more players in the market because,
Cashman launched a mobile app aimed at helping clients
unlike its international competitors, CHM Maritime has
gain more operational control.
deep knowledge of the Mexican market and knows how to operate a Mexican company, two intangible assets that take
The mobile app is linked to Cashman’s website, which
time and effort to develop, according to Chávez.
holds all the documentation on the company’s vessels, be it barges, tugboats, or cranes. Chávez says this is particularly
One of CHM Maritime’s main advantages is that its vessels
useful for barges, which are operated without any people
are registered in Mexico, which enables the company to
and consequently do not hold any sort of documentation.
offer services at lower prices. In the midst of increasing
The information is available to anyone who registers. “This
competition, the company will continue working with
is an excellent marketing tool for us, as we are able to
familiar clients and partners, a strategy that has proven
gauge who has an interest in our fleet,” says Daniel Schwall,
successful in other countries where CHM Maritime operates.
Senior Vice President of Cashman. “The information that we
“Some of the companies we will continue working with
provide the industry is not just about our vessels, but also
include names such as McDermott, CIPM, and Dragados
about other players in the global market as well. Engineers
Offshore, but we are also considering smaller companies
and naval architects around the world go to our website to
that are venturing into larger projects,” says Chávez. “If, at
get information that they can use to create generic models
any point during the development of these projects, they
for their vessels.” In his view, the app eases the burden of
need the type of vessels we offer, we are confident they will
accessing information for customers, allowing them quicker
turn to us. We are also looking for other areas outside of
operational control. Although Chávez believes the Mexican
Round One where our vessels could be of use.”
market is ready for this app, some details still have to be adapted to this country. For instance, the majority of the
It is worth mentioning that CHM Maritime was not exempt
content is in English, the most commonly used language in
from the industry’s downturn. “A lot of our work across
the maritime industry. Nonetheless, the app, which is only
the globe is done with EPC contactors that work with the
available for iPhones so far, contains a significant amount
major oil companies. Any negative impact in the offshore
of information in Spanish. For Chávez, CHM Maritime has
oil industry is directly passed on to us. Today, in Mexico, our
to be more innovative, commercially aggressive, and most
clients have several projects with PEMEX, which is suffering
importantly, it has to beat the competition when it comes to
from the drop in oil prices, and this makes it difficult to
anticipating its clients’ expectations in order to overcome in
conduct any strategic planning,” comments Chávez. She
a difficult yet promising environment.
| INSIGHT
TURNING THE DOWNTURN INTO BUSINESS OPPORTUNITIES The slump in oil prices is making players think twice before entering a tender, a trend that is reinforced by the fact that people still do not know the legal and commercial
RUDOLF HESS
particularities to work with PEMEX. However, Rudolf Hess,
President and CEO
President and CEO of R.H. Shipping, believes this is just the
of R.H. Shipping
right time to enter the market because new entrants can get cheaper oil rigs and secure an advantageous position by the time the oil price goes up again. He also points out
The most significant project R.H. Shipping has been involved
that the uncertainty has generated business opportunities
in recently involved a contract with a company form India to
for consultancy services, so the current environment can
move pipes that will be used in IEnova’s Ojinaga-El Encino
be capitalized upon.
pipeline in Chihuahua. “We chased this project for a year and a half and were fortunate to secure it. We had to use
As for the transportation industry, Hess is confident that
four ships to move 10,000 tonnes and 40,000m3 of pipes
rigs and jack-ups will be moved to Mexico soon, as his
each, the equivalent of a 110km-long pipeline. The project
company has already secured four contracts for this
went perfectly and is helping us get new business. Now we
activity and is negotiating a fifth. “With the opening of
have a presentation card we can show to new entrants, as
private investment in the Mexican oil and gas industry,
we have demonstrated that R.H. Shipping can deal with any
more cargo will be moving into the country. We are
contingencies that may arise when working on a project of
ready to transport their rigs, spare parts, and to handle
this magnitude,” asserts Hess.
offshore logistics,” he boasts. Hess points out that the advantage of R.H. Shipping is that it can cater to any
Even though R.H. Shipping has had to adapt to the current
client, as it can charter a full ship or move modular oil
market conditions, the company still has competitive
rigs, semisubmersibles, and jack-ups. In the case of
advantages due to the scarcity of certain service
spare parts, which are always needed, the transportation
providers. Hess says few logistics companies specialize
company can move these in cargo containers, while
in over-dimensional projects, and there is a lack of freight
urgent cargo can be deployed by air. In this sense, R.H.
forwarders that specialize in projects on a global basis in
Shipping is a one-stop-shop that can also advise clients
a multi-modal way, like R.H. Shipping does. In addition to
on insurance, customs clearance, and all services related
covering every aspect in project, the company can offer
to the logistics industry.
competitive prices because of its network of worldwide transportation providers. “A trait I see in my company as
In 2015, R.H. Shipping managed to grow by 20% in spite
an additional advantage is the fact that we do not own
of the oil and gas industry’s downturn. “Containers
any assets. Our only asset is our people. If we owned
from Asia usually comprise 55% of our revenues, and
ships, we would have faced financial challenges by now,
freight rates in this segment have dropped dramatically,
because the ship charter market is lower than what we
ultimately impacting profit margins. Fortunately, we
would have to pay to the bank to finance ships,” Hess
were able to increase volume and a small percentage
admits.
of our gross profits,” shares Hess. The most profitable segments for R.H. Shipping, however, was the oil and gas
In his view, the most innovative aspect in his company
industry, domestic and international trucking, airfreight,
are the experts working there. When Hess started the
and ocean export. At the end of 2015, the company
company, he brought specialists from Germany, but now
moved two oil rigs, heavy boilers, and oil rig equipment
R.H. Shipping trains its employees until they become
for different companies. “We have been able to secure
experts. “I used to be the only person in my company
business that we had not been able to fix in previous
negotiating charter contracts, but now I have people I
years. Judging by the way things look, we are going to
can delegate these activities to, and the results are
have plenty of work during 2016 and the years to come,”
astonishing. People in the company are attracting new
Hess comments.
business constantly.” Now R.H. Shipping has 111 people in seven offices in Mexico, and ten in Houston. Additionally,
R.H. Shipping transported 10,000 tonnes and 40,000m3 of
the company has ten offices in China, one in Germany,
pipes, the equivalent of a 110km-long pipeline
and a global network of agents.
161
| TECHNOLOGY SPOTLIGHT: THE COMFORT IN OFFSHORE ACTIVITIES Offshore life is tough. Employees working on oil platforms
Fiberglass Stackable Modules, offer safe working, sleeping,
have to leave their families and homes to spend two to
dining, and general purpose spaces that can be installed
four weeks in facilities located in the middle of the sea. In
both in offshore and onshore settings. The steel version
addition to the demanding platform work, workers have to
is primarily intended to be used on fixed platforms and
get used to the weather, the movement of the waves, and
inland barges, while the fiberglass version is suitable for
the isolated location. To make the experience easier for
non-classed safe area use where regulatory restrictions do
their staff, oil and gas firms look for comfortable facilities
not apply or have a limited footprint.
with catering services for their offshore employees. In this regard, HB Rentals, a US company established in 1976,
HB Rentals is experienced in Mexican offshore and onshore
offers these sought-after onsite accommodations and
fields. One of the most meaningful offshore projects has
operating essentials.
been the temporary living quarters (TLQ) accommodation program developed for Far Sentinel, a 15,000 gross ton
HB
Rentals
boasts
a
broad
portfolio
of
offshore
subsea station owned and managed by Farstad Shipping.
solutions, which includes diverse accommodation fleets,
The accommodation program consisted of facilities for 84
workspaces, and offshore services modules. The latter are
people on board, each one formed by seven A60-ABS/
divided into four designs according to the characteristics
USCG twelve-man sleeper modules and one change room
required by different segments in the oil and gas industry.
module. The TLQ supplied by HB Rentals complemented
The ABS/USGC A60 product line is designed with needs
the 130 people-on-board permanent facilities already
of offshore crews in mind, such as sleeping and dining
located in the Far Sentinel. This ambitious project was
facilities. All the products included in this line comply
particularly challenging because of the short timeframe
with various international regulatory standards, including
that Farstad had to select and install the entire complex
ABS, USGC, DNV, SOLAS, and IMO. The DNV A60 line is
and relocate it in Mexican waters. Nonetheless, the facility
also popular, and it offers various solutions for offshore
was completed in time, and HB Rentals is now offering
facilities, including linkable galley and welfare modules.
after-sales services to Farstad from its new operations and
Furthermore, DNV A60 certified modules are specially
service office in Ciudad del Carmen, which was opened
built to resist the extreme conditions found in marine
to better serve the needs of oil companies operating in
environments. The other two product lines, Steel and
Mexico.
| VIEW FROM THE TOP
DIVERSIFYING BROKERAGE SERVICES ROBERTO MAURY CEO of Marítima Internacional
Q: Which projects in the oil and gas sector best represent
Q: How will Marítima Internacional remain active until the
Marítima Internacional’s capabilities?
contracts awarded in Round One start to materialize?
A: Since its early days as a shipping agent, Marítima
A: While the projects from Round One take shape, Marítima
Internacional has been constantly learning while being
Internacional will continue seeking to collaborate with
able to create business opportunities to satisfy its clients’
PEMEX. In addition, the company is looking to diversify its
needs. Following this strategy, the company has diversified
services in order to ensure a constant cash flow regardless of
its service portfolio and has formed new enterprises to
the developments in the oil and gas industry, and this is one of
diversify its activities. One of these companies is JB del
the main reasons the company created a division dedicated
Golfo, which came into existence as a result of foreign and
to the trade and transportation of commodities. This unit is
domestic firms’ need for catering and accommodations.
currently focused on barite, which is used as an additive for
Another example is Marine Tech, a shipping company
drilling fluids for both onshore and offshore wells. Marítima
that was created using our broad experience in shipping
Internacional recognized the significant demand that
brokerage, including knowledge on vessel maintenance
exists for this product, both nationally and internationally,
and operation. A few years ago, Marítima Internacional
and decided to draft a business strategy based on the
had 20 leased vessels for its brokerage activities, and
distribution of this mineral. As a way to offer competitive
now it has 12 self-owned ships including a crew boat,
prices, the company established direct alliances with mining
supply vessels, and multipurpose vessels, which have
companies, eliminating the need for intermediaries and third
been acquired through Marine Tech over the past eight
parties, and we do not charge commission fees for the sale
years. The main advantage of our service for clients is
of this product, just the transportation costs.
the lower costs in shipping services, as a nationalized fleet eliminates higher costs associated with international
Q: How is Marítima Internacional expanding its market
transportation and foreign labor. Companies that have
presence?
a national fleet obtain protection from the Directorate
A: The company has been involved in negotiations for
General of Merchant Marine, gaining priority over foreign
several services in the Middle East, and although the
fleets in the process of being contracted, which will help
contract was not awarded, this provides evidence that
them reduce the risk in their offshore projects.
Marítima Internacional is active internationally. Regardless, the company has maintained its focus on Mexico’s marine
Q: What changes has the Energy Reform brought about
merchant sector, which is well-positioned compared to other
so that the shipping sector can adapt to the new needs of
countries, some of which are experiencing a lack of activity
the oil and gas industry?
in 90% of their fleets. In addition, Marítima Internacional
A: A regulation that protects the country’s ships and
is also exploring the option of entering the automotive
consignee agencies, and prevents the entry of foreign
industry, particularly through our logistics division, which
firms that would directly compete in the same market,
could handle importation and exportation services. As a
was finalized and published. It gives legal certainty to the
way to complement its offering, the company is currently
guidelines established in the law, which forbids foreign
analyzing the possibility of opening a customs agency, for
players from using ships in internal shipping activities and
which it is establishing alliances with customs agents to
cabotage. In addition, the local content quota covered in
provide services ranging from transportation to addressing
the Energy Reform is crucial for companies and Marítima
the necessary legal aspects involved in importing and
Internacional can offer its clients the usual services while
exporting products. Marítima Internacional already provides
helping them fulfill the requirements stated in the law.
these services through an external customs agency, but
This is one of the aspects that distresses foreign firms the
opening its own agency will allow the company to have more
most, even though it is relatively easy to comply with.
control and offer more comprehensive services.
163
| VIEW FROM THE TOP
MEXICO’S OIL AND GAS INDUSTRY OFFERS MOOR OPPORTUNITIES FLORENCE KOSMALA Global Marketing Manager of InterMoor
164
Q: Considering the opening of the upstream market, how
mooring systems and foundation piles from anchor-
important is Mexico in InterMoor’s current strategy?
handling vessels. Compared to the large construction
A: Mexico is key in our strategy, especially given its
vessels that are generally expensive, these anchor-handling
proximity to our infrastructure in the US. We have a
vessels are more cost effective for clients. The strength of
large manufacturing facility in Morgan City, Louisiana,
our company is the fact that we not only work in mooring
which comprises two buildings atop 34 acres that
systems and foundations, but also in subsea installation
specialize in the manufacture of suction piles and other
and decommissioning. In the Gulf, we decommissioned
subsea equipment. We also have a shore-based facility
the Red Hawk spar in 2014. Our knowledge on installing
in Fourchon, Louisiana. We provide the engineering, and
mooring systems also provides us with the capability of
we procure, fabricate, and install the mooring systems, as
uninstalling a facility, so this contributes to our unique
well as the foundations. Much of our work is targeted to
value proposition.
the deepwater market, so as far as the Mexican market is concerned, we are waiting for the development of
Q: What advantages do you bring to your clients that can
these fields. We are currently operating in Mexico’s only
be applied to Mexico through the Moorvision software?
deepwater field in conjunction with larger contractors
A: The Moorvision software was developed a few years
working with PEMEX, fabricating two manifold piles that
ago, providing a Google Earth interface for operators
measure 19ft in diameter at a length of 65ft, and we will
and rig owners who want to moor their rigs. In the case
also include pile tops and grillage for the Lakach project.
of an extremely congested seafloor, like that in the Gulf
Additionally, we have designed and fabricated over 100
of Mexico where there are pipelines, mud mats, manifolds,
suction piles for the same project.
and other assets installed, this helps to ensure that operators can install rigs without damaging this existing
Q: What specific capabilities will allow InterMoor to be
infrastructure. This software maps the assets, based on the
successful in the Mexican oil and gas market?
database provided by BSEE, the US regulator. As long as
A: We are fairly cost-competitive due to our far-reaching
there is similar access to a database here in Mexico, it may
expertise in establishing permanent and temporary
be something we could apply and extend.
Tecno Fire es una empresa líder a nivel nacional especializada en la venta, renta, instalación,
mantenimiento, reparación, recarga, asesoría, diseño
y certificación de sistemas de seguridad y protección contra incendios con 18 años de experiencia al
www.tecnofire.com.mx
servicio de la industria petrolera avalado por casas
certificadoras nacionales e internacionales.
| VIEW FROM THE TOP
ADDED VALUE IN FLOTEL OPERATIONS SERGIO ARROYO Former Country Manager of OOS Mexico
Q: How is the company structured in terms of operations
Q: To what extent can you help reduce operational costs
in Mexico, and how were you able to enter this market?
of clients?
A: OOS International currently has a contract in Brazil
A: The current environment breeds opportunity, and
with Petrobras, where we have two flotel vessels: OOS
those with an aim to succeed in the business should
Gretha and OOS Prometheus. The former has a unique
begin thinking about the future right now. Although this
construction, with two cranes that can operate in tandem,
can be seen as a challenging time in the oil industry, OOS
each with a capacity of 1,800 tonnes. Our participation in
International is building two new vessels, so this displays
the Dutch Trade Mission to Mexico marked an opportunity
the confidence we have in our product and our business
for us to enter the Mexican market, and to build on our
model. When we finish building the vessels, we believe
already established presence here. The opportunity we
the market will begin to regain momentum, allowing us
see with these submersible flotels is the fact that they
to enter strongly as part of the supply chain in the oil and
are designed to operate in deepwater. Here in Mexico,
gas industry, offering the most advanced products and
a plethora of pipes and connections have been laid
services at the most competitive cost.
in the oil fields, meaning that it is dangerous to have semi-submersibles in the fields, so flotels are the most
Q: What steps are you taking to become a leader in
viable option at the moment. Besides accommodation,
offshore accommodation and the construction of flotels?
OOS International strives to be a commissioning and
A: We are attempting to launch the same well-respected
decommissioning operator. As an independent company,
system we have with Petrobras here in Mexico, and the
with presence in Mexico, our model dictates that the owner
equipment we are providing is new and uses quality
deals completely with the operations and the support we
technology, so we offer the most comprehensive facilities.
need here in the country is provided by our international
Besides the previously mentioned services, OOS is
stakeholders, whether that is financial or advisory. The
one of the few shipping companies with international
process of importing technology and establishing efficient
certifications to operate flotel facilities. Therefore, we
operations is faster and more efficient as a result of our
do not only aim to provide our own equipment, but we
considerable resources.
can also operate client-owned machinery. We provide assets and support services to the oil and gas industry,
Q: What are that competitive advantages that differentiate
ranging from ships to asset management, and engineering
OOS Mexico from similar companies?
to maintenance and operational services. Based on
A: At the moment, we are building two new vessels, with
the experience we have in Brazil, we have the expertise
more lifting capacity and the ability to accommodate up
required to operate other flotels in Mexico and around
to 750 people. Our new vessels, the OOS Serooskerke
the world. In 2018, our main aims will be to bring our own
and OOS Walcheren, will be delivered in Q4 2018 and Q1
equipment and obtain contracts, or to be recruited by
2019, respectively, and will each have a capacity of 3,000
another company to operate its vessels.
tonnes, whereas the competitors we see in Mexico are using mainly older equipment. Following Round One, there will certainly be a strong demand for our services, as well as those of many other international companies. We are the only company to build the flotels with cranes, so this is a unique product that optimizes the supply chain, and can serve as a multipurpose system, providing the deck, the storage, the crane, and the accommodation with state-ofthe-art facilities.
OOS has been awarded with a rating of 8.6 for safety by Petrobras
165
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| INSIGHT
GOING WITH THE CURRENT
When it comes to Mexico’s maritime market, Juan Pablo Vega, Director General of Naviera Integral, finds it aligned with global trends. “The country has a relatively
JUAN PABLO VEGA
open market that inclines willingly toward free trade
Director General of
agreements such as the Trans-Pacific Partnership that
Naviera Integral
was recently signed,” he clarifies. He reminds that through NAFTA, Mexico voted for equally open seaports, following Canada, which also opted for the accessibility of its
shallow water operations that have geographic pivotal
harbors. “However, the free trade agreement ended up
points in Campeche, Tabasco, Veracruz, and Tamaulipas.
excluding maritime transportation articles, because of the
Vega explains that it achieves prosperity in this area thanks
US’ decision to have restricted ports in order to ensure
to avant-garde vessels that can reach the fields located
national security,” he reports.
at extremely long distances from the shore. “Nowadays, speed and autonomy are essential for industry players
Naviera Integral has been operating in the Mexican oil and
looking to integrate cost-effective production, and our
gas industry for 30 years where it has focused on assisting
line of vessels is considered as one of the most modern,”
a group of companies in different industries, especially
Vega boasts. Additionally, Naviera Integral is becoming
in maritime transportation. Vega is confident that his
a supplier of PCBs, ships that have an increased volume
company’s offering of quality, safety, efficiency, and cost-
capacity and less speed. Vega mentions that these are in
value, as well as its ability to help them meet national
demand across the entire oil industry, as they can carry all
and international norms and regulations, will attract the
types of oil and equipment.
industry’s new players to Naviera Integral. The maritime company also has experience in responding The company is constantly renovating its fleet and hiring
efficiently to accidents. “We create safety connections
specialists to show it follows the most recent trends
between the platforms and onshore operations for
among industry leaders. “The process is not fast and in
quick interventions in the case of emergencies,” Vega
certain cases, we even tailor the products according to a
announces. “Last year we were able to evacuate people
company, a state, or a port. The customization is part of
and bring machines to fight fire, all while ensuring medical
what we bring to the table for our customers that are just
assistance and managing the unexpectedly poor weather
entering the country,” Vega asserts. Naviera Integral has
conditions.” If there is a risk of adverse weather conditions,
been analyzing the profile of the winners of the different
Naviera Integral is suited to provide a large quantity of
bidding rounds, as well as their clients, in order to offer
safety vessels that are ready to intervene and transport
them customized services. It has also been working in
employees onshore if necessary.
167
DEEPWATER
7
Phase four is expected to be the pinnacle of Round One, as corroborated by its pseudonym, the Crown Jewel. The largely unexplored deepwater and ultradeepwater provinces on the Mexican side of the Gulf of Mexico will remain one of the last high-potential exploration opportunities in the world until new operators are expected to enter in 2017. While the authorities are drafting rules for the previously inexistent deepwater sector, IOCs are reconsidering the position of Mexico in their portfolio, and service providers are preparing to extend a warm welcome. On December 5, 2016, potential operators will find out whose bids for four blocks in Perdido Fold Belt and six in the Cuenca Salina basin will be victorious. PEMEX is expected to participate in this round, while the company will also seek partners to farm-out its already discovered deepwater fields. More than access to capital, this arrangement will grant the productive enterprise of the state access to much-needed technology to produce some of the world’s deepest fields.
This chapter will focus on the opportunities in Mexico’s deepwater areas and their importance in the country’s long-term production objectives. It compiles the perspective of various players looking to develop the Mexican deepwater segment, as well as service companies eager to apply their international experience.
169
| CHAPTER 7: DEEPWATER 172
ANALYSIS: Regulator Prepares Ground for Deepwater Round
173
EXPERT INSIGHT: Criteria Used to Shape the Deepwater Round
174
MAP: Deepwater Blocks & Wells
176
VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico
177
INSIGHT: Wallace Pescarini, Schlumberger
177
INSIGHT: Derek Woodhouse, Woodhouse Lorente Ludlow
178
VIEW FROM THE TOP: James Buis, Nalco Champion
180
VIEW FROM THE TOP: Michele McNichol, Wood Group Mustang
181
VIEW FROM THE TOP: Graham Hill, KBR
182
INSIGHT: Coen van Munster, Petrogas
183
VIEW FROM THE TOP: Ángel Mario Lozano, GDT Offshore
184
VIEW FROM THE TOP: Bruce Malcolm, Alpha Deepwater Services
185
VIEW FROM THE TOP: Octavio Navarro Sada, Heerema
186
TECHNOLOGY SPOTLIGHT: Subsea Compressors, Man Diesel & Turbo
187
VIEW FROM THE TOP: Katsuyuki Imalzumi, MODEC
189
Boyd Howell, MODEC INSIGHT: Ashit Jain, Harkand
171
| ANALYSIS
REGULATOR PREPARES GROUND FOR DEEPWATER ROUND
172
The opening of Mexico’s deepwater segment has been a
The regulations are being drafted by the Ministry of Energy,
milestone in the global industry due to the opportunities
the Ministry of Finance, and CNH with the participation
it presents to operators, but it also provides CNH with a
of other actors, such as the Ministry of Economy, which
considerable challenge. The regulator has to issue guidelines
manages matters related to national content, SEMARNAT,
to ensure that operations are done according to the highest
and ASEA. In fact, CNH's Alma América Porres says the
standards, but the fact that this is a new area for Mexico’s
Commission has worked closely with the environmental
upstream segment poses the chance of a trial-and-error
agency, helping it with the regulations for deepwater
scenario where the slightest mistake cannot be afforded.
activities. Pimentel explains that every party works in
Sergio Pimentel, Commissioner at CNH, highlights that
its domain under the Ministry of Energy’s coordination,
the authorities are not trying to reinvent the wheel when
which establishes the contracts’ terms, while the Ministry
drafting the regulations for deepwater operations, adopting
of Finance sets the economic conditions related to the
international best practices instead. For instance, the Ministry
fiscal terms, and CNH provides technical assistance in
of Energy and the Ministry of Finance opted for licensing
the selection of the blocks that will be tendered. The
contracts, which is an international practice in deepwater
contracts, as legally stated, are reviewed by the Federal
operations and is in line with the provisions allowed in the
Competency
Constitution. The licensing contracts will include large areas
information exchange between the private sector and
with the largest volume of prospective resources in the Gulf
the Ministry of Energy as a consequence of the Five Year
of Mexico: the Perdido Fold Belt and the Isthmus Basin in the
Plan. Companies of all sizes approach the Ministry to
southern portion of the Gulf’s central region.
voice interest in certain areas they find appealing, as the
Commission.
“Evidently,
there
was
an
Ministry can change the areas to be tendered according to Even though the market is not under ideal conditions at the
the private sector’s interests. The private sector did have
moment, Pimentel notes that the long-term scope of the
an influence in the round, as the authorities listened to
contracts makes the segment attractive to companies. “The
suggestions as stated in the law.”
current oil price is not an indicator of the interest companies could have in Mexico’s deepwater industry, as the oil price
Many wonder how CNH will prepare to manage the
will not be the same ten years from now, which is the time
deepwater round, considering that the bidding companies
it will take for the first commercial barrel to be produced in
are international experts. Commissioner Héctor Acosta
Mexican deepwaters. Furthermore, the geological conditions
comments that CNH has qualified people to deal with
in the Gulf are attractive in spite of current situation.”
the administration of these contracts and is also carrying out analyses to complement the talent it already has. The Commission will use financial resources obtained from the bidding rounds to carry out specialized consulting in order to support its activities and strengthen its capabilities as a deepwater regulator. In addition, Acosta says the authorities will continue working on adapting regulatory measures to the sector’s changing circumstances in order to avoid any conflict of interest Acosta says the fourth tender is the ultimate test for
By May 2016, 23 companies requested access to the Data Room, 22 gained access, and 15 companies began the pre-qualification requirements for R1-L04
Round One, given the characteristics of the competing firms, the level of investment, and the potential of the contractual areas, as these hold 11 billion barrels of prospective crude oil equivalent resources. “We are trying to guarantee success by bestowing as much information as possible about the contractual areas. Almost all of these have prospective resources and seismic information. In addition, we are taking a very agile approach to the modification of the tenders’ conditions in order to send signals of certainty to the market,” he comments.
| EXPERT INSIGHT
CRITERIA USED TO SHAPE THE DEEPWATER ROUND R1-L04 has taken us longer to launch, and at some
As in all the categories, we measured global
point we even questioned the viability of launching
events, and one of the things we learned from
a deepwater round with the current oil prices.
Norway is the fact that it has two types of
However, major oil companies were adamant
deepwater tenders, referred to as “known areas”,
about having the deepwater tender, as they
which includes mature fields, and “frontier areas”.
were seriously interested in spite of the oil prices
We tried to base our model on this, and there are
because of the opportunity it represents. There is
some areas like Perdido that will see great success.
a lot of excitement about coming to a newly open
Our preference can be split into two types of
area, and deepwater in Mexico is something entirely
players, those that want to be situated in locations
new. Furthermore, everybody is certain that there
close to PEMEX, as this will offer synergies in terms
is a huge unexplored potential. We decided to
of oil and gas infrastructure, and oil companies
launch some blocks and asked for feedback, since
that seek to explore areas where PEMEX has not
the law allows companies to nominate deepwater
attempted to make any advances. I feel extremely
areas. The industry suggested that some of the
proud to say that the nomination feature was
blocks we selected were not attractive enough,
something I brought to the Commission, and was
while companies also showed interested in other
subsequently incorporated into the law. Since the
areas. Everyone wanted to see blocks in Perdido,
deepwater tender has a long-term scope, we hope
but some companies pointed out that 3,000-
that the psychological effect of the oil prices will
3,500m depth would create opportunities for just
not impact the round too harshly.
Edgar René Rangel Germán Former Commissioner of CNH
Lourdes Melgar Undersecretary of Hydrocarbons at the Ministry of Energy
a few players. If we reduced water depth to 1,500m,
Some of the fields may contain gas and
we could tender deepwater blocks in Perdido but
condensate, while others may contain super-
in a more inclusive way. In addition to Perdido,
light crude oil. In a gas and condensate field,
companies wanted to see other unexplored
the condensate may have an API gravity of
frontier blocks because their geologists have data
50°, which is quite attractive and makes a good
that suggests incredible prospects. This, along
business case for a gas field. Fields such as
with the discussions we had regarding the size
Kunah, Lakach, and Piklis may be great business
of the blocks, was quite insightful. After looking
opportunities should they be consolidated and
at international standards, we decided to go for
developed in partnership with another company.
slightly larger blocks.
For PEMEX, these opportunities are very weak if they are treated as standalone projects.
Another aspect that resulted in a long discussion
Some of the more potentially lucrative areas
process was the type of contract for deepwater
have constricted PEMEX since they are ultra-
blocks, and we ultimately decided to opt for
deepwater, and in some areas, no platform in
licenses. The contract cannot look like a profit-
existence would be suitable. However, after
sharing agreement because it is not, but it cannot
the tenders and when the time to drill arrives,
be a concession either because these are not
that technology will exist. The beauty of the
allowed in the Constitution. Now the interesting
exploration stage is the fact that the real winners
aspect is defining what a license contract looks
are those companies with the most qualified
like in Mexico.
geoscientists.
173
| DEEPWATER BLOCKS & WELLS
174
Hydrocarbon fields Round zero Round 1 exploration blocks Round 2 exploration blocks Round 3 exploration blocks Round 4 exploration blocks Successfull deepwater wells Unsuccessfull deepwater wells
175
| VIEW FROM THE TOP
SHELL FOUND ITS BLACK PEARL
ALBERTO DE LA FUENTE President and Director General of Shell Mexico
176
Q: Many people would blame the results of R1-L01 on
of the contracts. We think that there is still considerable
poor terms and conditions. What contributions has Shell
room to make them easier to administer, which would
made to the improvement of this process since then?
translate into lower costs for us and greater benefits for
A: Mexico lacks the breadth of knowledge required
the government. Although the contract is a license, there
to develop the oil and gas industry, which is why I am
are still some elements that might be read as a PSC. In my
surprised by the government’s ability to learn so quickly,
mind, there is an opportunity to polish the contract and to
adapt to best practices, and continuously reshape the
confer to it a greater resemblance to a license contract.
contracts and bidding guidelines to match the industry’s
Another area that could be reviewed is the abandonment
needs. I believe the authorities’ rapid reaction time has had
of the fields, and whether that should be done from day
a positive impact on the number of companies submitting
one or later on. The latter option would allow companies
bids, as well as the quality of those bids. Ultimately,
to invest where it is needed today, instead of obliging
the government has benefited from that, because as a
them to create a fund for the long term. There are also
more competitive environment is being fostered, more
issues around corporate guarantees and ensuring that all
companies are interested in participating and placing high
companies can participate on an equal basis. I think there
bids. Shell contributes a small share like everyone else,
is also room for certain fiscal improvements to be made, as
and does so through industry bodies such as AMEXHI
the industry would like to guarantee its long-term stability
or COPARMEX. We share our views on local content and
and companies need to be made to feel more comfortable
on how these regulations were developed elsewhere,
with the new regime.
attempting to share our experience through the various channels established by the Energy Reform.
Q: To what extent do you believe that the timeline is realistic at present?
Q: What are the predominant concerns regarding the
A: More than decades can be spent analyzing opportunities,
terms and conditions established by the authorities
but we are comfortable with a nine-month window. In the
for the deepwater bidding round that still need to be
end, we will have just a little over that, and we believe that
resolved today?
is the right amount of time to come to solid conclusions.
A: The quality of the contracts has evolved significantly
The industry cannot wait for the oil prices to recover,
since the initial production-sharing agreements were
and in fact, it is not a factor that will ultimately affect
released in December 2014. Having said that, we believe that
the amount and quality of bids. Recent bidding rounds
some adjustments are still necessary in order to generate a
in Ireland, Canada, and Norway have been extremely
much more effective product, ultimately allowing for more
successful despite the low oil prices, demonstrating that
participants in the rounds. One of the areas that I believe
success does not really depend on much more than the
could be reviewed relates to the administrative simplicity
competitiveness of the contract’s terms and conditions. It
"As a more competitive environment is being fostered, more companies
is important that the Mexican government continue with the rounds, despite disparate results. Had Mexico not begun the bidding rounds last year, the country would have fewer companies interested in it, and it is critical
are interested in participating and
that the industry attract investment. For this reason, we
placing high bids"
instead of focusing on the oil prices, we want to focus on
Alberto de la Fuente,
find materiality and competitive terms and conditions,
President and Director General of Shell Mexico
are supportive of continuing the bid rounds process and the factors that we can control. I am sure that if companies Round One will be successful.
| INSIGHT
TRANSLATING INTERNATIONAL EXPERIENCE INTO ROUND ONE Wallace Pescarini, Schlumberger's President of Mexico and Central America, points out that there is a considerable difference in operating an onshore field, a shallow water well
WALLACE PESCARINI
in the Gulf of Mexico, or a deepwater project in Perdido, and
President Mexico and Central
this will be particularly evident when the winners of R1-L03
America of Schlumberger
enter the market. “We know that some young companies entering the Mexican market lack the expertise and the reservoir understanding that we have at Schlumberger,”
many challenges for deepwater production and exploration,
he explains. In an offshore field, efficiency is vital, and will
the players expected to enter in R1-L04 are those with a
require a suitable solution, and risk management, planning,
substantial deepwater portfolio and a long-term vision. “It is
and technology play a much more significant role in this
possible that the government may move the round in order
environment. In terms of deepwater, Schlumberger is a
to capitalize on a more profitable time for the industry, but
world leader in services for this segment, where the technical
in either case the round is sure to attract solid investment
and operational challenges are of a much larger scale. The
due to confidence generated by the production levels in the
company’s experience in this area includes operations in
US side of the Gulf of Mexico,” he comments.
the Gulf of Mexico, West Africa, the North Sea, and Brazil, and the company has already been working with PEMEX
“We cannot overlook the fact that PEMEX has always been,
on deepwater projects in Perdido, meaning that it is well-
and will continue to be our main client in Mexico,” says
equipped to provide solutions to the major players and IOCs.
Pescarini. Schlumberger is also conducting dialogues with the new operators with which it will be working, and has
Deepwater players do not take the short-term oil price into
disclosed that it has already closed contracts with Statoil
account, but rather tend to consider the environment in a
and other international companies for R1-L04. “We are in
time-scale of five to ten years. However, Pescarini points out
talks with all the winners of R1-L01 and R1-L02, and we are
that deepwater remains important in terms of reserves and
in a solid position to provide support to these companies,”
future production, and even though current prices present
Pescarini boasts.
| INSIGHT
PARTNERING FOR SUCCESS
Woodhouse Lorente Ludlow recently associated with CMS Cameron McKenna in Mexico. When asked why, Derek
DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow
Woodhouse, the firm’s partner, explains that it was because of CMS’s strong expertise in advising several international companies that perform deepwater exploration and
oil and gas industry players. “Because CMS has globally
production activities. “I cannot see how Mexican firms who
recognized experience and a strong client portfolio, it will
have never been involved in this arena can properly advise
only be natural for IOCs willing to enter the Mexican market
on these matters. It is an extremely complex industry,” he
to request this firm’s advisory services.” Similarly, CMS
admits. “When I was working in London for CMS I spent 12
benefits from its partnership with Woodhouse Lorente
months seconded to BP and worked with its deepwater
Ludlow, as it brings its expertise working in the Mexican
exploration and production team for Angola, and the most
market to the table. Woodhouse refers to the association
important lesson I learned from that experience is that this
as a “win-win situation”, whereby CMS obtains a presence
is an information intensive industry. Woodhouse Lorente
in Mexico, and Woodhouse Lorente Ludlow increases its
Ludlow believes that it can learn from CMS, increase its
ability to advise major oil players that want to establish
abilities in this regard, and appeal to the new deepwater
operations in the country.
177
| VIEW FROM THE TOP
PRODUCTION EFFICIENCY RESTS ON FLOW ASSURANCE JAMES BUIS District Manager Mexico of Nalco Champion
178
Q: What were the main challenges that oil and gas
have a large number of exciting products awaiting to be
companies were facing this year?
launched, and our R&D department is doing a great job
A: I would say that increasing productivity is one of the
in predicting the future needs of the sector. Our value lies
main issues for our clients. In critical times like these, all
in the fact that we have a team of experts on the front
companies look to be as efficient as possible, shifting the
line who collaborate with a global team to help companies
focus of business plans to productivity and efficiency. In
solve these problems.
this regard, we want to make sure that every dollar that our clients spend for our services contributes toward
Q: What sort of opportunities is Nalco Champion
enhancing their production rates so they can quickly
preparing to seize?
recover their investment. This year, products aiming to
A: When mixing crude oils, the focus is needed on the
improve the flow properties have been gaining momentum
properties of the crude oil. This is especially important
as they help the viscous oil to rise to the surface. Flow
when mixing crudes with varied API gravity levels, which
assurance relates directly to transporting the oil all the
can provoke certain instability with respect to flow
way from the ground reservoirs to the surface and later
management. We have already experienced this in areas
to a sales point where the first custody transfer takes
where lighter crude is blended with heavier crude oil, and
place, which can be either offshore or onshore. Afterward,
in these cases, we need to predict and monitor the flow
there is an additional stage for flow assurance in which
assurance and consider the use of products such as flow
the product is transported from the refineries to the
improvers, asphaltene inhibitors, or other similar product
barge ships or trucks. At Nalco Champion, we are mainly
that can help prevent obstructions blocking the flow or
dealing with the first stage, where the crude is taken from
incrementing the crude’s viscosity, which would make
the well to the first custody transfer point. In this case,
it harder to pump. We are now involved in a couple of
our flow assurance packages ensure that all the lines can
projects for analyzing the possibility of mixing different
produce at the expected rate. We offer emulsifiers, an
crude oils. In these projects, our role is to help companies
eternally popular product that can dictate the quality of
deciding which type of crude oil has the best mixing
the crude, scale inhibitors, and asphaltene inhibitors that
potential, what the optimal mix characteristics would
keep the lines clear so production can continue flowing at
be, and the possibilities for improving flow management
an optimal rate. A company requires the entire package to
through these mixes, among other issues.
maintain the integrity of the system. Q: How is Nalco Champion preparing for the launching of Q: How does Nalco Champion help operators during the
the unconventional oil sector in Mexico?
development stages?
A: We are heavily collaborating across other areas of
A: Our goal is precisely to prevent downtime, which is why
the company that have are experienced in this kind of
we look at the asset as a whole. For deepwater projects,
projects, mainly in the US. At Nalco Champion, we have a
we assist companies with the projects’ FEED. We have
tremendous amount of experience in the Eagle Ford Shale
a whole team dedicated exclusively to that area, with
and other similar unconventional projects that have been
considerable expertise in identifying engineering issues.
conducted in the US. We have a broad product portfolio
Therefore, if a company is planning to design a platform
designed to specifically cover those needs. We know how
or a subsea station, we collaborate with it to identify the
to identify and address the potential problems that are
possible risks in the project, as these relate to flow and
most challenging to shale production, and we know how
asset integrity challenges. We can make predictions based
to develop a chemistry that works well for those areas.
on fluid properties. In summary, we provide companies
Our company gained plenty of experience in South Texas,
with a tailored design and treatment. Currently, we
which borders Mexico, giving us a considerable launching
point as we can bring our experience to Mexican shale
as Nalco Champion. Together with other companies’
producers.
international experiences, we can help Mexico to navigate its deepwater sector without experiencing the same
Q: What is the role of companies like Nalco Champion in
challenges that other countries have already overcome.
adding value to deepwater projects?
We are involved with the Lakach project, since we have
A: Deepwater projects will bring a different flavor to the
been collaborating with some of the companies working
Mexican oil and gas market, as well as new opportunities
in that field. In the future, I foresee the company getting
for companies with different levels of expertise to get
involved in other deepwater projects, including Perdido, as
involved. Nalco Champion had several learning experiences
I believe that we can have a positive impact in these fields.
and opportunities in deepwater fields in the Gulf of Mexico when the US started exploring this region. Therefore, we
Q: How is the Connecting Resources (CORE) knowledge-
can bring all the solved challenges and lessons learned
sharing system influencing your operations?
from the products that we have developed for this area
A: The system helps us substantially by allowing any
into the Mexican market, supporting the country’s entry
employee with internet access, regardless of location, to
into that sector
go online and solve a technical problem with the assistance of the company’s international community. The CORE tool
Currently, we have a presence in about 65-70% of the
works like an internal online forum where people can ask
deepwater platforms operating on the US side of the
questions about the different categories that we have, for
Gulf of Mexico, covering companies like Shell, Chevron,
instance, flow assurance or emulsion breakers. Afterward,
and BP. Rightfully, these companies are quite demanding
the inquiry gets circulated to our international community,
regarding asset integrity, flow management, and flow
and the person can obtain an answer from an expert
assurance. In these facilities, when there is an issue with
within hours. The longest waiting time I have seen was 24
flow management 10,000ft below the surface, it is not just
hours. Large firms like Ecolab, Nalco’s holding company,
matter of stopping production and cleaning or changing
have a significant number of employees around the world,
the pipelines, as this would cost millions of dollars.
highlighting the importance of a tool that allows this level
Deepwater projects should prevent similar incidences,
of information sharing. CORE has been fully operational
for which operators should partner with companies with
for about five years, so the database of information and
a proven track records in challenging environments, such
questions is rather extensive.
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179
| VIEW FROM THE TOP
DEEPWATER EFFICIENCY THROUGH AUTOMATION ENGINEERING MICHELE MCNICHOL CEO of Wood Group Mustang
180
Q: What are the main areas that will benefit from the main
provide a way to be efficient with the capital being put
technologies and processes you are trying to bring into
into the market. Standardization is another element that
Mexico?
will work well in the Mexican industry. Instead of having an
A: I can think of a couple areas where I our expertise
optimized design for every installation, there could be a
will come into play, particularly in deepwater activities.
portfolio of three specific platforms, and operators could
Wood Group Mustang has designed more than 60%
decide which one best fits their project. The market would
of the deepwater topsides in the Gulf of Mexico, so we
move at a more agile speed and the repeated use of the
know the Gulf well and we will be able to help a lot in
same design is a much more cost-effective methodology.
the Mexican offshore arena. Another area in which we will be able to bring technology and our worldwide expertise
Q: What are the details of the terms of the contracts you
is in pipelines, as Mexico is undergoing a conversion to
signed with PEMEX in 2015 for deepwater and extra-
transport gas in from West Texas. In the US, our pipeline
heavy oil assets?
group is the number one organization based on scale and
A: We signed a master service agreement (MSA) with
the amount of pipeline we have designed for our clients.
PEMEX, which means we have agreed rates, so PEMEX can release packages of work without having to negotiate
"We signed a master service agreement (MSA) with PEMEX, which means we have agreed rates, so PEMEX can release packages of work without having to negotiate contracts every time"
contracts every time. We have the first packages for small
Michele McNichol,
work. The real benefit comes to the operator by using the
CEO of Wood Group Mustang
same contractor repeatedly because the parties get to
operations and some studies. The MSA facilitates the execution speed of these projects because PEMEX does not have to go through a bidding process or negotiations every time. This fits into the idea I mentioned about standardization. What we will see in the market is that the owners and operators, in this case PEMEX, will have to get used to a few suppliers with whom it has an established relationship, which the MSAs foster through repetitive
know each other quite well, leading to greater efficiency. Q: How will you translate your expertise in automation design in platforms in the US side of the Gulf to projects
Q: How can PEMEX improve its efficiency in order
in Mexico?
to achieve its goals in spite of the capital issues it is
A: The key is to be as efficient as possible. We have a
experiencing?
methodology called “lightweight topsides� in which we
A: Everyone is undergoing a similar situation. The best
look at the platform and figure out how to optimize it in
alternative is to examine your projects and then prioritize
order to make it as light as possible. At the end of the day,
which ones will help to achieve a given goal the shortest
in the offshore arena, companies pay for the pounds of
timeframe, and then focus on just one or two big projects
steel being installed. Wood Group Mustang can bring the
as opposed to the whole portfolio. The second step is to
technology and experience that we have demonstrated
recruit the right contractor, with the appropriate expertise.
repeatedly in the US and other places around the world into
PEMEX could be struggling with prioritizing due to the
the Mexican market and contribute effectively, ensuring
large portfolio is has to evaluate, which also could explain
operators are efficient and effective. A lot of people are
why the NOC is moving at a rather slow pace. However,
interested in the deepwater round, but they do not have
if PEMEX selects one or two projects, there should be
much capital to invest in this market right now. We could
enough funding to carry them out successfully.
| VIEW FROM THE TOP
HIGH QUALITY ENGINEERING FOR DEEPWATER ASSETS GRAHAM HILL Executive Vice President of Global Business Development and Strategy of KBR
Q: What is KBR’s history regarding its involvement in
proprietary design of ours, as it was developed by GVA
Mexico, and how has it evolved to its current state?
before it was acquired by KBR in 2002. We also use these
A: In the upstream segment, KBR has a 50-50 joint
hulls for deepwater drilling rigs and production platforms.
venture with Grupo R called Mantenimiento Marino de
GVA is an important part of our overall portfolio, with a
México (MMM), focused on the maintenance of offshore
solid track record in terms of quality, safety, reliability,
oil and gas assets. Our second organization is our Western
and availability. The reason GVA is suitable for the Gulf
Hemisphere High-Value Engineering Center (HVEC) in
of Mexico is that there is a lot of stormy weather in that
Monterrey, which has been in position since 1997. More
area, be it hurricanes or tidal surges. Our hull is extremely
than a local office, it is one of our high-value engineering
robust and resilient, and is by far the best value in harsh
centers that covers all of the Americas. Any project we
circumstances and remote areas. A few years ago, when
carry out in the continent will at some point rely on the
there were many hurricanes off the coast of Texas, there
Monterrey office, as it produces high-quality results
were many problems with rigs, but ours were the most
and is extremely responsive. As a company with a well-
stable.
balanced portfolio, we develop technology in-house while also acquiring innovations from third parties. In the
Q: To what extent is implementing technology with long-
fourth quarter of 2015, we announced the simultaneous
term benefits in spite of its initial investment part of your
acquisition of three technology companies, and moving
strategy?
forward we will be acquiring more.
A: Normally, our GVA hulls are large facilities, but in deepwater, we are making a slim-line version, which leaves
Q: What is the attractiveness of deepwater projects in
a considerably smaller footprint and will carry a lighter
Mexico for KBR?
topside. The technology, robustness, and safety features
A: KBR is a prominent company in the offshore oil and gas
are identical to that of our traditional line. The product was
industry, having carried out many large, sophisticated, and
officially launched at the Offshore Technology Conference
complex projects. Since we work with all of the major oil
in Houston in May, and it will be relevant to some of the
companies around the world, we are able to evaluate the
deepwater assets in Mexico when the oil price allows this
economics of any project to make the best value decisions
technology to kick in.
with our customer, be it shallow water, semi-deepwater, or deepwater undertakings. We are currently working
Q: What are your main expectations in terms of the
with BP on the US side of the Gulf on the Mad Dog Phase
offshore market’s behavior?
2 project, which is one of the world’s largest planned
A: As the oil price goes down, the focus of attention
deepwater semi-submersible oil production platforms.
switches to producing more efficiently from existing
KBR is working toward making the project’s economics
infrastructure.
work at the lowest possible oil price.
maintenance will be required to get the most out of the
Cost-effective
and
state-of-the-art
existing assets, which we call “sweating the assets”. That is Q: Could you tell us about your GVA subsidiary and how it
the focus of our maintenance company and we expect this
is adapted to the Mexican environment?
work to continue or pick up when foreign companies enter
A: GVA is part of KBR and is a specialist naval architecture
the Mexican side of the Gulf. Whether it is for brownfields
and marine hull company. In the case of a floating
work with existing assets or greenfields work with new
production facility, the topside sits on a hull, which is a
assets, maintenance is a staple procedure.
KBR is one of the largest global EPC services and technology providers to the oil and gas industry, formerly a subsidiary of oil services giant Halliburton. Its presence in Mexico is distributed across the upstream, midstream and downstream sectors.
181
| INSIGHT
LABORATORIES HOUSE INTERNATIONAL COOPERATION capabilities in Arnhem, in the Netherlands, also operated by ProlabNL. One of the companies closely involved in the
COEN VAN MUNSTER
supply and development of the technology being tested
Manager of Petrogas for US
is Petrogas. Coen van Munster, Manager of Petrogas for
and Latin America
the US and Latin America, explains that having the best processing and separation equipment in deepwater subsea fields is an advantage because processing of
182
Despite the way in which the current oil price environment
the well fluids is often creates a bottleneck that results
has affected ongoing deepwater projects in other parts
in excessively high production costs. He adds that the
of the globe, certain diverse exploratory processes can
laboratory allows users to test these technologies at full
be undertaken during which PEMEX and more operators
scale and with “live” hydrocarbons that behave in the
can test and find the right pieces of equipment. This space
same way as actual oil and gas mixtures at high pressure
has enabled a series of notable collaborations between
conditions like those present in a real oilfield installation.
the private and public sector and between national and
All kinds of subsea installations, especially multiphase
international entities. A great example of these sorts of
separators and flow meters, will be tested in the laboratory,
ventures is the laboratory currently being installed in Boca
where it is possible to simulate every type of oil that can
del Rio, Veracruz, which will seek to test and qualify the
be extracted. This equipment will eventually be moved to
most advanced technology available for fluid separation
deepwater environments of between 1.5 and 3km below
and processing in deepwater subsea applications. These
sea level. IOCs such as Exxon Mobil are already testing
facilities are being built with ICA as the main contractor
their own equipment in these facilities, as onshore testing
and are the result of a technology-sharing agreement
in these controlled environments also prevents them for
between ProlabNL and IMP. The laboratory is considered
having to incur in the downtime necessary to field test
an exact replica of the only other one with these same
these technologies offshore.
STRATEGIC PARTNER IN MEXICO
We generate solutions and profitable business in the energy sector
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• Out Of Straightness (OOS) for HT pipelines • As-builts • Pre-lay • Post-lay
PLATFORM INSTALLATION
• Float-Over
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ROCK DUMPING
• Crossings
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DREDGING WORKS
• Port Construction
• Maintenance Dredging
• Footprint Infill
• Free span correction • Backfill
SUBSEA PIPELINE CONSTRUCTION FLOATING PRODUCTION SYSTEMS
• FPSOs
www.gdtoffshore.com.mx
| VIEW FROM THE TOP
ALLIANCES ALLOW A SMOOTH TECHNOLOGY TRANSFER ÁNGEL MARIO LOZANO President of GDT Offshore
Q: What makes the strategic alliances formed by GDT
segment is the high levels of H2S, CO2, and heavy oil, so
Offshore so important, and what criteria define your
we are developing technologies and methods to address
selection of affiliates?
scenarios that may have been overlooked in the past.
A: The alliances are fundamental because the offshore arena is relatively small and only companies with capital,
Q: Do you see the deepwater sector, which currently lacks
experience, and aptitude can compete. We are a medium-
infrastructure, as an area of opportunity for the company?
sized company, bringing new technologies from abroad,
A: We first began to focus on Mexican deepwaters ten
and our added value lies in identifying the latest developed
years ago, and the technology we have been implementing
tools in the international oil and gas industry so that these
in the industry is actually deepwater technology applied
can be applied in Mexico. Making alliances with large
in shallow waters. Most of the companies that we are
international companies allows us to contribute to the local
allied with are major players in deepwater industry.
industry by supporting them in developing their business
GDT Offshore and our partners have been active in this
in the region. KW Limited is one of the companies with
segment, cooperating with PEMEX in the training of its
which we have an alliance. We are a client of this company
personnel, performing leading engineering activities in
and we supply directly to the end customer. This model
the Lakach field, and developing conceptual design for
speeds up the sale process, as we have a master service
new offshore fields. We do not think infrastructure is a
agreement in place with KW and we take advantage of
problem, since the Mexican offshore industry has been
our network in the local market. Our foreign partners
well established for years now. However, in terms of
save costs by avoiding administrative expenses because
regulation, serious problems can arise if the right expertise
there is no need for them to establish offices in Mexico.
in the field is missing. It is vital to understand the extent
Our international partners are also an important component
of our responsibilities as companies working within the
of our model because being in constant contact with them
deepwater oil industry.
enables us to remain up to date with any technological development or innovation, which provides us with an
Q: Where would you like to see GDT Offshore in five years,
advantage, given how quickly technology changes.
and what strategies are you implementing to achieve these goals?
Q: You have 25 years’ experience working in the industry.
A: For new oil companies entering the Mexican deepwater
What changes have you witnessed with the introduction
sector, we can offer our services to optimize costs,
of assimilation models?
establishing local content and providing our knowledge of
A: Bringing new technologies can make a considerable
logistics. We provide added value, and the companies with
difference on the way local industry operates, something
which we already work are aware of this and recommend
we have noticed particularly in the offshore pipeline sector,
us to potential clients. We also put an emphasis on local
where practices are now quite different from what was
content, since employees from Mexico know the country’s
being carried out five years ago. For instance, PEMEX is
particular environment, and although we can bring in highly
now developing oil and gas reservoirs characterized by
specialized staff from abroad, the inherent knowledge
high pressure levels and high temperatures, which creates
possessed by a Mexican employee is indispensable. We want
new challenges and forces the implementation of new
to be the leading company in our field, so we are developing
engineering solutions in the pipelines’ design, construction,
talent in the company by sending young employees abroad
and operations. We anticipate more opportunities in
to gain more knowledge and skills. GDT Offshore aims to
terms of pipeline construction and maintenance with the
reach a level where it can be seen as the most qualified
introduction of new oil companies in Mexico. Another main
provider of the type of services we offer, and the company
challenge that we have experienced recently in the upstream
seeking to excel in our field in terms of local support.
183
| VIEW FROM THE TOP
IMPROVED DRILLING METHODS TO CUT COSTS BRUCE MALCOLM Consultant at Alpha Deepwater Services
184
Q: Which sectors within the Mexican oil and gas industry
A: We have attempted to provide PEMEX with exposure
represent an attractive option for Alpha Deepwater
to the planning and execution processes used consistently
Services’ involvement?
in development activities around the world, but in truth,
A: Alpha Deepwater Services has continued its advisory
we have not worked closely with PEMEX in development
services in the deepwater segment, and beginning this
execution programs. Improvements in drilling performance
year, we will expand in order to provide the same services
have been steady and extremely noticeable recently,
in shallow water and shelf drilling. We also provide
and we hope for this trend to continue as we increase
technical peer-review support to PEMEX’s development
our involvement in shallow waters. I think that everyone
group, developing conceptual plans for fields that have
recognizes the short term will be a difficult period for
moved from prospect to discovery, and subsequently
PEMEX, and it will take a significant amount of effort
to the development stage. We also provide continuous
both from us and from them to ensure that we maintain
support to the exploration group in identifying and
the basic core programs and mitigate interruption. There
ranking drilling prospects. We are continuing to deepen
is no easy solution to the current need to reduce capital
our relationship with PEMEX, because after seven years
expenditure, and this not only applies to PEMEX, but
of collaboration, we feel we have developed a solid
to all oil majors globally. This will provoke a much more
relationship with the various divisions within PEMEX
insightful approach to the programs that will need to be
and we are delighted that the NOC has expanded our
focused on and developed.
services into the shallow waters area. Nevertheless, we will continue to seek potential opportunities with other
Q: How has the position of Mexico in your global portfolio
companies in the Mexican oil and gas industry, but this
changed in the last year?
must be balanced with our continuing commitments
A: PEMEX has been, and we believe will continue to be, an
under our PEMEX contract, and we must ensure that
important client to Alpha Deepwater Services. However,
there is no conflict of interest in our service to other
the extent and scope of our services for PEMEX continues
prospective operators.
to change. One of the things that we have witnessed in the last year is an opportunity to provide technical support
Q: What are the main trends in the US side of the Gulf of
to PEMEX in the areas of identifying potential partners
Mexico in terms of efficiency?
and working on the necessary agreements with those
A: Most of the cost reductions come from application of
partners, whether PEMEX remains the operating partner
traditional industrial engineering methods, which entails
or becomes a non-operating partner. Outside of PEMEX,
studying the individual elements in drilling a well, finding
we expect to provide our services to oil companies coming
ways to reduce non-productive time, and developing
into Mexico through the bid rounds and to indigenous
methods to reduce the time and cost to accomplish each
Mexican oil companies that have been and are being
step in the drilling process. In offshore drilling, the cost
formed to participate in the new petroleum environment
and time decreases are rarely found in increased rate of
in Mexico. We also think we are well positioned to advise
penetration since the most time consuming part of drilling
Mexican companies on investing in and developing the
a well lies not in the drilling itself, but rather in all the
infrastructure that will be required to support the influx
ancillary activities such as running casing, tripping, and
of the exploration and production companies that will
logging.
enter the country as a result of the reform and the bidding rounds. The current infrastructure is woefully inadequate
Q: What novel approaches for shallow water field
when considering the requirements of the entering
development could you bring to the table for the Mexican
companies, and significant fortunes can be made by
industry?
prudent investment in and development of infrastructure.
| VIEW FROM THE TOP
STAGNANT ECONOMY DELAYS TENDERS OCTAVIO NAVARRO SADA Mexico Country Manager of Heerema Marine Contractors
Q: How has the last 12 months treated you in terms of
offshore installation services worldwide, and cover all
PEMEX moving forward on its projects?
demand using our four vessels. As the only country in the
A: Unfortunately, PEMEX has not undertaken any new
world with this many vessels, we seek to accommodate all
projects in the last two years. Instead, projects are
of our clients, and if necessary, we can adapt to different
nearing withdrawal, with certain companies completing
situations in different areas.
developments last year and others currently finishing others that lasted three years. This round presented
Q: How are you working with the fabrication yards to
a significant amount of opportunities for us, and for
strengthen relationships?
all companies in our sector, including those providing
A: In the case of PEMEX, we got together with some of
pipelines. The industry must restart soon since lack of
the yards it plans on working with before the design phase
activity costs a great deal of money.
began, in order to contribute as much as possible. We expect our first vessels to arrive in the country in 2020,
PEMEX needs to implement a great deal of projects, and
although this estimation depends largely on the date of
the NOC is currently mapping different potential scenarios,
the bid for deepwater fields. As there have not been any
and evaluating ways to increase oil production. Some
new contracts, we have not yet had the opportunity to
of these solutions include service contracts with groups
work with PEMEX’s procurement category managers. In
of companies, which will provide PEMEX with financing
essence, there is very little contact between PEMEX and
in exchange for services from the State enterprise.
installation companies for new projects. The last project
Nevertheless, only a small number of projects can be
we completed for the State enterprise ended in November
carried out in this way, such as those including operation
2014. Although we reallocated our human resources, we
and maintenance. We believe PEMEX will only implement
still have a few employees in Tampico, Ciudad del Carmen,
this strategy on non-production platforms, such as those
and Villahermosa. Things are happening at PEMEX, but
in charge of compression, habitat, or injection. Production
the migration of contracts and the establishing of farm-
platforms involve the mixing of various types of oil in
outs have been unexpectedly slow. Moreover, PEMEX is
closed valves, an activity that may present difficulties for a
not being helped by the current oil prices, a phenomenon
third party. In terms of priorities, PEMEX should be moving
from which the entire economy is suffering.
faster and take advantage of shallow water projects while production costs are still lower than the price of oil.
Q: To what extent do you think that the deepwater round
Deepwater offers few profit opportunities in the current
is delayed due to the oil price?
environment, making it difficult for a company with no
A: I believe oil prices are a large factor, and the terms and
capital to undertake projects in that area.
conditions of tenders should be adjusted to reflect this, or else the government may find itself without any bidders.
Q: Which companies are your vessels currently working
When this happens and Heerema brings a vessel back to
for and on what kind of projects?
Mexico, we will be working with the newly-formed ASEA.
A: In October 2015, we had two vessels in the Gulf of
We are a company that places considerable importance on
Mexico, one of which had just finished an important project
safety and environmental matters, and endorses all new
for Shell and was on its way to build a large 300m jacket in
regulations surrounding these matters. The International
the same area. The second vessel is working for Anadarko.
Marine Contractors Association (IMCA) has worked on
We also have a vessel working in Africa, and the last one
establishing national norms with PEMEX in the past, and
is located in Australia. We do not think projects in Mexico
I am sure it will now do the same with ASEA in order to
will start for another couple of years, and our ships will be
guarantee safety in the industry and the protection of the
made available here when they are needed. We provide
environment.
185
| TECHNOLOGY SPOTLIGHT: BREAKING RECORDS IN OIL RECOVERY Norway’s deepwaters present some of the toughest
awarded to MAN in 2010 calls for the supply of four
challenges to production on the globe. This characteristic
hermetically-sealed single HOFIM units (size RB 45), with
has led the country to become a hotbed for the
each compressor integrated with a MAN motor (size M43),
development of new subsea technology and serve
and includes long term field services and life cycle support.
as a closely-monitored area by the global oil and gas
To fit the environment, the motor had to be designed in
industry. One of the latest breakthrough technological
a way that withstood the unforgiving subsea conditions
developments can be attributed to Statoil, which, in
found 300m below sea level. After working for an extensive
September 2015, and after ten years of work, announced
amount of time on the development, qualification, and
it had created and installed the world’s first subsea gas
testing program, MAN proudly announced that its HOFIM
compression facility for the Åsgard field in the Norwegian
compressor meets all the requirements necessary for an
Sea. This field is emblematic of Norway’s oil production
operation free of maintenance on the sea bed. It features
environment, as it ranks among the largest developments
a tailored motor design, casings able to withstand 220 bar
on the Norwegian continental shelf, but its production
pressure, a 7-axis active magnetic bearing system, and
rates are dropping due to a decrease in the field’s natural
a special cooling gas extraction system. The magnetic
pressure.
to
bearings that will contribute to recovering additional gas
improve recovery are located on platforms, but the closer
volumes from depleting gas fields, while also helping
the reservoir is to the compression station, the more
extend the productive life of those assets. The bearing
hydrocarbons can be recovered. Statoil’s new technology
simplifies the system architecture by removing the need
follows this model and represents a quantum leap for oil
for components such as lube oil systems, gas seals, and
recovery and will shape the entire industry’s future, as it
gearbox. The magnetic bearings are integrated inside the
provides various advantages in comparison to conventional
compressor casing, preventing gas leakage and allowing a
upstream facilities on platforms or Floating Production,
smaller environmental footprint. The unit will be remotely
Storage, and Offloading (FPSOs). Not only does it reduce
controlled, encapsulated, and emission free, and will allow
investment costs, it also reduces energy consumption and
the reservoir’s productive life on the Åsgard field to be
CO2 emissions while raising recovery rates over the field’s
extended for another 15 years. Recovery from the Midgard
life. MAN Diesel & Turbo is participating in this historic
reservoir will increase from 67% to 87%, while that of the
development by providing two HOFIM motor-compressor
Mikkel reservoir will soar from 59% to 84%. Overall, this
units to Statoil’s contractor Aker Solutions. The contract
represents an additional 306 million boe.
Traditionally,
the
compressors
needed
How many contractors
does it take to design, build and install a 12,000 MT production platform?
One. If you choose wisely.
The PB-Litoral-A production platform was successfully installed at the new Litoral de Tabasco process center in the Bay of Campeche, Mexico using advanced float-over technology pioneered and perfected by McDermott.
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| VIEW FROM THE TOP
FULFILLING DEMAND FOR SUBSEA INFRASTRUCTURE Katsuyuki Imaizumi Vice President of Sales and Marketing of MODEC
Boyd Howell Director of Sales of MODEC
Q: What opportunities does Round One bring for floating
included, know that these are extremely cost-effective
systems in Mexico?
solutions, and taking into consideration the equipment
BH: Deepwater is lacking in subsea pipeline infrastructure,
housed on a FPSO vessel, this complex piece of machinery
creating
Storage,
is worth its price. Price may vary according to the type
and Offloading (FPSOs), given their inherent storage
a
need
for
Floating
Production,
of field the FPSO is assigned to. If sweet crude is being
capabilities. We therefore expect there to be a significant
produced, it can be a simple FPSO, but if operators have to
amount of demand for vessels with ten-day storage
deal with CO2 and H2S, have to treat the gas and water, and
capacity. Mexico’s shallow water, however, have a well-
reinject the water, then the unit will be much more complex
developed pipeline system, meaning the preference will be
as it has to hold a variety of systems. Until we are given
for shallow water jackets or Floating Storage Offloading
the bidding document that has the technical description
(FSOs), but not FPSOs. Therefore, we expect our FPSO
of what we need to supply, it is difficult for us to provide
business to be more related to international players
a cost approximation. Complexity will drastically influence
entering Mexico to develop deepwater projects.
the price.
KI: For the past two years, we have been ensuring that our
Q: Which elements in your operational philosophy do you
units will be up to IOCs’ standards by meeting with the
believe provide a unique advantage for MODEC in the
individual oil companies that have expressed interest in the
FPSO market?
market and discussing ways in which we could work together
BH: At times, there are gaps between the MODEC
from an early stage. We are also considering expanding
specifications and the client specifications we get in a
this exercise to PEMEX. So far, we have had a 15-year-long
tender package. We believe that this is the band where
charter with the NOC for the supply of FSOs, which ended
costs are added, as some of the oil company specifications
in 2013. We also provided it with engineering information,
may not truly be needed, or were written when the oil price
services, and evaluations for increasing production.
was much higher, and have not yet been challenged. In all of our projects, we are able to build vessels according
Q: How do you see your strategy in Mexico moving more
to our client’s specifications, but we will always try to
towards younger fields where the technological needs of
justify the gap between their requests and our suggested
PEMEX are wider?
offering, trying to understand what is truly required. It is not
BH: The big difference between the work we carried out
uncommon for this research activity to lead to our clients
on the Ta’Kuntah FSO versus Koo-Maloob-Zaap or other
removing certain requirements, because our proposition
upcoming FPSOs is that the former was purely a FSO facility
meets what they are looking for from a technical, quality,
and we did not carry out any production onboard the unit.
and HSE point of view. By discussing options with our
For the FPSOs that will be used in Koo-Maloob-Zaap or
clients, we usually reach a lower CAPEX than they would
Ayatsil, we have to incorporate a production facility to cover
have expected. Part of that goes back to pre-FEED and
all of the eventualities that could occur over the prospective
FEED stages of a project. When an oil company like PEMEX
field life. With that, it becomes a much more sophisticated
approaches an engineering firm to obtain a FEED, it gets
unit than what we had previously in Mexico, and is more in
an engineering solution. Although there is nothing wrong
line with what we have supplied for West Africa or Brazil.
with that, it lacks the perspective of an operator. It would be much more cost-efficient for the company to initiate
Q: What role do FPSOs play in cutting costs for operators
a FEED competition between the different players in the
in this new offshore climate where the future is uncertain?
industry, like MODEC and its competitors, based on a set of
BH: We are looking to challenge the perception that FPSOs
functional specifications. This would allow us to input our
are expensive. All companies that provide FPSOs, MODEC
knowledge and save the oil company both time and money.
187
NEEDED: A subsea connection specialist with a strong safety performance record.
NEEDED: The ability to understand job requirements and identify the most effective and cost-efficient solutions.
NEEDED: Niche, best-in-class products, services, and solutions to solve subsea challenges, from routine to extreme.
NEEDED: Nimble and responsive execution of solutions to minimize risks and optimize productivity.
As the trusted subsea connection specialist, we focus intently on the many challenges that global offshore operators face—from routine to extreme. To meet those needs, we first ask, “how can we do this better?” Then we leverage our vast experience working in dynamic and unconventional environments to solve beyond the status quo. The results are innovative solutions that safely de-risk operational systems, increase reliability, and enable a lower total cost of ownership for our clients.
Connect with what’s next at Oceaneering.com/WhatsNext
| INSIGHT
GIVING AGING INFRASTRUCTURE ANOTHER CHANCE Harkand’s North American operations began in 2013, and by the end of 2014, the company had increased its revenues by 50%. The firm decided to enter Mexico in
ASHIT JAIN
2013, when it took over Veolia Marine Services’ operations
Managing Director – North
in Houston. At that time, the operations were limited
America & Africa of Harkand
to the US and part of the strategic growth plan was to expand its business geographically and given the previous experience that Ashit Jain, Harkand’s Managing Director
out that Mexico has a significant amount of talent, which
- North America & Africa, had in Mexico, this country
he has seen first-hand. However, two areas in which he
became an obvious choice.
finds Mexico still lagging in terms of skills, and where Harkand can add value and apply its experience training
“Our main motivation for entering Mexico was the fact that
employees in other countries, are ROV operations and
we specialize in inspection, repair, and maintenance (IRM)
specialized diving. “As a company that performs highly
of ageing shallow water and deepwater assets. Given the
specialized diving operations, we can bridge the training
mount of installed offshore infrastructure in shallow water
gap here in Mexico to improve the skills of an already
blocks, the country provides a considerable opportunity
talented workforce. This has always been our model
for our services,” he shares. Harkand opened an office in
when entering new markets.” Jain says there are well-
Ciudad del Carmen and in 2015, it was awarded a contract
established local diving services companies in Ciudad
by Swiber Offshore for providing diving services in the
del Carmen operating at the moment and working
Ayatsil project. Harkand’s strategy has always been to
directly with PEMEX. Larger construction projects are
work for the main contractors upon entry into the market
slightly more technically-oriented, meaning they require
in order to build a solid reputation.
significantly more engineering expertise, and this can be the niche in which Harkand differentiates itself.
The issue with aging assets in shallow waters differs greatly from aging assets in deepwaters, tells Jain. “Typically, in
Having a state-of-the-art fleet is another component
shallow waters, the life expectancy of the infrastructure
that makes a company thrive in Cuidad del Carmen,
at the point of design ranges from 15 to 20 years, but
and Harkand’s ability to maintain high-spec fleet is a
in some of the fields it can end up being used for much
byproduct of the way the company was formed. “Harkand
longer.” The fact that many of the subsea structures are
was established when subsea vessel company Iremis was
in an extremely corrosive environment results in a greater
merged with two companies based in the North Sea called
requirement for inspection and repairs to ensure there are
ISS and Andrews Survey in 2012. The company further
no losses in the structural integrity, no shift in the pipelines,
expanded by acquiring Veolia Marine Services. This buy-
and no corrosion. “Finding the problems in advance and
and-build strategy has set Harkand on the course to
implementing preventive measures before issues arise can
develop a robust fleet with a suite of complementary
help the oil and gas industry, not just in terms of economic
capabilities that benefit the other divisions while also
savings, but also by ensuring greater levels of safety and
fostering organic growth,” says Jain.
environmental responsibility,” Jain asserts. The majority of Harkand’s vessels are new, with the oldest One of Harkand’s most notable advantages is the fact
in its fleet dating back to 2008. The company has higher
that the company can provide both construction and
spec vessels, most of which are equipped with two cranes
IRM services with its own vessels, ROVs, and diving
and others have twin diving bells. While the daily cost of
teams.
reduces
twin bell vessels may be higher, when examining the time
overall risk on the project and reduces at-completion
saved in executing the project, the additional expenses
cost, thereby creating significant value for clients.
are recovered. The company will launch a newbuild dive
Harkand has a fleet of ROVs and trained personnel in
support vessel next year with capabilities for deepwater
Mexico who can carry out the necessary tasks from well
and shallow waters, the Harkand Haldane, which will be
intervention operations, hydrate remediation, chokes
equipped with diving and ROV capabilities, its own survey
replacement, and any other intervention that may be
equipment, and a 250-tonne crane that can work at a
required to ensure trouble free operations. Jain points
depth of 3,000m.
This
integrated
service
approach
189
8
ONSHORE & UNCONVENTIONAL RESOURCES
Mexico’s onshore fields are maturing and in need of innovative EOR and IOR solutions to maximize the recovery factor and extend the productive life of these fields. The Energy Reform has made various tools available to revitalize these fields, such as licensing rounds, farm-outs, and the migrations of the COPS and CIEPS. R1-L03 successfully allocated 25 onshore blocks. The fields retained by PEMEX can benefit from new contract types to enhance their attractiveness to private investors that will contribute the necessary investments, technological capabilities, and operational expertise to optimize production. One of the anticipated changes is the migration of the CIEPS and COPS, through which
privately operated fields will contribute to national production in an almost immediate manner. Although the contract migration has been delayed due to the learning curve this process entails for all the parties involved, the authorities are speeding up efforts to complete the process before the end of 2016.
This chapter will address the plans and strategies of contract-winning firms and their potential suppliers and service providers. It will also review the applicability and feasibility of enhanced oil recovery methods and other innovative technologies that could address the challenge posed by Mexico’s mature fields.
191
| CHAPTER 8: ONSHORE & UNCONVENTIONAL RESOURCES 194
VIEW FROM THE TOP: Luis Vázquez Sentíes, Grupo Diaviaz
196
VIEW FROM THE TOP: Stephen Meheen, Compañía Petrolera Perseus
197
INSIGHT: Rogelio Montemayor, Strata BPS
198
EXPERT INSIGHT: Kevin Smith, Renaissance Oil
199
VIEW FROM THE TOP: Vicente González Dávila, Geo Estratos
200
EXPERT OPINION: Thomas Tunstall, University of Texas at San Antonio
202
VIEW FROM THE TOP: Franco de la Concha Hamdan, EIM Capital
203
INSIGHT: Luis Vielma Lobo, CBM
204
VIEW FROM THE TOP: Kevin Macumber, Tellus Operating Group and Telpico
205
VIEW FROM THE TOP: William Waggoner, Mexico Petroleum Company
206
VIEW FROM THE TOP: Ignacio Filici, TrueBlackOil
207
INSIGHT: Andrew Auns, Williams Scotsman
208
TECHNOLOGY SPOTLIGHT: Thermo-Chemical Well Treatment, Tekna Services
209
INSIGHT: César Ruiz, Tekna Services
193
| VIEW FROM THE TOP
NATIONAL CHAMPION ABOUT TO BECOME AN OPERATOR LUIS VÁZQUEZ SENTÍES Chairman of the Board of Grupo Diavaz
194
Q: How is Grupo Diavaz advancing in the migration of its
to have participated in Round One R1-L01 and R1-L02,
COPF and CIEP contracts?
particularly because we would have gained much-desired
A: The Energy Reform has given us the option to migrate
knowledge and experience in operating offshore fields
our long-term contracts with PEMEX, so now we are
from our potential partner. However, the implied risks were
working on this for our Miquetla and Ébano fields. For this
too significant.
purpose, we have worked closely with PEMEX, the Ministry of Energy, and the Ministry of Finance. This is something
Players coming to Mexico do so with the intention of
that no one in Mexico had done previously, so we are
producing oil but Grupo Diavaz already has fields in
familiarizing ourselves with this new scheme. Neither
production, so the conditions are different. By failing to
the government nor our company has experience in
participate in the shallow water phase, we have had time
migrating contracts, thus the process has been somewhat
to focus on other potential projects and contractors, and
challenging, but we see this is part of moving the Energy
study other fields. Nonetheless, we participated in R1-L03,
Reform forward. PEMEX is going to be our partner, so
where we were interested in four large blocks out of the
we have had to establish the agreements, such as the
25 that were tendered. Ultimately, we won the Borcodón
percentage allocated to each company, the fiscal regime,
and Catedral fields. Grupo Diavaz could participate with
costs, and government take.
a partner, although we plan on working independently at this moment.
Out of the 22 contracts eligible for migration, two are close to completion, providing us with a precedent
In the near future, there are going to be several oil
and parameters for the migration. The authorities have
companies operating in Mexico, including companies
successfully negotiated the learning stage, and now it is
from the migrated contracts, companies that have been
time to act. Our Cuervito and Fronterizo fields will also be
awarded contracts in Round One, and PEMEX. In this sense,
migrated soon, but for now I am only referring to the other
Grupo Diavaz is preparing to become a contractor for
two contracts. One of the contracts that will be migrated
those new operators. Now, Grupo Diavaz has production
is for a gas field, and the other is an oilfield in the southern
and services divisions. Our goal is to separate the oil and
region, so the main difference will be the tax regime, which
gas division and form two companies, an operator and
differs for light oil and heavier crudes. The oilfields will have
an oilfield service company, a process on which we are
production-sharing agreements and for the gas fields, we
already working.
might be able to obtain a license, but this is still under discussion. We are excited by the possibility of becoming
We are definitely interested in participating in the farm-
a formal operator. Once our contracts are properly
outs, and we are already analyzing the opportunities. A
migrated, Grupo Diavaz will be producing 25,000b/d. It
farm-out entails partnering with PEMEX, with whom we
will take less time for this to happen than that required by
have worked for years. As opposed to Round One, the
the five winners of R1-L02 to begin production.
fields are already in production, enabling us to get started in a six-month period. There are fields we know have
Q: Why was Grupo Diavaz absent from the first two
attractive resources because we have worked in them for
phases of Round One?
some time.
A: Grupo Diavaz has limited experience operating offshore fields, although we considered entering the bidding
Q: What will be the role of your exploration division once
rounds. After thorough assessment of the tendered fields,
the two companies are created?
we decided not to participate even though we qualified
A: The exploration segment will be part of the operations
for R1-L01 and R1-L02. We would definitely have liked
company. Out of the 22 CIEPS, Ébano is the most
productive field, where Grupo Diavaz has increased
Q: What will be the pillars of Grupo Diavaz’s mid-term
production by 10,000b/d. This is a staggering number
growth?
considering other companies increase their production by
A: We definitely want to become an operator, but
only 300b/d on average. Our success can be measured by
the migration has taken longer than expected. Once
the increase in production and reserve restitution levels.
the migration is completed, Grupo Diavaz should be
Miquetla was awarded to us a year ago, and Ébano was
producing 25,000b/d, so we are eager to begin. We want
given to us on January 1, 2013. When we began operating
to win a block or two at some point in the near future
Miquetla, this field was producing 400b/d, and we have
through the tendering processes. There will be plenty of
now increased this figure to 2,600b/d. In other words, we
new and even some inexperienced players joining R1-L03,
have managed to extract more oil, and this is the same
some of which believe being an operator means having
strategy we want to apply to PEMEX tenders.
plenty of capital and subcontracting everything, which in my experience is far from the truth. Conversely, Grupo
Lifting systems will be crucial. So far, Mexico has been
Diavaz has been investing time, money, and educational
lucky in the sense that it had easily extractable oil. Now
support since 2003, when we began acting as an
that increasing production will rely on mature fields, we
improvised operator.
will need to implement artificial lifting systems and every available resource to maximize output at competitive costs.
We need to find a way to finance our growth, and that
The current oil prices will also force us to do this efficiently,
is the reason why we are restructuring the company. We
first and foremost, and at the lowest cost. Grupo Diavaz
also need to ensure the necessary talent, which is why we
has carried out various tests to find the most effective
are approaching several universities in order to influence
way to produce according to the various conditions in
the courses they offer. After all, Grupo Diavaz will need
the country. For instance, we have used vapor to extract
enough experienced personnel to operate six fields. Our
heavy oil. We are well-positioned to provide artificial
goal for ten years from now is for our new companies
lifting services in mature fields, and we are studying the 25
and subsidiaries to hold the same position in the country
blocks tendered in R1-L03 to determine where we could
as Grupo Diavaz enjoys right now as a prestigious and
increase production at the lowest cost.
knowledgeable player.
195
| VIEW FROM THE TOP
FROM MATURE FIELDS TO FLARE GAS STEVEN MEHEEN CEO of Compañía Petrolera Perseus
196
Q: When did the company come into to existence and
of ledges that PEMEX had never drilled. Nonetheless, it
what was its purpose at that time?
has a challenging social setting, as the field is located in a
A: Compañia Petrolera Perseus is part of the holding
community. Thanks to our effective bidding strategy, we
company called Interamericana, and is also a holding
were able to win the latter two fields.
company itself that encompasses the E&P energy services business, and the energy technology businesses. We also
Q: What kind of innovative technology has the group
have a small services group, which includes a supply and
created over the years that you plan on using in the
mud boat company based in Ciudad del Carmen. Our
production of these fields?
sponsors are well known Monterrey business people that
A: We predominantly license technology from other groups
are looking to advance into the energy sector. We formed
we have worked with. We licensed the complex nanofluid
the company in January 2015 with the aim of taking
technologies from FlowTech Industries in the US, which is a
advantage of the Mexican Energy Reform. The main idea
fluid for reservoir stimulation and well completions that has
behind the creation of Compañia Petrolera Perseus was
a solid track record in enhancing production in new wells
the evaluation of the bidding rounds, PEMEX farm-outs,
and renovating old ones. It will be widely used in Fortuna
and service contracts that will be migrated to production-
Nacional, but not as much in Tajón. We are also working
sharing contracts, as well as service companies, both
with PEMEX in various wells to test this technology.
offshore and onshore. We have narrowed down this
Moreover, we have agreements with Gray Rock Industries
general vision to E&P, as well as a small technology group
to liquefy gas, a technology that will be used to monetize
where we have licensed interesting oilfield technologies
flare gas. We consider this a significant opportunity, as
like Flotek and GreyRock, and with which we have
Mexico has one of the highest gas flaring rates in the world,
exclusivity in Mexico. So far, we have bid on three blocks in
and the World Bank and environmental groups are tackling
R1-L03 and were awarded two.
this practice. Our goal here is to partner with PEMEX and others to monetize the gas into a useful product. We could
Q: How did you manage to win two blocks, and what
transport gas to the GTL plant and produce low-sulphur
impeded you from winning the third block?
diesel, low-sulphur kerosene for aviation fuel, or adapt the
A: Being the first mover is always difficult, especially in
blend to spike back into the crude and reduce its gravity.
Mexico where it is necessary to perform an exploration phase. Bidding in R1-L03 carried much less uncertainty
Q: How will you ensure the national content requirements
than other bidding rounds, as there was a wealth of
work in your favor?
available data from PEMEX that CNH had included in the
A:
Data Room and the wells had already been drilled. We
manufacturing commodities in the country, as we would
started by screening 15 out of the 25 fields offered and
like to improve the technology available in Mexico and
we narrowed down our interest to the three that we bid
subsequently import our manufacturing from Europe and
on, namely Tajón, Fortuna Nacional, and Mayacaste. We
North America. This initiative is not fueled by the national
did not bid aggressively on the latter, given its relatively
content rules, but rather because having a manufacturing
low amount of reserves. For Tajón, however, we liked the
plant would allow us to lower costs and have more
volume of the reserves, and the field’s deep wells and
control over our operations. The fact that companies are
deep traction carbonates, something we understand well
downsizing can be worrisome, but it also provides the
within our groups, so in this case, we were keen to win
newcomers in the marketplace with a pool of qualified
the field. We also decided that Fortuna Nacional was in
talent. PEMEX professionals that were let go will find
an interesting setting to redevelop, with some upsides
opportunities in the private sector and we hope to be able
around the fields with deeper horizons and some pockets
to provide them with new opportunities.
We
are
assessing
the
possibility
of
eventually
| INSIGHT
THE EARLY BIRD CATCHES THE BLOCK Strata, a familiar name in the mining industry, decided to expand its scope when the Energy Reform was announced, operator. “We began operations in Texas in order to gain
ROGELIO MONTEMAYOR
experience before delving into the Mexican market. This
Director General of Strata BPS
taking the necessary actions to become a knowledgeable
was necessary so that we could assess whether or not we wanted to participate in Mexico’s bidding rounds,” explains Rogelio Montemayor, Director General of Strata BPS. The
there are new regulators, new laws, and a new approach to
company’s shale and conventional mature field projects in
the industry as a whole, as well as a culture change from
Texas allowed it to understand how the industry functions
regulating one public entity to several private ones. Even
and to assemble its own technical team, which Rogelio
the regulators have to learn how to manage their new
believes later became a crucial element to the company’s
responsibilities, which presents a significant challenge,
successful participation in Round One.
not to mention the fact that ASEA will have to approve all the permits in a short time in order to allow companies to Mexico’s
begin production as soon as possible.” The only challenge
northerly neighbor, Strata BPS decided to participate
he is not concerned about is security, given the company’s
in Round One. “We opted for R1-L03 because moving
extensive mining experience in northern Mexico.
Having
gained
sufficient
experience
from
offshore would not make sense for a company of our size, as it would require more capital and different skillsets,”
When it comes to the future of the company, Montemayor
Montemayor clarifies. The company considered mature
indicated that it is looking into R1-L05. He even admits that
fields attractive because of their proven reserves, but also
unconventional resources might come into the plans much
because the fact that the fields were already in production
earlier, as Block 18 is not constrained in terms of depth,
reduced the financial risk, as opposed to Mexico’s
meaning Strata BPS could access a shale formation in its
shale options, in which companies will need to test the
existing fields if this makes sense financially. Depending on
formations and evaluate the resources.
the way the conditions and the fiscal terms are presented, Montemayor thinks that the unconventionals round could
When commenting on the factors that led to Strata BPS’
be attractive for a company like his. “If the authorities
success in its selection for the allocation of Block 18,
give a reasonable timeframe for the exploration phase,
Montemayor claims the quality of the company had a deep
companies will be able to adjust their strategies while the
influence in the results. “We managed to take advantage
industry’s cyclical nature helps increase the prices, making
of the industry’s downturn by putting together a team
the fields attractive by the time developments begin,” he
consisting of several talented engineers and geologists that
maintains. In addition to these opportunities, Strata BPS
were available because other companies, including PEMEX,
is considering working with PEMEX on a farm-out, but
had let them go.” Strata BPS began analyzing the blocks
the company is waiting to evaluate the structure of the
in 2014 when the tender was pre-announced. The Mexican
contractual terms before furthering its interest.
firm was one of the first three to access the data package, giving it six full months to analyze the fields and optimize the economic and the production models. Montemayor claims that Strata BPS’ early-bird status was an important factor in its success, allowing it to see opportunities and aspects of the play that later-comers may have overlooked. The contracts for the fields awarded in R1-L03 are expected to be signed in May, after which there will be a 90-day transition period before the fields are officially passed over to their respective winners. During this
“We opted for the third phase because moving offshore would not make sense for a company of our size, as it would require more capital and different skillsets”
period, Strata BPS will begin to take control of its field’s operations, a task that is far from void of challenges. Montemayor shares his concerns in this regard, “First of all,
Rogelio Montemayor,
Director General of Strata BPS
197
| EXPERT INSIGHT
WAKING THE SLEEPING GIANT An important aspect of Renaissance is that it is a small, growing company, with an exclusive focus on Mexico,
KEVIN SMITH
making each awarded property the highest priority. “Due
Vice President Business
to its size, PEMEX has had to leave behind some smaller
Development of
and medium-sized fields that are not getting much
Renaissance Oil
attention for development but are highly impactful for a company like ours,” Smith shares. Renaissance plans to develop these through the application of capital and
198
Renaissance was awarded the three fields of Topén,
new technologies. The Vice President believes that the
Mundo Nuevo, and Malva in the third phase of Round
entrance of independent companies into Mexico’s oil and
One, which involved onshore oil fields. Kevin Smith,
gas industry will kick-start the re-development of these
the company’s Vice President Business Development,
fields to the great advantage of the industry.
believes that one of the things Mexico needs above and beyond investment capital to spend on the resource base
Renaissance also has aspirations beyond conventional
is the introduction of new technology. “Since PEMEX
onshore oil fields, as the company is extremely interested
has been underfunded, it has not been able to develop
in tapping into Mexico’s shale and tight rock resources. The
technology at the same pace as oil companies in the
main difficulty, according to the Vice President, will be getting
US and Canada,” he explains, adding that Renaissance
around the lack of information, which comes from the fact
has invested heavily and put a strong emphasis on its
that Mexico has not focused enough on the development of
technical team, which has a solid track record in applying
its shale and tight-rock formations. Nonetheless, he believes
new technologies to liberate unconventional resources.
Mexico presents a unique opportunity. “Our initial analysis
For instance, the company was able to capture the core
of the unconventional opportunities in Mexico is highly
of the Mitchell Energy team, which cracked the code on
encouraging. Many of the shale basins in other jurisdictions,
commercializing gas from the Barnett Shale formation,
including Canada and the US, have already been identified
resulting in the development of shale plays in the US,
and in development for many years, making it difficult and
Canada, and elsewhere in the world. “These are the
often prohibitively expensive to acquire an entry position.
people who gave birth to a new industry,” he affirms.
With Mexico’s unconventional industry being in its infancy,
“As this innovative team is now involved in Renaissance,
we believe there is tremendous opportunity to grow with
we are able to apply its knowledge and enthusiasm to
the country in shale development,” Smith comments.
tackle Mexico’s immense unconventional opportunities.
Renaissance has been active in mapping and identifying
In addition, we can use this expertise to apply new
shale resource trends, and the company believes that there
technologies and better develop mature fields.”
is outstanding potential in the country.
Vision Combining decades of successful oil and gas experience in Mexico and the best practices of US exploration and production technology to efficiently and effectively explore and produce oil and gas in Mexico under the new Mexico Energy Reform.
www.mexicopetroleumcompany.com
529 W. San Francisco Street, Santa Fe, New Mexico 87501 Phone: (505) 699-2616 | Fax: (505) 820-9228 william.waggoner@mexicopetroleumcompany.com
| VIEW FROM THE TOP
QUADRUPLE WINNER OF R1-L03
VICENTE GONZÁLEZ DÁVILA CEO of Geo Estratos
Q: What factors led to your decision to bid for four blocks
responsibility. It would be more problematic to receive
in the Tampico-Misantla Basin, and what main challenges
existing infrastructure that requires investment to develop,
did you faced in this endeavor?
repair, and maintain, as this would be costlier than our
A: The fields we were awarded had been abandoned by
current situation. The challenge associated to property
PEMEX since 1967, and have not had any activity except
isotropy deposits, which is the property change in relation
for some marginal punctual oil extraction since then.
to horizontal and vertical distribution within the space of
As a technology-based firm with more than 20 years of
the deposit, has been well analyzed so far. The next step is
experience in those fields, we saw a real opportunity in this
to use 3D seismic technology and to reprocess information
round to prove our abilities as operators and to develop
to improve our production expectations.
Mexico’s oil production. Our business is developing technology that will confer us advantages over knowledge
Q: Given the fact that you offered a relatively high royalty
and best-practices, allowing for cost-reductions and
rate for the State, how will you ensure the company will
competitiveness in challenging areas. We are designed
be able to invest in future projects?
according to a model that gives us the capacity to be
A: We are a company that does not depend on public
competitive and produce our fields at a low cost.
funds or on financing processes from other institutions. We invest in our own projects, make money from these,
Our first challenge was not related to the database, but
and reinvest it elsewhere. The royalties that we offered
rather it was linked to succeeding in winning the four
are a reflection of the security that we obtain from being
blocks we were awarded. We had to ensure that our
a longstanding company. Unlike companies that were
technological development was sufficiently far along
created at the last minute to take advantage of the Energy
to allow us to bid high royalties without putting the
Reform, we have had the time to carry out the necessary
profitability of our projects at risk. Overall, the bidding
analyses. The rate we bid was our strategy for the future.
round was well carried out, but I think CNH should have
Going forward, we will offer lower royalties, as we will have
included many more areas in the tender, so that competing
higher control of the market. Moreover, our technological
firms could have a wider capacity for analysis. Indeed, the
capacity allows us to be efficient at the current royalty rate
excess of demand over supply complicated CNH’s work,
that we bid, and not to have to worry about relying on
even though it was transparent and just. CNH should be
corrupt processes to obtain contracts.
more aggressive and make a larger number of contractual areas available per unit of time.
Q: Now that your firm is changing, how do you hope the company will grow, and how do you hope to contribute to
Q: When will you begin operations on those fields, and
Mexico’s oil and gas energy and its production?
what first steps will you take?
A: We have been preparing to become an operator for
A: We hope to receive the fields at the start of May, despite
many years now, training our personnel with the necessary
the fact that the original contract signing date was set for
knowledge. In fact, our service company will participate
February 8, 2016. From there, we will begin activities in
as a service provider for our operator. Our vision for the
June or July. Our team and personnel are ready to start on
future is to have an operating company that is completely
that date, and our execution capacity is directed toward
independent of that of our services. We would like to
the installation of the infrastructure that our four fields are
acquire around 25 fields in the next two years. We think
currently lacking. We do not consider this a challenge, but
this will allows us to contribute 5% to national production.
rather, an opportunity, because we can plan and design
We also want to contribute through our services, and our
our own infrastructure using the latest technology. We will
main concern at the moment is to put forth a solution that
be working in a context of high security and high social
is adapted to the investment purpose of operators.
199
| EXPERT OPINION
SHALE DEVELOPMENT AND MEXICO production in Mexico poses many interesting challenges in
BY THOMAS TUNSTALL
the wake of the recently enacted Energy Reform.
Senior Research Director at the University of Texas at
On the other side of the Rio Grande River, South Texas
San Antonio - Institute for
has seen extraordinary economic activity as a result
Economic Development
of the Eagle Ford Shale. The economic impact in 2013 was estimated to be US$87 billion, supporting over 150,000 full-time jobs (Tunstall, Oyakawa et al. 2015). It
200
Opportunities for unconventional or shale oil and gas
is interesting to note that while the Eagle Ford formation
production in Mexico remain in the earliest stages of
continues well into Mexico near Monterrey and over to the
development. While shale gas production increased
east along the Gulf Coast, the production activity literally
significantly in the US since 2000, and shale oil production
stops at the river border. In the Eagle Ford, over 10,000
since 2008, no other country in the world has yet to
wells have been completed to date. In Mexico by contrast,
replicate that success. Due to its close proximity to
there have been only a handful of test wells developed.
major shale field development in South and West Texas, Mexico is particularly well-positioned to take advantage of
The Eagle Ford formation actually continues on into
unconventional extraction techniques. However, significant
Mexico. On the Mexican side of the border, there are
challenges will have to be addressed.
apparently several formations, with the Burgos Basin as perhaps the best known of all. These preliminary maps
Mexico already imports refined products and natural gas
provided by the EIA suggest that shale formations in
from the US. In 2015, Mexico imported over 1tcf of natural
Mexico extend south, well into the state of Veracruz
gas from the US, up from only 333bcf in 2010. New natural
and perhaps even beyond. The reasons that shale
gas pipeline projects have resulted in the transport of
development has flourished in the US and not elsewhere
additional supplies to Mexico. All of this while Mexico sits
to date is related to a couple of key issues. First, the US is
on top an estimated 545tcf of shale natural gas reserves.
one of the few countries in the world that allows private
Estimates for unconventional oil reserves in Mexico are
individuals to own mineral rights. In most other countries,
believed to be 13 billion barrels (EIA 2013).
private individuals may only own the surface rights to the land. Mineral rights in most countries are either owned
The importance of the Energy Reform in Mexico should
by the state, as is the case in Mexico, or the monarch, as
not be underestimated. While Mexico is a net oil exporter,
is true for the UK, or perhaps by the currently reigning
decreased production over the years has narrowed that
dictator in developing countries with despotic regimes.
margin. Mexico’s oil consumption in 2013 was 2 million b/d
Private ownership of mineral rights creates a powerful
and production was only slightly higher at approximately
incentive to develop the oil and gas resources below
2.5 billion b/d. Despite increasing amounts of investment
ground. One of the reasons the Eagle Ford could be
on exploration and production by PEMEX, oil production
developed so quickly was because E&P companies could
in the country peaked in 2004 and has been declining
negotiate and close lease and royalty agreements in a
steadily in the decade-plus since then. Were it not for the
timely manner and begin drilling operations. Working
prospect of the Energy Reform’s implementation, Mexico
with state bureaucracies, by comparison, is often a time-
would likely transform from a net exporter of crude oil to
consuming process.
a net importer within a few years. The other reason, and probably the key factor, in the US The bulk of Mexico’s shale prospects appear to lie in the
shale development, was due to the nature of companies
north and northeastern sections of the country, where
that pioneered the unconventional techniques. Shale oil
infrastructure is often largely undeveloped. This means
and gas production techniques were not pioneered by the
that in order to tap the country’s bounty of shale oil and
major oil companies. Rather, development occurred due to
gas, infrastructure such as roads, housing, rail, pipelines,
the persistence of independent oil and gas companies like
and many others will have to be built first. The ability to
Mitchell Energy targeting natural gas formations (Hinton
develop a suitably skilled workforce will be essential to
2012). These independent companies experimented and
long-term success. Security issues must also be addressed.
risked capital until they figured out how to unlock the
As such, the potential unconventional oil and gas
shale oil and gas trapped inside the rock.
The story of the prospects for the Energy Reform in Mexico
and implementation (Mills 2015). Over time, these techniques
necessarily relies on the experience north of the border, as
can be expected to significantly drive down costs and make
the US has been the only country to exploit unconventional
shale oil and gas development in challenging environments
techniques, even though shale oil and gas reserves appear
like Mexico more feasible.
to be in abundance throughout the world. The significant shift in fortunes in the US oil and gas industry as a result
The Energy Reform in Mexico will continue to play out over
of the use of unconventional techniques has been an
the coming years, but ultimate success is by no means
epochal event that has literally transformed the global
guaranteed. The passage of constitutional changes to allow
energy market. Hence, there is ready demand in many
private investment in the energy sector, coupled with the
countries for now plentiful US natural gas. The US now
enactment of secondary laws, was a significant achievement
produces more natural gas than it ever has, amounting to
to be sure. However, the next phase of implementation will
over 30tcf annually. The fact that the US has the second-
certainly prove equally or even more difficult. The prospects
lowest cost for natural gas worldwide, preceded by Qatar,
for full implementation of the Energy Reform in Mexico
has resulted in a plethora of global manufacturers setting
continue to remain promising, but the landscape will remain
up facilities in the US, representing billions of dollars more
one of continuous change. Previous experience in another
of investment. Given these recent developments in the US,
industrial sector may be instructive. For example, it is worth
it is not hard to understand why there is significant global
noting that in the automotive industry, Mexico now ranks
interest in shale oil and gas development. With extreme
as the number four manufacturer worldwide and continues
proximity to the US, particularly the Eagle Ford in South
to expand. Production in light vehicles has grown from 2.1
Texas, Mexico may have the best near-term opportunities
million units in 2008 to 3.2 million units in 2014. By 2020,
for shale development of any country if the Energy Reform
that number is expected to reach nearly 5 million units of
there can be successfully implemented.
light vehicles produced, so a worthy precedent has been established in the automotive sector.
For Mexico in the short term, there may be a shortage of suitably skilled engineers, geologists, and other experts.
For northern Mexico specifically, successful shale oil and gas
The high level of unconventional oil and gas development
development will have to be preceded by a wide range of
in the US currently limits supply. However, over the longer
infrastructure projects. Natural gas production, for example,
term, US expertise in shale technologies and techniques can
is dependent on a pipeline network that runs all the way to
be expected to be exported to Mexico, which will provide
the wellhead. Development of a suitable pipeline system
positive balance of trade benefits to its neighbor country.
will in turn require a skilled workforce, housing, roads, rail,
While Mexico is a net oil exporter, decreased production over
water supply and medical facilities to support construction
the years has narrowed that margin. Mexico’s oil consumption
activities. The investment at both the state and federal
in 2013 was 2 million b/d and production was only slightly
level will be substantial, but would go a long way toward
higher at approximately 2.5 billion b/d. And as mentioned
improving the quality of life in one of the most neglected
previously, Mexico’s oil production peaked in 2004 and has
areas of the county. No doubt, significant hurdles remain
been declining steadily in the decade-plus since then.
with regard to the ultimate success of Energy Reform in general, and shale oil and gas development in particular.
It is important to note that unconventional techniques vary
However, if these issues can be addressed in the coming
significantly from more traditional conventional projects.
years, Mexico is in a position to significantly improve the
The major E&P companies typically engage in capital-
quality of life of many of its citizens, as well as usher in a
intensive projects such as deepwater drilling that requires
new era of energy independence with regard to natural gas
hundreds of millions of dollars invested into a single
and remain a significant oil exporter to the world market
platform. This is a significantly different business model than the drilling-intensive operations associated with companies focusing on shale oil and gas opportunities. In fact, the use of unconventional techniques has been likened to a manufacturing process, as opposed to traditional wildcatting, where early oilmen relied not only on geology, but also intuition. E&P companies using unconventional techniques continue to adopt more systematic approaches in order to drive their completion costs down. In addition, a myriad of new technologies that involve logistics, instrumentation, chemistry, sensors, and seismic imaging, among many others, are in the early stages of development
Mexico sits on top an estimated
545tcf of shale natural gas reserves. Estimates for unconventional oil reserves in Mexico are believed to be 13 billion barrels
201
| VIEW FROM THE TOP
THE FUTURE FOR A GREEN AND POWERFUL MEXICO FRANCO DE LA CONCHA HAMDAN President of EIM Capital
Q: Why is EIM Capital interested in developing the
free market, in Mexico, it depends on the government and
country’s unconventional resources?
the policies it implements. For instance, the authorities
A: 202
We
believe
that
the
development
of
Mexico’s
will probably not release Mexico’s most promising shale
unconventional resources would have the largest impact on
basin, Tampico-Misantla, which is the area most likely to
the Mexican economy. In just a few years, this industry made
attract investment, because the government still needs to
US$500 billion per year in the US alone, with approximately
consult the local indigenous populations and confront many
US$200 billion going directly to the US Government in
misunderstandings surrounding the possible impact of the
taxes, totaling a third of the Mexican budget and half of
development of shale resources.
our GDP. Replicating this in Mexico, which is possible given we have the same amount of resources, would strongly change the face of our economy, and EIM Capital is invested in making that happen, despite the present challenges. So far, this industry has only been developed in the US, and it requires scale because the marginal product is not as high as it is in conventional oil. American Energy partnered with us to develop the Mexican shale industry, drawing from
"Mexico’s most promising shale basin, Tampico-Misantla, is the area most likely to attract investment" Franco de la Concha Hamdan,
its broad US experience, where its team was responsible
President of EIM Capital
for drilling slightly more than 10% of the shale wells. In terms of competitiveness, Mexico’s shale industry would be competing with more players than just the US. The
There
Argentinian Government has made its shale industry an
environmental impact of shale production. The main
attractive investment destination thanks to artificially higher
global issue is an excess of carbon emissions, which come
oil and gas prices. Although Argentina is well-positioned
from dirty coal-based electricity, and the solution to this
to become the next country to develop its unconventional
problem may just be the production of unconventional
resources, Mexico has many advantages, the main one being
resources. When the US developed it, it unlocked a huge
its proximity to the US. This is important in the unconventional
amount of gas, causing the prices to drop from US$10
industry given the necessity for infrastructure and services.
to US$2. Now that natural gas has become cheaper than
is
also
a
misconception
surrounding
the
coal, the US uses it in combined cycle plants to produce Q: What could be done to promote the development of
electricity,
Mexico’s shale resources?
tremendously. In terms of reducing emissions, the
A: The Government had a misconception that shale oil
development of the unconventional industry is the most
production stood at US$70, but in fact, that depends on
positive thing to have happened so far.
reducing
the
country’s
carbon
footprint
the field and well. Just like any other wells, their profitability depends on the oil price. As long as Mexico sets positive
Q: How big would be the impact of the development of
conditions and attracts the right operators, the country
Mexico’s unconventional resources?
can develop its shale industry. The challenge will be getting
A: The projected impact from the first four rounds on the
these companies to come to Mexico, as they already have
Mexican economy is US$1-2 billion per year over the next
a great deal of activity in the US. Their current idea is to
five years, while the unconventional potential could easily
ship the gas that they are producing to Mexico via pipeline,
go from zero to US$100 billion per year, depending on the
instead of producing it here directly, and the Mexican
oil price. Given that we have an estimated 60 billion boe
authorities will have to work hard to make investment
underground, this means we could produce 4 million boe
opportunities attractive. While the industry in the US is a
per day or double our production for the next 40 years.
| INSIGHT
MEXICO FACING A SLOW RECOVERY Overproduction has blighted the global oil and gas industry for much of 2014 and 2015, causing the prices of oil to drop significantly. Luis Vielma Lobo, Director General of CBM, believes that prices will remain below US$50/b for the
LUIS VIELMA LOBO
near future, specially since overproduction for the end of
Director General of CBM
2015 was around 2 million b/d. The incorporation of Iran in the market will have an additional impact because the country has a natural flow potential of 5 million barrels,
explore further down, among the Cretaceous and Jurassic
but currently it produces less than 2 million. “The wells can
formations that PEMEX explored but never exploited, with
be opened and closed like taps, it is cheap oil, and there
proven unconventional reserves, it presents an attractive
are high quantities of the resource,” Vielma states. Iraq is
opportunity for those companies.
also increasing its output and is one of the most promising countries in terms of oil production. Russia is an enigma
PEMEX is facing a perfect storm, and several factors have
in terms of production, but market experts consider that
contributed to it, according to Vielma. First of all, the oil
it may produce over 11 million b/d, a level of production
price’s deep fall and the economic crisis are impacting its
that is similar to that of Saudi Arabia. “The environment
internal prices by more than 40%. The consistent decline
of low price producers competing at this level is the worst
in production over the last ten years, equivalent to more
situation we can face and will be the key factor to keeping
than 1 million b/d, has affected the crude volume available
prices low for several years, unless an unexpected situation
for exports, thus impacting revenues. This has impacted the
occurs that pushes the prices up,” according to Vielma.
balance of the budget initially allocated by the government to political and social commitments, and therefore PEMEX’s
In addition, the unconventional oil sources in US have
budget was reduced by more than 30%, to partially support
the potential to continue growing at incredible rates,
that deficit. The country’s political situation, in particular
because specialized companies are constantly developing
the security issues, are important risk factors for potential
new innovations and technologies. This unique approach
investors. “In addition to these external factors there are
may lower the production costs to US$35/b in 2016,
other internal issues that also affect PEMEX’s strategy,
which creates an excellent opportunity for Chicontepec.
such as the reorganization process implemented before the
“Deepwater production may not be a viable business, and
reform took place and without a clear knowledge of how
that situation may create a new vision in the IOCs that gives
this process could impact PEMEX,” Vielma adds.
priority to production coming from onshore reservoirs, formations,”
Companies are now beginning to look at alternative
Vielma predicts. These factors have impacted the volume
exploration and extraction technologies, and Vielma
exported by more than 30% and obligated Mexico to
believes that this will be a positive development for
look outside the hemisphere for new costumers, mainly
Mexico’s oil industry. He asserts that there is no more
in Asia. “The discovery and development of a greenfield
effective way to extract oil than by drilling, with the second
may take up to seven years before the first hydrocarbon
most efficient approach being production optimization
molecule is extracted from the reservoirs, and in the case
through repairs or workovers of inactive wells. EOR will
of brownfields it will also take at least three to five years,
be the last option to increase production from reservoirs,
depending on the reservoir conditions, infrastructure, and
he says, and it may be more expensive than other
existing facilities for each opportunity,” warns Vielma.
alternatives. “World-class experience dictates that, in order
including
developing
non-conventional
to capitalize on EOR projects, action must be taken in the Vielma sees several similarities between Chicontepec and
early stages of production due to the fact that secondary
the fields in the Permian Basin in the US, in that they both
recovery processes are closely related to reservoir energy
contain tight oil reservoirs that require different technical
maintenance,” he expresses. If a company follows this
approaches to maximize production and recovery factors.
practice from the outset in certain types of reservoir, it
“Those companies that have been working in the Permian
may increase the recovery factor by as much as 5%, and
Basin will have a distinct advantage if they decide to come
that also includes EOR projects related to CO2 injection.
and participate in R1-L05,” he asserts. Moreover, if the
According to Vielma, one of the key aspects of this process
conditions of the contracts will allow the companies to
is maintaining the energy levels in the reservoir.
203
| VIEW FROM THE TOP
FLOODING EXPERT AWAITS SECOND CHANCE IN MEXICO KEVIN MACUMBER Engineering Manager at Tellus Operating Group and Telpico
204
Q: What motivated Telpico to enter the Mexican market?
losses and would reduce the ultimate recovery factor
A: Tellus is the parent company of Tellus Operating
from the reservoir. TOG currently has two CO2 projects it
Group (TOG), a domestic contract operator, which
operates for Tellus Energy and is about to begin a third.
has an international affiliate called Telpico. We formed
One of these is a miscible 11,000-13,000ft CO2 flood in an
Telpico Mexico to register and participate in PEMEX’s
older field, and the other involves injection of CO2 below
early licensing rounds, and as far as we know, this was
16,000ft for pressure maintenance in a newly discovered
the only US independent company that participated in
field. The third project will consist of an immiscible flood
the integrated E&P contracts of 2011 and 2012, where
for a shallow 5,000ft reservoir, as opposed to a deeper
we pursued full evaluations of four blocks, ultimately
flood in a miscible environment. There are analogues from
bidding on Tierra Blanca and San Andrés. Our main
other CO2 floods nearby that showcase the success and
motivation came from the fact that Mexico has large
the ability to recover, in general, approximately another
fields with significant volumes of hydrocarbons that have
third of the oil in the location. We also operate a water
been produced under a primary term but have not been
flood and natural gas flood. Secondary and tertiary
exploited to their maximum potential. Given our expertise
recovery is one of our strong areas and we saw a lack of
in secondary and tertiary recovery in the US, we saw an
that in some of the old fields in Mexico, so we thought
opportunity to develop these Mexican blocks. We looked
about putting our expertise to work there to turn a profit
at the first bidding round and decided not to rush into it
for us and the country.
due to some time constraints, but then we participated with R1-L02 and R1-L03. However, due to prices falling we
Q: How can you leverage on your expertise as an operator
withdrew slightly.
in the US to position yourself in Mexico? A: The direct answer is our staff knows exactly what to look
Tellus Energy is largely based on acquisitions of mature
for in terms of efficiencies, or a lack thereof, in an old field.
properties in Louisiana and Mississippi. One of the
We know how to retrofit the field and determine whether
opportunities in this business plan was to enter into the
to flood it with water, natural gas, nitrogen, or CO2, as
secondary and tertiary recovery arena to extend the
well as analyze the infrastructure and the wellbore status.
economic life of these assets. Therefore, our operating
These are the main strengths we provide as operator.
niche is achieving an increase of the recoverable oil in these reservoirs with onshore fields being our focus. As
We had a strong interest in Mexico with the first
our business model evolved to maintain that growth, we
opportunities in the integrated E&P contracts, but we
realized we had to expand into other segments, such
decided to take a step back due to the current price
as exploration and stepping out to find opportunities
regime. However, the PEMEX farm-outs present an
internationally, which led us to Colombia and Mexico.
attractive opportunity for another avenue that could work for us. With the help of Roberto Carrillo, who advises
Q: What are some EOR processes that Tellus is developing
Telpico in Mexico, we are keeping our eyes and ears to the
or implementing that could be successful in helping
ground awaiting PEMEX’s announcements regarding how
Mexico increase production?
it will offer up some of its fields and on the contractual and
A: TOG is one of two operators east of the Mississippi
legal terms. As more opportunities present themselves in
river that are actively conducting CO2 floods in this state.
mature fields we fully intend to look at them, and if the
We have a miscible gas flood that is being used in a large
contractual terms become more favorable to an operator
field in Clarke County, Mississippi, where we are using
like us, we will evaluate and see if we can find some low-
natural gas to maintain reservoir pressure so this does
hanging fruit that might work based on our successes in
not drop to a critical level, which would result in liquid
the US.
| VIEW FROM THE TOP
FROM THE PERMIAN BASIN TO MEXICO WILLIAM WAGGONER CEO of Mexico Petroleum Company
Q: How did you get involved in the Mexican Energy Sector?
Q:
A: Mexico’s Energy Reform is a tremendous piece of
migration process advancing?
legislation that was seen as improbable just a few years
A: Patience and commitment are the key ingredients for
ago. The secondary legislation supporting and effecting
any company seeking to explore and produce oil and
the Constitutional Reforms is equally brilliant, as well
gas in Mexico, and this includes the migration process. I
as are the regulations that serve as the foundation for
became intimately involved with the CIEPS starting in
the secondary legislation. The next challenge, however,
2008. I discussed their viability with a variety of operators
is the greater one. It is a question of how to efficiently
and service companies in the US, as well as a number of
and effectively interplay the various roles of the different
industry leaders here in Mexico for the better part of five
agencies charged with carrying out the reform in the best
years. Their interest was sincere, but the terms were thin
interests of the people of Mexico From what I can tell, it
and modern day fracking in the US was just taking off.
has been a steep learning curve, but those charged with
However, major service companies quickly recognized that
this task are dedicated, brilliant, ethical professionals who
CIEPS were in essence just long-term service contracts
have shown commitment.
with an added small profit incentive.
Q: How can Mexico Petroleum Company translate the
In my view, the CIEPS did not achieve their purpose
experience of the Permian Basin into Mexico?
and now pale in comparison to licenses or production-
A: We have to begin by understanding Mexico and the US
sharing agreements. It is safe to say that operators,
from both sides of the border. I was born and raised in the
service companies, PEMEX, and the Mexican government
heart of the Permian Basin, which has been resurrected
agree that these CIEPS need to be migrated as soon
several times. This lifelong experience has provided me
as prudently possible. PEMEX and existing service
with the knowledge of what it takes to make some of these
companies are working hard to determine how to best
fields in Mexico economical. Our company carries out
make the transition. Regulations need to be stipulated in
artificial lifting in the Permian Basin better than anybody
order to smoothly guarantee the exit and entrance of the
and looks forward to bringing that technology and field
parties. Companies must also recognize that after PEMEX
experience to Mexico. When it comes to secondary
approves their migration terms, they will still need the
recovery techniques, our experience comes in handy
approval of CNH, the Ministry of Energy, and the Ministry
because we started to use those methods before modern
of Finance. Agencies and private parties are tirelessly
fracking came into fashion. Depending on the number
analyzing the most viable ways to create an equitable
of assets we acquire, we will determine what amount of
road that will attract foreign investors. Meanwhile, Mexico
resources we will utilize from the Permian Basin. Mexico
Petroleum Company is proud to be one initial players to
Petroleum Company is fortunate enough to have some
go through this rather daunting process.
How
is
Mexico
Petroleum
Company’s
contract
of the best petroleum engineers in the world right here in Mexico, and we offer a compliment of Permian Basin engineers, geologists, and geophysists who bring their years of expertise and experience to the region. They are quite creative when it comes to developing and maximizing production through a variety of modalities, whether it be workovers, remediation, base optimization, or new horizontal and vertical wells, while always aware and sensitive to the environment both below and above the surface.
"All relevant parties agree that these CIEPS need to be migrated as soon as prudently possible" William Waggoner,
CEO of Mexico Petroleum Company
205
| VIEW FROM THE TOP
ONSHORE COST LIFTING SERVICES IGNACIO FILICI General Manager of TrueBlackOil
206
Q: What are TrueBlackOil’s main activities in the Mexican
cheapest options in terms of cost per barrel, and one of the
market, and what main challenges are you facing in a time
advantages of this method is the product management. The
of low oil prices?
water injected in the well can be reused once it is properly
A: TrueBlackOil is entirely focused on the onshore market
treated, as the process does not call for potable water.
in Mexico, with our main focus on lifting cost management. While a company would usually have to deal with at least
Q: How does the lower-than-expected participation in
40 different suppliers, manage them, and supervise
R1-L01 impact your brokerage activity, and what is your
the field, at TrueBlackOil, we are capable of managing
prediction for participation in the third phase?
everything in an integrated manner, saving our clients time
A: I have mixed feelings concerning R1-L01, since the
and money. At the moment, we are about to form alliances
awarding of blocks shows the reform is working, whereas
with four major companies, one of which is listed on the
the process was slow and the contract terms needed to be
NYSE, and the three others are international players. We
more competitive on an international level. A positive aspect
provide four service-lines: Operation & Maintenance,
is that CNH is already addressing this issue and attempting
Waterflooding
Business
to make the procedure easier and the terms more efficient.
Consultancy, and Onshore Rig Brokerage. Operations and
Management,
Technical
and
Concerning R1-L03, the blocks may be difficult for operators
maintenance represent between 85-90% of an onshore
to manage since there are a variety of environmental and
company’s OPEX. We focus on helping our customer
social costs required, as many of them are populated, and
operate and maintain the field, meaning we provide them
a serious cost-planning structure and cost efficiency in the
with surface oilfield services by providing technological
evaluation and development phase is required. Large IOCs
innovations, workers, vans, trucks, and chemicals.
might not be interested by this tender process.
Q: What exactly does your waterflooding technology
Q: How do you plan on developing your onshore rig
consist of, and what are the advantages of using this over
brokerage division, and what is your strategy to gain
secondary recovery chemicals or injecting gas?
contracts with existing and new players in the market?
A: Water injection is a process that increases the reservoir
A: We are already closing contracts with all rig contractor
recovery factor. Water is injected into the well, to increase
companies in Mexico through a partnership with another
the reservoir pressure to its initial level and maintain
local company. Most of the contractors have agreed to put
it near that pressure. This is a complex task, where well
most of their rigs in our system. We will provide an easy
geology, mobility ratios, reservoir pressure, and facilities
connection between supply and demand but, unless our
characteristics play a key role in efficiency. TrueBlackOil,
clients request it, we will not undertake the negotiations for
in association with an international company, provides
them. TrueBlackOil believes that, to become an important
clients with the engineering of the injection well’s design
part of the Mexican oil and gas market, it is essential for
and with the necessary equipment to carry out that
international companies to associate with local companies.
installation, such as mandrels, valves, and packers.
Although the market players may change, opening an oil and gas business in countries with a more mature sector
Nowadays, water injection is part of assisted recovery. It
is simple because the industry is consolidated. In Mexico,
is important to note that not all reservoirs have the same
however, the players are changing. This is why we believe
reactions to water, and at times it may be preferable to
companies would feel more comfortable entrusting business
provide stimulation with organic chemicals or even steam.
to a local player that understands what is happening in
Waterflooding is a cost-efficient, reliable process in many
Mexico at the moment. Our main aim for the two next years
countries and can easily be implemented in Mexico. For
is to show the market that we are managing our clients’
the kind of reserves we have, water injection is one of the
lifting cost in an efficient, reliable, and sustainable way.
| INSIGHT
MODULAR SOLUTIONS FOR OPERATIONAL OPTIMIZATION In an industry such as oil and gas, with remote, difficultto-access locations, often workers must remain onsite in
ANDREW AUNS
order to reduce the operational costs involved in employee
Vice President & General
transport. As a result, Williams Scotsman has emerged as a
Manager of Williams
market leader in modular solutions for the industry, helping
Scotsman
customers determine what type of space they need and matching it with a solution. “We coordinate and prepare everything so that it reduces the amount of time and effort the company has to invest in preparing spaces for new products,” says Andrew Auns, Vice President and General Manager of Williams Scotsman. “Our job is to ensure that the
207
buildings are ready when the company arrives to the site.” Unlike traditional spaces, Williams Scotsman modules can be taken apart and removed completely, and from an environmental perspective, the effect of the modules and mobile trailers on the land is minimal, without the need for cement or permanent foundations. Mining, oil, and gas are the company’s top three markets and Auns does not see that changing in the next three years. “The oil and gas sector will grow, especially on the midstream sector, and as a result we will see an increasing demand for our products,” he states confidently. “We are continuously investing and expanding our fleet to increment our presence in the market,” Auns asserts. “We also have strong supply partners that work to our specifications to help us construct new units in the country.” The changes in the industry have caused the
The effect of the modules and mobile trailers on the land is minimal, without the need for cement or permanent
foundations
company to optimize the running of operations, adapting its local operations and organization by offering the most
Scotsman began to identify the various needs of the
effective solutions available for the industry. This has led
customers, such as worker accommodation, whether onsite
to the creation of a brand new project management group
or offsite, and subsequently adapt more traditional solutions.
that focuses only on the design and service execution of
“Toward the end of the project, it was more about the added
projects. Williams Scotsman has national content at its
value of our product, such as being able to deliver dorms
heart, and the company prefers to hire local workers for
with all of the beds and mattresses already inside,” Auns
projects, and if forced to contract temporary workers due
expresses. When working in remote areas, with small teams
to a high demand, it also sources from the community.
of eight to 16 engineers working on a site, it is more likely
“Although we are part of a global company, here in Mexico
that a company will need a space that provides facilities for
99.9% of the workforce is Mexican and we plan on staying
sleeping, eating, and bathroom quarters in one building. This
this way by always trying to source locally,” Auns reveals.
is when companies begin to move away from the traditional construction and trailers, to more flexible methods. Williams
This year, the company developed an oil and gas project in
Scotsman has worked on concepts in which smaller modules
the north of Mexico, which started out with five locations and
are utilized, and a building with second floor dorms is
later expanded to seven. “We provided offices, cafeterias,
created, as well as an open porch area, and internal stairways,
and dormitories, and various solutions that range from
allowing companies to better control security. Conference
simple to complex products, and also customized designs to
rooms, offices, eating facilities, and service areas can also
fit the needs of our customers,” declares Auns. “One of our
be integrated in one building. “We are able to disassemble
accomplishments is that we were able to provide housing
a building like this within 48 hours, and then transfer it to
for more than 2,000 workers.” With this project Williams
another location to reassemble again,” asserts Auns.
| TECHNOLOGY SPOTLIGHT: INTENSE HEAT ENSURES A STEADY OUTPUT and
that the reaction takes place inside the reservoir and the
decreasing their environmental impact can expect uplifting
released gases do not reach the atmosphere. Furthermore,
news.
(T-CHWT)
the amount of emitted CO2 is lower than that of similar
technology can increase total daily production by lowering
thermo-chemical EOR methods. The NO2, NO, and H2 react
the crude’s viscosity and cleaning the formations’ porous
with the crude oil at high temperatures, producing N2, H2O,
areas, extending the reservoir’s productive life and making
and CO2.
Operators
interested
in
Thermo-Chemical
improving Well
production
Treatment
it possible to extract 70-80% of the oil in the reserve. When correlating extraction costs with production revenues,
The intense heat generated due to the chemical reaction
T-CHWT can be a profitable solution that could positively
cleanses the area from asphaltenes, tars, resins, and
impact operators’ activities. The technology operates
paraffins located in the vicinity of the reservoir. In addition,
through a chemical process that obeys the highest safety
the oil and water ratio also decreases, helping preserve
standards, and the process can be automated. Energy
the well’s integrity. Production can continue in a constant
losses are negligible and the return of investment is faster
manner for months or even a couple of years until the
than using methods such as hydraulic fracturing or steam
formation’s pores become clogged again, which would
injections.
require another T-CHWT intervention. This solution can be used until the reservoir is completely depleted, and can be
T-CHWT heats the formation to temperatures of up
used in new wells and mature fields, onshore and offshore
to 500°C or even more, although the ideal setting is to
developments, and horizontal, vertical, and injection wells
maintain temperatures around 300°C in order to lower the
at any depth and for any type of crude. Wells have been
oil’s viscosity by raising API gravity. The chemicals react
recorded to produce at least double, and sometimes
deep in the formation, generating a tremendous amount of
ten times more oil per day, depending on the geological
heat in the reservoir and producing pressure levels strong
and technical parameters. In fact, old, shut-in wells have
enough to fracture the rock. The result is an immediate,
been reactivated and made productive again by using
much quicker flow of oil to the surface. All the chemicals
this process. While this technology is still being tested in
and a small part of the crude oil convert into gases, leading
Mexico, it has a strong chance of becoming a commonly
to an artificial gas-lifting method that helps push the oil up
sought-after solution in areas such as Poza Rica and
and out of the well. The gases resulting from this process
Chicontepec, helping its supplier, Tekna Services, maintain
–mainly N2, NO2, CO2, and H2— are non-toxic, considering
its position in the country.
| INSIGHT
TECHNOLOGY LEADS TO EFFICIENCY IN DIFFICULT TIMES Some companies have made a name for themselves in an industry that was once synonymous with PEMEX, such as the technology expert Tekna Services. The company has
CÉSAR RUIZ
been of great help to the Mexican NOC, evidenced by the
General Manager of
way it has helped increase production and reduce costs
Tekna Services Group Mexico
in Cinco Presidentes and Samaria Luna. “In these fields, Tekna has worked on wells where the oil was not flowing properly, so we treated it with pressurized gas, leading to
Ohio, who are developing a microwave system to heat oil
significant results of a 150% production increase in one of
in the reservoir. “A magnetron generates a wave that makes
the wells. In another well, we reduced water production
micro antennas located at the bottom of the well heat up to
from 70% to 30%,” shares César Ruiz, the company’s
600°C. This heats the pipes and the reservoir, improving flow
General Manager. Tekna is planning some wells for Samaria
without altering the oil’s physical characteristics,” explains
Luna and improving others in Cinco Presidentes, where it
Ruiz. Now the developers have to adjust the mechanisms
is only addressing the construction of the well without
to the temperatures found at the bottom of the well. Tekna
intervening the actual reservoir. Ruiz says his team is
is financing the development of this technology and will
currently working on a model to improve flow channels
own the patent. In addition, the company is also financing
without resorting to hydraulic fracturing in this field. “The
a mechanical pumping mechanism that does not have
opportunity scope is huge, as the traditional approach
components on the surface. Ruiz says his company will soon
could cost up to US$130,000 per well but the treatment
visit IPN to negotiate a collaboration agreement in which the
we are working on costs US$10,000 per well. Clients
institute will develop technology financed by the company.
would save huge amounts that can be used to invest in
The students that work on these developments could
other areas, and that is one of the benefits Tekna offers.”
become part of the Tekna team.
The company is working on a similar scheme for Poza Rica,
In a time of economic constraints, investing in technology
where it will carry out artificial lifting without installing
seems like a risky task. Ruiz claims his company has a
additional equipment. Besides the oil type, Ruiz says the
considerable financial support that allows it to continue
main problem in Poza Rica is equipment theft. With this
helping clients reduce costs and improve production. In
in mind, Tekna is proposing an artificial lifting system
addition, Tekna is diversifying by looking into renewable
that is inserted in the bottom of the well and has minimal
energy sources, the mining industry, revamping refineries,
equipment at the surface.
and even building a port dedicated to hydrocarbon commercialization. “Tekna will look for opportunities not
Tekna is also partnering with a company form the Czech
just where we can implement new technologies, but also
Republic that operated in Russia, where there are fields
where we can adapt to the new business models that we
similar to Chicontepec. Ruiz claims this company has
see in the international energy market,” Ruiz asserts.
a technology that works in a similar way to fracking, but it injects two types of fluids, a solvent and an active ingredient. Once the fluids are mixed in the reservoir, an exothermal reaction follows and creates a type of explosion that moves through the channels and cracks the formation. This technology yields efficiency levels similar to those of fracking, but helps users save up to 70% in costs. “Our approach will be to look for companies working in Poza Rica, find wells that could use this technology, and analyze the results. If these are similar to the results that this technology has produced for Lukoil in Russia, it will provide a great alternative to fracking in Poza Rica,” comments Ruiz. Technology is at the core of Tekna’s proposal, so the company is also financing a project carried out by students based in
Treatment with pressurized gas can lead to a production
increase of 150%
209
9
INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE
In the wake of a recent high prevalence of accidents in Mexico, the Energy Reform promised the opportunity to tighten safety regulations. This has been seen by the overhauling of the regulatory agency PROFEPA to transfer the oversight of industry safety and the environmental performance in the hydrocarbon industry to ASEA. The new regulator is expected to review the existing regulations in various segments, as well as to draft new ones for industry segments that are opening thanks to the reform, such as deepwater and unconventional resources. PEMEX has sustained a frequency of approximately one accident every six weeks from January 2015 to May 2016, with a total of 11 incidents. The opening of the industry to private players is expected to introduce international best practices in operational risk management, more stringent safety procedures, and stateof-the-art approaches to environmental performance, while low oil prices are pushing the industry toward cost-focused operating strategies.
This chapter explores the challenges facing the industry in terms of implementation of safety and environmental standards and legislation, as well as the most suitable technologies and solutions to meet these requirements. Industry leaders will propose solutions, while also discussing ASEA’s new role within the industry.
211
Environmental Resources Management is a leading global provider of environmental, health, safety, risk, social consulting services and sustainability related services. We have more than 5,000 people in over 40 countries and territories working out of more than 160 offices. ERM is committed to providing a service that is consistent, professional and of the highest quality to create value for our clients. Over the past three years we have worked for more than 50% of the Global Fortune 500 delivering innovative solutions for business and selected government clients helping them understand and manage the sustainability challenges that the world is increasingly facing. In Mexico we have been very active in helping our clients during the different bidding rounds of the Energy Reform, understanding the Environmental, and Social Implications contained within the related contracts.
Why ERM? • • • •
Extensive experience in Mexico and the Gulf of Mexico Extensive experience in the O&G industry onshore and offshore in all Latin America Expertise to explain the complex marine environment to the public and regulators to support approvals H&S capabilities – we can support your understanding of local firms/fab yards HSSE capabilities, etc
Our key services are the following: • • • • • • • • • •
Non-Technical Risk Assessments Social impact assessment Permitting/environmental Site investigation and remediation Safety, security and risk assessment Noise and vibration services Compliance auditing and EHS management systems Reputation assurance Air quality management Water and wastewater treatment
| CHAPTER 9: INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE 214
VIEW FROM THE TOP: Carlos de Regules, ASEA
216
VIEW FROM THE TOP: Jaime Martínez, ERM
217
INSIGHT: Gaspar Gorocica, Puesta a Punto
218
INSIGHT: Rafael Parrilha, Bureau Veritas
219
PEMEX ACCIDENTS TIMELINE
220
INSIGHT: Rodrigo Nieto, Falck
221
INSIGHT: Víctor Clavel, Dräger Safety
223
VIEW FROM THE TOP: René Alberto Calderón, Recal
224
VIEW FROM THE TOP: Juan Carlos Hernández Nájera, Industrias Energéticas
226
INSIGHT: Erick Sánchez Salas, SITec
227
INSIGHT: Eric Barry, AIRSTAR
228
VIEW FROM THE TOP: Rubén Rosiñol Abreu, Tecno Fire
228
INSIGHT: Alberto Espinosa, Ecosolutions
230 INSIGHT: Juan Gabriel Quiroz, Arigem 231
VIEW FROM THE TOP: Alejandro Hernández, CSIPA
232
INSIGHT: Alberto López, Norsafe
Enrique Echegaray, Norsafe
233
INSIGHT: Gerardo Tamayo, SUMIMSA
235
INSIGHT: Luis Gerardo González, Fire Service Plus Mexico
213
| VIEW FROM THE TOP
ASEA WORKS TO ENSURE A HEALTHY SECTOR DURING CHALLENGING TIMES CARLOS DE REGULES Executive Director of ASEA
214
Q: What progress has ASEA achieved in the Mexican oil
Q: What are the main implications of this for PEMEX and
and gas industry?
the new operators entering Mexico’s oil and gas industry?
A: ASEA began operations in March 2015 with the ample
A: The use of ASEA’s risk management model is not
mandate of supervising the activities within the entire
exclusive to new operators, therefore PEMEX is also
value chain of the hydrocarbons sector. The scope of
subjected to the new operating framework. The reason
our reach forced us to think outside of the traditional
behind this is ASEA’s aim to develop a culture of industrial
institutional model, which is why we decided to create
safety and environmental protection that respects two
an agency with a robust architecture and well-defined
main directives: performance and the compliance with
processes. One of the first actions we undertook was
international best practices.
the designing of our new risk management model based on the administration of operational risk, which
Q: What have been the main activities that ASEA
relies on five premises. Firstly, those covered by the
initiated as a regulator in the upstream, midstream, and
regulations are under the obligation to operate in
downstream segments?
accordance with the Industrial Safety and Environmental
A:
Protection Administration System. They are also bound
Guidelines for the Establishment, Implementation, and
to meet the required guarantees to ensure their financial
Authorization of the Industrial Safety, Operational Safety,
responsibility in light of any possible accidents. The third
and Environmental Protection Administrative Systems
premise concerns the issuance of technical regulations
were published in the Federation’s Official Gazette on May
that are created according to objectives, rather than in
13, 2016. These measures aim at establishing the minimum
a prescriptive manner, and the fourth one requires the
requirements for the creation, operation, implementation,
enforcement of a legal policy that favors performance
and authorization of the Systems for the Hydrocarbon
over penalties. Finally, the model relies on the deployment
Sector’s Regulated Parties. The design of the guidelines
of risk-based programs that allow the optimization of the
comprised the creation of various technical consultations
state’s inspection resources and their complementation
with the industry and US regulators, as well as a public
with third parties.
consultation
The
General
Administrative
through
the
Dispositions
Federal
of
Commission
the
for
Regulatory Improvements (COFEMER) with the central The model allows us to optimize both our financial and
aim of designing regulations that would provide the
human resources while simultaneously providing certainty
hydrocarbons market with certainty, while configuring
that the operations carried out by Mexico’s various
it as the spine of an integral regulation based on risk
operators are executed in a safe and environmentally
management.
responsible manner. The Energy Reform modified the industry’s previous institutional scaffolding. The energy
We are currently working on other technical regulations
sector is now structured by a regulatory framework
based on performance, such as the guidelines for
governed by two federal laws and their respective
exploration and production activities in onshore settings,
regulations. This configuration is distinctly reflected in the
shallow
environmental sector, as ASEA operates in accordance
resources, as well as regulations for the transportation
with the legal framework of eight federal laws and nine
of hydrocarbons by pipelines, third party accreditations,
regulations. In this context, the Agency is creating a
root cause analysis, incident and accident reporting, and
regulation specialized in the hydrocarbons sector, the
insurance and guarantee guidelines. Moreover, we are
objective of which is to serve as ASEA’s operation base
working on NOM-004 for the recovery of service station
in addition to being a comprehensive document that
fumes and on NOM-005 for the design, construction,
integrates de institution’s areas of competence.
maintenance, and operation of service stations.
waters,
deepwaters,
and
unconventional
Q: Is there currently enough legal certainty for operators
contrary, it is an appropriate time to take care of what they
to find the risks associated with deepwater activities to
have, mainly a reliable operation and a stable coexistence
be acceptable, a critical success factor for R1-L04?
with the communities where they operate.
A: The Agency is currently developing a regulatory framework for deepwater operations that incorporates the
Q: Which priorities will ASEA address in 2016 in order to
best practices observed at an international scale. For this
successfully start working with private operators?
purpose, ASEA is currently working hand in hand with the
A: A challenge of the utmost importance to the Agency
industry and homologue regulatory bodies, such as the US
is to be prepared to work with private operators and to
Bureau of Safety and Environmental Enforcement (BSEE),
continue advancing with the Energy Reform’s objectives,
in order to generate offshore regulations that are familiar
with the intention of promoting an environment that meets
to both sides of the border, bringing certainty to the
international standards and regulations. Likewise, one of
companies interested in R1-L04. Moreover, ASEA signed
the Agency’s main priorities, given the implementation
a memorandum of understanding (MOE) on May 3, 2016,
of this deep Constitutional Reform, consists of executing
with the American Petroleum Institute, aiming to access its
a regulation that allows operations which guarantee
referential norms and standards that would be applicable
industrial safety and environmental protection. In this
to the Mexican sector.
sense, the institution is focused on increasing efforts in the development of an ambitious regulatory program that brings
Q: How can the cooperation between ASEA and the
legal certainty in the operations of all the hydrocarbons value
operators assure that industrial safety and environmental
chain. For the development of the regulation pertaining
performance is not negatively affected?
to unconventional resources, a multidisciplinary work
A: The industry faces a scenario with low oil prices and
group made up of different sectors of the Federal Public
high operating costs resulting from increasing complexity,
Administration, such as the Ministry of Energy, CNH, and
great geological risks, and the value of money, as well as
CONAGUA, is operating in order to create the best possible
a growing penetration of other energy sources. Under
framework given their specific areas of expertise. The
these challenging circumstances, it is paramount that
regulation is expected to be issued for public consultation
the companies in the industry clearly understand that
in the third quarter of 2016. This expert group works with
it is not the best moment to economize at the expense
the Alberta Energy Regulator, given its broad knowledge
of industrial safety and environment protection. On the
and breath of expertise in the subject.
Providing consistent, integrated services that enable safe, reliable and enhanced performance.
215
| VIEW FROM THE TOP
FURTHER STEPS IN THE IMPROVEMENT OF SAFETY CULTURE JAIME MARTĂ?NEZ Business Development Director of ERM
216
Q: What is your current general perspective on Mexico’s
has already been directed toward creating manuals and
progress in the realm of safety culture?
procedures, yet important elements such as training on the
A: In Mexico, the culture in the industry is such that there is
right behaviors are overlooked. Without a cultural change,
plenty of room for improvement in environmental, health,
the safety of the oil and gas industry will not advance.
and safety matters in the oil and gas industry. Last year there were preventable platform accidents that caused
Q: How can ERM help mitagate the environmental and
many casualties. We have to recognize that this happens
social consequences of deepwater operations?
everywhere, not just in Mexico. However, in Mexico there is an
A: People commonly believe that social studies are
urgent need for the improvement of our safety performance.
unnecessary for deepwater operations but this is not
Operators tend to know and understand health and safety
the case. Even though the platform is far away from the
management systems. Therefore, the problem is making
coastline, the operators are still interacting with the
sure that the existing policies are being implemented. On
surrounding communities due to a need for infrastructure.
paper, we know what needs to be done but transferring
Economic activities such as fishing create interactions
these goals to reality entails a cultural challenge.
that need to be included in impact assessments for new operators. New development proposals raise concerns for
Safety has always been a key component in the industry,
NGOs and society in general, and we understand those
but progress is yet to be seen. On the other hand,
worries. Firstly, developers need to know the current
environmental regulations are moving forward. The oil
conditions, and then, based on the project proposal, catch
and gas industry is a risky business for operators due
sight of possible impacts that can occur from seismic
to the extreme conditions, pressure, and temperatures.
surveys, drilling, and eventually, production. Historically,
The equipment, just like the methods and processes, is
activity from the oil and gas industry has affected the terrain.
designed with safety in mind. The challenge is translating
The new operators need to distance themselves from past
this to the day-to-day operations. Big companies that
actions that are potential liabilities. ERM accompanies
have had negative experiences in the past are well aware
them through the process and tells them freely about any
of the terrible consequences that can occur when safety
challenges that could come up such as time constraints,
is not prioritized.
while simultaneously working with government agencies.
Q: What would be the most important changes that would need to take place in the Mexican oil and gas industry to improve its safety culture? A: The industry needs to learn to work together and share experiences. A solution is to encourage operators to openly share past mistakes, facilitating the learning process in the industry. The Macondo incident provides a good example, as these type of accidents are an opportunity to teach others in the industry a few lessons. In this case, the lesson learned led to the renovation of equipment in some companies. Collaborating with other players that have already invested in safety equipment is important in order to design high safety standards. Accidents will continue to happen, however, and the aim must be zero accidents. A significant amount of money
Without a cultural change, the safety of the oil
and gas industry will not advance
| INSIGHT
TAKING SAFETY BACK TO THE PEOPLE There are three sources of accidents: those related to the system, the equipment or facility, and those caused by people. The latter amounts to 90% of all accidents,
GASPAR GOROCICA
and Gaspar Gorocica, Director General of Puesta a
Director General of
Punto, points out that 80% of the resources destined to
Puesta a Punto
accident prevention focus on equipment, procedures, or contractual requirements, but not on human error. He says people receive up to 300 hours of security training on
programs in Mexico are unengaging, which needs to
using equipment, yet people are seldom told that they are
change in order to bring knowledge closer to workers.
the key to a safe working environment. “Human prevention
In consequence, the people will take what they learn and
makes the individual the first barrier against accidents. In
spread it in the workplace, their homes, and communities.
order to achieve this, we need to increase autonomy in a person’s security approach to operations. Puesta a Punto
“The best thing a company can provide employees is
works on creating awareness that accident prevention
knowledge and culture, and when asking people what
is the individual’s responsibility, and we achieve this
are the main benefits they get from their job, these two
awareness by talking to people in a way that is accessible
aspects are not common answers. Most people do not
and easy to understand.”
feel their job is teaching them how to think,” Gorocica laments. In his view, the best way to change the way
Puesta a Punto takes existing security procedures and
workers perceive the benefits they get from their
manuals, giving them a focus on the individual so that
employer is by making the knowledge accessible and
people can adopt safety measures and make them their
easy to understand in a way that people can apply it in
responsibility. “The essence behind this approach is to
their personal lives as well. “Spreading the knowledge
re-humanize safety in projects and activities, putting
and culture of companies entering Mexico as a result
these aspects back in the hands of the people. The most
of the Energy Reform among its workers in a way that
important factor is that we teach people that safety is
increases their wellbeing is the challenge that Puesta a
useful not just at work, but also in their everyday lives,”
Punto wants to promote to truly transform the country,
explains Gorocica. He adds that most safety training
which is what the reforms intend.”
217
| INSIGHT
ALLY HELPS PEMEX COMPLY WITH REGULATIONS AND STANDARDS the industry for years to come. “Although it is well-known that PEMEX is undergoing a troubling period regarding
RAFAEL PARRILHA
cash flow, the opportunity for farm-outs and association
Director General of
schemes still remains solid. The impact of new players in
Bureau Veritas
the market will only be felt in five to ten years, once these have become mature companies that are well established in the economy, which means that short-term industry
“It is important for Mexico to develop a unified approach to
growth is in the hands of the NOC.”
introducing a comprehensive regulatory framework, and
218
the Mexican oil and gas industry is in a slow transitional
Another problem that the uncertain regulatory market
period toward achieving this objective,” says Rafael
could create may be the reluctance of investment from
Parrilha, Director General of Bureau Veritas.“The industry’s
new international players, Parrilha fears. “International
new agents are taking longer than initially predicted to
companies
introduce new regulations, but it is important to place
evaluating the different global options available. This
this fact in the general context,” he argues. “We have to
leaves Mexico in a position where it has to actively compete
understand that the previous model has been broken, and
for investment.” However, he also believes that Mexico has
creating a rupture from the past is not an easy endeavor.
an excellent offering for international companies in terms
The rhetoric from the authorities so far does not lead
of reservoirs, plus the geology is not particularly complex,
us to believe that the new regulatory framework will be
which eases and fosters investment in E&P. Moreover, the
particularly different to what currently exists on the US
internal market is in a positive state, and Mexico’s free trade
side of the Gulf of Mexico.”
agreements mean the country is very receptive to foreign
select
their
portfolio
of
investment
by
investment. “Transparency, which is a key requirement for The industry is eager for these new rules to be issued and
an effective market, has been achieved, but the lack of
published by ASEA, and until then, Parrilha believes that
definition of the regulation surrounding Mexico’s oil and
it will be difficult for the different actors in the market
gas market is creating uncertainty and is hindering it from
to have a good overview of the situation. “It remains
becoming consolidated,” Parrilha asserts.
unclear exactly how the responsibilities will be distributed among the different agents, including CNH. Its role in the
The main challenge faced by players in the market is to
establishment of safety regulations for new players is still
reduce costs, without increasing risk, while negative
undefined,” Parrilha adds. “As a certification company, it
environmental externalities are no longer acceptable.
is essential for us to understand how CNH and ASEA will
Despite the many challenges in Mexico’s oil and gas
carry out their role in this area.”
environment, Parrilha remains optimistic about the future of the sector. “The results of the second bid of Round One
Bureau Veritas has been working with PEMEX over
were extremely positive, exceeding the expectations set
the past 35 years, helping it reach a certain level of
by R1-L01 by far. This news was particularly surprising for
homogeneity in terms of regulations across its different
global investors, given the fact that just two weeks before,
areas. A few years ago, the company began an important
Brazil, a country with a similar economy to ours, had
project with the NOC to audit different assets, from
experienced a disastrous bidding round,” Parrilha conveys.
upstream to downstream activities, to verify compliance
Although Parrilha admits that many developments have
with its own standards. “This allowed us to gauge PEMEX’s
been made, he thinks that more can be done in the bidding
standards, and we found that while some abided by world-
process. “I believe Mexico is on the right path, but the
class guidelines, others showed room for improvement,”
process needs to be accelerated.” Bureau Veritas is open
Parrilhas shares. The Director General believes that the
to accepting invitations to participate more actively in this
attractiveness of Mexico’s oil and gas sector is also heavily
endeavour by helping ASEA and CNH, while also helping
reliant on PEMEX, which will keep its leading position in
them retain their independence.
Bureau Veritas is a global leader in testing, inspection, and certification. The company was founded in 1828 and aims to mitigate risk, improve performance, and promote sustainable development.
| PEMEX ACCIDENTS TIMELINE
April 1, 2015 Abkatún-A Permanente Platform (Bay of Campeche) Explosion 4 dead, 45 injured + associated losses of US$670-780 million
May 5, 2015 Troll Solution Platform (Bay of Campeche) Platform tilted 2 dead, 10 injured
August 11, 2015 Escobedo-Santa Catarina Pipeline (Nuevo León) Explosion 5 dead
June 22, 2015 Akal-H Satellite Platform (Bay of Campeche) Fire from oil and gas leak No casualties reported 219
August 27, 2015 Abkatún-A Permanente Platform (Bay of Campeche) Fire 2 dead, 9 injured
September 3, 2015 Lazaro Cardenas Refinery (Minatitlan) Fire No casualties reported
December 11, 2015 Lazaro Cardenas Refinery (Minatitlan) Fire 5 injured
November 24, 2015 Salina Cruz Refinery (Oaxaca) Fire 8 injured
January 23, 2016 Zaap E Platform (Bay of Campeche) Fire No casualties reported
February 7, 2016 Abkatún-A Permanente Platform (Bay of Campeche) Fire 2 dead, 9 injured
April 20, 2016 Coatzacoalcos Plant (Veracruz) Explosion 3 dead, 136 injured
| INSIGHT
THE HUMAN FACTOR IN INDUSTRIAL SAFETY “Our close relationships with RODRIGO NIETO General Manager of Falck Safety Services de México
Without safety, there would be no industry. This is the contention of Falck’s General Manager, Rodrigo Nieto, and the events of recent years have illustrated the merit in his claim. Disasters on oil rigs not only involve danger 220
for workers and substantial financial woes, but also have a pervasive impact on the environment, company share prices, and other far-reaching effects on a company’s
our clients allow us to obtain daily feedback in order to most appropriately position our new services. This also allows us to understand their challenges and respond to them accordingly”
health. The recent changes that occurred in the industry
Rodrigo Nieto, General Manager of
in response to the drop in oil prices, and the consequent
Falck Safety Services de México
increase in employee turnover have also negatively
Nieto acknowledges difficulties as a result of lack of clarity
impacted safety statistics in 2015.
surrounding ASEA and its issuing of regulation. “It is one thing to win a contract to be able to drill in a certain block,
According to Nieto, the biggest safety hazard is, by far,
but beginning drilling operations is another topic entirely,”
lack of knowledge. In fact, 90% of all accidents can be
Nieto warns. “As long as ASEA continues to remove red
attributed to human error, and occur predominantly due
tape and convoluted processes, this should allow for
to lack of knowledge surrounding operational safety, rig
more investment, but if it chooses instead to intensify the
evacuation procedures, or major emergency response. In
system with more bureaucratic procedures, companies are
order to address this gap, Falck has this year introduced a
expected to pull out of the bidding rounds.” In this way,
new course called Major Emergency Management, which
Nieto places great importance in ASEA’s creation of a set
Nieto believes will revolutionize the industry in Mexico.
of comprehensive, fair guidelines for the industry.
The course consists of highly specialized training, is taught by some of the world’s most qualified instructors, and
The company expects to open two or three training
includes a rig control room simulator in order to provide
centers across the country. “The locations of these
feedback on critical reactions.
centers will depend on the industry, but so far, several options have been identified, like Tabasco and Veracruz,
The variety of courses offered by Falck in Mexico are
which constitute Mexico’s future hub for deepwater
adapted to the country’s environment as a direct response
activities,” says Nieto. “Tamaulipas is also a location of
to client needs. “Our close relationships with our clients
interest, and Sonora holds promise, as Falck also offers
allow us to understand their challenges and respond to
training for the mining industry. However, the company
them accordingly,” says Nieto. Training courses are adapted
expects to maintain caution when selecting areas to
based on local industry requirements and, in Mexico, Falck
open new offices due to the high cost implication this
has also adapted to PEMEX’s unique conditions. In terms
endeavor represents.”
of Round One, Nieto has high hopes that the entry of new private players will have a positive impact on Falck’s
Although the market has seen a downturn in recent years,
business. The company is adopting a cautious strategy
Nieto is optimistic about Falck’s future in the Mexican oil
in response to the changes imposed by the reforms, and
industry. “We have all observed a decrease in industry
is currently waiting for companies to enter the market
activity, but we understand that this is an entirely cyclic
before making any decisions regarding the targeting of
situation,” Nieto asserts. “As a leader in the segment, the
new deepwater clients. “The moment any of the major
next challenge will be for the company to maintain this
IOCs come in, we will be fully prepared to attend to their
position, while simultaneously raising awareness of service
needs. Until then, we are examining different possibilities,”
provisions and gaining more contracts as the industry
he states.
recovers.”
| INSIGHT
GERMAN QUALITY EQUIPMENT TO IMPROVE SAFETY In industries such as oil and gas, where risk is omnipresent, investment in safety cannot be underestimated. Last year was challenging for PEMEX in terms of accidents, resulting
VÍCTOR CLAVEL
in casualties and financial losses, but also tarnishing its
Director of Sales & Service of
reputation. Víctor Clavel, Director of Sales and Service at
Dräger Safety
Dräger Safety, believes negligence is the main cause of incidents. Platforms have a wide range of safety devices that are designed to help prevent accidents, but when
Norwegian firm, GasSecure, which develops wireless
these fail, it is important to identify the underlying cause.
technology for fixed detection equipment,” says Clavel. This product is particularly advantageous on platforms, as
Not having the adequate equipment or a lack of
it reduces the possibility of accidents generated by cable
maintenance may not provoke fires but could delay the
sparks. Being familiar with its client base, the company
response. Clavel believes that PEMEX should focus on
pitches to firms’ technical areas and users first, allowing
increasing safety education, training, and drills, even
them to test products directly, and it is this approach that
if this interrupts production. “Daily safety checks can
allowed Dräger to sign a contract with PEMEX for certain
quickly become monotonous and be overlooked, but
equipment.
they are crucial,” he urges. “Workers must understand the importance of compliance with rules and regulations.”
Clavel believes it is Dräger’s focus on quality that allows it
Although Dräger does not sell directly to the State
to grow in the market, despite the existence of significant
enterprise, its activities often involve overseeing PEMEX's
challenges. “In 2015, the challenges facing PEMEX left the
projects and helping reinforce safety, as well as providing
company with a US$2.4million deficit, due to the lack of
support for its training centers.
activities with the NOC, but this expected loss was offset by a contract worth that same amount with Vale for H2CS.
In addition to maintaining its long-standing relationship
Last year involved a number of platform accidents, which
with PEMEX, Dräger also aims to take advantage of
led companies to reconsider their budget allocation for
the market’s opening to private investment. “We are
safety.” Despite the challenges brought by the industry-
preparing the industry for the higher standards that will
wide budget cuts in response to falling oil prices, Clavel is
be introduced by international companies through ‘The
positive the market will return to normal, and Dräger will
Academy’ division, where our employees are informing
continue to invest, although more prudently. “Our plan to
refineries across the country of our standards, allowing
open a new service center in Ciudad del Carmen in 2016
them to reach higher levels of safety and efficiency,”
to support PEMEX and its contractors will be carried out,
Clavel asserts.
but the center’s size has been reduced to adapt to our new budget,” he says.
Although Clavel admits that Dräger products may not be the cheapest option on the market, he argues that the
The company also plans on opening service centers in
company differentiates itself from competitors through
Villahermosa and two in the north in order to provide
added value, which comes in the form of reliability,
services for the refining and mining sectors. In spite of
German quality, and excellent services, outweighing the
the challenging operating environment, Clavel feels that
initial investment requirement. “Clients will find a long-
it is important for Dräger to continue investing and being
term benefit in Dräger’s durable offerings, which require
available for its clients.
less investment in maintenance over the years. Our equipment can last up to 15 years in good condition, and PEMEX has been using certain pieces for over ten years,” Clavel conveys. In addition to being a leading supplier of infrared and video-suited equipment, Dräger also offers innovative products, developed and improved by its engineering division that works toward making equipment lighter, more comfortable, and ergonomic. “We also drive innovation by acquiring leading companies, such as the
Despite the challenges met in 2015, we achieved our
growth target of 16%
221
| VIEW FROM THE TOP
PROTECTING PEMEX’S INFRASTRUCTURE RENÉ ALBERTO CALDERÓN Director General of Recal
Q: What opportunities led the company to turn to the
provide protection for 40-50 years without maintenance,
oil and gas industry, and what products have driven your
making them more suited to its new strategy than the
success in this sector?
conventional passive fire protection coatings that need to
A: Recal Coatings started gaining recognition 12 years ago
be renewed every 10-15 years.
thanks to the business generated by the construction area of Grupo Recal, which provides coating services to protect
Q: To what extent could the use of these technologies
the steel buildings built by its sister company. Although our
prevent or reduce the number of accidents?
initial focus was on the commercial and light industries,
A: In addition to preserving a company’s installations,
our offering quickly expanded to encompass other areas
the passive protection against fire also saves lives. Our
such as the oil and gas sector. Our first important project
coatings slow the heating impact of fire on steel, allowing
involved anti-corrosive and fire protection for the LNG
constructions to resist fire for three hours, and giving
plant of Samsung and Korea Gas, and Mitsui Trading in the
people more time before a building collapses. This is
port of Manzanillo. Our product offering can be divided
mainly used on marine platforms, where evacuation is
into three areas, all of which are deeply intertwined and
not a straightforward task. These technologies may not
related to the treatment of steel. We supply anti-corrosive
prevent accidents, but they can reduce the number of
protection, passive fire protection, and thermal isolation
fatalities. Our fire protective coatings primarily focus on
coatings, all of which are necessary protective measures for
security and preserving lives, but they also play a role in
any industrial project. By providing these three services as
protecting the environment, while our thermal isolation
a package, we have effectively found an interesting niche
coating is protecting workers from the heat found inside
market in the Mexican oil and gas industry. Final users strive
machinery or pipelines. At the moment, we are not
to work with the smallest number of suppliers possible,
involved in maintenance projects with PEMEX, but rather
preferring integrated services, and this has been the main
in construction activities. The projects we execute within
factor behind our growth. The clean diesel project that we
the NOC’s installations have been carried out through
delivered for ENI-CIPM in the Tula and Salamanca refineries
general contractors such as ICA-Fluor, CIPM, and Grupo
best depicts our abilities in Mexico because we were able
Dragados, who subcontract us.
to supply our three different, yet complimentary, coatings. Braskem-Idesa’s Etileno XXI is also a key project, for which
Q: As new companies entering the market create new
we are providing our passive fire protection.
opportunities, what type of projects are you looking to engage in ?
Q: What is the added value that your solutions contribute
A: Most of Mexico’s pipelines are covered with fusion bond
to a project, and how is this perceived by PEMEX?
epoxy coating or another type of specific roll coating.
A: Thermal protection, passive fire, and anti-corrosive
We have participated in this type of project, namely
protection are three technologies that will render a
with TransCanada, providing the coating for a pipeline
company’s installation operative and durable. Many of
connecting Manzanillo to Guadalajara, but this is not
PEMEX’s installations are in poor condition due to the
one of our regular activities. We are aware of the many
price, downtime, and risks incurred in the performance
new opportunities surfacing in the oil and gas industry,
of maintenance activities. In the past few years, PEMEX
not only surrounding pipeline operations, but also in the
regulations have undergone various modifications. The
offshore area. We are participating with companies such
recent reviews on the parastatal’s standards require its
as Tubacero in Los Ramones, among other projects, and
plants to be protected in a more efficient manner, with
we are involved in the engineering and tendering phases
systems that provide increased durability. PEMEX now
of the six clean diesel plants. Our participation will involve
requests coatings made from intumescent paint that
the provision of the entire range of coatings that we offer.
223
| VIEW FROM THE TOP
GREEN POWER GENERATION THROUGH MICROTURBINES JUAN CARLOS HERNÁNDEZ NÁJERA Director General of Industrias Energéticas
224
Q: What does Industrias Energéticas offer the Mexican oil
Q: How are policies and legislation increasing awareness
and gas industry, and how are you adapting to the new
in matters of environmental protection?
needs of this industry?
A: The most important aspect of our initial approach to
A: Industrias Energéticas is an arm of the Capstone Turbine
potential new clients has become the full environmentally-
Corporation specialized in the sale of microturbines,
friendly nature of our products, given the fact that they
particularly those using the air-based turbine engine
do not utilize oils, antifreeze, or grease, and that our
technology patent. Our company has been a supplier
machinery generates ultra-low emissions. Our clients also
of Capstone microturbines to the Mexican oil and gas
now pay special attention to endorsements and approvals
sector since 2006. Our participation with PEMEX includes
from all the aforementioned national and international
projects in Cantarell, Ku-Maloob-Zaap, and the PEMEX
agencies. This emphasis certainly sends a message about
compression
out
the increased awareness in the industry, and our goal to
activities such as installing custody transfer measuring
promote efficient, environmentally-friendly equipment
systems in 30 platforms producing natural gas, installing
makes us stand out in this context.
Coriolis
and
station
in
Ultrasonic
Samaria-Luna,
Measurement
carrying
gauges,
and
implementing engineering, procurement, installation, and
Our business line will benefit from the policies that will
testing systems.
result from the commitments Mexico made in Paris at COP21. Companies are still in the process of changing
At the present time, the market is extremely demanding
their
regarding its products and services. Capstone Turbine
cheap but polluting form of energy generation, to using
Corporation and Industrias Energéticas have prepared
equipment like the kind we make, which is clean, low-
for this new climate by engineering products whose
maintenance, and durable. Unfortunately, it will take a few
capabilities to generate clean energy have been certified at
years to materialize, as companies still prefer fast and easy
an international level by UL, the Environmental Protection
revenues over eco-friendly operations.
mentalities
and
profiles,
transitioning
from
a
Agency, the World Alliance for Decentralized Energy, and the Energy Solutions Center. Our products have also been
Q: Which types of units are currently the most popular,
certified at a national level by the National Commission
and what benefits do they bring to your clients?
for Efficient Energy Use (CONUEE), the Ministry of Energy,
A: All of our microturbines include top-tier technology,
SEMARNAT, and the Trust for the Saving of Electric Energy
and they all provide significant benefits to our clients.
(FIDE). Industrias Energéticas also holds an ISO 9001:2008
Microturbine models C30, C65, C200, C800, and C1000
certification awarded by DNV GL, which guarantees the
are all trustworthy pieces of equipment with low-cost
commitment and quality of our services to our clients,
maintenance and no oils, refrigerants, or additives needed
which include the installation, maintenance, and user
to generate ultra-low emissions. However, recently in
training of Capstone technology and equipment. The new
December 2015, at the PowerGen International Global
business environment will enable us to find and retain
Convention organized in Las Vegas, Capstone presented its
new clients, and to find new applications and solutions to
new unit. The Power Package C1000S introduces various
power generation issues at a notably low price. We will
upgrades in areas such as air filtration, gas escape, and
offer our products and services through an integrated
most importantly, heat recovery of up to 1.5MW in hot
package that includes the installation and activation of
water, which increases its reliability and lowers emissions
microturbines, the training of operators and maintenance
even more, allowing users to get more than 14 million
managers, and an additional maintenance plan for all
service hours. This new product series from Capstone seeks
commissioned equipment, as well as a protection plan and
to make the 1MW turbine energy system the smartest in the
extended warranties for all units in question.
global market for distributed generation.
225
Q: What has been the role of Industrias EnergĂŠticas in the
Q: How can you convince current and potential clients
development of the Los Ramones II project, and how has
of the long-term financial benefits of investing in
this contributed to the expansion of your business?
environmentally-friendly solutions?
A: Industrias EnergĂŠticas was selected by the AOT
A: Many oilfield service companies insist on using
Pipelines consortium, composed of Arendal, Odebrecht,
conventional equipment, such as diesel engines, which
and Techint, from a pool of 30 other electricity-generating
pollute and require constant maintenance and part
system suppliers to be involved in Los Ramones II, the
replacements. The financial benefits of our equipment
largest natural gas pipeline project in the country so far. Our
are evident, as it generates clean and reliable electric
role within this project is of utmost importance because
energy, and can be operated with a wide range of
of our 25 units installed in different segments of this gas
different environmentally-friendly fuels without a need
pipeline, which are divided into eleven C800 models and
to use additional materials. Furthermore, compulsory
fourteen C30 models, have been in charge of generating
maintenance is minimal. The equipment can be reviewed
electricity necessary for the continuous operation of
once a year without any need to suspend operations, thus
the compression stations and the main line valves. The
reducing downtime. The total investment on the short,
latter elevate the pressure on the fluid inside the line and
mid, and long term, including all repairs, replacements,
supply the necessary power to send the gas throughout
and maintenance for the equipment, can be amortized
the whole course of the total constructed pipeline, which
in about two to three years depending on the model
includes both phase I and II of Los Ramones and totals
being used. We have presented proposals to companies
570km. At the same time, these installed and configured
such as Baker Hughes, Schlumberger, and Weatherford
microturbines will benchmark the quality of our service
suggesting strategic electricity generation for electro-
offering as well as provide ample trust for future clients
centrifuge pumps for secondary recovery purposes. This
who wish to get involved in the low-cost generation and
energy is reliable for both onshore and offshore pieces of
management of their own power.
equipment.
| INSIGHT
POISED FOR THE ENTRY OF FOREIGN COMPETITION Peninsula. “We will be able to make a pre-emptive effort since infrastructure is required before operations can
ERICK SÁNCHEZ SALAS
begin, and therefore we will be able to capitalize on this
Country Sales Manager of
project prior to any major operators,” he shares. “This
SITec
creates an opportunity for joint ventures and associations, and we have a concerted focus on new partnerships.”
226
SITec, a Mexican company that develops fluid control
For example, SITec is currently working with 3tier, a US
solutions for the oil and gas industry enables its clients to
company focused on delivering environmental services,
stop the flow in a pipeline for maintenance activities. The
and is also working on various projects with companies
company intervenes by designing the engineering plans
from Germany and the Netherlands in pipeline maintenance
and identifying the ONIS equipment required to complete
and construction. In an increasingly competitive arena,
pipeline maintenance. “Using ONIS line blinds instead
Sánchez believes that SITec can offer competitive
of typical industry blinding solutions generates several
advantages like the company’s ten-year experience in
advantages,” explains Erick Sánchez Salas, SITec’s Country
the oil and gas industry and its seasoned knowledge of
Sales Manager “With the traditional widespread method,
the market. “The market in Mexico is complex, not only
and depending on the pipeline diameter, this type of
geologically or due to the particular characteristics of the
operation would involve 5-12 people, hydraulic machinery,
oil and gas industry, but we also have an economic and
and require 7-36 hours. With ONIS equipment, the flow
regulatory environment that can be built upon,” he asserts.
can be stopped in ten minutes or less, with no need for
“We are experienced in dealing with the economic and
more than one person, or any type of machinery. This
social environment of the country, which is an invaluable
represents several thousands of dollars saved every day.”
advantage for foreign companies in an alliance.”
The company participates mostly in areas ranging from
“We know about the significant benefits the oil and gas
production, fluids transportation, refining, petrochemicals,
industry brings to the country, but we are also aware that
and energy generation. “We have 230 different pieces of
its operations have an effect on the environment,” Sánchez
equipment installed in oil and gas projects in production
admits. Taking care of the planet is an intrinsic value at
areas, including both platforms in Gulf of Mexico and
SITEC, which is evidenced by the processes the company
land installations,” boasts Sánchez Salas. “We work
implements, such as extracting sulfuric acid from crude oil,
with clients on several solutions for natural gas, sour
optimizing the processes of water treatment plants, and
gas, oil, condensates, diesel, and fuel transportation
environmental impact reducing fracking practices. Putting
for turbo machinery. In addition, SITec cooperates with
values into practice, the company does not use chemicals
major companies such as Grupo Dragados to develop
in activities involving soil, instead using its alliance with
infrastructure that enables players in the energy sector to
3Tier to offer bacterial bio-friendly cleaning solutions and
install their own products.” Sánchez believes the company
waste management strategies.
can
capitalize
on
several
competitive
advantages
following the Energy Reform. “We are concentrating our
SITec’s expansion plans include establishing a new ONIS
commercial strategies on developing our position with
manufacturing plant, and Sánchez believes that Mexico is
decision makers and stakeholders in the refining industry
the ideal location for this operation. “Mexico is the second
in Mexico,” he shares. “SITec is the only company with
region in terms of ONIS accreditation, only behind the
licenses for the maintenance of ONIS equipment, which
US market,” Sánchez reveals. “Tabasco, as the oil and gas
allows PEMEX to optimize the processes, reducing time
capital of Mexico, and possibly one of the oil and gas
and costs, and provide innovative technology, which are
capitals of Latin America, could be a strategic location for
priorities for PEMEX operations.”
this plant. Mexico also has several trade agreements with the US, which allows the company to produce in Mexico
In the pipeline segment, SITec is creating dialogue with
and then sell across the continent. “For a company like
both private companies and public institutions, such
ours, Mexico is one of the most attractive countries in the
as CENAGAS. One of these will be the Mayakan pipline,
world due to its myriad of trade agreements,” conveys
connecting Macuspana in Tabasco with the Yucatan
Sánchez.
| INSIGHT
SHEDDING LIGHT ON PLATFORM SAFETY ISSUES Comparing the Latin American safety approach with that of the European continent, Eric Barry, Director General of AIRSTAR, notes that the first still has a way to go before
ERIC BARRY
achieving world-class standards in workplace safety and
Director General of AIRSTAR
workforce protection. “The first priority of industries such
Latin America Network
as mining and oil and gas, where risk is ubiquitous, should be safety,” he states. However, Barry has observed this situation changing in Latin America as companies begin to recognize the crucial role that human capital plays in the industry, and safety and security become increasingly important. The country is also changing its inherent approach to these subjects through the creation of ASEA, an organization in charge of creating adequate regulations for industrial safety in the oil and gas industry. Moreover, he expects the entrance of new private companies to bring a higher level of regulatory oversight, as international
The balloons can withstand temperatures
-40°C, higher than 80°C, and wind speeds of up to 100km/h lower than
players traditionally have extremely high safety standards. ensure the highest standards for our clients, which makes AIRSTAR is a French company with over 25 years of
us a leader in our field,” Barry asserts.
experience in the development and manufacturing of innovative lighting balloon illumination technology for
The company has several novelties in its portfolio,
industrial maintenance, as well as for industrial safety
including the development of clean technologies powered
and firemen rescue. “Our products have several technical
by renewable energy, a product that will be released in
advantages, such as the capacity to illuminate 360° in a
the future. “We are also working on hydrogen batteries,
uniform manner without shadows and without changing
but the implementation of this project has been delayed,”
shape or color,” Barry mentions, while pointing out that
Barry admits. AIRSTAR is ultimately working to become a
they are surprisingly easy to install. They also do not
more sustainable company, and is developing alternative
dazzle, do not deflate, do not explode, and are water
light sources that would require less consumption and
and wind resistant. “When working at night, these are all
provide higher efficiency. He expects their self-powered
essential factors to guarantee the safety of workers and
lights to be launched in the European market first, as it has
efficient operations,” Barry continues. In Europe and the
fewer intricacies than others. “Once the pilot project has
US, there are norms regulating lighting solutions for high-
finished, and when the products are ready for export and
risk activities, so the use of lighting balloons is dictated
sale abroad, they will immediately be available in Mexico,”
by law. Companies that use the balloons for nocturnal
he discloses. In the meantime, the French company hopes
activities receive a subsidy from social security, due to
to sign contracts with the market’s new players, and to
an awareness that the equipment will reduce workplace
cultivate links with PEMEX in order to situate lighting
accidents and social security costs.
balloons in the NOC’s fields and rigs.
AIRSTAR manufactures in France, the US, and China, and
Over the years, AIRSTAR has worked in close partnership
its stringent standards ensure the lighting balloons are
with many of the large players in the oil and gas industry,
adapted to the particularities of the 130 countries in which
such as Total, BP, Shell, and ExxonMobil. In addition to
the firm has presence, including Mexico. This country
working on its market integration in Mexico, AIRSTAR also
poses no specific challenges for the balloons, as these
seeks to cater to the needs of companies that will enter
are regularly used in areas under extreme conditions,
the market as a result of Round One. “We are preparing
such as the North Atlantic and Canada. The balloons can
for this by following the same commercial strategy that
withstand temperatures lower than -40°C and higher than
has worked so well for us in the past, which is to form
80°C, wind speeds of up to 100km/h, and can even be
and consolidate a network of distributors to serve specific
used in snowy conditions. “We have spent over 20 years
markets such as offshore, extraction, exploration, and
developing the equipment, and our qualified engineers
refining,” Barry announces.
227
| VIEW FROM THE TOP
EAGERLY ANTICIPATING THE ENTRY OF NEW PLAYERS RUBÉN ROSIÑOL ABREU Director of Tecno Fire
228
Q: How have the subjects related to security in the oil and
protection against fires. To demonstrate our commitment,
gas industry in Mexico evolved since the Energy Reform,
we invested in the creation of a training center where
and what has been Tecno Fire’s contribution?
we teach security courses from the basics of survival in
A: This industry has been evolving for a considerable
the water and fire combat, to the Helicopter Underwater
amount of time, even since before the Energy Reform.
Egress Training (HUET) simulator that trains personnel
However, with the entrance of new international players
to escape from a helicopter underwater in the case of
brought in by the bidding rounds, it is expected that
accidents.
the area of industrial security and fire protection will be subject to increased standards and continued innovations,
Q: What type of company does Tecno Fire have among its
in a constant bid for more effectiveness and efficiency.
clients, and what are some of the challenges or problems
Tecno Fire has contributed to the industry by providing
that the company helped its clients to solve in 2015?
quality services for 18 years, exceeding the expectations
A: The main companies in our portfolio are those
of clients, and remaining at the forefront of innovation and
that are primarily working within the oil sector, like
adherence to national and international regulations. The
shipping companies, perforation companies, works and
areas within the oil sector that represent the highest sales
construction companies, other service companies, and of
are the drilling platforms due to the quantity and type of
course, PEMEX itself. Installations in Mexico tend to lack a
equipment required by each platform. The company has
culture of industrial safety and hygiene, as well as failing
also created consciousness through safety training and
to comply 100% with the measures of safety established
| INSIGHT
CLEANING UP THE OIL AND GAS INDUSTRY ALBERTO ESPINOSA Director General of Ecosolutions
this issue. “PEMEX is one of the companies that focus on the environment, but there is still a long way to go in terms of the implementation of technology, while scarce investments in innovation is having a detrimental effect.”
In spite of the amount of oil entering the ocean each year, estimated at 0.25% of global production, environmental
There are many factors hampering the advancement
concerns do not seem to be at the forefront of the oil industry.
of environment performance within the industry, but he
Alberto Espinosa, Director General of Ecosolutions, believes
believes that the situation is slowly changing and the
that the oil and gas industry is still in its infancy in terms of
difference can now be seen between the companies
environmental awareness. “Factors such as regulation and
that are taking the correct measures and those that are
training about environmental protection are areas that are
not. “Many companies, especially foreign multinationals,
severely lacking in Mexico, and this is something that should
have environmental consciousness at the heart of their
be prioritized,” he believes. Although he concedes that there
operations,” he states. “Generally, these large operations
are certain companies with strict environmental controls, he
have a trickle-down effect, and more and more of the
argues that many still fail to attribute enough importance to
smaller companies are taking cues from the environmental
in the Official Mexican Norms. Tecno Fire works directly
installations that are certified by national and international
with the client through risk analysis and offering training
entities. Our installations for the provision of services are
courses with qualified trainers who have both national and
located in Ciudad del Carmen, Campeche and in the city
international certifications and experience.
of Paraiso, Tabasco, and we are in the process of opening offices in Merida, Yucatan and in Cancun, Quintana Roo. In
Tecno Fire offers a guarantee to clients that safety and
the same way, we have specialist technical personnel and
protection teams will be available at the time a fire or
a sales team to cater to the needs of new clients.
adverse event occurs. We also support clients by providing consulting services so that they have the equipment
Q: What will Tecno Fire do to take advantage of the
necessary to protect human lives and installations, without
opportunities that the opening of the oil and gas sector
damaging the environment. We reinforce this through our
will bring?
real-time database of all the systems and their components,
A: Tecno Fire will maintain its position at the forefront
which allows us to be aware of stock availability at any time,
of innovation in safety equipment and systems, while
as well as scheduling inspection and maintenance services
simultaneously continuing to develop its human capital,
on the system in an efficient manner.
which is the foundation of its services. We have the techniques, equipment, and components to cater to future
Q: How does Tecno Fire differentiate itself from other
demand. In order to maintain visibility in the Mexican oil
fire safety and protection companies in terms of its
and gas sector, Tecno Fire is present at the main national
proposition and benefits it provides to clients?
and international expositions in industrial safety and
A: Tecno Fire’s principal differentiator lies in its ethics and
fire protection so that we can familiarize ourselves with
quality in providing services, its adequate and certified
the trends and new technologies offered on the market,
installations, and its specialized staff that is certified in
updating our techniques to reflect new developments. It
national and international norms and standards. The most
is through this continuous improvement that we are able
popular service we offer is the inspection and maintenance
to revise each one of our processes and remain up to date
of fire prevention systems, and we expect the demand to
with industry trends. Tecno Fire’s main objective is to be
increase, particularly for perforation equipment as a result
the leading company in services, equipment, security
of the new players entering the fields awarded in Round
systems, and fire protection in both the commercial and
One. Moreover, Tecno Fire has the infrastructure necessary
industrial oil and gas sector across the national territory.
to meet the demand for services generated by the
We work every day to reach our objective and align these
entrance of new companies in the oil and gas sector, with
with our short, medium, and long term goals.
practices employed by the major players.” Espinosa
industry, the company is focusing on the niche industry of
believes that the creation of ASEA will create a greater
ecological oil and gas solutions.
environmental consciousness within the industry. “We consider that the creation of ASEA will strengthen all
The company has developed a great deal of technology,
our past efforts, and that the industry standards will
including a product that is 100% organic and removes
automatically be raised by its creation, as well as by the
the grease accumulated on the platform from skin,
entry of multinational companies,” he reveals.
products to eliminate odors, and ecological products for bathrooms. Moreover, Ecosolutions is developing
Ecosolutions
has
developed
groundbreaking
new
technologies to control fires, and one of its products
products focused on cleaning up oil spills and slicks. One
is of Danish origins and manufactured in Mexico, and it
of these was invented in Mexico, patented in the US, and
can proactively prevent fires in compromised areas. The
EPA approved, and is able to disperse hydrocarbons on
company’s shampoo product is already on the market, but
contact, while neutralizing their contaminating properties
it is in the process of adding new components to increase
by eliminating the three basic properties of viscosity, odor,
the potency and efficiency. “Our domestic products are
and activity. The product can also be used as a fertilizer in
extremely demanded as they address a basic need in
agricultural fields. “This product has the potential to make
a clean and environmentally friendly way, and can be
a significant impact in terms of minimizing the damage
used in a plethora of industries,” says Espinosa. “We are
of hydrocarbon spills in the Mexican offshore industry,”
constantly innovating and developing new technologies
asserts Espinosa. With more than 24 products that are
and solutions, and are at the forefront of innovation in
carefully selected to address issues within the oil and gas
terms of organic, biodegradable chemical products.”
229
| INSIGHT
IMPERMEABLE QUALITY BEYOND NATIONAL STANDARDS “We do not expect the JUAN GABRIEL QUIROZ Administrative Director of Arigem
In 2015, Arigem, a company mainly dedicated to the installation of a PVC geomembrane that retains all types of spillage to avoid subsoil contamination, set the target of increasing its sales by 30% and client satisfaction by 230
40%. The company’s Administrative Director, Juan Gabriel Quiroz, claims Arigem successfully achieved its goals, keeping up with its trend of increasing sales and client satisfaction figures. According to Quiroz, the company’s
implementation of norms by ASEA to modify our activities or the way we carry them out, because the international norms we are used to following are already higher than the ones mandated by Mexican regulators”
growth is the result of client recommendations and the
Juan Gabriel Quiroz,
professionalization of its processes, which was done with
Administrative Director of Arigem
customer satisfaction in mind. Without a doubt, the PVC geomembrane is the product that has contributed the most to Arigem’s growth. “It is used for drilling equipment,
The services surrounding the PVC geomembrane also
in operation bases, or in the transportation segment to
led to growth in sales figures, with clients requesting
avoid spillage and soil contamination when unloading
everything from syndicate administration to the supply of
trucks. The PVC geomembrane we use in the oil industry
cleaning personnel for the mats.
has a 1.5mm thickness, and protects against hydrocarbons spills and ultraviolet rays,” Quiroz explains.
Quiroz is confident that his company’s focus on safety and compliance with international regulations will be a significant
The product’s popularity is partly due to the fact that
advantage in securing contracts with the foreign companies
many projects in Tabasco require its use. Quiroz recounts
that are expected to enter the market. He believes that
that Arigem has undertaken projects with GCM for
establishing partnerships with newcomers as soon as
tertiary equipment, with Schlumberger and Halliburton on
possible is of utmost importance, so that when they seek
Mesozoic fields, and currently with Nabors in Campeche.
a consolidated local safety company, they will immediately
“Our nine-year long collaboration with these companies
turn to Arigem. “We do not expect the implementation of
is able to continue thanks to the quality of service we
norms by ASEA to modify our activities or the way we carry
provide,” boasts Quiroz. “In addition, we are constantly
them out, because the international norms we are used to
looking for new applications for the impermeable mat,
following are already higher than the ones mandated by
maintaining the quality and professionalism we brought
Mexican regulators,” Quiroz clarifies. “These traits have
to the oil sector. We recently started using Impergem, the
contributed to the company’s low accident index”.
PVC geomembrane waterproofing product we install as a complement to our mat, at a residential level.”
Globally, the oil industry is going through a difficult time, and Arigem has definitely felt changes in its
Innovation is a crucial part of the company’s strategy,
clients’ budgets. As a way to survive in this low oil-price
and since last year, it has been working on expanding the
environment, the company is improving its offering so that
applicability of its PVC geomembranes to other non-oil-
it can better service its customers once the oil price rises
related sectors. Arigem took advantage of some of its
again. “On the bright side, we are looking forward to the
partnerships in order to enter the automotive industry,
positive impact of Round One, whereby more companies
where it is present in car dealerships. The fact that
will enter the market, creating many sales opportunities
companies nowadays prefer dealing with one supplier,
for us,” shares Quiroz, who aspires for his company to
rather than ten, added to the small number of players
maintain its growth in sales and customer satisfaction,
supplying similar products, has allowed Arigem to grow.
while maintaining a low accident index.
| VIEW FROM THE TOP
MAINTAINING LEADERSHIP IN REGULATORY BENCHMARKING ALEJANDRO HERNÁNDEZ Director General of CSIPA
Q: What are the principal challenges that your customers
the risk analysis area, for which we are already certified by
will face in 2016?
TÜV Rheinland to carry out assessments, but we still need
A: For international players, the main challenges will be
to spread the word and keep training our staff in this area.
adapting quickly to the Mexican system and learning about the relevant local regulations and geographical
Q:
What
makes
CSIPA
an
attractive
partner
for
conditions. We believe that companies will struggle to
international companies?
understand and adapt to Mexico’s social environment,
A: Years of experience working in Mexico has given us
which is more complex than that in other countries. In
broad expertise and knowledge of the Mexican market
this area, we believe that new entrants could benefit from
and understanding of PEMEX and the most important
transparent processes and inclusive strategies that involve
governmental agencies. Furthermore, we already have
the community’s participation. We are investing in raising
international experience as we have participated as local
awareness of our products and services. Instead of cutting
representatives and distributors of international brands
costs completely, we decided to follow this strategy to
from countries such as Canada and the Netherlands.
keep track of our investments and maximize their impact.
Moreover, one of our competitive advantages is the
We believe that companies need to take calculated risks
environmental database that we have developed for the
but always using an established strategy
Mexican industrial setting, which we use to optimize the costs and times of our services.
Q: What is the role of technological innovation in your business strategy?
Q: What has been your participation in Lakach, and what
A: Technological innovation helps us position ourselves
is the current status of the project?
in the market and retain our customers, it even works as
A: We have participated as a regulator during various
a marketing strategy.
To calculate the economic value
stages of the project, and all our work has been associated
of deepwater projects in a worst case scenario, we have
with safety and environmental protection. Due to the
developed a process that uses discrete variables, and that
regulatory character of our role, the company in charge of
is more effective than the methodology used by German
the project was obliged to comply with our requirements,
companies, which is based on probability principles. For
regardless of the project’s status. We always work as
this process, we utilized a simulation methodology and our
accurately and efficiently as possible, which is particularly
environmental database to provide each environmental
important when the project is not moving as quickly as
variable with an estimated value, instead of just assuming
expected. Moreover, we have contributed to the project by
it. This process has obtained PEMEX’s approval.
offering financing and in-depth consultancy.
Q: What is the role of international cooperation in your
Q: What are the main opportunities for improvement that
business strategy?
your company has identified in PEMEX’s processes?
A: So far, we have been working with foreign employees
A: We hope that the administrative processes will be
through the collaborations we established with companies
transformed
from other countries, such as Norway and the US. At
Another important issue is the NOC’s debt that restrains it
the
employees
from investing in new processes and technologies. PEMEX
is complicated for us, but we have been successful in
has a significant amount of expertise and skills, as well
establishing partnerships with international companies. As
as qualified employees, but the administrative processes
of today, we are already specialized in certain areas, but we
reduce efficiency for the company. If the parastatal wants
want to continue learning and acquiring new skills to prepare
to compete in the new market, it definitely has to change
for the new market. As a first step, we are working to enter
its work culture and environment.
moment,
directly
hiring
international
to
increase
PEMEX’s
competitiveness.
231
| INSIGHT
GLOBAL QUALITY ENFORCING SAFETY REGULATIONS should be replaced by hooks that comply with the new Alberto López General Manager Mexico of Norsafe
Enrique Echegaray Operations Manager of Norsafe
specifications by July 2019. He also adds that PEMEX is implementing ship evacuation training programs for helmspersons, an area where Norsafe would like to help the NOC through its knowledgeable technicians.
Norsafe specializes in the sale of lifeboats and rescue
232
vessels, as well as providing services for these areas. The
According to Echegaray, each lifeboat has to comply with
company’s main activity consists of providing services to
Mexican and international standards, meaning the vessels
vessels, with offices in Ciudad del Carmen and Paraiso, and
have to be inspected by a certified professional. “PEMEX
a service station in San Luis Potosi. While Norsafe seldom
tends to be rather demanding, so it requires in-depth annual
engages in sales activities in Mexico, it has personnel
inspections, and it hires Norsafe for this purpose,” he shares.
dedicated to identifying the Mexican market’s needs, who
Norsafe has a globally-implemented software solution
contact their counterparts in Singapore, Spain, or China to
called Safecord that keeps a historic record of vessels and
start the sales process. Once a deal is reached, the Mexican
equipment, to which the company provides maintenance.
office takes over the maintenance of the vessels.
“When a vessel comes to Mexico and undergoes maintenance operations, we use the software to determine who provided
Alberto López, General Manager Mexico of Norsafe,
the latest maintenance service, when, and how. We then use
explains that, due to the types of services that Norsafe
the information to identify the norms and regulations with
offers and the way in which PEMEX works, the company
which the vessel complies and what remains to be done,”
has a contract with PEMEX Procurement International
details López. Following the service, Norsafe’s clients are
according to brand or patent. The contract allows PEMEX’s
invited to complete a survey, which is used by the Norway
different asset management divisions to give Norsafe
office to create a report and identify areas of improvement.
work orders for servicing equipment. Norsafe is currently negotiating the possibility of providing PEMEX with new
While the market is opening to international players,
maintenance services that follow international standards,
Mexican companies are also increasing in numbers, and
such as weekly visual inspections. Enrique Echegaray,
Echegaray expects a Mexican company to be Norsafe’s
Operations Manager of Norsafe, says inspections are
main client by 2017. “At the moment, PEMEX is our largest
the most sought-after service, followed by the sale of
client, but Grupo R is poised to become our most important
spare parts. The company will benefit from a new global
client for lifeboats, as it is expanding its fleet and it has three
regulation that requires that all hooks on rescue vessels
deepwater platforms under construction,” he concludes.
WORLD LEADER IN RESCUE EQUIPMENT We are manufacturers of Conventional Lifeboats, Fast Rescue Boats, Free Fall Lifeboats and Workboats. • Quarterly, Semi-annual, Annual and 5-year inspections according to SOLAS • Sale of new equipment • Preventive and Corrective Maintenance to Lifeboats, davits and winch • Sale and installation of spare parts • Provisions
Calle 31 No. 1201, Col. Aeropuerto, C.P.: 24119, Cd. Del Carmen, Camp., México Tel.: +52 (938) 384 2017; 111 1233. Sales.mexico@norsafe.com Service.mexico@norsafe.com www.norsafe.com
| INSIGHT
ELECTROMAGNETIC TECHNOLOGY FOR OIL AND GAS As the Mexican oil and gas industry continues to transform itself into an increasingly open market, a growing amount of opportunities will continue to be created for suppliers of basic industrial equipment and services. Some of these
GERARDO TAMAYO
fundamental industrial functions include the supply of
Director General of SUMIMSA
premium brand construction tools and the performance of everyday procedure and maintenance services, such as cable and basic component lubrication and general maintenance,
including electromagnetic technology, the measurements
along with the inspection of these same components
of which provide several advantages. “The electromagnetic
through non-destructive means. The increasing aperture
machine that we use for this analysis allows us to observe
of the Mexican oil and gas industry will also mean a higher
the fibers of the cable and provides us with a diagnosis
demand for internationally recognized standardization and
report that looks similar to an electrocardiogram. With
certification of products and services offered.
this report, it is possible to differentiate the fibers that are broken without opening the cable and decide what
SUMIMSA, a Mexican company based in the city of Tampico,
measures we will take regarding that specific cable.”
is well positioned to fulfill the aforementioned role in the Mexican oil and gas industry. Its Director General, Gerardo
SUMIMSA has managed to develop an extensive client
Tamayo, is quick to point out the important percentage of
portfolio including PEMEX Drilling and Services, and CFE
the company’s operations that are dedicated to servicing
in the public sector. In the case of private companies,
this sector. “Currently, the oil and gas industry represents
Saam Remolques, Oro Negro, and Perforadora Mexico are
the main revenue source for our company, accounting
among the company’s main clients. Tamayo also points
for around 70% of our cash inflows.” Tamayo delineates
out specific projects carried out with other companies as
the competitiveness of his company’s offering in the
examples of their diverse capabilities. “We have provided
context of the Mexican market in this way. “We have
various services to Ki Energy and Carso. In both cases, we
analyzed our competitors’ offering on a national scale,
carried out an inspection of their lifting system to identify
and we have identified that most of these companies
potential failures and suggested a replacement program
do not comply with current quality standards and the
for the damaged parts in addition to a maintenance
range of our products." Historically, even before Mexican
scheme for the rest of the system.” SUMIMSA can
oil and gas projects had to deal with this current financial
also provide integral solutions thanks to its “Tullbox”
situation, PEMEX and its suppliers existed under a culture
methodologies and software tools. Tamayo knows that
that demanded the highest of safety and maintenance
his company must prepare for a different industry over
standards, yet were prone to cutting costs in this area at the
the coming years. “The situation of the industry and the
first sight of ballooning expenses. Tamayo poses a simple
position of PEMEX have changed drastically. Therefore, we
challenge to this prevailing logic. “Firstly, it is important to
now need to analyze the new market and understand the
highlight that safety must not be compromised by budget
needs of the new players in order to adapt our services to
cuts or any other factor as it will put human lives at risk.
their requirements,” he comments.
Moreover, when companies have limited budgets, they are not in a position to buy new equipment, and this could be avoided through proper maintenance services for existing
"Currently, the oil and gas
equipment.”
industry represents the
In the case of basic maintenance services such as cable
main revenue source for
maintenance, he argues that this approach is even more important than usual. “In the case of cable inspection, providing the proper maintenance will not only ensure employee safety but will also increase the useful life of the equipment, generating savings for the company.” SUMIMSA’s cable inspection services use a variety of means to assess the integrity of the equipment in question,
our company, accounting for around 70% of our cash inflows” Gerardo Tamayo, Director General of SUMIMSA
233
| INSIGHT
A STEP AHEAD IN ACTIVE FIRE PROTECTION In Mexico, preventable economic losses form fire-related accidents in industrial settings equaled 6% of the country’s GDP, according to data from fire safety associations AMIS
LUIS GERARDO GONZÁLEZ
and AMRACI. Electrical malfunctions top the list, followed
Director General of Fire
by friction and mechanical sparks. Although strengthening
Service Plus Mexico (FSPM)
the country’s fire prevention culture is the first area that should be addressed, timely maintenance and exposure to new technologies can help a great deal. “A significant
saves money, but also time, as the latter is not wasted on
problem in the oil and gas industry is the absence of a
selecting the right type of extinguishing foam. Another
well-established fire prevention culture,” says Luis Gerardo
characteristic of FSPM’s Mexican operations is the large
González, Director General of Fire Service Plus Mexico
inventory that the company carries for emergencies,
(FSPM). “Five out of Venezuela’s eight refineries had to
allowing it to respond in a fast and efficient manner in
stop production due to delayed maintenance, and this
such cases. “We are 15 years ahead of our competitors
could soon be the case of the remaining three if preventive
in the fire extinguishing foam market, as we have been
actions are not taken.” González says PEMEX should also
complying with the 2015 PFOS regulations since the year
update its policies, since it requires workers to neutralize
2000,” says González. The company installs its equipment
gasoline with AFFF foam in some instances, and with
for its clients, and connects it to software that sends FSPM
chemical powder in others. “Fuel has polar components, a
monthly and yearly maintenance alerts. “Our certified
characteristic that also applies to gasoline even though it is
personnel carries this out onsite, and then provides our
not strictly polar in itself. Furthermore, it is now known that
clients with a report on the state of the equipment. Should
extinguishing fuel fires requires a special alcohol resistant
these be stolen or damaged, even by natural causes such
formula, with chemical powder unable to accomplish
as rust, our clients are insured to recover their losses. Our
this. PEMEX continues to employ a technology that
integral program also includes training for the use and
reduces visibility, intoxicates, possibly leads to re-ignition,
handling of our equipment,” González explains.
and expires. Sadly, the latest technology is usually not covered by local or international normativity, which further
"The latest technology is usually not covered by local
discourages companies from implementing it,” he laments.
or international normativity, which further discourages companies from implementing it. Unfortunately, until the
FPSM’s product is a double agent that combines both
authorities implement norms and regulations surrounding
AFFF foam and a wetting agent. This gives the product
these sorts of products, companies will face them with
the uncommon ability to fight five types of fires, namely
reluctance, despite the possibility for medium and
solid, polar and non-polar combustible liquids, electric,
long-term savings," González laments. He hopes that
combustible metal, and cooking oil fires. The foam is six
ASEA will elevate the current standards and the quality
times more effective than that of traditional foams. “We
requirements for products with certifications that come
recently tested our products at PEMEX and were able to
from recognized laboratories. “I trust ASEA will take an
extinguish a fire in four seconds thanks to our technology,
environmentally-friendly approach when it comes to new
while PEMEX, supported by an onsite team and firefighters,
regulations, an area that has often been neglected until
required 28 seconds to do the same. This adds an extra
now.” The regulations might change now that there is a
value to our products, as just one extra minute could allow
new environmental agency for the oil and gas sector, and
the fire to propagate at fast speed, and after four minutes,
FSPM is already making a name for itself in this industry, as
it could become uncontrollable,” González shares.
it has equipped all of ASEA’s facilities. “The organization carried out a study and found that the most advanced
González highlights the fact that FSPM foam does
equipment in Mexico was ours,” González boasts, adding
not expire and that it meets the EPA’s environmental
that FSPM has written to the Minister of Environment to
requirements in the US and those of the WGK 1 in Europe.
request the inclusion of the company in the drafting of
The company can also provide its clients with a version
new norms. “There is a basic component missing in the
of the product that does not freeze. The foam’s lifespan,
mix, which is cooperation with the Ministry of Health. This
even when mixed with water, is unlimited. Providing clients
would ensure the new regulations not only look after the
with a single solution for all of their fire problems not only
environment, but also human health,” González comments.
235
TECHNOLOGY & NATIONAL CONTENT
10
The supply chain of the Mexican oil and gas industry is undergoing a makeover as a result of PEMEX’s transformation in to a productive enterprise of the state, the shift toward a multiple operator market, the impact of the drop in oil prices, and the entry of new competitors and innovative technologies. At the same time, the Mexican government has introduced a local content requirement that stands at 25% by the end of 2015, to be increased to 35% by 2025 in order to ensure that the Energy Reform trickles down to domestic firms and detonates the national industry. The combination of the industry’s urgent need for innovative technology and the national content requirements is creating opportunities for joint ventures and other types of association that combine the best of both worlds. International companies are looking forward to entering and offering global expertise, working in conjunction with local companies that are familiar with the environment and can contribute to compliance with national content requirements.
The Technology & National Content chapter will focus on the global drive toward increasingly cost-effective solutions, the transformation of the Mexican supply chain following the Energy Reform, PEMEX’s new procurement strategy, and the ambitions of both domestic and international suppliers and service providers.
237
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The Solution
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| CHAPTER 10: TECHNOLOGY & NATIONAL CONTENT 240
VIEW FROM THE TOP: Miguel Ángel Servín, PEMEX
242
VIEW FROM THE TOP: Ernesto Ríos, Mexican Petroleum Institute
244
VIEW FROM THE TOP: Raymundo Platas Merino, LAOGA
245 INSIGHT: Ernesto Marcos Giacoman, AMESPAC 246
INSIGHT: José Luis Zúñiga, COPARMEX
247
INSIGHT: Ricardo Ortiz, Greensill Capital
248
VIEW FROM THE TOP: Gerardo Flores, ABB
249
INSIGHT: Emmanuel Guillermo Montaño, Consorcio EMCRO
250
VIEW FROM THE TOP: Carlos Pascual, IHS Energy
253
INSIGHT: José Ornelas, MEXMOT
254
VIEW FROM THE TOP: Barry Irani, iStore
255
INSIGHT: Felipe Pacheco, Plenumsoft Energy & Sustainability
256
VIEW FROM THE TOP: Arturo Vargas, National Instruments
257 INSIGHT: David González Sánchez, Net Brains 258
VIEW FROM THE TOP: Pedro Hoyos, GlobalSat
259
INSIGHT: Jorge Villareal, Elara
260
VIEW FROM THE TOP: Baldemar Guzmán, SICK
261
VIEW FROM THE TOP: Julio Ochoa, ICORSA
239
| VIEW FROM THE TOP
PEMEX PROCUREMENT FOCUSES ON TRANSPARENCY, CERTAINTY, AND COMPETITION MIGUEL ÁNGEL SERVÍN Chief Procurement Officer of PEMEX
240
Q: What were the main objectives given to you for the
Q: Many suppliers have expressed concern over the
first six months of your new role, and why were these
difficulty to align their global equipment planning with
selected?
PEMEX’s comparatively short planning cycle. Will you
A: We are working on a new scheme for PEMEX’s
be planning procurement more in advance, and how are
procurement processes, focusing on three main goals:
you going to coordinate with PEMEX E&P and Industrial
transparency, certainty, and competition. Some important
Transformation to do this successfully?
achievements have been made under the current scheme,
A: We are taking part in working groups to prepare our
which is a centralized procurement model, but there is still
plans one year in advance. Although this is the idea, the
room for improvement. There are windows of opportunity
timeframe is subject to financial resources. The best
that we need to work on. In the area of transparency, for
practice in the world, according to the Organization for
instance, we are working on a new electronic platform
Economic Cooperation and Development (OECD), involves
that will allow us to track the entire process. PEMEX's
suppliers and users having a clear idea of what they want
Procurement Division can derive enormous benefits from
to purchase, how they want to do so, and when. For large
incorporating paperless culture into its supply chains.
projects, we will organize meetings with suppliers and
Promoting the use of an electronic platform will increase
users where we will explain the entire process and provide
security and transparency. Information will be more
them with the information they need to plan properly. This
reliable and easier to process. Participants can be sure
is a massive shift in culture at PEMEX, and we hope for it
their information is safe, as only authorized people will
to be successful.
have access to it. We are also promoting a figure called Social Witness, an independent observer that we will use in
One of the difficulties that PEMEX encountered in the past
some of our bidding processes as a strategy for improving
was a lack of communication between the procurement
transparency, impartiality, and compliance with the legal
and financial areas, and we are seeking to solve this issue.
framework. So far, these have been successful in other
The newer and stricter processes and rulings will provide
public entities, and PEMEX believes it can successfully
us certainty in financial resources for projects, allowing for
appropriate this mechanism.
more order in the company.
When it comes to promoting competition with new
Q: What should suppliers expect considering that not
participants, we consider the fact that we already have
many projects have been awarded lately and the rest of
many suppliers to be an advantage. Indeed, competition is
2016 is not looking particularly promising?
a key element to have a successful procurement process.
A: The financial situation is not the best for us, and we are
Another element we are focusing on is planning, because it
counting on executing some projects, mainly exploration
is the cornerstone that could make this process successful.
and production projects, which will be launched through
It is important to map out a strategy with the main users
bidding rounds with a focus on the promotion of open
of the procurement platform, PEMEX E&P and PEMEX
competition.
Industrial Transformation, for the procurement process to be efficient. For this, PEMEX requires time. We are
Q: What is PEMEX going to do in order to ensure that its
currently working on several strategies, all of which seek
suppliers can survive until they are paid?
to turn away from direct awarding, and looking closely at
A: We started to pay our suppliers, mainly SMEs, three
the option of tenders and bidding rounds, which could
months ago. In fact, we receive financial support from the
give us better results, help us achieve the change we are
Ministry of Finance, which goes exclusively toward paying
looking for, use our resources in a better way, and be more
this debt. At the end of the year, we expect most suppliers
efficient overall.
to be paid.
Q: How do you plan on developing your local supply
Awards have not proven to promote transparency and
chain, and how will the relationship between PEMEX and
competition amongst providers. The new scheme will not
its suppliers evolve?
only attract new players, but it will also give the industry a
A: PEMEX has a well-developed local supply chain
new perception of PEMEX.
involving companies ranging from SMEs to large suppliers. The challenge is now to maintain this local supply chain
Q: How will you work to improve the link between
given the entrance of international competitors in the
the procurement and legal divisions, which becomes
Mexican oil and gas sector. In order to maintain our local
increasingly important as PEMEX takes on riskier projects?
supply chain, we are developing initiatives regarding work
A: The legal division has an area dedicated to risk that
programs with industrial associations and chambers;
helps us plan projects and provides us with feedback. Prior
initiatives for minority groups of suppliers, such as
to any project, the legal department reviews the contracts
SMEs, women-led enterprises, and local companies;
and all possible legal implications for PEMEX and the
the coordination of petroleum clusters in regions where
potential supplier. The latter can be ensured that the
PEMEX has an important presence at all economic levels;
allocation of risk is in line with international best practices.
and specific projects for the development of suppliers,
We have redefined our early termination clause for every
such as the pilot project with CEMEFI, the Mexican
new project.
Center for Philanthropy, to encourage social responsibility among suppliers. All of these initiatives are based on a
Q: What will be the main difference between the way the
mutual benefit vision without overlooking PEMEX's legal
procurement process will operate if next year the oil price
obligations regarding national content in exploration and
is at US$30/b or US$50/b?
production.
A: The procurement process will remain the same, regardless of the oil price, with the purpose of improving
Q: How does PEMEX compare to the procurement areas of
transparency,
the IOCs, and how can you ensure a successful cooperation
amongst providers.
certainty,
and
promoting
competition
in the case of farm-outs and other associations? A: The PEMEX Procurement Office is undergoing several
Q: How will you ensure that price is not the sole focus of
changes, many of which are oriented towards facilitating
your procurement activities?
cooperation with another office. We are comparing our
A: Our increased focus on quality is evident under the new
processes with our peers, and implementing the best
scheme. We are currently in the midst of reevaluating all of
practices used by IOCs. These involve, among others,
our suppliers to ensure they comply with our new terms and
the use of the correct assignments, electronic means,
conditions, shifting the focus to take into account quality
auctions, independent observers, public consultations, and
and reliability through an overall view of business success.
the promotion of competition. The public consultations will provide us with industry feedback, allowing us to
Q: PEMEX had more than 120 procurement offices before
improve the bidding processes. We expect these new
the reform. How many do you have today, and how many
best practices to be implemented soon. We know this is
can you still remove the moment you shift to an electronic
important to guarantee success in our associations with
system?
other operators. We are also empowering our officials,
A: We have office locations around the country, each of
teaching them about the industry and training them in
which has a strategic focus. We intend to reduce that
procurement practices.
number to one that can attend all of E&P and TRI’s needs. We are looking to have local acquisition centers (CAPAs).
Q: Will the digital procurement system function in a similarly
CAPAs will be dedicated to providing acquisition,
transparent way to CNH’s portal for the licensing rounds?
management expertise, and a secure, high-quality, and
A: Yes, and the number of bidders and their economic
responsive service at a local level. The CAPAs will ensure
proposal will also be accessible, which is different to CNH’s
that
portal. The same goes for auctions. We will seek to keep
standards established in PEMEX´s acquisition program
everything as transparent as possible. We expect this to
goals, objectives, and contract requirements.
procurement
activities
meet
the
performance
be up and running in two months. Q: What can PEMEX suppliers expect from the NOC in Q: To what extent is PEMEX going to become proactive
2017 and what will you expect from them?
in its search for the best suppliers and service providers
A: We believe that our suppliers are important stakeholders.
around the world?
This demands from us a continual improvement in quality,
A: We are looking to become more proactive. PEMEX
transparency, certainty and competition. We expect to
should change the way in which it sees its suppliers. Direct
bring new players into the field.
241
| VIEW FROM THE TOP
THE TECHNOLOGICAL ARM OF MEXICO’S OIL AND GAS INDUSTRY ERNESTO RÍOS Director General of the Mexican Petroleum Institute (IMP)
242
Q: What are the main collaborations between IMP and
Q: What abilities allow IMP to collaborate with regulators
PEMEX, and in which ways does each institution benefit
like CNH or CENAGAS, and what main lessons have you
from their relationship?
learned from these endeavors?
A: The Mexican Petroleum Institute originated from
A: IMP provides human resources, products and services,
PEMEX, and the collaboration is defined by the five
strategic design, technical assistance, research, and
decades during which the Institute has provided scientific
intellectual property, among others. These are the
and technological support to PEMEX. We have carried out
capabilities that have attracted the new governmental
innumerable research and technological developments for
agencies to work with us. We have recently signed an
the NOC in order to solve various technical complexities
agreement with CENAGAS to support the natural gas
that emerge in the production chain and the processes
sector. This agreement aims at performing various joint
related to the transformation of hydrocarbons. The
actions in strategic design and institutional architecture,
decades during which we have provided our services have
engineering, technical diagnostics, skill development,
benefited not only PEMEX, but also the state.
and technical assistance, mainly in terms of inspection, maintenance, and pipeline integrity. We will also work to
As part of the collaboration between PEMEX and the IMP,
ensure the reliability of natural gas storage, transportation,
we could mention diverse projects that originated from
and distribution systems.
technological requirements at the NOC, which was seeking to improve well productivity, increase recovery factors,
In addition, IMP signed an agreement with ASEA in order
characterize wells’ formations and fluids, improve techniques
to provide technical support to the agency in the design of
to interpret seismic information, develop new abilities in
the regulations and regulatory frameworks for the industry,
deepwaters or in shale resources, process and transport
as well as the development of human capital, in line with
extra-heavy crudes, and improve the production of clean
the best international practices. It is worth mentioning
fuels. We have also helped PEMEX in areas such as industrial
that IMP designed an inspection program for ASEA, from
safety, operative improvements, engineering, and the
which 60 inspectors had graduated in May 2016. We
formation of specialized human resources. In other words,
consider that this program is relevant to overcome the
during these decades, IMP has been PEMEX’s right arm
current challenges in Mexico’s energy industry and to
when it comes to technology, as well as its strategic partner.
ensure the exploitation of technological resources and ensure sustainability in key areas such as industrial safety
Q: How will the opening of the oil and gas sector impact
and environmental protection. We also maintain a close
the Institute’s activities and the services it offers?
relationship with CNH and the new operators that have
A: The entry of new players in the Mexican oil and gas
won tenders from Round One, among others.
industry will open a great window of opportunities for IMP, as research and technological development are crucial to
Q: What is the role of the IMP in providing support to
generating economic, environmental, and social value. In
the supply chain in order to generate technology while
the new scheme, IMP must continue working on generating
creating national content?
new capabilities and assisting PEMEX, but we will also be
A: As a national institute, IMP is present across the entire
able to offer our services to private players and provide
hydrocarbons value chain, creating national content
technical support to the oil and gas industry’s regulators.
through research and developing its own highly competitive
The scientific knowledge on the hydrocarbons value chain
technologies. These are in line with the industry’s needs
the Institute has obtained throughout its existence will
and are based on innovation and the creative talent of
enable it to advise players and develop new skills that will
the institution’s employees, which support the transfer
boost the sector.
of knowledge to improve the effectiveness and efficiency
of the industry. It is important to mention that during
the risk and uncertainty in the reserve incorporation
the institute’s 50 years of experience, it has registered
process. They have generated strategic information
many patents, national and international, becoming the
that our clients use in when deciding where to allocate
institution that patents the most in Mexico.
investments in exploration projects. This was facilitated by IMP personnel, who have extensive experience in the
Q: What are the main focus areas of the IMP in the
oil and gas sector and deep knowledge of the country’s
exploration and production area?
geology. That is how our clients benefit from the IMP’s
A: The integral methodologies, technologies, and solutions
knowledge and experience in Mexico’s oil and gas
that IMP has developed for exploration and production
environment. Our technical consultancy services and
have contributed to PEMEX’s success, and this will also
competitive pricing allow for better decision-making
be the case for the new participants in Mexico’s national
within our clients’ companies, helping them to become
oil industry. These solutions include various operations
more sustainable in the exploration and production
in unconventional reservoirs from the evaluation of oil
segment in Mexico.
resources, the design of the well for its exploitation, and the development of technologies for real-time monitoring of hydraulic fracturing. In addition, the Institute has carried out evaluations of the leftover oil in naturally fractured carbonated reservoirs by using an integral solution,
243
which includes technology, tracers, petrophysics, and samples of cores and outcrops. Finally, we have worked on multistep hydraulic fracturing, which consists of real-time monitoring of hydraulic fracturing and oil production, as well as the saturation of residual oil, for which we evaluate the remaining oil in naturally fractured reservoirs, using an integral approach and enhanced oil recovery methods, among others. Q: Which technologies and processes were developed by
the
Institute
during
your
participation
in
the
aforementioned areas?
IMP has carried out research and technological developments in the oil and gas industry for 50 years
A: The technological services offered by the IMP have been linked to the solution lines in hydrocarbon potential
Q: How will IMP continue participating in the development
evaluation and reserve incorporation, as well as in
of Mexico’s deepwater segment?
evaluation, and the training of human resources. Some of
A: IMP will continue participating in the development of
the technologies we have developed can be found in the
Mexico’s deepwater segment. The Institute will play a key
market and are commercialized both at the national and
role, as the Deepwater Technology Center that will be
international level. These include technologies to increase
inaugurated this year will carry out related research and
well productivity, chemical products (anti-foams and anti-
provide cutting-edge technological services to public and
corrosives), and devices for wells with a high incidence of
private players in the oil and gas industry.
oil and gas. Our technologies have been tested in over 520 PEMEX wells, and in certain cases we obtained production
The Deepwater Technology Center was built using
improvements in gas of 2.472bcf/d and of 6,600b/d in oil.
resources with the Hydrocarbons Fund from the Ministry of Energy and CONACYT, as well as IMP’s own resources.
We recently tested a technology for enhanced recovery
Located in Boca del Rio, Veracruz, its goal is to increase
using microbial processes, which resulted in an oil production
knowledge that will serve in the design, development,
increase of 22%. The technologies used to characterize
and operation of deepwater and ultra-deepwater fields
the reservoir’s oil have been applied to at least 25 wells,
in the Gulf of Mexico. In its initial phase, the center will
using methods based on X-ray tomography. Likewise, we
have sixlaboratories: Technology Qualifications, Flow
successfully used the chemical products developed by IMP
Assurance, Meteocean and Hydrodynamic Phenomena
in fields such as Akal, Ku-Maloop-Zaap, Samaria, Angostura,
Numeric Simulation, Drilling Fluids, Well Cementing
and Jujo-Tecominoacán, among others.
and Completion, and Geotechnics and Floor-Structure Interaction.
The
Deepwater
Technology
Center
will
The differentiated technologies developed by IMP for
also focus on preparing skilled talent and creating
exploration and production have succeeded in reducing
methodologies and solutions for hydrocarbon production.
| VIEW FROM THE TOP
FOSTERING OIL AND GAS LINKS ACROSS THE AMERICAS RAYMUNDO PLATAS MERINO CEO of LAOGA
244
Q: Which activities and goals distinguish your organization
and requirements of the administration. It is therefore our
from others on the market performing similar functions?
duty to provide success stories and examples of the way in
A: We were founded three years ago and today we have
which the benefits of the reform can be seen. These examples
480 members. The distinguishing feature of LAOGA is
will come in the form of those first tenders awarded in the
our focus on the supply chain, as well as compliance and
first phases of Round One, and we will be working with the
certification for the major players coming to the Mexican
Offshore Committee to provide channels for dialogue with
market. The second most important point of the association
the Ministry of Economy in order to comply with those rules.
is our participation with the different committees involving
We simultaneously have an opportunity to partner these
entities such as CNH, ASEA, CENACE, CENAGAS, and
companies with suppliers, which constitutes another joint
CRE. We form a voice for the industry in order to provide
venture opportunity for the local industry.
access to the regulations and relevant information that will facilitate these companies’ establishment in Mexico. We
Q: How would you help entering companies identify a
partner with a variety of organizations like COPARMEX,
local supply chain?
CANACINTRA, and CONCAMIN, as well as the Chamber of
A: First and foremost, we are extremely selective in
Commerce in order to optimize processes for economics,
terms of our members, and we will continue introducing
supply chain, and political input areas. Our main focus is
new members to the association, while requiring full
working to create relationships with the Secretariats of
compliance with our policies and certifications. We
Energy in each state to effectively represent the different
work based on best global practices, especially for key
energy players within the sectors. The main goal of
accounts like operators, medium-sized companies, and
LAOGA is to have members conducting business through
service companies like Halliburton. We are also planning
the association.
to launch an application called Procurement Energy Shop, which serves as a guide or directory. We register all our
Q: What is your perception of the national content
members in this application and compile their information,
requirement, and what are the main challenges being
and through this service we are providing these details to
faced in this area?
the rest of the players in the market.
A: Firstly, I believe this requirement is necessary in order to guarantee effective technology transfer in Mexico. In
Q: In the current environment of uncertainty, what are the
the past, PEMEX’s monopoly has meant that technology
key milestones that you hope to surpass in 2016 as an
was not a main priority in Mexico, but with the opening
association?
of the market, this has gained a greater importance. In
A: The goal is to welcome 1,000 members by the end of 2016,
terms of the local companies within our organization, this
and we are sure we can achieve that, whether they are from
represents a promising transition for them. Many of the
Mexico or abroad. Secondly, we aim to generate at least US$2
foreign companies coming to LAOGA seeking facilitation in
billion in contracts for our members through the organization.
terms of setting up operations in Mexico want information
Thirdly, we wish to achieve an active participation in each
on the intricacies of the new contracts. Regardless of this
committee in terms of regulatory issues, and to be extremely
percentage or the joint venture structure, many of the
active within each regulatory entity. The government has
foreign companies that we have worked with have preferred
already fulfilled its responsibility in approving the Energy
to be allied with a local partner, at least initially, so this
Reform, so it is now up to organizations like ours and the rest
represents a significant opportunity for the local industry.
of the industry to participate in shaping the legislation and best practices. We have formed an alliance with the Texas
There are many questions regarding the process, and one of
Oil and Gas Association, and next year we will endeavor to
the main functions of LAOGA is to clarify the roles, duties,
create more links like these.
| INSIGHT
PRIVATE SECTOR ALLIANCES
One of the greatest questions regarding local content is
ERNESTO MARCOS GIACOMAN
how this will be measured. The Ministry of Economy has been working on this regard for some time now, and Ernesto
President of AMESPAC and
Marcos Giacoman, President of AMESPAC and Founding
Founding Partner of
Partner of Marcos y Asociados, says the methodology
Marcos y Asociados
incorporates proposals from global organizations such as the World Bank, thus it follows international best practices. He claims AMESPAC has been involved in the development
local content requirements through equipment, goods, and
of the national content measurement mechanism even
specific services, players can rely on local employment,
before the reform was passed, as this is in the association’s
infrastructure investments, personal training, and even
top priorities. “We want the development of an industry that
technological development. In the case of industrial safety,
works in parallel to operators, and some service suppliers
companies that have international certifications can validate
can become operators through migrated contracts and
those in Mexico, so they do not have to undergo a similar
farm-outs, so this subject means a lot to the association.
process in the country or change their standards. As for
Basically, we want to improve the technical and operative
the percentages required in the E&P contracts awarded at
capacities of local industries to help develop the new
the moment, Marcos Giacoman says these are realistic and
energy sector,” he shares.
operators have not voiced complaints so far.
Since the beginning, AMESPAC has developed formulae
AMESPAC is helping in the implementation of the
aimed at measuring national content efficiently. Although
methodology developed by the Ministry of the Economy
the association’s opinions were taken into account in several
in a way that enables contractors to offer services that
cases, Marcos Giacoman says some the final results turned
comply with the local content requirements for operators.
out to be different from what AMESPAC thought was
Members of AMESPAC and former PEMEX employees
best. “For instance, we wanted to include in the formula
have formed a consulting firm specialized in international
any purchase oil companies did in Mexico, even those
commerce and local content. The firm developed an
considered for exportation purposes, because we want an
information processing methodology that allows operators
internationally competitive industry. However, the authorities
and subcontractors to fulfill these requirements while
did not include this suggestion and the methodology limits
optimizing their resources. AMESPAC is also supporting
national content to products and services used in the field
the creation of a national registry of local suppliers for
that was formally assigned in a contract.” Regardless, he
the energy industry. Marcos Giacoman says PEMEX has
claims the Ministry of Economy’s methodology is quite
already developed its own system, and the Ministry of
broad and open, so even if a company cannot fulfill the
Economy is working in a more comprehensive one.
Offices Location:
Experts in providing port-to-port integral services.
Business Units
Ship Agent Crew Management Offshore Support Logistics Shipping Services Commodities Legal Advice
* Ciudad del Carmen, Mexico * Mexico City, Mexico * Altamira, Tamaulipas * Coatzacoalcos, Veracruz * Dos Bocas, Progreso, Yucatan * Seyba Playa, Tampico * Tuxpan, Veracruz * Houston, USA
Contact:
rcampero@maritima-internacional.com.mx www.maritima-internacional.com maritimamexico Maritima Internacional maritimainternacional Maritima Internacional Mexico
245
| INSIGHT
TABASCO PREPARES TO STRENGTHEN ITS SUPPLY CHAIN Investments are not limited to obtaining certifications,
JOSÉ LUIS ZÚÑIGA
as Tabasco-based companies also have to consider
President of the Tabasco
employee training and capacity building, as well as the
Energy Commission at
purchase of new equipment in their budgets. Zúñiga
COPARMEX
explains that the federal and the state government have a series of instruments through the Ministry of Economy and the National Entrepreneur Institute, where there are
When talking about Mexico’s oil and gas states, Tabasco is
initiatives that support companies in terms of training,
one of the names that top the list. In fact, 13 out of the 17
technology, and consultancy. The Energy Commission is
municipalities that form the state have oil and gas reserves,
already helping businesses access these resources.
and approximately 70% of the national production is
246
linked to Tabasco, so without a doubt, it plays a key role
A well-recognized problem in the oil and gas industry is
in the hydrocarbon sector. Given the importance of the
the coming drought of qualified personnel. Fortunately, the
oil and gas industry in this state’s economic activity and
Energy Commission is composed of many former PEMEX
the fact that this will increase due to the implementation
employees who train groups of engineers, leveraging on
of the Energy Reform, COPARMEX created the Tabasco
their specialized and sophisticated knowledge. “We see the
Energy Commission to strengthen the state’s supply chain.
coming high demand for qualified personnel as excellent
“COPARMEX forms specialized commissions in each state
news. We want this workforce to come from Tabasco, and
with the objective of connecting and developing the local
our role is to promote this talent. In order to achieve this
private industry. For the oil and gas sector, the association
objective, the Energy Commission is working closely with
participates
universities so that our engineers can help them tailor their
in
a
round
table
organized
by
CNH,
representing the industrial sector before regulators and
programs to the industry’s real needs,” Zúñiga shares.
other decision-makers. Following its mission, COPARMEX created the Tabasco Energy Commission to help SMEs
Helping companies obtain access to financial mechanisms
seize business opportunities with the winners of Round
and certifications is only part of the journey in helping SMEs
One,” explains José Luis Zúñiga, President of the Tabasco
improve their competiveness. The Energy Commission will
Energy Commission.
also help Tabasco-based companies by organizing a series of events, including the Petroleum Forum, where service
The Energy Commission will help companies detect
providers and suppliers can meet potential clients. In
opportunities and adjust to the emerging business
addition, the Commission also has monthly meetings with an
models in the country. The first thing the Commission
official who is directly linked with the hydrocarbon industry,
will do to help SMEs, stresses Zúñiga, is help them
and local companies can approach him to understand first-
meet the new industry standards that will be required
hand the requirements and learn what business model is
for contracting. “The Energy Reform poses a 25%
most appropriate to follow.
local content requirement per contract, which will be a considerable advantage for the companies we work
At the moment, Zúñiga says the Commission is providing
with. However, operators and large firms are clear when
training and consultancy services to get the gears moving
it comes to standards, so we are aware that we have
for Tabasco companies. He acknowledges that Tabasco
to strengthen this market to allow it to meet the new
had previously lacked an Energy Commission in spite
requirements.” He points out that some of the required
of being a prominent player in the Mexican oil and gas
standards will be ISO, SOSHA, or NOM certifications,
industry. “The Energy Commission was created as a
but additionally, some companies will have to certify
result of all the changes and reforms that the country is
their internal processes according to the nature of
undergoing, so the time was just right,” he states. Zúñiga’s
their activities. The main limitation for certifications is
main objective during his first year of tenure is to ensure
the costs, and many SMEs lack the capacity to pay for
that companies in Tabasco secure business opportunities
them. To help them overcome this barrier, the Tabasco
with operators. He concludes, “I want the SMEs from
Energy Commission is presenting an integrated plan to
Tabasco to have the opportunity to make contacts within
the government whereby the Commission can certify
the national and international industry, and that is what the
companies depending on their type and activities.
Energy Commission will work on as Round One evolves.”
| INSIGHT
BAILING OUT THE INDUSTRY
The Mexican oil and gas industry is facing an unprecedented challenge. Not only is it affected by the drop in oil prices, but also by its impact on PEMEX. Just like any other
RICARDO ORTIZ
company in the international oil and gas industry, its
Director for Latin America
budget was planned relying on a much higher price of
of Greensill Capital
oil, and the drop has led to severe payment difficulties. Mexico’s industry is particularly affected given the fact that it has been so dependent on PEMEX, and because the
supplier has received the payment from Greensill, it has no
NOC is delaying payments. “This poses serious hardship
more financial exposure to PEMEX, or any bank borrowing.
on many companies, and in particular on smaller and
“We do not require guarantees from the supplier, as we
less well-capitalized ones,” Ricardo Ortiz, Director for
manage everything through contracts. Afterwards, the
Latin America of Greensill Capital, points out. “Among its
supplier has no further responsibility regarding payments
suppliers, PEMEX has a great deal of small companies that
by PEMEX, which reduces uncertainty and allows it to
offer daily services. In the case of jack-up rig providers,
finance its working capital at a rate lower than that offered
leases can cost US$180,000 a day, creating serious
by banks.”
struggles for such companies if they are not paid on time,” he exemplifies, adding that the amount of financial distress
Mexico also has an alternative payment program called
caused by late payments would depend on the size of the
NAFIN Productive Chain Program. The Director points
company, how local it is, and how many businesses it has
out that unlike what the industry may think, these two
around the world. Ortiz believes that the most promising
are not in competition, but rather, offer completely
solution for these small and medium-sized local firms is
different services. “Greensill Capital is a private supply
supply chain financing, as it provides the working capital
chain finance program that can provide funding from
that these businesses need at a much lower cost than the
both domestic and international sources and manage
alternative options available to them.
contracts made and payable in dollars in both Mexico and abroad, but not in pesos. Although in certain cases
Greensill Capital created the PEMEX Supply Chain Finance
we can accept contracts denominated in dollars that are
Program with the Mexican NOC in order to help companies
payable in Mexican pesos, our customers need a certain
that are struggling to survive due to delayed payments.
clause in their PEMEX contracts to receive dollars,” he
“PEMEX suppliers can receive financing at 8-10% from a
advises. He explains that, on the other hand, NAFIN is
bank, but we can offer much lower rates to small suppliers,
a government productive chain program that only takes
based on the oil company’s credit rating.” The Director also
care of contracts that involve Mexican pesos. “NAFIN and
expresses surprise regarding the fact that Greensill Capital
the government are currently handling the peso financing,
has received interest from large, international suppliers
and we do not want to interfere in their area. Greensill
that he believes can easily handle 180-day payment terms.
Capital would be interested in entering this market, but
“Those large suppliers like the fact that our financing is
this is ultimately PEMEX’s decision,” he admits.
structured as non-debt and improves their cash flow,” he reasons. In order to access Supply Chain Finance Program, suppliers must meet various requirements. Ortiz explains that PEMEX must first authorize such an action for each player, after which the latter must sign an amendment to its PEMEX contract, making it eligible for the program. He continues to say that, “Subsequent to this, the supplier can ask Greensill Capital to discount its invoices, and will then receive its money after a 48-hour period. Our documentation for suppliers is easy and allows users to sell
“From a bank, PEMEX suppliers can receive financing at 8-10% but we can offer much lower rates to small suppliers, based on the credit rating of PEMEX”
their PEMEX receivables to us on a non-recourse basis for
Ricardo Ortiz,
a small discount,” Ortiz clarifies. That means that once the
Director for Latin America of Greensill Capital
247
| VIEW FROM THE TOP
INSTRUMENTATION REDEFINING VALUE CHAIN INFRASTRUCTURE GERARDO FLORES Strategic Account Manager for PEMEX at ABB Mexico
248
Q: What role has ABB played in the development of
Although this project was initially launched for economic
PEMEX’s existing infrastructure, and what have been the
reasons, stemming from the Kyoto Protocol, today, it has
main highlights of its contribution?
become a matter of survival. Now that the borders are open
A: Our relationship with PEMEX goes back 35 years, when
for the supplying of gasoline and diesel, if PEMEX does not
we were known as Taylor Instruments. As equipment
supply ultra-low sulphur diesel, it will not sell anything.
developed,
we
went
from
supplying
pneumatic
technology to the digital instrumentation used today,
Another opportunity for us lies in reconfigurations. There
the latest technology available in the market. We have
are still three refineries that require a process update,
worked with the NOC on service requirements, training,
because they were designed to process light oil, and
service contracts, and any other services needed to keep
Mexico’s production is largely shifting to heavy oil. However,
the systems and equipment up and running.
we are unsure whether PEMEX will move in that direction for the time being. The main reason behind our doubts is
In the past five years, we became an important part of
the removal of the US ban on crude exports, which had
PEMEX’s activities in the offshore business, because we have
been in place since the 1970s. This has allowed PEMEX to
the main three disciplines required on platforms. These are
import 100,000b/d of light oil from the US, mix it with the
instrumentation, automation, and power supply. We have
local heavy oil, and supply PEMEX’s refineries with the type
an extremely solid portfolio for those disciplines, and we
of crude they were built for. That could solve the problem
became one of the first players in that arena in conjunction
in the short term, without having to resort to refinery
with the EPC companies. We also bring value to PEMEX
reconfigurations, which cost US$3 billion each.
through work for its contractors. We built a complete platform with a local partner, Bosnor, part of Grupo R, for
Q: What new products and services do you have in the
which we developed all of the engineering for the process
pipeline for the Mexican oil and gas market?
equipment, automation, and power. Grupo R built the jacket
A: We have one specific product, for which we are
and the topside platform. The project cost US$320 million,
number one in the world, called High Voltage Direct
and was the largest we have undertaken so far. In addition,
Current (HVDC). It is a solution for providing power to
we recently delivered substation number five for PEMEX, as
platforms from the shore, instead of building generation
the original one burnt down three years ago. ABB won the
platforms offshore, which is extremely costly and difficult
bid for this project by approaching it from a predominantly
to maintain. We have developed a solution where the
technical point of view, and also by carefully considering
platform is connected to the shore through an underwater
the significance of our business with PEMEX.
cable, saving time, as all maintenance can be carried out onshore. Another advantage of our solution is that the risk
Q: To what extent has the mapping of the market segments
of having a power cut is passed on to the supplier.
ABB serves around the world uncovered business opportunities in the Mexican oil and gas industry?
We provide the power systems required to obtain the
A: Today, we have the projects that had been put on hold
energy from the transmission line, by converting it from AC
by PEMEX for many years, and we are looking forward to
to DC, sending it through the cable, and then converting it
the development of clean fuels, which are now at the diesel
back to AC at the platform. Our colleagues in Norway are
stage. There are six refineries that need to be installed with
the experts in this as they have carried out the process for
new processes that can handle ultra-low sulphur diesel. This
BP, Statoil, and ExxonMobil, among others. PEMEX has a
project has been on the table for approximately ten years,
need for this technology in the Ayatsil-Tekel-Utsil field and
and is at least six years behind schedule, but it finally looks
if they were to invest in it, it would be the first installation
like it is moving forward, despite PEMEX’s budget cuts.
of this type in the Mexican oil and gas industry.
| INSIGHT
THE CHALLENGES SMALLER PLAYERS FACE Resourceful SMEs can find a niche in the oil and gas value chain if they manage to adapt their products appropriately. Consorcio EMCRO (EMCRO) was established in 1997,
EMMANUEL GUILLERMO MONTAÑO
and its core focus has been the manufacturing of metal
Director General of
used for offshore platform
Consorcio EMCRO
containers measuring 4m
3
installations in Mexico’s marine region. These containers comply with PEMEX’s NRF-261-2010 norm, which is a very strict regulation concerning the logistical handling of drill
mud skips themselves, these would depreciate within ten
cuttings. Emmanuel Guillermo Montaño, Director General
years, making little sense in accounting terms.
of Consorcio EMCRO, claims competitive advantages such as certifications and reliable products have allowed the
Montaño claims players are faced with three main challenges.
company to grow to 1,000 containers and assume a market
The first concerns sources of financing. Although firms have
share of 25%. EMCRO’s main clients include Baker Hughes
access to development banks, these usually do not lend
and Qmax, and Montaño hopes Round One will bring more
more than 10-15% of the requested amount, Montaño tells.
players and prospective clients in the fluid drilling segment.
To cover their growth needs, companies then have to turn to their providers for financing. “Housing financing hovers
On top of its core business, EMCRO last year started
at around 5%, which seems incredible in comparison to the
building mud dams. Montaño explains that these are
rates in our sector. This financing should be reallocated to
much larger containers, with a capacity of about 80m , in
productive projects, especially within the energy industry.
which drilling fluids are prepared. “In 2015, we also started
Currently, the loans from development banks oscillate
constructing a drilling fluid plant in Paraiso, Tabasco,
between 18-30%. Another issue is the excessive guarantees
which we hope will be completed and handed over to
requested for financing. At times, it can reach a ratio of
Baker Hughes in December. In addition to this, we own
three to one. In my mind, the government’s monetary policy
a 4-hectare field with the corresponding permission for
must be addressed urgently.”
3
handling non-hazardous waste, complying with PEMEX’s previously mentioned requirement.” In addition, EMCRO
The second challenge is insecurity. “The oil-rich areas
plans on building its own drilling fluid plant, which will
surrounding the Gulf of Mexico have high insecurity rates,
have a storage capacity of 4,500-5,000m3. “This plant
and there is a strong and urgent need for the government
provides us with a strong competitive advantage, as all
to address this problem,” Montaño comments. In his view,
other plants in the area have a capacity of only 1,300m3
Mexican companies are more accustomed to working with
and are located in the API,” shares Montaño. He explains
these problems than without them, but foreign companies
that, to manufacture drilling fluid, about 70-72 different
will face an unpleasant challenge when establishing
types of chemicals are needed, some of which require a
their operations here. The final problem is infrastructure.
patent. Once EMCRO has the plant in operation, it will seek
Montaño explains that in the case of Dos Bocas, there are
to commercialize these chemical products, since there is a
no separate roads for trucks and pedestrians, leading to
demand for them in the market.
many accidents. “The infrastructure, in many places, does not align with the current and future needs, particularly
Montaño believes the local content requirements, currently
given the amount of investment to come.”
set at 25% with the possibility of increasing to 35% by 2018, will positively impact his business, as companies will
Although obstacles are evident, Montaño is confident that
opt to contract mud skips locally rather than import them
the Energy Reform and Round One will provide plenty
or build them themselves. “First of all, local hires are more
of opportunities for SMEs. EMCRO will take advantage
beneficial in relation to cost, but also because imports
of the tenders and secure contracts with the winning
would not comply with PEMEX’s NFR-261-PEMEX-2010
companies. “We are interested in the winners of R1-L02.
norm,” he explains. EMCRO enjoys an advantageous
This round concerns nine fields in the areas of Tabasco and
position because it is located only 7km away from the API
Campeche, the success rate of which is estimated at 60%
Dos Bocas dock in Paraiso, Tabasco, has a well-established
on average, meaning perforation could start much earlier.
yard with all necessary permits, and 100% Mexican capital.
We would expect to start working with them between
Montaño points out that, should companies seek to build
March and December 2016,” Montaño shares.
249
| VIEW FROM THE TOP
EASING THE TRANSITION INTO MEXICO CARLOS PASCUAL Senior Vice President of IHS Energy
250
Q: What is IHS Energy’s main competitive advantage, and
to companies in a way that is easily accessible, and we
how have you harnessed this in the changing face of the
present it in a format that allows them make comparisons.
energy landscape?
We have developed software capabilities in four main
A: IHS Energy has the most advanced global databases
areas: Technical, Energy Analytic Insights, Engineering
available on upstream project development and on basins
& Geoscience, and Consulting. In each of these areas we
around the world. We have also developed state-of-the-
have a number of different software products and reports
art models for cost analysis. These tools allow companies
that can help companies better understand the Mexican
and governments to understand what it will take to
environment. We work with companies in each of these
be competitive in any particular marketplace. Through
areas in order to develop the package of resources that
our office in Mexico, we have a direct relationship with
best suits their business requirements.
companies interested in the country, and also with key decision makers in the government at the federal, state,
Q: How has the insecurity in hydrocarbon-rich regions
and local levels. This allows us to understand not just the
impacted the entry or operations of IOCs in Mexico?
traditional technical issues in energy, but also many of
A: For most companies, security issues have not been
the above-ground risks that affect the viability of energy
the dominant factor affecting their investment decisions
projects.
at this stage in Mexico, especially for offshore projects. There are a number of things that can be done at a federal
Here in Mexico, our most requested services include a
and state level to help address issues related to organized
combination of technical and policy insights in analyzing
crime and to facilitate relationships with unions and
the resource potential of Mexico’s oil and gas sector, the
ejidatarios. The wider development of onshore resources,
cost for development, and the competitiveness of those
especially unconventional or shale, will entail different
resources. We have also had requests to help companies
types of challenges. It will be necessary for the Mexican
understand above-ground risks, which are the political,
government to work together with companies to develop
regulatory, and economic factors and can affect the
strategies that provide a local source of security that
viability of a project. As a result, we have spent extensive
can respond rapidly with accessible protection. It is fair
time meeting with and understanding the interests of
to say that each company will have to make a security
critical players in the government at a federal level and
investment, but what is truly needed is a security umbrella
establishing contacts at a state and local level.
provided by the government. Companies could then make localized investments to support or reinforce that.
Q: What are the benefits for your clients of working with a company that provides both data and consulting
Q: What are the main challenges national companies will
services?
face in becoming operators?
A: IHS has established data exchange relationships with
A: Around the world, two of the greatest challenges for
companies all around the world, and by using the technical
any company are quality control and standardization.
and cost data provided to us by these companies, we are
Companies must be able to deliver a quality product
able to develop models that help them analyze data more
on a consistent basis in order to attract and sustain
efficiently. To do so, we receive company data on individual
contracts and partnership. IHS has the capacity and
countries, but also cost data and technical information on
experience to help companies develop these skills.
the basins our clients are developing globally. We then
Having spoken to some of these local firms, they are fully
analyze that data and help them better process it, and
aware of this challenge and are committed to developing
customers are able to update their information in our
their capabilities to reach that goal. In the matter of
database bi-annually. We then make the data available
standardization, companies will have to ensure that the
standards they pursue are congruent with both Mexican
and the materiality, meaning the scale and size, of these
and international expectations. One way to cut costs is to
resources. We have also spent time discussing this with
use standardized procedures, services, and equipment in
key players in the Mexican government so they can better
many different parts of the world. A significant challenge
grasp the perspective of foreign companies as they are
for Mexican companies as they seek to become operators
assessing the investment opportunities.
will be to demonstrate that they are able to do so in a way that conforms to international practice.
Q: What are your priorities for 2016, and how do you plan on achieving them?
The key for us is to help companies entering the country to
A: We have three main priorities. The first is to maintain the
be competitive. The first stage is to help them understand
most comprehensive analysis software of any company
the Mexican marketplace and the requirements for
in the world. The second challenge is to understand the
competing with other players. We also help companies
changing nature of technology and how this impacts
better understand the supply chain so that, if they get a
the costs of production and the available resources on
contract, they know which Mexican companies they can
the marketplace. We are in constant discussion with
work with. Finally, we provide companies with consulting
technology providers to understand the influence of recent
and advisory services on how to operate efficiently in
developments, price reductions in the financial world, and
Mexico in terms of land access, security, and environmental
the willingness of financial institutions to continue to make
questions. This knowledge allows companies to stick to
investments in technological developments.
251
schedules and, thus, reduce their costs. The third challenge is to understand the competitiveness Q: What are the main challenges in the Mexican oil and
of individual resource basins and to develop the skills and
gas sector in terms of above-ground risk, and how can
the capabilities necessary to help companies effectively
IHS Energy help in overcoming them?
develop their proposals and projects in important areas.
A: The first set of issues that companies are trying to
We believe the potential here is exceptionally high, and
understand is how competitive the offerings in Mexico are,
that it will take strong competitive terms from the Mexican
in comparison with other investment opportunities around
government to attract international investment and
the world. In order to do so, they are analyzing the fiscal
thoughtful, cost-effective proposals from companies to
terms established here, the quality of resources on offer,
ensure they can work effectively in Mexico.
MAN Diesel & Turbo, con sede principal en Augsburgo, Alemania, es el proveedor líder en el mundo de motores de combustión interna de gran calibre para aplicaciones marinas y estacionarias, así como, turbomaquinaria (compresores, turbinas de gas y de vapor) para múltiples aplicaciones industriales. MAN Diesel & Turbo cuenta con sistemas completos de propulsión marina, unidades de turbomaquinaria para el sector petróleo, gas e industrias de procesos y soluciones completas de plantas de energía. La Empresa tiene presencia en más de 100 sitios internacionales, con fábricas en Alemania, Dinamarca, Francia, Suiza, la República Checa, la India y China. En México, tenemos presencia desde el año 1905.
Para más información con gusto lo atenderemos en: MAN Diesel & Turbo México, Sierra Candela No. 111; Suite 106 Col. Lomas de Chapultepec C.P. 11000, México D.F. Tel: +52 (55) 4000 6100 Email: angelica.diaz@mx.man.eu
www.man.eu
Engineering that transforms As a General electric partners, our solutions scope are • Intelligent Platforms • Power generation (Hydroelectric and thermoelectric turnkey projects) • Electrical Distribution and Control • Field services
ventas@mexmot.com T. +52 (55) 15 18 05 46 / 0434 www.mexmot.com
| INSIGHT
DATA ANALYSIS PROVIDES NEW APPROACH TO PREVENTION Securing the services of a highly diversified international company can be like walking through a maze. For instance, each division of GE has its own terms, conditions, and ways of doing business. In today’s market, it is difficult
JOSÉ ORNELAS
to find a company that could deliver a complete solution
Director General of MEXMOT
that integrates different GE areas. Fortunately, this is exactly what is offered by MEXMOT, a company formed in 2004 by three GE employees who wanted to provide
are provided to every area in which PEMEX operates, from
system solutions for the electricity sector. MEXMOT is
production to refining, and MEXMOT can work directly for
the distribution channel with the largest amount of GE
PEMEX and other times through a contractor or an EPC
products in Mexico, as it represents several GE divisions,
company. Ornelas points out that MEXMOT can provide
such as GE Energy Connections, GE Bently Nevada, and
a solution to a problem or process and work all the way
GE Grid Solutions, among others.
to procurement, installations, and kick-starting a piece of equipment or system. One of the company’s flagship
José Ornelas, Director General of MEXMOT, explains that
projects in the oil and gas industry involved working
the company has two approaches to doing business. The
alongside Amec Foster Wheeler in the Francisco I. Madero
first involves the supply of products, and it represents 20%
refinery. “The project was intended to modernize the
of the company’s revenues, while the second consists of
cooling towers and we supplied the control mechanisms
integrated solutions that comprise the remaining 80% of
for medium and low voltage components, particularly
the business. Although MEXMOT’s main strength lies in
medium voltage metal-clad switchgear,” Ornelas explains.
power generation, the company also has a strong focus on the digital side, which some have labeled as the fourth
In spite of MEXMOT’s capabilities and expertise, Ornelas
industrial revolution. MEXMOT has an engineering base
claims business in the Mexican oil and gas sector has
that is mainly focused on programming, control, protection,
become difficult. “Right now there is a lack of knowledge
and measurements. These technicians and engineers
regarding PEMEX’s structural changes. The fact that we
receive their training directly from GE, who is always
do not know what the final structure of PEMEX will look
behind everything MEXMOT does. In fact, GE informs
like has hindered projects in this sector. We are aware that
MEXMOT about any projects in which it could participate
large foreign investments will enter the country, but we
or technologies it should look into for future applications.
have not yet identified any niche opportunities.” Ornelas is confident that the entry of new companies will create
In the digital services area, MEXMOT is migrating towards
promising business opportunities for MEXMOT, and he is
preventive maintenance through data analysis. “Even
especially excited to work with international players due to
though most companies already include SCADA and
their operating culture. “As a company that represents GE,
automation in their processes, GE is one step ahead,”
we are used to working under international standards, and
Ornelas proudly states. He explains that GE is currently
it is easier for us to follow an API or Exxon standard than
focusing on using software and algorithms to process
a PEMEX norm,” he comments, adding that several PEMEX
data and carry out a precise and extensive analysis that
norms are not aligned with international guidelines, which
can identify certain behavioral patterns in components
creates some confusion among contractors.
or critical equipment. The gathered information is then used to plan maintenance or the replacement of a part
Even if the oil and gas industry is going through a turbulent
in order to prevent accidents or malfunctions that could
time, MEXMOT can rely on GE to continue its activities. “In
result in downtime. Ornelas emphasizes that this is an area
addition to developing technology and innovations, GE
in which his company is increasingly participating hand in
is also financing projects, particularly for PEMEX and the
hand with GE.
oil and gas industry, by using its financial arm to increase its participation in the market. By financing projects, GE
For the oil and gas industry, MEXMOT offers services
is creating job opportunities for us. In turn, the fact that
related to SCADA systems, automation, turbine control,
we integrate several GE areas in our solutions helps GE’s
engine control, and vibration monitoring systems, for
financial arm plan an integrated financial solution,” Ornelas
which the company relies on Bently Nevada. These services
concludes.
253
| VIEW FROM THE TOP
SOFTWARE SOLUTIONS FOR OILFIELD DATA MANAGEMENT BARRY IRANI CEO of iStore
254
Q: Who are your main clients, and what challenges have you
A: All of our products and solutions have one fundamental
helped them to overcome in the oil and gas E&P sector?
similarity in that they connect to and leverage existing
A: iStore clients include IOCs, NOCs, and service companies.
databases and applications. PetroTrek’s capability to
iStore has been providing products and services to PEMEX
bring data together from many official systems of records
since 1997, a relationship we are proud of. We place great
spanning from corporate systems to local real time SCADA
value in our ability to support PEMEX and our other clients,
systems makes it invaluable for operations teams to monitor
and to meet their business needs over the past 20 years.
asset performance. Up-to-date information including daily
The Energy Reform in Mexico and current low oil and
reports, KPIs, alerts, and shift logs are accessible by both
gas prices make these partnerships even more important
individual engineers and managers from any location. The
and meaningful. Our products and services focus on data
major distinction in iStore’s solutions is our approach in
access, data quality, and data visualization. Our deep
viewing asset management and production operations
domain knowledge and experience enables us to develop
holistically, then adapting technology to address real
products, customized solutions, and workflows, in order
business requirements. Using new generation web-based
to meet the technical and business needs of our clients.
technology, our software and solutions complement
Most of our iStore team members come from the oil and
existing applications and systems. We integrate and
gas industry. Our products and services enable our clients
organize fragmented views into contextually rich and
to quickly and easily access data from multiple databases,
easily accessible forms, which transforms separated data
view the data in context, and be able to analyze and share
into a more useful context, providing insights from which
data in a secure web based environment.
actions can be taken to improve performance.
Q: At a time when cost is vital for the market, how do you
Q: What products and services have driven your demand
reduce downtimes when migrating customers to iStore
in the past year, and how do you expect this to change
solutions?
with the progression of Round One?
A: There are two possible areas of downtime: downtime of
A: We do not anticipate a great change since the needs
people and downtime of wells. Regarding work disruption
of the market will remain the same. Data management
of people due to systems installation and upgrades, our
activities have become more important than ever. We
web based software and solutions are delivered, installed,
expect this to continue, but in the context of specific
and implemented with no interruptions to the user
activities such as farm-outs and regulatory compliance.
community. Rapid deployment cycles have always been
Analyses will still be required, and fields will still require
key for us. We leverage our client’s existing data sources
evaluation, with operators looking to increase production
and infrastructure, enabling them to optimize the use
and cut costs. Solutions that work well with what is already
and analysis of their data. Since we adopt the federated
in place will be important, since technology budgets need
data model, meaning we connect directly to the required
to go further and contribute to short-term profitability as
data bases and do not move data. Our processes are fast,
well as long-term goals.
seamless and non-intrusive. With our systems, clients can work without disruption even if the back-end systems and
During Round One and beyond, the fundamentals of
databases are changed or migrated.
providing easy access to information from various systems and improving the quality of data and data management
Q: In which ways are you able to improve production
remains unchanged. The new challenges will be working
through
production
with both internal and external partners, helping them
operations (AMSP) solutions, and how is this done
your
asset
management
and
to collaborate effectively and efficiently, and at the same
differently to your competitors?
time providing regulatory agencies with timely reports.
| INSIGHT
INTEGRATING INNOVATION ACROSS THE INDUSTRY “Competitiveness has never been so crucial to Mexico’s oil and gas industry, as the open market will bring experienced companies from all around the globe,” warns Felipe Pacheco,
FELIPE PACHECO
CEO of Plenumsoft Energy & Sustainability (PE&S). His
CEO of Plenumsoft Energy &
company started 20 years ago as a traditional IT services
Sustainability
provider, and the Energy Reform motivated this player to strengthen its value creation for the oil and gas industry. PE&S is already investing time and talent in setting up an R&D
evaluation, is aimed at expanding user capabilities in order
team to develop specialized IT Cloud & Mobile solutions to
to gain a better understanding of certain geophysical
improve the use of hydrocarbons-related software platforms
properties in a reservoir. “We are looking to answer
in order to solve the challenges that remain unaddressed.
questions related to a site’s behavior in the case of changes in porosity, and how such changes might be felt, as well as
According to Pacheco, the company’s scientific computing
the impact of temperature changes on permeability.”
and high-quality technology will help companies optimize their processes and customize their technology with the
Pacheco highlights that innovation is at the core of PE&S.
aim of improving productivity. PE&S offers companies
In order to survive the downturn in the oil and gas industry,
interested in participating in Mexico’s oil and gas industry
the company decided to improve its innovations practices
services that provide them with integrated real-time
by implementing the Lean Startup for entrepreneurship
information, proper data management, and construction
initiatives within its engineering teams, incentivizing
applications in line with the specific needs of each firm.
them to look for fresh ideas and solutions. “We are also
CFGUARD is one of these solutions, and it was made
able to keep innovation at the core of PE&S thanks to a
to support companies in the management of data and
clever combination of expertise and recently graduated
documents during reservoir exploration studies.
engineers that bring a fresh perspective to the industry and produce creative solutions to existing challenges.”
The oil and gas industry is not entirely new to PE&S,
One of the company’s most recent and innovative projects
which has already worked with IMP in developing new
involves the development of a tool that is aimed at helping
technologies for this sector. “Four years ago we started
geoscientists support the information used in the reservoir
looking for several new applications with the main idea of
management processes. Pacheco wants to consolidate the
diversifying user interfaces away from the more traditional
company’s position as a leading supplier of technology-
3D/VR/AR solutions. We chose to explore the use of
based innovative software to clients looking to improve
haptic devices within the analysis of reservoir integration,”
their performance in oil production, drilling, reservoir
Pacheco recounts. This solution, which is currently under
simulation, logistics, and data management.
255
| VIEW FROM THE TOP
INTERCONNECTIVITY TO BOOST SECURITY ARTURO VARGAS Regional Marketing Manager for Latin America and Canada of National Instruments
256
Q: What pushed National Instruments to expand outside of
at the NOC. We are therefore focusing our strategy on
the US, and how will the company be successful in Mexico?
offering an added value to the companies that are working
A: We are industry leaders in providing platforms to bring
with or will work with the productive enterprise of the
the Internet of Things (IoT) to the oil and gas industry, and
state. These companies have already earned PEMEX’s
one of the most relevant applications for our solutions is the
trust and can help open the door for us by using our
implementation of the IoT in oil wells. This process implies
technology. National Instruments has already provided
the interconnection of machine condition monitoring,
solutions, such as SCADA systems, directly to PEMEX,
asset monitoring, and quality assurance, among other
which was a groundbreaking moment for the company as
services, within the whole productive chain. Another
it was our first large-scale project in the country. Before
important application is the detection and location of
then, we had only installed small-size systems for trial
leakages, one of the most urgently needed services within
testing. Moreover, we believe that times of limited budgets
the Mexican market.
are the perfect opportunity to invest in solutions that will increase profitability.
Q: How is National Instruments contributing to the enhancement of the level of technological sophistication
Q: What are the characteristics of LabVIEW that made it
of the Mexican oil industry?
so popular with PEMEX?
A: All our solutions are woven together and built upon a
A: LabVIEW is a programming software for engineering
platform-based approach that allows our clients to develop,
applications and offers a wide spectrum of functions. For
test, and prototype every solution they can imagine.
instance, it is possible to use LabVIEW to control a robot
Our platform permits the integration of IoT into industry
or to run a complex SCADA system. LabVIEW provides
operations, the added value of which is that it not only allows
the user with a graphic real-time representation of the
interconnection of all the systems of a company, but it also
functioning of the bombs, pipelines, and valves involved
permits secure verification that complies with the security
in the analyzed system to represent a control distribution
and environmental regulations and the needed certifications.
system instead of coding lines. Moreover, in the same
Our platform can handle every demand regarding robustness
environment, the conditions that require testing can be
and connectivity, while offering the client the flexibility
programmed, and this is also displayed graphically as
to develop additional solutions according to individual
interconnected blocks allowing the user to follow the
requirements. We have some products that work like this,
different signals. In this way, programming is possible
like a blender control that regulates the chemical mix that is
without the need to code text lines.
injected into an oil well, which is commercialized by one of our partners in Canada and is designed using our platform.
Another advantage of LabVIEW is its ability to connect with
Nonetheless, we prefer to offer the platform directly to the
different systems. We can offer an interconnection solution
customers so they can develop solutions according to the
for the HART protocol common in the oil and gas industry.
particular needs of their processes.
Our clients can enjoy a module and software that allows the interconnection process for the user, who only needs
Q: What strategy are you following to position National
to configure the port and run the program. Oil companies
Instruments as a leading company within the Mexican oil
with many years of experience tend to have outdated
and gas industry?
infrastructure that is still functional, so we needed to develop
A: We believe that working with PEMEX is key to securing
a tool that can be interconnected to this kind of equipment
a leading position within the industry, but despite having
to expand its lifespan cost-effectively. In this sense, the
more than 40 years of experience, National Instruments
capacity of LabVIEW to connect with existent infrastructure
is considered a new company for many people working
is one of the greatest advantages that we offer.
| INSIGHT
KNOWLEDGE MANAGEMENT: THE FUTURE OF DECISION MAKING “Net Brains worked with the PEMEX teams responsible for each project, so we got to see how each team evolved, enabling us to follow the developments in their strategies. I
DAVID GONZÁLEZ SÁNCHEZ
believe it is this experience that differentiates us from other
Managing Partner
companies in the Mexican landscape,” shares David González
of Net Brains
Sánchez, Managing Partner at Net Brains. He claims Net Brains can assess whether a company’s plan is the most appropriate or counterproductive, advising clients from a
but rather, by a geologist working in the Canadian Rockies.
geological and geophysical (G&G) engineering perspective.
Short-sightedness does not usually allow people working
“We are providing the interpretation, characterization, and
on the spot to come up with a new idea. This is how our
the general geological and geophysical aspect, after which
knowledge management system can help in exploration.”
we are able to define the desired outlook of our client’s
Net Brains’ knowledge management system allows the
optimal portfolio, an analysis few companies can complete,”
company to constantly expand its knowledge base, enabling
says González Sánchez, pointing out that this enabled the
the company to make more appropriate decisions. Given its
company to work with some of the winners of R1-L01 in
advantages, González Sánchez hopes this technology will be
assessing the tendered blocks, as well as some other blocks
of interest to PEMEX.
in the northern region. One of Net Brains’ ambitions is to be a technology and In order to address issues caused by lack of data
services partner to CNH. González believes the Commission
frequencies, Net Brains is using a tool called bandwidth
has brought in knowledgeable people throughout its
extension that can help improve the images of the
evolutions in spite of it being new and still undergoing a
subsurface. This can either be applied to the post-
learning process. “If CNH implements the ideas of its new
stacked data or the pre-stacked data to generate a
and promising hires, then the organization’s shape can
clearer image, a wider range of frequencies, and a wider
change a lot in a positive way,” he asserts. “We are seeking
range of amplitudes. “This way, we can provide tools that
to help PEMEX and CNH, and make them understand
help the companies understand which reservoirs have
that working together can go a long way. By now, both
the geological characteristics they are seeking, and many
organizations have grasped that working hand in hand is
of the features that players wanted, including images on
mutually advantageous, with PEMEX wanting to rebrand
a vertical scale and a horizontal scale,” González Sánchez
itself and forget about its old image. For its part, CNH
explains. After the interpretation, surveys that subtract
wants to show that it can properly regulate the assets it
some of the frequencies and the amplitudes can be
is managing.”
created to represent some of the geological features they are seeking. “We are using a tool from one of our partners
Deepwaters will play an important role for the company,
called geomodeling, through which spectral analysis is
which has considerable experience in interpretation,
used as the main tool, rather than the inversion, which
according to González Sánchez. He believes that the
is used as a secondary tool. With this method we can
technology it has today will be utilized broadly both by
combine the information with rock physics data to move
PEMEX and the operators that will enter the country. In
forward on the modeling that must be done.”
González’ view, his company’s services will eventually turn into a commodity, so he aims to digitalize part of
For the next three years, Net Brains will be focusing its energy
Net Brains’ intelligence. The company has been studying
on knowledge management. Net Brains does not advise
new technologies that allow for this sort of competitive
clients on investment opportunities, but rather it seeks to
offering and, in just three years, Net Brains should already
help them accurately assess the value of projects of interest,
be providing some of its services digitally and on-demand.
using hard facts and global benchmarking. In this sense, the
Only part of the process will become digitalized, with both
knowledge management system can be used for exploration,
problem identification and implementation remaining a
an area where many opportunities are left unexploited. “Take
human task, but problem solving will be done through a
the first deepwater discovery as an example,” says González
digital assistant. “Giving people fast access to data and
Sánchez. “It was not made by someone who had been
analytics empowers them to make better decisions, and
working in the deepwater fields of the Gulf for a long time,
we believe this is the future industry,” González asserts.
257
| VIEW FROM THE TOP
TELECOMMUNICATIONS FOR A STRINGENT ECONOMIC ENVIRONMENT PEDRO HOYOS Deputy Director of Marketing, Innovation, and Strategy of GlobalSat
258
Q: In what ways are the Internet of Things, SCADA, and
the diverse nature of the operations, several companies
Big Data impacting the productivity and efficiency of key
will be operating on one well, such as drilling companies,
industries in Mexico?
service providers, and maintenance staff, all of which
A: SCADA technologies require a low bandwidth, which
will require our services. One of the most important
means it is a low-cost service that enables companies to
things we are aiming to do is to provide reliable offshore
continue keeping efficient records even on a low budget.
services, and we have recently formed an alliance with
In terms of Internet of Things, much of the equipment in
CommSystems. Since we have the experience in managing
the oil and gas industry must be monitored, and a satellite
and providing the links, and this company specializes in
link ensures the continuity of the information, and in most
equipment provision for offshore facilities, we feel this will
cases it is the only option due to budget restrictions. Given
be a promising partnership. We are providing services at
the tremendous amount of equipment being connected to
a considerably lower cost than what is currently available
the web with Big Data, we have developed several effective
on the market, at easily 40% less than the average rate,
solutions for clients. When sending the data directly to
and I believe this will be an extremely successful initiative.
the client, the client installs equipment on our network
Moreover, these companies require more bandwidth every
operations center, and we process part of the information.
day, and in Mexico the options are limited.
Therefore, the client is able to isolate the important information through our systems to send to the mainframe,
There are solutions such as KA band that can provide
unloading significant capacity from its own site.
a higher bandwidth at a lower cost, but it is extremely susceptible to rainfall and adverse weather conditions,
Q: How has the drop in oil and commodity prices impacted
so it is not the most appropriate option for oil and gas
the demand for your services?
activities. However, we are working closely with Intelsat in
A: At GlobalSat, we have developed new solutions to help
order to provide services with high-throughput KU band
our clients with their economic situation. We have a tariff
satellites, which means we will be able to provide lower
where the client pays only for the amount of bandwidth
costs with coverage across all of Mexico and all over the
used, and if the initial purchase limit is exceeded, more can
Gulf, with higher bandwidths and more reliable service
be bought. We have also given clients flexibility and power
when faced with extreme weather conditions. I believe
through the cloud to login to their account to monitor
this strategy will be an attractive offering for the sector,
usage levels. The solution can be used to limit costs and
particularly for those operators in the Gulf of Mexico.
transmit only the required information instead of a steady
We have been relatively active in the onshore oil market,
stream that could not be closely controlled. Admittedly,
whereas we have not had much of a presence offshore.
pricing factors affect our industry, but we are still growing,
Therefore, this is our strategy for entering this market.
due largely to the support and services we provide. In terms of availability for links, we offer 99.5%, but the level we actually deliver is significantly higher, and it is these points of added value that fosters so much client loyalty for our company. Q: What are the main developments in the sector that you expect will bring GlobalSat business, and what steps are
"In terms of availability for links, we offer 99.5%, but the level we actually deliver is significantly higher"
you taking to make sure you capture a part of that market?
Pedro Hoyos,
A: Firstly, the new operators will enter after the
Deputy Director of Commercial, Innovation, and
concessions for the new fields are awarded, and due to
Strategy at GlobalSat
| INSIGHT
TAKING ADVANTAGE OF SATELLITE COMMUNICATION As the Mexican oil and gas industry and its most prominent operators traverse the current oil price environment, the need for projects and sites to organize and consolidate under a coordinated exploration and production strategy
JORGE VILLARREAL
becomes more urgent by the day. The effective integration
CEO of Elara
of daily operations becomes impossible without adequate communication resources. The remote worksites that characterize both the onshore and offshore landscapes of
sterling example of Elara’s technological capabilities is the
the Mexican oil and gas industry can make these resources
vital role that it plays in enabling mobile communication in
either prohibitively expensive or decidedly unreliable. An
Mexican vessels for offshore operations.
erroneous choice in this regard has consequences that go beyond an inability to integrate. Communications failures
Although Elara has focused its oil and gas operations on
in any minutely planned exploration or production activity
both PEMEX and its contractors, Mexico’s new regulatory
can not only represent an unacceptable security risk but
environment has created a spectrum of new opportunities
also easily lead to downtime that can quickly become
due to its nature as both a world class service provider and
financially untenable.
also an insightful local player knowledgeable of conditions exclusive to the Mexican market. As Villareal points out, this
The satellite communications technology provided by Elara
new regulatory environment is not limited to the provisions
Comunicaciones allows customers to drastically reduce
of the Energy Reform, as the Telecommunications Reform
costs, an advantage that cannot be overlooked in the
has allowed Elara, as a relatively small company, to move
current environment. For more than a decade, the company
quickly in taking advantage of opportunities. Despite these
has operated an internationally high-ranking teleport
new opportunities created by an increasingly multi-client
in Mexico that provides telecommunications coverage
environment, Villareal is also interested in the role the
throughout Latin America in a concerted operative effort
company wishes to play in PEMEX’s modernization. “We
with various satellites and ground-level infrastructure.
can be an invaluable asset in optimizing these networks and ensuring their more efficient operations. Therefore,
“Year on year, we have achieved greater efficiency and
as PEMEX’s landscape begins to change dramatically, we
more cost-effectiveness. Satellite technology is becoming
can provide it with the opportunity to convert itself into a
an attractive solution, especially in light of the current
much more efficient company.”
environment,” says Jorge Villarreal, CEO of Elara. He promotes satellite technology as an efficient option for
The attractiveness of satellite technology as a cost-
operators due to its remarkable development in recent
effective option for operators seeking further integration
years, “Satellite communications technology as a whole
and coordination in the pursuit of decisively more efficient
has been evolving tremendously over the last few years,
operations will only increase in the coming years, as
meaning that we have been able to provide greater
Villareal explains. “By 2017 we anticipate a major change in
efficiency and higher bandwidth to the customer at a
the satellite services that are available, and eventually the
much more competitive price.”
goal is to utilize more powerful satellites that can transmit higher MB to the customer. As a result, the cost per MB
Elara has provided, and continues to provide, important
will drop dramatically, by up to 50% in some instances,
communications and networking services for Mexican
so eventually satellite connectivity will be a much more
wells and platforms. Its oil and gas systems implement
attractive option in terms of cost of bandwidth,” he
voice and data communications over Internet Protocol
boasts. As these scenarios of technological development
(IP) and also access to File Transfer Protocol (FTP), among
unfold, Elara’s position and expertise as a communication
other services backed by its private networks connected
services provider to the Mexican oil and gas industry will
to its teleport. Villarreal highlights the technological range
continue to broaden, a position currently described by
of these systems, “We can deliver a seamless integration
Villareal in conclusive terms. “As Elara, we have been a
between the satellite and the rest of the technology, and
leader in the sector in Latin America, meaning that many
we connect our interoperable systems with a range of
service providers approach us as a platform to integrate
technologies such as fiber optic and mobile networks.” A
their solutions.”
259
| VIEW FROM THE TOP
SMART METERING ACROSS ALL INDUSTRIES BALDEMAR GUZMÁN Regional Business Manager Mexico of SICK
260
Q: What are the main product offerings SICK Mexico
provided
makes available to its clients, and what innovations do
Systems (CEMS) installed in the cement industry including
you have in the pipeline?
the meters required in the Cactus-Nuevo PEMEX metering
A: SICK’s three divisions, Factory Automation, Logistic
station, the ultrasonic meters for the second phase of the
Automation, and Process Automation, are all present in
Los Ramones project, and important projects on PEMEX
Mexico. A unique ultrasonic metering technology developed
platforms.
several
Continuous
Emissions
Monitoring
by SICK is offered for custody transfer applications, and we have 4 Path, 4+1 Path, and 4+4 Path meters available. One
Q: What are the most valuable elements of your value
of our systems is referred to as ‘4+1’ because it involves four
proposition in light of the industry-wide budget cuts?
paths and a fifth ultrasonic path within the same body, which
A: One of the main advantages of our products is the low
represent the meter and check meter, respectively. We also
maintenance requirement, as our equipment has several
have 4+4 Path meter fully redundant equipment, which
diagnostics included in the software. In terms of software,
allows the process to take two independent measurements
we offer our clients the possibility of downloading as many
in the same body for custody transfer. Combining the
copies as needed on as many computers as required,
two meters in one device reduces the spools required,
without any extra cost. We are currently working with
therefore eliminating the need to have two different meters
the main EPCs, looking for partners whose projects could
running in tandem. We offer all three models for flare
benefit from our technology offerings. We look forward to
gas measurement, as well as FS500 ultrasonic meters for
further pipeline projects, as this is the main opportunity for
downstream applications. Under our Process Automation
our custody transfer or flow products. We are also seeking
division, we also offer equipment for gas analysis. Being a
opportunities in the downstream segment for some of our
US$1.3 billion company requires constant investment, and
newly developed products. In addition to this, our products
9-10% of this figure is allocated to R&D. There are very few
can be found not only in new roads, but also new airports,
companies that dedicate this amount of resources to R&D.
including the expected new development in Mexico City.
Q: What are the main competitive advantages that allow
Q: How successful are your analytical and process
you to increase the production rates of your customers,
automation products within Mexican borders?
and improve their safety and process quality?
A: Our analytical applications allow companies to identify
A: SICK thoroughly supports technology and guarantees
their emissions levels and comply with US EPA as well
the accuracy of its products. Our equipment meets the
as with the local environmental regulations. The success
requirements of the NRF081 and all the international
of our product depends largely on the commitment of
norms for custody transfer, along with the technology
companies in following the regulations. Firms in the cement
features and benefits. The meters, meter runs, and meter
industry take these extremely seriously, and we have
tubes are calibrated, with the meter runs calibrated by a
global agreements for the sale of equipment with certain
third party according to the NRF081 to assure customers
major cement producers worldwide. An important cement
that we are in full compliance. Our company also has the
company made a substantial investment in CEMS this
unique capability of being able to handle H2S up to a
year, and SICK was awarded the contract. There are also
volume of 25%. Depending on the gas composition we can
many opportunities for our process automation products
offer different frequency settings, meaning companies are
and, in this respect, we can help customers improve their
not bound to the equipment’s default frequency setup. In
processes. SICK has the capabilities for measuring up to
addition, our transducers are made of titanium, meeting
80 different gases, and it is the only company in the world
the industry standard and allowing us to avoid weakened
with the capability to offer its own technology for gas
interaction with the H2S content. We have successfully
analyzers, dust monitors, and flow monitors.
| VIEW FROM THE TOP
PARTNERSHIPS INTEGRAL TO THE SUCCESS IN BIDDING ROUNDS JULIO OCHOA Director General of ICORSA
Q: How does your expertise in the design and manufacture
manuals are aligned with ICORSA’s current certifications,
of auxiliary systems help customers achieve their goals?
including ISO 9001:2008, ISO 14000:2004 and OHSAS
A: Our company is organized into three divisions. The
18000:2007, which means we comply with environmental
first focuses on the design and manufacture of integrated
and labour standards. We decided to invest in being socially
auxiliary systems, offering various solutions to specific SKID
responsible because we work and live in an environment
assemblies, including measurement and control systems,
that lacks this focus.
separation
systems,
pig
traps,
chemical-dosing
and
E-House systems, and air and gas compressor packages. In our second division, we provide technical services, corrective and preventive maintenance, and reliability and risk analyses. We help our customers achieve their optimal maintenance levels and avoid production losses, reducing downtime and increasing profitability. This is achieved when plants are safer and more reliable. The industry understands
261
"We help our customers achieve their optimal maintenance levels and avoid production losses" Julio Ochoa,
the importance of maintenance services with the use
Director of ICORSA
of reliability and risk methods, but that idea is not yet widespread throughout the country. We also emphasize the importance of planning and management, know the current
Q: What systems do you provide for activities at sea,
state of facilities, and properly manage maintenance plans
and how are you preparing for the potential entry of new
for industrial plants. The third division of the company refers
players in Round One L-04?
to representations and partnerships, which strengthen our
A: We believe we have the ability to deal with the offshore
position by giving us the new opportunity to expand and
activities phase of the round. We manufacture equipment for
solve problems for our customers holistically. Currently,
offshore activities and work with partners to strengthen our
we hold important relationships with major international
knowledge and product offerings. We have been preparing
companies like Emerson Process Management, PECOFacet,
for this round, adapting our strategy and increasing our
and Peroni Pompe.
chances of alliances. Perry Process Equipment, a US company with over 70 years’ experience in market filtration
ICORSA’s competitive advantages rest on four main pillars.
and separation has produced more than 2,500 separators
Firstly, we place significant emphasis on our values, which
at its plant in Queretaro. We have also established a
are professional ethics, passion, commitment, respect,
partnership with the Italian company Peroni Pompe, which
innovation, and dedication to our services. Secondly, our
has over 100 years of experience in reciprocating pumps
highly qualified personnel are an invaluable asset. The third
that operate according to API 674 and 675 standards for
and fourth pillars are our management and control systems,
highly specialized applications. Peroni Pompe is a leading
and a strong relationship with our suppliers and commercial
provider of pumps for the market in the North Sea, and
partners, respectively.
we also have a solid partnership with SICK, Instromet, and several German companies specialized in gas measuring
Q: How do you plan to increase your visibility, and how
systems. We have been working with offshore companies
are your social responsibility policies evolving?
such as Siemens, Demar and Grupo Diavaz. Furthermore,
A: In September 2015, we were exhibitors at the Mexico
we believe we are well positioned to service companies in
Gas Conference in Villahermosa, and before that, in the
the third phase, as our longstanding presence in the market
Mexican Petroleum Conference in Guadalajara. We are
allows us to understand the changes in regulations that
currently working to be a socially responsible company. Our
have been introduced.
11
NATURAL GAS & PIPELINES
Natural gas has gained prominence in Mexico over the past few years, as it was selected as the preferred fuel for the country’s energy transition. Even though private investment has contributed to natural gas pipelines since 1995, the Energy Reform changed the landscape by incorporating a technical system operator, CENAGAS, which will take over PEMEX’s previous responsibilities in the midstream segment. Furthermore, CFE, the other state-owned energy company, is increasing its presence in the natural gas sector in order to ensure a reliable supply of this fuel for its power generation activities. The National Infrastructure Plan contemplates the construction of more pipelines to import natural gas from the US and expand the National Natural Gas Pipeline Network by 80% by 2020, creating an array of opportunities for private companies while allowing PEMEX to focus more on its upstream activities. Nonetheless, the NOC will continue to serve as the largest natural gas producer and largest user of the natural gas pipelines in the country.
This chapter examines at the continuous development of Mexico’s natural gas pipeline system and the private sector’s contribution in this endeavor. It also delves into Mexico’s natural gas production and importation levels, while analyzing the potential consequences of the country’s plans to become an LNG exporter.
263
| CHAPTER 11: NATURAL GAS & PIPELINES 266
VIEW FROM THE TOP: David Madero Suárez, CENAGAS
268
MAP: Natural Gas Pipelines
272
ANALYSIS: Expected Developments in the National Natural Gas Pipeline System
274
VIEW FROM THE TOP: Jaime Calpe, TAG Pipelines
275
INSIGHT: Rubén Kuri, Arendal
276
VIEW FROM THE TOP: Eduardo López, EY
277
INSIGHT: Fernado Calvillo, Fermaca
278
VIEW FROM THE TOP: Alberto Escofet, Enagás
279 INSIGHT: James Delano, ATCO Mexico 280
VIEW FROM THE TOP: Octavio Pérez Salazar, AMEXGAS
282
INSIGHT: Pedro Arjona, Grupo DEISA
282
INSIGHT: Juan Fernando Ibáñez, Ibáñez Parkman
283
INSIGHT: José Ángel Gutiérrez, United Pipeline Systems
284
VIEW FROM THE TOP: José Pablo Mendoza, Octopus
286
VIEW FROM THE TOP: Coen van Munster, Petrogas
287
VIEW FROM THE TOP: Miguel Ángel Delgado, EVONIK
288
VIEW FROM THE TOP: Jan Frowijn, ROSEN Group
290
VIEW FROM THE TOP: Alejandro Lupiañez, ISI Mustang
291 INSIGHT: Antonio Nombela, Duro Felguera Oil & Gas 291
INSIGHT: Héctor García, Bechtel
265
| VIEW FROM THE TOP
TECHNICAL SYSTEM OPERATOR PRIORITIZES CERTAINTY AND A RELIABLE SUPPLY DAVID MADERO SUĂ REZ Director General of CENAGAS
Q: What have been some of the key aspects in the
needed to ensure continuous supply and consider the
development of the National Pipeline System that have
necessary precautions in case of a domestic shortage.
contributed to a steady natural gas supply in the country?
266
A: The National Pipeline System continues to be heavily
Q: What are some highlights of the Natural Gas Pipeline
invested in, and I want to emphasize the fact that we
Five Year Plan?
have increased the compression capacity of the system,
A: Firstly, the Natural Gas Pipeline Five Year Plan aims at
which allows for a larger transportation capacity north
ensuring that we will bring a sufficient natural gas supply
to south. We are simultaneously working on the final
into the country, for which there will be a considerable
details on some compression stations that run south to
increase in the importation capacity. There will also be
north, providing us with greater operational flexibility.
projects that will increase the transportation capacity
These actions, in conjunction with the start of operations
from the north to the south, and from the Gulf of Mexico
of the first phase of Los Ramones, have enabled a larger
to the western region. This will ultimately create a greater
transportation capacity of natural gas shipped to the
level of interconnection, and thus flexibility in the system,
country’s central region. Consequently, we are able to
allowing us to effectively supply the country.
better manage the supply according to the demand and prevent situations that lead to critical alerts. The new
The Plan mentions the construction of an additional
institutional framework and the creation of CENAGAS
5,000km in the network, but there are also investments
have led to a multi-institutional group where the involved
that were made before 2015 and segments under
parties, including the Ministry of Energy, CRE, CENACE,
construction that are likely to be completed in 2016. The
and CENAGAS, communicate on a daily basis. This eases
majority of the 5,000km detailed in the Five Year Plan
the decision-making process to meet the target range
is being tendered or is at the project-planning stage, and they will entail investments close to US$980 million. The developments included in the Plan and the projects that are currently receiving investments will increase the pipeline network from 12,000km to 20,000km. The Plan is the most important action we have carried out to give certainty to investors. A first version was published in October 2015, and is currently undergoing revisions so that an updated version can be issued during the first half of 2016. Since the Plan clearly states the projects that are going to be developed and the order in which they will be carried out, giving companies a clear view of the way in which the National Natural Gas Pipeline System will be expanded, it can also bring certainty to companies that use natural gas in electricity generation and industrial processes. Q: What are some challenges CENAGAS will face in the short term, particularly regarding capacity? A: The main challenges for CENAGAS are granting PEMEX and CFE the capacity rights they are entitled to by law,
determining what will be done with the acquired rights that
the one that will have to deal with the transferred assets
the regulatory authorities recognized under the previous
and the payments these entail. The operator side, which
regime, and finally, implementing an Open Season scheme
is in charge of planning, tendering, and carrying out daily
so that interested parties can obtain capacity in the
management operations in the system, will not be affected
pipeline transportation system. Once this happens, those
by the aforementioned payments because inheriting
companies will be given preference in terms of capacity,
ownership of the pipelines will be profitable.
while other companies will remain under interruptible transportation conditions, which will ultimately create the
Q: How is CENAGAS preparing for the tenders it will
right incentives and send the appropriate signals. In parallel
launch in 2017?
to the modernization of the transportation scheme, there
A: By August of this year, CENAGAS needs to obtain the
will be a need to open and modernize natural gas pricing.
approval of its Administrative Board and the Ministry of
Although this is beyond CENAGAS’ scope, we believe it
Energy so that it can be in charge of tendering storage
is an essential component that will complement the total
and transportation projects that the Ministry deems
opening of the sector.
strategic. In order to prepare for this process, we are already working on the contract models and the tendering
Q: How has the transfer of PEMEX natural gas assets to
bases, as well as creating the internal organs we will need
CENAGAS advanced?
to conduct a transparent bidding process. The contracts
A: The assets have been successfully transferred to
should give certainty to participants in the sense that they
the technical system operator. The PEMEX Gas and
will not be disqualified for a non-anticipated technical or
Petrochemicals
in
financial issue. In turn, this should generate a favorable
October 2015, and this was later ratified by the PEMEX
environment where there is competition surrounding
Board of Directors, which in addition to the assets,
the projects, which will enable us to provide the lowest
authorized the transfer of rights and obligations related to
possible prices and tariffs. CENAGAS is working on this
PEMEX’s duties as a shipper, starting on January 1, 2016.
and it will have administrative councils to test these
CENAGAS is now operating as stated in these agreements,
documents with the ultimate goal of obtaining approval
and it also signed a contract with PEMEX, in which the
from its own Administrative Board. The law states that
State-owned
CENAGAS
Board
company
approved
will
this
operate
transaction
the
transferred
has
to
demonstrate
financial,
technical,
assets in their entirety on behalf of CENAGAS through
and human resource capabilities in order to carry out
a one-year-contract. We signed eight administrative
tendering processes, and we will prove these capabilities
contracts, with the largest one being that for operation
by June so that we can obtain the Ministry of Energy’s
and maintenance. Through these contracts, we ensured
authorization in August, and begin conducting these
that we can continue providing uninterrupted services
processes in late 2016 or 2017.
amid the transfer of assets with PEMEX acting as a service provider. At the end of the one year operations contract,
Q: How is CENAGAS working to become an international
CENAGAS will look for private companies interested in
benchmark as a technical system operator?
providing these services so that we can operate in the
A: Our goal of becoming a reference implies being
most efficient and safe manner. This does not mean that
internationally recognized as a trend-setting technical
we want to part ways with PEMEX on January 1, 2017, but
system operator, and it is too soon to say that CENAGAS
it means we want to look for private participation to make
meets this requirement, so we have made this a ten-
the sector competitive and generate points of reference
year objective. For us it is clear that CENAGAS has to
regarding prices, costs, and quality.
work alongside the regulator to become a strong system operator with the ability to influence the decision-making
Q: What are the financial implications of the amount
processes in the sector, leading to a reliable system. Being
CENAGAS will pay PEMEX for the transferred assets?
at the forefront entails having outstanding tendering
A: CENAGAS will pay PEMEX the recorded value of the
practices, which we have not yet had the chance to
investments made for these assets, according to CRE’s
demonstrate, and having the necessary SCADA systems
accounting registry. The technical system operator will
not just for our pipelines, but for every pipeline system
gradually pay MX$1 billion, a figure that will decrease as the
that is interconnected to ours. This would make us a
assets depreciate. For CENAGAS, this means that we will
powerful force that is capable of redirecting flows in the
own infrastructure and assets, and we will have to comply
system in order to achieve the most secure and efficient
with the payment conditions, which is a liability. CENAGAS
supply, which will happen in the medium and long term.
started out with a small estate, but we expect growth. The
Nonetheless, we are confident that we can create an
shipper side of CENAGAS, which in this case has to be
efficient natural gas system for the country, and this is
seen as separate from the technical system operator, is
where our biggest challenge lies.
267
I NATURAL GAS PIPELINES
1
38
2
a
4
3
5
40
39 7 6 8 42
9
43
41 268
46
Natural gas pipelines in operation Diameter (inches) 48 36
49
12 47
44
11
10
45
48
24 16 12 4 and under or unknown Natural gas pipelines planned, proposed
52
or under construction
17
Diameter (inches) 48 36
16
c
24 16 12 4 and under or unknown Natural gas processing plant LNG terminals in operation LNG terminals proposed Border crossing Natural gas power plants Natural gas power plants planned, proposed or under contrstrution
28
LNG terminals in operation
Natural gas processing plant
LNG terminals proposed
a. EnergĂa Costa Azul
d. Burgos
m. Salina Cruz
b. Terminal LNG de Altamira
e. Arenque
c. Manzanillo LNG
f. Poza Rica I & Poza Rica II g. Matapionche h. Pajaritos i. La Venta j. Cactus k. Nuevo PEMEX l. Ciudad PEMEX
269
50
14
13
51
15
d
b
22 e
54
21
19
53 18
23 20
f
24 55 25 57
36
56 26
27 34
g h
30
8
i
j
58 32 k
29 m
31
33 l
59 35
60 37
I NATURAL GAS PIPELINES MAP (Cont.) NATURAL GAS POWER PLANTS
1
2
Name
Capacity aprox (Mw)
La Rosita I
700
Presidente Juárez
Name
Capacity aprox (Mw)
19
Bajio
500
550
20
El Sauz Plant
800
Rosarito III
500
21
Tamazunchale
1100
147 CCC Baja California
250
Petroquímica Escolin
50
Presidente Juárez GT
200
Altamira Cogen
25
Termoeléctrica de Mexicali
500
Altamira II
500
La Rosita II
300
Altamira III & IV
1000
22
San Luis Río Colorado
500
Altamira V
1000
3
Aise México
20
Enertek
100
4
Naco-Nogales
300
Tuxpan II
500
5
Samalayuca
300
Tuxpan III & IV
1000
Samalayuca II
600
Tuxpan V
500
6
Puerto Libertad
600
24
Refinería Miguel Hidalgo
100
7
La Caridad I & II
500
25
LFC Distributed Generation GT
400
8
Hermosillo
300
PEMEX-Exploración y Producción
20
Huinala
500
La Costeña Jumex
5
Chihuahua
500
Minsa Tlanepantla
10
Norte II
500
Empaques Modernos
15
Chihuahua III
350
Durango EcoMethane LFG to Energy
20
El Encino Chihuahua II
200
Baja California Sur III
20
Modelo Anahuac
10
29 CCC Norte
500
Lomas de Chapultepec
10
Durango Kraft
10
Gresaise SA de CV
10
La Laguna II
500
Papel Bidasoa Power Plant (Teotihuacan)
10
Gómez Palacios
200
26
PEMEX- Petroquímica Complejo
50
Saltillo
250
27
Celfimex Apizaco
10
Ramos Arizpe Fersina
5
Planta Apizaco
50
Monterrey III
700
28
Ispat Mexicana
30
Pegi
550
29
500
Complejo Procesador de Gas La Venta
30
Monterrey II Monterrey
500
30
Petroquímica Morelos
150
Petroquímica Cangrejera
150
Procesador de Gas Área Coatzacoalcos
75
Petroquímica Pajaritos SA de CV
60
CPQ Cogeneration
10
Petroquímica Cosoleacaque
100
Refinería Gral Lázaro Cárdenas
75
31
Refinería Ing Antonio Dovali Jai
100
32
Nuevo PEMEX
350
Complejo Procesador de Gas Nuevo PEMEX
100
PEMEX Planta Eléctrica Cárdenas
50
33
Campeche
350
270 9
10 11
12
13
14
23
Vitro Cogen
250
Ing Hector R Lara Sosa
50
Planta Monterrey
50
Famsa-Titan
40
Propasa Monterrey (1103880)
25
Monterrey Waste
25
Monterrey Biogas
25
Promex Energía Nuevo León
25
Planta Nuevo León
5
Presidente Emilio Portes Gil (Río Bravo)
350
Río Bravo II
500
Río Bravo III
500
Río Bravo IV
500
34
Cantarell
500
16
Manzanillo I & II
1600
35
PEMEX Terminar Marítima Dos Bocas
150
17
Arancia Cpc Ingredion San Juan
20
36
Mérida III
500
18
LNG Antonio M Amor
80
37
Valladolid III
500
15
NATURAL GAS POWER PLANTS PLANNED, PROPOSED OR UNDER CONTRSTRUTION Name
Capacity aprox (Mw)
38
Baja California VI
500
39
Baja California II
300
Baja California III
300
40 41
Baja California IV
500
Baja California V
500
San Isidro-Samalayuca: July 2017
1000
Empalme I
800
Empalme II
800
Guaymas CC I
800
42
Noreste V
1000
43
Norte III & IV
1300
Norte IV Lerdo
1000
Norte VI
1000
La Paz CC
100
Baja California V
50
44
Name
Capacity aprox (Mw)
48
CC Mazatlán
900
49
Norte V
1000
Noroeste II
1000
AHMSA Monclova
150
Techint Pesquería CC
800
Noroeste (Escobedo - 1077659)
800
Dulces Nombres CC
500
Monterrey Pwr
100
52
Guadalajara I
500
50 51
53
Salamanca
600
54
Occidental I & II
1000
55
Bordo Poniente Biogas Plant
50
56
Grupak Igsapak Hidalgo
70
57
CC Centro
600
58
Complejo Procesador de Gas Cactus Cogen
500
Ramos Arizpe Cogen
50
271
45
Todos Santos CC
100
59
46
Topolobampo II
850
60
Mérida Enerkin CHP Powe Plant
10
Topolobampo III
700
Mérida IV
350
CC Noroeste
600
Mérida V
500
47
| ANALYSIS
EXPECTED DEVELOPMENTS IN THE NATIONAL NATURAL GAS PIPELINE SYSTEM CENAGAS’ Five Year Plan includes more than 5,150km
Salina Cruz-Tapachula. The last set of projects will cover
of pipelines related to projects mentioned in the
high-demand regions in Northern Mexico. The pipelines in
National Infrastructure Plan. These are divided in three
this class are San Isidro-Samalayuca, Colombia-Escobedo,
categories. The pipelines that transport natural gas from
Salamayuca-Sásabe, and Eherenberg-Algodones-San Luis
the north of the country to the central region La Laguna-
Rio Colorado.
Aguascalientes, Los Ramones-Cempoala, Suthern TexasTuxpan. The project is aimed at increasing supply capacity
The Ministry of Energy determined that the Lázaro
for the central region to compensate for fluctuations
Cárdenas-Acapulco and Salina Cruz-Tapachula pipelines
resulting from demand in the southeast, while providing
are projects of social importance, and their development
redundancy to branches in this route.
depends of the Ministry of Finance’s favorable opinion. It also deemed the following projects as strategic: Colombia-
272
The second category comprises pipelines that connect
Escobedo, Jáltipan-Salina Cruz, Southern Texas-Tuxpan,
the Gulf and the western regions, which will alleviate
Tuxpan-Tula, Tula-Villa de Reyes, Samalayuca-Sásabe,
congestion in ducts supplying the central and western
Los Ramones-Cempoala, Villa de Reyes-Aguascalientes-
regions, as well as providing redundancy in the supply for
Guadalajara, and La Laguna-Aguascalientes. Finally, the
places with significant populations and economic activity.
Ministry of Energy has instructed PEMEX and CFE to
These include Tuxpan-Tula, Tula-Villa de Reyes, Villa de
launch tenders for the Colombia-Escobedo, Tuxpan-Tula,
Reyes-Aguascalientes-Guadalajara.
Samalayuca-Sásabe, and Jáltipan-Salina Cruz pipelines.
The third class, pipelines that connect the system with
In order to determine the feasibility of the projects that
new demand hubs, are meant to expand the system’s
CENAGAS proposed to address natural gas supply needs
coverage in order to detonate new markets and contribute
in its Five Year Plan, the technical system operator relied
to their economic development. The projects included
on CRE’s assistance to create a model that assessed the
are Lázaro Cárdenas-Acapulco, Jáltipan-Salina Cruz, and
impact of the interconnection of those projects. The flow
OilnGas_Gsat.pdf
6
22/03/16
10:49
PROJECTS IN THE FIVE YEAR PLAN APPROVED BY THE MINISTRY OF ENERGY Project
States served
Length (km)
Estimated investment (US$ million)
Estimated date of tendering
Estimated completion date
Tuxpan-Tula
Hidalgo, Puebla, and Veracruz
263
400
2015
2017
La Laguna-Aguascalientes
Aguascalientes, Zacatecas, and Durango
600
1,000
2016
2017
Lázaro Cárdenas-Acapulco
Michoacan and Guerrero
331
456
2016
2018
Tula-Villa de Reyes
Hidalgo and San Luis Potosi
295
420
2015
2017
Villa de ReyesAguascalientes-Guadalajara
Aguascalientes, Jalisco, and San Luis Potosi
355
555
2015
2017
San Isidro-Salamayuca
Chihuahua
23
109
2015
2017
Salamayuca-Sásabe
Chihuahua and Sonora
650
571
2015
2017
Jáltipan-Salina Cruz
Oaxaca and Veracruz
247
643
2015
2017
Salina Cruz-Tapachula
Chiapas and Oaxaca
440
442
2016
2018
Southern Texas-Tuxpan
Tamaulipas and Veracruz
800
3,100
2015
2016
Colombia-Escobedo
Nuevo Leon
300
N/A
2016
2018
Los Ramones-Cempoala
Nuevo Leon, Tamaulipas, and Veracruz
855
1,980
2017
2019
El Cabrito Compression Station
Chihuahua and Nuevo Leon
N/A
60
2015
2016
Source: Ministry of Energy with information from CENEGAS, CFE, and PEMEX
model considers the current state of the National Natural
proposals, CFE decided Howard Midstream’s proposal had
Gas Pipeline System as well as existing privately owned
the most favorable technical and economic terms, as it
ducts that have an impact on the system’s conduction
represents savings of US$25 million.
capacity. The effect of pressure and velocity variations in certain segments of the pipeline system have been
The Ministry of Energy authorized the tendering of the
simulated in the model, enabling the regulators to
Southern Texas-Tuxpan project, which will be launched by
determine potential congestion points.
CFE. This project will ease demand from the Gulf section of the National Natural Gas Pipeline System and part of
The results of this exercise led the authorities to conclude
the demand estimated for the Los Ramones-Cempoala
that if the system remains as it is today, it will be necessary
pipeline, ultimately saving US$7 billion. CFE published the
to develop infrastructure to transport natural gas from
bases for the tender on October 2015, and the project will
the north of the country to the Gulf, central, and western
ideally begin commercial operations in June 2018.
tariff regions in the 2015-2020 period. Between 2016 and 2017, the capacity to import natural gas through pipelines
In August 2015, CFE issued the bidding bases for the
has to be complemented with other options, such as
Tula-Villa de Reyes and Villa de Reyes-Aguascalientes-
importing LNG, in order to ensure stability in the system.
Guadalajara pipelines, which are scheduled to start
If more pipelines are interconnected to the system before
commercial operations in 2017. In September 2015, CFE
2020, potential congestion will be reduced, supply will
launched the bases for the La Laguna-Aguascalientes
be diversified, and the system will be stable without the
pipeline and assigned the project to the consortium
need to import LNG. However, the impact on tariffs will
composed of Carso Electric and Promotora de Desarrollo
be significant.
de América Latina to provide natural gas transportation services through the Samalayuca-Sásabe pipeline.
The risk of unbalancing the system due to the time it will take for new projects to begin operations calls for
CFE awarded the contract for the construction of the
reinforcement of the supply of imported natural gas,
San Isidro-Samalayuca pipeline to Gasoductos de Agua
which is why the Colombia-Escobedo and Los Ramones-
Prieta, a subsidiary of IEnova, and operations are expected
Cempoala
CFE
to start in 2018. The Tuxpan-Tula project is still under
participated in KM and Howard Midstream Energy Partners
tendering process. In addition, CENAGAS included the El
open season schemes in the US to transport natural gas
Cabrito compression station in its project pipeline, which
from Webb County in Texas to Escobedo and Monterrey
will be located in Coahuila in order to increase natural
in Nuevo Leon. This endeavor is part of the Colombia-
gas transportation in the northern region. The Ministry of
Escobedo project. After thoroughly evaluating both
Energy assigned this project to PEMEX in July 2015.
projects
have
been
reprogrammed.
273
| VIEW FROM THE TOP
TRANSLATING LOS RAMONES INTO SUCCESS JAIME CALPE Director General of TAG Pipelines
274
Q: What is TAG Pipelines role in the current gas industry?
at least five robust funds, national and foreign, that are
A: TAG, as a PEMEX affiliate, has natural gas transportation
interested in collaborating with TAG for future projects. In
contracts, for which PEMEX is the client. Those contracts
my view, the most attractive feature is the fact that Los
will be transferred to CENAGAS and operated by this
Ramones II is a reality. The Los Ramones pipeline system is
entity. Since CENAGAS will be in charge of commercializing
a milestone in Mexico’s natural gas transportation sector,
shipping capacity in projects, in this case Los Ramones, the
acting as the second backbone for the transportation
system operator will become our client, replacing PEMEX in
and supply of this fuel, and the spearhead of the Energy
those transportation contracts. It is important to point out
Reform. This historic project will mark a tendency in natural
that our interaction with CENAGAS began at the time when
gas developments in the country. When plans materialize
the system operator was created, and we have been close
and move forward, with projects being developed with the
since, as TAG acts as a shipper, developer, and strategic
highest quality standards and always seeking integrity and
consultant for energy projects. CENAGAS has expressed its
sustainability, the companies involved become attractive
interest in hiring TAG’s services for some projects related to
to others willing to collaborate.
the Five Year Plan. Q: What are the main lessons learned from your experience Q: Could you tell us about the financial scheme used in
in Los Ramones II, and how did TAG Pipelines’ interests
Los Ramones II project?
change after BlackRock and First Reserve acquired a 45%
A: TAG Pipelines was the entity in charge of coordinating
share of Los Ramones II?
the project finance for both segments of Los Ramones II,
A: After the project, TAG Pipelines ended up owning
and we were able to gather near to US$2.5 billion from both
5% of Los Ramones II Norte and Los Ramones II Sur,
commercial and development banks, with the support of
and although nothing has been decided yet, we might
our financial division and PEMEX’s Directorate of Corporate
want to monetize this share in the future. As a result of
Finance. In addition, we were backed up by Santander and
this transaction, TAG Pipelines began transforming itself
BNP, our main agents in the southern segment. Santander
from a company originally created to be an owner and
was also our agent in Los Ramones II Norte. TAG Pipelines
promoter of infrastructure, to a project developer who does
received four awards for its work in Los Ramones II Sur
not necessarily own the assets. We are now a company
from LatinFinance and IJGlobal Americas, including Deal
dedicated to project development and management,
of the Year and Infrastructure Project of the Year. This was
engineering, obtaining permits and rights of way, material
the result of joint collaborations and team effort, which
procurement, and promoting investment in infrastructure
ultimately led to the drafting of a financing scheme with
projects, mainly for PEMEX, because we are an affiliate of
competitive rates in a record time.
the NOC. However, we have begun working with industrial clients who want to undertake their own projects. The
Q: What makes TAG projects attractive for funds?
experience we gained by working in Los Ramones II, jointly
A: One of the main features is being in contact with
with the experience that TAG’s team has, enable us to offer
different projects and knowing their needs, which, rather
a wide variety of services. Overall, the sale of shares to
than being the result of its affiliation with PEMEX, is due to
these funds has had a positive impact on the company. TAG
our human resources, who know what a project requires
Pipelines now has several contracts as a service and project
and are experienced in developing and selling projects.
development company in natural gas and LNG projects in
This, paired with the experience we gained from well-
the Trans-Oceanic Belt, in the Quetzal project, which is being
crafted and finely executed EPC contracts for Los Ramones
developed to transport gas into Central America. We are
II, has made several financial institutions take interest in
beginning to work on creating alternative projects beyond
our projects in the energy infrastructure sector. There are
our first achievement, Los Ramones II.
| INSIGHT
ENGINEERING CHALLENGES IN FLAGSHIP PIPELINE The way in which business is done in Mexico has changed, and now companies have new ways of participating. Rubén Kuri, Arendal’s Director of Pipeline Commercialization,
RUBÉN KURI
explains that years ago, Mexican companies participating
Director of Pipeline
in the energy sector were known as contractors due to
Commercialization of Arendal
the dominant scheme, in which clients provided the design and materials, and contractors carried out the project following a set of rules and specifications. Later
its engineering muscle to the point of implementing a
on, companies moved from being contractors to EPC
ropeway to help install ducts in steep areas.
companies in which the only clients were State-owned companies. “Now there is a revolution taking place in the
Now Arendal is looking to become a developer and it is
energy sector, ultimately changing the rules and the way
working on several proposals to bid on CFE tenders. In the
companies can participate in the projects, including the
meantime, it is working of a branch of the Tula pipeline.
possibility of actually owning them,” Kuri says, adding that
Kuri points out that the marine duct segment is appealing
if companies do not fully understand the changes in the
to his company, and as a result Arendal acquired Cal
market, they will run out of work. “These new times call for
Dive’s Mexican operations. “Cal Dive has built a significant
a change in mentality and focus.”
percentage of Mexico’s marine ducts, so taking advantage of this experience will enable us to enter this segment,”
Arendal had the opportunity to delve into the heralded
Kuri explains.
change in mentality a while ago, and it gained the experience needed to transition from an EPC company to a developer by
Arendal has two approaches regarding its ambitions in
participating in Los Ramones II Norte. “This pipeline means a
the Mexican market. “We want to be the Mexican firm
lot to the country’s energy sector and the government, and
that develops the most kilometers worth of pipelines, and
our participation in it and our success is something we can
to be recognized for our work in these projects and be
showcase to secure new projects,” Kuri boasts. In his view,
present in bidding rounds. In addition, we want to own
the project entailed a paradigm change in the way Arendal
some transportation infrastructure for strategic reasons,
worked. “Firstly, although TAG Pipelines, the developer and
so we are looking for partnerships as this is a new business
Arendal’s main client, is partly a public company, it functions
line for us, and we want to be the owner-operator of an
as a fully private entity, which implies different rules.” The
important pipeline or at least begin with a branch,” Kuri
second challenge involved the size of the project, which
shares.
consists of 42-inch ducts and an extension of 450km. Kuri explains that Arendal’s reach two years ago prompted the company to look for partners that would allow the company to participate directly and not just as a contractor. “We found the right partners that allowed us to present the winning proposal, and this was the right strategy at the time.” As for the technical aspect, Kuri identifies two main challenges in the execution of the project, one of which was finishing on the agreed time. “In my experience, the schedules set by owners are aggressive in terms of execution, a situation that is overcome by increasing resources. For Los Ramones II Norte, thousands of pieces of equipment were brought in and over 7,000 workers were recruited.” From a construction perspective, Kuri notes that crossing the Sierra Madre mountain range was the most difficult aspect in terms of execution due to the delivery times, the presence of mountainous rocks, access issues, rain, and other factors. Arendal pushed
For Los Ramones II Norte thousands of pieces of equipment were brought in, including a ropeway, and over 7,000
workers were hired
275
| VIEW FROM THE TOP
FIBRA E TO STIMULATE ENERGY INFRASTRUCTURE OPPORTUNITIES EDUARDO LÓPEZ Executive Director Oil and Gas at EY
276
Q: How do investment opportunities in Mexico’s oil and
instruments. In this vein, the new Fibra E has been designed
gas market compare globally, and which areas hold most
as a Mexico-registered trust fund, which can issue energy
promise?
certificates via the stock exchange, and which will be
A: By effectively abolishing the monopoly of the State-
backed by specific type of assets. Holders will be able to
owned oil & gas company, the new legal framework has
claim ownership over the trust fund in proportion to their
the potential to unleash significant business opportunities
investment, and hence a share over future cash flows.
for private investors, both domestic and foreign and both upstream and downstream. Moreover, the country has
A significant amount of new infrastructure remains to
one of the world’s most promising resource bases, stable
be built, and as a result, Mexico’s energy industry should
politics, and an open and large economy. Few oil-producing
become an attractive investment, especially compared
countries feature similar characteristics. Upstream activities
to developed markets like the US. According to some
hold arguably the greatest promise. Downstream areas
estimates, total investment could be as high as US$70
will also offer investment opportunities, derived from the
billion by the end of the decade, which would go a long
gradual liberalization of the retail market.
way
to
solving
Mexico’s
infrastructure
bottlenecks.
Processing, transportation, refining or storage of crude Q: What is your perception of the Mexico becoming Latin
oil, petroleum products or natural gas, and power
America’s powerhouse and the main economy in the
generation, transmission and distribution, among others,
region?
are the areas most likely to take advantage of the new
A: Mexico currently has the second largest economy in
instrument. The challenges will consist of selecting and
Latin America after Brazil, but whether it will become
properly structuring the assets to be monetized. PEMEX
the largest will depend on a number of domestic and
will be able to capitalize some of its existing assets and
international factors, as well as the relative performance of
eventually invest in new infrastructure. It should also be
other countries. Mexico, however, has distinct advantages
noted that the new instrument contains several fiscal
in that its economy has been opened to the world for
advantages designed to nurture long-term investments.
the past two decades, and it has become a major global trading player and strong manufacturer. In addition to this,
Q: How should PEMEX’s financial burden be adapted to
its population is young, which should help sustain growth
reflect its new position as a productive enterprise of the
for decades to come. The country is closely integrated
State?
with the US and Canada, and North America is clearly
A: Under the reform, PEMEX’s fiscal obligations will be
emerging as a dynamic economic area.
gradually lessened. In addition, the company will be able to migrate some of its upstream assets to the new contractual
Q: Which is the background of Fibra E and how has it
framework in order to benefit from the fiscal regime applied
adapted to the needs of the Mexican oil and gas industry?
to private players. As for the government’s dependence on
A: Fibra E is primarily intended to finance the construction
PEMEX revenues, it will gradually diminish as non-oil tax
of new energy infrastructure in Mexico, such as pipelines,
receipts increase and as private oil and gas players start their
terminals, power plants, and transmission lines, in order
own production. The new PEMEX administration has put in
to complement the country’s Energy Reform. Fibra E has
place a new scheme to reduce wasteful expenditures and to
largely mimicked the Master Limited Partnership (MLP),
focus on profitable operations. PEMEX has the potential to
which was launched in the US in the 1980s. In general
become a company mostly focused on upstream activities,
terms, by bundling together assets that generate stable
able to capitalize on its knowledge of the Mexican geology
cash flows, MLPs allow companies to raise capital at
and engaged in numerous joint ventures with private
lower cost and offer higher returns than traditional debt
partners, both local and international.
| INSIGHT
ROADRUNNER’S BOOST TO PIPELINE PACE With falling oil and gas prices globally, Texas’ Permian Basin seems to be the only area to emerge from the downturn relatively unscathed, with rising a production. This can be
FERNANDO CALVILLO
witnessed through OneOk’s new partnership with Fermaca
President and CEO of
to provide the Roadrunner natural gas pipeline, running from
Fermaca
Coyanosa, through the border near San Elizario, to connect with Mexico’s existing Tarahumara pipeline. Fernando Calvillo, Fermaca’s President and CEO, expects the connection to be up and running by the first quarter of 2017. “We believe that sooner or later, an integrated energy hub will come into being between Canada, the US, and Mexico, a development we hope will be facilitated by the Roadrunner project,” shares Calvillo. He predicts that access to gas
277
at a price between US$3 and even US$5 per million BTU will continue to benefit Mexico’s power producers and industrial consumers, while creating interesting markets for US gas producers just across the border. The company has also started construction on the Encino-La Laguna project that begins in the state of Chihuahua and ends in the state of Durango, and is working to meet two delivery dates. One segment should be operating by April 2016 and the second part is expected for the first quarter of 2017. The project will
Fermaca’s contracts for projects in the north of the country will lead the company to transport
delivered to the federal government on time and on budget.
3.57bcf/d through 1,412km of pipelines
As a midstream company, Fermaca is also interested in
Calvillo does not believe that operation of pipelines
crude oil and refined products. The Energy Reform, in this
would be in CFE’s best interests. That is partly why CFE
sense, will allow the company to grow and expand into new
tenders capacity and the transportation services. “Both
markets. Calvillo believes that the industry has taken an
institutions should rely substantially on private companies
interesting turn due to the lack of natural gas production
and the whole country should pay for the infrastructure,”
in Mexico, the drive to gas-fired power generation, and
offers Calvillo, using Spain’s experience as a precedent.
the pricing and availability of gas in the US. This new
The Spanish government formed an agency, and every
dynamic has allowed Fermaca to become an international
company with a promising project was able to enroll in the
company, building its first cross-border pipeline between
system. Without a need for the government to keep the
Mexico and the US.
natural gas pipeline industry, it may soon sell its assets,
employ the same and improved procedures and techniques used in the Tarahumara project, which was the first pipeline
and create tenders by sectors, allowing companies like As a result of the Reform, the role of CFE in the market
Fermaca to acquire these pipelines. At the moment, the
is changing and CENAGAS is the new system operator.
company is undergoing a restructuring and, having issued
However, Calvillo firmly thinks that CENAGAS’ activities will
its first bond, it is closer than ever to its aim of being a
not impact those of Fermaca, as both companies operate
public company. “We truly look forward to becoming
using independent systems. Financially, CFE will improve
a public company, as this would give us further growth
once fuel supplies stabilize and the infrastructure is up and
opportunities,” Calvillo reveals. However, for the moment,
running, while the new electricity market begins to operate.
the company’s main priorities are the construction of
“In the long term, perhaps it will not make too much sense
Encino-La Laguna and the Roadrunner. Fermaca also want
for the future CFE to be involved in so many activities,”
to keep its business development side focused on future
Calvillo admits. “But today, I believe CFE is doing perfectly
projects, including any new tenders from CFE, PEMEX, or
well, and that its current strategy is working.”
CENAGAS.
| VIEW FROM THE TOP
A NEW ENVIRONMENT FOR MIDSTREAM CONTRACTORS ALBERTO ESCOFET Country Manager of Enagás
278
Q: What strategies has Enagás implemented in order to
A: This project, which is currently supplying CFE’s central
excel during this complex period for the industry?
generation plant in the state of Morelos, has served as a
A: The activities we have carried out in Mexico involve
valuable learning experience for the company. There were
projects such as the gasification plant in Altamira,
several challenges to overcome, such as land management
where the results have been positive and have strongly
and the development of strong relationships with the various
contributed to the company’s success. In December
municipalities. The company was faced with the challenge of
2015, we began the operation of our compression
adapting to the new regulations spawning from the Energy
station at Soto La Marina, as well as that of the Morelos
Reform, and Enagás became the first transporter to have the
pipeline. The company is working diligently to increase its
Open Season procedure approved by CRE. .
position within the Mexican market. Our first international investment was in the Altamira regasification plant (TLA)
Q: How will the development of the Texas-Veracruz
in 2011, and from there our participation in the international
pipeline impact the country?
market has significantly increased, as we have operations
A: Enagás has vast experience working on semi-
in Chile, Peru, Sweden, and in the Trans-Adriatic Pipeline
submerged pipelines, and this project that will connect
Project (TAP), which is part of the Southern Gas Corridor.
the south of Texas with Veracruz is in our strategic
Enagás established presence in eight countries only four
five-year plan. This will be an extremely important and
years after its first international investment in Mexico.
challenging pipeline that will transfer around 106mcf/d and will demand the participation of experts. The pipeline
Q: To what extent has the Energy Reform facilitated
will have both land and underwater sections, which entails
investment
overcoming several obstacles in land rights management.
for
the
development
of
oil
and
gas
infrastructure?
The development of this pipeline is being promoted by
A: The regulatory framework that the Energy Reform has
CFE to supply electricity generation plants along the East
established is far more flexible and offers a larger variety
coast of Mexico. This is the missing piece to a puzzle that
of options that were not previously available. These
will facilitate the transportation of natural gas throughout
guidelines allow for greater creativity and proactivity from
Mexico and that will ensure that all of these regions have
companies like ours, and create conditions that encourage
access to this fuel, as well as increasing the network’s
the development of new projects that would have been
flexibility. Mexico is not producing enough gas to be self-
impossible in the previous scheme. Fibra E is a tool that
sufficient, but this is no longer an alarming issue because
will finance the development of new infrastructure in the
the country can benefit from its geographical position.
country, and although it may take some time before it reaches its optimal potential, it will definitely increase the
Q: What are Enagás’ goals and strategies to increase its
development of the infrastructure the country needs. The
position within the Mexican market?
companies that will benefit the most from this instrument
A: We are currently involved in the bidding process for
are the ones that already have existing infrastructure, given
various CFE projects and optimizing the usage of existing
that they can contribute their incomes into an Investment
infrastructure focused on fulfilling the current and future
and Real Estate Fund (Fibra) and recover part of the
market requirements for natural gas transportation and
investment they made to allocate it into new projects. Our
storage. Our corporate strategy seeks to consolidate
infrastructure has not yet matured enough to utilize Fibra
Enagás in Mexico as a key operator, reinforcing its long-term
E to fulfill the company’s financing requirements.
commitment to the country. Enagás will continue supporting the development of projects that help strengthen the energy
Q: What have been the lessons learned throughout the
security and sufficient gas supply in growing countries with
development of the Morelos pipeline project?
stable regulatory frameworks, such as Mexico.
| INSIGHT
WORKING WITH LOCAL COMMUNITIES FOR DEVELOPMENT “From just two employees, the company quickly grew to building mobile accommodations for the different areas it serviced in Alberta’s oil fields,” James Delano, ATCO
JAMES DELANO
Mexico’s Director General explains. ATCO Mexico is a
Director General of
subdivision of ATCO Group, a Canadian company that
ATCO Mexico
started trading modular buildings in 1947. In 1980, the company bought out Canadian Utilities, bringing in new assets and leading to the division of ATCO’s capabilities
on the market.” He believes current pollution levels could
into three main segments, namely Modular and Logistic
be reduced by 75-77% through the use of this resource.
Structures, Public Service Infrastructure, and Energy Generation. Delano asserts, “ATCO is an A-rated company
The company was considering participating in the
according to Standard and Poor’s ratings, allowing us to
construction of the large 200km pipelines in Chihuahua, but
produce a strong balance sheet and consequently grow at
as it entered the market and discovered new opportunities,
a consistent rate. Assets in which we invest are ones that
it opted to bid for the design and construction of the 16km
we will operate for the long term, which says a lot about us
Ramal Tula pipeline that would transport natural gas to
and how we build these assets.”
fuel the Francisco Pérez Ríos power plant in the state of Hidalgo, with a daily capacity of 505mcf. The natural
ATCO is present in over 100 countries, and seeks to
gas will replace the less clean and less efficient fuel oil
become a local company in each new region, hiring local
currently used to generate energy.
talent and creating long-term strategic alliances with national companies. Although the company has mostly
ATCO had just undertaken a similar project in its homeland
focused on the expansion of its modular business, its
of Canada, and saw this as a promising opportunity to
most recent venture in Mexico is part of a strategy to
participate in Mexico’s energy sector, while learning about
grow its energy sector. “The products and experience
the Mexican business environment and the Energy Reform.
that we have are ones that can strongly contribute to the
“This project was supposed to be completed in July
effectiveness of the Energy Reform,” Delano believes,
2015, but had to be extended due to some challenges,”
“Inversely, the reform creates many opportunities for us to
Delano admits. He explains this was mainly due to issues
grow.” The company is currently participating in initiatives
surrounding archeological finds and rights of way, but
surrounding the transportation of gas and electricity, and
he does not expect the delay to last much longer as the
would like to enter distribution. In addition to this, it is also
company has a vast pool of experience from Canada in
working on the production of energy in cooperation with
dealing with local communities. “ATCO prides itself upon
its partner Grupo Hermes and PEMEX.
its commitment to invest in local populations and we have a division dedicated to this activity, called ATCO
ATCO hopes to build the most efficient power plant
Sustainable Communities,” Delano explains.
in Mexico, able to generate both power and steam, at PEMEX’s Miguel Hidalgo refinery. ATCO believes that
Moreover, the company often recruits local community
Mexico holds many unexploited opportunities, and wants
members to help carry out the project in their area,
to help the country gain the globally dominant position it
providing economic growth, and Delano expects the
believes it deserves in the global energy market. “Thanks
construction of the gas duct to create over 300 jobs. ATCO
to its advantageous geographical position, Mexico has
seeks to promote the development of the communities
everything it needs to become a global hub,” Delano claims.
with which it works, and will adopt this approach in all of
Participating in the expansion of the country’s natural gas
its endeavors in Mexico and abroad, allowing the company
pipeline is part of this endeavor, as he believes one of the
to grow while respecting the locals. Collaboration with
main challenges in Mexico is that few gas-rich areas are
native communities does not only come in the form of
given the opportunity to develop their resources. “Natural
support of ATCO’s projects, but also our support of its
gas is key to the future of Mexico,” the Director General
assets. Recently, the company built a road for the Ejido
asserts. “The country is lacking energy, and developing this
Zacamulpa community in Mexico, giving it more aperture
clean and cheap resource will allow the country to grow.
to the country, while contributing to the community’s
Natural gas, in fact, is the least expensive form of energy
long-term infrastructure.
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| VIEW FROM THE TOP
LPG EAGERLY AWAITS LIBERALIZED MARKET OCTAVIO PÉREZ SALAZAR Executive President of AMEXGAS
280
Q: What situations led to the creation of AMEXGAS, and
The program is comprehensive, and the Association
what are the association’s main activities?
believes that this reform is the government’s first
A: LPG has a long-standing tradition in Mexico, and
sustainable attempt to open our market. At the moment,
LPG distributors came into existence in a complicated
imports have already been liberalized, which allows
environment back in the 1940s, when the main fuels
players to access supply sources other than PEMEX,
used for domestic consumption were wood, alcohol, and
offering gas of a different quality and even offering more
petroleum derivatives. This industry always had a close
competitive prices when possible. The rest of the market
link to PEMEX, so LPG companies saw the need to group
will be liberalized on January 1, 2017. In an open market,
in order to reach agreements with the authorities and the
consumers will have more alternatives and will be able to
NOC. The Association was formed in 1962, and its main
choose the LPG distributor that offers the best service or
purpose continues to be fostering its relationship with the
the lowest price. Companies will be able to create added
authorities.
value, which is something we could not do before because distributors sold the same product at the same price with
AMEXGAS represents 180 companies before different
reduced profit margins.
entities, participating in regulatory committees. We have close ties to ASEA, the Ministry of Energy, PROFECO,
Q: How will tariffs work while prices are liberated?
and CRE, and we also speak on behalf of our member
A: When the Energy Reform was drafted, the industry
companies through other associations when it comes
assumed the international market was more expensive
to the relationship with PEMEX, although this situation
than the domestic one because it was subsidised. However,
is changing lately. AMEXGAS has a close relationship
this situation changed three years ago when the surplus
with AMGN, since both associations participate in
production of liquefied gas in the US caused the prices to
COPARMEX’s
relationship
drop. This part of the world follows the Mont Belview gas
between these two entities has served to change the
Energy
Commission.
The
index, which is at its lowest point in years. Throughout this
existing narrative regarding the role of both fuels, which
year we will a gradual decrease in domestic prices due to
now complement each other rather than compete. LPG is
imported gas that will provide an alternative to PEMEX’s
focused on domestic consumption, whereas CNG is use
product, and similar changes in the market conditions will
for power generation and industrial purposes. AMEXGAS
eventually reduce prices. If everything goes as expected,
also provides its affiliates with legal advisory services,
the maximum price we see at the end of this year will only
information, or assistance in media-related affairs.
be a reference that will not necessarily be followed and will disappear by 2017. There are no generalized reasons
Q: How did the Energy Reform impact the LPG segment?
why prices should go up, and the way the liberalization
A: The main benefit for the LPG segment will be the price
is planned allows for a smooth transition without major
liberation. LPG distribution is an important industry at the
complications for consumers and distributors.
global level, but Mexico lags behind due to insufficient resources and a historical lack of interest from the
Q: What benefits do the new private participation
Executive power. In my view, the most harmful obstacle
schemes provide LPG distributors?
for the development of this industry has been price
A: Our relationship with PEMEX, which the law appointed
control and the way this was enforced. Therefore, it was
as the only supplier, producer, and importer, is changing.
great news to hear that common sense prevailed in the
Some parts of the chain have been liberalized for some
Energy Reform and that there was a planned schedule for
time now, such as transportation. Considering this, the
the industry’s liberalization, which includes imports, and
main change we expect to see is a diversification in the
focused subsidies for people who still use wood for fuel.
offer, so now, in addition to transporting gas between
PEMEX and distributors, companies will also be able to import gas from the US and build pipelines. Now distributors will choose if they want to buy gas from PEMEX, which produces 65% of the LPG that is consumed
Mexico is one of
in Mexico, or from other parties. PEMEX will certainly have
the largest
a competitive offer in some regions and will continue to be
consumers of LPG per capita,
an important player. Distributors will then be responsible for finding a supplier that makes them competitive. The options are being assessed already and the country will soon have a diversified offering. Consumers will also be
with consumption
able to choose between the different kinds of PEMEX gas
levels of 8.6
or HD10, HD5, or imported gas that fulfils any specifications
million tonnes annually
for determined uses, which will be new to the country. Q: How is AMEXGAS working to push the development of LPG storage projects? A: AMEXGAS has been pointing out the insufficient
population uses wood and other primary fuels that
storage capacity since its inception, as the country has a
damage people’s health and the environment. A study
storage capacity of two and a half days.. When the market
carried out by the WLPGA indicates that countries spend
becomes liberalized, businesspeople who want to invest in
more in providing healthcare for the ill and reforesting
infrastructure will be able to do so. The incoming changes
than they would if they subsidized the use of non-primary
in Mexico’s LPG industry have awakened the interest of
fuels. In line with this, LPG is the best option since it is
the international market, and I frequently meet with
not feasible to build a pipeline to take natural gas to
distributors, infrastructure companies, and investment
towns in the mountains where wood is used. Marginalized
funds that are looking for projects to invest in. Since the
segments in urban areas use wood, even though the
financial markets have not been profitable lately, these
LPG distribution system can reach every corner of the
players want to inject their capital into profitable projects,
country. If a place is not properly supplied, it is because
and the Energy Reform opened many doors for them.
the commercialization margins make the distribution
Even though storage projects are capital intensive, the
impractical. However, this will change with the new
market conditions are favorable. Mexico is one of the
scheme and distribution companies will work to take
largest consumers of LPG per capita in the world, and the
LPG everywhere it is needed. An advantage of LPG is its
country’s consumption reaches 8.6 million tonnes annually.
portability, and a small container holds a great amount of energy if measured in BTU. In this sense, acknowledging
Q: Why should the authorities consider subsidizing the
the circumstances and the fact that a subsidy is a common
LPG consumer segment?
international practice, the authorities could assist in this
A: I would rather say the authorities should consider
enterprise, which does not necessarily entail economic
subsidizing a modern fuel. More than 15% of the Mexican
assistance, as infrastructure is crucial.
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281
| INSIGHT
NATURAL GAS AS THE FUTURE OF MEXICAN ENERGY GENERATION ones,” Pedro Arjona, President of Grupo DEISA underlines. DEISA works both with the private and public sector, and it helps its customers comply with the norms that are relevant for their project, as it did during the construction
PEDRO ARJONA
of the LNG terminals of Altamira and Manzanillo, which
President of Grupo DEISA
Arjona considers as breakthrough project in terms of the complexity and the knowledge acquired. The firm also works with the regulatory authorities, and in this respect,
282
Specialized Design Engineering and Updated Systems,
Grupo DEISA’s President believes that “ASEA should draft
also known as Grupo DEISA, is a 100% Mexican company
new norms and thoroughly revise the old ones, a process in
that has more than 50 years of experience working in the
which we hope to collaborate. The existing norms must be
natural gas industry. The company has three divisions,
adapted to the national reality, and although international
namely an engineering and construction division that has
regulations are a useful reference, they must also be
been in operation for 50 years, a verification unit that has
adapted to the current state of the national industry.”
15 years as a pioneer in the sector of pipelines and facilities inspection, and a division dedicated to the operation and
Up until the opening of the energy sector to private
maintenance of gas pipelines. “We not only administrate
investment, PEMEX expected external investment to further
the technical aspects of the industry, but also the regulatory
the growth of the pipeline network, but CFE decided to
| INSIGHT
CONDITIONS DETERMINING MEXICO’S GAS PRODUCTION JUAN FERNANDO IBÁÑEZ Managing Partner of Ibáñez Parkman
For Ibáñez, it is possible that Mexico could produce its gas resources, but various factors must fall into place beforehand. “The future of Mexican gas production depends entirely on the success of this Energy Reform,
Juan Fernando Ibáñez, Managing Partner at Ibáñez
but the gas imports from the US will offset current
Parkman, illustrates how much room for growth Mexico’s
low levels of gas production.” Mexico’s shale reserves
pipeline network provides. “In Texas, there are more than
could contribute to increasing the country’s natural gas
90,000km of pipelines, but in Mexico, a territory at least
production, but developing these resources entails two
seven times the size of the southern US state, there are
challenges, in Ibáñez’s view. “There needs to be a policy
no more than 11,000km.” This may soon change thanks
that allows for the redistribution of water. In fact, starting
to the many pipeline projects that are being undertaken,
water-intensive activity in Tamaulipas and Burgos, the two
such as Los Ramones, which is only the beginning of
regions with the country’s major shale reserves, will be a
a bigger picture for Mexico in terms of infrastructure.
delicate matter due to water availability.”
Furthermore, Ibáñez provides a reminder that PPPs are instruments that could play an important role. “PPPs will
The second concern involves environmental regulations
be a vital factor in onshore, midstream and upstream
given that the extraction of shale oil and gas is done
projects with PEMEX, as well as in the transmission and
through fracking, a technique resulting in considerable
distribution segments of the electricity industry. In my
CO2 equivalent emissions. “The government needs to find
view, they are the most important sources for the power
a way to address these two issues before the extraction of
industry,” he asserts. Ibáñez points out that Mexico’s
shale resources can begin. This is time sensitive, as these
approach to clean energies will also create opportunities
reserves are estimated to be the world’s fourth largest
for all business related to gas, from extraction to
and thus represent significant resources for our country,”
conduction and distribution to storage.
Ibáñez concludes.
heavily support the development of combined cycle units
it can meet the growing demand at all times.” Additionally,
instead. This caused the demand for natural gas to grow
investment in these major projects could generate benefits
faster than its transportation system, and ultimately led
for other sectors of the economy that experience less
to a shortage in gas supply. In turn, this convinced CFE to
demand. “If we want to position the country as a leading
redirect some investment back into the pipeline network,
economy in the world, the natural gas infrastructure needs
and to connect the Mexican system with that of the US.
to be strengthened so the industry and commercial sector
Ever since, CRE has maintained its strategic investments in
can be stimulated,” Arjona continues. This represents a
gas pipelines, which are now a core part of the national gas
challenge and incentive for Grupo DEISA to participate in the
transportation system and have contributed to preventing
development of the energy sector in Mexico.
the previous shortage. Not only was the country’s gas pipeline system solely operated by PEMEX up until recently,
For the country’s pipeline network to be efficient, there are
it also suffered from a lack of investment. Arjona believes
certain features that still need to be developed, according to
that “It is imperative for PEMEX to become active in the
Arjona. “Firstly, at a national level, it is important to highlight
expansion of the natural gas transportation system, as the
that all players must comply with the Official Mexican
company has the most knowledge and experience in that
Norms (NOMs). The problem in Mexico is that regulations
sector, unrivalled by other industry players.”
are yet to be defined in certain areas, in which case it is advised to use international examples as a reference.”
This restoration and expansion must become a priority for
This is where Grupo DEISA can help the concessionaire,
the authorities, according to Arjona. “There would be no
authorities, and companies, as it is specialized in the
heavy industry without natural gas,” he explains. “Power
efficient implementation of international codes or norms.
generation and manufacturing are increasingly reliant on the
Every project is different and Grupo DEISA has experience
resource, and relevant players must safeguard supply so that
balancing local and international norms.
| INSIGHT
OPPORTUNITIES IN GASOLINE STORAGE The success of companies depends on those running their operations, their knowledge of the industry, and their long-term vision, and PEMEX is no exception to this
JOSÉ ÁNGEL GUTIÉRREZ Director of Operations at United Pipeline Systems
rule, according to United Pipeline Systems’ Director of Operations, José Ángel Gutiérrez. The company offers
as opposed to PEMEX’s previous strategy of simply
unique Tite Liner technology, and Gutiérrez shares that it
recruiting service providers without providing an incentive
is investing significantly in carbon fibers, emphasizing the
for productivity,” Gutiérrez explains.
importance of portfolio variety in providing an added value for the customer and subsequently gaining a competitive
Gutiérrez believes that the results of this reform will be
advantage. Now that the oil price has reached new lows,
seen in eight to ten years, but that the most benefit and
and the fact that PEMEX proceeds account for 30% of
improvement will be seen in the midstream and downstream
the federal budget does not create a problem, but rather
industries, rather than in upstream. Firstly, though, he
opportunities for those that choose to see them.
argues that mentalities must be changed within the sector, and instead of approaching PEMEX to repair a pipeline or
“The last three years have been challenging,” Gutiérrez
sell a valve, United Pipeline Systems aims to focus on the
concedes, “but have served as an awakening, similar to
investment and business model, serving as a partner for the
the pinnacle of the dawning of the dot com era for the
NOC. Moreover, according to Gutiérrez, an important area
Mexican energy sector.” He explains that the major returns
of opportunity for newcomers to Mexico lies in storage.
were always generated from drilling, and as a result,
“With only 78 gasoline storage facilities in the country with
PEMEX made the largest investments in this area and
a capacity of 7 million barrels, and a consumption rate of
overlooked other added-value industries in the midstream
1 million b/d, Mexico’s storage ability pales in comparison
and downstream. “Now, all parties within the sector have
to the strategic reserves of the US federal government,
motivation to make businesses profitable and sustainable,
totaling 850 million barrels,” he concludes.
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| VIEW FROM THE TOP
NO STOPPING FOR PIPELINE EXPERT JOSÉ PABLO MENDOZA CEO of Octopus
284
Q: What are the main changes in the market in which you
instrumentation, so when the market begins to recover, we
operate today compared to 12 months ago?
will have to reconstruct our teams for certain areas. Luckily,
A: At the moment, PEMEX is neither a direct or indirect client
we have the most qualified staff, and as a result, this is
for Octopus. Previously, most, if not all of the work we carried
something that will be possible for us. We are able to create
out involved the NOC, so that marks a considerable change
products at a much lower cost, and with world class quality,
in our operations. Fortunately, the pipeline systems demand
which is guaranteed by our past products and contracts.
products that we fabricate, so this is where our competitive advantage lies. We expected the results of Round Oneto
Q: What are the main areas on which you are working at
be announced earlier. However, since this still has not been
the moment?
resolved, we are aware that the new players will slowly
A: We have just finished a substantial project for Los
begin to enter at some point this year as a result of Round
Ramones, for AOT Pipelines, and we are in the process of
One. The reassuring aspect is that the process is beginning,
contract negotiations for more work with the company. Also,
and companies like ATCO are starting to approach us for
we are working with ATCO on the Tuxpan-Tula pipeline that
collaboration in commercial ventures, whether inside Mexico
is currently under development, and we want to participate
or abroad. I believe that when PEMEX begins to work on its
with IEnova, also on Tuxpan-Tula, with Gas Natural de la
Round Zero blocks, it will require service providers and at
Huasteca in San Isidro, and with Sempra on Gasaducto
this point we see a considerable amount of opportunity in
Aguaprieta. We are currently quoting 12 launchers and
this type of project, whether with the private sector or with
receivers for AOT, but I am unsure for which project this order
PEMEX, given that R1-L03 awarded many similar fields to new
will be used due to the company’s significant workload.
private operators. These investments make economic sense regardless of the current crisis, but there is a considerable
Q: Apart from the private companies with which you are
amount of work to be done in terms of marketing on the part
collaborating, what work do you have in the pipeline for
of the winners of the Round One tenders.
public sector projects? A: We are expecting to start work with PEMEX soon. We not
Q: Which are your best positioned products, and which
only provide pig launchers and receivers, but also piping,
would you like to add in order to offer a more integrated
spooling, and in some instances we will supply packages that
service?
include measuring. Instead of selling the product, we want to
A: The area in which we see our future lies in packages and
move toward selling the integrated service. The problem lies
integrated turnkey services rather than recruiting onsite
with the new PEMEX structure, because if PEMEX E&P has no
contractors. I foresee that these will be the services requested
need to pay PEMEX Gas for the gas it consumes, attempting
by most of the new private companies entering the market
to compete with zero cost is not a viable option. ATCO is
because they are used to this way of doing business, contrary
currently moving slowly, but the company has mentioned
to the way we typically do things in Mexico. The main reason
that it wants us to provide substantial packages for projects
that Cameron, ATCO, and Sulzer have approached us is
in Pennsylvania. If that happens, we will be able to diversify
because we are one of the only companies in the country
from pipelines. I believe that the business will change greatly,
with solid experience in integrated packages. Unfortunately,
and it will be interesting and challenging to understand the
the last two years have been extremely volatile, meaning that
new outlook, and the new environment will require us to be
we have had to offload some of our departments, such as
much more assertive.
Octopus Group is a company that specializes in engineering, manufacturing, integration, and procurement within the national and international power, petroleum, petrochemical, chemical, and industrial sectors.
| VIEW FROM THE TOP
A HISTORY OF TECHNOLOGICAL EXPERTISE IN GAS PROCESSING COEN VAN MUNSTER Manager of Petrogas for US and Latin America
286
Q: What is the role of partnerships in securing your
these companies with fuel gas conditioning systems. Our
position in the Mexican market?
second targets will be in the upstream market, where we
A: We have supplied Siemens Power Generation for over
will help dry the gas and remove sulfur. In fact, we have
30 years, making Petrogas one of its main suppliers for
supplied several installations in Mexico, mainly in Mexico
fuel gas and fuel oil systems. The Mexican market is not a
City, Monterrey, and Rosarito, among other places. Most of
new one, but since it is now open, it is easier to target the
these are operated by CFE, but they have been supplied
players. In the past, we could not go to CFE or PEMEX, but
by OEMs and EPC contractors.
we could work with contractors instead. Now Petrogas is registered as an official supplier to PEMEX, but obtaining
Q: How do you foresee the market for your products
projects from the NOC at this moment is difficult because
expanding in Mexico, given the fact that the authorities
it wants its contractors to pay for the projects and
are pushing for cleaner power generation methods?
Petrogas is not an investor. Nonetheless, we are talking
A: Certain voices in the industry are commenting on the
with a Dutch investment company and we are looking
changing role for EPC contractors, particularly their possible
into a few projects in Mexico where this Dutch company is
transformation into operators and how this impacts the
bringing several suppliers together in joint ventures.
supply of turnkey solutions services in Mexico, such as the ones we supply. CFE might be the owner of a power
Q: Which of your midstream products do you expect to
station, but someone else might be buying the equipment.
be the most sought-after in the Mexican market?
CFE has an agreement with an OEM or EPC company, and
A: I am sure that our fuel gas conditioning systems, both
this company buys the components that will be used in the
for filtration and separation, will be the most popular.
site. We supply to these companies, so we do not supply
One specialized item we have is a black powder remover.
directly to CFE. With that being said, we also know that CFE
Black powder is a result of a corrosion process forming
is increasingly participating in natural gas transportation and
iron oxides and iron sulfides in pipelines, which damage
is tendering pipelines to bring gas to and from the US. The
moving equipment such as valves, compressors, and gas
main opportunities created by this development come from
turbines installed downstream along the pipeline. I do not
the fact that we are in contact with some of the pipeline
know if Mexico is suffering from this, but this has become
companies, so we are trying to attract their attention with
a huge problem in the Middle East, and at the moment
our project so that they notice our equipment and request it.
we are installing equipment in that region to solve the situation with advanced technology. Q: In addition to installing, do you carry out maintenance operation throughout the life cycle of the pipeline? A: Since our company was established in 1949, all our installations are built for plants along pipelines that are planned for anywhere from 35 to 40 years of service. Even when I visit old plants being decommissioned, our equipment still works. If we supply any equipment that is feeding a power station, after 35 years the power station will be demolished but the gas system is still fully operational. At the moment, we are targeting the electricity market. The majority of our clients are OEMs like Siemens, GE, and Alstom, or contractors like Duro Felguera, and we supply
| VIEW FROM THE TOP
NEW MATERIALS IN PIPELINE DEVELOPMENT MIGUEL Ă NGEL DELGADO Business Manager RE- High Performance Polymers at EVONIK
Q: What role does the oil and gas sector play in EVONIK’s
opportunity. Our product was installed by Petrobras in
expansion plans, and what products does EVONIK wants
Brazil, and there are currently about 4,000km of installed
to showcase?
flexible pipelines.
A: For the natural gas market, our main clients are the biggest gas distributors in the country such as Mexigas,
Q: What is the process of rehabilitation of pipelines, and
Gas Natural Fenosa, and Gas Natural Industrial de TorreĂłn.
what opportunities does it create for EVONIK?
Our main clients are companies interested in replacing
A: The liner technologies are designed for the rehabilitation
existing steel pipelines with thermoplastic pipelines, or
of pipelines that handle hydrocarbons and therefore
installing new lines with the capacity to obviate corrosion.
experience internal corrosion. These liners protect the duct
We use a product called polyamide 12 (PA12) VESTAMID
from corrosion without blocking the flow of the product.
NRG to handle higher pressures, and it has been designed
Normal production stops temporarily while we complete
specifically for energy-efficient gas and oil pipelines. We
installation and we usually synergize with companies
want to specialize in areas that deal with the distribution
such as UPS to complete the rehabilitation process. We
of natural gas through thermoplastic pipes, as well as
provide the materials and technology for the installation
the rehabilitation of transport pipelines using lining
of thermoplastics and then UPS installs the liners using
technology. Our linings are installed internally and allow
a technology called "roll down", which is the process of
quick repair without the need to open trenches, and
compressing the material to the adequate diameter so that
currently we are working with PEMEX on the installation
it fits within the pipeline. In the case of a straight pipeline,
of these products.
we can build up to 1.5km without having to construct a trench. It is much safer to use these products because
By taking advantage of the thermoplastic properties of
they are far more resistant and corrosion is prevented, as
the polymers, a liner is introduced, which is the insertion
well as using less intermediate welds, allowing companies
of a plastic tube inside a steel pipe. At the moment, there
to install up to 200m of continuous pipelines with
are polyethylene applications, but we are employing
thermoplastic pipe coils. Another advantage is that, since
PA12, which allows for higher temperatures and greater
the product does not require a great amount of welding, it
resistance in the management of hydrocarbons. For
lowers the installation and maintenance costs.
natural gas, the pipelines for low pressure natural gas distribution of up to seven bars use high-density
Q: What position would EVONIK like to hold in the
polyethylene. The PA12 properties are superior to those
industry, and what is being done to obtain that profile?
of low-pressure thermoplastic pipelines, and we can
A: We want to be the leaders in the installation of high-
expand that knowledge to use high-pressure pipelines and
pressure thermoplastic pipelines of a maximum capacity
distribute natural gas up to 18 bars.
of 18 bars. We collaborate with the entire supply chain, instead of only being the suppliers of the raw materials in
Q: In terms of natural gas pipelines, what opportunities
the manufacture of PA12 pipes. The biggest opportunities
are opening up for EVONIK with the new Energy Reform?
for EVONIK are the new ducts being built in the west, near
A: One of the most interesting topics at the moment is
Sonora and Jalisco. These constructions present a great
related to shale gas and the construction of new pipelines
opportunity for the installation of new lines, and potential
on the west coast of the country, where there were no
for supply to industrial parks and cities, without having to
existing installations. We can use our technology in these
create large trenches to install them. We plan on achieving
new installations for long distance transportation at
this by adapting the new thermoplastic technology, and
pressures of 14-18 bars. We are currently working with all
utilizing market expertise on polyethylene to expand our
of the natural gas distributors to take advantage of this
product portfolio in the natural gas market.
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| VIEW FROM THE TOP
ENERGY REFORM PUTS PIPELINE INSPECTION AT THE CENTER STAGE JAN FROWIJN Managing Director for Mexico & Central America of the ROSEN Group
288
Q: How are ROSEN’s companies interlinked, and in which
common in Mexico. In addition to the technical inspection,
area does each one specialize?
there must also be a thorough evaluation of operating
A: The ROSEN Group is a truly global company, as we work
conditions, logistical challenges, customer collaboration, and
and are represented in more than 150 countries. ROSEN
partnerships. We have the necessary equipment to carry out
Mexico is responsible for both Mexico and Central America,
the inspection, but it is critical that these other factors also
where we have invested in a strong and growing local
be taken into account. We have around 150 local employees
presence, and long-term partnerships in Mexico. Together
with a breadth of experience in the industry, and we know
with COBSA and RAM-100, we form a strong alliance that
our customers, meaning we are well aware of negotiating
allows us to provide integrated products and services over
practices in the country’s business environment. Therefore,
the entire lifecycle of a given asset, mainly pipelines, but
we offer the best of both worlds by combining global-scale
also storage tanks and ships, among others. Although
technology with local knowledge and expertise.
these companies are essentially independent, we all form part of a solid team that reinforces each other’s position
Q: Now that the government is pushing to increase
in the market. ROSEN is involved in the inspection and
production, what kind of opportunities does this present
integrity management systems, and associated products
for ROSEN?
and services. COBSA specializes in the rehabilitation and
A: Lately, we have seen a pronounced increase in the
repair of pipelines, while RAM-100 provides the materials
inspection of pipelines. We believe that, as a result
for pipeline repairs.
of the Energy Reform, this activity has become a far more important requirement in Mexico. In terms of
Rather than having merged with COBSA or RAM-100,
the government’s objectives, and those of PEMEX, the
we decided to form a strong alliance in order to provide
reliability of the existing legacy network is also a priority,
high-quality products and services in the Mexican market.
both for gas and refining. Now, with PEMEX’s requirement
One of the reasons for this is that ROSEN’s ethos is based
to become more competitive and the entrance of new
on our independence as a company, which has been an
private companies, I believe the importance of this factor
important aspect in our strategy over the last 30 years.
will increase. We are seeing better planned management
This entails independence from customers, suppliers, and
in the industry, partly due to the objectives stated in the
financial institutions. In addition to giving us more access
Energy Reform aimed at pushing PEMEX to compete, not
to innovation, we feel that our previous experience as an
only at the national level but also at the international one.
independent company has served us well, and we want
This trend offers promising opportunities for ROSEN, as it
to continue with this model in the future. Although we
means that we will become involved in the process much
are always looking for partners and strategic alliances,
earlier in the asset life cycle, and we can help our customers
depending on challenges we face in a given market or
implement more effective and proactive inspections,
industry, we also highly value our independence and our
integrity management, and preventive maintenance than
long-term, innovative, and technology-driven approach.
the ones we can provide toward the end of an asset’s life cycle, representing long-term benefits for the customer.
Q: As a company that carries out inspection and integrity management, what are some of the common problems
Q: Now that Mexico has an open market and new
you encounter in Mexico?
regulators, what kinds of clients will you be looking to
A: With pipelines, there is always a combination of issues
work with?
rather than a single specific one. Sometimes it can be the
A: We always look at the market in terms of three actors:
structural integrity of the pipeline, while in other cases it can
the owner or operator of the pipeline, the regulators, and
be external or environmental conditions, which is extremely
the solutions providers, including companies like ROSEN.
The industry’s potential can be expanded if these three stakeholders collaborate. In Mexico, we are specifically trying to align ourselves with the market regulator and, although this strategy has been successful around the world, it has been especially challenging in this country. In our view, working with both the regulators and the owneroperators is the only way to ensure that our work yields the most value over the long term. In the future, I foresee this becoming a much more significant part of our approach. The role of the regulator in Mexico was considerably different in the past, and I believe that the industry will evolve in such a direction that the regulator will also become a stakeholder. Not only is the owner-operator interested in the long-term integrity of a particular asset now, but so is the regulator. Even though the regulator is experienced, it is facing an entirely new arena, so the role of the stakeholders is also changing. Moreover, the role of ROSEN is evolving, as we must play our part
289
in providing long-term solutions and attempting to anticipate potential challenges ten years in advance. Our short-term goals are to seek further growth and diversify as a group, both internationally and in Mexico, until we reach a stage in which we feel comfortable with our position and the solutions we can provide. In the medium term, we will focus on coming up with new and improved technologies and solutions to address our customers’ specific needs and challenges. Lastly, our long-term objective is to help our customers to create sustainable value. Q: Given the changing landscape, where would you like Q: On which kinds of projects has ROSEN worked
the company to be positioned within the Mexican market
in Mexico, and can you provide an example of your
five years from now?
collaborations with PEMEX?
A: Companies like ROSEN are often viewed as suppliers in
A: One of the reasons we attended the Logistics for
the market, so five years from now, I would like us to be
Hydrocarbons, Oil, and Petrochemicals Congress (LHPP
seen as a stakeholder that works closely with operators
2015) is because we are focused on the inspection of
and regulators, seeking long-term added-value solutions.
loading lines, and we wanted to showcase the results of
From a business perspective, I see the company as the
the inspection we carried out in Salina Cruz on a pipeline
leading integrity partner characterized by a varied
that was out of operation. This project was carried out
portfolio in Mexico and, in the near future, Central America.
in close collaboration with PEMEX and all of its internal stakeholders, while following our integrated model. The
ROSEN is a global company, but we are also a Mexican
technology we used was only available through our
company, meaning working within the country is one of
international company, which led us to work closely with
our long-term goals. Rather than focusing on individual
our engineers in Germany, the US, and Mexico. The pipeline
projects, we are investing in Mexico as a whole, and
was inoperative for three years, and after the inspection,
one of the most important aspects for us in the country
it is now in production, transporting crude oil for PEMEX.
relates to our substantial investment in human capital. We
Operationally, the project was extremely challenging as it
are training and recruiting in Mexico, sourcing personnel
is a subsea duct, located in a harsh environment, and we
from around the world. Besides our technology and tools,
also had to take measures to minimize the impact on the
and our integrated approach, our employees are by far
population and the ecological system. This is an example
our most important asset, since they are at the core of
of our collaboration with PEMEX whereby we implemented
our assertive mindset and the key to the success of the
a novel system in Mexico and subsequently introduced it
company as a whole. I can confidently claim that we have
into other countries.
some of the most experienced people in our field.
| VIEW FROM THE TOP
A PROTECTIVE GLANCE INSIDE THE DUCTS ALEJANDRO LUPIAÑEZ VP of Operations of ISI Mustang
290
Q: How has the restructuring of ISI Mustang been carried
the benefits of technology, then educating and training
out?
them, and finally investing money in technology testing.
A: ISI Solutions was acquired by Mustang Engineering
We invest a great deal of time in testing new technologies
in December 2011, creating a new company called ISI
and ensuring that our recommendations are proven and
Mustang, which has since gone through a five-year
reliable. When there are major shifts in the industry, such
integration process that ended this year. Wood Group has
as the advent of the Ethernet, IP, virtualization, or even
three main business lines, including Wood Group Kenny for
cybersecurity, ISI Mustang revises its technology and best
subsea engineering, Wood Group PSN for field services,
practices, using the knowledge collected throughout our
and Wood Group Mustang for engineering, procurement,
offices across the world and adapting it to our Mexican
and construction management. This latter division has
clients’ requirements.
four business units, namely Offshore, Onshore Pipelines and Facilities (OPF), Process, Plant, and Industrial (PP&I),
Q: How can your products contribute to reducing damage
and Automation and Control, the segment in which ISI
to pipelines, and preventing hydrocarbon theft?
Mustang is located.
A: Our pipeline monitoring system uses fiber optics, among other technologies, to monitor any type of unusual
Q: How has the Internet of Things and Big Data changed
activity. However, we can further prevent these issues by
the way the industry works, and how is security being
working on the project from the conceptual design and
factored into this new equation?
basic engineering phase. At first sight, our systems may
A: Intelligence was previously solely found in control centers,
seem costly, but these are a long term investment, a fact
but we are increasingly seeing it move down the pyramid to
companies quickly grasp when we present them with our
the most basic pieces of equipment thanks to the advent of
design criteria, its norms compliance, and the aggregated
think lines and improved software programs. Transmitters,
value they will receive from our solution. This is a relevant
transducers, flow computers, and similar technologies
fact in an industry where contracts are made with the long
provided with increased intelligence, are able to handle
term in mind as companies will save money on total cost
IP technology, and can connect to the Ethernet. Control
of ownership, maintenance, and durability.
centers are becoming service centers because they can also take actions, operate, and monitor the facilities of an entire
Q: What new technological concepts are you currently
pipeline or process plant, in addition to overseeing many
testing?
other aspects of an operation. Little by little, information
A: ISI Mustang is constantly developing new technologies
technology (IT) is blending with the operational technology
according to our clients’ requirements. During our
(OT). IT and OT meet at level 3.5, which is where networks
participation in the Los Ramones project, we created a
from the field, the plant, and the control center separate
platform for the safe exchange of information between
through routing, switching, and firewall technologies. We
the US and Mexican parts of the project. Our current
choose to segment the networks at that point so that the
technological focus is on virtualization. This concept is not
corporate network and external access may interact in a
new, but four years ago, the Wood Group Mustang and
protected area, leaving the real-time servers, which are the
ISI Mustang started to test and validate it. Virtualization
heart of the operation, unthreatened.
eliminates the need for a great amount of hardware in control rooms, saving time, money, energy, and space,
Q: How are you working to invert the lack of trust in cyber
while improving safety and reliability and, above all,
security?
availability. Needs that used to be balanced against each
A: ISI Mustang takes a three step approach which
other, such as availability, reliability, and security, are now
involves raising awareness among our clients regarding
converging toward a harmony.
| INSIGHT
ESCO OPPORTUNITIES IN A NEW LIBERALIZED MARKET Mexico is currently switching its electricity production from fuel to natural gas, which provides a greener and more competitive alternative. Duro Felguera has
ANTONIO NOMBELA
established itself as part of this transition for a cleaner
Commercial Director of
future by developing the combined cycle plants Epalme
Duro Felguera Oil & Gas
II under the ESCO modality. This is the latest project that it has undertaken as part of its three decades serving the Mexican oil, gas, and electricity industries. “Mexico has
In Nombela’s view, his clients benefit from a contractor that
always been a key location for Duro Felguera in Latin
is able to develop turnkey ESCO projects. "Our 360-degree
America and will continue being so, especially given the
philosophy about suppliers and services allows us to guide
recent market liberalization,” says Antonio Nombela, the
our clients from the beginning of a project, at which point we
firm’s Commercial Director. Moreover, the company is also
offer services like viability studies, conceptual and property
looking into the benefits this shift in electricity presents in
engineering, and FEED, all the way to operation, labor, and
terms of infrastructure. “We currently offer every type of
maintenance,” he explains. LNG infrastructure is one of the
installation that is related to natural gas, such as liquefied
company’s areas of interest. “We are a pioneer, along with
and regasification terminals, storage, ducts, and electricity
the associated Japanese enterprise, IHI, in the development
generating plants that are fed by natural gas,” Nombela
of all types of LNG infrastructure, particularly in Mexico,
lists. “Additionally, we can set up a complete integration
where we worked on the regasification terminal in Altamira.
between two installations with the dual objective of
We are present throughout the value chain of natural gas
helping our clients achieve a more efficient generation and
and have specific technology that we want to put to the
reduce operative costs.”
service of the Mexican industry,” Nombela asserts.
| INSIGHT
TECHNOLOGY SUPPORTS SOLID TRACK RECORD Bechtel offers a full suite of services and participates in projects from the early stages of development through to the design, construction, start-up, commissioning,
HÉCTOR GARCÍA Country Manager of Bechtel
and hand-over into operations. “Our track record of performance enables us to provide certainty of delivery,
In the short-term, the most active sectors for Bechtel in
which differentiates us from competitors,” boasts Héctor
Mexico are gas pipelines and combined-cycle power plants
García, Country Manager of Bechtel. “Our customers
such as those in PEMEX’s cogeneration program, where
trust us because we deliver results, and they are keen to
the company plans to bring its global experience to local
continue working with us.” The company has over 50 years
partnerships. Bechtel has worked with Conoco in the LNG
of experience in Mexico, and García calls the country an
segment. “We have provided over a third of the world’s
important component of the global portfolio. “We have
LNG installed capacity and are currently executing around
a successful track record in energy projects, including
50% of the capacity under construction,” García asserts. In
oil and gas ventures in the Cantarell offshore field, as
the longer term, García hopes to work with new entrants
well as a number of combined cycle power projects
in production infrastructure installations, midstream, and
and gas pipelines,” he explains. Bechtel also worked on
facilities supporting import and export of fuel and other
the Mayakan pipeline in the Yucatan peninsula, one of
products. “In the current economic environment, we can
Mexico’s largest and among the first privately financed gas
help PEMEX optimize its current assets and improve
pipelines in the region. On this project, the company was
efficiency through technology solutions and pinpointed
part-owner, operator, and EPC contractor.
capital investments.”
291
REFINING & PETROCHEMICALS
12
Numerous new opportunities in Mexico’s downstream sector are steadily emerging as a result of the Energy Reform. There are countless possibilities for developments, given the growth stunt suffered by the downstream sector as a result of PEMEX’s decision to focus primarily on upstream activities. The reform is expected to bring access to a much-needed feedstock supply that is essential to lure private investment to the Mexican petrochemical sector. Latin America’s largest petrochemical project, Etileno XXI, has become illustrative of the opportunities that can be capitalized on in the Mexican market.
The private sector is showing interest in participating in the refining segment, mainly by getting involved in revamping and modernizing projects in PEMEX’s refineries. Furthermore, the Energy Reform created new possibilities for both PEMEX and the private industry to operate in partnership. The state-owned company would obtain much needed capital and new technology, while its partners would benefit from PEMEX’s existing infrastructure and unparalleled knowledge of the Mexican market. The following chapter explores the ways in which the private sector is seizing business opportunities in the refining and petrochemicals industries, and enlists some of the options that will be available as the sector takes off.
293
Puerto de Coatzacoalcos, líder de México en carga total El Istmo de Tehuantepec, cuenta con ventajas logísticas y geográficas únicas en el sistema portuario nacional.
Impulso al Sur • Marco regulatorio
La zona de Coatzacoalcos aporta el 21% de la exportación de crudo y el 97.5% de la petroquímica. Ésta produce
• Incentivos para atraer empresas
insumos para 40% ramas de actividad.
• Infraestructura Moderna y condiciones de seguridad
Con tan solo 303 kilómetros, permite unir al Golfo de
• Facilidades para el comercio exterior
México con el Océano Pacífico.
Facebook/puerto.coatzacoalcos @coatzaport www.puertocoatzacoalcos.com.mx Tel: +52 (921) 2110270
| CHAPTER 12: REFINING & PETROCHEMICALS 296
EXPERT INSIGHT: Downstream Segment Invites Private Partners
297
INSIGHT: Ovidio Noval, API Coatzacoalcos
299
INSIGHT: José Luis Uriegas, Grupo Idesa
300
VIEW FROM THE TOP: Roberto Bischoff, Braskem Idesa
302
VIEW FROM THE TOP: Sergio Saldívar, AMEC Foster Wheeler
303
INSIGHT: Oscar Scolari, Rengen Energy Solutions
304
VIEW FROM THE TOP: Abraham Baruch Zepeda, Grupo Hosto
305
VIEW FROM THE TOP: Daniel Gutiérrez, Pepperl + Fuchs
306
VIEW FROM THE TOP: Raúl Baz, Grupo Petroquímico Beta
307 INSIGHT: Gerson Moacir Secomandi, Oxiteno Mexico 307
INSIGHT: Regina Oliveira, Dow
308
INSIGHT: Mauricio Bielaz, Lamons
309
VIEW FROM THE TOP: Jaime Zubillaga, MAN Diesel and Turbo
310
VIEW FROM THE TOP: Josie Fernández, Teadit
311
VIEW FROM THE TOP: Alejandro García, Alpine Services
312
VIEW FROM THE TOP: Jorge Almanza, ALMU
313
INSIGHT: Guilibaldo Pérez, Tytal
314
VIEW FROM THE TOP: Vernon Murray, Emerson
315
INSIGHT: Mauricio Dávila, EnerChem Tek
295
| EXPERT INSIGHT
DOWNSTREAM SEGMENT INVITES PRIVATE PARTNERS
296
Lourdes Melgar, Undersecretary of Hydrocarbons,
Amidst a low oil price environment, the private
stresses the availability of opportunities to make
sector is showing interest in the refining and
PEMEX refineries more efficient, which is linked
petrochemicals segment, especially in revamping
to the implementation of the Energy Reform.
and
“PEMEX can now effectively form partnerships
downstream
with private players who are knowledgeable in
plants,
logistics, technology, and labor issues. Hopefully,
Manuél Carrera, Director of Alliances & New
PEMEX will not have to continue operating
Business at PEMEX, explains that in the current
alone, because until now the NOC has not been
environment of low oil prices, the margins of
competitive and it currently does not have the
these transformational industries have gone up.
required cash flow.” Melgar recalls PEMEX’s
“This trend can be observed in the US, where
involvement in the Deer Park refinery, where the
refining margins have increased, as have those for
NOC operated in a joint venture. “This experience
the petrochemical and gas processing industries
was one of the arguments we used to push the
thanks to the low gas prices. It is therefore no
reform, and we should find out if we can replicate
surprise that the downstream segment has
this experience in Mexico.”
become more attractive.” He says PEMEX has a
modernizing and
PEMEX’s
assets: gas
three
refineries, processing
types
of
petrochemical plants.
José
fair amount of assets that could be enhanced with Melgar comments that companies have visited
the capabilities, technology, and capital of third
the Ministry of Energy to present plans for
parties. “The same economic principle can be
José Manuel Carrera Corporate Director of Alliances & New Business of PEMEX
Lourdes Melgar Undersecretary of Hydrocarbons at the Ministry of Energy
establishing new refineries in Mexico without
applied to all sectors. We have assets, a market,
PEMEX, which she sees as good news because
existing infrastructure, and part of the feedstock,
it means the industry will be more diversified. “If
and we are looking for capital, technology, and
private investors are interested in this, they can
operational capacity.” Carrera emphasizes that
participate, with the only requirement being a
it is faster to join PEMEX’s operations than to
permit from the Ministry of Energy. However,
begin new ones from scratch, and this is the main
we should be careful not to grant permits to
opportunity that PEMEX presents. Even though
companies that want to establish refineries here
PEMEX and its Alliances & New Business division
in order to export production for two reasons.
are working on putting as many business plans
Firstly, we have a large market in need of supply,
on the table as possible, Carrera notes that just
as evidenced by the fact that we import 53% of
as with some fields in the upstream segment,
the gasoline we consume. Secondly, it would not
there will be some downstream facilities in which
be in our interests to grant environmental permits
PEMEX will not invest at the moment due to their
for a refinery if we do not reap any of the benefits
scale. Finally, Carrera highlights non-strategic
from this activity,” she clarifies. The state-owned
opportunities for the private sector, “The Energy
company is going through a difficult time and
Reform allows third parties to dedicate their
undergoing severe changes, and it is precisely
resources and efforts to areas of opportunity
this situation that makes Melgar optimistic about
that do not make sense for us at the moment.”
the opportunities in the downstream segment.
Nonetheless, we are trying to generate as much
As she argues, “The situation in PEMEX does not
business as possible in order to attract potential
leave room for slow progress.”
partners."
| INSIGHT
SPECIAL ECONOMIC ZONES FOR ISTHMUS OF TEHUANTEPEC Mexico has several important ports in terms of commercial load, such as Veracruz, Manzanillo, and Altamira. “If we consider total load capacity, however, the most important
OVIDIO NOVAL
one is Coatzacoalcos,” claims Ovidio Noval, Director
Director General of API
General of API Coatzacoalcos. Total load refers to both
Coatzacoalcos
the commercial capacity and that used by PEMEX. Noval explains that the port sees intense shipping activity, and accounts for approximately 22% of the NOC’s total trade,
allowing coastlines to be connected in an efficient and
including oil, gas, and aviation fuel transactions. “To put it
competitive way. The authorities are currently discussing
in numbers, this year we are expecting to close operations
the renovation of the old railroad system and the existing
with a total load of 30 million tonnes, an unmatched
highway, as well as the modernization of the infrastructure
capacity for ports in Mexico. We expect this figure to
of the existent ports.
increase in the near future, with the advent of the Special Economic Zones initiative currently being discussed in
Moreover, the Gulf of Mexico and the Pacific coastline will
Congress,” boasts Noval.
also be connected by a US$2 million pipeline constructed by PEMEX, and this is expected to create more
This proposal aims at boosting the economic development
opportunities for local industries and ports. “One of these
of the selected areas by improving their infrastructure and
pipelines is planned for the transportation of natural gas
providing incentives to encourage private investments.
to a refinery in Salina Cruz that is currently using fuel oil
“Worldwide,
special
for power generation,” Noval asserts. “The substitution
economic zones,” Noval mentions, “including some
of old fuels for natural gas will likely take place in other
extremely successful cases. For instance, Manaos, in Brazil,
industries. Another implication will be the possibility
after being named a Special Economic Zone increased its
to transport oil derivatives to that part of the country,
turnover by 300% within five years.” In order to shape this
attracting new industries to the area. This was what
initiative, the Mexican government followed the example
occurred with Braskem Idesa, the consortium in charge
set by successful cases around the world, using best
of Etileno XXI, the country’s largest polyethylene plant.
practices and creating a proposal adapted to national
The companies decided to install the manufacturing
circumstances. Three southern areas will be involved in
plant 9.5km off the port of Coatzacoalcos because of
the Special Economic Zones initiative in an attempt by
the presence of a PEMEX pipeline nearby, which eased
the authorities to balance out unequal economic growth
the delivery of the ethane gas needed for the operations.
that has benefited mostly the northern states. The areas
After the plant started operating, other plastic companies
include Puerto Chiapas, Lázaro Cárdenas, and the trans-
decided to move to the area to increase their proximity
isthmic corridor, which contains the port of Coatzacoalcos.
to their polyethylene supplier.” The availability of raw
there
are
approximately
3,500
material is particularly attractive for many international
"This year we are expecting to
companies,
close operations with a total
scheme.
load of 30 million tonnes"
Noval believes Mexico’s resource availability and incentives,
especially
when
considering
the
fiscal
benefits that can come with the Special Economic Zone
Ovidio Noval ,
in addition to the country’s location and its impact on
Director General of API Coatzacoalcos
logistics costs, could attract companies from China, one of the countries with the highest logistics costs. “The
“Of the selected economic zones, the trans-isthmic
real competition are foreign ports,” Noval admits. “Most
corridor is of special importance as it entails the
people do not know this but 70% of all Mexican imports
narrowest strip connecting the Gulf of Mexico and
are brought into the country through the Long Beach port,
the Pacific Ocean, linking the ports of Salina Cruz in
instead of being shipped directly to a national port.” In
Oaxaca and Coatzacoalcos in Veracruz,” Noval states.
order for Mexican ports to gain prominence, he believes
The Isthmus should benefit from various improvements
they should specialize to improve efficiency and become
to
more cost competitive.
the
communication
and
transportation
system,
297
| INSIGHT
ENCOURAGING MEXICO’S PETROCHEMICAL DEVELOPMENT Mexico’s downstream industry is familiar with the largest petrochemical project in the country, Etileno XXI, which was built by the Braskem Idesa partnership. “We started developing the project in 2011 and we hope operations will
JOSÉ LUIS URIEGAS
be running in 2016,” states José Luis Uriegas, CEO of Grupo
CEO of Grupo Idesa
Idesa. He adds that the group is carrying out the project in close collaboration with contractors, technologists, and experienced staff from both Grupo Idesa and Braskem
He also adds that certain plants will shut down due to
in order to reach the desired quality. If everything goes
outdated processes, thus ensuring constant, uninterrupted
according to plan, the plant should be producing near
growth. Uriegas does not expect to compete directly with
full capacity by 2016, which represents approximately
PEMEX in most markets, but rather with other suppliers.
900,000 tonnes of polyethylene. “Our presence in
Rather than delivering large volumes to only one region,
the Mexican market will certainly have an impact on
Grupo Idesa prefers to distribute smaller volumes to
customers, as they will be able to enjoy excellent support
different areas, so as to not hurt market statistics. Since
in technical assistance, a service which is lacking locally,”
market share increases gradually, the company only plans
Uriegas asserts.
to place 60% of next year’s production in Mexico, and the rest in other parts of the world due to significant demand
Uriegas is aware that excellent services might not be
in places such as the US, Europe, Asia, and Latin America.
sufficient to sustain a certain market share in the long
“In Mexico, we already have over 300 customers, as we
term, and explains that Grupo Idesa also benefits from
started with pre-marketing over three years ago, and the
competitive pricing, as it is located in the NAFTA region,
group of distributors that will help us with the placement
where half of the world’s polyethylene production is based.
of small volumes has also been selected. In addition to this,
This confers the Mexican producer a unique advantage, as
we already have certain customers outside of Mexico. These
the final price of the product is defined by companies in
are direct customers, traders, or distributors, depending on
North America. The fact that Mexico is one of the world’s
the region,” Uriegas details. As time passes, the group will
largest oil producers also provides the company a certain
try to increase Mexico’s share of production, aiming for 70%
advantage, as North America’s polyethylene is produced
in 2017, with the ultimate goal laying between 80-90%.
from oil, not ethane. The feedstock for Etileno XXI comes entirely from the southern part of Mexico, where the
Being aware of the difficulties entailed in training and
crude oil has properties that facilitate the production of
retaining skilled labor, Grupo Idesa is implementing an
associated gas, rich in ethane. “We believe that the new
initiative to train some of its workers to stay in the company
investment generated by the Energy Reform will raise
once the construction phase is over, and is recommending
production levels, which currently lie at 2.2 million b/d.
others to different large construction firms around Mexico.
There is already enough ethane in the region for our project
The construction stage had 17,000 workers at its peak
and its expected levels of production, but we hope for that
period, but the number reduced to 2,000 in January 2016.
level to be increased in four to six years, when we may be
“We have been informing other construction companies
thinking about expanding our cracker,” Uriegas comments.
about the expertise and professionalism of our workers,”
He also mentions that the group is looking forward to the
Uriegas reports. “Most of our workers are specialized in
coming phases of Round One, and particularly R1-L03, the
different stages of the construction process, and we have
oil from which will be available in a couple of years and will
given them certificates to corroborate the quality of their
be able to fuel Grupo Idesa’s growth.
performance when they worked with us. Our training programs focus directly on the communities where we
The global market is growing by approximately 1 million
work, as we would like to have many workers living close to
tonnes per year, and given this figure, Uriegas does not
the plant.” Uriegas hopes to retain about 800 people, half
expect the group’s added capacity to fundamentally
of which would work directly in the plant. Many of these
modify the market. “Even when the rest of the crackers
will have been trained for one or two years in plants similar
in the Gulf coast come in operation in 2018-2019, adding
to the one built in Coatzacoalcos, giving the company a
8-9 million tonnes of extra capacity over two years, the
chance to undertake further projects nationally, and even
market will not change as it will absorb this fluctuation.”
outside Mexican borders.
299
| VIEW FROM THE TOP
CHANGING THE LANDSCAPE IN THE PETROCHEMICALS SECTOR ROBERTO BISCHOFF Director General of Braskem Idesa
300
Q: What finishing touches is Braskem Idesa giving to the
On a long term basis, Brazil has not developed opportunities
Etileno XXI project?
to supply a competitive stock that is required for this type
A: Braskem Idesa was scheduled to start operating
of industry. The development of pre-salt in Brazil could
between January and the beginning of February 2016,
potentially provide enough stock for new projects, but
but we had some issues that required us to intervene
the key lies in finding a competitive equation that permits
in the importation of equipment. The original design
the long term supply of these materials. Mexico is facing a
underwent some minor changes that delayed the start of
period of reforms and changes in its own stock market that
operations, but we expect to produce our first batch of
could also generate medium and long-term opportunities
polyethylene by the second half of 2016. For the last three
for us nationally. Nevertheless, it is too early to discuss
years, we have been working on the construction of this
these types of market situations. Both Mexico and Brazil
important project that will produce 1.05 million tonnes of
have a chance of promoting the investment of long-
polyethylene annually. The project is composed of four
term projects as long as their policies are implemented
industrial units. The most important one is the cracker,
successfully, which is highly probable.
which will be the first to initiate. It has three polyethylene plants, two of which are already completed.
Q: What have been the most significant developments of Etileno XXI’s logistics zone facilities, and how are they
Q: What is the expected impact of reaching your market
being interconnected to the infrastructure in the Port of
share objective in the Mexican industry?
Coatzacoalcos?
A: PEMEX currently supplies 30% of the polyethylene
A: We have developed a flexible logistics strategy in
demand in the country, and Etileno XXI is poised to supply
which we decided to invest in a platform that is capable
50% of the demand in the following five years. We are
of supplying the domestic market according to new and
working closely with a new producer that will be entering
existing demands, resulting in the development of large
the market with a local product adapted to the needs of
and bulky 25kg bags to gratify the mass. In addition, we
the area. Alongside this new partner, Braskem Idesa is
have adapted our logistics platform to be able to evaluate
differentiating itself in the market by developing solutions
and explore markets competitively. Along with logistic
that will satisfy the requirements of Mexican consumers.
flexibility, we have formulated partnerships with other
This will be key, because North American companies that
companies to assess Mexican ports so that they can
currently supply PEMEX and the rest of the market do not
position themselves to export to any international market
align themselves with the demands of Mexican customers.
included in Braskem Idesa’s strategy.
Q: To what extent is there an opportunity for Mexico to
Q: How will the company push innovation and product
fulfill market needs in Brazil considering its low supply of
development?
raw materials?
A: Braskem Idesa is a new company that established a
A: Initially, we are going to be supplying Central America
structured long term pre-marketing program that allowed
as a key market and focusing on the US. It is important that
it to sell 100,000 tonnes last year. I would not qualify us
North America has an integrated market for polyethylene.
as an entering company because we are already present
We are also going to be supplying other regions such
and growing. A company in this situation should have a
as Europe, and the South American west coast using
strategy that allows proximity to customers, working with
the Braskem network for distribution. The polyethylene
them to develop specific solutions to fit their needs. In
market is global and tradeable, so we are going to be
this landscape, innovation plays an important role, and we
continuously assessing the needs all the regions that are
are taking advantage of the infrastructure implemented
profitable for our exports.
by Braskem in the US and Brazil, which is advanced
technologically and innovatively. In fact, our long-term
based on new price relationships between gas and oil.
goal is to integrate the company with the Braskem network
Another important factor is that the Mexican domestic
in these countries.
market is expected to grow and this will attract incoming projects. Key investment decisions will be postponed
Our plants are developing infrastructure that allows us
until companies can see how all these new factors work
to individualize the solutions we offer our clients, which
together and until prices settle in the future according to
has required millions of dollars in investments. All types of
bulk feedstocks.
solutions that may in some way alleviate our customers’ problems are the type of investments that need to be
Q: To what extent is Etileno XXI the company’s only focus,
seen at the site. This includes an integrated laboratory
and how far are you planning on continuing to invest in
that controls the quality of the production in which we
other plans and opportunities?
integrate our product development control program. Our
A: New plans depend on the feedstock availability, as
current focus is to continue developing new methods that
we do not see any opportunities in the short term. With
will improve the services we offer to customers.
the drop in oil prices, all major petroleum companies like PEMEX are facing challenges and a natural readjustment
Q: What is making the downstream sector attractive to
of budgets because the scenario is completely different,
investors, considering its financial record when compared
and this is making short term investment unattractive.
to other PEMEX subsidiaries?
Other oil companies may choose to invest but they will
A: The financial landscape is being impacted by the
do so in a selective manner because of the liabilities in
change in oil and gas prices, which is affecting the industry
the market. Braskem is always looking for opportunities
in North America and all over the world because it is a
for growth in this developing market and for potential in
globally traded product. Mexico is undergoing changes
our relationships with companies in the industry as long as
that are improving the market, and for this reason, we
the risks are minimized with stock availability.
decided to invest in 2010, even before the reform and the shale gas boom. The project was conceptualized and planned thoroughly and it has stayed competitive in the new scenario that the Energy Reform has created. Braskem Idesa will be an important player in this market and in the industry. We expect to be recognized by our capability of fulfilling the needs of both the market and our customers. We are in a position to be a key player in an important and growing sector, and preparations are being made accordingly. Braskem Idesa plans to be one of the most significant investors in Mexico and Latin America by implementing a US$329 million plan this year. The money will be allocated to completing our project and fulfilling obligations with the banks to fund some reserve accounts. Q: To what degree does Braskem Idesa anticipate the entry of new players as a result of the Energy Reform? A: The dynamic relationship between the prices of bulk feedstocks and oil has generated important fundamental changes in the petrochemical and petroleum industry. The key point of establishing opportunities for new entrants in the Mexican domestic market is the provision of competitive feedstocks that can only be seen on a longterm basis. This is a challenge considering that the shale gas revolution has generated an increase in the availability of feedstocks in North America, causing Mexico to be in constant competition with the US. The proximity between these two countries requires Mexican producers to have a competitive stock in order to engage the implementation of any type of project, otherwise it is not attractive to produce in Mexico. Stock is expected to have a minimum
301
| VIEW FROM THE TOP
DEEPWATER GIANT DIVESTS INTO REFINERIES SERGIO SALDÍVAR General Manager of AMEC Foster Wheeler
302
Q: What are the main differences in the company’s
A: One of our main differentiators is that we own the
identity after the AMEC and Foster Wheeler merger?
process technology for certain plants, such as the delay
A: AMEC has plenty of experience in the upstream segment,
coking units, where we are executing the Madero and
but almost none in refining. For this reason, it is a good
Cadereyta un-heading devices projects. As stated, we
complement to Foster Wheeler. AMEC has executed major
are working in five out of the six refineries in one way or
projects in shallow water arrangements from the Houston
another, but this also entails future challenges because
office. In the UK, we also have expertise in deepwater
once these projects are completed, we might not be
fields, pipelines, and floating arrangements. Overall, we can
as active in this segment. We bring the expertise from
offer vast expertise in the upstream segment, as we have
plants around the world to these projects. Our pursuit
many different activities in our portfolio. We are working
of unique opportunities is justified by our technology
on projects for Mexico with Paris, Madrid, Houston, and
and we combine our operations here in Mexico with the
Thailand. The integration of other execution centers and
capabilities of our partners’ offices abroad. For our Salina
different capabilities to projects in Mexico has significantly
Cruz ultra-low sulfur diesel project, a large turnkey project,
strengthened our company. We now offer a wider array of
we are bringing the strength of the Madrid office and the
services and are starting to test the waters in other sectors,
Thailand office, which offer added capacity to our Mexican
as evidenced by our first project in the pharmaceutical
operations. This provides us with a combined workforce of
industry. There has also been growth in the food and
300-400 people for that specific job. By carrying out both
beverage, environmental, and infrastructure industry, and
the engineering and the construction with a joint venture
we have benefitted from a few quotations. The company
partner, we are effectively differentiating ourselves from
is undergoing a cultural shift, whereby we are gearing our
the rest of the industry. The only other company capable
mindset toward that of a much larger organization. The main
of doing this in Mexico is ICA Fluor.
changes thus far have been in terms of size and strength. Q: In which sort of projects do you still find interesting Q: What are the main projects in oil and gas that you are
enough to participate in the refining area?
working on at the moment?
A:
A: We have a considerable backlog on refining jobs, such
reconfiguration project, which should last five or six years
as the Salina Cruz diesel project and the Madero and
and should start moving soon. We will also take part in
Cadereyta un-heading devices projects. We are also chasing
the capacity expansion of a coke plant in Cadereyta,
a significant project in the Salina Cruz reconfiguration,
and we might also do the same in Minatitlán. Given the
but the specifics are yet to be defined. Although we are
current circumstances and state of PEMEX, there is a
extremelyproud of our strong presence, it also presents a
lack of further opportunities in the refinery sector. Other
challenge for the future. We know that the end of these jobs
players entering the market may choose to set up more
marks the end of refining projects in our pipeline, which
refineries in the country, but this will not happen in the
means we must step outside of our comfort zone as soon
coming years. Mexico has always played a significant
as possible. So far, we have secured a couple of upstream
role in our company, but over the past year it has gained
engineering projects for PEMEX. In addition, we are
importance and has come to play a central role. Our CEO
preparing for the entrance of new players in the market by
is constantly looking at developments in Mexico and
working on our positioning, marketing, and development.
attending important local events with key political figures.
We
are
looking
forward
to
the
Salina
Cruz
Our leadership team has given our office aggressive Q: What are your main projects in refineries at the
targets for Mexican operations and expects high revenue
moment, and what sets you apart from other companies
figures, meaning the company should aim to double or
in your field?
triple its size over the next three years.
| INSIGHT
ADAPTING BY STRENGTHENING EPC CAPABILITIES Diversification is one of the ways in which companies adapt to ever-changing markets, and Rengen’s journey into an EPC firm is meant to secure its presence in the Mexican
OSCAR SCOLARI
energy industry. “Nowadays, purchasing a product or
Director General of Rengen
service is not enough to guarantee the clients’ satisfaction.
Energy Solutions
They require everything to be integrated, installed, and operating. In response to this trend, we decided to provide EPC services to clients in the energy sector,” shares Oscar
as gasoline, aviation fuel, and diesel will keep growing,” says
Scolari, Director General of Rengen Energy Solutions.
Scolari. He adds that PEMEX must increase the production in its six refineries to meet the demand, otherwise it will lose
“Our international partners supply us with products, as well
market share to imported products.
as supervision and quality control for the installation and operations of our EPC projects, while our local teams take
According to Scolari, players have to pay more attention
care of detailed engineering, construction and assembly,
to allocating resources where these will allow the most
start-up, and commissioning.” Scolari attributes part of the
productivity and profitability. He uses Etileno XXI as an
company’s success to the fact that it has been able to add and
example, as Braskem and Grupo Idesa joined forces to build
attract talent that makes the operations more solid. Rengen
an ethylene cracker that would have not been financially
has a specialized team dedicated to providing operation and
possible for PEMEX. Scolari points out that the petrochemical
maintenance services, which are offered under long-term
industry has been open to private participation for many
service agreements, in addition to continuous preventive
years, and many groups and companies have been involved
maintenance analysis and services. It is quite common to
in this sector for a long time. Although there are available
see Rengen performing these services in power generation,
opportunities, both PEMEX and investors have to take into
but the company also works on servicing, repairing, and
account factors such as the global supply of the products
providing long-term maintenance to PEMEX’s gas turbines.
they want to manufacture or import. In addition, Scolari
Part of Rengen’s value proposition includes training PEMEX
stresses that the petrochemicals industry also follows a
and CFE technicians in the use and maintenance of the
cycle that does not necessarily coincide with that of the
equipment the company sells, distributes, and installs. “We
refining industry. Rengen intends to participate in the Salina
do not keep the technology stored in our facilities, instead
Cruz reconfiguration project, and the company is keeping
training our clients’ technicians and operators, because at
an eye on possible developments in the Madero, Minatitlán,
the end of the day they will become our commercial ally. If
and Salamanca refineries.
they are comfortable working with our products, they will continue buying from us,” Scolari comments. The company is looking at opportunities in the downstream sector, where it is finding a new niche to prove its EPC capabilities. “We have observed growth potential in the downstream segment, which has led us to strengthen the group’s engineering division in order to compete in the refining and petrochemical sector, where we plan to participate in the revamping of facilities,” Scolari comments. He explains that the upstream segment is depressed, because in some fields, production costs are higher than the market price. Furthermore, considering the fact that the most promising fields are in deepwater reservoirs in the Gulf of Mexico, he believes the challenges to providing equipment and services will become more demanding and price sensitive. “Conversely, the refining and petrochemicals sector will benefit from the low crude prices, since the market has a real and tangible demand, and the use of products such
The refining
and petrochemicals sector will benefit from the low crude prices, since the market has a real and tangible demand
303
| VIEW FROM THE TOP
POWER, UNINTERRUPTED
ABRAHAM BARUCH ZEPEDA Commercial Director of Grupo Hosto
304
Q: What has allowed Grupo Hosto to become a leader
influenced by the development of the Mexican oil and gas
among EPC companies working in the Mexican market?
market, especially after the announcement of the Energy
A: Grupo Hosto was founded 25 years ago by Jorge Alberto
Reform. In the case of PEMEX, the liberation of the market
Zepeda Grajales. At that time, contractors were hired directly
encouraged the parastatal to invest in its infrastructure, a
by the plants, so the founder decided to start offering
situation that brought more job opportunities for Grupo
maintenance services to refinery managers, and this way,
Hosto, especially as there were few companies that could
Grupo Hosto started obtaining its first contracts. After eight
compete with us in this area.
to ten years of experience, the company finally managed to secure a contract for providing reactor maintenance,
Q: What new technologies have you brought to Mexico,
becoming the first private company in the country to
and what advantages do they provide for your clients?
offer this service. Following its successful incursion as a
A: In our recent experience, there are three technologies
provider of maintenance services for refineries, Grupo
that are especially impacting our clients’ operations. The
Hosto identified a new market niche in the construction of
first is the reactor cyclone, which is used to recover the
gas terminals. In this area, the company benefited from its
unreacted catalyst from reactors used in the gasoline
expertise in providing maintenance to refining equipment
refining processes. The use of cyclones is essential, as the
and building infrastructure projects in Mexico City, a parallel
catalyst used in this process accounts for the highest share
business Grupo Hosto had at the time. Later, during the LPG
of gasoline production costs. In order to introduce this
boom, the company managed to construct 50 gas bottling
technology in an efficient way, we decided to perform an
facilities as well as four gas shipping centers.
in-depth analysis of the cyclone equipment used in Mexico in collaboration with Buell, a leading cyclone producer
Q: What opportunities have allowed Grupo Hosto to grow
based in the US. As a result of this project, Grupo Hosto is
in the market since then?
now the only Mexican company able to produce cyclones
A: In 2002, the refining sector experienced low production
under the Buell brand.
rates, which lowered the demand for maintenance services. Nevertheless, that same year, we started collaborating
The second technology is the loading nozzles, also used
with the private sector, which represented a promising
for catalytic reactors, which have a considerable impact
opportunity for the company. In 2006, the construction of
on the equipment’s efficiency. In this case, we obtain the
new refining plants underwent a boost in the country and
technology from Technip, one of our international partners.
Grupo Hosto used its experience working with PEMEX and
The final technology that is gaining momentum among
private parties to become an EPC company. This decision
Mexican companies is the Uninterruptible Power Supplies
promoted the success of the company as the contracts
(UPS) system, which is a synchronizing machine with an
for EPC projects represented a higher influx of revenues,
inertia flywheel used to regulate voltage for avoiding power
allowing the company to improve its offering. Moreover,
outages. Besides preventing operations from halting due
we are extremely competitive in the current state of the
to power outages, using a UPS is important for protecting
industry, which we consider an excellent opportunity for
the refinery’s equipment, as the usual voltage variations
growth. In this sector, competitiveness is a function of
in the national transmission lines can cause real damage
cost, quality, and delivery time. To accomplish this balance,
in electric assets, especially in fine machinery, such as
we have been working to certify all of our value chains. We
measurement units. By installing a UPS system, the lifespan
are also able to offer our clients different schemes for up
of the equipment can be incremented from ten to 25 years
to 20 years for financing infrastructure projects, which is
while avoiding the occurrence of a power outage in the
possible due to our partnerships with banks and financial
plant. We studied this product for two years, and we finally
consortia. Overall, the company’s growth has been heavily
decided to import it from a supplier based in Germany.
| VIEW FROM THE TOP
OFFSETTING REFINING UNCERTAINTY WITH PETROCHEMICAL OPPORTUNITY DANIEL GUTIÉRREZ Director of Pepperl + Fuchs Mexico
Q: What is your approach to dealing with the uncertainty
Q: How are you expecting to fulfil your growth objectives
surrounding PEMEX’s projects?
for the coming year?
A: A starting point would be to mention that the
A: We want to expand our business, but we still need to
reconfiguration of refineries has been put on hold due
evaluate our prospects to estimate the reach we will have
to the outages of three of the main refining facilities.
this year. At the moment, we are uncertain about the future
Earlier this year, the Mexican government announced its
of some of our projects, such as the one we signed with
plans for reconfiguring the country’s main refineries, but
the refinery in Tula, which was supposed to be reconfigured
those plans currently remain on hold. Therefore, we are
this year, or the clean diesel project in Cadereyta. Once
expecting to increase our participation in maintenance
we get a clearer picture of PEMEX’s plans, we will be able
services for existing facilities at the moment, instead of
to carry out a more accurate estimation of our expected
reconfiguration and construction of new refineries. We are
growth for this year.
expecting a restructuring of the NOC's budget, which will allow us to plan our future approach.
"Petrochemicals is one of the
Q: What opportunities does the chemical industry offer
few sectors in the oil and gas
your company? A: At the moment, we are seeing great potential for entering the petrochemical sector, particularly in regions like Coatzacoalcos and Altamira. Regarding technology, we have identified a high demand for detailed solutions to reduce explosion risks. At Pepperl+Fuchs, we have strong expertise
industry that is benefitting from the drop in the prices of crude oil"
Daniel Gutiérrez,
Director of Pepperl + Fuchs
in this area, and we offer a wide range of automation and instrumentation solutions, such as ports or wireless devices. So far, we have mainly targeted private players in this sector,
Currently, we see a promising growth potential in the
with Coatzacoalcos being the most important market for us.
private industry. By the end of the year, we will measure
Right now, we consider petrochemicals as a stronger market
our success by analyzing the company’s revenues from
for us, as it is one of the few sectors in the oil and gas industry
sales as well as the money saved by applying cost
that is benefitting from the drop in the prices of crude oil.
efficiency measures. Reducing our operational costs will take particular priority this year, considering the current
Q: How is your company adapting to the new market
state of the industry. In this regard, we are analyzing the
conditions, including new customers and sectors?
most optimal strategy to allocate our resources, both
A: In the past, PEMEX represented around 60% of our
human and infrastructural, to obtain improved results
revenue share, while the remainder came from the private
without incrementing our costs.
industry. Therefore, we have employees that are already accustomed to working with private companies, which is
In this sense, one of our key strategies is to diversify, thus
highly beneficial for us. In the case of our explosion risk
lowering our dependence on the oil and gas industry.
solutions, we do not need to modify the approach we
Nonetheless we will still maintain our presence in this
used for private or state-owned companies as they are
industry, even if we try to increase our participation in other
both concerned with improving their safety standards. In
market segments. Last year was particularly difficult for
general, we believe that our human talent is our company’s
our company, but we are starting to identify new business
best assets, and we will rely on our staff’s expertise and
opportunities, such as the increment in demand for
skills to stay afloat during this transition.
maintenance services.
305
| VIEW FROM THE TOP
COMPETITIVE PRICING TO INCREASE PRODUCT VALUE RAÚL BAZ Director General of Grupo Petroquímico Beta
306
Q: How is the downward curve in the price of oil impacting
A: Now, there will be a competitive price centered around
the petrochemical sector in Mexico?
bidding, where players that want to produce more will
A: The drop in oil prices is having serious consequences for all
have to pay more. This represents an increase in product
chemicals that use it as a main raw material, and these effects
price that affects the commodity industry. In Mexico,
are expanding into its derivatives. Players are becoming more
the ethylene oxide sector was essentially a commodity-
competitive while seeing less revenue, and the struggle is
driven industry, rather than a specialty-driven industry.
spreading fear and making everybody scramble to maintain
The national price for ethylene, which is 80% of that of
market share in their regions. Operators that manufacture
ethylene oxide, includes a fee that will increase the cost,
ethylene are greatly affected by the lower profit margins
meaning that economic benefits can be achieved for the
coming from the fixed costs inside the capital intensive
entire country through the new prices. Similarly, there are
industry. The impact a company experiences depends on the
opportunities in the specialty export business. In the US,
type of pricing the product sees in the market. For instance,
the cost of ethylene depends on proximity to the source
in the US, cost-plus pricing of ethylene oxide has lowered
of raw materials. Many companies use ethylene oxide
the cost, yet supply has failed to rise because of the lack
that originates from outside the area 483km around the
of manufacturing plants. From this perspective, revenues
petrochemical site. Cost is affected, but if well managed,
continue flowing. On the other hand, negative consequences
favorable circumstances could be found because the
are being generated by the price changes in raw material
cost base will remain leveled with competition in the
resulting from competition. Manufacturers can adjust by
US. The industry is moving in sync with PEMEX’s vision
fully integrating themselves and avoiding the responsibility
of privatizing petrochemicals by acquiring specialized
of having to buy their own materials.
technology. Companies that do not specialize and adapt to the changes of the landscape will be gravely affected.
Q: In what ways does the creation of PEMEX Industrial Transformation impact the petrochemical sector?
Q: What are your predictions for the development of the
A: First of all, petrochemicals were excluded from PEMEX
Mexican petrochemical sector in the coming years?
Industrial Transformation completely and were included
A: There will be more gas and oil coming out of the
under PEMEX Ethylene. As a result, all the prices of the
southeast of Mexico, and this is a highly needed
resources that PEMEX Industrial Transformation sells
development. The polyethylene industry, which makes
to PEMEX Ethylene will be at market price instead of at
up about 60-70% of the ethylene derivatives market, will
transfer price. This means that the cost base of PEMEX
not be as badly affected because it has always remained
Ethylene is going to increase as well as the market level
at market-level prices. Be that as it may, ethylene oxide
price of sold raw materials, and ethoxylate products will
products
undergo a total change. Although it not yet set in stone,
Ultimately, the availability of more specialized products
the new PEMEX perspective is predicted to allow more
centered on raw material like ethylene oxide will be a
ethylene oxide production at a higher price. It used to be
positive step for operators and the country. Ethylene oxide
based on a cost-plus priced quota that gave it an attractive
can offer a brilliant future to those willing to specialize.
price, though limited the amount. In the past, our strategy
The refining capacity of ethylene oxide in Mexico is the
was to increase our margin of specialized products, but
greatest in the continent, and even the US cannot produce
manufacturing a wide variety of products was not possible
this resource without further investment. If PEMEX is able
with the lack of ethylene oxide.
to set a market oriented price for ethylene oxide, where
are
destined
to
be
relatively
distressed.
volume defines how much one is willing to pay, operators Q: How will the developments within the petrochemical
in Mexico will be more motivated to work with specialty
sector affect the commercialization of ethylene oxide?
industries and products will have added value.
| INSIGHT
BRAZILIAN GIANT PREPARES FOR EXPANSION IN MEXICO In the last decade, Oxiteno, a Brazilian chemical company that operates worldwide, has invested in timely expansions in several regions, a strategy that has enabled
GERSON MOACIR SECOMANDI
it to anticipate growth and opportunities. Examples of
Commercial Director of
this approach can be seen in the expansion of its plant
Oxiteno Mexico
in Coatzacoalcos, where a new reactor equipped with the latest international technology was installed, and the approved investments for a new alkoxylation plant in
in the creation of 2.5 million jobs in the energy industry,
Pasadena, Texas. Today, Oxiteno has three industrial units
which will increase the GDP by 1-2%. Additionally, he
located in Coatzacoalcos, Guadalajara, and San Juan del
is confident that the chemicals sector will grow 3.8%
Rio. “Our presence is significant because, in addition to
by attracting investments of US$25 billion in the next
possessing manufacturing plants, we also use sourcing
ten years. Oxiteno secured its position as a supplier of
from other companies, be they international or local,
chemicals for the oil and gas industry in the Americas
meaning that, if needed, we may import products from
by developing solutions based on ethylene oxide and
Venezuela, Uruguay, or Brazil.” Oxiteno is present within
propylene oxide, among other specialty products. Now
many industry segments, such as home and personal
the company is looking to consolidate its position in the
care, agrochemicals, paint, pharmaceuticals, and oil and
Mexican market as a reliable supplier of innovative and
gas. Secomandi claims Mexico’s Energy Reform will result
sustainable chemical products.
| INSIGHT
ANTICIPATING GROWTH OF DOWNSTREAM COMMODITIES REGINA OLIVEIRA The downstream segment is the one where Dow Oil & Gas has experienced the most notable technological transition for the past 50 years. Regina Oliveira,
Commercial Director for Oil & Gas and Mining in Latin America for Dow
Commercial Director of Dow’s Latin American Oil & Gas and Mining division, explains that amines are a highly
contractors in order to present our Amine Management
sought-after commodity in the downstream segment, and
Program for this region,” shares Oliveira.
a significant difference can be made by using amines in a certain way to increase gas processing. With this in mind,
Dow’s participation in Mexico’s downstream segment goes
Dow developed UCARSOL™, which uses sulfur to boost
far beyond its product catalogue, as the company boasts a
production without the need for expanding capacity. The
polyurethane plant in Tlaxcala. The plant, explains Oliveira,
supply of these types of amine is accompanied by the
might be used to produce the HYPERLAST™, a polyurethane-
Amine Management Program, which allows Dow to track
based product used to provide thermal insulation for offshore
gas production and the quantity of resulting pollutants in
pipelines. “We are challenged with providing the industry
order to then suggest a solution to the refinery operator
with a product that offers thermal insulation with resistance
to enhance production.
to high temperature and high pressure, thus preventing hydrolysis of the polymer in extreme conditions. This area
Dow relies on the assistance of various laboratories, of
has great potential in Mexico’s future, particularly due to the
which the main one is located in Mexico, allowing the
fact that production is local.” The Tlaxcala plant production
company to draw support from its local and global teams
was originally directed toward other polyurethane markets,
when needed. “Gas plants are already using UCARSOL™,
but once Dow identified an opportunity for this in Mexico,
and in fact, PEMEX is in touch with us through these plants.
the company worked on the plant to ramp up capacity in
When it comes to refineries, we are working with PEMEX
order to meet local needs.
307
| INSIGHT
GETTING DOWN TO THE NUTS & BOLTS Depending on the application, there are different products the company can supply to fight and prevent
MAURICIO BIELAZ
corrosion, including bolts with different coatings and
Sales Manager Latin America
other anti-corrosive materials. Moreover, the company
of Lamons
has developed a special isolation kit called Isotek Defender Fire Safe, which is primarily used in offshore platforms and has been requested by several major
308
With integrated services becoming so important in
operators and pipeline companies. Lamons is divided
today’s hostile oil and gas industry, gasket and bolt
into commodity items, such as bolt and gaskets on one
manufacturer Lamons wants to supply its customers with
side, and engineering products on the other. “We are
a faster turnaround on products, allowing them to service
placing a strong emphasis on the engineering products
the regional end users, including PEMEX, Ecopetrol, and
because we consider this to be quite a specific market,
PDVSA, through its distribution channels. Mauricio Bielaz,
and we have the facility to manufacture and supply such
Lamons’ Sales Manager Latin America believes that this
products,” Bielaz reveals. “We plan to expand this area
will allow the company to increase its presence in the
by working with other engineering companies and end
Mexican oil and gas industry. “Our main goal was to have
users.” Customers look to Lamons to provide bolted
a strategically positioned facility to supply the Americas,
joint solutions that reduce downtime and solve leakage
which would provide us with more opportunities in terms
issues. The engineering department carries out a variety
of delivery, quality, and cost-reduction,” he explains. “We
of activities, including “lunch-and-learns”, teaching end
can easily travel to Mexico to control the operations
users to implement various gasket types and torque
and quality, whereas India or China would pose logistic
values for the different projects.
challenges and supply chain delays.” The company is working toward increasing its involvement Lamons' primary business is downstream refining and
with IMP, which could benefit Lamons’ engineering
petrochemicals. Nonetheless, Lamons continues to support
division. This group works together with IMP to present
the upstream market segment and to develop products
an overview of the Lamons product portfolio and help it
and efficiencies to accommodate the industry when the
specify new gasket and bolting technologies, allowing the
cycle recovers. “Although our main business is in the oil and
latter to understand how to develop the products. “We are
gas industry, we are trying to enter other markets such as
still in the early stages of equipping the new plant, as it
mining, paper and pulp, and pharmaceuticals, where our
has taken longer than expected for the facility in Mexico
presence is growing to compensate for the slow-down in
to reach full capacity, which we are hoping to reach by
the hydrocarbons industry.”
September 2016,” Bielaz admits.
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| VIEW FROM THE TOP
MID-TERM OPPORTUNITIES CREATED BY ROUND ONE JAIME ZUBILLAGA Managing Director of MAN Diesel and Turbo (MAN)
Q: How does MAN Diesel and Turbo (MAN) contribute
customers. Another advantage is the fact that we already
to the Mexican oil and gas industry, and how have the
have an established presence in the Mexican market.
bidding rounds affected your operations in Mexico?
Moreover, we differentiate ourselves from competition by
A: A considerable percentage of world trade is powered by
offering excellent after-sales services and maintenance, in
MAN, evidenced by the fact that most major cargo ships,
addition to high-quality innovative products. Our business
containers, cruise, and offshore vessels across the globe
is driven by global trends and developments, be it in local
use our engines. In order to maintain our dominant market
and worldwide transport with gas and diesel engines for
position in the two-stroke and four-stroke engines market
propulsion, in energy generation with gas engines and gas and
for marine applications, we are heavily investing in R&D.
steam turbines, or in industrial production with compressors
Our power product portfolio currently ranges from 450kW
for industrial applications. We are currently working on EOR
to 82,400kW per engine. MAN’s equipment portfolio also
systems and natural gas injection compressors that inject and
consists of compressors and steam turbines for refinery
compress the natural gas obtained from processing oil into
applications. Moreover, our recent acquisition of Cryo AB’s
the reservoirs, aiming to improve recovery. In fact, we enjoy a
Marine Fuel Gas Supply System (FGSS) business has brought
100% market share in the EOR segment. We also provide the
in capabilities in the manufacturing of cryogenic equipment
technology to inject nitrogen into the reservoir, a necessity
for the storage, distribution, and handling of liquefied gases.
in the Mexican market, given the scarcity of natural gas.
We believe this will be advantageous for the Mexican market,
For the moment, there are only two companies producing
as natural gas is rapidly gaining prominence as a fuel for the
nitrogen in the Mexican market, Praxair and Nitrógeno de
marine sector and for LNG carriers.
Cantarell, and their compressors are produced and supplied exclusively by MAN.
We now also offer our Dual Fuel engines for other gasfueled ships such as ferries, cruise ships, and offshore
Q: What is MAN Diesel & Turbo’s role in the activities of
vessels, as we plan to take part in shipbuilding activities
PEMEX?
in the country. We are expecting an increase in demand
A: We are an essential part of PEMEX’s activities, allowing
for engine and gas system packages and recently supplied
it to distribute its refined products reliably and efficiently
two accommodation vessels owned by PMI with Man
throughout the country. MAN is present across a large
GenSets. These vessels are currently under construction in
majority of operations in the six PEMEX refineries. We
the Navantia and Barreras shipyards, and we expect them
supply and manufacture equipment for refinery plants,
to arrive to Mexican waters by mid-2016. Our participation
such as compressors and steam turbines. MAN is also a
in activities related to the bidding rounds will be a medium-
partner of PEMEX’s main fleet manufacturer, and so far we
term endeavor. In four to five years, when the new private
have provided the contractor with engines for the NOC’s
players have established operations, the requirement for
16 tankers. In addition, we are currently providing the
new infrastructure will create a significant opportunity for
service and maintenance support for the main propulsion
MAN, and we will be prepared to supply operators with
engines of each tanker. When it comes to PEMEX's budget
equipment such as compressors, turbines, and engines.
cuts, we have not been overly affected so far, although we expect to feel consequences at some point. Our projects
Q: How do you plan on using your competitive advantages
with PEMEX have not all been impacted, and we are able
to attract companies entering the market as a result of
to continue our work on the ultra-low sulfur diesel project,
the Energy Reform?
manufacturing three compressor trains, with PEMEX
A: One of our benefits is our size. Because we are a relatively
Refining as the end customer. Our direct customers will
small enterprise, we can move faster than competitors
be EPC companies like ICA Fluor in Mexico and Técnicas
and offer certain flexibility, allowing us to better serve our
Reunidas in Spain.
309
| VIEW FROM THE TOP
ANTICIPATING CUSTOMERS NEEDS WITH UNEXPECTED SOLUTIONS JOSIE FERNĂ NDEZ Global Marketing & Latin America Export Manager of Teadit
Q: Having locations across the globe, why did you
of that, it allows them to save millions of liters of water
evaluate Mexico as a strategic market to enter, and how
per year, which represents not only financial savings, but
does it compare to the rest of the countries present in
also environmental savings. This is what we call a value
your portfolio?
proposal.
A: Teadit’s performance and strategy are global, and each
310
of our manufacturing units and distribution centers are
Q: What is the importance of R&D in your strategy, and
located in a way that enables us to service the markets in
what innovations have you developed that you believe
all five continents in an agile and effective manner. Teadit
would be pertinent to the Mexican market?
targets all markets, and analyzes them in regard to their
A: Research and development, in our view, is the heart
regional characteristics with the objective of entering and
of the industry and technological advancement. The
expanding its market share. When analyzing the global
industry's concerns have given rise to a permanent state
map of oil and gas investment, production, and potential,
of R&D, with a focus on a new solution, technology, or
Mexico represents a promising environment, compared to
procedure that will optimize processes and lower costs.
Brazil and the US, for example, where we have a great deal
Teadit has unique and patented sealing products, and
of knowledge and broad portfolios.
combined with specialized installation procedures, our service is incomparable. We have the 2238-OX packing,
Q: What is Teadit’s unique value proposition, and how do
for oxygen service, and 2236 packing, which is the most
you plan on emphasizing this to potential customers in
recognized worldwide for low emissions. We also supply
Mexico?
the camprofiles, double jackets, and spiral wounds in
A: Teadit is a technology-driven company with history
conventional and exotic steels, as well as the highest
of consistently investing in skills and research and
quality expanded PTFE and restructured PTFE Tealon.
development.
analysis
Other products include pure PTFE flange protectors, fire
laboratories, as well as our testing laboratories, play an
Our
chemistry
and
physics
protection, metallic and flue duct expansion joints, and
important role in our differentiating factor. We test both
ECOTape to seal high temperature joints for hydrocarbons
our products and those of our competition with advanced
and steam applications.
technology for monitoring, controls, registration, and reports. Doing so allows us to prospect, measure,
Q: What is currently lacking in Mexican petrochemicals,
achieve savings, and increase technical processes and
and why do you think the sector has largely taken a
procedures. Moreover, our specification support and
backseat in the development of the oil and gas industry
application engineers are trained to anticipate and
in Mexico?
identify needs of the end users even before the client is
A: We believe that the petrochemical sector in Mexico offers
able to do so. Our experts have developed the adequate
significant, growing, and eminent opportunities. Braskem
insight to identify the perceived value for the customer.
Idesa built the most important petrochemical complex in
For example, many times when you ask a customer "what
the Americas, was recently built, which makes us believe
is your sealing problem?", the customer says that he
this sector will have a significant growth in Mexico. We have
does not have a sealing problem. Later on, our technician
broad expertise that is not restricted to the manufacturing
realizes that the customer was a little concerned because
and supply of products for the petrochemical industry,
he had received a report that has as a goal to reduce the
but it goes far beyond that. We provide sealing solutions
water consumption during the process. Pumps consume
and the use of the best installation practices for sealing
water in the cooling of seals. Our technician would then
products. We challenge the petrochemical industry to put
propose to the customers a packing and maintenance
us to the test because we are 100% confident that we will
procedure that makes the customer save 75%, and on top
positively surprise them.
| VIEW FROM THE TOP
REFINING SECTOR SET FOR AN UPTURN ALEJANDRO GARCÍA Director General of Alpine Services
Q: How much growth opportunity has the Mexican Energy
market, which seems to be the most opportune time to
Reform created for the petrochemicals market?
carry out this type of maintenance. Projects in Tula, Cactus,
A: The Mexican industry is entering a new era, and positive
Pajaritos, and other facilities need to receive continued
changes will come with PEMEX’s new strategy and the
attention, and Mexico must focus on maintenance and
implementation of the Energy Reform. Considering that
expansions to meet capacity. In 18 months or so, once
the market was closed for over 70 years, international
Etileno XXI is brought online, we will start seeing more
and domestic companies will need time to adjust to the
activity.
newly implemented rules and regulations. Nonetheless,
311
Mexico is the best-positioned country in Latin America for
Q: How can Alpine stress the importance of investing in
growth, and at Alpine Services we see this is a tremendous
equipment upgrades to its clients?
opportunity.
A: Convincing customers who traditionally purchase lower-grade equipment or outdated technology to invest
Q: How does Alpine Services differentiate itself from
in costlier products is quite a challenge. The price of
other competitors?
upgraded valves and other oil and gas related equipment
A: Alpine Services’ core product is valves. We offer
can cost between 5-15% more than traditional ones from
specialized products using state of the art technology and
15 years ago. When it comes to technology, these price
our products have been redesigned to offer overall better
variations are normal. Even cellphones tend to be more
results. Our customers are varied, but the majority of our
expensive as new functions and technology develop. We
business has been for PEMEX. We also tend to prioritize
explain to our clients that the newer designs have gone
local participants and distributors. We differentiate
through many changes that make them lighter, safer, and
ourselves through a quality customer service that excels
increase production.
in response time. Our clients appreciate the attention and training we provide on newer and safer equipment.
Q:
Alpine
manufacturing capacity to serve the Mexican market?
Services
maintains
constant
communication
To
what
extent
do
you
plan
on
broadening
with the manufacturers and engineers of the valves it
A: As the opportunities grow, we increasingly invest
sells. Furthermore, Alpine Services customizes valves
in training people, and in materials and machinery. In
in reasonable quantities. Manufacturers usually do not
Germany, RITAG is expanding and developing its portfolio
customize smaller purchases and operators ultimately feel
and product designs at a brand new facility that was built to
obligated to buy more pieces than needed.
expand its engineered products. RITAG offers exceptional product quality and design. In Texas, Sunbelt Valve Services
Q: What is PEMEX doing to adapt to the new oil and gas
is participating by training qualified service technicians
landscape of Mexico?
to go offsite. The opportunities are endless, and we see
A: The environment is changing dramatically and in
potential in opening offices in Mexico in the future.
response, PEMEX’s productivity has declined. Analysts point their fingers exclusively at budget restrictions, but Alpine perceives the company as going through an adjustment period. It is making an effort to develop new strategies and evaluations that will maximize project concentrations. Everything from regulation, assessing potential areas, and new procedures are becoming key elements in operations. We have seen several upgrading and revamping projects being tendered in the refining
The price of upgraded valves and other equipment can cost between 5-15% more than traditional ones from 15 years ago
| VIEW FROM THE TOP
DRIVING TECHNOLOGY IN THE LOGISTICS AND TRANSPORT FIELDS JORGE ALMANZA Director General of ALMU
312
Q: What led to the creation of ALMU, and how have you
One will bring a stronger transportation infrastructure
come to serve the oil and gas industry?
to the country, as a result of the construction of new
A: ALMU was established 39 years ago to cater to Negromex,
refineries and oil wells that will need to be connected to
a client of Tresguerras, which needed logistics services
other facilities or areas in an efficient manner. Carriers
for a specific division of its production that Tresguerras
will have to modernize their fleet and acquire specialized
was unable to transport. ALMU was formed when a new
equipment to keep up with the new standards, something
company entered this niche market in association with
few companies will be able to do. This is where we believe
the original owner of Transportes Castores. We began
we have a significant opportunity to seize. The Energy
with the transportation of class three petrochemicals. The
Reform, however, might also have a negative impact
accumulated 60 years of experience from both companies
on our company due to its effect on the petrochemical
was fundamental to consolidating processes that would
industry. It seems that because of the opening of the
normally have been part of a long learning curve. Our
petrochemical industry, PEMEX will struggle to maintain
association with Tresguerras provides our company with
market share. The NOC’s logistics division will change
many benefits, and we always seek to transfer savings to
the company’s infrastructure to such an extent that we
our partners. In terms of our offerings to the oil and gas
could potentially become direct competitors. We also
industry, the equipment we own is able to transport fuel,
expect tariffs to drop because of an excess in the supply
solvents, lubricants, and products derived from petroleum.
of logistics. Nevertheless, we hope that new companies
We currently focus mainly on the transportation of solvents,
will arrive with higher logistics requirements, as ALMU has
which takes up 60% of our fleet capacity, while fuel and
been eagerly preparing for a year. We also hope the 2017
lubricants respectively represent 30% and 10%.
approval for gasoline transport increases our business opportunities, allowing us to buy our supplies in a direct way and at a more competitive price. Q: What is your current client base, and how do you plan on expanding it? A: Our current clients are chemical product retailers. In addition to seeking more customers, we aim to increase our present operations and the activities of our new business line. Since our strategy is to adapt to the need of our
60% of our fleet capacity is used to transport solvents while fuel and lubricants respectively represent 30% and 10%
clients, we are seeking to diversify our offering in terms of equipment. We will respond to our clients’ new demands through service contracts that would ensure a dedicated service, and also investment recovery on our side. The fact that we are officially SARI certified for the chemical industry will undoubtedly help us attract new companies by providing quality assurance and sustainability, as well as environmental responsibility. We plan to make these
Q: What opportunities do changes in the oil and gas
prospective clients aware of ALMU’s offering through
market bring for ALMU, and what other trends will play
presentations, recommendations, and access to bids.
in your favor?
Starting last year, we have been participating in various
A: It is difficult to predict the real influence changes in the
specialized forums and expositions in order to access
market will have on ALMU. Nonetheless, we believe Round
these new opportunities.
| INSIGHT
PUSHING THE LIMITS OF TRANSPORTATION TANKS “Currently, Mexico barely needs 5,000 units, since the country’s railway
GUILIBALDO PÉREZ
infrastructure is lacking, but this will grow exponentially in
President of Tytal
materials to the US, and the company sold 1,500 tank cars for hazardous materials in this country in 2013. One of the
the next few years”
riskiest endeavors the company has undertaken so far was Guilibaldo Pérez,
meeting the requirements to make a trailer categorized
President of Tytal
in the US as ‘super hazardous cargo’, which transports LPG. Due to the difficulties in manufacturing this type
Trailers y Tanques was born in 2000 as a family-owned
of tank and the security requirements entailed, no other
business when Guilibaldo Pérez, President of Tytal, decided he
company in Mexico makes it. Tytal obtained all the permits
wanted to create a company that would secure employment
and certifications needed to make this product, including
for his family. Initially, the small company built an average of
the MC331, and is already exporting these tanks to the
five tanks per month. As the company grew, Pérez looked
US. Now Tytal is selling to Saudi Aramco, in addition to
into areas where it could expand, and aluminum tanks
distributing products in Colombia, Chile, Ecuador, the US,
presented an attractive option since these were not being
and Canada. “At the moment Tytal is the largest company
built in Mexico at the time. According to Pérez, using metal
of its kind in Latin America, and the reason we are more
allows for unlimited possibilities, making it a wide sector in
successful than the competition is because we have all the
terms of opportunities. When Tytal first started working with
required certifications, enabling us to handle every type of
aluminum, this metal comprised 10% of its products, then
tank trailer,” Pérez boasts.
increased to 30%, and now the manufacturer is at 70%. “I came up with the idea when I noticed that, in other countries,
Tytal aims for a small market share in the railway sector, so
most rolling tanks were made from aluminum. Furthermore, I
it plans on manufacturing ten railcar units per day in three
noticed that rolling aluminum tanks were used in Guatemala,
years, in addition to its regular trailers and tanks. At the
where the roads can be even in poorer conditions than in
moment, the company produces an average of 1,400 car
Mexico.” A manufacturing plant was finished near Cadereyta
tanks annually. The Mexican market will grow considerably
in 2008, leading to the creation of Trailer y Tanques de
due to the Energy Reform, says Pérez, and it will require
Aluminio (Tytal).
35,000 units in the next five years. “Currently, Mexico barely needs 5,000 units, since the country’s railway
Pérez shares that he presented the end product and a few
infrastructure is lacking, but this will grow exponentially
transportation companies approached him hoping to test
in the next few years.” Of the available railcar welders,
the tanks. A few months later, a large company’s trailer
70-80% is Latin American, and 50-60% of that amount is
tank filled with turbosine was involved in an accident and
Mexican, so the labor statistics play to Tytal’s advantage.
tipped over a cliff. “The tanks were heavily dented, but it
The company currently has 600 workers and will need
did not crack and the turbosine, which cost more than the
to increase this number to 1,600 so that it can reach the
trailer, did not spill, ultimately strengthening the trust and
objective of producing ten railcar units per day across
interest clients had in Tytal,” he shares. A notable advantage
three shifts. Even though other companies are trying
for fuel transportation is that in case the trailer tips over,
to replicate Tytal’s success, Pérez says he does not pay
the aluminum will not create sparks when experiencing
attention to the activities of the competition, as he focuses
friction against the pavement, eliminating the risk of a fire
exclusively on his company and his business. Although his
or explosion. In addition, Tytal’s customers also began to
company has faced fierce competition in the US market,
realize that tanks have outstandingly low maintenance
Tytal stood its ground and maintained market share. “For
requirements. Pérez is constantly pushing the limits of
me, the company is about accomplishments. My goal is for
what his company can do. Back in 2011, Tytal was awarded
my family to follow suit and carry on with the company I
the corresponding certifications to export hazardous
have built,” Pérez shares.
313
| VIEW FROM THE TOP
TRANSLATING GLOBAL EXPERTISE IN AUTOMATION VERNON MURRAY Vice President and Director General of Emerson
314
Q: What are the main tendencies that Emerson is
and multidisciplinary teams, meaning that the employees
observing in the industry that will define its future
who execute projects for PEMEX today are not necessarily
technological portfolio?
all located in Mexico. For example, the Emerson team
A: For a long time, automation has been primarily focusing
working in the Etileno XXI project for Braskem Idesa in
on the control of different processes, so basic parameters
Coatzacoalcos is comprised of staff from Costa Rica, India,
of process control were the key area in which Emerson’s
and the US, among other countries. In this way, Emerson
solutions have been focusing. Currently, the company
brings the global experience of operating a US$22 billion
is starting to see applications for different areas that
company into the Mexican market, as well as the best
were traditionally not considered, like safety. Regarding
practices from the different players that have collaborated
automation, safety has been a taboo as any failure in this
with us. Additionally, we have observed that there is an
area can lead to fatal consequences, and as a result, plant
interesting mix of Mexican and international consortia
managers have been reluctant to try new products such
being formed to take advantage of the Energy Reform.
as wireless signaling. However, those parameters are now
We have identified that most of these consortia have
becoming less stringent and we are starting to see more
employees that were previously working for PEMEX or for
automation solutions for safety applications, from firing
international companies that have collaborated with us in
gas to emergency shutdown systems.
the past. We are proud to offer the same global standard of experience to customers in environments as diverse as
The second trend that Emerson has identified in the
Angola, Iraq, and Mexico.
industry is energy management solutions. It is not surprising that energy management is trending in the
Q: What role do your partners and distributors play in
industry considering that energy accounts for a high share
providing the service that you want to deliver?
of the expenditures in a petrochemical or any other similar
A: We are proud of the network that the company
facility. Consequently, this is one of the main applications
has built in Mexico over the past 60 years. Currently,
that are leading the way for our instrumentation and
we have more than 20 local business partners (LBP),
control systems portfolio. Finally, the last area that is
and Emerson works with the LBPs in developing their
gaining importance in the industry is environmental
capabilities from a technical, engineering, and training
management, which includes tank levels monitoring and
standpoint, and offers them certifications to encourage
water quality control.
the companies to stay updated. A great example is the Fisher certification for authorized service providers,
Q: What are you doing today to prepare your employees
and every year the certified companies undergo an
for the upcoming changes that the Energy Reform will
audit and a re-engineering training session to maintain
bring to the Mexican market?
the high standards required to hold the certification as
A: PEMEX has been one of our most loyal customers. The
an authorized service provider for Emerson’s process
parastatal has been one of the strongest participants
management. The LBP network is extremely important
at the Emerson Exchange Event, where our customers
for the company, and it will continue to have a prominent
explain how they implement our solutions in their
role in the future, as these are the people that help us to
respective fields. This close relationship has allowed us to
execute projects, whether it is a refinery reconfiguration
learn about the needs and activities of PEMEX. However,
or the rehabilitation of an offshore platform. Moreover,
it is important to keep in mind that Emerson is a global
the LBPs have been highly exposed to PEMEX’s way
company that already has experience in collaborating
of doing business, and that local expertise added to
with international companies such as Exxon, Shell, and
Emerson’s international experience makes us confident
Petrobras. Moreover, Emerson works with multicultural
of our success in this market.
| INSIGHT
AMPLE ROOM FOR GROWTH IN THE PETROCHEMICAL SECTOR While Mexico is still working its way back to the petrochemical production capabilities that it possessed in decades past, a number of recent projects have certainly put the national
MAURICIO DÁVILA
industry well on its way to being internationally competitive.
Managing Director of
There are obvious examples of these types of projects, such
EnerChem Tek
as the construction and operation of the Etileno XXI complex by the Mexican-Brazilian joint venture Braskem Idesa. However, in order for this positioning of Mexico as a major
pessimistic about the future of the role of this sector. “Mexico
global player in petrochemical production to be successful,
needs more investment in the downstream value chains and
projects of all sizes must also play a role in this transformation.
PEMEX is restructuring itself, creating new branches such as
Established in 2002 by senior experts and researchers who
PEMEX Fertilizers and PEMEX Ethylene.” EnerChem Tek is
were all originally part of the chemicals and energy practice
looking forward to a much more diversified petrochemical
of the Stanford Research Institute (SRI International) in
market, and Dávila is eager to provide examples of the
California, EnerChem Tek was originally formed to advise
opportunities for external investors that the current Mexican
the Mexican government on the possibilities and models
petrochemical situation represents. “There are no specialty
of liberalization it could contemplate for the management
polyethylene production facilities in Mexico. The door is
of what were then still exclusively PEMEX’s petrochemical
now open for new opportunities in specialties with much
assets. EnerChem Tek advised the Mexican authorities on the
higher margins compared to commodity polyethylene, such
partnerships necessary to create what would later become
as plastomers and elastomers, and ultra-high molecular
the Etileno XXI project.
weight polyethylene, not to mention other specialties such as EVA and ionomers, with applications in wire, cable, and
Mauricio Dávila, EnerChem Tek’s Managing Director,
medical, among others.”
is quick to define what in the company’s view was the most important function of the Etileno XXI project. “The
EnerChem Tek is already talking to some of these
objective was for a private sector company or companies
prospective participants. “At the moment, EnerChem Tek
to commit resources and invest in an ethane cracker and
is working with a US company that saw an opportunity
downstream plants in return for a guaranteed long-term
arising from the fact that PEMEX does not have enough
ethane supply contract at regionally competitive prices.”
ethylene oxide capacity to cover the potential demand for
Although Etileno XXI experienced almost a year of delays
the surfactants market. We are helping this client identify
in going online, Dávila proudly specifies that, “The ethane
the potential consumers in Mexico, carrying out the
cracker finally started operating in the last week of March
inventory count, evaluating future PEMEX projects, and
and it also started producing polyethylene resins in the
also including the general Mexican prospective supply and
first week of April of this year.”
demand,” Dávila shares.
“EnerChem Tek has three areas of expertise. We can help corporate clients in technology evaluation and selection, process economics, and market analysis in the case of companies involved in the hydrocarbons value chain. In addition, we help energy-intensive companies improve their energy efficiency levels.” Like many companies of its kind, the post-reform market has divided the company’s activities into single-client and multi-client services, although Dávila admits that the former is still much more popular. “A company might ask for a single-client service as a complement to ours in order to address a particular need that resulted after purchasing a multi-client study.” Dávila is direct when stating that petrochemicals is not a priority area for PEMEX. Nonetheless, he is by no means
The global ethylene
oxide market is expected to exceed 27 million tonnes by 2017
315
DOING BUSINESS & HUMAN CAPITAL
13
The opening of the Mexican oil and gas industry to private investment and PEMEX’s transformation into a productive enterprise of the state are destined to boost economic growth and create new business opportunities once the implementation of the Energy Reform gains momentum. New players will have to familiarize themselves with the ways in which business is carried out locally, including PEMEX’s new supplier base scheme, while national service providers will have to meet the international standards introduced by new operators. One of the main challenges is anticipating the looming shortage of skilled labor. According to the Ministry of Energy, the oil and gas industry will need an additional 500,000 professionals by 2018, while PEMEX demographics indicate that a wave of experienced employees is destined to retire in the next decade. Ensuring that the looming talent gap will not hamper the development of the industry is essential for its long-term success.
In this chapter, experts share advice on how to navigate the complex waters of the Mexican oil and gas industry. The chapter also discusses the government’s strategy to foster the human capital needed to support the development of the oil and gas industry, and the challenges Mexico’s oil and gas industry faces in terms of talent.
317
Generaciรณn de Proyectos y Soluciones Empresariales
| CHAPTER 13: DOING BUSINESS & HUMAN CAPITAL 320
VIEW FROM THE TOP: José Manuel Carrera, PEMEX
322
VIEW FROM THE TOP: Alberto Jones Tamayo, Moody’s
Rosa María Morales Cid, Moody’s
323
INSIGHT: Jaime Alatorre, Fondo de Fondos
324
VIEW FROM THE TOP: Carlos Vargas, BBVA Bancomer
325
VIEW FROM THE TOP: Palma Méndez, Wood Mackenzie
326
VIEW FROM THE TOP: Sebastián Aguayo, Marsh
Rosa Morán, Marsh
328
INSIGHT: Adam Howe, AMMIS Risk Solutions
329
VIEW FROM THE TOP: Jorge de la Fuente, Lockton
330
INSIGHT: Alejandro Hernández, Grupo Accses
Yisel Varela, Grupo Accses
331
INSIGHT: William Wood, Norton Rose Fulbright
332
INSIGHT: Graciela Álvarez Hoth, NRGI Broker
333
INSIGHT: Angélica García-Dunn, AIM Global Logistics
334
VIEW FROM THE TOP: Óscar González, ARHIP
335 INSIGHT: Gaspar Gorocica, Puesta a Punto 336
VIEW FROM THE TOP: José Luis Pérez Meseguer, UTCAM
337
PROJECT SPOTLIGHT: UTCAM
337
INSIGHT: Luis Vielma Lobo, CBM
339
INSIGHT: Raymundo Platas Merino, LAOGA
340
INSIGHT: Ignacio Cano Cervantes, ICA
341
INSIGHT: Sergio Saldívar, AMEC Foster Wheeler
342
VIEW FROM THE TOP: Nick Spies, iPS Powerful People
343
VIEW FROM THE TOP: Guido van der Zwet, iPS Powerful People
344
VIEW FROM THE TOP: Hernando Gómez de la Vega, R2M
345
VIEW FROM THE TOP: Eduardo García García, UVM
Gerardo de Alba Mora, UVM
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| VIEW FROM THE TOP
PEMEX EXPLORES NEW OPPORTUNITIES JOSÉ MANUEL CARRERA Director of Alliances & New Business at PEMEX
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Q: What are the main tasks and responsibilities of
brought about by the reform in this business line, including
PEMEX’s Alliances & New Business division?
farm-outs, farm-ins, JVs, and joint bidding agreements.
A: The Alliances & New Business division of PEMEX
These will allow us to reap even more advantages than
opened in July 2015. The Board of Directors authorized the
before. In addition to the traditional farm-outs, farm-ins, and
creation of this unit with the purpose of providing support
contract migrations, the law also gives us the possibility to
to PEMEX’s business lines by financially structuring the
create new contractual arrangements. One of the available
new toolkits provided by the Energy Reform. Our role is
options is to redesign service agreements in which we do
to work with the company’s various divisions in order to
not necessarily have to go all the way to a farm-out, but we
implement the new forms of associations and contractual
do not have to go to a service agreement either. We can be
arrangements resulting from the reform. This will attract
somewhere in between and have incentivized production
new investors and allow us to use our assets in an improved
contracts or profit-sharing contracts in which PEMEX can
and more efficient manner. We promote partnerships with
transfer part of the risk to a third party. The risk-based
other companies in order to bring three key elements that
service contract is a new and particularly interesting legal
will help PEMEX evolve: technology, capital, and execution
mechanism that allows PEMEX to share risks and rewards
capacity.
without giving up operatorship. We can rely on an external party to bring funding, technology, and capacity. This is
Q: Why is it important to put in place all of the new
the additional legal mechanism brought by the reform
contract types simultaneously, especially given the fact
that allows PEMEX to have a service contract structured
that it is the first time PEMEX is doing something like this?
according to its preference. We can now share operations
A: When González Anaya was appointed by President
risk, as well as other types of risk, and the investors can
Peña Nieto, he gave two instructions, one of which was
obtain compensation.
to implement all the new tools granted by the Energy Reform as quickly as possible. All of these tools are new to
The main opportunity lies in the flexibility to implement
us, and we have yet to experience the relative speed and
new arrangements. We are looking into designing these
efficiency of each one. PEMEX has the capacity to engage
and filtering them with the authorities, including CRE, the
in different initiatives simultaneously, and in fact we have
Ministry of Energy, and the Ministry of Finance, to make
always done so. We can afford to experiment with all the
sure that we comply with the law. Just like it is done
strategies at once because we are only testing each in a
around the world, Mexico can now tailor a contractual
small amount of fields, which we treat like pilot projects.
arrangement to a specific field, according to the nature of
If we were to test these schemes with all available fields,
the field and the company’s capacities.
then we would admittedly face a priority problem. One of our tasks is to start implementing all of the strategies
Q: How do you decide what new tool provided by the
so we can get to know them and develop the different
Energy Reform you will apply to each individual field?
processes for their rapid implementation. We prefer to
A: If you think of a field in the simplest possible way, it
build all processes at the same time, as it will be easier to
has two main characteristics. The first characteristic is
increase the use of each procedure when we know which
the size of the field, which strongly impacts decision-
works best, rather than doing them one by one.
making processes. The bigger the field, the more money it requires. The second characteristic is the complexity
Q: What are some of the new business models that
of the field, which refers to the level of risk and difficulty
PEMEX will benefit from?
involved in the extraction of hydrocarbons. When deciding
A: Even though the E&P area remains the most attractive,
upon the type of contract each field will be offered with,
we want to concentrate on implementing the new tools
we will consider these two variables. Complex and large
fields will usually be offered as a farm-out because PEMEX
in place, we can choose whether or not we want to be
does not have the capital, technology, or the experience
in a certain business, and we can choose which areas to
to develop them alone. We should only keep the fields
focus on. We are currently evaluating all of our activities,
that we are experts on, such as shallow waters, as we are
trying to understand what areas are worthwhile for us, and
internationally recognized for our leadership in this area,
I believe we may end up concentrating on fewer business
as well as the ones that have a strong potential to increase
lines.
national production. There are also some fields that are not in the interest of PEMEX but would be attractive for
The area that provides PEMEX with the most opportunities
investors, such as small-scale fields. These can be complex,
is certainly the E&P division. In PEMEX, just as in most
like non-conventional fields, which are also costly and
integrated oil companies, E&P is the most profitable unit.
require a team approach.
The NOC has typically dedicated 80% of its budget to this this area. Admittedly, the risk associated to E&P is
Q: Why has the industry experienced so many delays
higher, but so is the expected return. It might thus sound
when it comes to the migration of contracts?
contradictory that PEMEX’s E&P division was hit hardest
A: The reform allows for many new schemes. CIEPS and
by the budget cuts, but in fact areas with the most budget
COPS are some of them, although these were implemented
see the biggest reduction when a budget is slashed. We
under the old law. Those contracts worked well in the
are not trying to send a signal that we are less interested
previous legal environment. We are now trying to stretch
in E&P, as this allocation of CAPEX is simply natural. It is
the law to see how much risk could be transferred to
also important to keep in mind that the Energy Reform
another party, as the reform gives us an additional inch
allows us to bring in external capital, which will not only
of legal flexibility. According to the new law, all CIEPS and
compensate for that budget deficit, but will also provide
COPS can be migrated to a production or profit-sharing
us with a larger spending capacity than we had in the
contract. There is a process that has to go through the
past. When entering a new JV, PEMEX offers its fields,
regulators, and we are currently in the midst of it, after
expertise, operational capacity, and existing infrastructure.
which we will face three critical steps. Firstly, both parties
Our partners will bring in capital, execution capacity, and
must want to migrate. If this is the case, we change from
technology. Combining these capabilities will transform
a traditional service contract, where PEMEX bears all the
our business into a larger one.
risk, to a new contractual arrangement where the risk is shared between both parties. We have to decide how much to invest in a given field and ensure that everyone, including the state, gets a bigger share. If we have the agreement and there is a good business proposition for the government, then we can invest more together, and the authorities will allow us to migrate the contract. Instead of PEMEX paying the service contractor, we will simply share the profits of the additional production that comes from the field. There are a few factors that have caused the delays experienced in the contract migration area. Firstly, PEMEX is expected to have a final agreement with its counterpart. It is the first time that we are migrating contracts and we realize that we underestimated the time required to perform this transfer. We now better understand the path and have engaged in a constructive discussion with the regulators to increase the efficiency and speed of this scheme, both for the contactors and PEMEX. Hopefully, we will be able to carry out the first migration in 2016. Q: In which areas will PEMEX find the most attractive opportunities? A: Since PEMEX was created in 1938, our mandate has been to cover the entire value chain, regardless of our preference or capabilities. Now that the Energy Reform is
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| VIEW FROM THE TOP
PEMEX WOES EXACERBATED BY CREDIT DOWNGRADE Alberto Jones Tamayo Director General of Moody’s
Rosa María Morales Cid Senior Analyst Oil & Gas Latin America of Moody’s
the government. Therefore, we calculate that the gross financing needs will reduce to US$18 billion, which is a positive development, but is not enough to sustain the NOC. Of this amount, US$8 billion has been raised, and a further
Q: What has been the impact in the drop in oil prices for
US$10 billion is needed, and this is even after generation.
PEMEX, and on Mexico’s current credit rating?
PEMEX has the option to issue debt for US$10 billion, but
AJ: The government announced intentions to reduce
the ceiling for this year approved by Congress is around
public expenditure by around MX$147 billion, MX$100
US$18 billion incrementally.
billion of which will be borne by PEMEX. This is positive
322
for PEMEX’s credit, although it falls short of the actions
Q: How is PEMEX performing compared to other NOCs
required by the NOC, and it will help adjust the necessary
in the region?
reduction in expenditures for the year. There is a possibility
RM: All the companies in the region are facing the same
where we would consider a scenario of downgrading
problem, and several are facing greater issues wherein
Mexico’s credit in the next 18 to 24 months, considering
local prices are fixed, and due to the devaluation of
that the sovereign rating now has a negative outlook. Such
currencies, this is severely impacting cash flows. Major
a scenario will occur if the fiscal consolidation efforts of
companies such as Petrobras and Ecopetrol are benefitting
the government are stalled and if the government has to
from the diversity of the business as they are integrated
provide direct support to PEMEX or the broader public
and therefore do not depend entirely on E&P. Last year,
sector in contingent liabilities. This would entail further
Petrobras was performing more efficiently due to the
increase in debt metrics to levels beyond 40% of debt
refining segment, but then when the currency began to
to GDP and Moody's would review the plans that the
sink, so did the company’s cash flows. Petrobras now has
government would implement to address any further rise
a liquidity problem and, compared to PEMEX, this poses
in debt and the corresponding lower growth.
greater risks due to the fact that the former has no access to the markets and lacks the support of the government-
Q: To what extent do you believe that PEMEX’s Adjustment
owned banks and the general government of Brazil.
Plan could improve the NOC’s credit rating, or at least help the company in other aspects?
Q: What role do you expect Mexico to play in the global
RM: This is certainly a positive step, but more must be
oil and gas industry in the medium to long term?
done to bridge the gap created by the conditions we have
RM: We have seen a reconfiguration of the industry, not
discussed. Another factor that we did not consider at the
only in Mexico, but globally, and the companies most
beginning of the year was PEMEX’s access to markets,
affected are those rendering auxiliary services like rigs,
since we were comparing the situation to other similar
which are normally the first cost to be cut due to the lack
companies such as Petrobras that lack this characteristic.
of E&P right now. Some of the companies will even merge,
The fact that PEMEX possesses access to markets can
and this can be perceived as a positive development since
certainly be seen as a positive factor.
there was an oversupply of these companies in the past.
AJ: So far, PEMEX has been able to go to the market several
AJ: Certainly Mexico is poised to play an extremely relevant
times, both in dollars and in euros, to the equivalent of over
role, among the five most important countries in the world.
US$8 billion, and today it announced it would trade in pesos
This is a temporary situation experienced by the country,
both domestically and abroad to the equivalent of US$450
but it clearly has the right natural conditions to position
million. We have calculated that PEMEX should have a
itself at the forefront of the market. It has the correct
gross financing need of approximately US$23 billion for
economic and credit conditions and an improved legal
2016, which includes CAPEX, OPEX, and debt refinancing.
framework, which will enable the players to develop the
Roughly US$12 billion of PEMEX debt will mature this year,
industry thoroughly. I think this is what the international
the remaining US$11 billion includes CAPEX and OPEX,
investors from the bidding rounds, as well as financial
and roughly US$5-6 billion of this amount will be cut by
investors, can see when evaluating Mexico.
| INSIGHT
CONFIDENCE IN MEXICO FOR NATIONAL FUNDS As the international oil and gas industry tracks prices and assesses the minutiae of its day-to-day fluctuations,
JAIME ALATORRE
investors are compelled by this current environment to
Director of the Mexican
take a long-term view when determining which specific
Energy Fund at Fondo de
markets and projects can provide the most competitive
Fondos
ROI. It is neither convenient nor exaggerated to contend that Mexico represents an attractive option in this regard when compared to similar choices in the international
seasoned companies know that the amount they are paying
spectrum. There are a number of factors that come into
is unrelated to the current price of oil, but is related to the
play when determining its appeal, which are being carefully
strengths of the block in regards to geological information.”
considered by dedicated providers of private equity and
Alatorre’s positive outlook, rooted in a pragmatic familiarity
venture capital. Jaime Alatorre, in his capacity as Director
with the energy market, even allows him to make some
of the Mexican Energy Fund created by Fondo de Fondos,
relatively specific predictions, “The price of oil is not a
is keen to provide his perspective on these factors and
variable in this respect, because when the purchased blocks
how they influence the fund’s current operations as they
are ready for production, the price of oil will not be US$20
have evolved from its initial establishment in September
per barrel, but rather US$40-50 per barrel.”
2014 as an investment vehicle of private equity focused in the Mexican energy sector with US$100 million in capital.
Although the Mexican Energy Fund is looking forward to diversifying its portfolio within the sectors of the
Alatorre claims there is the advantage of infrastructure
Mexican oil and gas industry, its involvement up to this
transference in the Gulf of Mexico, and he is quick to
point has been focused on pipeline development and
elucidate on this geographical benefit, “The US side of the
power generation projects. Its experiences in this area
Gulf is filled with platforms and infrastructure, whereas in
prompt Alatorre to mention an example of a third factor
Mexico this infrastructure does not exist on the same scale.
that makes Mexico stand out: the new and unexpected
However, this also means that the players that enter the
opportunities created all along the energy value chain
deepwater rounds will easily be able to transport equipment
by the new post-reform legal regimes, such as the ones
from one side of the Gulf to the other.” The Mexican Energy
found in the aforementioned pipeline and gas supply
Fund does not operate within the financial scale necessary
projects. “With the awarding of these contracts comes the
to aid oil majors in this type of operations. For this reason,
obligation to supply a certain amount of gas to a given site,
Alatorre has in the past expressed reticence to comment
but there is nothing to prohibit the increase of pressure on
on the fund’s possible involvement within the deepwater
the pipelines, thus transporting more gas than required
sector. Alatorre speculates that the creation of a dedicated
by CFE. As a result, this can create an opportunity to sell
fund for oil and gas service companies will eventually
the surplus natural gas.” Alatorre further emphasizes the
facilitate their involvement in the deepwater sector, as he
obvious attractiveness of these provisions by remarking
summarizes, “With the creation of this fund, we will certainly
that the contract allows the construction and funding of
participate in deepwater in Mexico. Our fund might not be
the line, as the return is solid, and profit can be made in
large enough to work with the oil majors, so it is important
developing independent markets through the surplus.
to find companies of a size we can work with.” After evaluating these and other factors that make the A crucial second factor is timing, and the commitments
fund’s confidence in the Mexican oil and gas industry
that have been made surrounding the different phases
unwavering, Alatorre concluded his remarks by explaining
of Round One involve projects with extended timetables
how Fondo de Fondo’s performance through the Mexican
that allow for production to begin at a future time when
Energy Fund represents a strong basis for future growth.
oil prices do not represent the investment hurdle that they
“One year ago, we were just starting out with the fund,
currently do. Alatorre pins down these advantages, “The
with a commitment of US$100 million and an additional
companies entering have three years to begin production,
commitment of US$200 million. One year later, we have
leaving some lead time to prepare the block, and allowing
delivered on our commitments, and this year, we want
time for the price of oil to stabilize before extraction. I
to raise more money due to the robust pipeline and the
think the companies that participated in Round One and
opportunity to respond to new investments.”
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| VIEW FROM THE TOP
COMPREHENSIVE FINANCIAL SUPPORT STRATEGIES CARLOS VARGAS Head of Energy and Mining of BBVA Bancomer
Q: Can you tell us about the services BBVA Bancomer
Also, one of the bank’s objectives is to offer international
offers to the Mexican oil and gas market, its current
players interested in acquiring local companies the
investment methods, and its future investment prospects?
services they might require.
A: BBVA Bancomer offers a wide range of financial products,
324
from common transactional services to assistance in M&A
Q: How will you draw from BBVA’s experience in financing
processes, which have allowed us to establish proximity to
upstream projects in the US, given the novelty of this
PEMEX, our main client in this industry. In the midstream
these transactions in Mexico?
sector where private finance is allowed, the Mexican capital
A: BBVA Bancomer’s experience in the US market puts
market will be interested in financing midstream projects
the bank in similar conditions to other major companies
via bonus that will attract new players looking for funding.
claiming to be knowledgeable in the area. In the US, there
Now that the downstream sector has opened to private
are two main ways of financing for this sector. The first is
investment, there will be a new demand for financing and
the stock market, where BBVA Bancomer has national and
assessment services for upcoming projects in this area.
international experience. The second one is private equity,
Previously, the distribution of gasoline was more of a real
and BBVA Bancomer has the ability and skills to advise
estate business with a small commercial margin. Now, there
companies on how to finance their different productive
is a consolidation effect, branding, and the construction
stages. In the case of an already productive well, the
of infrastructure for transporting and importing, an area
financing usually comes through a Reserves Base Lending
in which BBVA Bancomer could provide financing and
(RBL) mechanism, in which BBVA has strong expertise. For
assessment services. Finally, in the upstream sector, there
exploration activities, which entail a higher degree of risk,
are different stages in which we could participate, such
the financing will come from private equity means or IPOs.
as exploration activities, a business mainly financed by
In Mexico, the government is looking to adapt RBLs to the
equity. Considering that there is already an intense activity
local regulations as has been done in other countries, and
in the sector, the future Initial Public Offer (IPO) market is
this is here where our experience in US will help, even if the
likely experience significant acceleration.
regulations are not exactly the same.
Q: What is the role of the oil industry in BBVA Bancomer’s
Q: What do you think are the financial requirements that
investment portfolio?
must be modified in future rounds, and what is the role of
A: Since PEMEX has been diversifying its services and
BBVA Bancomer in this?
becoming more sophisticated, BBVA Bancomer has also
A: Since 2013, BBVA Bancomer has been liaising with
being adapting its offering to continue being able to cover
national
its needs. Currently, BBVA Bancomer has been working
investors, and authorities interested in the sector. We
with those companies that have access to bonuses in the
have perceived during this process that the license
financial market or are looking for a vehicle to access the
contract model could be the most attractive for
financial global market in order to obtain private equity or
investors, while some operators find the possibility of
other funding to operate in the industry. The collection and
participating in more interesting areas and some of the
payments involved in the downstream sector are definitely
proposed financial mechanisms appealing. The return
of interest to the bank, as it usually entails small margin
rate instead of an adjustment mechanism could result
businesses in which BBVA Bancomer could participate
in more flexibility, attracting more investors. As for the
through its platform of transactional services. For more
third phase, its financial requirements vary because the
complex services, BBVA Bancomer will be interested
necessary investments and the type of activities are also
in becoming the financial advisor of those companies
different, as these smaller fields that are suitable for Tier
looking for a market to increment their purchasing power.
2 E&P companies require less capital.
and
international
institutions,
operators,
| VIEW FROM THE TOP
LOCAL PRESENCE TO SUPPORT INVESTMENT DECISIONS PALMA MÉNDEZ Director of Mexico at Wood Mackenzie
Q: How has Wood Mackenzie influenced the Mexican
for variables such as tax regimes or price decks. Most new
petroleum industry from its Houston headquarters, and
companies do not have the knowledge or the resources to
how will the opening of an office in Mexico help increase
create this type of model, and Wood Mackenzie is a smart
its impact?
and common-sense choice to save time and get ahead of
A: Wood Mackenzie has provided its insights and experience
the curve. Secondly, our services include unlimited access
as a global and regional industry leader to key decision
to our analysts so clients can have the assurance that Wood
makers in Mexico since 2001. Over the past ten years, we
Mackenzie is available to act as an extension of their teams.
have increased our presence in the region and today have
Experts are at their fingertips, ready to support them and
more than 25 offices around the world. Our research and
answer any questions about our data and models.
325
consultancy teams are now closer to the markets in which they work. This integrated model of research and consulting,
Q:
According
to
Wood
Mackenzie’s
model,
what
together with our proprietary databases and global industry
challenges will PEMEX and newcomers encounter in the
knowledge, helps bring our perspective and international
Mexican oil and gas industry in the future?
best practices to the Mexican oil and gas industry. This is
A: Everyone in the industry recognizes that PEMEX's tax
important for a market opening up to the world and where
regime requires modifications. The NOC’s operations for
reliable data and strategic thinking are critical for the key
most fields are profitable even at low prices, but the story
investment decisions that both the government and players
changes once taxes are taken into account. The current
will be making in the coming years. Our offices in Mexico
fiscal regime makes most operations and investments non-
City will open in July 2016. The main idea is to be closer
profitable for PEMEX at today’s moderate to low prices,
to the clients that Wood Mackenzie has developed over
leaving the NOC at a financial disadvantage in the new
the last 15 years of doing business in the Mexican oil and
Mexican oil and gas industry.
gas sector. Our company works with every type of client across the energy sector, from IOCs to small independents,
The situation is complex and involves conflicting interests,
NOCs as well as governments, conglomerates, and financial
but the NOC has other mechanisms to try to improve the
institutions. These clients depend on our research and
situation. These include reducing costs and upgrading
consulting services to make investment decisions. Our
its portfolio. We understand PEMEX is working on cost
objective is to improve the support we provide to our
reductions. However, the magnitude of possible cost
existing and new customers, and to expand our research
reductions is limited by the present procurement processes
content as the market grows in complexity. We believe our
that it must follow and the political implications of additional
integrated approach is a key differentiator and makes us
reductions on activity in certain regions.
the provider of choice for businesses seeking world-class research and consulting services.
Q: What advice does Wood Mackenzie give to companies looking for joint ventures or partnerships with PEMEX?
Q: In what ways is your economic model different than
A: PEMEX could offer future partners the opportunity to
those provided by other companies?
participate in attractive assets and exploration activities.
A: Firstly, we offer an economic model with a proven
However, there will be challenges and potential differences in
track record of more than 20 years in the global oil and
the ways of conducting business. We advise that companies
gas industry. This model not only contains our proprietary
entering joint ventures or partnerships with PEMEX have a
data for production projections, development costs,
clear long-term strategy, leveraging the NOC's strengths. In
operational costs, and fiscal terms, but also allows clients
addition, they should build networks with key PEMEX teams
to modify variables. That means that clients can modify
and with Mexico's regulatory bodies, all of which are learning
the pre-loaded data to include their specific assumptions
how to operate in a new post-reform world.
| VIEW FROM THE TOP
CALLS FOR DEVELOPMENT OF HUMAN TALENT
Rosa Morán Oil and Gas Leader Energy Practice of Marsh
Sebastián Aguayo Marine and Aviation Leader Energy Practice of Marsh
RM: The spirit of the regulations is positive and it is certainly moving the industry in the right direction. However, the reform also presents new challenges to operators. In this regard, it is important for authorities to oversee this issue and
Q: How have you readapted Marsh’s operations for risk
increase administrative efficiency to ease the documentation
assessment and solution provision given the dramatic
process that companies have to undergo according to the
changes taking place in the national and international
new regulations. Nonetheless, our job at Marsh is to help
context?
clients to comply with the official requirements, taking that
SA: Despite the dramatic changes experienced by the
load off of their shoulders, particularly for insurance-related
national and international oil and gas markets, the
matters.
fundamentals for insurances remain practically the same. 326
All the engineering and technical aspects of exploration
SA: From the positive side, the Energy Reform has
and production are not being affected by the drop in the
created numerous opportunities for the Mexican market.
oil prices. Nonetheless, oil and gas companies now have
Furthermore, the national content rule provides an
to realign their strategies in order to decrease their OPEX
incentive for developing local talent, in terms of individuals
by up to 45%, which we believe will be the trend for the
and firms’ specialization. For instance, ten years ago,
next few years.
there was no Mexican company capable of performing an environmental baseline study, but now we have a wide
RM: We usually suggest our clients perform a risk
range of national firms with the required knowledge and
assessment in order to submit to the insurance markets
skills to do so. The same trend can be observed in other
the actual quality of the risk, which normally translates into
specialization areas, such as geological, engineering, or
a reduction in the cost of the premium. We normally see
insurance studies. Therefore, we believe that the ecosphere
this analysis as an investment rather than a cost as it also
of oil and gas production and exploration will be enriched
helps our clients to identify risks and take loss prevention
by the challenges presented by the new industry.
measures to avoid accidents. Q: In matters of human talent, what services does Marsh Q: Are there any risks that were previously important
provide to oil and gas companies?
to take into consideration, but have been eased or
RM: Mercer Marsh Benefits is the joint venture between
eliminated with the Energy Reform?
Marsh's formidable negotiation power in health and
MARSH 2016.pdf
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MANAGE YOUR RISKS, PROTECT YOUR INVESTMENT Worldwide, Marsh's more than 300 energy professionals are primarily organized around three speciality product lines: upstream, downstream, and renewable energy, offering a deep understanding of industry issues within these segments. This wealth of expert knowledge is augmented by market leading risk engineering, project risk management, and claims services. These solutions come from our access to, and relationships with, global insurance markets in London, Continental Europe, North America, Asia, and the Middle East. By leveraging global market capacity, we help to provide favorable terms and conditions to our clients.
www.marsh.com.mx
+52 (55) 5999 4400
life insurance, and the knowledge of Mercer in Human
optimization (RFO) studies that can lead to the evaluation
Resources, in order to generate value in the creation of
of return on investments and 5-15% cost savings. Marsh
insurance and non-insurance benefit programs for oil and
Analytics combines data, technology, and analytics to
gas companies' employees.
evaluate risk and allow more strategic business decisions. Risk management has quickly shifted from a focus on limited
SA: Mercer Marsh Benefits has a comprehensive cost
data and insurance to big data and holistic risk analytics.
containment strategy focused on the needs of the Energy
With this shift, the demand for analytics-based decision-
Industry, due to the important challenges now faced by
making support tools continues to grow, and that is the
the sector. On the other hand, Mercer, a sister company
reason for the development of the Marsh Analytics platform.
of Marsh, is the authority in talent and retirement, with a focus in helping oil and gas companies to successfully
Q: What are the upcoming insurance trends you expect to
navigate the crisis by avoiding the loss of important talent
see in Mexico, and what will be Marsh’s strategy to adapt
as a result of the transition, which is characterized by a
to this new environment?
strong workforce reduction.
RM: In the Mexican context, we are observing a growing interest in acquiring insurance programs, mainly as a result
Q: What is the role that Big Data plays in risk assessment,
of the difficult conditions faced by the oil and gas industry.
and how is this involved in Marsh’s daily operations?
Moreover, we foresee that the production capacity of the
SA: Big Data and Analytics are important tools that need
industry will develop considerably in the short to medium
to be understood by all industries, not only insurance
term, which will force companies to analyze and design
companies. In particular, the oil and gas industry is
strategies to mitigate the risks associated with these
exposed to new risks resulting from the use of Big Data
activities.
and Analytics tools, especially as their operations have become more dependent on technological solutions such
SA: In the oil and gas industry, we identified that the most
as open architecture solutions, cloud data storage, and
visible trend in insurances and risk assessment will follow
acquisition of off-the-shelf software.
the line defined by the government with the local content rule. Until now, the industry has been mainly managed by
The insurance sector has responded by developing
multinationals and foreign companies, whereas now we
specific products addressing these issues. At Marsh,
expect to have a stronger presence of local staff and firms
we have created the Energy Cyber Gap product,
in the sector.
which is an insurance solution that helps companies to manage technology-related risks. For instance, in big
In other countries, the opening of an industrial sector to
data applications, the main risks come by storing and
private investment has created a national ecosystem of
transferring information, which can expose sensitive data
companies, service providers, and advisors, and this is
to external attacks or internal mishandling.
what we expect to see in Mexico. As a result, Marsh has been preparing for years, by increasing the share of local
RM: In addition, Marsh has designed an IT platform called
employees in our staff and enhancing our presence in the
Analytics, through which we can perform risk financing
country.
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| INSIGHT
DAWN OF A NEW ERA IN RISK MANAGEMENT “In a globalized world, there is no reason why the
the disclosure of material information to insurers, the negotiation of policy prices, and coverage levels, among
Mexican Marine and Energy
others. The firm collects, collates, analyses, and prepares
Industry should be at a price
reinsurers, assisting the client to comply with its Duty
disadvantage against their
have both international and local experience in all areas
international competitors as a
328
of suitable insurance carriers for the risk in question,
the requisite data for presentation to insurers and their of Disclosure to underwriters. AMMIS and its partners of the intermediary chain, minimizing the amount and cost of intermediation and accessing coverage which
result of complying with local
compares favorably to that available in the international
insurance practices”
developed at the same speed as the Mexican marine and
ADAM HOWE
a valuable instrument for clients.
Director of AMMIS Risk Solutions
markets. Howe says the Mexican insurance market has not offshore industry and, as such, AMMIS’s approach proves
Howe acknowledges that lengthy intermediary chains can frustrate clients. With this in mind, AMMIS commits
“The structure of insurance legislation in Mexico creates
to detailing the intermediaries involved and their roles
a protectionist market whereby the choice of insurance
to ensure that no additional intermediation costs are
carriers for organizations operating in the country is
passed on to policy holders. In addition, AMMIS provide
restricted to domestic insurance companies,” voices
premiums with no addition intermediation fees, as it
Adam Howe, Director of AMMIS Risk Solutions. He adds
has several agreements with insurance companies and
that few Mexican insurance companies can retain these
brokers operating in Mexico. “In a globalized world, there
risks and have to seek support from international markets
is no reason why the Mexican Marine and Energy Industry
by way of reinsurance in order to be able to offer terms.
should be at a price disadvantage against its international
This generates a lengthy chain of intermediaries, which
competitors as a result of complying with local insurance
has historically been untamed and expensive. Anglo
practices,” Howe expresses.
Mexican Marine Insurance Services, also known as the AMMIS Group, is an independent insurance broker with
In Howe’s experience, the Mexican oil and gas industry
risk transfer consultancy services that specialize in the
is changing its attitude towards risk management
Mexican marine and energy industries. Some of the firm’s
advisory services. “Over the past 15 years, many PEMEX
areas of expertise include insurance for physical damage
contractors looked upon insurance as just another
and liabilities arising from the operation of marine property
expense generated by their contract with the NOC or
(vessels, rigs, docks, piers and marine installations),
with the owner of their chartered vessel. They would buy
onshore and offshore operations, and oil and gas energy
the minimum limits and conditions required to comply
installations.
with their contracts at the cheapest price with little, if any, consideration for the risk that their operation and the
Howe explains that when AMMIS was formed, a vast array
contracts expose themselves to.” Now he feels optimistic
of internationally available specialty insurance products
because he sees an increased focus on risk management
was not readily accessible to the Mexican marine and
and mitigation. “Clients want to understand what kind
offshore energy industry. In addition, foreign companies
of coverage they have, as evidenced by the fact that
working in Mexico needed assistance with the rules, laws,
responsibility of insurances has shifted from a company’s
and regulations shaping the local insurance industry.
finance division to the legal department. Cost remains an
The situation has not changed significantly, and Howe
extremely important factor for clients, but this change
says AMMIS can leverage on its international network
displays an interesting paradigm,” comments Howe. In his
to adapt existing global insurance programs to Mexico
view, these changes result from maturing process within
and offer specific coverages required for operations
the local industry with an increased focus on corporate
in the country. AMMIS guides its clients in the selection
governance.
| VIEW FROM THE TOP
INSURANCE SERVICES FOR NEW PLAYERS JORGE DE LA FUENTE Human Resources Director of Lockton
Q: What do you expect to be the effect of the Energy
Our main pillars are related to our producer model, which
Reform on the future role of the oil and gas industry?
constitute commercial and leadership responsibilities
A: Around the world, we are highly positioned in different
within Lockton. These producers are aligned with our
sectors within the property and casualty (P&C) area, and
company and, in terms of consulting, constitute highly
in Mexico we have been proudly expanding. Even though
specialized
our benefits portfolio is greater than the P&C portfolio, we
providing clients with products and services related to
would like to be better positioned in the energy industry
their needs. These specializations fall within benefits, P&C,
within the P&C business. We identify with several different
and markets. In the next year, we will still be increasing our
capabilities, and we have offices in London and the US,
participation in the P&C sector, and one of our strategies
with specializations in particular areas related to energy. In
will be to cross-sell with current clients by capitalizing on
Houston, the staff is extremely specialized in this industry,
our 95% client retention rate.
individuals
within
specific
markets
and
so partnership with this office will be vital in order to deliver products and services for the industry in Mexico. It will be
Q: Lockton is a member of the Workplace Wellness
necessary to establish a process with that office to identify
Council, and has been named a Great Place to Work.
the risks and ensure that we are identifying client needs
Which programs have you put in place to achieve these
in terms of insurance services and products. With this
accreditations?
partnership, we can become extremely competitive and
A: A strong identity within the company for many
ensure that we can outperform our rivals within the energy
employees is vital for retention of staff and to be able to
market.
maintain loyalty. The aforementioned pillars must be a part of the ethos of employees, and they must engage with the
Q: With a 95% client retention rate, which elements of
programs we run in which staff can participate in order to
your value proposition are at the core of Lockton in
make a difference to the community. Moreover, in terms of
maintaining this base?
social responsibility, employees are the actors developing
A: One of the key components in our high retention rate
the social programs and community outreach programs,
is our organizational capabilities and service. We have a
meaning that this mentality is embedded within the culture
unique service proposal, with a strong dialogue with all
of the company. With our Workplace Wellness programs,
employees regarding the expectations of clients, which
we provide consultations to our clients in order to support
not only deals with our philosophy, but also an integrated
the mitigation of risks related to employee wellbeing. We
service model. Secondly, we have considerable consulting
provide a complete program in order to make sure that
skills, and we not only act as a broker, but we also work with
employees are participating in activities that are conducive
clients to identify needs and provide high-value solutions.
to good health, such as regular doctor appointments,
Thirdly, our technology and processes are state of the art,
sporting events, and company-based nutritional guidance.
and we provide client-facing solutions such as insurance
In terms of people management, we have a performance
vehicles management and flexible benefits. Moreover, our
management program that is also extremely important
leadership pillars consist of the community, the associates,
to the company due to the establishment of individual
and the clients, so we use a multi-focused approach
employee objectives, career trajectories, and development
when doing business. In terms of associates, we focus on
of competencies. These objectives also capture our values,
development to become leaders within the global market
so this process allows leaders to establish clear goals, as
so that associates are aligned to our identity as a company.
well as a strict moral code when guiding others. People
There is a chance for Lockton to enter and work with new
are therefore more committed to their goals, and all these
clients, offering our consultant skills and innovative model
strategies we implement within our company can also be
in order to offer a partnership to insure varying needs.
applied to companies within the oil and gas arena.
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I INSIGHT
NEW HR MODEL AWAITS NEW OPERATORS environment in the hydrocarbons industry. “We are Alejandro Hernández President of Grupo Accses
Yisel Varela CEO of Grupo Accses
encouraging companies to enter the country by informing them of the various local opportunities, for instance, by visiting various energy forums in Mexico and abroad,” he shares. “We target several chambers of commerce and the
Grupo Accses has capitalized on a gap in the market with
company is also working with investors who are not yet
the creation of its innovative business model Access to
aware of the possibilities or who are unsure about setting
Energy, which focuses on the Mexican energy sector and
up their office in the country.”
enables the rendering of smart multidisciplinary solutions.
330
After having carried out an analysis of the available data
In terms of sourcing employees, Access to Energy follows
on the hydrocarbons market and discovering that small- to
a complex process with stringent criteria including
mid-size companies in the upstream energy sector need
interviews,
professionals who support their business development in
values, and aptitude tests. The company is also creating an
the oil chain, Access to Energy services the complex needs
important database of all the workers in the energy industry,
of foreign small to mid-sized entities and entrepreneurs
using virtual interviews and psychometric assessments,
who are planning or currently running their energy
to be able to offer clients the most qualified employees.
ventures in Mexico, and is supported by several strategic
Therefore, as soon as a company begins to look for human
alliances.
capital, Access to Energy can offer a choice of potential
psychometric
assessments,
work-related
new recruits in a less time-consuming way. “The virtual Although the company’s focus is on human resources, it
interviews are a huge advantage because companies
also advises clients on tax matters, finance, bookkeeping,
can get a feel for the candidate before an interview,”
and accounting services. In fact, Access to Energy offers
says Varela. With close to 1,000 people registered on the
a diversified service for installing operations in Mexico.
platform, Access to Energy has expanded its reach with
Some of the services offered include risk studies to advise
an online university with courses to train candidates and
companies with reference to the office locations, the type
identify key qualities before the interview stage.
of international employees that will be relocated, and the activities they will be carrying out, as well as security
Both Varela and Hernández believe that recruitment with
measures to make employees as comfortable as possible.
the new Energy Reform is far from an easy task, but it
Yisel Varela, Grupo Accses’ CEO, believes that the advice
does present significant opportunities. “We must not lose
offered by the company is essential to daily operations
sight of the fact that the Energy Reform is a considerable
and recruitment budgets. “All of our alliances are aimed
challenge and a new venture in our country,” Varela warns.
at HR solutions, because we believe the most important
“The limitation for companies arises because the Energy
asset of a company is the human capital,” she declares.
Reform dictates up to 35% of national content in some
Training, recruitment, employee services, and relocation
cases. Here is where we can help, training and certifying
solutions represent a large expense for companies, and
Mexican workers in the areas that these companies need.”
within Grupo Accses’ relocation services, strategic allies
After Round One, Varela predicts a new trend toward
are used to provide integrated real estate solutions.
recruitment of staff through outsourcing, and as oil prices
Clients are offered a formal solution that allows them
rise, she believes that companies will be more comfortable
to focus on their core business, rather than operating
with permanent contracting. Hernández alludes toward
concerns.
a new environment that could be conducive to alliances and JVs. “Access to Energy hopes to create international
The biggest demand the company sees in the hydrocarbons
alliances to be able to participate in the development of
sector is for certified operative staff. The main challenge
projects between national and international companies for
when training Mexican employees is teaching them how
this year,” he declares. “After the results of Round One are
to comply with the processes of international companies,
announced, we will make another push to make ourselves
but according to Alejandro Hernández, President of Grupo
known outside of Mexico and begin to help with the HR
Accses, the company is working to foster a multicultural
and security needs of incoming companies.”
| INSIGHT
OPEN MARKET WILL FOSTER M&A ACTIVITY WILLIAM WOOD
Many players decided to come to Mexico when the energy
Head of Energy and
sector was liberalized. In the case of Norton Rose Fulbright,
Infrastructure United States,
the global law firm decided to come back to the country
and Global Head of Latin
where it once had offices because of the potential it suddenly
America at Norton Rose
has for its six areas of expertise: financial services, energy,
Fulbright
transport, life sciences and health care, technology and innovation, and infrastructure, mining, and commodities. William Wood, Head of Energy and Infrastructure United
sale of gasoline and other refined products will expand
States, and Global Head of Latin America at Norton Rose
as the market is opened, creating more opportunities for
Fulbright, says the firm also boasts significant expertise
entrepreneurship. It is likely that the new businesses will be
in global regulatory practice. Wood says the company
followed by a wave of M&As.” Additionally, he mentions that
aims to help clients in Mexico with energy transactions,
existing businesses in the oilfield services and construction
international arbitration and dispute resolution, and cross-
sectors may find attractive offers from suitors needing to
border litigation. “Although most litigation matters are filed
expand their multinational offering in Mexico.
in the US, our firm has worked on a number of significant litigation matters related to activities and operations in
Now that Norton Rose Fulbright is back in Mexico, the
Mexico over the past decade,” he clarifies.
firm wants to help clients navigate the current regulatory environment. “We can help companies manage their risks
Wood notes that the local content requirements for the E&P
in all regulatory areas because we have done this already
bidding rounds will lead to M&A activities in Mexico. “Each
in many other jurisdictions around the world, and have
time multinational entities enter a new market, companies
helped our clients with every type of legal and regulatory
that have been in the local market for decades have the
challenge facing successful businesses worldwide,” Wood
opportunity to sell their businesses. In addition, the retail
asserts.
Services Portfolio: Training, headcount recruitment services and outsourcing employee management. Security services, preventive and corrective security protocols, trained drivers and bodyguards, and armored vehicles for rent/buy.
YOUR BEST OPTION IN MEXICO
Employees and companies certified according to international energy standards. Customs services, logistics, broker, insurance, free trade zone benefits. Immigration services & paperwork. Leasing, purchase and management of assets. Accounting, finance, acquisitions, budgeting, programming on the Public and Private sector.
Prol. Paseo de la Reforma 61–9A Col. Paseo de las Lomas México D.F., CP. 01330 T. +(52) 55 6270 0200 www.accesstoenergy.mx
Tax advice, planning, defense, mediation (tax settlements) and litigation. Incorporation of companies, by laws, shareholders meetings and minutes (regularization). Legal services focus on energy, intellectual property, civil, commercial, administrative and criminal matters.
331
| INSIGHT
BEST PRACTICES IN INSURANCE SHAPE THE NEW OIL INDUSTRY a team, everyone’s experiences are enriched because every participant has something to offer,” expresses
GRACIELA ÁLVAREZ HOTH
Álvarez Hoth. Guidelines are currently being established
CEO of NRGI Broker
regulations involving studies that have to be carried out
that will require operators to conform to certain security before initiating production, with the objective of ensuring production is as safe as possible.
The country is developing in a new direction, so it only
332
makes sense for companies to align themselves with
“Due to the low oil price, the insurance sector is working
this new phase. This was exactly the motivation behind
in a soft market where there is plenty of capacity and few
Grupo Vitesse’s decision to create a specialized Energy
players due to companies that are unwilling to lose money
Insurance Broker "NRGI Broker." With over 25 years of
having shut down their activities, which has generated
acquired experience from PEMEX’s marine operations,
an appetite and a surplus that has not been seen in the
the company has now chosen to reinvent itself in line with
last 15 years,” Álvarez Hoth continues. This will allow new
the new trends in onshore production and gas pipelines.
operators in Mexico access to a wide variety of coverage
The experience present in NRGI Broker dates back to the
at extremely competitive prices.
days when Cantarell was booming and the company has contributed in an active way by attracting international
Providing insurance for new deepwater projects will not
market leaders to the country.
be without its challenges, assures Álvarez Hoth, but she does not expect these to overwhelm NRGI Broker. “At the
The importance of a guide to help companies comply
end of the day, insurance companies are more worried
with the new Mexican procedures implemented by the
about onshore platforms than offshore platforms because
Energy Reform is often overlooked, according to Graciela
onshore activity in Mexican territory entails various factors
Álvarez Hoth, the company’s CEO. She explains that, before
that can affect operations,” she points out. Dealing with
the reforms, PEMEX provided its contractors with wide
social aspects is difficult and the onshore segment will
coverages, so their only concern was the deductible, and as a
require a gradual learning process because operations will
result, clients became accustomed to the buffer that PEMEX
vary greatly across regions. On the other hand, offshore
represented. “Now, most of the companies are no longer
operations are identical all over the world, and although
contractors and have become operators, and naturally they
some regions like the North Sea present higher risks due to
need a broader experience in negotiating administrative
the tides. From this perspective, the Gulf of Mexico presents
hurdles with the authorities,” Álvarez explains.
relatively low risks. Deepwater operations are relatively expensive but the players are also bigger, and Álvarez Hoth
NRGI Broker takes a proactive approach to the new
predicts that companies like Shell and Exxon will enter
regulations, allocating time to dialogues with risk managers
the market when it makes sense for them from a financial
to discuss the new market rules that will be launched, even
perspective. “These operators will enter with international
if these have not yet been released. “Over the past year we
sophistication and experience from working in places with
have closely worked with the regulatory agencies in order
varying levels of infrastructure,” according to Álvarez Hoth.
to participate in the processes of issuing regulations that
“The goal is to keep track of the country’s obstacles while
are new to the country,” Álvarez Hoth asserts. By becoming
keeping in mind that these types of situations have already
part of this group, she is confident that NRGI Broker can
been encountered in other parts of the world.”
provide clients with integral and adequate solutions. “In this way, we can inform the regulators of global trends, and
Due to NRGI Broker’s breadth of experience in helping
analyze how we can apply this information to Mexican laws
companies enter new markets, Álvarez Hoth believes
and norms,” she suggests.
that the company is uniquely positioned to welcome new players that will be attracted by the Energy Reforms.
Accidents are unavoidable, but despite the fact that this
“NRGI Broker can offer these players an advisor that can
constitutes a core part of NRGI Broker’s business, the
speak their language and that deeply understand the
company takes measures to mitigate risks. “When the
country, including its laws and regulations in insurance and
insurance sector works with the regulatory agency as
surety topics,” she argues.
| INSIGHT
INVESTING IN FUTURE INDUSTRY LEADERS Oil and gas extraction is a male-dominated industry, not only in Mexico, but all over the world. According to the US Bureau of Labor Statistics, only 17.9% of those employed in
ANGELICA GARCÍA-DUNN
the industry are female, and 12.8% are of Hispanic or Latino
President of AIM Global
origins. In this way, Angelica García-Dunn, President and
Logistics
Founder of AIM Global Logistics, is breaking the mold in her ascent to the forefront of the arena. García-Dunn’s success, however, is due to hard work and dedication, and adherence
a clash. In this way, AIM essentially performs sourcing
to advice from her grandfather. “He used to always teach me
services, and this is what led to the creation of AIM Energy
to believe that ‘I put on my pants in the same way as you’,”
and Chemicals. This company is now dedicated to global
she points out. “I do not want to sell my business based
sourcing of rigs, chemicals, and machinery from all over the
on the fact that I am a woman and a minority, I base my
world, and this extends beyond the oil and gas industry, to
achievements on the fact that I know the industry, I know
segments like pharmaceuticals and automotive. Moreover,
exactly what I am doing and, often, I can outperform any of
AIM Global Logistics specializes in overweight, over
my peers, whether they are male or female.”
dimensional project cargo, especially to and from Mexico. “As a result, not only can I source the materials or the
In 2012, the company was named ‘Emerging Business of
buyers, I can also provide the transportation services,”
the Year’ by the Houston Hispanic Chamber of Commerce.
García-Dunn explains. To cater to the changing industry,
After an initial US$250,000 in sales, the business grew to
the company also offers leasing and factoring services
US$2 million, whereas now, the company is registering
through its third subsidiary AIM Global Financing.
around US$25 million. “Our status as a certified minority female-owned company has enabled us to sign contracts to
With both AIM Global Logistics and AIM Energy and
work with BP, Exxon, indirectly with PEMEX, PPI, Siemens,
Chemicals, García-Dunn plans to forge a path within
and GE,” García-Dunn boasts. In the US, especially, there is
the Mexican market. “We are in talks with GE at the
a significant push toward supplier diversity, to the extent
moment regarding distribution services, and logistics for
that the company is working with the US government, but
transporting hydraulic pumps, and in the near future, we will
also sees a lot of business in Mexico. Some of AIM Global’s
be able to enter discussions with PPI about the potential
most significant customers are freight forwarders like
to become a distributor for GE here in Mexico,” she notes.
Panalpina, Agility, Geodis, and DHL that use the company
That contract not only involves the distribution for GE, but
for most of their imports and exports, whether that is
also the installation and the maintenance at the rig site.
trucking, shipping, air freight, rail, or warehousing.
Therefore, the companies will work hand in hand. In terms of AIM Global Financing, the services would be applicable to
Mexico is gradually changing its diversity practices, and this
companies with a presence in Mexico but a base in the US.
can be seen in the requirements for Congress deputies, in that 50% must be women. However, García-Dunn believes
García-Dunn believes that, as a result of the Reform, much
that the focus should not only be on the fact that she is a
of Mexico’s infrastructure is beginning to see development,
woman, but on her qualifications, as she can contribute just
with the ports and customs systems are becoming more
as much industry knowledge as any of her male peers. “It is
structured. “On one hand, the prices may have increased
essential to have a solid knowledge base and competence
due to the fact that more players are interested in the
within the industry, and not just act as a figurehead due to
market, generating more competition, but on the other
diversity,” she asserts. “Last year, I was featured in Forbes
hand, customs brokers are beginning to realize that they
because I moved 18 rigs for PEMEX and its contractors in the
cannot maintain current operations, and that they are
last three years, which involved solid industry knowledge.”
no longer working exclusively with PEMEX, but also with international companies that will not necessarily operate
In terms of logistics services between the US and Mexico,
in the same way,” García-Dunn points out. There have
this can be problematic due to integral cultural differences,
been a lot of internal changes at PEMEX, but she sees
according to García-Dunn. For instance, in the US, the
this being beneficial for the industry. Change is difficult
turnkey solutions are what is most requested, whereas
to implement, especially for the government changing
PEMEX contracts have several intricacies that can create
PEMEX into a productive enterprise of the state.
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| VIEW FROM THE TOP
ADAPTING STANDARDS AND TALENT TO THE REFORMED INDUSTRY ÓSCAR GONZÁLEZ President of ARHIP
Q: What market conditions led to the creation of ARHIP,
or certifications. The market still functions according to
and how has the organization changed from its inception
PEMEX, and the standards and certifications it has. The
until today?
entrance of new companies into Mexico’s oil and gas
A: The oil industry’s Association of Human Resources
industry will oblige current players to shift to international
for the Petroleum Industry (ARHIP) was established
standards.
six years ago. We created the Association because we
334
observed a lack of regulation in the compensation area
Q: How can ARHIP help companies prepare for the
of Mexico’s energy market, an issue that resulted from
changes the Mexican oil and gas industry will experience
PEMEX’s position as the main client in the industry. The
once international companies begin operations in the
NOC’s different business lines did not have a common,
country?
homologated tabulator for the private industry, leading
A: We were invited by the British Embassy to take part
to disparities in salaries. Our aim was to standardize and
in exchange sessions in London with institutions from the
regulate this aspect. A second task consisted of inviting
energy sector in order to understand their certification
companies to discuss best practices and create a portfolio
processes and training schemes. Our aim is to work with
of positions to fill vacancies.
educational institutions, governments, and the private sector to create a triple helix synergy to bring innovations
The association’s main success has been the completion
to Mexico. The triple helix synergy involves the participation
of an inquiry with over 236 positions, divided by business
of the government, the education institutions, and
lines and by matching profiles, because small companies
companies in the industry, and the general aim is to create
do not necessarily have the same salary tabulators as large
a cluster among these to foster collaborations. A concrete
ones. It is important to do so, as the same profile could be
example is the new technological innovation centers in
considered a junior for a large company, but a senior for a
Tabasco, which came into existence through cooperation
small company. We mainly worked with international firms
between the local government, the Ministry of Energy, and
to create the matching system, including AON Consulting,
private companies.
in order to gain credibility. This firm helped us collect the required information and match individuals to companies,
Q: How do you work with universities to ensure their
while the use of a third party allowed us to avoid having
students will fulfill the industry’s future needs?
to transfer and filter information between the members
A: The association works with more than 30 local
of our organization, keeping sensitive data private. AON
universities involved in the oil and gas industries. We
Consulting holds the confidential information, and directly
are pushing for educational institutes to renovate their
provides clients with reports.
teaching programs so they are aligned with current market needs. This also involves an upgrading of their facilities
Q: How is the entrance of international firms into Mexico
and equipment, and they should have simulators and well
modifying your strategy?
schools installed.
A: We have invited international players, such as Shell, BP, and Schlumberger to take part in our association. This has
ARHIP offers various sessions where we speak with students
been somewhat challenging, as we have had to tropicalize
about industry expectations and how they can meet them.
certain concepts, mainly variable compensation schemes.
We like to call these “personal branding sessions”, because
These are some of the additional benefits that foreign
students can learn how to sell themselves to the industry.
companies could bring to Mexico and currently do not
Our training courses in universities last two days, during
exist in the country. Although these do not necessary fall
which we have various panels with students about how to
under the salary area, they could be related to training
prepare to face the market after graduation.
| INSIGHT
THE BUILDING BLOCKS OF HUMAN INFRASTRUCTURE In order to capitalize on the opportunities brought about by the Energy Reform, the Mexican labor force will need to develop new skillsets. The boost of infrastructure
GASPAR GOROCICA
developments will highlight a lack of talent for the
Director General of
construction and operation phases. “If we look at the
Puesta a Punto
amount of training natural gas pipeline projects require, we will find a great opportunity to build new skills in the communities adjacent to the developments. The main
competency because a habit can be applied to several
challenge of these projects will be to translate the way in
aspects of his or her daily life, and that is why our model is
which developers work in other countries to the Mexican
based on habits,” Gorocica details.
population,” says Gaspar Gorocica, Director General of Puesta a Punto. He claims the Energy Reform is attracting
The main challenges companies in the oil and gas sector
new investments for physical infrastructure, but the
will find is attracting talent, according to Gorocica, and the
development of human infrastructure is a situation that is
shortage will be felt once the projects begin. The oil and
not being properly addressed. “I hear plenty of talk about
gas sector will have to rely on professionals from other
the talent gap, but no one talks about how to close it.”
industries, and Gorocica is sure that the most attractive companies will be those that offer a medium and long-
In the next three years, Mexico will see considerable
term career path. “Salaries are important in every industry,
investments in natural gas pipelines, ports, and offshore
but it is no longer the only important component.
projects, which will create between 800,000 and 1 million
Companies have to offer attractive career opportunities
jobs that will require specialized skills that currently do not
to workers at all levels.” Investments in the next years will
exist in the country. The demand will not be satisfied with
concentrate on building infrastructure and then on the
the Mexican education system. One of the things Puesta a
operation phase, and Gorocica claims companies with a
Punto learned for its experience in Etileno XXI is that only
medium and long-term vision will understand that labor in
15% of the people that participated in the construction
the construction stage can be trained so that it can work
stage had a degree, while only 40% had secondary
in the operation phase later in the project. “In Etileno XXI,
education. This meant that the firm had to work with
we incorporated people that stood out in the construction
people that were not used to following processes or norms.
stage by understanding and following procedures to the
Another demographic characteristic Gorocica noticed was
plant’s operation. It is a waste to have a team constructing
the age average. “Training someone between 20-30 years
and another operating, as the first already started
old who has no previous experience in a job that demands
following processes and is acquainted with the project.”
following processes requires an intensive program that helps the person understand his or her role in the project.
In the case of Los Ramones, Puesta a Punto coordinated
These people are not used to wearing security equipment
developers, construction teams, local universities, and its
because this was not imperative in their previous jobs
own staff to develop continuous training programs, which
even in the construction sector, so we cannot expect them
led to operative staff becoming supervisors and managers
to abide to ISO 9000 or OSHA norms.”
at the end of the project. “Taking full advantage of the construction stage and using it to train the people that
The challenge in Etileno XXI was to permeate a culture
will operate the projects is one of the challenges Puesta
among 27,000 people working on a project that was
a Punto works on. When I speak of human infrastructure,
only going to last for two years. Companies, Gorocica
this is exactly what I am referring to,” Gorocica concludes.
explains, can transmit a culture through a different means because they have a long-term vision, but in the case of projects with a determined duration, the best way to create a working culture is by repeating simple messages. In the case of Etileno XXI, Puesta a Punto focused on transmitting nine core habits that encouraged people to follow processes and look after themselves in terms of safety. “It is easier for someone to adopt a habit than a
15% of the people that participated in the construction stage of Etileno XXI had a degree, while only 40% had secondary education
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| VIEW FROM THE TOP
UNIVERSITY CREATES INSTITUTIONAL BRIDGES JOSÉ LUIS PÉREZ MESEGUER Project Coordinator at UTCAM
336
Q: How popular are your degrees related to oil and gas in
the degree holds slightly less weight than a Bachelor’s
comparison to other degree courses?
degree from an academic university. There are certain
A: The demand for the courses has dropped as a result
universities that offer specific courses tailored to the
of PEMEX’s recent financial situation, since this had a
oil and gas sector, such as the Universidad Olmeca that
resounding influence on the parastatal’s surrounding
offers the Petroleum Engineering degree. We have several
areas. The greater problem is felt by indirect workforce,
agreements with these universities as evidenced by our
such as the suppliers, as they have double the amount of
partnership with the Universidad Olmeca, and we are also
workers as PEMEX. At the moment, we are in the process
about to sign a knowledge sharing agreement with the
of selecting trustworthy suppliers, and we are sharing
Universidad Juárez Autónoma de Tabasco (UJAT). As a
support, information, and expertise, almost like a small
mutually beneficial agreement, UJAT will then be able to
incubator of companies in order to improve the quality
take advantage of our facilities in Houston.
of services we provide. We are forming alliances through UTCAM USA, with universities and companies in Houston,
The budget cuts faced in the last few years have been
Texas, to promote information exchanges and dialogues
extremely tough on the industry, but the government must
related to oil and gas. We are also preparing to create links
realize that this eliminates the incentive for universities
with the new regulatory agencies such as CNH, the Ministry
to create more human talent. There is a lack of jobs at
of Energy, and ASEA, and we expect that our relationship
the moment with PEMEX redundancies, and the foreign
with CNH will begin in 2016. We will also submit proposals
companies entering the market still have not begun
to the Ministry of Energy to clarify previously undefined
operations. Unfortunately, this creates a situation where
regulations regarding environmental protection, and we
human talent is being lost since graduates are beginning
hope they will take our recommendations on board.
to seek employment opportunities overseas. I believe that the government must help ensure that the same situation
Q: What strategic alliances are you forming in order to
does not arise again. We are hopeful that by 2017, we
meet the expected growth of the oil and gas industry?
will begin to see further economic growth, but in order
A: The first responsibility of our recently opened office in
to generate this growth, the government must invest in
Houston is academic, and it will promote agreements with
PEMEX and in the infrastructure of the country.
universities and companies for the benefit of our staff and students. Secondly, the office will serve a commercial function
Q: How can the Ministry of Energy’s initiative of providing
in trying to attract companies to Mexico by promoting
60,000 grants stimulate the talent development for oil
the services offered by the university, and developing
and gas, and how can UTCAM contribute to this scheme?
relationships to help improve our position in Mexico as
A: These types of funds help by supporting investigative
an oil and gas company. There was also a Deep Offshore
development projects in oil and gas. There are several of
Technology International event in the US sponsored by
these funds available, and CONACYT also offers grants for
PEMEX, and this provided us with an interesting opportunity
certain students so that they may study a specialization
to liaise with major players within the industry. We also
abroad after graduation. Currently, there is a concerted
participated in the event, and this was extremely valuable as
emphasis on the ability to speak English, and we have an
it allowed us visibility on an international platform.
agreement with some companies to provide English classes, as well as classes in topics such as investment in English
Q: How can the government adapt educational programs
at UTCAM. There are also certain funds available from the
to the needs of the sector in the short term?
Chamber of Deputies that can contribute to projects, and
A: Our university is a technical university, which means
we want to examine the ways in which UTCAM can capitalize
that, like graduates from other technical universities,
on this money in order to improve our educational system.
| PROJECT SPOTLIGHT: UTCAM The Technological University of Campeche (UTCAM)
advantage, being an educational institute. Over the years,
understands the challenges posed by the Mexican business
the institution has gained experience in the Mexican market
environment, as well as the specific difficulties companies
that confers it capabilities to advise and support foreign
can encounter in the oil and gas industry, but most of all, the
companies entering Mexico. The institution was established
institution sees an opportunity to help toward the success
in 1997 in Ciudad del Carmen, Campeche.
of the Energy Reform. The institution of education’s latest expansion, UTCAM USA, aims to become an international
In 2005, thanks to an excellent relationship with the state
firm that brings integrated solutions to foreign firms
government and PEMEX, the institution of higher education
entering Mexico when it comes to complying with the new
was able to expand into the corporate sector, operating
regulations that stem from the reform. The institution will
as a reliable service supplier for the NOC. This ensures a
seek to provide services ranging from the processing of
high quality of teaching at the university, as the institution
government paperwork, contract management, workforce
understands the nuances and current challenges of the
solutions, and maritime law attorneys. Moreover, the services
industry, and in fact, many its graduates go on to work
offered by the institution also seek to reinforce the culture
with PEMEX. The institution already has a strong presence
surrounding work safety and health and environmental
in Mexico, having stretched its presence throughout the
protection, in line with PEMEX’s SSPA requirements.
country to the cities of Reynosa in Tamaulipas, Poza Rica in Veracruz, and Villahermosa in Tabasco, and it has now
As companies entering the market put a lot of weight
engaged in a cross-border expansion, opening a university
on transparency, UTCAM believes it boasts a certain
in The Woodlands, Texas.
| INSIGHT
FILLING THE GAP BETWEEN EXPECTATIONS AND DEMAND A recent study conducted by the Petroleum Engineers College of Mexico determined that Mexico already has 20 institutions with Petroleum Engineering programs, yet less
LUIS VIELMA LOBO Director General of CBM
than 20% of them have the capabilities to produce highquality graduates. Luis Vielma Lobo, Directo General of CBM,
and also understand rock and fluids properties, reservoir
claims that upon examination of the graduates that will be
characteristics, and effective management of the reservoirs.
generated by universities like UNAM and IPN, it is clear that there will be a shortfall in meeting the needs of the industry.
Vielma Lobo adds that the program will also target the
“Nonetheless, with a solid training strategy and investment,
extremely acute social problem related to unemployment
this obstacle can be overcome within a few years,” he
of young professionals. “There is a number of young
believes. Vielma Lobo explains that CBM is using previous
graduates that are currently underemployed, or that
experience related to price downturns to try and promote
have moved abroad to find opportunities within their
a new kind of specialized education, which will mitigate the
field,” he claims. “The program will conduct a survey
effects of another potential downturn. “This new educational
with a selection process to recruit the most promising
proposal will facilitate the recruitment of engineers of any
candidates available, and with the help of the Ministry
specialty, including mechanical, industrial, electrical, and
of Energy, CONACYT, and a fund specially created to
chemical, among others, and convert them into specialists
develop opportunities for young people, they will receive
in one of the three core process of the exploration and
financial help to make a career in the oil industry.” The
production business: Reservoir Engineering, Drilling and
program has also engendered significant interest from
Well Design, and Integrated Production Engineering. After
private institutions, with the Yucatan Technical Institute
more than 600 hours of technical and practical education,
from Merida initiating the first diploma pilot program at
the program will produce a competent professional fluent
the end of 2015. Vielma Lobo expects the program to be
in English, which is nowadays necessary to succeed within
developed in the University of Nuevo Leon in 2016. “The
an international oil company.” After the completion of the
plan is to equip more institutions with an acute knowledge
program, Vielma Lobo asserts that an engineer should be
of the requirement of the different companies that will be
able to design, supervise, and oversee drilling operations,
starting operations in the country,” he states.
337
| INSIGHT
MEASURES TO ENSURE AVAILABILITY OF TALENT In the Americas, there exist several free trade agreements, such as NAFTA and FTAA, meaning that the region export, but negotiating the technicalities and forming
RAYMUNDO PLATAS MERINO
cross-border alliances can become problematic for many
CEO of LAOGA
becomes an interesting opportunity for production and
companies. The Latin American Oil and Gas Association (LAOGA) was founded to address this issue, fostering links between oil and gas players across the Americas
negotiating what can be viewed as a considerable challenge.
and providing them with a means of creating effective
“This can be seen as a substantial opportunity for anyone
partnerships. The association also focuses on integrated
studying engineering, whether they are in public or private
education programs, with the implementation of seminars
university, and especially for the new generations,” he says.
and courses.
When the students graduate in four years’ time there is the potential for the oil prices to have somewhat recovered,
After the Energy Reform, LAOGA initiated a course on
and there may be even more lucrative opportunities
this topic, which CEO Raymundo Platas Merino believes
available for them. Several opportunities will be presented
experienced great success. The association has also made
in terms of pipelines with CFE, as there has been a boom
alliances with universities such as UNACAP, Universidad
in installation due to a government investment of US$4
de Juárez, Universidad Autónoma de Tamaulipas, the
billion. This could create a plethora of jobs in engineering
Houston Technology Center, and the University of
and pipelines, so there exists a significant opportunity for
Colombia. “We were also able to videoconference our
the education segment over the next few years, according
speakers, such as Juan Carlos Zepeda, David Madero, and
to Platas.
Enrique Ochoa, to all these sites,” boasts Platas. “That certainly sets us apart from the competition, as we are
Every year, approximately 800,000 students graduate
contributing so much content to the industry and to the
from university and college in Mexico, and the majority
different sectors.” LAOGA has also launched a course in
are engineers, which constitutes a completely separate
Procurement for the players invested in Round One, and is
market and pool of human capital for these companies.
currently working on Commercialization and Distribution,
LAOGA is working with several colleges, as well as
as well as Storage seminars. “We are also working with
collaborating with the Institute of Energy in London
PEMEX on procurement and supply chain training, as
and Rice University in order to adapt the qualifications
well as new, private players,” Platas says, alluding to a
required by them to the Mexican student body. Another
partnership with the parastatal.
step being taken is the launch of an application geared toward human capital, meaning that résumés can be
In terms of improvements to the system, Platas believes in the
uploaded to the LAOGA webpage to enable more efficient
merits of exclusive licensing agreements. Secondly, he argues
recruitment practices. Bearing in mind that members
that PEMEX should move faster in terms of allocating the
come from Europe, the US, and Latin America, this system
tenders in Round Zero, since regardless of the implications
has created global opportunities for Mexican engineering
of the Energy Reform, at the moment PEMEX remains a
graduates. “Meanwhile, PEMEX must optimize its budget
main determinant of the economy. Finally, the allocation
in order to accommodate properly for this education, and
of funds by CONACYT and the Federal Government for
the University of PEMEX is eagerly anticipated by the
provision of education within the industry should be
industry,” Platas claims.
accelerated, according to Platas, and this is currently one of the association’s priorities. “I believe the most important
LAOGA also expects to continue working on its education
aspect is allocation of these funds, since the human capital is
programs, and its two courses in oil and gas and electricity
the lynchpin that holds the industry together, and failure to
will be launched next year. Many new regulations are
address this component of the system could create delays in
being released, so the association is maintaining contact
implementation of the reform,” warns Platas.
with members on the points in order to provide feedback to the regulatory entities. “CNH, CRE, ASEA, and other
One of the main future challenges for PEMEX is going to be
regulatory agencies must inform and educate the industry,
a shortage of human capital, but LAOGA has a strategy for
so LAOGA acts as a vehicle to do so,” says Platas.
339
| INSIGHT
ADDRESSING THE HUMAN CAPITAL GAP One of the main challenges that ICA faces is the struggle
IGNACIO CANO CERVANTES
of the Mexican education platform to create the number of
Vice President of Human
according to Cano Cervantes. The educational system is
Capital at ICA
creating a lot of talent for other industries that are not
skilled engineers and technicians required by the market,
growing as much as oil and gas. It takes many years to create a curriculum that conforms to market needs, and The cyclical nature of the oil and gas sector presents many
as such, he fears that the oil and gas market will not be
challenges, and one of the main issues at the moment
provided with sufficient local talent in the near future.
is producing the right people for the main sectors of
340
activity, according to Ignacio Cano Cervantes, Vice
“Given this difficult reality, we have taken it upon ourselves
President of Human Capital at ICA. “We are not a factory
to form associations with other firms, through which
that continuously produces the same product. We are a
we interact with different universities and institutions
company that offers solutions to different sectors, relying
to create responses to the human talent challenge,” he
on various methodologies,” he claims. ICA’s main pillar lies
shares. In addition to this, ICA has also established its
in its human capital strategy, which requires understanding
own corporate university to train the market’s future
of organizational capabilities in order to discern those in
employees, and has a strong continuous training platform
need of development. Cano Cervantes believes that the
for current employees. Both of these responses to the
use of relevant technologies has allowed ICA to contribute
lack of human capital carry the same weight, and Cano
to one of the economy’s most important sectors: oil
Cervantes believes they will work to allow ICA to survive
and gas. The culture of innovation that the company
in these challenging times.
fosters is crucial to its ability to respond to all of the sector’s requirements. These innovations are consistently
Cano Cervantes identifies further challenges in keeping
enshrined in different training programs so that they can
up with the market, which has been undergoing many
be circulated throughout the company, increasing ICA’s
profound changes lately. In order to use all of the capital
overall efficiency, and even fostering new ideas.
resources needed to develop infrastructure in this new era, the company was forced to increase its debt, but
As a company that offers services, ICA places human
unfortunately, the complexity of collections processes,
capital at the heart of its success, and at the core of
the depreciation of the peso, and other factors led the
the company. “We consider talent management one of
company into a liquidity problem. ICA now plans on using
our main organizational capabilities on the same level
its assets to reduce this debt as part of a more holistic
as project finance, contract management, and project
financial restructuring process.
management, because we need to build the right talent in order to maintain our market position,” Cano Cervantes
Nonetheless, Cano Cervantes believes that the company’s
adds. “Not only do we strive to retain the right people,
survival will be highly dependent on its human capital
but we also do our utmost to retain knowledge.” ICA’s
and its ability to adapt to new circumstances. “Our main
knowledge management platform allows the company to
project managers are used to working in an environment
archive the knowledge gained during each project, and to
with a single client, which is the government and has
reapply it in the future when it is relevant. The ensuing
specific
analysis of this information provides an overview of the
points out. “Now, however, our employees are confronted
talent pool and the capabilities that can be improved
with a new industry reality in which they have to work
when undertaking or continuing a specific project.
with different private companies at the same time, who
The company’s main contributors, the Chairman of the
may demand a change halfway through the job, contracts
company, the CEO, and Cano Cervantes himself, are then in
are becoming more complex, and they need to learn to
charge of managing and developing this resource to keep
manage new risks.” He believes that employees must
up with the rapid pace of changes in the sector. “At ICA,
understand the different stakes in a project. In the past,
we do not look for incremental changes, but rather, we
project management was the most important aspect of
move with the market and continually reinvent ourselves
a project, but nowadays, Cano Cervantes attributes this
to reflect its needs,” claims Cano Cervantes.
significance to contract, financial, and client management.
contractual
arrangements,”
Cano
Cervantes
| INSIGHT
ADAPTABILITY OF EMPLOYEES IS A BONUS AMEC Foster Wheeler was born when UK consultancy, engineering,
and
project
management
firm
AMEC
acquired its Swiss rivals Foster Wheeler in a lucrative
SERGIO SALDÍVAR
takeover in late 2014. As a result of the merger, the new
General Manager of AMEC
company is prioritizing on diversifying services and
Foster Wheeler
recruiting new human capital in order to stay ahead of the future recovery of the oil and gas market. “Along with our partners in Houston, we have the necessary capabilities to
He places great importance in the ability to trust in teams,
tackle shallow waters but we also have many competitors
and change elements when necessary.
in the market, some of which are extremely experienced in this field,” explains Sergio Saldívar, the company’s General
Although one of the main concerns in the industry is a
Manager. He believes that the company’s most impacting
potential talent war, Saldívar is not worried about the
projects will come in the deepwater phase, and is preparing
company’s ability to attract the most qualified human
for R1-L04 by sending employees to execution offices in
capital due to its advantage of being an attractive
other countries and by bringing employees from abroad
brand. He compares working in the company to being
to Mexico. “We still have a lot of time before this round
employed by major players such as KBR or ICA Fluor.
to perfect our offerings and tailor them to the specifics
“Before AMEC Foster Wheeler was formed, we could not
of deepwater activities,” he shares. Although the first
afford to compete, but now we can and we are heavily
contracts will be awarded in 2016, industry experts widely
investing in this,” he reveals. “While ICA Fluor is a mature
believe that it will take a minimum of five to seven years
and established company, we are experiencing strong
before anything is built.
growth, allowing us to offer high-ranking positions from the outset.” Furthermore, he cites a formula of three
If AMEC Foster Wheeler will play against IOCs, Saldívar
components that seem to attract human capital without
expects
business
fail: competitive compensation, challenging employment,
development efforts and key accounts are handled
and provision of training programs. AMEC brought in an
within the higher levels of the company. Nonetheless, he
online training tool called “The Academy”, which contains
expects the company to constitute an important tool, as
an incredible amount of training resources, for employees.
it possesses the necessary resources in Mexico. “There
Saldívar shares that the employee feedback from staff
may be some advantages in terms of local content
testifies to the fact that AMEC Foster Wheeler jobs are
requirements, although this would not be articulated as
among the most challenging in the industry.
its
role
to
be
secondary
since
a fixed rule,” Saldívar discloses. “In terms of execution, we will play a limited role, initially only carrying out 20-30%
Although mergers can be a difficult experience for
of the job for the simple reason that we need to learn.”
employees, Saldívar believes that two factors have played
According to Saldívar, now is the most opportune time the
to the company’s favor. Most of the company’s long-
industry has seen in years for new entrants, and he looks
term employees are extremely flexible and adaptable,
forward to taking advantage of the opportunities it may
he boasts, due largely to AMEC Foster Wheeler’s long
present, despite the setbacks.
history of change, including joint ventures, mergers, and acquisitions. Another factor is AMEC relatively
The General Manager believes that his job and the way
new presence in Mexico, which largely facilitated the
in which he approaches problems have been significantly
integration with Foster Wheeler’s Mexican branch. “In
altered. Although his activities have not significantly
2020 you should be looking at a much more consolidated
changed, this has not been the case in terms of reporting
company structure,” Saldívar shares. “I hope we will be
and long-term planning. “My biggest lesson over the past
in the middle of executing very large projects, such as
few months and years concerns the importance of human
the Salina Cruz reconfiguration, which is truly one of our
capital and talent,” he asserts. “It is vital to find the right
main goals.” The General Manager would also like to be
person for a given job, and forcing someone into a position
engaged in the development of a deepwater field or a
or trying to develop them for a certain role is not feasible
large shallow water project, as well as operating units on
in this kind of environment.” Jobs must be distributed to
smaller, industrial projects in pharmaceuticals, food and
different people, he says, who must in turn be relied on.
beverages, and perhaps mining.
341
| VIEW FROM THE TOP
PREPARING PERSONNEL FOR NEW OPERATORS NICK SPIES Director at iPS Powerful People
342
Q: What role does Mexico play in the history and global
Q: How has iPS Powerful People’s global strategy evolved
strategy of iPS Powerful People?
in light of the layoffs in the global oil and gas industry?
A: We started to execute our operations in Mexico eight
A: We have been promoting our Mexican candidates to
years ago. Our incursion began due to our belief that
our overseas customers, who have become aware that
Mexico would eventually become an even more prominent
these people have a certain set of experiences and that,
player in the international oil and gas industry than it
with minimum investment, could be an asset to their
already was, particularly due to the role that it would
organizations or projects. We are additionally working
play in the infrastructure and development of reservoirs,
actively with various institutions, such as embassies
projects, and the general oil and gas offshore industry. As
and branch organizations, locally as well as overseas,
we successfully predicted, the reforms opened doors to
in order to be present at seminars and conventions to
new opportunities for Mexico as a country, to its people,
determine where possibilities may arise for this Mexican
and to its oil and gas talent. We see our presence in Mexico
workforce.
as a long-term investment that we express through our educational and training-based activities.
Q: What innovative solutions have you brought to the human capital market?
Q: How have you adapted your activities to the current
A: We use open book administration, by which we mean a
state of the industry?
transparent way of working and of being clear and open
A: As a financially independent company, it is in our nature
to personnel regarding what they exactly will receive for
to approach industry-wide challenges in the most cost-
their work in terms of wages, benefits, and contributions,
efficient and effective way. By listening to our customers,
as well as a guarantee of transparency to clients by
we have been able to provide tailor-made solutions that
showing exactly what they are paying for. There are no
have saved money without sacrificing quality, services, or
hidden agendas throughout this process, as it reflects the
the skills of the personnel. Due to our global network and
way in which iPS has always worked and what has become
presence, we are well informed of market developments
the key to our sustained success over 28 years. Open
worldwide and pro-actively adapt to these developments.
administration leads to long relationships.
LOOKING FOR P IN OIL & GAS, OFFSHORE AND
CHANCES ARE WE’VE ALREADY Contact us at mexico@ipspowerfulpeople.com or check www.ipspowerfulpeople.com and find out what we can do for you.
| VIEW FROM THE TOP
BRIDGING THE TALENT GAP GUIDO VAN DER ZWET Business Manager for Latin America at iPS Powerful People
Q: How are you working as a bridge between universities
few years the mix should give an opposite impression in
and companies or organizations?
its distribution, where you have 80-90% of local crew and
A: Various universities have started oil & gas related
10-20% foreign crew. In this regard, it is important to look
education. There are also various universities signing
at examples such as that of BW Offshore and the evolution
collaboration with foreign universities. The country has to
of its workforce in Mexico.
start working on international safety regulations and training, since most investment over the coming years will come from
Q: How can iPS Powerful People help PEMEX retain the
foreign investors and IOCs expecting international safety
most efficient person for a given job?
regulations that follow the international standard, instead
A: We can help PEMEX adapt to the requirements of a
of the rules that were put in place in Mexico by PEMEX
changing oil and gas market. We have a vast database
and local governments. Our role in this, as a MLC:2006
of international experienced candidates that have been
certified company, is to make sure that all personnel that
in similar situations helping companies become more
boards vessels with a MLC:2006 ratified flag have the right
efficient. We are a registered provider to PEMEX and are
education, experience, and initiation to comply. Furthermore,
showing our interest in helping the company shape up to
we are ISO 9001:2008 and OHSAS 18001:2007 certified,
become more competitive within an already increasingly
certifications which also have standards when it comes to
competitive environment.
safety, quality, and international regulations. Q: What is your general outlook regarding Mexico’s oil Q: What opportunities does Mexico’s oil and gas market
and gas future?
provide for foreign professionals in the wake of Round One?
A: Although 2016 looks like a tough year, given the current
A: When new companies arrive with their assets, they bring
price of oil and the reforms within PEMEX, we have faith
a large group of experienced professionals with them.
that the new operators will give a new boost to the market.
Most companies would start with about 80-90% of foreign
Also, we feel that PEMEX will recover through partnerships
crew on board and have only local crew on board for the
and will shape up to become a competitive company in
lower ratings. The foreigners train local crews and after a
the future.
ERSONNEL MARITIME?
FOUND THEM iPS - Powerful People Av. José Maria Rico 121 - PH - Oficina 3 México City I México I www.ipspowerfulpeople.com
343
| VIEW FROM THE TOP
PUTTING HUMANS AT THE CENTER OF RELIABILITY HERNANDO GÓMEZ DE LA VEGA President of R2M
344
Q: What makes R2M a company suited to the Mexican
success of a company. People must be capable, be given
market, and what main projects have you undertaken
resources, and be motivated. In times of crisis, companies
locally?
tend to cut training and maintenance costs first, which is
A: R2M is originally a Venezuelan company. When
not the safest approach. It reduces employee resources
considering countries for our first expansion abroad,
and capability, and ultimately motivation. We understand
Mexico clearly emerged as the best option. The nation’s
that training is costly, but it is not riskier than operating
broad cultural diversity fosters tolerance, facilitating the
in ignorance. A cutback in training and maintenance will
introduction of new technology. This culture is aligned
immediately impact the company’s finances, unlike other
with our "Leadership and Technological Differentiation”
areas, but in the long term, companies will pay at least five
strategy supported by our advisory services, expert
to ten times more as a consequence.
studies and projects, training, software, and publications, all of which have contributed to a strong brand
Q: Your solutions are based on a self-developed approach
positioning, and have been successfully replicated in
called Integral Reliability. What does this solution imply,
different markets under the current business model.
and how is it designed to improve the reliability and safety
Moreover, the growing Mexican economy is now strong
of processes and projects in the oil and gas industry?
enough to support the development of business. These
A: The heart of our Integral Reliability approach is,
three factors were our main grounds to enter the country.
again, human reliability. To apply this approach, we first
The project we are proudest of in Mexico is the execution
run a diagnosis, which takes into account each part of
of an exploitation development plan for PEMEX’s
the project before putting it through data mining and
Burgos Basin. Through our methodologies we identified
analyses. We then evaluate this information, retaining only
the headache-causing factors, allowing for excellent
what will be needed to build robust and unbiased sample
results, findings, and savings for our customers. We also
solutions, and apply mathematics formulae so we can mix
participated in Cantarell by performing a quantitative
the previously obtained hard data with expert opinions
analysis for the drilling of wells, and optimized the
and any additional information required. The statistical
drilling sequence in Ku-Maloob-Zaap thanks to a tool we
prediction obtained from this process is the basis of the
developed specifically for that project.
reliability and risk optimization solution suggested to our client.
Q: What do your methodologies entail, and how do they benefit your clients in Mexico?
Risk plays a major part in reliability and, in fact, the latter
A: Our methods take on a threefold approach to reliability,
can be equated to risk mitigation. Our integral reliability
focusing on processes, hardware, and people. The analysis
approach also has the characteristic of being dynamic.
of these three variables as a system allows us to improve
Because the conditions of a project are subject to many
reliability and revenue while reducing risk in projects. One
variations, our solution may not be valid one year later,
of the particularities of R2M is the importance attributed
particularly in the fast-evolving oil and gas industry. As
to human reliability. We consider this paramount, and in
time goes by, reliability diminishes, and risk intensifies.
fact, we believe it accounts for as much as 70-90% of the
This is why we offer our clients the option of continuous
success in a project. This is particularly important in the
monitoring or spot checks, updating our reliability
Mexican oil and gas market, where workers are experiencing
solution to the new environment, thus allowing for an
job-related stress due to the many budget cuts companies
increased probability of success in the project. We can
are enacting, with PEMEX leading the way. Our model
also oversee the project’s reliability and risk management
in human reliability focuses on the three main desired
from beginning to end, should our customer require this
aspects of an employee, all of which are primordial to the
service.
| VIEW FROM THE TOP
WORKING WITH INDUSTRY TO TAILOR LEARNING Q: How is your program adapted to provide students with the entire breadth of proficiencies required by the market, and what does the typical UVM graduate look like?
Eduardo García García Institutional Dean of Engineering, Design and Architecture of UVM
Gerardo De Alba Mora National Energy Director of UVM
EG: The international context is important for UVM. The University is part of Laureate International Universities,
EG: These councils are our way of remaining in touch
the most important Universities Network worldwide, with
with the industry’s needs, as they provide us with
a presence in 30 countries, more than 80 Institutions, and 1
constant feedback around what is happening, what is
million students. Our study plan is designed to expand our
going to occur, and how well we are doing. Additionally,
students’ vision through international exchange schemes
the links that we have developed with companies allow
and collaborations with universities abroad. In line with
us to evaluate and incorporate necessary industrial
this international approach, we place a strong emphasis
competence certifications, such as the Rig Pass and the
on the teaching of English. Soft skills are also developed in
Well Sharp. Others are required by leading companies
our courses, as we consider them just as fundamental as
such as Halliburton, Weatherford, and Schlumberger, and
technical skills such as leadership, negotiation, teamwork,
these certifications ultimately contribute to the increased
communication, and social responsibility. Looking at
employability of our students. Moreover, we are part of the
current industrial needs, we also teach classes associated
advisory councils for certain commissions of the Ministry
with safety and information technology due to the current
of Energy in topics surrounding the development of
importance of data. As a Higher Education Institution, we
talent and value chains for the entire energy sector. The
have always considered it important that our students
close relationship we are consolidating with the industry
develop these skills essential to the private industry.
also provides benefits for private companies, knowledge sharing, research on trends, and the development of
Q: How do you work with public organizations and private
talent. The oil and gas industry needs more than just
companies to ensure your teachings are in line with their
hydrocarbons
requirements?
chemical, and civil engineers to complement the talent
GA: Our model is based on skills generation. In order
required by the industry.
engineers,
also
requiring
mechanical,
to make sure that the proficiencies we are teaching our students are those that the market is looking for, we
Q: Being generally perceived as a male dominated
have developed close ties with the regulating entities
industry, how can you attract more women to work in the
because these have taken on an active role in identifying
oil and gas sector?
needs in the national oil and gas market. We then use
EG: UVM places a considerable emphasis on women,
this information to implement classes that will transfer
which is reflected in all of our advertisement platforms.
the necessary skills for these needs to our students. In
We cannot ignore the fact that women represent 52%
addition to this approach, UVM also communicates
of the workforce in Mexico, and organizations should
directly with the industry. We have created an academic
strive to take advantage of this resource. At the moment,
council formed by a majority of industry members where
the portion of women in UVM’s engineering courses is
we monitor and evaluate current teaching programs, and
17%. Our aim is to increase this figure year on year, and
identify the necessary updates in order to anticipate and
in fact, our latest oil and gas engineering promotion
cater to industry needs. We also work toward developing
has 20% female representation. UVM is striving to
entirely new study programs that we believe will be
understand what can be done to bring more women into
needed in the future. An additional way we ensure top
these traditionally male degrees, promoting our courses
quality academic programs is through our links with
through media, and also at events and forums. We were
other institutions, be they local or abroad. We are aware
present in different forums to promote the participation
that no one institution has all of the capabilities required
of women in engineering. It is not only about achieving a
by the industry, which is why we have adopted this open
gender balance, but also about taking advantage of the
approach to working with academic centers, training
competitiveness, innovation, and creativity that women
centers, and research centers.
display each day.
345
FUTURE OUTLOOK
14
Round One is a reality, and the market has been officially opened to private participation. However, given the delicate state of the global oil and gas industry at the moment, players are curious as to how the Mexican upstream sector will evolve in the following years. Round One has been a work in progress and all eyes are on the deepwater phase, colloquially referred to as the ‘crown jewel’. It is yet to be seen if this round meets the IOCs’ expectations and changes the future of hydrocarbon production in Mexico. The authorities have also unfrozen the fifth phase of Round One, which is expected to lead to the development of the country’s unconventional resources. Mexico is believed to hold the fourth largest shale reserves in the world, yet players wonder how the country will replicate the success of its northern neighbor in exploiting these resources. Other questions revolve around the performance of local operators, possible joint ventures with PEMEX, farm-outs, and most importantly, ensuring a profitable market in a time of low oil prices.
This last chapter discusses the impact of the Energy Reform and its impact on the position of Mexico in the international oil and gas industry. It provides crucial information that can help readers understand the future of Mexico’s oil and gas sector.
347
| CHAPTER 14: FUTURE OUTLOOK 350
VIEW FROM THE TOP: Lourdes Melgar, Ministry of Energy
352
INSIGHT: Rubén Cruz, KPMG Mexico 349
352
INSIGHT: Iván Sandrea, Sierra Oil & Gas
355
INSIGHT: Sergio Beristain, Beristain + Asociados
356
INSIGHT: Pablo Medina, Wood Mackenzie
357
VIEW FROM THE TOP: Derek Woodhouse, Woodhouse Lorente Ludlow
358
MAP: Upcoming Licensing Rounds
360
VIEW FROM THE TOP: Gustavo Hernández, PEMEX E&P
361
INSIGHT: José Antonio González Anaya, PEMEX
| VIEW FROM THE TOP
ADMINISTERING THE FUTURE OF MEXICO’S OIL AND GAS INDUSTRY LOURDES MELGAR Undersecretary of Hydrocarbons at the Ministry of Energy
Q: What is the short and medium-term impact of the
such as the decline of Cantarell. This super-field once
drop in oil prices on Mexico’s energy policy and the
produced close to 2 million b/d and now its production
implementation of the Energy Reform?
stands at 230,000b/d. In addition, other fields are reaching
A: Although the drop in oil prices affects oil companies,
the mature stage, such as Ku-Maloob-Zaap. We are in a
including PEMEX, these do not come into consideration
period during which many projects will reach maturity or
when we define the appropriate energy policies. However,
begin to decline, meaning there will be opportunities for
this factor comes into play the moment we begin working
investment in order to boost production.
on a specific bidding round, defining the areas, their terms 350
of materiality, and the selection of the type of opportunity.
While oil production is crucial, I am also concerned
For instance, today might not be best time to develop
about natural gas production. From an energy security
extra-heavy crude.
perspective, we need this resource. Less than 70% of the natural gas consumed in Mexico is produced in the
Oil and gas is a sector where we need to have the medium
country, highlighting the need to maintain and increase
and long terms in mind. The drop in oil prices has severely
production levels both to ensure energy security and our
strained both the state budget, which has undergone
independence from US exports. So far, the government has
significant adjustments, and PEMEX. That being said, low
made a great effort in attracting investments for projects
oil prices also provide opportunities. This is the case in the
aimed at importing gas from the US, but there is a limit to
electricity sector, as it was unlocked to private investment
the amount of infrastructure we can develop at one time.
by the Energy Reform. The reform also goes deep into the midstream and downstream segments, which become
Q: What is the extent of the challenge CENAGAS has, and
even more attractive areas for investment when oil prices
when should we expect to see change within the natural
are low. We are taking advantage of this situation, and it
gas market?
is something that was already included in the reform at
A: The first thing is to consider is infrastructure, because
the constitutional and legal level. Now that we are in the
no natural gas market can be created without this feature,
phase of implementation, we hope we get the attention
and so far we have been advancing well in this area. We
necessary to attract investment in these segments.
have been developing the arteries of the system and CFE has implemented an extremely efficient process through
Q: Which priorities have to be met in order to measure
the contracts. In terms of regulation, CRE is already
the success of Mexican upstream oil and gas industry?
removing a significant distortion we had in the pricing
A: The idea is to mark every item on the checklist, such as
system. Pricing was set many years ago at over US$20
increasing production, reserve replacement, value creation,
per billion BTU, meaning that PEMEX was effectively
and job creation, among others. Each ministry has its own
subsidizing the transport. This means that the production
priorities. While the one of the Ministry of Finance is to
and import of natural gas is uneconomical at the current
increase state revenue, the Ministry of Energy is seeking to
prices of US$1.7-1.8. We are now taking transportation
increase production and reserve replacement in order to
into account, which is something that has generated
ensure energy security in the country, which includes oil
complaints in certain areas. Nevertheless, even when
and gas but also condensates and other products. Mexico
taking transport into account, the price of natural gas
cannot boost its petrochemical industry without the right
remains historically low.
production of condensates. We are working on the creation of a natural gas market The decision makers want to end the country’s decline in
to be announced within the next two to three months. I
production, which stems from clear and logical factors,
view it as an important component in ensuring that the
electricity market functions efficiently. Gas and power are
their business to areas that are not necessarily related
intrinsically linked, so it is vital that both these markets
to the industry. However, with prices such as the ones
work in harmony. If the natural gas supply is controlled by
experienced today, oil companies have to go back to their
a utility, it is extremely difficult to generate competition
core business. In the case of PEMEX, these areas are E&P,
in the electricity market, so I view it as a healthy decision
refining, and hydrocarbons processing. I expect to see
to establish two markets, both run by independent
a more selective PEMEX soon, divesting from projects
system operators. This will happen before the end of this
that were recently created and are not part of its main
administration. We are aware that natural gas has other
activities.
uses apart from energy generation, and for us, as a policy maker, boosting the petrochemical industry is a priority, as
In addition, the NOC, as a productive enterprise of the
the liquids and condensates from natural gas are integral
state, has to play the same game as other oil companies,
to this process.
which is reducing costs and becoming efficient. We have been adamant about the fact that PEMEX needs to review
Q: At which level do you expect production to bottom
its benchmarks in every area, such as oil production, and
out, and what should be fueling the reversal to increase
ensure that it becomes more productive, investing where
production again?
it is more profitable. High taxation levels have definitely
A: The political concern involves a production drop below
impacted PEMEX, but the company could still do better
2 million b/d, which could occur at the end of 2016. The
in terms of production costs and efficiency in its core
following year, however, production should start ramping
activities.
up again thanks to the initial production from the blocks awarded in Round One. In addition to the first oil from
Q: Given its complexity, do you expect the tenders for R1-
these fields, farm-outs will also contribute to increasing
L05 to be released after R2-L01 and R2-L02?
production in the 2017-2018 period. The farm-outs and
A: This is likely but the names of the rounds may change.
migrated contracts should also compensate for the share
Regardless of this technicality, the importance lies in
of the drop in production led by PEMEX, a consequence of
ensuring the development of each round and maintaining
its severe investment cuts.
momentum in order to increase oil production as quickly as possible. We will continue working on the implementation
Q: What else can be done to boost the Mexican oil and
of the reform, and once we have the regulation ready,
gas industry?
the unconventionals round will be launched. R2-L01 and
A: PEMEX, the Ministry of Finance, and the Ministry of
R2-L02 will focus on shallow waters and onshore, and
Energy do not expect to see a price of US$80/b during
the latter will cover a wider area than R1-L03, with both
this administration. One of the reasons why PEMEX had to
exploration and extraction activities combined.
undergo such a severe budget cut is because its budget had been planned under the unrealistic expectation of a US$53/b scenario. The newly appointed Director General of PEMEX is aware that he is beginning his tenure at US$25/b and has adapted operations accordingly. The PEMEX Board of Directors, the Ministry of Finance,
Cantarell is a super-field that once produced close to 2 million b/d and now its production stands at 230,000b/d
and the Ministry of Energy have been working on a plan that has several components, one of which involves the
Q: What would you look forward to as the 2016 highlight
provision of more favorable fiscal terms for the NOC.
for Mexico’s oil and gas industry?
The law offers different ways of achieving this, such as
A: First of all, the contracts from R1-L03 will be signed
migrating some of the entitlements to new contracts
in May. Although it would be fantastic to have all 25
types, something we are already analyzing with PEMEX.
companies sign, I would prefer it if the companies that
We have talks with the Ministry of Finance regarding
have reservations about their bids did not sign, because
issues related to the cost cap because this aspect was
we always have the second bidder as a backup option. I
established in the Law of Income from Hydrocarbons.
would rather have a company that is truly committed to
The current price cap is lower than what PEMEX had
what it offered, rather than a company that will struggle.
before, so we are seeking to give it a similar one to the
This responsibility lies with CNH, which is currently liaising
one prior to the reform.
with the contractors. R1-L04 is also upcoming, and Round Two will most likely develop in December. Additionally, we
Another aspect relates to the fact that when the oil price
are expecting to tender the farm-outs, and the contract
is high, companies are free to think about expanding
migrations, and to process both the CIEPS and COFPs.
351
| INSIGHT
PREDICTIONS FOR THE SUCCESS OF FINAL PHASES increase production in the medium and long term,” Cruz asserts.
RUBÉN CRUZ Advisory Partner, Head of
Cruz identifies the third phase of Round One is the
Energy and Natural Resources
smoothest of all the rounds in term of implementation, as
at KMPG in Mexico
licenses do not have the complexity of other contracts, and the awarded onshore fields have proven reserves and infrastructure, which decreases the investment required. Of
352
Over the past decades, PEMEX’s investments in exploration
the US$6.9 billion expected to be invested in Round One,
activities were low in comparison with industry standards,
US$1.1 billion will be channeled into the blocks awarded
particularly in deepwater and unconventional resources,
in R1-L03. Regarding the possibility of new operators
but Rubén Cruz, Advisory Partner, Head of Energy and
expanding to other areas, this could be done through
Natural Resources at KPMG Mexico, firmly believes that
partnerships with third parties, since a key limitation in
the reform will reverse this trend. “Reserves replacement
the upstream segment is financial. “Typically banks do
rates have been in the range of 65-70%, a situation that
not provide financing for exploration activities, and only
calls for urgent investment in upstream activities in order
a few private equity funds find this kind of risk attractive,”
to, firstly, elevate reserves replacement rates above
he reports. Companies that won contracts in R1-L03 will
100%, and secondly, eventually increase production,” he
gain experience as operators, but Cruz feels they will still
points out. In the past two years, production declined
lack the technology needed to exploit offshore fields,
at a 5.1% average rate per annum. The implementation
highlighting the importance of partnerships in expanding
of the reform will partially reverse this situation with the
to other segments.
entry of 30 new operators resulting from the first three phases of Round One, which have collectively committed
KPMG helps clients handle risks entailed in financial
investments of an estimated US$6.9 billion, meaning
aspects, while also helping with anti-bribery and corruption
that, at peak production, these developments could add
affairs, financial reporting best practices, audit services,
280,000 boe/d, an increase of 12.5% on current levels.
and the development of strategies so that companies can
“The fourth phase that will take place later this year, the
form strategic alliances with third parties or grow through
farm-outs, and the unconventionals rounds are critical for
M&As. “A key feature of our services is the fact that we
the discovery and development of new reservoirs that will
assist players in participating in bidding rounds, and
| INSIGHT
NEW OPERATOR LOOKING TO EXPAND ITS HORIZON IVÁN SANDREA CEO of Sierra Oil & Gas
spaces of the oil and gas value chain,” Sandrea asserts. CNH estimates that the consortium should eventually reach a production level of 23,600b/d in its Round One blocks. “We certainly intend to comply with the pre-established
Iván Sandrea, CEO of Sierra Oil & Gas (Sierra), which is part
conditions of the contract and the timetable to the letter,”
of the consortium that won two blocks in R1-L01, believes
Sandrea voices. “In fact, the data that we have collected
that getting involved right from the beginning was the right
so far provides us with a positive view of the future.”
decision. Thanks to its robust capital structure, as well as
Nonetheless, he mentions that it is important to remember
a strong team with a robust technical background, the
that the consortium’s blocks are unique in that they are
company is determined to play a growing role in the industry.
exploration blocks, which means that before any talk about
“Going forward, Sierra will continue to consolidate its
production can be had, there needs to be drilling, findings,
status as pioneer and first-mover in Mexico within different
and an accurate assessment of the volume of the reserves.
among some of our new clients are those companies that won contracts,” shares Cruz. He anticipates that the most significant risk companies will face in the upstream segment will lie in exploration activities. Another significant challenge will be accountability in terms of environmental compliance and malfunctions in facilities or equipment, he explains. “Moreover, companies are concerned about the administrative recession stated in the contracts and also about corporate guarantees, and I believe that it is highly unlikely that the majors’ holding companies will feel comfortable with these types of guarantees,” Cruz asserts. Instead, he predicts that the
areas or demands required by the guidelines. “However,
risks will ultimately be transferred to a certain degree to
players have commented that even though the assignations
companies that provide services to these large players,
are there, details on the implementation of the contracts
and they will have to find ways to mitigate these risks.
and other operational aspects are still lacking,” he states. “The regulator’ challenge will be to react at the same pace
Cruz believes that the implementation of the Energy
as that at which the reform continues to unfold.”
Reform has been carried out in an impressively short timeframe and compares it to NAFTA due to the scope
In terms of the final phases of Round One, KPMG views
of changes it will bring about in the market, and the long
the fourth phase of Round One in a positive light in spite
term results. The results of NAFTA are now tangible and
of the current low oil price. “The contract model for
positive, but if these had been measured two years after
the deepwater round was drafted in a realistic way by
the treaty was enacted, he highlights, the results would
considering the developments of the exploration stages
not have been a fair reflection of its scope, as the country
through real options, which brings increased security to
was in the midst of one of the worst economic crises
investments,” Cruz comments. He believes that the fact
in its modern history. “The Energy Reform and other
that licenses were chosen also helps because this is the
parallel reforms impact different segments and industries
contract model majors are accustomed to working with in
simultaneously, so it entails a great deal of complexity
many markets. “Companies will seriously consider entering
regarding its implementation and regulations,” Cruz
Mexico even if their budgets are cut because of the low
comments. In this sense, the main guidelines have been
oil price,” Cruz predicts. “Given the fact that Mexico is
issued and the regulators have been closely following the
competing with other upstream markets, flexibility in the
developments in order to quickly cover any existing grey
contracts and clarity regarding guarantees is important.”
Only then does Sandrea believe the group can make
respected investor and operator in Mexico. “We want
announcements about the precise production rates that
to become a partner of choice with a growing, high
it deems viable and intends to pursue. “Compared to the
quality local portfolio, and to be acknowledged as a
estimates based on indirect seismic data, the figure could
firm that excels in terms of its technical and managerial
be significantly revised upward or downward, depending
capabilities,” he adds. The company would like to have
on the findings from our exploratory efforts,” he explains.
between 200-300 million boe of net reserves in projects in the development, exploration, and production stages,
Sierra is continuously evaluating a range of opportunities,
as well as select high quality midstream assets. In the
not just through the bidding rounds. “We did not
long-term, the CEO expects his company to develop
participate in R1-L03, but we will be looking at farm-
at least two flagship upstream projects that generate
outs for R1-04 and R1-L05, should the latter go ahead,”
a significant amount of value, and are instrumental in
the CEO divulges. Looking further into the future, the
increasing the country’s oil production. Sierra would also
company believes it could potentially seize opportunities
like to contribute to modernizing and expanding Mexico’s
in R2-L01 and R2-L02. In other words, Sierra is certainly
midstream infrastructure. “In other words, we want to be
not planning on having Blocks 2 and 7 remain its sole
a posterchild, a case study of what responsible success
assets in Mexico. When looking five years into the future,
looks like for the newly opened Mexican oil and gas
Sandrea envisions Sierra consolidating its position as a
market,” Sandrea sums up.
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| INSIGHT
A COMPREHENSIVE VIEW OF THE ENERGY SECTOR New business opportunities will arise in Mexico not just for energy companies, but also for all the players that can provide peripheral and related services, particularly
SERGIO BERISTAIN
to newcomers who will have to learn the country’s
Founding Partner of Beristain
way. Sergio Beristain, Founding Partner of Beristain
+ Asociados
+ Asociados, comments that a great deal of business opportunities have opened up through the implementation of the reform, thus it is important for law firms to have a
Beristain + Asociados is eager to work with different
comprehensive global view of the energy business. Part of
types of clients in the energy industry regardless of
this knowledge involves investments in qualified personnel
their country of origin. As Beristain explains, “We have
in order to have the most effective manner of identifying
extremely competent people, with excellent training,
opportunities to provide high quality and specialized legal
from different parts of the country, and from various
services. “Experience and knowledge related to oil, gas,
backgrounds. We treat everyone equally and do not
petrochemicals, power production, and technologies are
tolerate any individualist attitudes that are noxious to the
invaluable in the midst of this transition. In this sense, the
work environment. This level of diversity makes it easy for
best positioned companies are those that have worked
us to deal with any customer, regardless of background.”
within the energy industry for a considerable time.”
The firm will continue its path in the energy industry,
Beristain uses commerce customs as an example of an
mainly by focusing on the natural gas sector, its main
area that will be impacted by the Energy Reform due to
area of expertise. In fact, the firm has started working
the increase in diesel and gasoline imports.
on projects related to pipelines and the importation of liquids. Other areas of expertise include natural gas
Law firms interested in the energy sector have to keep up
fueled power plants.
with the changes brought about by the reform. In addition to knowing their way around the new legal framework, Beristain asserts that firms need to have a positive work
environment,
extensive
relations,
competitive
compensation plans, and up-to-date training programs, among other elements. “A firm with these characteristics will be able to take on the next step, which involves receiving technical advice from the energy sector, and creating alliances with its key players, who will provide support for any legal work,” he details, adding that
"The best positioned companies are those that have worked within the energy industry for a considerable time"
Sergio Beristain,
Founding Partner at Beristain + Asociados
practices can work with their clients to understand new challenges and help them overcome them, as in the case of right of ways.
Even though it will take time for the industry to reach the desired maturity, some changes are becoming evident. “I
Entering companies can opt for a large full-service law
noticed that the industry has been adapting and preparing
firm or a specialized firm. Beristain notes that law firms
for the new conditions since January,” Beristain points
in Mexico did not have the opportunity to develop and
out. “Companies need to have a strong economic model
become as big and all-encompassing as those in the
so that they can adapt to the industry’s new international
US. Regardless, he guarantees the professionalism of
standards. Ten years from now, PEMEX will probably
Mexican firms. “Although it is important to take size
be a highly efficient company with a size that will have
into account, the most important aspect is the internal
adapted to the economic conditions and industrial
environment of the practice, as well as the quality of its
challenges. I believe that this will also be the case for
services and training.” He points out that small boutique
CFE, but it could develop a better model if it capitalizes
firms are a great solution for clients that require
on all of the opportunities related to technology and the
specialized services in energy-related matters, as they
market. “I expect to see more competition in the private
are quite dedicated and provide a full range of services
sector, which will translate into opportunities for firms
for that specific industry.
like us.”
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| INSIGHT
DEEPWATER, THE KEY TO THE FUTURE OF THE INDUSTRY with this change, will focus its attention on the upstream
PABLO MEDINA
segment,” Medina adds. The NOC’s midstream presence
Latin America Upstream
has decreased both through the sale of stakes in important
Research Analyst at Wood
pipelines and as a result of CENAGAS’s takeover of many
Mackenzie
of its midstream assets. Medina also comments that the eventual liberalization of refined product prices may well force PEMEX to re-assess which markets are still attractive
The new reality of US$40-50/b is forecasted to remain,
enough for it to participate in.
and in this likely scenario, Pablo Medina, Latin America
356
Upstream Research Analyst at Wood Mackenzie, believes
When asked about the different improvements that
that “PEMEX’s survival will very much depend on its
Mexico can expect from the upcoming deepwater bidding
ability to adapt and upgrade its portfolio by focusing all
round, Medina talks about Round One’s biggest prize. “The
of its attention on its core business areas”. In the previous
untapped potential is immense,” he prompts doubtlessly.
market environment, it was compulsory for the national oil
“On the US side of the Gulf of Mexico, no less than 1,200
company to be an expert in all areas of the hydrocarbons
deepwater exploratory wells have been drilled, but on the
industry, but the Energy Reform has wiped out this
Mexican side, unfortunately there have been fewer than
obligation. Medina sees three non-core upstream areas in
40. The participation of the most experienced deepwater
the NOC’s operations.
operators in R1-L04 will be vital for the new industry’s
On the US side of the Gulf of
1,200 deepwater exploratory wells have been Mexico,
drilled, but on the Mexican side, there have been fewer
than 40
rapid development.” Nevertheless, he reminds that it is essential to take into consideration the long lead times typically involved in these projects, which he thinks will delay any contribution to Mexico's oil production until the mid-2020s at the earliest. While waiting for the impact of deepwater operations to reach the industry as well as the economy, Medina believes that results from farm-outs could fill the gap, considerably boosting production in the medium term.
“Given the fast growing amount of cheap gas imports from the US, it is not in PEMEX's best interest to continue its
Another industry impacted by the low price of oil is without
heavy investments in areas that produce non-associated
a doubt the unconventional one, fields from which are
gas such as Burgos, Lankahuasa, or Lakach,” he reasons.
expected to be tendered in R1-L05. Medina explains that
“The marginal fields in Tampico-Misantla, which represent
the development of these resources will be challenging in
the tail of PEMEX’s portfolio, are a good example of
the current environment, and points out that these plays
this. We already saw in R1-L03 that small companies are
have rarely taken off outside North America. He sees three
eager to access such assets. Finally, Chicontepec has
main challenges to doing so in Mexico. “Firstly, the Central
yielded minimal production compared to the significant
American country has mostly found non-associated
investment in the tight-oil play arena. PEMEX would be
gas, making it hard to compete against cost-efficient
much better off establishing various partnerships with
US gas imports. Secondly, logistics create an extremely
experienced tight-oil producers to unlock the field’s
adverse situation for the development of unconventional
considerable resource base. A leaner PEMEX should focus
resources, particularly in the northern part of Mexico,
on fields in shallow water and larger onshore fields, in
because of the limited infrastructure and sparse water
both of which it has noteworthy experience.” In his mind,
availability,” Medina lists. “Finally, security is an important
the NOC could gain the expertise it needs in deepwater
concern in this region of Mexico, predominantly for
projects through joint ventures in the long term, as it seeks
smaller operators and service companies.” When prices
to tap the tremendous potential of the deepwaters of the
rebound, however, he thinks the government could create
Gulf of Mexico.
economic incentives to attract companies to develop the country’s unconventional potential, avoiding onerous
“PEMEX’s involvement in the midstream could also be
work commitments and tight timelines in order to attract
revised, given the company will become leaner, and in line
the right type of players.
| VIEW FROM THE TOP
POTENTIAL CHALLENGES IN DEEPWATER DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow
Q: What are the main concerns of IOCs entering Mexico’s
experience working with IOCs and with a good understanding
deepwater segment?
of the business will be targeted by private companies.
A: None of the IOCs entering the Mexican market anticipated
Therefore, one thing that PEMEX has to learn is how to offer
legal instruments that truly comply with international
the incentives needed to retain its employees, including an
standards and respond to the industry’s needs and
attractive salary. It can be anticipated from past experience
expectations, and they are therefore somewhat skeptical.
that PEMEX will have a troublesome time incorporating this
However, the IOCs participating in Round One are raising
approach to its corporate culture and that the NOC will be
a lot of questions, particularly because they consider that
drained of its experience. In this regard, it will be crucial for
having the legal instruments with the right structure and
PEMEX to achieve the necessary knowledge transfer soon
wording does not necessarily guarantee the success of their
and retain it within the organization.
future operations. One of the main concerns in this regard is the country’s political environment and whether or not
Q: What challenges will ASEA encounter as a regulator
the current favorable scenario will be sustained for the next
for the deepwater segment considering that the agency
couple decades. For instance, companies worry about the
has no previous experience in this area?
left-wing party winning the elections and changing the
A: Having an unexperienced entity in charge of performing
game. These are not irrational concerns, but they are not
a key role in the industry causes uncertainty regarding
extremely decisive, which is why companies must consider
its course of action. During the early stages, ASEA can
all the risks when entering a new market. Companies
take two opposing directions that could make the IOCs’
are aware that the country faces a scarcity of physical
experiences easier or more difficult. However, maintaining
infrastructure,
specialized
one of these strategies for a prolonged period may cause
professionals, which will present an extra challenge for
consultancy
services,
and
an imbalance that would be harmful to the industry or the
them once the projects get started. Of course, many of the
country in the long term.
IOCs have conducted operations in developing countries before, but Mexico is a special case because in many areas
In the beginning, it is quite likely that ASEA will take a soft
it is not considered underdeveloped. This characteristic
approach, as it will not have the means and expertise to
might take some companies by surprise. To some extent,
handle many of these savvy and experienced companies,
this challenge can be overcome by importing international
which are much too strong and know how to find their way
expertise and infrastructure, but timing is key in this sector,
around any situation. It will take time for ASEA to become
and companies will struggle to replicate their successes in
strong enough to do what similar entities do in other parts
other markets in the same timeframes. This is why many
of the world, which will probably allow the IOCs a great deal
IOCs are keen on finding local partners. National companies
of liberties in the beginning. The agency can also opt for
have a better understanding of Mexican waters and have
implementing a strict attitude from the outset, an approach
access to many of the resources that IOCs lack.
that oil companies will find difficult to handle. This strategy could delay projects and cut investments, which would be
Q: What role do you expect PEMEX to play in the
disadvantageous for all the actors involved in the sector,
deepwater segment?
including the government. I believe that the first approach
A: If PEMEX plays its cards well, it should be able to learn the
will be favored, as ASEA is aware that it does not have the
business in approximately a decade, but it must use its time
political power to play strong. It will probably decide to
wisely during the early stages and form alliances with IOCs.
start from the bottom and build up from there. I think this
One of the main challenges the NOC will face to becoming
would be a wise move because it will allow the agency to
successful in deepwater will be retaining knowledgeable
follow a learning curve to the benefit of the industry. This
people within its staff. Every PEMEX employee with
crossroad is going to be ASEA’s biggest challenge.
357
| UPCOMING LICENSING ROUNDS
358
Exploration blocks Round 1 Round 2 Round 3 Round 4 Production blocks Round 1 Round 2 Round 3 Round 4
359
| VIEW FROM THE TOP
PARTNERSHIPS CRUCIAL FOR PEMEX’S FUTURE SUCCESS GUSTAVO HERNÁNDEZ Director of Prospective Resources, Reserves, and Associations at PEMEX E&P
Q: Why have the farm-outs not been launched yet, and
in R1-L03. The farm-outs now represent 150,000b/d, which
what should the industry expect in this regard?
amounts to about 5% of the current production, and that
A: We sent a request to the Ministry of Energy, which then
should make them an interesting option for the industry.
asked for CNH’s technical opinion, resulting in a favorable
360
approval for the migration of 14 out of the 17 amended farm-
Q: What are the main traits PEMEX will look for in its
outs. Five were onshore fields: Ogarrio, Cárdenas, Mora,
partners?
Rodador, and Samaria. Four were in shallow waters, including
A: In the case of mature fields, we are looking for technical
Bolontiku, Sinan, Ek, and Balam. Three fields, Ayatsil, Tekel,
expertise and technology, along with financial muscle.
and Utsil, are extra-heavy oil producers. Finally, we proposed
In return, PEMEX is offering knowledge of the fields,
two deepwater gas fields, Piklis and Kunah. Although we
infrastructure, facilities, and the wells, areas in which we
proposed three deepwater oil fields, Trion, Exploratus, and
have made considerable investments. We have produced
Maximino, we did not submit a request for these to be
all those fields through primary recovery, and we need a
farmed-out. CNH approved the 14 fields that we requested.
partner to help us increase the recovery factor by adding
The initial idea was to have a diversified portfolio of fields to
more energy to the reservoir, which can be done by
attract different types of partnering companies. We could
injecting water or gases, such as CO2, air, or nitrogen.
attract a great deal of offshore operators, and while the cohort for shallow water would have not been as large, it
Q: What role will farm-outs play in PEMEX’s deepwater
would have included some big names. Heavy oil fields would
strategy?
attract highly specialized companies, while the deepwater
A:
fields would bring the majors. However, we were not able to
developments on its own in order to reduce risks, so it is
take that path, and we learned from the new process. CNH
seeking to partner with majors. We have been in touch
decided to launch Round One before the farm-outs.
with the major oil companies who are interested in a
PEMEX
decided
not
to
carry
out
deepwater
partnership because of PEMEX’s knowledge of the basins. The onshore fields that will be farmed-out are attractive
PEMEX is trying to include fields discovered in Perdido,
enough to bring companies to work with PEMEX even in
although we have not yet submitted these to the Ministry
the current market conditions, because the lifting costs in
of Energy because we are still ending the modifying
mature fields are not so high, ranging between US$10-30
process of the entitlements. Fields from R1-L04 will take
per barrel, and could be lowered by introducing state-of-
at least ten years to stream oil, but the deepwater fields
the-art technology. In the case of offshore shallow water
from the farm-outs could be in production a little faster.
assets, incorporating water injection infrastructure will also drive the costs down. The conditions have changed greatly
We need to move all our opportunities and that means
from the time when we submitted our proposal, so we are
establishing a strategy. Part of that is not releasing fields
adjusting the farm-out opportunities to the oil price. Since
in some instances, as we need to look at the industry, the
deepwater gas, deepwater oil, and heavy oil production are
price behavior, and the price forecast. Even at US$40
linked to the oil price, we are reviewing with the Ministry of
a barrel, companies in Eagle Ford and Marcellus are
Energy if it is worth moving forward. For the other blocks, we
producing important volumes, which highlights the fact
are assessing if the budget we have makes them attractive.
that everybody is working according to a strategy. The
I find those fields appealing because the onshore fields
Energy Reform was meant to boost the country, and that
have close to 220 million barrels in 2P reserves, whereas
also includes PEMEX. We have the goal of maximizing the
the fields tendered in R1-L03 had between 60-70 million
benefits by using the tools and means derived from the
barrels. This means the onshore reserves offered in the
Energy Reform, which is as important as any other entity
farm-outs are four times larger than the reserves awarded
shaping the country’s oil and gas industry.
| INSIGHT
CHALLENGES TO PREPARE FOR FUTURE SUCCESS The opening of Mexico’s oil and gas industry was hit by a perfect storm when the oil prices toppled down to dropped to a historic low in early 2016 when it reached
JOSÉ ANTONIO GONZÁLEZ ANAYA
levels below US$30/b. The global hydrocarbon market has
Director General of PEMEX
levels not seen in decades. The American reference WTI
been trying to rectify this unfortunate situation through various meetings, the most recent of which took place in Doha in March 2016, but provided no meaningful outcome
When confronted with this reality, the NOC’s Director
due to the divergent interests of the oil producing nations.
General highlights the fact that only one of the three credit rating agencies has taken this step. “In order to rectify
When asked about Mexico’s stance in this negotiation,
this situation, we have been meeting with investors and
José Antonio González Anaya, PEMEX’s new Director
taking all necessary measures to ensure we regain our
General, comments that he is on Mexico’s side. In his view,
investor grade,” González Anaya discloses. The NOC has
the fundamental difference between Mexico and most oil
taken the decision to issue new debt both domestically
countries lies in the fact that Mexico is producing at top
and abroad, despite the recently announced government
capacity. “Although it would be beneficial for PEMEX and
support program aimed at lowering its debt requirement
the country to have higher oil prices, I want to clarify that
by US$2.7 billion.
the Mexican economy is rapidly reducing its dependency on oil revenues, which currently only represents 7-10% of
The Mexican oil company is also reviewing all of its assets
the economy. Public finances, however, are dependent
and preparing to put those that are deemed non-strategic
on oil revenues,” González Anaya admits. “It is a tricky
on the table. “PEMEX was a vertically integrated monopoly
situation but the Mexican government is making quick
for 75 years,” González Anaya reminds. “Within the new
progress and succeeding in its quest to become less
rules, there are many things that do not necessarily have
reliant on the sector.”
to be run by PEMEX.” González Anaya says he expects refining to be open to partnerships, and he anticipates
In order to survive and be successful in this new era,
that non-strategic downstream assets will be the first to
PEMEX has implemented a budget cut of approximately
undergo this change. “We will retain part of the equity, but
US$5.5 billion, counting on an oil price of US$25/b for the
it does not necessarily have to be the majority.” The NOC
Mexican Mix, or approximately US$35/b for WTI. González
also hopes to cut CAPEX by sharing it with new partners,
Anaya laments that the deep cuts do not reflect the long-
a key factor that brings González Anaya optimism about
term opportunities available, as they had to be made in
the future of the company. PEMEX hopes to leverage
order to adjust to the short-term challenges. “This leaves
on the fact that most companies do not like to enter a
PEMEX with current operating budget of about US$20.8
country without a domestic partner, creating numerous
billion, leaving sufficient room for the NOC to meet its
opportunities for the NOC.
target for this year. An idea that has crossed the minds of most industry Moreover, PEMEX is taking advantage of the tremendous
experts is the possibility of PEMEX going public as
flexibility that the Energy Reform provided it with to face
an alternative way to attract funding. This could be a
these issues,” he reassures optimistically. Indeed, one of
favorable decision, as it would raise capital, keep the
the main changes brought about by the reform is the
company from having to sell assets when the oil prices
possibility for the NOC to partner with private operators,
are low, and introduce accountability into finances and
giving it access to much-needed capital and technology.
operations. “The biggest challenge that we would face
This newly acquired flexibility allows González Anaya
in this endeavor would be transparency. It is important
to confidently claim that PEMEX could potentially still
to remember that we have been a state-owned company
survive another budget cut by further improving its
since 1938, and although we are slowly moving towards
savings and cost efficiencies.
transparency, we have not fully achieved this. As we move in that direction, however, we will become more
Despite the improvements, the results of which are yet to
accountable, allowing us to concentrate on profitable
be seen, PEMEX experienced a drop in its credit rating.
decisions and activities,” González Anaya explains.
361
| INDEX A-I ABB 248
Dräger Safety 221
ADIL 134
Duro Felguera Oil & Gas 291
AIM Global Logistics 333
Ecosolutions 228-229
AINDA Consultores 69
EIM Capital 202
AIRSTAR 227
Elara 259
ALMU 312
Emerson 133
Alpha Deepwater Services 184
Emerson 314
Alpine Services 311
EMGS 88, 89
ALS Wellvention 123
Enagás 278
AMEC Foster Wheeler 302, 341
EnerChem Tek 315
AMESPAC 38-39, 245
ERM 216
AMEXGAS 280-281
EVONIK 287
AMEXHI 35
EY 276
AMMIS Risk Solutions 328
Falck 220
API Coatzacoalcos 297
Fermaca 277
Arendal 136, 275
Fieldwood Energy 154-155
ARHIP20, 334
Fire Service Plus Mexico 235
Arigem 230
FMC Technologies 158
ASEA 214-215
Fondo de Fondos 323
ATCO Mexico 279
GDT Offshore 183
Baker & McKenzie 71
GE 117, 253
BBVA Bancomer 324
Geo Estratos 199
Bechtel 291
Geoprocesados 99
Beristain + Asociados 355
Global Drilling Support 117
Braskem Idesa 147, 297, 300-301
GlobalSat 258
Bureau Veritas 218
Goodrich, Riquelme y Asociados 30-31, 68-69
Cashman Equipment 160
Greensill Capital 247
CBM 132, 203, 337
Grupo Accses 330
CENAGAS 266-267, 272-273
Grupo DEISA 282-283
CFE 272-273
Grupo Diavaz 194-195
CGG 95
Grupo Hosto 304
CHM Maritime 160
Grupo Idesa 147, 299
Citla Energy 97
Grupo Petroquímico Beta 306
CNH
Halliburton 66-67, 112, 113
Alma América Porres 80-81, 172
Harkand 189
Edgar René Rangel Germán 13, 15, 56-57, 85, 173
HB Rentals 138, 162
Héctor Acosta 50-51, 172
Heerema 185
Nestor Martínez 16-17
Hempel 141
Oscar Roldán 84
Hoerbiger 144
Sergio Pimentel 49, 172
Ibañez Parkman 282
Ulises Neri 152-153
ICA 340
Compañía Petrolera Perseus 196
ICORSA 261
Consorcio EMCRO 249
IHS Energy 72, 250-251
COPARMEX 246
IKON Science 98
COSL 122
Industrias Energéticas 224-225
CSIPA 231
InterMoor 164
DM Ingenieros 125
Io Oil & Gas Consulting 135
DNV GL 74-75
ION Geophysical 96-97
Dow Oil & Gas 142, 307
iPS Powerful People 342, 343
| INDEX I-W ISI Mustang 290
Perforadora México 108-109
iStore 140, 254
Petricore 90
KBR 181
Petrogas 146, 182, 286
KPMG 352-353
PGS 91
Kratus Energy 124
Plenumsoft Energy & Sustainability 255
Lamons 308
Premier Oil 63
LAOGA 244, 339
Puesta a Punto 217, 335
Loadcraft 116
QMax 111
Lockton 329
R.H. Shipping 161
MAN Diesel & Turbo 186, 309
R2M 344
Marcos y Asociados 38-39, 245
Recal 223
Marítima Internacional 163
Renaissance Oil 67, 198
Marsh 74, 326-327
Rengen Energy Solutions 303
McDermott 137, 147, 160
Rodríguez Dávalos Abogados 43, 73
Mexican Petroleum Fund 21, 22-23
ROSEN Group 288-289
Mexican Petroleum Institute 242-243
Schlumberger 40-41, 87, 107, 110, 177
Mexico Petroleum Company 205
Seadrill 114-115
MEXMOT 253
Sercel 92, 101
Ministry of Energy
Shell Mexico 37, 50-51, 176
Guillermo García Alcocer 18-19, 54-55
SICK 260
Lourdes Melgar 48, 173, 296, 350-351
Sierra Oil & Gas 52, 63, 352-353
Pedro Joaquín Coldwell 8-9
SITec 226
Ministry of Finance 22-23
Strata BPS 197
MODEC 187
SUMIMSA 233
Moody’s 75, 322
TAG Pipelines 274
Nalco Champion 178-179
Talos Energy 63, 64-65
National Instruments 256
Taylors 139
National Oilwell Varco 143
Teadit 310
Naviera Integral 167
Tecno Fire 228-229
Net Brains 257
Tekna Services 145, 208, 209
Norsafe 232
Tellus Operating Group/Telpico 204
Norton Rose Fulbright 331
TGS 100
NRGI Broker 332
TrueBlackOil 206
Nuvoil 66
TSC Offshore 121
Oceaneering International 156-157
Turbo Drill 118-119, 119
Octopus 284
Tytal 313
OH Maritime 94
United Pipeline Systems 283
OOS Mexico 165
University of Georgia 42
Oxiteno Mexico 307
University of Texas at San Antonio 200-201
PEMEX
UTCAM 336, 337
Gustavo Hernández 32-33, 360
UVM 345
José Antonio Escalera 82-83
Venus Offshore 159
José Antonio González Anaya 24-25, 361
Williams Scotsman 207
José Manuel Carrera 296, 320-321
Wood Group Mustang 180
Juan Javier Hinojosa 130-131
Wood Mackenzie 19, 325, 356
Juan Pablo Newman 26-27
Woodhouse Lorente Ludlow 70, 177, 357
Miguel Ángel Servín 240-241
Paradigm 93, 99 Pepperl + Fuchs 305
| TECHNOLOGY SPOTLIGHTS Schlumberger: GeoSphere 110 Sercel: GeoTag 92 Turbo Drill: Turbo Scout 119 Schlumberger: PowerDrive Archer RSS 120 iStore: Petrotek 140 HB Rentals: TLQs 162 MAN Diesel & Turbo: Subsea Compressor 186 Tekna Services: Thermo-Chemical Well Treatment 208
| PROJECT SPOTLIGHTS McDermott: PB-Litoral-A 147 UTCAM 337
| ADVERTISING INDEX 6
SENER
186
McDermott
14
NALCO Champion
188
Oceaneering International
16-17 EMGS
192
Industrias Energéticas
34
NRGI Broker
198
Mexico Petroleum Company
36
Grupo Hosto
212
ERM
46
Seadrill
215
DNV GL-Oil and Gas
55
Nuvoil
222
Recal
65
Talos Energy
232
Norsafe
73
HB Rentals
234
Fire Service Plus Mexico
78
Emerson
238
Rosen Group
92
Taylors
245
Maritima Internacional
104
Qmax
251
MAN Diesel & Turbo
110
Williams Scotsman
252
MEXMOT
114-115 Petricore
255
Plenumsoft
118-119 Turbo Drill
264
Cummins
120
Teadit
272
GlobalSat
128
Net Brains
281
ISI Mustang
135
CBM
294
Puerto Coatzacoalcos
140
Hempel
298
Braskem IDESA
144
Icorsa
308
Technip
150
RH Shipping
318
UTCAM
155
Fieldwood Energy
326-327 MARSH
159
Goodrich, Riquelme y Asociados
331
Grupo Accses
164
Tecno Fire
338
Rengen
166
Mexico Business Events
342-343 IPS Powerful People
170
Schlumberger
348
BP
179
Alpha Deepwater Services
354
BERISTAIN + ASOCIADOS
182
GDT Offshore
| PHOTO CREDITS Inner front cover - McDermott
88
EMGS
4
MBP
89
EMGS
8
SENER
90
MBP
13
CNH
91
MBP
15
MBP
92
Sercel
16
MBP
93
Paradigm
18
MBP
94
MBP
19
PEMEX
95
MBP
20
ARHIP
96
ION Geophysical
21
MBP
97
MBP
22
Ministry of Finance
98
Ikon Science
24
PEMEX
99
Geoprocesados
25
PEMEX
100
MBP
26
MBP
101
Sercel
30
Goodrich, Riquelme y Asociados
102
Grupo Mexico
32
MBP
107
MBP
35
MBP
108
Grupo Mexico
35
PEMEX
109
Grupo Mexico
37
SHELL
111
MBP
38
AMESPAC
112
Halliburton
39
PEMEX
113
Halliburton
40
MBP
114
MBP
41
PEMEX
116
MBP
42
University of Georgia
117
Global Drilling Support
43
Rodríguez Dávalos Abogados
119
MBP
44
Química Apollo
121
MBP
48
SENER
122
MBP
49
MBP
123
MBP
50
MBP
124
Kratus Energy
50
SHELL
125
DM Ingenieros
54
MBP
126
McDermott
56
CNH
130
PEMEX
57
PEMEX
130
MBP
63
Sierra Oil & Gas
132
MBP
64
Talos Energy
133
Emerson
66
Nuvoil
134
ADIL
67
Renaissance Oil
135
io Oil & Gas Consulting
67
Renaissance Oil
136
MBP
68
Goodrich, Riquelme y Asociados
137
MBP
69
AINDA Consultores
138
MBP
70
Woodhouse Lorente Ludlow
139
MBP
71
Baker & McKenzie
141
MBP
72
IHS Energy
142
Dow
73
Rodríguez Dávalos Abogados
143
National Oilwell Varco (NOV)
74
MBP
144
MBP
74
MARSH
145
Tekna Services
75
MBP
146
MBP
75
Moody's
147
MBP
76
CGG
148
Grupo Diavaz
80
CNH
152
CNH
82
MBP
153
PEMEX
84
CNH
154
MBP
85
MBP
156
MBP
87
MBP
157
Oceaneering International
| PHOTO CREDITS 158
FMC Technologies
228
MBP
159
Venus Offshore
230
MBP
160
CHM Maritime
231
MBP
161
RH Shipping
232
MBP
162
HB Rentals
233
MBP
163
MBP
235
MBP
164
MBP
236
Mexican Petroleum Institute
165
MBP
240
MBP
167
MBP
242
Mexican Petroleum Institute
167
DAMEN
244
MBP
168
PEMEX
245
AMESPAC
173
SENER
246
COPARMEX
173
MBP
247
MBP
176
SHELL
248
MBP
177
MBP
249
EMCRO
177
Woodhouse Lorente Ludlow
250
IHS Energy
178
MBP
253
MBP
180
MBP
254
iStore
181
KBR
255
Plenumsoft Energy & Sustainability
182 MBP
256
MBP
183
GDT Offshore
257
Net Brains
184
Alpha Deepwater Services
258
GlobalSat
185
MBP
259
MBP
187
MBP
260
MBP
189
Harkand
261
MBP
190
Grupo Mexico
262
Emerson
194
MBP
266
CENAGAS
195
Grupo Diavaz
266
Enagás
196
MBP
271
TAG Pipelines
197
MBP
274
MBP
198
Renaissance Oil
275
MBP
199
MBP
276
EY
200
University of Texas at San Antonio
277
MBP
202
MBP
278
MBP
203
MBP
279
ATCO Mexico
204
Tellus Operating Group and Telpico
280
MBP
205
Mexico Petroleum Company
282
Grupo DEISA
206
MBP
282
Ibáñez Parkman
207
MBP
283
MBP
209
Tekna Services
284
Octopus
210
Norsafe
285
TAG Pipelines
214
ASEA
286
MBP
216
ERM
286
Rodríguez Dávalos Abogados
217
Puesta a Punto
287
EVONIK
217
PEMEX
288
ROSEN Group
219
MBP
289
ROSEN Group
220
MBP
290
MBP
221
Dräger Safety
291
MBP
223
Recal
291
Bechtel
224
MBP
292
Grupo Hosto
225
Industrias Energéticas
296
SENER
226
MBP
296
MBP
227
MBP
297
MBP
228
Tecno Fire
299
MBP
| PHOTO CREDITS 300
MBP
301
Braskem IDESA
302
MBP
303
MBP
304
MBP
305
MBP
306
MBP
307
MBP
307
Dow
308
MBP
309
MAN Diesel & Turbo
310
Teadit
311
Alpine Services
312
MBP
313
Tytal
314
Emerson
315
MBP
316
McDermott
320
MBP
321
Grupo Diavaz
322
MBP
322
Moody's
323
Fondo de Fondos
324
MBP
325
MBP
326
MARSH
329
Lockton
330
MBP
331
MBP
332
NRGI Broker
333
AIM Global Logistics
334
ARHIP
335
Puesta a Punto
336
MBP
337
MBP
339
MBP
340
MBP
341
MBP
342
MBP
343
MBP
344
MBP
345
UVM
346
Creative Commons CC0
350
SENER
352
KPMG
352
Sierra Oil & Gas
353
PEMEX
355
Beristain + Abogados
356
Wood MacKenzie
357
Woodhouse Lorente Ludlow
360
MBP
361
PEMEX
Inner back cover – Braskem IDESA
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