Mexico Oil & Gas Review 2018 by Mexico Business Publishing

2018

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I S B N : 978 - 0 - 9 9 93 1 0 8 -7- 8

2018 Foreign investment has started pouring into Mexico’s oil and gas industry, unlocked by nine licensing rounds following the 2013 Energy Reform championed by President Enrique Peña Nieto. As PEMEX celebrates its 80th anniversary, it finds itself reborn as a productive enterprise of the state competing with international oil companies in what was once its exclusive domain. With significant new discoveries being made by both PEMEX and private operators, the first steps toward reversing Mexico’s declining production have been made.

Mexico’s midstream and downstream markets are also being reshaped. The country’s natural gas pipeline network is growing rapidly, with significant storage capacity on the drawing board. At the end of the chain, the liberalization of fuel imports and the end of PEMEX’s distribution monopoly has resulted in a wave of national and foreignbranded gas stations replacing the traditional PEMEX colors and offering consumers more choices at the pumps.

Mexico’s next president will be instrumental in shaping the future of the Mexican oil and gas industry and operating environment for all players across the value chain. Continuity is the buzzword as both international and domestic players demand the country follow the road it paved with the Energy Reform, particularly as a new presidential administration, and the inherent uncertainty that implies, prepares to take the reins of power. The pages that follow will outline the story of an industry in the midst of change, but one which is optimistically moving forward.

TABLE OF CONTENTS

KEY OIL & GAS STATES

LICENSING ROUNDS

OPERATORS & CONSORTIUMS

EXPLORATION & DRILLING

SHALLOW WATER

DEEPWATER

PEMEX AT 80: CREATION OF AN OIL GIANT

STATE OF THE INDUSTRY

Supplement

ONSHORE & UNCONVENTIONAL RESOURCES

FIELD DEVELOPMENT & PRODUCTION INFRASTRUCTURE

AUTOMATION & DIGITALIZATION

PIPELINE CONSTRUCTION, OPERATION & MAINTENANCE

REFINING & PETROCHEMICALS

STORAGE, DISTRIBUTION & RETAIL

HUMAN CAPITAL

Jackup rig drilling in the Bay of Campeche

STATE OF THE INDUSTRY

Almost four years since its signature and official publication, the Energy Reform has gone through the complete process of implementation and is now starting the process of consolidation, particularly in the hydrocarbons sector. Thanks to the hydrocarbons licensing rounds, 73 companies have entered the Mexican upstream market through CNH's contract assignations. With the culmination of Round One in December 2016, the successful development of Round Two and the beginning of Round Three, the outlook for the hydrocarbons industry looks positive for the entire Mexican value chain. In addition, the Mexican supply chain is gaining momentum due to the diversification and optimization of its client portfolio.

The country has notably witnessed an increase in exploration activities with the signing of the licensing round contracts. With that, the process to stop and even reverse the decline of its reserves has started, creating optimism for the security and stability of the countryâ&#x20AC;&#x2122;s economic activities, encouraging large investments and developing the necessary pipeline for future projects and production activities.

CHAPTER 1: STATE OF THE INDUSTRY 8

THE YEAR IN REVIEW: Rounds, Discoveries, Politics Dominate Oil and Gas Industry

VIEW FROM THE TOP: Pedro Joaquín Coldwell, Ministry of Energy

VIEW FROM THE TOP: Aldo Flores, Ministry of Energy

VIEW FROM THE TOP: Juan Carlos Zepeda, CNH

VIEW FROM THE TOP: Carlos de Regules, ASEA

VIEW FROM THE TOP: Guillermo García, CRE

VIEW FROM THE TOP: Mauricio Herrera, FMP

ANALYSIS: PEMEX Capably Navigates Rough Waters

VIEW FROM THE TOP: Juan Javier Hinojosa, PEMEX

VIEW FROM THE TOP: José Antonio Escalera, PEMEX

VIEW FROM THE TOP: Héctor Moreira, CNH

VIEW FROM THE TOP: Gaspar Franco, CNH

VIEW FROM THE TOP: Ernesto Ríos, IMP

INSIGHT: Raymundo Piñones, AMEXHI

VIEW FROM THE TOP: Antonio Juárez, AMESPAC

VIEW FROM THE TOP: David Enríquez, Goodrich, Riquelme y Asociados

VIEW FROM THE TOP: Manuel Cervantes, MCM Abogados

VIEW FROM THE TOP: José Uriegas, Grupo IDESA

INSIGHT: Bernardo Cardona, Deloitte Consulting Mexico

VIEW FROM THE TOP: Rubén Cruz, KPMG in Mexico

VIEW FROM THE TOP: Ernesto Marcos, Marcos y Asociados

INSIGHT: Eduardo Núñez, Núñez Rodríguez Abogados

VIEW FROM THE TOP: Juan Carlos Machorro, Santamarina + Steta

VIEW FROM THE TOP: Sergio Beristain, Beristain y Asociados

VIEW FROM THE TOP: Enrique González, González Calvillo

YEAR IN REVIEW

ROUNDS, DISCOVERIES, POLITICS DOMINATE OIL AND GAS INDUSTRY The past year spurred both optimism and trepidation. Discoveries in shallow waters and heightened exploration activity highlighted the successes of the licensing rounds while the reach of the Energy Reform extended to the liberalization of the retail gasoline market. But a political cloud still hangs over the sector

With Mexico’s crude oil production at a 38-year low,

matters. Since the Energy Reform’s launch in 2013, the

following a 15-year decline, and the most important

E&P operator landscape has been transformed from a

elections in decades taking place this summer, the country’s

PEMEX monopoly to a competitive market with 73 winners

oil and gas industry finds itself at a crossroads. The 2013

representing 24 countries that have collectively been

Energy Reform transformed the industry’s outlook, but

awarded 107 blocks.

whether the over US$161 billion investment committed by the winners of the first 9 licensing rounds will reverse

Aldo Flores, Deputy Minister of Hydrocarbons at the Ministry

Mexico’s declining production is a key question that remains

of Energy, highlights the positive impact of the Energy

to be answered. At the same time, PEMEX still produces

Reform. “In total, we have over 170 new players across the

97 percent of the country’s oil and is destined to remain

oil and gas value chain. They are all interacting, competing

the dominant operator. Mexico’s next president will be

and developing their business models to foster a modern

instrumental in shaping the future of the Mexican oil and

and competitive industry in the country.” His perspective is

gas industry and operating environment of PEMEX, private

supported by Bernardo Cardona, Partner and Energy and

operators, and the entire supply chain.

Resources Industry Leader at Deloitte Consulting Mexico, who says that “the role of CNH, the Ministry of Energy

Looking at the past year, however, the industry’s momentum

and ASEA has been extremely important in achieving this,

is best summed up by one word: discovery. Outgoing

as they have conducted transparent and clear bidding

President Enrique Peña Nieto’s 2013 bet to liberalize the

processes and provided regulatory and legal frameworks

energy industry finally paid dividends in the oil and gas

that offered sufficient certainty to the market and made it

sector when Talos Energy, Sierra Oil & Gas and Premier Oil

attractive for companies to venture into Mexico.”

announced their historic discovery in the Zama-1 shallowwater well, estimated at over 1.4 billion boe. PEMEX also

LICENSING ROUNDS

flexed its onshore muscle in 2017 with its biggest discovery

Nine rounds have come and gone, and the results have been

in 15 years, at the Ixachi-1 well in the state of Veracruz.

internationally praised for their success, competitiveness and potential to increase Mexico’s reserves and production

These milestones were made possible by the successful

rates. In particular, Minister of Energy Pedro Joaquín

implementation of the licensing rounds, which the Ministry

Coldwell highlights the achievements of Mexico’s Energy

of Energy and CNH tweaked and adjusted from round to

Reform in the upstream sector. “The hydrocarbons licensing

round, with ASEA formulating the regulations that will

system has allowed us to reach 67 percent in contract

ensure industrial safety and environmental protection

allocation with 107 awarded contracts from 161 offers, and with no complaints from participating companies. Moreover,

WELLS COMMITTED IN LICENSING ROUNDS 40

we have had an average 74 percent government take. The expected economic spillover from these contracts amounts to US$161 billion and around 900,000 direct and indirect jobs in the country’s oil regions. New entrants into the market have created a highly diversified hydrocarbons

industrial system with 73 operators from 24 countries, ranging from the world’s most renowned IOCs to 34 new

Mexican companies founded after the reform’s approval.”

Two more rounds – 3.2 and 3.3 – have been announced and Round 3.3 will be the first to include areas with

unconventional resources. “We waited a longer time to R1.1

Source: CNH

R1.2

R1.3 R1.4

R2.1 R2.2 R2.3 R2.4 R3.1

tender unconventional blocks because the proper regulation had to be in place and we needed to communicate to society

the real situation and processes involved with these types of resources exploration and production,” says Franco.

AVERAGE OFFSHORE EXPLORATORY WELLS WORK COMMITMENT 30

The business opportunity present in unconventional

resources is also seen by PEMEX, and while it is not yet 13

Reserves and E&P Associations at PEMEX, indicates that

very interested in highly-experienced players in this arena.”

EXPLORATION According to a CNH drilling report, from January-April 2018, the pieces of drilling-related equipment in operation climbed to 37, representing an increase of 54.1 percent over the same

PEMEX Source: CNH

2006-2010

production goals. In terms of unconventional fields, we are

2001-2005

that can contribute to meet future reserve restitution and

1996-2000

independently, for assets that complement our portfolio and

1991-1995

is likely. “PEMEX has been participating, in partnership or

2018-2021

3.3, Ulises Hernández, Director of Prospective Resources,

2011-2017

known whether the company will place bids in Round

PEMEX

New operators

period in 2017. Of this equipment, 24 pieces were engaged in development activities and 13 in exploration. Regarding

drilling a delimitation well. This was a significant discovery

location, 17 were onshore and 20 offshore and the number

worth approximately 200 million boe.”

of onshore pieces of drilling equipment between January and April 2018 was 3.4 times than in the same period in 2017.

Private advances were highlighted by the Zama-1 well discovery of 1.4-2 billion boe. “The key to success at Zama

During that time, 62 wells were drilled, representing more

was to do our homework ahead of time,” says Timothy

than double the number of wells drilled during the first four

Duncan, President and CEO of Talos Energy, the company

months of 2017, when only 24 wells were drilled. Of these

appointed as operator in the consortium conformed by Talos

62 wells, 53 were drilled onshore and more specifically, 36

Energy, Sierra Oil & Gas and Premier Oil. “At this moment, the

were located in the Tampico-Misantla basin.

oil discovered at Zama is classified as a contingent resource instead of a reserve. Once a final investment decision has been

In terms of specific activity, PEMEX has been moving

completed and the development plan has been approved by

forward. “During 2017, we focused strongly on shallow-

the government, these resources will migrate into reserves.”

water exploration,” says José Antonio Escalera, Director of Exploration at PEMEX E&P. “We made some significant

PRODUCTION

discoveries in these regions and are already working to

During the first five months of 2018, Mexico produced an

drill some delimitation wells. One of the latest wells we are

average of 1.864 million b/d of crude oil and 4.801 bcf/d of

drilling in shallow waters is Yaxché, where we are testing

natural gas, which represents a drop of 3.4 percent and 6.2

pre-salt production.” Regarding onshore activities, we

percent from 2017 and a decrease of 12.1 percent and 17.6

discovered the Valeriana field in Tabasco, where we are also

percent from 2016, respectively.

EVOLUTION OF MEXICAN RESERVES 2005-2017 35

70 60

0 2005

2006

Oil (Billion barrels) Source: CNH

2007

2018

Gas (Tcf)

2009

2010

2011

Proven

2012

2013

Provable

2014

Possible

2015

2016

2017

YEAR IN REVIEW

1,881

1,847

1,808

1,831

1,813

01/2018

02/2018

03/2018

04/2018

05/2018

1,895 08/2017

1,839

1,952

07/2017

12/2017

1,973 06/2017

1,837

1,988 05/2017

11/2017

2,011 04/2017

1,875

2,017 03/2017

10/2017

2,015

02/2017

2,000

1,695

2,019

2,500

01/2017

NATIONAL OIL PRODUCTION PER BASIN (thousand b/d)

1,500 1,000

Southeast basin Chiapas fold belt

09/2017

500

Tampico-Misantla Veracruz

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center Source: CNH

Mexico’s 1P reserves totaled 7.037 billion boe in 2017,

can certainly help the country make a direct change in this

according to PEMEX’s financial statement posted to the US

area. Of course, the blocks auctioned in the licensing rounds,

Securities and Exchange Commission (SEC) at the end of

especially in deepwater, have great projections but that is for

April. The reserve replacement ratio came in at 17.5 percent,

the long-term. In the near-term, the most essential event for

an improvement on the rate of 4.0 percent in 2016. But total

Mexico is the PEMEX farmouts,” says Palma Méndez, Country

1P reserves dropped 11 percent to 6.427 billion barrels from

Manager at Wood Mackenzie.

the previous year. In its SEC filing, the NOC cited a decrease in production from its Cantarell, Crudo Ligero Marino, El

New discoveries such as those at Ixachi and Zama will also

Golpe-Puerto Ceiba, Bellota-Chinchorro, Complejo Antonio

underpin the countries production and reserves, but improved

J. Bermúdez, Cactus Sitio Grande, Ixtal-Manik, Chuc, Costero

data collection and analysis will be key, according to Finance

Terrestre and Tsimín-Xux fields.

Minister Pedro Joaquín Coldwell. “With 2D and 3D seismic data multiplying threefold, we are improving our understanding of

PEMEX’s farmout program, started in 2016 with BHP Billiton

the resources that lay underground,” he says, pointing to the

selected as the NOC’s first farmout partner for the Trion

tangible results already emerging with the discoveries by Eni

field, is also a strong bet to boost production. “Farmouts

and the Talos-Sierra-Premier consortium.

4,688

4,654 05/2018

4,766 02/2018

04/2018

4,823 01/2018

4,475

4,803

5,028 08/2017

12/2017

5,210 07/2017

4,798

5,247 06/2017

11/2017

5,293 05/2017

4,754

5,333 04/2017

10/2017

5,383 03/2017

5,000

4,295

5,298 02/2017

6,000

5,325

NATIONAL GAS PRODUCTION PER BASIN (MMcf/d)

01/2017

4,000 3000 2,000 1,000

Burgos Chiapas fold belt Veracruz basin Tampico-Misantla Southeast Center Sabinas Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Source: CNH

03/2018

0 09/2017

PEMEX

outlined its objectives for the rest of 2018. These include

PEMEX has dominated the oil and gas industry in Mexico,

maintaining production levels and developing farmouts and

celebrating its 80th anniversary this year, and its hold on the

associations, accelerating the migration of integrated E&P

sector remains in place after the nine concluded licensing

contracts and FPWC to exploration and extraction contracts.

rounds. The NOC emerged the biggest winner from the

PEMEX will also evaluate prospects for further Open Seasons

rounds, taking 14 highly competitive blocks – three of them

for parts of its pipeline and storage systems, after holding

individually. Says Joaquín Coldwell: “The Energy Reform

the first one in 2017.

has provided PEMEX with the necessary tools to build associations and to venture into technologically-challenging

The company also mentioned the risk factors that could

or financially-robust projects along with partnering

hit its balance sheet, including crude oil and natural gas

companies. The reform has provided PEMEX with the

price volatility, its high debt load, its potential exposure

possibility to compete for E&P contracts in CNH’s licensing

to cyberattacks and transportation risks and increased

rounds and the NOC has obtained 11 contracts in partnership

competition in the energy sector. The NOC also cited the

with seven IOCs so far, with a projected investment that

political developments in Mexico. “Political events in Mexico

totals US$17.5 billion. Additionally, PEMEX has been awarded

may significantly affect Mexican economic policy and,

three independent contracts that prove its capacity to win

consequently, our operations,” it said. “We cannot provide

blocks on its own.”

any assurances that political developments in Mexico will not have an adverse effect on the Mexican economy or oil and

The company won 83 percent of the country’s 2P oil

gas industry and, in turn, our business, results of operations

reserves distributed mostly in shallow waters and onshore

and financial condition, including our ability to repay our

and also took five deepwater blocks, either individually

debt.” PEMEX's total financial debt as of March 2018 totaled

or with partners. But several factors have converged and

US$106.3 billion, down 4.3 percent compared to the same

hampered its ability to meet its exploration commitments.

period in 2017. It also reported a net loss of MX$113.3 billion

These include a shortfall in the NOC’s committed exploration

in 1Q18, but that represented a 29 percent improvement over

budget, focalization of investment on the most onerous

1Q17. For the 2017 year, PEMEX spent US$10.81 billion, of

wells, leaving some blocks unattended, and delay of the

which 84 percent was allocated to E&P activities, 10 percent

regulating guidelines, according to CNH Commissioner

to refining and petrochemicals and 6 percent to other

Alma America Porres. The Ministry of Energy gave PEMEX

expenses. It reported a full-year net loss of MX$333 billion

a two-year extension to come up with an exploration plan

in 2017 compared to a MX$191 billion loss the previous year.

to meet its commitments, which Porres says implied a shift in PEMEX’s strategy to achieve at least one discovery per

MIDSTREAM

assignation. “This goal seems difficult to reach; however,

With an open market and newly arriving companies looking

during 2017 PEMEX had a 50 percent exploration success

to exploit the Energy Reform, the country’s pipelines and

rate. Given this success, we are confident that the NOC’s

storage infrastructure have come under scrutiny, particularly

goals will be meet. For the 2018/19 term, PEMEX will conduct

for natural gas. Imports must be moved from Point A to Point

exploration activities at 130 wells and we are confident that

B and Mexico is currently undertaking “the largest expansion

PEMEX´s production will increase.”

our pipeline network has ever seen,” says Flores. In fact, the country’s pipeline network has added 7,372km of pipelines

To this end, more farmouts will be vital going forward,

during the Peña Nieto administration, according to the latest

says Rubén Cruz, Leading Partner in Energy and Natural

update to the Five-Year Plan.

Resources at KPMG in Mexico. “Farmouts represent the perfect means to develop the fields awarded to PEMEX

More is on the way. TransCanada, in a joint venture with

during Round Zero. They are a shortcut for the NOC to

IEnova and Infraestructura Marina del Golfo, was chosen in

sustain a production volume of 2 million b/d and look to

2016 to build, own and operate the 800km South Texas-

have a stable development as new discoveries will imply

Tuxpan pipeline for natural gas. The project will interconnect

better planning to revert the trend of shortening production

with CENEGAS’ pipeline network in Altimira. During 2017,

outcomes.”

Mexico imported around 4.223 bcfp/d, mostly from the US, while its national consumption totaled 8.017 bcfp/d.

In its SEC filing, PEMEX pointed out that it was sticking to its five-year business plan to 2021, that included strategies to

While building for today’s needs, the country must also keep

improve cash flow and reduce debt while targeting continued

in mind the future, when natural gas supply is expected to

cost-cutting and administrative discipline. It also said it was

outpace demand. “Now, challenges are related to the drop

evaluating an updated 2018 plan. As a change in presidential

in local production that leads to more natural gas imports as

administration looms at the end of the year, the NOC also

we are reaching our limit for imports capacity,” says David

YEAR IN REVIEW Madero, Director General of CENAGAS. “On the positive side,

efficiency of refined products only reached 61 percent, and

there are many pipelines being built right now and they are

the percentage of unscheduled shutdowns reached almost

close to starting commercial operations. Once this happens,

13 percent.

we will enter an era of larger transportation capacity than demand, which will be good for gas security but financially

Although operational excellence represents an opportunity

challenging for transportation companies.”

for improvement, downtimes are also related to supply chain inefficiencies, as 74 percent of the unscheduled shutdowns

Even before the gas is put into the pipelines it needs to

were related to the supply of services.

be stored and this has become an increasingly important issue – and opportunity – in the industry. “Mexico has limited

In its 2017-21 business plan, PEMEX stated its commitment

fuel security, sufficient for only three days of consumption

to revamping its refineries through alliances focused on

with the existing facilities,” says Guillermo García, President

auxiliary activities and operation and maintenance, areas in

Commissioner of CRE. “In contrast, that storage ranges

which private companies see a bright future. Stefan Lepecki,

from 40-70 days in other countries. There are significant

CEO of Braskem IDESA, emphasizes the importance of

efforts on the public policy side to establish a mandatory

value chains, and the opportunity Mexico has to be a highly

storage target so more companies will participate in this

competitive country. “Production and commercial chains

market.” In terms of natural gas storage, Madero mentions

start with securing feedstock and the potential of Mexico

the mandates received by the Ministry of Energy “to build 45

is incredible in that regard, as it has the feedstock reserves

bcf of strategic storage capacity by 2026 to face potential

and the necessary markets, the two fundamental pillars for

setbacks for gas in Mexico. The ministry has already set a

this business.”

target to tender the construction of 10 billion cf of storage capacity by the end of this year, which is challenging.” This

FUEL RETAIL

commitment can be seen in the 33 storage and distribution

In 2017, Mexicans were able to see the Energy Reform’s

projects sent to CRE for approval, out of which 24 are already

results first-hand as fuel prices were liberalized, and market

approved and started construction.

competition was reflected at the pumps. At the same time, the country saw brands other than PEMEX sprouting up at

REFINING AND PETROCHEMICALS

gas stations nationwide. Competition and competitive prices

Mexico has six refineries strategically positioned in the cities

became the name of the game. “We had a landmark year

of Cadereyta, Madero, Tula, Salamanca, Minatitlan and Salina

in 2017 thanks to the implementation of further changes

Cruz to cover the country’s demand for refined products

in the industry,” says CRE’s García. “The government

with an installed capacity of just over 1.6 million b/d. With

liberalized fuel prices in general and regions were given the

an average national consumption in 2017 of 1.58 million b/d,

opportunity to set their own prices gradually, and within a

out of which 70 percent is imported from US refineries,

year, price liberalization became a reality nationwide. Unified

the problem of the country’s refining industry is not so

prices used to be the norm in the country and now they

much capacity but refining efficiency. In 2015, production

are differentiated by region and set by the players involved, injecting competitiveness into the market.”

PRODUCTION COST NATIONAL OIL PRODUCTION PER API GRADE BENCHMARKING 2017 (USD/BOE) (thousand b/d)

Among the first names to make a mark on the retail end of the market was BP Downstream, which opened 200

1,892

1,883

2,000

1,884

2,014

stations in 13 states in 2017, with plans to have 500 opened

2,500

2,019

by the end of 2018 and another 1,500 stations expected in the next five years. “We consider Mexico key to our global strategy since it is about the sixth-largest fuel market in the world,” says Álvaro Granada, General Manager Mexico of BP

1,500

Downstream. To date, Mexico has 11,992 service stations, out of which 2,908 (24 percent) belong to 45 new retail brands.

1,000

From these new brands, OXXO GAS has the lead with 464 500 0

service stations.

1Q17

Super light Light Medium Source: CNH

2Q17

3Q17

4Q17

Heavy Extra-heavy

1Q18

Despite the successes, challenges remain, particularly when it comes to regulations. “From a regulatory perspective, we still need a fair playing field for all companies wishing to participate in the market,” says Alberto de la Fuente, Director General of Shell Mexico says. “The country also needs to

develop and attract more investment in infrastructure because we currently depend on PEMEX’s infrastructure. We need more storage terminals, pipelines and routes for the product to move around the country. We believe that Mexico has approximately three days’ worth of storage, which is insignificant, particularly when trying to manage different operators and more competition.”

SUPPLY CHAIN Mexico has a strong local supply chain that has supplied PEMEX across its entire life. Between January and March

“

The future of the oil and gas industry in Mexico is bright but we have to be careful about how to balance short and long-term benefits we want to achieve” José Uriegas, CEO of Grupo IDESA

2018 PEMEX spent over MX$20.9 billion in procurement contracts, out of which 21 service companies accounted for

the overall energy industry. This concern is shared by José

MX18 billion, 86.31 percent of the total amount of PEMEX

Uriegas, CEO of Grupo IDESA, a company with a presence

expenses. This local supply chain will have to compete

across the value chain of the Mexican oil and gas industry

against consolidated international service companies with

and that has developed partnerships with both national

the highest performance and quality standards and best

and international companies. “The future of the oil and

practices to comply with the strict requirements of IOCs

gas industry in Mexico is bright but we have to be careful

and operators from all over the world.

about how to balance short and long-term benefits we want to achieve. The reality is that it will take at least

Regarding the Mexican oil and gas industry in general,

five to 10 years for the projects brought by the licensing

service companies are committed to providing cost-

rounds to reach maturity, which shows how important it is

efficient products and services at prices where operators

to secure the integrity of the investments in the long term.”

can develop E&P activities without concern regarding low oil prices. To mention a good example, service companies

According to KPMG’s Cruz, avoiding over-regulation and

worldwide are structuring their final prices to operators

ensuring close interaction between all the regulatory

keeping in mind a US$45-55/b price. This price structure

institutions – CNH, CRE and ASEA – is crucial to ensure

allows both operators and service companies to incentivize

processes are streamlined. “Ideally, we should move to

investment, particularly in exploration activities and

create a single database where each agency, along with

maintains a strong and organic flow throughout the entire

the Mexican Petroleum Fund, inserts all the information

life cycle of the E&P contracts.

collected from new companies and makes it available to the other regulatory bodies to avoid duplicating

Nevertheless, according to KPGM’s Cruz, “Mexico has gone

processes.” One of the country's major milestone was its

through a learning curve quickly and successfully. Interest

integration into the International Energy Agency.

in the country’s fields was present from the beginning but the lack of experience in handling day-to-day operations

Private industry has also praised the achievements of

required different implementations.” Local content

the Ministry of Energy, CNH, CRE and ASEA in terms

requirements are also part of the equation. “As investments

of providing a stable basis to do business in Mexico.

flow and they grow larger, meeting local content

“Both national and international investors have pointed

percentages will be harder to achieve. There is a need to

out that in Mexico we have created a robust and clear

bind Tier 1 and Tier 2 service suppliers to local requirements

legal framework,” says Eduardo Núñez, Managing

since they only apply to operators at the moment and

Partner at Núñez Rodríguez Abogados. “The fact that

industry players need to work under coordinated rules to

the constitutional reform was ratified by the Congress

make sure there is a commitment to deliver.”

through a political consensus is also an important political achievement.” But it is still too early in the process to

CONCERNS

declare victory, says Pablo Guzmán, Management

The continuity of the Energy Reform is instrumental for

Consulting Leader PwC Mexico, adding that, although the

the development of the industry as PEMEX would not be

oil and gas industry in Mexico has a long history, the open

able to substitute the investment commitments made by

market is extremely recent. “There is 110 years of history

the winners of the awarded blocks in the licensing rounds,

behind the Texas the oil and gas industry, while in Mexico

as well as their technological capabilities and execution

the Energy Reform is only 3 years old. It is an excellent

capacity. This is particularly true at this juncture, with a

reform from a legal perspective but some things need to

new presidential administration ready to take the country’s

be optimized. Now we have to work on the details, to start

political and economic reins, which could deeply impact

polishing the legal framework.”

VIEW FROM THE TOP

ENERGY REFORM DEMANDS BEST INTERNATIONAL PRACTICES PEDRO JOAQUÍN COLDWELL Minister of Energy

Q: In what ways has the Peña Nieto administration

A: The Energy Reform has provided PEMEX with the

transformed the Mexican oil and gas industry?

necessary tools to build associations and to venture into

A: The Energy Reform’s main achievement is its high level

technologically-challenging or financially-robust projects

of transparency and accountability. The licensing model for

along with partnering companies. The reform has provided

E&P contracts has been adjusted over time to make it more

PEMEX with the possibility to compete for E&P contracts

competitive, transparent and internationally attractive. The

in CNH’s licensing rounds and the NOC has obtained 11

hydrocarbons licensing system has allowed us to reach 67

contracts in partnership with seven IOCs so far, with a

percent in contract allocations with 107 awarded contracts

projected investment that totals US$17.5 billion.

from 161 offers, and with no complaints from participating companies. Moreover, we have had an average 74 percent

Additionally, PEMEX has been awarded three independent

government take. The expected economic spillover from these

contracts that prove its capacity to win blocks on its own.

contracts amounts to US$161 billion and around 900,000

Another mechanism granted to PEMEX after the reform

direct and indirect jobs in the country’s oil regions.

refers to the possibility of migrating its concessions from Round Zero to E&P contracts, individually or through

New entrants into the market have created a highly-

farmouts. This alternative has proven to be successful

diversified hydrocarbons industry with 73 operators from

for the NOC after completing its first deepwater farmout

20 countries, ranging from the world’s most renowned IOCs

in Trion with BHP Billiton at an estimated investment of

to 34 new Mexican companies founded after the reform’s

US$7.6 billion. It also carried out two onshore farmouts with

approval. The upcoming tender for Rounds 3.2 and 3.3

Cheíron Holdings for the Cárdenas-Mora field and with DEA

will take place in September and will contribute to these

Deutsche for the Ogarrio field, with an estimated investment

outstanding results.

of US$127 million and US$96 million, respectively. These three farmouts represent investments of US$7.8 billion,

Q: How will the Energy Reform impact final consumers?

or 72 percent of PEMEX’s capital investment for 2017.

A: The reform’s vision is to provide competitive energy

Regarding the migration of CIEPs and COPFs contracts,

prices through the creation of regulated markets. We are

PEMEX has successfully concluded two processes and it is

carrying out the largest expansion of the National Pipeline

in the process of finishing three more during 2018.

System to transport natural gas to a wide range of new regions at competitive prices. The incipient fuel market has

Q: What is the ministry’s message to private operators in

also opened to competition, providing consumers with an

light of Mexico’s political transition during 2018?

offer of around 40 new brands. Over time, this will imply

A: The licensing rounds under the new regulatory

better services, competitive prices and greater efficiency

framework have been the most transparent in the national

for the benefit of Mexican consumers.

industry’s history. Such high levels of transparency guarantee their continuity and that they will transcend

Q: What is your evaluation of PEMEX’s transformation into

political or electoral cycles. The awarded contracts are

a productive state enterprise, the migration of COPFs and

shielded by the fact that CNH is the only entity with the

CIEPs and the acceleration of the farmout process?

legal capacity to rescind them. Rescission clauses have been pre-established in the contracts and operators were aware of them from the beginning. These include clauses

Pedro Joaquín Coldwell h as been Minister of Energy since

for unjustified unfulfillment of investment commitments,

December 2012. Previously, he was Governor of Quintana Roo,

serious accidents and irreversible damage to production

Minister of Tourism from 1990 to 1993, Ambassador to Cuba and

and/or facilities. They are all related to violations in

federal Senator representing Quintana Roo from 2006 to 2012

complying with the contract.

VIEW FROM THE TOP

TIME TO PLACE YOUR BETS ON MEXICO ALDO FLORES Deputy Minister of Hydrocarbons at the Ministry of Energy

Q: What have been the major milestones and flagship

A: It is an internal strategy that involves the entire value

success of the Energy Reform so far?

chain. In upstream, for instance, we are presenting many

A: The first years of the transformation of Mexico’s energy

blocks with natural gas resources and we must ensure

industry have been encouraging, based on the interest

they are internationally competitive. In midstream, we are

that global companies have displayed in the country’s

in the midst of the largest expansion our pipeline network

new energy model. In just three years, we went from

has ever seen, extending it from 11,000km to 18,000km to

having one company in the upstream sector to 70 new

reach more regions. Beyond the transport infrastructure,

players. We went from having a few companies that were

we have markets under development, with more players

participating in the natural gas segment and PEMEX as

on both the supply and demand sides creating regional

a single player in midstream, to 70 companies in natural

hubs. Price liberalization is allowing regional pricing to

gas and oil products transportation and storage. We

form a more dynamic natural gas market. We expect

had a single gasoline brand in every single station in the

these changes to foster wider distribution coverage

country and now we have 43. In total, we have over 170

across the country, since we are at an early stage in the

new players across the oil and gas value chain. They are

development of our new energy model.

all interacting, competing and developing their business models to foster a modern and competitive industry in

Q: What are your expectations from the upcoming licensing

the country.

round for unconventional resources? A: The Burgos basin holds 50 percent more prospective

Q: What mechanisms could enhance the implementation

resources than the Eagle Ford basin, so we see a large

of the reform?

upside for the development of Burgos and the interest we

A: We must maintain the reform’s momentum through full

have seen so far is high. The nine blocks in the upcoming

transparency, sustained competition, streamlined regulatory

licensing round on their own hold more resources than

processes, greater flexibility for the financial mechanisms

anything we have auctioned so far onshore. We want

that can support projects and an overall commitment to

to start with a small tender, learn from that experience,

competition-enhancing practices. These mechanisms will

test our contractual and fiscal terms and see how well

push the industry to the next level.

the regulations adjust to this tender so we can use that experience at other stages.

Q: Why is it significant that Mexico joined the International Energy Agency (IEA)?

Q: How can the Ministry of Energy translate improved

A: Mexico’s entry into the IEA is a recognition of the

reserves into attractive incentives for IOCs?

country’s significance as a global energy player and the

A: Mexico is attractive for investment because the framework

modernization process the country has embarked on. It

of the oil industry is transparent and the policymakers and

is a stamp of support for what Mexico has been doing.

regulators are competent. We have a diversified economy,

Belonging to this organization will motivate us to contribute

with a major manufacturing exports base. This framework

to the development of the global energy agenda.

on its own strengthens the attractiveness of working in the country.

The fact that we are also part of the OECD means that we will benefit from peer reviews and best practices from the world’s leading oil and gas players.

Aldo Flores was previously Secretary General of the International Energy Forum from 2012-16. He was also Director General of

Q: What have been the most significant steps in the

International Affairs at the Ministry of Energy and Director General

consolidation of a sustainable natural gas market?

of Economic Bilateral Relations at the Ministry of Foreign Affairs

VIEW FROM THE TOP

NO NEED TO FEAR FUTURE OF LICENSING ROUNDS JUAN CARLOS ZEPEDA President Commissioner of CNH

Q: How would you describe the highlights of the licensing

the country will drill a total of 26 offshore exploratory wells,

rounds?

13 of which will be drilled by new operators. This is especially

A: We have completed 14 bidding rounds, resulting in 107

important given the fact that Mexico’s oil production

awarded contracts. The first indicator of CNH’s success is that

decline was the result of limited exploration activity. Having

we have completed these 14 bidding rounds without a single

exploration activity back on track is a good indicator of the

legal challenge or observation from our internal auditing

success of the licensing rounds.

office or from Congress’ federal auditing office. Accountability is our main priority, so if the next administration would like

The third indicator is the government take, which is an

to review the 107 awarded contracts then we are very ready

indicator that combines the different taxes and royalties

to do this with them. The main purpose of CNH is to deliver

paid by operators and is expressed as the amount of taxes

transparency and accountability.

paid as a percentage of profit. The government take in Mexico is significantly higher than the government take in

The second indicator is investment. The bidding variables are

the US Gulf of Mexico, which stands at 55 percent. When

the royalty rate and the minimum work commitment and the

we compare the government take of Mexico’s licensing

Ministry of Finance establishes a weighted average of these

contracts with the government take of the concessions in

variables. Most of the weight has been placed on the royalty

Brazil, ours is higher, at 63 percent versus 59 percent. In

rate. Although I would prefer to see more weight placed on

Brazil and Mexico, we have both licenses or concessions

the minimum work commitment, we have achieved very good

and production-sharing contracts, which usually have

results nonetheless. The winners of blocks in the bidding

a higher government take because profit rather than

rounds have committed 138 wells, of which 74 are onshore

revenue is taxed. Both countries have a government take

and 64 are offshore. As a reference, 64 offshore exploration

of 75 percent for production-sharing contracts.

wells is equivalent to 20 percent of all exploration wells in the history of Mexico. The drilling of offshore exploratory wells

Q: How do you measure the uptake in exploration activity

has doubled in Mexico. The country drilled 15 such wells in

and what are the implications of this?

the 2011-2017 period, two of which were the result of the new

A: Mexico has not only achieved higher government takes

contracts. In the 2018-2021 period, based on commitments,

than its main competitors but the investment committed

COMPARISON OF GOVERNMENT INTERNATIONAL GOVERMENT TAKE TAKE PER COUNTRY

BIDDING ROUNDS' COMPETITIVENESS HIGHLY COMPETITIVE MEXICAN (number of bids per assigned contract)

BIDDING ROUNDS

80 75%

75%

Round 3.1

63%

60 55 50

2.1

Round 2.4 Mexico

59%

Brazil

55% US

Concession

Mexico

License

Brazil

Production sharing

2.3

1.5

Round 15

1.1

Lease 250

0.0

0.5

1.0

1.5

2.0

2.5 Source: CNH

through minimum work program is very high, and our

exploratory potential accounts for the 58% of the total

processes have been very transparent. Apart from strong

non-unconventional resources

performance on these three indicators, we have seen a strong increase in investment in seismic activity. We have

Focusing on the development of Mexico’s extra heavy oil

awarded 40 geological and geophysical permits (G&G

potential is the third E&P recommendation. Extra-heavy oil

permits). Based on these contracts, the industry has

is an important opportunity because Venezuela has seen

invested more than US$2 billion, which resulted in seismic

a substantial decrease in heavy oil production and the

coverage of the Gulf of Mexico growing from 35 percent

declining production of Cantarell has reduced Mexico’s

to 100 percent over the past three years as the volume of

heavy oil production. Mexico has important heavy and extra-

2D seismic tripled and the volume of 3D seismic with WAZ

heavy oil fields that we have not started developing, with the

technology quadrupled.

exception of Ayatsil-Tekel. There is an important cluster of extra-heavy oil fields in proximity to Ku-Maloob-Zaap where

Finally, exploration activities in blocks awarded in Rounds

PEMEX was awarded Ayatsil, Tekel and Utsil and the Ministry

1.1 and 1.2 have already resulted in important discoveries.

of Energy retained a number of attractive giant fields, such

The consortium of Talos, Premier and Sierra Oil & Gas

as Pit and Kayab. When we started the bidding rounds, oil

announced a significant shallow-water discovery of more

prices did not allow for the development of such fields, but at

than 2 billion barrels resulting from the drilling of the Zama-1

current prices this is profitable. Moreover, Mexico’s refineries

well in Block 7, awarded during Round 1.1. Round 1.2 included

were designed for this type of oil and the economies of

blocks with discovered fields, and both ENI and Hockchi

scale that the cluster of fields offer represents an important

have tripled their reserves through successful exploration

economic opportunity.

wells. So far, the indicators are looking very good at every step of the value chain.

The fourth E&P recommendation is to increase natural gas production, which is the most important energy security

Q: How can these initial results be translated into the desired

concern for Mexico. We will continue to import competitively-

production increases?

priced natural gas from the US, which in recent years has

A: If we want to return Mexico’s oil production level to 3

been an important driver of lower electricity costs for the

million b/d, we need to substantially increase average E&P

industry. Given that we are importing around 85 percent

capital expenditure. As a reference, PEMEX is investing

of the natural gas we consume from one country, we have

around US$8 billion per year in E&P, which is a low figure

to diversify. To do so, the Mexican government will have to

compared with the US$18 billion PEMEX was investing in 2013

implement a natural gas policy to make it feasible to support

before the opening of the industry. To return oil production

natural gas in Mexico. Tax incentives can be used to achieve

to 3 million b/d, PEMEX and new operators will have to raise

this purpose without removing income from the federal

their collective E&P investment to US$20 million in the short

budget. The US offers different incentives to the oil and gas

term and gradually increase it to US$60 billion by 2030.

industry, such as the intangible drilling assets deduction that

This investment will have to be directed at various areas

allows companies to deduct most of the costs of drilling wells

to return production to levels approaching Mexico’s 2004

in the US from income taxes. These types of tax incentives

production peak. One area of opportunity is investment in

should be introduced in Mexico for non-associated gas. In

onshore basins, where Mexico has no production. Tampico-

terms of royalties we have to understand that there is no

Misantla is the most important basin is this regard. The first

economic rent to capture from non-associated gas, so there

important E&P strategy recommendation is that we must

should be no royalty.

develop Tampico-Misantla, which has a production potential of 700,000-1.5 million b/d that can be activated in the short

If the new administration wants to pause the bidding rounds,

term. We need to attract private operators that can work side

my humble recommendation would be to continue with the

by side with PEMEX to develop this area.

deepwater, unconventional and onshore rounds to ensure that the first two do not leave resources idle and the last

Currently, Mexico has 25.5 billion barrels of oil equivalent of

continues the development of the new Mexican industry. If

discovered 3P reserves, 76 percent of oil and 24 percent of

we pause bidding rounds in shallow water then we need to

natural gas. Additionally, it is estimated that there are 112.8

provide additional investment capital to PEMEX.

billion boe of prospective resources (to be discovered), 53 percent of unconventional resources. Juan Carlos Zepeda has extensive experience in the oil industry,

The Tampico-Misantla basin concentrates a great

including with the Ministry of Energy and the Ministry of Finance.

potential: the discovered fields within this basin represent

On April 30, 2014, the plenary session of the Senate appointed

almost 30% of total 3P reserves and its unconventional

him President Commissioner for a second five-year term

VIEW FROM THE TOP

UNDILUTED ACCOUNTABILITY FOR A HEALTHY INDUSTRY CARLOS DE REGULES Executive Director of ASEA

Q: What has been the biggest achievement of ASEA

point of no return the fact that 90 percent of the rulings from

during 2017?

inspections that have been presented at tribunals have been

A: From very early in the life of the agency we recognized that

in favor of ASEA, making the agency a reliable standard for

we had to make sure our internal processes reached a status

legal enforcement across the industry.

that is usually called the point of no return. We wanted to make sure that no matter who runs the office in the future, the

Q: How is ASEA working toward reaching greater

original regulatory model would remain unchanged and fulfill

independence?

its long-term commitments to the industry. It is natural that

A: ASEA was initially created as a department within the

certain changes in regulation will take place with each new

Ministry of Energy and supervised by SEMARNAT. In that

administration but our work is committed to offering long-

sense it is natural that the agency does not have the same

term certainty in terms of the foundation of the regulatory

level of independence that CNH or CRE have. Nevertheless,

framework entrusted to us.

as we have matured and reached the three previously explained points of no return, we are ready to take the next

Q: What has been ASEA’s progress in achieving its “points

step in terms of adjusting our institutional design, reforming

of no return?”

legal attributions and giving the agency a higher degree of

A: ASEA has consolidated the certainty of the regulatory

autonomy. AMEXHI prepared a document in 2014 proposing

framework by reaching three specific points of no return in

10 critical actions to be taken for the benefit of the Mexican

its administration during 2017: the regulation of the market,

hydrocarbons industry and one of those was to give ASEA

the permitting of projects and the enforcement of inspections

more independence. Likewise, the OECD performed a

in hydrocarbon operations. In terms of market regulation,

thorough analysis of all the regulatory entities in Mexico and

we have covered all the main regulatory gaps that existed

one of its main recommendations was to grant ASEA the same

before and since the creation of the agency, meaning that

level of autonomy as CRE and CNH. This is already being

all the regulations, guidelines and standards have been

discussed by the Congress.

published. The rules of the game are set and include over 30 different types of regulation already published, including

Q: Has ASEA found any differences when dealing with

those for unconventional and deepwater activities. In terms of

PEMEX and with new operators in the country?

permitting we have processed over 25,000 different permits

A: PEMEX is no different from any other operator regulated

for projects along the whole oil and gas value chain, from

by ASEA. The only difference between PEMEX and new

exploration and production to transportation, distribution

operators is related to the different stages of the life cycle of

and storage. For that we have established admissible criteria

any oil and gas project and not the nature of each operator per

for the authorization of projects that has already become a

se. In terms of the culture change at PEMEX regarding going

standard and will be used for future evaluations.

from an internal to an external regulator, the NOC recognizes that there are now new regulators and it has engaged with

Finally, we have performed around 2,500 facility inspections

ASEA in a constructive conversation. Proof of this is the series

across the entire value chain of hydrocarbons, from the well

of offshore accidents that happened in 2015 in the Gulf of

to the dispatching pump. Within this activity we consider a

Mexico. Instead of dealing with the situation in a traditional way, we worked with PEMEX and managed it in a new way, making PEMEX and not ASEA the accountable party for the

National Industrial Safety and Environmental Protection

safety and environmental consequences of these operations,

Agency (ASEA) for the hydrocarbons industry is in charge of

and making sure that operations could only be resumed once

disseminating regulations and enforcing compliance of public

PEMEX ensured that all safety and environmental regulations

and private-sector companies involved in the industry

were satisfied.

VIEW FROM THE TOP

BRINGING MARKET OPPORTUNITIES TO NEW HEIGHTS GUILLERMO GARCĂ?A President Commissioner of CRE

Q: What were CREâ&#x20AC;&#x2122;s milestones in 2017 regarding the

society in general, with people now understanding that these

competitive midstream and downstream sectors?

types of procedures make no economic sense. Companies

A: We had a landmark year in 2017 thanks to the

also know that if they can do things at lower prices, obtain

implementation of further changes in the industry. The

the necessary permits and operate efficiently, they will obtain

government liberalized fuel prices in general and regions were

a market advantage. The entire process has been quite

given the opportunity to set their own prices gradually, and

transparent with this new breed of regulation emerging from

within a year, price liberalization became a reality nationwide.

the reform.

Unified prices used to be the norm in the country and now they are differentiated by region and set by the players involved,

Q: What role do fuel price indexes, natural gas and LPG play

injecting competitiveness into the market. We have 42 new

in the consolidation of competitive markets?

fuel retail brands that started operations in Mexico from April

A: They play a crucial role. We started publishing the daily

2017 onward. Another milestone was the abolishment of first-

natural gas price last year through an index we created.

hand sales prices for natural gas in conjunction with the open

We perceive regional differences in prices in natural gas

season for transport system capacity. A free price opened

and that is pushing people to try and find connections with

the door for marketers to take a larger share of the volume

different regions, even in the US. That pricing is present in

sold in Mexico, which has climbed above 30 percent. We are

every fuel market and the idea is to have savvy investors

trying to implement the same liberalization of prices in LPG,

developing these information processes and establishing

although this poses a bigger challenge as more infrastructure

investment plans for the future. We have worked on

is required and further regulatory adjustments are needed

Gasoapp, our own app that provides daily and real-time fuel

beforehand.

market prices for customers. Most people in Mexico have a cellphone, so this app opens the door for them to find

A final milestone is the acknowledgement that we need to

better prices. Eighty percent of Mexican families use LPG,

transport LPG to remote areas that require fuel. Around

which is why we launched a second app called AmiGasLP,

15 percent of underprivileged families still use wood as

which displays the different prices from providers. This is

a source for heating. We partnered with commercial

designed to empower the consumer to analyze LPG prices

and government-aid grocery stores, such as Diconsa, in

nationwide.

these areas to deliver LPG and we will encourage more projects in this vein, especially through partnerships with

Q: How will regulations enable the country to achieve

the private sector.

competitive midstream and downstream markets? A: We should do everything we can to deploy investment at

Q: What are the critical success factors in the liberalization

the fastest pace possible. The speed so far has been good, if

of the wholesale and retail fuel markets?

we take into consideration that prices were only liberalized

A: People are getting used to prices changing on a daily basis.

last February. If we identify the barriers that exist as a result of

There is more knowledge about how prices are defined, how

the previous model and we work to bring those barriers down,

international oil prices evolve, logistics, taxes and so on,

regulations should move quickly and investments will flow in

creating a more robust discussion. This also highlights the

greater numbers to the benefit of the industry.

shortcomings we face in terms of infrastructure and more active competition. For instance, LPG from Sinaloa must be shipped through the Panama Canal and come back to storage

The Energy Regulatory Commission (CRE) is a government

terminals in the Gulf of Mexico due to the lack of a pipeline,

agency in charge of oversight and ensuring regulatory

costing US$1 million to pass it from one side of the country to

compliance in the energy and natural gas sectors in order to

the other. Market liberalization has changed the mindsets of

promote their efficient development

VIEW FROM THE TOP

A TRANSPARENT MIDDLEMAN WITH A LONG-TERM VISION MAURICIO HERRERA Executive and Administrative Coordinator of FMP

Q: What is FMP’s vision for Mexico and how does it

public. Whoever is interested in tracking these revenues

contribute to the country’s development?

can rest assured that these are available on FMP’s website,

A: The Mexican Petroleum Fund has three major objectives.

including the revenues received by every other operator in

The first is to receive all the revenues from the exploration

compliance with what is established in the E&P contracts.

and production activities taking place in the country and

This is a very important responsibility for FMP, and it could

then make the corresponding distribution stated by law to

be argued that it is the most important aspect we oversee.

the different government funds, stabilization funds and also to the federal treasury, which is managed by the Ministry of

Q: What was the biggest challenge of setting the FMP as

Finance, to be used for the federal budget.

a middleman for oil and gas revenues? A: The biggest challenge was probably technological. The

The second obligation is related to the financial

FMP’s regulating law was issued in August 2014 and we

administration of the contracts for E&P activities in the

started operations in 2015. The first E&P contracts were

country. The contracts are signed between oil and gas

signed in September 2015 and by that time, we had to build

operators and CNH, which acts as a representative of the

the entire IT infrastructure required to receive and manage

Mexican state. Although all the technical aspects of the

all the information from the operators and start calculating

contracts are enforced by CNH, FMP is in charge of the

the percentages of shares that corresponded to them and

financial aspects, meaning the management of revenues.

to the state.

We calculate the shares that correspond to the Mexican state and to the operators, and make sure that the revenues

The entire IT infrastructure required by the Fund to receive

received from the operators comply with what is established

all the information from the new E&P companies, as well as

in each E&P contract. We also follow up the revenues of

from the authorities, is developed internally. This includes

each contract and make sure that the state receives its

receiving a great deal of sensitive information, such as

corresponding share.

personal and industrial data, and it is important all this is stored according to the Central Bank standards of security.

The final obligation of the FMP is related to the Sovereign Wealth Fund. 2017 was the first year we received funds

Therefore, the Ministry of Finance, which is the Fund’s

that were accumulated in the Sovereign Wealth Fund and

trustor, and the Central Bank, acting as trustee, agreed to

in 2018 we started investing these funds on behalf of the

develop all the required IT infrastructure internally. It is also

Mexican state.

important to acknowledge that all the information that the Fund receives from the operators of the new E&P contracts,

Those are the three main obligations of the FMP. However,

related to oil and gas production, commercialization prices,

an additional obligation that derives from the previous

cost of developing new oil wells and other investments

three is related to transparency. When PEMEX was the

engaged by the contractors is published on our website.

sole producer of oil and gas in Mexico, it had an internal

The intention is that any person that visits our website will

procedure for calculating its revenues, the share for the

be able to download data associated with volumes and

state and what it had to send to the federal treasury.

prices reported by authorities and private companies and be able to replicate our calculations to make sure that we

All this information was then sent to Mexico’s revenue

are performing our job correctly.

service (SAT), but there was limited information disclosed to the public. However, under this new scheme, FMP is in

Q: Was the Assignations and Contracts Payment System

charge of publishing a considerable amount of information

(SIPAC) developed alongside other governmental

related to PEMEX’s revenues and disclosing it to the

agencies?

A: No, it was developed in-house but with the collaboration

wealth, in the form of oil and gas, will span across

from other government agencies. As part of our monthly

generations by turning it into financial assets, in the shape

calculations, we receive information from the Ministry of

of an investment fund. The FMP is in its starting phase

Finance, from CNH and from oil companies, so it is key

and accordingly its initial portfolio would be completely

that all these authorities and participants can access the

different to that of a mature Sovereign Wealth Fund

system, provide information and go through it at any

such as Norway's. The latter includes all asset classes

point in time to meet their respective responsibilities.

around the globe, such as investments in real estate and

We were able to develop the IT infrastructure thanks

in emerging markets.

to the feedback from all of them, as it was necessary to understand each one's needs and design the system accordingly. Ultimately, the design of the SIPAC is based on the requirements and needs of the authorities and contract holders. Q: The Norwegian sovereign fund model has proven to be successful for a sustainable long-term vision. What best practices did the FMP take from this model?

FMPâ&#x20AC;&#x2122;s income from PEMEX assignations in 1Q18 amounted to MX$122.8 billion, a 2 percent increase compared to 1Q17

A: We are observing best practices not only from sovereign wealth funds, but also from asset managers

In the short term, our challenge is to establish a fixed-

worldwide. In fact, recently, the International Monetary

income and US dollar-only portfolio and gradually

Fund visited the FMP to perform a study, with one of

transform it into a more complex portfolio. With time, and

the objectives being to ensure that the transparency

as we are able to accumulate additional funds, we should

and governance of FMP were in line with best practices

include more asset classes and different currencies in

observed by Sovereign Wealth Funds worldwide.

our portfolio.

The complete results of the study have not been published

Q: Where is FMP focusing most of its activities

but preliminary results have shown that we comply

considering that PEMEX remains the biggest player in

with all these best practices, especially transparency,

the country?

governance and investment guidelines.

A: The biggest load of our work comes from new E&P companies, meaning new operators, which as mentioned

The main differences between the Norwegian model and

before, must send all the information required by FMP

ours arise from the fact that the size of the resources under

to calculate royalties. In fact, we receive five different

administration differ radically. The Norwegian fund is fully

levels of information, which is also used by the Ministry

mature and the FMP is in the starting phase and this fact

of Finance for auditing activities. Although only 0.5

reflects on our investment guidelines, which are considerably

percent of the revenues for the fund come from the new

less risk-averse than those of a fund in a mature state.

operators, close to 100 percent of the information is coming from them.

Those guidelines include some of the best practices other asset managers follow, such as the existence of a

Q: What other aspects of the oil and gas industry has

benchmark portfolio, definition of asset classes eligible for

FMP enforced?

investment and minimum credit ratings for each asset class.

A: The FMP has become an excellent benchmarking tool to ensure that the industry in Mexico becomes more

Other sovereign wealth funds have adhered to the

efficient. Looking at the information SAT receives from

Santiago principles, which include best practices

PEMEX and comparing it to that received by the new

related to governance, transparency, investment and

players, one can see how costs have dropped drastically.

risk management practices among Sovereign Wealth

While these costs do not fit yet with those seen in

Funds. The goal of the International Monetary Fund study

countries with a more developed oil and gas industry

performed at the FMP was to evaluate how close our

like the US, we can certainly see costs dropping.

internal processes adhere to those principles. Q: What is the challenge of managing the Sovereign

Mexican

Wealth Fund?

Development (FMP) receives, manages, and distributes

A: The challenge right now is to establish the foundation

government

of a long-term portfolio that ensures that our current

administrates the financial aspects of E&P contracts

Petroleum

earnings

Fund

from

for

the

Stabilization

hydrocarbons

activities

and

ANALYSIS

PEMEX CAPABLY NAVIGATES ROUGH WATERS

Almost four years into its transition to a productive enterprise,

with Trion in deepwaters, Ayin-Batsil in shallow waters and

PEMEX is a story replete with successes and failures. It has

Cárdenas-Mora-Ogarrio onshore. The NOC also attracted

successfully partitioned itself into separate business units

increased confidence from international markets, with its

to tackle the various opportunities emerging from the

assessed risk falling 50 percent, a sign that global investors

Energy Reform. It has successfully entered into necessary

believe the enterprise is on a solid footing. The plan, initiated

partnerships that complement its strengths and make up for

under former CEO González Anaya, also encourages the

its weaknesses. And it has discovered oil, its main purpose,

creation of joint ventures along PEMEX’s entire value chain

after all. Along the way, it has run into hurdles. It has failed

as a way to boost investment and efficiency, which was also a

to deliver on all its commitments from the rounds, gaining

goal of the Energy Reform. “The Energy Reform has provided

extensions to give itself more time. It remains deeply in the

PEMEX with the necessary tools to build associations and to

red and a reversal of its production decline is still years away.

venture into technologically-challenging or financially-robust projects along with partnering companies. The reform has

But it has charted a course to navigate these rough waters

provided PEMEX with the possibility to compete for E&P

with a Five-Year Plan to 2021 that is geared toward a more

contracts in CNH’s licensing rounds and the NOC has obtained

streamlined business and ultimately, profitability. “PEMEX’s

11 contracts in partnership with seven IOCs so far, with a

business plan before the 2013 Energy Reform was directed at

projected investment that totals US$17.5 billion,” says Pedro

attaining specific hydrocarbons production targets, improving

Joaquín Coldwell, Minister of Energy.

process efficiency, satisfying the country’s energy demand with a competitive-cost structure and strengthening the

THE RISKS

company’s social responsibility policies,” says Javier Hinojosa,

To face its future, the NOC must understand its present and

Director General of PEMEX E&P. “After the reform, new

the hurdles it faces as the market consolidates. In its 1Q18

conditions focused PEMEX’s operations toward businesses

financial filing to the US Securities and Exchange Commission

that generate higher value. Our business plan after the Energy

(SEC), Mexico’s largest company outlined the risks it faces

Reform was designed under a profitability target and an open

going forward. At the top of the list is the price of crude oil

market vision, recognizing the possibility of creating alliances

and natural gas. “While prices have begun to stabilize or even

or associations to reinforce PEMEX’s capabilities to achieve

trend upwards, they still remain significantly lower than 2014

its targets in this competitive environment.” To help steer the

levels. Any future decline in international crude oil and natural

ship to its goals, the government appointed Carlos Treviño,

gas prices will have a similar negative impact on our results

a PEMEX insider, as its new CEO, replacing José Antonio

of operations and financial condition,” the company said in

González Anaya, who was appointed Finance Minister in

its report. In 2017, the weighted average price for Mexican

November 2017. Treviño, a former Corporate Director of

crude oil was about US$46.73 per barrel, rising to US$56.19

Management and Services at the productive enterprise of the

per barrel on December 29, 2017. During the first three months

state, took the helm in November, reassuring markets that he

of 2018, the weighted average was US$56.82 per barrel, an

would maintain the course devised by his predecessor.

increase of US$10.94 per barrel as compared to the 2017 weighted average, the NOC pointed out.

THE PLAN To shore up its finances in line with a tighter budget, PEMEX

Its debt load remains another hurdle that could hinder efforts

devised a five-year plan in 2016 that it updated in 2017, setting

to obtain favorable financing terms, a fact that could impact

out the parameters for its eventual return to black ink. The

important areas of its business, as it will need capital to fund

plan foresees the NOC achieving financial balance in 2019. It

its hydrocarbons reserves development. “The sharp decline

also sets out the strategy to overcome losses to the national

in oil prices that began in late 2014 has had a negative

refining system, related to the steep decline in production

impact on our ability to generate positive cash flows, which,

from the Cantarell field. The “proposed actions will allow the

together with our continued heavy tax burden and increased

replacement of Cantarell’s natural declining production to

competition from the private sector, has further exacerbated

stabilize it and increase it in the medium-term, in addition

our ability to fund our capital expenditures and other

to streamlining its refineries’ operation therefore eliminating

expenses from cash flow from operations,” it said in the SEC

losses in the National Refining System by 2021,” PEMEX states

report. The company posted debt totaling US$106.3 billion in

By the time of the update in March, the company had already

the first quarter of 2018, although this was down 4.3 percent

enjoyed some breakthroughs. It launched its first farmouts,

compared with the same period a year earlier. Still, ratings

agencies are wary. Moody’s in May assigned the company a Baa3 credit rating, unchanged from its previous rating, citing

TREVIÑO'S ERA

“weak liquidity, a heavy tax burden … and challenges related to crude production.” However, in a positive sign, the ratings agency changed the outlook for the NOC’s ratings to stable from negative. PEMEX also faces increased competition in almost every area of its business, a scenario that was unthinkable during its monopolistic heyday. To face this new landscape, the NOC

is tapping international experience to share risk and gain the experience it needs to continue growing in a competitive market. “PEMEX realizes that it should not produce for production’s sake. It understands it has to generate economic value and therefore start prioritizing projects. This mentality has definitely changed for the better and this top-down directive is what made the difference,” says Palma Méndez, Country Manager of Wood Mackenzie.

Carlos Treviño was named Director General of PEMEX by President Enrique Peña Nieto on November 27, 2017.

An ongoing concern for 2018 will be the path taken by the

Before holding his current position, he was PEMEX’s

new presidential administration in the country. The company

Director of Corporate Administration since February

and pundits alike are waiting to see how economic policies

2016. From 20014 to 2016 he was Director of Finances

will unfold, and their potential impact on the oil and gas

of social security institute IMSS. From 2011 to 2012 he was

industry. “We cannot provide any assurances that political

also the Corporative Director of Administration and from

developments in Mexico will not have an adverse effect on

2010 to 2011 he was the Corporative Director of Finances

the Mexican economy or oil and gas industry and, in turn,

at the NOC. He held the position of Mayor Official at

our business, results of operations and financial condition,

the Ministries of Energy and Finance in 2005 and 2006,

including our ability to repay our debt,” PEMEX stated.

respectively.

VIEW FROM THE TOP

A YEAR RICH IN DISCOVERIES JUAN JAVIER HINOJOSA 24

Director General of PEMEX E&P

Q: How has PEMEX’s upstream strategy changed with the

assignment to a contract without a partner and a special

new face of the industry?

tax regime was approved for 21 assignments by the Ministry

A: PEMEX’s business plan before the 2013 Energy Reform

of Finance. In 2018, PEMEX boasted the highest number of

was directed at attaining specific hydrocarbons production

exploration contract obtained from Rounds 2.4 and 3.1, with

targets, improving process efficiency, satisfying the

a total of 11 contracts. Regarding its production activities,

country’s energy demand with a competitive-cost structure

the Misión and Olmos fields were migrated from assignment

and strengthening the company’s social responsibility

to a contract with a partner, a shutdown wells reactivation

policies. After the reform, new conditions focused PEMEX’s

contract was awarded to a third party and PEMEX obtained

operations toward businesses that generate higher

the required endorsement to bid seven onshore clusters.

value. Our business plan after the Energy Reform was designed under a profitability target and an open market

Q: How is PEMEX dealing with Cantarell’s production drop

vision, recognizing the possibility of creating alliances or

to stabilize and eventually increase production numbers in

associations to reinforce PEMEX’s capabilities to achieve

a profitable, safe and sustainable manner?

its targets in this competitive environment. To ensure

A: There is no doubt that in recent years the main challenge

the NOC is on track with its objectives and expected

has revolved around replacing the production decline of

upstream performance, we are closely monitoring specific

Cantarell and stabilizing the production platform of Mexico.

parameters, such as its financial balance, oil production,

Another important target of this administration is to operate

production costs, reserves incorporation and the safety,

in a safe and sustainable way, a continuous imperative

health and environment protection frequency index.

for the NOC since its creation. To increase production, PEMEX business plan focuses on the most profitable fields

Q: What were the highlights of PEMEX’s exploration,

or assignments under its operation and finding greater

development and production activities during 2017-18?

efficiencies through process improvement measures and

A: 2017 was rich in discoveries, as the 11 new fields attest.

new hiring strategies that will increase its activity. PEMEX

In deepwater, Nobilis holds promising reserves. In shallow

also designed an aggressive program of farmouts or

waters, Koban, Teekit, Suuk, Hok, Cahua, Octli and Xikin

strategic associations that will increase the relevant oil fields’

were the outstanding additions while Chocol, Valeriana

production, spearheaded by better practices, technology

and Ixachi will increase our onshore portfolio. Through

and larger investments. In other words, PEMEX needs to

strategic partnerships, we continued building a successful

develop its hydrocarbon reserves at a greater speed.

track record in the country’s licensing rounds. In Round 1.4, we were awarded Block 3, while in Round 2.1 we were

Parallel to that, secondary recovery projects are being

able to claim Blocks 2 and 8 with our partners. We also

designed to increase the recovery factor of existing

managed to allocate our first farmout in the Trion block.

fields and assignments. To obtain production in the short

From a production standpoint, PEMEX’s onshore farmouts

term, the new discoveries made by PEMEX are also being

Cárdenas-Mora and Ogarrio were signed. While the

scheduled for their development in shorter timeframes

Santuario-El Golpe assignment was migrated to a partner

compared to previous years. In the medium term, PEMEX

contract scheme, the Ek-Balam field was migrated from an

is preparing to develop unconventional reserves, such as shale reservoirs. To do this, unconventional wells are being scheduled in the areas with the greatest potential

Juan Javier Hinojosa has been at PEMEX since 1980. In 1998

to corroborate existing reserves and extract them in the

he became manager in Analysis and Evaluation of Exploration

coming years. In the long term, the deepwater projects

Investments. He took up his current position as Director of

will contribute to the strategy of increasing the production

Exploration and Production in May 2015

capacity and profitability of PEMEX

VIEW FROM THE TOP

BETTING ON TECHNOLOGY TO YIELD BETTER RESULTS JOSÉ ANTONIO ESCALERA Director of Exploration at PEMEX E&P

Q: What were PEMEX’s exploration highlights in 2017 and

have six wells operating in unconventional fields. PEMEX is

expectations going forward?

balancing its portfolio by focusing on known plays, including

A: We focused strongly on shallow waters. We made some

fractures and breaches from the Cretaceous period, the

significant discoveries in these regions and are already

Kimmeridgian Late Jurassic age in the southeast basin, the

working to drill some delimitation wells. One of the latest

pre-salt formations and the unconventional fields in Burgos

wells we are drilling in shallow waters is Yaxché, where we are

and Tampico-Misantla.

testing pre-salt production. We have advanced significantly with this project and hope to be as successful as Brazil in

Q: What are PEMEX’s plans for its deepwater projects in the

this type of project. Pre-salt formations in Mexico are from an

Perdido area in relation to its consortium partners?

older geological age than in Brazil and we hope to generate

A: On the deepwater front, we are analyzing the possibility of

data that will illustrate the great potential in these areas. We

reinstating the Nobilis-Maximino farmout. We are reviewing

will not despair if this first project does not work, considering

the concepts and the feedback from companies that declined

Brazil had to drill many wells to really take advantage of

to participate. Overall, we are revamping the project to make

its pre-salt formations. But we hope the technology we are

it more attractive and we expect to release the new farmout

using in exploration will yield better and faster results.

by November 2018. We still see potential in Nobilis-Maximino but we need to put a better structure in place for the tender.

Regarding onshore activities, we discovered the Valeriana field in Tabasco, where we are also drilling a delimitation

Today, PEMEX has only one team operating in deepwater

well. This was a significant discovery worth approximately

projects and we expect this will be sufficient to fulfill our

200 million boe. We are still working on the southeast basin

commitments, both in the projects that were assigned to

of the country, both onshore and offshore, and the Ixachi-1

us in the Gulf of Mexico and in the blocks we were awarded

discovery will play a significant role in our future activities.

during the deepwater rounds.

By the end of the year, we expect to have three wells in this field: Ixachi-1DEL, Cruver-1EXP and Ixachi-1001EXP. In drilling

Q: What experience are you gaining through your

the latter, our goal is to discover another field deeper than

collaboration with international players?

Ixachi-1.

A: We are pleased that PEMEX’s team has the technical capabilities to work with these companies in line with

PEMEX’s exploration activities must focus on onshore and

international standards. All companies can learn new

shallow-water projects because the industry is prioritizing

things from a technical standpoint but PEMEX has a good

fields with a short or medium-term ROI. Having said that,

foundation. We are learning new ways to do business

we launched operations in unconventional projects in 2018

regarding contracts, JOAs, farmouts and farm-ins, and

and we are already drilling the Semillal-1EXP and Maxochitl-

understanding how other companies see the business.

1EXP wells. Semillal-1EXP is located south of the Burgos

These companies know that if there is any entity that knows

basin in Tamaulipas; it is part of a shale oil and gas field

the Mexican basins, it is PEMEX. Similarly, we know that

where we are testing a Pepper Shale formation from the

foreign players know how to do business in a competitive

Tithonian age. Maxochitl-1EXP, on the other hand, is part of

environment.

the Tampico-Misantla basin and it is where we are testing the Oxfordian formation for shale oil and gas production. Maxochitl-1EXP would be the first well in Mexico to see a test

José Antonio Escalera has over 33 years of experience in the

of this formation and if it proves successful, it would increase

Mexican oil and gas industry. In 2011 he received the Miguel Ángel

the potential of our prospective reserves associated with

Zenteno award by the Mexican Petroleum Engineers Association.

unconventional fields. Our goal for the end of the year is to

He has been the Director of Exploration at PEMEX E&P since 2015

VIEW FROM THE TOP

MAINTAINING A GOOD PACE FOR CONSOLIDATION HÉCTOR MOREIRA 26

Commissioner of CNH

Q: What is your assessment of PEMEX’s progress for its

the length of time required to see financial returns. CNH

awarded areas in Round Zero?

addresssed this matter directly in the contracts, giving

A: The main problem faced by PEMEX is its financial

priority to exploration activities by incentivizing larger

capacity to finance the development of the 489 direct

investments in this phase of the E&P contracts. This has

E&P assignations it received during Round Zero. Even

been one of CNH’s major contributions to a sustainable

though for some blocks the technical plans for E&P were

E&P process.

properly delivered to CNH within the three-year deadline, for many others the NOC requested two additional years

We have also witnessed a similar trend in production as this

to cope with the requirements. This meant some of these

implies immediate cashflow. We have stressed the need

blocks reverted to migrations and farmouts to cope with

for optimized production processes by showing that it is

these shortcomings in terms of deadlines. PEMEX is also

not about the speed, but about efficiency. Now, operators

clustering its farmouts into groups of five or more fields to

present their production plans to CNH and we analyze

make them attractive for potential partners. When it comes

what has occurred during the first three years after first

to contract migrations, these imply basically the same

oil and check if they are producing too quickly or if they

requirements as the farmouts, although certain parts of

are compromising vital aspects of the reservoir. Whenever

their process might be slightly more complicated. Overall,

this is the case, we require an explanation and a solution

both experiences should help PEMEX to strengthen its

from their side. These long-term debates are the reason

assignation exploration and development capacity.

for CNH’s existence.

Q: What main trends has CNH observed in contract

Q: How do transparency and coordination among

assignation and farmout processes?

regulators raise confidence among operators?

A: CNH has been working with both schemes since we carry

A: The existing coordination between the Ministries of

out the analysis for migrations for the Ministry of Energy

Energy, Finance and Economy and CRE, ASEA and CNH

and we do the licensing process for the farmouts, although

has worked well for the industry and its structure. Even

the entire decision of carrying out a farmout falls on PEMEX,

though the Ministry of Energy selects the areas for bidding,

as it evaluates what it is looking for in a partner. There is an

it requests our technical opinion and we provide advice

interesting relationship between the Ministries of Energy,

on what works best. Over time, the licensing rounds have

Finance and Economy and PEMEX and CNH in that they

grown in number of blocks awarded, their optimization, the

provide advice on these processes but the ultimate player

awarding of agreements, the number of bidding companies

in setting the requirements is the market and its behavior,

and the amount of money offered above the previously

so market analyses and the study of awarded areas are key

stipulated royalty, which iindicates that we are moving in

to successful licensing processes.

the right direction. Furthermore, there has also been a great level of openness from the regulators’ side to the opinions

Q: Which market parameters are helping to attract a

and feedback coming from the international market,

growing number of players to Mexico?

particularly from the operators working in or interested in

A: The oil and gas industry works according to a long-

the Mexican oil and gas industry.

term vision that can span 10 years, from the time a decision is made to when the actual exploration process

Q: What will be the implications of a unified licensing

begins. The first steps involve significant expenses to

process for Rounds 3.2 and 3.3, particularly for their

carry out exploration with no initial profits, making the

combined natural gas potential?

first years hard for any company. We have seen several

A: I think natural gas has been seen with a reductive focus

companies divest from exploration due to its expense and

despite being the foremost source for the petrochemical

industry and its productive chains. Natural gas also looms

organized, rely on an organized digitalization engine and

larger in global industrial transformation processes when

have data mining with focalized services according to the

compared to the oil industry, and the case of Mexico is an

operators’ needs. It will take some time to compile but the

example of why we need to widen the focus on the natural

first steps have been set in motion.

gas industry. The country’s petrochemical imports are larger than its oil exports and we should have a policy to produce

Q: What regulatory bottlenecks are slowing the reform’s

more gas to satisfy the local market and even think about

implementation?

exporting it.

A: We are in the middle of a process to simplify authorization procedures through the revision of all the

We are about to launch a book on natural gas with 20

steps and information required, which is more complicated

ideas on how to further develop this segment and proposals

than it looks. There needs to be coherence in the collected

to overcome the limitations that the national system has

information and assurance that every single company will

imposed on itself in the form of tight regulations. When it

provide the exact same data. We also need to reduce the

comes to unconventional resources, there needs to be a

number of steps in the process and we expect to revise the

great deal of information since people usually relate them

most important ones by the end of 2018. As time goes by,

only to hydraulic fracturing and this practice has negative

more exploration and development plans will be presented

connotations based on water usage and environmental

and we will have to follow up on what companies are doing

impact. There is an opportunity to develop unconventional

through visits and electronic updates.

resources using the salinized water deposits in the north of the country and to reuse this water for all the fracking

Q: What message should the next federal administration

developments, as the processes do not require clean or

send to further consolidate the industry?

potable water. We can take the example of the Permian

A: The first message is that the oil and gas industry is a

basin’s highly productive fields in the US and apply this

long-term business and it requires enormously extensive

knowledge and experience to the potential in the Sabinas

productive chains that need to be safeguarded. The

and Burgos basins.

hydrocarbons industry is the driving force for different productive chains and by implementing it properly we can

Q: How will integrating the rules of the three regulators

build local industries in different fields, such as materials.

impact the industry?

CNH has achieved its positioning as a fully transparent

A: There is a strong will to develop a one-stop shop that

and a socially-auditable organism whereby any person can

integrates the requirements from the three regulators. Both

check its data. We have to ensure that this achievement

CRE and ASEA have shown great willingness and we have

remains untouched moving forward.

held meetings to set the basis for this model, which would take around two years to reach completion. We need to make sure that this one-stop shop outlines each entity’s

Héctor Moreira is serving a second term as CNH Commissioner.

reach and that we do not have overlapping efforts. There

His previous experience includes stints as Undersecretary for

is also an idea to create a digitalized hydrocarbons center,

Strategic Planning and Technological Development at the Ministry

but this poses great challenges as it needs to be highly

of Energy and Undersecretary for Hydrocarbons

VIEW FROM THE TOP

REGULATING THE INDUSTRY’S FRUITFUL DEVELOPMENT GASPAR FRANCO Commissioner of CNH

Q: What is your stance on private farmouts and

and processing to accelerate processes and export

consolidation of alliances for E&P contracts as a result

experiences much more quickly.

of the licensing rounds? A: The administration of these contracts involves awarded

Q: What are some of the practices you would like to see

operators conceding a certain percentage of the control

from private players in the industry?

or participation over their contracts. We have a certain

A: First and foremost, I would like to see a true and honest

guideline for cession and control exchange whereby, if

commitment to the country’s development and a genuine

companies win a block, they are entitled to associate

alignment to the work taking place for the country’s

with some other company as long as it meets the proper

benefit. If they remain committed this will create jobs,

criteria to participate in the project.

improve onsite performance, foster human capacity development, improve productivity and things will flow

Mexico has over 1,400 reservoirs in around 700 oil fields and not all of them have enhanced recovery processes

naturally for the industry. The long-term interest is to create a strong Mexican industry and we, as regulators, have to do everything we can to optimize the regulations, processes and requirements to achieve that. Q: What are CNH’s plans for the future and what is your message to those operating in the Mexican oil and gas industry?

Q: How is CNH overcoming internal bottlenecks regarding

A: We have announced the guidelines for secondary

technical components from your daily activities and

and enhanced oil recovery techniques as we expect

operations?

to see a larger number of operators applying these

A: CNH has grown exponentially and we have found

practices. Mexico has over 1,400 reservoirs in around 700

areas of opportunity that we are trying to cover by

oil fields and not all of them have enhanced recovery

training people in the areas that hurt us the most in each

processes. We made this move because we deemed it

department. We conducted a survey in each department

necessary to enforce the process legally so operators

to uncover the weaknesses they were experiencing based

could do it. There are cases in other jurisdictions where

on their area of expertise. We want to train our people as

some fields have doubled their reserves when they

regulators, not as technical operators.

introduced these processes. We want to push operators and service companies to venture into new things,

Additionally, we want to strengthen the mapping of our

and to try new processes. We want to stay on top of

processes, their implementation and improvement, so

technological developments that allow us to better untap

we need to increasingly professionalize our staff and

Mexico’s potential. Also, the regulation on exploration and

have our people ready to face any possible scenario.

development plans is about to change for the better and it

We also need to accrue our budget independence to

will reduce timing for the approval of these plans.

work properly and systematize information acquisition We are constantly identifying opportunity areas and try to implement the modifications as fast as possible. We want Gaspar Franco was appointed Commissioner of the National

to demonstrate that the regulatory impact will always be in

Hydrocarbons Commission in April 2016. An engineering

favor of those who are regulated and that we are committed

graduate of UNAM and UACAR, he is the first petroleum

to the elimination of hefty regulations that place hurdles in

engineer designated by the Senate to hold such a position

front of the industry.

VIEW FROM THE TOP

MEXICO’S DEEPWATER KNOWLEDGE NOT SO SHALLOW ANYMORE ERNESTO RÍOS Director General of IMP

Q: IMP was awarded several trademarks and patents in

in Mexico. This project alone has led to an increase in oil

2016. What were the results in this regard for 2017-18?

production of 49 percent.

A: During 1H18, IMP received 25 international and two national patents, 75 copyright registrations and 10

We also developed the Venturi Flow-Pattern Enhancer

trademarks. In 2017, we received 45 international and

System (MPFV) used for production control and well

11 national patents, 275 copyright registrations and 27

optimization, which has been installed in 579 Mexican

trademarks. Of the country’s public research centers, we

wells. This technology allows for an average production

had the largest number of granted patents at a national

increase of 20 percent in each oil well and, after five

level, which helps us maximize value generation in research

applications, prevents the need to drill a new well.

and technological development in the energy industry.

Meanwhile, our Electromagnetic Surface Inspection

IMP’s product and service portfolio was restructured to

Technology (TIEMS) for pipelines allows the quantitative

align with the strategy for our new 2017-20 business

evaluation of the physical state of pipeline coatings, thus

model. The goal was to boost new growth drivers for

identifying and classifying areas according to wear. We

the energy business, and to account for certification

also offer IMP-ALICIM chemical inhibitors for corrosion

and development of standards based on the existing

protection that mitigate corrosion speeds in operational

competition. In 2017, our portfolio included 94 products

pipelines within spec.

and services. Of these, 45 focused on exploration and production, 44 on engineering and five on talent

IMP also focused on technological development oriented

development. The restructuring resulted in 87 solutions,

toward cleaning and sustainable technologies. We

including 45 oriented to E&P, 32 to engineering and 10 to

support R&D efforts in biofuels and their valorization,

talent development.

physical-chemical characterization, life-cycle analysis and combination with other fuels such as gasoline and diesel.

Q: What product or service development during 2018 do you consider to be the most representative of the efforts

Q: How exactly is the creation of CTAP going to impact

IMP is making in the Mexican oil and gas industry?

the Mexican oil and gas industry in the coming years?

A: One of IMP’s main achievements in 2018 has been the

A: Deepwater oil field identification, as well as well drilling

start of operations at our Deepwater Technology Center

and exploitation are among the main challenges that oil-

(CTAP). This project reflects the efforts of many specialists

driven nations face. CTAP will put Mexico at the center

who wanted to offer public and private institutions at a

of all developments related to these activities and will

national and international level the experience of several

boost the national industry in field-planning processes,

laboratories specialized in strategic areas such as well-

well drilling and design of equipment and systems. This

drilling, natural and operational risk characterization,

will help companies select the best infrastructure to

tooling design and qualification, equipment and

maximize results after their investments. CTAP has an

production systems.

excellent opportunity to provide technologies and integral solutions that reduce time frames between exploration

The center has state-of-the-art technology to support

and production.

clients in research and technology development processes, as well as talent development focused on oil and gas production in deepwater and ultra-deepwater fields in

The Mexican Petroleum Institute has 52 years of experience

the Gulf of Mexico. The blowing agent IMP-WET-FOAM is

in generating technical and technological capabilities for the

an example of the type of technology developed at IMP’s

hydrocarbons sector. Its goal is to maximize value generation

center, and is part of the first chemical recovery process

in exploration, production and transformation processes

INSIGHT

THE TIES THAT BIND INDUSTRY PLAYERS TOGETHER RAYMUNDO PIÑONES Director General of AMEXHI

With the Energy Reform, Mexico became one of the last

Agenda 2040 references two scenarios developed by the

countries in the world to allow private players to enter its

IEA’s Mexico Energy Outlook for 2040. The first assumes

oil and gas sector as operators. Although the process has

the continuation of the current policies in the energy

resulted in many challenges, Raymundo Piñones, Director

sector and forecasts an increase in oil production to

General of the Mexican Association of Hydrocarbon

around 3.4 million b/d by that year. The second assumes

Companies (AMEXHI), says the country can learn from

that the Energy Reform is stalled and as a consequence,

the best practices in other jurisdictions to strengthen its

production remains flat.

industry. “We drafted our 2040 Agenda with the aim of presenting ideas and proposals for the development of the

Indeed, for the industry to flourish some challenges

oil and gas sector toward the year 2040. Inputs for the

need to be overcome. Among those, Piñones says, are

Agenda were received from academia, government, banks,

infrastructure development driven by the market, the

private sector players and equity investors,” he says.

strengthening of the regulatory framework, in particular

“

The Agenda 2040 is central to AMEXHI’s communication strategy and it is a reflection of the state and future of the industry”

ASEA, and the need to ensure local content requirements are competitive and encourage the efficient development of local value chains. Finally, he emphasizes the need to maintain transparency in all procedures, including the bidding processes of oil projects. The association highlights the essential role the Ministries of Economy, Energy and Finance, as well as the regulators, play in consolidating the new energy model.

AMEXHI proposes the implementation of 10 measures in

AMEXHI’s Agenda 2040 proposes the reinforcement of

its Agenda 2040 that would assist the consolidation of the

PEMEX’s execution capacity to make the most of its recent

country’s new energy model while helping Mexico achieve

oil discoveries in the new context of the competition it is

its energy and growth potential. “The Agenda 2040 is

facing. “PEMEX needs to be able to compete on an equal

central to AMEXHI’s communication strategy and it is a

footing with the new companies in oil and gas exploration

reflection of the state and future of the industry,” Piñones

and exploitation, including in the attraction of human

says. The agenda identifies four pillars for the development

capital,” says Piñones. “Mexico has great technicians and

of the industry: consistency, transparency, competition and

great universities,” he adds.

knowledge in policymaking. AMEXHI believes the full impact of the Energy Reform will become apparent by 2040, given

AMEXHI has also identified opportunities in the

the long-term maturity of the projects in the sector.

development of unconventionals, where Mexico could see investments in the tens of billions of dollars and potentially

Piñones makes it clear that the Agenda 2040 is by no

reduce its dependence on gas imports. “Regulation is

means centered on political time frames but on the

in place to take advantage of such opportunities,” says

future energy needs of the country. He emphasizes the

Piñones. He applauds efforts made by the government

importance of having a system that allows the competitive

so far regarding unconventionals and says only a few

development of the sector along the whole value chain.

aspects need to be polished. “The government has done

AMEXHI is approaching all relevant stakeholders, including

a good job so far regarding unconventionals; we need

the new presidential team, to explain the benefits of

to continue improving the institutional and regulatory

continuity regarding the new energy model.

framework.”

VIEW FROM THE TOP

A FOCUS ON BOOSTING LOCAL CONTENT ANTONIO JUÁREZ Director General of AMESPAC

Q: What are the prevalent concerns among AMESPAC

Q: What are AMESPAC’s most significant initiatives for the

members?

next few years?

A: The companies integrated into AMESPAC are primarily

A: From the outset, our association has been focused on

service providers to the oil and gas industry. Concerns have

increasing local content with the development of the oil

been raised over the lower price of oil and PEMEX’s steep

and gas industry. Our priority is to rely on our associates,

production decline, causing field activities to significantly

both international and local, to push for local content

diminish. Companies accustomed to a solid market foothold

requirements and to foster employment as the new local

in locations such as Ciudad del Carmen or Villahermosa with

content formula in Mexico’s regulatory framework quantifies

strong oil and gas production activity are now suffering from

products and services, mainly through local labor. AMESPAC

both a lack of work and PEMEX’s contract revision process to

works closely with Mexican universities to develop new

get better prices, which directly impact expected revenues.

programs to prepare young people for work in the industry.

Q: What steps is the industry taking to adjust to this

Q: How quickly do you think the industry will pick up as

situation?

key variables improve?

A: Some companies have closed as a direct consequence

A: New investments from foreign companies that were

of this. We have a good relationship with PEMEX and

awarded E&P contracts during the licensing rounds are

we are trying to help it look for new ways to increase its

turning into drilling activity for exploration operations.

reserves and production. PEMEX’s budget is still designated

Over the next three or four years, this activity will steadily

and managed by the government and investment levels

increase.

are dependent on total sales revenue, which suffered a drastic fall in 2015-2016, reducing investment. Previously,

Q: What is your approach to the foreign service companies

PEMEX invested close to US$20 billion per year while at

arriving to Mexico?

present it is investing less than half that. We are in talks

A: Several new companies are setting a foothold in this

with the government to make a case to prevent service

industry. There is a particularly significant contingent of

companies from dying. PEMEX’s increased resources to pay

Norwegian and US companies looking to expand their

its commitments and start drilling again are a critical part

market presence in Mexico. We have expressed our

of the equation. In 2010, 170 drilling rigs were operational,

interest in them joining AMESPAC so we can help them

whereas now only 22 are operating in development fields

successfully achieve their goals, introduce them to Mexico’s

and 14 in the exploration fields.

operators and build a stronger group within our association. AMESPAC organizes several conferences throughout the

Q: What can companies do to survive under these

year to connect operators with service companies, including

conditions?

key speakers from the relevant government agencies and

A: A number of private companies are starting operations

regulators: PEMEX, CRE, CNH and ASEA. We also invite

in Mexico, launching new deepwater, shallow-water and

foreign organizations to participate, such as the Society of

onshore projects awarded in the country’s licensing

Petroleum Engineers (SPE) and the American Petroleum

rounds. Mexican companies working in the awarded blocks,

Institute (API).

especially in the country’s southeastern region, are looking to get involved with these new operators. Small companies working in onshore projects are also part of the target as

Mexican Association of Oilfield Service Providers (AMESPAC)

the inherent nature of onshore projects and the size and

creates consensus and develops proposals for its associates to

flexibility of the companies allow for a more streamlined

improve the performance of the Mexican oil and gas sector. It

launch of operations.

has 50 national and five regional associates

VIEW FROM THE TOP

GETTING DOWN TO THE HANDS-ON WORK DAVID ENRÍQUEZ 32

Senior Partner at Goodrich, Riquelme y Asociados

Q: What main challenges is Goodrich, Riquelme y

hands-on work, such as dealing with service providers,

Asociados solving for its clients in Mexico?

how to interface with regulators, the mechanisms of the

A: We have been active in the licensing rounds in which

joint-operation agreements and the relationship between

a few of our clients have been successful, from IOCs

the consortium’s partners.

to independents, as well as in other projects in the hydrocarbons and electricity markets. Our task was to

Q: In your estimation, has the Energy Reform played

understand the projects and assist with the business

out as planned?

models. Now, we are helping them to take these projects

A: I think the way the Energy Reform was presented as

to the operational phase. I think the relationship between

the “Mexican moment” in the early stages of the Peña

contractors and regulators in this sense is important. We

Nieto administration, for example on the cover of The

help our clients to factor in both the contractual and

Economist, was an exaggeration that inflated expectations

regulatory elements so that whenever they interface with

regarding the delivery of the reform. It is now crystal

those regulators, contractors and subcontractors take all

clear that there was a need to consider different phases

these elements into account in an efficient manner.

of implementation in terms of institutional design. Regulation in the early stage of delivery has been

When it comes to other areas of the value chain, such as

particularly successful in the upstream arena. There has

upstream, it is important to continue to be creative with

been some degree of success in midstream, especially

regard to economic and contractual models and to have

with regard to natural gas. In downstream, however,

innovative models that are feasible when negotiating

nothing has really happened in material terms.

with PEMEX, such as those regarding monetization of assets or new operations and maintenance models. This

Generally speaking, there is an ambiguous feeling. The

applies not only to PEMEX but also with regard to the

ecosystem is richer in the number and quality of operators,

different members of a consortium. This is the time to be

especially in upstream because of the CNH rounds, while

innovative, creative and bold.

midstream and downstream are moving at a different pace. So, there are mixed feelings about the deliverables.

Everything is now happening in terms of starting operations, many contracts have been awarded and more will be

Q: What have been the critical success factors within

awarded. Now comes the tough task of implementing a

the Energy Reform?

business model, having a development plans approved

A: There were key areas that needed to be adapted to

and launching the exploratory phases, depending on the

the international market and the common understanding

contract. With regard to onshore projects, clients must

is that the Mexican government has been flexible enough

deal with all the social and environmental issues associated

to understand where those areas were. With our clients,

with their awarded blocks. Instead of trying to help clients

we have participated substantially in the licensing rounds.

to digest the guidelines and the contractual models or

Despite the successes of Round 1.1, the general public

conducting a thorough analysis of how to factor in certain

saw it as a failure due to the number of blocks that were

aspects of their economic model, we are starting with the

not awarded. Based on that perception there was a deep need for the government to review what went wrong. The government was flexible enough not only to understand

Goodrich Riquelme y Asociados advises IOCs and key players

the economics of the project, it also understood the need

involved in exploration and production activities. Its services

to adapt aspects of the fiscal terms, the need to relax

include representation in public procurement processes related

certain aspects of the guarantees and the need to make

to pipelines, LNG terminals and other downstream facilities

the contracts more market-oriented.

I think that flexibility has been the name of the game when it comes to the CNH rounds, which is why these have been fairly successful when compared to similar events happening in other countries. Not only have there been good blocks on offer, in terms of geology, but there also has been sound regulation and good institutional design. Each phase of each round also is completely different. You cannot compare deepwater to onshore. For example, Round 1.3 cannot be compared to Round 1.4. The types of players participating in each phase of the rounds are also unique. Even if you consider the same kinds of players, you

FMP income 1Q18: US$6.1 million (exploration fee), US$44.5 millionÂ (contract fee) US$47.7Â million (commercialization of hydrocarbons)

might have different economics. The government cannot use the success of one round as a model for the next. I

For example, with onshore projects you might have a

think some recent farmouts are a good illustration of this.

field in which PEMEX is your client because you have to process oil for them, but then PEMEX becomes your

Q: What parts of the reform will require the most

carrier because they have the transportation line, or

adjustment as time goes on?

PEMEX will be your buyer because nobody else has the

A: I think there is a strong need for asymmetric regulation.

infrastructure, and PEMEX is also your partner because

When you have a reform of the caliber of the Mexican

you are talking about an onshore farmout or the migration

Energy Reform, the regulators not only play the role of

of an assignation to an E&P contract. In all those

technical experts but also the role of market facilitators.

environments, PEMEX requires asymmetric regulation.

They must assure everyone that there is a level playing

Here I am referring to the oil and gas market but it is really

field for all potential players. That means the top dogs so

the same for electricity and the renewables side. You have

to speak, not only PEMEX but also CFE, must behave in

an entity with a dominant power really flexing its muscle

a market-oriented way. The very concept of asymmetric

with regard to another participant in the market.

regulation is to put a level of control on these entities so there is an effective playing field among all companies.

Asymmetric regulation really is a way to make that big dog behave itself in a market-oriented fashion. I think

Although we have certain asymmetric regulatory

that the antitrust commission must impose measures on

instruments, when it comes to the natural gas market

market players by means of coordinating with CRE and

and a bit on the retail business with gas stations, we do

CNH to ensure the solid implementation of the Energy

not really have the instruments that need to be in place

Reform.

along the value chain. You name the type of industry in upstream, midstream or downstream and I will tell you

There are all kinds of market limitations in Mexico and we

four or five cases in which you will need asymmetric

do not yet have a strong enough antitrust commission

regulation.

working closely with CNH or CRE.

VIEW FROM THE TOP

LOOKING TO THE PAST TO EXCEL IN THE FUTURE MANUEL CERVANTES Managing Director of MCM Abogados

Q: What added value does MCM Abogados bring to the

understanding of what business opportunities are available

Mexican market?

and make better decisions regarding the licensing rounds.

A: Our integral assistance helps our clients understand both the national and international rules of the market,

The Mexican industry is quickly evolving. This can be seen

starting from the bidding processes and structuring their

in the licensing rounds, which are improving and becoming

participation to understanding legal risks and analyzing

more attractive and stable. To understand the market, it is

fiscal terms. In general, we provide full support on every

extremely important to not only focus on the last results

legal aspect of running a business in Mexico, particularly

but also to be knowledgeable of what transpired in previous

given the complexity of the upstream industry. If bidders

years with the different players. MCMâ&#x20AC;&#x2122;s long-term presence

are successful, we support them in the execution and

in the market is highly relevant in this area. We know the

performance of the contracts. We also have close contact

history of the relevant players in the Mexican market, such

with all the regulatory institutions, such as CNH, ASEA, the

as PEMEX and CNH, and have a comprehensive record that

Ministry of Economy and the Ministry of Energy. This has

includes not only the actions of these players but their

allowed us to develop a deep understanding and expertise

interpretation of the market that led to the decisions taken.

in the area of farm-ins, farmouts and JVs, making us, most likely, the top law firm in the JV environment.

We always like to be one step ahead. We were involved in the negotiations that created almost every regulatory

MCM continuously looks for potential interactions and

change over the past years. We can provide our customers

synergies in the market to not only offer services to its

with an outlook for the market, helping them make decisions

clients but also to establish important relationships with

that will benefit them not only with a single bid or contract

other market players. MCM also excels due to its different

now, but also in the future.

and more flexible structure compared to other firms. We like to develop close and long-term relationships with our

Q: What key challenge does the local value chain face in

clients to better accommodate their needs. Having strong

an open market?

technical knowledge is another advantage, allowing us to

A: The local value chain is facing many changes and

better understand the needs of our clients compared to

challenges, and it will be hard to work through them. As a

our competitors, which tend to have a more generic focus.

result, we will see several companies exit the market. Sooner

We are truly specialists.

or later two things may happen: either the government steps in to rescue the companies and try to keep them

Q: What factors will make operators successful in the

afloat or it allows them to fail with as little damage as

Mexican rounds?

possible. Companies that have developed a proper market

A: In our experience, operators need to perform a thorough

analysis will survive, while those that have not and offer

evaluation of the contractual area as well as to fully feed

business as usual will face difficulties, including a lack of

the economic model of the project to ensure they have a

money to comply with business commitments, a reduced

complete understanding of the auctioned areas. If they

ability to acquire financing as well as difficulties dealing

successfully manage these two points, they will have a better

with community issues, environmental contingencies or even labor unions. The less companies depend on PEMEX and adopt a vision in which they work for the benefit of

MCM Abogados is a Mexican law firm providing integrated

the open market, the easier it will be for them to survive.

services specialized in a range of projects for the oil and gas

MCM is also in a position to help, not only because of its

industry. The firm provides consulting services for national and

wide knowledge of the market but because of its close

international companies

relationships with international operators.

VIEW FROM THE TOP

STRONG AMBITIONS FOR A FULLY INTEGRATED OIL AND GAS PRESENCE JOSÉ URIEGAS CEO of Grupo IDESA

Q: Why is it vital for Mexico to have a strong oil and gas

term benefits we want to achieve. The reality is that it will

industry?

take five to 10 years at least for the projects brought by

A: The manufacturing industry is vital for the country’s

the licensing rounds to reach maturity, which shows how

economy and will continue to be no matter what. The

important it is to secure the integrity of the investments in

chemical industry, as an important supplier to the

the long term.

manufacturing sector, is therefore a key component for the economic growth of the country. For every car that

Q: How would IDESA rate the development of the Mexican

Mexico builds and exports there are US$3,000-US$5,000

midstream sector?

worth of chemical products that are essential components.

A: It is understandable that the midstream sector is

To have competitive petrochemical products, it is a must

taking longer to develop than upstream, considering all

that our country produce sufficient and competitive natural

the resources that have been assigned to strengthen the

gas, liquids and crude oil.

country’s upstream activities. Actually, now we are seeing more companies enter the midstream sector. The Sur de

Electricity is also an important ingredient for any country

Texas-Tuxpan pipeline project that IEnova is developing

that wants to have a strong industry. After the shale

to import natural gas is a clear example of the tangible

revolution in the US, it was clear that every sector in the

opportunities that the Mexican midstream sector has to

country’s industry grew, so having a reliable natural gas

offer. Importation of fuels represents a strong market

supply is also logical. These examples are proof of the

opportunity in the short and medium terms. In our case,

importance of having and securing the raw materials and

we already have activities in the port of Veracruz and are

sources of energy coming from the oil and gas industry.

developing facilities to import diesel and gasoline.

Q: What is the status of the permits needed for Tonalli to

Q: How is IDESA supporting the transition of PEMEX into

start operations in the block it was assigned in Round 1.3?

a productive enterprise of the state?

A: All the permits needed before entering into production

A: As PEMEX has become a productive state enterprise,

are extensive. This is good because the country is just

it no longer has an obligation to participate in the whole

opening its E&P sector and is carefully looking for the

value chain of the oil and gas industry. Instead, it can

whole process to be transparent and for every permit to

focus on projects that are profitable for each subsidiary.

be correctly processed. Truth be told, the requirements

Nevertheless, production from international players will take

of the agencies are reasonable; the problem is that they

at least five years to materialize, meaning that in that time

lack the number of people needed to manage all the

PEMEX must keep covering the country’s oil and gas needs.

information they are receiving. We have received almost

This highlights how vital it is for the country to make sure

all the approvals needed to start operations and expect to

that PEMEX remains a strong player in the medium and long

start production by June 2018. If we do it, that would mean

terms. Of course, this is easier said than done. To support

it would take us almost two years to start production after

PEMEX, Grupo IDESA takes part in both the ANIQ and

signing the contract with CNH.

CONCAMIN associations to present ideas on how to make PEMEX and the country’s oil and gas industry stronger.

Considering that the Energy Reform was actually intended to be included in the original NAFTA, meaning that it took it almost 20 years to see the light of day, waiting a couple

Grupo IDESA founded in 1956, is one of the largest groups in

of months to ensure its continuity is no big deal. The future

Mexico involved in the production, storage, distribution and

of the oil and gas industry in Mexico is bright but we have

industrial transformation of hydrocarbons. Its mission is to

to be careful about how to achieve the short and long-

provide the best products and services to benefit society

INSIGHT

THE TRANSITION STARTS BERNARDO CARDONA 36

Partner Energy and Resources Industry Leader at Deloitte Consulting Mexico

Since the 2013 Energy Reform, the energy markets have

consolidated. Market competition also evolved, driven by

evolved at many levels. Mostly, this evolution falls into three

CFE’s need for gas-fired power plants to produce electricity

main stages: early, transition and mature, says Bernardo

that has pushed the creation of pipeline infrastructure,

Cardona, Partner and Resources Industry Leader at Deloitte

the initiation of open access to infrastructure, third-party

Consulting Mexico. As Mexico moved from a monopoly to

imports and liberated prices. This last, combined with

an open market model with several players entering in the

CENAGAS’ efficient management of the system, has

early stage, it would be easy to look at the major discoveries

boosted the commercialization of natural gas for industrial,

like Zama by Sierra Oil & Gas and Talos Energy or Ixachi by

commercial and household customers.” In the midstream

PEMEX as the major successes of the bidding rounds, but

sector, a key challenge for moving to the transition stage is

the Mexican E&P industry still has a way to go before it really

storage and transportation capacities, but Cardona remains

enters a transition stage, he says. “To reach a transition stage,

optimistic about the segment, which is mostly driven by

reversing trends in reserves restitution and drilling activities

market demand. “We expect that as E&P activities increase,

is vital. For that to happen, the effective execution of the

this sector will further fuel the need for new infrastructure

field development plans for blocks awarded in the licensing

of both storage and pipelines to handle the oil and gas

rounds, and to continuously launch new rounds, is crucial.”

from new discoveries and awarded blocks that are already

These circumstances, however, were to be expected in the

producing.” In the liquid fuels markets, “access and

face of an industry in its early stage, given the time frames

development of storage and pipeline infrastructure is the

involved with developing activities in upstream oil and gas.

key to market competitiveness and its development to a transition stage,” Cardona says.

E&P is without a doubt the sector that has attracted the most attention both nationally and internationally. It has

But It is the downstream retail segment where Cardona is

also had the most impact in Mexico. Seventy-four contracts

particularly optimistic about the speed of evolution, stating

have been assigned to 70 companies from 18 countries for a

that this sector has already entered into the transition stage,

total accumulated income for the Mexican state of US$145.5

mainly due to shorter development times and because

million as of September 2017 and an expected global

market entry is much easier. “There is no way to compare

investment of US$2.6 billion as of Round 2.3. Reflecting

the complexity and lead times of the development of an

on these numbers, Cardona emphasizes the work public

oil field with that of rebranding a service station,” he says.

institutions are doing to make this possible. “The role of CNH, the Ministry of Energy and ASEA in achieving this

Cardona’s optimism in downstream retail is not unfounded.

has been extremely important. They have conducted a

As of January 2018, BP had over 100 service stations in

transparent and clear bidding process and implemented

Mexico, Shell over 18, Arco eight, Chevron six, Gulf two and

regulatory and legal frameworks that provided sufficient

ExxonMobil six, with plans to open 50 more stations during

certainty to the market and made it attractive for

1Q18. National players have also mobilized, getting together

companies to venture into Mexico,” Cardona says. He adds

in purchasing clubs like G500, and Mexican brands such as

that companies can now turn to Mexico when looking for

OXXO GAS, Petro7, La Gas, Hidrosina and G500 and many

assets to diversify their investment portfolios.

others are being positioned in the market. “It is exciting to see how the number of players in the gasoline retail

Turning to the midstream sector for natural gas, Cardona

market is changing every day. Before, all offered the same

points out that its market competitiveness was more

value because they all offered the same types of fuel, brand

developed than the upstream segment even prior to the

and value proposition through the PEMEX franchise, but

Energy Reform. “Natural gas midstream had evolved,

now they are all looking for ways to differentiate their own

entering into a transition stage that has yet to be

brands," he says.

VIEW FROM THE TOP

ASSESSING THE INDUSTRY’S STRENGTHS GOING FORWARD RUBÉN CRUZ Leading Partner in Energy and Natural Resources at KPMG in Mexico

Q: What is the extent of the changes introduced by the

encouraging PEMEX to incorporate better and different

Energy Reform five years after its adoption?

financial mechanisms, such as the Fibra E, which has not been

A: The changes have been quite positive, with the

exploited yet, and potentially publicly listing part of its equity,

commitment of a series of IOCs and companies from different

although an additional reform would be required for that.

countries to the development of Mexico’s energy industry as

The company has also learned how to be more competitive

the major highlight. There is a good spectrum of long-term

and to open itself to larger multicultural associations with

investments, ranging from 25 to 50 years. This reflects the

IOCs from around the world. Other big challenges PEMEX

opportunity Mexico represents for the hydrocarbons industry

faces right now include wider competition in the downstream

and the international community is aware of that, backing

sector, particularly in retail, and possible financial constraints,

the market with US$160 billion already committed for future

but this is why partnerships are necessary.

projects. Low-risk exploratory blocks awarded during the first rounds pushed production estimates to around 40,000

Q: How has the regulatory framework increased KPMG’s

b/d and we got a positive surprise in Round 2.4 due to the

client portfolio and which gaps should be addressed?

dimension of the projects awarded. The industry is expecting

A: We have seen our three major business lines grow

new discoveries and this will reshape the future of the

exponentially. In auditing, because we manage the largest

hydrocarbons industry in Mexico.

companies in the hydrocarbons industry in Mexico. In tax, since we help structure our clients' investments so their

Q: How have licensing and production-sharing rounds

capital enters their home countries and revenue is repatriated

evolved to become more attractive over time?

efficiently. And in consultancy, where we are conducting

A: Mexico has gone through a learning curve quickly and

market studies to see where companies are competitive and

successfully. Interest in the country’s fields was present from

management consulting to plan their operations and project

the beginning but the lack of experience in handling day-to-

their future growth. This is why we have seen our business

day operations required different implementations. In the

grow since the reform was enacted.

first three licensing rounds there were no down payment tie-breaker mechanisms, no pre-awarding awareness on

Regarding the gaps to fill, meeting local content requirements

maximums and minimums for the blocks’ additional royalties.

is an area where we have had advisory operations and it has

However, during and after Round 1.4 the feedback from

been easy to cover so far. But as investments flow and they

the industry was well-received by the Mexican National

grow larger, meeting local content percentages will be harder

Hydrocarbons Commission (CNH) and applied to future

to achieve. There is a need to bind Tier 1 and Tier 2 service

rounds, making them more competitive for both the industry

suppliers to local requirements since they only apply to

and the state. Licensing and production-sharing rounds have

operators at the moment and industry players need to work

also attracted different players and different types of blocks

under coordinated rules to make sure there is a commitment

have been tendered, which has created a varied market

to deliver. This is particularly important since CNH and the

behavior.

Ministry of Economy are working to verify that local content requirements are met and their processes are carried out

Q: What is the result for PEMEX in terms of new opportunities

over time.

and challenges? A: PEMEX has seen its production potential increase after the industry’s opening. The NOC needs to develop the fields

KPMG is a global network of professional services firms

it was awarded in Round Zero mostly through farmouts, and

providing Audit, Tax and Advisory services. It operates in 154

it is in a privileged position as this scheme will lower its

countries and territories and has 197,263 people working in

exploratory and financial risks. The Energy Reform is also

member firms around the world

VIEW FROM THE TOP

THE DEVIL IS IN THE DETAILS ERNESTO MARCOS Partner at Marcos y Asociados

Q: In your view, what have been the Energy Reform’s

Q: Is Mexico’s legal framework mature enough to bolster

high and low points?

the potential of the oil and gas industry?

A: The most prominent achievements of the reform are

A: That is where the challenge lies going forward. The devil

the inherent constitutional changes carried out after

is in the details and from our discussions with industry

its enactment. Prior to its signature, there had been

experts, we understand the industry is confronting

two decades of discussion about the dire need for an

these challenges. These include environmental impact

Energy Reform. This plan took many shapes, including

assessments, land agreements, community negotiations

limiting private participation to service contracts, shared

for onshore projects and drilling permits. All these

production and shared profits contracts. The core point

secondary processes are delaying the normal course

of contention revolved around setting the reform’s legal

of the project pipeline. Regulators need to concentrate

boundaries. I believe a critical achievement on the legal

on what is important and streamline these processes

front is that the Energy Reform’s upstream legislation

so the industry can live up to its potential. Another

allows for all types of contracts: licenses, production

key element is involving other government agencies in

sharing, profit sharing, to name a few, with The Ministry

supporting these processes. The Ministry of Energy is

of Finance and the Ministry of Energy through CNH

clearly committed to the reform’s implementation but

picking the most adequate type of contract to be applied

for dispute resolutions, a coordinated group is essential.

depending on the tendered location.

This should include the Ministry of Communications and Transportation for ports and rights of way, the Ministry

During deepwater Rounds 1.4 and 2.4, the general

of Interior and SEMARNAT.

consensus among industry experts was that the number of blocks awarded was greater than expected, making

Q: Is there any particular issue requiring further

them two successful rounds. Round 1.3 was successful

legislative work?

in allowing Mexican companies and startups to create

A: E&P legislation was the first stage of a broader effort

E&P companies but overbidding was prominent to the

to regulate all the links of the oil and gas value chain.

detriment of some projects. Shallow water Rounds 1.1,

Natural gas storage regulations are a close second since

1.2, 2.1 and 3.1 were successful in attracting the interest of

regulatory concerns organically transitioned toward

players such as ENI, Talos Energy and Fieldwood Energy.

using an abandoned field as a storage facility. Another

These projects are moving forward and will eventually

aspect revolves around classification of reservoirs. CNH

attract sizable investments.

is working to regulate oil fields that spread beyond the limits of a single block. To be truly fruitful, these efforts

The part of the reform that was probably overshot was

require inter-ministerial coordination.

the expected time frames. E&P activities for instance, are not expected to show positive results from investment

Q: How will the presidential elections affect the

inflows before the first five years. But overall, we believe

continuation of this process?

the Energy Reform has proven to be superior to models

A: While we do not believe a new administration can

in initial discussions and negotiations.

revert the advancement of the reform, there is a possibility that the pace will slow due to the handover process. The industry hopes efforts will be made to make

Marcos y Asociados is a Mexican investment banking and

the transition as short as possible. The challenges now lie

business development consultancy. Its proficiency in project

in the details of the reform and we would like to see the

development and management is strengthened by the deep

new administration address the ministerial coordination

energy-industry knowledge and expertise of its executive team

required to further consolidate the success of the reform.

INSIGHT

SIMPLE SOLUTIONS FOR A COMPLEX INTERACTION EDUARDO NÚÑEZ Managing Partner at Núñez Rodríguez Abogados

The Mexican licensing rounds were quickly implemented

Núñez Rodríguez Abogados is uniquely positioned to explain

after the Energy Reform was signed in 2013 with 9 rounds

international precedent due to its broad understanding of

and three farmouts already having taken place as of June

both the Mexican and international markets, Núñez says.

2018. Although the success of the reform has been widely

“To help companies feel more secure we show them all the

praised, there is more to be done, according to Eduardo

laws and international treaties that support their activities

Núñez, Managing Partner at Núñez Rodríguez Abogados.

in Mexico,” he says. Núñez also emphasizes the importance of having a broad knowledge of the Mexican judicial system,

Due to his broad experience in the market and close

meaning that the firm knows how cases will be approached

relationship with national and international companies,

in almost every situation. “We have been working in the oil

Núñez has a deep insight into the main topics that companies

and gas business for over 20 years in Mexico and have a

struggle with when entering Mexico’s oil and gas industry.

full knowledge of the sector,” he says.

“There are three main issues that clients tend to repeat when asking for our services,” he says. “The first is whether the

Besides its knowledge, the firm can also show clients how

Mexican legal framework offers security for the investments

to put its legal advice into practice. “For a provider of legal

made in the country. The second is related to whether the

services, it is important to know not only the solution,

contractual framework is clear and precise when defining

but how to apply it and the means that will be needed

the activities to be developed. And the third is focused on

to apply it in an effective way,” Núñez explains. Núñez

the way companies must interact with Mexican authorities.”

Rodríguez y Abogados places great importance on the close relationships it creates with its clients, together with

When asked about the best aspect of the Energy Reform,

follow-up activities to ensure the solutions create a positive

Núñez points to transparency, which has been praised

impact and value that satisfies its clients.

internationally and has been beneficial for the country’s image. “Both national and international investors have

Núñez emphasizes that it is not always possible to predict

pointed out that in Mexico we have created a robust

risk, especially when it comes to external factors like social,

and clear legal framework,” he says. “The fact that the

economic and political issues. To help investors prepare

constitutional reform was ratified by Congress through

for any possible scenario, the firm conducts predictive

a political consensus is also an important political

analyses. Although these scenarios range from positive to

achievement.”

negative, Núñez emphasizes Mexico’s interest in providing continuity for the Energy Reform. “We are working hard

Despite the robust legislation, the Mexican legal framework

to achieve a successful Energy Reform in Mexico and send

for the oil and gas industry was only recently implemented,

both Mexican and international companies the signal that

creating the challenge of how to explain it to the industry,

we are doing things the right way, that we are improving

using comparisons with international laws and best

our legal framework and that we are entering a new era of

practices. “Another challenge of the framework is to keep

transparency,” he says.

improving it while keeping it lean,” Núñez continues. “This is tricky due to the many institutions, such as the

To offer a more impactful support to the Mexican oil and gas

Ministry of Energy, the Ministry of Finance, CNH, CRE and

industry, Núñez decided to create the Centro de Estudios

ASEA, overseeing the legal framework that will regulate

en Derecho y Gobierno five years ago. The center offers

one single activity.” Núñez says it is important to have a

industry-focused executive programs as well as a 100-hour

lean coordination among all these institutions to ensure

diploma course focused on the legal framework for the

companies can follow the rules without hurdles, therefore

industry. “It is the only center in Mexico of this kind, and

fostering investment in the country.

three generations have already attended it,” he says.

VIEW FROM THE TOP

CELEBRATING THE BENEFITS OF LEGAL REFORM JUAN CARLOS MACHORRO Energy Partner at Santamarina + Steta

Q: What role has the firm played in crafting the Mexican

A: The government’s financial and tax economy was for many

legislation regarding the energy industry?

years highly dependent on the oil industry and on PEMEX.

A: After the Energy Reform we were invited, as a firm, to

Unfortunately, this huge dependency had two negative

participate in helping the Mexican government draft the

impacts on the Mexican economy: one is that appropriate

formats and bases for the contracts to be awarded in the

taxes have not been paid by companies or individuals. An

licensing rounds. We were involved with the profit-sharing,

area that still requires reform is taxes. The other negative

production, license and service contracts. One requirement for

impact of the monopoly is that it made our NOC a very

participating law firms was a technical credential that showed

inefficient operator. It was overstaffed, bloated and, since

the Ministry of Energy that the firm had the international

the government relied so much on the company’s revenues,

exposure, experience and expertise necessary to put these

it stripped all of PEMEX’s profits. This meant that, instead

kinds of contracts together. We are a fully Mexican law firm

of reinvesting in new technologies, the company was forced

but we have relationships with many firms outside Mexico.

to simply continue working in already-producing fields and became very inefficient. So, a second positive impact has

Q: How has the resulting legal framework benefited the

been the recognition that we do need private investment to

Mexican state?

develop all the oil fields in Mexico. One of the requirements to participate in these rounds is that only Mexican companies can sign the contracts. We are now seeing international players

Santamarina + Steta has long been known for its experience in

such as ENI and Chevron creating Mexican subsidiaries. One of

the development of energy projects, including power projects

the benefits of this reform is that it will generate a supply chain

and projects related to natural gas and liquefied petroleum gas

of domestic companies and entrepreneurs and will catalyze

(LPG), renewable energy and bioenergy projects

this much-needed Mexican expertise in the oil and gas sector.

VIEW FROM THE TOP

MULTIDISCIPLINARY LEGAL EXPERTS STRENGTHEN VALUE CHAIN SERGIO BERISTAIN Founding Partner at Beristain + Asociados

Q: What makes Beristain + Asociados the essential legal

a certification in personal data security law. International or

partner to the oil and gas industry value chain?

comparative law qualifications in anti-corruption practices

A: Beyond our services, the local value chain has a gaping

must also be integrated. Deep knowledge of civil and trade

need for training and upgrading within legal firms so that

law, even more so than administrative law in most cases,

they can provide integrated legal advisory solutions and,

must gradually permeate legal practices, especially when

consequently, become effective in business development.

considering building relationships with both CFE and PEMEX.

For instance, no advisory service in due form can overstep

Training in the Energy Reform chapters, before and after its

VIEW FROM THE TOP

OIL AND GAS, A DRIVING FORCE FOR SPECIALIZATION ENRIQUE GONZÁLEZ Founding Partner at González Calvillo

Q: How has González Calvillo adapted its service offering to

require multidisciplinary teams to seize the sector’s business

the changes in the oil and gas industry?

opportunities.

A: We are one of the few full-service law firms in Mexico that began tapping opportunities in the energy field even before

Q: What González Calvillo strengths will attract customers

the Energy Reform was negotiated, thus we have walked the

in the industry?

walk for more than two decades and have acquired stronger

A: Our firm’s strongest practice areas have traditionally

practice capabilities as the sector evolved. Our experience

been M&A and finance. Such strengths have been key

includes doing work for PEMEX and CFE when they were

for the development of our energy practice. In the past

the only two players in the industry and advising the Ministry

few years, the infrastructure, project finance and project

of Energy in some areas as the Energy Reform was in the

development segments have been completely oriented

process of being implemented. Before the reform came

toward the oil and gas industry, making this sector the

through, we had already witnessed the unsuccessful attempts

driving force for the specialization that is essential to

of the previous three administrations to create agreements

become legal partners to companies seeking innovative

and opportunities for private players, mainly in midstream.

and solution-centric advice. We believe that our work

By the time the reform passed and the Hydrocarbons Law

speaks for itself.

was enacted, we had a better understanding of the way the industry would unfold. The message to players in Mexico and abroad was clear regarding the reform’s outreach. In that

Gonzalez Calvillo is a leading Mexican law firm with a solution-

regard, since the reform’s approval, we have continuously

centered mindset. The firm has a diversified client portfolio,

expanded our energy area from a specialized practice

including local and multinational corporations, domestic and

approach to be more comprehensive because clients now

international financial institutions and governments

implementation, is not only a must, but also a continuous

all regulatory requirements, providing a real added value to

process. Beristain + Asociados dedicates half its working

our clients.

hours to training, while we are certified in personal data protection and trained to comply with the National Anti-

Q: What are the primary challenges that the upstream sector

Corruption System.

is facing in Mexico? A: Mexico’s upstream challenges are not greater than those

Q: How does Beristain + Asociados assist its clients to create

you encounter worldwide. Some are singular to our country;

business under new schemes?

several others stand better than foreign cases. Our singularity

A: As we move forward in the consolidation of the

is rooted in security matters, as well as rights of way

hydrocarbons market, it is a law firm’s obligation not to

delimitation and the definition of land security, encompassing

take anything for granted and to be innovative. Roman law

public and private property, as well as ejidos.

should be the basis of this drive. Multidisciplinary lawyers with diversified knowledge in civil, administrative or criminal law, among others, can provide major solutions to the challenges

Beristain + Asociados i s a Mexican law firm specialized in

we face. This capacity can be built through integral studies

litigation, corporate law, the energy and food industries,

and continuous training. Mastery of these legal disciplines

intellectual property, privacy and data protection, anti-

enables you to draft tailor-made contracts that comply with

corruption, among other areas of practice

Seybaplaya port, API Campeche

KEY OIL & GAS STATES

To measure the development and success of a public policy on hydrocarbons, it is necessary to look beyond the federal implementation and delve into particular issues at the state level. In the case of Mexico, four states are fundamental to the sound development of the industry: Tamaulipas, Veracruz, Tabasco and Campeche.

These states have witnessed the evolution of the hydrocarbons industry in Mexico since its inception in 1901, when the first-ever oil well in Mexico was drilled in the state of Tamaulipas. Because these states have significant hydrocarbon formations, their administrations have contributed directly to the adaptation of PEMEX operations in each of its fields. However, with the arrival of new operators and service companies, these key regions will have to adapt, and follow, public policies on hydrocarbons in a smarter and faster way to attract all-important investments. The creation of state energy commissions, as well as specialized clusters for the development of the industry, are some of the opportunities for states to bolster both their own economic and social development and that of the country.

CHAPTER 2: KEY OIL & GAS STATES 46

ANALYSIS: Oil and Gas States Ready to Unlock Potential

VIEW FROM THE TOP: Francisco García Cabeza de Vaca, Government of the

State of Tamaulipas

ANALYSIS: Tamaulipas’ Upstream Potential

VIEW FROM THE TOP: Andres Fusco, Government of the State of Tamaulipas

INSIGHT: Ricardo Correa, API Tamaulipas, Port of Matamoros

VIEW FROM THE TOP: José Rodríguez, API Altamira

VIEW FROM THE TOP: Eduardo Rafael Luque, API Tampico

VIEW FROM THE TOP: Alejandro Zairick, Government of the State of Veracruz

VIEW FROM THE TOP: Jorge Ruiz, API Tuxpan

ANALYSIS: Veracruz Eyes Logistics Role

VIEW FROM THE TOP: Alejandro Moreno Cárdenas, Government of the State of Campeche

ANALYSIS: Campeche Ramps Up, Eyes Discoveries

VIEW FROM THE TOP: Alejandro Manzanilla, API Campeche

INSIGHT: José Luis Zúñiga, COPARMEX Tabasco

ANALYSIS: Tabasco Nabs Investment Flows

ANALYSIS

OIL AND GAS STATES READY TO UNLOCK POTENTIAL Tamaulipas, Veracruz, Tabasco and Campeche, the four states that span the coastal Gulf of Mexico, are first in line to unlock Mexico’s oil and gas potential. With Mexico’s oil and gas states preparing to take advantage of the Energy Reform, all eyes have turned to policy to further develop the national industry

According to Mexico’s energy regulator, CRE, the cheapest

Round One are in Tamaulipas, both onshore and offshore.

transportation mode for one barrel of gasoline is through

This encouraging result is set to contribute US$45 billion

the country’s pipeline network at MX$0.01/km. In close

of investments over the next 30-35 years, according to the

second comes tankers at MX$0.02/km. Rail transportation

Ministry of Energy,” Fusco says.

costs MX$0.06/km and virtual pipelines demand MX$0.14/ km. To shorten distances and decrease hydrocarbons

Tamaulipas is working with the Ministry of Energy to

logistics costs, Mexico’s primary oil and gas ports are

foster the development of the state’s oil and gas deposits.

undergoing a serious revamping program, also known

Tamaulipas’ constituents, however, want to see tangible

as the Master Program of Port Development (PMDP).

results in the short term. The state is working together

Tuxpan, Altamira, Coatzacoalcos, Dos Bocas, Matamoros

with industry clusters, local entrepreneurs, the Ministry

and Tampico all designed their own PMDP, aligned with

of Education of Tamaulipas and academia to tackle the

the National Infrastructure Program (PNI) of 2014-2018.

industry’s human capital requirements. “We are looking to

Critical among the PNI’s objectives is the doubling of the

redesign higher education programs to prepare the state’s

operational capacity of the National Ports System. “MX$80

professionals to meet the energy industry’s demand for

billion were allocated to modernizing and expanding the

qualified human capital,” says Fusco. Strengthening the

country’s ports to improve Mexico’s global transport

links of Tamaulipas’ local value chain is also among the

network,” says Jorge Ruiz, Director General of API Tuxpan.

state’s top priorities. “Tamaulipas will ensure the rule of law will benefit both investors and landowners in locations

For Andrés Fusco, Head of the Tamaulipas Energy

where energy projects are being assessed,” he continues.

Commission, an integral strategy encompassing security,

“We are closely monitoring local content provisions with

economic and educational components, is essential. On

investors and entrepreneurs.”

April 10, PEMEX CEO Carlos Treviño reported that fuel theft cost the NOC MX$30 billion in 2017. During 1Q18,

According to Eduardo Luque, Director General of API

PEMEX reported fuel theft extraction points amounted

Tampico, connectivity is Mexico’s first and most important

to 3,691 nationwide, a 27 percent increase compared

asset. “We need to build and expand our existing roads,

to 1Q17. Twenty percent of those points were located in

airports, ports and railways and use them as our basis for

Veracruz, Tamaulipas and Tabasco alone. “From the Energy

growth in the years to come,” he says. “The Ministry of

Commission’s standpoint, we are focused on promoting

Communications and Transport has committed over MX$1

Tamaulipas’ strengths in the energy industry to foster

billion to this end.” As far as infrastructure goes, the state is

investments, stimulate the economy and create jobs,” Fusco

extending its pipeline network and developing a third port,

says. “Governor Francisco García Cabeza de Vaca is working

Matamoros, to address the challenge of its 400km-long

on deploying a strategy in coordination with the federal

coastline. Matamoros is expected to become operational by

government, the navy, the army and the state police, he

2020 and a first terminal tender to provide offshore services

says. “As long as investment continues pouring in and we

is already under way. With this project pipeline, Tamaulipas

continue nurturing the industry’s job creation potential,

will become one of only two states along with Veracruz

Tamaulipas will live up to the hype.”

with three strategic ports – one specifically dedicated to the energy industry. The state also designed a Maintain,

TAMAULIPAS UPDATES CENTURY-OLD INDUSTRY

Attraction and Recover program (MAR) as part of its

Tamaulipas boasts a 100-year history in the oil and gas

PMDP. Representatives from Petrobras, Schlumberger and

industry and one of the largest natural gas reservoirs in

PETRONAS are among those who have visited to evaluate

the country with both conventional and unconventional

the port’s viability for their ends in Mexico.

resources. It wants to fully capitalize on the 370km of shared border with oil and gas powerhouse Texas to develop

VERACRUZ DRAFTING BUSINESS STIMULI

Tamaulipas’ oil and gas industry to the highest international

Veracruz was badly hit by PEMEX’s decreased activities

standards. “Twenty-three of the blocks auctioned since

as a result of its restructuring into a productive enterprise

of the state, although the state holds almost 43 percent of the country’s oil and gas reserves. However, PEMEX had good news for Veracruz in December 2017 when it announced its Ixachi-1 discovery, a major contribution to Veracruz’s reserves. The inclusion of the state in the ZEE program was another positive step. “In the particular case of Veracruz, the ZEE program includes Coatzacoalcos, Nanchital and Ixhuatlan del Sureste,” says Alejandro Zairick, Minister of Economic and Harbor Development (SEDECOP) of Veracruz. The state is polishing the inner workings of incentives similar to ZEEs but at state level, consisting of attractive municipal tax rates, fast-tracked permitting

“

We need to build and expand our existing roads, airports, ports and railways and use them as our basis for growth in the years to come” Eduardo Luque, Director General of API Tampico

and administrative procedures. “This complete package created a pipeline of 15 letters of intent. Expectations are

Ministry of Public Security covering its three ports: Ciudad

high and the interested parties include refineries, liquid

del Carmen, Seybaplaya and Lerma. “We are the No. 1 state

storage terminals and offshore service providers,” he says.

as far as port security goes,” says Alejandro Manzanilla,

While still undergoing environmental impact studies and

Director General of API Campeche. The state is strategically

feasibility tests, Veracruz is scouting for the right partner

positioned in relation to Round Zero’s main oil fields with

to develop its Alvarado port to fill the infrastructure gap in

the closest port to 80 percent of PEMEX’s shallow-water

the state. Zairick is confident the project will be finalized

wells. The seeds for future operations related to farmouts

before the end of 2018.

and for future shallow-water rounds in Campeche’s shores could be sown in the near future.

TABASCO’S INTERNATIONAL APPEAL Tabasco was in the industry’s limelight after the results

Campeche is investing over US$55 million for its Ciudad

of Round 1.3 were made public, with the discoveries of

del Carmen and Seybaplaya ports. Ciudad del Carmen will

Macuspana and the entrance of industry heavyweights

expand its surface by 12ha, with 1km extra of docks, while

such as Roma Energy, Grupo Diarqco, Statoil and Murphy

Seybaplaya will be extended by another 7ha and 412m of

Oil. “In the next 25 years about 15 companies, both national

extra docks. The aim is to be capable of receiving bigger

and international, will settle in the state as operators for

vessels. Underground and dredging studies are under way

the production and distribution of hydrocarbons,” says

and the state is focusing on developing deeper drafts to

José Luis Zúñiga, Head of the Energy Commission at

better comply with offshore operations. To contribute to

COPARMEX Tabasco.

both PEMEX’s quest for competitiveness and the interest of private players, Campeche is looking to attract sizable

To deliver on the industry’s expectations, Tabasco’s Dos

capital through PPP schemes by emitting announcements of

Bocas port outlined specific infrastructure maintenance,

intent for its most pressing projects and infrastructure plans.

construction and modernization plans in its 2017-2022 PMDP. Infrastructure and equipment maintenance works

INTERINSTITUTIONAL COORDINATION

were allocated MX$248 million throughout the duration

The size of Mexico’s oil and gas industry and its equally

of the program. Construction and modernization works

sizable implications at both micro and macroeconomic

will amount to MX$709 million to include the construction

levels are too multipronged to be tackled by a single

of a Port Protection Naval Unit, concrete paving and the

agency, even at a federal level. Tamaulipas is spearheading

first stage of infrastructure development of the Dos Bocas

an innovative approach by creating its own Energy

industrial park. By 2022, Dos Bocas will have a cargo

Commission to oversee the development of the oil and

handling capacity of 3,175t/h of crude oil and derivative

gas and energy industries, a task traditionally under the

products, a 16 percent increase compared to 2016’s 2,739t/h

care of states’ local Economic Development Ministries. “The

and double the workforce of 2016. The plan includes a

constant monitoring of oil and gas and energy projects

partial cession of rights for the construction and operation

is not being done properly, as showcased by projects in

of an industrial terminal for hydrocarbons goods, the

the south of Mexico, delayed due to local social unrest

construction and operation of a stockpile facility and

and local governments transferring project development

hydrocarbons spill-control equipment.

responsibility to the federal government,” says García. “Tamaulipas Energy Commission’s structure and legal

CAMPECHE CAPITALIZES ON SECURITY

framework enable it to oversee all aspects of fostering

API Campeche developed a successful partnership and

energy business and is politically sponsored by the federal

coordination for special security operations with the

government, the Ministry of Energy, CNH, CRE and ASEA.”

VIEW FROM THE TOP

NORTHERN MEXICO’S HYDROCARBONS BET FRANCISCO GARCÍA CABEZA DE VACA Governor of the State of Tamaulipas 48

Q: How would you describe Tamaulipas’ position in the oil

our education centers. Third, we should create and

and gas industry?

consolidate a competitive local supply chain to support

A: Tamaulipas is undoubtedly a strategic state for

operators in meeting their local content requirements.

Mexico’s hydrocarbons industry. One of every four blocks

Finally, we need to generate investor confidence. It is

operating in Mexico is located in Tamaulipas basins and

important to highlight that preparing for the challenges

the state leads the way in prospective conventional

of the reform’s application has been a strategy for

resources with 13 billion boe, which represents 26 percent

Tamaulipas since Day One, as we are confident that this

of the country’s entire crude capacity. Tamaulipas also

industry represents tangible benefits for our society.

has a privileged geography for natural gas in Burgos and Tampico-Misantla, the two largest fields in this category,

Q: What are the competitive advantages that make

containing 27 percent of Mexico’s unconventional

Tamaulipas a strategic and stable entity for investment?

resources, 28 percent of oil and 25 percent of shale gas.

A: As business leaders expressed in a survey conducted

Therefore, it is no surprise that 34 percent of the areas

by the Mexican Institute for Competitiveness (IMCO),

included in the Ministry of Energy’s Five-Year Licensing

Tamaulipas is a state with an unbeatable location. We

Plan are related to Tamaulipas. The state is a strategic

share a 370km border with Texas, we have 17 border

point for the national oil and gas industry and in parallel,

crossing points, five international airports, a refinery, three

the industry is key to the state’s development. That is

ports, natural gas processing plants, 45 industrial parks

why this administration is committed to taking concrete

and a significant pipeline network. We have competitive

actions to consolidate and strengthen the positive

advantages that make Tamaulipas a strategic state and

development of the hydrocarbons industry in Tamaulipas.

an economically sustainable destination for investments. Moreover, we have a strong supply of human capital,

Q: What is being done to prepare for peak oil and gas

market structures, specializations, territorial space control,

activity, given the state’s extensive hydrocarbons resources?

easy access to raw materials and developed transport and

A: The federal and state levels should fully commit

telecoms infrastructure. Tamaulipas has made the most

themselves to capitalizing on the benefits of the Energy

of these assets to stand as a favorable environment for

Reform. In the particular case of Tamaulipas, we have

investment and it is the No. 1 state in capacity creation

committed a large pool of financial resources to boosting

for the diversification of export products that go beyond

the industry through measures such as creating a public

oil and gas.

structure focused on the hydrocarbons industry’s needs and its fast pace. To that end, we developed the Integral

Q: How are you maintaining high security and environmental

Strategy for the Energy Industry’s Development, which

standards related to unconventional resources?

includes four guidelines for the state’s government. First,

A: This administration has been in constant communication

public infrastructure should be prioritized to serve the

with the federal entities in charge of the energy policy

industry’s activities, particularly the Port of Tamaulipas,

and it has actively participated in a series of forums and

which will have an offshore terminal. Second, investment

information meetings to understand what operators

in human talent is required, as is the modernization of

need. The Energy Reform established the need for the close interaction between ASEA with CONAGUA for both institutions to establish a normative framework for the

Francisco García previously was a federal representative for

development of E&P activities. The resulting framework

Reynosa, where he would later become municipal president.

is based on best international practices, mainly those

In 2012, he was elected to the Senate, representing the state

adopted in Texas, where E&P in unconventional resources

of Tamaulipas. He was elected Governor of Tamaulipas in 2016

is a common and successful practice.

ANALYSIS

TAMAULIPAS' UPSTREAM POTENTIAL The state of Tamaulipas is poised to become a national oil

resources, which totals 45.7 billion boe. The state will also be

and gas heavyweight. The Tampico-Misantla and Burgos

pulling out all the stops to fully capitalize on its deepwater

basins contain prospective conventional resources for a

potential, particularly serving as a platform to facilitate

total of 5.4 billion boe, or 10 percent of the national total.

the exploration, development and future production in the

They also hold 76 percent of the country’s unconventional

Perdido fold belt, Mexico's most prolific deepwater basin.

PRODUCTION BY BASIN 2018 Tampico-Misantla

January

February

March

April

May

Oil (thousand b/d)

76.8

76.9

76.8

77.6

Gas (MMcf/d)

189.9

186.4

184.6

187

186.6

Associated gas (MMcf/d)

175.8

172.2

170.7

173.3

172.9

Non-associated gas (MMcf/d)

14.2

14.1

13.9

13.6

13.7

Nitrogen (MMcf/d)

1.3

1.4

1.5

January

February

March

April

May

Gas (MMcf/d)

680.5

673.5

668.6

653.6

645.5

Non-associated gas (MMcf/d)

680.5

673.5

668.6

653.6

645.5

Nitrogen (MMcf/d)

2.1

7.1

2.4

2.8

Burgos

Matamoros (under construction) • Investment - MX$1.6 billion • 400ha

US$64.4 billion total estimated investment from E&P contracts

95.6% Deepwater 3.3% Shallow water 1.1% Onshore Altamira

——Main highways and roads

Tampico

——Railways

Ports National airports

HYDROCARBONS RESERVES IN 2017 Crude Oil Equivalent (million boe)

BURGOS

405.37

Oil (million barrels) 0 Natural Gas (Bcf)

2,129.06

Crude Oil Equivalent (million boe)

6,424.80

Oil (million barrels)

4,338.05

Natural Gas (Bcf)

10,062.49 0

Proven

TAMPICO-MISANTLA

Provable

Source: CNH, API Tamaulipas

2,000

Possible

4,000

6,000

8,000

10,000

12,000

VIEW FROM THE TOP

A SAFE PLACE FOR INVESTMENT IN A RESOURCE-RICH STATE ANDRES FUSCO Energy Commissioner of the State of Tamaulipas 50

Q: How is Tamaulipas working to capitalize on its oil and

of Education of Tamaulipas to draft career programs that

gas deposits?

can provide qualified professionals able to align with the

A: It is important that we separate the responsibilities of

industry’s investment flows into the state. This 100-year-

federal and state governments. As a state government, we

old industry in Tamaulipas had only one client: PEMEX.

promote our entity both within our borders and internationally.

Tamaulipas’ academic sphere is working to redesign higher

Tamaulipas and Texas share 17 border crossings and we have

education programs to prepare the state’s professionals

common characteristics with our northern neighbor that we

to meet the energy sector’s demand for qualified human

can promote, especially considering Texas is one of the most

capital. Expectations are greater now and made by highly

experienced US states in the energy sector. Tamaulipas has

sophisticated, international companies that demand equally

one of the largest natural gas reservoirs in the country. Such

sophisticated professionals.

an asset is a critical contribution to Mexico’s energy sector as a whole. The government of Tamaulipas is promoting

Q: What objectives has Tamaulipas set to boost its

the state in the oil and gas industry because we see both

midstream sector?

conventional and unconventional resources as two sides of

A: The biggest hurdle for Tamaulipas’ midstream sector is

the same coin. The state’s experience in oil and gas spans

infrastructure. We need to extend our pipeline network

over 100 years so we understand the industry and are eager

and develop a third port in the northern part of the state to

to bring the experience of Texas entrepreneurs to our side of

address the challenge of our state’s 400km-long coastline in

the border to develop the industry according to the highest

the Gulf of Mexico. The same can be said for the electricity

international standards. We are coordinating meetings

industry. We lack the transmission lines required to supply

with the Ministry of Energy to foster the development of

the region’s increasing electricity demand. We are working

Tamaulipas’ oil and gas deposits.

with the federal government to obtain an increased budget to inject into the energy sector’s production chain, focusing

Q: How is the Tamaulipas Energy Commission assisting oil

primarily on infrastructure, and also trying to map Tamaulipas

field operations in the state?

for the energy sector in coordination with the Ministry of

A: Tamaulipas rearranged the structure under which

Transport and Communications (SCT) and the Navy (SEMAR).

it manages its energy portfolio by creating its Energy Commission after the Energy Reform was enacted. With

Q: What are Tamaulipas’ plans to revamp the local value

investment flows into energy projects in our state, we assist

chain?

during bureaucratic procedures and everything required at

A: This issue has been on the agenda since Governor García

both local and federal compliance levels. Twenty-three of

won a seat in the Senate in 2012 and took an active role in

the blocks auctioned since Round One are in Tamaulipas,

the Energy Reform’s enactment process. From the outset, we

both onshore and offshore. We are expecting more than

focused our efforts primarily on local value chains and the use

US$45 billion in investments for our state, meaning we

of surface land. Now, as a government body, we only need

must prepare ourselves, together with industry clusters

to ensure that the law is being duly applied to the benefit of

and local entrepreneurs, and also ensure the human

both the investors and land owners in the locations where

resources requirements. We are working with the Minister

energy projects are being assessed. The Tamaulipas Energy Commission is working to monitor local content provisions with investors and entrepreneurs. So far, negotiations between

Tamaulipas Energy Commission is a local government agency

land owners and investors have proven constructive. Our

created in 2017 and tasked with the establishment of policies,

regulatory framework is already set up to apply a system that

strategies and directives that contribute to the development

works for all parties involved, which will be replicated by other

of fossil fuels and the use of renewable energy in Tamaulipas

entities where the energy sector is booming.

INSIGHT

ECONOMIC IMPLICATIONS OF MATAMOROS PORT TO IMPACT ENTIRE STATE RICARDO CORREA Director General of API Tamaulipas, Port of Matamoros 51

For the city of Matamoros, right next to the US border

region over the next five to 10 years. Because the vessels

and strategically positioned on the coast of the Gulf of

involved in these activities do not require deep waters

Mexico, getting its own port was just a matter of time,

for access, the port can be developed faster than might

says Ricardo Correa, Director General of API Tamaulipas,

normally be necessary. “Compared to ports that focus on

Puerto de Matamoros. But the economic implications once

commercial traffic, the vessels that we will be receiving

the new port is completed will reach across the state, and

and that will be serving offshore shallow and deepwater

even the country, he adds.

operations, mainly in the Perdido region, require no more than a 24ft draft.”

Correa says the development of the port became a must in the wake of CNH’s licensing rounds that started in 2015.

Yet some factors are challenging the project, including

“The project to build a port in Matamoros materialized

the presence of a protected natural area. But Correa

after looking at all the investment that the licensing rounds

says this only makes it more valuable to get it right.

are expected to bring to Tamaulipas’ offshore industry,

“Environmental protection is vital for the project, and this

especially in deepwater.”

is what has taken us the longest time to develop. The state of Tamaulipas wants to be a pioneer in the protection of

Although the state has provided the bulk of the financial

natural resources.”

support for the development, Correa points out that ports take time and money to complete and that the private

Competition with other ports in the state is not a

sector will have a role to play. “We have been working

worry because the state follows a complementary

on the port’s development for the last three years, with

vision regarding infrastructure, Correa says. “The main

significant investment coming from both the federal and

shareholder in the Matamoros port is the government of

state governments,” he says. “As of February, 2018, 90

Tamaulipas, which makes the planning much more integral

percent of the port’s infrastructure is ready.” To develop

with other ports in the state because it is now the state

the last 10 percent while lowering the financial burden on

that is interested in its development and in connecting

public coffers, the port is using the common international

it with the future of the industry in Tamaulipas. Our

practice of creating public tenders for private port

objective is to make Matamoros the first truly deepwater

operators to complete the basic infrastructure while taking

port in Mexico.”

part in the investment. “Such is the tendency now around the globe,” Correa says. “The public sector stops being

While acknowledging that the offshore oil and gas industry

the only infrastructure builder and becomes a facilitator

will fuel the port’s initial success, Correa also has his eye

for private investment. With this in mind, we are planning

on future markets the completed port could serve. “We

to open a public tender during the second half of 2018.”

are focusing on the offshore market because that justifies the investment,” he says. Future plans include storage

Correa acknowledges that Tamaulipas has suffered through

capabilities. “By 2019 or 2020, we are planning to offer a

hard times in terms of security, and he understands the

public tender for the creation of a fuel terminal.”

possible fears investors might have, but he points out that the port is strategically placed near the US border and that

Once the port is fully up and running, Correa says it is

a naval base is already located there, making it completely

expected to boost other economies in the region. “The

safe for investment.

shortest route from Matamoros to the Yucatan peninsula is a straight line across the sea,” Correa says. “As a result,

The main purpose of the Matamoros port is to provide the

the port’s significance for merchant activities becomes

services that will support offshore developments in the

evident.”

VIEW FROM THE TOP

HYDROCARBONS LEAD THE FUTURE FOR GULF’S MAJOR PORT JOSÉ RODRÍGUEZ Director General of API Altamira 52

Q: The port of Altamira began 2018 with the best performance

Part of the current investment plan involved widening the

of all ports. What factors accounted for this success?

breakwaters and improving the port’s safety. We also provided

A: Last year we had an average growth rate of 23 percent

maintenance to buildings, customs offices and sites to keep

on our total cargo, including our two main business lines of

them updated. We recently signed an agreement with the Port

automotive and steel, which involves rolls, plates and tubes.

Coordinator for the expansion of two terminals, as part of its

This growth was partially due to the natural gas marine

plan to double the capacity of every single port in Mexico,

pipeline coming from Southern Texas to Tuxpan because

with Altamira being the only port that will actually triple its

logistics were carried out at Altamira and we were right in

capacity. Each of these two terminals will expand their berths,

the middle of the full development process. Our inherent

providing them with new dynamism, new positions and better

assets are our biggest strength as we have top-of-the-line

equipment. The current administration has been crucial in the

technology, highly-skilled labor, the latest equipment, a land

port’s development and we have grown to unprecedented

extension that fits any project and an entire production chain,

levels. We have already signed six more water fronts that will

from producers to customs, working according to unified

unfold in the following months.

rules and principles. We strive to provide the highest quality possible and we have a deep understanding of the industry,

Q: What impact will the new hydrocarbons terminal have on

keeping deliveries on time and minding our clients’ demands.

the port’s activities?

Finally, we also made the most of the Energy Reform and the

A: This is probably the most significant project being

first round of benefits it brought to the oil and gas industry.

developed at the moment. The minister of energy and the governor of Tamaulipas came to Altamira to lay the first stone

Q: Given that Altamira is the undisputed hub for trade in

of what will become our very first hydrocarbons terminal

Tamaulipas, which assets in particular offer advantages?

to further complete the development of an industry that is

A: We have a privileged location as we stand right in front of

booming in the state. The projected investment surpasses

the new drilling sites off the coast of Tamaulipas and we are

US$200 million. Altamira has been a key player in the

also close to the US. Additionally, we have unbeatable services

application of the Energy Reform due to its size, relevance

in terms of quality. We have the largest dock location in

and the shipments moved from here. Now we plan to build

Tamaulipas with 9,500ha entirely dedicated to port activities

upon the large reservoirs standing at the port’s gates. This

and trade. We also have extensive territorial reserves and strict

new hydrocarbons terminal has already attracted companies

environmental policies to protect and preserve native species.

such as Avant Energy, whose operations will handle 1.8 million barrels. Windarmex also has chosen Altamira as the site for

Q: API Altamira has been at the center of federal investment

its wind towers.

plans. How has the port channeled these investments? A: We have an extensive public investment agenda that

Q: What are API’s plans for 2018 and what direction will the

includes widening sailing canals, dredging and installing new

port take?

electric substations. We try to foresee any potential need our

A: We expect 2018 to be as good as 2017 and maybe even

customers might have so we can place the right investments

better. The Energy Reform is now in full motion and it is

in a timely fashion to save them from future inconveniences.

prompting things to accelerate. We have projects in the pipeline, such as the new terminals, new concessions and a green light to expand the port. With the first hydrocarbons

API Altamira is the administrative body in control of the largest

terminal on the go, we expect to have a second one in the

port in the state of Tamaulipas and has been operating since

future. The port currently has 17 berths, although it was

1994. The port distributes the largest cargo of industrial and

originally planned for 90, and we are going to close this

commercial goods in the northeastern part of Mexico

federal administration with 25 percent growth.

VIEW FROM THE TOP

THE DOOR TO THE WORLD EDUARDO RAFAEL LUQUE Director General of API Tampico 53

Q: How is the Port of Tampico's expansion changing the

A: Maintaining the port in optimal condition is essential to

way API operates and plans?

keeping our competitive edge and further investments in

A: The port is going through a considerable expansion

connectivity are key to achieving sustainable growth. As

project that has boosted our growth over the past 12 months.

hydrocarbons take their hold in Tampico in the years ahead,

We had a great year in numerical terms with an overall

a growing number of companies will seek to invest here and

growth of 24 percent in comparison to the previous year

we need to provide them with the necessary infrastructure.

and with 115,000 tons more moved in 1Q18 compared to 1Q17.

We also have a second tender for the expansion of our

We experienced a 53 percent increase in our public cargo

multiple-use terminal in sight, hopefully receiving bids in

segment, which increased 630,000 tons in comparison with

2018 to extend this facility. Infrastructure is the key tool

the previous year. Our private cargo also grew by 10 percent,

for growth. We need to build and expand our existing

with an increase of 80,000 tons compared to 2017. Our

roads, airports, ports and railways and use them as our

PEMEX terminals grew by 1 percent, which might not be an

basis for growth in the years to come. The Ministry of

impressive figure but this segment handles around 5 million

Communications and Transport has committed over MX$1

tons of cargo per year. Moreover, PEMEX’s new vision to turn

billion to this end.

into a more profitable company will bring this segment’s growth to higher levels in the years ahead. The port’s main

Q: How will the Maintain, Attraction and Recover (MAR)

activity is handling steel, which grew by 98 percent last year,

program help attract new companies and relationships?

from 690,000 to 1.4 million tons. We are working under our

A: This program was designed to be fully implemented

Port Master Development Program (PMDP), which also

as part of our PMDP, which ends in 2021. Representatives

states that hydrocarbons should represent a larger share

from Petrobras, Schlumberger and PETRONAS are among

of our operations and this is where we plan on expanding

those who have visited us to evaluate the port’s viability for

next. We are also analyzing a move into the tourism sector.

achieving their purposes in Mexico. This type of attention

We are changing our regulations to make them friendlier to

on the port would not have occurred without the MAR

concessioners so they can exploit the land they use. We have

program. We have also received Kansas City Southern within

seven new projects with this in mind.

the context of this program. It is willing to work on the rail network to further connect Tampico and the Bajio region.

Q: What advantages does the Port of Tampico offer to companies willing to establish operations here?

Q: Halfway into your PMDP, what has been the main impact

A: Connectivity is our first and foremost asset. The terminal

on the state’s economic development?

is connected to a railroad, which saves costs and time and

A: The Port of Tampico will be central to the future

provides us with a direct link to the Bajio region. We also

development of the hydrocarbons industry and this was

have a great highway network able to accommodate heavy

initially envisioned in our PMDP. The southern part of

transport and we will be connected with the Tuxpan-Tampico

Tamaulipas is fundamental to the state’s development and

highway that is under construction and should further push

hence it represents an important element of our plans.

trade to this region. We are close to Monterrey, one of the

Tampico is the hub for the state’s imports and exports and

biggest business hubs in the country, and once the new

is the state's door to and from the world.

highway is complete, we will be less than five hours from Mexico City. We have a dredging capacity of 32ft. This year, we are projecting an additional investment of MX$100 million.

API Tampico is the administrative body regulating commercial activities in the trade of steel, wood, hydrocarbons, minerals,

Q: Which areas require the most investment to make the

oversize cargo and industrial products. The port offers 20

port more competitive?

regular commercial lines connecting 100 countries

VIEW FROM THE TOP

VERACRUZ COULD BECOME THE OIL AND GAS CROWN JEWEL ALEJANDRO ZAIRICK Minister of Economic and Harbor Development for the State of Veracruz 54

Q: PEMEX’s successful discovery of gas in the Ixachi

to provide training programs. We are also working with

field was announced in December 2017. What will be

the federal government to develop our supply chain in the

the impact on the state’s economy?

oil and gas industry to help these and other companies

A: This discovery is good news for Veracruz. Ixachi

in the state.

represents more employment for our constituents and will make up for the unfavorable situation after PEMEX’s

Q: How will the Alvarado port assist in filling Mexico’s

restructuring left behind a significant contingent of

infrastructure gap in the oil and gas industry?

professionals. The field is integrated into Mexico’s five-

A: We are looking for the right partner to develop the

year bidding plan and is a primary component of the

project and many companies have expressed interest.

state’s almost 43 percent portion of the country’s oil

We are undergoing environmental impact studies

and gas reserves. In our capacity as Veracruz’s Ministry

and feasibility tests and the results are encouraging.

of Economic and Harbor Development (SEDECOP),

Experience in this kind of project as well as healthy and

we are working full steam ahead to make the most of

structured capital are among the key factors we expect

the emerging opportunities in this industry and to be

from this strategic partner. The size and scope of the

prepared for the new players arriving to the state’s

project is unprecedented. With the possible exception

offshore and onshore blocks. We are in close contact

of PEMEX, hardly any company has experience in

with all interested parties, we remain one of the most

developing a port dedicated to oil and gas and we want

active states in the licensing rounds and are engaged

to do it right. We expect the project to be finalized before

in fruitful interactions with the sector’s regulators: CNH,

the end of 2018.

CRE and ASEA. Q: How are federal programs such as the Special

Veracruz state accounts for almost 43 percent of the country’s oil and gas reserves

Economic Zones (ZEEs) making an impact in Veracruz? A: The ZEEs are working quite well. In the particular case of Veracruz, it involves Coatzacoalcos, Nanchital and Ixhuatlan del Sureste. These create attractive opportunities for private players in terms of federal, state and municipal taxes. Previous federal programs

Q: What steps is SEDECOP taking to position Veracruz

created a one-stop shop that assisted private players in

internationally?

fast-tracking permitting and administrative procedures

A: Our local government attended the Offshore

at all government levels. This complete package created

Technology Conference (OTC) in Houston in 2017 for the

a pipeline of 15 letters of intent a few steps away from

first time since the event’s inception. We wanted to meet

closing. Expectations are high and the interested

first-hand the industry’s main players and gauge which

companies include refineries, liquid storage businesses

of those companies might be interested in investing in

and offshore services providers.

Veracruz. That same year, we launched the Alvarado port project to meet the oil and gas sector’s inherent needs in

Q: What is Veracruz’s plan to provide highly trained

logistics and supply. Veracruz’s coastline is 750km long

professionals to meet the industry’s requirements?

and our state’s geostrategic position in the Gulf of Mexico

A: We are working closely with academia to draft the

and its valuable oil and gas resources necessitated such

specialized programs and training that future industry

a strategic project. Local suppliers in Veracruz also want

specialists will require to provide for the specific needs

to understand the requirements of the newcomers and

of newcomers. We are also working with CONACYT and

under what time frame. SEDECOP is working with them

INADEM, among other federal agencies, which are drafting

the required training programs on par with the reform’s demand for qualified technicians and professionals, particularly for the Special Economic Zones. Q: With oil prices going up, are you witnessing a reactivation of the oil and gas sector in Veracruz? A: With the Ixachi discovery and Mexico’s licensing rounds, we are now looking at a new and better horizon. Veracruz is strategically positioned to spearhead the Energy Reform. Our contingent of experienced professionals who left PEMEX is eagerly awaiting the opportunities that will soon materialize. Q: What is Veracruz doing to ease anxieties relating to

PEMEX discovered an original volume larger than 1.5 billion boe in Ixachi-1, representing a potential of 350 million barrels in 3P reserves, which is on par with the Zama discovery. Ixachi-1 is PEMEX’s most significant find in onshore fields for the last 15 years

community relations and security? A: Veracruz is dealing diligently with these two particular

Our local administration has also placed a heightened

issues. We are working closely with the Ministry of Interior

importance on fostering a thriving business environment,

to address these situations accordingly. The South of

accompanying corporations every step of the way.

Texas-Tuxpan pipeline, a development by TransCanada, is a positive reference in that regard. In most cases, the

Q: How does Veracruz deal with the cyclical nature of

problems are rooted in misinformation so we are focusing

the oil and gas industry?

our efforts on creating exchange platforms between

A: Veracruz created its own State Energy Agency in 2017.

corporations and communities to dissipate any doubts

It will help provide certainty not only to our constituents

and to be part of the solution.

but also to the companies arriving to Veracruz. It will also become a strategic link between our state and

Q: How is Veracruz improving its business platform?

the federal governments and all of its new agencies

A: To the best of its ability, the government of Veracruz

since the Energy Reform. In addition, we are drafting a

extends a helping hand for companies to set a solid

petroleum development program to make the most of

foothold in the market and undergo a seamless process

our advantageous resources and clearly establish the

from arrival to the launch of operations. We are working

vocation of each strategic state zone, with the goal of

on regulatory improvements to expedite permitting

attaining long-term orderly development.

processes and administrative procedures and to make them as dynamic as possible. Our goal is to reduce our

Q: What will be this administration’s legacy for Veracruz’s

755 procedures and services and to shift toward shorter

energy sector?

response times and shortened procedures.

A: We want to set the stepping stones for Veracruz’s effective and efficient development, anchored in its

Q: What other stimuli are you offering to arriving

petroleum development program, coupled with an energy

investors?

development plan to integrate the whole strategic scope

A: We are drafting an instrument similar to the ZEEs but

of opportunities Veracruz offers. A fully functional State

at the state level. We are trying to structure what the

Energy Agency will spearhead these efforts and we want

municipalities can provide in terms of attractive tax rates

to leave a solid foundation for our strategic Alvarado

and other incentives among strategic positions within

port for the next administration. It will be a critical link in

Veracruz. We are still polishing the inner workings of the

Veracruz’s prosperity chain, considering the oil and gas

instrument. Industrial park developers are also part of

industry in Mexico exceeds the parameters of any other

this conversation to provide the most effective stimulus

industry in terms of investments, job creation, wealth

instruments possible. We are motivated by the sizable

creation, social impact and economic growth. It is set to

potential they have seen in the state.

become a major stimulus for Veracruz’s economy and will positively impact other sectors.

Q: What do you consider Veracruz’s strategic advantages compared to other oil and gas states? A: The size of our reserves and the length of our coastline

Alejandro Zairick has served as Veracruz’s Minister of Economic

are major comparative advantages. Veracruz’s proximity

and Harbor Development (SEDECOP) since December 2016.

to Mexico City and Puebla, as well as being Mexico’s

He also served as state congressman of Veracruz’s LXIII

entry and exit point for European goods also stand out.

Legislature from 2013 to 2016

VIEW FROM THE TOP

MULTIMODAL INTEGRATION OF THE PORT OF TUXPAN JORGE RUIZ Director General of API Tuxpan 56

Q: What competitive advantages and infrastructure

was the first order of business. The beltway to connect

highlights differentiate the Port of Tuxpan?

Tuxpan with the Mexico-Tuxpan highway, a 9.4km roadway

A: Tuxpan is the closest oil and gas and commercial port to

that includes three bridges and two circulation lanes,

the central region of the country, with a distance of 281km

decreased transportation times from 30 to eight minutes.

separating it from Mexico City, thanks to the Mexico-Tuxpan

Around 4,500 vehicles benefit daily from this beltway to

highway, which includes six tunnels, 10 bridges and an

reach their destination faster. The infrastructure includes a

investment surpassing MX$9 billion. Tuxpan is undergoing

300m-long, 21m-wide distributor road. We also deepened

work to become a strategic port for logistics connectivity.

the navigation channel by 15m thanks to a PPP financing

The Arco Norte highway extension, inaugurated in January

model, enabling vessels of up to 9,000 TEUs and tankers

2018, now encompasses the Bajio region, Mexico City, Puebla,

of up to 80,000 tons to navigate seamlessly and unload

Tlaxcala, Hidalgo and the State of Mexico, effectively linking

larger cargo volumes. This work had a direct impact

Tuxpan with the most significant industrial corridor in the

on decreasing maritime freight costs. TEC I, Tuxpan’s

country. This extension also created a hinterland with the

container, automobile and general cargo-specialized

states of San Luis Potosi, Aguascalientes, Guanajuato and

terminal, was also built. It incorporates cutting-edge

Queretaro.

technology and can ship 700,000 TEUs and 100,000 vehicles per year. The TEC I terminal is so efficient it can

Q: What are your expectations for the five projects that will

unload an entire container vessel in two days, greatly

be deployed in the port during 2020?

benefiting large automotive clusters and generating 2,000

A: These five projects are directed at the oil and gas industry.

direct and indirect jobs.

Representing an investment of MX$16.3 billion. They are meant to increase the port’s installed storage capacity to

Q: How has API Tuxpan prepared to service new

more than 7.8 million barrels of fuel. MX$1.75 billion of this

downstream players?

investment will be allotted to the port precinct and MX$14.6

A: The port includes navigation channels on par with the best

billion to the storage areas near the precinct. Propelled by

in the world, providing an efficient and productive option for

the Energy Reform and looking toward 2018-2020, Tuxpan

quality cargo-loading operations, both entering and exiting

is implementing measures and strategies to enable the

the Gulf of Mexico. The inherent benefits of the Energy

transformation of its storage terminals and to integrate

Reform are apparent with the multiplication of investments

specialized facilities that have the capacity and efficiency

from industry players that want to ship hydrocarbons cargo.

to cater to the national demand for hydrocarbons.

The port is looking to increase the participation of the private sector and align public and private interests to ensure

Q: How is the port coping with the increasing number of

durable infrastructure through innovative PPP schemes.

operators in the region? A: To meet the needs of cargo handling to the benefit

Q: How will API cater to offshore operators?

of operators, shippers, consignees and carriers, Tuxpan

A: Tuxpan has the capacity to cater to the development of

port implemented a development plan for the 2012-2017

deepwater activities with equipment, personnel and logistics

period. Infrastructure to facilitate commercial trading

support, as the E&P zone is located at a reasonable distance from the port. The proximity of this E&P zone decreases costs and port freight. The lion’s share of participation is set

API Tuxpan provides port services to supply high volumes

to concentrate around specific support tasks for deepwater

of fuel to the country’s central region, as well as bulk agro-

projects, such as construction and maintenance of oil

industrial goods, mineral bulk, non-petroleum fluids, general

rigs, provided by the three specialized terminals available:

cargo, container cargo and vehicles

CELASA, DEMERESA and Operadora CICSA.

ANALYSIS

VERACRUZ EYES LOGISTICS ROLE With an expected investment of US$38.5 billion coming to

2025. The Port of Tuxpan is also set to enhance its storage

the waters of Veracruz API Veracruz is working toward giving

capacity as the state attempts to boost its entire value chain.

itself a facelift to take advantage of the opportunities. MX$31

With the inclusion of Coatzacoalcos, Nanchital and Ixhuatlan

billion will be allocated to renovate and expand the port, a

del Sureste in a Special Economic Zone (ZEE), private

project that will multiply its cargo capacity by five times by

companies expect to benefit from attractive tax incentives.

Proven

Provable

Possible

VERACRUZ

Crude oil equivalent (million boe)

186.09

141.16

179.95

Oil (million barrels)

71.34

53.77

59.46

Natural gas (Bcf)

627.42

486.09

678.09

TAMPICOMISANTLA

HYDROCARBON RESERVES IN 2017

Crude oil equivalent (million boe)

899.53

2,533.89

2,991.37

Oil (million barrels)

680.73

1,665.18

1,992.13

Natural gas (Bcf)

1,205.76

4,165.37

4,641.35

API Tuxpan

Total estimated E&P deepwater investment

US$10.9 billion

US$37.5 billion

API Veracruz • MX$31 billion for new Veracruz Port.

shared with Tabasco

Total estimated shallow water investment

US$966 million

——Man highways and roads ——Railways

Ports National airports

shared with Tabasco

PRODUCTION VERACRUZ BASIN

PRODUCTION TAMPICO-MISANTLA BASIN 2018

January

February

March

April

May

250

20 0.7

0.7

40 0

Oil (thousand b/d)

76.8

76.9

76.8

0.7

200

150

77.6

186.4

184.6

187

186.6

187.7

189.9 200

187.4

Gas (MMcf/d)

188.3

190.3

100

196.3

200

100

172.2

170.7

173.3

172.9

13.9

13.6

13.7

1.5 0.9

Onshore

16.6

27.6

16.2

April

May

January February March

Non-associated gas (MMcf/d) Associated gas (MMcf/d)

0.3

Nitrogen

36.5

14.1

33.7

14.2

27.8

Non-associated gas (MMcf/d)

15 9

1.3

1.4

Shallow water

Source: Ministry of Transport and Communications (SCT), CNH

1.5

1.4

Nitrogen (MMcf/d) Oil (thousand b/d)

17.3

175.8

27.9

Associated gas (MMcf/d)

VIEW FROM THE TOP

REVIVING A SOUTHEAST GIANT ALEJANDRO MORENO CÁRDENAS Governor of the State of Campeche 58

Q: What impact does the state of Campeche have on the

of Ciudad del Carmen, such as UTCAM. The private sector

oil and gas industry, particularly for offshore operations?

also plays an important role in developing human capital

A: Most of Mexico’s oil production comes from the Bay of

by creating training programs and using local workforce

Campeche, off the eastern coast of the Gulf of Mexico, from

and service providers.

the fields of Cantarell and Ku-Maloob-Zaap. The production from that bay amounts to approximately 1.9 million b/d, which

The government of Campeche also created the state’s

represents three-quarters of Mexico’s oil production. With

Energy Agency, a decentralized public organism from the

these numbers, it is no wonder that the oil and gas industry

Ministry of Sustainable Energy Development with budgetary

accounts for 80 percent of Campeche’s economy, which is

and operational autonomy. The Energy Agency will manage

mainly confined to the oil and gas hub of Ciudad del Carmen.

and promote the development of energy projects in a safe, reliable, profitable and sustainable way to generate new

Q: How is Campeche collaborating with the private sector

employment opportunities and welfare for the citizens of

and academia to encourage the industry’s development?

Campeche.

A: Despite the downturn the energy industry has experienced over the last couple of years, it will remain

Q: What are the competitive advantages that make the

a major driver of economic prosperity and security in

state a strategic and stable entity for investment?

Campeche. With over 40 years of experience in the industry,

A: Ciudad del Carmen and the city of Campeche were in

Ciudad del Carmen remains Mexico’s oil and gas capital.

the Top 10 cities with the highest quality of life in Mexico,

We have been working very closely with the private sector

according to the 2014 national quality of life study carried

and academia to make sure it stays this way. We are aware

out by the consultancy firm Mercer. The study evaluated

that with the Energy Reform new operators and service

11 criteria: political and social environment, economic

providers will come to Campeche and compete with local

environment, labor market, socio-cultural environment,

companies, and we want to be prepared. Having said that,

healthcare, schools and education, public and transport

we are confident that local suppliers have the experience

services, entertainment, consumer goods, housing and

and skills needed to compete with international companies.

natural environment.

They will simply need to adapt to the new landscape and the challenges that will come with it.

In terms of security, Campeche is proudly one of the most peaceful states in Mexico, according to a 2015 study

The Energy Reform requires different minimum levels

carried out by the Institute for Economics and Peace, and

of local content depending on each contract phase and

has had the lowest crime rate in the country for the past

area. We are working closely with academia to align the

five years. We understand the importance of safety and

qualifications of our graduates with the needs of the energy

security, especially for international companies that come

industry. The lack of English-speaking labor could become

from developed economies and have higher standards

a barrier that inhibits locals from working in international

in these areas. Among other factors, we have broad

companies. To prevent this from happening, we are

energy resources, a young and skilled labor force and a

implementing bilingual degrees in the public universities

recently modernized and enlarged port, offering a wide supply of services for the oil industry and a privileged strategic location in the Campeche Sound, the country’s

Alejandro Moreno has been the Governor of the State of

most important in terms of hydrocarbons reserves and

Campeche since 2015. A lawyer, Moreno has wide experience

production. Campeche has a lot to offer to international

in the Mexican political sphere. Before becoming governor, he

companies looking to expand their businesses into the

was a congressman in the XIII legislature

southern region of the country.

ANALYSIS

CAMPECHE RAMPS UP, EYES DISCOVERIES The long-standing crown jewel of Mexico’s oil production,

Carmen and Seybaplaya will have a critical part to play

Campeche is tackling the production decline of Cantarell,

in the development of Mexico's shallow water potential

not only for the sake of the state’s local economy but also

and the local government is working full steam ahead to

to sustain the 67 percent share of the country’s total oil

facilitate frontier exploration of the Yucatan Platform and

production Campeche still holds. The seaports of Isla del

the Southeast basin’s prospective resources.

SOUTHEAST BASIN PRODUCTION

US$2.16 billion

3,500

Estimated E&P contract investments in shallow water

YUCATÁN PLATFORM

HYDROCARBON RESOURCES IN 2017 Conventional plays

1.8

Unconventional plays

Oil (billion barrels)

Conventional plays

Gas (Tcf)

SOUTHEAST BASIN

Crude oil equivalent (million boe)

Superlight oil

Light oil

0.1

Heavy oil

0.3

Extra-heavy oil

1.2

Conventional plays

Dry gas

Wet gas

0.3

Unconventional plays

Dry gas

Wet gas

Conventional plays

14.4

Unconventional plays

Oil (billion barrels)

Heavy oil

1.9

Extra-heavy oil

0.9

1,797.9

1.8

1,101.2

1,117.1

982.8

54.5

58.3

55.6

46.4

January

February

March

April

May

2,000 1,500

500

0.3

3,679

1,787.9

1,769.3

1,058.5

1,046.5

2,500

1,000

1.6

3,699.6

1,768.2

——Associated gas (MMcf/d) ——Oil (thousand b/d) ——Non-associated gas (MMcf/d) ——Nitrogen (MMcf/d)

14.4

13.1

Seybaplaya

Conventional plays

Dry gas

5.1

Wet gas

1.4

Unconventional plays

Dry gas

Wet gas

6.5

——Main highways and roads ——Railways

Ports National airports

1,832

3,472.7

3.3

Light oil

Unconventional plays

Gas (Tcf)

3,670.5

Superlight oil Conventional plays

3,712.6

3,000 Total

Crude oil equivalent (million boe)

4,000

Ciudad del Carmen

SOUTHEAST BASIN

HYDROCARBON RESERVES 2017 Crude Oil Equivalent (million boe) 17,161.97 7,121.51

Oil (million barrels) 14,368.55 5,706.10

4,737.16

4,077.29

5,303.29 4,585.15

Natural Gas (Bcf) 13,733.26

Proven Source: CNH

6,733.29

Provable

3,384.92

5,000

Possible

3,615.04

10,000

15,000

20,000

Quetzal construction barge, Ayatsil-Tekel, Campeche Sound

VIEW FROM THE TOP

SECURITY, EXPERIENCE, STRATEGIC POSITION EQUAL ADDED VALUE ALEJANDRO MANZANILLA Director General of API Campeche 61

Q: What added value does API Campeche offer to the

The same is being done at Seybaplaya port where we are

Mexican O&G sector?

developing underground and dredging studies to allow it

A: Our strength relies on three elements. First is security, and

to accept bigger ships. This modernization is not only for

we are the No. 1 state as far as port security goes. For our

the incorporation of international companies but also for

three ports in Campeche – Ciudad del Carmen, Seybaplaya

PEMEX, as the NOC is looking to become more competitive.

and Lerma – we developed a partnership with the Ministry of Public Security through which it provides special security

Q: What is API Campeche’s strategy for consolidation in

operations at our ports. This has provided us with a strong

the near and midterm?

competitive advantage because most companies in the

A: We want to stop being seen only as a tax collector and

sector looking to launch port operations always ask about

administrator. To achieve this, we are venturing into new

security. Second, we have broad experience in the market.

working schemes that are helping us to create partnerships

Working for more than 30 years in the energy sector, both

with public and private companies. API Campeche is already

with PEMEX and international companies, has allowed us

working on PPA schemes to develop all the projects that

to amass the knowledge and relationships to facilitate the

will be needed in the short and medium terms and that

entry of new participants into the market. The third point

will require large capital investments, such as the potential

is Campeche’s strategic position in relation to the main oil

development of a ship and platform yard. To capture the

fields in Round Zero. Being the closest port for 80 percent

attention of companies in this specific area we published

of PEMEX’s shallow-water wells offers great potential

official announcements of intent in the main national media.

for future operations related to farmouts and for future

We are also talking directly with companies we know could

shallow-water rounds located in our shores.

work with us. We have received interest from important companies such as Keppel and we hope to launch the

API Campeche also has strong relationships with other

official bidding rounds soon.

port administrations. Most of the companies that work in our facilities also have operations at other ports so having strong communication channels is vital. Q: How is API Campeche preparing for the expected boom in Gulf of Mexico operations? A: We are developing significant infrastructure in the ports

US$55 million: Expected investment for Ciudad del Carmen and Seybaplaya

of Ciudad del Carmen and Seybaplaya. Ciudad del Carmen will see an investment of over US$55 million, allowing for

API Campeche wants to support the operations of all the

a 12ha expansion with one extra kilometer of docks. The

companies that are coming to Mexico. The new facilities at

same investment is expected in Seybaplaya, resulting in

all our ports will be strongly focused on providing support

another 7ha and 412 extra meters of dock, as well as the

for the energy sector and offering tailor-made solutions

modernization of the energy and potable-water installations

for companies in the sector, while making room for other

at the port. The related industrial parks at both ports will

opportunities, such as those in the commercial segment.

also be modernized and the ports’ ISPS codes will be recertified. One of the main advantages of modernizing our port of Ciudad del Carmen is that it will give it a 7m

API Campeche is responsible for over a dozen ports, terminals

draft, meaning almost three more meters. This will allow

and designated port areas. Carmen and Seybaplaya are the

the port to manage the bigger vessels that are required

state’s main ports and they concentrate their operations on

by the offshore operations expected in the short term.

supporting logistics activities of the offshore oil industry

INSIGHT

TABASCO ON CUSP OF OIL AND GAS HUB JOSÉ LUIS ZÚÑIGA President of the Energy Commission at COPARMEX Tabasco 62

In light of the Round 1.3 results, the state of Tabasco is

The association believes Tabasco has immense wealth below

emerging as a key player on Mexico’s oil and gas field. One

its surface. Historically, it has also been a center for logistics

of the country’s most significant oil discoveries was found in

and distribution operations in Mexico. According to Zúñiga,

the municipality of Macuspana and major private players like

in the next 25 years about 15 companies, both national and

Roma Energy and Grupo Diarqco are entering. In this context,

international, will settle in the state as operators for the

José Luis Zúñiga, Presient of the Energy Commission at

production and distribution of hydrocarbons.

COPARMEX Tabasco, says the key to success will be a strong, integrated industry within the state. “Tabasco has been an

Local companies from Tabasco have also joined the ranks

important point of strategic development for everything that

of operators in the state’s hydrocarbon fields, buoyed by

has to do with hydrocarbons in Mexico,” he says.

the opportunities that emerged in the wake of the Energy Reform. “The federal government’s first licensing round

COPARMEX Tabasco is a business association with

created conditions that allowed smaller companies to

members from different sectors focused on attracting

participate in the rounds,” explains Zúñiga. “This created

investment to the state. The Energy Commission within

an opening for companies from Tabasco, such as Roma

this chamber works to group and position companies from

Energy and Grupo Diarqco, which had previously provided

Tabasco in the supply chain and offers their services to

services to oil companies such as PEMEX, Halliburton

companies that won blocks in the first and second licensing

and Schlumberger, to participate in the licensing process

rounds. According to COPARMEX data, the business

and become operators.” These companies implemented

chamber has approximately 190 members working in the

strategies for participating in the licensing rounds on the

oil and gas industry, of which approximately 80 percent

basis of their experience as service companies.

are small companies. According to Zúñiga, not only is COPARMEX Tabasco “We gather companies from Tabasco, provide training and

focused on bringing the private sector together, the local

put them in contact with the winning companies, such

content clause of the Energy Reform means its triple-

as Grupo Diarqco, Roma Energy, Statoil and Murphy Oil,”

helix approach between private sector, government

says Zúñiga. Roma Energy won the Paraiso field and Grupo

and academia is standing it in good stead. This clause

Diarqco won the Calicanto and Mayacaste blocks in Round

stipulates that 25 percent of what the winning companies

1.3. Statoil was part of the consortium that won blocks 1 and

contract must include Mexican local content. To achieve

3 and Murphy Oil won block 5, both in the shallow-water

this objective, the federal government has created a fund

Salinas basin. “We organize business roundtables but we

called Proenergía, where local companies can present a

also meet with the operators to understand their criteria

proposal that could give them the opportunity to work

for selecting suppliers.”

with the new operators.

COPARMEX Tabasco’s work includes the organization of the

But even with all these initiatives, Zuñiga predicts a

Oil and Gas Expo Procura, which has now taken place six

shortage of human capital, and believes Tabasco’s oil and

times and serves as a vehicle to invite government agencies

gas sector will have to look abroad to meet its needs. “We

and large winning companies to the state. COPARMEX

believe that the oil and gas industry is so demanding, so

Tabasco has also invited companies new to the region to

technical and so well paid, that local human resources are

API Dos Bocas, to introduce them to existing investment

insufficient,” he says. “This is why many workers have been

opportunities. In general, the business chamber works as a

brought in from foreign countries or from other parts of

liaison for newcomers to Tabasco, assisting them with tasks

Mexico, which is not necessarily a bad thing. Everybody is

from finding office space to contacting the government.

welcome in Tabasco.”

ANALYSIS

TABASCO NABS INVESTMENT FLOWS With close to US$39 billion of total estimated investment

April 2018, the state is one step away from becoming a

from E&P contracts in the licensing rounds, Tabasco has

key offshore services hub as exploration, development and

shown why it can be considered as one of the “big four”

production activity continues to shift westward to Mexico's

oil and gas states. With the declaration of Paraíso, where

traditional offshore production areas around Cantarell, Ku-

API Dos Bocas is located, as a Special Economic Zone on

Maloob-Zaap and Abkatun-Pol-Chuc.

4,000

3,725.4

3,755.2

3,531

3,725.1

Crude Oil Equivalent (million boe) 17,161.97 2,400 7,121.51

1,600

800 Oil (million barrels) 14,368.55

5,706.10

40 30 10 30 20 200 10 10 0 0

1,769.3 3,725.4 1,046.5 3,725.4 3,725.4 1,046.5 3,679 3,679 3,679 46.4 1,769.3 46.4 1,769.3 1,769.3 1,046.5 1,046.5 1,046.5

1,787.9 3,755.2 3,755.2 3,755.2 1,058.5 1,058.5 3,699.6 3,699.6 3,699.6 55.6 55.6 1,787.9 1,787.9 1,787.9 1,058.5 1,058.5 1,058.5

1,768.2 3,531 3,531 3,531 982.8 982.8 3,472.7 3,472.7 3,472.7 58.3 1,768.2 58.3 1,768.2 1,768.2 982.8 982.8982.8

1,797.9 3,725.1 3,725.1 3,725.1 1,117.1 1,117.1 3,670.5 3,670.5 3,670.5 54.5

54.5 1,797.9 1,797.9 1,797.9

Onshore

46.4 46.4 46.4

30 50

Source: CNH 40 20

55.6 55.6 55.6

5353

40 60 Shallow water 50

58.3 58.3 58.3

50 60

1,101.2 1,101.2 1,101.2

1,200 1,500 1,500 900 1,200 1,200 600 900 900 300 600 6000 300 300 0 0 60

1,117.1 1,117.11,117.1

1,500 2,000 60 2,000 50 1,000 1,500 1,500 40 500 1,000 30 1,000 200 500 500 10 00 0 1,500

54.5 54.5 54.5

53 1,832 1,8321,832

1,101.2 3,712.6 3,712.6 3,712.6 53

1,832 3,765.6 3,765.6 1,101.2 3,765.6

1,500 4,000 1,200 2,000 3,200 4,000 900 4,000 2,400 1,500 3,200 600 3,200 1,600 2,400 1,000 300 2,400 800 1,600 5000 1,600 0 800 800 0 0 4,000 60 0 3,200 50 4,000 1,500 4,000 2,400 40 3,200 1,200 3,200 30 1,600 2,400 900 20 2,400 800 1,600 10 600 1,600 0 800 0 300 800 0 0 0 2,000

15,000

Crude oil equivalent (billion boe) SOUTHEAST BASIN

3,679 1,769.3

3,699.6 1,787.9

3,472.7 1,768.2

3,670.5 1,797.9

3,712.6 1,832

OIL NITROGEN

NONASSOCIATED GAS

ASSOCIATED GAS

GAS

3,615.04

20,000

PROSPECTIVE RESOURCES (SEPTEMBER 2017)

0 2,000

8000

4,585.15

10,000

Possible

1,6000 SOUTHEAST BASIN PRODUCTION 800 (JAN-MAY 2018)

4,000 1,500 3,200 1,000 2,400 500 1,600

5,303.29

3,384.92

3,725.4

3,679

3,699.6

3,472.7

5,000 3,755.2

800 2,400

Provable 3,531

3,765.6

1,600 Proven3,200

3,670.5

2,400 4,000

6,733.29 3,725.1

3,200

4,737.16

4,077.29

Natural Gas (Bcf) 13,733.26 4,000 3,712.6

SOUTHEAST BASIN

3,200

3,765.6

HYDROCARBON RESERVES 2017

Oil (billion barrels)

TOTAL

Conventional plays

14.4

Unconventional plays

Conventional plays

Superlight oil

3.3

Light oil

Heavy oil

1.9

Extra-heavy oil

0.9

Unconventional plays Conventional plays Gas (Tcf) Unconventional plays

Total estimated E&P deepwater investment

Total estimated E&P shallow water investment

in Tabasco

US$26.6 billion US$10 billion shared with Veracruz

13.1

0 Dry gas

5.1

Wet gas

1.4

Dry gas

Wet gas

US$10.9 billion

Total estimated E&P onshore investment

US$966 million shared with Veracruz

——Main highways and roads

6.5

US$1.28 billion

API Dos Bocas

National airports

14.4

——Railways

Cotemar's twin-crane platform, Sonda de Campeche, Campeche

LICENSING ROUNDS

CNH has carried out three licensing rounds, in which it has executed four tenders for shallow waters (1.1, 1.2, 2.1 and 3.1); two for deepwater (1.4 and 2.4) and three for onshore fields (1.3, 2.2 and 2.3). The commission has also concluded three successful farmouts for PEMEX for the Trion, Cรกrdenas-Mora and Ogarrio fields. The improvement after each tender has been tangible and praised by all the participating companies.

Each tender, as well as the location of the blocks, represents a challenge of different magnitude for the operators that won contracts. Therefore, CNH, as the only regulator in Mexico with the authority to execute these tenders, must adapt the logic of its regulations to the reality of each of the blocks tendered. Now, in the wake of the Amoca and Zama discoveries, the institution is preparing to tender seven more blocks for farmout, 37 for Round 3.2 and nine for the firstever unconventional round, all before the end of 2018.

CHAPTER 3: LICENSING ROUNDS 68

ANALYSIS: Preparing for Future Rounds

INFOGRAPHIC: Licensing Rounds an Investment Opportunity

VIEW FROM THE TOP: Alma América Porres, CNH

VIEW FROM THE TOP: Gaspar Franco, CNH

VIEW FROM THE TOP: Ulises Hernández, PEMEX

INSIGHT: Fabian Mendoza, Halliburton

VIEW FROM THE TOP: Luis Vielma Lobo, CBM

MAP: Concluded Licensing Rounds and Farmouts

MAP: 2018 Licensing Rounds and Farmouts

VIEW FROM THE TOP: Palma Mendez, Wood Mackenzie

VIEW FROM THE TOP: Nicolas Borda, Haynes and Boone

VIEW FROM THE TOP: José Rinkenbach, Ainda Consultores

VIEW FROM THE TOP: Klaus Büttner, Alberta Mexico Office (AMO)

VIEW FROM THE TOP: Schreiner Parker, Rystad Energy

ANALYSIS

PREPARING FOR FUTURE ROUNDS The completed licensing rounds have tendered three shallow-water blocks, three onshore and two in deepwaters. While overall deemed a success, the number of tendered blocks only scratches the surface of the oil and gas potential buried under Mexico’s Gulf coast

While in Round One, a total of 88 companies from

from 3.91-75 percent, with an average of 30.75 percent. In

21 countries participated, Round Two attracted 53

addition to the maximum and minimum royalties required,

participants from 20 countries. At first blush, the reduced

the increased stability of the rounds can also be seen in

number of participants from one round to the other may

the government take in each block. From Round 1.1 to

seem like a bad sign, even more so considering that

1.4, the state’s total participation ranged from 59.8 to 90

Round One saw an average of 5.3 offers per block, while

percent, while from Round 2.1 to 2.4 it ranged from 64.7 to

Round Two invited an average of 2.6 offers per block.

83.9 percent. According to Gaspar Franco, Commissioner at CNH, the overall success of the rounds was a result

But beyond the number of participants, Round

of the positive evolution of the auction regulations.

One assigned 34 out of the 50 blocks on offer, meaning

“We have adopted the feedback from previous rounds

a 68 percent allocation rate. In contrast, Round Two

to perfect the future rounds, such as adding the state’s

assigned 73 percent of the 68 blocks placed for allocation.

minimum and maximum royalty requirements to ensure

This shows the nuances present in the licensing rounds

realistic offers,” he explained.

and the need for pronounced analysis to measure the true success of each one.

Another result of the scheme implemented at the beginning of Round Two was the appearance of ties

In terms of learning curves and the actual mechanism

among companies interested in investing in the country,

of the bidding processes, there has been a clear

and the subsequent payments required to break those

improvement since shallow water Round 1.1, when only

ties. The round saw over US$642.8 million in tiebreaker

two blocks out of 14 were awarded. In comparison, Round

payments to FMP coffers.

2.1, also in shallow waters, allocated 10 out of 15 available blocks. The number of participants also increased from

Estimated investment coming from the rounds can arguably

nine to 20 from Round 1.1 to Round 2.1. The improvement

be the main indicator of the attractiveness of the rounds.

can also be seen in the total acreage allocated, with a

To that end, Round Two also proved itself more attractive

total of 55,563km2 in Round Two, dwarfing the 20,456km2

than Round One, bringing US$102.9 billion in investment

allocated in the previous round.

compared with the US$40.8 billion in the previous.

ROYALTIES AND COMMITTED INVESTMENT

FARMOUTS

In Round 1.1, the Ministry of Finance did not reveal the

PEMEX’s farmouts have also gathered a great deal of

minimum royalty required from the bidders prior to the

attention since CNH named BHP as PEMEX’s first partner

tender, meaning that bidding companies did not have

in deepwater block Trion in a new association scheme.

a solid foundation on which to base their offers. This

During the bidding process that took place on March

impacted greatly impacted the success of the round as

3, 2017, both BHP and BP placed bids for the farmout.

a number of bids failed to satisfy the minimum royalty

Both BHP and BP committed to drilling two additional

requirements, meaning that blocks were not allocated

exploratory wells and each offered an additional royalty

as a result. Such was the case of Block 3 where the

of 4 percent to the government. When the upfront

consortium conformed by Murphy Oil and PETRONAS

tiebreaker payments were revealed, BHP emerged

offered an additional royalty of 35 percent. This was

victorious with a cash payment of US$624 million, making

below the nonpublished minimum additional royalty of 40

the Australian oil and mining giant the first farmout

percent. Blocks 4, 6 and 12 suffered similar fates. Round

partner in PEMEX’s history.

1.1 had an assignation rate of just 14 percent largely for this reason.

The allocation of onshore farmouts Ogarrio and Cárdenas-Mora came down to six and three operators,

From Rounds 1.1 to 1.4, additional royalties offered to the

respectively. After the bidding processes, DEA Deutsche

state ranged from 5-85.69 percent, with an average of

became PEMEX’s partner for Ogarrio and PICO Cheíron

43.39 percent. From Round 2.1 to 2.4, the figures ranged

was selected for Cárdenas-Mora. Pedro Joaquín Coldwell,

STAGE OF ASSIGNED CONTRACTS

STAGE OF ASSIGNED CONTRACTS Phase

Onshore

Shallow water

Deepwater

Exploration

Exploration and Evaluation

Evaluation

Evaluation and Development

Development

Source: CNH

Onshore

Shallow water

Exploration Exploration and evaluation

Deepwater

Evaluation and development

Development

Evaluation

THE RESULTS As of April 2018, exploration plans for Round One awarded blocks state that five areas will be in the exploration phase, nine areas will be in the appraisal phase and 15 in the

Source: CNH Source: PEMEX

appraisal and development phases by the end of 2019.

DISTRIBUTION OF THE REGIONAL SUSTAINABLE

A total investment of US$1.38 billion will be deployed in

DEVELOPMENT FUND COMMITTED WELLS PER2LOCATION

those areas by the end of that year. Meanwhile, seven areas from Round Two are reported to be in the appraisal phase also by the end of 2019, with a total investment of US$19.26 million already deployed. As investment has increased, the income for the state due to contracts has also multiplied.

138

In 2017, state coffers accrued US$339 million from E&P

total of committed wells

contracts, 18 times the amount received in 2016. Héctor Moreira, Commissioner at CNH, recognizes the improvement of the licensing rounds. “Over time, the licensing rounds have grown in number of blocks awarded,

Onshore 11% 51%Mazapil 25% Shallow water 9% Cananea Deepwater 7% 24% Nacozari de Garcia

5% Fresnillo Source: CNH

2% Sahuaripa 2% Morelos 2% Eduardo Neri 2% Aquila

4% Ocampo 2% Alamos Minister of Energy, highlighted the importance of 4% Caborca 1% Chinipas PEMEX’s farmouts for the country: “These three farmouts 2% Sierra Mojada 47% other represent investments of US$7.8 billion, or 72 percent of Source: CGM, Ministry of Economy 1 With figures to March of 2015

PEMEX’s capital investment for 2017.”

their optimization, the awarding of agreements, the number of bidding companies and the amount of money offered above the previously stipulated royalty, which is an indicator that we are moving in the right direction,” he says. Fellow CNH Commissioner Gaspar Franco concurs: “We believe that every licensing round has been successful because they have pushed up investment, increased the number of new operators, extended the acreage awarded for exploration and production and they are resulting in a larger number of new contracts,” he says. “Every licensing

The conditions for Ayin-Batsil and Nobilis-Maximino were

round has been increasingly competitive as each has

not attractive enough for potential partners, resulting

raised Mexico’s attractiveness, illustrating the private

in CNH declaring both farmouts deserted. PEMEX,

sector’s confidence in the industry.”

therefore, must work on the terms and conditions of these JOAs to increase the attractiveness of the

While much of the credit for the success can be given

fields. Still, CNH and PEMEX have already announced

to the Mexican regulators and policymakers and to the

seven onshore blocks ready to be farmed out in the

attractive schemes they have laid out for the licensing

states of Veracruz, Campeche and Tabasco. Alma

rounds, Moreira likes to highlight the importance of an

América Porres, Commissioner at CNH, has faith in

open market in achieving such success. “There is an

the successful development of these areas but says a

interesting relationship between the Ministries of Energy,

positive relationship between PEMEX and its potential

Finance and Economy, PEMEX and CNH in which they

partners will be crucial. “I firmly believe that these are

provide advice on these processes,” he says. “But the

exciting areas with a lot of potential,” she adds. “However,

ultimate player in setting the requirements is the market

the development of these areas depends on the rapid

and its behavior, so market analyses and the study of

adaptation of the current market conditions.”

awarded areas are key to successful licensing processes.”

INFOGRAPHIC

LICENSING ROUNDS AN INVESTMENT OPPORTUNITY The licensing rounds have scratched the surface of the

the nine concluded rounds and three farmouts. On average,

potential Mexico holds. The country has an average

companies have placed 3.5 bids per offered block, and in

recoverable reserves rate twice as large as that in Brazil

total, all the assigned blocks have attracted a committed

and seven times the size of that in the US. It has an average

investment of US$4.07 billion. During these processes

size of onshore discoveries three and four times larger than

companies have offered a total US$3.9 billion to the state as

in Colombia and Brazil, respectively. Now, 107 blocks have

tiebreaker payments. The next rounds will include the first-

been assigned to 73 companies coming from 24 countries in

ever round on unconventional resources on Sept. 5, 2018.

US$1.6 billion has been offered to the state in tiebreaker payments during the rounds and farmouts 4

113

Total companies

73 Block assigned 40 No block assigned

161

Offered blocks

107 Assigned 54 Deserted

1 2

107

Assigned blocks

59 Consortium 48 Independents

PEMEX has won 3 blocks as an independent and 11 with consortiums

ESTIMATED INVESTMENT PER YEAR (US$ billion)

——R1.1 ——R1.2

——R1.3 ——R1.4

——R2.1 ——R2.2

——R2.3 ——R2.4

——R3.1 ——Farmouts

3 2 1

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

1 1

1 1 1

1 1

1 1 2

US$161.3

billion in estimated investment coming from the contracts

ESTIMATED INVESTMENT PER LICENSING ROUND (US$ million) 120

20 0

Round 1

8.806

8.623

84% Deepwater 14% Shallow water 2% Onshore

102.978

40.856

100

Round 2 Round 3 Farmouts

SHALLOW WATER

71% License 29% Production sharing

107 Assigned contracts

Source: CNH

VIEW FROM THE TOP

UNTAPPING THE INDUSTRY’S TECHNICAL POTENTIAL ALMA AMÉRICA PORRES Commissioner at CNH

Q: To what extent did PEMEX’s ambitious participation in the

potential. However, the development of the areas depends

licensing rounds harm its delivery capacity?

on the rapid adaptation of the current market conditions.

A: Several discussions on the number of assignations given to PEMEX have been made. On the one hand, some voices argue

Q: How is CNH securing a competitive and sustainable natural

there were too many blocks. On the other hand, others claim

gas market and what are your expectations from Round 3.3?

it could have gotten more. Ultimately, we have to focus on

A: When the Ministry of Energy proposed the rounds for

the results. PEMEX has a long history of exploration success,

onshore areas, such as Burgos and Veracruz, for which we

making the NOC an undisputed global leader in shallow waters

calculated the potential for extraction and the volume, there

and heavy oil production. It has also been fortunate to discover

was a great deal of uncertainty surrounding the allocation of

deepwater resources, despite the lack of technological and

these blocks due to low gas prices. We were much surprised

financial capacities to develop them. PEMEX found a niche

by the success of the rounds, given the gas market conditions.

in the Perdido area and is moving forward with further exploration and development activities. The requirements

We have studied the development of shale and onshore fields

for these kinds of projects implied finding partners, sharing

in other countries and we believe that the only way to make

the know-how and introducing new technologies to increase

it work is to properly prepare regulatory entities, to have the

recovery factors in the NOC’s reservoirs. I believe PEMEX’s

necessary guidelines in place and to cause no harm to the

involvement in various assignations is positive. Now it is time

environment or to communities. Mexico acted prudently in this

for the NOC to meet its commitments.

case to develop guidelines before the rounds took place. We expect a similarly successful Round 3.3. I am convinced that

Q: What factors account for PEMEX’s delay in migrating its

ASEA, CONAGUA and CNH guidelines meet the international

CIEPs and COPFs contracts?

standards for these kinds of projects and several operators

A: Integrating the clusters for migration and the conditions

will be interested.

for this procedure is a challenge, mainly in the way the clusters are integrated. PEMEX decides the details, number

Q: What parameters account for a successful licensing round

of contracts and schemes, and must present that information

and how has Mexico performed in this regard?

to the Ministry of Energy detailing the number of contracts

A: I would say the parameters Mexico has put in place have

it intends to migrate and the schemes it will deploy for the

proven to be successful. The way the country selected its

migration. CNH's role is to provide technical opinions on the

areas have created value for the operators. The rules for

prospects and on the plans to improve conditions and speed

awarding fields are also fair, as their size depends on their

up the processing times.

potential for discovery and the pre-existence of resources in the wells. The Mexican model has resulted in low levels

Q: What are the opportunities and challenges you perceive

of uncertainty and richness of data. Transparency has also

in PEMEX’s farmouts?

provided confidence, and our licensing rounds have met the

A: PEMEX invested heavily in these areas and developed them

top international standards in this regard.

under different market conditions and procurement standards. I firmly believe that these are exciting areas with much

Q: What steps has CNH taken to secure the fulfillment of the awarded contracts despite a new presidential term? A: We already have 107 contracts signed, and they will be

Alma América Porres has broad experience in geophysics

enacted and fulfilled regardless of the next administration.

and the technical aspects of the oil and gas industry. She was

One of CNH’s most significant advantages is its autonomy

appointed Commissioner at CNH in 2010 and has been ratified

and the transversal appointment of its commissioners. Activity

for the 2016-2022 term

in the industry has already started, and it cannot stop now.

VIEW FROM THE TOP

LICENSING ROUNDS ILLUSTRATE PRIVATE-SECTOR CONFIDENCE GASPAR FRANCO Commissioner at CNH

Q: What have been the most perceptible differences in the

to what the company deemed were the most productive and

licensing rounds and how has CNH learned from them?

strategic assets. It is important to note that PEMEX did not

A: We believe that every licensing round has been successful

suspend exploration and partially fulfilled its obligations in

because they have pushed up investment, increased the

spite of low oil prices. I honestly doubt PEMEX will be able

number of new operators, extended the number of kilometers

to meet its commitments if the company continues down

awarded for exploration and production and they are resulting

the same path.

in a larger number of new contracts. Every licensing round has been increasingly competitive as each has raised Mexico’s

Q: How did the different contract fulfillment mechanisms

attractiveness, illustrating the private sector’s confidence

change PEMEX’s approach to its commitments?

in the industry. Of course, the rounds also have involved a

A: PEMEX has a business plan that entails making the most

knowledge and learning curve that we will apply to improve

of the opportunities brought by the Energy Reform. One is

practices in future rounds and to raise their scope. We have

migrating, without any licensing process, all the CIEPs and

set up a symmetrical provision of information for operators

COPFs contracts it wants to. Another is the chance to create

to adopt according to their own interpretation, which is a

farmouts. So far, CNH has helped the NOC to tender five

departure from using the same information. We have also

farmouts, obtaining successful results in three. These contract

adopted the feedback from previous rounds to perfect the

migrations to farmouts will help PEMEX obtain capital, stretch

future rounds.

its financial capabilities and raise its execution and technical capacities. The third option is participating in the licensing

Q: How is CNH progressing in revising the development plans

rounds. PEMEX holds the largest number of contracts

from operators?

awarded, with 14, and the company will continue consolidating

A: The development plans are being updated to improve

as the country’s leading oil and gas company. The Energy

the guidelines regarding their structure. We are constantly

Reform is an ever-changing process that is moving slowly

improving our dialogue with the industry and we have

but surely. There are 75 E&P companies from 20 different

uncovered several opportunity areas in those exchanges. We

countries, 35 of which are new Mexican players. The reform

are trying to implement a learning-oriented process so every

is a long-term benefit for Mexico and its people.

single player in the market operates according to the highest world-class standards. These guidelines work for the benefit

Q: What will Round 3.3 imply for the development of

of the industry and we recently granted the first approval

unconventional resources?

of a foreign company’s development plan to Hokchi Energy,

A: The nine blocks set to be tendered in this round include

which presented a highly competitive plan that will certainly

uncertainty over the amount of resources that might be found.

benchmark the future proposals CNH receives. We carried out

They must be explored, evaluated, delimited and incorporated

a similar process with PEMEX for the Xanab, Ek Balam and

based on the reserves they have. Unconventionals can take

Ixtal projects in shallow waters.

up to nine years to develop. From Round 3.3 winners, we expect to bring in people who possess the knowledge and

Q: What hurdles has PEMEX faced in meeting its commitments

experience related to these types of resources, which could

from Round Zero?

reduce production time by as much as four years.

A: Regarding the extension for its exploration process, when PEMEX was awarded these assignations, market conditions were significantly different with barrel prices above US$100.

Gaspar Franco was appointed Commissioner of the National

After the downturn, the NOC’s investment availability was

Hydrocarbons Commission in April 2016. An engineering

reduced. Not having the necessary capital to cover exploration

graduate of UNAM and UACAR, he is the first petroleum

activities at all its fields pushed PEMEX to allocate resources

engineer designated by the Senate to hold such a position

VIEW FROM THE TOP

POSITIVE PARTNERSHIPS INCREASE COMPETITIVENESS ULISES HERNÁNDEZ Director of Prospective Resources, Reserves and E&P Associations at PEMEX

Q: How have previous farmouts influenced the way PEMEX

need to complement its technical, financial and execution

selects its assets for this type of partnership?

capabilities and share risks to execute a project. Assets that

A: The farmout process, in which a company looks for a

require the application of practices and technology in which

partner to jointly perform exploration and production

PEMEX has little or no experience, that demand significant

activities, is done for several reasons, but mainly because

investments and/or are high risk are candidates for farmout.

the company needs to complement its technical, financial

The assets PEMEX is currently farming out are mostly

and/or execution capabilities as well as to share risks,

mature fields that require the application of enhanced oil

so it can execute a project. Not doing so may delay the

recovery techniques to recover more oil, in which we have

activity and lose value. PEMEX started farming out areas

little experience. Some of these blocks require additional

awarded in Round Zero two years ago. The first was Trion,

investment for exploration activities. PEMEX does not have

a 2012 deepwater discovery. For this field, PEMEX needed

the capacity itself to take full advantage of these assets.

to complement its technical and financial capabilities to

For years, PEMEX had been working alone and assuming

complete the appraisal stage and eventually carry out

the technical and financial risks, so the possibility of

development. Similarly, the Nobilis-Maximino and Ayin-

establishing partnerships gives the company traction. All

Batsil blocks contain discoveries with significant technical

the previous elements are considered in conjunction with

and financial challenges that require joint efforts to make

PEMEX’s objectives of meeting its production, reserve-

them happen. Cárdenas-Mora and Ogarrio are fields

replacement and profitability goals.

that require the implementation of new techniques and technology to enhance and accelerate oil recovery.

In terms of our strategy for the licensing rounds, we have established a series of partnerships that are strategically

Now the farmout process is better understood and we have

aligned with us. PEMEX has been competing, in partnership

gained momentum. We have learned a lot not only from Trion,

or independently, for assets that complement our portfolio

Cárdenas-Mora and Ogarrio, which were awarded, but also

and that can contribute to meeting future reserve restitution

from Ayin-Batsil and Nobilis-Maximino that were unsuccessful.

and production goals. In terms of unconventional fields, we

These lessons will be integrated into the re-tendering of Ayin-

are very interested in highly-experienced players in this arena.

Batsil and Nobilis-Maximino, as well as in future farmouts. We have identified more blocks where a partnership through a

Q: How have PEMEX’s activities developed with BHP

farmout will bring a higher added value to the asset and

Billiton in Trion?

will allow PEMEX to spread risk. Since the blocks we are

A: The relationship and activities with BHP have been very

considering contain fields of different sizes, some of them

smooth. Both teams have worked very closely, and BHP has

with exploratory upside, we can expect both small and large

been very open to discuss all the aspects of the process

independent companies to take part in the bidding process.

PEMEX has never before experienced. In terms of field activities, we are in the early stages of the plan. Still, we

Q: What criteria does PEMEX use to select its farmouts?

have been learning a great deal, mostly in the sense of how

A: Assets to be farmed out are selected according to

to manage a partnership, how to control expenses and how

several elements. The most important for PEMEX is the

to hire products and services according to international best practices. PEMEX has already sent three professionals to Houston to work as part of an integrated project team. Of

Ulises Hernández has worked in PEMEX for over 18 years.

course, there are always aspects in which we have different

He holds a Ph.D. in geology from Reading University. He has

points of view, but the healthy and positive communication

been the President of the Mexican Association of Petroleum

channels we have developed allow us to reach mutually-

Geologists and Vice President of the Mexican Geology Society

beneficial conclusions.

INSIGHT

SOLVING A DICHOTOMY, ON BOTH SIDES FABIAN MENDOZA HPM Country Manager Mexico of Halliburton

As the Mexican oil and gas market opens further, more and

says Mendoza. “These managers also have a great deal of

more companies from abroad will enter the Mexican energy

international experience as managers, allowing them to

market.

better understand and work with different business cultures, diverse providers, business lines and diverse customers.”

Fabian Mendoza points out that Halliburton’s experience in global markets means it has a lot to offer to operators

Providing such integrated solutions can increase certain

in Mexico. “We share our experience and lessons learned

risks for the company. To help alleviate these risks,

from other regions with local operators in Mexico," he says.

Halliburton has taken a proactive role to ensure it can be

"Sharing our knowledge and experience is important for

present from the beginning of the project so as to anticipate

achieving good results.”

customer needs.

Mendoza says market newcomers can also take advantage

“We prefer to anticipate our customers’ needs and be ready

of Halliburton’s international experience and its expertise in

to meet them by taking part in the planning process from

Mexico. For these companies, a relationship with a company like Halliburton could be crucial, as it will provide them much needed local information while offering an understanding of their international perspective. “Although operators are experts in their fields, they are now working in a new environment,” says Mendoza. “We can help them become successful in Mexico because we know the local environment so well.” Mendoza acknowledges the importance of Halliburton sticking to its strengths. Its vertical integration means that

“

the outset,” says Mendoza.

We believe in the country and after these challenging years, Mexico and the energy industry is beginning to see a recovery”

Regardless of culture, experience, local content or any other

Halliburton is capable of providing a multitude of services

issue, companies with operations already established in

or goods, even working with local providers while ensuring

Mexico will need a strong infrastructure capable of servicing

they meet Halliburton’s standards.

its customers.

“We are going to complement our service portfolio with

Mendoza points out that having strong infrastructure in

local companies through strategic contractual relationships,

the country is another one of Halliburton’s strengths. “We

which will enhance our local offerings,” said Mendoza. “But

can take on many projects from operators in the coming

to be able to work with them we also must hold those local

years,” he says. “We have a solid infrastructure with facilities

companies to the high standards demanded by the market.

across key areas.”

We have been working on this improvement process for two years already, with great results.”

Halliburton operations in Mexico remain one of its key focus areas, and the Company believes in the country’s future.

But this process is not easy. Each company has a different

Even in recent tough times, with low oil prices, Halliburton

culture which can create challenges.

stayed committed to its Mexican operations and customers. “We believe in the country and after these challenging

“We select project managers from Halliburton who are

years, Mexico and the energy industry is beginning to see

trained in managing teams from different backgrounds,”

a recovery.”

VIEW FROM THE TOP

TEN YEARS CREATING VALUE LUIS VIELMA LOBO Director General of CBM

Q: What steps has CBM, an upstream consultant, taken to

grow. We will translate this knowledge to projects related

remain competitive and attractive to potential customers?

to technology, reservoirs, transportation and storage.

A: We recognize three essential necessities to remain competitive in this industry: technical knowledge, local and

Q: How do you help PEMEX create value and better

international experience and the quality of our people. We

implement its strategy given the changes at the company?

are invested in preparing our human capital to stretch their

A: Understanding the scope and impact of these

knowledge and skills and to make this skillset sustainable.

changes has probably been the hardest lesson PEMEX

As a company, we foster the exchange of expertise between

had to learn. The Energy Reform itself was a milestone

our experienced staff and the new entrants coming into

in the modernization of the country that went beyond

the company so they can combine their mutual strengths.

PEMEX’s vision of a market that it insufficiently served;

We also keep abreast of the most recent technological

it was in desperate need of transformation. This idea of

developments and their different applications. We strive to

regeneration shook the NOC to its core, it transformed the

be cost-efficient and price competitive amid such a volatile

mindsets of those in control and modified the arrogant

market. We look at our balance sheets on a constant basis

flare resulting from its monopoly status. Looking back 10

to avoid sacrificing our profits and losing competitiveness

years, this was the main challenge CBM had to overcome

in the market. Finally, we also deem operational efficiency

when we started doing business with the NOC. The new

key to surviving in this market, and this is something we

people in charge have a better understanding of where

repeatedly tell our customers so they focus on the aspects

PEMEX needs to go but I also hope to see a long-term

that are adding value to their companies.

vision from the government. This vision is modified every six years when a new government is elected and this is

Q: How does CBM’s venture into project management

harmful for the country.

strengthen your clients’ expertise? A: Our leading source of projects in this field comes from

Q: What are the requirements for PEMEX to complete its

our long-standing partnership with PEMEX, which spans the

ambitious upstream and farmout plans?

last 10 years. We have an ongoing dialogue with the NOC

A: First, it is important to envision what kind of company

on how to understand and apply the concept of project

PEMEX wants to become and then design a well-structured

management to developments that go beyond construction

plan to handle its upcoming projects. The farmouts PEMEX is

and EPC contracts, where it has vast experience but yet it

trying to implement require the establishment of completely

outsources most of the project management. In the past

different relationships with a series of companies. If the

year, we have worked with PEMEX on how to employ a

NOC signs 100 farmouts, the company will need to form

project management approach to any big project and to

100 different relationships. This is a gargantuan task given

increase its profitability and its learning curve by carrying

PEMEX’s current status. In theory, the company would have

out its own projects in the future.

to split in two to service its own portfolio and the 400-plus assignments it decided to take over in the rounds, while

The first project management processes we employed

the other half would deal with all these farmouts and the

with PEMEX were in the farmout arena where it wants to

relationships that result. Furthermore, there are many things PEMEX has to put on the discussion table along with CNH, the Ministry of Finance and the Ministry of Energy. There

CBM is a Mexico-based oil and gas upstream consultant. The

are questions to address, such as how to coordinate these

firm offers strategic advice to the sector, including how to

farmouts, the definition of majority shareholders, financing

improve well production and business-model design in the

sources and so on. It is certainly doable but there are many

Mexican market

factors to take into account to make it successful.

Q: In which ways can CBM foster this discussion to help

Q: What are the main challenges and possible changes

PEMEX make the most of its projects?

that could occur as a result of the presidential election?

A: The vision is to be successful with these partnerships

A: Mexico is facing the possibility of radical change in the

and the discussion should move in that direction. PEMEX

country’s policies. Continuity implies following the same

would need to retain the best fields for farmouts and hand

path the Energy Reform has opened and a radical change

poor-performing fields back to CNH. It is likely it will survive

may imply the revision of the contracts and a change in the

financially since the good fields will be profitable. In this

approach to the market. But it is unlikely that any of the

regard, CBM can help PEMEX obtain the best portfolio.

candidates would eliminate the changes already made. The new president could review the auction process, to be sure

Q: How does CBM help new companies entering the market

of the transparency process, but not necessarily change the

to speed up their learning process and become profitable?

results. In any case, the new government must objectively

A: Most of the operators we serve here are smaller, since the

evaluate the results of the reform and adjust whatever may

majors use technology to transfer knowledge among their

be necessary to improve the processes, with a vision that

teams. This is detrimental to Mexico’s talent development

ensures a better future for Mexico and its citizens.

since these large companies are not sharing their knowledge and they are not hiring locals to fill the highest positions. In that

Q: What services will CBM introduce in the next year?

sense, there are only two entities with the capacity to provide

A: For a technical firm such as CBM, it is imperative that we

such knowledge, PEMEX and CBM. We have the upper hand

stay on the move technologically speaking. To move forward

since our people have worked in international environments,

means to keep improving practices and to adapt internal

whereas PEMEX’s staff only have local experience.

processes to external demands. It also means to understand changes and to turn things around, proposing new practices

Q: How does CBM’s Integral Center for Talent Development

that add market value. That is what we have done in the past

(CITD) help your customers understand the market?

and what we will continue doing in the future. One of the

A: We have a three-pronged approach. We work for the

most important issues international operators have been

customer, with the customer and teach the customer how

facing is the concept of operational efficiency, and respond

to replicate this success through constant training. We have

to the question of how to survive and compete in a US$50/b

designed methodologies to accelerate the learning process

price environment. Operational efficiency is related to the

so we can have a working team fully assembled as fast as

application of strict processes and technologies to optimize

the customer requires. The CITD facilitates and accelerates

value creation. It has to do with the use of digital technologies

knowledge transfer. It has a portfolio of courses in which

to reduce risk and accelerate data collection. It also has to do

clients have real problems or specific challenges that need

with organizational effectiveness to ensure a company has the

to be solved. The mentors and instructors have knowledge

proper capabilities and skills to develop a project and to deal

and experience and use the technological applications

with more collaborative processes among companies. This will

required to address different situations. The CITD also

maximize the use of common resources and services. CBM

has international instructors who support the center to

is prepared to assist and support our customers with these

ensure our clients are up to date in terms of knowledge

challenges to ensure we remain competitive and attractive

and technologies.

for the new investors arriving here.

CONCLUDED LICENSING ROUNDS AND FARMOUTS

a 1 1 3 2 78

4 8 3

4 5

9 11

10 19 12

10 15

17 18 5

2 24

17 26

34 28

5 29

BIDS R1.1

R2.1

R1.2

R2.2

R1.3

R2.3

R1.4 Salina

R2.4

R1.4 Perdido

R3.1 Farmouts Source : CNH

a 2

5 20

18 5

5 12

8 3

32 4 11 10

28 2 29

30 23 1

13 16

2 31

2 7

14 4

9 9

15 25

12 13

CONCLUDED LICENSING ROUNDS AND FARMOUTS

Round

Block

1.1

Area (km2)

Winning Bidder

Basin

Location

Talos Energy, Sierra Oil and Gas and Premier Oil

Southeast

Shallow water

195

1.1

Talos Energy, Sierra Oil and Gas and Premier Oil

Southeast

Shallow water

465

1.2

ENI International

Southeast

Shallow water

1.2

Pan American Energy and E&P Hidrocarburos

Southeast

Shallow water

1.2

Fieldwood Energy and PetroBAL

Southeast

Shallow water

1.3

Diavaz Offshore

Poza Rica-Altamira

Onshore

1.3

Sistemas Integrales de Compresión in consortium with Nuvoil and Constructora Marusa

Burgos

Onshore

172

1.3

Consorcio Manufacturero Mexicano

Burgos

Onshore

1.3

Grupo Diarqco

Cinco Presidentes

Onshore

1.3

Strata Campos Maduros

Burgos

Onshore

1.3

Diavaz Offshore

Macuspana-Muspac

Onshore

1.3

Servicios de Extracción Petrolera Lifting de México

Cinco Presidentes

Onshore

1.3

Construcciones y Servicios Industriales Globales

Burgos

Onshore

1.3

Compañía Petrolera Perseus

Macuspana-Muspac

Onshore

1.3

Ingeniería, Construcciones y Equipos Conequipos Ing in consortium with Industrial Consulting, Desarrolladora Oleum, Marat International and Constructora Tzaulan

Poza Rica-Altamira

Onshore

1.3

Renaissance Oil

Macuspana-Muspac

Onshore

1.3

Consorcio Manufacturero Mexicano

Burgos

Onshore

1.3

Grupo Diarqco

Bellota-Jujo

Onshore

1.3

Canamex Dutch in consortium with Perfolat de México and American Oil Tools

Cinco Presidentes

Onshore

1.3

Renaissance Oil

Macuspana-Muspac

Onshore

1.3

Roma Energy Holdings in consortium with Tubular Technology and Gx Geoscience Corporation

Bellota-Jujo

Onshore

1.3

Servicios de Extracción Petrolera Lifting de México

Poza Rica-Altamira

Onshore

1.3

Strata BPS

Burgos

Onshore

1.3

Renaissance Oil

Poza Rica-Altamira

Onshore

1.3

GS Oil & Gas

Burgos

Onshore

1.3

Strata Campos Maduros

Burgos

Onshore

1.3

Grupo R Exploración y Producción in consortium with Constructora y Arrendadora México

Macuspana-Muspac

Onshore

1.3

Compañía Petrolera Perseus

Bellota-Jujo

Onshore

1.3

Tonalli Energía

Poza Rica-Altamira

Onshore

1.3

Renaissance Oil

Macuspana-Muspac

Onshore

1.4

China Offshore Oil Corporation

Perdido

Deepwater

1,678

1.4

Total and ExxonMobil

Perdido

Deepwater

2,977

1.4

Chevron, PEMEX and INPEX

Perdido

Deepwater

1,687

1.4

China Offshore Oil Corporation

Perdido

Deepwater

1,877

1.4

Statoil, BP and Total

Salina

Deepwater

2,381

1.4

Statoil, BP and Total

Salina

Deepwater

3,287

1.4

PC Carigali and Sierra Oil and Gas

Salina

Deepwater

2,359

1.4

Murphy Oil, Ophir, PC Carigali and Sieera Oil and Gas

Salina

Deepwater

2,573

Validity (years)

Bid Date

Signing Date

Additional Royalty (%)

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$)

Production Sharing

15/07/2015

04/09/2015

55.99

Production Sharing

15/07/2015

04/09/2015

68.99

Production Sharing

30/09/2015

30/11/2015

83.75

Production Sharing

30/09/2015

07/01/2016

100

Production Sharing

30/09/2015

07/01/2016

License

15/12/2015

10/05/2016

64.50

100

License

15/12/2015

10/05/2016

40.07

License

15/12/2015

10/05/2016

41.77

100

License

15/12/2015

10/05/2016

81.36

License

15/12/2015

10/05/2016

50.86

100

License

15/12/2015

10/05/2016

63.90

License

15/12/2015

10/05/2016

60.82

License

15/12/2015

10/05/2016

20.08

License

15/12/2015

10/05/2016

36.88

100

License

15/12/2015

25/08/2016

29.69

License

15/12/2015

10/05/2016

57.39

100

License

15/12/2015

10/05/2016

34.25

100

License

15/12/2015

10/05/2016

60.36

License

15/12/2015

10/05/2016

85.69

License

15/12/2015

10/05/2016

80.69

License

15/12/2015

10/05/2016

35.99

100

License

15/12/2015

25/08/2016

10.20

License

15/12/2015

10/05/2016

50.86

100

License

15/12/2015

25/08/2016

21.39

License

15/12/2015

25/08/2016

12.36

License

15/12/2015

25/08/2016

License

15/12/2015

10/05/2016

60.74

100

License

15/12/2015

10/05/2016

60.88

100

License

15/12/2015

25/08/2016

31.22

License

15/12/2015

10/05/2016

78.79

License

05/12/2017

10/03/2017

17.01

1.50

License

05/12/2017

10/03/2017

1.50

License

05/12/2017

28/02/2017

7.44

License

05/12/2017

10/03/2017

15.01

License

05/12/2017

10/03/2017

License

05/12/2017

10/03/2017

License

05/12/2017

10/03/2017

22.99

License

05/12/2017

10/03/2017

26.91

Contract Type

CONCLUDED LICENSING ROUNDS AND FARMOUTS

Round

Block

2.1

Area (km2)

Winning Bidder

Basin

Location

PEMEX and DEA Deutsche

Tampico-Misantla

Shallow water

549

2.1

PC Carigali and Ecopetrol

Salina del Istmo

Shallow water

559

2.1

ENI México, Capricorn Energy and Citla Energy

Salina del Istmo

Shallow water

591

2.1

PEME and Ecopetrol

Salina del Istmo

Shallow water

586

2.1

Capricorn Energy and Citla Energy

Salina del Istmo

Shallow water

562

2.1

ENI México

Salina del Istmo

Shallow water

533

2.1

Repsol Exploración and Sierra Perote

Salina del Istmo

Shallow water

533

2.1

Lukoil International

Salina del Istmo

Shallow water

521

2.1

ENI México and Citla Energy

Salina del Istmo

Shallow water

466

2.1

Total E&P and Shell

Macuspana

Shallow water

972

2.2

Iberoamericana de Hidrocarburos and PJP4

Burgos

Onshore

360

2.2

Sun God and Jaguar E&P

Burgos

Onshore

440

2.2

Sun God and Jaguar E&P

Burgos

Onshore

445

2.2

Sun God and Jaguar E&P

Burgos

Onshore

446

2.2

Sun God and Jaguar E&P

Burgos

Onshore

416

2.2

Sun God and Jaguar E&P

Burgos

Onshore

467

2.2

Sun God and Jaguar E&P

Southeast

Onshore

349

2.3

Iberoamericana de Hidrocarburos and PJP4

Burgos

Onshore

2.3

Newpek Exploración y Extracción and Verdad Exploration

Burgos

Onshore

163

2.3

Newpek Exploración y Extracción and Verdad Exploration

Burgos

Onshore

200

2.3

Iberoamericana de Hidrocarburos and PJP4

Burgos

Onshore

199

2.3

Jaguar E&P

Tampico-Misantla

Onshore

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

Veracruz

Onshore

193

2.3

Jaguar E&P

Veracruz

Onshore

251

2.3

Jaguar E&P

Veracruz

Onshore

232

2.3

Jaguar E&P

Macuspana

Onshore

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

Salina del Istmo

Onshore

248

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

Salina del Istmo

Onshore

215

2.3

Carso Oil and Gas

Salina del Istmo

Onshore

245

2.3

Carso Oil and Gas

Salina del Istmo

Onshore

234

2.3

Jaguar E&P

Macuspana

Onshore

148

2.4

Shell and PEMEX

Perdido

Deepwater

2,146

2.4

Shell and Qatar Petroleum

Perdido

Deepwater

2,062

2.4

Shell and Qatar Petroleum

Perdido

Deepwater

1,900

2.4

PEMEX

Perdido

Deepwater

2,733

2.4

Shell and Qatar Petroleum

Perdido

Deepwater

1,891

2.4

Shell and Qatar Petroleum

Perdido

Deepwater

1,968

2.4

Repsol, PC Carigali and Ophir

Cordilleras Mexicanas

Deepwater

1,999

2.4

PC Carigali, Ophir and PTTEP

Cordilleras Mexicanas

Deepwater

3,099

Additional Royalty (%)

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$)

25/09/2017

57.92

19/06/2017

25/09/2017

65.19

19/06/2017

25/09/2017

Production Sharing

19/06/2017

25/09/2017

20.10

Production Sharing

19/06/2017

25/09/2017

30,003,333.33

Production Sharing

19/06/2017

25/09/2017

Production Sharing

19/06/2017

25/09/2017

62.28

Production Sharing

19/06/2017

25/09/2017

Production Sharing

19/06/2017

25/09/2017

37.27

Production Sharing

19/06/2017

25/09/2017

30.11

License

12/07/2017

01/12/2017

3.91

License

12/07/2017

01/12/2017

1.5

License

12/07/2017

01/12/2017

16.96

License

12/07/2017

1.5

4,130,000

License

12/07/2017

1.5

License

12/07/2017

1.5

License

12/07/2017

1.5

License

12/07/2017

01/10/2017

1.5

4,237,264

License

12/07/2017

01/10/2017

1.5

2,980,002.02

License

12/07/2017

01/10/2017

23.56

License

12/07/2017

01/10/2017

3.91

License

12/07/2017

01/10/2017

1.5

26,100,000

License

12/07/2017

01/10/2017

1.5

2,179,000

License

12/07/2017

01/10/2017

1.5

License

12/07/2017

01/10/2017

1.5

License

12/07/2017

01/10/2017

1.5

28,890,000

License

12/07/2017

01/10/2017

1.5

License

12/07/2017

01/10/2017

1.5

License

12/07/2017

01/10/2017

1.5

6,182,000

License

12/07/2017

01/10/2017

1.5

13,170,000

License

12/07/2017

01/10/2017

1.5

License

31/01/2018

07/05/2018

15.02

License

31/01/2018

07/05/2018

10.03

License

31/01/2018

07/05/2018

10.03

License

31/01/2018

07/05/2018

6.23

License

31/01/2018

07/05/2018

1.5

10,030,382

License

31/01/2018

07/05/2018

1.5

90,030,382

License

31/01/2018

07/05/2018

1.5

30,247,805.67

License

31/01/2018

07/05/2018

Validity (years)

Bid Date

Signing Date

Production Sharing

19/06/2017

Production Sharing

Contract Type

CONCLUDED LICENSING ROUNDS AND FARMOUTS

Winning Bidder

Basin

Location

Area (km2)

Repsol and PC Carigali

Cordilleras Mexicanas

Deepwater

2,242

2.4

PEMEX

Cordilleras Mexicanas

Deepwater

2,917

2.4

Shell

Salina

Deepwater

2,080

2.4

Shell

Salina

Deepwater

2,030

2.4

Chevron, PEMEX and INPEX

Salina

Deepwater

2,879

2.4

Shell

Salina

Deepwater

1,853

2.4

ENI and Qatar Petroleum

Salina

Deepwater

1,922

2.4

PC Carigali

Salina

Deepwater

2,107

2.4

PC Carigali

Salina

Deepwater

2,030

2.4

Shell

Salina

Deepwater

3,067

2.4

Repsol, PC Carigali, Sierra O&G and PTTEP

Salina

Deepwater

3,254

3.1

Repsol Exploración

Burgos

Shallow water

814

3.1

Premier Oil

Burgos

Shallow water

391

3.1

Repsol Exploración

Burgos

Shallow water

811

3.1

Premier Oil

Burgos

Shallow water

392

3.1

Capricorn and Citla

Tampico-Misantla

Shallow water

962

3.1

PEMEX, DEA Deutsche and CEPSA

Tampico-Misantla

Shallow water

785

3.1

PEMEX, DEA Deutsche and CEPSA

Tampico-Misantla

Shallow water

842

3.1

PEMEX and CEPSA

Tampico-Misantla

Shallow water

813

3.1

ENI and Lukoil

Cuencas del Sureste

Shallow water

808

3.1

PEMEX

Cuenca Salinas

Shallow water

471

3.1

DEA Deutsche, Premier Oil and Sapura

Cuenca Salinas

Shallow water

528

3.1

Pan American

Cuenca Salinas

Shallow water

401

3.1

Total and PEMEX

Cuenca Salinas

Shallow water

1,027

3.1

Total and PEMEX

Cuenca Salinas

Shallow water

581

3.1

Total, BP and Pan American

Pilar Reforma - Akal

Shallow water

734

3.1

Shell and PEMEX

Pilar Reforma - Akal

Shallow water

798

Farmouts

Winning Bidder

Basin

Location

Area (km2)

1. Trion

BHP Billiton

Perdido

Deepwater

1,285

2. Ogarrio

DEA Deutsche Erdoel AG

Southeast

Onshore

156

3. Cárdenas-Mora

Cheiron Holdings

Southeast

Onshore

168

Round

Block

2.4

Source: CNH

TOTAL GOVERNMENT TAKE PER ROUND Licensing contract

• Contractual bases

• Base royalties

• Taxes over E&P activities

• Additional royalties

• ISR (Income tax) and other taxes

1.1

1.2

1.3

1.4

1.1

1.2

1.3

1.4

Trion

2.1

74-83%

72-90%

59.8-66.1%

72.40%

77.4-83.9%

*Avarage percentage of the net income of the contracts

63%*

Trion

2.1

Additional Royalty (%)

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$)

07/05/18

19.98

31/01/2018

07/05/18

7.11

31/01/2018

07/05/18

1.5

90,154,514.03

License

31/01/2018

07/05/18

1.5

110,154,514.03

License

31/01/2018

07/05/18

18.44

License

31/01/2018

07/05/18

10.08

License

31/01/2018

07/05/18

9.53

License

31/01/2018

07/05/18

19.98

License

31/01/2018

07/05/18

License

31/01/2018

07/05/18

1.5

43,154,513.03

License

31/01/2018

07/05/18

1.5

151,253,352.89

License

27/03/2018

To be signed

56.27

License

27/03/2018

To be signed

29.43

License

27/03/2018

To be signed

48.17

License

27/03/2018

To be signed

34.73

Production Sharing

27/03/2018

To be signed

27.88

Production Sharing

27/03/2018

To be signed

24.23

Production Sharing

27/03/2018

To be signed

35.51

Production Sharing

27/03/2018

To be signed

40.51

Production Sharing

27/03/2018

To be signed

1.5

59,823,145

Production Sharing

27/03/2018

To be signed

1.5

13,075,075

Production Sharing

27/03/2018

To be signed

1.5

51,147,000.25

Production Sharing

27/03/2018

To be signed

Production Sharing

27/03/2018

To be signed

40.49

Production Sharing

27/03/2018

To be signed

50.49

Production Sharing

27/03/2018

To be signed

50.49

Production Sharing

27/03/2018

To be signed

34.86

Validity (Years)

Bid Date

Signing Date

Additional Royalty (%)

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$ million)

License

12/05/2016

03/03/2017

624,000,000

License

10/04/2017

06/03/2018

213,870,000

License

10/04/2017

06/03/2018

41,500,000

Validity (years)

Bid Date

Signing Date

License

31/01/2018

License

Contract Type

Production sharing contract

• State participation over the operative utility contractual bases

2.2

2.3

2.4

2.2

2.3

2.4

75-82%

64.7-67.2%

• ISR (Income tax) and other taxes

• Base royalties

• Taxes over E&P activities

3.1

Cárdenas Móra

Ogarrio

3.1

Cárdenas Móra

Ogarrio

72-78%

79.1-83.3%

88.9-92.6% Source: CNH

2018 LICENSING ROUNDS AND FARMOUTS

11 13

86 1

14 17

15 16

5 6

4 37 2 7

6 1

22 23

24 26 25 27 28

30 3

Source : CNH

32 33

ROUND 3.2 Onshore Contract type: License Validity of 30 years Bid Date: 25/07/2018 Block

Basin

Area (km2)

Block

Basin

Sabinas-Burgos

233.09

Sabinas-Burgos

188.97

Sabinas-Burgos

521.42

Sabinas-Burgos

174.36

Sabinas-Burgos

271.93

Tampico-Misantla

205.96

Sabinas-Burgos

271.51

Tampico-Misantla

170.48

Sabinas-Burgos

155.42

Veracruz

413.81

Sabinas-Burgos

179.15

Veracruz

217.19

Sabinas-Burgos

458.72

Veracruz

220.41

Sabinas-Burgos

264.95

Veracruz

229.48

Sabinas-Burgos

478.24

Veracruz

204.5

Sabinas-Burgos

445.66

Veracruz

277.99

Sabinas-Burgos

212.99

Veracruz

190.10

Sabinas-Burgos

436.43

Sureste-Chiapas

320.73

Sabinas-Burgos

191.70

Sureste-Chiapas

214.01

Sabinas-Burgos

345.98

Sureste-Chiapas

201.29

Sabinas-Burgos

221.88

Sureste-Chiapas

229.82

Sabinas-Burgos

184.29

Sureste-Chiapas

221.60

Sabinas-Burgos

184.20

Sureste-Chiapas

320.25

Sabinas-Burgos

204.46

Sureste-Chiapas

46.32

Sabinas-Burgos

203.69

ROUND 3.3

PEMEX'S FARMOUTS

Onshore

Contract type: License

Total 3P Reserves of 405 million boe

Validity of 30 years

Estimated Prospective Resources of 683 million boe

Bid Date: 9/12/2018 Block

Area (km2)

Basin

Contract Type: License

Area (km2)

Sabinas-Burgos

301.67

Sabinas-Burgos

297.40

Sabinas-Burgos

262.85

Sabinas-Burgos

414.91

Sabinas-Burgos

255.42

Sabinas-Burgos

274.69

Sabinas-Burgos

281.62

Sabinas-Burgos

300.09

Sabinas-Burgos

315.49

Bid Date: 31/10/2018 Name

Current Production (b/d)

Artesa

6,000

Bacal-Nelash

4,600

Bedel-GasĂfero

13,700

Cinco Presidentes

7,600

Giraldas-Sunapa

4,700

Juspi-Teotleco

5,000

Lacamango

4,300

Block

VIEW FROM THE TOP

UNDERSTANDING FIELD ECONOMIES PALMA MENDEZ Country Manager of Wood Mackenzie

Q: How has Wood Mackenzie positioned itself in Mexico’s

Q: What is the best opportunity for investors in the Mexican

new business context?

oil and gas sector?

A: Wood Mackenzie is a consultancy that helps operators

A: That depends on the kind of investment. The dynamic

and financial entities understand the economics of each field

we are seeing now is that there is little market information

proposal and this requires our data and intelligence to be

on downstream areas, such as the transport and storage

as objective as possible. We strive to make our information

of products. Although there is little market information

and intelligence 100 percent objective, which is the added

regarding midstream, there are many infrastructure

value Wood Mackenzie brings to the table in these kinds

investment opportunities. For small investment funds,

of projects. Another added value is that all our analysis is

the downstream sector for refined products is where a lot

done in-house with information developed in-house. All the

of activity is taking place and investments could be very

information we provide comes from our internal analyses,

profitable. Now, the boom is in refined fuel products.

including the prospects of the fields, and our data is not subject to what either operators or authorities say.

Q: How competitive are the distinct fields PEMEX licensed in the last farmouts compared with other fields globally?

Q: Among Wood Mackenzie’s services, what proposals

A: The PEMEX farmouts received a good response but

have you been emphasizing?

participation was also moderate. This means there are

A: We have a database of economic valuations of oil and gas

certain legal and economic conditions that need to be

fields in Mexico and around the world that allow us to carry

improved to attract a wider range of companies. As far

out an evaluation of those fields under different scenarios as

as the fields PEMEX has won in partnership with other

far as upstream is concerned. We can calculate the CAPEX

operators, the NOC was very intelligent in its negotiations,

and OPEX under different scenarios and our clients can play

offering the indispensable minimum amount of royalties

with all those different assumptions. We are also inaugurating

and winning several blocks this way, while not leaving any

a new product on natural gas and power in Mexico, in which

money on the table. Its assessments and valuations were

we do an analysis of the demand for energy and natural

accurate, so it did not offer more than necessary. In my view,

gas per region in Mexico, the interrelation with the US, the

the farmouts need to improve their terms and conditions to

provenance of the natural gas and so on.

attract other kinds of companies but the manner in which PEMEX crafted its proposals to win blocks was intelligent.

Q: Where are the greatest opportunities in the upstream oil and gas sector?

Q: How do you view PEMEX’s transformation in the course

A: PEMEX farmouts represent the greatest opportunity for

of the post-reform reality?

reversing the decline of oil and gas production in Mexico.

A: The new CEO has implemented great improvements,

Farmouts can certainly help the country make a direct

including greater control of the finances. There has also

change in this area. Of course, the blocks auctioned in

been a highly significant top-down initiative to prioritize

the licensing rounds, especially in deepwater, have great

partnerships with private companies. Also, the mandate

projections but that is for the long term. In the near term,

before the Energy Reform focused more on production

the most essential event for Mexico is the PEMEX farmouts.

volumes, not economic value generation. The mentality had to change, which was not easy. PEMEX realizes that it should not produce for production’s sake. It understands

Wood Mackenzie is a leading research and consultancy firm

it has to generate economic value and therefore start

for the global energy, chemicals, metals and mining industries,

prioritizing projects. This mentality has definitely changed

providing objective insight, analysis and advice on assets,

for the better and this top-down directive is what made

companies and markets

the difference.

VIEW FROM THE TOP

LEARN FROM PREVIOUS MISTAKES TO ENSURE A POSITIVE CHANGE NICOLAS BORDA Partner at Haynes and Boone

Q: What have been the key lessons from the licensing

Q: What are going to be the main drivers of change in the

rounds regarding the regulatory process and for CNH?

Mexican upstream sector?

A: Right now, there is a perception of over-regulation and

A: The acceleration of certain processes such as farmouts

most operators seem to feel that this is in fact the case.

and CIEPs will drive an increase in production. Enhanced

However, we expect to see a deregulation down the road

oil recovery from mature fields also will be important as

where the operator will be regulated more by objectives

well as developing unconventional resources. Most likely,

rather than through prescriptive regulation. ASEA is asking

major infrastructure will be required in the offshore Gulf of

for high-level thresholds on the insurance side. One main

Mexico since we do not yet have any deepwater production.

reason is that unlike the US, Mexico lacks a catastrophic

Exploration is going to require a lot of very expensive

fund for offshore accidents. Almost 30 years ago, when

infrastructure but the price of oil is naturally going to play

the Exxon Valdez hit a reef off the coast of Alaska, the

a role in which projects get developed and which do not.

US government triggered a law that created such a fund. A certain percentage of the sales of each barrel of oil

Take Lakach, for example, which is a non-associated deepwater

extracted offshore goes to the fund. With the exception of

field that was going to be developed until prices dropped.

gross negligence, in the case of an accident, the fund will

Currently, it makes no sense to invest so many billions of

kick in and those resources would be deployed.

dollars in bringing dry gas from deepwater production when it can be obtained more cheaply right next door in the US.

Unfortunately, in Mexico if we have an incident such as

Mexico imports more than 4Bcf/d. We have huge amounts of

Macondo, the deployment of resources will not be as

unconventional resources, probably placing Mexico No. 6 in

efficient or swift. Of course, the company responsible

the world, which means that eventually the country will have

for Macondo was a large multinational. If a catastrophe

to develop these resources and reduce imports of natural gas

occurs involving a medium-sized company, the company

from the US. For that to happen, we will need to develop a

will go bankrupt and most likely there will be no financial

logistics platform similar to that in the US.

compensation for the damage. Having a catastrophic fund might make the regulatory burden less onerous.

Q: What do you think CNH needs to do to prepare to offer blocks of unconventional gas fields?

Also, I think it would help to have a dedicated capping

A: The No. 1 priority is to have the right legal framework in

stack in Mexico, in a place such as Altamira, for well control

place. This framework must come from CNH, CRE, ASEA and

if an accident occurs. When there is a major oil spill,

CONAGUA. Mexico needs to make a thorough evaluation

camera-equipped ROVs are brought in to monitor what is

of its unconventional resources. Finally, the Ministry of

happening, but in the meantime a capping stack could be

Finance needs to offer tax incentives to get the ball rolling.

deployed. Currently, there is no capping stack in Mexico.

The finance minister was the CEO of PEMEX so he will most

There are companies that have capping stacks but they

likely change the short-term view on revenues to develop

are in Aberdeen or in Singapore, and I think Mexico would

unconventional resources in Mexico because it is always

greatly benefit from having its own.

better to have a 5 percent tax on US$1 billion than a 50 percent tax on nothing.

In the US, 10 major oil companies formed an alliance and each put up US$100 million and that US$1 billion was invested in two capping stacks. But by law these cannot

Haynes and Boone is experienced in a wide array of energy areas.

leave the US. CNH has been receptive to the comments

It has legal professionals in both Mexico and the US doing cross-

from the industry, such as from AMEXHI, which has about

border energy work. The firmâ&#x20AC;&#x2122;s practice includes energy, oil and

50 members.

gas, corporate and international and domestic planning

VIEW FROM THE TOP

A CHANGE FROM THE ROOTS JOSÉ RINKENBACH Founding Partner at Ainda Consultores

Q: You are creating a new investment fund. How will it

The path we are following is going to combine money

be directed?

with our knowledge and implementation capacity from

A: We are now at the final stage of creating the fund,

the project developers, making the investment proposals

which will be called Ainda Energía e Infraestructura.

extremely robust.

Through this tool, we will manage funds of between MX$4-5 billion. This will be invested in upstream projects

Q: Where will Ainda Energía e Infraestructura invest the

for the oil and gas sector, in the support of infrastructure

most in the upstream segment?

necessary for the development of upstream activities,

A: We are looking at the winners of onshore and shallow-

such as ports, highways and airports, and finally, in power

water projects. The awarded blocks of most of those

generation projects such as combined cycle plants and

rounds are mature fields with proven reserves, and we

wind parks. The creation process of this fund started in

think that an investment there will be available to cash out

2015 and we expect to start allocating investments during

in four to five years. To enter into upstream operations,

the first quarter of 2018.

we have developed a strategic alliance with Goldman Sachs, which is giving us plenty of strength. Goldman

The Ainda Energía e Infraestructura fund will manage between MX$4-5 billion, which will be invested in upstream projects

Sachs chose us as a strong ally because we think globally while acting locally, which is important in Mexico. In this country, without local expertise, the projects will not see daylight. It is also essential to know how to act in a globalized world. Combining these two visions is what will make us successful in the market. We only invest when the operators are co-investors, so there is a riskreward alignment for them and for us, and this offers

Many people in the industry are still looking for

extra security to our allies.

opportunities from companies like CFE and PEMEX, which would be a product-push vision for the implementation of

Q: What factors are going to affect the development of

projects. This kind of vision leads to investment in refined

the oil and gas industry in 2018?

products. The push for development of refineries in the

A: The 2018 elections are not a big concern for the

country is unnatural given the global fuel surplus and

development of the industry. As most specialists say,

Mexico's ability to easily import fuel. This requires a very

it is extremely difficult to change the constitution. The

long-term vision to analyze if it works. Instead, Ainda is

biggest threat for the Mexican oil and gas sector is

following a market-pull strategy. Our decision to invest in

actually NAFTA. This is because all the big investments

the aforementioned sectors is driven by the market and

to come will be deployed by international companies.

the needs we have detected.

Without NAFTA, international companies will have to solve any issue that may arise in a Mexican court of law.

Q: How hard is it to finance investments in a market like

No matter if the constitution remains the same or if we

Mexico?

elect a president aligned with the opening of the energy

A: Financing is not scarce. If a project makes sense the

market, uncertainty puts investors off. If the upstream

money is available, and there are many investors in the

sector becomes stagnant for this reason, the midstream

world looking to invest. The real issue is the expertise

and downstream sectors will also flounder as they are

required to place the money in the correct project. It has

dependent on upstream. Unfortunately, this is something

to be smart money to provide investors with security.

over which we do not have any control and we will have

to wait until the renegotiations end. While this might be seen as a tremendous risk for any other investment fund, we are taking the safe route by investing in independent local operators for onshore and shallow water operations that, regardless of the outcome of NAFTA, will thrive in the country. Q: What is hindering the development of unconventional resources in Mexico? A: The social context is a problem in the development of unconventional resources. The licensing round for

Ainda EnergĂa e Infraestructura fund issued a CKD on Mexicoâ&#x20AC;&#x2122;s Stock Exchange of up to MX$13.5 billion on May 24, 2018. It will invest in both greenfield and brownfield projects for the energy and infrastructure industries

these fields has been postponed due to the presidential

elections; no one wants to have social issues in an election

there without producing oil, and even worse it has to pay

year. Unfortunately, to develop an industry such as that in

taxes for them. It is much better to have 50 percent of

Texas, Oklahoma or Colorado, Mexico has to move toward

something than 100 percent of nothing. As of November

unconventional fields. Sadly, in Mexico we are not aware of

2017, there have been only three signed farmouts, Trion,

all the new technologies that can be used to exploit these

Ogarrio and CĂĄrdenas-Mora, which sets a really slow

resources, meaning people are still fighting against old

pace considering that it has been five years since the

practices that we could avoid implementing in the country.

implementation of the Energy Reform.

To change this mentality, we need to provide the correct

The purpose of the Energy Reform was not only to open

information to educational institutions and to the public

the market, but to have a fitter and stronger NOC, and

in general, but that will take time. I do not see this as an

as of now PEMEX is not in such a good position. History

issue that will stop the unconventional resources industry,

shows how, after energy reforms were implemented in

but I do see it as one that will delay its development.

their respective countries, companies such as Petrobras,

The fact that Mexican companies must negotiate with

Statoil and Ecopetrol were still involved in 80-90 percent

hundreds of people within an ejido instead of with one

of the production activities in their respective countries.

landowner, as it is in the US, makes the problem more

For that to happen in Mexico, we have to give PEMEX the

complicated.

financial strength and the autonomy it needs. PEMEX still has many legal constraints that make it very difficult for

Q: What is needed to further develop offshore operations

people inside to make important decisions. An employee

in Mexico?

of PEMEX is a public servant and making a wrong decision

A: The rules the government has developed are

can cause unwanted exposure. Meanwhile, making a

incentivizing the entrance of international companies,

good decision does not provide any benefit inside the

but at the same time they make it almost impossible

company. That is not good in a risky business such as

for Mexicans to participate. This is due to the need for

oil and gas. We need to push for the system to offer the

previous experience in offshore operations and a certain

right incentives to the right people.

number of produced barrels to be able to participate as operators in the licensing rounds. The rules are there to

If PEMEX launches an IPO on the BMV or somewhere

make sure that operations are safe but changing the rules

else where it could reap the benefits of an open and

to allow more alliances between Mexican companies and

transparent market, it would greatly benefit Mexico. The

the creation of junior operators would certainly provide

government could remain in control of the company,

a boost. We now have PetroBAL, Sierra Oil & Gas, Citla

but by doing so incentives would be changed and the

Energy and Jaguar E&P as big Mexican players but

decision-making processes would be improved with

changing the rules a little would allow for the creation

greater transparency. That is how Petrobras, Statoil and

and expansion of even more. Allowing for this to happen

Ecopetrol became successful. If this is not done, I do not

could be considered as a second phase of the Energy

see PEMEX changing from the inside, which is what the

Reform.

NOC needs the most.

Q: What is needed for PEMEX to become a stronger NOC? A: PEMEX is producing less each year and is also getting

Ainda Consultores is a Mexican consultancy that offers services

into greater risk positions. An important way to help

in energy and infrastructure. The firm works with the public and

PEMEX is to allow the NOC to sign more farmouts. PEMEX

private sectors to generate integral strategic solutions for its

has budgetary constraints and is letting fields just sit

customers to maximize their captured value

VIEW FROM THE TOP

TAKING THE LEAD ON BILATERAL COOPERATION KLAUS BÜTTNER Managing Director of the Alberta Mexico Office (AMO)

Q: How do you contribute to strengthening commercial ties

well as mature field development based on Alberta’s deep

between Alberta and Mexico?

expertise in these areas. If PEMEX were looking at farming

A: Our Mexican office is one of the 12 trade and investment

out some of its mature fields, that would be a sweet spot

promotion offices we have around the world and the only

for Alberta-based companies in the next two or three years.

one Alberta has in Latin America. We act as promoters for export transactions between the province of Alberta and

Q: What expertise can Alberta SMEs introduce into Mexico

Mexico. Although we work in coordination with the Canadian

and how do you create opportunities around that?

federal government, we work according to our own provincial

A: The opening of the Mexican hydrocarbons industry has

priorities and we provide deeper service in the areas where

brought many new Mexican companies to the sector that have

we see the greatest opportunities. We are involved in a

capital but not necessarily the required technology. This is

great number of in-market activities and we are the link that

where the opportunity for our SMEs is, including for those that

eases business between both sides. Oil and gas represents

operate in the consultancy, educational and training segments

around 70 percent of our total trade promotion activities in

with developed technological capacity. Enhanced oil recovery

Mexico as the industry is one of Alberta’s natural strengths,

and storage for the midstream segment are two areas that

primarily the upstream and midstream sectors. By the end

Alberta companies have mastered and where their Mexican

of 2017, annual exports totaled CA$1.3 billion, a number that

counterparts may still be looking for partnerships. I would

has grown exponentially and that places Mexico as Alberta’s

note that we are cautious about when to actively promote a

fourth-largest export market behind the US, China and Japan.

market opportunity as we do not want to be so far ahead of the curve that the market is not yet ready for introduction of

Q: What are the main opportunities for Alberta-based

some of our technologies. But at the same time we do not

companies in the Mexican market?

want to wait for such a long time that the opportunities might

A: Our main focus is fostering knowledge transfers from

already have been seized by the competition.

Alberta to Mexico and finding possibilities for Mexican operators and service companies to enter into alliances with

Q: What have been the most significant cooperation

Alberta-based firms. We are particularly vocal about the

mechanisms between Alberta and Mexico?

need to bring SMEs to the next level and help them position

A: The Ministries of Energy of Alberta and Mexico have

themselves internationally. There are around 8,000 companies

signed an MoU that covers a great number of points and

that fall into the oil and gas services sector in Alberta and many

projects including knowledge transfer in research and

of them do not have a strong international presence. This is

capacity-building, information exchange on policy matters

where we find opportunities for them in Mexico as this country

and regulatory cooperation. Unlike in Mexico, where natural

can help them reach global scale. There is already a group of

resources are controlled at the federal level, in Canada this

Alberta-based operating companies active in Mexico, such as

is a provincial matter and the Mexican Ministry of Energy

International Frontier Resources or Sun God Resources. On

and government agencies have been quite active with

the E&P side, we see the greatest number of opportunities

Alberta institutions in signing partnerships and funding

for Alberta-based junior companies and their growth in this

cooperation schemes. The Alberta Energy Regulator has

market. We see big potential in unconventional resources as

maintained close relations with CRE and other regulatory bodies in Mexico to host workshops and information-sharing events. Something that reflects the intensity of bilateral

The Alberta Mexico Office (AMO) s upports export-ready

cooperation is the establishment of the International Center

Alberta companies wanting to enter the Mexican market. Its

of Regulatory Excellence, an initiative between Alberta and

services include assisting businesses with market intelligence and

Mexico regulators to strengthen and share expertise in

connecting Alberta companies with prospective clients

energy regulation.

VIEW FROM THE TOP

THE POWER OF KNOWLEDGE SCHREINER PARKER Vice President of Latin America at Rystad Energy

Q: What aspects drive your interest in Mexico and what is

to compile information. Hindrances to data collection are

Rystad’s competitive edge in the industry?

always present, particularly in places such as Latin America,

A: Mexico is probably the most exciting place in the world

but Mexico stands out as a relatively open place for data

right now for exploration. This is due to the country's time-

collection.

honored tradition in oil production and its wells, which stand among some of the most prolific in the world. Mexico

Q: To what extent has the Energy Reform changed the

has vast virgin areas in the Gulf of Mexico where companies

industry’s relationship with the government?

have always set their sights but where exploration was

A: The reform has been unique in how it has been adaptive

impossible because of the monopoly that PEMEX had.

to criticism and feedback from the industry. Things have

There are many commercial petroleum systems and an

evolved organically thanks to this openness to apply the

unquantified number of prizes lying in the Gulf, creating

changes that players deem necessary for the industry’s

great excitement about the opportunities to develop E&P

future. Round Zero was the starting point and so it was

operations here. The industry’s opening to international

the first opportunity to learn. The Mexican government

investment was rocky to start but now that oil prices have

has shown its willingness to listen to the industry’s advice

stabilized the country has become quite attractive.

and be receptive about the modifications that can attract investments. Mexico has become more investment-friendly

For our part, we offer a mixture of consulting services and

and that is reflected in the growing number of players and

databases that serve as a primary source of information.

companies bidding in the licensing rounds.

We carry out our own research on upstream, reserves and production costs and we analyze the field-by-field basis and

Q: What technological introductions could have a

potential development. We cover 56 different segments for

significant impact if they were developed?

the oil and gas oil field service industry and we forecast the

A: From an onshore and shallow-water perspective,

expected investment from each of those segments from an

enhanced oil recovery (EOR) is an area to develop. If we

E&P standpoint.

look at PEMEX’s portfolio, 40 percent of its total production comes from two assets: Ku-Maloob-Zaap and Cantarell. In

We have a product to meet everyone’s needs, from the

the case of Cantarell, it has been in decline for several years,

government to investment banks, investors, operators and

raising questions about the possibility of reversing this

even other consultancies. We strive to reach everyone involved

effect or stabilizing the asset’s production. There are similar

in the oil and gas industry. Our priority is to demonstrate our

concerns regarding onshore exploration in the Chicontepec

research and consulting expertise and then identify the best

region and whether there is some sort of applicable fracking

fit for each industry segment. We want to be known as an

that could potentially increase EOR in these reservoirs. I

entity that can facilitate knowledge transfer to these sectors.

think this technology could help rework these reservoirs and understand what they look like, as there is a lack

Q: What is your assessment of data collection possibilities

of information available from PEMEX. There is also the

in Mexico?

opportunity to develop unconventional resources, although

A: It is certainly challenging but Mexico is not the most

this is a sector that will take several years to evolve.

complicated place to obtain information. There has been a big push for transparency in Mexico and this has eased the flow of data into the market. Overall, governmental

Rystad

institutions have done a good job in making data

intelligence firm that offers global databases, strategy advisory

transparent. Additionally, we develop communication

and research products for oil service companies, investors,

channels with operators and oil field service companies

investment banks and governments

Energy is

consulting

services

and

business

Yunuen platform, Dos Bocas, Tabasco

OPERATORS & CONSORTIUMS

Mexico has for the first time in its history created an ecosystem where there is competition among operators bidding for blocks. These companies are eager to secure service contracts from the Mexican supply chain to fulfil local content requirements. A total of 113 companies from 24 countries have taken part in the licensing rounds, and Mexico is barely scratching the surface of its oil and gas potential. Proof of the growing national optimism is the fact that 55 Mexican companies were present in the rounds.

This new ecosystem has shown the Mexican market that it is often better to create an environment of cooperation to foster the stability, development and permanence of the industry. IOCs that demand higher standards allow the country to re-evaluate and raise the bar regarding the requirements for the entire value chain. For this reason, both industry regulators and operators need to collaborate with each other in a way that allows them to develop their objectives together.

CHAPTER 4: OPERATORS & CONSORTIUMS 98

ANALYSIS: Mexico a Fertile Field for National, International Companies

100

VIEW FROM THE TOP: Juan Javier Hinojosa, PEMEX

102

VIEW FROM THE TOP: Faisal Bakar, PETRONAS

102

VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico

104

INSIGHT: Ryo Manabe, INPEX CORPORATION

105

VIEW FROM THE TOP: Pablo Guzmán, PwC Mexico

107

COMPANY PROFILE CAIRN ENERGY: Round 2.1 Winner Progressing with Development

Plan to First Oil

108

INFOGRAPHIC: Top Operators Place Their Bets on Mexico

111

VIEW FROM THE TOP: Matt McCarroll, Fieldwood Energy

112

VIEW FROM THE TOP: Timothy Duncan, Talos Energy

113

VIEW FROM THE TOP: Iván Sandrea, Sierra Oil & Gas

114

VIEW FROM THE TOP: Glyn Jones, Petrofac

115

VIEW FROM THE TOP: Pavel Suprunov, Lukoil-Engineering

116

VIEW FROM THE TOP: Héctor Manosalva, Ecopetrol

117

INSIGHT: Alberto Galvis, Citla Energy

118

VIEW FROM THE TOP: Javier Zambrano, Jaguar E&P

120

VIEW FROM THE TOP: Ian Telfer, Renaissance Oil

122

VIEW FROM THE TOP: Roberto Mc Leod, Petrolera Cárdenas Mora, a Cheiron Company

124

ROUNDTABLE: What Hurdles Have You Faced and What Have You Learned in Mexico?

ANALYSIS

MEXICO A FERTILE FIELD FOR NATIONAL, INTERNATIONAL COMPANIES The nine licensing rounds held to date suggest Mexico is firmly the preferred investment destination for IOCs looking to stake a stronger presence in the Americas. They also serve as a growth opportunity for national companies looking to take advantage of the Energy Reform

CNH’s licensing rounds have attracted international

PEMEX’s role as the leading company in the upstream

at te n t i o n t h a n k s to t h e i r co m p e t i t i ve n e ss a n d

Mexican sector will last for quite some time. Besides the

transparency. A total of 113 companies took part in the

work it was assigned during Round Zero, it also won the

first nine editions, 73 of which were awarded at least

most blocks assigned at CNH’s licensing rounds. The NOC

one block.

adopted a new philosophy of focusing on the areas to which it could add value, which appeared to have paid off

In terms of assigned blocks, PEMEX has emerged the

as it was awarded nine blocks in shallow waters and five

biggest winner with 14 highly competitive blocks – three

in deepwater. The assigned blocks are complementary to

as a lone player and the rest as part of a consortium. Jaguar

the 489 blocks the company was awarded during Round

and Shell tied for second, each with five blocks they will

Zero, where it still has much work to do, according to

operate independently.

Héctor Moreira, Commissioner at CNH. “The main problem faced by PEMEX is its financial capacity to make up for

In terms of committed investment, PEMEX grabbed fourth

the 489 direct E&P assignations it received during Round

place with US$413.7 million. Shell took top spot with

Zero,” he says. “Even though for some blocks the technical

US$711.1 million, while ENI International is in second and PC

plans for E&P were properly delivered to CNH within the

Carigali third, with US$529.3 million and US$436.9 million,

three-year deadline, for many others the NOC requested

respectively.

two additional years to cope with these requirements.”

The attractiveness of the country comes as no surprise

To offset these Round Zero difficulties, the company is

considering its considerable E&P potential. This is

increasing its farmouts and migrations. “PEMEX is also

supported by the fact that during the 1976-2016 period,

clustering its farmouts into groups of five or more fields

only 316 offshore exploratory wells were drilled in Mexico,

to make them attractive for potential partners,” Moreira

while Brazil drilled 2,420 and the US drilled 6,076 wells on

continues. “When it comes to contract migrations, these

its side of the Gulf. Despite its relatively small number of

imply basically the same requirements as the farmouts,

wells, Mexico still produced 30.5 billion boe of crude during

although certain parts of their process might be slightly

that period, 1.6 times more than the US and 2.8 times more

more complicated. Overall, both experiences should help

than Brazil produced from their exploratory wells during

PEMEX to strengthen its assignation exploration and

the same time span.

development capacity.”

PEMEX’S PRESENCE REMAINS STRONG

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2PER COUNTRY OF ORIGIN AWARDED CONTRACTS

PEMEX’s achievements highlight the important role that the NOC will continue to play in the Mexican oil and gas market, especially in the upstream sector. “The Energy Reform has provided PEMEX with the necessary tools to

107

build associations and to venture into technologicallychallenging or financially-robust projects along with partnering companies,” says Pedro Joaquín Coldwell,

total contracts

Minister of Energy. “The reform has provided PEMEX with the possibility to compete for E&P contracts in CNH’s licensing rounds and the NOC has obtained 11 contracts in partnership with seven IOCs so far, with a projected investment that totals US$17.5 billion.” He points out that PEMEX has been awarded three independent contracts, proving its capacity to win blocks on its own. While strengthening its partnerships.

Mexico 11% 48% Mazapil US 9% 12%Cananea UK 7% 7%Nacozari de Garcia

Colombia 2% 4% Sahuaripa Rest of the world 2% 29% Morelos

2% Eduardo Neri

5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

4% Caborca

1% Chinipas

2% Sierra Mojada

47% other

Source: CNH

TITLE PEMEX CRUDE OIL PRODUCTION: HISTORIC AND PROJECTED (million b/d)

2,017

2017

2018

2019

2020

316 2,141

267

257 1,982

195 1,951

1,948

2,154

2013

2,267

2012

2,429

2,522

2010

2,548

2009

2,533

2,577

2,601

10 5

2015

Improved Production (Business Plan)

11.4

11.3

8.5 7.1

0 Nevertheless, the presence of Mexican companies is tangible, especially as they registered a total approved and committed investment of US$689 million in the country as

Chevron

ENI

total of 50 blocks of the 104 assigned from Rounds 1.1 to 3.1.

God, ENI International and Qatar Petroleum being awarded a

Total

the licensing rounds, with Shell, PC Carigali, Total, Repsol, Sun

5.6

that has been awarded the highest number of blocks during

5.2

was expected, and it comes as no surprise that it is this group

Statoil

awarded in Rounds 1.1 to 2.3. The entry of IOCs into the country

ConocoPhilips

in both approved and committed investment into the fields

Petrobras

of September 2017, IOCs proffered a total of US$1.03 billion

PRODUCTION COST BENCHMARKING 2017 (US$/boe)

10.6 10.9

The bet IOCs have placed in the country is significant. As

PRODUCTION COST BENCHMARKING 2017 (USD/BOE)

PEMEX

LOCAL-INTERNATIONAL Fuente: Secretaria de economia BALANCE

2021

PEMEX projected production

10.6

Source: PEMEX

2016

Shell

PEMEX production

2014

10.1

2011

ExxonMobil

committed investment from Rounds 1.1 to 2.3, 99.6 percent is directed to onshore blocks. Cooperation between IOCs and Mexican companies is clearly visible, as from Rounds 1.1 to 2.3 associations between Mexican and international companies have approved and committed a total of US$667 million. Seventy-five percent of that figure is directed toward shallow waters, where there is a perfect

8 6

2013

2014

3.2 10.9

12 10

7.7

where the majority of local expertise lies. Of the approved and

5.5 2.3 7.8

investment destination for Mexican companies is onshore,

6.7 2.7 9.4

investment coming from IOCs. Not surprisingly, the preferred

8.2

Source: PEMEX

EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN KEY PRODUCTION ACTIVITIES COSTS (US$/boe) PEMEX

7.9

of September 2017, which represents 67 percent of the total

2 0

2015

2016

2017

cost before taxes Source: Production Taxes and Duties PEMEX & Total Investor Day Sept 2015 Source: PEMEX

meeting point between national knowledge on shallowwater basins and technological and financial capabilities from

very interested in highly experienced partners,” says Ulises

international companies.

Hernández, Director of Prospective Resources, Reserves and E&P Associations of PEMEX.

INTO THE FUTURE As Rounds 3.2 and 3.3 are being prepared, the cooperation

PEMEX is not the only company looking at the potential of

between national and international companies is expected

unconventional resources. Luis Vázquez, Chairman of the

to grow. PEMEX is certainly looking at the experience

Board of Diavaz, also sees great potential and is interested

and best practices IOCs can provide it in terms of EOR,

in developing strong partnerships. “We are also interested

secondary recovery technologies and expertise in previously-

in a partnership for the development of unconventional

underdeveloped resources. For example, Round 3.3 will

resources. We will be looking for a partner to work with and

contain the first unconventionals to be offered in the

from whom we can learn how to properly produce from

licensing rounds. “In terms of unconventional fields, we are

unconventional plays,” he says.

VIEW FROM THE TOP

KEY GOALS: GENERATE EFFICIENCIES, MAINTAIN COMPETITIVE COSTS JUAN JAVIER HINOJOSA Director General of PEMEX E&P

100

Q: What is your assessment of PEMEX’s performance in

been strengthened. Practices that will help PEMEX

Round Two and the progress made in the Round 1.4 blocks?

in its internal processes have been identified, such as

A: After the awarded E&P contract from Round 1.4 was

procurement, cost of labor assessments and costs

signed on Feb. 28, 2017, the exploration plan for this

allocation, among others. PEMEX has benefited from

block was delivered on Aug. 23, 2017 and approved by

observing and learning from the practices of its partners,

CNH on March 14, 2018. The consortium conformed by

from the process of forming alliances, joint participation

Chevron, PEMEX E&P and INPEX operates the contractual

in licensing rounds and the operation of contractual

area, complying with the requirements established by

areas. PEMEX’s staff has incorporated best practices into

the regulators. The first exploration period is being

the operation of alliances through its active participation

executed, in which exploratory prospects are being

in its partners’ committees and subcommittees.

identified and integrated with the aim of drilling the first exploratory well in 2021 within the first additional period

Given the success of the Trion evaluation stage, PEMEX,

of exploration.

together with its partner, will develop the first deepwater oil project in Mexico, the Trion block. PEMEX has defined

Regarding the Trion farmout, the E&P contract was signed

an assignment-migration plan, which considers the

on March 3, 2017, the exploration and evaluation programs

reconfiguration of the assignments to speed up future

were delivered on Aug. 29, 2017 and CNH approved both

management considering geological conditions, degree

on Feb. 15, 2018. The first exploration period is underway,

of knowledge and natural limits. In a parallel process,

and the first delimitatation well is scheduled to be drilled

PEMEX has defined a farmouts schedule to complement

in September 2018. During Round 2.1, PEMEX participated

its technical capabilities and share the risks. The first phase

in six blocks, one individually and five in consortium,

of the onshore cluster includes seven contractual areas,

winning contract areas 2 and 8, both in consortium. This

4,508km2 of extension and 3P reserves of 405mmboe.

outcome means PEMEX obtained prospective resources

These blocks are undergoing a bidding process and the

to the amount of 270mmboe without risk. Deepwater

proposal revision will be carried out on Oct. 31, 2018.

Round 2.4 saw PEMEX participate in 10 blocks, four individually and six in consortium. The NOC was awarded

Q: What main factors will shape the strategic priorities and

two blocks individually and two in a consortium.

investment strategy of PEMEX E&P for the 2018-19 period? A: To achieve compliance with the outlined objectives,

Q: How did PEMEX benefit from its partnerships in terms

it is necessary to develop a series of previously-studied

of best practices?

steps. The success of these specific objectives will

A: PEMEX has complemented its technical, operational

depend on a wide variety of factors. Among the most

and administrative capacities and has shared the risks

relevant objectives, we can highlight the strengthening

associated with the execution of projects that require

of efficiency and profitability in exploration performance,

material investments. Practices related to corporate

consolidating the real value in areas assigned to PEMEX,

communication, social responsibility, compliance, ring

to ensure the characterization and delimitation of new

fencing, estimation of labor costs and negotiation have

discoveries and strengthening the portfolio of exploration projects through access to new areas. Included in the performance objectives are increasing operational

Juan Javier Hinojosa has been at PEMEX since 1980. In 1998

efficiency, improving performance in reliability operations,

he became manager in Analysis and Evaluation of Exploration

and labor productivity, as well as executing infrastructure

Investments. He took up his current position as Director of

modernization projects. The strategy will be to generate

Exploration and Production in May 2015

efficiencies and maintain competitive costs.

PEMEX is the eighth-largest oil producer worldwide. The

PEMEX LEADS IN CNH´S ROUNDS

MAIN WINNERS OF LICENSING ROUNDS

short-term challenge is to adjust the cost structure and the business strategy to a low oil price scenario. All this

PEMEX

will be done by using all the instruments and the flexibility

Jaguar

offered by the Energy Reform. PEMEX is focusing its

Shell

efforts on strategic activities such as farmouts and associations, where it will obtain improvements in its processes through synergy with its partners, combining the experience of PEMEX and the best practices of its partners.

9 11 2

PETRONAS

8 4

Total Repsol

A: Among the most important challenges in the medium and short terms is the increase of the recovery factor

3 6

ENI instrumental in maintaining production in mature fields?

5 0

Onshore

Sun God

Q: What technologies and best practices will be

1 3

Shallow waters

Deepwater

Source: CNH

through secondary and improved recovery processes for naturally fractured reservoirs. They must be adapted

Source: A: The INA roles are focused on the growth of the industry

or developed considering the inherent specificities of

at a global level and in Mexico. These specific roles are

Mexico’s oil fields.

assumed by resources in deepwater and unconventional reservoirs, which are shale oil and gas reservoirs with very

These aspects will allow for better production levels

low permeability.

and increase hydrocarbons reserves, as well as recovery factors. In terms of costs, a reduction is expected, as well

For PEMEX to remain at the forefront of the technological

as a counteraction of the production decline due to the

frontier and for it to maintaion high levels of growth, it

implementation of best practices in the processes.

must consolidate and strengthen its capabilities in both areas. This can be done by allowing private investment

Q: What role will shallow-water, deepwater, onshore and

to contribute to the growth of the Mexican oil and gas

unconventional E&P play in PEMEX’s upstream future?

industry.

101

VIEW FROM THE TOP

PLAYING A POSITIVE SUM GAME FAISAL BAKAR Country Head Mexico of PETRONAS

102

Q: How does Mexico play into PETRONAS’ global strategy

fruitful commercial dealings stem from ensuring we

and how can the company contribute to industry growth?

discard zero sum game approaches to the benefit of long-

A: PETRONAS’ operations are spread over numerous

lasting business relationships. We establish a symbiotic

countries, covering Southeast Asia, Africa, Central Asia,

environment that works and pushes for solid, long-term

the Middle East and also the Americas. We are always

relationships. We recognize and admire the fact that Mexico

looking for opportunities to help our business prosper

has more than 80 years of experience producing oil and

and to sustain our reserve-replacement ratio. Mexico is

gas. However, thanks to the Energy Reform, previous

among the countries that our technical team believes has

Mexican experience may now benefit from fresh views and

the potential to deliver resources due to the high number

new perspectives. PETRONAS can provide this new scope,

of underexplored areas. Our local presence and our

particularly in the deepwater arena. In this way, PETRONAS

ability to thrive in a bevy of countries is part of our value

can materially contribute to Mexico’s growth.

proposition in Mexico and the company’s accomplishments are highlighted by our performance as an integrated oil

Q: How can the company improve the local quality and

and gas business. Additionally, we also believe in Mexico’s

quantity of its yields in Mexico once E&P operations begin?

potential and are willing to make investments to ensure

A: Despite our newcomer status, our dealings in the

mutual success.

rest of the world and in Malaysia show that we are costefficient and commercially successful. Historically, our

Our technical and commercial prowess and our ability

successes have been founded on our ability to ascertain

to work in different environments and with different

and develop the necessary infrastructure and expertise in

stakeholders are at the heart of our results. PETRONAS’

every country where we are looking to build our footprint.

VIEW FROM THE TOP

WORKING WITH GIANTS ALBERTO DE LA FUENTE Director General of Shell Mexico

Q: What capabilities have made Shell a successful player

happened with Qatar Petroleum. At the same time, we

in the licensing rounds?

identified blocks where we were comfortable enough to

A: Before participating in the licensing rounds, we defined

bid on our own.

the areas we would like to develop and the partners with whom we would like to work. Both Qatar Petroleum and

This shows our commitment to the country and how

PEMEX are strategic and long-term partners for Shell.

strongly we feel about our capabilities regarding these

PEMEX has been our partner since 1993 in the Deer

projects. Thanks to this strategy, we have now built

Park Refinery, and we are now working together both in

a significant deepwater portfolio in the Perdido and

deepwater and on shallow-water projects. The latest bids

Campeche areas, thus diversifying the geological risk we

simply reinforced our previous partnership. The same thing

might face.

It is critical that we account for those two key factors

also ensured that we have exposure and expertise in a

to ensure our operation, development and production—

myriad of geological basins. Ultimately, we are here for the

considering not only upstream but the midstream and

long haul, and we will demonstrate our seriousness and our

downstream segments as well—will be cost-effective. We

focus to succeed in Mexico with the same symbiosis-based

are looking forward to being a part of Mexico’s energy

logic that our global footprint is built upon.

industry and ensuring the country is able to fulfill its potential to become a deepwater hub comparable to

Q: What were the key considerations for creating a deep

Brazil or the US.

and shallow-water cluster around the Salina/Sureste areas? A: One key factor we took into consideration is the

Q: What upstream project best showcases PETRONAS’

multiclient data we have invested in or the legacy data that

strengths?

we have had access to, as provided by CNH. This gives us a

A: To be fair, there probably is not one particular example

different and particularly favorable outlook for the Salina/

as each upstream project comes with its own unique

Sureste areas. That being said, our portfolio stretches from

challenges. PETRONAS’ project portfolio has many

shallow and deepwater blocks in the Salina/Sureste to other

success stories, featuring our involvement as both a

basins as well.

direct operator and as a partner. We have developed the oil and gas industry in Malaysia, discovered hydrocarbons

Q: What is the ideal service company profile for PETRONAS

in challenging plays in Southeast Asia, produced oil in

and its consortiums?

Middle East, Central Asia and Africa, and also positioned

A: The ideal service company has access to both

ourselves as a global LNG player. But the common

infrastructure and technology. Mexico needs service

denominator to all these examples that constantly inspires

companies that can provide technological solutions that

pride in me as a PETRONAS representative is that time

lower the cost of development and production. When that

and time again, we demonstrate our capacity to succeed

happens, the local industry will also be further developed

and operate in the most challenging environments, either

as a knock-on effect.

because of the technical complexity of the project or the location, where there might be infrastructural challenges. PETRONAS, established in 1974, is a fully integrated oil and

Our tenacity in attaining success is a key characteristic of

gas multinational. It actively operates in a number of countries

our company and we believe that eventually our venture

across six continents in both the upstream and downstream

in Mexico will also attest to that. Our wide experience has

segments of the oil and gas business

Q: How would you rate the regulations rolled out by ASEA,

A: The most important factor is geology. If the conditions

CRE and CNH and their impact on operations?

are not right, there is nothing to work with. Of course,

A: All three regulators have the right attitude and the

we look into everything the country has to offer and we

competencies to build a strong regulatory framework.

always maintain a long-term vision for our investments.

Having said that, we are all still riding the learning curve

We do not get distracted by short-term events, such as

and there is room for simplification regarding contract

changes in government, and that applies to every country

administration. There is a great deal of paperwork and

where we operate. So far, we believe Mexico has the

many processes that could be simplified to help companies

right geology and its bidding terms remain competitive.

be more focused on safety and actual operations.

Companies keep participating and the Mexican government receives higher royalties compared to other

Moving forward, the challenge will not be with ASEA, CRE

countries, including Brazil and the US. Furthermore, there

or CNH but with the next tier of regulators. As soon as we

has always been a tradition in Mexico to uphold contracts.

start working locally in exploration activities, we will need

The fundamentals are there and that gives us certainty

to communicate with many more governmental entities

for the long term.

that will also have to undergo this learning curve. The entire ecosystem is challenging and it will take more time to develop completely.

Shell , founded in 1907, looks to satisfy society’s energy needs in an economic, social and environmentally responsible way. Present

Q: What fiscal or geopolitical factors are the main source

in Mexico since 1954, the company has a strong participation in

of Mexico’s attractiveness for companies like Shell?

every Mexican oil and gas segment, from upstream to retail

103

INSIGHT

DOUBLING DOWN ON LONGTERM PRESENCE IN MEXICO RYO MANABE General Manager, Houston Office, America and Africa Division of INPEX CORPORATION

104

In the 15 years since Japan’s largest IOC, INPEX, made its first

relationships in Indonesia, Australia, Kazakhstan, Venezuela,

steps into Mexico’s Burgos basin, a lot has changed. But the

Brazil, Congo and Angola, among others.”

company’s medium to long-term vision was validated in 2012 and the country now stands as one of its priority exploration

Entering Mexico in 2003 in a joint venture with Petrobras

areas, according to Ryo Manabe, General Manager of the

and Diavaz also yielded strong and long-standing links with

company’s Houston office and America and Africa division.

Mexico’s NOC, Manabe says. “PEMEX is the most experienced

“We are very happy with the improved transparency, tax

oil company in Mexico. We have already had positive

regime and commercial terms since the Energy Reform

experiences with the company, not only in exploration but

was signed,” says Manabe. “We are appreciative of the

also in documented production after successful discoveries.

opportunity to invest in Mexico. Since we also have

We are happy to partner with PEMEX.”

exploration and production activities on the US side of the Gulf of Mexico and expect to see some geological continuity,

In August 2017, INPEX and its partners submitted an

we are optimistic about our opportunities in Mexico.”

exploration plan for deepwater Block 3, which was approved in March. In the first phase, the company will undertake

In December 2016, INPEX formed a consortium with

seismic processing and seismic exploration with wide azimuth

Chevron and PEMEX, which collectively won deepwater

technologies to find the best drilling prospect. “INPEX would

Block 3 in Round 1.4, which is located in the Perdido

like to bring the best technology for seismic processing and

basin in the northern region of the Gulf of Mexico. In

interpretation,” says Manabe. “But Chevron and PEMEX also

this joint venture, INPEX and PEMEX hold an equal

have extensive experience in the interpretation of seismic

stake of 33.3333 percent, while Chevron is the operator

data from the Gulf of Mexico. All this experience has given us

and holds a slightly larger stake of 33.3334 percent. In

an important understanding of the real geology of Mexico.”

Mexico’s Burgos development, INPEX is partnered with Petrobras, which holds a 45 percent share as well as the

INPEX also expects to follow up on its onshore and

operatorship of the contract, and Diavaz, which has a 15

deepwater footholds in Mexico by extending its activities

percent share. The Japanese IOC maintains a 40 percent

into shallow waters. INPEX participated in Mexico’s Round

share of the project.

2.1 and 3.1 but was unsuccessful. However, INPEX made a successful joint bid in Mexico’s second deepwater bidding

Mexico’s importance is remarkable since INPEX’s exposure

Round 2.4 to explore Block 22 AP-CS-G03 with Chevron and

in North America is limited compared with its extensive

PEMEX. As Mexico is one of its priority exploration areas,

presence in Indonesia, Australia and Abu Dhabi. In particular,

the company will continue monitoring the bidding rounds

INPEX has a significant presence in the seas of Western

in 2018 and after.

Australia, with 22 blocks around the Ichthys gas-condensate field. Manabe points to these developments in the eastern

The Energy Reform has also become increasingly important

hemisphere as an important staging ground for the

for the company’s medium to long-term vision. “INPEX has

competitive advantages INPEX brings to the Mexican market.

developed a global exploration strategy over the last few

“First, we have gained operational experience in these areas,”

years and Mexico is one of the highest priority areas,” says

he says. “Second, INPEX has a healthy balance sheet and

Manabe. Globally, INPEX has very rarely assumed the role

cash reserves that permit us to invest in Mexico. Third,

of operator of exploration blocks, preferring to leave this

INPEX is not as large as other IOCs so we must collaborate

function to one of its partners. “We would like to operate

with partners. Due to our presence in other areas, we have

in exploration and production but currently our strategy is

substantial experience in partnerships with other companies

to try to participate in other roles in the available blocks,”

such as Shell, Total and Chevron, with which we have good

Manabe says.

VIEW FROM THE TOP

DESIGNING A SUCCESSFUL FUTURE FOR OIL PABLO GUZMÁN Management Consulting Leader at PwC Mexico

Q: Is the Energy Reform meeting PwC Mexico’s

However, in terms of the upstream business in Mexico,

expectations and which areas still require improvement?

new entrants are a small fraction of the overall industry

A: I think the implementation of the Energy Reform has

and will continue to be for years to come.

been extremely successful so far. Nobody is complaining that the nation’s natural resources are being stolen, which

PEMEX will be the predominant player for the next 15 years,

has built trust in the processes. Everyone is fine with the

and many at the company still think this industry is theirs.

international players, there is an emerging Mexican industry

One challenge for them is to live under new rules. For

of operators and service companies and the behavior of

example, if the NOC has a block from Round Zero and it is

the regulators as they carry out their tasks has also been

decided that this block needs to migrate from being a direct

an extraordinary success.

assignment to being an E&P contract, like any other contract from the licensing rounds, there is a different fiscal treatment

Of course, some things could be done better, but I

for whatever is going to happen with the production in this

think it is a matter of maturity. For example, there is 110

field. But PEMEX also must obey the terms and conditions

years of history behind the Texas oil and gas industry,

applicable to all the different counterparties to this particular

while in Mexico the Energy Reform is only 3 years old.

contract. That is going to be a challenge because PEMEX

As a country, including PEMEX, we are taking quantum

has never been called upon to do any such thing in the past.

leaps toward transformation and taking advantage of everything the reform has to offer. Now we have to work

The reform was intended to build a high standard of trust,

on the details, to start polishing the legal framework.

and in doing so we, as a country, have come up with

It is an excellent reform from a legal perspective but

complex E&P contracts. These contracts are difficult to

some things need to be optimized. It would be ideal

execute not only for PEMEX, but also for new entrants.

if PEMEX could work more effectively in alliances,

Normally, when an IOC enters other countries, it signs one

especially upstream. The way the law is set out, PEMEX

contract with only one counterpart, and that counterpart

can foster strategic relationships to keep developing its

must align with all the federal agencies. In Mexico, that

most interesting and productive assets; it only needs to

is not the case. Operators or consortia must interact with

ask CNH to execute a bidding round for each farmout it

eight different government agencies, such as the Fondo

wants to include in this scheme. The problem is that the

Mexicano del Petróleo, the Ministry of Energy, CNH and

NOC has never worked with this kind of alliance before,

ASEA. Dealing with them is going to be challenging for

and because of the number of farmouts PEMEX needs

PEMEX. For example, its current accounting system is

to work with, it must become adept at handling these

different from what is required for the operators of the E&P

alliances and the respective processes. This is a huge

contracts. Each accounting system has a different structure,

challenge. PEMEX’s management must have the will to

purpose and objective. In the past, PEMEX’s accounting

actually move in this direction by being more proactive.

was designed to work for fiscal and budgetary purposes.

This, however, is relatively normal if you understand

Now, for E&P contracts, PEMEX needs to work with an

where PEMEX is coming from and where it is going. The

accounting scheme suggested by the Ministry of Finance

process will eventually speed up.

that is very different from the one they used in the past.

Q: How would you evaluate PEMEX’s transformation since the Energy Reform?

PwC Mexico is an organization of professional services

A: It is a challenge to enter into a new industry

committed to the Mexican market. It models the immediate

framework. The most visual evidence of this challenge

future of companies, improving their performance and

for the general public is the new gas station franchises.

profitability

105

106

COMPANY PROFILE

ROUND 2.1 WINNER PROGRESSING WITH DEVELOPMENT PLAN TO FIRST OIL CAIRN ENERGY IN MEXICO

is a commitment to working responsibly, delivering value

Cairn Energy, one of Europe’s leading independent oil and

for our stakeholders in a safe, secure, environmentally and

gas exploration and development companies, is delighted

socially responsible manner.

with the award of two offshore licenses in Mexico, which we believe will provide an exciting opportunity to build a

EXPERIENCE AND CAPABILITIES

strategic position in this highly prolific, yet under-explored

Cairn has explored, discovered, developed and produced

region. Cairn will operate in Mexico through its wholly-

oil and gas in a variety of locations throughout the world

owned subsidiary, Capricorn Energy Mexico. Cairn and its

as an operator and partner in all stages of the oil and gas

partners successfully secured two important oil and gas

life cycle. We have a track record of safe and effective

exploration licenses in Round 2.1, Blocks 7 and 9, which are

operations and extensive experience operating both

in close proximity to recent world-class discoveries in the

onshore and offshore. Our industry credentials include

Sureste basin. Cairn is partnered with ENI, an experienced

opening numerous oil basins and creating value through

explorer and operator in Mexico, as well as Citla Energy, a

exploration success and commercializing resources.

Mexican-focused exploration company. We look forward to working with our new partners and the government of

EXPLORATION SUCCESS

Mexico to deliver an exciting work program that will include

Historically, Cairn focused on South Asia where the

drilling four exploration wells.The licenses, one operated and

company was a committed long-term investor. Cairn

one non-operated, cover approximately 1,100km and are

had the vision to recognize the potential in India and

located in water depths of 100-500m, approximately 50km

the persistence to deliver a countrywide strategy and

offshore. Multiple attractive prospects in a variety of play

series of flagship projects during a 20-year commitment

types have been identified. Cairn has recently appointed

and investment program. Cairn long believed in the

General Manager Luis Ramirez to lead its local business and

hydrocarbon potential of the Indian subcontinent, which

Cairn opened an office in Mexico City in early 2018.

had been underexplored. When others saw few prospects

in India, Cairn identified and secured a number of key

INTRODUCING CAIRN ENERGY

assets that we believed contained material prospects. Cairn

Cairn is an experienced oil and gas operator and has

created transformational growth and significant value in

successfully discovered and developed reserves in a variety

India through the successful discovery, development and

of international locations, including Asia and most recently

production of substantial oil and gas resources. Cairn’s

West Africa, where the company made the largest global

active role in developing those reserves helped to build

oil discovery of 2014 and established a new hydrocarbon

India’s domestic oil industry, increasing its energy security.

province in Senegal. Cairn has been listed on the London

Cairn established a world-class oil province in Rajasthan,

Stock Exchange for almost 30 years and is a member of

which was the largest onshore discovery in India for

the FTSE 250. Cairn’s exploration focus is across frontier,

more than 25 years with the potential to provide more

emerging and mature basins from which the greatest value

than 30 percent of India’s daily crude oil production and

can be created. The company’s exploration activities have

generate many billions of US dollars in revenue for the

a geographical focus in northwest Europe, West Africa and

country. In a nation faced with rapid economic growth and

the Atlantic margin, underpinned by interests in production

increasing energy demands, this step-change in domestic

and development assets in the North Sea. Cairn has its

production was of significant value to the country and

headquarters in Edinburgh, Scotland, supported by a

remains crucial to India’s development. More recently,

number of operational offices.

Cairn has been successful in Senegal, completing 11 exploration and appraisal wells over the last three years.

TRACK RECORD

With a strong technical belief in the potential of the

Cairn has a strong track record of adding value to

acreage, the company and its partners made two basin

government and joint venture partnerships. We have

opening discoveries with the first deepwater wells to be

substantial global exploration and production experience

drilled in offshore Senegal. These discoveries established

as well as having formed, and contributed to, multiple

a new hydrocarbon basin and attracted the attention of

partnerships both past and present. We work with NOCs,

the global industry. Cairn and its joint-venture partners

IOCs and private and listed independent oil companies.

have now established the foundations for a multifield,

Our goal is to deliver lasting benefit to the countries and

multiphase exploitation plan. Development planning is

communities in which we invest. At the heart of our culture

now progressing to first oil.

107

INFOGRAPHIC

TOP OPERATORS PLACE THEIR BETS ON MEXICO Major players in the oil and gas industry have placed a

TOP TIEBREAKER PAYMENTS (US$)

bet on Mexico’s oil and gas rounds. Of the 11 companies

BHP Billiton

$624,000,000.00

Shell

$100,060,764.00 $243,463,541.09

that have committed the highest amount of investment, three are Mexican: PEMEX, Sierra Oil & Gas and Jaguar E&P. It is also from assignations given to three of these 11 players that the discoveries of Zama, Hokchi and Amoca

PC Carigali

arose. These significant discoveries in shallow waters are expected to be just the beginning of a series of milestones in Mexican offshore activities. With Sierra Oil & Gas having

108

also been awarded blocks during deepwater Rounds 1.4

$181,501,158.56

Sierra Oil & Gas

$151,253,352.89

Qatar Petroleum

$100,060,764.00

and 2.4, the expectations increase.

ENI International

$59,823,145.00

Shell, the company with the highest amount of committed investment and tiebreaker payments, has been more

Jaguar E&P

$4,130,000.00 $54,990,000.00

Premier Oil

$51,147,000.25

selective by developing partnerships with only four other companies: PEMEX, Qatar Petroleum, Total and Atlantic Rim. While its consortium with Atlantic Rim did not pay off, its partnership with Qatar and PEMEX secured it four

PEMEX $13,075,075.00

blocks during Round 2.4 and two during Rounds 2.4 and 3.1.

Sun God $4,130,000.00

PEMEX, Sierra Oil & Gas and PC Carigali have each developed consortiums with nine different companies

In Consortium Alone

100 200 300 400 500 600 700 800

60.12%

BHP Billiton

Premier Oil

79% 13.94%

Shell

7.06%

US$238,461,708* PC Carigali 39.88%

PC Carigali

Sierra Oil & Gas

US$451,973,700*

5 Blocks 63% Success Rate 4 Committed wells Country: UK

Qatar Petroleum

9 Blocks 53% Success Rate 8 Committed wells Country: Malaysia

ENI International Jaguar E&P

*Figures based on the investment corresponding with the work program units and additional investment commitment outlined in the exploration and development plans submitted by each operator and approved by CNH to June 2018

Premiere Oil

6 Blocks

PEMEX 60% Success Rate

CNH LICENSING ROUNDS RESULTS Round 1

Round 2

Round 3.1

5 Committed wells

Farmouts

Total

Blocks / Areas Awarded

107

Awarded Surface (km2)

20,456

55,563

11,020

324

87,363

Companies Awarded

Tiebreaker Payments (US$ million)

643

124

879

1,646

Committed Investment (US$ million)

1,333

2,092

442

206

4,073

Estimated Investment (US$ million)

40,856

102,978

8,623

8,806

161,263

Source: CNH

Country: Mexico Sun God 19.68%

100000000 200000000 0 300000000 400000000 500000000 600000000 700000000 800000000 34.79%

0.75%

Sierra Oil & Gas

US$320,172,500*

44.77%

INVESTMENT BY ROUND

R1.1 R1.2 R1.4

Qatar Petroleum

US$344,311,200* 5 Blocks 56% Success Rate 6 Committed wells Country: Qatar

R2.1 R2.2 R2.3

R2.4 R3.1

42.50%

11.89%

100%

ENI International

US$519,896,234* 6 Blocks 43% Success Rate 11 Committed wells Country: Italy

17.99%

0.31% 0.36%

27.62%

Shell

US$742,143,570*

70.18%

11 Blocks 65% Success Rate 13 Committed wells Country: The Netherlands

29.82%

Pan American

US$315,667,512* 3 Blocks 43% Success Rate 7 Committed wells Country: Argentina

99.33%

Sun God US$154,400,000* 7.51% 0.82%

71.57% 27.66%

PEMEX

US$423,668,132* 14 Blocks 48% Success Rate 8 Committed wells Country: Mexico 35.88% 55.79%

6 Blocks 67% Success Rate 10 Committed wells Country: Canada

0.76%

Total

US$353,914,170*

100%

7 Blocks 54% Success Rate 6 Committed wells Country: France 54.33% 45.67%

Jaguar E&P US$284,200,000*

BHP Billiton made a tiebreaker payment of US$624 million to win the Trion farmout

11 Blocks 48% Success Rate 20 Committed wells Country: Mexico

109

VIEW FROM THE TOP

RESTRUCTURING FOR OPTIMUM PERFORMACE MATT MCCARROLL President and CEO of Fieldwood Energy

Q: Fieldwood has been restructuring. What is the current

flow, so the business has never been stronger. We are going

state of the company?

on the offensive again.

A: The company has never been in a better situation. We have been in business now for four and half years and we

At this moment, we are putting two rigs to work on the

have a very profitable operation, with our only challenge

US side of the Gulf of Mexico. We have another rig coming

being that we had too much debt. We had an overleveraged

this summer so we are going to get back to drilling. We are

balance sheet, consisting of the debt we incurred initially

going to increase our US capital budget by over five times

when we made acquisitions from Apache Corporation and

from 2017 to 2018. We are going to be a much more active

Sandridge Energy in 2013 and 2014, when prices were at

company with the ability to fund our Mexico operations

US$100/b.

in development. All in all, it is a great outcome. We are bringing on a world-class deepwater team to manage

For that reason, we started discussions last fall with all our

Noble Energy’s assets and we are very excited that we

stakeholders and finalized agreements to equitize over

will be drilling deepwater wells on the US side of the Gulf

US$1.6 billion of debt. We raised US$525 million of new

of Mexico.

capital and we simultaneously closed the acquisition of the entirety of Noble Energy’s deepwater assets in the Gulf of

Q: What is your perspective on how the licensing rounds

Mexico. The restructuring means we have gone from being

have progressed, and what does it mean for the players

five times overleveraged to 1.5 times and we have significant

you have seen entering the market?

liquidity as well as 40 percent more production. We have

A: There has been a lot of bidding activity but not much

done this with the support of 100 percent of our lenders

well drilling and construction activity. The only companies

and stakeholders.

that have ever actually drilled wells are winners from Round 1.1 and 1.2: Talos Energy, Pan American Energy, ENI

The only worrying factor to people who do not understand

and ourselves. There is a lot of activity to come. I think a

the process is that in the US, a Chapter 11 process is the

legitimate question is whether or not the regulatory process

most expedient way to effectuate a restructuring, even

and the administrative process within government agencies

though it may be possible to do it out of court. The word

such as the Ministry of Energy, CNH and ASEA can handle

“bankruptcy” scares many people, but in our case, we got

the volume of work that is coming.

in and out of bankruptcy in only 45 days. We restructured and emerged from the process in great shape but most

We know how long it took for us to get permits to drill

important to our management team, all our vendors, all the

and to get our appraisal plan approved and that was

government agencies, all our partners and all our employees

only with four operators. Now there will be more than 73

and contractors continued to be paid throughout.

operators and the volume of work and permitting is going

Essentially, business continued as usual. We always had

to be dramatically higher. We are all getting better over

plenty of money to run the company, we just needed to

time as CNH and ASEA gain a greater understanding of the

restructure our balance sheet. Now we have accomplished

processes. But the process will really have to pick up speed

that and we have emerged a much stronger company.

or it is going to hit some bumps.

Q: What does this resolution mean for the company in the medium term?

Fieldwood Energy is privately held and among the 10 largest

A: We have cut our annual interest payments by

operators in the Gulf of Mexico, with production exceeding

approximately 50 percent and we reduced our debt by

130,000 boe per day from 1,000 wells across 2 million acres of

about 50 percent. We increased our assets and our cash

shallow and deepwater leases in the Gulf

111

VIEW FROM THE TOP

TAKING THE LEAD: THE ZAMA DISCOVERY TIMOTHY DUNCAN President and CEO of Talos Energy

112

Q: How is Talos capitalizing on its experience in the US side

A: With the merger between Talos Energy and Stone

of the Gulf of Mexico to expand its portfolio to Mexico?

Energy, our company has acquired more scalability for

A: Talos has honed its exploration skills in the US Gulf of

its operations and a stronger balance sheet to position

Mexico for decades and the results of that process are

itself as a partner of choice on both sides of the Gulf of

achievements like the Zama discovery. The successes, and

Mexico. We hope to leverage that position not only into

even failures, that we have had in the past on the US side

asset deals but potentially into other corporate transactions

fuel our ability to continue to find and develop material

with companies looking for the right partner they can trust

discoveries like Zama. Our portfolio of prospects in Mexico

to execute the program they have begun.

gives us a richer, more diverse corporate portfolio that will allow us to optimize capital allocation, which is the

Q: What led to the significant discovery in Zama-1?

key to building value in the upstream oil and gas industry.

A: The key to success at Zama was to do our homework

Mexico gives us a range of prospects, geological risk and

ahead of time. That started with developing a reprocessed

production time frames to choose from.

seismic dataset that focused on the Lower Pliocene through the Miocene regionally. Once we had a good handle on the

Q: What capabilities does Talos bring as an operator into

regional and then local structural picture, then we could

its consortium with Sierra Oil & Gas and Premier Oil?

make some well-educated estimates of the pore pressures

A: With the level of success that we have been fortunate to

that would be encountered in the drilling of the well. In the

have so far in Mexico, we have shown everyone that Talos is a

execution of the well, our pore pressure estimates turned

partner that can contribute significantly to any aspect of the

out to be very helpful in safely drilling a sparsely-drilled

upstream sector. From prospecting to drilling to governmental

new area.

relations, Talos has demonstrated the ability to create value in Mexico and the US. Very little of our process or technology

Q: How does the 1.4-2 billion boe discovery in Zama-1

involves intellectual property or methods unknown to the

impact Talosâ&#x20AC;&#x2122; reserves portfolio and its future activities

rest of industry. What Talos brings consistently, though, is

in Mexico?

an entrepreneurial spirit, a focus on excellence and a strong

A: At this moment, the oil discovered at Zama is classified

sense of urgency. These values truly power our achievements

as a contingent resource instead of a reserve. Once a

in Mexico. In our role as operator, Talos takes the lead in all

final investment decision has been completed and the

aspects of the consortium, from geology and geophysics to

development plan has been approved by the government,

reservoir engineering, legal and commercial negotiations,

these resources will migrate into reserves and will have a

drilling operations and field development planning. Our

significant impact on Talos. The biggest impact will be the

partners certainly contribute with their specific skills and a

cash flow that will enable the company's further growth.

wide range of experience, and all of that comes together to allow us to develop such an important discovery.

Q: How can Mexican service companies become a strategic ally of Talos in the Gulf of Mexico?

Q: How will the merger between Talos Energy and Stone

A: The best way for a Mexican service company to work

Energy impact Talos?

closely with Talos is to consistently and reliably provide industry best practices with accountability and an innovative spirit. Talos values partners who are unafraid to continually

Talos Energy is an oil and gas company based in Houston and

bring their best ideas to the table and break from traditional

focused on offshore exploration and production. Its expertise

local practices to create outstanding results. Anyone who

includes a strong emphasis on asset optimization and E&P in

wants to work closely with Talos should never tell us, â&#x20AC;&#x153;that

the Gulf of Mexico

is the way we have always done it.â&#x20AC;?

VIEW FROM THE TOP

FIRST MOVER SETS THE PACE IVĂ N SANDREA CEO of Sierra Oil & Gas

Q: What are the advantages of being the first independent

table: proprietary studies, analyses and, of course, the first

oil and gas company in Mexico to have such a large

and most important exploration well drilled in the southeast

presence in the upstream sector?

basin so far. All our partners recognize that. Our strategy is

A: The main advantage of being a first mover is clear cut: a

to diversify as much as possible, work with the best, those

first mover literally has time to organize itself first in terms

who contribute the most and to contribute ourselves.

of people, data, regulatory understanding and presence. A company can start experimenting and interpreting the

Q: Why is Sierra Oil & Gas forming a cluster in the

information that is available. It can also form part of the first

southeast basin?

group of companies and organizations that are helping the

A: The Sureste basin is a super-basin with a large acreage

process advance and progress. And hopefully, first mover

and very few wells drilled, especially in the tertiary

advantage, if it is combined with the right execution,

formations. The tertiary is a younger geological era that

leads to positive results. In the Gulf of Mexico, Sierra has

has not been exploited to its full potential. We like the

focused on the core of the Sureste basin, while several

structures, we like the water depth, we like the geology

other companies that have started late have had to work

and we are looking for those features that provide a low

with scattered assets or form a strategy based on whatever

to medium-risk opportunity. In shallow waters, the basin

they can acquire. We have been able to execute around

is a continuation of the southeast continental shelf. We

a specific, technically-backed, geoscience-based strategy

are chasing the same trends. We cannot participate in

in the lowest cost part of the basin. Also, our consortia

ultra-deepwater exploration areas because we think it

drilled the first exploration well after the Energy Reform and

does not make sense given how much is potentially at

have accumulated a great deal of strategic information and

shallower water, and for a company of our size and scale

logistics experience that only we have. Other companies are

at this moment.

drilling development wells, which is good, but exploration wells are always special.

Q: How great do you believe the reserves might be in the Sureste basin?

Q: What is behind the strategy that Sierra is forming with

A: Before positing a hard number in this industry, a

its partners?

company has to evaluate, drill and take risks. Taking all

A: We want to work with the shrewdest, the most interested

that into consideration and throwing it together we think

and the most technically capable partners that are available

the Sureste basin offshore has over 20 billion boe of yet-

for any given round. We are looking for complements and

to-be-discovered potential. Sierra is sitting on 25 percent

seek to play a strong if not equal role in the pre-bid technical

of that or more. Our intention is to test that with both

aspects of the projects in which we choose to participate.

committed and noncommitted wells in the future. This is

We look to partners that have a particular expertise relevant

an extrapolation of what we believe the reserves potential

to the project or that have experience in deepwater and

should be. It will take years to develop but it is important

shallow-water exploration and production, as well as

to have the acreage and start now. There is only one Park

having the right scale of processes and reputation. We

Lane. Companies need to obtain, work and investigate the

like diversification but we also like to repeatedly work with

prime acreage to find the prize.

those partners that make sense. Sierra owns, on average, a 38 percent working interest across 10,000km2 in six offshore blocks.

Sierra Oil & Gas is an independent Mexican company that pursues select upstream and midstream opportunities in

Because we had first mover advantage and due to the

Mexico. Sierraâ&#x20AC;&#x2122;s core business plan is to access and develop low

quality of our staff, we bring a lot of experience to the

to medium-risk oil and gas opportunities in the country

113

VIEW FROM THE TOP

SPEARHEADING THE MIGRATION PROCESS IN MEXICO GLYN JONES General Manager of Petrofac

114

Q: In December 2017, Petrofac completed the first contract

rounds are actually in the exploration phase. Because of our

migration to PSC from CIEP. Why is this important?

successful migration, others can now use our procedure as

A: Under the CIEP regime, we answered directly to PEMEX

a guideline for future migrations, including our Magallanes

and the NOC was the sole representative for operations.

and Arenque fields.

After the migration, we became the operator of a fullblown PSC with PEMEX as the non-operating partner so

Q: What are your expectations for the Mexican oil and gas

our role has increased greatly. The migration represented

industry as more CIEPs migrate into PSCs?

a tremendous and difficult process because there were no

A: I expect the migrations will result in new exploration, new

actual guidelines on how to do it.

discoveries and new reserves, helping to reverse the declining production trend for the benefit of Mexico. The migrations

Our migration is important for the country because

involve the rapid submission of a field development plan

Santuario is the first CIEP that migrated to a PSC and there

to CNH by the partnership so Santuario is well underway,

are still many hydrocarbon resources in the areas run by

entailing a substantial future investment. Where possible,

CIEPs. Most of the discoveries in those blocks were made

we will aim to bring new ideas and technologies to increase

in the 1960s and the production of the resources has been

hydrocarbon recovery and to access new reserves.

developed mainly through primary depletion, mostly in the shallower horizons, meaning that there is still a great deal

Q: Has Petrofac considered participating in the licensing

of production potential remaining through techniques like

rounds?

secondary recovery.

A: The truth is that we have enough on our plate right now and the FDP will entail substantial investments. We have

Q: What challenges did Petrofac face when undergoing

three very big blocks: one already migrated and the other

the migration?

two still under the CIEPs scheme. As with any new activity,

A: The Santuario migration did not just happen from one

we are on a learning curve in terms of understanding PSCs.

day to another; it involved a lot of work to manage the

Our view is that, before launching more activities, we must

process. While it may seem like that involved only signing

take full advantage of the potential that exists in the blocks

a new contract, we actually had to negotiate and then sign

where we are already working. Furthermore, we can see

several agreements with different parties. PEMEX also made

that there is a great deal of potential in the neglected and

a massive effort to complete the migration, and that must

underinvested fields run by CIEPs that only need someone

be recognized. It was all about team work.

with the right management skills to reactivate them. We may look at the licensing rounds in the future because we

It is important to add that during the migration, there

also have experience in that area, but for now we will focus

were no production interruptions so that at midnight on

on what we have.

Dec. 18, 2017, we could start immediate sales of oil and gas under the PSC scheme. In Mexico, we are producing around

Q: What challenges are hindering the Mexican oil and gas

15,000b/d, so we are one of the largest private operators

industry?

in Mexico, as all the major companies that won during the

A: The first is human capital. With the improving oil price trend and the growth in activity and as the Energy Reform gathers momentum, we anticipate a skills shortage in

Petrofac is a leading service provider to the oil and gas

Mexico. Another is the capabilities of local suppliers where

production and processing industry. It designs, builds, operates

we see a need for help to enhance their capabilities to

and maintains oil and gas facilities. Its Integrated Energy Services

support the restructured industry. Lastly, land access and

Division has done business in Mexico since 2011

security at the fields is an issue.

VIEW FROM THE TOP

BRINGING THE CASPIAN MODEL TO THE GULF PAVEL SUPRUNOV Director General of Lukoil-Engineering

Q: How does Mexico fit into Lukoilâ&#x20AC;&#x2122;s global portfolio?

process of the contract. But now that the first contract

A: Lukoil started looking at Mexico six or seven years ago.

has been migrated, in December 2017, things are looking

Four years ago, after the Energy Reform was announced,

favorable. We have had good results in Chicontepec

we set up an office in Mexico City. We started looking very

and although the source rock is not very consistent, it

closely at the opportunities that presented themselves to

produces. We are hoping to test Pimienta soon.

participate in the licensing rounds. We finally succeeded last year after participating in different rounds alone and

Q: Which project that you have been involved in

in consortiums, and we plan to continue participating.

internationally could you replicate in Mexico?

Right now, Mexico is not very material in Lukoilâ&#x20AC;&#x2122;s global

A: We have had very good results with our development

portfolio but we look at this country as a region with

in the Caspian Sea, which is the experience we would

high exploration potential. Recent announcements and

like to transfer to Mexico. We know how to build the

discoveries give us hope that we are doing the right

infrastructure and how to develop fields in shallow water.

thing. So far, every well that has been drilled is a success.

Although we have had good experience with exploration

There have been two huge discoveries, which suggests

projects in deepwater, in Mexico we are concentrating

the region will be prolific. The Mexican side of the Gulf of

on shallow water. I think the Caspian Sea is a very good

Mexico has great exploration potential for oil.

example of how we hope to proceed in Mexico.

We will continue assessing all the upcoming rounds that

Q: Could you talk about the considerations behind the

will be announced. Definitely our main area of interest

bid for shallow-water Block 12?

will be the shallow waters of the southern part of the

A: We bid at 75 percent and one additional well. We have

Gulf of Mexico. The Perdido basin is deepwater, which

two structures and we will probably be presenting a

is riskier, and if we participate we will do so with an

staged exploration plan. Geological concept is proven by

operator. We are happy with our results so far and we

recent discoveries and we think about full development of

are very excited to start drilling next year, if only because

the field. It depends on the results of the whole area as well

we are 20km from the 1.5 billion-barrel Zama discovery.

since there is a lot of potential for cooperation between

We will continue to expand in Mexico and continue to

operators with regard to infrastructure in this area.

try to increase our access to acreage for more drilling opportunities.

Q: How can Lukoil improve the quality and quantity of its yields as it consolidates its operations in Mexico?

Q: What was your experience with the Amatitlan field?

A: In Mexico we are looking for more opportunities and we

A: With the Amatitlan field there has been a lot of

will be participating in Round 3.1. We think that after 2018

discussion about the migration process of the contract.

there will be a lot of activity in the aftermarket with farm-

We acquired the block hoping for a fast migration. Several

ins and farmouts so I think we will seek opportunities in

wells have been drilled and several wells are expecting

the area to diversify risk and access different exploration

completion as of May 2018. We have gotten an extension

projects. We will wait for the results of the drilling in the

of the initial period. PEMEX and CNH have agreed to

area but up to now the results have been amazing.

restart negotiations about the contract migration. We are working on provisional plans for the development phase and simultaneously working on getting the permits to drill

Lukoil International Upstream West provides operational

the Pimienta shale formation to test the unconventional

project portfolio management for oil and gas exploration and

potential of the block. We have had a slow start but that

development activities in West Africa, Western Europe and in

was related more to uncertainty about the migration

the Americas

115

VIEW FROM THE TOP

A LATIN AMERICAN LEADER IN THE HYDROCARBONS INDUSTRY HÉCTOR MANOSALVA Vice President of Development and Production at Ecopetrol

116

Q: As a Colombian oil and gas producer, how would you

A: Some of the proposals we have structured have

evaluate Ecopetrol’s progress in the Mexican industry?

not been completely competitive for the requirements

A: Ecopetrol and the Colombian government have long

established in the licensing rounds. However, we are

worked and shared experiences with PEMEX and the

interested in continuing to participate in the different

Mexican government, even before the Energy Reform’s

rounds to come. We are studying the opportunities for

approval. We shared the experience Colombia went through

Round 3.3 along with a group of experts and technicians

when Ecopetrol turned into a joint-stock company in 2003

so we can build an offer that is sufficiently attractive and

and the benefits this move implied for both parties. These

competitive.

conversations allowed close follow-up on the Mexican reform’s design, application and its implementation process.

Q: What are some of the key components of your

It is clear that Mexico is a country full of opportunity and

partnership with PEMEX?

possibilities based on its extensive hydrocarbons resources

A: Before the Energy Reform was approved, we assessed

and how it has progressed in its incentive offer to foreign

investment opportunities for PEMEX in Colombia for

companies. The advancement of the licensing rounds has

offshore projects, where the company has a great deal of

further balanced market conditions and improved the

experience. This provided the chance for our E&P division

value for companies investing in the country, creating a

to see opportunities in the industry. As the industry has

positive environment for the burgeoning Mexican oil and

advanced, we have finalized numerous cooperation

gas industry.

agreements such as that in which Ecopetrol advises PEMEX on how to implement a strategy for the reduction of fuel

Q: What are the opportunities for the development of the

theft in Mexican pipelines. We implemented this strategy

shallow-water blocks awarded to Ecopetrol in Round 2.1?

in Colombia in 2007 when we were experiencing losses

A: These two blocks have an exploration interest for us due to

that averaged 10,000b/d and we were able to reduce it to

our knowledge. It is crucial for us to develop an exploration

less than 50b/d due to the technological developments

program and that is the strategy we have embraced for these

this strategy entails.

two fields. Over time we have developed a good skillset on how to develop fields through competences and capabilities

Q: How will Ecopetrol continue expanding its presence in

that can bring valuable experience. This is what we will

the Mexican market?

provide to the market in the upcoming licensing rounds.

A: One of the largest opportunities for Ecopetrol to grow

PEMEX has major strengths and the expertise we bring can

in Mexico is field development, as we have the knowledge

foster a strong relationship between both companies with

and competences in that area. The implementation of

both eyes set on the future. We strive to find synergies with

secondary and tertiary recovery techniques has also

PEMEX and share mutual experiences for the wellbeing of

bolstered the high reserve levels that we need to remain

the Mexican hydrocarbons industry.

competitive. We have implemented this strategy in a series of projects and environments, be it offshore, onshore,

Q: What is your view of the licensing rounds so far and how

jungle, forest, crude, gas, heavy or light oil. Our experience

will Ecopetrol participate in future rounds?

acquired in different fields could be applied to the Mexican case. Here, we see a great opportunity to work with the NOC and to put our knowledge and capabilities on the

Ecopetrol is one of the four main oil and gas producers in

table. We have defined our 2020+ strategy based on

Latin America. It engages in the production, refining and

deploying capital and investments in a greater variety of

transportation of oil and gas, as well as petrochemical

geographies outside of Colombia, and Mexico will play an

activities

important role in this plan.

INSIGHT

AIMING FOR A COLLABORATIVE, EFFICIENT INDUSTRY ALBERTO GALVIS CEO of Citla Energy

In the oil and gas industry it is vital that companies are

“Companies withdrawing from contracts means that the

prepared to share risks, especially in the uncharted territory

country is losing not only the investment in the field but

of Mexico’s new industry. According to Alberto Galvis, CEO

also the time and money that the authorities invested

of young operator Citla Energy, the fact that his company

in the bidding process,” he says. However, Galvis also

has a strong financial backing and local knowledge makes it

believes the authorities have quickly learned from previous

the perfect partner to not only share risks, but also benefits.

experience and are incorporating adjustments to ensure

“Citla knows the ins and outs of how to work in Mexico,”

that companies do not fall into the same trap again. “The

he explains. “We know the regulation, the people and the

Mexican government has been very active and professional

geology. That is our added value to big operators coming to

in the whole process of designing the bidding rounds. Of

the country, because to be successful in Mexico, you need

course, we could not expect everything to be perfect from

to know Mexico very well.”

Day One but the close interaction with the industry has ensured transparency and constant improvement,” he says.

Citla was only born in 2015 but by offering financial muscle and local expertise, it was able to enter into partnerships

While he commends the commitment of the authorities

with two strong international companies, ENI and Capricorn

in the bidding rounds, Galvis suggests the selection of

Energy, which led to it acquiring three blocks during Round

the fields to be auctioned should be evaluated. “The

2.1. According to Galvis, these partnerships prove not only

offshore opportunities that were put on the market are

Citla’s capabilities but also its ability to offer companies

of greater magnitude than those presented onshore,” he

strong synergies from which partners can benefit, especially

says. “There are still many onshore opportunities that

in the area of local knowledge. “The fact that we have three

have not yet been put on the market, and that is a lost

blocks with two fantastic operators means that our strategy

opportunity.”

is working,” he says. “We are very proud of what we have accomplished and we want to continue combining our

According to Galvis, onshore can result in production faster

strengths.”

than offshore, which is what the country needs right now. “Mexico has to ramp up production as soon as possible.

Galvis says the three awarded blocks were carefully selected

The fact that we have many onshore fields close to existing

due to their huge potential. “The blocks are located in a

infrastructure makes them even more attractive,” he says.

prolific, underexplored and underdeveloped area,” he says.

“We need the authorities to work faster to bring these

“The fact that the Talos-Sierra-Premier consortium and our

opportunities to the market so companies, and the country,

partner ENI have already discovered oil is a confirmation

can take advantage of them.” Galvis says Citla is looking with

that the area has a great deal of value to offer.”

interest into both onshore and offshore, be it via bidding rounds or through farmouts with PEMEX.

Experience includes both ups and downs, and while Round 2.1 was a big success for Citla, Galvis recognizes that Round 1.3

Farmouts have long been cited as one of the best

also offered useful lessons. “During that round, the balance

mechanisms to get the state enterprise back on its feet,

between winning a bid and making money was broken,” he

and Galvis explains how important it is to help PEMEX

says. “Some companies had to withdraw from signing their

reach its goals. “A key success factor in the Energy

contracts once they got fields awarded, as those contracts

Reform is PEMEX’s transformation,” he says. “As the

were not viable at such high bidding variables.”

biggest player in the country, if PEMEX is successful, the Energy Reform is successful, and we should aim for that.

While this is certainly bad news for the companies,

There is no scenario whereby PEMEX does not succeed

he highlights that it is also bad news for the country.

and the country does.”

117

VIEW FROM THE TOP

WORK STILL NEEDED TO KNOW STATE OF INHERITED FIELDS JAVIER ZAMBRANO Executive Director of Jaguar E&P

118

Q: What main challenges do onshore operators, such as

down payments because we have more money but because

Jaguar, face in the Mexican market?

our expert team saw a value in the fields that was comparable

A: The top two challenges operators face in onshore fields

to the down payment we offered. The fact that we invested

are dealing with security and with communities. To handle

in an oil field in the Caribbean last year also helped a lot. This

the community aspect, we become closely involved in the

investment has been a good experience and helped us learn

social issues of the communities in which we work. As each

and get some boots-on-the-ground experience, which was

community has a different set of needs and concerns resulting

helpful for the bidding processes where we won the 11 blocks.

from our operations and as there is no specific pattern to

Still, in terms of capital commitments, we are 99 percent

follow when dealing with them, each area represents a

focused on Mexico. We developed a very good partnership

different challenge. We follow the guidelines established by

with SunGod from the beginning, and that will make us

international best practices by being respectful with all the

even more successful once operations start. Its experience

people we interact with, as well as with the landowners, is

in Canada is important, but one of the most significant

crucial. On the security side, when dealing with any kind of

characteristics SunGod brings to the table is that it is very

criminal activity that may be present in our areas of operation,

focused on costs and lean operations. That is an asset we

we follow procedures and recommendations that are put in

need right now, especially in the Burgos region where prices

place by our security consultants from top security firms that

and costs are important. Now that we have won 11 blocks we

showcase specific expertise in the areas we operate.

can apply economies of scale. The steep learning curve during the process also prepares us for the next rounds, with assets

A third challenge is the lack of information and the

already in place and the capacity to make strategic offers. In

inconsistency of information between sources. There is still

the first phase, our funding sponsor, Grupo Topaz, has pledged

a lot of work to be done before operators can get a final

a strong commitment to sign the contracts, start operations

sense of the true state of the fields they are inheriting, be it

and to continue at least until the end of 2018. As the projects

infrastructure conditions and availability, social components

are developed, the subsequent cashflow will continue funding

or environmental variables and potential damages.

our operations. The next phase implies focusing on strategic

Comprehensive data surrounding these key variables is critical

activities, such as appraisal wells in some of our operating

and even more so to have at hand for consultation prior to

areas and workovers in cash-flow attractive areas to put our

acquiring the blocks. Potential environmental damages need

business plan to the test. Once that part is done, raising capital

to be accounted for and by any means necessary avoid taking

will prove easier to fully develop our five-year development

operators by surprise. Although we consider these risks

plan. Capital markets, debt markets, public markets are all

in our economic models, it takes work and time to get to

under consideration to that end.

know the true state of things. The portfolio of assets Jaguar was awarded call for a case-by-case analysis. The process

Q: How is Jaguar preparing for operations in its 11 blocks?

is meticulous because we have to make strategic decisions,

A: The skillsets we require have changed completely and our

which is time and work that takes us away from of our true

priority is to attract the highest quality professionals from the

value-creating activities.

Mexican industry. We are working to assemble a regional staff that will bring local knowledge and expertise to our team,

Q: What was Jaguarâ&#x20AC;&#x2122;s strategy to win 11 blocks in Rounds

such as local operators and maintenance crews who know

2.2 and 2.3?

the assets and the land. We are moving to get this done as

A: Jaguarâ&#x20AC;&#x2122;s solid team of geologists, geoscientists and

quickly as possible. We have found quite a good regional offer;

reservoir engineers allowed us to obtain an accurate and

there is a sufficient and robust number of Mexican companies

conscious evaluation of the assets, which is crucial when it

that offer national products and services. The true problem is

comes to crafting winning offers. We did not offer bigger

not finding them but quantifying and reporting the national

content and complying with the required documentation.

Q: What kinds of companies are best suited for Jaguarâ&#x20AC;&#x2122;s

That will take a lot of time. Jaguar is also open to developing

procurement system to add value to its supply-chain?

partnerships and alliances with service providers and other

A: There is a pool of companies we are paying close attention

operators that want to co-invest alongside Jaguar, and

to. Some have experience operating gas fields, others are

although we will gladly hear them out, we will also be very

service providers that developed a business with operators

cautious when deciding who can offer a higher added value

that own the fields, while others are companies specialized

and operational expertise. .

in workovers or compression-system maintenance.

Q: How would Jaguar rate the work of the government

Our portfolio of assets calls for a case-by-case analysis

agencies to promote investment in the Mexican industry?

to best cater to particular requirements and determine

A: While the industryâ&#x20AC;&#x2122;s regulators have gone through

which providers of services and technologies are able to

considerable lengths in crafting a solid regulatory framework

provide the best solutions for each of the blocks. It is a very

inspired by global best practices, there is still room for

meticulous process, implying strategic, long-term decisions

improvement across the government agencies. We truly

on that front and we want it done right.

appreciate the willingness and openness of the latter in taking note of operatorsâ&#x20AC;&#x2122; feedback and acting on it. Streamlining

Q: What specific goals is Jaguar looking to achieve in the

the drilling permit obtainment process is among the most

near term?

noticeable advancements. Honorable mentions include CNH

A: Our primary focus is to solidify our operations in

and ASEA. Dealing so closely with them and their requirements

Mexico and ramp up production on the four out of

has also created the need to hire more personnel to deal

11 assets already operational as quickly as possible.

with the different administrative processes. Those resources

Drilling the most valuable exploration wells within our

used for administrative procedures take away from our core

awarded blocks is also among the priorities set for the

activities, and that is something we would like to avoid.

next couple of years. Jaguar E&P is fully determined to successfully tackle the inherent complexities of our plans.

The fact that the awarding mechanism changed to put a

Unconventionals are up in the 3.1 licensing round and

cap on royalties was a true tipping point for the industry. It

some modifications in the cost-recovery provisions were

was a game changer for the licensing rounds. The cap allows

implemented, which made sense given the high CAPEX

companies like us to actually invest in the development of

of the considered resource. As long as future rounds

the assets. The 25 percent royalty for the natural gas block in

continue carrying the idea of incentivizing investment

Burgos is comparable to the royalties offered in similar fields

and the mechanism works, Jaguar E&P will eagerly

in Texas, which makes the assets in Mexico competitive on

continue to participate in the following rounds.

the national and international markets. Another significant change is the opportunity to nominate blocks. That works to the benefit of both parties because it helps CNH invest

Jaguar E&P is a Mexican oil and gas exploration and production

less work in selecting the blocks. At the same time, it allows

company. It competed in Round 1, and won 11 onshore blocks

operators to show specific interest and to be prepared if the

in Rounds 2.2 and 2.3. As part of its strategy, Jaguar has also

blocks they nominate are included in a round.

deployed capital in Latin America and in the Caribbean

119

VIEW FROM THE TOP

A PURE MEXICO PLAY FOR INVESTORS IAN TELFER Chairman of the Board at Renaissance Oil

120

Q: How did your experience with mining giant Goldcorp

we put together was of the highest quality and could

influence your decision to co-found Renaissance Oil?

really bring a benefit to Mexico. Then it wanted to make

A: Goldcorp has had a positive experience in Mexico.

sure that financially we were going to be able to live up

We have been here for 15 years and over that period

to the commitments that we would have to make going

we have invested over US$2 billion. We have bought

forward. We were able to get through all of that with the

some exciting mines and have spent a lot of money to

government and then got involved in the first onshore

expand and modernize them. We have also built two

licensing round over two years ago. That was an incredible

mines from scratch from ore bodies that we were able

experience because of the concerns outsiders had about

to acquire. Operating in Mexico, as in every country, has

Mexico privatizing its natural resources. It turned out to

its challenges but Goldcorp is very happy with how it

be the fairest licensing round anybody had ever seen. I

has been treated here. We think it is a great country for

have been involved in tenders all over the world in mining

foreign capital. The company can get its money in and

and I had never seen anything like it. There were plastic

out and it can get its people in and out, so it has been a

boxes, the rounds were broadcast live on the internet, and

fabulous experience.

the regulators opened the envelopes and announced the winner, with no privacy. It was spectacular and we were

Because of the success we had with Goldcorp and our

thrilled because this is the kind of tender that we could

experience learning how to operate in Mexico, when

participate in, knowing we were going to be treated fairly.

PEMEX announced it was going to launch multiservice or integrated service contracts to privatize some of its

There were 75 companies bidding on 25 blocks and we

activities in the oil and gas industry, we thought that

ended up with four. We were the biggest winner and

might be an interesting area for us to get involved in.

we were the only foreign winner. We won those areas

We set up Renaissance Oil specifically to gauge the

because we paid high royalty rates but we were making

market. The first thing we did was raise US$5 million and

a statement.

employed Halliburton, which has operated here for a long time, to help walk us through all the questions we had.

Q: What is the background of Renaissance’s strategy

Through that process, we learned what the government

for Mexico?

was trying to do and we thought it was a very exciting

A: We wanted the Mexican government and PEMEX to

time to be involved.

know we were serious. We really wanted to get involved in this recently opened industry, so it worked perfectly for

Q: Could you describe your relationship with the Mexican

us. Since that time, the privatization process has slowed

government during the process of entering the Mexican

down a little bit, which has been a challenge for us.

energy sector? A: The government wanted to know that the principles

We decided at the very beginning that we were going to

behind the company were credible and that it had

have a pure play in Mexico. We could have partnered with

experience operating in foreign jurisdictions. We certainly

existing oil companies in Canada. There are thousands

had that. It wanted to make sure that the technical group

of them in Calgary and many were interested. But our whole focus is here in Mexico and the rationale for that is that investors around the world are hearing about

Renaissance Oil is developing a high-quality, diversified

Mexico’s new oil and gas industry and wondering how

shale and mature fields portfolio for development in Mexico.

they can invest in it. At the moment we are the only way

The company comprises a group of world-renowned shale

to invest purely in Mexico’s hydrocarbons’ industry after

and financial experts

the Energy Reform. An investor with this focus will not

invest in ExxonMobil for example. For ExxonMobil, Mexico is a very small percentage of its revenues. Meanwhile for us it is 100 percent of our revenues. Now we are starting to see interest from the big banks in New York and some European investors want to know more about what we are doing. When talking to investors, Mexicoâ&#x20AC;&#x2122;s energy sector does not get that much publicity because the private sector is still so small and none of the companies are producing yet. For the moment all the activity is in exploration, which is great for Mexico. I had initially expected to get more credit for focusing solely on Mexico because that is a risky thing to do for a public company. I thought that we would get more traction out of our commitment to the country, but we keep working away. A big part of our strategy was always to be aggressive and to do what we can to help Mexico. We wanted to bring the best technical team in the world, and we have it; we were going to bring the best specialist in unconventional resources and we have him; and we have people willing to give us capital. But the process has been frustrating. When we decided to do this the oil price was at US$110/b and then it dropped to US$27/b. Trying to attract investors in the oil and gas business when the oil price was at US$27/b was a challenge but we had to raise more money to keep our obligations. Now everybody is feeling better with oil prices around US$50-60/b. Q: What is the perception of global financial markets and how has Renaissance Oilâ&#x20AC;&#x2122;s linkage to the Mexican hydrocarbons sector been received? A: It has been good but our lack of progress is making people hesitate. We won the blocks in Chiapas two years ago. These are tiny little wells but since their renovation they are doing a little better. We are producing oil but we thought that by now we would have been able to get involved in some of the blocks that have to migrate and to expand our business in general. We thought that was going to move much more quickly. Investors are cautious because they want to start seeing some progress down here. I think that there is a chance for a company to become a Mexican major and I want to try to achieve this for Renaissance. Our competition is these big companies for whom Mexico never will be a huge part of their production. By getting an early start, having access to capital and having credibility in Mexico, I think we have the potential to be the biggest Mexican oil company after PEMEX.

121

VIEW FROM THE TOP

AN EXPERIENCED PLAYER SEEKS MATURE OPPORTUNITIES ROBERTO MC LEOD General Manager of Petrolera Cárdenas Mora, a Cheiron Company

122

Q: PICO Cheiron won the Cárdenas-Mora farmout with

Q: How do you plan to increase production in the mature

PEMEX? Why is this significant?

fields you have in Mexico?

A: The Cárdenas-Mora farmout we won with PEMEX is

A: We have not yet introduced specific technologies to

groundbreaking because it is the first where production

increase production in the farmout, as we are just taking

is already present, while Trion, won by BHP Billiton, has

over operations. We are studying the field to evaluate

a fairly high exploratory profile and associated risks. We

which of our strategies could work best to increase

understand that being PEMEX’s partner is a little difficult

production and profitability. While some strategies have

because it worked individually for a long time so we have

already been identified, it is extremely important not

to find a way to create good synergies with the NOC.

to base final decisions only on information from a data room, but to conduct production tests and see what the

We recognize that PEMEX cannot change in one day.

well displays.

Fortunately, we have found PEMEX has been willing to work as part of a team, which will benefit both companies.

In the case of our CIEP in Altamira, we have already used

The NOC is open to working with us to find the best

the best well-engineering technology to keep the well

technology solutions to improve operations and to reach

balanced and to avoid damaging the formation. We are

optimal levels of production in the field.

also introducing a pilot project to inject vapor to increase the recovery factor of the well.

Te c h n i c a l l y s p e a k i n g , we i d e n t i f i e d a t t ra c t i ve characteristics in the Cárdenas-Mora block that made

Q: Why has PICO Cheiron not yet finished the migration

us comfortable with placing a strong bid. Officially, we

process of its CIEP in Altamira?

started operations as partners with PEMEX in Cárdenas-

A: When the CIEPs and COPFs migrations started we were

Mora on March 6, and things have worked very well so

one of the first companies to present the documentation

far thanks to the good communication between us. The

to PEMEX and to the Ministry of Energy but soon after,

block has great potential to become highly profitable for

and due to a change in strategy, we temporarily retired

us, PEMEX and the country.

from the process because we had other priorities. We

PICO 4 liftboat working at the Nohoch-C fixed platform, Gulf of Mexico

resumed our conversations with PEMEX last year and

Q: What impact would you like PICO Cheiron to have on

we expect to formally continue the migration process

Mexico’s oil and gas production?

in May 2018.

A: A single company cannot increase the country’s production. Now that the market is open, Mexico needs

Q: How would you rate the state of Mexico’s oil and gas

to allow the entrance of more companies so each can

production infrastructure?

contribute to increasing the country's production rate. In

A: Mexico is an oil and gas country. This has allowed it to

my experience, Mexico is taking the right steps to become

create an extremely experienced national industry. In the

even more competitive in the global oil and gas industry.

country’s key oil and gas states, there is a wide range of

It took it more time than it should to open the market, but

infrastructure in place to produce and transport oil and

now that the decision has been made, it must continue.

gas. While it is true that the infrastructure has grown old

By the end of 2018 we would like to win another block

and production has declined, this is due to economic

and finish the migration process of our CIEP in Altamira.

factors and technical aspects such as the natural

With that in mind, we would like to see PICO Cheiron as

depletion of a well, and not because of a lack of human

a fully consolidated subsidiary in the country. This goal

talent capable of handling cutting-edge technology. As

implies a great deal of work, but we are prepared.

a matter of fact, in Mexico almost all our employees are Mexicans and we are even looking to find more local

What would you recommend to the new administration

talent. We have also found in Mexico a strong value chain

to strengthen the country's oil and gas industry?

that has almost all the products and services we require.

A: The opening of the oil and gas market has been positive for Mexico. It must be recognized that Mexico

Q: How will PICO Cheiron use its Mexican operations as a

is going through a steep decline in production, and also

springboard to Latin America?

that we cannot expect to change the trend in one day.

A: PICO Cheiron wants to grow in Mexico. While the

The process of stabilizing production, and then increasing

possibility of expanding into Latin America exists for us,

it, will take time. Most probably it will not change in the

first we want to consolidate Mexico as our focal point.

coming five years. Mexico must therefore ensure that

That is why we created Compañía Petrolera de Altamira

the openness introduced by the Energy Reform does

five years ago to provide support to PEMEX via a CIEP.

not change, that institutions are respected and that investments are secure. The world has placed its faith

Q: Will PICO Cheiron take part in Rounds 3.2 and 3.3?

in the country. Mexico must ensure that faith can be

A: PICO Cheiron has a focus on shallow water and

translated into a profitable business that is good for the

onshore mature fields, and from time to time those with

companies and also for the country.

exploratory opportunities. At this point, we want to stay focused on mature conventional fields but we are also looking at the possibility of venturing into unconventional

Petrolera Cárdenas Mora is the Mexican unit of Cheiron

fields. That will depend on the outcome of the numbers

Holdings. It won a farmout contract with PEMEX for the

we run. For future rounds, we will follow this trend and bet

Cárdenas-Mora onshore block and it also became the operator

on fields where we can provide the highest added value.

of the block with a 50 percent participation interest

123

ROUNDTABLE

WHAT HURDLES HAVE YOU FACED AND WHAT HAVE YOU LEARNED IN MEXICO?

The opening of the Mexican hydrocarbons market left the door open for both national and international companies to explore and produce oil and gas in the country. Through different consortiums, or as lone players, IOCs, NOCs and independent oil and gas operators are bringing best international practices and long track records from around the world to untap as many opportunities as possible. Despite that experience, many companies must still undergo a learning curve to consolidate their foothold in the country. We asked industry leaders what they have learned, what challenges they have found and what are their expectations now?

124

The top two challenges operators face in onshore fields are dealing with security and with communities. To handle the community aspect, we become closely involved in the social issues of the communities in which we work. As each community has a different set of needs and concerns resulting from our operations, and as there is no specific pattern to follow when dealing with them, each area represents a different challenge. Being respectful with all the people we interact with, as well as with the

JAVIER ZAMBRANO Executive Director of Jaguar E&P

landowners is crucial. On the security side, when dealing with any kind of criminal activity that may be present in our areas of operation, we follow procedures and recommendations that are put in place by our security consultants.

There has been a lot of bidding activity but not much well drilling and construction activity. The only companies that have ever actually drilled wells are winners from Round 1.1 and 1.2: Talos Energy, Pan American Energy, ENI and ourselves. There is a lot of activity to come. I think a legitimate question is whether or not the regulatory process and the administrative process within government agencies such as the Ministry of Energy, CNH and ASEA can handle the volume of work that is coming.

MATT MCCARROLL President and CEO of Fieldwood Energy

There are many practical elements that have not been figured out yet. For example, as of March 2018 there are only two CNH-approved delivery points for oil offshore. It is hard for us to make the commitment to spend hundreds of millions of dollars developing a field until we are certain how we are going to sell that oil and where.

The first is human capital. With the improving oil price trend and the growth in activity levels as the Energy Reform gathers momentum, we anticipate a skills shortage in Mexico. There is definitely a gap in the country that needs to be addressed. Fortunately, we have also seen that the Ministry of Energy and other institutions such as AMEXHI and the British Chamber of Commerce are very interested in helping. It will take time, but it will happen. Another challenge is the capabilities of local

GLYN JONES General Manager of Petrofac

suppliers where we see a need for help. Lastly, land access and security at the fields is an issue. Negotiations with trade unions are complex for international companies and even more so when talking about communities, where in some cases we experience vandalism and blockages.

Generally, things have gone better than we could have expected. In our view, one of the most important efforts the Mexican government can make in the near future is to continue to help PEMEX reach its ultimate potential by removing many of its institutional obstacles and help it streamline its decision-making process. With a stronger, more entrepreneurial PEMEX, the entire industry would grow and flourish much more quickly. Other than PEMEX, Mexico needs to continue to strengthen its supply chain and service company capabilities to enable world-class operating performance in the country.

TIMOTHY DUNCAN President and CEO of Talos Energy

125

We have learned a lot about the regulatory process in Mexico, which is very different than in Canada and which has been a lot of work. The regulatory agencies here are very thorough and the process is all new to them. They are learning at the same time we are, so this process should become easier making it less expensive for us in the future. I think the regulators are going to figure out how to make their life easier by doing less work than they have been doing until now. Currently, they are doing a lot more work than regulators in Canada would do, and frankly in Canada the regulators work very well with the operators to create one of the safest oil and gas environments in the world.

STEVE HANSON Director of Tonalli EnergĂa, President and CEO of International Frontier Resources

I personally believe that for the reform to be successful many things need to happen, not just the development of a good regulatory environment, good regulators and good contracts. We need to have competition. We need to have a strong PEMEX and, in the case of the Mexican players, we need a very strong ecosystem of local companies. Up to Round 2.4 more than 60 percent of the contracts were signed by newly-formed Mexican players. Companies such as Sierra Oil & Gas, Citla Energy, Jaguar and PetroBAL that have ventured into large projects and higher risk areas employ many people here and our activities are essential to local development. We are committed

IVĂ N SANDREA CEO of Sierra Oil & Gas

to the country for the long term. We have capital and staff that comes from Mexico. We try to connect companies with capital providers when we see opportunities.

All three regulators have the right attitude and the competencies to build a strong regulatory framework. Having said that, we are all still riding the learning curve and there is still room for simplification regarding contract administration. There is much paperwork and many processes that could be simplified to help companies be more focused on safety and actual operations. Moving forward, the challenge will not be with ASEA, CRE or CNH but with the next tier of regulators. As soon as we start working locally in exploration activities, we will need to communicate with many more governmental entities that will also have to undergo this learning curve. The entire ecosystem is challenging and it will take more time to develop completely.

ALBERTO DE LA FUENTE Director General of Shell Mexico

CNH's repository for core samples

EXPLORATION & DRILLING

One of the most notable successes of the Energy Reform in the short term has been the increase in exploration activities by operators and seismic companies. The message that the government sent to the world was clear: Mexico must increase its exploration activities to reverse the decline of its reserves. That message was heard by the industry, and the results are evident.

One direct result from the licensing rounds is the 77 exploration contracts that have been awarded to operators. Meanwhile, up until May 2018, 39 authorizations for superficial recognition and exploration have been granted by CNH, 26 of them still active and 13 already expired. As of April 2018, there were an average of 13.5 drilling rigs for exploration, both onshore and offshore. Of those rigs, seven were present in the Gulf of Mexicoâ&#x20AC;&#x2122;s deep waters. While the country must be patient to see tangible results in reserves incorporation, the discoveries made in Zama, Amoca, Hokchi and Ixachi give operators extra motivation to dig deeper in exploration.

127

CHAPTER 5: EXPLORATION & DRILLING 130

ANALYSIS: Exploring New Areas, Without Forgetting the Familiar Ones

132

INFOGRAPHIC: Mexico’s Balance of Conventional and Unconventional Resources

134

VIEW FROM THE TOP: Oscar Roldán, CNIH

136

VIEW FROM THE TOP: Alma América Porres, CNH

137

VIEW FROM THE TOP: José Antonio Escalera, PEMEX

138

EXPERT OPINION: Craig Jones, Integral Consulting and InTELA2 Consortium Member

140

VIEW FROM THE TOP: Karim Lassel, CGG

141

VIEW FROM THE TOP: Kristian Johansen, TGS

142

VIEW FROM THE TOP: Bjørn Lindhom, EMGS

143

VIEW FROM THE TOP: Rossy Pérez, Beicip-Franlab México

145

TECHNOLOGY SPOTLIGHT: Beicip-Franlab: Local Partner Offers Global Consultancy Services

146

VIEW FROM THE TOP: Robin Ellis, Sercel

147

VIEW FROM THE TOP: Adán Oviedo, COMESA

148

VIEW FROM THE TOP: Javier Rubio, Geoprocesados

149

INSIGHT: Sujata Venkatraman, Dynamic Data Services

150

VIEW FROM THE TOP: George Liszicasz, NXT Energy

151

VIEW FROM THE TOP: Scott Hammond, Bell Geospace

152

VIEW FROM THE TOP: Alejandra León, IHS Markit

153

VIEW FROM THE TOP: Philip Souyris, Seadrill

154

VIEW FROM THE TOP: John Lawrence, Petricore

156

VIEW FROM THE TOP: Yosafat Esquitín, Welltec Mexico

157

VIEW FROM THE TOP: Tony Solis, TSC Offshore Group

158

VIEW FROM THE TOP: Mauro Hoyer, Liquidación Ventas Industriales

159

COMPANY PROFILE SEAGA DRILLING SERVICES

160

VIEW FROM THE TOP: Scott Thetford, AGR

161

INSIGHT: Reinaldo Maldonado, Impact Fluid Solutions

129

ANALYSIS

EXPLORING NEW AREAS, WITHOUT FORGETTING THE FAMILIAR ONES Mexico’s attractiveness as an investment destination for oil and gas activities is clear. Amid declining reserves and production, there are also opportunities to perform data acquisition and reprocessing. Regulators, meanwhile, are working hard to keep pace

130

Mexico has suffered a steep decline in its oil and gas

Mexican oil and gas industry still has a way to go before it

reserves. From 2013 to 2017, 1P, 2P and 3P reserves have

really reaches maturity and is able to reverse the negative

decreased by 33, 36 and 41 percent to 9.16, 16.76 and 25.85

trends. “To reach a transition stage, reversing trends in

billion boe, respectively. Production has also dropped, but

reserves restitution and drilling activities is vital,” he says.

at a lower rate of 17 percent to 1.11 billion boe in 2017. The

“For that to happen, the field development plans of blocks

national 1P reserve-production ratio went from 10.2 to 8.2

awarded in the licensing rounds must be carried out, and

years, meaning a drop of 19 percent in 1P reserves. If these

the continuous launch of new rounds is crucial.”

values continue to fall at the same pace, the ratio could decline to 0.91 years of reserves by 2057. The decline

Onshore E&P is an area in which PEMEX has a long track

is even steeper when looking at the ratios of 2P and 3P

record. Because of that, onshore rounds have focused

reserves, which dropped by 21 and 29 percent, respectively.

on activities that involve production in mature fields and exploration of new ones. PEMEX’s expertise in the onshore

OPPORTUNITY

area is highlighted by the NOC’s announcement of the

With this in mind, the government has set the country on

biggest onshore oil discovery of the last 15 years at the

a track to stop the production-reserves decline. Pedro

Ixachi-1 well, located in Veracruz. In September 2017, it was

Joaquín Coldwell, Minister of Energy, is confident that the

believed that the Ixachi-1 discovery could contain up to 1.5

discoveries coming from the licensing rounds will help

billion boe. As of May 2018, it was reported that the well had

Mexico reverse the decline in its reserves. “The blocks

a certified total of 97 million boe, 201 million boe and 366

awarded in shallow water during Round One have already

million boe in 3P, 2P and 1P reserves, respectively, of which

provided the first private discoveries from ENI and the

over 50 percent corresponded to natural gas. While a lower

consortium conformed by Talos Energy, Sierra Oil & Gas

bet has been placed during the rounds in these fields, their

and Premier Oil, which announced the discoveries of up to

potential is still high. As reported by CNH, discovered onshore

4 billion boe,” he points out. Nevertheless, Joaquín Coldwell

fields in Mexico are, on average, three times larger than those

also says it will take time for the country to see a significant

in Colombia and four times larger than those in Brazil.

change, which is an inherent result of the long time frames of the oil and gas industry.

Offshore has also already proven itself as an attractive opportunity thanks to the significant discoveries of Sierra

Bernardo Cardona, Partner and Resources Industry Leader

Oil & Gas and ENI International with the Zama and Amoca

at Deloitte Consulting Mexico, also believes that the

wells. In recoverable reserves, offshore fields have an

OIL RESERVES AND ANNUAL PRODUCTION (million b/y) 35,000

1,000

28,000

800

21,000

600

14,000

400

7,000

200

2013

2014

2015

——Annual production

*2018 Annual production projected based on information until April 2018 Source: CNH

2016

2017

2018*

average recovery factor seven times greater than that of US fields and two times higher than that in Brazil. The potential in the country is reflected by the fact that during the rounds 132 well have been committed, 67 of them onshore and 65 offshore.

PREPARATION Before wells can be drilled, seismic data needs to confirm that there is an attractive potential discovery. In Mexico, the underdeveloped Gulf of Mexico, together with the big opportunity for reprocessing seismic for onshore areas has become a magnet for investment.

“

The field development plans of blocks awarded in the licensing rounds must be carried out, and the continuous launch of new rounds is crucial” Bernardo Cardona, Partner and Resources Industry Leader at Deloitte Consulting Mexico

As proof of the potential present in offshore areas since

will not be interested in acquiring more onshore seismic

2015, 332,050km of seismic data have been acquired using

data and the onshore licensing rounds will not prosper

2D seismic technology via 10 authorized Recognition and

in Mexico.” He also mentions a possible way to solve the

Surface Exploration Activities (ARES). This has meant a

issue. “If we change the Reglamento, which is done by the

three-fold increase in the country’s 2D-seismic data of

President rather than by Congress, then onshore seismic

the Gulf of Mexico in the last three years, all of which is

data acquisition can move forward. This is essential for the

stored and available for consultation in CNIH’s archives.

success of future onshore licensing rounds.”

Meanwhile, two studies using Wide-Azimuth technology (WAZ) have been authorized to acquire 87,096km 2

CONTINUITY

of additional data, an amount that will quadruple the

With a market that just recently allowed the entry of

3D-seismic WAZ information held at the archives.

more players, Mexico has a great opportunity along the entire oil and gas value chain. But for the opportunities

Onshore seismic activities have developed at a slower pace.

to materialize it is crucial that exploration activities

According to Oscar Roldán, Director General of CNIH, this

continue. Considering that 70 percent of the 110 contracts

is not due to low attractivity but to legal hurdles. He says

assigned during the rounds are in the exploration phase,

that, while CNIH has granted many permits to reprocess

the continued development of the rounds can be seen as

onshore data, there have not been too many for new data

crucial to growth in the Mexican oil and gas industry. “We

acquisition. “The main factor making operators reluctant

need much more exploration activity to make sure that

to acquire onshore data falls into the legal arena, related

our reserve recovery rate increases and that we return

specifically to land rights,” he explains. “The Hydrocarbons

to levels of production that are in line with the needs of

Law specifies the rules for land use by PEMEX or

the Mexican people,” says Aldo Flores, Deputy Minister of

contractors. Only the last article includes superficial

Hydrocarbons at the Ministry of Energy. “We should remain

activities but it does not specify how geological and

committed, play by the book, respect local communities,

geophysical companies are allowed access to the land. If it

be as transparent as possible and, most of all, we must have

is not solved soon, geological and geophysical companies

full confidence in Mexico and its potential.”

GAS RESERVES AND ANNUAL PRODUCTION (Bcf/y) 65

2.5

2.0

1.5

1.0

2013

2014

2015

——Annual production

*2018 Annual production projected based on information until April 2018 Source: CNH

2016

2017

2018*

131

INFOGRAPHIC

MEXICO’S BALANCE OF CONVENTIONAL AND UNCONVENTIONAL RESOURCES

132

In what was a relatively stable period, from 2005-2013,

Thanks to an uptick in activity with the entry of international

the total amount of proven, probable and possible

players, major discoveries have already been made,

reserves in the country declined from an original 46.914

including the Zama and Amoca fields with as much as a

billion boe by only 5 percent to 44.529 billion boe. From

combined estimated 3 billion barrels uncovered. Adding

that point until the end of 2017, the country suffered a

this to the increase in the initiation of work programs, the

dramatic decline, with a 41.9 percent reduction to a total

country could soon stop and even reverse the declining

of 25.858 billion boe. The strongest impact in the period

trend in its reserves. Considering that over half of the

2013-2017 was on the amount of possible resources,

resources in Mexico are located in unconventional plays,

which dropped by 50.4 percent, while proven resources

the stakes are high for Round 3.3, the first ever licensing

declined by 33.9 percent.

round to offer unconventional resources.

PROSPECTIVE RESOURCES DISTRIBUTION

HYDROCARBON RESERVES IN 2017 Type of reserve by basin (million boe)

Probable

Proven

Possible

9,160 7,607 9,087

112.8

Burgos

billion boe total

198 158 90.2 Chiapas Fold Belt 0.7

46.6%

5.5 7.3

53.4% unconventional play

Convetional play

Southeast Basin 7,735.2 4,693.8

52.6

60.2

billion boe

5,128.2 Deepwater Gulf 63.5

PROSPECTIVE OIL RESOURCES DISTRIBUTION

101.2 1,003.8

69.2

Sabinas-Burro-Picachos 4.6

billion barrels total

3 5.8

54%

Conventional play

46%

Unconventional play

Tampico-Misantla 1,024

PROSPECTIVE GAS RESOURCES DISTRIBUTION

2,625 2,841 Veracruz

217.9

134.5 21.3

tcf total

11.3 0

2,000

4,000

6,000

8,000

35%

Conventional play

65%

Unconventional play

HYDROCARBONS BASINS IN MEXICO

133

Burro Picachos platform

Perdido fold belt

Veracruz

Campeche escarpment

Sabinas

Gulf of Mexico abyssal plain

Salina

Yucatan platform

Burgos

Tampico-Misantla

Southeast

Bravo salt

Mexican coastal range

Chiapas fold belt

Areas with prospective resources in unconventional plays

PROSPECTIVE RESOURCES Crude oil equivalent (billion boe) Province

Gas (Bcf)

Oil (billion barrels)

Conventional

Unconventional

Wet

Dry

Extra Heavy

Burgos basin

3.20

10.77

21,276.00

45,716.20

0.58

Chiapas Fold Belt

1.17

0.39

0.78

Southeast basin

14.42

1,430.20

5,111.70

0.89

1.94

6.99

3.28

Deepwater Gulf

27.98

26,236.70

18,205.50

1.29

2.18

10.17

5.47

Yucatan platform

1.78

310.40

1.22

0.34

0.15

0.01

SabinasBurroPicachos

0.40

13.95

6,674.10

62,263.30

0.60

TampicoMisantla

2.20

34.92

21,379.50

3,753.90

0.15

1.16

30.80

Veracruz

1.42

0.56

1,838.70

3,701.30

0.08

0.19

0.04

0.60

52.56

60.20

3.40

4.68

19.60

9.60

31.9

Total

Source: CNH

79,145.50 138,751.80

Heavy

Light

Extra Light

Unconventional

VIEW FROM THE TOP

PIONEERING SCHEMES OPEN DATA TO PRIVATE COMPANIES OSCAR ROLDĂ N Head of CNIH

134

Q: How is CNIH providing private companies with access to

created knowledge from the data we owned only for its own

the data it owns?

use, it would not improve the state of the industry as a whole.

A: Companies have access through one of two licensing schemes. The first applies to oil and gas operators. Through

That being said, while the first scheme is directed at operators

this scheme, operators have the right to use the information

for use in direct E&P activities, the second is directed at service

contained in each data package to study their areas of interest

companies focused on developing new business ideas that can

and to place their bids in the licensing rounds. The information

later be sold into the market. By allowing service companies

can also be used to improve a companyâ&#x20AC;&#x2122;s performance in

to create products and services using our historic data, we are

E&P operations. The second scheme stipulates that data be

creating a market for information. This is extremely important

used for commercialization purposes that are not directly

considering the relevance in terms of optimizing production,

related to E&P operations. Rather, the data should bolster the

which is usually aided by smaller companies that are focused

development of new products and services that will support

on these kinds of services. A perfect example is the shale gas

operatorsâ&#x20AC;&#x2122; activities and be sold on the open market.

boom in the US. Small service companies managed relevant data, created information and sold it to operators, who in turn

These two schemes are priced differently to incentivize the

used that to optimize their production without facing the risk

development of new business ideas. The second scheme

of venturing into the creation of knowledge by themselves,

offers the data at 2 percent of the cost of the first scheme.

which is not their core business.

If the data made available under the second scheme were to be sold at the same price as that for E&P operations, the

Q: How did CNIH arrive at the 30 percent royalty cost for

price would become a direct barrier for companies looking

the second scheme?

to innovate in the market. To ensure the country benefits

A: We implemented a project of well-log integration and set

from the value of the data provided under the second

a rate of return of 17 percent, which was then used to define

scheme at a lower price, there is a clause stipulating that if

the royalty rate. We are not yet sure how many products can

the data is successfully used for commercialization purposes

be developed from the information we own. We also cannot

then the company will pay a 30 percent royalty on the final

predict how profitable these products might become. Because

sale price to CNH. This approach is completely new in the

CNH is pioneering these schemes, there is no previous base

market, both domestically and internationally, making CNH a

to rely on or compare. The royalty may be high or low but we

pioneer. Essentially, we are opening the oil and gas industry

have to start somewhere. From there we will adapt according

while nationalizing the data, which is backed by Article 32

to market demand.

of the Hydrocarbons Law. This states that all the geological, geophysical, petrophysical, petrochemical and related data

Some may say that instead of a royalty on the final sale we

gathered by PEMEX throughout its history, or by any other

could have developed a production-sharing scheme. Doing

company in the past, present or future, belongs and will

that would mean CNH having to follow up the cost of each

belong to the nation, and CNIH will manage it accordingly.

individual product developed by the industry, therefore creating an administrative bottleneck that would end up

Q: Why has CNIH established two license schemes?

suppressing growth instead of promoting it.

A: Simply put, there was too much archival data for operators to digest and create the valuable analyses required to improve

It is worth mentioning that companies must register their

their knowledge and operations. We concluded that there

sales in Mexico for taxation purposes. To ensure this, CNH

had to be a way to analyze and digest the abundant data

will cross-check the sales information with that provided by

we owned, and then sell that knowledge as a final product

the Ministry of Finance. This will ensure that CNH receives its

that operators could use. We also noted that if an operator

proper royalty and also that taxes are paid in Mexico.

Q: Can you provide an example of a product that could be

you cannot be a serious regulator without embracing the

developed under the second scheme?

digitalized world. There is no way to perform our activities

A: One company already has authorization to calibrate and

in an efficient way if we do not go digital. We also want to

consolidate the well logs from 7,000 wells. The significance

create digital formats with which companies can submit data

of this product results from the fact that well-log studies are

in an already digital format by having something similar to the

conducted under a specific ray specter in which a study file

digital signature used by the Ministry of Finance. Doing so will

is created every 500m. If a well has a depth of 4,000m, eight

allow us to better manage the contracts internally. The future

files will be created. Usually there are 12 to 15 logs per well.

is paperless, and we plan to reach that level by 1Q19. We have

That means that up to 120 files can be created just for one

already established a path toward reaching that goal and are

well, which is already messy. Managing all this information

on our way to accomplishing it.

for 7,000 wells would be impossible for an operator but this service company will do just that and provide the created and

Q: How is CNIH working to encourage the development of

analyzed knowledge to the market. The product will probably

onshore areas in Mexico?

save up to six months of work for companies performing

A: CNIH has granted many permits to reprocess onshore

exploration activities. Creating the knowledge base for these

data but not too many to acquire new data. This is not

7,000 wells is just the first step. The company plans to analyze

due to the industry not being interested in onshore fields.

well logs pertaining to another 25,000 wells. We are also in

Companies are aware of the potential that exists in Mexican

the process of approving four companies to do geochemical

onshore fields. The main factor making operators reluctant

studies on drilling cuts owned by CNIH.

to acquire onshore data falls into the legal arena, related specifically to superficial occupation. The Hydrocarbons

Q: What other priorities does CNIH have in the pipeline?

Law specifies the rules for superficial occupation of the

A: The first is the re-tendering of the national data repository

land by PEMEX or contractors. However, only the last article

located in Monterrey. This includes managing the data center

includes superficial activities although it does not specify

and the platform to visualize and download all the data. It

how geological and geophysical companies are allowed

took one year just to develop the technical annex for the new

access to the land.

contract to be tendered. The second priority is the creation of the new core sample repositories. Finally, we want to make

This chapter of the law states that if you have a contract that

CNIH fully digital.

covers a surface area owned by five landowners, the operator will have to reach an agreement with each landowner and then

Q: What was the logic behind the new locations for CNIHâ&#x20AC;&#x2122;s

core sample repositories?

five landowners will need to have their land title deeds, or

A: CNIH has awarded the contracts to construct and operate

escrituras, in order, which is commonly not the case. For a

two core sample repositories, the first in Merida was awarded

contractor with a 30-year contract it is worthwhile to assist

to UNAM and to the Technological Institute of Petroleum and

the landowners in getting their land deeds in order to ensure

Energy of Yucatan (ITPE), and the second in Pachuca was won

the right to operate. For a company looking to acquire seismic

by IMP and UNAM. The companies will build storage centers in

data this is not a feasible option.

those locations and transfer all the cores previously managed by PEMEX into the new locations by December 2018. They

The constraint to seismic data collection is not that companies

will then be entirely managed by CNIH.

are not interested or that it is not commercially attractive, the only thing that is stopping such companies is the last

Both core sample repositories will be placed in science and

paragraph of article 117 in the Reglamento of the Hydrocarbons

technology parks for the benefit of the industry. While the

Law, and that is a big issue.

locations may not make complete sense now in terms of key oil and gas states and cities, the logic behind choosing

If we change the Reglamento, which is done by the president

them was the high investment those locations are receiving

rather than the Congress, then onshore seismic data

to become technology hotspots in Mexico. We visited several

acquisition can move forward. This is essential for the success

similar facilities around the world and concluded that the

of future onshore licensing rounds. We hope that this can be

true industrial and market successes were those placed in

changed before the end of term of the current administration.

scientific hotspots. Q: What is CNIHâ&#x20AC;&#x2122;s vision for its digitalization?

National Hydrocarbons Information Center (CNIH) is responsible

A: CNIH wants to digitalize the entire oil and gas industry in

for the collection, safeguarding, administration and publication

Mexico, especially in terms of regulation and administration

of the information obtained from Recognition and Surface

of contracts. When data is digital, it is manageable, and today

Exploration and the exploration and production of hydrocarbons

135

VIEW FROM THE TOP

TECHNOLOGY-INFORMATION RELATIONSHIP ESSENTIAL ALMA AMÉRICA PORRES Commissioner of CNH

136

Q: How would you assess PEMEX’s progress on its

to shed new light over some areas thought to be well-

assigned fields after it failed to meet some exploration

known in terms of their resource volume and production

commitments?

potential. Be it reprocesses or new data, the conferred

A: Based on PEMEX technical, operational, and financial

comprehensive visibility over our geology is comparable

capabilities the Ministry of Energy awarded it with 83

to new discoveries as some areas that were considered

percent of the country’s 2P oil reserves distributed mostly

near depletion showcased a longer production lifespan. In

in shallow waters and onshore; and few deepwater blocks

addition, technology has helped us by reducing uncertainty

where it had exploration activities, such as the Perdido area.

with new interpretations on possible new deepwater and shallow water wells. A comparable situation is occurring

These blocks were awarded for an initial three-year

in mature fields where high-tech have developed cost-

exploration period, with CNH reviewing PEMEX’s progress

efficient solutions.

on an annual basis. During last year’s review, PEMEX had a delay in its commitments. Several reasons for not reaching

Q: What is your assessment of the industry’s development

its exploration targets can be mentioned, ranging from the

based on CNH’s evaluations?

shortfall in the committed exploration budget, focalization

A: The industry is on schedule and moving at the

of investment on the most onerous wells, leaving some

right pace. It is crucial to provide PEMEX and private

blocks unattended and delay on the regulation guidelines.

operators with the right timing to come up with results. Be it upstream, downstream or midstream, each sector

Even though the delay, the Ministry of Energy gave PEMEX

is different and works under its specific time frame to

the two-year extension to come up with the exploration

develop successfully. Properly monitoring their growth

plan. This extension implied a shift in PEMEX’s strategy to

will be critical. We also must make sure that best practices

achieve at least one discovery per assignation. This goal

are being adopted. For instance, the Zama field has

seems difficult to reach; however, during 2017 PEMEX had

presented significant opportunities, and this could have

a 50 percent exploration success rate. Given this success,

pushed market players to rush and exploit its benefits, but

we are confident that the NOC’s goals will be meet. For the

the operators are moving prudently, assessing the field’s

2018/19 term, PEMEX will conduct exploration activities at

marketability and how to expand its contractual capacity

130 wells and we are confident that PEMEX´s production

beforehand, armed with a thoroughly and carefully

will increase.

outlined development plan. This strategy helped ENI and Hokchi Energy to double the expected initially reservoir

Q: How significant is the development of new technologies

size. Due diligence is being conducted before moving

to secure a sustainable industry?

to production. This is what will give us the maximum

A: Information is power, and the use of technology to get

production value and developmental sustainability

information is essential. The Energy Reform has allowed us

from all our wells and fields. PEMEX should follow suit

to acquire more in-depth knowledge and to exponentially

to obtain comparable results by distancing itself from a

expand our understanding of Mexico’s geology. For

long-standing tradition of hastily attaining production

instance, using new exploratory technology allowed us

phase without taking the time to comprehensively assess a particular oil field’s potential. The name of the game is oil field optimal management and CNH is working toward

Alma Porres has broad experience in geophysics and the

providing the regulatory framework and the development

technical aspects of the oil and gas industry. She was appointed

time frames to attain it. The success of the industry calls

Commissioner at CNH in 2010 and has been ratified for the

for maximizing the value of each of the country’s oil fields

2016-2022 term

with an efficient and effective lifespan.

VIEW FROM THE TOP

40-YEAR SEARCH ENDS IN IXACHI-1 DISCOVERY JOSÉ ANTONIO ESCALERA Director of Exploration at PEMEX E&P

Q: How important will the Ixachi-1 discovery be for Mexico’s

mountain range. It is now CNH’s responsibility to determine

oil and gas industry?

the best way to explore the region, starting in Tuxtepec,

A: The discovery at Ixachi-1 was extremely important for

Oaxaca, all the way to Monterrey, Nuevo Leon. There is

the industry. We have been searching for this prospect for

definitely an opportunity to find new reserves in the region

over 40 years. Between 1982 and 1983, we drilled around

but doing so implies large investments in seismic data and

10 exploratory wells in the hunt for this field, known as the

geological modeling.

Native Block of the Cordoba Platform. I started my work as a geologist looking for this and now it is my ultimate

Q: Is PEMEX planning to farm out Ixachi and other fields

responsibility as the head of exploration at PEMEX. Ixachi-1

yet to be discovered?

has the potential to become a giant field with over 1.5 billion

A: PEMEX has enough experience in onshore fields with

boe. We are already drilling two wells in the area: Ixachi-

HPHTs. Given the high economic returns these projects

1DEL, which will work as a delimitation well, and Cruver-

could generate for the country, we would like to develop

1EXP, which will define an extension of the field to the south.

them on our own before exploring the possibility of a farmout. As we move along with the exploration phase,

If we are successful with both wells, we will grow our

we will determine if we need economic or technological

national reserves significantly. Ixachi-1DEL will help us

support from third parties. So far, Ixachi-1 is already active

confirm our expectations for at least 350 million boe in

and producing approximately 10Bcf of natural gas and

the Ixachi field and Cruver-1EXP will allow us to determine

between 1,300-1,400b/d of condensate oil. We are in an

Ixachi’s extension toward the south. If both wells confirm

extended testing phase approved by CNH and have been

our forecasts, we could be talking about a field of over 1.5

producing since April 2018. Since it is an onshore project,

billion boe. We are very proud of this discovery, particularly

we have the advantage of being close to our infrastructure

considering we had not drilled in the area for over 25 years.

for other wells.

Moreover, this discovery is strategically placed, connecting the oil pipelines in the southern region of the country with

Q: Where would PEMEX invest if it ireceives more resources

those in central Mexico and the north.

from the Ministry of Finance for exploration? A: In 2017, we incorporated almost 1.2 billion boe/d as 3P

Q: What role did technology play in the successful Ixachi

reserves, which means we incorporated 100 percent of the

discovery?

produced reserves. We want to maintain that operational level

A: Technology played a huge part in this discovery. The idea

but to do that we need a budget of at least US$2 billion and

of the existence of a Native Block in the Cordoba Platform

most of those resources would have to go to PEMEX’s wholly-

was born in the 1940s; we drilled many wells looking for it but

owned shallow-water and onshore operations, mainly in the

without the right seismic data it was hard to find something

southeast basin. In deepwater projects, we need to prioritize

of significance. All the data we generated back then was

farmouts and share the risk of the operation. Through that

2D seismic captured with the technology of the time. Now,

strategy, we can wait for long-term returns in deepwater and

we are able to use 3D seismic technologies and algorithms

realize short and medium-term returns from shallow-water

to gather the correct data to create a better image of the

and onshore projects.

underground area and properly locate the block. We are collecting data from the northern to the southern parts of the region to determine the existence of more fields. We

José Antonio Escalera has over 33 years of experience in the

hope to make a discovery similar to the Cusiana field in

Mexican oil and gas industry. In 2011 he received the Miguel Ángel

Colombia. To achieve this, we are looking at the opportunity

Zenteno award by the Mexican Petroleum Engineers Association.

of exploring the entire front of the Eastern Sierra Madre

He has been the Director of Exploration at PEMEX E&P since 2015

137

EXPERT OPINION

NEW APPROACH PRODUCES SITE CHARACTERIZATION EFFICIENCIES CRAIG JONES Director of Marine Science and Engineering for Integral Consulting and InTELA2 Consortium Member

138

The offshore site assessments being planned and conducted

Integral, an integrated science and engineering services

in the Mexico oil and gas industry provide a unique opening

company with an emphasis in marine sciences, and

to employ methods that will maximize cost efficiencies and

several other companies, including engineering and

reduce project implementation time frames. Science and

science firm Tetra Tech and the social performance firm

engineering company Integral Consulting believes Mexico’s

Agile Sustainability Management, have established the

newly-developed regulations for initial environmental and

consortium InTELA2 to support the exploration and

social impact assessments offer an opportunity for subject-

development activities of Mexico’s oil and gas operators

matter experts to coordinate with the site development team

in the Gulf of Mexico. InTELA2’s core services include site

in the early stages of planning to determine the specific site

characterizations and assessments, where consortium

assessment data needed for initial and subsequent phases of

members say substantial savings can be found when

a project’s development. “Based on project experience from

companies integrate complimentary activities. In the

across the globe, we propose a consortium-based approach

world of offshore development, the activities associated

as a superior and practical way for the industry to access

with site characterizations have traditionally involved the

the experts needed to ensure technically appropriate and

independent collection of the geophysical, geotechnical

compliant, yet highly efficient, site development projects in

and metocean data necessary to develop an offshore

offshore Mexico,” says CEO Bill Locke.

production facility. Substantial savings can be accrued

BHGE's geoscience and petroleum engineering team, Mexico

in cost and time by the selective coordination of data

Thailand. The petroleum production projects covered

collection for the assessments needed for future activities.

more than 150 wellhead platforms, four new central

To achieve its goals, InTELA2 promotes effective

processing platforms and the installation of two floating

collaboration across technical disciplines and various

storage and offloading tankers. Other activities included

phases of site characterization.

regulatory assessments such as the Environmental Management Plan, ESIA, and ESHS. In addition, the

Recently, members of the InTELA2 team were involved

baseline survey and monitoring programs included a

in a project in the US Gulf of Mexico in which the initial

suite of water column and seafloor sampling, with special

site characterization was modeled after protocols used

sampling requirements that included sediment profile

for international Environmental Site Impact Assessments

imaging and vibracore sampling. Using a consortium-

(ESIAs). Soon after the Deepwater Horizon accident, the

based framework, an expert team developed technical

operator needed to conduct two ESIAâ&#x20AC;&#x2122;s for development

guidance for the ESIA process that resulted in regulatory

planned at the site and made the decision to do a full

approval of numerous site assessments over the course

ESIA. Accessing the existing datasets from the initial site

of 10 years.

characterization process allowed the team to effectively characterize the benthic community that forms a

The establishment of a strong relationship between the

fundamental component of the ESIA.

industry and the regulatory community resulted in the development of successful standards. The development

The operator enjoyed significant time and cost savings for

and use of new methods for sampling and analysis helped

all follow-on environmental impact assessments by getting

to effectively communicate complex scientific results to a

the environmental experts and the site development team

wide audience of interested parties and decision-makers.

together early in the exploration and development process to determine what datasets would be needed for the initial

These lessons are directly applicable to pending offshore

and subsequent ESIAs.Â

activities in Mexico, and will lead to synergies such as optimizing data collection across disciplines, developing

Over that last decade, members of InTELA2 also prepared

combined sampling plans, and consolidating reporting

a large series of regulatory assessments for offshore

activities to significantly improve overall project planning

oil and gas exploration and production in the Gulf of

and execution.

139

VIEW FROM THE TOP

COMPLEXITY IS A MARKET OPPORTUNITY FOR THE PREPARED KARIM LASSEL Vice President and Mexico Geomarket Director of CGG

140

Q: As CGG is celebrating its 30th anniversary, what has it

at that time. Today, the market is open to new companies

learned from this long experience?

and we are looking forward to offering such strengths to

A: Over the course of the last 30 years we have learned

them too.

how important it is to be close to the client, to understand market needs and to address them through innovative

Q: What challenges do you face when offering CGG’s

solutions. Many companies make the mistake of selling a

services?

service just because they offer it, and then try to fit the

A: In recent years the biggest challenge has been the budget

needs of the client to that service. Thanks to our track

constraints most operators have had. Large contracts have

record in Mexico, we have developed a deep understanding

been limited, although we have been successful in winning

of Mexican geologies and hydrocarbon provinces. Some

a few of them. When it comes to more modest contracts,

of our colleagues at CGG Mexico have almost 30 years of

the challenge is still the price, but here the perception of

seniority. Very few companies can say that. Our objective

the cost of geoscience services versus fields operations

in Mexico is to focus our activities on what really matters

has not always worked in our favor. Interestingly, the value

for the country, and right now that means cost-effective

of our services increases if clients look beyond the costs

and value-added products, such as multiclient services and

and focus on the benefits. We can compare the value of a

offerings.

geophysical project for the oil and gas industry to the value of an X-ray for medicine. Like an X-ray that shows what

Q: What differentiates CGG’s GeoConsulting services in

is happening inside a human body, a geophysical study

Mexico?

provides a clear image of the Earth’s subsurface structure

A: Through our GeoConsulting services, CGG has developed

and, for example, where to drill to maximize oil recovery.

a series of very specific and specialized workflows that

If we miss that optimal spot by just 500m because the

differentiate it from any other player in the market. In

geophysical study was not conducted properly, this can

addition, we have three main strengths. The first lies in the

potentially ruin a project, and exponentially increase costs

expertise of our senior staff who are located around the

to solve the problem. With this in mind, the critical role

world and on whom we can rely at any moment. The second

our services play in guaranteeing successful operations is

is our GeoSoftware business line that develops geoscience

obvious and they have become major tools for de-risking

software tools used by both our clients and GeoConsulting,

E&P activities.

and that are highly specialized to support the workflows we use to address our clients’ needs. Finally, with our broad,

Q: Where in the life cycle of a well or field should seismic

long-standing experience in the Mexican market, we have

studies be conducted?

gathered an inventory of over 250 studies of all the Mexican

A: Seismic can provide critical support at almost every

provinces, from onshore to shallow and deepwater. Six of

stage. Be it in the early stages of the exploration plan, for

those studies were multidisciplinary as they included all the

example, with 2D acquisition and processing to delineate

possible data available for those fields and can therefore be

regional trends, or at later stages in the field life cycle, for

considered as major studies. Those studies were developed

instance, with high-density and advanced 3D seismic to

for PEMEX, as it was the only company operating in Mexico

characterize reservoirs in detail and support asset managers for full field development plans.

geological,

Seismic data are highly valuable assets for an oil field

geophysical and reservoir capabilities to customers primarily

and their optimization can determine whether a project

in the global oil and gas industry, bringing value across all

is successful, or not. The secret is to always start with the

aspects of natural resources and exploration

end-purpose in mind.

CGG is

geoscience

company

providing

VIEW FROM THE TOP

SPREADING THE POWER OF DATA TO THE OIL AND GAS INDUSTRY KRISTIAN JOHANSEN CEO of TGS

Q: How significant is Mexico to your global operations and

tie extremely well with US plays that are well-understood by

what is your flagship project in the country?

certain oil and gas companies, whereas other areas present

A: Mexico has become an increasingly significant market

new and interesting geological challenges for explorers. We

for TGS since we carried out a major investment in 2D

have seen many discoveries by international companies and

seismic after the country’s opening to international players.

the overall interest from the industry is very good. Mexico

We acquired the largest 2D seismic survey ever performed

underwent a hectic time in 2015 because all the companies

in Mexico by a multiclient data company. This 186,000km

wanted to enter and obtain an early-stage understanding

survey, called Gigante 2D, covers the entire Mexican side of

of its geology. As things have evolved, everything has been

the Gulf of Mexico and is complemented by a 600,000km2

kept at pace and the country has provided great transparency

multibeam and coring survey. These surveys provide oil and

during the licensing rounds.

gas companies with a good regional understanding of the subsurface as well as hydrocarbon seeps and geochemical

Q: How does your data access contract with CNH add value

analysis. This represents a large investment for TGS and it

to your operations in Mexico?

is one of the biggest projects in our data library. TGS has

A: We have access to more than 30,000 wells from CNH,

undertaken the second-largest data investment in Mexico,

of which we have so far audited and digitized 3,000 in our

having made over 20 percent of all investment in seismic data

database to sell to our clients that are keen to invest in Mexico.

acquisition in the country so far. Our extensive and uniquely-

We see this data access as a great opportunity for TGS since

featured database covers pretty much all the basins in the Gulf

we manage 9 million well logs and associated data types all

of Mexico and we are pleased with the high interest that our

around the world. We deem our Mexican operation a great

Mexican database has raised among operators.

achievement based on the extensive interest we have received from other companies to obtain a better understanding of the

Q: What makes Mexico an attractive market for seismic data

country’s subsurface. Moreover, we have been impressed with

companies?

the approach from CNH, which has overseen a smooth and

A: The geoscience data industry was eager for the moment

effective process for new entrants into Mexico.

when the Mexican oil and gas industry would open up, and when it finally happened seismic acquisition occurred in

Q: What technology is TGS introducing into the market?

record time. Opening the industry to foreign competitors has

A: We offer many different products. Our greatest investment

been a great success for the Mexican authorities, since they

so far is a large-scale regional 2D survey, which includes long

attracted a great number of players into the Mexican market.

offsets for better subsalt imaging and long record lengths

We were skeptical about how things would evolve, bearing

for mapping of deeper structures. We process the seismic

in mind the country’s long-standing closure to foreign oil and

data using our supercomputer, which is one of the largest in

gas investors, but CNH and the other regulatory bodies moved

the world. We apply the latest imaging technologies, such

quickly and we have been impressed by how well they have

as broadband processing and multiple other techniques to

delivered on their plans.

address both shallow and deepwater environments. We are the only company with the capacity to provide a full regional

Q: How would you characterize Mexico’s geology?

view of the basins and our clients are taking advantage of that.

A: Mexico has quite an interesting geology, prolific basins and some challenges present in its deepwater areas that will certainly require large infrastructure investments moving

TGS is the world’s largest geoscience data company, known

forward. The Gulf of Mexico’s geology has both differences

for its asset-light, multiclient business model and global data

and similarities between the Mexican and the US sides,

library. The company has approximately 600 employees, with

which makes the market even more interesting. Some areas

its corporate headquarters located in Asker, Norway

141

VIEW FROM THE TOP

MAGNETIC SCANS FOR RESERVOIR SATURATION BJĂ&#x2DC;RN LINDHOM President of North and South America at EMGS

142

Q: When you present the data you reacquired from CNIH

in exploring, which is information they will probably not

for reprocessing, how do you explain what makes it special?

reveal for confidentiality reasons. When dealing with

A: Every oil and gas operator uses seismic studies for

one client, it will tell us where its interest lies. When

exploration but seismic has strengths and weaknesses.

doing multiclient studies, companies like ours have to

One of the weaknesses with seismic is that it is difficult

come up with excellent ideas, and potential clients may

to distinguish between a reservoir with low natural gas

express interest but very seldom will put their cards on

saturation and one with commercial saturations. Acoustically,

the table. This forces us to think more geologically about

they look the same but from an electromagnetic perspective

where we should focus our attention. Since we have a

they look very different. The difference between seismic

technology that is being adopted, another advantage of

and a controlled-source electromagnetic (CSEM) survey is

multiclient studies for us is that it enables us to generate

comparable to the way a doctor might prescribe an X-ray

examples showing how it works. When we worked for

or an MRI or both. CSEM is similar to an MRI in the sense

PEMEX, we relied on the few publications that PEMEX

that it is very responsive to fluids. Because exploration is

was comfortable with publishing as it wanted to keep

all about reducing risk, CSEM is complementary to seismic

this data to itself because it saw the market was going

rather than a replacement.

to open up. When we do multiclient studies we own the data and we can publish whatever we want. That is the

Q: What common threads can be found between Mexico

big difference.

and other contexts in which EMGS has operated? A: For this technology to be really valuable, certain

Q: How has the rise of multiclient studies changed your

coverage is needed to be able to show examples of how the

sales and marketing strategy?

technology responds in different settings. Mexico is now at

A: The sector is certainly moving very fast. Here in Mexico

a very similar stage to that in the Barents Sea about 10 years

our experience in the past has been totally different. We

ago, and this jurisdiction has been our biggest success; it

are using the experience of our Houston office because

is where we have generated much of our revenue. At one

the oil and gas industry in Houston was more open and

point we had a number of calibration points with which

multiclient studies are common there. Three to four years

we could show that the technology corroborated certain

ago, we were only working for PEMEX and in Mexico so the

discoveries and dry holes. Luckily with the data that we

industry opening has made a huge change.

acquired for PEMEX and have now licensed for reprocessing from CNH, we have around 20 good calibrations in Mexico.

Q: What was your impression of the last deepwater round?

We have a very good track record, especially in the Salinas

A: There is a lot of potential in Mexico, which is why the

basin, for example.

results of the last round were so good. At the moment, we have a multiclient project for reprocessing our data with

Q: What is the difference from a marketing perspective

a coverage of 16,000km2. We are considering bringing

of doing multiclient studies or working for a single client?

in a new vessel this summer that will hopefully work for

A: One obvious difference is that we have to rely on

both PEMEX and private companies. But the data that we

more companies to find out where they are interested

have for these types of rounds is what PEMEX originally acquired, which was mostly focused on the nonsalt areas. The licensing rounds on the other hand have included many

EMGS acquires and processes high-quality controlled-source

salt areas. For example, Shell has won many deepwater

electromagnetic (CSEM) and marine, magneto-telluric (MMT)

blocks that have salt formations and therefore we do not

data. It helps customers increase oil and gas exploration success

really have any data for those blocks. Our technology works

through 3D EM modeling, integrating and interpreting these data

best in nonsalt areas.

VIEW FROM THE TOP

PERFECT COMBINATION OF HIGH-LEVEL CONSULTING, RECENT TECH ROSSY PÉREZ General Manager of Beicip-Franlab México

Q: How have Beicip-Franlab’s priorities evolved in the oil

the industry. The potential applications are in the areas

and gas sector and what is its key value proposition?

of improved exploration success, advances to drilling and

A: Historically there were two separate companies, both

well completions and improving hydrocarbon recovery. Our

created by Institut Français du Pétrole (IFP), now Institut

model integrating consulting and software editing activities is

Français du Pétrole Energies Nouvelles (IFPen), in the

designed to maximize value creation for our customers. Both

1960s. Beicip was established as a consultant in upstream

our activities are renowned in the industry. We are perceived

for exploration and production and in downstream/refining.

as a noted discipline integrator. Sharing and working in close

Beicip helped countries like India and Indonesia design their

interaction with customers is key. We frequently integrate

oil and gas research centers. Franlab was created at the

our clients’ staff in project teams, which is probably the best

same time to provide reservoir services. Beicip and Franlab

way to share knowledge. Another way to communicate our

merged as a single company in the early 1990s. Today, we

know-how is to coach clients' junior staff directly in their

have one central office in France and affiliates spread across

offices or to provide technical assistance services.

the world. IFPen is our shareholder and we are managed like any independent company. We are dedicated to applying

Q: In which segments do you see the most potential in 2018

and distributing the cutting-edge technological solutions

and what are the company’s top priorities?

developed through IFPen’s research programs. We have

A: The deepwater and the offshore sectors have seen a

broad expertise in conducting integrated studies and we

significant adjustment in their cost potential. As a result,

are the only company capable of studying a field from the

we expect to see quite a bit of interest and excitement

analysis of its petroleum system to the improved recovery

around midsized developments in those areas. Areas such

of reserves.

as heavy oil and the oil sands also are interesting and will command more capital as we go forward. All our innovations

Beicip-Franlab México has been considered a strategic

are meant for international applications. For example, in the

consulting services company for PEMEX in Aguas Someras

last five years, we have developed considerable experience

Norte, in particular at the Cantarell complex, since 2006,

with deep offshore and subsalt exploration. This is a typical

and since 2009 for exploration, especially in support of

multidisciplinary integration issue. We have helped our

regional exploration strategies. In 2014, Beicip-Franlab

customers make major discoveries in West Africa, in subsalt

México helped PEMEX identify the quality of hydrocarbons

offshore Brazil, and more recently in the Gulf of Mexico on

contained in the hydrocarbon generation formations in the

both the US and Mexican sides. We have evaluated the

Mexican deepwaters of the Gulf of Mexico and to confirm

potential of shale and tight reservoir resources around

the new exploratory discoveries obtained with the Maximino,

the world and will continue working in areas like Algeria,

Supremus, Trion and Pep wells.

Argentina, Europe (including in France before the decision to ban fracking), Mexico, Siberia and the US. We have

Q: Why would a company seek out Beicip-Franlab México’s

developed original methods to quantify producible resources

services and where is your expertise most applicable?

in shale and understand “sweet spots” distribution. We also

A: We are focused on providing our clients the perfect

are developing new simulation tools for production from

combination of high-level consulting services and our most

shale, an issue which is today very poorly understood.

recent technology innovations to help them become more efficient in exploration and production so they can costeffectively unlock resources. Enhancing basin productivity

Beicip-Franlab is a leading independent petroleum consultancy

through technology breakthroughs will help lower the

and geoscience software editor in exploration, reservoir and field

costs of locating resources and producing reserves,

development, production optimization, process optimization,

thereby improving the global cost-competitiveness of

midstream-downstream studies and EOR solutions

143

TECHNOLOGY SPOTLIGHT

BEICIP-FRANLAB: LOCAL PARTNER OFFERS GLOBAL CONSULTANCY SERVICES Beicip-Franlab provides a comprehensive range of consulting

The capability to solve complex problems with multidisciplinary

and advisory services for the exploration and production

methods is the company’s greatest asset. Its permanent staff of

phases of any oil and gas asset. With methodologies that

experienced project leaders and technology champions have

offer tailored solutions to optimally match the objectives

a unique experience of combining multidisciplinary data sets,

of its customers and their operational constraints, such as

multidisciplinary models and implementing multidisciplinary

timing, budget and data availability, the company’s approach

workflows. The company also has a vast and constantly

is based on the combination of technical excellence in every

expanding experience, acquired in large part from its work

discipline, a superior multidisciplinary integration capability

in international contexts. A clear example of this interaction

and a corporate culture that respects innovation and curiosity.

and expertise is the study Pore Pressure Prediction from Basin

The company’s affiliation with IFP Energies Nouvelles, one of

Simulation of Heat and Fluid Flow: Application to a Realistic

the world’s largest independent R&D centers in the oil and

Earth Model in the Gulf of Mexico, developed together with

gas industry, has further allowed Beicip-Franlab to develop

the Society of Exploration Geophysicists Advance Modeling.

a strong sense of innovation. Beicip-Franlab’s track record

As pore pressure prediction in the Gulf of Mexico remains

attests to its capability to innovate for the benefit of its

critical for the exploration and development of hydrocarbons

customers. The company has, for the last 15 years, pioneered

resources locked in deep and variably-pressured reservoirs,

methods such as quantitative petroleum system analysis and

the study developed a compelling and realistic earth model

stratigraphic modeling in exploration, modeling and simulation

to understand in detail critical mechanisms that drive the pore

of production from fractured reservoirs, advanced seismic

pressure distribution in the Gulf of Mexico. The results of the

characterization methods, enhanced oil recovery, uncertainty

modeling were successfully blind tested with the overpressure

analysis in exploration and production, fast track and high-

profile from a well in the Gulf of Mexico, proving outstanding

added-value methods in process-refining, among others.

calibration in similar geological settings.

145

RESERVOIR SIMULATION AHM & UNCERTAINTIES The latest industrial truly multipurpose (BO, Compositional thermal, EOR, dual medium) reservoir simulator. Fully interactive, accurate physical formulation of multiphase flow PETROLEUM SYSTEMS ASSESSMENT & BASIN MODELING

(fractured reservoir, EOR). Powerful parallel computing algorithm, Versatile PVT package. Uncertainty Analysis and Fast Assisted

The reference software

AHM & Uncertainty Analysis

History Match (CougarFlow). Open to industry standards.

Reservoir Simulation

in Basin Modeling.

Stratigraphic Modeling

Best in class for thermal, pressure and multiphase oil and gas migration

MODELING AND PRODUCTION OPTIMIZATION OF NATURALLY AND/OR STIMULATED FRACTURED RESERVOIRS Characterization and modeling of fractured reservoirs from

2D Kinematic Restoration

Unconventional reservoirs

Optimization of Unconventional and Tight reservoirs

structural geology (TemisFlow,

Fractured Reservoirs

Petroleum System Modeling

geology to reservoir simulation (FracaFlow). Production

modeling whatever the

Advanced Seismic Inversion

KronosFlow). Innovative stratigraphic modeling

Well Log Analysis

(TightFlow).

at basin reservoir scale (DionisosFlow). Demonstrated effectiveness around the world.

SEISMIC AND GEOLOGICAL RESERVOIR CHARACTERIZATION Acoustic and Elastic Inversion (InterWell) Multidisciplinary 10 data processing and editing tool with a wide range of functionalities for geologist, Source: Beicip-Franlab

geophysists and reservoir engineers (EasyTrace).

VIEW FROM THE TOP

HYBRID SPREADS FOR SEISMIC EXCELLENCE ROBIN ELLIS Vice President of Sales and Marketing at Sercel

146

Q: How has Sercel coped with the industry downturn?

wireless systems is that there are no cables. The data is

A: When money is tight, operators spend on production

stored locally in the field unitâ&#x20AC;&#x2122;s memory and it is possible

rather than exploring for new fields. The fact that we are

to simply continue shooting or vibrating and gather all the

starting to see green shoots is encouraging. Our marine

data when the field units are picked up a couple of days

product range based on the Seal acquisition system and

later. The flexibility of nodal systems is also advantageous

Sentinel solid streamer has a very large installed base

when a spread is intersected by roads and rivers, for

and so we have enjoyed steady business through sales

example. With nodal there is no requirement to lay cable

of spare parts and replacement for attrition. On the land

across the obstacle.

side, we have sold more than 20 508X-Tech systems worldwide, a pretty good performance through such an

The disadvantage of nodal is that every box needs a

extreme downturn. That said, we still do not have one

battery, usually a lithium battery, which is fairly expensive

in Mexico but I am hopeful that will change over the

and has a limited lifetime. Between a third and halfway

course of 2018.

through the life of a system, operators will need to reinvest in new batteries. Taking into account that some systems

With traditional land acquisition systems, data is transmitted

have over 100,000 nodes, this is hugely expensive. Apart

via cable back to a central location, usually a recording

from batteries, another major disadvantage of nodal is that

truck. The other typical option for land-based acquisition

many of these systems, though not ours, are completely

is wireless nodal systems, which have become particularly

blind. This means data is acquired over a number of days

fashionable in North America. In the past, we have produced

or weeks before the field geophysicists can actually see

both types of products with our Unite and 428 XL systems.

the data. During that time, the sensors may be exposed to

As the name suggests, the 508 X-Tech is a new generation

rain, wind or vehicle noise, which can greatly compromise

hybrid of both these system types, cable and nodal. X-Tech

the data quality.

has been a success story for us and I think it will be an excellent tool in the future for Mexico.

The 508 X-Tech system is both nodal and cable-based, allowing data to be retrieved in real time along with real-

Q: What are the main advantages of such hybrid systems?

time quality control and monitoring. The 508 X-Tech also

A: What has been attractive about nodal systems to the

has the flexibility of nodal in that cable damage does not

contractors in the field is that they can often achieve higher

require production to sto nor are cables required to cross

levels of production compared to traditional cable systems.

roads and rivers.

In a big 3D survey there are tens of thousands of meters of cable out there, connecting tens of thousands of sensor

Q: What new technologies has Sercel introduced offshore?

points. If a cable is cut in the live acquisition portion of the

A: There has been a lot of discussion among different

spread, which often covers a very large area, production

environmental bodies about the potential effect of seismic

has to be stopped until the cable is physically replaced

surveying and air guns on marine wildlife. With that in mind,

because all the data is being transferred back in real time.

Sercel has produced its Quiet Sea Passive Acoustic Monitoring

This is, of course, time consuming. The attraction of nodal,

system (PAM), which allows the operators of seismic systems to adapt their activities when there are marine mammals in the vicinity. The beauty of PAM is that it is seamlessly incorporated

Sercel, a leader in the seismic acquisition industry, designs,

into the seismic acquisition system, taking advantage of the

manufactures and supports a full range of high-tech integrated

acoustic listening array that is towed behind the vessel anyway.

equipment for hydrocarbon exploration in land, transition zone,

While the operator is acquiring seismic data, the system is also

ocean-bottom cable, marine and downhole environments

listening for the calls and chirps of marine mammals.

VIEW FROM THE TOP

MISLABELED FIELDS OFFER OPPORTUNITY ADĂ N OVIEDO Director General of COMESA

Q: How did the downturn in oil activities in the last few

by investing in hardware, software and human talent.

years change COMESA and does this benefit its clients?

COMESA has also worked with these operators because

A: In the past, COMESA had a really strong relationship

even though they have strong financials, they still need

with PEMEX while also supporting its onshore seismic

people with deep knowledge and experience working in

activities. Five years ago, we launched a very aggressive

the local geology.

program to diversify our business and our client base. We started working with CFE and with private companies to

In summary, COMESA offers to its clients state-of-the-art

provide geoscience studies for the geothermal, mining

equipment related to seismic, deep knowledge of Mexican

and water-prospecting segments, and also have taken

basins and highly-experienced staff to support new

part in seismic processing and interpretation activities

operations in Mexico and help them achieve their goals.

in countries such as Brazil and Bolivia. Q: How is COMESA working to help PEMEX recover its We are completely transforming ourselves, changing

previous production levels?

our state of mind, because the market has completely

A: We are very interested in working with PEMEX,

transformed as well. It is not only the rules of the game

particularly in the fields it was assigned during Round

that have changed, but the entire game, and it will never

Zero. We know that most of these fields only have been

go back to how it was when PEMEX was the only relevant

developed with primary production techniques, and there

operator in Mexico. Now that the oil and gas industry is

are many other EOR techniques that can be implemented,

rebounding, we are deeply involved in providing services

such as using tertiary recovery technologies. In Mexico,

to new companies that won blocks in Rounds 1.3, 2.2 and

many fields have been mislabeled as mature. The real fact

2.3. To further expand our market opportunities, we have

is that many of these fields do not require cutting-edge

also started to complement our capabilities by providing

technologies to raise their production but simple standard

integrated solutions, from the beginning to the end of

EOR procedures, such as water injection. Mexico has

the exploration-production value chain, including seismic

around 600 fields, both onshore and offshore, and while

data acquisition, processing, interpretation, reservoir

only 50 fields provide around 70 percent of the 2 million

characterization and project evaluation. To be able to

b/d that PEMEX produces, approximately 80 percent of

provide all these services, we are looking to create strategic

these 600 fields have been marginalized for investment

alliances with companies that complement our capabilities.

because they were improperly declared mature fields. Some of these fields remained PEMEX assets after Round

Q: What added value does COMESA provide the Mexican

Zero and COMESA is eager to participate with PEMEX to

oil and gas industry?

revitalize and increase its production. PEMEX is focusing

A: COMESA has a deep knowledge of the Mexican market

on its best opportunities to be efficient. We want to

and industry. We know almost every oil basin in Mexico

collaborate with PEMEX and help it do just that. One

because of both seismic acquisition programs executed

of our goals is to take part in the farm-in activities that

for PEMEX and the many former PEMEX employees who

PEMEX will launch in November 2017.

are now working with us. Combining this experienced talent with state-of-the-art technologies and our very own processing center, makes us today the only service company in the country able to provide design,

COMESA is an oil services company, owned 60 percent

acquisition, processing and interpretation of seismic

by PEMEX and 40 percent by Schlumberger, with over 49

data at Mexican locations. Some operators entering

years of experience in Mexico and a broad knowledge of the

Mexico have created their own geoscience department

Mexican basins

147

VIEW FROM THE TOP

MOVING UNDERGROUND DATA TO THE CLOUD JAVIER RUBIO General Manager of Geoprocesados

148

Q: What are the main trends for Geoprocesados’ customers

and the block is already assigned to a company, then the

and how are you preparing to tackle them?

potential market is reduced to one company, namely the

A: In the last few years, data management for new operators

operator that won the block. In Mexico, the system differs

has emerged as a big opportunity. The amount of data

from the US, where there is a much larger pool of potential

that operators are receiving from regulators is massive.

clients. In Mexico, there are more long-term contracts so

Sometimes operators, especially the new ones, are not

we need to be very careful with the kinds of solutions

used to managing all this subsurface information and have

that we are offering and the timing. It is necessary to

difficulties because the data is very specific, with seismic

ensure profitability with the different players that want to

data, gravity data, magnetics, wells, maps, reports and a

participate in a licensing round.

lot more information. If the data is not properly managed, efforts could easily be duplicated. We have developed a

Q: In the context of the large number of blocks being

solution to manage all the subsurface data from operators

released for bidding in Rounds 2.4 and 3.1, how does that

under a cloud environment in partnership with a company

impact Geoprocesados?

in Norway. This solution facilitates access to all the

A: We are trying not to get distracted by the different

subsurface technical information, from anywhere in the

companies that are trying to enter the market. Our model

world, on any device. It is possible to graphically view the

is to be very focused on our existing clients, making sure

location of the blocks, wells and the status of a seismic

that they are receiving the best quality from us. Once new

study. Operators can even remotely access their seismic

operators have won their blocks then we start to work with

and other information and collaborate with groups in other

them, making sure that we are adding value in the specific

locations.

area they have won. We have the advantage of having worked in exploration in Mexico for over 20 years. We know

Q: To what extent are the multiclient ARES contracts

all the basins and the challenges that operators will face

working and what are the difficulties with this model?

in the different regions. When a new operator is launching

A: We believe that the market in multiclient seismic is

operations or planning to start exploration within a block,

very different for offshore than for onshore. The offshore

it is much more effective for us to approach it and explain

market is pretty well covered right now. We would like

exactly how we can add value to its process.

to focus on boutique solutions for onshore seismic that could add value for operators looking for more specific

Q: How does Geoprocesados contribute to PEMEX’s data

data and not just the typical imaging solution for offshore

processing, reprocessing and its field management?

projects. However, the way the ARES are legally structured

A: Our most important contribution is that we do not

means a company first must apply for an ARES permit and

consider ourselves purely a processing or an imaging

then do the seismic study. Care must be taken to match

company. We have a very large group of geologists,

this application process with the timing of the rounds,

petrophysicists and engineers working integrally with the

otherwise a study could be released after a block was

people processing the data. For us, the value is that from

already assigned. A study takes from six months to one

the start we approach the project with the client’s final

year to conclude. If that study is not marketed fast enough

objective in mind. If the client is planning to drill a prospect and focus on a particular type of reservoir, we start working with the seismic from the very early stages. We then involve

wide

the specialists further along in the project. They will work

processing,

with the data to address that operator’s specific needs. Our

interpretation and characterization studies, as well as data

approach with PEMEX is that we always see the projects in

handling of exploration and production information

an interdisciplinary and integral way.

Geoprocesados is experience

land

geoscientific and

marine

company seismic

with

INSIGHT

DIFFERENTIATING DATASET ALLOWS DEEP LOOK AT GULF OF MEXICO SUJATA VENKATRAMAN President of Dynamic Data Services

Exploration companies stand to be among the big winners

pioneering work, and those of the Yucatan basin on the

as a result of the Energy Reform. When searching for

Mexican side of the Gulf of Mexico, which the company is

hydrocarbons, the right data can make the difference between

analyzing. “The good imaging of the presalt on the dataset

success and failure. Dynamic Data Services believes it can

that we have makes me very optimistic,” says Venkatraman.

bridge the data gap in the Gulf of Mexico with its SuperCache

“I think there is significant presalt potential in deepwater

project. The project is designed to extrapolate characteristics

Yucatan.”

of the less-explored Mexican side of the Gulf from the more detailed studies on the US side to help companies understand

Dynamic Data Services is planning to offer this countrywide

basin-wide geodynamics.

information as a multiclient dataset, thereby bringing a relatively low-cost alternative for small and medium-sized

“SuperCache US is the only dataset in the US Gulf of Mexico

companies seeking to define where they want to explore.

that images the crustal architecture, which determines the

“We think that there are going to be a limitless number of

tectono-stratigraphy of the early depositional systems,

opportunities in Mexico. I think what we have seen up to now

thereby providing an understanding of the underlying

is just the tip of the iceberg,” says Venkatraman.

petroleum system,” says Sujata Venkatraman, the company’s President. “Because the US Gulf of Mexico has been a

Aside from the Yucatan SuperCache, Dynamic Data Services

historically prolific basin, exploration efforts have hitherto

has also been contributing to the understanding of the Perdido

taken a top-down approach. We wanted to create datasets

area. “Supercache is the only dataset that actually shows that

that provide an understanding of the early thermal history by

the Perdido crust is anomalously thick,” says Venkatraman.

imaging the basin architecture to reduce risks associated with

“We now know that it is thicker by several kilometers than

high-cost exploration.”

normal oceanic crust. We can now make the relationship as to why this crust is different and connect it to the enormous

Venkatraman says this gives the exploration company an idea

implications for optimizing the play potential for the future

of not only where the source rocks are and how prolific they

of Perdido as a whole.” According to Venkatraman, PEMEX

are, but also of the temperature regime guiding them, allowing

has already shown interest in the conceptual model behind

for the creation of macro views of the US Gulf of Mexico. “We

SuperCache, as has CNH. “CNH is supportive of this project

have been able to create a differentiating dataset that has

as it provides an increased geological understanding of

allowed us to look deep and understand the fabric on which

Mexico,” says Venkatraman. She praises the young agency’s

the petroleum systems of the entire Gulf of Mexico basin were

advances in Mexico’s new oil and gas environment. “I think

put in place. This has never been done before in the Gulf of

what it has put together and the direction it has taken is really

Mexico,” she says.

remarkable. It is not really getting enough credit for showing great leadership in making datasets available to the industry.”

Dynamic Data Services has complemented this mapping of the US Gulf of Mexico with vintage 2D datasets from the

Venkatraman emphasizes that more and better information

Mexican side. “We want to build this whole regional model that

available to build a comprehensive regional understanding

includes onshore, shallow water and deepwater Mexico, tied

of basins can have enormous consequences for new oil and

to the wells, but more importantly tied to that distinguishing

gas discoveries. “All these discussions of why some things

understanding we have obtained from SuperCache that will

will work and why some will not work is important,” says

allow us to import the deep-basin framework into Mexico

Venkatraman. “Building good regional models is absolutely

and then build this whole regional overview.” Venkatraman,

critical to achieving the kind of expansion CNH wants because

an astrophysicist, notes that there is a similarity between

ultimately the quality of the exploration defines the accuracy

the presalt formations in Africa and Brazil, where she did

of the drilling for operators.”

149

VIEW FROM THE TOP

PINPOINTING RESERVOIRS FROM THE SKY GEORGE LISZICASZ Chairman and CEO of NXT Energy

150

Q: NXT offers geophysical exploration services in the

from a combination of density and stress effects. Based on

upstream segment. How does your patented Stress Field

extensive observations and investigated correlations with

Detection (SFD) technology work?

other geological and geophysical data, SFD data has proven

A: SFD uses a reservoir-scale gravitational detection

highly effective in identifying potential hydrocarbon traps

method to rapidly identify and rank prospect-level leads

in a wide variety of geological settings, including thrust-

to focus exploration efforts, particularly in frontier and

fold belts, foreland basins, subsalt plays and extensional

underexplored sedimentary basins. It is an independent

regimes.

reconnaissance tool for analyzing the presence of a valid trapping configuration in a variety of geological settings,

Q: How did your proof of concept with PEMEX in 2012

such as structural or stratigraphic traps in conventional

develop?

exploration as well as anomalous fluid trapping conditions

A: The initial survey that NXT conducted for PEMEX in fall

in unconventional regimes, such as shale gas and tight oil.

2012 focused on two objectives. First, a “blind” test of the SFD system over areas with significant proprietary G&G

In general, porous rocks and the presence of fluid cause a

information, and second, identifying new prospective areas

decrease in bulk density, which will produce a gravitational

in the region. The survey area is geologically complex and

low. If more fluid is accumulated in a trap with high porosity,

covers the Salina del Istmo, Salina del Istmo Deep Gulf portion,

then the reservoir system becomes more homogenous

Reforma Akal Pilar, Macuspana basins as well as the Sierra

provided there is adequate permeability distribution.

de Chiapas area and the Yucatan Platform. The sediments

This results in greater spatial subsurface homogeneity. In

of these basins are terrigenous, carbonates and in some

addition, the redistribution of principal stresses also plays a

areas, salt bodies are present. The program was conducted

significant role in the development of subsurface conditions

in two stages; the first program of approximately 3,200km

associated with discontinuities. Investigations of gravity

was flown and PEMEX compared the initial results with its

gradients and stress changes have shown that there is a

proprietary data. As a result, an additional 750km of SFD was

physical relationship between the two at small scales and

acquired to increase data coverage within a particular area.

these changes can be detected using gravity as a proxy.

The PEMEX-conducted integration results show significant correlation between SFD anomalies and known hydrocarbon

The subsurface geological condition required for SFD to

accumulations. The designed lines crossed a total of 64

detect gravity field perturbations due to stress variations in

known hydrocarbon accumulations of various sizes. PEMEX

the horizontal direction is the occurrence of a structural and/

determined that SFD successfully identified 47 of these

or stratigraphic change with sufficient difference in elastic

known accumulations. These 47 locations represented over

properties. An important source of elastic variations is the

95 percent of the reserves flown over in the survey region. The

presence of trapped fluids. Other sources include faulting

remaining unidentified accumulations were largely isolated

or fracturing, over-pressure, major lithological changes and

features with linear extents below 2km.

basin boundaries; generally, all major discontinuities will evoke a distinct SFD response.The gravity field includes

Q: How does the use of SFD affect the possibility of

fine spatial-scale perturbations or distortions that arise

striking oil? A: According to various statistical reports, the exploration success rate for wildcat wells varies from 18 percent in

NXT Energy Solutions (NXT) offers a geophysical exploration

onshore exploration to 7 percent in offshore exploration.

service to the upstream oil and gas industry using its

Wildcat drilling success rates increased to greater than 60

proprietary and unique Stress Field Detection (SFD) airborne

percent in areas where SFD was used in conjunction with

survey system

seismic programs.

VIEW FROM THE TOP

MAPPING MEXICOâ&#x20AC;&#x2122;S OPPORTUNITIES SCOTT HAMMOND CEO of Bell Geospace

Q: How has Bell Geospace evolved and what opportunities

the velocity, and we put these components together to

do you see in Mexico?

get a different approach to the measurement and to

A: We have traditionally focused on our projects in East

identify different types of problems. A big chunk of our

Africa and Southeast Asia and in our recent success working

technology is developed in-house, with some partners

in unconventional fields in the western part of Texas, where

bringing their own experience to the table and looking for

we introduced a technological application related to static

niche applications.

correction and shallow hazard protection. We believe this is a product we could most easily bring to Mexico since

Q: What are some of the similarities you find between

this segment is still untapped in the country and we think

the Mexican geology and other places you have worked?

that our chances are good as an early market competitor.

A: We worked in Mexico before in a fairly large project

We have operated in the market for over 20 years although

with PEMEX and we realized that some parts of the

some companies still consider gravity gradiometry a new

geology were pretty similar to that of the US Gulf of

technology and are largely unfamiliar with it. This is where

Mexico. We see things that might be a different geology

we see opportunities to obtain clients and get more

but the same kind of imaging. Our group of geoscientists

companies to use our data, such as potential clients we

do pre-survey modeling and we can show examples that

might obtain in Mexico.

may be completely unrelated geologically but that pose the same types of issues. When it comes to the clients,

Q: Which projects would represent opportunities for you

we work with them to make sure we bring the expertise

in Mexico?

from the data side and the clients bring knowledge from

A: There has been a need for static correction for a long

the geologists to see where things would fit for them

time and that should translate to market opportunities in

according to their needs.

different areas, as normally happens all over the regions where we operate. We have a lot of deepwater project

Q: How do you see your market potential in Mexico

experience on the US side of the Gulf of Mexico, with

expanding over time?

significant examples for where the data has been used,

A: It depends on how the regulations shape the industry.

so we are confident that our footprint there will extend

As long as they are not overwhelming, and the market

to Mexico in both the exploration and development

does not become over-regulated, we can be a reasonably-

phases. There is a little bit of difference in the delivery of

priced data provider operating in the Mexican market. It

the technology but in the end, data is the same. Gravity

is encouraging to see new discoveries happening and

Gradiometry can enhance 2D seismic for companies that

companies moving in to see what they can do to make

are more budget conscious but there are also applications

the industry work here. Most of our previous work has

for companies with interpretation challenges with their

been with large IOCs but we have also done work for the

3D seismic.

majors, such as PEMEX and PETRONAS, so both represent an opportunity. We also have a global salesforce so we

Q: How is Bell Geospace contributing to the service

can get started by delivering all the necessities right to

value chain?

the customerâ&#x20AC;&#x2122;s door.

A: The value chain is open for all of us since there is such a dearth of information and as an experienced company we are fast when turning things around. We can get the

Bell Geospace acquires, processes and interprets Full Tensor

data, process it and provide answers quickly, presenting

Gravity Gradiometry data to explore for hydrocarbons, base

opportunities for us. Our technology is unique because we

metals, diamonds, precious metals and groundwater as well as

measure the density whereas seismic companies measure

regional geological mapping

151

VIEW FROM THE TOP

THE IMPORTANCE OF DATA FOR DECISION-MAKING ALEJANDRA LEÓN Director of Latin America Upstream at IHS Markit

152

Q: How is the merger of IHS and Markit benefiting the

Q: How do your clients measure their success when using

company’s clients?

your tools?

A: The merger between IHS and Markit has strengthened

A: IHS Markit excels in data collection and business

our product offering by uniting our expertise in the energy

analysis across the value chain. Our international

market and the financial sector, reinforcing our analyses of the

database covers every relevant aspect, from upstream

market’s dynamics. This new generation of products offers

to downstream. The company’s integrated project-

powerful and unique data analysis and management solutions

evaluation data service provides distilled information

with a simple treatment for indexing and information. On

on geology, costs, fiscal and regulatory frameworks, and

upstream operations and keeping in mind the coming

even benchmarking analyses for suppliers. Our experts

licensing round for unconventional resources, our tools help

in each field complement all these powerful tools. We

our customers make strategic decisions that go beyond the

help oil and gas companies assess and compare projects

assessment of reservoir exploration and optimization. Using

worldwide, so they can make the best decisions and

our tools, our customers can also feature sensitive decision-

strengthen their investment portfolios.

making factors such as the financial capabilities of each project and the required capital to materialize them. This

Q: What exactly is IHS Markit doing to provide off-the-shelf

integration has driven the quality of our analyses to a holistic

business intelligence for its clients?

level where all the important elements are connected to the

A: The recent success stories in Mexico regarding

inherent dynamics of the oil and gas industry.

significant discoveries of new reserves have made more companies see the country as a safe source of long-term

Q: What changes have low oil prices and the Energy

investments. At IHS Markit, we are collaborating with

Reform inspired in the oil and gas industry?

new companies in the Mexican market to provide them

A: During this long period of low oil prices we have seen several

with the best intelligence that allows them to plan and

important changes in the oil and gas industry, especially

execute their projects. Adding to our software solutions,

in terms of financial discipline and operational efficiency.

we launched Vantage, which will offer detailed valuations

The Energy Reform has attracted a reasonable number of

for more than 15,000 upstream energy assets around the

new investors despite a complicated global context, and

world. Using this suite, our clients will be able to access

more companies are looking to start operations in Mexico.

components that include geological details, economic

Some of the main drivers are the licensing rounds and the

models, contract analyses and financials; our regular

transparency behind them. Another remarkable component

analysis adds social, environmental and even political

of these changes are the business models offered by each

risks. Another important software that we distribute and

exploration and extraction contract, providing a unique tax

maintain is QUE$TOR, which provides detailed CAPEX

regime and legal terms that make them more attractive to

and OPEX cost estimates during the project’s life cycle.

operators. These changes, to mention a few, plus our ability

These economic models are focused on a regional

to compile and analyze information have helped our clients

analysis. The accuracy of this software allows users to

to make more informed and secure investments across the

make informed and precise decisions in each region

whole value chain of the oil and gas industry.

where they operate. Q: How is IHS Markit participating in the farmout process?

IHS Markit is a world leader in critical information and analyses,

A: IHS Markit has maintained collaborative conversations

with the expertise to forge solutions for the major industries

with PEMEX to help it manage its asset portfolio in the best

and markets that drive economies worldwide. It offers a

possible way. IHS Markit is providing tools that will help

360-degree view of risk, opportunity and financial impact

the NOC make the best and the most informed decisions.

VIEW FROM THE TOP

FLAGGING SAFETY AS A PRIORITY PHILIP SOUYRIS Former Senior Vice President, Mexico and Caribbean Region of Seadrill

Q: How is Seadrill paving the way toward deepwater drilling

when it required companies that were just exploring to have

operations in Mexico?

a high rate of local content. These companies were not even

A: Seadrill is a pioneer in Mexico’s deepwater operations. In

sure whether their projects would be economically feasible

2011, we became the first international company to provide

and yet they were asked to include a lot of local content in a

drilling services to PEMEX. As a pioneer, we had to lead

country that did not have the required market to provide for

by example, showing how to manage the different risks

it, greatly inflating prices. Mexico’s incremental approach to

associated with the operation as well as how to implement

local content requirements reflects the reality of the market

international best practices and standards. In 2013 and

and although there is work left to do, it was a very good

2014, we won five more contracts with PEMEX and in 2016,

start. I am confident that the required changes will happen

we agreed to provide ENI with a jack-up. Due to market

in Mexico, and that these will take place at a faster pace than

conditions, growth has been slower than we would like but

in Brazil because of the Mexican culture and the real push

nonetheless, we are developing our client portfolio at a

that the Energy Reform is providing.

good pace. Our clients have recognized that our standards are high and they understand that our emphasis on safety

An important added value Seadrill offers for operators

operations is an investment, not a waste. Seadrill places huge

entering Mexico is, in fact, its local content. We have more

importance on the training of its personnel. We train them

than 80 percent of local content in our fleet, from the vessels

not only in-country but also in important O&G hubs, such

we own to our supply chain, 70 percent of which comes

as Dubai, Norway, the UK and the US, so they can acquire

through Mexico. This is not only an added value in the

international experience and international best practices.

sense of local content requirements, but also for Seadrill’s

When we say we lead on safety by example, we mean it.

ability to get any needed service, product or tool faster

Seadrill has a safety baseline and if the operator refuses to

than its competitors. The licensing rounds have been harsh,

comply, we do not work with them. Of course, any additions

and companies must lower their baseline costs as much

to that safety baseline are welcomed.

as possible to ensure their financial sustainability. We are already doing this with our local supply chain, as well as

Q: How do you rate CNH and ASEA’s regulatory framework

with strategies such as delaying fleet delivery times. Another

when applied to real operations?

strategy was to consolidate purchases from several suppliers

A: CNH and ASEA have compiled a good set of rules based

into only one vendor, therefore increasing purchasing volume

on input from the industry, as well as information from other

for that vendor and decreasing the unitary costs of the

countries that have gone through a similar market-opening

purchased components through economies of scale.

process. Nevertheless, operators are still complaining about the bureaucracy and how it delays their activities,

Q: What milestones is Seadrill working toward in Mexico’s

with several months often required to receive approval for

oil and gas industry?

drilling. Considering that IOCs have delivered a time plan for

A: We have already become the biggest drilling operator in

operations, and that they are already deploying human and

the country, with an emphasis on efficiency and safety first

financial resources to comply with that time frame, a delay

in all our operations. We want to maintain that position, as

due to bureaucracy means capital losses.

well as to become the preferred provider for the industry.

Q: How can Seadrill help its customers reach their local content requirements in a highly competitive market?

Seadrill is a leading offshore drilling company with a versatile

A: One good example of Mexico’s push to foster growth in

fleet of 68 rigs comprised of drill ships, jack-ups, semi-

the industry is the lower local content requirement compared

submersibles and tender rigs for operations in shallow to ultra-

to Brazil. In Brazil, the government did not do a good job

deepwater

153

VIEW FROM THE TOP

DEDICATED TO MEXICO 100 PERCENT JOHN LAWRENCE CEO of Petricore

154

Q: As a multinational, how does Petricore function in

competitors were not willing to commit to investing on the

Mexico?

ground here. As a result, they must export their samples to

A: Our Mexico team mostly originated with Core Lab, the

an international lab, often in Houston, and it takes them a

largest core analysis company in the world. We left Core Lab

lot longer to get the results. Our competitors are not on the

in 2003, set up our own business and became successful fairly

ground with the client like we are. I think that is our biggest

quickly. We went into partnership with ResLab, a Norwegian

competitive advantage.

company that at the time was probably the second-largest core analysis company in the world. We built up ResLab

Q: How would you evaluate the learning curve regarding

Mexico until 2007 when Weatherford acquired ResLab. After

Mexico’s geology?

fulfilling our two-year commitment with Weatherford, we

A: We have been doing this for so long now, and have had so

left again and with our Norwegian partners from ResLab we

much experience, that we have a very broad knowledge of

created Petricore, which now has multinational operations.

the geology of Mexico. The biggest learning curve these days is actually dealing with the changes in the market. Today,

Petricore’s corporate office is in the UK and we have

there are some 150 potential clients whereas three years ago

subsidiaries in the US, Mexico, Colombia, Abu Dhabi and

there was only one. That is something our team is not used

Norway. Our biggest and most important operation is in

to. We have always worked for PEMEX but now the market

Mexico. Operations in the U.S. and Colombia work alongside

is much broader.

Mexico. The fully equipped lab in Abu Dhabi works alongside the digital rock operation being developed in Norway.

The biggest challenge is creating confidence so those clients believe in us. Many of these clients are used to dealing with

Q: What has been the main driver of Petricore’s success?

Core Lab, Weatherford and the big international companies.

A: It is a combination of management’s vision, keeping the

As a relatively unknown Mexico-focused service company, it

team together and the fact that we took our clients and

is a challenge to obtain their confidence, but I think that is

relationships with us. Our biggest success has been our

coming. We are doing relatively well. Also, there are many

ability to serve the market directly in Mexico, whereas our

people working in those companies now who we have known

for a long time because they have been in the business here

Wilcox formation. Our alliance partner is the recognized

working for PEMEX or other service companies.

expert on this formation, located in the US Gulf of Mexico. There are some 20 clients that are ready to pay to obtain

Q: What is Petricore's turnaround time for cores sent to

this study. It is all essentially ready, but we have been waiting

Houston compared to other companies?

for approval from CNH. We have another study for shallow

A: We estimate one month instead of three months. PEMEX

waters in southeast Mexico and another for shale gas in the

has two big core analysis projects, one with us and the

Burgos basin, all of which are being prepared with committed

other with a larger international competitor. According to

clients. I think once these studies become public knowledge,

the budget, the work is supposed to be divided 60-40 in

there will be a large demand for them. This situation is also

our favor but in reality, it is more like 70-30 because we are

good for CNH because our work will improve the data it

responding much more quickly than our competitor. The key

makes available to operators.

point is to make sure the quality of the service is at least comparable to that of our larger competitors.

Q: Are there any new technologies that you are introducing? A: We are promoting a technology for high-resolution

Q: How are multiclient studies developing as part of

interactive images, meaning clients can buy the image and

Petricoreâ&#x20AC;&#x2122;s business strategy in Mexico?

then use their computer to view the image as if they were

A: It has been complicated so far. First of all because CNH

looking at the rock under a microscope. In fact, the image is

did not fully contemplate this area and actually had to

even higher quality and clients can do this in an office at a

change the regulation to take multiclient studies of wells into

desk without having to travel. Without actually having to have

account. We are still struggling with the legislation and with

access to samples, these same images can be purchased by

CNH because even for simple things like selling multiclient

many clients, many times over. CNH has already announced

studies, the commissionâ&#x20AC;&#x2122;s approval is required. We can only

that this information will be available to operators.

sell to clients that are already registered with CNH and before we can sell the study CNH must approve it. But to do the

Q: What is the scope of your activities with PEMEX?

study we need a commitment from clients that allows us to

A: Our activities with PEMEX have traditionally been tied to

spend the money. We have a conflict there as we cannot

exploration. Globally, we have experienced more demand

collect money from the clients until we get approval from

from the production areas where we help search for

CNH and until we receive the approval, we cannot carry out

information on how to best design production systems. With

the study. It is a problem that we are addressing and we hope

PEMEX, our work traditionally has been with the exploration

to have our first approval soon.

department and exploration wells. They are always doing mudlogging and cutting cores.

Q: How would you evaluate the process of working with PEMEXâ&#x20AC;&#x2122;s core inventories, which now belong to CNH? A: We are in the process of putting those samples in good

Petricore is a multinational company that provides core and

order. There is a great deal of demand for information from

fluid analyses, mudlogging services and geological support

these samples. The first proposal we have is to do a regional

services and products to the oil and gas industry, helping

study of the Perdido area on the Mexican equivalent of the

prospectors gain complete knowledge of their fields

155

VIEW FROM THE TOP

TWO-PRONGED SERVICE APPROACH OPTIMIZES PROCESSES YOSAFAT ESQUITÍN Business Development Manager of Welltec Mexico

156

Q: How do Welltec’s solutions enable its clients to optimize

the usage of cleaning chemicals, which in some applications

their oil and gas processes and create cost-efficiencies?

are less effective than a mechanical solution.

A: Welltec provides two solution segments: mechanical services and well intervention for completion services. For

Q: Is there a difference when working with PEMEX and

mechanical services we provide state-of-the-art robotic

with private companies?

solutions deployed through wireline. These tools provide

A: We have not found any difference working with private

cost-effective solutions when it comes to well interventions,

companies or with PEMEX. Our services provide specific

from deployment on high deviated or horizontal wells,

solutions for exploration wells depending on the issues

to milling, cleaning, cutting or manipulating through

these wells present. Usually, exploration wells are for study

mechanical solutions. One of the preferred services in Mexico

and evaluation purposes only. Once they are drilled and

is our cleaning solutions that enable us to work without

tested, most operators tend to close them and move to the

shutting down production due to scale accumulation of any

next drilling location. When situations arise regarding a lack

external agent on the production casing. Our mechanical

of cementing adherence and unwanted fluids leaking into

services also provide for the reactivation of shuttered wells

the well, our customers rely on our mechanical services due

where there is still production potential. We have been

to our fast response and reduced cost.

awarded a Reconocimiento de la tecnología como major practica for the well tractor, well cleaner and well miller by

Nevertheless, Welltec relies on having a running contract

PEMEX for three consecutive years due to the performance

with operators. Some of the main issues we have found

and results of our services, which have broad and powerful

are that most operators do not have plans to invest in

applications for horizontal wells and unconventional

mature fields until mid-2018 and contracts with IOCs lack

pinpoint stimulations.

the consistent workload needed to make our services competitive.

Welltec has also developed a set of smart solutions for completion tools that provide a suitable combination

Q: How does Welltec balance development of fast-

of expandable annular barriers, flow valves and data-

response tailored solutions and cost-efficiency?

monitoring gauges to deliver and manage production

A: A big part of Welltec’s success is the development

performance from the different flow, pressure and

of new technologies based on the results of the close

temperature conditions of each well. This technology is

engagement that our technical staff has with our

better known as Flex-Well. It helps our customers to extend

customers. Almost all our products have been enhanced

the life of the well and reduce the number and costs of well

due to customer requirements; every tool has its own

interventions and workover activities. As a result, we can

characteristics, capabilities and applications. We also

help our customers achieve 30 percent more production

reduce risk, exposure and footprint with every service

in each well. More than just a cheaper solution, Welltec’s

we perform. Our operations crew only requires two

technologies can help reduce up to 70 percent of the total

people and neither heavy equipment nor contaminating

well-intervention costs, simply by eliminating workover rigs

materials to perform almost every service we provide.

or coiled tubing operations, as well as logistics costs and

Not only do we move faster than our competition but we do it with a complete set of tools and a knowledge base that allow our customers to reduce a considerable

Welltec is a downhole robotics technological solutions provider

quantity of downtime, particularly in the production stage.

that

well-completion

This perfect combination of technical expertise, faster

technology and intervention solutions, with the stated goal of

operations and versatile response is what makes Welltec

making the industry safer and more sustainable

stand out from its competitors.

focuses

reservoir

optimization,

VIEW FROM THE TOP

OFFERING HIGH-END SOLUTIONS FOR VALUE CREATION TONY SOLIS Vice President of International Sales and Operations at TSC Offshore Group

Q: What is TSC’s principal added value proposition for drilling

business. We have already delivered the major components

and oil field service companies?

for the first two rigs PEMEX required from us. Once they

A: Our main objective is to create value for our customers

are rigged up and start drilling, we will move on to the

by providing quality products and the best possible

third rig. These rigs were about 20 years old and we made

customer service. Part of this value creation comes from our

them almost like new by modifying certain components

competitive DNA: we stand below the benchmark prices for

without having to change the whole structure. PEMEX is

expendables, consumables and drilling goods in the market.

getting a sixth-generation rig at a much cheaper price and

The company was initially created to offer solutions in the

does not have to purchase new equipment. Once we get

offshore drilling industry and evolved to other branches in

these rigs up and running, other opportunities will arise.

oil and gas services, first in the Middle East and the North

We expect bigger doors to open when this delivery is

Sea and later expanding its operations to the Americas. It

completed within the next two years, creating a double-

is in our DNA to offer integrated solutions that boost our

sided success story, for PEMEX and TSC.

clients’ profitability and help them create value. Q: What elements make Mexico an attractive market for TSC? Q: How would you assess the company’s development since

A: Our CEO and co-founder has high expectations for

you started operations in Mexico?

Mexico and for our operations here. He made a calculated

A: In the particular case of Mexico, we have accomplished our

decision to venture into the country, to come and meet

initial targets for this market. Our revenues for the last three

partners and to open the market for us. We see big

months of 2017 and the first three of 2018 have surpassed

opportunities in providing PEMEX with rig components

our initial expectations. Part of this success is due to the cost-

and long-term offshore rigs.

effective products we offer and that they are positioned at the top tier of the industry. We outperform other brands in this

Q: What impact will the changes at PEMEX have on TSC and

field. Looking to the end of 2018, we expect a 35-40 percent

to the industry in general?

increase of our initial target.

A: The changes at PEMEX have been dramatic and a vast number of people inside the company have been

Q: What is the secret behind your successful strategy in

pushing for more. We remain true to our target to build

Mexico?

these business lines and to focus on our partnership with

A: We work under a triangular offering that starts with our

PEMEX. During our time here, we have seen revenue jump

service, goes on to our availability of products in the market

and this has made it easier to implement our expansion

and ends with the competitive prices we offer. When we first

plans in Mexico, to hire more people and to keep pushing

opened in Mexico we had a hard time attracting clients, mainly

the business forward. We have big expectations for 2019 in

due to the fact that people mistakenly saw us as a Chinese

terms of expanding our offices and labor force. On a general

company based on the Chinese investments present in the

note, PEMEX needs to revamp itself if it wants to make a

company. As time moved on and the first contracts came

difference in the industry. A wake-up call coming from the

along, companies recognized our fast response times and that

top of the ladder could positively impact the company’s

we delivered on time and in good shape. These three factors

health and operability.

prompted our success in this market. Q: How is your partnership with PEMEX strengthening your

TSC Offshore Group manufactures high-end equipment

presence in Mexico?

for offshore and onshore rigs, offshore integrated services,

A: From a project standpoint, PEMEX is our biggest source

offshore plug and abandonment and decommissioning work,

of revenue, although this is not the case for our day-to-day

as well as E&P oil block development

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VIEW FROM THE TOP

EXTRAORDINARY INCOME FROM IDLE ASSETS MAURO HOYER President of Servicios de Liquidación Ventas Industriales

158

Q: How does SLVI help its clients with their asset management

significantly, in some countries to one-tenth of what it used

problems?

to be at the 2014 price peak. There is an oversupply of used

A: It has been said that for any company at any time, about

rigs in the world and their price has dropped significantly. On

10 percent of the total value of its assets will not be used. For

the other hand, there are equipment and components that

example, KPMG did a study on how to improve the supply

are more generic, for instance electric pumps or generators.

chain in the energy sector and the analysis highlighted action

Such assets are more likely to preserve their value than more

points that included the mention of a very large company

specialized equipment. Our service is to try to help companies

that had decided to improve its supply chain to reduce costs.

to monetize the value of their assets in a timely fashion to

When the company started checking its assets, it discovered

avoid harsh devaluations.

it had US$1.8 billion of nonproductive assets. Q: Was the Mexican market in 2017 a buyers’ or a sellers’ The company started analyzing those assets and realized that

market?

about 20-30 percent had not been used nor even considered

A: There are a number of small or midsize companies entering

for use in the past five years, the equivalent of about US$400

the market but there is also an oversupply of services.

million that was either in warehouses or in yards. The first thing

We have come across companies with large quantities of

it did to improve its supply chain was to liquidate those assets

assets and equipment that are idle. Sometimes they have

and generate some extraordinary income for the company.

equipment that has not been used for two or three years. Mexico is a country that has an infrastructure for oil and

That is what our business is about; we are a specialized service

gas services with a capacity to produce around 3 million

company helping private and public companies to manage

b/d. Mexico is producing around 2 million b/d so there is an

principally their nonproductive assets in a cost-effective and

opportunity to recover from the oversupply in equipment

transparent manner. In some countries, companies must pay

and services.

taxes associated with the company’s assets. Assets may decline in value very quickly because they age and become

Q: How does Servicios de Liquidación VI help sell a

obsolete. If a company has equipment and does not use it, that

company’s assets?

can add up to 25 percent of the value of the equipment when

A: We do not take possession of any asset but rather work

storage, HSE and auditing are factored in, simply as a result

through a digital market called Network International in

of its presence on the worksite. I recently had a meeting with

the US, which is part of a holding company called Liquidity

a company manager here in Mexico. This company has two

Services that is listed on the NYSE. This listing lends a great

drilling rigs it bought around 2013 that have never been used.

deal of transparency to what we do. Through this alliance we

It is spending almost US$500,000 every year in maintenance.

can use this digital market to give our clients’ assets global visibility. Even the US, with its large secondary market for

Q: Do some assets depreciate more quickly than others?

assets, is not large enough. When a company tries to sell

A: Value is tied to the market. A good example is drilling rigs. A

assets on the secondary market it is different than when

drilling rig can only be used for drilling. Because of the oil price

trying to sell on the global market. If a company is selling

volatility, the number of rigs being used worldwide dropped

a vehicle in Mexico there is a local market. If a company is selling very specialized equipment there may not be a local buyer but there may be one or many somewhere else in the

Servicios de Liquidación Ventas Industriales (SLVI) provides

world. Another reason companies use our services is that

integral sales services and monetization of nonproductive assets.

although they have a procurement area, they do not have

It is owned by private enterprises in Ecuador and Mexico, and it

a liquidation area. Here is where our services add value to

has an exclusive alliance with the US company Liquidity Services

the supply chain.

COMPANY PROFILE

SEAGA DRILLING SERVICES Seaga Drilling Services is a business unit of Corporate Seaga

essential data like hydraulics, torque and drag analysis,

that was founded in 2001. The company's experience in the

graphical current BHA and top drive height.

Mexican oil and gas market originated with the 1979 boom and the Ixtoc-1 incident in the Bay of Campeche that includes

At our shop in Ciudad del Carmen, Campeche, we

Cantarell, Ku-Maloob-Zaap, Sihil and the Ayatzil-Tekel projects.

perform maintenance on our tools covering ISO 9001 requirements. All projects are delivered to specification

Our experience expanded with directional measurement,

and on time.

such as gyroscopes, single shot gyroscopes, Measure While Drilling (MWD) and other related services. Today, we have alliances with several North American companies, ensuring we provide the best technology and competitive prices. Our main strength is our people. We have more than 35

TECHNOLOGY • LWD (Logging While Drilling) • MWD (Measure While Drilling)

years of experience in directional drilling services in the

• PWD (Pressure While Drilling)

US, Mexico and in Latin America.

• Natural Gamma Ray • Drilling Mud Motors

Seaga Drilling Services' most important goal is to satisfy the needs of our clients, implementing systems that allow us to surpass their expectations with the highest quality standards

• Hydraulic Jars • Mechanical Jars

in each and every one of our products and services.

ADDITIONAL TOOLS AND SERVICES: We offer the best technology related to drilling motors, resistivity, PWD (Pressure While Drilling), MWD, gamma ray and jars. We offer lease services for our clients, including field engineers and any technical support needed.

• Well Planning • Real-Time Drilling • Steel Drill Collars • Steel Drill Collars

Some of our additional services are: well planning, realtime drilling and design software, allowing us to visualize

• Stabilizers • X-Over

Seaga's workshop, Ciudad del Carmen

159

VIEW FROM THE TOP

AFFECTING SUCCESSFUL OUTCOMES IN THE PLANNING STAGE SCOTT THETFORD Executive Vice President for the Americas at AGR

160

Q: What problems have operators participating in Mexico’s

graphically pull all that data together. We can implement

licensing rounds been grappling with?

that same framework in Mexico.

A: People are still learning and trying to unlock the key to success. They really need prior experience and knowledge

One of Mexico’s greatest strengths is that thousands of

to help facilitate the process because there is a lot to do

wells have been drilled. But managing that data can be

before and after the execution and evaluation of the blocks,

complex. CNH has worked extremely hard to compile that

aside from just winning the bid. I think some of the main

information. Our methodology takes it a little bit further.

challenges for many operators are the evaluation of the

It actually integrates the information behind the data to

blocks as they work through the data, understanding what

make decisions that are not necessarily intuitive by putting

can actually be extracted and what priorities to set.

different datasets together and making them equally visible. Decisions can then be made from that information. Now we

Q: How will AGR provide the best solutions for the coming

have methodologies that allow us to learn from a historical

opportunities for well engineering, construction and drilling?

and a planning viewpoint, as well as from the perspective

A: In my opinion, timeliness is becoming more and more

of ongoing execution. Furthermore, that data can be shared

important within the region. There is a new urgency to

with other people who are operating or drilling in the same

drill wells and people are now becoming more convinced

formation. We not only employ these tools ourselves; if we

that time is money. This has not been a strong motivator

can make them available to other companies then we can

in the past when companies had large budgets. We have

do so independently of our other services.

seen that in most NOC environments, where large budgets are in play, time becomes a secondary issue. Combining

Q: What are some examples of how AGR has impacted

technical execution with timeliness is where we see some

projects through the introduction of best practices?

of the greatest opportunities.

A: It all starts with pre-planning and evaluation. We believe that 70 percent of the opportunity to affect the outcome

Q: What role does your suite of software products play in

occurs during the planning stage. When evaluating

AGR’s strategy?

rounds and the winners, it is possible to see how they

A: Software is a key enabler, so most of our software, if not

were preparing their bid, putting their development plan

all of it, has been created from the need to execute processes

together, planning their maximum and minimum investment

quickly. I think software should be developed with an eye to

requirements and how many wells will have to be drilled to

learning from the experiences and the data generated by the

fully evaluate the prospect. In this way, winners can create

software. In this way, knowledge can be built up and reused

a strong, articulated strategy for the block by the time that

when a similar situation arises. We have had situations where

company’s bid is accepted by CNH. Our goal is to eliminate

our drilling engineers in Norway were spending two to three

unknowns to make the drilling portion as boring as possible.

weeks re-evaluating offset well information and finding that they were having to pull the same information again, maybe

Q: What do you think of the quality of the exploration

for a different department in a different group looking at

data in Mexico?

a different target. We worked with several companies to

A: It is interesting because it can seem almost like a core log with geological layers that weighed in at different times in the history of exploration in Mexico. The datasets

AGR is the leading management services company for well design

sometimes come in different outlets depending on the age

and drilling project management, HSEQ, reservoir and field

of the wells and the vintage of the seismic study. It is really

management for the entire field life cycle. AGR also provides rig

like looking at an archeological site. Some of the newer 3D

procurement, tailored training, software and technical manpower

seismic are world class by today’s standards.

INSIGHT

REDUCING RISKS IN MEXICAN FORMATIONS REINALDO MALDONADO Regional Manager, Latin America of Impact Fluid Solutions

Mitigating risks became a major priority during the recent

the world, he adds. “FLC 2000 has proven successful in

industry downturn. Now that commodity prices are starting

diverse formations across the globe, delivering remarkable

to recover, Reinaldo Maldonado, Regional Manager Latin

performance onshore and offshore, in both shallow and

America of Impact Fluid Solutions, cautions that companies must remain vigilant. As Mexico’s oil and gas industry sets its sights on new horizons, operators must continue seeking new ways to ensure their activities remain profitable by implementing solutions that minimize E&P risks, he says. “For deepwater projects, renting a rig can cost US$500,000 per day. Adding in all the satellite costs, a day of operations can reach US$1 million. Addressing risks proactively can save days of work, improving an operator’s bottom line substantially.” Considering that most of the oil and gas exploration areas

“

deepwater applications.”

We are nimble yet highly capable, enabling us to respond to changing marketplace needs faster and more effectively than others”

in Mexico require drilling work, Maldonado believes Impact Fluid Solutions can add a great deal of value for operators

According to Maldonado, Impact Fluid Solutions’ products

across the country that prefer to manage risks proactively.

are unique in the marketplace because they are purpose-

By preventing wellbore instability and preserving wellbore

built on proprietary chemistry to solve specific wellbore

integrity throughout the drilling process, he says, “Impact

challenges identified through extensive oil field experience.

Fluid Solutions’ advanced additives can help minimize both

Impact Fluid Solutions invests heavily in R&D to develop

fluid losses and nonproductive time. This not only provides

these innovative solutions and to ensure they are easy to

greater certainty to operators but helps them increase

use for operators, fluid companies and service providers.

ultimate recoveries.”

“Depending on the project requirements, Impact Fluid Solutions also offers expert field support to align lab

Impact Fluid Solutions takes a preventive approach to

diagnostics with real-world conditions to ensure optimal

addressing complex wellbore challenges, unlike those that

product performance,” Maldonado says. “While larger

wait for problems to occur and then remediate, Maldonado

service companies provide one-size-fits-all products,

says. That is how the specialty oil field chemical company is

Impact Fluid Solutions’ agility allows it to customize

able to add significant value to E&P operations. “Prevention

solutions according to specific job parameters.”

is the core principle behind Impact Fluid Solutions’ Wellbore Shielding and stabilization solutions, such as FLC 2000.

Although Impact Fluid Solutions is a relatively small company,

FLC 2000 is a drilling additive that forms an extremely

it has global presence. “We are nimble yet highly capable,

low-permeability barrier on the face of the wellbore to

enabling us to respond to changing marketplace needs faster

prevent fluid and pressure invasion in mechanically weak

and more effectively than others.” He points out that the

and depleted formations. The product has a lengthy track

company’s products are simple to use and tested by major

record in Mexico, where it has been used by PEMEX since

companies around the world, such as PETRONAS and BHP,

2006. FLC 2000 is Impact Fluid Solutions’ flagship product

which are now commencing operations in Mexico. “As they

in Mexico. It seals microfractures ranging from one to 250

expand into Mexico, it is natural for these companies to

microns, making it ideally suited to the country’s geology.”

seek a reliable partner that knows the country and that

Beyond the long track record FLC 2000 already has in the

has worked with them already. Impact Fluid Solutions is

country, it has also been used and its value proven around

that partner.”

161

Drebbel vessel off the coast of Tabasco

SHALLOW WATER

As the production levels of the two most important offshore production fields in Mexico, Ku-Maloob-Zaap and Cantarell, follow a declining trend, it is increasingly necessary to replace the continuous losses in production. With an average allocation rate of 64 percent of blocks in Rounds 1.1, 1.2 and 2.1, Mexican shallow waters have stood out as particularly attractive for the global industry. The significant discovery in Block 7, a reservoir containing more than 1 billion boe, assigned in Round 1.1 to Talos Energy in consortium with Sierra Oil & Gas and Premier Oil, is proof that E&P activities in shallow waters are off to a promising start. Furthermore, PEMEXâ&#x20AC;&#x2122;s activities in the southeast offshore basins are evidence that the NOC will remain an important player in Mexican shallow waters.

The combined efforts of private players and PEMEX will be crucial for the incorporation of reserves and to complement and reinforce long-standing efforts in the Gulf of Mexico.

163

CHAPTER 6: SHALLOW WATER 166

ANALYSIS: Exploration Successes Fuel Optimism

168

ANALYSIS: Major Discoveries

170

VIEW FROM THE TOP: Angélica Linares, Corporativo CEMZA

172

VIEW FROM THE TOP: Roberto Maury, Marítima Internacional

173

VIEW FROM THE TOP: Juan Pablo Vega, Naviera Integral

174

INSIGHT: Bruno Picozzi, Sapura Energy Mexico

175

VIEW FROM THE TOP: Antonio Villegas, Swiber Offshore Mexico

176

VIEW FROM THE TOP: Rob Bain, Paradigm Flow Services

Fernando Hernandez, Paradigm Flow Services

178

VIEW FROM THE TOP: Luis González, Drebbel

179

VIEW FROM THE TOP: Homero Guerra, ABS

180

VIEW FROM THE TOP: Manuel Flores, Taylors International

181

VIEW FROM THE TOP: Andrés García, Ampelmann Operations

182

VIEW FROM THE TOP: Alfredo Esquivel, Multiservicios Petroleros

183

VIEW FROM THE TOP: Cyril Petit, Serimax, Vallourec Group

184

INSIGHT: Jaime Zubillaga, MAN Diesel & Turbo Mexico

185

VIEW FROM THE TOP: Luis García, Gaeli Diesel

187

INSIGHT: Enrique Martínez, SOT Inc.

188

INSIGHT: Manuel Mariscal, O&L Offshore

189

VIEW FROM THE TOP: Javier Dávila Bartoluchi, Energía Integral

165

ANALYSIS

EXPLORATION SUCCESSES FUEL OPTIMISM Some of the major offshore discoveries in the world have taken place in shallowwater Mexico. With the steep decline of its two most important offshore production fields, Ku-Maloob-Zaap and Cantarell, the country has headed toward an increase in exploration activities in this arena just in time While Mexico’s onshore fields are mostly mature and

From the approximately US$161 billion of committed

deepwater is unchartered territory, shallow waters lie

investment Mexico expects to receive in the long term,

somewhere in the middle. PEMEX and its supply chain both

14 percent will be allocated to shallow-water activities,

have a reasonable amount of experience developing these

accounting for an expected investment of US$23 billion.

types of fields but there is potential yet to be untapped. The state of Tabasco will receive the biggest cut of this For this reason, the number of contracts in shallow

committed investment, with an expected total of US$11

water’s licensing rounds and the number of committed

billion. This comes as no surprise considering that 84

wells lay somewhere in the middle of the results of the

percent of the country’s 1P oil reserves and 69 percent of

CNH rounds, with 32 contracts and 33 committed wells,

its 1P natural gas reserves are located in the Cuencas del

while onshore results showed 50 and 67, and deepwater

Sureste basin. The attractiveness of Tabasco, according

28 and 32, respectively. Shallow-water rounds have also

to José Zúñiga, Head of the Energy Commission at

caught the attention of 37 companies, mostly IOCs and

COPARMEX Tabasco, favored the entry of smaller

independents.

companies interested in participating in the licensing rounds. “The federal government’s first licensing round

ATTRACTIVE TO EXPLORE

created conditions that allowed smaller companies to

Of the 69 shallow-water blocks up for grabs during Rounds

participate in the rounds. This created an opening for

1.1, 1.2, 2.1 and 3.1, 31 were assigned, meaning a 45 percent

companies from Tabasco such as Roma Energy and Grupo

allocation rate. The extremely low allocation rate of 14

Diarqco, which had previously been service companies for

percent in Round 1.1 can be explained by the novelty of

oil giants such as PEMEX, Halliburton and Schlumberger,

the bidding process for both CNH and the bidders, as

to participate in the licensing process and become new

well as the low oil prices in 2014. After Round 1.1, changes

operators,” he explains.

were implemented to make sure that future rounds would be more attractive to all players, and Round 1.2 saw an

PROVEN PRODUCTION CAPACITY

assignation rate of 60 percent. The figure increased to 66

Shallow water blocks are not only attractive in terms of

percent during Round 2.1. Round 3.1 represented a new

their exploratory potential, but also in terms of real and

challenge as more shallow-water blocks with a significant

expected production. According to CNH, the Cuencas

volume of natural gas and associated gas were placed for

del Sureste basin oil production wells have the highest

bids, with an allocation rate of 45 percent.

production levels. During the first five years of well life, wells in this region reach an average cumulative production of 13.1 million barrels per well, and over a 25-year well life

OFFSHORE EXPLORATION WELLS DRILLED AND TOTAL PRODUCTION 1976-2016

the average reaches 28.2 million barrels. In terms of nonassociated gas, the Veracruz and Sabinas basins hold the

30.49

316

19.50

6,076

Source: PEMEX

million boe/well

3.2

million boe/well

6,000

5,000

4,000

2,000

96.5

million boe/well

Total production (billion boe) Source: CNH

4.4

10.83 2,420

Brazil

3,000

Mexico

1,000

166

Exploratory wells

crown, with an average cumulative production per well during the first five years of well life of over 5bcf, with this average cumulative production increasing in the 25-year well life period to almost 7.5bcf and 6.5bcf, respectively. Mexico’s shallow-water production was high for decades thanks to Cantarell and Ku-Maloob-Zaap. While these assets have provided much of the Mexican oil and gas richness, their production decline is a reality the country is facing. At the height of Cantarell’s production in 2004, it was named the world’s sixth-most important proven hydrocarbons reserve, producing 2.13 million b/d. This dropped substantially by 2009, to just 646,000b/d. In 2017,

167

Drebbel vessel off the coast of Tabasco

the field produced only 144,000b/d. Akal, Cantarell’s most

formed by Talos Energy, Sierra Oil & Gas and Premier Oil.

productive field, produced 2.05 million b/d in 2004 and

The discovery consists of an estimated volume of between

has 210 operational wells. But in 2016, the field produced

1.4 and 2 billion boe of 28 to 30o API light oil. The good

just 70,000b/d.

news does not only apply to the consortium, but for the industry in general that is interested in working in the

PEMEX has kept Ku-Maloob-Zaap’s production over the

shallow-water arena, as new operators race to find more

800,000b/d threshold but the decrease in proven, probable

hydrocarbons in offshore Mexico. Says Pavel Suprunov,

and possible reserves of both fields is a worry. Cantarell’s

Director General of Lukoil-Engineering, a company that won

original 3P volume was 36.1 billion barrels but as of January

a neighboring block in Round 1.1: “We are happy with our

2018, the remaining oil reserves sat at 2.7 billion barrels,

results so far and we are very excited to start drilling next

a decline of 92.5 percent. Similarly, Ku-Maloob-Zaap had

year, if only because we are 20 km from a 1.5 billion-barrel

original volumes of 39.8 billion barrels of oil, but CNH says

Zama discovery. We will continue to expand in Mexico and

that number has now dropped almost 85 percent to 6.15

continue to try to increase our access to acreage for more

billion barrels. Considering these numbers, the opportunity

drilling opportunities.” According to CNH, the Zama and

to increase Mexico’s production platform is large.

Amoca fields are among the 21 most-important discoveries in the world since 2000, with Zama taking 9th place and

RESULTS SPEAK FOR THEMSELVES

Amoca 21st.

New discoveries in shallow-water blocks are already taking place. But, even more importantly, they are being done

As activities increase in Mexican waters, the outlook seems

by private companies, which demonstrates the business

promising thanks not only to the discoveries and production

opportunities that IOCs and independent oil and gas

performed in 2017 but also due to the attractiveness of

companies can find in Mexico. According to Pedro Joaquín

the country compared to major investment destinations.

Coldwell, Minister of Energy, “the blocks awarded in shallow

According to CNH, the size of recoverable reserves from

waters during Round One have already provided the first

Mexican offshore discoveries is seven times larger than

private discoveries from ENI and the consortium conformed

those in the US and two times greater than those in Brazil.

by Talos Energy, Sierra Oil & Gas and Premier Oil.” Those two discoveries alone have estimated resources of almost

Alma América Porres, Commissioner at CNH, looks beyond

3.4 billion boe.

the opportunities and congratulates the industry for working to reap the opportunities at an appropriate pace.

As Joaquín Coldwell mentions, one of the clearest indicators

“The Zama field has presented significant opportunities,

of the potential to be untapped in Mexican shallow-water

and this could have pushed market players to rush and

blocks took place on July 11, 2017, in the Zama-1 well located

exploit its benefits, but the operators are moving prudently,

in the Cuencas del Sureste basin. This well was drilled in

assessing the field’s marketability and how to expand its

Block 7, awarded during Round 1.1 to the consortium

contractual capacity beforehand,” she says.

ANALYSIS

MAIN SHALLOW-WATER E&P ACTIVITY As production and reserves stagnate in Mexico, the medium-term outlook is banking on shallow waters to bridge the gap. With the entry of various IOCs and PEMEXâ&#x20AC;&#x2122;s experience in this sector, hopes are high for the benefits shallow waters can provide the country

production testing of the Hokchi-4DEL well located on the

Financial Aspects

168

Presented Offer

ZAMA, HOKCHI CONTRACT DETAILS ZAMA

HOKCHI

Goverment take

69%

70%

Increase to the minimum work program

10%

100%

Investment (as of March 2018)

US$ 57,675,599.84

US$ 137,229,890.28

Income to the state (as of Feb. 2018)

MX$ 16,616,554.9

MX$ 1,229,021.93

A2 block assigned to Pan American and E&P Hidrocarburos during Round 1.2. The Hokchi field contains a total amount of 21.25, 45.18 and 25.91 million boe in the form of proven, probable and possible reserves. This year, there was also good news for PEMEX in shallow waters, as the NOC managed to start production in the Xikin-1DL, Hok-1 and Octli-1 wells. These three wells alone are currently producing 7,489b/d of crude and condensates and 5Bcf/d of gas. They contain 1P reserves of 55.85 million boe, 2P reserves of 78.39 million boe and 3P reserves of 128.66

With a decline that does not seem like it will reverse any time

million boe.

soon, and stabilization the best-case scenario, the importance of making discoveries with the potential for an increase in

As activities increase in Mexican waters the outlook seems

both production and reserves replacement is critical for the

promising thanks not only to the discoveries and production

country. Fortunately, the positive news is already coming as

performed in 2017 but also due to the attractiveness of

IOCs are already carrying out successful drilling activities in

the country compared to major investment destinations.

the countryâ&#x20AC;&#x2122;s shallow waters. The first big news from IOCs in

According to CNH, the size of recoverable reserves from

the country came with the discovery in the Zama-1 well, as it

Mexican offshore discoveries is seven times larger than those

is said to be the biggest one made anywhere in the world in

in the US and two times greater than those in Brazil.

recent years. It was made by the consortium conformed by Talos, Sierra Oil & Gas and Premier Oil. These companies were

The institution also reported that, over the 1976-2016 period

assigned Blocks 2 and 7 in Round 1.1, and on July 11 2017, the

Mexico drilled only 316 offshore wells but produced 30,449

consortium drilled the Zama-1 well in Block 7, hitting a deposit

million boe. This equates to 96 million boe per well. In

with an original volume of between 1.4-2 billion barrels.

comparison, the US drilled almost 20 times more wells with 6,076 and produced only 19,503 million boe, an average of 3.2

In terms of production, contractor Hokchi Energy produced

million boe per well. Similarly, Brazil produced 10,834 million

4,201 barrels with a 29.4 API grade in April 2017, during

boe with 2,420 wells, an average of 4.5 million boe per well.

OVERVIEW OF SHALLOW-WATER DISCOVERIES

Hokchi, PB Zama-1

Hokchi, PA

Well Block

ZAMA

HOKCHI

Contract Data

169

Contract Data

Scheme

Shared Production

Scheme

Shared Production

Round

1.1

Round

1.2

Contractual Area

Operator

Talos Energy

Operator

Hokchi Energy

Area

464.799km2

Area

39.598km2

Contract Duration

30 Years

Contract Duration

25 years

Contract Signing Date

Sept. 4, 2015

Contract Signing Date

Jan. 7, 2016

Total Working Program

72,600 Working Units

Total Working Program

260,000 Working Units

Minimum Local Content for Exploration

13%

Minimum Local Content for Exploration

17%

Minimum Local Content for First Year

25%

Minimum Local Content for First Year

25%

Minimum Local Content by 2025

35%

Minimum Local Content by 2025

35%

Xikin-1DL

Octli-1

Hok-1

Well

PEMEX SHALLOW WATER DISCOVERIES IN 2017

Geological Age

Xikin-1DL

Octli-1

Hok-1

Late Jurassic Kimmeridgian

Early Pliocene

Late Miocene

Proven 1P (million boe)

55.85

Probable 2P (million boe)

11.29

35.4

31.7

Possible 3P (million boe)

55.26

41.7

31.7

Crude & condensates (b/d)

1,519

3,195

2,775

Gas (MMcf/d)

1.7

1.5

Water depth (m)

Source: PEMEX, CNH

VIEW FROM THE TOP

A VARIETY OF SOLUTIONS, ONE INTEGRAL OFFER ANGĂ&#x2030;LICA LINARES CEO of Corporativo CEMZA

170

Q: How does Corporativo CEMZA impact the oil and gas

the integration of more companies into our portfolio. This

offshore industry in Mexico?

approach has been supported by all our shareholders, who

A: One of our main advantages in the market is that we

see a great opportunity in the changes resulting from the

are a proud, 100 percent Mexican company, meaning we

Energy Reform.

can support our customers in reaching their local content regulatory requirement with top-quality services and products

Corporativo CEMZA has a proven track record of working

due to our qualified workforce as well as the excellent vessels

in shallow-water projects. To successfully diversify into

and materials we use.

the deepwater sector, we will continue following our longstanding tradition of providing specialized services, and

Additionally, Corporativo CEMZA offers broad experience

our deepwater business line will not be the exception. Our

working at all the Mexican ports in the Gulf of Mexico and has

maritime fleet can be adapted to cater to the specific needs

created long-lasting relationships with the authorities at these

of our projects and the same can be said for the services

ports by complying with the high standards they demand to

that deepwater operators require.

operate at each of their ports. Q: How is Corporativo CEMZA capitalizing on its lengthy Although Corporativo CEMZA is comprised of several

experience working with PEMEX to cater to the new needs

companies, we recognize that international companies prefer

of local and international players?

to work with only one integral service provider. Our strategy

A: The opportunity is vast and tangible, it is a matter of

therefore has been focused on bringing together all the

seizing opportune moments. PEMEX has a tenured track

products and services offered by our individual companies

record in terms of exploration, drilling and production, while

and offering them through Corporativo CEMZA as an

most of the new players are taking their first steps prior

integrated service, thereby presenting only one face to the

to reaching such a stage. We are working toward tying up

client. The positive and well-thought integration of companies

the cumulated experience with the NOC together with our

into the group has created positive synergies in which our

interactions taking place with new operators entering the

clients find great value. This is why we are constantly pursuing

market through each of their particular business stages.

International companies are bringing a whole new set of

Q: What is your view of the reform’s implementation and the

due diligence procedures with which we must comply. We

opportunities that have resulted?

already have the certifications they require due to our work

A: The reform has certainly brought a wide range of

with PEMEX, such as ISO-9000, ISO-14000 and ISO-18000,

opportunities that, although slower than expected, are

but they also demand other working procedures to which

starting to become tangible. Corporativo CEMZA knew that

we have to adapt, such as anti-corruption policy compliance.

the process would take time. We have worked with PEMEX

Although it has taken us time and money to assimilate these

for a long time now and were also present as the NOC went

new procedures, it is also a positive highlight, demonstrating

through the very same market expansion, following booms in

our flexibility as a company and our willingness to work

the exploration, perforation and production phases. PEMEX

subject to the highest industry standards. We want to

will remain an important client for CEMZA, but the opening of

become the No. 1 integral-services provider for the offshore

the market is providing ever more opportunities with national

oil and gas industry in Mexico.

and international companies entering the industry.

Q: How are Corporativo CEMZA’s alliances contributing to the

We have clarity over which ports Corporativo CEMZA

consolidation of your market foothold in Mexico?

is aiming at to cement its growth, yet some still lack the

A: Corporativo CEMZA’s alliances have been instrumental

required infrastructure to do so. It is only a matter of time,

in placing the group in the position it is today. Mexico’s

however, before local authorities demonstrate a change in

unlocked market and its inherent necessities are calling

mentality toward the upcoming needs of the industry and

for the creation of additional, strategic alliances that

the strategic part that their ports have to play in that regard.

best complement our products and services. Working

We are working together with local authorities to bring about

in deepwater projects, for instance, is a venture that

the required shift to fully capitalize on present and future

PEMEX spearheaded but has yet to see a consolidation

opportunities and best adapt our services to these needs. As

cemented in a pool of different players. This implies

companies such as ENI start discovering oil, the production

developing a supplier capacity for this niche that is set

phase will surely follow. We are preparing for the increase in

to gain increased importance for the industry in the near

operations by adapting a flexible approach toward the needs

future, and alliances are critical to that purpose. We are

of our clients. If a certain product or service needs to be

looking for partners that showcase a deeply rooted, three-

changed, we will be ready for it and open to their feedback.

pronged empathy: with the different companies that

Our market is not limited to operators. We also work with

make up our group, with the rest of the companies in the

companies present in other segments of the oil and gas value

industry and with a client-focused business to best cater

chain. For example, we are working in the Altamira Port with

to their needs. These alliances can be formed with either

a company that is collaborating with TransCanada.

local or foreign companies. Our experience tells us there is quality demonstrated by Mexico’s local companies across the industry and working with Mexican companies can

Corporativo CEMZA provides a wide range of offshore services

strengthen our market footprint. Foreign companies can be

to the oil and gas industry in Mexico. These services include

a valuable contributor to our business in terms of top-tier,

specialized vessels, supply of personnel and transportation,

innovative technologies that have yet to enter the country.

fuel distribution and catering

171

VIEW FROM THE TOP

ANTICIPATING THE OFFSHORE GOLD RUSH ROBERTO MAURY CEO of Marítima Internacional

172

Q: How have you attracted business from the new operators

A: At ports such as Tampico, Dos Bocas, Seybaplaya, Ciudad

coming to Mexico?

del Carmen and Frontera, there is more specialization in the

A: Six years ago, when it was clear that the Energy Reform

offshore industry but what is lacking is space. When there

in Mexico would take place, we started to travel the world

are not enough berths, everybody faces delays. This will

and meet with international oil companies. Obviously in

have to be solved in less than one year because the offshore

Mexico, PEMEX and the companies around PEMEX knew us

boom will detonate beginning in 2019. From 2019 to 2023,

but E&P companies had never heard of us. To change that,

there will be an excessive amount of work for everybody.

we started knocking on doors one by one until we were given meetings. Fortunately, we were well-received and

The lack of space is a major problem. For example, in Ciudad

international oil companies became aware that there were

del Carmen, where there is space, there is no draft for larger

offshore logistics companies in Mexico with our profile.

vessels. Dos Bocas, which does have the draft, only has 2km of dock space, meaning that only seven to 10 vessels

Q: What elements of marine operations have been difficult

can be accommodated there. Last year, when ENI, Talos

for your clients?

Energy and Hokchi Energy were working in Dos Bocas there

A: One example is that the paperwork for getting a pilot

were major capacity problems. And those were only the

is different here, with a particular methodology and

operators; there were also companies working for PEMEX

scheduling system. It can take from two to 24 hours

entering and leaving. Fortunately, Marítima Internacional

before a helicopter gets to a vessel, depending on how

has 80 percent market share. Since we now know how the

busy the pilots are. In ports in other parts of the world,

port works, we order our vessels in an effective way. But

a pilot is requested and in less than 15 minutes the pilot

those vessels not working with us, such as those of Hokchi

is on board.

Energy, sometimes had to wait up to 24 hours to dock, because we beat them there.

The API system, despite the fact that ports are wellorganized and greatly help the companies they serve,

Q: How are you preparing for Mexico’s push into

also has certain protocols that can be difficult. A vessel

deepwater?

cannot just arrive and enter immediately. It has to make the

A: We detected that in the port of Tampico, even though

request to enter the port with enough lead time and follow

the API can cater to clients, there is also a great deal of

certain procedures. Marítima Internacional coordinates very

commercial shipping. Commercial shipping brings with it

carefully with our clients to make sure that when the vessel

a significant customs burden as well as the bureaucracy

arrives it can enter the port without delays. We ask what our

of the API itself. Up to 24 hours can pass before anything

clients’ operations are and then anticipate their schedule by

enters, and if it is the weekend the delay can even last

doing things beforehand. When the vessel arrives, it enters

until Monday.

the port within 10 minutes. We detected this situation and partnered with a company Q: What can be done to address bottlenecks at Mexico's

that has two private yards with full sea access and a

ports and how does Maritima contribute?

total area of 40ha. These yards have all the shore-based infrastructure required by E&P companies that are going to develop their deep and shallow-water projects in the

Marítima Internacional is an industry expert in providing port-

Perdido area. Everything is ready for the arrival of clients.

to-port integral services to accommodate all its clients’ needs.

We are in talks with Schlumberger and Halliburton to

With years of experience working in the Mexican market, it has

determine if they want to install a factory there. We have

a strong presence in all principal ports of the Gulf of Mexico

been preparing this project for three years.

VIEW FROM THE TOP

SAILING MEXICO’S OIL INDUSTRY TOWARD SUCCESS JUAN PABLO VEGA President & General Director of Naviera Integral

Q: How would you evaluate Naviera Integral’s development

the international maritime treaties signed by Mexico. Now

over the past year?

that the industry will start tapping deepwater developments

A: Last year presented some challenges for the maritime

we will introduce new technologies and procedures to meet

industry as oil prices had not stabilized and we operated

the necessities of those companies coming into the country.

under difficult circumstances. The cuts in PEMEX’s budget

We perceive new market horizons.

presented further challenges as the industry had to adapt to narrower public expenditures. This year, the industry has

Q: What steps have you taken to meet the requirements

picked up again mainly due to the US$60/b prices we have

for the shallow and deepwater segments?

seen since April. There are new licensing rounds set to be

A: We awaited a more active implementation of the Energy

launched and we are waiting for bids to roll in. We are

Reform in previous years, but the drop in international oil

always looking for technological changes applied globally

prices constrained investment from coming in large numbers

and how to bring them to Mexico and we plan to continue

and this harmed the purpose of the licensing rounds.

following those trends. Moreover, through the technology

Now we are waiting for the awarded contracts to start

innovations on our vessels, their cleaner engines and the

providing their benefits and with Mexican crude reaching

cost-effective solutions we offer, we have been able to

the US$60/b threshold, we expect more companies to be

remain competitive in the market despite the adversity and

attracted to the country. For deepwater activities, we have

we are confident about the company’s future in light of the

equipped our vessels with high technology, mostly coming

improved market circumstances.

from The Netherlands, which is the best maritime market in the world. For shallow waters, we updated our fleet based

Q: What are some of the most recent changes to your

on PEMEX’s requirement to have vessels under 15 years

business lines?

old, which implied a challenge for us since it required a

A: We ventured into the tourism industry, specifically in the

large investment. Nevertheless, we were able to meet the

southeast of Mexico where the market is as promising as

requirement and provide the service.

it is competitive. We introduced Dutch vessels to explore our opportunities there and we have been successful so

Q: What is the message maritime companies should give

far. We apply high-security measures, environmentally-

to the incoming federal administration?

friendly practices and we rely on a series of certifications

A: I would pass on the message about the Energy Reform’s

and procedures that set us apart from our competitors.

protection and shielding institutions to keep them

Regardless of how competitive the maritime industry is in

unaffected from potential governmental changes. All the

the Mexican Gulf, we have competed successfully.

agreements, contracts awarded and procedures should be respected. I also think companies should consider that

Q: How has Naviera Integral maintained its market

the reform entails a well-articulated regulatory framework

advantages amid the industry’s changes?

that will remain regardless of political cycles. The reform

A: Now that the Energy Reform has entered into full motion

was created for the country’s welfare, to introduce new

and operators are starting to explore and develop their

technologies and new modern procedures, so the next

awarded blocks, we have reached out to a larger number

government should be respectful of norms and regulations.

of clients. We provide efficiency, we are willing to provide companies a value chain and new technologies, so we have different competitive advantages that set us at

Naviera Integral is a 100 percent Mexican company with

the forefront of the service providers. We submit to the

over 30 years of experience offering maritime services to

rules and regulations from local authorities, comply with

the country’s oil and gas sector. It has more than 30 vessels

inspections and we meet the requirements stipulated by

covering the industry’s different needs

173

INSIGHT

AFTER A STRONG HIT, AN OPERATOR ON THE RISE BRUNO PICOZZI Director General of Sapura Energy Mexico

174

Activity is returning to oil and gas following a challenging

years, not in three or four as many are hoping,” he says. It

downturn. When factoring in the results of the bidding

is after those 10 years that he believes there will be enough

rounds, competition is tough for companies trying to win

activity to propel a thriving hydrocarbons market in Mexico,

service contracts from the new operators entering the

allowing for the creation of a strong value chain capable

country. But with memories of the crash still lingering,

of working together with international companies and

operators are demanding favorable reward-risk ratios.

even developing its own technology. “Until that moment

Sharing the risk through different contract models, says

comes, work will remain intermittent, which in turn means

Bruno Picozzi, Director General of EPC Sapura Energy

low security for service companies.”

Mexico, is one way to compete in this robust environment. With Sapura’s experience, it is therefore not limiting itself “As a company with activities across the oil and gas value

to only working as a service provider. “Because we are a

chain, from building and installing platforms and pipelines

fully integrated company with activities in every aspect

to drilling and producing hydrocarbons, we are capable

of the offshore value chain, we are capable of working as

of properly quantifying the risks associated with all these

an operator,” Picozzi says. “In that sense, we could take

activities,” he says. “In that sense, we can offer single or

part in both farmouts with PEMEX and in the licensing

integrated solutions that adapt to the client’s strategy.”

rounds. As a matter of fact, Sapura has prequalified as an offshore operator.”

Sapura Energy Mexico is a diversified company in the offshore sector. With three divisions — E&C, E&P and drilling

The regulators are learning lessons as they go in this

— global operations and a relatively young fleet, Picozzi

relatively new playing field and Picozzi also highlights

firmly believes the company is capable of providing services

the importance of Mexico taking advantage of the fact

that fully address the needs of the operators. In that sense,

that its industry is one of the last to open internationally.

Sapura is looking with interest at all the possibilities the

It is therefore capable of learning from others’ mistakes.

country offers to diversify its activities.

“Mexico remained a monopoly for a long time. Now the incentives the country is providing for the development

Initially, the company looked like it would brave the

of its oil and gas industry in such a difficult international

downturn with a strong 2015, when it performed four

scenario means investment is a no-brainer for many

platform installations and installed two major lifts and 40km

companies,” he says.

of pipelines. At the beginning of 2017, Sapura began to feel a budget squeeze but this did not discourage it from

Picozzi warns, though, that the country should tread

focusing on Mexico. “The hydrocarbon licensing rounds

carefully. One potential area for failure is that of local

are boosting activity in the arena and more discoveries are

content. “While the rules enforced by CNH and the

taking place, so we are preparing for an upturn in activities,”

Ministry of Economy require a healthy level of local

says Picozzi.

content, we can see this situation mirrored in the opening of Brazil’s energy market,” he says. “The country went

Mexico’s oil and gas industry has been bolstered by the

from producing 1.2 million b/d to 2 million b/d as the

successes of the oil and gas bidding rounds. But Picozzi

market opened. But as Brazil’s local content requirements

warns that to create a strong industry, the country needs

became ever stricter, investors felt wary of investing more

to keep the licensing rounds going for at least the next 10

in the country. These changes ultimately made projects

years. “The Energy Reform has been very successful in its

more expensive and disincentivized investment instead

first two licensing rounds but it must be recognized that

of promoting the inclusion of more local companies into

the industry will only develop to an adequate level after 10

activities.”

VIEW FROM THE TOP

GLOBAL EXPERTISE DEPLOYING SHALLOW-WATER PROJECTS ANTONIO VILLEGAS Chairman of the Board at Swiber Offshore Mexico

Q: How has Swiber grown in the Mexican market and what

will be more changes in the industry moving forward. IOCs

have been your flagship projects here?

are venturing into this market and competition will drive

A: We have over 21 years of experience globally and over

PEMEX to accelerate its transformation process and adapt

six years in Mexico. Our slogan is “cause no harm.” We

to a new reality.

value safety as the company’s main objective, especially regarding our staff, since they are its foundation. PEMEX

Q: How did the downturn in international oil prices impact

has been our leading client in Mexico but with the industry’s

Swiber and its business lines?

expansion our window of opportunity has widened. Our

A: This period proved difficult for us even though we

first project in Mexico was with PEMEX to lay 77km of

are aware of how cyclical this industry is. The scenario

marine pipeline for Line 5 to transport production from

prompted companies, including Swiber, to move to cost-

offshore to onshore. We have also worked with the NOC in

effective solutions. We know the market, the customers and

the Sinan and Ayatsil-Tekel fields to install pipelines and on

the providers well and despite the readjustment process

the manufacturing and installation of two PLEM’s at 110m

and its negative effects, we negotiated it well due to this

underwater, which involved two 300-ton structures and an

market savviness. Our vessel business line boosted our

entire EPC process.

profits during the price downturn since projects stopped suddenly but demand for marine services kept us afloat.

Q: How is Swiber adding value to the operations of the

During 2018, the market has picked up and we have come

companies doing business in Mexico?

closer to new market entries and opened up possibilities

A: Once an operator finds oil, it tests and delimits the field

that have made us even more competitive.

and calls on companies such as Swiber to carry out the development. We take on the engineering and procurement

Q: How can the next administration guarantee the solid

processes and then we install the facilities. Our product

positioning of the national oil and gas industry?

portfolio includes every type of duct, flexible and rigid,

A: We expect that the industry’s transformation will move

and different types of vessels. Mexico is one of the top

forward and that the next administration will allow the

five offshore producers in the world and 80 percent of the

Energy Reform to complete its consolidation process. We

country’s production comes from shallow waters, where we

also want to see PEMEX complete its transformation into a

have extensive expertise. On one side, PEMEX will continue

productive company of the state as it is the leading player

developing its offshore fields in shallow waters in the Gulf

in the industry. The NOC needs capital and technology

of Mexico and that is where we aspire to continue working,

and it is a positive that now there is a chance for it to

based on our previous experiences with the NOC. We also

establish partnerships and alliances with companies

are interested in offering our services to new players such

that can add value to its operations. This process took

as Sierra Oil & Gas, ENI, Hokchi or PetroBal.

quite a long time to unfold, it was necessary for decades and delayed for many years, but it is finally here and we

Q: What have been the most impactful changes you have

should make it evolve. We should also encourage easy

perceived in the industry?

access to opportunities for private companies coming

A: We have been through one of the toughest cycles in the

into this market.

oil and gas industry, particularly since the fall in oil prices coincided with the implementation of the Energy Reform in Mexico. This affected PEMEX in particular and prompted

Swiber Offshore offers a wide range of engineering, procurement,

the company to cut expenses and staff and the NOC is

installation, and construction services, complemented by its in-

still moving to complete this cycle and to become a fully

house marine support and engineering capabilities, to support

commercial company on par with Shell or Chevron. There

offshore field development and production

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VIEW FROM THE TOP

BRINGING VALUE TO PIPELINES BY EXTENDING THEIR LIFETIME Rob Bain Managing Director of Paradigm Flow Services

176

Fernando Hernandez Vice President of Commercial Americas at Paradigm Flow Services

Q: What is Paradigmâ&#x20AC;&#x2122;s background in technology

Part of this expansion involves Central America and we

development and its application in the Gulf of Mexico?

are assessing how to raise the awareness in this region

RB: We have extensive experience remediating blockages

about the technologies we offer.

in pipelines. We develop our own patented technologies that can enter these systems under pressure and remove

Q: How can Paradigm add value to the Mexican market

blockages much more effectively than conventional

based on your expertise abroad?

methods. Paradigm has been active in the Gulf of Mexico

FH: We specialize in securing optimal production and

since 2012, when we started offering our technologies for

flows. Our goal is to guarantee that the investments

the deepwater segment to companies facing blockage-

companies make in their fields produce returns, as we are

related issues. Since then, we have built a global track

the premier company in blockage removal to continue for

record and have led projects on the US side of the Gulf

wells to optimally flow. For us, Mexico offers a clean slate

of Mexico, Western Africa, the Caspian Sea and Europe.

to foster training in new technologies and to implement

An important element of our technologies is that they

proactive strategies to protect production.

are applicable to any oil and gas facility, even those that handle heavy oil like those in Mexico.

RB: We have changed the business model from a reactive to a proactive model in which we work and advise

Q: How would you assess market opportunities in Mexico

operators on how to prevent blockages and use our

and what are your expansion plans here?

technologies to access their production systems. We

FH: We see ourselves in a privileged position to expand

provide them with lessons learned from case studies,

our market share because of our previous experience

smarter ways of maximizing the returns on their assets

here, where we recently carried out a successful project

and practical ways to minimize the impact of potential

for PEMEXâ&#x20AC;&#x2122;s polyethylene plant. In my particular case, I

hurdles on their production lines. We act as their

was involved in the Mexican market before the reform,

insurance for pipeline flow restrictions that will eventually

during its application and in the post-reform scenario

happen and impact their productivity.

that has seen blocks in deep and shallow waters awarded. Our market position is based on four points, where our

Q: How is the technology introduced by Paradigm

technologies apply: pre-reform shallow-water projects

making it easier for operators to carry out cleaning

where our technologies enhance production, shallow-

activities?

water projects awarded to IOCs, onshore projects based

RB: We developed a technology called Flexi-Coil that has

on previously-executed operations in Mexico and the

been in the market for eight years and has constantly

long-term projects that will arise from the deepwater

been updated. We came up with this idea after working

blocks being awarded.

with North Sea operators and witnessing the setbacks they were experiencing with blockages and restrictions

RB: We started looking strategically to Mexico because

in their topside pipework, where they were required to

we are aware of how mature the industry is and we want

shut the process down and isolate the facilities to enable

to introduce technologies that add value to this region.

removal of the deposition. We developed this new technology using the concept

Paradigm, founded in 2010, is the only service company

of coil tubing and deployed a modular and lightweight

in the oil and gas industry providing unique, patented

coil that was more flexible but stronger and made of

technologies and specialist services for pipelines, subsea

hybrid-composite materials. We designed a bespoke

and deluge systems

cleaning head composed of various tools that allow

According to CNH projections, Mexico should see investment of US$2.1 billion from shallow-water contracts in the 2018-19 period effective cleaning over very long distances. The cleaning head works in a different manner with multiple valves and nozzles that can create five or 10 times more flow than the conventional method. We created a system whereby it is possible to insert a flexible miniature coil into a subsea pipeline and navigate bends and long distances in horizontal pipes to remove blockages or heavily constricted areas. This is unlike anything seen before in the industry as it is quite complex and we have had great success with its development. We are now introducing different Flexi-Coil units with varied applications for land-based systems, deepwater, shallow waters or injection of chemicals and gas lift. Q: What is your vision for Paradigmâ&#x20AC;&#x2122;s development in the Mexican market? RB: We are speaking to different partners to potentially invest with us and we need to position our equipment in a way that will enable demonstrations and trials for PEMEX and other players in the market. We are targeting to execute further work, within the next 12-18 months so we can deepen our technological footprint in the market. We have taken this approach in other regions and Mexico should be no different. We believe there is market potential here and that our technologies will bring value to this market, but first we need to create a pool of clients and strategic partners. Q: What policies should the next administration embrace to boost the industryâ&#x20AC;&#x2122;s development? FH: The key point is to focus on technology so as to further cross-pollinate international and Mexican technologies. This will determine how far the local industry will go. RB: To enable technological advances, the administration should adopt models that are similar to those of international IOCs regarding efficiency and embracing technology. The mindset has to change and more technology centers need to be developed. Also, fiscal incentives, such as tax breaks and commercial models to reduce risks from technology adoption, can be crucial for the country to become attractive to technology-based companies.

177

VIEW FROM THE TOP

CUTTING-EDGE TECHNOLOGY FOR A NEW INDUSTRY LUIS GONZÁLEZ Board Member of Drebbel

178

Q: What are the keys to Drebbel’s success in the Mexican

for work and to answer any question we might have. We

market?

are also in the process of partnering with other players to

A: Drebbel provides turnkey solutions that encompass

increase our range of services, allowing us to provide more

different elements of a project. The niche in which we are

solutions and to make our turnkey packages more robust.

involved entails the integrity of pipelines, particularly in high-temperature and high-pressure operating conditions.

Until now, our main customer has been PEMEX. We have

Due to our experience and highly specialized services, we

worked on the newly installed pipelines since the beginning

can foresee crucial aspects that determine the success of

of 2016, along the coasts of both Tabasco and Campeche. We

pipeline construction projects. These are sometimes harder

hope to do more work with international players, but we also

for our client’s personnel to identify.

want to continue our contribution to PEMEX’s projects. Being a local partner is especially challenging, but at the same

We are the first company in Mexico to implement concrete

time satisfying. We help international companies, not only

mattressing as opposed to the typical rock dumping.

to comply with Mexican requirements but also to understand

The advantages of concrete mattressing is that it is more

the country’s way of doing business. Likewise, we have also

cost-efficient and easier to work with over the life of

helped PEMEX get to know the different requirements and

the infrastructure because it is removable and allows for

cultures of the companies coming to Mexico. Overall, we

inspections and any required maintenance. Drebbel works

have been in win-win situations where everyone gets the

with top-of-the-line technology, equipment, procedures

best out of each and every business relationship.

and personnel. We believe that the only way to work is by employing the highest standards, rather than looking at our

Q: How are you preparing for an uptake in deepwater

bottom line and then building from there.

activities? A: Most of our strategic partners and the bulk of our

Drebbel was the first company to introduce world-class

activities have always been in the deepwater area. Our

ROVs to Mexico. Our partners are not only used to working

work in the littoral of Tabasco represented a challenge.

with ROVs in Mexico, but also in other regions, such as the

It involved between 20 to 30m of water depth, which is

North Sea and West Africa. Nevertheless, our experience

almost a puddle compared to the 800 to 1,500m of depth

in the market is extremely important because the ROV is

with which ROVOP is used to working. In fact, most ROVs

just a vehicle that carries the sensor, tool or camera that

and certain survey procedures, such as LBL technology, are

will provide the information that is needed to perform

meant for use in deepwaters rather than shallow waters. For

maintenance, construction and inspection operations.

this reason, the upcoming deepwater activities in Mexico are extremely interesting for our business. We are ready to

Q: How do Drebbel’s partnerships ensure the Mexican

take part in these activities.

industry receives excellent service? A: Some of our most important partnerships are with UTEC

We have strengthened our alliances in the subsea-technology

Survey, SEA Trenching and ROVOP. SEA Trenching is a

community, which has given us access to cutting-edge

family-owned business whose owners are always available

technology that has never been seen in any market other than perhaps the North Sea. This technology will help to shorten times and costs while offering more accurate results

Drebbel is a Mexican company that delivers subsea services for

than the current acoustic technologies that are widely

the oil and gas industry. With a strong focus on construction

available in the survey market. Drebbel has also taken steps

and maintenance of subsea pipelines, the company performs

to work in the geotechnical field and we will be offering

layout, pipeline analysis and dredge procedures

geotechnical, alongside geophysical services shortly.

VIEW FROM THE TOP

IMPROVING OPERATIONAL EFFICIENCY USING NEW TECHNOLOGIES HOMERO GUERRA Regional Vice President, Mexico and Equatorial America of ABS

Q: How does ABS make a difference in Mexicoâ&#x20AC;&#x2122;s oil and gas

A: We are working with clients on short pilot projects

industry and what are the opportunities for improvement?

with specific objectives in which we obtain data, scrub

A: As the offshore industry moves into deeper waters

and analyze it and see how we can be more selective and

and harsher environments, engineering designs and

focused during surveys. Using remote sensors in equipment

technology must evolve to adapt to new operational

and hull structures can help us identify problems in critical

challenges. At the same time, operators are looking to

areas sooner. This will also allow us to be better informed

reduce costs and improve efficiencies, while maintaining

and more focused on these critical areas of an asset when

high safety standards. These new smart technologies

we go out to do a survey.

generate huge data streams, from multiple systems on an offshore asset, through remote sensors and other data-

A clear benefit of this is that the unit may not have to be

collection devices. Taking advantage of this information,

taken out of service for long periods, or perhaps not at all,

to improve operational efficiency, requires significant data

if problems can be identified before they require extensive

management and analytics. For several years, ABS has

repairs. Our clients can have less downtime on the rig and

championed digitalization to support our services with

we can be smarter about how surveys are done, leveraging

the objective of helping clients maintain their offshore

all the available data to focus on conditions on the unit that

units in compliance with classification standards, to reduce

require our attention. Further, eventually we will use data

nonproductive time and increase efficiency. Data-centric

to be more predictive with regard to hull and machinery

services enhance asset maintenance while also enabling

integrity. There is still a need to conduct traditional asset

our surveyors to focus their efforts on critical systems, for

surveys and calendar-based and prescriptive surveys or

example, through condition-based or reliability-centered

inspections as required by IMO conventions. However, the

programs, rather than prescriptive time-based surveys.

industry will also see a push for condition-based monitoring

Helping our clients navigate all this collected information to

and risk-based inspection techniques going forward. The

improve unit efficiency while raising their safety standards

technology is now available and clients will increasingly be

is the core of what we do.

using data to make more informed decisions.

While using reliability-centered data to maintain equipment

Q: What is your advice for companies with large fleets that

onboard or collecting hull-stress information through

are not technologically that sophisticated?

acoustic emissions testing are relatively new technologies,

A: Survey planning is key, together with a constant strategic

ABS sees the industry moving in this direction as the

and proactive approach, for hull and machinery maintenance,

advantages are more well-known. With market pressures

taking advantage of scheduled off-hired periods to avoid

pushing operators to be more efficient while maintaining

last-minute comprehensive surveys during unit operation.

high-safety standards it makes sense to leverage all

One of ABSâ&#x20AC;&#x2122; clear advantages is our extensive expertise

available proven technologies. With other countries or

in the offshore industry, which includes exploration and

regions implementing new technologies due to the nature

production activities with support vessels. We have worked

of their operating environments (deepwater, subsalt, high-

with every offshore unit design, with a particular emphasis

pressure high-temperature reservoirs) Mexico will benefit

on the self-elevating unit segment.

from the experience gained by early technology adopters and select proven technologies that support the operational and environmental needs of the Gulf of Mexico.

ABS i s a leading global provider of classification and technical advisory services to the marine and offshore industries,

Q: What concrete programs are you working on to show

with a focus on safe and practical application of advanced

the potential of new technologies in the Mexican market?

technologies and digital solutions

179

VIEW FROM THE TOP

PREPARING FOR A NEW DIRECTION MANUEL FLORES Country Manager Mexico of Taylors International

180

Q: How has Taylors International adapted to the changes

terms of efficiency, cost and quality. This process helped

resulting from the Energy Reform?

Taylors International raise the bar for other companies as

A: The reform is an unprecedented milestone for the oil and

well as for ourselves. In 2016, we scored the top evaluation

gas industry in the country. Seventy years ago, there was a

with 98 percent compliance and customer satisfaction

completely developed procurement supply chain that was

and 100 percent for Safety, Security and Environmental

directed to one company: PEMEX. But there is a different

Protection (SSPA). We will use this recognition to

direction now and we must be prepared. Our company

illustrate our track record to international companies

has operations around the world and is already working

entering Mexico. In terms of international references, we

in other countries with most of the operators arriving to

are listed in the most important oil and gas company

Mexico as a result of the reform. However, even though

index directory worldwide, which every operator checks

we understand their needs oversees in terms of catering

when trying to find a local service company. This index

and hospitality services, the Mexican market has its own

assesses information such as financial performance and

particularities. For us, this is a discovery phase in which we

international safety certifications.

are creating tailor-made cost-efficient solutions for IOCs. Q: What are the aspirations of Taylors International Taylors International has 80 percent of PEMEX’s catering

for the coming years and what is your strategy to

and hotel services market. Our most recent awarded

accomplish them?

contract with the NOC will allow us to keep our brand’s

A: In the short and midterms, we will keep our focus

positioning, at least for the next couple of years. In

on shallow-water activities. We have built a strong

terms of participation with IOCs, we are still figuring out

infrastructure with the capabilities to expand and deliver

their strategy, given that each operator has a different

further services, given the number of companies already

investment plan for Mexico, which means our business

working in these locations. Taylors International wants

model and services must be flexible. We understand

to propose catering and hotel services that will provide

that we need to be even more cost-effective and excel in

a higher level of comfort for its clients and that will help

our performance. This new business strategy and vision

us to maintain our leading position in this sector. The

have helped our company to become stronger and more

possibility of expanding into deepwater projects is still

innovative within the Mexican market. Right now, we are

being evaluated because the main onshore hubs for these

focusing on our sales and marketing strategies to meet

activities are located in cities where security is still a

customer demands, particularly by integrating our catering

big issue.

and hotel services. On the other hand, our company has know-how and Q: Keeping in mind the procurement rules published by

expertise in other industries, such as the manufacturing

CNH, what is Taylors International doing to differentiate

sector. Also, our knowledge and experience managing

its services from its competitors?

major services from the distribution point to the final

A: During the course of our business relationship with

user, such as for the US Embassy in Iraq, have helped us

PEMEX we have been evaluated on a monthly basis in

to close the gap in terms of logistics and cost reductions. We compete at the highest level with companies such as Eurest and Sodexo. Our ambition is to have, at least, 60

Taylors International is a leading catering company for the oil

percent market share in industries such as mining and

and gas and energy industries in locations that include the US

manufacturing, and we will accomplish that by following

Gulf of Mexico and the Caribbean Sea, South America, West

Taylors International’s values and by respecting our

Africa, the Middle East, Southeast Asia and the Far East

customers, partners and collaborators.

VIEW FROM THE TOP

TAMING THE NORTH SEA PAYS OFF ANDRÉS GARCÍA Business Development Manager LATAM of Ampelmann Operations

Q: What challenges is Ampelmann facing as it ventures

flight simulator upside down, compensating all six degrees

into Mexico?

of freedom, the vessel’s movements are continually

A: The most challenging aspect of bringing technology to

monitored and then compensated for using six hydraulic

Mexico is the lack of knowledge, not only of the product, but

cylinders. The result is a platform that remains fully stable

of its benefits. We are in the middle of a strong campaign to

despite any movement. From this stable platform, staff

penetrate the market that includes explaining the benefits

can reach the offshore structure safely and efficiently via

of our product, not only focused on crew transfer safety

a telescopic footbridge.

but also on efficiency and cost reductions. Ampelmann aspires to be the preferred offshore access method in

Just a decade ago, transferring crew members onto

Mexico for crew transfer due to our lower cost compared

offshore structures was a cumbersome and often

to helicopters and for walk-to-work solutions compared to

hazardous operation, regardless of the method used. This

expensive flotels.

problem was solved by Ampelmann by devising a motion compensation solution that enabled safe crew transfers

Our strategy to enter the market is not to push the

from vessels. Ampelmann disrupted the offshore industry

technology but to educate the local people so they

by making offshore transfers much safer. Ampelmann

understand that there is a need for the product by raising

became the global industry leader and invented solutions

awareness and making operators aware of the advantages

that unburdened its customers in ways thought to be

of a safer and faster offshore transfer operation that will

impossible before. Ampelmann maintains a fleet of 60

help create demand for our technology.

operational systems used for transferring crews and cargo to offshore structures. These solutions are tailored

Q: What added value does Ampelmann offer to the

to the needs of different market segments, sea states,

Mexican market?

cargo and crew loads, and are used by the key players in

A: Ampelmann sets high standards for safety and cost-

the global industry.

effective solutions in the Mexican market. We support activities throughout the life cycle of a fixed or floating

Ampelmann systems are also monitored 24/7 by our

platform with our easy, comfortable and secure offshore

Operations and Control Center (OCC) that connects directly

access systems, even in adverse weather conditions, and

with a dedicated team of project and service engineers in

we understand how to execute Walk to Work and Crew

The Netherlands. That, together with a 99 percent-effective

Transfer projects. One of Ampelmann’s great strengths is

working time, full support and backup from a great supply

the quality of its people, which is remarkable according

chain give our clients the confidence that operations will

to our clients. We provide a full service to maximize our

take place safely and in the shortest possible time. Cutting-

customers’ project performance. Ampelmann offers full

edge technology is also making it easier for us to enter

engineering support. Before we start, we fully analyze the

the market because it allows the company to demonstrate

details of our customers’ requirements and project needs.

3D-rendered visualizations of how the technology looks

Ampelmann’s team and operational support are specialized

with different vessels and how it would work under various

not only in our technology but also in customer satisfaction,

weather conditions.

which means they know how to ask for critical information in a way that makes technicians feel that the service Ampelmann offers is valuable for the project.

Ampelmann Operations provides offshore access solutions for personnel and cargo transfer. With a track record of more than

The concept of the Ampelmann system was conceived

3.7 million safe transfers and 200 projects worldwide, it has a

in Berlin at an offshore wind conference in 2002. With a

presence in every major oil and gas offshore project

181

VIEW FROM THE TOP

BRANCHING INTO DESALINATION AND WASTEWATER OPPORTUNITIES ALFREDO ESQUIVEL Director General of Multiservicios Petroleros

182

Q: What key factors led to the creation of Multiservicios

project auctioned in the Caribbean, where companies from

Petroleros?

Canada and Spain, among others, also participated. The

A: Multiservicios Petroleros was created to address the oil

company’s main priority is developing our desalination

and gas industry’s water-related requirements that local

plants business line. Multiservicios Petroleros is looking

and regional companies were neglecting. Multiservicios

to strengthen this segment in the Caribbean as well as

Petroleros grew organically from a civil construction

Baja California Sur.

company founded 39 years ago. Six years in, we realized our service branch required a company of its own.

Our aftersales service goes as far as our clients require.

Multiservicios Petroleros is one of the few companies

For instance, our business relationship with Royal Resorts

in Mexico that manufactures water desalination plants.

started when we proposed the installation of water

Between 1990 and 1992, we sold our first 10 plants for the

desalination plants to ease their water consumption bills.

offshore drilling industry.

Since closing the purchase agreement 14 years ago, we have covered the plant’s maintenance.

Q: What added value does Multiservicios Petroleros offer to its clients?

In addition to our core Aquacare business, we also offer

A: Our personnel is fully qualified in all matters pertaining

wastewater treatment plants, submersible pumping

to security regulations that apply to any offshore or

systems, hydro-pneumatic systems, transfer pump

onshore facility, such as rigs or vessels, particularly when

systems and oil-water separators to cover the entire water

it comes to installing our equipment. We are accustomed

management value chain.

to safety inspections and continuously complying with all operating rules and regulations. The capacity of our

Q: What has been your experience with the new

personnel makes us highly competitive, allowing the

developments pertaining to local content?

company to offer top-tier technical and cost-effective

A: Despite their long track record, regulations surrounding

proposals. Multiservicios Petroleros takes special care

local content and their modifications have yet to produce

with our workforce integration process and in selecting the

the desired impact. The inherent nature of the industry

highest quality imported equipment components, while

makes it hard to adhere to a local content dynamic,

offering expert project design. Also, our Aquacare product

especially in high percentages. For instance, Mexico lacks

remains a reference for our added value. We learned a

capital goods or equipment manufactured locally for the

lot from our more than 20-year business relationship,

oil industry. We are focusing on what the new entrants

as distributors, with our American manufacturer. This

will require and analyze if we can provide that for them to

relationship gave us the tools to start manufacturing our

comply with their local content obligations.

own products, with the particular difference of horizontally integrating the whole manufacturing process: welding,

Q: What role is Multiservicios Petroleros assigning to

Programmable Logic Controller (PLC), programming and

strategic alliances?

every step of the electric cabinet manufacturing phases.

A: Technology is a major component of our business. We

Our differentiators became apparent when we won a

have close business relationships with three international companies that provide us with the latest technology advancements, which we integrate into our product

Multiservicios Petroleros is a Mexican company with more than

designs. We make a point to attend all major international

33 years of experience in the oil and gas industry providing

events pertaining to the water industry to maintain

desalination plants for offshore and onshore operations such

these relationships. Water desalination has advanced

as platforms and mud ships

considerably in the last 40 years and has a bright future.

VIEW FROM THE TOP

WELDING INTERNATIONAL EXPERIENCE WITH LOCAL CONTENT CYRIL PETIT Vice President of North and Central America of Serimax – Vallourec Group

Q: How can your international experience translate to

field onboard vessels or on land. We have been developing

success on the Mexican side of the Gulf of Mexico?

welding and engineering procedures that span the entirety

A: Each oil and gas field in production goes through

of well construction. We have a suite of fit-for-purpose

different life cycles and has different operating conditions

welding procedures and can weld hanging from a platform,

calling for unique and specific designs. All projects are

on a vessel or on land. Through these experiences, we have

unique and we take all the design parameters relevant

acquired skills and knowledge that can be leveraged to

to our applications in consideration when engineering a

support a cost-effective and swift development of the

weld that is fit for purpose. We have been active on all the

deepwater projects in Mexico.

major deepwater projects in the world for over 20 years, whether the pipelines, risers and structures were reel-laid,

Q: How has your work in Mexico evolved?

S-laid or J-laid. We are carrying with us to the southern

A: We are slowly but surely transitioning from shallow to

Gulf of Mexico the knowledge, the technologies and all

deeper waters. Once there, we already have all the expertise

lessons learned and acquired internationally. More and

and all the lessons learned that can be leveraged and used

more engineering firms and construction companies are

directly without having to undergo a new learning curve

pushing for a rationalization and standardization of the field

with the increased cost that it implies. Having had the

infrastructures. This move makes our solutions even more

chance to work in many international jurisdictions and now

relevant in our constant efforts to reduce overall project

being able to participate in the growth and development

costs. On cross-country pipelines where Serimax is also

of Mexico’s oil and gas industry will allow us to help the

active, the same model and methodologies are deployed to

country in general by keeping operational costs low. We

support the development of the oil and gas transportation

are committed to supporting the change in Mexico just

infrastructure in Mexico.

like we did in many other countries when the transition to deeperwaters took place.

I remember when we carried out the deepest project in the Gulf of Mexico at the time for Petrobras on the

Q: What would need to change in Mexico to create an ideal

Cascade and Chinook field. When we first got involved on

investment environment for Serimax?

this project we were discussing major challenges. What

A: Obviously, such a change would imply opening some

we learned on this project, and the many that followed,

fields and developing them. Hopefully, local public

unquestionably supports our efficient deployment in

institutions would send the right signals and give companies

Mexico. We can deploy well-known technology, welding

like Serimax the transparency needed to better detect the

procedures and proven engineering procedures to

right time to boost investment in Mexico. The problem is

support developments in Mexico’s deep-sea fields. Of

that we have seen many planned projects in the past years

course, each well differs in its H2S content, with varying

suddenly get canceled or postponed. We are not talking

lines, flows and pressures. In most cases, a custom design

about postponing a job by six months; we are talking about

of the pipeline is required. When combining all those

delays of years. This makes it very difficult to make a good

factors, there is likely a similar design somewhere in the

business case to support the investment required to further

world on which Serimax already worked that can be

develop Serimax in the country.

deployed efficiently in Mexico. Over the past 15 years, we have worked in all the most

Serimax is a premium full-service welding company that offers

difficult deepwater fields imaginable in the Gulf of Mexico,

integrated solutions for pipeline and fabrication operations

in West Africa and in Asia. Over all these years, we have

onshore and offshore, in the most extreme conditions and

developed and improved our technology to work in the

challenging environments

183

INSIGHT

GAS LIFT POTENTIAL ATTRACTS GLOBAL LEADER JAIME ZUBILLAGA Managing Director of MAN Diesel & Turbo Mexico

184

As Mexico prepares for an upturn in exploration and

Mexico already implements several Enhanced Oil Recovery

production activities, MAN Diesel & Turbo is setting its sights

(EOR) technologies, and one major experience is exemplified

on bringing its global capabilities to the Mexican market,

by PEMEX’s activities in the Cantarell offshore fields. In these

eyeing a niche in gas lift, among other technologies and

fields, PEMEX uses gaseous nitrogen to improve production

applications. “Gas lift consists of natural gas compressed and

using MAN Diesel & Turbo compressors. “We are the only

injected at a high pressure to increase oil production rates,”

manufacturer present in the gaseous nitrogen market in

says Jaime Zubillaga, Managing Director of MAN Diesel &

Mexico,” Zubillaga says.

Turbo Mexico. The gaseous nitrogen facility, located onshore in Atasta, With many mature fields both in PEMEX’s hands and to be

Campeche, produces 1,500 million cubic feet per day. It is

assigned in future rounds, Zubillaga sees some potential

owned by the German group Linde, and today it is the biggest

for MAN, one of the world’s leaders in the design and

nitrogen-producing plant in the world. It has five production

manufacture of compressors, gas and steam turbines for

modules, and all the turbomachinery was supplied by MAN

oil and gas applications. Greenfield projects that were

Diesel & Turbo, for a total installed power of 500MW. The plant

auctioned in Rounds 1.4, 2.2, 2.3 and 2.4, as well as the Trion

takes nitrogen out of the air and after a complex process,

and Nobilis-Maximino farmouts, also pose an opportunity

compresses it to high pressures so it can be injected into

for the company.

the Cantarell fields. The plant has been working since 2000. It has been expanded and the contract was renewed with

A major project that demonstrates MAN Diesel & Turbo’s

PEMEX until 2027.

capabilities, says Zubillaga, is located in the North Sea. “An example of our subsea gas compression capabilities can

MAN Diesel & Turbo is also present in midstream, making sure

be found in the Asgard field in Norway, which belongs to

that fuels are distributed efficiently across the country, says

Statoil, and where we installed the only worldwide subsea

Zubillaga. “We are executing a significant long-term service

compressors application in the world,” Zubillaga says. On Nov.

and maintenance contract for the main and auxiliary engines

17, 2017, these subsea compressors reached 30,000 hours

of PEMEX Logística’s major fleet of oil-product tankers, which

of successful operation at 300m water depth. The subsea

includes 16 vessels. This fleet is of key importance for Mexico

compressors in the project have been paid off by the revenue

to transport oil products on the coast of the Gulf of Mexico

generated from the increased gas production, as they allow

and the Pacific.”

for higher recovery rates because of the proximity of the compression equipment to the field, which leads to higher

To round off MAN Diesel & Turbo’s presence in the country,

efficiencies, Zubillaga adds. “In a highly expensive industry like

the company has equipment in nearly all PEMEX refineries.

deepwater operations, every percentage point of efficiency

“Our presence is so critical that, if one of our compressors

counts, and a subsea compressor makes a great difference.”

stops, the whole refining production process stops,” Zubillaga says. Despite the importance of its machines,

Despite Mexico’s tendency to resist new technologies and the

Zubillaga finds it discouraging that PEMEX is not providing

relative novelty of private companies entering the country,

that machinery with the necessary preventive maintenance.

Zubillaga expects to begin introducing this technology soon.

“Our equipment is running mainly because of its high

“It is feasible to install this technology in Mexico because our

quality, even though PEMEX has not provided proper

target is precisely the development of deepwater fields,” he

maintenance services so far,” he says. “While equipment

says. “Of course, this technology will not be implemented right

from other companies would have already failed, ours are

away but in two to three years we expect to be offering them

still running. This is both a source of pride for us and a

to operators in Mexico.

source of difficulty for the country.”

VIEW FROM THE TOP

READY STOCK, RIGHT CALIBRATION, PURITY KEY VALUE ADDS LUIS GARCÍA Deputy Director General of Gaeli Diesel

Q: How did Gaeli Diesel develop its core business and what

When we need a vessel for transportation, we hire oil tankers.

strategic challenges did you face?

We are looking to acquire our own vessel and integrate it

A: We divided our family business into three main areas:

to our transportation service portfolio, thanks to our sales

hotel chains, marine diesel and real estate, together with

performance.

new projects. Back when Gaeli Diesel was solely focused on marine diesel and other fuels, we were the only distributor

Q: With these new developments in the oil and gas sector,

in Ciudad del Carmen. By 1998, our family business built a

how are you increasing profit margins?

reliable reputation based on a long history of best practices.

A: Many distributors in the country, marine and land distributors

We covered three points of sale: Dos Bocas, Ciudad del

alike, are looking to capitalize on the new provisions brought

Carmen and Seybaplaya. Marine diesel is the measuring stick

about by the reform and analyzing the possibility of closing

of the offshore industry because it is the first business that

alliances with gasoline-supplying entities other than PEMEX.

companies look into due to the nature of their operations. If

One of the new options available is G500, a major company

major players, such as ENI, Talos Energy or Fieldwood Energy,

integrating thousands of marine and land-based gas stations.

come to town, the first companies consulted are oil or marine

We are thinking of joining this Mexican consortium to have

diesel distributors since the former need the latter’s ships to

access to Glencore, their sole supplier.

explore the extension of the blocks they bid for and won. We are fortunate enough to see business pick up after two and a

Q: How has CRE advanced on the matter of fuel storage,

half very complicated years and are glad the Energy Reform

distribution and transportation permits?

helped with that, considering all the newcomers wanting to

A: There has been a lot of speculation regarding the speed

get a foothold in the liberalized market, increasing demand

with which the Energy Reform has been applied. Businesses

for what we sell as local businessmen.

like ours, dependent on the oil industry, want the process to be swift and effective. When the number of contracts from

Q: What is the specific added value Gaeli Diesel provides in

PEMEX started to decrease two and a half years ago, there

an increasingly competitive market?

was an even greater interest in an expedited application of

A: Three key factors are behind our added value. First,

the reform to allow a full-tilt market entry by new companies.

our diesel stock is always readily available because of our

Reality caught up with these expectations amid the decreasing

transportation capacity and guaranteed by our company-

rate of PEMEX’s contracts coupled with the slow entry process

owned truck fleet. We prevent our clients from losing money

for new players. The effects of this perfect storm are wearing

by securing sizable diesel shipments with guaranteed delivery

off and the gap between a poorly performing PEMEX and a

in the agreed-upon time. Second, we always deliver the right

liberalized market is starting to shrink, which is desirable for

calibration between liters of diesel provided and what we

an improved oil and gas market. CRE is a major factor in this

charge for it, employing our certified dispatch meters and

process. Compared to other countries that went through a

verification by public notaries. Third, the purity level of our

similar transition, Mexico is not going any slower. Reforms

diesel is above market standards. We never pour diesel in

take time, particularly when they rock the foundation of the

any container that is not ours, avoiding contamination. The

previous status quo. The pace and impact of the reform rest

technologies we use allow us to offer diesel that is free of

on CRE’s regulatory effectiveness.

water and impurities. Regarding offshore activities, most of the diesel that we sell

Gaeli Diesel is a private marine diesel distributor with the largest

in Seybaplaya and Ciudad del Carmen is sold directly to the

storage capacity in Mexico. The company can dispatch fuel 24

ships from our premises. In Dos Bocas, we transport our diesel

hours a day, 365 days a year, to up to four ships simultaneously

in our automotive tanks and distribute it wherever needed.

from the ports of Ciudad del Carmen, Seybaplaya and Dos Bocas

185

Shallow water platform near Tabasco

186

INSIGHT

DIVING INTO SAFER WATERS ENRIQUE MARTÍNEZ Director General of SOT Inc.

The oil and gas industry involves high costs and high

SOT Inc is working to further develop not only as

risks. Underwater inspection for offshore operations

a company, but also to help advance the Mexican

is a clear example. The divers who must check what

industry and market. To this end, it is developing ROV

is actually going on below the sea while dealing with

modifications to broaden its range of services. “Our

high pressures, massive structures and even potentially

general inspection offering is from sea level to seabed

dangerous animals.

at the moment, but we want to look below the seabed. The technology already exists but it must be adapted

Remotely Operated Vehicles (ROVs) help companies

not only to Mexican economic and environmental

avoid these risks. SOT Inc., a Mexican business that

conditions, but to specific client requirements. That is not

offers subsea general inspection services, sees an ocean

an easy task but our workforce is comprised of Mexican

of opportunity in ROVs, says Enrique Martínez, the

engineers, mathematicians and physicists. They adapt

company’s Director General. “Visual inspection is a broad

the technology to client and environment requirements

service that ranges from detailing seabed conditions to

and then operate it, ensuring that our operations are

the state of structures under the sea. To say that offering

performed at the highest quality possible.”

this service through ROVs is our added-value would be misleading,” he says. “Our ROVs are a substitute for divers,

Developing and adapting new technology in-house is

therefore providing a threefold added-value, which is

a key advantage for SOT Inc. For customers, when the

minimizing security risks, reducing costs and shortening

operator is also the developer, cost advantages become

operation times. The minimization of operational security

obvious. “Having a Mexican workforce that actually

risks is straight-forward: we eliminate the need to put a

developed the required adaptations ensures that, when

diver’s life in danger. Using ROVs for visual inspections

problems arise, solutions are quickly found,” Martínez

requires a much smaller boat and fewer operators, which

says. “There is no need to contact a manufacturer in the

produces lower costs. Finally, having a leaner organization

US or even in Europe to figure out what the problem is,

and smaller equipment speeds up operations.” It is for

which can delay operations for days or even weeks.

reasons like these that MarketersMedia estimated that global total CAPEX investment in ROVs will hit US$5.15

Martínez adds that if these kinds of solutions are taken

billion in 2025.

into consideration when calculating final prices, SOT Inc is actually less expensive than other providers that simply

Among the main challenges new technologies face is the

operate ROVs without actually developing technologies

aversion to change among some potential customers.

around them.

“One of the main challenges we came up against when entering the market was convincing people that things

Having a clear commitment to Mexico’s industry and

could be done differently and that using ROVs would

market is a core value for the company, which has

decrease time, costs and security risks.”

included the future of the country’s labor force in its longterm plans. “To further support the Mexican workforce,

But as the oil and gas industry has turned toward

we are approaching some Mexican Universities to create

innovation to ensure its activities are safe while remaining

internships so university students can come and learn

cost-efficient, the paradigm of using business-as-

with us, improve their skills and abilities, and then

usual solutions is starting to break. “Things are now

find a direct way into SOT Inc,” Martínez says. “We are

much different, people are starting to be aware of the

committed to the development of the Mexican industry.

technology and even PEMEX is very interested in using

Although 2016 and 2017 were difficult years, we are now

our solutions,” Martínez says.

looking at an uptake in operations. Things are improving.”

187

INSIGHT

TIME IS RIGHT FOR GETTING CLOSER TO CUSTOMERS MANUEL MARISCAL Director General of O&L Offshore

188

The new reality of Mexico’s oil and gas industry demands a

IOC operates with a rigid, company-specific compliance

sizable effort in pulling all the stops to provide tailor-made

and procurement system. “Mexico’s oil and gas industry,

products and services to a demanding pool of international

coming from a long-standing tradition of being price-

players entering Mexico’s market. Other players have

driven, still finds itself in somewhat of a backlog in creating

expanded their services portfolio, joined strong investment

a similar, standardized system. We need to adapt to their

funds and created strategic alliances to collaborate in the

compliance and procurement processes so our proposal

growth of the oil and gas sector.

provides the highest added value.”

Manuel Mariscal, Director General of O&L Offshore, believes

The industry’s recent milestones reflect efficient planning

that now more than ever, it is necessary to take a closer

for capital and operational expenditure. This is the case of

approach in addressing the needs of customers, which he

ENI and the consortium between Talos Energy, Sierra Oil &

says is the first step in building long-lasting relationships

Gas and Premier Oil in the early bidding rounds executed

and embracing new opportunities. “With more than 15

by CNH (R01-L01 and R01-L02) and the discoveries that

years of experience working with PEMEX and international

followed. For O&L Offshore, these kinds of opportunities

operators in shallow-water projects, O&L Offshore is

represent the ideal platform to highlight its expertise in the

broadening its business niche to onshore, providing services

Mexican oil and gas market. “International companies have

and top-tier technologies coupled with local expertise and

a lot of experience in complex reservoirs around the world

knowledge from Mexico’s highest-skilled professionals,”

and they intend to apply that experience and knowledge

Mariscal says. The company is determined to showcase

to Mexico’s basins, which is where O&L Offshore, with its

the comprehensive set of services it can provide to the

engineering and consultancy services, can help. Our world-

new face of the industry, such as pipe laying, platform

class experience is locally applied,” Mariscal says.

installation, engineering, O&M and oil well intervention. To get stronger, Mariscal believes companies must also Mariscal’s previous experience working with PEMEX

get bigger, and O&L Offshore is open to new business

has given O&L Offshore a clear vision of the oil and

opportunities and strategic alliances. The company has

gas industry’s requirements, a vision that is driving the

offices in Mexico City and its operational headquarters is

company to capitalize on the industry’s momentum to

in Ciudad del Carmen, so it can keep in close contact with

focus on O&M and engineering services to both national

key customers.

and international companies. These new companies have raised the bar for world-class services and require

In the past four years, Mexico’s licensing rounds have added

international standards. Local content, logistics know-how,

more than 2.5 billion boe in national reserves, more than 50

as well as technical and regulatory expertise are in high

new operators and over 100 exploration wells committed

demand, which Mariscal says is one of O&L Offshore’s

offshore and onshore. With the success stories from the

advantages. While IOCs can capitalize on the comparative

Zama and Amoca fields still fresh, Mariscal says there is

advantages of a long-standing expertise in the industry

room for improvement, and an opportunity to get ahead

and a global footprint in mature oil and gas markets,

of the game. “We are eager to position ourselves as one

Mariscal finds new entrants more often than not lack the

of the best service companies in the Mexican market. To

boots-on-the-ground knowledge required to succeed

accomplish this goal, we are conducting market-penetration

in Mexico. “We provide local expertise to IOCs and help

activities with the winners from the CNH rounds, while also

them find tailored technological solutions for the specific

helping others that are still looking to enter Mexico. The real

needs of Mexico’s oil fields, on a case-by-case basis.” It

results will not be apparent for another two years but we

can prove challenging, however, as Mariscal says each

are preparing for that now.”

VIEW FROM THE TOP

TAILORING SOFTWARE TO GAPS IN THE PROCESS JAVIER DÁVILA BARTOLUCHI Director of Energía Integral

Q: What bottlenecks are new operators expected to face

A: We have what we call fast diagnostics. This entails sending

when entering the Mexican market?

people to the field to help operators get an overview of

A: We are experiencing a culture shock. New operators and

their situation. Through a very quick assessment we can

investors know what they are looking for. When they assemble

estimate with 80-90 percent certainty the conditions of the

their teams to work in Mexico they have problems finding

installations, which can give operators a better picture of what

good middle management people. Many workers have

they are going to get.

PEMEX-related experience and that company’s culture is integrated into their practices. They do not know how to speak

Q: On a software level, what will be the most influential

the language of business, they only speak in operational terms.

technologies in the coming years?

Entrants into Mexico, particularly their top management, are

A: We are developing our own software that will help define

struggling with this gap and it can become significant if they

workflows at operational levels to generate a plan that is

do not pay attention. One of the best ways to reduce costs

more customized to the particular role of each operator,

is to digitalize the industry, which includes creating more

that includes a customization of their reports. We have also

operational methodologies to fill the gap between middle

developed different modules for contract control. In the sector,

and upper management. The efficiency of infrastructure must

the paperwork and the required compliance commitments

be improved to meet the new requirements of the industry.

demand a great deal of attention because the contracts are

This demands more operational control and sometimes not

more detailed than normal international contracts for this kind

all workers are used to those kinds of requirements.

of work. The module we have made is designed specifically to help operators control all the documentation, all the potential

Q: What are the main problems new operators are

penalties and to keep track of required timelines. Because the

encountering?

requirements for information are very high, we are developing

A: One problem is the aging infrastructure, maybe not so

software to help our clients control information flows.

much because of age but because of lack of maintenance. They often find equipment that is not in operational

We also have another module focused on measurement to

condition or pipelines with poor reliability. The solution is

comply with all the requirements established by CNH and

to pay more attention and establish new methodologies

which is modeled in accordance with USO 10012. This issue

as well as being stricter with regard to the control of

was largely forgotten by PEMEX and the local industry for

programs and new technologies. Of course, that requires

many years since there was little need for it. There is a big

investment but the small companies that are operating

gap between the installations and the new requirements now

the first contracts are still having difficulty deciding how

that new operators are selling oil and PEMEX is supervised by

and when to invest. That has caused a slight delay in

CNH. We are also working on risk management. Risk is more

launching operations in many of the original fields. Some

easily detected at the lower operational levels so we should

of the operators have spent almost a year checking and

teach them to observe the risks and record them on time

comparing what they received in terms of E&P blocks with

before that risk becomes a crisis. Most risks can be identified

what they were told they had received. I believe they must

beforehand and we include in our software a predefined list

check their investment programs. On the other hand, CNH

of the potential risks involved in a process.

has learned from the first rounds and the new rounds are improving greatly. In many respects, CNH is doing a good job and is learning from its experiences.

Energía Integral is a life cycle consultant for industrial installations. The company’s consulting focus lies principally

Q: How have you been helping these new operators to

in seeking out and exploiting opportunities for improving the

evaluate the installations they have received?

efficiency of business and operational processes

189

Grupo R's Centenario has been drilling in deepwater for PEMEX since 2010

DEEPWATER

Rounds 1.4 and 2.4 allocated 27 of the 39 blocks that were placed up for grabs, with the allocation of the first-ever deepwater farmout for PEMEX. As a result, deepwater Mexico is beginning to show the potential hidden beneath the surface. According to data from CNH, approximately 25 percent of Mexicoâ&#x20AC;&#x2122;s prospective resources are located in the deepwater Gulf of Mexico, but before the Energy Reform it was almost impossible for PEMEX to conduct exploration and appraisal activities in this sector by itself. Now, this new niche for the Mexican oil and gas industry represents a great challenge, and at the same time a great opportunity for the country and for the companies that are bold enough to venture into this unexplored environment.

While it will take time for the country to see the benefits, the perfect mix to develop a competitive and efficient environment for businesses is being put in place by both the public and private sectors.

191

CHAPTER 7: DEEPWATER 194

ANALYSIS: Treasure Waiting to be Found in Deepwaters

196

MAP: Deepwater Blocks and Wells

198

VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico

199

VIEW FROM THE TOP: Julie Robertson, Noble Corporation

200

VIEW FROM THE TOP: David Johnson, Alpha Deepwater Services

202

VIEW FROM THE TOP: Farhan Mujib, KBR

203

VIEW FROM THE TOP: Roberto Orsolato, Saipem Mexico

204

VIEW FROM THE TOP: Alfredo Carvallo, McDermott

206

VIEW FROM THE TOP: Tom Fulton, InterMoor

207

VIEW FROM THE TOP: Rodrigo Sandoval, Inchcape Shipping Services

208

INSIGHT: Oscar Duque, Trelleborg

209

VIEW FROM THE TOP: Víctor Oliveros, WorleyParsons Mexico

210

VIEW FROM THE TOP: José Arráiz, EXPRO Mexico

211

VIEW FROM THE TOP: José Aguilar, Oceaneering

212

VIEW FROM THE TOP: Rodrigo Nieto, Falck Safety Mexico

213

INSIGHT: Paul Armitage, SECC Oil & Gas

193

ANALYSIS

TREASURE WAITING TO BE FOUND IN DEEPWATERS Mexico deepwater areas have gone largely untapped. While PEMEX has discovered some significant fields, it does not have the technology or capital to drive them to production. In a newly-open market, PEMEX is stretching its muscles and IOCs are coming to grips with what will be one of the most competitive arenas in the industry the biggest amount of committed investment will go to the

and gas production back to its former levels, or even higher.

deepwater arena. According to CNH, from the US$161 billion

According to data from PEMEX and CNH, approximately 25

to be invested in the long term, 84 percent will be invested

percent of Mexico’s prospective resources, meaning about

in deepwater activities. As reported by CNH, companies

28 billion boe, are located in Mexican deepwaters, but before

have offered upfront tiebreaker payments of US$1.14 billion,

the Energy Reform it was almost impossible for PEMEX to

of which US$624 million corresponds to the payment made

conduct exploration and appraisal activities in this arena by

by BHP to win the Trion farmout. This represents almost 70

itself. The Trion farmout and the 27 blocks allocated to IOCs

percent of the total tie-breaker payments generated by the

during the deepwater licensing rounds marked a milestone in

licensing rounds. Furthermore, as of December 2017, the

Mexico’s oil and gas industry.

Mexican state has received over MX$304 million (US$15.2 million) thanks to the licensing rounds; deepwater activities

A DEEPWATER GIANT TO BE UNLEASHED

represent 78 percent of that income.

Pedro Joaquín Coldwell, Minister of Energy, highlights the international proven interest in deepwater Mexico, especially

PEMEX’S AMBITIONS

during Round 2.4. “Mexico has consolidated itself as an

The NOC is working to change its culture and adapt to the new

attractive destination for deepwater investments with a total

market conditions. It would have been easier for the company

awarded area of 44,178km during Round 2.4, which is double

to just sit and wait for IOCs to take part in the exploration of

the area awarded in Brazil’s Round 14 and 21-fold the awarded

untapped fields. Instead, the NOC made its first deepwater

surface of the US Round 249. Moreover, CNH reported that

farmout in its Trion field. On the same day that PEMEX

bids for these blocks were higher than those of Brazil and the

allocated Trion’s historic farmout, the NOC also participated

US, with an average of 2.1 offers per block in Round 2.4 against

in Mexico’s first-ever deepwater licensing round, Round 1.4,

an average of 1.3 and 1.1 offers per block in Brazil and the US,

where it won Area 3 in the Perdido region in a consortium with

respectively. Another indicator is the average government

Chevron and INPEX. Round 2.4 saw PEMEX win two blocks

take of 64.7 percent in Round 2.4, which is higher than the

under a consortium, one with Shell and another with Chevron

55 percent historical average for deepwater blocks in the US.”

and INPEX and two blocks as a lone player.

Much work has yet to be done in deepwater Mexico as

The difference in results from Round 1.4 to Round 2.4 is a

the 27 blocks assigned during Rounds 1.4 and 2.4 are for

clear example of the steep learning curve PEMEX has gone

exploration purposes rather than for production. This is why

through in the deepwater arena. David Johnson, Chairman of

ACTIVITIES IN GULF OF MEXICO DEEPWATERS PER YEAR

8 8

9 10

2005

2007

2008

Average active drilling equipment Source: CNH

7 6

1.4

2.9

3.3

5 2.9

2.2

2.9

4 2006

0.8 1

0.3

2.4

1.6

3 2

5 5

7 6

3.2 3 4

194

Deepwater Mexico has the clear potential to bring Mexican oil

2009

2010

Total drilled wells

2011

2012

2013

2014

Total completed wells

2015

2016

2017

Alpha Deepwater Solutions, points to the synergies PEMEX

we are making the planning much more integral with other

must create with the right partners for the development

ports in the state because it is now the state that is interested

of deepwater activities. “The perfect partner for PEMEX is

in its development and in connecting it with the future of the

a company that knows how to develop a deepwater field

industry in Tamaulipas. Our objective is to make Matamoros

and will value PEMEX’s contribution,” he says. “The NOC

the first truly deepwater port in Mexico.” With 45 percent

has extremely detailed knowledge of its basins and more

of the committed investment expected to go to deepwater

data than anyone else. It has a very good track record

Tamaulipas, it comes as no surprise that the state is carefully

and is a world-class company, particularly in shallow

preparing to take advantage of these investments with the

water. The perfect partner for PEMEX would be a mid to

construction of the port of Matamoros and with the creation

large international oil company with people who know

of an Energy Regulatory Commission to administrate the

how to work with a partner that is still learning about the segment.” This vision is shared by PEMEX itself, as explained by Ulises Hernández, Director of Prospective Resources, Reserves and E&P Associations at PEMEX, who highlights farmouts are and will remain the perfect tool for the NOC to gather important lessons in areas it has not been able to develop in the past. “Farmouts will continue focusing on the areas where PEMEX needs to complement its capacities, meaning mainly deepwater, high-risk onshore assets that need costly execution capacities to capture value and

“

state’s energy efforts.

Shell and other players will introduce more technology for local players to do more for the country’s development.” Alberto de la Fuente, Director General of Shell Mexico

unconventional resources.” While opportunities are many in deepwater, Joaquín Coldwell

A LONG-TERM VISION TO PRESERVE

says the country must maintain a long-term mentality when

Mexico’s port authorities from the Gulf of Mexico are looking

talking about deepwater activities. “Deepwater blocks will

with wide-open eyes at the upcoming increase in offshore

take between eight to 10 years before moving into production

activities. Jorge Ruiz, Director General of API Tuxpan, clearly

phase due to the longer maturity period they require and

recognizes the opportunities. “Tuxpan has the capacity

the larger early-stage investments to locate the oil present

to cater to the development of deepwater activities with

at depths from 1-3km,” he says. This is supported by Alberto

equipment, personnel and logistics support, as the deepwater

de la Fuente, Director General of Shell Mexico. “Specifically

blocks in the Tampico-Misantla-Veracruz basin are located at

in deepwater applications and because of their technology-

a reasonable distance from the port,” he says. Tamaulipas will

driven nature, Mexico still lacks the capabilities to compete

also tap into the potential golden egg, says Ricardo Correa,

on a global scale.” With a clear commitment, de la Fuente

Director General of API Tamaulipas, Puerto de Matamoros, a

also suggests that IOCs with more experience can act as a

port soon to be finished and that clearly aims to unlock the

springboard to increase deepwater operations. “Shell and

potential of the Perdido area. “The main shareholder in the

other players will introduce more technology for local players

Matamoros port is the government of Tamaulipas; therefore,

to do more for the country’s development.”

HYDROCARBON RESERVES IN MEXICAN DEEPWATERS (billion boe) 25

Reserves suffered a steep decline from 2015 to 2016 as a result of the fall in oil prices and the reclasification of reserves into contingency resources

2005

Proven

2006

2007

Probable

Source: CNH

Fuente: Secretaria de economia

2008

2009

Possible

2010

2011

2012

2013

2014

2015

2016

2017

195

DEEPWATER BLOCKS AND WELLS 2 5 3

2 21

12 11 14 15 16 18 17 1 19

3 10

7 8

20 1

PEMEX's Assignments Wells

24 25

Fields

5 7

196

27 28

30 33 36

3 18

28 4 5

29 Source:CNH

DEEPWATER MEXICO IN A NUTSHELL

Well

Results

Alaminos-1

Oil and gas non commercial producer

Tiaras-1

Oil and gas non commercial producer

Mirus-1

Oil and gas non commercial producer

Maximino-1Dl

Oil and gas commercial producer

Trion-1Dl

Oil and gas commercial producer

Trion-1

Oil and gas commercial producer

Nobilis-101

Oil and gas commercial producer

While deepwater Mexico remains an underdeveloped sector in the country’s offshore arena, PEMEX has drilled over 50 wells to explore for hidden treasure below the waters in the Gulf of Mexico. IOCs entering the scene can help the NOC untap the undiscovered potentital. With one deepwater farmout and 27 blocks allocated during Rounds 1.4 and 2.4, the future appears bright for the expected success of deepwater exploration in Mexico.

Winning Bidder

China Offshore

Oil Corporation

Total and

ExxonMobil

Chevron, PEMEX and INPEX

Statoil, BP and Total PC Carigali and Sierra Oil and Gas

Basin

Area (km2)

Shell and PEMEX Shell and Qatar Petroleum

PEMEX Repsol, PC

Carigali and Ophir

PC Carigali, Ophir and PTTEP

Repsol and PC Carigali

Shell ENI and Qatar Petroleum

PC Carigali

Oil and gas commercial producer

Maximino-1

Oil and gas commercial producer

Supremus-1

Oil and gas commercial producer

Maximino-101

Unproductive

Exploratus-101

Unproductive

Round

1.4

Perdido

1,678

1.4

Perdido

1,877

Exploratus-1

In progress

1.4

Perdido

2,977

Pep-1

Unproductive

1.4

Perdido

1,687

Exploratus-1Dl

2.4

Salina

2,879

Condensate gas commercial producer

1.4

Salina

2,381

Cratos-1A

Condensate gas commercial producer

1.4

Salina

3,287

Vasto-1001

Unproductive

1.4

Salina

2,359

1.4

Salina

2,573

Doctus-1

Oil and gas commercial producer

Vasto-1

Salt water invasion

Melanocetus-1

Wet gas non commercial producer

Tot-1

Salt water invasion

Corfu-1

Oil and gas commercial producer

2.4

Perdido

2,146

Vespa-1

Oil and gas commercial producer

2.4

Perdido

2,062

Clipeus-1

Wet gas non commercial producer

Astra-1

Salt water invasion

2.4

Perdido

1,900

2.4

Perdido

1,891

2.4

Perdido

1,968

Nat-1

Wet gas producer

2.4

Perdido

2,733

Hem-1

Wet gas producer

2.4

Cordilleras Mexicanas

2,917

Cordilleras Mexicanas

1,999

2.4

Cordilleras Mexicanas

3,099

2.4

Cordilleras Mexicanas

2,242

2.4

Salina

2,080

Yoka-1

Non-commercial producer

Kunah-1Dl

Wet gas producer

Kunah-1

Wet gas producer

Alaw-1

Wet gas non commercial producer

Lakmay-1

Salt water invasion

Piklis-1Dl

Wet gas producer

Ahawbil-1

Oil and gas non commercial producer

2.4

Salina

2,030

Piklis-1

Wet gas producer

2.4

Salina

1,853

Labay-1

Wet gas producer

2.4

Salina

3,067

Nen-1

Wet gas producer

2.4

Salina

1,922

Noxal-1

Wet gas producer

2.4

Salina

2,107

Leek-1

2.4

Salina

2,030

Condensate gas commercial producer

Lalail-1

Wet gas producer

2.4

Salina

3,254

Holok-1

Salt water invasion

Kabilil-1

Unproductive

Repsol, PC

Carigali, Sierra Oil & Gas and PTTEP

Nobilis-1

Block

Murphy Oil,

Ophir, PC Carigali and Sierra Oil & Gas

8 9

197

VIEW FROM THE TOP

LEADING A NEW INDUSTRY ALBERTO DE LA FUENTE Director General of Shell Mexico

198

Q: Now that Mexico’s market has opened, how important

the way we operate and how we remain cost-efficient. We

will the country become for Shell’s global activities?

are building the best team together with the best practices

A: Shell will celebrate its 65th anniversary in Mexico in 2019,

and the best technology available in Shell.

which illustrates our long commitment to the country. Furthermore, what the country has seen in the past year

Q: How ready is the local supply chain to participate in

is just a reflection of what is yet to come in the long term.

new deepwater projects? A: Just like other global players, Shell has made the

Mexico fits well into our global portfolio and thanks to the

development of local suppliers a priority in its localization

Energy Reform we can become more active participants

strategy. This makes sense from a business and a community

in the Mexican oil and gas industry. In upstream, an area

perspective. We opened a sourcing office in Mexico in 2011,

where we think of ourselves as extremely competitive, we

long before the Energy Reform, and for seven years we have

focus mainly on deepwater operations and that is precisely

worked with local suppliers to build their capabilities and

what we are after in Mexico. By 2020, we expect to produce

allow them to compete in international tenders. Our team

900,000 boepd from deepwater projects worldwide, so it

certifies local suppliers to make sure they comply with HSE

is definitely an area of growth for the company. We do not

standards, as well as quality, ethics and compliance.

make commitments for production because we want to prioritize value. Still, we are producing close to 3.8 million

Mexico has gradually built a name for itself in the

boepd from all our operations, which means that by 2020,

international market and we have discovered that the

25 percent of our portfolio could come from deepwater. We

national talent has much to offer after a long tradition in

have participated in deepwater projects for the last 40 years;

the oil and gas industry. Having said that, specifically in

we have always been pioneers and have led the industry

deepwater applications and because of their technology-

forward. Regarding downstream operations, we think Mexico

driven nature, Mexico still lacks the capabilities to

has an important role to play given the size of the country

compete on a global scale. However, Shell and other

and the growth it is experiencing. The country has over 120

players will introduce more technology so local players

million inhabitants and is the fifth-largest fuel retail market in

can do more for the country’s development. This is a

the world, so it is imperative for Shell to be present. We are

long-term process but we believe it is the right approach,

growing in retail operations, lubricants, aviation applications

instead of just imposing a local content rule to condition

and the whole downstream value chain.

foreign investment, as happens in the automotive and aerospace industries.

Q: How is Shell planning to provide the highest added value to Mexico’s deepwater operations?

Q: Although the company’s focus has been on deepwater,

A: We will take advantage of our extensive experience,

would Shell be interested in participating in the onshore

bringing first-class operations to the country. We want

rounds?

Mexico to operate in line with the best standards in the

A: One of the advantages we have is that we can participate

group, taking advantage of what we have learned over the

in many sectors. We already have a few blocks in shallow-

years. This involves technology but it also has to do with

water regions and we are evaluating our participation in other projects. It is true that the bids for onshore mature fields are less attractive to a company like Shell, just as

Shell , founded in 1907, looks to satisfy society’s energy needs in

they are less attractive to PEMEX these days. Economies

an economic, social and environmentally responsible way. Present

of scale are not there but there are still unconventional oil

in Mexico since 1954, the company has a strong participation in

production projects to be bid, and those could also be an

every Mexican oil and gas segment, from upstream to retail

area that we could explore.

VIEW FROM THE TOP

PICKING UP THE DEEPWATER THREAD JULIE ROBERTSON Chairwoman, President and CEO of Noble Corporation

Q: What opportunities does Noble see in Mexicoâ&#x20AC;&#x2122;s oil

longer. But regardless, we are very excited and optimistic

and gas exploration segment and what advantage do

about the timing and about working in Mexico again.

you offer? A: We have a long history in Mexico. We believe we

Q: What cyclical challenges does the offshore rig

understand the market, having operated one of the first

business face?

deepwater rigs in Mexico prior to the Energy Reform. At

A: Currently, we are dealing with an oversupply of rigs. With

the height of our activity, we had 13 jackup rigs in Mexico

the aging rig fleet that many companies had, we all started

which at the time, represented 80 percent of PEMEXâ&#x20AC;&#x2122;s work

building new rigs in the US$100/b environment and we now

requirements. We are obviously very proud of that and had

have excess capacity. For the first time in a long time, we

a great relationship with the NOC.

are seeing some discipline among the drilling contractors in retiring older assets but we still have a long way to go

I believe Round 2.4 yielded very promising results and

in that area. Since the spinoff of Paragon Offshore, we

many of the clients we work for won significant blocks

have retired seven assets we did not feel were going to be

in the licensing round. This is positive for us as we know

competitive, although they are still perfectly capable of

Mexico and its operating infrastructure very well. There

drilling successfully. I think it will take some time before we

are some green shoots appearing here and there, with

add a significant number of rigs to our fleet because we need

current bid activity up, but we view the recent lease sales

some balance to come back into the marketplace.

as opportunities we are excited about. When we worked in Mexico we did so with very limited expatriate crews and

Q: What sets Noble apart, versus other rig suppliers?

large Mexican national crews and we gained many loyal

A: We believe several things set us apart but first and

Mexican employees during that time.

foremost, our employees and the culture that they create in our company. We have many long-tenured employees

The Noble Advanced Training Center takes our training

on the Noble team and they carry that culture to the new

capability to a different level. With the technology we have

employees we hire on the rig and pass it down. When you

there, as well as our skilled instructors, we are able to train

go on a Noble rig, it truly is different from that of other

and prepare large numbers of employees for key roles on

contractors and even our customers communicate this to us

our rigs. Additionally, many customers have been using the

in a positive manner. Our employees understand what Noble

facility to run DWOS (Drilling While On Simulator) drills,

expects and they also well understand what our customers

which significantly improves their start-up operations and

expect and they deliver excellent results. We have worked

continued drilling operations. We believe this center provides

hard to transform our fleet into a young, highly technical

us an advantage in being able to train people in the Noble

fleet of drilling assets but without qualified employees on

way and to our standards.

those assets, they are just like any other drilling rigs. We have customers asking for certain rigs by name because of

Q: Given that all these changes have happened quite

the reputation those rigs have, not because of the quality

quickly, what is your forecast for the industry over the

of the drilling rig, but because of the crews. This is what

next 10-15 years?

sets us apart.

A: I have asked several of our customers that were active in the last deepwater licensing round what their plans are in terms of timing and I must admit that it was much more

Noble Corporation owns and operates one of the most modern,

aggressive than what I was expecting, which is very good

versatile and technically advanced fleets in the offshore drilling

news. Hopefully, we will begin to see real activity in the

industry. The company is focused largely on ultra-deepwater

Mexican sector of the Gulf by next year, although it could take

and high-specification jackup drilling opportunities

199

VIEW FROM THE TOP

HELPING PEMEX NAVIGATE THE DEEP DAVID JOHNSON Chairman of Alpha Deepwater Services

200

Q: What spurred your focus on Mexico and how do you

Q: How do you think your role will change now that PEMEX

help PEMEX specifically?

is partnering with international oil and gas companies and

A: PEMEX needed help in capturing the tremendous potential

their experienced teams?

in Mexico’s deepwater. We have extensive experience in

A: PEMEX never has had to partner before. We have been

all aspects of deepwater exploration, coming from Shell,

helpful in teaching it how to deal with and interact with

ConocoPhillips and other IOCs. When we first made our pitch

partners. The whole business of working with partners in

to Carlos Morales, the former CEO of PEP, it was a pretty

a typical oil company includes a vast number of people,

simple pitch. We told him that we have been involved in all

such as the billing department, the lawyers who craft the

the mistakes made by other companies, and we can promise

agreements and the engineers who work on joint teams

to help PEMEX avoid repeating them. In that sense, we are

and manage teams. Also, how decisions are made in a

a boutique, exclusive, consulting group. The company does

partnership is very structured and detailed. Joint operating

not consist of masses of people sitting at work stations but

agreements are extremely difficult documents to negotiate

rather E&P executives who can recognize a good prospect

and to work with and we have been in the process of helping

and know what to do with it. We help PEMEX in the risk game

PEMEX do that. PEMEX is catching on quickly but it has had

and the drilling schedule, prioritizing and ranking what it

no experience working with partners and it is going to take

does and how it does it. We also provide significant advice

them a few years to get up to speed.

in drill planning and execution as well as development. For example, PEMEX has had to learn how to bid in a Q: What has PEMEX learned from working with your team

licensing round, whereas previously it had the whole

over the past eight years?

country at its disposal. Now there is a need to bid, to value

A: I think PEMEX has improved its drilling quite a bit and I

prospects, to compete, to form different bidding strategies

think it has learned a lot about deepwater, which we have

and many other important details. We have been helping

helped teach them. We provide world-class explorers and

it with everything from business relationships and how to

world-class technologists for PEMEX at its request or at

make deals, to partnering strategies and identifying its

our suggestion to help it learn, train its people and become

best partner. We have also demonstrated the strategies

independently capable in different aspects of deepwater

it can use in the event a desired partner is reluctant to

exploration or in whatever area we work with it. Looking

work together. PEMEX has been shielded from these kinds

forward, the focus should be on attracting several more

of activities for many years and it now must learn. It has

international players to PEMEX’s organization and to reach a

some very good people who would make it into high-level

successful cumulative track record in the NOC’s deepwater

positions in any international oil company but there are not

fields. We know it has the capacity and are confident

enough of these people yet.

PEMEX will meet the deepwater success it needs just as it did with its onshore fields. It all comes down to changing

Q: What do you consider to be the characteristics of a

the mindset. Mexico is sitting on sizable amounts of gas

perfect partner for PEMEX in deepwater?

which can be developed at prices cheaper than imports. It

A: The perfect partner for PEMEX is a company that knows

needs to figure out what to do with it.

how to develop a deepwater field and will value PEMEX’s contribution. The NOC has extremely detailed knowledge of its basins and more data than anyone else. It has a very

Alpha Deepwater Services (ADS) is a boutique, full-service E&P

good track record and is a world-class company, particularly

consultancy focused on Mexico’s offshore. Its team is made up

in shallow water. The perfect partner for PEMEX would be

of seasoned professionals with extensive worldwide deepwater

a mid to large international oil company with people who

experience in exploration, development, drilling and operations

know how to work with a partner that is still learning about

the segment. The partner has to be cooperative and willing

PEMEX continues in this same vein, it is just a question of

to teach PEMEX how to become a better partner.

how long it can survive until it runs out of prospects. It is therefore critical that it becomes successful in the licensing

Q: Where do you think deepwater activity will be focused

rounds and critical it becomes a successful international

in the coming five years?

explorer as well as continuing to dominate certain areas in

A: I think there will be a lot of activity in the Salinas basin,

Mexico. PEMEX is skilled in a couple of areas such as shallow

in the Bay of Campeche area and on the continental shelf,

water but it needs to dominate these completely. The Bay

as well as in the Mesozoic plays. Mexico is unique in those

of Campeche is a place where the NOC can dominate and

plays and PEMEX has a great understanding of them. There

I think the Perdido basin is another. There are few places in

are not too many places in the world where so much oil can

the world with Mexico’s potential, especially for exploration

be found in these kinds of plays. I continue to see these

activity. Looking outward, there are several logical expansion

areas as fundamental for PEMEX’s strategy.

choices, the US being first in line

My recommendation is usually that PEMEX should take 100

Q: What is your assessment of PEMEX’s human talent?

percent of the best prospects and partner on the riskier

A: PEMEX’s staff includes outstanding talented people

ones, even if that is in deepwater. The NOC can develop

across all levels. Beyond increasing its workforce, which

deepwater prospects right now. If necessary, it can seek

also numbers among the NOC’s primary necessities, it

our help but I believe the company is more than capable of

needs to foster a diversity of ideas, bring in experienced

doing the technical work, albeit with significant changes to

executives who have held different key positions and who

its operating style. I think PEMEX could be very competitive.

have accumulated experience in the Middle East, Africa or Russia, locations with tenured hydrocarbon experience

Q: What is the importance of PEMEX’s internationalization?

that PEMEX would eventually be interested in. Bringing

A: PEMEX’s production is declining and it is now facing stiff

that skill in is critical for PEMEX because it takes too

competition internally. In the first couple of licensing rounds,

long to learn. Injecting know-how regarding different

PEMEX has been somewhat successful but not successful

operating procedures in drilling and development and

enough. It needs a series of new prospects every year. If a

intoducing management techniques tailor-made for large

company does not have a ready pipeline of new prospects

developments would be extremely beneficial to PEMEX.

coming in, there is no long-term future for that company. If

The absolute key to success is good people.

201

VIEW FROM THE TOP

THE DELICATE ART OF LOCAL CONTENT FARHAN MUJIB President of Engineering and Construction Americas of KBR

202

Q: What most excites KBR about the Mexican market?

has been working for 25-30 years in service provision. We

A: The Mexican market is rich in resources. Both KBR legacy

are looking at establishing a new JV with a Mexican partner

companies – Brown & Root and M.W. Kellogg – have a long

that will pursue onshore/offshore EPC projects in Mexico.

history in the country. We built some of the first platforms for PEMEX in the 1970s, including EPC-1 and EPC-22, and

Q: What do you see as the major opportunities throughout

many of the ammonia plants in Mexico were actually built

the value chain in Mexico?

with M. W. Kellogg’s technology.

A: I think the scale of projects will be much larger, especially in deepwater. PEMEX has been carrying out shallow-water

Our interest is in both upstream and downstream. The

projects with simpler facilities. We now expect that, with the

changes that have taken place from a legislative point of

majors coming in and the start of deepwater exploration,

view and the IOCs entering the marketplace have created

the complexity of the facilities will be different. Another

many opportunities for us. We have been working with

aspect that is evolving is how the asset is built. Rather

these companies all over the world. We expect the scale

than in the traditional manner of contracting segmented

of the projects to be much larger and the delivery capability

services, PEMEX is looking for more integrated solutions.

that they will require will create many opportunities for

Service companies must provide a more holistic approach

service providers and the EPC companies entering Mexico.

to an asset and really be responsible for performance-based services. We are seeing more of an outcome-based service

Q: What is your scale of operations in Mexico?

solution. It is a more sophisticated approach coming both

A: We have two existing businesses in Mexico. One is our

from the PEMEX side and from international companies.

high-value engineering center in Monterrey, which has been there for almost 20 years now. It is used for export work

Q: Where do you think the right balance lies between

and is part of our Houston operations. It supports us with

international companies and the needs of the local market

engineering services for the execution of large-scale projects

in terms of national content?

worldwide and we are actually in the process of ramping up

A: I think a phased strategy is the best approach. To

this operation so that it can do more than just engineering. We

demand that a company achieve 100 percent local

are developing more procurement and project management

content is difficult because there must be a balance

capabilities in Monterrey to support projects not only

between cost and capability. Ultimately, all the IOCs

internationally but also domestically. The same office and

have economic decisions to make in terms of investment.

some other side locations are working with Dupont. We have

If country requirements move the economic drivers

a masters service agreement with Dupont for North America,

downward, that puts a project on a less competitive tier

which was recently expanded to include sites in Mexico as

while those companies have the option of investing in

well. In fact, we are providing services to its sites in Mexico.

any location in the world. I think some countries that take extreme stances on local content initially will struggle to

In addition, we have a joint venture with Grupo R called

get projects off the ground.

Mantenimiento Marino de México (MMM), which provides maintenance services for PEMEX’s offshore assets. This JV

A phased approach that is initially in keeping with capabilities and maintains costs at a viable level is very good. In the next phase, the country can add more local

KBR is a global provider of differentiated professional services

content. In the third phase, the country, when it has

and technologies across the asset and program life cycle

increased its capabilities, can actually demand up to 100

within the government services and hydrocarbons sectors.

percent local content. This can become very successful,

KBR employs approximately 34,000 people worldwide

as countries such as Malaysia and Indonesia have proven.

VIEW FROM THE TOP

INTERNATIONAL EXPERTISE WITH A LOCAL TOUCH ROBERTO ORSOLATO Branch Manager Offshore Division of Saipem Mexico

Q: How does Saipem fit into the landscape for Mexico’s

go on monitoring the progress of the licensing-round winners

offshore development?

to continue to offer our services for their field developments.

A: The country has great potential as its oil and gas reserves extend from the US border to the Yucatan Peninsula, a

Q: How can Saipem help its clients create value based on its

significant area in terms of extension. The Mexican Energy

international experience and services?

Reform allowed international operators to enter and it certainly

A: Every international company coming into Mexico is used to

brought big opportunities to the market. Now the country will

working in adherence to international standards. The Energy

begin to see the first results from the development of these

Reform led the country to adopt these standards and move

fields and production will follow suit.

beyond the local rules previously in place. There are only four or five international contractors with the capacity to globally

Our company supports these developments with our services

serve these market players and Saipem is certainly among the

in engineering, design, procurement, transportation and

most prominent of them. We are recognized for our ability to

installing production facilities and related infrastructure.

perform the work according to the safety, quality and schedule

Safeguarding energy production is a matter of national

requirements. The highest priority is given to HSE and security

security for any country and Mexico is no different, particularly

standards, and we have already worked with many of the IOCs

since it imports a significant percentage of energy-related

present in Mexico. Sustainability and environmental awareness

products to satisfy Mexican internal demand/consumption.

are also top priorities for us. Moreover, Saipem has the

The development of Mexico’s hydrocarbon reserves will foster

financial stability and the credentials that instill our clients with

an estimated 500,000 new job opportunities that will be

confidence. We minimize their risks, we have the engineering,

created in the country.

construction, transportation and installation expertise and we can rely on distinctive assets such as our state-of-the-art fleet

Q: What value does Saipem provide to the market and how

of vessels for pipeline installation and field development. We

do you benefit from your relationship with ENI?

have been operating in Mexico for more than 20 years in the

A: Saipem has around 200 employees in its office based in

offshore and onshore segments, which means we can offer

Mexico and 98 percent of them are Mexican. After an initial

extensive experience in the Mexican market.

exploration phase, the operating companies are involving contractors like Saipem to present proposals to perform the

Q: Which factors will drive productivity in deepwater

relevant EPCI works.

exploration once the sector takes hold in Mexico? A: Deepwater is a new frontier for Mexico and we are the

ENI is an operating company that has a share in Saipem,

first major contractor developing a deepwater project here,

although it is distinct from Saipem, essentially doing

which entails development at a depth of 1,400m off the coast

different kinds of activities. We have and we will continue

of Veracruz. Saipem started deepwater activities in the late

to provide support to ENI worldwide, with Saipem

1990s so it has accrued vast experience in this field. We also

participating in international tenders called by ENI just

recently added new vessels to our fleet, such as the SAIPEM

like any other general service contractor. Having over 40

CONSTELLATION, which we will use for rigid and flexible pipe

years of cooperation with ENI means that Saipem has

installation in deepwater fields.

extensive knowledge of ENI’s needs and expectations when developing a project. Saipem is a world leader in offshore, onshore and drilling

We have noticed great interest from international companies

services, with wide-ranging expertise and knowledge in

in Mexico’s various licensing rounds, which adds up to more

engineering, procurement, construction and installation of

opportunities that will be created in the country. Saipem will

pipelines and complex projects

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VIEW FROM THE TOP

SHALLOW-WATER ACTIVITY TO PICK UP PACE NEAR TERM ALFREDO CARVALLO Director General Mexico of McDermott

204

Q: What timeline do you see for the creation of subsea

account that operators just signed the licensing areas

infrastructure on the Mexican side of the Gulf of Mexico?

auctioned in Round 2.1, in 2018, I expect additional players

A: If we look at the beginning of the Energy Reform in 2015,

to start operating their projects.

when the first contracts were awarded for Rounds 1.1, 1.2 and 1.3, McDermott was already seeing activity emerging

Deepwater is a different story. I expect that deepwater

from the operators in those areas. Some of the fields are a

operators may do some preliminary drilling from 2018 to

little bit behind but everybody saw the news of the large

2020 and then it will take two to three years for them to

discoveries made by ENI and Talos Energy. Fieldwood has

complete their field development strategies and decide

also completed one of its wells and is in the process of

what they are going to do. I believe we will start seeing

completing the second. The operatorâ&#x20AC;&#x2122;s development plan

some activity on the eight blocks that were licensed

is where McDermott comes into the picture. We are already

in Round 1.4 somewhere between 2021 and 2023. My

seeing the extension of international tenders for 2018 from

perception is that when CNH executes licensing rounds

one of the operators. Another player will probably be

2.4 and 3.1, we will see an acceleration of activity, provided

extending other tenders in the first half of 2018 and then

it can assign a significant percentage of those blocks. That

some exploration contracts will emerge toward the end of

would mean a quick payback for the government and

2018. The activity is already present.

everybody else involved.

Round 2.1 work will be similar to what we saw in Rounds

PEMEX is a little different because I think it will continue

1.1 and 1.2. It is taking the operators two years to evaluate

working with a reduced budget. But, when considering

the fields, to do the drilling and to evaluate what they

all the fields and blocks it can potentially farm out, there

have found. Only then will they potentially enter the

could still be a lot of movement there too. I think there is

development phase. I believe that 2018, 2019 and 2020

going to be steady activity throughout the next five years.

will be years full of activity in shallow waters. Taking into

Mexico is an important market for McDermott.

Abkantun top deck stack, Altamira, Tamaulipas

Q: How would you evaluate the activity at McDermott’s

Q: How does McDermott weather the boom-bust cycles

Altamira construction yard?

of the oil and gas industry?

A: We are in the middle of the assembly of PEMEX’s

A: When oil prices were high, few people were thinking

Abkatún-A2 platform. That platform has to be up and

about innovation and new technologies. As prices went

running by December 2018 and we expect to launch

down it forced people to rethink their processes and

that delivery in the second half of 2018. Right now, we

find better ways to collaborate. In the last two years, we

are building a platform and a jacket to be shipped to

have been undertaking many initiatives to become more

Trinidad and Tobago for BP. We are busy at the moment

efficient. Two years ago, everybody was talking about how

and currently have around 2,500 employees working in

it was unthinkable to develop a deepwater field with oil

our Altamira yard.

prices at US$50/b. Now people are saying that maybe there are opportunities at that price. We have been very

Q: What services does McDermott offer before the

active in thinking about how to do more with less and in

development phase of a field?

a shorter time frame, and we are perfecting processes to

A: An important initiative is related to Front-End

better ensure that work tasks are carried out correctly the

Engineering Design (FEED) engineering and conceptual

first time. We are working to create a “digital” vessel so

work. Right now, we are formulating proposals for one

that we can see what is going on in real time to compress

of our potential clients on the best way to develop the

the execution of a project at sea. This would help to predict

field to get the most out of its investment. We have a

maintenance requirements and plan operations. In the

team that does geological studies so we can provide

middle of the ocean the costs are substantially greater as

recommendations on how our clients should develop

compared to onshore. Anything that can be done to bridge

field strategies, what topology for the surface is the most

uncertainty and to reduce risks in that part of the project

economical way to develop the field and so on. At the end

is critical, so we have been very focused on that.

of the day, everything comes down to a financial analysis: what is the best way to recover most of the investment and maximize the value of the field. If the client wants, it

McDermott is a leading provider of integrated engineering,

can decide later whether to follow our recommendation

procurement, construction and installation (EPCI) services

or launch an Engineering, Procurement, Construction and

with a focus on the energy and power sectors, in offshore and

Installation (EPCI) tender.

subsea field developments worldwide

205

VIEW FROM THE TOP

SPECIALIZED MOORING SYSTEMS SHOULD NOT BE A COMMODITY TOM FULTON President of InterMoor

206

Q: How is InterMoor preparing for a bigger market

release systems on the mooring that allow vessels to move

presence in Mexico?

quickly from one mooring location to another, avoiding

A: Most recently, we undertook offshore operations for

hurricanes and making rig moves more efficient. Typically,

Talos Energy’s ENSCO 8503 at the Bay of Campeche. The

vessels would have to handle all this mooring gear to get

interesting thing about this rig is that it is a deepwater DP

the rig off the location. Now, with one button you can

semisubmersible that is equipped with mooring winches,

release all or individual lines. What we see now really was

enabling both operation in deep and ultra-deep waters. It

done on the back of that successful work, encasing the core

can also be moored if it is going to operate for an extended

of our rig-moving capability.

period of time, saving considerable amounts of money on burning fuel. In shallow waters — less than 1,500ft —

Much of the past work we have done in Mexico was around

DP vessels cannot stay stable enough to perform drilling

infrastructure, which proved challenging as the pipeline-

activities, requiring mooring systems. As a service provider,

network records were not quite as good as they are now.

we design what we call a preset mooring. We determine

Today, you can do many things with engineering and

what the mooring system needs to look like — anchor size,

planning to compensate or mitigate those types of issues.

chain and wire length — to supply the equipment the rig

Our company’s growth in recent years is primarily based

does not have. We usually rent these mooring systems

on servicing permanent moorings, particularly for FPSOs.

to either the operator or the drilling contractor and then

We have been really active in inspecting, maintaining and

perform the installation of the systems as well as the

replacing portions of aging or corroded mooring systems

attachment and detachment of the mooring systems.

since 2013 and expect this business line to continue growing in the future. Our InterMoor branch in Mexico will be critical

In Talos’ case, we provided our services directly, including

going forward as it benefits our clients in meeting their local

our expertise installing moorings and hooking them to the

content requirements. Our offshore operations with Talos

rig. From the outset, we drafted a detailed engineering

were delivered on time, under budget and with no incidents.

plan, and provided the equipment and the consequent supervision, including offshore engineers, to make sure the

Q: How do you find the balance between cost-

offshore operations went quickly, safely and efficiently. We

competitiveness and investing in the right areas?

provide our experience and expertise alongside the drilling

A: That is a sizable challenge. It must be approached on a

contractor to make it more efficient for the operator. This

client-by-client basis. An increasing number of companies

was the first privately-owned rig to operate in Mexican

are choosing to go with what they perceive to be the lowest

waters since 1938. One of the reasons we got involved in

cost in the short term and turn our specialized services into

the project was our working relationship with Talos on the

a commodity. Bigger companies getting into the supply

US side of the Gulf of Mexico and our extensive track record

chain are turning to this practice, which we believe creates,

of rig-moving work.

somewhat, a false economy. We always emphasize to our clients that if we engineer and plan it right we can make

While it is increasingly done in the industry, the differentiator

the entire operation more efficient; it does not boil down

for this project at that time was our reliance on quick-

to how much we charge for an anchor. A systemic view in which the life cycle trumps short-term costs is key.

InterMoor , an Acteon company, is the leading mooring,

We continue to develop offshore technology and our

foundations and subsea services provider for rig moves,

acoustic quick release, with 67 percent of development

mooring services and offshore installation projects. It supports

costs covered in-house, is in production and will be rolled

operators and contractors worldwide

out by April 2018.

VIEW FROM THE TOP

TAKING OVER THE GULF ONE SHIPMENT AT A TIME RODRIGO SANDOVAL Marine Operations Manager Mexico of Inchcape Shipping Services

Q: How has Inchcape Shipping Services (ISS) weathered

Pacific to continue our expansion. Oil and gas on that

the downturn in oil prices?

side of the country is not as developed as it is in the Gulf,

A: We have over 260 offices worldwide and the Mexican

but we are positive about the potential of areas such as

office has been functioning for 10 years now. Our offshore

La Paz or Topolobampo to grow the business. At the

business has grown a great deal in the past five years,

moment, we are evaluating our options on who could be

something that happened organically since we did not

the best partner and the next step is to set up offices in

have any specialist in this segment when we opened our

Progreso and Tuxpan so that we have full coverage of

first office in Mexico. We then created an entire team

the Gulf of Mexico.

of offshore specialists to cater to our clients’ needs. The past two years have been challenging due to the

Q: How did the experience of creating your own offshore

downturn in oil prices. Mexico was not immune to these

segment from scratch change your vision as a company?

effects and we saw our market shrink a little. However,

A: Offshore is quite a particular industry as it requires

we have a far more positive perspective now and we see

100 percent attention. Therefore, it is mandatory to have

an upward spiral coming for the industry.

experienced people in customs and logistics if we plan to make the team grow. We rely heavily on the support

Q: With the industry picking up, what is ISS doing to

from our offices overseas to strengthen this part of our

take advantage?

operation. We leapfrogged to take our quality standards

A: Although we depend mostly on global oil prices, we

and procedures to new heights. We did a lot of due

see great potential in the country given that we have a

diligence to avoid questionable practices such as bribery

good share of clients coming from China and Europe. We

so we could continue to be a fully-transparent company.

are quite optimistic about the future of the industry and

Timing is key in this industry and we called the relevant

we are waiting expectantly to see how things turn out

authorities to align their objectives and to have a unified

after the election, with a new line drawn for the industry’s

perspective on what direction the future of the industry

future. This is a fast-paced industry that moves more

should head toward.

quickly than politics. ISS is no exception and despite the political situation we are involved in different tenders and

Q: How does ISS maintain its competitive edge amid

processes to expand our business. We feel confident due

fierce competition in the shipping industry?

to the company’s huge advantage in terms of services,

A: The financial support from our headquarters and ISS’

compliance, transparency and its world-class status.

global reputation are the two fundamental aspects of our competitive advantage. We also offer different types of

The south of Tamaulipas is becoming the new Ciudad del

certificates in quality, health and trace, among others.

Carmen as deepwater trends are moving to the northern

We have the reinforcement of our global operations to

part of the Gulf of Mexico and projects are focusing on

provide us with expertise in different areas. Regardless

this area, from Coatzacoalcos to Tampico. We expect

of the location of our partners, we serve their objectives

things to boom here.

around the globe and that is what defines our brand as a competitive asset.

Q: What does the opening of ISS’ fifth office in Mexico imply for your future growth plans? A: Our expansion plans go beyond the oil and gas sector.

Inchcape

We are present in the most important ports in the country

maritime, cargo and supply chain solutions to shipowners and

except for Tuxpan. We are working with subagents to

operators who span all geographies, market segments, vessels

extend our services arm since we are looking to the

and asset type

Shipping

Services provides

global

strategic

207

INSIGHT

WIDER HORIZONS REQUIRE TAILORED SOLUTIONS OSCAR DUQUE Accounts Manager North America of Trelleborg

208

With an expected uptake in deepwater operations in Mexico,

visiting potential customers when a market starts unfolding

the international community is excited by the emerging

to present our products, how they are used and how they

frontiers in the offshore market. Oscar Duque, Regional Key

can help companies to overcome their challenges while

Account Manager for North and Central America at Houston-

creating value for clients.” He believes the company’s entry

based offshore service provider Trelleborg, says his company

at this moment gives it a competitive advantage and allows

is already trying to obtain exposure in Mexico, anticipating

it to make sure potential clients know Trelleborg’s brand and

the launch of activities. “The potential for deepwater

have it in mind once operations start. In fact, Duque says,

operations in Mexico is highly attractive for our business,

it is already setting itself apart by sharing its deepwater

more so due to our extensive experience in the offshore and

experience from the North Sea with PEMEX in terms of

subsea markets and our global presence that will allow us to

topside safety and fire prevention and protection.

be closer to our clients,” he says. Trelleborg’s offshore operation is characterized as an Although the potential is great, Duque says the development

innovator and early adopter and Duque emphasizes the

of a new offshore market demands time, as the risks involved

fact that the company is always looking for new challenges

are quite high. But now is the moment for a company to

in critical applications, allowing it to apply one of its core

strengthen its presence. “Normally, oil and gas production in

capabilities; polymer engineering. “We are always looking

deepwater takes between four to five years to reach first oil

for new ideas, sharing them with clients and then looking

and our expectation is that this should be similar in Mexico.”

for ways to accelerate our clients’ businesses by working together as partners,” he says.

That being said, Trelleborg is laying the foundations to become a leader in Mexico in the deepwater segment once

For the Mexican offshore market to become sustainable in

its services are required. “In Mexico, we are in the process

the long term, it could look to benchmark countries that have

of establishing our brand and ensuring people are aware

successfully developed this sector, like Norway and Brazil.

of the benefits we bring to the table,” Duque says. “Our

“Long-term commitment from the largest key stake-holders

market is very niche-based, so our strategy always involves

in the market is a key to success.”

VIEW FROM THE TOP

THE HELPING HAND FOR IOCs VENTURING INTO MEXICO VÍCTOR OLIVEROS Business Development Director of WorleyParsons Mexico

Q: What impact have the licensing rounds had on

trend will shift as they start to transfer their teams to Mexico,

WorleyParsons and its business lines?

giving us an opportunity to offer our project-management

A: Opportunities have increased considerably since the

services. We actively work with local companies to offer a

licensing rounds started, although they have differed in

full range of solutions to our customers and will continue to

operability flow. Our potential has increased at a good pace

look for opportunities to expand the range of services we

despite things moving slowly due to the recent market

can provide. So far, we have established some partnerships

conditions and the political climate in Mexico. The challenges

in the offshore engineering arena with local companies and

regarding deepwater blocks remain, but we feel confident in

we expect to expand this range of alliances.

our ability to support those operators in finding commercially viable alternatives to those normally considered. For

Q: What are WorleyParson’s main advantages over its

example, WorleyParsons has in-house designs, such as the

competitors?

low-motion Floating Production Storage and Offloading

A: One key capability we offer is the fact that we are

(FPSO), which constitutes a highly advanced product that

a technology-neutral partner. We do not do facility

unifies facilities under one single solution.

installations or have a large construction presence so we can truly recommend the best options for our customers

Q: How would you classify your experience in Mexico and

in terms of quality, price and competitiveness and offer

where do you see opportunities arising?

unbiased technical solutions, too. Additionally, our global

A: Our experience has definitely been positive. We see

reach allows us to provide unmatched capabilities and

many opportunities in the midstream segment based on

lessons learned from our in-house network of subject-

the infrastructure and production development in shallow

matter experts.

waters and the need to transport that production to onshore storage terminals. Mexico has extensive shallow-

Q: What are your expectations from the development of

water infrastructure but we can provide more value for

offshore fields and how do you create value here?

operators by handling the complex parts of the projects,

A: There is a lot of relevant experience on the US side of the

which is one of our strengths. In onshore, we still see a few

Gulf that could apply to Mexico. Fields and blocks tend to be

opportunities for pipeline interconnections between the

pretty big in Mexico, resembling some of the experience that

US and Mexico for handling natural gas production, where

we have in countries such as Australia or Thailand. On the

we would like to replicate our experience in recent projects

Mexican side of the deepwater Gulf of Mexico, we perceive

in the Gulf of Mexico and provide engineering and project

similarities to the US and we think infrastructure in this

management services for these developments.

segment will develop quickly. The US can be a precedent for these kinds of projects. Mexican authorities moved quickly

Q: What do you look for in a partner and what is the

in awarding these blocks and incentivizing knowledge-

importance of these partnerships to your operations?

sharing among bidding companies so WorleyParsons,

A: We look for a strong track record in project execution

through Advisian (its consulting arm) is now able to support

and safety. Our partners are well-funded companies that

regulators as they shift their focus to setting more aggressive

understand the market’s challenges and meet the high

time frames for new offshore developments.

standards our customers demand. We work closely with our customers to make sure projects reach their full potential and we expect the same from any of our partners.

WorleyParsons has been in some of the region’s most challenging offshore developments. Working across the hydrocarbons,

Most IOCs that have offices in Mexico tend to follow their

power, infrastructure, minerals, metals and chemicals sectors,

operations from their headquarters; however, we hope this

WorleyParsons covers the full project life cycle

209

VIEW FROM THE TOP

INTRODUCING TECHNOLOGIES FOR THE DEEPWATER FRONTIER JOSĂ&#x2030; ARRĂ IZ General Manager of EXPRO Mexico

210

Q: What is EXPROâ&#x20AC;&#x2122;s specific value proposition for the

take dynamic measurements of the field while the field is

Mexican oil and gas sector?

producing without any interference. Again, that data helps

A: We are a company that specializes in deepwater

the customers make changes in reservoir management and

technologies and our specific area of expertise is on the

to continue developing the reservoir.

production side. We can go from extended well tests to clamp-on meters to cableless sensors down the well that

Q: Could you discuss the problem of interconnected fields

transmit data and help the customer better understand the

in the context of the number of blocks to be licensed?

reservoir. Mexico is by definition a deepwater market and our

A: EXPRO has a very useful technology called CATS. This

most in-demand product is a subsea safety valve that is fitted

is a cableless sensor that is deployed below the plug and

to the blowout preventer (BOP) of the wells, allowing the

the cement in drilled wells. The usual practice is to drill one

containment of hydrocarbons both in the riser and on the well

well and abandon it temporarily before drilling the next one

in case the semi-submersible platforms need to disengage for

in the second phase. We can gather information on those

safety reasons. Well testing is also in demand. Well-testing is

plugged wells using our sensor and allow the operator to

a key element in the planning of the production of a reservoir.

see whether there is interconnection between the well that

Without a good well test, it becomes very difficult to design

was first drilled and the next well being drilled. That can

efficient production facilities.

save a lot of money and generate an immense amount of data for the design of production facilities.In the case of

Q: What are the principal challenges faced by mature fields

the blocks that are being sold by the Mexican government,

and how can you help your clients meet those challenges?

we were approached by the Ministry of Energy regarding

A: Mature fields by definition have partially depleted wells

a project to determine if there was interconnectivity in a

that need intervention; perhaps they need to be reshoed

reservoir between two neighboring blocks owned by two

or drilled directionally. Sometimes there are production

different operators. It is simple to drill a well in the first one

facilities that lack the required pressure to be able to go into

and deploy the sensor below the plug and envelope. When

the production line so we have a system called uploading,

another well is drilled in the neighboring block, a change in

in which we use a separator and tanks to produce

pressure is measured to see if there is a connection between

hydrocarbons at lower pressures and then inject them into

the reservoirs. This is an effective way to see if a reservoir

the production line with a pump and a gas compressor.

stretches out over neighboring blocks.

We also have monitoring equipment. It is very expensive to deploy permanent gauges that do not work. We can

Q: What is your strategy for finding alliances and partners

deploy cableless sensors with which we can go into wells

in Mexico?

and regain data regarding pressure and temperature to help

A: Mexico is an atypical market in that it is probably the

the reservoir engineers design better production methods.

best market for integrated projects. This is because PEMEX

Another very interesting technology is our clamp-on sonar

historically has always favored one vendor for all the services

meter that allows our clients to measure production flows

it required. That has given two big companies the upper hand:

without breaking lines or stopping production. It is probably

Schlumberger and Halliburton. We have a close alliance with

the only meter in the market that allows the operator to

Baker Hughes and have a perfectly complementary match between product portfolios. As a small company, we do not have a full portfolio but we have a very strong presence in

EXPRO p rovide services and products that measure, improve,

the services we offer. We have participated successfully with

control and process flow from high-value oil and gas wells, from

Baker Hughes in a shallow-waters contract. We have also

exploration and appraisal through to mature field production

been collaborating with the IMP for quite some time and we

optimization and enhancement

are helping it with a multiphase flow-meter project.

VIEW FROM THE TOP

MASTERING THE DEEP WITH ROVs JOSĂ&#x2030; AGUILAR Managing Director of Oceaneering

Q: What do you see as the implications for Oceaneering in

A: Oceaneering has products related to every stage of

the coming deepwater rounds?

offshore operation, from surveying and exploration to

A: Most of the companies that are participating are already

decommissioning. Many of the offshore fields are sufficiently

clients of ours, and many have some kind of open contract

mature and PEMEX is considering the decommissioning of

already in place. Before a company can do anything offshore,

platforms and assets. We want to get more involved in all

it has to review its environmental assets to ensure that there

phases of these deepwater areas. Our goal is to partner with

is nothing environmentally sensitive underwater, particularly

major oil companies that have leases in Mexico, and to meet

on the seabed, that could jeopardize exploration activities.

their needs as they go forward with developing these blocks.

Everything in the clientâ&#x20AC;&#x2122;s exploratory block must be registered and reported to avoid any issues when the property is

Q: What would be the ideal partner company for

eventually released, and the company must ensure that the

Oceaneering?

block will be left as it was found. For the moment, we are

A: I would say that an ideal partner for us is any company that

providing these geological, geochemical, and oceanographical

carries out services in which we are not competitive in Mexico.

studies for the first stage of exploration.

For example, in Mexico, we are not competitive in diving because we typically use U.S. divers, who can be expensive.

We are conducting environmental studies with a major oil

On the other hand, here in Mexico, there are divers who are

company on its blocks in the deeper part of the Gulf of

available at very competitive prices, making Mexican diving

Mexico. We are also in talks with two other majors to do

companies a good ally for us. To mention another example,

environmental studies at the beginning of 2018. Of course,

we only have a certain number of vessels, so we are creating

our principal deepwater services include remotely operated

alliances with Mexican companies that own specialized vessels

vehicle (ROV) inspections. Working in deepwater areas is

in order to expand our share of this offshore market.

unthinkable without ROVs, particularly when it comes to well interventions, and we hope to be a very important part of

Q: What are the most recent projects in which you have been

these new deepwater developments.

involved in Mexico? A: Principally, we have been using ROVs for assisting in

Q: What innovations are being generated from Mexico?

the construction of drilling platforms, and we have signed

A: In Mexico, our focus is on deepwater exploration. We

contracts with midsized oil companies that are participating

are developing tools that will make changes in how certain

in this region. We are also partnered with a company that

things are done. For example, instead of the traditional way

provides environmental services, which is a good match for us

of gathering samples from a vessel, we are doing it from

because we can do all the fieldwork at sea and this company

an ROV. We can gather these samples in half the time and

can do all the environmental reporting. These are examples

without spouting. Such new methods will reduce costs for

of the kinds of alliances that we are seeking. We are working

operators. There will also be more integrated and game-

for many of the new operators from Round One and Round

changing technologies that will initiate in Mexico. For the

Two, and Oceaneering is receiving additional work from other

moment, deepwater development is still at the exploration

companies in the region, an indication that this particular

stage. Other kinds of activities will start next year, and,

offshore market is strengthening.

at that point, we will introduce additional innovative technologies that will address the operational phases for these deepwater blocks.

Oceaneering International, is a subsea engineering and applied technology company that provides engineered services and

Q: What are the priorities for the diversification of

products primarily to the offshore oil and gas industry, with a

Oceaneeringâ&#x20AC;&#x2122;s client portfolio in Mexico?

focus on deepwater applications

211

VIEW FROM THE TOP

ADOPTING INTERNATIONAL STANDARDS HAS POSITIVE SPILLOVER RODRIGO NIETO General Manager of Falck Safety Mexico

212

Q: How does Falck convince potential clients that safety

Mexico’s drilling business is densely regulated to begin with

practices are an investment rather than a cost?

and reinventing the rules like we are doing now is going to

A: Looking at Falck as a whole, we are better prepared

take a lot of manpower. These are new and exciting times

than anyone. We are the only safety company that offers

when it comes to setting a new standard for Mexico.

integral courses in securing all day-to-day operations. Falck provides facility insurance, checks crane hooks every six

Q: What particular market niches does Falck target when

months, food quality and water ph, to name a few of our

assessing its courses?

services. Everything is verified through robust procedures

A: Falck is not solely dedicated to professional training but

that guarantee safety first. One of the easy sales this year has

also offers safety services. Assessing personnel and safety

been to international companies that launched operations

procedures is also part of our core business. In addition,

in Mexico as a result of the Energy Reform, which demands

we are developing a project with a major pipe fabrication

companies work to international standards. We are the only

company that has purchased its own land-drilling rig just

company providing the latter; our international experience

to train its personnel. They called us to develop the safety

— we are present in 46 countries — means we come to

courses applicable to this type of rig.

the table with a global footprint. For instance, we closed a business relationship with ENI. It uses the OPITO standard

Our most complex and sophisticated training program

worldwide and when it came to Mexico, ENI asked about an

is Major Emergency Management. This course is on a

OPITO-certified training center. We were happy to oblige.

complexity level of its own. We provide a training room

That resulted in everyone else having to come to us and take

that simulates every aspect of a standard drilling-rig

the basic offshore safety induction and emergency training.

control room, with double-glazed windows and a team of instructors on the other side, where we take you to

We make sure our clients understand that working to

hell and back, simulating all the emergencies that can be

international standards has a guaranteed spillover effect

anticipated on an oil rig: fire, men overboard, well blowout

that results in better-qualified employees. It works similarly

and vessel collision, to name a few. We film the whole

to insurance: you buy a good education and get better

exercise and give a coaching session afterward in how to

employees, who are also more motivated and less likely to

best follow safety protocols, while also teaching efficient

be accident-prone.

problem-solving approaches for every emergency. The course can be adapted to every professional on the oil

Q: What would be the major concerns that international

rig team. The course is as scalable as it is adaptable. We

companies have regarding Mexico’s landscape?

can apply it to refineries, nuclear plants and other types

A: In our experience, companies want to work and manage

of hazardous facilities.

their business seamlessly; they want to make business flow without having to deal with complex regulations or

Falck can diversify its services and solutions and adapt

long permit processes and the like. In short, a lightweight

its training services for land operations as well. In fact,

red tape. Many companies will have to further strengthen

we are working with a nitrogen plant that is undergoing

their operational processes to be able to work here fluidly.

its first complete shutdown in over 10 years. We can also develop tailor-made courses for subcontractors, too. When companies contact us, they want to be able to address two

Falck Safety is an international safety training and equipment

issues: one is educating their employees and the other is

services provider for the oil and gas, maritime, industrial

liability. We continuously cater to our clients’ safety needs.

and wind power sectors. The company has offices on every

In the near future, that will include emergency response

continent

plans, among other new developments.

INSIGHT

A BLANK CANVAS WITH MANY OPPORTUNITIES PAUL ARMITAGE Managing Director of SECC Oil & Gas

ENI fired the first shot across the country’s oil bows when it

Sea have saved US$150,000-US$300,000 per day on

successfully drilled and tested the Amoca well in July 2017.

well-intervention operations through the use of SECC Oil

Now, the country must respond by bolstering its deepwater

& Gas’ technologies. They also have successfully sped up

capabilities. The cutting-edge technologies being introduced

operations and saved time on a port-to-job-to-port basis of

by companies like SECC Oil & Gas could deliver significant

around two to four days. “Based on the total cost savings

operational savings over the lifetime of deepwater wells,

for one or two wells, this could easily be scaled up to

according to Paul Armitage, SECC’s Managing Director. But

millions of dollars per year,” he says. “The upfront spend

the local market also has a role to play.

and use of the technology is easily justified”

“It is important that Mexico fully understands the

With clear benefits, Armitage says the introduction of

technologies across the entire spectrum of its value chain,”

the technology is best envisioned from the design stage

Armitage says. “The country needs to learn not only how

to take full advantage of its benefits. “Modifying the

to adapt them but also to develop and use them as a

infrastructure and retrofitting a SECC Oil & Gas connector

springboard for other innovations. By following this vision

at a later stage in a project is very possible and would still

for example, IMP in partnership with SECC Oil & Gas could

provide an ROI, but when the technology is placed in the

become a provider of technology not only for PEMEX but

subsea production infrastructure the rewards are greatest

also for IOCs.” He says this will not only bring economic

if done at the very beginning of the project. That is why

benefits, but will allow local companies to penetrate the

it is so important for SECC Oil & Gas to be present at this

market and improve the country’s competitiveness

stage of the market in Mexico, before all the developments start taking place.”

Armitage points to his company’s own technology as an example of how that can impact an operation. “Our plug-and-

As SECC Oil & Gas enters the market, Armitage says

play connections for well intervention enable operators to

PEMEX and IMP are creating encouraging environments

carry out their intervention operations throughout the whole

where IOCs are being considered and included in many

life of the field in a cost-effective way,” he says. Riserless

decision-making processes to improve the subsea market.

USB-style plug-and-play technologies not only saves costs,

He adds that SECC Oil & Gas’s operational participation

he adds, but facilitate faster operations with easy access

with most of the IOCs entering the market is a great

to subsea infrastructure and wells. “Globally, operators are

advantage. “We have worked all over the world with

stating a need for genuine innovation, particularly in relation

companies including Shell, Chevron, ExxonMobil, BP,

to hydraulic subsea intervention. SECC Oil & Gas provides

Statoil, and BHP Billiton. They already know us and the

an enabling technology that goes to the core of that need,

benefits that our technology provide their operations

assisting clients in the provision of fit-for-purpose operations

over the long term.”

and reduction in unnecessary rates and equipment. Armitage believes SECC Oil & Gas also can add technical “If our technologies are not in place on a subsea system,

value to the Mexican market in the form of a joint industrial

the ability for an operator to flex the most efficient and

project in Mexican deepwaters. “Our goal would be to

cost-effective solution is more limited and an operator may

include our technology in a successful Mexico-based

have no choice but to go with a less optimized solution,”

project where several players such as IMP, PEMEX and

Armitage continues.

possibly an IOC work together,” he says. “Achieving this would provide us with the necessary arguments to pitch

SECC already works in the US Gulf of Mexico, the North

our solution with greater ease and impact in the market,

Sea and Asia. Armitage says three operators in the North

to ensure commercial operations later on.”

213

PEMEX

In March 1938, President Lázaro Cárdenas nationalized oil production in Mexico, and Congress issued a decree to establish national oil company PEMEX. As a stateowned company, the NOC’s mandate is to maximize the country’s hydrocarbons resources for the development of the country. Income from its operations accounted for around 14 percent of the government’s annual budget in 2017.

The vast majority, around 80 percent, of PEMEX’s budget has traditionally been spent on E&P, displayed by some prolific finds over the last 80 years, including the Chicontepec formation, the Ku-Maloob-Zaap field and the Cantarell complex in the Bay of Campeche. But a fall in oil prices and high tax burdens meant PEMEX’s production continued to drop year on year.

In 2013, President Enrique Peña Nieto signed the Energy Reform into law, reopening the industry to private investment and providing PEMEX several new mechanisms to increase value for its CAPEX, including farmouts and joint ventures. In November 2016, PEMEX presented its 2017-2021 Business Plan centered on growth through divestitures and a focus on key assets.

Over the course of its history, PEMEX has been on a long rollercoaster ride, with no signs of slowing down. While the future is unclear, its favorable results during the licensing rounds and its new drive toward optimization means PEMEX is and will remain a key driver of change in Mexico’s oil and gas industry.

1938-1979

NATIONALIZATION PEMEX was born out of an oil workers’ strike against foreign-owned oil companies operating in Mexico and the foreign assets were expropriated by then-President Lázaro Cárdenas. After a drop in production in the first few years, PEMEX E&P was created in 1941 but production continued to fall to 96,164b/d in 1942. A spate of discoveries between 1945 and 1949 meant PEMEX was forced to increase refining capacity, and the Salamanca and Reynosa refineries 216

were built in 1950. In 1965, the Mexican Petroleum Institute (IMP) was created as part of an effort to vertically-integrate the NOC and promote research. But the drastic increase in demand for gas and diesel meant supply had to increase. In 1976 PEMEX discovered the Cantarell complex in the Bay of Campeche, and it produced its first barrels in 1979, going on to be the primary producer for the country for the following three decades.

PEMEX AT 80: CREATION OF AN OIL GIANT

1943 VIEW OF THE SALAMANCA REFINERY Salamanca, Guanajuato

1946 REINAUGURATION OF THE 18 DE MARZO REFINERY BY PRESIDENT MANUEL ÁVILA CAMACHO Azcapozalco, Mexico City

Opposite page top 1928 PEMEX 18 DE MARZO REFINERY Azcapozalco, Mexico City Opposite page bottom 1948 REPAIR OF THE PEMEX IV VESSEL IN THE SHIPYARD Coatzacoalcos, Veracruz

No date FIRST WELL DRILLED IN POZA RICA BY MEXICAN PERSONNEL AND TECHNICIANS AFTER THE EXPROPRIATION Poza Rica, Veracruz

217

218

PEMEX AT 80: CREATION OF AN OIL GIANT

FIELDS IN THE CANTARELL COMPLEX

Ixtoc Kambesah Kutz Sihil Akal Után Nohoch Chac Takín ——pipelines

THE JEWEL IN THE PEMEX CROWN When Cantarell first began production in 1979, it was the jewel in Mexico’s crown. After more than 20 years, it reached the production peak in December 2003, with 2.13 million b/d. The Akal field contributed 95.2 percent of this amount. But the highs did not last – production from Cantarell had more than halved by 2008 to just over 1 million b/d. In 2017, Cantarell’s fields produced 144,000b/d. This steep decline can be attributed to a number of factors including natural decline, an increase in nitrogen in the wells and an increase in the percentage of water and salt content in the crude currents.

CANTARELL Gulf of Mexico, Campeche

219

220

PEMEX AT 80: CREATION OF AN OIL GIANT 1978-2013

PRODUCTION A variety of external factors impacted Mexico’s oil production during this period. In 1983, OPEC members signed the London Agreement, lowering reference crude prices by 15 percent. PEMEX aligned its prices with OPEC. By 1986, PEMEX’s exports began to decline and around 64 percent of the total 470 million barrels it exported were produced by the Cantarell field. As a result, PEMEX created PMI Comercio Internacional to facilitate its exports. It was in the early 1990s that PEMEX showed its first signs of allowing third party participation by launching its franchise system for its gas stations. Despite almost 20 years of production, in 1997, Cantarell ranked as the sixth most important proven hydrocarbons reserve in the world but by 2003, it had reached its maximum level of crude extraction. Attempts were made to offset Cantarell’s decline with other fields such as Ku-MaloobZaap, but the numbers continued to drop.

Opposite page top 1998 ING HECTOR LARA SOSA REFINERY Cadereyta, Nuevo León Opposite page bottom 1990 PEMEX VESSEL IN THE SOUTHEAST REGION OF MEXICO

1995 NITROGEN PLANT Atasta, Campeche

221

222

2013 CAMPECHE SOUND Gulf of Mexico, Campeche

PEMEX AT 80: CREATION OF AN OIL GIANT 2013-2018

ENERGY REFORM In 2013, the Energy Reform was finalized and private players were once again allowed to operate in Mexico’s oil and gas fields. The reform progressed relatively quickly but before any foreign companies were able to enter, PEMEX was given first choice of which fields it wanted to retain in Round Zero. The newly-created CNH awarded PEMEX 83 percent of the country’s 2P reserves. Not only this, but through the farmout mechanism, PEMEX was for the first time able to form partnerships with private companies, and the first farmout was with BHP Billiton for the deepwater Trion field in December 2016. Since the reform was enacted, PEMEX obtained two further farmout

223

partners: DEA Deutsche for the Cárdenas-Mora block and Cheíron for Ogarrio. PEMEX has embarked on JVs with Ecopetrol, Shell, Chevron, INPEX, CEPSA and Total for 11 of the 14 blocks it was awarded. It has won 5 more blocks on a standalone basis. Of these 14 blocks, nine are in shallow waters and five are in deepwater.

2014 LPG GAS STORAGE TANKS Reynosa, Tamaulipas

2018

FUTURE PEMEX’s Business Plan 2017-2021 outlined the NOC's next steps as it transforms into a productive enterprise of the state able to compete with those entering the Mexican arena. According to the Business Plan, PEMEX aims to use an aggressive farmout strategy that increases production by 15 percent, while also being profitable and adding valuable knowledge to the NOC’s team. Its Trion venture with BHP alone allowed it to cut its deepwater investment by MX$13 billion. PEMEX is currently the world’s 8th oil producer, 8th 224

drilling company, 5th producer of petrochemicals in Latin America and 1st producer of phosphates globally. With a better-balanced budget and worldclass partners, only time will tell what the future holds for the company.

2015 LAZARO CÁRDENAS REFINERY Minatitlán, Veracruz

PEMEX AT 80: CREATION OF AN OIL GIANT

225

Simmons Edeco working on Amatitlan well 1754 for Renaissance Oil, Veracruz

ONSHORE & UNCONVENTIONAL RESOURCES

Although the opportunities are just as extensive as in offshore, the challenges operators face onshore vary greatly. Spanning from mature fields, where production began in the 1980s, to unexploited onshore frontiers, particularly with unconventional resources, all operators will face their own unique challenges. With over 53 percent of Mexicoâ&#x20AC;&#x2122;s prospective resources located in unconventional plays, the attractiveness of these fields in Mexico is clear.

EOR and IOR techniques will be crucial to maximize production from those fields, but safety and environmental commitment will also play a definitive role. Round 3.3, which will offer unconventional resources, will be the last to take place in 2018. Efficient management of production, successful operation and the correct social approach will heavily depend on IOCs and independent companies offering their knowledge and experience for this underexplored sector of the industry.

227

CHAPTER 8: ONSHORE & UNCONVENTIONAL RESOURCES 230

ANALYSIS: Mature Industry Seeks New Productive Life

232

VIEW FROM THE TOP: Craig Steinke, Renaissance Oil

234

INSIGHT: Alexander Moya, Simmons Edeco Mexico

236

VIEW FROM THE TOP: Steve Hanson, Tonalli Energía and International Frontier Resources

237

VIEW FROM THE TOP: Luis Vázquez, Diavaz

238

VIEW FROM THE TOP: Len Freemyer, Freemyer Industrial Pressure

240

ANALYSIS: Preparing for First Unconventional Round

241

ANALYSIS: Ixachi-1 Proves Onshore Exploration and Production Potential

242

INSIGHT: Francisco Garduza, Grupo Kimia

243

VIEW FROM THE TOP: Concepción de la Garza, Grupo Suplemento Latino (GSL)

244

VIEW FROM THE TOP: Miguel Ojeda, Proserma

245

VIEW FROM THE TOP: Juan Távara, Atlantic Oil & Gas

246

INSIGHT: Christian Rodríguez, Core Laboratories (Core Lab)

247

VIEW FROM THE TOP: Alex Flores, Weir Oil & Gas

229

ANALYSIS

MATURE INDUSTRY SEEKS NEW PRODUCTIVE LIFE Mexico’s first well was drilled in 1901 on what is now the border between Tamaulipas and Veracruz. With a 117-year history of drilling onshore, it is little wonder the country is turning to the development of more onshore mature wells to increase recovery factors and promote exploration of unconventional resources Onshore Rounds 1.3, 2.2 and 2.3 have been the most

ECONOMIES OF SCALE

successful in terms of blocks allocated, with 46 awarded

The attractiveness of onshore Mexico can be understood

blocks of the 49 offered by CNH. In those rounds 76

given the breadth of experience local service companies have

operators from 11 countries participated — 52 of them

gathered while working with PEMEX. These fields also generally

Mexican. These operators also placed, on average, five bids

require lower OPEX and CAPEX to explore, develop and

per block, making onshore rounds the most competitive.

produce hydrocarbons. As a matter of fact, of the 50 onshore contracts allocated by CNH, 22 are for exploration while 25 are

Craig Steinke, CEO of Canadian operator Renaissance Oil,

for evaluation and development and three for development.

emphasizes the attractiveness of Mexican fields in the company’s portfolio. “From the beginning, we did a study

Juan Tavara, CEO of Atlantic Oil & Gas, sees a great

of where the opportunity base lies in onshore Mexico.

opportunity in the onshore blocks, where he believes

We deduced that the greatest opportunities were in the

companies like his can provide greater added value to

mature fields and then in unconventionals. Among the

operators that were awarded a block. “We are focusing

unconventionals, we feel that the upper Jurassic shales

on creating relationships with the winners of Round 1.3.

comprise a world-class play,” he says.

Those companies received mature fields that are already producing and to improve operations they need to install

According to CNH’s numbers, 60 percent of unconventional

new equipment that we can provide, or they will need to

prospective resources in Mexico are located in Jurassic

provide maintenance for equipment that is already installed.”

plays, which makes Renaissance Oil’s interest in Mexico a no-brainer. “We are convinced that the upper Jurassic

Aware of Mexico’s potential to develop unconventional

shales in the Tampico-Misantla basin will be a commercial

deposits and the need to increase the country’s oil and gas

play that will rank up there with the Eagle Ford, the

production, Aldo Flores, Deputy Minister of Hydrocarbons

Permian and other world-class plays. We have done

at the Ministry of Energy, is looking forward to the results

over two years of work on this, including core analysis,

of Round 3.3. “The Burgos basin holds 50 percent more

in-depth SCN imaging and microscopic imaging of the

prospective resources than the Eagle Ford basin, so we

rock. We have enough knowledge and a track record of

see a large upside for the development of Burgos and

success to know that the Tampico-Misantla basin has all

the interest we have seen so far is high. The nine blocks

the characteristics of a world-class shale play,” Steinke

in the upcoming licensing round on their own hold more

explains.

resources than anything we have auctioned so far onshore.”

OPERATING ONSHORE WELLS

2007

2008

Oil and associated gas Source: CNH

Fuente: Secretaria de economia

2009

2011

Non-associated gas

2012

2013

2014

2015

2016

3,196

3,143

3,410 4,926

3,534 5,250

3,342 5,603

3,322 5,920

5,498

4,662 3,112

3,898

2010

4,429

2006

4,525

2005

3,063

3,220 3,161

3,159

2,769

2,736

2,797

2,870

2,475

3,018

3,364

2,791

230

2017

2018

Considering the technologies that have been developed to explore and produce unconventional resources in the Eagle Ford basin, companies that have a strong presence there are excited about the opportunities rising in Mexico, says Christian Rodríguez, Director Mexico of Core Laboratories. “Formations or basin geology does not abruptly finish at a country’s border, meaning that we can bring all the expertise we have gathered with those operations into the northern region of Mexico and the Mexican side of the Gulf of Mexico,” he says.

STREAMLINING REGULATION While the potential is clearly visible, Mexican regulators

“

We are convinced that the upper Jurassic shales in the Tampico-Misantla basin will be a commercial play that will rank up there with the Eagle Ford, the Permian and other world-class plays” Craig Steinke, CEO of Renaissance Oil

still have much to learn from international best practices while implementing regulations that can underpin profitability. “Commercially, to launch an aggressive development of a shale play, the right fiscal

To make sure that success is achieved, Aldo Flores also

terms are necessary, and these must be different for

encourages a cautious approach. “We want to start

unconventionals and conventional resources,” says

with a small tender, learn from that experience, test

Steinke. “Renaissance has been very much involved on

our contractual and fiscal terms, and see how well the

behalf of AMEXHI in talking with the Ministry of Energy

regulations adjust to this tender so we can use that

and the Ministry of Finance regarding the design of the

experience in other stages.”

right fiscal terms. Beyond that, the right contract terms are required. A contract for unconventional resources

CNH is also looking forward to better educating Mexico’s

needs to be different from a regular contract if it is to

population so they can understand the high potential of

facilitate a proper and aggressive development of shale.”

the country’s unconventional resources once untapped, explains Héctor Moreira, Commissioner at CNH. “When it

But Steinke also warns that a proper regulatory

comes to unconventional resources, there needs to be a

framework that ensures the highest quality in terms of

great deal of information since people usually relate them

environment and safety is critical. “Another issue is that

only to hydraulic fracturing and this practice has negative

many wells must be drilled for unconventional resources

connotations based on water usage and environmental

as they are tight reservoirs. Therefore, a streamlined

impact,” he says. “There is an opportunity to develop

drilling permitting process is important as well as sensible

unconventional resources using the salinized water

water regulations. We understand this is a new oil and gas

deposits in the north of the country and to reuse this

regime and the authorities are trying to do things right

water for all the fracking developments as the processes

but the current permitting process is designed primarily

do not require clean or potable water. We can take the

for offshore wells and this is too comprehensive and

example of the Permian basin’s highly productive fields in

cumbersome for onshore, as onshore production requires

the US and apply this knowledge and experience to the

many more wells.”

potential in the Sabinas and Burgos basins.”

M VEHICLES SOLD PER COMPLETED ONSHORE WELLS 1,250

1,035

1,000

750

1,226

958

1,158

746 624

500

556

603 462

530

244

250

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

——Development Source: CNH

——Exploration

94 4 2016

2017

231

VIEW FROM THE TOP

POSITIONING TO BE A PURE MEXICO PLAY CRAIG STEINKE CEO at Renaissance Oil

232

Q: What are Renaissance Oilâ&#x20AC;&#x2122;s strengths in the Mexican

the former Mitchell Energy team who are the people who

market?

first really cracked the code to liberating natural gas in

A: I believe Renaissance Oil is the only publicly listed oil

the Barnett shale. Nick Steinsberger, the drilling engineer

company that is solely focused on Mexico. As a result,

who invented the slick water fracturing that is now used

one of our strengths is that our whole budget is focused

all over the world, is part of our team. We were able to

on Mexico. We are not distracted with operations in

convey to Nick and his team the opportunity in Mexico

other countries competing for a part of that budget. One

with regard to unconventional resources and mature

result, and this frankly is by design, is that Renaissance

fields. They became very excited about being part of what

has become the flagship Mexican-Canadian oil and

could be potentially the next world-class shale play and

gas company for Mexico, particularly for the financial

as a result they joined Renaissance.

community. Many of these fund managers prefer to invest in a company that is solely focused on Mexico.

Q: How do you rate the potential of unconventional resources in Mexico and how can this potential be

Typically, if they want a real solid exposure to the country

unlocked?

and its underdeveloped hydrocarbons base, they are

A: We are convinced that the upper Jurassic shales in the

not going to buy stocks in an oil and gas major because

Tampico-Misantla basin will be a commercial play that will

whatever success it has is not going to move the needle.

rank up there with the Eagle Ford, the Permian and other

Therefore, they have to buy stocks in a smaller company,

world-class plays. We have done over two years of work

where they prefer to see focus. As a result, being a pure

on this play, including core analysis, in-depth SCN imaging

Mexico play is one of our strengths and it has evolved the

and microscopic imaging of the rock.

way we designed it to evolve. We have enough knowledge and a track record of Q: Are those strengths reflected in the companyâ&#x20AC;&#x2122;s human

success to know that the Tampico-Misantla basin has

capital?

all the characteristics of a world-class shale play. But

A: From the beginning, we did a study of where the

commercially, to launch an aggressive development of a

opportunity base lies in onshore Mexico. We deduced that

shale play, the right fiscal terms are necessary, and these

the greatest opportunities were in the mature fields and

must be different for unconventionals and conventional

then in unconventionals. Among the unconventionals we

resources. Renaissance has been very much involved on

feel that the upper Jurassic shales comprise a world-class

behalf of AMEXHI in talking with the Ministry of Energy

play. I have been involved in the unconventionals side

and the Ministry of Finance regarding the design of the

of the business since 2002, when we started producing

right fiscal terms. Beyond that, the right contract terms are

natural gas from coal. That evolved into shale and I have

required. A contract for unconventional resources needs

been an unconventional player for about 15 years now.

to be different from a regular contract if it is to facilitate

With that in mind, we saw that this is a potentially world-

a proper and aggressive development of shale.

class opportunity and we needed a world-class technical team to help us develop it. That is why we focused on

Another issue is that many wells have to be drilled for unconventional resources as they are tight reservoirs. Therefore, a streamlined drilling permitting process is

Renaissance Oil is developing a high quality, diversified shale

very important as well as sensible water regulations.

and mature fields portfolio for development in Mexico. The

We understand this is a new oil and gas regime and the

company comprises a group of world-renowned shale and

authorities are trying to do things right, but the present

financial experts

permitting process is designed primarily for offshore

Renaissance, in conjunction with its partner, Lukoil, drilled six new wells of the approved 10 Chicontepec well appraisal program for the Amatitlรกn blocks and completed workovers and repair operations on the final well of a six well restoration program wells where it is too comprehensive and too cumbersome for onshore because onshore production requires many more wells. Q: Can you outline the bidding process for the Chiapas blocks you won by very thin margins on additional royalties? A: We have a brilliant technical team and I think we have a very good idea of what the performance of the new wells is going to look like on these Chiapas blocks. We are a small, lean operator. We do not overspend and as result we feel we can make a small profit on these areas. We know we are not going to make a lot of money because we bid fairly high royalties to win them. Back in December 2015 when we won the Chiapas blocks in the licensing round we had another priority, to be an early operator which was initially more important than making a lot of money. We are in Mexico for the long term and there is a whole new regime with new regulations and new laws. There is a very steep learning curve and we knew we needed to become a competent operator with small blocks like the ones we won in Chiapas. We acquired those blocks as our learning ground, knowing that bigger deals were yet to come. Our goal was to be an efficient operator in Mexico before we took on the big deals. These acquisitions led to the deal with Lukoil. The Amatitlรกn field in our view is in the sweet spot of the unconventional play in the TampicoMisantla basin. It was always high on our list of priorities. Lukoil was looking for three characteristics in a partner; it needed a Mexico-focused operator, it needed somebody with unconventionals expertise and it needed a company that is a lean operator and that can make decisions quickly. We tick those boxes, but it all started with Chiapas. We are looking for deal flow and expect to expand our operations significantly. Our goal is to be the dominant onshore operator in Mexico aside from PEMEX over the next five years.

233

INSIGHT

NEW CONTRACT SCHEME ALIGNS BENEFITS ALEXANDER MOYA Operations Manager of Simmons Edeco Mexico

234

The depressed oil prices of recent years obliged operators

Although Simmons Edeco’s entire fleet was stacked along

to keep CAPEX and OPEX as low as possible, greatly

with the rest of the industry, Moya sees a bright future for

changing the contract format, particularly with drilling

the company in Mexico. To that end, it was recently awarded

companies, says Alexander Moya, Operations Manager of

a contract by Weatherford to provide drilling services to

Simmons Edeco Mexico. The oil field services company

Renaissance Oil and Lukoil for its drilling program on the

saw this as an opportunity to offer a contract scheme that

Amatitlán block in Veracruz, targeting the Chicontepec

aligns the benefits for the integrating service company,

formation and Jurassic shales.

the operator and itself. “Our option makes projects viable for our clients and for us. If operations take more than a

The Chicontepec holds 17 billion boe but it is a complex

certain amount of time, only the operational costs need to

oil and gas reservoir, where drilling costs can be up to

be covered.”

five times the cost of drilling in a conventional reservoir. Although a major field was discovered in 1973, it was found

Moya says the entire industry, including Simmons Edeco,

to contain extra-heavy crude, which presents difficulties

was hit by the new price reality in the sector and saw the

in the refining process. Despite sizeable investments, with

need for change. He explains that, prior to 2015, the norm

the announcement by then-President Vicente Fox in 2006

was for operators to sign service contracts on a daily basis

that US$37.5 billion would be spent over the following

with different providers involved in E&P activities. With a

20 years on the formation, results have been relatively

need to reduce CAPEX and OPEX, this process evolved

underwhelming. The field produced around 39,000b/d as

into integrated service contracts that are awarded to

of October 2016.

only one service provider at a fixed amount. “Considering that drilling costs can come in at up to 35 percent of the

According to Moya, the high costs involved in Chicontepec

exploration budget for an operator, the importance of the

continue to make operators cautious when venturing

effective integration of this service is clear,” says Moya.

into that area. And since the Jurassic shale resources are

Simmons Edeco working on Amatitlan well 1754 for Renaissance Oil, Veracruz

unconventional, this also makes regulators, such as ASEA,

all the regulations published by CNH and ASEA.” He also

more cautious about the safety and environmental permits

warns that any mistake at the drilling stage could negatively

they provide for the development of these types of fields.

impact the entire field.

But Moya is not overly worried. He says Simmons Edeco

Although operators may have international experience,

is more than familiar with the complexities of the Mexican

they are still getting used to the Mexican regulations, and

market due to its broad experience in the country.

Moya points out that Simmons Edeco is not prepared to

“Simmons Edeco has performed many drilling activities

compromise on quality and compliance. “We have seen

in Mexico and we have a strong performance history in

operators working to understand the new model and

terms of equipment and personnel reliability,” he says. “Our

adjusting their CAPEX and OPEX according to the way

senior personnel have over 20 years in the Mexican market

work must be done in the country,” he says. “We are open

and we are further bolstered by our 55 years of experience

to negotiating but once a bottom line in terms of QHSE has

internationally. Clients consider us one of the strongest

been hit, we do not go lower. That is the way we work and

options in the market due to the fact that all our services

ensure our long-term presence in the country.”

are fit-for-purpose with some of the lowest nonproductive times on average. In fact, Simmons Edeco’s customers have

In addition to local regulations, local content can also create

indicated that the wells are being completed safely, ahead

a stumbling block for international giants, especially those

of schedule and under budget, thereby creating favorable

that place a great deal of reliance on their foreign assets,

economics for the Chicontepec play.”

explains Moya. “Before oil prices fell, many companies did not work to develop their local value chain in terms

Having international and national experience means

of personnel and equipment,” he says. “As a minimum

Simmons Edeco is well-versed in drilling activities. As a

percentage of local content is required, they are struggling

result, the company places great importance on anticipating

to provide enough staff and services.” Simmons Edeco, on

client needs to ensure a long pipeline for oil and gas

the other hand, thought ahead and can offer approximately

works. “Drilling activities are some of the most critical in

70 percent of local content in its activities, while the average

the industry, as they can influence the entire life of the

requirement does not usually surpass 40 percent. “This can

field,” says Moya. “Because of that, we have been working

be a big differentiator when offering our services, given

very closely with our clients in terms of complying with

the importance of local content requirements,” Moya says.

235

VIEW FROM THE TOP

'UNPRECEDENTED' OPPORTUNITY A CLEAR ATTRACTION STEVE HANSON Director of Tonalli Energía, President and CEO of International Frontier Resources

236

Q: What elements of the Energy Reform attracted you to

of being introduced to Grupo IDESA, one of the leading

the Mexican market?

petrochemical companies in Mexico with a long history of

A: When the Energy Reform was first announced four years

success in the downstream petrochemical business. We

ago, we took an interest and were among the first foreigners

began discussing our business strategy for becoming an

to come to Mexico and investigate the opportunity. We

energy leader in Mexico. We felt that if we could combine the

quickly learned that the situation really was unprecedented,

talent of Mexican business people with Canadian knowledge

that this was a historic reform on a scale that was unheard

of the oil and gas industry that we could create a strong joint

of anywhere in the world. Obviously, PEMEX had been a

venture. As a result, we could combine our strong technical

national oil and gas company for 80 years and we discovered

expertise and knowledge of upstream oil and gas, with

the government had created a transparent, investor-friendly

IDESA’s track record of government relations, regulatory

environment for companies to pursue business opportunities.

work and building large projects from scratch. Obviously

In particular, we found the opportunity represented by the

IDESA has a strong interest in the energy sector and a great

quality of the assets was in many cases exceptional, in

relationship with PEMEX.

particular onshore, where our focus is. Q: How do you plan to improve the Tecolutla field’s Many of the fields had been under-capitalized, under-

productivity?

developed and for Canadians such as ourselves, the

A: This field was drilled between 1956 and 1957 and technology

Energy Reform represented an opportunity to use current

obviously has changed since then. In that period there was no

technology, provide foreign investment capital and in

3D seismic, for example. Now, there are new and enhanced

partnership with the Mexican government create a winning

recovery techniques, engineering design and equipment. But

strategy in the oil and gas sector. The scale was what

we also have new human capital that knows what is below

really interested us. The Mexican government was creating

the ground, what is above the ground and how to ensure top

opportunities not only for the super majors in deepwater

productivity and recovery in a field like this. We have been

and large companies in shallow waters; it was creating

able to take a technical team that has a history of success and

opportunities for small, medium and large companies

apply that human capital and expertise. We believe that this

onshore. For a company like ours, whose team has worked

field can be highly productive as pressure is as good as it was

globally, this was a perfect opportunity.

back in the 1970s with thick pay zones. These kinds of fields cannot be found in the US and Canada anymore, which is what

Q: What made Grupo IDESA the perfect choice as a local

makes Mexico attractive. In many cases, a field like this would

partner?

have been drilled out over the last two decades if it was in

A: Although we have worked in Latin America, Asia, Africa

Canada or the US. PEMEX is focused on the larger assets and

and throughout North America, we realized that it is critically

the major discoveries, leaving these kinds of opportunities for

important to have a strong operational and executive team

companies such as Tonalli.

with a history of success in Mexico on the ground. We chose to seek out a local partner with a strong track record. We met

Q: What have you learned from the Tecolutla process that

with many companies early on and we had the good fortune

you hope to apply to the licensing rounds? A: We have learned a great deal about the regulatory process in Mexico, which is very different than in Canada and which

Tonalli Energía is a JV between IDESA Group and International

has been a lot of work. The regulatory agencies here are

Frontier Resources Corporation. It participates in the exploration

very thorough and the process is all new to them. They are

and production of oil and gas. In 2016, it won the license for the

learning at the same time we are, so this process should

exploration and production of the Tecolutla onshore block

become easier, making it less expensive for us in the future.

VIEW FROM THE TOP

ONSHORE AND UNCONVENTIONALS BECKON FOR MEXICAN VETERAN LUIS VÁZQUEZ Chairman of the Board at Diavaz

Q: Grupo Diavaz has had a long history in Mexico. How do

them in-depth knowledge of Mexico. We have a great deal

you think 2018 will play out in Mexico’s oil and gas sector?

of data and have been working with PEMEX for 45 years.

A: The Energy Reform has not been developing as fast as

At one point we had a partnership on seismic studies with

we thought it would. The price of oil dropped and activity

CGG and we have geological information from that period. 237

followed suit. On the other hand, the licensing rounds have been an international success and there has been more

Q: How would you describe your experience with the

participation than we expected. Mexico held presidential

migration of your CIEPs contracts?

elections in July 2018, which of course is significant, but I

A: The migration of our contracts should have taken

do not think that the outcome will have a negative impact

place three years ago. The reasons we have been given

on the fundamentals of the Energy Reform. In 2018, the

for the delays include regulation, misplaced commas and

Mexican energy market will be consolidated. People are

other minor details that can take weeks to resolve. Three

starting to invest, although at a slow pace.

years ago, there were 22 contracts that were eligible for migration. If those 22 had been migrated three years ago

In the onshore arena there has been little activity and only

or two and a half years ago, they would be producing

two or three wells have been drilled in the last year and half.

around 100,000-120,000b/d from 20 wells. But right now,

Bureaucracy has slowed processes and getting a drilling

of 22 wells, only two are producing under the new contract

permit can take as much as a year. Of the Round 1.3 winners,

scheme, and those were migrated at the beginning of 2018,

the only company that has drilled onshore is us. We drilled

not three years ago. We think the authorities are learning

a well in Tamaulipas and another in Chiapas. Those are

to be more flexible about regulation and to consider what

the only two wells that have been drilled onshore so far.

the purpose of regulation is. When our migration process

Offshore has been a little better and about 10 wells have

was delayed, we stopped investing. Three years ago, we

been drilled by different companies.

produced about 12,000-13,000b/d from our Ebano field. Now we produce 9,000b/d. We will not drill a single well

We think it is going to be an important year, given the

before the migration of this contract is finalized because

presidential elections and the consolidation of the Energy

investing in it beforehand is a waste of money.

Reform. Companies will be drilling more, investing more and generating more jobs for Mexicans. It is important that

Q: Do you see Diavaz becoming a publicly listed company

Mexicans see the benefits of the Energy Reform since the

at some point?

main effect for consumers has been higher gasoline and

A: I think our exploration and production arm, DEP Petróleo

LPG prices.

y Gas, might become a publicly listed company because of the financing required for those activities. DEP Petróleo y

Q: Diavaz has traditionally partnered with many foreign

Gas could become a public company in two or three years,

companies. What do you look for in a partner?

in all likelihood on the TSX, but that is a decision that we

A: We have met companies from all over the world. We

have not made yet. Our only reason for an IPO would be

would like to operate offshore and are looking for a partner

to have access to more capital. We need to encounter new

that has offshore experience. We are also interested in

forms of financing to optimally develop the fields we have.

a partnership for the development of unconventional resources. We will be looking for a partner to work with and from whom we can learn how to properly produce from

Grupo Diavaz is a Mexican company focused on exploration and

unconventional plays. We have a good reputation globally.

production of oil and gas, marine operations and installations

International companies know we are serious, that we like

integrity, jointly created through strategic and commercial

to accomplish things and that we like to learn. We offer

alliances with leaders of the international energy sector

VIEW FROM THE TOP

CRAFTSMEN: THE PERFECT SOLUTION PROVIDERS LEN FREEMYER Owner and President of Freemyer Industrial Pressure

Q: How has Freemyer set its foothold in the Mexican oil

the products offered by our competitors. In that sense,

and gas market?

we think of ourselves as craftsmen who deliver the best

A: Freemyer started as a service company in 1988. In

equipment for fracturing and cementing.

1996, we expanded to manufacturing the equipment 238

used for our services. In 2000, we decided to sell our

Q: How can potential clients in Mexico be certain about

services division and focus on our core added value:

the capabilities of your units?

the manufacturing of pumping equipment for hydraulic

A: We have delivered equipment in the North Sea and in

fracturing and cementing operations. We decided to

the Persian Gulf under extreme conditions. This proves

enter the Mexican oil and gas market because of the

the excellent capabilities of our equipment. We have

significant business opportunities it represented. In

not found strong differences in the design requirements

2006, we delivered our first seven units to the Mexican

that are related to weather conditions while working in

market, and those units are still operating and in excellent

Mexico.

condition. This is thanks to the close follow-up we perform with our clients to ensure the equipment is up to daily

The only differences we have found are in the pressure

requirements. We grow on a yearly basis in Mexico and

and fluid flow associated with the Mexican formations,

have around 20 people in the country

a n d t h i s i s w hy we d e s i g n a n d

who speak the language, are certified to

manufacture in-house tailored solutions

perform activities onshore and offshore and meet all the required safety criteria. Today, we have over 100 units in Mexico that are being used in both onshore and offshore operations.

100+

pumping units for hydraulic fracturing and cementing operations

Q: What sets Freemyer apart from

that will provide the customer with the highest benefit according to its specific requirements. Q: How does Freemyer provide a superior post-sale service? A: We are strongly committed to

other manufacturers of hydraulic fracturing and

offering a simple post-sale service. After selling a

cementing equipment?

product, we ensure that the customer is not only happy

A: Freemyer holds many patented technologies and

but confident and certain about how to operate it. It is

processes. Our patented blending processing unit will hit

not unusual for us to send up to five technicians to the

the market in 2018. One of our electronic systems, which

location where the equipment will be delivered. They stay

is head and shoulders above any other in the industry,

until the client feels safe enough to perform operations.

is also patented and included in all our units. Because

This has been done in countries like Kazakhstan, Georgia,

we manufacture our patented designs, we can provide

Russia and certainly in Mexico. To decrease costs, we

tailored products and solutions that better integrate any

have also developed a virtual training tool to help our

specific requirement our clients may have, making our

customers use their equipment.

products more durable so they require less maintenance. This translates into lower ownership costs, compared to

Q: What advantages are there in refurbishing equipment over building it from scratch? A: Today, it is all about speed. Units must start producing

Freemyer Industrial Pressure, founded in 1988 in the US, is

as soon as possible. In that sense, often it is much faster

a manufacturer of equipment and solutions for engineered

and cheaper to refurbish a unit or piece of equipment

and customized hydraulic fracturing, well stimulation and

than to build it from scratch. For those kinds of jobs, we

cementing

have also become a partner of choice in the industry,

especially due to the fact that the last downturn in oil prices brought a great deal of equipment to a standstill. But this is also an advantage as, now, it is only necessary to provide maintenance to bring the equipment up to an optimal operational stage. We can do this in short time frames for the benefit of our clients. Q: How did Freemyer stay profitable during the downturn in oil prices? A: While the downturn in oil prices did hit our profits, we were capable of adjusting accordingly to remain an important player. The fact that we do not like to borrow money but prefer to operate from our cash flow makes us a stronger company, capable of adapting with more flexibility to changes in oil prices. While many companies are still waiting for an increase in crude prices, we do not see it as necessary since our operations are still ongoing. If an increase in oil prices comes faster we will be happy, but if another downturn awaits, we will adapt. Q: How can Mexico improve its oil and gas production with the help of US-based companies? A: Mexico and the US are neighbors, and as such, we need to find ways of working together that will grow our economies and allow us both to become more successful. It is all about thinking like partners. One clear example of this is in the arena of unconventional resources, which are highly developed in the US but not in Mexico. US companies could very well help Mexico reach higher production if both countries allow for an easier trade of people and goods. In this sense, a positive renegotiation of NAFTA will have a strong impact. Q: In that sense, how is Freemyer working to support the success of the Mexican oil and gas industry? A: We focus on developing purpose-driven relationships and believe that these kinds of relationships are what Mexico needs to further strengthen its hydrocarbons industry. Before accepting any job, we ask ourselves whether we will be able to support the company after the sale. Since our reputation depends on that, if the answer is no, we decide against the sale. Honesty and integrity are core values for us. They have allowed us to earn an excellent reputation and credibility across the industry. This is also the case in Mexico thanks to the hand-picked partners we have that share our values. We want to continue growing in Mexico. In the US, we are among the Top 4 companies in terms of quality delivery. All our efforts will be directed toward manufacturing longer-lasting equipment that requires less maintenance and is more user-friendly for all our customers, be they in Mexico or anywhere in the world.

239

ANALYSIS

PREPARING FOR FIRST UNCONVENTIONAL ROUND Round 3.3 will be the first to publicly offer blocks with unconventional resources. For it to be just as successful as the previous rounds CNH, ASEA and the Ministry of Finance are preparing a regulatory framework that incentivizes participation while placing safe operations and environmental protection at the forefront unconventional. This figure is 4 percent of the total

ROUND INFORMATION

240

amount of unconventional onshore resources included

Contract type

License

Area

2,704 km2

in the Ministry of Energyâ&#x20AC;&#x2122;s updated Five-Year-Plan for

Conventional prospective resources

53 million boe

2017-2021.

Unconventional prospective resources

1.16 billion boe

Remaining volume

136 million boe

MINIMUM TECHNICAL REQUIREMENTS

On Sept. 5, 2018, CNH will auction blocks containing

Experience as operator in hydrocarbon exploration and/ or production project during the last five years

Capital investment of US$100 million in hydrocarbon exploration and/or production projects during the last five years

Proposed personnel for managerial positions to take care of operations must have 10 years of experience minimum

Experience in implementing and operating industrial and operational safety and environmental protection management systems in hydrocarbon exploration and production projects or installations during the last five years

Accounting capital equal to or higher than US$100 million or assets that account for at least US$500 million plus a credit qualification on them for investment grade

unconventional resources. The nine blocks on offer make up a total area of 2,704km 2, 43 percent of the land awarded during onshore Rounds 1.3, 2.2 and 2.3 combined. The fields contain 1.2 brillion boe in prospective resources, a 278 percent increase on the 436 million boe awarded in the 46 blocks in those rounds. Round 3.3 will be a first for the country, with 95 percent of the resources, accounting for 1.16 brillion boe, considered

ROUND 3.3 BLOCKS AND SURROUNDING

INDIVIDUAL BLOCK DATA Block

1 4

2 5

3 7

Area (km2)

Unconventional Prospective Resources (million boe)

301.7

297.4

199.1

262.9

126.9

414.9

65.7

255.4

90.7

274.7

110.6

281.6

158.3

300.1

208.2

315.5

175.7

Wet gas

Petrochemical complexes

Gas pipelines

Dry gas

Cadereyta refinery

Gas generating centers

Exisiting unconventional wells

Storage terminals

Gas processing centers

Railroads

Thermoelectric facilities

Pumping stations

Source: CNH

ANALYSIS

IXACHI-1 PROVES ONSHORE EXPLORATION AND PRODUCTION POTENTIAL PEMEX’s discovery of Ixachi has been catalogued by CNH as strategic due to the potential it has of proving the continuity of the well-known Faja de Oro. Since the discovery took place on March 2017, two more wells have been granted drilling permits

IXACHI FIELD LOCATION

241

Mesozoic oil field Tertiary oil field Mesozoic gas field Ixachi Ixachi-1 well Pipelines Source: PEMEX

IXACHI DISCOVERY

most important onshore discovery developed by PEMEX in

Original volume

1.5 billion boe

the last 15 years and could add close to 350 million boe to the

Possible 3P reserves

350 million boe

country’s 3P reserves. According to PEMEX’s estimates, the

Short and mid-term objectives

Support the wet and dry gas demand in the country

formation could even double its volume if it extends beyond initial estimates. The significance of this discovery increases due to its position close to existing pipeline infrastructure,

On March 11, 2017, President Peña Nieto announced the

meaning that it can enter production activities in a shorter

discovery of a field with an original volume of 1.5 billion boe.

period of time. Considering that the well could prove the

The Ixachi-1 well is 72km south of the port of Veracruz and

continuity of the well-known Faja de Oro, it is listed by CNH

close to Cosamaloapan. The estimated amount makes it the

as strategic, with high risk but also high reward.

Wells

Authorization date

Ixachi-1001EXP

Apr 27, 2018

Ixachi-1DEL Ixachi-1 Source: PEMEX, CNH

March 15, 2018 Sep 20, 2016

Purpose of the well Incorporate hydrocarbons reserves in the carbonates of the Mid-Cretaceous Platform Define the field extension toward the SouthEast Look for the presence of hydrocarbons in the Mid and Inferiour Cretaceous Platforms

INSIGHT

WHEN WATER IS THE ENEMY OF PRODUCTION FRANCISCO GARDUZA Business Development Manager of Grupo Kimia

242

Each reservoir is unique, with different permeability,

The company’s tangible results include an onshore well in

porosity and ductility factors that must be taken into

the southeast region of Mexico that it worked on in 2015.

account if the well is to reach optimal production levels.

The well was in a carbonate field, with a water cutting of 85

The problem arises when all wells are treated identically,

percent, requiring acid cleanings every two to three months,

explains Francisco Garduza, business development

at least. “Our intervention lasted for two days, after which

manager of Grupo Kimia. “We discovered that companies

we performed a 48-hour closure to let the system work

working mature fields always use the same product,

inside the well,” explains Garduzo. “The operation turned

meaning that not all wells respond as expected to the

out to be a great success as we reduced the well’s water

treatment.” To address this issue, Grupo Kimia developed

production by 40 percent and increased oil production

an analytical process to improve the production of Mexico´s

by 15 percent.” Beyond the increase in oil production, the

mature fields. “We analyze the history of the field, check

customer received an extra benefit as the reduction of

its intervention history to define the best procedure and

water production meant less incrustations, which translated

then based on that, we conduct tests in the lab wherein

directly to fewer cleaning operations required. “As of

conditions are replicated and effects of the treatment are

October 2017, this well has not yet needed another acid

analyzed to ensure success,” says Garduza.

cleaning, meaning that since our treatment was performed, four interventions were avoided,” he adds.

In a competitive market such as mature fields, a new technology must be proven right away to become

A big idea does not always mean big success, as over 90

successful, a feat Grupo Kimia accomplished. “Considering

percent of startups learn very well. What makes a startup

the costs of water treatment only, we managed to reduce

truly successful often ends up being the business model,

costs by 30 percent compared to the market average,”

and an important component is allies. Knowing this, in

Garduza says. “Our treatment can be applied directly

2016, Grupo Kimia launched a commercial relationship

without the need for extra operations, such as reshooting,

with Mexican EPC Grupo Diarqco, which has many mature

so the savings are even bigger.” The treatment also extends

fields in Tabasco. “We were looking for a strategic alliance

the effective production time of the wells by 60 percent.

that would ensure a market share in Mexico,” says Garduzo.

VIEW FROM THE TOP

FROM SERVICES TO OPERATIONS IN A GENERATION CONCEPCIÓN DE LA GARZA Director of Golfo Suplemento Latino (GSL)

Q: Which of the many services that GSL offers is most in

private operators. In Colombia, it has been a great success.

demand?

Another is with Canadian company Tundra, which is an

A: We are operating and maintaining the Ebano, Panuco,

expert in capillary tubing. We will offer integrated services,

Altamira, Amatitlan and Miquetla fields in the north; Catedral,

custom-made to suit each client’s needs. We will also start

Vernet, Cafeto, Manuel Rodriguez, Acahual, Adolfo Lopez

offering our services in the natural gas fields of Burgos. This

Mateo, Mata Violin, Viche, Guiro y Acachu fields in the south;

shows how for a company of our size alliances with other

the offshore field Arenque; and, five of six PEMEX refineries.

companies are invaluable.

We do everything except drilling. When working for private operators that won a field, we start working on the field

Q: How do you present the company to potential customers?

after they drill and we do everything else. We clean, take

A: I would like to emphasize that we are completely open

all the measurements and inject chemicals to improve flow

to adopting new techniques and entering new markets.

and increase production. We use hot oil units and capillary

We want to renew the company. I want to be open to any

tubing. We have tanks and portable measuring equipment,

changes, from PEMEX to private companies and from

and our goal is to offer as many services as possible.

chemical products to operating the fields. We are looking for new clients and new providers, whether they are Chinese,

Q: What differentiates GSL from other companies offering

Canadian, Colombian or American, it does not matter. We

similar services?

offer foreign companies the certainty that we have been in

A: This company was founded by my father in 1989 and

the market for 28 years and that we do things right. We do

he first started working with the flow improvers in the

not want to stay static as a company as market changes

production wells of the Ebano field. The first contract he

demand constant evolution. With the oil price levels we

received was an incentive contract that stipulated that if he

have experienced in the past three years, we had to make

did not increase production by 20 percent PEMEX would not

changes. If we had not adapted, maybe we would not be

have to pay. This contract was re-signed for 12 years. Diavaz

here right now.

then obtained that field in a CIEP contract and we worked for them for another six years. Over time, we have evolved from

Q: What updates can you share from the Round 2.3 block

just flow improvers and started using other chemicals, at

GSL won in a consortium?

which point we began working in the fields like an operator.

A: The block, located in Veracruz, has three fields, namely

Due to PEMEX’s needs and those of the private operators,

Tres Higueras, Lagarto and Palo de Oro, with a surface of

we have developed an integrated service, although oil prices

192.2km2 and composed mostly of wet gas. The contract

have made some companies focus more on the services they

signed on April 27, 2018, with CNH is a 30-year license

need rather than requiring a complete turnkey offering. We

for the exploration and extraction of hydrocarbons. We

can provide separate or integrated services depending on

expect to start operations in 2019 by re-entering some

the client’s wishes.

of the existing wells and then in 2020 we want to begin the exploration phase. The first operations will allow us

Q: What new services do you plan to roll out in the

to generate a cash flow that will support the exploration

coming years?

phase.

A: Right now, we have made several alliances with different companies. One is with the Colombian company CEPS that has developed a new technology called BEAS, which works

Golfo Suplemento Latino (GSL) is a 100 percent Mexican

by creating a vacuum to clean the oil wells of sand and

company that offers auxiliary services for the production of

fish that could be trapped due to previous work. In 2018,

hydrocarbons such as field management and improvement,

we plan to start tests in Mexico with PEMEX and some

flow measurement and chemical injection for flow improvement

243

VIEW FROM THE TOP

PLAYING LOCAL, THINKING BEYOND MIGUEL OJEDA Director General of Proserma

244

Q: How do you remain competitive operating in a market

Q: Which of your projects and products most help to give

filled with big multinationals?

you an upper hand in the market?

A: We operate as a local company with a smaller

A: We did projects for PEMEX in the Bellota-Jujo fields where

infrastructure compared to the multinationals in the market.

we introduced products to clean and improve production,

Multinationals offer the same infrastructure and research

which increased by 20 percent. We have built a brand based

bases as in any foreign market, adding costs that make

on commitment and we have never left a well unfinished

their prices higher. We act as a local entity in the field and

or poorly done. Part of our competitive edge is that we are

our main development is in Mexico, although we have had

constantly looking for new technologies. For instance, we

operations in Guatemala and Colombia. Our core business

recently introduced a foam agent that we want to apply in

is chemicals, where we started, and our technical capacity

future projects.

is based in our labs in Reynosa and Villahermosa. We offer competitive prices without compromising quality in our

Q: What is Prosermaâ&#x20AC;&#x2122;s approach to technology and how do

products and services.

you help your clients create value through that approach? A: We look for biodegradable products that add value to the

Q: How do your tailor-made services add up to profitability

opportunities our clients seek. We invest in labs to develop

for your customers?

new products and to stay at the forefront of innovation. We

A: The fundamental way for a company to evolve is to

also invest in providing maintenance, helping our clients

maintain its vision. Market dynamics can put pressure on

carry out deep cleaning of their equipment and doing short-

companies and force them to move to marginal prices,

scale maintenance.

lowering their quality and risking the aftersales experience. We refrain from engaging in price wars, especially when they force us to reduce our profitability margins just to maintain

Proserma is a Mexican service company. It supplies a range of

market share. We have been fortunate that our operations

high-efficiency chemical products for oil production and drilling.

have increased and we are completely transparent in our

Its solutions also includes environmentally-friendly services,

relationships with our customers.

human capital outsourcing and engineering

VIEW FROM THE TOP

NEW INJECTION SYSTEM SPEEDS UP PRODUCTION JUAN TĂ VARA CEO of Atlantic Oil & Gas

Q: How is Atlantic Oil & Gas working to improve the Mexican

are expected in the state. One great source of contacts has

oil and gas sector?

been COPARMEX of Veracruz.

A: Capillary injection systems are not common in Mexico but we are developing this technology with foreign

Q: What can Atlantic O&G offer the international

companies that could later become our partners here. The

companies coming into the Mexican market?

technology has the advantage of producing much faster

A: We are focusing on creating relationships with the winners

and directly out of the wellhead. While a common artificial

of Round 1.3. Those companies received mature fields that

lifting process could take three or four days to be installed,

are already producing and to improve operations they need

involving several processing systems that include pumps

to install new equipment , which we can provide, or they will

and a team of more than 10 people to manage its operation,

need to provide maintenance for equipment that is already

capillary injection systems are installed in one day and

installed. We are experts in those services, having worked with

require between three to four people. Our philosophy is

companies such as 5M, CMM, Weatherford and Strata. Atlantic

based on incorporating the best technology advancements

O&G offers these companies and others excellent technologies

and we are constantly looking for partnerships that will

that require only small teams and that are also economically

allow us to introduce cutting-edge technology and added

viable. Some of the products may require a higher immediate

value to our portfolio. Of course, we continue to work with

capital investment but considering that these technologies

dehydration and dew point systems as part of mechanical

will be used for 20 or 25 years, a proper financial analysis will

refrigeration as well as with compression units for wellheads

demonstrate that we are their best option.

and compressing stations. International companies work all over the world and Q: Is Atlantic looking at other business areas to offer more

they always look for the most competitive technologies

value to its clients?

to implement. With these companies coming to Mexico

A: In fact, we are entering a new area: electric generation

we can see a big market opening, and although it can be

and cogeneration. We offer a strong added value in this

challenging to reach them, we have the advantage of having

new business segment because we are in contact with

worked with most of them around the world on individual

several clients that are involved in natural gas. Natural

projects, making our approach much smoother.

gas for electric generation is a big opportunity because of the new electricity market that is very competitive

Q: How would you rate the success of the Energy Reform

and requires clean generation for Mexico to achieve the

in terms of local content?

international goals to which it has committed. Ahead

A: The Energy Reform has been very successful. It has

of venturing into this area, we have talked with the

allowed many international companies to enter the market

Ministry of Energy, CRE and CENACE, as well as with the

and has resulted in forward-looking investment opportunities.

industrial customers that we would be representing. We

Nevertheless, it still has to procure and allow for more

have also developed management teams and engineering

participation of national companies, not only through local

designs. Now, we are working on the financial aspect of

content requirements but by allowing them to compete on a

the projects and have contacted financial institutions to

level playing field with international companies.

support the operations. The generated energy will be sold mainly to industrial customers but we are also open to commercial clients.

Atlantic Oil & Gas is a service company with a range of activities for onshore operations, from gas processing to asset

Atlantic O&G is also looking for a way to create an industrial

management. As a Mexican player, the company has strong

cluster in Veracruz to take advantage of all the projects that

alliances with international private companies and institutions

245

INSIGHT

WHEN SHORT AND LONG-TERM BENEFITS ARE ACHIEVED CHRISTIAN RODRÍGUEZ Director Mexico of Core Laboratories (Core Lab)

246

Production decline can be one of the biggest challenges

Now, as PEMEX has competition and is either entering into

operators face and they are increasingly looking to companies

associations or prioritizing the more economically attractive

like Core Laboratories (Core Lab) that offer well-intervention

fields, individual investment for each well is set to rise.”

services to reverse the trend, says Core Lab’s Director for

Although many believe PEMEX’s activities have declined over

Mexico, Christian Rodríguez. “During the first year, a well’s

the last few years, Rodríguez says that on the contrary, Core

production will decline about 40 percent,” he says. “With

Lab has seen demand for its services increase from the NOC.

reservoir description and production enhancement services,

He sees the transformation as a wholly positive step.

production decline can slow down and wells can even increase production by 4-5 percent.” This percentage may seem low

As a major highlight of the company’s capabilities, Rodríguez

but Rodríguez emphasizes that it should be seen in the

mentions the fact that Core Lab is the only company of its

context of the entire life of a well, and for the number of

kind contracted by PEMEX to offer its services in Cantarell and

wells an operator may have. In PEMEX’s case, for instance, the

Ku-Maloob-Zaap, Mexico’s two biggest-producing fields. As

number of wells and life cycle of each means the margins are

Cantarell is older than Ku-Maloob-Zaap, this field has provided

considerable. “We have worked with PEMEX for many years

Core Lab with proof of PEMEX’s shift in mentality in its

and in many wells. This adds up to billions of barrels that have

activities, with a new focus on value creation and production

been produced thanks to the small percentage increase in

improvement. “Year after year at Cantarell, PEMEX has

production per well we offered with our services.”

performed more tests to determine how to improve the field’s production. We have found that there is still a great deal of

Although the relationship between PEMEX and Core Lab has

oil to be tapped there. If more activities had been performed

been developing for many years now, Rodríguez says the

since day one, there could have been more potential for

opening of the Mexican market has created a different set

recovery,” Rodríguez says. In the case of Ku-Maloob-Zaap, he

of opportunities. “In the past, PEMEX was the sole operator

says the younger field received Core Lab’s services from the

for all of Mexico, meaning that it had to divide its investment

very beginning of operations, allowing it to maintain healthier

across several assets, leaving each of the fields with a level

production levels. “This says a lot about what PEMEX learned

of investment that was insufficient to ramp up production.

from Cantarell.”

VIEW FROM THE TOP

THE POWER OF TECHNOLOGY TO MAKE A DIFFERENCE ALEX FLORES Regional Managing Director for Asia Pacific and Latin America at Weir Oil & Gas

Q: How significant is the Mexican market to your overall

Q: How does Weir fare against other market players in

productivity and what are your leading operations here?

service provision for the industry?

A: Our main business line is the provision of pressure

A: We have an entire portfolio available for our customers

pumping and pressure-control products, which includes

and we are at the forefront of unconventional technology

equipment for well services, including high-pressure,

as we have invested heavily in that area.

cementing and hydraulic fracturing pumps. We provide everything from the high-pressure pump to the wellhead.

Q: How will the upcoming licensing round on unconventional

Mexico has always been a market with great potential for

resources open new business opportunities for Weir?

Weir and we have had operations here since 2008. We

A: Round 3.3 will be a tremendous opportunity for our

have also evolved along with the market and its needs. We

partners in Mexico, and we will benefit if they emerge

increased our presence by opening a new service center in

winners. We have also started discussions with them on

Ciudad del Carmen, to complement our facility in Tabasco.

the differences in the pumping environment, certain key

We also have a flexible model, providing onsite services

maintenance practices that would be useful for them and

and a fleet of four mobile units that we dispatch around the

how to deploy new technologies that can make them more

country, providing cost and flexibility advantages.

competitive. A central problem with unconventional field development is how expensive this activity can be and

Q: What are the main hurdles faced by your customers

we must work with our customer base to evaluate how

and how does Weir help them overcome these challenges?

to make these projects viable through technology and

A: Companies need to reduce the total ownership cost

engineering expertise.

of their equipment and this is what Weir has been doing, particularly with unconventional work where pumping is

Q: How does Weir add value when working on

much more demanding and takes more time. We develop

unconventionals?

specific products to increase the lifespan of our customersâ&#x20AC;&#x2122;

A: Mexico is more of an operational expense market

machinery in these harsh pumping environments. We

rather than a capital expense market. We have already

deployed our RFID technology across all our products to be

established conversations with some companies about

able to track assets and we introduced a new shale pump,

unconventional work, the technologies available for these

the SPM QEM 3000, that reduces total ownership cost by

developments and the ways in which our technologies

17 percent for a single pump and which addresses issues

can be adapted to their own equipment to boost onsite

related to pressure pumping in a unified way. We have

knowledge and reduce costs. One way to become

also been increasing the life cycle for everything related

efficient in this segment is to make the equipment last

to the pump, from the consumables to the wear life, and

longer and to reduce the nonproductive time on well sites

we continue to find different ways to add value for our

so the equipment can be moved to the next well much

customers.

faster. Our products and engineering reduce the total cost of ownership. We want to help our clients minimize

Another significant need is reducing nonproductive periods

that downtime on location so they can accelerate their

and we recently deployed our Weir Edge aftermarket

production.

services to tackle this need from three fronts. First, in-field engineers address the root causes on location to change the customersâ&#x20AC;&#x2122; experience. Then, specialized field experts make

Weir Oil & Gas designs and fabricates pressure pumping and

required repairs and finally, our network of strategically-

pressure control equipment and offers innovative services for

located service centers offer support, parts, service and

drilling, well termination, oil and gas production and refining

customer training for issues that cannot be resolved onsite.

with the goal of improving our clients' operational efficiency

247

Abkantun top deck stack, Altamira, Tamaulipas

FIELD DEVELOPMENT & PRODUCTION INFRASTRUCTURE

Historically, Mexico has always had a privileged place at the international level in terms of production of hydrocarbons. In 2017, the country produced a total of 1.95 million b/d of oil and 5.1 billion cf/d of gas. All of this this production comes almost entirely from fields operated by PEMEX, particularly in shallow waters.

Prior to the Energy Reform, PEMEXâ&#x20AC;&#x2122;s main concern was to increase production volumes, fostered by the relevance of having revenues from hydrocarbons exports to support the countryâ&#x20AC;&#x2122;s economy. However, thanks to the entry of new agents into the Mexican oil and gas industry in the form of recently created and revamped regulatory institutions, hydrocarbons production is now a matter of profitability and operational efficiency. PEMEX and the new operators in the Mexican market now have the task of molding field development plans for every asset they operate, which not only will allow them to improve the productive life of their fields, but also will help them to track their investments, plan their decisions in a better way and increase their production platforms and portfolios.

249

CHAPTER 9: FIELD DEVELOPMENT & PRODUCTION INFRASTRUCTURE 252

ANALYSIS: The Quest for Profitability, Operational Efficiency

254

VIEW FROM THE TOP: Rodolfo Alfonso Esquivel, Grupo Roales

255

COMPANY PROFILE COTEMAR: Partner for the Long Term

257

VIEW FROM THE TOP: James Buis, Nalco Champion

258

INSIGHT: Raúl Cullingford, Control Flow

259

VIEW FROM THE TOP: Horacio Ferreira, SURPETROL

260

VIEW FROM THE TOP: Eckhard Hinrichsen, DNV GL

262

INSIGHT: Alberto Sambartolome, ERM

263

VIEW FROM THE TOP: Graciela Álvarez, NRGI Broker

265

VIEW FROM THE TOP: Michael Günther, Marsh

Sebastian Aguayo, Marsh Energy

266

VIEW FROM THE TOP: Paolo Gaffuri, Pietro Fiorentini Mexico

268

VIEW FROM THE TOP: Héctor Cuéllar, Válvulas Worcester de México

269

VIEW FROM THE TOP: Wu Qiang, Kerui EPC

270

VIEW FROM THE TOP: Rodrigo Favela, HCX

271

VIEW FROM THE TOP: Rafael Llamas, Cargotecnia

272

VIEW FROM THE TOP: Hermann Saenger, SGS Mexico

273

INSIGHT: Javier Villamizar, Greensill Capital

274

VIEW FROM THE TOP: Erick Velasco, SETEIN

275

VIEW FROM THE TOP: Gilberto Gomez, AIMSA Petroleum

276

INSIGHT: Cándido Hernández, Neoviss

277

VIEW FROM THE TOP: Alfonso Araiza, INTERprotección

278

ROUNDTABLE: What New Tech Will Revolutionize Oil and Gas Infrastructure?

251

ANALYSIS

THE QUEST FOR PROFITABILITY, OPERATIONAL EFFICIENCY The injection of competitive forces into Mexico’s oil and gas industry is poised to reverse the country’s declining production. With that comes the need to both revamp and install new infrastructure from the shores to the gas pumps. Developing talent to ensure a sturdy supply chain will also be key But Sebastian Aguayo, Vice President of Marsh Energy, says

discoveries both offshore and onshore, a key question

this is not limited to Mexico, and PEMEX in particular; it is a

looming over the industry is how to most efficiently address

global trend. “One trend that the industry is facing all over

production, transportation, storage and distribution of oil

the world is coupling existing and aged infrastructure with

and gas products. Operators finding new oil are grappling

newer infrastructure. This may be perceived as complex but

with the issue of outdated infrastructure and whether

in reality, should not be a problem, and operators working

to install their own or update the existing infrastructure

with proper procedures that include a long-term vision

mostly owned by PEMEX. One factor is certain: Investment

for the project can manage the risk very well. For this to

is needed, and lots of it, says Hermann Saenger, Managing

happen a proper communication transfer strategy between

Director of SGS Mexico. “This is especially true in the

the old owner of the infrastructure, in this case PEMEX, and

ports, in the discharge facilities during transportation, in

the new owner, will be crucial.” Aguayo argues that old

the distribution centers and all the way down to the gas

infrastructure opens an advantage for those entering the

stations. There is a huge need to invest in infrastructure.”

market because they will need to invest less in the short term. “Most of the projects that are being auctioned in

While it is easy to point out the deficiencies in PEMEX’s

the upstream and midstream sectors have the advantage

infrastructure, in fact, the company has built and operates

of needing only last-mile investments, as most of the

an impressively diversified infrastructure portfolio. It has over

infrastructure has already been developed.” James Buis,

8,000 operating wells, 250 platforms, six refineries in the

District Manager for Mexico at Nalco Champion, agrees

country, nine gas processing and two petrochemical complexes,

that the existing infrastructure has a vital role to play as

more than 17,000km of pipelines, 74 storage and distribution

exploration and production activities ramp up. “Mexico

terminals, 16 marine terminals, 10 liquefied gas terminals and

has to increase production using its existing facilities and

over 2,000 transportation and distribution assets that include

equipment,” he says.

tank trucks, ships and tank cars. Budget and priorities at the former state monopoly pushed aside maintenance in favor of

One hurdle for companies looking to deploy new

production, resulting in the current state of affairs.

infrastructure is the difficulty in implementing cuttingedge technologies that require higher investments in the

PRODUCTION COST COMPLETED DEVELOPMENT WELLS BENCHMARKING 2017 (USD/BOE)

short term but that bring benefits over the longer period, says Andrés García, Business Development Manager of

Ampelmann Operation. “The most challenging aspect of bringing technology to Mexico is the lack of knowledge

not only of the product, but of its benefits. In Mexico, and in Latin America in general, people tend to focus solely

on CAPEX.” Fortunately, he believes that as international companies start entering the country and implementing

their best practices and forward-looking vision, “we will reach the point when the cultural factor of calling something

3 Poza Rica-Altamira

expensive will no longer be relevant.” Gulf tertiary oil

Tabasco platform

Abkatún-Pol Chuc

Ku-Maloob-Zaap

Cantarell

Samaria-Luna

Deepwater

252

As production ramps up in the coming years with new

BUILDING BEGINS Michael Günther, Director of Energy and Infrastructure Mexico at Marsh, points out that “major companies are entering the country to sell gasoline and natural gas, and they want to provide their own molecules, meaning that a major refurbishment of the transmission and distribution systems

Source: CNH

in Mexico will be required.” Investment is already arriving to

the country in a tangible way, with an increasing number of

end and end-users at the other. “Mexico is still a new market

exploration and production facilities, more natural gas and

for us but it is quite an interesting one. We are looking for

liquid pipelines and even new ports and storage facilities

infrastructure opportunities in oil and gas for LNG, CNG

that are ready to start construction or are already being

and LPG projects,” says Wu Qiang, President of Kerui EPC,

constructed. The country’s key ports of Tuxpan, Altamira,

adding that, “since we work under opportunity-enhancing

Coatzacoalcos, Dos Bocas, Matamoros and Tampico are all

contracts, we plan on maximizing our number of local

preparing to meet the industry’s new developments. “The

employees, local scalable economies and communities.”

project to build a port in Matamoros materialized after looking at all the investment that the licensing rounds

REGULATION, LOCAL CONTENT

are expected to bring to Tamaulipas’ offshore industry,

As Qiang suggests, developing the local supply chain, and

especially in deepwater,” says Ricardo Correa, Director

the necessary skilled labor, is another major focus for all

General of API Tamaulipas, Puerto de Matamoros. Similarly,

players. The development of the chain will include best

Tuxpan is implementing measures and strategies to enable

practices from abroad as international companies set up

the transformation of its storage terminals and to integrate

shop in the country, particularly as that applies to regulatory

specialized facilities that have the capacity and efficiency

requirements involving minimum national content in

to cater to the national demand for hydrocarbons, says

operations coming from the licensing rounds. “Mexico still

Jorge Ruiz, Director General of API Tuxpan. It is planning

has room to learn from the experience of other countries

five projects that will be deployed in the port during 2020.

where specific regulatory issues have already been solved,”

“These five projects are directed to the oil and gas industry.

says Alberto Sambartolome, Partner at ERM.

Representing an investment of MX$16.3 billion. They are meant to increase the port’s installed storage capacity to

While the implementation of new standards is a hot topic,

more than 7.8 billion barrels of fuel. MX$1.75 billion of this

the preparation of local content to meet the challenge

investment will be allotted to the port precinct and MX$14.6

is a theme for which companies have raised a red flag.

billion to the storage areas near the precinct.”

Rodrigo Favela, Partner at HCX, says: “There is a shortage of specialized workforce for high-tech operations. The

Foreign companies, such as Kerui EPC, are also going after

industry’s expansion has also prompted many experienced

the opportunities the Energy Reform has opened to build

people to move from PEMEX to private entities, causing a

the required proverbial bridges between operators at one

shortfall of experienced staff in the sector.”

253

VIEW FROM THE TOP

PATENTING THE MUDPROCESSING PROCESS RODOLFO ALFONSO ESQUIVEL Director General of Grupo Roales

254

Q: What makes the outsourcing segment of Grupo Roales

A: Our local experience goes beyond regulatory,

different from other companies with a similar service?

environmental and human capital consulting. At the

A: I started this journey back in 2007 after 16 years of

moment, we are capitalizing on a huge opportunity

working as an engineer in the oil and gas industry. We

to treat the mud from offshore drilling. Grupo Roales

had a small shop where our main activity was electro-

patented the first drilling-related mud-processing plant

mechanic services. As demand for our services increased,

placed on a vessel. It has the capacity to treat and

we started looking for strategic partners and began

decontaminate mud, which is then pumped into injection

integrating their products and services into our solutions

wells belonging to PEMEX. This cutting-edge technology

portfolio, allowing us to offer an integrated outsourcing

was developed from scratch by our engineering

service. Our first customer was PEMEX and from there

department and we want Mexico to be the starting point

we moved to private and public projects, all pertaining

for this application. This project was hatched while we

to the oil and gas industry.

were brainstorming ideas to reduce costs associated with mud from drilling.

We maintain a full portfolio of technical experts, which makes us more than just a common outsourcing company.

We discovered that the biggest cost was in offshore

Our presence and experience across the country includes

logistics. Someone suggested putting a mud plant on

senior consultants in different oil and gas disciplines. This

a vessel, so we looked at the current regulation and did

allows us to provide technical staff in the shortest possible

not find any constraints in this regard. Having a mud

time. We can move quickly while delivering the highest

plant on a vessel would help our customers reduce

standards in terms of personnel at a competitive cost.

80 percent of the cost related to the mud-reinjection process. It also eliminates the risk of mud spills, which

Q: How has Grupo Roales adapted to the challenges of

makes it an appealing alternative for current offshore-

the new Mexican multiclient market?

drilling companies.

A: To participate in this relatively new market, we first set out to understand the procurement and due diligence processes

Q: What are Grupo Roales’ ambitions for the coming

of the new operators. As a result of several productive

years?

conversations with these players, we knew we would need

A: Grupo Roales believes that the best way to celebrate

international certifications to support them. Grupo Roales is

a milestone is by setting a higher goal and to work to

now certified in due diligence, quality and safety procedures

achieve it. We work very well outside our comfort zone

such as TRACE, ISO 9000, ISO 14000 and ISO 18000. Our

and capitalize on opportunities in difficult times. We are

relationship with PEMEX has also been beneficial, helping

accustomed to seeing opportunities where others see

us to showcase our portfolio of services to new operators

crises.

looking for local experience and knowledge. Proof of this is our recent alliance with Weatherford to Q: What relevant project illustrates Group Roales’ ability

participate in a tender to reactivate some of PEMEX’s

to offer an added value to its clients?

closed onshore wells. We are confident that our highlyskilled consultants and local experience will help us win that bid. Grupo Roales strives to build strong and

Grupo Roales is a regional leader in technical and corporate

intelligent alliances with technology-driven companies

staffing as well as supply-chain services. Outsourcing,

to develop the best solutions and services. That then

project management consulting and offshore catering are

makes it is easier to attract financial partners to support

among its services

our projects.

COMPANY PROFILE

COTEMAR: PARTNER FOR THE LONG TERM Mexico’s oil and gas resource wealth remains vastly

record over four decades, the company has developed a

untapped. To make the most of it, efficiency, safety and

diverse and integrated offshore oil and gas service portfolio:

speed are of the essence. Tenured local partners that can successfully navigate the complexities of local offshore oil and gas projects through integrated services can unlock the development of the country’s oil and gas reserves to their full potential.

• Asset solutions that cover services such as heavy lifting and platform relocation, platform rehabilitation and commissioning, platform evaluation studies, decommissioning, turnarounds and shutdowns, quality assurance and asset integrity management.

Cotemar is a 100 percent Mexican company that has the infrastructure, capabilities and culture that make the

• Engineering, Procurement, Construction, Installation and Commissioning (EPCIC)

company a premier and valuable long-term partner. It is

services specialized in platform construction and

also committed to the welfare of its people, community

modification, platform and module procurement,

development and protecting the environment. That good

fabrication, installation and commissioning, contract

stewardship has been recognized by many organizations, including PEMEX. Its work in projects such as Abkatun and Akal-C in the Cantarell production field are a testament to the company’s capacity to deliver quality, complying with the highest international HQSE standards and certifications, including ISO, OHSAS, MARPOL, DNV and ISPS-PBIP. Focused on innovation and quality, its expertise and unique

plant engineering, turbomachinery installation and installation of crude oil and gas processing facilities. • Maintenance, Modification and Operation (MMO) services, including asset and equipment maintenance, instrumentation and control, pipe installation, IT services and telecommunication systems and security and safety systems. • Logistics to efficiently transport personnel, material and equipment by both air and sea, accommodation

assets in the Gulf of Mexico place Cotemar at the forefront

and catering, warehousing and freight forwarding

of supplying all-encompassing solutions that meet its

services, providing specialized vessels and supply

clients’ challenges, delivering cost-efficiencies and time-

docks, agency and office set-up services, hazardous

savings every step of the way. Backed by a successful track

waste management and offshore mud processing.

Iolair, Cotemar's construction and accommodation semi-submersible platform, Akal-C complex, Cantarell, Campeche

255

VIEW FROM THE TOP

KEEPING THE WELLS FLOWING JAMES BUIS District Manager Mexico of Nalco Champion

Q: What is Nalco Champion’s key product for the Mexican

attach to return on investment. PEMEX has not traditionally

market and why is it important?

emphasized return on investment, considering production

A: From a chemistry point of view, flow improvers make

a more important metric and, for example, not necessarily

the greatest contribution to our bottom line in the country.

wondering what its lifting costs are in a particular field.

Mexico must increase production using its existing facilities

Private companies consider such issues very important

and equipment. Therefore, flow improvers will always be

because occasionally they have to go back to the home

an important product. We were working on a total of

office and present their financial results. Another important

five projects for flow improvers at the end of 2017. Some

difference is that smaller independent companies do not

of these projects are with PEMEX and some are with

have to wait for private tenders to be published to explore

independent operators that either have operations or are

opportunities. PEMEX is much more reluctant to explore

launching operations. We also have been working to build

business opportunities without a published private tender.

new chemistry solutions and we have a couple of new

Nalco Champion has a long history in the country and we want

products in the pipeline, most of them focused on high-

to capitalize on that to serve all the new companies coming to

temperature and high-pressure application conditions. We

Mexico. With a strong focus on Mexico, our company wants

expect to carry out field trials soon.

to become the local partner of preference for the provision of safe and sustainable chemistry programs and services.

Mexico is expanding the frontiers of its oil and gas industry. This has been seen not only in the fact more exploration

Q: Which KPIs does Nalco Champion use when pitching its

areas are being auctioned but also in the increasingly

products to the Mexican oil and gas industry?

challenging formations these areas present. In this regard,

A: It is hard to talk about one specific KPI that we pitch to

Nalco Champion’s products will become crucial for

companies, because each and every one of our products

operators to lower risk and increase the efficiency of their

is tailored to enhance certain elements of the client’s

activities. While our R&D headquarters will not move from

operations according to the formations encountered.

the US, some of our divisions are starting to focus on the

Nevertheless, ROI and safety are the two most important

development of technologies specialized in ongoing and

indicators Nalco Champion emphasizes.

future requirements in Mexico. Q: How can PEMEX improve the production of Ku-MaloobQ: Has Nalco Champion considered increasing its

Zaap and Cantarell?

production capacity in Mexico?

A: In my opinion, there are many self-inflicted issues with

A: We import most of our products sold in Mexico from the

the Cantarell field. It is, of course, an older field from which

US, and more specifically from Texas. While we already have

PEMEX has reaped the benefits, so it is never going to be

some production plants in the country, we are also looking at

what it was. However, to slow that decline and to sustain

the possibility of producing more in Mexico. This, of course,

production for a period of time would have a fairly large

depends on the kind of integration we achieve with raw

impact. The key is to find the right solution and check

materials, production and logistics, since at the core of our

downhole. PEMEX could review different methods of

activities we always look to deliver the smartest supply chain

application and generate new ideas.

with the highest added-value possible to our customers. Q: How do you compare working for PEMEX and working

Nalco

for smaller independent operators?

sustainable chemistry programs and services to the upstream

A: I think a difference between PEMEX and smaller

and midstream segments, refineries and for petrochemical

independent private companies is the importance the latter

operations

Champion , an

Ecolab

company,

provides

safe,

257

INSIGHT

LONG-TERM VISION PAYS OFF RAÚL CULLINGFORD General Manager of Control Flow

As the Energy Reform was put in place, many companies

can barely keep up with PEMEX’s requirements because

were caught unawares by the new CNH requirements, such

our contract with the NOC was renewed until June 2018,”

as making the API-Q2 Standard a good practice certification

he says. “We are one of the only available contract options

for flow control equipment. Companies that were ready, are

to meet PEMEX’s BOP requirements.”

already ahead, says Raúl Cullingford, General Manager of 258

Control Flow. “Control Flow is the only company in Mexico

Despite having its hands full with PEMEX’s activities,

with API-Q2 certification for Blow Out Preventers (BOP),”

Cullingford wants to reach more companies that are

he says. “If a competitor decides to get API-Q2 certified,

coming into the country and to which, beyond the API-Q2

it will take that company 12 to 18 months to achieve it,

certification, Control Flow can offer an extra benefit.

with all the effort, capital and time involved. This is a clear

CNH requires operators to use a certain amount of local

advantage we now have.”

content to boost the national economy. Control Flow, being a Mexican company with Mexican staff, can help

Control Flow, based in Houston, is an engineering company

these companies reach their local content requirements

with over 40 years of experience producing and providing

while at the same time providing cutting-edge technology.

services for pipeline products in the oil and gas industry

“For many years, the Mexican industry was dependent on

and BOPs are critical equipment for drilling operations

sourcing its most critical equipment from the US, as well as

as they directly ensure security. “It is an element that no one wants to activate, but that has to be 100 percent functional and ready to go to prevent a catastrophe from happening,” says Cullingford. While the advantages of having the certification are clear now, the company’s road to offering API-Q2-certified service for BOPs was not easy, Cullingford says. “In 2013, Control Flow ventured into a five-year project with the objective of becoming the No. 1 control flow service provider in the region,” he says. “Such a project meant the pursuit of the API-Q2 certification for our control flow equipment and service was essential.” But

“

repairing it there,” he says. “We are working to change that.”

We are almost at 110 percent capacity and our BOP stock can barely keep up with PEMEX’s requirements”

as international oil prices dropped and activities almost

Beyond complying with regulation, Cullingford says the

stopped, Control Flow was placed, together with almost

clear advantages of having a local, certified supplier

all other companies in the industry, in a tight position. “As

of equipment is the reduction in downtime caused by

our contract for BOPs with PEMEX all but halted, we faced

exporting parts for repair. “Time is among the most critical

a hard decision: either continue with the investment or pull

factors for optimizing an oil operation,” he says. “If a part

out and enter into survival mode,” he says.

breaks down on a rig, the operating company needs to have the spare part and the service provider in the nearest

The company made the fortuitous decision to continue with

location because every minute of operations lost can

the project and, although it struggled with debt, it is quickly

represent thousands of dollars.”

getting back on track, and with greater loyalty from the NOC. “Our first and most important goal to achieve in 2018

Happy with what has been achieved, Cullingford says that

is to reach financial stability,” Cullingford says. Achieving

Control Flow is now betting on a new project. “In 2018,

such a goal should be easier as the companies’ activities are

we will start working to obtain API-16A and API-16AR

now starting to ramp up in the southern region of Mexico.

certifications for reparation and re-manufacturing of BOPs

“We are almost at 110 percent capacity and our BOP stock

at the Cunduacan facility,” he says.

VIEW FROM THE TOP

MOVING ON FROM WELL TESTING HORACIO FERREIRA President and CEO of SURPETROL

Q: How have your services changed since the Energy Reform

extra value should allow us to maintain our leadership in our

was implemented?

value solution to our customers. In addition, we are focused

A: Since the Energy Reform, our service has evolved from

on implementing low-cost state-of-the-art technologies for

a traditional service solution for well optimization to an

the testing of low-producing wells. When it comes to the

artificial intelligence solution. The oil and gas industry had

management of these low-producing fields, the challenges

been booming but after 2014 it entered a downward cycle, so

are different and the technology needs to improve. For very

we took this chance to research and advance our core lines of

low-production wells, multiphase meters are not always the

business. As the world leaders in well testing with multiphase

answer. It is like a Ferrari: it is a great car but not necessarily

meters, we have signed and executed more well-testing jobs

the best one for driving through the mud. Similarly, multiphase

than any other company in the world. For example, in the case

meters are not necessarily the best tool for low-production

of Cantarell, the biggest field in Mexico, we tested at least 80

wells. For example, in Chicontepec, we have been helping

percent of the production of the field. As a result, the NOC

customers by providing other technological solutions, rather

was able to minimize the decline rate of this field by having

than multiphase meters, which allow them to get a better

more control. It gained about 10 percent in production.

understanding of those fields and improve production.

Since well testing is in the production phase, our added

Q: How does your historical experience in Mexico help

value is the test results we provide. Beyond providing the

SURPETROL continue to add value?

simple result of what the well is producing, we focus more

A: Having tested the majority of the fields and wells in Mexico

on providing extra value with the results. We offer a fully

gives us knowledge of the historical behaviour of the wells. For

integrated solution regarding how best to maximize the

me, a well is like a living being, it is like a patient you need to

production of a particular well and reservoir. The positive

go and see and when you have done that you know more or

reaction we have received from our customers has allowed

less what is going on. Another important advantage we have

us to move to providing artificial lift solutions. Given the

is in logistics and working with the surrounding communities.

focus that PEMEX and many other operators are putting on

The onshore oil fields are surrounded by communities that

the production of the wells, we have advanced our service in

want to receive some benefit from the industry, and of

partnership with other state-of-the-art technology providers

course you have a responsibility to get involved with the

to an artificial intelligence solution that will allow us to meet

communities. This is not always just about giving but mainly

the challenges of the Energy Reform in Mexico.

about having a good balance between the work you are doing, the involvement of the local people and the relationship you

Q: How has the launch of multiphase well testing gone

start building with them over time. This does not just involve

in Mexico?

hiring locally but also brings with it the social responsibility

A: Multiphase well testing has been accepted by PEMEX and

of working with the communities to create value. We have

CNH has implemented regulations that demand operators

invested a lot of money and time in training local personnel.

test wells on a regular basis. Now that the regulation is

Right now, 98 percent of our workforce is Mexican. That allows

there, it also allows the multiphase meters to be used as an

us to have local knowledge. And who better to know what

official technology for testing the wells. This implies new

their people need than Mexicans themselves.

opportunities but also more competitors, which we consider a positive factor since competition pushes innovation. Before, our services were only about the data, how much oil, natural

SURPETROL is an international provider of services for the

gas and water was being produced. Now, we offer analysis on

optimization and yield management of oil fields that strives to

how the well is producing and transform our solution into an

deliver quality products with world-class service. Its corporate

artificial intelligent service for the well operation. This kind of

office is located in Houston

259

VIEW FROM THE TOP

A HELPING HAND ON HQSE IMPLEMENTATION ECKHARD HINRICHSEN Country Manager for Mexico of DNV GL

260

Q: Is there any project you are working on in Mexico that

end of 2016 to get the deepwater and midstream regulations

you would like to highlight?

out ahead of the impending Round 1.4 in December, after

A: We are creating a service to develop the Sistema

which point it slowed down. Of course, it has a big task in

de Administración de Seguridad Industrial, Seguridad

regulating the entire hydrocarbons sector, unlike the BSEE

Operativa y Protección al Medio Ambiente (System for the

in the US, which only oversees offshore upstream. Seen

Administration of Industrial Security, Operational Security

from that perspective, ASEA is doing four times more than

and Environmental Protection) (SASISOPA), which is a

BSEE, so naturally it is difficult.

safety and environmental protection system. It is similar to the Safety and Environmental Management System

Q: How is risk culture in Mexico changing?

(SEMS) in the US, which was founded after the Macondo

A: The first deepwater projects are emerging so it will be

disaster and is administered by the Bureau of Safety and

interesting to see how risk culture here changes. We have

Environmental Enforcement (BSEE). In the US, companies

spoken to European operators and they have said that they

must have SEMS. ASEA has replicated the idea in Mexico.

could not operate here at the moment because there is no compatibility with their internal procedures. A lot must

I think the ASEA system is a little bit more complex.

change before they can actually start doing projects here

A company first has to register and start designing

and work to their normal standards. According to these

its management system. The system must then be

companies, the regulators are not yet fully up to speed

implemented. A company has two years to comply

and the supply chain and support companies are not yet

and this is something with which we support operators

at the required level.

because many companies start small. Some companies do not have the full organization required, including a HQSE

Q: What is your role in pipeline certification for Los

department, to implement these systems. We come in and

Ramones?

help them develop their procedures and then we present

A: We are the verification unit for the subsea pipeline to

these to ASEA. We support the whole process and ASEA

Tuxpan, which is being built by TransCanada and IEnova.

either approves it or gives feedback.

The project is split 60/40 between the companies, with TransCanada taking the greatest share. It is laying the pipe

Q: What is the most difficult part of this implementation

with the Solitaire, a vessel owned by Allseas, which is one of

process for the companies involved?

the world’s largest pipe-laying vessels, and around 300km

A: It is similar to ISO 9000 and other such management

of pipeline has already been laid. That is a very good project

systems, after which it is modeled. Of course, it is also

and represents a US$2.1 billion investment. We have people

different because certain procedures must be followed

on board the lay barge who liaise with the authorities to

that can be quite involved. On a day-to-day basis, this

make sure everything is in order. That is our biggest project

development covers many things and especially small

for TransCanada.

operators will struggle to comply to the letter. Q: In what other areas of the oil and gas industry are you Q: How do you view ASEA’s evolution since its creation?

active?

A: It has had the massive task of establishing a new agency

A: We are present in practically all onshore activities but we

basically from scratch. If that is taken into account, it has

are also trying to generate more activity offshore. We are

done reasonably well. But of course, the definition of the

bidding for the certification of platform construction for a

regulations has been a long progression. Part of the process

contract won by Dragados for a compression platform, the

is subject to COFEMER and public hearings and it has taken

CA-KU-A1. In this case, PEMEX tendered the platform but

longer than ASEA thought. I think it did a big push at the

will not own it. They are buying the service to compress

Render of a digital twin platform

261

the natural gas and will pay for each cubic meter of gas

central database that service providers and clients can

compressed. Now that Dragados has won the 11-year

access. Right now, a great deal of data is collected but a

contract, it must certify the platform. It will have to hire

lot of this data is not really used; it is just collected and

us or one of our competitors to do the certification during

then nobody knows what to do with it. We want to put

construction and installation. We are also doing a great deal

the data in one place and then develop algorithms to

of risk analysis for PEMEX. There is so much infrastructure

use the data and maybe benchmark. That has actually

that requires updated risk analysis every five years. We are

been quite successful. Vessel owners, or example, use our

contracted by PEMEX to do that.

system. They put all the data from the vessels into this database. When they arrive at a port and are asked for

Q: How is risk culture changing at PEMEX?

several different kinds of information, our system ensures

A: I think PEMEX has done a lot of good things and

they have all that information available in just one place

implemented many good systems. It still has quality people

for all their vessels. That is just the beginning; there is

in high positions and it has developed many safety systems

more coming. Of course, there are many companies trying

together with DuPont, which is, of course, a world-class

to get into this niche now because it is a fashionable

company. But the company is lagging in implementation.

technology but we have the advantage of being seen as

Sometimes PEMEX has a very good system on paper but

an independent third party. Other companies produce

implementation in the field is sometimes lacking. Also,

their in-house data collection systems to monitor their

the infrastructure is now aging and reaching the end

assets. For example, if they want to sell turbines, they

of its design life cycle. PEMEX will have to do more in a

have a certain interest in the results of the monitoring. We

systematic fashion to extend the life of such infrastructure

do not produce any products. We just sell our services,

or decide what must be replaced to continue operating.

which gives us more independence.

Q: What new techniques are you bringing to Mexico? A: One global initiative we are launching is the Veracity

DNV GL is a global quality assurance and risk-management

platform. This is a big database designed to gather and

company. It provides classification, technical assurance,

share information. Of course, the rules will have to be

software and independent expert advisory services to the

established but the idea is to put information into a

maritime, oil and gas, power and renewables industries

INSIGHT

INTEGRATION EQUALS POSITIVE RESULTS FOR THE COUNTRY ALBERTO SAMBARTOLOME Partner at ERM

The consolidation of CRE and the creation of ASEA improved

incorporate best practices and standards into their social

regulations regarding social and environmental matters in

and environmental impact assessments. ERM can contribute

the last five years but Mexico should continue looking abroad

by sharing its effective social, environmental and safety

to find ways to move forward, says Alberto Sambartolome,

management tools with clients, he says.

Partner at Environmental Resources Management (ERM), a 262

leading global provider of environmental, health, safety, risk,

Sambartolome stresses that, although some of these best

social consulting and sustainability-related services.

practices are not yet mandatory in Mexico, they will become a must once they are adopted by regulators due to pressure

“Mexico is making great strides toward becoming an

from the international players in the market. “The operations

attractive country for investment and both small and major

of international players will introduce new standards that

companies are showing their interest to enter,” he says.

regulators will start looking at and incorporating into

“But Mexico still has room to learn from the experience

Mexico’s own regulations,” he says. “In anticipation, we have

of other countries where specific regulatory issues have

put together a team that has experience in markets that also

already been solved.”

went through a recent opening, like Peru and Colombia.” ERM also offers its clients a holistic view of their projects.

One specific problem that Sambartolome sees in the

“We are not interested in selling a practice or a service in

regulation is the lack of integration between the Ministry

particular, but in solving the problems our clients may have,”

of Energy and ASEA. He says an international best practice

he says. “We add value by closely studying their projects and

is to have integrated social, health and environmental

getting to know their needs.”

impact assessments, while Mexico chose a hybrid scheme in which social studies are revised by the Ministry of

ERM, however, does not want to work with clients that

Energy, and those related to health and the environment

simply want to obtain a permit; it wants to work with those

by ASEA. “Following this approach removes the value of

with whom ERM shares values. “With our key clients we

the social and environmental impact studies and, while

have certain teams dedicated exclusively to that specific

it may facilitate the permitting process, it overlooks

relationship,” Sambartolome says. “These teams are always

the real objective of the regulation, which is to protect

looking for potential problems the key clients might have.”

communities from dangerous activities and offer them

As companies start entering the country and more closely

appropriate compensation,” he points out.

engage the communities in which they will be working, Sambartolome highlights the importance of everyone sending

According to Sambartolome, regulation requires a holistic

a unified message to avoid confusion. “The country comes

approach for it to carry the weight it should. “For that to

from a market where there was only one operator, with one

happen, it is important to have a debate among all the

unique message,” he says. “The industry as a whole now needs

interested parties, including operators, government and

to offer a unique message about the benefits that the new

society in general,” he says. “Including communities in the

market is introducing to individuals and to the country.”

debate is vital. They should be considered in the way they are going to be compensated for the activities to be developed.”

He stresses the importance of communities knowing exactly

He believes the process is pertinent for companies since

how and what operators are doing or developing in their

dealing incorrectly and superficially with communities may

territories. “For that to happen, all stakeholders must sit and

block the development of the project at future stages.

discuss how to bring the best benefit for the country,” he says. “Inefficient project management is not only dangerous for the

Conscious of this regulatory gap in Mexico, Sambartolome

developer and operator but for the industry in general as it

has noted that international players have begun to

creates a risky and unsustainable environment for investors.”

VIEW FROM THE TOP

SECURING THE INDUSTRY’S VALUABLE ASSETS GRACIELA ÁLVAREZ CEO of NRGI Broker

Q: How has NRGI Broker created market opportunities to

in the licensing rounds, demonstrating the genuine interest

expand the reach of its services?

that local and foreign companies have in Mexico.

A: I am proud to say that we have played a great role in the implementation of the Energy Reform. We have been

Q: How have companies adapted to the new regulations and

standing with our country since the beginning, we trusted

what have been the major hurdles in this process?

the reform and now we have mastered how it works. We

A: Everything comes down to understanding that we

are a Mexican broker that has a broad services portfolio

need a unified regulatory framework and this cannot be

and we have consolidated as the best in the market. We

implemented without looking at international standards.

have also established “Voces de Energía,” a forum where

The reform’s planning was based on the experiences of

experts discuss the reform’s environmental, social and fiscal

seven countries that underwent similar processes, so it is

regulations.

molded to global requirements. Those international players that recently entered the market are used to these types

Q: How will NRGI Broker benefit its potential clients and

of regulations since they apply to other territories, while

partners going forward?

many Mexican companies have previously worked with

A: In the long term, we see the company as a consolidated

foreign partners that use those standards. For most local

reference in the fields of insurance and sureties for the oil

companies, application was not an issue. On the contrary,

and gas industry. We are savvy about the needs of the

companies operating in the hydrocarbons sector now have

companies along the entire value chain in hydrocarbons

the certainty of working in an environment protected by a

and we are an established adviser for risk management and

well-established regulatory framework.

on financial regulations. We started strong in offshore, ever since activity began in that area, and now we are talking

Q: How has NRGI Broker contributed to changing the local

about moving into onshore.

mindset and raising awareness about the need for insurance? A: We advised ASEA when it conducted a three-year study

The trend is to set new partnerships for storage, pipelines,

on the best practices and experiences of Australia, Brazil,

clean energies and so on. We are investing in putting our

Canada, Colombia, Norway, the UK and the US that could

brand’s name out there and showcasing that we offer a full

be applied to the Mexican case. We worked with it every

range of services few other companies offer.

step of the way to establish these rules, from offshore platforms to setting up gas stations, and we developed the

Q: What are the three major successes of the Energy

administrative dispositions for insurance in the upstream,

Reform?

midstream and downstream sectors. Insurance is required

A: I have a vivid memory of observing the Energy Reform’s

if this industry is to function properly and this mandatory

application when I was acting as an adviser for ASEA in

status made things easier for us in terms of application.

2014, which gave me the chance to understand how

We are certain about the need to transform the attitude

the reform was set in motion. The first success was the

toward insurance and to combine that with our experience,

implementation itself, which was accomplished according

specialization and innovation to offer personalized solutions

to the same spectrum of norms, rules and opportunities

to our clients.

for all the operators. The second success was the establishment of strong and transparent organisms to guide the implementation that facilitated the cohabitation of all

NRGI Broker specializes in insurance and surety bonds for the

different players in a single environment, which has grown

Mexican energy sector. It develops custom-made solutions for

to represent 18 operators. The third is the 72 percent rate of

companies operating in the energy sector, including vessel,

successful allocation of everything that has been tendered

construction and engineering and catastrophic risk

263

Abkantun top deck stack, Altamira, Tamaulipas

264

VIEW FROM THE TOP

RISK MANAGEMENT A NEEDED CULTURAL SHIFT IN MEXICO Michael GĂźnther Director of Energy and Infrastructure Mexico at Marsh

Sebastian Aguayo Vice President of Marsh Energy

Q: What is the added value Marsh offers to the Mexican

own molecules, meaning that a major refurbishment of

oil and gas industry?

the transmission and distribution systems in Mexico will

MG: We can help both Mexican and international companies

be required.

obtain a better view of their risks, and also manage them better. For international companies, we have insights into

Q: How important is human capital to mitigate risks in oil

the country and the associated risks due to our many

and gas operations?

years here. For Mexican companies, we have a global view

MG: Human capital will be crucial to keep risks low in

of the oil and gas industry and a wide database of risk

this area as trained employees are essential to ensure

management best practices from all over the world. For

safe operations. Proper maintenance is also a decisive

both, we can also benchmark the global information we

factor when measuring risks, and goes hand in hand

have gathered thanks to our extensive operations and use

with human capital, as the less prepared workers are,

it to better manage their risks. We have already worked

the poorer the maintenance. In times like these, it is hard

with many of the big companies coming to Mexico in other

for companies to allocate a budget and invest properly

parts of the world. The mid-sized companies in the country,

in maintenance and human capital, but we have found

both national and international, would be the ones that can

through a study performed by our company that there

benefit the most when coming to work in Mexico. They need

is a clear correlation between the international fall in oil

the most information about risks and how to manage them,

prices, the fall in maintenance expenses and the increase

but they do not have the required expertise nor an existing

in claims in the industry.

communication channel with companies like Marsh. SA: In Mexico, the human factor is especially important Q: How does Marsh perceive the risks associated with the

as we are facing a talent gap. The commercial incentive

Mexican oil and gas industry?

to bring younger people into the market is just starting,

SA: Most of the projects that are being auctioned in the

and most of the senior talent is retained by PEMEX.

upstream and midstream sectors have the advantage

Unfortunately, the cost of transferring this talent to other

of needing only last-mile investments, as most of the

private enterprises is still too high.

infrastructure has been already developed. For that reason, we are not expecting major investments to be made just

Q: How is Marsh working toward a cultural shift, from

yet. One trend that the global industry is facing is coupling

insurance to risk management, in Mexico?

existing and aged infrastructure with newer infrastructure.

MG: The risk management culture in Mexico, although

This may be perceived as complex but in reality, should

evolving, still has a long way to go. We are trying to

not be a problem, and operators working with proper

convey the message to our clients that, even though an

procedures that include a long-term vision for the project

insurance broker is useful and we can offer insurance

can manage the risk very well. For this to happen, a proper

policies, it is always better to have a risk management

communication transfer strategy between the old owner of

strategy in place. It is interesting to see how clients often

the infrastructure, in this case PEMEX, and the new owner,

are very aware of the risks they face, yet fail to assign a

will be crucial.

control or mitigation procedure.

MG: Midstream and downstream are two areas that, although they have not gathered as much attention as

Marsh Brockman and Schuh is the worldâ&#x20AC;&#x2122;s leading company

upstream with the oil and gas rounds, are growing. Major

in insurance consulting and risk management, with offices in

companies are entering the country to sell gasoline and

130 countries, including Mexico, and an oil and gas practice

natural gas, and they want to provide in the country their

offering personalized solutions for all aspects of the industry

265

VIEW FROM THE TOP

EXPANDING PORTFOLIO TO ANSWER MARKET DEMAND PAOLO GAFFURI Country Head of Pietro Fiorentini Mexico

266

Q: What were Pietro Fiorentini’s considerations when

that allow foreign investment, fair taxation and low tariffs.

building its Villahermosa multiphase flow meters plant?

Pietro Fiorentini continues to design, develop, patent and

A: Our Villahermosa facility includes offices, a warehouse,

manufacture proprietary multiphase flow meters, allowing

and a workshop used for our multiphase flow meters. We

us to offer integrated services and reliable measurements

are focused on providing services, using our own assets, in

using our own state-of-the-art meters. In this way, our clients

the multiphase metering business. Mexico is an important

benefit from having one single point of responsibility, dealing

and growing market: PEMEX and new operators arriving here

directly with the technology owner.

will increase aggregate oil and gas production over time, requiring multiphase flow metering services, fiscal metering

In 2015, the market dropped dramatically but we see other

installations and gas-treatment facilities to comply with CNH

opportunities in the near future to provide fiscal metering

requirements.

devices and services, and also to the natural gas treatment and power generation sectors, where we can offer fuel treatment,

We want to be close to our customers, according to

fiscal metering, natural gas metering and regulation system

our strategic local-for-local approach and, therefore, we

packages. We are also developing a suite of new tools for

selected Mexico as a key country for directly providing our

enhanced oil recovery, mature fields and exploration, which

products and services, starting in 2013. We chose to set

we look forward to introducing in the Mexican E&P sector.

up in Villahermosa to be close to our customers and their operations, and we will expand to Ciudad del Carmen to

Q: How did Pietro Fiorentini set a foothold in Mexico’s fiscal

address offshore operations and to the northeast of the

metering niche?

country to address Burgos, Chicontepec and other offshore

A: We set a foothold by having preferred access to cutting-

opportunities

edge, precise technology, experienced in-house engineering and design capabilities, significant experience and

Q: What particular aspects of Mexico’s industry make it

references, and the financial means to design, manufacture,

attractive for the services Pietro Fiorentini provides?

build and install fiscal meters where necessary. We have

A: We started providing services in multiphase metering

supplied fiscal metering packages to major oil and gas

because PEMEX’s business model focused on attracting

companies around the world, such as ENI, Saudi Aramco,

this particular service, but there are several key aspects of

Qatar Petroleum and Shell.

Mexico’s oil and gas industry, that make this market attractive, including the country's proven oil and gas reserves. Other

Q: What differentiators are key when designing a

considerations are that the Energy Reform has brought in

multiphase meter?

several dozen new operators that will invest several billion

A: The key differentiators include having advanced

dollars in exploration, development and production initiatives,

physics and engineering capabilities in-house, dedicated

the anticipation that Mexico’s aggregate production will

manufacturing and testing facilities, advanced manufacturing

increase substantially over time, and the need to accurately

and testing equipment, very high standards and procedures,

measure oil and gas production. Additionally, Mexico is

continuous product improvement systems, collaboration

an open and stable economy with modern regulations

with the best international R&D companies and universities for specific technical know-how, understanding of the market and operators’ needs, funding and knowledgeable

Pietro Fiorentini i s a world leader in the creation of advanced-

management.

technology products and services for natural gas regulation, transmission and distribution and for oil and gas measurement

The key differentiators when offering multiphase flow

and conditioning

metering services to operators are low-cost, reliable

measurements, being on time by having best-in-class, third-party certified multiphase flow meters, different sizes and configurations of multiphase flow meters, highly trained and dedicated technical personnel and operators and seamless communications between the factory, the technicians and the field. There are many multiphase flow meters offered in the E&P

Pietro Fiorentini has supplied fiscal metering packages to major oil and gas companies around the world, such as ENI, Saudi Aramco, Qatar Petroleum and Shell

sector, they all have technical pros and cons. Multiphase flow meters are, by definition, highly technical and advanced

Q: Looking at Mexicoâ&#x20AC;&#x2122;s oil and gas market as a whole, what

devices, requiring qualified and dedicated personnel to

are your priorities?

operate them effectively, guaranteeing high availability. In

A: We have different approaches for each segment. In

Mexico, we own the technology, advanced sensor calibration

upstream, we are managing the business directly, while for

equipment and spare parts. We also have factory-trained

low-pressure natural gas in the downstream segment, we

personnel on hand. Other companies offer multiphase flow

mainly operate through distributors that sell and promote

metering services with third-party equipment but they do

our pressure regulators.

not own the technology. Multiphase metering technology evolves continuously. Newcomers are entering the sector,

In the particular case of Mexico, we are focused on the

motivating us to continue investing in product R&D,

upstream sector while continuously evaluating the natural

development and innovation and to further improve our

gas distribution segment and increasing our presence in this

field services.

niche. We are in talks with CENAGAS and companies involved in natural gas distribution where we can supply our services,

Q: How does Pietro Fiorentini address local content

such as odorization systems and cathodic protection, which

provisions in its products and services?

are Pietro Fiorentiniâ&#x20AC;&#x2122;s core strengths in this niche.

A: Pietro Fiorentini can boast considerable longevity in the market as it was established in 1938. Our default market

Q: What trends have you detected in reservoir management

insertion approach stipulates sending a management team

in Mexico?

to incorporate best practices into a particular new market

A: Pietro Fiorentini has detected a couple of trends in

to be sure that the standards and the DNA of the company

reservoir management in Mexico. First, PEMEX Exploracion

are established locally and up to par with their international

y Produccion is requiring more accurate measurements more

counterparts. In this way, we comply with our local-for-

often in order to better understand reservoir performance

local rule, in which we empower national professionals

and to be able to introduce measurement results into its

by gradually inserting them into the management of our

production models. Second, clients are asking for increasingly

day-to-day operations. It is a natural part of the growth

integrated services for well monitoring, management and

curve at any of our local organizations. Failing to invest in

testing, well beyond multiphase meters. We are moving in

a qualified and proficient local team will jeopardize your

the direction of offering more integrated services to our

long-term growth.

operator clients.

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VIEW FROM THE TOP

MANAGING THE FLOW: VALVES FOR THE UPSTREAM MARKET HÉCTOR CUÉLLAR General Deputy Director of Válvulas Worcester de México

268

Q: How did Válvulas Worcester de México become one of

A: It is a unique opportunity. Companies have to innovate

Mexico’s most important valve OEMs?

and part of that innovation is keeping up with changes

A: This is a family-owned business my father started in

in the different aspects of the business. We have to

1963. We were the first company in Mexico to establish

stay up-to-date on processes related to IoT and make

operations in both manufacturing and assembly of valves.

our manufacturing processes more efficient with CNG

In the beginning, we did not have our own facility but

equipment. Right now, we are not only competing with

went to workshops to buy the steel, either forgings or

local manufacturers but against the world.

castings, before carrying out all the machining outside. We then started doing all the assembly, testing and

Q: In which part of the oil industry — upstream, midstream

commercialization ourselves on a small scale.

or downstream — are you seeing the most demand for your products?

95 percent of the company's valves are sold through its network of 46 distributors

A: We see a great deal of demand in the upstream sector for trunnion mounted ball valves. We have been making these bolted and welded valves for many years. The trunnion mounted ball valve is usually used on offshore platforms and accounts for a very high percentage of valves used when hydrocarbons are being pumped out of the reservoir.

Over time, we diversified not only into ball valves but valves in general, such as gate, glove and check valves. Our latest

Under these conditions, the valves must be trunnion

line of products is the butterfly valve. We believe this product

mounted because the deeper the drilling the higher the

will be in demand and our brand is known throughout Mexico,

pressure. There are also very high temperatures so these

where we have around 55 percent of the market share for

are the best valves to get the hydrocarbons out of the

valves. Throughout the years, the Mexican mentality in this

ground. Once the production is on the surface and the

industry has changed. We all know that in Mexico, manual

heavy gasses and oils are being processed, the size and

labor is relatively cheaper than in other regions like Canada,

diameter of the pipelines is reduced and more applications

the US or Europe. In general, the mentality has been that

for other valves present themselves.

manual valves were much easier to operate and much more economical as they could be operated by low-cost workers.

In midstream, our products are used with natural gas

Throughout the years, we have dedicated many resources to

pipelines, such as the Los Ramones project and other

training and today automation is a big part of our business.

investments as a result of the Energy Reform. Our

We still do R&D and in 2018 we will launch some new designs

distributors work hard to be included on the vendor lists

and new valves. We are also thinking ahead to what might

of companies such as TransCanada.

come for 2019. Q: How do you distribute your valves? Q: How is technological innovation impacting your way of

A: We generally do not sell directly to clients; we have a

doing business and building valves?

network of 46 distributors in Mexico that all have the same price structure. This accounts for around 95 percent of the valves we sell. Part of the growth we have experienced to

Válvulas Worcester de México is a Mexican-owned company

get to where we are today is through the efforts of our

founded in 1963 under Worcester Controls’ license. With more

distributors. PEMEX and CFE are two entities that use our

than 50 years of experience manufacturing ball valves, it offers

products, for example, but they do not buy directly from

a wide range of products

Válvulas Worcester.

VIEW FROM THE TOP

BRINGING THE CHINESE EXPERIENCE TO THE WORLD WU QIANG President of Kerui EPC

Q: What specific opportunities is Kerui looking for in Mexico?

percent of the hydrogen market share and on a global

A: Our main business driver is oil and gas terminals and

scale we are one of the leading companies in natural gas

refining services. We have been present in the Latin American

equipment manufacturing and distribution. We also have

market for a few years and Brazil is our core area in the region.

technical expertise and a dedicated research and engineering

We were recently awarded a US$600 million natural gas

team for natural gas treatment and dehydration. Kerui has a

project in Brazil, one of our largest projects ever. We are proud

21.6-million-square-foot production yard in Dongying capable

of this project since we competed against big international

of operating 14 rigs simultaneously.

companies and still won the tender. The project will also create 2,000 jobs and will be delivered with the highest standards of

Q: What are your expansion plans for your manufacturing

safety and quality, which is Keruiâ&#x20AC;&#x2122;s trademark.

base in North America? A: Houston is our hub in North America and we have worked

Mexico is still a new market for us but it is quite an interesting

to expand our presence here as it is the focal point for

one. We are looking for infrastructure opportunities in oil and

our projects in the US, Mexico and Canada. We carry out

gas for LNG, CNG and LPG projects. We are also trying to

aggressive marketing to familiarize companies in this region

set up an integrated strategy for North America, since this is

with our products and local teams. We are undertaking

the region we have developed the least on the continent. We

promotional projects to obtain more deals in Mexico based

have received positive feedback from Mexican professionals

on our efficiency in oil and gas production structures. We

who have seen our accomplishments in Brazil and they have

customize our projects and manufacturing services according

expressed a desire to work with us.

to the demand and locations and we tailor equipment to the needs of a specific project.

Q: What benefits do Chinese companies offer Mexican companies willing to diversify their portfolios?

Q: How do you see Kerui growing in Mexico?

A: Chinese companies are quite interested in the Americas and

A: We want to focus on onshore and natural gas-related

we are eager to do business here. With the upward trend in

projects. We also strive to work through the distribution

oil prices we have more opportunities to open new business

chain and expand the knowledge developed in our R&D

and our strategy is to work together with our partners,

centers in Beijing, Calgary and Houston. We already have

adapt to local practices and help our partners in Mexico

a strong presence in Africa, South America, Southeast Asia

grow. We have sound financing capabilities backed by the

and China, but we are still midsized in North America and we

Chinese government and since we work under opportunity-

want to change this. We have worked with big names such as

enhancing contracts, we plan on maximizing our number of

Schlumberger and Baker Hughes and now we look forward

local employees, local scalable economies and communities.

to establishing long-term projects. We are a manufacturer so we focus on the production part of the process and we

Q: How can Kerui help its partner companies create value?

want to ensure that the product is good and it is reaching the

A: Our core value is our strong financing capability supported

end user. We already have Mexican colleagues working in our

by the Chinese government and our solid engineering

Houston office and we will use our Brazil experience to push

experience. We have a manufacturing yard and R&D centers

for positive things in the country.

spread around the world. On average, we reduce our clientsâ&#x20AC;&#x2122; EPC costs by 20 percent, providing opportunities for them to increase their market share. We also introduced the notion

Kerui Petroleum is a consolidated energy industrial group

of EFPC into the market, since we also add manufacturing to

that offers petroleum equipment research, development and

the formula. We are a one-stop shop and a global company

manufacturing, integrated oil field-engineering technological

with projects in 57 countries. In China alone, we hold 80

services and EPC and turnkey contracting

269

VIEW FROM THE TOP

DRIVING THE INDUSTRY IN THE DIGITAL ARENA RODRIGO FAVELA Partner at HCX

270

Q: How has HCX made the most of the emerging opportunities

CREâ&#x20AC;&#x2122;s regulations so they can see them as an opportunity and

in the oil and gas industry?

avoid fines or extra costs that could come later. Compliance-

A: We are working in a wider array of areas, such as

enhancing practices are among the key areas of opportunity

implementation, project execution, industry-related software

we have identified as companies are still figuring out how

development and specialized consultancy for key companies.

to handle this. Franchise implementation and supply have

We have experience in execution and development of projects

become priorities but gas stations are repeatedly facing

for third parties and we have developed our own projects,

these compliance-related challenges since often they fall to

mostly in storage for refined products. Now, we are looking

the bottom of the priority list. The regulations have become

to attract investors to our own projects.

more sophisticated and they are having problems coping with these mandatory requirements.

Q: What is HCX's capacity to take on ambitious projects and add value to them?

Q: What are the areas of opportunity you see in human talent

A: We have seen a great number of ideas for projects but just

development?

a few have moved forward. Most of these projects are large in

A: There is a shortage of specialized labor for high-tech

size and they require millions of dollars to be developed and

operations. The industryâ&#x20AC;&#x2122;s expansion has also prompted

meet market requirements. There are many smaller projects

many experienced people to move from PEMEX to private

where we can add value, such as the marine distribution

entities, causing a shortfall of experienced staff in the

terminal in Tuxpan, where we are now working. We have the

sector. Trading and commercialization is another area

flexibility and capacity to integrate project teams rapidly, to

of opportunity since PEMEX did not have this section

develop them quickly and to bring people who add value for

before and now there are gaps to fill. The industry has

the client. Our flexibilty is also our competitive edge.

grown organically and they are just learning to see things differently. The lack of human capital can also be seen

Q: How is HCX working to transform the Mexican oil and

among lawyers with practical experience. All this could

gas industry?

cause the market to slow down or run inefficiently if these

A: We have been working with our own best practices

gaps are left unattended. This integration and market

for a long time and now that Mexican companies are

completion is something we strive to achieve because we

adopting international standards, we work with them too.

want people to understand how to do their job better.

We have helped other companies define and develop new technology solutions, both for new infrastructure projects

Q: Where do you see HCX going and which projects would

and operational IT applications.

you like to achieve this year? A: We want to continue developing our digital platform to

Q: How has HCX expanded its offer to cost-effective

build more things around it, to create a digital ecosystem

services for a broader number of industry players?

that can fully serve the market with more business

A: Gas stations have hidden costs since they see compliance

intelligence. We also want to start constructing the projects

as an extra burden in their daily operations. We have tried to

we have already developed in the market, look for new

change this perception and to help them adopt ASEAâ&#x20AC;&#x2122;s and

solutions and opportunities and see which innovations are coming and what can be done in that area. We want to deepen knowledge in the market to overcome the idea of

HCX provides solutions for the oil and gas value chain. From

monopolistic practices and foster competition as the ideal

business analyses for upstream and downstream to training,

road for growth, to add value and to do things better. There

the company offers a wide range of services for both national

needs to be a shift from the idea of capturing the market

and international companies

and we strive to work in that direction.

VIEW FROM THE TOP

LIFTING THE INDUSTRY RAFAEL LLAMAS Director General of Cargotecnia

Q: What added value does Cargotecnia deliver to its

cranes, with which we have worked since 1976. We once

customers, that no other company can?

produced them in Mexico and “HIAB” has even become a

A: The cost of equipment is not the equipment itself.

generic name for this kind of equipment.

Rather, it is how much it costs not to have the equipment available when you need it. We maintain a large inventory

We also represent other equipment producers whose

of around 100 specialized vehicles so we have the

products are in demand in the oil and gas sector.

solutions in stock that are needed by our customers.

For example, Moffett forklift trucks do not have a

This is especially important in the case of emergencies.

counterweight, making them very light in comparison

We are also certified to offer training to the operators of

with counterweighted lift trucks. They can be lifted by

equipment working for the client. This training is included

helicopter to hard-to-reach areas. Their light weight also

for free as part of the equipment purchase or rental. We

means they can be operated in mud and in other soil

also can organize training courses for companies at a

conditions where normal forklifts cannot operate, and

reasonable cost. As part of the service in our maintenance

they are also useful in storage facilities that do not have

contracts, we determine whether operators are using the

a roof or that have inappropriate flooring.

equipment properly. If there is a problem of wear, due to incorrect operation, we can train the operators. We are

Q: What innovations are taking place in Cargotecnia’s

also working on becoming a one-stop solution for all our

product portfolio that could help companies in the oil

clients’ maintenance needs, so if you bring one of your

and gas sector?

cranes in for maintenance we can also service the truck

A: One of the most important trends in cargo transport

that comes with it. Additionally, we offer round-the-clock

is the use of remote-controlled technologies to operate

mechanical services at workshops throughout Mexico. If

vehicles. We offer cranes that can be operated with

there is some problem, we can also send our mechanics

enormous precision from an armchair and wearing

to the site of the problem. Because we have already

3D goggles. This is especially useful in dangerous

established this with the mechanics beforehand this

environments. We expect to see more and more of this.

service is very reliable, which is useful because our clients

We also install cranes on UNIMOG all-terrain trucks made

do not have to negotiate with a mechanic. We cannot

by Mercedes-Benz for rough terrain applications. One of

promise that there will never be mechanical problems but

the new products we are proud of is the Straddle Carrier,

we can assure that repair services are always at hand. One

which was invented by Robert Moffett at his Combilift

example would be Villahermosa, where we concentrate

factory in Ireland. This equipment has three wheels,

our oil and gas sector services. This is a vital element

meaning it requires very little room to turn and it can carry

because we can quickly respond to emergencies.

up to 120 tons of products, including containers. Unlike most similar vehicles it can be used to carry almost any

Q: What are clients most looking for when they come

load, including very long or heavy cargoes. Most straddle

to Cargotecnia?

carriers are used for containers so this is an important

A: One of our biggest problems is that companies are

advantage. This is a new product with many applications

often not aware of all the possible solutions for their cargo

in the oil and gas sector.

problems. Once I was talking to a client who had just bought an outdated solution and he asked why we had not come earlier. Our transport equipment usually has an

Cargotecnia is a Mexican provider of construction equipment

auxiliary function that is complementary to the very large

and cranes and other material transport systems for several

specialized equipment used by oil and gas companies.

industries, such as oil and gas and recycling, as well as offering

We are most closely associated with HIAB truck-mounted

training and maintenance services

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VIEW FROM THE TOP

WORKING THE FULL SPECTRUM OF THE VALUE CHAIN HERMANN SAENGER Managing Director of SGS Mexico

272

Q: How has your business changed after the Energy Reform

offer other related services depending on how far advanced

with regard to the profile of your clients and the services

our customer is in the value chain. For example, we can

you are offering?

offer services to help clients with the quality and quantity

A: We have been very active working with our international

of measurements once they start moving products, either

branches to analyze the services we are providing globally

for import or export. We also have a fuel retail service along

in countries that already have an open oil economy. We then

with the traditional testing and certification, which reaches

bring our understanding of those services to Mexico. PEMEX

the gas station level. Our portfolio of services extends from

has been our sole customer for many years. The services

screening and exploration all the way to retail distribution

we were providing were therefore limited to a government

at the gas station. This is going to be something new for

organization that did not have any competition. Now we

SGS because in the past we did not provide such services

are in transition between participating with PEMEX and at

for PEMEX gas stations, but now, yearly certification will

the same time opening our offering to the new companies

become mandatory for all 11,500 gas stations nationwide,

coming into the Mexican market. We are offering several new

plus the new ones that will open. We are investing right

services for these international and domestic companies that

now to upgrade our laboratory facilities to have more

were not needed when there was no competition.

technologically-advanced procedures as well as to have them all accredited so that we can certify their results. We

Q: Which of your services are most in demand?

are investing so we can cover the whole spectrum, from

A: One of our most popular services is subsurface consulting,

upstream to midstream to downstream.

which is important in the earlier stages of the aftermath of the Energy Reform. Companies want to be sure of what is

Q: What are the principal hurdles for new operators and oil

in the blocks they won in the licensing rounds and we can

field service companies and how can SGS help?

provide this information. For them, it is reassuring to have

A: Mexico is coming from a context in which a state-owned

our support regarding what they have under the surface so

company that lacked investment held a monopoly for many

they know how much money they need to raise for future

years. The current transition to competition and providing

investments, as well as how much investment their property

services to the market is blocked by a lack of infrastructure.

can support. This service is critical and we are providing it

This is especially true in the ports, in the discharge facilities

through one of our branches in The Netherlands. Our Dutch

during transportation, in the distribution centers and all the

office is the main provider of these services worldwide and

way down to the gas stations. There is a huge need to invest

now we are bringing that expertise to Mexico.

in infrastructure.

Q: Why can your Mexican laboratories offer more value to

Right now, we have several customers that would like

clients than those of your competitors?

to be participating in the market by moving different

A: For the last 30 years, our main lab has been in

products but there is not enough infrastructure. Therefore,

Coatzacoalcos. We also have others in Ciudad del Carmen,

we are helping them either with the creation, design and

Villahermosa, Altamira, Veracruz and in Ciudad Juarez. Our

supervision of new infrastructure or with the certification of

services begin with subsurface consultancy and we then

old infrastructure. In this way, the client can take over and either upgrade the infrastructure or completely overhaul it if necessary. We can also design and build completely new

SGS is the worldâ&#x20AC;&#x2122;s leading inspection, verification, testing and

facilities. We have been in the Mexican market for 66 years

certification company, recognized as the global benchmark

and we have participated in the oil and gas industry for

for quality and integrity. With more than 90,000 employees, it

approximately 40 years. We know the country, know all its

operates a network of more than 2,000 offices and laboratories

sites and all its infrastructure.

INSIGHT

FINANCING A LOCAL SUPPLY CHAIN JAVIER VILLAMIZAR Head of Latin America at Greensill Capital

Significant investment is needed to develop the Mexican oil

Villamizar points out that while the banking sector took time

and gas sector to bring it back to the production levels the

to develop proper solutions to meet the capital needs of the

country requires. Although much attention has been placed

local industry in Mexico, banks are now working on ways to

on the results of the hydrocarbons licensing rounds, Javier

offer tailored solutions for the industry. “We do not see this as

Villamizar, Head of Latin America for Greensill Capital, says

a threat. Instead, we are proud to be the first to offer innovative

the whole value chain will need incremental capital. In fact, it

solutions to the market” This kind of competition, he says, is

was this need for investment, together with PEMEX’s decision

healthy and allows any industry to flourish. One example of

to extend its payment terms with its suppliers in late 2015,

the services offered by banks is traditional factoring, which

that created the perfect storm for the establishment of the

provides the supplier a percentage of the value of its invoices

company’s presence in Mexico. “Suppliers that are faced with

in advance. Unfortunately, this kind of transaction is recorded

an extension on payment terms have to make a decision,”

as debt on the company’s balance sheet. Although it is a good

Villamizar says. “Are they going to finance it themselves, or are

short-term solution, Villamizar says it comes with certain

they going to ask for a financing scheme from a third party?”

burdens compared to Greensill’s service. “With factoring, the responsibility to collect, and therefore the risk, remains with

Greensill Capital targets the local supply chain. “Our work

the supplier, which translates to higher interest rates,” he says.

is focused on medium and small companies, those that an

“When suppliers discount invoices with Greensill, using the

extension in payment terms truly affects,” Villamizar says.

PEMEX Supply Chain Finance program, the responsibility to

“There are many companies like these in Mexico.” Payment

pay and the risk remain with PEMEX, so suppliers get much

terms are traditionally 30 days but PEMEX’s financial troubles

lower rates.”

have extended this for some suppliers up to 120 days. Villamizar says that for SMEs, this could be a major financial

Although international companies used to offer better

challenge. In an incipient market that is just beginning to

payment terms than PEMEX to their suppliers, as they

provide new and more competitive financial solutions to

enter the Mexican market, Villamizar has recognized how

a previously closed industry, Greensill offers its capital at

market conditions have caused them to also start extending

low rates. “Many companies use bank loans to finance their

payment terms, opening a wider business opportunity for

activities but their interest rates are around 8-10 percent,”

Greensill. “Many players that were already discounting

Villamizar says. “If the company finances its activities with us,

their invoices from PEMEX with us are asking if we could

we can offer interest rates of around 3.5-4 percent as we rely

provide the same service for their accounts receivable from

on the buyer’s credit profile.”

the new international players. Thanks to this, our market is increasing.”

While low interest rates are a strong incentive to choose a specific financing option, Villamizar acknowledges that long-

For a company that offers capital for the local industry, it

standing bank-customer relationships are sound and may

is no surprise that local content rules were a great boost

hinder the company’s growth in the market. To overcome such

to business. “As more local companies are needed in the

a challenge, he explains a suppliers’ financing with Greensill

industry, the market expands for us,” Villamizar says. Greensill

differs greatly from the traditional mechanisms offered by

is now looking to expand its business to the midstream and

a bank. Greensill’s capital can be used to finance must-be-

downstream segments. For midstream, Greensill is reaching

performed activities related to an invoice from PEMEX or any

out to companies that want to build oil and gas storage

other company that delays the invoice payment, while the

facilities. “If the company that develops the project seals a

bank can finance strategic growth for the company. “Using

long-term storage agreement with a major client, then we

Greensill is like having a new and fresh source of working

can monetize the commitment now and provide immediate

capital,” he says.

liquidity,” he says.

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VIEW FROM THE TOP

PREVENTIVE MAINTENANCE, A STRUGGLE FOR PEMEX, A MUST FOR IOCs ERICK VELASCO Sales and Marketing Operations Manager at SETEIN

Q: What was the idea behind the creation of SETEIN?

SETEIN’s selection process so we can present options to

A: SETEIN started 21 years ago in Coatzacoalcos as a small,

clients according to their needs.

family-owned company that offered leak-sealing services

274

for the refining and petrochemical sectors. SETEIN would

Q: In which project does SETEIN take the most pride?

later start offering maintenance services to ensure pipeline

A: We once sealed a leak that was 60m underwater. SETEIN

integrity. Leak-sealing services are needed when there is an

manufactured the clamp and coordinated the installation

emergency, making response time crucial. SETEIN is available

with a diving company. This project was successful because

around the clock throughout the year. We specialize in rapid

we did not need to install an expensive habitat to seal the

response times and client services, and for that we keep a

underwater leak. Our client company was losing in terms of

stock of necessary raw materials and workers available to

production and there was environmental damage, but we

perform maintenance services as needed.

mitigated those problems by responding quickly.

Q: What is SETEIN’s strategy to ensure it provides a rapid

Q: Have you seen any change in the types of problems that

service?

SETEIN helps PEMEX solve?

A: When SETEIN responds to an emergency, the company

A: The restructuring that PEMEX is undergoing is affecting

sends a technician to scout the area where the leak occurred

us, and we see this most in PEMEX’s petrochemical sector.

and to take the necessary measurements. The technician

Coatzacoalcos has two large petrochemical plants that suffer

will then send that information to the company’s workshop.

from lack of appropriate maintenance due to the fact that

SETEIN then manufactures its own split sleeves, clamps and

there is less money allocated for preventive maintenance,

metal reinforcements upon receiving these measurements.

which makes it deteriorate and lose its value faster than it

It will usually take a day to produce everything that is

should. SETEIN has seen more corrective maintenance than

needed to seal the leak. When the project has special

preventive maintenance as a consequence of this problem.

requirements, it may take longer. For instance, producing

We have noticed an increase in the number of valves we

a welded split sleeve will take a week. Once it is finished,

have had to replace for PEMEX but we have also seen

we will deliver the product and install it where needed.

emergencies become more common than planned works. Maintenance is not like production, since production can be

Q: How does SETEIN recommend and introduce new

halted in a low oil price environment but maintenance is

products and technologies to its clients?

required at all times.

A: The company can suggest and introduce new products when there is enough time. However, emergencies can

Q: How is SETEIN adapting to the changes introduced by

be too critical and we must get whatever the client tells

the Energy Reform?

us and adapt to the client’s needs. For instance, Petrofac

A: SETEIN focuses on predicting needs and catering

may like a certain brand and Lindy another one, so SETEIN

to them as they come. Before the liberalization of the

must be flexible enough to cater to the client’s needs. We

market and the entrance of large integrators everything

do not like to stick to a single brand. Being aware of the

was ruled by PEMEX’s standards. International companies

quality expected from suppliers is a determinant factor in

have their own standards and although the end user is still PEMEX, SETEIN needs to cater to these new companies by complying with their standards. To ensure

Servicios Técnicos Industriales Internacionales (SETEIN) is

our market presence we took a step ahead and invested

a 100 percent Mexican company. Its activities are focused on

in certifications that PEMEX did not necessarily need but

improving the efficiency of industrial processes to reduce

that are required by these new companies. These include

costs

ISO and OSHA.

VIEW FROM THE TOP

STRENGTH THROUGH UNITY, INCREASING PRODUCTION GILBERTO GOMEZ Legal Representative, Partner and Project Director at AIMSA Petroleum

Q: How do the companies that AIMSA represent offer a

AIMSA to also accept a share of royalties as payment

higher added value to their customers?

once operations are underway. As part of our strategic

A: Before the Energy Reform was implemented, several

partnership with Herrenknecht, we will be able to bring

Mexican companies gathered to discuss the opportunities

specialized technicians that will share their know-how

it would bring and to craft an effective line of action to take

and train local personnel on how to optimally operate and

advantage. As a result of these conversations, the directors

maintain the equipment.

of our businesses group decided to work together and create a company, AIMSA Petroleum, that would represent

Q: What steps is AIMSA taking to boost the market for the

them in the newly-opened Mexican market. AIMSA was

drilling equipment in Mexico and Latin America?

launched in 2014. AIMSA’s companies are world-class

A: The rigs that we acquired from Herrenknecht were built

players, owned by Mexicans, that provide equipment and

in Germany, part of the rig package, while the backyard

services to the best operators globally. The partnership is

components were sourced from US manufacturers. With

registered in the US to protect the patents and intellectual

our intention to develop local industry and become more

property of each integrating company. AIMSA has since

competitive in the Latin American market, we created

started providing integral services to the operators

AIMSA Manufacturing in the US to start manufacturing the

interested in Mexican fields. We are proud to say that the

components that Herrenknecht does not manufacture and

companies that selected our services and included them in

normally outsources. We are also planning to use our group’s

their portfolio won their desired fields. This was in part due

facilities in Mexico for assembly and equipment integration.

to the technology and cost advantages we offered. We are

This would allow us to take advantage of Herrenknecht’s

able to optimize production of oil and gas before having to

cutting-edge technology, together with locally-manufactured

initiate further drilling.

backyard equipment, for a most cost-efficient service, initially to the Mexican market and potentially expand it to

Q: How is AIMSA providing cutting-edge technologies to

South America in a second stage.

the Mexican drilling market? A: To bring more strength to the table, AIMSA developed

Q: How can a group like AIMSA disrupt the Mexican market?

a partnership with Herrenknecht Vertical GmbH, a

A: We believe that PEMEX is not making its full potential

German manufacturer of drilling equipment. Thanks to

profit from its refining activities because part of the refining

this partnership, AIMSA will become the first company

must be done in the US and the product is then imported

to introduce automated drilling equipment to Mexico.

back at a high cost. We want to disrupt the Mexican market

Herrenknecht Vertical has manufactured and sold its

by introducing modular refineries into the country. These

innovative hydraulic rigs for both the geothermal and oil

modular refineries handle 1,000 to 6,000b/d. Integrated

and gas markets, mainly in Europe. They also provided rig

systems can be used for larger amounts of crude oil, for

packages for China, Brazil and Argentina.

example 12,000, 30,000, 100,000 or 300,000b/d (most equipment arrangements are 14ft x 100ft straight inline per

AIMSA acquired two TI-350, fully automated, hydraulic rigs,

module). The cost for each module of 6,000b/d is around

which include technology advances that will allow us to

US$50 million.

dramatically improve drilling times and reduce operational costs. The rigs can be operated with a reduced crew, supported with technical aftersales service supplied by

AIMSA Petroleum is a holding of Mexican companies that offers

the manufacturer on-site and from its headquarters in

integral services to operators in North and South America. The

Germany.AIMSA Petroleum offers integral services and

company has strong partnerships with international companies

equipment supply. Our flexible business models allow

that allow it to provide cutting-edge technology and expertise

275

INSIGHT

FIGHTING FIRE WITH INTEGRAL SOLUTIONS CÁNDIDO HERNÁNDEZ Director of Neoviss

276

History has established that one of the hydrocarbon

safety equipment or in operations. Neoviss can provide

industry’s greatest enemies is fire. Although valves and

training at companies it supplies with fire protection

hydrants can seem insignificant, in a world of deepwater

systems to address this issue. “We continuously work with

operations with billion-dollar investments, Candido

end users, engineering firms and contractors, providing

Hernández, Director of Neoviss, says they could just be

training and technical presentations about all the risks

the vital components that prevent accidents and preserve

related to the systems and how we can reduce those

the operator’s reputation.

risks,” Hernández says.

Hernández has been working in fire protection in the oil

Neoviss is focusing on the upstream segment within

and gas sector for more than 20 years. Most recently,

the oil and gas sector due to the high activity in this

Neoviss, a provider of security and fire safety solutions

area, especially in the company’s geographical focus,

for high-risk industrial complexes, completed a major

Villahermosa, Tabasco. According to Hernández, risk

contract with PEMEX for the installation of deluge valves

culture is changing in Mexico through the influence

on the Abkatun D offshore platform.

of foreign companies and their high safety demands. Another important player in the transformation of risk

But these kinds of upgrades have been rare as the oil

culture in Mexico is ASEA.

price downturn reduced investment in maintenance and safety systems, according to Hernández. “Currently, the

Unfortunately, according to Hernández, ASEA is

name of the game is doing the same thing, complying

struggling with budget and personnel issues, meaning

with the same regulations, providing the same reliability

that it lacks the capacity to review projects as quickly as

and reducing the same risks, but with less money,” he says.

it wants, which has led to projects being delayed as they await approval from the regulatory agency. This depends

For a complete fire protection supplier, installer and

largely on the Ministry of Environment. The large number

maintenance company like Neoviss, the Abkatun

of projects requiring approval is also among the reasons

platform project was the largest and most complex in

for these delays.

its history. “Usually fire protection is part of a larger, more complicated project and ends up being subcontracted

Neoviss is participating in this transformation of risk

to major EPC firms, such as Ica Fluor, McDermott or

culture by way of ISO certifications in health, quality,

Dragados de México,” says Hernández. Neoviss’ role is

safety and environment. Another key element of Neoviss’

the engineering and assembly of these systems using the

strategy for positioning itself as a fire-safety service

different technologies at its disposal.

provider to new entrants in the Mexican oil and gas sector is the constant training of its personnel in their

In the offshore sector, risk prevention is ingrained in

knowledge of the products, solutions and interventions

the company culture, but in onshore activities, such

offered by the company.

as refineries and processing plants, maintenance and risk prevention culture are not such a focus. Here, too

Hernández believes that aligning itself with its customers

often, fire protection systems are installed and afterward

will give Neoviss the advantage when the IOCs really start

forgotten, Hernández says. “This means that many of the

to enter the market. “Globally, major contractors do not

installations with the highest fire risk are aging.”

buy products, valves or detectors; they buy solutions and integration,” he says. “We are more than ready for when

Another key risk factor, according to Hernández, is the

they arrive, with high-quality products and with continual

human element. People are not properly trained to use

training so that we can stay up-to-date.”

VIEW FROM THE TOP

MANAGING RISK IN TIMES OF CHANGE ALFONSO ARAIZA Head of Energy, Mining and Construction of INTERprotección

Q: How is the Energy Reform affecting INTERprotección’s

must be aligned to the characteristics of the resources

activities in the industry?

operators will exploit and the kind of environment they will

A: The Energy Reform triggered the development of

operate in. That will change as soon as they start drilling

competitive markets and as a result, we believe the

or doing workovers in their fields. After several years,

industry will soon face an exponential increase in activity.

when the activity drops, the level of exposure decreases

This applies to every subsector of the value chain, such as

with a few exceptions, such as environmental risk, which

upstream, midstream, downstream and P&U. In addition

tends to be present even after decommissioning activities.

to looking at specific projects, we are making an effort

For that reason, it is of great value to develop long-term

to understand and serve different niches, each with very

relationships between the insurance stakeholders and the

specific needs. We are convinced that the company is very

insured companies so that there is a deep and common

well-positioned to achieve this, since we have both the

understanding of how the risks are evolving and covered

local knowledge and the global expertise to understand

along the life of a project.

our clients’ risks and required coverage. For example, one niche where we already are adding significant value is with the operators that won E&P blocks in rounds one and two and that do not have risk management experience for this type of activity. Q: How has the regulatory framework impacted the insurance industry and how is it evolving? A: We have been following the regulatory framework

In rounds one and two, 69 operators won a total of 88 E&P contracts, with a commitment to drill 127 wells

closely because of its relevance and the potential impact it could have on the industry. We believe that the regulation is

Q: How has risk exposure in the oil and gas sector evolved

going in the right direction but that there will be a learning

since the Energy Reform’s implementation?

curve as the activity progresses. In the long-run, the idea

A: We are quite certain the level of exposure will increase

is that regulation becomes less prescriptive and more

as more players and consortiums kick off operations in

objective-driven so that companies have more control

the Mexican market, many of which have limited or no

over the risks/limits they want to retain and those they

experience working under our operational, social and

want to transfer to the markets. However, until markets

political conditions. Another source of exposure that

consolidate and mature, we believe that regulators will

needs to be monitored is climate change. We have seen an

have an important role in making sure that the risks are

increase in floods and hurricanes recently, which have had

controlled and managed appropriately.

a significant impact on the industry. Also, we think there is an element of technological complexity that stems from

Q: How do risk profiles change over the course of a

the environment in which the industry must operate. Oil is

project?

becoming more difficult to exploit and we see companies

A: It depends on the business model of the company

facing major technical challenges.

we are talking about but usually there is a correlation between the complexity of the activity and the exposure to different risks. At the moment, most of the operators

INTERprotección designs

have won contracts but have not engaged in physical

and addresses claims through strategic partnerships with

activity, so the main risk they face is related to how they

leading adjusters. INTERprotección offers a personalized service

design their development plans, in the sense that these

in upstream, midstream, downstream and renewable energy

worldwide

assurance

programs

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ROUNDTABLE

WHAT NEW TECH WILL REVOLUTIONIZE OIL AND GAS INFRASTRUCTURE?

As companies in Mexico prepare to increase their exploration, production, processing, imports, exports and commercialization activities, global names are entering and bringing with them a wide array of cutting-edge technologies. Long-term vision, cost-effectiveness, safety and environmental protection are the buzzwords that will shape the development ringing across Mexico’s new oil and gas industry that was previously directed toward only two goals: field development and production maximization. Mexico Oil & Gas Review asked industry leaders what technologies will most likely disrupt the industry and reshape the landscape?

Topside 4.0 involves the digitalization of the complete life cycle of a topside offshore project. It is designed to provide a link between the design tools and optimization 278

tools. Digital twins are created to replicate a real asset and simulate how the asset will work and behave under certain scenarios and how it will interact with the entire facility. These twins can also be used to train personnel, allowing them to interact with

JESÚS PACHECO Executive Vice President of Technology and Innovation at Siemens, a Dresser-Rand business

the twin and simulate different working conditions. This approach saves significant costs, particularly for larger and more expensive projects. Our hardware and software solutions will enable the dramatic change in cost structures that the Mexican industry really needs. That is what we bring to Mexico, to PEMEX and to all the new companies in every sector of the oil and gas industry.

The positive effects of automation and digitalization can be witnessed across the entire value chain of the oil and gas industry. Using solutions that allow for the exploration of dangerous environments without the need for human personnel onsite is one clear example. In Mexico, we can see that very clearly in the short term, due to the fact that, in certain regions of the country, the presence of

ALEJANDRO LUPIAÑEZ Vice President of Mexico Operations at Wood

workers can pose a certain type of inherent risk. Using Wood’s Remote Expert, Virtual and Augmented Reality solutions, a machine can livestream the process to a worker in a control room, from where that same worker can control the maintenance operations. Solutions like these can be explored at our Advanced Technology Center.

Most gas stations in the US are controlled by a satellite network that oversees the behavior and location of transport fleets, measuring important aspects such as the amount of gasoline they are using. Mexico still has many gaps, such as poor terrestrial services, as well as complex regulations that need to be addressed. We see an opportunity in that field. There are many companies trying to capitalize on this

PEDRO HOYOS Chief Commercial Officer of GlobalSat

opportunity as well but they provide mostly residential services that do not match the quality of our services, nor the knowledge that we have developed in the market. We have worked for almost every demographic, including SMEs and PEMEX, and we are confident about the robustness of our service offer.

The Building Information Model (BIM) concept was created in the 1980s but it has not been widely used for infrastructure projects until now. BIM refers to the capacity of analyzing 3D models and mapping information about materials and building models to integrate project control in a much more accurate way, before ground is broken. Hexagon PPM is not in the business of producing or analyzing the 3D models, but we are working to use the BIM concept to allow our clients to have better control in their projects and have improved capabilities to ensure the project is properly executed. At Hexagon PPM, this integrated solution is called SMART Build. SMART Build will allow project development to be carried out on time and on budget.

ADRIAN HERNANDEZ Former Director General of Hexagon PPM

One global initiative we are launching is the Veracity platform. This is a big database designed to gather and share information. Of course, the rules will have to be established but the idea is to put information into a central database that service providers and clients can access. Right now, a lot of data is collected but a lot of this data is not really used; it is just collected and then nobody knows what to do with it. We want to put the data in one place and then develop algorithms to use the data and maybe benchmark. That has actually been quite successful.

ECKHARD HINRICHSEN Country Manager for Mexico of DNV GL

Cybersecurity is a trend that we cannot overlook, especially in the oil and gas industry. Everything is now controlled and connected via electronic data, from production equipment to transmission pipelines. If someone hacks into those systems, a great deal of damage can be done, and there is already precedent for this. This was not imaginable five years ago, but risk managers now need to make sure that they identify, analyze and manage such risk in a proper way. The risk manager will be a bridge between the daily operations and the management board that wants to ensure that no risk jeopardizes operations.

MICHAEL GÜNTHER Director Energy and Infrastructure Mexico at Marsh

Baker Hughes and General Electric, BP and Conoco Phillips are all using data engineering to improve their operations efficiency and effectiveness. We are working in a similar fashion to structure improved and high-performance data management systems for the entire oil and gas sector. One example of such services is data management in oil fields to create “intelligent” oil and gas fields. We can also capture data from different segments—upstream, midstream and downstream—and process that data to generate operational intelligence. In addition, we can model and perform

JUAN ANGARITA Global CEO of IMS Global

simulations and forecasting, keeping in mind that data is a valuable resource for decision-making.

In Mexico, our focus is on deepwater exploration, so we are developing tools that will make changes in how certain things are done. For example, we are changing from the traditional way of gathering samples from a vessel to doing it from an ROV. This way, we can gather these samples in half the time and without spouting. Such new methods will reduce costs for operators. There will also be more integrated and game-changing technologies that will initiate in Mexico. For the moment, deepwater development is still at the exploration stage. Other kinds of activities will start next year, and, at that point, we will introduce additional innovative technologies that will address the operational phases of these deepwater blocks.

JOSÉ AGUILAR Managing Director of Oceaneering

279

An employee wears a smart helmet at Baker Hughes, a GE company

AUTOMATION & DIGITALIZATION

Automation and digitalization can be hard-to-digest concepts. This is also true for oil and gas, especially considering the high risks involved in the industryâ&#x20AC;&#x2122;s operations as well as the strict standards that must be followed. Nevertheless, properly implementing these concepts and putting technology to use in the various processes throughout the value chain can help ensure the highest quality, safety and environmental protection standards are achieved while also underpinning profitability. For that reason, automation and digitalization are playing increasingly important roles in the oil and gas industry. One of the first goals of these technologies is to provide accurate information in real time while reducing the execution period for many processes. This has allowed companies in the industry to offer better and more efficient services to their customers.

Given that the oil and gas industry in Mexico is in the nascent stages of its revival, it is important that both the public sphere and private companies develop a healthy environment for the implementation of automated and digital processes that allow the industry to be more efficient, productive and above all, safe.

281

CHAPTER 10: AUTOMATION & DIGITALIZATION 284

ANALYSIS: Shifting from Corrective to Prescriptive Data

286

VIEW FROM THE TOP: Jesus Grande, Baker Hughes, a GE company

288

VIEW FROM THE TOP: Vernon Murray, Emerson Automation Solutions

289

VIEW FROM THE TOP: Alejandro Lupiañez, Wood

290

VIEW FROM THE TOP: David González, Net Brains

291

VIEW FROM THE TOP: Carlos Palavicini, Petrolink

292

INSIGHT: Jesús Pacheco, Siemens, a Dresser-Rand business

293

VIEW FROM THE TOP: Miguel López, Rockwell Automation

294

VIEW FROM THE TOP: Victor Fuentes, Mitsubishi Electric Automation

295

VIEW FROM THE TOP: Pedro Hoyos, GlobalSat

296

VIEW FROM THE TOP: Juan Carlos Angarita, IMS Global

297

VIEW FROM THE TOP: Adrián Hernández, Hexagon PPM

298

INSIGHT: Nacip Fayad, SKF

299

VIEW FROM THE TOP: Trent Marx, Resource Energy Solutions

300

INSIGHT: Juan Hernández, Zion NDT

301

VIEW FROM THE TOP: René Varón, Tory Technologies

283

ANALYSIS

SHIFTING FROM CORRECTIVE TO PRESCRIPTIVE DATA Mexico’s oil and gas industry is open for business. Challenging traditional time frames, legislators and regulators alike have adopted best practices and taken on board feedback that has been a catalyst for the industry’s development. New technologies can shorten maturity time even more As the former sole owner of the whole supply chain

tools. Miguel López, Regional Director of Rockwell

process, PEMEX had little concern about operating as a

Automation, shares that belief. “Part of what is occurring

profitable business and taking accurate measurements

is that companies are starting to digitalize part of their

from production fields and final users. “Now that PEMEX

operations on existing assets. Also, many of the new

has been divided into independent business units, these

private operators will start to construct their own assets.

units are very conscious of the importance of accurate

These are going to be built with the integration of digital

measurement systems to ensure that they are not paying

technologies,” he says.

more or invoicing less than what they are actually moving 284

from one unit to another,” says René Varon, President of

Marx considers 2014 a turning point in cost-awareness for

Tory Technologies.

the industry. “Before that, the attitude was to drill as much and as fast as possible to get production online as quickly

Striking black gold remains a highly lucrative business

as possible. That was, and still is the mandate in many areas,

but the oil and gas industry is as costly as it is lucrative,

especially in the US where exploration and production is

especially when it comes to downtime. Subject to the whims

driven by Wall Street,” he says. “But in 2014, oil prices

of an oil barrel’s price variability, oil and gas players are

dropped and suddenly there was a new cost awareness.”

constantly searching for ways to keep costs down without

He says that in the last three years, many new advances

sacrificing efficiency or safety. Jesús Pacheco, Executive

have been made in making drilling more cost-effective. “We

Vice President of Technology and Innovation at Dresser-

have seen progress in technologies that allow for the drilling

Rand, believes Mexico can open the door to opportunity

of 20 wells off one pad, for example, substantially reducing

and boost its industry by going digital. “Although there

the number of drill moves necessary.”

are many assets that need to be replaced, it is critical that companies understand the benefits of introducing digital

THE DIGITAL OIL FIELD

solutions to get the greatest value out of installed assets

To make the most of Mexico’s underground treasures,

and improve their reliability and performance,” he says.

the pool of new international players in the game are promoting best international practices and standards,

OPTIMIZED INFRASTRUCTURE

which can be used as a stepping stone for national players

The country’s oil and gas industry is coming to grips with

to up their game. “This is healthy for the Mexican industry

fostering growth by finding the right balance between new

since it brings the local value chain’s operations to a more

and optimized assets. The same can be said for the assets’

competitive stage where the quality of products and

respective infrastructure to reliably and cost-effectively

services is higher, while also making them safer and more

deliver hydrocarbons to the doorstep of the country’s

environmentally friendly,” says Jesús Grande, President of

consumption points. Despite the high cost of downtime,

the Americas of Baker Hughes, a GE company. An example

Mexico’s traditionally conservative and price-driven industry

of this collaboration is a US$3 million joint venture between

is hesitant when it comes to introducing technology and

Wood, Cisco and Roue Consultores that created the Oil

efficiency into its operational assets, but different times call

and Gas Advanced Technology Center (ATC). Its main

for different measures. “Current low prices and competing

purpose is to provide simulation, execution and operation

energy resources have amplified the importance of utilizing

management services for hydrocarbons distribution and

technology and digital information in real time,” explains

storage infrastructure in a laboratory environment. The ATC

Trent Marx, President and CEO of Resource Energy

was inaugurated on April 18, 2018.

Solutions. “Stricter regulatory compliance at all stages of well operations and pipelines to mitigate risk are driving

The industry’s regulators and government agencies are

operators to be more proactive.”

pulling all the stops to adapt, as showcased by ASEA’s MoU with the American Petroleum Institute (API) to

As a result, he says Mexico’s oil and gas industry is ripe

apply API standards in ASEA’s safety programs. “API

for embracing data science, IoT and predictive modeling

provides, among others, very detailed guidelines on how

to perform and maintain measurement systems and carry

DATA-BASED DECISION-MAKING

out measurement data as well as how to run pipeline

Besides efficiency and bankability, the oil and gas industry

control rooms considering all the human factors,” Varon

is also about risk mitigation, especially considering the

says. The Mexican Petroleum Institute (IMP) refused to

precedents of oil spills and fatal accidents in offshore rigs.

fall behind and created the Deepwater Technology Center

Angarita believes Mexico’s risk and safety culture must

(CTAP) on March 23, 2018 to support not only PEMEX but

break from its current boundaries. “It has meant some

also the private sector in using the adequate technology

companies fail to properly understand risk as a business

to capitalize on the country’s deepwater potential. To do

factor in their processes, and it is limited only to HSE

so, it was granted more than MX$2.1 billion in funding

practices or integrity or reliability evaluations,” he says.

to reinforce the industry’s extractive capacity. Also, the

“Risk, from our point of view, should not be interpreted

IMP, in coordination with the Ministry of Energy and the

as only performing isolated integrity or reliability analysis.

University of Austin, organized a three-day workshop to

For us, risk involves the entire organization, all its

examine optimization opportunities for Mexico’s oil field

processes and assets, and the use of different approaches

production on May 21, 2018.

to analyze, treat, measure and control it.”

The industry’s drive toward competitiveness is a natural

To take full advantage of data mining processes,

stimulus for digitalization and innovation. As a testament

Mexico’s oil and gas players must go beyond gathering

to this, Mexico is setting the stage for the spread of

and interpreting data and use it to harness an industry

digital oil fields. For the oil and gas sector to maintain

shift from predominantly corrective maintenance to

its momentum, digitalized operations are vital to foster

mainstream preventive maintenance. To capitalize on

increasingly effective and timely decision-making. “Baker

this transition, some companies are investing heavily in

Hughes and General Electric, BP and Conoco Phillips are

advanced analytics with oil and gas applications. “If we

all using data engineering to improve their operations

look at IoT and how such systems become data suppliers,

efficiency and effectiveness,” says Juan Carlos Angarita,

the important thing is not what is done with the data, but

Global CEO of IMS Global. “We are working in a similar

rather making decisions with the data in an opportune

fashion to structure improved and high-performance data

manner,” López continues, “This is done by creating tools

management systems for the entire oil and gas industry.”

that help customers not only generate new information

One example of such services is data management in oil

and predictive data but also create prescriptive data.

fields to create intelligent oil and gas fields. IMS can also

This means the system does not only warn of potential

capture data from different segments and process that

failures but also that the customer can take actions to

data to generate operational intelligence.

avoid failure.”

CENTER FOR DEEPWATER TECHNOLOGY – LABORATORY STRUCTURE

CENTER FOR DEEPWATER TECHNOLOGY (CTAP)

Drilling

Drilling and Completion Fluids and Well Cementing Mechanics for Well Drilling and Completion

Flow Assurance Risks

Geotechnics and Soil Structure Interaction Numerical Simulation of Metocean and Hydrodynamic Phenomena

Technology Qualification Components of Subsea Equipment Control Systems Equipment and Systems

Processing Equipment Marine Structures Systems Integration Testing Hydrodynamics: Oceanic Tank

Source: CTAP

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VIEW FROM THE TOP

FULLSTREAM ACTIVITIES IN A FULLY OPEN COUNTRY JESUS GRANDE President Latin America of Baker Hughes, a GE company

Q: Baker Hughes, a GE company (BHGE) calls itself the

processes, while having broad experience working in

world’s first and only fullstream company. What does that

projects in Mexico.

mean and how does it apply to Mexico?

286

A: Being fullstream means that our products and services

With regards to independents, we have a strong value

extend across the upstream, midstream and downstream

proposition through our integrated fullstream offering, which

sectors. This comprehensive coverage was made possible

has the potential to simplify their operations in Mexico.

by bringing together the outstanding products and the cutting-edge digital industrial capabilities of GE Oil

Q: What business opportunity does BHGE identify in

& Gas, with the innovative technologies and excellent

deepwater Mexico?

services from Baker Hughes. The combination of both

A: While we know that it will take time for Mexico’s

companies’ capabilities results in a value that is much

deepwater areas to reach a development phase, BHGE

higher than the sum of the parts. No other player in the

sees a great opportunity and is well-positioned for the

market can match that.

deployment of its products and services given our wide experience in deepwater operations, specifically on the US

Today, Mexico is one of the most promising growth

side of the Gulf of Mexico and in Brazil. From reservoir

opportunities for the oil and gas industry in Latin America

evaluation to drilling and completions to leading subsea

and BHGE is ready and eager to support its customers in

and topside equipment, we have a portfolio that reduces

their upcoming plans.

TOTEX to help bring costs down for offshore operations.

Q: How does BHGE offer a higher added value to the

Q: What opportunities did the opening of the market bring

different players in the Mexican oil and gas industry?

to the local supply chain?

A: Our offering varies according to our customers, and we

A: The entrance of the IOCs into Mexico, complementing the

have the ability to add value to all of them in different ways.

existing industry requirements, has the potential to expand

For PEMEX, which is and will remain for some time the

and improve the local supply chain. The anticipated activity

largest player in Mexico, and for all the new players, our

growth and the application of additional best practices

goal is to generate value through the optimization of their

could mark the beginning of a virtuous cycle that would

operations and maximizing efficiencies. Our contributions

make the local offering of products and services more

range from data acquisition from exploration wells to

competitive, and even safer and more environmentally

process optimization through the reduction of AFEs for

friendly. The whole industry should benefit from this.

drilling and completions, as well as preventive maintenance at refineries.

BHGE is an important player in Mexico, with operations, engineering and manufacturing in the country, and it

When it comes to the IOCs entering the Mexican market,

has the ability and knowledge to adapt to the changing

and having worked with all of them all over the world,

requirements of the markets where it operates. We are

our value proposition is to remain a reliable partner

determined to become an even larger and more robust

that understands their specific requirements and work

supplier to all our customers in Mexico. Q: How does BHGE contribute to improving the local

Baker Hughes , a GE company is the world’s first and only

supply chain in Mexico?

fullstream provider of integrated oil field products, services and

A: We have a wide footprint in the country that does

digital solutions. BHGE harnesses the experience of its people

not only include our products and services but also

to enhance productivity across the oil and gas value chain

manufacturing facilities and even a large GE engineering

An example of BHGE's turbomachinery, an LM6000 turbine

287

center in Queretaro, where our application engineers work

gathered around the world, whether in deepwater or in

to deploy some of our technologies.

shale developments, to help our customers maximize their results and improve operational efficiencies.

Our contribution to the supply of products and services in Mexico is based primarily on the knowledge and motivation

Q: What is BHGEâ&#x20AC;&#x2122;s top goal for the end of 2018 in Mexico?

of our people, on our world-class technologies, on our

A: Our objectives in 2018 are simple. We want to grow

devotion to services, our industrial-digital enablement and

and strengthen our presence and our business with all

our ability to integrate our offering from the reservoir to

our customers working or planning to start working in

the production facilities.

Mexico. We want to remain the leaders in HSE, quality and integrity throughout our activities. We want our people

We are committed to strengthening our presence in

motivated and engaged, giving 100 percent of their efforts

Mexico by leveraging all the experience that we have

to supporting our customers.

VIEW FROM THE TOP

WILLING PARTNERS WITH COMPELLING PURPOSE VERNON MURRAY President Latin America of Emerson Automation Solutions

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Q: How does Emerson provide a greater added value to the

measure tank pressure and temperature. Level two is related

Mexican market?

to data acquisition and interpretation. The interpreted data

A: Emerson capitalizes on three main areas. The first is to

is used for safety instrumentation systems and with our PK

develop cutting-edge technologies, with a strong focus on

controller, developed in-house, to provide a higher degree

the needs of the oil and gas industry. The second is our strong

of control. Finally, level three relates to business intelligence

presence in the country. We have been in Mexico for more

and management gathered and developed in the previous

than 65 years and have several factories and more than 12,000

two levels and leveraging the tools from those levels. For this

employees here. Emerson supports the Mexican market by

level, Emerson offers the midstream sector a unique package

developing local experts who have a deep understanding of

of analyzed data for pipelines and terminal management that

the sector. Finally, Emerson has experience working around

can design and execute invoicing, payroll and balance and

the world with all the international players coming into Mexico.

control inventories. This package is used all over the world and

We know how these companies operate and execute projects;

we are adapting it to the local market so customers can get

we can meet their expectations and align with their way of

the highest added value while complying with all regulations

working and we understand local market conditions.

and market specifications.

Q: What makes the Mexican oil and gas market an attractive

Q: Where do Emerson technologies fit best in relation to

business opportunity for Emerson?

Mexico’s aging infrastructure?

A: Mexico’s growing local consumption of hydrocarbons

A: Emerson technologies and services can be implemented

and its proximity to the US and Canadian markets make it

in projects related to both new and old infrastructure. We are

an extremely attractive market opportunity for Emerson. We

sending a clear message to developers looking to revamp

can provide a wide array of technologies and services to help

old infrastructure: take advantage of the infrastructure you

develop this sector in the short term and ensure efficient,

have today, using level one measurement tools to improve

safe and reliable production, refining and transportation of

operational safety and productivity with the use of Internet

hydrocarbons. While today the opportunities in Mexico are

of Things technologies. Every installed piece of infrastructure

materializing mostly in the midstream segment, we see big

has multiple points of temperature, pressure and flow

potential in the longer term for working with the upstream

measurement but if levels two and three of our automation

and downstream sectors.

services are not in place, none of that information can be used for the kind of decision-making that leads to improvements

Q: How can Emerson’s solutions help the midstream sector

designed to achieve Top Quartile performance, defined as

in Mexico?

operations and capital performance in the Top 25 percent of

A: Emerson provides solutions from level one to level three

peer companies.

of the standard automation process. Level one, related to measurement, has been the foundation of Emerson’s process

As for new infrastructure, Emerson offers a Project Certainty

manufacturing business since its inception and remains a

methodology and portfolio of tools and technologies that

key focus today. In the midstream sector, our technologies

help reduce the execution complexity of any project, allowing

are used to measure and control custody transfer and to

EPCs to undertake their operations in less time and with lower costs. One clear example is the deployment of our tools and instruments onsite. While traditionally this would take from

Emerson is a global technology and engineering company. Its

hours to days as well as an army of workers, depending on

automation solutions business provides the energy industry

the control systems to be installed, with our Project Certainty

with technologies, software and consulting services to help

approach, this now takes anywhere from five to 12 minutes

customers operate their facilities safely, reliably and efficiently

with just a couple of workers.

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ADVANCED TECH AT CENTER OF CUSTOMER-FOCUSED VISION ALEJANDRO LUPIAÑEZ Vice President of Mexico Operations at Wood

Q: How does Wood support the entire value chain of

oil rail car-based transport). Wood has a range of solutions

its clients?

adapted to this segment as well as the more traditional

A: Wood continuously follows the regulatory framework that

pipeline transmission and distribution methodologies that

applies to the country in which we operate. This includes

are used in other countries. We strive to ensure that, no

the certification process we use for our suppliers and

matter what, our clients’ business will always be profitable

processes. As a MAC integrator that always thrives to find

and safe. 289

the best solution in the market for its clients, compliance with norms, regulation and certifications is at the forefront

Although the current focus has been on the development

of the added value we offer to our clients. Such added

of midstream projects, we emphasize the skills we can bring

value allows us also to support the entire life cycle of the

to other sectors, such as petrochemical facilities, refineries,

client’s projects, from the conceptual engineering to the

power generation, mining and even waste treatment.

decommissioning, individually or as a whole. Q: Where can the advantages of automation and Q: Why is the Advanced Technology Center (ATC) by

digitalization be best showcased for the oil and gas

Wood, Cisco and Roue important for the Mexican oil and

industry?

gas industry?

A: The positive effects of automation and digitalization can

A: The ATC is the perfect meeting point to showcase the

be witnessed across the entire value chain of the oil and

capabilities of two of Wood’s main service lines, the Asset

gas industry. Using solutions that allow for the exploration

Solutions and the Specialist Technical Solutions business

of dangerous environments without the need for human

units, together with synergies derived from partnerships

personnel onsite is one good example. In Mexico, we can

with Cisco and Roue. With the ATC, we are establishing

see that very clearly in the short term because in certain

a space to get closer to the client, innovate and find new

regions of the country, the presence of workers can pose a

differentiators that make our company more competitive

certain type of inherent risk. Using Wood’s Remote Expert,

and completely customer-focused in its services. We

Virtual and Augmented Reality solutions, a machine can

will reach a point in which the needs of the clients can

livestream the process to a worker in a control room, from

be anticipated. This is extremely important for a main

where that same worker can control the maintenance

automation contractor (MAC) like Wood.

operations. Solutions like these can be explored at the ATC. The ATC also allows for companies to recreate a

Q: In which areas is the ATC mostly focused in terms of

specific problem they faced and seek a solution using all

applications for the oil and gas industry?

the cutting-edge technologies developed and integrated

A: While the ATC can be used to explore the integration of

by Wood. All this is done in an environment protected

services in any of the oil and gas sectors, a strong focus

by rigorous cybersecurity tools. There are two types of

is the midstream sector, especially for the transportation,

companies in the world: those that have suffered a cyber-

storage and distribution of hydrocarbons and its liquid

attack and those that are being attacked without even

derivatives. This goes hand in hand with the new and much-

knowing it. This has become an extremely important topic

needed infrastructure and brownfield revamp projects that

that is at the top of every company’s agenda.

will help companies effectively handle fuels at every stage, from their arrival at maritime terminals to the distribution points. Wood is conscious of the particularities of the

Wood i s a global leader in project delivery, engineering and

country; at this initial stage, companies investing in the

technical services to energy and industrial markets. It has

transportation and distribution of fuels prefer to use virtual

over 55,000 employees in over 60 countries and delivers

pipelines (control and automation of oil tanker trucks and

comprehensive services to support its customers

VIEW FROM THE TOP

THE SAGA OF ZAMA BEGAN WITH DATA DAVID GONZÁLEZ Managing Partner at Net Brains

Q: How does Net Brains stand out in data management

& Gas and Premier Oil, used our tools to gauge its potential.

and processing services?

The numbers obtained enabled the consortium to access

A: Net Brains differentiates itself in two specific ways.

the investment required to tackle the project.

First, through our holistic approach to data management,

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incorporating vector technologies used by social media

Q: Can Net Brains help operators in other phases of the

giants like Facebook or Instagram to unlock data access.

life cycle of a contract?

Our UK and US partners gather sizable amounts of data and

A: We are working to add a service within our portfolio that

want to make it available to all interested parties to empower

includes data processing, interpretation and on-demand

the private sector and lead it to improved decision-making

simulation. Operators are disinclined to invest in a new data

processes. Second, know that private players want to be

interpretation site that they will end up getting rid of down

self-sufficient even though they are still reluctant to invest.

the line and are hesitant to rely on contractors to manage

Taking a closer look at the software sphere’s recognizable

the interpretation site. Operators want to remain in charge

brands and how companies are investing in their solutions,

of their processes and we will be able to reinforce that

we find that these corporations’ investment priorities have

requirement. We are in a position to help PEMEX prioritize

not really changed in the last 20 years. In some smaller

its assets beyond size or development simplicity. Net Brains

companies, the amount of web-enabled software under

can outline the best ROI for each development phase of

development is soaring. Cloud services are the future. The

every particular asset.

industry needs to interiorize this technology and open up to it. The cloud enables the bypassing of costly computer

Q: With nine licensing rounds done and two more in the

rooms, experts to maintain applications, servers and cooling

pipeline, what is the market opportunity for Net Brains?

systems. We offer this service to our clients.

A: Net Brains is looking to support the oil and gas market on the production side, not only in terms of data management

Q: How does Net Brains provide operators a better way to

but also to understand oil production. Mexico is hungry

understand their reservoir characterization?

for hydrocarbons and unless the regulatory framework

A: Net Brains can provide a clear picture of the specific

establishes investment brackets and provides fast-tracked

issues associated with each reservoir and how hundreds of

decision-making guidelines for the private sector, selecting

people around the world developed solutions that solved

promising oil wells in which to invest remains a complex

these issues efficiently and successfully. With our knowledge

task. We want to help streamline that decision-making

management service, we polish and sharpen an operator’s

process by anticipating oil field and reservoir outcomes

rough estimates on reservoir outcomes with precise

relating to production.

intervals and match their investments to that particular number. Net Brains built its business on a three-pronged

One way to do this is to integrate the cumulated

foundation: knowledge, data and information. Knowledge

historical data PEMEX holds and submit it to a thorough

about past failures and success stories is the key asset we

analysis via our specialized data management service.

can offer operators so they can tweak development plans.

The offshore sector is highly complex, to the point that

The Zama reservoir, discovered by Talos Energy, Sierra Oil

industry heavyweight BHP Billiton recognized as much in its joint venture with PEMEX. We can best capitalize on our strengths within onshore reservoirs, supporting the

Net Brains is a specialized consultancy firm focused on

exploration phase. Net Brains is approaching the companies

optimization of corporate investment through the acquisition

that were awarded each onshore block to assist them in

of hi-tech solutions, ensuring the quality of the selection,

coming to grips with what they may find depending on the

implementation and startup processes of new technologies

geological set they are working with.

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DATA FACILITATOR FOR THE OIL AND GAS INDUSTRY CARLOS PALAVICINI Vice President Sales and Marketing of Petrolink

Q: What have been the major differences that Petrolink’s

A: The drilling process involves lowering the pipe,

services have made in the oil and gas industry?

connecting to the pipe below and pushing that pipe to

A: We pride ourselves on offering real-time services as one

make the operation run. This is a hard process to measure

of our main differentiators and for contributing to turning

but we measure the time required for the pipe to perform

this into a commodity. We strongly support the use of

this operation. By measuring this process in Mexico, where

proven standards in the industry, ultimately bringing more

the oil and gas industry uses technology possessed by

companies on board with these practices. One of our vice

IOCs rather than the NOC or government, it was identified

presidents is on the board of directors of Energistics, a

that data quality exposed underlying issues that affected

consortium that manages digital and automation standards

service delivery. Therefore, we decided to go to the

for the oil and gas industry. We have helped the industry to

service providers and convince them of the benefits of

realize that their operations benefit a great deal from these

our services.

services and standards. Moreover, we make a difference in the industry by adding the interpretation of data in real time

Q: How would you assess the development of your

as a complement to visual analyses. We talk about algorithms

operational excellence center for PEMEX?

to calculate the efficiency of the operation and overcome

A: This is an in-house center located inside the facilities of

data-quality issues that might cause misinterpretation. We

oil companies where they have people monitoring the data

help other companies cope with these misinterpretations

24/7 to have that alerting service nearby. The downturn

by providing precise calculations instead of the usual

in oil prices pushed companies to start cutting expenses

estimations offered in the market. We are also developing

and some of them deemed this service non-essential, so

tools based on machine learning and artificial intelligence

we decided to experiment with new things and introduce

because the drilling industry is reaching a point where it

a remote alert service with recommendations on how to

is producing a lot of useful information, which implies

evaluate their facilities’ behavior. We are proud of this

challenges and opportunities regarding what to do with it.

introduction as it was initially seen as something that would not work in Mexico, since PEMEX is quite a conservative

Q: How do your data analysis services make your

company, but they foresaw the value and approved the

customers’ operations more efficient?

implementation and now we even provide this service to

A: Efficiency in data processing means having all the

our clients in the US and Argentina, operating remotely

information available and the interpretative tools needed

from our office in Mexico.

for decision-making. Implementation is also necessary to ensure that the decision is communicated in the right way

Q: What value does your PetroVue Mobile app provide

and our solutions work because they link what we provide

your customers in terms of operability?

regarding information and analysis with real communication

A: PetroVue Mobile allows an operator to check the status

protocols inside companies. We have two types of clients in

of its facility operations remotely, making a decision based

the oil industry, oil companies and drilling contractors, with

on the alerts received from operational developments. At

the former employing this service to monitor and supervise

the moment we are offering this service to our clients and

their operations while the latter monitors the efficiency of

they have responded positively.

their rigs and equipment. Failing to optimize drilling means extra time and extra costs, so we focus on KPIs that allow the identification of optimal times and costs.

Petrolink brings together advanced wellsite data management, real-time data solutions, engineering analytics and drilling

Q: What steps have you taken to push for higher-quality

optimization services to help oil and gas operators around the

collection processes in Mexico?

world enhance their efficiency, safety and productivity

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INSIGHT

DIGITAL SOLUTIONS CAN SQUEEZE MORE OUT OF ASSETS JESÚS PACHECO Executive Vice President of Technology and Innovation at Siemens, a Dresser-Rand business

292

In an industry like oil and gas where components can run

says, is digital twins, which are created to replicate a real asset.

into the millions of dollars, it is no surprise that the industry

This twin can simulate how the asset will work and behave

is looking at ways to save on these costs, especially given

under certain scenarios and how it will interact with the entire

low oil prices. Jesús Pacheco, Executive Vice President

facility. “We can create a digital twin for a compressor in just

of Technology and Innovation at Siemens' Dresser-Rand

a couple of hours,” he says. “These twins can also be used

business, says Mexico has an opportunity to boost its industry

to train personnel, allowing them to interact with the twin

without making big expenditures: “Although there are many

under different simulated working conditions.” By doing so,

assets that need to be replaced, it is critical that companies

Pacheco adds, CAPEX and OPEX can be optimized through

understand the benefits of introducing digital solutions to get

simulations prior to building and without the need to undergo

the greatest value out of installed assets and improve their

iterative improvement cycles that often waste capital. “This

reliability and performance.”

approach saves significant costs, particularly for larger and more expensive projects.”

Considering the wide array of opportunities that the Mexican hydrocarbons industry has to offer, Pacheco says that,

The costs of downtime in the oil and gas industry are high,

although many power solutions focus on areas where no

so it needs reliable, cost-effective and uninterrupted power

infrastructure is present, the solutions offered by Siemens’

for all its activities. With that in mind, Pacheco says it is

digitalization portfolio can become especially useful at

important to have a reliable partner. “Our hardware and

existing but outdated infrastructure to increase efficiency

software solutions will enable the dramatic change in cost

with relatively simple measures.

structures that the Mexican industry really needs,” he says. “That is what we bring to Mexico, to PEMEX and to all the

According to Pacheco, by installing sensors and employing

new companies in the industry.”

the right partner to manage the information generated, companies can obtain sizeable benefits with relatively small

While digitalization provides benefits, Pacheco says that

capital expenditures, especially compared with installation

the biggest challenge in selling the Dresser-Rand business'

of new assets. “It is much easier and economical to install or

solutions is cultural. Shifting company culture not only

replace sensors than complete assets,” he says. “But once

improves the chances of selling equipment but also provides

data have been gathered, that data must be managed and

better solutions to the client, Pacheco says. “Digitalization

analyzed. It is critical to have a reliable partner that facilitates

works on the premise that all parties are working together to

the process of companies visualizing their assets, evaluating

create a solution. While pre-packaged algorithms exist and

their condition and providing insights from the data to help

work to some extent, tailor-made solutions ensure clients get

management decide how to make better use of them.”

the greatest benefit, ultimately ensuring all parties have a sense of partnership regarding individual roles and activities.”

As for the installation of new assets, Pacheco emphasizes the benefits of including digitalization from the very beginning

In terms of creating a new culture in the traditionally

of a project. “Digitalization allows companies to select,

conservative Mexican oil and gas industry, Pacheco believes

configure and simulate how the assets will perform before

the government can also play a role. “The government has

even manufacturing them.” Among the solutions that Siemens

to work on becoming a catalyst to enable and encourage

has developed, Pacheco highlights its Topside 4.0 concept.

partnerships with international companies.” He says there

“Topside 4.0 involves the digitalization of the complete life

is still work to be done to bring Mexican culture up to par

cycle of a topside offshore project,” he says. “It is designed to

with global standards. “PEMEX has to reinforce the fact that

provide a link between the design tools and the optimization

the old days are gone and that the power of digitalization

tools.” Among the most important concepts of Topside 4.0, he

is the future.”

VIEW FROM THE TOP

STIMULATING COMPETITION THROUGH DIGITALIZATION MIGUEL LÓPEZ Regional Director of Rockwell Automation

Q: Where do you think Rockwell Automation will have the

we only have 15 years in Mexico with a commercial strategy

greatest impact in the Mexican industry?

for oil and gas. For that reason, our market share has grown

A: We have much more presence in the midstream and the

quickly but we still have a great deal of room for growth.

downstream. Our systems processes have been growing and we have a more general presence in the industry.

Q: What is your growth projection for Rockwell Automation

Nonetheless we also have upstream applications, especially

in oil and gas?

applications regarding gas flaring and emergency stoppage.

A: In this sector, we are growing in the high double digits, at close to 20 percent per year. A large part of what we have

Q: What kinds of innovations do you think are going to

done has been to focus on the needs of the clients, since

have the most impact in the Mexican oil and gas industry?

these necessities can change from one moment to another.

A: First of all, the Energy Reform is obliging everybody to

We listen attentively to what they need and we try to be

become more competitive. In the case of oil and gas this

sufficiently flexible so that we can help them reach their

also stimulates demand for digitalization. Part of what is

objectives in productivity, savings and efficiency. We seek

occurring is that companies are starting to digitalize part

to make our clients’ business better because this brings us

of their operations on already existing assets. Also, many of

closer to them.

the new private operators will start to construct their own assets. These are going to be built with the integration of

Q: How important do you think the integration of hardware

digital technologies.

and software is for the Mexican oil and gas industry? A: We strongly believe in the integration of hardware and

Q: What does the concept of the digital oil field represent

software. In fact, when examining how our control systems

for Rockwell Automation and how advanced are platforms?

have evolved it is clear that the first big step was migrating

A: This is the same concept as our connected enterprise,

from firmware that needed to be physically changed to

hinging on what we call connected production. The digital

downloadable firmware. Now there are many things which are

oil field is about how we digitalize operations that cease to

happening on a software level. If we look at the IoT and how

be manual in such a manner that people can make decisions.

such systems become data suppliers, the important thing is

In the case of the oil and gas industry this is very relevant

not what is done with the data, but rather making opportune

because operations are continuous. This means that these

decisions with the data. The challenge is that an expert is

are not operations that can be stopped at a moment’s

needed to do this, as the data in itself does not generate

notice, making timely decisions important. For this reason,

knowledge. For that reason, we are now investing heavily in

we are betting heavily on this dynamic of digitalization. We

advanced analytics. We believe that one way to overcome

have worked a great deal with the national industry, and in

the personnel problems we are seeing due to the retirement

particular we have worked with PEMEX, although we are

of experts is the creation of tools that help customers not

also working with the new operators.

only generate new information and predictive data but which also create prescriptive data. This means the system not only

Q: Where do you see the greatest opportunity for Rockwell

warns of potential failures but also allows the customer to

Automation to grow in the oil and gas sector?

take action to avoid failure.

A: We see opportunities in all parts of the oil and gas industry. Rockwell Automation is probably one of the last providers of technology to enter the oil and gas market in

Rockwell Automation supplies integrated oil field automation

Mexico, so our history in the local industry is relatively short,

and SCADA solutions for process control, motor control, safety

despite the fact that our products have been here for many

and asset management in various applications to improve

years as part of the equipment of other suppliers. However,

operations

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VIEW FROM THE TOP

AUTOMATION WITH A SOCIAL FOCUS VICTOR FUENTES Senior Manager Sales and Marketing of Mitsubishi Electric Automation Mexico / Latin America

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Q: How does Mitsubishi Electric differentiate itself in the

principle that guides all its activities: we are a global partner

Mexican market?

and a local friend. This means that all the technology we

A: Mitsubishi Electric Automation is responsible for the

offer, no matter if it is destined for Mexico, Japan or the

factory automation business unit of Mitsubishi Electric

US, is the same; it has the same high-quality and complies

Corporation in Mexico and Latin America. We supply

with the same certifications. Reducing product importation

components and equipment to all industries, and now we

costs plays a big role in allowing us to provide the same

are working to strengthen our focus on midstream and

technology all over the world at competitive costs in each

downstream oil and gas operations. Mitsubishi Electric

market. Our ability to offer competitive costs in Mexico

has been present in the Mexican market for over 30 years,

did not come overnight. The companyâ&#x20AC;&#x2122;s headquarters in

with strong brand recognition due to its state-of-the-art

Japan has been working hard for the last seven years to

Japanese technologies. But starting last year, we expanded

develop a pricing strategy for each specific region in the

our market strategy. We are now looking to increase our

world, and now we can offer top technology at excellent

strategic alliances to create a higher added-value for all our

prices in Mexico. As a result, we are in very good shape in

markets, and specifically to the oil and gas industry in which

the Mexican market, and are planning to increase our share

PEMEX had dominated the field for so long.

in Mexico by 10 percent in the coming five years.

One of our strongest assets is that we do not outsource

Q: How does Mitsubishi Electric work to improve the

the manufacture of our equipment. While many other

Mexican automation industry?

technology providers outsource their production and simply

A: Mitsubishi Electric in Mexico is working hard to create

label the product once it is finished, we do not play that

a complete ROI, not only for its shareholders but also

game. Mitsubishi Electric has production facilities all over the

for the communities in which it works by reducing our

world, even in China, but all are Mitsubishi Electric facilities

environmental footprint and improving our social impact.

that comply with all our requirements and have all the

People tend to believe that automation will take away

certifications we demand. We are the only company in the

jobs, but the truth is that machines cannot work without

world that has a yearly R&D investment of US$2 billion, and

someone supervising the operations. While a simple

our range of products and solutions is a reflection of that.

technology provider would offer the automation solution and end the job there, at Mitsubishi Electric we know

Q: What makes Mitsubishi Electric the best partner in the

that a full follow-up must be performed to ensure that

oil and gas sector?

people operating the technology know how it works, as

A: Mitsubishi Electric provides a single programming

well as its opportunities and limitations. Mitsubishi Electric

environment that allows for the simple and transparent flow

Automation also has Mitsubishi University, which provides

of information. At the same time, we have a robust security

training and activities for our customers across the world,

system that protects all that information. These three

meaning that the content learned by a Mexican worker

elements facilitate knowledge and information transfer not

is the same as that for a worker in Japan or the US. Due

only among the automation components but also between

to the extension and diversity in Mexico, we decided to

us and our clients. Mitsubishi Electric has a very clear

go one step further and create training centers in which business partners of Mitsubishi Electric provide training and knowledge to our customers on behalf of Mitsubishi

Mitsubishi Electric Automation has a history of over 30 years

Electric. We are also launching a scholarship program for

in Mexico. It is a subsidiary of Japan-based industrial giant

public university students so they can receive training at

Mitsubishi Electric Corporation, which operates across several

our facilities. We expect to launch this program by the

industrial markets with an automation product line

end of 2018.

VIEW FROM THE TOP

UNITING OIL AND GAS PLAYERS BY SATELLITE PEDRO HOYOS Chief Commercial Officer of GlobalSat Q: How are you bringing satellite technology closer to companies in the oil and gas industry? A: The oil and gas industry elsewhere in the world is used to satellite technology. For instance, most gas stations in the US are controlled by a satellite network that oversees the behavior and location of transport fleets, measuring important aspects such as the amount of gasoline they are using. Mexico still has many gaps, such as poor terrestrial services, as well as complex regulations that need to be addressed. We see an opportunity in that field. We have worked for almost every demographic, including SMEs and PEMEX. Q: How have your technological introductions facilitated your clientsâ&#x20AC;&#x2122; operations? A: We are offering services on a new frequency under which we can use a new type of technology to provide higher throughputs at lower costs, giving our clients the chance to accomplish more with less money. We can now provide services at a 10th of the previous cost. The only service where prices have not dropped significantly is equipment construction, but we are working on new equipment that our clients in the oil and gas and power generation industries will be able to install in their facilities. Q: What steps have you taken to incorporate Ka and Ku bands technologies into your services? A: Most of our services are offered in Ka band, which is good for faster speeds and lower costs but it is more susceptible to weather, such as heavy rain. We are installing both Ku and Ka band antennas as a complimentary service through which clients can have the Ku band backup and work with Ka band.

GlobalSat , with headquarters in Tijuana, Baja California, is a Satellite Communications leader with a core business supported by over 20 years of experience in the integration, operation and exploration of satellite technologies

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VIEW FROM THE TOP

LEARNING FROM RISKS TO IMPROVE OPERATIONS JUAN CARLOS ANGARITA CEO of IMS Global

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Q: How does IMS Global help companies in Mexico’s oil and

services that deal with reliability, integrity, availability, safety,

gas industry?

serviceability, maintainability and resilience. Additionally,

A: We help organizations become stronger and more

we have specialized services for fire engineering, corrosion

competitive by incorporating best practices, state-of-the-art

engineering, energy engineering and emergency responses

technologies and relevant standards related to risks and by

to different events. We also offer functional safety services,

applying data engineering to improve performance through

which are our most advanced risk-related service. For us, risk

knowledge-transfer mechanisms.

is a transversal tool for our client’s entire organization. I also think that it is important to emphasize that risk is not just a

This is a very interesting time in the field of data engineering.

technical matter; in reality risk is money.

For example, Baker Hughes and General Electric, BP and Conoco Phillips are all using data engineering to improve their

Q: How do you assess the impact of risk on operations in the

operational efficiency and effectiveness. We are working in a

oil and gas industry?

similar fashion to structure improved and high-performance

A: Risk, defined as the effect of uncertainty on objectives,

data management systems for the entire oil and gas sector.

must be assessed considering the achievement of business

One example of such a service is data management in oil

objectives and, also, possible consequences on health,

fields to create an “intelligent” oil and gas field. We can

integrity and quality of life as well as the environment.

also capture data from different segments — upstream,

Impact analyses are custom-devised to determine potential

midstream and downstream — and process that data to

effects on one asset, several of them, or part of one, and

generate operational intelligence. In addition, we can model

its result in terms of replacements or acquisitions, loss of

and perform simulations and forecasting, keeping in mind that

business opportunities, ends for breach of contracts or legal

data is a valuable resource for decision-making. Our core idea

requirements, how it affects the organizational image, even

is to incorporate analytics related to data that help oil and gas

the suspension or closure of operations. In a similar fashion,

CEOs make better decisions under conditions of uncertainty.

probability assessment involves a meticulous review of risk

This is a new approach that is especially helpful in our energy

phenomena in the industry, modeling techniques alongside

industry where there is a great deal of uncertainty in different

the involvement of deterministic, probabilistic and stochastic

segments of the value chain.

approaches. A common mistake here is the use of data, in the calculation of both its probability and consequences, without

Q: How is data engineering related to IMS Global’s risk-

the support of experts.

management services? A: Risk, from our point of view, should not be interpreted as

Q: How is risk culture changing in Mexico?

only performing isolated integrity or reliability analyses. For

A: Our Latin American culture concerning risk and safety

us, risk involves the entire organization, all its processes and

is emerging from a shortsighted approach, which resulted

assets, and the use of different approaches to analyze, treat,

in companies not understanding risk as a business factor in

measure and control it. Our basic risk management service

their processes and limiting their actions to HSE practices

deals with how to incorporate risk management in all an

or integrity or reliability evaluations only. Culturally, we

organization’s processes. Beyond that, we have risk-related

have a negative view of risk as something we do not want to think about, but risk awareness is changing. Companies are aware that risk management is needed to

IMS Global provides specialized knowledge transfer and

improve performance and that risk is related to corporate

evaluation services focused on how to do things better,

governance and decision-making. That is the current state.

transforming risks, increasing performance and enabling

In fact, risk management methods of many companies in

conformance and compliance

Latin America are outdated.

VIEW FROM THE TOP

SMART BUILDING FOR THE OIL AND GAS SECTOR ADRIÁN HERNÁNDEZ Former Director General of Hexagon PPM

Q: How has the industry changed from the perspective of an

their projects will be successful from the very beginning of

engineering software and project control solutions provider?

the engineering phase. In this area our Building Information

A: The Energy Reform has certainly benefited the Mexican

Model (BIM) will be extremely useful. The BIM concept was

oil and gas market. The last five years were hard for the

created in the 1980s but it has not been widely used for

industry, but this was because of global factors such as the

infrastructure projects until now. BIM refers to the capacity

drop in oil prices. Now we can see investment coming to the

of analyzing 3D models and mapping information about

country. This will benefit EPC companies, which are our main

materials and building models to integrate project control

customers, and will therefore help us to get back to business.

in a much more accurate way, before ground is broken.

To properly face the development of the new market and help

Hexagon PPM is not in the business of producing or analyzing

our clients become more successful we have transformed our

the 3D models, but we are working to use the BIM concept

Project Control solution. It is now called Solutions for Project

to allow our clients to have better control in their projects

Performance. The idea for this solution is to fully integrate the

and to have improved capabilities to ensure the project is

execution of projects and base them on cost control. It has

properly executed. At Hexagon PPM, this integrated solution

been implemented by the banking and education sectors.

is called SMART Build. With our solution, project developers

Harvard, for example, is an excellent customer because it has

will be able to map budget, instead of starting the project

hundreds of projects that must be fully managed to ensure

and running out of resources in a matter of months or years.

their success. While the oil and gas sector was recuperating,

SMART Build will allow project development to be carried

we moved into other areas to further develop our solutions

out on-time and on-budget. Although oil and gas is our

and now that the market is becoming more robust, we are

biggest market, we have not yet used the SMART Build

ready to serve it with better solutions.

solution within it. Instead, we are using it in infrastructure, getting to know how it truly works and what capabilities it

Q: How does the fact that Hexagon PPM is a global company

brings to the industry, so it can then be safely implemented

facilitate its business activities in Mexico?

in the oil and gas sector. We expect to do so in 2018.

A: Some of the project developers that are coming into the country are already customers of Hexagon PPM in their

Q: What goals have you settled for the coming years?

own countries. This gives us a strong advantage against

A: 2018 will be a rough year. Due to the presidential

our competitors. Nevertheless, we cannot say that it is a

elections many projects may be put on hold. Nevertheless,

victory, because we have also witnessed that most project

being a strong company, we have set the target of

developers are opening offices in Mexico, and they are not yet

increasing our revenue by 8 to 10 percent during 2018

doing any engineering for project control and performance.

compared to 2017 levels. Then we expect to increase

Those activities are being done in their home countries with

revenue by 12 to 15 percent year-on-year over the next

our solutions. Although we expect them to use our solutions

three years. To achieve these targets, we are putting

later on, it will take time to make the investment attractive

strong emphasis on the SMART Build solution being

for them. To ensure that they use our solutions in the future,

adopted even more in the infrastructure sector, and then

we are approaching those project developers and making

we will jump from there to the oil and gas sector.

sure they know that we are ready to support them. Q: What solution is Hexagon PPM ready to implement in the

Hexagon PPM is the world’s leading provider of enterprise

Mexican oil and gas market?

engineering software and project control solutions, helping

A: Most EPC companies will have to build assets in Mexico

the world work smarter to improve the lives of people through

and with our solutions we can let them know whether or not

better facilities and more reliable operations

297

INSIGHT

DISTRIBUTING COSTS WITH LONG-LIFE BEARINGS NACIP FAYAD Industrial Sales Director Mexico of SKF

298

The Mexican oil and gas sector took a hard hit when crude

potentially make it fail.” When such a state is identified,

prices sank, particularly the manufacturers of original

SKF can not only replace the component under controlled

equipment supplied to PEMEX, says Nacip Fayad, Sales

conditions, but also take it to a remanufacturing center

Director of SKF. “Being an OEM, we noticed a slowdown

that, through special techniques, will extend its life cycle

in public tenders for spare parts starting in 2013, which

period. According to Fayad, when using remanufacturing

became even worse during 2015 and 2016, a time during

techniques developed by SKF, life cycle periods can double

which we saw no public tender present in the oil and gas

and even triple.

market,” he says. “The lack of capital to invest in spare parts was widespread during that period.”

The bearing for life concept is not only valuable for increasing the cost-benefit provided to companies as

According to Fayad, the reduced activity made SKF rethink

the bearings can be used for much longer but also to

its strategy and postpone its expansion plans for its oil and

help companies distribute their costs across longer time

gas-bearing manufacturing facilities. Fortunately, thanks to

periods through what could be considered a maintenance

the Energy Reform and the increasing number of players

contract, instead of punctual purchase orders, says

in the market, an upturn is starting to create the need for

Fayad. “Instead of selling the bearing, we are considering

spare parts. “Although the consolidation of the Energy

providing our customers with a contract that would

Reform is taking longer than we expected, we are noticing

guarantee the full availability of a bearing in optimal

a slow increase in the number of public tenders for spare

conditions, thus allowing them to transfer a one-time cost

parts, which is a direct consequence of the uptake in oil and

into a long-term contract.”

“

gas activities,” he says.

We are considering providing our customers with a contract that would guarantee the full availability of a bearing in optimal conditions”

Bearing for life is a highly attractive concept that requires constant monitoring technologies that are capable of gathering and analyzing Big Data. Fayad says SKF is ready to take on the challenge. “At SKF’s data processing centers we can gather analyses provided by our data acquisition equipment installed all over the world, and from there make the best decisions,” he says. “One of the biggest advantages of this concept is that it is completely digital; it can be controlled from anywhere in the world where our specialists are located.” While many may think that PEMEX is not ready to take the

Considering future global trends, together with the

best advantage of such a top-tier concept, Fayad highlights

reluctance of companies to invest capital in products, Fayad

that the NOC has been active in acquiring the necessary

says SKF is interested in introducing the “bearing for life”

assets to make it possible. “PEMEX used to invest a lot in the

concept to the Mexican market. The concept involves, at its

type of monitoring equipment that could allow us to bring

very core, decreasing the acquisition costs of bearings by

bearing for life into the Mexican market,” he says. He adds

increasing their life cycles. “The bearing for life concept relies

that PEMEX needs capital and technological capabilities to

on life cycle management techniques,” he explains. “These

increase production. “Mexico is a rich country, it has plenty

take advantage of cutting-edge monitoring procedures

of reserves, but if they are buried underground they are not

that analyze the bearing’s entire life cycle behavior to

valuable. The general public has to understand that and

recognize when it is getting close to a state that could

help the country consolidate its Energy Reform.”

VIEW FROM THE TOP

ON-TRACK BUDGETS FOR FAST REGULATORY APPROVAL TRENT MARX President and CEO of Resource Energy Solutions

Q: What is the best moment for a company to start applying

analytical tools. With new players coming on board there

Resource Energy Solutionsâ&#x20AC;&#x2122; software applications?

will be a focus on technologies related to operations data

A: When oil prices were below US$70/b, companies were

management. We are starting to see more awareness of IoT

not as concerned with the adoption of new technologies

devices, sensors and data-gathering systems in the market.

and the digital revolution. Current low prices and competing

The problem is the slow pace of the adoption of innovation

energy resources have amplified the importance of utilizing

in the entire industry. 299

technology and digital information in real time. Stricter regulatory compliance at all stages of well operations and

Q: Do you have any example of your data-management

pipelines to mitigate risk are driving operators to be more

systems contributing to the bottom line of a client?

proactive. Deploying cutting-edge technologies at the

A: With our well data-management solutions our clients

outset can help companies to achieve this goal. RESâ&#x20AC;&#x2122; AFE

have seen increases in revenue and reduced expenses based

Manager, Wellman Next Gen, Midstream Manager and TORC

on their activity. We create operational efficiencies through

software solutions will help companies to cost-effectively

the automation of data entry, reporting and manipulation

manage their operations.

of data, saving upwards of US$500,000 a year.

Q: What are the advantages of using such software versus

Another example is a case study we did in Indonesia with

using Excel?

our budget-management solution, which is being used to

A: In the era of the current oil market, stricter regulatory

manage US$26 billion a year in spending. All the operators

compliance requirements and threats from competing

use our software to track and submit their budgets. Our

energy sources, using Excel to run oil and gas operations

systems are contributing to an increase in production,

is like going back in time. Excel simply cannot handle the

as has been noted by the chairman of SKK Migas, the

explosion of data and its transformation to actionable

Indonesian upstream regulatory entity. Because of the

intelligence in real time. The time to incorporate business

streamlined process, cooperation between the operators

intelligence technologies based on artificial intelligence,

and the regulatory agency is easier. We see an opportunity

data science, IoT and predictive modeling tools for

for a similar system here in Mexico.

sustaining their business is now. Benefits of deploying these technologies include improved data gathering, data

Q: How does your Total Operation, Reporting & Control

analysis, better decision-making, automated alerts and

application contribute to your clientsâ&#x20AC;&#x2122; bottom line?

dashboards at your fingertips, which are all things you

A: This application provides the highest level of well integrity,

cannot get with Excel. Our solutions are more intuitive

by proactively managing all well operations and well-related

and we design them with more computational intelligence

regulatory compliance activities in real time. Operators are

for alerts and notifications. The amount of information

notified of the work that they still have to do, and what is

exploded by three or four times in the last two years and

past due. This can require a large team when done internally.

for the next couple of years this growth will continue. This

Our software ensure timely and cost-effective management

creates a demand for more innovative data collection,

of all well operations, well integrity, mitigation of risks, and

analysis and management solutions.

submission and review of compliance requirements.

Q: What are the most important technological innovations that you are seeing in the oil and gas industry in Mexico?

Resource Energy Solutions provides cutting-edge upstream,

A: There are more solutions regarding automation of

midstream and regulatory activity, compliance and cost-

data and the analysis of information. The companies in

management software solutions to the oil and gas industry and to

Mexico are increasingly using business intelligence and

regulators. Its software suite manages all well-related operations

INSIGHT

SCANNING THE OPPORTUNITIES IN THE SOUTHEAST JUAN HERNÁNDEZ Director General of Zion NDT

300

With international service companies entering the

The company’s experience and its evolution into different

market, it is becoming increasingly important for the

safety segments are part of its added value proposition,

entire Mexican value chain to adapt to their demands

Hérnandez says. Zion NDT started out offering certified

and adhere to higher safety and operational standards,

training but as customers began looking for equipment

says Juan Hernández, Director General of Zion NDT.

recommendations, it transitioned into a distributor.

“PEMEX is now interacting with more companies entering

Finally, as the tools it sold required re-certification, it

the local industry, and as these companies demand

finally integrated the re-certification lab into its business

compliance with certain requirements, soon enough these

model. “This organic growth is a strong asset. We are

requirements will be adopted by the entire local value

involved in every aspect of the value chain and know

chain,” he says.

which specific tool and training will best fit our customer,” he says.

The path is similar to that followed by the aerospace and automotive industries, which were allowed to evolve and

As more companies start providing nondestructive tools,

compete on a global level. “In these industries, major

Hérnandez stresses the importance of providing training

producers started establishing their manufacturing

for the personnel who will use each tool. This is not an

facilities in the country and asking for higher standards,”

added value, he says, but a fundamental component of

Hernández says. “Because the value chain adopted better

the sale. “No matter how sophisticated the tool is, if the

practices, Mexico is now recognized as a major hub for

person misuses it, the testing will be unsuccessful and,

the manufacturing of components for those industries.”

although the equipment may get certified, it will not be safe to use because its real condition is unknown,”

But an increase in minimum safety and certification

Hérnandez adds.

requirements can be directly translated into higher costs for companies and this is something they must

With stricter safety standards implemented in the

bear in mind. “Companies need to take into account the

industry, investors are looking at the entire Mexican oil

CAPEX and OPEX involved in the process of equipment

and gas industry as a safe place to invest. This in turn

and personnel certification to ensure cost-effective

has made owners and operators of already-producing,

operations,” Hernández says.

transporting and distributing oil and gas facilities more attentive to the state of their assets, therefore producing

Hernández uses the example of two specific nondestructive

more work for companies like Zion NDT. “We have

testing technologies that can be used for the same purpose:

witnessed this in the increased number of recalibration

X-ray and ultrasound. “X-ray was commonly used in the

services and equipment requests we have been receiving

industry because it was relatively cheap and its results were

since the beginning of 2017, particularly in the southeast

easy for technicians to understand,” he says. Nevertheless,

region,” says Hernández.

as companies saw that X-rays could potentially cause explosions in specific environments or harm employees

Having witnessed a boom in activities in this area,

due to radiation levels, the market shifted to ultrasound

Hernández says Zion NDT’s goal is to become the preferred

technologies. “Tools that use ultrasound have higher CAPEX

and trusted partner for nondestructive tools, training and

and require more training than those using X-ray, but once

re-certifications in the southeast region. “With two offices

those hurdles are overcome they are much more portable

in Mexico, in Monterrey and Mexico City, we are working to

and their use involves much less risk,” he says. “To provide

open one in Villahermosa before the end of 2018, with the

our customers with the best value in the market we do not

objective of offering a better, faster and more personalized

sell X-ray-based tools at Zion NDT anymore.”

service to our clients there,” he says.

VIEW FROM THE TOP

FILLING IN THE GAPS IN CUSTODY TRANSFER RENĂ&#x2030; VARĂ&#x201C;N President of Tory Technologies

Q: What caused your shift in focus from providing pipeline

under the same laws as in the US, Mexican companies will

metering equipment in Mexico to software technology?

need to be prepared for when such regulation arrives. The

A: Initially when we started exploring the Mexican market,

convergence between US and Mexican regulation is also

our focus from the perspective of business opportunities

evident in the MoU signed by ASEA and the American

was on projects to provide equipment and compact

Petroleum Institute (API) to use API standards and

metering solutions for pipelines and terminals. The

recommended practices in its safety programs. 301

disadvantage we found with our business model was that we were bringing this equipment from Europe and

Q: How has the dynamic regarding PEMEX impacted the

we were competing against US and Mexican companies,

Mexican metering market?

so winning projects was difficult. Pipeline and terminal

A: A very interesting condition in the evolution of the

operators in Mexico have been relying a great deal on the

Mexican market is the fact that PEMEX has been divided

North American industry to provide this kind of technology.

into separate business units and new partners were invited to come into the market. This new business environment

Since my professional background deals more with software

opens opportunities for us. Before, PEMEX owned the whole

applications, we started offering software tools to support

supply chain process, from production to distribution, so

and complement our metering solutions, with the goal of

there was not such a big concern if the product was not

introducing a differentiator into this market. Now we are

accurately measured from production fields to the pipeline

doing not only the equipment but also providing software

or from the pipeline to the terminal. Now, losing product

technology to support this metering technology. That is

means losing money for the business unit.

where we saw sizeable opportunities for Tory Tech. Q: What do you see as the main gaps in terms of delivery Ten years ago in the Mexican market, companies in the

between what is installed and what could be installed?

upstream and midstream sectors built an infrastructure to

A: In the past all these companies in Mexico were under

measure the oil and gas products they were receiving and

one big umbrella, and therefore, they did not place too

moving from production to distribution, but they were not

much importance on measurement systems when they

that concerned nor realized the relevance of the quality or

were moving products from upstream to midstream.

the integrity of the measurement data. At the same time

The first opportunity we see is to replace all these basic

in the US, the main objective was to make sure that the

measurement units with more sophisticated technology

measurement data was really reliable and that it accurately

to really perform custody transfer. All the new facilities

represented what was happening in the field. That mentality

will require this kind of equipment and software to ensure

was not that present in the Mexican market at that time.

that they can manage inventories and balance accounts

Due to the changes in the regulation, Mexicoâ&#x20AC;&#x2122;s oil and gas

accurately. In addition, we also see an important market

industry realized that it is not only important to measure

with pipeline and terminal companies, where they will need

the products but also to ensure that the quality of that

to improve and secure their operations by implementing

measurement is reliable.

Control Room Management. That is where we see the main opportunities.

Q: How are US industry standards affecting the Mexican market for measurement technology? A: The connectivity of new pipelines with the US market

Tory Technologies specializes in advanced applications for the

is putting pressure on the pipeline operators in Mexico to

oil and gas industry. Tory Tech provides innovative solutions for

follow the industry standards applied north of the border.

control room management, flow and measurement management,

Even though pipelines are not fully regulated in Mexico

terminal automation, as well as truck loading/unloading systems

Natural Gas Pipeline, Sonora

PIPELINE CONSTRUCTION, OPERATION & MAINTENANCE

With the Energy Reform well under way, the upstream sector is consolidating, with the high number of contracts assigned resulting in committed wells for both exploration and development activities. For a country that heavily relies on its oil and gas production, these advances are critical to providing energy security. But it is not enough to increase production, as the products must be safely and efficiently transported to facilities for processing, and from there to the final customer.

With that in mind, the expansion of the countryâ&#x20AC;&#x2122;s pipeline system is essential. Initial steps have been taken with the conclusion of the first open auction for pipeline capacity in the northern region together with permits for the installation of pipelines by private companies that will expand the network. Besides expansion, there are also significant opportunities to revamp existing but neglected infrastructure for those interested in investing in the countryâ&#x20AC;&#x2122;s midstream sector.

303

CHAPTER 11: PIPELINE CONSTRUCTION, OPERATION & MAINTENANCE 306

ANALYSIS: Prevention Mindset Needed

308

MAP: Natural Gas Infrastructure and Power Plants

310

VIEW FROM THE TOP: David Madero, CENAGAS

312

VIEW FROM THE TOP: Fernando Calvillo, Fermaca

313

VIEW FROM THE TOP: Nelly Molina, IEnova

314

VIEW FROM THE TOP: Jan Frowijn, ROSEN Group Mexico

316

VIEW FROM THE TOP: Ricardo Cardiel, Latin American Rainmakers

318

VIEW FROM THE TOP: Alejandro Gutiérrez, United Pipeline de México

319

VIEW FROM THE TOP: Donato Santomauro, Bonatti

320

VIEW FROM THE TOP: Martín Toscano, Evonik Industries de México

322

VIEW FROM THE TOP: Carlos Sandoval, Arendal

323

VIEW FROM THE TOP: Carmen Clayton, T.D. Williamson

324

INSIGHT: Oscar González, NDT Global

325

VIEW FROM THE TOP: Luca Romanengo, SICIM Mexico

326

VIEW FROM THE TOP: Alejandro Allier, TAG Pipelines

327

VIEW FROM THE TOP: Edgar Rentería, Sherwin Williams

328

INSIGHT: Oscar Mendoza, GENSA

329

VIEW FROM THE TOP: Rociel Barrera, Diablo Pipeline Solutions

305

ANALYSIS

PREVENTION MINDSET NEEDED With an increase in energy demand, Mexico needs to build new pipelines and revamp old ones to support and cope with the ever-increasing imports of natural gas coming primarily from the US. The Mexican energy market needs to be prepared for the challenges of transporting the amount of natural gas molecules The consolidation of the Energy Reform is not only palpable

While planning Mexico’s natural gas pipeline system, Madero

in the upstream sector, but also in the midstream. Companies

recognizes that the goal posts have moved. “A few years

are looking to capitalize on the opportunities in terms of

back, critical alerts on natural gas supply were the main

revamping old pipelines and constructing new ones. “In

concern due to the lack of infrastructure growth, which

midstream, we are in the midst of the largest expansion our

changed after the implementation of the Los Ramones

pipeline network has ever seen, extending it from 11,000km

pipeline project,” he says. “Now, challenges are related to

to 18,000km to reach more regions of the country,” explains

the drop in local production that leads to more natural gas

Aldo Flores, Deputy Minister of Hydrocarbons at the Ministry

imports as we are reaching our limit for imports capacity.”

of Energy. Beyond the transport infrastructure, more players

306

are entering on the supply and demand sides, creating

Fernando Calvillo, Chairman of the Board at Fermaca, sees

regional hubs, and price liberalization is allowing regional

considerable business potential in installing connections

pricing to form a more dynamic natural gas market. “We

with the US. “Connecting our pipeline system to the US

expect these changes to foster wider distribution coverage

system makes more sense than losing money in producing

across the country, since we are at an early stage in the

gas. In this context, building pipelines will remain a priority,”

development of our new energy model,” says Flores.

he says. However, he adds that CENAGAS’ national pipeline system, SISTRANGAS, is capped due to the lack

NATURAL GAS, OPEN FOR THE INDUSTRY

of investment from PEMEX and CFE, creating the need for

Recognizing the need to provide a secure, reliable and price-

more open seasons.

competitive source of natural gas to satisfy the increasing demand of energy in the different economic sectors of

As the number of players starts rising, Madero wants see

Mexico, the Ministry of Energy created CENAGAS. Four

a thriving industry installing soon-to-be-operable pipelines

years after its creation, in August 2014, the operator of the

that will ensure a reliable source of hydrocarbons across the

natural gas transport system in Mexico established itself as

country. Madero also admits that Mexico’s natural gas industry

a reliable operator of the widest network of pipelines in the

still faces challenges on the journey to allow CENAGAS

country. David Madero, Director General of CENAGAS, is

more autonomy from PEMEX. “We also need to finish our

preparing for the future. “Our ultimate objective is to provide

information and operational technology projects, but we

gas security to the country and we are well under way. We

believe we are on the right track moving forward,” he says.

are aware that private companies will eventually earn larger shares of the market so we need to carry out the projects

A MUCH-NEEDED UPGRADE

we deem necessary, with an eye on budget control and cost-

While international attention has focused on the upstream

reduction practices,” he says.

sector, the expansion of pipelines to distribute and transport

EXPECTED NATURAL GAS DEMAND 2018-2022 (MMcf/d) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2018

SISTRANGAS Source: Ministry of Energy

2019

2020

Non-SISTRANGAS

2021

2022

Potential increase in demand

the produced hydrocarbons is a priority, according to

expenditures and how they can avoid them with regular

Oscar González, Director of Latin America for NDT Global.

pipeline cleaning.” She also admits that this is not an easy

He warns of a much-needed investment in maintaining

task considering the reduced budgets of companies. “As is

the existing midstream infrastructure. “PEMEX’s pipelines

typical in our market, there is always money to repair and

have not been inspected in two or three years because the

inspect, but none for prevention. So, we are trying to change

company does not have the budget to do so. PEMEX is

decades of thinking and channel our clients’ spending

working on a day-to-day basis, fixing emergencies instead

toward prevention instead of replacement.”

of focusing on prevention,” he says. Jan Frowijn, Director General of Rosen Group Mexico, shares that view. “There

NEW OPPORTUNITIES

is a lot of focus on expanding new pipelines but the

As the potential for revamping the old and installing new

emphasis should also be on maintaining the legacy system

pipelines for natural gas has been assessed, players in the

as effectively and efficiently as possible.”

industry are also looking at new ways to make business. IEnova, a company that has been committed to the country

González says the industry should naturally evolve while

since its creation and that has invested heavily in the

simultaneously gathering and analyzing more information

deployment of gas, oil and ethanol pipelines is looking at

to ensure that pipelines are always available. “Pipeline

new business opportunities brought about by the changes.

inspection technologies have improved globally over the

“We see a great market opportunity in the development of

years. The industry got better at analyzing and controlling

liquid product pipelines,” says Nelly Molina, the company’s

typical problems, which paved the way for integrity

CFO. “There is a need for infrastructure to serve the growing

inspections, such as detecting cracks, stress corrosion and

demand of a 120-million-person market and an inherent

mill defects,” he says. “Every year we are finding different

necessity for an open and economically viable liquid

defects that require more precise measurement mechanisms

fuels market in the country.” With ambition to find new

and more advanced technologies.”

business opportunities Alberto Escofet, Regional Manager of Enagás México, talks about the potential in the country

Rociel Barrera, Director General of Diablo Pipelines, is using

to implement new solutions to old problems. “Mexico has a

these technologies to bring a preventive maintenance

huge potential that has yet to be tapped in the distribution

approach to the industry, as well as to educate its clients

and transportation of natural gas because there are many

about the advantages this approach provides their

regions where the hydrocarbon is not yet available through

operations. “Beyond the cleaning and repair of pipelines, we

physical pipelines.” One of the solutions he proposes is the

are trying to make our clients understand the importance of

use of virtual pipelines. “Virtual and physical pipelines have

the integrity of the whole system. Pipeline integrity involves

different purposes and market justifications that can be

everything related to the pipeline,” he says. “Some of our

complemented,” he says. “With the help of virtual pipelines,

potential clients are spending millions of dollars every five

regions where natural gas had a limited presence will start

years because they fail to clean their pipelines regularly.

to see the benefits of using such a fuel over other options,

We are trying to make our clients more aware of these

particularly for power generation.”

NATURAL GAS IMPORTS IN 2017 PER CROSSING POINT (MMcf/d)

1,600

1,896

2,000

Source: Ministry of Energy

22 Reynosa

48 San Isidro

Piedras Negra 22

113 Sásabe

Mexicali

142 Argüelles

Ciudad Juarez

180 Ciudad Juarez Gloria a Dios

241 Río Bravo

329 Los Algodones

234

310 Ciudad Mier

Ciudad Camargo

400

Reynosa

535

800

Agua Prieta / Naco

1,200

307

NATURAL GAS INFRASTRUCTURE AND POWER PLANTS

Ros arito 534

El E nci no

Paso Norte

Naco - Hermosillo 110 (SISTRANGAS)

1,3 56

Samalayuca - Sasabo 472 Samalayuca 492

Tarahumara (Chihuahua Corridor) 850

Son ora 7 70 (Sasa b e Guay m a s) Feeder Hermosillo 100

Oji naga -

40 TGN 9

Feeder Empalme 226

no ci

po 67 0

n El e -L a

308

a lo b opo

51 0 - E lO

S ua ono ym ra

La gu n

a1 ,5 00

) ro

SISTRANGAS 6,322

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Pipelines to be tendered by CENAGAS Pipelines proposed by companies Pipelines under construction Private pipelines Pipelines operated by CENAGAS *All quantities in Mcf/d Source: CENAGAS, Natural Gas Intelligence www.NatGasIntel.com/Mexico

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234

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VIEW FROM THE TOP

PROVIDING MEXICOâ&#x20AC;&#x2122;S GAS SECURITY DAVID MADERO Director General of CENAGAS

310

Q: What steps must CENAGAS take to move forward and

Q: How do you maintain a positive balance sheet and

what are its top priorities?

what are the main challenges you perceive in the market?

A: We have been operating since August 2014 and have

A: Our ultimate objective is to provide gas security to

grown to over 350 employees, with a focus on recruiting

the country and we are well under way. We are aware

young talent. We remained profitable in our first two

that private companies will eventually earn larger shares

years of operation, providing a dividend to the federal

of the market so we need to carry out the projects we

government while maintaining our own capitalization

deem necessary, with an eye to budget control and

of around MX$1.7 billion. We want to build a strong

cost-reduction practices. A few years back, critical

balance sheet that will enable us to raise investments in

alerts on natural gas supply were the main concern due

proportion to our income and to have a solid portfolio of

to the lack of infrastructure growth, which changed

assets. On the operational side, we have already signed

after the implementation of the Los Ramones pipeline

four contracts under the new regulatory framework and

project. Now, challenges are related to the drop in local

we are about to sign another for pipeline operation and

production that lead to more natural gas imports as we

maintenance that will come into effect in 2018.

are reaching our import-capacity limit.

CENAGASâ&#x20AC;&#x2122; Five-Year Plan 2015-2019 looks to provide Mexico with 12 natural gas pipelines, totaling 5,159km and an estimated investment of US$9.8 billion

On the positive side, there are many pipelines being built right now and they are close to starting commercial operations. Once this happens, we will enter an era of larger transportation capacity than demand, which will be good for gas security but financially challenging for transportation companies. We are aware that the best way to cope with these challenges is to raise the availability of natural gas so more consumers are connected to the pipeline.

We are also on our way to maturity as a TSO through

Q: What factors contribute to a positive supply-demand

contract renewals, maintaining our contract-signing

balance and where do your main customers come from?

pace and being involved in the first tender for storage

A: The first thing that must be done is to boost demand

capacity this year. The natural gas industry has

for natural gas and power generation capacity in Mexico.

progressed in transportation since molecule prices

The local price of natural gas has fallen in comparison to

were deregulated and this has incentivized operations.

other fuels, mainly driven by international prices, which

We still have challenges ahead, such as reaching our

has made it more desirable to connect to the pipeline.

strategic objectives and growing to become even more

There are still many auxiliary costs and this remains a

independent of PEMEX. We also need to finish our

challenge. When it comes to our customer breakdown,

information and operational technology projects, but we

40 percent comes from power generation, 20 percent

believe we are on the right track moving forward.

from the oil and gas industry and 40 percent comes from industrials and local distribution companies, which has traditionally grown more slowly but it is in a better position

CENAGAS , created in 2014, is a decentralized organism that

now thanks to regulations from CRE. CENAGAS has always

plays two roles: manager of the Natural Gas Integrated National

been a customer-oriented institution and we value their

Transportation

satisfaction over any other thing. We want clients to have

and

Storage

System

operator and procurer of its own pipelines

(SISTRANGAS)

and

the best quality standards and good consumption systems.

Q: What trends will reshape your contract-signing

process, particularly companies in the US and Canada

capacity under the new market conditions?

that have longer experience in this type of activity. We

A: We see three major trends in related to contracts

will publicize this project so companies can look at it and

moving forward. First, larger participation to maintain the

express their interest before the end of 2018.

same amount of capacity and increase our contract base substantially. Second, we also foresee a larger number

Q: What would you like to achieve by the end of 2018

of market-based contracts for maintenance and field

and in the coming years?

operations, which we expect to grow to 40-50 percent of

A: By 2025, as a transportation company, we want to

our total pipelines over the coming years. The third trend

be among the Top 25 percentile of companies in safety,

is longer term firm-based capacity contracts. Despite

reliability and profitability. As a TSO, we want to stand

the construction of more pipelines that could bring new

out as an international reference for how things should

opportunities for our clients, we are signing longer contracts

be done following best international practices. Before

with them. We plan to build long-term relationships with our

2020, we want to have a system where final users get

clients and we are eager to keep moving in that direction.

open access to gas and feel that they are receiving modern standards when they acquire gas transportation

Q: How will these market-based contract schemes

services. By the end of 2018, we want to have the best

transform your relationship with PEMEX?

renewal contract process and increase import capacity

A: The initial maintenance and field operations contracts

on the Mexico-US border, increase gas availability to

were signed using previously-established prices with

Mexico’s southern states, revamp our gas compression

PEMEX based on its needs and costs. During 2017, we

plant in Cempoala, and start the tender for a new gas

tendered four contracts under the new market conditions

compression plant in Michoacan.

and we received substantial participation from the market and better economic terms. Two of these contracts were awarded to PEMEX and the other two to private companies. However, I believe PEMEX will lose interest in this type of business as time goes by.

CENAGAS' STRATEGIC UNDERGROUND STORAGE TENDER

Q: How does CENAGAS meet the demand for natural gas in the ZEEs? A: First, we assess the number of potential customers in the ZEEs to understand their marketability. These zones

Phase I – Data Room Opening (May – June 2018)

will have gas availability as a public policy objective. We started with the ZEE in Guerrero-Michoacan and we are working on the engineering side of the project for a new

Phase II – Selection Process (June – August 2018)

compressor station. This will increase gas availability along the shores of these states for the companies that will require more natural gas for their industrial processes.

Phase III – Bidding Bases Preparation

This is an illustrative case of what we will do in the ZEEs to secure or increase the availability of gas in these zones and reach end consumers.

Storage Service Bid (4 to 6 months in length)

Q: What are your prospects for storage capacity and when will you tender new projects in this segment?

In line with its attribution to coordinate the

A: We have received a mandate from the Ministry of

development of the natural gas strategic storage

Energy to build 45Bcf of strategic storage capacity by

infrastructure, CENAGAS announced in January

2026 to face potential setbacks for gas in Mexico. The

2018 the first bidding process of four fields ruled

ministry already set a target to tender the construction of

as economically unviable by CNH for hydrocarbon

10Bcf of storage capacity by the end of this year, which

production: Acuyo, Brasil, Jaf and Saramako. On

is challenging. We have identified four different fields

May 14, 2018, CENAGAS published the statistic

whose information will be available in CNIH’s data room

characterization models of each field in CNH’s data

for interested companies to nominate the best project.

room for consultation by the interested parties. The

These nominations will provide us with feedback to assess

proposal submission period was established between

what project to tender. We believe that many companies

June 1, 2018 and July 30, 2018.

carrying out gas storage could be interested in this

Source: CENAGAS

311

VIEW FROM THE TOP

COMPRESSION AND COGENERATION TO MEET RISING DEMAND FERNANDO CALVILLO President and Chairman of the Board at Fermaca

Q: Why is Fermaca’s cogeneration business the best option

The only way to supply that additional amount to gas-fired

for its clients?

facilities is natural gas. The drawbacks of the alternatives

A: Fermaca expanded its business to natural gas

make natural gas the ideal candidate.

compression with a cumulated operational 170,000HP

312

compression capacity at its Chihuahua and Soto la Marina

On the consumption side, the US spends US$2.75 per

compression stations. Additionally, it is developing close

million BTU produced, while Mexico spends US$4.

to 90,000HP of compression in La Laguna, Aguascalientes

Connecting our pipeline system to the US system makes

and San Luis Potosi. Our compression investments respond

more sense than losing money in producing gas. In this

to our long-term vision and the anticipated increase in

context, building pipelines will remain a priority. CENAGAS’

natural gas demand. Fermaca wants to continue providing

national pipeline system, SISTRANGAS, is capped due to

high-quality, cost-competitive natural gas as established

the lack of investment from PEMEX and CFE, creating

in its long-term supply contracts with companies such as

the need for more open seasons. This places Fermaca in

CFE. Fermaca has 2,150km of pipelines with free capacity,

an ideal position to partner with CENAGAS and build an

including Roadrunner, Tarahumara, Palmillas-Toluca and

interconnected and independent natural gas system on par

El Encino-La Laguna. We are also developing La Laguna-

with the country’s needs.

Aguascalientes and Villa de Reyes-Guadalajara. Q: What are Fermaca’s ambitions in gas transportation Cogeneration is the next step. Combining our steam surplus

from Texas to central-west and southeast Mexico?

and our available turbines with additional investments, we

A: Our asset business is looking to set a foothold in an

could provide an estimated power generation capacity

increased number of interconnections within SISTRANGAS

of 100MW based on the assets set to be operational

to extend our gas distribution capacity. We want to

by April 2019. Upgrading our natural gas corridor to an

distribute gas further down in Mexico’s central belt and

energy corridor provides the opportunity to transform and

southern regions and connect our 1,164km operational

adapt natural gas to several other applications, such as

system, with a transport capacity of 3,086MMcf/d, to our

petrochemical, fertilizing or kWh production.

127km Palmillas-Toluca pipeline. Our priority for 2018 is to finish our deployed system in Mexico’s northern region and

Q: How is Fermaca preparing its transition from pipeline

to focus our development efforts on the south.

developer to operator? A: The state of Texas operates close to 90,000km of

Q: What key features does Fermaca look for in potential

pipelines. Mexico’s current natural gas pipeline infrastructure,

partners?

including the projects the current administration developed,

A: Our international expansion in the US shows how

amounts to 20,000km of pipelines. Regardless of the

Fermaca chooses its partners and closes successful

results of the presidential elections, Mexico’s 130 million

business partnerships. To date, we have made investments

population will still require energy. Projecting a conservative

in the US in the vicinity of US$600 million, through our

scenario of 1.5 percent GDP growth over the next six years,

joint venture with ONEOK. The rationale behind this was

the country will need an additional 55,000MW of energy.

finding a reliable partner that understands the intricacies of building pipes, permitting procedures and reducing risks, which ONEOK provided. The results of CFE’s

Fermaca is a Mexican energy company. It specializes in providing

tenders demonstrate that Fermaca provides Mexico’s

natural gas solutions to the midstream segment. Fermaca’s

most competitive OPEX, CAPEX and NPVs. Efficiency

professional team can develop projects from conception to

and competitiveness is the name of the game, which our

completion, managing engineering, financing and construction

engineering and procurement capacity provide.

VIEW FROM THE TOP

DIVERSIFICATION THE KEY TO SUCCESS NELLY MOLINA CFO of IEnova

Q: IEnova has been in Mexico since 1996. How are you

airports still need a reliable and secure source of jet fuel.

positioned today?

I think we may have the opportunity to take part in the

A: We see ourselves as first movers in Mexico. We went from

development of that infrastructure, similar to what we are

being the first private company working in the midstream

now doing in the gasoline and diesel markets. Since January

sector for both liquids and gas, to being the first energy

2017, we have executed five contracts for liquid fuel storage:

company listed on the Mexican Stock Exchange, our

three with Valero Energy, one with Chevron, and the last

commitment to Mexico is clear. Today we are one of the

with another world-class company. 313

largest private energy companies in Mexico. Nevertheless, it must be pointed out that for liquid product After being awarded the first permit for natural gas

pipelines to be effectively developed in Mexico, regulation

distribution in Mexicali, which represented an investment

may need to be adjusted to recognize who absorbs the

of US$20 million for the company, IEnova has grown its

inherent and associated risks of those projects.

total assets to US$8.4 billion as of March 2018. We have added a significant amount of investment by developing

Q: How important is the Sur de Texas-Tuxpan submarine

greenfield projects and through acquisitions. As a matter

pipeline for the country?

of fact, acquisitions have represented around 30 percent

A: We won this project in a transparent and competitive

of our growth during the last three years.

CFE auction, and we are developing it in a 40-60 percent JV with TransCanada. The pipeline will provide the country with

Our entire portfolio of projects provides an unleveraged IRR

additional direct access to natural gas from the US. Natural

of 9-11 percent, nominal, in US dollars and after taxes. The

gas demand has been increasing over the past five years,

diversification of our portfolio, in terms of both assets and

and we expect it will keep growing as power generation

customers, has been a key element to our success since it

becomes more dependent on this fuel. TransCanada is in

has ensured that our total IRR remains in our target range.

charge of the development of the project, and we expect it to start operations by the end of 2018.

In addition, IEnova went from depending on a single asset for more than 50 percent of its adjusted EBITDA generation

Q: Why did IEnova choose TransCanada as its partner for

to now having a broad portfolio, of which transportation

the project?

represents around 50 percent. This allowed us to grow

A: Our partnership with TransCanada is creating

adjusted EBITDA from US$300 million in 2013 to US$759

positive synergies because we have invested similarly

million in 2017.

in the country and have a long-term commitment to the economic development of Mexico and its energy industry.

Q: What potential does IEnova sees in the development of

When we look for partnerships, our objective is to find

pipelines and storage terminals for liquid fuels in Mexico?

complementary skills that we may not yet have developed

A: We see a great market opportunity in the development

ourselves. In the case of the Sur de Texas-Tuxpan pipeline,

of liquid product pipelines. There is need for infrastructure

we needed a partner that had previous experience in

to serve the growing demand of a market with 120

building marine pipelines.

million people and an inherent necessity for an open and economically viable liquid fuels market in the country. Beyond the clear need for pipelines to distribute and

IEnova , one of the first private companies to invest in the

transport gasoline, we also see a large market opportunity

Mexican energy sector, has made significant investments in

in jet fuel delivery to airports. This fuel is only delivered via

the countryâ&#x20AC;&#x2122;s infrastructure for hydrocarbon transportation,

pipeline at the Mexico City International Airport, and many

distribution and storage, as well as electricity generation

VIEW FROM THE TOP

KEEPING PIPELINES GOING FOR THE LONG TERM JAN FROWIJN Director General of the ROSEN Group Mexico

314

Q: What needs to change for new technologies to be

our bills. I think one current problem is the domino effect

accepted more quickly in the Mexican oil and gas market?

resulting from issues within PEMEX. We also see this with

A: In some parts of the Mexican market there is a reluctance

some of our subcontractors, which have had a very hard time,

to make decisions and try new technology. In other words,

and in some cases are on the brink of going out of business

there is risk avoidance in terms of people sticking to what

because of work that has been done for PEMEX but simply is

they are used to and not looking for new or better ways of

not being paid. PEMEX’s decision-making process still obeys

doing things. But budget is another factor that remains a

to factors outside of a purely technical standpoint. There

constraint not only on the liquid side, but also with some of the

is a prevalent misalignment between the NOC’s long-term

natural gas pipeline operators. In times of budget constraints,

vision, highlighting the strategic asset that pipelines represent,

decisions are often made to create short-term savings rather

compared to its short-term decisions.

than invest in the mid to long term. Although there are some very good examples of operators where this is not happening,

Q: How do you rate the Five-Year Plan created by CENAGAS

other operators have more of a short-term focus rather than

for pipeline networks?

a mid to long-term plan with regard to pipeline systems,

A: CENAGAS’s Five-Year Plan conveys a completely different

integrity and performance.

approach from what we have seen in the past. I think this plan really recognizes the importance of the PEMEX natural

Q: What is your opinion regarding PEMEX’s budgetary

gas legacy system for the country’s energy security. There is

constraints, particularly on maintenance?

a lot of focus on expanding new pipelines but the emphasis

A: PEMEX is in a difficult situation and we are trying to support

should also be on maintaining the legacy system effectively

the NOC wherever we can. It is a very good customer for

and efficiently operating the system.

us and has been for more than 20 years. It is not in our nature to just drop a company because of its restructuring

We have been working with CENAGAS and we see a very

and budgetary issues. We will support PEMEX in prioritizing

structured approach to prepare a system for further growth

activities in its budget and in working with the people of

and catering to demand in the future. We also see a very

PEMEX who are responsible for the integrity of pipelines

structured approach that is focused on the safety and integrity

on a day-to-day basis. Together, we are trying to make the

of the natural gas distribution system. I have less experience

best decisions and spend the money that is available in the

with distribution systems and more experience with natural

smartest way possible. Effective operational expenses and

gas transmission, but there is clearly an approach that tries

budgets are the name of the game. The results we see now

to embrace international best practices and the experience

in the Mexican oil and gas industry are basically the result of

that has been brought into Mexico by international operators.

working with PEMEX in the past. I think that is something the industry as a whole needs to appreciate.

Q: How can industry regulators and private players work together to materialize this plan?

That does not mean that it is easy working with PEMEX.

A: For an industry to be successful, it is imperative that all

The payment terms are extremely long. Ultimately, we are

stakeholders, private investors and regulators included, work

also a business, not a charity, and we need liquidity to pay

together in the industry. Past experiences outside of Mexico attest to it. The closer all interested parties work together, looking at short and midterm opportunities, the better

The ROSEN Group is a worldwide provider of cutting-edge

the stage will be set for long-term success. Operators, gas

solutions in all areas of the integrity process chain. Innovation,

shippers, regulators, service providers and strong industry

expertise and a strict orientation based on customer needs are

organizations within the natural gas industry are all key pieces

the keys to ROSEN’s unique success story

of the puzzle. Effective regulation is the bedrock on which

these efforts must build up a prosperous industry. ASEA has done commendable work with regards to implementing a regulatory framework that is shifting from prescriptive to performance-based regulation. Q: How has ROSEN been able to work with multiple stakeholders? A: It stems from our capacity to attract and consolidate a team of expert professionals with strategic hires that know full well the inner workings of the market, with the right skills to work with different stakeholders in the market. We always make a point of maintaining a continuous discussion not only with our customers but also with operators about our technologies and the services we provide. In some instances, the seeds of a fruitful business can be enclosed in bringing support to other stakeholders that are in the same boat. ROSEN remains committed to supporting the industry in Mexico. Our capacity enables us to work with all the companies involved to bring the project to fruition. Different interests and points of view may arise between construction companies, operators and pipeline owners working on the project and the stage of the latter. Sometimes it is a challenge for a service provider to act as the bridge between companies and organizations with different interests. We had a project in which we started with a conference call and we invited three people, who also invited more stakeholders. What started as a conversation between three people ended up with 40. Obviously under those circumstances it is impossible to make decisions. I think to be successful in Mexico a company needs to have a local presence. It needs to understand the different players in the industry and how to get people to work together. In our particular case, we believe technology is the best bridge to close these gaps between the different stakeholders in a project. We try to distance ourselves from the politics around projects and focus on the technical elements, and the technology that is best-suited to each projectâ&#x20AC;&#x2122;s specificities. That makes it easy to create a common platform because in the end everybody is interested in contributing to a technical discussion that can provide a pipeline that operates safely and creates a return on investment. Q: How does ROSEN want to impact the Mexico oil and gas industry in the future? A: First of all, by continuing to introduce new technologies into the market. For instance, in 2018 we launched a technology that allows you to identify the grate of the steel along the entire length of a pipeline and MFL technology to detect the level of corrosion. Everything we do, staying true to our company motto, is rooted in approaching our customerâ&#x20AC;&#x2122;s empowerment from a technological standpoint. We will continue to do our part in the Mexican industry by showcasing our international experience.

315

VIEW FROM THE TOP

FUEL, OXYGEN AND SPARKS FOR THE MARKET RICARDO CARDIEL CEO and General Manager of Latin American Rainmakers

Q: In which segments is Latin American Rainmakers seeing

a financial structure to support these requirements during

greater demand for its business catalyst services?

the exploration stage is also one of our strengths. Our

A: The Energy Reform unlocked several areas of opportunity

specific scope within the oil and gas ecosystem involves

in every sector within oil and gas for companies to set a

supplying solutions for the new liquid storage systems in

market foothold and to create the positive results that are

the pipeline.

critical to the country’s development and GDP growth. 316

Exploration, project finance, power generation and

We work together with partners, O&Ms and technology

human capital are only a few of the noteworthy niches.

firms to provide tailor-made solutions depending on the

Latin American Rainmakers is analyzing several points

kind of project we are involved in. Our project portfolio

of the reform where we can take advantage, primarily in

is quite diversified and the specific needs of each are

power generation, infrastructure and business structure

equally varied. Latin American Rainmakers has developed

development. Our core business is to analyze the new

long-standing relationships with various major EPC

projects emerging as a result of the reform and their context

companies in Mexico.

— technology, construction, commercial plan, regulatory/ legal, permitting and project finance. Five key ingredients

Q: How does a business developer consolidate a network

must be present to ensure a project’s success: mastery of

of reliable partners?

regulatory and environmental framework, a robust project

A: Our constant starting point is to map out all levels of

finance plan, adequate technology, an impeccable EPC

every opportunity that comes our way, finding the key

track record and a closed commercial agreement. Once

players in every link of the business chain specific to each

all these elements are consolidated into a ready-to-build

project. Rome was not built in one day and the same can be

project, then we go out to raise the required capital for it.

said of our network. We reap the seeds we sow from long-

That is our essence and how we summarized our business

standing relationships with managers who became C-level

development philosophy.

executives. Latin American Rainmakers has grown parallel to its network members, including investment banking,

Q: How does Latin American Rainmakers profile the right

equity funds, power generation firms and petrochemical

project for its skillset?

companies. It is a constant effort as we also look to work

A: Power generation presents attractive opportunities,

with new players with which to launch the same long-term

particularly in terms of distribution. Private newcomers

dynamic, particularly end users and financial entities.

to the market require power supply for their facilities, a requirement we can support. In the first stage, we can

Q: Where are the new waves of capital flow heading to

provide temporary power generation solutions while they

within the oil and gas sector?

conclude their interconnection to the grid. Next, we can

A: From our point of view, capital is moving in the direction

offer power supply services in different ways. We are not

of infrastructure projects with inherent attractive IRRs,

limited to selling power generation plants and can also

provided by the long-term arrangements available. Some

propose alternatives to our customers, such as avoiding

companies are more inclined toward risk-taking and focus

high CAPEX by selling kWh instead of equipment. Design of

their attention on upstream projects. Latin American Rainmakers focuses on hedge funds, equity partners and investors searching for measured and more conservative

Latin American Rainmakers is a socially responsible company

returns. In that sense, the IRRs of infrastructure projects

with over 20 years of technical experience in procurement,

are easier to measure, quantify and secure. For us, the

engineering, design, installation and maintenance of power

essential factor of the oil and gas value chain has two major

systems and a new sales pipeline solutions division

components: power generation and pipeline networks, both

for natural gas and crude oil, including gas compression

A: Latin American Rainmakers always makes a point of

systems and stations. In the medium term, we expect

crafting real value propositions that can permeate any sector,

several companies will be providing these services under

not just oil and gas, power generation and renewables.

long-term contracts, acting as an open door of opportunity

In the oil and gas sector, we have a lengthy history of

for investors in infrastructure projects valued anywhere

providing equipment, pipeline systems, valves and metering

between US$5 million and US$200 million.

solutions for day-to-day operations. In power generation, we offer cogeneration and energy efficiency solutions.

Q: How intertwined are Latin American Rainmaker’s

We continuously survey the market for new developers,

electricity and oil and gas business portfolios?

providing support, advisory services and financial solutions

A: Those industries have evolved in parallel for a long

to align their business model to Mexico’s market reality and

time in Mexico. Our core business from the outset was

accomplish their goals. We are consolidating a coaching

focused on industrial systems and power generation with

portfolio for newcomers or companies looking to expand

conventional plants using oil and gas. By 2009, we had

toward unfamiliar territories with project finance, capital

our first renewable project, a wind farm in Oaxaca. As

raising and investor attraction services.

time went on, several other renewable energy projects were launched, especially as PV solar systems became

Q: What are Latin American Rainmakers’ goals for the near

increasingly business sound and economically competitive.

future?

Looking ahead, we believe our economy will remain largely

A: Our main goal is to provide effective solutions and

dependent on oil and gas for the next 30-40 years. Yet,

consolidate our market foothold regarding the myriad

these finite resources will decrease over time and the core

opportunities, both present and future, within the oil

business of that sector’s major players, such as Chevron

and gas industry. We want to be the gold standard of

an ExxonMobil, is energy, not oil and gas. As long as these

business development structuration projects. Our business

big players keep the lion’s share of their business directed

development philosophy, a guiding principle of our growth,

toward the latter, however, many opportunities will remain

follows combustion principles: fuel, oxygen and a spark

within the oil and gas sector.

are all necessary. All three are essential and irreplaceable for combustion to occur. In the same way, mapping the

Q: Are you developing any new services for the oil and

fundamental elements that detonate a bankable project is

gas sector?

our main strength.

317

VIEW FROM THE TOP

INVESTING BELOW THE RADAR ALEJANDRO GUTIÉRREZ Director General of United Pipeline de México

318

Q: What principal capabilities is United Pipeline de México

requiring an upfront investment on their part.To put things in

developing?

context, we started the rehabilitation process on the 30km

A: Our business has two components. On the one hand,

twin-pipeline system last summer and less than a year later the

United is a specialty service provider with a robust proprietary

infrastructure is operational. This would have been impossible

corrosion protection platform coupled with infrastructure

to achieve through other means considering the right-of-way

construction and rehabilitation services. On the other hand,

challenges through swamps, rivers and populated areas. This

we have an investment vehicle called Miller Infrastructure

project spearheaded our pipeline rehabilitation strategy

Group where we identify opportunities that address market

by breathing new life to decommissioned infrastructure in

inefficiencies that take advantage of Mexico’s Energy Reform,

a fast, safe and cost-effective manner. Having the financial

opportunities where we are in a prime position to leverage our

horsepower to go after these opportunities and connecting

technology and expertise.

the dots between market inefficiencies and our technology is a formula that will continue to make a difference in our

An example of one of these opportunities is a project we

future strategy.

secured in partnership with Artha Capital and Arendal, where we invested US$34 million in rehabilitating a pipeline

Q: What opportunities are you seeking in Mexico as investors?

system that had been written off. The pipeline system was

A: Opportunities in the Mexican energy market run deep and

in an extreme state of deterioration and the options for

wide; the market has become a type of modern era gold-rush.

our customer were limited in terms of time and money. By

The Energy Reform opened up major opportunities in every

connecting the dots between our technology platform and our

facet of the market and there are many spaces in which one

customer needs, we were able to bring these strategic assets

can participate and innovate. Nonetheless, not everything that

back to life in record time and in a cost-effective manner,

shines is gold. There is the obvious sausage in a dog-pen type

yielding a compelling combination from a financial standpoint.

opportunity with a low barrier to entry attracting a high level

Our customer was financially constrained and disincorporating

of competition, such as fuel terminals and some distributed

this asset would have been complicated and time consuming.

power solutions. There are other market spaces that are

By developing a 25-year Rehabilitate-Operate-Transfer project

not so obvious. These are below-the-radar opportunities

structure, we were able to reach an agreement and provide

that are difficult to identify but are more compelling from a

the services our customer required within the project’s

value standpoint. With more than 25 years of experience in

constraints. With this infrastructure, we will provide our

Mexico, we have good insight into where there is room for

customer with CO2 transport services for the next 25 years

improvement in everything from logistics to the upstream,

where the CO2 is used as feedstock for a fertilizer plant. At the

midstream and downstream markets. Below-the-radar market

end of the contractual period, the assets will be transferred

inefficiencies are where we see value and opportunity.

back to the customer. From the customer’s perspective, we converted a CAPEX problem into an OPEX item that is well

Q: What is your opinion of the general condition of pipelines

within their cost structure. We solved the customer’s CO2

in Mexico?

transport needs in a technically and financially viable manner

A: The general standards have dramatically improved in

faster than any other option available in the market without

the past decade. Companies like IEnova, TransCanada and Fermaca have raised the bar in terms of quality, time to market, safety and construction methods. A challenge that

United Pipeline, a subsidiary of Aegion Corp, is a global leader

will have to be resolved is the growing problem of fuel theft.

in high-performance thermoplastic internal pipeline liners and

In the mid and long terms, the industry will have to do more

pipeline integrity solutions. It has installed over 16,000 miles of

to secure pipelines through technology, aerial patrolling and

the Tite Liner system, with operating pressures up to 7,500psi

enforcement.

VIEW FROM THE TOP

BRANCHING OUT FROM MIDSTREAM TO UPSTREAM DONATO SANTOMAURO Country Manager Mexico of Bonatti

Q: What lessons has Bonatti learned from its projects

Q: Having had problems in the past with the permitting

in Mexico?

process, how has this improved in 2018?

A: Our first projects in Mexico have been with clients

A: Although Bonatti does not typically deal with major

such as TransCanada and IEnova. We elevated our QHSE

permits, our work has been affected multiple times due

standards to comply with our clients’ requirements and

to delays with the permitting process. In recent years,

we improved collaboration with local firms. To this end

we have seen a consistent effort to make this situation

we invested significantly in Mexico by establishing a

less problematic for our clients and we are confident

logistics hub in San Miguel de Allende. The hub includes

that a stronger collaboration between the government,

a facility for prefabrication activities and the storage

our clients and companies like ours will help align the

and maintenance of most of our machinery and heavy

interests of all in order to deliver the projects within the

equipment. We plan to move some of our engineering and

expected time and budget.

procurement personnel to San Miguel de Allende to better support our projects. The city is centrally located and our people can easily move to the projects that we have today or to other areas where we expect to be working, such as the north of the country. Our hub is now a key facility for our activities; we have learned that by anticipating our clients’ needs we make a difference in the market. Our first projects in Mexico ranged from pipelines to the deployment of compression stations and our intent now is to

Bonatti’s project portfolio in Mexico includes the Ramones & Frontera and Tuxpan compression stations, and the Tuxpan-Tula, El Oro-Mazatlán and El Encino-Ojinaga pipelines

expand our business to other activities, such as developing storage terminals and upstream and O&M services.

Q: How do you build your strategic alliances in Mexico and what characteristics do you look for in other

Q: Why consider upstream services when that is not a

companies?

business unit typically associated with Bonatti?

A: Most infrastructure projects entail high risk. We seek

A: We see many areas where a third party can come in

to diversify that risk by bringing in another company or

and help oil and gas producers optimize their production.

partner that can complement our offering with specialized

We see this as an opportunity for Bonatti because we

capabilities. For example, although we have an engineering

offer a wide range of services for marginal fields and

capability of around 40 professionals here in Mexico, we

remote wells that combine EPC and O&M expertise to

sometimes rely on specialized international and local

provide production optimization solutions. Our approach

engineering companies to provide additional expertise.

allows the client to move its costs from CAPEX to OPEX by sharing costs and responsibilities with the contractor.

A key piece of our strategy is to benefit from engineering

This unit has proven successful for us in other countries

and construction firms that have already worked with

and we wish to expand this knowledge to Mexico.

international clients.

In upstream, we support the operation at the wellhead by installing equipment that helps pump natural gas and

Bonatti is an international general contractor for the oil and gas

oil to optimize production. Additionally, our early stage

and power industries. Bonatti international experience includes

approach helps clients start production more quickly

the execution of challenging projects under the most critical

using tailored equipment.

environmental and logistical conditions in remote locations

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VIEW FROM THE TOP

NORMS DEVELOPMENT FOR A BETTER INDUSTRY MARTÍN TOSCANO Managing Director of Evonik Industries de México

320

Q: Evonik is specialized in the commercialization of

Energy Reform and the creation of ASEA, the regulator

petrochemical products. How does the company meet the

responsible for oil and gas industry NOMs, among other

Mexican market’s needs?

things. At the beginning, it was difficult to establish a

A: Evonik, as a best-in-class specialty chemical company,

regular revision process due to the small team responsible

is uniquely positioned to support participants across the

for implementing new norms related to oil and gas.

entire oil and gas industry with its specialized chemicals.

However, ASEA pushed to finalize the process as soon as

Within our portfolio, our customers have found diverse

possible due to the high interest in the market for getting

and preventive solutions for common oil field issues such

these new norms for the distribution and transportation of

as pipeline corrosion mitigation, improvement of flow

natural gas via pipelines.

transportation and enhanced hydrocarbons recovery and processing. All of Evonik’s operational segments are

The government gave us the correct strategy and support

present in Mexico.

to reduce time when coordinating workshops, helping us to invite the right companies along the entire industry

Regarding pipelines, the company has developed a

supply chain to participate during the review process.

successful strategy that integrates the complete local

Through these workshops, Evonik gained new knowledge

supply chain and technologically supports every involved

and was able to better understand the needs of this new

player during the complete design of the liner, from the

potential market, for which our VESTAMID NRG PA12

design of the extrusion process to the butt-fusion procedure

product is a perfect fit.

for joining the tubes and finally the installation directly in the field.

Q: Where in the Mexican oil and gas industry does PA12 offer the highest added value?

Evonik also led the review of a NOM to include the

A: There are two main areas. The first is with the laying

Polyamide PA12 polymer as an approved material for use

of new natural gas pipelines. Local distribution companies

in natural gas pipelines. The entire process was developed

can use PA12 pipes for rings around cities or long-distance

with the information and test methods listed in ISO, ASTM

transportation up to a pressure of 18 bars. The second is

and DIN standards. During the process, all related players

in the rehabilitation of hydrocarbons pipelines that were

were invited to actively participate.

installed by PEMEX years ago. Some of these require an immediate rehabilitation because they are close to the

Q: Can you describe your experience certifying the

end of their life cycle due to corrosion. We offer a local

Polyamide PA12 polymer to meet Mexican gas pipe norms?

solution to the complete supply chain with our PA12 liners,

A: Evonik Industries de México identified that the Mexican

employing a trenchless process to reduce the cost and time

norms were the starting point for developing the gas pipe

for rehabilitation.

market for its PA12 polymer in Mexico. We advocated the modification of the related NOM and started by identifying

Q: How quickly has the industry adopted Polyamide PA12?

the government procedures. The complete procedure took

A: There has been resistance from engineering departments

more time than expected due to the implementation of the

to the implementation of new materials in projects that involve the installation of new pipelines. We have run into this resistance even though PA12 has been approved by our

Evonik Industries de México offers a wide range of raw material

own department of new products and techniques. However,

products for infrastructure industries. It specializes in the

we have also found high interest in installing PA12 pipelines

commercialization of petrochemical products manufactured

for long-distance transportation lines where the operational

both nationally and abroad

pressure is in the range of 10 to 18 bars.

It is worth noting that the installation of the first

a good alternative for the project’s river crossings. PA12

thermoplastic HDPE gas pipeline took more than 20 years.

also has a higher tensile module combined with superior

We are very close to reaching record time of no more than

creep characteristics, which translates to even better hole-

10 years for the installation of PA12 gas pipeline projects.

spanning characteristics.

In the case of liners, it has been more difficult to attract

The importance of PA12 for river crossings lies in the fact

projects due to PEMEX’s complicated administrative

that if a pinhole leak develops, CO 2 gas will generate

process for the maintenance of hydrocarbons pipelines.

a small amount of carbonic acid that may accelerate

However, the Energy Reform has opened the possibility to

corrosion if left unchecked. Although the bridge-gapping

work with new players in the market and to demonstrate

resistance of the PA12 liner provides adequate time to

the major advantages of this liner technology in pipeline

respond to any leaks, a prompt response to leaks will be

rehabilitation.

part of the pipeline operation and HAZOP procedures for the pipeline operator.

Q: What examples can you share of the successful application of PA12?

PA12 is not the only polymer offered by Evonik to the oil and

A: One clear example is the development and installation of

gas industry. We also offer our PEEK (VESTAKEEP) polymer

the PA12 safety liner in Veracruz. This project was the first of

solution to cover new industry requirements with anti-wear

its kind and brought new life to aging infrastructure. United

tape in unbonded flexible pipes for mechanical protection

Pipeline, our client, offered an Engineering Procurement

of metal reinforcement components, protection of

and Fabrication service, which is an innovative, fast and

downhole production tubing and casing against mechanical

cost-effective turnkey rehabilitation solution that addressed

and chemical wear under harsh conditions, including high

the anomalies of the pipeline and ensured the pipeline’s

pressures and high temperatures.

integrity for the required period of time. United Pipeline’s patented solution includes an interactive liner with active

Q: What are your main goals for Mexico during 2018-2019?

monitoring and leak detection together with a redesigned

A: Our goal in terms of liners is to continue working

cathodic protection system and external spot fiber

with United Pipeline to explore new potential projects

reinforcement. The company uses Evonik’s PA12 liner resins

to rehabilitate aging infrastructure. This includes the

for the pipeline’s river crossings.

development and innovation of new alternatives to offer a solution with the best possible cost-benefit to the market,

In the case of river crossings, the permeability of CO2 through

and also the development of a PA12 liner NOM.

High Density Polyethilene would present an additional challenge in the case of a leak, since an external repair is not

For natural gas pipelines, Evonik is actively participating

technically feasible. To eliminate this risk, United Pipeline

in technical meetings with local distributors of natural gas,

replaced its HDPE with Evonik’s NRG PA12 resin, given the

including international companies such as Gas Natural

material’s added structural strength, creep resistance and

Fenosa and ENGIE, and local players around the country

negligible gas permeability. Compared to HDPE, Evonik’s

to support the first operational gas pipelines with our

NRG PA12 material has lower CO2 permeation, making it

VESTAMID NRG PA12.

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VIEW FROM THE TOP

SCALING THE PIPELINE TECHNOLOGY LADDER CARLOS SANDOVAL Commercial Vice President of Arendal

Q: How is Arendal taking advantage of the opportunities

a land-sea transition (beach approach) with our own

brought about by the new environment in the oil and

machinery (we have the largest HDD rig in the country),

gas industry?

and lay the pipeline up to 120m of water depth, while

A: It has taken a few years for the Energy Reform’s

achieving high performance standards in quality and EHS.

benefits to really become tangible. These things take time,

322

but now the scenario is buoyed by higher oil prices and

Q: What success factors are still necessary for the

sustainable supply and demand. The new environment

unconventional resources sector to flourish?

for the industry in Mexico is far more diverse, with many

A: There are three success factors for unconventionals

participants injecting investments, planning projects

to take hold in the market. The first is rules, mainly

and building facilities in upstream and midstream.

environmental rules. In this aspect, Mexican regulators

Arendal is making the most of this momentum by taking

are not quite prepared, and this will take some time to

advantage of the opportunities happening in midstream

evolve. Secondly, there is logistics. Since this is far more

and upstream, where Mexico has a long tradition. We are

complex than with conventional networks. The logistics

undertaking projects to consolidate our own portfolio.

infrastructure should be able to support fast-paced

We have participated in bids and have recently won

movement of people and materials. The logistics should

projects with private clients and PEMEX.

remain well-connected in real time all the time. Our current logistics system is not well-prepared in this regard. Lastly,

Q: How has the experience of past licensing rounds

the mentality regarding costs and cohabitation with the

prepared the industry for its future?

conventional market must change. Mexico has a long way

A: Everybody is expecting the licensing rounds to turn

to go before these projects become a reality.

into actual work in the form of developed projects. This has been the situation with some companies whose

Q: How will Arendal’s operations evolve over time and

investments are materializing and are way ahead in the

which projects will you develop?

E&P process. We expect to see an open competition

A: We have seen how the oil and gas industry has

promoted by the upstream operators and a deeper

changed. After the fall of oil prices and the lack of PEMEX

commitment to boosting the Mexican industry. Companies

investment, the market has evolved to have multiple

need to speed up their investments, get approvals for the

players in the three segments. Things are in motion and

required permits and start executing their projects so the

we need to move quickly and with a concerted effort

industry and society can realize the benefits.

to capture opportunities. Newly arriving clients are forcing the supply chain to expand its capabilities. In

Q: What value do you provide as one of the largest EPC

Arendal’s case, we are witnessing an increase in the

companies in Mexico?

workflow coming from the new investors and operators

A: We have two different markets: onshore and offshore.

in the oil and gas market. We have a project with PEMEX

Today, we are the only 100 percent Mexican company that

to install four subsea pipelines to increase and sustain

can build a Process Hydrocarbon Plant with our own staff,

its production. We are building a storage facility for

interconnect it with pipelines across the country, build

importing fuels for a key global storage company. This is their first project in Mexico. We are also building a gas pipeline for a national midstream entity. We are taking

Arendal is an offshore and onshore engineering procurement

different approaches based on the variety of projects

and construction company that provides a full range of

we have been awarded, as we want to grow along with

services, including feasibility studies, acquisition of rights of

the upstream, midstream and downstream sectors in the

way, conceptual design, detail engineering and procurement

country.

VIEW FROM THE TOP

NEW PLAYERS PLUS INEXPERIENCE EQUALS OPPORTUNITY CARMEN CLAYTON Director of Sales and Operations for the Mexico-Andean Region at T.D. Williamson

Q: What makes TDW the top option for the coming increase

TDW manufacturing umbrella. This is also a way in which

in pipeline maintenance and infrastructure installation?

TDW supports the local manufacturing industry.

A: What we are seeing in the emerging pipeline market is many new players that often have little experience

Q: What typical technological challenges does TDW solve

managing pipelines. They come to TDW for our knowledge

for its clients when it comes to pipeline maintenance?

and recommendations, based on our nearly 100 years of

A: For one thing, we realize that while there may be factors

leadership in pipeline maintenance and repair. We are

that make a pipeline more difficult to pig, such as tight,

innovators focused on products that keep pipes flowing

mitered or forged bends or certain types of valves, there is

and product in the line. That includes smart technologies

really no such thing as an unpiggable line. We can overcome

developed through decades of experience to identify

pigging challenges through new equipment and strategies

and mitigate threats to integrity. One of our most recent

such as progressive pigging.

advances, the TDW Multiple Dataset platform, incorporates a variety of technologies used in identifying metal loss,

If a company has or suspects it has an issue, such as

crack-like features, hard spots, mechanical damage and

corrosion, pitting, third-party damage or other defects

other threats, whether they occur alone or in combination.

or anomalies, we can provide solutions that include inline

The information the MDS platform provides enables the

inspection (ILI) and isolation. As a best practice, our ILI

operator to prioritize repair or replacement and to focus

process would start by deploying cleaning pigs to enable

its budget on the most critical areas first.

the best capture of information from pipeline walls. We would next run inspection tools to identify issues and then

Because we are familiar with many of the pipelines in

use advanced data analysis to prioritize pipeline threats. If

Mexico and have gathered a great deal of information about

repairs are necessary, we perform HT&P techniques so the

them, if a customer is interested in a particular pipeline â&#x20AC;&#x201D;

operator can avoid shutting down production. We want

for example, if they have bought a pipeline from another

to become the worldâ&#x20AC;&#x2122;s trusted provider for the oil and gas

operator for which we did all the past maintenance work â&#x20AC;&#x201D;

industry.

we can help them better understand operating conditions, pipeline materials, integrity issues and so on.

Q: What success factors does TD Williamson consider critical for excellence on maintenance operations?

Our experience working in environments around the world,

A: The No. 1 factor is safety. Our entire team agrees that one

is a great asset in such a varied country like Mexico, with

accident is too many. Our job is to help our customers keep

many regional differences, ranging from humid rainforests

their product in the pipeline, which includes maintaining

to deserts. Another important differentiating factor is that

the pipeline in its best condition. Because we have our own

we manufacture the product in our locations all over the

manufacturing facilities, we can ensure high quality from

world, from the US to Belgium and Italy, depending on the

design through production. Our highly trained technicians

product. This enables us to mobilize equipment quickly for

are committed to safety and performance. It can take as

both routine and emergency operations.

long as 10 years to become a master technician, and to become one, rigorous training is required.

Furthermore, there are several strategic companies in Mexico that work under the strict regulations of TDW manufacturing for pigging products and closure straps,

T.D. Williamson (TDW) is a global solutions provider for

and we oversee their manufacturing process through

pipeline operators, delivering integrity services for onshore

continuous auditing to ensure that they comply with our

and offshore applications, including advanced isolation and

quality standards. They are, therefore, effectively under the

repair, integrated pigging and integrity assessment solutions

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INSIGHT

IN MEXICO’S MIDSTREAM FOR THE LONG TERM OSCAR GONZÁLEZ Director Latin America of NDT Global

Mexico is seeing an uptake in investments for the oil and

or three years because the company does not have the

gas upstream segment. With over 70 contracts assigned

budget to do so. NDT had 25 inspections scheduled

to both national and international operators as of October

with PEMEX for 2016, of which only five were performed

2017, and an approximate expected investment of US$60

due to the company’s lack of capital. For 2017, we had

billion, the country’s upstream sector is growing stronger.

a total of 40 because of the 20 that did not take place

Midstream is a different story, with a lack of capital for

in 2016, but as of October 2017 we had only performed

even the most necessary maintenance.

three. PEMEX is working on a day-to-day basis, fixing

324

emergencies instead of focusing on prevention.” “Although the presidential administration had resolved to prioritize investment in the upstream area, the oil price

Although these are difficult times, there is a light on the

drop in 2014 derailed that initiative. As the maintenance

horizon. As production of hydrocarbons ramps up, there will

of pipelines lags behind production priorities, service

be a need for a healthy and strong pipeline transportation

providers like us have run into problems. Unfortunately,

and distribution network. Although it will take time,

we do not see a drastic change in the short term and

companies such as NDT are setting their sights on the

most probably things will stay this way until 2019,” says

long term. It will not be easy, González says. “There is an

Oscar González, Director of Latin America for NDT Global.

expected uptake in the installation of pipelines but that is not the most attractive market for us. These pipelines

The issue is less about having technological and cost-

are new and the inspection required is only on baseline

efficient solutions; it is a matter of setting priorities. “Pipeline

terms. Inspection and maintenance activities will certainly

inspection technologies have improved globally over the

be needed, but it will be at least five years from installation

years. The industry got better at analyzing and controlling

before they require inspection and maintenance.”

typical problems, which paved the way for integrity inspections, such as detecting cracks, stress corrosion and

To remain for the long haul, companies should have

mill defects. Every year we are finding different defects that

a diversified portfolio of activities in which they can

require more precise measurement mechanisms and more

rely. NDT Global is offering its strong experience in the

advanced technologies,” González says.

Mexican market as an added value. “We have diversified the services and markets we work in,” says González. “We

NDT offers the best technologies to increase the lifespan

have developed a very strong set of skills and human

of pipelines, and has done so in Mexico for over 30 years,

capital, which are now being deployed in other parts of

he adds. “NDT has developed the most accurate ultrasonic

the world.”

inspection techniques for data acquisition to detect every type of threat. Our technology leadership allows us to

NDT Global’s Mexican office has become a hub for not

also work with customers to address any specific issue

only its activities in the Americas, but also for Europe,

they might have. We have served the Mexican market for

offering services to countries that require the most expert

over 30 years now with a permanent and strong presence,

human capital there is. “From our office in Mexico we

performing inspections first with magnetic flux and later

manage all South American activities. We have been

with ultrasonic technologies. Our biggest customer in the

busy in 2017 with jobs in Colombia, Peru, Ecuador and

region has always been PEMEX.”

even Brazil. Our offices have also become a human talent development unit as well as an analysis center for several

As PEMEX focuses and prioritizes the upstream segment,

international activities in Canada, the US and Europe.

it has put the midstream sector into a recession, González

Although it does not compare to the market PEMEX used

says. “PEMEX’s pipelines have not been inspected in two

to represent, it has been a great help.”

VIEW FROM THE TOP

PIPELINES THROUGH THE WILDERNESS LUCA ROMANENGO Business Development and Commercial Manager of SICIM Mexico

Q: What is your modus operandi for projects in Mexico?

for example, we move through mountains, volcanoes and

A: We started our first project for TransCanada — the

other rough terrain. Nevertheless, thanks to the excellence

Manzanillo-Guadalajara pipeline — in 2010. It was 300km

of our engineering, we can get out of any situation like true

long and had diameters of 30 and 24 inches. After that we

specialists doing impossible tasks.

worked for clients that included IEnova, Fermaca, ICA Fluor and Grupo Carso. In total, we have installed 3,600km of

Q: What is the impact of new technologies on pipeline

pipeline in Mexico. We usually start working with our clients

engineering and construction?

during the bidding phase. From the beginning we try to find

A: Other than mechanized welding, SICIM engineers work

the best route for the pipeline. This is the first step because

every day to study new technologies. Every year, SICIM

we have to find the shortest and easiest route.

dedicates US$3 million to R&D. Our last two new technologies are related to safety and logistics. We are now using a Front

The speed of construction and the personnel required can

Winch Excavator, which is a low-weight machine that is easy

vary greatly with different types of terrain. SICIM is also

to move and can independently pull itself up steep slopes. This

exploring new business possibilities like constructing fuel

is a high-performance winch with a back-up safety system,

storage terminals. Today, Mexico has the capacity for just

meaning it has two motor gear units amounting to double

three days of hydrocarbons storage, so the need to install

pulling and braking force. It was the runner-up in the 2017

new storage terminals is imminent. This is the most immediate

IPLOCA New Technology Awards.

prospect for expanding our business. Another new technology we are using is the GPL980 Q: What are your competitive advantages in Mexico?

pipe layer. This equipment takes advantage of modularity,

A: SICIM is fully equipped with a proprietary mainline

allowing its various components to be stored inside standard

mechanized welding system, GPR-FASTWELD, which our

containers, which offers the advantage of fast transportation

company designed and developed. It has been deployed on

to every destination in the world. This can reduce fare costs

our projects since 2008. This system is especially suitable for

by between 65 to 80 percent, on average, while offering

large-diameter pipeline projects, but it can be used starting

greater reactivity to ever shorter and more contingent

from a diameter of 6 inches. Average daily production can

mobilization schedules.

reach over 150 welds (36-inch pipe) with a reparation index of approximately 0.5 percent. Moreover, we use our own

Q: What is SICIM’s strategy for establishing strategic alliances

equipment when building pipelines. We have a great deal of

in Mexico?

specialized equipment in Mexico that gives us a competitive

A: As in other countries, SICIM established a joint venture

advantage with regards to competitors that have to mobilize

with a local company that allowed us to enter the country

from other parts of the world. Furthermore, in San Luis Potosi,

more quickly through the speedy adaptation to its laws,

we installed a large logistics base for the maintenance of our

customs and practices. This has been one of the keys to our

equipment and the prefabrication of some pipeline parts.

success in Mexico. These aspects, if not tackled in the right manner, would require a certain learning period that could

Finally, SICIM has many experienced people, such as project

have led to delays.

managers, construction managers, supervisors and welders, who have as much as 30 years of experience installing pipelines. They ensure we can organize projects that comply

SICIM is a construction company established in 1962 that offers

with budget, schedule, quality, safety and environment. SICIM’s

services related to the installation of pipelines and relevant

particular strength is that it can work and solve problems in

ancillary facilities for the transmission and distribution of oil,

any climatic, environmental and logistical situation. In Mexico,

gas and water on an international basis

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VIEW FROM THE TOP

TAKING THE LESSONS FROM LOS RAMONES FORWARD ALEJANDRO ALLIER Director General of TAG Pipelines

Q: How does TAG Pipelines deal with rights of way

company with the technological project skills to make it

processes and communities?

viable. We still have that knowledge. The lesson is that

A: Right of way is not a risk, it is a certainty. You know

any logistical needs that may arise can be met by using

something will go wrong and some complication will

those same human resources because we still have those

arise. In the case of the pipeline construction industry,

capacities and they can be further developed in the future.

community relationships are essential. By engaging 326

communities, you acquire one of the most important

Los Ramones was oriented toward creating importation

assets of infrastructure, namely right of way. This is a

capacity in the north. Now, I see more opportunity a little

topic that should be approached carefully and fairly. As

more to the south for natural gas. Production has been

a result of the Energy Reform, an additional requirement

decreasing in the southeast during the last five years. The

is now the social impact assessment that CRE demands.

southeast, which typically produced the largest volumes

While many people see this as an additional burden on

of natural gas, does not have enough now. The question is

project development, I see it as positive. There is a reason

how to modify the existing infrastructure to bring natural

behind this. Sometimes companies have not treated

gas in. Although CNH has bidding processes in place for the

communities in a fair way. These specific regulations

southeast of the country, that will take time. These issues

make sure communities are not left with the feeling that

need to be solved before new production capacity arrives.

they gain nothing from a project. This is an important part of the equation. Companies must take into account the

That being said, I do not see our activity restricted to

Equator Principles, which state that whatever the EBITDA

building pipelines. We view ourselves as an infrastructure

of a project, a company must devote a certain part of that

company. For example, storage is one of the key elements

EBITDA to social work in communities. In the particular

missing from the Mexican natural gas landscape. There

case of TAG Pipelines, we are 100 percent part of PEMEX,

are several places that require the development of

so it makes sense for us to observe such regulations.

storage capacity. Monterrey and the large consumption centers of central Mexico are lacking in this area, as is the

Q: What did you learn from the Los Ramones project?

southeast. One area of opportunity is liquid fuels. Mexico

A: That project was a huge achievement for TAG

City has only three storage supply terminals for these

Pipelines and we gained a lot of know-how. We learned

fuels, while Houston has 29. Some estimates suggest a

many important lessons, from rights of way acquisition

lag of 30 years in terms of liquid fuels infrastructure. This

to stakeholder management. One challenge that was

is a huge area of opportunity.

successfully confronted was lack of financial resources on the side of PEMEX. Nationally, there was a need to

Q: What is your main concern when building a pipeline?

boost import capacity for natural gas into Mexico. This

A: Our main concern is right of way, that is the most critical

transportation capacity was created with limited financial

element. That is where you usually run into complications

resources. In the end, PEMEX kept a very small share of

and really need to focus all your attention. Yes, there are

the project. That was always the intention and it was very

always issues with the EPC contractor, you need to solve

successful. Mexico needed that capacity so it created a

certain things from an environmental perspective, you need permits from SEMARNAT, but these are generally part of the project management process. Right of way is

TAG Pipelines is a subsidiary of Mexicoâ&#x20AC;&#x2122;s national oil company,

not only complicated because of the ejido land ownership

PEMEX. It led the project to build the Los Ramones pipeline in

regime; negotiating with private owners can be even more

Northern Mexico and its main activity is transporting natural

complicated. This is the key element a pipeline company

gas by pipeline within the national territory

needs to focus on.

VIEW FROM THE TOP

GLOBAL COMPANY A KEY LOCAL PARTNER EDGAR RENTERĂ?A Vice President of Protective and Marine Coatings Latin America at Sherwin Williams

Q: How is Sherwin Williams working to become the partner

reduced maintenance times. This is an important point

of choice for the new oil and gas industry in Mexico?

because when a piece of equipment undergoes maintenance,

A: Sherwin Williams has undergone a 180-degree turn in

every minute represents a costly minute of nonproduction.

terms of its strategy in Mexico. For many years, PEMEX

In that area, for example, our DuraPlate 301 product has

was the dominant player in the industry. All the product

the capacity of curing quickly at low temperatures or even

specifications in the market were therefore dictated by

under humid environments, therefore reducing downtimes.

the NOC. With over 84 years of experience in Mexico, we

For protection in dangerous environments, FireTex, is a

developed a business that was focused solely on providing

product with passive fire protection characteristics. When

products and services to this one client. We were, in that

coated with FireTex, the assets and structures are protected

context, the perfect choice for any revamping project

from damage if a fire starts. We also have optically-activated

PEMEX had. Now, with the opening of the market we are

pigments, which are called Opti-Check. This is most useful

seeing an increasing number of companies entering Mexico

for the midstream sector, specifically for the inside of tanks.

that are also looking for effective ways to bring their global

Once the inside of the tank has been painted a UV light

experience, knowledge and technologies into the local

can be used to verify that the paint has adhered properly

market. For that, they will find that a global company like

as well as to verify whether there is any kind of quality

Sherwin Williams, which already has a strong presence in

problem. It is also important to have products that can be

Mexico, will be a key partner.

easily applied. The more complexity in applying a product, the more complex the equipment for the application has to

Q: Where does Sherwin Williams see the biggest market

be, and the more expensive it becomes.

opportunity for its products? A: Oil and gas is one of the industrial segments with the

Q: How is Sherwin Williams strengthening its presence in

highest requirements in terms of performance, durability

the midstream sector?

and demanding specifications. That being said, midstream

A: The midstream sector fits perfectly with our solutions

is the sector in which we see the biggest investment taking

portfolio and hydrocarbons storage is among the most

place in the short and medium terms, with O&M activities

needed infrastructure in Mexico, even above the need

increasingly taking place and new infrastructure being built.

for upstream infrastructure development that is resulting

This is the sector in which our biggest efforts will take place

from the licensing rounds. For each and every segment

during 2018. Downstream and upstream are expected over

of the midstream value chain, from transportation to

the medium and long terms. Of course, we are looking to

storage, distribution and points of sales of fuels, Sherwin

serve all the arriving operators but we are aware that these

Williams has a product to offer. One major milestone

projects are just starting. Revamping and developing new

we have achieved to further secure our presence in the

infrastructure are two similar markets across the oil and

midstream sector, not only in Mexico but on a global level,

gas value chain, but we can see more short-term potential

is the acquisition of Valspar. With this acquisition, Sherwin

in downstream while activities in upstream will take some

Williams opens its solutions portfolio to the powder-coating

more time to unfold.

area, particularly for natural gas pipelines to be deployed onshore and offshore.

Q: What makes Sherwin Williams products different from those offered by its competitors? A: Products now must focus on improving continuous

Sherwin Williams offers the highest quality protective coatings

operating times. When developing new products or

and services to its industrial customers. The company has

improving those we already offer, we focus on how to keep

solutions for the complete oil and gas value chain, as well as

the equipment running for longer, as well as how to keep

for the power generation, mining and infrastructure industries

327

INSIGHT

GENSA KEEPS THE PRESSURE ON GROWTH OSCAR MENDOZA Director of Oil and Gas Division of GENSA

328

Mexico’s natural gas demand is growing but a few

All in all, Mendoza says GENSA owes its rapid growth to a

companies have set their sights on the more mature market

variety of factors, including timing, with the construction

north of the border. Gasoductos y Estaciones del Norte

of new gas pipelines creating greater access to natural

recently became the first Mexican producer of natural gas

gas. The company is also able to keep costs low because

decompression stations in the US. “We officially received

its engineering, manufacturing, construction, operations

US government authorization to export the products we

and maintenance and transport are in-house and local.

make in our plant in Monterrey,” says Oscar Mendoza,

The strategic location of the company’s plant in the State

Director of the company’s gas division. “We make different

of Mexico also factors into GENSA’s added value, and the

product lines such as risers, domestic connection elevators,

automatization of this plant even created a 15 percent

transitions, simple and double-meter sets and we now have

reduction in retail price – a saving the manufacturer could

10 warehouses in the US.”

pass on to clients. “All these factors have allowed GENSA to become a more proactive company,” Mendoza says.

GENSA’s products are now sold in Home Depot and its

“The operational costs were lowered and we stopped

plant in Monterrey is working at 130 percent capacity,

leasing transport and started buying our own trucks. Such

producing 390,000 pieces in 2017 and working three shifts. The company’s natural gas plant in the State of Mexico has been keeping pace with 250 stations built in 2017, up from 180 in 2015, says Mendoza. The company’s main clients for such stations are Gas Natural Fenosa, ENGIE, Transcanada, Fermaca and IEnova. For major clients like these, GENSA builds between 100 to 140 stations per year. “The largest project we built was Agua Prieta II, which has a capacity of 400MW. We completed the project in a record build time of 14 months,” he says.

“

measures reduced fixed costs to competitive levels.”

Our clients now seek us out to operate systems that were built by other companies”

In the domestic market, the company has also been

According to Mendoza, GENSA was the first company in

growing its operation and maintenance activities, signing

Mexico to design and build natural gas decompression

contracts with companies such as Clariant, Cementos

systems. “Up until this point, they were only built in Italy,

Cruz Azul and Procter & Gamble. Aside from adding this

the US, Canada and Colombia.” The company has sold

new product to its domestic product line, GENSA has

seven projects and has projects with Bimbo in Mazatlan,

also made incursions into international markets. “We

Underger in Puerto Escondido and hydroponic green

have transitioned from being a company that only built

houses in Tlaxcala and Puebla.”

and operated systems at the request of clients for the 12 months of the contract,” says Mendoza. “Our clients now

The company plans to start making decompression

seek us out to operate systems that were built by other

stations for fast-food restaurants, which require natural

companies.”

gas and are currently charged on the basis of estimates. Mendoza adds that GENSA has designed a station so

GENSA’s steady growth has allowed it to look to new

that distributors can charge for the gas consumed by

markets. Right now, Mendoza says the company is

fast-food restaurants, adapting their designs for stations

examining an expansion into Colombia. “We just closed two

serving large industrial plants to the needs of smaller

contracts in Colombia to supply decompression stations for

companies. “We expect to do 50 of these projects in

high-volume usage because in Colombia they only build for

2018,” he says.

low-volume consumption.”

VIEW FROM THE TOP

PIPELINE INTEGRITY IN A CHANGING MARKET ROCIEL BARRERA Director General of Diablo Pipeline Solutions

Q: Diablo has more than 20 years in the Mexican pipeline

Right now, the profile of companies in our sector in Mexico is

market. What has changed in that time?

changing. These new companies come from all over the world

A: It is very different. Twenty years ago, working in pipelines

and they keep an eye on every dollar. We are allied with the

was easy but now security problems have become very

ROSEN Group and one of our objectives is to make our clients

serious. In Mexico we have to be careful. On the other

aware that it is better to invest in prevention than repair.

hand, the pipelines themselves are definitely in much better condition than 20 years ago.

Q: How does the PECAT pipeline tool offer value to clients? A: The PECAT is a globally-unique technology that was

Q: What are the problems for which you most typically are

invented by Pipeline Engineering & Supply Company, a UK

called in?

partner of Diablo Pipelines. It measures the level of dirt inside

A: Often, we are called in to repair or clean very dirty or

the pipeline with such accuracy that it can register particles

inefficient pipelines. After going out into the field to study the

of less than 1mm in diameter. The accuracy of this technology

problem, we make proposals to bring efficiency levels back to

has attracted the attention of a major pipeline company,

100 percent. We must adjust our strategy to Mexico’s different

which has an issue with powder in its pipelines, and with

types of terrain. The center of Mexico has rocky terrain, but

which we are in talks. The PECAT technology could help it

in the south, it is really swampy, meaning we have to use

measure the amount of powder it has inside its natural gas

different methods to repair the pipeline. In the case of rivers,

pipelines. This is important because when the pipeline has

lakes and marshes, we have to put metallic boxes around the

incrustations, powder or other contaminants on its walls, it will

pipeline to pump the water out so our technicians can repair

not function optimally due to bacteria corroding the metal,

the pipeline unimpaired. Beyond the cleaning and repair of

and the inhibitors that have been injected into the pipeline will

pipelines, we are trying to make our clients understand the

not work as they should. This also means the company must

importance of the integrity of the whole system.

spend more money on inhibitors and so on. The PECAT can play a important role in solving these problems.

Q: What is meant by pipeline integrity and how does this help the sector?

Q: What is your strategy with partners The ROSEN Group,

A: Pipeline integrity encompasses everything related to the

NDT Global and Pipeline Engineering & Supply Company?

pipeline. It is the steel they are made of, the pressure in their

A: Our strategy is to diversify our partnerships. For example,

placement, repair methods and repair frequency, among other

with NDT global, we have been inspecting and maintaining

factors. All these things effect the integrity of the pipeline

more than 2,500km of pipelines in Colombia and Ecuador.

and its network.

Our alliance with The ROSEN Group will allow us to offer its unique technologies for cleaning pipelines. We want to sell

One of the main components in maintaining pipeline

ROSEN’s products and our services to our clients in Mexico

reliability and integrity is cleaning. When there is dirt inside,

and Central America. We are going to be the first company

bacteria might corrode the metal. Some of our potential

doing this in Mexico. We are already working in Venezuela,

clients are spending millions of dollars every five years

Ecuador, Colombia. Our goal is to be present across each

because they fail to clean their pipelines regularly. We are

country in the Americas within three years.

trying to make our clients more aware of these expenditures and how they can avoid that with regular cleanings. As is typical in our market, there is always money to repair and

Diablo Pipeline Solutions is a pipeline maintenance company

inspect, but none for prevention. We are trying to change

with more than 20 years of experience in the Mexican market.

decades of thinking and channel our clients’ spending toward

It has inspected more than 70,000km of pipeline in Mexico and

prevention instead of replacement.

offers inspection, cleaning and repair services

329

Etileno XXI, Coatzacoalcos, Veracruz

REFINING & PETROCHEMICALS

After decades of primarily focusing on upstream investment due to the required maximization of oil and gas production, Mexico’s downstream infrastructure is not up to the requirements necessary to meet the growing demand for refined products. With six refineries and a total capacity of 1.6 billion b/d, but processing only 818,000 b/d during the month of April 2018, the problem for the country’s refining industry is not so much capacity but production efficiency. This is recognized in PEMEX’s 2017-2021 Business Plan, wherein the company outlines its intentions to seek alliances and ensure a reliable and safe operation to take its bottom line out of the red.

As demand grows, the decision to invest in facilities to import more refined products or to invest in revamping the infrastructure that exists but that is heavily underutilized will be key. Moving further down the value chain, securing the processing of petrochemicals for a country with a strong manufacturing industry will be critical to remain competitive on a global level. All these factors should be considered by companies interested in placing a bet on the complex and underdeveloped downstream activities in Mexico.

331

CHAPTER 12: REFINING & PETROCHEMICALS 334

ANALYSIS: Fueling a Transition Requires Transparency

336

VIEW FROM THE TOP: Stefan Lepecki, Braskem Idesa

338

VIEW FROM THE TOP: Ángel Sánchez, BASF

340

VIEW FROM THE TOP: Alejandra Torijano, Agilent Technologies

342

INFOGRAPHIC: Refining Capacity Offers Opportunity

344

VIEW FROM THE TOP: Nicolás Bracho, Dow

345

VIEW FROM THE TOP: Ixchel Castro, Wood Mackenzie

346

INSIGHT: Oscar Scolari, Rengen Energy Solutions

347

VIEW FROM THE TOP: Bruce Abbott, Genoil

333

ANALYSIS

FUELING A TRANSITION REQUIRES TRANSPARENCY After years of primarily focusing on upstream and midstream investments and an 80-year monopoly, Mexico’s refining and petrochemical infrastructure is inadequate needs to catch up to meet the country’s growing demand for refined and derived products this commitment highly attractive. “It is essential that the

cities of Cadereyta, Madero, Tula, Salamanca, Minatitlan

country continues to work under a strong and ambitious

and Salina Cruz, to cover the country’s demand for refined

industrial policy. This requires constant cooperation

products with an installed capacity of just over 1.6 million

between PEMEX, the private sector and regulators to

b/d. With an average national consumption in 2017 of 1.58

foster a fruitful dialogue on how to apply best practices

million b/d, out of which 70 percent is imported from US

to the industry,” he says. Likewise, Nicolás Bracho, Energy

refineries, the problem of the country’s refining industry

Executive, North Region of Latin America for Dow, sees

is not so much capacity but refining efficiency. In 2015,

an open PEMEX ready for the challenge in the country.

production efficiency of refined products only reached 61

“Mexico has played by the rules and it is undoubtedly

percent, and the percentage of unscheduled shutdowns

attractive for investment. PEMEX has changed, opening

reached almost 13 percent. Oscar Scolari, CEO of Rengen,

itself to discussions of projects and plans.”

sadly explains that capital is being lost in the refining sector. “At the Salina Cruz refinery, over US$3 billion were

THE CHALLENGE REMAINS

invested for its modernization, but it is not producing and

The transparency of the hydrocarbon licensing rounds

nor is the Minatitlan refinery,” he says. “Others, such as

has been praised all over the world. It has also sparked

Cadereyta and Madero, are running at marginal levels.

the increasing interest of international companies in the

Something has to be done.” This comes as no surprise

country. While recognizing this, Castro remains vigilant

to Ixchel Castro, Manager of Oil and Refining Markets for

wary of the work that remains to ensure continuity in the

Latin America at Wood Mackenzie, who says she knew that

Mexican refining and petrochemical industry. “We must

improving the Mexican refining sector would take much

be absolutely sure that the market opening brought

more work compared to the upstream. “We always knew

about by the reform cannot and will not change, taking

that revamping the refining sector would be a complicated

us back to a market with regulated prices, because that

process that would need the heavy participation of

would diminish international interest in Mexico. Another

PEMEX to open the sector to new competitors, as well

important component for continuity is the open seasons,

as from regulatory agencies to design the necessary

which have been delayed,” she says. Finally, she calls for an

legal framework for companies to successfully operate in

chain inefficiencies, as 74 percent of the unscheduled

-30 -45 -60

potential in Mexico is incredible in that regard, as it has the feedstock reserves and the necessary markets, the two fundamental pillars for this business.” In its 2017-2021 Business Plan, PEMEX stated its commitment

-105 -120

to revamping its refineries through alliances focused on auxiliary activities and operation and maintenance, areas in which private companies see a bright future. Lepecki finds

Source: PEMEX

Results

-75 -90

Fuel theft

commercial chains start with securing feedstock and the

Efficiency in transportation costs

has to be a highly competitive country. “Production and

49.2

importance of value chains, and the opportunity Mexico

0 -15

Safe and reliable operations

Stefan Lepecki, CEO of Braskem Idesa, emphasizes the

36.2

for improvement, downtimes are also related to supply shutdowns were related to the supply of services.

29.4

41.9

Although operational excellence represents an opportunity

Partnerships

THE OPPORTUNITIY KNOCKS

IMPACT OF STRATEGIC INITIATIVES ON FINANCIAL BALANCE UNTIL 2025 (MX$ billion)

-108.9

Mexico,” she says.

Financial Balance

334

Mexico has six refineries strategically positioned in the

Lazaro Cárdenas Refinery, Minatitlán, Veracruz

335

update on the process of PEMEX’s search for partners to

early to properly measure the impact. “This sector takes

upgrade its refineries in Tula, Salamanca and Salina Cruz.

a long time from the moment time an operator is awarded an oil field to when it produces the first commercial

Castro also warns that despite the the positive and

molecule of gas, and then until the point it is used for

negative effects of having the largest refiner in the world,

the production for raw materials,” he says. “We will start

the US, right next to an industry that is just opening

to see the results of the industry’s opening and the arrival

after 80 years, there are also negatives. “Mexico being

of petrochemical players in about three years. Also, we

neighbors with of the largest refiner in the world could

have to bear in mind the process of building storage

eventually translate into pricing advantages, especially

capacity and transferring gas from production fields to

if it is arranged through long-term contracts,” she says.

these plants, so any petrochemical company can use it.”

“Although this is a big win for the country, it can also be detrimental to the local market because it could prevent

Furthermore, according to Lepecki, the country is capable

local projects from being profitable.”

of doing so. “If we continue working in a collaborative manner, this country will have an unbeatable status as a

TAKING THE INDUSTRY INTO NEW HEIGHTS

global center for petrochemicals. The natural resources

Mexico is known as a perfect logistics hub, as evidenced

are here, the logistics networks are established and it

by the prosperous automotive and aerospace industries.

is an open and competitive market. The emphasis on

In terms of petrochemicals, the country has also managed

the sector is there, so we have to make the most of

to positioned itself in a competitive location, although the

this situation to propel the sector to new heights.,” he

decrease in production and energy security are problems

says. Bracho shares Lepecki’s positive vision. “I am quite

that must be solved to ensure the country maintains

positive about the industry’s future in Mexico and I expect

its position. Bracho explains that although the Energy

to see a reversal in the current downtrend in the country’s

Reform has resulted in more competition, it is still too

production from next year on.”

VIEW FROM THE TOP

MOVING IN THE RIGHT DIRECTION STEFAN LEPECKI CEO of Braskem Idesa

336

Q: What are your main operations in Mexico and how does

operations, defining our plans and assessing our results in

the country fit into your global operations?

terms of both operability and safety. We are proud to say

A: Braskem Idesa, combines the strengths of Braskem, an

that we managed this operation with a nearly Mexican-

active global Brazilian petrochemical business, and Grupo

only team, which provided the experience and resilience

IDESA, a petrochemical group in Mexico. In the country,

necessary to reinforce our operations. On the other hand,

we have won an ethane supply contract from PEMEX

our commercial area was highly successful too and we were

that allowed us to build a large petrochemical complex.

able to strengthen the relationship with our local clients and

Braskem Idesa is a Mexican company with a large pool of

our market penetration.

opportunities for our clients based here and with a positive outlook for what the future will bring. We see a positive

Q: What factors influenced your results in 2017?

scenario for the industry in Mexico, our clients feel confident,

A: We started operations here in mid-2016 and then

global demand is inflated and there is a new breed of players

underwent a stabilization and adjustment process, so we

introducing new capacities to the local market.

count 2017 as our first year of operations at full capacity. Our numbers were amazing for a young company, and we

Q: How would you assess the market potential in Mexico

even experienced far greater growth during the second

for Braskem Idesa's operations?

half of 2017 in comparison to 1H17. We established tight

A: We started this year on a great note resulting from

relationships with our clients and partners here and we

the extensive consolidation and growth process we

exploited our advantage as a local producer to secure the

experienced during 2017. We focused on stabilizing our

supply to meet their needs. We also developed a positive

Etileno XXI, Coatzacoalcos, Veracruz

dialogue with PEMEX, our raw material supplier, and we are

is there, so we have to make the most of this situation to

exploring the different ways in which we can work together

propel the sector to new heights.

for our mutual benefit. Q: What are your expectations for the Mexican Q: How would you classify the opportunities in Mexico for

petrochemical industry and how will Braskem Idesa fit

securing raw materials?

into those prospects?

A: Production and commercial chains start with securing

A: Our main ambitions are to continue growing our market

feedstock and Mexico's potential is incredible in that

and consolidate our brand as the partner of choice in

regard, as it has the feedstock reserves and the necessary

Mexico. We are about to unlock additional raw materials

markets, the two fundamental pillars for this business. It is

and this will set us on the path to open new business lines

also an open market for imports, which further supports

and venture into new partnerships. Our vision is entirely

commercial activity for petrochemicals. We have witnessed

devoted to growth in the raw materials sector and we

how diverse the local market is for petrochemicals and we

look forward to expanding our complex here. As for the

recognize there is huge potential.

development of the industry in Mexico, there needs to be an alignment between PEMEX and other public entities

Q: With Mexico entering a new political phase, what areas

and they must bring a bigger spectrum of private sector

should the new government focus on?

players into the game. We also expect to see more

A: It is essential that the country continues to work under

alternatives for imports and other sources to complement

a strong and ambitious industrial policy. This requires

these processes. We remain confident about the great

constant cooperation between PEMEX, the private sector

potential that is still to be unlocked in this country and

and regulators to foster a fruitful dialogue on how to apply

we are eager to see how everything will turn out in the

best practices to the industry. Mexico has a solid basis for

next few years.

feedstock and a dynamic market, so half of the equation is already solved. If we continue working in a collaborative manner, this country will have an unbeatable status as a

Braskem Idesa is an association of Brazilâ&#x20AC;&#x2122;s Braskem and Mexicoâ&#x20AC;&#x2122;s

global center for petrochemicals. The natural resources

IDESA, which was created in 2010. The association leads the Etileno

are here, the logistics networks are established and it is an

XXI petrochemical complex for the production of polyethylene

open and competitive market. The emphasis on the sector

and other chemical derivatives in the state of Veracruz

337

VIEW FROM THE TOP

ADDITIVES SET TO BE A KEY DIFFERENTIATOR ÁNGEL SÁNCHEZ Business Director Performance Chemicals of BASF

Q: As a chemical company, what interest does BASF have

of the industry and how our special packages can offer the

in the Mexican gasoline market?

best added value for the customer.

A: As Mexico’s energy market opened, gasoline retailers

338

from around the world saw an opportunity to establish

Q: What main challenge did BASF Mexicana face when it

their brands here. As a result, we are seeing transnational,

started offering its additives in Mexico?

regional and local companies opening gasoline dispatching

A: We began offering our additives in Mexico to one of the

stations, with their own branding and operations. We are

first transnational players that entered the Mexican market.

also witnessing the emergence of national brands both by

This company already used BASF’s additives wherever in

groups of gasoline station owners that create alliances to

the world it has a presence. As such, the introduction of

increase their competitiveness and retail companies that

our additive to their Mexican gasoline dispatching activities

sell goods that are now diversifying their services to include

was logical. The fact that the special package had been

the dispatch of gasoline. We have solutions for all gasoline

developed made the introduction much easier, but now we

retailers, and in a market like Mexico, where commercialized

are facing a bigger challenge: logistics. As of January 2018,

gasoline is the same, additives are set to become a core

the additive and the gasoline must be mixed at the gas

business differentiator.

station. Although logistics to deliver additives to the gas station is not our core business, we are happily helping with

Q: What is the unique added value BASF offers through

this because we can see that by performing this activity

its additives?

we are not only able to sell our products but are actually

A: BASF offers the highest quality and top technologies. To

helping the market mature. Also, the more products we

do so, we rely heavily on R&D, 90 percent of which takes

deliver to gasoline retailers, the more prepared we will be

place in our German headquarters. But this does not mean

to help any new company entering the market. With the

that we are well-known to final users. As a matter of fact,

advantage of offering our additives to many retailers from

companies prefer to commercialize their products with their

all over the world that are entering the Mexican market,

own branding, and the same is true for our gasoline additives

having effective logistics for the gasoline additives here is

products. They prefer to have the additives they use related

going to be a strong asset.

to their brand, so final users relate the benefits offered by the additive to the brand of the gasoline distributor. This

Q: How savvy are gas consumers in Mexico and what needs

is understandable considering the significant investments

to be done to ensure a successful industry?

related to the development of an additive. BASF works

A: We need to educate people in Mexico so they can

together with the customer for three to four years prior

understand and distinguish the differences between the

to the launching of the additive on what is called a special

types of gasolines offered by retailers. Consumers here

package. This takes into consideration the performance

are not used to having many options. In the past, there

improvements the customer is expecting from the additive

were only two types of gasolines, the green and the red,

when used with the gasoline, which is extensively tested at

and the only difference between them was octane. In that

our facilities. The long-term investment means that BASF,

previous environment, users did not have to worry about

together with the customer, looks at the long-term trends

performance, availability or any external cost resulting from the use of either type of gasoline. For consumers to make more educated decisions they need to understand the pros

BASF is one of the biggest chemical companies in the world.

and cons of each gasoline, and for them to understand

With over 114,000 collaborators, offices, facilities and clients

these, the proper communication channels must be

in almost every country, the company registered sales of €58

established. For many people, it was a big shock to see

billion (US$71 billion) in 2016

the first gasoline station without a PEMEX logo and with

that, huge demand for different gasoline emerged. Beyond

to ensure that regulation covers all the important elements

knowing the benefits of the gasoline, it was all about trying

of the products we create, not only in quality and

out something new. We need to turn that hype into an

performance but also in environmental and social aspects,

informed decision.

is a top priority for us. This involvement does not only help the Mexican industry but also allows us to further widen

Another critical factor in reinforcing the presence and

our footprint in Mexico.

adoption of different gasolines and additives is the creation of a wide network of gasoline dispatching units

Q: Does BASF have plans to install production facilities for

that can offer a variety of products. In the case of big cities

gasoline additives in Mexico?

like Mexico City, this area is well-covered, but in some

A: Like any other global chemical company in the world,

towns, drivers must travel up to 10km to reach the nearest

our facilities are located close to the raw materials we use

station. The same is true for some roads and highways.

and to the energy sources we require. At BASF, each of our

The lack of gasoline distributors in those areas is a major

facilities is also closely integrated with those surrounding

opportunity and providing the proper education that

it, in the sense that residue from one facility is working

shows the benefits of one or another gasoline or additive

material for another, all together working with the objective

can make a big difference in the competition to attract

of producing the best chemicals and keeping waste to a

more customers.

minimum. This is what we call at BASF the verbundt strategy. International logistics of the produced chemical is the chain

Finally, there is the regulation that forces us to only mix the

connecting our product to the consumer. This is true for

gasoline with additives at the point of sale. This is not the

all our chemicals, including additives. With this in mind,

best way to work if what we want is to incentivize customer

and always keeping a global mentality wherein customers

preference for the inclusion of additives. In the long term, it

demand product across every continent, establishing an

is too expensive to supply the additives to each customerâ&#x20AC;&#x2122;s

isolated plant is not cost-effective, and that is what would

dispatching unit. The best way to go would be to have a

keep us from placing one in Mexico for gasoline additives

facility where the products can be mixed and from there

at the moment. Our logistics service is efficient and robust,

the final product dispatched to the point of sale. Although

and we are up to any challenge that may come.

the gasoline distribution infrastructure does not allow for this option yet, there are companies already working on

Q: How can BASF help retail companies introduce additives

this. The more projects are developed in this area due to

when they do not have the same experience as transnationals?

market demand, the faster regulation will be worked out

A: Gasoline dispatchers that do not have gasoline per se as

to allow for it.

their core business will have to find a way to differentiate their business model, in addition to providing a product

As we see it, it is just a matter of time for the infrastructure

that is popular with customers because of its comparable

and the regulation to be up to the task of allowing additive

quality. These companies lack the necessary petrochemical

and gasoline mixing in strategically placed storage units

knowledge to differentiate themselves. BASF can work with

prior to distribution to the sale points. Working together

them to offer special packages that can bring their product

with the pertinent channels, such as industrial associations,

up to standard.

339

VIEW FROM THE TOP

ANALYZING THE START OF A SAFE AND PROFITABLE OPERATION ALEJANDRA TORIJANO Country Manager Regional Sales for Mexico and Latin America of Agilent Technologies

Q: What added value does Agilent provide to an open

and the most complete atomic spectroscopy portfolio.

market like that in Mexico?

Our product and application experts work with customers

A: Agilent’s oil and gas operations in Mexico are very

to achieve the highest productivity and profitability for

important for the company’s entire business. In Mexico,

their labs, while meeting the industry’s stringent quality

just as in the rest of the world, meeting the increasing need

requirements.

for energy is a big challenge. Regulatory requirements,

340

efficiency improvements dictated by pressure resulting

Q: What questions are most frequently asked by Agilent’s

from low oil prices and good environmental stewardship

clients in Mexico?

impose even tougher demands on the industry. Agilent

A: In Mexico, as in the rest of the world, the main topics

Technologies provides in Mexico, and around the world,

and more frequently asked questions are: How can we

custom or standard analyzers configured to its customers’

face the challenge of an increasing need for energy?

specific chemical analysis applications, whether they

What are the main regulatory requirements our company

need to quickly obtain detailed speciation of a complex

will face? How can we improve efficiency considering the

hydrocarbons stream, precisely calculate gas calorific

pressure coming from a downward slope in prices? How

values in the field, assess the efficiency of their fuel cell

can the increased demand for energy be faced with good

stack or analyze a new biofuel formulation. Agilent has

environmental stewardship?

custom methods and solutions for every specific need. Our answer is always that Agilent Technologies provides Agilent has a local infrastructure to respond to the

custom or standard analyzers configured for specific

current needs and requirements of our customers. Even

chemical analysis applications, whether they are needed

if the requirement is to show double-digit growth in a

to quickly obtain detailed speciation of a complex

very short period of time, we have the support of other

hydrocarbons stream, precisely calculate gas calorific

Agilent organizations around the world to meet those

values in the field, assess efficiency of a fuel cell’s stack

requirements.

or analyze a new bio-fuel formulation. No matter the requirement, Agilent has custom methods and solutions

Q: How does Agilent ensure its technologies and services

for every specific need. Our products and applications

comply with the highest standards?

experts work with our clients to achieve the highest

A: For over 40 years, Agilent has collaborated with

productivity and profitability for their labs, while meeting

organizations such as ASTM, ISO and CEN to develop

the industry’s stringent quality requirements.

new standards for oil, fuel and lubricants. This means we are in a unique position to develop integral and innovative

Q: Why is the use of gas analyzers important for the

solutions so that our clients’ workflow is productive and

Mexican oil and gas industry?

in accordance with the regulations. Agilent offers the

A: Natural gas is a mixture of methane, other hydrocarbons

most complete range of solutions for the industry, such

and small amounts of impurities. The hydraulic fracturing

as the most advanced and reliable gas chromatographs

of shale formations is driving significant growth in the

and mobile micro GC biogas analyzers, FTIR analyzers

global natural gas market as new technologies and processes make production more efficient. Nevertheless, the value of the gas during trading is determined by its

Agilent Technologies is a leader in life sciences, diagnostics and

chemical composition and before natural gas can be sold

applied chemical markets. It provides laboratories worldwide

it is required to meet specifications for calorific value and

with instruments, services, consumables, applications and

purity. For the gas to reach desired specifications, an

expertise that enable customers to gain the insights they seek

array of precise analytical processes is required during

collection, processing, transmission and distribution, and

other analytical problems that they may have in their

these methods must be performed efficiently and to the

laboratories to then work together and find solutions to

required levels of sensitivity.

all these situations.

To meet these challenges, Agilent provides a range

This capability allows our customers to have a faster ROI.

of preconfigured and chemically-tested analyzers for

The Center of Excellence becomes then a solid partner

laboratory, at-line and for field evaluation of natural gas,

for success. Many other activities customized to specific

natural gas liquids and the by-products resulting from

needs such as presentations, technology demonstrations,

natural gas processing. All the equipment is enhanced

training and sample analysis are some of the activities

and supported by a range of advanced sample prep and

that the Center of Excellence can provide with a focus on

software solutions. In addition, our instruments enable

innovation and delivering trusted answers that advance

the characterization of production by-products, such as

the quality of the analysis results.

ethane, propane, butanes, pentanes and hydrogen sulfide, which must occur prior to use in downstream processes.

Q: What are the advantages of Agilentâ&#x20AC;&#x2122;s technologies

Agilent GC and micro GC natural gas analyzers also

on bio and renewable fuels?

measure permanent gases and hydrocarbon content and

A: Biofuels are produced from a wide range of sources,

can perform extended analysis of heavier hydrocarbons,

including corn, algae, cellulose and methane produced

allowing the client to quickly and reliably monitor

from micro-organisms, each offering many environmental

production processes.

advantages. However, purity can be a challenge and long-term storage of some fuels can promote biological

Q: What have been the leading contributions of Agilentâ&#x20AC;&#x2122;s

growth and oxidative degradation.

Excellence Center in Mexico? A: Like every Agilent Center of Excellence around the

Using blended fuels in engines designed for petroleum-

world, Agilentâ&#x20AC;&#x2122;s Center of Excellence in Mexico has been

based diesel can also cause problems with injector pumps

planned and developed so that customers in Mexico and

and other components. ASTM and CEN standards define

Latin America can evaluate methods and applications

methods for determining biodiesel in diesel fuel. Likewise,

with real samples. In addition, they can also acquire the

stability concerns have prompted some industries to

necessary knowledge to implement it in their laboratories,

lower their biodiesel limits for fuel blends. To meet these

which offers them a huge advantage and allows for a

varying requirements, companies must reliably verify

highly-efficient methodological transition that is then

blend quality and biodiesel content.

reflected in a much faster and safer return on investment. Agilent provides, like no other company, the most Our Center of Excellence in Mexico gives us the

innovative solutions to best handle these challenges,

opportunity to show our customers the latest in

from the robust GC biodiesel analyzer to more compact,

technology for real sample analysis. Our customers

portable systems, such as the mobile 490 micro GC

have the possibility to talk with our scientific team about

biogas analyzer, the portable 4500 FTIR analyzer and the

the requirements in the sample analysis and to discuss

compact 5500 FTIR analyzer ideally suited for field labs.

341

INFOGRAPHIC

REFINING CAPACITY OFFERS OPPORTUNITY On a global level, Mexico represents the sixth-biggest

business plan and announced it is working toward

market for gasoline commercialization, the ninth for

reverting the economic and operational losses at its

natural gas and the third for LPG. With good growth

industrial transformation business unit that total almost

prospects of over 2.5 percent annually, the country

MX$100 billion. By increasing maintenance and raw

contrasts with other markets where stagnation is

materials availability and developing strong partnerships,

expected. But Mexico has operated its refineries at low

the NOC expects to bring numbers back into the black

efficiency levels that in some cases fall to 25 percent.

and to reduce its importation of refined products, which

PEMEX acknowledged this problem in its 2017-2021

during 2017 accounted for 892,000b/d.

PEMEX DOWNSTREAM INFRASTRUCTURE

CAPITAL EXPENDITURE FOR REFINERIES (MX$ million) 40 35 30 25 20

14,376

15,988

30,501

2012

29,646

2011

39,767

29,944

28,944

15 25,157

342

PEMEX is the 15th company in terms of refining capacity worldwide

2013 2014 2015 2016 2017 2018

M VEHICLES SOLD PER REFINED PRODUCTION PEMEX VS. US GULF COAST (thousand b/d) 4,500 Source: INA 4,000

3,500

3,241

3,086

3,059

3,140

3,177

2,523

2,416

2,485

2,570

1,190

1,226

1,276

1,206

3,270

3,149

3,191

2,587

2,621

2,713

1,114

977

2015

2016

3,000 2,500

2,633

2,000 1,500 1,000

1,229

500 0

2010

——Texas Gulf Coast

2011

2012

——Louisiana Gulf Coast

2013

——Mexico

2014

787 2017

IMPORTS AND EXPORTS OF REFINED PRODUCTS (thousand b/d) 1,000

Gasoline Diesel

800

——Exports ——Imports

Fuel oil Others

600

400

200

2010

2011

2012

2014

2013

2015

2016

2017

50.8% PEMEX refining capacity utilization rate during 2017

343

BEST-SELLING BRANDS IN MEXICO (JANUARY-JULY) GRÁFICA DE BARRAS

TULA

139

185

245

315,000 barrels

Minatitlán

Salamanca

MADERO

196,000 barrels

Tula

Cadereyta

Madero

100

Salina Cruz

150

102

275,000 barrels

130

200

CADEREYTA

154

196

250

213

275

300

315

350

330

PRODUCTION PER REFINERY (thousand b/d)

Original Installed Capacity

2017 Production

SALAMANCA

245,000 barrels https://we.tl/JCVjQgfROT

MINATITLÁN

185,000 barrels SALINA CRUZ

330,000 barrels

Refineries in Mexico Refineries in US supplying PEMEX Natural gas processing centers Petrochemicals centers Source: PEMEX, EIA

VIEW FROM THE TOP

SETTING THE FUTURE PETROCHEMICAL AGENDA NICOLÁS BRACHO Energy Executive, North Region of Latin America for Dow

344

Q: How will the expected increase in local oil and gas

found in the Texas and Louisiana basins, where Dow has

production impact the development of petrochemicals in

plants installed. Mexico’s proximity to the US and the

Mexico?

open interaction between both markets linked by trains,

A: It is still early to measure the impact on petrochemicals,

roads and boats push petrochemical companies to take

since this sector takes a long time from the moment an

advantage of different aspects, such as the availability

operator is awarded an oil field to when it produces the first

of raw materials. The boom in shale gas in the US and

commercial molecule of gas, and then until the point it is

Dow’s plans to expand its activities in the coastal region of

used for the production of raw materials. We will start to

the Gulf of Mexico will play a big role in the development

see the results of the industry’s opening and the arrival of

of petrochemicals in Mexico in the future. But for us to

petrochemical players in about three years. Also, we have

consider more projects in Mexico, there must be changes

to bear in mind the process of building storage capacity

here regarding the availability of raw materials and their

and transferring gas from production fields to these plants,

use for the petrochemical industry. Mexico has played by

so any petrochemical company can use it. I am quite

the rules and it is undoubtedly attractive for investment.

positive about the industry’s future in Mexico and I expect

PEMEX has changed, opening itself to discussions of

to see a reversal in the current downtrend in the country’s

projects and plans.

production from next year on. Q: What technological innovations can Dow introduce to Q: What opportunities does Dow see in the market as a

the Mexican market?

world-class petrochemical company?

A: Dow uses state-of-the-art technologies and processes

A: We are not yet undertaking any particular project in

for petrochemicals. We have been building units in different

Mexico since our operations are based on real and solid

corners of the world with this technology, and this is

availability of raw materials. We will have to wait for about

something we plan to introduce when our operations in the

two or three years for those to be available in Mexico. For

country are in full swing. We are pioneers in HSE activities

now, we have assessed our options and we are looking to

and we have consolidated a solid presence through our

establish commitments with our main supplier, PEMEX, and

sustainability programs in the countries where we operate.

then we will consider initiating projects. The reform brought

We use the best practices in this area and we participate

many changes, with new rules and the ability to associate

in associations that can improve our practices further in

with private partners. This opens many opportunities that

transportation, delivery and usage of our chemicals.

were previously closed to the private sector. For Dow, this means the possibility to look for new opportunities with

Q: What value proposition does the Responsible Care

PEMEX.

initiative add to Dow and its operations? A: We are members of the Responsible Care initiative.

Q: How will the petrochemical sector enact the reform’s

It is a program created by the US chemical industry and

objectives for a consolidated industry?

implemented in Mexico by the National Association of

A: The US has seen a peak in raw materials based on

the Chemical Industry (ANIQ). It implies a set of norms,

the availability of shale gas and the extensive resources

rules, procedures and practices for all aspects of chemicals management.

Dow is a global chemical company with products and services

Most distributors and producers of chemicals in Mexico

in almost every industrial area, ranging from packaging,

signed this program and they are audited and constantly

infrastructure and consumer care. It has worked in Mexico

trained to follow international practices in a coordinated

since 1959

effort for chemicals worldwide.

VIEW FROM THE TOP

A PUMP NEEDED FOR REFINING IXCHEL CASTRO Manager of Oil and Refining Markets for Latin America at Wood Mackenzie

Q: How would you rate the progress of the opening of the

Q: How can the US-Mexico relationship translate into market

refining sector in Mexico?

competition in the refining sector?

A: With plenty of progress done in terms of upstream,

A: Mexico's position as a neighbor to the largest refiner in

refining remains the missing piece of what the government

the world could eventually translate into pricing advantages,

promised prior to the reform. This comes as no surprise, as we

especially if it is arranged through long-term contracts.

always knew that revamping the refining sector would be a

Although this is a big win for the country, it can also be

complicated process that would need the heavy participation

detrimental to the local market because it could prevent

of PEMEX to open the sector to new competitors, as well

local projects from being profitable. This fact should not

as from regulatory agencies to design the necessary legal

hinder Mexicoâ&#x20AC;&#x2122;s ambitions to increase trade with the US. It

framework for companies to successfully operate in Mexico.

makes sense for markets to operate regionally, and fair trade makes both countries stronger. Not only does Mexico get

Having free access to transportation infrastructure through

more cost-competitive prices from refineries in the US, but

the open seasons is one of the successes we have observed.

the US refineries also get a bigger and long-term market,

The retail sector in Mexico has also confirmed the interest of

as the demand for oil in the US is expected to decline over

companies, which are opening gasoline stations under their

the coming years.

own brands. This has allowed customers to seek products and services that better address the cost-value concerns of

Q: How has the market opening in retail gasoline provided

the market. Although these two elements confirmed that

better value to final consumers?

the scheduled opening of the market in refining remains a

A: The gasoline market here will grow exponentially.

priority, it is still running at a slower-than-expected pace.

With Mexico importing more gasoline than the rest of

We need PEMEX to help with construction of infrastructure

the Americas combined over the next two decades,

across the entire value chain, from pipelines and storage

there is obviously a big opportunity in this sector. Having

capacity to maritime terminals, to facilitate the imports and

international players in the country will offer consumers the

exports that will be required in the coming years.

certainty that the product they are buying complies with all international regulations and with the best environmental

In Mexico, we are switching from a market that was designed

practices around the world. More competition also means

to run from the Gulf of Mexico to the rest of the country, to

that end users will get better prices, which is something that

a market that will have to adjust and have several points of

Mexican consumers are not used to at the moment. Mexican

supply to bring products across borders. This is especially

consumers are also starting to understand how different

true on the Pacific coast where there is a severe shortage

factors affect gasoline prices, especially in Mexico City, due

of capacity and most of the demand is supplied by road. A

to different transportation costs. For example, with gasoline

positive point in improving logistics is that the government

coming to Mexico City from the north, it makes sense that

has been transparent about what pipelines have to be built

a gasoline station can offer cheaper prices in Satelite than

according to a strategic master plan. Private companies

in San Angel. Understanding this will ultimately change

can then compete for them, and there has been a great

consumption behaviors, driving gasoline consumption

emphasis on the increase of cross-border capacity and

according to real needs.

pipelines, as well as a better integration between east and west. Unfortunately, we have not seen that on the refining side. The government is allowing companies to invest in

Wood Mackenzie is a leading research and consultancy

the market where companies think it is necessary, but such

business for the global energy, chemicals, metals and mining

investment does not need to be integrated into a master plan

industries, providing objective analysis and advice on assets,

supported by the government.

companies and markets

345

INSIGHT

FOR THE WHOLE INDUSTRY, ONE STEP AT A TIME OSCAR SCOLARI President and CEO of Rengen Energy Solutions

346

Mexico is one of the biggest petroleum producers in the

The second is the company’s packaged boilers for steam

world but its refining industry is not covering the production

production, produced by Babcock & Wilcox. Scolari says

required to meet national needs, says Oscar Scolari, President

these two services can be offered on a sale or lease basis,

and CEO of Rengen Energy Solutions. With more than half of

allowing PEMEX, or any other company, to avoid a CAPEX

the consumed gasoline in Mexico being imported, the need

hit on its books. “It is not the core business of our clients to

for a revamp is urgent, which in the end creates business

produce power or steam, so why should they buy equipment

opportunities, he adds. “More than 50 percent of the refining

to do so? Our lease plan allows them to focus on their core

capacity in Mexico is shut down.”

activities.” To offer a full range of solutions, Rengen is also looking at hydrogen production. “Rengen focuses on products

Scolari believes that although many may blame the current

that are not PEMEX’s core business, be it electric power, steam

state of affairs on a lack of investment, this is not the true

or hydrogen.”

problem. “At the Salina Cruz refinery, over US$3 billion dollars was invested in its modernization, but it is not producing,

The company’s ambition to become a leader in Mexico’s oil

together with the refinery of Minatitlan. Others, such as

and gas sector is taking it toward a new path, Scolari says:

Cadereyta and Madero, are running at marginal levels.”

the upstream sector. To succeed, Rengen is looking for a

“

If PEMEX has to shut down three refineries that means losses of US$30-35 million per day. Something has to be done”

partner experienced in drilling, exploration and production. But Scolari emphasizes the capabilities Rengen brings to the table. “At Rengen, we have excellent local content to offer, a deep knowledge of the entire oil and gas industry in Mexico developed over 40 years, together with a set of privileged installations, such as yards and equipment located in the most relevant cities for the industry, including Villahermosa and Ciudad del Carmen.” The company is interested in both farmouts and nonsolicited offers. High ambitions can lead to big mistakes, and Scolari says he is aware of how important

When investment is present, but the results are not as

it is to proceed one step at a time in one of the most capital-

expected, it is necessary to get to the root of the problem.

intensive industries in the world. “We are not looking to

Scolari points to PEMEX’s position of performing all the

participate in deepwater exploration, we want to enter slowly

activities in the value chain, even those that are not included

into the upstream sector to avoid errors.”

in its core business. PEMEX refineries shuts down alarmingly often, Scolari says. This represents losses of over US$10 million

With political changes around the corner in Mexico, there is

a day just through lost productivity. “If PEMEX has to shut

an inevitable uncertainty for companies venturing into new

down three refineries that means losses of US$30-35 million

business areas but Scolari is confident that nothing can bring

per day. Something has to be done.”

down the opportunities already present in the country. “The Energy Reform was passed by the Congress and was ratified

Rengen’s area of expertise can help PEMEX forget about

by the Senate. It is secure and the only way to end it would be

noncore activities, Scolari says. It offers products and services

a dictatorship. We could see, for example, fewer opportunities

that address the main reason PEMEX’s refineries suffer

appearing in the future, but those already present are there for

unplanned shutdowns, namely a lack of electric power, steam

the taking. The time is now,” he says. “Oilmen are the greatest

or hydrogen. The first solution is Rengen’s mobile generation

gamblers, and when they look for opportunities all over the

units that can be transported anywhere and start producing

world, they place their bets where the risks are acceptable.

energy in two days if the site is adequate for their installation.

Mexico is more than a safe bet.”

VIEW FROM THE TOP

A PUSH FOR PARTIAL REFINING TO BOOST PROFITS BRUCE ABBOTT President and CEO of Genoil

Q: What is Genoilâ&#x20AC;&#x2122;s contribution to the oil and gas industry?

companies, such as Grupo Roales. Coming into a new

A: Since its start, the company has turned more toward

market like Mexico you have to really be careful that your

technologies developed around the oil and gas industries

local partner is the right one. Therefore, we have already

in Canada, with its heavy oil tar sands. Among those are

approached PEMEX because we feel that the best way

technologies regarding oil upgrading to increase API

to test the quality of your partners is to make an initial

degree levels and reduce sulfur and impurities through the

approach directly, without our local partner, and get a

use of hydrogen. This technology is called hydroconversion,

sense of the local market. We have done that and I feel

which is a process for improving the quality of oil by

very confident about our relationship with Grupo Roales.

adding hydrogen. We also have oil and water separation technologies, some of which are applicable to marine

Q: How has the economic situation in the oil industry

environments. Moreover, we have been working closely with

impacted Genoil and its products and services?

global, particularly Asian, development banks to identify

A: The last few years have produced historically low prices.

and develop new sources of crude oil. Therefore, we are

That has put many of the national oil companies under a

also focused on identifying and developing crude oil fields

lot of pressure. Many NOCs have slowed their spending on

around the world. Genoil is not exploring for new oil fields

drilling and have cut back on capital expenditures. They are

but rather, it takes assets where people know what is in the

focusing on upstream assets with much lower production

ground and helps finance the development of those assets.

costs. With tighter budgets in this market climate they

This policy bank we are allied with is working to grow

have been cutting back spending. This climate has not

total world oil production. Therefore, we work in different

been ideal for upstream desulfurization technologies like

regions of the world to identify oil fields that make sense

the GHU hydroconversion technology. Even though it has

for investment, to find partners and organize consortiums

a low cost compared to other upgrading processes, it

of global companies from different parts of the world to

nevertheless requires a great deal of CAPEX. We have been

work together and develop such assets.

partnering with development banks to discuss proposals in which we help get funding for the projects of the national

Q: What technologies does Genoil see itself applying in

oil companies.

Mexico? A: The main focus of the company is implementing our

Q: Where does Mexico fit into your global strategy?

patented hydroconversion process in both the upstream

A: Mexico is one of the priorities of our global strategy; it

and downstream sectors. In the case of downstream, we

is very close to home and we like to see our neighbors do

would be implementing the hydroconversion process at

well and to promote relationships between states. Mexico

refineries, which would allow them to handle heavier crude,

is a personal priority for us. We have an excellent team

more sour crude and also to implement the technology in

here and that gives me a lot of confidence. When I assess

the field. The concept we are pushing is partial refining.

potential markets, I look at the value of the people we will

Mexico produces 1.2 million barrels per day that is sour

be working with. Here in Mexico we have the best team.

or heavy crude, which could be turned into light or sweet

We are very fortunate to have the kind of connections that

crude to create a profit margin that PEMEX could benefit

Grupo Roales has brought.

from. The idea is to make a better-quality oil for export, so the oil itself is more desired by refineries around the world, thereby allowing PEMEX or the Mexican government

Genoil is one of the leading worldwide energy providers.

to capture a partial refining spread. We have financing in

It collaborates with a top Chinese policy bank and Chinese

place as well as strategic partners that are supporting this

companies to provide project financing, drilling, production

goal. For example, we have alliances with oil field service

and processing services for the oil industry

347

EnergĂa Costa Azul, LNG Terminal, Ensenada, Baja California

STORAGE, DISTRIBUTION &Â RETAIL

March 2017 was a historic month that resulted in the most visible change implemented by the Energy Reform with the opening of the first gasoline station under a non-PEMEX brand. Jump to May 2018, just a year later, and the country has over 2,900 gasoline stations under 45 different brands. Such an significant expansion of the market must be supported by a reliable, secure and efficient network that connects the final consumption points with storage facilities that ensure fuels will be available to final users.

While the interactions among all the stakeholders present in the fuel retail market value chain are complex, CRE is introducing clarity. Its objective is to provide a level playing ground where companies can interact and compete. In this environment the development of strong partnerships will be crucial for companies that are placing their bet on the countryâ&#x20AC;&#x2122;s still young market.

349

CHAPTER 13: STORAGE, DISTRIBUTION & RETAIL 352

ANALYSIS: An Opportunity for Those Willing to Take It

354

VIEW FROM THE TOP: Bill McAleb, PA Consulting

355

INSIGHT: Guillermo Turrent, CFEnergía

356

VIEW FROM THE TOP: Juan Carlos Hernández, Industrias Energéticas

357

INSIGHT: Josué Hernández, Natgas

Enrique Taracena, Natgas

358

INSIGHT: Francisco Soto, Bulkmatic de México

360

VIEW FROM THE TOP: Héctor García, Bechtel Internacional de México

361

INSIGHT: Daniel Lucio, SUMMUM Corp.

Daniel Zuluaga, SUMMUM Projects Mexico

362

TECHNOLOGY SPOTLIGHT: First of its Kind: Wood’s Oil and Gas ATC

364

VIEW FROM THE TOP: Edgar Gutiérrez, Hydrocarbon Storage Terminal (HST)

365

VIEW FROM THE TOP: Jorge Lanza, CLH

366

VIEW FROM THE TOP: Rodrigo de Vivanco Alverde, Kratus Energy

367

VIEW FROM THE TOP: Ricardo Diogo, Oiltanking

368

VIEW FROM THE TOP: Michael Ross, Kiewit

369

VIEW FROM THE TOP: Rubén Cortina, Tarsco México

370

INSIGHT: Caio Zapata, Énestas

371

INSIGHT: Alberto Escofet, Enagás México

372

MAP: Storage Terminals: Existing and Future Facilities

374

MAP: Fuel Importation and Distribution Routes

376

ANALYSIS: PEMEX’s Second Open Season Takes Aim at Fuel Market Competitiveness

377

ANALYSIS: Gasoline Stations Fight for Advantage

378

VIEW FROM THE TOP: Roberto Díaz de León, ONEXPO National

379

VIEW FROM THE TOP: Juan Gallástegui, Gallástegui Armella Franquicias

380

VIEW FROM THE TOP: Álvaro Granada, BP Downstream

381

VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico

382

VIEW FROM THE TOP: Manuel Filizola, OXXO GAS

383

VIEW FROM THE TOP: Sebastián Figueroa, Fullgas

384

VIEW FROM THE TOP: Noé Pascacio, BGBG Abogados

385

VIEW FROM THE TOP: Adrian Bisiacchi, KDM Fire Systems

351

ANALYSIS

AN OPPORTUNITY FOR THOSE WILLING TO TAKE IT The increasing number of gas stations with a new brand is the most visible way for the public to witness the changes brought about by the Energy Reform. But with old and underdeveloped infrastructure to support the stations, the challenges persist The opening of the retail sector in Mexico has brought about

it normally operates at scale,” he says. According to Granada,

one of the most groundbreaking changes in the country.

BP has managed to overcome this challenge by having close

With an average of 10,560 inhabitants per gas station in

talks with CRE. “We have signed agreements with PEMEX

2017, Mexico lags behind countries like the US, Italy and

to mix our additives before fuels reach our stations and we

Brazil that have 2,677, 2,933 and 5,158 inhabitants per station,

are confident about the product’s opportunity for growth in

respectively. The situation is even more critical in Mexico City,

Mexico.”

where there are 23,165 inhabitants per gasoline station. This

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lack of stations in Mexico is an opportunity as both national

EDUCATING A COUNTRY

and international retail players look at ways to improve the

Novelty is the perfect word to describe the retail market in

country’s fuel reserves and increase the number and quality

Mexico. Ruben Cortina, Managing Director of Tarsco México,

of service stations, all the while taking a profitable share of

explains how the novelty is for both the consumers and the

the market.

regulators. “Most of the players are starting from scratch,” he says. “There was no prior experience during the PEMEX

A COUNTRY TO BE FUELED

monopoly. Now we have an open market and the regulators,

As of April 2018, CRE reported that there are 2,908 gasoline

the suppliers and everybody who participates in this industry

stations operating under 45 new brands in Mexico. Ixchel

have had the opportunity to learn.”

Castro, Manager of Oil and Refining Markets for Latin America at Wood Mackenzie, confirms the attractiveness of the market,

In terms of educating the final customer, Juan Gallástegui,

which is a clear benefit for the final consumers as companies

President of Gallástegui Armella Franquicias, recognizes CRE’s

must find ways to become more attractive and therefore

efforts and congratulates it for the creation of the Gasoapp,

comply with the needs of their potential clients. “This has

which allows the monitoring of gasoline prices among service

allowed customers to seek products and services that better

stations. Meanwhile, Noé Pascacio, Partner and Head of

address the cost-value concerns of the market,” Castro says.

Energy and Infrastructure at BGBG Abogados, finds a great market opportunity in the education of the market players and

Ángel Sánchez, Business Director Performance Chemicals of

in helping them become successful under a market with new

BASF, sees an opportunity in the implementation of additives

rules. “Standard law firms assist in complying with the existing

as a differentiating factor for companies, but he recognizes

regulatory framework, while outstanding law firms provide a

that final users need to be educated. “We need to educate

clear vision of regulatory changes, such as that resulting from

people in Mexico so they can understand and distinguish

the reform,” Pascacio says.

between the types of gasolines offered by retailers,” he says. In the past there were only two gasolines, and the only

ENHANCING MEXICO’S FUELS RESERVES

difference between them was the octanes. In that previous

Gasoline stations are the last and most visible piece of the

environment, users did not have to worry about performance,

whole value chain of the liberalized fuels market, but this

availability or any external cost resulting from the use of either

aspect is not the only market opportunity present. “This

type of gasoline. But he says this is changing with the entry

liberalization caused private players to look at this market

of new players and more products. “For consumers to make

and to see the opportunities for new storage facilities,”

more educated decisions they need to understand the pros

says Ricardo Diogo, Director of Business Development at

and cons of each gasoline, and for them to understand these,

Oiltanking. “Since logistics are normally necessary between

the proper communication channels must be established,”

production and distribution, logistics and storage are required

he says.

to close the cycle between the imports and the retailers. Definitely, the liberalization sparked huge momentum in the

Álvaro Granada, General Manager Mexico of BP Downstream,

storage and logistics business.”

recognizes that the introduction of additives to the local market has been challenging due to their novelty for Mexican

Increasing the installed capacity for fuel storage goes hand-in-

consumers. “The additives sector is complicated, mainly since

hand with having a proper regulatory framework to support

these kinds of investments and attract best international

EXPECTED INVESTMENT IN PETROLEUM PRODUCTS

practices. “The new regulation determines that by 2020 all

STORAGE, DISTRIBUTION AND RETAIL Expected Investment in Petroleum Products Storage,SECTORS Distribution (US$ billion) and Retail sectors (US$ million)

companies that distribute fuels in Mexico must have a storage reserve of five days availability,” explains Francisco Soto, President of Bulkmatic de México. “This quantity will gradually increase up to almost 15 days by 2025. The development of all

18.9

the required terminals cannot be handled entirely by PEMEX due to its limited capacity. This is where private companies

US$ billion

come into play.” Regulation is being rolled out to facilitate investments for storage terminals, but Sánchez still sees bottlenecks that are making it hard for retailers to introduce additives at a faster

best way to work if what we want is to incentivize customer

Stroage and Distribution Retail 63.5% 20.6% Storage and distribution CRE 15.9% Transport Source

preference for the inclusion of additives. In the long term, it

Source: PROSEDEN

pace. “There is a regulation that forces us to only mix the gasoline with additives at the point of sale. This is not the

is too expensive to supply the additives to each customer’s dispatching unit. The best way to go would be to have a facility

Transport Retail

Gasoline Retail Stations in Mexico* | *As of May 2018 SERVICE STATIONS IN MEXICO*

where the products can be mixed and from there the final product dispatched to the point of sale.” But there is a balance.

353

Adrián Bisiacchi, Director General of KDM Fire Systems warns about the need to facilitate investment while ensuring that safety is a priority. “As our local regulation structure becomes more strict, new norms are a very important design criteria that, if not taken into proper consideration before starting a

11,992

Service Stations

project, can rapidly increase times and costs and even make them unviable.” In that sense, he mentions that spacing between tanks in fuel storage terminals is a clear example of how much an improper design can affect the business model of a company. “If wrongly designed and placed too close to

75.7% PEMEX 24.3% New retail brands

each other for space-saving purposes, tanks will have to be

*As PEMEX of May 2018 Source CRE

cooled in case of a fire and use four to six times more water

Source: CRE

than usual to be transported. A higher volume of water means bigger pipes and pumps,” he explains. growing population. Cortina says many other aspects also Bisiacchi therefore strongly suggests project developers

need to be addressed. “In my opinion, all the infrastructure

get to know all of the regulation requirements and stick

that is needed in this industry will be in a consolidation stage

to the highest possible standards, no matter how new the

for the next 15 years. We need pipelines, docks, jetties, tanks

market is. “Many project developers obtaining permits are

and railroads.” He sees this as a positive development. “This

bringing designs and engineering from terminals previously

creates an opportunity to develop a wide range of projects.”

built all over the world without observing the local norms. Then, as the project continues to advance in the design and

For Sánchez, the consolidation of these opportunities

engineering phases, they find out that certain elements were

will depend on collaboration between all of the players in

not considered properly in terms of fire safety. This omission

the market and the regulators. “It is just a matter of time

could potentially delay the whole project, hence slowing down

before the infrastructure and the regulation will allow for

market entry. In a market like that of fuels transportation,

additive and gasoline mixing in strategically placed storage

distribution, storage and retail, where first entrants obtain

units prior to distribution to the sale points,” he predicts.

a strong competitive advantage, this aspect can become

“Working together with the pertinent channels, such as

critical.”

industrial associations, to ensure that regulation covers all the important elements of the products we create is a top

BUILDING A NATIONAL MARKET

priority.” Castro, meanwhile, believes that while collaboration

Storage terminals are not the only infrastructure required to

is important, the involvement of PEMEX will be key for the

bring the market up to the challenge of providing fuels to a

development of a successful market.

VIEW FROM THE TOP

SOLVING THE PEMEX PUZZLE BILL MCALEB Member Oil and Gas Management Group at PA Consulting

Q: What has been your contribution to PEMEX’s

facilities, it is reasonable to expect that they will want to

development in the five years you have worked together?

transport their product through those pipelines. PEMEX

A: As a result of the Energy Reform, PEMEX needs to

needs to understand what a realistic tariff level is and how

understand what constitutes a competitive marketplace.

industry pipelines operate as a provider of transportation

Our role includes helping PEMEX in that regard and also

services, as opposed to being part of a completely

how it can participate and what sorts of processes and

integrated NOC operation.

procedures it might consider to be effective. It is not

354

surprising that the Energy Reform was needed. Rather

When advising PEMEX on its transportation tariff structure,

than being an imposition, it was a necessity for the

we relied on our expertise related to the development and

Mexican economy. PEMEX was afflicted with the same

use of transportation tariffs on pipelines from our business in

problems that most national oil companies have: it had

the US. Much of our business in terms of pipelines that once

become an entity of tremendous wealth and revenue

were part of PEMEX is very much akin to the business in the

for the country, but as a result of the outflow of money

US. For example, PEMEX’s natural gas pipeline infrastructure

into the public purse, there was not a significant enough

is now managed by an independent institution, CENAGAS,

budget for it to expand, maintain or repair production

which is charged not only with managing the existing

infrastructure or to focus on the growth and replacement

pipelines, but also with improving how pipelines operate.

of reserves. As a result, PEMEX experienced a precipitous

SISTRANGAS, the pipeline system managed by CENAGAS,

production decline.

not only contains the former PEMEX pipelines but also seven independent pipeline operators. This is reminiscent of the

PA has stepped in and worked with PEMEX to assist in

pipeline network in the US.

understanding what a competitive market is and what a NOC needs to be if it is to be competitive. We have helped

Q: What should new participants entering the Mexican oil

the company look at areas of the operation that need to

and gas industry know about doing business in Mexico?

change as a result of having other players participating in

A: New participants should know that the way of doing

the Mexican oil and gas market.

business in Mexico is much slower, decisions take more time and can be much more methodical than what might be seen

Q: What would be a good example of this learning process?

in other competitive oil and gas markets, such as the US. It

A: Before the Energy Reform there was no need for a tariff

is also important for new participants to understand that

of any significance because PEMEX owned the pipelines

in Mexico business is highly relationship based.

and the production. This meant that, between PEMEX Exploración y Producción (PEP) and PEMEX Logística,

In Mexico, participants need to understand that PEMEX,

the true owner of the NOC’s pipeline network, it was less

as a result of the Energy Reform, now has different

important to have tariff structures that really recognized

business units, with individually-focused business goals.

the value of transporting through the pipes themselves

Each unit may stay under the PEMEX umbrella or may be

since both were owned by PEMEX. Going forward, with

removed. PEP and PEMEX Logística, for example, used to

international participants operating offshore platforms and

be essentially departments and now they are standalone businesses charged with their own profitability. Helping them understand how to be paid for services that until now

PA Consulting i s a consulting, technology and innovation

had just been a pass-through charge is a fairly daunting

firm, which defines success as achieving exceptional results

task that we have been working on. I think for entrants

that have a lasting impact on businesses, communities and

that are coming into the Mexican market it is important to

individuals worldwide

understand these different segments.

INSIGHT

FUELS TRADING A CHANGE IN DNA THAT BENEFITS COUNTRY GUILLERMO TURRENT Director General of CFEnergía

In 2013, Mexico faced a set of critical alerts in its natural

Although the company has enjoyed benefits as an affiliate

gas system that forced the nation to curtail natural gas

of CFE that have helped it become a strong player in the

supply, first to CFE, then to PEMEX and to some extent to

market, Turrent says there have also been challenges related

private industry. The government responded by creating

to the company’s status, especially related to economics.

a group to envision the natural gas pipeline infrastructure

“As an affiliate, CFEnergía does not get any federal budget,

needed to ensure a steady supply until 2030. That group,

whereas a subsidiary does, meaning that CFEnergía had

says Guillermo Turrent, Director General of CFEnergía,

to be financially self-sufficient from Day One.” According

became the foundation for building CFEnergía into a

to Turrent, its status was a burden during the first stage

world-class company in the area of transportation and

of talent acquisition but it quickly became self-sufficient.

commercialization of fuels.

“Convincing people to jump or join CFEnergía from CFE’s subsidiaries with their secure budgets to an affiliate involved

“CFEnergía was conceived with the purpose of supplying

asking them to take a leap of faith,” he says. “It was a hard

CFE’s six power-generation subsidiaries and optimizing

task as it meant almost changing their DNA. Fortunately, we

costs in the new fuels market in Mexico, and the expertise

were able to attract excellent people from CFE that were in

of the team that took part in the 2030 group ensures

different areas. This, in turn, attracted more bright minds.

the company can optimize the transportation capacity

As of February 2018, we have 106 people in the company,

of CFE’s natural gas requirements through its pipelines,”

of which 25 percent is made up of previous CFE employees

Turrent says.

and the other 75 percent is young talent with a thirst for knowledge and experience in the new industry created by

The unit is an affiliate of CFE, created after the Energy

the Energy Reform.”

Reform to import and export natural gas, LNG, liquid fuels, and coal for CFE and other clients (power plants, industrials,

With a mindset that clearly favors market openness and

petrochemical), as well as to manage its transportation,

transparency, Turrent is working to ensure fair market

storage and commercialization in the new fuels market in

conditions not only in the transactions CFEnergía

Mexico to guarantee supply and to generate cost savings

performs, but across the entire Mexican market. “I lived

for the productive enterprise of the state. Forbidden by law

on the other side of the equation for many years, when

to enter into any contract not bound by market conditions,

the only option to buy from and sell to was PEMEX. I

CFEnergía is taking advantage of the full set of possibilities

am completely against a monopolistic system because I

provided by the market’s opening. “Thanks to its expertise,

know that competition is needed to create liquidity and

CFEnergía is also capable of offering long-term natural

transparency in a market.”

gas transportation contracts and fuel supply agreements beyond the short-term agreements that CENAGAS

Turrent’s next step in the creation of a fairer market is

provides,” Turrent adds. Proof of that is the long-term

the launching of an online natural gas trading platform,

contracts CFEnergía has signed with several companies.

a transparency tool through which all players will be able

“We have signed contracts not only with consumers that

to see day-ahead natural gas prices in different regions

use natural gas for processes, such as ArcelorMittal, but also

of Mexico. “At the beginning, the tool will be initiated by

with competitors of CFE’s power-generation subsidiaries

CFEnergía’s prices (CFEnergía as the market maker), but

such as Iberdrola, Blackstone and others.” Because its board

it is intended to become a benchmarking instrument on

acts independently from CFE and the company has its own

which other companies can base their bids and offers. As

business plan, the company is capable of providing both

the prices change in the market, so too will CFEnergía’s,

CFE and other private customers supply security that is

creating a feedback loop and allowing for the creation of

transparent in every aspect, Turrent says.

several price indexes in Mexico by region.”

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VIEW FROM THE TOP

THE IMPORTANCE OF BEING TECHNOLOGY ORIENTED JUAN CARLOS HERNÁNDEZ CEO of Industrias Energéticas

356

Q: As an integrated energy services provider, what have

Q: How will the development of the Special Economic

been your top technological introductions in the last year?

Zones (ZEEs) in Campeche open new opportunities for

A: We have obtained exclusive rights to commercialize a

Industrias Energéticas?

series of cutting-edge technology products for the energy

A: Industrias Energéticas prides itself on having its origins

industry in Mexico. When our market experience matches the

in Campeche and along that line, we are constantly seeking

right technology, we are capable of creating highly beneficial

business opportunities in our region. Ever since President

results not only for the client and the end consumer, but also

Peña Nieto’s administration established Campeche as

for the country and its people. We have made the most of the

a ZEE, we have been active in proposing projects with

opportunities that have come our way in microgeneration,

an integral vision that contemplates the development

cogeneration and trigeneration of power, as well as in the oil

of social and economic infrastructure, strengthening

and gas industry, be it offshore or onshore.

human capital, bringing in innovation and technology transfers as a fundamental component of the creation of

Q: How will you help new companies entering the Mexican

sustainable urban development in the region. The ZEEs’

oil and gas market create value based on your services?

development is based on the training of human talent

A: We are a fully Mexican company with over 20 years of

and the knowledge of high-quality technologies, where

experience in the market and we have the particular mission

we can also contribute. Industrias Energéticas is on the

to support the national industry through impactful projects.

frontline of offering materials to support and supply other

We also strive to set up strategic partnerships with other

companies in projects spanning from energy efficiency,

national and foreign companies to make the most of the

clean energies, electric vehicles, smart panels or the IoT.

business opportunities and to create added value as a final result of our services.

Q: Which projects will you embark on to grow the company’s international partnerships and its status as a

Q: What opportunities have you identified for clean-

global partner of choice with Mexican DNA?

technology turbines and which partnerships will you

A: We are negotiating with a number of international

develop for this business line?

fuel companies with the goal of strengthening our new

A: We want to be part of the smart grid network to exploit

hydrocarbons commercial branch. This has been done

the natural gas pipeline network, which was built under

through a concrete strategy to get involved in meetings,

the Ministry of Energy’s Five-Year Plan and has boosted

chambers and associations in the energy industry to

the natural gas market and transformed power generation

establish the most convenient partnerships for us. We

operations with cogeneration and trigeneration. Industrias

have also increased our presence in conventions and

Energéticas will deliver the best solutions that integrate

exhibitions where we have met with world-class fuel

the latest technologies in measurement, monitoring,

producers in a quest to increase our supplier portfolio.

communications and operations to improve efficiency,

We have launched a business line oriented at the

reliability, quality and security of electricity networks in the

commercialization of hydrocarbons and we are investing

transformation process set out by the Energy Reform and

to ensure organic growth.

its sustainability principles. Q: What successes would you like to achieve by the end of 2018? Industrias Energéticas offers fully integrated applications for

A: We want to consolidate our position as a relevant

the industry, both offshore and onshore. Industrias Energéticas

importer of hydrocarbons in Mexico. We also plan to take

is also dedicated to the import and commercialization of

every single opportunity stemming from the ZEEs based

hydrocarbons and natural gas

on their vision to foster technological exchanges.

INSIGHT

COMMUNICATION, TRACKING THE KEYS TO CNG USE IN VEHICLES Josué Hernández Founder and Director General of Natgas

Enrique Taracena CFO of Natgas

Natural Gas for Vehicles (NGV) is a market that is still in its

stations can be built, which also means that the possibilities

infancy but could grow into a key cog for reaching Mexico’s

that a private user will select natural gas over gasoline will

clean energy goals while providing considerable economic

increase,” Hernández says. “With the expansion of our CNG

savings for users, according to Josué Hernández, Founder and

network, we are indirectly opening our market to the private

Director of Natgas. Having spotted the market potential, the

sector.” He adds that the strategy has already worked in the

company is working to strengthen its foothold in the country.

Bajio and western regions, and that the company is expecting

“By April 2018, we had eight Compressed Natural Gas stations

to implement it in the north. “We plan to expand to the north

(CNGs) already installed, with which we serve over 6,000

and are looking at cities such as Monterrey or Tijuana to start.”

clients in the Bajio and western regions,” Hernández says. The knowledge that using a certain product is more The company, a Mexican provider of NGV, highlights its work

profitable than another does not automatically mean that

in Queretaro to illustrate the fuel’s penetration potential. “In

a change will take place, and upfront capital expenditure

Queretaro, over 60 percent of public transport now moves

tends to be among the main hurdles. The same is true for

with natural gas,” Hernández says. “By law, in less than five

the NGV market, where users must first convert their units

years all public transport must transit to clean energy, which

from gasoline or diesel to natural gas, explains Taracena. As

makes Queretaro the first state in Mexico to take this action.

a result, the company has worked to offer financial support

Today, our company has the most CNG stations in Mexico. By

to its customers. “We know that it is hard for public transport

2022, we plan to have 42 CNGs installed.”

owners to pay upfront for the conversion of their units,” Hernández adds. “We have developed alliances with financial

To reach this level of success, Natgas focused first on public

institutions so the investment cost can be transferred to a

transport, which is where a cost-benefit relationship is truly

distribution of small surcharges, which is added to the price

important, says Enrique Taracena, the company’s CFO. “For

of the natural gas the user consumes from our CNGs.” Users

public transport owners of taxis, buses and small transport

see the benefit from Day One, he adds, but even higher

fleets, gasoline costs are a big expense,” he says. “While

profits are achieved once the loan has been repaid. “Once the

gasoline prices are rising every day, customer tariffs must

user stops paying the small surcharge, the savings increase.

remain fixed, meaning that their margins are decreasing

After that, users can save up to 50 percent compared to

at an accelerated rate. By using natural gas, which is more

consuming gasoline or diesel.”

economical, the owner can increase profits while also making the unit safer and less contaminating.”

To ensure the smooth functioning of the financing system, Natgas uses a chip that is included in the units. It scans the

Because of the expense of gasoline, Hernández says

technical and financial information related to the unit every

companies working in this sector are more willing to adopt

time the customer fills up, meaning the system knows whether

solutions to reduce these expenses, another reason for Natgas

the user needs to pay any surcharge. According to Taracena,

to target public transport as its main market. “It is easier to

the use of such a system was crucial to obtain the support

work with the public transport market because it is more

of financial institutions, but he admits that there is still much

price-conscious than the private sphere,” he says. “Owners

to do to minimize potential risks. “Financial backers are still

of public transport vehicles are willing to travel 10km farther to

afraid that owners may go and fill up somewhere else to avoid

the closest CNG station if the fuel savings are worth it. Private

paying the small surcharge,” he says. “To combat this, we are

owners choose convenience.”

in conversation with almost all our competitors, and with regulators, to promote the use of the same system so we can

That is not to say that Natgas is neglecting the private sector.

share the information among every company that dispatches

“The more users we cover in the public sector, the more

natural gas for vehicles. They have all welcomed our proposal.”

357

INSIGHT

TRANSFERRING KNOWLEDGE FOR STORAGE TERMINALS FRANCISCO SOTO President of Bulkmatic de México

Recent regulations published by CRE and mandating

to bring fuels as quickly as possible from other regions. To

fuel storage requirements has created a clear business

secure that market we plan to build a terminal in Hermosillo.”

opportunity for companies willing to take it, says Francisco

358

Soto, President of Bulkmatic de México. “The new regulation

Bulkmatic specializes in transferring materials from railroad

determines that by 2020 all companies that distribute

cars to trucks. It has been working on that niche for over

fuels in Mexico must have a storage reserve of five days

20 years in Mexico, and now has 12 transfer terminals

availability,” he says. “This quantity will gradually increase

representing a capital investment of US$70 million, 200

up to almost 15 days by 2025. The development of all the

tractors and 150 pneumatic trailers in the country, with

required terminals cannot be handled entirely by PEMEX

which it handles over 1.4 million tons of bulk products

due to its limited capacity. This is where private companies

annually. Bulkmatic de México is a unit of Bulkmatic Transfer,

come into play.”

a Top 10 North American cargo transfer company with a 50-year history in the US.

Soto says Bulkmatic has already found three excellent opportunities in Mexico: Salinas Victoria, Tula and Hermosillo.

Moving into storage is a natural progression for the

“Because of its proximity to the US border, Salinas Victoria

company, considering its history of handling several types

will allow us to bring fuel from the refineries in Texas and

of petroleum derivatives, Soto says. “We have handled both

other US states,” he says. “The closeness of Salinas Victoria

petrochemicals and fuels, which has allowed us to perfectly

to Monterrey and the demand for fuel in that area make this

come to grips with the needs of our Mexican clients that

project even more attractive.” In the case of Tula, the city

work in those sectors,” he says. “We already have all the

is well-located to serve the high demand of a metropolis

knowledge, experience and certifications to handle those

like Mexico City and its surroundings, he continues. “Finally,

products, so we have an advantageous position over many

the north of Mexico has huge demand for fuels, but lacks

other companies looking to develop storage terminals in

storage, meaning that the region is under constant pressure

the country.”

Salinas Victoria 2 Bulkmatic Terminal under construction, Nuevo Leon

To improve efficiency as it expands its business line,

“Onshore terminals in the country will be needed no matter

Bulkmatic is working toward automating its transfer facilities,

what, because we cannot depend only on maritime terminals

a feature that will then be implemented at its storage

for storage,” he says. “Doing so is like placing a burden

terminals. “Our transfer facilities are being overhauled to

on regions with lower demand or that are far away from

become fully automated” he continues, “With the proper

terminals since they will be dispatched last and will therefore

automation, a truck that enters the terminal will be able to

not be supplied with the fuel they require in times of need.”

leave fully charged and weighted in less than two hours.

He says the construction of railroad terminals provides

Currently, that process can take several hours.”

flexibility and increases the security of the fuel supply.

While clear demand and efficient operations is extremely

But this is not to say Bulkmatic is completely overlooking

important for storage terminals, it is equally important for the

maritime infrastructure. “We can operate the facilities for

terminals to have a proper logistics infrastructure that allows

companies that are developing maritime storage terminals

the fuels to come and go. For that reason, Soto is looking

but that do not have the fuel-handling expertise,” he says.

for strong partners willing to provide easy access to every

“We are already talking with several companies interested in

facility. “For the terminal in Salinas Victoria we are looking

developing projects in Lazaro Cárdenas, Tuxpan and Altamira.”

for a strategic commercial partner that can help us with the railroad infrastructure to facilitate logistics.”

Regardless of the type of storage infrastructure, Soto says the most important factor for success is a long-term vision.

Soto believes the market needs both railroad and maritime

“We can see ourselves in 10 years as the most important

connections but Bulkmatic’s experience makes it wiser

operator of storage terminals in the country, for both our

for the company to focus on the development of onshore

own terminals and those of third parties,” he says. With that

infrastructure. “Railroads are much faster and more flexible

in mind, he is setting tangible goals for the end of 2018.

than maritime facilities,” he explains. “While a vessel has to

“For 2018, our plan is to have the first stage of the Salinas

be full to make the shipment viable, a train can be shipped

Victoria terminal ready, which will offer service to Monterrey

starting from 90 cars.”

and its surroundings,” he says. “The terminal should start operations by the beginning of 2019. By the end of 2018,

Another advantage of installing railroad terminals is the

we want to have everything ready to start the construction

flexibility they provide for supplying fuel to different regions.

of the Tula terminal.”

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VIEW FROM THE TOP

CONNECTING THE DOTS OF REGIONAL INTEGRATION HÉCTOR GARCÍA Director General of Bechtel Internacional de México

360

Q: How will the development of natural gas pipelines from

A: Bechtel has had a long-standing presence and participation

the US to Mexico impact LNG imports to Mexico and what

in the energy sector in Mexico. We have worked in oil and gas

role might Bechtel play?

but also in power generation. We were pioneers in privately

A: We believe it is a fundamental shift in the way the regional

financed power plants and were actually the developers,

energy market is behaving. We now see a North American

investors and executors of the first privately financed power

energy market with increased access to cheap natural gas

plant in Mexico. Since then we have completed two more

coming from the US on the one side and Mexico clearly

and in total we have carried out nearly 2,500MW of privately

expanding its natural gas pipeline network allowing for clean

powered combined cycle power plants. But we were also

power generation, something that we strongly advocate.

pioneers in privately financed pipelines in Mexico, with the

This change also allows for industrial development in certain

700km Mayakan pipeline in southeastern Mexico. We believe

areas of the country that previously did not have access to

we have cumulative experience in delivering infrastructure

natural gas. Regional energy integration is now changing the

projects such as pipelines, which is now driven mostly by

dynamics in the US as a supplier and in Mexico as a consumer

private investors and operators for whom time is critical.

of this resource both for power generation and for industrial

For them, it is imperative to have a facility operational by a

development. We are optimistic that this trend will continue. I

certain date, within a certain budget, within high parameters

think that regional energy integration is almost irreversible; it

of safety and quality. We believe we fit right into that picture

is happening and it would be very hard to turn the dial back.

as an accomplished EPC contractor that can work with private customers and understand their commercial drivers.

Mexico has three regassification facilities. Given the current market dynamics we anticipate the potential conversion

Q: In what parts of the oil and gas sector do you find the

of some of those into export facilities. We have first-hand

scales of projects that interest you?

experience in the conversion of regassification installations

A: We find projects of adequate scale in pretty much every

into export liquefaction facilities. The first time we did it was

sector that we work in. We have experience with tanks and

in Sabine Pass for our long-standing client Cheniere Energy.

fuel storage terminals and we perform work in that sector,

We built the regassification facility and after some time they

though clearly the scale of those projects is relatively much

called us to ask if we could support them with the opposite

smaller than if we talk about a refinery or an LNG facility,

process, so we converted the plant. Of course, we used some

which is an investment of billions of dollars. A terminal will

of the basic infrastructure already in place, but then we also

have a cost that is in the low hundreds of millions of dollars

had to change the process altogether. Now our customer is

while an LNG facility can cost between US$5-7 billion. It

exporting liquified natural gas from that Sabine Pass facility.

depends on the sector. We gear up our delivery models to

We anticipate that with the Energy Reform and the ability of

participate in diverse sectors according to the scale of the

the private sector to take a more prominent role in Mexico

project at hand. In every case we bring our proven execution

some of these facilities could become export terminals.

models, processes, procedures and discipline to bear but we need to adapt them to a small investment or to a big

Q: What is Bechtel’s role in the integration of a pipeline

investment depending on the project.

network reaching all of Mexico? However, it is true that within certain sectors, the bigger the project, the smaller the competition. Few companies Bechtel is a respected global engineering, construction and

around the world can tackle the scale of projects that we

project management company. Together with its customers, it

can deliver. We need to think differently when considering

delivers landmark projects that create long-term progress and

smaller projects. We can scale up or down accordingly, but

economic growth

we always need to be selective.

INSIGHT

EXPERTISE IN MARKET TRANSITIONS

Daniel Lucio Director General and Managing Director of SUMMUM Corp.

Daniel Zuluaga Country Manager Mexico of SUMMUM Projects México

Mexico’s energy sector continues to transition to a competitive

be able to work with the big players that entered Colombia

multi-company market, midsized multinationals that can offer

during the transition. He believes that compliance with

a global perspective, like SUMMUM Projects México (previously

international standards along with the company’s already-

Tiger Engineering) and its holding parent company SUMMUM

established relationships with big players in Colombia has

Corp., are uniquely positioned to offer added-value services,

been an invaluable asset as SUMMUM Energy entered and

says SUMMUM Corp.’s CEO Daniel Lucio. “While remaining

SUMMUM Projects México expanded in Mexico. “Many of the

midsize, we comply with all the quality and safety standards

companies we are now trying to work with in Mexico have

that big international players ask for, but with more

been our clients in Colombia and Peru,” he says. “Many of

competitive prices and more focus on client satisfaction than

these companies are new to the Mexican market and the

other multinational service providers,” he says.

fact that they know us, as well as our seven-year experience in Mexico thanks to SUMMUM Projects México, allows us to

Lucio is working to bring SUMMUM Energy, a Colombia-

provide them strong leverage in the country.”

based company for upstream services ranging from well testing, maintenance and operation, slick line to construction,

While upstream activities are among SUMMUM Corp.’s main

to Mexico. To do so, he is leveraging the deep expertise

areas of concentration in Mexico, mostly due to SUMMUM

of SUMMUM Projects México, an engineering, consulting

Projects México’s solid background in that segment, Lucio and

and design services company that has been devoted to

Zuluaga see great potential for SUMMUM Corp. in storage

the Mexican market for seven years. “The fact that both

terminals. According to Zuluaga, SUMMUM Projects México

companies are connected by SUMMUM Corporation has

is in close talks with players that either have a permit to build

allowed us to offer the whole development of the project,

storage terminals or are in the process of obtaining one. “To

from design and engineering to operation and maintenance,”

enter this market, we want to cover all stages of the projects;

Lucio says.

from conceptual to basic and detailed design; and also acting as engineers on the design and construction stages,” he says.

While SUMMUM Corp.'s headquarters is based in Colombia,

Lucio highlights the strong experience SUMMUM Corp. has

Daniel Zuluaga, Country Manager in Mexico of SUMMUM

developing these kinds of projects in Colombia and Peru,

Projects México, says the company’s branch in Mexico is

giving the examples of the EPCM for the expansion of the

fully staffed by Mexicans, meaning it can also increase the

Talara refinery in Peru, which was done for Petroperu; work at

local content of any activity it gets involved in. Zuluaga

the Bahia port in Cartagena, Colombia developed for Pacific

adds that being a medium-sized but multinational company

Infrastructure; and the Impala port in Barrancabermeja,

has economic advantages. “We not only provide excellent

Colombia, developed for Trafigura. “Those projects exceeded

services to international companies while remaining flexible,

an investment of US$400 million each, and we managed their

but can also offset market downturns in one country with

construction, which is proof of our capacity,” he says.

the activities in another,” he says. “We have witnessed how some companies that have been focused 100 percent on

Zuluaga also points to the significance of SUMMUM Energy

the Mexican market have struggled and sometimes even

and SUMMUM Projects México being medium-sized and

disappeared because of the downturn in activities.”

flexible companies, especially considering the size of storage terminals to be constructed. “A 100,000-barrel terminal is not

While many Mexican players are now struggling to certify

so attractive to a big EPC or engineering company, because

their activities so they can provide services to big operators,

the cost does not fit with the economy of the project. Such

Lucio says that SUMMUM Corp.'s experience with Colombia’s

a company would also be taking on risk by venturing into a

market liberalization in the late 1990s taught the company

new jurisdiction,” he says. “On the other hand, we have the

the importance of complying with international standards to

experience and the ability to conclude these kinds of projects.”

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TECHNOLOGY SPOTLIGHT

362

FIRST OF ITS KIND: WOOD’S OIL AND GAS ATC On April 19th, 2018, Wood inaugurated the first of its kind Oil and Gas Advanced Technology Center (ATC) in Mexico, together with CISCO and Roue Consultores. The ATC will be used to simulate, execute and manage the operation and maintenance of hydrocarbons distribution and storage systems in a cutting-edge laboratory environment. Its goal is to become a playground and a demonstration site for the value that the IoT can bring to the upstream, midstream and downstream segments of the oil and gas industry. With an open architecture based on international standards, such as ISA95 and IEC62264, the ATC is available to both national and international oil and gas industry professionals and will allow them to model and optimize their operations. As hydrocarbons transportation and distribution activities enter into a financial commodity structure, with prices d by the market, the use of state-of-the-art technology has demonstrated a positive impact on making cost structures more efficient and helping companies remain competitive. In this regard, the ATC is set to become the first step for companies to increase their gains nd competitiveness in the market. The advantages of having world leaders such as Wood, CISCO and Roue Consultores is three-fold. Wood brings experience and a deep understanding of the oil and gas industry together with integration capabilities to combine the core added-values of each company. CISCO’s digitalization and data analytics experience helps decisionmakers ensure their operations are more reliable and with a faster overall execution, resulting in safer and more efficient activities that remain environmentally friendly and with enhanced profitability. Finally, Roue Consultores’ has over 12 years of experience in Mexico, with broad experience in IT integration to optimize resources while ensuring the security of its clients’ data. An example of one of the first tailor-made technology solutions developed by Wood in combination with CISCO and Roue is the CISCO Connected TAD (Storage and Supply Terminal). This solution focuses on the digitalization of the hydrocarbons distribution process and provides the integration of flow, fire and explosive gas detection systems while including dispatch tank-truck geo-positioning, telemetry, safety and geo-fencing that applies from the Terminal to any gas station or facility.

363

VIEW FROM THE TOP

INTRODUCING MEXICO’S FIRST PRIVATE, 100 PERCENT MEXICAN FUEL-STORAGE TERMINAL EDGAR GUTIÉRREZ Director General of Hydrocarbon Storage Terminal (HST)

364

Q: Why is there a need for a company like HST in Mexico?

Q: How has HST developed its relationship with regulators

A: When we started in 2014, we identified several favorable

and what impact has that had with clients?

variables regarding storage and rail distribution of fuel. First,

A: As market first-comers, several industry regulators

the competition lacked efficient processes. For instance,

approached us, both asking for our assistance and

PEMEX terminals employ between 200 to 250 people,

accompanying us on our learning curve. For instance, ASEA

whereas we only need about 33. Second, the number of

strongly recommended that our company be certification-

days required for storage. In Mexico we only have three days

specialized to ensure our terminal’s design was compliant

of storage, while in other countries a minimum of 30 days is

with industry standards. It suggested five companies and

required, highlighting our need for new terminals. Third, the

we contacted them all, but none had ever completed a

number of nationwide terminals and the comparative cost

certification process for a project such as ours. This input

between building a PEMEX terminal versus a private one.

was crucial for designing a new legal framework in which

We found the latter could cost up to half of what PEMEX

certification companies could extend their reach beyond

usually pays.

only certifying gas stations. As our relationship with regulators expanded, we were able to stay in the loop

Every aspect of this business opportunity was enticing, with

regarding the industry’s latest developments.

one major exception: the lack of regulation and transparency regarding the government’s plans for pipelines and if rail

Regulators are always in need of an overview from the

terminals were going to be regulated. We met with Kansas

entire value chain: terminals, gas stations, traders and

City Southern and discovered it was just as clueless as the

shippers, to mention a few. We are happy to contribute.

rest of the industry. My partners and I decided to create HST

Our TCPS permit enabled us to participate in the Custody

with the sole purpose of introducing Mexico’s first private,

Transfer regulation on invitation from the Mexican Energy

100 percent Mexican fuel-storage terminal. We formally

Council (COMENER). These constant interactions with

launched the company in 2015 but could not get a permit

Mexico’s energy regulators gave us the edge when talking

from CRE because regulations for an operation like this

with our clients as we pioneered Mexico’s first private

were not yet in place. We built our project under PEMEX’s

terminal.

guidelines, hired design engineers who worked for the NOC and who are experts in NOMs. Once the rules came out in

Q: What is HST doing to enhance Mexico’s inventory

2016, we were the third permit granted nationwide and

capacity for gasoline reserves?

the first ever with Service Providing Terms and Conditions

A: Increasing Mexico’s inventory capacity to the international

(TCPS) provisions for the use of pipelines. Although new

average of 10 to 15 days means allocating additional,

construction regulations pertaining to terminals were

untouchable resources. There is also pressure from traders,

released some weeks after, it had a positive impact for

shippers and gas station owners that are adamant in

us in the end because we were able to build a bigger

opposing inventory increases while terminals and regulators

terminal than we anticipated, increasing our capacity from

are favorable. PEMEX is in the middle of it all, without

330,000 barrels to around 900,000 barrels, representing

sufficient funds to build more terminals. Compromise is

an investment close to US$70 million.

key. From an energy security standpoint, our three to five days of inventory is unacceptable. Countries such as Spain, Japan or even Peru have 90 days, while the world average

Hydrocarbon Storage Terminal (HST) provides logistics

is 30. I believe a gradual increase in our capacity is the way

solutions to the hydrocarbon storage and distribution industry.

to go. HST remains connected to the process, providing our

HST is building a storage terminal with a 875,000-barrel

input when regulators seek modifications. We even advised

capacity that will include various distribution channels

a geographical restructuring to this end.

VIEW FROM THE TOP

SIMILAR HISTORY SECURES A STRONG PRESENCE JORGE LANZA CEO of CLH

Q: What kind of business opportunity does Mexico

Every new player entering Mexico is looking for a way to set

represent for CLH?

a strong foothold in the country. Since we share the same

A: Mexico has great potential regarding fuel storage

culture and speak the same language, we are capable of

development due to the expected growth in fuel

doing business more easily with Mexican companies. We

consumption and the lack of installed capacity to cover

can clearly leverage our operational know-how coupled

such demand. It is difficult to project how big our business

with the cultural fit to team up with local partners who

in Mexico will become but considering the size and

have good projects in the country but need an industry

potential of the country we are sure that Mexico will gain a

expert to develop and operate them.

significant share within the CLH business. For that reason, we brought an entire team to scout business development

Q: When do you expect to start operations at the terminal

opportunities, something that we had never done before,

to be developed together with HST?

not even in Oman. Furthermore, if we play our game well

A: This storage terminal is almost ready to start construction

enough, Mexico could become a springboard for CLH to

activities, as soon as we finish the last contracts and permits

enter the Latin American region.

and will start operations in early 2020. While the permit granted by CRE is for storage of 875,000 barrels, the initial

Q: How is CLH securing its entrance into the Mexican

construction will most probably consider fewer barrels. We

market?

are looking for the right contractors to develop the project

A: In 2017, we put together a team to look for the right

and expect them to be national. Of course, the engineering

opportunities in Mexico. Finally, we found the right partner

will be developed with the help of our central teams in

in Hydrocarbons Storage Terminal (HST) and bought

Spain, but at the end of the day those actually building

60 percent of the company in April 2018. Through this

and connecting the pipelines to the storage tanks will be

acquisition, we will develop a new oil terminal in the Valley

Mexican. Parallel to the construction, we will be looking for

of Mexico. HST and its local shareholders are providing us

other opportunities to keep ourselves busy.

phenomenal added value as it is an established Mexican company with people that already know the market, have

Q: What other business opportunities are you looking to

direct relationship with the key market stakeholders in

develop in Mexico?

Mexico and local customers. CLH is working to attract anchor

A: Striking the right alliances for the development of projects

customers for this first storage terminal and is also providing

in the country is extremely important for us. In this sense,

cutting-edge efficient technologies to handle hydrocarbons

it is worth clarifying that the country will see an increase

that will result in lower final prices for customers.

in oil and gas production and, because of that, we are not only looking at the creation of terminals for refined products

Q: How do you expect CLHâ&#x20AC;&#x2122;s track record in Europe to help

but also for crude oil, although the need for the latter will

the company in the Mexican market?

come later as production increases. In Europe and the US,

A: CLH was born in Spain from a monopoly that started in

we operate jet fuel storage terminals and provide into-plane

1927 and ended in 1992, in a similar opening scenario as in

services at 35 airports, meaning that we also have a great

Mexico. For many years CLH experienced an increase in fuel

deal of experience to bring to Mexico in this area.

demand amid a lack of infrastructure in the country, coupled with the competition from many international companies, just like what is happening with PEMEX. Generally speaking,

CLH Group is the leader in the transportation and storage of oil

we understand PEMEXâ&#x20AC;&#x2122;s DNA, its roots and the structural

products in Spain, where it operates over 4,000km of pipelines

changes it is going through. That experience is a strong

and 8 million m3 of storage. Through its international subsidiaries

added-value we can offer to all our potential clients.

it has become an important player in the UK and Oman

365

VIEW FROM THE TOP

DEALMAKERS SEEKING PROPANE PORT RODRIGO DE VIVANCO ALVERDE Founder and Owner of Kratus Energy

366

Q: What is Kratus Energy’s strategic focus?

scope to involve many of our clients. There are two efficient

A: We are an integrator with an emphasis on representing

electricity cogeneration plants in the vicinity but there is

companies that provide services to the drilling industry. It has

not enough natural gas supply. These CFE plants are using

been a difficult environment the last couple of years and the

fuel oil, which is the worst possible option. Constructing a

drilling industry here in Mexico has been almost on standby, at

regasification plant in Seybaplaya for receiving LNG would

least on land. We have been working on deals in areas such as

cost around US$200 million and would take six years to

infrastructure for natural gas pipelines. We are collaborating

build. However, there is an alternative. Propane is very easy

with a company called the Conti Group, a US EPC business

to transport and unlike LNG, does not require cryogenics. We

that wants to enter Mexico. This group designs and constructs

are working with an international company that distributes

ports, airports and bunkers, as well as doing remediations. It is

propane worldwide. It has committed to building the

one of the 500 largest companies in the US. We are exploring

necessary infrastructure within Seybaplaya’s port as well as

several opportunities for this client within the energy market,

carrying out the modifications to the electricity plants needed

from buying natural gas pipelines to developing ports and

for the use of propane. We are also in talks with the large

infrastructure for fuel storage terminals.

gasoline retailers in the area. We already have two companies interested in diesel supply. The influence area would be the

Q: How did you create the portfolio of companies in your

states of Campeche, Oaxaca, Chiapas, Yucatan and Quintana

service package?

Roo. This area of Mexico is almost like an island. It would take

A: We found some of the clients in our portfolio, while

about 10 years for infrastructure development in this part of

others found us. We have tried to create a general solution

the country to provide ample natural gas pipelines. That is why

for companies wanting to do E&P in Mexico. We can address

CFE is very interested in our project. It is also an easy project

practically all the requirements of such companies aside

to construct and can be completed in about a year.

from the geological aspect. For example, Acción Logística offers a customs agency and logistics services. It has a

Q: What do you think are the key bottlenecks hampering

private port and bases in Laredo and in all the other coastal

the collaboration between the private and public sectors?

oil hubs in Mexico. Among our other clients, Morton Controls

A: I think a key cultural factor is respecting people’s time.

makes electronic systems for platforms. Del Pacífico is a

Often, meetings involve participants flying in from other

group of engineers who used to work for large service

countries. If PEMEX representatives schedule the meeting

companies and came together to help companies that are

for 8am but delay it until 2pm, or change it for the next

entering Mexico. Each of the engineers is a specialist in a

day, this is not conducive to good business practices or

particular area of drilling and production. These are just a

relationships. We have met with companies that have said

few of the companies we represent.

that they were not interested in going back after being treated this way.

Q: What would be a project that would keep your portfolio of clients happy?

This is part of the culture in Mexico and particularly in

A: We have a project in the works for a port, tank farm and

PEMEX, but it does a great deal of damage to medium-

storage terminal in Seybaplaya, Campeche, which has the

sized companies. PEMEX is becoming a company that will have to compete with the whole world, so it will not have the importance it used to have. Another problem is with

Kratus Energy is an integrated solutions facilitator. It has

PEMEX being forthright when a proposal has no chance

consolidated a group of companies to provide a number of

of being accepted. Often it can take a year of going back

services and products, with specialized services contractors,

and forth before a company is told its proposal will not

products, equipment providers and consulting services

be considered.

VIEW FROM THE TOP

TANK GIANT EYES CENTRAL REGION RICARDO DIOGO Director of Business Development at Oiltanking

Q: How will the liberalization of gasoline prices and imports

as far as we understand, demands a longer application

impact the demand for Oiltankingâ&#x20AC;&#x2122;s services?

period and is more difficult to acquire. That permit allows

A: This liberalization caused private players to look at

companies to sell products in Mexico. The import permit is

this market and to see the opportunities for new storage

pretty straightforward, which is probably one of the reasons

facilities. Since logistics are normally necessary between

the number of import permits granted are much higher than

production and distribution, logistics and storage are

what the market needs. Of course, if a trader is in Mexico

required to close the cycle between the imports and the

and knows that the permit is easy to get, it is better to have

retailers. The liberalization sparked huge momentum in the

it ready in case an opportunity presents itself. So many

storage and logistics business.

permits were requested and approved. But I do not think that all these permits will be used since there is not enough

Q: What services is Oiltanking providing under the current

demand or even projections of demand for all of them to

market conditions?

be used. If everyone committed to importing the volumes

A: We are the second-largest liquid storage operator in the

they are permitted then the country would be overflowing

world. Often, we own our infrastructure and operate it to

with gasoline. Therefore, I do not think import permits are

sell capacity to oil and chemical companies, traders and

an accurate reference for what is going to come regarding

retailers; that is the principal expertise Oiltanking brings

volumes of imports.

to the market. Demand in Mexico is expected to grow 2-3 percent per year We can also partner up with existing facilities. PEMEX, of

and PEMEX is still here. PEMEX will have to lose part of its

course, could be an option for the latter service. But we

market share to make room for others and create some

also have other lines of business in which we do not own

growth in imports. The market will not grow 50 percent

the facility. If someone has a facility but does not have the

just because it is an open market.

expertise to build or operate it, and even may not want to have that responsibility, we have O&M services in which we

Q: Where do you see imbalances between storage capacity

operate the facilities. If the facility still needs to be built we

and demand?

can jump in with support at the engineering phase or assist

A: The greatest imbalances are definitely in the central

with the construction and then operate the storage facility.

regions, such as the State of Mexico and Valley of Mexico. That is where the highest consumption is and the other

A final option we offer is for companies that want to have

large regions are closer to the border, making it is easier to

a facility but are unable to invest at a first. Fortunately, we

ship cargo by rail. At distances of more than 800-1,000km

have a very strong balance sheet that allows us to also

from the border, it becomes more difficult to bring in

offer a Build, Own, Operate and Transfer (BOOT) business

large shipments for high-consumption areas by truck. Rail

model, in which we charge a fee during the duration of

might be complementary at that distance but the largest

the contract to get our return on investment. The facilities,

volume will inevitably be supplied by pipeline or vessel.

which we have managed according to international

Therefore, the central region from the Valley of Mexico up

standards, are then transferred to our clients at the end

to Guadalajara is where we see the largest imbalances.

of the BOOT contract. Q: How aggressively do you expect demand to be driven

Oiltanking is one of the worldâ&#x20AC;&#x2122;s leading independent storage

by the length of permits granted?

partners for oil, chemicals and gases. Oiltanking owns and

A: First of all, retailers need two permits for this new

operates 80 terminals in 24 countries with a total storage

business model. One is the commercialization permit, which

capacity of 21 million m3

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VIEW FROM THE TOP

SAFE AND ON TIME KEY TO WORKING WITH UNIONS MICHAEL ROSS Vice President and Country Manager for Mexico of Kiewit

368

Q: In which oil and gas segment does Kiewit see the

go well but Kiewit and the subcontractor worked together

biggest business opportunity in Mexico?

to identify a number of time-saving ideas, including

A: We can see a great deal of potential in the midstream

the introduction of new equipment that dramatically

sector, especially in the area of fuel storage. We are also

improved the productivity of the tank-building company’s

working hard to identify more opportunities in other

craftsmen and together we managed to make up lost

segments of the oil and gas industry; however, it is difficult

time and to take the erection of the tank off the critical

to identify which project will move forward and will become

path. Instead of going through a negative cycle, we

a reality and which ones are not viable. Kiewit was fortunate

decided to be proactive and help the subcontractor with

to be involved in the development of the Puerto Progreso

tools, technology and work processes to help make it

storage terminal. Progreso is one of the first new liquid

more successful in its work. Their productivity increased

fuels terminals in Mexico. We have been working on the

so much that the company even bought some of the

Progreso project for over 11 months with the first shipment

machinery we lent it.

of fuel scheduled to arrive on May 28. Progreso is a great example of our commitment to deliver our projects on-time

Q: How attractive are the Mexican upstream and

and on-budget.

downstream sectors for Kiewit? A: While we are seeing a great business opportunity in

Q: What challenges did Kiewit find when developing the

the midstream sector, we do not limit ourselves to only

storage terminal in Puerto Progreso?

those kinds of projects. Kiewit has strong expertise in the

A: Before beginning the project, we thought one of the

upstream and downstream sectors with several projects

hardest aspects was going to be handling some of the

in the US and Canada and it is looking to bring these

related workers’ unions, as they have a reputation in the

capabilities to Mexico.

country of being hard to deal with. Fortunately, we have had excellent relationships with all the unions we have

Q: How did the first project developed by Kiewit in Mexico

worked with in Mexico. We believe this is in part due to

secure it a strong foothold in the country?

the union’s recognition that Kiewit wants to provide their

A: The first job we performed in Mexico was to install

members — our employees — with a very safe, clean work

two natural gas compression stations for TransCanada

environment and that we want to provide good long-term

in Tula and Valle de Reyes, a project that showcased

career opportunities for our craftsmen and women. We

our capabilities in the oil and gas industry. The biggest

want to provide our workers with very safe and secure daily

difficulties we faced during the project were not technical

working conditions at our sites. We have solved every minor

but on the regulatory side, related to getting all the rights of

or major conflict with our workers thanks to our relationship

way and permits. By closely collaborating with TransCanada

with their unions and our shared commitment to delivering

we finished the project on schedule and in compliance with

the best outcome for the project.

all safety standards.

To construct the storage tanks at Progreso, we hired a

Q: What would make a company an ideal partner for

Mexican tank-building company. The initial work did not

Kiewit? A: We are looking for potential engineering and construction partners. While we have substantial experience in those

Kiewit is a Nebraska-based, Fortune 500 contractor involved

areas, we still lack experience in the country. Partnerships

in construction, mining, oil gas and gas, chemicals, power,

with these types of companies would help us develop a

transportation and wastewater projects. It has developed

much broader understanding of how to be a successful

project portfolios in the US, Canada and Mexico

EPC company in Mexico.

VIEW FROM THE TOP

BETTING ON GAS AND DIESEL STORAGE DEMAND RUBÉN CORTINA Managing Director of Tarsco México

Q: How is Tarsco focusing its efforts in the current

the opportunity to learn. And the learning process had

midstream environment?

to be very fast and efficient. ASEA has had an extremely

A: The private companies for storage are the new players

difficult ride because the regulator needs to manage a

and are our main target because for the moment there

bureaucracy that is usually very complicated in Mexico. It

is no infrastructure owned by private businesses; the

has had to develop standards from zero, so in my opinion

existing infrastructure is all owned by PEMEX. Our goal

it does not yet have the capacity to release permits very

is to participate with the new players on the basis of our

quickly. But they are doing an important job, gaining

experience and knowledge. Some of these are not only

experience and learning from previous experiences.

developers; they have a very strong organization behind them and they know precisely what they want. There are

Q: Under what time frame do you expect this market to

projects in the Gulf of Mexico and in the Pacific that are in

roll out?

the development stage. The companies developing these

A: In my opinion, all the infrastructure that is needed in

projects are not inexperienced companies; they are players

this industry will be in a consolidation stage for the next

who know what they want and know what they need. Those

15 years. We need pipelines, docks, jetties to unload fuel,

are our most important targets.

tanks and railroads. This raises an opportunity to develop a wide range of projects. The policy of strategic storage

Q: Are there any particular kinds of liquids or gasses that

of fuels is a very good one, as well as the decision to

typify the market that Tarsco wants to focus on?

divide the country by regions since the need for storage

A: Our workshop in Mobile, Alabama, and our experience

is not only present in the central area of Mexico. This

give us a very wide market coverage, up to building

policy will permit the development of regions such as

spheres for LPGG and ammonia. We also build cryogenic

the southeast containing the states of Oaxaca, Chiapas

tanks for different kinds of gasses and we have our own

and Tabasco. All these regions with high poverty rates,

workshop to build atmospheric tanks for gasoline and

few services and a lack of infrastructure, require the

diesel. We can provide a full service for a great variety of

development of industry. The government currently has

products, including natural gas, for which we have very

a midstream policy that promotes investment and the

efficient solutions.

growth of infrastructure. I think we will see a positive response from the private sector.

That said, the gasoline and diesel market has been growing strongly since the market was opened up, after first being

Q: Where does Tarsco foresee the most potential for

held exclusively by PEMEX. This means that the market

growth in storage capacity?

can now provide solutions for fuels from the US, Russia

A: From my point of view, the major projects will come

or another country. The companies meeting government

from the Gulf of Mexico and Tuxpan, Veracruz, where we

standards, obtaining the quality of gasoline required and

will see the largest expansion of storage capacity. We

getting access to the least costly fuels will be of great

think that most of the projects will be medium sized to

interest to Tarsco Mexico.

small sized because of the infrastructure requirements for transloading fuel.

Q: What is your view of ASEA’s role in accelerating the process in this new market landscape? A: Most of the players are learning from zero. There was

Tarsco Mexico is a partnership between Tanquera de México

no prior experience during the PEMEX monopoly. Now

and Tarsco, a TF Warren Group company. This parternship has

we have an open market and the regulators, the suppliers

over 35 years of experience in the construction of tanks for the

and everybody who participates in this industry have had

storage of both liquid and gas fuels

369

INSIGHT

FULL PROVISION OF NATURAL GAS SERVICES CAIO ZAPATA CEO of Énestas

370

With the ever-increasing demand for natural gas in Mexico,

has to be reserved and paid for, whether it is used or not,”

companies are positioning themselves to take advantage

he says. Énestas users cannot differentiate its provision from

and provide the supply. Caio Zapata, Director General of

that coming from pipelines, and the former can even be more

natural gas distributor Énestas, says companies must come

reliable than the latter, Zapata adds. “We are able to provide

up with more innovative transportation methods to capitalize

the client with up to 30 days of natural gas for storage,” he

on the new market. “We can reach any point in the country

says. “Sometimes natural gas providers that use pipelines are

connected to a highway, railroad or accessible by sea,” he says.

not able to ensure the availability of supply due to factors

Instead of using what Zapata calls highly capital-intensive

such as pressure variations or problems in the pipes, meaning

natural gas pipelines, Énestas uses wheels, ships and trains

that our service offers a higher reliability to our customers.”

to reach any point its customer may require. Vehicular Natural Gas (VNG) is another area of interest for Zapata refers to Énestas as a company specialized in natural

Énestas. Beyond competing with most VNG companies that

gas and highlights how the company provides its clients with

focus on the private and public transportation sectors, Énestas

complete solutions that can cover any need. This strategy, he

decided to tackle a niche for which it could offer a higher

says, has worked especially well for the industry because these

added value. “We focus on big transporters, such as inter-

kinds of users want to reduce their costs and emissions by

state transportation buses, trucks, trains and even ships,”

switching their diesel or gasoline-based equipment to natural

Zapata says. For that particular sector, Énestas does not work

gas. Dealing with two companies, however, one for conversion

with compressed natural gas (CNG) but with liquified natural

and one for natural gas provision, is a hurdle. “Énestas offers

gas (LNG), which offers clear benefits to the customer. “For

equipment conversion — motors, boilers, burners and so on —

large transporters, the advantage of using LNG is clear: an

from diesel or gasoline to natural gas, as well as the installation

LNG tank can store 2.4 times more gas than a CNG of the

of new ones,” he says. “Once the conversion is complete, our

same volume, meaning that costs will reduce not only due

expertise covers the whole range of distribution and storage

to fewer tanks being needed, but also to the fact that the

services the customer will need to take the most advantage

transportation unit weighs less,” he says. This allows Énestas

of its equipment.”

to offer 500km coverage areas for the transportation units with only one tank.

While offering the service of installing and converting natural gas equipment is at the core of Énestas’ industrial customers’

With numerous successes under its belt, Énestas wants to

strategy, Zapata recognizes that the company is not an expert

spearhead a new business line in Mexico: vented gas. “Globally,

in that area and prefers to leave that activity to its partners.

10-20 percent of the natural gas extracted from wells must be

“Énestas works directly with OEMs to provide the highest

vented,” Zapata says. International regulation from agencies

quality in the conversion and installation of equipment,” he

like the OECD state that 80-90 percent of the vented gas must

says. “This is a clear win-win partnership as OEMs increase

be captured. “Besides being polluting, this process involves

their number of customers, Énestas offers natural gas to a

money being literally burned,” he explains. Helping companies

bigger number of customers and companies are guaranteed

not only comply with regulation but to take advantage of an

that the conversion is performed by experts.”

asset that they were previously wasting, Énestas is working on a model to add to its success. “In our business model we

The option of having a company like Énestas for the supply

buy the vented gas, so our presence is not only seen as a

of natural gas is especially convenient for seasonal and

regulatory compliance step in the operators’ activities but

intermittent consumers, Zapata says. “Our customers only pay

actually as an added value,” Zapata says. “We then take

for what they consume, compared to traditional contracts with

care of everything, meaning that we install the equipment to

companies using pipelines where a certain annual capacity

capture the gas, process and distribute it.”

INSIGHT

INNOVATION THROUGH EXPERTISE: VIRTUAL PIPELINES AND STORAGE ALBERTO ESCOFET Country Manager of Enagás México

Years of experience in the international oil and gas industry

seen as an enabler for their physical counterparts. “Virtual

will translate well in the Mexican market, but ties to local

and physical pipelines have different purposes and market

companies can provide the extra shot that ensures success,

justifications that can be complemented. With the help of

says Alberto Escofet, Regional Manager of Enagás México. He

virtual pipelines, regions where natural gas had a limited

adds that Enagás is ready to take the next step. “In Spain, we

presence will start to see the benefits of using such a fuel

accumulated strong technical and managerial capabilities that

over other options, particularly for power generation. After

we offered to the Mexican market when we entered in 2011.

some time, demand will increase and at a certain point the

Now we are ready to go even further by bringing innovative

installation of a physical pipeline will be justified.”

concepts to the table.” As Enagás’ strongest expertise is in the area of physical The Spanish company, which has a 50-year track record in

assets, Escofet recognizes the importance of the company’s

Spain’s natural gas segment, launched its activities in Mexico

approach to working with others that have wide expertise

when it acquired 40 percent of the Altamira regasification

with virtual pipelines. “The business of virtual pipelines will

plant. “This asset provided us with a strong foothold in the

not be based in physical assets as much as in logistics, and we

Mexican market as we got into close and direct contact

are excited about it because then companies will start asking

right away with local companies that had been present for a

for our capabilities. To cover their needs, we are in touch with

longer time,” says Escofet. Following the strategy of gaining

several local companies. They provide the requisite knowledge

local expertise right away was vital for Enagás to become a

while Enagás brings its international experience and strength

significant player in the domestic industry. “We acknowledged

to make this enterprise not only work but excel.”

that we did not know everything and that became one of our strongest assets because it allowed us to work with experts

Despite the company’s long track record, Escofet highlights

in specific areas where such necessity was identified.” The

the challenges it has overcome in all of the countries it

company secured its presence in the country, leading the

operates including Spain, Mexico, Chile, Peru, Sweden, and

construction and commissioning of infrastructure, and now

even Greece, Albania and Italy. It owns 16 percent of the

also has shares in the Morelos gas pipeline and the Soto la

company developing the Trans Adriatic Pipeline. “We have

Marina compression station projects, of which it owns 50

gone through learning curves in all those countries and that

percent each.

has allowed us to become expert managers of technologies and human capital. This has not come easy, as we have had

With a strong foothold in the area of physical assets, Enagás

to learn how to do things better, ensuring our capability of

is now placing a bet on the distribution and transportation of

offering the best solutions in the market.”

natural gas. It will do so through innovative methods, such as virtual pipelines, which offer clear advantages to facilitate the

In its pursuit of new opportunities, Escofet says the company

penetration of natural gas in regions where the hydrocarbon

also wants to help Mexico overcome its lack of storage.

was not present before. “Mexico has a huge potential that

“Enagás has a long track record building storage projects,

has yet to be tapped in the distribution and transportation

both on the surface and underground. As the Ministry of

of natural gas because there are many regions where the

Energy recently published its latest storage policy, we

hydrocarbon is not yet available through physical pipelines.

can see our expertise further increasing Mexico’s storage

Virtual pipelines mean transporting natural gas by wheels or

capacity. We are in close contact with CENAGAS, CRE and

vessels, which are much more flexible and much less capital-

the Ministry of Energy so they recognize the abilities we

intensive options.” Despite its bet on virtual pipelines, Escofet

bring to the table.” An efficient and effective possibility, he

believes that such methods will not replace the construction

adds, would be to use the Altamira regasification facility for

of physical pipelines. Instead, virtual pipelines should only be

operational storage.

371

STORAGE TERMINALS: EXISTING AND FUTURE FACILITIES

1 1

2 3 4

372 8

PEMEX'S Storage Terminal / CFE's Plant with Available Capacity for Investment Announced Storage Project Granted Storage Permit Project under CRE's Evaluation

PROJECTS LAUNCHED 1

Ienova Petrolíferos III

Innovapetromex Sonora

Bulkmatic de México (Distribution)

Monterra Energy.

Howard Energy / Gasoductos del Noreste

Howard Energy

Gas Natural del Noroeste

Monterra Energy

Gracoil

USD Group

Logística de Fluidos y Graneles*

Ministry of Communications and Transport*

Transcanada / Sierra Oil & Gas / Grupo TMM

USD Group

Gas Natural del Noroeste

Bulkmatic de México (Distribution)

Glencore

Gas Natural del Noroeste

Vopak México

Ministry of Economy and Ports of Veracruz*

* At ports Source: CRE

5 10 11 11

PROJECTS UNDER CRE REVISION 1

Bulkmatic de México / Kansas City Southern México

Huasteca Fuel Terminal

Cooper/T.Smith de México

Energéticos Keri

TP TERMINALS

Gasoductos Servicios Corporativos

IEnova Gas

Asfaltos Mesoamericanos (Glencore)

Hidrocarburos del Sureste (Distribution)

AWARDED STORAGE PERMITS

5 1

Baja California Energy Translogistics

Petrolíferos Windstar de Sonora

Almacén de Petrolíferos de Chihuahua

Gas Natural del Noroeste

Grupo R Terminals

Combustibles de Oriente

Avant Energy Midstream II

TFCM

Olstor Services

Comisión Federal de Electricidad (CFE)

Porter FG México

Gas Natural del Noroeste

Servicios Integrales de Almacenamiento y Distribución (Trafigura).

Enermex Logística y Terminales

Hydrocarbon Storage Terminal

Enermex Logística y Terminales,

Orizaba Energía (Sierra Oil and Gas / Grupo TMM)

Servicios y Terminales de Tuxpan

Invex Infraestructura 4

F. Ruiz e Hijos

P&S Oiland Gas TAR

Vopak México

ESJ Renovable III

Comercializadora Larpod (Distribution)

9 12

17 18 19

10 16

13 14 13 6

15 20 14 21

18 16 7

19 22

373

FUEL IMPORTATION AND DISTRIBUTION ROUTES

374

FUEL TRANSPORTATION COSTS National Systemic Base Tariff MX$0.73 per GJ

1X 2X 6X 14X Pipeline Tanker Tank truck

RAILROAD INFRASTRUCTURE BY COMPANY Ferromex Kansas City Southern de MÃ©xico Ferrosur Ferrocarril del Istmo de Tehuantepec Linea Coahuila Durango Baja California Road Source: CRE

Houston

375

Matamoros

Tampico

Tuxpan

Veracruz Coatzacoalcos

Salina Cruz

ANALYSIS

PEMEX’S SECOND OPEN SEASON TAKES AIM AT FUEL MARKET COMPETITIVENESS PEMEX transports and distributes almost the entirety of

country. A second Open Season will target the systems of

gasoline and diesel volumes inside the country, making it

Topolobampo, Juarez, Cadereyta and Frontera Norte. PEMEX

virtually the only possible supplier from which retailers can

will place a portion of the capacity of its 13 pipelines and 16

purchase these products. But this is changing, at least in

storage terminals up for grabs to private companies. This

the northern region, thanks to PEMEX and CRE’s work to

second Open Season is expected to increase the number

create a more level playing field. Both the NOC and the

of participants in the country’s fuels market, with the hope

regulatory institution carried out the first Open Season in

of increasing the competitiveness of the participating

2017 for gasoline and diesel in the northern region of the

companies and providing benefits to the public.

APPROVED ZONES FOR OPEN SEASON

Storage Terminals

III

376 IV XI

I. La Paz

IX. Nuevo Laredo

II. Cd. Juárez

X. Topolobambo

III. Chihuahua

XI. Guamúchil

IV. Parral

XII. Culiacán

V. Sabinas

XIII. Mazatlán

VI. Monclova

XIV. Tepic

VII. Saltillo

XV. Durango

VIII. Santa Catarina

XVI. Gómez Palacios

(Satélite)

XVI

VIII VII

XII

Transportation Ducts

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2 XIII

OPEN SEASON TIMELINE

Storage Terminals

May 14, 2018

CRE notifies PEMEX Logística the minimum tariff approval for the Open Season

May 22, 2018

PEMEX makes the call for all parties interested in the Open Season

June-July 2018 Juárez - Cadereyta 63% 11% Mazapil

2% Sahuaripa

DISTRIBUTION OF THE REGIONAL SUSTAINABLE Frontera Norte 9% Cananea DEVELOPMENT FUND 2 2% Morelos

37% Topolobampo

7% Nacozari de Garcia

2% Eduardo Neri September

5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

4% Caborca

1% Chinipas

2% Sierra Mojada

2017

October 2017 December 2017

47% other

Source: CGM, Ministry of Economy 1 With figures to March of 2015

March 2018

Pipelines

May-June 2018 Before end 2018

Juárez - Cadereyta 11% 85% Mazapil

2% Sahuaripa

Cananea Topolobampo 9% 15%

2% Morelos

Frontera Norte

7% Nacozari de Garcia

an Open Season Product Storage Terminal

XIV

Storage Terminal without capacity for

2% Eduardo Neri

5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

Period for the Open Season to take place

FUELS IMPORTATIONS TIMELINE Koch México imports 40 thousand diesel b/d to Veracuz' port via tankers Tesoro starts importing fuels via Tijuana using tank cars and via Rosarito using tankers ExxonMobil imports 60 thousand gasoline via tank cars to San Luis Potosi Black Gold imports fuel from Houston to Chihuahua Bulkmatic imports 25 thousand liters per month of gasoline and diesel to Nuevo Leon and Hidalgo. Its objective is to import 55 thousand lieters per month by the end of 2018 Glencore plans to import fuels via via Dos Bocas using tankers Valero plans to import diesel, gasoline and turbosine to Veracruz and Altamira by tankers and to Nuevo Leon, San Luis Potosi and Mexico City via tank cars Source: PEMEX, CNH

ANALYSIS

GASOLINE STATIONS FIGHT FOR ADVANTAGE On March 9, 2017, BP opened the first gasoline station in

GASOLINE STATIONS PER BRAND

Mexico that did not feature the PEMEX brand. Just over a

OXXO GAS 464

year later, on May 28, 2018, CRE reported that 24 percent of BP 246

the 11,992 gasoline stations in Mexico were operating under one of the 45 different brands other than PEMEX that are

GasoRed 238

present in the country. On a per capita basis, Mexico lags

PetroSEVEN 233

far behind countries like the US, Italy and Brazil. In terms of

Hidrosina 204

number of stations, the crown goes to OXXO GAS, which has 464 stations, or 3.8 percent market share. BP is a distant

Orsan 137

second with 246 stations.

G500 133 RedCo 130

GASOLINE STATIONS PER CAPITA

10,560

gasmart 115 100 Exxonmobil 99 LoDemo Gas

5,704

5,158

eco 128

83 Nexum

2,933

23,165 Inhabitants per gas station in CDMX 2,677

2,908 gas stations operate under 45 new brands

71 Shell 66 RendiChicas

2 0

Others 461

Source: CRE

Source: PEMEX

Italy

Brazil

Germany

Mexico

100

200

300

400

500

377

VIEW FROM THE TOP

RETAIL SECTOR IN RADICAL TRANSFORMATION ROBERTO DÍAZ DE LEÓN President of ONEXPO National

Q: How has the opening of the gasoline market affected

offering services, as well as different qualities of gasoline,

ONEXPO’s members?

payment methods, systems and technological tools.

A: The opening to new brands has benefited Mexico’s

The scope of these differences even includes grocery

service station owners by forcing us to professionalize our

stores and carwashes. I think these competing value

activities. We were used to always working with a single

propositions have been benefiting Mexican consumers

provider, buying at one fixed price and selling at another.

on a daily basis.

As a result, we always knew what our margin would be.

378

Because of the implementation of the Energy Reform and

Q: How do you think gasoline prices will behave in relation

its secondary laws, the liquid fuel business has undergone

to competition?

a transformation to become more professionalized. We

A: We think that price goes hand in hand with the

went from being operators to transforming ourselves into

infrastructure that is under construction across the country.

service station professionals. Now, we see that our activity

When international prices are in a downward trend, the

demands very capable and professional human capital, with

exchange rate is favorable and the development of

a view to not only selling gasoline but integrating different

infrastructure in Mexico is somewhat more mature, then

services at the point of sale.

these factors will necessarily be reflected in lower prices for the service stations and hence for the consumer. I think

Q: What is the difference between working as a franchisee

it would be irresponsible on our part to make projections

for PEMEX or for large multinational companies?

because today there are many infrastructure projects that

A: In terms of operating the service stations, there has not

have been announced but that will take at least a couple

been a big change because we already operate at very high

of years to be operational.

standards. Nonetheless, the arrival of these new brands to Mexico has permitted service station owners to continue

Q: Do you think the absolute number of service stations

improving by adopting international best practices. A new

will grow rapidly?

model has been developing, accompanied by a higher

A: We know that right now in Mexico there are more than

degree of professionalization. Naturally the best practices

500 municipalities that do not have a gasoline station. We

these companies’ service stations introduce to Mexico

believe that a new model of service station could fill this

have been tested in many countries around the world. This

gap. We also know that these new service stations, known

amalgamation of best practices will generate new models

as low-consumption stations, for rural areas or areas with

for service stations in the Mexican market.

a low population density, are being permitted by ASEA and CRE. In general terms, ONEXPO projects an orderly

Q: How has this situation fueled new dynamics of

growth of around 6 percent per year in business units for

competition?

the coming five years.

A: The most important winner is the consumer. Despite the absence of large price variations, we see very

Q: In regional terms, where are you seeing the most

different value propositions per brand. We now see that

difficulties for gasoline distribution?

every brand has a different model for administering and

A: The big challenge for us as gasoline businessmen is the center of the country. Around two-thirds of the gasoline used in Mexico is imported and most of the imported

ONEXPO is the largest union of gas station associations in

gasoline arrives by ocean tankers. The issue is how to

Mexico with representation in every state. Its goal is to function

get the gas from the ports to the center of the country.

as an efficient liaison between government and the private

The center of the country is where more infrastructure

sector, undertaking diverse activities that benefit its members

is required.

VIEW FROM THE TOP

STRONG FRANCHISES STEPPING STONES FOR COMPETITIVE MARKET JUAN GALLÁSTEGUI President of Gallástegui Armella Franquicias

Q: How has Gallástegui, a franchising consultancy, making

A: We assist our clients in their efforts to standardize their

the most of Mexico’s downstream changes?

franchise business to NOM-005 compliance for the operation

A: Our position has changed greatly compared to 2017. We

of service stations. We go one step further by designing

were working with several service station brands looking to

this standardization to translate into a distinctive customer

franchise their businesses. One of the most visible companies

service. Customers do not enjoy going to gas stations,

to date is La Gas, which deployed a commendable growth

just as much as they do not like going to the bank. Banks

strategy in the country’s southeastern region. Today, we

in Mexico are already working toward digitalization and

have an exclusive arrangement with Hidrosina, one of

creating a more comfortable experience for their customers.

the largest and strongest groups among gasoline retail

The challenge for gas stations, as this commodity cannot

companies. We are putting the finishing touches on its

be provided via the web, lies in finding ways to make the

franchise model and are jointly devising its franchise

visit to a service station fast, efficient and pleasant for the

commercialization strategies as the market opportunities

user, from a multisensorial standpoint, which is common

are sizable. There are 8,000 independent service station

in restaurants and apparel stores. Those principles should

owners who can now choose to either affiliate themselves

also be applied at service stations. Client satisfaction

to a larger group or remain with PEMEX.

measurement processes must also be implemented. It can be as simple as standardizing elements inherent to customer

We are uncertain about the NOC’s continued interest in

service or playing popular music in the background. The

the service station market. While it remains strategic in

provision of additional services, such as membership

terms of brand presence, we think PEMEX’s main interest

schemes, will also become increasingly common. COFECE is

is focused on fuel wholesale. PEMEX remains an important

adamant it will foster competition within the industry as now

supplier of gasoline for all new brands such as BP, Shell,

all service stations are no longer under one corporate roof.

G500, Hidrosina, La Gas and OXXO GAS. Gasoline price

We can provide our expertise on how to operate a franchise

differentials remain primarily rooted in logistics efficiency,

based on standardized and measurable systems for client

market decisions and bilateral negotiations between these

satisfaction and focus on the major points that will prove

different groups and PEMEX. We believe this scenario

critical in building this competitiveness and creating added

will prevail for the next two to three years. As long as

value. We have experience in international markets and are

we continue to lack a proper infrastructure that includes

highly motivated to implement international best practices

terminals and pipelines that enables these groups to

regarding client satisfaction at gasoline stations in Mexico.

purchase gasoline from any trader besides PEMEX, the situation will see little to no change. Even if a company

Q: What are Gallástegui’s objectives for 2018?

imports gasoline from other suppliers and brings it to

A: Gallástegui will continue providing its expertise and

Mexico by ship, the pipelines and storage facilities used

knowledge to contribute to the consolidation of a mature

to supply that fuel to the company are still owned by

gasoline market on its way to reaching real competition.

PEMEX, and therefore the price is dictated by the NOC.

We strongly believe a renewed focus primarily directed at

We anticipate that the first groups that will look to suppliers

customer service is critical in any franchise strategy looking

other than PEMEX will be those close to the US border as

to secure a strong foothold in the Mexican market.

they can easily import gasoline by land. Nevertheless, the situation remains complicated as the NOC will stay in the market with its significant number of dispatching stations.

Gallástegui Armella Franquicias is a consultancy specialized in franchising projects. It has offices in Mexico, Central and South

Q: How does Gallástegui provide a differentiated customer

America and Europe, and has participated in the Mexican

service?

Franchising Association since its foundation

379

VIEW FROM THE TOP

AT THE FRONT OF THE LINE FOR DOWNSTREAM ÁLVARO GRANADA General Manager Mexico of BP Downstream

380

Q: What factors make BP Downstream a unique player in

in 13 states in the country, reaching 350,000 clients on

the Mexican fuel sector?

a daily basis. We expect to have 500 fully operational

A: We opened our first gas station in 2017 and were the

stations by the end of 2018, creating appetite for growth

first multinational to venture into this sector in Mexico and

and meeting our expectations in every segment. The

the response from customers surpassed our expectations.

reception we have had from customers has been crucial

We were also the first multinational to have a supply

to this mission. We try to offer the highest-quality products

contract with PEMEX, the first international player mixing

and show people they will obtain the best products and the

additive to fuels in the local market, the first ones offering

best services. We have introduced best practices, world-

a differentiated product, also to have exclusive supply

class customer service and the guarantee that we will meet

in white trucks from PEMEX and to apply the company

safety standards.

owned and Dealer owned business model in Mexico. We consider Mexico key to our global strategy since it is about

Q: What steps has BP Downstream taken to consolidate its

the sixth-largest fuel market in the world. In particular for

business here and what lessons has it learned?

BP Downstream this is an interesting market and we look

A: When I first came to Mexico my main objective was

forward to becoming leaders here.

to improve the market opportunities for BP. I can attest to the accelerated progress we have enjoyed; things

Q: How has the Mexican market received BP Downstream’s

have evolved quickly over the past year and we have

introduction of additives?

undergone a significant learning curve. We have also

A: We launched an exclusive additive under ACTIVE

grown to employ close to 1,000 people. One lesson we

technology unique of BP that helps keep engines clean by

have learned since we started operations in Mexico is

protecting critical engine parts from harmful deposits. It

that growing at a fast pace and operating at the highest

provides better functioning and is new to the local market.

standards is a challenge in itself and we must overcome

Truth be told, introducing additives to the local market

this challenge successfully. The second lesson has been

has been challenging due to their novelty for Mexican

maintaining our promises to our clients to make sure they

consumers. The additives sector is complicated, mainly since

receive what they are expecting.

it normally operates at scale. Nevertheless, we have signed agreements with PEMEX to mix our additives before fuels

Q: How would you assess the infrastructure in Mexico and

reach our stations and we are confident about the product’s

how do your local partners help you increase market share?

opportunity for growth in Mexico. The logistics side is still an

A: We decided to work with PEMEX as a strategic

area of opportunity we will work on going forward.

partner in the short run and could potentially extend that partnership for many years to come. Our agreements

Q: How have you advanced in your plans to become one of

have worked smoothly and we have created successful

the three leading downstream brands in Mexico?

partnerships with them for our service lines. Part of our

A: Our plan is to establish 1,500 stations in the next five

long-term plan is to invest in infrastructure here, to bring

years and we are progressing steadily in that sense. Over

our own products and to foster long-term relationships

the course of the past year, we have opened 200 stations

with PEMEX and other partners in the industry. We rely heavily on our partners and therefore it is necessary to have different options to take into account supply and

BP Downstream is the product and service-led arm of BP, made

distribution. Infrastructure levels still have a long way

up of three businesses. Refineries, logistic networks and fuels

to go and they should be greater, especially if we take

marketing businesses, together with global oil supply and trading

the country’s size in population and market share into

activities, make up its integrated fuels value chains (FVCs)

consideration.

VIEW FROM THE TOP

RETAIL GIANT EYES FURTHER MEXICO EXPANSION ALBERTO DE LA FUENTE President and Director General of Shell Mexico

Q: Where would you like to see Shell as a retailer in Mexico

worldwide competition among the top service specialists in

in the next five years?

each country. We believe our people are a key part of our

A: So far, we are present in nine states: Mexico City, State

winning formula since in the end, the passion and quality

of Mexico, Queretaro, Guanajuato, Aguascalientes, Jalisco,

of their work is perceived by the client, who benefits from

Puebla, Coahuila and San Luis Potosi. Although we

getting the best service in the industry.

started operations in the center of the country, we are not concentrating on a single region and we have already started

Q: What should be Mexico’s priorities for developing its

expanding to the north.

downstream sector? A: Before, the market was solely controlled by PEMEX. Now,

Retail is a key part of our strategy. Shell has over 43,000

the market is open to global competition. From a regulatory

service stations around the world, which gives us the largest

perspective, we still need a fair playing field for all companies

retail network globally. We are present in almost 80 countries

wishing to participate in the market. The country also needs to

and sell over 200 billion liters of gasoline per year. Mexico is

develop and attract more investment in infrastructure because

a key market for the company and when we opened our first

we depend on PEMEX’s infrastructure. We need more storage

retail site in the country in 2017, we committed to investing

terminals, pipelines and routes for the product to move around

US$1 billion over the next 10 years in the downstream business,

the country. We believe that Mexico has approximately three

provided the current market conditions prevail. We have

days’ worth of storage, which is insignificant, particularly when

opened between two and three new stations per week and we

trying to manage different operators and more competition.

hope to enter 2H18 with over 100 service stations nationwide. We are committed and we now must develop economies of

Q: Considering this lack of infrastructure, how do you make

scale to make the best of our investment. Our priority is to

sure there is never a gasoline shortage?

maintain our growth pace and in five years, we would like to

A: This is part of our commitment to the country. We use

become one of the key players in Mexico’s downstream sector,

all resources at hand to deliver a winning formula to the

hopefully with a double-digit market share.

customer. In the end, we have a commitment to provide a steady supply of our fuels and lubricants to final consumers.

Q: What is the main added value Shell offers to station

To do that, we need sound midstream infrastructure: robust

owners and end users in the downstream sector?

storage, distribution and transport capacity. There are still

A: Station owners know that by partnering with us they

challenges but one of the main goals of the Energy Reform

have the support of a winning, global brand. Our end

is to attract needed investment along the value chain of the

priority, however, is the final consumer and we want them

fuels retail market, from midstream infrastructure to final retail

to know they are getting the best products and services

sale of fuels. Today, there are already a number of projects

when they visit a Shell station. The additives we put in

being developed that will increase industry safety in storage,

the gasoline make it better than any other product in the

distribution and transportation of fuels. We will do our part to

market, delivering better performance, providing better

facilitate the development of this infrastructure as we are sure

cleansing to the engine and protection to its vital parts.

that this will allow us to provide a sufficient supply of quality

Regarding service, we make sure that our stations are clean,

fuels to the Mexican consumer.

safe, well-lit, offer clean and convenient restrooms and are supported by a good convenience store. We also train our specialists extensively so they can offer a reliable service

Shell , founded in 1907, looks to satisfy society’s energy needs in

to our clients and we make sure they are passionate about

an economic, social and environmentally responsible way. Present

what they do. Shell has 500,000 service specialists working

in Mexico since 1954, the company has a strong participation in

frontline on the retail business and each year we organize a

every Mexican oil and gas segment, from upstream to retail

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VIEW FROM THE TOP

STEADY ROAD TO CUSTOMER ATTRACTION MANUEL FILIZOLA CEO of OXXO GAS

382

Q: What potential does OXXO GAS see in the Mexican

customers’ experience and we can count on the backing

market and what role will you play in it?

of FEMSA’s branding to achieve that. We have a strong

A: We see huge potential for growth since we strive to

presence in the northern and northwestern regions of

provide the best services and we have a strong sense of

Mexico, and we have grown a great deal in the Bajio

commitment toward our clients and employees. We serve

region. We are focusing on growing in the central and

around 13 million customers on a monthly basis at the

western regions of the country, such the State of Mexico

more than 450 gas stations we operate across 16 states

and Jalisco. Our renowned and solid brand is the asset

in Mexico, highlighting our service values at every single

that will lead the way to that target.

one. The Energy Reform opened new opportunities to boost our growth after more than 20 years in the market,

Q: How does OXXO GAS add to talent and community

consolidating our vision for far-reaching expansion that will

development in the areas in which you are based?

see us grow by around 30 percent annually. Today, there are

A: We have 6,500 people working with us. To meet our

around 11,000 service stations in Mexico, a number we deem

expansion objectives, we will require even more people.

low when compared to the country’s size and population.

We will continue hiring new talent into our different

We see big room for growth but we are also interested in

business lines. We are aware that our human talent is

taking it step by step, mapping the areas where our services

key to maintaining our leadership in the market and

might be needed, always taking into account the logistics

we invest heavily in human capital. We also encourage

needed to ensure a systematic and organized expansion.

linear movement within the company so people can feel motivated to grow professionally. In that sense, we offer

OXXO GAS serves around 13 million customers on a monthly basis at the more than 450 gas stations it operates across 16 states

training programs, scholarships and courses for our staff and their families, mainly for those working at the stations. In line with FEMSA’s philosophy, at OXXO GAS our goal is to generate social, economic and environmental value in the communities in which we are based; our stations foster commercial activity and we employ a good number of people there. We also plan to increase our business and commercial lines so we will need to further increase the capacity of our human talent. We are eager to continue

Q: How is OXXO GAS’ logistics experience filling existing

investing in our people.

gaps in the distribution channels in Mexico? PEMEX has most of the storage and distribution

Q: What are OXXO GAS' growth objectives for 2018?

infrastructure, so OXXO GAS relies on PEMEX to undertake

A: This year, we plan to open 135 new gas stations and

most of the logistics processes. We are analyzing the

put them all under the umbrella of our new branding.

possibility of mid and long-term investments in storage

In line with our client-oriented service strategy based

and logistics, so we can improve our competitiveness. Our

on our “liter by liter” policy that guarantees customers

philosophy is to invest in any service that can improve our

receive every drop of fuel they pay for, we will continue to ensure fair prices and we will continue innovating with attractive promotions. One of our objectives is to

OXXO GAS is the fuel division of FEMSA. It has a network

transform gas station visits into a full experience where

of 464 gas stations in the states of Nuevo Leon, Coahuila,

our customers can enjoy the best service and acquire

Guanajuato, Chihuahua, Aguascalientes, Queretaro, Jalisco,

top-quality products. This year will be key in achieving

Quintana Roo and San Luis Potosi

that goal.

VIEW FROM THE TOP

EXPERIENCE PROVIDES TOOLS TO DEAL WITH FREEMARKET VARIABLES SEBASTIÁN FIGUEROA CEO of Fullgas

Q: What is Fullgas’ primary differentiator among the

final customers who do not use their smartphone while

variety of service station brands available in the market?

driving, one of the rewards being free gasoline. The idea

A: Fullgas has cultivated a successful track record spanning

is twofold: it rewards our customers for their loyalty while

well over six years from working in the mature free

simultaneously raising road safety awareness to prevent

market structures that have been in place in Guatemala

fatal accidents caused by smartphone distractions.

and Honduras for over 30 years. Our Central American experience gave us the required patience for successful

Q: How is Fullgas working to provide a continuous, reliable

decision-making in the industry. Amid Mexico’s dynamic

supply of gasoline at its stations?

changes and the entry of several new players with yearly

A: As Mexico prepares to have several gasoline importers,

additions and modifications to the country’s regulatory

we are working closely with small service station owners to

framework, Fullgas is familiar with the inner workings of an

fully grasp the fine print in the new contracts. While there

open market so we have the knowledge and tools necessary

are several projects in the pipeline, a multiple-importers

to deal with free-market prices and economies of scale.

market in Mexico will materialize in the long term.

Q: How is your Central American experience reflected in

Q: How does Fullgas’ El Buen Trato program fit the needs

your entry into Mexico?

of Mexico’s service stations?

A: Fullgas’ Central American venture showcased its capacity

A: El Buen Trato program is the result of five years of

to deal with market variables significantly different from

working together with top-tier consultancies specialized

Mexico, starting with Guatemala’s Quetzal currency and

in the Mexican market. The program will go beyond

an operation using gallons instead of liters. While Mexico

offering a solution to traditional inefficiencies at service

continues to operate with a single importer, PEMEX,

stations and focus on hospitality. Consumer satisfaction

Guatemala’s market includes seven importers. Selling to

plays the leading role in this program. The first step is

multiple importers implies strong negotiation capacity to

to implement training programs for our service station

address the various difficulties arising from closing deals

dispatchers to provide the best experience for our

across several fronts. We want to showcase in Mexico’s

customers and make them feel at home, based both on

unlocked market what we have learned along the line.

the customer’s particular profile and the service station’s location. To avoid interrupting dispatch services, which

Clients want to witness tangible benefits in the short term

have to work 24/7, we developed a program with trainers

when deeply-rooted changes are related to around the

and psychologists to reinforce the premise of the program

long haul. Mexico’s characteristics make it particularly

for two hours per month at every service station.

challenging to showcase immediate results, with 120 million inhabitants and well over 13,000 service stations

Q: What milestones is Fullgas looking to accomplish and

nationwide. Mexico is a challenge we are excited to face

showcase in the years to come?

and for that reason by the end of 2018 we want to grow our

A: We are working around the clock to surpass the

local presence from four to eight states, surpass 100 service

100-service station landmark before the end of 2018 and

stations and provide a fully-deployed Fullgas license.

break the 600-service station ceiling by 2023.

Q: What is the value proposition of Fullgas’ Bee Safe app? A: The app was created in-house by Fullgas’ Innovation

Fullgas has a total of over 75 gasoline stations across the states

department. It was an opportunity to thank our customers

of Campeche, Yucatan, Quintana Roo and the State of Mexico.

for their loyalty, based on Fullgas’ close to 3 million gasoline

Its goal is to become the retailer of choice in its markets using

dispatches per month. The app is designed to reward

a diverse range of technologies and its El Buen Trato program

383

VIEW FROM THE TOP

LEGAL MIDDLEMEN FOR THE RETAIL SECTOR NOÉ PASCACIO Partner and Head of Energy and Infrastructure at BGBG Abogados

384

Q: Why should downstream companies choose BGBG over

A: IOCs have considerable experience operating gas stations

any other boutique law firm offering similar services?

worldwide. BGBG has learned considerably from its prolific

A: The team’s core expertise lies in business development

interactions with these IOCs, their business model and how

strategies in the upstream segment. A few years ago, prior to

they operate. IOCs have a clear picture of the gas station

the Energy Reform, PEMEX released several contract models

owner profile in Mexico. As it turns out, what is commonly

that were brand new for the industry at that time and we made

thought of as Mexico’s singularity can be found in other

a point of dissecting and assimilating the key components

countries, such as Brazil and Peru. Gas station owners

of these models. This experience is the foundation for our

have expressed concern over transitioning from decades

solid set of skills enabling us to understand the new business

of interacting with a single, state-owned company to

opportunities and how to implement them. This provides us a

interacting with a myriad of international companies. They

competitive advantage within the unlocked opportunities of

must also deal with new authorities and integrate new

the Energy Reform in the upstream and downstream sectors

business models to remain competitive as they shift from a

compared to other law firms that either do not know the

fixed, unique price scheme to variable prices and manage

business or lack the experience to implement disruptive

their margins within this variability. BGBG treats every gas

changes. Standard law firms assist in complying with the

station owner as a critical business component for the IOCs

existing regulatory framework, while outstanding law firms

so the station owners feel comfortable and reassured that

provide a clear vision of regulatory changes, such as that

business will flow seamlessly.

resulting from the reform. In downstream, each company or brand has its own strategy and business model, we have

Q: What would you say are the industry’s regulatory

the capabilities to engage and interact with this bevy of

priorities and how is BGBG assisting regulators in this issue?

companies to develop any business model. A year ago, all

A: The regulatory authorities are doing their best. There

gas stations in Mexico were owned by PEMEX. Now, brands

is a prevalent practice among regulatory authorities

such as BP, Shell, ExxonMobil, Gulf and Total are making

where the priority is to regulate and control every aspect

their presence known. Everything is new and CRE is open

of an industry. When regulators analyze a specific topic

to discussions to understand our requirements as there is no

or situation, their mindset is always one of control rather

previous record to use as reference.

than one of improvement or easing business operations. It is natural for a regulator to operate in such a way but

BGBG is used to operating the business with its clients. It

we believe there can be a middle point where regulators

is not just a matter of drafting a contract and sending it for

can integrate pro-business solutions into their regulatory

a signature but rather, understanding what the contract is

initiatives. In some instances, control and visibility imply

for and how it will be managed once it is signed. BGBG has

extra costs for private individuals and corporations alike.

an extensive track record of managing these contracts and

The challenge lies in changing mindsets and how we

understanding the intricacies of IOC businesses.

implement regulatory changes to make it simpler and foster seamless processes.

Q: What insights has BGBG derived from being the middleman between gas station owners and IOCs?

Q: What milestones has BGBG set for 2018? A: BGBG has started advising companies on power generation and energy trading. We would like to deepen

BGBG Abogados is a boutique law firm with a team of

our foothold in that particular segment. To that end, we

specialized professionals in the area of energy. With over 14 years

have closed strategic alliances with companies versed

of experience, the company has worked with international and

in the technical and financial intricacies of the power-

national companies as internal lawyers or as external consultants

generation business.

VIEW FROM THE TOP

PROTECTING CORE AND SIDE ACTIVITIES ADRIAN BISIACCHI Director General of KDM Fire Systems

Q: What is your vision for KDM Fire Systems in the Mexican

securing all the required permits. Many project developers

market?

getting permits are bringing designs and engineering

A: KDM can be considered a specialty EPC with a focus

from terminals previously built around the world without

on fire protection systems. Our activities and involvement

observing the local norms. As the project continues to

with our clients starts with a consultation. We then provide

advance in the design and engineering phases, they find

basic and detailed engineering, project execution, O&M and

out that certain elements were not considered properly in

commissioning. When I joined the company in November

terms of fire safety. This omission could potentially delay

2017, I introduced a five-year plan that was intended to

the whole project, hence slowing down entry to the market.

make a deep change in the company and provide investors

In a market like that of fuels transportation, distribution,

with attractive results. Among our objectives is to triple

storage and retail, where first entrants obtain a strong

sales by 2022 and increase our bottom line to around 15

competitive advantage, this aspect can become critical.

points, mainly through inorganic growth. As for this year, we are planning to grow our sales by 19 percent and to increase

Q: How would you rate the rollout of regulation in Mexico

the bottom line five to six points compared to 2017 values.

in terms of fire protection? A: There are two main risks that must be addressed. The

Q: What should EPC companies know before starting

first is over-regulation. While ASEA has been fairly good

activities in Mexicoâ&#x20AC;&#x2122;s oil and gas market?

at avoiding this, other regulators like CNH have made it

A: Companies should get to know the Mexican and

hard for companies to adapt according to their day-to-

international norms before thinking about the development

day operations. For example, changing the angle of a drill

of any project. As our local regulatory structure becomes

operation is fairly easy in other countries, but if operators in

more strict, new norms are important design criteria that, if

Mexico have to follow CNHâ&#x20AC;&#x2122;s regulation by the book, it can

not taken into proper consideration before starting a project,

take months due to the handling of permits. This not only

can rapidly increase times and costs and even make them

affects costs but also adds danger to the drilling operations

unviable. One simple example is the spacing between tanks

because any unfinished operation represents a potential risk.

in fuel storage terminals. If wrongly designed and placed too close to each other for space-saving purposes, the

The second risk is failing to properly measure the structure

tanks will need to be cooled in case of a fire and will use

to handle all the regulatory activities. In this area, both ASEA

four to six times more water than usual when transported.

and CNH lack the ability to properly measure the activities

A higher volume of water means bigger pipes and pumps.

they will have to handle due to all the new market players

Furthermore, Mexico has no local regulators to certify pumps

entering the country. ASEA is regulating every facility,

for fire applications. All of these elements can double or even

instead of the overall operation of a field, and that is going

triple the cost of fire protection in a project. Fortunately for

to place a big amount of work on the agency because every

our customers, we can provide an integral solution for their

field operation has several facilities. Processes have to be

core activities as well as their support tasks.

streamlined to allow the market to evolve at a faster pace. Regulators could allow the entrance of third parties that can

Q: How can the design of a fire protection system change

supervise compliance with NOMs and current regulation.

the viability of a project in fuel storage terminals? A: The market is offering a great number of opportunities to implement fire and security solutions for fuel storage/

KDM Fire Systems is dedicated to mitigating the probability of

transfer facilities. Nevertheless, the opening has been so

accidents and damage caused by fire, by generating, installing

recent that projects have not yet been able to materialize

and providing maintenance to highly effective engineering

and are just finishing the initial phases that include

solutions

385

Cotemar air crew performing safety check on offshore helipad

HUMAN CAPITAL

Mexico has been one of the world's most important oil countries for over 50 years. As a result, its industry workforce is highly competitive and specialized. However, given that one single company ruled the roost for 80 years, the development of the sectorâ&#x20AC;&#x2122;s workforce depended greatly on PEMEX and the few companies that provided services to the NOC.

The landscape for the Mexican oil and gas industry has changed dramatically, however, with PEMEX and all companies involved in the value chain requiring greater and much more specialized labor. The development of national personnel is undoubtedly a challenge, both for the country and for the industry in general since now Mexico will incorporate labor from all over the world into its market. Local human capital with a global vision ready to work in multicultural environments will be highly valuable. While competition will be fierce, the fact that the industry remained closed for decades provides a tactical advantage to local hires and complicates the equation for those seeking the most suitable workers.

387

CHAPTER 14: HUMAN CAPITAL 390

ANALYSIS: Balancing Local Talent with Expertise from Abroad

392

INSIGHT: Oscar González, AMEDIRH

393

VIEW FROM THE TOP: Germán Pineda, ARHIP

394

VIEW FROM THE TOP: Jesús González, CIDESI

395

VIEW FROM THE TOP: Guido van der Zwet, iPS Powerful People

396

VIEW FROM THE TOP: Toby Spoon, Tecma Energy Services

397

INSIGHT: Yisel Varela, Access to Energy

Miguel Marmolejo, Access to Energy

398

VIEW FROM THE TOP: Adrian Rodriguez-Montfort, Brunel Energy

399

VIEW FROM THE TOP: Alex García, IHRDC

400

VIEW FROM THE TOP: Jerzy Sasiada, Williams Scotsman

401

INSIGHT: Juan Tapia, Construcciones Industriales Tapia

389

ANALYSIS

BALANCING LOCAL TALENT WITH EXPERTISE FROM ABROAD Unlocking an entire industry requires highly-technical, specialized experts at each link of the value chain. For 80 years, those experts were gathered in one place. Now, Mexico’s oil and gas players want to balance local talent with tenured expertise from abroad As part of its ongoing transition to a productive enterprise

means the creation of an estimated 900,000 direct and

of the state, PEMEX has set itself the goal of operating

indirect jobs in specialized, technical positions throughout

with a workforce of nearly 111,000 workers in 2018. While

the duration of the contracts. Replacing tenured officials

the talent exists in the country, with industry newcomers

with valuable experience and knowledge is no easy feat,

entering, the competition is heating up. PEMEX and IOCs

but nor is adapting them to the new face of the industry.

alike are devising talent attraction and retention strategies

As new players from mature oil and gas industries come

to make good on their business objectives in Mexico’s oil

onto the scene, new qualifications and certifications will be

and gas industry. A quick look at the licensing rounds

required to inject increased dynamism and productivity in

gives an idea of the human capital requirement that

Mexico’s oil and gas industry. PEMEX will need to closely

needs to be filled. According to CNH, 113 companies have

coordinate with academia to draft training programs

participated in the licensing rounds so far, of which 73

both for new recruits and senior officials and adapt their

were awarded 107 blocks out of the 161 blocks tendered,

knowledge and expertise to the qualifications required. In

amounting to an allocation area of 88,648.5km . The 138

October 2017, the Ministry of Energy, Mexico’s Engineering

committed wells amount to a total investment in work

Academy (AIM), ITESM and CONACYT joined forces

programs of US$4 billion. The particular figure that stands

to create the Energy Talent Observatory, with a joint

out is that Mexican companies were the main winners

investment of MX$49 million. Emulating a similar measure

of the rounds, with 55 companies awarded one or more

deployed by Canada’s University of Calgary, the project

blocks. The US is second with 19 companies and Colombia

seeks to map out the expected investment levels in each

comes in third with five companies. All these companies

of the industry’s sectors, from hydrocarbons to renewables

have taken on the objective of further developing Mexico’s

and match them with the required human capital. The

oil and gas production platform and will certainly need

first stage of the observatory will be to study these two

the country’s expert petroleum engineers, geologists and

variables over an 18-month period, after which imbalances

geophysicists to do so.

between investments and human talent will be monitored

390

and corrected up until 2023. It will also provide a platform

FILLING GENERATIONAL GAPS

for academia to adjust training programs across all levels

In 2014, the Ministry of Energy, in coordination with CONACYT

of specialization, tailored to the industry’s demands.

and the Ministry of Education published the Strategic Program of Human Resource Training in Energy. In it, the federal

LOCAL CONTENT PROVISIONS AND NAFTA

government estimated that from 2015-18, the industry will

Based on the regulatory framework, it falls upon the Ministry

require an additional 135,000 trained professionals with

of Economy to determine how Mexico’s private sector will

technical profiles in higher education levels. The program

comply with its local content provisions. Based on the

also estimated that PEMEX would have to replace 29,307

aforementioned regulatory framework, the concepts that

professionals eligible for retirement. “Companies are trying to

qualify in complying with local content include contracted

find the right balance between experienced staff who have left

goods and services, skilled national workforce, training of

PEMEX or who lost their jobs in 2014’s oil price downturn and

said national workforce, investments in local and regional

newly-graduated university students. If we can mix that talent

infrastructure and technology transfer. Both operators and

in the right way we will have a very successful Energy Reform,”

direct suppliers are obligated to comply. Failure to do so can

says Germán Pineda, President of the Mexican Association for

generate fines from MX$600,000 to MX$12 million, according

Human Resources in the Oil Industry (ARHIP).

to a PwC report on local content for the hydrocarbons and electricity sectors. For E&P activities, operators and suppliers

During ONEXPO 2018, Minister of Energy Pedro Joaquín

need to prove 25 percent of local content in their activities,

Coldwell highlighted that as nine licensing rounds have

set to increase to 35 percent by 2025. Local talent can

concluded, including three farmout contracts from

provide the bedrock to meet local content requirements

PEMEX and 104 contracts awarded to 73 new companies,

and is expected to take the lion’s share of the requirement

estimated investments are close to US$161 billion. This

to ensure compliance.

NAFTA renegotiations could have a significant impact over

especially considering the inherent long-term component

how Mexico characterizes local content and can provide

of oil and gas developments. It also means the industry

the oil and gas industry a balance between qualified local

will increasingly require human capital management

personnel and the expertise, experience and technology of its

solutions, creating a business boom for human resources-

northern neighbors. “It seems like the vision is shifting toward

based business in the country. “There are over 60 new

regional energy security and regional human capital content,”

operators who are just getting started in Mexico, all in

says Miguel Marmolejo, External Strategic Researcher in

different phases of hiring,” says Guido Van Der Zwet,

Energy Affairs at Access to Energy. “This small change

General Manager Americas of HR firm iPS Powerful

could represent an increase in trading of energy sources and

People. “Some are active and hiring at a faster pace

also human capital.” Marmolejo considers allowing regional

than others. Of course, there is more development with

objectives to supersede national rules could give the North

onshore and shallow-water operators. With deepwater

American region a reinforced position against economies such

operators, hiring is a bit slower but it is also progressing,”

as China and India.

he adds.

STRENGTHENING VALUE CHAIN LINKS

DOWNSTREAM KEY POSITIONS BY 2020

A value chain is only as strong as its weakest link. Unlocking

UPSTREAM KEY POSITIONS BY 2020

new areas in the oil and gas industry, such as logistics,

• Drilling Engineer

• Maintenance Planner

production and the sale of oil means human capital is required

• Process Engineer

• Electricity Engineer

to fill roles outside PEMEX. “Companies need to do their own

• Reservoir Engineer

• Waste Manager

logistics, their own storage and sell the product themselves.

• Geoscientist

• Health and Safety Engineer

This led us to create new positions, new profiles and to seek to train people in the labor market who do not yet exist,” says Oscar González, Board Member of the Mexican Association for the Management of Human Resources (AMEDIRH). He says human resources departments could try knowledge transfer schemes to make the most out of PEMEX retirees before they

• Field Specialist • Production Engineer • Environmental Engineer • Field Engineer • Seismic Specialist • Chemical Engineer

leave. “We are looking for people within companies from

• Field Operations Specialist

other sectors that have all the necessary expertise and we are

• Maintenance Engineer

combining them with people leaving PEMEX who have a great

• Electricity Engineer

deal of experience,” he explains. “Once gathered, we launch a cross-training of sorts in which the people from PEMEX and the people from outside the oil and gas industry are trained together, resulting in an interesting mix,” says González. Training skilled, technical and experienced professionals for

• Reliability Engineer • Process Operator • Water Manager • Waste Manager • Maintenance Technicians

the offshore sector is set to become the most challenging in the industry, González adds. “We are talking about periods of five to 10 years because people cannot have important operational jobs if they do not pass a complete cycle of

MIDSTREAM KEY POSITIONS BY 2020 • Terminal Operator • Process Operator

training, with years of working on drilling crews,” he says. “For

• Mechanical Engineer

companies, this is a double cost.”

• Process Control Engineer

Coordination between government agencies, the private sector and academia will prove critical over the near future to align talent supply with demand. “The Ministry of Energy

• Instrumentation Engineer • Computer Specialist • Waste Operator

and CONACYT already have some programs and they have

• Process Engineer

been investing aggressively in the education of people

• Electrician

at universities in cities such as Aberdeen and Houston,”

• Pipeline Control Engineer

says Pineda. “Of course, the government is interested in supporting these efforts but it is time for companies to also invest in their main asset: their employees. ”

TURNING CHALLENGE INTO OPPORTUNITY Providing Mexico’s oil and gas industry with qualified human capital is more of a marathon than a sprint,

• Health and Safety Coordinator • Maintenance Inspector • Reliability Engineer • Water Manager • Maintenance Technicians • Mechanical Engineer • Maintenance Supervisor • Refinery Operator • Energy Engineer • Process Operator • Operations Manager • Environmental Engineer UPSTREAM KEY POSITIONS BY 2028 • Deepwater Upstream Piping Engineer • Mud Supervisor • Well Test Engineer • Reliability Engineer • Health and Safety Engineer • Facility Manager • Marine Engineer • Deepwater Drilling Superintendent

• Electricity Engineer

• Deepwater Finalization Engineer

• Plant Process Operator

• Drilling Engineer

• Pipeline Engineer

• Mud Engineer

• Wastewater Technician

• Logistics Director in Supply Chain Management

• Maintenance Engineer • Environmental Engineer

Source: Ministry of Energy

391

INSIGHT

HUMAN RESOURCES AND THE INDUSTRY DOWNTURN OSCAR GONZÁLEZ Board Member of AMEDIRH

Human capital in the oil and gas industry has been on a

cannot have important operational jobs if they do not pass a

roller-coaster ride since the Energy Reform was passed. Oil

complete cycle of training, with years of working on drilling

prices fell from US$100/b to US$30/b between July 2014

crews. For companies, this is a double cost. We need the

and February 2016, causing a massive slowdown of activity.

people who are working but behind them there are also

Oscar González, Human Resources Director of Grupo R

more people being trained, meaning companies end up

and board member specialized in the oil and gas industry

paying double salary for one job,” says González. Industry

of the Mexican Association for the Management of Human

human resources associations have been pressing for lower

Resources (AMEDIRH), says that as a result, human resources

experience requirements for some jobs, he says.

departments need to adapt. “On the one hand we are firing 392

people and on the other we need to figure out how to train

But not everyone has been so fortunate. From the moment

new people for new contracts.”

the price of oil started falling to the beginning of 2018, approximately 100,000 jobs were lost in the oil and gas

When the Energy Reform was initiated, policymakers claimed

industry in Mexico, González says. “Most of the people who

it would generate 130,000 new jobs. “All the companies went

work in this industry are from different parts of the country,

crazy wondering where they were going to find 130,000

not only from Ciudad del Carmen or Villahermosa. Of these

people,” González says. “The next year we noticed that far

100,000 people, easily 70 percent went back to their states

from 130,000 new jobs being created, 40,000 people were

of origin to look for work in areas such as construction or

going to be made redundant.” Now, with new areas opening

painting. The rest are still in the oil and gas value chain.”

in the oil and gas industry, such as logistics, production and sale of oil, which were once the sole domain of PEMEX, human

The layoffs also had a significant impact on indirect jobs,

resources departments need to carry out a re-engineering

leaving cities such as Poza Rica, Villahermosa and Ciudad

process. “Companies need to do their own logistics, their own

del Carmen resembling ghost towns. “Before the downturn

storage and sell the product themselves,” González says. “This

in oil prices, there were people everywhere in red and orange

has led us to create new positions and new profiles and to

overalls. After 2014, in Ciudad del Carmen many houses

seek people in the labor market who do not exist.”

abruptly went up for rent,” González says. “The same thing happened in Poza Rica and other cities that are dependent

Companies in the industry are looking for professionals

on the oil and gas industry.”

from outside the oil and gas sector to fill roles that did not exist earlier, González says. “We are looking for people at

González expects the recovery of the sector to be slow.

companies from other sectors, who have all the necessary

“It will take at least eight to 10 years for the promise of

expertise, and combining them with people who are leaving

130,000 new jobs to be fulfilled,” he says. “But I do think

PEMEX who have a great deal of experience,” he says. “Then

that we will be adding about 30,000 new jobs over the next

we are doing a kind of cross-training in which people from

couple of years.” With the new emphasis on efficiency and

PEMEX and people from outside the oil and gas industry are

productivity, new skills are required. “We need people who

trained together, resulting in an interesting mix.”

have more experience in terms of projects,” says González. “For example, project management is something that was

González estimates that 10 percent of all companies are

not valued much in the industry. Now, all companies need

training personnel for new functions within the industry.

to find two or three project managers to carry out efficient

Among the most difficult areas is offshore, where training

projects.” He adds that with more independent players, the

periods can span years. “Training for the whole operational

Federal Tax Administration (SAT) has become increasingly

part of offshore takes a lot of time,” says González. “We are

important, creating a demand for lawyers and accountants

talking about periods of five to 10 years because people

specialized in the Hydrocarbons Law.

VIEW FROM THE TOP

DEVELOPING NATIONAL HUMAN CAPITAL FOR A NEW MARKET GERMĂ N PINEDA President of ARHIP

Q: How is ARHIP working to bring together educational

employers to contribute with their experience to incentivize

institutions and oil and gas companies?

knowledge transfer.

A: I think the balance between industry education and government has improved greatly over the last five

Q: Should the government be involved in job training and

years. We now have a very good connection among the

where do you think the funding for this should come from?

government, educational institutions and companies, but

A: The Ministry of Energy and CONACYT already have

this continues to be a great opportunity for Mexico as a

some programs and they have been investing aggressively

country. Companies are trying to find the right balance

in education at universities in cities such as Aberdeen

between experienced staff who have left PEMEX or who lost

and Houston. Of course, the government is interested in

their jobs in 2014â&#x20AC;&#x2122;s oil price downturn and newly graduated

supporting these efforts but it is time for companies to also

university students. If we can mix that talent in the right way

invest in their main asset: their employees. Implementing

we will have a very successful Energy Reform.

a new educational model requires an effort not only from the government but also from universities and companies

If this is not possible, we will see many people coming from

so we can generate the best talent for the future. Now is

other countries to fill jobs. Current geopolitical instability

the time for companies to invest.

means skilled workers are coming from Venezuela, where they have an uncertain future, or from Brazil, which is a

Q: What skillsets are required now and in the long term by

mature market. Now is the right time to get something

the oil and gas sector?

done. Although we have companies operating in the field,

A: More than technical skills I would point to theoretical

specifically in deepwater, we have another 10 years to train

skills such as problem-solving and English. Such soft

students to face that challenge. If we can make a concerted

skills complete the candidate profile for these kinds of

local effort, staff will ultimately be cheaper than having to

companies, keeping in mind that six or seven years ago the

constantly bridge the gap with expats. This continues to be

only operator to work for in Mexico was PEMEX. These skills

a great opportunity to close the circle between industry,

were not necessary then but now, with an open market,

universities and the government. The Ministry of Energy

companies like Shell, Chevron and Statoil will be looking

also has many programs and has been working hard in this

for people who can compete with any candidate globally.

regard, so I am confident for the future. Q: How has the relationship between PEMEX and the sector Q: What would you say to people interested in engineering

in general evolved with regard to human resources?

to convince them to enter the oil and gas industry?

A: PEMEX is very open to contributing. For example, it

A: I think transfer of knowledge will be the name of the

participates in the salary survey that we conduct every

game in the future. New generations, open to new tools

year. It is obvious that companies coming to Mexico

and new technologies especially for deepwater, will be

will be looking for candidates and the main pipeline

key. For that reason, I think it is very important to provide

of candidates comes from the NOC. It is important for

students with opportunities now, so we can be ready in

PEMEX to share information if it wants to retain the best

the next four or five years. Within this time frame, it is vital

talent within the company.

that local talent be able to access short and long-term assignments in Houston. We are very lucky to have a mature market like Houston so close. I think it is a very good time

The Mexican Association for Human Resources in the Oil

to invest in talent, especially for new generations that are

Industry (ARHIP) administers and manages human business

hungry to gain international experience. It is also a good

talent. It seeks the exchange of ideas, knowledge, experience,

time for people who have parted ways with their previous

technology and best practices

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VIEW FROM THE TOP

EXPERIENCED HUMAN CAPITAL COMES FIRST JESÚS GONZÁLEZ Director General of CIDESI

394

Q: What is CIDESI’s role in contributing to the development

A: Talent is the fundamental component for any oil and

of SMEs in the oil and gas industry?

gas company’s development. We are associated with the

A: CONACYT has reorganized itself to integrate different

Universidad Autónoma de Ciudad del Carmen (UNACAR)

oil and gas centers, creating a consortium specialized in

wherein we develop undergraduate and postgraduate

offering services to SMEs in this industry. We are a leading

programs together. I have also toured different cities in the

engineering center and we have a big role to play in terms

country to stress the need to invest in young professionals

of knowledge development and training. Through this

and to push them to do practical work in their final years

consortium, we will offer seminars and introductory talks

of university. We signed an agreement with PEMEX for

to walk SMEs through the industry’s requirements. We also

a project called “Smart Fields,” which utilizes digitalized

are in the process of creating micro clusters that will have

programing to work on overproduced fields with cost-

the necessary funding and human capital to host oil and

effective practices and minimal resources invested. This

gas projects. This program is geared toward accelerating

is a pilot project involving 25 fields and an investment of

the learning processes for SMEs in an environment where

MX$35 million from PEMEX.

they can apply the most convenient practices at lower costs because they will be part of a micro cluster that has a good

Q: How would you evaluate local human talent and what

pool of resources.

areas of opportunity are there for them? A: Mexico generates more engineers than many developed

Q: What is the significance of talent development in Mexico

nations. The capacities and the capital are here, but we need

and how is CIDESI contributing in this regard?

the tools to insert this pool of talent into the labor market. This is particularly hard for specialized institutions since there are around 10 in the entire country that effectively

CIDESI, founded in 1984, contributes to the development

allocate Ph.Ds and Master’s degree holders. Our talent is

of productive industries in Mexico through research and

internationally recognized for its quality and commitment

innovation projects, as well as providing highly specialized

to work but we need to provide them with the necessary

technological services

possibilities for growth.

VIEW FROM THE TOP

JOBS MARKET FINALLY SHOWS A PULSE GUIDO VAN DER ZWET General Manager Americas of iPS Powerful People

Q: As the oil and gas cycle picks up, how would you

A: I think the question is ultimately who is responsible for

evaluate demand for different kinds of employees?

retraining. I think the IOCs but also the local and federal

A: There are over 60 new operators who are just getting

governments should do their part to improve schooling

started in Mexico. What we see is that all these companies

and training. Of course, there is a gap between current

are in different phases regarding hiring. Some are active and

activities and future activities and there is unemployment

hiring at a faster pace than others. Of course, there is more

at the moment. However, the coming number of required

development with onshore and shallow-water operators.

personnel is so large that it is necessary to act now.

With deepwater operators, hiring is a bit slower but it is also progressing. We are mainly looking to fill white-collar

Q: What can a company such as iPS do to assist skilled

positions at the offices of the new operators. They are

workers unemployed in the downturn?

already inquiring about operational crew but we expect

A: Since we operate internationally we can help people find

that demand will be stronger in 2019.

jobs in other countries, either in Latin America or in other parts of the world. We have been sending people to the Middle East

Q: What sector of the oil and gas industry is the most

and to Europe over the last couple of years. Another thing we

dynamic for iPS?

can do is to keep our database updated with all the people

A: Upstream requires the most personnel in the long run,

who have lost their jobs. As soon as the market picks up again

although we see demand for personnel in downstream,

we try to get them jobs in the right companies.

particularly for new gas stations. We work with BP for example. With regard to liquid fuels, I would say upstream

Q: To what extent was there an exodus from Mexico these

and downstream are the most active sectors because

last few years?

midstream is still in the hands of the government. However,

A: People have been leaving but I would not call it an exodus.

on the natural gas side there are many things happening

The real exodus has been among service companies. So,

in midstream, especially in the case of onshore pipelines.

for example, there are platforms in the ocean with a crew onboard to do the drilling. But drilling requires drilling

Q: How did the oil and gas industry downturn affect

fluids so there is a service company providing these to

employment?

the platforms. Then there are other vessels, such as multi-

A: Many people were laid off, of course. PEMEX is in a

supply vessels that do maintenance for the platforms and

transition phase and it was forced to let a lot of people

crewing vessels that take people to and from the platforms.

go. PEMEX’s subcontractors also shed many employees;

There are catering companies and offshore accommodation

some companies went bankrupt and others literally left the

services, such as flotels. Now that the operations and

country. These took a great deal of employment with them

production of PEMEX have plummeted, many platforms

and many people are still unemployed. Of course, there

have lost contracts or even stopped producing. This means

are other industries in Mexico that are thriving, such as the

that all the other surrounding services also have stopped.

automotive and aerospace industries, and some oil and gas

We have definitely seen an exodus of service companies

industry employees found work within those sectors. For

and vessels leaving the Gulf of Mexico. Some take their

some workers, an alternative has been to try to get some

personnel with them but other employees are let go.

schooling and enter other industries. But when examining places like Ciudad del Carmen and other coastal cities, there is still a lot of unemployment.

iPS offers employment for multinational personnel worldwide. It supplies personnel to the international maritime and

Q: How do you think Mexico has been able to address these

dredging industry. Over the years, iPS has expanded its expertise

retraining challenges?

into other sectors, including energy and civil construction

395

VIEW FROM THE TOP

PERMIT HUNTERS AND COMMUNITY MANAGERS TOBY SPOON Vice President of Tecma Group and Head of Tecma Energy Services

Q: How do you help companies working in Mexico manage

launch operations in these areas a company needs allies if

community relations?

it does not want to stir up a hornetsâ&#x20AC;&#x2122; nest.

A: We are about 4 years old now and our story is going to

396

end up being fairly unique. Tecmaâ&#x20AC;&#x2122;s core business for the past

Q: What has been your experience in the licensing rounds?

32 years has been in manufacturing along the border and

A: Our first steps into exploration activities resulted from

in the interior of Mexico. We provide services to companies

our partnership with a Texas operator that was introduced

that want to come to Mexico. We get all the permits, we

to us. We formed a partnership to enter the licensing

do all the customs paperwork, we find and manage all the

rounds. Everybody knows that CNH was repurposed and

human resources. We make sure projects comply with all

grew in size, scope and authority almost overnight. It was

environmental requirements and we assume all the risk in

a group of brilliant, dedicated young people who were

Mexico. Our promise to clients is that they will never end up

doing their best to keep up. But for everybody involved in

on 60 Minutes because they forgot to do something and have

that whole initiative it was new and it was thrust on us as

gotten into trouble. I cannot tell you how many companies we

interested participants. As we went through this process ,we

have talked to that have tried to set up their rig only to have

realized that there was a real niche opportunity because our

a community of people surround it and prevent operations,

strong suit is that we have had to secure permits at several

forcing these companies to actually shut down the entire

different government levels that are almost unobtanium, as

operation because they did not know what to do. We can

we say in the company.

take care of every single aspect of that process so all the company has to worry about is what it is good at.

Regarding our intention to begin exploration activities, it has been up and down. We have gotten close but the

Q: What is Tecmaâ&#x20AC;&#x2122;s core strength?

rules for participation keep changing. At one point and

A: What we bring to the table is 32 years of working in

early on we were in the catbird seat because the Mexican

communities and the human side of business. We have been

government wanted companies to have a demonstrated

very successful in every market that we have ever worked

track record of oil production and discoveries. No Mexican

in and are really connecting and identifying with people in

companies could fit that bill. Something happened and they

the workforce. A great deal of community interaction and

changed it around, allowing Mexican companies to bid, but

development is required for projects to work. We have had

these companies just went crazy and made ridiculous offers

to do that in new areas; setting up an operation, getting

that were untenable under any circumstance, preventing us

people to come to work and getting them involved in a

from obtaining any blocks.

manufacturing environment that they have never known. In every single market we have ever worked in, we end up

Q: What has been the perception of Mexico among your

with the lowest turnover rate. There is no secret. What we

clients and contacts in the US?

do is just very hands-on human interaction. We have already

A: Our client base was scared to death of Mexico. I am not

made forays into some of the communities in oil-producing

talking about the Shells and the Exxons of the world but the

areas of interest to us. I have started laying some of the

smaller companies that do independent exploration; they

groundwork; just making friends and meeting people. To

have a great fear that once they get started, things will get complicated and corruption will be bad and that they will be nationalized eventually anyway. Ironically, as we began

Tecma Energy Services (TES) is the newest division of the

to work with entities such as CNH and others, I actually

Tecma Group, an international support services business and

saw the same concern on their faces as we met. They were

shelter-service provider based in El Paso, Texas, for companies

afraid that all these foreign companies were going to come

in the oil, gas and power-generation sectors in Mexico

down and take advantage of them.

INSIGHT

MEXICAN HUMAN CAPITAL A SYMBOL OF SUCCESS

Yisel Varela CEO of Access to Energy

Miguel Marmolejo External Strategic Researcher in Energy Affairs at Access to Energy

Like many other countries, Mexico has put in place clear

create an attractive market while providing benefits to the

local content rules that must be followed by every operator

country,” she says.

looking to invest here. But a new NAFTA deal could shift the focus to broader personnel requirements amid regional

Although IOCs are a strong market for A2E, Varela says

energy security concerns, says Miguel Marmolejo, External

the company wants to deepen its footprint with SMEs

Strategic Researcher in Energy Affairs at Access to Energy

and strengthen the local value chain. “By offering them

(A2E), who adds that the result could benefit all sides.

opportunities to apply economies of scale, their costs decrease and therefore their competitive advantage

“It will be very interesting to see how the NAFTA

increases,” she says. Varela adds that boosting the presence

renegotiations modify certain concepts such as energy

of Mexican human capital domestically and worldwide will

security and human capital,” Marmolejo says. “It seems like

not be difficult because of the huge amount of talent in the

the vision is shifting toward regional energy security and

country. “Mexicans are hardworking people who look for

regional human capital content. This small change could

continuous improvement,” she says. “At A2E, our objective

represent an increase in trading of energy sources and also human capital.” Marmolejo says that allowing national rules to take a backseat to regional objectives will give the North American region a better footing to compete against economies such as China and India, which are both making a strong push into the energy market. He also says that companies like A2E, a multidisciplinary corporate service shelter that integrates knowledge and experience to usher its clients into the Mexican energy market, can help companies navigate the paradigm resulting from any new trade deal.

“

is to offer those workers the best opportunities.”

We have experience in the Mexican industry and our differentiator is that we are specialized in managing Mexican human capital”

That also benefits companies, says Varela. “At A2E, we provide integral advice for human capital management

“With offices in San Antonio we will be able to capitalize

that includes legal, accountancy, fiscal and even the

on the possibility of an easier trade of human capital,

cultural element, which can be critical to ensure profitability.

therefore offering the opportunity to US and Mexican

We have experience in the Mexican industry and our

companies and workers to increase the value they offer in

differentiator is that we are specialized in managing Mexican

both countries amid lower operational costs,” Marmolejo

human capital.”

says. “One clear example of this is our staff, which has the broad experience in US shale development that could help

Marmolejo adds that the oil and gas industry has all it

increase production in Mexico.”

needs to become stronger, pointing to the success of the automotive industry as an appropriate model. “We have a

While opportunities are significant in the regional area, Yisel

very good example of what we can achieve through the

Varela, A2E’s CEO, says it is equally important to ensure

Mexican automotive miracle, which turned Mexico into a

that national development objectives, which are reflected

manufacturing hub for automobiles and auto parts,” he

in public policy, are aligned with the goals of the private

says. “We believe that this miracle can be replicated in the

sector for the benefit of both parties. “In that area, A2E likes

oil and gas industry and we are working with that objective

to see itself as the hinge between both, always focusing

in mind.” The best way to see that happen is by betting on

on implementing the best solutions for its customers to

Mexico’s human capital, he adds.

397

VIEW FROM THE TOP

ENGINEERING HUMAN CAPITAL SOLUTIONS ADRIAN RODRIGUEZ-MONTFORT Country Manager Mexico of Brunel Energy

Q: What attracted Brunel to Mexico?

in remote areas where there is no proper transportation

A: After the liberalization of the Mexican oil and gas

infrastructure and under rush-hour delivery conditions,

industry, international and independent operators were

such as when a crew cannot take the next shift and the

the first to enter the country looking to secure contracts

client needs a new crew in just 48 hours. Thanks to our

and launch operations. As the Energy Reform consolidates

flexibility, we can deliver high-quality solutions in the fastest

through the licensing rounds and contracts are getting

way possible.

signed, companies like Brunel enter the market to support

398

these operators with the best human capital management

Q: How does Brunel ensure that the human capital it

solutions. In other countries we recognize a market need

delivers is precisely what its customers need?

and enter because we see the opportunity. In Mexico, our

A: Our team is made up of highly trained recruiters who

global clients are asking us to provide contractor and

know the industry perfectly. They are able to find people

team build-up solutions as they move forward, making the

with the characteristics that more than fit the job profile. A

process market-driven and much faster.

very simplistic example would be a customer asking us for an offshore driller to cover a three-by-three-day rotation. Beyond

Brunel makes sure its clients can focus on their core

the technical and experience requirements, the recruiter

business. With our service portfolio, our clients get

will then identify a candidate for the position who can deal

specialized and highly skilled human resources, allowing the

with stress, lack of contact from friends and family and even

company to focus on finding, identifying, developing and

with loneliness. Brunel’s goal is to de-risk the operations

exploiting hydrocarbon resources. The people we manage

of our clients, and by understanding those background

participate along the entire value chain, so we can offer

requirements that the client might not specifically state, we

services not only to operators but to all their contractors.

ensure that the candidates will not put the operation at risk

Brunel does not only offer human capital but also the

not only because of their technical expertise, but also due to

administration of that talent, so our clients do not have to

their social and psychological abilities.

take care of recruitment, payroll or any labor liability. We do it all for them. At its most essential core, we de-risk the

Q: How does Brunel help its clients deal with Mexican local

operations of our clients in the sense that we get the right

content requirements?

person, at the right time, with the right qualifications and

A: Because our firm has an engineering background,

experience, and at a competitive cost to them

we analyze every project through its complete life time. Instead of simply offering off-the-shelf solutions, we will

Q: What main added-value does Brunel offer?

find the option that best meets the client’s requirements.

A: We are very proud of being an extremely flexible

For example, if a client from Houston lands a contract in

organization. Due to the nature of the services we offer,

Mexico and needs a worker specialized in the Mexican legal

we need to respond extremely quickly to our clients’ needs,

framework, then that worker will most likely be there for

while properly managing the local conditions of the market.

the long run, meaning that it is better to employ him in

We have supplied personnel in markets with restricted labor

Mexico to better meet local content requirements. If the

and local content conditions. We have provided personnel

contract involves a three-month drilling project, the drilling manager will be there for a short period and will therefore not help that much with local content requirements,

Brunel Energy provides project-resourcing services, global care

meaning that he can be hired through our Houston offices.

and mobility solutions to industries including oil and gas, mining

Our experience in the market and our recruitment experts

and engineering, It helps find technical specialists, trade and

can offer this level of expertise, ensuring the client gets

craft-labor experts and staffs entire projects in multiple locations

the best solution possible.

VIEW FROM THE TOP

FILLING SKILLS GAP WITH RIGHT PERSON FOR RIGHT JOB ALEX GARCÍA Representative in Mexico of IHRDC

Q: What is the role of training in today’s industry context

Q: To what extent are IHRDC’s courses adapted to the

and what benefit does IHRDC provide?

Mexican oil and gas industry?

A: Training today is designed around building a competent

A: There is going to be a large demand for employees in

workforce. Successful company executives, especially in

the coming years due to the Energy Reform, and there

the international oil and gas industry, want to ensure all

are just not enough professionals prepared and available

their employees are capable of performing their jobs to

today. IHRDC’s products and services can help operators

international standards and that they comply with all

prepare their staff for their needs and our training material

regulations. That state of competency does not organically

applies to most functions independent of the country.

happen; a competency and compliance management

Nevertheless, we have been translating the content of the

system must be put in place and IHRDC has helped many

competence library and the online courses into Spanish for

companies in our industry to achieve that goal. In fact, our

the Latin American market. Most of the 380 online courses

system has been adopted by SPE and SEG.

for operation and maintenance have been translated into Spanish to facilitate the use of local labor.

It all starts with the building of competency models for each or some of a client’s key roles. The process begins with a

Several trends are unfolding. One is the expansion of the

client selecting target job titles from IHRDC’s inventory of

opening of the Mexican industry with massive offshore

350 industry-standard, generic competency models and

blocks being offered. There is also unconventional activity

then we tailor each model to the client’s specific needs.

that is going to take place here and people do not have that

Each employee is assessed against a list of capabilities from

particular skillset in Mexico. We can help companies prepare

his or her competency model so any skill gaps are identified.

for that. Also, there is the coming of what is called the

In this way, each person’s competency gaps define his or

“big crew change.” There is a large gap between the senior

her individual development plan, essentially the training

people in the industry and younger generations. Those

that person needs to become fully qualified.

younger generations need to start filling the management positions being vacated by these experienced and seasoned

We help many oil and gas operators and service companies

people. The challenge is how to bring people into these jobs

around the world to assess the competency level of their

quickly and effectively.

people so they can fill any gaps through our CMS online platform, our online courses, instructional programs and

Q: What are the principal skills required in the Mexican oil

on-the-job mentorship resources. These resources help

and gas industry?

clients tailor a corporation-wide development plan based

A: Although there are many outstanding professionals in

on each employee’s individual skill gaps. Our competency

Mexico, as new blocks are explored and developed, there

system also assists our clients with succession planning

will be a dearth of people with knowledge in different areas

and recruiting. With regard to succession planning, if

like offshore, EOR and unconventional operations. All this

a company’s whole team is profiled on CMS online, it

requires different skillsets involving technology. There will

facilitates the selection of the most appropriate job

be a significant lack of talent availability to tackle current

candidates by searching the employee database using

problems and now is the time to prepare such talent.

job-specific criteria. With CMS online, plans can be created for a company’s

International Human Resources Development Corporation

staff. We also help the companies with a library of over

(IHRDC) is a leader in training and competency development

1,500 online courses covering the whole value chain of the

for the oil and gas industry. It offers instructional programs,

oil and gas industry.

e-learning solutions and competency management services

399

VIEW FROM THE TOP

PUTTING SERVICE QUALITY TO THE FRONT OF THE LINE JERZY SASIADA Mexico Area General Manager and Managing Director Mexico of Williams Scotsman

Q: How significant is the oil and gas industry to your Mexico

only company in the industry recognized as a Great Place

operations and what makes you the partner of choice?

to Work.

A: We offer multitask services for a range of industries.

400

Looking closely at the development of the Mexican

Q: What are some of the most common challenges that

economy in recent years, the oil and gas industry increased

your customers tend to overlook?

its economic participation in the market and this allows

A: The budget is always a factor, and we must adapt to

us to foresee new opportunities for Williams Scotsman. In

client needs while staying economical. We believe that our

the past, this specific industry represented approximately

customers highly appreciate our clarity at the moment of

40 percent of our business in the country. However, as the

offering our products as we are defined by high quality

industry keeps moving forward, we expect that percentage

standards. Occasionally, budget adjustments required

to thrive.

quality reductions that we cannot offer. Nevertheless we are always able to provide different solutions within our

As part of a multinational company that has stand out for

product portfolio that balance this cost effectiveness

the excellent service provided to customers throughout

without compromising quality.

different industries and countries, we focalized our operation to the Mexican market with specialized services,

Regardless of any situation in which these adjustments are

quality products and an excellent value proposition

required, we aim to provide the best service, keeping in

emphasizing customer satisfaction by identifying specific

mind that our customers have their own operation and staff.

needs. This gave us the opportunity to become a primary

Therefore, the conditions for the people should be adequate

partner of choice in Mexico.

according to the locations where they are working, spending time, and resting. Williams Scotsman watches every detail to

Q: How has your external service platform contributed to

create a productive environment and comfortable facilities.

the company’s operability?

Part of our service is to tailor solutions to the customers by

A: Our customer’s feedback is the best way to improve

helping them locate their most pressing needs and clarify

our current services. This was the main reason to explore

the best alternatives for them.

new alternatives in order to deliver the best products in the market. Proven the company’s international

Q: How have the oil and gas industry’s changes transformed

experience and taking some of the best practices, we

your customers’ requirements?

started this platform based on giving an unbiased voice

A: As the demands of oil and gas have evolved, the

that allow our customers to submit their comments and

industry is boosting into new and specific demands, which

recommendations directly with no intermediaries. The

have pushed our customers to integrate a wider range of

platform works with aftersales surveys and daily reports

services and become increasingly dynamic. Requirements

that assess business performance according to the results

are migrating into a sort of hospitality service in each

and provides pool of recommendations we implement at

location, whether it is onshore or offshore. Each company

a later stage. The platform’s success has been reflected

looks to integrate their alliances to serve the ultimate

even in terms of human resources as we have been the

client, which is PEMEX. Q: How do you see the company evolving in Mexico?

Williams Scotsman , a Baltimore-based leader company with

A: We want to maintain the trust that our current customers

more than 50 years of experience, offers modular space

have in our services and create new alliances with potential

services, a convenient and cost-effective solution for temporary

customers by delivering a cost-effective solution in the least

infrastructure needs such as housing and offices for building sites

time possible.

INSIGHT

LOCAL EXPERTISE FOR AN INTERNATIONAL INDUSTRY JUAN TAPIA Director General of Construcciones Industriales Tapia

While it is generally accepted that the arrival of new companies

to operate here,” he says. “Processes that must be developed

to the Mexican oil and gas industry will introduce new ways

and presented to and approved by different regulatory

of doing things, Mexican businesses will have a pivotal role in

agencies at different levels should be streamlined to foster

helping these entrants to succeed, says Juan Tapia, Director

investment.”

General of Construcciones Industriales Tapia. “One of the key objectives of the Energy Reform is to bring partners from all

Despite the new playing field, Tapia says the diversification

over the world to improve Mexico’s oil and gas industry. In that

of products and services has served the company well.

sense, national companies must commit to helping these new

Construcciones Industriales Tapia has a 60ha facility located

companies strengthen their presence by providing them with

in Tula, one of the biggest in the country and employing

local knowledge and expertise.”

almost 3,500 people. “Everything in the location is owned by Construcciones Industriales Tapia,” he says. “We can meet

Pointing to the quality of the existing local content, Tapia

any manufacturing request, from metal structure, piping and

says training and adaptability is crucial. “At Construcciones

storage tanks to equipment for offshore platforms.”

Industriales Tapia we are committed to investing in key projects for us and our partners to develop the Mexican industry,” he

Tapia adds that the extent of the company’s expertise

says. “We achieve this by training our staff according to the

stretches across several projects, each one having been

needs of each project we participate in. We like to shape our

delivered on time and on budget, regardless of difficulty, he

people so they are ready to tackle the needs of the future.”

says. “We are not interested in easy projects because those can be performed by anyone in the market.”

The company’s strategy is to recruit potential employees while they are still studying and then train them to the standards

Among the most important projects in which Construcciones

expected by Construcciones Industriales Tapia, a 100-percent

Industriales Tapia has taken part is the reconfiguration of

Mexican engineering, procurement and construction business.

the Lazaro Cárdenas refinery located in Minatitlan. The

This pipeline of human talent positions the company uniquely

company worked on a full reconfiguration together with

in the market, and Tapia believes that this formula is one of its

several technology and engineering firms. “This project is

key success factors. “By forging our own human capital, we

the biggest of the 35 different projects we have worked on

end up with experts who are committed to the company and

in the country,” says Tapia.

to the Mexican industry,” he says. Construcciones Industriales Tapia is now looking at the Tapia suggests, however, that some companies do not share

possibility of installing a general services yard in Veracruz.

this view. “Sometimes in Mexico not everyone works toward

Tapia also has other projects in the pipeline, as he looks

achieving the same objective, which is critical for any project

toward renewable energies and strengthening the

to realize better results,” he says. “This is also seen in some

manufacturing industry in the country.

branches of the government, especially in terms of creating synergies between the private and the public sectors.”

The opportunities in the industry are significant in all industrial areas, Tapia says, and national companies must

According to Tapia, private companies must deal with

work hard to ensure the success of the country. “If Mexican

different federal agencies, such as CRE, CNH and ASEA,

companies do not fully support international companies

and at the local level and this is a big opportunity area

as they enter the country, no one will, and ultimately the

for the government to facilitate investment in the country.

country will be affected,” he warns. “At Tapia Construcciones

“Companies know very well the potential of Mexico in terms

we are ready to work together with whoever understands

of resources but they still lack the knowledge regarding how

and supports our vision.”

401

ACRONYMS /b

Per Barrel

Proven Reserves

Probable Reserves

Possible Reserves

AIM

Asset Integrity Management

API

American Petroleum Institute

APM

Asset Performance Management

ARES

Surface Recognition and Exploration

CONALEP

National College of Professional Technical Education

COPFs

Contracts of Financed Public Works

CRE

Energy Regulatory Commission

DP2

Dynamic Positioning

DPO

Dynamic Positioning Operators

E&C

Engineering and Construction

EHS

Environment, Health and Safety

Authorization

EOR

Enhanced Oil Recovery

ASEA

Safety, Energy and Environment Agency

EPC

Engineering, Procurement and

ASME

American Society of Mechanical Engineers

AUV

Autonomous Underwater Vehicles

AWS

American Welding Society

b/d

Barrels Per Day

B2B

Business to Business

B2C

Business to Customer

BCF

Billion Cubic Feet

BOE

Barrels of Oil Equivalent

BOP

Blow Out Preventer

CAPEX

Capital Expenditure

G&G

Geological and Geophysical

CENAGAS

National Center of Control for Natural Gas

HPHT

High Pressure, High Temperature

CFE

Federal Electricity Commission

HVDC

High Voltage Direct Current

CIEPs

Integral Contracts for Exploration and

IEA

International Energy Agency

IFC

International Finance Corporation

ILO

International Labor Organization

IMP

Mexican Petroleum Institute

IoT

Internet of Things

IPN

National Polytechnic Institute

ISO

International Organization for

Production CITI

Industrial Innovation Center

CKD

Capital Development Certificates

CNH

National Hydrocarbons Commission

CNP

National Productivity Committee

COFECE

Federal Commission of Economic Competition

COFEMER

Federal Commission for Regulatory Improvement

CONACyT

National Commission of Science and Technology

CONAGUA

National Water Commission

Construction EPCI

Engineering, Procurement, Construction and Installation

EPCIC

Engineering, Procurement, Construction, Installation and Commissioning

ESP

Electrical Submersible Pumps

FID

Final Investment Decision

FMP

Mexican Petroleum Fund

FPSO

Floating, Production, Storage and Offloading

Standardization ISP

Internet Service Providers

Information Technologies

ITAM

Autonomous Technology Institute of Mexico

ITESM

Institute of Technology and Superior Studies of Monterrey

JIP

Joint Industry Project

Joint Venture

LBA

Environmental Baseline

LNG

Liquefied Natural Gas

LPG

Liquefied Petroleum Gas

PSV

Platform Supply Vessel

Quality Control

QHSE

Quality, Health, Safety & Environment

ROI

Return of Investment

RO-RO

Roll on â&#x20AC;&#x201C; Roll Off

ROV

Remotely Operated Vehicle

SAGARPA

Ministry of Agriculture, Livestock, Rural

LWD Logging-While-Drilling

Development, Fishing and Food

MAC

Main Automation Contractor

SAT

Mexican Tax Authority

MLC

Marine Labor Convention

SCADA

Supervisory Control and Data Acquisition

MLP

Master Limited Partnerships

SCT

Ministry of Communications and Transport

MMcf

Million Cubic Feet

SEDATU

Ministry of Agrarian, Territorial and Urban

MMcf/d

Million Cubic Feet per Day

MPLS

Multiprotocol Label Switching

MSA

Master Service Agreements

Mega Watts

MWD Measurement-While-Drilling NAFIN

Nacional Financiera Development Bank

NAFTA

North American Free Trade Agreement

NBBI

National Board of Boiler and Pressure Vessel Inspectors

Development SEDENA

Ministry of National Defense

SEDESOL

Social Development Ministry

SEMARNAT

Ministry of the Environment and Natural Resources

SIPAC

System for the Payments of Assignments and Contracts

SISTRANGAS National Integrated System of Transport and Storage of Natural Gas SPV

Special Purpose Vehicle

STEM

Science, Technology, Engineering and

NDT

Non-Destructive Testing

NOM

Official Mexican Norm

NSF

National Science Foundation

SURF

Subsea Umbilicals, Risers and Flowlines

OBO

Operated By Others

TAD

Tender Assisted Rig

OECD

Organization for Economic Co-operation

TAPS

Trusted Asset Protection Survey

TCF

Trillion Cubic Feet

UNACAR

Autonomous University of Carmen

UNAM

National Autonomous University of

and Development OHSAS

Occupational Health and Safety Assessment Services

OPEC

Organization of the Petroleum Exporting

Mathematics

Mexico

Countries PMC

Protective and Marine Coatings

Public Relations

PSI

Pounds Per Square Inch

UTT

Tabasco Technological University

VSAT

Very Small Aperture Terminal

ZEE

Special Economic Zone

INDEX A-H ABS 179

CLH 365

Access to Energy 391-392, 397

COMESA 147

Agilent Technologies 340-341

Construcciones Industriales Tapia 401

AGR 160

Control Flow 258

AIMSA Petroleum 275

COPARMEX Tabasco 46-47, 62, 166-167, 245

Ainda Consultores 90-91

Core Laboratories (Core Lab) 154, 230-231, 246

Alberto Mexico Offices (AMO) 92

Corporativo CEMZA 170-171

Alpha Deepwater Services 194-195, 200-201

Cotemar 255

AMEDIRH 390-391, 392

CRE

AMESPAC 31

Guillermo García 8-13, 19

AMEXHI 18, 30, 84-85, 89, 124-125, 230-231, 232

Deloitte Consulting Mexico 8-13, 36, 130-131

Ampelmann Operations 181, 252-253

Diablo Pipeline Solutions 306-307, 329

API Altamira 52

Diavaz 78-85, 98-99, 104, 237, 243

API Campeche 46-47, 61

DNV GL 260-261, 278-279

API Tampico 46-47, 53

Dow 334-335, 344

API Tuxpan 46-47, 56, 57, 194-195, 252-253

Drebbel 178

Arendal 318, 322

Dynamic Data Services 149

ARHIP 390-391, 393

Ecopetrol 78-85, 90-91, 116, 222-223

ASEA 8-13, 18, 26-27, 30, 31, 34, 36, 39, 46-47, 48, 54-55,

Emerson Automation Solutions 288

72, 89, 102-103, 105, 111, 118-119, 124-125, 153, 234-235, 240,

EMGS 142

260, 262, 263, 270, 276, 284-285, 301, 314-315, 320-321, 364,

Enagás México 306-307, 371

369, 378, 385, 401

Energía Integral 187

Atlantic Oil & Gas 230-231, 245

Énestas 370

Baker Hughes, a GE company 210, 269, 279, 280, 284-285,

ERM 252-253, 262

286-287, 296

Evonik Industries de México 320-321

BASF 338-339, 352-353

EXPRO Mexico 210

Bechtel Internacional de México 360

Falck Safety Mexico 212

Beicip-Franlab México 143, 145

Fermaca 306-307, 312, 318, 325, 328

Bell Geospace 151

Fieldwood Energy 38, 78-85, 111, 124-125, 185, 204-205

Beristain + Asociados 40-41

FMP 20-21, 32-33, 68-69

BGBG Abogados 352-353, 384

Freemyer Industrial Pressure 238-239

Bonatti 319

Fullgas 383

BP 8-13, 36, 68, 78-85, 98-99, 197, 204-205, 213, 278-279,

Gaeli Diesel 185

284-285, 296, 352-353, 377, 380, 384, 395

Gallástegui Armella Franquicias 352-353, 379

BP Downstream 8-13, 352-353, 380

Genoil 347

Braskem Idesa 8-13, 334-335, 336-337

GENSA 328

Brunel Energy 398

Geoprocesados 148

Bulkmatic de México 352-353, 358-359, 372-373

GlobalSat 278-279, 295

Cairn Energy 107

Golfo Suplemento Latino (GSL) 243

Cargotecnia 271

González Calvillo 41

CBM 76-77

Goodrich Riquelme y Asociados 32-33

CENAGAS 8-13, 36, 266-267, 306-307, 308-309, 310-311,

Government of the State of Campeche

312, 314-315, 354, 355, 371 CFEnergía 355 CGG 140, 237 CIDESI 394 Citla Energy 78-85, 90-91, 107, 117, 124-125

Alejandro Moreno Cárdenas 58 Government of the State of Tamaulipas Andrés Fusco 46-47, 50 Francisco García Cabeza de Vaca 46-47, 48 Government of the State of Veracruz Alejandro Zairick 46-47, 54-55

CNH Alma América Porres 8-13, 68-69, 72, 136, 166-167

Greensill Capital 273

Gaspar Franco 28, 68-69, 73

Grupo IDESA 8-13, 35, 236, 336-337

Héctor Moreira 26-27, 68-69, 98-99, 230-231

Grupo Kimia 242

Juan Carlos Zepeda 16-17

Grupo Roales 254, 347

CNIH 134-135

Halliburton 62, 75, 120-121, 166-167, 172, 210

INDEX H-T Haynes and Boone 89

Oceaneering 211, 278-279

HCX 252-253, 270

Oiltanking 352-353, 367

Hexagon PPM 278-279, 297

O&L Offshore 186

Hydrocarbon Storage Terminal (HST) 364, 372-373

ONEXPO National 378, 390-391

IEnova 8-13, 35, 260-261, 306-307, 313, 318, 319, 325, 328,

OXXO GAS 8-13, 36, 377, 379, 382

372-373

PA Consulting 354

IHRDC 399

Paradigm Flow Services 176-177

IHS Markit 152

PEMEX

IMP 29, 134-135, 210, 213

José Antonio Escalera 8-13, 25, 137

Impact Fluid Solutions 161

Ulises Hernández 8-13, 74, 98-99, 194-195

IMS Global 278-279, 284-285, 296

Juan Javier Hinojosa 24, 100-101

Inchcape Shipping Services 207

Carlos Treviño 22-23, 46-47

Industrias Energéticas 356

Petricore 154-155

INPEX CORPORATION 78-85, 100-101, 104, 194-195, 197,

Petrofac 114, 124-125, 274

222-223

Petrolera Cárdenas Mora, a Cheíron Company 14, 68-69,

Integral Consulting 138-139

78-85, 122-123, 222-223

InTELA2 138-139

Petrolink 291

InterMoor 206

PETRONAS 46-47, 53, 68-69, 100-101, 102-103, 151, 161

International Frontier Resources 35, 78-85, 92, 124-125,

Pietro Fiorentini Mexico 266-267

236

Proserma 244

INTERprotección 277

PwC Mexico 8-13, 105, 390-391

iPS Powerful People 390-391, 395

Renaissance Oil 78-85, 120-121, 230-231, 232-233, 234

Jaguar E&P 78-85, 90-91, 98-99, 108-109, 118-119, 124-125

Rengen Energy Solutions 334-335, 346

KBR 202

Resource Energy Solutions 284-285, 299

KDM Fire Systems 352-353, 385

Rockwell Automation 284-285, 293

Kerui EPC 78-85, 252-253, 269

Rystad Energy 93

Kiewit 368

Saipem Mexico 203

KPMG Mexico 8-13, 37, 158

Santamarina + Steta 40

Kratus Energy 366

Sapura Energy Mexico 78-85, 174

Latin American Rainmakers 316-317

Seadrill 153

Lukoil-Engineering 78-85, 115, 166-167, 232-233, 234-235

Seaga Drilling Services 159

MAN Diesel & Turbo Mexico 184

SECC Oil & Gas 213

Marcos y Asociados 38

Sercel 146

Marítima Internacional 172

Serimax - Vallourec Group 183

Marsh 252-253, 265, 278-279

Servicios de Liquidación Ventas Industriales 158

McDermott 204-205, 276

SETEIN 274

MCM Abogados 34

SGS Mexico 252-253, 272

Ministry of Energy

Shell Mexico 8-13, 36, 78-85, 98-99, 102-103, 104, 108-109,

Aldo Flores 8-13, 15, 130-131, 230-231, 306-307

124-125, 142, 175, 194-195, 197, 198, 200-201, 213, 222-223,

Pedro Joaquín Coldwell 8-13, 14, 68-69, 98-99, 130-

266-267, 377, 379, 381, 384, 393, 396

131, 166-167, 194-195, 390-391

Sherwin Williams 327

Mitsubishi Electric Automation Mexico 294

SICIM Mexico 325

Multiservicios Petroleros 182

Siemens, a Dresser-Rand business 278-279, 292

Nalco Champion 252-253, 257

Sierra Oil & Gas 8-13, 16-17, 36, 68-69, 78-85, 90-91, 108-

Natgas 357

109, 112, 113, 117, 124-125, 130-131, 137, 150, 166-167, 168-169,

Naviera Integral 173

175, 196-197, 290, 372-373

NDT Global 306-307, 324, 329

Simmons Edeco Mexico 234-235

Neoviss 276

SKF 298

Net Brains 290

SOT Inc. 189

Noble Corporation 111, 199

SUMMUM Corporation 361

NRGI Broker 263

SURPETROL 259

Núñez Rodríguez Abogados 8-13, 39

Swiber Offshore Mexico 175

NXT Energy 150

TAG Pipelines 326

INDEX T-Z Talos Energy 8-13, 16-17, 36, 38, 78-85, 111, 112, 117, 124-125,

United Pipeline de México 318, 320-321

130-131, 166-167, 168-169, 172, 185, 186, 204-205, 206, 290

Válvulas Worcester de México 268

Tarsco México 352-353, 369

Weatherford 154-155, 234-235, 245, 254-255

Taylors International 180

Weir Oil & Gas 247

T.D. Williamson 323

Welltec 156

Tecma Energy Services 396

Williams Scotsman 400

TGS 141

Wood 278-279, 284-285, 289, 362-363

The ROSEN Group 306-307, 314-315, 329

Wood Mackenzie

Tonalli Energia 35, 78-85, 92, 124-125, 236

Ixchel Castro 334-335, 345, 352-353

Tory Technologies 136, 284-285, 301

Palma Méndez 8-13, 88

Trelleborg 208

WorleyParsons Mexico 209

TSC Offshore Group 157

Zion NDT 300

PHOTO CREDITS Cover

Química Apollo

64 Cotemar

Grupo México

72 CNH

14 SENER

73 CNH

15 MBP

74 PEMEX

16 CNH

75 MBP

18 ASEA

76 CBM

19 CRE

88 MBP

20 MBP

Haynes and Boone

24 PEMEX

Ainda Consultores

25 MBP

92 MBP

26 CNH

93 MBP

28 CNH

94 PEMEX

29 IMP

100 PEMEX

30 MBP

102 MBP

31 MBP

102

Goodrich, Riquelme y Asociados

104 MBP

MCM Abogados

105 MBP

Shell Mexico

35 MBP

111 MBP

36 Deloitte

112

Talos Energy

37 KPMG

113

Sierra Oil & Gas

114 MBP

Marcos y Asociados

39 MBP

115 Lukoil-Engineering

Santamarina + Steta

116 Ecopetrol

Beristain + Asociados

117 MBP

41 MBP

118 MBP

API Campeche

120

State of Tamaulipas

122 MBP

Renaissance Oil

50 MBP

122

51 MBP

124 MBP

API Altamira

Petrolera Cárdenas Mora, a Cheíron Company

53 MBP

124 MBP

State of Veracruz

125

Talos Energy

API Tuxpan

125

International Frontier Resources

State of Campeche

125

Sierra Oil & Gas

Swiber Offshore

125

Shell Mexico

API Campeche

134 MBP

COPARMEX Tabasco

136 CNH

137 MBP

210 MBP

138

Integral Consulting

211 MBP

138

Baker Hughes, a GE Company

212 MBP

140 MBP

213 MBP

141 MBP

214 PEMEX

142 MBP

216

143 MBP

(PEMEX 1938-1991), AFCS. Caja 5, Álbum de la

146 MBP 147 MBP

Archivo Histórico de Petróleos Mexicanos, 1938 Cía. El Aguila, folio, 22

216

148 MBP

Archivo Histórico de Petróleos Mexicanos, 1948 (PEMEX 1938-1991), AFCS. Caja 14, sobre 153, folio 1

149

Dynamic Data Services

150

NXT Energy

1943 (PEMEX 1938-1991), AFCS. Caja 5, sobre 191,

151

Bell Geospace

folio 1

152

IHS Markit

217

153 MBP 154 MBP

Archivo Histórico de Petróleos Mexicanos, circa

Archivo Histórico de Petróleos Mexicanos, 1946 (PEMEX 1938-1991), AFCS. Caja 5, sobre 326, folio 1

217

156 MBP

Archivo Histórico de Petróleos Mexicanos, s/f (PEMEX 1938-1991), AFCS. Caja 13, sobre 169, folio 1

157 MBP

219 PEMEX

158 MBP

220

159

SEAGA Drilling Services

160 MBP

(PEMEX 1938-1991), AFCS. Caja 5, sobre 2, folio 1 220

161 MBP 162 Drebbel

Archivo Histórico de Petróleos Mexicanos, 1998 Archivo Histórico de Petróleos Mexicanos, 1990 (PEMEX 1938-1991), AFCS. Caja 6, sobre 2, folio 1

221

Archivo Histórico de Petróleos Mexicanos, 1995

167 Drebbel

(PEMEX 1938-1991), AFCS. Caja 5.2, sobre 321,

170 MBP

folio 1

172 MBP

222 PEMEX

173 MBP

222 PEMEX

174 MBP

223 PEMEX

175

Swiber Offshore

224 PEMEX

176

Paradigm Flow Services

225 PEMEX

178 Drebbel

226

Simmons Edeco

179 ABS

232

Renaissance Oil

180 MBP

234 MBP

181 MBP

234

Simmons Edeco

182 MBP

236

International Frontier Resources

183 Serimax

237 MBP

184 MBP

238

185

242 MBP

Gaeli Diesel

Freemyer Industrial Pressure

186 MBP

243 MBP

187 MBP

244 MBP

188 PEMEX

245 MBP

189 MBP

246

Core Lab

190 Cotemar

247

Weir Oil & Gas

198

248 McDermott

Shell Mexico

199 MBP

254 MBP

200

255 Cotemar

Alpha Deepwater Services

202 MBP

257 MBP

203

258 MBP

Saipem Mexico

204 MBP

259 Surpetrol

204 McDermott

260 MBP

206 MBP

261

207

262 MBP

Inchcape Shipping Services

DNV GL

208 MBP

263

209 MBP

264 McDermott

NRGI Broker

PHOTO CREDITS 265

March Brockman and Schuh

327 MBP

266 MBP

328 MBP

268 MBP

329 MBP

269 MBP

330 MBP

270 MBP

335 PEMEX

271 MBP

336

Braskem Idesa

272

336

Braskem Idesa

SGS Mexico

273 MBP

338 MBP

274 Setein

340 MBP

275 MBP

344 Dow

276 Neoviss

345 MBP

277 MBP

346 MBP

278 Dresser-Rand

347 MBP

278 MBP

348 IEnova

278 MBP

354 MBP

279 MBP

355 MBP

279 MBP

356 MBP

279

357 Natgas

Marsh Brockman and Schuh

279 MBP

358

Bulkmatic de México

279 MBP

358

Bulkmatic de México

280

Baker Hughes, a GE Company

360 MBP

286

Baker Hughes, a GE Company

361 MBP

287

Baker Hughes, a GE Company

262 Wood

288 Emerson

263 Wood

289 MBP

264 MBP

290 MBP

365 MBP

291 MBP

366 MBP

292 Dresser-Rand

367 MBP

293 MBP

368 MBP

294

369 MBP

Mitsubishi Electric Automation

295 MBP

370 MBP

296 MBP

371

297 MBP

378 MBP

298 MBP

379

Gallástegui Armella Franquicias

299 MBP

380

BP Downstream

300 MBP

381

Shell Mexico

301

382 MBP

Tory Technologies

Enagás México

303 IEnova

383 MBP

310 CENAGAS

384 MBP

312 MBP

385

313 IEnova

386 Cotemar

314

ROSEN Group Mexico

392 MBP

316

Latin American Rainmakers

393 MBP

318

United Pipeline de México

394 MBP

KDM Fire Systems

319 Bonatti

395

iPS Powerful People

320

396

Tecma Energy Services

Evonik Industries de México

322 Arendal

397 MBP

323

398 MBP

T.D. Williamson

324 MBP

399 MBP

325

400 MBP

SICIM Mexico

326 MBP

401 MBP

PROJECT AND TECHNOLOGY SPOTLIGHTS 145 Beicip-Franlab 362-363 Wood

COMPANY PROFILE 107

Cairn Energy

159

SEAGA Drilling Services

255 Cotemar

MAPS AND INFOGRAPHICS 70-71

Licensing Rounds an Investment Opportunity

196-197

78-85

Concluded Licensing Rounds and Farmouts

308-309 Natural Gas Infrastructure and Power Plants

86-87

2018 Licensing Rounds and Farmouts

342-343 Refining Capacity Offers Opportunity

108-109

Top Operators Place Their Bets on Mexico

372-373

Storage Terminals: Existing and Future Facilities

132-133

Mexico’s Balance of Conventional and

374-375

Fuel Importation and Distribution Routes

Deepwater Blocks and Wells

Unconventional Resources

ADVERTISING INDEX Inner front cover Nalco Champion

218 Cotemar

Table of contents Wood

228 Petrofac

6 SENER

233

Sapura Energy

235 Weatherford

MCM Abogados

239

Freemyer Industrial Pressure

Goodrich, Riquelme y Asociados

242

Pico Energy

API Tuxpan

244 Proserma

Renaissance Oil

66 BP

246

Weir Oil and Gas

77 CBM

250

Grupo Roales

96 Seadrill

253

Drebbel de México

101

256

Net Brains

106 Cairn

267

Válvulas Worcester de México

110

Fieldwood Energy

282 MBE

119

Jaguar E&P

295

Mitsubishi Electric Automation

121

Renaissance Oil

304

ROSEN Group

123

Petrolera Cárdenas Mora

315 Serimax

128

SEAGA Drilling Services

317

Latin American Rainmakers

139 QMax

321

Evonik Industries Mexico

144

332 MBP

DNV GL

Beicip-Franlab Mexico

154-155 Petricore

337

164

339 BASF

API Campeche

Braskem Idesa

170-171 Marinsa

341 Agilent

177 TechnipFMC

350

Industrias Energéticas

192 MBC

359

Bulkmatic de México

201

377

Hydrocarbon Storage Terminal / CLH

205 McDermott

388

IOS Offices

208

394

iPS Powerful People

Alpha Deepwater Services Intecsea / WorleyParsons Group

CREDITS JOURNALIST & INDUSTRY ANALYST: Arturo Mora JOURNALIST & INDUSTRY ANALYST: Esteban Pages EDITORIAL MANAGER: Oscar Tello SENIOR EDITORIAL MANAGER: Sara Warden EDITOR: Ricardo Guzmán MANAGING EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Fay Goijarts PUBLICATION COORDINATOR: Julie Yde COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Ailette Córdova JUNIOR DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez COLLABORATOR: Alejandro Salas COLLABORATOR: Luis Pesce COLLABORATOR: Feike de Jong COLLABORATOR: Irving Argaez CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma

PRINTED BY Foli, Negra Modelo # 4 Bodega A Fracc. Cervecería Modelo, Naucalpan Estado de México T:. 9159 2100

Mexico Oil & Gas Review 2018

Articles inside

KEEPING PIPELINES GOING FOR THE LONG TERM

DIVERSIFICATION THE KEY TO SUCCESS

COMPRESSION AND COGENERATION TO MEET RISING DEMAND

PROVIDING MEXICO’S GAS SECURITY

ADVANCED TECH AT CENTER OF CUSTOMER-FOCUSED VISION

FULLSTREAM ACTIVITIES IN A FULLY OPEN COUNTRY

KEEPING THE WELLS FLOWING

SHALLOW-WATER ACTIVITY TO PICK UP PACE NEAR TERM

AFTER A STRONG HIT, AN OPERATOR ON THE RISE

PICKING UP THE DEEPWATER THREAD

A VARIETY OF SOLUTIONS, ONE INTEGRAL OFFER

SPREADING THE POWER OF DATA TO THE OIL AND GAS INDUSTRY

COMPLEXITY IS A MARKET OPPORTUNITY FOR THE PREPARED

PIONEERING SCHEMES OPEN DATA TO PRIVATE COMPANIES

AN EXPERIENCED PLAYER SEEKS MATURE OPPORTUNITIES

WORK STILL NEEDED TO KNOW STATE OF INHERITED FIELDS

TAKING THE LEAD: THE ZAMA DISCOVERY

RESTRUCTURING FOR OPTIMUM PERFORMACE

WORKING WITH GIANTS

PLAYING A POSITIVE SUM GAME

TEN YEARS CREATING VALUE

SOLVING A DICHOTOMY, ON BOTH SIDES

REVIVING A SOUTHEAST GIANT

NORTHERN MEXICO’S HYDROCARBONS BET

KEY GOALS: GENERATE EFFICIENCIES, MAINTAIN COMPETITIVE COSTS

A YEAR RICH IN DISCOVERIES

TIME TO PLACE YOUR BETS ON MEXICO

ENERGY REFORM DEMANDS BEST INTERNATIONAL PRACTICES

NO NEED TO FEAR FUTURE OF LICENSING ROUNDS

UNDILUTED ACCOUNTABILITY FOR A HEALTHY INDUSTRY