Mexico Oil & Gas Review 2019/20 by Mexico Business Publishing

2019/20

2019/20 Mexico Oil & Gas Review 2019/20 is published in a very different market environment to its predecessor. Since the launch of the previous edition, a change in government has set Mexico’s oil and gas industry on a new course that is still to be wholly defined. Suspended bidding rounds and public criticism have given concern to privates while block operators have quietly pressed on. If the buzzword in 2018 was continuity, the industry’s mantra in 2019/20 is cautious optimism.

President Andrés Manual López Obrador has placed his bets firmly on the country’s oil and gas industry with the revitalization of PEMEX his principal target. From the refinancing of the NOC’s significant debt to the funding of a mega-refinery in Dos Bocas, the president is reviving the NOC to help it recover former glories. The heavy financial commitments to back the development of 23 new fields toward 2023 and further exploration to replenish falling 3P stocks into the long term has given shape to the administration’s national economic strategy. Eyes are firmly fixed on PEMEX and its leading role in the 2.6MMb/d production target for 2024.

Since the last publication, privates have made headway in their commitments to contracts won in earlier rounds. Onshore privates are already producing, while Eni became the first private to produce offshore since the Energy Reform began. In 2020, more companies will follow.

Further along the value chain, the construction of storage terminals, long-distance pipelines and gas stations have driven the year’s private sector construction activities, although issues including social unrest, land ownership disputes and “leonine” contracts have provided challenges.

An eventful 2019 has continued into 2020. Mexico Oil & Gas Review charts the industry’s journey from the end of 2018 into the new decade and covers all the twists along the way.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2019/20. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Oil & Gas Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

I S B N : 978 -1 -73 2 8 2 5 6 - 6 - 6

TABLE OF CONTENTS

STATE OF THE INDUSTRY

PRODUCTION & MATURE FIELDS

ENERGY POLICY & LEGAL FRAMEWORK

SUPPLY CHAIN & LOCAL CONTENT

PEMEX

INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE

OPERATORS & CONSORTIA

TECHNOLOGY & INNOVATION

GEOLOGY & GEOPHYSICS

NATURAL GAS VALUE CHAIN

DRILLING & WELL COMPLETION

REFINING, STORAGE & RETAIL

FIELD DEVELOPMENT & INFRASTRUCTURE

INDUSTRY OUTLOOK

Vintage oil well pump jack

STATE OF THE INDUSTRY

An era of uncertainty came for the oil and gas industry as President López Obrador began the formal implementation of his campaign promises. With the bidding rounds and farmouts suspended and numerous personnel changes at the head of PEMEX and the sector’s regulatory agencies, López Obrador quickly put his stamp on the industry. But the earlier predictions of gloom and doom also failed to come to fruition and a sense of optimism is seeping into the industry. Rather than rip up private contracts as feared, the government instead re-stated its commitment to honor those contracts after a period of review. The government’s new policy to ensure energy sovereignty also came with a lifeline for debt-riddled PEMEX.

In this opening chapter, key events, strategies and ambitions for Mexico’s energy sector are analyzed, with political leaders, regulators and industry executives offering comprehensive insights. Collectively, these viewpoints highlight where the country’s industry stands today and where it is headed.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: The Year in Review

ANALYSIS: All Energy Value Chains Converge Downstream: Rocío Nahle’s Approach

VIEW FROM THE TOP: Manuel Rodríguez, Energy Commission in the Chamber of Deputies

ANALYSIS: López Obrador: The First Year

VIEW FROM THE TOP: Alma América Porres, CNH

VIEW FROM THE TOP: Oscar Roldán, CNIH

VIEW FROM THE TOP: Marco Osorio, IMP

VIEW FROM THE TOP: Merlin Cochran, AMEXHI

VIEW FROM THE TOP: Antonio Juárez, AMESPAC

VIEW FROM THE TOP: Juan Acra, COMENER

VIEW FROM THE TOP: Raymundo Platas, LAOGA

VIEW FROM THE TOP: Rubén Cruz, KPMG Mexico

VIEW FROM THE TOP: Bernardo Cardona, Deloitte Consulting Mexico

PROJECT SPOTLIGHT: Ixachi: Field for the Future

VIEW FROM THE TOP: John Padilla, IPD Latin America

VIEW FROM THE TOP: Aldrich Richter, MAN Energy Solutions Mexico

VIEW FROM THE TOP: Nansen Saleri, QRI

| ANALYSIS

THE YEAR IN REVIEW Few years have been as tumultuous in the history of Mexico’s oil and gas industry as 2019. The change of administration provided both hope and uncertainty, as PEMEX was put at the center of the country’s economic growth plan while privates saw their influence reduced as farmouts and bidding rounds were suspended

The long transition period between the election of Andrés

changed. These contracts last between 30 and 40 years

Manuel López Obrador on July 1, 2018 and his formal

and the government’s commitment remains exactly the

inauguration into the presidency on Dec. 1 2018 hung

same,” he says.

heavily over Mexico’s oil and gas industry. During his campaign, the president had promised to revise contracts

NEW LEADER, NEW VISION

signed between CNH and private companies awarded

While contracts and legal frameworks remained untouched

from Rounds 1.1 to Rounds 3.1, held between 2015 and

after López Obrador came into power, the personnel

2018. In December 2018, CNH formally canceled the

directing the industry’s agencies and regulators were

Rounds 3.2 and 3.3 while in June 2019, the long-awaited

completely changed. Rocío Nahle García, an experienced

suspension of farmouts became official.

chemical engineer who held a number of prominent positions in the oil and gas industry, including within PEMEX, was

Outside of oil and gas, the new administration also

appointed to head the Ministry of Energy. Miguel Ángel

signaled its intent to make changes to the economic

Maciel Torres, a petroleum engineer with over 30 years’

direction taken by its predecessor and its willingness to

public sector experience and the Vice President of New

halt megaprojects already in development. In October

Business Development for PEP between 2016-2017, was

2018, before the official start of the new government,

appointed Deputy Minister of Hydrocarbons at the Ministry

a national referendum was held on the construction of

of Energy.

the New International Airport for Mexico in Texcoco (NAIM), State of Mexico. Despite a low voter turnout of

Meanwhile, Octavio Romero Oropeza, an agronomy engineer

less than 1 percent, the decision was taken to abandon

with long political experience, was appointed as PEMEX

the original Texcoco airport, already well underway, in

Director General. The appointment was met with mixed

favor of expanding a military base in Santa Lucia, State

feelings from the industry, amid questions regarding the

of Mexico.

suitability of Oropeza’s background. The administration’s new strategy for PEMEX was crystallized when its new slogan was

While these changes caused ripples of uncertainty

unveiled: Por el rescate de la Soberanía (For the Recovery

throughout the oil and gas industry and the economy

of Sovereignty). The slogan placed PEMEX’s revitalization

at large, private contracts were reviewed and remain

as the central lever for the propulsion of Mexico’s flagging

untouched. Merlin Cochran, Director General at AMEXHI,

energy sector and was subsequently marked as such in the

an association representing most of Mexico’s largest

government’s National Development Plan 2019 – 2024.

operators, underlines the point: “In the last year, a new federal government was elected but none of the

The oil and gas industry’s main regulating bodies also saw

long-term contracts that our 43 members signed have

change at the top. In November 2018, Juan Carlos Zepeda

NATIONAL OIL PRODUCTION (MMb/d) OIL PRODUCTION

2.3

2.25 2.21

2.21

2.2 2.1

2.01

2 1.9

1.91

2.01

2.16

2.0

2.16

2.01

2.17

2.0

2.15

1.6

2.11

1.93 1.87

1.84

1.86

1.85

1.70

1.68

1.82

1.69

Aug

1.67

1.66

1.67

Apr

May

Jun

Jul

1.61

2.10

2.07

2.03

1.98

1.8 1.7

2.14

1.80

1.90

1.86

1.87

1.69

1.70

Nov

Dec

1.80 1.73 1.71

1.74 1.66

1.5 Jan

— 2016 Source: PEMEX

Feb

— 2017

2016 2017

Mar

— 2018 2018 2019

— 2019

Sep

Oct

resigned as President of CNH and Héctor Acosta left his

negative consequences. As John Padilla, Managing Director

position as CNH commissioner to take a position in the state

of IPD Latin America, notes, Mexico “is competing for

of Chihuahua government. Gaspar Franco, a commissioner

investment in the global market where other jurisdictions,

that was sworn in for six years in 2016, also departed in

like Angola or Argentina, are becoming more attractive.”

February 2019. Alma América Porres Luna, Héctor Moreira

Similarly, Ruben Cruz, Head of Energy and Natural Resources

Rodríguez, Sergio Pimentel Vargas and Néstor Martínez

at KPMG in Mexico, explains that the government’s short-

Romero continued in their positions as CNH Commissioners,

term objective to stop falling production rates must be

while on Nov. 7, 2019, Rogelio Hernández Cázares was

aligned with medium and long-term goals, the grounds

sworn in as the new CNH president. On Aug. 12, 2019, Luis

for which, he says, must be laid now. “It is important to

Vera Morales resigned from his position as director of ASEA.

note that the medium and long-term trends are much more

In November 2019, José Ángel Carrizales, a trained chemical

important in this industry. We have seen this previously

engineer, took over the directorship.

in Mexico, where an exclusive application of short-term measures leads to increases that cannot be sustained and

BIDDING ROUNDS, FARMOUTS

are inevitably lost to another decrease,” says Cruz.

The government’s suspension of Rounds 3.2 and 3.3 and PEMEX farmouts set the stage for its first few months

FINANCIAL CONCERNS

in office. While the logic of this divergent approach was

The financial health of PEMEX has been a constant

questioned by the private sector, the move was seen as

concern over the last several years. Mexico´s Superior

another step in President López Obrador’s plan to recover

Audit Office (ASF) stated that during the presidency

PEMEX’s position.

(sexenio) of Enrique Peña Nieto, PEMEX debt spiraled by 146.6 percent and led the NOC to become the world’s

América Porres is clear that this step was supported by the

most-indebted oil company. As of 2019, its total debt

industry’s regulatory body. “While future bidding rounds

stood at US$99.6 billion. An estimated US$44 billion of

have been put on hold, this in no way represents a negative

debt is due to be paid off in the next four years while

development from CNH’s perspective. In fact, we see it as

rising pension payments present future fiscal challenges

a positive for Mexico. Unfortunately, what had become

to overcome.

evident in the last few years was that while PEMEX’s technical, administrative and project execution capacities

PEMEX’s heavy tax burden has restricted the NOC’s

met general standards, its financial capacity lacked support.

ability to invest into a variety of vital issues, including

This unfortunately resulted in PEMEX’s struggle to meet its

maintenance of the National Refinery System and,

goals and objectives for a number of its projects, among

principally, exploration to revive flagging reserves. The

them the Round Zero assignments,” she says. “The new

deleterious significance of this was highlighted in the

policy calls for the reversal of these budgetary limitations

PEMEX Business Plan, which stated: “The high tax burden

and greater fiscal support for the NOC. The majority of the

constitutes the most serious structural problem that

commissioners have a positive view of this policy and how

PEMEX faces.” Fitch Ratings, one of the two global ratings

it allows PEMEX to plan its working strategy.”

agencies that downgraded PEMEX’s outlook this year, summarized the cost of the still high tax burden on the

However, from the perspective of a competitive and

company’s ability to fund more exploration and restock

globalized oil industry, these suspensions have potentially

the country’s 3P reserves, which fell from 25.85 billion boe

NATIONAL GAS PRODUCTION (Bcf/d)

GAS PRODUCTION 6.2

6.07

6.03

5.94

5.95

5.83

5.78

5.82

5.73

5.7 5.45

5.28

5.34

5.25

5.28

5.25

5.2 4.95

4.88

4.7 4.45

4.84

4.83

4.84 4.79

4.82 4.63

5.63

5.56

5.52

5.46 5.33

5.21

4.82

4.80

4.82

5.17

4.99 4.92

4.87 4.83

4.88

4.99 4.90

4.95 4.86 4.72

4.62

4.76 4.75

4.86 4.78

4.27

4.2 Jan

— 2016

Feb

— 2017

Source: PEMEX2016

2017

Mar

— 2018 2018 2019

Apr

May

— 2019

Jun

Jul

Aug

Sep

Oct

Nov

Dec

| ANALYSIS

in 2017 to 25.10 billion boe in 2019. “PEMEX’s exploration

35 percent and address the major criticisms of analysts

and production CAPEX for 2017 and 2018’s budget of

and financial ratings agencies. PEMEX is set to develop

US$4.5 billion and US$4.3 billion, respectively, was not

23 new fields from the second half of 2019 and into 2020,

enough to replenish annual production of approximately

which are additional to the 22 set out in the National

1 billion boe,” noted Fitch. IPD Latin America’s John

Exploration and Production Plan. While 19 exploratory

Padilla echoes Fitch’s concerns on Mexico’s immediate

PEMEX drills were completed in 2018, 50 were intended

oil and gas future: “The long-term outlook for Mexico’s

to be drilled by the end of 2019, and a further 300 wells

oil and gas sector is extremely positive based on the

drilled on fields already in production, according to the

major discoveries that have been made by private sector

PEMEX Business Plan. The new field developments will

companies over the past couple of years. Nonetheless,

be managed through a new contracting modality, the

the short to medium-term outlook, depending on policy

Integrated Exploration and Extraction Service Contracts

decisions made, is rocky,” he says.

(CSIEE). This model will allow PEMEX to contract companies to drill and prepare the new fields ahead of

The administration sought to combat the negative

the production phase, including essential infrastructure

consequences on both PEMEX and the Mexican economy

from service providers. The PEMEX Business Plan states

from the perilous financial situation of the national oil

that between 2020 and 2023, 40 CSIEE contracts will

company. In its 2019 PEMEX Business Plan, the NOC

be assigned.

stated it had “executed a series of actions intended to reduce the company’s tax burden, fortify its financial

The new contracting modality appears to reduce PEMEX´s

position and define the projects on which the recovery

financial burden, both in terms of CAPEX and OPEX, of a

of its productive capacity will be based.” As part of these

field’s development, while permitting PEMEX to remain

measures, the administration is lowering the PEMEX tax

as the operator. The PEMEX Business Plan outlines the

burden from its current 65 percent to 54 percent by

principal characteristics of CSIEEs. The first noted is

2021, a saving of MX$128 billion (US$6.6 billion) for the

that “the service provider assumes the total investment

NOC. During this time, a further MX$141 billion (US$7.3

and costs of the operation during the duration of the

billion) will be invested. This investment is destined

contract,” while the second states that “PEMEX maintains

for exploration activities. Other positive milestones for

the control of the operation and its position as signatory.”

the company’s financial outlook announced were the

Under the CSIEEs, contractors will be paid by calculating

refinancing of US$8 billion of the company’s debt with

a US dollar fee per unit of hydrocarbon produced.

the assistance of 23 banks in June, and September’s US$5 The CSIEE model is still under public consultation and

billion debt repayment.

it is therefore too early to see the definite interest

PEMEX CONTRACTS CHANGE DIRECTION

that major private players may have in involvement.

As part of the new economic and energy outlook, the

However, operators within Mexico, including Diavaz,

government is pouring money into the development

have expressed interest in participating in the new

of new fields. According to Ulises Hernández Romano,

PEMEX projects. Yet former CNH Commissioner Gaspar

Director of Resources, Reserves and Associations at PEP,

Franco believes the new contract model is far from

these new fields will help increase the NOC’s reserves by

certain to be a success. “This is an available option for oil

NATIONAL ENERGY INDEPENDENCE INDEX

ÍNDICE NACIONAL DE INDEPENDENCIA ENERGÉTICA

1.5 1.3

1.26

1.20

1.15

1.13

1.1

1.08

1.03

1.01

1.02

.97

.84 .76

.7 .5 2007 Source: PEMEX

Indice

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

companies that participate in the sector. However, the big

that could address other underfunded areas of PEMEX

companies will not want to participate in that way. This

has been questioned: “the Dos Bocas refinery will be

was demonstrated with the 2008 reform, in which the so-

part of a plan to increase national refining capacity

called Contratos Integrales de Exploración y Extracción

over the 1.4MMb/d of crude that our six refineries are

were allowed: large operators did not participate.”

theoretically able to process once revamped and working at full capacity, but only 600Mb/d of crude production

GREENLIGHT FOR DOS BOCAS REFINERY

is available to input into this system,” says Rubén Cruz,

The decision to build a new refinery in Dos Bocas, Tabasco,

Head of Energy and Natural Resources at KPMG in Mexico.

was among the most far-reaching decisions the new

Additionally, the work that will have to be undertaken to

administration made last year. At an expected cost of US$8

restructure national financial processes themselves based

billion, it was also set to be one of the most expensive.

on the export of crude will be onerous. The shift from

While the project will certainly generate business along

export to in-country refining will be complex, regardless

the supply chain – government approximations suggest

of the increased revenue that it should deliver. “We

up to 135,000 direct and indirect jobs will be created –

have been an oil exporting country for a while, which

questions were raised over the viability of meeting the

finances a significant percent of our public expenses. As

three-year deadline and proposed budget for a project

a result, reducing crude oil exports is not a simple matter,

of this size. As of October, five of the six construction

regardless of how much we may want to be self-sufficient

packets have been awarded: Flour Enterprises and ICA

in our production,” adds Cruz.

Flour (Packet 1), Samsung Engineering y Asociados Constructores DBNR (Packets 2 and 3) and KBR together

PRODUCTION PRESSES ON

with Grupo Hostotipaquillo (Packets 4 and 5). SENER will

From January to September 2019, crude oil production,

oversee project management responsibilities.

from PEMEX and private operators averaged 1.675MMb/d while average natural gas production from PEMEX and

Dos Bocas is part of the National Refinery Systems’ (SNR)

private operators stood at 4.857Bcf/d. August and

MX$12.5 billion (US$647 million) refurbishment plan and

September, however, showed marked improvements

a means to bolster the country’s energy security by

on the rest of the year, driven in part by the entrance

decoupling the satisfaction of its energy demands from

of private industry into production. Natural gas,

the importation of refined products. With an improved

meanwhile, showed an overall improvement on 2018’s

refining capacity, Mexico will be able to reduce the import

4.857Bcf/d average.

of refined fuels, which recently rose to account for 77 percent of the national fuel supply, as well as reduce

There is much more production to come from PEMEX.

the export of crude for refining in international markets.

The development of at least 20 new priority fields and

Once completed, Dos Bocas will refine solely 22°API

untapped capacity generate a strong medium and long-

Maya crude and have a capacity to process 340Mb/d to

term outlook for the NOC once short-term difficulties are

produce gasoline and diesel for consumption in Mexico.

overcome. Nansen Saleri, CEO of QRI Group, describes

However, considering the shortage of crude being

PEMEX’s outlook as extremely positive and notes that

supplied to the National Refinery System, the decision

with so few secondary recovery technologies applied

to fund an expensive larger refining plant with money

to Mexican wells, there is likely more to come. “It is in

AVERAGE OIL TRADE BALANCE (US$ billion)

BALANZA COMERCIAL PETROLERA 2006-2018, PROMEDIO ANUAL (MILLONES DE DÓLARES) 2

1.6

1.5

1.2 0.9

1.1

0.7

0.5

0.07

0 -0.5

-8.5

-1

-1.1 -1.5

-1.5 -2

-1.9

2006

Source: PEMEX

2007 Balanza

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Private players’ investment into exploration and production activities in the first half of 2019 hit US$9.63 billion

first privately-held offshore exploration well in Mexican history, the Zama-1 drilled by the Ensco 8503 semisubmersible drilling rig, at a depth of 165m in the Sureste Basin area. The Zama field was hailed by industry analysts as one of the most important shallow-water discoveries of the last 20 years and in 2018, won the “Discovery of the Year” Award from the Association of International Petroleum Negotiators. The Zama field holds an estimated

a favorable position due to its abundant resources. It

400-800MMboe and the Zama-2ST well is expected to

has approximately 320 billion barrels,” says Saleri. “Of

have a peak rate of between 150Mb/d and 175Mb/d of oil

that, I would say that Mexico has produced less than 25

equivalent. On Sept. 4, 2019, CNH approved Talos’ request

percent.”

for a two-year contract term extension for its production sharing contract on Block 7. On Sept. 9, 2019, CNH also

According to AMEXHI, private players’ investment into

granted approval to Talos’ modified Block 7 exploration

exploration and production activities in the first half

plan. Both of these events were intended to grant the

of 2019 hit US$9.63 billion, and Cochran is clear of the

consortium headed by Talos time to evaluate further

role that private companies will play: AMEXHI’s Five-

prospects on its block. However, at the end of September

Year Plan targets 290Mb/d production by 2024,” he

2019, international news agency Reuters reported that

says. Similarly, John Padilla believes that based on the

according to two former energy sector officials and two

discoveries made this year, “private sector oil production

PEMEX executives, PEMEX was attempting to wrestle

will account for over 300Mb/d by the end of President

away control of the Zama field, which holds an estimated

López Obrador’s term. One of the major success stories

400-800MMboe. Reports suggested this was driven by

of the past 12 months was Italian company Eni’s success

PEMEX having rights to drill in the adjacent area and,

in the shallow water Miztón Area 1 field off the coast of

as the reservoir extends into PEMEX-operated areas, the

Campeche. The field, won in Round 1.1 in 2015, entered

NOC also had a say.

production on July 2 with an initial production of 15Mb/d that is expected to become 100Mb/d by 2021. Though

In the report, Minister of Energy Nahle said of the situation,

2019 activity was dominated by ongoing exploration and

“we definitely have to hold discussions with PEMEX, with

some pre-production works, this private sector success

Talos — another company that is there — to see who will

was a welcome and positive sign. Fieldwood Energy and

take charge of the operation because PEMEX is playing

Petrobal announced that the Pokoch and Ichalkil wells

a big part there.” The US Department of State Bureau

drilled on its Block 4 will be producing 20Mb/d in 2020

of Energy Resources’ Deputy Assistant Secretary Kurt

with an expected peak flow of 100Mb/d and 120MMcf/d

Donnelly told Reforma newspaper that the suggestions

of gas. To hit this target, Fieldwood will invest some

were a “disturbing development.”

US$700 million for Block 4’s development. Clearly, the private sector is well-placed to deliver oil production for

On Oct. 10, 2019, the Talos consortium announced it

Mexico. However, not all private players saw success over

would be handing back 50 percent the 464.799km 2

the past year. October 2019 was not a good month for

Block 7 area to the state in accordance with Clause 7.1,

private interests as Hokchi Energy announced it would be

paragraph B of the CNH-R01-L01-A7/2015 contract. While

returning its entire Area 2, which was the first oil contract

the consortium’s initial investment was estimated to be

signed by a private company in Mexico, won in Round 1.1,

US$783 million, it will now continue its work on the smaller

to the state. Hokchi discovered a noncommercial amount

area with a further US$325 million for development,

of gas with its Acan-1 exploratory well, while the second

expected to begin before the end of 2019.

well Yaluk 1, reported saltwater intrusion. UK-based operator Cairn Energy, in a JV with Citla Energy and Eni

Concern over the sanctity of private contracts was

on Block 9, also reported that its Alom-9 well was dry

increased when President López Obrador repeated the

and will be abandoned.

intention of his government to review all 107 exploration contracts signed since the Energy Reform by the end

THE ZAMA SITUATION

of the year. While this review was not yet concluded in

The Zama oil field was discovered in July 2017 by operator

November, the president’s rhetoric may revive the unease

Talos Energy, as part of a consortium with Sierra Oil and

among private companies that was present during the

Gas, which was subsequently acquired by Deutsche

new government’s transition period. If such revisions are

Erdoel AG (DEA), and Premier Oil. The field in Block 7,

to be done and alterations to contracts are demanded,

won by the consortium in Round 1.1, was found by the

a consequence could be a reduced desire from private

companies to invest much-needed capital into a Mexican

negotiated. “Unconventional resources represent an ever-

industry that is still evolving.

increasing potential, as each new exploratory campaign seems to reveal higher and higher volumes of available

UNCONVENTIONAL POSSIBILITIES

resources in these types of plays, but the political and

The PEMEX Business Plan states that PEMEX owns 25 billion

social tensions that surround them must be very carefully

boe in prospective resources, of which 37 percent are in

addressed.”

unconventional plays, including shale. CNIH data published in August 2019 shows that 8,457 of the country’s onshore

The government, despite its public rhetoric, appears to

wells, representing 43 percent of onshore wells, have seen

be taking this on board. In the 2020 Budget Proposal,

hydraulic fracturing at some point in their history, though

over MX$10 billion (US$523 million) was requested for

only 27 of these were drilled for unconventional resources.

continued use of fracking of shale in areas including the

To date, these wells have produced 1.476MMb of crude oil

Sabinas, Burgos and Tampico-Misantla basins, as well as 29

and 12.038MMcf of gas representing 7 percent of Mexico’s

productive fields in Veracruz and Puebla.

historic production.Despite the historical use in Mexico of hydraulic fracturing, commonly known as fracking,

Many operators are hoping to see a permanent change

President López Obrador has repeatedly pronounced

in the government’s approach to fracking. Among them

his opposition. In October 2018, the then president-elect

is Renaissance Oil Corp., which operates the Amatitlán

told a press conference in San Luis Potosi that he would

block, as well the Mundo Nuevo, Topén and Malva

not allow the use of fracking in Mexico. In June 2019, the

blocks in Chiapas. Renaissance Oil CEO Craig Steinke

president canceled PEMEX’s authorization to use hydraulic

believes that fracking suffers from outdated views on

fracturing in the Humapa field, which sits across the states

the technology. While he accepts that fracking has in

of Puebla and Veracruz. However, with Mexico’s increasing

the past been a less environmentally-friendly method

importation of natural gas from fracked fields in Texas,

for hydrocarbon extraction, modern techniques have

and the likelihood of other accessible resources along the

advanced tremendously. “The common criticisms are of

border, the argument against fracking has weakened. CNH

older legacy technologies, which are being phased out.

Commissioner Moreira noted the proximity to the world’s

Less is known about the modern, clean techniques now

cheapest and most developed natural gas market, saying:

used in the industry […] The advance in shale technologies

“There are large parts of Mexico that have the potential to

over the last decade has made the fracking process far

hold unconventional resources, including Tamaulipas, Nuevo

safer and cleaner,” says Steinke. The role unconventionals

Leon and Coahuila. Despite being beside West Texas, the

could play in securing Mexican energy sovereignty if

state of Chihuahua does not produce a single drop of oil or

permission for their extraction was granted would be

gas due to a lack of exploration.”

huge. “The potential of unconventional sources in Mexico is world class. It is a national treasure and could become a

América Porres explains that the approximately 67

shale play tantamount to the Permian or Eagle Ford fields,”

percent of Mexico’s potential resources that have yet to be

he adds. “Unconventionals offer the quickest and most

exploited are “in large part composed of deepwater and

direct way to achieve the government’s goals of doubling

unconventional resources.” However, their use must first be

oil production.”

| ANALYSIS

ALL ENERGY VALUE CHAINS CONVERGE DOWNSTREAM: ROCÍO NAHLE’S APPROACH Mexico’s new Minister of Energy emerges from a diverse background that combines technical, academic, industrial and political pursuits. Her first year on the job has been greatly defined by the president’s agenda, which at the same time is heavily influenced by her contributions and expertise

Characterized by its mining and tourism industries, Zacatecas

the oil and gas industry and the viability of various refining and

does not seem like a likely place to develop an interest in

petrochemical projects. Through these publications, she came

the energy industry. However, it was here that Minister of

to be recognized as a reliable adviser for political figures and

Energy Rocío Nahle began her career, graduating from

institutions. As early as 2003, she was counseling members of

the state’s autonomous university in 1986 with a degree in

energy commissions in federal legislative chambers. Nahle’s

chemical engineering with a specialty in petrochemistry. At

opinion on the potential of planned energy and infrastructure

a midyear visit to her alma mater, Nahle recalled the context

projects was indispensable to incoming government officials

that led her down this path. While she was studying, Mexico’s

who had gained seats in the 2000 federal election and were

petrochemical industry, then enjoying a globally renowned

thus new to the specific functioning of Mexican industrial

boom, began a slide into irrelevance as PEMEX divested its

value chains and supply networks. She eventually moved

downstream resources in an attempt to recover from market

to a more public stage when she was chosen to participate

forces impacting its upstream assets and balance sheets.

in the televised debates and discussions that took place in

During this time, Nahle remembers that Mexico played a

the Senate during the 2008 passing of Felipe Calderón’s

role in helping China develop its then nascent petrochemical

energy reform.

sector, a memory that seemed ironic given that superpower’s current worldwide dominance in the petrochemical market.

While she was quick to point out that her area of expertise

But Nahle was not interested in irony but rather in hope and

was petrochemical and refining activities, it was perhaps these

ambition: she used this historical example to illustrate that

proximities to the political process that made it clear to her

Mexico can not only recover but create a new golden era for

that the issues she highlighted time and time again were

all its energy endeavors.

integral to the entire Mexican energy infrastructure apparatus, and that her involvement in political activity needed to be

Nahle set out to broaden her horizons. After studying process

more direct to really influence the public sector operators

engineering at UNAM, she moved to Veracruz, where she

steering the apparatus. This led to run her first political

studied the economic viability of industrial processes before

campaign in 2012, representing the 11th District of the state

joining PEMEX at its Cangrejera, Pajaritos and Morelos

of Veracruz under the flag of the MORENA coalition. She lost

petrochemical complexes. Here, Nahle developed a broad

that election to a PRI candidate, but won when she ran for

approach to the multifaceted operations of energy and

the same seat three years later.

production infrastructure, performing a number of duties related to administration, finances, process planning,

Her trajectory has allowed Nahle to play a fundamental

industrial performance and quality control. Forced to reckon

role advising President López Obrador on his oil and gas

with the daily needs of a downstream site and its processing

ambitions, given the central role that refining processes

capabilities, Nahle became familiar with the entire path that

and the revamping of the entire national refining

commodities take before they reach the end user. She also

system plays in these plans. Nahle’s downstream and

witnessed these same mechanisms from the private sector’s

petrochemical experience gives her insight into the

point of view during her time working at Resistol Industries’

importance to Mexico’ energy processes of maintaining

Coatzacoalcos sulfate plant.

and expanding the availability of necessary feedstocks, commodities and resources, such as natural gas, power

This focus on processes and planning eventually sparked

generation and general sources of investment. Although

an interest in the politics that so markedly influence them

Nahle chooses to refrain from maintaining a public profile

in Mexico. At first this interest was expressed within PEMEX

outside of what her public job demands of her, she likely

and the larger energy industry, where Nahle joined prominent

has played a vital role in everything from finding new

internal associations, such as the group of PEMEX engineers

common operational ground and synergies between

known as Constitucion de 1917 and the National Committee of

PEMEX and CFE to evaluating CNH’s upstream projections

Energy Studies (CNEE). She became a prominent member of

and planning for the future growth of Mexico’s midstream

the academic community, publishing articles on the state of

infrastructure.

VIEW FROM THE TOP |

PRODUCTION GOAL UNDERPINS INDUSTRY’S STRATEGIC ROLE MANUEL RODRÍGUEZ President of the Energy Commission in the Chamber of Deputies

Q: What is the role of the oil and gas sector in the National

Q: What do you want to achieve with the construction of the

Development Plan?

Dos Bocas refinery?

A: The energy sector has to be the main engine for

A: The project is perfectly justified and viable. This is taken

Mexico’s economic development. Our strategy regarding

from the perspective that the state’s role is not to generate

hydrocarbons is to increase oil production. In the last

profits, but to provide services in strategic areas. However, it is

10 years, production has decreased approximately 50

also financially sound, because it will be self-financed and will

percent. In 2018, 1.8MMb/d were produced and our goal is

be instrumental in achieving energy independence. Not having

to reach 2.6MMb/d in 2024. Also, we want to bolster the

to spend on transporting fuels from other countries, while

national refining system. It needs maintenance and must be

processing raw materials in Mexico is cheaper than elsewhere.

reconfigured. But existing refineries must come together to

PEMEX will be able to sell fuel at much lower prices than

form a single unit with the new Dos Bocas refinery. By 2024,

today. Dos Bocas will also boost the development of Mexico’s

the goal is to use only 30 percent of imported gasoline

southeast region, which is in need of jobs and wealth.

and only 7 percent of diesel. This will allow Mexico to have energy security and sovereignty.

Q: What talks have taken place regarding the potential restarting of the bidding rounds?

Q: What is the relationship between MORENA’s legislative

A: The rounds will be restarted. In collaboration with

group and PEMEX?

private companies, PEMEX will reach its production goals.

A: It is one of total support. We have approved a

In order to include private investment that is geared toward

reform based on the national Federal Revenue Law on

achieving production goals, the rounds must be put back

Hydrocarbons, which dictates that the country’s revenue

in place. Oil and gas projects are considered medium and

from PEMEX’s operations has to be reduced from 65

long term, so the project pipeline has to be continuously

percent to 58 percent in 2020 and to 54 percent in 2021.

replenished. Not all projects are successful, so we must plan

This reduction will provide PEMEX with additional resources.

ahead. If a clear win-win formula is established, then there

Regarding PEMEX’s debt, which is around US$100 billion,

is no reason not to go forward. What will not be tolerated

the current strategy is already showing promising results.

anymore is corruption, which is an enormous liability that

The company’s debt is clearly diminishing and will continue

is weighing on Mexico’s development.

to do so progressively. The previous administration left the company in critical condition and it will take a major effort

Q: What are the main points on your agenda for 2020?

to put PEMEX back on its feet.

A: We are focusing our efforts on developing mechanisms that give PEMEX the highest possible level of financial

Q: What actions is the Energy Commission taking in matters

health. From a technical perspective, the company is world-

related to directing investment to specific oil fields?

class. Also, we will keep working to open new rounds and

A: We listen to all players in the industry to understand

provide continuity for the next elected administration and

areas of opportunity that should be addressed. Whenever

for the next 30 years. Public policy will therefore be more

the sector evolves and new technologies change the rules

intelligent and efficient and private companies can rest

of the game, we have to adapt the regulations. Strategic

assured that their investments will be protected.

projects such as Dos Bocas and projects awarded to companies after the enactment of the Energy Reform were reviewed to ensure that results are achieved as expected.

Manuel Rodríguez is a lawyer and politician from the state of

Nonetheless, from a technical point of view, PEMEX has

Tabasco who has worked in the labor, fishing, environmental,

complete independence on what fields to exploit and what

cultural and energy sectors. He was elected in 2018 as one of the

kind of financing it will use.

MORENA's federal deputies from Tabasco

ANALYSIS |

LÓPEZ OBRADOR: THE FIRST YEAR President López Obrador’s first year in power has resulted in a number of major shifts across all of Mexico’s strategic industries, but it is undoubtedly the oil and gas sector that has received the most attention, from delayed bidding rounds to a renewed emphasis on PEMEX and sovereignty A permanent fixture of Mexican presidential politics for

In the case of the oil and gas sector, López Obrador’s

over a decade before his victory in 2018, President López

socioeconomic pragmatism meant establishing the benchmark

Obrador was no stranger to the oil and gas industry when

that has defined his policy agenda in this industry and perhaps

he was elected. He had publicly rejected former President

also in a wider economic sense: getting production levels

Felipe Calderón’s 2008 Energy Reform and he extensively

back up by centralizing PEMEX. This objective was framed

campaigned against former President Enrique Peña Nieto’s

by the larger purpose of achieving and supporting what

2013 Energy Reform. Importantly, he has continuously

he called “sovereignty,” expressed in practical terms by the

spoken in support of public ownership of Mexico’s oil and

self-sufficiency that ending crude and fuel imports would

gas resources, framing new contracting models and bidding

represent. During the campaign, López Obrador advocated

rounds as an attempt to sabotage public ownership through

the construction of the Dos Bocas refinery, both as part of

the intervention of foreign private capital.

a reactivation of Mexico’s refining infrastructure and also as another attempt, together with the Maya train, to bring about

The president's closeness to the issues of the oil and gas

economic growth in the country’s southeastern states at a

sector can be understood in biographical terms. On one hand,

rate comparable with that of Mexico’s more economically

as a native of Macuspana, Tabasco, it can be presumed that

developed northern states.

he witnessed the pivotal role that the oil and gas industry has played in that state’s economy, politics and society. On

After López Obrador’s electoral victory and all the

the other hand, as a politician who began his career in the

corresponding market reactions, 2018 ended with events

1970s, he had a unique first-hand experience of a tumultuous

that discouraged the private sector: the cancelation of the

time in Mexico’s history when its national politics and public

Texcoco airport and the temporary suspension of scheduled

administration were greatly impacted by the combination of

CNH bidding rounds. The latter event was misreported as

massive oil and gas discoveries, such as Cantarell, and the

the end of all bidding rounds, a notion that has now, a year

international circumstances that made these discoveries

later, been widely refuted by members of the president’s

enormously profitable for the Mexican government, such as

party and executive appointees to relevant federal

the OPEC embargo and its corresponding oil price surge.

institutions. While the scheduled bidding rounds did not take place, this has been interpreted by the administration

Whatever their origin, López Obrador’s views generated

as extra time to take stock of the nation’s oil and gas

uncertainty in the sector as soon as it became clear that his

portfolio. Its goal is to determine the exact distribution

position at the top of the 2018 presidential election polls was

of resource assignments between PEMEX and private

decisive. However, during the campaign, he began to tone

operators in future bidding rounds.

down his rhetoric, presenting a more moderate stance. For example, rumors that López Obrador wanted to cancel all

The administration has also respected contracts with

licensing contracts were quickly rebuffed by his campaign

private operators. Previously-awarded blocks have

with the assurance that he would respect such contracts, and

continued their development without interference from

that he was merely interested in revising them so as to avoid

the federal government, and have, in fact, enjoyed

a “second Odebrecht” and more cases of corruption.

significant successes throughout 2019. However, López Obrador’s approach to PEMEX is also clear. This is

At the time, this shift in tone and priorities made a great deal

evidenced by the streamlined contracting process for the

of political sense. As his significant polling lead extended into

construction of the Dos Bocas refinery, CNH’s approval of

election day, Lopez Obrador’s campaign promises became

several “strategic” PEMEX field development and drilling

less focused on ideological goals and more focused on

plans, the NOC’s new business plan and the fact that the

pragmatic socioeconomic objectives in order to sway major

Ministry of Energy handed over its Round Zero blocks to

private-sector figures into supporting his agenda. It also made

the company. President López Obrador is taking care of

economic sense: the achievements of private operators in the

PEMEX not only as the centerpiece of his vision for the

Mexican oil and gas industry by 2018 were tangible and crucial

Mexican oil and gas industry, but as an essential platform

contributions to the sector’s health.

for his fiscal and socioeconomic development targets.

| VIEW FROM THE TOP

SHAPING A FUTURE FOR MEXICO’S RESOURCES ALMA AMÉRICA PORRES Commissioner at CNH

Q: How have the recent changes in Mexico’s government

them some of the Round Zero. There were external and

and energy policy impacted CNH?

internal factors that influenced the creation of these

A: We are still working in the same framework since the

conditions, such as the global downturn in oil prices

constitutional framework remains unchanged. The 111

and PEMEX’s budget cuts in recent years. The current

hydrocarbon contracts in place represent a stable base

administration’s energy policy calls for the reversal of

for our operations. The new government’s energy policy

these budgetary limitations and greater fiscal support

is focused on strengthening PEMEX. While future bidding

for the NOC. The majority of the commissioners have a

rounds have been put on hold, this in no way represents a

favorable view of this policy and how it allows PEMEX to

negative development from CNH’s perspective. In fact, we

plan its working strategy.

see it as positive for Mexico because we have attempted to reach this dual model where there are operators who

We have requested that the federal administration take

have won contracts through licensing rounds, and PEMEX

an integrated approach toward the management of the

works with entitlements. Unfortunately, what had become

country’s hydrocarbon prospective resources. Mexico’s

evident in the last few years was that while PEMEX’s

prospective hydrocarbon resources total 112.9 billion boe,

technical, administrative and project execution capacities

of which 22-23 percent have been assigned to PEMEX. This

met international standards, its financial capacity lacked

volume will remain unchanged. Apart from PEMEX, the

support resulting in PEMEX’s struggle to meet its

contracts awarded in the licensing rounds represent only

obligations and objectives for several projects, among

11 percent of the prospective resources. This means that

CONTRACTS AND ASSIGNMENTS INVALUE THE VALUE CONTRACTS AND ASSIGMENTS IN THE CHAINCHAIN Low Production Medium Risk

High Production Low Risk

Production

No Production High Risk

Time

415 Assignments

Exploration 2 to 7 years

96 Exploration Assignments 16 Exploration and Extraction Assignments 258 Extraction Assignments 45 Temporary Assignements 28 Shallow

111 Contracts

Development, production and abandonment 1 to 34 years

Evaluation 1 to 4 years

1 R1.1 3 R1.2

27 Deep 1 Trion

Source: CNH

21 Onshore

R1.2

2 Assoc

24 R1.3

Trion

R1.3 R2.3 R2.3 5 Migr

approximately 67 percent of Mexico’s total prospective

take place in third of that time. Since then, our relationship

resources are on standby, with nobody looking after the

with PEMEX has become closer. We have had to take a

incorporation of reserves or their extraction. For this

much more active role by holding frequent meetings to

reason, we are calling for a more integrated approach one

make sure PEMEX is delivering the required data on time

that is not structured around PEMEX or foreign operators,

and that this process runs as smoothly as possible.

but rather one that takes a holistic view of the entirety of these prospective resources and takes the necessary

Q: What is your assessment of the main challenges to

actions to make them profitable for Mexico. Protecting

reach Mexico’s production target given the lifecycle

Mexico's sovereignty and strengthening PEMEX are great

stage of the entitlements and contracts?

ideas but in the end, an integrated vision is essential to

A: PEMEX’s portfolio is dominated by mature fields, and

develop Mexico's prospective resources.

large operators tend to reduce investment in fields as production declines to levels that challenges profitable

Q: What has been CNH’s advice to SENER regarding the

production. Smaller operators, however, still are very

future of these prospective resources?

interested in these mature fields. Today, PEMEX holds

A: The awarding of the remaining 67 percent of these

96 exploration entitlements and 16 entitlements for

prospective resources must be put into action. This

exploration and production that are currently in the

percentage is, in large part, composed of deepwater and

evaluation and development stage. However, it holds

unconventional resources. The latter represents a critical

258 entitlements for production and 45 temporary

issue that needs to be resolved, where clear and effective

entitlements for fields that have already seen steep

communication by the government will play a key role.

production declines. In reality, of the 258 production

Unconventional resources represent an ever-increasing

entitlements, only 12 are in the beginning of the

potential, as each new exploratory campaign seems to

development stage as of now, 19 fields are currently

reveal greater volumes of available resources in these

producing without any decline and 13 have already been

types of plays, but the political and social tensions that

abandoned. All other production entitlements are already

surround them must be very carefully addressed.

in decline, 214 in total. That means that PEMEX’s portfolio mostly consists of mature fields.

However, our role as technical advisers, rather than politicians, is to communicate to SENER the importance

If we take the exploration stage in its entirety, there are

of the potential these resources represent, as well as the

an additional 111 contracts. Of which, some are moving

importance of diversifying the country’s hydrocarbons

rapidly from exploration or evaluation to development

production portfolio. More diverse competition would be

and production stages. The fields assigned in Round 1.2,

a contribution as well. This includes crafting a much more

such as the blocks held by Hokchi and Eni, are about to

concrete policy for the production and processing of

start production. This illustrates the difference between

natural gas, which will continue to play a significant role in

the PEMEX portfolio of largely mature fields and the

the country’s energy mix. Therefore, a serious evaluation

private operators portfolio.

of the national production strategy is necessary. Q: What would the private companies like to see Q: To what degree has CNH’s position and authority as

improved by the CNH?

a regulator of PEMEX changed as a result of the new

A: Private companies are trying to cut down their

administration’s policies?

timeframes toward production too. What they have

A: The technical guidelines and standards we apply to

asked for the most, however, is to have more licensing

PEMEX are the same as those we apply to international

rounds. The companies have had a more direct interaction

operators. Everybody participates on a level playing

with the government, even with the president. This is

field and we have not treated PEMEX differently when

something we do not seek to intervene in. The process

it comes to our evaluation processes. Both PEMEX and

has been very positive. The president has asked them to

private operators have to fulfill the same requirements,

start production as soon as possible. When this becomes

but not all within the same time frames. This means that

a reality, the government promised to put the licensing

in November 2018, PEMEX expressed to us a need to

rounds back on the table.

accelerate some of our evaluation operations in regards to the 20 discovered fields that have been listed as crucial in order to comply with production goals and

Alma América Porres has broad experience in geophysics

accelerate the process of transitioning those fields into

and the technical aspects of the oil and gas industry. She

early production stages. Instead of following protocol,

was appointed Commissioner at CNH in 2010 and is currently

evaluation processes that can take up to 120 days had to

serving in the 2016-2022 term

| VIEW FROM THE TOP

OIL DATA IS THE NEW OIL OSCAR ROLDÁN Former Director General of CNIH

Q: How have you presented the function and importance

three years, from 10 to almost 14 petabytes, in addition to

of CNIH to the federal administration?

the geophysical information we continue to receive every

A: Our appeal has been based on the strategic value of the

day. To relieve the bottlenecks that the processing of all

data and the importance of keeping technical information

this data creates, we work with operators to elaborate clear

outside of the national operator’s control. We welcome the

guidelines on how new information is delivered to us. We

government’s emphasis on strengthening PEMEX, but not

spend a lot of time and resources designing formats in

by returning CNIH to PEMEX’s control. Article 32 of the

which we deliver information packages so that operators

Hydrocarbons Law explicitly protects national ownership

can become familiar with them because we expect new

of this data, which must be housed under a centralized

information to be inputted into these exact same formats.

institution that can issue clear provisions and schemes

This streamlines the digital processing of data.

regarding who may consult it and how. This creates certainty for companies, giving them clarity on their

Q: How successful have your information leasing

rights and obligations regarding the use and reporting of

frameworks been and how might they change along with

information. We are not just talking about seismic data,

the value of the data?

which is essential, but also information like location, depth,

A: I would say they have been very successful. First of

pressure and production of wells drilled, which is what

all, because their development process was extremely

generates more data like types of fields, opportunities

complicated. Everybody had to be satisfied with them

and even things like alignments between fields and

and everybody was ready to hate them. New operators

technologies. In general, the new administration has been

were outraged that they were going to be charged for

receptive to our arguments and our work; in particular, it

using this information and exploration companies were

has been receptive to the finalization of CNIH’s creation

outraged that they were also going to have to pay even

and integration process, which began in August 2014 and

if they were going to be generating so much data for us.

ended with the recent inauguration of our two lithoteques

The development process for these frameworks and prices

in Hidalgo and Yucatan, along with the coming publication

was a tricky negotiation with all these parties. Additionally,

of our latest information provisions from CONAMER.

the payments that came in through these frameworks accumulated into a US$350 million fund that made us fully

Q: What role does CNIH play in consolidating recent

self-sufficient and independent of the national budget.

exploration successes and the new information they are

Taxpayers did not pay a single peso of our salaries, the cost

generating?

of our operations or even our new building. In other words,

A: We worked with the new operators on their discoveries:

the frameworks were successful in that, they financed our

Cholula-1 by Murphy Oil and Zama-1 by Premier, Talos and

consolidation and enabled our existence as an oil and gas

Sierra, for example. They made those discoveries using our

regulator that did not cost people anything, which is how

information packages. Inputting all the new data generated

it should be when you think about it.

by these discoveries and all the new seismic acquired in the last four years is an ongoing challenge for us. We have

Now that we have taken so much advantage of that revenue

grown 30 percent in terms of petabytes just in the last

to complete our formation and establishment as an institution, we can perhaps eventually lower some of these prices to reflect the fact that a great deal of new information is being

(CNIH)

generated from new wells drilled and financed by private

concentrates all the geological information available regarding

operators, avoiding any cost for the Mexican state. The prices

Mexico’s oil and gas reservoirs and processes it to build data

must not only reflect the new value of the data but also its

packages it can lease to operators

new origins and sources.

National

Hydrocarbons

Information

Center

VIEW FROM THE TOP |

EFFICIENCY, REDUCED ENVIRONMENTAL IMPACT ARE TOP PRIORITIES MARCO OSORIO Director General of IMP

Q: How would you characterize the new role IMP will

Our job is to support this increase while shortening the

play in the administration’s plans for Mexico’s oil and gas

development cycle of these technologies as much as possible.

development?

We have grown our infrastructure to fulfill this role. A great

A: The federal government has been very clear regarding

example of this is the formerly know Center for Deepwater

its expectations of IMP, and these are very much aligned

Technology (CTAP) in Boca Del Rio, Veracruz. CTAP started

with what historically has been our four main functions. The

operations in 2018. It has five laboratories that are fully staffed

first is the creation and development of new technologies.

and working on an initial project portfolio that includes testing

Second is the massification of those same technologies.

technologies that PEMEX plans to implement as early as

What this means is that our technological development

this year. We are working to expand the range of CTAP’s

process cannot be merely exploratory or academic in

capabilities by converting it into a center where all kinds of

nature, but must instead focus on technologies that can

exploration and production technologies can be developed.

be supplied and marketed. Everything we develop needs

Therefore, we have changed its name to Center for Exploration

to reach the market and be designed to solve specific

and Production Technology (CTEP). I would also like to

industry wide problems. Our third function is to generate

mention this year’s inauguration of CNH’s two lithoteques, one

and support national capabilities in terms of human

of which IMP is currently managing. We played a significant

resources and talent. This means creating and representing

role in helping CNH develop its procedures for the storage,

internationally competitive human capital dedicated to

handling and analysis of these samples.

serving the national industry’s needs and addressing specific challenges. Finally, our fourth function is to be a

Q: What are some of the challenges for the midstream and

kind of technical consultant for the federal government.

downstream segments?

This last function has been adapted to the expectations of

A: As extracted crude gets heavier; Mexico’s midstream

the new administration.

and downstream infrastructure needs to be developed and optimized to process and transform it. In the midstream area,

Q: What are the most important items on IMP’s agenda

IMP is conducting research by testing the mechanical and

regarding upstream development?

physical aspects of our storage and transportation systems. In

A: One of our main priorities in our approach to developing

the downstream segment, IMP will continue to play a key role

technologies for the industry’s entire value chain is

in the development cycle of the Dos Bocas refinery project.

efficiency and reducing environmental impact. In terms of

Our participation in this project is part of a wider agenda of

the upstream segments of that chain, this is expressed in a

renovation and modernization of Mexico’s entire downstream

number of ways. One is characterization: we are looking for

apparatus, including existing refineries and petrochemical

new ways to create precise and accurate models of Mexico’s

complexes as well. We are working to make their processes

reservoirs through the effective collection and interpretation

more flexible and to integrate more cracking procedures into

of data. Another is the developing and testing of chemical

the stages. To reduce environmental impact, these stages

products for higher levels of flow and production assurance.

need to be less energy intensive and more environmentally

This is done as part of a wider production strategy that

productive, which not only means reducing the sulfur content

is also integrated with the exploration priorities that

of fuels but also the content of other pollutants.

focuses on increasing recovery factors of between 50 and 70 percent. The technologies we develop toward that purpose and their development cycles all need to function

The Mexican Petroleum Institute (IMP) has 54 years of experience

economically at US$30 per barrel. This is why PEMEX has

in generating expertise and technological capabilities for the

communicated its intention to increase the use of EOR, IOR

hydrocarbons sector. Its goal is to maximize value generation in

and artificial lift technologies and services.

exploration, production and transformation process

| VIEW FROM THE TOP

COOPERATION AT THE HEART OF INDUSTRY SUCCESS MERLIN COCHRAN Director General of AMEXHI

Q: How does AMEXHI define its role within today’s oil and

as dedicated as they are. During the election campaign,

gas industry?

the government stated it would review contracts signed

A: AMEXHI’s role is to be the voice of the industry, particularly

with private players, which it did, and said it would let

that of the upstream sector. Our goal is to create consensus

companies operate. So far, the government has kept its

among our members in order to voice a message, concern

word on not changing these contracts. Now, the private

or opportunity to the government and society. In the last

sector must uphold its part of the bargain to move as

year, a new federal government was elected but none of

quickly as possible to reach production and increase

the long-term contracts that our 43 members signed have

oil production for the benefit of the nation. Investment

changed. These contracts last between 30 and 40 years and

figures have shown that private players are doing as

the government’s commitment remains exactly the same.

they said they would, and now Eni is delivering 15Mb/d. This is in addition to our members that won contracts

AMEXHI is working along two tracts. The first is supporting

in Round 1.3 and are already producing around 30Mb/d.

the operations of our members that have already signed

This is a start.

contracts for farmouts or blocks during the bidding rounds. A contract is only a right to begin work. We ensure that

AMEXHI’s Five-Year Plan targets 280Mb/d production

any regulatory concerns our members have are addressed

by 2024. This is based on the potential we see within the

and all areas of opportunity are communicated to the

industry today, from only a handful of operators within the

appropriate authorities.

entire 107-contract spectrum. These are the companies that won contracts during Round 1.2, 1.3 and farmouts.

The other area of focus within AMEXHI is in new opportunities

The companies that started later will be included in our

for the industry. AMEXHI believes in the presence of

production goal once the results of their exploration wells

farmouts and bidding rounds as part of Mexico’s energy

are known. Therefore, this target will continue to grow as

strategy. Our diverse membership encompasses many

more operators inject new production. However, if there are

different companies with distinct investment portfolios and

no new opportunities added to the pipeline, this production

expertise, all of which add value to Mexico. A central goal

rate will eventually stall before falling in 2027.

for AMEXHI is to prove our members provide this added value so that further opportunities can be opened to them.

Q: How will investment into new fields announced in PEMEX's Business Plan impact the investments of the

Q: How can the federal administration ensure the private

private sector?

sector remains allied to its goal of energy sovereignty?

A: Increase in investment from the public sector will be

A: Private companies in Mexico are partners of the

accompanied by a year-on-year investment increase from

government and this partnership is accompanied by a

the private sector. Between 2015 and 2018, US$8.21 billion

dual obligation to deliver production. But the companies

was invested by private industry into Mexico. We estimate

within AMEXHI, all of which want to continue to invest in

that US$20.57 billion will be invested by private companies

the country, need to know that their partner is committed

up to 2024. This clearly demonstrates the commitment of

to the target. They need to know that the government is

private companies to Mexico. They are here for the longterm. Companies are willing to take on the financial risk, which can be large considering oil and gas is not an industry

Companies

that yields success all the time. Even when companies have

(AMEXHI) is a non-profit association. Its goal is to develop

not been successful with their exploratory wells, they have

Mexico’s hydrocarbons industry to the highest international

improved the knowledge network for Mexico’s oil and

standards. The association includes 43 companies and PEMEX

gas industry.

The

Mexican

Association

Hydrocarbon

VIEW FROM THE TOP |

FOREIGN INVESTMENT CAN SUPPORT SOVEREIGNTY ANTONIO JUÁREZ Director General of AMESPAC

Q: To what degree would you say the AMLO administration’s

A: We have already witnessed a significant increase in

goals are aligned with AMESPAC’s agenda?

enthusiasm from all the relevant players in the industry’s

A: Under the last government, the Energy Reform’s

large hubs of Tabasco and Campeche, especially after

legal regime was focused on facilitating the entry of

all the announcements regarding investments in PEMEX.

new companies into the Mexican market. Now, while the

However, this enthusiasm is going to take some time to

participation of these companies has not been dismissed,

concretely turn into material resources being invested

the focus is on PEMEX leading the change through the

in resuscitating these regional economies, given the

financing of its own exploration activities, the reactivation

significant ways in which they were affected by the past

of its fields and the beginning of new shallow-water

couple of difficult years, which saw the end of many

developments.

companies. We have also seen a rise of activity in terms of drilling rigs in operation. We had 17 two years ago

We interpret this not from any business plan or official

and now we are somewhere between 40 and 45. There

statement but from the contracts that have already been

has also been a visible increase in PEMEX’s contracting

handed out. This sought-after increase in production also

activity, along with a clear decrease in Tabasco and

corresponds to the other focus of this administration,

Campeche's unemployment numbers and a stabilization

which is the regeneration of the country’s capacity to

of the production decline.

use and process nationally produced crude oil through large investments into the country’s refining system.

We reiterate that to provide continuity to all of these

All of this is done to achieve what the administration

positive metrics, some sort of structure to facilitate

calls “sovereignty” or energy self-reliance, which is

foreign investment, such as new bidding rounds, must be

undoubtedly a great goal that we can agree with and

at least discussed and planned for as soon as possible,

align ourselves with. A focus on PEMEX is something we

given the long development cycles that these structures

can easily adapt to and support. It is the way our member

and processes tend to have. Regardless, we do expect

companies worked in Mexico for decades without the

this reactivation to continue incrementally over the next

Energy Reform.

couple of years.

We did struggle to align ourselves with the administration

Q: What would you consider an essential part of the

at the beginning because the change in personnel was

contracting process between PEMEX and your member

quite drastic and we simply did not know anybody.

companies?

However, as they have settled into their roles, we have

A: The most essential part is that the financial resources

been fortunate enough to build a great relationship with

that will cover the cost of each and every contract are

them. I believe they are closely listening to our concerns.

already assigned and put aside or otherwise guaranteed

We do consider ourselves to be aligned with this new

before awarding a contract. A transparent sourcing of

administration as we are more than capable of supporting

assets for each of the new contracts would go a long way

it and working under the contracting models that it wants

toward addressing and assuaging this uncertainty. A larger

us to follow. However, we do believe the administration

percentage of private investment can also help this process.

should reconsider its position on promoting further foreign investment as a tool to achieve the sovereignty it seeks.

Mexican Association of Oilfield Service Providers (AMESPAC) creates consensus and develops proposals for its associates to

Q: What degree of reactivation of economic activity have

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

you and your member companies already experienced?

has 50 national and five regional associates

| VIEW FROM THE TOP

COOPERATIVE PUBLICPRIVATE MODEL CAN LEAD TO GROWTH GOALS JUAN ACRA President of COMENER

Q: What role does COMENER believe the private sector

A: We are sure that Mexicans have talent and innovation to

should play in the pursuit of Mexican energy sovereignty?

contribute to the energy sector. The idea of COMENER’s

A: Mexico has great opportunities to use oil and gas

Acceleration Program aims to improve the technological

as central motors for economic growth and social

capacities of Mexican scientific and entrepreneurial

development, and this is one of the flagship ideas of the

innovators. We do this by holding a competition and

administration. At the same time, the president has set a

selecting the most promising innovators for further support.

goal of growing the economy by 4 percent by the end of

It takes place at the University of Texas Rio Grande Valley,

his government. With these goals in mind, COMENER is

which has an initiative to promote technologies that are

clear that Mexico needs to find an effective cooperative

used, and could be used, by both the space exploration

public-private investment model, because achieving this

and oil and gas industries.

growth will be only possible through a joint effort given the level of technology investment required. Similarly,

Our Acceleration Program is the first program of its type

deepwater exploration can only be carried out with the

to welcome any scientist, small business or individual with

help of partners due to the financial risks that these

an innovation or an idea for an advanced technology, who

operations entail. Today, we have the legal tools required

wants to take it from the concept stage to development and

for developing sound, shared operational contracts,

deliver it to market. The program helps incubate these ideas

whereby PEMEX can gain the support of private players

and provides guidance on how to accelerate the process. The

and move toward higher production. This benefits

program takes place in Houston. We decided on that city

both parties.

because it is the world capital of oil and gas innovation and therefore attracts the necessary operators, service providers,

Then, COMENER’s role is to assemble the key players

angel investors and venture capitalists needed to achieve a

involved. We bring together the three levels of

technological innovation. Additionally, companies from the

government (municipal, state and federal) academia

entire value chain and from all over the world are located

and private companies. This is the motor for coordinated

there. It is the best place to take Mexican innovation and put

development, via the application of technology and

it in front of the global industry to open doors of opportunity.

international standards, to make collective intelligent

This is vital because technology can propel Mexico’s industry

decisions. We also work to build bridges between

and deliver rewards to the country as a whole.

investors, community leaders and civil society in general. We believe a social development plan aligned to the

Q: How does COMENER rank IMP’s role in developing

growth of the oil and gas industry is essential. The

technologies for oil and gas in Mexico?

country has strong energy relationship with its northern

A: In Mexico, IMP is developing superb technologies that

neighbor, so this is a good time to explore alternatives

will introduce a wide range of benefits to the national

to be more efficient.

industry and potential source of revenues for the institute. With the help of investors and partners, the technologies

Q: Why did COMENER begin its Acceleration Program

IMP is producing could be effectively commercialized and

and why is the program necessary?

produce a win-win situation for all involved. Once again, this situation shows the relevance of consensus building efforts. Each sector of the value chain requires different

The Mexican Energy Council (COMENER) specializes in

technological innovations to resolve the different problems

promoting infrastructure, technology and regulation projects, as

found on each link. Reduction of nonprogrammed downtime

well as the innovation of Mexican human capital, based on open

and costs and increased protection of the environment are

dialogue between private, public and social sectors

areas where technologies can help.

VIEW FROM THE TOP |

GUARANTEEING INVESTMENT FROM THE BOTTOM UP RAYMUNDO PLATAS President of the LAOGA

Q: What do you consider the most historically-relevant

Q: In your experience, to what degree will this investment

characteristics of the Mexico oil and gas landscape?

be sourced in new or unexpected ways?

A: The rescue of PEMEX and CFE, and the adjustment of the

A: In terms of sourcing, something to note is that the

Energy Reform to launch it. That is the central policy that we

local supply chains are used to being rescued by PEMEX.

can see defining this administration and we support it. As

They will have to get used to a more diversified portfolio

part of this rescue effort, what is also significantly relevant

of supporters and new ways to finance the industry and

for us is the rescue of national and local content to achieve

its contracts. We have just signed an alliance with BIVA

these ambitions. The conversation regarding the importance

(Institutional Stock Exchange) to facilitate the direct

of national content has been going on for too long; now,

financing of contracts and projects through this new stock

LAOGA has been able to work with the Mexican Congress

market. That is one new way of acquiring funding. We

to ensure the involvement of local companies in the large

are also looking at sovereign funds. For example, the UK

projects that the new administration plans to tackle, such as

has up to £5 billion (US$6.5 billion) available in this form

the Dos Bocas refinery. National content also needs to be

for the Mexican oil and gas market after Brexit limited its

a priority during the contract revision process and those

foreign investment maneuverability, which led to these

percentages need to be honored to the letter. Everything is

funds developing surpluses that hovered between £25

taking a long time right now but we expect that by the second

billion and £50 billion (US$32.5 billion and US$65 billion).

year of this administration things will progress faster. Either

Although this would be a good approach to the strategic

way, the industry’s core need is the large volume of investment

diversification of investment that the new government is

necessary to fuel local and national economic activity. We are

hoping to achieve and that we also support, we still have

in contact with more than 40 pension funds and family offices

to go further and look beyond the Western world. We had

around the world. They are interested in being part of these

an event with the Chinese embassy where an embassy

investment packages in the Mexican oil and gas market and

representative said that current Chinese foreign investment

the legal structures are there to receive this money. In general,

is not more than US$2 billion a year.

our view of the landscape is positive. In building all these connections, there are many opportunities Q: What do you expect the conditions for that

for us to be a large part of the process, especially given the

investment to be?

fact that ProMéxico no longer exists. Of course, there are

A: The question regarding conditions is hard to define

many untapped national sources as well; the Mexican market

because the uncertainty inherent to the beginning of

for private pension funds accrues more than MX$100 billion

this or any new administration is causing a great deal

(US$5.2 billion) every three months. That money is available.

of anxiety, resulting in noise in the market. Mexico's

There are also national tools and structures to arrange these

risk is under pressure from rating agencies, which are

investments into packages that make them safer and smarter

nervous as they watch not only the workings of the new

decisions, such as the FIBRA-E (Energy and Infrastructure

administration but also the distance between PEMEX’s

Investment Trust). That has only been used five times so far,

debt and its ambitions. However, this situation is also

and one of those uses was the canceled airport, which is not

an opportunity. The truth is that many of these giant

a good example, so that needs to be reactivated as well.

investors, such as Shell and BP, cannot afford to lose Mexico from their balance sheets and portfolios. The exact investment can be defined after this market turmoil

The Latin American Oil & Gas Association (LAOGA)

has passed; however, it must be said that without more

represents, unites and promotes business activities in the

farmouts it will be very difficult, if not impossible, for the

energy sector to integrate the North American block with

money to reach PEMEX.

Latin American countries

| VIEW FROM THE TOP

NEW VISION FOR OLD REALITIES RUBÉN CRUZ Head of Energy and Natural Resources at KPMG Mexico

Q: What are the most important changes in the industry's

approximately 600Mb/d, which could only account for

public sector framework?

about 25 percent of the national fuel demand. In other

A: We do not believe there have been significant changes

words, the question of self-sufficiency must be adapted

in the regulatory paradigm of the industry, at least

to the prevailing mathematics of the matter.

not yet and certainly not in a textual sense. Laws and guidelines remain unchanged, including those regulating

Q: How can the administration reduce PEMEX’s tax

revenue and public spending. The significant shift that

burden while re-centering its public finances, support

we have perceived is related to personnel. The internal

and productivity?

composition of public and regulating bodies is changing

A: The question of the de-petrolization of Mexico’s

rapidly, in particular the commissioners of CNH and CRE.

economy and public finances, particularly its exports,

The perspectives of these new people are quite diverse.

is not unique to this or any other administration. It is

We do not necessarily perceive an ideological bent. In

an ongoing effort that has been mostly pushed forward

that sense, the first thing that we expect the market to

through the promotion of Mexico’s manufacturing

experience is their corresponding learning curve as they

exports, which have indeed grown considerably and

get used to their posts.

have taken away some degree of weight and relevance from oil exports. The main tool that we expect this

Some of the aspects of the new administration, such as

administration will use to balance these objectives is

sovereignty and self-reliance, could be translated simply

actually one created by the Energy Reform, which allows

to reducing imports in general and also crude exports so

the company to migrate its assets and assignments to

as to process more of the nationally produced crude into

different tax regimes.

fuel. However, we have yet to see any significant move in this direction because certain realities impose themselves

Previously, it did this through CNH tenders, where it took

in the process. We have been an oil exporting country for

an active role in choosing which company the NOC would

a while, which finances a significant percent of our public

associate itself with based merely on what was the most

expenses. As a result, reducing crude oil exports is not a

attractive economic offer. Now, the NOC will have more

simple matter, regardless of how much we may want to

autonomy to choose its partners, which will also no longer

be self-sufficient in our fuel production.

be partners but contractors. Once the company finishes its migrations without any partners attached, it will then issue

Current tax and spending laws work under the

comprehensive service contracts through which it will take

assumption that we are exporting at least 1MMb/d to

a more holistic approach to evaluating and choosing a

international markets, with the US being one of, if not

contractor to develop the asset or assignment in question.

the most important. The average crude exports for the first quarter of 2019 was 1.1MMb/d, so we are even

This new model will not necessitate a change in the current

going 10 percent above the initial estimate. This means

laws of the sector. We believe these types of processes

that the remaining production that could be sent to the

and resulting service contracts will be the prevailing

National Refining System to be processed amounts to

model of the industry going forward, rather than the much more specific service contracts that have been issued by the state-owned company up to this point, such as that

KPMG is a global network of professional services firms

signed with contractors to develop the chosen 20 strategic

providing audit, tax and advisory services. It operates in more

fields. It will be up to Ministry of Energy to redistribute

than 150 countries and territories and has 200,000 people

responsibilities over the remaining assets and assignments

working in member firms around the world

between the company and CNH.

VIEW FROM THE TOP |

WORKING ACROSS VALUE CHAIN BRINGS TANGIBLE RESULTS BERNARDO CARDONA Partner Energy and Resources Industry Leader at Deloitte Consulting Mexico

Q: Why should E&P operators invest in Mexicoâ&#x20AC;&#x2122;s oil and

cannot, then operators will have to import those specialized

gas fields?

elements at a cost. Mexico already has a strong oil and gas

A: This is a complex question that these companies must

industry, especially considering the excellent human capital

ask themselves on a daily basis. The answer will differ

that PEMEX or companies working in the Mexican industry

depending on their portfolio strategy and specialization,

have trained. This is the foundation for profitable execution.

meaning that there is no single answer. The first element to

The more solidified the countryâ&#x20AC;&#x2122;s procurement base, the

consider is their international or local business development

more trust the country instills in potential investors and the

goals. International E&P operators have a specific portfolio

bigger the investment opportunities that can be developed

strategy and their goal is to include assets according to

in the country, which also means that more money will stay

that strategy, whether those are onshore, offshore, shallow,

here. But we also have to admit that most of that capacity is

deepwater, unconventional or exploration or production

related to performing general services. The country requires

assets. Mexico is in a privileged position. Through CNHâ&#x20AC;&#x2122;s

greater capacity to perform specialized jobs. Many of those

licensing rounds, the country has been able to offer an

jobs are now performed by foreigners with technology

excellent mix of these types of assets for both national

brought from abroad, which in the end increases the

and international players interested in diversifying and

cost of operations and decreases the attractiveness of

expanding their portfolios.

the country. National content requirements exist to fuel the development of a stronger value chain with more

A second element to consider is risk. These assets represent

specialized local players.

large capital investments in what operators expect will be longterm businesses, so they want to protect those investments as

Q: How can Mexico strengthen its local value chain for the

much as possible. In terms of country risk, Mexico has a good

benefit of the oil and gas industry?

structure, with the appropriate social, economic and political

A: Oil and gas and renewable energy are industries for

elements in place for investors to feel secure.

which technology advancements are fundamental. Mexico has been, in general, a technology adopter. This is natural,

Finally, there is the legal framework. This is closely related

as technology advancements require strong capital

to country risk as it provides investors with legal certainty,

investments and new technologies need to be tested

ensuring the security of their investments. The Energy Reform

under real conditions. Fortunately, the country has trained

has been successful in providing companies with that legal

a strong workforce that applies technologies effectively

certainty by ensuring transparent and open procedures.

but we should do more. Mexico should focus its efforts

Mexico is attractive for investment, and the numbers speak for

on becoming a powerhouse for technology development

themselves. We now have 155 companies from 25 countries, of

in specific areas that are critical for the national industry.

which 64 have been awarded blocks; the rounds are attracting

A big step was taken in that direction by the IMP when it

US$161 billion in investment, which will detonate economies of

created the Deepwater Technology Center, which has the

scale; and the country has seen several initial success stories,

potential to become a strategic hub for the development

such as Zama, Ixachi and Amoca.

of specialized local content and technologies to better develop deepwater fields in Mexico.

Q: Why is it important to have a strong local value chain in Mexico capable of supporting the activities of IOCs? A: When entering a country, operators need to know that

Deloitte Consulting Mexico is a consultancy that provides

the execution of their plans is going to lead to profitability.

support in the areas of human capital, strategy, operations,

That is related to the capacity of local companies to provide

technology,

human capital, resources and technology application; if they

assessment and tax

financial

advisory,

auditing,

assurance,

risk

| PROJECT SPOTLIGHT

IXACHI: FIELD FOR THE FUTURE When PEMEX announced Ixachi, it was already considered an important find. One year later, newer estimates would make it a world-class discovery. Even though production never goes as smooth as an operator might hope, Ixachi will be key to PEMEX’s future

Unlike PEMEX’s notable catch of the Quesqui field, Ixachi

in the last decade. Combined with the facts that the API

cannot be counted as an absolutely fresh discovery. However,

gravity of 41.6 is on the ultra-light side and that the field

there is an element of surprise associated with it: toward

is located in an area where PEMEX has plenty of know-

the end of 2018 the outlook on this particular field shifted

how and available infrastructure, the field will undoubtedly

immensely. When then-President Peña Nieto announced the

be pivotal if the production target of 2.6MMb/d is to be

discovery in the state of Veracruz, it was believed to hold a

reached. PEMEX’s information showed that peak production

3P reserve of around 350 million boe. At the time, this was

is expected in 2022, with 82Mb/d and around 700Mcf/d of

a significant reserve surpassing all of the 23 fields PEMEX

gas per day. However, more recent reports in the summer

showcased recently. Furthermore, it was considered to be the

of 2019 suggest that due to the difficulty associated with

biggest onshore oil discovery in 15 years.

the technical aspects of the field, this peak might be set back until 2023 or even 2024, says Pablo Medina of

Over the course of 2019, it did not turn out to be a

Welligence Energy Analytics. With an approved investment

complete reversal of fortune for the NOC, as evidenced

of above US$6.4 billion there are high hopes nonetheless,

by downrates from rating agencies. The NOC’s high tax

as the field’s massive potential are beyond doubt. Plenty

burden combined with its substantial debt remained too

of wells will be drilled within the field, of which 23 are to

much a burden. Despite this, the discovery was welcomed

be completed by the end of 2020. Whether the discovery

as a big success on its own accord. Currently, its reserves

of oil in Ixachi and Quesqui, along with PEMEX’s other 21

are estimated at 1.3 billion boe, within an area of around

projects will offset the steady decline of 3P reserves due

50km2. This effectively made the field the most important

to the maturing of its former star, fields such as Cantarell

find in the past 25 years, the fourth biggest find globally

and Ku-Maloob-Zaap remains uncertain.

VIEW FROM THE TOP |

REAL-TIME RISK MONITORING TO BOOST PRODUCTION JOHN PADILLA Managing Director of IPD Latin America 29

Q: What are the key services that IPD Latin America has

via smartphone or computer. With market participants actively

delivered to oil players in Mexico in the last two years and

seeking engagement strategies with the new government

what sets the company apart?

and the strong possibility of more changes ahead, the KSM

A: IPD Latin America is a boutique energy consultancy

provides valuable insights, saves time and is a powerful tool

celebrating 20 years in the region. We offer strategic advisory

to address the challenges companies across the board are

services, syndicated research and detailed market studies.

grappling with in today’s complex energy market.

We focus on sector-related political, economic and financial analysis and specialize in government relations, legal and

Q: How concerned is IPD Latin America about the future of

regulatory assessment. IPD’s senior consultants have an

Mexico’s oil and gas industry?

average of 30 years each of energy sector experience. Our

A: The long-term outlook for Mexico’s oil and gas sector

long-standing, uninterrupted presence in the region allows

is extremely positive based on the major discoveries that

for unparalleled local insight, context and granularity. Our

have been made by private sector companies over the past

clients value the objectivity and accuracy that comes with

couple of years. Nonetheless, the short to medium-term

our tactical understanding of the industry and the integrity

outlook, depending on policy decisions made, is rocky. Oil

of our ethically-sourced intelligence and data.

production has fallen steadily since Cantarell peaked and no administration has properly planned for a post-Cantarell/

In response to the 2013 Energy Reform, we expanded our

Ku-Maloob-Zaap world. We fundamentally believe that oil

suite of products, customizing an online upstream regulatory

production will continue to decline in the short term, despite

platform to facilitate the navigation of Mexico’s extensive and

the government’s accelerated and mature field development

taxing regulatory framework. To help our clients maintain

plans. While modern day PEMEX was constructed to

compliance in a fast-moving and complex regulatory

manage mega oil fields, Mexico’s future will require increased

environment, we teamed up with the law firm Goodrich,

nimbleness to manage a much larger number of smaller fields.

Riquelme y Asociados to construct this platform as part of a broader comprehensive support service. After mapping

We forecast private sector oil production to account for

out Mexico’s entire regulatory framework as it applies to E&P

over 300Mb/d by the end of President López Obrador’s

contracts, we had programmers build this platform from the

term based on discoveries made to date, provided that

ground up. This bespoke management tool gives our clients a

smooth permitting procedures and a healthy oil and gas

unique advantage, saving on unnecessary penalties and fines,

ecosystem where PEMEX provides unencumbered access

and improving their reputation for stringent compliance.

to its infrastructure are in place. That number could rise as more companies start their exploration drilling campaigns. A

IPD’s Key Stakeholder Map (KSM), which we refined over

significant injection of technology, cooperation and leveraging

the past 20 years, is a second product that is proving highly

of know-how are needed to improve Mexico’s standing. And

valuable post-reform. The new administration has brought

it is important to keep in mind that the country continues

in numerous government officials and politicians who are

to actively compete for global investment dollars, including

not well-known to the private sector, and interaction to

those within the region such as the Permian (U.S.), Guyana,

date has been limited. Understanding the new dynamics

Argentina and deepwater Brazil.

and individuals, as well as developing effective approaches to key officials at both a national and local level, has never been more important. Identifying alliances and conflicts can

IPD Latin America is a regionally-focused consultancy that offers

save a company valuable time. We have converted this long-

tailored services to both private and public entities. The company

standing KSM service to an online platform that offers full

focuses on leveraging on-the-ground insight and analysis with

customization, is systematically updated, and can be accessed

global perspective for actionable decision-making

| VIEW FROM THE TOP

SOLVING CHALLENGES THROUGH CUTTING-EDGE TECHNOLOGY ALDRICH RICHTER Managing Director of MAN Energy Solutions Mexico

Q: Which limitations and shortcomings must be

client needs. We deliver state-of-the-art technology,

addressed if Mexico’s National Refinery System (SNR)

including compressors, gas and steam turbines, and

is to increase its production?

reciprocating engines to key players in Mexico’s energy

A: Besides building new capacity, Mexico’s SNR can benefit

industry. We also focus on supplying innovative solutions

from the introduction of new technology to increase the

for efficient power generation.

efficiency and reliability of operations, while also making them more environmentally friendly. Technology is evolving

MAN Energy Solutions also focuses on providing

at a quick pace and these advancements can bring new

complete solutions to customers. An example of this

capabilities to refinery operators. Today’s industrial process

is the work we are doing with clients in the maritime

digitalization, which dramatically increases the efficiency

sector, where we are converting vessels' existing engines

of operations, marks the beginning of a new industrial era.

to modernize them, making them more fuel-efficient and

MAN Energy Solutions brings these additional capabilities

capable of running on less polluting fuels. Our PrimeServ

to our client operations by providing them with remote

aftersales service is working on both two and four-stroke

monitoring and diagnostic services. Additionally, our

engines to expand dual fuel capabilities to benefit the

PrimeServ (aftermarket) team offers complete solutions,

environment and reduce operating costs.

like upgrades and retrofits of existing rotating machinery, to maintain peak efficiency and reliability of process

Q: What are the unique technical capacities that MAN

equipment. PEMEX, as the SNR operator, understands the

Energy Solutions offers to FPSO providers?

importance of critical machinery in the overall refining

A: FPSOs are often the best solution in deepwaters

process. Our commitment to PEMEX and to the country is

far from shore for processing, storing, and offloading

to provide the best service solutions to the installed fleet

oil production. Only the most reliable equipment is

of equipment.

selected to operate on FPSOs, because technical failures can lead to a loss of production that is both costly and

Q: How is the change of name from MAN Diesel & Turbo

potentially unsafe. MAN has a world-leading experience

to MAN Energy Solutions reflected in the products and

providing equipment capable of operating reliably under

services the company now offers?

conditions of pitching and rolling, and can provide online

A: By addressing tomorrow’s challenges within the

monitoring and diagnostics to the shore bases that

marine, energy and industrial sectors, MAN improves

monitor operations on FPSOs.

efficiency and performance at a systemic level and facilitates the transition to lower carbon fuels. Leading

The teams and technologies that MAN Energy Solutions

the way in advanced engineering for more than 250

employ are fully aligned with industry standards. The

years, we provide a unique portfolio of technologies for

company carries out processes that ensure the reliability

the energy industry. We wanted our name and brand to

of turbomachinery and engines used on FPSOs. MAN

reflect a solution-based approach with our customers.

Energy Solutions already supports PEMEX’s tanker fleet

From compressor train modules to turnkey power plants,

through our Engines and Marine Systems business unit,

we provide a blend of technology and services to address

carrying out maintenance and supplying spare parts to guarantee sound operation. This relationship requires close communication between ourselves and PEMEX

MAN Energy Solutions employs 14,000 people at over 120 sites

Logistics, while coordinating maintenance activities.

globally. Its leading portfolio of solutions includes compression

Coordination is vital, so we can maintain and repair

technology, gas and steam turbines and high efficiency two and

ships while they are in operation or in the dock, thereby

four-stroke reciprocating engines for power generation

minimizing downtime and lost revenue.

VIEW FROM THE TOP |

EXTREME UPSTREAM EFFICIENCY, THE NEW NORMAL NANSEN SALERI Chairman and CEO of QRI

Q: What are the main trends driving the oil and gas market

reserves associated with the Permian were nonexistent. It

and what role will technology play in its development?

was people with unconventional thinking who organized

A: The new energy markets are all about clean BTUs. The usual

an unconventional approach to unconventional resources

focus on the type of BTUs, meaning whether they are coming

and produced what they are now calling the Permian Event

from oil or gas, conventional or unconventional, renewable

or the Permian Miracle. Today, the Permian is producing

or nonrenewable, is secondary. The market is looking for the

over 3.7MMb/d and will probably exceed 4MMb/d. It will

most environmentally acceptable and economically attractive

ultimately hit 5MMb/d, which will have a global impact. This

models for delivering BTUs. To achieve clean BTUs, the

is an example of one platform on which extreme efficiency

new norm is extreme efficiency. The idea that you can be

and extreme competitiveness are already manifesting,

moderately efficient and play a leading role in the energy

and from there it is cascading down to all fields of energy

markets is a false assumption. There is no more room for

production worldwide.

moderate efficiency. This applies to NOCs, IOCs and smaller independent players because they can all gain an advantage

Q: How do you measure whether or not a company is

by becoming extremely efficient and delivering clean BTUs.

extremely efficient? A: It starts with the cost of production and the evaluation of

AI and advanced analytics are becoming more relevant in our

CAPEX and OPEX. Then you look at the growth of reserves

everyday lives. For instance, elevators and cars have become

and decline rates. But if you want to be extremely efficient,

smart machines that are now automatized and include new

you have to compare OPEX to that of your competitors in the

security features. The oil and gas industry has not been a

same basin and see if you are in the Top 10 percent or not. You

leader in the use and application of these technologies. This

cannot make the assumption that you will be in the middle,

will change in the next five years and any company that does

the 40 to 50 percent, which may be good enough for the

not integrate these types of technologies will not be relevant

company today but it is not good enough to be an influential

in the new energy markets. This transformation is happening

player three years from now. The company must always aim

rapidly and these technologies are disrupting the industry. The

to be in the Top 25 percent.

last time a change like this took place was when 3D seismic info transformed exploration and field development or when

Applying this to PEMEX, it is in a favorable position due

horizontal drilling changed recoveries and productivity.

to its abundant resources. It has approximately 320 billion barrels, which is phenomenal, even though I am throwing

Q: How has acceptance of this vision evolved over the last 12

Chicontepec in there, which accounts for plus or minus

years among your clients and other oil and gas companies?

60 billion barrels. Of that, I would say that Mexico has

A: Since the beginning, QRI has focused on creating value

only produced less than 25 percent. That represents quite

through increased production, reserves and capital efficiency

a bit of opportunity for PEMEX. When you examine the

but not as a consultancy. We want to introduce a metrics-

expected recovery of reservoirs, that is when you see

based system for managing sub-surface assets. When we

more opportunities because they have not done many

founded QRI 12 years ago, the computational capabilities and

secondary recoveries to date and those are key to

algorithms we have today did not exist. We created a great

increasing your recoveries.

deal of intellectual property. Our algorithms have matured and our track record translates to over US$75 billion. There is a tidal wave approaching as the energy market grows more

Quantum Reservoir Impact (QRI) was founded in 2007

competitive in response to what has occurred in the Permian

with the objective of helping its clients to make increases in

Basin. The Permian is a prime example of extreme efficiency

production, reserve appreciation and capital efficiency. It

that broke all the conventional paradigms of production. The

delivers solutions through augmented AI

Dry screw compressor

ENERGY POLICY & LEGAL FRAMEWORK

With a change of government, a corresponding change in the laws regulating Mexico’s energy sector became a possibility. However, this soon faded as it became clear the Energy Reform would remain in place. Nonetheless, the administration’s intentions became apparent when it announced that PEMEX would be the focal point of Mexico’s energy strategy. This led to CNH suspending the bidding rounds indefinitely. Instead, PEMEX is looking to tender more service contracts, aiming to reach its production goals, although there is interest in establishing new farmouts for deepwater activities.

This chapter illustrates that while Mexico’s hydrocarbons laws remain unchanged in practice, the sector is experiencing a shift in context. Featuring knowledge from key industry executives, the chapter provides insights into the current state of energy policy and the legal framework applied to the Mexican oil and gas industry.

CHAPTER 2: ENERGY POLICY & LEGAL FRAMEWORK 36

ANALYSIS: New Priorities, Same Laws

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

INSIGHT: Irene Hernández, PwC

INSIGHT: Rogelio López-Velarde, Dentons López Velarde

VIEW FROM THE TOP: Schreiner Parker, Rystad Energy

VIEW FROM THE TOP: José Rinkenbach, AINDA Energía & Infraestructura

VIEW FROM THE TOP: Francisco Jiménez, Saint Joseph Estratego

VIEW FROM THE TOP: Carlos Canales, Canales Auty

VIEW FROM THE TOP: Carlos Rodríguez, Wöss & Partners

VIEW FROM THE TOP: Gabriel Ruiz, Thompson & Knight

VIEW FROM THE TOP: Sergio Beristain, Beristain + Asociados

INSIGHT: Alejandro López-Velarde, LópezVelarde, Wilson, Abogados

INDUSTRY PERSPECTIVE: Enrique González Calvillo, Gonzalez Calvillo

Mauricio Cuéllar, BGBG Abogados

VIEW FROM THE TOP: Octavio Lievano, Crédit Agricole

VIEW FROM THE TOP: Sergio Garza, Lloyd’s Register

Hugo Sánchez, Lloyd’s Register

VIEW FROM THE TOP: Graciela Álvarez, NRGI Broker

VIEW FROM THE TOP: Roseanne Franco, Verisk Maplecroft

VIEW FROM THE TOP: Michael Günther, Marsh Energy

Sebastián Aguayo, Marsh Energy

VIEW FROM THE TOP: Joseph Wolfe, Netherland, Sewell & Associates

VIEW FROM THE TOP: Fernando Flores, Frap Soluciones Integrales

VIEW FROM THE TOP: John McMorris, Scottish Qualifications Authority

VIEW FROM THE TOP: Eduardo Núñez, Núñez Rodríguez Abogados

| ANALYSIS

NEW PRIORITIES, SAME LAWS With the arrival of the President López Obrador's administration, the terms and expectations set forth by Mexico’s hydrocarbon laws remain practically unchanged. However, there is a new context in which these laws will be enforced

The possibility of permanent changes to Mexico’s energy laws

referring to his clients. “None of our clients have canceled

sparked speculation and uncertainty across the industry that

projects or said they want to leave the country. Most, if not

dominated President López Obrador’s transition to power

all our clients remain cautiously optimistic and many have

and first months in office. But no change took place and

expanded operations.”

the laws passed as part of the Energy Reform package have remained in place. However, the new administration’s focus

While the suspension of further bidding rounds and the

has changed the institutional goals of entities both public and

consolidation of PEMEX’s asset portfolio has meant that new

private, and there have been indications of a direct approach

licensing, production-sharing, profit-sharing and farmout

to influence and regulate the sector’s activity. Most notably,

contracts are not being offered or sought, PEMEX will be

CNH suspended upcoming bidding rounds until further

expanding the modality of service contracts that it will be

notice. Rather than being part of a strategy to block new

tendering to make sure its goal of production growth can

operators, the suspension can be interpreted as part of the

stimulate the national industry. The government has also

transition process. In essence, the bidding rounds needed to

expressed an interest in reinitiating farmouts for deepwater

be suspended as the government laid out the fundamentals

activities, as their lack of immediate profitability and greater

of PEMEX’s current and future portfolio.

need for investment should keep them away from PEMEX’s purview. Rubén Cruz, Lead Partner of Energy and Natural

That notion was clear from the start of the current

Resources at KPMG Mexico, says this will likely become

administration. PEMEX is to be at the center of the

the industry’s modus operandi. “We believe these types of

government’s energy policy. This was partly reflected in

processes and resulting service contracts will be the prevailing

PEMEX’s new slogan, “Por el rescate de la soberanía,” (For

model of the industry going forward, rather than the much

the Recovery of Sovereignty). The rhetoric brought to mind

more specific service contracts that have been issued by

the nationalist sentiment that ties Mexico’s national identity to

PEMEX up to this point, such as that signed with Marinsa.” Cruz

public ownership and administration of oil and gas resources.

understands there are matters that remain un resolved. “Of

This was the source of much of the reigning uncertainty.

course, it will be up to SENER to redistribute responsibilities

López Obrador was against the enactment of the Energy

over remaining assets and assignments between PEMEX and

Reform, believing it would violate the constitutional nature

CNH.” This triangulation is a big part of what will become the

of expropriation and public ownership of resources. During

new de facto legal framework of the industry: SENER will

the elections, López Obrador toned down his discourse by

be in charge of establishing responsibilities and jurisdictions

promising to respect all international and national contracts.

between PEMEX and CNH. An example of this was SENER’s

So far, the president has kept that promise, and as a result

re-assignation of CNH’s Round Zero blocks to PEMEX, after

the industry’s legal framework is considered stable. Enrique

some were scheduled to be removed from PEMEX’s portfolio

González, Founding Partner of the González Calvillo law firm,

given that their minimum development goals had not been

says the situation reflects more talk than action. “The largest

met by the impending deadline. This reassignment allowed

projects are moving full speed ahead without any interruption.

SENER and CNH to give PEMEX more time to develop these

I suspect this is because for all the noise emanating from the

fields without breaking their own rules or, in legal terms, giving

administration there has been no legislative change as of yet.

PEMEX special treatment.

While we do not necessarily like the rhetoric being used, we understand that this is not a step backward.”

International legal issues were also resolved after the president established a deal between CFE and pipeline operators,

Despite these changes, confidence from investors has not

such as Carso Energy, TC Energy, Fermaca and IEnova. After

waned. “Mexico has a very robust and solid legal framework

a dispute between these parties, CFE stopped operations

that supports all investors in the upstream, midstream and

for some of their transnational pipelines. While uncertainty

downstream sectors,” says Eduardo Nuñez, Managing Partner

will continue to exist due to geopolitical maneuvering, the

at Nuñez Rodríguez & Asociados. “It also has a variety of

existing oil and gas trade will continue to be active, backed by

international trade agreements that strengthen its legal

a sturdy infrastructure and legal framework that is necessary

framework even more.” Gonzalez echoes this optimism when

for investors to continue expanding their businesses.

VIEW FROM THE TOP |

CREATING GREATER VALUE UNDER REAL MARKET CONDITIONS DAVID ENRÍQUEZ Senior Partner at Goodrich, Riquelme y Asociados 37

Q: What still needs to be done to ensure the continuity of

industries. This game is not only about having a strong

Energy Reform?

and profitable industry for companies; the industry

A: The Energy Reform has created attractive conditions for

should also create more jobs, higher security and better

international companies to come and invest in the country.

education and public health conditions for the population.

Nevertheless, this is just the first stage and we cannot

This is achieved by creating the best market conditions

state unequivocally that the Reform will continue being

for companies to work in the country. There are many

successful in upcoming stages.

examples, all over the world, where focusing on these measurable factors has been much more successful than

One important parameter for keeping the framework on

focusing on political ideologies.

track is to have an effective, functional division between the policymaker (Ministry of Energy) and the industry

The Mexican government will have to prioritize projects

regulators: CNH, CRE and ASEA. Regulators must ensure

based on ROI optimization, given its limited budget and

that activities are performed under the best security,

high potential to fall deeper into debt. Concepts like

quality and environmental standards, while keeping

national security and sovereignty are more abstract and

industry players economically competitive. This requires

much harder to measure than social benefits created

an even market playing field for all participants, while also

by the revenues from a strong industry that is open to

acknowledging that PEMEX and CFE have an inherent

international competition.

market dominance and are performing their activities under asymmetric regulation. Meanwhile, the Ministry of

Q: The AMLO administration has set an ambitious target

Energy should be in charge of outlining and defining the

to increase production to 2.6MMb/d by 2024. How

public policy to be followed by the country according to

realistic is that goal?

its best interests. If regulators were to be subordinated

A: From the beginning, the Peña Nieto administration

and sectorized under the Ministry of Energy’s mandate,

set high production expectations that were not achieved

they would inherently lose their technical and economic

due to both internal and external factors. Now, the AMLO

autonomy, which is vital for them to exist.

administration is following the same path by stating that in two years the country will produce over 600Mb/d

While former President Commissioner of CNH Juan

extra through service contracts with PEMEX. Service

Carlos Zepeda was very clear when stressing that the

contracts do not favor competition; they offer earnings

institutional scaffolding of the industry regulators is

based on a tariff and not on production, meaning that

enshrined in the Constitution, we should keep an eye

companies will not go beyond the basic service they are

on all these institutions and make sure that they remain

paid for to ensure production maximization. PEMEX,

autonomous for the benefit of the country. Mexico has to

will have to absorb all the associated risks. This shows

respect the regulatory and institutional design that has

a lack of knowledge about the industry that sets false

been established by the Energy Reform and that follows

expectations, even with knowledge of a national reality

best international practices.

of an almost 10 percent annual decline in oil and gas production.

Q: What are the key priorities that the Mexican government should follow to ensure that the country remains a major oil and gas hub?

Goodrich, Riquelme y Asociados advises IOCs and key players

A: Governments that focus on productivity and efficiency

involved in exploration and production activities. Its services

at the institutional level and that align with international

include representation in public procurement processes related

best practices create the strongest and most competitive

to pipelines, LNG terminals and other downstream facilities

| INSIGHT

INFRASTRUCTURE, CONTINUITY AND INVESTMENT: CORNERSTONES OF PEMEX’S FUTURE IRENE HERNÁNDEZ Energy Leader at PwC 38

Strengthening PEMEX and increasing Mexico’s oil

Excellence to make this happen. With that in mind, it is

production are among the central goals of the López

possible to deliver real value to our clients facing complex

Obrador administration. Providing the legal certainty that

situations; for example, on tax and legal advisory related

will lead to robust investment in infrastructure is key to

to foreign investment in Mexico, tax compliance for expats,

achieving these goals, says Irene Hernández, Energy Leader

regulatory compliance, due diligence and strategy.” PwC

at PwC. “Mexico is competing against many oil and gas

also provides tech-based solutions that assist its clients

countries. To gain an edge, it must provide as much stability

with cybersecurity, data analytics and robotic process

to the market as is in its power to do. In today’s world, trust

automation, among many other digital trends.

is critical.” If PwC could change one policy or element of the current Hernández says there are a number of key elements on

legal framework, Hernández points to private investment.

which legal certainty must be based. First, a clear policy

“Even with the numerous official pronouncements

should be put forward to enable the private participation

promoting new energy policies, President López Obrador

of operators and suppliers, some of which could partner

and his collaborators have not yet changed the energy

up with PEMEX. This policy must be linked to previous

law framework; however, they have announced changes to

efforts and oriented to a holistic vision of energy supply

come before 2021. We cannot make any assumptions, but

and usage. Second, the rule of law must be enforced so

it is clear that all efforts will go to strengthening PEMEX

as to ensure the continuity of private investment. Third,

as the lever for oil and gas activity in Mexico. This raises

it is necessary to produce regulations guaranteeing fair

many doubts about the role of private investment but

play and accessible prices, based on an open market, and

because intensive capital is required for the development

emphasizing transparency and efficiency. Fourth, rules

of new oil fields, private investment would be a good option

and public policies need to be modernized to comply with

for the administration.” Hernández adds that considering

the COP 21 Paris Agreement. Fifth, a mechanism must be

the present situation, “it is important to promote private

devised to allow real-time access to information related to

investment with an adequate regulation, state of law and

the energy balance: production, consumption, imports and

certainty regarding the government’s commitment.”

exports. Finally, a serious effort is needed to progressively eradicate criminal insecurity and corruption. These

If the market is transparent and adequately regulated, the

improvements in the legal framework must be supported

next step for accomplishing President López Obrador’s

by regulating agencies that are actually independent from

ambitious production goal is to make sure that the oil and

the government. “A crucial differentiator that will define

gas sector has the necessary infrastructure across its entire

the success of Mexico’s oil and gas industry is whether

value chain. “Mexico has to improve its infrastructure in

everybody plays by the same rules or not. Regulators

terms of storage and distribution to truly reach the point

are indispensable to this end and should not lose their

of energy self-sufficiency. The administration must ensure

autonomy,” Hernández adds.

that it has the right capabilities to store, refine and transport resources throughout the country,” says Hernández, who is

Firms like PwC play an active role in guiding participants by

convinced that infrastructure investment will provide the

providing them with a comprehensive set of tools destined

much needed long-term certainty the industry requires.

to shape the sector’s future. Hernández says that for many

“Mexico has vast untapped potential, particularly in

years, PwC has worked with its clients to create a strategy

unconventionals,” she adds. “However, the country has

for running business on a daily basis. “Our professional

many viable resources due to current oil prices. For now,

team in different areas, including tax and legal, advisory

it would be better to focus on current projects and leave

and assurance, works with the support of our Centers of

others, such as fracking, on hold.”

INSIGHT |

A COMPETITIVE, HEALTHIER PEMEX, NOT A CLOSED MARKET ROGELIO LÓPEZ-VELARDE Partner at Dentons López Velarde 39

Mexico has undisputedly benefited from the Energy

such as BHP, DEA Deutsche, Jaguar E&P, Total, Perenco,

Reform and while it is highly unlikely the reforms will

Ophir and BP have chosen Dentons López Velarde to

be walked back, Rogelio López-Velarde, Partner at

represent them in Mexico. The firm’s services include

Dentons López Velarde, warns that there are ways to

working on the design of E&P contracts to make them

throw a spanner in the works. “Limiting CNH and CRE’s

more bankable and enforceable.

autonomy or implementing budgetary constraints would see the industry lose momentum and contracts,” he says. “Subordinating CNH and CRE to the Ministry of Energy would therefore mean the effective end of what the Energy Reform has achieved until now.” Continuity is necessary, but López-Velarde admits it is not easy to predict the new administration’s plans. “Almost all our clients have raised concerns regarding the lack of a longterm vision in almost all the statements made by AMLO’s team,” he says. López-Velarde also warns that a return to the old practices in Mexico’s oil and gas industry is not

“

On paper, PEMEX’s monopoly is over but reality shows that this business scheme still exists because the NOC is still the biggest, most important player”

the way to go. “Every oil and gas project has a long-term outlook, so if the new administration changes the basics of the Energy Reform’s secondary laws, it will end up

Satisfied with the achievements of the Energy Reform

affecting these projects and jeopardize investor security.”

in terms of upstream activities, López-Velarde wants

López-Velarde believes that continuity in CNH’s licensing

to see new structural changes aimed at expanding the

rounds, for example, would enable companies to create

country’s business opportunities. This includes allowing

economies of scale, which would make them more

for more competition in the midstream and downstream

competitive.

sectors. “On paper, PEMEX’s monopoly is over but reality shows that this business scheme still exists

Another important example where continuity will play a

because the NOC is still the biggest, most important

significant role is in the downstream sector. “Manipulating

player in the Mexican oil and gas industry,” he says.

fuel prices by government price controls would mean fuel

López-Velarde’s wish is not that PEMEX loses strength

retail companies losing interest in the market and slowly

but rather that it is allowed to compete in an open market

leaving the country, therefore slowing down or even putting

so it can achieve higher levels of competitiveness, not

on permanent hold many infrastructure projects,” he says.

only on the national but also on the international stage.

While he recognizes that times of uncertainty are not the easiest for doing business, he says Dentons López

He mentions the case of Sinopec as an example of best

Velarde’s global reach will give it the necessary edge in

practices for NOCs. “China’s NOC launched its IPO, while

attracting clients. “Since partnering with Dentons in 2015,

it was still under the government’s control. The fact

the London offices have offered strong and significant

that a share of its capital is publicly traded introduced

experience, especially in terms of English Law, which

excellence-oriented business practices into the company,”

is what covers Joint Operating Agreement practices

he says. “If the government’s plans are to control the

in Mexico. Combined with a local team specialized

market and keep PEMEX from entering into free market

in Mexican Law, this gives us a seamless added value

competition, this would handicap PEMEX’s ability to

specifically designed for the Mexican market and our

implement efficiency and institutionalism in its business

clients’ needs.” He cites this as one reason why companies

practices.”

| VIEW FROM THE TOP

2019 A PIVOTAL YEAR FOR MEXICO SCHREINER PARKER Latin America Vice President of Rystad Energy 40

Q: How can Rystad Energy’s data services help achieve

partnerships, efficiency in contracts can be lost. For PEMEX

López Obrador's ambitious production goals and what is

to be able to review those costs using empirical data from a

a feasible production number for 2024?

global view would allow the company to question whether

A: Assuming PEMEX has no CAPEX dedicated to building

it is paying the right price for services. Rystad Energy offers

the Dos Bocas refinery, we still see Mexico’s production

consulting that delivers a bespoke perspective that employs

declining by 1.4MMb/d out to 2024. Without the correct

raw data to draw up a strategy that can be used for the

investment, the government’s target of 2.6MMb/d from

next several years.

today’s level of 1.8MMb/d by 2024 will not be reached. From a data perspective, the Mexican government,

Q: What does PEMEX have to deliver today to get to

including CNH and PEMEX, should be looking at how to

2.4MMb/d or more?

allocate capital in the most effective manner for PEMEX.

A: It is more about other operators than about PEMEX.

That capital allocation needs to be managed correctly from

Twelve offshore exploration wells are set to be spudded

an upstream perspective, as we see downstream being a

in 2019. The success or failure of these wells is going to

significant downside risk for PEMEX. It will take everyone

determine the attractiveness of investing in Mexico going

working together and having some incredible results in the

forward. If we see some success with a less demanding

exploration space and being able to move quickly to first

regulatory environment, we could start to see a ramp-up

oil. That will come down to regulators too, so there must

of production by 2021 or 2022, with first oil from Amoca,

be an environment where regulators work in a timely and

which Eni had on track for 2019. Pan American is trying to

efficiently manner to approve licenses.

bring first oil by 2020.

Q: Which Rystad Energy products could best help PEMEX

PEMEX needs to be very judicious in its allocation of capital

reach 1.8MMb/d?

and focus on its shallow-water portfolio because that is

A: Using a mixture of Rystad Energy databases and

where it has done its best work. PEMEX should focus on

consulting would be the most effective use of our company

arresting those declining outputs. Around 40 percent of

as an information partner. Our upstream database covers

Mexico’s production comes from two fields, Cantarell and

65,000 fields worldwide and offers information on reserves,

Ku-Maloob-Zaap, and 60 percent of PEMEX’s production

production and cost of development. The ability to look at

comes from just four fields. This is ominous because so

analogous developments across the world and understand

much production is tied up in so few assets. Arresting that

how companies have allocated capital to different

decline is, therefore, the first thing that needs to happen –

developments to raise production would be extremely

whether that is through infill drilling, satellite exploration

useful. We have another database in which we cover the

and/or application of some EOR. PEMEX is set to receive

oil field service segment and we analyze E&P expenditure

an additional boost of US$4 billion in upstream CAPEX

in 56 service categories. PEMEX would benefit significantly

and then US$8 billion for greenfield refinery development

from understanding its cost structure versus other players’

at Dos Bocas. We think that the US$8 billion allocated for

cost structures related to the amount it pays for services.

greenfield development and refineries would be better

When there has been a long-term monopoly and long-term

utilized in the upstream sector of the business. Again, will that money be used correctly? Rystad Energy can consult on a PEMEX perspective about capital allocation and the

Rystad Energy is an independent energy consulting services

most profitable investment value per dollar PEMEX can

and business intelligence data firm offering global databases,

make to reach that goal. I certainly do not think we see

strategy advisory and research products for E&P and oil service

PEMEX being able to raise production by 1MMb/d by in the

companies, investors, investment banks and governments

next six years by itself.

VIEW FROM THE TOP |

THE ROAD TO INCREASING OIL PRODUCTION JOSÉ RINKENBACH Investment Executive Director of AINDA Energía & Infraestructura 41

Q: Where do you see a consistent business opportunity in

the NOC could raise money to fund other projects and

the Mexican oil and gas industry?

increase its accountability.

A: I believe there are many opportunities to invest with PEMEX through PPAs or farmouts. There has been some

Q: What factors could affect the financial perspective of

uncertainty about whether PEMEX will continue looking

projects according to AINDA’s expertise?

for farmouts. In fact, the company does not have many

A: In the oil and gas industry there are several topics that

other options as the capital it would have to invest in E&P

are absent from the conversation and could dramatically

activities alone would be prohibitive. The NOC is investing

affect project finance operations. For instance, a good

US$7.5 billion in current operations and will need to invest

project for which the financing source is incompatible will

four times that amount if it were to work on its own.

not be developed. On Jan. 1, 2019 the new accountability

Additionally, given oil prices, no operator will come into

rules for IFRS 16 came into force. This means that every

the country and invest to work only as a service provider.

balance sheet for every contract must be registered in the

Mexico produces 1.8 MMb/d and if action is not taken, by

books. With the former legal framework, if a company had

the end of the new administration the country might be

a sale and leaseback contract and the asset was sold, it

producing 500Mb/d. Nevertheless, the new administration’s

could be deducted. But according to the new accountability

objective is to produce about 2.6 MMb/d by 2024. The only

framework, these transactions will be registered as a debt.

way to meet big production expectations while minimizing

This will create an increase in liability and in the best-

investment is through farmouts.

case scenario, if a company had a debt capacity of 20 percent, this means that its debt capacity would be greatly

Q: What measures should be taken to help boost national

decreased.

oil and gas production? A: From my point of view, it is necessary to spin off

Q: What is the main reason behind the company’s

PEMEX E&P and create a separate entity: PEMEX

collaboration with ITAM for the Executive Program of

Gas. This company would act as a ring fence for the

Energy Investments?

exploration and production of gas. The process to create

A: We just closed the third edition of this program and are

this new entity would need to be implemented alongside

about to start the fourth. The program encompasses various

appropriate public policy.

topics in the Mexican energy industry, from electricity to oil and gas. Its most important achievement is that it has raised

The migration of CIEPs and COPFs to PSCs and license

awareness of the Mexican legal and commercial frameworks

contracts is also extremely important as the latter

related to the energy and oil and gas industries among

provide better fiscal regimes that offer between eight

all involved entities. Three years ago, nobody understood

and 10 times more capacity to deduct expenses. At

how to do business in these industries in Mexico. Our

the moment, PEMEX can only deduct one eighth of its

involvement in the program helps to provide the industry

expenses in the assets where there should be a migration,

with a deeper, more specific understanding of how an open

so it is unprofitable to develop those fields. Additionally,

market works and how society also is reaping the benefits

migrating those contracts makes it possible to certify

of having better players, regulators and policymakers.

reserves and ask for capital to develop them. This is a major issue. In the last three years, PEMEX has not been able to invest due to its lack of liquidity and its

AINDA Energía & Infraestructura is a private equity fund

contribution to the federal budget. Finally, the creation

focused on investing in energy and infrastructure projects in

of an SPV to allocate some farmouts or good assets with

Mexico. Its team consists of professionals with experience in

the objective of launching an IPO would help. As a result,

the hydrocarbons, electricity and water industries

| VIEW FROM THE TOP

PROTECTING PRIVATE INDUSTRY FRANCISCO JIMÉNEZ Director General of Saint Joseph Estratego 42

Q: What lobbying and litigation model does the firm employ?

support necessary to achieve the goals of the government’s

A: Saint Joseph Estratego follows three-pronged approach,

National Development Plan. Therefore, laws must be

integrating a combination of political lobbying, legal services

adapted. With PEMEX, CFE, SENER and the private sector

and legislative proposals to represent client needs. Today,

working together, an updated legislation could be delivered

Saint Joseph Estratego is focusing on lobbying to maintain

to meet the needs of the country without losing sight of

the position that the private industry was given through the

the state’s wishes, including reducing corruption, supporting

Energy Reform. The laws created through the Energy Reform

local communities and introducing the best technology into

allowed private companies to inject their technical and

the country. We want to make it clear to the government that

financial capacities into the country’s oil and gas industry.

the private sector supports its aims.

But these laws were published before 2014 under a very different type of government to the one we have today. The

We are partnering with state commercial hubs and

current administration takes an alternative view on energy

international chambers of business, uniting our strengths

and has put the brakes on the development of the industry

and ensuring the ongoing participation of private investment

by suspending future bidding on blocks and canceling the

in Mexico’s energy sector. Because the government and

scheduled PEMEX farmouts. We are concerned that the

institutions like CFE and CNH are unwilling to engage in

administration will restrict the role of the private industry

debate, we intend to use our legal right and put forward

by proposing changes to the law. We want to strengthen

our own proposal via the Mexican Chamber of Deputies,

the private sector’s position within Mexico’s energy sector

which legally must be considered.

to make sure it has a say in the country’s energy industry future. To do this, we intend to have the government listen

Part of the process is setting up roundtables where we

to our proposal and meet at a satisfactory middle point

present our proposals to the Chamber of Deputies and their

through a conciliatory process, begun by proposing reforms

appointed experts. We work through a revision of the law

to the Senate.

following a methodology called Comparative Law and stake the claim of the private industry. We are doing this because

The lobbying we are carrying out is based on judicial

we believe there must be a counterweight to the government

foundations, not simply communications. Lobbying has

and because we have identified risks like the cancellation of

three phases: the identification of the need, the proposal

bidding rounds.

for change and the communication process. We have already identified the necessity, which is supporting the private

Q: Why do companies entering Mexico require specialized

players in the energy sector.

legal support? A: For those companies entering Mexico, there is much to

Q: Why does Saint Joseph Estratego believe legal

understand about working here. While in other countries

representation is now required by the private sector?

there is a clear divide between the public administrative

A: Without further licensing rounds, private players will be

sector and the political sector, this does not exist in Mexico.

shut out of the development of Mexico’s energy sector and

For that reason, every new government that is elected can

will not be able to deliver the technological and financial

manage the administrative bodies in the way it sees fit. We understand that companies intend to grow here and so we ensure that our clients are compliant with Mexican law. Our

Saint Joseph Estratego is a Mexico City-based law firm that

expertise in regional and sectorial legislation provides a solid

offers a comprehensive list of legal services and political

basis for companies throughout Mexico and in any part of

lobbying to private players within the country’s oil and gas

the value chain. Our preventative measures help clients avoid

sector

legal conflict and save time and money.

VIEW FROM THE TOP |

ROOTING FOR AN INTERNATIONAL APPROACH CARLOS CANALES Partner at Canales Auty 43

Q: Why is Canales Auty specialized exclusively in natural

unpredictable global economic trends impact our clients’

resources law?

businesses.

A: All of our partners have devoted their entire professional careers to both the study and practice of natural resources

Q: What specific projects can showcase Canales Auty’s

law. In recent years, the natural resource industries have

capabilities in Latin America?

acquired a significant international dimension; requiring more

A: Canales Auty has worked on some of the most complex

and more in-depth knowledge of the applicable law and

projects and matters in the Latin American oil and gas sector.

best international practices. In this context, natural resource

Our oil and gas practice drafted the Dominican Republic’s

lawyers are increasingly needed to provide invaluable

first model production sharing contract for its current

orientation and counsel to foreign companies investing

offshore and onshore licensing round. For Belize, Canales

in natural resources projects, or domestic companies

Auty drafted its new model production sharing contract

seeking to expand their presence globally. Canales Auty is

and applicable amendments to its petroleum act and

a boutique law firm with an ethos in corporate, commercial,

regulations. In Bolivia, Canales Auty is currently advising on

environmental and tax services, with an exclusive focus on

the drafting of the country's new natural gas exploration and

the natural resources sector, including oil and gas, power,

development license contract and tax incentives. Our team

renewable energy, water, base metals and minerals. For

is currently advising the first private natural gas offshore

the oil and gas sector, we provide support in areas that

compression facility in the Gulf of Mexico.

include licensing and permitting, exploration, development, production, supply and public and private capital raising.

Q: What elements do you believe make Mexico an attractive destination for oil and gas investments?

Q: In what kinds of projects does Canales Auty provide the

A: Despite the recent fears of investing in the future of the

highest added value?

Mexican energy market, many IOCs are keeping a full-glass

A: Due to our regional approach and specialized knowledge

attitude as Mexico remains a country in dire need of new

and expertise in the natural resources sector, we are constantly

investment in the oil and gas sector. Canales Auty clearly sees

approached by governments and energy companies to

opportunities to add new acreage and energy infrastructure

advise on precedent-setting projects not only in Mexico but

to Mexico’s oil and gas sector. Mexico’s growing demand

throughout Latin America. Thanks to our regional practice,

for energy is constant and will remain so despite political

we often provide insights on how governments and energy

turbulence. The potential of the Mexican hydrocarbons

companies have dealt with and solved similar issues. Canales

sector is so vast, that by 2050, despite its efforts to introduce

Auty has advised the energy regulators of Mexico, Dominican

more and more renewable energy, hundreds of thousands of

Republic, Belize, Peru, Bolivia and most recently Tanzania, on

new barrels per day will be added and hundreds of billions of

the drafting of oil and gas laws and regulations and model

dollars of investments in energy infrastructure projects will

production sharing contracts and unitization agreements.

certainly add several whole percentage points to Mexico’s

For the private sector, Canales Auty’s oil and gas practice

GDP. Further, Mexico’s unique geographical position to the

supports clients on the entire life cycle of natural resources,

US market provides an undisputable incentive for greater

from licensing through the decommissioning process. Highly

integration with the North American region.

experienced in a broad array of oil and gas transactions and disputes, we provide practical, strategic and tactical advice. Clients benefit from our extensive local and international

Canales Auty is a law firm dedicated exclusively to natural

experience and expertise to identify and address any and all

resources in Latin America. It currently works with IOCs,

risks that may arise. Our lawyers understand how changing

NOCs, government regulators, multilateral agencies and

regulatory frameworks, fluctuating commodity prices and

energy funds

| VIEW FROM THE TOP

RESOLVING DISPUTES WITH LEGAL PRECISION CARLOS RODRÍGUEZ Partner for Energy at Wöss & Partners 44

Q: Which services does Wöss & Partners provide that sets

hope it will not be altered significantly. It complemented

it apart from the competition?

the previous 1995 and 2008 reforms well. With the new

A: We offer preventive services for companies that may

legal framework, Mexico will be able to take general legal

want added security given the government’s remarks that

guidelines from the new energy policy and the experience

energy contracts could be rescinded or revoked. Nothing

created along these 6 years of the Energy Reform in place.

has happened yet but there is a concern that contracts in areas including E&P and transport and distribution could

The strength of the framework means there are very clear

be modified. We proactively review any amendments and

guidelines for private-public JVs. With the Energy Reform,

try to introduce clauses or provisions that protect our

the Foreign Investment Law was amended and changed

clients’ investments and reduce their need to ask for legal

PEMEX into a State Productive Enterprise (EPE). PEMEX is

protection from international bodies.

now run like a private company, with a board of directors and an ethics code, and competes against national and

Our process delivers agreements within three or four months

foreign private companies in the country. These changes

while an arbitration process may take three or four years.

have a constitutional basis so there is no legal precarity for

For example, we worked with a major energy company

IOCs working in Mexico. The only reason IOCs might be

to issue a legal opinion that allowed our client to reach

concerned is due to political policies, not the law.

an agreement with another party and avoid an expensive arbitration process. The costs of these arbitrations do not

Q: What are the firm’s hopes for the legal framework of

only relate to the expense of the legal process but also the

Mexico’s oil and gas industry?

time wasted when projects are held up.

A: We hope that the framework and Energy Reform drive the development of the Mexican oil and gas industry.

Similarly, we offer expert legal advice on local issues, like

While Mexico was at the forefront of Latin America’s oil

changes to tax laws in individual Mexican municipalities.

and gas industry in the 1980s, PEMEX shunned private

Because municipalities are independent, they have the

investment for too long and infrastructural technology

autonomy to develop certain laws that can be problematic

has suffered. Now, we are many years behind the rest of

for companies that have entered into contracts with the

Latin America. At the moment, the government is using

federal government. Some municipalities amend the tax

the idea of resource sovereignty as a political issue to

laws every year and introduce new tax contributions without

please certain groups. The cancellation of bidding

any justification. These local issues cause problems for a

rounds in the oil and gas and energy sectors was a

company’s budget because they are unforeseeable. Lawsuits

way to reinforce PEMEX but economic issues and the

are often filed as a result.

involvement of companies already invested in Mexico must be taken into account.

Q: How strong is the oil and gas industry’s legal framework and is it attractive to IOCs?

It is important that the Energy Reform does not go the

A: The energy industry’s legal framework is in force since

way of the environmental reforms of the 1990s to become

2013. It was ushered in by the Energy Reform and we

a watered-down version of the original idea. Mexico does not have companies to clean public drinking water, or the instruments to properly monitor corporations’ emissions,

Wöss & Partners is a Mexican law firm specialized in legal

players in charge of the construction and operations

arbitration and litigation services across the energy sector.

of landfills. Furthermore, the state does not have the

Founded in 2001, the firm has become known for its pioneering

resources to do it alone. This cannot be repeated with the

expertise on energy rights

Energy Reform.

VIEW FROM THE TOP |

BUSINESS ATTRACTION AMID SHIFTING REGULATIONS GABRIEL RUIZ Partner at Thompson & Knight 45

Q: How have the bidding rounds impacted Thompson &

oil and gas industry. Such level of knowledge permits us to be

Knight’s practice?

in a position where we can help shape and improve technical

A: Having more than 17 years of experience in the Mexican

regulations. There is significant room for improvement in

energy sector, the constitutional changes introduced by the

many existing regulations because most were issued during a

Energy Reform opened the door for us to work with multiple

time when the oil and gas projects were at a very early stage.

consortiums and individual companies on the planning,

As more projects materialize, more areas of opportunity in

bidding and execution phases of their activities. Currently,

those regulations will emerge.

we represent companies like CNOOC, Fieldwood, GS Oil and Gas, Alfa, BHP and Shell in a diversity of oil and gas projects.

Q: Are your clients concerned about the new

In parallel, we are working on the Zama field unitization, the

administration’s role in the construction of legal

first of its kind in Mexico's history.

framework? A: Although the current administration faces a learning

Q: How does your advice evolve as your clients'

curve and has a different set of priorities than the previous

projects progress?

one, the fact that it has not attempted to amend the legal

A: We usually assist our clients participating in E&P projects

framework sends a message of certainty to investors. This

from the early planning stages all the way to the execution

has resulted in an optimistic outlook because the current

of contracts with CNH and up to their day-to-day operations.

legal framework includes many tools that are aligned with

Once E&P contracts are signed, we help companies with the

the administration’s objectives. For instance, the legal

analysis of the different issues within the exploration phase

framework in place can help achieve the objective of

of their contracts and with their minimum required activity

increasing PEMEX’s production without creating financial

and investment obligations. Our advice for companies

stress. PEMEX could continue to develop its assets using

in this phase focuses on properly documenting their

the successful Trion farmout model by working with

initial activities, addressing issues such as liability, use of

internationally recognized oil and gas operators where

information and many others that may need to be addressed

the financial and technical risk is shared.

as they approach the project's development phase. Q: How could Mexico’s oil and gas regulatory framework Q: How do you expect production to be managed as wells

be improved to boost the sector ’s attractiveness

start flowing?

internationally?

A: Initially, companies will be looking to enter into crude

A: While the laws passed in 2013 and 2014 were designed

purchase and sale agreements with PEMEX to easily and

under a specific context, they were never meant to be

quickly locate their production, as many of the blocks are

definitive. Those laws should be dynamic and keep

close to PEMEX-owned midstream infrastructure. Eventually,

evolving over time, especially taking into account the

it is likely that companies will be looking to export their

ongoing E&P projects. ASEA has positively taken this

product. Given that some of the blocks are being developed

approach and has begun amending some of its 2016

by consortia and others by individual companies, it is also

regulations. Another example would be amending the

likely that the production and marketing strategies will vary

Hydrocarbons Law.

from block to block. Q: What role does Thompson & Knight play in strengthening

Thompson & Knight is a full-service law firm that provides

Mexico’s framework?

clients with legal advice and assists them in finding business

A: We are in constant communication with our clients to help

opportunities. Given its expertise, the firm is well-positioned in

them understand the legal framework applicable to Mexico’s

Mexico’s energy sector

| VIEW FROM THE TOP

POSITIVE SOCIAL IMPACT TAKES CENTER STAGE SERGIO BERISTAIN Partner at Beristain + Asociados 46

Q: How does Beristain view the changes impacting the

A: Beristain helps clients tropicalize their projects. Carrying

oil and gas industry over the last year?

out successful energy projects in Mexico is not easy: players

A: In many ways, we are in a different reality. Mexico has

must follow the law, the new criteria of the administration

a new PEMEX, a new CFE and a new CRE. The old players

and adapt technologies for use here. It is important that

within the industry are still here, but they have been joined

clients remember they may not have such easy access to

by many fresh faces. This change offers Mexico the best

the types of infrastructure found in the US or Europe and

chance to improve its situation and create a fair market,

that Mexico requires a greater social sensitivity than many

equal opportunities and a refined legal framework. This

other countries. Considering this, the need for support from

is our opportunity to create the best market environment

a law firm that understands the reality on the ground is

that offers clearest regulation and freedom from corruption.

essential for clients.

When great changes are made, there can be short-term difficulties that are overcome with time and learning.

Beristain has the tools, knowledge and experience to

Mexicoâ&#x20AC;&#x2122;s oil and gas industry should have a beneficial

aid clients in Mexico. We have been involved in natural

impact on the social and economic landscape and benefit

gas pipeline and distribution system projects that have

everyone, regardless of where in society they sit.

delivered a source of energy to over 2 million natural gas consumers. The pipeline project we are involved

Q: What are the short-term challenges facing Mexico

in Yucatan has an ambitious plan to create a social

following recent changes?

community, including hospitals and schools. Locals

A: The Energy Reform was an incredible success for Mexico.

are involved and they expect this to be a project that

This was the seed for the growth of the countryâ&#x20AC;&#x2122;s energy

delivers benefits to the area. The legal and technical

sector. Now, the challenge is to cement the new laws that

points of our service are, clearly, very important. But here,

arrived with the reform to produce clean, open projects

the environmental and social aspect has a secondary

that benefit the country as a whole. Mexico is on the right

importance that should always be considered.

path to achieve this. The industry has several large projects, including major pipelines, power plants and micro refineries,

Q: What elements of PPPs must be reconsidered to

that have positive social impact targets fully integrated.

provide benefits to communities in Mexico?

This is essential.

A: It is important to understand the history of Mexico and its oil and gas industry when thinking about how PPPs can

It is important to understand that some of the bodies

be improved. The communities and towns that worked

involved in governing the industry, like ASEA, are still

with PEMEX in the past never received any benefits. They

maturing and do not have the same experience and

are underdeveloped and have many problems, including

knowledge of those in other countries. But just as in

unethical land laws. Therefore, these communities act

previous administrations, new faces will learn and improve.

against any new projects planned in their region. This is understandable.

Q: What does Beristain provide private clients entering Mexico?

The new administration offers the best scenario to reverse this trend and invest in Mexico. The Energy Reformâ&#x20AC;&#x2122;s authorities are moving in the right direction

Beristain + Asociados is a Mexican law firm specialized

and corruption is being tackled, where only international

in litigation, corporate law and energy. The firm places

companies with the highest international standards of

environmental and social considerations at the heart of its

compliance and humane ideals are being allowed to

practices and has worked closely with PEMEX, CRE and CFE

invest here.

INSIGHT |

A GOOD START BUT MORE WORK TO BE DONE ALEJANDRO LÓPEZ-VELARDE Managing Partner at LópezVelarde, Wilson, Abogados 47

As one of the latest countries to open its oil and gas

The law firm has successfully represented several oil and

industry to private players, Alejandro López-Velarde,

gas companies, from small and local businesses to major

Managing Partner at LópezVelarde, Wilson, Abogados,

players with global operations. “As a boutique law firm, we

believes that Mexico must recognize the importance of this

can provide personal services to our client. No matter their

transformation for the economic growth of both the country

size, every client is managed by one of our partners who is

and PEMEX. But he cautions there must be patience. “The

committed to providing a personalized service that best fits

government needs to understand that to see results in the

the clients' needs and expectations,” López-Velarde says.

oil and gas industry, it is necessary to inject the required capital into the NOC. In five to 10 years, the desired results

Although it has faced off against COFECE in court, López-

will be noticeable.”

Velarde explains the firm is completely neutral and also works closely with the antitrust commission. “COFECE

While the industry has benefited from the changes

knows on which topics we support its view and on which

introduced by the Energy Reform, López-Velarde believes

we do not. We disagree, for example, with its opinion that

there are still several points to be addressed for the oil and

Mexico’s fuel market has the proper conditions for the

gas industry to become a fully-fledged machine capable

private sector to start working in the country,” he says.

of increasing the country’s production levels. Among the

“It is not possible to have the proper conditions as long

first points that should be improved, according to López-

as almost all the storage, distribution and transportation

Velarde, is PEMEX’s finances. “PEMEX needs to be strong

infrastructure, which is small considering the size of the

and capable of competing on both the national and

country, is owned and operated mostly by PEMEX.”

international levels. For that to happen, the NOC requires a strong and healthy budget,” he says.

He also believes the Ministry of Energy still has too much influence over the industry. “If COFECE or CRE decide that a

López-Velarde also recognizes that allowing PEMEX to

company must be sanctioned for some reason, the Ministry

partner with private companies has been a great step

of Energy has the last call and can veto the regulator’s

forward. “There is no deepwater project in the world that

decision,” he says. Having said that, López-Velarde is

is developed by only one operator. Offshore projects

confident the government is taking all the necessary steps

particularly require several companies sharing the risk and

to end PEMEX’s monopoly. “It is also placing a great deal of

complementing their areas of expertise,” he says. “The fact

importance on being careful enough to avoid the creation

that PEMEX is now allowed to enter into partnerships is

of any kind of new monopoly from the private sector in the

extremely important and beneficial for the development

process,” he says.

of E&P activities in the country.” With broad experience in the downstream sector, LópezMexico’s antitrust efforts to build a stronger economy

Velarde believes the country needs to restructure the current

have been stepped up recently, which is why López-

tariffs applied to refined products to consolidate attractive

Velarde also highlights the fact that even PEMEX requires

business models. “While there are over 500 permits granted to

a legal defense before the country’s antitrust commission

private companies to import fuels, only nine are economically

COFECE. “Being a pioneer in winning cases for PEMEX

viable,” he says. “Those permits are for self-consumption and

before the Federal Economic Competition Commission

they are economically viable because they are not subject to

(COFECE) gives us the tools we need to better understand

the Special Tax on Production and Services (IEPS). As long

the rules of the game and apply them with other clients,”

as this tax remains one of the highest in the world, in terms of

he says, “We helped PEMEX to avoid paying a sanction of

fuels ROIs will not be high enough for companies to launch

around US$34 million.”

viable businesses in the country.”

| INDUSTRY PERSPECTIVE

LEVERAGING LOCAL EXPERTISE FOR GROWTH

Q: How has the López Obrador administration’s

Q: What were BGBG’s standout projects of the

arrival impacted your clients’ projects?

last few years?

A: The largest projects are moving full speed

A: Among the many contracts in which we have

ahead without any interruption. I suspect this

been involved was the migration of several

is because despite all the noise emanating from

gas stations from PEMEX to private brands.

the administration, there has been no legislative

International brands in the country’s retail sector

change. While we do not necessarily like the

are introducing a higher level of competence in

rhetoric being used, we understand that this is

retail services. The firm has worked more closely

not a step backward. Although the cancellation

with government offices involved in legislation for

of NAIM was disappointing, development in other

this sector and has provided recommendations to

areas continues. None of our clients has canceled

CRE, SENER and PEMEX, to explain the challenges

projects or said they want to leave the country.

that these companies have witnessed during the migration process.

Most, if not all, of our clients remain cautiously optimistic and many have expanded operations.

BGBG also participated in the Joint Operating

Gonzalez Calvillo is enjoying similar success.

Agreement (JOA) farmouts and CIEPs contract

We are involved in four projects valued at more

discussions that took place prior to the arrival

than US$1.5 billion each. The largest is a German

of the new government. Although these are on

petrochemical project valued at US$5 billion.

hold for now, we hope that these themes are

MAURICIO CUÉLLAR

ENRIQUE GONZÁLEZ CALVILLO

Former Partner of Energy and Infrastructure at Bello, Gallardo, Bonequi y García (BGBG Abogados)

Founding Partner at Gonzalez Calvillo

Q: How did you calm the concerns of your clients

considered again in the future. This is the first

during the 2018’s presidential elections?

time that Mexico, via PEMEX, SENER and CNH,

A: Our clients’ concerns were all related to the

has been involved in implementing an Energy

Energy Reform and whether it would be repealed.

Reform so by sharing these best practices and

There were even concerns that the US would

participating in JOAs, BGBG was able to benefit

threaten to interrupt the delivery of natural gas to

these key players and the industry at large.

Mexico due to the strained relationship between the two countries. This was a “perfect storm”

Q: How could regulatory frameworks or contracts

scenario.

be incentivized to meet the new administration’s aim of doubling oil production by 2024?

The administration knows that the major projects

A: The newness of the Energy Reform means

in oil and gas production and those in energy are

that lawmakers are still learning and streamlining

absolutely essential for Mexico. Therefore, these

regulations to make the industry more efficient.

projects are not being touched. Some agreements

With the change in government, the challenge

are being revisited, including CFE pipeline

is to continue to implement the changes of the

contracts, but the government must understand

Reform and for authorities to continue learning

that these agreements are binding, not optional.

at the same speed. Constitutional, legal tools

In many of these agreements, arbitration and

and contractual models need to be implemented

jurisdiction takes place in New York. The delivery

properly to be fully understood and then

of oil and gas between the US and Mexico is simply

simplified so that they can be easily applied to

not the president’s choice.

private operators and PEMEX alike.

VIEW FROM THE TOP |

FINANCING PRIVATE PARTICIPATION OCTAVIO LIEVANO Country Head of Crédit Agricole 49

Q: Where along the value chain is Crédit Agricole most active?

A: Many of the banks in Mexico are global, including Santander,

A: While Crédit Agricole has been active across the oil and

HSBC or BBVA. Some Mexican blue chips have subsidiaries

gas value chain in many areas, we have not yet ticked all the

abroad so our global presence can help attract business here.

boxes in Mexico. PEMEX is an important client for us and

While some international banks have a strong local presence

we have deployed significant financinge to support it. We

and a large funding base in Mexican pesos, we tend not to

have upstream capabilities in areas like shipping finance and

work in peso-denominated financing. Instead, we look at

petrochemicals. Our prominent midstream position can be

dollar projects. We are in the Top 5 of the global project

seen in our Los Ramones involvement. Midstream continues to

finance field and we bring this know-how when structuring

be a very attractive play for us and we have a lot of money at

these projects. We offer creative financial solutions to our

stake in the country. The bank is less active in downstream but

clients to help them achieve their goals.

we do have expertise there and have previously considered financing downstream. We will continue to consider

Q: How does Crédit Agricole view the PEMEX downgrades?

downstream opportunities that may arise.

A: PEMEX has strong cash flow but is being taxed significantly. We think the government understands PEMEX

Q: How do you decide on the financial tools you employ for

needs some space to reinvest its cash and that it is taking

Mexican clients?

the right measures. All players are watching PEMEX but

A: We look at the needs of the client and then apply the

we have a long-standing institutional relationship with

most effective tool for that need. Crédit Agricole has provided

the company and we are there to support our clients

direct syndicated loans and hedges to PEMEX and a couple

throughout business cycles and evolutions. Crédit Agricole

of years ago we worked on a US$1 billion loan and bond with

is monitoring its progress carefully and are confident that

KKR for PEMEX. In 2017, the bank also placed the largest

the government will take the right steps. We are cautiously

ever EM euro-denominated bond in the world for PEMEX.

optimistic for the future.

We also worked on the world’s first ever Ex-Im bond for a corporate, also with PEMEX. The Ex-Im bond is well-suited

Q: How will private investment shape oil and gas in Mexico

to investment. Much of our oil and gas financing in Mexico is

and what part will Crédit Agricole play?

provided through equity or service lending so our influence

A: Mexico’s macroeconomic outlook and the country’s

is less immediate.

structural characteristics make it an interesting proposition for private investors. The midstream sector and retail market

Q: Has Mexico’s improved regulatory framework helped make

will see more private investment due to the liberalization of

the country more attractive?

fuel prices at the pump. Other investment aspects are up in

A: Certainly. Records have been set at energy auctions and

the air. We know that the new government has a different

oil and gas has seen many players bidding aggressively for

perspective on Mexico’s energy industry, particularly energy

fields, projects and constructions. This is a testament to the

sovereignty. Constructing a refinery is one manifestation

attractiveness of the country’s framework and its market

of this change in attitude. This means we will have to wait

prospects. Ultimately, we are here to support investment

and see but Crédit Agricole is searching out opportunities

and growth. Oil and gas investment can take time so we will

to remain involved in Mexico’s future.

only see the benefits of the regulation on investment in the coming years. First oil in deepwater can take seven years so we must wait and see.

Crédit Agricole is the world’s largest cooperative financial institution. The firm has been present in Mexico since 1970,

Q: What does Crédit Agricole’s international experience bring

providing, among other services, investment banking, structured

to Mexican financing?

financing and syndicated loans for major clients including PEMEX

| VIEW FROM THE TOP

PROVIDING GLOBAL SOLUTIONS TO LOCAL REGULATIONS SERGIO GARZA Director of Business Development and Operation Coordinator for Mexico Business Assurance at Lloyd’s Register

HUGO SÁNCHEZ Business Development Manager for Latin America Energy & Drilling at Lloyd’s Register

Q: What oil and gas services does Lloyd’s Register offer

Q: How does Lloyd’s Register streamline certification

in Mexico?

processes and guarantee delivery?

HS: Our services in Mexico focus on specific areas across

SG: Our delivery processes are divided into several stages.

the supply chain, including drilling, regulation, compliance,

In each stage, we involve personnel from Mexico and from

offshore and onshore. We deploy our services throughout

other parts of the world. The team of international experts

the different phases of a project, such as design, construction

at Lloyd’s Register can only be effective if coupled with local

and operation. Lloyd’s Register has the capabilities to work

experts who are thoroughly-versed in local regulations. Our

across the entire life cycle of an operation.

team in Mexico is well aware and up to date concerning the country’s legal framework.

SG: In Mexico, we add value by bringing high-level talent and know-how to players that are still establishing

HS: Mexico incorporates regulations for offshore wells that

themselves in the national industry. Operators come to us

are based on international standards. Because we have ample

for drilling, planning, design and finishing of wells. We are

international experience, we are able to quickly understand

a project management company and our experts specialize

how these regulations are related to the Mexican legal

in engineering and delivery processes. With the creation of

framework. Companies like Shell, Chevron and Repsol and

ASEA and other regulatory agencies, companies need to

governments around the world come to us because of our

comply with local regulations. Our company provides legal

proven track record of excellence.

expertise regarding Mexican laws. Q: What is your assessment of the risk landscape in Mexico Q: What role does Lloyd’s Register play in relation to ASEA,

after the arrival of the new administration?

CNH or PEMEX?

HS: The risk concerns of industry stakeholders stem from

SG: With regards to CNH, we offer operators the required

the current president’s policies. Despite these concerns,

certifications for their well designs. We provide a complete

past contracts are considered a source of certainty and

service by gathering all the necessary documents until the

Mexico’s government is committed to honoring past

perforation plan is approved by ASEA. In regards to ASEA, we

contracts. Projects, meanwhile, are developing as they

rely on the expertise of qualified personnel who are authorized

were planned. There are also new projects in the pipeline.

to provide recommendations. Once a well has been identified,

As a company, we are well-established in Mexico and

it must be evaluated. CNH has authorized Lloyd’s Register to

have had no setbacks during the current administration.

provide these types of certificates. We also issue technical

Business between the government and the private sector

rulings throughout the various phases of an oil and gas

is continuing as usual.

project. This gives us a strong and comprehensive presence within ASEA’s regulatory system.

SG: ASEA and CNH are undergoing a restructuring. Today, we are re-connecting with government stakeholders to

HS: It is also worth mentioning that the Navy has granted

pursue a sustained dialogue. We provide our clients

us the faculty to carry out statutory inspections of Mexican

information about Mexico’s regulations, and we often

mobile offshore units and to grant certificates.

need to define what they need because they are not established in the country yet. This implies a great deal of responsibility. But we are in the business of minimizing

Lloyd’s Register is one of the world’s leading providers

risk for our clients, so we absorb the risks involved in the

of professional services for engineering and technology,

process. Our goal is to provide our client with as much

improving safety and increasing the performance of critical

certainty as possible. We accomplish this by navigating

infrastructure worldwide

the ups and downs of the economy.

VIEW FROM THE TOP |

PROMOTING FUNDAMENTALS OF THE HYDROCARBONS SECTOR GRACIELA ÁLVAREZ CEO of NRGI Broker 51

Q: What is your view of the new administration’s approach

of the Energy Commission in the Chamber of Deputies

to the revitalization of Mexico’s hydrocarbons industry?

Manuel Rodríguez González, Former Deputy Minister of

A: The activity in the industry is positive. The government

Hydrocarbons at the Ministry of Energy Aldo Flores and

is strengthening PEMEX with new developments,

President and General Director for BP of Mexico Angélica

investments and contracts, and operators in the

Ruiz, among many other representatives and lawmakers

market are confident. These elements will benefit

from international and national companies. It is vital

Mexico’s hydrocarbons industry and consequently all

that our deputies and senators understand the details

Mexicans, who will benefit through the promotion of the

of our industry.

country’s economy. Q: What is your personal goal for this seminar? Actions to increase production of crude oil are

A: As a Mexican citizen, I believe that I have a civic and

considered a national priority. We believe that drilling

social responsibility to support the development of the

in shallow waters will deliver production quickly and

sector that I am in. I wanted to contribute because the

help compensate for the natural production decline

country’s oil and gas industry has endured a great deal

at the Cantarell field. Recovery of mature fields must

in a short period. The Energy Reform was passed just

continue because stimulating mature wells is a feasible

prior to oil prices dropping due to the downturn. This was

and convenient approach to achieving an increase in

followed by the election of a new federal administration

production. We also support the construction of new

with a different oil and gas sector outlook from its

pipelines as the most economical and efficient method

predecessor.

for the distribution of hydrocarbons in Mexico. The industry is recovering and this will create We express our support to the industry through Voices of

employment. However, without vast knowledge and

Energy. This initiative spurs professionals to advise and

experience, mistakes can easily be made and these could

develop proposals for officials, regulators and legislators

be costly in a still maturing industry. Therefore, I want to

in Mexico’s energy industry.

make sure that those in power receive the right advice when needed. This conviction is shared by my colleagues

Q: What was the driving force behind the seminar

within the industry. Many experts have a desire to divulge

Fundamentals of the Hydrocarbons Sector in Mexico in

their knowledge in the hope of helping the administration

the Chamber of Deputies?

and the country reach its goals.

A: With the arrival of a new administration, we knew it was important to bring together the public and private

'Fundamentals of the Hydrocarbons Sector' in Mexico is

sectors for discussions. The energy sector is broad, but

there to deliver the basics of a very specialized industry

at the same time highly specialized, and experts need

to the Chamber of Deputies. For the first two sessions, we

to share and explain their vast technical knowledge. We

chose exploration and the upstream segment as themes.

organized and promoted the seminar Fundamentals

These are both vital areas considering the 2.6MMb/d

of the Hydrocarbons Sector in Mexico to be the vessel

production target by 2024.

through which authorities belonging to the public sector, including SENER, CNH and regulators, and experts from the private sector could establish a dialogue. The public

NRGI Broker specializes in insurance and surety bonds for

and private sectors are two sides of the same coin and

companies.

only by meeting each other could they resolve any

coverage for upstream and midstream activities, maritime assets,

questions they may have. Attendees include President

construction and engineering and catastrophic risks

Its

custom-made

insurance

solutions

deliver

| VIEW FROM THE TOP

RISK ASSESSMENT HELPS COMPANIES PUT BEST FOOT FORWARD ROSEANNE FRANCO Former Head of Oil and Gas Risk at Verisk Maplecroft 52

Q: What are Verisk Maplecroft’s main services and

A: One of our value propositions is mapping key

projects in Mexico?

stakeholders, local communities, civil societies and

A: We had been providing our services to clients for over

indigenous populations during the early phases of a

10 years before the oil and gas industry opened in Mexico.

project so companies can secure social license to operate,

We cover a wide array of risk issues, from politics and

especially since proper execution often requires the

economics to environmental and social, and work with all

consent of all stakeholders. We also offer assistance on

the major oil and gas companies and service providers.

specific processes in Mexico to ensure they are carried out

We support new IOCs in Mexico with human rights and

properly and with transparency. By putting checklists in

environmental impact assessments, as well as logistics and

place and identifying the main players, we can assess all

infrastructure reports.

aspects to uncover potential challenges in each case. We also help companies find potential vulnerabilities or gaps

Our current projects focus mainly on environmental,

they should be mindful of because reputational risks are

sustainability, human rights, stakeholder analysis and

heightened due to social media. Companies cannot afford

social issues. We provide guidance, risk management and

to make mistakes regardless of local governmental policies

scenarios once a company is in the country, coupled with

because they are now being judged by international best

logistics and supply chain assessments. Water represents

practices. In this regard, we help companies put their best

an important part of the production process in the oil and

foot forward.

gas industry. The increase in demand for production has also elevated companies’ focus on water stewardship to

Q: How is Mexico perceived in terms of foreign investment

better grasp the water availability at the basin level and

and as a business destination?

determine how best to manage the resource.

A: Mexico is often grouped with similar countries in the region, such as Argentina, Brazil, Colombia and Venezuela.

Q: What is Verisk Maplecroft’s strategy to gather data

The country is well-ranked on the strength of its institutions

in Mexico?

and is regarded as a stable destination due to the unlikely

A: Verisk Maplecroft provides a robust outlook on the risk

probability of a coup taking place. On a macroeconomic

situation within the country. Our main differentiators are

level, Mexico does well in relation to its peers. However,

our data and risk analyses, which are supported by 150

companies entering the country should diligently research

risk indexes across 198 countries. We work with different

their partners and suppliers since Mexico’s competitive

sources, such as the UN, the US government, NGOs and

weakness is evident in our corruption index. Firms would

similar organizations, to cover projects dealing with

like to see more transparency on public procurement and

politics, economics and social concerns. Our analysis is

consistent application of investigations into corruption.

produced by gathering our own data and by web scraping.

Another risk factor for Mexico is criminality, in which the

We leverage our office in Mexico City to provide data-led

country fares the lowest in the region and is in the bottom

analyses complemented by on-the-ground intelligence,

10 out of 198 countries globally.

which is further enhanced by experts in the oil and gas industry. Our work is done in-house and our personnel

Q: How has the new administration affected the investment

come from different backgrounds, including environmental

attractiveness of Mexico’s oil and gas industry?

science and lawyers who focus on human rights.

A: The Energy Reform was in many ways an inflection point for the oil and gas industry in the Americas as a

Q: What do you offer to companies that have not been

whole. Mexico offered many opportunities by liberalizing

able to resolve their issues through governmental

its upstream segment. The Energy Reform forced other

institutions?

countries to reassess their position compared to the

newly-opened Mexican market. The timing of the reform

in output at the field level could make both PEMEX and

also seemed to coincide with the shift of the ideological

its high-profile partners vulnerable because communities

tide in Latin America towards more market-friendly

need to be engaged and registering local benefits.

administrations. Mexico’s Round 0 and its subsequent tenders created a rippled effect on oil and gas regulations

Mexico had a window of opportunity to create a market-

that resulted in increased receptiveness by governments

oriented policy with the rest of the region headed in the

to foreign investment.

same direction. Now that Mexico is taking a step back, the country is challenged to remain competitive in oil and

The country’s situation then shifted as a result of President

gas not only in the region, but globally. There has been

López Obrador’s election last year. His election was partly

a global uptick in licensing rounds as host governments

fueled by the failure of the Energy Reform. In particular,

seek investment. Standing out and attracting investment

it appears to have failed to meet the expectations of the

will become more difficult due to the increase in

Mexican electorate on two fronts: the expected increase in

competition in the overall external environment.

production and the unfulfilled promise to decrease energy prices. AMLO’s new policies are focused on achieving

Q: What is the difference in terms of risk between

energy sovereignty. This contrasts from the previous

offshore and onshore operations?

administration’s goal of achieving energy security from

A: The general perception is that onshore operations are

diverse sources, ultimately affecting the situation for all

riskier than offshore operations. There are several issues

operators.

in different parts of Mexico. In the north, the conflict between the Zetas and other drug cartels has led to

Q: What legislative changes could the government make

kidnapping and extorsion risks in the area, hindering

to decrease the risk of investment in the country?

businesses. Central Mexico houses a number of drug

A: While Mexico is trying to reach a 2.6Mb/d production

trafficking organizations that have become sophisticated

by 2024, this ambitious goal would require the country

and nimble, diversifying their range of illicit enrichment

to maintain a viable space for IOCs. For this to happen, a

activities to include pipeline fuel theft. Aside from the

regulatory environment should support the improvement

financial loss caused by these thefts, pipeline personnel

of factors such as dcreasing criminality, among other

in Guanajuato, Hidalgo and Puebla are put at risk by these

issues. 1Q19 was one of the deadliest in almost 20 years

organizations. The latest statistics released by PEMEX

and this situation makes it harder for the presidential

have also revealed that attacks on offshore platforms

administration to carry out its agenda.

experienced a 310 percent increase between 2016 and 2018. Operating offshore does not necessarily imply

A positive aspect is that the 107 E&P contracts reviewed

immunity from criminal behavior.

by the administration are being respected as opposed to the situation of the canceled NAIM, which has created

Q: What do you think needs to happen in Mexico for you

unease for other parts of the private sector. The idea

to consider this a successful year?

of potential public consultations on contentious issues

A: Mexico is an important part of our strategy because

generates anxiety for the oil and gas industry.

our business is not limited just to the oil and gas industry. There are many similarities with the mining

Overall, the trend we have seen in the Americas has been

industry, in which we also serve, specifically regarding

favorable. Brazil, Colombia and Argentina have been

human rights, environmental impact and logistics.

streamlining regulation and reducing corporate taxation.

All major conglomerates present in the international

Even though these changes have been positively received

supply chain are hyperaware and sensitive to the impact

by the industry, from an operational standpoint, oil and

of subcontractors on their business. This is especially

gas companies are still struggling due to social issues.

applicable to the offshore segment because companies

Companies need to do more to secure buy-in by local

are vulnerable along their entire supply chain due to the

stakeholders and communities. One useful case study is

increasing layers of international subcontractors. We

the Rubiales oil field in Colombia, which ended up being

help companies put processes in place to monitor these

a high-profile field since it managed to increase output

vulnerabilities.

substantially. Rising hydrocarbons production often leads to higher expectations among the local community. However, tensions and subsequent social mobilizations

Verisk Maplecroft is an advisory data analytics firm working to

can arise if communities are unable to perceive any

enhance the way businesses manage risk. It works with experts

significant improvement in their local livelihoods, which

from environmental, political and human rights disciplines to

was the case with Rubiales. In the case of Mexico, a jump

provide full-scope assessments to oil and gas industry players

| VIEW FROM THE TOP

A RISK CULTURE THAT LOOKS BEYOND COSTS

MICHAEL GÜNTHER Senior Vice President and Executive Director, Head of Marsh JLT Industry Speciality Mexico

SEBASTIÁN AGUAYO Former Vice President of Marsh JLT Industry Speciality Mexico

Q: What specific knowledge and experience does Marsh

and the people who work at the facilities and the

JLT Industry Speciality Mexico bring to Mexico’s oil and

environment. In a world where more and more systems

gas industry?

are connected through SCADA, this threat is increasing

MG: To make operations safer, Marsh has an extensive

and can jeopardize millions or even billions of dollars of

knowledge and world-leading capacities in risk analysis,

a company’s operations.

consulting and management, together with international experience regarding best practices and a capacity to

Another emerging threat to consider is climate change.

benchmark them according to what is being implemented

As climate change intensifies, extreme weather events

in other parts of the world. We have close to 500

become stronger and more frequent, which puts facilities

specialized colleagues worldwide and our international oil

at risk. This is clear considering the big oil and gas

and gas reinsurance and insurance market totals over US$3

activity taking place in the Gulf of Mexico and the fact

billion globally.

that over the last few years the intensity and frequency of hurricanes in that region has heavily increased.

The energy practice was our first as a company 80 years ago, so we know the business really well. Having

SA: Marsh does not stop at offering solutions to its

a strong presence in the country also allows us to bring

clients from insurance companies to cover upcoming

the Mexican flavor to all our operations, knowing exactly

threats like cybersecurity and climate change. We instead

what regulators in Mexico want and why they want it.

perform pre and post-analyses of events in terms of risks,

Marsh also participates on a yearly basis in the Leadership

considering what elements can make them into a real

Meeting at Davos, where the major economic and political

threat. Once that is done, we advise the client on how to

leaders gather to discuss the world’s most pressing issues.

prevent the event from happening and how to act in case

Some of the main issues are related to cybersecurity and

it happens to contain the damage as much as possible.

climate change. Most companies in the risk management area are not prepared to deal with those risks as they

This is a much more holistic and useful approach that is

are relatively new, which is why it is necessary to create

truly value-based. Simply helping clients to select the

professional structures to deal with them.

best insurance option is not what we do, as this approach only bases the decision on costs. Marsh is very aware

Q: What main risks will be affecting the oil and gas

of data trends in the industry, even more so in the oil

industry on a global level, according to Marsh’s

and gas industry. We perform constant benchmarking

perspective?

studies that are also revised by other teams inside the

MG: Cyber risks are already heavily threatening the

company. We do this to avoid data blindness, a problem

energy industry, and they usually can be divided into

that can easily arise when managing large quantities of

two types. The first is related to information, meaning

information and that may keep people from finding the

that when a hacker gets into a system, he might steal

red lights for risk.

information about the company to use it in a way that will offer him a profit to the detriment of the company.

Q: How does Marsh help its clients in Mexico to mitigate

When the stolen information is about the company’s

their risks?

clients, the company is still liable because it was its duty

SA: Risks are usually twofold. One side is related to

to safeguard this information. The second is related to

technical factors. This means that to diminish risk in oil

actual physical threats to the electronic systems that

and gas operations, strong knowledge and experience in

operate in the industry and that may be used to cause

the industry from the people on the operational side is

physical damage to both the company’s operations

needed. The other side is related to administration, such

as the risk introduced by creating contracts for the first

important local insurance broker that strengthens our

time in a young and inexperienced ecosystem.

presence in the country. It is an honor to now have the strengths and expertise of the acquired companies but

MG: IOCs know how to do business. They have been doing

we also have to admit that going through an acquisition

this for a long time and are well aware of the technical

process represents a challenge as different people and

risks present and to which ones they are exposed on a

processes are added to ours. Fortunately, we are not

worldwide level. What they are worried about in Mexico

new to this and are very capable of taking advantage of

is the country’s regulatory framework, and especially

the best of every company to make our offers to clients

how it differs compared to the regulations they already

stronger and diminish their risks.

know and are used to working with. Lack of familiarity with regulation can easily transform into capital losses,

Q: What would Marsh like to achieve with its clients in

considering that one very small noncompliant element

Mexico during the coming years?

can stop an entire project for a long time. This problem is

SA: Promoting the creation of a Chief Risk Officer for one

not only present in Mexico but as the country is just rolling

of our clients would be a major success for us, because

out its brand-new regulation it is more evident here.

that C-Level person would know the language we talk and how to diminish risks inside the company, bringing

Q: What examples of regulatory risks can be easily

a whole new culture to the entire company. Mexico has a

underestimated by companies coming to Mexico?

traditional insurance-purchasing culture but the focus is

SA: Projects for liquid fuel terminals are increasingly

always on which insurance costs the least while covering

taking place in Mexico. The technical knowledge to

the most risk. This should not be the case in the oil and

build the facilities is there and is regulated with top-level

gas industry. Many companies still need to evolve from

standards on the international level, backed up mostly by

being traditional insurance buyers to having a Chief

the experience of countries with more advanced markets.

Risk Officer capable of diminishing the risks inside the

On that side, the Mexican NOM is very strict in ensuring

company and knowing how to deal with them.

quality and safety is at the forefront of every activity. Nevertheless, on the administrative side we are seeing

MG: We want to create a risk-centered culture within our

that there is a high risk for companies not being fully

client companies. More than simply choosing insurance,

aware of the regulation’s requirements before starting

we want them to be aware of the risks they are subject to

construction.

and work to avoid them from happening or diminishing them as much as possible. The oil and gas industry in

Unfortunately, in that sense companies tend to be

Mexico went through a strong slow-down in activities in

misguided and most of the time they do not know

the past years, and it is just starting to ramp up activities.

that when they own or lease a piece of land, they are

Mexico has been, is and will remain a major oil and gas

completely liable for everything related to its current

producer on a global level. As the market opened most

and future conditions. This means that if the land is

majors stopped looking at the country as a potential

polluted, they are responsible for any cleaning that has

opportunity and started investing in it, which is clearly

to be done, even if the pollution was already present

seen in the number of companies that have entered and

before the acquisition. To avoid this from happening

received oil and gas contracts during the licensing rounds.

companies need to perform exhaustive environmental

We see 2019 as a slow year as the public policy gets

baseline studies before acquiring anything, but they are

clearer, and players become more comfortable keeping

not aware of that because this practice is not common

up with their activities. In that sense, the activities that

in other locations where they work. This very specific

PEMEX performs will be critical to the development of

regulatory element in Mexico can easily increase the cost

the industry, as most service providers are still dependent

of a project, and companies should be aware beforehand.

on the NOC’s actions. Because of that, the culture that PEMEX brings to the table will be the one to be followed

Q: How is Marsh working to strengthen its footprint at

by most of the operators in the market. We hope to be

both the global and national levels?

able to get closer to the NOC and bring a risk culture to

MG: While most of our growth is organic, Marsh has

its very core.

recently gone through a series of acquisitions to make the company stronger. One of the most important and recent is Jardine Lloyd Thompson, one of the most important

Marsh Brockman and Schuh is the world’s leading company

risk assessment and brokerage companies in the world,

in insurance consulting and risk management. With offices in

which also has a top-level energy unit. In Mexico, Marsh

130 countries, including Mexico, its oil and gas practice oﬀers

also acquired Lorant Martínez Salas y Compañía, an

personalized solutions for all aspects of the industry

| VIEW FROM THE TOP

GUIDING A MARKET EAGER TO GROW JOSEPH WOLFE Vice President of Netherland, Sewell & Associates 56

Q: How does Netherland, Sewell & Aassociates (NSAI) ensure

There is a huge financial market in Mexico eager to participate

it provides the highest added value to its clients in Mexico?

in the country’s oil and gas industry and ready to start

A: NSAI began work in Mexico in 1996 and has evaluated

investing. Meanwhile, there are as yet no financial mechanisms

almost every Mexican oil and gas field. This broad

like Reserve Based Lending that facilitate the process of doing

experience has resulted in extensive knowledge of all the

business. Many operators and financial institutions in Mexico

Mexican producing basins, which is a significant advantage

lack experience regarding reserves evaluation, which leaves

we can offer to our clients in the country. Our main clients

a clear gap that we can fill with our expertise.

are PEMEX and new operators and financial institutions that are just starting their operations in Mexico under the

Q: What is NSAI’s secret for success?

free-market scheme.

A: The secret to our success is that we perform our evaluations based on raw data rather than beginning with

In the US, the Securities and Exchange Commission (SEC)

the interpretations of our clients. Why should a company

reviews the reserves reports of public companies and asks

choose NSAI over its competitors? Because there is a

relevant questions to protect investors to help them make

difference. Our main differentiator is that we provide

informed decisions. Our job is to prepare the operators,

technical advisory services that are focused on truly

based on the SEC’s guidelines, to be prepared to answer

listening to the client, understanding its position, helping

questions the SEC may ask. We do the same in Mexico,

it figure out why the interpretation of the data is either

following CNH’s guidelines and requirements. Our services

positive or negative and recommending ways to minimize

are not at odds with regulators like SEC or CNH; on the

risk and reduce uncertainty. We provide these services

contrary, we help our clients to comply with the regulators’

according to the data available and based on our global

requirements.

experience and best practices.

Q: Why did NSAI decide to offer its Annual Oil & Gas

Q: What would NSAI like to achieve in Mexico by the

Property Evaluation Seminar in Mexico for the first

end of 2019?

time in 2018?

A: We would love to work with every operator present in

A: We have offered our Annual Oil & Gas Property

Mexico to perform field studies, acquisition assessments,

Evaluation Seminar for over 20 years in Dallas, London

unitization agreements and other technical evaluations. We

and Singapore, with extremely good participant

also would like to help all operators report their reserves

feedback. We brought the seminar to Mexico City for

to CNH. Unfortunately, this is not feasible due to regulation

the first time with the objective of helping operators

that caps the number of years operators can work with

and financial institutions doing business in the country

companies like ours to three consecutive years. One

better understand how to assess an investment in oil and

particular area in which we can offer operators a strong

gas properties. We presented the seminar in Spanish

added value is in evaluating unconventional resources,

to connect with local companies and to ensure that all

which are just starting to be tapped in Mexico.

interested Mexicans had the opportunity to attend and benefit from the material.

For the financial sector, we want to help institutions fully understand international best practices and methodologies; should they choose to take part in financing of oil and

Netherland, Sewell & Associates is a worldwide petroleum

gas projects, they can then make educated investment

consultancy that provides services such as reserves reports

decisions. I believe we are the best reserves certifier in the

and audits, acquisition and divestiture evaluations, simulation

country but I would like the Mexican industry itself to give

studies and exploration resource assessments

us this recognition.

VIEW FROM THE TOP |

STRONGER REGULATORS, PROCESSES KEY TO GROWTH FERNANDO FLORES Director General of Frap Soluciones Integrales 57

Q: What role does Frap want to play in the industryâ&#x20AC;&#x2122;s

studies are SENER and SCT, which are not prepared to

development?

process them. Social impact studies must be carried out by

A: We are looking to work with the new operators and

experts that know their way around the Mexican market.

companies responsible for drilling wells in the Gulf of Mexico. Many IOCs are bringing in companies to carry out

Q: What is your view of the oil and gas landscape and the

procedures such as permits and licenses. For example,

federal administrationâ&#x20AC;&#x2122;s impact on companies and regulators?

Shell has an international firm that carries out these

A: When the Energy Reform was implemented, approximately

processes for it, with everything centralized in Houston.

200 new business units were also created. Each of these

Therefore, we must compete against large firms like EY

are unique in terms of regulatory framework and each have

and PwC. These firms have many years of experience but

their own permits and studies that must be carried out. The

what companies sometimes forget to consider is that

Energy Reform was intended to expand the Mexican sector

the Energy Reform is new for everybody Frap wants to

and remove the monopoly held by PEMEX and CFE. It brought

become a leader in both regulatory and environmental

in new competitors and now covers the entire supply chain

frameworks, while supporting the authorities to reinforce

of both the electricity and hydrocarbons sectors. PEMEX and

the sector. We want to position ourselves as a leading

CFE cannot be only providers and participate in more than

consultancy and boost the quality of the industry. We

two areas throughout the supply chain, which is what both

differentiate ourselves by the work we do and with our

CFE and PEMEX are currently doing.

deep understanding of the sector. Frap has experience with the regulatory framework and in actually carrying

The new administration told the country that it would stop

out the necessary permits.

all projects and cut down budgets and that is exactly what it is doing. The budgets of CRE, ASEA, CENACE and CNH

Q: What main challenges will Frap Servicios Integrales and

were all cut. The budget cuts for these agencies translated

oil and gas companies encounter during the next year?

to a reduction of staff, which in turn delayed even further

A: In 2019, we will face similar challenges because we not

the permits that companies were waiting for. After the

only process permits but we also lobby the authorities to

Energy Reform, many companies immediately began doing

help move things along more quickly. The biggest worry

the paperwork to obtain storage, commercialization and

my clients have is the lack of interest among politicians

transportation permits and they should have had the plan

when new technologies or processes are presented to

already done. Nevertheless, CRE, CNH and ASEA were also

them. That could result in investment fleeing the country.

learning along with the new reform; they allotted many

The legal principal states that if it is not written in the

permits without the specifications being met.

law then it is permitted but that is not entirely true in Mexico. For instance, if I begin doing pyrolysis in Mexico,

At the moment, many companies are approaching me to set up

the projects will not be regulated. If I want to develop an

operations in renewable energies that are not contemplated in

industrial plant, I have to conduct environmental and social

the Energy Reform. Other companies are approaching me to

impact studies. The sector is worried about the empathy

start pyrolysis operations, which is the process of converting

of the authorities.

hydrocarbon waste into gasoline or diesel.

Another challenge is the development of social and environmental studies for oil and gas operations. Oil and

Frap Soluciones Integrales is a consulting firm that specializes

gas companies must conduct both these impact studies,

in regulation, project development, storage, distribution and

even if their operations are offshore. ASEA does not have

management of hydrocarbons in Mexico. It provides support

authority in deepwaters, the entity responsible for these

for the development of social and environmental studies

| VIEW FROM THE TOP

EDUCATIONAL EXPERIENCE TO HELP DRIVE MARKET DYNAMISM JOHN MCMORRIS Director of Business Development at Scottish Qualifications Authority 58

Q: What have been the main areas of focus in the last year

technical aspects of the job, possess underpinning knowledge

for the Scottish Qualifications Authority (SQA) in Mexico?

and can demonstrate they can carry out the main functions

A: In the last year, SQA has been working to accredit the

of the job competently and safely. This is the key aspect for a

IMP as an approved SQA center and deliver qualifications

regulated and technical industry like oil and gas.

for workforce development. To do this, our technical experts evaluate IMP against a range of criteria, including the quality

When it comes to ensuring competence, it is important to

and experience of teaching staff, the quality of facilities, the

see training as an investment and not focus too heavily on

institute’s ability to conduct internal assessments and its

what the cost is. The cost of having incompetent workers

ability to have a management structure in place.

offshore or carrying out technical work is far greater than the price of training.

Q: What are the qualities that differentiate Scottish education providers from those of other nations?

Q: How is the role of certification and training changing as the

A: Scotland has been providing oil and gas education and

industry becomes more influenced by technology?

certification for a very long time. We have a mature technical

A: Data will unlock many opportunities. Even maintenance

and vocational education system in Scotland. All Scottish

regimes for a company’s asset will undoubtedly be improved

industries follow what is called an Integrated Qualification

via the expanded application of predictive data techniques

Framework, which ensures that learned pathways are well-

and data mining. The maturity of this sector has changed

defined and students receive a sound STEM education for

many domains within training and certification and the

entrance into colleges and universities. The standards are well-

industry must move with that.

understood and there is a great deal of experience within companies that allows Scotland to provide a comprehensive

But at the same time, we are seeing a definite emphasis on

educational system.

soft skills alongside the technical functional analysis of a job. Authorities like the SQA must prepare individuals to be more

Q: How prepared is Mexico to provide training and

agile and creative to cope with the changes that are taking

certification that meets the high demands of IOCs?

place in the job market. Training an engineer today requires

A: The building blocks are here. The focus for regulated

teaching adaptability, as every industry is being disrupted.

authorities and certification bodies must be to institute the

One industry can often learn from another’s experience, and

recognized standards that are present in Mexico’s other

the energy industry can look at sectors that may be further

major industries. It is important that trainers and companies

ahead to learn from their experiences.

developing the labor market train workers to these standards. Q: What are the advantages of national initiatives for Q: Where in the value chain does this standardization need

improving industry qualifications?

most work?

A: One of the advantages of a government initiative for

A: SQA is initially focusing on areas that include the processing

developing a national qualifications framework is that it brings

of hydrocarbons and well operations. That said, any technical

together all the groups from the education sector and acts as

part of the profession requires that workers understand the

an enabler for the entire process. The other important point is that within the technical standards of engineering, renewables and oil and gas, there are many transferable skills, and with

Scottish Qualifications Authority is a public yet independent

a framework this transfer is more easily achieved. This must

organization. Its services range from course and center

be part of a qualification’s currency. There is no reason why

approval through customized awards, credit rating and

a Mexican graduate engineer should not be able to work in

licensing services

renewables or rail infrastructure.

VIEW FROM THE TOP |

GUIDING THE NEXT GENERATION EDUARDO NÚÑEZ Managing Partner at Núñez Rodríguez Abogados 59

Q: A few years ago, you launched the Law and Government

energy security, social and environmental responsibility and

Studies Center. How has the center evolved?

education in the energy industry.

A: I have worked as a lawyer in the Mexican oil and gas industry for 25 years now. My expertise was developed by

Q: What key competitive advantages will the Anahuac

supporting national and international companies in doing

University initiative offer to the next generation of Mexican

business with PEMEX and other important players in the

energy leaders?

country. Due to the acquired knowledge, in 2013 I had the

A: A first advantage is that it will be a multidisciplinary

idea of creating the Law and Government Studies Center.

initiative. We need to understand that every energy sector

The center works as a training center on legal and regulatory

needs support from experts with different backgrounds. If

topics focused mostly on the oil and gas industry. However,

you want to develop an energy project, you need an engineer,

the scope of the center is wider as it also covers topics such as

a lawyer, a business developer, a financial consultant and a

power generation, anticorruption practices and compliance.

social development expert, to mention a few. The center will

For the last five years, the center has received and trained

merge and train professionals from different backgrounds.

over 700 professionals, most of them employees of the major

A second advantage is that the center will introduce an

IOCs and NOCs, including PEMEX. The center has also held

international perspective of the energy industry. Mexico’s

workshops regarding upstream midstream, downstream and

energy industry needs the expertise and involvement of

retail regulations. Likewise, we developed some other courses

not only local but international entities. A third advantage

in regard to the electricity industry and markets. One of our

is that it will have a B2B orientation to improve our students’

recent generations consisted of PEP engineers only, for them

entrepreneurial capabilities. And the fourth, and probably the

to understand the new dynamics of the Mexican oil and gas

most important advantage, is that this project will be focused

legal framework. On a general level, around sixty percent of

on soft skills. It is important to have technical and hard skills

the attendees to the Law and Government Studies Center

but the center will focus mainly on developing soft skills,

are clients of ours, while the rest are general public interested

such as social development and respect for the environment.

in deepening their expertise and knowledge of the industry. Q: What are the main characteristics that define Mexico as Q: How is Núñez Rodríguez Abogados (NRA) motivating

an attractive market for foreign investment?

the participation of more academic institutions in the oil

A: Mexico has a very robust and solid legal framework

and gas Mexican industry?

that supports all the investors in the upstream, midstream

A: Apart from working in the oil and gas industry, I have been

and downstream sectors. It also has international trade

part of Anahuac University’s academic body for 23 years. I

agreements with 46 countries that strengthen its legal

teach courses related to international and contractual law.

framework even more. Regarding the renegotiation of

In a common partnership, we decided to create a business-

NAFTA, which now is called USMCA, the treaty has a specific

oriented initiative of strategic energy studies. This initiative

chapter stating that every party involved in a contract

will start operations in 2019 with the opening of the first

derived from the Energy Reform will fully respect Mexican

Master’s degree focused on energy security, which we

constitutional law as well as every secondary law derived

identified as an important topic that the new administration is

from the Reform.

trying to highlight. The four main activities that the initiative wants to develop are research and development, graduate and undergraduate programs, organization of industry

Núñez Rodríguez Abogados is a law firm that combines solid

conferences and consultancy services. In March 2018, we

experience and knowledge from lawyers, consultants and special

organized the first edition of the Anahuac University Energy

advisers in the development of energy and infrastructure projects

Forum, with 500 attendees. The main topics discussed were

by solving complex legal problems of a diverse nature

PEMEX Tower, Mexico City

PEMEX

Despite internal changes since the Energy Reform designed to lower PEMEX’s challenging debt and put it on the path to profitability, President López Obrador deemed more was needed. When the administration confirmed that PEMEX would be at the heart of the government’s strategy to reach energy sovereignty, the stage was set for the NOC to reverse it fortunes. The question became how. The answer arrived in July with the unveiling of a new business plan. The PEMEX 2019-2023 Business Plan outlines 11 strategic objectives with the target to sustain the company’s current production of 1.8MMb/d and increase it to 2.6MMb/d in the coming years.

This chapter reviews the PEMEX plan, analyzing the national oil giant’s position and shining a light on the blueprint containing the 11 objectives designed to rescue the company’s fortunes. Additional attention is given to the financial aspect of the plan and how the increase in production is expected to take shape.

CHAPTER 3: PEMEX 64

ANALYSIS: The PEMEX 2023 Blueprint: an Overview

ANALYSIS: An Economic Symbol, but Also a Political One

INFOGRAPHIC: The Fields to Move Forward

HIGHLIGHTS: López Obrador’s PEMEX Pillars

PEMEX DIRECTORS

ANALYSIS: Exploration and Production: Returning PEMEX to Splendor

ANALYSIS: Financial Challenge

ANALYSIS: Refining: the Plan

| ANALYSIS

THE PEMEX 2023 BLUEPRINT: AN OVERVIEW The PEMEX Business Plan (2019-2023) might be considered the central document for many in Mexico’s oil and gas industry. 2019 was defined by discussions and debates surrounding its content and revelations regarding the administration’s plans for the oil and gas industry under the Fourth Transformation the company.” This addresses the concern echoed by

has been its primary goal and the dominating force in

CNH commissioners and analysts that the NOC’s asset

the process of shaping its oil and gas strategy. At the

portfolio is predominantly composed of mature fields

core of this process is the PEMEX Business Plan, which

in the final stages of their productive life. This objective

had been the source of expectations and speculations

calls for the intensification of exploratory activities in

during the first few months of President López Obrador

shallow waters and onshore fields due to their short-

administration. The plan was published in July, generating

term potential. This initiative seeks to correct the

reactions from private and public institutions in the

limited investment in exploration campaigns of the last

energy, financial and industrial sectors. It details the

years, resulting from the downturn’s general impact on

company context both nationally and internationally and

upstream investment, and seeks to incorporate new

outlines its priorities, presenting 11 strategic objectives,

discoveries, such as Ixachi.

each with its respective subcategories that seek to synthesize its goals.

The second objective is tied to the third one, which is the one the government has been most vocal about: increasing

The first objective deals with the fiscal areas of

hydrocarbon production levels. By the end of the presidential

opportunity for PEMEX: “Strengthening the company’s

term in 2024, PEMEX has committed to a 2.6MMb/d

financial situation.” One of the main purposes of the

production goal. According to calculations from third parties,

business plan was to address the concerns of financial

reaching this milestone would imply the depletion of over

institutions both national and international, particularly

half of PEMEX’s current 1P reserves. Included in this objective

credit rating agencies such as Fitch, Moody’s and S&P.

is the development of newly discovered reservoirs and the

PEMEX’s debt is a major concern, last reported to be a

prioritization and execution of all exploratory and drilling

whopping US$99.6 billion, a figure the NOC has struggled

activities necessary for the recategorization of probable and

with throughout the past decades due to its oversized tax

possible reserves into 1P reserves.

burden. Modifying this fiscal situation had been discussed to no avail in many administrations.

The fourth objective is the reconfiguration and upgrading of production facilities. This is meant to be one of the categories

The second objective calls for “accelerating the

in which PEMEX seeks to address its aging infrastructure,

incorporation of reserves to ensure the sustainability of

particularly in flagship mature fields such as Cantarell. It

COSTO FINANCIERO 2003-2018 (MILES DE MILLONES DE PESOS CONSTANTES DE 2019) PEMEX'S DEBT PAYMENTS (MX$ billion adjusted for inflation)

Payments Source: PEMEX

Debt interest rate CostoFinanciero Costo de la deuda (%)

2013

4.12%

5.63% 119.6

5.67% 120.3

5.06% 110.3

4.54% 82.9

4.69%

2012

Andrés Manuel López

57.0

4.43% 47.0

2011

4.46%

3.64% 38.7

7.51% 65.7

5.08% 47.6

7.78% 63.9

54.7

4.04% 38.5

2003 2004 2005 2006 2007 2008 2009 2010

45.9

4.07%

36.4

4.19%

5.66%

100

Enrique Peña

102.9

Felipe Calderón

8.08%

Vicente Fox

75.1

125

33.2

The administration’s full commitment to revitalize PEMEX

2014

2015

2016

2017

2018 2019* *Forecast

is also meant to address the economic need to apply new

PEMEX's eighth objective is to “strengthen marketing and

technologies and build new state-of-the-art facilities with

ensure the supply of petroleum products in an efficient

the purpose of saving as much money as possible in the

and timely manner, while offering quality services.” The

production of each barrel; CAPEX investments in renovation

best way to understand this objective is to think of it

projects can generate these necessary OPEX savings through

as the development goal of a private company. What

new efficiencies. In other words, PEMEX must implement ultra-

it references is PEMEX’s position within increasingly

efficient best practices into its operations, especially when

privatized national markets in a state of accelerated

technologies that can reduce costs have taken precedence.

transition, such as the fuel retail market. This calls for the NOC to “strengthen the value proposal, customer

The fifth objective is worded as “increase the reliability and

service and the recognition of the PEMEX brand to

security of operations.” This can seem very general and

improve its competitive position in the products and

perhaps even vague,but its content is defined in subcategories.

services markets.” PEMEX gas stations are no longer the

One is to “give certainty to the measurement of hydrocarbons,

only player in Mexico. Internationally-recognized IOCs

refined oil products and petrochemicals throughout the value

such as BP, Total and Shell, each with their own added

chain.” This refers to the lack of standardization in PEMEX’s

value and products, such as fuel additives, are established

processing and distribution infrastructure and measuring

in the country.

instruments throughout the value chain. The next two objectives also respond to the need to optimize The sixth objective, promises to “provide coordination and

internal PEMEX processes and structures, resembling

support services in an efficient and timely manner, applying

those of private companies in terms of regulatory and

ethics, transparency and honesty.” This objective is primarily

operational efficiency, reliability, social accountability and

concerned with PEMEX's human resources. In a broader

environmental performance. The ninth objective highlights

sense, its subcategories are the platform through which the

the need to “improve the management and efficiency of

government can relaunch PEMEX as an active player in the

operational and administrative activities,” with an emphasis

development of Mexico's economy.

on “ensuring the transfer of knowledge.” The 10th objective addresses the need to increase social responsibility and decrease environmental impact.

The seventh objective calls for an increase in the production of fuel and petrochemicals. This objective is portrayed in public discourse and media coverage, especially when referring to

The final objective demands that PEMEX “ensures the

one of PEMEX’s most ambitious projects: the construction

physical integrity of facilities and information systems.”

of the new Dos Bocas refinery. While the construction of the

This objective makes explicit the correlation between

refinery is not mentioned in the plan's subcategories, there are

PEMEX’s plans and the national strategy to mitigate

references that indicate that PEMEX's refining capacity is to

nationwide criminal practices such as fuel theft and the

be increased both through the completion of the new refinery

growth of an illicit fuel and crude market. It has also

by 2022 and also through the intervention and modernization

become particularly prescient on the cybersecurity front

of PEMEX’s six existing refineries, most of which are operating

given the recent kidnapping of PEMEX’s computer systems

at half their capacity or less.

by an anonymous hacker.

Operation Source: PEMEX

PEMEX

273 465

194 394

208 415

367 575

437 603

650 419

413 625

367 617

279 478

438 256

401 225

365 225

219

Enrique Peña

199

204

206

213

236

228

2011

2012

2013

2014

2015

2016

192

202

2010

*2019

205

2009

200

190

2008

Inversión

2018

199

2007

— Total

208

182

2006

176

2005

140

2004

166

144

2002

2003

Investment

2017

161

255 131

158

124

2001

100

118

200

2000

300

276

400

305

385

500

383 565

Felipe Calderón 311 580

Vicente Fox

600

311 500

700

375 585

PEMEX'S BUDGET PER(MILES GOVERNMENT (MX$ billion) EVALUACIÓN DEL GASTO DE MILLONES DE PESOS CONSTANTES DE 2019)

*Forecast

Operación

Total

| ANALYSIS

AN ECONOMIC SYMBOL, BUT ALSO A POLITICAL ONE President López Obrador’s administration sees in PEMEX the main engine of change that drives its Fourth Transformation. The country's geopolitical and economic relationships depend to a great extent on the plans that the president has for the NOC

When Enrique Peña Nieto’s administration approved the

The Fourth Transformation, a political program aimed at

Energy Reform in 2013, Mexico broke with a tradition that

changing the economic and social model that had worked in

had marked its economic performance during the 20

Mexico for decades, could only function with PEMEX as the

century. Oil, a national pride for decades, ceased to be

main axis of change. As the government of Mexico announced

the exclusive property of the state while the doors were

on its website, the Fourth Transformation established as its

opened to the privatization of a strategic industrial sector

main objectives “to guarantee the supply of fuels and electric

for Mexico. For decades, PEMEX had been not only an

energy to the Mexican population with national production,

economic engine but also a political symbol, as well as

through the strengthening and rescue of the productive

the country’s most important company – there were times

enterprises of the state, PEMEX and CFE, so they can once

in the 20th century when PEMEX represented 40 percent

again operate as levers of national development.”

of the Ministry of Finance’s income. But the NOC was unable to meet the technological challenge posed by the

Three fundamental goals arise under these approaches:

country’s proven reserves. That is to say, if Mexico wanted

the recovery of national sovereignty, ensuring energy

to continue being an important oil producer, it needed

security and the redistribution of the country’s wealth.

the arrival of private operators, local and international, to

For López Obrador, these transformations would be

help reverse the country’s declining trend in oil production.

impossible without a reinforced and renewed PEMEX. In other words, after López Obrador’s first minute in

The Energy Reform, postponed several times, was finally

office, it became clear that the Fourth Transformation

approved by the Senate on Dec. 11, 2013. Five years later,

would be impossible without PEMEX, for symbolic and for

on Dec. 1, 2018, López Obrador was sworn in as the new

social and economic reasons. However, PEMEX was not

president of Mexico, initiating a new relationship between

at that time a completely healthy company. According

the state, PEMEX and the citizenry that is rooted in the

to PEMEX, the company accumulated US$99.6 billion

Energy Reform promoted in 1938 by President Lázaro

in debt. According to Octavio Romero, General Director

Cárdenas, one of López Obrador's great political idols. It

of PEMEX, this economic mismatch had its origin in the

may seem like a coincidence, but December 2018 marked

fall in oil extraction that began in 2014, with the Energy

80 years since President Lázaro Cárdenas promoted

Reform of Peña Nieto already approved, and in the

Mexico's first Energy Reform with the approval of the

reduction of fiscal resources for exploration carried out

Constitution in 1927. That Constitution, in its Article 27,

by the same administration, resources that were destined

gave the nation “absolute property over all the riches of

to seismic and drilling studies.

the subsoil.” PEMEX, according to CNH, was experiencing its worst It precisely this article on which López Obrador based a

production crisis in 40 years at the beginning of 2019,

good part of his presidential campaign. The founder of

while the success or failure of the six-year term presided

the political party MORENA, the party that took him to

over by López Obrador depended on the government’s

the Silla del Águila, showed himself, from the beginning

plans for the state-owned company. The bureaucratic and

of his campaign, to be against the reform that was

political machinery of the new government then began

passed with the approval of the country’s main political

to walk with the objective of providing the company with

parties, repeating mantras that with the passage of time

the necessary budget for its relaunch. Thus, part of the

would become anchored in his political approach. “I

budget cuts and the money recovered as a consequence

am absolutely convinced that to privatize oil, to reform

of the fight against corruption were transferred to PEMEX.

Article 27, is to betray the homeland. We have to call a spade a spade,” said López Obrador shortly after the

This was an economic impulse that, according to the

approval of the reform; an analysis he repeated during

rating agency Fitch, was insufficient. In addition, the

the electoral campaign and which, according to various

government said that no new bidding rounds would be

analysts, helped the politician reach Los Pinos.

convened until the contracts signed by private operators

show results, since, according to the president, “there is

Now is the time to demonstrate to international markets, rating

no investment and they are not producing.”

agencies and citizens that his plans for the country are viable. Shortly after taking office, López Obrador announced that at

Another of López Obrador’s main objectives is to achieve

the end of his six-year term there will be an accumulated GDP

energy security in three years, leading to a “recovery

growth of 4 percent, an impossible achievement without an

of sovereignty,” a slogan that has accompanied the

increase in energy generation.

PEMEX logo since López Obrador came to power. To achieve his sovereignty goal, the president needs the

After López Obrador’s first year as president, the changes

six existing refineries to be capable of refining heavy

implemented in PEMEX have not meant a change in the

crude oil, which is the most produced in the country,

country’s economic projections, despite the advances

as well as the construction of a modern refinery in Dos

that, according to the government, have taken place in the

Bocas, which has become the main public investment

so-called rescue of the hydrocarbons sector. “Progress

project of his administration. Dos Bocas and the other six

has been made in guaranteeing energy security, as a

refineries will have the task of refining the 2.6MMb/d that

necessary condition for national sovereignty, through

the federal government is planning for the year 2024. If

the sustainable use of our energy resources, an increase

successful, the production goal will allow the country to

in the national content of hydrocarbons and electricity,

recover the sovereignty and energy security that López

and the orderly and accelerated progress of the energy

Obrador promised during his electoral campaign. “It was

transition. It is proposed to achieve self-sufficiency in

a good decision to build the refinery here, just as it is a

fuels by 2024, through an increase in crude oil production,

good decision to invest in PEMEX,” López Obrador said

the rehabilitation of the six PEMEX refineries and the

in December 2019 about Dos Bocas. “We can say that

construction of one more in Tabasco, with a capacity of

oil production is no longer falling and that more is being

340Mb/d, as well as the largest electricity generation,”

produced,” he said.

the government published on its website.

According to the calculations of the government presided

The reality, however, is that the country closed 2019 without

over by López Obrador, Dos Bocas will avoid the import of

GDP growth, while publications such as Forbes projected a

energy resources, which in turn will always result, according

period of economic recession for 2020 in Mexico, Brazil and

to his plans, in the political and economic independence that

Argentina, the three major economies of Latin America. To

the new president is seeking for Mexico. In other words, López

these pessimistic forecasts must be added the international

Obrador’s goal is to return to the most successful moments

socio-political situation, dominated by the foreseeable exit

in the history of PEMEX, when the company contributed

of the UK from the EU, the open commercial war between

almost 40 percent of the resources of the Ministry of Finance,

the US and economic and military powers such as China,

allowing the important economic development that Mexico

and the 2020 US presidential elections. All of these

experienced during the second half of the 20 century. The

situations could have direct consequences on the day-to-

president has put all his cards on the PEMEX table and has

day running of the current administration, especially in an

done so with social support rarely seen in the country’s history.

industry as globalized as oil and gas.

The change of PEMEX’s slogan was both a symbolic and political act that offered more proof, if any was needed, that the national energy vision of President Andrés Manuel López Obrador would be very different to that of his predecessor. The new slogan, Por el Rescate de la Soberanía (For the Recovery of Sovereignty) referenced not only President López Obrador’s rule-defining mission to support the renaissance of the heavily indebted national oil company but also the nation’s sovereignty, waived with the signing of the Energy Reform, to the sole ownership of the resources within its territory. PEMEX was created in 1938 by Lázaro Cárdenas and has long been a symbol of national pride to the country. Moments like the Cantarell field discovery in 1976 would place Mexico comfortably within the world’s top five oil producing nations and ensure that the NOC was a reliable source of income even during periods of economic hardship. For many years, PEMEX was not simply a productive apparatus of the state but also an emblem of prosperity and possibility. Yet poor management of the company’s finances and a failure to adequately replace reserves led to the necessary entry of private business into Mexico’s oil and gas industry in 2014.

BACK TO THE FUTURE? PEMEX’S NEW SLOGAN

| INFOGRAPHIC

THE FIELDS TO MOVE FORWARD 0

PEMEX has put a plan in place to reverse years of production decline. It may be headed in the right direction after the NOC announced in October its first quarterly production increase

3900

5200

6500

6405 1313.9 330.5 41.9

Octli

onshore fields, PEMEX had earlier said it would develop 23 new fields, including 18 in shallow waters, to ramp up

2600

Ixachi

in 14 years. Crude oil production rose to 1.694MMb/d, up 21Mb/d from 2Q19. Focusing on its shallow-water and

1300

306 36

Cahua

production in an effort to reach its 2.6MMb/d production goal by 2024. CNH has already approved the development

Tetl

364.9 31

Tlacame

430.1 66.4

plans for 15 of the announced fields. To succeed, the oil giant will need to make optimal use of its resources.

Field

API

Lifespan

Ixachi

41.6

N/A

Octli

2039

Cahua

53.4

2043

Tetl

2029

Tlacame

21.9

2029

Pokche

N/A

Suuk

38.4

2039

Uchbal

2035

Xikin

N/A

Mulach

2034

Yaxche

N/A

Chocol

36.8

2039

Quesqui

N/A

Cibix

19.3 - 40.6

2033

Valeriana

N/A

Teekit

2038

Hok

2029

Koban

42.9

2033

Jaatsul

N/A

Cheek

N/A

Esah

N/A

Onel

24.3

N/A

Manik NW

22 - 33.3

2039

Pokche

Uchbal

Source: CNH, PEMEX

266.5 46.3

230.1

1929.7

497.7 106.5

Mulach

Yaxche

132.3

Chocol

115.4 7 667

Quesqui

500

184 9.1

Cibix

575 210.5

Valeriana

Teekit

369.8 12.2

Hok

387.7 31.8 514.9 19.8

Koban

Jaatsul

32.2 314 38.14

Cheek

845 109.3

Expected

Onel

156.5

Heavy crude oil has an API gravity below 22.3° Extra heavy oil has an API gravity below 10.0°

686.8 227.3

Xikin

Light crude oil has an API gravity higher than 31.1° Medium oil has an API gravity between 22.3 and 31.1°

186.3

Suuk

Esah

API GRAVITY

Investment (US$ million)

Reserves 3P (million boe)

317.46 53.1

Manik NW 0

300

600

900

1200

1500

8 9

6 3 12 2 13 15

c 23

22 1

21 20

Onshore Shallow water

| HIGHLIGHTS

LÓPEZ OBRADOR’S PEMEX PILLARS President López Obrador has maintained a close relationship with Mexico’s NOC throughout his political career. While his ties to PEMEX were never direct in a personal sense, meaning he maintained no significant political relationship with the people chosen to fulfill its management 70

positions, his base of supporters from his home state of Tabasco have shared close connections

López Obrador’s support of PEMEX is based on

If we did not intervene with urgency, not only would oil production continue to fall, but so would the entire national economy”

the following four pillars.

Dec. 13, 2019

PRODUCTION

fiscal burden is fundamental in that process.” At the

Increasing PEMEX’s production and national production

presentation of the PEMEX Business Plan, July 16, 2019

to the oil and gas giant. At the same time, he campaigned extensively to defend PEMEX from what he and his supporters perceived as an attempt to weaken it through the redistribution of powers and responsibilities enacted in President Peña Nieto’s 2013 Energy Reform.

levels are two objectives that seem fused in López Obrador’s agenda. One of the main goals is to return

“We have now halted the decrease in oil production. We

PEMEX to a previous state of global relevance in the

have stabilized these levels and we can now look forward

industry. The commercialization of a larger volume

to the beginning of a steady increase starting next year.”

of production also plays an integral part in the

During a visit to the Xikin offshore field, Dec. 7, 2019

administration’s plans for the financing of its general economic development agenda.

“If we did not intervene with urgency, not only would oil production continue to fall, but so would the entire

“These (23) strategic fields alone could contribute up to

national economy.” At a morning press conference,

1.6MMb/d to national production by 2022, which would

Dec. 13, 2019

help us meet our goal of 2.48MMb/d in yearly average production for 2024, with a final production level of

PRIVATE OPERATORS & CONTRACTORS

2.654MMb/d by the end of that year.” At a tour of the

The president’s rhetoric toward private operators can

Ixachi field, May 21, 2019

appear a lot more heated than his actions would suggest. After a year in government, he has made it clear that

“We do not want to overexploit our reserves. There must

he respects the boundaries set out by bidding round

be replacements. We have to understand that crude is not

contracts and that no attempt to intervene in privately

a renewable resource and that we must ensure that future

managed oil and gas blocks will be attempted. However,

generations have access to this wealth that belongs to all

his statements on the subject appear to sometimes

Mexicans.” At the presentation of the National Refining

carry the implication that those blocks would be better

Plan, May 26, 2019

managed and in safer hands if they were under PEMEX’s jurisdiction. As the budgeting realities of the NOC

“We will continue to support PEMEX during the first three

continue to set in, it can be expected that this approach

years of our government through budget increases and

will continue to soften further.

tax reductions so that it may have more resources at its disposal for investment. As a result, we can expect

“We will not cancel any document signed with private

higher returns through increased production in the last

companies, both national and foreign. We instead want

three years of our administration, which we can use to

to motivate those who received these contracts to invest,

contribute to Mexico’s development. In other words, we

produce and compete because they have not done so

plant the seeds for oil, so to speak. Reducing PEMEX’s

yet.” At a morning press conference, March 18, 2019

“There has been too much external contracting, which has

“This business plan demonstrates that a different

demonstrated a lack of efficiency.” At the presentation of

management model is possible, one that is based on

the National Refining Plan, May 26, 2019

innovation, efficiency and, above all, the absence of corruption.” At the presentation of the PEMEX Business

“The contracts will not be canceled because we do not

Plan, July 16, 2019

want to pick fights. Fortunately, those 107 contracts involve, at the most, 20 percent of all oil and gas areas in

“Imagine the profit that the Quesqui field represents for

Mexico, 80 percent of which continues to belong to the

the nation. Rockefeller used to say that oil was the greatest

nation for the benefit of all Mexicans.” At the presentation

business in the world and that the second greatest was

of the National Refining Plan, May 26, 2019

mismanaged oil. We are managing it correctly, so we will be able to use it to push the country forward.” During a

“We are now investing where the oil is actually located. You

visit to the Xikin offshore field, Dec. 7, 2019

know what they used to do? They used to invest in the north, in deepwater, because they were not interested in production,

REFINING

they were interested in handing out contracts.” During a visit

The Dos Bocas refinery has arguably been the flagship

to the Xikin offshore field, Dec. 7, 2019

infrastructure project of this administration, but it is also an expression of how President López Obrador feels

“Technocrats are very limited and, contrary to popular

that Mexico should approach the larger issue of refining

belief, very inefficient. They assumed that public

operations within PEMEX. To him, importing too much

investment in PEMEX was no longer necessary because

fuel to make up for the refining system’s shortcomings

their reform would attract an abundance of foreign and

amounts to cheating PEMEX out of fulfilling what should

private investment, but it never arrived.” At a morning

be one of its central functions: providing a widely

press conference, Dec. 13, 2019

available engine for development through cheap and nationally produced fuel.

FINANCE Hand in hand with his prioritization of PEMEX’s production

“It is an absurd contradiction that Mexico has not built a

goals is the president’s view on how best to handle the

single new refinery in the last 40 years and that we are

NOC’s financial issues. While some have criticized the

now buying gasoline while continuing to produce crude.”

López Obrador’s plans for the oil giant as being filled with

At a morning press conference, May 9, 2019

unnecessary expenses that risk pushing the company’s balance sheet into an even more precarious position, he

“Dos Bocas represents a return to a time when the

has made it clear that paying off debt step by step is

government could directly manage and execute public

rigidly calculated into his plans, while allowing a decrease

works and construction of infrastructure independently.”

in PEMEX’s tax burden is also an essential part of his

At a morning press conference, May 9, 2019

strategy to give the NOC space to allow for necessary internal investment.

“Dos Bocas will cost us US$8.5 billion over three years, no more. So, it will come online on schedule. This budget

“Those who claim that PEMEX is doing very badly,

contemplates the extensive use of national content

financially speaking, are playing the game of betting

throughout the entire project.” At a morning press

on speculation. The truth is that PEMEX is heavily

conference, May 9, 2019

supported by the federal government.” At a morning press conference, March 18, 2019

“External companies reconfigured three of the six existing refineries, and yet the three that were not reconfigured

“We have made the commitment to not increase public

in this manner are producing more. ... (Corruption) was

debt in real terms during our administration, and we will

a factor.” At the presentation of the National Refining

keep it.” At the signing of a refinancing agreement for

Plan, May 26, 2019

PEMEX with HSBC, JP Morgan and Mizuho Securities, May 13, 2019

“Previous strategies were based on selling raw materials, but now we want to add value to those same raw materials.

“We are convinced of the importance of rescuing PEMEX

This is why we chose to build this new refinery in this

because if we rescue PEMEX and we rescue the energy

strategic location, because Dos Bocas is a terminal for

sector, we will rescue Mexico. PEMEX must be the

offshore production that receives 100,000 oil barrels from

platform for national development.” At the presentation

shallow water wells in Tabasco and Campeche.” During

of the National Refining Plan, May 26, 2019

a visit to the Dos Bocas construction site, Dec. 7, 2019

| PEMEX DIRECTORS

OCTAVIO ROMERO OROPEZA Director General Romero Oropeza has a strong background in politics and is a long-time political ally of President López Obrador, with both hailing from Tabasco. Born in January 1959, he graduated university as an agronomist. Romero came to prominence as a National Council Member of the PRD between 1994 and 1999, where he focused on cutting back bureaucratic expenditures. This was his first involvement in the task of tackling corruption, a platform that would continue to define his professional career. He went on to become the Tabasco State Leader of the Sol Azteca, and in 1997 was the party’s losing candidate for mayor of Centro, Tabasco. Romero later became a Federal Deputy in the LVI Legislature of the Congress of Mexico, where he showed affinity with themes related to energy. When López Obrador was elected mayor of Mexico City in 2000, he named Romero to lead the city’s administrative office. Supervising the capital’s bureaucracy and once again focusing on rooting out corruption prepared him for his current role as head of Mexico’s national oil giant. His appointment has not gone without criticism, mostly directed at his background and personal connection to López Obrador. Regardless, Romero will oversee PEMEX as it ushers in a new era, with a mandate from López Obrador to increase production and make the NOC the lever that propels Mexico’s development.

MIGUEL GERARDO BRECEDA LAPEYRE Director General of PEMEX Transformación Industrial Born in 1949, Miguel Gerardo Breceda Lapeyera is responsible for PEMEX’s combined midstream and downstream efforts as head of PEMEX Industrial Transformation. Breceda was previously a planning coordinator on several projects for the National Commission for Energy Saving (CONAE). He was also founder and coordinator of the Energy Program

When López Obrador was elected mayor of Mexico City, he appointed Romero to lead the city's administrative office

JAVIER NÚÑEZ LÓPEZ Acting Operations Director of Procurement and Supply

Javier Núñez López, born in 1965, is the Acting Operations Director at PEMEX. Overseeing procurement and supply, Núñez is in charge of procuring goods and services for the NOC. This makes him directly involved in how ethically and profitably PEMEX will be able to operate, a task that poses a significant challenge. Like others appointed in 2018, he has a background in politics and has strong ties to López Obrador’s Morena party. He started his career as the Director of Management of Xalapa, Veracruz. Later, he was named Chief of Staff of the Congress in the state of Tabasco, where he went on to become Director General of Management for the Ministry of Health.

of the Economic Research Institute of UNAM and was an associate at the Autonomous University of Mexico City (UACM). PEMEX’s latest business plan, outlined in 2019, put a heavy focus on Breceda’s department, tasking it with augmenting production of fuel and petrochemicals and enhancing marketing and supply of petroleum products. The vital Dos Bocas project will be a crucially important challenge that needs to be brought to a successful conclusion.

| PEMEX DIRECTORS

MARCOS MANUEL HERRERÍA ALAMINA Corporate Director of Management and Services Marcos Manuel Herrería Alamina was appointed Corporate Director in 2018 and is in charge of the area of Management and Services. He has a strong background in administration, having worked with 74

President López Obrador during the president's term as Mayor of Mexico City. Herrería spent most of his professional career in the Federal District. He was Director General of the city’s Ministry of Finance under Miguel Ángel Mancera of the PRD. He also served as Private Secretary of the Head Official of the Federal District Government and as Administrative Coordinator of the district’s Attorney General’s Office.

Herrería was appointed Corporate Director of Management and Services in 2018 ALBERTO VELÁZQUEZ GARCÍA Chief Financial Officer / Corporate Director of Finance Alberto Velázquez García has held a number of notable positions in both the private and public sectors, while also showing a fondness for academia,

ULISES HERNÁNDEZ ROMANO

having taught at UNAM’s School of

Director General of PMI

Economics, for instance. In the public

Comercio Internacional

sector, Velázquez was on the Federal Economic Competition Commission and

Having worked for 20 years at PEMEX, Ulises Hernández

was the Managing Director of the Ministry

Romano is the only insider on this list. Born in 1970, he

of Finance in Mexico City. In the private

has held positions including Deputy Director of Portfolio

sector, he has worked as a consultant and

Management and Access to New Areas at PEP as well

financial adviser. He was an independent

as Associate Managing Director of Deposits Geology at

adviser focused on investment project

PEP. He holds a degree in engineering from UNAM and a

structuring, restructuring and debt

doctorate in geology from the University of Reading. As the

refinancing for Grupo Financiero Banorte.

leader of PEMEX’s international trading arm, he will play an

These themes have been marked as focal

important role in commercializing Mexican hydrocarbons

points in PEMEX’s Business Plan.

internationally.

| ANALYSIS

EXPLORATION AND PRODUCTION: RETURNING PEMEX TO SPLENDOR For PEP, a mountain of challenges lies straight ahead. After a period of a slump in exploration, development and production the NOC will have to make use of its resources both old and new in order to meet the president’s 2.6 MMb/d production goal achieved by addressing operational challenges such as time

production, the road to success will be led by the NOC's

reduction to reestablish electro-submersible centrifugal

exploration and production arm, PEP. To reach the production

pumping failures in the marine areas, as well as investing more

goal, the unit is prioritizing the development of over 20 new

resources in well maintenance, workover, stimulation, cleaning

fields. But the first small signs of a turnaround are already

and optimization.

on record. Alberto Velázquez, PEMEX’s Chief Financial Officer, says that after 14 years of decreasing production,

Velázquez points out that another relevant operational

PEMEX achieved not only production growth in 3Q19, when

achievement is the recovery in the crude oil processing levels

production rose 1.2 percent compared to the previous quarter,

in the National Refining System. PEMEX closed last year with

but also an increase in the processing level of its refineries,

a 492Mb/d processing level. “As a result of the maintenance

which in turn resulted in greater production of high-yield

actions and the repairs implemented this year, we ended this

refined products. The caveat: production and processing

quarter with an average 657Mb/d processing level. This is a

improvements followed historical lows in recent quarters.

very significant increase,” he says. Crude oil processing levels at refineries increased by 10 percent, as compared to the

To return to sustainable growth as outlined in the company’s

previous quarter. And during 3Q19, the crude oil processing

new business plan, PEMEX is increasing its maintenance budget

level was 62Mb/d higher than that in 2Q19 and 167Mb/d higher

and improving production at existing wells, while optimizing

compared with 4Q18.

the procurement of goods and services for production. “The strategy of the new business plan is yielding positive results

Despite PEMEX’s increase in hydrocarbon production costs,

and PEMEX is on the right path,” says Velázquez. According

which include operation and maintenance, the exploitation

to the 3Q19 results announced by PEMEX, its average crude

strategy that focuses on shallow waters has allowed the

oil production (excluding production with partners) reached

NOC to maintain competitive production costs compared to

1.694MMb/d during 3Q, a 1.2 percent increase compared to the

similar companies. It is important to highlight that a decrease

1.673MMb/d in the previous quarter. Although production in

in investment in exploration and production in recent years

September reached 1.713MMb/d, it dropped again in October.

has resulted in a prominent reduction in the number of wells

Acting General Director of PEP Francisco Flamenco highlights

drilled. For example, in 2012 close to 1,200 wells were drilled

the increase in liquid hydrocarbon production by 21Mb/d as

compared to a mere 55 in 2017 and 143 in 2018. In 2019, an

compared to the 2Q19, an increase of 1.2 percent, while the

upward trend began to emerge when 319 wells were drilled,

quarterly increase exceeding 1 percent had not been seen

according to PEMEX. To offset rising production costs, PEMEX

since the 3Q15. This gain in crude oil production was primarily

has achieved better contractual and fiscal conditions. This

0.2

2014

1.8

2013

0.3

2012

0.3

1.5

1.9

2011

0.3

2.4

2010

2.2

2.5

2009

2.3

2.5

0.4

2.5

0.4

2.6

2.8

2.5

2.6

0.4

3.5

3.1

0.4

PRODUCCIÓN DE LÍQUIDOS (MILES DE BARRILES POR DÍA) LIQUID HYDROCARBONS PRODUCTION (MMb/c)

3.3

As PEMEX roars ahead with plans to substantially boost

2017

2018

1 0.5 0

2006

Crude

2007

2008

Condensates and liquids

Condensados y líquidos del gas Crudo

2015

2016

Source: PEMEX

PRODUCCIÓN DE GAS (MILLONES DE PIES CÚBICOS DIARIOS)

NATURAL GAS PRODUCTION (Bcf/d) 7

5.7

5.8

2013

2014

5,504

5.7

2012

5.4

5.5

5.9

6.3

6.5

4.7

5 4.5

3.8

4.2

4 3.5 3

2006

2007

2008

2009

2010

2011

2015

2016

2017

2018

Source: PEMEX

Crudo has in part been accomplished by the migration of the Ek-

percent for deepwater, 10 percent was destined to the

Balam PEMEXassignment, the migration of Mision from a Contract of

exploitation of non-associated gas, while unconventionals

Public Financed Work (COPF), and the migration of Santuario-

represented 7 percent. Notably, investment in deepwater

El Golpe, Ebano and Miquetla from Integral Contracts for

only took place during President Enrique Peña Nieto’s

Exploration and Production (CIEP).

administration. In numbers, this translates to a total of MX$27 billion (US$1.42 billion) for deepwater, MX$2.47

In recent years, PEMEX established three associations through

trillion (US$130 billion) for shallow water, MX$932 billion

farmouts: the deepwater Trion block that is in the exploration

(US$45 billion) for onshore, MX$422 billion (US$22 bilion)

phase, as well as the Ogarrio and Cardenas-Mora onshore

for unassociated gas, MX$286 billion (US$15.1 billion) for

fields with an average crude oil production of 8.5Mb/d and

unconventionals and MX$100 billion (US$5.3 billion) for

25.8Mcf/d of gas in 2018. The company also participated in

pre-investment and support.

bidding rounds for both deep and shallow-water blocks and was awarded 14 contracts, which are expected to represent

The key to increasing oil and gas production is to accelerate

approximate prospective resources totaling 2.4 billion boe in

the development of 23 recently discovered fields. Of the

an area of close to 19,000km2. In August 2019, the Ministry

new fields PEMEX is seeking to develop, 18 are in shallow

of Energy awarded PEMEX 64 exploration and extraction

waters: Jaatsul, Suuk, Teekit, Koban, Hok, Mulach, Xikin,

allocations totaling 61,180km2.

Esah, Cheek, Cahua, Uchbal, Manik, Tlacame, Tetl, Pokche, Octli, Onel and Yaxche. Of the four onshore fields, Ixachi,

According to PEMEX’s latest business plan, the total

Chocol, Cibix and Valeriana, only Ixachi has an approved

amount of investment in production totaled MX$4.24

development plan. The recently discovered Quesqui field

trillion (US$220 billion) in the period between 2000-2019.

is the last of these 23 priority development areas. Quesqui,

Taking this entire time frame into account, the distribution

a flagship field discovered in May 2019, is expected to

of resources invested was approximately 58 percent for

contribute 69Mb/d crude oil production in 2020 and

shallow-water fields, 22 percent for onshore fields, 1

110Mb/d the following year.

INVERSIÓN EN EXPLORACIÓN POR TIPO DE billion CAMPO adjusted (MILES DE MILLONES DE PESOS CONSTANTES DE 2019) INVESTEMENT BY FIELD TYPE (MX$ for inflation)

*Forecast

45 38

44 41

43 37

31 25 21

Onshore Deepwater Shallow water Otros (Gas No Asociado, No Convencionales, Preinversión y soporte) Others Terrestres Aguas Profundas Agua Someras

*2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2007

2006

2005

2004

2003

2002

2001

2000

43 39

2008

Source: PEMEX

| ANALYSIS

FINANCIAL CHALLENGE Finances have become a complicated issue for PEMEX: lower oil prices, everincreasing debt and the current level of taxes proved to be challenging. By making it central to Mexico’s energy policy, President López Obrador is gifting PEMEX relief, which the NOC will need to use to overcome its challenges real burden is the NOC's taxation in the form of IAEEH

for the last 15 years, but the real shock only hit in the

and DEXTH. Since the introduction of these costs in 2015,

past half-decade as oil prices spiraled lower. The 2014

they have proven to be a financial burden.

plunge in prices helped expose the many long-standing issues at the NOC. In 2017, the Peña Nieto administration

PEMEX says it is now on track for a higher profits in 2019,

oversaw the lowest annual income at PEMEX in memory.

although in 3Q19 global issues still posed a threat. "This

Its fiscal situation improved in 2018, although it remains

quarter, the company faced one additional challenge: the drop

far removed from the company’s most successful years.

in international oil prices. The Mexican mix price was US$11.2

What is more, the cost to produce one barrel of oil

per barrel below the average price for the same period last

equivalent has only risen over the years. While operation

year,” says PEMEX CFO Alberto Velázquez, proving the need

and maintenance costs have increased somewhat, the

for the company to set its own affairs in order so that it can survive the international volatility that defines the oil and gas

INGRESOSREVENUES PRINCIPALES POR VENTASSALES INTERNAS PRINCIPAL FROM DOMESTIC AND Y EXPORTACIONES, (MILLONES DE PESOS) EXPORTS, 2018 (MX$2018 million)

500

totaling MX$511.32 billion (US$26.9 billion). Diesel follows in third place at MX$234.18 billion (US$12.3 billion). Considering sovereignty paramount, the government is

300

234,180

emphasizing that Mexican oil should stay in the country

200

until it is refined. The country should also reduce its

Turbosine

Natural gas

Diesel

Crude exports

Gas

62,355 56,794

53,704

Oil derivatives and petrochemical exports

100

PEMEX

EBITDA 6 (MILES DE MILLONES DE DÓLARES EBITDA 6 (MILES DE MILLONES DE DÓLARES EBITDA Y PESOS CORRIENTES) EBITDA MARGIN Y PESOS CORRIENTES) (%) 2018

600 600

296.5 14.4 296.5 14.4

200 200

461.7 23.3 461.7 23.3

500 500

551.6 28 551.6

32% 28% 33% 33% 32% 28% 33% 33%

300 300

Source: PEMEX

billion

taxes; this has often proven to be both a stable and effortless source of income. After all, Mexico’s physical location is favorable and exporting crude directly means there are no further alterations and no further effort necessary. In the struggle to better make use of refining capacity, López Obrador has mandated that crude oil exports be decreased by 129Mb/d. To profit

25 25

PEMEX

20 20

Eni

Chevron

Total

Exxon Mobil

Shell

Regarding the NOC’s earnings before interest, EBITDA,

Velazquez asserts the company is on an average level of

Repsol

US$

PEMEX’s income from exports translates directly into

Petrobas

billion

notion of sovereignty changes the status quo somewhat.

30 30

MX$

approach had seemed in previous years. This new

02015 2016 2017 2018 2015 2016 2017 2018

reliance on imports, no matter how opportune this

Statoil/ Equinor

100 100

PEMEX PEMEX

from, one variable stands out: higher production is crucial. of income in 2018, only narrowly beaten by gasoline sales

511,319 510,093

400

400 400

industry. Even without examining where PEMEX’s profit stems Exporting crude was, in fact, PEMEX’s second largest source

600

377.9 22 377.9 22

Dropping production numbers have plagued PEMEX

15 10 5 0

EBITDA margin

from exports once again, the president has argued for a further increase in production first. Velázquez expects that because this is being realized, exports should soon benefit as well. Furthermore, toward 2030, PEMEX is projecting a significant increase in production, especially after 2022 when its new fields are forecasted to start yielding their respective production peaks.

efficiency and profitability within the industry. Negative fiscal balances can mostly be blamed on the tax burden the company operates under. Although PEMEX has not recorded

COSTO DE PRODUCCIÓN DE HIDROCARBUROS (DÓLARES POR BPCE) HYDROCARBON PRODUCTION COST (US$/boe)

15 4.8

12 3.3

2.7

6 3 0

2006

2007

2008

2009

Operations and maintenance cost

IAEEH y DEXTH

2010

7.8

6.8 5.7

5.2

4.8

4.7

4.1

2.2

6.8

6.1

8.2

7.9

2011

2012

2013

2014

2015

2016

2017

2018 79

IAEEH (Hydrocarbon Exploration and Extraction Tax) DEXTH (Hydrocarbon Extraction Royalty)

Gastos de Operación y mantenimiento

positive balances for over a decade, the post-2014 situation

nonetheless important contribution will also come from the

had a particularly strong impact on PEMEX. Debt had already

private sector in the form of the CSIEE licensing contracts,

been problematic, but in recent years it has become a major

in which private companies participate but do so under the

restricting force.: As of 2019, PEMEX's debt stands at US$99.6

umbrella of PEMEX.

PEMEX

billion and makes the NOC the most indebted oil company in the world. Credit rating agencies such as the above

The NOC’s financial situation has been crippling its

mentioned Fitch, Moody's and S&P see this as a major issue.

forward momentum for years. Now, with a shift in vision

Debt payments, furthermore, have pretty much doubled when

and valuable crutches to lean on, PEMEX may have the

comparing 2019 to 2014. With new government support and

tools to stand up and deliver on its ambitious goals.

the promise to make PEMEX the backbone of the country’s

Although there is no not just one particular reason for

energy policy once again, its numbers have already started to

the struggles PEMEX experienced, the financial part did

slide toward the positive.

play a major role. 3P reserves kept decreasing due to a lack of available spending in exploration, while refineries

Renewed government support also will be essential for

were not equipped for the heavier crude that defined the

PEMEX’s fortunes in the coming years. The NOC’s Business

post-Cantarell production roster. Although there might

Plan states that it will need to increase CAPEX significantly

not be money available to counter this before, a shift in

to reap greater rewards. For 2020 and 2021, more than half

vision by the current López Obrador administration shows

of its CAPEX will be dependent on a reduction of the tax

new potential on the horizon which might give PEMEX

burden coming from the federal government. A smaller, but

the tools to stand up and deliver on its ambitious goals.

FINANCIAL BALANCE (MX$ billion adjusted for inflation)

BALANCES FINANCIEROS 2000-2018 (MILES DE MILLONES DE PESOS CONSTANTES DE 2019)

300

Vicente Fox

254.5

278.2

Felipe Calderón

Enrique Peña

200 100

63.7

88.3

87.5

52.3

7.7

-6.3 -54.2 -49.5 -45.4

-64.0 -117.9 -162.4

53.1

61.7

84.4

2016

42.8

2015

2.6

2014

2009

2.8

2013

2008

3.1

2012

2007

3.3

2011

2006

3.3

-176.1

2010

2005

2004

2003

2002

2001

2000

-200

-101.8

2.6

2.5

2.4

2.3

2.2

101.2

102

98.5

86.1

43.2

2018

-82.8

2017

-47.6

-100

1.9

1.8

Crude production (MMb/d) 3.0

3.1

3.2

3.4

Maya crude price (US$/b)

PEMEX

24.8

18.7

21.5

24.7

57.6 72.3

35.3 46.4

61.5

| ANALYSIS

REFINING: THE PLAN With a new focus on achieving energy sovereignty, PEMEX’s Industrial Transformation will need to step up and play a crucial role in the years to come, both updating the current national refining system and building the ambitious Dos Bocas project Mexico’s success in realizing its goal of energy

level. By comparison, PEMEX ended 3Q19 at a 657Mb/d

independence lies in the success of the National Refining

processing level.

Plan. Along with the rehabilitation of the country’s A variety of factors have contributed to the refining issue.

construction of the new Dos Bocas refinery. President

First, it has direct ties to production. Because production

López Obrador scuttled a number of private bids to

has been dropping for many years, there is less crude

build the new, massive Dos Bocas project, citing the

to process as a consequence. Also, a great source of

projected cost and longer-than-desired time frames,

PEMEX’s profit comes from exporting crude, not refined,

which stretched beyond the government’s 2022 deadline.

oil to the US. Another issue is the state of the existing

Instead, he handed it to PEMEX and the Ministry of Energy.

refineries, located in Cadereyta, Madero, Minatitlan, Salamanca, Salina Cruz and Tula. These refineries are

In taking this action, López Obrador discarded criticisms

quite old, some of them built many decades ago, and have

and suggested that the original budget and time frame

been neglected in terms of maintenance and upkeep.

were possible, adding that "we are not worried" about the associated challenges. The budget, in any case, is already

Concepción de la Garza, Director of Golfo Suplemento,

steep at US$8 billion. Regarding the time frame, Wood

which has provided maintenance for PEMEX refineries for

Mackenzie Manager Ixchel Castro warned that the refinery

almost two decades, calls the situation “complicated.”

should not be hurried along because it will be operated

“Working in the refineries has been complicated over the

for many decades to come. Rating agency Moody’s went

last two years. The five refineries we are working at are

one step further, arguing that the government’s decision

operating at an average of 30 percent capacity. There is

to build the refinery itself would be a costly one, citing

no activity at all in Madero nor Minatitlan. There is some

the lack of expertise in such projects.

activity in Salamanca but we are able to operate more effectively in Salina Cruz and Cadereyta," De la Garza

Furthermore, President López Obrador has mandated

says. A reason for having next to no output from the two

PEMEX to improve its usage of refining capacity. The

lowest performing refineries was explained as stemming

refining of crude has fallen far short of the National

from operational problems upon the conclusion of the

Refining System’s (SNR) capacity, running at only 40

general maintenance programs. Keeping the maintenance

percent in the latter half of 2019. Although this might

going and pulling Madero or Minatitlan out of their

seem low, it is a marked increase compared to 2018,

current state will cost significant amounts of money for

where PEMEX finished the year at a 505Mb/d processing

the López Obrador administration. But without enough

EL PROCESO DE CRUDO HA SIDO INFERIOR AL 40% EN LOS ÚLTIMOS TRIMESTRES (MILES DE BARRILES DIARIOS)

SNR CRUDE PROCESSING LEVELS (Mb/d) 47%

400

654

659

657

645

570

35% 35% 35% 572

601

39% 40% 40% 40%

570

492

31%

485

30% 31% 30%

507

37%

508

670

685

767 652

37% 604

500

33%

40% 39% 41%

544

600

36% 594

700

40%

646

800

50%

42%

662

900

45% 40% 35% 30% 25% 20%

300

15%

Source: PEMEX

Proceso de Crudo

Capacidad de destilación primaria

Sep-2019

Aug-2019

Jul-2019

Jun-2019

May-2019

Apr-2019

Mar-2019

Feb-2019

Jan-2019

Dec-2018

Nov-2018

Oct-2018

Sep-2018

Aug-2018

Jul-2018

Jun-2018

May-2018

Apr-2018

Mar-2018

10%

100

Feb-2018

200

Jan-2018

six refineries, a crucial element in the strategy is the

PROCESO DE CRUDO EN REFINERÍAS (MBD)

320

320 1,166

1,166

590

612

300

2026

2027

2028

2029

2030

788

600

1,150

1,021

900

1,137

Dos Bocas

320

refineries

1,200

320

Output from existing

1,500

320

SNR CURRENT AND FORECASTED CRUDE PROCESSING LEVELS (Mb/d)

2018

2019

2020

2021

2022

2023

2024

2025

Source: PEMEX

Dos Bocas

oil to keep the refineries occupied, disrepair will only SNR Actual grow more problematic.

The National Refining Plan includes the following steps: • Salamanca refinery will be adapted in two stages. Its chain of processes will receive maintenance so that at

In December 2018, Octavio Romero Oropeza addressed

the end of 2019 it is able to produce at 75 percent of its

the problems in The National Refining Plan, including the

capacity.

building and future operation of the Dos Bocas refinery,

• The renovated Minatitlan refinery requires a change of

which will be located in Paraiso, Tabasco. The main

its catalytic converter and will re-instate its Mine 1 plant

goal of the plan is to achieve energy independence in

to increase its capacity ,which will be finished in 2020.

Mexico, cutting out the reliance on the US for refining,

• Madero refinery has been marked as the most critical

among other dependencies. At the heart of the plan

plant. It has been out of operation for more than a

is increased fuel production, improvement of current

year; however, the start of a first stage of revisions was

refining processes and a renewal of the current refineries

completed in early 2019 and its refining train No. 2 was

and associated oil production facilities.

projected to be back in operation in early 2020. • Cadereyta Refinery received deep maintenance to its dynamic equipment and is to undergo further work to

With Dos Bocas joining the fold, the seven refineries

increase its refining capacity.

are predicted to process quite a bit more, according to the PEMEX Business Plan: 1.163MMb/d in 2022, when

• Salina Cruz Refinery faced a number of incidents;

Dos Bocas is expected to start restricted operations,

therefore, an intense program was designed to reconstruct the crude oil reception system as well as

up to around 1.470MMb/d in 2023 and onward, when all

primary plant distribution. Operations will be carried

refineries should be working at their optimal capacity

out gradually to achieve a production of up to 70 of its

and benefiting from the peak production in the NOC’s

capacity by December 2019.

newly developed fields. For 2023, the refining predictions

• As a part of the Tula refinery, the H-Oil plant is to be

translate into 596Mb/d in terms of gasoline, 402Mb/d of

improved. Its use, the government says, is especially

diesel, 239Mb/d of turbosine and 253Mb/d of other fuels.

crucial to increase the production of gasoline.

PRODUCCIÓN DE PETROLÍFEROS (MBD)

SNR CURRENT AND FORECASTED REFINED PRODUCTS (Mb/d)

Gasoline Source: PEMEX

Otros Diesel Turbosina Diésel Gasolina

169

272

1,497

438

272 169 438

272

272 438 169

445

169

239 253

1,497

618

2023

2024

2025

2026

2027

2028

2029

618

2021

618

291

232

1,497

444

251 382

197 316

2020

1,497

614

2019

1,497

596

2018

610

201 143 144 123

185 119

300

629

207 117

600

164 133

811

233

155

900

197

1,163 1,021

402

1,200

1,497

169

265

1,493 1,490

438

1,500

2022

Turbosine

Others

2030

CA-KU-A1 gas compression module installation

OPERATORS & CONSORTIA

Private operators scored successes in 2019 that underlined the potential of Mexico’s oil and gas industry. CNH ended 2018 with 113 companies participating in the licensing rounds and 111 blocks allocated and managed by 73 operators. Quite a few operators and consortia are already working on their exploration and development plans, with some fields entering production. Highlighting the possibilities that exist for operators, Italian giant Eni became the first private operator in Mexico to bring a new discovery into production. Other success stories include Fieldwood Energy, which boosted its reserves estimate in Block 4, and Murphy Oil’s discovery in Block 5. These achievements were part of a vital story that continues to develop, with a focus on varying stages of development.

This chapter follows Mexico’s operators as they move toward or launch into production in the country, committing for the long-term. It analyzes how institutions support their efforts and how the dynamics of the blocks have taken shape.

CHAPTER 4: OPERATORS & CONSORTIA 86

ANALYSIS: Mexico Operators Enter New Phase 85

INFOGRAPHIC: Private Investment Rises as Block Winners Begin to Produce

VIEW FROM THE TOP: Timothy Duncan, Talos Energy

PROJECT SPOTLIGHT: Rift Over Reserve Rights Causes Concern

MAP: Licensing Rounds, Farmouts and Migrations

INSIGHT: Ryo Manabe, INPEX Corp.

VIEW FROM THE TOP: Matt McCarroll, Fieldwood Energy

COMPANY SPOTLIGHT: Reserves Rise Off Tabasco Coast

100

PROJECT SPOTLIGHT: Shallow Water Production Blasts Off

102

VIEW FROM THE TOP: Gabriel Gómez, Murphy Oil Corporation

103

VIEW FROM THE TOP: Luis Ramírez, Cairn Energy

104

PROJECT SPOTLIGHT: Mixed Fortunes in the Offshore Environment

106

VIEW FROM THE TOP: Sergio Limardo, Repsol Exploración México

107

VIEW FROM THE TOP: Alberto Galvis, Citla Energy

109

VIEW FROM THE TOP: Alexandro Rovirosa, Roma Energy Holdings

110

INSIGHT: Yann Kirsch, Perseus Energy

111

VIEW FROM THE TOP: Warren Levy, Jaguar E&P

112

VIEW FROM THE TOP: Rogelio Montemayor, Strata BPS

113

VIEW FROM THE TOP: Craig Steinke, Renaissance Oil Corp.

| ANALYSIS

MEXICO OPERATORS ENTER NEW PHASE Companies participating in Mexico’s oil and gas industry continue to thrive by achieving their long-term goals. A variety of factors and institutions continue to support them in this pursuit of success. However, only a minority of fields and blocks have entered the production stage Private operators both national and foreign have become

which CNH estimates at 104Mb/d, should occur in 2026. At

an integral part of Mexico’s oil and gas industry. In total,

the same time, we expect gas production to hit 140MMcf/d.”

113 companies that include IOCs, NOCs, independents and Another outstanding success story is Talos, the Houston-

operators. Currently, only a minority of fields and blocks

based E&P operator whose 2017 discovery of the Zama

have entered the production stage, with the remaining

field ranked amongst the world’s largest discoveries of the

blocks moving toward that goal.

last 20 years. Timothy Duncan, the company’s CEO, details the company’s strategy as expressed by its 2019 drilling of

Average production from all contracted areas accounted

three appraisal wells in Zama: “We are attempting to open

for 80,981 b/d of 2019’s 1.668MMb/d production average.

up and develop an Upper Miocene play on Zama. This is

However, CNH’s forecast predicts that it is this source of

the same type of geology that is resonant in the US Gulf of

production that will grow the most until it turns into the

Mexico and offers superior rock properties on both sides of

country’s largest, averaging 866Mb/d of the predicted

the border. These prolific rock properties, combined with

2.733MMb/d production average for 2032. Although it

the water depth and well depth we have, will ensure the

could be said that the biggest step taken in this direction

smooth and more robust development and deliverability of

during 2019 was the one accomplished by Eni in July when

this asset as we are able to use fixed structures, dry trees

it became the first private operator in Mexico to bring a new

and a future platform rig.”

discovery into production. Amongst these 2019 success stories one can also find Additional reserves have been incorporated through the

the case of Murphy Oil’s discovery in Block 5 through

execution of workplans and exploratory drilling, some of

its Cholula-1 well. Gabriel Gómez, the company’s Mexico

which generated results that surpassed expectations. A

Country Manager, gets into the specifics of how this

great iteration of that was the way in which Fieldwood

affected their strategy: “The seismic data we acquired on

Energy’s estimate for reserves in Block 4 increased from

the block has allowed us to perform an overall assessment

68MMb to 455MMb. Matt McCarroll, CEO of the company,

of the area and we have identified significant potential

says this “is a result of drilling, completing and testing on

across multiple plays. We have identified upwards of

only two wells in Pokoch and Ichalkil; there will be more to

30 prospects and, with our Cholula-1 well proving the

come. We have both Jurassic and Cretaceous reservoirs and

existence of a working hydrocarbons system, we are

we think the field will be huge. The company is on schedule

positive about the area’s overall potential. The drilling

to hit first production in 2020 while maximum production,

of the block’s Miocene amplitude play has de-risked a

2018-2019 PRODUCTION FROM LICENSING ROUNDS CONTRACTS 94.56 92.75 94.45

100 85.22

80 61.41

54.13 53.06 51.44 51.00 43.47 43.29

153.6 141.0

147.0

142.1

68.52 66.10 66.80

51.22

169.0 154.2

151.3

70.15

71.19

73.46

76.22 76.18

175.4

175.6

175.2

203.4

236.0

240.3

72.05

Source: CNH

200

178.4 177.2

150

155.4

135.0

100

53.5

Oct-19

Sept-19

Aug-19

Jul-19

Jun-19

May-19

Apr-19

March-19

Feb-19

Jan-19

Dec-18

Nov-18

Oct-18

Sept-18

Aug-18

Jul-18

Jun-18

May-18

Apr-18

March-18

53.6

250

233.9

217.9

Crude oil production (b/d) Natural gas production (Mcf/d) Feb-18

73.68 191.6

Jan-18

juniors were awarded 111 blocks that are managed by 73

number of nearby prospects with similar characteristics. We

have one client, PEMEX, and they are roped in from the start.

will now calibrate our seismic data to further prove this play.”

You arrive at a field with between 20 to 40 producing wells and you simply build a maintenance and development plan

The federal government has been clear in stating that it

for these existing wells and for the future drilling of new ones.

will respect and defend the contracts and contractors’

With a small degree of investment and maintenance, 3Mb/d

rights. The uncertainty that prevailed in the market during

wells turned into 7Mb/d wells easily.”

the transitionary period has made it clear to operators that a pathway of communication between them and

This is also why this particular block and field became an

the government is extremely necessary. This is where the

example of how some bidding-round awardees made the

Mexican Association of Hydrocarbon Companies (AMEXHI)

choice to rearrange their stake or ownership of a block,

plays a significant role in advocating for operators.

or sold the entire deed altogether, which is exactly what

Talos is amongst those to have served on its board, and

happened to Constructora Hostotipaquillo’s participation in

Duncan points out the role it plays: “The post-election,

its Burgos basin project. “Six months was all the time that

pre-inauguration meeting we were able to have with the

passed from when we began work on a mature field in the

administration to talk about the private sector’s goals and

Burgos basin to when we completely sold our participation

the expectations of the incoming government illustrates

after accepting a lucrative offer from our partners,” Zepeda

AMEXHI’s indispensability and that it is now more important

says. “This was the result of a process that began when we

than ever.” AMEXHI believes in maintaining as essentially

started making offers to each other after everybody involved

and pronouncedly cooperative a relationship as possible

in the consortium realized that they each wanted total control

between the government and private operators. “The private

over the block.” This creates a fascinating new dynamic for

sector is more than an ally to the government for its new

operators and potential new investors: even if bidding rounds

production target,” says Merlin Cochran, Director General

are temporarily suspended right now, the bidding rounds that

at AMEXHI. “Private companies in Mexico are partners of

have taken place and their previously awarded blocks have

the government and this partnership is accompanied by a

already generated a marketplace of their own.

dual obligation to deliver production.” Throughout all of these processes, CNH has been a valuable Some of the awarded blocks were offered as legacy

asset by making its regulatory procedures agile and adaptable.

developed fields, with the infrastructure to prove it. This was

Consequently, in every bidding round, CNH’s response times

the case with the onshore blocks in the Burgos basin, which

have shortened and its activities have been self-sufficiently

became valuable as their short-term potential became evident

funded through its data licensing fees. “The payments that

to operators. Abraham Zepeda, Commercial Director of Grupo

came in through these information-leasing frameworks

Hosto, which participated in a consortium as Constructora

accumulated into a US$350 million fund that made us fully

Hostotipaquillo, an entity later awarded one of the contract

self-sufficient and independent from the national budget.

packages for the construction of the Dos Bocas refinery,

Taxpayers did not pay a single peso of our salaries, the cost

explains: “We benefited from unproblematic production and

of our operations or even our new building,” says Oscar

profit from day one. You do not have to worry about business

Roldan, former Director General of the CNH-affiliated National

development or commercial responsibilities because you only

Hydrocarbons Information Center (CNIH).

2019 PRODUCTION FROM LICENSING ROUNDS CONTRACTS BY OPERATOR 100

92.75

94.45

94.56

Aug

Sep

Oct

85.22

71.19

73.46

Jan

Feb

76.22

76.18

Mar

Apr

73.68

72.05

May

Jun

60 40 20 0

PEP PEP/Petrofac Eni

Deustche Erdoel México DS Servicios Petroleros Petrolera Cárdenas Mora

Jul

Others

Source: CNH

| INFOGRAPHIC

PRIVATE INVESTMENT RISES AS BLOCK WINNERS BEGIN TO PRODUCE of oil and 245.4Mmcf/d, with set to climb throughout the

the flow of investment that continues to pour into the

2020. The blocks of the nine completed bidding rounds have

country, approaching the US$2 billion mark, with private

been accompanied by more recent migrations as PEMEX has

parties advancing in their exploration activities and national

sought to deliver economic viability to some assets. If rounds

companies across the value chain being able to reestablish

are re-opened, these figures will only rise. The next year of

themselves. Production from privates has so far hit 94Mb/d

Mexicoâ&#x20AC;&#x2122;s oil and gas industry is certain to be full of action.

NUMBER OF BIDDER COMPANIES BY COUNTRY 1 Russia

1 Norway 1 Germany 1 Netherlands 1 France 2 Canada 5 U.K. 1 Japan

2 Spain

8 U.S.A.

1 Italy

2 China

3 Colombia

35 Mexico

1 Thailand

1 Quatar

2 Malaysia

1 Egypt

1 Australia

2 Argentina

CONTRACTS CONTRACTSBY BYOPERATOR COMPANY AND ORIGIN

PTTEP

NSE

Perseus

Lukoil

Newpek

Kerui

Lifting

Inpex

Diarqco

Ecopetrol

CMM

CNOOC

Carso

Chevron

Strata

Servicios PJP4

Ophir

Pan American

CEPSA

Iberoamericana

Capricorn

Diavaz

Citla

Renaissance

Qatar

DEA

Premier

Sierra

Sun God

Eni

Repsol

Total

Shell

Source: PEMEX

Petronas

Jaguar

0 PEMEX

Recent criticism of the Energy Reform has perhaps ignored

AWARDED CONTRACTS BY EXPLORATION AND CONTRACTS FOR EXPLORATION AND EXTRACTION CURRENT CONTRACTS EXPLORATION AND EXTRACTION ations EXTRACTION OF HYDROCARBONS Migr ı ı

111

107

current contracts

awarded contracts

nds Rou

38 Round 1 50 Round 2 38 Round 1 3 16 Round 3 Associations 50 Round 2

76 License 48 Offshore 31 Shared 76 License 31 Shallow production

103 Contractual areas 3 Associations 103 Contractual areas 1 Migration without

water

partner 31 Shared production 28 Deepwater 3 Associations

16 Round 3

48 Offshore

4 Migration with partner 1 Migration without partner

3 Associations

31 Shallow water

4 Migration with partner

US$3.27 28 Deepwater billion

76 License Shared production 76 35 License 51 Offshore 35 Shared production 32 Shallow water Deepwater 2851 Offshore

32 Shallow water

28 Deepwater 94Mb/d of oil

accumulated investment by October 2019

US$1.97 billion

235.4 MMcf/d

accumulated incomings by August 2019 in the country

of natural gas

Ronda 3 Licitación

Migration without partner Migration with partner

Round 1.4 Round 2.1

Associations Round 1.1

Round 2.2 Round 2.3

Round 1.2 Round 1.3

Round 2.4 Round 3.1

Ronda 2 Licitación

Ronda 2 Licitación Ronda 1 Licitación Ronda 1 Licitación

Tonalli

Tzaulan

Steel

Suministros MI

SIC

SM Burgos

Sapura

Petrofac

Perfolat

Petrobal

Nuvoil

Oleum

Marusa

Murphy

Marat

Industrial Consulting

Grupo R

Hostotipaquillo

Golfo SL

Fieldwood

Geoscience

E&P

ExxonMobil

DTSI

CSIG

Cheiron

Conequipos

Canamex

BHP

CAM

Arenas Sílicas

Verdad

American Oil

Talos

Tubular

Statoil

Sicoval

Roma Energy

Ronda 1 Licitación Ronda 1 Licitación Asociaciones

Migraciones con so

Migraciones sin soc

| VIEW FROM THE TOP

STEADY HANDS OPEN MEXICO’S NEW OFFSHORE FRONTIER TIMOTHY DUNCAN CEO of Talos Energy

Q: So far this year, Talos has drilled two of three appraisal

A: Talos partnered with our local service providers to make

wells on Zama. How are these wells faring?

sure our logistics operation ran smoothly and that productive

A: We are attempting to open up and develop an Upper

time was not wasted. But as this was only our second well,

Miocene play on Zama. This is the same type of geology

we set very conservative scheduling goals. Moving forward,

that is prevalent in the US Gulf of Mexico and offers superior

we expect to move more quickly and reduce our costs as

rock properties on both sides of the border. Murphy’s

we become more assured in our operations. Our drilling

announcement of its success in Block 5 also confirms

should quicken pace as our team becomes better acquainted

our geological findings. These prolific rock properties,

with the rock. This will result in reducing time and budget

combined with the water depth and well depth we have,

estimates to more realistic levels and they will become more

will ensure the smooth and more robust development

difficult to beat.

and deliverability of this asset as we are able to use fixed structures, dry trees and a future platform rig.

Q: Talos took 714ft of whole core with a recovery rate of 98 percent at Zama-2 ST1. What is the value of the

Our platform in Zama will be the deepest fixed platform

core analysis?

in Mexico’s history, even though it is located in a shallow

A: A company can never achieve better rock property

water area. We already operate three standalone facilities

measurements than with the rock in its hands. Wireline

in water depths over 300m in the US Gulf of Mexico; these

logs are helpful, but the rock itself is the best resource for

water depths are our specialty. Many of the technologies

understanding the properties, fluid content and behavior

used at these depths were developed in the US Gulf of

under different stresses and environments. With a core,

Mexico within the last 30 years and we have employed

tests can be conducted up and down the geological

the majority of them on our platforms.

section, offering far greater insight. The data we acquired will be shared with PEMEX and will ultimately be given to

When we performed the well test in the Zama-2ST well,

the government so that the knowledge of this basin can be

we perforated two intervals with a combined rate of over

advanced and shared. This is Talos’ responsibility and we

7.9 Mboe/d (90 percent oil) with a limited drawdown and

hope our data can help the entire country. We are intending

without any particular completion technique, just a natural

to repeat our core recovery success when we commit our

flow back. As we apply well-completion technologies,

third appraisal well.

we would expect that our estimate could rise. We are comfortable with the guidance on the peak rate, which

Q: What were the strategic reasons behind the cross-

should be between 150Mb/d and 175Mb/d of oil equivalent.

assignment of Talos’ participating interest (PI) in Block 2 and Hokchi’s PI in Block 31?

Talos is in talks with midstream companies regarding the

A: When Block 2 and Block 31 went through bidding, we saw

potential of installing new infrastructure around our asset.

interesting prospects on both. And due to the smaller size

Our discovery is large enough to attract the interest of

of these blocks the ideas that both Talos and Hokchi had for

midstream groups that takes risks on infrastructure. This is

development overlapped into each block acreage. The genesis

exactly what we had hoped for. Any new infrastructure is

for the cross assignment was to progress more quickly on

broadly helpful to the reforms and other operators that may

both blocks by aligning rig programs and timelines. This has

wish to access this infrastructure in the future.

been carried out with our first rig program; one rig will drill two wells on each block. As a result, we only needed to tender

Q: The Zama-2 appraisal well was finished 28 days ahead

once for all drilling rather than tendering multiple times. This

of schedule and 25 percent below budget. How was

saves time in exploration, appraisal and development, and

this achieved?

with success, production can come online sooner.

Q: What have been the ongoing advantages of the Talos-

This will give them comfort because all types of company

Stone Energy merger?

and all types of capital will be needed to achieve the goal

A: In our first full year in operation following the merger,

of supporting the economy and growing oil production.

our pro forma adjusted EBITDA was US$585 million and

Goal sharing is integral to this aim but the burden is on the

our capital program was US$465 million. This freed up cash

private sector to effectively explain the chain of events that

flow for the business and strengthened the balance sheet.

will lead us to first production. With open communication,

Talos became larger and more robust than it had been

we can ensure that the permitting process is more easily

alone. Despite being a larger company, Talos is still nimble

managed to save time for both parties. Talos has seen that

compared to the major public companies. We still move in

the new administration is willing to listen and it is now the

an aggressive, urgent manner, which can be seen in the way

oil companies’ responsibility to do what we have promised.

we use our appraisal program. The private sector as a whole must understand that Q: How has Talos’ involvement in AMEXHI been helpful to

governments move slowly. It is also unreasonable to expect

maintain open communication with the new administration?

any federal government to be outwardly commercial.

A: The post-election, pre-inauguration meeting we had with

Therefore, the responsibility falls to the private sector to

the administration to talk about the private sector’s goals

communicate properly in the hope that the government

and the expectations of the incoming government illustrates

responds. Talos has never been delayed on a permit because

AMEXHI’s indispensability and that it is now more important

we had reasonable expectations of the new government.

than ever. Talos is committed to its role in AMEXHI and was

Setting realistic expectations is important; national

honored to serve on the board. We have more full-time

governments naturally move slowly in comparison to small,

employees in the Mexico City office so the company can now

private organizations.

spend more time working with similar organizations to keep the industry moving forward. With so many companies now

Q: How has the suspension of bidding rounds and farmouts

drilling wells and trying to execute on their promises, both

impacted Talos’ long-term strategy in Mexico?

the private and public sectors have a shared goal of ensuring

A: The suspension of bidding rounds and farmouts has not

the Energy Reform adds value for the country.

changed Talos’ strategy; of course, we would be happy for the administration to reconsider its decision. The company

Q: How is Talos set to partake in the administration’s drive

is bullish on the overall potential in Mexico. That said, the

toward doubling oil production by 2024?

lack of bid rounds puts a ceiling on Talos’ investments but it

A: Talos hopes that the administration’s goal will be achieved

does not diminish the quality of the area we are working in

and we understand what the president is looking for from the

and we still want to be in Mexico.

private sector. President López Obrador’s statement that the private sector should spend money more quickly is entirely reasonable and Talos is following up on his request. We are

Talos Energy is a Houston-based exploration and production

dedicated to moving our operation along as fast as we can.

company focusing on deepwater activities in the US and Mexican

The administration can see that the private sector has both

Gulf of Mexico. The company’s 2017 Zama discovery ranked

larger NOC and IOCs, and a strong group of independents.

among the largest discoveries in the world in the last 20 years

| PROJECT SPOTLIGHT

ZAMA: DEBATE OVER RESERVE RIGHTS RAISES QUESTIONS Zama’s discovery was an incredible success story for the Energy Reform. But the reservoir, expected to yield up to 800MMboe and spanning both Talos Energy and PEMEX-operated blocks, has recently become the scene of a reported disagreement due to unclear exploitation rights the state. At 165m below the waves, the field is well within

FAST FACTS

Water depth (m)

165

Location

Sureste Basin

the company’s capabilities, already having operations in the deep (180m-915m) and ultradeep waters (over 915m) of the US Central Gulf of Mexico.

Area (km )

464.799

Expected reserves (MMboe)

400 - 800

Peak rate (MMbd)

150 - 175

Talos is the operator on Block 7, within which most of

Initial investment (US$)

325

the Zama field is located, and leads a consortium that

Wells drilled

originally consisted of the British company Premier Oil

In 2017, American oil company Talos Energy made one of the most important discoveries in Mexican oil history. The Zama oil field, located in the shallow waters of the Gulf

Block 7 Talos Area

of Mexico, quickly became a symbol of the success of the Energy Reform. Politicians and oil players alike lauded the size and accessibility of the field. Indeed, Talos Energy CEO Timothy Duncan stated in June 2019 that based on the preliminary results of the company’s appraisal program and comparisons of well data to Talos’ geophysical models, the team had settled on a 400-800MMboe guidance range of

Zama-2ST1 Zama-2

gross recoverable resources. Under the Production-Sharing contract Talos holds with the Mexican government, almost 70 percent of the profits made from Zama would return to

Undrilled Asab-1 Location

TIMELINE OF EVENTS July 2015 September 2015

Block 7 signing

December 2015

Presentation of exploration plan

June 2016

December 2016

February 2017

July 2017 2018

September 2019

Source: CNH

Block 7 bid

Approval of exploration plan

Zama-1

Zama Reservoir

Zama-3

Zama-1 well authorization request Authorization to drill Zama-1 Zama discovery Awarded "Discovery of the Year" Two-year exploration extension granted

PEMEX Area

Well name

Type

Year drilled

Total depth (ft)

Status

Zama-1

Strategraphic

2017

4110

Abandoned

Zama-2

Deliminator

2019

4517

Inactive

Zama-3

Deliminator

2019

3545

Abandoned

and Mexico’s Sierra Oil & Gas, which was later acquired by Deutsche Erdoel AG (DEA). Yet, the Zama field’s expansive size, which extends across the boundaries of the 465km 2 Block 7 and into the PEMEX-operated AE-0005-2M-Amoca-Yaxche-03 assignation, caused controversy. In September 2018, PEMEX and Talos signed a preliminary unification agreement between Block 7 and the AmocaYaxche-03 area, one of the 42 blocks that PEMEX will develop over the next several years. However, in October 2019, media reported that PEMEX was attempting to wrestle control of Zama from Talos, claiming drilling rights over the area. During the same period, President López Obrador restated his intention to review the 107 contracts signed since the Energy Reform, leading to further speculation. The decision by Talos to hand back 50 percent of Block 7 to focus its energies on a smaller area also added fuel to the fire. According to Reuters, if terms of the unification agreement cannot be agreed, the Ministry of Energy may choose to be the operator of the Zama field. This would be a serious blow to the progress made since the Energy Reform and would alarm the private sector, including major IOCs, who may question the sanctity of the contracts they hold. During an investors meeting, Duncan said that his company had taken on the entire financial risk of the Zama field thus far and he would continue working on the Block 7 Development Plan as operator. He added that he respected PEMEX’s right to drill exploration wells to identify reserves within its operated areas. PEMEX has had the Asab-1 EXP well, whose planned location is close to its border with Talos’ Block 7, authorized since February 2019. During the 71st Session of CNH, commissioners discussed the drilling of the well, remarking that drilling is unlikely to take place until February or May 2020. Commissioner Alma América Porres expressed frustration at the speed with which the drilling plans are moving and noted that the importance of the Asab-1 EXP well should make it a priority. The well will be part of PEMEX’s overarching push to revive the country’s falling oil reserves, a strategy that will require an investment that could reach US$2.5 billion by 2023.

LICENSING ROUNDS, FARMOUTS AND MIGRATIONS

1 1 3 2 2

4 94

8 3

4 5

9 11

4 19

10 15

14 17 18

5 5

2 24

17 26

34 35

28 4 5

BIDS R1.1

R2.1

R1.2

R2.2

R1.3

R2.3

R1.4 Salina

R2.4

R1.4 Perdido

R3.1

Migrations

Farmouts

Main cities

Main roads

11 10

Source : CNH

95 3 4 4

11 12

28 29

30 1

23 13

7 14

14 4 9

9 12

25 22

LICENSING ROUNDS, FARMOUTS AND MIGRATIONS

Round

Block

2.1

PEMEX and DEA Deutsche

2.1

PC Carigali and Ecopetrol

2.1

Eni México, Capricorn Energy and Citla Energy

2.1

PEME and Ecopetrol

2.1

Capricorn Energy and Citla Energy

Fieldwood Energy and PetroBAL

2.1

Eni México

Repsol Exploración and Sierra Perote

Round

Block

Winning bidder

1.1

Talos Energy, Sierra Oil and Gas and Premier Oil

1.1

Talos Energy, Sierra Oil and Gas and Premier Oil

1.2

Eni International

1.2

Pan American Energy and E&P Hidrocarburos

1.2

Winning bidder

1.3

Diavaz Offshore

2.1

Lukoil International

Sistemas Integrales de Compresión in consortium with Nuvoil and Constructora Marusa

2.1

1.3

2.1

Eni México and Citla Energy

1.3

Consorcio Manufacturero Mexicano

2.1

Total E&P and Shell

1.3

Grupo Diarqco

2.2

Iberoamericana de Hidrocarburos and PJP4

1.3

Strata Campos Maduros

2.2

Sun God and Jaguar E&P

1.3

Diavaz Offshore

2.2

Sun God and Jaguar E&P

Servicios de Extracción Petrolera Lifting de México

2.2

Sun God and Jaguar E&P

2.2

Sun God and Jaguar E&P

2.2

Sun God and Jaguar E&P

2.2

Sun God, Jaguar E&P

2.3

Iberoamericana de Hidrocarburos and PJP4

2.3

Newpek Exploración y Extracción and Verdad Exploration

2.3

Newpek Exploración y Extracción and Verdad Exploration

2.3

Iberoamericana de Hidrocarburos and PJP4

2.3

Jaguar E&P

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

2.3

Jaguar E&P

2.3

Jaguar E&P

2.3

Jaguar E&P

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

2.3

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

2.3

Carso Oil and Gas

2.3

Carso Oil and Gas

2.3

Jaguar E&P

2.4

Shell and PEMEX

2.4

Shell and Qatar Petroleum

2.4

Shell and Qatar Petroleum

2.4

PEMEX

2.4

Shell and Qatar Petroleum

2.4

Shell and Qatar Petroleum

2.4

Repsol, PC Carigali and Ophir

2.4

PC Carigali, Ophir and PTTEP

2.4

Repsol and PC Carigali

2.4

PEMEX

2.4

Shell

2.4

Shell

2.4

Chevron, PEMEX and INPEX

1.3 1.3

Construcciones y Servicios Industriales Globales

1.3

Compañía Petrolera Perseus

Ingeniería, Construcciones y Equipos Conequipos Ing in consortium with Industrial Consulting, Desarrolladora Oleum, Marat International and Constructora Tzaulan

1.3

Renaissance Oil

1.3

Consorcio Manufacturero Mexicano

1.3

Grupo Diarqco

1.3

Canamex Dutch in consortium with Perfolat de México and American Oil Tools

1.3

Renaissance Oil

Roma Energy Holdings in consortium with Tubular Technology and Gx Geoscience Corporation

1.3

Servicios de Extracción Petrolera Lifting de México

1.3

Strata BPS

1.3

Renaissance Oil

1.3

GS Oil & Gas

1.3

Strata Campos Maduros

1.3

Grupo R Exploración y Producción in consortium with Constructora y Arrendadora México

1.3

Compañía Petrolera Perseus

1.3

Tonalli Energía

1.3

Renaissance Oil

1.4

China Offshore Oil Corporation

1.4

Total and ExxonMobil

1.4

Chevron, PEMEX and INPEX

1.4

China Offshore Oil Corporation

1.4

Statoil, BP and Total

1.4

Statoil, BP and Total

1.4

PC Carigali and Sierra Oil and Gas

1.4

Murphy Oil, Ophir, PC Carigali and Sieera Oil and Gas

1.3

Round

Block

2.4

2.4 2.4

Winning bidder

Round

Block

Winning bidder

Shell

3.1

Pan American

Eni and Qatar Petroleum

3.1

Total and PEMEX

PC Carigali

3.1

Total and PEMEX

2.4

PC Carigali

3.1

Total, BP and Pan American

2.4

Shell

3.1

Shell and PEMEX

2.4

Repsol, PC Carigali, Sierra O&G and PTTEP

Farmouts

Winning bidder

1. Trion

BHP Billiton

2. Ogarrio

DEA Deutsche Erdoel AG

3. Cárdenas-Mora

Cheiron Holdings

Migrations

Winning bidder

3.1

Repsol Exploración

3.1

Premier Oil

3.1

Repsol Exploración

3.1

Premier Oil

3.1

Capricorn and Citla

1. Campo Balam

PEMEX E&P, Operadora de Campos DWF

3.1

PEMEX, DEA Deutsche and CEPSA

3.1

PEMEX, DEA Deutsche and CEPSA

2. Santuario-El Golpe

Servicios Multiples de Burgos, PEMEX E&P

3.1

PEMEX and CEPSA

3. Misión

PEMEX E&P, DS Servicios, D&S Petroleum

3.1

Eni and Lukoil

3.1

PEMEX

4. Ébano

PEMEX E&P, Operadora de Campos DWF

3.1

DEA Deutsche, Premier Oil and Sapura

5. Miquetla

Petrofac Mexico, PEMEX E&P

INSIGHT |

PARTNERING BRINGS BOTH GROWTH, OPPORTUNITY RYO MANABE General Manager of INPEX Corp.

Japanese IOC INPEX and its partners PEMEX and Chevron are

not stopped Mexico climbing the ladder within INPEX’s

making progress with the blocks the consortium won in the

global portfolio. “Mexico is one of our highest priority

recent bidding rounds, with plans on track to start drilling on

exploration areas in our global portfolio.” Manabe believes

Block 22, says Ryo Manabe, General Manager of INPEX Corp.,

that partnering is important in Mexico and he is aware of

after the group obtained approval for its exploration plans

the vast capital required to establish a foothold in Mexico’s

in May 2019. “Our seismic data allowed us to restructure our

highly competitive but still evolving market. “In Mexico,

original plan and make some very effective cost reductions,”

partnering is key to participation and this is what we will

Manabe says about Block 22, a 2,879km stretch of water in

continue to do in the midterm. For now, our business model

the Salina Basin. “We are in close communication and are

is structured to make joint bids” he says. “We have built

having extensive discussions with Chevon and PEMEX to

a great partnership among Chevron, PEMEX and INPEX

decide our next steps. We also have accelerated our program.

through the activities in blocks 3 and 22,” Manabe says. “We

It is a very exciting time.” Once all the data has been analyzed,

would like to maintain our relationship for these blocks and

we will drill an exploration well in late 2020 or early 2021,” he

future potential opportunities.”

says. Manabe adds that the consortium’s work in Block 3, a 1,687km2 area in the Perdido Basin, has also pushed ahead

Manabe offers praise for Chevron, which as the operator

with subsurface evaluation. “The processing and interpretation

in both blocks holds a 33.3 percent participating interest

of the collected seismic data is underway.”

in Block 3 and 37.5 percent of Block 22. “Chevron is exceptionally well-managed. We openly share information

The lengthy maturity process required in deepwater blocks

at the early stages of our processes and this allows us to

suggests production remains years away. But this fact has

move forward together.”

| VIEW FROM THE TOP

BLAZING A PRODUCTION TRAIL IN SHALLOW WATERS MATT McCARROLL CEO of Fieldwood Energy

Q: Fieldwood Energy has increased Block 4 estimated

We already have the capital in place to fund the entire

reserves from 68MMb to 455MMb. How was that achieved?

development.

A: Fieldwood Energy had no involvement in the original estimates but, from the beginning, we believed the figures

Q: How will Fieldwood get to first production in Pokoch

to be low. The revised 455MMb estimate includes only oil,

and Ichalkil?

not gas, and we believe the recoverable reserves to be much

A: Phase 1 of our development plan includes installing

higher, around 650MMb. The estimate is a result of drilling,

platforms: one at Pokoch and the other at Ichalkil. The

completing and testing on only two wells in Pokoch and

jacket will be set before other wells are drilled. Three or four

Ichalkil; there will be more to come. We have both Jurassic

additional wells are likely in Ichalkil and one or two in Pokoch

and Cretaceous reservoirs and we think the field will be

during the first Phase.

huge. The company is on schedule to hit first production in 2020 while maximum production, which CNH estimates at

The company’s plan also involves laying pipeline from our

104Mb/d, should occur in 2026. At the same time, we expect

block to an unused PEMEX platform where we will transfer

gas production to hit 140MMcf/d.

custody of the oil and gas from Fieldwood to PEMEX. The agreement for this transfer of custody point is being finalized

Fieldwood was able to increase the reserve estimates

and is the most efficient way to begin production quickly.

almost sevenfold because the rock properties and reservoir

We are three to four months behind on this pipeline project

characteristics were better quality in the wells we drilled

because the approval of the development plan was delayed.

than those found in the initial PEMEX wells. We moved away

Our major contracts have been tentatively awarded for the

between 4,000ft and 5000ft from PEMEX’s wells and found

first phase but the names of these companies will not be

a thicker reservoir. Second, we did not find a water level

released until the project is finalized.

in the Jurassic or Cretaceous reservoirs, so the extent of the area is larger than first thought. Third, on the Ichalkil

Q: How will Fieldwood guarantee the correct measurement

field, the company found that the Jurassic reservoir extends

of well production?

further east than PEMEX had realized. Fourth, because we

A: Fieldwood will install meters for the measurement at the

were able to conduct extensive production tests for weeks at

transfer of custody point. Metering is a big issue in Mexico

a time, we have determined the most efficient flow rate for

because it was not a common practice before; until recently

these wells. We now know the real deliverability in terms of

there was only one operator. But our company possesses the

production volumes. PEMEX’s drill tests had been only hours

technology to carry out metering simply and with accuracy;

and they did not use an ESP (Electro-Submersible Pump).

it is part of our everyday practice in the US.

While overall reserve size and recoverability is important, the way those reserves are developed is the key. It is the

We will have to agree with PEMEX on the meter readings

recovery amount per well where Fieldwood and the Mexican

at the custody transfer point and PEMEX will then have the

government will profit.

option to transfer or buy the production. We have discussed entering into a contract with Trafigura, which is responsible

Platforms on this site are due this summer and the drilling

for marketing the government’s production.

rigs are scheduled to begin drilling later this year. The large size of these fields means there will be surprises and

Q: From where will Fieldwood control operations on Block 4?

changes, both positive and negative, as they are developed.

A: We have a shore facility in Ciudad del Carmen that we

Despite this, Fieldwood Energy is confident that the US$500

have leased on a long-term basis. Most of the technical

million investment to hit first production and the speed with

work is being done in Houston. We also work closely

which we are progressing makes this field very attractive.

with our partner, PetroBal, and its technical team in

Mexico City, where we also have an office for financial

expect to be kept busy for the next few years. Fieldwood

and government relations activities.

has now had a footprint in Mexico for three and a half years and we have built a strong relationship with PetroBal. The

In Ciudad del Carmen, 25 personnel, including drilling

company has established itself as a quality operator and

engineers, logistics directors and safety managers, will be

would consider any production-sharing contract. If or when

on site during the drilling stage.

the bid rounds start again, we will certainly be involved.

Q: What are the next steps for Fieldwood Energy in Mexico? A: Our Phase 2 plan is to control our volume in Ichalkil and

Fieldwood Energy is an E&P company that focuses on

Pokoch by building a pipeline to the Dos Bocas terminal

offshore. Based in Houston, Texas, it is present in both the US

between 2021 and 2023. But our current Mexican project

and Mexico. In 2017, Fieldwood became the first US company in

is large and should rival the size of our US projects so we

75 years to drill an offshore well in Mexican territory 99

PROJECT SPOTLIGHT |

BLOCK 4: RESERVES RISE The enhanced technologies and experiences that the Energy Reform has delivered were well illustrated in Block 4. Fieldwood Energy as operator, together with PetroBal, was able to dramatically increase its reserves from original estimates to deliver more good news to the industry When the 57.966km2 block was bid, initial PEMEX estimates

FAST FACTS Fields

Pokoch and Ichalkil

put reserves at 68MMb. However, since exploring the block,

Resevoir rock type

Jurassic and Cretaceous

Fieldwood has been able to predict a dramatic increase

Area size (km2)

57,966

from just two wells drilled: Pokoch-1DEL Ichalki-2DEL. With

Location

50km north of TabascoCampeche state border

six more wells potentially to be drilled across the two sites,

Investment in US$ millions (over 2018 and 2019)

449.32

Expected oil reserves (MMb)

455

overall reserves could hit the 650MMb mark. “The revised 455MMb estimate includes only oil, not gas, and we believe the recoverable reserves to be much higher, around 650MMb,” explains Fieldwood Energy's CEO.

Fieldwood Energy and PetroBal together won the Block 4 CNH-R01-L02-A4/2015 contract in the shallow water

The operator’s extraction plan, which was approved in January

Round 1.2. The company signed for Block 4, which is split

2019, foresees investment of US$7.582 billion across the

between two fields, Pokoch and Ichalkil, on Jan. 1 2016. The

contract of the block to 2041. This would deliver some US$1.8

partnership splits the block 50-50 with Fieldwood Energy

billion to the Mexican government within the same timeframe.

acting as operator. In 2017, Fieldwood and Block 4 were

According to Carlos Morales Gil, PetroBal CEO, Ichalkil will

at the center of a historic moment as Fieldwood became

begin producing in 2020 with an initial production of 20Mb/d.

the first American company to drill in offshore Mexican

Peak production will see Ichalkil produce 100Mb/d of crude

territory in 75 years.

and 120MMcf/d of gas.

300 250

253.61

INVESTMENT FOR FIRST PHASE (US$ million)

2018

2019

— Total

111.42

200

Installation of constructions

General

Geophysics

Geology

Reserve engineering

Other engineering

4.99

0.85

1.43

4.93

40.15

100

31.94

150

Well drilling

HSE Source: Fieldwood

| PROJECT SPOTLIGHT

AMT: SHALLOW WATER PRODUCTION BLASTS OFF The first private offshore production since the Energy Reform came in 2019, from Italian IOC Eni on Area 1. Eni’s accomplishment, acknowledged by President López Obrador, was a symbolically important step in the progress of the liberalized market

100

Eni signed the CNH-R01-L02-A1/2015 Production Sharing

offshore production in Mexico when it successfully began

contract for Area 1 on Nov. 30, 2015, having bid for the

production on the Mitzon field, located at a water depth

shallow water unit in Round 1.2 on October 2015. Area 1, a

of 34m. The Mizton 2 well offered an early production of

67.2km2 unit located in the Cuencas del Sureste Basin off

5,415b/d in July, which increased to 10,016b/d in October

the coast of Tabasco, holds three fields: Amoca, Mizton,

2019. The oil is being evacuated through Eni’s Onshore

and Tecoalli (AMT). Amoca is located in Lower-Middle

Receiving Facility located in Sanchez Magallanes, State of

Pliocene formations, while Mitzon is a Middle Pliocene

Tabasco. This landmark moment was achieved less than

formation and Tecoalli is found in the Lower Pliocene.

a year after Eni received approval for its development plan and resulted in a meeting between Eni CEO Claudio

One well had previously been drilled in each field by PEMEX

Descalzi and President López Obrador. Production across

– Amoca-1 in 2002, Mitzon-1 in 2008 and Tecoalli-1 in 2012 –

the Mizton and Amoca fields is to begin in 2021, supported

prior to Eni’s involvement. In 2005, CNH estimated that the

by an FPSO, which will process wet gas produced in AMT,

area held 3P reserves of 788.1MMboe. Following the drilling

to be stationed in Mizton. Production should hit a plateau

of the Amoca-2, Amoca-3DEL, Mitzon-2DEL, Tecoalli-

of 100Mboe/d, while initial production on Tecoalli is set

2DEL and Amoca-4DEL wells by Eni between January and

to begin in 2024.

December 2017, Eni increased that estimate to 2,100MMboe, of which 90 percent is 28 API crude.

Altogether, 32 wells will be drilled across Area 1 while four platforms and an FPSO will also be utilized during

On July 2, 2019, Eni became the first international

the early years of production. A 20km gas pipeline also

company since the liberalization of the market to start

will be required.

FAST FACTS Field

Year of discovery

Size (km2)

Formations or deposits

Average depth (mbsl)

Original estimated volume (MMbc)

AMOCA

2003

19.4

Orca, Orca Pesado, Orca Ligero, Orca-2, Cinco Presidentes

1060 - 3660

913.3

TECOALLI

2009

33.2

Orca 2

3350

MITZON

2013

14.6

Orca 2

2950

500

AREA 1 DAILY OIL AND GAS PRODUCTION

EXPECTED DAILY OIL AND GAS PRODUCTION 100

89.9

89.1

80 69.9

67.9

62 54.6

52.5

53.3

50.2

55.5 45.9

43.3

34.8

39.7 30

20.5 18.4

20 0

47.4 38.5

6.7 5.3

2019

2020

Source: Eni Development Plan

Oil (Mb/d) Gas (MMcf/d)

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

GENERAL INFORMATION Basin

Area

Depth

Fields

Cuencas del Sureste

Tabasco Coast

Shallow Waters

Mizton, Amoca, Tecoalli

STATISTICS Wells

Platforms

FPSO

Pipelines

1 (20km)

TECOALLI

101

AMOCA MITZON

67.2 km2 Area Size

AREA 1 INVESTMENT AND EXPENSES ($US MILLIONS)

25.1

2031

29.8

21.7

2032

26.6

18.7

2033

22.5

14.4

2034

19.8

2035

8.3

7.1

6.4

2036

2037

2038

10.7

10.2

3.9

3.6

2039

2040

2039

2038

2037

Expenses

— Oil (Mb/d) — Gas ((MMcf/d)

33.6

168

143

115

144

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2019

2018

Investment

2020

2017

168

191

339

316

286

340

317

288

344

318

333 118

289

290

124

160

Investment Expenses

169

170

240

269 307

235

277

320

308

343

400

EXPECTED INVESTMENT AND EXPENSES (US$ million)

| VIEW FROM THE TOP

DISCOVERY SETS STAGE FOR FURTHER PROJECT ADVANCES GABRIEL GÓMEZ Country Manager Mexico of Murphy Oil Corporation

102

Q: How have the consortium’s activities on Block 5

announced by the new administration. Despite having four

developed, following its oil and gas discovery in the

years from the approval of our Exploration Plan in May 2018

Cholula-1 well?

to drill our commitment well, Murphy drilled the Cholula

A: Murphy is very excited about our discovery. Not only is

well within the first two years of signing the contract. We

this the company’s first exploration well in Mexico but it is

have put a great amount of effort into our Mexican block.

also one of the first deepwater wells to be drilled by IOCs

At Murphy, we are very proud of our execution capabilities

following the Energy Reform. While we are still evaluating

and have the track record to prove it. Therefore, we hope

the results, this discovery has de-risked the block and will

to reach production as quickly as possible.

lay the foundations for our future plans there. The seismic data we acquired has allowed us to perform an overall

Q: What challenges does Mexican infrastructure face

assessment of the block. We have identified upwards of 30

ahead of production in the Gulf of Mexico?

prospects and, with our Cholula-1 well proving the existence

A: There is a considerable infrastructure gap between the

of a working hydrocarbons system, we are positive about

Mexican and US sections of the Gulf of Mexico. While a

the area’s overall potential. The drilling of the block’s

discovery like Cholula would be very easily put on-stream

Miocene amplitude play has de-risked a number of nearby

in the US Gulf through a tie-back, this is not possible on

prospects with similar characteristics.

the Mexican side. Murphy will be evaluating infrastructure around its block and will consider developing a greenfield

Q: How has the relationship between the consortium

facility by itself. If we have significant reserves and

partners evolved as developments on Block 5 have

production to transport, an ideal scenario would be

progressed?

to bring in an FPSO to deliver the product directly to

A: We have had a good relationship with our partners. This

the market.

means the consortium has a collective view on how we pursue opportunities. We are delighted that our partners

Q: How has the arrival of the AMLO administration

are also pleased with our work and we are all happy to

impacted Murphy’s activities in Mexico?

see that our drilling has gone smoothly, efficiently and,

A: President López Obrador has stated clearly that he

most importantly, safely. Toward the end of 2018, our

intends to respect contracts that have already been

partner Ophir announced its intent to exit Mexico as part

signed. Additionally, the president’s push for increased

of a strategic shift and this included selling its interest in

production has been positive for private players because

Block 5. In May 2019, we entered an agreement whereby

it has put a focus on shortening approval periods and

the remaining partners will acquire Ophir’s interest. This is

reducing the regulatory burden. This benefited Murphy

evidence of our commitment to the country.

during its preparation for the Cholula prospect as the regulatory bodies made an effort to ensure permits and

Q: How will Murphy participate in the federal

approvals arrived on time. This change has also reflected

administration’s production target of 2.6MMb/d by 2024?

in the updated exploration and development plan

A: Murphy intends to pursue its project in Mexico. Our

guidelines issued by CNH in April 2019, adding flexibility

own targets are in line with the increased production push

and shortening approval times for plans.

Murphy Oil Corporation is an oil and natural gas exploration

is unfortunate and we believe that clarity on future

and

includes

opportunities would be beneficial for the industry. It

production from the US Gulf of Mexico, Canada and

takes significant time and technical work to prepare for

Southeast Asia

the bidding rounds so the government must consider this.

The suspension of bidding rounds and PEMEX's farmouts

production

company.

Its

resource

base

VIEW FROM THE TOP |

PROSPECTS MATURING IN WORLD-CLASS BLOCKS LUIS RAMÍREZ General Manager of Cairn Energy

Q: Cairn works on Blocks 7 and 15 as an operator and on

has worked together have generated value for us all. This has

Block 9 as a partner. How are these blocks developing?

been a great partnership that has proven useful in maturing

A: The last year has been eventful for Cairn Energy. A year

Cairn Energy’s presence in country.

ago, we had just been awarded Block 15 and were waiting to sign the contract while putting together the exploration plan;

Q: Why did Cairn Energy choose to contract the

it was early in the process. A year on, we have an approved

Maersk Developer rig and what does this offer to your

plan and maturing prospects on the block.

operations? A: We have worked with Maersk before and know the

On Blocks 7 and 9, we are further ahead. Our plans were

quality the company delivers, but the main reason was

approved in 2018 and had already put together the strategy

the alignment of both our interests. Maersk offered us

we will follow for well and prospect development. We

the Developer, one of their newest and most modern

contracted the Maersk Developer rig on Block 9 and became

rigs, which won Shell’s Rig of the Year title in 2018.

deeply embedded in the minute logistics of drilling our well.

The Developer has been working in-region, so it comes

In both 7 and 9, we have matured our prospects and recently

prepared to drill in Mexico, with the correct kit already

obtained more information through site surveys that have

aboard. It is a robust, latest-generation rig that is ideal

improved our understanding of the prospects ahead of

for our environment. Maersk was also a willing partner,

drilling activities. Together with our partners, we expect to

helping us put together a program that worked for us. The

drill three exploration wells this year.

company is eager to break into Mexico and, through our partnership, we are creating value for both companies.

Q: What are the differences and similarities between the two basins in which Cairn Energy works, the Sureste and

Q: How will Cairn address the shortage of offshore

Tampico-Misantla basins?

transport in Mexico once production on its blocks begins?

A: The similarities between Sureste and Tampico-Misantla are

A: We are keeping an eye on discussions taking place

greater than their differences. They are proven, prospective

between midstream companies and other offshore

basins, neither of which have been exhaustively explored.

operators who are further along their developments.

Historically, Tampico-Misantla has been the more active area

The fact that we entered Mexico on the second wave of

of production but since the Energy Reform, more significant

early arrivals gives us the space to survey the situation

discoveries have taken place in Sureste. There are similar

regarding infrastructure and pipelines. While we are

challenges in both basins, including limited infrastructure.

confident that the technical work we have undertaken to

This means we will operate as if they are emerging basins,

develop our prospects will deliver superb results, we have

even though we know the resources are there. These blocks

yet to make discoveries. Therefore, we have time and there

should certainly be considered world-class.

is no rush. We are engaged and we are carrying out our due diligence but we will not jump into a decision yet. The

Q: Cairn Energy is partnered with Eni and Citla on all of its

lack of infrastructure on Mexico’s side of the Gulf of Mexico

blocks. Why did Cairn Energy decide to work with these

does not faze us. Cairn Energy has the appetite and ability

different companies?

to develop infrastructure when it is not available.

A: Both our partners are very different and bring unique skills to the table. Eni is a huge, well-established company, whereas Citla is a new Mexico-based venture. Our relationship is

Cairn Energy is a British exploration and production company

productive and complimentary because it generates creative

that operates exploration acreage in many of the world’s major

ideas and robust discussion on how to move forward. This

gas fields. The company is the part of the consortium that

interaction and the way our diverse consortium membership

operates the shallow water Blocks 7, 9 and 15

103

| PROJECT SPOTLIGHT

HOKCHI: MIXED FORTUNES IN THE OFFSHORE ENVIRONMENT Hokchi’s mixed success in Mexico demonstrated both the possibilities and risks associated with offshore oil and gas development. While work on the Hokchi field is powering ahead, the Area 2: A2 development has been a disappointment

104

Hokchi Energy, a subsidiary of Argentinian company Pan

ahead of schedule. During this time, the company drilled five

American Energy, won the 39.6km2 shallow water Area 2

wells to depths of between 2,700m and 3,350m. In total, some

contract in Round 1.2. The area was officially handed over

550,000 working hours were completed across the campaign.

to the company on Jan. 7, 2016 under a 25-year production sharing contract. Area 2 is made up of two fields – Hockhi

RESERVOIRS

Polygon A and Hockhi Polygon B — located some 27km

The Hokchi field was found to hold three identified reservoirs:

northwest from the Port of Dos Bocas. It was discovered in

R1, R2 and R3. Resevoirs R2 and R3 were ruled out of for

2009 and is reported to hold 178.1MMb crude of 3P reserves.

development because of lowly petrophysical characteristics

Prior to the Energy Reform, PEMEX had drilled the Hokchi-1

and water invasion, respectively.

and Hockhi-101 wells in 2009 and 2011, respectively. In April 2018, the company’s Exploration and Extraction Hokchi began its drilling campaign on Oct. 20, 2016. The

Plan was approved by CNH with an initial investment of

campaign took just 343 days, and was finished three months

US$2.5 billion.

HOKCHI WELLS Well

Status

Abandonment date

Operator

Hokchi-1

Abandoned indefinitely

2009

PEMEX

Hockhi-101

Abandoned indefinitely

2011

PEMEX

Hockhi-2DEL

Abandoned temporarily

1/3/17

Hokchi Energy

Hockhi-3DEL

Abandoned temporarily

2/25/17

Hokchi Energy

Hockhi-4DEL

Abandoned temporarily

5/4/17

Hokchi Energy

Hockhi-5DEL

Abandoned temporarily

7/13/19

Hokchi Energy

Hockhi-6DEL

Abandoned temporarily

10/7/19

Hokchi Energy

Hokchi-3DEL

Hokchi-101

Hokchi-4DEL Hokchi-5DEL Hokchi-2DEL Hokchi-6DEL Hokchi-1

DISTRIBUTION OF DEVELOPMENT BUDGET

46% Construction of field

installations

41% Well drilling 8% General 3% Other engineering works

2% HSE

.20% Geology works .20% Resevoir engineering .01% Production testing .004 Geophysical works

OVERALL DEVELOPMENT PLAN BUDGET (US$2.552 billion)

DISTRIBUTION OF PRODUCTION BUDGET

35% Operation of installations

32% General 29% Well intervention 1% Other engineering .40% Resevoir engineering .40% Geology works .10% Production testing .01% Pipelines

54% Developments 42% Production 4% Abandonment works

Developments Production

CONTRACTUAL AREA 2: A2

Area 2, into which Hokchi invested US$52.3 million for

Hokchi won the 194.5km Contractual Area 2, CNH-R01-

exploration between December 2015 and August 2019,

L01-A2/2015, as part of a consortium including Talos Energy

demonstrates the ambiguous nature of oil and gas exploration.

and Premier Oil, one of the 14 licenses that were signed in

Sergio Pimentel Vargas, CNH Commissioner, said: “That is

Round 1.1. The consortium officially took control of the shallow

exploration. In Area 7, one of the other contracts, the Zama

water area, located in the Cuencas del Sureste area and 15km

discovery took place.” From December 2015 to August 2019,

from the Port of Coatzacoalcos on Sept. 4, 2015. Following a

Hokchi invested US$52.3 million into exploration of Area 2.

rearrangement of the consortium, Premier Oil left the group while Wintershall DEA entered. Hokchi continued as operator

RETURN TO THE STATE

with a 47.5 percent controlling stake while Wintershell DEA

On Oct. 2, 2019, CNH announced that due to the unsuccessful

took 27.5 percent and Talos Energy kept 25 percent.While

wells, Hockhi had decided not to continue its work on Area

the original estimated reserves were placed at 142MMboe,

2. The entire contractual area would be returned to the state

accessing and producing that potential was far harder than

according to Clause 7.1 of the contract. However, in accordance

expected.

with Clause 7.2, Hokchi would have to fulfil obligations including its minimum work program and field abandonment

WELL DISAPPOINTMENTS

procedures.

The consortium drilled two wells. First, the Acan-1 EXP was drilled on Feb. 25, 2019 in 35m of water. The well was drilled

Authorities including SAT and ASEA, as well as the Technical

to 885m and gas was found. The well was declared to be

Administrative Unit of Assignments and Contracts of CNH,

commercially unviable. The second well, Yaluk-1 EXP, was

will review Hokchi’s abandonment procedures to ensure

begun on April 20, 2019, and terminated on June 18, 2020. It

that well plugging and field protection have been properly

was invaded by water and therefore declared unsuccessful.

carried out.

US$52.3 million

Hokchi's investment into exploration of Area 2:A2

550,000 working hours during the drilling campaign

105

| VIEW FROM THE TOP

IN SEARCH OF THE OIL GRAIL SERGIO LIMARDO Director General of Repsol Exploración México

106

Q: When is Repsol expected to start exploratory drilling

as logistics, which complicate the project's development.

at its awarded blocks?

According to our own experience, it takes between seven

A: We submitted 11 proposals in Rounds 2.1, 2.4 and 3.1,

and eight years for a discovery in deepwaters to become

of which six were winners. The six blocks that we operate

operational. We are already working at our Mexican and

are a great commitment which includes two exploratory

international offices around the world to start drilling

wells each in Block 10, located in Cordilleras Mexicanas,

operations in March 2020. We are waiting for CNH’s

between Tampico and Veracruz, and Block 29, located

approval of the deepwater blocks and are preparing all

in the Salina Basin, between Veracruz and Tabasco. In

the services required by this activity, such as logistics,

the other four blocks, we will continue evaluating the

purchase of supplies and infrastructure construction. In

geological and geophysical information, which allows

addition, we are conducting geoscience work in the rest

us to mature the prospects that may exist in the blocks

of the blocks.

and thus make the decision of where and when to drill exploratory wells. Our forecast is to start drilling two

Q: How have shallow-water activities advanced?

wells in 2Q20.

A: Block 11 in shallow waters of Round 2.1 was the first contract we won. CNH approved our exploration plan

We are in the exploration process, which makes it difficult to

in September 2018 and we have been working on the

predict what will happen. If our projections are met, Mexico

reprocessing of seismic. The situation of Blocks 5 and 12

could become a significant subsidiary within Repsol’s global

from Round 3.1 is similar to those we obtained in Round 2.4.

portfolio. We are in Mexico because it has an important

Exploration plans are in the hands of CNH and are within

oil tradition and proven reserves. We believe Mexico will

the guidelines, so we think they should be approved in July

provide Repsol with significant results.

2019. These blocks have no obligation to drill, although we are conducting geoscience studies to evaluate them and

Q: What is Repsol’s role in Mexico’s deepwaters and what

try to establish our plans for the future.

are its expectations regarding the government’s deepwater production goal?

Q: What are Repsol’s plans to attract, retain and train its

A: Deepwater blocks were awarded in Rounds 1.4 and 2.4.

workforce in Mexico?

Of all the wells, we estimate 30 percent will be successful.

A: Mexico has an important oil tradition, with the nuance

Of that 30 percent only a few will reach production. We

that it has only had one operator until a few years ago.

believe that the rounds are necessary to achieve the

However, right now we are in the middle of exploration,

production projected by the government, since the chances

which we carry out with our own people who come from

of success in deepwater are limited.

different subsidiaries of the company throughout the world. This is the initial team, but Repsol’s desire is to

The blocks in which we are working are between 450m

attract local talent that adapts to Repsol’s way of working.

and 1,200m deep. They are located about 80km off the coast. Drilling a well in these conditions takes a lot of time,

Our commitment is to bet on technology transfer through

since it is necessary to take into account basic issues such

knowledge. We believe that one of the best ways to achieve this is through educational institutions that allow us to collaborate with the training of national human

Repsol is an energy company based in Madrid, Spain. It

resources. It is vital that there are engineers who can

focuses on upstream and downstream activities throughout

respond to the industry’s demand for talent in the coming

the world. It is vertically integrated and operates in all areas

years. For this reason, Repsol signed a collaboration

of the oil and gas industry

agreement with UNAM.

VIEW FROM THE TOP |

OPTIMISM, OPPORTUNITY FOR MEXICAN E&PS ALBERTO GALVIS CEO of Citla Energy

Q: How is Citla Energy developing its shallow-water blocks –

area, which represents almost 49 percent of its total size.

7, 9 and 14 – won in Round 2.1 and Block 15 won in Round 3.1?

We believe our decision was sound and in line with the

A: We have made significant progress in maturing

commitment to the environment that Citla and our partners

opportunities at our blocks. Citla has, among other things,

share. We are working closely with our operators and are

carried out seismic reprocessing to identify prospects and

proud to be the only Mexican company to have partnered

make them drillable targets. These studies, which involve

with a major: Eni. This fact highlights the commercial and

hundreds of people working directly and indirectly in

technical capacity Citla provides.

different areas of the partnership across several countries, have confirmed our technical thesis regarding the potential

Q: How has Citla consolidated its position in Mexico

existence of significant quantities of oil in a number of our

following its successful bids and where has the company

known prospects. The company is now deciding where to

identified areas of growth?

drill the first wells from the options we have selected.

A: We have plans to expand, although our current focus is on our four blocks, which cover an area of around

The company also has been progressing with the permitting

1,500km2. Although there is great room for development

processes making sure the decisions, actions and surveying

within our existing portfolio, Citla continues to look

activities we have undertaken on the blocks are clearly

for opportunities. Although the new bids have been

stated, including environmental considerations. We have also

suspended, we predict that the market will become

undertaken environmental and social studies to identify any

more dynamic this year and into 2020, with M&A activity

potentially sensitive areas in which local communities might

growing as the winners and losers of Round 2 begin to

be affected by our operations. These have all been passed on

act. Companies that have been successful will expand and

to the authorities. Exploration plans for Block 7 and Block 9

consolidate, while those that have endured difficulties

have already been approved; we are missing only the drilling

may decide to sell to avoid the next commitment wells

permits, which we believe will be issued soon. By the end of

or risk further financial investment.

summer 2019, we will be ready to drill in both blocks. Q: How will the suspension of PEMEX's farmouts impact The development of Block 14, also located in the Salina del

the administration’s production target of 2.6MMb/d by

Istmo, is at an earlier stage and we must first identify the

the end of 2024?

prospects there. But this block already has the advantage

A: Farmouts were a great opportunity to enhance

of a previous discovery (Xulum) that was not developed

PEMEX's production and would have brought extra hands

due to its size and heavy oil characteristics. Citla and our

and expertise to aid what is a difficult endeavor for just

partner are trying to find more prospects in this area to

one company. Farmouts could have supported secondary

convert the block into a commercial development. We will

recovery rates and delivered gas and water injections to

make a decision whether to drill or not by the end of 2019.

increase production levels. In the two farmouts that took place, PEMEX received sizable funds and the companies

On the Tampico-Misantla Block 15, Citla did not make any

involved will now invest hundreds of millions of dollars

drilling commitments, although we see definite geological

that will lead to increased production from mature fields.

potential there. But, while surveying, we saw a number of environmentally sensitive areas, owing to its proximity to the coast, and to the fact that the areas of greater prospectivity

Citla Energy is a fully Mexican E&P company with stakes in four

were on the eastern side of the block, away from the coast.

shallow water blocks. The company combines local oil and gas

Therefore, Citla and its partners took the decision to

industry expertise with financial backing for asset acquisition

relinquish the environmentally sensitive, less prospective

focused on onshore and offshore environments in Mexico

107

VIEW FROM THE TOP |

REINVIGORATING MEXICO’S MATURE FIELDS ALEXANDRO ROVIROSA CEO of Roma Energy Holdings

Q: What is the estimated timeline for production of Roma

A: I was born and raised in Tabasco, so having a positive

Energy Holding’s Area 16, Paraiso field?

social impact on the local area is important. To this end, we

A: Roma Energy Holdings won the Paraiso area in Round 1.3

have been working closely with local landowners to ensure

as part of a consortium formed by ION Geophysical, Tubular

our land-use contracts are sound. Part of our commitment

Technology and ourselves; however, we now own 100 percent

is employing local people to carry out necessary civil works

of this block. Because not all secondary laws governing the

to prepare the worksite to the required standards and, due

development of blocks were approved prior to Round 1.3, the

to the coastal location of the field, stabilize the ground for

processing of the MIA, SASISOPA and all other paperwork

our platforms. The civil works will be extensive, including the

could not be approved in a timely manner. Paraiso is in a

leveling of ground and paving of new roads.

sensitive area in Tabasco, located only 6km from the new Dos Bocas refinery and close to protected mangroves, so we had

Q: How is the consortium-owned VC01 onshore block

to comply with many regulations.

developing? A: Roma Energy Holdings is an operator on Area 6, VC01,

We have received these approvals and now we can move

located in the Cordoba Basin, which we won in Round 2.3

forward. Building the platform and carrying out civil works

as part of a consortium made up of Tubular Technology,

will be the next step. Early production facilities and modular

Suministros Marinos e Industriales de México, Golfo

systems will be constructed. The Paraiso block already has

Suplemento Latino and ourselves. The consortium was slowed

two wells that produced for PEMEX between 1969 and

in its plans when we tried to transfer PEMEX’s regional block.

1978, after which they were abandoned due to a mechanical

Because the permit includes other blocks that we do not

problem. The company will target a Miocene rock layer with

control, the transfer was rejected and we were forced to start

the first five wells that we will drill on this block. Later during

again. The consortium has completed its paperwork and is

our 25-year lease of the block, we will target a Cretaceous

now awaiting approval from the authorities. We hope to begin

layer at a depth of 7km. These wells will be high pressure, high

production on VC01 at the start of 2020. VC01 is a large block

temperature and, considering our decision to use directional

and has three fields that PEMEX developed from the mid-

drilling to reduce potential damage to the surrounding area,

1960s to the 1980s. The consortium will first carry out five

will be technically challenging. The technical difficulty and

workovers to stimulate production of existing mature wells,

cost, which may be as high as US$30 million each, means it

as well as drilling at least one more exploration well.

is more prudent to wait. Q: How has Roma Energy Holding’s relationship with PEMEX Geophysical data has been collected and made actionable

changed with the arrival of the new administration?

on the five wells we are planning. The company is holding

A: We have focused on maintaining our relationship with

20 bidding processes for service contracts of various types,

PEMEX following the change in administration. Like other

including drilling and rig rental, all of which we expect to have

operators, we were relieved that no contracts were altered and

in place toward the end of 2019. Although we had an MOU

the administration’s changing approach to private industry is

in place with Halliburton to carry out the drilling, permits

a reason for optimism. PEMEX’s decision to focus on shallow

took longer than expected to arrive and the window to work

waters and onshore offers more good news.

together was lost. For Paraiso, we believe that we should begin work before the end of 2019 and that, once in operation, each well will produce around 1Mb/d.

Roma Energy Holdings is an E&P specialized company, active in both Mexico and the US. It employs over 600 personnel.

Q: How is the company bringing positive social benefits to

The company operates two mature onshore blocks in Mexico,

the local Paraiso community?

applying a technology-driven approach to redevelopment

109

| INSIGHT

BIGGER PICTURE ESSENTIAL FOR EFFECTIVE PRODUCTION YANN KIRSCH Chief Business Development Officer of Perseus Energy

110

Although environmental and geological evaluations are among

Aligning with the objectives of the government and PEMEX,

the priorities to bring new projects to the production phase,

in particular, is vital in today’s environment. President López

Yann Kirsch, Chief Business Development Officer of Perseus

Obrador has expressed that PEMEX should be a “lever for

Energy, says it is crucial that companies arriving to Mexico’s

development” and PEMEX´s business plan states that its

new oil and gas landscape see the big picture. “Community

strategy is to “strengthen social responsibility based on

engagement and social management, for instance, are two of

relationships of trust in the communities where the company

the main priorities that are must be accomplished to operate

operates.”

and perform successfully.” Kirsch not only believes that adapting the social license into Kirsch says that next in the priority line is having an intelligent

the company’s strategy is good for building relationships,

strategy surrounding infrastructure and partnerships. To

it is a necessity to keep production going at optimum

benefit from its awarded tenders and to take advantage of

levels. “We strongly believe that by focusing our efforts on

potential opportunities, Perseus seeks to incorporate different

generating safety awareness, providing medical support,

variables in its strategy, and it sees alliances as key. “I believe

and repairing access roads and local infrastructure, the

that present and future opportunities will be derived from

people surrounding our operations have supported us.”

strategic new alliances within the industry, more specifically,

Perseus' community commitment includes support for

companies like ourselves will be seen as a partnering

universities in the state of Tabasco, creating programs

option for PEMEX that will allow it to conduct additional

and internships to increase the quality of development for

operations,” he says.

students in the oil and gas industry.

Perseus Energy is an independent Mexican oil and gas

Kirsch says that the existing transportation and infrastructure

company focused on E&P. In Round 1.3, the company

in Tabasco has helped give the company a competitive

won tenders in two fields in Tabasco: the Fortuna

edge. “PEMEX has produced vast amounts of oil in the

Nacional and Tajón fields. Tajón is a producing field

past and significant infrastructure already exists. Perseus

with high exploitation potential. Extensive analysis and

has been producing gas and condensates redirected to

reinterpretation of reprocessed 3D seismic revealed

PEMEX via existing infrastructure from Fortuna Nacional.”

potential within a highly dense system of natural fractures

One major advantage of using this infrastructure is cost. The

in the hanging wall, contiguous to the producing footwall.

Keystone XL Oil Pipeline running from Canada throughout

Tajón’s structure is considered to be analogous to several

the US had a cost of over US$3.6 million per kilometer.

fields, including Xanab, Yaxché and other complexes

PwC argues that oil and gas companies need to ensure that

nearby. Fortuna Nacional is a tertiary field within the

adequate funds are available to keep infrastructure in shape

Macuspana Basin. It is an anticlinal structure, with the

and not harm their profits. While the cost of maintenance

presence of several faults.

can also be high, it pales in comparison to having to invest in newer structures.

Since winning the tenders, Perseus has made significant progress on its evaluation, environmental studies, social

Going forward, Perseus Energy is interested in participating

plan and geological studies. In early 2019, the company

in potential new bidding rounds. “We strongly support and

contracted two Mexican drilling companies to work on these

would participate if and when new bidding rounds emerge.

wells. “Before contracting, we considered factors such as

We also intend to participate in PEMEX farmouts,” Kirsch says.

experience, financial stability, operational muscle and the

The company also is investing in its future, and that of Mexico

ability to provide a financed project that would allow Perseus

itself. “We will continue to invest to maximize production and

to benefit from initial production,” says Kirsch.

support Mexico’s oil and gas platform.”

VIEW FROM THE TOP |

AVANT-GARDE OPERATOR MADE IN MEXICO WARREN LEVY CEO of Jaguar E&P

Q: Why did Jaguar E&P (Jaguar) choose to farmout with

Q: How easy has it been for Jaguar to comply with its

Vista and what are the main operational capabilities that

local content requirements?

you are expecting from this association?

A: We are working with a vibrant community of local

A: Our joint venture with Vista has been a great success.

providers. More than 50 percent of the supplies we use for

We succeeded in blending Jaguar’s experience working

our operations are of national origin, which is way above

in Mexico with Vista's strong track record as an operator

the local content required by law. This is the result of our

in Latin America. Working with Vista, we believe we can

commitment with the development and improvement of

focus on operational excellence and cost control and also

production chains at the local level, which we meet hiring

gain access to better technologies and better exploration

and acquiring local products and services. When we need

standards. We are focused right now on meeting the

to supplement what is available locally with international

commitments we made for our awarded blocks and fully

experience for technical reasons, it is always done with

realizing the potential in our operations.

an eye to eventually be able to develop the capability in Mexico.

Q: What type of operator would be the ideal partner for Jaguar to increase the company’s strengths?

Q: How are you navigating environmental and social

A: We are proud of what we have accomplished as a team

impact assessments?

and we continue strengthening our capabilities. We are

A: We are part of the communities where we operate and

open to partnering with companies that share our vision

are committed to contributing to their prosperity through

and values, both in terms of quality and safety, as well as

quality jobs, employing and training locals to be part of

regarding our environmental and social footprint. We also

our operations. We use state-of-the-art technology and

look for a partner that wants to have a positive impact in

the highest safety and environmental standards, working

Mexico and the communities where we operate.

with transparency and in full compliance with national, state, and local laws and regulations. Additionally, we

Q: What are the main highlights from your operations

are developing social investment strategies to ensure

across your 11 assets?

that our operations can also generate long-term social

A: Our primary focus is to solidify our operations in

and economic development in the communities where

Mexico and ramp up production on four of our 11 assets

we operate.

that are already operational as quickly as possible. Drilling the most valuable exploration wells within our

Q: How has the government’s new energy policy changed

blocks to develop future development potential is also

Jaguar’s plans to increase or diversify its portfolio?

among the priorities set for the next couple of years. Our

A: We remain focused on our current commitments in

goal is to be a sustainable growth-oriented company,

order to meet the production goals stated at the time

responsible and prudently developing our asset base.

these contracts were adjudicated. We have a lot of work

Of course, we plan to fulfill the commitments that we

to do. We believe in Mexico and remain convinced that

acquired in Rounds 2.2 and 2.3, which means we have to

the government and private companies can work hand

drill 20-30 oil wells in the next few years. Additionally,

in hand to meet Mexico’s production goals.

we are focused on developing production and positive cash flow, which will help to assist with our growth. We are committed to helping Mexico meet its production

Jaguar E&P is a Mexican oil and gas exploration and production

goals and strengthen its energy sovereignty generating

company. It competed in Round 1 and won 11 onshore blocks

economic development for the nation and prosperity for

in Rounds 2.2 and 2.3, becoming the company with the largest

its communities.

number of onshore contracts in Mexico

111

| VIEW FROM THE TOP

TAKING UP THE ONSHORE MANTLE IN MEXICO’S NORTH ROGELIO MONTEMAYOR Director General of Strata BPS

112

Q: How have the developments on Strata BPS’ onshore

to process the gas we produce in order to acquire LPG and

blocks 5, 18 and 20 progressed?

natural gas liquids. The processing will also give us dry gas,

A: Strata BPS was awarded blocks at the end of 2015 and

which we can inject directly into the SISTRANGAS network,

signed the contracts in May 2016. We started operating

due to its proximity to our fields, and deliver it directly

blocks in August 2016. Through 2016 and 2017, we worked

into the open market. We have finished the engineering

on optimizing the fields to raise production levels and

work for the processing plant and expect it to cost US$4

validate the data we had received, much of which was

million in total.

incomplete or contained errors. We began collecting the low-hanging fruit of the fields. On some wells, we only

Q: How is the company optimizing drilling operations for

had to open a valve to gain more production. Other wells

profitability across its fields?

required minor intervention work and small-scale projects

A: Deciding which wells to drill requires sound engineering

that offered results without large investment costs. As a

consultancy. The well that produces the most may not

result, Strata BPS became one of the few round winners to

necessarily be the well that offers the best return on

complete the Minimum Work Program.

investment. Drilling a well on the deepest formation and then working back up makes the most engineering

In parallel, we have carried out our preliminary and

sense, but the increased production a company receives

secondary development plans approved in 1Q19. Now we

from drilling so deep, with the costs this implies, may not

are at the stage where production is our primary concern.

justify going to this depth. Therefore, the recuperation

Though the company decided to be cautious regarding

and recovery factor, which CNH is focused on, is a vital

investments at the beginning of the year, we appreciate

consideration. CNH also understands that when a company

that the government understands the necessity to involve

makes decisions, it must consider the economic factor. If it

private industry and the reality that everybody wins if the

does not make economic sense to recover every last drop

oil and gas market grows. If the administration is to achieve

of gas, then for the present time it can be forgone and

its 2.6MMb/d goal, then support from the entire industry

revisited again when gas prices are higher.

is needed. Q: What are Strata BPS’ production goals across its Q: What is the next round of development for Strata

three blocks?

BPS’ fields?

A: When we first received the blocks, we had little

A: Between the Peña Blanca, Carretas and San Bernardo

production. We increased production to 8MMcf/d for

fields, we have identified the need and potential for around

a substantial period but have now dropped down to

15 recompletions and 15 to 25 new wells. The next phase

6.5MMcf/d. However, with the initiatives we have carried

of development is much more expensive, with each new

forward, the fields should see production of up to 15MMcf/d.

well expected to cost approximately US$2 million. While

While we could increase production, the company believes

recompletions are cheaper, they still cost US$150,000 each.

that it makes economic sense to stick between 10 and

We hope to begin this next phase by 1Q20 at the latest. An

15MMcf/d. This will be particularly true when we have a

ongoing project is the construction of a processing plant

processing plant due to the added value of the associated liquids that will be produced: when we sell in the open market there are various hedging tools we can use to our

Strata BPS is a Mexican company specializing in E&P in

benefit and we will have access to other financing methods

northern Mexico and Texas. It wholly owns Strata Campos

to increase profitability. The plant is modular, with the ability

Maduros, which was awarded Blocks 5, 18 and 20 covering the

to add 4 MMcf/d modules, so we also have the option to

Peña Blanca, Carretas and San Bernardo areas in Round 1.3

extend it as time goes by.

VIEW FROM THE TOP |

CONTINUED COMMITMENT TO MEXICAN MARKET CRAIG STEINKE CEO of Renaissance Oil Corp.

Q: Renaissance operates the Mundo Nuevo, Topen and

between these two fields. The Tampico-Misantla Basin is

Malva blocks, in Chiapas. How are developments on these

composed of the same rock as the Eagle Ford but is three

blocks evolving?

times as thick, meaning it may well contain more oil and gas.

A: General regulatory delays, which have affected all blocks

Unconventionals offer the quickest and most direct way to

from Round 1.3, have delayed drilling in the Chiapas blocks.

achieve the government’s goals of doubling oil production.

However, Renaissance Oil is hopeful of receiving an extension from regulators that will allow us to finish our commitments

Q: Why should unconventional resources be reconsidered

in the area and drill the wells we planned. Nothing has

by Mexico’s new government as a potential energy source

changed regarding our optimism in terms of profitability

and how can unconventionals be developed?

for our work program; these are potentially very large wells

A: The advance in shale technologies over the last decade

in a great area and that is why Renaissance is there.

has made the fracking process far safer and cleaner. For example, while companies once used fresh water for

Q: How has Renaissance Oil’s relationship changed with

their shale operations, formation or brackish water is now

Lukoil as operations on the Amatitlan block have continued?

being used in its place. Brackish water may be reclaimed

A: Lukoil has been a strong, steady and professional partner

wastewater and is not suitable for human consumption.

for Renaissance on the Amatitlan block in Mexico. Lukoil

This is important because it illustrates that the oil and

delivers on its promises, is very transparent and has a strong

gas industry recognizes its role in the responsible use of

commitment to Mexico with several offshore licenses. Lukoil

resources and lessening the environmental impact of our

invited Renaissance to be the operator of the Amatitlan block

activities.

in January 2017. It took around six months to become fully integrated into the Special Purpose Vehicle (SPA) due to

The common criticisms are of older legacy technologies,

the heavy administrative work required. But once we were

which are being faded out. Less is known about the modern,

in, we acted quickly to implement a US$50 million work

clean techniques now used in the industry. Overcoming this

program, of which 95 percent was completed by the end

means properly distributing knowledge about these newer,

of 2018. Renaissance successfully drilled and completed

more efficient and environmentally-friendly technologies.

17 Chicontepec wells and drilled one shale well, in just 13

We hope to address the political elements of this discussion

months. These wells are now producing. Our work program

and believe we can help develop unconventionals in Mexico,

was so extensive that it accounted for 11 percent of all wells

considering the country imports fracked gas from the US.

drilled in Mexico in 2018. PEMEX was impressed by the

Renaissance is committed to employing the latest clean

speed and professionalism that Renaissance delivered and

technologies to support Mexico’s economic advancement

we are now working diligently on migrating our Amatitlan

and to help move toward Mexican energy sovereignty.

agreement into a license together with Lukoil.

Renaissance is aware that the new administration is closely analyzing migrating from licenses to service contracts and

Q: With the administration reconsidering its stance on

while the company understands that service contracts

unconventional resources in Mexico, how could Renaissance

may work for some horizons, they will not work for ours in

help develop these possibilities?

developing unconventionals.

A: Renaissance hopes that the possibility of developing Mexican unconventionals can move forward. The potential of unconventional sources in Mexico is world class. It is a

Renaissance Oil Corp . leverages the technologies to improve

national treasure and could become a shale play tantamount

production in mature onshore fields and develop the potential of

to the Permian or Eagle Ford fields. The upper-Jurassic

unconventionals. It works with Lukoil in the Amatitlan block and

shale in the Tampico-Misantla Basin, we believe, is a hybrid

operates the Mundo Nuevo, Topen and Malva blocks in Chiapas

113

IMP organic geochemistry laboratory

GEOLOGY & GEOPHYSICS

To produce hydrocarbons, they must first be found. Geologists and geophysicists are a vital part of the upstream process, helping companies review assets and their geological potential so that investments can be allocated toward areas with the highest possibility for new discoveries. With a clear government-mandated production goal in place, the next step is to reverse the significant decrease in reserves seen since 2013. The country’s 1P reserves fell to 7.89 billion boe in 2019. 2P reserves are at 15.83 billion boe and 3P reserves stand at 25 billion boe. However, there were encouraging developments as PEMEX made flagship discoveries in 2019.

This chapter analyzes the country’s steps to improve its geological information and the role of CNIH. Leading figures from companies intimately acquainted with Mexico’s energy industry discuss better and more cost-efficient ways to enhance production from mature fields and new ways to search for further discoveries.

115

CHAPTER 5: GEOLOGY & GEOPHYSICS 118

ANALYSIS: Perfect Time to Re-evaluate Mexico’s Potential

121

VIEW FROM THE TOP: Faustino Monroy, AMGP

122

TECHNOLOGY SPOTLIGHT: Beicip-Franlab: Local Partner Offers Global Consultancy Services

123

INSIGHT: Ross Philo, Energistics

124

PROJECT SPOTLIGHT: The Discovery of Quesqui

125

VIEW FROM THE TOP: Julio Gómez, Ikon Science

126

TECHNOLOGY SPOTLIGHT: Cayros: Field Development Planning Expertise

and Technology (C-Fields©)

127

VIEW FROM THE TOP: Francisco Caycedo, Cayros Group

128

INSIGHT: David Amaya, CGG

129

VIEW FROM THE TOP: Robin Ellis, Sercel Inc.

130

VIEW FROM THE TOP: Sujata Venkatraman, Dynamic Group

131

Robert Pascoe, Dynamic Group

VIEW FROM THE TOP: Javier Rubio, Geoprocesados

117

| ANALYSIS

PERFECT TIME TO RE-EVALUATE MEXICO’S POTENTIAL While PEMEX and private operators take stock of their asset portfolios with an eye to the future, a prime opportunity presents itself for Mexico’s geological potential to be reexamined in light of recent discoveries and investments in exploratory activity The downward trend in Mexico’s oil reserves that began

The slower decrease in 2P and 3P reserves shows that

in 2013 has continued throughout 2018 and 2019. The

despite PEMEX’s lack of investment in exploration and

first decade of the 21 century was marked by a decrease

new technological applications, significant flagship

that took Mexico’s 3P reserves from 56.15 billion boe in

discoveries are starting to offset the decrease. In the

2001 to 43.07 billion boe in 2011, with the most marked

offshore category, it contextually merits mention to

single year decrease of over 30 percent taking place

note that between 2015 and 2017, the Gulf of Mexico was

in 1P reserves from 2002 (30.83 billion boe) to 2003

the most explored oil and gas region in the world, with

(20.07 billion boe). This can be mostly accounted for

over US$3.1 billion in investments generating a threefold

through the overexploitation of Cantarell combined

increase in information stored in 2D seismic databases

with a lack of exploration investment. While 1P reserve

and a fourfold increase in 3D seismic wide azimuth (WAZ)

depletion has proven severe in recent years, from 9.16

information, according to CNH.

billion boe at the end of 2017 to 7.89 billion boe reported so far in 2019, 2P and 3P reserves have decreased by

Onshore reserves have actually increased. 2P and 3P

a comparatively smaller margin during the same time

reserves for Mexico’s onshore fields have gone from 5.87

period, from 16.76 billion boe of 2P reserves and 25.85

billion and 9.23 billion boe in 2017 to 6.12 billion and 9.91

billion boe of 3P reserves in 2017 to 15.83 billion boe and

billion boe in 2019, respectively, notably representing

the aforementioned 25 billion boe, respectively, in 2019.

almost 40 percent of those years’ total reserves. This increase can be significantly attributed to the discovery

COMMITMENTS

of Ixachi. Replicating the success of onshore discoveries

The significant decrease in 1P reserves is the result of

such as that in Ixachi can only happen if certain onshore

a PEMEX upstream strategy that has not prioritized

exploration and data acquisition issues in Mexico

investment in reserve replacement practices during

are resolved. These include permit acquisitions, land

these recent years. If PEMEX meets its production goals

ownership and community social engagement.

in the coming years, the company would deplete over half of its 1P reserves by 2024. Due to this looming issue,

Robin Ellis, Vice President of Sales and Marketing for

PEMEX has made extensive commitments to increase

seismic acquisition technology leader Sercel Inc, says

its reserve replacement and reserve incorporation rates

“the Mexican onshore arena is one of the most difficult

through a combination of new exploration campaigns

regions in the world to carry out seismic surveys.”

and increased recovery investments in its mature fields.

Nevertheless, Ellis says he is optimistic about the future.

RESERVAS DE HIDROCARBUROS DEboe) MILLONES DE BARRILES DE PETÓLEO CRUDO EQUIVALENTE) HYDROCARBON RESERVES(MILES (billion

Proven

2007

Probable

Posibles Probables

2010

Possible

2014

2016

2017

2018

6.8 6.6 7

6.9 6.5 7.7

6.6 8.6

9.6

6.5

6.1

2015

12.4 11.4

12.3

2013

10.2

2012

13.4

2011

13.9

8.6

2009

14.3

14.7

2008

13.8

2006

13.8

15.5

20 10

17.3

18.4

17.7 12.4

14.3 15

14.8 14.2

14.7 14.5

14.6

14.6 15.1

15.8

15.3

14.2

16.5

118

2019

Source: PEMEX

RESERVE REPLACEMENT RATE TASA DE RESTITUCIÓN INTEGRAL (%)(percentage) 200 100 0 -100 -200 -300 -400 -500 -600

2006

2007

2008

2009

2010

2011

2013

2014

2015

“The last 18 months were quiet. But the company hopes PEMEX

2012

2016

2017

2018

Source: PEMEX

investment or not, belongs to the state and must thus be

that multiple seismic projects will launch this year and we

centralized in the CNIH, which now houses between 11.5

predict the sale of spare parts will grow as mothballed

and 14 petabytes of information depending on varying

crews get back into operation. Of course, all this depends

criteria and the large volumes of additional information

on the government providing projects in a timely fashion

that continue to come in every day, four times as much

and while those have been promised, they must come to

data as its analogue public institution in Norway and six

fruition. We remain hopeful that there will be an upturn

times as much as Brazil.

in activity as President López Obrador has suggested.”

INFORMATION Removing obstacles to increase onshore exploration is

Its former Director General Oscar Roldan explains the

an example of how Mexico can take advantage of re-

importance of 2019 to consolidating the CNIH’s central

evaluating its hydrocarbon resources. Another example,

importance thusly: “In general, the new administration

this time in shallow waters, are the discoveries found

has been receptive to our arguments and our work,

in the Zama reservoir, whose boundaries were recently

in particular the finalization of CNIH’s creation and

successfully negotiated between private operator Talos

integration process, which began in August 2014 and

Energy and PEMEX. This generated optimism among

ended with the recent inauguration of our two lithoteques

investors who clearly see the Campeche Basin still has

in Hidalgo and Yucatan, along with the coming publication

more untapped potential than previously thought, as

of our latest information provisions from CONAMER.”

proven by all of this abundance of new exploration data from all of these sources.

The availability of this information in both digital and analog formats, in particular through the litoteques

Mexican law dictates that all of this geological information,

inaugurated this year which CNIH and CNH manage in

regardless of whether it was generated through PEMEX’s

collaboration with SENER, CONACYT, IMP, UNAM, and

PEMEX and CNH first heard alarm bells in early 2016, when their 2015 analysis revealed an abysmal reserve replacement rate of 10 percent, down from 67.4 percent in 2014. Amid the already notoriously decreasing levels of production and the addition of 120MMb of 1P reserves, Mexico averaged just one new barrel of oil found underground for every 10 barrels it extracted. Even worse, the 1P reserve-to-production ratio decreased 20 percent, from 10 years to eight, then its worst level in a decade. PEMEX’s diagnosis was straightforward. In addition to reserve depletion caused by revision, delimitation, unsuccessful drilling and field development activities, square kilometers of 2D seismic acquisition were reduced by 80 percent from 2014 to 2015, while square kilometers of 3D seismic acquisition decreased 72 percent during that same period. This marked the path forward. While PEMEX’s budget remained too limited to fully invest in returning to these pre-downturn levels of exploratory activity, it made sure to prioritize acquisition so as to prevent these kinds of decreases in ground covered. The results speak for themselves, and suggest a way forward for PEMEX.

RECENT HISTORY SHOWS HOW TO INCREASE RESERVE REPLACEMENT RATE

119

2P and 3P reserves for Mexico’s onshore fields have gone from 5.87 and 9.23 billion boe in 2017, to 6.12 and 9.91 billion boe in 2019

3P reserves have actually decreased in that same period, from 1.16 billion boe to 891.24 million boe. When these types of reserves have such uneven fluctuation, it means that geological potential continues to be measured from uneven data that could greatly benefit from a more systematic and rigorous approach. PEMEX’s business plan is very clear on placing deepwater development outside of its list of priorities.

other state and local universities and research centers, also

DEVELOPMENT PLANS

facilitates data reprocessing and reinterpretation, which plays

CNH and SENER have stepped up to the plate in this regard

an enormous role in the reappraising of Mexico’s resources.

through strategic actions, such as CNH’s approval of deepwater exploration plans from prominent private operators such as

120

New processing technologies such as super-high-

Eni, Total and Shell. Development plans include companies

frequency FWI (full-waveform inversion) applied with

like the China National Offshore Oil Corporation (CNOOC)

higher computing performance enabled by cloud-based

that will deliver significant investment to ports in the state

platforms allows for the increasingly quicker generation

of Tamaulipas.

of new geological and geophysical assessments. Javier Rubio, General Manager of Mexican geoscientific

“The industry must also begin to explore unknown areas,

company Geoprocesados, is quick to confirm the large

or areas that have been drilled without solid knowledge,”

role that these activities are now playing in the industry’s

adds Faustino Monroy Santiago, President of the Mexican

exploration developments: “We have found a significant

Association of Petroleum Geologists (AMGP). “Pre-salt

business niche in the processing and reprocessing

plays are an example of this and we must look to and

of this new proprietary data and also of PEMEX’s old

learn from companies like Petrobras in Brazil that have

legacy data.”

drilled these plays with success. Geological expertise is vital in finding evidence of rock properties that give life to

Reassessments of deepwater resources are also imminent.

a hydrocarbon system. This exploration of unknown areas

While 1P and 2P deepwater reserves have remained static

must also commence as soon as possible because fields

since 2017 at 63.54 and 164.74 million boe, respectively,

can take between four and 10 years to be brought online.”

VIEW FROM THE TOP |

FOSTERING THE POTENTIAL OF TOMORROW’S TALENT FAUSTINO MONROY President of AMGP

Q: What are the main interests and objectives

evaluation of potential resources. Of course, to achieve

of the AMGP?

this goal it is necessary to develop a very good national

A: The AMGP is a nonprofit organization comprised of

exploration strategy, a diversified portfolio and adequate

over 1,000 professionals, split between nine delegations

investment.

situated in the oil hubs of the country. Most members are geologists, geophysicists and petroleum engineers.

Exploration is essential to the administration’s production

Although we have members from other backgrounds,

goal: without further exploration, Mexico’s production

including biologists and chemical engineers, most of

will only decrease. Through financial investment and

our members work or worked for PEMEX or IMP. The

professional dedication, we must accelerate exploration

association has two primary objectives. The first is to

to characterize the country’s potential oil fields and grow

diffuse technical knowledge among members to support

our reserves to exploit them.

the national and international petroleum industry. The second is to promote the spirit of scientific investigation

Q: PEMEX’s portfolio consists of mature fields where

and professional development. In this sense, we foster

reserve amounts are known and new or potential

relationships with research centers and associations

discoveries. Where should the company focus its activity?

within the industry both in Mexico and internationally,

A: The reality is that both types must be exploited. At

including with the American Association of Petroleum

mature fields, geophysical and geological studies, as well

Geologists and the European Association of Geoscientists

as petroleum engineering activities, should be carried out

and Engineers.

to increase recovery factor. Secondary recovery methods must be applied. On the other hand, using cutting-edge

We have a relationship with Mexican universities, such as

technology and the best international practices, we

UNAM, IPN, Juárez Autonomous University of Tabasco

must evaluate new discoveries to certify their economic

and the Olmec University. The AMGP also has student

viability. If they are not viable today, they may become

chapters at UNAM and the IPN in Mexico City. As an

so at a later stage as technologies improve and become

association, we have a responsibility to look to the future

more affordable.

generation of professionals in our industry and ensure that they understand we will support them.

The industry must also begin to explore unknown areas, or areas that have been drilled without solid knowledge.

Q: How can the administration best achieve its goal of

Pre-salt plays are an example of this and we must look

increasing Mexico’s oil production to 2.6MMb/d by 2024?

to and learn from companies like Petrobras in Brazil

A: Currently, Mexico has produced almost 60 billion

that have drilled these plays with success. Geological

boe. According to sources, including CNH, Mexico has

expertise is vital in finding evidence of rock properties

approximately 112 billion boe in reserves, 47 percent of

that give life to a hydrocarbon system. This exploration of

which is conventional resources. Mexico’s 3P reserves

unknown areas must also commence as soon as possible

are around 25.5 billion boe, of which 24 percent is gas.

because fields can be taken between four and 10 years

Part of these resources cannot be accessed in these

to be brought online.

days. The exploration and production process is a long procedure, at the base of which is knowledge of geology and geophysics. Through PEMEX and other companies,

The Mexican Association of Petroleum Geologists (AMGP) ,

members of the AMGP are working in different disciplines

founded in 1949, is a scientific and technical organization

to increase both Mexico's reserves and oil production.

composed

They are the main professionals working also in the

petroleum geology

oil

industry

professionals

that

promotes

121

| TECHNOLOGY SPOTLIGHT

BEICIP-FRANLAB: LOCAL PARTNER OFFERS GLOBAL CONSULTANCY SERVICES

122

Beicip-Franlab provides a comprehensive range of consulting

The capability to solve complex problems with

and advisory services for the exploration and production

multidisciplinary methods is the company’s greatest asset.

phases of any oil and gas asset. With methodologies that

Its permanent staff of experienced project leaders and

offer tailored solutions to optimally match the objectives

technology champions have a unique experience of combining

of its customers and their operational constraints, such as

multidisciplinary data sets, multidisciplinary models and

timing, budget and data availability, the company’s approach

implementing multidisciplinary workflows. The company also

is based on the combination of technical excellence in every

has vast experience, acquired in large part from its work in

discipline, a superior multidisciplinary integration capability

international contexts. A clear example of this interaction and

and a corporate culture that respects innovation and curiosity.

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.

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.

in Basin Modeling. Stratigraphic Modeling

Reservoir Simulation

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,

Petroleum System Modeling

Fractured Reservoirs

geology to reservoir simulation (FracaFlow). Production

modeling whatever the

KronosFlow). Innovative stratigraphic modeling

Advanced Seismic Inversion

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).

INSIGHT |

WORKING TOWARD DATA STANDARDIZATION ROSS PHILO President and CEO of Energistics

From exploration to production, data acquisition and

there is a new interpretation technique that allows operators

processing are crucial to improving a reservoir’s performance,

to go back and evaluate subsurface formations and identify

but data standardization is key to ensure access to the

missed reserves.” He adds that it is difficult to read old files,

information, says Ross Philo, President and CEO of Energistics.

especially if they are in a proprietary format of a service

“A good way to consider data standardization is as a lingua

company than is no longer in the market. “Standards ensure

franca between different organizations. Operators will be able

the data remains accessible.”

to interpret units of measures as data is presented in a very readable form. Through this industry consensus, end-users will

Energistics works with three main sets of standards based on

know they are receiving the right information.”

the XML language. The company’s oldest standard is WITSML, which is the industry reference for the transmission of data

Energistics is a global, nonprofit, industry consortium that

from rig-site to the offices of oilfield companies, integrators

facilitates an inclusive user community for the development,

and operators. “This standard encompasses well construction,

adoption and maintenance of collaborative, open data-

real-time drilling data, well location and other information

exchange standards for the energy industry in general and

that can be found in daily reports,” says Philo. PROMDL is

specifically for oil and gas exploration and production.

the broadest set of standards for optimizing producing

It has more than 110 members, including the main IOCs,

oil and gas wells with a focus on data from the reservoir-

regulators, service companies, software developers and

wellbore boundary to the custody transfer point. “Recently,

system integrators. “Our role is to get these groups together

this standard has been adapted to carry additional data types,

to determine what kind of data they need to share and how

such as distributed acoustics, PVT and pressure transient

can we standardize formats in the most efficient way,” says

analyses,” he says. On the other hand, the RESQML standard

Philo. The organization was founded because operators were

allows the transfer of really complex 3D models that describe

tired of working with data coming from a myriad of formats.

the subsurface and cover the entire workflow from seismic

“Energistics was established not to create a standard, but

interpretation through geological mapping to simulation.

to facilitate the discussions that lead to its determination,” Philo adds.

The industry is strongly embracing digital transformation but Philo warns that the results will only be as good as the data

Philo believes that standards are meant to be collaborative,

that is introduced. “There is a strong desire to benefit from

highlighting fiber-optic measurements as an example. When

the data we acquire but there is a misconception that AI is

optic fiber was first introduced, many companies integrated

somehow going to automatically correct errors in underlying

the technology in different ways. “Some operators asked

data. Whether you are making a human or an AI decision, the

Energistics to look at these fiber-optic measurements and its

quality of the introduced data is going to drive the quality of

DAS acquisitions and unite service companies and operators

the outcome,” he says.

with disparate solutions to promote data usage,” Philo says. Working with its members, Energistics developed a standard

The consortium’s most recent development is Data Assurance,

for DAS data that allows companies to share DAS data easily

a program that quantifies the level of confidence in each data

and consistently between all parties involved.

set. “This whole concept of Data Assurance was implemented to get ready for the automation that AI and machine learning

Standardization can also open the door to interpretation

are going to introduce to the industry. We want to be able to

beyond the information. Philo says there is an adage in the

ingest information and process it automatically while ensuring

oil industry that oil can be found where it has been discovered

trust in the underlying data and therefore, the output. As we

before. “From a data perspective, this means we must analyze

move toward autonomous systems, this is going to become

data that might be 10, 20 or 30 years old,” he says. “Maybe

even more important,” Philo says.

123

| PROJECT SPOTLIGHT

THE DISCOVERY OF QUESQUI Ultra-light crude, convenient onshore location, giant reserves: great characteristics for PEMEX’s new major discovery. While the numbers have not yet been confirmed by CNH and no official development plan has been submitted, the NOC expects plenty of production to come in 2020 API. In 2020, PEMEX estimates it will see 69Mb/d from

FAST FACTS

124

Name

Quesqui

the field, which should be ramped up to 110Mb/d in 2021.

Amount of investment

US$667 million

“Productivity-wise, it seems to be smaller than Ixachi,”

Estimated reserves

500 million boe

said Pablo Medina, vice president of Welligence Energy

Size

34km

Analytics, an energy consultant. “There hasn’t been a

State

Tabasco

development plan submitted for it, so it’s too early to

Location

Onshore

talk about reserves based off one single well.”

In mid-December, Mexico announced the discovery of

If verified, PEMEX estimates it might even only spend

the country´s biggest oil discovery in three decades. The

US$6 for each barrel of oil, yielding US$50 per barrel.

Quesqui oil field is located in the Gulf state of Tabasco. “For

With an estimated investment of US$667 million, the NOC

the rating agencies, this is good news in relation to PEMEX,”

will undoubtedly attempt to make this major discovery a

said PEMEX Director General Octavio Romero Oropeza,

platform for its much-needed transformation. As President

who added that the field is the single-most important find

López Obrador states: “This is the new policy. To get to

for the company since 1987.

work where we have more certainty and experience. To produce. The new field, Quesqui, is surrounded by

The estimated 3P reserves are significant, according to

infrastructure that is interconnected. It will cost up to

PEMEX’s data: 500 million boe. Furthermore, Romero

US$6 a barrel. That means more profit for PEMEX and

stresses that an additional 200 million boe is within

for the country.”

reach by simply drilling another well discovered in the same area. Production is set to start in January 2020,

With this new discovery, PEMEX's director is confident that

when the adjacent Quesqui-1 DEL will be finished. As

production in the region will increase substantially. “With

of Dec. 12, 2019, CNH had not confirmed parts of the

the new discoveries and the accelerated development of

provided information, including the API gravity of the

the new fields, we estimate production in the region to

field. Nonetheless, due to its location in the Southeast

reach 215 to 500 thousand barrels per day by the end of

Basin, there is a potential for light crude of around 40

this administration,” he said.

Quesqui Field

Quesqui field Quesqui evaluation area AE-0053-3M-Mezcalapa-03 AE-0045-5M-Sweet Water-04 Source: CNH

VIEW FROM THE TOP |

EFFICIENT, ACCURATE SOLUTIONS ON THE SPOT JULIO GÓMEZ Vice President of Strategic Accounts at Ikon Science

Q: What added value does Ikon Science bring to the table in

we use does not necessarily have to be within the seismic

the upstream segment?

volume being used. We are able to include information from

A: Ikon Science’s strength is helping our clients understand

outside volumes, for example if there is a well close to our

in the simplest terms where they should drill their next well.

area of interest, we can use that information to include in the

We offer a similar range of products and technologies as

background trend. We have had some clients that have used

some of our competitors but our Ji-Fi (Joint Impedance and

basin models to feed into our software and get background

Facies Inversion) software system really sets us apart. This

trends. I cannot think of another technology that can achieve

technology combines seismic and well data, with rock physics

the same results.

and other geological information to predict subsurface rock types and properties of interest. This is an interesting product

Q: What are the main hurdles of introducing innovative

because it approaches seismic inversion from a unique aspect,

technology into the market?

eliminating the need for structural background modeling to

A: It really depends on the consumer. For instance, when

get low frequencies. In the case of Ji-Fi, the low frequency

working with PEMEX, the NOC is already a large corporation

model is obtained from depth trends at the wells on a per

with scientists who can take the time to look at any technology,

facies basis. When I first joined the company, our rock physics

understand how it works and make an informed decision. For

services were delivered by a third-party software. Because

smaller customers, the main hurdle is the fact that they do not

Ikon Science had its own in-house developers, it made sense

have this team within their organization. These companies

to develop our own seismic inversions. It was during this

do not tend to be big software users; they are more service-

process that the limitations of traditional inversion processes

oriented because they do not have the required staff to

were realized, and the first concepts of Ji-Fi were born.

use this technology. The early adopters of this technology were midsized companies that were mostly led by individual

Although Ikon Science’s traditional customer base has been

scientists who recognized the potential of the product.

in deepwater offshore, which is directly applicable to Mexico’s current oil and gas operations, there are also big benefits

Q: How do you expect technologies like AI and machine

to the onshore unconventional market. Particularly the

learning to change your business?

combination of geopressure, geomechanics, and rock physics

A: We are already present in the AI and machine learning

allow the quantitative interpreter to monitor all these aspects

segment, especially after acquiring Perigon Solutions, the

with just one package. This might be the country’s next step.

leading company for surface wellbore data management and visualization solutions. We will use Perigon’s iPoint product,

Q: What are the main advantages for a customer

a data management system, as the basis to plug in some of

implementing the Ji-Fi software?

the machine learning and AI add-ons. The ability to analyze

A: A more informed solution is immediately delivered. One

large amounts of data quickly will provide significant value

of the outputs is the facies volume, along with traditional

to the industry. Employing cloud computing also allows us

impedance and density volumes, are delivered jointly.

near unlimited processing power. We definitely expect AI and

Comparing this to the traditional workflows we are able

machine learning to be added to reservoir characterization QA

to incorporate rock physics information into the inversion

workflows. This will be the industry’s next step.

process on a per facies basis. Another benefit of Ji-Fi is that it is easier to maintain an evergreen background model. For instance, if a company drills a new well and introduces it

Ikon Science develops pioneering geo-prediction software

into our model, they can immediately see if the new well

technology and solutions to help customers unlock superior

fits the established trends. In addition, the model can be

outcomes at a reduced cost and cycle time. Its technology helps

adapted to wildcat areas because the well information that

achieve higher hit rates and faster production from simpler wells

125

| TECHNOLOGY SPOTLIGHT

CAYROS: FIELD DEVELOPMENT PLANNING EXPERTISE AND TECHNOLOGY (C-FIELDS©) CAYROS is an independent company specialized in

economic value of the oilfields under different development

providing consulting services and technical support to

scenarios.

the exploration and production segments of the oil and gas industry. CAYROS believes that the best opportunity

The benefits of C-Fields© include:

to make a positive impact and create value in the life cycle of large capital projects is in the early planning or Frontend Development stages, well before incurring capital expenses. These early stages of a project are where most value is created or lost. Poor decisions here cannot be 126

recovered during the project’s execution. To maximize a project’s value and minimize risks during its execution, the Field Development Planning process needs to be performed optimally to avoid being overly expensive and unnecessarily time-consuming. This is where CAYROS has

• Timely access to technical-financial information that can be adjusted and updated interactively to facilitate strategic decision-making regarding development options. • Quantify the impact of different deviations from the base case upon various economic indicators of the project. This enables optimized decision-making and risk mitigation throughout the entire project process. • Significantly reduces evaluation time and cost.

world-class expertise: the application of game-changing

Workflows manually developed on different platforms, with

proprietary technology to ensure projects are developed

multiple spreadsheets and databases, can be transformed into

efficiently.

efficient, accurate, reliable and flexible processes that allow operators to significantly reduce development time and cost.

C-Fields© is a Field Development Planning tool created by CAYROS. It is suitable for virtually any type of oil and gas

In the Mexican market, C-Fields© has been successfully utilized

project, from onshore to offshore environments to access

in over 70 projects on 40 fields. CAYROS has a proven track

conventional or unconventional resources. C-Fields©

record of impeccable projects developed in a timely manner

integrates information from various disciplines to quantify the

through the application of this proprietary technology.

C-FIELDS© - FIELD DEVELOPMENT PLANNING AND OPTIMIZATION SOFTWARE

C-Fields© is a planning tool developed by CAYROS that consists of different modules that allow to interactively design multiple concepts and scenarios for oil and gas development projects, and performs lifecycle financial assessments and risk analysis.

VIEW FROM THE TOP |

MARKET-DRIVEN SOLUTIONS FOR FIELD DEVELOPMENT FRANCISCO CAYCEDO Regional Director Latin America of Cayros Group

Q: What is the basis of Cayros Group’s success?

A: There were several challenges. For example, the constant

A: Initially, there were two different companies, Cayros

changes in the fiscal regime that were put in place during

Solutions and Cayros Software, the former offered

CNH’s licensing rounds. To deal with this issue, we created

consultancy services and the latter provided technology

a platform flexible enough to allow us to easily incorporate

development. We decided it was better to merge these two

changes. Also, when changing information to create a proper

divisions and create a single company, which is how Cayros

analysis there are many internal and external factors that

Group was born. This integration allows the divisions to

have to be considered. Having carried out this process on a

have closer interactions and to learn from each other. As

case-by-case basis in many fields, we have the experience

Cayros Solutions uses commercially available software for

to implement the required changes to always find and offer

its consultancy services, it finds potential areas for Cayros

the best solution. All in all, I have to say that we are going

Software to develop applications or plug-ins to improve its

through a constant learning process, which pushes us to

workflows and be more efficient. As these tools are created

become a better solutions provider for the industry. We are

based on market demand, they allow Cayros Solutions to

never tired of learning and adapting these lessons and newer

work better. In fact, everything we do is based on a market

concepts into our technologies. At the moment, we are

pull, instead of more traditional approaches by other

working with machine learning and cloud service concepts,

companies that are technology-driven.

all with the objective of doing a better job.

Q: What tool are you most excited to introduce into the

Q: What makes Cayros Group a unique company in the

Mexican market?

A: We offer a tool called C-Fields© that was developed

A: Cayros Group bases its strengths on its people, who

specifically for the Mexican market. This product was born

are world-class engineers with over 20 years of global

thanks to several projects on which we worked previously,

experience in the oil and gas industry, as well as with a

which we found were taking too long to develop due to

strong background in Mexico. Our teams have a mixture of

their multi-disciplinary approach that required consolidation

backgrounds and knowledge that ensure the best solutions

and analysis of a great deal of information from several

are always provided.

departments. To solve this issue, we decided to create a platform capable of integrating information and interacting

Cayros Group has signed several collaboration agreements

with several departments. This platform can integrate data

with national and international companies. We are now

from G&G, reservoir engineering, drilling, production and

looking to offer our solutions and experience to the operators

surface facilities to quantify the risk and economic value

that are venturing into the Mexican market. The response has

of oil fields under different development or optimization

been great, as several are interested and want to test our

scenarios. Basically, our platform helps operators to

solutions at their fields. I am a true believer in the potential

consolidate and present information in the best way possible

of our services and technologies and in the benefits that they

so they can make informed decisions while saving time

can provide to the Mexican oil and gas industry. We want

and money. Of course, C-Fields© does not substitute the

to become the reference company for field development

specialized software used by each division inside a company

planning on the national and, hopefully, international level.

but integrates the information, making it even stronger. This technology has already been used and proven in over 40 fields in Mexico.

Cayros Group is an independent firm specialized in services and technical support for the oil and gas exploration and

Q: What challenges have emerged when developing and

production industry. It focuses on field development planning

testing the C-Fields© solution?

and optimization, exploration and reservoir characterization

127

| INSIGHT

INVESTING IN TECHNOLOGY AND HUMAN CAPITAL DAVID AMAYA Geomarket Director and Country Manager Mexico of CGG

128

After Mexico’s Energy Reform, the number of seismic

and more opportunity, whereas earlier, PEMEX was the

companies entering the market grew rapidly and, with

only client.”

it, so did the level of competition. “Mexico’s offshore is completely covered now and competition onshore is also

CGG has worked for PEMEX in the Perdido area of

intense. Multi-client activity has become more than just

Mexico’s most prolific deepwater basin for a number of

seismic surveys. It´s becoming a stronger and integrated

years and Amaya says this was one of the geoscience

part of the business model — further leveraging our full

company’s biggest success stories. “As a result of our

scope to deliver the best understanding of the Earth’s

experience, we are now able to work for several clients,

subsurface. CGG will use this to its advantage to better

providing far more detailed images and specialized

“

meet its clients’ needs and grow,” David Amaya, Geomarket

geoscience services, giving companies greater certainty

Director and Country Manager Mexico of CGG says.

on where they should drill.” During the licensing rounds,

Now, there are more players in the industry along with more activity and more opportunity, whereas earlier, PEMEX was the only client”

the new players awarded blocks in the Perdido basin were majors such as Shell, Qatar Petroleum, BHP Billiton, China Offshore Oil Corporation, Exxon Mobil, Chevron and Total. Subsalt imaging of Perdido Basin remains challenging due to the presence of large, complex salt bodies and the limited penetration of diving wave energy with conventional wideazimuth acquisition. CGG´s advanced imaging algorithms and technologies and its reservoir characterization software will play a key role in the development of this basin. Computer power alone cannot bring value, it is also the

CGG’s strategy is to strengthen the leadership position

experience of our interpreters coupled with our unrivaled

of its three core businesses to ensure their future

portfolio of imaging technologies such as reflection FWI

growth and to meet the exploration, development and

and Least-Squares Migration that is needed by PEMEX, its

production needs of its clients. These are geoscience,

partners and IOC's to take better decisions that increase

with its differentiated technology and services, multi-

E&P success and reduce costs and risks.

client, which offers the industry’s most technically advanced seismic data and geologic studies in the world’s

Amaya says international companies will bring increased

key locations, and equipment, which with its established

activity and expertise to the Mexican oil and gas sector,

leadership in seismic equipment and downhole gauges,

especially when it comes to deepwater operations. To be

is highly valued by our clients, and based on this it has

successful, these companies also require the expertise of

performed well through the industry’s cycles.

Mexican companies. This is an environment where CGG can excel and the company is already seeing results from

The licensing rounds and farmouts carried out over the

its efforts. “In 2019 we are working in Mexico on several

last few years gave international and national players the

imaging projects in key areas for PEMEX and its partners,

opportunity to step up and take a shot at striking oil in

as well as providing Seismic Reservoir Characterization

the Gulf of Mexico. “Most active IOCs are large companies

technology and service that leverage Big Data based

that have already won blocks during the rounds. However,

on analytics, machine learning and computing power.”

their technical experts are not only based in Mexico but

Amaya also points out that “the new GeoSoftware

are also in their home countries,” Amaya says. “Now there

releases are cloud-ready and offer innovative Machine

are more players in the industry along with more activity

Learning capabilities.”

VIEW FROM THE TOP |

TECHNOLOGY PROVIDES EDGE IN RACE TO MAP SUBSURFACE ROBIN ELLIS Vice President of Sales and Marketing at Sercel Inc.

Q: Why is Sercel the premier seismic acquisition equipment

throughout a well. Our SigmaWave, Distributed Acoustic

provider to the Mexican market?

Sensing (DAS) fiber can even be deployed in the well in

A: Our technology has been used almost exclusively in

combination with our traditional VSP tools for calibration

the country for the last 20 years. Although the Mexican

and comparison.

onshore arena is one of the most difficult regions in the world to carry out seismic surveys, Sercel’s products meet

Q: Will Sercel be targeting product sales for the onshore

the challenge. Sercel’s new generation WTU wireless nodes

or offshore arenas in Mexico this year?

were designed to provide the deployment flexibility needed

A: Although we are focusing on onshore, our marine

to meet exactly this type of the challenge.

equipment has also been used for the most complex, multivessel, seismic acquisition projects offshore with

Sercel’s varied in-country experience continues to set

great success. Currently, there is an over-capacity in

the company apart. In the north of Mexico in 2015, our

the marine industry so while PEMEX may tender further

equipment was deployed on one of the largest nodal

offshore projects; existing players will likely bid with

surveys ever undertaken. This involved 42,000 live channels

vessels that may already be equipped with Sercel systems.

and four fleets of vibrators operating 24 hours a day in

That said Sercel’s QuietSea PAM system would be an

slip-sweep mode. Despite the difficulty and the size of

excellent addition to these systems and would be perfect

the project, the contractor using our equipment finished a

for Mexico’s rich marine environment. It can accurately

month ahead of time.

detect the presence of marine mammals close to seismic operations so that environmental regulations can always

Q: What new products will Sercel introduce to the market?

be respected. QuietSea is by far the most advanced

A: This year, we have launched two new Vibroseis products.

marine mammal detection system on the market.

One is called SmartLF and has already been extensively tested in the Middle East. The SmartLF dramatically reduces

Our cable-based SeaRay seabed acquisition system has

the level of vibrator signal distortion and it contributes to

also provided data of unmatched quality for PEMEX in

improve seismic imagery.

the past and the system’s broadband Electro-Mechanical Sensors (MEMS) continue to provide better signal fidelity

Another new product is the world’s first Vibrator Auto-

than legacy analog sensors.

Guidance system. This product takes partial control of the surveying vehicle to offer improved time efficiency for high-

In Shallow Water or Transition Zone (TZ) surveys, sea

production Vibroseis crews. The Vibrator Auto-Guidance

conditions can be very challenging with high waves

saves seconds on every vibration point (VP), which for a

and strong currents. X-Tech systems are often better-

high-production crew carrying out perhaps 20,000 VPs

suited for these surveys because pure node-based field

a day offers significant time savings. The system is very

equipment can be easily washed away. With this in mind,

cost-effective and is quickly and easily installed in existing

we have introduced a TZ version of our 508XT system

vibrator vehicles. Sercel is the only company that offers

that plugs easily and seamlessly into our standard land-

both of these products.

based system.

We are also producing downhole seismic tools with fiberoptic technology. Fiber-optic is attractive because of its

Sercel Inc. is a major provider of seismic acquisition

reduced cost compared to current wireline technology

equipment. The company, which is renowned for its industry-

and because the cable’s laser optics can be configured

leading technology, employs 1,500 personnel across its 13

to be the equivalent of thousands of virtual sensors

office locations around the world

129

| VIEW FROM THE TOP

CONSTRUCTING THE MODEL OF MEXICO’S RICH GEOLOGY SUJATA VENKATRAMAN President of Dynamic Group

130

ROBERT PASCOE Managing Director of Dynamic Group

Q: As IOCs move closer to production, how will Dynamic

of vintage US data from across the shelf to build a basin

Group position itself to acquire future work?

framework. We did enough work to be encouraged that the

RP: Dynamic Group is predominantly focused on early-stage

existing 2D data onshore is sufficient to build a model to see

exploration and telling the geological story of specific regions.

which areas have the greatest play potential.

In Mexico, the offshore industry has moved beyond that, as most of the offshore high-potential acreage is now leased to

Q: How does Dynamic Group leverage its international

IOCs in areas outside of Round 0. At the moment, IOCs are

experience for improved services in Mexico?

maturing the acreage they acquired and are putting together

SV: Our international expertise is in early exploration

a portfolio of best leads before drilling tranches of deepwater

and advising governments. We have carried out work in

prospects that will take place toward the end of 2019 and

East Africa, Trinidad & Tobago and India, among other

into 2020. Once these first drilling results come in, there will

countries. Dynamic Group is proud of its ability to integrate

be surprises and companies will re-evaluate their regional

existing data sets and focus on new ways to get the most

models. It is at this point that Dynamic Group re-enters

from existing data in terms of geology and geophysical

the picture in Mexico. We will update regional models and

interpretation. When a market opens up like Mexico did,

operators will consider farmouts and farmins, while a cycle of

there is a rush to go out and acquire new data. You then

re-evaluations and reassignments take place. With extra data

have great amounts of data, but the hard work comes

acquired through drilling, Dynamic Group can further refine

with the geological and geophysical work that goes into

and update our data models.

inspecting, processing and interpreting that data. Existing government datasets tend to be rich as there is an awful lot

Q: What is the purpose of Dynamic Group’s SuperCache

of information to play with. This usually gives us a pathway

onshore Mexico dataset?

for what future data should look like.

RP: The SuperCache Mexico was driven by clients and potential clients that saw great potential in Mexico’s onshore

Our team reviewed CNH’s data, looking at both onshore and

despite most of the IOCs and international large independents

offshore, and various vintages. We also looked at the well

having focused investment on the offshore arena. There is

database. The CNH data is robust and is openly available but

already a huge oil play in Tampico-Misantla, but these areas

the hard work is in selecting the appropriate techniques to

present operational, social and environmental challenges

piece that data together and build coherent velocity models.

that do not exist in the same way in offshore operations.

The expertise is then in building the models themselves.

However, non-PEMEX and foreign companies have relatively little information about these areas.

A standard model cannot be applied in Mexico because it has an extraordinarily rich and diversified geology. The standard

Our reconnaissance intended to find out how good the best

models that were presented a few years ago in terms of the

of the CNH regional 2D data actually was. We were pleased

comprehension of pre-salt layer and salt formations were

with the results. Most of the data is good and we were able to

different from what we understand takes place in other world

draw together lines from many vintages, which also was our

basins. Dynamic Group’s US Gulf of Mexico data demonstrated

expertise on the US shelf, where we put together 40,000km

that, for example, the basement beneath the Perdido area is not a typical crust. We have been able to show that it is an anomalous, thicker than normal oceanic crust and probably

Dynamic Group delivers seismic data services and geological

a micro-continental slither. This has a profound effect on heat

expertise. Dynamic Group is composed of geologists and

flow and offers prospectors deeper insight into geological

geophysicists and provides a full range of data acquisition,

workings. This is one way that our international experience

acquisition, processing, interpretation and advisory services

strengthens our product offering in Mexico.

VIEW FROM THE TOP |

THE MEXICAN VANGUARD IN GEOPHYSICAL DATA MANAGEMENT JAVIER RUBIO General Manager of Geoprocesados

Q: What would you consider to be the most important trends

The first would be seismic acquisition. We are working

shaping the geological data market?

with what we call ultra-high-resolution seismic for shallow

A: Our work with PEMEX has continued without many changes

objectives. This new technique allows for the creation of

despite the many shifts in the public sector. It is obvious

super-high-frequency images for offshore objectives as

that PEMEX is pursuing new and different strategies in its

shallow as 10 meters. This will be a game-changer in some

approach to geophysical data, but our relationship with the

areas. We are also introducing to Mexico, through our partners

NOC continues to be as healthy as ever. PEMEX has aggressive

in Norway, new technologies in ocean bottom seismic that

goals for these next few years, and we are helping it achieve

can provide full azimuth information, opening up new

those goals. Geophysical data management continues to

opportunities in new and existing Mexico fields through better

be one of our largest areas of business in Mexico. We have

reservoir characterization and better imaging. The second of

been upgrading our technologies so that these services

these categories would be seismic processing, where we are

can be offered to PEMEX in a more modern way through

very proud to be including really new technologies like super-

a centralized environment where data from multiple clients

high-frequency FWI (full-waveform inversion) using a high-

and assets can be accessed in an easier and faster manner

performance computing cloud. Access to this degree of

than ever before. Meanwhile, the lack of new bidding rounds

computing power represents a big differentiator for us as a

has slowed down the multiclient business. As a medium-sized

local player in the seismic processing industry. It allows us to

company, we need many new bidding rounds to maintain a

reduce turnaround time for seismic processing drastically.

healthy market for multi-client data and, consequently, to

A final image can take from six to eight months but in the

make the multiclient business division profitable.

future, that could be reduced to weeks or even days.

New operators and major companies in seismic acquisition

Q: What role do all these developments play in helping

have been leading the charge in the general industry trend

PEMEX continue its trend of exploration successes?

of investing in the generation of new data for the Gulf of

A: All these discoveries would not have been possible

Mexico. These new data generation activities are great for

without PEMEXâ&#x20AC;&#x2122;s significant investments. The next step for

the industry but new bidding rounds are needed so that

PEMEX in general is to repeat these offshore successes in

all this new data can be linked to operators turning it into

the onshore sector. New onshore seismic acquisition has not

reserves and, eventually, production. Although the multiclient

happened for too many years but a number of technologies

data bought by these new operators usually includes the

exist that can achieve seismic acquisition in ways that can,

processing as part of an integrated service, we have found

hypothetically, circumvent these obstacles; for example,

a significant business niche in reprocessing new proprietary

through the use of drones and remote sensing information.

data and PEMEXâ&#x20AC;&#x2122;s old legacy data. Recent results show that

New onshore acquisitions could very quickly lead to similar

updated data makes all the difference to operators and their

discoveries and exploration successes, yielding many

drilling activities. Working off data from five to eight years

rewards with very little investment. Processing would

ago and doing so with recently-generated data can make the

play a key role in achieving this as well, particularly given

difference between a successful well and a failed well.

the enormous volumes of PEMEX legacy seismic data for onshore plays.

Q: What have been the chief areas of technological advancement within your data management workflows? A: In the last couple of years, we have been aggressive in

Geoprocesados is

the development and acquisition of new technologies. We

experience

can divide these new technologies into two main categories

interpretation and characterization studies, as well as data

depending on where they are in the exploration value chain.

handling of exploration and production information

land

geoscientific and

marine

company seismic

with

wide

processing,

131

Global drilling machine top drive

DRILLING & WELL COMPLETION

After a severe downturn sparked by the devastating collapse of oil prices in 2014, the signs of a turnaround are getting brighter for drilling and well completion activities. Drilling contracts that were on hold are now moving forward and new contracts will soon be needed. The expectation is that drilling and well completion will see significant expansion. As deepwater and ultra-deepwater exploration takes shape, operators will need the best drilling techniques, equipment and services. PEMEX is still the biggest fish in the pond, but smaller private operators also require services, adding to the renewed optimism in the sector.

In this chapter, questions are answered surrounding where drilling and completion services can add value. The chapter highlights industry frontrunners in the sector. Leaders share knowledge on how to prepare for the crucial years to come, how regulatory processes could be improved and on the new cutting-edge technologies and services propelling the sector forward.

133

CHAPTER 6: DRILLING & WELL COMPLETION 136

ANALYSIS: Drilling Sector Reactivated

138

VIEW FROM THE TOP: Ricardo Arce, Perforadora México

140

VIEW FROM THE TOP: Alan Quintero, Valaris

Joseph Pope, Valaris 135

142

VIEW FROM THE TOP: Patricio Álvarez, Perforadora Central

143

VIEW FROM THE TOP: Dong Tiejun, COSL

144

VIEW FROM THE TOP: Jay Hilbert, RigNet

Erik Gómez, RigNet

147

VIEW FROM THE TOP: Niels Versfeld, Simmons Edeco

148

VIEW FROM THE TOP: José Aguilar, Oceaneering

149

VIEW FROM THE TOP: Martin Kobiela, InterMoor Inc.

150

VIEW FROM THE TOP: John Lawrence, Petricore

152

TECHNOLOGY SPOTLIGHT: Dual Energy CT Scanning for Increased Insight into Rock Properties

154

VIEW FROM THE TOP: Christian Rodríguez, Core Laboratories

156

VIEW FROM THE TOP: Luis Ferrán, The Mudlogging Company

157

VIEW FROM THE TOP: Jonah Margulis, Aker Solutions

158

VIEW FROM THE TOP: Carlos Palavicini, Petrolink

159

VIEW FROM THE TOP: Julio Loreto, Weatherford

160

VIEW FROM THE TOP: Fernando Cardenal, GTM

Guillermo López, GTM

161

VIEW FROM THE TOP: Patricio Orendain, Grupo Pochteca

162

VIEW FROM THE TOP: Reinaldo Maldonado, Impact Fluid Solutions

163

VIEW FROM THE TOP: Emmanuel Montaño, Consorcio EMCRO

164

INSIGHT: Ernesto Sánchez de Tagle, Control Flow

165

VIEW FROM THE TOP: Abelardo Sánchez, Tanis Technology & Services Mexico

| ANALYSIS

DRILLING SECTOR REACTIVATED When oil prices began a descent to US$25 a barrel in January 2014, triggering a deep industry-wide downturn, offshore drilling activity was perhaps the Mexican oil and gas industry’s most impacted sector. After a half decade, 2019’s reactivation of drilling operations suggests that the slump is coming to an end Both offshore and onshore drilling economics were

began to be reflected in PEMEX’s activities in 2019, we were

confounded in the last half decade by the environment

able to quickly renew the contracts. It was a lot easier to

created when oil prices dropped from over US$100 a barrel

make an extension for an existing contract than to wait

in January 2014 to almost US$25 a barrel in January 2016.

for a completely new contract to be drawn up, offered,

The implications of the radically reduced pricing applied

negotiated and agreed upon”.

with more force to offshore markets due to their higher

136

rig day rates and drilling expenses. Consequently, Mexico’s

TURNAROUND

drilling services economy in Villahermosa and Ciudad del

The turnaround came in 2019, as the slowdown reversed

Carmen suffered a significant slowdown, particularly during

course to mark the beginning of the region’s financial recovery.

2017 and 2018.

Contracts that were put on hold are now taking precedence and there are new contracts being offered. Rigs, ships

Ricardo Arce, CEO of Grupo Mexico’s prominent oil and gas

and crews are once again in business. “We began this new

drilling venture, Perforadora Mexico, details this economic

administration with our Tabasco, Chihuahua and Zacatecas

impact: “Peak oil prices were reached basically at the same

rigs inactive because they were involved in suspended

time that the Energy Reform was launched. Since then, day

contracts. They have all been reactivated since then. The last

rates have been dramatically reduced. For us, as it was for

one to be reactivated was the Zacatecas rig in April 2019. We

the rest of the industry, it was very difficult to survive during

have only two contracts expiring early into 2020, specifically in

this period. The most important reason why we were able

January, which are those tied to the Chihuahua and Zacatecas

to do so was thanks to the support of our prominent parent

rigs. Nevertheless, we are in close conversation with PEMEX

company, Grupo Mexico, from whom we received a great

to have these contracts renewed. We proposed the Zacatecas

deal of assistance in terms of equity. During these years,

rig for work recently tendered by PEMEX and we believe we

most of our units were suspended. The smart decisions

have a good chance of being awarded this contract shortly,

we made during this time greatly helped us during our

which would extend its work schedule by a year and a half.

comeback in 2019. Another important factor behind our

In general, PEMEX is experiencing high rig demand and we

endurance during this time was that, unlike other major

expect the Chihuahua rig to address this demand, thus also

players in the industry, we were able to negotiate better

extending its work schedule approximately an additional year

terms for the suspensions of our contracts with PEMEX. This

and a half,” says Arce.

is a great example of one of these smart decisions: when we contemplated the approaching conclusion of a number

STRATEGIES

of our contracts, we were able to negotiate with PEMEX so

Emmanuel Montaño, General Director of Consorcio

that these contracts would be suspended rather than just

EMCRO, credits López Obrador for the revival. “President

left to end or expire. As soon as the sector’s turnaround

López Obrador’s PEMEX strategy has already resulted in a significant increase in drilling activity, which has benefited

NÚMEROOF DE POZOS PERFORADOS NUMBER WELLS DRILLED

us directly. We have ongoing contracts with oilfield services giants such as Baker Hughes and Dowell Schlumberger. This

1,300 1,201 1,200 1,100 1,000 900 785 800 700 600 511 500 400 319 289 300 200 143 128 100 55 0 2012 2013 2014 2015 2016 2017 2018 2019

applies to both foreign and national operators; for example,

Source: PEMEX

two rigs: Tuxpan and Panuco. We need two to three months

Mexican drilling company Perforadora Latina received three of six jack-up rigs ordered from Singapore this year, all meant for Mexican work.” Patricio Álvarez Morphy, Vice President of flagship Mexican driller Perforadora Central, echoes Montaño. “President López Obrador wants to revamp production and the government will be injecting sufficient funds into PEMEX to help make that happen. To truly boost the industry, everything will have to originate in Mexico because the costs of importing will be way too high. It makes sense to mobilize local firms. We will be ready with

per rig to get them operational and ready to compete in Clusters 3 and 4. PEMEX will also continue to rent rigs as it did before through day rates, with its staff operating the rigs and taking all of the risk.”

RISK MANAGEMENT Morphy says a comprehensive risk management strategy is

EXPLORATION WELLS COMPLETED IN 2019

PERIODO DE PERFORACIÓN Y TERMINACIÓN 2019 POX-101AEXP ITTA-1EXP

TLAMATINI-1EXP HOK-101EXP

essential for PEMEX to make this reactivation sustainable.

TEMA-1EXP

In this sense, it is possible that it might be able to view

ICHILAN-1EXP

private operators as a reference. “With the Energy Reform,

TENANTLI-1EXP

many blocks were awarded to experienced companies like Fieldwood and Talos Energy, which take on all the risk. They

TRION-3DEL

contract jack-ups but they crew, maintain and operate them.

IXCANUL-1EXP

With one good well, the sky is the limit and all the risk would

YALUK-1EXP

be rewarded.” Morphy highlights this risk is taken on by private

TOKAL-101EXP

operators under the assumption that many possible outcomes make it worthwhile: there can be enormous success like Eni has had in some of its assignments or a degree of failure like Hokchi faced in one of its blocks. They also manage this risk by increasing technological and safety standards. For example, they demand that driller rigs contain hydraulics and BOP equipment that can withstand pressures above 15,000PSI when 10,000PSI tends to be the baseline in Mexico.

SEJEL-1EXP

17/01/2019 10/10/2019 11/05/2019 07/10/2019 19/07/2019 28/09/2019 14/07/2019 10/09/2019 15/04/2019 24/08/2019 03/04/201908/08/2019 17/06/2019 21/07/2019 10/07/2019 19/07/2019 10/09/2018 17/07/2019 20/04/201916/07/2019 06/05/201815/07/2019

137

17/12/2018 28/06/2019

QUESQUI-1EXP 23/07/2018

17/06/2019

TOHKIN-1AEXP 01/12/2018 29/05/2019 ZAMA-3DEL

01/11/2018 04/05/2019 08/08/2017

CIBIX-1

20/03/2019

KOBAN-1DEL 11/07/2018

20/03/2019

CHOLULA-1EXP 08/02/201907/03/2019

measures and global industry best practices for extreme

Improductivo

efficiency. Julio Loreto, former Mexico Country Manager of

Inicio Unproductive

oil field services firm Weatherford, details some of the ways

Source: CNH

Productor no comercial

Termino Economically

unviable

Sep-2019

May-2019

Oct-2018

Feb-2019

Jul-2018

the long-term by making the Mexican drilling sector adopt

02/02/2019 Mar-2018

Jan-2017

guarantee that the industry’s reactivation is successful in

Nov-2017

CRUVER-1EXP 30/03/2018

best risk-management strategies, and also the best way to

Apr-2017

Technology and safety are important issues to consider in

NOBILIS-1DEL 04/01/2019 05/03/2019

Aug-2017

EFFICIENCY

Productor comercial

Economically viable

in which his company revolutionized its internal structures and processes to adopt these measures. “We chose to look

This general upward trend in drilling activity also creates

at the processes to find out how to make our procurement

a new environment for drilling companies that is more

more efficient, how we could improve our inventory

favorable towards innovation and the researching of new

management and how we could put the right people in the

business lines; companies have more additional resources

right places, among many other factors. Now, 90 percent

available for investment that can create the integration of

of management discussions are based on these types of

services and products necessary to make their operations

questions.” Loreto, however, is quick to clarify that a big

truly ultra efficient. For national players, this can be

part of this efficiency is making sure that its services and

particularly beneficial on their road towards contributing

technologies are particularly aligned with the specific needs

to Mexico’s growth and homegrown expertise. It can also

of each project. “We look at what we are good at: managed

be decisive in their competition against larger foreign

pressure drilling, tubular running, drilling fluids, cementing

entities. As Arce concludes, one of their goals for next

accessories and integrated solutions, to name a few. Then

year “is to increase the vertical integration of our services.

we start matching opportunities. If we see a perfect match,

In the past we had additional contracts covering other

we check the profitability of the project and go from there.”

types of services within the drilling category, such as cementing, directional drilling and supply of drilling

According to figures from the Ministry of Energy’s National

fluids. Of these, we currently only have active contracts

Energy Information System, PEMEX reported a total increase

for cementing services, but we want to go back to

in drilling units from 39 in January 2018 to 55 in September

providing the full range of services for both offshore

2019. During that same period, wells drilled per month

and onshore operations. Thankfully, with all of our rigs

increased from 17 to 26, while well completions rose from

working, we can plan for a better tomorrow, rather than

nine to 26, all clear indicators of positive growth.

simply survival, which was the case in previous years.”

| VIEW FROM THE TOP

NEW OPPORTUNITIES FOR MEXICAN DRILLING COMPANY RICARDO ARCE CEO of Perforadora México

138

Q: What were the most important changes and

within our control. Also, we are analyzing the relevant

developments for your fleet during 2019?

statistics to see how this rate differentiation could impact

A: We have six offshore units currently working. Two of

us, so we can decide if these provisions are something

these units are big JU-2000E jackups, called Tabasco

we can accept or not. This might be the only challenge

and Campeche, and are working on medium to long-

we will face when it comes to successfully renewing

term contracts. Another two are Super M2 jackups, called

and positioning the Chihuahua rig. Hopefully, we can be

Chihuahua and Zacatecas, which are able to go up to

awarded the contract for the Zacatecas rig, in which case

almost 100m of water depth. The last two are platform

we will not have to enter into these types of discussions

rigs, called Tamaulipas and Veracruz. All of them are

for that rig as well.

working with PEMEX. We have only two contracts expiring early into 2020, specifically in January, which are those

Q: Are new drilling contract negotiations factoring in the

tied to the Chihuahua and Zacatecas rigs. Nevertheless,

possibility of a performance bonus so that you can see

we are continuing discussions with PEMEX to have these

an upside to these downsides?

contracts renewed shortly. We proposed the Zacatecas

A: Yes, PEMEX is planning to provide some sort of similar

rig for work recently tendered by PEMEX and we believe

incentive but it is still in the planning stages when it

we have a good chance of being awarded this contract

comes to how this will work. The main problem is the

shortly, which would extend its work schedule by a year

large variety of very different contracts that PEMEX

and a half. In general, PEMEX is experiencing high rig

currently has in place. For example, our contract is

demand and we expect the Chihuahua rig to address

under what PEMEX calls its “REMI” modality, so it only

this demand, thus also extending its work schedule

contemplates the rent of the rig. From there, it has to

approximately an additional year and a half. Taking

contemplate the hiring of all the different services, plus

this into account, hopefully we will not have any issues

PEMEX is in charge of the rig’s operation, so the main

keeping the Chihuahua rig working.

challenge is for PEMEX to give an incentive of around 25 percent if we can reduce the time to perform each

With that being said, we must mention that PEMEX is

well. For that to be achieved, PEMEX, us and the other

planning to make some modifications to the contracts.

companies involved have to work as a team. PEMEX has

We are not completely sure as to the exact nature of these

to give these same incentives to the other companies

modifications and to which contracts they will apply,

as well. With this in mind, the main issue for PEMEX will

although we are aware of some of the modifications. For

be how to manage these incentive schemes internally.

example, it wants to differentiate the rig’s day rates, so

My suggestion to PEMEX is to move our contracts from

that a different rate applies depending on whether the

the “REMI” modality to the “REMI-MIXTO” modality as

rig is working, moving or not working for reasons not

a first step, which would put us in charge of the rig’s

related to us. That is a challenge for us because, as I

operation as well. That would make it is easier for us

have been telling PEMEX, being able to provide better

to work as a team with other companies and service

rates in the second and third cases, meaning when the

providers so that all parties involved can have a good

rig is being moved or suspended, might not be a matter

shot at the bonus. If PEMEX is kept in the middle, it will make this much more difficult. To be honest, I have yet to see that kind of modification within the contracts. It

Perforadora Mexico, or PEMSA, a Grupo México company, was

is also planning to implement a penalty, but, again, it is

founded in 1959 to conduct exploratory drilling, development

only now beginning to see how it will implement all of

and other services inherent to the oil and gas industry, including

this into its contracting models. As an example, in cases

the construction of oil and gas pipelines

in which a rig stops working because of something that

is our fault, this would result in a 25 percent reduction

or China depending on the type of tender process that

of our rate. This would be a huge benefit for us because

we participated in, and to participate together with

usually, when our equipment stops working because of

Schlumberger in a 50-50 partnership where we provided

something that is our fault, PEMEX pays us zero percent

the rigs and the cementing services and they did the rest.

of our rate. Now, it is telling me that in these cases we can

This strategy made us quite different from our competitors

expect 75 percent of our rate instead. Again, I say this as

in these tenders, including the winners, because all of them

an example of the fact that it is now only beginning the

were participating on their own, expecting to subcontract

process of designing these contract modifications. It is

all the necessary services to a range of different companies,

still figuring it out.

including Schlumberger and Halliburton.

Q: What are your priorities for 2020 assuming you can

This partnership provided advantages that a model

secure work for all of your rigs?

based in subcontracting could not provide. We plan to

A: We have two goals for next year. The first is that we really

participate with Schlumberger once more this coming

want to participate in these new integrated contracts that

year, but we still need to discuss this possibility with

PEMEX will be offering. We submitted bids for all of them

them. Given the poor results that companies have had so

this year and, as I have been telling everybody internally,

far working on their own under these contracts, it makes

we were the eternal second place. We had a chance to

sense for us to try once more with this partnership-based

match prices in three of these tenders, but ultimately, we

strategy. The second goal for next year is to increase

were not able to do it. In another one of these cases, in

the vertical integration of our services. In the past

which I was sure we were going to win the contract, we

we had additional contracts covering other types of

were pretty much disqualified due to a typo or some other

services within the drilling category, such as cementing,

sort of similar mistake that took place during the capturing

directional drilling and supply of drilling fluids. Of these,

of the numbers. To be honest, we are happy now that we

we only have active contracts for cementing services, but

did not win any one of these contracts because all the

we want to go back to providing the full range of services

actual winners are currently suffering. With that being said,

for both offshore and onshore operations. Thankfully,

however, I do personally feel a chip on my shoulder over

with all of our rigs working, we can plan for a better

not being able to win any. What we were planning to do

tomorrow, rather than simply survival, which was the case

was to bring in new equipment from Asia, either Singapore

in previous years.

139

| VIEW FROM THE TOP

FLEET SIZE, CAPABILITIES THE DIFFERENCE FOR NEW COMPANY ALAN QUINTERO Senior Vice President of Business Development at Valaris

140

JOSEPH POPE Vice President of Sales and Marketing Americas at Valaris

Q: How did Ensco and Rowan use the downturn to position

AQ: Valaris is a recent entrant to ultra-deepwater drilling

Valaris for a stronger future?

and our deepwater assets are equipped with state-of-the-

AQ: There was an overbuilding of rigs in 2014 that led to a

art technology. Our rigs have 12,000ft true water depth

challenging four or five years in the offshore drilling industry.

capabilities, DP3, two BOPs, dual activity, an active heavy

Both legacy companies used this downturn to implement

crane for subsea operations and a riser on the hull. These

cost-control measures and improve operational efficiency.

are features that our competitors simply do not have.

Similarly, both companies focused heavily on technology;

Additionally, we have very highly skilled and competent

dramatically enhancing their understanding of each other’s

personnel with significant ultra-deepwater experience.

performance. Data streaming from our rigs has helped generate these insights and we have been able to take steps

JP: Valaris has a combined fleet of 16 drillships operating

toward systematic and permanent improvements. We are

in the ultra-deepwater market. The company also has

well-positioned for the next upcycle.

semisubmersibles that can be sent into ultra-deepwaters. Of the company’s 28 floaters, 25 are fitted for ultra-

JP: The merger decision was taken to secure the future of

deepwaters; highlighting the fact that these are all

both legacy companies. As Valaris, we now have the most

relatively young.

diversified fleet in the market, giving us more possibilities to win a wider range of contracts than both companies alone.

Q: How does Valaris ensure high health and safety

We are now the world’s largest offshore drilling contractor.

standards?

This was a central driver in the decision to merge and, due

AQ: Valaris uses the Perfect Day concept to make our

to added competitiveness, we expect to see more mergers

health and safety goals practical and attainable. While total

take place in the industry in the near future.

recordable incident rates and similar metrics are useful at an upper management level, these terms add little value to

Q: Where has Valaris located opportunities globally and

the crew at the rig. The Perfect Day concept is based on

in Mexico?

clear risk-reduction variables and makes our safety goals

AQ: Our priorities are in Norway and in Latin America,

more concrete.

including Mexico. We are excited by the international companies coming to explore Mexico’s ultra-deepwaters

JP: We have high-end training centers that use simulators

and we have shown our commitment to the country by

for well control training exercises that guarantee our staff

bringing a rig over for a short-term project. We brought

is trained to a far higher standard than the minimum

the Valaris Renaissance to the Gulf of Mexico to work for

level required. A safe rig is an efficient rig and we want

Total and recorded the deepest water-depth ever reached

to make sure employees go home in the same condition

in that area. We have also signed with Petronas in Mexico

they came in.

and are exploring other available opportunities. Q: What are Valaris’ policies regarding local content? Q: What makes Valaris’ rigs ideal for working in Mexico’s

AQ: Valaris has a company-wide mandate to hire people

ultra-deepwaters?

from whichever country it is working in. This is not always an immediate possibility because we have to train our staff, but our intention is always to hire locally. Currently,

Valaris was formed following the merger of Ensco and Rowan

as a drilling contractor, we do not have any local content

in April 2019. It is now the world’s largest offshore drilling

requirements in Mexico, however knowing the high skill

contractor, bringing decades of experience to operators in

level of locals, over 25 percent of our crew members in

waters around the globe

Mexico operations are locals to other countries where we

have opportunities to bring in new ideas and experience to our management teams around the world.

VALARIS DS-15 RENAISSANCE, ONE OF CNOOC'S HOPES

JP: As a respectable international drilling contractor, we recognize our social obligation to source local content.

Valaris secured a contract with the China National

Beyond this, however, local content strategies make us a

Offshore Oil Corporation (CNOOC offshore Mexico)

more efficient company. Valaris’ merger opened synergy

for its drillship, the DS-15 Renaissance. It is a two-well

opportunities for local content across the two companies,

contract within the Perdido Fold Belt formation in the

especially in terms of labor as there is an abundance of

Gulf of Mexico. The ship is currently scheduled to start

qualified workers to work on rigs.

in April 2020 and run for 160 days. The ship, in service since 2014, has the following characteristics:

Q: How does Valaris’ roll out decision-making when working internationally? AQ: Many IOCs work in a similar way. Early exploration

• Length overall: 752ft • Breadth: 118.1ft

plans take place at the company’s hub, which is often in

• Depth at side: 59.6ft

Houston. As plans progress and procurements are made,

• Max. drilling depth: 40,000ft

staff moves to the country of operation. Early exploration activities usually happen at a temporary base in the country of operation and, if discoveries are made, the

• Rated max. water depth: 12,000ft • Accommodations: 210 persons

company begins to establish a more permanent base. Decision-making power then shifts from headquarters

KPIs, including tripping speed, safety and environmental

to local executives.

components, all of which are controlled by the drilling contractor.

Q: What is your outlook regarding day rates in Mexico and what differentiated value do you offer clients?

Q: What are Valaris’ priorities for the future?

AQ: Day rates have hit a low and will soon begin to

AQ: Our future is focused on developing our own

rise again, which is reflected in recent contracts. Our

technology and intellectual property. This is how we

customers are also realizing that day rates will be higher

predict drilling contractors will differentiate its services

in the future. But Valaris has the ability to compete in

in the future. Big Data, machine learning and artificial

other areas besides price. There are few rigs in the world

intelligence are all beginning to influence our sector

that can reach true water depth of 12,000ft.

with many contractors using these technologies for predictive maintenance. The company believes machinery

Another advantage is that we have infrastructure in place

automation at the rig floor combined with real-time

to read real-time data from the rig. This allows us to add a

measurements to automate drilling decisions will play

pay-per-performance dimension to our contracts for both

an important role in remote operations. We are striving

Valaris and the client’s benefit, while associated costs

for a safer working environment for our workers and

are reduced. Good performance is measured through

streamlined efficiency.

141

| VIEW FROM THE TOP

RIGS READY FOR DRILLING IN MEXICO’S SHALLOW WATERS PATRICIO ÁLVAREZ Vice President of Perforadora Central

142

Q: How has Perforadora Central evolved in the Mexican oil

to do all this and adapt to the changing conditions.

and gas market?

Companies need to be Mexican to build a strong

A: We have been drilling in shallow waters since the early

relationship with PEMEX. It is very difficult and you need

1990s. At that time, we did turnkey projects for PEMEX with

the expertise of local companies to adapt. All international

just two rigs while working out of Ciudad del Carmen. In 1998,

companies that enter the Mexican market understand that

we began our first major project, which was the construction

they need the support of a local company. It is crucial to

of an ultra-premium jackup rig that would work with a

understand the language, the regulations and framework

capacity of up to 375ft of water. Between 2000 and 2016,

to be successful.

we engaged in building one rig every two to three years. Q: What role does Perforadora Central want to play in In 2015, the oil price crisis began and many Mexican

boosting the country’s production in the next six years?

companies suffered as a result. PEMEX began struggling greatly with its resources and its spending. It got to the point

A: President López Obrador wants to ramp up production

where we only had one rig working at a very low day rate.

and the government will be injecting sufficient funds into

In 2014, the daily rate was US$150,000. That plummeted to

PEMEX to help make that happen. To truly boost the industry,

just US$70,000. It was a very difficult time; nevertheless, we

everything will have to originate in Mexico because the costs

were able to continue negotiating with PEMEX. Gradually,

of importing will be too high. It makes sense to mobilize local

we began to place our rigs in operation and now have three

firms. We will be ready with two rigs: Tuxpan and Panuco. We

of our six ultra-premium jackups working. We are close to

need two to three months per rig to get them operational

putting a fourth to work with an IOC.

and ready to compete in clusters 3 and 4. PEMEX will also continue to rent rigs as it did before through daily rates, with

Q: What has been Perforadora Central’s experience working

its staff operating the rigs and taking all the risk. Our model

with PEMEX and what advice does it have for other players?

is excellent because we do not take on any risk with PEMEX

A: We have been working with PEMEX for many years. You

subcontracting our services.

need to create a long-lasting relationship with the NOC and carefully maintain the rigs and equipment. If you can meet

Q: What new technologies are IOCs demanding to drill in

its requirements, you will enjoy a long, fruitful relationship

shallow waters?

with the company. Payments are on time, except in the last

A: With the Energy Reform, many blocks were awarded to

couple of years when the sector was in crisis and most of

large companies like Fieldwood and Talos Energy, which

the contractors agreed to 180-day terms. Nevertheless,

take on all the risk. Our main advantage is that we already

everything appears to be returning to normal.

have two ultra-premium rigs ready for operation in Ciudad del Carmen. Operators want hydraulics and BOP above

When working with the government, companies must be

15,000 PSI. We only have two rigs with that capacity: the

flexible. To withstand such long payment terms, companies

other four rigs are 10,000 PSI. We have drilled for 25 years

need to reduce costs, negotiate with their banks and

in various areas in Mexico with 10,000 PSI and it is enough.

restructure their finances. Perforadora Central was able

We are certain that you do not need more than that. It is an international requirement that was introduced by operators that are starting to work in Mexico. New rigs come with

Perforadora Centra l is a 100 percent Mexican company founded

at least 15,000 PSI and it is not cheap to convert the rigs

in 1959. It has performed both exploratory and development

to that capacity. To upgrade the four rigs, we would need

oil well drilling works, mainly for PEMEX, in addition to having

to invest US$5-6 million per rig and require three to five

obtained international experience in well drilling

months of work.

VIEW FROM THE TOP |

INNOVATIVE TECHNOLOGIES ON THE HORIZON DONG TIEJUN Vice President of QHSE and Marketing at COSL

Q: What have been the successes and challenges of COSL

worked for PEMEX since 2006, and we continue to adapt

in the last 12 months in Mexico?

to PEMEX’s new requirements as the NOC adapts itself

A: One of the greatest successes of our company has been

to new market conditions and new country necessities.

to keep up the utilization of our drilling units, despite the

We have adapted also to the new IOCs in terms of

terrible downturn of the oil and gas industry that has been

techniques, personnel, technical requirements, additional

affecting us for the last four to five years. The market is

services, additional certifications and, in general, a new

recovering slowly but steadily and we expect to see a

interpersonal relationship. Our COSL team includes

more generous market in the years to come. We need to

personnel with international experience who have made

stay focused and learn from the past. We need to improve

it easy to transition from a one-client environment to a

cost control and our performance to stand out from the

multiclient environment.

competition that has also learned a lesson or two during these difficult times. I would like to think that we are more

Q: What innovative technologies is COSL bringing to its

resilient now than we were when we started this venture in

operations in Mexico?

2006. We have projects going on with our drilling units and

A: COSL owns and operates a large fleet of drilling units,

our well service lines, and the national market has expanded.

platform rigs, jackups and semisubmersibles. We have plans

We are confident that COSL will continue expand its client

to bring the latest generation jackups and semisubmersibles

portfolio. We have found it somewhat difficult to enter the

to the Mexican market. Those drilling units are equipped

market due to the usual suppliers that have operated in

with the latest technology in terms of automated equipment

Mexico for many years. However, once clients get to know

that protects our workers from injuries, along with new

our performance and service, trust increases and the client

and proven drilling equipment. Our chemicals division

portfolio grows.

has a state-of-the-art laboratory that rivals any chemical lab in Mexico, with new technologies such as expandable

Q: Which projects is COSL working on and who are

gas-tight slurries, gas control testing equipment in our

the clients?

lab, which is a full API-compliant laboratory. Our wireline

A: We continue operating for our main client PEMEX

division includes technology that rivals other similar

through contracts signed a few years ago and through

companies. Our production optimization division has new

contract extensions. We have been fortunate to have

products that can also benefit the Mexican market, such as

operated in the past for some of the IOCs, such as Petrofac,

rust inhibitors and scale removers.

Panamerican through its subsidiary Hokchi Energy and Fieldwood Energy. We remain interested in new projects

Now more than ever PEMEX and the other IOCs need

with other IOCs to replicate our previous success, providing

companies that are reliable, experienced and with a safe

safe, reliable and cost-effective services. Additionally, we

and strong performance track record. There are several

have managed to start well service operations with our

companies in Mexico that deserve to be considered

cementing and wireline logging lines.

relevant. I believe COSL is one of them. We have enlarged the array of services that we can provide in Mexico and we

Q: How would you characterize the suitability and

believe that we stand out from our competition.

adaptability of COSL’s offshore services to the demands of the Mexican market in its current stage of development? A: COSL has a slogan: always do better. I truly believe that

China Oilfield Services Limited (COSL) is a Chinese subsidiary

this slogan reflects COSL Mexico’s culture in general. We

of the state-owned CNOOC company. COSL has provided

are always trying to find ways to improve our performance

oilfield services to companies in the major oil-producing areas

and we can demonstrate it very clearly. Our company has

of the world since its founding in 2001

143

| VIEW FROM THE TOP

AI: KEY TO DRILLING EFFICIENCY

JAY HILBERT Senior Vice President of Global Sales and Marketing at RigNet

144

ERIK GÓMEZ Director General for Mexico and Head of Mexico and Latin America Strategy at RigNet

Q: How have industry trends influenced RigNet’s

creates demand for these services is the need to maximize

technological development?

efficiency and reduce costs.

JH: While we have been focused on remote communications for over two decades, two years ago we started a transition

Q: What roles do your technologies play in increasing

process to bring value to our operations. We began to

efficiency in drilling operations?

expand our service portfolio through acquisitions. We started

JH: For drilling companies, one of the most important aspects

by bringing in a cybersecurity company that could guarantee

is exponential reduction in NPT that our technologies can

protection for the increasingly larger volumes of data that

provide. One of the ways in which our products have reduced

our services were generating. Soon after, we bought a

NPT is by preventing stuck pipe conditions. We can detect

company that applied AI machine learning technologies to

signs of upcoming obstacles in the drill bit’s way using

interpret this data. This was done to help companies drill

machine learning analysis of data being collected in real

more efficiently and effectively, while improving health and

time. It can suggest necessary changes in pressure, RPMs

safety conditions at remote worksites. The truth is that rigs

or other variables and adapt to unfavorable conditions. We

have been producing a lot of data for some time, but a lot

believe these kinds of applications have a tremendous impact

of that has been wasted. Our technologies allow for that

for drillers working in offshore fields. We have already seen

data to be captured on location and processed into real-time

results in the Brazilian market. For instance, Petrobras was our

specifications for that particular rig’s crew and back to a real-

partner for this data interpretation and in the development of

time operations center onshore to take better advantage of

a portfolio, we began to notice the similarities between the

the rig’s capabilities. The most important industry trend that

Brazilian market and other Latin American oil and gas sectors, such Mexico's. Our Intelie Live platform can also facilitate monitoring of components to make their replacement more

RigNet delivers software, optimized industry solutions and

efficient and timely, reducing the possibility of equipment

communications infrastructure. It supports businesses in their

failure that generates tons of NPT and the losses that

digital transformation, maximizing overall financial performance.

come with it. This remote monitoring can also help drillers

RigNet is headquartered in Houston, Texas

comply with regulations. For example, after the Deepwater

Horizon incident, US regulation requires BOP performance

will be safeguarded. It is widely known in the industry that

to be observed from a remote location. Our products can

eight out of 10 machine learning projects fail. However, we

provide that.

have a proven track record of cases and projects that have been successful. According to our clients, we have already

EG: PEMEX is generally interested in the impact these types

saved them over US$100 million. All the new data that our

of tools can have on their operational efficiency. They can

applications generate gets immediately integrated into

reduce the cost of drilling by using our technologies to

drillers’ well planning methodologies, creating a cycle where

identify equipment that is bound to malfunction or needs

each well, whether successful or unsuccessful, contributes to

a modification in the drilling process. We can also integrate

the success of the next well, guaranteeing that the use of our

applications of our technologies to shorten the timeframe

tools will save clients a substantial amount of money.

for the planning stage of an offshore well by a factor of 10. Q: How do you convince drillers and operators to invest in new technologies? EG: We have to be clear in communicating the nature of

INTEGRAL COMMUNICATION TECHNOLOGIES APPROACH

the investments. There tends to be less upfront investment necessary than our potential clients expect because most of the components, such as data-capturing sensors, tend

RigNet’s portfolio of integral communication technologies

to be already present in the drilling rigs, whether jackups or

delivers actionable intelligence across its clients distributed

semisubmersibles. These pieces of hardware are going to be

assets.

coming from a large variety of suppliers that have their own

• Managed Communication Services (MCS) provide

conventions regarding the structures of the data they generate,

fast, secure sharing of critical real-time data, voice

assisted sometimes by the presence of brand representatives

and video to remote sites. Utilizes L-band, VSAT, LTE

and technicians in rig crews. It is our job to aggregate and then

and fiber.

standardize all of this data; by plugging all of these sensors

• Intelie LIVE is a real-time analytics and machine

into an integrated and streamlined platform that can process

learning software platform that helps customers

data they generate on an equal footing. Only through this

transform data into real-time results and monitor real-

process can real-time machine learning algorithms be used to transform data into operational efficiency. We can interface with most equipment in any rig to achieve this integration. We introduce streamlining to current and potential clients: we are not presenting new and complicated technology, but rather simplifying the technological capabilities already present in the rig, and as a result we generate savings.

time operations in the cloud or on-premise. • Adaptive Video Intelligence (AVI) allows video technologies to be streamed from customer remote sites with ultra-low bandwidth usage on cloud-based storage. • Enhanced Cyber Services (ECS) improve data and system security by providing real-time threat detection, network visualization and timely mitigating response. Employs advanced AI intrusion-prevention

JH: We integrate these digital transformation capabilities with

tools to continuously monitor cyber threats and

our cybersecurity services, assuring clients that their data

improve data and system security.

145

146

Rig in Samaria field, Tabasco, Mexico

VIEW FROM THE TOP |

PREPARING GROUND FOR ONSHORE DRILLING NIELS VERSFELD CEO of Simmons Edeco

Q: How successful were Simmons Edeco’s drilling operations

from our new Villahermosa office. We already have an office

in Mexico last year?

in Poza Rica that allows us to survey the central region and,

A: We completed our project on the Tecolutla Block with

if activity picks up as we hope, we may reactivate our facility

Tonalli Energía at the end of 2018. This was a critical well for

further north in Reynosa.

Tonalli, so we were thrilled that the company chose to put such an important well in our hands. The drilling operations

Q: What role does local content play in the company’s

were very successful and we are now waiting to see how

planned Mexico expansion?

the well produces for the customer. Simmons Edeco also

A: Local content is one of the largest value propositions

completed a well for Renaissance Oil and Lukoil located in

Simmons Edeco brings. In Mexico, we have high-quality

the Amatitlan Block. As the well was highlighted by various

certified rigs that are operated by Mexican teams that focus

aggregators as one of the world’s top shale exploration wells

intensely on QHSE and safety programs. Simmons Edeco

in 2018, we were extremely proud of our involvement. The

has embedded itself into Mexican community and there is

results of the well will be useful for the industry in Mexico

not a single Canadian expat among our crew. Our current

as decisions on how to move forward with the sustainable

local content rate is 93 percent, which exceeds the minimum

development of Mexico’s massive unconventional resources

requirement. The strong focus on local content goes through

are made.

to management level and this adds value to our company through skills, experience and connections that our Mexican

Q: How does Simmons Edeco see the future of

personnel bring.

unconventional resources evolving in Mexico? A: Simmons Edeco supports the development of

Q: Will Simmons Edeco seek to work directly for PEMEX

unconventionals and believes, indeed knows, that the

in the future?

industry, when well regulated, can develop these resources

A: In Mexico there is often a preference for an integrated

in a safe and sustainable fashion. We feel that the general

development model so Simmons Edeco usually works for

population often has misinformed opinions regarding the

an operator that has direct contact with PEMEX. We have

dangers of unconventionals, especially around fracking. If

worked for Weatherford, Halliburton, and Schlumberger,

the reality was better understood, unconventionals would be

among many other of the biggest names in the industry.

a more attractive proposition. As Simmons Edeco operates

We are proud to have worked with these major players and

smaller rigs, our drilling services are more suited to the

believe it speaks volumes about the quality Simmons Edeco

shallow end of onshore drilling and so, while unconventionals

delivers. We can work within this scheme while working in

will become the driver of the industry, they will not drive the

Mexico because working alongside an operator allows us

near-term results of the company.

build relationships with different companies across the value chain. We put a great amount of effort into building

Q: Simmons Edeco has opened a new facility in Villahermosa,

relationships throughout the industry during the quiet period

Tabasco. What other plans does the company have for

because we knew opportunities would arrive soon. Both the

expansion in Mexico?

natural resources and the need for expansion exist in Mexico.

A: The potential for Simmons Edeco in Mexico is undoubtedly

Now, that expansion is beginning to happen.

huge and the opening of our Villahermosa office reflects our commitment to the country. The change in political administration and its distrust of unconventionals has placed

Simmons Edeco is a Canadian drilling operator that focuses on

a renewed focus on Mexico’s proven conventional resources.

onshore drilling provision for many of the world’s major operators.

This aligns with our company’s current assets and we intend

The company, which is over 55 years old, has been in Mexico since

to concentrate on the fields being developed in south Mexico

2015 and boasts a local content provision of over 90 percent

147

| VIEW FROM THE TOP

INNOVATION LEADS TO NEW PROJECTS JOSÉ AGUILAR Managing Director of Oceaneering

148

Q: How does Oceaneering view the offshore market’s

Q: What technological innovations does Oceaneering

evolution in the last year?

bring to the table?

A: There have been many changes since the beginning of

A: The oil and gas industry in Mexico is becoming more

2018. Right now, expectations are higher and the company

accepting of innovative offshore technology. This is good

foresees a bright future ahead. Given the changes in the

for us because Oceaneering is the leader in managing

regulatory framework and the new operators entering

ROVs. This year, we expect to attract more work in

the country, there will be a great deal of work to do in

this area as the company will introduce a variety of

2019. Our client list includes Pan American’s Mexican

technologies to offer a better service. We will launch

subsidiary Hockchi, Talos Energy, Total and Lukoil. In

a new vehicle designed in-house that can be operated

fact, Oceaneering just signed a contract with BHP to

without a cable, eliminating the need for a boat. This

execute our first deepwater survey in the country, at the

is a prototype between an AGV and a ROV, with a

Trion field. This is a challenging project because it will

special underwater charging base that permits 24-hour

be in Tampico, Tamaulipas, which does not have many

operation. The prototype is executed by remote control,

infrastructure facilities and the operation must be done

which means fewer personnel.

from very long distances. But we already have experience working in remote areas of Africa and Suriname. In this

The average ROV requires a 12-hour charge and our

case, the conditions are better and we expect to have a

goal is to increase this endurance. We are targeting all

very good year.

the companies operating in the deepwater segment. Some shallow-water users have also inquired about this

Q: How is the company adapting to the industry’s changes?

technology. In fact, 90 percent of the companies that

A: We are trying to be more detailed in terms of planning.

have drilled in deepwater used our ROV equipment. We

Sometimes, our clients do not have detailed work plans

are very excited to participate in the Trion deepwater

and since there are new rules, the industry’s stakeholders

survey with BHP, where we will be able to showcase this

are unsure about how to follow the framework. Many

technology.

procedures remain unclear and this has generated an environment of uncertainty in which companies are not

Q: What is Oceaneering’s main goal for 2019?

complying with the required permits. At the moment,

A: The company’s main objective is to work for every new

industry participants are learning from the experiences

operator in the country. We are working with 80 percent

of other companies. When you pioneer in any project,

of the entrant operators so we are getting closer to this

as we have done, these situations are expected. Before

goal. Oceaneering builds and designs its own equipment.

the Energy Reform, PEMEX was the main player and

We own more than 300 vehicles and our fleet is twice

everyone knew how to work with this company. Today, it

as big as that of any other competitor in the market.

is a learning curve for everybody, even the government.

Our prices are also competitive. Globally, the company

Oceaneering also works with PEMEX, delivering services

is stepping into new areas, such as offshore wind farms.

such as surveys and operations at deepwater drilling

In Mexico, this trend is quite new and we expect to enter

platforms.

this market soon. On the partnerships side, we are always looking to

Oceaneering is a subsea engineering company based in Houston.

establish strategic alliances. Every company, no matter

It provides engineering services and hardware to customers who

its size, needs support to grow. We have entered a

operate in marine, space and other environments. Its solutions

couple of alliances in Ciudad del Carmen and are open

include subsea hardware and manned diving services

to establishing more.

VIEW FROM THE TOP |

SOUND OF SUCCESSS IN SONIC QUICK-RELEASE MOORING CONNECTORS MARTIN KOBIELA President of InterMoor Inc.

Q: Why would operators choose InterMoor for their

A: The first step is to demonstrate that we have our

mooring services?

DNV or ABS approvals and ensure the system we are

A: We have a great deal of history and a very strong track

putting in place is fit for the purpose. We then speak

record in the Gulf of Mexico that covers rig moves as well

to operators and receive permission to put the system

as permanent production facilities. Our solid international

on their rig. The next step is to speak to the drilling

experience in the North Sea, the Mediterranean, the

contractor and explain the value of our technology. Both

Caribbean, West Africa, Brazil and Australia also adds to

parties need to be approached when we introduce our

our expertise. Continuously improving our services through

technology. Companies understand how we can help

innovative technology is a strong priority at InterMoor and

them but the introduction of a new technology is often

our Inter-M Release is a testament to this. The Inter-M

a race to second place: each party likes the idea but

Release is an acoustic mooring connector that provides

wants someone else to try it first. We worked with Talos

quick-disconnect capabilities for an entire rig system,

during their first campaign, which included the successful

saving days in time and associated costs. Rather than

discovery at Zama, and our flawless execution gave

spending days freeing a rig, InterMoor can do it in hours.

them the confidence to continue to use InterMoor as the

Other acoustic mooring connectors exist and were originally

company’s mooring expert. This is a huge boon to us.

devised so that rigs could move away from oncoming typhoons, hurricanes or icebergs. But we have revised and

InterMoor is an absolute expert in its field. Our technology has

significantly updated the design and the Inter-M Release

undergone years of R&D and lots of tests under operational

is now around a quarter of the size and around a third of

scenarios before we went into the open sea. Our differentiator

the weight of previous generation quick-disconnects. With

is the intelligent design of the equipment. Whereas most

this new technology, we can even make processes simpler,

acoustic systems have a central unit that must send out signals

quicker and safer to support drilling operations.

to individual connectors on the mooring legs, our system’s units communicate with each other in a network. In the event

Q: Where is InterMoor focusing its efforts in Mexico?

of a communication issue between the rig and one of the

A: With so many companies turning to Mexico, we

connectors, other connectors take over to relay, ensuring the

expect the country to be very active in the next few

availability of the whole system and significantly reducing the

years. The opportunities are plentiful and PEMEX is an

likelihood of failure.

obvious attraction. At the moment our focus is on drilling. InterMoor is supporting one rig in Mexican waters but we

Q: How quickly can InterMoor manufacture its rig systems?

expect to be supporting two by the end of 2019. We are

A: We can produce a batch of acoustic mooring connectors

working with Talos Energy and are lined up to also work for

every two months. Each batch includes nine units, which

drilling contractor Ensco, which will be drilling on behalf

is enough for one rig. The investment in each batch is

of Italian operator Eni. InterMoor’s intention is to become

substantial, with materials accounting for most of the cost.

more involved with production in the next few years, with

A 6-inch solid bar must be heat-treated to reach suitable

an entrance point probably coming from Talos Energy,

strength and grade to match the standard used for mooring

which is already looking at an FSO solution development

chains by drilling rigs.

in its field. We feel that with our experience in installations, moorings and risers for permanent installations, we would be a good fit there.

InterMoor Inc. offers comprehensive mooring solutions for every marine environment. As the global leader of offshore

Q: The Inter-M Release technology is new. How do you

mooring systems and subsea foundations, InterMoor has

convince clients and rig operators to employ your services?

offices on all five continents

149

| VIEW FROM THE TOP

VAST CORE ANALYSIS EXPERIENCE TO THE FOREFRONT JOHN LAWRENCE CEO of Petricore

150

Q: How is Petricoreâ&#x20AC;&#x2122;s client portfolio changing with the

Relying on translators in our highly-technical field can be

progression of the Energy Reform?

risky. To solve this, we have brought in people from other

A: Petricore has worked for a long time with domestic

parts of the world to work with offices in Houston, and

private operators. Our clients have included Grupo

are implementing language classes. We hold meetings to

Diavaz, Pegasus, Petrofac and, more recently, Grupo

bring everybody together to create a culture change and

R. Additionally, we have worked with international

integrate the new personnel with the old.

companies, including Fieldwood, Murphy, Talos, and with BHP Billiton in Trion. We have 15 active clients. We

Q: What are the differences in expectations between

expect that number to reach 50 within the next two years.

PEMEX and private operators?

This will be challenging but exciting. The culture, ways of

A: Petricore has worked with PEMEX for so long that we

working and expectations placed upon Petricore are now

are seen as experts. As a result, PEMEX respects us a lot;

very different. This meant we had to change the culture of

we are seen as the company to turn to. The IOCs, however,

our own business and make sure our workforce was able

do not have the same experience with Petricore. They

to meet this new challenge. Each new client has its own

demand a different standard, which we must meet. To

specialty and so Petricore must adapt. One of the main

meet these standards, we have improved various aspects

obstacles is the language barrier. Many of our personnel

of our operation, including moving into a new facility in

have worked with PEMEX most of their lives and do not

Villahermosa, which is around five times the size of our

speak English, whereas many of those representing the

previous location. This enabled us to upgrade our systems

major international operators do not speak Spanish.

and focus on processes that deliver what the private sector needs. The move has helped increase capacity in several service lines to be able to handle different clients

Petricore is an international company that provides quality

simultaneously, and we have four viewing rooms where we

well site and laboratory services to the oil and gas industry.

can have four different clients working with us in-house.

The company has a long history in Mexico, having worked

Private operators are also keen to know how we conduct

closely with PEMEX and CNH

analysis and keep our equipment correctly calibrated so

that the results we attain can be relied upon. We have also

transfer of samples from the PEMEX facilities, which

improved our HSE procedures to ensure compliance with

Petricore was helping CNH with, has not yet finished.

international standards.

Petricore takes a region and carries out an overall study on all the wells within that region to create biostratigraphy

Petricore’s in-house knowledge is immense and includes

sequencing correlations that can be sold as a multiclient

staff who have worked in the industry for decades.

study. Any client interested can buy the study. Typically,

Additionally, our long-term relationship with CNH means we

10-12 clients will purchase the study together, which helps

have an understanding of procedures that help our clients

spread the cost.

carry out simple jobs, like delivering samples to the CNH the way it wants them delivered. This is a small financial

The first study we carried out was in the Perdido Basin.

item but a big help to clients. We are also making changes

This is a large geographical area but one that does not

to our workforce, focusing on becoming more inclusive

have as many wells. The second was from the more recent

and, in the last two years, we have been making an effort

exploration area of Cuencas del Sureste, a shallow-water

to increase the percentage of female staff working in our

field in the southeast. We also offer clients the possibility

field service department. This is an area that tends to be

of committing a specific study in a specific area for them

predominantly male, although this is now changing, while

alone, as we do for PEMEX. This includes wells that

our laboratories already have a good balance between male

have been drilled recently, whose data are not available

and female staff.

through CNH.

Q: How will Petricore meet the growing demand for its

Q: How do the services that Petricore provides change

services in the next couple of years?

during the life cycle of a clients’ development?

A: Operators that know about our services tend to come to

A: While we are focused on exploration, we also provide

us. The company has the unique characteristic of performing

analysis of cores for production wells. This is about

virtually all of our services in-house and in Mexico, whereas

designing the production systems to define the most

our competitors have sales offices in Mexico that generate

efficient way of producing a reservoir. This can be either

work for their labs in Houston. Providing services locally

when an operator puts new wells online or when old

with local knowledge delivers quicker turnaround times

fields are developed again. Analysis can be useful late in

and increases national content for clients. This all makes

the life of a field. Petricore works in alliance with several

us more attractive to international players. In 2019 we will

other companies, including GEO Solutions, GeoMark

be reaching the level of work activity that we had pre-crisis,

Research and MetaRock Labs, offering packages to

in 2013. In 2020, we expect strong growth that will generate

PEMEX or operators of mature fields. Older wells tend

our busiest year ever.

to require more complex analysis, like flow studies at reservoir conditions, to uncover the current situation

Q: How will Petricore’s involvement in CNH Lithoteques

of the field and continue or increase production there.

help the company’s service provision?

The changes the field will have gone through means the

A: We are planning to do multiclient biostratigraphy

analysis done when the wells were first drilled is probably

studies, which require samples from our wells, but the

no longer valid.

151

| TECHNOLOGY SPOTLIGHT

152

DUAL ENERGY CT SCANNING FOR INCREASED INSIGHT INTO ROCK PROPERTIES As players in Mexico advance in the exploration of their blocks, the latest technologies must be employed to generate precise and exact visualizations of the subsoils below their rigs. Core analysis has long been a vital tool to provide operators with accurate insights into the physical characteristics of the rock they are drilling. Among the many physical attributes of a rock core analysis are porosity, permeability, flow behavior and mechanical properties. Having sound information and intimate knowledge of the rock types they are working on puts operators in position to develop a financiallyefficient plan for hydrocarbon extraction. With the current industrywide focus on cost-effectiveness and ROI, core analysis is an integral part of exploration and production operations. Computed Tomography (CT) scanners are among the most comprehensive techniques for rapid core analysis. CT scanning allows for superior visualization and detailed quantitative core assessment before the core is extruded from the core barrel. Core Laboratories, a Houston-based leader in reservoir description and production enhancement services, has gone one step further. The company’s innovative Dual Energy CT (DECT) technique offers even more rapid, nondestructive core scanning to provide information on established physical phenomena of Compton scattering and photoelectric absorption at a millimeter scale. Not only does DECT provide the density and atomic number, but also total porosity, strength profile and dynamic mechanical core properties down to a millimeter scale. This data, in combination with laboratory work, generates quantitative and qualitative millimeter-scale log descriptions of well cores, yielding critical information related to the core’s mineralogy. Core Laboratories has also developed a multidimensional cluster analysis program called Automated Sample Selection by Intelligent Statistical Technique (ASSIST) to employ DECT data to cored intervals in “petrophysical-properties” and “geo-mechanical” facies. With a parallel web-based visualization and data display dashboard, this process can be carried out on a single platform. Digital preservation allows operators to visualize and assess cores for months and years after they have been acquired. The early-time capture of data and quick interpretation of properties via the methods of Core Laboratories makes DECT core scanning a vital part of core analysis programs for successful production operations in Mexico.

153

| VIEW FROM THE TOP

SUCCESSFUL DECISION-MAKING BASED ON TECHNOLOGY CHRISTIAN RODRÍGUEZ Country Manager Mexico of Core Laboratories

154

Q: What is the main added value that Core Laboratories

Concerning how this can ultimately help production,

offers compared to its competitors?

depending on the reservoir and type of rock, the results

A: The company’s core business is its technology, which has a

vary but we can comfortably confirm a 5 percent production

direct impact on a big percentage of the decisions operators

increase in many cases. Regarding unconventional shale

make. Given the market’s downturn, these companies are

resources, this increase could be as much as 13 percent. When

willing to spend more money on innovative technologies

we deliver routine core analysis and special core analysis, the

to survive. In addition, as Core Laboratories has significant

resultant data has a direct impact on early decision-making.

operations worldwide, we can compensate areas where

Our clients can also calibrate their logs and input those

activity is low with others where activity is higher. Our two

numbers into their petrophysical models to make important

main advantages are technology and being located in the

decisions about fracking, completions or reservoir quality.

major producing basins of the world. Our company operates in two business segments, reservoir description and production

Q: Is there a project that best illustrates the company’s

enhancement.

capabilities in the production segment? A: Enhancing Oil Recovery (EOR) is an area where

Some of the new technologies that we are introducing into

PEMEX could really benefit from. For example, companies

the market are related to completion diagnostics, which

operating in the Permian Basin are taking advantage of

fall under the production enhancement segment. On the

this because this region is experiencing its fourth boom.

reservoir description side, some new technologies have to

We have helped the industry to revive formations that

do with digital rock characterization, which in basic terms

were abandoned or forgotten about. The NOC could

consists of CT scanning. By scanning the core, we have

benefit not only from the shales in their unconventional

been able to deliver data to our clients in a matter of hours.

reservoirs but from their conventional resources too.

Before this technology was available, operators waited

Historically, PEMEX has not always used the technology

weeks or even months to get this type of information,

that is available due to budgetary constraints. Now, we

which is crucial for decision-making. In fact, the company

are seeing that it is willing to invest in areas that decades

has a group that is solely dedicated to finding new ways to

ago it would not have considered.

execute these processes as CT scanning is becoming very popular among market participants. This industry-leading

Things are changing and I believe we can support them to

technology will be available in Mexico in the coming months.

invest in these areas. The new administration has promised to inject more resources in the production segment, opening

Q: What information can your clients expect to receive as a

a whole realm of opportunities for PEMEX to focus on new

result of your services?

technologies. The company has always been our biggest client

A: Before, operators were just stabbing in the dark or had

and supporter in the country and we are open and hoping to

to wait weeks or months to acquire meaningful data. CT

continue working with it.

scanning has changed the game. This does not mean that CT scanning should replace laboratory data; it is actually meant

Q: What fields are most attractive for the company to work in?

to complement it. With this instrument, we can determine all

A: Our focus should remain on PEMEX’s two main fields, as

these characteristics while taking into account the fact that we

well as shallow offshore areas in the marine region located in

still need to take real measurements to complement the CT

the northeast and southwest Gulf of Mexico. PEMEX knows

scanning information. The software we developed internally

that the company needs to focus on these fields and we

uses more than 80 years of historical data from other fields

want to continue to be part of this too. In addition, with new

that have similar characteristics to those our clients are

companies coming in and JVs being created with international

working in to determine important reservoir characteristics.

operators to participate in farmouts with PEMEX or some

155

other companies, deepwater is an area that is gaining a great

right now and the plan is to grow this facility as it is located in

deal of interest among industry participants. We are observing

Mexicoâ&#x20AC;&#x2122;s oil and gas hub. The new administration has decided

that some operators are focusing on deepwater production

to move PEMEX headquarters to Ciudad del Carmen for this

in the south side of the maritime border and will continue

same reason. We are constantly growing to make sure we

to receive huge focus in the next few years. In this scenario,

are ready to work with PEMEX and the new entrants as well.

Core Laboratories holds a significant advantage due to its long track record working with operators with activities on

Q: How will the Mexican and US subsidiaries work together

the US side. These companies are beginning to show interest

to strengthen this goal?

in the Mexican side of the deepwater Gulf of Mexico. We

A: The dynamic between Houston and Mexico within the Core

already have a relationship with them and it is just a matter

Laboratories team is crucial. Mexico and the US fall into the

of transferring what we have already learned in those areas

same silo and the teams cross-train each other continually. We

and applying that knowledge and experience to the other

rely on Houston personnel to train our Mexican recruits thanks

side of the border.

to decades of experience they have under their belts. Mexican personnel also go to Houston and train with US personnel

Q: What will be Core Laboratories' priorities for the future?

based on the experience we have obtained in the last few

A: The company will prioritize local capabilities. My focus is

decades by working with PEMEX. We are a dynamic team

on growth, in not only services offered but also adding and

that is constantly being cross-trained and this makes it easier

training technical personnel. We proactively focus on the areas

to grow our footprint in Mexico because we have the support

where we know activities are going to be high. For instance,

of our northern neighbor.

20 years ago we had a laboratory in Villahermosa because a lot of activity was going on there. Then, some of the focus went to the northern region and we set up a big facility in

Core Laboratories is the leading provider of proprietary and

Reynosa for some time. PEMEX decided that it was not a good

patented reservoir description and production enhancement

financial decision to continue investing in that area and so we

services. With over 70 offices in more than 50 countries, it offers

shifted our focus to the marine region. This is where we stand

services to major national and independent oil companies

| VIEW FROM THE TOP

US BRANCH OPENS DOOR TO TECH PROCUREMENT LUIS FERRĂ N Country Manager of The Mudlogging Company

156

Q: Given the changing technological landscape for data-

development of their local supply chains, preventing them

driven businesses, how have you kept up to date with the

from delivering promised works on time. These issues are now

changing value of data?

getting solved. My experience in the last six months in Mexico

A: One of the most important ways in which we have

is that operators are now doing what they should have been

assimilated the changing value of data is through the

doing two years ago in terms of supply chain development,

establishment of a new branch in the US with our same name,

and that is allowing them to deliver on time. This is an ideal

The Mudlogging Company LLC, in Houston. The purpose of

moment to form these technological alliances with Houston

this entity is to search for and procure new technologies that

because they can pre-qualify us and certify us as a reliable

can then be applied to our Mexican operations. This branch

service provider.

also serves as an additional link between us and all the foreign operators and service providers entering the Mexican

Q: How does foreign technological procurement contribute

industry. We procure these technologies either through direct

to closing the confidence gap between foreign operators and

acquisition or through alliances and joint ventures. Either way,

Mexican service providers?

by opening this branch we can stay fully up-to-date with all

A: It plays an important role in closing this confidence or trust

the new innovations developed in our sector by both the

gap. Obviously, the existence and nature of this gap depends

private and public sectors at research centers, universities

entirely on what exact operator we are talking about. Most

and government institutions. We can visit all the relevant

operators want to deal with a supply chain that is as short

events and fairs, and also stay in touch with all our current

and efficient as possible, which is why they often will import

and prospective clients that work on both sides of the border.

their own foreign suppliers that are part of supply chains

We can acquire the most important technologies before our

that they have already tested, developed, shortened and

Mexican clients even ask for them and begin building what

made efficient previously. They are also familiar with these

could later more clearly become a research and development

suppliersâ&#x20AC;&#x2122; technological capabilities. By approaching them

arm fully focused on the challenges of the Mexican industry.

for technological procurement, we give them a chance to familiarize themselves with our own technological capabilities

Q: What advantages do you get from procuring new

and, in the process, determine how we could fit into these

technologies through alliances and joint ventures?

preassembled supply chains.

A: We actually prefer this approach because we get added value from the company providing technology in the form of

Q: What role does foreign procurement play in applying

training and sharing of strategies for the implementation of

technologies in Mexico that can have a tangible impact in

the newly acquired technology. We then become an integral

productivity through risk reduction?

part of that foreign companyâ&#x20AC;&#x2122;s supply chain; the fact that they

A: These technologies are providing increasingly more up-

know that we have decades of experience in Mexico means

to-date, more moment-to-moment and more comprehensive

that we then become a part of their strategy for entering

real-time data on the status of a well during drilling operations.

the Mexican market. These companies, particularly those

Your drilling activities can run into the reservoir or resources

that have already attempted or have an ongoing entry into

that you are looking for, those you are not looking for and

the Mexican market, have struggled with bottlenecks in the

also formations that can prove destabilizing to the well, such as high-pressure gas zones. You can also run into a central column of materials that provides characterization data, which

The Mudlogging Company is a Mexican service provider to

proves essential for the operators to determine that they are

the national upstream sector with over three decades of onsite

drilling in the right place. Shortening response times to, and

experience. The company opened a branch in the US called The

even predicting, all of these eventualities and more has an

Mudlogging Company LLC

enormous impact on risk reduction.

VIEW FROM THE TOP |

ENGINEERING SOLUTIONS FOR DEEPWATER JONAH MARGULIS Country Manager of Aker Solutions

Q: Where does Aker Solutions apply its services in the

Mexico’s deepwater areas, including the ultradeep water of

Mexican market and how does its global experience aid

the Perdido belt, where artificial lift and boosting will be

its operations in Mexico?

necessary. Other traditional technologies, such as water-

A: In Mexico, Aker Solutions focuses on the front end and

alternating gas injections, will be interesting to consider

early engagement with our clients. This includes concept,

for PEMEX’s mature fields like Cantarell.

pre-feed and smaller feed engineering work. Most of our work in Mexico is centered on offshore with IOCs that are

Q: How can Aker Solutions aid hydrocarbon transport on

already in, or are moving into, the drilling phase. We are

the Mexican side of the Gulf of Mexico?

working on early concepts, screening ideas and guiding our

A: The US side of the Gulf of Mexico has a highly developed

clients toward a decision gate that allows them to make an

pipeline network that makes installing a facility in deepwater

investment decision on their blocks. For example, one of our

a simpler undertaking. Operators can easily plug into

clients, BHP, is working on the Trion field. We are discussing

the pre-existing pipeline network and quickly bring their

various concepts with them, including a number of floater

product to market. But on the Mexican side, this is not the

projects. Also, we continue to work closely with Cotemar.

case. Therefore, in the short to medium term, we expect to see more storage and offloading in these areas, with FPSOs

Q: How does the role of Aker Solutions change as the life

being the predominant method of storage and transport.

cycle of a field transitions from exploration to production?

This is an area in which Aker Solutions has a great deal of

A: Aker Solutions follows our clients throughout the process

experience and we are talking to several operators to define

of planning, into drilling and production. We are at their side

their FPSO designs.

for each stage of the life cycle and can further refine their processes as each stage progresses. We have worked with

Q: What would constitute a successful 2019 for Aker

BP for just over two years and provided the pre-planning

Solutions?

for the drilling that began last year. Now, we are refining

A: On the brownfield modifications side of the company’s

their process. The selection of a floater is an integral step

operation, we would like to see PEMEX commit to EOR

in the development of this project.

activities to rejuvenate declining oil field production. Showing that ability to push a major project forward would

Q: Which technologies is Aker Solutions introducing to

be great for the Mexican industry in general. In deepwater,

enhance oil recovery at Mexico’s mature fields?

we hope to see the continued commitment from operators

A: We pride ourselves on our use of innovative techniques.

to drill wells in Mexican waters. Aker Solutions will keep

Subsea boosting, pumping and gas compression are some

working with operators to define their engineering concepts

of our core service offerings; we are market leaders in these

and to continue progressing toward greenfield deepwater

areas. We have recently announced a major contract for a

projects. The proxy for Aker Solution’s growth is activity in

FEED study for a subsea compression station for the Jansz-

the field; if wells are drilled then we are confident of growth.

lo field in Western Australia, with Chevron as operator. And

This is already happening – Murphy has just finished a well

the world’s first subsea compression station we delivered

and Shell will be drilling this year, so we are optimistic about

in 2015 to Equinor’s Asgard field in the North Sea has been

our business in Mexico.

running smoothly. Both these subsea compression trains are huge, at 11.5MW each. This is a core piece of technology that we can offer to gas fields in Mexico. Additionally, we have

Aker Solutions engineers products, systems and services for the

been working on multiphase pumping technologies that

energy industry. The company offers solutions for every stage of

could certainly be put to use here. We are in the process

a project’s life cycle, from concept development to asset integrity

of qualifying an exciting technology that will be useful for

management and decommissioning

157

| VIEW FROM THE TOP

CHANGED ROLE FOR WELLSITE TECHNOLOGY PROVIDERS CARLOS PALAVICINI Vice President Americas of Petrolink

158

Q: How has Petrolink’s service provision changed considering

Petrolink helps is in the offshore arena, where most Mexican

that technology is increasingly fundamental to the oil and

production is expected to come from. Petrolink monitors the

gas industry?

safety of operations and delivers real-time data to personnel,

A: Since its foundation in 1990, Petrolink has provided

helping to avoid potential accidents and therefor the cost to

technology and service support to its clients. Two years ago,

operators and the environment.

we decided how we wanted to deliver our technology. This was based on the understanding that for some clients, the

Q: How prepared is Mexico’s local content to deploy

justification of paying for a service is not as simple as justifying

Petrolink’s advanced data technologies, and how do

the acquisition of technology. It was clear that many clients

you help?

used our services in a user-driven sense, rather than requiring

A: The Mexican oil and gas industry must acknowledge that

support from us, and so the company decided to apply a

it has both strengths and weaknesses. One area to improve is

different strategy: to deliver data solutions and technologies

its application of technology. To close these gaps, the industry

to our users rather than supply a service. Petrolink customers

requires a collective effort led by PEMEX, government entities

could use our technology in a way that was unique to them;

and private companies now working in Mexico. This includes

they no longer required the support of Petrolink staff.

vendors like ourselves and independent oil companies.

Petrolink decided to test this new approach in the Latin

Mexico’s open market means more competition and a higher

American market, including Mexico. This was driven by the

demand for specialized resources, which fosters an industry

fact that while clients in other parts of the world receive our

shift toward specialization for more efficient exploitation

technology predominantly as a service, our potential client

of resources. Meeting local content requirements is vitally

portfolio in Mexico and the region was dominated by clients

important. To aid our clients’ entrance into Mexico and extend

looking for technological solutions to operate themselves. This

our portfolio, Petrolink has signed agreements with national

presented another opportunity to license our technology to

partnering contractors working with oil operators. This allows

vendors and service providers who, by adding our technology

foreign operators to access our technology while they comply

to their services, could expand our traditional client base.

with Mexican local content requirements.

Q: How do Petrolink’s technologies support clients?

Q: How has Petrolink modified its technologies to support

A: At the moment, there are two main areas where Petrolink

the administration’s 2.6MMb/d production goal for 2024?

helps companies in Mexico. The oil and gas industry is one

A: Petrolink technologies can now be managed and used

of the most expensive industries to work in, so we offer

by any customer, not just by Petrolink staff. This empowers

our technology to help operators keep costs under control.

oil companies and service providers to make use of our

Our technology helps operators stick to time schedules by

technology with their own resources. We have modified our

avoiding unexpected surprises. While this is valuable because

technology to be involved in the decision-making process

removing further rental and other associated costs saves

too. Our algorithms and solutions help identify situations that

money, the real worth is in helping to drive wells into operation

are not visible to a worker monitoring a screen. Rather than

as planned or ahead of schedule, because operators lose

relying on an employee monitoring the right data at the right

money when a well is not producing. The second area in which

moment, our algorithms continually run in the background to ensure early identification of any well-site situations that could, further down the line, become hazardous. This area

Petrolink delivers advanced well-site data management

is where the majority of our new data-driven solutions are

software, real-time data solutions at the well site, engineering

oriented: helping users make decisions based not only on data

analytics and drilling optimization services to help oil and gas

they are seeing, but on the information that can be extracted

operators around the world stay safe and on schedule

from that particular data.

VIEW FROM THE TOP |

PLANNING THE MOST EFFICIENT ROUTE TO SUCCESS JULIO LORETO Former Country Manager of Weatherford

Q: What were the critical factors behind Weatherford’s

and others that we should ignore. We look at what we are

turnaround in Mexico?

good at: Managed Pressure Drilling (MDP), Tubular Running

A: The turnaround began in September 2017, when the

(TRS), Drilling Fluids, Cementing Accessories and Integrated

company decided to reduce layers of management. This also

Solutions, to name few. Then we start matching opportunities.

involved an optimization of the structure. We changed our

If we see a perfect match, we check the profitability of the

company culture, a process that is still undergoing. All of this

project and go there. Our technology and experience can be

enabled us to set up a business model that took advantage

the differentiators that make projects viable.

of the opportunity that was put in front of us. Mexico was opened up by the Energy Reform and PEMEX is hungry

Q: What should other companies know about what

to demonstrate that it can compete. Healthy competition

Weatherford does in Mexico?

between contractors was created and service companies

A: Anyone in the oil and gas industry knows Weatherford but

like us are here to help. We can take advantage because we

they may not know we are in Mexico. We have two centers of

have the right structure, the know-how and experience drilling

excellence in the country, one in Villahermosa (Tabasco) and

around 3,000 wells in Mexico.

another in Poza Rica (Veracruz). The center in Poza Rica is set up in a way that allows it to control or support any inland

Q: How do you manage the direction of the company to

operation. Villahermosa covers the south and offshore.

deliver success? A: We are fostering a cultural change that focuses on

Q: What are the main changes to your drilling practices over

efficiency and ensuring our employees make the right choices.

the last five years?

We have asked ourselves whether we should focus on the

A: We are much more efficient now than we were in the past.

bottom line or on all of the contributing factors that get us

We produce more profit for the same activity because we

there. We chose to look at the processes to find out how to

have dramatically decreased our Nonproductive Time (NPT)

make our procurement more efficient, improve our inventory

rates year-on-year. When we decrease our NPT, our projects

management and put the right people in the right places,

are completed more quickly but we are still paid lump sums.

among many other factors. Our new focus and results-driven

The greater efficiency of our drilling practices allows us to

service allows us to complete projects more quickly than other

earn more.

major companies, including PEMEX. Q: What is in store for Weatherford this year? Q: What is success for Weatherford?

A: For this year we are looking to improve our standing in

A: Success is being a world-class organization that functions

Mexico. The challenge we have is to continue this internal

perfectly and looks great. To me, success for Weatherford

focus and build a healthy organization that can expand or

means that when clients place an order, they have the

contract in a flexible way, depending on the market. This

assurance that they will get what they need. Whether that is

year’s market, and the Energy Reform, is still evolving. We

a well drilled or a completions package, we must be at a level

still do not know if the Reform will be a success but the healthy

of reliability and efficiency that leaves clients in no doubt.

competition it has brought to Mexico was needed. It will drive

Financial performance and economic benefits for employees

PEMEX to improve.

will be the consequences of getting to this point. Q: How does Weatherford choose its opportunities?

Weatherford is one of the world’s largest oil field services

A: We first understand our pipeline and installed capacity

companies and specializes in delivering innovative technologies

so that we can target contracts in the most efficient fashion.

and solutions to oil and gas producers to meet current and

There are areas where we can compete, places we can explore,

future energy needs

159

| VIEW FROM THE TOP

DRILLING EFFICIENCY THROUGH CHEMICAL SUPPLY FERNANDO CARDENAL Manager Latin America Oil & Gas of GTM

160

GUILLERMO LÓPEZ Market Manager Oil & Gas of GTM

Q: How have you positioned yourself to take advantage

bringing well completion fluids into Mexico that have a

of reactivated drilling activity in Mexico?

number of crucial functions in drilling operations, such as

GL: We had clear plans to take advantage of the Energy

cleaning and preparing the well for optimal productivity.

Reform all the way back in 2014. The contracting process

The use of these products has significantly increased

and the oil price crash meant that we really only started

since then, thanks in part to the efforts we have put into

seeing the effect of the Energy Reform, and of all the

organizing seminars to educate companies on the positive

logistical preparations that we made to reap its benefits,

impact that these products can have on their bottom line.

in late 2017. The fact that we are a global group with

This can apply particularly to offshore drilling operations,

significant presence in several sectors allowed us to

where we also offer products like liquid viscosifiers, which

support ourselves throughout those complicated years.

play a similarly essential role in creating efficiencies by

Since late 2017, however, we have seen steady and reliable

increasing the general usability of drilling fluids.

growth in our oil and gas activities in Mexico. While we work directly with the major names in oil-field services,

EC: Cost and time-frame reduction are key. After the oil

who know us through the work we do for them in other

price crash, all operators began constantly haggling and

parts of the world, rather than as direct contractors for

bringing prices down while looking for ways to mitigate

the new operators, the entry of the latter into the Mexican

downtime almost completely. Our ultimate goal is to

industry has greatly increased the demand for our wide-

improve the competitiveness of our clients’ operations

ranging product and service portfolio.

through our services. We reduce operational time by offering specific types of products, logistical time by

FC: Our close relationship with established names in oil-

making sure those products are constantly available and

field services that have decades of history working in

regulatory-compliance time by making sure our products

Mexico means we can get information from them on the

are of the highest quality.

specifics demands and characteristics of the Mexican drilling sector, which in turn meant we can apply the

GL: A significant part of our added value in terms of

chemical innovations of our suppliers to the specific

efficiency comes from our logistical capabilities as

cases that present themselves in this context. This gives

a distributor, where we have successfully integrated

us an opportunity to sometimes be the first to bring these

large-scale transportation with localized channels to

products to market and apply them in ways that directly

create a significant network of storage and supply that

optimize our clients’ processes.

is available to our clients 24/7. The Mexican drilling sector is characterized by its short-term needs and

Q: What are the most important ways in which your

emergencies, which we are fully capable of addressing.

services and products create new and sought-after

Our clients base their orders on forecasts, which is why

efficiencies in Mexican drilling operations?

we usually manage two months of available inventory

GL: The number, variety and range of products is vast but

for them. Drilling operations in Mexico are unpredictable

there are definitive examples of solutions that address

and a loss of fluid can generate lost time because more

questions of drilling efficiency. Two years ago, we began

material has to be budgeted and paid for to continue the drill. Having available product at the worksite and our supply infrastructure near the worksite is an

GTM is a leading provider of chemical products to a wide variety

enormous advantage, especially since many of these

of industries across Latin America. The company delivers

products would need to be imported if stocks ran out,

chemical solutions throughout the oil and gas value chain,

generating exponentially extensive and expensive delays

employing applied and tailored R&D to client’s specifications

for our clients.

VIEW FROM THE TOP |

GREASING THE GEARS OF THE OIL AND GAS INDUSTRY PATRICIO ORENDAIN Director of Oil & Gas at Grupo Pochteca

Q: How does Grupo Pochteca offer value to its clients

Q: How has the Energy Reform impacted Pochteca’s activity

in Mexico?

and what is your short-term outlook?

A: One of Grupo Pochteca’s main value adds in the

A: We know the government is going to challenge the

oil and gas sector is its high-performing products and

companies that have already won fields to develop those

solutions for oil field service companies. To provide

contracts and that no new contracts will be tendered until

even greater value, we are also moving into specialty

CNH has seen production resulting from those awarded.

products, distributed mainly under Petroprim brand. For

We are still waiting to see investment to arrive from

instance, our R&D laboratory, located in Villahermosa,

the rounds that have already been won, so we are not

Tabasco, provides new solutions for the upstream

concerned for the short-term. The administration’s strategy

sector. Our innovation and capacity to develop

is positive in that it challenges PEMEX to grow, become

customized solutions for our clients is our differentiator.

more efficient in the new competitive environment and

Pochteca’s logistics network is another great strength,

improve production of its own blocks. We will see heavy

offering incredible flexibility in the delivery and special

investment in E&P and there will be activity on around 150

packaging of our products if needed. Being the major

wells this year. This is a major increase on last year. Four

chemical distribution company in Mexico means we have

of these are deepwater wells, one of which belongs to

great reach into the geographical areas where oil and

PEMEX. Shallow-water activity will be huge and there will

gas activity takes place, resulting in an effective and

be onshore activity also, so Pochteca and other upstream

efficient 24/7 service.

players will benefit.

Q: How do you guarantee the quality of your logistics service?

Q: What are the advantages and disadvantages of listing

A: Pochteca uses its own transport company to guarantee

on the BMV?

punctual and cost-effective delivery. However, whenever we

A: There are no real disadvantages. Being on the BMV

contract a third-party, we always use GPS tracking. Pochteca

confers good standing on Pochteca as companies must be

has storage facilities in several Mexican ports for sea freight,

well-managed and comply with extremely high standards

as well as rail freight facilities. This critical mass allows us to

to be involved. The BMV also promotes transparency in

handle our costs more efficiently. Our logistics network is the

a company’s financial matters and its policies. This is

reason we can be competitive and cost-effective within the

positive for customers, suppliers and employees.

oil and gas industry and others. We serve more than 20,000 customers in the main 40 industries each year.

Q: What are Pochteca’s goals for the coming year? A: In the coming year, our goal is to increase the number

Q: How does Pochteca bring new solutions to the oil and

of people working in our laboratory to continue improving

gas industry?

our innovative technologies. We will also be working to

A: We are working extremely hard to develop new solutions

cement our place as a regional supplier. We will continue

for the industry. We have been actively working with

pushing our Petroprim brand in the specialty oil & gas

some of our main oilfield services clients to disrupt and

portfolio. Expansion into two other regions of the Americas

reinvigorate areas within oil and gas, using our experience

is also an ambition.

in other industries. It has been an interesting experience to see these developments. Our clients know that Pochteca has the knowledge, reach and commitment to develop

Grupo Pochteca is one of the largest distributors of chemicals

innovative and cost-effective solutions and products. At our

and lubricants in Latin America. With a revenue of over US$340

Villahermosa lab, we also engineer solutions that improve

million, Grupo Pochteca is publicly traded on the Mexican

on old technologies.

Stock Exchange (BMV)

161

| VIEW FROM THE TOP

UNCERTAINTY MITIGATION IN WELL DESIGN REINALDO MALDONADO Regional Manager for Latin America at Impact Fluid Solutions

162

Q: How did the company perform in 2018 and what is

successfully applied in South Texas. We are waiting for

your key focus?

operations to begin in the northern part of Mexico so we

A: We experienced an improved market in 2018 and look

can implement these solutions here and introduce our

forward to an active 2019. We expect significant growth

efficiencies.

in the southern region of Mexico, including land and offshore operations. PEMEX has adjusted its business

Q: What are the main environmental challenges Impact

model and the drilling of wells must be economically

Fluid Solutions faces?

viable. Our value proposition aligns with PEMEXâ&#x20AC;&#x2122;s goals

A: We are already working in deepwater projects in Mexico

because we offer responsible, efficient and enhanced

and on the countryâ&#x20AC;&#x2122;s maritime border. Our products were

drilling operations, while addressing cost and time

designed to be used in the North Sea where environmental

optimization.

regulations are very strict. Our technologies have passed all toxicity tests and are approved for use in Mexico. Our

Many things can happen when drilling 5,000m below the

differentiation as a provider of environmentally sound

surface. We strive to minimize uncertainties to ensure

solutions became even more relevant when regulations

operations run smoothly. In addition to providing solutions,

were strengthened with the creation of the Energy and

we also seek to strengthen our relationship with operators

Environmental Security Agency (ASEA). The goal of this

by offering comprehensive technical support.

organization is to create safer operating conditions and environmentally-friendly processes, as well as ensure the

Q: Your value proposition is a tailored solution. What is

community is taken care of. Our company is well-aligned

the process for a chemical solution that can be placed

with these goals.

into the ground? A: We participate from the conceptual stage when a

Q: How long does it take Impact Fluid Solutions to

challenging well is being designed. A well may need

introduce new products into the market?

several casing sections to reach a certain depth but we can

A: The core of our company is fluid science. New fluid

minimize the number of cased sections depending on the

concepts and product development are constantly

geological characteristics of a formation. Our technology

expanding at Impact. Over 25 percent of our team is

works in drilling fluid and cement spacer fluid and leads to

comprised of scientists working on new technology.

a dramatic decrease in operational time to complete the

Research and development are a long-term process

well construction.

and depending on the technology, can take one to five years. However, we have a track record of working with

Q: How do you position yourself to target the operators

operators to develop tailored solutions.

that are working in mature fields? A: We are confident in the value we bring to the industry.

Q: What areas of growth have you identified and what

Geologically, South Texas has a similar makeup to Mexico,

products will you bring to the market in the near future?

with only a river separating the two. We already have the

A: Activities with a high level of uncertainty, such as

knowledge and have developed solutions that have been

deepwater exploration, are appealing markets for our value proposition. Our ultimate goal is to deliver fluid solutions that are purpose-built to solve complex

Impact Fluid Solutions manufactures and sells additives for oil

wellbore challenges. However, some of the deepwater

and gas operators, fluid companies and oilfield service providers

projects may start two years from now. In the short

worldwide. The company offers drilling additives in various

term, our main area of growth will be inland or in shallow

categories. It was founded in 2005 and is based in Houston

waters in Mexico.

VIEW FROM THE TOP |

RECOVERING KEY EFFICIENCIES THROUGH LOCAL CONTENT FOCUS EMMANUEL MONTAĂ&#x2018;O Director General of Consorcio EMCRO

Q: How have success factors changed for national companies

standard but we still need to maintain our market position

in the last two years?

within our sector.

A: As context, I would begin by saying that although the

163

Energy Reform was famously passed on December 2013,

Our talks with DNV GL have been extensive and meticulous.

we had not really visualized the complete participation or

We had to go to England and work directly with foreign

market entry of foreign companies until 2018. This pertains in

technicians to certify ourselves, so this all represented a

particular to certain companies. What we have been dismayed

significant investment for us. However, it has brought about

to discover amid all this movement is that there is a great deal

great results: our first prototype with a patented design and

of foreign competition now entering the market. These foreign

structural calculation approved by DNV GL is to be presented

companies are offering their services at excessively high prices,

in June and begin mass production in January 2020.

which many large companies are willing to pay because of the European DNVGL-ST-E271 2.7-1 certificate. This certificate

Q: How are responsibilities divided between the public and

differs from the API and PEMEX NRF-261 certificates that we

private sectors when it comes to achieving a re-centering of

possess in that they call for the use of grade 50 steel for their

national content?

lifting points. The success factors for companies like ours have

A: From the perspective of the private sector, we must

changed in that we have had to adapt to these standards

begin by making sure our operations are aligned with

introduced by foreign companies even if these standards

these concerns. For example, we maximize our national

make no sense in the Gulf of Mexico region.

content percentages in terms of both material and certified personnel. Unfortunately, the grade 50 steel needed for the

The fabrication standards of our containers are essential to

DNV GL containers does have to be imported, along with the

keeping offshore worksites safe. This is why refocusing local

equipment needed for its welding, so we cannot reach 100

content, not only in terms of products and personnel but also

percent national content given these circumstances but we

service providers and the standard that they abide by is so

are definitely above 90 percent. We also need to make an

important for the industryâ&#x20AC;&#x2122;s growth. We can manufacture

active effort to present the importance of national content

and lease these products at a standard directly comparable,

to the foreign operators ourselves.

if not superior, to that of our competitors. From the perspective of the public sector, I would insist that Q: How are you aligning your strategy with these

the Ministry of Economy and PEMEX itself double down in

new factors?

their efforts to enforce the percentages agreed upon within

A: First is the optimization of our manufacturing capacity.

the regulatory framework of the Energy Reform, which

We have increased capacity 30 percent in the last one to

calls for a minimum of 25 percent of national content in all

two years, despite the fact that this time period was one

contracted work as part of the first phase of development,

of the most difficult in recent memory for the offshore

which stretches to 2025. After 2025, those percentages are

sector. In a way, it was the extension and deepening of the

to go up to 35 percent. I personally find that the Ministry of

depression that started with the downturn in the 2015-2016

Economy, and to a certain extent PEMEX, need to increase its

period. Many national service providers disappeared in 2018

involvement in this matter.

because they were unable to sustain the capital-intensive process necessary to survive such a bad year. We used this time to better our fabrication capabilities and also, starting

Consorcio EMCRO is a Mexico City-based manufacturer

in May 2019, to update our capabilities so that we could be

and leaser of certified steel containers for the oil and gas

able to manufacture the containers up to that DNVGL-ST-E271

industry. It also builds plants and provides related services

2.7-1 standard. We might not agree with the setting of this

for waste processing

| INSIGHT

INNOVATIVE INSIGHTS FOR HEIGHTENED WELL PRODUCTION

“

We are the only rental/service company with its engineering package backed by an API manufacturer certification”

164

Ernesto Sánchez de Tagle, Director of Latin America Operations at Control Flow

just a depreciation.” The company is uniquely positioned to provide BOP rental to both the US and Mexican markets, Sánchez de Tagle adds. From its perfectly-located production plant in Houston and a service and repair center in Cunduacan, Tabasco, Control Flow can manufacture its own equipment and repair rental equipment on quick turnaround time for operators in the Mexican Gulf. “Control Flow guarantees that every rental BOP is inspected and refurbished to a like-new condition. As the manufacturer of our own BOPs, we understand their specifications like no other equipment rental company and our customers can be

The tighter budgets most oil companies were forced into

assured that they will work 100 percent of the time,” he says.

as a result of the industry downturn are now staples of business, despite the steadied market. While this has

As drilling operations in Mexico increase and the race to

caused problems for companies across the value chain,

first oil gets underway, Control Flow has seen another

for Houston-based engineering company Control Flow,

opportunity emerge. In a follow-up move to becoming

the budgetary dilemma offered a business opportunity,

one of two companies in Mexico to be given the API Q2

says Ernesto Sánchez de Tagle, Director of Latin America

Standard certification (quality of service) for servicing

at Control Flow.

BOP equipment, Sánchez de Tagle says Control Flow will now move into recertification and repair of compatible

Sánchez de Tagle says that the combination of industrywide

safety equipment of other major brands. “In Mexico, we are

budget restrictions and the liberalization of the Mexican oil

carrying out the inspection, maintenance and certification

industry set in motion by the Energy Reform created an

of customers’ BOPs. Not counting other OEMs, we are

opening in the safety market that Control Flow was placed

the only rental/service company with its engineering

to take advantage of. “We saw that not all new operators

package backed by an API manufacturer certification. Our

entering Mexico had a couple million dollars to spare

own BOPs are similar to those of the major players, so

upfront to finance a new blow out preventors BOP, which

our parts are totally exchangeable with most major BOP

is a vital safety component required by industry regulations.

models,” he says.

In response, we created a solid, customer-focused rental model for both Mexican and international operators.”

In delivering its repair work, after its rigorous inspection process, Control Flow has discovered that many of

Control Flow specializes in the manufacture, rental and

Mexico’s older BOPs no longer meet the API’s material

servicing of vital safety equipment on drilling rigs. Its

requirements. Sánchez de Tagle says the company is not

pressure control group focuses on well heads, manifolds

prepared to risk working with this equipment: “As we

and BOPs. The company’s products, found worldwide, are

cannot be sure how much stress the BOP has been under

concentrated on the onshore fields of central Texas, the

during its years of service that may reflect on material

Middle East and offshore platforms on the Mexican side

resilience. As a result of this and an inadequate storage,

of the Gulf of Mexico.

maintenance and service record, extremely deteriorated equipment has come to our shop. This is dangerous and

The rental model in Mexico, which began as a pilot and

we will not gamble with the safety of personnel or assets.

soon expanded, has allowed local operators to meet their

In these cases, we tell our clients that they should scrap

safety needs without having to spend a chunk of budget.

this BOP because we cannot certify it.”

Renting also means that the equipment can be repaired or replaced should any malfunction or breakage occur.

While around 10 percent of Mexico’s offshore platforms use Control Flow well heads, with thousands more installed at

Sánchez de Tagle explains: “Operators like our model

oil fields internationally, Control Flow’s BOP market share

because it helps them reduce their capital requirements

is increasing. To continue the success of its rental model,

in the short term. When they choose to rent, the BOP

Control Flow will be focusing on greater penetration into

becomes a fully tax-deductible operational expense, not

the market to attract other major players.

VIEW FROM THE TOP |

ANALYZING FAILURE TO ACHIEVE SUCCESS ABELARDO SÁNCHEZ Director General of Tanis Technology & Services Mexico

Q: Given your experience at PEMEX, what bottlenecks have

decision to drill the next well in a way that will bring you

you identified that your service offering addresses?

closer to your objective, you need to be able to extract as

A: I can say with confidence that PEMEX’s problems are not

much information as possible from your previous well so as

technological. The technical expertise of its teams is up to

to know how it affected your portfolio of opportunities and

what I can comfortably identify as a global industry standard;

your knowledge of the reservoir, and for that you absolutely

they are more than capable of addressing any technological

need a post-mortem. Without it, you might drill your next well

challenge, in my experience. PEMEX’s issues are administrative

wholly unprepared for the geological and technical challenges

and bureaucratic in nature. Due to its structure as a NOC,

ahead, leading to repeat failure in your hunt for your objective.

the play analysis and decision-making processes related to

Mechanical incidents might prevent well completion or

issues like project evaluation has a heavy political component,

obstruct production testing. Root cause analysis of all of these

and lawmakers are not always possessed of the necessary

factors as part of a well post-mortem are vital to prevent their

technical knowledge to make these kinds of evaluations. At

repetition in the next well. To put it in simple terms, drilling

the same time, PEMEX does not have access to its own funds

preparation is good; drilling feedback is better.

or control over its own resource allocation that it could use to evaluate its own exploration opportunities and comfortably

Q: How do all these factors turn your well monitoring and

characterize its own resources. Its revenue gets turned over

post-mortem services into the optimization of your clients’

to the state and its potential projects need to be weighed by

drilling standards and practices?

our lawmakers against other projects in additional areas of

A: That is at the heart of our unique value proposition: the

strategic interest to the country.

technical expertise to see our clients’ path to success in their failures, and also the ability to give them the tools and data

Part of our service offering does attempt to use the

to see it on their own as well. This integrated service begins

management of project documentation to make the most

with a general risk analysis of your project and your drilling

relevant and up-to-date data available to operators on-

activities. From there, we move on to analyzing all the wells

demand throughout the life cycle of their projects, hopefully

you have already drilled and the problems you faced in each

providing some of the agility that is required. We can use

one. We analyze this data to build a statistical model that

information technologies to model your project in term of its

details which issues impacted your operations the most.

workflows and data flows to identify potential inefficiencies

This model can then be used to present a probabilistic risk

to be addressed or alleviated.

analysis of the issues that could most gravely affect future wells and the exact nature of that affectation expressed in

Q: What role do your well post-mortem services play

time and cost. Finally, we focus this analysis on the next

in optimizing drilling activities in ways that other

well to be drilled. We tested our methodology through

services cannot?

a technological test with PEMEX. Our model strongly

A: This service is crucial to the success of exploration and

disagreed with its expectations and preparations for its next

drilling operations. The drilling of a well can conclude without

well. According to our analysis of its statistical performance,

reaching its objective; however, that does not mean that its

the NOC could not drill that well in the time and within the

results are conclusive. Without a well post-mortem, your

budget it was expecting to drill it in.

play objective was not adequately investigated by your failed well, so whatever conclusions you drew as part of your determination of the well as unsuccessful are incomplete and

Tanis Technology & Services is a Mexican venture focused on

they are not giving you the information you need regarding

exploration and founded in 2014. It integrates play analysis,

the objective you are still trying to reach. Every well you drill

time and cost drilling monitoring, post-drilling results and data

represents a significant investment. Before you make the

management into a comprehensive offering

165

Saipem 7000 crane vessel

FIELD DEVELOPMENT & INFRASTRUCTURE

From production to delivery, Mexico’s oil and gas industry suffers from a crucial, problem: poor infrastructure. With the government’s production target set ambitiously high, having adequate infrastructure will be paramount for success. The task at hand is not easy as the country’s pipelines and platforms were left virtually unattended for years. This is a source of concern for all parties in the industry. Much of the needed repairs and refurbishment, indeed even new infrastructure where needed, falls under the scope of PEMEX, which controls most of the infrastructure. Without the urgent investment now, the industry could face significant hurdles down the road.

In this chapter, the key requirements in terms of infrastructure and operational expertise that will be needed to consolidate strong field development are discussed. It elaborates on the specific operational and infrastructural requirements of operators and outlines the feedback provided on regulations, public policy and local content.

167

CHAPTER 7: FIELD DEVELOPMENT & INFRASTRUCTURE 170

ANALYSIS: Productivity Increase Creates Urgency for Renovation

172

VIEW FROM THE TOP: Rodrigo Lobo, Grupo Protexa

174

VIEW FROM THE TOP: Alfredo Carvallo, McDermott

175

VIEW FROM THE TOP: Daniel Santos, ESEASA Offshore

176

VIEW FROM THE TOP: Eurípides Romero, Inelectra Mexico

177

VIEW FROM THE TOP: Raúl González, Saipem Offshore

178

VIEW FROM THE TOP: Octavio Navarro, Heerema Marine Contractors

179

VIEW FROM THE TOP: Harold Velázquez, Boskalis Offshore Energy

180

VIEW FROM THE TOP: Salvador Portilla, ALE Heavylift

181

INSIGHT: Marco Gutiérrez, Seaway 7

182

VIEW FROM THE TOP: Brad McNeill, Frontera Offshore

Jesús López, Frontera Offshore

184

VIEW FROM THE TOP: Giuliano Cacciatore, DG Impianti Industriali

185

VIEW FROM THE TOP: Bruno Picozzi, Sapura Energy

186

VIEW FROM THE TOP: Jaime Llano, Shawcor

187

VIEW FROM THE TOP: Raymundo Piñones, Maersk Supply Service

169

| ANALYSIS

PRODUCTIVITY INCREASE CREATES URGENCY FOR RENOVATION Mexico is facing infrastructure challenges. As the upstream oil and gas industry moves into a renewal phase there is a dire need for development, maintenance, replacement, and optimization of production infrastructure. The time frame to get this started is just around the corner

170

The economic impact from PEMEX’s production decline

In October 2019, McDermott delivered Abkatun-A2, the

led the NOC to forego infrastructural maintenance to a

largest oil platform built in Mexico in the last 10 years. It is

certain degree. As a result, existing platforms, production

destined to be a part of what is also an essential shallow-

pipelines, and other upstream infrastructure are often

water asset whose present value is outmatched only by

not in optimal conditions. Coupled with the limited

its future potential: Abkatun- Pol-Chuc. Alfredo Carvallo,

investment in new infrastructure facilities in recent

McDermott's Director General for Mexico, goes into

years, infrastructure investment will be crucial to meet

detail regarding the company's commitment to Mexico.

the vastly higher production target laid out by the López

“McDermott manufactured Abkatun-A2 completely in

Obrador administration.

Mexico and only the concept was engineered by a group outside the country. One of the major challenges was to

The government’s goal to increase production levels

ensure that all packages arrived in a timely fashion so

means infrastructure deficiencies must be addressed,

that the sequence of fabrication remained on track. When

and urgently. Leaving them unattended could create

materials do not arrive on time, our building process

obstacles down the road. PEMEX will have to guarantee

must be rearranged and this can cause problems. The

much of the investment for development, especially

fact that McDermott has the largest welding school in

since most of the infrastructure depends on the NOC.

Mexico, located in Altamira, meant we could control much

The operator is putting its efforts into the development

of the process. Some 2,500 employees were involved

of 23 strategic fields and future development of another

in Abkatun-A2 alone and we far exceeded local content

22 new fields.

requirements. One of our major achievements during this build was the zero-count accident rate.”

Work plans being evaluated by CNH focus on shallow water and onshore regions. In addition to these fields,

Other infrastructure developers, such as Malaysia's

SENER’s reassignment of Round Zero blocks to PEMEX

Sapura Energy, share a positive outlook for the near

after CNH guidelines originally dictated that they be

future. “Mexico has fantastic knowledge of the shallow-

removed from the NOC’s portfolio creates an additional

water supply chain,” says Bruno Picozzi, Sapura Energy’s

focal point for necessary investment.

Area Manager for North and Central America. “There are several local building yards with capacity to cover

National companies are also taking on the challenge, and

shallow water requirements and there are several service

they have the capabilities to compete with international

providers that have worked on these developments for a

entities. Perhaps the most notable example of this took

long time. Mexico has great professionals who have been

place in January 2019, when PEMEX awarded a majority

working in the industry for many, many years. It is one of

of what they called their “Package A” and “Package

the largest shallow-water oil producers in the world. The

B” contracts for the construction and installation of

human resources basis in the sector is there.”

shallow water drilling platforms to Permaducto and other companies belonging to the prominent Mexican

Despite the suspension of bidding rounds, private

conglomerate of Grupo Protexa. Another prominent

operators will require infrastructure projects to develop

example is the fact that PEMEX awarded Carlos Slim’s

their existing fields and new discoveries. These projects

Grupo Carso, through its oil and gas subsidiary Operadora

are expected to take center stage throughout the end of

Cicsa, a contract worth over US$318 million in October

2019 and the entirety of 2020. For example, Eni’s landmark

2019. The agreement covers the EPC work and delivery

entry into production, the first of its kind in Mexico by

of two marine infrastructure units, MALOOB-E and

a private operator, has proven the viability of growth

MALOOB-I, which will be part of the infrastructure growth

for the industry despite the administration’s skepticism.

and development of the shallow water field that for the

Picozzi and Carvallo are well aware of this situation, since

last decade has come to replace Cantarell in strategic

their activities and projects now include significant work

importance: Ku-Maloob-Zaap.

for private operators in Mexico: McDermott worked on

platforms for Eni and BP, and Sapura has an offshore

ventures through its infrastructural tendering processes,

supply ship also working for Eni.

it is also true that offshore upstream infrastructure is too nationally strategic to experiment with. As a result of this,

One of the valuable elements that private operators have

long standing experience working with PEMEX will play

introduced and will continue to introduce to Mexico’s

a key role for Mexican private players looking to secure

infrastructure development is technological variety. Eni’s

one or more of these larger field development contracts,

use of an FPSO and the increasing interest in drillships,

perhaps an even more important role than traditionally

subsea field development and floating productions

prioritized characteristics such as broadly available

systems will ensure that the most efficient options are

access to equity or financing. The aforementioned

being incorporated to make incoming upstream growth

contracts awarded, through private invitation, to Grupo

as cost-efficient as possible.

Protexa are a prime example of this principle. Originally founded in 1945 and involved in the oil and gas sector

There is no doubt, then, that private operators will

since 1955, Protexa has played a fundamental role in the

continue to be an extremely relevant part of the dialogue

development of the entire Mexican offshore sector; as

regarding the industry’s infrastructure projects. Carvallo

Rodrigo Lobo, its CEO, points out: "most of the leading

says the suspension of bidding rounds will not halt activity.

Mexican offshore service companies were either spin-

“If activity continues and discoveries are confirmed, then

offs from Grupo Protexa, were created by former Grupo

Mexico will remain an attractive market, not only offshore

Protexa employees, or were started in partnership

but also in the midstream. If there is little interference, risk

with Grupo Protexa. We brought the first pipelaying

to private companies remains small. The attractiveness of

vessel, the first jack-up drilling rig and the first dynamic

the market can be seen in the level of investment and the

positioning vessel to Mexico. We conducted the first

size of the development plans that have been approved.”

offshore platform installation in Mexico and constructed the largest platforms in the country. We were the first

While the role of private operators in field development is

company to build computers for use in Mexico’s oil and

decisive, public sector contracts will dominate the short

gas sector, which we started doing in 1974. We were

term landscape given this administration's ongoing desire

also the first company in Mexico, besides Telmex, to

to jumpstart oil and gas activity. Although the government

establish our own cellular phone network in the country’s

has an interest in promoting entrepreneurship and new

northeastern region.”

171

| VIEW FROM THE TOP

THE FUTURE OF AN INDUSTRY MAINSTAY RODRIGO LOBO CEO of Grupo Protexa

172

Q: Given Grupo Protexa’s extensive history, how

computers for use in Mexico’s oil and gas sector, which

would you describe the state of the Mexican oil and

we started doing in 1974. We were also the first company

gas industry?

in Mexico, besides Telmex, to establish our own cellular

A: We’re living a challenging moment due to the decrease

phone network in the country’s northeastern region.

in oil prices and the change of government; which has a different vision. Our company and the rest of the

Q: What are the most important ways in which Grupo

companies in the sector must tackle challenges and let

Protexa has reacted to the decade of change in Mexico’s

the industry know that Mexican companies are capable

oil and gas industry?

of satisfying what the industry demands.

A: In 1981, oil prices began a decrease that took the price per barrel from US$36 to, eventually, almost US$7. This created

Q: What is Grupo Protexa’s contribution to the

an enormous crisis. It is all about understanding and adapting

development of the Mexican oil and gas industry?

to the market cycles. We have always managed to position

A: We made an arrangement with Grupo R involving

the company in a way that enabled us to maintain our market

the Tolteca vessel that got them started in the offshore

position throughout these times, and we have the resilience

industry. We contracted Grupo Diavaz to provide diving

to remain, or get back up, on our feet. We entered this last

services and helped them to develop the necessary

decade having just come out of one of these troublesome

capabilities through the Arctic Seal vessel that enabled

times, during which we had to reengineer a lot of our

them to handle this contract directly. Cotemar was started

processes. In 2014, we began reconstituting our corporate

by my brother in law, who worked at Grupo Protexa

governance, so that by 2015, when the oil price began its

before spinning off. Even Arendal and CCC Fabricación

downward trajectory, we were in a great position thanks to the

y Construcciones were created by former Grupo Protexa

many internal controls that we had developed. This allowed

employees who started working directly for PEMEX.

us to survive very well.

In short, most of the leading Mexican offshore service

It resulted in us going up while everybody was going down.

companies were either spin-offs from Grupo Protexa,

During the last five years, we have been delivering our projects

were created by former Grupo Protexa employees, or

not just in time but ahead of time, which nobody else in this

were started in partnership with Grupo Protexa. The

market has managed to do, at least not as far as I know. In

other main contribution is that we have always been

fact, on one occasion, one PEMEX executive explained that,

a frontrunner in bringing innovations to the Mexican

due to the fact that the project was delivered in advanced

market. We brought the first pipelaying vessel, the first

it generated enough extra profits for the entire cost of

jack-up drilling rig and the first dynamic positioning

the contract.

vessel to Mexico. We conducted the first offshore platform installation in Mexico and constructed the

Achieving this is not based on cutting corners but on investing

largest platforms in the country.

resources in order to anticipate our clients’ needs. This includes having detailed knowledge about the supply lines

Q: What is the secret to staying successful over so many

available to you. If you are going to need materials that are

decades while helping to set up your own competitors?

going to need a certain amount of time to ship or procure,

A: There are two major factors. First of all, forward thinking

you need to make sure to have that supply chain ready and its

to anticipate the needs and exceed the expectations of

timeframes taken into account by the time you are awarded

our clients through innovation. We were the first one to

the contract in question. If you start making these orders after

do many things which means that we are innovative. A

the contract is awarded, you are going to be late. We learned

good example is that we were the first company to build

that through experience.

You have to get ahead of the game and take the financial risk

to ensure the successful completion of crucial tasks and

of betting on a contract. The worst-case scenario is that the

be able to take on more and more responsibilities. For

contract is awarded to somebody else, in which case you can

example, we expended the fleet we are using from three

offer them the orders that you have already made. This also

to 28 vessels and we have had no problem at all. The limit

allows us to make lower bids because we have arranged for

could be 35 or 60, or it could be more than 60. As long

the materials needed to be already available to us. For new

as we continue to be able to handle the work available to

oil companies entering the Mexican market and looking for

us, the limit remains unknown. Again, this is all achievable

a good performer, our track record for the last four or five

through good corporate governance and good procedures.

years give us an enormous advantage over other companies

That is the road to success.

that have been late or have even dropped jobs and left them unfinished.

Q: What are the most important questions that you are getting from new operators when introducing

Q: How would you respond to questions regarding the

Grupo Protexa?

financial risks you have taken in the bidding processes?

A: They will ask similar questions to those you are asking

A: Throughout the last five years and two presidential

now. What are your capabilities in terms of human resources,

administrations, we have bet on winning and being

finance and equipment or instruments such as vessels? We

awarded these contracts. We were betting on specific

have to be clear with them so that we can part ways on

and strategically chosen projects, based on the lowest

friendly terms if our capabilities are not aligned with their

prices and the best performance that we can offer. We

needs. Our internal risk committees will not allow us to pursue

were not free to make these bets comfortably, but instead

projects that we cannot deliver without taking excessive risk.

made them based on research and the alignment of our capabilities with the clientsâ&#x20AC;&#x2122; needs. They were good bets

As a result, our progress with the international operators

but also carefully made bets, and that is why they paid off.

has been good. We have been in contact with over 90 percent of the private operators, we have registered as a

Q: Where do you see the strongest increase in demand

supplier and we are ready to bid for any tender that they

coming from in the future in terms of services to PEMEX?

will make available. They know that we are cost competitive;

A: I would advise to the decision makers to look at

which is confirmed by the relatively limited number of non-

performance. Paquete A and Paquete B that were awarded

Mexican contractors participating in these tenders. The only

to us are being delivered ahead of time yet again. We only

barrier could be trust; international operators might prefer

have to wait for the structures to be hooked up but the

bringing in their preferred international contractors despite

main job of delivering all the pipelines is done. Taking this

the enormous increase in cost that this would represent.

into account, who do you give the next job to? I think there

That is fine since we respect that it is their money that is

is going to be serious demand for the type of performance

being spent at the end of the day.

that we have delivered. Beyond that, we are now being approached to fulfill many more integrated contracts. We

Q: How would you describe your dreams and ambitions

used to deliver all projects through separate contracts,

for Grupo Protexa in the future?

but the shift towards integrated contracts is offering new

A: The next couple of years is too short of a timeframe to

opportunities.

make a forecast; most of what will happen in the next couple of years has to be more or less established by now. We need

If we continue to outperform on these integrated contracts,

to have a conversation about where we see ourselves in 10

then we will continue to be the best choice not only for

years. In three years, I see Grupo Protexa getting involved in

PEMEX but also for international companies entering the

integrated service contracts for PEMEX which contemplate

market. Non-PEMEX oil producers are going to be more

all the steps of field development. In 10 years, I want Grupo

active in their search for reliable Mexican contractors

Protexa to be a fully-fledged oil company, applying the

that can deliver projects matching the high international

best available knowledge and technology by contributing

standard that they are used to, and we are going to stand

to Mexicoâ&#x20AC;&#x2122;s production increase in order to help both the

out. In the end, both PEMEX and the international operators

government and PEMEX increase their returns. We see it

will be looking for companies that can achieve the necessary

as a win-win situation.

efficiency, and more, faster than the rest. Q: To what degree is there a limit in your execution

Grupo Protexa is a major Mexican infrastructure and

capacity regarding the work you could do for PEMEX?

engineering company that has been at the forefront of the

A: There is always a limit but this limit depends on our

countryâ&#x20AC;&#x2122;s oil and gas development throughout the last seven

managerial capabilities. Our procedures are very detailed

decades

173

| VIEW FROM THE TOP

BUILDING A NEW COMPANY, EXPANDING OPPORTUNITIES ALFREDO CARVALLO Director General Mexico of McDermott

174

Q: How is McDermott offering a new value proposition

in Abkatun-A2 alone and we far exceeded local content

to the market after its 2018 merger?

requirements. One of our major achievements during this

A: In May 2018, McDermott announced it had combined

build was the zero-count accident rate.

with CB&I. We are promoting the idea of “building a new company” by rebuilding our company culture. One of our

Q: What are McDermott’s current projects in Mexico and

key global themes moving forward is the assimilation of

what role does it play?

the culture of both companies, choosing the best aspects

A: We are involved in the building of Topside modules for

of both to construct a stronger company culture for the

an FPSO, and a platform for Eni, jobs that require high

future. This combination has also helped to extend the

local content percentages. This year, we are also working

company’s service capabilities. While McDermott was

for BP on their CASSIA C platform in the fabrication yard

traditionally an offshore contractor, the addition of

in Altamira. We will fabricate CASSIA C, a gas compression

CB&I’s onshore capabilities has allowed us to become

platform, following BP field technologies and processes.

very active in the LNG, petrochemical, refining and

This is the second BP platform we have built in Mexico

power sectors. McDermott also has a business called

and underlines the fact that McDermott and API Altamira

Lummus Technology, which is a global leader in licensing

can work to the highest international standards required

proprietary petrochemicals, refining, gasification

by multinationals. This speaks highly of the quality of the

and gas processing technologies, and a supplier of

personnel and infrastructure in Mexico.

proprietary catalysts and related engineering processing technologies. With these additions, we plan to develop

This service quality is also what sets McDermott apart

our onshore business in Mexico and grow our presence

from competitors in Mexico. From day one, we bring

in the downstream.

our processes and securities to bear on every one of our projects. Independently of the company McDermott

Q: The Abkatun-A2 shallow water platform was the

works with, our standards of quality and safety are

largest oil platform to be built in Mexico in the last

carried out to the same high level. Our safety records

10 years. What were the main challenges McDermott

illustrate this and are an advantage for us when it comes

encountered in its construction?

to attracting international players in Mexico. As we are

A: McDermott manufactured Abkatun-A2 completely in

a worldwide enterprise, one of our key differentiators is

Mexico and only the concept was engineered by a group

the ability to bridge solutions independently of where a

outside of the country. One of the major challenges was

company comes from.

to ensure that all packages arrived in a timely fashion so that the sequence of fabrication remained on track. When

Q: How has your relationship with PEMEX changed since

materials do not arrive on time, our building process

the new administration took over?

must be rearranged and this can cause problems. The

A: Our PEMEX relationship remains the same. Those

fact that McDermott has the largest welding school in

projects that were readied for execution have continued.

Mexico, located in Altamira, meant we could control much of the process. Some 2,500 employees were involved

We were not invited to the closed bid for Dos Bocas, but we are hopeful that our technology could be involved in the building process there through, for example, the

McDermott is a global, integrated engineering, procurement,

refining technologies that Lummus Technologies offers.

construction and installation (EPCI) service that operates

McDermott is also looking at opportunities to help with

in over 54 countries. The company employs over 32,000

the revamps of the existing refineries because there is

workers worldwide

good capacity for investment.

VIEW FROM THE TOP |

DIVERSIFICATION: A STRONG ASSET DANIEL SANTOS Vice President and Commercial Director of ESEASA Offshore

Q: What prompted ESEASA to become a contractor in the

Q: What competitive advantages set the companyâ&#x20AC;&#x2122;s offer

offshore segment?

apart from alternatives in the market?

A: ESEASA Construcciones has operated in Mexico

A: We are a one-stop-shop because all our services are

for over 40 years. The company has always worked

available at the port facility. This includes logistics, inventory

in the offshore segment as a subcontractor, providing

management, manufacturing of marine platforms, inland

engineering services as well as machinery for the

transportation, hoisting crane equipment, vessel docking and

construction of marine infrastructure. In 2014, we

warehouse storage services. Before we started offering our

decided to take a further step and became contractors

integral services two years ago, the one-stop-shop concept

and developers. That same year, the oil and gas

did not exist in Mexico. The company was able to maintain

industry experienced a major recession. Nevertheless,

its operations during the industry recession because we

our companyâ&#x20AC;&#x2122;s development remained constant as we

implemented this diversification strategy. We unload and

evolved from being a service provider to become the

load turbine components, over-sized equipment and offer

contractor of choice for larger clients, including PEMEX.

various services so that every requirement of any vessel can

To construct marine platforms, we have imported cutting-

be assisted by our port facility. As a result, we have been able

edge technologies, such as robotic welding, submerged

to continue investing in our terminals and become the first

arc welding and the latest generation of pantographs.

player in the market to offer these types of services.

175

| VIEW FROM THE TOP

REGIONAL EXPERTISE DELIVERS FIRST-RATE EPC EURÍPIDES ROMERO Director General of Inelectra Mexico

176

Q: What are Inelectra’s main projects in Mexico?

A: Our work with PEMEX, which includes our EPC project

A: Inelectra is working on four fuel storage projects and

for living quarters on Ku-Maloob-Zaap platforms, allows

has already made proposals for at least seven more. The

us to understand the work of the company in a way that

company is providing detailed engineering for McDermott

others do not have. But the nature of the open bidding

on a project in Tuxpan. We are also working with Vopak,

process means that much of this relationship has changed

supplying FEED engineering right up to the point of cost

and the competition is now more equal.

estimation. As a Venezuelan company, Inelectra was able to build We have projects with two separate private clients on two

its reputation and to work during the expansion of the

large terminals in Tuxpan and Hidalgo that will handle

oil and gas industry, which allowed the company to gain

4MMb. At the moment, we are working on the design of

experience working on large-scale construction projects

the FEED process, including the permitting from CRE

with national and foreign companies. Due to our regional

and ASEA.

location, Inelectra can offer exceptional competitive rates to its Mexican customers. Clients want efficiency in the

Inelectra’s Manzanillo 1.4GW cogeneration power plant was contracted by CFE in consortium with Cobra. It was completed in 2010

engineering production process and, of course, lower costs. Q: What is the Mexican market’s impact within Inelectra’s global aims and what are the main areas of opportunity for the company? A: Inelectra is putting Mexico at the forefront of the company’s global targets. We believe that the development stage of the Mexican market provides the

Q: What have been the company’s landmark projects

company an opportunity to make strides in its growth

since its arrival to Mexico in 2003?

here. The first phase of the new Dos Bocas refinery project

A: Inelectra provides EPC services across the energy sector.

is especially interesting.

In Mexico, one of the company’s standout projects is the Manzanillo cogeneration power plant we were contracted

The midstream will be Inelectra’s main focus of activity in

for by CFE in consortium with Cobra and completed in

the next few years. In other countries, we have focused

2010. This was a 1.4GW power generation plant. We signed

primarily on EPC contracts and this will not change in

a contract to develop the entire engineering scope. The

Mexico; our engineering services will be the skills that we

experience the company gained from this project was

deliver to the market for the short term. We are looking

enormous and allowed us to consolidate our name here

for opportunities to partner with larger companies on

as a company that can deliver quality engineering.

EPC contracts in which we can participate, bringing our experience and expertise.

Q: How does Inelectra use its relationship with PEMEX and its regional knowledge to be competitive in Mexico?

Q: How is Inelectra meeting the changing environmental and safety standards in Mexico? A: Inelectra has been focused on understanding the

and

legislation surrounding environmental and security

construction company headquartered in Caracas. Founded in

standards in Mexico. For us, the NOM-006 legislation,

1968, Inelectra delivers EPC and technical solutions to national

which was issued in 2017 and pertains to the safety of

and private companies across the global energy sector

construction sites, is particularly important.

Inelectra is

major

Latin

American

engineering

VIEW FROM THE TOP |

COMPLEMENTING THE VALUE CHAIN KEY TO ULTRA‑DEEPWATER PROFITS RAÚL GONZÁLEZ Mexico Country Manager of Saipem Offshore

Q: How has Saipem evolved in the Mexican market this year?

Q: What are your thoughts about developing a natural

A: Mexico is among the markets where we are actively

gas value chain in Mexico?

developing a stronger presence in the Americas region. We

A: We have held conversations with PEMEX about

strategically decided to do this many years ago. To date,

precisely this, mainly concerning the Lakach project,

Saipem America in Houston has been catering to the whole

in which we are already involved. We know it is in the

offshore division for Saipem in the region; however, we have

interest of everyone, PEMEX included, to reactivate it.

now opened a Saipem E&C Offshore company in Guyana,

We have also explored synergies between Lakach and

in collaboration with Exxon Mobil, and have the same plans

PEMEX’s Ixachi onshore gas development project, as well

for Mexico. Here, while our efforts are focused in deepwater

as other deep sea developments, like Kunah and Piklis.

subsea developments, in particular the Lakach project, we are

These are opportunities that PEMEX has close to Lakach,

also targeting other offshore SURF and T&I projects in Baja

which can be tied together using the existing Lakach

California and future projects with Dragados, for whom we

infrastructure. This means that the next development in

are installing the CA-KU-A1 platform.

ultra-deepwaters will be cheaper and as a result more gas will be produced.

We provide services related to ultra-deepwaters, pipelines and subsea production to complement the already existing

Q: What are Saipem’s prospects for the coming year?

capacity with our expertise. Even though we could compete

A: We have many assets that could potentially play a

with services that are locally available, we choose to focus

big role in projects we are actively targeting in the Gulf

on complementing rather than competing. The goal is to find

of Mexico, the Sea of Cortes and the Pacific Ocean. It

synergies with local strategic partners in different sectors to

will all depend on the market and when each project

further develop the offshore market. If PEMEX really wants

gets sanctioned. We have deployed the S7000 in Mexico

to increase its gas production, it will have to continue moving

for many projects in the past. It is currently at the Ca-

into deepwater developments. It already has with the Lakach

Ku-A platform installation. It is one of the largest heavy-

deepwater gas field. We are here to provide support as

lift crane vessels in the world, but we also have the

PEMEX looks to the future.

Constellation, the biggest rigid reeled and flexible pipelay vessel in the world with heavy lift capabilities, stationed

Q: What are PEMEX's projections for deepwaters and how

in the Gulf of Mexico. We are now focused on ramping

can Saipem be involved in them?

up the offshore division and office in Mexico. The aim

A: PEMEX is still involved in deepwater despite the changes

is to run offshore projects from Mexico and be able to

at the company. The reality is that PEMEX needs gas, and

cater to the needs of operators and their contractors.

it has already found significant reserves in deepwaters. It

As mentioned, our goal is to become the leader in the

now becomes a financial exercise to make these deepwater

country’s ultra-deepwater and subsea sector. In the

developments economically feasible. It has become clear

meantime, we may still offer our services on T&I and

that gas exploration is a market that cannot be ignored,

shallow water pipeline projects. We will also focus on

even though PEMEX is hesitant to invest in this area. My

our strategic alliances with local partners and deepen

job is to tell PEMEX that we can help, that we know how to

our involvement with PEMEX.

do this. Our goal is to be the main deepwater development contractor in the Gulf of Mexico. To do this, we need to help operators understand how to be efficient in terms of

Saipem Offshore is the leader in the offshore design, construction

costs and safety in ultra-deepwaters. We just need to make

and installation of subsea developments worldwide. Its expertise

them aware that deepwaters and gas are still strategic and

includes fixed and mobile platforms, subsea production and

profitable options.

control systems, subsea pipelines and field monitoring

177

| VIEW FROM THE TOP

LOOKING FOR EFFICIENCY OCTAVIO NAVARRO Country Manager Mexico of Heerema Marine Contractors

178

Q: The AMLO administration is prioritizing the oil industry.

A: I believe that for PEMEX to be more efficient, projects

What windows of opportunity has this opened for Heerema?

should be separated. In other words, there should be

A: With the arrival of the new administration, new

fabrication contracts and contracts for the transport and

opportunities have emerged that did not exist before.

installation of platforms. This would make it possible to

Since the middle of the previous six-year period, there

have the right vessels for long-term projects with sufficient

have been no projects for companies like Heerema, but

volume to pique the interest of major companies.

new schemes are being generated that will have to be reviewed since we are working in a context that we are

Q: Heerema is in several countries around the world. What

not familiar with in Mexico. Adapting to this context has

can Mexico learn from other markets to boost its industry?

not been easy. All contracts are going to be EPCI and in

A: Mexico no longer needs to learn too much, especially with

the specific case of Heerema, we will be subcontractors

the focus on shallow waters. PEMEX is a company that does

in the transportation and installation segment working

not learn from their lessons learned: it continues to make

mostly for Mexican companies.

the same mistakes despite the passing of the years. This may be caused by the amount of structural changes that

Q: What is the status of the relationship between Heerema

the organization has experienced.

and PEMEX? A: Heerema does not have any direct relationship with

Q: What strategies does Heerema use to attract, retain and

PEMEX. Our relationship with the NOC is through the

train the best possible Mexican talent?

consortiums in each project. When PEMEX requests the

A: The work that Heerema is carrying out in Mexico is not on

fabrication of platforms with transport and installation and

a large scale, so our vessels arrive in the country with all the

also the installation of pipelines, at least three companies

necessary personnel on board. Engineering is carried out in

must join together: a fabricator, a pipeline installer and a

our offices in the US and the Netherlands, while in Mexico we

platform transporter and installer.

work hand in hand with Mexican the companies that work for the manufacturers.

Q: How is the dialogue between PEMEX and private companies conducted?

Q: What is your relationship with the companies interested

A: In the past, there was the option of delivering proposals

in working in Mexico’s as-yet untapped deepwaters?

to PEMEX and there were forums and meetings in which

A: Most of the companies that have interest in the Mexican

companies like ours could provide their opinion. With the

oil and gas market already know us and are our customers.

current administration, this is not happening. I suppose

Heerema always adapts to its client’s needs; that is, we do

this is because PEMEX is in a hurry to do things, so it

not have preferences for brands or materials. Once the

does not want to waste time in discussions that may delay

project is finished, our relationship with the client ends, since

its plans.

we are not manufacturers, but installers.

Q: What changes should be implemented at PEMEX so that

Q: What are Heerema’s near-term expectations in Mexico?

the company continues to improve its efficiency?

A: We are looking for work that we can do in 2020, although we do not have anything closed yet. Hopefully, the inertia initiated by PEMEX will continue in the coming years and the

the NOC will continue to develop new fields, but we do not

Netherlands. It is a leading marine contractor in the international

really know which projects will be carried out over the next

offshore oil and gas and renewables industry. It excels at

few years. Heerema has also diversified into other segments.

transporting, installing and removing offshore facilities

This includes decommissioning, which is a must for Mexico.

Heerema

Marine

Contractors is

headquartered

VIEW FROM THE TOP |

UNIQUE MARITIME CAPABILITIES READY TO SERVE MEXICO HAROLD VELÁZQUEZ Area Manager of Boskalis Offshore Energy

Q: What contributions is Boskalis looking to make to

the installation of the fixed or floating facilities and subsea

Mexican offshore field development?

pipelines these operators will need for their projects.

A: Our ambitions are considerable. Our unique and versatile range of assets and capabilities enable us to participate in

Our added value is offering a unique combination of

all the phases of an offshore field’s life cycle. These services

people, vessels and activities for our clients. That been

are performed by our subsidiary Gardline, which is a leading

said, we are also looking into chartering for the IOC clients.

contractor in this category in the North Sea. We can also

For example, in Mexico we have a vessel working for Eni on

assist in the transportation of drilling rigs, not to mention

a long-term charter. We can reflag vessels to participate

the support our specialized assets can provide to a project’s

and support these types of projects for our clients. Ideally,

general marine spread. We can also provide transport

having assets available in the Gulf of Mexico gives us a

and installation solutions for production platforms. The

competitive edge to support other projects, because

scope of the projects we take on can also include general

mobilization expenses are already taken care of so we

offshore infrastructural development, with activities such

can offer a competitive solution.

as shore crossings of subsea pipelines, trenching and finally rock dumping, more technically known as subsea

Q: To what degree are Boskalis’ capabilities still classified

rock installation, which is also an area in which Boskalis is

as unique in the offshore services market?

a world leader.

A: Boskalis has many firsts in a long history of outstanding projects. Just thinking back in the last couple of years, the

Moreover, we are a leading contractor for decommissioning,

Aasta Hansteen SPAR transportation and topsides float-

particularly in the North Sea, and we want to offer these

over, and the P67 FPSO transport come to mind. In the Aasta

services here as well. Our specialized services can be

Hansteen project, in the North Sea, Boskalis transported the

combined into an integrated solution for offshore operators

largest and heaviest SPAR with the heavy transport vessel

in Mexico. This is in addition to the synergies we create

BOKA Vanguard. The installation of the topsides is the

as one of Boskalis Group’s divisions, together with our

largest catamaran float-over that has ever been executed,

dredging division and our towage and salvage Division.

involving more than 100,000 work hours with zero lost time injuries. The BOKA Vanguard also transported the

Q: With these capabilities in mind, how are you planning

90,000tonnes P67 FPSO from Qingdao yard in China to Rio

to develop your client and project portfolio in Mexico?

de Janeiro in Brazil, which was record breaking in tonnage

A: We are constantly in contact with the large offshore

for a dry towage. This allowed Petrobras to shorten the

EPC contractors to whom we would usually provide our

transportation by 60 days of the 150,000 barrels of oil per

services as subcontractor for their offshore infrastructure

day production facility, with the corresponding impact of

projects. Our communication with these contractors plays

bringing first oil forward while also having a safer transport

an important role in our efforts to identify potential projects

of the FPSO. These projects showcase the diversity of

and identify the services we can bring to the table. For

marine assets and expertise of Boskalis, but most important

PEMEX, we are looking closely at the publishing of its

for our clients, our commitment to execute technically safe,

“packages,” which is what the NOC calls the bundled

sound and cost-effective solutions.

contracts of pipelines and platforms for development of its offshore fields. PEMEX has stated in its business plans and elsewhere that it has ambitious goals for developing

Boskalis Offshore Energy was founded as a Dutch dredging

shallow water production. Private operators like Talos, Eni,

company in 1910. Through growth and acquisition, it has

Fieldwood and Hokchi are also prominently in our radar.

become a reliable dredging and marine expert with a global

We actively explore where our capabilities can align with

footprint

179

| VIEW FROM THE TOP

WEIGHING IN ON PLATFORM DEVELOPMENT 180

SALVADOR PORTILLA Director Mexico of ALE Heavylift

Q: What success cases illustrate ALE Heavylift’s contribution to Mexico´s oil and gas industry? A: In 2005, we worked on a platform project that was built by Dragados Offshore. We focused on the weighing, lifting, transportation and ballasting of a platform called QA2, which weighed over 10,000 tons. We applied Heavylift’s technology using an electronic weighing system that had been previously used in Europe and the US. At the time, the execution of this 10,000tonnes project was a challenge for petroleum and construction engineers and for the heavy-lifting market. ALE provided the necessary equipment to weigh the platform and jack up to the boat using the Stand Jacks System. After being recognized for the success of this project, we began working on many medium-size projects in Mexico. Since then, all our work has been focused on the offshore market, where we specialize in the construction of platforms. Q: How did you stay afloat during the industry’s downcycle when platform demand declined? A: The company has a great commitment to its employees and we value the infrastructure the company has developed over the years. That gave us a reason to enter different fields, such as the mining sector, and we worked on refineries as well. We also participated in big transportation and civil engineering projects in Guadalajara. During this time, the energy market gave us the opportunity to set up turbines and generators which kept the company afloat. We have seen strong ocean infrastructure development this year with significant growth in platforms in the Tampico area.

ALE Heavylift offers specialized engineering teams, a large fleet of innovative equipment and operating centers that allow an intelligent and flexible approach to projects across a wide array of industry sectors

INSIGHT |

CAUTIOUS OPTIMISM IN THE MEXICAN OIL AND GAS MARKET MARCO GUTIÉRREZ Business Development Manager at Seaway 7

Sometimes a little luck can go a long way. For Seaway

the variety of jobs our vessels can work on is our competitive

7, that luck was absent during the bidding rounds, says

edge in Mexico,” says Gutiérrez.

Business Development Manager Marco Gutiérrez. Yet, he remains pragmatic in his outlook on Mexico which, he

Seaway 7 has worked on several Mexican projects in the past

says, continues to be an interesting proposition despite his

and will draw on that experience when carrying out new

company’s run of unsuccessful bids for PEMEX and private

contracts. Between 2014 and 2015, it installed the Kab-C,

contracts. “To bid successfully, the stars have to be aligned.

Tsimin-D, KU-B topside and Kuil-B jacket for PEMEX, working

We have been unlucky with our schedules since our vessels

under the Mexican marine construction firm Permaducto.

have been busy in other markets, but we are developing

Although the company does provide full EPCI services in

two tenders for the next year and we are very excited to

the renewables market, it will continue offering T&I to larger

see what happens.”

operators in Mexico rather than being a full partner in future bids. “If you agree to bid in a partnership, the company

Seaway 7, which in 2017 became a subsidiary of the UK-

effectively agrees to the T&Cs of the PEMEX contract,

based offshore services company, Subsea 7, was a victim of

regardless of the size of the contract your company is working

bad timing when PEMEX released its tender for the A and B

on. You take on that exposure to risk, and PEMEX penalties

marine construction packages in February 2019. Its fleet of

are harsh. We do not sign these contracts because we prefer

two heavy-lift vessels could not be in the Mexican Gulf for

to focus on T&I and only 10 percent of a contract’s final value

the dates needed and opportunities were therefore lost. But

goes toward our side. For example, if a contract is worth

Gutiérrez says that as a T&I operator, scheduling difficulties

US$500 million, the company would be risking itself for only

like these are part of the job and achieving a balance between

US$50 million and that makes no sense for us,” says Gutiérrez.

confirmed contract work and future possibility is always a delicate process. “Not everything comes down to price. When

Although the risk as a bidding partner is not worthwhile for

we have all our vessels occupied, we cannot offer the flexibility

Seaway 7, Gutiérrez believes that PEMEX’s recent preference

that IOCs demand. This is one of the common problems for

for integrated proposals works to the benefit of private

companies like us, Heerema and Saipem. We have to bring our

operators and to the benefit of competitivity in Mexico’s oil

vessels from as far as the North Sea, and for that, planning far

and gas industry. “In the past, companies faced huge risks

in advance is required,” he says.

because, as PEMEX contracts were split by scope, contractors could never be in full control of the project and penalties

Despite a limited fleet, the company has the muscle when

were a constant risk. There is now more certainty and cost-

heavy lifting is required. Its two vessels, the Seaway Yudin

effectiveness. Previously, our vessels would be required to be

and the Seaway Strashov, are both modern, monohull vessels

in dock at a certain date even if there was nothing to move. An

that deliver efficient lifting capabilities for a wide range of

inactive vessel can cost US$500,000 a day,” says Gutiérrez.

T&I activity. The ships have participated in over 150 offshore installations, including module and float-over installations, and

With the dust beginning to settle from the change in federal

offer Mexico’s offshore operators a robust option for transport

administration, Gutiérrez is cautiously optimistic that the

to construction. The larger ship, the Seaway Strashov, can

future of country’s oil and gas industry, and that Seaway 7

handle lifts of up to 5,000tonnes and places the company in

in Mexico, is on the upswing. “Mexico is our most difficult

a strong position to handle the coming FPSO development

market but remains an interesting and important market

in Mexican waters. This lifting power is what the company will

for us. We are interested to see how the administration

leverage in future contract bids. “The Seaway Yudin provides

plans to increase production. The evolution of Round 3.1,

lifting capabilities up to 2,500tonnes, while the Seaway

which included many shallow waters, will be particularly

Strashov boasts double that. This range of lifting ability and

interesting to us. We are hopeful.”

181

| VIEW FROM THE TOP

EVERY CHALLENGE IS AN OPPORTUNITY

BRAD MCNEILL CEO of Frontera Offshore

182

JESÚS LÓPEZ Operations and Business Development of Frontera Offshore

Q: What are the most relevant elements when detailing the

Q: What are the most important ways in which you prepare

factors behind your project portfolio?

your clients and new operators for the infrastructural

BM: Our development has always been tied to the Gulf of

context in Mexico?

Mexico’s infrastructural development. I first came to Mexico in

JL: We approach from four complementary action lines:

1997 with Bechtel to work on the revamp of the Cantarell field.

quality, safety, compliance and technological advantage.

Frontera was later formed in 2001 as a consultancy for the

During the project development phase, we first have to help

oil and gas opportunities we identified in Mexico at the time.

our foreign clients understand the dynamics of Mexican law.

Of course, by the time the Energy Reform came in 2014, we

The legal infrastructure that dictates customs and customs-

had reorganized the company to prepare for the arrival of a

related bureaucracy, for example, is extremely complicated

new generation of contractors and clients whose needs would

and yet it is essential to have a complete handle on it when

reflect different standards and requirements. They were going

working in the marine and offshore sectors. In this same

to be entering the Mexican oil and gas industry for the first

vein, you have national contents, which are calculated

time and we knew there would be a great demand for local

through methods that changed in significant ways between

partners to help them adapt to this sector’s characteristics.

2010 and 2012, changed again in 2015 when SENER came

By early 2017, we had found the steady and successful

out with a completely new and different calculation, and

rhythm of work that we had been looking for. Our projects

are now changing once again.

and ongoing operations included activities such as pipeline stabilization and ROV services. More recently, we completed

Of course, for us this is perfectly fine, because we find that

a cable lay project for Eni’s field development in Mexico as a

there is plenty of value to be added from simply increasing

subcontractor of Sapura Energy. While we do not subcontract

our national content by hiring capable Mexican engineers and

directly with PEMEX, we are familiar and comfortable with its

technical experts. However, this usually only represents around

requirements and the general dictums of the national industry.

30 percent of your operational expenses. A significant part

I would say that, with all this in mind, we identify the great

of the remaining 70 percent are costs related to your vessel.

need for offshore infrastructural growth and development

This is where you find an important area of opportunity, since

in Mexico as the key incentive driving our project portfolio.

there is not sufficient infrastructure in Mexico for building

specialized offshore vessels, and the port infrastructure for

JL: As important as it is to reverse the production decline

servicing the offshore fields in the Gulf of Mexico is also limited.

is, the potential of the Mexican oil and gas industry is not necessarily going to be based on how much can

There is still work to be done on the port infrastructure in

be produced but rather how much can be stored and

the Mexican shore of the Gulf of Mexico. For example, for

transported. Infrastructure development is also necessary.

Mexican deepwater development, the closest available port

For instance, we just finished a project for the installation

with appropriate draft depth capacity is Tampico. Reaching

of 24km of cable in the offshore region near Tabasco for

the worksites from there can take up to 28 hours for an

Eni. A dozen similar projects are going to be necessary in

average supply vessel. Imagine you are in the middle of

the next three years, and that is just to address the needs

a drilling campaign. You load up your supply vessel with

of new operators; in addition, PEMEX will also have to

600 m3 of drilling mud. The vessel leaves port and reaches

provide repairs and maintenance to around 25 percent of

your platform 28 hours later. That mud then needs to be

its 2,500km of pipelines and its 320 platforms over the next

unloaded from the vessel, loaded onto the platform and

four years, and build a significant network of pipelines and

then down the well. This operation will probably take

platforms for developing its fields.

you two or three days, so to continue operating without interruptions, a second vessel with a second load of

To meet these opportunities, Frontera Offshore has entered

drilling mud needs to be leaving port before that first

an exclusive collaboration with DOF Subsea for the Mexican

vessel leaves your platform to begin its return trip. The

market. The alliance is intended to leverage the local

logistics for securing the continuity of operations is always

presence and track record of Frontera with the specialized

challenging, and these companies need local experts like

vessels, engineering capabilities and subsea survey and

us to help navigate them. Managing these interactions is

installation experience of DOF Subsea. The Mexican

part of our scope of services. The closer alternative port

offshore market is expected to see unprecedented growth

would be Matamoros, but that port needs to be developed

over the next 5 years and Frontera-DOF intend to be the

so that its draft depth capacity and quayside support can

lead subsea contractor in the region. The energy reform in

accommodate deepwater support vessels. Mexico needs

Mexico has now reached field development phase for some

to secure accessible ports for supporting the development

of the shallow water operators and Pemex are investing

of its offshore oil and gas projects.

heavily to increase production. This combination, together with upcoming deep water activity, is expected to provide

Q: How do you expect these challenges and opportunities

ample opportunity for Frontera-DOF to deliver a full range

to evolve in the future?

of services, all in compliance with the highest standards of

BM: Port capacity is the biggest bottleneck to be addressed;

quality and safety.

you would need to measure necessary infrastructure to be developed in the future in terms of kilometers of docks yet to be built in order for the modernization of Mexicoâ&#x20AC;&#x2122;s

Frontera Offshore is an American technical and commercial

offshore infrastructure to be truly effective and successful.

offshore operator focused on the Mexican and Latin American

Thankfully, I believe there are already plenty of ongoing

oil and gas industry, offering subsea technologies, vessel

efforts headed in that direction.

crews, drilling services and various types of marine projects

183

| VIEW FROM THE TOP

CHANGING THE FIELD OF DEVELOPMENT CONTRACTORS GIULIANO CACCIATORE Mexico Director of DG Impianti Industriali

184

Q: What makes DG Impianti a different kind of field

we can compare Mexico to Italy, so we are very comfortable

development contractor in the Mexican context?

with the standards, expectations and regulations applied to

A: On one hand, we are an experienced EPC contractor

EPC contractors like us here. Of course, when an industry

with more than 50 years in the market. On the other, we

changes so much in such little time as Mexico’s has,

are a young company in Mexico, having only arrived in the

there is an inevitable process of culture clash that has to

national industry last year. Our global presence previous

be managed. We look forward to further embracing the

to our arrival in Mexico included similarly fascinating local

culture and national reality of Mexico, and to work within

markets in Europe, West Africa, North Africa, Asia and the

its limitations, possibilities and great potential.

Middle East. Since we are more of an independent name in EPC, our smaller size gives us the flexibility to adapt

Q: How were your capabilities aligned with the task of

to all of these national realities, and to grow organically

developing a part of Eni’s Mexico field through your

with those industries as we plan to grow with the Mexican

construction of its onshore receiving facilities?

oil and gas sector. Our entrance into the sector was also

A: The central quality that defines us as an EPC contractor

different and unique to the state of the Mexican industry

is speed and efficiency; basically, getting straight to

post-Energy Reform because we arrived in Mexico

the point and narrowing the gap between a project’s

through a contract with Eni, which was developing a field

preparation and its delivery as much as possible without

here. This has given us a unique perspective on Mexico’s

making sacrifices on performance and security. Eni saw

national oil and gas landscape.

unparalleled success with its Mexico operations, and for this reason it needed its infrastructure ready as quickly as

Q: How would you compare Mexico to the other

possible so that produced resources could be managed

international markets in which you have participated?

as quickly as possible. We stuck to a strict time frame

A: Mexico is internationally considered an exciting market

to guarantee the fastest recovery of its investment. We

and investment prospect because of all the major ways in

were also able to successfully and efficiently manage the

which it changed so quickly after the Energy Reform. This

interests of local communities in the Sanchez Magallanes

represented an enormous opportunity for the country in

area where the facilities were built, taking full advantage

general but a huge opportunity for a company like ours

of the proximity of industry hubs such as Villahermosa

specifically. To these changes we can now also add the

and prominent ports such as Coatzacoalcos. The fact that

great urgency that the new administration has brought to

the facility was completely new and, together with the

the matters of increasing production and accelerating the

closed system it created with the FPSO that Eni brought

development of the offshore sector. This acceleration is a

to Mexico for its field development purposes, did not

defining feature of Mexico to us. Although the first of the

require significant interaction with legacy infrastructure,

two projects we have developed so far was technically

allowed us to apply our methods completely and

an onshore receiving facility, it is work that would never

successfully accelerate the project’s time to market.

have been available if it was not for Mexico’s offshore development enabling Eni’s success. Besides the offshore

While our clients’ main priorities tend to be a project’s

component, I would say that in terms of sector regulation

CAPEX, we were able to generate a good OPEX situation as well for this facility. We did this in part by balancing the sourcing of construction equipment and parts that

DG Impianti Industriali is an Italian engineering, project

would not need replacements in the short to medium

management and maintenance firm founded in the 1960s with a

term between Italian, US or international suppliers and

specialty in the petrochemical sector but that has expanded into

locally-sourced components through alliances with

the entire oil and gas value chain

national companies.

VIEW FROM THE TOP |

INVESTING FOR THE LONG HAUL BRUNO PICOZZI Area Manager for North and Central America at Sapura Energy

Q: How will the cancellation of auctions affect the oil and

shallow water oil producers in the world. The human

gas industry?

resources basis in the sector is there. There are also many

A: In the short and midterm it will not have an impact

construction yards with well-trained workers. But PEMEX

because the awarded acreage for infrastructure and

has been the single client for so long – for the lifetime of

construction will be developed over the next five to six

most of these workers – and meeting the standards of the

years. However, each year without new exploration acreage

new operators will be a challenge. There are new clients

will have consequences in the long term. This cancellation

with different setup standards that need to be adapted to.

will cause a hiatus at some point as the lack of exploration

Sapura has worked with many of these clients so we use

becomes apparent in around eight to 10 years.

our internal sources to fill the gap we have in Mexico while we train Mexican personnel at our projects abroad. In the

Q: Why did Sapura come to Mexico and what are its main

last two years, we have sent people to Turkey, Malaysia,

activities in the country?

Brazil and other countries to get exposure to different

A: The Mexican oil and gas industry has huge potential. This

clients, standards and projects. We like our personnel to

is why we are here and are investing in the country. We are

be experienced in multiple environments. Our goal is to

working with PEMEX on the Line 16 project, which is a large

always have 10 to 15 percent of our Mexican workforce

30-inch pipeline from the PP-Ayatsil-B platform to E-KU-A1

stationed abroad. About 70 percent of our personnel here

platform. For Eni, we are constructing an onshore pipeline,

are Mexicans. We feel this is a good percentage although

the shore approach and the offshore line. We have just

our goal is to take that figure to 80 or 90 percent.

finished the installation of an offshore well head platform, jacket and deck, which is a big milestone for ourselves

Q: What is the main challenge the company has

and our client. The company is working hard to meet our

encountered in Mexico?

client’s safety, budgetary and scheduling goals. Sapura

A: Working onshore is challenging. There have been

has also mobilized its technical team from its international

security issues and disagreements with unions as well

operations to mix with its Mexican workforce. This is a huge

as route changes. There are many uncertainties when

project with significant challenges but we are confident.

working onshore and the experience has taught Sapura many lessons. To achieve our onshore goals, we partnered

Q: The Mexican government is pushing the role of local

with Arendal because we need a highly-experienced local

content in the industry. How is Mexico suited to meet

engineering contractor.

this goal? A: Mexico has fantastic knowledge of the shallow water

Q: What is Sapura hoping to accomplish this year?

market. It has an established supply chain. There are several

A: We want to complete our projects safely, within

local building yards with capacity to cover shallow water

budget and on schedule to achieve our clients’ goals.

requirements and there are several service providers that

The company is also looking to win more jobs from both

have worked on these developments for a long time. The

PEMEX and international operators. Our intention is to

challenge, however, will be in deepwater. These fields will

continue growing, increase our local content in Mexico

take between eight and 10 years to develop so the country

and introduce our technology.

must prepare both its human resources and its supply chain. Q: How is Mexico positioned to meet the human resources

Sapura Energy is a Malaysian oil and gas service provider

the market change demands?

with a global reach. The company offers upstream services,

A: Mexico has great professionals who have been working

including engineering, offshore drilling and E&P, to some of the

in the industry for many, many years. It is one of the largest

world’s major oil companies

185

| VIEW FROM THE TOP

COMPLETE LOCAL CONTENT OFFER JAIME LLANO Business Development Director Mexico of Shawcor

186

Q: As an integrated energy services provider of coatings

the country. Based on that, we are increasing our in-

and connection systems, what are Shawcor’s main goals

country product portfolio for that particular market. We

in the Mexican market?

also invested in new facilities at our Veracruz plant from

A: We have analyzed the landscape and determined that

where we will be able to apply special products used in

Mexico has one of the strongest markets in the region.

other projects around the world for our customers here.

Our main goal is to provide services to all the involved players. Several offshore contracts were awarded and all

Q: What actions has the company taken to strengthen

of these companies have four years to explore their blocks

its value proposition for offshore projects?

and three years to develop them. This means companies

A: The company has prepared internally for these new

will need services at the same time, which will require

challenges. In fact, we just started production at the new

process optimization and extra production capacity. We

Veracruz facility. We made the decision to invest and

are flexible and new mobile plants could be added if

offer more specialized coatings for deepwater projects.

necessary. We are also training staff. New technologies

Previously, we worked with four types of insolation

will be incorporated and we have developed a training

coatings, but at this new plant we can increase our offer

program for our people. We have more than 15 Mexican

by up to three more specialized coatings for deepwater

engineers in that program at our global facilities, which

applications.

will allow us to foster a 100 percent local content offer. Through this facility, all our services will be delivered We trust in Mexico and made the decision to invest in

locally. We are committed to adhering to the local

advance to be prepared to work with all these players.

content terms of the Energy Reform. We can apply

We want to better position Shawcor to work with the

offshore concrete coatings from our Coatzacoalcos plant

international operators that are entering the country.

and we have two facilities in Veracruz for deepwater and

We have worked with these companies around the world

specialized coatings that can provide services for several

but now we need to focus on their needs in Mexico and

projects simultaneously.

extend our relationship with their local teams. At the same time, we contribute to the development of the local

Q: Given the changes in Mexico’s oil and gas landscape,

industry in the regions where our plants are located.

what will be the industry’s greatest challenge in the short term?

Q: What are Shawcor’s main target segments to increase

A: Over the last few years, production in Mexico suffered

its foothold in Mexico?

a drastic downturn as PEMEX decreased its investment

A: There is no doubt that the offshore market will be our

in its fields and did not incorporate new reserves. At

main target, but we will continue supporting shallow-

the moment, the biggest challenge in the short term

water projects developed by PEMEX and new IOCs. Those

is to increase oil production. Achieving this will be the

projects will require a lot of new infrastructure all over

greatest accomplishment of the Energy Reform because

the Gulf of Mexico. At the same time, new deepwater

this increase in production will not be generated by

developments will create fresh demand for services in

PEMEX alone; it will be a joint effort with IOCs. As a result, the next decade will be interesting in terms of new infrastructure, which will gradually increase over

Shawcor is a leading energy services company that works for

the next five years when most of new awarded blocks

the oil and gas, petrochemical, industrial, electrical, electronic,

will conclude the exploration period and some will

automotive and communications industries. It offers pipe coating,

continue on to development phases that will require

integrity management, oil field and connection systems

specialized services.

VIEW FROM THE TOP |

THE FLEET OF THE FUTURE RAYMUNDO PIÑONES Managing Director of Maersk Supply Service

Q: How would you describe your involvement in Mexico’s

has 44 vessels that can greatly contribute to all aspects of

offshore sector?

Mexico’s offshore development. Our vessels average less

A: We have now two of our Stingray class new-build subsea

than 10 years of age. In fact, 10 out of those 44 vessels

support vessels (SSV) operating in Mexican waters for PEMEX

were acquired no earlier than 2017, so we are talking about

as end-client. The first vessel has been in Mexico since October

a new technologically high spec fleet. The largest Anchor

2018 and the second one arrived in September 2019. Despite

Handling Tug Supply (AHTS) vessel working in Mexico has

Maersk Group’s extensive overall presence in Mexico, Maersk

a bollard pull capacity of around 150 tons. Our smallest

Supply Service division’s office currently only has two people

AHTS vessel has a capacity of 180 tons and the largest one

(plus some 50 local seafarers working on board our vessels),

is close to 300, so we are talking about very large assets

but our plans are to continue increasing our local footprint

that could make offshore operations in Mexico safer and

in line with the rest of the Maersk Supply Service regional

more efficient. In Mexico, local companies are identified

offices, where Maersk Supply Service has a significant and

by us more as potential customers than competition due

long-term presence. This means that we are aiming for a larger

to the differentiation in the size of our assets. Efficiency

regional office that will likely include crewing departments

is key here. PEMEX will be looking at all of its options to

and a finance department with a strong focus on hiring local

make offshore development as cost-efficient as possible,

seafarers. Other divisions of Maersk, such as Maersk Line and

and we believe our fleet can play an important role in

Maersk Drilling are also consolidating its presence in Mexico;

contributing to that objective.

this last one is expanding its presence in Mexico significantly through Repsol’s contracting of the drillship Maersk Valiant,

Q: How do you expect your offshore and field development

which will begin work in 1Q20.

activities to be distributed and structured in Mexico? A: In Mexico, we will focus our efforts on offering integrated

When I started out at Maersk Line back in 2005, all functioning

services. While our bread and butter will continue to be

managers were expats; today, the organization is much larger

the chartering of our fleet, we will also continue to expand

and most of the functioning managers are Mexican nationals.

by offering integrated solutions to our clients. This means that we will take on duties such as project management

Q: What role are you playing in the Mexican oil and gas

and resource planning linked to larger work scopes for

industry and what do you expect to contribute to Mexico’s

construction, installation, hookup and commissioning of

offshore development?

offshore infrastructure, among others. In this area, Maersk

A: PEMEX is using our vessel mostly for stimulation, as

Supply Service has already consolidated its experience by

well as inspection, maintenance and repair of its offshore

completed integrated projects in the North Sea for towing,

facilities, which the vessel can do very well due to the high

mooring and installation of offshore facilities, and we were

capacity and technological standard of its crane. However,

recently awarded a similar project in Equatorial Guinea

the sophistication of these assets goes way beyond these

for a large American IOC scheduled to begin soon. The

simple tasks. They can be used for Light Well Intervention

structuring of our service portfolio is in line with PEMEX,

(LWI) applications, which can include modifications to well

considering that it wants its suppliers and service providers

completions. They can also be used for abandonment and

to assume some operational risk in their contracts.

decommissioning of wells, just to mention a few. These vessels can avoid the use of Mobile Offshore Drilling Units (MODU), which makes them an incredibly convenient, cheap and faster

Maersk Supply Service is a division of Maersk Group focused

option for operators performing certain interventions offshore.

on the provision of offshore integrated services and on-time

In this case, we are only talking about the type of vessel

chartering of our fleet of specialized vessels. The company is

exemplified by the one currently working in Mexico. Our fleet

headquartered in Copenhagen, Denmark

187

Ku-Maloob-Zaap facilities, Campeche basin

PRODUCTION & MATURE FIELDS

The mandate is clear: President López Obrador wants to increase oil production. The goal set is at 2.6MMb/d, which is ambitious and will undoubtedly challenge not only PEMEX but all operators and consortia to level up their operations. Oil prices pose an obstacle that needs to be overcome with cost-efficient processes and improved working standards. Production will have to be as streamlined and efficient as possible to reap rewards. Both innovation and making smart use of new technologies will be key to reach the coveted goal. By improving the recovery rate of mature fields, making discoveries and producing at optimum efficiency levels, the government’s ambitious production goals can become a reality.

This chapter shows the current trends in production of oil and gas fields. It highlights the latest innovations and discusses, through the eyes of experts, how CNH, PEMEX and private companies alike can contribute to boost Mexico’s hydrocarbon production.

189

CHAPTER 8: PRODUCTION & MATURE FIELDS 192

ANALYSIS: Platforms, Tools Needed to Reach Goals

193

VIEW FROM THE TOP: Rossy Pérez, Beicip-Franlab

194

VIEW FROM THE TOP: Horacio Ferreira, Surpetrol

195

VIEW FROM THE TOP: Eduardo López, SERTECPET

196

VIEW FROM THE TOP: James Buis, Nalco Champion

198

VIEW FROM THE TOP: Carlos Alcocer ,Champion Technologies

Lauro Beck, Osbog 191

199

VIEW FROM THE TOP: Johnny Silva, DISAN

200

VIEW FROM THE TOP: Jeimy Mathison, Kasoil

Pedro González, Kasoil

201

VIEW FROM THE TOP: Concepción de la Garza, Golfo Suplemento Latino

202

VIEW FROM THE TOP: Marco Tulio Hernández, Grupo Herce Ingeniería

203

VIEW FROM THE TOP: Guillermo Barrera, Olam Energy

204

Luis Montelongo, Olam Energy

INDUSTRY PERSPECTIVE: Jesús Núñez, Ikal Oil

Ricardo Absalon, Riansa

205

VIEW FROM THE TOP: Betty Rodríguez, PetroleRFS

206

INDUSTRY PERSPECTIVE: Carlo Garcini, Netzsch Pumps & Systems Mexico

Pedro Guzmán, Sauer Compressors

207

VIEW FROM THE TOP: Alejandro García, Heliservicio

209

VIEW FROM THE TOP: Enrique Zepeda, Transportes Aéreos Pegaso

210

VIEW FROM THE TOP: José del Carmen Rodríguez, AMAPET

José Luis Rodríguez, AMAPET

211

VIEW FROM THE TOP: Luis Reyna, Júpiter Suministros y Servicios

212

VIEW FROM THE TOP: Nelson Alfonzo, Clear Solutions

213

VIEW FROM THE TOP: Manuel Garay, Power Electronics

José Luis Santana, Power Electronics

214

VIEW FROM THE TOP: Marcos Alcocer, Roca Ventures

215

VIEW FROM THE TOP: Jesús De La Garza, API Tamaulipas

| ANALYSIS

PLATFORMS, TOOLS NEEDED TO REACH GOALS PEMEX has made it clear that its first priority for the future is to increase oil production during the present administration’s six-year term. Nevertheless, this expansion will prove impossible to accomplish without applying the proper platforms and tools PEMEX's goal is to reach a production level of 2.6MMb/d by

in an approximate average ratio of 4:1, despite onshore

2024, when López Obrador’s administration concludes its

infrastructure and available geological data being much

term. Exactly how the government came up with that figure

older. While the renowned richness of the Campeche

is unclear. What is clear is the difficulty of the challenge

Basin could be to blame, the fact alone does not explain

ahead given today’s market dynamics.

the sheer size of this difference. Onshore production from both conventional and unconventional resources, in mature

192

According to CNH statistics, the last time Mexico produced

and newly discovered fields, must increase in a manner that

2.6MMb/d was in February 2010. Production levels then

at least represents half, rather than a quarter of offshore

remained above 2.5MMb/d to March 2014. After that period,

production, so that savings can be maximized in part to the

production levels never reached 2.5MMb/d again, and by

larger number of ways in which onshore production can

July 2017 they had dropped below 2MMb/d altogether.

be optimized. PEMEX’s investments in fields such as Ixachi

Levels have never since reached those heights. Given the

and Quesqui represent a promising move in this direction.

way in which this timeline aligns with the downturn in oil prices, it is fair to conclude its undeniable influence; even

TECHNOLOGICAL DEVELOPMENTS

for PEMEX, a public institution that at least in theory give

Technological areas that PEMEX is working on as part

itself some breathing room from the market’s financial

of its short-term production strategy include extensive

cycles, there is no escaping the economics of oil production.

EOR, IOR and artificial lift applications, particularly

Currently, there is no prediction that indicates the oil price

in mature fields where recovery rates can be greatly

per barrel will reach anywhere near US$100 at any time

increased with minimal investment through the use

between now and 2024. This indicates the complexity of

of these technologies. Another crucial technological

the new administration’s goal: it is not a matter of reaching

category that will need investment is digitalization and

a past benchmark, but establishing a new one altogether.

imaging of production flows, and in this regard one of the main technological innovators committed to assisting

Using the right tools and platforms, PEMEX must innovate

PEMEX reach its production goals is renowned software

and apply new technologies and methodologies to its

developer Beicip Franlab. Mexico General Manager Rossy

production infrastructure and operations if it is to achieve

Perez explains its strategy: “Although we are interested in

the efficiency necessary to reach its production goals.

applying some of the latest lessons learned internationally

It is not just a matter of accelerating and increasing the

on PEMEX’s unconventional fields and field development,

frequency and magnitude of discoveries. It is a matter

we are also focusing on using our experiences in EOR and

of making each production well so profitable that it

secondary recovery techniques in the areas where they

creates a positive reinforcement loop of investment and

could apply to help it increase production at its flagship

production.

conventional and mature fields.” However, Pérez is also looking at PEMEX’s future production strategy. “We can

ONSHORE FIELDS

simulate the conditions of the reservoir in a way that

Vastly increasing the role that onshore fields play in

helps us formulate a proposal for the application of these

Mexico’s national production strategy would contribute to

recovery techniques in a manner specifically designed to

reaching the country’s production targets in the middle to

fit those conditions.”

long term. If Mexico is compared to the US, which boasts a successful oil and gas production story over the past 15

The over-stimulation of the Cantarell field in the years

years, one of the main differences that stands out is that

leading up to 2003 led to some of the highest production

the Gulf of Mexico production, which reached an average

levels ever recorded in Mexico (over 3.4MMb/d at its peak),

of 1.8MMb/d in 2018, only accounted for 15 percent of the

but also resulted in a sharp corresponding decline shortly

US total crude oil production in that same year. This is the

afterwards.PEMEX and Mexico must diversify the sources

opposite in Mexico, where production from shallow water

and types of production to make higher production levels

fields has historically outperformed that of onshore fields

a long-lasting reality.

VIEW FROM THE TOP |

DIGITAL ESSENTIALS IN PRODUCTION STRATEGY ROSSY PÉREZ General Manager of Beicip-Franlab

Q: Given your extensive experience with PEMEX assets,

modeling of all exchange mechanisms between matrix

how are you collaborating with the NOC to achieve the

and fractures, including capillarity, gravity drainage and

government’s desired production goals?

viscous forces, diffusion and block-to-block re-imbibition.

A: PEMEX continues to be our main client in Mexico. We

We can simulate the conditions of the reservoir in a way

continue to negotiate directly with the company and we

that helps us formulate a proposal for the application

are also providing it with our services as part of our active

of these recovery techniques in a manner specifically

technology contract. This contract contemplates services to

designed to fit those conditions. Our exploration software

provide advanced consulting technical expertise in the areas

also plays a vital role among our Mexican projects.

of exploration and planning activities, such as subsurface

This includes tools such as TemisFlow, DionisosFlow

studies, plus the implementation of new technologies in the

and CougarFlow. These programs help us integrate

service of new strategies to develop their fields. Although

a solution for basin modeling. They can be expressed

we are interested in applying some of the latest lessons

through Cougar Flow in terms of uncertainty analysis for

learned internationally on PEMEX’s unconventional fields

the fields and reservoirs. We are also significantly aided

and field development, we are also focusing on using

in this process by DionisosFlow’s unique stratigraphic

our experience with enhanced oil recovery (EOR) and

modeling capabilities. Combining these three tools helps

secondary recovery techniques in the areas where that

our team visualize the possibilities and opportunities that

could apply to help the NOC increase production at its

exploration represents in each field.

flagship conventional and mature fields. Beicip-Franlab, as a member of the EOR Alliance with IFPEN and Solvay, aims

Q: What are the most outstanding applications of these

to cover the full range of services from pre-feasibility to

technologies in your projects with PEMEX?

pilot design and implementation.

A: We had two projects in Ku-Maloob-Zaap, within the Ku area, that considered areas of the reservoir in which PEMEX

We believe PEMEX is in a great position to reverse its current

wants to propose new well locations in order to increase its

production decrease and we are open to helping the company

production in the areas outside the current producing wells

achieve that. Furthermore, our work within the Mexican oil

at the Jurassic level. Another project within that asset was

and gas industry will continue to focus on PEMEX, as well as

focused on secondary recovery at the middle Eocene level.

other Mexican government dependencies with which we are negotiating collaboration agreements, such as IMP, SENER

We are planning to also look at fracture modeling possibilities

and CONACYT. Our negotiations with new operators entering

within this and other reservoirs through another of our

the Mexican market are still preliminary and hosted by our

OpenFlow tools called FracaFlow. We will be applying these

France office.

and other technologies, methodologies and strategies for field development both in Ku-Maloob-Zaap and also in the

Q: Which technologies have the best chance of boosting

larger south region assets, particularly in new development

PEMEX’s production?

areas opened up in the region. In exploration, we are only

A: One of the most important components of our

beginning negotiations because exploration activity at PEMEX

OpenFlow integrated suite is the PumaFlow reservoir

has slowed in the last few years.

simulator. This tool helps us to simulate production for any reservoir configuration, including black-oil, dual medium, compositional, chemical EOR, thermal and

Beicip-Franlab is a developer of upstream software and a

unconventional reservoirs into a single calculator and

provider of consultancy services for exploration and production.

user interface. For the last 20 years, PumaFlow has been

Its OpenFlow Suite is a package of modeling tools that supports

the reference simulator for fractured reservoirs and the

the minimization of exploration risk and recovery optimization

193

| VIEW FROM THE TOP

DIAGNOSING THE HEALTH OF AN OIL WELL HORACIO FERREIRA President and CEO of Surpetrol

194

Q: What is the correlation between PEMEX’s production

A: First, we make it clear that our commitment is to the

needs and your service portfolio?

optimization of our client’s operations, in this case PEMEX.

A: We support PEMEX in the gathering of production

Our ultimate goal is to add value to its production strategy.

information with the explicit purpose of enabling more

We offer options, of course; if PEMEX happens to be only

successful decision-making in the areas of well management

looking for equipment at a certain time, we can help them

and reservoir management, specifically with the objective

identify and select the component that best fits the needs

of increasing productivity. Our services are essential to

of the project or worksite in question. Given the varied

PEMEX’s priority to reverse its production decline as

types of crude and gas that are produced at PEMEX

quickly as possible to achieve the goals set forth by the new

upstream worksites, and the tricky way in which they

administration. PEMEX is aware of this. It has significantly

must be produced, sometimes simultaneously, multiphase

reversed its previous trend of limiting its investment in well

meters can have any number of extremely convenient

management services like those we provide. This has resulted

functions. However, if PEMEX decides that it needs a

in a healthy and positive relationship between PEMEX and us

well management service rather than a component, we

and also between SENER and us. The leadership at these two

approach our duties differently. The multiphase meters

institutions understands the degree to which we can support

are then no longer part of its CAPEX, since we assume the

their necessary focus on mature field engineering.

cost as part of our OPEX. We have applied both of these contracting modalities not only to PEMEX but also with the

Q: How do you structure your supply of multiphase meters

first private operators that entered the industry a decade

as a technological service that boosts productivity?

ago with integrated service contracts, such as Petrofac and Grupo Diavaz. Either way, we take into account that the oil and gas industry tends to be rather conservative

Surpetrol is a global provider of well management and

in its adoption of new technologies, so we are careful to

optimization services with over 200,000 successful well-testing

introduce this as an extremely useful but also proven and

operations with multiphase meters. The company offers data-

mature technology. PEMEX has used it for over 12 years;

interpreting expertise to lengthen the lifetime of a well

we pioneered its introduction.

VIEW FROM THE TOP |

TECHNOLOGY, EXPERTISE REVITALIZING MATURE FIELDS EDUARDO LÓPEZ Chairman and CEO of SERTECPET

Q: How has the Mexican oil and gas industry benefited from

standards regarding the type of technology that qualifies

the solutions you provide?

for its operations. We are waiting for the new administration

A: The benefits resulting from our work are evident at the

to define where the oil and gas sector is headed and where

18 wells under our responsibility. We increased production

efforts need to be focused. Mexico has a lot of opportunity

for wells that did not have any production to 10.5Mb/d.

and untampered potential in fields, reserves and markets.

The average lifting cost with other providers was between US$18 and US$20, which we decreased to an average

Q: How has the change of administration changed your

between US$4 and US$6. The historical production of

approach to the market?

some wells was estimated at 200b/d. The installation of

A: We would like to meet the authorities to make a service

our system, software evaluation and implementation of

proposal. Aside from our offer in equipment, we possess

our expertise resulted in a 400-500b/d yield, duplicating

the knowledge on mature field management to maximize

production in every well. Since PEMEX has many wells

production.

with low production caused by a decrease in pressure, our technology could add value to their company by

SERTECPET has applied similar techniques to Ecuadorian

aggressively increasing production while reducing costs.

fields, where we increased production from 8Mb/d to 20Mb/d.

Aside from paying taxes, we have also generated value in

The use of geophysical studies allowed us to use water in

Mexico by locally hiring over 200 engineers and factories

the field as a resource for liquid injection for sweeping. This

to manufacture our equipment. During the duration of our

success case will help us if PEMEX decides to allow smaller

contract, we generated US$500 million for PEMEX with an

service companies, like ours, to participate in the development

investment of only US$67 million.

of similar management models.

Q: How have environmental regulations changed your

Q: If bidding rounds are restored, what alliances would

operational strategy?

SERTECPET like to create and what would be its main goals?

A: Articulated and responsible practices extend beyond the

A: It is likely that the market will demand new investment in

technological and economic aspects. Working with PEMEX

the future. This would lead us to seek local and international

requires the submission of a file with an annex related to

partners to strengthen our proposal. Once we demonstrate

all the environmental and social responsibility implications

we are capable of boosting well production and operating

of any project. We have received the highest scores from

mature fields in Mexico, we would certainly need to integrate

PEMEX in this area due to the way in which we handled this

local and foreign partners with the technology, know-how and

annex. SERTECPET has the most complete Integrated Quality

capital for investment.

System in the world. We are very careful with the safety and occupational health of our workers.

Q: What are your business expansion plans in the country? A: We want to get engaged in field testing and production

Q: What unique challenges have you encountered in Mexico?

in clean energy, solar and wind power being our main focus.

A: Mexico is a market with a great deal of experience and

To do so we have a corporation in Madrid that is looking for

technical talent in the oil and gas industry. Our incursion into

partners. That is the future we see in Mexico.

the Mexican market was rather slow because we needed to demonstrate that our US-patented technology could make a difference. Once we achieved this, we were happy to learn

SERTECPET is the first Ecuadorian company to offer integral

that Mexico was not only open to new technology and good

energy solutions on a global scale. It conducts international

practices but was also looking for strategic partnerships with

research activities to propel scientific and technological

companies of good reputation. The Mexican market has high

developments in the industry

195

| VIEW FROM THE TOP

TAILORED SOLUTIONS FOR INCREASED PRODUCTION JAMES BUIS District Manager at Nalco Champion

196

Q: What is Nalco Champion’s perspective on the changes

Q: What are the differences between Nalco Champion’s

that have taken place in Mexico following the President

footprint five years ago and today? How does this help

López Obrador's election?

the company meet clients’ needs?

A: The changes taking place in Mexico are very exciting.

A: Five years ago, we focused purely on PEMEX. This,

It is almost as though a new industry has arrived.

of course, was due to the market at the time. While we

Following the Energy Reform, many new companies

had a large footprint five years ago, we have been able

with distinct ways of operating have arrived, although

to maximize our strength and technology to improve

PEMEX still takes the lead. The previous president’s focus

our position in Mexico. Over the years, we have focused

on attracting IOCs resulted in the underdevelopment of

on building a robust infrastructure network to efficiently

PEMEX. With the new administration and president, the

move our products to where they are needed. This focus

scales have shifted and now the NOC is central to the

enabled us to grow as our network strengthened and to

country’s agenda. In addition, the current administration

take the opportunities that came our way, further enhancing

is holding IOCs to their contracts, which is accelerating

the footprint of the company. Nalco Champion’s robust

development.

infrastructure now allows us to develop opportunities with incoming IOCs. We intend to continue growing with the

Q: How important is new investment to PEMEX and

new IOCs, working alongside them to aid their production

how can Nalco Champion help reverse production in its

in Mexico. Unlike some of our competitors, Nalco Champion

mature fields?

is not starting from scratch and our capabilities and

A: If PEMEX does not receive further investment then

experience are clear.

it will be challenging for them to grow. This means that great attention must be paid to the cost-effectiveness

Q: What are the experiences that best demonstrate Nalco

of every peso they spend. It may, therefore, make more

Champion’s value-adding capabilities in Mexico?

sense for PEMEX to concentrate on the fields and wells

A: Nalco Champion has been a reliable provider of in-field

they already have, improving production of those assets

solutions for PEMEX through the years. When PEMEX has

before undergoing E&P activity.

not been able to bring products or services to the field, we have stepped in to deliver the missing pieces. We

Nalco Champion can help PEMEX increase production on

proactively survey the potential for missing solutions during

its mature fields, like Cantarell, where levels have been

the company’s activities so that its fields can grow.

dropping fast for a substantial period of time. The initial investment that PEMEX makes should be geared toward

Our logistical abilities allow us to deliver products, services

existing assets that can be exploited more efficiently.

or materials to fields that PEMEX works in, and offers a

Nalco Champion has had a continuous presence in

flexible operation when budgets are tight. Our main

Mexico since the 1980s, enjoying the good times and

differentiator is the fact that we focus on cost-effective

staying when times were tough. We have invested in

solutions. The key performance indicators in the field,

Mexico and built our brand and we intend to be part of

including oil quality and the pressure of lines, have been

Mexico’s recovery.

continuously outstanding for Nalco Champion and these results have led to increased visibility for us.

Nalco Champion delivers chemical solutions for companies

Q: How does Nalco Champion work with IOCs in Mexico?

operating in the upstream and midstream sectors. The company’s

A: Nalco Champion offers comprehensive services for

services include asset inspection and integrity solutions, enhanced

our clients’ entire production lifestyle; as our client’s

recovery and pipeline management across a project’s life cycle

project advances, we evolve our service offering to

match every stage of production. Most IOCs present in Mexico are currently in the design and pre-feed stage of development. Once we get samples of the client’s oil and water, our team reviews them to generate results upon which we can base risk-assessment analysis. We investigate potential issues, such as flow assurance, corrosion, paraffins or asphaltenes plugging lines – anything that can reduce the performance and longevity of a facility. We possess models and various laboratory equipment to assess these risks, which we offer our clients as a package we believe fulfills their needs. Our clients achieve the best return on their capital expenditure when we are able to create a partnership at the start of the project’s life cycle. With early entry, Nalco Champion teams can use engineering to solve problems and avoid unnecessary costs; for example, by selecting flowlines or staying away from unsuitable pressures. By recognizing and resolving problems up front, our services prevent lost productive time and shutdowns. These are specialized services we offer IOCs. Our national coverage also enables us to deliver timely services to any area. We operate across the country, from the northern border area right down to the south marine areas, such as Ciudad del Carmen and Villahermosa. We have a total of 13 offices, laboratories and bases dotted across the country. Q: What are Nalco Champion’s ambitions in Mexico? A: As with any other company, expanding our market share is central to our ambitions. Becoming involved with more IOCs would pave the way for our expansion and assure our future health. We want to be involved in each cycle of an IOC’s development, adapt to their rhythm and have that reflected in our growth plan, shifting from one stage of production to the next. We intend to work with the majority of new oil companies in Mexico. The commitment of Nalco Champion to PEMEX has not faltered. We continue to see PEMEX as an important client and we hope to support it in achieving its core objective of almost doubling production. None of this would be possible without the team that we have built here. Mexico’s rich culture is unique. Regardless of how business is carried out in other parts of the world, Mexico is different. The opportunity here is huge, as is the talent pool. Nalco Champion has used the talent here to achieve our growth. The team that has developed over the years has allowed the company to become a market leader in Mexico as our local content personnel are the reason behind our success. This team will also be the driving force for success in the future, as we work together with PEMEX to achieve goals that will develop the country as a whole.

197

| VIEW FROM THE TOP

EFFICIENCY THROUGH A TAILORED APPROACH CARLOS ALCOCER Telemetry Manager of Champion Technologies

198

LAURO BECK Director General of Osbog

Q: What are the main synergies between Champion

clientsâ&#x20AC;&#x2122; operations more efficient by cutting down on costs

Technologies and Osbog?

significantly. We have never sold a single piece of equipment.

CA: Champion Technologies began developing its interest in

This approach to telemetry can give us the versatility to use

telemetry as it began expanding its offering from chemical

whatever components we need and whatever medium of data

product supply to integral upstream service provider. At

transmission might be best suited to the worksite in question,

upstream worksites, chemical products pass through a

such as radio, microwave, satellite or cellular, to move and

number of instruments, such as injection pumps, pipelines and

centralize information into databases that can be easily

storage tanks, and our service began focusing more and more

accessed by our clients.

on this infrastructure, from procurement and installation to management and engineering. Here is where we identified the

LB: Our production and manufacturing processes are made

value of telemetry in these operations: precise measurements

greatly efficient by our in-house approach. We are one of

from all of these instruments were essential to the correct

the few companies in our specific sector that could be said

design, dispensation and use of not only the instruments

to promote local content at a whole new level because every

themselves but the chemical products as well. The pipelines

single step of our process is completely done by local engineers

and instruments that inject flow optimizers, for example, can

and facilities. This creates new efficiencies through processes

such as the reduced turnaround time of personalized service

can measure this change and notify operators in time to

and the lower production costs with each new generation

address it promptly.

of products that a wholly-owned and controlled design and manufacturing process can give you. After more than

LB: Osbog protects Championâ&#x20AC;&#x2122;s products by guaranteeing

a decade of work, we also have installed infrastructure and

their effective use. Over time, our work with Champion has

personnel in the onshore and offshore regions that we work

specialized us in wellhead telemetry and measurements, an

in, further reducing turnaround, maintenance and repair times.

area that presents an enormous potential for growth due to Q: How does wellhead telemetric technology address the

the fact that it has remained somewhat neglected.

needs of Mexican oil and gas worksites? Q: What technological processes and capabilities have

CA: A significant amount of our work has been done in the

enabled a smaller company like yours to build a client

Burgos onshore region, where remote wellhead monitoring

portfolio that includes NOCs and IOCs?

plays an essential role in maintaining production continuity,

CA: For Champion Technologies, this began when we

given the many elements that have limited access to the wells

budgeted these types of technologies and realized that

themselves. For a significant part of the last decade, organized

telemetric equipment of the type we needed was offered

crime was a big obstacle. Cartels were known to occupy oil

at very high prices and was not necessarily adapted to our

and gas land and facilities, making personnel and equipment

particular needs. This is what led to our exploration of Osbogâ&#x20AC;&#x2122;s

access unsafe. Our technology enabled the monitoring of

onsite tailor-made development process as an answer to our

these wells nonwithstanding the issues that arose during their

telemetry needs. Since assemblage, testing and quality control

operation throughout these years. During the last couple of

was included in the service, it inevitably resulted in making our

years, there has been some degree of success in clearing away these hazards but other issues take center stage and continue to create value in the market for telemetric services. These

Osbog and Champion Technologies , offer real-time telemetry

worksites are still extremely remote and the infrastructure to

and information management technologies, including electronic

access them is scant and not in great condition. There is a still

and

a great area of opportunity for Operators in terms of worksite

mechanical

design,

manufacturing,

installation

and

maintenance, transmission, processing and publication of data

efficiency that remote monitoring can bring to the table.

VIEW FROM THE TOP |

TAILORED CHEMICALS FOR SPECIAL JOBS JOHNNY SILVA Managing Director Mexico of DISAN

Q: What role will production-enhancement chemicals play in

business in a proper way. This is why we are willing to offer

the Mexican oil and gas industry in the coming years?

tailored financial solutions to ensure that our clients’ business

A: The US became an independent oil and gas country

activities can continue uninterrupted.

because of its shale oil and gas reserves and its productionenhancement techniques. Mexico should learn from its

Q: What products are you most excited to introduce into the

neighbor and work toward a strong shale oil and gas

Mexican market?

production industry. This is a golden opportunity for Mexico to

A: Recently, we developed a new chemical solution for acid

stop the decline in production it has experienced for so long.

stimulation for the Colombian market. The chemical is based on milder but more effective acids and additives than the

Q: What makes DISAN different from its competitors in the

traditional hydrochloric acid. This makes it a much more

chemical's business?

environmentally friendly product than most other options

A: International service companies usually deliver

available in the market. The solution is called BIOWELL® and

commoditized chemicals to their operational centers around

it has been very well-received in the Mexican market.

the world. The reality is that well conditions vary greatly in such an extensive and diverse country like Mexico. Following

Q: How is DISAN reaching out to new companies entering

a recipe does not provide the best results. DISAN does not

the Mexican market?

take that approach. We produce tailor-made solutions for our

A: We recognize that the market is opening and more players

clients. We specialize in production-enhancement chemicals

are entering the scene. DISAN is a Colombian company so

for stimulation work. Mexico has many wells that must be

we already understand the processes related to an opening

stimulated to effectively increase production without having

market. We are working hard to get to know all players and to

to make major investments that would result in a longer period

offer our specialized services. We know which doors to knock,

of time to ramp up production to the required levels.

which is why we do not go directly to operators because they will not understand the true advantages of our products. We

Q: What type of company can best benefit from using

remain behind the curtains and as a result we only engage

DISAN’s chemicals?

in talks with the service companies that will understand the

A: We are aware that our added value for the industry is

benefits of using our specialized products.

in the chemicals arena and we do not get involved in any other operational factor where our added value would not be

Q: What objectives has DISAN outlined for 2019?

maximized. This approach is very different from that followed

A: We are doing the smaller jobs that our bigger competitors

by the major international service providers, which prefer to

do not want because these jobs are not seen as attractive

get fully involved in all areas of an operation. In contrast, we

business opportunities for them. Nevertheless, the number

prefer to work with small to medium-sized companies that are

of these little jobs is growing as the number of market

open and willing to try our specialized products and services.

participants increases. As a result, we expect to grow sales to the oil and gas market by more than 50 percent. This is

Q: How does DISAN ensure long-term relationships with its

a conservative number that can be covered with only three

clients and win-win situations?

projects that already are in the pipeline.

A: We are focused on the chemicals arena, where we offer the highest added value, but we remain close to our clients to ensure that our relationships are for the long haul and that we

DISAN is a leading provider of chemicals in Latin America.

can fully cover their needs. We value long-term relationships,

Founded in Colombia and present in Ecuador, Mexico, Peru and

which is why we are also selective with the companies we

Venezuela, the company is a brand-agnostic provider that places

work with. Our relationships are based on trust and on doing

special attention on effective logistics for the benefit of its clients

199

| VIEW FROM THE TOP

A POST-DOWNTURN SUCCESS STORY

JEIMY MATHISON Director General of Kasoil

200

PEDRO GONZÁLEZ Technical Leader at Kasoil

Q: Kasoil is a Mexican exploration and oil-field services

JM: To be clear, PEMEX’s reserve incorporation is getting

provider. How is your portfolio balanced?

faster as well. Not only its reserve incorporation on its own,

PG: Recently, we diversified our client and project portfolio.

but its general transition from initial exploratory success to

Last year, 90 percent of our services were offered to PEMEX

production. For example, the strategically important light oil

and 10 percent to other operators. Now, we are approaching

Xikin field that PEMEX discovered in 2015 is one in which we

a 50-50 distribution. This puts us in an interesting position

have already finished the wells’ variable speed drive design,

within the market: we are more than ready to take advantage

which is also comfortably within our technical capabilities.

of a strengthened PEMEX but we are also providing more

Our success in that phase has allowed us to be part of the

support to the ongoing work of the bidding-round winners.

follow-up toward production execution.

Q: What is the new operators’ approach to reserve

Q: How do you add value to your services in a way that allows

incorporation and how do you benefit?

you to compete with the oil-field services Big Four?

JM: From the moment they are awarded a field, they

PG: Local companies like ours can provide the same

have an investment plan that represents a contractual

technologies and innovative methodologies that the Big

commitment to incorporate the indicated reserves within

Four provide but at significantly competitive prices. We

a set amount of time. This motivates them to integrate

also have a more direct link with much larger volumes of

exploration service providers and exploratory activity

national content, which not only comes with contractual

into their field development plan. This is very beneficial

advantages but also the added value of localized know-how

for us because it gives us a very clear idea of how we will

and operational agility. All of this contributes to optimizing

participate in the project. Their business plans are well-

our cost offerings in a way that can make us a much better

structured to achieve the commitment they signed with

choice for specific projects.

Mexico in terms of reserve incorporation. Their investments, stable finances and agile processes also give us a chance

JM: Our added value comes directly from our access

to apply new technologies to reservoir characterization,

to human resources. It also comes from our previous

identifying new geological areas of opportunity to increase

experiences working for the Big Four, where we would

production volumes.

sadly witness that revenue from Mexico was leaving the country to support these corporation’s presence in other

PG: With the discovery at Zama and the drilling success at

Latin American markets where they were not earning

the Eni fields, new private operators in Mexico have proven

enough to have a self-sufficient business segment, like

they can play a key role in national reserve incorporation.

Venezuela and Colombia. By reinvesting in Mexican talent

Reserve increases in Mexico used to be a slow process;

and local content, we create a manageable and sustainable

particularly after the downturn, exploration investment

corporate structure that, while smaller, can easily compete

slowed significantly. This gap has been effectively filled

with any one of these larger companies.

by these new private stakeholders; as a matter of fact, reserve incorporation has accelerated as a result of their

Q: What role does Kasoil want to play in the growth of the oil

participation.

and gas sector, both in Tabasco and nationally? JM: We want to generate value for our current project that fits the elevated technical profile of our company. We want

Kasoil is a Mexican exploration service provider founded by

to continue building a highly trained team that can respond

female oil and gas workers left unemployed after the downturn

effectively to the opportunities and needs of the state’s

created a crisis in the state of Tabasco. It also provides

industry. Strategically, we will sign alliances with transnational

integrated oil-field services and talent management

companies to participate in EPC projects.

VIEW FROM THE TOP |

STIMULATING PRODUCTION IN MATURE FIELDS CONCEPCIÓN DE LA GARZA Director of Golfo Suplemento Latino

Q: How is Area 6 won by the Golfo Suplemento Latino

Q: What are the technologies that GSL can provide PEMEX

(GSL) consortium in Round 2.3 progressing?

and the industry at large?

A: GSL and consortium members Roma Energy, Tubular

A: GSL’s boiler combustion additive, our patented PEP-99

Technology, Suministros Marinos e Industriales de México

technology, eliminates contaminates like sulfuric acid from

received the exploration and evaluation plan from CNH but

chimneys so that clean smoke is emitted into the atmosphere.

we are awaiting the MIA and SASISOPA permissions from

This is an essential environmental aid that makes PEMEX’s

ASEA before we can begin work. Because PEMEX already

refineries more environmentally friendly. We have just entered

had an MIA on the Area 6, the consortium had to obtain an

an alliance with Tundra Oil and Gas and are working alongside

extension to the MIA. However, ASEA denied our request

them on gas wells in the Burgos Basin. Tundra is applying

and so we were forced to start anew. We understand that

advanced technologies to capillary tubing to maximize

ASEA is a fairly new and that delays will happen. Area

production while minimizing lifting costs.

6 has 37 wells, of which five can be opened. These five need only minor work to enter production. At the moment,

Q: How is GSL improving its well stimulation chemicals and

we have all the permissions necessary to drill three other

what part can they play in PEMEX’s production push?

wells: the AO exploration well and two appraisal wells,

A: Well stimulation on mature fields is GSL’s core business and

BO-Del, in Plan de Oro, and B3-Del, in Tres Higueras. We

the products that we provide for this offer excellent quality.

are confident that oil exists in these wells, and are simply

In the past, our chemical products were imported but we are

awaiting permissions to begin. We hope that we will be

now producing them in Mexico with very good results. These

able to start production toward the end of this year.

are produced in Ebano, San Luis Potosi, the field where GSL first began operations. This is only one hour from Tampico,

Q: GSL has provided maintenance services to five

making it well-connected for transport throughout Mexico.

PEMEX refineries for over 18 years. What has changed in that time?

We are focused on tailoring our stimulation chemicals to a

A: Working in the refineries has been complicated over the

larger range of clients. We have a customizable base product

last two years. The five refineries we are working in are

but the company is aware that the demands and composition

operating at an average of 30 percent capacity. There is

of each well are unique and a one-size-fits-all approach cannot

no activity at all in Madero nor Minatitlan. There is some

be applied. Therefore, when designing a product for a specific

activity in Salamanca, but we are able to operate more

well, we first go to the client’s field to take lab test samples

effectively in Salina Cruz and Cadereyta. GSL has been

and, depending on the properties of the oil, we design a

holding meetings with the managers of each refinery to

product accordingly. The bulk of our clients are now private

achieve an understanding of how the projects will move

players rather than PEMEX. These include Diavaz, Jaguar,

forward, but they are waiting for funding to arrive before

Grupo Cotemar, PetroSMP of Schlumberger and Petrofac.

decisions can be taken. Madero is particularly concerning

However, GSL’s short-term plans center on regaining the

as its infrastructure is falling apart. The refinery is like a

onshore PEMEX contracts in southeastern Mexico that we

ghost town and requires serious investment. Salina Cruz,

last worked on four years ago, and to help once more with

meanwhile, is likely to be the first of the refineries to

national production.

begin with maintenance work. GSL is providing services there and will participate in the tenders that will be held for maintenance of the refinery’s heaters. We are also

Golfo Suplemento Latino is a Mexican company specializing

beginning a trial period for cleaning the tanks on site. If

in the operation and maintenance of wells in mature fields,

we perform the cleaning well, we may be able to sign a

with particular attention on well stimulation. It also provides

direct contract with the refinery.

maintenance and operation services to five PEMEX refineries

201

| VIEW FROM THE TOP

NEW APPROACHES TO PROCESS ENGINEERING MARCO TULIO HERNÁNDEZ CEO of Grupo Herce Ingeniería

202

Q: What led to the creation of Grupo Herce Ingeniería?

In this sense, current battery sites are also outdated and in

A: For some time, we have been watching the changes in

urgent need of redesign. To account for all these factors,

PEMEX’s internal politics and Mexico’s oil and gas industry.

we have developed our own specialized software that can

Throughout the hydrocarbons value chain, we have identified

simulate and reproduce the operational conditions of each

opportunity areas where consulting and engineering services

field and upstream asset to determine which it’s the best

were needed to provide the innovation and creative solutions

approach to the optimization of its processes.

necessary to adapt the industry to the new standards. Both PEMEX and private operators were struggling to redesign

One of our services which comes prominently into play here is

their engineering processes and adapt them to contemporary

compositional analysis, so as an engineer we can be applied as

standards and industry circumstances. From water separation

quickly as possible to oil and gas reaching POS. It is important

to commodity transportation and management, along with

to understand the historical context here. Recently, PEMEX

final resource quality and composition at the point-of-sale

only measured resources reaching POS in volumetric terms.

(POS), we identified inefficiencies and discrepancies that

New regulations overseen and enforced by CNH create the

needed to be addressed for a number of reasons, among them

need for compositional analysis to accurately measure API

the correct fulfillment of contractual obligations regarding the

quality, water content and sulfur content for oil, along with

API quality of the product being output. This applies to the

calorific value, nitrogen, carbon dioxide and sulfhydric acid

sweetening and dehydration processes for gas as well, perhaps

content for gas. We use our software to simulate the ways in

even more so because the final output of dry natural gas not

which quality and composition of the resources varies from

only enters a market for industrial players, but also for the

its extraction point to POS, so it can trace how it behaves

general public. Other industries have tried to introduce their

thermodynamically as it moves through and its influenced

own separation processes and technologies into the oil and

by existing processing instruments and technologies. Later,

gas sector, but PEMEX has been unsuccessful in implementing

we use this information to design the best way to optimize

them. Grupo Herce Ingeniería seeks to modernize and

these processes.

optimize these processes so the industry’s goals of efficiency and increased productivity can be achieved.

Q: How have you been working with PEMEX to implement this type of technological investment into your agenda?

Q: In which ways have you approached these issues?

A: We have developed the APROHA system (Hydrocarbons

A: First at all, we must tackle the need to redesign these

Production Administrator) in collaboration with PEMEX.

processes so they can adapt to newer production volumes.

Through our software solutions were coordinated with PEMEX’s

The separation battery sites happen to be oversized for the

available information and internal structure to provide a tool

current decreased levels of production. Even if production

that helps them identify the quality and nature of resources

is increased to the previous levels, at some point in the

being extracted and processed. We achieve this through back

future, these sites will still be needing to be optimize for

allocation calculations that generate increasingly accurate

current production levels to avoid massive inefficiencies.

results as data is added into the models of simulations. The

PEMEX already has ongoing projects that explore new ways

data generated by these tools is indispensable not only for

to increase the overall quality of the product reaching POS.

PEMEX, but also for regulators. The software is programmed to generate daily, weekly and monthly reports that are sent automatically to public institutions like CNH. These tools

Grupo Herce Ingeniería is a technology firm from Tabasco.

cannot be static. They must be updated constantly to reflect

Its services include installation of measurement and control

the rapidly changing operational conditions of each asset,

systems, along with process engineering analysis and

worksite and facility. Only through this kind of monitoring and

specialized technical studies

control can processes be optimized and modernized.

VIEW FROM THE TOP |

NITROGEN: CORE OF A DIVERSIFIED PORTFOLIO

GUILLERMO BARRERA CEO of Olam Energy

LUIS MONTELONGO CFO of Olam Energy

Q: How has Olam Energy developed its services portfolio

There are a lot of mature fields that require nitrogen. However,

over the years?

cryogenic nitrogen may not the best option for every well.

GB: Our core business was the transport of liquid nitrogen.

In those cases, companies might need to use a membrane

Now, we are the No. 1 company in Latin America for

to separate nitrogen from the air to supply the well. We also

storing cryogenic nitrogen, closing 2018 with more than

participate in that process, complementing our MPD services.

1 million m of ISO tank capacity. Nitrogen is an important 3

element in the industry. Without it, production would not

Q: How do you balance your core business and your newer

be possible in many wells, forcing their closure. Currently,

endeavors in terms of cash flow?

our products and services support equipment from the

GB: Despite the uncertainty, we are sure that the industry

big four, including Weatherford and Schlumberger.

is recovering. We do not want to stop our maintenance

Our company is 100 percent Mexican and we have a

services and other operations in drilling since we have

workforce of over 120 people. Three wells are using our

gained significant expertise and have used our fluids in

nitrogen, helping them to contribute over 12Mb/d to the

various wells. Drilling operations represent big investments.

total national production. Olam Energy also provides

However, we have reduced our participation in these

nitrogen injection services and high-pressure pumping

services and returned to our core business: nitrogen

for stimulations, cleaning, acidification and cementation.

injection. We are now growing again and will continue to invest. We are already participating in a well with

Q: What is the main added value you can bring to oil and

Petrolera Cárdenas Mora and our intention is to increase

gas players?

our involvement in onshore fields.

LM: We have a highly experienced maintenance team to support the biggest companies. Our clients hire us because

Q: What are Olam Energy’s plans regarding

they cannot find any other partner as flexible as Olam

secondary recovery?

Energy in working with nitrogen injection units. Our services

LM: PEMEX is going to play a key role in secondary recovery

and products provide flexibility to our clients’ operations by

due to increasing oil prices. Turnkey contracting will definitely

reducing the installation time of permanent piping after a well

play a big role in these processes. We are now participating

is finished, so production can flow as quickly as possible. This

with companies like Grupo Protexa and Marinsa in platform

is aligned with PEMEX’s current cost-efficiency objectives.

projects. Our involvement would not have been so easy if PEMEX remained the only player. We are confident in our role

Our other strength is risk management and assessment. . We

in this segment given our current assets.

are now properly settled and have plans to branch out to other markets in Latin America. We also bring people with

Q: How is nitrogen injection influenced by oil prices?

significant experience in the sector to strengthen our offering

GB: The geopolitical landscape is definitely having an impact

and the quality of our services, among them our Engineering

in international markets and oil prices. However, this is out of

Director Benito Ortiz, who was formerly the Ku-Maloob-Zaap

our hands, so we just focus on making our operations more

administrator.

efficient. Similarly, in the wake of a crisis, PEMEX is more focused on profitability and not on producing at any cost.

Q: Why did you decide to focus on mature onshore fields and platforms in the Gulf of Mexico? GB: I have 10 years of experience in MPD and a total 20 years’

Olam Energy is a Mexican company based in Ciudad del

expertise in the oil and gas industry. We started collaborating

Carmen. Its core business is the storage and injection of

in MPD with Halliburton in Mexico. Our interest is to eventually

nitrogen used for drilling operations. The company also

own and manage all the equipment used in drilling operations.

provides maintenance services and is experienced in MPD

203

| INDUSTRY PERSPECTIVE

THE SECRET OF EXTENDING OIL PRODUCTIVITY

204

Q: How does Ikal Oil identify opportunities in mature

Q: How has Riansa’s work with PEMEX helped it

oil wells?

evolve over the years?

A: Ikal Oil specializes in providing integral solutions

A: We have always evolved with the changes and

to the value chain in the oil sector. With mature wells,

developments at PEMEX. There are now new players

our technicians conduct a productivity analysis that

in the assigned oil fields and we provide our services

considers various elements from the standpoint of

to them as well. We have successfully worked in

geology, geophysics, well repair and completion

many of these fields alongside PEMEX, such as the

engineering. This allows you to look for areas within

long-running Ogarrio oil field. We have worked for

a particular well that will deliver the best returns.

the past 15 years with N-SPEC Pipeline Services,

We also look for opportunities in inactive wells that

one of the biggest chemical products companies in

have the capacity to produce oil, or those that have

the world. We distribute its brands in Mexico. We

been classified as not capable of producing. This

always look for cutting-edge technologies and adapt

means that a company is paying taxes on a well that

our services to the standards of the company we

is not capable of producing and that company is not

work with. Riansa works with drilling platforms in

obtaining any benefits. Ikal Oil activates the wells,

the offshore segment and with stimulations and the

allowing our clients to obtain a tax value.

designs of wells onshore.

Q: How does Ikal Oil approach projects

Q: How do you help maintain production at

with PEMEX?

maturing oil fields?

RICARDO ABSALON

JESÚS NÚÑEZ Director General of Ikal Oil

CEO of Riansa

A: We assign a technician to interact, oversee and

A: We help boost a well’s returns by approximately

gather information in relation to PEMEX’s future

50 percent. A clear example is our first well, which

projects. We then convert this information into

was located in PEMEX’s southern region and was a

proposals. As the industry develops, a lot more

closed well. We restored it to its original production

technology will be required. Because the majority

for 300 days without the need of an intervention.

of PEMEX’s oil fields are considered mature, there

This means that companies such as PEMEX can

is a great need to apply the latest technologies.

maintain their productivity for much longer than any

That is where we are placing all of our efforts.

competitor could offer.

Q: What role does your company have in introducing

Q: PEMEX has a portfolio with many mature wells.

new technologies and the technical changes needed

What opportunities do you see there?

to succeed in the industry?

A: There is a big area of opportunity in heavy crude

A: Technology plays a very important role for us.

oil. To work with PEMEX, new technologies need

Every time we submit a drilling proposal, we must

to undergo an exhaustive process of trials. The

consider the risks. This is where technology is

average cycle is about two years, during which we

crucial, by establishing guidelines that will solve

take a chance on implementing new technologies.

any situation. When you apply this technology,

Currently, we are in the process of concluding two

you are looking for efficiency and as a result you

trials and are about to introduce two interesting

are providing better productivity and this has

products that focus on improving the production

an immediate effect on the cost effectiveness of

of heavy crude oil fields. This is the future for us

your operations.

and for the sector:

VIEW FROM THE TOP |

BEING PREPARED MEANS KNOWING WHAT YOU ARE WORKING WITH BETTY RODRÍGUEZ Director General of PetroleRFS

Q: What opportunities and projects created the

complete simulation. It also provides more detail and a

circumstances that led to the creation of the company?

higher resolution. The collection of data is not necessarily

A: In 2014, there was a depression in the market. This led to

real time but as data is collected, it is included into the

a need for reinvention and a search for new technologies

model to show how conditions are changing over time. You

that could add value. Our company was a product of this,

can also play with different variables to create different

forming a strategic alliance with a software manufacturer to

scenarios.

commercialize its technology here in Mexico. The software in question is tNavigator, a simulation software for dynamic

Q: What is an example of a successful application of

and static models of subsoil fluids. Our initial work was to

the software?

promote the product and help clients see the advantages

A: There are different extraction operations for which it

it could bring. When trying out the software, clients run

has served well. For example, one of our clients needed

several models. If they choose to acquire a license, we

to analyze its water injection process, a secondary

support them with training on the software’s usage and

recuperation process. The software allowed the client

help them explore its possibilities to gain optimal results.

to estimate how much water needed to be injected and what kind of infrastructure was necessary. The client ran

Q: What are the benefits of this software?

different scenarios to determine the most suitable one for

A: The software has been used in a variety of areas with

their needs.

very good results. The essence is that it simulates the movement of fluids in the subsoil environment. This gives

Q: How does old data fit in the program?

a better understanding of a deposit and can provide a

A: There are standards for formatting data in this industry

more accurate overview regarding how big the deposit is,

that are used by almost any platform for numerical

its condition and how much might be recovered. This is

simulation. This makes the process of entering data very

essential information for companies when they plan their

easy. The whole process is transparent, with no need for

operations and need to know potential returns and risks.

editing to read the data. Our software uses algorithms to produce simulations. The advantage of using it for older

The program has been used in areas where there was prior

fields is that they already have a history of measurement,

production and the deposit needed to be re-analyzed.

giving our models more food to feed on.

However, it can also be used in the exploration of new fields. Once knowledge is gathered about the conditions,

Ultimately, what is most beneficial about our software is

a company can choose what methods should be used for

that it can combine different types of data in such a way

extraction; for example, the position for and number of

that an understandable picture is formed. In this industry

wells that need to be drilled. Ultimately, it can contribute

there is often a lot of data and it is hard to determine what

greatly to optimizing your spending strategy and making

is important for decision-making. Additionally, because of

extraction successful.

the software’s simplicity of usage, there is no need for third parties. This reduces the risk of errors being made in the

Q: How does this software differ from others?

transfer or interpretation of data.

A: Our software can facilitate both dynamic and static characteristics and allows data from different sources of measurements, such as properties of fluids and their

Petroleum Rock and Fluids Services (PetroleRFS) offers integral

interactions. These measurements can be done with many

consulting services in geological characterization, digital reservoir

devices available in the market. The combining of different

modeling, production optimization and upstream worksite

types of properties allows a more integrated and thus

analysis. It represents Rock Flow Dynamics in Mexico

205

| INDUSTRY PERSPECTIVE

PRACTICAL PUMPING SOLUTIONS FOR THE LONG HAUL

206

Q: What have been the critical steps in Netzsch

Q: Where is Sauer seeing the most demand for

Pumps & Systems timeline in Mexico?

its compressors?

A: Around five years ago, following the Energy

A: We are seeing a great deal of business in

Reform, the Netzsch Pumps & Systems division

several sectors of the Mexican economy. In the

entered Mexico to sell pumping systems directly

oil and gas industry, we see a growing demand

to the oil and gas industry. We always work with

from small and medium contractors working

operators and service providers, and in Mexico,

on the application of Enhanced Oil Recovery

our largest clients are Schlumberger and Mexican

techniques, including the injection of nitrogen,

operator Diavaz. Through these clients and others,

in mature oil fields. Our products are useful in

Netzsch Pumps & Systems now has over 120 pumps

these mature wells, both onshore and offshore,

in Mexican oil wells. Around 90 percent of these

because they compress the nitrogen to a higher

pumps are installed in the San Luis Potosi and

PSI. Similarly, they are used for the collection of

Tampico areas. The company has signed a contract

natural gas, which is a byproduct of oil drilling

with another Mexican operator, Jaguar E&P, and we

activity. Our compressors are also used as air

are also partnered with Mexican service provider

guns for seismic acquisition by marine research

Geoteco, located in Tampico.

institutions, operators and exploration firms in seismic acquisition. The compressors can

Q: How has Netzsch shaped its service offering to

compress air to over 5,000 PSI, which allows for

supply the Mexican market?

deeper exploration.

CARLO GARCINI

PEDRO GUZMÁN

General Manager of Netzsch Pumps & Systems Mexico

Director of Operations at Sauer Compressors

A: We have three new technologies with our pumps,

Q: How does the company explain to clients that

all of which are positive displacement pumps. Where

the cost of compressors is offset by their return on

centrifugal pumps are unable to function properly,

investment?

we plug the gap. A well in which high-viscosity

A: Sauer Compressors is over 125 years old, so the

fluids are present is one such example. Therefore,

experience we have in manufacturing compressors

mature fields are sound sources of business for

is extensive. Over this time, we have found solutions

Netzsch and our NEMO Progressing Cavity Pump,

and techniques to guarantee the functionality of

a positive-displacement pump with a helical pump

our compressors. When we are working in fields

design, is particularly useful here. Indeed, the NEMO

that have explosive gases present, our compressors

is our most popular pump in Mexico. For this reason,

continue functioning without stop. Whereas

PEMEX’s project to redevelop over 100 mature

clients report the stoppage of other compressors,

wells through IOR and EOR methods is particularly

we ensure that Sauer’s products work under all

interesting to us. One of the main developments in

circumstances. This reduces downtime and the

Netzsch’s artificial lift NEMO range is the ESPCP

associated costs to the client. No other brand

pump, a progressive cavity pump driven not by a

is able to offer this. Sauer Compressors are not

rod but by a motor which is submerged into the

cheap. But this is because they are renowned for

bottom of the well. This ESPCP pump allows for the

their ability to run regardless of the environment.

implementation of PCP equipment in deviated or

While companies may save 30 percent of the initial

deeper wells. The NEMO Hybrid Pump, on the other

cost if they were to buy compressors elsewhere,

hand, is suited to high-temperature extraction where

the money lost by downtime dwarfs any saving

steam or hot water injection is utilized.

they may initially have made.

VIEW FROM THE TOP |

SKY IS THE LIMIT ALEJANDRO GARCÍA Director of Heliservicio

Q: How has the recent activation of Mexico’s offshore sector

learning path together with Shell and PHI Inc. PHI is one of

been reflected in your operations and balance sheet?

the biggest helicopter operators in the world and from them

A: The entrance of IOCs to the oil and gas industry in

we have gained knowledge and experience; we appreciate

Mexico has opened many new opportunities for us. One

their openness and willingness to participate with Heliservicio

example is the Shell E&P Mexico tender awarded to

in this project and share resources. Our crews have been

Heliservicio as its personnel air transportation service

trained by PHI in executing high-risk operations safely. Our

provider and strategic ally for crew, utilitarian air

most experienced pilots have received in situ training for

transportation and SAR operations. The Shell project is a

over a year to learn how to handle the new helicopters, and

new challenge for Heliservicio. Together with PHI Inc., our

the type of operations required by Shell in order to meet and

strategic and technology partner, we are part of Shell’s

exceed Shell's standards for performance.

program to select national suppliers that comply with its safety and efficiency requirements. We have had to invest

We are bringing three new helicopters to the country (3

in our personnel’s technical training and preparation

Sykorsky S-92), which are the first of their model to ever

and we also had to invest in and modernize our fleet to

operate in Mexico. This portfolio of options and new

meet Shell’s high standards. Having said that, we trust

technology allow us the capability to offer those services to

that once we begin operations, we will see substantial

other oil and gas operators. Together with Shell, we are open

benefits in our balance sheet that will reward all of our

to establishing a “sharing” scheme for the S-92s to lower

investments and efforts.

operational costs for the companies involved. Additionally, we have built state-of-the-art facilities in Veracruz and

Q: How has the role of the oil and gas sector in your overall

Tampico for Shell’s air transportation.

portfolio changed in 2019? A: Heliservicio has been operating in the air transportation

Q: How would you describe the distribution of your

industry in Mexico for the last 40 years, servicing private

operations between transportation to old and new

Mexican companies and PEMEX, our largest client. In

worksites?

the last 12 months, with the reactivation of E&P activity,

A: Offshore air transportation activity is facing a big

numerous tenders have been issued and new opportunities

challenge. Flight distances are lengthening more and more

have arisen. Heliservicio has put in a great deal of time and

as new offshore areas are being discovered and explored in

effort to capture new clients and offer them our exceptional

deepwaters, thus creating a need for new and more high-

track record and experience, with a priority on safe and

tech aircrafts. The international players that have recently

efficient operations while deploying the modern equipment

entered the oil and gas activity in Mexico are venturing into

we have in place.

drilling in those deepwater fields, and so the distances our helicopters have to travel range from 100 to 200 miles. This

We are confident about the quality of our operations, and

opens the opportunity for companies like Heliservicio to invest

we have been creative in establishing new strategies to

in equipment, such as heavy and medium helicopters, training,

tackle those opportunities to win as many contracts as

safety (SMS) and to comply with all new HSE-Q certificates,

possible, thus increasing significantly our service portfolio.

SASISOPA and others if we want to remain competitive.

Q: How has your recent contract with Shell E&P and your partnership with PHI Inc. changed your standing in the

Heliservicio is a Mexican company founded in 1978 that

Mexican oil and gas industry?

manages a fleet of 26 helicopters, which have successfully

A: This new project has been an amazing challenge for

completed over 150,000 flight hours over the last five years. It

Heliservicio and we have gone through an extraordinary

is one of the few key figures in offshore transportation

207

208

VIEW FROM THE TOP |

REACTIVATING AIR TRAFFIC TO OFFSHORE SITES ENRIQUE ZEPEDA Director General and CEO of Transportes Aéreos Pegaso

Q: How did your business perform in Mexico’s offshore

A: They all go through a similar process of hiring in-

sector during 2019?

house or external aviation experts and consultants that

A: We have definitely seen business grow. Our flight hours

audit companies such as ours. We have successfully

have increased, although we are still far away from the

passed all of these audits, and as a result we have many

activity we experienced in 2014. We remain at 50 percent

certifications. Our fleet has remained current, with new

of our 2014 operational volume. However, this increase

models acquired every year, and this has helped us to

when compared to 2018 is quite substantial. Throughout

meet oil companies’ standards of aircraft. Most foreign

this time, we have continued to stimulate growth as

operators give Mexican service providers like us a chance

much as possible. We established our company’s offices

to participate in their activities.

within the Toluca airport in 2017 and inaugurated them a year later. Part of the industry conditions that motivated

Q: To what degree do your services now compete

this particular investment were the reduced flight hours

with other offshore transportation modalities, such as

to offshore worksites. To compensate, we invested in a

FSVs and PSVs?

new line of business, which is executive aviation, and

A: The specific characteristics of the fields we service

the building of these Toluca facilities were part of that

have kept us out of competing with these types of

investment. With that being said, oil and gas helicopter

services. We are in a category of our own. Some fields

transportation continues to be our most active segment

that are close enough to shore will always be reserved

by a large margin. Our central hub in Toluca allows us to

for sea-based transportation, but other fields are simply

attract interesting additional opportunities, considering

too far away to make this an effective or efficient option.

the cancelation of NAIM. Operators understand that personnel who have been Q: What benefits have you obtained by having offices in

working in difficult waters for six or seven hours

various airports, aside from the Toluca airport?

immediately prior to their arrival will be in no condition

A: We need to consider that having offices in these

to work right away, so to the expense incurred in NPT

airports has been at a cost, especially in recent years.

from those six to seven hours of transportation, you have

However, these expenses were considered from the

to add the additional time during which your personnel

beginning in anticipation of a higher influx of foreign oil

need to rest. In times of extreme efficiency, these types

companies and we understood that these investments

of operational gaps are no longer acceptable. This is

were necessary. Maintaining our presence at various

why helicopters will always have a guaranteed cut of the

airports was a crucial part of that preparation, and now

offshore oil and gas transportation market. Aside from

we are seeing results. We also made sure our pilots and

the fact that deepwater worksites require helicopter

crew improved their technical skills in order to compete

transportation, transporting personnel on vessels is just

with foreign helicopter service providers that will soon

completely unfeasible because the distances are too

be operating in Mexico. We now are on par with the

long and the conditions extremely difficult. Our future

operational standards of any foreign helicopter service

competition continues to be foreign helicopter service

provider and our continued presence in airport hubs and

providers.

in airports located along the Gulf of Mexico on Mexico’s coast has allowed us to reduce our response times significantly.

Transportes Aéreos Pegaso has offered executive air transport services since 1981. In 1983, it won its first PEMEX contract

Q: How have you managed your approach to the new oil

to shuttle passengers and cargo to platforms on the Gulf of

companies such as Fieldwood and Eni?

Mexico. It has completed more than 1.1 million flight operations

209

| VIEW FROM THE TOP

SOLUTIONS AT THE WATERFRONT

JOSÉ DEL CARMEN RODRÍGUEZ Director General of AMAPET

210

JOSÉ LUIS RODRÍGUEZ General Manager of AMAPET

Q: How have you addressed the needs of Ciudad del Carmen’s

the sector, new clients are coming to us with needs that we

offshore sector?

have never addressed before and we want to be the best

JLR: The company started operations in 1998, offering

ones for the job. For example, potential customers might need

mooring and anchoring services after winning the concession

a more complete service for the supply, transportation and

of 80m of waterfront and 25m of yard space at Ciudad

loading of a heavier piece of drilling equipment. Through our

del Carmen’s fishing port. This space is now known as the

commercial alliances, we can provide the cranes necessary for

AMAPET harbor. The harbor has 5m of port draft depth,

the operation, which we might not currently own, plus land

providing a significant added value for our clients and all new

transportation to and from the harbor.

companies looking for a place to dock. This depth also allows us to not only accommodate a large variety of service and

JCR: We are also expanding our service offering through

supply vessels, but also those that need to be loaded to their

companies under the AMAPET group umbrella. One of them

maximum capacity and that cannot be in other, more shallow

is called Agencia Marítima Petro Offshore. This company has

parts of the port. For clients, this represents concrete savings

the API’s authorization to put up hydrocarbon containment

thanks to less trips to and from their offshore facilities to

barriers whenever diesel is being loaded or unloaded from a

satisfy their supply needs. We own all the equipment at

vessel, which is an environmental requirement. This includes

our installations, including the cranes and other necessary

on-dock loading operations, vessel-to-vessel operations at

technology that our clients may require. This has allowed

sea and on-platform operations.

us to become an integrated service provider and logistics partner to our clients.

Q: Being a Ciudad del Carmen offshore service provider comes with certain requirements in terms of financial

JCR: Most international companies do not have or own readily

structure and a relationship with PEMEX. How have you

available infrastructure at the Ciudad del Carmen port. This

fulfilled those requirements?

puts them at a disadvantage against national players such

JLR: Although we have not been contracted by PEMEX

as Cotemar or Grupo Diavaz that do have local presence.

directly, we have definitely solved the NOC’s problems

This makes us an ideal partner for international companies

throughout the years. We have provided solutions for the

like Sapura. Our 24-hour availability and our logistical

company’s most prominent contractors’ operations. Just

capabilities allow us to address all needs and emergencies

recently, we attended an emergency to repair a stuck

in a way that feels as if they owned those facilities. We are

turbine at one of PEMEX’s offshore facilities. Providers

also competitive in terms of price thanks to our nature as a

such as Marinsa and COSL, among others, operate out

private family company.

of our port. These companies then recommend us to other service providers and also give feedback to PEMEX

Q: How are you taking advantage of increased activity in the

regarding our performance. This has evolved into a

Campeche Basin offshore sector?

healthy relationship, to the point where we are now a

JLR: As experts in logistics, we are currently building several

reference for the company in terms of available space

strategic commercial alliances that will allow us to constantly

whenever their own port happens to be unavailable.

expand our available service offering. As activity returns to JCR: PEMEX’s ports do not exactly have needs, but they do have state-sanctioned programs and vessel schedules that Aprovisionamientos Marítimos Petroleros (AMAPET) is a

they have to fulfill to the letter. Since the NOC’s ports are

family-owned offshore service provider with its own harbor in

not equipped to handle emergencies, we have become their

Ciudad del Carmen. Its facilities are open to oil and gas vessels

go-to option when situations arise. By preventing delays in

24 hour a day, 365 days a year

deliveries, companies can avoid penalizations from PEMEX.

VIEW FROM THE TOP |

MORE INVESTMENT NEEDED TO KEEP UP MAINTENANCE LUIS REYNA General Manager of Júpiter Suministros y Servicios

Q: What is your experience working with PEMEX and how

what we earn and repay the credit before the end of the

does being a family company benefit your business?

project. We always work with a national bank and have

A: PEMEX is our principal client. Our experience was built

never touched any local financing options.

together with the NOC and we have been able to weather the industry’s ups and downs, including the recent crisis,

Q: What is your opinion on the state of the PEMEX fleet

largely because of this ongoing relationship. Currently, our

and what needs to be done to improve it?

contract with PEMEX is for the maintenance of housing

A: Having personnel on board, we know that many are

modules and control rooms at Cantarell and Ku-Maloob-

in a deteriorated state. Some are no longer producing

Zaap. We have also worked with private sector companies

and are abandoned. The resources being invested right

but are not as strong there. As a family business, we are

now are not sufficient. PEMEX knows that stronger

able to operate practically autonomously using our own

investments are needed to run these installations and

equipment and logistics. Many of our people have been in

provide good working conditions. It has a program at

the business for many years and pass on their experience

the moment that focuses on resolving what they call

to new employees.

“anomalies.” Our contract covers the basic necessities to keep the installation running without complication.

Q: How has working almost solely with PEMEX impacted

It does not, however, provide enough resources for

your business?

complete renovation of the housing areas.

A: A factor that has certainly affected us has been payment policies. In our last contract with PEMEX, the payment was

Q: What is your working relationship with CEMZA?

extended from the contract-specified 20 days to 90 days

A: We have a commercial alliance to meet the needs of

and then to 120 days. We had to adjust. It was the crisis,

PEMEX. We certainly see business opportunities with

and everyone was being affected. For about two and a

several of the companies that are part of the group.

half years this region struggled. Fortunately, we had our

For example, the CEMZA group company Maren is now

contract with PEMEX and that allowed us to come trough

beginning a project with two platforms for perforation, and

these times, when many businesses closed or reduced the

we are looking at what we could contribute.

size of their operations. Q: What does the next year look like for the company? Currently, our contract stipulates a payment date of 20

A: We have an expansion plan in place that involves

days, but it is still being paid after 120 days. This is the

boarding and construction work. We are able to provide

same for other service providers, suppliers and within

services at a more economical rate than our competitors,

PEMEX itself. Nonetheless, we have the financial capacity to

including Cotemar, Diavaz and Grupo Protexa, so we

operate without problems. Recently, we have also increased

hope to compete more aggressively with them in winning

our work with private companies, such as Grupo CEMZA.

contracts. With respect to PEMEX, our current project ends next year and has a total investment of US$6 million. We

Q: What outside financial aid or loans help support your

will work to leave those installations in good condition and

operations?

deliver the best job we can.

A: We use bank financing when needed. The contract with PEMEX acts as a guarantee. At the start of a contract, we consult a bank and it pays for the start of the project,

Júpiter Suministros y Servicios has been providing services in

providing about 30 to 40 percent of the sum of the entire

construction and maintenance to the oil sector since 1987. Its

contract. Once we start operating, we no longer need the

main services are electromechanical works, civil engineering

financing as the contract becomes self-funding. We spend

and equipment leasing

211

| VIEW FROM THE TOP

PROPER DRILLING FLUIDS IMPROVE ENVIRONMENTAL PERFORMANCE, REDUCE COSTS NELSON ALFONZO Latin America Manager of Clear Solutions

212

Q: What is Clear Solutionsâ&#x20AC;&#x2122; added value in the

Mexico might not be very open to fracking, but regardless

Mexican market?

of whether it takes on fracking or not, the country will

A: Clear Solutions is an England-based manufacturer of

see much more drilling in the future than it does today.

chemical products that started in the mining industry.

We contribute to faster affected area recovery and

For about nine years the company focused its efforts in

allow for more controlled drilling than conventional

the mining sector and established itself in Europe and

technologies. We are establishing ourselves in the market

some parts of Africa. Five years ago, we migrated our

and are in the process of finding clients. Our goal is to

attention to cater to the oil and gas sector, which is now

have complementary commercial partners, and we will

our primary focus. Clear Solutions is a relatively small

switch up our commercial strategies depending on our

company with 21 employees, and we design and develop

businesses.

our own products, such as drilling fluids. Q: How does Clear Solutions demonstrate its efficiency? We consider sustainability our added value. We want to help

A: We are an operation-focused company, with a

companies raise the bar and meet their environmental goals.

knowledge based on the circumstances and the state

This issue is not as common in Latin America as it is in Europe.

of the current fields. Our products offer performance

We work with drilling fluids and seek to improve sustainability

beyond traditional technologies: we provide efficiency

and performance by reducing the environmental footprint

in the drilling process, which results in a higher Rate

and minimizing waste. Today, operators entering the market

of Perforation, with less fluid used and smaller waste

want companies that offer more holistic approaches and that

generation, leading to a smaller environmental footprint.

is precisely what we can offer. These related costs categories are reduced by 20-30 Q: How do your products help companies comply with

percent as per historical records. Our efficiency also

environmental regulations in Mexico?

means less waste-related transport is needed and less

A: We consider regulations of key areas and adapt our

machinery is required. This affects operational times

products to them. For example, our products already

and schedules in a positive way and makes the drilling

comply with our original market located in the North

and intervention process more practical. Our fluids give

Sea. Clear Solutionsâ&#x20AC;&#x2122; goal is to promote minimum

operators a very precise tool to control, making complex

environmental impact. One of our main products is

procedures easier due to lesser variability and more

called Pure-Bore, which can be used to drill a variety

constant performance.

of reservoir and formations. Also, it can be used to drill near groundwater resources because it offers additional

Q: What are your short-term goals in the Mexican market?

protection for water resources. Regulations do not

A: By the end of 2019 we aim to have two applications

require the enforcement of these measures yet, but within

for our product in Mexico, both offshore and on land.

10 years this will surely change. Our products do not use

However, even though our product is fully developed,

heavy metals and are nontoxic, meaning that cleaning up

it always takes time for a company to run trials and

after operations becomes rather simple.

follow proper adaptation processes. We think we can provide an interesting value for oil and gas operations, in both conventional and unconventional resources,

Clear Solutions focuses on the research and development

including well interventions. For a smaller company like

of ecological and high-performance drilling fluid products. It

Clear Solutions, the well intervention market is rather

also offers companies technical support to help improve their

interesting in Mexico because companies such as ours

performance

can provide more from a niche within the market.

VIEW FROM THE TOP |

PUMPING SYSTEMS WITH AN EXTRA KICK

MANUEL GARAY Mexico Country Manager of Power Electronics

JOSÉ LUIS SANTANA Service Director for Mexico at Power Electronics

Q: Which opportunities did Power Electronics first identify

Power Electronics designs algorithms that allow our sine wave

in Mexico’s oil and gas sector?

filters to identify spikes in power and control the volts and

JLS: The company identified the oil and gas, mining and water

amperes into the ESP systems to ensure the safe operation

management treatment as those sectors best suited to our

of all the systems. Our systems provide two seconds of power

services and, out of these, considered oil and gas as the sector

support, which is far beyond that of the milliseconds required

that offered the strongest economic potential. As PEMEX is

by Mexican regulation. This is an essential tool because a drop-

the largest company in the country’s oil and gas industry,

off in energy will stop the ESP.

we set out to work with it and its suppliers. The company then looked at the projects in which we could best support

Power Electronics also provided the inverter to work on

PEMEX, which resulted in our first large project with the

PEMEX’s first dual pumping system for ESP systems. This was

NOC, delivering 14 XMV660 medium-voltage inverters to the

a challenging job due to various factors. The dual system was

pumping system in Poza Rica. Following this, we were given

required to pump extra heavy crude, which because of its

various contracts around Mexico, including a specific design

density and viscosity is more difficult to pump and demands

for PEMEX for offshore Electrical Submersible Pumps (ESPs).

a lot of power. The distance we had to pump was designed to work 5km and the dual pump system was 900HP, meaning

Q: Where along the value chain can Power Electronics

it required a specified design with dimensions and superb

provide most value?

ventilation to stay working in the e-house. Despite the

MG: Power Electronics is focused on exploration and

project’s difficulty, it also showcased the company’s ability

production, as well as recovery and secondary projects.

to work with the client and adapt our Variable Speed Drive

However, we are also looking to develop our services in

XMV66 as needed.

refining, although we have not yet moved aggressively in this direction. We are leaders of offshore pumping and

Q: What are the company’s goals for the short term?

secondary pumping and hope to continue our activity there.

JLS: Power Electronics continues to search for projects that

One of the major values we provide our clients is our ability

require the support of our powerful products. One area

to respond quickly to challenges. We put a heavy focus on

that we are interested in is refining, particularly in the area

problem solving to deliver the highest services and reduce

of petroleum coke processing. Petroleum coke is produced

both problems and costs for those we work with.

during refining and is required to be transported and placed in storage immediately. If the coke process is stopped, the

Q: What are the best examples of Power Electronics’

refinery also stops. Power Electronics provided a Soft Starter

advanced technologies in the oil and gas industry?

with 3.8kV and 5,000HP to PEMEX’s Minatitlan refinery to

JLS.: Our equipment can work with any type of background

ensure that the coke processing system worked safely. Soft

sensor or electrical motor, which is vital for ESP applications.

starters of this voltage power are difficult to find in Mexico

If the sensor cannot properly perform the transfer of data,

due to the complexity of engineering that they require for

then we cannot see any parameters of operation and the

construction. But Power Electronics has the knowledge and

ESP therefore could be stopped. Because of our products’

experience to deliver the most helpful machinery to the

functionality, they can work with equipment from any brand

country’s refinery sector.

and are assessed at the point of manufacture to guarantee this. Another benefit is the quality of our engineering in our sine wave filters that helps avoid negative consequences

Power Electronics is a global leader in the production and

of energy spikes for PEMEX’s ESP systems. When PEMEX

installation of variable speed drives, electronic soft starters, solar

requires a lot of power, there can be spikes as a result. These

inverters and energy storage and recharge units. Their products

spikes can be addressed in advance using our equipment.

have been adapted for a variety of industrial uses

213

| VIEW FROM THE TOP

ACHIEVING RESILIENCE THROUGH DIVERSIFICATION MARCOS ALCOCER Vice President of Roca Ventures

Q: How did Roca Ventures enter the Mexican market?

need several services close to the dock where they service

A: Roca Ventures entered the Mexican energy market

their fields, like office space, a dock and pipe yard services.

in 2014, acquiring a company specialized in performing 214

maintenance and construction services for PEMEX. The

As we were writing the business plan for Roca Port we

Energy Reform had just been approved and the legal

visited offshore operations ports in the US, UK and Norway

framework presented a great opportunity for us to enter

to understand what operating such an asset meant for

the industry. The oil price crash in 2014 made us rethink

private companies. We adapted some of the best practices

our business strategy, and think strategically about

we saw in these locations and suit them fit the Roca culture

introducing new revenue lines to the assets under our

and ethos.

portfolio. Q: What services will be offered at Roca Port and how In the last couple of years, we have been analyzing the

will you continue to develop the remaining land available

services and new segment lines within the market that

in Dos Bocas?

we could cater to. We then began looking into offshore

We offer yard space, docking positions, warehousing,

logistics services and noticed a gap for private operators

office space, equipment and personnel. We have two

in this particular niche. Our original plan was to continue

concession areas in the port of Dos Bocas. These

growing with PEMEX, but private operators started their

concessions comprise a 21ha patch of land and 1km of

campaigns and required shore base and logistic services,

sea front, construction skidways able to handle 5,000

so we pivoted a port concession we owned in Dos Bocas

tons each and 300m of docking space.

as a construction yard and started to cater to these market needs.

A 4ha part of the asset is currently under development and it will include all of the mentioned services with a

Q: After restructuring its assets, how did Roca Ventures

state-of-the-art logistics and inventory management

change its business model to fit the new needs of the

system to better service our client’s needs. We will

industry?

tailor modular shore bases for clients depending on

A: The port of Dos Bocas is the epicenter of most of the

their activities and needs within this area. Many foreign

southern shallow and deepwater fields awarded in recent

operators want all of their services integrated under one

years to private operators. Considering the assets we held

company and we aim to provide this at Roca Port.

in this port, we undertook a competitive assessment to find what services were better suited to provide out of this

Q: What are the main differences between Seybaplaya

location and better serve market needs. The port of Dos

and Dos Bocas?

Bocas was originally designed to serve PEMEX’s operations

A: The proximity to the fields is one of Dos Boca’s mayor

off the coasts of Campeche and Tabasco. We were sitting

advantages. Being closer to the fields makes more sense

on an asset that we had not fully taken advantage of and if

in terms of vessel costs and rig downtime. Dos Bocas is

PEMEX was taking advantage of this location, we figured we

located an hour away from Villahermosa, which is one

could do the same for the private sector. Private operators

of the most important oil and gas hubs in Mexico. There is a wider array of service providers in Villahermosa, as well as supporting transport infrastructure. In terms

Roca Ventures is an independent industrial and infrastructure

of location and infrastructure, Dos Bocas is the better

focused private investment firm that conducts buy out, growth

option for clients. Seybaplaya may be a big a competitor

and venture capital investments in the midstream, marine

in the near future, but there is still a great amount of

logistics, industrial and construction sectors in Mexico

infrastructure to be developed in our opinion.

VIEW FROM THE TOP |

CONNECTING MARKETS ACROSS THE SEA JESĂ&#x161;S DE LA GARZA Director General of API Tamaulipas

Q: What are the main port developments that have taken

in the gulf since most of the drilling activity is still in the

place at API Tamaulipas since the beginning of the year?

exploratory phase, and not in the production or extraction

A: Since the beginning of 2019, the port took on a new role,

phases. There is no immediate need to add additional draft;

transitioning from a construction phase to taking steps toward

however, it could occur once drilling enters the production

becoming fully operational. In 4Q18, the port awarded the

phases. However, we have identified other non-oil and

Mexican company TMM the concession of the Offshore Supply

gas industries that require larger vessels and therefore a

Base Terminal. At the beginning of 2019, dredging activities

deeper draft. One of them is the automotive industry. In the

were concluded reaching a draft of 9m, exceeding the

neighboring states of Nuevo Leon and Coahuila, more than

required depths for most vessels related to offshore activities.

20,000 vehicles are manufactured monthly and exported to

At the end of 2019, we will award the signaling of the ports of

over 90 countries through other ports. Once the port reaches

navigation, looking for all the aids to navigation to be installed

depths of 12m, these manufacturers will look in the port of

by the end of the calendar year.

Matamoros for their logistics solutions.

Q: One of the goals is for the port to be operational by the

Q: The main purpose for the Matamoros port is to provide

beginning of 2020. What stage has this plan reached?

the services that will support offshore developments for the

A: We are on track for making this a reality and the port is

next 10 years. What is the current status for these services?

committed to this goal. We are working with our contractors

A: The availability of these services is in line with the activities

and suppliers to have all navigation aids installed by the end

in the Gulf. The companies awarded the contracts for the

of 2019. We are also in communication with all federal, state

exploration and extraction of oil and gas in the Perdido Basin

and local authorities, coordinating and finalizing every detail

are still in the process of establishment and start-up. Grupo

to be in complete compliance with them and begin operation

R and TMM have submitted the final designs and have begun

in early 2020 as scheduled.

the initial construction of their terminal and expect to be operational in 2020. As drilling begins in the gulf, the port will

Q: What is the portsâ&#x20AC;&#x2122; current capacity to support deep-water

be continuously evolving to meet the demands of the market,

drilling in order to receive and service FPSOs?

in both infrastructure and services that will be provided.

A: The main reason the port was built was precisely to support deepwater drilling in the Gulf of Mexico. Once the presence of

Q: What is your business cooperation status with ports in

large quantities of oil and gas in the CiturĂłn Plegado Perdido

the US and how are you planning to attract Mexican ships

Basin was confirmed, it would only be a matter of time before

to your port?

the market demanded a base supply terminal to service all

A: Our plan is to cooperate closely with US ports. We

activities related to this industry. The objective is that the

intend to formalize our collaborations with these ports in an

terminal currently being built by Grupo R will serve as the

effort to ensure the best and most efficient conditions. Our

supply base for all drilling operations, as it will provide a wide

collaboration with other ports is not only limited to those in

range of services. Currently, the draught of the ports is 9m,

the US, but also to ports in other countries. We recently visited

which limits access by large FPSOs; however, short-term plans

the Scottish port of Aberdeen and intend to sign an MOU with

include dredging to reach 12m.

them to service deepwater drilling operations.

Q: What are the current and future plans to increase port draft to handle larger vessels are expected to arrive at

API Tamaulipas' primary function is to serve as hub for

the port?

economic development in northeastern Mexico, by providing

A: With a draught of 9m, the port is in more than sufficient

quality port services for the oil and gas industry as well as

condition to receive vessels carrying out drilling activities

other cargo services

215

Helicopter landing on Chihuahua jack up rig

SUPPLY CHAIN & LOCAL CONTENT

The post-2014 downturn dealt a brutal blow to Mexico’s oil and gas supply chain. While the headway made under the Energy Reform delivered optimism to a supply chain struggling with the slow decline of PEMEX, the change of government and subsequent suspension of bidding rounds during the last year saw ripples of doubt spread throughout the industry. However, the administration’s backing of PEMEX and the 2024 production aim of 2.6MMb/d will require a strong, efficient and productive supply chain that can support the efforts of operators, especially those in Mexico’s deep and ultra-deepwaters.

This chapter examines how local and supply chain companies are preparing to meet the demand in services brought by the production target. It analyzes which requirements and types of expertise are needed by operators to excel. Specialized services and state-of-the-art technology are discussed by those players with deep understanding of the supply chain and direct, local participation in the matter.

217

CHAPTER 9: SUPPLY CHAIN & LOCAL CONTENT 220

ANALYSIS: Green Shoots in the Supply Chain

222

VIEW FROM THE TOP: Luis Ocejo, Grupo TMM

223

VIEW FROM THE TOP: Priscilla Castañeda, Oceamar

224

VIEW FROM THE TOP: Alejandro García, MexMar

225

VIEW FROM THE TOP: Eric Frank, Global Maritime

Andrew Peak,Global Maritime

226

VIEW FROM THE TOP: Salvador Cáceres, H&R Naviera

227

VIEW FROM THE TOP: Pavel Hernández, OH Maritime

228

VIEW FROM THE TOP: Rubén Benítez, Integra Consulting & Marine Services

228

COMPANY PROFILE: Doing the Heavy Lifting for Oil and Gas

229

VIEW FROM THE TOP: Mariano Levy, Altamarítima

230

INSIGHT: Javier Dávila, Energía Integral

231

VIEW FROM THE TOP: Ricardo Sierra, STIn

232

Rafael Díaz, STIn

INDUSTRY PERSPECTIVE: Rafael Llamas, Cargotecnia

Héctor García, Procarga

233

VIEW FROM THE TOP: Fernando Estrada, Crane Worldwide Logistics

234

INSIGHT: Enrique Martínez, Subsea Offshore Technology Inc.

235

VIEW FROM THE TOP: Alejandro De La Parra‑Solomon, PetroM Corp.

Fernando Garcilita, PetroM Corp.

236

VIEW FROM THE TOP: José Luis Jiménez, Comincar

238

INDUSTRY PERSPECTIVE: Héctor Peña, Komodato Offshore

José Altonar, Altopetrum & General Oil de México

239

VIEW FROM THE TOP: Virgilio Ruiz, Grupo Hegemonía

240

VIEW FROM THE TOP: Adrian Rodríguez-Montfort, Brunel Energy

241

VIEW FROM THE TOP: Guido Van Der Zwet, iPS Powerful People

242

INSIGHT: Hugo Ruelas, Grupo Altavista

243

VIEW FROM THE TOP: Rafael Gómez, COMMOSA

244

VIEW FROM THE TOP: José Luis Valencia, GAVSA

245

VIEW FROM THE TOP: Claudia Barrera, National Energy Entrepreneurs Council

246

VIEW FROM THE TOP: Diego Bernal, NovaOil

247

INSIGHT: Adrien Caudron, ITPE

219

| ANALYSIS

GREEN SHOOTS IN THE SUPPLY CHAIN Mexico’s oil and gas supply chain is still finding its feet after the 2014 downturn. Optimism sprang from increased activity on awarded blocks, but uncertainty emerged during the change in government and CNH’s decision to suspend all future bidding rounds The downturn that wreaked havoc across the global oil and

online to deliver increased efficiency and systematization

gas industry did not spare Mexico. The oil-reliant towns and

would enhance communication between authorities and

cities along Mexico’s Gulf Coast were heavily affected as

quicken logistics, says Oceamar General Director Priscilla

activity decreased and companies that the country’s supply

Castañeda. “The management of equipment at ports is a vital

chain relied on closed. “The crisis hit the sector so bad that

question and needs to be controlled through sound protocols

half the fleet was on standby and there was not enough

that provide efficiency and security. Either the government

work for more than two years. Over 30,000 people lost their

increases its abilities or it hires the help of private agencies

jobs, who in many cases were incredibly specialized,” says

to do the evaluations.”

Luis Ocejo, Senior Managing Director of Maritime Business at Grupo TMM. 220

Activity off Mexico’s eastern coast means that capacity development among suppliers and service providers must

With the prosperity of supply chain players directly linked

be coupled with infrastructure development. The Port of

to the activity of operators, investment made by operators

Matamoros, managed by API Tamaulipas is being constructed

is key. The industry-wide uncertainty caused by the change

to service the winners of deepwater blocks in the Perdido

of administration and CNH’s decision to suspend the bidding

Basin during the licensing rounds. Jesús de la Garza, Director

of two rounds totaling 46 blocks, hampered supply chain

General of API Tamaulipas, notes that the port will become

growth as companies hesitated to invest in an undecided

the first port in Mexico to support offshore activities while

market. However, by 2Q19, with the president signaling his

also supporting commercial and industrial operations within

desire for private players to continue supporting Mexico’s

a 500km radius when it becomes operational in 2020.

oil and gas development, prospects began to look brighter. Exploration and development drilling by both PEMEX and

NATIONALS POISED TO STRIKE

private operators accelerated, while in July, Eni became the

Increasing the prominence of national procurement is

first IOC to start offshore production since the beginning

an important point for the new administration, which

of the Energy Reform. Most importantly for supply chain

believes national companies must play a central role in the

businesses, PEMEX made a watershed announcement that

development of the country’s oil and gas industry. “Many new

it would develop 23 new fields set to require 128 wells to be

opportunities have emerged for local companies that survived

drilled over the next two years, a monumental increase on the

the downturn and we are keen to take advantage of them,”

23 fields it has developed in the last decade.

says José Altonar, CEO of Altopetrum & General Oil de México.

To increase production and support offshore activity,

Before the Energy Reform, PEMEX contracts supported

maritime service providers play a central role. However, port

thousands of national companies, and as a consequence, the

infrastructure bottlenecks have remained a problem during

nationalized market cultivated a single-client dependency.

the last year as bureaucratic processes continued to cause

This resulted in widespread closures once PEMEX withdrew

problems for maritime companies, an issue companies want

investment during the industry downturn. National companies

addressed. Salvador Caceres, Director General of Ciudad del

are now seizing on the chance to expand their client base and

Carmen-based H&R Naviera, a logistics agency , explains the

balancing their security for a healthier future. Pedro González,

dangers that arduous port procedures provoke: “The principal

Technical Leader at Paraiso-based Kasoil, explains the

risk is financial losses due to delays. Once a unit arrives at a

situation for the local company: “We have diversified our client

port, especially from abroad, it has to go through a whole

and project portfolio. Last year, 90 percent of our services

series of procedures. These involve different parties at the

were offered to PEMEX and 10 percent to other operators.

port, from customs agents to the harbormaster […]. The back

Now, we are approaching a 50-50 distribution. We are more

and forth circulation of documentation to the authorities that

than ready to take advantage of a strengthened PEMEX but

is currently required for clearance is not optimal.”

we are also providing more support to the ongoing work of the licensing-round winners.”

A lack of standardization and systematization makes port and customs procedures a haphazard affair. At the heart of this

National companies are also beginning to unify through

issue is Mexico’s lack of digital infrastructure. Taking processes

clusters to overcome their smaller stature and compete for the

contracts at hand. By forming clusters, companies can share technologies and services, enabling an expansion of their service portfolio and obtaining work that would previously be outside their scope. José Luis Valencia, Administrative Manager at Mexican heavy-lift and transport company GAVSA, based in Villahermosa, explains the benefits a cluster offers. “We have taken the step of organizing ourselves so that we can compete against the large international companies that have monopolized the market in recent years.”

DELIVERING A QUALIFIED WORKFORCE The development of local content able to deliver the specialized knowledge necessary for offshore exploration, field development, and early-production works was another pressing matter. The 13 percent local content requirement during exploration and 25 percent for production stages must be met. But moving out of PEMEX’s shadow and into the multiclient market brings its own challenges. According to Virgiolio Ruiz, President and Founder of Grupo Hegemonía in Ciudad del Carmen, the quality of Mexico’s local content must be improved. “Compared to other countries, Mexico lacks human capital preparation,” he says. The connection between industry stakeholders and academia also will be essential for the improvement of industry personnel in the medium and long terms. The Instituto Tecnológico de Petróleo y Energía (ITPE), a Yucatan-based educational institution, is one of many organizations developing links between Mexico’s educational institutions and industry players. Adrien Caudron, ITPE Director General, notes that these links are becoming easier to forge and more fruitful as the market matures. “Some of the prestigious partners we are already working with are UNAM, IPN, IFP and Texas A&M University. On the business side, we work with companies like PEMEX, Shell and ABB,” Caudron says. With the arrival of global players, international standards of project management are expected. However, Mexico currently lags far behind its regional competitors when it comes to qualified project managers in the market. “Uruguay has a population of 2.5 million and 1,000 are PMI-certified project managers. One the other hand, Mexico has between 3,0004,000 project managers for a population of 120 million,” says Rafael Diaz, Project Manager at Servicios, Technologías e Innovacíon (STin). The recovery of Mexico’s oil and gas supply chain continues apace with many local companies who survived the downturn once again gearing up to provide services to a much-changed market. The adaption to a multiclient market will still take time, but with the diversification of services, the integration of international standards to supply chain practices and the training of Mexican talent, the foundation for industry growth is taking shape.

221

| VIEW FROM THE TOP

OPPORTUNITIES FOR INLAND SERVICE DIVERSIFICATION LUIS OCEJO Senior Managing Director Maritime Business of Grupo TMM and former President of CAMEINTRAM

222

Q: What percentage of Grupo TMM’s portfolio is

been working arduously to strengthen its financial situation

represented by oil and gas services?

and in 2017, we successfully restructured our debt despite a

A: Grupo TMM has been in the market for over 60 years,

difficult year. The change we made to diversify into the port

although we were not always focused on the energy

business also has helped to boost the company’s results. In

sector. We have learned from various experiences and

2018, we almost doubled our results on a year to year basis.

have adopted a broad approach to the business segments we serve. We ventured into the Mexican energy market

Q: What port and storage infrastructure is Grupo TMM

in 1992 with two platform supply vessels (PSVs) working

developing to serve the oil and gas sector?

with PEMEX. That year, we also entered the petrochemical

A: We are investing in a terminal in Tuxpan with an

transportation segment, from Houston to Mexico. The oil

initial capacity of 500,000 barrels. Apart from tanks,

and gas shipping business now represents 80 percent of

the terminal will also offer other port solutions. Another

our activities. It has been a large jump from 10 percent

project is inland, close to Mexico City. We aim to develop

to 80 percent and it plays a vital role in Grupo TMM’s

a tank terminal that will help distribute gasoline and

income. On the port administration side, we believe there

diesel in central Mexico.

will be many changes that will boost the development of storage and inland transportation infrastructure.

Based on oil storage and distribution, the main facilities available belong to PEMEX. There are very few private

Q: What are the biggest concerns for shipping and

facilities and if we do not fill this gap soon, Mexico will

transport service companies?

face many problems. Grupo TMM believes that changing

A: Shipping activities took a hard hit from the 2014 crisis.

the terminal approval processes is necessary and will lead

The Mexican Chamber of the Maritime Transport Industry

to a big change in the sector. To obtain the permits for

(CAMEINTRAM) has been working closely with the

developing storage infrastructure, you must go through

government to change the conditions in the sector. The

various authorities, which can be tedious.

crisis hit the sector so bad that half of the fleet was on standby and there was not enough work for more than two

Q: How is Grupo TMM working with PEMEX and what

years. Over 30,000 people lost their jobs, which in many

other services does it want to provide?

cases were incredibly specialized. Most shipping companies

A: We have been successful on the shipping sector.

had to restructure their debt to make it through those years.

We have four to five contracts with PEMEX and even though prices have dropped, we are happy to have our

Q: How has Grupo TMM strengthened its financial

vessels at sea. We want to continue working with PEMEX

situation and diversified its services to adapt to the

but we also have set our sights on new players in the

changing market?

Mexican market.

A: Grupo TMM has proved that it can be efficient and offer quality services at a competitive price. We are proving that the

Grupo TMM provides not only vessels but many other

Mexican market is prepared to receive IOCs and that they do

services. For example, we have ample experience in

not need to look anywhere else for vessels. The company has

logistics and stevedoring, including the transportation of goods and fiscal warehousing, plus maintenance and repair of seagoing containers. Grupo TMM also has a

Grupo TMM provides transport and logistics services across

shipyard in Tampico that provides maintenance solutions

21 states in Mexico and owns a specialized fleet of vessels for

to the third party and our own offshore fleet. We want to

the oil and gas sector. It has worked with PEMEX, Fieldwood

optimize that space and provide a 360-degree service to

Energy, Talos, Hokchi, Eni, BHP and Murphy, among others

oil and gas companies in Mexico.

VIEW FROM THE TOP |

PRIVATE AGENCIES CAN HELP WITH CUSTOMS WORK PRISCILLA CASTAÑEDA Director General of Oceamar

Q: Oceamar was created as a new company split from

Progreso, there have been initiatives for more development

Marinsa. What role are you now playing within the

now that the government is making a great push in the oil

CEMZA group?

industry. Right now, the priority is to increase production as

A: Our focus is on integrated logistics services. This means

quickly as possible.

moving equipment, people, boats and platforms from one location to another. We also handle import and export

Q: What bottlenecks or inefficiencies do you see in customs

procedures. Marinsa specializes in providing boarding and

procedures and permissions?

perforation services. In the beginning, it was challenging

A: Recent public-private investments have focused on

to start as an independent operation. We had to build an

systemizing all processes. This means streamlining things by

entire new structure and maintain good communication

taking them online, creating better registers and improving

with Marinsa.

communications. At one point, Oceamar and several other CEMZA companies were involved in a project with TC

Q: What are your most important projects at the moment?

Energía and Allseas. We needed several protocols to be

A: We are fortunate to be active in cluster one and two of

handled by authorities, but they said they did not have the

PEMEX's contracts and hope to be involved in three in the

resources to do it and were unprepared. The management

near future. In cluster one, we have a working relationship

of equipment at ports is a vital question and needs to be

with Marin and Marinsa. In cluster two, we work with Borr

controlled through sound protocols that provide efficiency

Drilling and Allseas. We are in all of their projects in the Gulf

and security. Either the government increases its abilities or

of Mexico. Being part of the CEMZA group has given us

it hires the help of private agencies to do the evaluations.

opportunities but to be awarded a contract means we have

The government wants to get to a level of production that

to bring the best service levels in terms of prices, quality

previously took 10 years to achieve. To do this in a shorter

and delivery times. We also have several new projects. One

time frame requires a greater amount of infrastructure and

is developing a helicopter flight service. This will add great

specialists to train people.

value to CEMZA group because we will be able to offer air transportation in addition to land and water. The company is

Q: What are your most important development goals in the

also improving its loading and unloading of heavy equipment

Mexican oil and gas industry in the near term?

at the ports. We are also abiding by the authorities’ stricter

A: We have a strategic plan for 2020. Every month, we look

enforcement of processes.

at a variety of indicators and evaluate our progress. We will keep an eye out to see what the government does and where

Q: How do different infrastructure and levels of service at

it is headed in regards to the renewed focus on the industry

various ports impact your service?

and its future. We would like to participate in all clusters.

A: Our goal is to provide the same standard of services,

Additionally, we have also been looking at expanding our

no matter where the client is located. For this reason, we

services beyond Mexico. This will depend on the reach of

adapt ourselves to different port scenarios. We make sure

our logistical capabilities. We will build our operations by

we understand the infrastructure of the port and maintain

broadening our services with current clients, while looking

close communication with its authorities. I think ports across

for new opportunities with others.

the country should be administered at a similar level. This is an issue the government has to decide. It can choose to align them all to the same policies and targets. On the other

Oceamar offers integrated logistics services in the area of

hand, it seems logical that there is a greater focus right now

import and export, port services and transport. It works with

on the ports that are more important to the oil industry, such

a range of international companies with a presence in the

as Dos Bocas, Carmen and Coatzacoalcos. In other ports like

principal ports of the Gulf of Mexico

223

| VIEW FROM THE TOP

INNOVATION IN OFFSHORE MOBILITY ALEJANDRO GARCÍA Director of MexMar

224

Q: What characteristics of the company’s fleet make it ideal

Q: How was MexMar able to stay nimble during the downturn?

to service Mexico’s oil and gas industry?

A: I consider that the quality of the services we provide speaks

A: MexMar owns and operates a modern and versatile fleet

for itself. MexMar has always been adamant in operating over

comprised of 33 offshore support vessels worldwide, with

and beyond industry standards and our efforts were not

the latest technologies and providing services of the highest

taken for granted. Not only do we have a great fleet, but our

standards to our clients. We provide our services in the Gulf

employees are loyal and very hard-working people who are

of Mexico, mainly from Ciudad del Carmen, Dos Bocas and

committed to maintaining MexMar at the highest levels of

Tampico with 22 Mexican-flagged vessels.

quality and safety in our operations. Of course, there were concessions we had to make, such as reducing our rates, but

MexMar was a pioneer in Mexico in providing services in

our utilization remained very high through this period. We

deepwater fields and today we have the largest fleet in the

indeed had to restructure our business in order to incorporate

area for deepwater supply. I am proud to say that some of

optimal solutions to reduce costs, but never losing sight of

our deepwater PSVs were recently upgraded with hybrid

our core values.

electric propulsion and classed with Battery Li notation, which represents savings in fuel consumption of around 30 percent.

Q: Which of your business lines is seeing the most demand,

Additionally, this technology represents a significant reduction

and how do you expect this to change over the next

in emissions of greenhouse gases. MexMar also operates in

two years?

Brazil through our subsidiary UP Offshore, which has a strong

A: More and more, we are seeing opportunities for larger

presence in the Brazilian market and a long-term relationship

supply vessels to operate in deepwaters and a strong

with Petrobras.

preference for diesel electric, fuel-reducing type propulsion. Historically, Mexico had not had much activity in deepwater, so

Q: How has your client portfolio changed over the last year

there was large need for bigger vessels. We believe this trend

and what have been the reasons for this?

will continue through the coming years as the IOCs begin their

A: We have been operating in Mexico since 2003. From that

operations in the Perdido Fold Belt and Cuenca Salina areas.

time we have completed over 35 long-term charter contracts with PEMEX and we still have almost half of our fleet chartered

Q: How does the JV between SEACOR Marine and Operadora

to them. However, in recent years and with the opening of

Transportes Marítimos strengthen the services that

the energy industry to private players, we have invested a

MexMar provides?

lot of effort in developing relations with the IOCs and private

A: SEACOR Marine is one of the largest offshore support vessel

companies that have ventured into the Mexican upstream

operators globally, and they are a highly renowned company

market. It has definitely been an interesting challenge to

in the industry. It has been a pioneer in incorporating different

reconfigure and innovate the way we operate to also be a

technologies in offshore support services for offshore wells

qualified and respected service provider for international

and windfarm facilities. Its entrepreneurial spirit permeates

players. Although we recognize the huge potential in this

everything it does and is central to its drive to deliver greater

segment, our intention is always to continue to foster our

efficiencies, comfort and safety. SEACOR Marine has set the

great and long-term relationship with PEMEX.

level of standards under which we operate and has provided MexMar with experience and know-how. Operadora de Transportes Marítimos brings to the table all the know-how

Mantenimiento Express Marítimo (MexMar) is a Mexican

of the Mexican market. It was crucial when incorporating

company established as a JV between Seacor Marine

MexMar to establish the company in full compliance with the

International and Operadora de Transportes Marítimos. MexMar

national legal and regulatory requirements needed to be a

focuses on the safety and efficiency of its operations

legally established operator. OTM also provides the qualified

success in service diversification comes from finding the best

Mexican personnel for the management positions in Mexico.

partners, teaming up with them and learning from them.

Q: What industry-leading technologies does the company

Q: What infrastructural developments could Mexico’s API

use on its vessels?

system make to extend its port services?

A: Most definitely, the hybrid technology installed on our

A: There is much potential in Mexico’s coastlines and ports; for

larger Platform Supply Vessels (PSVs). Hybrid marine-electric

example, the project for developing Matamoros as an offshore

propulsion plants offer flexible usage alternatives to traditional

port has been ongoing now for several years and it would be a

electrical plant configurations, providing vessel operators with

strategic port as it is the nearest shore base to the offshore oil

more options for optimizing the electrical plant configuration.

provinces of the northern area. Today, Ciudad del Carmen, Dos

They also enhance safety in emergency scenarios where all

Bocas, Veracruz and Tampico are the largest ports for offshore

main power is lost, or in situations, such as explosive natural

operations, and so far, the APIs have been doing a good job in

gas buildups, when internal combustion engines or other

determining opportunities for innovation and improvement,

rotating machinery cannot be operated safely.

such as the dredging of Ciudad del Carmen to increase the draft and allow larger vessels to berth there.

Q: MexMar was the first maritime company to bring PSVs to the Mexican market. How would you characterize the impact

Q: What role does MexMar hope to play in the revitalization

of PSVs on the company’s growth?

of the country’s oil and gas industry?

A: PSVs are to this day our main business, and we have been

A: MexMar has a very ambitious growth plan. We are

keen in investing resources to have the best fleet in the market.

continuously looking to diversify, innovate and grow by seeking

We will continue to expand our operations and if need be,

new business opportunities. We recognize the enormous

grow our fleet. Nevertheless, MexMar is a company that is

potential Mexico has and we as a company are determined

willing to take risks and innovate, so wherever we can find

to be a key driver and promoter of the development of the

a good opportunity, we are always willing to explore it. Our

oil and gas industry.

225

VIEW FROM THE TOP |

RE-ESTABLISHING LOCAL PRESENCE ESSENTIAL FOR OFFSHORE SUCCESS

ERIC FRANK Engineering Manager at Global Maritime

ANDREW PEAK Engineering Manager at Global Maritime

Q: Global Maritime (GM) had a larger presence in Mexico.

Q: How would emerging opportunities impact the way

How are you leveraging your global experience to re-

in which the company delivers its services?

establish your involvement here?

AP: Supporting our clients in Mexico is essential. It does not

EF: Our activity has expanded in recent months in response

make economic sense to fly in surveyors from afar, but the

to an increase in inquiries for our services; mostly involving

work is only now beginning to ramp up. If we could have a

marine warranty surveying, marine advisory and dynamic

base office in Mexico, it could provide localized supply and

positioning scopes of work. As a result, we have been

support, reduce our costs, make our clients happier and

sending surveyors to Mexico to carry out such services. The

improve the situation all around; so that is certainly something

work was sporadic in the beginning, but it is now becoming

we would consider very carefully.

more consistent. Instead of flying our surveyors in from Houston, we have been working with local surveyors, where possible. Our goal is to increase our presence by

Global Maritime is a globally offshore operations and engineering

employing these local businesses as subcontractors until

consultancy company. The company’s status as an underwriter

we have enough backlog, at which point we can bring them

approved provider of Marine Warranty Surveyor Services makes

onboard with GM, full time

it a trusted warrantor of complex offshore projects

| VIEW FROM THE TOP

PORT CLEARANCE PROCEDURES NEED AN UPGRADE SALVADOR CĂ CERES Director General of H&R Naviera

226

Q: How are your operations spread over the different ports

arriving from abroad. What this means for both ports is

in the Gulf of Mexico?

that the customs operations tend to be slower and more

A: Our main office is in Ciudad del Carmen. However,

complex. For us, as logistical agents to our clients, customs

we are present in almost every important port in the

are vital. Everything has to be perfectly orchestrated. If

Gulf. Dos Bocas and Coatzacoalcos also are two major

goods are being imported, they need to be processed

operations for us. We also have offices in the ports of

and receive proper approval. If they are already approved

Veracruz and Tampico. Our primary task is to handle

before arriving at the port, they need to be verified. At

everything that is needed in the process of embarking

offshore ports, the companies in question already tend to

and disembarking goods. We handle logistical operations

have the necessary approvals. This makes the operations

at the port, but also transport large structures between

easier and faster.

ports. Despite being relatively small compared to our competitors, we can provide the tools to carry out what is

Q: With respect to customs, what are the main risks?

necessary. Currently we are not performing any services

A: The principal risk is financial losses due to delays. Once

in Tampico, but there are interesting potential projects

a unit arrives at a port, especially from abroad, it has to

to move structures with tugboats. In Coatzacoalcos, we

go through a whole series of procedures. These involve

are working with PETRONAS on a deepwater drilling

different parties at the port, from customs agents to the

project, attending to all their needs, including logistics

harbormaster. Apart from receiving documentation, we

and customs procedures. In Dos Bocas, we are providing

need to organize a payment at the local bank. At every

maintenance services to PEMEX units, in addition to

stage, a document is provided that needs to be presented

moving structures for other clients.

to the next party. Once the necessary procedures are fulfilled, we can start moving things.

Q: What is your experience working with port authorities? A: For the most part, we have always been treated well

The departure of units needs to be scheduled with the

by the authorities and have not faced any problems. The

harbormasters and its timing depends on other activities

kind of environment you operate in very much depends

going on at the harbor. The back and forth circulation of

on the type of port. I can describe two types: a fiscal port

documentation to the authorities that is currently required

and an offshore port. Ciudad del Carmen, Dos Bocas and

for clearance is not optimal. For us, the principal objective is

Seybaplaya are considered offshore ports, while Veracruz

that units are not kept in the ports under any circumstances.

and Coatzacoalcos are fiscal ports. The difference is that

It costs thousands of dollars to operate a boat for a client. In

fiscal ports have a significant volume of operations that

addition, these boats carry vital components for platforms.

involve import and export of units.

If an operation is stalled due to missing components, it can cost a company up to US$130,000 a day. It is important to

For example, Veracruz processes large numbers of cars that

always keep this in mind.

arrive to or depart from the country. In the case of imports, they are loaded onto trains and delivered to the US and

Q: How do you prevent delays from happening?

Canada. Coatzacoalcos processes many oil company units

A: Communication is key to avoid confusion and achieve the optimal schedule. You need to be aware of who is coming and going at the port. This means our logistics

H&R Naviera is a logistics agency with offices in Ciudad del

department is in constant communication with the client

Carmen. It conducts operations in the Gulf of Mexico. It specializes

and the harbormaster. We are practically partners. Clients

in providing services in customs clearance, maintenance,

are generally very demanding, which means everything

structures transportation, loading and offloading of units

needs to be prepared perfectly.

VIEW FROM THE TOP |

NEW MARINE VALUE CHAINS PAVEL HERNÁNDEZ Director General of OH Maritime

Q: How did you navigate the difficulties of Mexico’s

Q: What are the main obstacles to the development of marine

maritime sector in 2018?

supply chains?

A: Our offshore fleets, like most in Mexico, were almost

A: A significant obstacle to address going forward is that the

at a complete halt in 2018. The second half of the year

communication between regulators and the private sector

was particularly tough for us. Most of the activity for

needs to be restored. Before the change of government,

service providers on the Mexican side of the Gulf of Mexico

these regulators were struggling to grant licenses to

depends on PEMEX contracts and these reached an all-

import oil products like gasoline and diesel. The new

time low during this period, particularly in the areas of

administration is once again doing what it can to intervene

exploration surveys and construction of offshore facilities.

in these processes because it wants to discourage, within

This was partly due to public institutions and the market

the framework of the existing legislation, the establishment

having to adjust during the transition period for the new

of privately-owned supply chains for gas and diesel. It

administration and the uncertainty that it generated. With

intends to have at least some degree of participation in

many of our activities on hold, we began exploring some

all the supply chains. Again, there are both opportunities

possible collaborations with companies abroad. In 2018,

and challenges here. The law allows PEMEX distributors

we began operations in Houston with the intention of

to import their own products. PEMEX wants to make sure

developing a clear vision through these collaborations and

it can match the agreements that the private sector is

to survey what the market could look like in the near future.

making with foreign players. For example, if a company

We believe these efforts have paid off as 2019 is turning out

like Trafigura wants to make a deal with a medium-sized

to be more resilient than 2018.

Mexican company regarding transportation price discounts, PEMEX would offer an equal or larger discount to make sure

Q: What questions do these collaborators ask in regards to

distribution is kept within its network. This model might

the future of Mexico’s oil and gas supply chains?

present issues in the long-term but it is quite beneficial for

A: The questions I mostly get are related to politics:

local companies in the short-term.

what this new president and his administration might be willing to do, or not, in regards to developing new supply

Q: How do you stay afloat and overcome obstacles?

chains. People want to know what the long-term strategy

A: A few years ago, we were ahead of our competitors when

will be and what role are PEMEX and other public sector

we used the Lobos Tuxpan vessel for maritime supply, which

institutions playing in these development processes. I also

was the first of its kind not operated by PEMEX. To use this

get questions in regards to whether or not contracts that

vessel, we had to request all the necessary permits, and to

were awarded during the bidding rounds will be respected

our disappointment we experienced delays in obtaining

or modified. I basically answer that the country’s president

these permits. As regulators, we are still figuring out what

cares very much about the oil and gas sector and therefore,

we did wrong with the permit solicitation process. We also

we can expect him to take a beneficial approach to a policy

experienced infrastructure-related issues. We wanted to close

that stimulates development processes. The people he

ties with PEMEX, but by using this particular infrastructure,

is assigning key positions at relevant public institutions,

we found that we were still tied to them. We are sure we will

such as SENER, are clearly still going through a learning

overcome these obstacles in the near future.

curve, which presents its own series of challenges and opportunities. Most of the private operators that have CNH contracts from the bidding rounds are still going through

OH Maritime is an offshore business management and shipping

the pre-operational phase. I tell everyone this means that

agency. It represents foreign charterers, investors and ship

we can expect industry activity to increase its degree of

owners in Mexico and is a consultancy for small, medium and

reactivation by the end of 2019 and throughout 2020.

large companies across a range of industries

227

| VIEW FROM THE TOP

SECURITY CERTIFICATE CONSULTING NICHE PROVES A WINNER RUBÉN BENÍTEZ Director General of Integra Consulting & Marine Services

Q: What are some issues you frequently encounter regarding

advantage of creating a natural buffer. This makes facilities on

the requirements for companies?

land more liable to kidnappings, piracy and assaults, which we

A: The security code is well established and companies

have encountered. As an RSO, we consider it an integral part

often have all the resources to plan and carry out effective

of our work to help protect against any threats.

security plans. We really only encounter small issues during

228

verification. Usually, companies are 90-95 percent compliant.

Q: What would you consider your primary development

This might be different for port facilities and land-based

objectives for the year?

terminals because they are exposed to more land-based

A: We are realistic and understand that the sector will

threats. While the sea is not without risk, it does have the

never be exactly the same as it was before but we can say it is improving. The companies that are creating economic development by need a range of drilling units, vessels and

Integra Consulting & Marine Services is a Mexican company

supporting services. Our goal is to improve our recognition as

based in Ciudad del Carmen. It provides consultancy and

a familiar name in the industry, while winning new contracts.

supply services to the oil, maritime and port industries. Its goal

We have a diverse and dedicated team, allowing us to provide

is to facilitate new and existing business in the market

services in technical areas surrounding port issues and drilling.

| COMPANY PROFILE

DOING THE HEAVY LIFTING FOR OIL AND GAS Maritimex began its story in 1885 in the port of Veracruz, where

MULTIMODAL TRANSPORT METHODS

the company represented various shipping lines and vessels

Aside from being Mexico’s largest shipping agency, Maritimex

originating from Northern Europe. In the years to come, the

is also able to provide clients with inland transportation via

company began to expand its offices across the Mexico and

either truck or rail, throughout all of North America. The

as a result established itself as Mexico’s largest shipping and

company’s multimodal and intermodal services expand its

port agency. Today, Maritimex operates 20 fully-owned port

inland coverage, providing an additional transportation option

offices and provides national and international traders with

for several cargo types, including dry, liquid and containerized

maritime, inland and logistics services from Mexico to and

cargo. Thanks to these transportation means, Maritimex is able

from anywhere in the world.

to offer clients logistics services not only from port to port, but from door to door.

MEXICAN BASE, GLOBAL OUTLOOK As a member of several international associations for

TECHNOLOGY AS SECURITY

shipping and international trade, Maritimex is able to provide

Maritimex has always been committed to using the

integrated logistics solutions not only in Mexico, but anywhere

latest technology to improve the services it offers and

in the world. One of these associations is Multiport Shipping

is developing new in-house technologies to facilitate

Agencies Network, which due to its presence in 104 countries

port operations as well as the administration processes.

provides Maritimex with the opportunity to partner and

Maritimex also leverages technology to improve the safety

collaborate with shipping agency’s worldwide, thus offering

of its services. Therefore, the company provides systematic

wider and more complete logistics service packages to its

protection via our centralized tracking system that connects

clients here in Mexico.

with each freight carrier directly.

VIEW FROM THE TOP |

SAFE HANDS FOR PORT SERVICES MARIANO LEVY General Manager of Altamarítima

Q: How has Altamarítima developed its business in Mexico?

meet-and-greets for incoming vessels. We also have an

A: Altamarítima belongs to Grupo Trafimar, a shipping

ongoing relationship with Boskalis and are negotiating a

group with two major areas of work: agency and mobility.

contract to deliver agency services to the company at all

Altamarítima, Tierra MarAire and Norton Lilly Shipping

Mexican ports.

Mexico are focused on the agency side and collectively employ around 130 people. The company has over 35

Q: What services characterize Altamarítima’s role in

years of experience in the Mexican market and operates

Mexico’s oil and gas market?

out of ports in Manzanillo, Lazaro Cardenas, Progreso,

A: Altamarítima does not own any assets in Mexico at

Ciudad del Carmen and Tampico. We also have an office

the moment. This is a strategic choice that has delivered

in Mexico City.

great results in the last five years. We focus on providing services, including crew change, customs and vessel meet

As an agent, Altamarítima’s work is more related to liner

and greets. These are the weekly services we provide to

and tram services. For our liner services we operate as

major international companies like Boskalis Offshore and

agents for Hyundai Merchant Marine, ZIM Lines and CMA-

Maersk. Companies like these will request a service or

CGM, while our tram services are focused on the import

product and we can coordinate the shipment and arrival

of gasoline and export of crude oil. We have over 1,000

units directly to them. We oversee the vessel coordination

calls a year, both at the ports we work in and those we do

and logistics. This allows these larger companies to work

not. When calls come into ports where our teams are not

with a reliable partner and forgo the difficulties of setting

present, we utilize our network of associate companies,

up their own logistics services. The size of the in-country

which for the most part are local. Altamarítima attends

competition, with major players like Marinsa being a direct

roughly 300 tanker vessels. One of our closest clients

competitor, and international operators generally having

is PEMEX’s PMI Comercio Internacional, though not all

worldwide contracts mean Altamarítima must appraise

cargo necessarily relates to oil and gas. However, through

its approach in Mexico for the time being. The oil and

this business, we have established a working relationship

gas business line is the smallest we manage so we focus

with the country’s largest oil company. More recently, we

on strengthening the business when opportunities arise.

have begun to look toward oil and gas. Altamarítima also has an office in Ciudad del Carmen that deals mainly with

Q: What are Altamarítima’s short-term goals in the oil and

this sector of the business. Our partner company in the

gas market?

US, SeaHawk, also generates business in the port.

A: Our purpose is to grow our presence in Mexico through the addition of clients. We have met with clients in

Q: How does Grupo Trafimar leverage the collective

Houston and traveled to China in November 2019. At

strength of its members to attract clients in-country?

the beginning of 2020, the company will be attending

A: Grupo Trafimar is related to Lilly Norton International,

to potential clients in Europe. We expect that these

headquartered in the US, and our fellow group member,

meetings will be fruitful and our oil and gas activity will

SeaHawk, is also a major player in the US shipping industry.

grow. Our focus and strategy for the short-term is to

Both allies offer the services of Altamarítima for the

develop activity rather than invest in assets.

Mexican side of their business and the three companies complement each other’s services. For some clients, we may provide port services through Altamarítima while SEIS

Altamarítima is a Grupo Trafimar company that delivers consignee,

activity and customer service is provided through one of

agency and port services to national and international companies.

the other two companies. For example, in 2018, we worked

Established in 1983, Altamarítima provides representation to the

on a major project for AllSeas in Matamoros carrying out

Hyundai Merchant Marine line in Mexico

229

| INSIGHT

SOFTWARE SOLUTION FOR REGULATORY COMPLIANCE JAVIER DÁVILA Director General of Energía Integral

230

Energía Integral, a Mexican consultancy that provides

employees and regulators, such as CNH, CRE and ASEA, have

services to extend the life cycle of industrial and offshore

remote access, simplifying communication between all parties.

installations, has identified compliance management as the

Suggested response times are included for every request the

key to guaranteeing increases in efficiency against this new

regulators make, along with deadline reminders to avoid fines

operational landscape. It has developed a package of software

and penalties, plus compliance supervision and statistics.

and app-based solutions that tackles the demand for effective compliance management. “We developed these compliance

Energía Integral’s solution does not solely identify one

management software solutions to help operators fulfill their

individual or department per requirement; it finds those

commitments according to the most recent regulations. Our

responsible along the entire chain, from administration to

objective is to facilitate our clients’ interactions with the

operational and regulatory verification. “The idea is to trace

bureaucracy and create a direct link between operators and

the route between requirements and those responsible for

regulators,” says Javier Dávila, Director General of Energía

fulfilling them. We believe this solves significant problems

Integral. These solutions work by aligning a company’s internal

and reduces the bureaucratic cost of operation, in part by

organizational chart with the specific demands made by the

linking upper management with whatever is going on at

laws in question. “For instance, license contracts usually have

the worksite,” says Dávila. A flexible design means PEMEX

more than 40 chapters. For companies with these types

could establish the mandatory use of the software as a

of contracts, we identify the requirements outlined in the

reasonable requirement for all of its operators and service

chapters and compared them to the company’s structure

providers, Dávila adds. When asked about the impact that

to assign specific responsibilities to individuals within the

long-term projects currently favored by the government

company,” says Dávila.

will have on the industry’s overall efficiency, Dávila is quick to see the bright side. “While we do feel that these large

This software, called OMG APPS CC, then verifies that each

and unwieldy endeavors will uncover the many gaps yet

requirement is met through the logging, analysis and storage

to bridge, we are motivated by the new government’s

of periodical entries in cloud-enabled databases. Each entry is

focus on combating corruption. This will make everything

accompanied by supportive materials to which both company

overwhelmingly more efficient.”

VIEW FROM THE TOP |

PROJECT MANAGEMENT TO BOOST MEXICO’S ENERGY SECTOR RICARDO SIERRA CEO of STIn

RAFAEL DÍAZ Project Manager of STIn

Q: What makes companies choose the services STIn provides?

the broadest because it considers processes while other

RS: We provide project management, consulting and training

approaches consider skills or competencies. In this case, PMI

services that comply with the best industry practices. In

matches the process-oriented energy industries. One thing

Mexico, we represent the Project Management Institute

that needs to be understood is that PMI is a guide that can

(PMI) and provide training courses to many companies. Data

be molded and adapted to better suit a company’s needs; it

is another strong asset for us. The oil industry generates a

is not a methodology as such. The challenge is that project

massive amount of data, which we organize and transform

management culture is not widespread. For instance, Uruguay

to generate value for companies through visualizations and

has a population of 2.5 million and 1,000 are PMI-certified

dashboards that allow better decision-making.

project managers. On the other hand, Mexico has between 3,000-4,000 project managers for a population of 120 million

RD: Many people believe that project management is a

people. We need more people to understand how project

discipline and seek project managers with expertise in specific

management works and why it is useful. Many believe that

fields. In such circumstances, finding talent in the energy or

experience can fill in the gaps but knowledge is also crucial.

oil and gas fields can be difficult.

Certification costs represent an obstacle because many companies do not see the value of paying for them.

Q: What has been STIn’s experience working with PEMEX and what areas of opportunity has it uncovered in terms of

RS: PMI is a good brand that many big companies associate

project management?

with project management excellence. There are other

RS: We have been working with PEMEX for the last 20 years

models, however. The Mexican norm for project direction

and have developed knowledge about most activities in its

will increasingly regulate more projects. Our challenge

supply chain. We have also started working for PEMEX’s

is to help clients get better results in their projects by

providers. These companies build infrastructure projects like

reducing their time and cost deviations while achieving their

platforms and ducts. PEMEX’s expansion and production

expected results.

represent 80 percent of our total income and the company’s providers make up the remaining 20 percent. To get out

Q: Do you have any forecast regarding the number of people

of its current crisis, PEMEX needs consulting and advisory

you might train in the near future?

services and a deep culture change. However, PEMEX has few

RS: We estimate 20 percent growth in the coming years.

personnel for the amount of work it has.

New operators are adopting PM practices because their client, PEMEX, is requesting them. Bids have resulted in

RD: We have worked effectively with PEMEX. The problem

some practices that require certifications, engulfing the whole

now is that some new guidelines are intransigent, making

industry as a consequence. We provide a course on Project

it difficult to tell whether you, as a company, can work

Management in which most enrollees are PEMEX suppliers.

with PEMEX. This is causing many problems and project delays. PEMEX is hesitant to start projects because it

RD: Training in project management is leaning toward virtual

does not know if it will be able to get external help or if

training. This is a great opportunity for us because it has not

it will only have internal resources at hand.

yet been implemented in the energy sector.

Q: What value does project management provide to the oil and gas industry?

Servicios, Tecnologías e Innovación (STIn) focuses on developing

RD: The Project Management Institute (PMI) is a worldwide

its clients’ industry knowledge to enable better decision-making.

project management culture. Although there are several

It provides training and consultancy services on the best project

ways of understanding project management, PMI is probably

management practices with expertise in energy industries

231

| INDUSTRY PERSPECTIVE

THE MEXICAN MULTI-INDUSTRY SUPPLIER'S PERSPECTIVE

232

Q: What role does the oil and gas sector play in

Q: What specific need does Procarga solve for its

your industry-diverse client and project portfolio?

clients in the Mexican oil and gas industry?

A: First, it is important to establish a background

A: Given our long track record in this industry, we

fact: The No. 1 industry in Mexico is construction

have experienced both periods of prosperity and

and in that industry 2018 was substantially

economic downturns. In 2016, the whole industry

underwhelming. One of the main ways in which

suffered from a significant decrease in activity. In

you can measure this is that cement production

2017, there was a slight recovery and now we are

decreased significantly throughout last year and

identifying more opportunities for 2019-20. In the

this year and CEMEX has been quite affected by

majority of cases, we seek to deliver a planned

all of this. This is not helped by the fact that the

service, accompanied by a consumption program

infrastructure market has been pretty slow as well.

for each client. Past experience demonstrates that

Obviously, there was the very heavy hit from the

efficiency in supply and adapting to the suggestions

airport cancelation at the end of last year, but

and requirements of our clients are what have

there are other signs as well. The slowness and

defined the company’s success. Because our

halted rhythm of the Mexico City-Toluca train’s

commercial offices are located in Ciudad del Carmen,

construction is also a manifestation of all these

we can provide a rapid response to our customers. In

trends. That project was supposed to be finished

addition, we have several warehouses stocked with

two years ago. With all this in mind, we can look

inventory. Apart from distributing equipment, we

at the oil and gas industry as the industry that can

also manufacture lifting elements, such as strobes,

RAFAEL LLAMAS

HÉCTOR GARCÍA

Director General of Cargotecnia

Director General of Procarga

close the gap created by this general slowdown.

steel cables and flat polyester slings. Even though we

The Dos Bocas refinery is an obvious example,

work with other industries in the country, our bet in

although projects of that size still have too many

this sector is for the long run.

open questions in terms of financing. We have to focus our involvement in the oil and gas industry

Q: Which products and services are in greatest

in a manner that can take advantage of both short-

demand among your clients and how do you

term opportunities in the Gulf of Mexico and also

balance price and quality?

long-term opportunities in areas such as fracking.

A: The NOMs that govern oil and gas activities are based on strict international standards. Hence, we

Q: How would you compare the oil and gas sector

make sure our product offer and brand distributors

with other Mexican industries in terms of regulation?

comply with these requirements. At Ciudad del

A: It would depend on the industry that we are

Carmen, our services are focused on exploration

comparing it to. For example, oil and gas regulations

and production activities for deepwater operations.

are much more severe than those we deal with in the

Product demand in this area ranges from shackles

energy and electricity sector. We want to make it

to hooks, steel cables, perforation lines, strobes and

clear that, from our perspective, this makes perfect

slings. We partner with companies like Crosby and

sense because of the degree of risk involved. It

WRCA, which are recognized as premium brands.

is not just the product itself that is more volatile

In terms of pricing, it is not just about cost but

and dangerous to handle, the transportation and

durability. A disruption of operations in this industry

lift methods in and of themselves are much more

can lead to major economic losses, so quality needs

complex and filled with many more risk factors.

to be considered in the cost of each product.

VIEW FROM THE TOP |

TAILORED SERVICES FIT UNIQUE O&G CHARACTERISTICS FERNANDO ESTRADA Director of Energy Solutions at Crane Worldwide Logistics

Q: What added value does Crane Worldwide Logistics

companies join forces with a local, they do not have all the

provide Mexican companies in the oil and gas sector?

information needed when it comes to compliance.

A: Crane Worldwide Logistics’ added value lies in its understanding of the market, our compliance with all

Companies require guidance, especially in the first stages,

regulations and our experience in handling specialized

whether or not they have operated in Mexico before. We

projects. We offer the greatest value to companies that are

offer consultancy services on the new processes that they

new to the Mexican market, whether they are operators or

will need to follow throughout their operations in the

service providers.

country. Crane Worldwide Logistics focuses on providing well-rounded solutions and not just a supply chain service.

We have tailored our services to fit the unique characteristics of oil and gas companies, although we are not limited to only

In terms of supply chain, we want to provide customs

working in this industry. Still, this specialization has allowed

brokerage services to our clients. Foreign companies

us to grow by double digits.

cannot be customs brokers but we are creating alliances and solutions that integrate other experienced companies

Q: What are the challenges in providing logistics to the

to provide a better service.

oil and gas sector and what are the company solutions to solve them?

We will be a facilitator of our clients’ supply chain. Our

A: We have experience working with shipments around the

goal is to understand our customers’ unique projects to

world. One of our most challenging projects required the

provide customized solutions and consultancy.

retrieval of accommodation vessels from Asia to Ciudad del Carmen. It was a challenging project because we had to

Q: What role does the company wish to play in the

provide solutions with limited availability of resources and

development of Mexico’s oil and gas sector?

efficient communication was crucial.

A: We plan to continue growing with our oil and gas clients, yet we are always on the lookout for new

To ensure better service and increase the efficiency of the

opportunities. We believe Mexico is at an interesting

process, we use the C-View system that automatically provides

moment in terms of oil and gas, and there is a great deal

us with feedback throughout the journey, sending early

more to come over the next couple of years. The two or

warnings on possible or actual supply chain interruptions.

three operators doing drilling operations in deepwater Mexico are already working with us. Our objective is to

This tool allows us to provide real-time tracking of shipments

consolidate our position in Mexico. We want to avoid

at all times. It is also equipped with messaging services that

any mistakes, which often can have a large impact in

clients can use. Despite the advantages, it is not common in

this industry. We are careful in both the operation and

Mexico, where only about 5 percent of our clients use the tool

compliance aspects of day-to-day activities. We make

even though we provide training and information on how to

sure our providers comply with all regulations as well

maximize its potential. This may be a cultural hurdle.

as with QHSE and other security protocols. We go by the book.

Q: What are the latest trends in terms of logistics services and does Crane Worldwide Logistics address these? A: A current trend stems from local content requirements.

Crane

International companies are forming alliances with national

becoming the industry’s premier global provider of customized

counterparts and creating solutions that reflect the integration

transportation, freight forwarding and logistics services by

of their experiences and strengths. But even when international

delivering innovative, efficient and cost-effective solutions

Worldwide

Logistics is

company

focused

233

| INSIGHT

ILLUMINATING THE DEPTHS FOR ENHANCED INSPECTION ENRIQUE MARTÍNEZ Director General of Subsea Offshore Technology Inc.

234

PEMEX’s focus on the development of Mexico’s shallow

From its base in Ciudad del Carmen, SOT is putting plans into

waters created challenges for subsea technology providers,

action to support the growth of ROV technology in Mexico’s

says Enrique Martínez, Director General of Subsea Offshore

oil and gas market and to provide the necessary personnel.

Technology (SOT) Inc. The emerging concentration on

“We want to train Mexican engineers and begin programs in

deepwater is changing that, and with it the fortunes of

schools to develop the incredible talent in the country. We

companies like SOT. “We have worked hard over the last year

have strong links to the Campeche state government and we

to realize opportunities with PEMEX and IOCs. SOT must now

hope to approach different universities, not only in Campeche

seize its chance,” says Martínez.

but also around the country,” says Martínez.

The strong currents and tempestuous seas of Mexico’s

High levels of education and training are vital for subsea

reserve-rich shallow waters render remotely operated

surveillance, which, both in terms of engineering

vehicles (ROVs) inadequate for subsea inspection. The

and operations, has come a long way since Piccard’s

Energy Reform turned the tide, putting the spotlight on

bathyscaphe. The laptop-sized ROVs the company provides

deepwater, where ROVs truly add value for oil companies.

for vessel, platform and pipeline inspection use cutting-edge technologies, including 2D-3D sonar abilities, and real-time

SOT has previously worked with major companies,

video transmission. These operator-controlled submersibles

including PEMEX in Mexico, on Xanab-B, C and D wellhead

work at depths of up to 1km and offer clients invaluable

and has inspected tankers with his partner Proceanic

insights into conditions of integral infrastructure beneath

for Chevron, ENSCO and Transocean. With the flood of

the waves. All this technology does not come cheap but

international players arriving into the Mexican market, and

SOT’s innovative rental approach helps ensure ROVs are

the understanding that capital spent on maintenance is an

an affordable resource for operators. “A basic ROV costs

investment rather than expense, Martínez expects demand

between US$70,000 and US$200,000. SOT’s rental system

for SOT’s services to climb.

can save clients around 40 percent in comparison to the traditional rental model while still including the necessary

Deepwater operators are also mirroring the actions of

diving assistance and DP2 support vessel. We are focused

their pipe-constructing counterparts on land and pushing

on cost-effective, high-quality, safe services for our clients,”

a culture of preventative maintenance in the country.

says Martínez.

Subsea surveillance of infrastructure is part of that drive. “International players are familiar with the subsea services

SOT is partnered with an American technology provider

we offer, but there are only three or four companies around

based in Houston, which helps develop the technology and

the world that do what we do. We have already identified

engineering behind the company’s ROVs. Manufacturing is

clients that will need our surveillance and service abilities on

split between the US and Mexico, although Martínez wants

wells, platforms and jackups,” Martínez says.

to change this in the midterm. “We are likely to continue designing in Houston but we want to move manufacturing

Another factor fueling Martínez’s positivity is PEMEX’s

to Mexico. Now that we have the know-how, we are eager

recent favoring of integrated contracts that include

to expand further into Mexico.”

subsea surveillance in shallow water drilling. “Previously, when PEMEX put out a tender, our services, including leak

SOT is a Mexican company and, as in any country, local

detection, environmental assessment and even emergency

providers are often preferred when and where available.

response, were not considered a priority. With integrated

“We are a Mexican company, owned and run, and as a local

contracts, they are now included. This is our time to

company, we provide local knowledge. For international

consolidate the possibilities we have in front of us,” he says.

clients in particular, this is our added value,” he says.

VIEW FROM THE TOP |

SPECIALIZED STORAGE, DISTRIBUTION SOLUTIONS ALEJANDRO DE LA PARRA‑SOLOMON Vice President of Operations and Strategy at PetroM Corp.

FERNANDO GARCILITA CEO of PetroM Corp.

Q: How is the company’s marine terminal in

during service, ensuring physical and mental stability. Our

Coatzacoalcos developing and how will it benefit Mexico’s

experienced staff members are carefully selected prior

logistics network?

to employment. Long-distance hydrocarbon transport

FG: The Coatzacoalcos marine terminal is another

is most safely achieved in Mexico by train. PetroM Corp

distinctive PetroM Corp project where PetroM Energy acts

provides air, sea, rail and road transport services, including

as a key player in the engineering of a massive transport

last-mile solutions that deliver safe and efficient results.

hub, warehousing facility and of the overall oil and gas

The company manages upward of 150 tankers, covering

infrastructure for proper distribution within the area of

US and Mexican territory in moving product from Corpus

Veracruz. PetroM Corp is very much inclined towards

Christi to Nuevo Laredo and then from San Luis Potosi to

micro-refinery and looks forward to provide these kinds

Tula, followed by Mexico City and the State of Mexico for

of services at the national level and for selected clientele

last-mile operations. We keep last-mile transport service

by 2025, highlighting the naval and military sectors as our

to a compact area to be efficient and avoid risking the

prime clients.

merchandise.

The expanse of Coatzacoalcos serves as a strategic location

Q: What are PetroM Corp’s near-term goals?

of extreme importance for the energy sector in terms of

AD: As far as PetroM Energy goes, we are keen to follow

logistics. In this sense, PetroM Corp is committed to the

our current model of storing, transporting and marketing

development of the project, taking full advantage of the

refined products as we continue to increase our national

fact that it is family-owned land. We put our time and effort

infrastructure coverage. PetroM Corp is known to be very

into conscientiously conducting our activities to build the

ambitious and that is because we have a clear vision of

required infrastructure and to provide our services to private

where we are today and know what we need to do to move

and government organizations that benefit from storage,

to the next level. In relation to specifics for short-term or

transloading and transportation activities around the area.

long-term goals, we have different projects underway in

Although the current situation within the area is still volatile,

each division. Every project has a different time frame,

we are confident that we will carry out our operations on

which will be announced in time.

time and be able to provide refined products effectively as the country moves toward standardization and equilibrium

In the next two years, for example, we can expect a larger

in the energy sector with these new dynamics.

establishment and brand presence of our holding in the energy sector with PetroM Energy, in renewables with

Q: How does PetroM Corp guarantee the safe and efficient

PetroM Renewable, and in next-gen pharmaceuticals,

transport of fuels throughout Mexico?

PetroM Pharma. Our more operationally-standardized

FG: As with any other hazardous material, the transportation

divisions, such as logistics and customs with PetroM

of refined products requires surgical management

Logistics, transportation with PetroM Transport and

and handling. It is the reason that our transport units,

overall international trade with PetroM Trading, will

equipment and staff members are capable of responding

continue their solid operations, providing the excellence

to the critical situations, such as oil spills or fires, taking

that distinguishes us.

precise precautions in every operation to maintain public safety at all times. Our operations are also kept secure with custody insurance elements that accompany the product

PetroM Corp. is a US-Mexican company that has served

throughout its journey, in addition to offering armored

the oil and gas sector for over 30 years. The company has

transportation units. Every PetroM Corp transport and

several subdivisions, including logistics, trading, renewables

transloading operator is continuously under observation

and pharma

235

| VIEW FROM THE TOP

CONTRACT LOCALLY FOR SAME QUALITY, LOWER COST JOSĂ&#x2030; LUIS JIMĂ&#x2030;NEZ Sales Manager of Comincar

236

Q: How did Comincar adapt its operations and structure to

Q: What are the demand expectations for preventive

survive the downturn prior to the Energy Reform?

maintenance in the sector?

A: PEMEX has hired our company repeatedly throughout our

A: This is complicated because there is no rule that

history. These contracts usually last two to three years. During

establishes when equipment needs to be replaced.

the downturn, we were still contracted by the NOC because

PEMEX has not prioritized this area very much. For us,

our maintenance services were necessary for its installations

it is a constant battle to convince clients of the need to

and equipment even if they were not being used. At the time,

carry out maintenance and, if necessary, acquire new tools

PEMEX was reluctant to give out new contracts. Instead, it

and machinery. If equipment is going to be used for a

extended its existing contracts up to 5 years. The truth is that

period of seven to 15 years, it is logical that there needs

we would not have made it through if we had only worked

to be periodical evaluations. Aside from infrastructure and

with the private sector. PEMEX was and is very important to

equipment, there is now more focus in the industry on

our business.

environmental and safety issues. Before, companies were aware of the risks but little action was taken to mitigate

In terms of managing our own finances and assets, we were

them. In our case, we have acquired specialized tools that

forced to be more scrupulous with our budget. We have a lot

are more accurate and safer. We have also invested time

of equipment, which costs money to maintain when sitting

in training all our employees in skills such as carrying out

idle. We have been fortunate that we have had contracts

measurements.

every year since 2006. One or two contracts a year is not enough to cover our costs, but four of five is sufficient to

Q: Apart from Ciudad del Carmen, you also have an

be secure. During the last three years of the downturn, we

operation in Reynosa, Tamaulipas. How are your operations

worked to increase the range of services we offered to

divided between the two cities?

increase our income. One of the new services we developed is

A: We started in Ciudad del Carmen and opened an office

structural welding. We trained a team of welders and created

in Reynosa to service the north of the country. This was

a certification for them. Another area we grew in is preventive

17 years ago. The truth is that we faced many obstacles

maintenance, and that meant teaching our staff to recognize

operating in Reynosa, given the issue of safety and security.

risk factors for equipment failure.

Generally, in term of our businesses we found it hard to

Electromagnetic brake repair and installation

maneuver. Currently, we do not have any active projects there but we do still have our installations. All our projects are being run from our two locations: Ciudad del Carmen and our headquarters in Cardenas, Tabasco. Q: Are clients happy for external personnel to work with their equipment? A: There are certainly manufacturers that are afraid of training people who are not part of their company in the use of their equipment. A lot of equipment is based on older models, so they tend to be fairly easy to decipher. Sometimes, manufacturers will add certain elements like as electronic systems. If the equipment comes with clear manuals there should be no issue. Some international companies have offered training to our staff in their equipment. They even helped us develop and modify the brake system of a drawworks by replacing the conventional mechanical brake with a hydraulic disc brake system. PEMEX is generally very open to us working with its equipments, while private companies can be a bit more reluctant. Some are afraid they will not receive the guarantee on a product once it has been opened up or changed. On the other hand, it costs a lot more money for companies to fly in an employee from the manufacturer than to source someone locally to do the work. Q: In terms of securing contracts, what is the difference between PEMEX and private companies? A: It is harder to get contracts with private companies. Normally, they ask for our services for individual jobs. For example, when they need our laser equipment to align shafts in a motor. Private companies also are more reluctant to commit to long-term contracts. Sometimes they ask us to conduct a preventive check of their equipment. Another difference with PEMEX is that it is not easy to know what international companies are planning to do. They are less transparent when it comes to their business intentions. PEMEX contracts last years with a specific budget. We would like to get more contracts with private companies. Q: Which goals do you hope to achieve by the end of 2019? A: Our company worked hard to get ISO 9001:2015, ISO 14001:2015 and OHSAS 18001:2007 certifications and we plan to maintain and improve our procedures. We want to continue providing training to our staff to increase their abilities. It is important to send the message that we offer quality services at a lower cost.

Comincar is a Ciudad del Carmen-based company specializing in the maintenance and repair of industrial machinery for the petroleum industry, including drilling equipment, winches and fluid control systems

237

| INDUSTRY PERSPECTIVE

PROBLEM SOLVING AROUND EQUIPMNENT, RESOURCES

238

Q: What are Komodato’s advantages over its

Q: How did Altopetrum deal with the industry’s

competitors and who are its key clients?

downturn and what is the state of the local

A: In our five-year existence, we have worked for

companies that prevailed during this time?

Grupo México and Grupo R, as well as international

A: Altopetrum survived the downturn by

companies like McDermott. In my past experience,

diversifying into other segments. In Tabasco,

I noticed that bureaucracy can create customer

small businesses were particularly at risk and

service delays, so we founded Komodato to

around 30 percent of those involved in oil and

respond efficiently and in less time to the immediate

gas closed their doors. Surviving was a major

needs of our clients. We have all our equipment

challenge and only through diversification was

and teams ready to move within extraordinarily

the company able to pull through. The market

fast time frames. The equipment we provide ranges

has recuperated somewhat and with investment

from corrosive protection equipment to diving

to continue Altopetrum will now return to focus

equipment. Some of our advantages are our lower

exclusively on energy. Around two years ago,

costs of operations and logistics. We mainly work

Altopetrum made the decision to diversify its

for bigger companies that have direct contracts

services to supply Mexico’s open oil and gas

with PEMEX and are interested in their equipment

market. We expanded our portfolio of products

maintenance. We also founded a company in

to include solid control systems, chemical

the US called Komodato Offshore International,

products and drilling tools for rental and sale.

which we use to import equipment, since there are

We also expanded our specialized consultation

HÉCTOR PEÑA

JOSÉ ALTONAR

Operations Manager of Komodato Offshore

CEO of Altopetrum & General Oil de México

companies that might need special products not

teams for the oil and gas industry. In parallel, we

available in Mexico. By having a company in the

began to offer certification training to deliver

US, we can buy directly from manufacturers and

the international-quality services and guidance

save a lot of time by handling the transportation

that the market required. In the last few months,

and importation ourselves.

consulting services have been the main driver of Altopetrum’s business. The repair of drilling

Q: How do you ensure clients receive efficient

equipment also has kept us busy.

maintenance solutions and other services from Komodato?

Q: What are the challenges facing local service

A: We have experience working for PEMEX and

providers in terms of procurement and competition?

over the years we have identified what equipment

A: The local oil and gas industry is moving slowly. The

is needed for maintenance, inspection and

main procurement obstacle is economic. Companies

manufacturing. We know that we need soldering,

are waiting from 90 to 120 days to be paid for their

cutting, mixing, specialized tools, generators,

services, which limits investment opportunities and

compressors and others. Our goal is to make

growth. Altopetrum is a local company and therefore

sure to operate on a smooth 24/7 production

we know the market extremely well and that gives

timetable. This means we have to focus on

us an advantage. Nevertheless, until payments

maintenance as an integral structure of the

are expedited more efficiently, companies with

platform and processes of production. We use

larger investment resources will provide a greater

our equipment to accomplish these tasks as we

contribution to the value chain, and for that reason,

cannot rely on the platform’s equipment.

we see opportunities on the horizon.

VIEW FROM THE TOP |

HUMAN CAPITAL: AN INVESTMENT NOT AN EXPENSE VIRGILIO RUIZ President and Founder of Grupo Hegemonía

Q: What was the main driver behind the company’s creation

standards, which are the factors that push us to achieve

and growth?

constant improvement. Among our services, the recruitment

A: In 1984, Grupo Hegemonía started operations by providing

segment is the most popular. In terms of professional training,

transportation services for drilling fluid to PEMEX. The

we are partnered with Falck Safety Services. The company

company was composed of 1,800 employees who worked

has 38 training centers at a global level and in Mexico, Grupo

on a 24-hour basis. From my perspective, competitors must

Hegemonía has held 40 percent of its operations since 2010. In

not be seen as enemies and this is why I have always looked

fact, this company was recently acquired by the Nordic private

to establish strategic alliances with them. At first, the group

equity fund Polaris and changed its name to RelyOn Nutec.

started lending personnel to other companies in the region.

We are optimistic that the oil and gas industry in Mexico will

The benefiting company took on the cost of paying those

flourish but, in the meantime, the company is exploring other

workers a daily wage, while we took care of the social costs

options as diversification is key in our expansion strategy.

like health insurance. This situation became common among

We are motivated to search for new opportunities for the

the company’s competitors and resulted in the creation of

company and its employees. The company has 700 people

the human capital business. Grupo Hegemonía started to

working in the personnel services segment and the goal is to

work in the personnel services business but, as the tourism

double this number by the end of 2019. Our client portfolio is

sector was enjoying a boom, we also developed a business

diverse. While some companies require only one employee,

unit that provided services for this segment, mostly on the

others need 800 professionals and we are prepared to work

Pacific Coast and in the Caribbean.

with all of them.

Industry needs have supported our growth, not only in the oil

Q: How would you assess the human capital offer in

and gas sector but in other industries as well. Particularly, we

the country?

started to work in the oil and gas sector when the offshore

A: Compared to other countries, Mexico lacks human capital

drilling took off in Mexico. Many foreign companies entered

preparation. Nevertheless, Mexicans have the ability to learn

this market and we decided to focus on this clientele rather

quickly and the most relevant proof is that many of them

than on PEMEX. From that point, we started to qualify our

are succeeding across borders. For instance, we have known

personnel by acquiring the necessary certifications that

cases of Mexicans working in offshore platforms located in the

these international players demand. As the provided service

North Sea, the US, Canada, Saudi Arabia and Nigeria. When

was outsourced, Grupo Hegemonía was in charge of all the

the company partnered with Falck Safety Services, we learned

related logistics, such as transporting personnel between their

new things in the management area and the same happens

place of origin and the platform. The company also entered

with national employees who start working with international

into the food and lodging business, where we worked with

companies. Regarding academic preparation, there is a broad

49 platforms between 2011 and 2012. We believe the main

array of programs at universities but recent graduates lack

asset of any company is its human capital and we prefer to

training. Rather than the university background, I think it is

approach this issue as an investment, rather than an expense.

a generational issue. In addition, many public and private universities lack a long-term vision; students continue to be

Q: What is the company’s plan to increase its foothold in

offered programs in obsolete professions.

the country? A: Even before the Energy Reform was established, Grupo Hegemonía started working with private players. Sixty percent

Grupo Hegemonía is a Mexican company that is committed to

of our portfolio is made up of foreign companies and 40

human capital development. It works with big industry players as

percent is divided between national businesses and PEMEX.

well as small entrepreneurs. The company’s employees have wide

We are not afraid of competition or meeting international

experience and comply with the highest quality standards

239

| VIEW FROM THE TOP

MAKING SURE THINGS HAPPEN ADRIAN RODRÍGUEZ-MONTFORT Country Manager Mexico of Brunel Energy

240

Q: What unique added value does Brunel bring to the

A: Differences are usually quite tangible. Operators have

Mexican oil and gas industry?

the license for the field, which means that they have to

A: We are the only recruitment company in the market that

perform administrative tasks that involve being legally

focuses on finding very particular and highly-specialized

compliant with regulators. They will require mostly C-level

personnel. We have worked in almost every continent with

and managerial staff with plenty of experience working in

plenty of industries that require highly trained staff, such as

Mexico who fully understand the supply chain and all of the

automotive and life sciences. This allows us to bring those

regulation related to the life cycle of the project. Service

wide, diverse and well-rounded experiences into the oil and

companies are in charge of the technical operations and

gas operations in Mexico.

on-field execution of the project and work directly with the supply chain, which means they require highly-technical

Q: What makes Brunel’s human capital recruitment services

personnel with strong experience in using cutting-edge

different from those of its competitors?

technologies as well as experience working in Mexico’s

A: When working with a client, we do not simply ask them for

fields or with local procurement. Having such a strong

a job description and provide them with potential candidates.

knowledge about how requirements may differ allows us

For example, we know that an upstream contract will go

to answer the basic questions and tailor recruitment to

through several phases, the first usually starting with seismic

the specifics of each client, allowing us to offer the most

interpreters and subsequent phases requiring personnel

optimal solution.

capable of performing drilling activities, then operation of the production facilities. Each of these phases has typical

Q: What project best showcases Brunel’s capabilities in the

durations and specific human capital requirements. Knowing

Mexican oil and gas industry?

this and having gone through these processes several times

A: One specific project in which we worked recently

gives us the leverage to advise the client on the best way to

involved very specific and highly-specialized human capital

fill all the positions inherent to the jobs that will be created,

requirements. Due to the operations that would take place,

the contractual terms and even to administrate the payrolls for

the personnel with the capacity and certifications to perform

each operation. For example, it is better to have a document

the job were scattered throughout Mexico. Then, after finally

controller or compliance officer enrolled in the company,

selecting the team to perform the job, a new hurdle appeared

as those are positions with greater responsibility and they

as all flights to Matamoros, from where the helicopter would

take a longer time to understand while the operators of the

take the team to the drilling vessel, were canceled. To solve

drilling equipment can be on an external payroll due to the

this issue, we transported the team to Brownsville, and from

shorter duration of their contracts. Few agencies are capable

there we transported them to the drilling vessel on time for

of, or even willing to, take the time to perform these tailored

them to start their activities.

solutions. Q: How would you rate the national content regulation Q: How do requirements change between the different

in Mexico?

players to which Brunel offers services in the oil and

A: Regulators in Mexico did very well in understanding the

gas industry?

success and failures of other countries and recognizing that for an industry to open and prosper it has to bring in some highly-specialized workers. It also ensures that activities that

Brunel Energy provides project-resourcing services, recruitment

have been taking place here for a long time are sourced from

and mobility solutions to industries including oil and gas,

inside the country. The lack of national human capital in some

automotive and engineering. It helps to find technical specialists,

cases is not due to failures in the market but to the intrinsic

and craft-labor experts

conditions of its development that have to be recognized.

VIEW FROM THE TOP |

READY TO RIDE THE OPPORTUNITY WAVE GUIDO VAN DER ZWET General Manager Americas of iPS Powerful People

Q: What makes iPS Powerful People different from any other

white-collar capital they need to manage their business.

provider of specialized human capital in the market?

We do not work on massive recruitment processes, which

A: iPS Powerful People is a global company present in 15

is why we do not manage the payroll or recruitment of

countries. During its 30 years of history it has created a global

the people operating the gasoline stations, as that is

database of more than 50,000 candidates, of which almost

out of our scope. We are less involved in the midstream

10,000 are Mexicans. With such a wide database, we are

sector because we are looking forward to increase our

capable of offering enough local workforce to significantly

footprint in the other two sectors, especially due to the

help companies comply with national content regulation,

fact that we have more potential clients in those sectors

which is a hot topic at the moment. This capacity is reflected

who are asking for our services. With a presence in the

in the fact that, during the 11 years we have worked in Mexico,

Mexican oil and gas industry for 11 years, our team and

almost 99 percent of the payroll we have managed consists of

wide database are ready to offer the best human capital

Mexican workers, with just over 1 percent consisting of expats.

solutions to our clients.

Q: How do you expect iPS Powerful Peopleâ&#x20AC;&#x2122;s activities in the

Q: How does iPS Powerful People ensure that its clients

upstream sector to change in the short term?

receive only the best human capital in the industry?

A: As more operators enter the country, we have been asked

A: We always thoroughly check the documentation of each

to find mostly what is called white-collar workforce, meaning

and every potential candidate, and if required we can also go

those who will manage teams from the office. This is natural,

very deep into the personal check by including, for example,

and as companies start their field operations, the shift will be

background checks. However, this can be offered by almost

toward acquiring more blue-collar workers who are responsible

any company in the business. The element in which we excel is

for installing and operating the required infrastructure and the

relationships. We like to go beyond. We perform background

services that come along with it. One specific requirement we

checks with the companies they have worked with before,

can see coming is in terms of deepwater operations. PEMEX

and having longstanding professional relationships with those

has very little experience in deepwaters and what experience

companies gives us a much wider network of people who we

it does have is mainly through contractors. This means that

can contact.

Mexico will have to bring many foreign workers into the country to lead those operations.

Q: What regulatory elements related to human capital can be improved by local authorities?

We can see a wave of opportunities coming. To be successful

A: Mexico was lagging in terms of labor laws, but we are

we are also investing in our own team, increasing the number

happy to see that the country is working to improve that. One

of our own employees, re-opening our office in Ciudad del

very important element that will improve labor conditions in

Carmen and even opening offices in Houston, from where

Mexico is the country becoming a member of the International

most IOCs make important and strategic decisions. Our

Labor Organization (ILO). This will be especially important for

objective is to be close by and ready to serve our clients.

offshore operations, as being part of the ILO will mean that it

There might be some bumps on the road, but I believe that

will also have to follow the Marine Labor Convention (MLC),

the industry will continue growing in the coming years, and

which previously was not necessary for vessels in Mexico.

iPS Powerful People will be there to help it grow. Q: What activities has iPS Powerful People developed in the

iPS Powerful People offers employment for multinational

midstream and downstream sectors?

personnel worldwide. It supplies personnel to the international

A: In the downstream sector, and specifically for retailers,

maritime and dredging industry. Over the years, iPS has expanded

we have worked on getting companies the required

its expertise into other sectors, including energy

241

| INSIGHT

INNOVATIVE INSIGHTS FOR HEIGHTENED WELL PRODUCTION

“

Rather than accumulating mountains of data, the benefit of our service is in making practical sense of that data” Hugo Ruelas, Director of Oil and Gas Unit at Grupo Altavista

to deliver cost-effective solutions for our clients’ most pressing needs.” Ruelas believes that the administration’s focus on the reinvigoration of PEMEX and the national oil output will undoubtably bring benefits to different sectors across the country. As a fully-Mexican company, he believes that it is Grupo Altavista’s obligation to involve itself in this reinvigoration process. He explains: “The participation of national companies as PEMEX’s strategic associate/service providers is of vital importance to the energy industry in

242

PEMEX’s production aim has opened the door for

Mexico. This relationship results in operational efficiency and

further technological involvement across the NOC’s

revenue maximization not only in the energy industry, but also

broad portfolio of national wells. For Mexican companies

as a pillar of technological and economic development, which

delivering innovative integration solutions to the industry,

generates business throughout the country. It also introduces

opportunities are starting to bloom.

macroeconomic benefits to Mexico and acts like a growth engine that drives other associated sectors. It is therefore

Hugo Ruelas, Director of Grupo Altavista’s Oil & Gas Unit,

vital not only for the oil and gas industry but for Mexican

is clear that his company’s desire to continually improve

society at large.”

its technological expertise is what sets it out in the Mexican market open to international competition. “We

In 2010, Grupo Altavista began monitoring some 1,500

focus on innovation that delivers solutions that generate

PEMEX wells in the Burgos Basin, an area that stretches

higher value for our clients. This has allowed the company

across Coahuila, Nuevo Leon and Tamaulipas states

to maintain a strong and competitive presence in the oil

in north-eastern Mexico. On more mature wells, some

and gas industry,” says Ruelas.

of which were drilled decades ago, the integral well tech provided by the company optimizes controls to

Grupo Altavista already has a strong relationship with

aid enhanced production and recovery. “The remote

PEMEX. The company was given an EPCI contract to

monitoring and control systems that Grupo Altavista

automize 393 PEMEX sites for the implementation of

has developed for clients on the Burgos Basin offer an

SCADA software into 47 PEMEX Refining pipeline transport

integral service that guarantees the highest quality of

systems. The project will allow PEMEX’s refining arm to

data coming from a well,” Ruelas explains. “Extracted and

gain live insight into the efficiencies of its system via real-

transmitted data is faithful to the processes and reflects

time data visualization and storage. With the geographical

the reality of the wells in real time.”

diversity that pipelines of the National Refinery System must traverse, the need to remotely access key information

Data has recently become as valuable as black gold, it

points along the system’s length is vital to ensure constant

helps access and continues to grow in importance within

function. The expected increase in refining volumes

the oil and gas industry. It is also at the heart of Grupo Altavista’s service portfolio. Ruelas notes that “Data

The high standards that PEMEX demands mean that

quality is the foundation on which digital tools are based.

working alongside the company are challenging. Yet

AI, machine learning and Big Data, among others, require

this keeps the company inspired to enhance its business

accurate and quality data to provide a sound service that

performance as a whole, from technology to training,

helps to maintain base production and contributes to

says Ruelas. “Working with PEMEX means Grupo

the optimization of productive wells.” But raw data still

Altavista must always push to sharpen its competitive

requires interpretation to be useful, he says. All the data in

edge through the improvement and continual focus on

Mexico offers nothing if it cannot be utilized. “Rather than

the technical capabilities of our personnel. As a service

accumulating mountains of data, the benefit of our service

provider, and a private investor who shares the highest

is in making practical sense of that data. Our services give

values and standards of PEMEX, Grupo Altavista strives to

clients a better understanding of their assets so they can

be innovative, making use of state-of-the-art technologies

make smarter decisions on their investments,” says Ruelas.

VIEW FROM THE TOP |

TAKING ADVANTAGE OF SPACE TO CREATE COMMUNITY RAFAEL GĂ&#x201C;MEZ Commercial Director of COMMOSA

Q: What are the most important industries in your client

and provide maintenance. Most importantly, we have a strong

portfolio?

production capacity. Our competition is unable to meet strong

A: We have been in Mexico for 25 years. In the last three years,

demand because most do not have factories in Mexico, and

we focused on the oil and gas and energy sectors. However,

if they do, they cannot provide the larger sizes we offer our

when the oil and gas industry softened, we turned to the

customers. In addition, our locations are privileged. Our

mining sector. PeĂąasquito was our first big project in this

factories in Queretaro and Monterrey allow us to reach many

industry and since then, mining has been our main focus,

areas in Mexico, which allows us to operate as fast as we would

given the volume of projects in the sector. Nevertheless, we

like to. Although we are not in the business of renting units

continue to work on the energy projects that come our way.

because we are a manufacturer, we do offer rental services

The energy industry is very structured and the procurement

through other companies. About 40 percent of our materials

process is planned well in advance as the sector establishes

are imported from the US and Europe. We integrate these

long-term goals. Regarding our clients, we have started to

with locally produced materials. Having these materials on

work with Spanish, German and Italian companies. We are

hand is crucial for business. Otherwise, delivery times become

not interested in spot sales. As the oil and gas sector bounces

uncompetitive and clients would look elsewhere. We always

back, driven by recent government policies, we anticipate that

meet our deadlines.

most of our projects will again come from that industry in the next three to four years. Our main purpose in all the industries

Q: What measures do you take to save energy?

in which we participate is to improve the living conditions of

A: We team up with experts who know what steps must

employees. These conditions have not always been optimal

be taken to save energy. These alliances help us adapt our

and this is where we can make a big difference.

products to the needs of the Mexican market. Partnering with other companies and benefiting from their know-how

Q: What added value sets COMMOSA apart from its

is essential. For instance, US units come with central AC or

competitors?

window AC, but finding parts for these appliances in Mexico

A: Big projects are rarely located near cities and are usually

can be challenging. Therefore, we equip our units with mini

found in remote areas or close to a small town. Hotel rooms

splits that can be easily found in many Mexican towns.

are, therefore, insufficient. If companies are looking to rent

Adapting to the Mexican market is crucial, as it is quite simply

a room or a house, they face large administrative costs, and

a different place than the US or Europe. European systems,

arranging the logistics can be complex. Workers not only need

for instance, are more basic from a structural point of view.

rooms to rest, but should be able to participate in recreational

The American system is more complete in the sense that the

activities and have proper living areas. Dining areas, restrooms

norms cover the unit as it is delivered, which includes finishes

and showers are all equally important. COMMOSA creates

and all added components. In 2020, we will have our first

living spaces that promote a sense of community, which is

prototype system powered by solar energy. Our clients will

crucial to the health and happiness of employees. Distance

try it out and decide if it is a good fit for them. But there are

from the jobsite must also be considered. We have a project

other ways we can save energy. For instance, we are very

at the moment that is around five hours from the nearest

careful when revising our electrical installations, detecting

town. Security and food, among others, are difficult to obtain.

errors and fixing them immediately.

Having everything available in the same place makes for a more efficient operation. We stand out from other mobile space companies by offering a wide range of products,

COMMOSA is a manufacturer of mobile, versatile and modular

including US or European-style accommodations, depending

work spaces, ready for use in short periods of time. The company,

on our clientâ&#x20AC;&#x2122;s preference. This is supported by the talented

founded in 1993, works in both remote locations and inside cities.

and experienced technicians who implement our projects

Since its founding, it has deployed more than 22,000 units

243

| VIEW FROM THE TOP

TABASCO LOCALS KEEPING AHEAD OF COMPETITION JOSÉ LUIS VALENCIA Administrative Manager of GAVSA

244

Q: What are the key characteristics that differentiate GAVSA

Schlumberger, Weatherford and Baker Hughes, among others.

from its competitors?

We have become a reliable supplier and have the confidence

A: GAVSA employs the best people in the industry. Our staff

of the largest players in the market. We have never had a

is well treated and paid and, in return, they are committed

dispute, nor faced a penalty with our private clients. This

to the company and represent us in the best possible way.

reflects the quality of the people who work at GAVSA. The

We believe it is important that our employees are trained,

company understands that we must keep updated in terms of

satisfied and healthy because working in the oil and gas

training and offer a modern fleet of vehicles and equipment

industry is tough. GAVSA employs around 750 employees

to keep ahead of the competition.

and growing. We had employed over 1,000 prior to the slowdown. We provide our services with qualified, certified

Q: How has GAVSA adapted its repair and maintenance

and experienced personnel in the industry. We offer our

services to the international market?

services 365 days a year, 24 hours a day plus our operating

A: GAVSA provides maintenance, verification and

bases located on key points. Our procedures demand more

certification of equipment to Mexico’s modern oil and gas

work on our side but reduces the moving time as a whole

industry. Each of these elements could be considered a

and therefore cuts costs for clients. Our procedures can

cost, but guaranteeing these elements is far cheaper than

reduce rig moves by days, so our clients save on the rental

the consequence of failure through negligence or accident.

costs of drilling equipment, which can be very expensive.

We have extensive repair yard facilities where we repair

Due to our quality service, we have worked with the highest

and maintain all our fleet of equipment and also clients’

standards in the industry, we will continue to work harder

heavy vehicles. All our maintenance is done according to

to meet all clients’ expectations and satisfied all the heavy

service manual procedures, which results easier for future

lifting and transport needs. The company also has a large

maintenance of all the equipment.

equipment fleet, including over 120 industrial cranes and 200 trucks with specialized mechanical lifting systems to rig

Q: Why has GAVSA chosen to join the Energy Cluster

down, transport and rig up drilling rigs among other heavy

of Tabasco?

machinery. We work on the most difficult lifts, providing the

A: GAVSA joined the Energy Cluster of Tabasco to work

best security and delivery times in the industry and offering

alongside other local or regional companies and take

our clients the best solutions for their needs.

advantage of our collective strengths and skills. It is a fact that within a group, business opportunities expand and

Q: What have been the keys to GAVSA’s ongoing success,

more doors can be opened. This cluster is comprised of

despite the unforgiving climate of the last few years?

companies like ours that supply heavy equipment, as well as

A: GAVSA’s entry in Ciudad del Carmen enabled clients to

those that have worked on advanced studies of gas fields,

receive services at any time. This decision was a result of

and others that work on improving well flow, companies

working in the oil and gas industry and understanding that

working in the construction sector and pipeline sector.

availability, speed and efficiency were essential to provide

The cluster can provide comprehensive and integrated

a high-quality service. GAVSA has the opportunity to work

solutions, can take a project from beginning to end and

with the biggest names in the industry like Halliburton,

can access business forums and contract discussions better than each company could do it by themselves. We have taken the step of organizing ourselves so that we

Grúas y Autotransportes Velázquez (GAVSA) is a heavy-lift,

can compete against the large international companies

craning and transportation service provider for the Mexican oil

that have monopolized the market in recent years. It is

and gas industry. It is based in Villahermosa and has a significant

crucial to this cluster that only ethical companies with

presence throughout the states of Veracruz and Campeche

sound business backgrounds are allowed to enter.

VIEW FROM THE TOP |

UNITY A TOOL FOR LOCAL DEVELOPMENT CLAUDIA BARRERA President of the National Energy Entrepreneurs Council and Vice President of the Tabasco Energy Cluster

Q: What were the circumstances behind the formation of

development in their states. All have variable energy

institutions such as the National Energy Entrepreneurs

resource potential when compared to Tabasco. We came

Council and the Tabasco Energy Cluster?

to the conclusion that integrating our own cluster would

A: The Energy Reform jump-started a process that defined

lead to statewide success in unifying local enterprises and

the direction Tabasco’s private sector would take. In earlier

service providers. This has been done in Europe and they

days, we would divide our companies by specific services

have had considerable economic growth over the last two

offered, in part to facilitate contracting processes with

decades. An energy cluster in Tabasco must be structured in

PEMEX and other major entities that focused on each service

accordance with the complexity of the energy industry in the

individually. In contrast, the Energy Reform introduced a focus

state, in which all segments of the industry’s value chain are

on larger and more complex integrated service contracts. For

represented. Starting with oil and gas extraction, all the way

entrepreneurs, there are limits to material, financial and human

down the line to commercialization. We can help companies

resources. As these larger contracts spilled over the US$100

identify the optimum way to offer their services within an

million threshold, it became increasingly difficult for us to

industrial framework so they know whom to approach and

make a bid and participate directly in the oil industry’s new

what aspects of their portfolio to promote to potential clients.

projects. We were also limited in terms of certifications as well as technological assets. Tabasco entrepreneurs like us decided

Q: How can you contribute to Tabasco’s energy development?

to unite and create these larger organizations where we could

A: We can use our social and political voice and influence to

pool our resources and not merely be simple subcontractors

lobby public and private institutions to address three main

of larger service providers.

obstacles that limit economic growth. The first challenge to solve is the issue of labor unions. The government must invest

In October 2017, 23 companies formed the National Energy

time and resources to successfully conclude negotiations

Entrepreneurs Council. At the time, Tabasco was in an

with unions so that economic losses from blocked worksites

economic slump. From 2013 to 2019, my construction

can be mitigated. This is an issue that happens all over the

company went from having 400 employees down to only

country. The second issue we must tackle is security. This is

20. We began organizing events and discussing scenarios

a nationwide problem which we must address in Tabasco.

that could help companies understand the global context of

We do so by establishing a clear communication with the

the industry and the standards that had to be met by our

government and by promoting local campaigns from our

operations. We contracted a team of lawyers to assist us

member companies that seek to engage with communities

with legal requirements and to help us determine the best

and deal with issues related to organized crime. The third is

certifications, which would aid us to compete in bidding

what I would refer to as operational culture. Companies in the

rounds for larger contracts. Together, we wanted to create

private sector need support to modernize their operations

an agenda that would contribute to the state’s industry

and embrace management efficiency, establish quality

development. One of our chief concerns was technological

certification control protocols and implement general risk

development. Considering that most technologies are

mitigation that includes auditing. As we work to improve these

imported into Mexico, that placed us at a serious operational

challenges, we ask our regulators to make a similar effort to

and financial disadvantage that still needs to be solved.

shorten delivery times.

Q: How do you integrate local companies into these developments?

The National Energy Entrepreneurs Council and the Tabasco

A: The cluster is an indispensable tool. We analyzed the

Energy Cluster seek to promote the growth of Tabasco’s oil and

role that the Queretaro, Coahuila, Nuevo Leon, Campeche

gas sector so as to take full advantage of incoming investment

and Chiapas energy clusters played in promoting industrial

into the industry that can raise the standards of local companies

245

| VIEW FROM THE TOP

PAVING THE WAY FOR FOREIGN TECHNOLOGIES, SERVICES DIEGO BERNAL Director General of NovaOil

246

Q: What added value does NovaOil provide to the Mexican

and then the middleman wants to increase its share of the

oil and gas industry in Mexico?

revenues, which puts the company at its mercy, or activities go

A: Our main added value is offering consultancy services for

worse than expected and then the middleman does not have

technologies and solutions in the oil and gas industry. Our

an incentive to keep working with the company, therefore

services start from the very beginning of the process, when

strongly decreasing the possibilities of the company to

the client is just considering Mexico as an option to invest

consolidate its business and presence in Mexico.

in. The traditional way of doing business is based on foreign companies having agents or distributors hired in Mexico to

Q: Why is it important to introduce new and better

develop their business in the country. It is common to see

technologies and services into the country?

representatives of PEMEX, the Ministry of Energy or the

A: Introducing new technologies and solutions is not

Mexican regulatory institutions going abroad and talking

only beneficial for private companies, but also for the

about investment opportunities that they expect in the

government, because more efficient and profitable

country, but the truth is that small and middle size companies

operations mean higher production, which means higher

do not see that investment potential as accessible for them

revenues for the government and therefore the biggest

because they know how hard it is to develop a business unit

benefits for the Mexican people. By introducing new

in a foreign country.

technologies into the country, we are helping in the development of the Mexican oil and gas industry and

We provide our services at a very reduced price compared

bringing an additional benefit to the Mexican people.

to our competitors because we want to reach a wider

If a foreign company is successful when introducing its

market, especially the one that covers small and medium-

business into Mexico, then the company will have the

size companies. Every technology and service we introduce

possibility of opening offices and even manufacturing

into the country is well thought-out in the technical, legal and

facilities in the country, therefore creating jobs and

economic aspects so potential clients can be sure that their

further developing the economic growth of the country.

businesses are safe and sound here. Q: What would be the best project to highlight NovaOilâ&#x20AC;&#x2122;s Q: Why is your consultancy approach better than the

capabilities?

traditional way of hiring?

A: In October 2018, we received, for the second year

A: We avoid following the traditional how-to-do-business

in a row, 15 Norwegian companies that wanted to

scheme and instead prefer to highlight our consultancy

pitch their technologies and services to oil and gas

services because we believe that the traditional approach

companies already settled in Mexico. We helped them

diminishes the competitiveness that both the interested

set up meetings with operators so they could receive

company and the middleman can reach. This is because under

constructive feedback and generate interest among

a representation scheme, foreign companies usually sign an

them. Some operators showed great interest and now

exclusivity agreement and the middleman receives a certain

are in talks to perform field tests and check how the

revenue from the sales, and we have identified two scenarios

technologies work under real conditions. This specific

that usually happen. Either activities go better than expected,

case was possible due to our honesty and values. We met these companies during a forum, and while pitching our services they told us that a company in Mexico asked

NovaOil is a Mexican company comprised by a multidisciplinary

them for money to get a meeting with PEPâ&#x20AC;&#x2122;s Director

group with broad experience in the oil and gas industry. It

General. We explained them that, as PEMEX is a public

provides integral solutions in technological management,

institution, they should not be asked for money, and got

consultancy, technical assistance and asset management

them the meeting.

INSIGHT |

LOCAL CONTENT WITH A GLOBAL VISION ADRIEN CAUDRON Founder and Director General of ITPE

More trained and specialized workers are needed to cover

The school now also offers online courses for greater

the increase in oil and gas and renewable energy activities in

accessibility. Representatives of PEMEX and ASEA have

Mexico, especially given ambitious local content requirements.

received specialized training programs from ITPE, and the

Education will play an even greater role going forward, says

institution has developed strong partnerships with leading

Adrien Caudron, Founder and Director General of ITPE. “ITPE

players in the industry. “Some of the prestigious partners we

was founded to train and prepare the human capital required

are already working with are UNAM, IPN, IFP and Texas A&M

to meet the opportunities brought by the Energy Reform and

University. On the business side, we work with companies like

will be part of the educational basis that will strengthen the

PEMEX, Shell and ABB,” Caudron says. Yucatan proved to be

industry in Mexico,” he says.

the perfect location for ITPE, as it is starting to receive calls from Central and South American companies and educational

ITPE integrates the academic and business worlds through

institutions eager to work with it.

four program pillars: bachelor and master programs, specialized training programs, R&D and consultancy services

Learning is not all about reading books and writing essays,

offered through its spin-off called Rise Energy. Caudron

it is also about applying the acquired knowledge to real-life

says these four pillars were created as part of a strategy to

scenarios. ITPE offers practical experience in the form of

differentiate ITPE graduates from the rest of the pack. “Our

cutting-edge laboratories that were built with private and

study programs include cutting-edge technologies and the

public capital and will help students remain at the forefront

knowledge shaping the industry. An example is the fact that

of the industry. “One of the pieces of equipment we are most

we are including data management and IT sciences courses. It

proud of is the drilling simulator, which is capable of recreating

is not common to find geologists with that kind of specialized

real situations based on data gathered from E&P activities at

knowledge in any other educational institution,” he says,

real drilling sites. It can even recreate crisis situations for those

adding that the four pillars offer students cross-over training.

using it to improve their responses in those situations,” says

“Some students also do their professional practice at our R&D

Caudron. “Two private players have already used the drilling

department and at Rise Energy. This gives our students the

simulator to train personnel, showing the true potential of the

opportunity to get more real-world experience and allows the

technology not only for educational purposes but also for the

enrichment of every pillar through fresh ideas.”

real working environment.”

Starting and developing a new concept in the education

Courses and trainings have allowed it to be accredited

segment is not an easy task, especially considering that

and certified as an IFP Training Center, making it the

the concept included both public and private institutions

only company in Mexico capable of offering IFP training

interacting for the benefit of the industry, Caudron says.

programs in the country, Caudron says. It will also open

“At the beginning it was difficult to begin talks with public

a training center in Tabasco. In an effort to keep working

universities to establish positive synergies but, in the end,

at the forefront of the development of human capital and

they saw the benefits of becoming partners of a private

innovation in Mexico, the company is now working on the

educational institution that is solely focused on oil and gas

development of what it calls the ITPE Talks. “This platform

and renewable energy topics and that has a business vision at

is an opportunity for experienced players in the industry

its core.” Having a business vision makes ITPE work at a faster

to share their insights with members of ITPE, whether they

peace, Caudron continues. “Our business-oriented vision fits

are students or professionals,” Caudron continues. “With

with the needs of the industry.”

the ITPE Talks, we want to create a safe space where the main issues of the oil and gas and energy industries can

The programs offered at ITPE have evolved according to

be discussed together with new generations, therefore

needs of the market and its players, explains Caudron.

allowing for an exciting sharing of ideas.”

247

T-BOSIET safety course, Ciudad del Carmen

INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE

Companies along the entire value chain kept environmental and safety standards in high regard in 2019. Meeting the enhanced regulatory demands that the arrival of the new administration introduced, players implemented improved safety training and protocols to decrease onsite accidents and unplanned downtime. But Mexico is already well-prepared and is aligning itself with international best practices to ensure the best possible safeguards for its oil and gas industry. While ASEA has worked hard to streamline administrative processes that deliver faster environmental assessments, new dynamic penalties have also entered the market.

Concerns and priorities during the coming years regarding industrial safety and environmental performance form the main point for discussion in this chapter. It assesses international best practices by key actors affiliated to both the government and the private sector, and provides insight into how policy can become preventive instead of reactive.

249

CHAPTER 10: INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE 252

ANALYSIS: PEMEX Improves Safety

254

VIEW FROM THE TOP: Luis Vera, Independent Consultant

255

HIGHLIGHTS: ASEA’s Renewed Vision

256

VIEW FROM THE TOP: Eckhard Hinrichsen, DNV GL

257

VIEW FROM THE TOP: Homero Guerra, ABS

258

INSIGHT: Roberto Vázquez, Eaton Crouse-Hinds

259

VIEW FROM THE TOP: Roberto Alejandre, Dräger Safety Mexico

260

VIEW FROM THE TOP: Andrés García, Ampelmann

261

VIEW FROM THE TOP: Sara Landon, INERCO Consultoría México

262

VIEW FROM THE TOP: Carsten Röhl, Rheinmetall Mexico

263

VIEW FROM THE TOP: Óscar Valdez, ROS

264

VIEW FROM THE TOP: Rebeca Barrios, RelyOn Nutec

265

VIEW FROM THE TOP: Adrian Bisiacchi, KDM Fire Systems

266

INDUSTRY PERSPECTIVE: Arturo Rodríguez, Ramboll

Ernesto Monroy, EcoSocial Soluciones Sustentables

267

VIEW FROM THE TOP: Alejandro Hernández, CSIPA

268

VIEW FROM THE TOP: Alejandro Esquivel, Multiservicios Petroleros

269

VIEW FROM THE TOP: César Pindado, ERM

Alberto Sambartolomé, ERM

251

| ANALYSIS

PEMEX IMPROVES SAFETY The arrival of a new administration brought about renewed focus on the environmental concerns of Mexico’s oil and gas industry. Meanwhile, the industry’s central environmental regulator, ASEA, has continued to mature and set the rules to which companies involved in upstream activity must adhere to Since the inception of the PEMEX Security, Health and

authorities, including SEMARNAT, the National Institute

Environmental Protection (SSPA) program in 2005, the

of Ecology and Climate Change (INECC) and the

frequency rate of PEMEX worker accidents has dropped

Mexican Center for Environmental Law (CEMDA). This

from 1.5 to 0.29 per million man hours in 2015. As of

year, ASEA also introduced an innovative environmental

February 2019, this incident rate had dropped to 0.24,

protection regulation to the industry. This regulation

with a 0 rating for fatalities. In this year’s PEMEX Business

included “dynamic penalties,” which are based on the

Plan, the PEMEX-SSPA was praised for heightening

measurement of the operational impact of projects on

standards throughout the company via the application of

the surrounding environment.

measures that include weekly technical inspections, the

252

strengthening of the emergency reaction system and the

ASEA’s new system will evaluate projects on a case-

reevaluation of the PEMEX Security and Hygiene Rules

by-case basis and apply sanctions that can evolve if

2017-2019.

environmental impact broadens. Vera has said that these dynamic penalties are “penalty fees that, instead of being

Other HSSE improvements achieved by the NOC are the

fixed, change depending on case-specific circumstances

46 percent reduction in injuries due to falls across the

and environmental impacts. These dynamic penalties

company, including a 68 percent reduction in evaluated

also change with time. For instance, a US$1 million fee

work centers; key improvement considering accidents

can become a US$10 million fee, reflecting the fact

due to falls represented 23 percent of serious injuries

that environmental damage might be spreading as an

between 2015 and 2017. Meanwhile PEMEX E&P’s 'Speak

ecosystem regenerates itself due to contamination.”

Up, All Safe, All Aboard' initiative has resulted in a 69

These new measures ensure communities close to oil

percent reduction in anticipated illnesses among offshore

and gas assets receive the environmental protection

workers in its first year, a positive result ahead of PEMEX’s

they require if accidents damage their livelihoods and

development of new offshore fields in 2020.

local area.

DYNAMIC PENALTIES

Similarly, ASEA made efforts to reduce its operational

A stronger form of environmental regulation was

shortcomings that resulted in industry projects held

introduced by ASEA under former Executive Director

up while companies went through overly-complicated

Luis Vera. Given Vera’s expertise in environmental impact,

permitting procedures, which in 2018 required that ASEA

to regulation and deepened links with governmental

authorize 100 permits per project, that had previously

ÍNDICEFREQUENCY DE FRECUENCIA INJURY INDEX (Injuries per million man hours) 5

4.92

4 3 2

2.68 2.00

1.85 1.50

1.19

1.17 .90

1.50 .87

.89 .67

1996

1998

2000

2002

2004

2006

.52

.41

.47

.42

2008

2010

.61 .47

2012

Historical Performance — PEMEXPemex Referencia internacional del índice promedio International Index Reference Average forAssociation Oil and Gas of Producers — de las empresas de International Oil and (IOGP) Gas Producers (IOGP) el Sistema gestión Seguridad, Protection Salud en el trabajo(PEMEX-SSPA) PEMEX Security,de Health and de Environmental initiative Start ofInició

y Protección Ambiental (PEMEX-SSPA) Desempeño histórico

Source: PEMEX

.38 .26

.36 .24

.25

2014

2016

2018

AREA AT RISK OF IMPACT (hectares) AMBIENTAL (HECTÁREAS) INVENTARIO DEENVIRONMENTAL SITIOS CON POSIBLE AFECTACIÓN 2,500 2,041

2,000

1,599

1,500

1,269

1,140

1,103

1,063

1,023

1,020

1,065

2009

2010

2011

2012

2013

2014

1,000 677

500 0

2006

1,162

1,284

525

2007

2008

2015

2016

2017

2018

Source: PEMEX

Sitios annoyed industry players and slowed market growth.

benefit for operators. Roberto Alejandre, Director of

Vera says that the performance improvements of the

Sales and Services at Dräger Safety Mexico, notes that

institution are clear. “For the first time in ASEA’s relatively

stronger HSSE practices reduce unplanned downtime

short history, 98 percent of our cases have been delivered

and associated costs. “Security must be perceived by

on time. This means that the institution is maturing and

operators as a central pillar in the efficiency of their

transforming.”

processes,” he says. Many of these are aligned to the general preventative safety approach now common to

Luis Vera resigned from his position in late August 2019,

the industry and which apply to the workforce. Alejandre

and as of October 2019, has yet to be replaced.

points to drug and alcohol screening as an example of this trend. “This is an emerging area within our product

QUESTIONS OVER DOS BOCAS

development that has been proven to play a tangible

The government and SENER faced questions regarding

role in accident prevention by significantly reducing the

the environmental impact of Dos Bocas considering its

operation risk involved in dangerous activities.”

location beside a mangrove system. The Environmental Impact Report (MIA) carried out by the IMP and

Yet there remains work to do before the Mexican industry

published in July states that while the refinery site area

pulls abreast of the standards in more consolidated

is not in a protected natural area, the location does

markets. One specific point to be addressed, says

“present elements of ecological relevance like mangrove

Eckhard Hinrichsen, Country Manager Mexico of DNV GL,

communities, bodies of water, wetlands and protected

is to have third-party companies providing independent

fauna species.” The report found that the refinery’s

certification for industry regulators. “This is a very

construction would have 255 separate impacts on the

important function to ensure that oil and gas activities

area, of which 56 were adverse, 34 were beneficial and

are performed safely and that the risk to human life and

165 unqualified.

the environment is reduced as much as possible. This has been a good and proven practice for decades in most oil

In August, ASEA gave its final authorization for the

and gas-producing countries, such as those in Europe,

construction of Dos Bocas refinery, with conditions,

Brazil and the US,” he says.

after studying its likely impacts. Those conditions included maintaining the hydrological flow of the Seco

TRANSPARENCY

River that surrounds the site and the reforestation of the

The industry transparency that the Energy Reform delivered

Mecoacan Lagoon.

has been one of its major successes. Alberto Sambartolomé, from ERM, notes that transparency must continue for the

CHANGING STANDARDS

industry to keep moving forward. In this context, independent

As international standards gain more ground in Mexico’s

certifications are one way of doing this. “Major companies

oil and gas industry, private companies are updating their

and the largest investors are only interested in working in

regulations to be compliant with global requirements.

countries where the oil and gas industry complies with the

At the end of 2018, Mexico ratified the Convention 98 of

highest standards and where rules are clear. This must be

International Labor Organization, which translates into

continued because without the help of the private sector, the

higher health and safety standards for all personnel.

administration’s production goal will be extremely difficult

However, improved health and safety is not the only

to achieve,” he says.

253

| VIEW FROM THE TOP

THE IMPORTANCE OF CREATING CONFIDENCE IN THE INDUSTRY LUIS VERA Independent Consultant

254

Q: How would you evaluate the general regulatory apparatus

private sector, I was surprised to see that, as regulators, they

in Mexico for the oil and gas industry in matters of industrial

had a much closer contact with SENER and PEMEX than

safety and environmental performance?

with SEMARNAT. I have experience in the application of

A: There is quite a bit of numeric data, metrics and internal

environmental regulations and penalties. Therefore, I began

statistics available that can back up new successes in these

conducting ASEA towards taking a more active role in these

areas. Shortly after I joined ASEA, there was a meeting that

types of activities. I hired personnel who valued natural

illustrated what was in store. Complaints came my way from

resources as a whole, rather than prioritizing activities from

every direction during that meeting. Major industry players

one unit such as PEMEX, to experiment with new techniques

being regulated by ASEA that attended the meeting said

of measuring operational impact. The first project in which

there were constant delays, a lack of personalized attention,

these methodologies were applied was Dos Bocas. By early

bad customer service and overregulation. Six months later, I

December, I was sending inspectors on-site to file reports and

had a meeting with the same attendees, and their reactions

sanctioning procedures.

concerning the issues we had six months prior were like night and day. They said their complaints had been fully and

The analysis was based on national environmental laws rather

appropriately attended. They perceived a stronger working

than the hydrocarbon laws derived from the Energy Reform.

relationship and a more proactive stance in the enforcement

This analysis was later expressed in algorithms that ASEA

of inspection and surveillance measures.

developed to generate what was called dynamic penalties, which are penalty fees that, instead of being fixed, change

The different administrative units of ASEA successfully

depending on case-specific circumstances and environmental

eliminated a number of inefficiencies in their internal

impacts. These dynamic penalties also change with time.

processes by prioritizing their functions. They have won praise

For instance, a US$1 million fee can become a US$10 million

from other institutions, ministries, legislators’ associations

fee, reflecting the fact that environmental damage might

and NGOs for their work in transforming ASEA into a more

be spreading. An ecosystem may continually degenerate

efficient regulator that is finally addressing these concerns.

due to contamination until effective action to reverse the

The units are also assisting new companies to comply with

situation is taken.

regulatory mandates as quickly as possible. For the first time in ASEA’s relatively short history, 98 percent of cases have

Q: How has ASEA communicated its plans to regulated

been delivered on time. This means that the institution is

entities and how have they reacted?

maturing and transforming.

A: Regulated entities have not contested ASEA’s open cases so far. They and their affected communities have so far accepted

Q: How are ASEA’s most recent activities changing the

suggestions and determinations. What has been a success

industry’s regulatory paradigms?

factor in this regard is the agency’s complete transparency

A: Historically, ASEA’s main focus was on operational

when it comes to the process of making these calculations;

and industrial safety, which unfortunately minimized the

in particular, how it calculates externalities on a scientific

environmental aspect of its responsibilities and scope.

case-by-case basis that is supported and certified by the

Given my background in environmental consulting for the

aforementioned government entities and others such as the National Commission of Protected Natural Areas (CONANP). Institutional backing and underwriting create confidence in

Luis Vera is a recognized authority in the regulatory processes

their decisions regarding regulated entities. This is also in the

governing Mexico’s energy industries through his work for Vera

interest of these institutions, as ASEA shares with them the

& Asociados. He acted as Executive Director of ASEA during

extensive volumes of data that were generated through

the first nine months of the new presidential administration

its inspections and analysis.

| HIGHLIGHTS

ASEA’S RENEWED VISION President Andrés Manuel López Obrador’s election victory saw care of the environment take a more prominent position within the country’s oil and gas market. While his repeated refusal to allow fracking was perhaps the clearest example of this, he also gave more weight to the role of ASEA, the environmental agency that was founded Aug. 11, 2014, and became operational on March 2, 2015. Luis Vera, former ASEA Director, held his position from December 2018 until August 2019, but during this time shifted the aims and processes of the agency. The new vision of ASEA is to ensure environmental integrity and safety within the hydrocarbons sector while ensuring that communities located where developments are taking place are involved and benefiting from the process. The agency set out six principal themes that would propel it: • More environmentally-friendly production • Biodiversity at the core of decision-making • Contributions to the Sustainable Development Goals • Closing regulatory gaps in environmental protection and industrial safety aimed at regulatory improvement for the sector • More efficient management of sector activities that translate to benefits for communities and ecosystems • Planning, management and supervision with a territorial vision

IMPROVING PERFORMANCE One of the criticisms of ASEA has been the length of time operators and block owners have had to wait to complete integral environmental control measures, including SASISOPA and Environmental Impact Assessments (MIA). As a response to this, ASEA is improving its accessibility with the construction of a fully-digital platform and assessing its process to quicken the pace for approvals. The agency is also delivering practical performance developments. From the beginning of its operations in 2015 to July 2019, ASEA conducted 3,765 inspections and verifications across industry work sites, of which 2,638 were scheduled and 1,127 were unscheduled. It also delivered supervision on 21,473 occasions, 7,309 of which came in 2018 compared to 3,167 in 2016.

255

| VIEW FROM THE TOP

UNIQUE POSITIONING IN THIRD-PARTY VERIFICATION ECKHARD HINRICHSEN Country Manager Mexico of DNV GL

Q: How would you rate the help provided by DNV GL

the low-hanging fruit, onshore and in shallow water.

to help companies comply with SASISOPA and ASEA

There seems to be little long-term activity to replace

regulations?

reserves and there is little investment in deepwater or

A: It was a tough year. It did not start well but picked

unconventionals onshore. Shale is politically off-limits,

up in the second half of 2018, driven by SASISOPA

at least for now.

and Probable Maximum Loss (PML) services. In 2016, 256

insurance requirements for upstream were increased

There is no forum of independent third-party companies

for deepwater and shallow water drilling in particular.

that provide certification and verification services on

In April of last year, midstream operators were required

behalf of the regulators, mainly ASEA. This is a very

to undertake a PML study with the help of an agency

important function to ensure that oil and gas activities

authorized by ASEA. In 2016, we started the process

are performed safely and that the risk to human life and

to acquire authorization for upstream and were the

the environment is reduced as much as possible. This has

only company in Mexico that fulfilled the technical

been a good and proven practice for decades in most oil

requirements to become authorized. Business was not

and gas-producing countries, such as those in Europe,

booming because the major IOCs are self-insured. That

Brazil and the US. We have the impression that the new

changed when the insurance regulations were extended

government is not very much in favor of certification from

to midstream. The potential market is larger and we had

third parties. There is the risk that some oil companies

the authorization and the technical expertise to perform

will exploit that. It is important that ASEA and CNH are

these studies.

supported by experienced international third parties like ourselves because they do not have the resources

Our focus is now on midstream and PML. We are helping

to oversee compliance for all the projects that will be

operators to get SASISOPA implemented and approved

executed during the coming years.

by ASEA. We have worked with several operators to resolve issues with SASISOPA and ASEA. If SASISOPA is

Q: DNV GL is making a big push into digitalization. How

not approved on time then the final client of the operator

does that reflect in the local market?

can apply fines.

A: The main element of our strategy is to become more digital in all we do. We are developing services,

Q: What are some of the questions that the new PEMEX

providing platforms and training our people to lead the

asset managers are asking you?

digital transformation. We are offering these services to

A: With regards to integrity, they want to know where to

our local clients and have had success with midstream

start. There was very little investment in PEMEX in the

companies. Most of the new operators in Mexico are

last few years due to the crisis and the focus on becoming

headquartered abroad and strategic IT decisions are

more profitable, so maintenance budgets were curtailed

typically taken centrally.

heavily. Now there is a large backlog. First, there needs to be money allocated to invest smartly. The focus is

DNV GL has an open industry platform called VERACITY.

on increasing production at any cost and on grabbing

We like to see this as a marketplace that brings together different players, such as our clients, software developers and authorities. The idea is to foster the exchange of and access

DNV GL is a global quality assurance and risk management

to data and extract value from that. All of this is done with

company. It provides classification, technical assurance,

observance of the highest security standards and our clients

software and independent expert advisory services to the

have full control over their data and their access. We already

maritime, oil and gas, power and renewables industries

have more than 100,000 registered users.

VIEW FROM THE TOP |

DEEPWATER PICKUP HAS REACTIVATIONS ON THE HORIZON HOMERO GUERRA Vice President of Mexico and Equatorial America at ABS

Q: What company achievements are you most proud of

the assets and we work across the entire supply chain so

in the Mexican market in 2018 and what were the missed

we know the equipment manufacturers and the regulatory

opportunities?

environment as well. We are in a very strong position to advise

A: 2018 was a fairly flat year but business started picking up

clients on planning for reactivation success. When reactivation

toward the end, especially in reactivations. ABS decided to

is more efficient the client enjoys a reduction in costs.

reorganize some of its operations and create other setup services to improve client support. One of the ways we

Q: If you were the CEO of a vessel-owning or rig-owning

approached this from an operational perspective was to

company, what technologies would you invest in immediately?

implement a hemisphere-based organizational style. Many

A: I would look into newer technologies for vessels. Hybrid-

of the administrative functions have moved to central areas,

power technologies would help ease pressure from fuel

which improves efficiency. Another exciting development

costs and environmental concerns. There is a strong

was the creation of a new group called ABS Advanced

emphasis on meeting environmental considerations in

Solutions, which is focusing on maintenance optimization,

Europe and North America and this will shortly arrive to

asset integrity management, cybersecurity and advanced

Mexico. One of ABSâ&#x20AC;&#x2122; focuses is on new advisory services for

engineering. It will support clients with solutions that

hybrid electric power, including lithium ION batteries, super

address a range of problems. Asset uptime is another topic

capacitors and fuel cells, as well as solar and wind power.

that clients are interested in. Everybody is experiencing

Not every technology is available to all vessels but we have

OPEX reduction, so the challenge is to maintain the same

worked with SEACOR to turn four vessels into hybrids. The

level of safety with reduced financing. Environmental

first is already completed. The vessel will be far more fuel-

compliance is another major issue within the marine and

efficient and have a positive impact on the environment

offshore industries.

and on marketability. Data-centric asset management and vessel fueling are two major trends that will have a great

Q: What is the main differentiating value of the company

impact on the maritime industry.

compared to its competitors? A: One of the challenges we see is that many clients have

Q: Mexico is an unlikely frontrunner in the technology

less time. This means we must be ready to support our

development trend, but what must be done to ensure the

clients whenever necessary. Planning is critical. For our

country is not left behind?

clients, the advantage of using ABS is that we have a

A: An advantage that Mexico has as a result of the Energy

detailed understanding of their available assets and that our

Reform is that other players and new ideas have been

relationships extend throughout the entire supply chain of the

welcomed. Moving into deepwater requires the use of

maritime industry. We are very well-prepared to help clients

other technologies. There will also be room for everybody

meet their expectations within the regulatory framework.

because there will always be areas in which traditional vessels without technology are needed. As we move into

Q: What role will reactivation play in your business in 2019?

more challenging environments like deepwater, we will need

A: Given the federal administrationâ&#x20AC;&#x2122;s priorities, we are

to use technology to our advantage. Companies that do not

expecting more investment in PEMEX in 2019, both in shallow

embrace this technology may be left behind.

water and deepwater. If this holds true, there should be many vessels reactivated in the Mexican market. Around 45-50 percent of the OSV market has been laid up throughout the

ABS provides traditional classification services and on-the-

last few years so reactivations will be a challenge for clients

ground technical services in asset performance, energy

given the many considerations, the technology the vessel is

efficiency,

equipped with or whether or not it is a warm stack. We know

management

environmental

performance

and

life

cycle

257

| INSIGHT

ENGINEERING SAFETY THROUGHOUT THE VALUE CHAIN ROBERTO VÁZQUEZ Vice President and General Manager Mexico and Latin America of Eaton Crouse-Hinds

258

Safety specialists in Mexico’s oil and gas industry face

These high standards have been the driving force behind

unique puzzles that require local acuity to provide unique

Crouse-Hind’s commanding 60 percent market share in

solutions, says Roberto Vázquez, Vice President and

Mexico. It is a major player in safety solutions in the country

General Manager of Crouse-Hinds’s Mexico and Latin

and will play a significant role as the oil and gas industry

America operations. He points to differences with the US

expands. “Our products are in demand throughout the

as an example: “The oil and gas industry in the US prefers

entire value-chain, from drilling in upstream, to midstream

iron as a metal base for their explosion-proof boxes and

transportation and refinery stations, to gas stations in the

equipment. However, we manufacture with aluminum

downstream segment,” he explains.

because PEMEX clients prefer this lightweight material.” As more players enter the Mexican oil and gas market, According to the US Energy Information Administration,

bringing with them international specifications, the demands

while two-thirds of global oil production came from

on safety manufacturers evolves and opens opportunities. It is

onshore fields in 2015, Mexico produced 75 percent of

here that the company’s domestic edge comes into play. “We

its production from offshore wells. Consequently, safety

have know-how in dealing with companies along every step

specifications are different, making customization a key

of the oil and gas industry; we can react quickly to demand.

for the Mexican oil and gas scenario. Offshore conditions

We have been working in Mexico for over 60 years and more

also demand stronger forms of protection for safety

than 70 percent of the products we sell are manufactured in

equipment. The corrosiveness of sea salt can destroy

Mexico City. We have local knowledge, a local factory and a

electrical equipment, including lighting systems or power

local service. We are tailored to the Mexican market.”

and control systems, within six months. Local production capacities allow the company to work closely These installations, integral to the crew’s safety, require

with contractors and EPCs. In-house design and engineering

innovative engineering solutions to stay functional in

during the extensive 12 to 18-month design process is the

the harsh environment. To overcome these obstacles,

added value that Crouse-Hinds offers. “We work with our

Crouse-Hinds, part of the US$21 billion Eaton family since

clients from the beginning of the design process; from the

being acquired in 2012, pooled its knowledge to generate

conceptual stage onward. This is mainly providing technical

enhanced protection ideas. “We worked with an American

support and creating technical designs for customized

company to develop a specialized coating process that

products,” Vázquez says.

protects products completely,” he points out. Despite the administration’s suspension of bidding rounds Before its acquisition by Eaton, Crouse-Hinds had already

for three years, Vázquez believes that the liberalization

been at the forefront of industrial safety in Mexico for six

of Mexico’s oil and gas industry has created plentiful

decades, renowned for its exceptional safety record across

opportunities. “There is a great deal to be excited about in

industries. Without the explosive boxes, lighting systems and

the short term. All the construction that came about due to

apparatus that the company, and others like it, manufactures

the Energy Reform is ongoing.” Similarly, the government’s

at its Mexico City factory, the industry would be a far more

proposed rehabilitation of PEMEX’s six existing refineries

dangerous place. “We are conscious of the vital role our

and the new construction at Dos Bocas are welcomed

products play in the safety of lives and assets. We work to

by Crouse-Hinds. Safety will be at the center of these

keep our standards exceptionally high because we know any

developments. “As a business, we are looking to the future

failing could be catastrophic. This dedication is the reason

with hope and expectation,” says Vázquez. To meet these

so many end-users and contractors choose our products,”

future demands, Crouse-Hinds is investing in technology

Vázquez says.

and improving facilities.

VIEW FROM THE TOP |

SAFETY TECHNOLOGY FOR THE WHOLE VALUE CHAIN ROBERTO ALEJANDRE Director of Sales and Services at Dräger Safety Mexico

Q: How have recent changes in the Mexican oil and

A: Security must be perceived by operators as a central

gas industry created demand for new safety products

pillar in the efficiency of their processes. Besides protecting

and services?

their personnel, investing in safety must be understood as

A: Safety has definitely been refocused and centralized

a way to ensure the continuity of our clients’ business. We

within industry operations. Companies are increasingly

generate this understanding by focusing on technological

concerned about the certifications behind their safety

development. Instead of offering what seems like a costly

products and as such, a bigger market has been created

safety product or service, we offer technology that can

for products that can be proven to meet national and

increase productivity by reducing operational costs and

international standards. As a result, the value of our

maximizing the output of personnel activities. For instance,

brand has improved, thanks to its reliability in this and

now our product developments are focused on the IIoT. In

other industries. Many products and services that were

the near future, we will be able to provide a platform that

focused on a preventative approach to safety, and

can reliably execute processes remotely through devices

which perhaps were not considered so relevant before,

communicating with each other. This facilitates and adds

are now becoming more important to our current and

accuracy to all sorts of services that usually cause significant

prospective clients. A good example are our drug and

downtime in upstream assets and worksites, such as gas

alcohol screening and detection systems. This is an

detection, flame prevention and emergency response. This

emerging area within our product development that has

is all aligned with our evolution into a company that works

been proven to play a tangible role in accident prevention

much more as an integrated safety service provider with

by significantly reducing the operational risk involved in

consultancy and advisory functions that can guarantee

dangerous activities.

these kinds of operational results and can respond quickly to any unexpected situation.

These types of solutions are what the industry is now demanding of us, which is intelligent and integrated systems

Q: What do you identify as the most important areas of focus

that can be operated remotely, updated in real time and,

during the planning and EPC phases to guarantee the best

eventually, generate data designed. These systems could

safety conditions for the new Dos Bocas refinery?

also monitor the health conditions of all workers in real time.

A: A risk analysis specific to this project is essential. There will be many opportunities throughout the EPC phase

Q: How does Dräger contribute to closing the gap between

to intervene and address any areas of concern that might

the sophistication of Mexican oil and gas safety norms and

arise. Our close relationship with the project would facilitate

regulations and their more uneven implementation?

these interventions by establishing us as partners of all the

A: Currently, we have a close relationship with the normativity

companies involved. Our input into the project’s design is

safety committees that dictate what the expectations will be

focused on enabling and optimizing safety functions crucial to

when putting together safety legislation in Mexico. We also

these types of downstream worksites. We will remain working

make significant investments in industry training programs.

close to this project once the refinery is online and operational

In this way, we can connect the whole process into one

since we are recognized as a company that is involved on the

streamlined line of action: we play a role in defining the

whole operational life of the projects.

standards and then directly intervene with training to make sure those standards can be met by the workforce. Dräger Safety Mexico provides products and services in

Q: How do you present high-end safety products and services

the area of safety systems for upstream and downstream

as solutions for the upstream sector in terms of efficiency

worksites, such as gas detection and fire-fighting equipment,

and productivity?

under Dräger’s wider international umbrella

259

| VIEW FROM THE TOP

KEY STEPS TO GUARANTEE SAFE OFFSHORE ACCESS ANDRÉS GARCÍA Business Development Manager of Ampelmann

260

Q: What role does Mexico represent in your service offering?

in flotel facilities. The use of Ampelmann systems in this

A: Given the opportunities to improve safety and offshore

project completely replaced the use of swingropes and

access in the Mexican oil and gas industry, Ampelmann’s

baskets, which represents an innovation within the Mexican

status as a global leader in improving this accessibility makes

context. This ongoing work in the Mexican oil and gas

Mexico a prime target market for our service offering. We

industry has so far demonstrated to Ampelmann the great

have changed the world of offshore access in terms of safety,

working conditions and opportunities offered by what we

efficiency and reliability. Thus, we believe that Mexico offers

would call its post-Energy Reform changing market, not to

good conditions to bring Ampelmann’s added value to the

mention the way in which Ampelmann’s designs are tailored

local industry. At Ampelmann, our vision is to make offshore

to Mexican conditions due to their ability to withstand the

access as easy as crossing the street.

Gulf of Mexico’s changing and unpredictable weather. These great experiences and our optimism will most likely

Ampelmann achieves the goal of improving offshore

lead Ampelmann to expand its involvement in Mexico as

accessibility mainly through our flagship technologies: our

we consolidate our business plans in preparation for new

fully motion-compensated gangway and crane systems. In

projects despite the day-to-day fluctuating conditions of an

the Mexican context, these systems would mainly compete

active and promising market.

with helicopter access and more rudimentary options like the tarzaneras or swingropes that enable vessel access, in

Q: How can your services guarantee safe access despite

particular to older facilities. Helicopter personnel transport

difficult conditions?

companies have an established presence in most of Mexico’s

A: Ampelmann provides full-service and tailored solutions for

offshore hubs but their elevated cost can make them

safe offshore access, for both people and cargo, which is still

economically inefficient options for constant transport;

a major challenge in our industry. These systems have been

despite their high standards in regards to safety, that can

tested through extensive use in notoriously difficult North

definitely also be an issue. Meanwhile, baskets and swingropes

Sea conditions, among many other major offshore regions,

are too rudimentary to provide clear safety guarantees, and

where they have guaranteed safe access to and exit from

can also be an inefficient and time-consuming way of getting

offshore facilities amid dangerous winds and significant wave

personnel and cargo in and out of offshore facilities.

heights reaching 4.5m. The systems are easily adaptable to any number of vessel types, making it an easy and versatile

Q: What has been the extent of your involvement in Mexico’s

matter for operators to implement them into their project’s

oil and gas sector?

day-to-day movements.

A: Despite our competitive advantage and Ampelmann’s extensive international presence, not to mention domination

Q: What are the most important advantages that your

over our specifically-segmented market, we have only

services can provide to operators?

recently been awarded our first project in Mexico. We will

A: We divide Ampelmann’s activities, products and contracts

manage and guarantee safe offshore accessibility for an

into two general categories. Walk to Work operations cover

IOC new to the Mexican industry that is executing a large

any transfer of personnel or cargo to and from a vessel, usually

installation project through the use of our A-type systems

workboats. Crew Change operations cover the transferring of personnel to and from a port or any other onshore facility and offshore worksites based on a crew system line that

Ampelmann is a global leader in offshore access solutions

increases safety, efficiency and workability. Compared

based in the Netherlands. It commercializes gangway and

to helicopters, baskets, surfer and swingropes, using the

crane systems for moving people and cargo in and out of

Ampelmann L- and S-types as part of our Crew Change

offshore facilities

modality can save up to 30 percent in logistical costs.

VIEW FROM THE TOP |

OPEN OPPORTUNITIES IN SAFETY, SECURITY SARA LANDON Executive Director of INERCO Consultoría México

Q: How important is Mexico within INERCO’s global

particular sector with a specific situation. For example,

portfolio?

the oil and gas sector continues to improve continuously

A: Mexico represents a great opportunity for INERCO

and needs competitive solutions every day.

because it is an interesting market that wants to significantly improve environmental, social, health,

Q: How does INERCO rate the performance of ASEA and

security and safety conditions. We have five years of

SENER in enforcing environmental standards?

experience in Mexico and around 35 years around the

A: From the government’s side, there are a lot of

globe and during this time we have done business with

challenges regarding the Energy Reform and the

important companies like Mapfre. This has allowed us

legislation changes that are involved, and because

to combine our international experience with local

of this, it is very important to implement the correct

knowledge. We have experts from all over the world,

technical expertise to the legal requirements. ASEA

so some parts of the company are on standby, such as

was created recently, so it is going through a process

energy efficiency and process optimization. For example,

of change and growth in all aspects, ranging from its

in Mexico we are using a very specialized engineering

structure to the creation, application and adaptation of

team focused on optimizing processes based in Europe.

the legislation. SENER is going through the same process

And also, the company is working on engineering

of adaptation as well, and is redefining its responsibilities

plans for a storage terminal in Mexico, combining local

and its relationships to the other government entities.

experience and international knowledge.

For us, ASEA and SENER are key actors with respect to environmental conditions.

For the future, we see Mexico as a market with one of the biggest potential developments in Latin America. The

Q: How do Mexico’s security risks generate challenges

changes derived from the Energy Reform have created

for environmental compliance?

opportunities in the fossil fuels sector, in areas related to

A: The problems surrounding security in some parts

community management, environmental protection, process

of the country pose a challenge for the development

safety, prevention of occupational hazards and security.

of projects, mainly in the oil and gas sector. This is

We have developed these HSSEC services in Europe over

because the industry is based in areas that can be

the last 35 years, using the best international practices as

seen as vulnerable as a result of negligence from

guidelines to create adequate and real solutions.

past administrations that did not comply with former agreements. Therefore, there is great need to define

Q: How have you developed a competitive edge?

strategies with specialists in community management,

A: The exchange of experiences and knowledge between

joined by a multidisciplinary team that makes clear

the different offices of INERCO through the development

commitments to these communities, so that projects can

of joint projects and the generation of work teams with

operate safely in these areas. Furthermore, INERCO has a

the best experts, allows us to offer Mexico a wider variety

lot of experience working with big companies around the

of solutions which are applicable at the local level, based

world, such as BBVA, in security assessment, so we know

on international application criteria. In this way, we can

how to find solutions to security problems.

offer our innovation and forward-looking vision, with which we contribute decisively to the industry by making it safer and more efficient. And of course, being mindful

INERCO Consultoría México offers engineering of technologies

of our planet. The basic principles of industrial safety and

to reduce emissions and improve efficiency. In Mexico, it delivers

environmental protection are applicable to any sector,

HSSEC consultancy, focused on safety training, safety assesment

but the challenge is determining how to adapt them to a

and environmental risk management

261

| VIEW FROM THE TOP

TAKING UPSTREAM TRAINING TO NEW HEIGHTS CARSTEN RÖHL CEO of Rheinmetall Mexico

262

Q: What are the critical milestones in Rheinmetall’s

equipment and the development of the training concept

journey into oil and gas?

and courses. We are employing and training people, and

A: Rheinmetall is involved in the defense and automotive

will, once open, operate the training center for a period

industries. In the defense industry, the simulation and

of 12 years. The finishing touches are now being applied

training area forms part of our electronic solutions

to the 10,000m2 CAPP facilities, which we hope to open

division. We provide simulator training services to the

by mid-2020.

aeronautical industry and to companies working in nuclear power plants. From here, the step into oil and

Despite this EPC approach not being a core business

gas plant process training was easy to make. We provide

line for us, we were happy to help our client on this full

process simulator training that covers production and

turnkey project. We believe this project is a fine example

control programs, ensuring personnel are well-prepared.

of the flexibility and professional approach Rheinmetall

Rheinmetall began in the upstream area where oil, gas and

has regarding client requests outside our normal scope of

water pumped from wells needs to be separated. These

work. The additional value that we add is that we are not

are complex processes and require serious training that

simply “box pushers”, we train and educate our clients

is best taken through simulators that provide extremely

on how to use the simulators we provide.

realistic scenarios. High-fidelity simulation with real-time processing is what we offer our clients.

Q: How did Rheinmetall adapt its international practices to the Mexican environment?

Q: What are the key qualities that Rheinmetall brings to

A: We created RH Mexico Simulation and Training

the Production Process Training Center (CAPP) project?

and incorporated it into the Rheinmetall group. Other

A: Rheinmetall first entered Mexico in 2000 when the

than myself, the company has an all-Mexican staff. It is

simulator for the nuclear power plant in Laguna Verde

important to the company that there is an international

was licensed. We then became involved in the CAPP

approach to work, using the advantages of a German

program to train offshore workers in upstream production

working culture. This means that communication is not

processes. Here, we will focus on operational efficiency to

overly hierarchical. To do this, we have had cultural

avoid downtime and damage to equipment. By avoiding

workshops in regards to the differences between

damage, we automatically save human lives and the

Mexican and German culture and how they are mutually

environment. In this sense, the training we provide is

complimentary. The culture of Rheinmetall itself, which is

rather operational than safety training. It has an impact

built on respect, trust and openness, perfectly matches

on the safety of a plant. By optimizing production, we

the culture that we created within RH Mexico Simulation

help reduce costs.

and Training.

Rheinmetall was asked to guide each aspect of the

Q: How does Rheinmetall stay on top of technological

CAPP project, working as an international company

advances within simulation and how can they be adapted

under commercial conditions. We oversaw the design

to Mexico?

and construction of buildings, the procurement of

A: It is vital that we keep our eyes open to developments within our sector. Communication is also important, and accepting innovative ideas from engineering in

Rheinmetall AG is a German group delivering solutions

the field helps foster a culture of collaboration that

throughout the defense, automotive and energy industries. In

continually improve our processes. We also have internal

Mexico, it provides simulator training and took a leading role in

optimization programs established that help elaborate

the development of the CAPP training center

these innovations.

VIEW FROM THE TOP |

SAFETY SYSTEMS TO PROTECT PERSONNEL ÓSCAR VALDEZ General Manager of ROS

Q: What services does ROS provide the Mexican market

that ROS equipment can interoperate with legacy

and what have been the company’s recent standout

equipment or that of other operators without the

projects?

need for translation between systems. Our technology

A: Reliable On/Offshore Solutions offers well completion

partnership with Chinese tech giant Huawei means we

services in the US, but this is not our core business in

can offer a household name that is trusted by our clients

Mexico, where we are focused on hydraulics, security,

in the industry. 263

safety and fire systems on both onshore and offshore platforms. We also provide telecommunications services.

Q: How does ROS differentiate itself from other national

Rather than providing single and separate solutions,

companies new to the Mexican market?

ROS delivers a full itinerary of services in a manageable,

A: As a Mexican company, one of our strengths is the

intelligent and integrated offering. One of the most

human capital we provide. The skills of our personnel

important contracts we have worked on in the last year

within the national market are vast and provide clear

was the redevelopment of the Public Address General

benefits to our clients. Similarly, we have a direct

Alarm (PAGA) system for the Mexican market. Together

relationship with national manufacturers, which

with American company Federal Signal, we revamped

guarantees the best prices for the products we are

the system to improve its wireless capabilities. This has

designing and delivering. Our logistics network is spread

proved a superb innovation and will be installed in the

across both onshore and offshore, allowing us to provide

process center on PEMEX’s Abkatun development. The

a fully-comprehensive transport system.

Abkatun-Alfa platform has twice had fires resulting in deaths, so we are delighted that our system will help

Q: What are the different challenges the company faces

ensure the safety of workers onboard. This work is due

working in onshore and offshore environments?

to begin in December 2019.

A: Moving offshore systems onshore tends to be easier than moving onshore systems offshore. This is because

In our experience, around 30 percent of the injuries that

an old paradigm still exists whereby the frequency used

result from fire onboard a platform are due to workers not

by the system’s Wi-Fi could affect the mechanisms used

knowing where the fire is happening. Unfortunately, this

on process centers offshore. We have new technology

means that workers may run toward the area of danger,

that allows us to navigate between frequencies so that

putting their lives at risk. Our system can pinpoint and

our systems do not impact the working processes of the

announce, via the speaker system, the location of the

platforms or centers in which they work.

danger, allowing the workers onboard to move away. We also are delivering an administration automation service

Similarly, at well sites there is a common issue with dust

that overcomes the problems related to delays that are

and grime causing problems with equipment. At these

frequently generated by the disconnection between a

sites, companies are not permitted to have 100 percent

company’s operation center, for example at the drilling

wireless communications for reasons of security. As a

site, and the administration center, which is often located

result, we need to also install a wired connection as a

elsewhere. We help facilitate communication between

fail-safe.

both parties so that the process of work can be rolled out smoothly. Reliable On/Offshore Solutions (ROS) is a Mexican company that

As part of our compliance with ISO 27001, ROS provides

provides a variety of services for operators. These include well

enhanced security measures for our data services.

completion services and the design, fabrication and installation of

Our software also features open protocols, meaning

fire, electronic communication and hydraulics systems

| VIEW FROM THE TOP

SUPPLYING SAFETY TO AN INDUSTRY ON THE UP REBECA BARRIOS Country Manager of RelyOn Nutec

Q: What steps is RelyOn Nutec taking to enhance safety

quality training at a distance. A good example of this is

standards in the Mexican oil and gas industry?

our Emergency Management training for rig workers. The

A: Operators already know RelyOn Nutec and the quality

client supplies us with a layout of the rig, from which we

that our brand brings to their safety operations. Therefore,

generate a digital replica.

they understand that investing in prevention is preferable 264

to repair. This is not only true of the economic side but

This digital replica matches the physical rig in every way.

for human capital too. With the arrival of international

We use this to construct various emergency situations for

players and the tightening of regulation that came with

training the workers. They must apply for training within

the sectorâ&#x20AC;&#x2122;s reform, a company that does not have the

the digital platform to pass the course. The particular

necessary safety training standards simply does not have

value of this course is that RelyOn Nutec tailors it entirely

the chance to win business. Safety training is essential

to the clientâ&#x20AC;&#x2122;s situation: the rig that students train on

and allows companies to provide services of higher

is a recreation of their own. This gives them the most

quality with more prepared personnel.

appropriate training for their real-life experience.

However, the culture of safety can take longer to foster

However, there are certain training courses that cannot

and this is the road the industry in Mexico is now moving

be replicated at a distance and must be done on-site.

down. National companies are progressing well in this

One of these, which is becoming more popular as more

regard but there is still room for improvement. As part

deepwater activity takes place in Mexico, is our Helicopter

of our efforts to raise standards across the country,

Underwater Escape Training. This course provides

RelyOn Nutec will deliver the internationally certified

theoretical and practical training for Helicopter Safety

WellSharp course from December 2019. This course

and Escape and requires a large pool and equipment to

provides essential safety training during drilling and well

simulate a helicopter crashing into the sea. This must be

servicing operations and is certified by the International

completed at our Ciudad del Carmen base.

Well Control Forum, the global benchmark for this safety standard. We already offer this course in other countries

Q: What are RelyOn Nutec's growth expectations and

and we believe there is now sufficient demand in Mexico.

where in the value chain do you expect to grow? A: We are seeing the growth of drilling activity in the

Q: How is technology changing the means through which

country and focusing on providing the best safety

the company delivers its integral safety training?

courses for the phase that the industry is in. For the past

A: Technology is an important tool in RelyOn Nutecâ&#x20AC;&#x2122;s

six years, we have been located in Ciudad del Carmen,

service provision and enables us to deliver training to

in Quintana Roo, but we must expand into other areas

those who cannot come to our training center or those

of Mexico to grow.

we are unable to reach. The company offers over 200 courses and technology is essential to offer them all.

We have been indirectly working with PEMEX for some

We manage a selection of software packages that allow

time and are now interested in working directly with the

us to communicate digitally with our clients and deliver

company. We have vast experience in raising health and safety standards across the industry and with national and international expertise. Therefore, we want to play a

RelyOn Nutec is an international safety training and equipment

central role in improving safety standards in the national

services provider for the oil and gas, maritime, industrial and wind

oil company and doing our part for its reinvigoration. At

power sectors. The company offers over 200 courses from its

the moment, we are in talks and will hopefully reach an

Mexican headquarters in Ciudad del Carmen

agreement soon.

VIEW FROM THE TOP |

SAFETY OPTIMIZATION CRUCIAL TO INDUSTRY DEVELOPMENT ADRIAN BISIACCHI Director General of KDM Fire Systems

Q: What areas of opportunity have you identified at worksites

latest norms in terms of fire safety, explosions and spills are

in the Mexican oil & gas industry?

focused on the midstream sector rather than the upstream.

A: A prominent opportunity involves our work with marine

For example, we do a lot of work in terminals and we have

moving assets, where we can implement safety technology

been working with newer and stricter regulations specific

specifically tailored for ships, both in a general sense, including

to these types of infrastructure. Meanwhile, in upstream

merchant ships, as well as specifically oil and gas vessels.

fields both active and inactive, we continue to work under

This is relevant for the Mexican context because most of

old PEMEX norms, many of which have not been revised

the facilities that will be used in deepwater are going to be

or replaced. We hope that the optimized midstream safety

vessels. This includes FPSOs, FSOs and even a few floating

standards start being applied to the upstream sector. Since

platforms, although they will probably not be the technology

upstream activity has been focused on drilling, not many new

of choice; if they were, PEMEXâ&#x20AC;&#x2122;s strategy would represent

permanent facilities have been built by the private sector that

a kind of unusual blend. These kinds of choices represent

could benchmark new safety standards. There has not been a

specific fire safety needs. When you are offshore in a vessel,

great deal of urgency in terms of establishing new regulations.

you do not typically have access to many water pumps. In fact,

However, we expect PEMEX will change its standards as

the available supply of water for fire suppression is limited

new expectations emerge. PEMEX used to work in a way

because the amount of water that you are allowed to throw

that facilitated the de-prioritization of safety standards.

around on the ship is limited. In these cases, suppression is

If you are investing a lot of money to increase production,

achieved through a technology called HI-FOG Water Mist Fire

corresponding safety and security investments tend to lag by

Protection. These systems use small particles of water to cool

a couple of months or years. This is a problem for a number

down the environment and end fires that way. It is specifically

of reasons, among them is the fact that conditions change in

tailored for complicated environments within vessels and

those facilities that increase capacity.

platforms, such as engine rooms. We have a great deal of experience in the installation and maintenance of this and

Q: How are these scenarios affecting the issue of maintenance

other systems designed specifically for floating facilities.

as a safety factor? A: If you devote many resources to CAPEX and expanding

Q: What is the most important challenge you tackle when

infrastructure, there will be a corresponding decrease of OPEX

adapting to the current needs of ongoing projects?

and maintenance expenses. Fortunately, we are not seeing

A: The biggest challenge is tailoring the cost to the

that in PEMEX operations. If you look at the basic list or set

environment, especially since the cost structure and

of activities that PEMEX issued in March 2019, there are about

complexity for a deepwater fire suppression system is

50 items, including oil production, compression, pumping,

completely different from that of an office building, tower

well heads, well maintenance and other similar categories. Of

or shopping mall system. In our case, having experience in all

those items, there are eight to 10 activities specifically related

types of cost structures and projects, we have been able to

to fire and gas safety, such as rehabilitation and maintenance

create a general cost structure that can be adapted to these

of suppression systems and the rehabilitation of sensors and

different projects; nevertheless, it is extremely challenging and

other preventative systems. These items are proof that PEMEX

the planning involved is complex.

will not disregard maintenance.

Q: How are you preparing for a scenario in which stricter safety regulations clash with the goal to increase production?

KDM Fire Systems is a Mexican distributor of Kidde products.

A: In our experience, there is a general tendency for Mexican

It also provides consultancy, engineering, installation and

safety norms to become more stringent over time without

maintenance services for fire prevention systems and solutions in

necessarily being applied to all fields equally. Most of the

oil and gas facilities, often working directly with PEMEX

265

| INDUSTRY PERSPECTIVE

SOCIAL COMPLIANCE ACROSS THE VALUE CHAIN Q: How does Ramboll guide its clients to regulatory

Mexico is a vast nation with many distinct groups,

compliance in the current market?

including indigenous communities. In total, 68

A: Problems that the Mexican market has recently

separate languages are recognized by the federal

witnessed with pipeline permitting have happened

government. While this diversity generates cultural

because the consideration of environmental and

richness, it can also pose issues for major construction

social elements has come too late in the process.

projects, says Ernesto Monroy, Director General

To be successful, social and environmental planning

of Social and Environmental Impact consultancy

needs to be done at a very early project planning

EcoSocial Soluciones Sustentables, who adds that

stage. These problems were exacerbated by the use

when a project goes awry it is almost always because

of international consultants in the early planning

of a lack of communication.

process who did not have a solid grasp on the

266

local social circumstances within Mexico. This is

“We have seen many development projects across

not to say methodology was flawed, but that local

industries grind to a halt in Mexico. The reasons

sensibility was missing. Ramboll advises its clients to

are overwhelmingly bad communication with the

put social and environmental considerations at the

communities these developments will affect. Even

center of their planning. This can be done by putting

with technically-feasible constructions, delays are

instruments in place to assess potential concerns,

likely if the social aspect has not been addressed.

maintain grievance mechanisms, and sustain close

These delays will translate to major capital losses for

communication with the local community.

the developer,” explains Monroy.

ARTURO RODRÍGUEZ Principal Consultant and Managing Director of Ramboll

ERNESTO MONROY Director General of EcoSocial Soluciones Sustentables

Q: How do the regulatory standards of Mexico’s

Monroy suggests that while some environmental

institutions, like ASEA, compare to those of other

regulation could be reinforced for improved

countries?

protection, many public institutions are now far

A: Environmental regulations in Mexico are

more effective than they once were. Born out

generally very strong. Ramboll works throughout

of Article 19 of the Energy Reform, ASEA was

Latin America, and Mexico’s health, safety and

founded in 2015 to supervise the activities and

environmental regulations are more robust than

constructions of companies in Mexico’s newly

in most other countries, with the exception of

opened oil and gas industry. The body, which

Brazil. But there is still a lack of clarity in some

works under the guidance of the Environment

departments, including the construction of

and Natural Resources Ministry, has provided a

gas stations. Prior to the Energy Reform, the

point of reference that was previously missing.

jurisdiction of gas station construction fell to

“With institutions like ASEA, the government

each state but it is now overseen at the federal

is attempting to right some wrongs of the past.

level. While the sophistication and enforcement of

Previous studies were not carried out properly

regulations tends to be higher at the federal level,

and these failings led to environmental damage in

problems had previously occurred because the

Mexico. Their role is relevant and vital.” EcoSocial’s

resources of state authorities to properly enforce

services are spread throughout the onshore value

legislation were often lacking. ASEA has tended to

chain in distinct areas of the country. From well

follow a voluntary self-regulation approach to the

sites to construction, the company’s expertise is

application of law, supported by third parties. This

called into action by clients along every link. Indeed,

has the benefit of putting less pressure on ASEA.

the company is often first approached by IOCs.

VIEW FROM THE TOP |

MITIGATING ENVIRONMENTAL AND INDUSTRIAL RISKS ALEJANDRO HERNĂ NDEZ Director General of CSIPA

Q: How is the company involved with PEMEX and does it

the same time. One issue earlier this year was the

prefer to work in the public or private sector?

authorization process. Technical requirements here are

A: We operate in both the private and public sectors.

rather specialized and even some experts in the sector

We have two active projects with PEMEX. One is Lakach,

might have difficulty guiding a company through these

where we are involved in environmental protection and

processes. Companies in the private sector experience

reforestation. PEMEX is planning to build a hydrocarbons

a learning curve in order to execute a job successfully.

storage terminal as part of its offshore operation, which

Adapting to changes and circumstances will take some

aligns with our environmental management business.

time, especially now that this curve has been steeper

The other project is a contract regarding a system of

than usual. This is true not only for ASEA, but for

platforms in shallow waters, where we perform risk

developers as well.

analysis focused on well drilling, which is planned for 30 wells this year. In this case, we were hired along with two

Q: What role do you want to play in the development

international companies: Inerco and DNV GL. We were

of the sector and the governmentâ&#x20AC;&#x2122;s production goals?

chosen due to our expertise and technical capabilities.

A: The company aims to get involved in big development

The fact that we are a Mexican company has given us

projects on two fronts: in oil refining and production. In

an edge, since international companies are supposed

the case of refineries, we would like to help government

to expedite contracts to a certain number of national

authorities get their current requirements up to date. In

companies. Having been selected alongside these two

the case of operations, we would like to carry out more

international companies has allowed us to better position

studies. Soon, more wells will be drilled and established,

CSIPA in the market.

so the future looks quite interesting, especially in shallow waters.

We are operating in Chiapas, Tamaulipas, Campeche and Veracruz and have created strategic alliances with

What are some of the opportunities the company is

DNV GL. Our involvement in multiyear projects, such as

planning to take next year?

when we worked in the Ku-Maloob-Zaap system along

We basically have pre-established contracts with PEMEX

with other international companies during a five-year

and we are still in communication with our clients. At this

contract, has allowed our company to obtain a great

time, the oil sector has to carry out the management system

deal of experience. We also have diversified our services,

SASISOPA to its maximum capacity. Considering this, there

collaborated with ASEA and the private sector as well.

are a lot of services we provide for this particular system.

Q: How do you define the role ASEA is taking now?

How would you qualify the impact of technology and

A: The hydrocarbons sector is strategic, not only

innovation in environmental risk analysis?

nationally but internationally. It seemed like a logical step

It is extremely necessary to apply top-notch technology

to structure ASEA toward a security and environmental

in the sector because studies are better backed up when

policy. There are instances where issues arise due to

the use of technology is applied and therefore we obtain

some companies operating in the sector but not always

the best results.

understanding the environmental policies the authorities have imposed. These security and environmental policies are great for Mexico and investors. After all, companies

CSIPA is a Mexican consultancy with over 15 years in operation.

can go bankrupt if they cause a natural catastrophe or

It delivers its services to private companies and PEMEX. It

a major incident. The system that ASEA is implementing

specializes in industrial, functional safety and environmental

allows the sector to develop and minimize risks at

protection through diagnostics, studies, consulting and training

267

| VIEW FROM THE TOP

WATER MANAGEMENT PLAYS KEY ROLE IN SUSTAINABLE OIL PRODUCTION ALEJANDRO ESQUIVEL Director General of Multiservicios Petroleros

268

Q: What is Multiservicios Petroleros’ main contribution to

Q: How would you asses the regulatory framework

the oil and gas industry in Mexico?

to increase sustainability practices within drilling

A: We are a Mexican company with more than 30 years

operations?

of experience in the water treatment segment, providing

A: Rather than a change in the current regulatory

maintenance services for water generation, treatment

framework, the greater urgency is to change existing

and pumping equipment, known as dynamic equipment

practices. Mexican laws establish very clear parameters

in the drilling segment. In the oil and gas industry, we have

with which companies must comply. In terms of water

many projects related to water distribution processes. Our

sewage treatment, for many years this service was not

portfolio also includes projects in the pumping equipment

provided correctly. For instance, PEMEX requires the use

segment and the delivery of pumps for fire protection.

of equipment that must comply with specified technical

We work with a wide array of technologies for every

requirements as stated in the contract agreement. In some

application.

situations, the supplied equipment has not complied with the requirements of the contract and poor results are

PEMEX is our main client but we also want to consolidate

the consequence of that failure. But there is no urgency

the company in the lodging industry. We have been

to change these practices. Multiservicios Petroleros has

participating in this industry for 22 years. In 2018, we

complied with this framework since the first contract we

delivered our osmosis system to two hotels and we started

were awarded and will continue to do so.

2019 on the right foot by participating in the second stage of a project that was awarded in the Caribbean. This project

Q: What are Multiservicios Petroleros’ goals for 2019?

consists of a water system for 15,000 hotel rooms.

A: The more drilling companies that enter the market, the better it is for our business prospects. We know every

Q: How can the company support AMLO’s oil

company that is operating in the region and have already

production plan and what is your view of the

approached them, highlighting the quality certifications

administration’s strategy?

we have obtained for our processes and equipment. Last

A: Water is essential for drilling. Although our company

year, we changed our company’s administrative procedures

plays a minor role in the development of a national

and adopted a quality management system. We also

strategy, the fact that the federal administration is not

delivered six osmosis plants and participated in a water

trying to rush industry participants or change the current

sewage treatment auction for 19 plants. Those projects are

policy framework is a positive development. Nevertheless,

not related to the oil and gas industry but are part of our

a different approach is needed to have a different result

diversification strategy. In oil and gas, the auction processes

and this government is adopting that strategy. We expect

appear to be ramping up and this will represent work inflow

this administration to boost national oil production and

in the coming months. We also have worked with PEMEX

any company that participates in this industry will see a

for 18 years and as long as the company keeps choosing

strong benefit from that. From our side, we would like to

us as a contractor, we will continue providing our services.

participate in the water generation elements of the Dos Bocas refinery project.

From the technological side, our equipment already encompasses every water-related technology so there has not been a big opportunity to introduce new products. Still,

Multiservicios Petroleros is a Mexican company with more than

technology is constantly advancing and we will integrate

33 years of experience in the oil and gas industry, providing

these new innovations into our equipment. Our focus is to

desalination plants for offshore and onshore operations, such

provide the best technology available at accessible costs. To

as platforms and mud ships

stay in this business, competitiveness is key.

VIEW FROM THE TOP |

BROKERING RESOLUTIONS BETWEEN COMMUNITIES, CORPORATIONS CÉSAR PINDADO Managing Partner of ERM

ALBERTO SAMBARTOLOMÉ Partner at ERM

Q: How has the role of industry regulators changed with

Q: What are the main obstacles for clients while working

the arrival of a new government?

in the field?

AS: There is continuity in the way processes have been

AS: Our experience is that private companies are suffering

managed by these public institutions throughout the

from disconnection between the federal government level

change of administration. Transparency and the role

and the local or state governments. Energy Reform laws

of ASEA, CNH and SENER were particular success

were made at the federal level, but problems are worked

stories from the Energy Reform and have helped attract

out in local circumstances, with local authorities. If there

investment into Mexico.

are problems at the local level, it is difficult for companies to push ahead. Their hands are often tied because they

Major companies and the largest investors are only

lack the legal instruments to move forward. This is an

interested in working in countries where the oil and

area of opportunity for legislators.

gas industry complies with the highest standards and where rules are clear. This must be continued because

Q: How does ERM advise clients to build bridges with

without the help of the private sector, the administration’s

local communities?

production goal will be extremely difficult to achieve in

AS: The idea of the good neighbor should be taken as

the coming years.

the first step by companies hoping to build trust with communities. Companies that build connections with

CP: As a global sustainability company, Environmental

communities, also build protection from crime and other

Resources Management (ERM) works alongside clients in

security issues. In Mexico, the situation can be extremely

different regulatory situations but we always advise our

complicated, but a solid foundation of trust will help

clients to work with the highest international standards

generate a good feeling toward the company. Sustainable

regardless of the country where they are working. This

investment programs that create opportunities for

is one of ERM’s major values: showing our clients how

community members are one part of this. Another avenue

to properly generate KPIs that can be shown to any

is for operators to cooperate, both among themselves and

government. Our global presence gives us the experience

with governments and local communities, to build regional

needed to support our clients as they enter into a new

investment programs that have a greater collective impact

geography where novel risks and different regulatory

on the future of the areas they work in. But this kind of

frameworks are present.

cooperation is not always easy.

Q: How do ERM’s services evolve as Mexico’s oil and

CP: We have a social team in Mexico that is used to

gas industry moves from exploration toward production?

working on these relationships with communities. Also,

AS: ERM delivers services to its clients throughout

in anticipation of the oil and gas industry’s production

the life cycle of their projects. We begin from the pre-

phase, we opened an office in Villahermosa to be closer

investment phase, helping clients evaluate nontechnical

to our clients and to have locals who know the area and

risks associated with entering new countries, then

the communities. This will help broker resolutions for any

onto permitting, operation and finally right to the

problems that arise.

abandonment of the project. We have advised our Mexican clients from exploration and are now helping as they move into production. Our teams know the life

Environmental

cycle of projects in the oil and gas and therefore offer

international consultancy focused on environmental, social and

expertise on industry standards and trends that few other

health-risk assessments for projects in a number of industries.

consulting firms can match.

It is also highly experienced in advising oil and gas operators

Resources

Management

(ERM)

269

Pipeline ultrasonic in-line inspection robot

TECHNOLOGY & INNOVATION

Innovation and cutting-edge technology are a source of great opportunity in any industry. While the country has a strong tradition regarding innovation in shallow-water operations through PEMEX, there is still much to be gained from the application of advanced technologies to other sectors of the industry. One clear example is the so-far untapped potential of ultra-deepwater areas. The obstacles to overcome are Mexicoâ&#x20AC;&#x2122;s outdated infrastructure and paper-based culture, meaning not all data is recorded correctly and handled optimally. By incorporating new technological trends and optimizing available information, operators can start to improve the efficiency, productivity and reliability of their processes.

In this chapter, specialized companies answer the question on the key issues and hurdles for which technology can provide solutions. Key trends are analyzed and new approaches to familiar issues are outlined.

271

CHAPTER 11: TECHNOLOGY & INNOVATION 274

ANALYSIS: Paper-Based Culture Hinders Tech Adoption

275

VIEW FROM THE TOP: Jesús Lamas, Schlumberger

276

VIEW FROM THE TOP: Robert Pérez, Baker Hughes

277

VIEW FROM THE TOP: Mike Train, Emerson

Vernon Murray, Emerson

278

VIEW FROM THE TOP: Miguel López, Rockwell Automation

279

VIEW FROM THE TOP: Guillermo Bilbao, Minsait

280

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation

282

VIEW FROM THE TOP: Trent Marx, Resource Energy Solutions

283

VIEW FROM THE TOP: Javier Barella, OSIsoft

284

VIEW FROM THE TOP: Juan Carlos Angarita, IMS/OHT Global

285

VIEW FROM THE TOP: Adrián Hernández, IPSOtec

286

TECHNOLOGY SPOTLIGHT: Technological Innovation Crucial for Ensuring Sustainability

288

VIEW FROM THE TOP: Fernando Cruz, Fugro Mexico

289

VIEW FROM THE TOP: Eduardo López, Anixter

290

VIEW FROM THE TOP: Horacio Delgado, Damen Shipyards Group

291

VIEW FROM THE TOP: Juan Pablo Vega, Naviera Integral

292

PROJECT SPOTLIGHT: Naviera Integral’s Leonardo: a New Standard

273

| ANALYSIS

PAPER-BASED CULTURE HINDERS TECH ADOPTION Subdued global oil prices make technology and innovation to improve efficiencies across the oil and gas value chain a priority for industry stakeholders. Yet, Mexico’s outmoded infrastructure and paper-based culture still provides obstacles to achieve full digitization While global oil prices have made up ground since the

through the analysis of measurements in areas such as bit

dramatic price crash of 2014-2015, the benchmark WTI Crude

wear predictions, analysis of stuck pipe condition and well

price has hovered between US$50 and US$60 per barrel

blowout characteristics. These are just a few of the 65 data

for most of 2019, barely half of its pre-crash rate. Despite

points that we collect every second at the rig in real time,”

last year’s period of price steadiness, continued low prices

says Trent Marx, CEO Resource Energy Solutions.

mean companies across the value chain remain cost-focused,

274

making their operations more efficient to maximize the ROI

MAINTENANCE COSTS

for every dollar invested. Industry 4.0 technologies, which

Further along the value chain, advanced technologies are

include IoT and machine learning, and the ongoing digitization

delivering benefits to the midstream and refining sectors

of the industry, remain key to cutting costs and developing

of PEMEX, a company that has traditionally been averse to

Mexico’s oil and gas industry.

investing in game-changing technologies. Guillermo Bilbao, Director Mexico for PA Consulting, explains that as technology

Jesús Lamas, former General Manager for Mexico and

is becoming more affordable, its value-adding uses are

Central America for Schlumberger, agrees that technological

becoming more common-place. “Applying machine learning

innovation is poised to propel the global oil and gas industry.

to maintenance allows us to predict with great accuracy when

Now is the chance for the Mexican market, still adapting to

something is going to malfunction or break. That prediction is

the application of game-changing tech, to make a great leap

worth tens of millions of dollars in savings. We have applied

forward. “The next big opportunity for the oil and gas industry,

these technologies previously with enormous success in the

particularly in Mexico, is the implementation of innovative

North Sea […] What is interesting is that the NOC is attracted

technologies to reach a full digital transformation; strategic

to these technologies in part because they do not require an

deployment of artificial intelligence, analytics, robotics and

enormous up-front investment,” he says.

blockchain will help to increase efficiency, productivity, reliability and predictability of operations,” he says.

Vernon Murray, Emerson’s Latin America President, underlines the company’s view on the benefits that increased technology

UPSTREAM INNOVATION

can bring to the oil and gas sector in Mexico. “For the last seven

The winners of Mexico’s first nine licensing rounds committed

years we have worked with the University of Villahermosa to

a total of US$161 billion to their blocks, a large chunk of which

train our automation engineers. They can provide the skills

was directed to the exploration and early development phases

necessary for the current market. We do not believe that

of their fields’ life cycles. Robert Pérez, President of Baker

automation means fewer jobs, we believe it means different

Hughes Mexico and Central America, says that technology is

jobs,” he says.

central to help operators in Mexico reduce the financial risk associated with these early phases: “We are collaborating with

BUILDING A COMPETITIVE WORKFORCE

our customers in new ways to enhance their overall project

Cutting-edge technologies can only be handled by a highly-

economics. This includes offering new integrated products,

trained workforce. Work is required to bring local content

services and digital solutions to address their toughest

up to the standard expected and both the public education

challenges in accessing, finding and developing energy

system and private contractors must each play a part. “The

resources.”

Mexican oil and gas industry must acknowledge that it has both strengths and weaknesses. One area of weakness is in

With production drilling now taking place in Mexican offshore

its application of technology. To close these gaps requires

waters, staying ahead can help operators avoid the high

a collective effort led by PEMEX, government entities and

costs associated with unexpected downtime. Companies

private companies now working in the country. Mexico’s open

in Mexico are now using more data-driven technology to

market means more competition and a higher demand for

preemptively identify drilling risks and avoid financial waste.

specialized resources, which fosters an industry shift toward

Resource Energy Solutions’ Drill AI drill bit technology is

specialization for more efficient exploitation of resources,”

one such example. “It allows us to see ahead of the drill bit

says Carlos Palvicini, Vice President Americas at Petrolink.

VIEW FROM THE TOP |

DIGITAL TRANSFORMATION HAS PALPABLE HORIZON JESÚS LAMAS Former General Manager for Mexico and Central America at Schlumberger

Q: What are the main opportunities for Schlumberger with

gas industry, particularly in Mexico, is the implementation of

the Mexican market’s transition to multiple-client dynamic?

innovative technologies to reach a full digital transformation;

A: The Mexican market opening presents a unique

strategic deployment of artificial intelligence, analytics,

opportunity for us to work with new customers. This

robotics and blockchain will help to increase efficiency,

evolution of the market has allowed us to capitalize on

productivity, reliability and predictability of operations.

years of local experience and knowledge developed from more than 80 years of continuous presence in Mexico.

Q: What are the challenges that IOCs are encountering in

Experience and best practices have enabled us to make

their drilling operations and how do Schlumberger’s services

the best decisions when it comes to the selection of

overcome them?

services and the specific technologies to be used when

A: Our contributions have ranged from what we have

facing land and offshore challenges. Schlumberger

done to differentiate our own multi-client library and also

onshore integrated services for well intervention

what we are doing for companies that have contracted

exemplify the application of this expertise. Customers

our services. The first way we can help operators reduce

are looking for innovative solutions based on a strong

the risk of investing in Mexico is through our multi-client

knowledge of the reservoirs and local execution. For the

library. WesternGeco has the most advanced and complete

offshore environment, we are the first service company

multi-client seismic data library in Mexico, allowing detailed

in Mexico to provide solutions for sand control issues.

evaluation of our own blocks or opportunities to invest in prospective partner blocks, a true advantage in the

Q: How does Schlumberger form alliances with local

exploration phase that greatly reduces the need for high-

companies to provide comprehensive services to IOCs in

risk, high-cost proprietary seismic acquisitions. Another

and arriving to Mexico?

way we can help these new operators is with our integrated

A: Schlumberger is proud to be part of the country’s oil and

solution portfolio that enables our clients a quick start with

gas history. From the very first years in Mexico we developed

a limited footprint during this highly uncertain early phase.

a strong supply chain organization by building relationships

Lastly, our large footprint in Mexico where we deploy all

with local suppliers. Particularly, during the last 20 years

the service business lines means that customers can obtain

when Schlumberger opened the integrated services market,

readily and locally all of Schlumberger’s services.

our relationship with local suppliers was taken to the next level, developing them through training and by transferring

Q: What are the most emblematic projects that Schlumberger

important elements of our HSE Management System. In this

has taken on in Mexico over the last year?

period, we drilled more than 3,000 wells for 25 different

A: The initial results for Round 1 blocks tendered offshore

projects, meeting the increased scope of work using

to IOCs and PEMEX have yielded extraordinary results.

integrated services business models that would not have been

Schlumberger had and continues to have a strong participation

possible without the help of these local partners.

in several of these operations. We are proud to have been awarded the provision of sand control products and services,

Q: What are the main challenges Schlumberger has

as well as upper and lower completion accessories for Eni

encountered in introducing new technologies and innovations

development campaign in Mexican waters.

in Mexico’s O&G sector? A: The oil fields in Mexico present many technical challenges, hence this has always been fertile ground to implement new

Schlumberger is the world’s leading provider of technology for

technologies. Our experience in Mexico is that as long as

reservoir characterization, drilling, production and processing

new technologies have a proven added value, our clients will

to the oil and gas industry. Schlumberger works in more than

embrace them swiftly. The next big opportunity for the oil and

85 countries and employs around 100,000 people

275

| VIEW FROM THE TOP

INNOVATIVE SOLUTIONS FOR A MORE EFFICIENT INDUSTRY ROBERT PÉREZ President of Baker Hughes Mexico and Central America

Q: How has the opening of the Mexican oil and gas market

optimization. By engaging with customers like PEMEX to

helped to grow competition and boost innovation?

collaborate on better outcomes, we can provide high-quality

A: The opening of the Mexican oil and gas market has allowed

support during all phases of its projects to improve overall

oil and gas technology companies like Baker Hughes GE

productivity and project economics.

(BHGE) to deploy their full capabilities in terms of offering

276

innovative solutions and technology to make customers’

Q: How could BHGE help boost PEMEX’s productivity and

operations more productive and efficient. For instance, by

efficiency through the use of technology?

using cutting-edge digital technology, BHGE can help reduce

A: BHGE has a broad portfolio, from upstream to downstream,

downtime to improve the efficiency and productivity of our

along with cutting-edge capabilities that allow us to bring the

customers’ operations through data analysis that allows us to

full data analysis potential to our customers. This includes

better understand and predict project requirements. We are

drilling technologies, equipment and services, monitoring and

also collaborating with our customers in new ways to enhance

production effectiveness optimization, asset performance

their overall project economics. This includes offering new

management and downtime prediction. The company’s well-

integrated products, services and digital solutions to address

known aeroderivative turbines for surface equipment and

their toughest challenges related to accessing, finding and

LNG projects are also key capabilities we offer our customers

developing energy resources.

in Mexico.

Q: How is BHGE moving the industry forward?

Q: How is BHGE helping its customers take full advantage of

A: BHGE has a unique capability as the first and only fullstream

emerging opportunities?

company in the world. With a range of upstream, midstream,

A: Having a fullstream approach allows us to add value across

downstream and power generation solutions, we can help

the energy value chain. Increasing production in a more

Mexico develop its energy market though our range of reliable

sustainable and cost-efficient way, reducing maintenance

and proven technologies and services. It is the best way we

downtime, introducing new technological capabilities and

can help the country move energy forward and expand locally.

understanding unique requirements of various project phases over the life of a field allow us to enhance overall project

Q: What are the most demanded services offered by BHGE

economics to increase the attractiveness of opportunities so

in Mexico and what are the emblematic projects carried out

more projects progress successfully.

by BHGE with PEMEX and other IOCs? A: We are very well-recognized locally for our upstream

Q: How is BHGE integrating IIoT, Big Data and Digital Twins

capabilities in terms of well construction and reservoir analysis.

to its solutions and how will these impact companies across

PEMEX is one of our biggest customers in the region. BHGE

the value chain?

executes and renders services in many of PEMEX’s projects

A: BHGE’s Digital Solutions business segment marries

across the entire Mexican territory. Our portfolio includes a

industry-leading measurement and sensing technology with

range of integrated products, services and digital solutions,

a world-class software offering to provide our customers

from field and project management, well construction

with data analytics capabilities. For instance, by leveraging

and drilling, to well testing, data analysis and production

sensors, connectivity, data and analytics, we can improve the reliability, availability and safety of assets to further help minimize total cost of ownership. That is because there is a

Baker Hughes, a GE company, is the world’s first and only

huge amount of data captured by our technology. Our value

fullstream provider of integrated oil field products, services and

to customers is our ability to use the data we collect and apply

digital solutions. BHGE harnesses the experience of its people to

advanced software solutions to improve customer outcomes

enhance productivity across the oil and gas value chain

by reducing nonproductive time.

VIEW FROM THE TOP |

EFFICIENCY, SAFETY WITH A TECHNOLOGICAL EDGE MIKE TRAIN President of Emerson

VERNON MURRAY President of Emerson Latin America

Q: What trends has Emerson identified in Mexico?

not believe technology will create a jobs issue in Mexico’s oil

VM: Emerson is seeing heavy investment in upstream. This is

and gas industry; with proper infrastructure and the correct

directed at the maintenance of offshore infrastructure with

cost placements, there will be many new job opportunities.

a strong emphasis on productivity and safety. Investment in infrastructure maintenance had not happened for many

VM: Emerson has been involved in job creation and education

years. The impact of international companies through

in Mexico for many years. For the last seven years we have

partnerships in the Gulf of Mexico is beginning to be felt

worked with the University of Villahermosa to train our

and national companies are realizing that working with

automation engineers. They can provide the skills necessary

international companies is different to working with PEMEX.

for the current market.

Not better or worse, but different. There is also a great deal of movement in construction and permitting in midstream.

Q: How does Emerson support the digitalization of Mexico’s

Midstream infrastructure is expanding as companies that

oil and gas industry?

were unable to handle hydrocarbons at their terminals prior

MT: Any company can buy a software system, but

to the Energy Reform are now becoming involved. This

this is only valuable if the work is improved as a result.

generates automation work for Emerson, focused on safety

Emerson is approaching the digitalization of the industry

and supply chain integrity. We have been impressed by the

in a deliberate and practical manner, understanding that

administration’s decision to tackle pipeline theft and believe

software is only functional if personnel understand its use.

technology will play a central role. Downstream activity also

We are approaching clients to sketch out a roadmap for

is growing with the announcement of Dos Bocas and the

change within their company, advancing step by step to

renovation of existing refineries. In all, there is a great deal of

demonstrate the benefits. We have built a consultancy

optimism in the Mexican market.

service around this. Offering products only gets the client so far. Leveraging technologies so that personnel can spend

Q: What can Emerson offer to the Dos Bocas refinery?

time more productively is vital.

MT: Emerson’s value is in implementation. Our technology and work processes deliver faster schedules or enable

VM: Mexico is experiencing a period of huge change. The move

co-engineering with different project partners. We are

from a 75-year PEMEX monopoly to competition is a major

pushing for the use of new technologies to build a modern,

exercise in change management. Infrastructure, institutions

competitive refinery.

and personnel must all be guided and regulation has had to be redeveloped. This cross-level evolution can be supported

VM: The IMP will play a large role in the construction of Dos

by the digitalization that Emerson can help lead.

Bocas and they appear to be very open to new technologies. PEMEX and the administration also seem willing to look at the

Q: How is Emerson changing the industry’s key minds to get

best practices being deployed in automation to improve the

on board with technology?

functionality of the refinery.

MT: To carry out change, open discussions must happen. We have to maintain dialogue, demonstrate use cases and achieve

Q: How does Emerson overcome arguments against

the correct pace.

technology use, such as jobs generation? MT: Employing enhanced technology does not always reduce the need for personnel, it just allows those personnel to move

Emerson is a technology and engineering company. Present

to different jobs where they can improve their skills. Emerson

in Mexico for over 67 years, Emerson works throughout the oil

now has over 20 manufacturing plants in Mexico and other

and gas value chain to deliver improved efficiencies and safety

companies want to enter the country to manufacture. I do

through the application of software and automation processes

277

| VIEW FROM THE TOP

THE RIGHT DATA, THE RIGHT MESSAGE, THE RIGHT DECISION MIGUEL LÓPEZ Regional Director of Rockwell Automation

Q: What makes Rockwell Automation the best automation

that service, we always try to avoid being part of trends that

partner for oil and gas companies?

do not truly add value to customers and are mainly used as

A: The success of the company is based on two elements.

marketing strategies. Instead, we prefer to understand the

The first is that we focus solely on the customer. The second

business evolution of our clients and offer them the best

is that we are flexible and adapt our activities and resources

solution based on those factors.

to the market’s reality. We offer the best services possible 278

to the oil and gas industry because we listen to our clients

Among our solutions to connect our clients’ old assets to

and completely understand their needs. This may sound

new equipment for increased production is The Connected

extremely basic but in reality, there are few companies that

Enterprise platform. This enables new technologies to

actually do that. We know that every client is different and

be better integrated into existing facilities to digitalize

before venturing into any kind of diagnosis to improve our

operations and allow them to achieve higher efficiency,

clients’ operations, it is extremely important to truly listen

decrease risks and increase safety. Some automation

to their problems, challenges and concerns.

companies only focus on gathering data from clients and then put it all in a database of information that the client

Q: How has Rockwell Automation evolved amid the

cannot really use due to the complexity of the system.

cost and timeline restrictions in the international oil and

Instead, we focus our activities in a user-friendly way, using

gas market?

cases that are based on decision-making that benefits the

A: Customers are increasingly asking us to take care of

company. This way of working is proving to be extremely

their assets because, ultimately, we are the experts. We

beneficial for customers that have existing infrastructure

are a technology company and we should help oil and

and that want to improve operations. In the end, it is all

gas businesses focus solely on their core activities. This

about picking the right data to create the right message

paradigm change is due to market conditions that require

and deliver it to the right people so the right decisions

increasingly cost-efficient operations that have extended

can be made.

life spans. We are, therefore, evolving our business model from an immediate and capital-intensive sale of products

Q: How does Rockwell Automation work with partners

to focusing more on long-term services and long-lasting

to provide cutting-edge solutions to overcome new

relationships. This is achieved by shifting from a vision

challenges in the industry?

that was centered on capital-related activities like sale and

A: Technologies are being merged and integrated for the

installation of equipment to O&M services.

benefit of industrial operational safety and efficiency. One example is that some years ago, manufacturers had their

Q: What integrated services, such as digitalization and

own private network. Today, increasingly global operations

Industry 4.0, is Rockwell Automation introducing to the

require an open internet network to connect facilities. At

Mexican oil and gas industry?

the same time, this introduces new risks like cybersecurity.

A: We recognize that there are many players in the

Cybersecurity is extremely important to us, not just in

industry that want to digitalize their operations. While we

terms of the network but also in our devices. We work with

understand this and have a strong set of solutions that offer

CISCO to provide our customers with greater protection. In June 2018, we announced a strategic partnership with a company called PTC. PTC is a key market leader in the

oil-field

area of industrial IoT. Thanks to this investment, we will be

automation and SCADA solutions for process control, motor

working with PTC to provide a seamless experience for our

control, safety and asset management in various applications

customers through virtual reality, digital twins and other

to improve operations

state-of-the-art like big data analysis.

Rockwell

Automation supplies

integrated

VIEW FROM THE TOP |

DETECTION, DATA AND ANALYSIS: THE ROAD TO INNOVATION GUILLERMO BILBAO Director Mexico of Minsait

Q: What are the main differences between the projects

sometimes necessary to improve the quality of the data

PEMEX asked for five years ago and now?

but these cases tend to be few.

A: Five years ago, PEMEX was renovating its internal infrastructure to fit the need of an industry being changed

Predictive maintenance through machine learning and artificial

by the then-recent Energy Reform. A part of that was an

intelligence plays a huge role in the modernized operation

ongoing project that we were collaborating on. This project

of refineries and in preventing extremely costly equipment

was the transformation of their primary midstream division.

failures in refining systems. Obviously, PEMEX is greatly

Back then, this primary midstream division delivered

interested in that application as well, but it is the upstream

products from PEMEX to PEMEX; it was only there to service

applications that are proving to generate a lot of value for

the NOC, and as such it existed in their balance sheets as

our clients and demonstrate to the NOC our commitment

nothing more than additional costs. We helped them turn

to helping it reach its production goals. Upstream downtime

that division into a business unit that could participate in

tends to be costly because operators are willing to do anything

a competitive market, with its own income and its own

to exit it as quickly as possible, so difficult and pricey choices

commercial area. This involved helping them develop the

are made. If predictive maintenance allows you to schedule a

infrastructural and technological elements necessary to

repair or a replacement in a way that avoids this unexpected

open up the pipeline system to business. Today, the national

haste, that can translate into enormous savings as well.

O&G industry is more focused on increasing its production levels than on the market independence and profitability

Q: How have you seen PEMEXâ&#x20AC;&#x2122;s mindset toward new

of its business units. We are helping the industry to achieve

technologies change over the years?

its production goals through consulting in agile production

A: I have lived through several of PEMEXâ&#x20AC;&#x2122;s phases in this

optimization, and also by achieving new efficiencies through

regard. I was working with them when they were extremely

predictive maintenance.

cost-focused and unlikely to adopt entirely new technological paradigms. I was working with them when they were focused

Q: What role does predictive maintenance play in helping

on generating income and they were constantly looking at

PEMEX achieve its goals?

new technologies. Now, I see they are not exactly back at

A: Applying machine learning to maintenance allows us

worrying about costs but they are more interested in efficiency

to predict with great accuracy when something is going

in a broader sense, and to that end they are interested in the

to malfunction. That prediction is worth tens of millions

search for and application of new technologies. There is a

of dollars in savings. We have applied these technologies

PEMEX engineering team in Villahermosa that is in charge

previously with enormous success in the North Sea. We

of evaluating new technologies that we consider to be quite

are at a proof-of-concept stage in our application of these

sophisticated. They evaluate technologies from all over the

technologies in Mexico. What is interesting is that PEMEX is

world and they are very professional, impartial and objective

attracted to these technologies in part because they do not

in these evaluations. In general, I feel like the evaluation and

require an enormous up-front investment. The equipment

implementation of new technologies is a well-established

itself tends to already be in place. What I mean by this is

procedure within PEMEX. I feel that it is very well-prepared

that you do not usually need to install a large number of

in this regard.

new sensors because the sensors that are already in place are already generating all the data we need. It is merely a matter of using these sensors correctly and inputting

Minsait provides

the data they generate into the correct machine-learning

management, operational digitization and multi-channel

algorithms to generate the predictions and thus the cost

client and platform management, to offer new products and

reduction that our client need. Some new sensors are

services

efficient

solutions

for

smart

asset

279

| VIEW FROM THE TOP

NEW AUTOMATION CONCEPT AN ANSWER TO INDUSTRY 4.0 VÍCTOR FUENTES Senior Sales and Marketing Manager of Mitsubishi Electric Automation Mexico and Latin America

Q: What new technologies or services is Mitsubishi Electric

from that equipment. But even a small waste of energy can

Automation introducing into the Mexican market?

translate into major losses when a piece of equipment is

A: While increasing our presence through traditional

running all day long.

distribution channels for our products, we are pushing

280

to popularize our e-F@ctory concept, which is Mitsubishi

Q: What is Mitsubishi Electric Automation’s approach

Electric Automation’s answer to the Industry 4.0 trend.

to creating long-term relationships and how do these

Through e-F@ctory, our goal is to provide customers with

contribute to the company’s growth?

proven and reliable solutions that can help them become

A: One of our core values is trust and based on that

more efficient in industrial processes, reduce capital

we create long-term relationships. The trust-based

investment requirements and increase the reliability of

relationship goes both ways, and we only work with

their processes.

companies that hold the same values as us. This is because we will never jeopardize the company’s name

Q: What benefits can e-F@ctory provide to the oil and

or reputation. We have Japanese DNA and such an

gas industry?

approach to business is in our blood. Thanks to the long-

A: The virtue of e-F@ctory is that it can measure equipment

term trust we create with our customers, we have worked

of any size so clients know exactly where they are losing

with many companies in Europe and the US that are just

energy, and therefore money. We believe that small actions

entering Mexico, which further increases our business

can generate great changes, and while monitoring the life

opportunities in the country.

cycle of a motor in a facility with thousands of systems may seem like a very small action, the improvement in the overall

While our presence in the Mexican oil and gas industry is

system is huge by avoiding downtimes and losses resulting

relatively new in the area of services, our products have

from the monitored element. While the most well-known

been used in the country’s oil and gas facilities for a long

area for the implementation of e-F@ctory is in production

time. In 2021, Mitsubishi Electric Corporation will turn 100

facilities, such as refineries, it can also be included in oil and

years old, which is a clear statement of the long-term

gas production rigs or even in offshore housing units. We

vision that the company follows for all its activities. Our

are already working in offshore facilities with the e-F@ctory

commitment to the country is not only focused on how

concept by using SCADA to measure the use and control

our business benefits but also on the improvement of the

of HVAC systems in housing platforms.

entire industry.

Q: What specific benefits can the midstream and

Q: What is Mitsubishi Electric Automation’s take on cyber-

downstream sectors enjoy through e-F@ctory ?

security risks?

A: In the downstream sector, there are many of pieces of

A: Every automation provider focuses on connecting

equipment, such as coolers, heaters and compressors, that

systems and automating processes but few are focusing on

work 24 hours a day for the entire year. Since the operators

cyber-security issues. The more connected and automated

of the facilities are focused on keeping the plant running,

processes are, the higher the cybersecurity risks because

they do not pay too much attention to the energy waste

although a piece of equipment may be extremely safe, as soon as the data it measures or manages is on the web it is exposed to cyberattacks. We have a strong focus on

Mitsubishi Electric Automation has over 30 years in Mexico.

R&D and ensure that our clients are always backed up

It is a subsidiary of Japan-based industrial giant Mitsubishi

by the Mitsubishi Electric Automation brand. Mitsubishi

Electric Corporation, which operates across several industrial

Electric has R&D facilities in the US, Japan, China and

markets with an automation product line

Europe and invests over US$2 billion per year so our

specialized engineers and scientists can deliver the best technologies, always emphasizing the resiliency and security of all processes. Q: How does Mitsubishi Electric Automation help in the development of Mexican human capital? A: Mitsubishi Electric Automation has a university support program in which it provides, free-of-charge, new equipment the universities can use in their programs. In 2017, the company invested approximately US$250,000 in the program, which not only included equipment but also advisory and training through a “train the trainer” scheme. Under that scheme, we offer free training to teachers on how to install and use the equipment, both at our facilities and at their universities. We believe in the talent and capabilities of the Mexican workforce, which is why our efforts are focused on developing Mexican human capital to meet the challenges brought about by an ever-changing industry with increasingly complex technology systems. The trust in Mexican talent is clearly reflected in the fact that strong automotive and aerospace industries have been established in the country. This trust continues to grow with more and more companies aiming to install facilities here. Q: How does Mitsubishi Electric Automation ensure that all of its products and services are of the highest quality? A: We are a global partner and a local friend. Exactly the same technology and quality that we provide in Mexico is offered in every country where we are present. This is ensured by having our products manufactured only at Mitsubishi Electric factories. Other companies may outsource the manufacturing of their products and then simply stamp those products with the company name. We never do that. For Mexico, all our products are produced in Japan. There have been cases when Japanese production cannot cope with the demand, meaning we have had to import components from China, but even then, all the components are manufactured at Mitsubishi Electric factories, following the highest quality standards we demand from all our facilities. Q: What are Mitsubishi Electric Automation’s goals for the short term? A: Mitsubishi Electric Automation’s main objective is to increase its market share in Mexico by 10 percent by 2022. The strength of the company is clearly reflected in the fact that we are signing more and more authorized distributors on a yearly basis. The increasing number of distributors results in a direct increase in our sales, which in turn increases our market share. For the 2018 fiscal year, we are forecasting double-digit growth.

281

| VIEW FROM THE TOP

BULLISH OUTLOOK FOR DATA MANAGEMENT TECH TRENT MARX President and CEO of Resource Energy Solutions

282

Q: How would you define your participation in the Mexican

for Big Data and AI development; without high-quality data,

oil and gas industry and what role do your technologies play

these paradigms lose their value. Our technologies create a

in that context?

platform for all of this that is moving from up-to-the-minute

A: New requirements and objectives in the industry are

to up-to-the-second updates. A good example of this is

creating keen interest and new opportunities for our

our Drill AI technology, which is now patented in Mexico,

technologies and solutions. Our relationship with CNH is

the US and Canada. It allows us to see ahead of the drill bit

on pause as we wait for the necessary transition for the

through the analysis of measurements in areas such as bit

new government to readjust, settle down and define new

wear predictions, analysis of stuck pipe condition and well

roles. Despite this delay, optimism and a bullish outlook

blowout characteristics. These are just a few of the 65 data

for Mexico’s oil and gas technological future remain the

points that we collect every second at the rig in real time.

norm. We see great potential in the country’s local content;

This can contribute to closing Mexico’s significant drilling

in fact, we just partnered with a company in Guadalajara,

productivity and efficiency gap. We achieve this effect by

considered the Silicon Valley of Mexico, for a software

integrating our Wellman suite with other products, such as

development project. One of the best ways to explain the

our TORC (Total Operations Risk & Control) platform. These

current and future uses of our technologies in Mexico is

systems can provide automatic alerts when well testing is

through the room for improvement that still exists in the

needed, along with integrating the well testing process with

digitization and digitalization of data. We make a distinction

the general business processes. We enable access to daily

between digitization, which is the process of transitioning

lookbacks, NPT measuring and daily tracking of cost to the

from analog to digital data, and digitalization, which is

penny to make each stage of the drill efficiently feasible,

the transition through which all information becomes part

considering the era of US$120 per barrel is long gone.

of real-time digital workflows managed by specialized software that can make it directly available on the desktops

Although we manage great volumes of data, we create

of whomever needs it to facilitate operational decision-

value by making the data available on everybody’s

making. The use of our technologies optimizes all data-

dashboard and ready for inclusion in their business

related processes but this must happen in conjunction

analytics and reporting models. Business analytics is

with larger transitions within the industry, such as the

vital to productivity but it is reactive: it can only tell you

development of more formats that can optimize data entry,

what has already happened. This is why we must move

for example.

on to AI technologies and their predictive capabilities to ensure real impact on productivity. That is how you

Q: How do your technologies impact upstream productivity?

stay ahead of the curve. This only covers drilling. There

A: We can increase productivity in a several of ways: by

are applications for our software suites that extend into

addressing operational risk management, promoting cost

production as well, where we can work with existing

reductions, bettering throughput and creating more synergies

and future SCADA control systems that generate tons

with regulators. All of this creates new efficiencies and

of useful data. All of this can no longer be processed

improvements on well data management coming from the

on standalone computers, which is why operators must

source. We also facilitate data validation, which is necessary

embrace the Big Data processing enabled by the cloud. We believe they are getting there. They are certainly asking plenty of pertinent questions about cloud hosting

Resource Energy Solutions provides cutting-edge upstream,

and how it is part of our data management architecture.

midstream, regulatory compliance and cost management

In general, we see opportunities to increase productivity

software solutions for the oil and gas industry and its regulators.

in all stages of a well’s life cycle and operation, including

Its Wellman software suite manages all well-related operations

stages that have not yet entered everybody’s radar.

VIEW FROM THE TOP |

PLACING DATA AT THE CENTER OF THE INDUSTRY JAVIER BARELLA Regional Director, Latin America North of OSIsoft

Q: OSIsoft has a global reach, but what is the company’s

services on their blocks, there can be trouble in amalgamating

focus in the Mexican market?

the information coming from these different companies. Each

A: OSIsoft has contracts with every major oil and gas

drilling company will use their own data systems, but no two

company around the world, including BP, Shell and

systems are the same nor do they share the same language.

Marathon Oil. While most of these contracts are based with

By implementing our flagship software, the PI System, OSIsoft

the company’s country headquarters, they have a global

organizes and harmonizes data so that the production process

reach, and therefore we also provide our data management

from different systems can be interpreted and understood at

services to these companies in Mexico. We also have a

a central point.

contract with PEMEX and are present across the company’s entire value chain, from upstream to downstream. Until last

Within the construction of data models that the PI System

year, most of our work was centered on PEMEX Industrial

carries out, there are two separate but interwoven levels.

Transformation. We helped to improve the efficiency of its

The first receives the data to be organized. The second

refineries and the production maintenance of its critical

level organizes and interprets that data, which allows the

assets. Via the organization and management of data

analytics to be defined. Users can then receive and read the

derived from the assets, we were identifying potential

information on their cellphones or tablets to understand

threats to the smooth function of the refineries to reduce

what is happening with their assets.

downtime. We applied machine learning models to understand when and where in those refineries PEMEX

Q: How has the adoption of technology in the oil and

should work on preventative maintenance.

gas industry changed and where will the challenges come from?

We also worked with PEMEX Logistics, optimizing the mass

A: Twenty years ago, the oil and gas industry did not

balance of the hydrocarbons that would be transported

have the culture it does today of protecting assets,

via its pipeline network. Anomalies, vibrations in critical

controlling information and using data. There was minimal

assets and drops in pressure were other concerns that we

integration or exchange of data between the engineers

would help identify via data analysis. Since the beginning

at the wellhead and those at the refinery. Little attention

of 2019, demand for OSIsoft services has come from the

was given to the mass balance of hydrocarbons or the

upstream, including real-time drilling and the monitoring

way the product changes as it moves through pipelines or

of production.

is otherwise transported. Today, there is an emphasis on understanding this change because it has a direct economic

Q: How can the adoption of OSIsoft’s PI System help

effect. Controlling the environment of the hydrocarbon

offshore operators become more efficient?

transport to deliver the right oil blend to a refinery will

A: OSIsoft helps operators verify their geophysical models

maximize the economic return for the operator. Modern

during the drilling phase to evaluate their strategy going

data management can deliver this control. However, the

forward. We apply our knowledge to the analysis of real-time

problem major companies like PEMEX have is the cohesion

drilling data. This allows us to compare the operator’s model

of data collected from differently-aged assets that employ

against the real situation and to review production outputs

different technologies.

they are expecting so that decisions on the oil field can be made with the correct information. Over the course of the last two to three decades, operators have learned that the model

OSIsoft is the global provider of the patented PI System, enabling

of a reservoir is not in itself sufficient for setting a course for

companies across industries to reduce their downtime, manage

the long run. Exact information is required. Because oil and

assets and mitigate risks by bringing together disparate data

gas operators hire different drilling companies to carry out

sources to present a comprehensive picture of assets

283

| VIEW FROM THE TOP

RISK BASED ON DATA SCIENCE FUNDAMENTAL TO IMPROVE PRODUCTION JUAN CARLOS ANGARITA CEO of IMS/OHT Global

Q: What is the main added value that data science can

in their day to day activities. Enriched real data should

offer an industry like oil and gas?

support the risk-based decision-making process regarding

A: Data science is a multidisciplinary field of knowledge

actions needed to optimize and secure operations and

that applies scientific methods and models, as well as

finances.

processes, algorithms, information technologies and

284

systems, to extract knowledge and insights from structured

Data analytics and visualization help organizations

and unstructured data. Data science can contribute to

to understand their contexts and risks, on one hand,

the improvement of decision-making and risk-control

enhancing decisions in order to know where, how and

effectiveness. The oil and gas industry, in all its value-chain,

when to put their money to work, and when not to.

is constantly producing a lot of valuable data on upstream,

Also, data facilitate an adequate response for normal

midstream and downstream that is key for understanding

conditions, under high demand scenarios like a sudden

the operation, asset behavior and trends, as well as issues

fall in oil production, as well as for emergency situations

related to risks and compliance and conformance with

like a gas leak from a facility, dealing with the high level

requirements.

of uncertainty in the oil and gas business. Understanding data will allow better asset management, enhancing its

Q: How receptive is the Mexican oil and gas market to risk

availability, adequacy and value generation, protecting

analysis based on data science services?

companies from losing money.

A: Risks analysis capabilities, effectiveness and efficiency are data-driven and therefore depend on data availability

Q: How can data science help boost production in

and quality. Usually, companies, even big ones, locally

Mexicoâ&#x20AC;&#x2122;s mature fields?

and worldwide, are not aware of the relevance of data

A: A common challenge in mature fields is how to boost

and instead they are wasting that value by ignoring their

production performance. Historically, many techniques

own data, left to its fate in an unsorted bunch of files of

have been applied to understand, analyze and predict

different formats and information systems. However, using

production considering different enhanced recovery

a business or money-oriented approach, demonstrating

alternatives and techniques, with a relative low success

that data is money, companies are open to understanding

rate. In such a scenario, data science, as well as data-

how to make the most of the data.

driven risk analysis of advanced oil and gas production, applied together with known analysis techniques, can

Q: How does enhanced data collection and analysis help

enhance production in quantity and quality and revenue.

clientsâ&#x20AC;&#x2122; make smarter, more cost-effective and less risky decisions?

For Mexico, this is the right moment to adopt new strategies

A: Data science, as well as risk analysis and its industry

to improve production. The first step beyond project

applications, helps oil and gas companies have a better

management is gathering, structuring and understanding

understanding of their investments and operations,

the available data, and enriching it with complementary

benefiting from those vast and complex amounts of data

techniques, using both classic and modern approaches. Oil

they are already gathering, processing and producing

and gas assets already have a great amount of data that needs to be analyzed; in fact, some mature fields that are almost abandoned or working at minimum output, could even be

IMS/OHT Global provides specialized knowledge transfer and

brought to life by processing and interpreting available data.

evaluation services focused on transforming risks, increasing

Finally, data science, and in general digital transformation, as

performance and enabling conformance and compliance. Its core

per the 2017 World Economic Forum report, generated US$1.7

discipline is industrial and financial risk and control architectures

trillion worth of value from 2016 through to 2025.

VIEW FROM THE TOP |

DELIVERING A DIGITAL DIFFERENCE ADRIÁN HERNÁNDEZ Commercial Director of Digital Transformation at IPSOtec

Q: Which companies has IPSOtec worked with in the

blind spot in the use of cloud systems, which are an incredible

last year and how does it differentiate itself from the

advancement in the implementation of software for business.

competition?

Contemporary pay-as-you-go models are helpful to reduce

A: IPSOtec is aligned with consulting and services companies

budget concerns and the cloud also removes the necessity

that work with oil and gas enterprises to provide direction

of being present on-site to use certain systems. Software as

on engineering systems for plant design and document

a Service (SaaS) has also come into its own with the cloud.

management of engineering information. Amongst the

But changing attitudes when it comes to the cloud can be

companies we have worked with this year are the Mexican

difficult with technology-averse companies.

engineering firm Domótica Industrial, as well as Mexico-based construction company ICA Fluor and Jacobs Engineering

Q: What are the obstacles to sharing data information in

from the US. We are also collaborating with Worley, Jacobs

consortiums or partnerships?

Engineering’s parent company.

A: Companies are concerned that they may lose control over the processes and investments they have made if they

Our work with them entails the implementation of a

share information with partner companies. Some JVs can be

range of software systems for the development of their

impeded by a lack of trust where neither partner wants to

engineering projects. The choice of system depends

share knowledge. The standard model we have come across

on the specificity of the project. For example, the

is for companies to work separately and to integrate their

engineering plan for a refinery project is different to

information and designs during the last stage of a project.

that of an offshore project, therefore different software is

This is particularly the case with IOCs that have recently

required. We are also implementing solutions for project

entered the country. But this method of working can be

performance, in relation to cost control activities and

problematic on mega projects where the financial risk of

time management targets. IPSO delivers years of industry

working alone requires the involvement of additional partner

experience to our clients.

companies.

Q: What software does IPSOtec use and what are the

Q: How can Mexico’s oil and gas industry benefit from the

reasons for this choice?

use of digital twins?

A: Approximately 80 percent of the software IPSOtec works

A: Digital twins have been put to good use by PEMEX,

with comes from Intergraph. However, Aveva software is

which as an owner-operator contracts out its engineering

more robust for upstream engineering projects. We use

and design work. If PEMEX is building an offshore platform,

Bentley software programs for engineering document

the use of a digital twin means that the logistics involved in

management, which is more specialized than common

overseeing the project no longer need to be considered and

document management. Even though Bentley is a viable

money is saved. Similarly, the slow process of transferring

option, Autodesk is the top choice for Business Information

information between worksites is avoided. A digital twin

Modeling (BIM) projects, which is ideal for projects within

allows for the sharing of information between stakeholders,

the civil engineering sphere.

from engineers to insurers, or with a contracted maintenance company.

Q: What are the major challenges IPSOtec identifies as obstacles for wider use of specialized software in the industry?

IPSOtec is a company with more than 20 years of experience

A: One obstacle is the occasional absence of support from

selecting and implementing the best information technologies

top level management in companies regarding training

in different areas: supply chain, financial self-service (bank

initiatives for specialized software like BIM. There is also a

ATMs) and automation of production processes

285

| TECHNOLOGY SPOTLIGHT

286

TECHNOLOGICAL INNOVATION CRUCIAL FOR ENSURING SUSTAINABILITY The world is experiencing what has been identified as the Fourth Industrial Revolution. Visionary players are harnessing this transformation for sustainable development to guarantee a prosperous future. A case in point is the collection and analysis of comprehensive information about the Earth and the structures built on it. The right use of this geological data, or geo-data, can unlock precious insights for companies to design, build and operate assets in a safe, sustainable and efficient manner. Fugro is the world’s leading geo-data specialist working to create a safe and livable world. Through integrated data acquisition, analysis and advice, Fugro generates value and reduces risks in projects. It is backed by a group of approximately 400 engineers and scientists fully dedicated to R&D worldwide and more than 57 years of experience. Fugro’s acquisition of geological data is carried out on land, in the air and at sea. The company’s state-of-the-art technology allows it to undertake research safely, efficiently and in a manner respectful to the environment. Fugro’s services are also based on digital technology, providing highly accurate 3D information on infrastructure and energy applications. These include renewable energy, enabling effective project decisionmaking. Fugro has also developed several autonomous vehicles whose highly efficient operation contributes to sustainable solutions, contributing to a lower carbon footprint. Furthermore, Fugro has developed software applications for data analysis and interpretation. Its data integration solutions enable its clients to access large blocks of cloud-based information anywhere and at all times. This also allows Fugro to offer tools that carry out virtual simulations for both marine and land infrastructure projects with a degree of precision that generates significant savings in the design and planning stages of projects. Its technology also reduces the risk for human beings, as it enhances the possibilities for managing operations remotely. The company makes it possible for some operations be controlled from the safety and comfort of a command center, often located hundreds of kilometers away from the location where the operation is carried out. Fugro’s technology allows its clients to carry out installation operations of monitored structures in a safe manner, backed by reliable, real-time data, which is processed with tested methodologies. This expertise not only reduces the risk of human error, but also empowers operators to plan intelligently and maximize resources, furthering environmental responsibility while simultaneously increasing efficiency.

287

| VIEW FROM THE TOP

CHANGING MARKET REQUIRES PERSONALIZED SOLUTIONS FERNANDO CRUZ Country Manager of Fugro Mexico

288

Q: What were the main challenges Fugro encountered as the

Q: What sectors are the most active in terms of geoconsulting

Energy Reform began to take shape in Mexico?

services?

A: One of the biggest challenges we have encountered is

A: Most operations in Mexico are in the exploration stage,

retaining our talent. We have been working arduously to retain

which requires advisory services related to the sites that are

our human capital as we depend heavily on their knowledge to

being explored. Fugro has great capabilities when it comes

carry out day-to-day activities in the company. Fugroâ&#x20AC;&#x2122;s most

to analyzing and providing consulting on the geological

important asset is the knowledge of our people. It is important

aspects of the sites to generate the best risk analysis and

for us to retain our talent as the industry continues to change,

produce a more efficient development plan for operators.

especially as the market will only grow more competitive. If

We are working closely with our clients in this phase but it is

attracting and retaining talent in oil and gas companies is

changing rapidly now that PEMEX has awarded large projects

already difficult, it will only get harder. Finding specialized

to consortiums with the ambitious target of developing

engineers in Mexico is onerous and on top of that, they have

infrastructure in shallow waters to ramp up production. In

to be bilingual.

response, we are integrating infrastructure-related services into our exploration solutions. We expect these companies

Another challenge we have encountered is adapting our

will require services related to the integrity of their assets,

products and solutions to the changing market. We are

meaning they will need advice on planning maintenance.

creating more personalized solutions to attend the unique needs of each client and operation. The Mexican market has

Q: How receptive has the Mexican market been to

a promising outlook, especially because there are many new

the introduction of new technologies related to

clients that entered with the Energy Reform and they are

geological studies?

far more demanding in terms of technology. International

A: The mentality surrounding technology in Mexico is

companies have much higher standards than our traditional

changing and companies are starting to understand the

clients. It is a good challenge and it will boost the industry.

value of investing in it. The Energy Reform has taken off

We have already spotted many incredible opportunities to

and we have seen clients become more open to using new

expand our business and take advantage.

technologies. But we have also seen clients that are not so aware of the possibilities. The technology available today

Q: What is Fugroâ&#x20AC;&#x2122;s outlook on Mexicoâ&#x20AC;&#x2122;s oil and gas industry?

can contribute a great deal to safety, sustainability and

A: The US has evolved from a country with low production

many other aspects of the oil and gas industry. Government

to a self-sufficient market. Brazil is another growing market

entities are still in a learning curve and we have identified

but it is difficult to navigate. It is still led by Petrobras, which

some standards that could be upgraded to better serve the

only allows marginal growth. The Mexican energy market is

industry. We are approaching ASEA and CNH to collaborate

continuing to diversify and we can see potential in alternative

on these standards and provide feedback on how the bar

energy, such as wind farms. Mexico has become a major pole

could be raised. In the next 50 years, the global population

of investment for Fugro and so far, it is the location where we

is expected to grow by 2.5 billion people and most will live

have the strongest medium-term expansion plans. In terms of

in cities. This will considerably increase the demand for

importance, the Mexican market is the most critical for Fugro.

energy. We seek to provide integrated solutions based on digitalization, providing clients with the best data to make their decisions and contribute to have a safe and livable

Fugro is a world-leading service provider for the collection

world. Our technology provides clients with a comprehensive

and interpretation of surface and sub-surface data. It offers

approach to data. We have 15 R&D centers globally with 400

marine asset integrity, marine and land site characterization,

professionals involved and invest a great amount of time and

as well as geoconsulting services

resources in new technology and innovative solutions.

VIEW FROM THE TOP |

GLOBAL SOLUTIONS FOR A NEW LEGACY EDUARDO LÓPEZ Regional Vice President Mexico of Anixter

Q: How is Anixter working to further strengthen its

Q: Why should potential clients choose Anixter as their

presence in the Mexican oil and gas industry?

preferred solutions provider?

A: The oil and gas industry in Mexico is modernizing, and

A: From our technology solutions, world-class manufacturing

Anixter has an oil and gas team of experts positioned

partners and on-staff technical experts to our full suite of

to help our customers make updates and enhancements

services that save time, reduce costs, increase efficiency and

that will add value to their operations both now and

mitigate risk, we don’t just meet customer needs, we can

in the future. Our specialists have experience and

exceed customer expectations. Our global footprint means

knowledge spanning the entire industry, including value

that our proposals are not limited to the providers we have

chain, upstream, midstream and downstream segments

in Mexico, and we can select from our international supplier

enabling us to understand our customer’s needs and

portfolio developed over the last 60 years.

challenges and work together to find solutions that can be deployed on time and under budget to meet the

Q: What specific benefits does Anixter offer to private

changing requirements of the business.

upstream operators? A: Operators that were awarded blocks during CNH’s

Q: What new solution is Anixter most eager to introduce

licensing rounds are just starting their activities. This is

into the Mexican oil and gas industry?

the opportune time for Anixter to work with them to

A: One specific area where we see a great deal of potential

maximize the efficiencies of their future operations.

is security solutions. Developing the right security solution is about understanding the products and technologies involved and how they can drive innovation, create

Anixter is a leading global distributor of network, security,

efficiencies and transform applications. With oil and gas

electronic and utility power solutions. The company helps

facilities facing both physical and cyber threats, a solid

build, connect, protect and power valuable assets and

security solution is critical.

critical infrastructures

Etileno XXI, Coatzacoalcos

289

| VIEW FROM THE TOP

DEEP ROOTS IN MEXICAN SHIPBUILDING MARKET HORACIO DELGADO Commercial Manager for Mexico at Damen Shipyards Group

290

Q: Damen Group is present across the globe. Where does

Q: What role does automation play in Damen’s

Mexico fit within the company’s global portfolio?

shipbuilding process?

A: The Americas as a whole is a very important part of Damen’s

A: In shipbuilding, automation is used for specific tasks only.

business, representing 23 percent of our average turnover in

Steel plate cutting is an example. In the main, however,

the last five years and Mexico is one of the biggest economies

shipbuilding remains a labor-based industry that requires

in the region. For this reason, Damen has been involved in

the participation of a human workforce. There can be no

Mexico for over 40 years. We consider the country to be of

production lines akin to those found in the automotive

vital importance to our business and through the relationship

industry because products are far larger and the work

with our long-term clients, such as Naviera Integral, Grupo

more intricate. Therefore, Damen Group’s average annual

TMM, Harren & Partner, SAAM, Grupo Boluda, Reylaver,

production is around 200 vessels from our 35 worldwide

SEMAR and with our representative Fermaca Marine, we

shipyards. The role of automation is more clearly seen within

have a permanent presence here. While the downturn slowed

the operation of the vessels themselves. The company is

activity in the industry, in the last couple of years we have seen

concentrating on improving our designs for more extensive

demand climb once more. This signals the confidence in the

integration of smart technologies with the intention of

market and Damen is looking to expand its presence in oil

developing a range of vessels that can be operated by just

and gas. The group has been particularly active in supplying

one person, but there is always a minimum safe manning

tug boats and crew transport vessels to oil and gas players in

requirement from the authorities. Although single-crew

Mexico, and we have been also working together with SEMAR.

vessels already exist, the range of work they can carry

We do not yet have a larger offshore vessel at work in the

out is limited. Dynamic Positioning (DP) is a technology

Mexican energy market but we expect that to change soon.

that is growing in demand, with DP1 and DP2 being the

The group’s main regional repair yard is located in Curaçao

most popular and the same goes for unmanned machinery

and we have a smaller, new-build and repair yard in Cuba, both

spaces and remote monitoring of all vessel’s equipment and

of which can service the Mexican market.

operation. At the moment, Damen Group is researching the potential of fully-automated vessels, meaning vessels

Q: What are the methods by which Damen achieves short-

without crew, which we believe will be possible and

term delivery services and cost reduction for clients?

desirable in the future. Within the area of military vessels,

A: Damen focuses on modular construction and

technology is a definite focus.

standardization in the shipbuilding process. Standardization helps customers by providing proven vessels that offer

Q: How is Damen Group supporting the growth of

the flexibility to meet a variety of demands via quick,

shipbuilding in Mexico?

straightforward customization. This focus and the stock we

A: Damen Group’s cooperation with SEMAR has helped

build for our high rotation vessels, like fthe tug boats, reduce

build capabilities in Mexico, aiding a transfer of knowledge

delivery times further. For this reason, we can deliver many

and technology that Damen can provide. We are building

of our vessels within a couple of months instead of years. Our

a groundbreaking vessel with SEMAR and the techniques

built stock also helps clients balance the financial investment

we are using in its construction are cutting-edge. We have

compared to the purchase and payment of a unique vessel.

built 12 vessels with SEMAR and have seen the technical abilities and processes used by the Mexican workforce grow substantially to European standards from build

Damen Shipyards Group is the largest shipbuilding group in

to build. Via the Damen Technical Cooperation (DTC)

the Netherlands. It provides new building and repair services

concept, Damen is able to work in shipyards that are not

to clients located across the globe, with a strong focus on

our own. This requires that we adapt to the conditions

short delivery times and low operational costs

of the new shipyard and work alongside diverse teams.

VIEW FROM THE TOP |

AUTOMATED FLEETS AND THE FUTURE OF OFFSHORE DEVELOPMENT JUAN PABLO VEGA President and Director General of Naviera Integral

Q: How are you preparing for the technological and industrial

our industry and many others. There is already an ongoing

trends defining your line of business?

transformation in the automotive sector, and in the offshore

A: A great example of the preparations we are undertaking is

segment, it is now technologically possible. In Rotterdam, it

the new vessel that we received in May 2019 from our Dutch

is already established that by the end of 2019, all vessels will

partners, Damen Shipyards. Before it even arrived, the vessel

have to be electric, and therefore potentially crewless, by law.

was already fully contracted by a foreign operator that had

On top is the fact that this port, along with Amsterdam and

asked for more boats of this kind. This indicates an overall

Antwerp, saw the first electric container barges sail off from

increase in demand from the new players entering the industry

and between their shores last year. Of course, there is a degree

through the latest bidding rounds. Although we have had

to which we have to separate the human impact from the

ships successfully working for this type of client since 2018,

enormous industrial efficiency that this ongoing development

this was the first new vessel that we imported for the exclusive

will represent. As a company focused on technological

use of these operators. Despite this development, we remain

innovation, we have to admit that, when these vessels finally

a faithful service provider to PEMEX, evidenced by our more-

become available, we will be the first in line to acquire one.

than 32-year relationship. Q: How does your company balance this focus on We are also in talks with Damen regarding how to best

technological innovation with PEMEX’s historical contracting

optimize our acquisition strategy so that we can rapidly meet

prioritization of low costs?

the surging demand from new operators in Mexico while

A: For one, this is a changing landscape since this is where

remaining compliant with existing regulations. Damen has

new operators are changing the paradigm by prioritizing

supplied us approximately 80 to 90 percent of our existing

much more than just the lowest cost available. At the same

fleet and the rest of the vessels were built in American

time, we have been here and survived long before they

shipyards, most of them before we established this fruitful

arrived, and so we have worked through this contradiction

relationship. While we have a great partnership with Damen

previously. This balance is always on my mind; even now,

and its technological excellence, if we cannot meet the

this newly acquired vessel that I mentioned was a heavily

demand together, we are also considering forming other

meditated decision, given that we are talking about a

alliances to keep up with the market. Most of our clients in

market that has experienced a significant depression in

this sector demand the innovative and top-of-the-line Fast

the last four years as a result of the downturn. However,

Supply Vessel, or FSV, with a DP2 Dynamic Positioning system

we have to trust in this increased activity from these new

and newly-certified FIFI 1 fire safety systems. The design and

players. Many new operators recently met with President

engineering imperatives that defined this vessel’s construction

López Obrador and accorded a series of development

also called for clean and efficient engine rooms, which greatly

goals for 2019 as part of the work they were already

facilitate its maintenance and lower its operating costs. The

contracted to do within what was stipulated in the original

degree to which this vessel’s systems are digitalized represents

tenders they were awarded during the bidding rounds.

the top-of-the-line vanguard of our industry as well.

These new conditions are good indications for us to continue with our technological focus and trust that it

Q: What role does automatization play in your segment?

will get us the business we need.

A: There is a controversial phrase in this industry: “One vessel, one man.” Obviously, technologies with these types of targets in terms of efficient design and engineering are justifiably not

Naviera Integral , also known as Navinsa, is a Mexican offshore

well-perceived by offshore labor. Of course, what is even worse

and maritime service provider based in Ciudad del Carmen.

is “One vessel, no man” — the very limits of automatization.

Its large and varied fleet transports both cargo and personnel

However, we cannot ignore that this represents the future of

between ports and offshore facilities

291

| PROJECT SPOTLIGHT

292

NAVIERA INTEGRAL’S LEONARDO: A NEW STANDARD Naviera Integral’s LEONARDO is the first, and only, Fast Supply Vessel (FSV) in Mexico featuring DP2 and FiFi1 capabilities, and is already servicing the oil and gas industry’s private sector. The newest addition to Naviera Integral’s fleet, LEONARDO is a Damen FCS 5009 with “connected ship” technology. With a trademark design of the axe bow in a striking ocean blue color, LEONARDO comes with all the latest updates to the class. The ship enables the company to continue delivering crews and cargo to offshore installations in the Gulf of Mexico, rapidly yet comfortably and in a wide range of weather conditions.

All Naviera Integral's 38 vessels are wholly‑owned and serviced in-house by certified mechanical, electrical, electronical and marine engineers Both Naviera Integral and Damen have worked together for over two decades. LEONARDO raises the number of Damen vessels flying the Mexican Naviera Integral flag to 24. Both companies are family-owned, sharing the same values and long-term perspective. Naviera Integral, a 100 percent Mexican company, has been serving the oil and gas sector with fast-crew and platform supply vessels, oil tankers and tugboats for over 30 years. All its 38 vessels are wholly-owned and serviced in-house by certified mechanical, electrical, electronical and marine engineers. Naviera can do dry dock maintenance in its own shipyard as well, and possesses exclusive distribution rights for marine lubricants and oil filters. Another new and successful division for the company lies in the tourism sector, where it operates under the name Naveganto. Its designed-forpurpose catamaran is named Itzae. Built in Mexico, Itzae serves tourists both local and foreign in Cancun, as well as the tourism sector’s workers. President López Obrador traveled on board the Don Benjamin, a Naviera Integral FSV, during his visit to offshore platforms in December 2019. He traveled along with PEMEX Director General Octavio Romero Oropeza and several members of the presidential cabinet. Furthermore, Naviera Integral is at the cutting edge of technological innovation, positively disrupting the marine logistics market, always in support of project efficiency and the effectiveness of operators. LEONARDO is a main contributor to the company’s development.

293

Pipe transfer from barge to pipe lay vessel

NATURAL GAS VALUE CHAIN

Natural gas is set to play a vital role in Mexico’s energy transition. Companies involved in the hydrocarbons value chain understand how Mexico must upgrade its natural gas sector to deliver higher sustainability measures and implement improved cost efficiencies. Mexico’s location guarantees access to the lowest natural gas price in the world and the country is extending its gas pipeline network immensely, expanding from 11,000km to 18,000km in the coming years. At the moment, cheap gas from the US mean that Mexico relies on imports, but that must change if self-sufficiency is to become a possibility. The Ministry of Energy states that until 2022, imports will grow and Mexico’s production will continue to be relatively small.

In this chapter, top actors along Mexico’s natural gas value chain share their insights into the sector’s position. It focuses on the steps the administration should take in terms of infrastructure, production, policy and imports and sets out the areas of opportunity for natural gas players.

295

CHAPTER 12: NATURAL GAS VALUE CHAIN 298

ANALYSIS: Natural Gas, Energy Source of Change for Mexico

300

VIEW FROM THE TOP: Héctor Moreira, CNH

302

VIEW FROM THE TOP: Luis Vázquez, Diavaz

303

VIEW FROM THE TOP: Patrice Laporte, Siemens O&G Americas

304

VIEW FROM THE TOP: Alberto Escofet, Enagás

305

VIEW FROM THE TOP: Robert Jones, TC Energía

306

VIEW FROM THE TOP: Phil Hopkins, Phil Hopkins Ltd.

307

VIEW FROM THE TOP: Jan Frowijn, ROSEN Group

308

VIEW FROM THE TOP: Donato Santomauro, Bonatti

309

VIEW FROM THE TOP: Ricardo Cardiel, Latin American Rainmakers

310

VIEW FROM THE TOP: Francisco Guajardo, DIDSA

311

VIEW FROM THE TOP: Alejandro Gutiérrez, United Pipeline de México

312

VIEW FROM THE TOP: Paolo Gaffuri, Pietro Fiorentini

313

VIEW FROM THE TOP: Vicente Tamés, Duro Felguera

314

INDUSTRY PERSPECTIVE: Joel Salinas, SCR México

297

Fernando Gutiérrez, Siconsa

315

INSIGHT: Óscar González, NDT Global

316

VIEW FROM THE TOP: Raúl Arechiga, Constructora Arechiga

317

INSIGHT: Rociel Barrera, Diablo Pipeline Solutions

318

VIEW FROM THE TOP: Alfonso Caso, AOS Social

319

VIEW FROM THE TOP: Luis Echavarría, Enco GNV

320

VIEW FROM THE TOP: Óscar Mendoza, GENSA

321

VIEW FROM THE TOP: Tico Solana, CUMEX

| ANALYSIS

NATURAL GAS, ENERGY SOURCE OF CHANGE FOR MEXICO The essential need for pipeline construction became shrouded in uncertainty this year, as the new administration sought to renegotiate what it considered unfair contracts. At the same time, the role of natural gas gathered further support as a fuel to bolster Mexico’s pursuit of energy sovereignty The new administration’s overarching aim of delivering

sovereignty, its recent history must be reversed. “Mexico’s

a revitalized national energy sector able to support the

relationship with natural gas is characterized by its

energy demands of its growing population requires the

location. The availability of cheap natural gas, together

support of a comprehensive natural gas pipeline network.

with the existence of oil in Mexican territory, has offered

Mexico’s recent progress made in natural gas pipeline

little reason to invest in Mexico’s natural gas industry.

infrastructure — from 11,347km of completed pipeline in

This underinvestment has led to underdevelopment,” he

2012 to 15,986km in 2018 — was continued in 2019 as a

says. The profitability of oil has delivered great economic

further 1,224km of pipeline was finished, while another

benefits for the country but as production waned, little

1,679km remains under construction.

was done to build the role of natural gas. “Mexico was originally importing 20 percent of its natural gas needs.

298

The cultural shift from reactive to preventative maintenance

Today, it imports 70 percent: the country depends more on

on the legacy pipeline infrastructure of the country

US natural gas than Japan, a country with no natural gas

remains a prominent theme within the sector. Jan Frowijn,

reserves. While Japan has various providers, Mexico has

Managing Director of Mexico and Central America for

only one,” says Moreira.

Rosen Group, whose company has been performing In-Line Inspections and integrity assessments on pipelines as part

With the national demand on natural gas set to increase

of the CENEGAS Five-Year Plan, believes this shift is taking

20 percent between 2017 and 2031, from 8,017MMcf/d to

place. “To make the transition from reactive to preventive

9,659.9MMcf/d, production must grow in kind for Mexico to

maintenance, the first step is to work toward a risk-based

be self-sufficient. However, the opposite situation appears

integrity management plan, inspection and assessment of

likely to take place. According to SENER, the importation

the state of the assets,” he says.

of natural gas will grow 180 percent from 2012 to 2022, while national production will drop within the same time

There is an industrywide recognition that the

frame. Whereas in 2012 there were 16 interconnections for

implementation of advanced technologies like Big Data

importing natural gas from the US, as of October 2019,

can support the upkeep of Mexico’s pipelines. Joel Salinas,

there are now 24.

Director General of SCR Mexico, highlights the specific benefits. “The application of these new technologies means

AREAS IN NEED

the pipeline network requires less maintenance, which is

Following the cancellation of the Special Economic

especially positive because it is difficult to conduct pipeline

Zones (ZEE) intended to develop southeastern Mexico,

inspections due to increased insecurity.”

the need to propel the economy of these areas remains. Meanwhile, the administration has stated its intent to

However, Frowijn believes that the uncertainty of the last

equalize the disparity between accessing reliable energy

year is likely to reduce the willingness of stakeholders to

resources in the north of the country and that of the

invest. “Although there are some project-based exceptions,

less infrastructurally-developed south. Moreira believes

the uncertainty in the market increases the likelihood of

natural gas could support both these aims. “Studies show

companies sticking with what they are familiar with, rather

that Mexican states with natural gas develop faster than

than looking for more advanced technologies. With some

those without. This means that states like Oaxaca and

exceptions, the introduction of the latter tends to be

Chiapas will struggle to grow economically if the federal

perceived as an investment risk,” he says.

government cannot deliver natural gas to them,” he says.

THE ROLE OF NATURAL GAS

However, the challenge of transporting fuel remains.

According to Héctor Moreira, Commissioner of the CNH,

Unyielding terrains, high CAPEX requirements and low

the country’s geographical and geological good fortune

cost-efficiency present clear obstacles to justify extensive

has resulted in the national development of natural gas

pipeline projects. According to Alberto Escofet, Mexico

being stunted. With the administration’s pursuit of energy

Country Manager of Enagás, a good remedy is already

FERMACA Pipeline

299

available. “A fantastic resource that can address these

number of natural gas stations, which stands at only

and other zones lacking attention due to factors such as

35 to service some 25,000 natural gas vehicles, offers

geographical isolation or infrastructural marginalization

Mexico the chance to reduce pollution problems while its

is virtual pipelines.”

population can access cheaper fuel. “Natural gas reduces CO2 emissions by 70 percent in comparison to diesel and

Virtual pipelines are already at use in Mexico in states

is 50 percent cheaper per kilometer than traditional fuels,”

including Quintana Roo, Yucatan and Campeche. The

he explains. However, the incongruent history of natural

flexibility the system provides allows natural gas to be

gas in Mexico’s separate regions poses problems for its

delivered beyond the reach of conventional pipelines

growth. Two well-publicized natural gas disasters, the last

and dramatically reduces the investment a conventional

of which occurred in 1992, color the perception of the fuel

pipeline requires.

as dangerous. While Echavarría understands the position, he also believes it to be outdated. Central and southern

BRIGHT FUTURE FOR NATURAL GAS STATIONS

Mexico, where natural gas use is not as widespread, have

Mexico is at an energy crossroads. Its environmental

a negative perception of the fuel. In northern Mexico

responsibilities as part of the Paris Agreement demand

where natural gas infrastructure has been historically

that the government take steps to reduce national CO2

available, the perception is very different. “We need to

emissions. Yet central to the new government’s plan is

change the public’s minds because natural gas really is

the delivery of a cheap and accessible energy price for

an improvement. This would allow us to advance with

Mexicans nationwide. For some stakeholders, natural

building more stations and overcome the main obstacle

gas is the only fuel source that can attain both these

that we face: the lack of national coverage. When more

aims simultaneously. Luis Echavarría, Director General

natural gas stations are available, the shift to natural gas

at Mexican company EncoGNV, believes increasing the

will become more attractive,” says Echavarría.

| VIEW FROM THE TOP

NATURAL GAS, A MEXICAN PRIORITY HÉCTOR MOREIRA Commissioner at CNH

Q: How would you characterize the relationship between

slightly higher prices, but in this way, the money returns

Mexico’s natural gas production potential and demand?

to the national economy and helps spawn new value

A: Mexico’s relationship with natural gas is characterized

chains to meet supply.

by its location. The country has great natural gas

300

resources and so the production of natural gas should

The petrochemical industry must also be considered.

be high, but we are in close proximity to the world’s

Mexico imports dry gas from the US but Veracruz

cheapest natural gas market, the US, and can buy at

produces gas containing components, including ethane,

very cheap prices. The availability of cheap natural gas,

propane and butane, which can be used to supply the

together with the existence of oil in Mexican territory,

country’s petrochemical industry. Mexico’s petrochemical

has offered little reason to invest in Mexico’s natural gas

industry can only grow with the aid of the gas industry;

industry across the years. This underinvestment has led to

it is a consequence of producing gas here. The financial

underdevelopment. This made sense in purely economic

benefits and long chain of the petrochemical industry,

terms: the profitability of oil is higher. But this situation

including job creation and tax generation, cannot be

also made Mexico dependent on the US, and as cheap

ignored. Carrying on the status quo of imports should

gas means cheap electricity, this dependence will only

be reassessed. We must consider the opportunity cost

grow. Mexico was originally importing 20 percent of

of not developing the petrochemical industry in Mexico.

its natural gas needs. Today, it imports 70 percent: the country depends more on US natural gas than Japan, a

To promote the growth of natural gas in Mexico, CNH

country with no natural gas reserves. While Japan has

is speaking to the Ministry of Energy and the Ministry

various providers, Mexico has only one.

of Economy, which are responsible for economic development, to communicate our ideas. We are also

Q: How does CNH view the role of natural gas within

holding meetings with Congress and have just finished a

Mexico’s energy matrix?

natural gas training seminar for the country’s senators.

A: CNH is concerned about the role of natural gas within

Recently, PEMEX has begun prioritizing gas fields to

the Mexican energy matrix. In 2018, the Commission

support its overall production goal. Investment into Ixachi

published a book titled The Natural Gas Sector: Proposals

is one such example and shows a movement toward

for the Development of the National Industry to explain

parity between fuel types.

the country’s situation and to offer ideas on how we can produce more gas. However, CNH cannot set strategies,

Q: How can land use legislation be improved to help

we can only advise. Therefore, we must try to convince

develop natural gas production?

SENER that thinking regarding the price of gas must

A: Studies show that Mexican states with natural gas

not be based on the US price at the point of sale. While

develop faster than those without, which means that

the initial price may be cheaper, the overall difference,

states like Oaxaca and Chiapas will struggle to grow if the

once the gas has been transported into Mexico, may not

federal government cannot deliver natural gas to them.

be great when compared to the price of Mexican gas,

Mexico needs to update its legislation regarding land use.

which can be fed into the network immediately. There

The Energy Reform entitled landowners to receive rent

are also other factors to consider. Buying gas from a

payments from oil and gas companies using their land.

Mexican company generates profits that can be taxed, in

But in Mexico, these matters are complicated because

addition to the salaries of the company’s employees and

there is no property census to adjudicate unquestioned

the revenues of its suppliers. Local production creates

land ownership. The US has a sound land ownership

additional revenue that must be considered within the

model with good records, even if land is owned by groups

price comparison. This may require that we sell gas at

or communities rather than individuals.

We must also assess the equilibrium between indigenous

onshore resources for over a century and deepwater is

rights in terms of the privileges granted to landowners by

the big chance for Mexico. Now is the time. Each previous

the Energy Reform. Mexico’s hydrocarbons industry says

deepwater bidding round has been very successful

that it will respect indigenous traditions and their way

and clearly, considering the companies involved, from

of looking at property, but combining intention with the

France, the UK, the Netherlands and China, Mexico is an

new legislation will take time. It is vital that communities

attractive option.

in which oil and gas activity is taking place receive the benefits of those projects. The new administration is

CNH has everything prepared for future bidding rounds.

doing well in protecting the rights of communities. But

All we need is the green light. Added to this is the fact

in the past, sometimes promises were made to groups

that PEMEX has decided that deepwater is not a top

and never kept. This created a problem of credibility.

priority despite having many areas available to develop. Agreements should therefore be made with private

Q: How has the role of data acquisition expanded to

companies to explore these areas. There are many areas

benefit the Mexican gas market?

with potential in Mexico that could be put up for bidding,

A: The acquisition of seismic data has been one of the

the west area of Yucatan being one example.

most positive developments that the Energy Reform has brought to Mexico. More seismic data has been collected in Mexico over the last four years than had been collected in the previous 70. This is because the Energy Reform allowed private companies to start gathering information, which has delivered benefits to everybody. Companies are obliged to tell the industry that they have acquired

The way the Permian and Eagle Ford Basins were managed should be an ideal example to Mexico

data and are free to sell that data to companies interested in specific areas or fields. There is no exclusivity over the rights to collect data from one area and therefore

Q: What role should unconventional resources play in

multiple companies can do so. The data now available is

Mexico’s energy mix?

therefore far more complete and those interested in an

A: CNH will soon publish a book on unconventional

area’s data can view multiple sources. After eight years,

resources to demonstrate the research we have done

this seismic data becomes public.

around the security and environmental issues of unconventional production. We are trying to convince

Q: How suitable to an expanded natural gas industry is

the government that we must open unconventional

Mexico’s gas infrastructure?

resources to the industry. There are large parts of Mexico

A: The infrastructure we have for the transport and

that have the potential to hold unconventional resources,

processing of natural gas is already sufficient. This is

including Tamaulipas, Nuevo Leon, and Coahuila.Despite

because Mexico produced greater amounts in the past

being beside West Texas, the state of Chihuahua does not

than it now does. The main problem we have is that the

produce a single drop of oil or gas due to a lack of exploration.

infrastructure can belong to PEMEX while the new gas

We must make exploration in Chihuahua, which is a massive

belongs to private operators. Therefore, we must devise

area, an attractive opportunity for companies to investigate

systems that allow for the use of previous infrastructure

the possibility of unconventional resources there.

that have capacity. However, Mexico requires more natural gas storage. Under current SENER legislation,

The way the Permian and Eagle Ford Basins were

consumers are required to pay for storage. The logic

managed should be an ideal example to Mexico, and

is that companies construct storage capacity and then

our proximity to these areas should also be leveraged.

charge the consumer, not the producers, for that storage.

Gas fields like McAllen, very close to Reynosa, suggest

CNH and CRE have been studying depleted fields to

the presence of gas in Mexican territory and all the

identify them for storage. CRE is then given responsibility

services required for developing unconventionals are

for creating that storage business tendering depleted

there, just across the border. This makes the prospect of

natural gas fields.

development simpler and therefore less expensive.

Q: How can the reintroduction of bidding rounds help Mexico achieve energy sovereignty?

Héctor Moreira is serving a second term as CNH Commissioner.

A: Mexico has not seen a bidding round in 2019. We are

His previous experience includes stints as Deputy Minister for

hoping the government will decide to open other areas,

Strategic Planning and Technological Development at the

especially in deepwater. Mexico has been exploring its

Ministry of Energy and Deputy Minister of Hydrocarbons

301

| VIEW FROM THE TOP

TEAMWORK NEEDED TO REACH NEW GOALS LUIS VÁZQUEZ Chairman of the Board of Diavaz and President of AMGN

Q: What role will Grupo Diavaz and the private sector play

among participants. First, the company needs to be Mexican

in increasing the country’s production?

or have a large amount of local content.

A: Currently, Mexico produces 1.7MMb/d. The goal is to bring

302

Mexico’s production to 2.6MMb/d, representing the same

Q: What is the status of Diavaz’s fields and what strategies

production as previous years, and to produce a minimum of

will provide the government with the desired results?

2.8MMb/d in Mexico by 2024. PEMEX and the government

A: In our services division we are developing interconnections

say that by October 2019, the new fields being brought

at a number of marine platforms and we are providing

online will start to increase the production of oil.

reliability and integrity maintenance to PEMEX’s Dos Bocas Terminal, which is one of the largest in the world.

The private sector has committed to produce 280Mb/d.

Approximately 1.3MMb/d go through the terminal. In our E&P

President López Obrador has said that there will be no

division, we have four fields assigned to us and the company

further rounds until the government sees a positive result

is producing 18Mb/d. We are second only to PEMEX in

from the previous ones. There have been 120 contracts

petroleum production in Mexico, followed by Petrofac and

awarded since the Energy Reform was enacted and so

Renaissance. We operate four fields under contracts awarded

far, production has only increased 20Mb/d. We expect the

by CNH: Catedral, in Chiapas; Barcordon, in Tamaulipas;

private sector to increase production in the coming months.

Ebano, in San Luis Potosi; and Miquetla, in Veracruz. Diavaz

Only then can we discuss the possibility of launching new

believes that in three to four years we will be producing

rounds with the government. We expect this will happen

50Mb/d from those fields. Another two fields, Cuervito and

within 10 months.

Fronterizo, are service contracts with PEMEX.

Q: What is the group’s experience participating in previous

Q: What types of contracts are most profitable for the

PEMEX projects and what were the main characteristics

federal government when incorporating the private

PEMEX was looking for?

sector into E&P?

A: We bid for the engineering and construction of a marine

A: From 2006-2012, operations in the Ebano Field were

infrastructure contract for PEMEX. We tendered the A and B

carried out under a transactional service contract with

clusters of marine infrastructure and placed second in both

PEMEX. From 2012-2018, PEMEX switched the contract

tenders. Unfortunately, the times stipulated to carry out the

model to an incentivized contract, which means that Diavaz

work were too tight and there was a huge LD penalty for

will recover 75 percent of all expenses and receive US$8

any delays. We carried part of the LD into the price tag and

per barrel. In the last stage, the contract migrated to a 30-

that resulted in a higher cost. We placed second because our

year production sharing contract with CNH in partnership

selling price was more expensive than the winning bid. Many

with PEMEX under the scheme developed through the

consortiums did not meet the technical requirements and

Energy Reform.

did not pass to the second phase. The bidding process was transparent and clear and gave all players a fair chance. When

We studied which of the three models was the most

tendering a contract, PEMEX looks for several characteristics

profitable for the government. The study proved that the last scheme developed during the Energy Reform was, by far, the most profitable as the government would receive the greatest rentability of income plus a percentage in income

Diavaz is a Mexican company made up of business units

taxes, while taking zero risk and making no investment. In the

focused on exploration and production, gas, marine operations

end, this scheme is not only profitable for the government

and oil installations integrity. It was jointly created through

but also for the private sector. It is a win-win situation.

strategic and commercial alliances with energy-sector leaders

VIEW FROM THE TOP |

DELIVERING THE DIGITAL ADVANTAGE FOR PIPELINES PATRICE LAPORTE Vice President of Siemens O&G Americas

Q: Where in oil and gas transportation is Siemens focusing

has been in the forefront as it is still necessary a need to

its efforts?

reduce cost to compete with the onshore segment. The need

A: The focus for Siemens O&G is on facilitating cost-effective

to develop and operate an offshore platform based on a

transport of gas as well as development of the offshore field.

single database with an associated 3D model is imperative.

The pipeline network and transportation areas of energy

The goal is to control the largest number of tasks from the

and petrochemical generation are the two segments where

ground through the replication of live data (Digital Twin),

Siemens is focusing on today. Questions remain regarding

thus minimizing personnel on the high seas and optimizing

gas and how it can best be monetized versus other forms

operations by predicting failures in the main equipment. A

of energy in the country. Also, what Mexico can leverage

good example is what Siemens has done with Aker BP in

to generate cheaper, safer and more available energy for

the North Sea with the Ivar Assen platform. This platform is

general consumption. We are working in this area to offer

today managed from an onshore center in Norway and has

technology-led solutions so that our clients receive far better

enabled Aker BP to significantly improve the profitability of

solutions.

its operations.

Q: What are the axes that Siemens focuses

Q: How does Siemens measure its success?

transportation for gas?

A: We are measured on sales. In terms of hard numbers, we

A: In the transport of gas, we focus on achieving solutions that

hope to hit three-digit million-dollar revenue by 2020 solely

combine cost-effectiveness and environmental-friendliness.

by rotating equipment in the oil and gas sector. Siemens

In Mexico’s case, the most economical way to transport gas

cannot focus on the hard numbers alone. The pilot tests

would be to increase pipeline size. With a larger-diameter

we carry out, which will pay dividends in the future, must

pipeline, more gas can be moved for a limited increase in

also be considered successes. We celebrate innovation.

CAPEX and OPEX, reducing the cost per standard cubic foot.

The mixture of long and short-term thought is integral to

At the moment, we are working with Fermaca, which is the

Siemens’ operations and has been pivotal in our 170-plus

first pipeline company to implement our SGT-750 turbine for

years as a company.

the larger pipeline. Production should start in 2019. Q: Where is Siemens focusing for the future in Mexico? Q: Where in the Mexican value chain will Siemens Pipeline

A: Siemens is looking closely at upstream onshore gas

4.0 have the greatest impact?

gathering. The traditional way to extract gas has been to use

A: Siemens’ Pipeline 4.0 has only one goal: making the

high-speed reciprocating compressors driven by gas engines;

customer more competitive, but we do not want to scare

however, this may not always be the most economical and

the company with technical jargon. Instead, we try to be

environmentally friendly way to develop a field. Alternatives

pragmatic and tell them how we improve reliability, cut costs

like motor-driven centrifugal compressors either connected

and reduce emissions. We ask companies to implement our

to the grid or linked to a single dedicated power plant

technology in just one segment of their line and see if what

may be more profitable. Siemens can cover all of these

we promised is delivered. This process is as much about

configurations via its portfolio of turbo and reciprocating

changing behavior as it is about installing technology, so the

compression solutions for the oil and gas industry.

need to access and exchange data is fundamental. Q: How does the use of data change a company’s

Siemens delivers high-speed rotating equipment solutions to

maintenance strategy and associated costs?

the global oil and gas industry. Headquartered in Houston but

A: One undeniable result of digitalization is reducing the

with a presence worldwide, Siemens puts digital innovation at

need for maintenance personnel. The offshore segment

the heart of their operations

303

| VIEW FROM THE TOP

RECONCILING NATURAL GAS PRIORITIES ALBERTO ESCOFET Mexico Country Manager of Enagás

304

Q: What are the defining characteristics of your strategy for

national natural gas production and self-sufficiency. We

the Mexican market?

understand that the economic imperative is to maximize

A: Our strategy for Mexico has been redefined to fit the entire

these imports. We also believe that a country can meet

North American region. We are approaching it as a regional

its natural gas needs only through imports, provided its

strategy rather than a national one. It is clear that you cannot

sources are adequately diversified. Our example is Spain,

really separate Mexico from its geographic circumstances. This

which maintains an important natural gas market despite

not only applies to the obvious economics of US natural gas

not producing its own natural gas. However, we believe

imports in Mexico, but also to the fact that many US natural

that infrastructural spending can create a balance and not

gas reservoirs extend into Mexican territory and will be a

necessarily favor one function over the other.

crucial part of a current and future natural gas production plan in Mexico. Thus, the development strategy for the natural

Mexico’s position as a neighbor to the US is privileged

gas infrastructure that we work on needs to take on an integral

and should be taken full advantage of, but this natural

approach all along the value chain. A great example of this

balance between imports and production will still emerge

is Enagás’ partnership with Blackstone Infrastructure. The

as a result of simply following the market; for example,

current Mexican infrastructural development agenda is aligned

the construction of regasification plants meets the needs

with our goals. We particularly welcome the ongoing policy

of both of these objectives. We believe that Mexico has

of promoting and stimulating storage projects and general

enough infrastructure to attend its current needs and that

investment in storage infrastructure. With that being said,

its incoming growth can be designed to organically meet

when it comes to Mexico’s gasification, everything that has

demand. From our perspective, the best way to do this is

already been done pales in comparison to what remains to

to balance operational storage, such as the one provided

be done. A more proactive and positive position by the most

by facilities such as the Altamira and Manzanillo plants.

relevant players, such as CENAGAS, CFE and large industrial

Another important factor in this equation is the renewal

consumers would be welcomed. Their resources need to

of existing and aging pipelines and related infrastructure.

complement each other more effectively. This is why our

Included in this renewal process is an integrated plan for

overall long-term structure in Mexico is to provide integral

reorienting the commodity traffic routes so that hubs can

solutions for natural gas infrastructural needs that involve

be created which make distribution more efficient.

bringing together all of these parties. This also reflects the fact that Mexico is by far the most important market in our

Q: What has your experience operating three natural gas

international portfolio outside of Spain.

infrastructure assets in Mexico taught you about the areas of opportunity in Mexico’s natural gas development?

Q: What is Enagás’ perspective on the conflicting questions

A: Although our future plans will continue to be focused

surrounding Mexico’s natural gas development?

on those three assets, we do identify areas currently

A: We believe these questions are less conflictive than

unattended by the growth of Mexico’s natural gas

they seem. For example, we do not believe that developing

infrastructure, such as the Yucatan and Baja California

infrastructure for natural gas imports has to happen at

peninsulas. Virtual pipelines can address these and other

the expense of developing infrastructure that supports

zones lacking attention due to factors such as geographical isolation or infrastructural marginalization. This resource can also be used to promote the gasification of industrial

Enagás is an international natural gas distribution and

clusters and the so-called special economic zones. All of this

infrastructure industry leader headquartered in Spain. It began

contributes to the overall process of continuing the ongoing

its involvement in the Mexican market in 2011 and since then it

decentralization of natural gas assets’ administration from

has been involved in three major infrastructure projects

PEMEX to a wider web of institutions.

VIEW FROM THE TOP |

CONNECTING REGIONS ROBERT JONES President of TC Energía

Q: What role will Mexico play in your development strategy

and providing a lower cost and more efficient fuel for

now that you have transformed from TransCanada Corp.

environmentally friendly power generation.

to TC Energía? A: The name change is a reflection of our growth. TC reflects

Q: What would you highlight as the most prominent

our origins as TransCanada Pipelines. We have added the

engineering and construction challenges in laying the South

word Energy to our name to be more representative of our

Texas-Tuxpan offshore pipeline?

entire business, which includes pipelines, power generation

A: The South Texas project is unique in so many ways from

and energy storage operations. The new name also has

an engineering perspective. It is Mexico’s first large diameter

variations in Spanish, English and French, also honoring the

offshore natural gas pipeline. At sea, we used specialized

fact that we operate in Mexico, Canada and the US, building

vessels with full-production lines to weld, test and lay the pipe

a stronger link with our staff, clients and stakeholders across

on the seabed. The pipes themselves were coated with cement

the geography where we operate.

at a local plant to minimize buoyancy. We also constructed the largest natural gas compressor station in Mexico and the

Mexico is a key part of our investment portfolio and will

largest ever built by TC Energía for compressing natural gas

remain so for the future. Our current assets provide the

from Altamira to Tuxpan, in northern Veracruz.

core platform for growing our presence organically in the country. TC Energía also provides a vital link between

Q: What are the vital pipeline construction, operation and

producers and the markets where natural gas is needed for

maintenance technologies that TC Energía has successfully

powering industries and homes in Mexico. Currently, our

introduced to Mexico?

Business Unit in Mexico represents about 5 percent of our

A: We are very proud of our safety standards, which are

corporation. We are the largest Canadian investor in the

at the top of the industry, and we apply them at every

country. I am very proud that the majority of TC Energía

stage of the life of our pipelines. Our high standards have

leaders are nationals, who put every effort in delivering the

been key for successful operation not only in Mexico but

energy Mexico needs, safely and reliably.

across all three countries. Using cutting-edge technology, we monitor and inspect the performance of our pipelines.

Q: How does the South Texas-Tuxpan pipeline investment

From a construction perspective, Mexico’s geography

illustrate the alignment of the objectives of TC Energía and

has pushed us to be innovative. For example, we used

the new administration?

specially adapted helicopters or air-cranes to transport

A: The South Texas pipeline is the most critical energy

10-ton pipe segments to mountain areas in Chihuahua; we

infrastructure project in Mexico and probably in Latin

used a gondola in steep cliff faces in the Huasteca Potosina

America in recent years. From an investment perspective,

for the Tamazunchale pipeline; and we adopted mining

it was the largest single direct foreign investment source

techniques like the raise bore for descending our pipeline

in 2017. The project enables Mexico to increase its natural

inside a mountain on the border between Chihuahua and

gas import capacity by 40 percent and provides CFE with

Sinaloa plus all the challenges that we successfully faced

access to what currently are the lowest prices for this fuel.

for South Texas. Constructing in these environments has

As mentioned by CFE, South Texas will supply natural gas

been as challenging as it has been rewarding.

to more than 14 power generation plants and important industrial markets in the Gulf of Mexico and central regions in the country. Through interconnections the project has the

TC Energía, formerly TransCanada, is a leading North American

potential to supply natural gas to the Yucatan peninsula.

energy infrastructure constructor. The company operates a

South Texas will deliver economic growth and prosperity

natural pipeline network stretching over 91,500km and was the

by creating jobs, promoting industrial development

first private operator in Mexico to build and operate gas pipelines

305

| VIEW FROM THE TOP

PEOPLE, TECHNOLOGY: THE FUTURE OF MEXICOâ&#x20AC;&#x2122;S PIPELINES PHIL HOPKINS Director of Phil Hopkins Ltd.

Q: What is the state of the Mexican and the international

regulations: safety culture, data management and

pipeline industry?

competency of people. These directly help our future

A: There is a certain level of bureaucracy and hierarchy

generations of workers as there is pressure to give new

that you do not find often in other countries. Nevertheless,

generations less funding and training.

the nature of Mexicans makes doing business relatively

306

easy. Contracts move quickly, although discussions with

Q: What policy initiatives could help improve pipeline

agencies can take some time. In general, the industry is very

integrity management, maintenance planning and

competitive internationally.

rehabilitation? A: It is crucial to work with these regulations. The

Q: In what ways is the government involved in the pipeline

safest pipelines are operated in countries where the

infrastructure today?

regulator and pipeline operators work together. My

A: A pipeline is just a pipeline; it has no inherent

recommendation is for the regulator to establish a

nationality. The key is that you continually must reinvest

common-ground relationship with operators. Regulation,

in your infrastructure to keep it functioning. If there

operation and standardization lead to safety. The key is

is a great deal of government interference that cuts

to combine processes and regulations with investment

into profits, efficiency is hampered and budgets may

and financial resources. The operator invests and then

be reduced. In my experience, pipelines differ very little

goes to the regulator to get their operations checked.

around the world and are usually well looked after. In

There is an agreement between the two because the

Mexico, product theft is prevalent, which is without

industry sets the standards that will be followed. The

a doubt one of the biggest issues the government is

process works because of this cooperation. Nonetheless,

trying to deal with. The other main problem is that

this cooperation can still improve a great deal.

reinvestment in new infrastructure is difficult because it is too expensive. Mexico will need to make these

Q: How can companies manage the challenge of sharing data

pipelines last for 40 more years, even though they

that might be valuable commercially?

are already 50 years old. During reorganizations,

A: Safety data should be shared. The airline industry, for

infrastructure is often forgotten, as the focus turns more

instance, is legally obligated to share safety data, even though

to people and management, but we must not forget the

it costs them money. This sharing of information does not

importance of infrastructure.

happen in the oil and gas industry. Enforcing laws to obligate companies to share information is always the last choice, but

Pipelines resemble each other and old does not mean

unfortunately it works. It has reached the point that there

outdated. It may just need more investment. Good

could be a safety issue on the other side of the world, and

operation and maintenance are the keys to functioning

the information is not shared, even though companies here

pipelines. Common standards between the public and

are likely to encounter the same issue.

private sectors are important for safety. I believe Mexico should focus on its aging infrastructure and comply

Q: How do you think the expansion of pipelines in Mexico

with regulations. I recommend three standards to help

will evolve in the future? A: The existing infrastructure is probably fine; the challenge is to use it better. Gas exports would need to become more

Phil Hopkins Ltd. provides engineering consultancy and training

of a business as well. Furthermore, it seems like pipelines are

to the pipeline industry. Phil Hopkins was previously Executive

underused. If it is only half used, it is a waste of money. As far

Director of the pipeline engineering company Penspen Limited

as change in the Mexican oil and gas industry is concerned,

and Managing Director of Andrew Palmer and Associates

the Energy Reform was a great idea.

VIEW FROM THE TOP |

INTEGRITY MANAGEMENT DRIVES SERVICE PORTFOLIOS JAN FROWIJN Managing Director of Mexico and Central America at ROSEN Group

Q: How does ROSEN work with CENAGAS and how

people-based business. Without experience and competent

has CENAGAS transitioned from reactive to preventive

employees, we would not be able to translate technology

maintenance?

into value for our customer. Uncertainty within the oil and

A: CENAGAS made a wise decision in gathering all the

gas sector in the country has opened the door for us to

information on the assets handed over by PEMEX. This

develop our people to pursue projects both inside and

effort sets a good baseline in terms of information reliability,

outside of Mexico. Aside from pipeline inspection, we are

taking maximum advantage of the systems PEMEX has

focusing on integrity management to position ourselves in

developed and maintained over the years. We are now

the early stages of project life cycles.

performing in-line inspections and integrity assessments to draft its maintenance plan, which is an important step

Q: How has the new federal administration affected your

forward to change from being perceived as reactionary to

relationship with PEMEX?

a proactive way of maintaining these assets. In terms of

A: We are an industry stakeholder and have been in

our work with CENAGAS, its contracts are typically tender-

continuous communication with PEMEX. Communication

based. Therefore, there is no extension for the scope or

was difficult at first but there seems to be willingness to

duration of these contracts.

partner and collaborate. After all, Pemex is an integral part of Mexicoâ&#x20AC;&#x2122;s petrochemical industry. We are making

Right now, we are closing two contracts that extended

an effort not only to sell to our customers, but also to

into this year and the next year and we are focusing on

support them through training and education, helping to

closing them with the same level of quality delivered last

develop new talent in the industry.

year. The contracts are connected to CENAGASâ&#x20AC;&#x2122; fiveyear plan, focusing on the liability of gas infrastructure

Q: What are the cutting-edge solutions or products that

development. To make the transition from reactive to

ROSEN can deliver for pipeline integrity management?

preventive maintenance, the first step is to work toward

A: Experience is extremely valuable in the midstream

a risk-based integrity management plan, inspection and

segment in Mexico and the industry still needs to figure

assessment of the state of the assets. If you do not know

out how maintain the years of experience of PEMEX as an

the current status of the situation, it will eventually be more

industry. The critical issue in Mexico right now is making sure

difficult to become proactive rather than reactionary.

that knowledge and experience are successfully transferred to the new generations of leaders, both in the management

Q: Do you believe companies in Mexico are adopting

and technological fields. This also applies the other way

technology more readily than in the past?

around due to the inflow of new ideas into organizations.

A: I think the situation is quite the opposite. Although there are

Technologies like artificial intelligence are valuable and useful

some project-based exceptions, the uncertainty in the market

in pipeline integrity management. Reverse mentoring can

increases the likelihood of companies sticking with what

help the older generation embrace these new ideas. If Mexico

they are familiar with, rather than looking for more advanced

wants to be recognized as a worldwide benchmark from

technologies. With some exceptions, the introduction of the

the integrity management perspective, soft aspects of the

latter tends to be perceived as an investment risk.

system will become more important.

Q: What is ROSEN doing to diversify its offer in the country? A: We are diversifying our workforce to increase business

ROSEN Group provides technological solutions related to

flexibility. Everything we do as a service company depends

maintenance throughout the process chain. The company focuses

on our available technology and on how we transform that

on maximizing asset safety and reliable infrastructure operations

technology into a service for our clients. In the end, we are a

by ensuring data quality and integrity management

307

| VIEW FROM THE TOP

COMPLETING MEXICO’S PIPELINE NETWORK DONATO SANTOMAURO Country Manager Mexico of Bonatti

308

Q: How has the company’s experience with IEnova and

Q: How is Bonatti working with the companies that have

TransCanada helped its evolution?

permits for pipeline construction?

A: After we arrived in Mexico, we met with IEnova,

A: The last open season was dominated by major companies

TransCanada and Fermaca to understand their working

because they have the money to invest. But we also

philosophy. We participated in tenders but did not win.

approached other companies. For example, we built part of

The company then had the opportunity to work with

the Nueva Era Pipeline in Monterrey for Howard Energy. We

TransCanada and our relationship worked well. We were

know many companies are hoping to build projects so we are

then awarded El Oro in Mazatlan. Around the same time,

approaching each one, both large and small. Bonatti is a local

we were awarded the Ramones One project. Ramones

company but it has international experience and is perfectly

One was a tough project but we finished it on time. We

suited to meet their needs.

completed El Oro six months ahead of schedule and delivered a superb HSE performance. Although we are a

Q: What were the biggest challenges you faced during the

general contractor building pipelines, compressor stations

construction of Proyecto Integral de Morelos?

and metering stations, we have the ability to adapt.

A: This was one of our best projects because it gave us the chance to begin the company’s Mexicanization process. The

Two years ago, we began investing in refined storage

main area of difficulty in construction was with the barrancas,

terminals and are involved in the Valle de Mexico and

in Morelos. These barrancas are canyons 40 meters deep that

Puebla storage terminals, which are still in the early

had to be crossed. We also had to build around Popocatepetl

stages of development. In January 2019, there were

and Iztaccihuatl. We have dealt with these problems before;

storage problems in Mexico so now we are following

we have crossed the Alps, the Andes and deserts with our

the investment of major companies that will be trying to

pipelines, so we were confident in our ability.

resolve these storage issues. We will then provide these Q: How does Bonatti mitigate risks associated with

companies a solid EPC and operational service.

construction stoppages due to land disputes or similar issues? Q: What are Bonatti's main projects in Mexico today?

A: When a pipeline is stopped, we change our construction

A: Bonatti’s structure is split into business units, with

strategy. These issues are managed through our One

the largest units being pipelines and plants. The refinery

Team approach, which allows us to communicate while

storage project is under the management of the plants

constructing another part of the line. We can move our

unit. At the same time, we are working on the Tula-Villa de

machinery to an area of the pipeline that is not being

Reyes pipeline and conducting studies for other pipelines,

disputed if we have an order to proceed elsewhere. In

including water, gas and oil. As we move gas from the

case of total stoppages, we pack up our machinery and

US to central Mexico, most of our work takes place in

send our people home. While we try to minimize the

northern Mexico but we are now exploring opportunities

impact of the stoppage, it still negatively affects us.

in the south of the country in line with the government’s intention to grow Merida, Quintana Roo and other

Q: What are Bonatti’s main projects at the moment?

southern zones.

A: Our main projects are the Tula-Villa de Reyes pipeline, for which we are building around 320km of 36in pipeline and around 120km of 24in. This line will connect the Salamanca

Bonatti is an Italian oil and gas general contractor. It provides

refinery with Tula and move gas through Aguascalientes to

EPC,

services.

Guadalajara. The Mexican network needs these pipelines

Bonatti arrived to Mexico in 2012 and has participated in the

to complete the circuit. The other projects are the two

construction of several long-distance pipelines

terminals in Valle de Mexico and Puebla.

pipeline/plants

construction

and

O&M

VIEW FROM THE TOP |

THE GUIDING VESSEL THAT BRINGS PROJECTS TO PORT RICARDO CARDIEL CEO and General Manager of Latin American Rainmakers

Q: What is Latin American Rainmakers’ most valuable

believe this mounting interest will become a mainstream trend

contribution to Mexico’s energy transition?

toward 2023. The supply and demand equation of Mexico’s

A: Latin American Rainmakers has worked hard to absorb

energy market yields a supply shortage despite CFE’s close

the new market’s rules and fully grasp its benefits from

to 60GW of installed capacity. The productive enterprise of

a business standpoint, as well as its likely impact on the

the state is facing the challenge of modernizing and injecting

country’s industrial development in the mid to long-term.

efficiency into its aging power generation assets. As long as

The company is deeply involved in the generation and

supply and demand do not attain equilibrium and marginal

consumption ends of the energy market. On the power

prices reflect this imbalance, the appetite for full-merchant

generation side, we identified early on that traditional

projects will continue to grow.

project finance approaches, as existed for legacy projects under the previous regulatory framework, were no longer

Full-merchant projects are developed without difficulty but

the best fit. Mexico’s new energy model is a costs market

financial institutions show a more conservative approach

rather than a sale price market. This small difference is

when it comes to financing this type of project due to their

critical when structuring the financial model of a power

inherently high long-term risks. This translates into lower

generation project under the new regulatory framework.

leverages, higher equity stakes from the developers’ end

We are providing a steady course for power generation

and robust collateral warranties. Our advice to developers

projects ready to reach the operational phase but that were

is always to diversify risk and distribute the commercial

left adrift with the regulatory shift of the Energy Reform.

aspects of a power generation project in a 60-40 scheme, with 60 percent output allocated to coverage contracts and

We are gradually transitioning from a PPA market to a

40 percent merchant output.

coverage contract market and we are positioned as the guiding vessel to bring Mexico’s new power generation

Q: What pending regulation will prove critical for the energy

projects to port. Full merchant projects will also become the

and oil and gas industries to reach further maturation?

next step to Mexico’s energy industry maturation process

A: Mexico’s energy and oil and gas regulatory authorities

in the short to midterm. The increase in electricity rates we

are overseeing a significant shift. The learning curve is

are witnessing is a reaction to market dynamics. There is an

not only theoretical but also empirical. Some regulatory

overwhelming demand for electricity supply from end users

requirements will not manifest themselves other than by the

across the country and supply remains limited. Latin American

market’s experience. It is an ongoing process where portions

Rainmakers’ primary task in this market is to advise developers

of the regulation will be adapted to the reality observed

looking to tackle full-merchant projects and bring them

in the market. The theoretical framework behind Mexico’s

successfully to operation. On the consumption side, we are

new energy model will be shaped accordingly as it gathers

approaching potential end users to capitalize on the available

an identifiable operational track record. Adjustments are

options. We are assisting them in trimming down their energy

necessary and should be an integral part of any market’s

consumption as a first step to then provide a tailor-made

maturation process. Quick and effective reactions from the

option to consume electricity at the most competitive rate

country’s regulatory authorities will be key to managing

available based on their specific consumption curve.

the requirements of such dynamic markets.

Q: What is required to see an increased number of full merchant projects?

Latin American Rainmakers is a socially-responsible company

A: Based on the results of the long-term electricity auctions

that offers reliable industrial systems solutions backed by 20

and the thin margins obtained, full merchant projects are an

years of experience in supply, engineering, design, installation

increasingly appealing option due to their higher margins. We

and maintenance of power systems

309

| VIEW FROM THE TOP

THE NEW EPC ON THE BLOCK FRANCISCO GUAJARDO Vice President of Grupo DIDSA

310

Q: What opportunities did Grupo DIDSA spot in the

the collection, storage and reporting of the current

natural gas market after the establishment of the

status of assets. It will raise alarms when there is any

Energy Reform?

change in the project, which can be extremely helpful

A: Not too many Mexican companies understood the new

in regards to fuel theft or even with natural spills due to

conditions presented by the Energy Reform. This was

corrosion. This allows for preventive care of the assets.

because many companies were working with PEMEX.

For example, it could help prevent a minor spill from

Prior to the Reform, Grupo DIDSA already had a history

becoming a dangerous explosion. Grupo DIDSA has

of interaction with the private sector. When international

been preparing itself to adapt to the new needs of the

companies entered the market, we were prepared to work

industry and has integrated technology to create new

with them. We had been working with Naturgy, Diavaz

added value. We want to offer a long-term solution and

and Engie for many years. In the 2000s, we developed

service to the market.

over 60 percent of the infrastructure for the wells in the Burgos Basin, in Coahuila and Tamaulipas. We realized

Q: What is new in Grupo DIDSAâ&#x20AC;&#x2122;s business portfolio?

that more companies would enter the Mexican market

A: We are designing and building a network of natural

and that they would need to integrate great portions of

gas stations for vehicles throughout Mexico. The initial

local content into their operations.

consideration is for a network of 30 stations, in which we have strategic associations with the largest natural

Q: What is Grupo DIDSAâ&#x20AC;&#x2122;s strategy to increase its

gas distributors and transport companies. Basically, the

participation in the market through partnerships?

target locations to set up stations are those with access

A: Stantec is our commercial partner in two sectors:

to natural gas pipelines, combined with abundant public

oil and gas and water. Grupo DIDSA wants to focus on

transport.

increasing its market share in two sectors in Mexico: downstream with the stations and midstream. There are

Several key factors drive the growth of this project: natural

not many EPC firms in Mexico, and our hope is that with

gas usage represents savings of up to 50 percent when

Stantec, we will be able to merge all our strengths to add

compared to traditional fuels for consumers and price of

value to the market. We want to become a one-stop-shop

traditional fuels rising as subsidies are eliminated. The

for the oil and gas industry. In November 2019, we are

choice of natural gas positively impacts vehicle owners

looking to partner with Fortress, one of the largest oil

financially, whilst reducing contaminating emissions.

and gas security companies in Mexico. Stantec and DIDSA will from a true EPC and with Fortress, we will be able to

Q: What challenges has the group encountered when

provide a complete service to our clients.

seeking to participate in new projects?

Q: What technology is Grupo DIDSA using to monitor

A: The development of natural gas stations is capital

natural gas pipelines in Mexico?

intensive and requires great knowledge of the sector.

A: We are using satellite technology created by Stantec

ASEA reduced its personnel by 50 percent and CRE

to survey our assets. The mTOOLS software facilitates

has had many changes in its board of commissioners. The government is undergoing many changes and the challenge is adapting to them while still carrying out

Grupo DIDSA is integrated by companies dedicated to the

projects. Legal permitting can be a tedious task if you

development of infrastructure, with broad experience in the

do not know how to present the documents or do not do

construction, operation and maintenance of pipelines and

so at the right time. Companies must be diligent when

engineering development, among other activities

submitting paperwork to these agencies.

VIEW FROM THE TOP |

PIPELINES AND INFRASTRUCTURE GO HAND IN HAND ALEJANDRO GUTIÉRREZ Director General of United Pipeline de México

Q: How has United Pipeline performed since the start of

pipelines and providing structural reinforcement without

the present administration?

digging or replacing the existing infrastructure. Our

A: This is certainly a time of change which has brought

patented approach can be applied to onshore and offshore

unique challenges with it. Market realities are forcing the

pipeline systems.

business sector and the government to adapt to each other and both sides are becoming more flexible and finding

Q: What other technologies can PEMEX consider for

ways to work with each other. The current environment is

restoring its pipelines in the south of Mexico?

complex, but Mexico is a country full of opportunities. The

A: We are a pipeline technology-based company. Our

government is becoming more open to dialogue about how

solutions are optimal for deteriorated small and large

to incorporate opportunities with private investment and

diameter pipelines and systems that carry corrosive

participation. Corruption has traditionally been an obstacle

products. PEMEX does not need to replace existing assets

for the development of the oil sector and we applaud the

that have deteriorated due to corrosion; it can protect and

government’s efforts to tackle this issue front and center.

renovate the existing infrastructure with cost effective methods that will give new life to strategic assets. United

Q: What sectors of the market do you think will

Pipeline is a perfect fit for rehabilitating production

grow the most?

pipelines in the upstream market where produced water

A: I see a growing need for more infrastructure in Mexico

has become a growing challenge and concern. As oil fields

and the government lacks the resources to do everything

mature, PEMEX’s growing water production generates

on its own. It will require a joint effort between the

corrosion and is destroying pipeline systems that are not

government and the business sector to address the various

adequately protected. PEMEX is producing 1.7MMb/d and

needs of the market. In terms of natural gas infrastructure,

approximately 1.3 million barrels of sour water which will

for example, the north and northwest of the country is well-

quickly destroy pipelines and production systems if these

developed while the south is in dire need of infrastructure

are not protected.

investment. We hope that both the government and the business sector will find a way to collaborate with each

Q: What is your company outlook for 2020?

other and investments will arrive. The market needs clear

A: Investment has been very low for the past four years,

rules and certainty for investments to arrive and that is the

and especially in 2019, but we expect 2020 to improve.

government’s responsibility. The government is adopting

The government’s goal to increase oil production and

a more flexible outlook and demonstrating a willingness

reverse PEMEX’s production decline will require healthy

to partner with the private sector. In our specific business

investments in new and existing facilities. Our main focus is

with PEMEX, our relationship with the company is good

PEMEX, where pipelines will have to be fixed for oil to reach

and we will work to continue to try to bring value to the

the market. We have the capacity to undertake 300km to

table in everything we do. With our technology, we can

400km per year, which would have a substantial impact on

turn distressed assets and infrastructure to bring them

PEMEX’s operations. We manufacture most of our materials

back to operating conditions in a cost-effective manner.

in Mexico where we have operated for the past 27 years

For PEMEX, effective and smart use of resources is crucial

leveraging local resources, suppliers and partners.

and renovating existing assets can provide substantial savings it needs now more than ever. Instead of replacing deteriorated pipelines, PEMEX can renovate assets at a

United Pipeline, a subsidiary of Aegion Corporation, protects

fraction of the cost and time it takes to replace them.

and renovates pipeline systems. The company provides a wide

Along with other solutions, our key value proposition

range of proprietary technologies for the rehabilitation of oil,

consists of inserting thermoplastic liners inside existing

gas, water and wastewater pipelines

311

| VIEW FROM THE TOP

PROVIDING SERVICES THROUGH SUPPLY CHAIN CONTROL PAOLO GAFFURI Country Head of Pietro Fiorentini

312

Q: How do you present to your clients a portfolio refocused

A: In Mexico, we began by establishing ourselves in the

on services rather than products?

upstream sector because of the opportunities we were able

A: Pietro Fiorentini has had and continues to have a long

to take advantage of there, but Pietro Fiorentini, since its

operational adaptability tradition. Under the current

foundation in 1938, is a world leader in the development and

Mexican oil and gas environment, our clients, including

commercialization of product and services in the midstream

PEP and new operators, prefer lower CAPEX. We believe

sector, specifically in the market for the transmission and

that we have a good starting point because Pietro

distribution of natural gas.

Fiorentini is an established market leader in Mexico for multiphase metering services. Pietro Fiorentini patents,

Natural gas distribution is becoming more and more

develops, manufactures and commercializes best-in-class

strategic in Mexico, given its growing use in power

multiphase flow meters (MPFM), controlling the entire

generation. Over the last five years, Pietro Fiorentini

supply chain from R&D to delivery and installation to

supplied several metering and regulation skids and gas

service and operation. Pietro Fiorentini’s operational

conditioning units to several contractors in Mexico who

adaptability and control of the entire supply chain allows

developed major natural gas transmission pipelines and

us to commercialize our best-in-class MPFMs in several

combined cycle power plants. We are well positioned to

ways, including direct sale, direct sale with on-the-ground

service these sectors going forward. We believe we can

operating and services agreement, or multiphase well

extend the applications of our services and technologies

metering services performed by our trained operators

into the downstream sector, given their integration into

at our client’s well sites. We can offer and we guarantee

one general push for infrastructural development. One of

a service under our total responsibility for the use of

the ways in which we will do this is by promoting the role

our product.

that our technologies play in the digitalization and data management development of all this infrastructure, an

Q: What role does your Villahermosa plant play in this

area in which Pietro Fiorentini is a global leader given our

transition?

prominent participation in the development of European

A: From our facility in Villahermosa, Tabasco, we operate,

smart grids. Since we control our supply chain, we can

maintain and calibrate our own MPFMs of different sizes

identify the points within it in which products can be

and configurations. Pietro Fiorentini provides multiphase

adapted to the needs of the Mexican market.

well services with best-in-class equipment and personnel who are factory and field trained and have all certifications

Q: What would you define as the most important factors that

and permits required to work in onshore fields and offshore

will help Pietro Fiorentini succeed in Mexico?

platforms. We are not expecting to invest in developing local

A: The most important factors that will help Pietro Fiorentini

production capabilities in Mexico but to increase the size of

succeed in Mexico include the capability of offering best-

our technical team.

in-class products, services and personnel, the operational adaptability, the ability of maintaining the full control of

Q: How will you take advantage of the coming investments

the supply chain, the clear focus on the importance of the

in Mexico’s downstream sector?

customer centricity by offering value propositions to our clients, consistently and professionally. It is clear to us that President Andrés Manuel López Obrador intends to make

Pietro Fiorentini is a leader in the development and

PEMEX strong again by investing more funds in the company.

commercialization of advanced-technology products and

In that sense, Pietro Fiorentini can retain its previous strategy

services for oil and gas sector from the wellhead to the

of prioritizing this type of activity in our Mexican presence

domestic user

since it is aligned with these new incentives.

VIEW FROM THE TOP |

STORAGE SECTOR: THE PROMISED LAND VICENTE TAMÉS Country Manager Mexico of Duro Felguera

Q: Given your experience bidding for contracts directly

For these and other reasons, we are still waiting to see

with PEMEX and CFE, how will you adapt to the new

how the situation unfolds. We continue to look and present

landscape suggested by the 2018 election?

offers for new projects mainly in the storage sector,

A: We like PEMEX and CFE’s methodology for organizing

where we see the most promise. We are sending offers to

public bidding rounds. These institutions have always

everybody who requests them. We still see some of the best

provided us with a project pipeline. Although the dates

opportunities coming from an increase in storage capacity

could be delayed, these projects would rarely be canceled.

and refinery reconfiguration. All six refineries will be the

The rules regarding eligibility for participation in a round

focus of considerable investment but again, the timetable

have always been clear. We have always considered

remains unclear. Everybody is talking about a new refinery

these processes, requirements and penalties to be quite

but the size of the investment is very considerable and

transparent and fair. These rounds almost always ended

there are not yet consistent explanations on what will be

in effective contracting and they came with an additional

the origin of the resources.

advantage: CFE’s strategic standing with financial institutions allowed us to establish contracts with CFE as a

Q: What are the most important medium to short-term

financed public work (OPF) or a Productive Infrastructure

opportunities you have identified in the Mexican oil and

Investment Projects with Deferred Registration in the Public

gas sector?

Expenditure (PIDIREGAS) scheme, which gave us greater

A: Small-scale LNG is enjoying considerable success in

access to financing.

Europe and Africa and we are hoping to replicate that success in Mexico. We are already in talks with private

With this in mind, we like the idea that CFE and PEMEX

developers to begin exploring this option. If it does launch,

might once again have a more centralized control over

it would represent a great opportunity for us but we are

the bidding process. Our remaining doubts are shared by

still waiting on things like permitting and other preliminary

the entire industry as to what resources will be available

concerns. We are also awaiting possible projects to expand

to develop those projects. The prevailing notion is that

the LPG infrastructure in Mexico.

these two institutions are operating beyond the limits of their debt capacities, putting into question their ability to

Q: What alliances are you looking to forge in the Mexican

properly finance any project under an OPF or PIDIREGAS

oil and gas sector to take full advantage of emerging

scheme. As contractors, these schemes force us to make

opportunities?

sure that these institutions can pay us back for the financing

A: We have strategic alliances with Mexican companies

that we provide over the course of the project. Right now,

with which we have worked throughout our years of

the specifics vary depending on who is enunciating them,

permanence in this country. This is in addition to other

even among the various government representatives.

prestigious international companies such as Japan's IHI, with which we have a joint venture since 1975 (Felguera

Many of them agree on the need for a stronger CFE and

IHI) with which we have executed many storage projects

a stronger PEMEX, with a de-emphasized private sector.

around the world. We intend to take advantage of their

But other opinions say that the private sector is central

experience also in Mexico.

to its plan to increase Mexico’s tax revenue and economic capacity. Then they claim that they do want to promote the growth of the private sector but the messages are not

Duro Felguera is a Spanish ESCO contractor focused on turnkey

clear and the criteria become muddled. It would be great

project development for the energy sectors. It has ongoing

if PEMEX could find private financing between companies

projects for the construction and operation of facilities that affect

that do not compete with themselves, but it is complicated.

the Mexican mining, energy and oil and gas sectors

313

| INDUSTRY PERSPECTIVE

TECHNOLOGY SOLUTIONS THAT ENHANCE QUALITY Q: How is Soluciones para el Control de Recursos

Q: Who are your main clients in the Mexican market

(SCR) positioned in the oil and gas market?

and what is Siconsa’s main differentiator?

A: SCR was born 17 years ago with a focus on

A: We are present wherever unique quality control

water and gas management. We started with just

is needed. Although the oil and gas market slowed

five people and today we have 650 employees.

down a bit in the last few years, our focus remains

Seventy percent of the company’s operations is

on the local market. One of our clients is Deacero, for

focused on gas, while the remaining 30 percent is

which we provide gas pipe inspection services. Other

focused on water. We have three important projects

clients, such as Techint and Ternium, also require

with PEMEX that are still under development: a

inspection services for their gas installations. We also

cathodic protection monitoring project, a refinery

offer inspection services prior to the construction of

gas emissions monitoring project and a project to

the infrastructure. We use ultrasound equipment to

control explosivity levels at workplaces. We are also

check the integrity of the pipes, including painting

responsible for reviewing Naturgy’s entire country

or insulation maintenance.

network and its emergency maintenance in Mexico 314

City and Monterrey, in addition to the other cities

Q: Why is it important to have certifications

where the company is present. Our interest is to

such as ASNT?

continue growing in the areas where we are already

A: Certifications play a vital role in the sector. All

strong and to venture into new ones. The arrival

our technicians and equipment must be certified.

of the new government has opened windows of

These certifications are something that our clients

FERNANDO GUTIÉRREZ

JOEL SALINAS Director General of SCR México

Director General of Siconsa

opportunity for SCR because the Energy Reform

always ask for. For radiography, our technicians

has lived up to the expectations of medium-sized

need a federal permit to carry out operations in

companies like ours.

order to handle radiation. As more IOCs enter the market, more companies are looking to certify

Q: In 2010, SCR opened a unique training facility

their services too. Our certifications are issued

in Cadereyta, Nuevo Leon. What is its purpose and

or recognized by international entities, including

how has it evolved?

ASME or API.

A: That training camp was created to develop the talent required by the technological innovations we

Q: Are Mexican pipeline operators more willing to

work with. At Cadereyta, new workers are trained

invest in routine maintenance?

but we also develop and train current personnel

A: Mexican companies tend to not spend money

to respond to real situations, such as fires, rescues

unless they see there is a problem, making

or first aid. To date, we have trained more than

corrective solutions more popular than preventive.

100 companies, including gas companies, such

But this is changing and more companies are

as Mexicana de Gas, Naturgy and TC Energía. All

investing in maintenance, especially as more

participating companies receive the certificate

international companies ask for certifications.

required by the Ministry of Labor to perform this

Mexican companies are starting to see the value

work in the industry. Qualified labor in Mexico is

in routine maintenance because it provides savings

expensive and through this training center we can

in the medium and long term. It is always more

reduce the cost of labor and improve the quality of

expensive when projects are done wrong, rather

service to our customers.

than investing at the beginning for a quality job.

INSIGHT |

PIPELINE MAINTENANCE MANAGEMENT AS SUCCESS FACTOR ÓSCAR GONZÁLEZ CEO of NDT Global

The downturn’s impact on the Mexican oil and gas industry

pipeline maintenance, PEMEX was left behind when things

will continue to be felt in the years to come. One area where

began slowing down four years ago. Before that, PEMEX was

this impact has been particularly evident is infrastructure

always asking about state-of-the-art technologies and they

maintenance. “The lack of resources that resulted from the

were quick to implement them whenever they could afford to.”

downturn led PEMEX to drastically deprioritize maintenance operations four to five years ago, leading a number of facilities

Accuracy is an essential component of pipeline inspection,

to function in a state characterized by operators and service

and it can be provided by data-analysis technologies like 3D

providers as abandonment,” says NDT Global CEO Óscar

modeling and Finite Element Analysis. The market for these

González. In this context, pipeline maintenance management

technologies was limited in Mexico due to the operational

plays a crucial role in remediating existing vulnerabilities and

concern for accuracy, making the additional expense they

preventing the appearance of new ones. Technology and

represented appear unnecessary. The 0.75mm of resolution

expertise are essential to successful solutions. NDT Global’s

that these technologies can provide are particularly useful

advanced pipeline inspection tools incorporate proprietary

for offshore pipelines affected mostly by corrosion. The

ultrasonic technologies, in some cases pioneered by the

resolution is considered essential for optimized maintenance

company. In addition to these state-of-the-art inspection

management. González classifies these technologies as robots

technologies, González says the local accessibility of its

and explains that they generate large volumes of data that

highly regarded Mexico data center gives the company an

NDT Global is uniquely capable of analyzing and processing in

edge in the market. The data center processes large volumes

a way that creates the most detailed models of pipeline status

of information generated by NDT Global’s inspections.

and the most reliable supports for maintenance management.

Despite the downturn’s impact on the Mexican industry,

Beyond safety, this accuracy also plays a role in operational

González remains optimistic in his general survey of pipeline

efficiency. As González puts it, “the more precision you have,

infrastructure. “Mexico’s pipeline infrastructure might be

the less overly cautious in your repairs you have to be. When

old, with an average pipeline age of 40 years, but outside

you have less information and a larger margin of error in your

of the issues created in the last four years with the last

understanding of the pipeline’s integrity, you will make more

administration, its maintenance protocols are up-to-date.”

repairs than needed and lose more money to both executing

According to González, although the infrastructure is in need

the repairs themselves and incurring in the downtime that

of maintenance, it is still manageable. “We are talking about

they represent.”

50,000km to 60,000km of pipelines that need attention. Maintenance is necessary regardless of how the issue of illegal

Pipeline maintenance management is more effective when

tapping evolves but without it those problems could obviously

executed in a preventive rather than reactive fashion. NDT

grow,” he explains. To follow up on these needs, González

Global is already taking this approach in its Mexican project

says that the new administration has promised to re-establish

portfolio by working directly with contractors that are now

PEMEX’s commitment to maintenance but so far funding has

busy with the construction of Mexico’s expanding offshore

only been guaranteed to upstream and downstream activities

pipeline infrastructure, such as Grupo Protexa, Sapura Energy

directly contributing to the coveted production increase and

and McDermott. González is quick to point out that all this

the construction of the new refinery.

work is done with PEMEX. “PEMEX still determines the construction requirements for all these companies, which are

While other service providers have characterized PEMEX as

extensive and specific given their offshore nature, and that is

adverse and close-minded to new inspection technologies,

where we and our exclusive technological capabilities come in.

González disagrees. “The problem is not that PEMEX is

We certify everything in terms of pipeline integrity inspection

averse to new technologies. The problem is that, in terms of

before these assets go online.”

315

| VIEW FROM THE TOP

MODERNIZING NATURAL GAS INFRASTRUCTURE RAÚL ARECHIGA Director General of Constructora Arechiga

316

Q: How would you describe your experience regarding

region of Mexico to the US. This project was not completely

natural gas infrastructure in Mexico?

finalized due to historical and economic reasons. However, the

A: Constructora Arechiga started its infrastructure business

production of natural gas has played a fundamental role in the

in 1985 and shortly after, the company was awarded contracts

economic and industrial development of the northern states

with PEMEX to develop natural gas infrastructure. The most

of Tamaulipas and Nuevo Leon. Particularly in Monterrey, as

important project was the expansion and automation of the

well as the Mayakan gas pipeline traveling from Ciudad PEMEX

Muspac Separation Battery, which was a large project that

in Tabasco to Valladolid, Yucatan. Examples such as these

required an international EPC contracting process. We also

are proof of the enormous role that natural gas plays in the

worked on the construction of the project to replace the

country’s development, especially for generating electricity.

general sour gas wellhead and the rectifier system at CPG Cactus. This project included the replacement of separators,

Q: What obstacles stop the development and

rectifiers, measuring instruments and all the components

modernization of natural gas infrastructure?

for the gas burners. The project had an estimated budget

A: Development in this sector as well as in the construction

of US$40 million at the time of completion. This project

of oil and gas infrastructure in the land-based area of the

is of great importance for PEMEX, playing an active role

southeast region of the country has been suspended,

in receiving natural gas produced in southeastern Mexico.

especially in the last 10 years. This is one of the biggest obstacles to development, optimization and modernization

Q: To what extent does PEMEX prioritize the development

of the oil and gas infrastructure in Mexico. This infrastructure

of its natural gas fields and infrastructure?

requires a great amount of repair and maintenance work.

A: Ciudad PEMEX is one of the most important natural gas

This has created significant operational risks. However,

producing areas in Mexico. This includes the Comalcalco fields,

much work has been done recently in terms of inspection,

in Tabasco, and Agua Dulce, in Veracruz. While it continues to

maintenance and repairs to the infrastructure. The

be prominent within strategic areas of PEMEX, development

southeastern Mexican states contain a high density of oil

related to natural gas exploration and new reserves, in

and gas. If an accident occurs, such as a leak, a fire or

particular, has halted in recent years. But the NOC is now

an explosion, it could have dire consequences, since much

starting to react to these activities, due in part to the federal

of the infrastructure is near or within densely populated

government’s policy to jump-start the oil and gas sector

areas and the loss of human life could be extremely high. It

throughout the country, particularly in Tabasco and the

would not be a mere local incident; it would have national

southeastern region of Mexico. This includes the reactivation

repercussions. In addition, there is a significant lack of

of existing petrochemical refineries and facilities in the country,

information available on the exact location of many of the

as well as the construction of the new refinery in Dos Bocas,

pipelines. Pipelines are operating in Veracruz, Tabasco and

Tabasco. Overall, this will generate a great amount of industrial

Campeche and I am convinced PEMEX has not mapped

development, in which natural gas plays an important role.

them entirely. The NOC knows where these pipelines start

One has to remember that the 48-inch diameter pipeline

and where some end, but in some cases, it is not aware

Cactus-Reynosa, built four decades ago, was originally

of their exact trajectory. Some of these pipes have gone

designed to transport natural gas produced in southeastern

30 years without any preventive maintenance, and this represents an enormous risk. This is why maintenance contracts and infrastructure investment must be restarted,

Constructora Arechiga started its activities in 1985, although

while continuing to develop current contracts. We have

its founding members had been working with PEMEX since

joined the Tabasco Energy Cluster in an effort to secure

the 1960s. The company focuses on electromechanical

contracts with new operators in the industry that play an

construction and engineering for oil and gas infrastructure

important role in land-based development.

INSIGHT |

FLEXIBILITY TO GENERATE ADDED VALUE ROCIEL BARRERA Director General of Diablo Pipeline Solutions

The new López Obrador administration has ambitious plans

best technologies and capabilities.” Diablo Pipeline Solutions

for Mexico’s oil and gas industry that includes increasing

offers a wide range of services related to the maintenance and

national production to 2.6MMb/d. Rociel Barrera, Director

inspection of pipelines and during the course of its operations

General of Diablo Pipeline Solutions, says this presents an

in Mexico it has inspected over 70,000km of pipelines.

opportunity for those companies with the experience to install the supporting infrastructure. “The government’s goal

Becoming a key player in the industry requires adoption

is very aggressive and the infrastructure is not prepared to

of best practices and new technologies, says Barrera. “To

support it,” he says. “To manage the production increase, the

become one of the main maintenance and inspection service

entire value chain has to work together for the benefit of

companies in the industry we have gathered some of the

the industry and support the government’s plans to create a

best technologies from all over the world and brought them

stronger country.”

to Mexico,” he says. An example is the Pipeline Cleanliness Assessment Tool (PECAT), which, after a slow start in Mexico,

The challenge is great but Barrera says Diablo Pipeline

became very successful. “We introduced PECAT into the

Solutions, a pipeline maintenance company with more

Mexican market two years ago,” he says. “It was not an easy

than 25 years of experience in the Mexican market oﬀering

technology to introduce due to its novelty but now two of the

inspection, cleaning and repairing services, has the expertise

biggest pipeline operators in Mexico, IEnova and TransCanada,

to lend added value to the government. “At Diablo Pipeline

are including it in the specifications they require for the

Solutions, we are preparing for the opportunities arising in

installation of their pipelines.”

the midstream sector by being flexible in our structure and operations. We are a specialized company and are well-known

PECAT has become essential technology for those two

in the sector,” he points out.

clients due to the fact that it can accurately measure the cleanliness of the pipe. Barrera says this is very important in

Capitalizing on the fact that the company has played a

Mexico as the transported gas emits powders that can get

leading role in Mexico’s midstream sector, Barrera explains

stuck and accumulate inside, therefore affecting its ability to

that open lines of communication are the key to creating

transport the gas or even eroding the pipeline itself. “With

a stronger midstream sector. “Diablo Pipeline Solutions

PECAT installed in the pipeline, clients can understand what

has played a leading role in the Mexican industry for over

is happening inside at all times and better plan preventive

25 years, over which it has gotten to know all of the main

maintenance operations to avoid costlier and time-consuming

players in the midstream segment, therefore allowing it to lead

reactive maintenance.”

the agenda for the segment’s development and to face the challenges related to the infrastructure needs in the coming

Barrera adds that technology is not enough to bring Mexican

years,” he says. “We have had several meetings with almost

infrastructure up to the required quality and safety levels. He

all of the most important players in the Mexican oil and gas

says culture, collaboration and the way of doing business in

midstream segment.”

Mexico also must be factored into the equation. “We believe that companies can do business while also supporting the

The fact that Mexico’s midstream infrastructure needs not

new administration in reaching its goals related to the oil

just a rehabilitation but a full expansion to make it capable of

and gas industry.” One of the main ways Barrera hopes to

handling the expected increase in production is recognized by

support the government is through the implementation of

most entities in the industry. “The objectives that the industry

a preventive maintenance culture. “Companies in Mexico

is setting for the coming years equate to the rescue of the oil

have worked based on a corrective maintenance culture for

and gas industry in Mexico,” Barrera says. “At Diablo Pipeline

too long and now it is up to companies like ours to bring

Solutions we see this as a promising future that will require our

preventive culture to the table.”

317

| VIEW FROM THE TOP

NEW APPROACHES TO COMMUNITY ENGAGEMENT ALFONSO CASO Director General of AOS Social

318

Q: How has the inclusion of social and environmental impact

agreement with the community, we carried out the installation

studies affected project development in Mexico?

of solar panels to provide energy to the community water

A: Social variables need to be considered by companies as

pump, reducing the electricity bill by 90 percent. In southern

part of their preliminary stages of any endeavor. The social

Veracruz, we implemented a program of health caravans with

aspects involved in a project should be deemed strategic

one of our clients, taking preventive medicine to communities

elements to ensure a successful outcome. During the life

that would otherwise have to walk several hours to get help.

cycle of a project, social opposition could cause construction

Respiratory disease rates and gastrointestinal illnesses have

delays, legal trials and increases in costs. For example,

consistently decreased since the projectâ&#x20AC;&#x2122;s arrival in 2015. In

there are several gas pipelines that cannot be finished

the south of Tabasco and north of Campeche, we started

due to unsuccessful social negotiations. Two fundamental

a program in two communities to dispose and manage

success factors need to be considered: an early community

garbage to provide a more sustainable situation for health and

engagement to understand community behavior and identify

education practices. We also drafted the social management

the critical aspects that the project will need to manage,

plans and revised the social impact studies of two round

and an adequate legal strategy. One of the main problems

winners. Through this process we learned two lessons. The

faced by new investments is the negotiation of the right of

first was the importance of identifying the social liabilities

way, which was traditionally carried out by the government.

of each project. Companies and private investors need to

Under the current circumstances, negotiations must be

understand the behavior from the past and try to developed a

executed jointly with local authorities. In many cases,

new approach of community cooperation. The success of this

financial institutions request compliance with IFC regulations

program is based on the CSR principles that each company

(Ecuador Principles) regarding social benefits, impacts and

has established.

risks. As previously pointed out, early involvement with community leaders would facilitate the understanding of

A main issue is that private companies cannot assume

the scope of the project and possible mutual benefits.

government responsibilities, which leads to the second lesson: private companies can make certain medium to long-term

Q: What have been some of your most informative

commitments that governments cannot due to a number

experiences working specifically in the Mexican oil and

of limitations, such as annually negotiated budgets. The

gas sector?

perception of this distinction is not widespread in Mexico,

A: The oil and gas industry shapes the lives of local

so plenty of advantage can be taken from introducing

communities either in a negative or positive way, depending

communities to it. At the same time, the conditions that limit

on the approach and work plan the company developed. In

this also have to be explained, which are that companies have

the implementation of social management plans, we have had

limited resources and cannot assume local investments that

pleasant experiences that will increase the quality of life of

are the responsibility of the government.

the communities in the influence areas of the projects. In the north of the country, for example, we identified a community

Q: What would be your strategy to reactivate projects, such

that lacked running water due to the impossibility of paying

as pipelines, that have stalled due to social issues?

the electricity bills generated by the pumping of its well. In

A: A number of relevant factors can be used favorably in these scenarios. One is the fact that President LĂłpez Obrador is counting on social support to carry out oil

AOS Social is a project consultancy that provides technical,

and gas projects. The president himself has expressed

feasible, community engagement and contract evaluation

explicit interest in finishing three specific projects: the

solutions,. Its area of expertise is the analysis of social risk

thermoelectric plant in Morelos, the new refinery in Dos

factors that can interfere with large infrastructure projects

Bocas and the Mayan Train.

VIEW FROM THE TOP |

DRIVING MEXICO TOWARD SUSTAINABILITY LUIS ECHAVARRÍA Director General of Enco GNV

Q: How is Enco GNV positioned in Mexico and how adequate

Q: How can the sector overcome these misconceptions

is current infrastructure for growing the natural gas market?

and demonstrate the benefits of natural gas to the public?

A: Enco GNV has been working in Mexico for 20 years,

A: Mexico can only achieve sustainability if it satisfies the

although the company was previously known as Gazel. We

needs of the economy, environment and society. There is a

have nine natural gas stations and in 2018 invested US$6.8

great deal of discussion about the viability of electric cars.

million to develop stations in Mexico City, State of Mexico,

Enco GNV does not believe electric cars are the answer

Puebla, Monterrey and Guadalajara. This investment covers

because the infrastructure, as well as the cars themselves,

permits and land use licenses and, by 2023, the company

are too expensive. Similarly, lithium batteries, which cost

expects to grow sevenfold from where we are today. Given

almost half the price of the car itself, are highly pollutant

Mexico’s hesitance toward natural gas, this is no easy task

when discarded.

but we are speaking with other companies and changing our working dynamic to achieve our goals.

Natural gas reduces CO 2 emissions by 70 percent in comparison to diesel and is 50 percent cheaper per

Mexico’s gas station coverage is very low compared to other

kilometer than traditional fuels. These are levers that should

countries. There are about 12,500 gas stations servicing

be used to promote natural gas as the fuel of choice for a

around 38.5 million vehicles, meaning that there is one

more sustainable future. This should particularly be the case

station for every 3,080 vehicles. In the US, 1,500 cars are

of Mexico City where pollution is getting worse.

serviced per station and Colombia services 650 per station. Clearly, gas stations and the associated infrastructure are

Q: How does Enco promote the switch from traditional

needed. Of these numbers, natural gas vehicles account for

fuels to natural gas for vehicle users?

25,000 vehicles being served by just 35 stations. Natural gas

A: Enco GNV makes its products attractive to consumers

vehicles account for less than 0.01 percent of the automotive

by making costs more manageable. To reduce the

market in Mexico. We believe a target of 5 percent of the

financial burden on customers, we provide engine

market is realistic if a favorable environment is created.

conversion kits without initial cost. Customers only begin to pay for the kit, which is valued at US$2,072, when they

Q: What are the political and social restrictions that are

start filling their tank. Even when customers begin to

hampering the development and expansion of natural gas

pay for the conversion kit, they should still save around

stations in Mexico?

50 percent per kilometer in comparison to traditional

A: We need to change the public’s perception because

fuels. We also provide financing at up to 18-month terms.

natural gas really is an improvement. When more natural

The benefits are clear and our studies show that a taxi

gas stations are available, the shift to natural gas will become

driver can save approximately US$17,800 over five years

more attractive.

by switching to natural gas. The fuel change will also help the environment and improve service. This is an incredible

Developing stations in Mexico City is becoming more difficult

package for anyone but the problem lies in the lack of

because of the city’s spontaneous and disorganized urban

stations and the difficulty in gaining authorization for

sprawl. This means there is nowhere left to develop and

construction.

that elevated land prices mean companies are priced out. Natural gas stations are still not permitted near schools, malls or highly-populated zones, despite this being perfectly

Enco GNV owns and operates natural gas stations in five states:

normal in other countries. In Monterrey, where people

Mexico City, State of Mexico, Monterrey, Puebla and Jalisco.

have been using gas for over 100 years, our developments

The company also provides natural gas engine-conversion kits

are welcomed.

for vehicles

319

| VIEW FROM THE TOP

SOCIAL IMPACT STUDIES HINDER SECTOR GROWTH Ă&#x201C;SCAR MENDOZA Gas Director Mexico of GENSA

320

Q: What is the main issue hindering the growth of the

has forecasted over 1,000 stations in the next three years.

Mexican natural gas sector?

In 2018, we began 40 projects and we see a future in the

A: The sector is contracted due to various social issues that

new Guaymas gas pipeline that will allow the creation of

have impacted the completion of various pipeline projects in

new pipes to better distribute natural gas. In the short term,

the center of the country. One is the marine pipeline being

we see problems in supplying the southeast with natural

constructed by TC EnergĂa that was scheduled to begin

gas. GENSA has projects in the southeast, in particular in

operations in 2019. The Tuxpan-Tula and Villa de Reyes-Tula

Chiapas, but because there is no natural gas in the area, we

pipelines have not been completed due to various social issues

will have to postpone investment for two to three years. We

that have arisen. These projects have more than US$4 billion

are collaborating on over 120 projects in the area. GENSA

invested. We expect the government to support the sector by

also decided to start projects in the interconnections

revising permits and legalities across all levels of government,

segment. We are already developing interconnections for

as well as with ejidos, and to allow the construction of

transport pipelines. The first interconnection on which we

pipelines according to the price of the project. Costs are at

participated was 42 4-inch interconnections in the Los

US$520 per lineal meter of right of way for a pipeline when

Ramones pipeline for Engie. In 2019, we will also be working

it cannot be more than US$52 to ensure the viability of the

on pipelines in Culiacan and in Mazatlan.

project. The development of the natural gas pipeline system began to see more challenges when social and environmental

Q: Why has GENSA decided to export the majority of its

studies started to play larger roles in the projects. There

products to North and South America instead of keeping its

needs to be more awareness of the importance of developing

production in Mexico?

natural gas pipelines in Mexico and the subsequent impact

A: We have a variety of pieces that are being manufactured

on communities.

in Mexico but of the 350,000 pieces manufactured, 50 percent is being exported to the US because there are not

Q: What opportunities have opened in terms of operation and

enough distribution network interconnections in Mexico.

maintenance of natural gas infrastructure in Mexico?

GENSA is exporting 250,000 pieces to the US and these are

A: In 2018, we closed contracts in San Luis de la Paz and

being sold through Home Depot in California. Our plan for

Imuris, Sonora, which allowed us to add 39km of pipelines

2019 is to expand into Texas and ultimately other states. As

under this scheme. In 2019, CENAGAS is expected to tender

for our expansion into Colombia, the deficiency of natural

interconnected systems to the national pipeline system for

gas in the country has pushed us to also slow down our

maintenance and operation and we are looking forward to

expansion plans and instead bolster investment in Peru and

participating. One of the main CENAGAS requisites for these

Chile. We have strategic partners in Chile and in 2019 we

tenders is that the companies are registered as accredited

plan to start three or four projects with them. We have over

operators by CRE. GENSA operates more than 100,000

MX$300 million (US$15.8 million) invested in production

lineal meters of pipelines in Mexico. The country's national

plants and we are about to open a new plant in Apodaca,

natural gas pipeline systems stretch 14,000km. The growth

Nuevo Leon. This 10,000m2 plant will help detonate that

of natural gas in Mexico looks positive. GENSA has already

industrial region by generating over 400 direct jobs through

started collaborating on stations in Sinaloa and Sonora and

an investment of MX$250 million (US$13.2 million). In Mexico, only 8 percent of energy consumption is natural

GENSA is a leading natural gas solutions provider that

gas. Natural gas consumption can be broken down into 90

manufactures gas meter connections, risers and meter sets.

percent consumed by CFE, 6 percent the industry and 4

It also offers maintenance, operation and construction of

percent the general population. The best option is to export

metering systems for natural gas

our products to more mature markets.

VIEW FROM THE TOP |

KNOWLEDGE, EXPERIENCE UNDERPIN PIPE SUPPLIER’S SUCCESS TICO SOLANA General Manager of CUMEX

Q: What type of coverage do your products and services

than Mexico, such as Africa, the Middle East and Asia. We

have in the oil and gas sector?

have been in Mexico for 23 years now and the experience

A: We are providers of pipes, valves and accessories

has been favorable; we have developed a great deal of

primarily made of steel. In Mexico our main markets are in

experience and a successful track record dealing with the

the oil and gas and energy industries. We cater to clients in

country’s circumstances regarding logistics and customs.

both the public and private sectors from various industries, such as in infrastructure operators and constructors and

Q: What advantages do your products offer regarding

auto makers.

maintenance? A: The maintenance issue is directly proportional to the

Our business covers the upstream, midstream and

quality of the product. We have a very wide range of

downstream segments, as we sell pipes for offshore and

products that cater to our client’s needs. We offer the

onshore use. We are working on projects in onshore and

product the client wants to purchase. In most cases,

offshore distribution. In the past year, we also have provided

engineering is what defines quality and our products deliver

platforms for extraction, production and compression.

the highest standards of engineering.

Among our other segment targets are pipelines, hydrocarbon storage plants and transportation.

Q: Which projects do you think will symbolize the industry’s upturn?

Q: What added value do you deliver to your clients

A: The refinery at Dos Bocas is a strategic project for the oil

in Mexico?

and gas industry. In the energy industry, it is important to

A: As a company, we have almost 60 years of experience

develop private sector projects, as well as power generation

in the global sector. We have a very strong knowledge of

projects managed by CFE. These projects will make the

the market and expertise in various fields. We value our

market much more dynamic.

customers and cater to their needs by providing them with the best quality, logistics and customer support.

Q: How are you preparing to tackle the construction of Dos

The company takes great care when delivering material,

Bocas and other refinery projects?

ensuring secure transportation through strict handling

A: Our goal is to participate in Dos Bocas and other projects

procedures in all the countries we work in. In Mexico, in

directly and indirectly through operators or constructors.

particular, we can offer the product in DDP (delivered

We are confident that we can work together, since we have

duty paid) condition. We also have strong experience with

years of experience and we are looking with confidence

customs procedures and automatic notifications.

towards 2020. This year has been the most difficult of the last few because of the change in government and the

Although most of the materials we market in Mexico come

slowdown in industrial activity. However, in the last few

from abroad, we also buy to a certain degree from Mexican

months we have witnessed a major recovery under way. The

producers of pipes, valves and accessories, which lowers

coming year and the year after will be very good years for

costs substantially. We are consolidators of materials so

the sector. As for us, we intend to keep on doing business

that our clients can focus on their business and not have

with our Spanish, French, English and Mexican clients.

to worry about a variety of suppliers and purchase orders. Q: What logistics challenges have you had to overcome

Grupo Cuñado México (CUMEX) is a supplier of pipes, valves and

when consolidating these types of materials in Mexico?

related accessories based in Mexico. In Mexico, its main sectors

A: This is a global challenge for the company. We are

are oil and gas and energy. Its operations focus on selling as it

operating in regions that have lower levels of development

does not manufacture materials

321

REFINING, STORAGE & RETAIL

One clear mandate given by President López Obrador’s government is the revitalization of Mexico’s National Refinery System, which was operating at only 30 percent of its capacity in December 2018 and is in need of serious revitalization. The President and his energy team, led by Minister of Energy Rocío Nahle, are set to invest heavily into the refinery system's modernization. Tabasco’s new refinery, Dos Bocas, is to be the initiative’s flagship project. Other points to improve upon are related to storage, infrastructure and transport, as well as combatting the country’s fuel theft problems. This issue specifically has been marked as the big challenge to overcome for the downstream sector.

The major trends dominating the refining, storage and retail sector form the basis of this chapter, as industry leaders answer questions related to changes in the industry, the economic potential of Dos Bocas and the impact of the new administration’s approach toward fuel theft.

323

CHAPTER 13: REFINING, STORAGE & RETAIL 326

ANALYSIS: Dos Bocas Gets the Go-ahead

329

PROJECT SPOTLIGHT: Opinion Split on Dos Bocas

330

VIEW FROM THE TOP: José Luis Uriegas, IDESA

331

VIEW FROM THE TOP: Ixchel Castro, Wood Mackenzie

332

INDUSTRY PERSPECTIVE: Roger González, MARAT

Carlos Kahan, Xanik Valves

333

VIEW FROM THE TOP: Daniel Zuluaga, Summum

334

INDUSTRY PERSPECTIVE: Bruce Abbott, GenOIL

Mauricio Dávila, EnerChemTek 325

335

INSIGHT: Óscar Scolari, Rengen Energy Solutions

336

VIEW FROM THE TOP: Cristhian Pérez, Vopak Mexico

337

VIEW FROM THE TOP: Daniel Georges Vadon, Entrepose Mexico

338

VIEW FROM THE TOP: Ricardo Diogo, Oiltanking

339

VIEW FROM THE TOP: Rubén Cortina, Tarsco Mexico

340

INDUSTRY PERSPECTIVE: Jorge Guerra, AUMA

341

Daniel Gutiérrez, Pepperl+Fuchs Mexico

INDUSTRY PERSPECTIVE: Edgar Gutiérrez, Hydrocarbon Storage Terminal

Pablo Álvarez, Excellence Sea and Land Logistics

342

VIEW FROM THE TOP: Roberto Díaz de León, ONEXPO

344

VIEW FROM THE TOP: Sebastián Figueroa, FullGas

345

VIEW FROM THE TOP: Raúl Silva, Petroassist

346

VIEW FROM THE TOP: Jorge Santana, Transportes JSV/Grupo Santana Vega

347

VIEW FROM THE TOP: Ángel Sánchez, BASF

348

INDUSTRY PERSPECTIVE: Alejandro Ríos, Artelia Cal y Mayor

349

Artemio Hernández, RNB Corp.

VIEW FROM THE TOP: Rajan Vig, Indimex Group

| ANALYSIS

DOS BOCAS GETS THE GO-AHEAD The refining sector was dominated by two major news trends during 2018. First, the development of the president’s new refinery in Dos Bocas, Tabasco. Second, the consequences of the new administration’s approach to combating fuel theft brought Mexico’s concerning lack of storage capacity into sharp focus In 2019, President López Obrador placed the country’s

a collectively averaged 1.21MMb/d. By September 2019,

pursuit of energy sovereignty through the revitalization

that total had fallen to 620.3Mb/d.

of the oil and gas industry at the heart of his National Development Plan. Key to this was the modernization

One of the knock-on effects of the long-term decline in

of the failing National Refinery System (SNR), which in

refining capacity has been the rising level of refined fuel

December 2018 was functioning at just 30 percent of its

imports arriving into Mexico, most of which have come from

total capacity, or 492Mb/d, and the construction of the new

the US. Though the reasons for this are multiple, the arrival

Dos Bocas refinery. According to the president, the Dos

of international operators, including those in the retail sector,

Bocas construction will cost US$8 billion. Winners of the

has been the most significant factor.

restricted tender for the first five construction packages In May 2018, there were 11,992 gas stations in Mexico. A year

ICA Flour (Packet 1), Samsung Engineering and Acociados

and a half on, there are some 13,000 gas stations, of which

Constructores DBNR (Packets 2 and 3) and KBR together

over 3,600 are run by the private sector. As of August 2019,

with Grupo Hostotipaquillo (Packets 4 and 5), while the

private companies were responsible for 16 percent of the

management of the construction will be overseen by the

gasoline imports into the country and 38 percent of diesel

Ministry of Energy.

imported; a tripling of imports between August 2018 and 2019. But the growth of the retail sector is far from certain

The refinery is set to be completed in approximately three

following a December 2019 ruling by the federal court that

years and is expected to produce 170Mb/d of gasoline

PEMEX would no longer be obliged to share unused pipeline

and 120Mb/d of diesel to be transported across the

and terminal capacity with private companies. This legislation,

country via maritime channels and pipeline networks.

which was introduced with the Energy Reform, had fostered

According to a conservative estimate proposed in the

the a competitive environment in the retail sector Its removal

PEMEX Business Plan, the rehabilitation of the existing

will likely be felt by consumers.

six refineries and the inclusion of Dos Bocas will lift the processing capabilities of the SNR to 1,021MMb/d in 2021,

PRIVATE ROLE IN REFINING

1,163MMb/d in 2022, and 1,479MMb/d in 2023.

The administration’s investment into the six existing refineries of the SNR is expected to bring dividends for the country by

The tightening of PEMEX's budget purse strings hampered

reducing costs associated with refining crude north of the

its ability to repair the refineries of the SNR in recent

border. However, infrastructure and transportation capacities

years, some of which are in dire need of maintenance. The

must also grow to move refined fuels throughout the country,

figures are stark: in September 2010, the SNR produced

says Ruben Cortina, Executive Director of Tarsco. This is

PEMEX GAS AND E DIESEL PRODUCTION AND IMPORTS (Mb/d) PRODUCCIÓN IMPORTACIONES DE PEMEX DE GASOLINAS Y DIÉSEL (MILES DE BARRILES POR DÍA)

381

Gasoline Production

— Gasoline Imports

Source: PEMEX

PEMEX

gasolina

importación gasolina

diésel

importación diésel

Diesel Production

2016

2017

207 117

154

100 0

257

2015

216 2014

325

2013

275

2012

287

2011

422

437

418

2010

313

2009

200

300

2008

400

2007

274

2006

300

290

337

424

472 344

451

456 334

400

456

500

328

326

were announced in July and include Flour Enterprises and

2018

— Diesel Imports

NATIONAL GASOLINE AND DIESEL DEMAND (Mb/d) (MILES DE BARRILES POR DÍA) DEMANDA NACIONAL DE GASOLINA Y DIÉSEL

764 23

392

389

385

387

365 19

331

797 2

823

793

401

776

787

384

2006

799 371

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

345

802 359

2007

400 200

792 382

760 358

718

600

792

800

803

1,000

PEMEX

Diesel

Private

Pemex Diésel Privados NATIONAL MINIMUM STORAGE OBLIGATION

term. More international and national investors will introduce tank terminals, pipelines and logistics to cope with the real

(days of self sufficiency) PEMEX

2020

2022

Source: PEMEX

needs of the fuels market,” he says.

2025

Minimum storage

Three month average

Minimum average

Three month average

PRIVATES TO PLUG STORAGE GAPS The inadequacy of the country’s storage capacities was demonstrated in January and February 2019, as the government ordered the closure of pipelines in an attempt

where the private industry can support PEMEX’s production

to reduce fuel theft, known locally as hauchicol. The pipe

objectives. “The government is now pushing to reactivate

closures caused fuel shortages and urban centers were heavily

PEMEX’s assets, which will be useful, but these assets alone

affected. In Guadalajara, a reported 70 percent of gas stations

will not meet the country’s infrastructure demand. The country

were without gasoline. If the administration is to be successful

needs not only terminals but also marine ports, railroads,

in achieving energy security, it must expand PEMEX’s 30MMb

roads and pipelines to move the product,” says Cortina.

storage capacity. This capacity is split between the company's 80 storage facilities and would supply just 3.4 days of

Ricardo Diogo, Director of Business Development at

national demand.

Oiltanking, agrees the underperformance of Mexico’s refining assets, combined with the Energy Reform, created

Mexico’s underwhelming national storage capacity is

an opportunity that private companies are keen to meet.

particularly apparent when contrasted against member

“We see a big opportunity in introducing midstream assets

nations of the International Energy Agency, which are obliged

and addressing the imbalance in terms of what the country

to manage a strategic petroleum stock of at least 90 days.

produces in crude oil and respective refined products. We

Though PEMEX Logistics still controls 54 percent of the

believe that part of the imbalance is structural and the other is

storage market, private sector activity is growing and will be

contextual. The refineries are not running at optimal capacity,

crucial for expanding Mexico’s storage capacities to bolster

which creates opportunities for the midstream in the medium

its energy security.

UNSCHEDULED INDEX OF THE NATIONAL REFINERY SYSTEM (percentage) IPNP DEL SNRSTOP (PORCENTAJE) 15

13.7

8.3 7.2

5.4 3.3

2006

Source: PEMEX

4.1

2007

3.5

2008

5.9

6.8

3.6

2.8

2009

2010

2011

2012

2013

2014

7.6

3.7

2015

2016

2017

2018

327

“Infrastructure and storage is an integral part of any nation’s

1,815, 1,726 and 1,547 incidents reported respectively. While

energy autonomy. This reduces vulnerability to shortages and

pipeline closures produced supply problems, this measure

unforeseen difficulties. In Mexico, with the supply problems

and more stringent security, resulted in a 30 percent reduction

present in 1Q19 and when Hurricane Harvey hit Texas in

in theft from PEMEX pipelines between December 2018 and

August 2017, the need for comprehensive storage became

September 2019.

evident,” says Cristhian Pérez, Managing Director of Vopak Mexico. However, Pérez urges caution. “Infrastructure must

The existence of fuel theft continues to finance organized

be developed in the most efficient way possible because it is

crime in Mexico and also poses extreme risk to the public. A

such a capital-intensive enterprise. Therefore, requirements

horrific reminder of this occurred in Tlahuelilpan, Hidalgo, in

must be properly analyzed to highlight deficiencies that can

January 2019. Additionally, theft discourages the investment

then be solved.”

of financial resources into the safe and legal expansion of gas stations, an area where Mexico still lags behind.

328

Some private companies are already stepping into the breach

According to EncoGNV statistics, there is one gas station

to plug the storage gap. Mexico’s Hydrocarbon Storage

for every 3,080 cars in Mexico. In comparison, Colombia’s

Terminal, together with Spanish storage company CLH, are

rate is 1:650, while in the US, the rate is 1:1,500. Roberto Díaz

constructing a terminal in Acolman, State of Mexico, to secure

de León, National President of the gas station association

the storage future of Mexico’s capital city. “With our terminal,

ONEXPO, considers fuel theft the primary challenge to

we will supply 33 percent of Mexico City’s demand, which is

the growth of the retail sector. “It is necessary to combat

around 155,000b/d. The amount of gasoline moving through

huachicol because, frankly, it is our main competitor.”

our terminal would meet the needs of Guadalajara,” says

“This clandestine network operates through a category of

former Director General Edgar Gutierrez.

distributors and establishments known as cachimba, found on roadsides all over the country. For every gas station,

FUEL THEFT IMPACTS RETAIL

there are at least four cachimbas. If there are at least

Huachicol has resulted in the loss of MX$147 billion over the last

13,000 gas stations across the country, then you can see

three years. According to PEMEX statistics, there were 12,581

that we are talking about a serious distribution web.” If a

incidents of theft from pipelines, including those managed

highly-competitive retail market is to grow and gas station

by third-party operators, in 2018 alone. The states of Puebla,

numbers are to climb to the expected total of 16,500 by

Hidalgo and Guanajuato witnessed the most fuel theft, with

2024, then a solution to fuel theft must be found.

PROJECT SPOTLIGHT |

OPINION SPLIT ON DOS BOCAS Despite disagreements on both timeline and budget, the much-discussed Dos Bocas refinery, surely a project that will define the success of the new administration, is already underway. Industry experts have questioned the necessity for a seventh refinery, while its development is welcome news to national companies Few projects have become a catalyst for so many differing

Regardless of the criticism, López Obrador is convinced

opinions as the Dos Bocas refinery in Tabasco. Since its

that Dos Bocas will be a success. What Nahle calls balance,

announcement in late 2018, fierce debate has raged

López Obrador ties directly to the nation’s energy sovereignty:

regarding its viability. On the executive side, the intention

he argues that if the nation wants to recover its energy

has been clear: SENER, PEMEX and President López

sovereignty, the focus must be on national production as the

Obrador deemed greenlighting the project an absolute

sector works to achieve independence from foreign influence.

necessity and construction started in June 2019. While

Although it could raise complaints from the private sector,

ending dates are hardly ever a certainty concerning projects

this approach will allow PEMEX to keep more cards in its

of this scale, PEMEX Director General Romero Oropeza says

own hands.

the envisaged completion in 2022 is likely. The scope of the refinery, which will be Mexico’s seventh installation and will focus exclusively on heavier crude, makes it a flagship endeavor. Critics fear that construction

GENERAL INFORMATION Announcement

December 2018

Construction kickoff

June 2019

Expected completion

2022

Capacity (MMb/d)

340

API

22º

Gasoline (Mb/d)

170

Diesel (Mb/d)

120

Jet fuel, asfalt (Mb/d)

Size (ha)

566

Employees construction (direct)

23,000

Employees construction (indirect)

100,000 (decrease of 12,000 since december 2018)

Employees refinery (direct)

1300

Employees refinery (indirect)

6000

Power plants

Storage tanks

Number of existing refineries

Companies invited to bid

Consorcio Bechtel-Techint; Worley Parsons-Jacobs; Technip; KBR

Awarded companies

Flour Enterprises & ICA Flour (Packet 1). Samsung Engineering & Acociados Constructores DBNR (Packets 2 and 3). KBR & Grupo Hostotipaquillo (Packets 4 and 5).

Estimated cost

US$8 billion

329

costs will rise well above expectations, and even SENER’s lower estimations are around US$8 billion. The refinery space will take up 566ha, house 17 processing plants and 93 storage tanks. Production capacity is set at 340,000Mb/d. In one regard, the project is certainly welcome: employment. The construction is creating about 120,000 jobs. Once the refinery is up and running, it will provide 1,300 direct jobs and 6,000 indirect jobs. Minister of Energy Rocío Nahle argues that Mexico imports 80 percent of its fossil fuels and the refinery will bring much-needed balance to the sector, along with the desired augmented production. Nahle has pointed out that with the new refining capacity, PEMEX will be able to cover 70 percent of national fossil fuel consumption. This would rank the NOC as the world’s 16th-largest refining company. “Investing in our future will bring us toward a new horizon concerning fuels for Mexico,” Nahle. Nonetheless, the project has attracted a great deal of criticism. Some experts doubt the viability of the proposed budget and the time frames, arguing that the initial budget will not suffice by a long run. That argument received a boost when the government was forced to declare void an international tender to build the refinery because the proposals from foreign companies exceeded both cost expectations and the desired execution period. Other entities, such as The Mexican Employers Federation (COPARMEX) and Mexico’s Institute of Competitiveness (IMCO) have questioned the need for the refinery, with the latter even urging the government to abandon the project entirely.

| VIEW FROM THE TOP

TAKING ON MEXICO’S UPSTREAM SECTOR JOSÉ LUIS URIEGAS CEO of Grupo IDESA

330

Q: What is the status of work on Block 21 Tecolutla in the

Q: What has the company gained from creating alliances with

Tampico-Misantla Basin?

international players?

A: In September 2018, Grupo IDESA was already producing

A: When establishing alliances, it is important to have

crude oil and gas to sell to PEMEX. It is a small field, yet it is

companies that can complement each other in technical

relevant for us because we are continuously learning about

and cultural aspects. We like to create partnerships when

upstream activities, given that Grupo IDESA has been mostly

projects are too risky or too large, so we can share the

involved in downstream and midstream. In the last few months,

investment or the risk. But we carefully analyze each

we also started drilling an additional well, TEC-11. It is still in

partnership because in the end, it is practically a merger.

progress and we expect additional production in the coming

Our partners are all very different. Braskem, for instance,

months. We are excited even though there is uncertainty in

has great knowledge and experience in petrochemicals,

the upstream segment. We feel confident because we know

and at the same time is very aggressive. The German

the country needs PEMEX, but also the private sector. The

company Evonik is strong in technology and engineering

government has clearly said that it will be respecting all of the

but it is not as aggressive as Braskem. Our Canadian

awarded contracts. That has been case for us. We are doing

partners, Tonalli, also have very different ways of doing

what we expect to do and we are learning a lot.

things. This has been a great learning process because our culture has grown and adapted to various working styles.

Q: What has been Grupo IDESA’s experience venturing

It has improved us drastically.

into the upstream sector, as most of its activity has been in downstream and midstream?

Q: Why did the company decide to develop its own IDESA

A: It is a completely different business. You have to

Technological Development Center?

be patient and many things are not as easy to predict

A: We created this center as a way to capture and capitalize

as they might be in other sectors. For instance, in the

on our different businesses. It was a great idea because we

petrochemical industry, you build the project, you produce

were able to see that our businesses were developing great

and you know exactly what the output will be. Here, you

technologies that were not being exploited. With the center,

carry out geological studies with certain expectations but

we can communicate innovations and technologies across

then you can be surprised with good or bad news. We

all divisions. A company’s most important asset is its people,

have also learned that geological studies are extremely

and they need to have the right skillsets and the vision to

relevant to increase your chances of being successful.

develop new things.

This also means that you must invest a great deal before even seeing any result. Companies also must have a close

Q: What are Grupo IDESA’s main goals for the near to

relationship with the surrounding communities, not only so

mid-term?

they respect your business but truly support the company

A: Fifteen years ago, we made the decision to evolve into a

because you will bring value to those communities. We are

company that is not only present in downstream, but that

showing our partners how to do business in Mexico and

also looks for opportunities in the midstream and upstream

how to create fruitful relationships with both PEMEX and

sectors. Our main investments are still in downstream but we

the communities in which we work.

continue to expand our activities. In the case of upstream, we will continue growing. We will also invest in our Etileno XXI project and we want to continue integrating logistics into our

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

services, which means not only having the terminals but also

groups in Mexico and has an international reach. Its

the fleet to move the product from the sea to the customer’s

established business areas are petrochemistry, distribution,

door. We have another company called Excellence Freights

logistics and business applications

that transports petrochemicals and fuel.

VIEW FROM THE TOP |

PRIVATE INVESTMENT AND ITS ROLE IN MEXICO’S REFINING SECTOR IXCHEL CASTRO Manager of Oil and Refining Markets for Latin America at Wood Mackenzie

Q: How will the construction of the Dos Bocas refinery,

Q: What role do you expect private investment to play in

and the modernization of Mexico’s other six refineries,

the redevelopment of Mexico’s refining sector?

help expand gasoline productivity?

A: We would expect their participation to focus on the

A: While the announced investments in new capacity

retail segment as has been the case until now. There is

and existing refineries would allow Mexico to increase

a great deal of opportunity in the midstream segment,

gasoline production, this volume likely will not be enough

but pipeline operations are where private investment

to make a drastic change in import requirements. Given

will continue to face significant security, regulatory

the financial challenges of pursuing different projects at

and financing challenges. As a result, participation in

the same time, we expect that the increase in utilization

terminals, road and rail transportation are the segments

will be limited and the country will continue to require at

where private investment could focus in the short term,

least 500Mb/d in the long term, most of it likely coming

taking advantage to also bring their own product into

from the US market.

the country.

Q: What impact will the Dos Bocas refinery have on the

Q: How is Wood Mackenzie advising clients on

administration’s goal of energy autonomy?

investments in the Mexican refining market?

A: A refinery with the right configuration to process

A: The questions that we receive from clients focus on

heavy-sour crudes that is operated at market standards

two main topics: the prospects for the Dos Bocas refinery

would be one step forward in the goal to achieving higher

and keeping track of the private investments that have

gasoline production. However, this will not be enough to

been announced but not developed yet in the market.

reach energy autonomy and will not necessarily add value

While there is still interest from the bigger players, we

to PEMEX as a company without optimizing the complete

have seen a slowdown in the interest of the rest of the

operation. One point to highlight is that all the announced

world as the government’s policy has shifted toward a

measures are focused on supply efforts to increase

stronger PEMEX that controls all the segments of the

production, but there is less emphasis on demand-side

value chain. Mexico is still an attractive market, but

measures that could also contribute to reducing Mexican

there is less certainty about the regulatory and policy

dependency on gasoline imports.

advantages given to new players interested in coming to the market.

Q: Many commentators have expressed doubt as to the budget and time frame for the Dos Bocas project. What

Q: What main challenges will Mexico’s oil and gas

challenges do you foresee?

industry face until 2024, from both a private and public

A: According to similar refineries that have been built

perspective?

in recent years, we would expect five to six years as

A: One of the main challenges that I would highlight is

a reasonable period with a budget of approximately

fuel quality. Ultra-low sulfur requirements are already a

US$10 billion.

global standard and Mexico remains behind the curve in terms of enforcing legislation and having the ability to

Q: How pronounced a role will private micro refineries

produce it domestically.

have on future refining capacity? A: We see the economics of micro refineries as challenging, particularly if the crude more suited to these

Wood Mackenzie is a leading research firm and consultancy

projects, light and sweet, has to be imported. This adds

for the global energy, chemicals, metals and mining industries,

costs to refineries that have shown very week margins in

providing insight, analysis and advice on assets, companies

the past given their very simple configuration.

and markets

331

| INDUSTRY PERSPECTIVE

MEXICAN-MADE COMPONENTS FOR THE NATIONAL INDUSTRY Q: Where along the oil and gas value chain does

When PEMEX began rolling back its refinery

MARAT have the most presence?

maintenance investment, the companies reliant on

A: Most of our activity is within the downstream

supplying the system were forced into a decision:

sector, so our largest clients are from the refining

diversify or flounder. For companies like Xanik Valves,

and petrochemicals segments. The Mexican oil and

the choice was clear. “The lack of investment meant

gas sector has been rather slow lately. In the last few

we had to change the way we sold, so we began

years, PEMEX has not tendered any large contracts.

to focus on the global market,” says the company’s

We are not an engineering services firm, we are

CEO Carlos Kahan. “We used to sell 70 percent of

in the market to supply industrial equipment like

our valves in Mexico and 30 percent internationally.

automated valves and instrumentation to PEMEX.

For the last three years we, have sold 95 percent of our products internationally and only 5 percent to

Q: How does MARAT adapt its business strategy to

Mexico,” he says.

fit the Mexican market’s cycles?

332

A: Traditionally, PEMEX represented 40 percent

Only a handful of companies in the world manufacture

of our business and other private companies

the same valves. The company’s competitors are

represented the rest. We are looking to penetrate

large corporations in Europe and North America,

new markets that we did not have access to in the

while Xanik, is family-run. However, the company’s

past, such as compressors and electric heaters. When

nimble size has proved a unique selling point that

activity slowed down in the oil and gas industry, we

Kahan has deftly capitalized on to grow the business.

ROGER GONZÁLEZ

CARLOS KAHAN CEO of Xanik Valves

Director of MARAT

diversified into new customers and industries. We

“The four or five competitors we have are all large

were able to maintain our position in the market

corporations, whereas Xanik Valves is not. There is

because we diversified our portfolio.

no corporate process to go through so we can make our decisions quickly to reduce turnaround time,”

Q: What are MARAT’s greatest differentiators and

he explains.

what projects is it looking for in the short term? A: We have been in the Mexican market for more

The Mexican manufacturer provides its specialized

than 31 years and our service and quality products

hydroflouric acid (HF), pressure-seal and bar stock

differentiate us from our competitors. We also have

valves at a far swifter speed than the competition.

a team of technicians that provides our clients

From the design concept to the delivery, Xanik

with all the necessary technical support for our

can undercut its competitors’ order times by

products. Most of the brands that we represent

over 50 percent. The company achieves this

have an international presence. Our compressors

production speed with the help of several local

and electric heaters are also designed for highly

Mexican foundries, the furthest of which is just

dangerous operations and areas and they all comply

four hours from its headquarters. While Xanik’s

with international standards. In the oil and gas sector,

team of 20 full-time product engineers handle the

the main project will be the Dos Bocas refinery. It

valve design, the foundries carry out the casting.

will be the biggest investment made in the next few

The proximity to its partners permits a close

years. There will also be a great deal of investment

relationship and helps the tailoring of each clients’

in the improvement of existing refineries. We want

valve significantly quicker than communicating

to work on these projects.

with a foundry half way around the world.

VIEW FROM THE TOP |

MIDSIZED TIGER PROWLS THE VALUE CHAIN DANIEL ZULUAGA General Manager of SUMMUM

Q: What were the most significant SUMMUM

because one of the features of the Mexican market is that

achievements in 2018?

there are so few large EPCs. Among our successes in the

A: 1H18 was challenging as the market awaited the results

past two years was to strengthen our relationships with those

of the presidential race. But in the second half of the year,

companies we believed would be among the competitors for

projects began moving forward. Private investors started to

major projects. Our strategy is to share risk from the bidding

finalize projects, so new opportunities arose. During this time,

phase with construction companies. This way, we assure

we retained our personnel and began growing again in the

our participation in the development of engineering for the

second half of the year. We won important projects, including

particular project in which our allied construction company

the design of a storage facility and a first treatment facility

gets selected.

for a private investor in Mexico. The facilities will be located outside of the port in Paraiso, Tabasco, and are intended for

Q: SUMMUM works in both private and public sectors and

crude oil from shallow waters.

across every stream. What will SUMMUM focus on in the coming years?

We have also been supplying engineering services for the

A: In 2017 to mid-2018, all engineering companies were

design of onshore interconnections between oil fields for

focused on the private sector. Since mid-2018, we have all

PEMEX E&P. This is required for new perforation sites. The

been focusing on PEMEX and CFE. What can be inferred

work we do mainly takes place in Villahermosa, Tabasco,

from the information we have is that the government will

where we have an office. The original plan for 2019 was

stop further private investment while respecting the contracts

to drill about 60 new wells but that has been increased

already assigned. The president wants to see results from

to about 130. Our role will be to provide the required

these investments. However, private companies are still strong

engineering for the well sites to receive drilling equipment

in the midstream, particularly in storage and distribution. The

and to interconnect new wells with existing facilities. We

government is not going to invest in these areas so private

have an extension for the PEMEX PEP contract, which is

companies will be there. For upstream and downstream

important because this is where much of the investment

we are going to strongly focus on PEMEX, and for power

coming into Mexico will go.

generation we will focus on CFE.

Q: Who are your main competitors for the PEMEX tenders?

Q: SUMMUM has a digital solutions division. Who is this

A: There are many engineering companies in Mexico but

targeted to and which companies do you work with?

few with the foundations we have. Many Mexican companies

A: We do not yet have any projects for our digital solutions

can beat us on price but not on quality of work. We explain

division in Mexico. We offer remote monitoring of oil fields.

our position like this: SUMMUM is not a large international

Unfortunately, Mexico is not yet so open to this kind of

company nor is it a small local company. We are right in

technology. This view is likely to change among private

the middle. We are very competitive because we have

companies that won bids for mature oil fields that are

executed world-class projects â&#x20AC;&#x201C; for which we beat out larger

functioning with 50-year old infrastructure. Private companies

international companies â&#x20AC;&#x201C; and that has given us a high level

prefer to use cutting-edge technology to reduce personnel

of experience.

and employ more automation in their facilities.

Q: Why do you think you were selected for projects over your competitors?

SUMMUM is a midsized engineering service provider with more

A: We worked closely with construction companies, which

than 40 years offering comprehensive services in the oil and

meant we worked with the strongest companies in Mexico.

gas, energy and mining sectors. It is present in several Latin

We have strong connections with construction companies

American countries

333

| INDUSTRY PERSPECTIVE

EXPERTISE IN INDUSTRY‑WIDE IMPROVEMENT

334

Q: What is the greatest challenge PEMEX faces and

Q: How would you describe your work developing

how can GenOIL help?

the Etileno XXI project?

A: A great deal of crude oil in Mexico is heavy

A: Historically, in North America and in the Middle

crude, which is high in sulfur. Heavy crude

East, ethane is the preferred basis for petrochemical

sells for less than light crude. Next year, the

industries, while naphtha is used in Europe and

International Maritime Organization will pass

Asia. Asia and Europe depend on naphtha because

legislation to ban the burning of high sulfur

the global supply chain of crude oil is many times

fuel oil, which has been powering vessels for

more accessible than the global supply chain of

generations. This will be the greatest shift in the

natural gas. In terms of infrastructure, all you need

shipping industry since it switched from coal

is a traditional refinery to perform the necessary

to oil. The Tula Refinery has anticipated these

processing, and you are set to produce naphtha.

changes and has started the construction of a

This began to change at the beginning of 2008

coker unit to eliminate the fuel oil and make

when the Etileno XXI project kicked into high gear,

lighter products. This legislation will not be good

and when US shale gas revolution took off. The

for PEMEX’s bottom line. The GenOIL process

price of natural gas began to fall and the lower

can solve this problem for PEMEX by upgrading

prices for natural gas relative to oil prices began to

the quality of the feedstock that these refineries

make ethane-based development more attractive

depend on. Fuel oil production is one of the

worldwide. During this time, Etileno XXI represented

biggest challenges facing PEMEX today.

one of the largest petrochemical investments of its

MAURICIO DÁVILA

BRUCE ABBOTT President and COO of GenOIL

Co-Founder and CEO of EnerChemTek

Q: What have been the results of the GenOIL

kind in North America in decades. Since then, ethane

Hydroconversion Upgrader (GHU) product

has gained ground, even in Europe. In part, because

application on PEMEX sour crude?

supply lines have been widened and strengthened.

A: GenOIL recently conducted a PEMEX upgrading demonstration at the UFA Petroleum

Q: How are these digital platforms structured and

Scientific Research Institute in Bashkortostan. The

what is their main function?

demonstration proved that PEMEX crude can be

A: The first of these two platforms focuses on

made much more valuable through upgrading.

training and education. We offer them through three

We were able to upgrade the product from 10

packages. The first is a series of customized courses

API to 30 API and show that a large-scale project

that we offer to companies wishing to adapt to the

like this would dramatically increase PEMEX’s

use of new technologies. The second package is

profitability. GenOIL is in discussions to develop

certificate delivery. We are trying to negotiate with

more production in Mexico and through our

institutions such as the Institute of Supply Chain

partnerships we can provide a total solution

Management to have them qualify and expedite

to PEMEX, from upstream oil field services to

these certifications. The third package is what we

upgrading. GenOIL wants to be involved in the field

call flexible learning pathways, which is meant to

development and expansion from the beginning.

keep corporate leaders updated on relevant issues

Our GHU technology can be used in any refinery

such as supply chains of natural gas or LNG. Through

in the world and every engineer at PEMEX is fully

this platform, we share our expertise and generate

familiar with the hydroconversion process — so it

important data. Our second platform falls into the

should be an easy sell.

category of business intelligence and data analytics.

INSIGHT |

REFINERIES TO THE RESCUE ÓSCAR SCOLARI Director General of Rengen Energy Solutions

The López Obrador administration’s energy policy will

Another important element that has not been put on the

be marked by a strong emphasis on energy security, says

table yet is the energy generation infrastructure that will

Óscar Scolari, Director General of Rengen Energy Solutions.

power Dos Bocas. “This element cannot be found in any

While upstream activities were reinforced during the last

package and according to our sources this portion will

administration, a greater effort is needed to recover the

be awarded to CFE directly,” says Scolari, adding that

country’s position in the downstream segment. “In the past

Rengen can also support the national power company in

years, the refining industry was left in total abandonment.

this assignment. In fact, the company has been active in

In 2018, only 60 percent of the country’s refining capacity

the electricity generation segment working hand by hand

was used,” Scolari says.

with CFE in the past months. Rengen participated in the modernization of Nonoalco’s turbogas plant, which supplies

A refinery out of operation costs the government between

back up power to 80 percent of Mexico City’s subway. In

US$1.2 million and US$1.7 million per day. The National

addition, after several blackouts hit Yucatan’s peninsula in

Refinery System (SNR) groups the Minatitlan, Salamanca,

2Q19, the company offered to ensure electricity supply by

Tula, Cadereyta, Madero and Salina Cruz refineries. Dos Bocas

providing power generation units powered by either liquid

is set to be the seventh refinery, processing 340MMb/d. “In

fuels or natural gas.

recent meetings, PEMEX authorities have demonstrated the will to revitalize the refining capacity at the Salamanca and

The Ministry of Energy has also announced that the country

Tula facilities. These assets supply fuel to critical cities across

needs an additional capacity of 20,000MW by 2025. “To

the country,” he says.

achieve this, project development must start now because the construction of generation facilities can last up to three

That scenario represents a huge pool of business

years. In this industry, these timings translate to short-

opportunities and Rengen wants to be part of it. Scolari

term periods for developers,” Scolari says. In addition, CFE

is confident about the value that Rengen can provide to

Director General Manuel Bartlett has announced the five

PEMEX. “Refineries work on steam, electricity and hydrogen.

electricity generation projects that have President López

The lack of any of these three elements can cause an

Obrador’s approval. The first facility to be auctioned will be

interruption in operations. We represent many equipment

a 750MW combined cycle located in Salamanca. “We are

lines that are critical in the management of energy, heat and

going to participate in two of these five projects,” Scolari

steam. Rengen has also worked in the processing segment

says, adding the company hopes to win another one.

and has the required experience in distillation processes. The

Rengen is also working with the utility company through an

management of equipment, such as pumps, compressors,

unsolicited offer scheme.

turbines and heaters, is part of our expertise,” he says. Scolari also remains positive about the country’s outlook in Apart from the repair and maintenance services the SNR

the upstream segment. Sooner or later, he says, this industry

demands, the Dos Bocas refinery is the flagship project of

needs to be developed. “The development of awarded fields

this sexennial. To date, five auction packages have been

must take place, either through public entities, private players

awarded to international players, including ICA Fluor,

or a mix of both. At Rengen, we have the required equipment

Samsung and KBR. “The last package, which includes the

to manage liquids and gases, as well as to provide the

refinery’s storage infrastructure, is about to be published

maintenance of the dynamic equipment on platforms.” The

and we are very interested in participating in it. This does

company has already approached various US companies that

not only include the tanks, but other elements such as

were awarded fields in order to participate in this segment

production lines, separators and firefighting equipment,”

but will await clear signals from the current administration

Scolari adds.

to execute further plans.

335

| VIEW FROM THE TOP

STORAGE, DISTRIBUTION TO SUPPORT ENERGY AUTONOMY CRISTHIAN PÉREZ Managing Director of Vopak Mexico

336

Q: Which factors led to Vopak’s decision to expand its

Q: How are automation technologies being integrated into

terminal operation in the port of Veracruz and how is the

Vopak’s Mexican terminals?

project coming along?

A: We are taking advantage of existing technology that

A: Vopak has been in Mexico for over 40 years. Until 2011,

will deliver operational, environmental and financial

we worked exclusively on the storage of vegetable oils,

benefits. Technology reduces human intervention and,

petrochemicals and chemicals in the ports of Altamira,

therefore, human error. For this reason, we are trying to

Veracruz and Coatzacoalcos. In 2011, we acquired a

fully automate the critical processes at our assets. We

60 percent stake in the Altamira LNG facility, with 40

are investing in automatic truck loading systems that

percent owned by Enagas. Upon the Energy Reform,

allow easier loading. Our automation program includes

we decided to enter the fuel distribution market. We

different layers of protection to avoid errors. One layer

analyzed this market and the refinery and pipeline

will include the certification of all transfer points along our

networks and made the decision in 2016 to begin our

transportation process to track every barrel received and

energy sector footprint in the port of Veracruz. We

delivered. We will provide access to clients so that they can

believed that greater infrastructure was required to meet

also trace products.

the needs of the regional market that Veracruz serves. Our Veracruz terminal's idle capacity offered the chance

Our focus on tracking of products and availability of

to integrate a new segment of diesel and gasoline imports

information is aligned with the new requirements provided

to optimize our asset utilization at the port while we

by Mexican authorities that will take effect in 2020. Both the

developed additional infrastructure to satisfy fuel imports

customs authorities and CRE will be implementing control

customers demand.

systems to monitor the supply chain in an effort to reduce fuel theft and increase transparency along the value chain.

Phase one of the Veracruz terminal expansion began

Vopak is happy to see these protocols take effect because

construction in 2017. The first phase is already in

they align with the control measures we have implemented

operation and involved the retrofitting of existing tanks,

at our own storage terminals.

as well as the construction of new capacity and a stateof-the-art truck loading facility and automation in order

Q: How can infrastructure aid Mexico’s energy security and

to serve the market. With this first phase, we are adding

how should its construction be approached?

470,000 barrels of capacity for diesel and gasoline. The

A: Infrastructure and storage is an integral part of any

second phase (498,000 barrels for diesel and gasoline) is

nation’s energy autonomy. This reduces vulnerability to

being built and once finished in 4Q20, will be connected

shortages and unforeseen difficulties. In Mexico, with

to all the infrastructure from Phase One. This will enable

the supply problems present in 1Q19 and in 2017 when

Vopak and its clients to optimize supply from ports where

Hurricane Harvey hit Texas, the need for comprehensive

gasoline and diesel are imported, particularly from Koch

storage became evident. We believe the country’s need

Industries, which has already committed to a long-term

for infrastructure is in line with our investment decisions,

contract as the off-taker for the full capacity of the newly

and therefore, we feel comfortable investing in fuel

built Veracruz storage.

distribution in Mexico. Infrastructure must be developed in the most efficient way possible because it is such a capital-intensive enterprise. Therefore, requirements

Vopak is a tank storage company based in Rotterdam that

must be properly analyzed to highlight deficiencies that

handles oil, chemicals, gases and LNG among others. The

can then be solved. Efficiency plays a key role in the

company has a history spanning over 400 years and is present

distribution infrastructure design process, which will

on six continents

result in lower final prices at gas stations.

VIEW FROM THE TOP |

UNDERGROUND STORAGE, A SOLUTION FOR THE MEXICAN MARKET DANIEL GEORGES VADON Managing Director of Entrepose Mexico

Q: Why did Entrepose decide to enter Mexico and what has

Within the Entrepose Group, we have a selection of

been the company’s standout project since its arrival?

subsidiaries that we bring together to form this streamlined,

A: The Energy Reform gave Entrepose the perfect opportunity

integrated contraction option. Besides Entrepose Mexico,

to enter Mexico. At the same time, the need for hydrocarbons

which is primarily an EPC contractor, there is also Geostock,

storage to stock the strategic reserves that the country

which operates and maintains underground storage facilities

lacked became clear. The market’s liberalization and its need

for the oil and gas industry. HDI Latam carries out horizontal

perfectly suited Entrepose. Between 2015 and 2017, Entrepose

directional drilling (HDD) for pipeline work and is growing

constructed Mexico’s first underground LPG storage plant at a

rapidly in Mexico due to the country’s environmental

greenfield site in Coatzacoalcos, Veracruz for a private client.

constraints, which prohibit trenching of the shore approach.

We carried out the feasibility study and the EPC contract, both

HDD enables a more environmentally-friendly way of

of which were technically challenging due to the area’s soil

connecting the sea line to the onshore pipeline. In 2018, HDI

and the novelty of the project in Latin America. The cavern

worked on the shore approaches on South of Texas-Tuxpan

has a volume of 300,000m3, capable of storing 2MMb of LPG.

pipeline landfall project and completed several HDD jobs.

The first cavern is now completed. We are now operating the site and have a long-term contract to do so. Underground

Q: What milestones mark the company’s success in the area

storage is an interesting option in Mexico because it is both

of health and safety?

cheap and does not require masses of land. It is also out of

A: Safety is Entrepose’s No. 1 priority. We are proud to have

the way. Its popularity and applicability can be seen in Texas

achieved 3.5 million man-hours without an accident reported

and depleted oil fields can be repurposed for use.

in Mexico. We focus heavily on HSE because we want every person on site to leave safely and because our clients demand

Q: How does the company benefit the Mexican industry and

the highest standards. In the Mexican market, where many

what are its areas of interest?

internationals now operate, high-level HSE standards are

A: Entrepose Group is a member of the VINCI Group, the

essential. We have reduced our Total Recordable Injury

world’s leading integrated concession-construction group.

Frequency Rate from 6.80 in 2012 to 2.30 in 2017, while

We offer a full host of EPC services, focusing primarily on the

reducing the Lost Time Injury Frequency Rate from 1.87 to

shallow water and onshore environments within Mexico. In

0.60 within the same time frame.

2018, our global revenue was approximately US$800 million. Q: Where along the value chain has Entrepose identified its Entrepose’s ability to combine onshore EPC and offshore

business opportunities?

EPC to provide a single, integrated EPC service delivers a

A: Most of the opportunities we identify as suitable for our

high-end quality service that is extremely competitive. This

skillset are in the upstream and midstream sectors. There is

approach allows us to optimize project execution, thanks to

a focus on import terminals because the country is missing

an overall view of project management, reducing the number

some import capacities and this presents opportunities to us

of interfaces. This way, clients benefit from solutions that are

with private clients to which we can offer the full, integrated

more flexible and straightforward.

Entrepose package. Oil field development, both onshore and offshore, is one definite area of potential.

For instance, in projects involving an offshore and onshore part, the interface between both is one of the most sensitive parts in terms of planning and companies involved in. Entrepose

Entrepose

can coordinate both parts internally, thus optimizing cost

headquartered in France that designs, builds and operates

and schedule. These are not specialties offered by most EPC

production, transport and storage infrastructures for the oil

companies in Mexico.

and gas and other energy markets

Group is

international

contractor

337

| VIEW FROM THE TOP

ALL EYES ON CONSTRUCTION OF TUXPAN-TULA RICARDO DIOGO Director of Business Development at Oiltanking

338

Q: What projects is Oiltanking working on in Mexico?

Q: In which segments does the company see the most

A: Oiltanking is involved in the construction of the most

areas of opportunity?

important fuels import infrastructure in Mexico and its

A: We see a big opportunity in introducing midstream

future operation, Tuxpan-Tula. Oiltanking is supervising

assets and addressing the imbalance in terms of what

the construction of two tank terminals, one on each end.

the country produces in crude oil and respective refined

The Tuxpan terminal is far more difficult to construct

products. Refineries are not running at optimal capacity,

because of the soil, and the preparation has taken more

which creates opportunities for midstream in the medium

time than expected. We are supervising the construction

term, taking into consideration the implementation of the

for the owner of the asset and we will commission and start

strategic stocks regulation from 2020 onwards, which

operating it in 1Q20.

will definitely demand far more available storage. More international and national investors will introduce tank terminals. At the moment, there is mostly only PEMEX

Oiltanking is one of the largest independent operators of tank

infrastructure, with a few private exceptions. Companies

terminals for oils, chemicals and gases worldwide. It owns

that want to import products are still limited, because they

and operates 76 tank terminals in 24 countries with an overall

have no storage facilities and even if they brought it in

capacity of more than 20 million cubic feet

directly, there is no way to get it to customers.

VIEW FROM THE TOP |

PRIVATE SECTOR NEEDED TO BRIDGE MIDSTREAM STORAGE GAP RUBÉN CORTINA Former Executive Director of Tarsco Mexico

Q: What are Tarsco’s main differentiators in the growing EPC

Texas and purchase refineries to continue providing oil to the

market for storage terminals?

Mexican market.

A: One of our core values is that Tarsco focuses only on the storage terminal market. We do not participate in infrastructure

Q: What opportunities has Tarsco Mexico identified to work

and other industries. We are experts in the design, engineering

with PEMEX and boost Tarsco’s positioning in the market?

and procurement of terminals. We have been present in the

A: Tarsco Mexico, which is very healthy financially, wants to

US market for over 37 years and our human talent has more

work more closely with PEMEX. In particular, we would like to

than 15 years of experience working with large companies.

partner with another company to work with the NOC and add

The biggest projects in Mexico range from US$150 million

the highest value possible. Our expertise is in the mechanical

to US$180 million; our teams have the capacity and skills to

and piping business, and partnering with a company that

handle projects that come in over US$800 million. In 2019,

already has experience working with PEMEX would help us

we want to fully develop an EPC contract. Currently, there are

provide an even better service.

over 70 projects being developed and if only 10 percent of those projects were developed this year it would be a great

We believe that PEMEX needs to stabilize its objectives

year for the sector.

and strategies. PEMEX will not invest and therefore needs to open opportunities to private players to get things done.

Q: What has Tarsco Mexico identified as the most challenging

The industry has changed more than we expected in the last

aspect of developing midstream infrastructure in Mexico?

year. This is due not only to internal decisions but to external

A: Tarsco Mexico is a developer and not an operator of

factors, like US customs tariffs, that have reconfigured the

terminals in Mexico. Most developers focus on the financing

development strategies for projects in the Mexican industry.

aspect of the project. They work arduously to secure funds but do not place great importance on the commercial side. These

Q: What could the government do to help developers and

companies need to close the circle of services by considering

EPCs fill the midstream infrastructure gap?

the funds, the project itself and the final user of the terminal,

A: The regulators must strengthen their presence. ASEA and

which in Mexico usually is not the developer.

CRE have evaluated many projects over the years but they do not have the capacity to be more efficient because they

The government is now pushing to reactivate PEMEX’s assets,

require people with more experience. They could be a filter

which will be useful, but these assets alone will not meet the

for the industry and an organism that promotes the industry.

country’s infrastructure demand. The country needs not only

When it comes to tenders, processes and terms need to be

terminals but marine ports, railroads, roads and pipelines to

clear. Some tenders have been awarded through restricted

move the product. There are many opportunities to grow

bidding and the industry requires clarity regarding the

and make the business more profitable. For instance, the

requirements necessary to receive an invitation to these bids

Dos Bocas refinery will most likely not be in service in the

and who has the right to participate. It is part of the new

next four years and until then, the need for private players

process and the country was demanding a change in terms

to supply fuel is overbearing. The private sector needs to

of transparency and corruption. From my personal point of

continue pushing and be more active in preparing projects

view, the change was necessary but all changes have a cost.

and obtaining permits much more rapidly. It needs to invest to develop better locations for terminals and to support the professionalization of the midstream sector. The cost

Tarsco Mexico is an EPC that specializes in the design, engineering

of building the refinery has doubled and capacity has also

and procurement of storage terminals and tanks. It is part of TF

been cut so PEMEX cannot do it alone. We are not experts

Warren Group, which has over 45 years’ experience in developing

in refining but we know that with US$14 billion we can go to

storage projects in the US, Caribbean and Mexico

339

| INDUSTRY PERSPECTIVE

ESSENTIAL ELECTRICS, SAFE AND SECURE Q: What is AUMA’s focus in Mexico’s oil and gas

Q: What is Pepperl+Fuchs contribution to the

industry and how does it differentiate itself from

maintenance of Mexico’s SNR?

competitors?

A: The company is moving into the instrumentation

A: AUMA’s origins are outside the oil and gas world

department of the refineries, dealing with safety,

but given the variety of electrical actuators and

and working with the electrical and IT departments.

reducers that we manufacture, we have been able

In the last two to three years, we chose to invest

to position ourselves in this industry. However, it has

in the development of our business lines in

been difficult to penetrate the North American region

these areas. These investments have focused on

given the influence of the US oil and gas majors here.

electrical protection equipment, which heightens

We have had greater success in South America and

the safety standards of electrical apparatus at the

in other markets, such as Russia and the Middle East,

refinery site, and on improving the safety of mobile

where our foothold is much stronger. In Mexico, our

technologies, including cellphones and tablets.

market niche focuses on the petrochemical segment.

Our services make cellphones and tablets safer to use in the hazardous environment of a refinery,

340

Q: What makes the company’s equipment the most

where there is always an explosion risk. Due to

suitable for refinery applications?

this risk, normal cellphones and tablets cannot be

A: When developing projects as complicated

used inside refineries. To deliver this service, we

as a refinery, one product can make a complete

acquired Ecom Instruments, a Germany company,

difference. For refinery process, companies need

in late 2016.

DANIEL GUTIÉRREZ

JORGE GUERRA Director General of Mexico, Andean and Central America at AUMA

Director of Pepperl+Fuchs Mexico

to be certain of the product’s reliability when it is

Q: What are Pepperl+Fuchs’ ambitions in terms of

working in tandem with other groups of products.

involvement in the Dos Bocas refinery?

In this sense, price is not the fundamental factor

A: Pepperl+Fuchs’ technologies can support the

that defines the purchase. Our equipment is

EPC process and time efficiency aspects of the

reliable and aligned to the best international

construction, not only in automation, but also

practices and standards. Another important aspect

with far-reaching IT solutions and electrics. We

is safety. Operators work under very high levels

can approach both PEMEX and contractors

of temperature and pressure. AUMA’s actuators

to present the technologies we offer. At the

perform well in these conditions, providing

moment, we are speaking with ICA Flour, Grupo

protection for both the technology and the

HOSTO, Samsung and KBR, so we already have

operator. We are in contact with the engineering

connections to those companies working directly

firms that will develop the Dos Bocas refinery.

with PEMEX.

Unfortunately, actuators are not the first element that contractors think about when designing

Q: What are the projects the company has been

a facility of this nature. Usually, it is a forgotten

involved in over the last 12 months?

element until an automatic valve enters into the

A: The two main projects Pepperl+Fuchs has

conversation. We are approaching these firms

been involved in over the past year are PEMEX’s

by demonstrating that our actuators have the

Cadereyta and Francisco I. Madero refineries. We

flexibility to be integrated into various systems. If

are helping the NOC increase the capacity of the

an actuator does not respond during operations,

two refineries by heightening the reliability and

the entire refinery can shut down.

security of each one.

INDUSTRY PERSPECTIVE |

GROWING STORAGE FACILITIES ALONG THE VALUE CHAIN Q: What have been the main developments in

Q: Why did Grupo Idesa decide to create

the Acolman terminal project and what will be

Excellence Sea and Land Logistics?

its impact?

A: Grupo Idesa acquired the terminal in 2011. The

A: Our terminal in Acolman, State of Mexico,

company identified a trend in the market given

which we are building together with CLH, will be

PEMEX’s lack of supply of raw materials and

online in 2020. The terminal’s entire capacity will

decided to invest in a terminal that would be

be taken by Repsol and PEMEX for the entire 12

able to import the raw materials for the group’s

years of its first stage, totaling some 600,000

petrochemical processes but also for the rest of

barrels. Around 4 percent of the national demand

the industry. We wanted to be a gateway for those

will move through it. All the financing is already

petrochemicals that are not produced locally and

in place, with Banorte joining us. Hydrocarbon

need to be sourced from abroad. Since then, the

Storage Terminal and CLH hope to announce

terminal has been transformed into a world-class

further projects in Mexico this coming year.

facility that can handle a variety of products.

The first phase will start operations in May or

With the Energy Reform, we are now able to

June 2020.

provide gasoline storage and distribution services. Excellence Sea and Land is the only marine storage

Q: What technologies will the terminal

facility that Grupo Idesa has. The group has

implement to attain enhanced efficiency and

another inland storage facility located in Tlaxcala,

operation?

which is halfway to Mexico City.

EDGAR GUTIÉRREZ

PABLO ÁLVAREZ

Director General of Hydrocarbon Storage Terminal

Director General of Excellence Sea and Land Logistics

A: Potentially, the terminal could be fully automated

Q: How is the company adjusting its infrastructure

to imitate Madrid’s 7-million-barrel terminal that

to fit the future needs of the industry?

ships to the airport and other locations. Drivers of

A: The Port of Veracruz is the oldest and most

oil trucks can do everything themselves – they do

important port in Mexico and has undergone an

not need help from employees. There are many

expansion and construction of new terminals for

safety checks to ensure the smooth and safe

general cargo, containers and liquids. We are

passage of the oil.

expanding the terminal to double its capacity but we are still short on meeting demand. Even

Q: As one of your clients, what does PEMEX

if all operators doubled their capacity, we still

think about your new use of technology?

would not be able to do it. The Energy Reform

A: PEMEX has not shown a great deal of interest

now allows the import of gasoline and diesel,

in the potential of our technology. For example,

pushing demand even higher. We cannot build

all terminals have problems with evaporation,

tanks at the rate the market demands and there

which results in a loss of product. PEMEX has

is also not enough space to do so at some ports.

a maximum loss of 0.3 percent but using our

We encourage the government to develop the

technology, a vapor recovery unit, those losses

ports and create more space for the construction

can be reduced to between 0.10 and 0.15 percent.

of storage terminals. We hope to successfully

PEMEX decided against the investment this

complete the expansion of our ports in 2019-

would require, but we invested several million

2020. The expansion of this terminal is Grupo

dollars more for the technology because we want

Idesa’s largest project in the next two years, after

to make a perfect installation.

our sodium cyanide plant.

341

| VIEW FROM THE TOP

IN NEW FUEL MARKET, SUPPLY SUPERSEDES PRICE ROBERTO DÍAZ DE LEÓN National President of ONEXPO

342

Q: What have you defined as your members’ key priorities for

illegal parallel network of fuel supply and distribution whose

2019 in terms of the Mexican government’s energy policy?

presence and influence are quite strong. It has been a problem

A: Guaranteeing supply is extremely important for us. In our

for years, and service stations could have been involved.

interactions with all the major actors working all along the

However, we do believe that the main channels through

value chain of fuel commercialization, that importance has

which huachicol fuel is commercialized are gas stations.

been highlighted time and time again. Up until fairly recently,

This clandestine network operates through a category of

our main focus was on examining the offers being made by all

distributors and establishments known as cachimba, found

the different brands in the market regarding the profitability

on roadsides all over the country. For every gas station, there

and commercial margins that we could be negotiating; we

are at least four cachimbas. If there are at least 13,000 gas

did not see supply as an urgent question to be addressed

stations across the country, then you can see that we are

at the time. However, as a result of the government’s stated

talking about a serious distribution web.

vision of confronting the huachicol issue in a timely and direct manner, which we applaud, a complex situation emerged

In general, we are helping the government with its distribution

during the first few days of 2019 that was difficult to manage

scheme and its regulatory initiatives. We are also cooperating

by companies and businesspeople. As a result, guaranteeing

with the changes that it is implementing in its volumetric

supply is the most important challenge faced by the average

controls. These changes include the installation of fuel gages

fuel company. We are also prioritizing the future of CRE.

that measure offloading all along the value chain, which will

It is important to have a regulating body that can provide

significantly strengthen the government’s push to make fuel

certainty and a level playing field for industry participants

supply a much more transparent and traceable process, from

and competitors.

maritime terminals and resources imported into the country by road or rail to the end consumer.

Q: As an industry, what measures are being discussed to tackle the huachicol issue?

ONEXPO is respectful of all new regulatory frameworks and

A: We agree that it is necessary to combat huachicol because,

decrees, and we are trying to cooperate with state authorities

frankly, it is our main competitor. In this country there is an

as much as possible. As a matter of fact, we began 2019 by

CURRENT AND PROJECTED INCREASE IN NUMBER & PROJECTED INCREASE IN MEXICO FUEL SERVICE STATIONS OFCURRENT FUEL SERVICE STATIONS IN MEXICO 20,000

15,000

14,000

15,100

12,900

11,500

15%

5,000

35%

National brands PEMEX Local Brands

Before

Now

Product

Similar

Differentiated

Customer/ Consumer value

Price

Fixed

Variable

Competition and convenience

Place

Strategic location

Service network

Collaboration

Promotion

Limited

Communicative

Content

People

Dispatcher

Consultants

Community and company

20%

30%

2018

RETAIL MARKETING MIX

16,500

10,000

0 2015

THE Ps AND Cs OF MEXICO’S FUEL

2020

Foreign Brands

2022

2024

Foreign brands brands Local PEMEX National Brands

Source: ONEXPO

placing our member companies’ entire privately-owned

because they did not do the permitting process properly,

vehicle fleet at the government’s disposal, plus additional

which is also extremely expensive.

distribution resources that we obtained through collaboration agreements that we negotiated with CANACAR and

The newest regulation also calls for the full implementation

CONATRAM. In general, we are aligned with the government.

of all SASISOPA protocols prior to opening your station, which makes business even more complicated.

Q: How do you expect your members to manage their supply

Some service stations spend up to 40 percent of their

if these events motivate them to create their own private

budgets on regulatory compliance. That already takes

infrastructure?

into account that up to 30 percent of fuel prices can

A: 25 years ago, there were 3,500 gas stations and 75 storage

be attributed to taxes. This creates additional problems

terminals in Mexico. Today, we have 13,000 gas stations, with

when it comes to arriving at a fair and also operationally

the expectation that we will have 16,500 by 2024, but the

viable price. Of course, the exact composition of that 40

same number of storage terminals. This is a big problem to

percent depends on the geographical area and the type

which you have to add increased demand; we are talking

of fuel that you are working with. All of this tightens our

about over 5 billion liters of fuel a month, or 172 million a day,

commercial margins, which in general are more attractive

to over 13 million customers a day. To that number of storage

midstream than downstream. However, we believe the

terminals, we can only add three private storage terminals

authorities will slowly begin to relax this over-regulation.

that are now online. Q: What impact does ONEXPO expect from the government’s Major players new to this Mexican context, like ExxonMobil

plans to lower gas prices?

and Total, decided to take a specific approach when entering

A: The guarantee of supply will always supersede price,

the market. ExxonMobil specifically developed private

which is why price is not as large an issue as you might think,

infrastructure on both sides of the Mexican-American border

especially now that the product is being de-commoditized

to import their own fuel by rail. Infrastructure development

and customers are looking at so much more than just price.

in general is now focused on delivering fuel as close to the

This is why marketing is so important and why we are

end consumer as possible. This resulted in the creation and

investing so many resources on training programs for our

use of transfer terminals because of the delay represented

members in this area.

by the longer development cycle of tank-based projects. This is the basis for a new infrastructure model. Nobody

The major players have international experience competing

in Mexico, at least for now, is having formal conversations

in this arena but they do not have any experience with the

about investing in ducts as part of this infrastructure because

intricacies of the Mexican market. Some of the things being

everybody is investing in these terminals. What this tells us is

offered as “features” by these companies were already

that everything is being structured in terms of the closeness

guaranteed by PEMEX previously, so they have to be modified

of these terminals to the service stations grouped near the

or expanded to really create added value as part of their

demand centers, with the product mainly arriving by rail,

marketing vision.

although this closeness will also enable a lot of road-based transportation. International brands are already capitalizing on

This focus on marketing will also change what used to be

the market that this creates through the booking of capacity

one of the decisive value-creating factors for gas stations:

in marine terminals, land terminals and rail transportation. This

location. PEMEX’s location choices used to function based

is partially due to how safe it is. In terms of efficiency, it is

on the needs of a network but now the choice of location

competitive with road transportation and can become even

will begin to function based on the specific needs of several

more efficient, creating greater value.

groups. These seem like overtly similar approaches but they actually imply a number of very important differences. Chief

Q: What is ONEXPO doing to assist its members with the

among them is the fact that location will no longer respond

lengthy permitting process involved in the building of

merely to demand. Once location, like price, becomes but

infrastructure?

one variable of both a larger marketing strategy and also a

A: Certainly, delays due to permitting have become a

systematic question of efficiency, it starts to respond to a

serious problem. To install a service station, we need at

much more complicated series of interests and incentives.

least a year just for permitting. The speed with which we are opening new stations might give the impression that this aspect of our business is being expedited or that it

Organización Nacional de Expendedores de Petróleo

has somehow become easier, but it really has not. There

(ONEXPO) is the largest Mexican association of fuel

is actually a large number of service stations all over the

companies, responsible for representing the industry in its

country that are finished and functional but are closed

interactions with the government

343

| VIEW FROM THE TOP

ROUTES FOR EXPANSION IN THE NEW FUEL MARKET SEBASTIÁN FIGUEROA Director General of FullGas

344

Q: What are FullGas’ strategies to boost its market presence

other attractive market is in the northern region, where we

against larger international brands?

are present in Coahuila, Baja California and Sonora, and we

A: Obviously there are large and extremely strong competitors

are in the process of entering Chihuahua. There are many

in our sector, such as international giants like BP, as well as

opportunities for us in this region in the short to medium

established national players with large coverage like Oxxo.

term. We have also invested in Guadalajara, where we own

Even some large international firms, such as Chevron, Repsol

five stations, and in Guanajuato, with two stations. These serve

and Total, are considered small players in the Mexican market

as exploratory investments to help us observe and analyze

but are beginning to establish a formidable presence in

these segments. Within the northern cluster, there are two

the country. We are aware of the competitive market and

distinct market segments, with Coahuila, Sonora, Chihuahua

we believe the best way to compete with these players is

and Baja California representing north, northwest; and the so-

through extreme market segmentation. Since we lack the

called other north, represented by the northeastern markets

financial resources that these giants have at hand, we rely

of Monterrey, Tamaulipas and, in a way, Durango.

on the customization that we can apply to our services and brand in each different market within Mexico.

Q: What is FullGas’ criteria for choosing the areas or regions with the most attractive expansion opportunities?

Our incursions into the Central American markets have

A: Many variables are considered when developing these

highlighted for us the enormous diversity of conditions and

plans. The main factors that impact our decision are

circumstances within Mexico, which when analyzed in those

infrastructure and supply management. In our southeastern

terms can be seen as five or seven countries in other parts of

hubs, we own our storage capacity and manage that part of

the world instead of only one. With this in mind, we believe

the value chain ourselves so that we can apply economies

that we can use our manageable size to develop strategies

of scale to our purchases from PEMEX and diversify our

that increase our adaptability to each market segment.

selling strategy. This allows us to not only fulfill the demand of our own stations but also to sell to other fuel companies

Q: As FullGas expands its presence beyond Mexico’s

and stations as well. In the country’s central region, there is

southeastern region, what areas appear most attractive?

a much larger volume of business. A Mexico City gas station

A: From 2018 to 2019, the expansion of our coverage has

is selling up to four times the national average, which

been ongoing and constant, having grown from 70 stations to

makes having a closer relationship with PEMEX essential

107. In addition to our original concentrations in the Yucatan

to successfully sell those volumes.

peninsula, two Mexican market segments appear extremely attractive and profitable to us, as evidenced by the fact that

Q: How was your storage capacity and business affected by

we have already begun opening stations and establishing a

the recent fuel shortages?

localized presence in each one. One is the Valley of Mexico,

A: In our southeastern storage centers, we have direct

which incorporates both Mexico City and key economically

access to a number of Gulf of Mexico resources, such as

relevant blocks of the State of Mexico. We have opened 15

the Progreso Port. This served as a shield from the fuel

stations in this area but these posed a considerable challenge

shortages that affected the rest of the country at the time.

from a regulatory compliance and permitting standpoint. The

In that sense, we have had great luck because we benefit from a constant flux of tankers, in which we have maintained up to five days of storage in our tanks. Of course, there are

FullGas is a Mexican owner and operator of gas stations

many limits to the degree to which our positive experiences

currently expanding its coverage throughout the country with

can be replicated or expected in other parts of the country,

a strong presence in Mexico’s southeast region. It offers its

even within the southeastern region. We now have a 20km

own product line and rewards program

pipeline connected to the Progreso Port.

VIEW FROM THE TOP |

NEW ARRIVAL SPELLS CHANGE FOR RETAIL SECTOR RAÚL SILVA Country Manager Mexico of Petroassist

Q: What were the incentives that spurred Petroassist’s arrival

to all kinds of forecourt equipment. Recently, we signed a

to Mexico?

contract with Shell, and we will be working directly with

A: Despite Petroassist’s recent arrival to Mexico, we have

Pragma Asset Management to provide preventive and

been selling fuel dispensers, including our P2000, P4000 and

corrective maintenance for their petrol stations.

P5000 models since 2015. The Energy Reform and the arrival of the major oil companies set a clear opportunity for us. Prior

In Europe, multi-brand maintenance contracts are normal.

to the Reform, our services were not needed in the same

Besides Petrotec, our dispenser brand, Petroassist is

way as they are now. Speaking of maintenance, previously in

also able to give service to equipment of other brands. In

most situations, the maintenance of the forecourt equipment

Mexico, maintenance providers have an entrenched culture

was made ad hoc by an employee that worked at the gas

of servicing exclusively the brands they represent. This is

station and that accumulated this responsibility with some

evidently the worst cost-effective option. We are probably

other. Due to the absence of competition, there was little

one of the few, if not the only company, with more than 30

reason for PEMEX to be overly concerned with maintaining

years of multi-brand maintenance experience operating in

high standards. Although there were many different owners,

Mexico. European and American maintenance contracts have

they all worked under the same flag. PEMEX’s business would

strict service level agreements, broad scopes and strict safety

not be affected if a major accident occurred, and customers

requirements. Our mission is to prevent as much as possible

would not leave as all the market had the same brand. Now,

incidents, and when not possible, to solve them. For this to

with the arrival of new competitors, we are starting to see

happen, we count with a sound operating structure, backed

an increasingly number of gas stations being managed and

by robust procedures, tested and improved throughout the

maintained in a more structured way, following European and

years. Besides dispensers, we maintain all the other forecourt

American standards.

equipment, including consoles, water-air dispensers, pumps, emergency buttons and vapor recovery systems.

Q: How does the retail sector’s distribution in Mexico affects the way Petroassist is investing here?

Q: How important is cross-selling for gas station companies?

A: In Europe, five or six companies may cover 80 percent of

A: The market is still too young and dynamic, and every

the market, but Mexico is different. The market is granular,

company is spending a tremendous amount of resources.

with many companies accounting for a small number of

The focus is in attaining the largest chunk of PEMEX’s share,

gas stations each. Currently, as a company, it is difficult to

because once gone, the best chance of getting new affiliates

reach the estimated 9,000 PEMEX stations, because most of

is lost. Owners of small gas station groups should be signing

these PEMEX distributors do not value our services as they

contracts with private companies now. The new brands

continue to allow dispatchers to carry out the maintenance

are major differentiators and promote heightened sales

of their stations. We are now increasingly investing into all

for the gas station owner, nevertheless, in three, four years,

areas of our operation, proving our long-term commitment

every other gas station will be one of the majors, and the

with this market.

differentiation will naturally move on. After this, other services such as convenience stores, carwash or mechanic workshops

Q: What are your main contracts in Mexico and how does the

will also be important for attracting costumers.

company differentiate itself? A: In Mexico, we have mainly worked with the Spanish oil company Repsol, which is also our client in Europe, and

Petroassist is an international subdivision of Petrotec Group,

with which we have maintained a long-term partnership. We

a Portuguese product supplier and service provider to the fuel

mostly sell fuel dispensers, install electrical and mechanical

retail industry. It is also involved in the EPC process of petrol

infrastructure, and provide multi-brand maintenance services

stations, fuel storage and distribution facilities

345

| VIEW FROM THE TOP

CAPACITY FOR SOLUTIONS, PERSONALIZED ATTENTION PROVE SUCCESSFUL JORGE SANTANA Director General of Transportes JSV/Grupo Santana Vega

346

Q: How has your client portfolio evolved in recent years?

deliver products in every state and municipality in Mexico.

A: For more than 10 years, we have been working with

As for the profitability of transport in Mexico, it is variable.

PEMEX and with more than 20 clients for whom we transport

There are very few companies that understand that service

hydrocarbons, liquid and solid sulfur, bulk and consolidated

is not based on price, but on continuously providing added

cargo, asphalt, fuel oil, oils and acids. Expanding our portfolio

value. Other important points to consider are the available

of business allies was a fundamental step forward. The

units and equipment, the truck models, the investment

company strengthened its services to cover all the needs of

made in training the entire work team and the necessary

its customers. This set of factors led to the company being

infrastructure and technology. These factors are not

ranked today as one of Mexicoâ&#x20AC;&#x2122;s Top 100. Our business

important for most companies and that allows their prices

relationship with PEMEX is very clear and transparent. We

to be as low as the service they offer. The incorporation

have an excellent fleet for the NOC, as for each of our users.

into the market of European and American fuel distribution companies helped a great deal. Foreign companies are

Q: The company increased its transport reach by 60 percent

focused on safety and security, and that requires a lot

in 1Q19. What specific strategies and actions did it carry out

of investment. At the beginning of 2019, there was a fuel

to achieve this?

shortage crisis in most of the states and municipalities of

A: We made changes in our logistics strategy. Also, we greatly

Mexico due to the massive theft of fuel from pipelines. The

reinforced the training of our operators, and improved driving

hydrocarbon transportation sector was the only sector able

behaviors. This was reflected in greater efficiency per trip and

to solve this problem.

higher cargo volumes, which allowed more trips per unit. Many of our routes are very long distances, of more than 2,000km

Q: In August 2019, Transportes JSV acquired 50 new

per trip. This drove up the indicator of kilometers traveled by

trucks for the transport of refined goods. What were the

operator and unit. First among the actions that were carried

considerations behind this purchase?

out was to have eight divisions providing service day and

A: The most important was the financial support that Daimler

night so that the loading and unloading processes were

Financial and all its executives provided to the company

not interrupted. Second, ensuring that our customers could

and its partners. This gave us confidence to test the new

receive their products 24 hours a day. Third, having a team on

Cascadia P4, which benefited us greatly. The energy sector

the road to follow our units during their journeys and validate

is in development, and a large vehicle fleet is required to meet

the correct delivery of the product. Last, reinforcing a total

demand. Effective operator training is also essential. To that

willingness on the part of our clients and their work teams to

end, we have established a university dedicated to operator

collaborate with us at all times.

training. In 2019, our vehicle fleet grew by approximately 70 percent, and we expect the same growth in 2020. We continue

Q: How essential are transport companies for the national oil

to invest in training and are about to open our fuel storage

and gas industry and what are the operational advantages

terminal in Cadereyta, Nuevo Leon. By 2021, we expect to

that trucks provide compared to sea transport or pipelines?

have a terminal in Altamira, Tamaulipas.

A: Due to the Energy Reform in Mexico, hydrocarbon transportation services became the main factor to effectively

Q: What are the main safety concerns that transport companies still have on the Gulf of Mexico coast? A: The main concern is insecurity on the roads. We have

Transportes JSV/Grupo Santana Vega is a Tampico-based

developed road safety protocols. Also, our units have

transportation company The company services many of the

cameras inside the cabins and in each of the trailers. They

industryâ&#x20AC;&#x2122;s biggest players and focuses on moving refined

also have sensors so that the unit cannot be dismantled and

products, diesel, gasoline and hazardous cargos

for measuring the product inside the tanks.

VIEW FROM THE TOP |

INNOVATIVE CHEMICALS FOR A COMPETITIVE LANDSCAPE ÁNGEL SÁNCHEZ Performance Chemicals Business Director of BASF for Mexico, Central America and the Caribbean

Q: How did BASF make a difference for its customers and

appropriate channels in the hope that investments can be

consumers in 2018?

made in order to improve logistics services in the country.

A: Before the Energy Reform, the availability of chemical products was the most important aspect of service for our

Q: How is Mexico positioned within BASF’s global network?

clients in Mexico. Now, performance and added value services

A: Mexico is an important market for additive producers due

and products are taking center stage as differentiation comes

to its gasoline consumption. As the Energy Reform happened

into play. While some gas station owners are looking to attract

only recently, the landscape here is still shifting. But we believe

customers by adding a grocery store to the forecourt, BASF is

Mexico offers big opportunities for growth. Storage offers

aiding those companies that wish to provide improved gas to

huge potential for growth. This fact is reflected in the behavior

customers. As consumers now have more choice at the pump,

of our global customers, many of whom are consulting us on

we believe the products we provide make a difference. Our

best practices to enter into the Mexican gasoline retail market.

technologies and chemicals offer a number of benefits that companies can pass onto their customers, including more

Q: How does BASF differentiate itself in a more competitive

efficient gasoline combustion.

Mexican market? A: Our competition is extremely good and, like us, it is global.

Q: What challenges has BASF faced in Mexico following the

We do not have local competition because the technology

Energy Reform and how has the company dealt with these?

we use would require too much investment for a smaller

A: Storage for our additives was one of the main obstacles

company. Our R&D process is extensive; every formula we

we had to overcome following the Energy Reform. The

manufacture undergoes five to seven years of testing prior

logistics infrastructure was not as robust in Mexico as

to going to market. In addition to state-of-the-art technology,

some of the other countries we operate in and the country’s

we focus our differentiation on service and added value.

geography makes some areas complicated to reach.

Infrastructure offers us many opportunities for the future

Security on the roads and in the rail system is a continuing

and we see Mexico as a place where we can keep growing,

issue. We had to be innovative and work together with

focusing on our strengths.

our customers to find disruptive solutions for the logistics puzzle. While the infrastructure complications mean costs-

Q: What are BASF’s main goals for 2019?

to-serve are higher than we would like, our first intention

A: We want to continue growing and increase our share in

was to enter into Mexico’s petrochemical market as it is

Mexico. At the moment, we still have a lot to do in order to

one of the largest in the world. Mexico is also in the Top

reach the same presence as in the other countries we work

10 countries globally for gasoline consumption. As part

in. We also want to raise awareness in both, the industry

of our strategy, we built digital solutions to tackle these

and the world, about how technology and chemistry have

issues, which have positioned BASF as an innovative

a positive impact on the planet. The chemical industry

technology partner.

often suffers from negative misconceptions and part of BASF’s role is to demonstrate that on the contrary,

Q: How is BASF working with local logistics companies to

chemicals can bring enormous benefits adding value to

reduce costs?

the environment, society and economy.

A: We have global contracts so in some cases we do not work with local companies. We often speak with our partners to see how we can reduce our costs locally.

BASF SE is a German chemical company. The BASF Group

Unfortunately, we cannot control all the costs associated

comprises subsidiaries and JVs in more than 80 countries and

with the logistics network. We are trying to gain attention

operates six integrated production sites and 390 other production

by pushing topics like rail and road insecurity to the

sites in Europe, Asia, Australia, the Americas and Africa

347

| INDUSTRY PERSPECTIVE

DEVELOPING THE GAS STATION OF THE FUTURE Q: How did Artelia Group enter the Mexican market?

Q: What is the main added value that RNB provides

A: Artelia has more than 20 years of experience

to its clients?

in downstream in Europe, Middle East and Asia. In

A: We do not just sell equipment to a client.

2018, we acquired a company called Auxitec, which

We do a complete installation of gas pumps,

specializes in specific types of midstream projects.

inventory control and leak detection. We also

These two fronts placed us on the road toward the

do both the electrical and hydraulic installations.

downstream work we currently do in Mexico and

Apart from installing physical infrastructure,

midstream in the future.

we also train the personnel that will be using the equipment on a daily basis. When the gas

Q: How would you describe the idea of the 'Gas

station is in operation, we offer preventive and

Station of the Future' and the role it can play

corrective solutions.

in Mexico?

348

A: Artelia Group bases its design and engineering

Q: How has the Mexican market for gas stations

principles on the needs of its customers. Today,

evolved in the last few years?

rather than talk about gas stations, we talk about

A: There are very few gas stations constructed

commercial spaces. This is where customers not only

completely by international companies. What foreign

fill up their gas tanks but can enjoy a great meal,

companies have done is label Mexican gas stations as

shop, visit a historical site, and take a break. This

their own. We can equip gas stations from scratch,

approach prompts us to consider other variables,

and even though we do not do any civil work, we

ALEJANDRO RĂ?OS

ARTEMIO HERNĂ NDEZ

General Manager of Cal y Mayor

Director General of RNB Corp.

such as meeting the needs of potential customers,

do provide all the equipment and consult with the

considering location and context. There are many

construction company doing the work. At the

opportunities like these in Mexico.

moment, 90 percent of the gas stations in Mexico are owned by Mexicans and the remaining 10 percent

Q: What role does the 'Gas Station of the Future'

by international companies. Therefore, most of the

have in promoting the use of alternative fuels such

negotiations we do are with Mexicans. But we are

as natural gas?

starting to see a change.

A: While they can definitely play an important role, centralized regulation that can support and

Q: What has RNB integrated into its equipment and

promote an increase in demand is necessary

service to make gas stations more efficient?

for Mexico to have a permanent presence in

A: When it comes to digitalization of payments,

alternative fuels, such as VNG and LPG. For

our equipment is prepared for different options,

example, the French government gave permission

but these things are not being done in Mexico

to certain trucks and cargo vehicles to transport

yet. Direct payment at the pump, for instance,

these fuels and that created enough demand for

is integrated into all our equipment but is not

these projects to become very attractive. We

normal in Mexico. There needs to be an agreement

have already done some benchmarking in Mexico

between the client, the banks and the gasoline

but there has been a lack of feedback due to the

stations to fully use the potential of the pumps.

lack of demand. The Mexican market still has a

All our technicians are certified to carry out the

long way to go in regards to public policies and

specialized tasks required during the installment

regulations needed to jump-start this business.

or maintenance of our equipment.

VIEW FROM THE TOP |

IMPORTING FUEL TO PROVIDE CONSUMER CHOICE RAJAN VIG CEO and Founder of Indimex Group

Q: What opportunities did Indimex identify in Mexico prior

Q: What is Indimex’s hedging strategy?

to entering the country?

A: Most products are referenced off the Platts Price Index and

A: Mexico is sixth and ninth-largest consumer of diesel and

we have many clients who want to fix their pricing to Mexico.

gasoline, respectively, in the world. It has a population of

Indimex’s focus for the next year is developing a private

over 130 million but suffers from a lack of refined products,

market in Mexico by bringing the product in and selling from

importing over 70 percent of its refined petroleum. The US

our facilities at a posted price per day.

Gulf Coast produces some 65 percent of refined products in the US and is the most efficient refining hub in the world. The

Our hedging strategy is to hedge on behalf of our customers

opportunity that Mexico provides was obvious to us. With

for FX because of the fluctuation between the peso and the

Peña Nieto institutionalizing the Energy Reform and bringing

dollar. We hedge against the Platts Price to fix the price of the

it to fruition, the choice became simple.

molecule, whether diesel or gasoline. But there are different ways to hedge, including fixing a price or engaging in a spread

Q: What is the unique business model that Indimex

project. The goal for Indimex is to provide our customers with

group employs?

consistency. Mexico faces two main challenges in pricing. One

A: Very few companies are commercializing products

is that pricing is affected by the suspicious mixing of fuels. The

direct from the US into Mexico and developing a secondary

second is the difficulty resulting from price gauging because

market. Indimex offers consumers who would usually buy

of the discrepancy between the Tar price and the IEPS, which

from PEMEX the opportunity to access fuel at a potentially

moves every week. This produces an unpredictable situation

cheaper cost and more efficient logistics. What makes us

where the correlation between the IEPS and the Platts price

unique is our understanding of the US market and the

does not always exist in practice. If Indimex can initially match

representation, including an office in the north of the

the product prices of the market then we add value through

border. The company’s experience and network in Houston,

an improved logistics service, the guarantee of supply and the

a city essential to the refined products market of Mexico’s

transparency we offer.

three main cities, is tantamount to our business model. Few companies in Mexico have this exposure to both sides

Q: How does Indimex guarantee the security of the products

of the border and what is perhaps more important, the

it markets, given the transport concerns in parts of Mexico?

understanding of how business is done here.

A: There are different ways of estimating risks, but they cannot be translated into a financial model because the

Q: Which major blends does Indimex deal in?

risk varies by region. Indimex imports product into Mexico

A: We market gasolines, including blended and standard

via rail and truck. Rail is safe until it reaches the transiting

Octane 87 and 92, which are the two main octane grades in

terminal and the “last mile,” where product is transferred

Mexico. The company is looking at the jet fuel market because

onto trucks and delivered direct to the end consumer. We

it has access to turbosina. There are four or five global majors

have never had a compromised or lost product because

that service airports, so the primary market is tough, but we

we associate with local trucking companies that know the

have begun to develop relationships with the smaller and

routes. Understanding the lay of the land and having links

private airports for aviation gas, which is a higher octane.

to local groups is key to reducing exposure.

The company also markets kerosene, which is preferred during the winter months in the north of the US. We deal with end consumers, such as trash companies and mining

Indimex Group trades and markets crude and refined

companies, as well as distributors, such as those who have

petroleum products from the US into Mexico. The company,

often worked with PEMEX in the past and are now moving

which has a presence on both sides of the border, distributes

into private products.

its products via an extended and efficient logistics network

349

INDUSTRY OUTLOOK

After a tumultuous half-decade downturn started in 2014, the past year marked a return to optimism in the sector. The grim expectations that accompanied President López Obrador into office failed to materialize. Contracts are being honored and there is potential for the suspended bidding rounds to be restarted during this administration. As 2020 takes shape, the industry is looking at opportunities all along the supply chain. Operators are moving into production, EPC work is expected on the country’s heavily-burdened infrastructure, and an ambitious production target for 2024 is the beacon lighting the way forward.

The extent to which the remaining years of this presidential term will impact Mexico’s oil and gas industry and PEMEX’s shifting landscape are the key points deliberated in this chapter. It provides essential insight into how the future of the hydrocarbons industry in Mexico might take shape, highlighting the views of those who will lead the sector forward.

351

CHAPTER 14: INDUSTRY OUTLOOK 354

ANALYSIS: Challenges to Be Met Ahead of Production Push

356

VIEW FROM THE TOP: Héctor Rocha, EY

357

VIEW FROM THE TOP: Yisel Varela, A2E

358

VIEW FROM THE TOP: Gaspar Franco, UNAM Engineering Faculty

360

VIEW FROM THE TOP: Luis González, Drebbel

361

VIEW FROM THE TOP: Abraham Zepeda, Grupo Hosto

362

VIEW FROM THE TOP: Luis García, Gaeli Diesel

363

VIEW FROM THE TOP: Roberto Campero, Eclipse Solutions

364

VIEW FROM THE TOP: Carlos Sandoval, Arendal

365

VIEW FROM THE TOP: Edmundo Gamas, IMEXDI

366

INSIGHT: Palma Méndez, Wood Mackenzie

367

VIEW FROM THE TOP: Pablo Rabago, JET Fundación

368

VIEW FROM THE TOP: Igor Sáez de Ibarra, Grupo Ulma

353

369

Maite del Barrio, Grupo Ulma

VIEW FROM THE TOP: Jenaro Laris, SACE SIMEST

| ANALYSIS

CHALLENGES REMAIN DESPITE PRODUCTION PUSH 2018 and 2019 were the most turbulent years for Mexico’s oil and gas since the Energy Reform was signed. But clarity is emerging and 2020 will be the year the new administration’s energy approach really gets moving to reach the 2.6MMb/d production goal The future of Mexico’s maturing oil and gas industry will

noted that financial support, including a capital injection of

depend largely on the authorities that govern it. To turn the

MX$25 billion (US$1.3 billion) announced in the government

incredible resource potential that exists deep in the subsoil

budget, was not enough. The budget for E&P would be

of Mexican territory into a reality that improves the lives of

insufficient to resolve Mexico’s main problem: replenishing

its population will require an industrywide effort from both

reserves in the medium term. While PEMEX had set aside

the private and public spheres.

US$4.5 billion and US$4.3 billion in 2017 and 2018 for E&P, Fitch estimated that “PEMEX will require an annual CAPEX of around US$13 billion to US$18 billion to replenish

PEMEX remains the market giant. The NOC controls 81

reserves.”

percent of Mexico’s 25.1 billion boe 3P reserves as of January

Hector Rocha, Energy Partner at EY, believes PEMEX’s

2019, giving it a total of 20.5 billion boe 3P reserves. This year,

challenge is clear: cut costs while improving production.

PEMEX laid out an ambitious plan to increase those reserves

The company’s culture, developed in a monopolized market

by 35 percent via the development of 23 priority fields and a

propelled by the Cantarell field and high oil prices, must be

further 22 fields over the coming years. The revitalization of

reshaped in this competitive cost-pressured market. “One of

PEMEX will therefore be central to the market’s development,

the major issues for PEMEX is its size. Because the company

generating business along the value chain and reawakening

is so large, information is easily lost and decisions are difficult

the economy’s growth.

to make,” says Rocha. Technology must be utilized to reduce internal bureaucracy and deliver a more cost-efficient,

International ratings agencies Moody’s and Fitch both dealt

faster decision-making procedure. “At PEMEX Drive 2018,

blows to PEMEX this year. Moody’s downgraded PEMEX’s

the directors openly stated their belief that PEMEX has a

long-term outlook to Baa3, one grade above junk status,

problem with La Ruta de la Bestia (The Path of the Beast).

while Fitch downgraded the company’s Issue Default

This is the phrase given to the decision-making process at

Ratings to BBB-, a junk status. Both agencies also cut their

the state-owned behemoth; hundreds of approvals must be

expectations for Mexico’s economic outlook, which caused

passed for any decision to come into effect. Removing this

the peso to weaken by 1.3 percent and demonstrated

entrenched obstacle must be a priority for PEMEX,” he says.

the centrality of PEMEX, the world’s most indebted oil company, to the Mexican economy. While Moody’s and

PROCUREMENT ADJUSTMENTS

Fitch applauded the new administration’s plan to refinance

Supply chain players must also get used to the new

PEMEX’s US$106 billion debt (as of September 2018), they

centralization of PEMEX’s procurement procedures,

1,500 1,000

3,025 2,802 223

2,997 2,759 239

3,112 2,891 220

3,179 2,989 190

3,152 2,975 177

2,816 2,697 118

2,362 2,321 41

1,880 1,866 14

2,000

1,710 1,682 28

2,500

2,088 2,069 19

3,000

2,593 2,528 65

3,500

2,997 2,832 165

CRUDE OIL PRODUCTION OUTLOOK CRUDE OIL PRODUCTION (MBD) (Mb/d)

1,813 1,792 21

354

Despite the entrance of private players into the country,

500 0 2018

PEMEX Source: PEMEX

PEMEX

2019

2020

2021

2022

2023

2024

Partners PEMEX

PARTNERS

2025

2026

2027

2028

2029

2030

introduced by the administration in an attempt to reduce

tried and tested in other oil markets of the world. The country

potential financial waste or contract corruption. At the

now has a chance to push technological development to

same time, there is a move toward disaggregation of service

address the needs of its own unique market. Initiatives

providers. “There is a tremendous push for disaggregating

such as Mexico Energy Council’s (COMENER) “Rocket and

procurement within PEMEX,” says Carlos Sandoval, Vice

Rigs” competition, which supports the development of

President of Business Development at Arendal. “There is

technologies that can be used by both the space exploration

an intention to push government procurement through the

and oil and gas industries, is one such route. “Mexico should

SHCP and to use a centralized system for buying everything,

focus its efforts on becoming a powerhouse for technology

including PEMEX goods.”

development in specific areas that are critical for the national industry. A big step was taken in that direction

While the approach is likely to inject more competition into

by the IMP when it created the Deepwater Technology

the supply chain with disaggregation offering the chance

Center, which has the potential to become a strategic

for PEMEX to acquire services from specialized companies,

hub for the development of specialized local content and

the centralization of the process is a return to pre-Reform

technologies to better develop deepwater fields in Mexico,”

practices that can lead to slow decision-making processes. The

says Bernardo Cardona, Partner Energy and Resources

potential for interrupting progress is present. “Both of these

Industry Leader at Deloitte Consulting Mexico.

issues will be dealt with in the future but they will certainly take time to get used to. The industry will have to wait and

Safety training is set to be an area in which technology

see how strategy may need to be changed,” Sandoval says.

use will also grow. PEMEX’s new Production Process Training Center will deliver high-fidelity training for

TECHNOLOGY TAKES TO THE FLOOR

workers in upstream production. The cutting-edge

Mexico’s oil and gas industry has traditionally lagged behind

center, though not explicitly intended as a safety training

in the uptake of advanced technologies. The average annual

center, will greatly improve standards. Carsten Röhl,

spending on science, technology and innovation was just 0.43

CEO of Rheinmetall Mexico, explains: “We will focus on

percent of the country’s GDP during the six-year presidency

operational efficiency to avoid downtime and damage to

of Enrique Peña Nieto. However, with exploration to continue

equipment. By avoiding damage, we automatically save

this year and the country’s mature onshore fields another

human lives and the environment.”

focus for increased production, technology is to become increasingly essential to the productivity of the market.

Hazardous environment training providers too are utilizing

Edmundo Gamas, Executive Director at IMEXDI, characterizes

technology to deliver high-quality training courses at a

Mexico’s historical approach to technology: “Mexico tends to

distance. This reduces the costs that companies would have

adopt technology rather than produce it. Even in the country’s

traditionally paid to send workers to training centers. Rebeca

modern industries, tropicalization of foreign technologies is

Barrios Morales, Country Manager of RelyOn Nutec says that

the standard model,” he says.

digital training allows her company to expand its service portfolio. “Our client supplies us with a layout of its rig and

As a historical adopter rather than producer of technology,

from that, we generate a digital replica. This digital replica

Mexico can certainly reap the benefits of technologies already

matches the physical rig in every way,” says Barrios.

355

| VIEW FROM THE TOP

SURVEYING THE STRENGTH OF THE MEXICAN SITUATION HÉCTOR ROCHA Energy Partner at EY

Q: How could PEMEX improve its recently downgraded BBB-

come into effect. Removing this entrenched obstacle must

credit rating from Fitch Ratings?

be a priority for PEMEX. NOC should also be more open to

A: The two elements that would improve PEMEX’s ratings

engaging in short-term projects that create value for the

are production and efficiency in oil operations. The current

company, without the need for large-scale investment. An

administration has promised PEMEX will increase its crude

example of this is a two-year digital transformation project

production by nearly 50 percent to over 2.6MMb/d by the

that can be piloted in a small section of the business and,

end of the administration’s term but the company must

if the value is high enough, can then be rolled out across

perform this improvement while implementing cost-cutting

the company.

measures. While the previous government chose to work 356

with the private sector and received huge amounts of money

Q: Where does EY see future growth in Mexico’s oil and

via bidding rounds, the current administration believes

gas industry?

strongly in oil sovereignty and is working in new modalities

A: Following the downturn in oil prices, the industry as a

of co-investment with private players. With the suspension

whole has had to reshape itself, strengthen organizations

of bidding rounds and farmouts, the resources, skills and

and do more with less. Shale has provided an option for

technologies of private companies are being spurned.

operators, meaning their investment gets repaid more

Further exploration is needed to halt the production decline

quickly. Ten years ago, we realized that we can drill a shale

of Mexican oil fields, which have been dropping for decades.

well in two to three weeks. In comparison, an offshore well

PEMEX has historically spent around MX$35 billion (US$1.85

can take more than a year. From a macro perspective, shale

billion) of its MX$150 billion (US$7.92 billion) budget on

has changed the game. The boom in shale has converted

exploration but has not dramatically increased its added

the US from a gas importer to an exporter. Both Argentina

reserves. PEMEX needs the support of the private sector in

and China are developing their unconventionals. Yet Mexico,

exploration; if the company conducts the exploration alone,

which is importing gas, will not develop its unconventional

it will have difficulties to find the financial backing required.

potential. This despite being across the border from the world’s largest shale discovery. Geology does not distinguish

Q: How should PEMEX promote efficiency at its

between borders. PEMEX has already explored the area and

management level?

we know major shale opportunities exist in Mexico. There

A: One of the major issues for PEMEX is its size. Because the

is an understandable concern about environmental impact

company is so large, information is easily lost and decisions

but problems only occur when drilling is uncontrolled. With

are difficult to make. Therefore, data and its accurate

strong environmental regulation, environmental damage

collection must be put at the center of PEMEX’s operations

can be avoided.

so that decision-makers can base their decisions from one indisputable source of information. At PEMEX Drive 2018,

Q: What are EY’s goals for the coming year?

the directors openly stated their belief that PEMEX has a

A: Last fiscal year, EY grew around 20 percent in Mexico.

problem with La Ruta de la Bestia. This is the phrase given to

For this coming year, we are forecasting a more cautious

the decision-making process in the state-owned behemoth;

15 percent growth increase. To achieve its goals, EY is

hundreds of approvals must be passed for any decision to

leveraging technology to improve efficiencies and processes for its clients. The problem we are finding is that ideas of the digital transformation have become so convoluted that

EY is one of the world’s Big Four consultancy firms, providing

no one knows their true meaning. We remove jargon and

professional services to over 150 countries. The firm offers

communicate our message in the language of the client so

industry expertise to clients across major industries and

that the value of technology, IoT and machine learning is

employs more than 270,000 worldwide

clear to those on the ground.

VIEW FROM THE TOP |

SHELTER SUPPORTS SME ENTRY INTO ENERGY SECTOR YISEL VARELA CEO of A2E

Q: How does Access to Energy help SMEs enter the Mexican

Q: How is Access to Energy adapting to the new role that

market and what areas are they most interested in?

PEMEX will play in this administration?

A: One of our goals is to encourage investment in the country,

A: Our goal always is to be allies of our customers. We adapt

both foreign and local. There are many national SMEs in the

to all changes and find the windows of opportunity in any

sector that are interested in participating in different areas

given sector but always based on the needs of our customers,

of the industry. For instance, we have seen a great deal of

who know best the product they want to sell. We are business

interest in renewable energy. We participate in practically

facilitators. We identify trends and after a thorough analysis

all processes, such as establishing the company, legal,

we knock on the doors of companies that could be partners

accounting and regulatory matters. For us, a success story is

for our clients, always respecting the existing regulatory

the company that we have helped from the founding until it

framework. In this way, doing business with PEMEX has

is fully operational.

become a window of opportunity for us and our clients.

Q: How have local and international SMEs reacted to the

Q: What are the main trends and areas of opportunity that

volatility in the market in the last year?

you have identified?

A: Change always creates uncertainty. One example was

A: Legal certainty exists and those companies that won

Trumpâ&#x20AC;&#x2122;s election victory, which generated a great deal

auctions and tenders will continue to develop them. That is,

of uncertainty, although things have finally taken their

the investor is protected by law. What we have identified is

course. Within the industry, we have heard a variety of

that PEMEXâ&#x20AC;&#x2122;s budget for in-house project development will

opinions, from those that see change as a window of

increase considerably; they will need suppliers to meet their

opportunity to the most catastrophic of views regarding

objectives. An example is the new refinery for which four

the future. But foreign investors remain optimistic about

companies (Bechtel-Tecnict, Worley Parsons-Jacobs, Technip

the Mexican market. At Access to Energy, we believe

and KBR) have been invited to participate in the tender. These

that changes provide windows of opportunity, which are

four companies are going to need specialized suppliers and

already opening up to the sector.

that is where we have to position ourselves to be ready when everything starts. We are the ideal ally for our clients because

In fact, rather than a negative impact, we have observed

our services span the breadth of the industry value chain.

quite the opposite. In 2017, we were invited to a meeting in which the ministers of energy of Canada, the US and

Q: What requests would you make of the federal government

Mexico were present. At that time, there was talk of

to continue promoting the Mexican oil and gas industry?

creating a northern energy block. This idea is still alive

A: I would like the government to take a more positive view

today and the outlines of a treaty are being developed.

of private investment. Most of these companies are at the

Furthermore, we have not perceived any uncertainty

forefront of the implementation of good practices and have

related to the USMCA treaty.

codes of ethics that are scrupulously applied to eliminate corruption. I also would like the government to provide

Q: How do you help foreign SMEs compete on equal terms

more support for SMEs, which would make Mexico more

with their local counterparts?

competitive internationally.

A: Competition between Mexican and foreign SMEs does not take place on equal terms. Many of the foreign companies interested in participating in the Mexican market arrive here

Access to Energy (A2E) is a multidisciplinary corporate

without any knowledge of the country. What we do is create

service shelter with the knowledge and experience to provide

alliances between local and foreign SMEs, since the latter need

comprehensive tailored solutions that facilitate the opening of

a local partner to guide them as they start their activities here.

new businesses and operations in Mexico

357

| VIEW FROM THE TOP

IN THE HOPES OF ACHIEVING AN OPTIMAL OIL INDUSTRY GASPAR FRANCO University Professor at UNAM Engineering School

Q: What do you consider to be a realistic oil production target

diversify risk and reduce the uncertainty of compliance in

for 2024, how could this target be achieved, and what roles

production programs.

should PEMEX and private operators have in the process?

358

A: To determine realistic production goals, it is necessary

Q: What do you expect to be the role of deepwater, shallow

to have relevant data. Information should include oil fields,

water and onshore areas?

deposits, wells, facilities, human resources, financial resources

A: Due to technical challenges and the large amount of

and technologies. Available opportunities and technical

resources demanded by deepwater activities, exploration

capabilities must also be clearly defined. Other elements

and evaluation will be crucial in the short and medium term

should also be considered, such as political and social events,

to ensure ideal production benefits in the long term. Onshore

natural phenomena, accidents and hydrocarbon prices. All of

areas will undoubtedly have more operators producing

these factors influence the assessment of the goals that should

hydrocarbons in the short and medium term. The long-term

be achieved. Although it is necessary to define a production

outcome will depend on the technologies they are willing

goal, we must take into account the appropriate combination

to implement, such as methods of secondary recovery and

and balance of the technical, economic, environmental, social

EOR. Shallow waters will continue to be the major production

and political elements.

area due to the presence of different companies and their overall potential. PEMEX’s investments in 18 oil fields in

Key variables to consider include the allocation of

shallow waters, plus the investments of four more operators,

government financial resources to strengthen PEMEX

will surely make the shallow waters of the Gulf of Mexico the

and the creation of an investment strategy aligned with

most important component in achieving the government’s

the interest of the country. Other variables include the

production goals.

production outlook for the 415 assignations for exploration and production of hydrocarbons given to PEMEX, as well

Q: What role should PEMEX’s flagship offshore assets play

as the 111 active contracts and corresponding fields that are

in the reversal of its production decline?

at different stages of the field life cycle, meaning benefits

A: PEMEX’s flagship assets, such as the Akal field of the

will require time to be delivered. The reactivation of more

Cantarell complex, Ku-Maloob-Zaap and Xanab, should have

than 450 mature fields will require studies and analyses

optimal production levels. At Akal, an examination is required

that are necessary to implement secondary recovery and

of its technical and economic feasibility to implement tertiary

enhanced oil recovery (EOR), having a direct impact on

and advanced recovery processes to optimize its facilities or

future production levels. These fields have recovery factors

analyze if the project should be abandoned. Regarding Ku-

that sometimes average 10 percentage points below the

Maloob-Zaap, it is necessary to properly steward its deposits,

international average. Final variables relate to the policy

analyze the feasibility of implementing EOR and look for the

framework, including reviving the tenders through CNH,

most efficient ways to maintain production at optimum levels

reviving the process of farmouts of the assignments in

while maximizing its economic value. It is important to apply

which PEMEX needs to increase its capacities, and using the

the variables mentioned above so that other potential oil field

integrated exploration and extraction contracts (CSIEEs) in

can be kickstarted.

combination with previous instruments. Q: What can be done to strengthen CNH as the administrator Considering these variables improves the chance of meeting

of upstream contracts and what risks are associated with a

the oil production target. Additionally, they can foster the

weaker CNH?

participation of many industry players, generate jobs, give

A: Mexico has 111 active contracts for the exploration and

opportunities to businesses and help increase production

production of hydrocarbons. CNH has the constitutional

capacity. They can also employ new technologies; help

mandate to manage them. To strengthen the management

of contracts, it is necessary to supervise oil-related activities

exploration stage. If they discover oil, they will later evaluate

in a stricter manner. It is fair to say that CNH played an

and subsequently start production.

extraordinary role in the bidding rounds. It has improved the process of approvals of plans, wells and authorizations. The

Q: What upstream policy measure would you recommend

risk is that CNH stops managing the technical aspect and

to the administration?

only focuses on administrative matters. CNH’s proficiencies

A: I would suggest that the administration focuses on

should concentrate on supervision to propose better

projects that will yield production in the short term, ensure

decision-making.

higher efficiency and communicate to all stakeholders how they should meet the requirements of a strategic project.

Q: What is your perspective on the government’s focus on service contracts rather than farmouts for PEMEX?

The government should use all legal tools available to

A: When the Energy Reform was announced, some had

strengthen the oil and gas sector as a whole. Five-year

doubts about tenders, contract models and authorizations

migration plans for assignments would support mid-

to handle seismic information, among other topics. Now,

term goals. Improving the utilization of all geological and

there is a new energy policy that includes variables that can

geophysical information collected in Mexican territories

help the country create certainty for investors regarding

thus far would allow state apparatus to identify areas with

the proposed goals. However, not every aspect of the new

the highest potential in the country and focus resources

policy is desirable. The administration has announced

accordingly. Defining an exploration strategy and supporting

suspensions, but also the possibility of reactivating

it technically and economically is essential to fulfilling the

tenders in a couple of years. This will depend on the

administration’s goals. A large part of this is increasing the

results that the 111 active contracts deliver. Therefore,

recovery factor in Mexican deposits, which is included in the

there are service contracts that PEMEX now wants to

Hydrocarbons Law with accompanying technical guidelines.

use instead of migrating assignments to exploration and

Improving the measurements of hydrocarbons and more

extraction contracts. This is an available option for oil

closely monitoring the behavior of major fields would also

companies that participate in the sector. However, the big

help in this respect, as we know that less than 30 fields

companies will not want to participate under this scheme.

account for more than 70 percent of Mexican production.

This was demonstrated with the 2008 reform, in which the Contratos Integrales de Exploración y Extracción were

Another measurement that could be helpful is to enforce

allowed and in which large operators did not participate.

a rule similar to the one Norway inserted into its own

Whether contracts are beneficial depends on the

oil and gas market. These rules cover strategies for the

contractual area, on the technological challenges the area

production of gas within national territory and force

demands, on the capacity of the service companies and

zero burning and gas venting by operators. Norway

on the skills of the specialists involved. It should be clear

is absolutely strict in the application of this rule and

that PEMEX would assume all the risks with the service

operators do whatever is necessary to comply. A similar

contracts. Yet, it will be necessary to examine the contract

rule here in Mexico would be welcome.

model to ensure the conditions it proposes. The process of the tenders to assigned contracts also needs to be

Other vital measures that will deliver benefits for the future

familiar to investors.

of the industry would be to promote Mexican national content and the technological transfer. The need to develop

Q: How does the evolution of existing licensing

human resources strengthen the commitment to industrial

contracts illustrate the areas of opportunity with that

safety and environmental protection should also not be

contracting model?

forgotten. There are other issues, including the marketing of

A: The largest areas of opportunity are in the capacity of all

hydrocarbons, clogging of wells, abandonment of facilities,

involved parties to improve their work. The tenders, contracts

taking advantage of the reserves of extra-heavy crude oil

and, for the most part, applicable regulations are known by all.

and gas fields, unconventional accumulation issues and

They were applicable in different aspects for the fulfillment of

finally project management and oil processes. All these

the clauses. There are contractual areas where the capacity

suggestions should be considered within the national

of those involved has led to increased production. They have

hydrocarbon strategy.

found a greater potential of hydrocarbons, reactivated the operation of closed wells, detected areas of opportunity, generated jobs and revived the economic activity of the

Gaspar Franco joined the CNH in 2010 after six years as a

area. All companies that have licensing contracts on land

superintendent in PEMEX E&P. He became a CNH commissioner

areas are growing, maturing and learning how to do a

in 2016. Franco retired from this position in February 2019 to

better job. Companies with deepwater licenses are in the

teach at UNAM, where he originally graduated in 1996

359

| VIEW FROM THE TOP

PARTNERING MEANS POWER FOR MARINE SERVICE PROVIDER LUIS GONZÁLEZ Operations Manager of Drebbel

Q: How has the administration’s 2.6MMb/p production goal

year has seen an 800 percent increase in the demand for

and the progress of private players impacted Drebbel’s

pipelines and platforms installation from PEMEX and we

business activity?

are certain this trend will continue. This news, coupled with

A: The administration’s aggressive new policy to tap the

the first IOCs having arrived to early production this year,

idle fields is an important development for Drebbel’s

has given the marine infrastructure industry a boost of

marine infrastructure goals. This decision requires the

confidence. The outlook is positive.

construction of new platforms and the fabrication of

360

pipelines to complement the existing production network

Q: How appropriate have PEMEX’s pipeline regulations

and properly exploit these assets. As our level of business

been and what opportunities do they offer companies

activity is directly related to the amount of infrastructure

like Drebbel?

required by our clients, the growth spurt in the need for

A: PEMEX has always emphasized safeguards and

infrastructure has given us the opportunity to increase

redundancies to guarantee the life of the asset for a

our bandwidth and grow. Our business model has always

minimum of 30 years. A 36-inch pipeline with two inches of

been to group high-quality service providers together to

thickness and four inches of concrete may appear excessive

execute the array of services that our clients’ projects’

but ultimately, these assets are more robust than those

need. Our years of experience working at the highest

seen in most fields around the world. This reliance on asset

levels makes it easy for us to work with international

integrity has not been a bad bet and it has also allowed

players. We have been focusing on strengthening our

Drebbel to flourish because we work under the highest

integrated approach in these sectors further through

standards of quality and safety. PEMEX is also now more

partnerships with other leading service providers that

willing to discuss maintenance, pushing technical concerns

complement our skill set and meet the new compliance

to the forefront of the NOC’s working agenda.

and new technical PEMEX standards. Q: What are some of the technological advantages that One of these partnerships is with Canyon Offshore, a

Drebbel has introduced to the marine infrastructure sector?

subsidiary of Helix Energy, a global leader of subsea services

A: Drebbel carried out a study that demonstrated the

for the last 20 years. Another key partnership is with

technological advantages that our approach delivers

Sulmara Subsea, a new cutting-edge player in the global

in our specific niche of high-temperature, high-pressure

survey market. Drebbel has expanded its fleet in response

pipelines. This study illustrated that rock dumping, a

to the opportunity the new administration introduced and

method for subsea pipeline stabilization, cannot meet the

to support the trenching operations that we began over a

30-year lifetime that is required by regulation because the

year ago, through our partnership with Hornbeck Offshore,

rocks wash away. We identified this and have implemented

one of the largest marine operators and boat owners in the

concrete mattress installation for the past three and a

US Gulf. The company made a strong bet on the Mexican

half years. This may not be avant-garde technology but

market and has so far flagged 15 vessels to work in Mexico.

it is practical and fulfills PEMEX’s long-term objective of

Drebbel’s portfolio has expanded in recent years to include

safety and reliability. Drebbel has been able to identify

IOCs but our main client will continue to be PEMEX. This

the technical aspects that have made our projects, and therefore those of PEMEX, extremely efficient and safe. We can guarantee the integrity of assets for longer and as a

Drebbel is a Mexican company that delivers subsea services for

result, we have a consistent track record. We have doubled

the oil and gas industry. With a strong focus on construction

down on this by increasing our bandwidth of labor, vessels

and maintenance of subsea pipelines, the company performs

and alliances, to take advantage of our recent successes

layout, pipeline analysis and dredge procedures

and the boom in the industry.

VIEW FROM THE TOP |

CHALLENGING ASSUMPTIONS OF THE NATIONAL LANDSCAPE ABRAHAM ZEPEDA Commercial Director of Grupo Hosto

Q: What have been the key success factors of your

drilling of new ones. With a small degree of investment and

relationship with PEMEX?

maintenance, 3Mb/d wells turned into 7Mb/d wells easily. Also,

A: Consistency is one. There is a mistaken expectation that

these six months were more than enough for us to take on

a relationship with PEMEX will have to be volatile due to the

the learning curve involved in this type of maintenance and

variable political nature of the NOCâ&#x20AC;&#x2122;s accounting. However, we

development planning for mature fields despite our lack of

have managed to keep our relationship with them stationed

substantial previous experience in this area as most of our

on a relatively even basis through a series of strategies. We

previous work has been focused on refinery maintenance.

have managed to successfully close the logistical and financial gaps that these processes and delays create through multiple

Q: What would you define as the crucial yet overlooked

lines of credit with very favorable conditions. PEMEX is acutely

role that local content will play in the success of the Dos

aware of the burden imposed on Mexican companies like ours

Bocas refinery?

by its internal requirements and its extended timelines, and it

A: The first one will be the clarification of cultural

expresses this awareness by covering all your crediting needs.

misunderstandings regarding the technical and technological

This year, the government made it clear that the stabilization

capabilities of Mexican suppliers and service providers.

of PEMEXâ&#x20AC;&#x2122;s finances is one of its main priorities. We were

The pronounced internationalization of bidding rounds

dragging outstanding invoices with PEMEX from last year

and contracting in the last few years was done under the

worth US$25 million to US$30 million, and they were all

assumption that Mexico was hopeless without foreign

covered during the first 15 days of the new government. In

technology and know-how. But in some areas, such as those

general, PEMEX has paid 80 percent of all bills remaining from

relevant to the building of this refinery, that is simply not the

the last administration.

case. We have proven this to ourselves and to our clients through our work with international EPC sector leaders such

Q: What would you highlight about your experiences as

as Amec Foster Wheeler, recently acquired by Wood Group

a block awardee that contrasts with the beliefs held by

Outside of some narrow gaps to be closed in the areas of

prospective bidders?

modular design and construction, Mexican fabricators and

A: I would highlight the value of these blocks as simple

workshops are more than capable of building this refinery

short-term investments for companies of our size and even

to international standards. When it comes to the fabrication

smaller, as opposed to the regular understanding of them

of certain components, Mexican workshops are even better

as complicated long-term endeavors meant for larger

than their American counterparts. To dispel this confusion,

companies. I can explain what I mean through the timeline of

you need to hire more Mexican EPC managers who are more

our involvement: six months was all the time that passed from

likely to be familiar with these capabilities and thus trust

when we began work on a mature field in the Burgos basin

Mexican companies more. Second would be the streamlining

to when we completely sold our participation. This was the

of logistical and maintenance duties. Prioritizing Mexican

result of a process that began when we started making offers

fabricators and components means you do not have to

to each other after everybody involved in the consortium

worry about dealing with multiple repair kits, multiple training

realized that they each wanted total control over the block.

programs for your employees and multiple design standards,

During those six months, we benefited from unproblematic

which complicate and slow down your maintenance timelines.

production and profit from day one. You do not have to worry about business development or commercial responsibilities because you only have one client, PEMEX, and they are roped

Grupo Hosto is a Mexican EPC contractor. It is known for

in from the start. You arrive at a field with between 20 to

its participation in bidding rounds and tenders, such as

40 producing wells and you simply build a maintenance and

the operating consortium in a Burgos Basin block and its

development plan for these existing wells and for the future

involvement in the development of the Dos Bocas refinery

361

| VIEW FROM THE TOP

GREAT EXPECTATIONS FOR INVESTMENTS IN CIUDAD DEL CARMEN LUIS GARCÍA Member of the Board at Gaeli Diesel

Q: What changes have you identified as the López Obrador

A: I think the idea of strengthening our refining capacities

government solidifies its policies?

at a national level is good. This strengthens our autonomy.

A: We are seeing a resurgence in the industry after three and

We should not be dependent on others to refine our

a half years of crisis, which had a major impact on Ciudad

resources. However, I would rather see the current

del Carmen and the region overall. The federal government

installations perform at 100 percent potential before

has given its support to the sector and is driving a major

investing in the construction of a new refinery.

push for investments. I think focusing investment on exploration and production

362

This is reflected in the great quantity of contracts being

is a better idea. The best strategy would be to invest in

offered by PEMEX with the announcement of 22 fields for

upgrading existing refineries and focus heavily on shallow

exploration and production. With all this activity, we have

water oil production. Unlike deepwater drilling, shallow

felt a revitalization of business in all areas, especially in the

water provides short-term results, which lead to faster

transportation and distribution of combustibles. Overall,

dividends.

the support of the administration has made us very happy. Q: What specific effect has the change in economic Q: Are these changes also reflected in investment by

climate had on your operations?

foreign companies?

A: As a company that sells and distributes diesel, we are

A: Yes, particularly in the oil industry states located in the

seeing a rise in sales. Every company that is involved

southeastern part of Mexico. This area is being converted

in exploration and production needs diesel. In our real

into a positive destination for investment. At the moment,

estate business, we have seen more sales of property for

many people have their eyes set on the Mexican oil industry.

residential purposes.

This is great news for those who offer services. The most positive development for our industry is the strengthening

People coming to Ciudad del Carmen need housing for

of PEMEX.

their families. If a greater flow of people arrives, this will strengthen the local real estate market. Recently, the

The last government can be credited with opening the

general director of PEMEX opened new offices here.

doors to the market, but it made a big mistake by allowing

We are also developing an industrial park. Many of the

investment to flow away from the NOC. Of course, the laws

companies here are spread across the city. This industrial

should be maintained so that international companies can

park, which is over 100Ha, will bring together all kinds

continue to invest. In general, by investing in oil exploration

of businesses offering services in the sector. These will

and production in shallow waters, and the arrival of PEMEX

include corporate offices, factories, warehouses and

to the island, Ciudad del Carmen will become one of the

worker's accommodations.

most attractive places to invest in the country. Q: What is your plan for the short-term? Q: What is your perspective on the government’s proposal

A: We are focused on expansion and growth. In the last

for a new refinery?

three years, we barely stayed afloat given the economic downturn. With new government support in the sector, we have more confidence to invest. We want to remain

Gaeli Diesel has been a main distributor of combustibles since

the primary choice for maritime diesel. We have the

1939. The company is one of the largest distributors in Mexico

strongest companies collaborating with us. In regards

of marine diesel with a large storage capacity. The company

to the industrial park under development, we can start

can distribute diesel to four boats simultaneously

selling plots next year.

VIEW FROM THE TOP |

SECURITY SOLUTIONS FOR A GROWING INDUSTRY ROBERTO CAMPERO Managing Partner for Mexico at Eclipse Solutions

Q: What were the principal opportunities Eclipse Solutions

Eclipse Solutions carries out risk assessments of each

identified in Mexico ahead of its foundation?

area in which it works to understand exactly what is

A: There were two main reasons that led to Eclipse

happening on the ground, with our protocols changing

Solutions being established in Mexico. On one side were

depending on the locale.

the opportunities created by the Energy Reform, and also the Telecommunications Reform. On the other side was the

Q: What are the problems representing the true Mexican

question over security that has always been present in Mexico.

security situation to international companies?

With both reforms and the generation of business activity,

A: For foreign companies, there are no reliable sources from

it was clear that insecurity would persist and potentially

which they can glean a real understanding of the security

grow. Our job was to provide a safe place for Mexican and

situation in Mexico. Information in Internet and gossip do not

international companies to carry out their business. We

represent the truth of Mexico and media frequently portrays a

brought together personnel with a great deal of experience

version of the country that does not exist. Clients are therefore

to provide comprehensive knowledge of international security.

unsure whether the information they have about Mexico is true

Our team consists of former US and Mexican military and

or false. While certain areas of Mexico can present danger, the

intelligence personnel, as well as energy attorneys and oil and

majority of the country is very safe.

gas consultants. Together, the team has over 150 years of experience in the field.

Q: How do Mexican national security forces shape Eclipse Solution’s role as a security provider?

Q. What security service areas does Eclipse Solutions oversee

A: Mexico’s national security forces are in a stage of

in the oil and gas industry?

transition. The National Guard is just beginning to take

A: Eclipse focuses its business lines on the side of security

shape and it is therefore difficult to be sure of its abilities

advisory, and risk assessment and analysis. We provide

nationally. As a security service, it is necessary that Eclipse

security protection services, but these are mostly contracts

Solutions has a strong relationship with state institutions,

for short-distance transportation of VIPs. Unlike other security

including the National Guard. Our federal license is a clear

companies, Eclipse Solutions is a Mexican company that does

indication of the sound relationship we have with the

not subcontract its work to others. Our risk analysis is carried

state. To obtain the Federal License, which certifies that

out in-house with support from our American colleagues. This

we provide the highest security services and is renewed

transnational ability is a key value we provide. Our intention

annually, we were required to go through a number of

is to allow companies to be unimpeded while carrying out

arduous and thorough verification processes. Due to its

business in Mexico.

complexity, few Mexican security companies hold this license. But we are separate from the state in that it is

Q: What makes Mexico’s security situation unique?

not our job to combat crime. Eclipse Solutions is here

A: In Mexico, situations change rapidly. The security

to protect our clients and reduce any risk to them. But if

status of a town, city or state can alter overnight.

one of our clients is a victim of an assault or kidnapping

It is important to be aware of this. The government’s

attempt, the federal security forces are our first point

approach to criminality in Mexico, which is to meet

of contact.

groups directly, is a positive approach but can result in larger organizations breaking into smaller factions and creating instability in terms of localized territorial control.

Eclipse Solutions is a risk management and security firm

Due to this complexity, generalizations are difficult to

focused on the energy sector and established in 2012 by

make and it is therefore of vital importance to have an

energy attorneys, consultants and retired professionals from

up-to-date picture of the security situation. Every week,

the American military and intelligence sectors.

363

| VIEW FROM THE TOP

OPPORTUNITIES ARISE FROM CHANGING LANDSCAPE CARLOS SANDOVAL Vice President of Business Development at Arendal

Q: How does Arendal attract business from IOCs in Mexico?

This process went faster than we expected. For Arendal, a

A: Arendal’s diverse experience means we can work to

balanced portfolio means balance in revenue. Ideally, half

international standards. This capability is proving useful

of our work will come from PEMEX and half from private

because we can go to international companies and present

companies. At the moment, we have one project with PEMEX

proposals in their terms. Our contracts meet international

and seven others with private companies. For the short-term,

standards and we understand what international players want

we want to work on projects that require serious investment

because we are used to working with them. Additionally, all

and where we can add value.

senior-level managers at Arendal must speak English. These

364

company attributes make attracting and working with IOCs

Q: How is Arendal delivering integrated solutions to PEMEX?

easier. We have people from Poland, Italy and the UK running

A: For the first time in its history, PEMEX is awarding a

our operations in Mexico.

fully-integrated upstream project; platforms to pipelines to platforms. Usually, platforms and pipelines would be assigned

Q: What differentiates Arendal from its competitors?

separately. To solve this and provide full integration, Arendal

A: We work throughout the entire value chain. We are laying

is partnering with companies that we trust. For example, we

pipeline offshore for PEMEX on two important gas projects.

have a partnership with a platform-fabricating company. This

One of the lines is finished and we will be finishing the other

allows us to offer PEMEX a complete, integrated package.

soon. We expect PEMEX to tender more offshore pipeline projects in the near-future so will bid on these too. We also

Q: What will PEMEX’s procurement strategy mean

are laying pipelines from offshore platforms to onshore for Eni.

for Arendal?

For Sapura, Eni’s main contractor, we are building the shore

A: There is a tremendous push for disaggregating procurement

crossing between onshore and offshore. We are also building

within PEMEX and moving toward decentralization, as it was

its onshore pipeline. Additionally, the company is constructing

in the past. Villahermosa will become the center for upstream

two terminals for different clients at two locations within

operations while Mexico City will be the heart of PEMEX’s

Mexico, while internationally, we are building Jamaica’s first

downstream activity. The administration has announced that

gas pipeline. We are different from other Mexican companies

PEMEX will move its headquarters to Campeche and there is

because we are the only one with the capabilities, reach and

an intention to push government procurement through the

experience to fulfil these contracts.

SHCP and to use a centralized system for buying everything, including PEMEX goods. Both of these issues will be dealt

Q: How has Arendal assured its position following the change

with in the future but they will certainly take time to get used

in administration?

to. The industry will have to wait and see how strategy may

A: Arendal has been balancing its portfolio for the past few

need to be changed. We are waiting to hear PEMEX’s final

years. When PEMEX began to have problems paying a few

decision on how it will operate. Regardless of changes, PEMEX

years ago, industry players became more innovative. We went

will be our main client for many years to come. We will adjust

into survival mode and our hidden capacities emerged. We

to match its needs.

made a decision to diversify and began pursuing projects with different clients to produce a balanced and open portfolio.

Q: What is Arendal’s growth expectation for the coming year? A: We already have 60 percent of the contracts in place to achieve our growth target this year and these contracts

Arendal is an engineering procurement and construction

have opportunities for expansion. The company is in a

company present across the oil and gas value chain. With over

good position for the rest of the year. We will continue

20 years of experience in Mexico, Arendal provides pipeline

the projects we already have in place and find others to

installation services and HDD among others

fill our backlog.

VIEW FROM THE TOP |

EXPERT VIEWS ON VITAL LEGAL FRAMEWORKS EDMUNDO GAMAS Executive Director of IMEXDI

Q: What is the impact of IMEXDI in the oil and gas industry?

but it makes the legal process extremely long-winded. A legal

A: IMEXDI is as a nonprofit think tank that renders

figure through which the government can mandate rights of

services in two ways. First, we conduct studies on the

way is sorely needed. A legal process that allows owners of

macroenvironment of the infrastructure sector, and the

land or communities to litigate for monetary settlements

segments within this industry, which include oil and gas.

and other benefits should be able to take place in parallel

These studies are carried out for both private and public

with the development of the project, and without halting the

entities, and are often focused on the transformation of

project. But Mexico’s use of the amparo means that virtually

the legal framework that governs the industry. These

any group can halt a project at any point. If projects and

studies and their results are used to drive improvement

litigation can progress in parallel, then damaging suspensions

in IMEXDI’s pillars for success in the industry: generating

can be avoided.

more projects of higher quality and completing them on time and on budget. Second, we work as a project

Q: How can the administration focus investment on innovative

integrator, helping governmental bodies or the private

technologies for the benefit of the oil and gas sector?

sector articulate major works.

A: Mexico tends to adopt technology rather than produce it. Even in the country’s modern industries, tropicalization

Q: How has the cancellation of NAIM impacted infrastructure

of foreign technologies is the standard model. Industry

plans within oil and gas?

4.0 is the clearest example of this as European, Asian

A: The NAIM was likely Latin America’s most important

and North American companies, particularly in the

infrastructure project, and was at 35 percent completion when

automotive and aerospace industries, introduce product

canceled. The project was canceled despite opposition from

and manufacturing technologies into the country. To help

almost every major non-governmental entity, so the effect

Mexican technology flourish, a sustained and coherent

on confidence was severe. The suspension of bidding rounds

national policy must be put in place. Assigning a fixed

generated further concern for oil and gas players because

share of GDP to channel into developing technologies

none of the problems that had hampered projects, including

would be a good starting point. Additionally, creating

permitting difficulties, insecurity and the simple life cycle of

focused and agile links between government, academia

developing wells were the responsibilities of the national and

and industry is important. There is very little research

international companies that had already won blocks.

infrastructure in Mexican universities. This needs to be addressed to develop the swell of knowledge that

Q: How can the government improve the processes that

is present in other countries. Bodies like CONACYT

govern the rights of way in Mexico to avoid ongoing legal

play a vital role in this. Also, the IMP’s development of

disputes around land use?

technology in oil and gas must not be stymied. Whereas

A: Mexico needs a much speedier legal process to manage

the IMP was previously the research arm of PEMEX, it has

rights of way; this a pressing issue for the oil and gas

been encouraged to speak to and learn from the major

industry in Mexico. Although the country’s constitution

private companies. Under the new administration, this

allows expropriation so long as land is fairly paid for,

may be reversed, which will be detrimental to the revisions

governments are extremely reluctant to use this measure due

of Mexico’s outdated technologies.

to its unpopularity. Therefore, the only viable alternative is to negotiate with private parties. Under Mexico’s International Labor Organization (ILO) obligations, which mandate

Mexican Institute of Infrastructure Development (IMEXDI)

consultation of communities by the federal government,

promotes the development of Mexican infrastructure, providing

communities that are not on the land to be used, but could be

consultancy and expert opinions to private and public bodies on

affected by its use, can have a legal input. This is all necessary

national projects across industries, including oil and gas

365

| INSIGHT

HELPING MEXICO’S ENERGY INDUSTRY TO GET STRONGER PALMA MÉNDEZ Country Manager of Wood Mackenzie

366

The safe landing of investments in a country requires a

is necessary to have a clear and detailed view of both

proper regulatory framework that secures and encourages

elements, Méndez says. While many companies may use

these investments. While the new López Obrador

reports provided by agencies like CENAGAS, CRE or the

administration has yet to unveil its final policy framework,

Ministry of Energy to create a forecast of supply and

Palma Méndez, Country Manager of international research

demand, Wood Mackenzie goes one step further. “Wood

firm and consultancy Wood Mackenzie, says one thing

Mackenzie has an extensive database of oil and gas fields

is already clear. “Given that the new administration’s

on a global level with which it can predict productivity

agenda is strongly focused on improving the country’s

and costs together with infrastructure bottlenecks that

energy security, the policy and regulatory framework it

could affect the economics of those fields. We can

lays out will be centered around that agenda.”

also analyze the development of a country’s economic sectors and regions that will affect the demand of oil,

Wood Mackenzie’s goal is to help maintain the country’s

gas and electricity. That refined view into the demand

allure for all companies taking part in activities across the

and supply elements that affect the economics of our

entire oil and gas industry value chain, says Méndez. She

clients, together with a comprehensive understanding of

adds that while it is true that oil and gas companies will

how the two elements relate, is the foundation of Wood

have to adapt their business plans to the requirements

Mackenzie’s success,” she adds.

and framework implemented by the new administration, Mexico remains an attractive investment.

According to Méndez, all clients want to solve one question: is a project economically viable or not? Wood

Mexico has a privileged position both in terms of oil and

Mackenzie provides an integrated vision of the entire

gas and renewable energy sources, which will serve it

problem, providing short and clear answers to almost all

well as it refocuses on energy security. It should also

the critical questions a client might have.

be good for businesses. Looking to provide greater market opportunities to potential clients in the oil and

Among its clients are most of the major oil and gas

gas and electricity industries, not only on a national but

companies and global electricity generation companies

also on a global level, Wood Mackenzie has created a

that want to understand the business potential in Mexico

Power & Renewables division. Wood Mackenzie Power

as well as banks and investment funds looking to enter

& Renewables was created after the firm acquired

Mexico or increase their existing portfolios in the country

MAKE, a research firm focused on wind power, and

by supporting these industries. “Wood Mackenzie is

Greentech Media, an analysis group specializing in solar

completely objective in all its analyses, databases,

market intelligence. “With Wood Mackenzie’s extensive

conclusions and recommendations; we always remain

knowledge and expertise in the oil and gas industry,

neutral to external factors,” she says.

coupled with our strengthened capabilities in the power and renewable energy market, we are prepared to

The firm’s international reach is another beneficial factor.

perform and offer more integrated studies for the entire

“We have strong relationships with major companies in

energy industry, from oil and gas to electricity,” says

other countries and markets that often leverage our

Méndez, adding that “a higher added value is reached

presence in Mexico to bolster their footprint in the

when a company is capable of taking into consideration,

country.” It is also broadening its base of local clients.

for market study purposes, the entire energy industry,

“Although smaller and with less experience compared to

as well as the present and future demand for energy

major oil and gas companies, Mexican companies are also

at the local, national, regional and global levels.” When

interested in our services and in having long-term views

developing market research on supply and demand, it

and insights into their activities in the country.”

VIEW FROM THE TOP |

NONPROFIT FOCUSES ON DEVELOPING YOUNG TABASCO ENTREPRENEURS PABLO RABAGO Founding Member of JET Fundación

Q: What motivated the creation of JET Fundación?

formalized and legally constitutional enterprises have to

A: JET started about three years ago with the idea of

overcome in Mexico.

promoting the creation of new businesses by young people between 18 and 30 years old. In Tabasco, we had experience

Once they have successfully gone through phase one and

founding companies in the infrastructure and oil and gas

phase two, we work with the Government of Tabasco and

sectors, so we wanted to provide orientation for young

other key players in the public and private sectors to enable

people in that direction. We were convinced that Tabasco

the third phase so that everybody who successfully finishes

and Mexico’s general southeast region is going through a

the diploma program and forms their first company can be

historic moment that will define our economic development

guaranteed the direct awarding of at least one contract.

for decades to come. Incorporating the younger generation into these processes is essential to guaranteeing the longevity

Q: What contributions do you want JET to make to the

and positive impact of these processes.

development of Mexico’s oil and gas sector? A: Our success in Tabasco could become the model we

Q: What was the development process for JET’s capabilities

replicate in the 38 CMIC chambers nationwide, so the oil and

and programs?

gas sector would stand to gain a great deal from this kind of

A: We began by designing a document that would become

benchmarking. Through our current structure, we can provide

a kind of training manual for young entrepreneurs. This

this training and support completely free of charge to up to

document would become the basis for the diploma program

40,000 young Mexicans by 2024. Speaking conservatively,

that we developed later. We signed a formal agreement

if only half of those students initiate an enterprise that

of cooperation with CMIC Tabasco (Mexican Chamber of

proves to be sustainable, we are talking about 20,000 new

Construction Industry Tabasco) that allowed us to build a

productive SMEs added to the national economy that all

protocol to finance JET’s activities. Basically, we were able to

originated from a program originally based in the oil and gas

take a portion of what CMIC members usually set aside for

sector and that are thus bound to it on some level or another.

the purposes of training and direct it toward our activities,

Ninety-five percent of companies in Mexico are SMEs. The

provided that it was routed exclusively toward the education

country literally depends on them. We want to facilitate their

of young entrepreneurs and the founding of their first ventures

creation and health by sharing all these resources with young

and companies. This financing scheme allowed us to build

people so that they can move past the hurdles that held us

what we call the “JET Circle,” which has four phases. The first

back. We want to do this in coordination with similar efforts

one covers the diploma program and all preliminary training;

in other institutions in the public and private sectors, not

phase two covers the founding of the students’ first company;

just companies and governments but also universities and

phase three covers these companies’ first contracts and phase

youth centers.

four covers the later conformation of these companies into their first clusters.

One hundred young people have already graduated from two classes of our diploma program. We want an additional two

Phase one begins with identifying individual’s potential and

classes to graduate by the end of 2019, so that starting in

talents. Given the many all-encompassing needs of the oil and

2020 we can graduate a new class every three months.

gas industry, we can provide an endless list of possibilities to these young people when it comes to what their choice of company will be. Everything from catering to extremely

Jóvenes Empresarios Tabasqueños (JET) is an independent

specialized technology has a role to play. Our training and

and apolitical nonprofit foundation focused on promoting

diploma program will be relevant to them no matter what

the development of Tabasco’s entrepreneurial youth through

because it concerns the obstacles and challenges that all

technical and legal training

367

| VIEW FROM THE TOP

PREPARING THE GROUND FOR FUTURE SUCCESS

IGOR SÁEZ DE IBARRA Director General of Mexico at Grupo Ulma

MAITE DEL BARRIO Commercial Director of Mexico at Grupo Ulma

Q: What opportunities has the company identified in Mexico’s

includes the services that will be required due to the lack of

oil and gas industry?

infrastructure in the immediate surroundings.

ISI: Ulma has a great deal of experience in the oil and gas and energy sectors, principally in Spain, where

MDB: Training will also be integral to those working on

we deliver know-how and expertise to refineries and

Dos Bocas. We can provide international-level training that

shipyards. Our presence in Latin America offered the

is sometimes lacking at national companies in Mexico. A

company a solid base from which to enter Mexico. We

company of our size fosters the potential of a workforce and

did it 15 years ago. Our first experience in Mexico was

allows it to grow.

with Techint and Ternium. We then worked on the Etileno 368

XXI plant in Coatzacoalcos, Veracruz, between 2013

Q: How do the standards of quality and safety in Mexico

and 2014. This was a huge project that involved mainly

compare against the other countries Ulma works in?

Mexican companies. Although we are an international

MDB: Standards must evolve and improve in Mexico but

company, Ulma is a global reference for quality within the

the industry has the desire to do this, which is the most

construction industry and we were therefore contracted

important point. These improvements will play a significant

to provide our services. Mexico has become even more

part in attaining the targets that the Mexican energy

attractive with the arrival of the new administration

industry has set itself.

and the repositioning of oil and gas at the center of economic activity. To become involved, Ulma has been

ISI: It is important to understand the difference in standards

forming relationships with different actors, companies and

between more general construction projects and industrial

organizations focused around the new Dos Bocas refinery

construction in the energy sector. Construction for the

and we are assessing the potential of other projects. The

energy industry is far more demanding than other areas

Dos Bocas refinery was a central reason behind Ulma’s

of construction, both in Mexico and other countries.

decision to focus its effort in Mexico, but we are in the

Constructors within the energy sector must be leaders in

market for other projects and have been present in

quality, security and safety, delivering the highest standards

Campeche since last year. Areas including Villahermosa

for all performance indicators.

and Tampico are also interesting due to the activity taking place there.

Q: How do Ulma’s operational processes enable the company to respond quickly to opportunities in Mexico?

Q: Where could Ulma provide the most value in the life cycle

MDB: Ulma is a manufacturer and all the materials we use are

of a major project such as Dos Bocas?

manufactured at our base in Madrid. For this reason, we work

ISI: We have the capacity to participate in every stage of the

with advanced plans that include the time that materials will

value chain. In a project with the magnitude of Dos Bocas,

take to be manufactured and shipped. But we also have a

we can support construction, each operational phase and

network of partners we can rely on. The change of government

maintenance. We could provide the future repair works the

has affected all industries, including oil and gas, as well as the

refinery may need. We are positioned here in Mexico precisely

state of Tabasco, which has made it more difficult for us to

to help in the different phases of the construction. This

clearly define a plan on how to pursue opportunities. ISI: Ulma can provide the best technical teams to confront

Grupo Ulma is a Spanish construction conglomerate that

these challenges and we have a solid logistics network to use

incorporates subsidiaries with various services and lines of

in Mexico. Ulma has the ability to supply the entire country. We

business in a number of sectors, such as agriculture, infrastructure,

have a worldwide policy of maintaining a fleet able to move

engineering, packaging, industrial processing and piping

our materials quickly and this vastly reduces delivery times.

VIEW FROM THE TOP |

EXPORT-IMPORT TIES BETWEEN ITALY AND MEXICO JENARO LARIS Head of Office for Mexico and Latin America at SACE SIMEST

Q: How is SACE SIMEST promoting Italian products and

corporations, but also with middle-sized businesses. The

services in Mexico?

market’s liberalization opened opportunities in every

A: As an export credit agency (ECA), our job is to

segment of the value chain. Not only are deepwater E&P

financially support Italian companies that have activities

activities attractive, but also refining.

in Mexico. Our contribution to those transactions is reflected on the buyer’s side. We do not necessarily offer

There are many Italian companies interested in

our services to the exporter company because our main

participating in the Dos Bocas refinery project, as well

focus is concentrated on their Mexican partners. We have

as in future editions of licensing rounds. Hence, we

consolidated strategic alliances in the country that are

foresee untapped opportunities in Mexico. For instance,

known as the Italian system.

this year we financed PEMEX’s purchase of products and services from Italian exporters in a transaction that

This structure includes SACE SIMEST, which represents

totaled US$334 million.

Cassa Depositini e Prestini, and other bodies like the Italian Trade Agency (ITA) and the Italian Chamber of

Q: How does this entity balances its export target while

Commerce in Mexico. Since we complement each other,

coping with national content requirements?

we have created a good synergy with all the Italian entities

A: This is a very difficult thing to do, given that our

in Mexico. For instance, when ITA introduces Mexican

mandate is to support transactions that are related to

importers to Italian exporters, as soon as a transaction is

Italian exports. If there is a large project around a bid

established we get involved on the financial side.

contract or involving project finance where only Mexican companies participate, we can promote the creation of

Q: What sectors are attractive for Italian investment

a JV. While every ECA is regulated by the OECD, we try

and what is the role of the oil and gas industry in this

to enhance projects with cheaper financing. To achieve

landscape?

this, we need Mexican importers to be flexible enough to

A: Our mandate is to follow the trends of the Italian

purchase Italian goods. We have been very successful in

industry. SACE’s portfolio should be very similar to

developing what we call a 'push strategy,' which is very

that in Italy. At the moment, the largest participation

different from what other ECAs do.

is focused on cruise ships. For example, if an Italian cruise ship exporter sells one or two ships per year, this

Normally, an ECA gets involved in a transaction when there is

number represents 30 percent of our portfolio. After this,

already a contract between an importer and an exporter. We

machinery is a very attractive segment. It encompasses

are more proactive, and bring resources to those companies

machines that are used in the steel industry, aircraft,

by working hand in hand with a bank. Because companies

clothing and auto parts. The oil and gas industry is our

like PEMEX have specific procurement policies, we organize

third-ranked segment in terms of demand. Compared to

matchmaking events. Through this networking strategy, Italian

other economic activities, this industry represents a huge

companies can get to know the CAPEX for PEMEX’s next

opportunity for investment.

projects. The results have been so successful that we are trying to replicate this model with CFE.

Q: What transaction best highlights SACE SIMEST’s efforts in the Mexican oil and gas industry? A: Italy is very active in the oil and gas sector. Its natural

SACE SIMEST part of the Cassa Depositini e Prestini group,

markets for expansion in terms of priority are Europe,

is an export credit agency specialized in supporting Italian

the MENA region and the Americas. Mexico has a

companies that want to grow globally through a synergy of

similar corporate structure to Italy’s, not only with large

integrated skills, insurance and financial services

369

| INDEX A-E ABB

221, 247

ABS

149, 251, 257, 265

CENACE 57 CFE

Access to Energy 353, 357, 365 AINDA Energía & Infraestructura

14, 25, 36, 37, 42, 46, 48, 57, 66, 176, 304, 305, 309,

313, 320, 321, 333, 335, 369 35, 41

CGG 117, 128

Aker Solutions

135, 157, 165

Cheíron 97

ALE Heavylift

180

Chevron 50, 78, 96, 97, 128, 157, 234, 344 Citla Energy

12, 85, 96, 107

Allseas 223

Clear Solutions

191, 212

Altamarítima 219, 229, 237

CNH

Alfa

45, 263

Altopetrum

219, 220, 238, 246

7, 8, 9, 10, 12, 13, 14, 17, 18-19, 21, 26, 27, 33, 36, 37,

39, 40, 42, 45, 48, 50, 51, 56, 57, 64, 66, 68, 83, 86, 87, 92, 93,

AMAPET 191, 210

94, 98, 99, 100, 102, 104, 105, 106, 112, 118, 119, 120, 121, 124,

AMESPAC 7, 23

130, 137, 150, 151, 161, 170, 189, 192, 201, 202, 220, 227, 230, 256,

AMEXHI 7, 8, 12, 22, 87, 91

269, 282, 288, 289, 297, 298, 300-301, 302, 358, 359

AMGP

117, 120, 121, 129

CNIH

7, 13, 20, 87, 115, 119

Ampelmann 251, 260

CNOOC 45, 120, 141, 143

Anixter 273, 289

COMENER 7, 24, 355

AOS Social

297, 318

COMMOSA 219, 243

API Tamaulipas

191, 215, 220

Consorcio EMCRO 135, 136, 163

Arendal 172, 185, 353, 355, 364

Constructora Arechiga

Artelia Cal y Mayor 325, 348

Control Flow

ASEA

Core Laboratories 135, 153, 154-155, 374

9, 37, 45, 46, 50, 57, 105, 162, 176, 201, 230, 247, 249,

297, 316

135, 164

251, 252, 253, 254, 255, 256, 261, 266, 267, 269, 288, 310, 339

COSL 135, 143, 210

AUMA 325, 340

Cotemar 157, 172, 201, 210, 211 Crane Worldwide Logistics 219, 233

Aveva 285 Baker Hughes

136, 244, 273, 274, 276

CRE

26, 37, 39, 46, 47, 48, 57, 176, 230, 301, 310, 320,

BASF 325, 347

336, 339, 342, 366

BBVA

Crosby 232

49, 261

CSIPA 251, 267, 374

Bechtel 182, 329, 357 Beicip

122

Beicip-Franlab

CUMEX 321 117, 191, 193

Bentley 285

Damen Shipyards Group DEA Deutsche

Beristain + Asociados

35, 46

273, 290

12, 39, 93, 96, 97, 105

Deloitte Consulting Mexico 7, 27, 355 Dentons López Velarde

35, 39

BIVA 25

DG Impianti Industriali

169, 184

Bonatti 297, 308

Diablo Pipeline Solutions

297, 317

BHP

39, 45, 97, 128, 148, 150, 157, 222

Borr Drilling

223

Boskalis Offshore Energy BP

Diavaz 169, 179

25, 39, 51, 65, 78, 96, 97, 157, 171, 174, 283, 303, 344,

10, 89, 96, 201, 302, 310

DIDSA 297, 310 DISAN 191, 199 DNV GL 163, 251, 253, 256, 267, 374

352, 374 Brunel Energy

219, 240

Domótica Industrial

Cairn Energy

12, 85, 103

Dragados Offshore 180

Canales Auty

35, 43

Dräger Safety Mexico

Cargotecnia 219, 232 117, 127

251, 253, 259

Drebbel 353, 360 Duro Felguera

297, 313

CEMEX 232

Dynamic Group

117, 130

CEMZA 211, 223

Eaton Crouse-Hinds

Cayros Group

285

251, 258

INDEX E-J | Eclipse Solutions 353, 363 Ecopetrol 96 EcoSocial Soluciones Sustentables

251, 266

Grupo IDESA

330

Grupo Pochteca

135, 161

Grupo Protexa

169, 170, 171, 172-173, 203, 211, 315

Emerson 273, 274, 277

Grupo R 96, 150, 172, 215, 238

Enagás 297, 298, 304, 336

Grupo Santana Vega

297, 319

325, 346

Grupo TMM

219, 222, 290

EnerChemTek 325, 334

Grupo Ulma

353, 368

Energía Integral

GS Oil & Gas

Enco GNV

219, 230

Energistics 117, 123

GTM 135, 160

Engie

310, 320

Halliburton

109, 139, 147, 203, 244

Eni

1, 12, 19, 22, 40, 78, 83, 86, 87, 96-97, 100, 103, 107,

Harren & Partner

290

120, 137,149, 170, 171, 174, 179, 182-183, 184, 185, 200, 209,220,

Héctor Moreira

9, 297, 298, , 300-301

222, 275, 364, 374

Heerema Marine Contractors 169, 178

Entrepose 325, 337

Heliservicio 191, 207

Equinor's Asgard 157

Hokchi

ERM

251, 253, 269

H&R Naviera

ESEASA 175 Exxon Mobil EY

HSBC 78, 128, 177

Fermaca Marine

219, 220, 226

49, 71

Hydrocarbon Storage Terminal

57, 353, 354, 356

Falck Safety Services

12, 19, 90, 104-105, 137, 143, 179, 222, 374

325, 328, 341

ICA Fluor 285, 335 239

Ikal Oil

290

191, 204

Ikon Science

117, 125

Fieldwood Energy 12, 83, 85, 86, 96, 98-99, 143, 222

IMEXDI 353, 355, 365

Fortress 310

IMP 7, 21, 24, 27, 58, 114, 119, 121, 193, 253, 277, 355, 365

Frap Soluciones Integrales

35, 57

Impact Fluid Solutions

Frontera Offshore 169, 182-183, 374 Fugro

273, 287, 288, 374

Impact Fluid Solutions

FullGas 325, 344 Gaeli Diesel

135, 162

IMP 7, 21, 24, 27, 58, 114, 119, 121, 193, 253, 277, 355, 365

353, 362

IMS/OHT Global

273, 284

Indimex Group

325, 349

135, 162

Gardline 179

Inelectra 169, 176

GAVSA 219, 221, 244

Inerco Consultoría México

GenOIL 325, 334

INPEX Corp.

GENSA 297, 320

Integra Consulting & Marine Services 219, 228

GeoMark Research 151

Intergraph 285

Geoprocesados

117, 120, 131

InterMoor Inc.

135, 149

GEO Solutions

151

ION Geophysical

109

IPD Latin America 7, 9, 10, 29

Geoteco 206 Global Maritime

219, 225

IPN

Golfo Suplemento Latino (GSL)

191, 201

Gonzalez Calvillo 35, 48

121, 221, 247

IPSOtec 273, 285 iPS Powerful People

Goodrich, Riquelme y Asociados

29, 35, 37

219, 242

ITPE

Grupo Boluda

290

Jacobs Engineering

Grupo Diavaz

150, 172, 194, 210, 302

Jaguar E&P

Grupo Hegemonía 219, 221, 239 Grupo Herce Ingeniería

191, 202

87, 353, 361

219, 241

ITAM 41

Grupo Altavista

Grupo Hosto

261, 267

85, 96, 97

219, 221, 247

Jardine Lloyd Thompson JET Fundación

285

39, 85, 96, 111, 201, 206 55

353, 367

Juárez Autonomous University of Tabasco

121

| INDEX K-P 191, 211

OH Maritime

219, 227

Kasoil 191, 200, 220

Oiltanking

325, 327, 338

KDM Fire Systems 251, 265

Olam Energy

191, 203

Júpiter Suministros y Servicios

Kerui 96

Olmec University 121

Komodato Offshore KPMG

219, 238

ONEXPO 325, 328, 342-343

7, 9, 11, 26, 36

Ophir

39, 89, 96, 102

LAOGA 7, 25

Osbog 191, 198

Latin American Rainmakers 309

OSIsoft 273, 283

Law and Government Studies Center 59

Pegasus 150

Lloyd's Register

35, 50

PEMEX 1, 3, 5, 8, 9, 10, 11, 12, 13, 14, 15, 17, 18, 19, 20, 21, 22, 23,

Luis Vera 9, 251, 252, 253, 254, 255

24, 25, 26, 27, 28, 29, 30, 31, 33, 36, 37, 38, 39, 40, 41, 42, 44,

Lukoil

45, 46, 47, 48, 49, 50, 51, 53, 55, 56, 57, 59, 60, 61, 63, 64, 65,

96, 97, 113, 147, 148

Maersk Supply Service

169, 187

MAN Energy Solutions

7, 30

66, 67, 68, 70, 71, 72, 73, 74, 76, 77, 78, 79, 80, 81, 87, 88, 90, 92, 93, 96, 97, 98, 99, 100, 102, 104, 107, 109, 110, 113, 115, 118,

Manuel Rodríguez 7, 15, 51

119, 120, 121, 124, 125, 128, 129, 130, 131, 133, 136, 137, 138, 139,

Mapfre 261

142, 143, 145, 147, 148, 149, 150, 151, 154, 155, 157, 158, 159, 161,

MARAT 325, 332

162, 163, 165, 167, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179,

Marathon Oil

283

181, 182, 183, 185, 186, 187, 189, 192, 193, 194, 195, 196, 197, 200,

Maren 211

201, 202, 203, 204, 206, 207, 209, 210, 211, 213, 214, 217, 220,

Marinsa 36, 203, 210, 223, 229

221, 222, 223, 224, 226, 227, 229, 230, 231, 234, 236, 237, 238,

Marsh 35, 54, 55

239, 241, 242, 245, 246, 247, 251, 252, 253, 254, 256, 257, 258,

McDermott

169, 170, 174, 176, 238, 315

263, 264, 265, 267, 268, 271, 274, 275, 276, 277, 279, 283, 285,

MetaRock Labs

151

288, 291, 293, 300, 301, 302, 304, 307, 310, 311, 312, 313, 314,

MexMar 219, 224-225

315, 316, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 338,

Ministry of Energy 8, 17, 26, 37, 39, 47, 51, 77, 80, 93, 137, 246,

339, 340, 341, 342, 343, 344, 345, 346, 349, 351, 354, 355,

295, 300, 301, 326, 335, 366

356, 357, 358, 359, 360, 361, 362, 364, 365, 369

Minsait 273, 279

Perforadora Central

135, 136, 142

Perforadora México

135, 136, 138-139

Mitsubishi Electric Automation

273, 280, 281, 374

Multiservicios Petroleros

251, 268

Perigon Solutions 125

Murphy Oil Corporation

20, 83, 85, 86, 96, 102

Perseus Energy

Nalco Champion

191, 196, 197

85, 110

Petricore 135, 150-151 Petroassist 325, 345

Naturgy 310, 314 Naviera Integral

273, 290, 291, 293

NDT Global

297, 315

Netherland, Sewell & Associates

Petrobras

120-121, 144, 179, 224, 288

Petrofac 87, 89, 97, 143, 150, 194, 201, 302 35, 56

Petrolera Cárdenas Mora

Netzsch Pumps & Systems 191, 206

PetroleRFS 191, 205

Norton Lilly Shipping Mexico 229

Petrolink 135, 158

NovaOil 219, 246

PetroM Corp.

NRGI Broker NSAI

35, 51

219, 235

Petronas 88, 140 Phil Hopkins Ltd. 297, 306

Núñez Rodríguez Abogados 35, 59

Pietro Fiorentini

Oceamar 219, 220, 223

Polaris 239

Oceaneering 135, 148

Power Electronics 191, 213

297, 312

87, 203

INDEX P-Z | Procarga 219, 232

Sierra Oil & Gas

12, 93

PwC 35, 38, 57, 110

Simmons Edeco

135, 147

Qatar Petroleum

Stantec 310

QRI

96-97, 100, 128

7, 11, 31

STIn 219, 231

Ramboll 251, 266 RelyOn Nutec

Strata BPS 264

Subsea 7 181

Renaissance Oil Corp.

13, 85, 113

Rengen Energy Solutions

325, 335

Repsol

85, 96, 112

Suministros Marinos e Industriales de México Summum 325, 333

50, 78, 85, 88, 96-97, 106, 187, 341, 344, 345

Surpetrol 191, 194

Resource Energy Solutions 273, 274, 282

Tabasco Energy Cluster

Reylaver 290

Talos Energy

Rheinmetall 251, 262, 355

Tanis Technology & Services 135, 165

Riansa 191, 204

Tarsco

245, 316

12, 85, 90-91, 92, 96, 105, 119, 137, 142, 148

325, 326, 339

RigNet 135, 144-145

TC Energía

Rise Energy

247

Telmex

RNB Corp.

325, 348

Texas A&M

Roca Ventures

191, 214

The Mudlogging Company

135, 156 35, 45

223, 297, 305, 314, 320

171, 172 221, 247

Rockwell Automation

273, 278

Thompson & Knight

Roma Energy Holdings

85, 96, 109

Tierra MarAire

229

Tonalli Energía

89, 96, 147, 330

ROS

263

Rosen Group

297, 298, 307

Rystad Energy

35, 40

282, 337, 343, 344

Saipem Offshore

169, 177

Trafigura 98, 227

Total

97, 170, 182, 185

Sauer Compressors Schlumberger

Transportes JSV/Grupo Santana Vega 325, 346

191, 206

Tubular Technology

136, 139, 147, 201, 203, 206, 244, 273, 274,

275 35, 58

297, 298, 314

96, 109, 201

Tundra Oil and Gas 201 UNAM

Scottish Qualifications Authority SCR

39, 64, 65, 78, 93, 96, 97, 99, 120, 128, 140, 148,

Transportes Aéreos Pegaso 191, 209

Santander 49 Sapura Energy

14, 73, 74, 106, 119, 121, 221, 247, 353, 358-359

United Pipeline

297, 311

University of Texas Rio Grande Valley 24

SCT 57

US Energy Information Administration 258

SeaHawk 229

Valaris 135, 140-141

Seaway 7 169, 181

Verisk Maplecroft 35, 52-53

SENER

Vista 111

11, 19, 36, 42, 48, 51, 57, 119, 120, 170, 182, 193, 194,

227, 253, 254, 261, 269, 298, 300, 301, 329 Sercel Inc.

117, 129

Vopak

176, 325, 328, 336

Weatherford

135, 137, 147, 159, 203, 244

SERTECPET 191, 195

WesternGeco 275

Shawcor 169, 186

Wood Mackenzie 325, 331, 353, 366

Shell

Worley

25, 45, 50, 57, 65, 78, 96-97, 103, 120, 128, 157, 207,

285, 329, 357

221, 247, 283, 345

Wöss & Partners

Siconsa 297, 314

WRCA 232

Siemens 297, 303

Xanik Valves

Sierra

ZIM Lines 229

20, 96-97

109, 201

35, 44 325, 332

| ADVERTISING INDEX Inner Covers

Nalco Champion

180 CS&A

Man Energy Solutions

182-183 Frontera Offshore/DOF Subsea

Goodrich, Riquelme y Asociados

190

Mexico Business

194 Commosa

DNV GL

197 Repstim

Beristain + Asociados

208

Transportes Aéreos Pegaso

Mexico Oil & Gas Summit

218

Grupo TMM

Cayros Group

221 ROS

Olam Energy

91 Fugro

230 STIn

Talos Energy

237 Comincar

108

Roma Energy Holdings

250 Dräger

116 Beicip-Franlab

255 CSIPA

120

272 Rosen

Sulmara Subsea

134 Seadrill

281

139 Weatherford

296 Indimex

141

324 Wood

iPS Powerful People

Mitsubishi Electric

144-145 RigNet

328

150-151 Petricore

338 Entrepose

168

352

Mexico Business Communication

355

Eaton Crouse-Hinds

DG Impianti Industriali

171 Drebbel

Grupo Pochteca/Petroprim

175 McDermott

| TECHNOLOGY, PROJECT AND COMPANY SPOTLIGHTS 28

PEMEX

92-93 Talos, PEMEX 99

Fieldwood Energy

100-101 ENI 104-105 Hokchi 122

Beicip-Franlab

124

PEMEX

126 Cayros 152-153 Core Laboratories 286-287 Fugro 292

Naviera Integral, Damen

329

PEMEX, SENER

| COMPANY PROFILE 228 Maritimex

| MAPS AND INFOGRAPHICS 68-69

The Fields to Move Forward

94-97

Licensing Rounds, Farmouts and Migrations

88-89

Private Investment Rises as Block Winners Begin

to Produce

PHOTO INDEX | Cover ONEXPO

Talos Energy

166 Saipem

4 ONEXPO

INPEX Corporation

172

Grupo Protexa

18 CNH

Fieldwood Energy

181

Seaway 7 / Seaway /

22 AMEXHI

102

Murphy Oil Corporation

Subsea 7

23 AMESPAC

103

Cairn Energy

185

Sapura Energy

25 LAOGA

106 Repsol

188

Grupo TMM

107

Citla Energy

193

Beicip Franlab

Deloitte Consulting

Mexico

109

Roma Energy Holdings

194 Surpetrol

IPD Latin America

110

Perseus Energy

195 SERTECPET

MAN Energy Solutions

111 Jaguar

196

Nalco Champion

113

198

Osbog / Champion

31 QRI

Renaissance Oil

MAN Energy Solutions

Corporation

Technologies

Goodrich, Riquelme y

114 IMP

199 DISAN

Asociados

123 Energistics

207 Heliservicio

38 PwC

125

212

Clear Solutions

Dentons López Velarde

127 Cayros

213

Power Electronics

Rystad Energy

128 CGG

213

Power Electronics

AINDA Energía &

Ikon Science

129

Sercel Inc.

215

API Tamaulipas

Infraestructura

130

Dynamic Group

216

Transportes Aéreos

Canales Auty

130

Dynamic Group

Pegaso

Wöss & Partners

132

Global Drilling Support

222

Thompson & Knight

140 Valaris

224 MexMar

Beristain + Asociados

140 Valaris

225

Global Maritime

López Velarde, Wilson

Global Maritime

Grupo TMM

142 MBP

225

Abogados

143 COSL

229 Altamaritima

Gonzalez Calvillo

144 RigNet

233

BGBG Abogados

144 RigNet

Logistics

Crédit Agricole

146

Simmons Edeco

235

PetroM Corporation

NRGI Broker

147

Simmons Edeco

235

PetroM Corporation

Verisk Maplecroft

148 Oceaneering

236 Comincar

Marsh Energy

149 InterMoor

239

Grupo Hegemonía

Marsh Energy

150 Petricore

240

Brunei Energy

Netherland, Sewer &

152

Core Laboratories

241

iPS Powerful People

Associates

152

Core Laboratories

248

RelyOn Nutec

152

Core Laboratories

257 ABS

Integrales

153

Core Laboratories

266 Ramboll

154

Core Laboratories

266

Frap Servicios Nuñez Rodriguez

Crane Worldwide

EcoSocial Soluciones

Abogados

155

Core Laboratories

Sustentables

60 PEMEX

157

Aker Solutions

270

72 PEMEX

158 Petrolink

275 Schlumberger

73 PEMEX

159 Weatherford

277 Emerson

74 PEMEX

161

Grupo Pochteca

277 Emerson

75 PEMEX

162

Impact Fluid Solutions

278

Rockwell Automation

82 Saipem

163

Consorcio EMCRO

280

Mitsubishi Electric

NDT Global

Automation

| CREDITS JOURNALIST & INDUSTRY ANALYST: Peter Appleby JOURNALIST & INDUSTRY ANALYST: Pedro Alcalá JUNIOR JOURNALIST & INDUSTRY ANALYST: Cas Biekmann SENIOR WRITER: Daniel González EDITORIAL MANAGER: José Escobedo EDITORIAL MANAGER: Brenda Salas SENIOR EDITORIAL MANAGER: Alejandro Salas MANAGING EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Mirjam Schipper PUBLICATION COORDINATOR: Chiara Secco PUBLICATION COORDINATOR: Cagla Polat PUBLICATION COORDINATOR: Marion Pigmans JUNIOR PUBLICATION COORDINATOR: Jimena de la Torre COMMERCIAL DIRECTOR: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller JUNIOR GRAPHIC DESIGNER: Marcela Muñoz JUNIOR GRAPHIC DESIGNER: Tania Aguiñiga SENIOR GRAPHIC DESIGNER: Mónica López SENIOR GRAPHIC DESIGNER: Ailette Córdova DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez COLLABORATOR: Óscar Tello COLLABORATOR: Sara Warden COLLABORATOR: Arturo Hernández Mora CIRCULATION MANAGER: Constanza Blanco DIRECTOR GENERAL: Jeroen Posma

| PRINTED BY Litoprocess S.A. de C.V. Av. San Francisco Cuautlalpan 102a, San Francisco Cuautlalpan, 53569, Naucalpan de Juárez, State of Mexico

$199.00 ISBN 978-1-7328256-6-6

19900>

9 781732 825666

Mexico Oil & Gas Review 2019/20

Articles inside

NATURAL GAS, A MEXICAN PRIORITY

THE FUTURE OF AN INDUSTRY MAINSTAY

AVANT-GARDE OPERATOR MADE IN MEXICO

DISCOVERY SETS STAGE FOR FURTHER PROJECT ADVANCES

BLAZING A PRODUCTION TRAIL IN SHALLOW WATERS

STEADY HANDS OPEN MEXICO’S NEW OFFSHORE FRONTIER

COOPERATION AT THE HEART OF INDUSTRY SUCCESS

EFFICIENCY, REDUCED ENVIRONMENTAL IMPACT ARE TOP PRIORITIES

SHAPING A FUTURE FOR MEXICO’S RESOURCES

PRODUCTION GOAL UNDERPINS INDUSTRY’S STRATEGIC ROLE