Mexico Oil & Gas Review 2016 by Mexico Business Publishing

2016

“Round One in general has been extremely successful, and it sends the message that Mexico is truly a ripe environment for investment” Edgar René Rangel Germán, Former Commissioner of CNH

Mexico is on its way to becoming one of the worldâ&#x20AC;&#x2122;s most attractive upstream investment destinations as a result of the opening of the hydrocarbons market through the Energy Reform approved in 2013. Over the past year, the first three phases of Round One have overseen the allocation of 30 contractual areas, welcoming into the market many foreign players in addition to detonating a national onshore oil industry, a success achieved despite the low oil prices. At the same time, PEMEX has been transforming its structure and strategy to adjust to both of these new situations, undergoing everything from a change in Director General to a budget cut, all in the context of becoming a productive enterprise of the state.

As the Mexican oil and gas industry changes, PEMEX, private operators, suppliers, and service providers find themselves at a turning point, where success will depend on their ability to adapt to the workings and needs of an entirely new market, which is still being defined today. Mexico Oil & Gas Review 2016 provides readers with a in-depth understanding of the new industry settings, which are key to succeeding in the new environment and leveraging the multitude of emerging opportunities. The topics presented in this yearâ&#x20AC;&#x2122;s edition are those that matter most to the key stakeholders driving the evolution of the industry from a political, regulatory, business, and technological perspective, making Mexico Oil & Gas Review 2016 not only an essential read, but also the ultimate industry reference.

ALL RIGHTS RESERVED ÂŠ Toguna, S. de R.L. de C.V., 2016. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Toguna S.A. de C.V. Mexico Oil & Gas Review is a registered trademark. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9968026-2-8

TABLE OF CONTENTS

STATE OF THE INDUSTRY

ONSHORE & UNCONVENTIONAL RESOURCES

ROUND ONE

INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE

EXPLORATION

DRILLING & WELL SERVICES

DEVELOPMENT & PRODUCTION

REFINING & PETROCHEMICALS

SHALLOW WATER

DOING BUSINESS & HUMAN CAPITAL

DEEPWATER

FUTURE OUTLOOK

10 11

TECHNOLOGY & NATIONAL CONTENT

NATURAL GAS & PIPELINES

STATE OF THE INDUSTRY

The past year marked the beginning of a new era for the Mexican oil and gas industry, initiated by the first licensing round that allowed private operators to enter Mexico. Over the course of the past twelve months, three licensing rounds have been completed, attracting the private investment, expertise, and technology that Mexico needs to reverse its 13-year decline in oil production. While administrating Round One, CNH has transformed itself into an effective industry regulator, creating a strong foundation for the countless challenges it is destined to face in the coming years. PEMEX has found itself in a perfect storm of low oil prices, a new operating framework, and the organizational transformation to become a productive enterprise of the state. After a change in leadership, the restructured national oil company is gearing up to play a central role in the competitive market that has been created through the Energy Reform.

This chapter presents analysis of the events, strategies, and ambitions that defined the development of the Mexican oil and gas industry through the eyes of Mexicoâ&#x20AC;&#x2122;s political leaders, regulators, and industry executives. Collectively, these diverse perspectives offer a comprehensive insight into where the Mexican industry stands today, and where it will be heading in the months and years ahead.

| CHAPTER 1: STATE OF THE INDUSTRY 8

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

ANALYSIS: The Year in Review

IN MEMORIAM: Edgar Rangel Germán

VIEW FROM THE TOP: Edgar Rangel Germán, CNH

VIEW FROM THE TOP: Nestor Martínez, CNH

VIEW FROM THE TOP: Guillermo García Alcocer, Ministry of Energy

EXPERT INSIGHT: Pablo Medina, Wood Mackenzie

INSIGHT: Óscar González, ARHIP

21 INSIGHT: Mauricio Herrera Madariaga, Mexican Petroleum Fund 22

VIEW FROM THE TOP: Salvador Ugalde, Ministry of Finance

VIEW FROM THE TOP: José Antonio González Anaya, PEMEX

VIEW FROM THE TOP: Juan Pablo Newman, PEMEX

ANALYSIS: A Closer Look at PEMEX's 2015 Financial Performance

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

ANALYSIS: Update of the Pension Scheme

VIEW FROM THE TOP: Gustavo Hernández, PEMEX E&P

VIEW FROM THE TOP: Raymundo Piñones, AMEXHI

VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico

VIEW FROM THE TOP: Ernesto Marcos Giacoman, AMESPAC

VIEW FROM THE TOP: Wallace Pescarini, Schlumberger

EXPERT OPINION: Tim Samples, University of Georgia

VIEW FROM THE TOP: Jesús Rodríguez Dávalos, Rodríguez Dávalos Abogados

| VIEW FROM THE TOP

A FRAMEWORK THAT ENDURES TURBULENT TIMES PEDRO JOAQUÍN COLDWELL Ministry of Energy

Q: What is the short and medium-term impact of the drop

satisfied with the results. Even during the current national

of the oil price on Mexico’s energy policy decision-making

and international oil market volatility, many national and

at this time, and how will this impact the implementation

foreign companies, alone or in partnerships, have shown

of the Energy Reform?

interest and have participated in the bidding proceedings,

A: While this new price scenario represents a challenge

confirming that blocks and fields offered in Mexico are

for Mexico, it should be noted that the Energy Reform has

attractive and competitive. As a result of these process, so

granted the country new tools and mechanisms to adapt

far we have awarded 30 contracts to 30 companies from

to the current circumstances and also take advantage

seven countries, including 20 Mexican players. The winning

of what these conditions present throughout the entire

proposals guarantee excellent conditions for Mexico, with

energy value chain. As a result of Energy Reform, Mexico

high profit margins above 70%.

has taken some important steps toward positioning itself as one of the most attractive countries to invest in exploration

Q: Which steps must be taken to ensure that PEMEX

and production activities. There are companies capable of

successfully

takings risks even in these economic conditions. Currently,

productive enterprise of the state that has the financial

these companies have significant financial strength and

and human resource needed to optimize value creation?

are the ones we are looking to attract with Mexico’s

exploration and production bidding rounds. The most

accelerating its transformation to take better advantage

important thing for companies in this situation is to have a

of the opportunities brought by the Energy Reform, taking

solid institutional and regulatory framework, transparency,

environmental sustainability into account, and at the same

and contractual conditions that can provide legal certainty

time, achieving financial and production improvements

to investors in the long term. There are also attractive

during an international dip in oil prices. Efficiency and

business opportunities in other hydrocarbon areas, such

profitability are a priority in all the procedures in order to

as the transportation and storage of natural gas, pipeline

achieve international competitiveness. Therefore, PEMEX

construction, industrial transformation, and importation

is adjusting its cost structure, looking into its expenses

and commercialization of fuels, among others.

program, and strengthening its investment procedures

PEMEX

completes

facing

its

two

transformation

fundamental

into

challenges:

according to the new schemes of association and private The fall in oil prices requires us to make moderate

sector investment brought about by the Energy Reform.

adjustments to ensure public finances remain strong, but it also presents us with an opportunity to make this juncture

Q: What are the respective roles that PEMEX and private

a catalyst for the full implementation of our Energy Reform

operators should play in Mexico’s oil and gas industry?

and a new age for PEMEX as a more efficient productive

A: Mexico’s Energy Reform established a whole new legal

enterprise of the state.

and institutional framework, setting the basis for the development of open and competitive markets throughout

Q: What is your assessment of the success of Round

the energy sector. In the hydrocarbons sector, companies

One to date, and what are the main lessons learned and

can participate in upstream activities through competitive

actions taken to continuously improve the framework for

bidding rounds or in partnerships with PEMEX. In the natural

Mexico’s licensing rounds?

gas sector, companies can participate in the expansion of

A: The three tenders of Round One have been recognized

the natural gas network through competitive processes for

by experts around the world, as these have relied on the

the development of strategic or social interest pipelines,

highest transparency standards. These proceedings were

as well as participating in the development of merchant

public, transparent, open to national and international

pipelines at their own cost and risk when they deem supply

participation, and streamed live. We are thoroughly

and demand conditions favorable. As for the midstream

and downstream sectors, companies can participate in

in case the recommendations favor the establishment of

industrial transformation activities, transportation and

fair, competitive platforms. Some companies have emitted

storage, and commercialization and retail activities by

comments about R1-L04 which are being considered.

obtaining the corresponding permits. In terms of access

The Mexican government is committed to providing new

to infrastructure, it is worth highlighting that the new legal

and existing companies with competitive investment

framework establishes open access principles and the use

opportunities while guaranteeing maximum operational

of competitive service fees, established by the CRE.

standards and public safety.

The Mexican Energy Reform started from the premise that

Q: What should be the respective contributions of PEMEX,

it was essential to introduce competition and specialized

PEMEX farm-outs, COPS & CIEPS, and private operators

operators. This competitive environment will allow Mexico

toward achieving Mexico’s future production targets?

to attract the capital and specialized technology required

A: Mexico’s Energy Reform addresses, among other issues,

to boost upstream activities, as well as the development

the fact that after decade of continuous investment in

of much needed infrastructure and the provision of high-

E&P, oil and gas production continued to decline. Mexico’s

quality energy services. In this scenario, PEMEX, as a state-

new energy model allows for the participation of private

owned enterprise with the mission of creating value for

companies as well as PEMEX, now as a productive enterprise

Mexico, must focus on its key strengths to play a strategic

of the state, individually or in partnership with third parties,

role in the development of the new Mexican energy

in this strategic area. Through Round Zero, PEMEX was

industry.

granted 83% of Mexico’s 2P reserves and 21% of the nation’s prospective resources. Therefore, the company’s activities

Q: How is the Ministry of Energy optimizing the

will be the key to stabilizing and eventually increasing our

competitiveness of Mexico’s upcoming deepwater round

current oil and gas production levels. PEMEX will have to

in terms of resource availability, fiscal regime, operating

optimize its operations in order to maximize productivity

environment, and long-term investment protection?

in different locations and multiple types of fields. The

A: The Energy Reform set clear rules and proceedings

Energy Reform has granted PEMEX new tools, such as the

for the contract design and award process. It also

farm-outs, that will allow the company to build strategic

strengthened

established

partnerships. We see farm-outs as an excellent opportunity

clear interaction mechanisms, and accountability and

for PEMEX to access fresh capital and state-of-the-art

transparency standards throughout the process. The

technology as the company moves into frontier fields to

Ministry of Energy leads the design of the contracts,

address its productivity challenges. CIEPS and COPS can

establishing terms and conditions aimed at attractive top

also contribute to boosting the company’s productivity, but

companies for the development of deepwater fields. We

these are limited in number while farm-outs have a much

want to ensure that we are providing the most accurate

greater potential to bring the production numbers back

available data for companies to make the right decision,

up. The company must also enhance its own performance,

and also that companies can operate under the best

particularly in strategic fields.

the

regulatory

bodies,

operational and environmental standards. We also expect this bid to accelerate the technology transfer process

Private operators can choose between participating

while establishing national content requirements that the

individually, partnering up with PEMEX, or working in

Ministry of Economy will keep track of.

partnership with other companies in the bidding rounds organized by the state. So far, we have completed

Q: How is the dialogue between the Ministry of Energy and

Mexico’s first three E&P bidding rounds with positive

potential deepwater operators shaping the conditions of

results in terms of allocations, contract design, and

R1-L04?

transparency. In December 2016, we will complete the

A: To ensure the best possible long-term conditions

much anticipated fourth bidding round for exploration

for both the Mexican state and companies, we have

and production in deepwater blocks. We are also moving

maintained a constant dialogue with several industry

forward in the planning of the upcoming bidding rounds

associations through established mechanisms, enabling us

and have issued a Five Year E&P Plan outlining our plans

to offer flexible contractual conditions that are consistent

up to 2029. It is worth mentioning that different types of

with international best practice. Our objective is to design

projects will yield first oil at different times. In the mid and

and award competitive and sustainable contracts that are

long term, shallow water and deepwater resources will

attractive to the industry, but also aligned with Mexico’s

incorporate more barrels. We are working in the design

best interest in the longer term. Companies can provide

of upcoming bidding rounds, taking into account this

feedback through the Round One website. This information

difference in time and the conditions each field demands

is reviewed on a regular basis, discussed and incorporated

for its optimal productivity.

| ANALYSIS

THE YEAR IN REVIEW

The year 2015 marked a historic change in Mexico’s oil and

natural decline in Cantarell’s production, as well as an

gas industry, with the awarding of the first blocks in the

increase in the fractional water flow of its wells, led to an

newly open market. R1-L01, which tendered shallow water

8.9% drop in heavy crude production. Secondly, the country

exploration blocks, took place on 15 July 2015 and oversaw

experienced a 7.5% decrease in the production of extra-

the allocation of two out of 14 blocks. The two following

light crude as a result of an increase in the fractional water

bidding rounds, which respectively concerned shallow

flow at the Pijije, Sen, and Terra fields in the Samaria-Luna

water production blocks and onshore production blocks,

business unit, as well as a natural decline in production

each experienced an increase in the award rate, eventually

in the fields of the Bellota-Jujo and Macuspana-Muspac

reaching 100% for R1-L03. Not only was 2015 marked by

projects. Finally, the production of light crude oil was hit by

the opening of the country’s hydrocarbons market, but

a 3% drop due to delays in production that occurred as a

also by record-low oil prices. The year started with the

result of the Abkatún Alfa platform explosion in April 2015.

WTI crude oil spot price at US$52.69 and continued falling

In general, fields in Bellota-Jujo, Cantarell, and Litoral de

until February, when it hit a low of US$29.44/b, while the

Tabasco, as well as the Samaria field, experienced a natural

Mexican Mix, trading at a discount compared with WTI,

decline in production. The decrease in crude production

dropped below US$20 in early 2016. WTI has been crawling

was partially offset by a 36.6% increase in production

back up since then, with the Mexican Mix following this

at the Onel and Chuhuk fields of the Abkatún-Pol-Chuc

upward trajectory, reaching US$45.22/b at the end of April.

asset, the Tsimin, Xux, and Xanab, fields in the Litoral de

Although the industry does not expect to see it return to

Tabasco asset, the Kambesha field in Cantarell, and the

US$90-100/b, it does have its hopes set on US$50/b in the

Homol field in Abkatún-Pol-Chuc.

medium term. Throughout this period, Mexico has proved to remain an attractive investment destination, although

During the first quarter of 2016, total crude oil production

companies have been forced to rethink their strategy and

averaged 2.230 million b/d, a 3% decrease compared

priorities, with PEMEX being no exception.

to the same period in 2015. The variation was caused by a 4.1% decrease in heavy crude output resulting

In addition to a budget cut of US$5.52 billion, which

from a natural decline in production and an increase

represents 20.9% of the company’s 2016 budget, PEMEX

in the fractional water flow of wells in highly fractured

also announced a change in Director General. José Antonio

reservoirs in Cantarell. When excluding this field, heavy

González Anaya, former Director of IMSS, will be in charge

oil production remained stable based on the 850,000b/d

of deploying a sustainable strategy in order to strengthen

produced from Ku-Maloob-Zaap. Light oil production

the NOC’s financial position and help it reach its potential.

experienced a 4.5% decrease due a decline in the Tsimín field off the coast of Tabasco and in Ixtal in the Abkatún-

CRUDE OIL PRODUCTION

Pol-Chuc unit. Additionally, the Abkatún Alfa 2 incident

Crude oil production for 2015 totaled 2.267 million b/d,

led to production deferrals. This decrease was partially

which is 162,000b/d or 6.7% less than in 2014. Several

offset by a 42% increase in light crude oil production at

factors contributed to this production drop. Firstly, the

the Xanab, Chuhuk, and Onel fields. These fields reached

CRUDE b/d) (thousand b/d) CRUDEOIL OILPRODUCTION PRODUCTION(thousand PERFORMANCE 2,500

2,300

2,225

2,266

2,277

2,230

11.7%

12.5%

12.8%

12.9%

32.7%

35.8%

37%

37.4%

37.1%

50.6%

52.5%

50.4%

49.8%

50%

1Q15

2Q15

3Q15

4Q15

1Q16

11.8%

2,000 1,500 1,000 500 0

Extra-light extra-light

Source: PEMEX Source: PEMEX

Light

light

Heavy

heavy

78% offshore 78% offshore 22% onshore 22% onshore

an average production of 202,000b/d by the end of the

Mexican crude oil basket was at US$25.85/b in the first

first quarter of 2016. Production in the Xux field, which

quarter of 2016, a decrease from the US$45.38/b seen in

began production in June 2014, also helped offset the

same period in 2015.

production decline, contributing 63,000b/d.

CRUDE PROCESSING EXPLORATION Exploration

Crude oil processing totaled 1.06 million b/d in 2015, a 7.8%

activities

PEMEX

led

discoveries

decrease compared to 2014, due to scheduled maintenance

amounting to 1.1 billion boe during 2015. However, the low

and non-scheduled operations, as well as overhaul works.

oil price had a negative impact on deepwater resources

Operational issues resulting from the quality of the oil

due to their development costs. Approximately 400

supplied at the end of 2014 also contributed to the annual

million boe in deepwater resources were reclassified as

decrease. During the first quarter of 2016, total crude oil

contingent resources. On the bright side, the company

processing increased by 2.3%, amounting to 1.08mbd, due

drilled 30 exploration wells in 2015 with a 45% success

to an increase in light crude oil processing. The ratio of

rate. PEMEX’s work in shallow waters led to the discovery

heavy crude oil to total crude oil processed by the National

of six fields, which amount to 650 million boe. Some of the

Refining System decreased by 3.6 percentage points.

fields discovered in 2015 include Xikin-1, Batsil-1, Esah-1,

However, the ratio increased by 4.8 percentage points at

and Cheek-1 in shallow waters, which are estimated to have

the three revamped refineries, Minatitlán, Cadereyta, and

combined reserves of 350 million boe, while Cratos Hem

Madero, as part of an effort to take advantage of highly

were discovered in deepwaters. In January 1, 2015, Mexico’s

specialized equipment to convert residuals and maximize

1P reserves stood at 9.711 billion barrels of oil, 15.290tcf of

the output of middle distillates.

gas, and 13.017 billion boe. These figures decreased during the year, and on January 1, 2016, the country’s 1P reserves

NATURAL GAS PRODUCTION

were 7.640 billion barrels of oil, 12.651tcf of gas, and 10.242

Throughout 2015, the production of natural gas dropped by

billion boe.

2%, totaling 6.40mcf/d, mainly as a result of an 8% reduction in non-associated gas production due to scheduled

CRUDE OIL EXPORTS

reductions in drilling activities and in the completion

The volume of crude oil exports increased from 1.142

of wells in the Veracruz and Burgos business units. The

million b/d in 2014 to 1.172 million b/d in 2015, representing

latter decreased natural gas production in those areas by

an increase of 2.6%. Although the volume of export of

approximately 7.6%. The southern region experienced a

light oil decreased, Olmeca and Isthmus, both heavy

13.4% drop in production. As a portion of total production

crudes, saw respective increases in their export volumes

during 2015, associated gas production represented 75%.

of 36.2% and 45.1%. The latter two are PEMEX’s priciest

The production of associated gas remained relatively stable

crude exports, with values of US$51.36/b and US$48.78/b.

between 2014 and 2015, with respective production of

In the first quarter of 2016, revenues from crude oil exports

4.81mcf/d and 4.82mcf/d. Natural gas production decreased

totaled MX$69 billion, representing a 35% or MX$37 billion

by 10.1% during the first quarter of 2016, amounting to

decrease. The drop in total export sales was driven by

5.17bcf/d. This was due to a decrease in associated gas

low oil prices and a 28% reduction in export volumes. The

production caused by the natural decline in production of

NATURALGAS GASPRODUCTION PRODUCTION(million PERFORMANCE (MMcfd) NATURAL cf/d) 6,000 5,000

5,753 30.2%

5,399 29.8%

5,501 27.3%

5,369

5,174

27.1%

27.3%

72.7%

72.9%

72.7%

3Q15

4Q15

1Q16

4,000 3,000 2,000

69.8%

70.2%

1,000 0

1Q15

2Q15

Non-Associated non-associated

Source: PEMEX 1 Does not include nitrogen Source: PEMEX

Associated associated

54% onshore 54% onshore 46% offshore 46% offshore

crude oil and closing of wells with higher gas-oil ratios at the

production inputs due to preventive maintenance works at

Akal field in Cantarell. Production referrals in Abkatún-Pol-

the continuous catalytic regeneration plant in the Cangerjera

Chuc also had a toll in natural gas output levels. In addition,

complex. The ultra-low sulfur diesel and gasoline plants in

a natural decline in production in Burgos and Veracruz

the Cadereyta and Madero refineries strated operations in

negatively impacted non-associated gas production.

2015. Total petroleum products output decreased by 1.3% in the first quarter of 2016 compared the same period of 2015,

NATURAL GAS PROCESSING

which is explained by a decrease in production of natural gas

In 2015, natural gas processing decreased by 6.2% as

and thus lower LPG availability.

compared to the previous year. This reduction is attributed to a decreased availability of sweet and sour gas from the

PETROCHEMICALS PRODUCTION

offshore and southern region resulting from the Abktatún

The production of petrochemicals amounted to 4.5 million

incident in April 2015 and a natural decline in the output

tonnes in 2015, decreasing 14% compared to the 5.25

from mature fields. Dry gas production decreased by 6.7%,

million tonnes produced in 2014. This is explained by lower

242mcf/d, while natural gas liquids production decreased

availability of raw materials due to maintenance and overhaul

by 9.8%. The production of condensates experienced a

works in the Morelos ethylene plant and the Nohoch-

7.1% decrease explained by a reduction in the supply of

Ciudad PEMEX-Nuevo PEMEX sour gas transportation

sweet condensates in Burgos and sour condensates in

system. During the first quarter of 2016, the production of

the southern region. In the first quarter of 2016, natural

petrochemicals decreased by 9.2% compared to the same

gas processing saw a 10.5% decrease to 3.8bcf/d as a

period of 2015. Additionally, ethane supply was reduced and

consequence of the decreased availability of sour and

initial operations in Etileno XXI had a negative impact in the

sweet gas from the Burgos onshore and offshore assets.

production of high-density polyethylene and ethylene oxide.

This also led to a 9.5% decrease in the production of

The decrease in production of petrochemical products was

dry gas and a 12.3% decrease in the case of natural gas

partially offset by a 79,000-tonne output increase in the

liquid. The insufficient supply of sweet gas condensates

aromatics and derivatives chain due to an increment in the

from Burgos also affected the processing of condensates,

production of high octane hydrocarbons resulting from

which saw a 5.6% reduction during the first quarter of

higher demand from the Minatitlán refinery.

2016, as compared to the same period of 2015.

PEMEX FINANCIAL PERFORMANCE PETROLEUM PRODUCTS

PEMEX has taken important structural measures to adapt

The total production of petroleum products decreased by

its financial strategy and operational priorities to the

8.8% in 2015 compared to 2014, mainly due to non-scheduled

current price environment, planning its budget based on

maintenance and inspection operations, operational issues

a US$25/b oil price. In addition to the February 6, 2016,

resulting from the quality of the oil supplied in the last

budget cut of US$5.6 billion, PEMEX will also benefit from

quarter of 2014, and a decrease in the supply of gasoline

the Federal Government Support Plan, which includes a cash flow injection of US$4 billion and a Fiscal Regime Improvement representing US$2.8 billion in permanent

PEMEX TOTAL REVENUES (US$ billion) TOTAL REVENUES (US$ BILLION) 150 120 83.5 0.4

52.6

55.2

45.7

55.3

55.7

66.6

billion as compared to a net loss of US$15.4 billion in 2014. 107.8 0.8

42.8

69.6

BUDGET ADJUSTMENT ADJUSTMENT PLAN PLAN (MX$ (MX$ billion) billion) BUDGET 81.5 1.0

500

29.2

400 300

64.2

51.3

Exports salesDomestic domestic sales exports Source: PEMEX Source: PEMEX

LTM 3Q15

2014

2013

Services services revenuesTotal Revenues

478.3 100

Adjustment Plan

329.1 100

200 100

2012

123.0 0.8

tax relief. In 2015, PEMEX recorded a net loss of US$30.3

37.4

2010

126.6 0.6

59.4 48.0

111.4 0.4

2011

103.8 0.4

2009

378.3 229.1

0 (149)

-100 -200

Income from operations

Source: PEMEX Source: PEMEX

Allocated expenses

Financial balance

| IN MEMORIAM

EDGAR RENÉ RANGEL GERMÁN

Q: Why was CNH established, and which role did you play

acted as the president of the board of PEMEX. This helped

in the process?

in training us how to establish regulations, how to avoid

A: The National Hydrocarbons Commission (CNH) started as

overregulation or abuse, and how to comply with certain

a sort of back office of the Ministry of Energy, let us call it CNH

rules. CNH 2.0, which exists since December 2013, is the real

beta, and I wrote the first charter of this commission in 2005

one, the independent, autonomous, technical agency.

under the title Consejo Tecnico de Producción y Extracción de Hirocarburos, which was one of my first assignments at

Since I had been working on the creation of CNH for

the Ministry of Energy. The idea was to strengthen the Energy

many years, I wanted to be a Commissioner. The first

Regulatory Commission (CRE) and create a new regulatory

regulation that we issued focused on gas flaring, followed

agency for upstream to participate in strategic parts of

by project sanctioning. We were very few, with only five

the 2008 Energy Reforms such as the opening of refining,

Commissioners and a staff of five people, and we were

deepwater, and transborder fields. At that time, Francisco

growing very slowly because we were part of the Ministry

Salazar was President of CRE, and he provided a great deal

of Energy. After we had our first meeting, we received

of support in working with the legislative powers. Having

correspondence from various organizations, including

been involved since its inception, I feel like the godfather of

the Senate and PEMEX board members to request advice

this organization and am very proud that it is now maturing.

on topics ranging from Chicontepec and deepwater to PEMEX’s exploratory strategy. We started creating

The first real manifestation of CNH, CNH 1.0, emerged

documents that were very uncomfortable, which is why

following the 2008 Energy Reform. In my humble opinion

we were constrained since it became apparent that if we

with respect to other ideas, the creation of CNH was the only

were given more money and more people we would be

aspect of the 2008 Energy Reform that created real value

reporting on more problems. Nowadays, the situation is

for the country. Initially, CNH’s operations consisted of a type

very different, and we are a different entity. We are creating

of simulation, with CNH regulating PEMEX, both of us being

important units dedicated to exploration, extraction, the

part of the Federal Government and reporting to the Ministry

administration of entitlements and contracts, and the

of Energy, while the Ministry of Energy simultaneously

National Center of Hydrocarbons Information (CNIH).

Dr. Edgar René Rangel Germán passed away on March 23, 2016, leaving an impressive legacy in the country’s energy sector in the short time that he was given. Before graduating with a Ph.D. in Petroleum Engineering from Stanford University, he became the only student to score a perfect 10 in UNAM’s Petroleum Engineering program. After returning to Mexico, Dr. Edgar René Rangel Germán subsequently worked at PEMEX, the Ministry of Energy, and the Ministry of Finance and Public Credit before becoming a Founding Commissioner of CNH. He took great pride in being its second employee, and was an exceptional ambassador of the Energy Reform, as well as the CNH’s technical center of gravity. His passionate contribution to the development of the Mexican oil and gas industry was greater than the recognition he received, and his legacy is destined to transform the country he loved.

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| VIEW FROM THE TOP

THE CHALLENGE OF CREATING A WORLD-CLASS REGULATOR IN RECORD TIME EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH

Q: What are the main challenges facing CNH today?

Q: How would you ensure that, in the case of a conflict

A: One of our main challenges today is hiring the best

with a foreign company, the participation of a foreign CNH

people because it is difficult to find excellent people who

representative would not create a conflict of interest?

are willing to work as tough regulators, while salaries

A: We have considered this issue, and we realize that

are not fantastic. It is difficult to find committed people

we need to find a balance between internal employees,

who are willing to sacrifice future prospects of working

consultants,

in PEMEX and accept a cut in salary compared to private

companies. Ultimately, board members must be highly

sector standards. It seems to me that we are leaving the

qualified, as there is a mandate to serve the needs of the

technical part of operations and are moving more toward

country. There is no objection to recruiting board members

an administrative office, in which we receive and approve

from other parts of the world, as long as assurances are

wells, exploration plans, and development plans. This is

made that potential conflicts of interest will not arise. We

some of the risk that I see today, and this might bite us

also must place emphasis on training in order to create

eventually as we move forward. There are 20 operators

experts.

and

outsourcing

through

independent

right now, but by the end of this administration, we will have between 30 and 40 operators in the country. Until

Q: What are the main constraints that prevent CNH from

now, we have only seen the nice, kind, gentle face of these

functioning optimally?

companies that want to invest in Mexico. Due to probability

A: The technical strength is a point of concern, and

alone, we will be facing problems or disagreements with two

there is a risk that CNH may become an administrative

or three if we are working with over 30, PEMEX included.

body, a rubber stamper, due to lack of understanding

Without the technical and legal strength when confronted

of the technical details that we may face or due to tight

by the ugly face of an operator for the first time, then CNH

deadlines. This is holding us back from being an optimal

may not be in a position to contend with these players.

organization. Ultra-deepwater is an example of more

For instance, in the event of a deepwater discussion with

technical and advanced problems that we may not be

billions of dollars at stake, these big operators are not going

able to optimally address. In terms of processes, we have

to bring two lawyers, they are going to bring the entire legal

learned a lot from our membership of entities such as the

department to ensure that they win, as they do all over the

International Regulators Forum, and we have specialized

world. We have to plan to face these kinds of problems.

staff that are well-versed in the protocols.

Q: How are you able to plan for such situations, given that

We have not yet received all relevant information that

you cannot build the world’s best legal team in-house?

PEMEX is supposed to transfer as part of the Energy

A: First of all, we have to plan how we are going to grow,

Reform, we do not have the necessary technical capability

define what capabilities will be most relevant, and gauge

in terms of people, and we have neither the hardware

whether we have the required talent in Mexico. For instance,

nor the software required. When requesting information

there are very few experts in E&P contracts in Mexico,

from the National Center of Hydrocarbons Information,

because this was not necessary in the country. When PEMEX

sometimes the response is that this information is not

began to oversee the CEIPs, only a small department was

available and the request is placed in a queue that can take

required and small contracts were tendered. However, there

months. This lack of access to information is a weakness

are Mexican people who have been carrying out this kind of

of the agency. At the moment we have to still request

work in other parts of the world, and there is no requirement

information from PEMEX to prepare the data rooms on a

to hire exclusively Mexicans. We need to develop a human

case by case basis. This is not the way this should be done

resources strategy that allows us to hire experts from around

and we should have access to all the information to create

the world.

a strong position for the Mexican state.

| VIEW FROM THE TOP

MAXIMIZING VALUE FOR THE MEXICAN ECONOMY NESTOR MARTÍNEZ Commissioner of CNH

Q: What is the most effective way in which the State can

strategies. This means that each field must have a plan for

maximize the value created from hydrocarbon reserves?

optimal production that allows the hydrocarbons’ potential

A: Hydrocarbon reserves have to be managed in a way

to maximize revenues in the long term. Poorly planned

that creates prosperity for the Mexican people, and there

hydrocarbon exploitation can generate losses in the future.

are several mechanisms to make this happen. Firstly, local content has to be used to its full extent, and the law

Q: How can the hydrocarbons sector create direct value

clearly states minimum percentages. Therefore, a natural

for the Mexican economy?

progression would be for Mexico to create goods that

A: The hydrocarbons sector plays a crucial part in tax

are internationally competitive so that operators will use

collection, so the sector’s growth will create jobs and foster

Mexican equipment, materials, and employees, generating

employment synergies because taxes are used to pay for

wealth and jobs for the country. The requirements are

health and other services that also create jobs, industries,

adequate given the sector’s development conditions.

and infrastructure. In this sense, adjacent industries can also

Norway’s oil and gas industry is an excellent example of

grow alongside the oil and gas sector, such as the food,

best practices in capturing oil revenues, and if we compare

cement, and barite industries. This sort of collective growth

Norway to countries like the UK with whom the North Sea

creates value for the nation. It is often said that the shale

reservoirs were shared proportionally, we will see that the

industry is not profitable, but the industries surrounding

former has accumulated about 50% more than the latter.

shale operations are strong and contribute greatly to the

In this sense, the local content rules established for Mexico

states where these operations take place. The key is to find

are appropriate, as the country cannot ask for a higher

the growth synergies in the oil and gas industry.

percentage given that it does not yet have the necessary competencies. A second element to take into account

Competitiveness is an essential component, especially

is the fact that exploration and production plans have to

considering the fact that operators seek to maximize value.

maximize value in the long term. Maximizing value in terms

In this sense, competitiveness among operators will be

of hydrocarbon reserves does not only mean incorporating

crucial so that these players can capture different markets.

new reserves, but also includes well-considered production

This situation entails materials, talent, and infrastructure, so

United States Mexico

Existing CSEM New Acquisition

EMGS MEXICO REPROCESSING MULTI-CLIENT PROJECT.

the government has to invest in the development of high-

Q: What are some fiscal implications of PEMEX turning

quality talent, which is lacking in Mexico and the rest of the

into a productive enterprise of the State?

world. There are several initiatives at the government level

A: In order for PEMEX to create value, it has to operate

to foster competitiveness in the sector, many of which

in a competitive environment where the same rules apply

involve scholarships. CONACYT is the main party involved,

to the NOC as to other operators. Those rules are already

and this entity also funds the development of technologies,

established, and there is a transition period, which should

as competitiveness entails the use of the best technologies

be as short as possible. PEMEX has autonomy that enables

in hydrocarbon production and exploration activities. CNH

the NOC to draft policies aimed at creating value, and

is involved in validating exploration and production plans,

despite any issues the company might be facing at the

so it is well-positioned to make suggestions regarding the

moment, this is possible in the short and medium term.

use of certain technologies to companies, thus improving

During the transition period, PEMEX will continue paying

their competitiveness.

a fiscal contribution that is much larger than that of

most NOCs. This is why the transition must be as swift Q: How is Mexico faring in maximizing hydrocarbon

as possible, as it will relieve PEMEX of its fiscal burden,

reserves with a long-term approach?

allowing it to reinvest its resources. Although PEMEX is

A: As a country, it is important to increase reserves

experiencing financial complications, the government

because this creates a pipeline for project development

has thoroughly discussed ways to provide the NOC with

and future production, and because reserve replacement

a platform that will enable it to be profitable in the long

will ultimately have an impact on the job market and the

term. These are the types of actions and interventions

economy. So far investment has been restricted, so reserves

needed to help PEMEX become the productive company

have not been replaced at the pace that technology allows

contemplated in the Energy Reform.

in other countries. However, with the Energy Reform, the entry of more operators, and the willingness of financial

Q: How do Mexican upstream opportunities compare with

institutions, we will certainly see an increase in the level

other options operators have around the world?

of reserves. Every guideline CNH has developed has

A: The main obstacles companies encounter globally

been crafted in a way that makes it the least invasive for

are burdensome bureaucracy for field development and

operators in order to enable an efficient development of

a lack of coordination and common objectives between

operations. In addition to the issuing of guidelines, we are

governments and regulatory agencies. Other countries have

currently working with PEMEX on the migration of many

had a clear vision of the way operators and governments

fields that the NOC might want to develop in partnerships,

should coordinate, because these will ultimately become

either technological or financial. CNHâ&#x20AC;&#x2122;s role is to be

partners seeking value. Mexico possesses these traits,

efficient, that is, to reduce the amount of procedures

as evidenced by the strong relationships between CNH,

and paperwork to the largest possible extent in order to

ASEA, the Ministry of Finance, and the Ministry of Energy,

assign these processes and allow the companies to begin

and operators are aware of this. However, operators also

operations promptly. Previously, CNH was overseeing one

notice other situations, such as the countryâ&#x20AC;&#x2122;s social and

operator, PEMEX, which is now changing and this forces us

security issues. When balancing all the elements, Mexico

to think more openly.

becomes a location in which operators want to invest.

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| VIEW FROM THE TOP

ADJUSTING ENERGY POLICY TO NEW OPEN MARKET CONDITIONS GUILLERMO GARCÍA ALCOCER Former Chief of the Unit of Exploration and Production Policies at the Ministry of Energy

Q: Has the drop in oil prices affected the Ministry of

enthusiastic and planning to offer contract areas with

Energy’s approach to upstream policy, and what does this

3,200m of water depth, and we were promptly advised

mean for the Mexican oil and gas industry?

by companies that only two or three of them would

A: The global hydrocarbons market has been affected

be capable of working at such depths. Therefore, if we

by several structural changes in the last few years, thus

included those kinds of areas in the round, there would

impacting in the entire industry. When we launched the

be a very limited number of possible participants, so we

first phase of Round One, the oil prices were around

introduced more shallow deepwater sites of just over

US$80/b but have dropped significantly since then. In

500m and left the ultra-deepwater fields for future bids

spite of this fact, companies and investors are still seeing

in order to attract a larger number of companies. Due

Mexico as an interesting playing field. Many companies

to this feedback and ongoing dialogue with the industry,

have established offices in the country and technical

blocks changed before the tenders were launched, and

teams are for the first time carrying out massive geological

we remain open to adjusting our offering according to

studies in our country’s side of the Gulf of Mexico, which

the industry’s reasonable requests.

is still relatively underexplored. For many companies, Mexico holds a strategic long-term importance, which

Q: What is the impact of the drop in PEMEX’s production

is good news for us, as some companies are bound to

on Mexico’s federal budget and the country’s ability to

be extremely selective about the countries in which they

meet its medium and long term production targets?

will invest and the kind of fields they intend to explore

A: A high percentage of our federal budget comes from

and develop due to the shift in prices. Mexico has an

the petroleum industry, but this has decreased sharply

extremely attractive and diversified offering in this

over the last few years. Ten years ago, 40% of the budget

regard. In seismic studies that are currently being carried

came from oil income, whereas today it is about 19%. Our

out with an investment of almost US$2.5 billion, almost

income dependency is now lower due to the Fiscal Reform

all of the Gulf of Mexico is being covered, and that is a

that was implemented in 2013, and this is important

solid way to gauge the interests that companies have in

because, although oil production is a substantial part of

Mexico.

Mexico’s federal income, we have also diversified into other sources of financing.

Q: What types of market incentives is the Ministry of Energy introducing to guide energy policy, and how is

We estimate that first oil from the phases of Round

this process advancing?

One will be coming on stream in 2017, and from then

A: We presented our first version of our Five Year Plan in

onwards production from the ongoing bidding rounds

July, and afterward, we opened a forum for nominations,

will start to pick up. In the midterm, this new production

a process in which companies approached the Ministry of

will begin to compensate the drop in production from

Energy to present feedback on the outline. After a careful

PEMEX. As for PEMEX, we must remember that through

look at what companies brought forward, when feasible

Round Zero, the productive enterprise of the State was

and convenient for the state, we adjusted the Five Year

awarded substantial reserves that allows it to sustain an

Plan issuing the definitive version in October. The process

important production platform for over 20 years without

will be carried out each year, with a revised version to

considering future discoveries and participation in the

be published after the yearly nomination process. This

public bidding rounds. In an open market, like the one we

interaction proved to the companies that the Ministry is

now have in Mexico, it is not possible to establish fixed

not only willing to listen to their input but within law and

production targets, and much less intervene directly in

reason, implement changes for the benefit of all parties

order to achieve them. Long-term production depends on

involved. For example, in the first plan, we were extremely

a series of external and internal factors, most of which are

I EXPERT INSIGHT: WOOD MACKENZIE not under the control of any modern government. Current

The past 12 months in the Mexican oil and gas industry were quite

and

breakthroughs,

dynamic, to say the least, given the closing of the first three bidding

abundance or lack of geological information, as well

expected

prices,

technological

rounds and the launch of the deepwater round. “Although the first

as changes in fiscal, technical, safety, or environmental

bidding round gave way to mixed results, those that followed

regulation profoundly affect production targets. The

were successful,” Pablo Medina, Latin America Upstream Research

Ministry of Energy can foster an environment that is as

Analyst at Wood Mackenzie, claims. He believes this success was

friendly and predictable as possible in order to attract

driven in part by the government's willingness to incorporate

investments in E&P. In this regard, we have conducted

industry feedback into its propositions and to amend terms based

three bidding rounds within Round One with very good

on observed results. According to Medina, “The undisclosed

results. Thirty new companies have been awarded

minimum acceptable profit share splits in the first bidding round

exploration and production areas, and the first private-

were one of the reasons why only two of the 14 blocks were

produced oil will soon enter the market. Nonetheless, the

awarded. However, I believe that the government’s disclosure of

increase in private production will be a slow process and

these figures just two weeks before the second bidding round is

thus, significant results will only be seen in the medium

part of the reason why the majority of the areas were awarded.”

to long term. The past year has also seen a new Director General taking the lead PEMEX is in the midst of a profound restructuring that we

at PEMEX, with the aspiration to make the corporate structure

hope will only affect short-term production due to budget

more agile and streamlined. Medina believes that González

cuts and the implementation of a new strategy. PEMEX

Anaya can bring a fresh perspective to the NOC and achieve

will have to focus on low-risk fields in shallow waters and

a similar success to the one he achieved in his previous role as

look for farm-outs for other kinds of fields that will allow

Director General of the Mexican Social Security Institute (IMSS).

for the participation of companies with the capital and

“González Anaya’s new job requires a double focus,” Medina

technology necessary to develop these resources in the

explains. “Internally, he will focus on cutting costs, optimizing

most efficient way possible. We are committed to offering

processes, and reducing the pension liability, and externally he

competitive contracting schemes, attractive bidding

will take care of partnerships with other companies in order to

blocks both onshore and offshore, and long-term certainty

gain access to capital, technology, and expertise.” Medina also

so that PEMEX and private companies invest heavily in

credits the new Director General’s solid working relationships with

these kinds of projects.

key government officials in securing the financial aid package for PEMEX announced by the Federal Government.

Q: What is your view on PEMEX’s recently announced adjustment plans? A: With the comprehensive and sweeping reform that was carried out in 2013, PEMEX is no longer solely responsible for every activity in the value chain. In this new scenario, PEMEX can concentrate activities on the most profitable areas, and leave the rest of the market to specialized private entities. For instance, any authorized company may freely import petroleum products from April 2016 onwards, as well as build storage facilities and pipelines. With this fundamental change, PEMEX can now leave those markets to companies that are more efficient and specialized, and thus concentrate on its core upstream business. PEMEX will concentrate its resources on shallow water and onshore fields, the areas in which Mexico’s NOC is a world champion. PEMEX will postpone some activities, for instance in deepwater, and these can be revisited when it can find a suitable partner through the bidding process the law allows. Although PEMEX has experience in deepwater exploration,

the

stage

its

current

areas,

development and production, requires a completely separate set of skills that are not available to the NOC at the present time.

| INSIGHT

A TRIPLE-HELIX STRATEGY TO ENSURE THE INDUSTRY’S FUTURE various companies in our organization, keeping sensitive data private. AON Consulting holds the confidentiality information, and directly provides clients with deliverables,” he reassures. The opening of Mexico’s oil and gas sector 20

ÓSCAR GONZÁLEZ

has led ARHIP to invite international players, such as

President of ARHIP

Shell, BP, and Schlumberger into its association. González reports that this has been somewhat challenging because certain concepts had to be tropicalized, such as variable

Mexico’s energy market has placed emphasis on addressing

compensation.

various disparities, the most impacting of which may be the gap between the oil and gas industry’s needs in terms of

In order to smooth the transition to a new oil and gas

human capital, the pool and pipeline of avasilable talent,

industry for its members, ARHIP also works with educational

and government and industry initiatives to solve this

institutions, governments, and the private sector to create

challenge. “Certain universities have failed to grasp the

a triple helix synergy. “The triple helix synergy involves the

importance of soft skills in the new market, for instance,”

tripartite participation of the government, the educational

says Óscar González, President of the Association of Human

institutions, and companies in the industry, and the general

Resources for the Petroleum Industry (ARHIP), adding that

aim is to create a cluster between these so they can work

this is exactly the challenge that his association is tackling.

together,” González expounds. He gives the example of

ARHIP came into being in 2010 and was specifically

the new technological innovation centers in Tabasco,

created after the founders observed a lack of regulation in

which came into existence through cooperation between

the compensation area of Mexico’s energy market, which

the local government, the Ministry of Energy, and private

González claims was a result of PEMEX’s position as the

companies. “Our aim is to support the industry and to

industry’s main client. “The NOC’s different business lines

provide companies with any tools they may need. To do

did not have a common homologated tabulator for the

so, ARHIP also looks to take advantage of the resources of

private industry, leading to disparities in salaries. Our aim

countries that have open, developed, and successful energy

was to homogenize and regulate this aspect,” he states. The

markets, and brings them to Mexico. Recently, we were

Association’s main success so far has been the completion

invited by the Ministry of Energy to an initiative in Canada

of an inquiry with over 236 positions, divided by business

where we were able to exchange online courses with the

lines, and the fact that it has taken care to match profiles

University of Calgary in Alberta,” González discloses. “We

properly. “To do so,” González reports, “we mainly worked

also work with more than 30 local universities involved in

with international firms, including AON Consulting, in

the oil and gas industries, such as the National Polytechnic

order to gain credibility. We worked together to collect the

Institute, UNAM, and UNACAR. We are pushing for

required information and to carry out individual matching

educational institutes to renovate their teaching programs

by company. The use of a third party allowed us to avoid

so they are in line with current market needs. This also

having to transfer and filter information between the

involves an upgrade of their facilities and equipment, as well as installing simulators and well schools.”

“The triple helix synergy involves

ARHIP also seeks to have a close collaboration with

the tripartite participation of

students across the country’s universities that have

the government, the educational

prepare students to enter the labor market. “We like to

institutions, and companies in the

can learn how to sell themselves to the industry,” González

industry, and the general aim is to create a cluster between these so they can work together” Óscar González, President of ARHIP

courses related to the oil and gas industry, in order to call these personal branding sessions, because students mentions. “One of the skills that we believe to be crucial for success in today’s globalized oil and gas industry is the mastering of English, which is why we are pushing for universities to offer this as a basic course within all industry programs. Soft skills such as leadership, communication, and intra-personal capabilities are also becoming increasingly important.”

| INSIGHT

FUNDING MEXICO’S PRESENT AND FUTURE The Mexican Petroleum Fund, known as Fondo Mexicano del Petroleo (FMP), was created as an instrument derived

MAURICIO HERRERA MADARIAGA

from the Energy Reform to manage oil and gas revenues

Executive and Administrative

and wealth. This makes one wonder why Mexico had not

Coordinator of the Mexican

implemented such a mechanism before. Indeed, other oil-

Petroleum Fund

wealthy countries have had hydrocarbons funds for decades. “It is important to point out two things,” Mauricio Herrera, Executive and Administrative Coordinator of Fondo Mexicano

payments being made, the Ministry of Finance can audit the

del Petróleo interjects. “The FMP is not Mexico’s first and

information and instruct adjustments to the payments. For

only oil fund. The Stabilization Fund for Budgeted Income

this purpose, it can rely on SAT as the state auditor, or on

(Fondo de la Estabilización de los Ingresos Presupuestados),

a third party. Finally, SAT directly receives and supervises

and the Stabilization Fund for Federal Entity Revenues

the payment of any fiscal obligations. “All information

(Fondo de Estabilización de los Ingresos de Las Entidades

and documentation will be submitted electronically using

Federativas) preceded the FMP as hydrocarbon funds and

electronic signatures,” Herrera remarks. He notes that the

continue operations alongside it.” Should Mexico experience

information available on the platform will be accessible to

turbulent times, the first line of defense would be these

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

stabilization funds, and the funds from the FMP’s long-term

as well as the contractor, which is an important element of

reserve would only be available once all other resources

oversight and transparency, as the authorities are required to

have been depleted. “The Federal Government will only have

notify each other of any irregularities they detect.

access to the FMP’s long-term reserve provided there has been a decrease, in real terms, of federal revenues for at least

Having paid Mexico’s operators, the FMP makes transfers

two years in a row,” Herrera points out. “Secondly, the FMP

to the stabilization funds, as well as several funds that

is not an exact replica of the typical oil funds found across

promote research in the sector. Once these transfers

the world. Unlike these, the saving of hydrocarbon wealth

are made, the flow of resources is directed toward the

for future generations is not its sole purpose. It is also in

federal budget. Until the fund accumulates 3% of the GDP,

charge of receiving and administering the revenues arising

the government is granted discretion for its spending,

from Mexico’s hydrocarbons production, acting as a treasury

and after that threshold has been reached, the FMP is

within the oil scheme. The Mexican Petroleum Fund has the

entitled to make recommendations. The second limit

obligation to transfer the revenues it receives following an

is set at 4.7% of the GDP, subsequent to which the FMP

order that was established by law.” Practically speaking, the

will start to accumulate its long-term reserve to benefit

FMP has two modus operandi. Depending on the type of

future generations. “This commitment toward limiting

contract, it either receives all of an operator’s income and

the hydrocarbon revenues available to finance the

gives the latter back its share, or the operator sends the FMP

federal budget was made possible thanks to the efforts

only what it owes to the government.

of the current administration to reduce the government dependency on revenues from the oil and gas industry. different

The authorities accomplished this through a fiscal reform

governmental organisms and the operator, Herrera explains

that significantly increased tax revenues,” Herrera asserts.

Looking

the

interaction

between

the

that the Ministry of Energy establishes the technical qualifications for potential contractors and the Ministry

“The widespread belief among the industry seems to be

of Finance defines the economic terms and establishes

that the FMP has failed its objectives so far. This belief,

the economic variables that determine the winner of the

however, stems from a misunderstanding of the fund’s

bidding rounds. “Focusing on the financial aspects, the

operations,” Herrera insists. “At the start of each year, the

most important payments commence during the production

fund establishes a goal in the form of a certain percentage

phase,” Herrera tells. “The contract establishes a mechanism

of GDP that it expects to retain, based on the oil price

of monthly payments, and any adjustments will be reflected

at the time. At the end of the year, we then redo these

in the future stream of revenue. Every month contractors

calculations, using the historic oil price at the time of each

and CNH will submit the information the FMP requires

transaction. Given the sharp drop in oil prices that the

to calculate its payments using the fund’s technological

industry has been experiencing, it is normal that the final

platform.” He goes on to explain that subsequent to the

results do not match our initial intentions.”

| VIEW FROM THE TOP

FUNDAMENTALS OF OIL REVENUE SALVADOR UGALDE Director of the Income Unit of Hydrocarbons at the Ministry of Finance

Q: What role does the Ministry of Finance play in the oil

Q: What are the differences between the Ministry of

and gas sector?

Finance’s Income Unit and the Mexican Petroleum

A: The Ministry of Finance and Public Credit has a deeply

Fund, and what are their respective responsibilities and

relevant set of responsibilities, mainly on the side of

missions?

the hydrocarbon contracts and the way in which these

A: The Ministry of Finance is in charge of designing policies.

should be calibrated and measured when it comes to the

We look at how to tax each particular contract depending

secondary legislation, which were issued in August 2014.

on geophysical conditions, whether it is deepwater, shallow

These responsibilities are also related to the economic

water, tight oil, or shale gas. We have to carry out an extremely

and fiscal conditions of the bidding processes and the

technical analysis to decide upon the parameters involved

contracts themselves, and to following up on the execution

in the contracts, the minimum price to be implemented

of those contracts from the point of view of the payments

in the bidding rounds, and the formula to determine the

and their financial results.

winning parties. The latter allows us to promote not only the companies that offer the most competitive economic

Despite the Ministry of Finance’s long and intense

proposal, but also the ones that are most willing to provide

relationship with PEMEX, it lacked a unit with the specific

financing to back up their pledges. After doing this, we let

capabilities to execute its new attributes under the Energy

the contract run and monitor its execution.

Reform for the oil and gas industry. For this reason, the Hydrocarbons Income Unit was conceived and then

The Mexican Petroleum Fund, on the other hand, is in

established on November 1, 2014. The unit is in charge

charge of collecting the proceeds from the contracts,

of developing the fiscal and economic conditions for the

calculating each party’s revenue when necessary, and

contractual models. Those conditions are contained in four

informing the general public of the outcomes of each

specific annexes that the Ministry of Finance is in charge of

contract. This includes proceeds, payment instruments,

developing, which focus on the structure of the payments,

the composition of these collections, and the way in which

including the way in which companies will make payments,

they are spent. The MPF must also inform the public of how

the procurement of items, goods, and services, and the

much is channeled into each of the different stabilization

accounting procedures. The income unit is responsible for

funds, how much is directed into the general budget, and

creating that design, calibrating the contracts’ economic

what surplus is placed into the fund’s core. The latter fund

parameters, and then, once they are running, it must

is then invested in order to generate a long-term savings

monitor and review the results. Should anything unusual

account for the entire country. On a daily basis, we are

appear, we launch audits to determine what is happening.

the ones overseeing the fund’s operations, while the fund

The unit has also played an important role in the fiscal

carries out the day to day executions of the financial

structure, not only from the point of view of the contract,

aspects of the contract.

but also on the corporate income tax, VAT, and all aspects that are related to the operations of oil companies. In the

Q: How has the drop in oil prices influenced the whole

past, there was no need for us to do so because PEMEX

financial plan for the different phases of Round One?

was not subject to corporate income tax, and adhered to

A: When we started designing the contractual framework,

special rules when it came to VAT and import/export duties.

we strived to develop a contract that could work

We work in collaboration with SAT and other areas within

independently to the exogenous oil price factor. We

the Ministry of Finance and Public Credit to create this

put a system in place that is progressive in the sense

framework that would not only be applicable to PEMEX,

that whenever rent appears, we can collect it and the

but to the entire set of new participants, with the purpose

contract adapts to it. If such rent is somewhat lower

of generating certainty for the investments.

because the gap between costs and prices is narrow, we

allow the project to continue using to several contractual

level of 14%. We distinguish between condensates, natural

mechanisms. These are the result of the fiscal design of

gas, non-associated natural gas, and crude oil. One of the

the contract, or the bidding process itself. The contracts

most interesting things in our contracts is the possibility

have the flexibility to adapt to different circumstances

of integrating these differentiated royalty rates. By using

thanks to the mechanisms contained within them. This

the price of production that is effectively observed in a

system allowed us to receive solid results for R1-L01, with

particular contract, we are able to capture the implied

bids moderately higher than we expected, despite the

quality of oil, as higher quality will fetch higher prices.

fluctuations experienced by the price of oil between the date when the contracts were launched and awarded.

Q: Could you interpret PEMEX’s budget reduction plans from the Ministry of Finance’s perspective, and what does

Q: Given the fact that the design of the financial side

it mean in terms of PEMEX’s future ability to invest and

of the contracts was heavily influenced by international

meet its financial obligations?

best practices, in what areas has Mexico innovated and

A: The Ministry of Finance has carried out many analyses

created its own financial scheme?

of PEMEX’s fiscal regime, and on average, it looks solid,

A: We have innovated with regards to the progressiveness of

but this average contains a vast amount of extremely poor

basic royalties. Typical fiscal frameworks around the world

and extremely promising projects. The NOC has a variety

have a basic royalty tax, which is a percentage that must be

of cross-subsidies to optimize its costs, but over the past

applied to income. We built a small progressivity based on

few years, these have spiraled upward. One of the items

price into this basic royalty. Whenever prices are under a

that PEMEX can use to promote efficiency and adequate

certain level, royalties are fixed, but should they rise above

terms is the migration to the contractual framework. This

it, royalties start increasing as well. For example, when oil

can be requested at any time, meaning that if a certain

price is under US$48, the royalties are fixed at 7.5%, but

area is not economic because of a fiscal constraint, the

above that price, royalties start increasing, meaning that

NOC can request to migrate it to a contract with more

for a price of US$100, we would observe a royalty at the

adequate terms, and those new economic terms would be drafted by the Ministry of Finance. The best case scenario for us would be for the organization to eventually undergo

WHERE DOES OUR OIL REVENUE GO?

this process, which will provide not only enhanced transparency but also greater budget flexibility.

Money from oil and gas E&P

Q: To what extent will there be any kind of special fiscal treatment for local content, due to the fact that the objective of the Energy Reform is to create value for the nation? A: Mexico is subject to several treaties around the world, and we must abide by those first, before implementing

Contractors that

measures to support local content. That being said, if

participate in E&P

we were to input similar clauses as other countries into

activities Stabilization fund Funds that promote research in the sector

contracts, this would immediately trigger non-conformity warnings from a partner in another country. We are being careful and doing our best to avoid distorting the local market, as what has happened in other latitudes has shown this is a potential danger. We are developing

Federal Budget 4.7% of GDP

the competitiveness of companies in Mexico using other MPF Long-Term

instruments. The contracts foresee that, under matching

Reserve

conditions, firms have to give preferential treatment to

Source: Mexican Petroleum Fund

local content, but because that is difficult to enforce in practice, there are a few elements within the reform that encourage national companies to become competitive,

WHERE DOES OUR OIL REVENUE GO?

avoiding them from having to rely on preferential

The Mexican Petroleum Fund receives, manages

treatment. We participate in a group with the Ministry

and distributes income from Mexico’s assignments

of Economy in promoting these value chains, trying to

and contracts for the exploration and production of

transform small local companies into fully-grown service

hydrocarbons.

firms through training and credit support, among other instruments.

| VIEW FROM THE TOP

FRESH ENERGY AT THE HELM OF PEMEX JOSÉ ANTONIO GONZÁLEZ ANAYA Director General of PEMEX

Q: As the new Director General of PEMEX, in which direction

can take advantage of the tools provided by the Energy

will you take the company’s transformation process?

Reform, which allow PEMEX to form strategic alliances

A: PEMEX’s transformation is a necessary step to ensure

and access improved technologies while sharing risks.

the company’s viability and the generation of value for

PEMEX, as the main oil and gas company in Mexico, is

the country. Therefore, we are shaping a new stage in

the most attractive partner when it comes to investing

the NOC’s history. Our main objective is to become a

in the country due to its infrastructure and proven

profitable and highly competitive company that plays a

reserves, as well as the accumulated experience of its

key position in developing Mexico’s energy industry, while

engineers and technicians. These elements will be the

strengthening our role as a productive enterprise of the

basis to negotiating in a competitive fashion with players

state to consolidate PEMEX as one of the most important

that qualify as the best partners, striving to obtain the

oil companies in the world. The cultural shift in all PEMEX

best conditions for the country. In this way, PEMEX will

employees and the implementation of a new work

be able to attract a third party’s resources, share the

system, which is based on a more efficient use of assets

risks, and thus increase production levels. Costs will

and infrastructure, will translate into higher operational

be ultimately reduced by operating according to the

excellence. The ultimate objective is to generate more

highest international industrial standards that, under

revenues that will benefit the Mexican people from

shared schemes, will allow us to generate revenues and

production, processing, transportation, distribution, and

maximize the country’s resources.

commercialization activities.

In the short term, PEMEX

will have a flexible and agile organizational structure that,

Q: How is PEMEX facing the global downturn resulting

through corporate governance practices, will guarantee an

from low oil prices?

efficient and transparent management.

A: The global oil and gas industry is going through a difficult time, and PEMEX is not exempt from this.

Q: What is PEMEX’s production strategy, given the

Therefore, just like other companies in the sector,

company’s budget restrictions?

PEMEX had to adopt stringent measures to guarantee its

A: Taking the current oil price into account, the

viability. PEMEX’s financial priority is to consolidate its

exploration strategy consists of delaying or reevaluating

structure to ensure stability and credibility in the market.

certain investment projects, such as for deepwater

We have insisted on the fact that the NOC is facing a

developments and fields that are not profitable at the

liquidity issue, but this is not the case for the company’s

moment due to high production costs. In addition, we

solvency, so its viability is safe. Just like in other low

2016 BUDGET ADJUSTMENT Lines of Action MX$ billion

Corporate

Other SPEs

Industrial Transform.

Generate efficiencies and reduce costs to increase operational productivity and promote a rational use of resources

13.1

1.9

Defer / reassess investments minimizing the impact on future production based on profitability and availability of budgetary resources

0.0

Adjust CAPEX and OPEX from an average of 50 to 25 US$/b, channeling budgetary resources to profitable activities under a low hydrocarbons price scenario TOTAL Source: PEMEX

E&P

Total

0.8

13.1

28.9

35.4

27.5

64.9

0.0

6.2

13.1

3.9

36.2

46.8

100.0

oil price cycles, PEMEX is addressing a challenging scenario responsibly, adjusting the budgets for each one of its areas by MX$100 billion. This adjustment has been implemented in practice, as accounts for several anticipated programs have been shut. This, however, does not have a negative impact on the company in the long term. Most importantly, the adopted measurements will not affect the NOC’s employees and facilities. I would like to stress PEMEX’s commitment to our financial and work-related obligations.

Q: How is PEMEX adapting its operations to the financial adjustment plan? A: The adjustment, far from weakening the company, makes it stronger by forcing us to accelerate the necessary changes and restructure costs and efficiencies. PEMEX will take advantage of the flexibility it was offered by the Energy Reform, and implement instruments such as contract migrations and farm-outs, which will allow us to attract financial resources, technology, processes, and experience.

AVERAGE PERCENTAGE OF SAVINGS EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN KEY ACTIVITIES IN KEY ACTIVITIES Marine logistics Seismic acqusition Drilling services Drilling equipment Marine services Maintenance and operational

Q: What strategies has the government put in place to

20%

assist PEMEX in this challenging moments?

24%

A: The NOC received resources of MX$73 billion from the

20%

federal government, through the Ministry of Finance, in 30%

April of 2016 with the goal of helping the company face the challenging times the industry is facing. Considering

20%

Engineering

this significant capitalization, and with previous approval of its Board of Directors, PEMEX committed to clear and

18% 20%

normalized payments to suppliers and contractors in the short term, so that current liabilities can be aligned with the company’s operations. In order to carry on with this

Source: PEMEX && Total Investor Day Sept 2015 Source: PEMEX Total Investor Day Sept 2015

effort and adding to the request of credit lines for MX$15 billion with the development bank, PEMEX paid its 2015 As part of the measures that complement the budgetary

debt according to the schedule agreed on by its clients.

adjustment presented in February 2016, we are directing PEMEX to improve its financial indicators though concrete

Since

actions such as the saving strategies the company

strengthening of PEMEX’s assets, the NOC’s fiscal regime

implemented last year by changing its pension schemes.

has been modified, resulting in more cost deductions and

We are already generating efficiencies, as we have

lower taxes, which are estimated at MX$50 billion for the

reduced administrative costs through actions such as

2016 fiscal year. This will lead to higher liquidity indexes

merging three supporting areas in the Director General’s

by strengthening the cash balance, as well as an improved

office into one and eliminating two corporate divisions,

capital structure and debt track record for the rest of the

Human Resources and Technological Research and

year. All these measurements, paired with a lower amount

Development, which were reassigned to the Corporate

of debt, improve the company’s capital structure in order

Administrative Division and PEMEX E&P respectively.

to face the challenge of adjusting its costs and its business

expenditure

strategy to the current reality as quickly as possible.

and expenses related to personal services, travelling

PEMEX is seeking greater efficiency levels to consolidate

allowances, and general expenses, which alleviates the

itself as an attractive and reliable partner that will help

company’s liquidity.

develop the national energy sector.

addition,

have

reduced

overall

the

government’s

support

considers

the

| VIEW FROM THE TOP

ADJUSTING AND BALANCING TO SOLVE PEMEX'S LIQUIDITY CHALLENGE JUAN PABLO NEWMAN CFO of PEMEX

Q: What are your main priorities as the CFO of PEMEX?

throughout PEMEX to understand what is profitable at

A: The most important thing is to move forward, and

current prices and stopping anything that is not. Those

we are now a productive state company, which requires

investments will be delayed. This price environment gives

changes in all areas, the first of which is our corporate

us the opportunity to start incorporating the present and

culture. Secondly, we have to find efficiencies and be

future profitable investments into the budget.

more competitive with regards to the investment that new Energy Reform will foster. We must also be transparent

Q: What still needs to be done in order to overcome your

and become an international reference for the future as

liquidity challenge as fast as possible?

an oil company.

A: We have already carried out the adjustment, and now we have the support of the Federal Government. That

Q: What are the main changes to be carried out in order

comes in two parts. The first one is liquidity to pay our

to become a value-seeking company?

contractors and providers. We have an outstanding

A: Since we have to become more efficient, we must

debt that is quite high for the companyâ&#x20AC;&#x2122;s dynamics, and

conduct a comprehensive analysis in terms of the value

US$4.29 billion will be used to decrease that debt up to a

that is created for the company. We will no longer be

functional balance. The second support mechanism gave

merely focusing on production, but this does not mean

us a floor for the cost cap. Following the Energy Reform,

we will produce less. On the contrary, we have to analyze

instead of being in nominal terms expressed in US dollars,

which of our investments are profitable in order to reach

it became relative to the price. When the reform was

the new expectations set for us by the Energy Reform.

approved, the oil price was over US$80/b, so we were

This means forming associations and alliances with private

allocated 10.5% of the price, which increased to 11.075%

partners, which will bring more value not just in terms of

this year. However, because the oil price is at US$20/b, we

investment and costs but also in terms of efficiencies.

actually have less than we used to. One of the measures of support was putting a floor, which is US$6.10/b for

Q: How are the low oil price environment and resulting

shallow water fields and US$8.30/b for onshore fields. This

budget cut impacting your strategic priorities?

fiscal relief of around US$2.92 billion, estimated at current

A: The adjustment that was implemented was not only a

price levels, will be used to decrease our financial needs

budget cut, but a redefinition of the company. We carried

and deficit with the end aim of improving the companyâ&#x20AC;&#x2122;s

out a deep analysis with three objectives: cost reductions,

financial health. We will not use it to increase our budget.

finding new areas of focus, and adapting to the new

Our primary focus is on improving our current and future

low-price environment. When it comes to new areas of

health using the permanent support of the cost cap.

focus, there are two main components. The first one is the reconfiguration of refineries, for which PEMEX will

The Energy Reform instruments come next. We can

look for partnerships and alliances, as we no longer plan

migrate our fields, which might help us in fiscal terms. As

to invest in that area. The second area we are looking at

the rounds have come up, the cost cap is approximately

is deepwater, which is not yet in place, but for which we

60% of the price. Even though this currently stands at

expect to begin production in eight to ten years. Here, we

US$6 in a low price environment of around US$30/b,

will look for operational partnerships given the high level

60% is US$18, which means we can carry out three times

of risk involved. Unlike the refining area, which we can

more deductions. That does not come for free, however. In

operate, in deepwater we need technology and expertise,

order to achieve that, we need to improve our efficiency

as well as investment. As I mentioned before, we are also

and costs to reach an international benchmark. The

trying to adapt to the new low oil price environment,

government is able to give us that support because it

which is poised to stay. We are carrying out an analysis

would provide them with incremental production.

Q: What are the main financial benchmarks that you use

Q: What is your response to potential deepwater partnersâ&#x20AC;&#x2122;

to compare PEMEX to NOCs or IOCs?

concerns about PEMEXâ&#x20AC;&#x2122;s liquidity challenge and its ability

first

benchmark

against

other

state-owned

to make the agreed contributions to the development of

companies because we do not have equity, after which

the projects over time?

we compare to the major private companies. We want to

A: What we have done in the recent months has allowed

become one of the best Latin American oil companies. I

us to regain some trust, which has been reflected in the

think PEMEX has operated well for 70-80 years, and now

spread reduction that we have experienced lately. It is very

we have to learn to operate as a state-owned company

important for everyone to be confident in the fact that

and not a monopoly.

things are being taken care of. This year, our CEO made a commitment to outline and implement an analytical and

Q: To which extent will these changes be driven by the

reliable business plan. Investors are starting to see this

financial and operational angles?

new commitment that will give them the possibility to

A: PEMEX is not a financial company or a bank. We are

invest in PEMEX.

an oil company. We are going to focus on our business, which will improve our finances with solid management

Q: What should suppliers expect from PEMEX in 2016,

practices. We will look to become extremely efficient in the

and what sort of payment behavior will the NOC adopt

operational part and selective in the investments we make.

in the future? A: This is an ongoing process, and PEMEX is paying off

Q: Which areas will be the core business of PEMEX and

its 2015 debt to suppliers. The important thing is the

will receive capital investment, and which areas can be

net balance. Being a large company, we have payment

operated in partnerships or be divested completely?

processes that are naturally delayed. This creates a natural

A: We will continue investment in the upstream sector as it

amount of debt with which we function. In a couple of

is our main focus. PEMEX has done great work in shallow

months, all of the 2015 debt will be covered. Our more

waters so far, and although we are used to exploiting very

recent payment behavior has been much more typical for

large fields, the small ones pose certain challenges that

the new contractors we are hiring, and we expect to pay

could be solved through partnerships. In onshore fields,

them in October-November. 180 days is the timeframe

we will do the same. In deepwater, we want operational

that is naturally implemented. As for 2016, we are going to

partners. We do not just want them to bring investment,

start working with this process so that no one is affected.

but also to operate so that we can learn and improve our

Lately, however, we have been delaying more than the

capacities.

natural process requires.

| ANALYSIS

A CLOSER LOOK AT PEMEX'S 2015 FINANCIAL PERFORMANCE Mexico was not exempt from the crisis resulting from the

by the end of the first quarter of 2015 to MX$17.40/US$1

precipitated drop in the oil price, and in 2016 the average

in April 2016.

price of the Mexican crude basket stood at US$25.92/b, almost half the price budgeted by the government for that

PEMEX was forced to lower its expectations in terms

same year, and 43% less than a year previously. Gasoline

of revenues and revise the forecast to a more realistic

prices evidenced the impact of the oil price soon after,

figure of US$25/b, which was chosen because it was

as these tumbled down 30% in the northern coast of the

thought to suit a conservative scenario in terms of current

US Gulf of Mexico during the first quarter of 2016. The

expectations in the industry. This revision led to a cut in

average price of gas based on the Henry Hub also suffered

revenue of approximately US$5.6 billion.

a decrease, as it was down by 32% compared to the same period in the previous year. However, this is attributed to

MEASURES TO ADJUST TO A NEW ENVIRONMENT

different causes, such as an increase in inventory buildups

On February 26, 2016, the Board of Directors of PEMEX

and warmer than average temperatures in Japan, Europe,

decided that in order to comply with the maximum deficit of

and the US. In addition to dropping commodity prices,

US$8.3 billion established by the Federal Revenue Law and

the industry was also hit by a depreciation of the Mexican

meet the financial balance goal set for the year, the company

peso against the US dollar, which went from MX$15/US$1

would have to enforce a Budget Adjustment Plan that

would cut over US$5.6 billion to its allocated expenditures.

attributed to a reduction in export volumes. Domestic

The NOC understands that there is no other way to adapt

sales, on the other hand, decreased by US$900 million

to the new unfavorable price environment and is following

or 10% mainly as a result of a decline in the international

the footsteps of its competitors with the budget cut and

reference price of gasoline and diesel, and to a lesser

its redefinition as a company that prioritizes profitability,

extent by a decrease in the sales volume of LPG.

stability, and sustainability. In line with these new objectives,

the Adjustment Plan also requires the deferral or cancellation

COST OF SALES

of projects that do not add value at current prices and the

The cost of sales decreased by 21% in majority because

implementation of efficiencies in several expenditure items.

of a reduction in the “other” item, which englobes

In addition to the aforementioned internal changes, PEMEX

depreciation, amortization, impairment, net cost for

is seeking to use the figures and mechanisms offered by the

the period of employee benefits, preservation and

Energy Reform. “We will strive to strategically collaborate

maintenance, exploration expenses, non-successful wells,

with third parties to diversify sources of working capital

inventory variation, and subsidiary entities consolidation

and share risks, monetize assets to increase our financial

net effect. The ones that impacted the cost of sales most

flexibility, and migrate assignment contracts to the new

during the first quarter of 2016 were inventory variation,

exploration and extraction contracts that offer more

which suffered a US$800 million decrease due to the

attractive fiscal conditions. The new business model will

lower value of products in different periods, as well as

maximize value creation by focusing on profitable projects

depreciation and amortization, down US$600 million

to stabilize production,” Juan Pablo Newman, CFO of

because of a lower calculation base that followed from

PEMEX, expounds.

declining prices, fixed asset impairment, which represented a US$300 million drop as a result of no-asset re-evaluation

The Federal Government announced two support measures

during the quarter and compared to certain assets’ re-

aimed at strengthening PEMEX. The first involves a capital

evaluation during the first quarter of 2015, and the net

increase of US$4.1 billion, comprised of an exchange of

cost of employee benefits that amounted to a decrease

US$2.6 billion in non-negotiable government certificates

of US$200 million for the period due to the modifications

received in December 2015 for negotiable ones, and

in the pension scheme. The gross income, calculated by

US$1.47 billion in an equity injection through certificates

deducting cost of sales from total sales, totaled US$3.5

of participation. In addition to this, the government put

billion, a US$600 million or 15% decrease compared to the

forth a decree on raising the tax-deductibility ceiling

first quarter of 2015. The reduction in cost of sales was the

applicable to the profit-sharing duty, setting minimums of

main reason in reverting the gross loss experienced at the

US$6.10/b and US$8.30/b respectively for shallow waters

end of 2015.

and onshore fields that could generate up to US$2.8 billion in savings, subject to the prices of hydrocarbons.

GENERAL EXPENSES

It is hoped that these measures will help reduce PEMEX’s

General expenses are broken down into distribution,

liquidity constraints, therefore reducing accounts payable

transportation

to suppliers and the financial debt, and eventually

expenses, and other expenses. In the first quarter of 2016,

guaranteeing the sustainability of the company. Moreover,

general expenses stood at US$1.7 billion, down US$300

the revision of PEMEX’s pension scheme is also having a

million or 15% from 2015. The drop is mainly attributed

positive impact on the company’s financial results.

to a 33% decrease in the distribution of expenses and a

and

sales

expenses,

administrative

6% decrease in administrative expenses, mainly related

SALES

to the variation in personal services from the reduction in

During the first quarter of 2016, total sales amounted

personnel that occurred throughout 2015. Consequently,

to US$12.5 billion dollars. Broken down, this equates to

operating income fell to US$1.7 billion, 16% less than in

US$3.8 billion in exports, US$8.5 billion in domestic sales,

2015. Newman reminds that the operating loss observed

and US$0.2 billion in revenues from services. The 19% or

at the end of 2015 was able to be reverted thanks to

US$3 billion decrease compared to the same period in

improvements in the gross income and a reduction in

2015 can be explained by a decline in the average sale

general expenses. Interest expenses went up by US$2

price of oil and its derivatives.

million following an increase in financing activities and the depreciation if the Mexican peso against the US dollar.

Looking into the individual causes, exports dropped 35%

Interest income grew by US$1 million mainly due to the

or US$2.1 billion due to a US$1.4 billion decrease in crude oil

investment in securities.

exports as well as US$600 million reduction in petroleum products exports. These lower prices accounted for 72%

Income from financial derivatives experienced a positive

of the decrease in total export sales, while the rest was

variation of US$1.4 billion, which represents an increase of

155% compared to the same period in 2015, largely thanks

total of US$13.3 billion that could be raised through the

to the appreciation of the US dollar against other currencies

communicating vessels mechanism.

in which PEMEX has entered into through cross currency swaps. Nonetheless, the NOC also recorded a foreign

To date, PEMEX has tapped both the local and international

exchange loss of US$1.1 billion, US$100 million more than in

markets, raising approximately 54% of total allocated

2015 due to the depreciation of the Mexican peso against

financing for the year. In January 2016, it accessed the

the US dollar. As a result, the difference between operating

local debt markets and entered into a bank loan for

income and net financial cost provides an income before

US$400 billion, and in March, the company issued Stock

taxes and duties of US$170 million, or 134% more than the

Certificates amounting to US$300 million and obtained

amount recorded during the first quarter of 2015.

US$800 million through three credit lines with Mexican development

banks.

The

company

already

tapped

Taxes and duties during the first quarter of 2016 added up

international debt markets in January 2016 and issued

to US$3.6 billion, which is US$1.5 billion or 29% less than

securities for an aggregate amount of US$5 billion in three

in the first quarter of 2015, a drop that can be attributed

tranches, maturing in 2019, 2021, and 2026. In February

to a combination of drop in the crude oil price and lower

it accessed the market for US$2.25 billion. In March, it

production, which lowers the tax base. Despite the new

raised US$2.6 billion in two tranches, maturing in 2019 and

fiscal regime to which PEMEX was subject as of 2015, the

2023, and in April, PEMEX entered into a bilateral loan for

company is still unable to deduct all of its operating costs

US$571.6 million due in seven years.

and expenses from its calculations of taxes and duties. In order to reduce this impact, on April 18, 2016, the Federal

Thanks to the support measures granted to PEMEX by

Government published a decree that grants certain tax

the Federal Government, financing needs are expected to

reliefs to assignment operators, which are expected

decrease, primarily benefitting the domestic market and

to reduce the payment on the profit-sharing duty and

giving the company more flexibility regarding operating

to improve the financial condition of the company. In

execution. The company expects to receive approximately

consequence, PEMEX recorded a net loss of US$3.4 billion,

US$2.8 billion from this scheme, which it will use to pay off

38% less than the one recorded last year, in majority due

US$200 million out of the US$1.7 billion it has to allocate

to the effect of prices and exchange rates discussed

for the year. These US$2.8 billion that PEMEX received

previously. The comprehensive loss, however, amounts to

were part of a pension reduction agreement drafted in

US$3.5 billion, 34% less than last year's as a result of the

2015 that amounted to US$10.4 billion, the rest of which is

conversion between the different currencies and PEMEX’s

still under revision by the Ministry of Finance. The company

functional currency, the Mexican peso.

might receive this latter amount in liquid form or under the form of securities that will help it reduce its pension

LIABILITIES

liability. Moreover, PEMEX hopes to access international

PEMEX’s financial debt went up by US$7.2 billion while

markets again in the next quarter to raise dollars, Swiss

the reserve for employee benefits increased by US$900

francs, or Japanese yen in order to diversify the sources of

billion. Moreover, the NOC recorded a US$2.3 billion or

funding. In the time period from February to April 27 2016,

26% decrease in supplier liabilities during the quarter, and

the spread between PEMEX’s financing costs in dollars

an increment in the remaining liabilities of US$600 million.

and the Mexican government bonds in dollars narrowed

As a result, total liabilities as of March 31, 2016 stood at

by 59 basis points, while the spread with the US Treasury

US$177 billion.

bills decreased by 116 basis points.

PEMEX and PMI’s total financial activities during the first quarter of 2016 added up to US$11.7 billion, with total debt

2016 FINANCING PROGRAM1 Sources of Funding

Allocated US$ billion

billion. The impact generated on the company’s debt

Domestic Markets

6.0 – 9.0

from exchange variation added up to US$900 million. The

International Markets

8.0 – 11.0

evolution of equity was subject to a decrease of US$3.5

Bank Loans

0.5 – 1.5

billion during the first quarter of 2016 as a result of a net

Export Credit Agencies

(ECAs) 1.0 – 2.0

loss of US$3.4 billion during the period.

Other

3.0 – 3.5

Total

21.1

According to the 2016 Federal Revenue Law that was

Debt Payments

5.4

approved by the Board, PEMEX has an internal net

Net Indebtedness

15.7

payments made during that period amounting to US$5.3

indebtedness ceiling of US$6.1 billion and an external net indebtedness ceiling of US$7.2 billion, amounting to a

Source: PEMEX 1 Estimated, based on 2016 Budget Proposal

| VIEW FROM THE TOP

THE FUTURE OF PEMEX LIES IN CAPITAL MARKETS DAVID ENRÍQUEZ Partner at Goodrich, Riquelme y Asociados

Q: Which factors have put PEMEX in the challenging

Congress to change the fiscal regime of the assignations,

position it finds itself today?

but this is an unlikely option. The second revision that

A: The reason PEMEX has reached such a low point is

should be made lies in the firm’s financial structure.

because the lack of preparation before the Energy Reform,

Although this is a sensitive topic, it is a perfect time to

and the drop in oil prices led PEMEX to crash in a short

bring it up given the fact that Saudi Arabia is breaking the

period. The accumulation of these situations has created

taboo of opening public national oil companies to financial

a perfect storm for the productive enterprise of the state.

markets. I have always said that PEMEX will eventually die

The exceptional talent that it holds is not enough to save

if it does not enter capital markets. PEMEX must avoid

the NOC, which urgently needs to undergo a culture shift.

sinking further into debt at all costs. Naturally, before it can

PEMEX must start working with partners and not only

consider floating a certain percentage of its shares, it must

contractors, and realize it will be just another player in

revitalize itself to make private investment an attractive

Mexico’s oil and gas industry. In addition to updating its

option. The first step toward this is to restructure the

culture to reflect the current industry structure, it also

company, after which the NOC can work toward making

needs to readjust two of its fundamental aspects.

its culture more partner-oriented and eliminating the assignations that are constraining it.

One of the flaws of the Energy Reform was the absence of consideration of a transitional tax regime for PEMEX,

Q: Under which circumstances could the Mexican

leaving the parastatal void of any incentives to continue

government consider floating PEMEX shares?

functioning

efficiently.

The

fiscal

regime

for

the

We will see the impact of the Energy Reform in

assignations is deeply confiscatory, and it is destroying all

the medium and long term, as IOCs and independent

of the NOC’s competitiveness and value. I believe these

operators will eventually catch up and contribute the an

should be overturned, either through farm-outs or through

overall production increase. Only a certain percentage of

the migration of contracts. Another solution would be for

this production will come from the NOC, decreasing the

MEXICO LIFE EXPECTANCY

PEMEX PENSION OBLIGATIONS

In 1942, PEMEX's retirement conditions were established:

ACCRUED OBLIGATIONS (MX$ BILLION)

• 55 years of age MEXICO: LIFE EXPECTANCY • 25 years of work

• Up to 80% of wage

The life expectancy increase has had an

47 34

48% Cur pension

exponential effect on

Accrued obligations

MX$1,517 billion

the pension liability

48% current pensions

Source: PEMEX Source: PEMEX

2013

2010

2000

1990

1980

1970

1960

1950

1940

1930

Source: PEMEX

42% reform objectives 10% active employees

42% Ref

objectiv

10% Act employe

dependence of the federal budget on PEMEX. Once we

from Round One. If the NOC could at least raise capital

reach that point, the productive enterprise of the state will

on its own for these enterprises, it would become much

have become a more efficient competitor and the political

more attractive for IOCs, which would then contribute the

class will have more pragmatism. The concept of floating

experience lacked by PEMEX.

a percentage of PEMEX shares in the near future is not as drastic as the Energy Reform was back when it was

Q: How could corruption impact the Mexican oil and gas

announced. A capital intensive industry needs capital, and

industry, and what are its implications for the licensing

when capital cannot be accessed due to reasons such as

rounds?

debt, a company restructuring and a change in the fiscal

A: In the energy sector, the impact of corruption is mostly

regime is needed. Once PEMEX restructures and the fiscal

felt in public procurement by the state-owned enterprises.

burden is reduced, it will be attractive enough to float its

When it comes to the opening of the sector, I have to

shares. Such an action cannot come from desperation, but

recognize the authorities’ standards in Round One in terms

rather must be the result of a sound longitudinal exercise

of transparency and the perception of the round, which is a

that will take at least five to ten years. Going public will

positive signal because the tenders are the key component

be the next natural step for PEMEX, which is also positive

to the success of the Energy Reform. Nonetheless,

because the pressure imposed by investors will lead to

corruption in other areas is far more complex. Whenever

greater efficiency and transparency. It would be a disaster

there is a crisis there is room for corruption, and the

if PEMEX shares were floated right now, but it should

current woes of the oil and gas industry are no exception

happen in the near future, especially if the company

to this rule. People find a way to loot spoils when there is

manages to restructure successfully.

a vulnerable entity. I am afraid this could be happening or could happen if PEMEX and CFE and not careful in

Q: How could PEMEX best improve its access to capital?

their restructuring processes because the conditions for

A: PEMEX should float shares in the segments of the

corruption are there. We have different scenarios, such as

industry where it is most difficult to raise capital. The

the successful achievement of transparency seen in Round

market is open for all three segments of the oil and gas

One, and a negative scenario, in which certain people see

industry, and there are different financial vehicles for

a vulnerable PEMEX and want to take advantage of the

the hydrocarbons value chain. For instance, Fibra E was

situation. In the case where corruption were to take over

created for the midstream sector, as the availability of a

PEMEX, companies that are not directly interacting with

market, a transportation system, and off-takers make this a

the NOC would not be significantly affected, but it would

stable and sound business. For the upstream segment, the

be naïve to underestimate this statement. In the first few

natural course is to enter capital markets because PEMEX

years of the reform, all companies in the Mexican oil and

does not have much to offer in this regard. PEMEX can add

gas industry will be interacting with PEMEX because they

value in terms of human capital and experience in certain

will be using the NOC’s infrastructure, particularly the

assets, but it cannot contribute much in projects such as

winning companies from R1-L03 and the CIEP and COPF

deepwater operations, since it does not have any fields

contracts.

UPDATE OF THE PENSION SCHEME PEMEX has implemented drastic changes to its pension scheme as a part of its budget reduction plan, aimed at decreasing the US$90 billion debt it has accumulated to date. One of the most contested changes is the increase in retirement age for relatively new employees, a measure that was approved by the Union of Petroleum Workers of the Mexican Republic (STPRM) in November 2015. Indeed, pension payments represent a large part of PEMEX’s expenditure, but the modification of the pension plan is expected to result in an annual liability decrease from US$51.7 billion to US$17.1 billion between 2015 and 2021. Should PEMEX employees with less than 15 years of seniority want a pension equivalent to 100% of their salary, they will now have to stay until they reach an age of 60 instead of 55, in addition to ensuring at least 30 years of service. New employees will be under an individual accounts scheme, which includes certain advantages such as a complementary contribution from PEMEX, the possibility of transferring it to other accounts, and voluntary saving with fiscal benefits.

Based on the following conditions, the Federal Government will recognize with an amount equal to the savings achieved through the negotiation and amendment of the Collective Bargaining Agreement: • Individual account regime for new employees • Gradual adjustment of the retirement parameters of active employees

| VIEW FROM THE TOP

PEMEX TO BOOST PRODUCTION THROUGH PARTNERSHIPS GUSTAVO HERNÁNDEZ Director of Prospective Resources, Reserves, and Associations at PEMEX E&P

Q: What are your responsibilities of the Prospective

A: Some service contracts that were signed under a

Resources, Reserves, and Associations division at PEMEX,

bidding process prior to the reform can be transferred

and how do these differ from PEMEX Alliances & New

to E&P contracts under the new framework, and at the

Business?

moment there are 16 CIEPS and six COPS looking to be

A: PEMEX E&P was reorganized into three areas. One

migrated into the new scheme. Initially, we split these

division is dedicated to exploration, discovering new

contracts into two sets of 11. The first set of migrating

prospective resources. On the production side, one

contracts consisted of COPS that have existed since

division will manage the development of existing

2003-2004 and some CIEPS that were signed in 2011,

fields. However, a third area will focus on fields where

such as Santuario, Magallanes, Pánuco, Arenque, Altamira,

third parties are involved in the production process.

San Andrés, Ebano, Nejo, Misión, and Olmos. The second

The reason this third division was created is that the

set was composed of Tierra Blanca, Carrizo, and the last

E&P divisions have plenty of work on their plate, and

five Chicontepec blocks, Amatitlán, Miahuapan, Pitepec,

managing partnerships requires different skills and

Humapa, and Soledad, as well as other four COPS like

approaches than only working within PEMEX. That

Cuervito, Fronterizo, Monclova, and Pirineo. Although

being said, alliances, partnerships, and joint ventures fall

Miquetla belongs to the second set, it was included in the

under the responsibility of the Prospective Resources,

first due to a request from the company operating it.

Reserves, and Associations division, and the teams that work in fields under a JV will report to this division. While

There are 22 blocks and each entails a different learning

CNH will define our partners through a bidding process,

process. When we submitted the initial request to migrate

we have to decide who the operator will be. If PEMEX is

the contracts, there was a need to make some amendments

going to operate, then PEMEX E&P will be responsible for

to the entitlement blocks that were awarded to PEMEX in

the project because technical details and the allocation

Round Zero, such as modifying the entitlement to include

of CAPEX fall on the operator’s side.

the whole block. In other cases, some assigned areas overlapped, which we noticed when we began the process

The main difference between the Prospective Resources,

and had to request the correction. In the meantime, the

Reserves, and Associations division of PEMEX E&P and

Ministry of Energy and CNH issued new guidelines for

the corporate division Alliances and New Business is that

E&P plans that were not considered when the Round Zero

the latter is in charge of defining the alliances that will

fields were awarded.

maximize PEMEX’s performance, define the people who will be members of the board in a JV, and decide which role

To start the process, PEMEX had to sign a letter of consent

PEMEX people will play in each case. On the other hand,

with its future partners, and then undergo a financial

Prospective Resources, Reserves, and Associations will

assessment, as each party will have its own working

focus on technical aspects and on the actual production

interests, so we had to establish the shares. Also, changing

processes. In this sense, my area deals with associations

the type of contract entails demonstrating to the Ministry of

in existing contracts, such as the migration of CIEPS

Finance that the migration will improve government take,

and COPS, and future partnerships, such as farm-outs.

increase reserves, and increase production by decreasing

In addition, we are responsible for validating discovered

the fiscal obligations. Part of the negotiation process

volumes and certifying hydrocarbon reserves according to

included carefully defining reserves, area extension,

CNH’s guidelines and our internal procedures.

facilities, infrastructure, and royalties. For this purpose, we hired five international financial entities that used different

Q: What has been holding back the process of the

methodologies, which were aligned and standardized at

migration of CIEPS and COPS?

the end of the process. The next step was to summarize

the development and production plans, as well as the

in its 60 fields, while ATG (Chicontepec) produced 41,000 in

minimum work commitment that will be included in the

28 fields. The Veracruz asset yielded 14,000b/d, and Burgos

new E&P contracts. It was a long discussion because with

is not producing oil at the moment. In the group of fields

the cost recovery at 70% and sometimes 100% of eligible

with contracts awaiting migration, Ébano is the largest oil

costs. We went to the basics determining what eligibility

producer, with 11,000b/d, Santuario produces 5,000b/d,

meant and what was an eligible cost. After this learning

Arenque 4,000b/d, and 6,000b/d came from Ogarrio-

process, I can assure you that all the service contracts,

Sánchez Magallanes. In the case of offshore assets, Litoral

except for the ones in blocks with a pending amparo will

de Tabasco is responsible for 363,000b/d, including the

be migrated.

Tsimin-Xux field. Abtakún-Pol-Chuc produced 200,000b/d across 16 fields, and the eight fields in Ku-Maloob-Zaap

We started with Santuario operated by Petrofac, Misión

produced 860,000b/d. Cantarell produced 232,000b/d

operated by Techpetrol, Ébano, and Miquetla, operated by

with its ten fields. While some fields like Samaria Luna are

Grupo Diavaz. Companies have already submitted their

declining, other like Abkatún-Pol-Chuc, Litoral de Tabasco,

requests before the Ministry of Energy and ten contracts

and even Ku-Maloob-Zaap are yielding positive results.

have received a green light. Olmos, a COPF for a gas field

Highly productive new fields were discovered in Abkatún,

in the northern region, cannot be moved further because

such as Onel, Kuil, Homol, and Chuhuc, which are helping us

of an amparo from a mining company. We have talked

counter the decline rate. In the Cantarell complex, Ixtoc and

about this with Lewis Energy, the company requesting the

Kambesah produced 15,000b/d, Ek-Balam 46,000b/d, and

migration, who understands that not much can be done

Chac, Kutz, Nohoch, and Takin contributed with 27,000b/d.

at the moment. As for the rest of the blocks, we decided

Sihil had an output of 31,000b/d, but the most important

to move on different fronts but we found that all the

producer in Cantarell was Akal with 78,000b/d. If we only

players in the process, the Ministry of Energy, the Ministry

focus on the scope of the farm-outs, Cárdenas, Mora, and

of Finance, CNH, and PEMEX, needed to learn a new

Samaria produced 48,000b/d, Ek-Balam 46,000b/d, and

process. In the past, every actor tried to advance in the

Bolontiku-Sinan had an output of 43,000b/d. Ogarrio

best direction, and these were not always fully aligned, but

yielded 10,000b/d and Rodador 3,000b/d. Ayatsil-Tekel

now we have assembled a task force that includes a legal

produced 3,000b/d, which is not bad considering the asset

counsel, New Business, Associations, the finance area, and

has recently started production.

many others in order to align and streamline the process. Santuario is close to being successfully migrated, and all

Regarding gas production, the largest output came from

the CIEPS and COPS should be migrated before the end

Cantarell in the 2007-2008 period, which amounted to

of this year.

1bcf of formation gas. Cantarell now produces 10% of the total gas production. There are considerable natural gas

Q: What are the overall production trends, and what

producers, such as Ogarrio, which produced 33mcf/d.

context does this create for the attractiveness of COPS,

Rodador is not a gas producer, but it had an output of

CIEPS, and additional future partnerships?

5mcf/d of associated gas. Nejo is worth mentioning, as

A: PEMEX’s total production reached 3.383 million b/d

it produces 200mcf/d. Back in 2013, we began reporting

in 2004, but has dropped to 2.259 million b/d in 2016.

Nejo’s production as condensates, but now it is reporting

Since 2004, when production at Cantarell peaked at

liquids. Cuervito and Fornterizo have an output of

2.125 million b/d, an extended decline reduced this field’s

15mcf/d, and we are in talks with the operators, Grupo

production to 230,000b/d by March 2016. However,

Diavaz, Petrobras, and Teikoku because even though

the other fields in PEMEX’s portfolio have experienced

the production is significant, we want to make sure it is

an overall production increase as a result of our

profitable under the current regime. In the exclusive case

effective diversification strategy that compensated a

of CIEPS and COPS, the former produce 273mcf/d, a

substantial proportion of Cantarell’s production decline.

higher number than that of the COPS, which are natural

Compensating the production decline of a super-giant

gas producing assets and have an output of 147mcf/d.

field and increasing production by 60% is something no other company in the world has done. The challenge

At their peak in 2009, Monclova produced 1bcf, making

remains, but the numbers herald good news.

it an important asset. Burgos produced 90mcf/d, Nejo 80mcf/d, and Misión 1.1bcf/d. There are significant gas

In terms of annual averages, the 15 entitlements in Samaria

producers but it is important to take the Henry Hub

Luna contributed with 142,000b/d, Bellota-Jujo produced

price reference for future estimates. If we find a great

96,000b/d across 26 fields, Cinco Presidentes 88,000b/d

production potential, we could allocate CAPEX and get

in 21 fields, and Macuspana-Muspac produced57,000 b/d

some fields to the production levels they experienced

across 37 fields. Poza Rica was able to produce 57,000b/d

back in 2009-2011.

| VIEW FROM THE TOP

THE JOINT VOICE OF MEXICO'S NEW OPERATORS RAYMUNDO PIĂ&#x2018;ONES Director General of AMEXHI

Q: What type of representation and action does AMEXHI

A: The first three calls of Round One have demonstrated

strive to undertake on behalf of its members?

that the government is able to deliver a very ambitious

A: AMEXHI is the only association which gathers the upstream

program. Having said that, Round One will only be the first

players in the industry; that means the companies whose

step of this program, and we are already halfway there.

activities are only exploration and production. We currently

The successful implementation of the Energy Reform will

have 42 members, an excellent mix of nationalities and sizes

depend on the long-term creation of a new hydrocarbons

which gives us a global perspective, a large array of company

industry with a variety of players along the whole value

types, and also a capacity for technological advancement

chain. Seven of our members are or will soon be operators

and innovation. We have the major IOCs, large independents,

or are in a consortium with an operator. We have enabled

firms specialized in unconventional resources, NOCs, and

the sharing of a common vision, and that has been AMEXHIâ&#x20AC;&#x2122;s

eight new Mexican companies. AMEXHI is organized by

great delivery. We have been able to gather the opinion of

a general assembly, where all members are represented,

the upstream hydrocarbons industry giving one more voice

a board of directors that looks at daily decisions, four

to the government and different decision makers on which

committees that handle finance, technical issues, external

policies to adopt to turn this into a success. We will keep

affairs, and legal affairs, along with my position. All members

working and doing what we have been doing. I would not

are able to contribute through the committees in generating

say there is one specific challenge. Everything has a certain

the position of AMEXHI which is the one that eventually

degree of difficulty to it, given the amount of changes the

is shared with consultation councils and authorities, and

industry is experiencing.

it is through their opinion and technical expertise that the committees agree on a common voice of the industry which

Q: What are your priorities for the following years?

is then shared with the different authorities.

A: Since we are a new organization, we will work on continuing the institutionalization of AMEXHI, which means finding

At this point, AMEXHI is assisting different public and

the right connection mechanisms with other associations,

private entities in order to shape the new hydrocarbons

international entities, NGOs, and the government. More

industry, considering the challenges that will come

importantly, we will continue to gather the view of the

when companies start operating. At the moment, these

industry assisting the long term process of creating a new,

challenges are strictly theoretical until companies have

safe, sustainable, and responsible hydrocarbons industry. In

a local operation. Nonetheless, we are focusing on the

ten years, AMEXHI would also like to see Mexican companies

creation of a new sustainable and responsible hydrocarbons

becoming competitive globally; not only the upstream

industry. Although ensuring the attractiveness of Mexico

players, but also the Mexican service providers.

as an investment destination is not one of our direct objectives, we support the government through technical opinions in choosing the right policies to achieve this goal. We do that by sharing best practices and acting as the common voice of the industry to the authorities. We interact with authorities and the ministries through the formal consultation processes, for which we are part of their consultation committees, and work with them on most pieces of regulation they issue. Q: How have AMEXHI and its members contributed to the success of Round One so far?

Maximum Efficiency, Minimum Cost.

EPC

+52 (55) 2487 0283, 84 y 85

www.grupohosto.com.mx

Engineering, Procurement & Construction.

contacto@grupohosto.com.mx

| VIEW FROM THE TOP

FROM SOURCING HUB TO STRATEGIC OPERATIONAL ENVIRONMENT ALBERTO DE LA FUENTE President and Director General of Shell Mexico

Q: What have been the highlights during your four years

were unenthused at the idea of sourcing from Mexico, as

as Shell Mexico’s Director General, and how different has

they were used to working with their own suppliers. Now,

this experience been from what you expected?

however, they have no choice, and that makes Mexico

A: Although I initially entered Mexico with prudent

much more competitive. This comes in addition to our

expectations in order to avoid frustration, I believed that

exceptional geographic location, as well as the quality

even if nothing were to happen in the energy sector, it

and the cost of our labor force. Another important factor

would still be a rewarding experience. As a matter of fact,

when it comes to having a sourcing office in Mexico is

it has turned out to be completely different to what I had

that it is now not only evaluating opportunities for export,

expected, with each year being notably different from the

but it would also provide significant savings should Shell

previous one. The main highlight for Shell was of course the

decide to undertake a project locally. So far, our sourcing

Constitutional Reform. Mexico had been waiting for this shift

office has been disseminating the market. The office has

for a long time, and when it happened, it left everyone with

become extremely relevant because it allows us to compete

a great feeling of satisfaction and with the assurance that

even more successfully with projects outside of Mexico,

the country was moving forward. The next highlight was

and it allows us to deepen our understanding of sourcing

the day when the government awarded the first exploration

opportunities for projects within the country.

contract. This was the manifestation of all the hard work

Shell has been present in Mexico since 1954,

that the country contributed to the constitutional and legal reforms. Finally, the announcement of the deepwater bidding round and a date by which offers must be placed was the third most significant event. Q: How competitive is Mexico in the context of Shell’s global portfolio of opportunities? A: Two aspects should be considered when attempting to rank the attractiveness of opportunities. The first one

when it began distributing, commercializing

petrochemicals and eventually lubricants

is materiality, which is the country endowment, without which little can be done. In this respect, PEMEX’s work

Q: What would you advise the Mexican government to

over the years has made Mexico an attractive location. Only

do today to make sure that the national content debate

now are we starting to look into the country’s seismic data,

makes sense in the future?

but we believe that there is materiality and a promising

A: It should apply the lessons learned from other industries,

source of hydrocarbons, which piqued our interest. The

such as the manufacturing sectors, be it automotive or

other aspect relates to a country’s terms and conditions

aerospace. I believe the government is already looking at

and its global competitiveness. Despite the attractiveness

them. Mexico is becoming increasingly open to global

of opportunities elsewhere, we believe that Mexico holds

markets, namely with the Trans-Pacific Partnership. This

several promising prospects.

is an opportunity for the government to look at the way in which these agreements affect other industries, and

Q: Which role does its global sourcing hub in Mexico play

apply the lessons learned the oil and gas sector, allowing

in Shell’s global and local strategy?

it to compete internationally. It is also important that

A: Our hub has reinforced the merits of strategic sourcing

local content requirements remain transparent in terms of

in Mexico. We have noticed that in times of high oil prices,

administration. This is in the best interest of all players, given

companies lack the incentive they now have in seeking

the number of people and processes involved. We must not

the most cost-efficient supplier. In those times, players

get lost in the bureaucracy of administering the system.

| VIEW FROM THE TOP

STRIVING TO KEEP SERVICE COMPANIES AFLOAT ERNESTO MARCOS GIACOMAN President of AMESPAC and Founding Partner of Marcos y Asociados

Q: What are the main priorities for AMESPAC at the

Q: What concrete actions is AMESPAC taking to help its

moment?

members to mitigate the effects of the industry’s current

A: The first and most urgent matter is the problem

financial reality and PEMEX’s overdue payments?

resulting from PEMEX’s liquidity constraints restraining its

A: The problem is not limited to companies not being

ability to pay its suppliers and contractors. AMESPAC has

paid for services provided a year ago; the real issue is

been deeply involved in addressing this problem, looking

that PEMEX no longer has the budget to operate as

for solutions, and approaching PEMEX to face this issue so

planned this year, so it is cancelling contracts. Some of

that the government can finally take actions. The first step

these are three-year contracts that PEMEX is cancelling

has been injecting capital so that the oil company can get

with less than 20% of the work being completed. Even

up to date with its overdue invoices that it has been unable

though the oil company had an assigned budget for those

to pay due to budget cuts, affecting jobs and services

contracts, it has no available resources. Companies that

that have been effectively provided. The second action

had such contracts with PEMEX have had to invest in

consists of organizing meetings with the new operators

obtaining certifications and preparing their staff, and now

that have being assigned contracts in Round One in

their contracts were cancelled without the possibility of

order to promote our associates’ services so that these

obtaining a new contract in the short term. Of course, this

can diversify their markets. We have already arranged

is greatly due to the low oil price, which has left the State’s

meetings with the winners of the first two phases, and our

oil company without liquidity. However, this is also the

members have presented their service offerings.

consequence of a structural issue that had a cumulative effect over the years, because an important part of the

Some of the other problems we are revising include the

NOC’s budget was spent on unrelated activities.

delay in migrating CIEP and COPF contracts. In the case of the latter, we want the migrations to happen as soon as

The current situation is deeply affecting companies in the

possible, because the companies that provide services to

sector, and even though AMESPAC members are large

PEMEX and are looking to become operators are members

companies that do not run the risk of disappearing, many

of AMESPAC. Farm-outs are also behind schedule,

of our service providers and suppliers are going through a

as PEMEX, the Ministry of Energy, and the Ministry of

difficult situation that sometimes forces them to shut down

Finance have not yet agreed on the financial and fiscal

operations. The association is working on helping the largest

terms related to the entry of private investment in fields

possible number of these smaller players to survive, but it

awarded in Round Zero. Finally, we are also developing

is not an easy task as the banks are also worried because

new project finance schemes, an area of expertise for

PEMEX is the only source of payment these companies

Marcos y Asociados, which is assisting in promoting

have, and therefore their financing guarantee.

private investment in the sector. In the light of this situation, AMESPAC is looking for We are seeking all sorts of modalities in which private

new financing schemes, for which we have approached

players can participate in the energy sector, both in oil

NAFIN, which has a supply chain program that finances

and gas and the electricity industries, within the new

contracts from large companies going through a rough

legal framework. Even though AMESPAC congregates

patch that hire service companies. NAFIN is offering

companies that work with PEMEX, we have some

factoring, so once PEMEX validates an invoice, this is sent

affiliates involved in electricity generation too. Therefore,

to NAFIN, or any commercial bank that obtains financing

the association is interested in promoting all kinds of

from NAFIN. The invoice is paid and the bank collects

direct participation of private investment in the energy

from PEMEX through NAFIN, which provides liquidity

industry.

to the NOC while commercial banks assume the risk.

It is worth commenting that the risk entailed in having

secondary market will emerge. I have met with all sorts of

PEMEX pay once the invoice is due, is a significant one,

players, from private equity funds to family offices, who

and even though PEMEX is now a productive enterprise,

want to invest in the oil industry, so there is an evident

the government will have to make sure that PEMEX does

appetite. However, an actual market is still missing, so

not fall behind on its payments.

investors cannot buy assets, for example.

We are also working on financing schemes so that the

Q: What are some initiatives the private sector is

private sector can approach PEMEX and operate, be it

undertaking in order to enhance its participation in the

through service contracts, associations, or farm-outs. In

energy sector?

other words, we are trying to find ways to inject private

A: A new milestone is the creation of the Mexican Energy

investment into PEMEX so that it can continue with its

Council (COMENER). AMESPAC was a key sponsor of

projects. In parallel, we are approaching the new operators

the creation of this entity, and the idea behind it is that

that are entering the market with concrete work programs.

there are several organizations and industry chambers

Back in 2014, PEMEX’s budget amounted to MX$300

across the energy industry, which includes oil, gas, and

billion, but there were budget cuts in 2015, and the NOC’s

electricity, that share common interests and concerns.

budget for 2016 is MX$216 billion, a 27% decrease. When

Many members of this organization belong to both

including overdue payments from past years, known as

AMESPAC and COPARMEX. In fact, Juan Acra, President

Due Payments from Previous Fiscal Exercises (ADEFAS),

of COPARMEX’s Energy Commission, was selected as the

and the recently announced budget cut, PEMEX is left

head of the Council. Another important matter relates

with little money to invest. Our only alternative is to look

to the TPP, as it will consolidate the changes that have

for private investment.

been made in the energy sector’s legislative framework and provide legal certainty to contracts signed with

Q: What can be done to keep the industry afloat until the

the government, both in the oil and gas and electricity

new operators begin operations, considering that PEMEX

industries. We have been working with experts who

is not in a position to drive growth?

were advisors to the business sector who are drafting

A: The Energy Reform was intended to create markets. The

some clauses in the TPP, so we feel optimistic about

electricity market is moving according to schedule and

the additional benefits this will bring to international

without major complications. The oil and gas market has

investments in Mexico’s energy industry. For the first

revolved around the blocks offered in Round One, but this

time, investments are being protected beyond the

is just a primary market. We also need secondary markets

companies, spanning all the way to contracts with the

with liquidity, and the only way to support this task is by

public sector. The TPP will also protect investments and

migrating the COPS and CIEPS, speeding up the farm-

contracts against future changes in the legislation, so

outs, and for PEMEX to find financing mechanism that

everything that has been achieved so far is irreversible,

will enable it to continue operating its fields regardless of

as these changes are valid before international treaties.

budget constraints, which can only be achieved through

The objective is to protect the Energy Reform beyond the

private investment. Once the conditions are provided, a

current presidential term.

| VIEW FROM THE TOP

ADJUSTING STRATEGY FOR THE MEXICAN MARKET WALLACE PESCARINI President Mexico & Central America of Schlumberger

Q: How are you planning to turn your arrival as President

that was initially expected when the new legislation was

of Schlumberger Mexico into an opportunity at such a

introduced.

challenging time? A: Positivity is crucial in times like these. I have a breadth of

We are also taking advantage of this crisis in order

experience operating in the Middle East, Europe, Africa, and

to accelerate our “transformation program”, which is

Latin America, and even though there is no strong country

driven by our CEO Paul Kibsgaard, and this involves

in which to be operating at the moment, Mexico is one of the

careful examination of our operations, and our methods

most solid options due to the positive future perspective. All

for generating business success. In 2011, when we

countries are suffering a great deal due to the low oil prices,

began to notice that the industry required a complete

especially those that are highly dependent on oil and gas,

transformation, we saw an opportunity to accelerate this

but the Energy Reform has generated great anticipation of

by improving efficiency and drilling performance, which is

the future changes. I worked in Mexico 15 years ago, and I

helping greatly to mitigate the effects of the low activity

was positively surprised by the impact that the government

level and the resulting pricing pressure. Simultaneously,

made with the Energy Reform in such a short period of

we are passing on these savings to our customers, as we

time. Last year, the bidding rounds were the key milestone

strive to become the best-run company in the oil and gas

of the Energy Reform, and due to their success, I strongly

industry.

believe that the future of Mexico’s energy industry is bright. Q: To what extent will Schlumberger’s structure and Q: How is Schlumberger modifying its global business

strategy have to be modified in order to operate

strategy in an environment characterized by low oil prices

effectively in the country, given the transformations in

and increasing price pressure on suppliers and service

PEMEX’s structure and the entrance of new operators?

providers, and how is the positioning of Mexico within

A: Schlumberger has always been able to adapt well

your global portfolio changing?

to local cultures, even though our transformation

A: Mexico has always played an important role in

program has been introduced at a global level. We

Schlumberger’s operations, both at a global level and

have customized many services to adhere to Mexican

within Latin America. A few years ago, we decided to

needs and, due to PEMEX’s importance in our global

separate Mexico and Central America from our Latin

vision, we have tried to align ourselves as closely as

American bracket in order to provide the appropriate

possible with the NOC’s changing structure. Lately, we

visibility merited by the strengths of both regions. In the

have participated in interactions with PEMEX wherein

context of the current business environment, Mexico is

both parties share details of restructuring plans in

suffering on the same scale as all other countries due to

order to find synergies and provide mutual support

the pressure imparted by the current low oil prices. PEMEX

in accelerating both transformations. Regarding the

faces challenges in terms of its budget restrictions, decline

newcomers to the market, we have a global presence,

in production, and the limited amount of additional debt

meaning that many potential partners are accustomed

that the NOC can adopt. Despite these challenging times,

to the way we work, so we are trying to localize the

Schlumberger is keen to negotiate this market, having

performance and efficiency levels to operate under

been operating in the country for 80 years. We have a

Mexican conditions. As a result, our global standard

deep understanding of operations in Mexico. As a result,

means we can provide the same experience whether

we have been gradually adjusting to the new environment,

working in the Gulf of Mexico, or in other countries like

limiting our activities somewhat, but constantly keeping

Brazil, and we can provide assurances that we use the

in mind the potential that the future holds, especially as

same state-of-the-art technology that we implement in

the Energy Reform begins to attract the level of activity

other countries around the world.

Q: To what extent do you expect other private companies

these factors will be vital to our continued success in the

to have the same appetite as PEMEX for integrated

country. This year, we are finalizing investment in a base

solutions?

in Villahermosa in order to provide support not only for

A: In my experience, even outside of Latin America,

onshore operations, but also for offshore. We are also

the tendency in the industry has always been to seek

expecting to complete the multi-client seismic program

integrated solutions, so our customers, regardless of

by mid-2016, and we are working with new customers

whether they are small independent players, IOCs, or

entering the market to guarantee a smooth transition.

NOCs, realize that the creation of synergies is conducive to generating savings. Another positive aspect of integrated

One important contributing factor to our success is

services is risk management, and if there is anything the

our diversity, and the fact that we do not only focus on

Macondo incident has taught the industry, it is the value

oil and gas but also on working closely with the local

in allowing the operator to focus on the well integrity

communities. We make concerted efforts to develop large

and the reservoir. I am confident that the new players

quantities of national content, and 90% of our employees

coming to Mexico will have an appetite for this kind of

are Mexican. In addition, more than 500 Mexicans work

approach, mainly due to the fact that they will not yet have

for Schlumberger in other parts of the world, and we

established the critical mass necessary in the country to

always make sure we maintain this quota. We have also

liaise with several suppliers. In this way, integrated service

been focused on social programs, such as Schlumberger

suppliers like Schlumberger can facilitate the establishing

Excellence in Education Development (SEED), a volunteer-

of operations in a new country, and we have already

based initiative designed to invest in education and is

witnessed this demand in places like Africa, for example.

focused on underserved communities where Schlumberger operates. The SEED action-learning methodology is

Q: What are your main priorities for 2016, and how are

based on science and technology experience through

you planning to achieve these?

our volunteers, to inspire teachers and students to seek

A: With a volatile market, there is the need to focus on

innovative ways, like robotics, to solve the worldâ&#x20AC;&#x2122;s common

the aspects over which we have control, and it is difficult

problems, such as water scarcity, environmental issues and

to predict what oil price fluctuations may occur over

safety. To date 13 schools and more than 15,000 students

the next few months. In the last 12-18 months, erroneous

have benefited from this program. In summary, success in

predictions have been made regarding oil price recovery.

Mexico requires a multi-faceted approach, which includes

The foundations of our business are Health, Safety, and

a close collaboration with local communities in the vicinity

Environment (HSE), service quality, and investment, and

of the areas where we operate.

| EXPERT OPINION

CONFLICT BETWEEN THE CASH COW AND SACRED COW TIM SAMPLES

successful auctions and attract some quality bids. People

Assistant Professor of Legal

quickly forget previous efforts in Mexico to hold bidding

Studies at Terry College

rounds for oil projects, namely the integrated service

of Business, University of

contracts after the 2008 Energy Reform and the multiple

Georgia

service contracts before that, which failed to reach the expected outcome. One encouraging sign is that some early mistakes in the contracts and the bidding process

For years, the future of Mexico has been closely linked to

were corrected after regulators responded to market

the oil industry, and more specifically, to the state-owned

feedback. There is much work to be done, but there

oil company, PEMEX. That relationship is based on the

are some positive signs too. The upcoming and highly

government’s heavy reliance on the NOC for tax revenues.

anticipated deepwater auctions are a major test.

Historically, taxes from PEMEX accounted for about one third of the Mexican government’s income. However, changes

Any sovereign government setting out on this path faces

are afoot. Mexico has reduced reliance on oil revenues to

tradeoffs between maintaining sovereignty and attracting

below 20% of the tax base, but this reduction has not been

private investment on favorable terms. A similar game

entirely pre-planned and voluntary. While the government

of give and take occurs in trade negotiations between

deserves some credit for easing PEMEX’s tax burden, the

sovereign nations themselves. In that sense, Mexico’s

NOC also suffered over $30 billion in losses during 2015 and

current sovereignty tradeoffs are par for the course and

faces record levels of debt. The good news is that Mexico

approximate industry-standard international practices.

has increased non-oil tax revenues through a fiscal reform

That said, with more attractive price conditions, Mexico’s

and, as a percentage of Mexico’s gross domestic product,

regulators could certainly be more aggressive in setting

oil constitutes half of what it did a couple of decades ago.

the tone for auctions as far as fiscal terms, government

Manufacturing and other sectors are helping to fill the fiscal

take, and other bidding and contractual terms. Economic

gap that PEMEX left behind. Looking ahead, the government

conditions have impacted the standard for what constitutes

needs to build on these successes by consolidating the fiscal

“good enough” terms for the Mexican government, as well

reform and improving tax collection practices.

as for the private companies bidding on these projects. Today’s energy industry is certainly a bidder’s market.

In order to successfully attract necessary investment in the energy sector, Mexico needs to create (1) a clear framework

I characterize the historic role of PEMEX as simultaneously

for private investment with attractive economic terms, (2)

serving as a cash cow and a sacred cow in Mexico. As a

competent and independent regulatory authorities, and

cash cow, the NOC shouldered a disproportionate and

(3) an efficient bidding process with balanced contracts

unsustainable share of the government’s fiscal base. As a

and adequate transparency. Nevertheless, we have to

sacred cow, it has existed in a highly protective but stifling

evaluate the outcomes of Mexico’s Energy Reform in

legal environment. PEMEX was asked to do the impossible.

the context of the worldwide collapse in oil prices. It is

Responsible for covering all of Mexico’s needs, it was run

also worth remembering that the reform ventures into

much like a ministry of the government, while prohibited

uncharted territory for Mexico. What we are witnessing is

from forming partnerships with other energy companies.

certainly a historic landmark, but the practical implications

The weight of these dual roles was even heavier before the

are just as real. Relatively inexperienced regulatory

Energy Reform, which has eased some of the burdens on

agencies are navigating brand new legal frameworks while

PEMEX. Nevertheless, many questions about the future of

engaging the private sector on multiple fronts in unfamiliar

PEMEX remain unanswered. For instance, we have yet to

ways. The learning curves are steep and numerous. After

see how the farm-outs or joint ventures between the NOC

some early setbacks, the regulators have done relatively

and other energy companies will take shape. A significant

well so far, all things considered. Despite extraordinarily

amount of progress is needed before it can become an

difficult market conditions, Mexico has managed to hold

internationally competitive enterprise.

Tim Samples’ research is focused on sovereign debt and energy in international investment. His articles have been featured in several notable journals, including the Stanford Journal of Law, the Northwestern Journal of International Law and Business, and the Law and Business Review of the Americas

| VIEW FROM THE TOP

THE STEPS TOWARD BETTER CONTRACTING JESÚS RODRÍGUEZ DÁVALOS Founding Partner of Rodríguez Dávalos Abogados

Q: How would you rank the attractiveness of Mexico as an

Q: How successful has the government been in structuring

oil and gas investment destination?

and administering E&P contracts so far, and what learning

A: It is difficult to compare the current state of the Mexican

curve have you identified from R1-L01 to R1-L03?

oil and gas industry, which has very recently opened

A: CNH has restructured and adapted the model contract

up to private investment, and is still in the process of

several times to address the concerns of the industry

implementing all of the secondary and tertiary regulations

regarding several issues, such as the possibility of

of the Energy Reform, with other industries that have

superficial recognition and exploration data trading and

allowed private participation for decades. Nevertheless,

transfer. These changes have resulted in a more polished

Mexico’s legal regime applicable to oil and gas activities

contract model that has served and will serve as the

has been modified after studying and identifying the

basis for future tenders. Likewise, it has refined the bid

successes and failures of several types of regimes on

presentation event to include faster bid valuation methods

a global level, the best international practices, and the

that take into account electronic means, without sacrificing

particular circumstances and potential of our country.

the transparency in the process. As for the administration

Therefore, in general terms, the regime is designed to be

of the contracts, it is in its infancy since most, if not all, of

competitive and attract foreign investment.

the R1-L03 contracts have yet to be executed, and the R1L01 contracts will remain in exploration phase for at least

What

are

the

main

highlights

regarding

new

a few more years.

opportunities in the Mexican market? A: An example of some of the newest local opportunities

Q: What are the main advantages of Mexico’s upstream

would include the fact that, as laid out in President Peña

contracts for the private sector?

Nieto’s announcement in February, as of April 1, 2016, any

A: The advantages depend on the type of contract.

company that meets the applicable legal requirements

Production sharing contracts and license contracts give

may import gasoline and diesel, an activity previously

title and possession of the hydrocarbon production, as

reserved to PEMEX. Due to the price spread between

opposed to profit sharing and services contracts that

the national price of gasoline and diesel and that of

only grant economic interest in the production. In this

other countries, there could be an interesting business

sense, it is important to note that so far, only production

opportunity here if the traded volumes are high enough.

sharing and license contracts have been tendered and

Another thing to take into account is that practically all of

awarded. One concern regarding license contracts is that

the refined products storage and pipeline transportation

the main bidding variable is a percentage of additional

infrastructure in Mexico is owned by PEMEX, due to the

royalty over gross revenues instead of a percentage of

fact that prior to the Energy Reform, PEMEX was the

the operating profit. This is a variable that does not share

only user of these facilities. Much of this infrastructure

the risk of higher costs between the government and

dates a few decades back and has not received proper

the contractor, and therefore, it might not be considered

maintenance over the years. Furthermore, some of the

attractive for some investors. I would recommend that the

pipelines have a significant illegal tapping problem. All

government carefully select the type of contract for each

of these circumstances present a scenario of interesting

block, a responsibility of the Ministry of Energy, instead of

opportunities in which to improve and provide maintenance

changing the nature of contracts, which would require the

to existing infrastructure in Mexico.

legislators to modify the law.

Rodríguez Dávalos Abogados is a legal consultancy firm that provides both legal and business advisory to national and international clients in the Mexican oil and gas industry; another Q&A in the next chapter is dedicated to Jesús Rodríguez Dávalos perspective on Round One.

ROUND ONE

High hopes have been raised in Mexicoâ&#x20AC;&#x2122;s Round One on the part of both the Mexican government and the nation, not to mention private investors. R1-L01 only succeeded in awarding two out of 14 exploration blocks, a setback that the authorities recognized as a learning opportunity. Following a successful revision of the contract terms, R1-L02 resulted in the allocation of three shallow water production fields out of five tendered. The third phase was a roaring success, with 100% of the 25 onshore contracts awarded to predominantly Mexican companies with the ambition to become operators. The next bidding round, and the one that has IOCs tingling, is the deepwater phase. This fourth bidding round will be concluded on December 5, 2016, and includes fields in both Perdido and Cuenca Salina. The final phase of Round One, which had been on standby, has now been put back on the table, and is expected to soon be launched to enable companies to bid for unconventionals.

This chapter offers insight into Round One, focusing on the activities of the authorities and regulators, as well as the undertakings of winners of the bidding rounds. It will also review the role of PEMEX, including upcoming farm-outs and potential joint ventures. In addition, it provides an overview of the fields included in each phase as well as their characteristics, and an analysis of each bidding round.

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| CHAPTER 2: ROUND ONE 48

VIEW FROM THE TOP: Lourdes Melgar, Ministry of Energy

VIEW FROM THE TOP: Sergio Pimentel, CNH

VIEW FROM THE TOP: Héctor Acosta, CNH

INSIGHT: Alberto de la Fuente, Shell Mexico

ANALYSIS: Round One in Brief

VIEW FROM THE TOP: Guillermo García Alcocer, Ministry of Energy

VIEW FROM THE TOP: Edgar Rangel Germán, CNH

MAP: Round One Overview

MAP: Round One Winners

INSIGHT: Iván Sandrea, Sierra Oil & Gas

VIEW FROM THE TOP: Timothy Duncan, Talos Energy

VIEW FROM THE TOP: Mariano Hernández, Nuvoil

VIEW FROM THE TOP: Craig Steinke, Renaissance Oil

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

INSIGHT: José Pablo Rinkenbach, AINDA Consultores

VIEW FROM THE TOP: Derek Woodhouse, Woodhouse Lorente Ludlow

VIEW FROM THE TOP: Benjamín Torres-Barrón, Baker & McKenzie

INSIGHT: Carlos Pascual, IHS Energy

VIEW FROM THE TOP: Jesús Rodríguez Dávalos, Rodríguez Dávalos Abogados

VIEW FROM THE TOP: Eckhard Hinrichsen, DNV GL - Oil and Gas

INSIGHT: Sebastián Aguayo, Marsh

Rosa Morán, Marsh INSIGHT: Alberto Jones Tamayo, Moody’s Rosa Maria Morales Cid, Moody’s

| VIEW FROM THE TOP

AUTHORITIES SUCCEED IN LURING NEW PLAYERS LOURDES MELGAR Undersecretary of Hydrocarbons at the Ministry of Energy 48

Q: How does the profile of the companies that won blocks

Q: What would happen if the companies in R1-L03 fail

in the first three phases of Round One compare to the

to make their operations profitable enough to pay the

type of companies you were hoping to attract?

government share they agreed on?

A: The prequalification requirements changed from one

A: It is important to point out that the Mexican government

round to the next, and these were drafted in a way that would

is not willing to renegotiate contracts, as some companies

attract the types of companies we thought we needed.

did with PEMEX in the past. If a company miscalculated

The Ministry was criticized at some point for the stringent

its proposal, it has two options. In the first, it can opt for

requirements for the shallow water blocks, but there are

not signing the contract, paying a penalty for doing so,

two important elements behind this decision. Firstly, we

and allow the second closest bidder to step in. The second

wanted to ensure that the companies that are going to work

option consist of the authorities revoking the contract. If

in the Gulf of Mexico had the knowledge, experience, and

we get a contract back, we would tender the area again.

capabilities needed to develop these areas and bring them

It is not the ideal scenario, but it will not be a serious blow

to production in a safe and sound manner. The requirements

to the production targets in the case of R1-L03. I would be

for the second tender, the shallow water extraction round,

concerned if something like this happened in the deepwater

were higher than those of R1-L01 because we wanted to

round, but the mature fields round was meant to create a

make sure that the participating companies had the ability to

new industry in Mexico, so it is part of a learning process.

produce a barrel in offshore setting. I find the shallow waters phase particularly important because I am convinced this is

Q:What are the challenges in moving the unconventional

where the fastest increase in production will come from.

resources round forward? A: R1-L05 is a difficult round. At first we decided to postpone

I am quite pleased with the results from the offshore

the tender due to current oil prices, especially because the

rounds, particularly in terms of benefits for the state. There

country has no experience in these types of fields nor the

was a lot of criticism in R1-L01 because we only awarded

needed infrastructure to develop them. However, my main

two contracts out of 14, but the consortium that won is

concern is the lack of appropriate regulations.

a serious company and is moving its activities forward according to schedule. In addition, a Mexican company

Unconventional resource development has specific needs

was created, which is always good news. In the case of R1-

that are indispensable, such as the right regulations for

L02, awarding a block to a company like ENI was a signal

the wells, water usage, disposal of waste materials, and

that our contracts are good enough for a major player.

even roads that have to be frequently repaired due to the constant back-and-forth transportation of materials.

The third phase was entirely different, and the contrast

We are working hard at full speed, and we have specific

with the other rounds can be seen because R1-L03 was

teams for each subject, ranging from technical matters

designed to be the seed for a new Mexican oil industry.

to communication strategies. The government should put

Our contracts do not discriminate, and even though a

more effort into approaching the communities and give

Canadian company won three contracts, the idea was

them the certainties they need to allow this activity to

for Mexican companies that had worked with PEMEX to

take place. If we can make the case that the development

demonstrate that they had the needed capabilities. The

of unconventional resources follows international best

government was surprised with the results of R1-L03, as

practices, that the authorities are sensitive toward issues of

25 contracts were awarded in spite of the low oil price. It

industrial safety and environmental protection, and that we

is safe to say we succeeded in attracting new companies

have a regulation and obligations stated in the contracts for

in, many of which had been PEMEX contractors for years

companies to deal with the waste that comes from these

and were aspiring to operate their own fields.

processes, then the whole round can move forward.

| VIEW FROM THE TOP

THE BALANCE BETWEEN LICENSES AND PROFIT-SHARING CONTRACTS SERGIO PIMENTEL Commissioner of CNH

49 49

Q: How do the conditions of Mexico’s bidding rounds fare

The main difference between the first two rounds and the

against those offered in other countries?

third is that the very nature of the contract model changed

A: The Energy Reform allowed competition in Mexico by

in the latter. The first two awarded production-sharing

opening exploration and production activities beyond

agreements, while R1-L03 offered licenses. All 25 blocks

PEMEX, but it also opened the door for Mexico to compete

were awarded in the third phase, but we have to keep in

in an international arena against countries that also offer

mind that these were smaller fields than the ones offered

hydrocarbon resources. The Mexican side of the Gulf of

in the shallow water rounds.

Mexico presents an attractive basin for international players mainly because it has not been thoroughly

Q: How can you balance the attractiveness of production-

explored. Superficial exploration has been carried out

sharing contracts with licenses?

recently, and the results suggest positive prospects

A: Both models can be equally attractive given the right

regarding the resources that could be extracted. It is

fiscal terms, the drafting of which falls under the Ministry

widely known that the Gulf of Mexico is a world-class

of Finance’s jurisdiction. We should look at profit-sharing

geological area that is rich in hydrocarbon resources, and

agreements and licenses alike and make both attractive for

Cantarell, the largest offshore discovery, is proof of the

participants. The distinctive difference with licenses is that

region’s wealth. The superficial exploration activities and

these entail a transfer of ownership of the hydrocarbons

production operations that will take place in the Gulf will

at the wellhead, which then belong to the contractor,

generate greater interest from international companies.

who pays the considerations established in the law. The profit-sharing scheme is more complex, as the contractor

Q: How have contracts evolved in the first three phases

will only own the percentage indicated in the contract.

of Round One?

Licenses were chosen in the third tender because this

A: The first phase comprised 14 exploration blocks in

entailed many contracts for smaller and mature fields,

shallow waters in the Gulf of Mexico. The element that

and licenses are easier to administer from the regulators’

drastically changed the results from R1-L01 to R1-L02

perspective. For instance, licenses do not deal with cost

was the fact that, for the exploration round, the Ministry

recovery matters, unlike profit-sharing agreements.

of Finance revealed the minimum share for the state the same day the participants’ offers were disclosed. For

Q: What are the main concerns of the private sector, and

the second tender the, Ministry of Finance decided to

how can these be addressed?

reveal the minimum share 15 days in advance, providing a

A: The industry has voiced concerns regarding the

significant advantage for the participants, who considered

possible reversal of the Energy Reform, but it is highly

this information and submitted proposals above the

unlikely that this would happen. An important aspect in

established value. In the first round, there were offers that

the Energy Reform is that its key premises were included

were only slightly below the established value. The first

in a Constitutional Amendment. Only three Constitutional

phase resulted in two out of the 14 blocks being awarded,

Articles were modified, but there is an extensive transitory

but if the information about minimum share had been

regime supporting the reform. The fact that the reform

revealed earlier, it is probable that six contracts would

was made in and through the Constitution makes it

have been awarded. The Ministry of Finance established

difficult to revert the changes that have been made.

appropriate fiscal terms, although we have to understand

There are additional instruments, such as the Trans-Pacific

that companies always want better conditions and the

Partnership, which has clear rules in terms of international

Ministry will always work to maximize value for the state.

arbitrage. Nonetheless, it would be quite difficult to

Achieving this balance is a significant challenge that the

once again reach the political climate that led to the

Ministry of Finance will face in every tender.

Constitutional Amendment.

| VIEW FROM THE TOP

ENERGY REFORM DEPENDS ON TRANSPARENT ROUNDS HÉCTOR ACOSTA Commissioner of CNH 50

Q: What have been the biggest and most important

the state interests that we are in charge of protecting.

successes of the Energy Reform to this date?

This balance allows us to reach a point where contracts

A: The Energy Reform’s biggest success was the time

are attractive for the private sector from an investment

taken for the implementation of Round Zero and Round

and utilitarian point of view, as well for the government

One. The year 2013 was characterized by the constitutional

in terms of revenue. In this regard, we have done well. I

reform, 2014 marked the year of the secondary reform and

recently conducted an evaluation of the benefits that the

Round Zero, and 2015 saw Round One and the allocation

state will receive through royalties and remunerations,

of the first contracts. That means that in just two years, the

which showed that R1-L01 contracts were in favor of the

legal reform took place, as did the allocation of the first

state with a majority of 62.49%. These contracts were for

contracts. Looking back, we waited 50 years before we

the exploration area and also included those for shared

were able to bring up the topic of private investment in the

production. R1-L02, which also involved production-

energy sector, after which we discussed it for 18 years. Yet,

sharing contracts, favored the state at a rate of 75.90%,

it only took two years to implement. The biggest success

and R1-L03, which awarded licenses, favored it at a rate of

is this implementation speed, which was enabled by the

55.27%. All of these percentages have been a result of bids

long period of discussion that preceded it.

from the private sector, but they hinge on process from governmental entities.

Q: How can you ensure effective dialogue between CNH, the Ministry of Energy, the Ministry of Finance, and the

Q: Many people believe R1-L01 did not meet the

private sector on the design of the contracts?

expectations. What were the main mistakes of this

A: When it comes to drafting contract models, we have

bidding round, and how did you learn from that?

many rules to follow, including the way we can incorporate

recommendations from the private sector. We also

and the assessment must be carried out in relation to the

believe we have a duty to establish equilibrium between

entire process of Round One. However, I must admit that

the suggestions we receive from the private sector and

Round One should not have begun with exploration blocks,

Bidding phases cannot be evaluated independently,

| INSIGHT

AWAITING THE CROWN JEWEL ALBERTO DE LA FUENTE President and Director General of Shell Mexico

la Fuente, Director General of Shell Mexico. “We did not participate in the third mature onshore field bid phase, as it was never one of our considerations, but we will look into the unconventional resources phase and we

Shell is looking to develop a diversified upstream

are definitely interested in deepwater,” he explains. Shell

portfolio in Mexico, and to this end, the IOC bought the

is currently actively participating in the bidding round

data pack and pre-qualified for R1-L02, but has yet to

preparations for the deepwater phase and has moved to

move forward with a bid because it has not found the

the prequalification phase. “In addition, we continuously

materiality needed to invest, as reported by Alberto de

evaluate opportunities along the entire value chain. The

but rather with production blocks with proven reserves.

the social consequences resulting from the international

This was a strategic error, rather than a mistake related

community gaining knowledge of its participation in

to the content of the contractual areas or the contracts.

corrupt activities.

We have nonetheless made modifications that would render the contracts more flexible without diminishing state

protection.

R1-L02,

which

offered

production

blocks, was much more successful and gave insight into the discouragement observed in R1-L01. One of CNH’s greatest successes has been its quick reaction in making the needed changes after each tender. R1-L01 did not send

“We have to be relentless in the face of any deviation from proper ethical conduct” Héctor Acosta,

out the message we hoped it would, but this was rectified

Commissioner at CNH

by R1-L03. I believe that this wobbly start, which was more a strategical error than a failure, will stay in the records as

When it comes to CNH, the administrative sanctions

an anecdote. Fortunately, long-term results weight more

would correspond to the cancellation of the contracts

than anecdotes.

and possibly conventional sentences. The disqualification from public auctions would be executed by the Ministry

Q: What is the role of the country’s anti-corruption

of Civil Service. Moreover, the individuals involved

institutions in the implementation of the Energy Reform,

in these illegal activities could also be criminally

and how are they connected with the Ministry of Energy,

prosecuted. Members of CNH are legally prohibited

CNH, and CRE?

from liaising with bidding companies during the entire

A: The Mexican institution in charge of combatting

tendering process, and afterward, contact can only be

corruption from an administrative point of view is the

established through audiences where there must be at

Ministry of Civil Service. Its activities are transversal,

least two commissioners present in the CNH premises.

meaning it does not distinguish between topics related

The audience is videotaped and we draft an act of

to the Energy Reform or any others. Nonetheless, the

agreement, sign it, and make it public. We are the first

National Hydrocarbons Law established a few measures

Mexican agency to put together a declaration of interests.

to combat corruption and promote transparency, which

The government entity is consciously ensuring that the

cannot be found in any other Mexican regulation.

processes are carried out with full transparency, and we

Unlike many other measures, these are preventive.

are transferring this culture to all of our collaborators.

The Hydrocarbons Law is linked to the anti-corruption

It would be a shame for an act of corruption to tarnish

legislation in the public contracts area, which establishes

the Energy Reform, as it is a reform that was achieved

a series of sanctions and bans. The worst sanction for

amidst a divided public opinion. Allowing for such an

an operator engaging in acts of corruption would be

act to occur would provide validation to those who were

a prohibition to its continued participation in tender

opposed to it and would disappoint those who believed

auctions.

in it. We have to be relentless in the face of any deviation

addition

the

economic

sanctions,

depending on the incurred offense, IOCs would face

from proper ethical conduct.

oil prices have not changed our interest in Mexico,” de la

options could be part of most company’s strategy when

Fuente reassures. In addition to participating as operators

entering Mexico, timing must also be considered. Indeed,

on deepwater blocks, Shell is also interested in farm-outs in

if a company has a limited budget that only allows it to

the deepwater segment with PEMEX or private companies.

select one of the options, then farm-outs and licensing

“I do not think it is a choice between one or the other,

rounds will compete with each other.

but rather, they are different opportunities,” de la Fuente states. He discloses that Shell could be interesting in

De la Fuente has no preference between partnering with

working with PEMEX on certain fields in the Perdido area

the NOC or with private companies. “Shell has experience

because of the fact that these already have 2P reserves.

across the globe, to the extent that it is unlikely that there

“This means less uncertainty and faster development than

is a single company that we have not either partnered

the fields awarded through Round One. We believe that

or competed with. We are interested in partnering with

three to four years could be gained, but this is not to say

PEMEX, and in fact I believe we are the only IOC to date

that the Round One blocks would not prove interesting

to already have a partnership with the NOC, in Deer Park

and fruitful.” He goes on to clarify that, although both

Refinery, Texas,” he points out.

| ROUND ONE IN BRIEF

WHAT OUR INTERVIEWEES ARE SAYING "The bidding process was excellent. It was transparent and efficiently run." Iván Sandrea, CEO of Sierra Oil & Gas

R1-L01 SUCCESSES & LESSONS LEARNED: R1-L01 only saw two blocks out of 14 awarded. Most of the industry agrees on the reasons behind the substantial gap between expectations and reality. According to many players, the main reason was a strategic error, whereby the government should not have begun bidding rounds with exploration fields, which carry a great deal of uncertainty, but should have rather moved directly to production blocks. Indeed, the authorities had prepared the bidding rounds in a very different oil price context to that in which they were carried out. Another widely agreed-upon factor is

R1 - L01

the Ministry of Finance’s lateness in publishing information

14.3% fields a

related to the minimum values for the bidding variables. These were published on the same day as the proposals were presented. Industry experts and government officials

14.3%

both agree upon the fact that an award rate of at least 30% could have been reached had these figures been released

fields awarded

with more time in advance, making the round a success. In the midst of the industry turmoil created by this news, Enrique Peña Nieto, President of Mexico, hailed it as a learning experience.

R1 - L02 R1-L02

60% fields aw

SUCCESSES & LESSONS LEARNED: The biggest relief from R1-L02, apart from the higher success rate than R1-L01, was the industry’s realization that CNH listened to the potential new operators and took their concerns and suggestions into consideration in a fast and efficient manner. In the second bidding round, three blocks out of five were allocated. The two main reasons cited for this success seem to be the fact that these were production blocks with 2P reserves, which are more attractive in a low-oil price environment than exploration ones, but also the Ministry of Finance’s revelation of the minimum government take 15 days before the disclosure of participants’ offers. This allowed each bidder to take this figure into consideration in their proposals, increasing their chances of success. Although the industry expressed few complains, it did express its desire for improvements in the contract type, which remained similar to the productionsharing contracts awarded in R1-L01, particularly with regards to lack of flexibility.

60%

fields awarded

R1-L03 SUCCESSES & LESSONS LEARNED: R1-L03 was hailed as a resounding success, but it is important to consider the definition of success used in this widely-used statement among the industry. It was a great accomplishment not only in the sense that all of the 25 tendered blocks were awarded, but also because most of these fields were won by Mexican firms, achieving the government’s objectives of creating a national oil industry. It is worth noting, however, that only 19 of those contracts were signed, as a few companies failed to meet the requirements for their blocks. The industry believes that the success is closely related to the increased flexibility of the contracts. R1-L03 awarded licenses, which was extremely helpful in generating

R1 - L03

industry interest, as they entailed much less burdensome 100% fields awarded

administrative processes than the previously awarded production-sharing contracts, as well as a modification to the requirements relating to guarantees and collaterals. Not only was it the contract type that contributed to such

100%

a high award rate, but also the field characteristics. The release of the minimum share for the State in advance is

fields awarded

also believed to have contributed to the high award rate. The controversy surrounding the so-called success of R1L03 is related to the royalties bid by a grand majority of bidders, which certain experts claim to be uneconomic.

R1 - L04 ?% fields awarded

R1-L04 WHAT TO EXPECT: Although R1-L04 has only recently been announced, the industry has been building expectations and speculating

fields awarded

about its outcome for months. The blocks will be awarded on December 5, 2016, and the most commonly heard opinions revolve around a flood of investment that will enter Mexico’s deepwater reserves, believed to be of a similar quantity and quality as the ones found on the US side of the Gulf. Though many players in the industry expect a tremendous impact both on the industry and the economy, one factor threatens this perception. Mexico’s deepwater market will be mainly controlled by Houston, despite the national content element, and instead of direct investment, the country will receive money in the form of royalties for the Ministry of Finance. R1-L04 will certainly bring more investment into the country than R1L03, but the geographical location of the former blocks will not allow for as strong an impact on the economy as the public expects.

| VIEW FROM THE TOP

GOVERNMENT PREPARES THE INDUSTRY FOR ROUND TWO GUILLERMO GARCÍA ALCOCER Former Chief of the Unit of Exploration and Production Policies at the Ministry of Energy 54

Q: What initiatives does the government use to push the

These onshore projects have significantly lower costs

development of local operators in Mexico’s upstream

due to the fact that the reservoirs are onshore, enabling

segment?

them to benefit from existing infrastructure, and it would

A: The Ministry of Economy has created a fund in order

only be necessary to carry out drilling before connecting

to promote the Mexican oil industry. Nevertheless, the

production to a system based on a tariff that would be

strategy that has been most successful is the design of

set by CRE. We believe that the unconventional round will

attractive tenders for the national industry, as in the case

take place, but we are still measuring the most appropriate

of the third phase of Round One. This tender was designed

areas that are to be offered in the tenders. Chicontepec

to become the entry point by which new operators can

is still an option, but it must be tendered along with

begin working in Mexico and learn about the market as a

other fields. Regarding unconventionals, in addition to

whole. There will be more opportunities to participate in

the market conditions, we need ASEA and CNH to have

further phases of the bidding rounds.

established relevant regulations in order for the bid to be launched.

Q: How does the Ministry of Energy anticipate the role of onshore fields in meeting the national production

Q: How much of a direct impact do you expect the

targets?

deepwater round to have on the Mexican economy?

A: These fields are extremely attractive, and there are

A: There is a great need for ports to support these

several companies that are shifting their focus from shale

activities, and the closest port to the Perdido deepwater

gas areas in the US to onshore conventional oil in Mexico.

area is Matamoros, located adjacent to Brownsville, which

We believe that they can bring their experience in low-

is currently being developed to serve as a supplier hub for

cost production techniques, knowledge, infrastructure,

the area. The local content that we require in deepwater

and drilling equipment to establish a solid business in

bids is slightly low in comparison to the first three bids,

Mexico’s onshore fields. Given the market conditions at

but could be demanding according to the oil industry.

the moment, an opportunity to move into conventionals is

Nevertheless, we think that the 4% local content goal that

interesting for these companies, and when prices rise once

must increase to 10% over the course of the projects is

again, unconventionals will again be an option.

attainable, and the time schedule is designed to allow the local industry to build the capacity and capability that is

Q: What is the Ministry of Energy’s perspective on

needed for deepwater projects.

including tight oil formations in the unconventional resources round to counter the impact low oil and gas

Q: Which role will the Ministry of Energy play in evaluating

prices have on shale developments?

the potential fields that could be tendered as part of

A: The unconventionals tender is still a work in progress,

PEMEX farm-outs?

but we have heard from the industry that it would be

A: We have a small role in defining the areas that are to

attractive for them if we tender different resources that

be farmed out. PEMEX is evaluating its portfolio with a

share the same area within this bidding round, such as

clearly-defined strategy of carrying out the least costly

tight oil, conventional, and unconventional oil. It would

independent activities and looking for partners to

be a matter of testing the entire stratographic geological

provide technology, CAPEX, and expertise for the more

column and obtaining the right to produce, and depending

complex areas. In this process, the Ministry of Energy

on the market situation, the different stages of the project

receives the proposals for the areas in which PEMEX

could be initiated. When the market is fully recovered, we

intends to carry out farm-outs, and when authorized,

could then capitalize on unconventionals, or this can be

CNH is in charge of the bidding process for the partner

kept as a reserve while we capitalize on conventionals.

companies. There has been a significant amount of

learning in this process, and the external market effects

awarded on December 5, and we intend to launch R1-

have been an additional factor to contend with. We

L05, R2-L01, and R2-L02 in order to retain the interest

began the farm-out process with an oil price of US$80.

of industry in Mexico’s upstream activities. We stipulated

The drop in oil prices means that the areas identified may

in the Five Year Plan that R2-L01 would again include

not be as attractive to potential investors. For instance,

shallow water blocks. These tenders continue to provide

Chicontepec at US$18/b is not attractive. Internally, the

new opportunities for the industry, and that message has

difficulty lies in the fact that Mexico has never conducted

been heard by the private sector. For this reason, many

farm-outs before, and the main issue is the way in which

interested parties, even those who have so far failed to

costs and assets are distributed within the PEMEX areas

obtain contracts, are establishing offices in Mexico. They

to be farmed-out. PEMEX is an integrated company,

are beginning to understand and trust the process and

and the whole southeast region is managed as if it were

realize that if they do not win in the first bids, there are

an all-inclusive project. When farming out a subset of

further opportunities for which to prepare. At the Ministry

fields from this region, its current accounting methods

of Energy, we are open to understanding the industry’s

make it difficult to allocate the corresponding fraction

concerns

of the service contracts, the assets in the region, and

Government is committed to creating a win-win scenario

the maintenance expenditures for each field. Therefore,

both for companies and for the state.

PEMEX must adjust its accounting so that the relevant economic and legal elements are allocated within a given asset. This is something PEMEX is still working on, and although it is trying to speed up the process, there are

and

receiving

its

feedback.

The

Federal

“PEMEX must adjust its accounting so that the

complex variables at work.

relevant economic and legal

Q: What will the Ministry of Energy’s E&P unit be focusing

elements are allocated within

on for the remainder of 2016? A: We will be carrying out R1-L05 and have started planning for the first phase of Round Two, which

a given asset” Guillermo García Alcocer,

will probably be carried out at the same time as the

Former Chief of the Unit of Exploration and

aforementioned unconventionals phase. R1-L04 will be

Production Policies at the Ministry of Energy

| VIEW FROM THE TOP

PAVING THE PATH FOR PEMEX'S NEW ASSOCIATION SCHEMES EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH 56

Q: Which role do you expect the farm-outs to play in the

resistance and, at some point in those discussions, PEMEX

development the Mexican oil and gas industry?

suggested following the Malaysian-Indonesian model

A: I would like to highlight the huge importance of farm-

that would allow the NOC full control over the tenders,

outs, as the silver bullet for PEMEX. I have been saying this

farm-outs, and all other factors. Thankfully, the legislator

for many months, and now people are starting to agree,

separated this responsibility and allocated it to CNH.

but we left too much in PEMEX’s hands during Round

Although this is purely speculation, I believe that PEMEX

Zero. Everyone wanted a smooth process, but now realize

resents the fact that CNH is overseeing the bidding for the

that PEMEX cannot handle this volume. We do not want

farm-outs.

to take this from PEMEX, but this year’s announcement of stringent budget cuts will imply a reduction in production

Q: What would be your recommendation for the new

and reserves. Therefore, the investment capital, expertise,

Director General of PEMEX in order to rectify these issues

and technology must be provided by partners. PEMEX has

and get the farm-out process back on track?

to come up with an aggressive farm-out strategy because,

A: I would advise the new Director General to allow CNH

despite the fact that the hydrocarbons volumes are there,

to support PEMEX. It is unthinkable that anyone from

they cannot be exploited for decades without the necessary

the government side would not want more reserves and

investment. Mexico has reserves until 2100, and it would be

higher production levels. Why would we not help PEMEX?

beneficial for the country to accelerate the exploitation of

It does not make sense that there is a lack of trust over

those reserves, which will require an increase the country’s

this issue, and it bothers me that some people criticize

execution capacity. This is why farm-outs are the key. PEMEX

the Ministry of Energy and CNH for the fact that the farm-

must decide which fields it can exploit independently and

outs have not advanced. We have the technical expertise

where it requires partners. The fields that PEMEX does not

necessary to manage the farm-outs, although PEMEX

need should be returned to the state to be included in the

has more accurate information due to the fact that the

tenders, but this is PEMEX’s decision. In my opinion, it would

information transfer has not been completed. Therefore,

be prudent for PEMEX to farm out the EOR of Cantarell or Ku-

I would like 2016 to see PEMEX and CNH collaborating to

Maloob-Zaap, because these reserves would go untapped in

finally launch a large number of farm-outs.

either case without the help of private investment, meaning that it can only create a value for PEMEX.

This is mere speculation, but I have seen that the old school establishment in PEMEX see the Minister of Energy,

Q: Why has it taken so long for PEMEX to launch its farm-

the Undersecretaries, and the Director General of PEMEX

outs, and how do you see this being resolved?

itself as temporary players within the sector. They are the

A: I attribute this to lack of capabilities and timidity.

owners, they are the petroleum engineers, and they have

There was the flurry of the reforms, after which PEMEX

been working at PEMEX for many years. They know that

announced it would carry out 12 farm-outs, but this was

we are leaving at the end of an administration, and this

over a year and a half ago and we still have not seen any

is one of the more pronounced problems. Changes must

progress. There was also no explanation of why these

be made, and the new Director General seems to intend

blocks were chosen, and I was surprised that so few were

to make considerable modifications. On the other hand,

offered when there was the opportunity to farm out 50

PEMEX is extremely militarized, which could be used to

fields, meaning the NOC would still have another 300 that

González Anaya’s favor by ensuring that this segment

it could operate independently. I suspect that this decision

is on board with the reform process. I have been in the

lay in the fear of managing so many contracts concurrently,

industry for 20 years, and I am witnessing a low level of

and the lack of knowledge and experience regarding the

motivation in PEMEX employees, with people losing their

entire farm-out process. The reform was met with a lot of

jobs and investment being reduced.

It is necessary to convert PEMEX into a more robust,

be coming to the country, with supermajors expected to

compact, efficient, productive state-owned company. The

participate in R1-L04, and smaller companies who recently

public needs to realize is that the NOC is not a branch of

established a presence in the country. Another major

the government or an employer, but a machine to generate

success of the energy reform is the boom in seismic surveys.

money for the country. For some reason, this is viewed as a

So many companies are investing their own money in

negative aspect, despite the fact that we have all received

multi-client seismic surveys because they believe they will

something from the NOC, whether that is scholarships,

be able to sell this information. One of these companies

infrastructure, or health care. I believe it will be necessary

has disclosed to us that they have 60 potential clients. The

for PEMEX to cut between one third and 50% of its

geographic location of Mexico is privileged. This is one

workforce in order to remain a viable company. Examples

of the most prolific, privileged geological basins, yet it is

can be drawn from the number of employees retained by

largely unexplored. A reservoir in Mexico can have exactly

similar oil companies, such as Saudi Aramco or Iran’s NOC,

the same geological conditions, volumes, and API gravity

as well as those of IOCs like Exxon, Shell, and Statoil.

as a reservoir in a more hostile country, and Mexico’s environment could make the difference between investors

Q: As opposed to the farm-out process, PEMEX does

deciding to devote their attention to the country. In general,

controls the migration of the COPS and the CIEPS and

these factors are accurate metrics of the commitment to

progress is slow in this area as well. How would you

invest. As of yet, I have not witnessed many failures, but

explain this?

the lack of speed of the farm-outs is certainly a negative

A: In my opinion, the economic benefits that could be

aspect of the reform. In R1-L01, there was a lot of room

brought by the contract migrations remain unclear, and

for improvement, but I would not call it a failure. However,

this reduces the urgency to implement the CIEPS. For

I am glad we started in this way, and that the fields from

PEMEX, the fiscal terms are more favorable, and new

R1-L02 were tendered in a more effective way and were

operators will be able to contribute to new technology,

not used as a learning experience. Ultimately, the reason

but for me, the added value in terms of production is

for the success of R1-L02 was because we made changes

not substantial enough to create an incentive for PEMEX.

based on the feedback received from R1-L01.

There is also uncertainty regarding the preferred operator, and in a recent presentation, it was suggested that the NOC is considering switching operators, since companies that can see the benefits the CIEPS present have since approached PEMEX with more favorable terms. I believe PEMEX is still assessing its options for the migrations, but I agree that the process should have moved slightly faster. Q: What do you consider to be the main successes and failures of Energy Reform to date, and why? A: In terms of successes, I would pinpoint R1-L02, not only because I was in charge of recommending the fields to the Ministry of Energy. This round showed the world that we listened to the industry’s feedback, making adjustments from R1-L01. We sent the message that we listened, and we attracted the operators that Mexico wanted for R1-L02. The winners are professional companies with solid reputations.

Q: Bids were won for 25 blocks in R1-L03. How many

This is extremely important, especially since they can

contracts from this round do you expect to be signed?

introduce new technologies and create a benchmark for

A: I believe that almost all of them will be signed, because

PEMEX. The tender was competitive, the bids were solid, and

we are in contact with the companies and most have their

R1-L02’s winners are already working with CNH to prepare

files almost complete in terms of the required paperwork.

their plans. R1-L03 was a fantastic demonstration of the

It may be the case that, eventually, the companies will try

presence of an appetite among Mexican industry to operate

to negotiate a pass into the second place of the tenders,

in the Mexican landscape. Eventually we will see these

but from what we see, the companies are all extremely

companies get their feet wet in shallow water.

willing to participate. We have been running some seminars to pass on information regarding the baseline

I believe that Round One in general has been extremely

and environmental studies, as well as other potentially

successful, and it sends the message that Mexico is truly

complicated aspects, so I predict that the majority of the

a ripe environment for investment. Large companies will

companies will ultimately sign those contracts.

| ROUND ONE OVERVIEW I ROUND ONE OVERVIEW

R1 - L1 awarded blocks R1 - L1 non-awarded blocks R1 - L2 awarded blocks R1 - L2 non-awarded blocks R1 - L3 awarded blocks R1 - L4 Round Zero fields and exploration areas awarded to PEMEX Hydrocarbon fields

I| ROUND ONE RESULTS WINNERSTO DATE R1-L01 took place on July 15, 2015, and was referred to as

that the 60% award rate effectively confirmed the

a learning experience by President Enrique Peña Nieto.

successful advancement of the Energy Reform. Most

Out of 14 shallow water exploration blocks, only two were

companies participated as part of a consortium in order to

awarded, leaving the authorities with a 14% success rate,

meet the bidding round’s stringent requirements.

well below the 30% threshold for success. The Mexican consortium between Sierra Oil and Gas, Talos Energy, and

R1-L03, which took place on December 15, 2015, was a

Premier Oil came out as the winner of this round.

resounding success as all of the 25 fields were awarded. Tenders were done in two phases, with the fields with most

On September 30, 2015, R1-L02 oversaw the allocation

reserves, known as type 2, allocated before the smaller type

of three out of five shallow water production blocks,

1 fields. Of these, however, only 19 were signed for, leaving

an achievement that Juan Carlos Zepeda, President

the six remaining ones open to the second bidders as a

Commissioner of CNH hailed as satisfactory. He claimed

result of certain companies’ inability to meet requirements.

R1 - L1

Company

Country of origin

Minimum added value

Added value offered

Increase over the minimum work program

L1 - 2

Sierra Oil and Gas Premier Oil Talos Energy

Mexico UK US

40%

55.99%

L1 - 7

Sierra Oil and Gas Premier Oil Talos Energy

Mexico UK US

40%

68.99%

10%

Block

Field name

L2-3 L1-7

L2-2

L2-1 L1-2 R1 - L2 Block

Field name

Company

Country of origin

Minimum added value

Added value offered

Increase over the minimum work program

L2 - 1

Amoca Miztón Tecoalli

Eni International

Italy

34.80%

83.75%

L2 - 2

Hokchi

Pan American Energy E&P Hidrocarburos y Servicios

Argentina ArgentinaMexico

35.90%

70.00%

100%

L2 - 4

Ichalkil Pokoch

Fieldwood Energy Petrobal

US Mexico

33.70%

74.00%

R1 - L3 SOUTH REGION b

23 61

13 16

9 25

22 11 6

Block

Area name

Tajón

Company

Country of origin

Compañía Petrolera Perseus

Mexico

Minimum added value

Added value offered

Increase over the minimum work program

60.88%

100%

36.88%

100%

Fortuna Nacional

Moloacán

Canamex Dutch Perfolat de México American Oil Tools

Mexico Mexico Mexico

85.69%

Cuichapa Poniente

Servicios de Extracción Petrolera Lifting de México

Mexico

2.5%

60.82%

99%

Topén

10%

78.79%

25%

Mundo Nuevo

10%

80.69%

25%

Malva

57.39%

100%

Calicanto

81.36%

18%

Mayacaste

10%

60.36%

Renaissance Oil Corp

Canada

Grupo Diarqco

Mexico

Catedral

Diavaz Offshore

Mexico

63.90%

Paraíso

Roma Energy Holdings Tubular Technology Gx Geoscience Corporation

US Mexico US

10%

35.99%

100%

Secadero

Grupo R Constructora y Arrendadora México

Mexico Mexico

60.74%

100%

| ROUND ONE WINNERS R1 - L3 NORTH REGION c

20 18 5

12 21 8 2

Block

Area name

Peña Blanca

Carretas

Mareógrafo

Calibrador

Minimum added value

Added value offered

Increase over the minimum work program

50.86%

100%

50.86%

100%

34.25%

100%

41.77%

100%

Mexico Mexico Mexico

2.5%

40.07%

75%

Mexico

20.08%

88%

Company

Country of origin

Strata Campos Maduros

Mexico

Consorcio Manufacturero Mexicano

Mexico

Benavides Primavera

Sistemas Integrales de Compresión Nuvoil Constructora Marusa

Duna

Construcciones y Servicios Industriales Globales

Ricos

Not assigned

San Bernardo

Not assigned

R1 - L3 CENTER REGION d

24 1

10 19

Block

Area name

Company

Country of origin

Minimum added value

Added value offered

Increase over the minimum work program

Barcodón

Diavaz Offshore

Mexico

64.50%

100%

Paso de Oro

Tecolutla

Pontón

La Laja

Not assigned

| INSIGHT

ONE SMALL STEP FOR SIERRA, ONE GIANT LEAP FOR MEXICO The consortium formed by Sierra Oil & Gas (Sierra), Talos Energy, and Premier Oil emerged as the only winner of R1L01, being awarded Blocks 2 and 7. When it comes to the proceeds of this tender, Iván Sandrea, CEO of Sierra Oil &

IVÁN SANDREA

Gas has only praises. “The bidding process was excellent.

CEO of Sierra Oil & Gas 63

It was transparent and efficiently run,” he reports. He is also reassured in the choice of the consortium to bid on Block 7, as the amount of interest it attracted from world-

companies that have currently been awarded an exploration

class bidders corroborates its appeal. Sierra’s analysis had

or production block in Mexico. It excels in bringing discoveries

revealed that the two blocks won by the consortium were

into production in a fast, inexpensive, and responsible way,”

particularly promising in terms of resource materiality,

he applauds. Premier Oil, on the other hand, is a 90-year-

standing out from the rest of the blocks offered in R1-L01.

old independent with a global portfolio. It boasts the most

Sandrea believes that the bids placed by other companies

extensive experience of the three, and, despite its larger

were a powerful validator for Sierra’s geological analysis

scale, Sandrea emphasizes that it is also efficient and fast-

and business strategy.

paced. Sierra, in turn, has a strong and talented team that was hand-picked to ensure its specific focus on Mexico. “We

Despite the many complaints lodged by operators

are a young company,” he admits, “but we are certainly not

regarding the running of the R1-L01 tendering process,

new to Mexico or the oil and gas industry.” The company’s

Sierra

were

role in the consortium will be to focus on the Mexico-

certainly not alone,” Sandrea explains, “even despite the

specific aspects of the project, be it geology, commercial

contractual framework that had been established at the

understanding, or regulatory interpretation.

saw

considerable

opportunity.

“We

moment. Statoil, ENI, and Hunt, all world-class companies, competed with us for the opportunity. Undeterred by concerns regarding the contract’s administrative burdens and CNH’s levels of involvement, Sierra, along with its partners, bid for blocks in R1-L01, and it is now convinced that our analysis proved to be correct. Moreover, all initial angst concerning CNH has dissipated as it has proven to be an extremely professional and efficient agency.” When it comes to Sierra’s own bid, the CEO rests assured that

So far, the company has conducted an amplitude velocity analysis on the data on the seismic

surveys

the results were as positive as Sierra could have hoped for. “Not only did we emerge as the winners, but we did

After winning and signing the contract, Sierra started

so by placing a well-balanced bid, without either under- or

working on a new plan for the short and long term using

over-bidding, which has been of concern in other bidding

32 Terabytes of high quality data. So far, the company has

rounds,” he remarks. In his opinion, success was achieved

conducted an amplitude velocity analysis (AVO) on the

thanks to science-based decision making, as well as the

data on the seismic surveys. “This is helping us identify and

group’s strengths. “While most companies adopted a

calibrate direct hydrocarbon indicators and sweet spots,

conservative stance and decided to wait for later bidding

and we are currently mapping geological structures more

rounds, we trusted our deep understanding of the Mexican

accurately. Early results have been promising,” Sandrea

landscape and bid for a couple of blocks.”

asserts. After the AVO and seismic reprocessing, Sierra plans on carrying out further remapping and illumination collectively

studies, and it will eventually use this information to

accumulated years of experience working with world-class

optimize the locations of the consortium’s exploratory

companies. Despite some similarities, we are all different

wells. “Mitigating exploratory risks is a crucial component

companies,” the CEO clarifies. He explains that Talos Energy

of our business strategy,” Sandera adds. While it might

has a remarkable exploratory track record on the US-side

be slightly early to discuss the drilling process itself, he

of the Gulf of Mexico, where it has focused all its efforts so

believes that there is significant room for innovation using

far. “It is an efficient, well-run company, and perhaps the

new reservoir modeling through leading software. Sandrea

one with the lowest average production costs among the

is planning to begin drilling operations in 2017.

“Our

group’s

strengths

stem

from

its

| VIEW FROM THE TOP

PARTNERSHIP OPENS DOOR TO THE OTHER SIDE OF THE GULF TIMOTHY DUNCAN President and CEO of Talos Energy 64

Q: What motivated Talos Energy to be among the earliest

When we partnered with Sierra Oil & Gas, it was able

participants in Round One?

to provide us with a geological framework of the basin,

A: We have had quite a bit of success in the shallow

which saved us several months of work. We are extremely

waters of the US Gulf of Mexico so we were compelled by

comfortable working with geophysical data, making

the unique opportunity that was generated by the end of

inferences about the resource potential and geology,

PEMEXâ&#x20AC;&#x2122;s almost 80-year monopoly, during which shallow

defining the prospect and shaping this into an economic

water exploration and production has been such a rich

model. We are proud of our track record of building

part of its history. Our main objective was to understand

companies on the US side of the Gulf, but until this point

how large the resource potential was, and the territory

we had not branched out internationally. Premier Oil used

met all of our expectations, but we knew that early

its experience in projects around the word to confirm that

participation was going to be critical if we were going to

our ideas could compete with international projects. For

be successful. Everyone was still learning and the process

a smaller company like ours, this project could potentially

was brand new, with fewer players making bids due to

underpin the success of our company in Mexico, the US,

lack of clarity regarding the rules. We hoped limited

and other basins. Our initial term on the lease is four years,

participation would give us a better chance at being

but we anticipate being well ahead of this timeframe.

successful with our bid structures. The minimum bids

We expect to drill our first test in Block 7 in 2017, and

are helpful for the medium-sized prospects that cannot

subsequently in Block 2 in 2018.

handle a competitive cost-sharing bid, but the larger, more compelling blocks will always be more competitive,

Q: How did your path progress from exploratory expertise

and those on which we bid did not require a minimum

to operational expertise?

bid because of their attractiveness. The success of R1-

A: The common themes in every company we have built

L02 has helped to generate confidence in the popularity

are exceptional operational and technical teams, strong

of these bid rounds, and the achieved transparency

commercial acumen, and deep experience in brokering

is important for lending credibility to the investment

deals and partnerships. The only difference is scale, and

community regarding future projects.

each subsequent project has become more ambitious. Talos was our first company where we began to enter deepwater as well as shallow water, and we started to consider projects on an international scale rather than just locally. Our priorities are to continue to use the latest in seismic technology, employ a solid operating team that can compete with companies around the world regardless of size, and strengthen ourselves commercially in order to understand capital markets and form partnerships. This has been the common thread that has allowed us to become more ambitious and expand with each new

Blocks 2 and 7 are estimated to have 263 million boe and 341 millon boe respectively

project we undertake. Q: What is your approach to exploring shallow waters on the Mexican side of the Gulf? A: There are some subtleties in the geophysics between the US and the Mexican side of the Gulf, but generally they are more similar than they are different. We work in the

same age of rock, mainly Pliocene and Miocene sandstone rocks at a similar depth and pressure as those on the US side. In future opportunities, we will start evaluating deeper carbonate plays. We were initially working with the same data as all the bidders that purchased the data packs for Round One, but now that we have won the tender, we have the time to reprocess that seismic data, which is something that we simply did not have the time to do before entering the bidding round. On each of the blocks, we developed a geophysical model based on the data we had, knowing we expect to improve the geophysical model after we signed the PSC but before we drilled our first well. As much as we all prefer brand new seismic data, we have had significant success in reprocessing old seismic sets in the US side of the Gulf, which are similar to those shot by PEMEX. An example of what we are trying to accomplish with our reprocessing is to image the most accurate view of local salt bodies, which can provide the trapping mechanism for a productive oil accumulation. Rather than spending US$20 million on a new seismic shoot over a lease, we can spend US$2 million on reprocessing seismic data and, due to our techniques, this potential generates a similar result. If not, we will consider some new shoots and participate in industry shoots. We have built our strategy around focusing on reprocessing before reshooting, and in our previous company, Phoenix, we were able to take two old data sets from the mid-1990s that were shot by different companies and we merged the data sets together, reprocessed the data, and we ultimately found one of the largest discoveries in the last 20 years in Atchafalaya Bay, in shallow water offshore Louisiana. We therefore seek to reprocess old seismic data and attempt to improve the image before we think about shooting new seismic, and this will be no different in Mexico. Q: What are some innovative approaches to specialized drilling and completion techniques that you can bring to Mexico? A: We anticipate the use of relatively traditional methods, but I think where we excel is in our planning and execution. In terms of directional drilling and completion techniques, we are certainly using the most up-to-date methods on par with our colleagues on the US side of the Gulf of Mexico. In such a competitive basin as the US Gulf of Mexico, understanding and using the very latest techniques are essential in order to generate attractive returns in the current environment and continue to attract capital. When our private equity providers underwrote our management team, they were underwriting a highly technical group with a deep understanding of the geology and best operational practices of the US Gulf of Mexico. Therefore, requesting funding for a project to which our skillset could be transferred to the Mexico side of the Gulf proved an attractive financing option for the company.

| VIEW FROM THE TOP

EXPECTED PRODUCTION BOOST FOR BENAVIDES-PRIMAVERA MARIANO HERNÁNDEZ Director of Nuvoil 66

Q: What reasons drove you to establish a consortium to

The project’s timeframe has already been established by

participate in R1-L03?

CNH, and according to the agenda, we expect to sign

A: We feel that our company has great potential to learn

the contract on May 8 and take control of the field within

and grow in the new environment created by the Energy

the subsequent 90 days as laid out by the guidelines.

Reform. The size of our company complied with the

Afterward, we will have 120 days to deliver the evaluation

requirements established by the Mexican authorities for the

plan, and a further 240 days to begin the execution plan.

Round One auctions, and we presented a wise proposal, bidding for three gas fields and one oilfield. Fortunately,

Q: What are your expectations for the use of EOR

we were awarded the Benavides-Primavera field, which

methods in Mexico?

has already been in operation for 20 years. Despite the

A: Imagine that the oil field is a soccer ball filled with oil

field’s age, we are confident that our knowledge and

and gas. The gas keeps the ball pressurized, providing the

skills will make the operations profitable and that we will

energy needed to push the oil out. If the ball gets perforated,

acquire important expertise in exploration and drilling

the pressure of the gas and the density difference will

from this project, which will complement the expertise

remove the oil first. As the pressure decreases, so does

we already have in shallow waters. Constructora Marusa

the ball’s energy, which makes extracting oil from the

is a partner company with a strong focus on infrastructure

inside more difficult. At the beginning of the process,

development, a sector where it is a leading actor.

the product extracted is mostly oil, but the percentage of gas in the mix increments with time as the pressure

Q: What are the main challenges that you expect to face

decreases in the interior. Therefore, in well-exploited fields,

during the operation of the Benavides-Primavera field?

companies need to inject gas at the same pace they are

A: Firstly, we were already familiar with the field conditions

extracting oil to maintain the constant energy levels, and

as we have experience working in that region for more

this can be done by injecting gas in the field’s cap or the

than 20 years. This experience provides us with in-depth

oil column. Both techniques are included in the artificial

knowledge about the field’s challenges and strengths and

services that we provide to oil and gas fields. We believe

gives us the operational expertise required to operate

that EOR techniques will be crucial to boosting Mexico’s

the field successfully. For us, the challenge will not be

oil and gas industry, and we are already starting to observe

to maintain the current production rates, but rather to

an increased prevalence in the use of this method.

increase them by 25%. It is important to highlight that we are not an EPC company but an operator. Our core

Q: What is your flagship project, and what is your strategy

business is to handle oil in artificial lift equipment and gas

to become a leading operator in Mexico?

in compression systems, in both onshore and offshore

A: Currently, our most important project is the Agosto 12

facilities.

platform, a specially constructed jackup that is designed to support five gas turbocompressors with a capacity

We are certain that we will maintain the production rates.

of over 200mcf/d. The rig will contribute around 8.8bcf

However, in order to increase production, we will need

of gas to the Mexican oil and gas industry, which will be

to perform minor and major repairs in the following two

incorporated into the national gas distribution system.

to three years. We are planning to adopt the Jet Frac

Generally speaking, the most important projects are

technique, which consists of using a drilling system called

still in the pipeline, rather than the ones we are already

Abrasive Jet Cutter in an existing field to reach productive

undertaking. We are now looking to consolidate our

rocks that remain unexploited. We have never used this

company as an operator, and will continue offering our

technology before, but it has proven to be efficient and

services to PEMEX and private companies seeking to get

cost-effective in the other fields where it has been utilized.

the best out of their fields.

| VIEW FROM THE TOP

THE REBIRTH OF MEXICOâ&#x20AC;&#x2122;S ONSHORE INDUSTRY CRAIG STEINKE CEO of Renaissance Oil

67 67

Q: What prompted you to create a company focused on

Q: What challenges have impacted your entry to Mexico?

the Mexican upstream sector?

A: There is a lack of information in terms of logging of

A: Mexico has a world class hydrocarbons base, and

data. More developed hydrocarbon provinces tend to

the fact that this industry has been monopolized by an

have a more centralized database and greater access to

underfunded national oil company for many years creates

it and, in time, it is something that Mexico should strive

promising opportunities for foreign companies to work

to develop in order to help all operators. Indeed, the fact

with PEMEX and the government in order to help develop

that we do not have access to all of the existing data is

the resource base. We are structuring Renaissance to

problematic. I realize it is a process that takes time, where

be an operator in Mexico, and we are going to develop

the data is passed from PEMEX to CNH, and then CNH

the company into a significant player in the local oil and

makes it available to the industry, but this is an area where

gas sector in the next five years. We believe that our sole

there is room for improvement.

focus on this country will be an important success factor. The bidding round provided a solid opportunity for us

Q: What potential do you see in Mexico in terms of

to become an operator, learning the regulations as they

unconventional reserves, and to what extent are you

are being developed, and we are happy to influence the

planning on taking advantage of this?

regulations to benefit operators and the state. We bid on

A: Renaissance intends to participate in R1-L05 and has

the onshore round, for which we spent considerable time

carried out extensive evaluations in preparation for the

evaluating all blocks made available. We felt that those

opening of Mexicoâ&#x20AC;&#x2122;s shale opportunities. The lead time

opportunities, mainly the mature fields, were in line with

for shale development is much longer than what is typical

the portfolio we intended to build in Mexico. The actual

for conventional onshore resources. A detailed study

process of the third phase was remarkably professional

of the geology and the rock characteristics is crucial to

and we were delighted with its execution.

identifying and exploiting a commercial unconventional oil and gas play, and this analysis requires a substantial

Q: What was the reason behind your decisions to

amount of time. We are reassured by the fact that Mexico

participate as a stand-alone company rather than with

will be moving forward soon with R1-L05, and expect

longstanding partners such as Halliburton?

these resources to be a major contributor to the nationâ&#x20AC;&#x2122;s

A: We think that it is important to have a domestic

petroleum production and a significant economic driver

partner in Mexico but we are in no hurry to establish that

for the country in the long term.

relationship. Although we are creating dialogues with various companies about potential partnerships, this is not a decision we want to rush into. We are fully capable of taking over operations, as we have the technical and financial capabilities to do so. We do not rule anything out when it comes to a possible partnership with Halliburton, our relationship with which has involved the use of its consultancy services. Halliburton has been established in Mexico for close to 70 years and has a great deal of empirical knowledge on the ground that a new company coming from another country usually lacks. We therefore felt that utilizing its services would allow Renaissance to hit the ground running in Mexico, enabling us to quickly negotiate the learning curve.

| VIEW FROM THE TOP

READJUSTING INFLATED EXPECTATIONS FOR R1-L04 DAVID ENRÍQUEZ Partner at Goodrich, Riquelme y Asociados 68

Q: What were the factors behind R1-L03’s 100% allocation

an atmosphere of frustration for many players within the

rate, and is this the best measure for success?

market, particularly the experienced operators. These had

A: Like in any other phase of Round One, success is

the level of sophistication and technology necessary to

multifactorial. The winning bidders of R1-L03 can be

efficiently control the awarded assets and create value

divided into three categories in terms of experience. There

for the country, but were not awarded any blocks at

are the operators of various nationalities with experience

this stage. This frustration does not negate the prospect

in different jurisdictions, who offered a 35-50% additional

of their participation in further rounds, and in fact, they

royalty rate and were able to leverage their economic

are the most appropriate companies to engage in the

propositions particularly well thanks to their experience.

production of heavy oil.

As for the remaining bidders, we can divide them into two further categories. There are the oilfield service companies,

Q: What should be done to ensure that companies

such as Diavaz, with decades of experience in the market

bidding in R1-L04 will create value for the economy and

that have partnered with funds and will be running non-

what impact should Mexico realistically expect?

sophisticated assets with a relatively low level of investment.

A: Bidding phases cannot be compared, as each of them

The 85-95% royalty rates should not hinder these firms from

is completely independent, and the success of one does

being successful in their undertakings as they know how

not guarantee the success of the others. Companies that

to be efficient in the way they structure their organization.

will participate in R1-L04 are robust companies with a

The final category of bidding companies, however, may

high level of sophistication, market share, and market

seem more unreasonable in submitting proposals, with

capitalization. Although the vast majority of participants

no prior experience in the fields they were awarded and

will be IOCs, a small amount of NOCs may enter the tender,

should thus be more cautious than the aforementioned

but the prequalification standards will be nowhere near as

companies when it comes to operations and controlling

low as those of R1-L03. The good news is that potential

their cost structure. A proposal of a 90% royalty rate added

participants will have sufficient time to review not only

to the rest of the fiscal obligations leaves the companies

the geophysical data but also to make comments on the

with payouts of over 100%, which makes no economic

various components of the tender.

sense. Unlike major NOCs or IOCs, these companies cannot subsidize this project or cover the losses using other, more

When it comes to the impact on the economy, there is

profitable undertakings. In all cases, the level of revenue that

a misconception as to the outcomes of R1-L04. Mexico’s

companies can generate from R1-L03 blocks is substantially

deepwater market will be mainly controlled by Houston,

low, and I am particularly skeptical when it comes to the

despite the national content element. Rather than direct

success of this latter category. I believe the winners will

investment into the country, it will bring money to the

be those that were awarded the larger blocks, as they

Ministry of Finance in the form of royalties, which will not

have experience as oilfield service providers and have the

impact the economy as a whole as much as the public

necessary knowledge to substantially reduce costs.

expects. The main factor causing this is the geographical location of these blocks. Whereas onshore fields are in

The economically unsound bids were made possible

direct interface with the Mexican economy, calling for

because of the absence of a maximum restriction as to

direct investment for the construction of roads, hotels,

the economic proposal. Bids were only required to be

restaurants, and other infrastructure, deepwater fields are

lower than 100%, as such a figure would be unrealistic.

offshore and require global procurement. The latter blocks

Companies were allowed to bid as long as they passed

will have semi-submergible rigs and vessels from different

the prequalification standards, which were much lower

jurisdictions around the world, but will be mainly controlled

in R1-L03 than in the previous phases. These results left

from Houston both in terms of the economic model and

business structure, and of the real implementation of the

its lifecycle, as has been the case with PEMEX’s COPS and

project. Despite these financial specificities, R1-L04 will

CIEPS. The authorities need to bring clarity in terms of how

bring considerably more investment into Mexico than

this should be done. Compared to any other country, and

R1-L03. In order to compensate for the relatively low

particularly Brazil, local content requirements in Mexico

direct impact of R1-L04 on the Mexican economy, the

are not a challenge. No IOC has expressed criticism toward

government will be tendering fields that have a direct

Mexico’s approach to local content, only toward a lack of

interface with the local economy, including heavy oil,

information when it comes to compliance methods.

onshore, and shallow water. Q: Why is it important for Mexico to carry out the Q: How will the local content requirement work on

unconventional resources round, and to develop this

a practical basis, and do you believe it will impact the

resource?

decision of IOCs to enter Mexico?

A: I am certain that Mexico’s unconventional resources

A: Local content requirements are divided into two main

will be developed at some point, but one has to take into

categories. The first category is for deepwater activity and

consideration the impact of the dramatic drop in oil prices,

is determined in the structure of the bid, and the second

as well as the way in which it will impact the country in

category will be applied to all other block types. Although

the long term. This latter consideration will be essential

this tertiary regulation indicates who has to comply with

to determining the occurrence and order of the remaining

it, and how it has to be reported, there is a need to further

phases. It would be disastrous if Mexico decided to go

develop the components of this requirement, as the

ahead with a phase and there were no bidders because of

industry does not yet understand its nuances. So far, it is

the oil prices. In this regard, it is important to be pragmatic,

clear that compliance does not necessarily have to be met

not dogmatic, and to consider each phase of Round One

from the beginning of the project, but rather throughout

separately, as each one is a planet in itself.

| INSIGHT

GEOLOGY, THE KEY TO SUCCESS

There is much speculation surrounding the incremental award rate that Mexico has experienced for the blocks tendered from the first to the third bidding round of Round

JOSÉ PABLO RINKENBACH Director of AINDA Consultores

One. José Pablo Rinkenbach, Director of AINDA Consultores, does not believe that this success is so much a part of the

country’s 50 production sharing contracts, but Mexico

government’s learning curve, but rather that it is related

only has 218,” he explains. While the third bidding round

to the geological risk of each type of block. He explains

was hailed as successful by the entire industry, Rinkenbach

that the first bidding round’s relatively low 14% award rate

warns that the success attributed to this phase depends on

can be explained by the fact that the fields awarded were

one’s definition of the word. “If considering the number of

exploratory ones, which generally present a probability of

blocks awarded, then it was successful,” he acknowledges

success that is lower than 20%.

before pointing out that one of the reasons for the higher award rate could be linked to the absence of the gold

The second bidding round, on the other hand, made

plating issue in licenses. He believes this contract model

available fields with proven reserves. “In this case, it was

to be technically more feasible, and administratively

no longer an exploration game that was involved, but a

cheaper, because the regulator does not have to

production one, and that is why it was more successful.

monitor profits. He considers this bidding round to have

However, it did not reach a success level of 100% because

experienced an extreme over-bidding in terms of royalties,

the fields awarded were offered under production sharing

which could complicate field development. “The same

contracts, which are administratively problematic and

occurred in Colombia, where although many fields were

provoke gold-plating,” Rinkenbach analyzes. Moreover,

awarded, very few were developed,” he recalls. However,

he believes that Mexico does not have the state structure

Rinkenbach admits that if one takes into consideration

to monitor and follow up on those contracts. “Indonesia

the government’s aim to develop an industry of national

has around 1,000 people in charge of administering the

operators, then R1-L03 has to be viewed as successful.

| VIEW FROM THE TOP

TESTING THE WATERS FOR R1-L04

DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow 70

Q: What makes the contracts drafted by the Mexican

the most out of the opportunities presented by the sector

authorities attractive for major oil companies?

while balancing the different interests involved in the

A: It seems that the Mexican authorities have used the

process. The participation of the different actors heralds

first three phases of Round One as an exercise to learn

the success that Mexico will achieve as it overcomes the

from trial and error and test the industry in preparation

challenges it currently faces.

for R1-L04. With this strategy, the government managed to obtain important feedback from IOCs that helped in

Q: The basis for R1-L03 resulted in the allocation of 100%

restructuring the legal framework used for the bidding

of the fields. To what factor do you attribute this success?

rounds. This is why the license agreements were chosen

A: The success of R1-L03 was the result of the trial-

for R1-L04. The government has assimilated the lessons

anderror strategy the government implemented, as the

learned from the past rounds and put together legal

basis for this phase was built on the experience from the

documents that are attractive to large oil companies,

previous phases. R1-L01 is said to have been a failure, but in

which coincide unanimously with the accuracy of the legal

reality it was really just the first trial. In the second phase,

framework. Considering the short timeframes, the Mexican

the government managed to improve its procedures for

government managed to step up the required mechanisms

the bidding round, and by R1-L03, it was already able to

and provide what these players need to invest in Mexico,

understand the nature of the business. Moreover, in phase

and most international companies were surprised by the

three, the government acquired enough credibility from

outcomes and the parameters in the new legal instruments.

its performance in the past phases, attracting a great deal

In this regard, I believe that the government has taken real

of investment from different companies. However, R1-L03

advantage of the learning experience of the first three

can also be considered part of the preparation process

phases, testing the waters and seeing how far they could

for the round that will significantly change the shape of

address some issues in preparation of the most important

the Mexican oil and gas industry, R1-L04, the deepwater

element in the opening of the oil and gas sector, which is

phase.

R1-L04. Q: What could be some of the consequences of a delay Q: What are the main contributions made by IOCs

in R1-L04?

to shaping the type of contracts, the blocks, and the

A: To date, the government has managed to stick to

allocation of risks?

the timetable of Round One and avoid any delays, so it

A: It was clear from phases one to three that oil companies

would be surprising if this phase is not conducted within

were able to get a seat at the table with the Ministry of

the established timeframe. Nevertheless, considering the

Energy and build a close relationship with decision

importance of this phase, it would be understandable

makers. This approach allowed the development of

communication lines between the government and the

time to organize the process and ensure its proper

IOCs, which made it easier to take the industryâ&#x20AC;&#x2122;s concerns

implementation. However, the schedule established by

and worries into consideration when designing the legal

the government is reasonable, so I do not believe that it

framework. In this way, IOCs have been shaping the

will be delayed as it provides enough time for all actors to

nature of the legal instruments for R1-L04. The important

prepare and participate in a timely fashion. Furthermore,

decisions were not made by the government alone, as

the government has devoted a lot of effort to keeping the

the process entailed listening and discussing the main

round on track as a way to foster credibility. The Ministry

subjects with the rest of the actors involved in the sector,

of Energy and the other entities involved will continue to

which is not an easy task. Now, the Mexican oil industry

build on that, as IOCsâ&#x20AC;&#x2122; confidence is essential to ensuring

is properly represented within the government, making

the success of the next rounds.

the

Mexican

authorities

decided

take

| VIEW FROM THE TOP

SUCCESS FACTORS OF L-03 AND HOPES FOR L-04 BENJAMÍN TORRES-BARRÓN Partner at Baker & McKenzie

71 71

Q: What factors led to a 100% success rate in R1-L03, and

the competitiveness of oil companies. One example of

what challenges will the operators face?

this situation can be seen in oil rig leases, since day rates

A: Baker & McKenzie believes that the authorities’ concern

have dropped to almost half of what they were two years

over the relatively disappointing response in previous

ago and only the most technically advanced rigs may be

phases led to them to increase the attractiveness of R1-

contracted at higher rates. Access to low-cost equipment

L03. Firstly, the license model adopted in this tender was

for long-term projects is one of the reasons there is still a

extremely helpful in generating renewed interest, as it

great deal of potential and interest in deepwater projects.

entailed much less burdensome administrative processes

Be this as it may, it is too early to make predictions on how

than the previous production-sharing models and a

the sector will develop in Mexico.

modification in the requirements relating to guarantees and collaterals. The latter created greater flexibility in the

Q: What factors exist intrinsically within PEMEX and are

new contracts, a characteristic we believe to be one of the

exacerbating the unfavorable oil-price situation for the

reasons for the success of R1-L03. Also, the release of the

NOC?

minimum bidding requirements in advance simplified the

A: Despite the many challenges, PEMEX remains an

task for the participating companies, in contrast to R1-L01,

intrinsic part of the oil and gas sector in Mexico. A market

in which the bidders were only informed of the minimum

without any public players to offset private companies

values after delivering their submissions.

would lead to an imbalance within the sector. PEMEX has a long payment history and the NOC has never defaulted.

The projects present a number of challenges for

Given current conditions, the new contract requirements

operators, including real estate regulations in Mexico and

are understandable, meaning the parastatal is still a viable

the intricacies of rights of way. This is made even more

partner for collaboration. As long as a project is sound

difficult due to the Social Impact Assessment, which now

and cash flows are based on viable financial models,

includes a new component that must be addressed before

working together will generate savings. Nonetheless,

the commencement of work. Compliance with these

the impact of PEMEX’s struggles on the general industry

regulations will require time and money, and possibly

cannot be ignored. There are many solutions that could be

investment in infrastructure in order to transport and store

implemented. The parastatal has downgraded its payment

the hydrocarbons that will be produced.

obligations and is currently renegotiating certain contract terms while terminating others. For new contracts, it is

Q: What are your expectations for Mexico’s deepwater

requesting a 120-180 day payment term and is offering

development?

factoring opportunities to its contractors to help them

A: Mexico is currently undergoing a difficult situation due

finance their work. Another solution for companies in the

to the low oil prices causing a decline in market growth.

industry has been to rely on redundancies to cut costs.

In the case of the deepwater sector, the crisis is not

PEMEX has sought alternative ways of cutting costs

particularly relevant since projects will not be producing

and contractual obligations by delaying or suspending

oil for at least six years, and by the time the exploitation

new projects. In addition, the NOC is using its affiliate

activities begin, we expect the prices to have begun to

companies to diversify and enter into the power generation

recover. As a result, investors are focusing on strategically

business, especially in terms of cogeneration since it has

placing themselves in areas that will provide them with a

5,000MW of potential for this energy source, but this is

competitive advantage in the future. Current conditions

evolving slowly. The lack of proposals for shallow water

are allowing companies interested in deepwater projects

projects could be capitalized on by PEMEX through CEIP

to secure more competitive prices for services and goods

contract migrations, an alternative that could increase its

from subcontractors, suppliers, and vendors. This increases

production and efficiency.

| INSIGHT

LOW OIL PRICES POSE A STUMBLING BLOCK FOR TENDERS stress in the energy industry with low prices, relatively weak demand, and extremely high supply, driven by

CARLOS PASCUAL

improvements in productivity in the US and aggressive

Senior Vice President of

marketing strategies from Saudi Arabia and other OPEC

IHS Energy

members,” Pascual laments. “There has been downward

pressure on prices, forcing companies to cut costs and make difficult decisions concerning capital expenditure.” “The competitiveness of Mexico’s resources is going to

As a result, he concludes that these companies must

depend on how the government groups together the

carefully select the areas that will receive capital

resources and fiscal terms for each bid round. In each one

expenditure, basing their choice on expected rates of

of the phases, companies’ assessment of the resource

return. If Mexico determines it is not willing or ready to

possibilities vis-à-vis other global options will be critical.”

offer attractive terms, it should do so in a conscious and

The words of Carlos Pascual, Senior Vice President of IHS

strategic way by structuring bid rounds intelligently and

Energy, highlight the tremendous resources Mexico can

proceeding when it is able to offer bidding terms that will

offer in the wake of the Energy Reform, which will be

secure the serious investors the country expects.

decisive in the development of the investor base in the country. R1-L02 and R1-L03 place a strong emphasis on

“If the oil price were US$100/b today, I suspect that the

attracting Mexican companies to bid, a relatively untested

outcome of Mexico’s Round One would be different,”

market because, to this day, Mexican companies have

claims Pascual. “There would be more clients operating

typically been service providers, but may now have re-

here and, consequently, there would be a wider range of

establish themselves as operators. Internationally, the

companies with which we could work.” Those are realities

critical test will be R1-L04, which concerns deepwater

to which the company must adapt. One of the key parts of

blocks. “The Mexican government understands that it

IHS’s business is to help companies understand and adapt

has to put sufficient resources on offer, together with

to a low-cost environment. As such, part of the challenge

attractive fiscal terms, and evaluation criteria that will

faced is in helping companies understand how they can

make its deepwater offerings competitive in comparison

increase efficiency in the current environment.

to investment opportunities elsewhere,” according to There is significant hope that the unconventional resources

Pascual.

development across the border in the US could extend into R1-L01 indicated that the competitiveness of Mexico’s

Mexico in the northern and central parts of the country, as

resource base will heavily depend on the quality of

well as the coastal zones near Tabasco and in Veracruz.

resources being offered, Pascual argues. In R1-L01, only two

Those resources have not been extensively developed at

blocks were awarded, affecting the further development

this stage as they are generally expensive and, considering

of the supply chain that will provide those companies

the

with services and equipment, and potentially prompting

investments in the country, have not been the highest

the biggest test of Mexico’s supply chain through several

priority for companies. In the US, unconventional and shale

other mechanisms. One of these will be the migration of

resources continue to be developed because the history of

technical service contracts to productionsharing contracts,

investment and cost-effective management allows for lower

whereby Mexican companies, such as Grupo Diavaz and

costs. Drilling rigs, other services and infrastructure support

Perforadora Mexico, are seeking to become operators in

are widely available. Through the use of data management

the hydrocarbons sector. R1-L03 may result in a number

on each well developed, it is possible over time to target

of other service companies establishing themselves as

investments to the most productive fields and reduce the

operators too.

investment required to develop shale resources. “In Mexico,

current

cost

environment

and

other

potential

the initial costs will be higher because companies will have A critical challenge in Mexico, and everywhere in the

to create the entire industry, first drilling numerous wells to

world, is to understand the dynamic and challenging

gauge the quality of the resource base,” Pascual explains.

international

accordingly

IHS expects the exploitation of shale and unconventional

develop a combination of competitive resources and fiscal

oil and gas to come at a later point in the development of

offerings. “We are going through a period of tremendous

Mexico’s resources, when market prices begin to recover.

cost

environment,

and

| VIEW FROM THE TOP

MORE LESSONS LEARNED FROM ROUND ONE JESÚS RODRÍGUEZ DÁVALOS Partner at Rodríguez Dávalos Abogados

73 73

Q: Has the development of Round One raised investor

by participants fell slightly below said values, with a 5%

confidence in the Mexican upstream sector?

spread. Had the values been published before, the bids

A: Unfortunately, one of the main concerns clients had

could have been slightly adjusted for a successful awarding

going into the oil and gas business in Mexico was that

of more contracts, leading to an award rate over 30%, well

corruption could potentially lead to the awarding of the

within the success range of 30-50% anticipated by the

contracts under suspicious circumstances. The three phases

CNH. As for R1-L02 and R1-L03, they were successful with

of Round One issued so far, however, have been carried

award rates of 60% and 100% respectively, and incredibly

out under absolute transparency by CNH. As we all know,

aggressive bids by some of the participants. In R1-L02, ENI

confidence is a fundamental but fragile factor, and even

International offered almost 84% of the operating profit as

though there is confidence in the award methods, this trust

government take to win the block with the most reserves,

in the institutions and regulators needs to extend to the

and R1-L03 saw bids of up to 85% of additional royalty.

whole range of activities that encompass the operation of

If anything, it looks like many companies decided to bid

a hydrocarbons block. Effective acquisition and recognition

regardless of the price of oil or because they are highly

of rights of way and transparency in the accounting and

optimistic about its future.

financial procedures of the oil taxation instruments come to mind. These factors are especially relevant to give

Q: To what extent do you feel that unnecessary restrictions

confidence to present and future investments.

were hindering conversation with regulators? A: Indeed, in an effort to promote transparency in the sector,

Q: To what extent do you believe that the three first

there are stringent restrictions regarding the interaction

phases of Round One have been successful so far?

between members of the private sector and CNH

A: In R1-L01 only 14% of the blocks were awarded. These

personnel. There are official, institutional communication

results are explained not by the drop in the price of oil

channels through which the private sector may express its

but because the Ministry of Finance did not publish the

concerns, and the Commissioners and other government

minimum values for the bidding variables before the

officials constantly participate in industry forums where

proposal presentation date, and some of the bids presented

they listen to investors’ and operators’ opinions.

| VIEW FROM THE TOP

BRINGING A WORLD-CLASS REGULATORY REGIME TO MEXICO ECKHARD HINRICHSEN Country Manager for Mexico of DNV GL - Oil and Gas 74

Q: How have the Energy Reform and Round One impacted

the mandate given to them by the state. CNH and the

the market in which you operate?

other authorities are concerned with transparency, which

A: The new agencies CNH, ASEA, and CENAGAS, have

is extremely reassuring, although this may complicate the

good intentions, but the enactment of these will depend on

exchange of ideas during the critical initial phase. Complying

the budget they receive. The implementation of a modern

with these regulations will be a challenge for PEMEX and

regime for operating and safety standards will also largely

we plan to apply our extensive experience to help the NOC

depend on the influence of companies. DNV GL is in contact

adapt to these changes. Modern regulations are usually

with the authorities, offering help to establish a world-class

more competitive, typically goal-oriented in nature, allowing

regulatory regime, given our knowledge of international

companies to be more innovative and find more appropriate

standards and the work conducted with regulatory bodies

solutions. I consider Mexico to be one of the most interesting

worldwide. So far, these organizations have not been

investment opportunities worldwide, and the interest shown

as responsive to our offer as hoped, as they are in the

in each phase of Round One, and particularly the second

process of establishing their structures and implementing

phase, was quite promising. Last year, we worked to identify

| INSIGHT

MARSH-R1 ENERGY PACKAGE viable. Therefore, the company expected that the main concerns for companies participating in the rounds would Sebastián Aguayo Marine and Aviation Leader Energy Practice of Marsh

Rosa Morán Oil and Gas Leader - Energy Practice of Marsh

be to comply with the contract requirements and to contain costs, which were both addressed in the insurance program. The Marsh-R1 Energy Package is designed to help

The worldwide insurance industry has developed coverage

companies on the most basic level of compliance with the

to cater to upstream, downstream, and midstream specific

contract. “An important number of licensees and operators

requirements in order to protect the patrimony of investors

have gained experience in the Mexican market by working

and companies associated with these activities. Sebastián

with PEMEX, which used to ease the companies’ concern of

Aguayo, Marine and Aviation Leader - Energy Practice of

acquiring an insurance product,” states Aguayo. “However,

Marsh, believes that the current main drivers for the oil and

they will now have to work on their own or in joint ventures

gas industry in Mexico are the rounds, particularly as many of

with other private actors, which has motivated us to

PEMEX’s investment activities have been delayed, which is a

develop an insurance program that is as user-friendly as

situation that is expected to continue for the next couple of

possible.” He adds that one of the main challenges given

years. “We decided to develop an innovative product called

the low oil price environment is the optimization of costs.

Marsh-R1 Energy Package aiming to serve the new needs of

Marsh-R1 has been designed not only to comply with the

the market,” he explains. In this program, Marsh considered

CNH contract requirements, but it also oversees one of

that the blocks and fields awarded in the last tender will

the key objectives of any insurance program, which is to

be highly dependent on cost containment to be financially

protect the company’s patrimony in case of an incident.

projects and companies of interest, and have moved to offer

underway that aim to standardize equipment, and subsea

our services to these companies. For example, we have

infrastructure in particular.

strong links with CENAGAS and are supporting the pipeline system operator in the takeover of 12,000km of previously

Q: How will the market adapt to R1-L04, and what does

PEMEX-owned gas pipelines.

this phase mean for DNV GL? A: The fourth phase, which tenders deepwater blocks, is

Q: How can DNV GL help companies winning contracts in

the most important, and the one that will attract most

Round One to be successful in Mexico?

investment. The exploratory drilling performed by PEMEX

A: Success in the current environment requires knowledge

so far corroborates the presence of significant volumes

of the industry and a supportive network. DNV GL can offer

of oil, similar in quality to the ones found on the US side

companies over 20 years of experience in the Mexican oil

of the border, in the Perdido area. The country has some

and gas industry, as well as contacts with PEMEX and the

of the world’s deepest waters, reaching depths of over

authorities. We are expecting strong demand from foreign

3,000m. The development of these fields will require

companies, such as ENI, Shell, and Statoil, which work

companies with considerable technology, experience,

with us in Europe. Locally, we can support newly formed

and capital to support the risk. DNV GL’s experience is

companies and elevate these unexperienced firms to the

extensive, having worked for Shell in the Perdido area

required level by certifying their management systems or

and in most other deepwater fields around the world. As

training their personnel. Mexico should have world-class

a leading consultant in deepwater, we are working with a

standards, and we can help all firms conform to these. We

large group in Houston, Norway, and Petrobras in Brazil.

expect our Reliability Availability Maintainability (RAM)

Rig supply is a real concern, given that rigs reaching

solution to be particularly valuable in the present and the

3,000m are sparse, but PEMEX is currently working with

near future. We plan to apply the same technique as the

Seadrill and Grupo R. Local service companies will race to

operations of US shale gas companies, which battle in a

offer their support to winning operators, but only the large

competitive industry, to operations in PEMEX. Moreover,

companies will have sufficient expertise and resources to

we have various initiatives 74 and joint industry projects

compete with the majors.

| INSIGHT

FINANCING OPTIONS FOR WINNING BIDDERS It has been suggested that the contracts negotiated for Round One are more beneficial for the government than the companies. For Rosa María Morales Cid, Senior Analyst Oil and Gas Latin America of Moody’s, the situation is slightly more complex than this. “When R1-L01 was

Alberto Jones Tamayo Director General of Moody's

Rosa María Morales Cid Senior Analyst Oil & Gas Latin America of Moody’s

carried out, the prices were elevated, there were certain expectations, and I believe the authorities had prepared

be impossible to open an asset-backed trust using PEMEX

the rounds in a different context,” she explains.

receivables as collateral, because the credit rating of PEMEX may deteriorate further. Secondly, this approach would not

The ratings agency’s Director General, Alberto Tamayo,

provide companies with an enhancement in terms of credit

shares that there has not been a great deal of demand for

ratings, and the prudent approach may be to take time to

rating services from Round One winners just yet. “I think

become established in the country. This also depends on the

that, at this stage, new entrants already have their funding

off-taker, because selling natural gas to PEMEX would differ

in place and want to establish their operations and become

in terms of ratings than if it was sold to CFE, whose rating

stable for a few years before considering any bond activity,”

is Baa1 with a negative outlook. “However,” he concedes,

he states. “This applies unless the company desires to put

“in the international markets, the spreads may not be as

together a structured transaction, but in this environment,

favorable as they were one year ago due to volatility and

the typical way to do so would be to use the asset backing

depreciation of emerging market currencies. Companies in

from long-term contracts and receivables to issue a bond

this industry are probably currently referring more to the

with an SPB or a trust.” However, he surmises that it would

banking industry or using their own capital.”

EXPLORATION

The combination of budget limitations and PEMEX’s position as the upstream monopolist have left Mexico underexplored over the past decades. In order to increase Mexico’s oil production by 500,000b/d in the coming years, and ensure the long-term sustainability of Mexico’s desired production levels, an increase in exploration activity will be crucial. In 2015, PEMEX announced the discovery of four shallow water fields off the coast of Tabasco, which are expected to contribute additional production of 200,000b/d in the short term. In the words of the Emilio Lozoya, former Director General of PEMEX, these were “the first discoveries achieved using the new tools provided by the Energy Reform”. Despite this success, PEMEX’s reserves represent 9.6 years of production at the current production level, a number that is destined to drop when production increases.

PEMEX will no longer be the sole player carrying out exploration activities in Mexico. It has already created a multi-client seismic market which resulted in a boom in both seismic data acquisition and the reprocessing of existing data. This chapter provides an overview of the direction Mexico’s exploration activity might take in the coming years, takes a closer look at PEMEX’s exploration strategy, and assesses the ambitions of private companies in this newly opened market.

ALCANZAR UN DESEMPEÑO DE PRIMER NIVEL SIGNIFICA Transformar radicalmente las operaciones para una nueva realidad

Emerson.com/Reliability

| CHAPTER 3: EXPLORATION 80

VIEW FROM THE TOP: Alma América Porres, CNH

VIEW FROM THE TOP: José Antonio Escalera, PEMEX E&P

VIEW FROM THE TOP: Oscar Roldán, CNH

VIEW FROM THE TOP: Edgar René Rangel Germán, CNH

MAP: PEMEX's 2015 Exploration Achievements

INSIGHT: Wallace Pescarini, Schlumberger

TECHNOLOGY SPOTLIGHT: 3D CSEM, EMGS

VIEW FROM THE TOP: Juan M. Santana, EMGS

VIEW FROM THE TOP: John D. Lawrence, Petricore

VIEW FROM THE TOP: David Pring, PGS

TECHNOLOGY SPOTLIGHT: GeoTag, Sercel

VIEW FROM THE TOP: Duane Dopkin, Paradigm

VIEW FROM THE TOP: Pavel Hernández, OH Maritime

INSIGHT: Karim Lassel, CGG

VIEW FROM THE TOP: Brian Hanson, ION Geophysical

INSIGHT: Alberto Galvis, Citla Energy

INSIGHT: Matt Bell, IKON Science

INSIGHT: Javier Rubio, Geoprocesados

100

VIEW FROM THE TOP: Robert Hobbs, TGS

101

VIEW FROM THE TOP: Robin Ellis, Sercel

| VIEW FROM THE TOP

THE NEW FACE OF MEXICO’S EXPLORATION MARKET ALMA AMÉRICA PORRES CNH 80

Q: How has the decision to release all the exploration

exploring onshore basins. In fact, the Gulf of Mexico

data repositioned Mexico as an exploration destination,

was the first focus of acquisition service companies. 2D

both for companies that want to produce in the future

seismic is being used to recognize additional areas of

and those who want to reinterpret the data?

the Gulf of Mexico. PEMEX had acquired deepwater data,

A: The exploration segment in Mexico advanced in the

but just for areas close to Perdido and in the southern

past year because of the regulatory changes and now it

basins were the large gas reservoirs were identified. Now

is well positioned to discover new resources in the near

companies are collecting data in the remaining areas

future. The Mexican exploration sector is oriented toward

through 2D seismic.

data acquisition and special reprocessing, which allows the possibility of playing around with the evolution of

Although it might seem that there is an overlap in data

technologies and available information. At the moment,

acquisition activities in the Gulf, the objectives are different

the information and processes are being upgraded with

in each study, as some intend to examine the seabed while

new technologies, reprocessing, and new data acquisitions.

others are trying to determine depths. Electromagnetic studies shed light on the type of fluid combined with

The interest companies are showing in carrying out

information from seismic and drilled wells, and hundreds of

exploration activities is amazing, particularly in studying

square kilometers are being explored with this approach.

the Gulf of Mexico, and there is a smaller interest in

Geochemistry studies provide important data to improve modeling and to identify hydrocarbons in the basins.

RESERVES INCORPORATION (billion BPCE) 3P3P RESERVES INCORPORATION (billion boe) 1.7

companies that might be interested in deep or shallow water blocks. New results are showing something similar to Brazil’s pre-salt formations, which we will see more of

1.5

1.4

Integrated geochemical data also reduces uncertainty for

average 1.3

1.1

1.2

in the next few months. This means that, in addition to the usual formations, there is a continuous salt layer under which there could be hydrocarbon resources. Overall, all

0.8 0.7

these endeavors will allow us to have a deeper perspective on the Gulf, thus reducing uncertainty, in no more than two years. Onshore is also more complicated than exploration in

2010 2011

2012

unconventional unconventional deepwater deepwater

2013

2014 2015

shallow water shallow water onshoreland

discovered resources discovered resources Investment2010 US$ constant Investment billion 2.9 US$ billion Discovery cost Discovery cost 2.0 Source: PEMEX US$/b Source: PEMEX

the Gulf of Mexico because operators have to carry out social impact assessments that can delay the permitting process. In addition, no large-scale studies have been made to date. Shale is another complex area because the current oil price is not conducive to production in these

2011

2012

2013

2014

2015

3.0

2.9

2.8

2.4

fields, but the Ministry of Energy will ultimately determine when the round will take place. Most of the exploration activities in the south region were given to PEMEX, and the NOC left the rest for future bidding rounds. There are

2.0

1.7

2.4

3.4

3.7

also areas that have been barely explored or not explored at all, such as Chiapas and some portions of the state of Veracruz.

Since PEMEX works by asset, the intersection of

onshore conventional resources, which will require new

several areas lacks reliable studies. Most of the onshore

technologies and creativity. Mexico is focused on the

exploration being carried out right now consists of studies

offshore resources where we knew we had resources in

and reprocessing, although data acquisition activities are

the Cretaceous formations, so we neglected the Tertiary

gradually increasing, changing the exploration perspective

formations in the southeast, which might have interesting

for the next few years. There are a few companies

volumes waiting to be uncovered.

reprocessing the existing seismic information for onshore blocks, ultimately increasing the value of the information

Q: How has access to information evolved, and what can

we have and saving time in improving the quality of the

companies expect from the Data Room in future rounds?

available data.

A: The Data Room had to be developed because there was a lack of knowledge about the information that existed

Q: How do you see the evolution of exploration

in Mexico. In fact, we had to make geological atlases.

technologies and the entry of new technologies now that

However, it was important to develop a Data Room at the

the market is open?

initial stage to incorporate all the information needed to

A: The technology operators have in their R&D centers gives

support technical decisions. For onshore blocks, we had

them a unique competitive advantage, and R&D centers also

to gather information directly from the asset, which is

tend to go the extra mile when developing solutions to new

different from having integrated information, performing

problems. Most people think about seismic acquisition when

quality control as a single component, and managing it

talking about Authorization for Hydrocarbons Recognition

in advance or evaluating the missing components with

and Superficial Exploration (ARES). However, this also entails

sufficient time to obtain it.

superficial recognition studies for the exploration side. Many of these studies have employed geochemistry, gravimetric

The process for the following rounds will be different, since

analysis, magnetometry, and geology studies used to relate

a massive data transfer is being carried out already. Future

already-drilled wells with seismic and the electromagnetic

data rooms will be more improved than the ones we have

side, which deals with fluids. Seismic might be the most

today, as we will use our acquired experiences and apply

impressive aspect due to its scope, but geochemistry studies

the lessons we have learned. We are going to modify the

are the second most frequently requested service. For me,

membership requirements for the Data Room because the

successful and state-of the-art technologies will be those that

state might have information on drilled wells that will be

enable the possibility of drilling in high pressure conditions

publicly available, so having a data room for each phase

at significant water depths. If the pre-salt formations are

will not be necessary. Information will always belong to the

confirmed, then the technological side will also encounter

state and will be contained in the Hydrocarbons Information

more challenges, as these characteristics will not be found in

Center, but it will be available to operators. Almost 80% of

other markets. These are areas that will evolve significantly

the operators that want to enter Mexico will have access to

in the coming years.

the information in the next three rounds, which is the goal. It is difficult to maintain control of the data when this is

Onshore presents a different scenario, as the technology

not integrated and an inventory is lacking, but if we have

used leads to increased efficiency levels in the production

the complete volumes, we have the chance to go over it in

stage. This will be the case for shale reservoirs, which

advance for future rounds. As reprocessing activities take

hold significant volumes. Confirming the volumes and the

place, companies will help complement the information.

hydrocarbon potentials is the next challenge, as well as finding the sweet spots so that barrels do not cost US$40

Q: What are some changes the industry can expect as a

each. There are seismic and characterization technologies

result of CNHâ&#x20AC;&#x2122;s current endeavors?

that allow location of those sweet spots at lower costs that

A: ARES will be modified and a new version will be issued

the ones that rule the industry today.

this year, which will include well integrity, which will look at exploration wells, deepwater drilling, and standard model

In the current climate, there is a play between prices and

wells. Another aspect relates to royalties, as the previous

efficiency. Operators in the US are drilling natural gas

version did not detail how the purchase of information

wells and they are turning a profit. The price of a cubic

should be paid for. This is important to specify as clearly as

foot of natural gas is relatively cheap, yet the US is making

possible in the new multi-client market. A company might

a business out of it and there is no reason why Mexico

purchase a seismic or electromagnetic block, reprocess

should not be able to develop a profitable shale industry.

it with its in-house technology, and sell the reprocessed

It is speculated that the southern region could have oil

information several times. In a multi-client market, if the

in addition to gas, which would create a more attractive

company did not acquire the original data, it has to pay a

business for everyone. Much remains to be explored in

percentage to the state.

| VIEW FROM THE TOP

PEMEX EXPLORATION ADAPTS TO THE NEW ENVIRONMENT JOSÉ ANTONIO ESCALERA Director of Exploration at PEMEX E&P 82

Q: PEMEX spent MX$35 billion on exploration in 2015.

we will begin the development stage once the project

How was this amount spent, and what are the most

is sanctioned. Another discovery worth mentioning is

outstanding results?

the Tetl field, which was found through the Tecoalli-1001

A: If exploration activities are meant to turn non-discovered

well. We will drill a delineation well in Tetl to learn more

prospective resources into prospective resources, we

about this field and plan the future production. Finally,

had a successful year, as we discovered 1.1 billion boe.

Jaatsul is another discovery where we are about to start

However, 400 million boe in deepwater resources became

appraisal drilling operations with the objective of reducing

contingent resources because at the average 2015 oil

uncertainty in reservoir size and then define the wells and

prices, these discoveries are not commercial. We also did

facilities needed to exploit it.

some delineation activities in the southern deepwater Gulf of Mexico gas province and in some reservoirs in Perdido,

Q: To what do you attribute the 45% success rate of the

such as Exploratus. We also found oil in Cratos, but we will

30 exploration wells you drilled last year?

have to wait for higher prices before developing this field.

This

success

international

pozos • Increase in drilling

efficiency and well completion

geología y geofísica administración 75%

• International efficiency standards were met

• Tariff negotiations in drilling equipment

• 15-30% adjustments

• Innovative schemes in seismic data acquisition and processing

• Reduction in costs per acquisitions (km2)

• Optimization of administrative expenses

10%

within

during

the

the last

average five

years.

low oil prices, the success rate would have been 38%. Achievements

The most important factor is the fact that we know the geology, although it is also worth mentioning that we are harvesting the benefits of our investments in technology and high-quality seismic data. For shallow water blocks in the Gulf, we acquired close to 2,000km2 of seismic data, including multicomponent, full-azimuth, long offset

Deepwaters 60% Shallow waters 30%

15%

operators

lies

Considering discoveries that are not commercial due to

PEMEX EXPLORATION INVESTMENT Average Investments in MainINVEST Efficiency PEMEX EXPLORATION Exploration 2012-2015 Initiatives

rate

• 25% reduction

and high-density ocean bottom cable, and wide azimuth variable depth high-density streamer surveys. These allowed us to improve subsurface imaging in areas where prospective resources were unclear. A multidisciplinary approach to geological knowledge paired with the application of cutting-edge technologies have enabled us to continue advancing with positive results. Any

wells

geology and geophysics

management

Source: PEMEX Source: PEMEX

company with a commercial success rate of 30% or more can be considered an accomplished player.

Last year we carried out some important work in shallow

The current oil price is forcing us to focus in areas with

waters that led to the discovery of six fields, which amount

lower investment risk, mainly in smaller but more profitable

to 650 million boe. The six fields we discovered last

areas. This means we have decelerated our deepwater

year can start producing in two or four years and yield

activities and moved to shallow water and onshore plays.

around 200,000 boe that will allow it to maintain the

Nonetheless, Mexico’s potential in deepwater is enormous,

country’s production platform. There are two fields that

just like that in unconventional resources. PEMEX’s

seem particularly promising: Xikin and Esah. In the first,

challenge is to work efficiently in these resources,

we will drill a new delineation well this year to generate

especially given the potential for shale we have identified

more certainty and accelerate its development. Esah is

in the Tampico-Misantla basin. Although the current

also a significant discovery that is easier to manage, so

economic landscape does not allow for these resources

to be developed, we need to advance with prudent

investments. Previously, PEMEX used to pay for the full

investments in a strategic way so that we can obtain the

cost of an exploration study, but now we can get a study

necessary knowledge and be ready to produce once the

for 20-30% of what it cost in the past. A lot of the studies

oil price settles.

being conducted are 2D seismic. From what we have seen, it is a high-quality seismic that was acquired using

Q: What are the drivers behind your shift form large

the most appropriate design parameters for a regional

reservoirs to more profitable ones?

analysis of the Gulf. However, due to our limited resources

A: Our current exploration strategy responds to the oil

and our existing knowledge of the country’s basins, these

price. In times with limited financial resources, just as

studies are not a priority for us at the moment. As for the

the rest of the industry, PEMEX has to focus on the most

3D seismic that is being acquired in the Salina del Istmo

profitable areas that can contribute reserves to support

Basin, we are going to wait until more reprocessing has

production in the short and medium term. However, we

been done before making a decision.

cannot lose sight of the medium and long term, especially when unconventional and deepwater resources will

Q: Where are you going to focus your exploration

play an important role in Mexico’s production. Trion and

activities for 2016, and what are your priorities?

Maximino have been delineated, and we are drilling a well

A: Our main focus will be the Southeast Basin, both

in a prospect close to the latter. While the profitability of

onshore and offshore. In the latter, we have five drilling

deepwater fields is low right now, this will not be the case

rigs operating and by the end of the year we will have two

in seven years.

more. As for the onshore areas, the budget is limited, but if the tide turns at the end of the year, we will put three more

The inclusion of exploration opportunities close to our

drilling rigs into operation. Regarding deepwaters, the goal

fields gives an important upside to our farm-out areas.

is to scale down from four to two semi-submersible drilling

It is worth mentioning that in the case of deepwater

rigs by the end of the year and accelerate the farm-out

exploration, PEMEX was acting on its own because we did

process so that we can share risk and benefits in Perdido.

not have another option. However, it is clear to everyone that we need partners to develop those fields. Just like

The Tampico-Misantla Basin has a considerable potential

we are adjusting our strategy based on the low oil price,

for unconventional shale oil resources with the advantage

we will also leverage on the reform to change the way

of having existing facilities and people who have the

we operate in deepwater fields so that we can share the

technical knowledge on how to extract oil. The goal is to

risk and the rewards with other parties. Even though

reach the same efficiency levels as companies in the US. In

deepwater activities have decelerated, we have been

2014, the extraction cost of a barrel from unconventional

analyzing farm-out areas in order to start the migration

reservoirs was US$90, and now these companies can

process with the Ministry of Energy and CNH. Once our

produce a barrel at US$40-50. In addition to speeding

partners are selected, we will jointly define the exploration

up the learning curve, we need a special fiscal regime for

and exploitation program for every area. We also want to

this kind of resources, which the authorities are aware of.

participate in the fourth phase of Round One, where we

Even though Mexico’s shale resources are not profitable

will enter into a partnership and bid on blocks that are in

right now, we need to be prepared for the next turn in

line with PEMEX’s oil-focused exploration strategy.

oil prices.

Q: How is PEMEX going to interact with the multi-client market? A: At some point carrying out seismic studies was

MEXICO RESERVES DISTRIBUTION 2015 (billion boe) Basin

Cum. Prod.

PEMEX’s duty because the law mandated it, but now multi-client campaigns are an important instrument that

Reserves

Prospective Resources

1P (90%)

2P (50%)

3P (10%)

Conv.

10.8

14.2

18.2

12.5 2.4

Southeastern

47.8

the geology and evaluate the petroleum potential at lower

Tampico-Misantla

6.3

1.0

5.9

10.6

costs. PEMEX’s efforts in deepwater basins should not

Burgos

2.5

0.3

0.4

0.6

be overlooked, as we acquired over 100,000km2 worth

Veracruz

0.8

0.2

of 3D seismic from wide-azimuth and narrow azimuth

Sabinas

0.1

0.0

0.1

Deepwater

0.0

0.1

0.4

1.8

will allow many players, PEMEX included, to understand

using a single vessel, which allowed us to reduce costs considerably. The new way of operating in Mexico, the multi-client market, is important because it allows us to share

Un Conv.

3.3 1.5

0.6 0.4 5.2

Total PEMEX

57.5

12.4

21.1

31.5

20.7

5.2

Total Mexico

57.5

13.0

23.0

37.4

52.61

60.21

Source: PEMEX 1 As of January 1, 2014.

| VIEW FROM THE TOP

NATIONAL DATA REPOSITORY AMIDST ROUND ONE OSCAR ROLDĂ N Head of the National Hydrocarbons Information Center 84

Q: How has the process of the data transfer developed,

transparent process, meaning that all data is available to

and how is this helping the progress of the Energy

any individual who requires it. The only exception is raw

Reform?

seismic data, since this constitutes a considerable amount

A: One of the objectives of the Energy Reform is to boost

of information, so instead it is granted through the ARES

the exploration activities in the country, which highlights

regulation.

the need for more data. Since we started to operate the bidding rounds, we realized that in order to be successful in

Q: What would be the impact if companies in Round Two

the implementation of the Energy Reform we had to create

purchase the relevant information from the private sector

an efficient information industry in Mexico. We have three

instead of accessing the Data Room?

instruments that will enable us to achieve this: data packs

A: Companies that have access to the data through the

for bidding rounds, a licensing system for access to data,

license system will later have no need to buy data packs

and data generation through a multi-client system.

in order to participate in the future bidding rounds. So far we have data from two different areas of the Gulf of Mexico

Q: What feedback did you receive from companies

available in the National Data Repository: deepwater

regarding the data available for R1-L01, and how did this

blocks and shallow water blocks in the southeast basins.

impact the subsequent phases?

For deepwater, we have 20 seismic surveys, all of which

A: We received considerable suggestions on all aspects

are final products and migrated acquisitions, as well as the

of process oversights, ranging from data and technical

data from 55 wells. For shallow waters, we have 15 seismic

aspects to contracts. During R1-L01, we received great

3D surveys, four packs with information on 165 wells, and

feedback from companies, which was addressed in the

one pack with 23 seismic 2D surveys. The shallow water

future bids.

wells include Ek, Balam, Sinan, Bolontiku, Ayatsil, Tekel, Pit, and 40 exploration wells around the area. We have

Someone expressed disappointment due to the fact that

given licenses to 13 companies and delivered more than

the data was cut. The comment expressed concern about

25 licensed data packs in the first seven months following

the need to connect the wells to the appropriate surveys.

the issuing of the guidelines in October 2015. In terms of

Although this was a relatively basic issue, it was something

data packs for bidding rounds, we have delivered 143 data

we overlooked. Therefore, we decided to open all the

packs for the first four tenders of Round One, and hosted

data without cutting or filtering any of it. All the data

312 visits to the Data Room.

transferred from Pemex and IMP has to be made available to any interested company, which we continue to work

Q: What are the new rules regarding the passing of

on. This is the reason why we develop the instrument of

acquired multi-client seismic on to CNH?

data access through a license model. Like all governmental

A: The rules have remained basically the same. Companies

activities, however, regulations had to be created. Issuing

give CNH the data they collect and we keep it confidential

the regulation that granted access to all the seismic

for a 12-year period in the case of new data, and six years

surveys and well data took a considerable amount of

in the case of reprocessed existing data. The multi-client

time and effort. Nonetheless, we managed to succeed

system has been extremely successful, as evidenced by

in launching the regulation and obtaining the price of

the fact that we have authorized 31 different projects: 22

the data. The process entailed creating the data packs,

for the acquisition of new data and 11 for reprocessing

checking the surveys and the variations, working with

existing data. This amounts to approximately 350,000km

the Ministry of Finance, and obtaining approval for the

of new 2D seismic data, 111,800km2 of new 3D WAZ

price. Finally, we managed to release the licensing system

seismic data, and the reprocessing of 387,000km2 of

at the end of September, and we created an extremely

existing data.

| VIEW FROM THE TOP

ISSUES PERTAINING TO MEXICO'S RESERVES EDGAR RENÉ RANGEL GERMÁN Former Commissioner of CNH 85

Q: What is your perspective on the development of

that not only deepwater projects, but also other projects

Mexico’s reserves volumes?

will be affected.

A: Reserves pose a significant problem, because our most important mature fields are declining more than

The third potential problem is Chicontepec, which has tight

expected. Most of the production around the world

oil, meaning that it is not possible to drill a well that continues

comes from mature fields and everyone is concerned

to drain oil. Chicontepec has small sand lenses and thousands

about where new production will be coming from, which

of reservoirs from a technical point of view, so many wells

is why unconventional resources are so relevant. There

must be drilled to reach each of those reservoirs. The most

are no real alternatives to replace current production

significant development plan that PEMEX developed for

volumes, and we might reach 100 million b/d soon. Given

Chicontepec included 50,000 wells, which is beyond the

that mature fields are declining faster than expected,

capabilities of any company on the planet.

there will be a substantial drop in reserve levels in the next two to three years.

Many people will say that Chicontepec is extremely important because 40% of Mexico’s 3P reserves are

Deepwaters could also pose a problem. Although the

located here, but only a tiny piece, less than 1 billion

volumes are there, we have not developed the right

barrels, are 1P reserves. To produce the 3P reserves, all

strategy for deepwater. We can validate this since it

50,000 wells must be drilled. Of course, following the

is never clear why well locations have been selected.

migration of the COPS and CIEPS, new operators are not

However, it is not within our remit to assess or evaluate

going to want to drill the quantity of wells required to

PEMEX’s exploration strategy, so we must receive the

produce the 3P reserves of Chicontepec. For example,

proposal and treat the submission like that of any other

new operators might plan to only drill 200 wells instead

company. In the year when a well is drilled, typically a huge

of the 5,000 planned by PEMEX for the same area,

volume of reserves is announced. In the years following

which would have a detrimental effect on future reserve

this announcement, PEMEX then makes revisions that

calculations, and we will see this development during

often substantially reduce reserves, in some cases down

the current and next year. As we move forward, we must

to zero, since the volume is there but production is not

develop a strategy to prevent the loss of those reserves.

economical. Another factor that will affect reserves is that some of Adding the oil price factor given that prices dropped from

the mature fields have not seen their development plans

US$100 to US$30, then many of the deepwater reserves are

delivered in terms of advanced and enhanced recovery.

contingent resources, and when resources are contingent

Most of these cases are in the southern region, in fields

to price then oil companies are unlikely to make the

such as Samaria or Jujo-Tecominoacán, where PEMEX

large capital investments necessary to start production.

only drilled a fraction of the planned wells due to budget

This means that we are expecting another large drop in

constraints. If PEMEX is ultimately only able to deliver one

reserves this year and next. In order to evaluate reserves,

well instead of 20 for several years in a row, then this also

producibility is calculated as the unweighted arithmetic

affects the production profiles of these fields.

average of the price of the Mexican mix on the first day of each month within a 12-month period. Therefore, when

In some cases, private operators taking over such fields

calculating the reserves for January 1, 2016, we still have a

and increasing investment will support a recovery of the

good oil price since the average of the Mexican mix is over

reserve levels to a certain extent, but I do not see this

US$50, and for light crude oil it surpasses US$60. But the

happening in Chicontepec. In summary, in the short term,

average for 2016 will be less than US$30, which means

poor reserves numbers are coming in 2016 and 2017.

| PEMEX'S 2015 EXPLORATION ACHIEVEMENTS

3 2

11 12

8 Well producing oil, gas, and condensate Well producing wet gas Hydrocarbon fields

2015 SUCCESFULL EXPLORATION WELLS 1.

Cratos -1A

Tecoalli-1001

Licanto-1

10.

Jaatsul-1

Hem-1

Xikin-1

Tsimin-3DL

11.

Esah-1

Nat-1DL

Licayote-1

Batsil-1

12.

Cheek-1

From February 2015 to the same month in 2016, a total of 25

marine region of the Gulf of Mexicosaw the completion of

wells were completed, 11 of which were unsuccessful. Of the

11 wells during the aforementioned period. Wells in these

successful wells, two were located onshore in the southern

offshore fields produce oil and gas, and they include Batsil-1,

region. Licanto-1 was completed in August 2015 and has

Cheek-1, Tecoalli-1001, Jaatsul-1, and Tsimin-3DL, which

a depth of 4,030m, while the second one, Licayote-1, was

were respectively completed in March, April, September,

completed in December 2015 and is 2,585m deep. Both

November, and December of 2015. Their respective depths

produce oil and gas for commercial purposes. Two other

amount to 5,150m, 4,530m, 4,900m, 5,075m, and 6,900m.

wells were completed in the northern marine region of the

There are also two wells that produce wet gas: Hem-1, which

Gulf of Mexico. The only commercial field out of these two

is 4,429-meters deep and was completed in March, and Nat-

offshore ones, Cratos-1A, was completed on November 2015,

1DL, completed in October with a depth of 4,569m. Xikin-1

produces gas and condensates, and has a depth of 5,952m,

and Esah-1 are also commercially viable, have respective

compared to the 5,779m of Corfu-1, a non-commercial well

depths of 5,279m and 3,930m, and were completed on

completed in August 2015. The northeastern marine region

August and September of 2015. The two last productive

of the Gulf of Mexico saw the completion of just one well,

wells are non-commercial. Alaw-1 is 5,279m deep and was

Kayab-101. This offshore, non-commercial well has a depth of

completed in May, and Miztรณn-101 has a depth of 3,930m

3,510m and was completed in March 2015. The southeastern

and was finished in August.

| INSIGHT

MULTI-CLIENT SURVEYS ATTRACT INVESTMENTS “The project has been wellperceived by CNH because

WALLACE PESCARINI President Mexico & Central

this is exactly the kind of

America of Schlumberger

activity the government

needs in order to attract new

vessels. The colossal investments required for this endeavor

investors”

investment, we must always consider the ROI as a long-

are solely provided by Schlumberger. “For this level of

Wallace Pescarini, President Mexico & Central

America at Schlumberger

term goal. Our decision to make this significant investment is based on research with operators and research with PEMEX, bearing in mind that the NOC could benefit from the data,” comments Pescarini. He says that CNH has

When the oil price drops as it has done in the past years,

provided excellent visibility with its Five Year Plan, and

the first thing companies cut back on is investment in

Schlumberger has also conducted its own research in terms

large E&P projects. However, in Mexico, there is a balance

of the appetite for investment of international companies.

and, while PEMEX was reducing investment in exploration,

“The project has been well-perceived by CNH because

Schlumberger

this is exactly the kind of activity the government needs

welcoming new customers. An example of this can be

in order to attract new investors. The combination of the

witnessed in the seismic campaign the company is currently

transparency and professionalism implemented by CNH,

carrying out in the Campeche Bay, which is one of its largest

our customers’ trust, and our belief in the country makes

multi-client programs and the biggest in Mexico by far.

the investment extremely attractive for the company.” The

has

made

significant

investments

project strengthens Schlumberger’s position in the Mexican “The program is Schlumberger’s biggest seismic campaign

exploration sector, which now enjoys a prestigious position

in the world. We have a strong belief in the country’s energy

due to the company’s participation in preparing the data

sector and the benefits of the reform, and we are already

rooms and creating the National Data Repository alongside

beginning to reap the rewards of this investment,” shares

CNH. Meanwhile, Schlumberger has been a valuable partner

Wallace Pescarini, Schlumberger’s President Mexico &

in ensuring transparency and data security, meaning that

Central America. This project has been undertaken by the

both parties were able to benefit from the collaboration.

company’s exploration arm in order to offset the losses

“We are delighted to have been given the opportunity to be

caused by the current situation in PEMEX, and the company

involved in the history of the oil and gas industry in Mexico

managed to sell some of the multi-client data to customers

outside of PEMEX operations, and I believe that this is only

such as Statoil, demonstrating that government policies can

the beginning for us.”

lead to success. The project’s scope goes beyond R1-L04, as the collected data will be useful for Schlumberger and its

Some

people

could

believe

the

multi-client

survey

customers over the next five to ten years. Pescarini explains

might create a conflict of interest, given Schlumberger’s

that he is increasingly seeing customers who acquire the

collaboration with CNH. However, Pescarini stressed that

data, win a bid, and subsequently require a more in-depth

CNH has a clear set of guidelines in terms of Schlumberger’s

analysis of the allocated fields. In this sense, Schlumberger

access to certain information, and the information obtained

can work with these customers in reprocessing the data

through the multi-client surveys is being provided directly

and creating a much more detailed report. He adds that

to the Commission, as stipulated in the license. “Ultimately,

in the current environment, these services are particularly

the scenario is more of a partnership rather than a

attractive due to their ability to minimize risk.

conflict of interests, as CNH also needs us to make this type of investment in order to attract newcomers to the

The project, which began in August 2015, has been divided

country,” explains Pescarini. There are clear lines between

into five phases, of which 60% had been completed by early

Schlumberger’s duties helping CNH with transparency and

2016. Schlumberger is using its latest seismic technology

data security, and access to the data that would provide an

for the program in Mexico and two fleets comprising 14

advantage in the bidding rounds.

| TECHNOLOGY SPOTLIGHT: 3D CSEM Measuring wellbore resistivity has been a fundamental

of the subsurface, often called a temperature-compaction

formation

Marine

model, typified by resistivity that gradually increases with

Controlled Source Electromagnetic (CSEM) surveying

evaluation

depth. Using all the navigation parameters of the 3D CSEM

uses the same principles to illuminate resistive bodies,

survey, forward modeling is performed over the input 3D

such as commercial-scale hydrocarbon reservoirs, from

resistivity volume to generate a synthetic dataset, which

the seabed. When integrated with other data, 3D CSEM

is quantitatively compared to the acquired data. If the

data helps distinguish prospects with high hydrocarbon

mismatch between the synthetic data and the observed

saturation

from

tool

prospects

since

with

the

low

1920s.

hydrocarbon

data is larger than a given threshold (derived from the

saturation. When a CSEM survey is performed, a horizontal

measurement uncertainty), the 3D resistivity model will

electric dipole (HED) source is towed above the seafloor.

be updated based on the mismatch. This process iterates

The dipole source emits a continuous, time-dependent

until the synthetic data matches the observed data within

EM signal that yields a specific frequency spectrum.

the specified misfit threshold. The output of 3D CSEM

The resulting EM fields are measured by receivers that

inversion is a 3D resistivity volume, which can be loaded in

are deployed on the seafloor. The receiver grid has a

any interpretation software environment, and thus can be

3D configuration, which enables recording data from all

correlated and integrated with other available geophysical

azimuths. The water depth of operation for a CSEM survey

information.

ranges from 20-3,500m. The depth of penetration into the subsurface is between 0-3,500m, depending on the

3D CSEM inversion provides a subsurface 3D resistivity

electrical properties of the overburden.

distribution that delineates prospects and reservoirs, and places them accurately both laterally and in depth. The

3D CSEM inversion is EMGS’s standard imaging product

incorporation of full-azimuth data acquired in 3D grids

for CSEM data. The firm’s 3D CSEM inversion has been

enhances the spatial resolution and accuracy of the final

successfully used to image formation resistivities with

3D resistivity volume. Ultimately, when clients integrate

CSEM data acquired in a variety of geological settings such

the provided resistivity volumes with seismic, well log, and

as shallow water blocks, continental slopes, deepwater

other data, they are able to upgrade their Probability of

blocks, and salt basins, as well as for a range of E&P

Success (PoS) and Volume in Place assessments. These

applications. The goal of CSEM inversion is to estimate a

improvements are often possible when CSEM data is part

subsurface resistivity volume that explains the acquired

of the prospect evaluation workflow, whether integrated

CSEM data within the measurement accuracy and which is

into a customer’s current practice or by using the tools

geologically meaningful.

offered by EMGS. By using CSEM data in combination with other subsurface measurements, users can increase their

To conduct a 3D CSEM inversion, EMGS creates an initial 3D

success in exploration, de-risk and polarize their prospect

resistivity model. This model is a simplified representation

portfolio, and optimize their development programs.

| VIEW FROM THE TOP

COMBINING DATA SETS FOR MORE ACCURACY JUAN M. SANTANA President of EMGS North and South America 89

Q: Which distinctive technologies will you implement in

a new deal in 2013. This contract, and its extension, is an

your multi-client programs in Mexico?

endorsement of our technology and the value that CSEM

A: We have integrated seismic and controlled source

delivers in hydrocarbon exploration. Moving forward we

electromagnetic survey (CSEM) data, and as a result,

will further develop the relationship and support PEMEX in

we are able to deliver reliable solutions to explore leads,

its exploration efforts in the Gulf of Mexico. As far as this

rank prospects, and make more informed decisions. The

project’s impact on the Mexican bidding rounds, EMGS

advantages of CSEM surveys lie in their ability to provide

has a permit from CNH authorizing the acquisition of up

information about the subsurface resistivity that, in

to approximately 88,000km2 of 3D CSEM multi-client

conjunction with seismic, provides powerful information to

data in the Salina del Itsmo Basin. In addition, we have

explore a variety of scenarios. These include the presence

an agreement to reprocess the existing 3D CSEM data in

or absence of hydrocarbons, their estimated volumes,

Mexico, as part of a multi-client model.

characteristics on the seal, lithology differentiators in terms of shale and salt, and salt imaging, among others features.

Q: How would you rate the mechanisms that allow collaborating with CNH, and Mexico’s new multi-client

The 3D CSEM integrated products take interpretation

approach to exploration?

further

A: The process for the multi-client program with the CNH,

establishing correlations between seismic and CSEM

called ARES B, was relatively straightforward. I admit

data. By utilizing joint indicators of reservoir properties,

this was somewhat lengthy, as ASEA and the Ministry of

one can qualify geophysical data and enhance structural,

Energy also had to be included, which required separate

stratigraphic, and fluid property interpretations for a region

procedures. However this is understandable, as it was a

or zone of interest. Notably, combining 3D CSEM surveys

pioneering project and several doubts had to be allayed by

with seismic data provides the hydrocarbons industry with

the relevant authorities. We expect the process will become

an additional and independent dataset, which previously

more streamlined, meaning that these kinds of projects will

could only be obtained with an extremely costly well bore.

be accelerated in the future. It will be beneficial for CNH to

Moreover, EMGS’s technology allows the hydrocarbons

implement mechanisms for the multi-client projects so that

industry to incorporate its measurements over large

they have greater impact in acquiring further knowledge.

areas in 3D. This means that, when integrating 3D CSEM

Moreover, we have made considerable advancements in our

techniques with traditional hydrocarbons exploration

multi-client seismic and CSEM integration program, the main

tools, companies can make a more accurate interpretation

objective of which was to reduce exploration uncertainty by

of the exploration potential of an area, optimize their

contributing the significant added value that CSEM brings

portfolio and drilling schedule, and ultimately increase

to the existent multi-client seismic. In this way, integrated

their probability of success.

exploration workflow, including the CSEM data is established

and

provide

competitive

advantage

in conjunction with an exploration company’s technical team. Q: What have been the main lessons learned from your 3D CSEM multi-year contract with CNH?

We consider that the main area of opportunity for

A: EMGS will prioritize acquiring CSEM data for the future

exploration companies in subsurface comes in the form

bidding rounds in Mexico as outlined in the Ministry of

of 3D, and because challenges are inherent with this type

Energy’s Five Year Plan. The plan for future licensing rounds

of technology, integration is vital. Our approach has been,

in the offshore fields of Mexico aligns well with our plans

and will continue to be, the combination of 3D CSEM with

in the region and the received CNH permits, and we are

seismic data, in order to reduce exploration uncertainties

now actively seeking funding for our projects. We signed

and more accurately and efficiently identify, assess, and

a contract with PEMEX in 2010, and subsequently signed

rank plays in a potentially productive area.

| VIEW FROM THE TOP

LABORATORY SERVICES AT THE INDUSTRYâ&#x20AC;&#x2122;S FRONT DOOR JOHN D. LAWRENCE CEO of Petricore 90

Q: How are you managing to maintain your relationship

Due to geological similarities in the sediments, these

with PEMEX in the current environment?

resources could prove just as fruitful as those already

A: I have been involved with PEMEX since 1978, and I have

extracted in the US, although I believe we are still a long

never experienced a situation as critical as that in which

way away from seeing major shale development in Mexico.

the NOC finds itself at the moment. The main problem we are seeing is the delay that can last up to several months

Q: How is Peticore benefiting from an environment in

in terms of billing for services, and now the payment

which companies look for low-cost, integrated services?

conditions have been changed for a period of up to 180

A: Offering both well services and rock analysis gives

days, which essentially means that the suppliers and

us a particular benefit since the services are intrinsically

service providers must finance PEMEX over this time. The

linked. In the future, our regional, geological knowledge,

costs of factoring are relatively high, so this has been a

a consequence of our range of services, will be our main

particularly problematic situation for our company. On the

competitive advantage in the emerging market, as our

other hand, we have a contract with PEMEX E&P, which

competitors lack the experience in Mexico that we have.

is also available for use by production assets, providing

In the specific case of Mexico, we have a full-service

rock analysis for PEMEX interests across the breadth of

laboratory established in the region where most activity

the country. The project is running slowly, mainly due to

is seen, whereas most competitors do not have the same

PEMEXâ&#x20AC;&#x2122;s current low levels of activity and the lack of wells

facilities, and their local provisions are limited. They then

that are providing samples for analysis.

tend to send samples back to their main laboratory, which is normally located in Houston, Texas, or Aberdeen,

Q: What will be the implications of the fact that PEMEX

Scotland, and there tends to be a long waiting list for

returned 95 wells to the authorities for Petricore?

analysis due to the fact that the laboratory acts as a global

A: Firstly, there will be a lack of productivity due to

hub for the company. However, we have a lab dedicated to

decreased PEMEX activities in the country. Presumably,

the sample analysis here in the heart of the oil community,

the reason for the return is the fact that these fields are

exclusively for the Mexican oil market, meaning that we

not overly attractive to PEMEX, meaning their appeal for

can provide the results much quicker.

private players in the case of new bidding rounds may be limited. However, the principal reason for the return of

Q: How do you plan to demonstrate your capabilities to

the fields is PEMEXâ&#x20AC;&#x2122;s lack of resources, meaning that the

IOCs that are expected to enter the market?

fields are not necessarily unattractive, but that the NOC

A: We have invested in marketing in order to increase

simply does not have the resources to establish effective

visibility and make the oil community aware of our presence

operations. The whole sedimentary base of the Gulf

on a global level. Timeliness is crucial in this industry as many

of Mexico, from Florida to Campeche holds a wealth of

operations are time sensitive, and the data must be provided

opportunity for hydrocarbon exploration. Moreover, it is

as quickly as possible so that companies can quantify

likely that the south side of the Gulf has been exploited to a

reserves and determine production methods. Moreover, this

much lesser extent than the north due to intense activities

business has a reputation for its delays, so at Petricore we are

in US offshore drilling practices, meaning that new players

very much focusing on the speed at which we can deliver our

should not make the mistake of underestimating the

services, while maintaining quality. Competitors have always

potential of these fields. There are certainly conventional

seen establishing a laboratory in Mexico as a highly risky

fields awaiting discovery and, although I do not anticipate

venture, due to a high investment requirement and relatively

we will discover any more behemoths like Cantarell,

few contracts. In this way, we have gotten a head start, and

the unconventional and shale sources are relatively

will be well-positioned to offer our unique local knowledge

underdeveloped, especially compared with the US side.

to any companies entering the new landscape.

| VIEW FROM THE TOP

THE OPPORTUNITY LIES IN DETAILED IMAGING DAVID PRING Country Manager Mexico of PGS 91

Q: What strategies are you implementing to cope with

true broadband data and produce some extraordinarily

the stringent economic environment in the industry at the

high-quality images when we process, as well as giving us

moment?

access to pre-stacked data that facilitates extremely high-

A: The focus at the moment lies mainly on the control of costs

quality reservoir characterization work.

and implementation of meticulous risk analysis. In addition, we have effectively adjusted the size of the company, both in Mexico and internationally, in an effort to rebalance the current supply and demand situation. In order to move ahead, spending has to be strictly controlled. We have an agreement with Schlumberger and Spectrum in Mexico that allows us to work together, essentially to promote and sell multi-client data, specifically related to the 2D seismic, which provides an example of controlling risk. Q: Based on your experience of 2D studies, what do you expect to be the role of 4D technologies for seismic in the Mexican market? A: Among our successfully completed projects is a large 2D regional study, and this has been acquired, processed, and is now being sold on the international market. As soon as all the permits were in place from CNH last year, we were able to begin and complete this study. To date, there has been no 4D in Mexico, and that is mainly due to the fact that the most promising reserves in the country tend to be in

To date, there has been no 4D in Mexico, and that is mainly due to the fact that the most promising reserves in the country tend to be in

carbonates

carbonates, and there is uncertainty regarding the viability

Q: What is the importance of detailed exploration in field

of the 4D signature that can be recovered from these types

developments?

of reservoirs, especially those that are extremely deep.

A: In spite of our focus on large-scale exploration, PGS

However, there is no reason why this cannot be attempted

has advocated high-density surveys for a long time. A few

by a company who believes that the risk is worthwhile. In

years ago, we implemented a program called High-Density

our experience, when we model 4D and subsequently shoot

3D (HD3D), which was essentially an attempt to produce

4D, we usually find that there is a significant improvement in

high-density, spatial sampling, both in-line and cross-

the signal, since we tend to model conservatively. Therefore,

line, and this produces the most favorable circumstances

if the model displays a minimal chance of success, there is a

for obtaining a high-quality image. When looking at a

solid opportunity when the seismic is shot.

reservoir-scale survey, the area under consideration would typically be hundreds of kilometers rather than thousands

Q: What are some of the advantages both the company

of kilometers, but the detail that can be extrapolated is

and its clients have obtained from your fleet?

greatly improved. Regarding processing in smaller-scale

A: For our marine acquisition and processing, we base

surveys, much more effort is applied to building the

processes around the Ramform platform, which is a

required velocity model for pre-stacked depth migration,

specialized, safe, and highly efficient seismic vessel

which can produce extremely high-quality imaging and

design. The acquisition equipment is based around dual-

detail on a scale that facilitates development of the

sensor Geostreamer technology, which allows us to record

reservoir.

| TECHNOLOGY SPOTLIGHT: GEOTAG The French company Sercel, a global leader in seismic acquisition with 50 years of experience, is continuously developing technologies that help companies in the hydrocarbon exploration industry. One of the company’s leading technologies is GeoTag, an acoustic positioning system for seabed seismic acquisition. In order to conduct a seismic or ocean bottom survey, companies cannot simply send a surveyor equipped with a GPS, as this would not provide any accuracy. GeoTag is the latest generation of positioning devices with the highest degree of accuracy, which is ensured thanks to a twoway communication of time-distance measurements from the GeoTag transponders located on the seabed and the GeoTag transceivers found on a vessel. The AC powered transceiver is connected to the INS via a junction box and can receive up to ten simultaneous replies and absolute positioning is then computed with a precision of 0.2m after processing. One of the challenges faced by similar devices but overcome by GeoTag is saturation. Thanks

be it OBC, transition zones, or ocean bottom nodes, and

to its ability to handle up to 10,000 units per crew, the

its size provides customers with considerable advantages.

positioning device provides an extremely high quality

While competitors’ transponders are 442mm long with a

resolution for large 3D surveys.

diameter of 63mm, Sercel offers the smallest transponder on the market with a length of 370mm and a diameter of 60mm. Maintenance is also simplified by the transponder’s

range of 1,000m and can function up to a water depth

simple design that allows the customer to perform basic

of 500m, making it a suitable option for both shallow

repairs independently, including changing the alkaline

water and deepwater surveys. It is an extremely adaptable

battery pack that has a typical six-month long life in

technology as it can be used with any kind of equipment,

operation.

ISO 9001

Certified

The submarine positioning device has an operating

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| VIEW FROM THE TOP

BRINGING NEW TECHNOLOGY TO OLD WELLS DUANE DOPKIN Executive Vice President, Geoscience Product Management of Paradigm 93

Q: What main elements of your software allowed to

azimuth imaging and characterization system, geologically

reduce the time between seismic acquisition and first oil

constrained velocity models, and software to develop

by nearly 40%?

challenging anisotropic velocity models in deepwater

A: Paradigm developed this solution for its software and

and onshore shale basins. These technologies have had

support licensing arrangement with COMESA, which

a major impact on the quality and resolution of both 2D

includes software updates and maintenance services.

and 3D seismic acquisitions. We have a rich portfolio

This arrangement is strengthened by a collaborative

of seismic imaging applications that include Kirchhoff

relationship where we prioritize and deliver enhancements

operators, reverse time migration propagators, and local

that improve COMESA’s productivity and the solutions

angle domain operators that can be adapted to different

that are relevant to its customers and assets. The

subsurface conditions. Our “diffraction imaging” extracts

Paradigm seismic processing and imaging solution is

discontinuous subsurface features not observable with

a field tested solution that incorporates continuous

conventional seismic methods. Our full azimuth imaging

improvements, enhancements, and innovations reflecting

solutions are ideal for both deepwater and shale resource

the requirements of a large global customer base. This

plays for deriving anisotropic models and carrying out

solution, which led to the aforementioned time reduction

inversions for fracture intensities and orientations.

of 40%, combines the best of high performance computing with high levels of interactivity, interpretation, and

Q: As operators move from appraisals to beginning to plan

modeling, significantly reducing the time to results even

their drilling phase, what can Paradigm’s technologies

for the most challenging projects. The comprehensive

and software do to reduce uncertainty, and translate that

footprint of this solution means the customer does not

into increased productivity?

have to leave the solution, avoiding costly time losses

A: One of the activities that we do quite well to reduce

going in and out of third-party applications. It is a good

exploration and development risk is to carry out projects, not

match for the COMESA geoscientists who need to deliver

only with borehole and seismic data, but also with knowledge

quality results in challenging project timelines. Moreover,

of the stratigraphy and structure of the subsurface. Many of

the solution is optimized for the latest hardware, compilers,

the projects that we execute synchronize the geological and

and operating systems so that COMESA can predict and

geophysical model, which is something many traditional

plan these project schedules more easily.

seismic contractors are not able to do routinely because they do not have access to the subsurface geological modelling

Q: What type of demand are you seeing from PEMEX to

technology. We use the geology to guide and constrain our

reprocess and reappraise some of its legacy data?

geophysical operations while ensuring that both data sets are

A: It is important to understand that Paradigm is not a seismic

consistent with each other. The end result is a seismic image

acquisition or oil field services company. Consequently, the

volume that is consistent with both seismic and geologic

opportunity for taking legacy seismic and borehole data,

invariants, such as travel times and well markers, and a

upgrading it, and exposing it to new technologies and

higher resolution velocity model constrained with azimuthal

workflows can bring substantial returns and cost savings

measurements. Additionally, our subsurface models are

for operators like PEMEX. Paradigm provides an oil field

generated in chrono-stratigraphic (depositional) space,

independent solution with best-in-class science to ensure a

accommodating any level of structural and stratigraphic

successful outcome for its operators.

complexity, and providing a platform for velocity, structural, stratigraphic, facies, and reservoir property modeling. All of

In this area, we have brought many innovative contributions

these not only drive a better seismic imaging workflow, but

to the seismic processing and imaging market, including an

also drive a better quantitative interpretation solution with

innovative broadband seismic deghosting solution, a full

seismic inversion procedures.

| VIEW FROM THE TOP

NEW MARITIME MANAGEMENT IN THE GULF OF MEXICO PAVEL HERNĂ NDEZ Director General of OH Maritime 94

Q: How has your company evolved in the last year, and

A: There are few companies in Mexico that can fulfill

what challenges have you faced and overcome along the

the financial, technical, and human capital criteria that

way?

is demanded by our clients, some of which have even

A: We had an interesting and challenging year due to the

higher standards than PEMEX. Most of the international

new payment protocols and the new technology that our

companies that carry out seismic services on a large scale

clients are demanding. The main obstacle has been the

are public companies from the US and Europe, which

changes in policy that allows payments to be made in

have a level of compliance that is much higher than what

terms of 180 days, and although this was just announced

PEMEX requires. Preparing our first bidding proposal was

in November 2015, it has already been implemented. It

a challenge, but fortunately, our successful compliance has

has been challenging for us because we are accustomed

provided us many references from other companies that

to a payment delay of 30 to 90 days, but not of 180

want us to offer the same services. This is our competitive

days without notice. As a company, we had to learn to

advantage, and although we would like to inform more

overcome this situation and we ended up being one of the

clients about our services, we provide a niche service in a

few businesses still under contract for seismic services last

narrow market. Therefore, our references generally come

year. Our clients were also demanding a change in logistics

in the form of word of mouth. Last year, we started working

due to the fact that different types of new technology

with Seabed Geosolutions, a joint venture between CGG

were being brought to Mexico. One of them is based on

and Fugro, who was looking for a reliable partner with

seabed surface recognition, and its cables are laid directly

knowledge on compliance because the seismic industry is

on the seabed to analyze the components underneath. We

relatively dynamic.

had to do this in a high-traffic density area in Campeche, and we provided personnel that were involved in the day-

Q: What kind of services do you expect to provide in

to-day logistics to help with this new stumbling block.

activities in the Gulf, and which of these services do you expect will experience the most demand in the coming

Q: Is OH Maritime considering potential clients that are

years?

carrying out multi-client services in the Gulf of Mexico

A: One of the main services that the operators will

with the authorization of CNH?

need is reliable port agency services that are able to

A: We are definitely looking into those players. In fact, one

maintain communication while offering cost-effective

of the companies that already have CNH authorizations is

practices across all operations because the seismic

a client of ours, CGG, which uses our consulting services.

market is depressed. In order for port operations to

At the moment, the industry is not yet in a position where

maintain stability, there is a need for talented port

there is a great demand or need for seismic studies, as it is

agents. These operators are demanding more of these

still dependent on contracts for the Round Zero reservoirs,

services in general, and looking for Mexican suppliers

of which PEMEX retained about 80% of the sites that have

that can provide quality services. We have a port agency

to be explored, and some of them require an update on

license and our objective is to improve and increase our

seismic data. R1-L04 is going to be interesting for our

operations in the ports of Coatzacoalcos and Tuxpan,

clients because it will auction areas that have not yet been

which have a high demand for services. Operators will

tapped into, and this means that these areas must see

also be demanding legal advisory services, as foreign

investment before exploration wells are developed.

personnel requirements are always being reviewed. These players want to start operations in Mexico and they want

Q: How can you take advantage of being able to follow

to know if they can become a local company, establish

and comply with PEMEXâ&#x20AC;&#x2122;s complex requirements to stay

a permanent branch, and the terms and conditions for

ahead of the competition?

having foreigners in the contract.

| INSIGHT

ACCOMPANYING EXPLORATION IN THE NEW MARKET “The name of the game is imaging, and the more a company can provide accurate and reliable images, the better positioned it will be”

KARIM LASSEL Geomarket Director & Country Manager Mexico of CGG 95

“The name of the game is imaging, and the more a company Karim Lassel,

can provide accurate and reliable images, the better

Geomarket Director & Country Manager Mexico of CGG

positioned it will be.” In this sense, CGG will conduct high-end, wide-azimuth acquisition, supported by a host of advanced processing technologies, to offer the very highest-resolution

Service companies have several ways to demonstrate

subsurface images. Lassel is also confident that CGG’s team,

an outstanding track record, and one of CGG’s flagship

made up of an imaging center in Villahermosa and offices in

projects is the high-res, broadband wide-azimuth marine

Houston, which has gained unique experience in deepwater

seismic survey it completed for PEMEX in 2014. In the

processing techniques by working on the US side of the

words of CGG’s Director & Country Manager for Mexico,

Gulf, will provide the company a distinct advantage. Lassel

Karim Lassel, “this survey was one the most high-profile

comments that CGG’s acquisition of Fugro’s Geoscience

projects in terms of volume of data that the industry

Division back in 2013 brought world-renowned geoscience

has seen, both inside and outside Mexico. CGG supplied

brands to the company’s existing portfolio, which means

PEMEX with an end-product of high added value that was

that CGG now has high-end products and services that have

beneficial for the NOC in proceeding with its exploration

not been fully deployed in Mexico yet and is in the process

program, particularly in Centauro.”

of making them better known to transform data into more valuable, actionable information.

Exploration activities look set to accelerate in the country due to the development of a new multi-client market.

In Lassel’s view, the opening up of Mexico’s oil and gas

Additionally, the licensing rounds generate the need to

sector has provided a new landscape for the industry in

revisit existing data and integrate different data types and

the unconventionals and deepwater sectors, in addition

vintages where possible; interested companies will most

to shallow water. Even though CGG is renowned for

likely have to use their internal resources as well as call for

its expertise in Mexican offshore projects, the onshore

external services. CGG has been granted several permits

segment has some appeal for analysis and reinterpretation.

by CNH that allows the geoscience expert to acquire

The company has gained plenty of knowledge in the US on

and process data in Mexican waters. Lassel expects the

how to process onshore data for sweet spot identification

company to acquire and process approximately 240,000km

and unconventional reservoir characterization, which will

of high-resolution, airborne magnetic and gravity data over

be helpful for operators in R1-L01. Lassel comments that

six large areas. CGG already has the backing of a number

his company intends to play a role in the development

of investors who have expressed interest in participating

of these potential reserves by importing cutting-edge

in this venture and is looking for more clients. In addition,

technology and processes developed mainly in the US into

CGG has initiated a multi-client reprocessing project for the

Mexico. Although CGG is well positioned, Lassel is aware

Centauro deepwater. This is the only reprocessing project

that competition will be fierce and his company is not

CGG has decided to do in Mexico for the moment.

protected from the industry’s downturn. Nevertheless, CGG will benefit from its reputation as a strategic partner,

The industry in Mexico is reinventing itself, and Lassel points

and as a technology leader and high-quality service

out that the trend in acquisition technology is moving

provider. “Every survey we have conducted puts us in a

away from 2D seismic, as Mexico is already well covered,

very strong position in terms of service performance, HSE,

and focusing more on high-tech broadband wide-azimuth

social responsibility, and innovation. I see great windows

acquisition that can image deep structures combined with

of opportunity, as the market will be driven by more than

the latest advanced processing, interpretation, and analysis

just one operator, although PEMEX will definitely remain

techniques to support the exploration and drilling phases.

our main client in Mexico.”

| VIEW FROM THE TOP

MAPPING THE MEXICAN TERRAIN BRIAN HANSON President and CEO of ION Geophysical 96

Q: What factors led to the extension of IONâ&#x20AC;&#x2122;s multi-year

and significant experience with Mexican geology make us

contract with PEMEX for onshore and offshore surveys?

the preferred imaging partner for many new operators in

A: Our biggest achievement to date, however, have been

Mexico. We are currently working on a number of projects

offshore. The recent changes in the regulatory regime

to deliver continuous high-quality 3D data over large areas

in Mexico have created enormous opportunities for E&P

in critical regions such as Perdido and Campeche. These

companies in Mexico, and ION has been a significant

data sets will be available in time to reduce geologic risk

player in getting data into their hands to help them

for the impending lease sales.

develop their exploration strategies in the region. First, in 2012, we gained access to the University of Texas data

Q: What experience gained from your data in the US

in Mexico and reprocessed the seismic data shot in the

sector of the Gulf of Mexico will be translated into its

1970s and 1980s. The uplift we achieved on that data

Mexican counterpart?

was remarkable. We named the project YucatanSPAN ,

A: Drilling activity in the US has been high, and our

and it enabled our customers to identify key prospective

GulfSPANTM and FloridaSPANTM programs provide our

areas ahead of their competitors. In 2015, we acquired

customers with the data and knowledge they need

22,000km of new data entitled MexicoSPANTM, and this

to develop their E&P programs in Mexico. The level of

covers the southern half of the basin and ties directly

competition in the US Gulf of Mexico has also driven a

to our GulfSPANTM program in the US. MexicoSPANTM

tremendous wave of innovation. Our pioneering work to

images the prospectivity of the sedimentary section

develop and apply Reverse Time Migration (RTM) and

and also the deepest part of the basin, providing the

other technologies gives us a substantial edge in imaging

framework to understand the basin evolution and

complex areas such as the salt related discoveries of

potential petroleum systems that are present. We

the Perdido fold belt. In Mexico, the knowledge that we

provides our customers most of

gained from the YucatanSPANTM reprocessing project

believe MexicoSPAN

the 2D data they need.

was invaluable because it allowed us to develop the MexicoSPANTM program with a clear focus on answering the key questions, whereas our competitors had to acquire dense regular grids to sample the geology. Our unconventional reservoir characterization ResSCANTM workflow was developed over several years of evaluating and characterizing multiple onshore US reservoirs. The integration of the various disciplines, such as geophysics,

In 2015, ION acquired

22,000km of new data entitled MexicoSPANTM

petrophysics,

geomechanics,

rock

physics,

reservoir

engineering, drilling, and completion operations, provides the context for our customers to optimize well and field development plans. These workflows can focus on well orientation by using the latest wide-azimuth and multicomponent seismic technology, seismic inversion to

Exploration success in the US Gulf of Mexico has been

identify completion or production sweet spots or azimuthal

driven by large volumes of multi-client 3D data. The next

anisotropy to better understand fracture orientations.

step for Mexico is to develop prospects by applying the latest geologic knowledge and processing technology to

Q: What are the advantages of IONâ&#x20AC;&#x2122;s BasinSPANTM over

the existing 3D data. Our leading edge imaging technology

conventional multi-client survey libraries?

A: BasinSPANTM programs are designed at the basin scale

seismic data across the whole Gulf of Mexico as part of

in order to deliver knowledge across an entire basin, from

BasinSPANTM and complemented that with potential field

margin to margin. They are designed and acquired to

data. Our coverage extends from Dallas, Texas to the

provide the complete exploration framework and connect

Yucatan peninsula.

conjugate basins, which are basins that formed when the continents were in a different location than today. That

Q: What are the benefits of Reverse Time Migration (RTM)

means delivering seismic lines that are not just longer

in ION’s technology portfolio, what have been its results

than those of our competitors but that also provide the

in exploration activities in the Gulf of Mexico, and what

highest quality image of deeper strata at 40km or more.

improvements has ION made to this technology?

This allows geoscientists to unravel the geologic evolution

A: About ten years ago, ION was the first company to

of the basin. The BasinSPANTM library allows us to make

commercialize the large-scale use of RTM. It delivered

interpretations across entire continental margins, and we

accurate images in the presence of steeply dipping or

can correlate the geology in Brazil to similar age rocks in

even overthrust reflectors that are encountered in complex

West Africa, for instance. We tied our Mexican program

subsalt plays. RTM has continued to evolve, and today we

to the Caribbean region. BasinSPANTM programs are never

can use much more realistic anisotropic representations of

just regular grids of lines. Each line in a BasinSPAN

the subsurface. Our implementation of RTM is extremely

program is designed to answer a specific question about

efficient, allowing us to deliver RTM images at high

the basin architecture. Typically, we shoot orthogonal

resolutions, without any of the limitations of traditional

to the bathymetry and parallel to the syn-rift extension

Kirchoff migration. ION’s major differentiator is not just

direction. We also take care to tie existing well control.

our algorithms, but our leading experience in successfully

We have acquired or reprocessed over 96,500km of 2D

implementing technology for our customers.

| INSIGHT

NEWLY CREATED PLAYER SEEKS THE RIGHT PARTNERS Much of the talk on the restructuring of the oil and gas industry involves the creation of local operators. However,

ALBERTO GALVIS CEO of Citla Energy

the risky and capital intensive exploration sector does not come up in conversation as often. ACON Investments saw the potential of the exploration segment and decided to

added to the skills and assets that we already have within

fund Citla Energy, which was created to participate and

our company, such as our financial muscle,” says Galvis,

invest in the national exploration and production sector. “The

who also highlights his 15 years of experience in several

Energy Reform brings huge opportunities for the private

countries as an asset that will serve his company.

sector, as the government structured a way for investment to flow in an orderly and organized fashion. An event of this

Galvis lists the reasons why companies should consider

magnitude happens every couple of decades in the global oil

partnering with Citla, “Firstly, we have a strong and robust

and gas industry, and we created Citla as a vehicle to be part

financial backing, which many local companies are lacking.

of it,” shares Alberto Galvis, CEO of Citla Energy.

Secondly, we are contributing international standards that will help the industry operate in a responsible manner

So far, Citla has secured significant funds from reputable

and with higher technical capabilities. Finally, we will

institutions, including the World Bank, through the

bring international experience that will contribute to the

IFC, the China-Mexico Fund, and Mexican pension

industry, as this was closed for 75 years and will benefit

funds, as well as ACON Investments, its sponsor private

from new ideas and ways of doing business.” Galvis hopes

equity firm. In addition, Citla is working on building its

that these capabilities and assets will allow his company

operating capabilities, for which it is negotiating with

to participate in R1-L05. “We find those onshore blocks

potential partners that have had activities in Mexico for a

are quite attractive, given the large volume of resources.”

considerable time. “We will soon have proven operational

He also mentions once the timing of the farm-outs is

capabilities through our partners that will provide us with

confirmed, Citla Energy will look into this opportunity

the necessary knowledge and experience. This will be

seriously.

| INSIGHT

GEOMECHANICS OPEN THE DOORS TO NEW FRONTIERS When deepwater drilling was more active, Ikon Science was focused on helping companies understand formation pressures offshore in Mexico. Bell comments that wells

MATT BELL

targeting prospects in Mexican waters adjacent to high-

President of Ikon Science

profile discoveries in the Wilcox play, such as Tiber, Cascade, and Jack, may cost up to US$250 million to drill,

and are likely to encounter high pressures, often while Over the past year, Ikon Science, a global leader in

dealing with narrow drilling margins. Following recent

Quantitative

(QED),

changes in legislation, Bell has noticed increased interest

onshore

in applying Ikon Science’s technology in Mexico, both

has

been

Exploration developing

unconventional drilling its

and

traditional

and

new

resource

completion geophysics

Development

workflows

plays,

providing

engineers, and

for

geology

value

onshore and offshore, especially in the Joint Impedance

addition

and Facies Inversion technology (Ji-Fi), which was

customers.

launched internationally just over a year ago. “We are

According to Matt Bell, President of Ikon Science,

seeking pilot studies in Mexico, and would be happy to

the application of quantitative seismic interpretation,

hear from any companies interested in trialing this radical

particularly in combination with geomechanics and

technology on those fields.”

geopressure prediction, is relatively underdeveloped in Mexico, which provides Ikon Science an opportunity

Ikon Science has developed a series of case studies

to help unconventional resource developers identify,

from deepwater wells drilled in the Gulf of Mexico that

drill, and complete ‘sweet spots’ within the reservoir.

demonstrate the value of the company’s pore pressure

“Unconventional reservoirs face a different set of

prediction and time-based data analysis methods. Given

production challenges from conventional reservoirs.

that geology does not change as activity moves across

Some of the major questions operators have surround

the US-Mexican border, Ikon Science can bring significant

the effective use of hydraulic fracture stimulation to

regional expertise to bear on local Mexican prospects.

deliver economic production rates,” Bell explains. He

During drilling, it is critical to calibrate borehole stability

points out that the answers to these questions are rooted

and pore pressure predictions to known events, such as

in geomechanics, as geomechanics plays a critical role in

connection gases, tight hole conditions, and pack off

understanding the direction in which a stimulated fracture

tendencies. By performing its analysis on time-based

will grow, how far the fracture may grow horizontally and

data, much of which is done in real-time, Ikon Science can

vertically, and whether the stimulated fracture will be a

produce robust and accurate pore pressure predictions.

simple planar fracture or a complex network of fractures.

In accordance to the company’s mantra, “the regional informs the local”, Bell expects that the understanding

Bell notes that a fracture contained within a resource layer

Ikon has gained in developing regional geopressure and

during stimulation is likely to yield higher production than

rock property studies in the US Gulf of Mexico will transfer

a fracture that grows out of zone. The major control on

successfully to clients on the Mexican side.

fracture containment is the stress contrast between the resource layer and adjacent rock strata. This stress contrast

In addition to regional, multi-client studies, Ikon Science

can be captured by a calibrated geomechanical model.

is also willing to work on smaller, detailed investigations.

“Reservoir stimulation may result from new fractures

The company’s 1D geomechanics workflow produces a

being generated during the hydraulic stimulation process,

highly detailed profile of strength and stress along a given

from pre-existing fractures and planes of weakness being

wellbore in order to predict wellbore stability, fracture

reactivated, or from a combination of both,” he details.

permeability, and fracture orientation. Depending upon

The magnitude and orientation of the principal stresses,

the scope of the project, these 1D models can be used to

captured in a calibrated geomechanical model, and the

populate highly complex 3D models, driven by seismic

relative orientation of pre-existing planes of weakness will

attributes, geostatistics, or both. The 3D models can be

determine whether new fractures are generated or pre-

used for predrill stress and strength predictions, or as

existing fractures are reactivated. Similarly, the amount

a part of more sophisticated models to address issues

of stress anisotropy within the reservoir will govern the

such as complex structure, salt dynamics, fluid flow, fault

complexity of stimulated fractures.

reactivation, subsidence, or changes in permeability.

| INSIGHT

GEOSCIENCE HELPS OPERATORS INCREASE PRODUCTION As the fall in oil prices shakes the entire industry, Geoprocesados

has

adapted

its

strategy

first

identifying the services that reduced the highest incidence

JAVIER RUBIO

of risk for its clients. Javier Rubio, General Manager of

General Manager of

Geoprocesados, explains that oil companies have reduced

Geoprocesados

their investments, but they should opt for the studies 99

his company is conducting because these will reduce the uncertainty of their wells, exploration sites, and

reduction of PEMEX’s budget. Rubio claims the geological

operations. “We are looking to provide services that can

and geophysical studies his company carries out belong to

incorporate production at a faster rate, reduce risk, and

the industry segment that has been less directly impacted

increase the success rate of wells.” He also points out that

by the budget cuts. “The types of studies we conduct tend

people tend to confuse geological and geophysics studies

to have medium- to long-term results, especially when it

with exploration projects, although some of the former are

comes to exploration. PEMEX is cutting down on operations

often carried out with the aim of improving production.

and services with a short-term impact and when it comes to exploration, the NOC tends to view everything from a long-

Although Geoprocesados’ expertise encompasses most

term perspective.” According to Rubio, Geoprocesados’

oil and gas areas found in Mexico, the company provides

structure is based on ways in which it can provide PEMEX,

a significant added value in naturally fractured formations

its main client, with the most effective service. He says the

and fractured carbonates, and is currently acquiring more

entrance of new operators provides opportunities for his

experience in unconventionals. “If a well does not correctly

company, but he will only offer services in those projects

cross the highly fractured zone, the production will not be

where Geoprocesados can provide an added value. Rubio’s

optimal, and the differences between the numbers of oil

team molds its services to fit the clients’ geological strategy

barrels could be immense,” Rubio explains. Geoprocesados

and helps them adapt to the Mexican terrain. The company

has assembled a multi-disciplinary team with experience

has already worked alongside players that participated

in naturally fractured carbonates, which is able to

in the shallow water round, and is looking forward to

significantly reduce uncertainty in the characterization

continuing working with new clients.

of fractured deposits, and assist petroleum companies in creating wells in productive zones.

Maintaining its positioning at the technological forefront is crucial for a geoscience studies company, and one of

Rubio says Chicontepec is a challenging location to

the best ways to achieve this is through partnerships.

develop due to its complex reservoirs, but it is full of

Geoprocesados collaborates with Paradigm, a company

potential for the industry to exploit if the characterization

whose core business is developing software. Conversely,

is properly completed. “The geological composition

Geoprocesados is a full service provider, which strengthens

of Chicontepec, which is a Tertiary formation, and

the partnership on both sides of the spectrum. Rubio

unconventional resources, which are deeper, could be

explains that Paradigm invests money in the development

highly profitable if the portfolios are balanced correctly.

of new technologies, whilst Geoprocesados invests

If companies focus on implementing local technologies

in training team members and optimizing processes.

in the upcoming onshore rounds, the benefits would be

Geoprocesados also has a meaningful association with

greater,” Rubio suggests. In addition, new salt formations

TEEC, a German technology developer, which gives Rubio’s

and the possibility of discovering pre-salt formations will

company an idea of the European trend in geological

change the game. Mexico has an abundant amount of salt

and geophysical technologies, as the Mexican sector is

in its geology, with locations such as the Salina del Istmo

significantly influenced by North American technology.

Basin, and Rubio argues that salt increases the complexity

Geoprocesados’

of any geological formation so it is important to possess

technologies from TEEC and Paradigm, something that

knowledge on how to work on these formations and of the

few companies can do due to the complexity entailed

different process applications.

in using these solutions. “We are constantly integrating

wide-azimuth

services

incorporate

innovative technologies into our depth imaging algorithms, Even though Geoprocesados has adapted to the low oil

new topographies, and tools for the construction of speed

price, the company did not change its strategy due to the

models,” Rubio comments.

| VIEW FROM THE TOP

QUALITY DATA BOOSTS INTEREST IN THE INDUSTRY ROBERT HOBBS Former CEO of TGS 100

Q: How could your services optimize the purchasing

Q: How does TGS stand out from its competitors in the

activities of the Mexican market?

Mexican market?

A: Our data library is economically compelling, as a multi-

A: In Mexico, we were the first company to announce

client model allows companies to access seismic information

the development of an offshore seismic program. We

in a far less expensive way than paying a geophysical

decided to undertake what is probably one of the largest

company to acquire proprietary data. Seismic information

single offshore 2D programs in the world. The project

will be especially important for areas located in the Mexican

comprises

offshore sector of the Gulf of Mexico as they are just now

offshore sector, from the Perdido fold belt to the coast

becoming available to international investors in the oil and

of Yucatan. The dataset resulting from this project will

gas sector. For companies entering this sector, it would

allow geoscientists to obtain an in-depth overview of the

be necessary to access a relatively inexpensive source of

entire basin, and no other company has that. We can make

seismic data to understand the sub-surface conditions of

that commitment because we are confident about the

the area and decide whether they are worth the investment.

potential of the Mexican Gulf, especially considering the

Having access to accurate seismic data is also beneficial for

prolific exploration that has taken place on the US side. To

any government thinking about offering its hydrocarbon

complete the project we have hired almost the entire fleet

resources for bidding or exploration, as national authorities

of a major 2D seismic company and we currently have four

need to create a competitive atmosphere for companies

of the companyâ&#x20AC;&#x2122;s 2D vessels working on our project.

186,000km,

covering

the

entire

Mexican

willing to exploit those resources. This is precisely the case of Mexico. One way to assure a competitive environment

Q: How do you balance new and acquired information in

is to provide companies with the information they need

your database?

about the basin's potential, as it will boost interest and

A: All the data we acquire is brand new. Obviously, there is

participation from the industry.

published information in the public domain that is useful for us to plan our activities prior to acquiring a program.

Q: How do you manage to obtain the technology for

Additionally, in our approach, we are not only acquiring

seismic assessment acquisition in remote areas?

seismic data but also looking to acquire complimentary

A: The great thing about TGS is that we can access

geoscience data sets that will aid exploration companies

any acquisition technology currently available on the

in assessing the active petroleum systems and reducing

market and optimize the technology to solve a particular

drilling risk. Included in our data offering in Mexico are

geological problem. Traditionally, our biggest competitors

multibeam data and piston core samples. Multibeam

are vessel providers. Full service geophysical companies

data provides detailed mapping of the seafloor and its

owning the vessels will typically carry out some level of

physiography.

multi-client acquisition. The reason behind this strategy is that they need to keep their vessels operational all the

We use this information to locate optimal sites for seafloor

time as they are costly to maintain. Therefore, if they are

coring of potential hydrocarbon seep sites. From the cores

not generating revenues on that asset they are losing

we conduct a chemistry-based study that analyzes the

money, and so the motivation for these companies is to

hydrocarbons in the sea bottom. The results are a chemical

keep their vessels operational, and that is how they make

chromatography that helps companies understand the

their investment decisions. We, on the contrary, make our

hydrocarbon systems. The most important feature about

investment decisions based on the prospective reserves

this information is that it is all integrated with the seismic

of the basin and we never acquire a project without

data. The success of the strategy is confirmed by the level

assurances of the commercial attractiveness for our

of risk reduction it provides in validating prospects and

customers.

petroleum systems.

| VIEW FROM THE TOP

ONE STEP AHEAD IN SEISMIC ACQUISITION ROBIN ELLIS Vice President of Sales and Marketing of Sercel 101

Q: How can you use new technologies, especially in

that the percentage of high-technology vessels is likely to

seismic acquisition, to inform companies of the value of

be stable. We would expect our proven technology, which

conducting a new study?

has already had a tremendous amount of success in the

A: The new technologies we have developed in recent

US, to be more widely employed on the Mexican side of

years are concentrated on the next step forward in seismic

the Gulf of Mexico. In fact, CGG has already employed this

acquisition. Industry milestones include the transition from

technology for PEMEX. Furthermore, we have developed a

2D seismic to 3D seismic some 15 years ago. We are once

new generation of Sentinel called Sentinel MS, an innovative

again at the forefront of the next step, which is broadband

multi-sensor streamer featuring two additional acceleration

acquisition, something that we already have considerable

components that offers directional measurements for both

experience with in the Middle East and the US. Seismic

cross-line and vertical wave fronts, as well as improved noise

surveys conducted in recent years have generally been

cancellation. This new version of Sentinel will herald the next

based on a 10-100Hz window, but a lot of energy can be

leap forward in marine seismic acquisition. There are also

acquired at frequencies out of this range. Doing so results

several OBC surveys currently up for tender and Sercel's

not only in significantly higher quality image resolution

SeaRay428 will surely be offered, having already built a

but data obtained at frequencies below 5Hz can be used

positive reputation with multiple successful ocean bottom

to carry out seismic inversion, thus gaining valuable

surveys completed in Mexico. We also plan to launch the new

information about the rock properties within the reservoir.

508XT in Mexico in the near future, and this should provide a

In the last few years, we have introduced several products

new paradigm in land seismic acquisition by allowing a new

to facilitate this process, including the Nomad 65 Neo

level of acquisition flexibility and operational reliability for

and Nomad 90 Neo seismic vibrators, both of which are

all types of geographies, climates, and environments. Our

capable of delivering stronger low frequency content.

successful collaboration with Grupo NĂşĂąez remains active and we are currently exploring other partnerships with which

On the receiver side, we have broadband products, such

to strengthen our position in the country.

as the DSU1-508, featuring QuietSeis Sensors which are the industry's lowest noise MEMS based sensors. As an

Q: To what extent do you believe that there will be an

alternative, the SG5 is a high-sensitivity analog geophone

increase in exploration activity, as certain inland blocks

with a 5Hz natural frequency. We also recently introduced

in the southern region begin to be reappraised for the

the 508XT, a new generation land seismic acquisition

rounds and eventual farm-outs?

system featuring cross-technology (X-Tech) architecture,

A: I expect a certain amount of recovery following the

which combines the best of cabled and wireless system

success of R1-L03. There is a great deal of legacy seismic

characteristics to optimize crew productivity and reduce

available, which was used in the decision-making process

operational downtime. It is a product that we are sure will

of awarding of the blocks. The question becomes whether

be ideally suited for high-production vibroseis operations

the new players will drill based on the existing information

in northern Mexico.

or whether they will see value in carrying out new studies in order to acquire more detailed pictures of specific areas

Q: How do you expect your activity to be divided in terms

within the block. In the areas that are already producing,

of projects and technologies?

the aim of any new seismic study would be to find ways to

A: Although there is certainly the potential for large-scale

increase levels of production, and high resolution seismic

multi-client seismic studies in the North, the previous

can contribute greatly to that. An alternative is downhole

bidding round will undoubtedly generate demand for high-

seismic, which can generate an extremely high resolution

density albeit smaller surveys. In the marine sector a lot of

subsurface image of the area close to the well site and allow

the older vessels are being laid up at the moment, meaning

interpreters to better assess how to enhance recovery.

DRILLING & WELL SERVICES

Companiesâ&#x20AC;&#x2122; drilling budgets have been slashed dramatically and drilling companies are actively pursuing all potential opportunities to succeed in the challenging drilling market. The name of the game is survival until the anticipated upturn in drilling activity in the Mexican oil and gas industry. The two blocks awarded in R1-L01 are estimated to contain roughly 142 million boe and 102 million boe respectively, representing an opportunity for drilling and services companies. The fields awarded in R1-L02 are expected to produce 90,000b/d in the next two years, and the totality of those tendered in R1-L03 are believed to have an average production potential of 14,000b/d and 94mcf/d over the coming two to three years, also creating the need for efficient drilling services to help operators achieve both of these estimates. It is undeniable that the reduced budgets have created a heightened need for cost-effective drilling services, innovative technologies, operational excellence, the streamlining of the supply chain, and the integration of services.

This chapter will explore the opinions of the key stakeholders in the drilling and well services segments regarding the critical success factors in todayâ&#x20AC;&#x2122;s challenging operating environment, as well as offering their proposed solutions to problems encountered in the fields.

103

We deliver, No excuses.

is committed to providing “local solutions for local drilling needs”. We offer solutions in drilling and completion fluids, solids control, transportation services, technical testing and analysis services.

Houston Office: 11700 Katy Fwy, Suite 200, Houston TX, 77079. Phone: +1 832 672 4459 Mexico Office: Prolongación 27 de Febrero, Edificio 3017, Colonia Tabasco 2000. C.P. 86035, Villahermosa, Tabasco. Phone: +52 199 3310 67 60

www.qmax.com

| CHAPTER 4: DRILLING & WELL SERVICES 106

ANALYSIS: PEMEX’s Drilling Strategy

107

VIEW FROM THE TOP: Wallace Pescarini, Schlumberger

108

VIEW FROM THE TOP: Ricardo Arce, Perforadora México

110

TECHNOLOGY SPOTLIGHT: GeoSphere, Schlumberger

111

INSIGHT: Guido Rivas, QMax

112

VIEW FROM THE TOP: Bruno Lima, Halliburton

113

INSIGHT: Juan Castañeda, Halliburton

114

VIEW FROM THE TOP: Fernando Ortiz, Seadrill

116

INSIGHT: Steve Walker, Loadcraft

117

INSIGHT: PJ Pendlebury, Global Drilling Support

118

VIEW FROM THE TOP: Myles Woloshyn, Turbo Drill

119

TECHNOLOGY SPOTLIGHT: Steady Scout, Turbo Drill

120

TECHNOLOGY SPOTLIGHT: PowerDrive Archer RRS, Schlumberger

121

VIEW FROM THE TOP: Tony Solis, TSC Offshore

122

VIEW FROM THE TOP: Wang Sheng, COSL

123

INSIGHT: Jorge González, ALS Wellvention

124

VIEW FROM THE TOP: Rodrigo de Vivanco, Kratus Energy

125

INSIGHT: Oscar Suárez, DM Ingenieros

105

| ANALYSIS

PEMEX'S DRILLING STRATEGY SERVICES & PLATFORM DAILY COSTS (US$ thousand/d 2015) DAILY RIG RATES 2015 (US$ thousand) 503

International reference

451

1st quartile 384

2nd quartile PEMEX

365

previous average actual average

106

water depth 250ft International Source: PEMEX

water depth 300ft

reference

1st quarter

146

130 112 105 117

water depth 350ft

163 167

140

water depth 400ft

S/S 10,000ft

PEMEX last average

2nd quarter

actual average

Source: PEMEX 1 The semisubmersible platforms of 1,000 were excluded ' and 7,000 ' for lack of comparable base

PEMEX is putting efforts in achieving efficiency in all its

DESCRIPTION OF IMPLEMENTED INITIATIVES

exploration-related activities. Between 2012-2015, 75% of the company’s exploration investments went to drilling.

Seismic Data Acquisition

IMPLEMENTED INITIATIVES

The main efficiency-seeking initiatives in this area included

• In deepwaters, acquisitions costs were reduced through a dedicated INITIATIVES vessel scheme IMPLEMENTED (daily fee) negotiating tariffs for drilling equipment. In this sense,

increasing efficiency in well drilling and completion and

Deepwaters (streamer) thousand US$/km2

PEMEX succeeded in reaching drilling efficiency levels similar to the international standards and adjusting tariffs IMPLEMENTED INITIATIVES by 15-30%.

• For shallow waters, a payment per delivered seismic image scheme allows deffered payments and enhanced savings due to the volumes entailed

Given the fact that drilling activities tend to receive the most investments, PEMEX defined an initiative to improve

90 12

Seismic Data Processing • Cost reduction through the use of high-performance computing equipment and latest generation algorithms

in shallow waters, and 58m/d in deepwater assets. The first quarter of 2016 throws optimistic numbers that meet

deepwaters.

-58%

90 950

900

-5%

-33%

60 -5%

950 2 900 US$/km

Source: PEMEX

the international benchmark, with an average of 69m/d for onshore, 86m/d in shallow waters, and 88m/d in

5 -33% 60

in deepwaters. The following year, the NOC improved these figures, reaching 58m/d in onshore wells, 52m/d

-58%

Shallow waters5 thousand US$/km2-33%

drilling efficiency in 2014. In 2014, PEMEX drilled 43m/d in onshore areas, 26m/d in shallow waters, and 40m/d

-58%

-5%

950

900

Source: PEMEX Source: PEMEX

PEMEX DRILLING EFFICIENCY (drilled meters by day Source: - m/d)PEMEX PEMEX DRILLING EFFICIENCY (m/d) 25th percentile (89 m/d)

25th percentile (81 m/d)

10th percentile (68 m/d) 69 58

60% 43

+100%

+200% 40

onshore Source: PEMEX Source: PEMEX

shallow waters

2016 (1T) 2016 (1T) 2015 2015 2014 2014 deepwaters

| VIEW FROM THE TOP

INTEGRATED APPROACH TO DRILLING IMPROVES EFFICIENCY WALLACE PESCARINI President Mexico & Central America of Schlumberger

Q: How advanced is Schlumberger in transitioning from a

services, not only for PEMEX, but also for any new players

service provider to a company that offers solutions such

entering the market.

as increased production, higher recovery rates, and lower cost per barrel?

A: Through our Schlumberger Production Management

Schlumberger to become more efficient in Mexico, and

business, we partner with operators to develop a field, with

pass the resulting cost savings to your clients?

the investment provided by our company and payment is

A: We have implemented several mechanisms, such as

returned through a dollar per barrel quota. We have applied

our internal KPIs we use to measure efficiency within the

this model across Latin America and in other continents,

company. Our Center for Liability and Efficiency in Veracruz

and the system has proven extremely successful both for us

is a state-of-the-art engineering center that supports our

and for the operators. As a result, I believe we are inherently

operations. We established this center in 2011, and to date

programmed at Schlumberger to try to constantly change

we have managed to improve maintenance turnaround

the way in which the field operates and place ourselves in a

times more than fivefold. This generates savings that

position to create extra value. One thing that has remained

allow us to be much more competitive and some of these

steadfast between our beginnings in 1927 and now is our

savings have been translated to PEMEX. We then have

approach toward technology, and this is the case regardless

external KPIs that gauge the efficiency in terms of PEMEX

of whether it is single segment, integrated solutions, or

and other customers and this can be witnessed through

Schlumberger Production Management. We have witnessed

our drilling performance here in Mexico, which is between

increased efforts by our competitors to follow our footsteps,

30-40% more efficient than that of our competitors.

but we have always remained ahead of the pack due to

Any saving PEMEX can make in the current operating

our drive to change the environment combined with the

environment can be vital to its operations.

What

implemented

measures

have

allowed

companyâ&#x20AC;&#x2122;s emphasis on technology and human resources. Q: In the current environment, what are the most Q: How will the integration of Cameron into the

successful technologies and international best practices

Schlumberger family impact the value proposition you

you are planning to introduce in Mexico?

can offer in the Mexican market?

A: Nowadays, in an environment of low budgets, the customer

A: The Cameron acquisition is one example of the fact that

is constantly seeking new technology and processes that

we are trying to modify the playing field once more. This is

can improve drilling performance and efficiency. Improving

one of the most eagerly anticipated acquisitions we have

our drilling performance has been a process of continuous

planned, and although it is still awaiting approval by certain

evolution, and several factors have contributed to our ability

regulatory boards, we are interested in creating a wave in

to cut costs, such as the release of new technologies like the

the industry in terms of offerings and integrated services.

PowerDriveÂŽ and GeoSphereÂŽ systems that help optimize

Schlumberger has been well-known as a solutions provider

and target drilling. We have also opted for a more integrated

with a comprehensive portfolio, catering from sub-surface

approach, and are able to capitalize on several synergies we

to drilling, but now it will be possible to provide services

have created internally across our business areas. In the short

for surface facilities. No other competitor can match this

term, we are much more focused on improving efficiency.

strategy. PEMEX has always been at the forefront of the

The second challenge for newcomers to the market lies in

industry in terms of integration, so we are trying to bring

understanding the potential of the reservoir, and much of our

a unique model that will benefit the NOC by offering it the

characterization technology will play an important role for

opportunity to maintain current operations and integrate

these new players. In this way, we have by far the leading

well construction with surface facilities. Mexico is one of

technology in the industry, as well as a substantial portfolio

the countries with the most potential for value-added

to cater to each phase.

107

| VIEW FROM THE TOP

MEXICAN MAINSTAYâ&#x20AC;&#x2122;S AMBITIONS TO BECOME E&P MAJOR RICARDO ARCE CEO of Perforadora Mexico

108

Q: How did Perforadora Mexico perform so impressively

create redundancies due to downtimes for the company,

in the last 12 months, with five of its seven rigs under

we find it important to explain the motivations and the

contract?

bigger picture to the workers. We follow all the legal

A: We had a positive year compared to our expectations

requirements, we pay the required salaries and bonuses

at the beginning of the year. We were able to grow in

without negotiation, and we help them find a new job. This

comparison to 2014 and finished the year with all our

is the most ethical way to carry out the optimization of the

equipment under contract, mainly due to the fact that we

company. In some cases, I speak to employees personally,

were able to negotiate with PEMEX. We gave the NOC

and in the remainder of cases the human resources

the rate reductions it requested, but in return we were

department helps them through the process and explains

able to obtain an extension of all our current equipment

the situation. Last year, we reduced the workforce by 10%,

contracts. In terms of numbers, we were forced to cut

but we have been cutting costs for the last three years,

some costs and we reduced our staffing levels to become

and the most significant redundancy was made when our

more efficient, which is always an important action to take

onshore drilling contract expired for the northern region,

at the beginning of a turbulent period.

and we lost around 400 people.

Depending on the kind of equipment, we offered a

Q: Who are your main partners, and what are the

discounted rate of between 15-22% to PEMEX, in return

additional services that they help add to your portfolio?

for a one-year extension in all of our contracts. The most

A: Confirming partnerships would be premature at the

important ones were those that were due to expire in

moment, as we are still evaluating all our options due to

the next few months, which were the Chihuahua and

PEMEXâ&#x20AC;&#x2122;s current situation. With these kinds of cuts, we

Zacatecas rigs, and now both will be operating for at

expect PEMEX to seek more projects, so we are unable

least another year. All the rigs are currently active with

to align ourselves to only one company. We are drillers,

the only exception of our older Sonora rig, which finished

so any contract works better for us if it is a mixed-

operations in March. Since then, we provided maintenance

REMI (Equipment Lease with Integrated Maintenance),

to the rig to prepare it for new contracts, and we have

including drilling operations. We also have a great deal

recently tendered it to one of the Round One winners. I

of expertise in cements, meaning there is a significant

believe there is a great deal of opportunities for the Sonora

amount of room for partnerships with companies that

rig, and even though its depth capacity is much lower than

can provide the remaining services to complement our

that of other rigs, it is ideal for work-overs. At this point

offering. Although we have the capabilities to carry out

in time, we are preparing to participate in some of the

many of these operations independently, we are able

bidding processes with the new operators that are going

to recognize the fact that other companies have more

to enter the shallow water fields. Campeche, Chihuahua,

expertise in certain areas than we do, especially in terms

Veracruz, Tabasco, and Zacatecas are all drilling, and

of fluids, directional drilling, and well completion. Some

Tamaulipas is ready but PEMEX has not yet given us a

companies are integrated and provide all of these services,

location to install our equipment.

but we would not rule out the possibility of contracting different companies that specialize in these individual

Q: How do you manage a situation where you must

areas. Normally, we would not seek to work with large

simultaneously make people redundant and make the

service providers, as these companies tend to want to

remaining workforce more efficient?

serve as the owners of the contract and subcontract

A: For me, it is clear that everything we do is ultimately for

tenders to companies like ours, whereas our aim is to own

the benefit of the entire company and we will never forget

the contract, or in some cases, to form alliances with equal

that employees are an important part of it. If we need to

power and responsibility.

109

Q: What were Perforadora Mexico’s intentions in the three

would rather wait than win a project while losing money,

phases of Round One so far, and how did you participate?

and this strategy is the reason why Grupo Mexico is a well-

A: In the first phase, R1-L01, we did not evaluate the

established company in the Mexican market.

opportunities because the risk profile of these fields was too pronounced for a company like us, which would

Q: What would be your ideal type of E&P project, and

essentially be a newcomer in this sector. In R1-L02, we

what characteristics would these fields hold?

evaluated two fields in depth, we entered into negotiations,

A: First of all, we are interested in PEMEX’s farm-outs,

and even signed with an operator. We delivered the

and we know that one of PEMEX’s priorities is to promote

prequalification documents, but we ultimately decided

the farm-outs as soon as possible. We still need a solid

not to proceed due to the discovery of certain elements

operator to partner with in the endeavor, but we can

of risk. However, after having processed the numbers,

provide all the equipment to work there. Subsequently,

I am confident that we would not have won any fields

we will be evaluating more onshore projects and lower

because the numbers were far too high. In R1-L03, we

risk shallow water fields with proven reserves rather than

prequalified independently through one of our companies

exploration blocks. We will need to enter the farm-outs

called Controladora de Infraestructura Petrolera Mexico,

in partnership with an operator because I am certain that

a company that is the owner of all the assets in the oil

CNH’s prequalification criteria will not only be related to

and gas sector. We evaluated around seven fields through

size and financial capabilities, but also to a breadth of

a high-level screening process, ultimately focusing our

expertise in specific processes and technology.

efforts on three of the four larger fields, and we delivered these three proposals.

The Bolontiku and Sinan shallow waters fields are two promising fields that will be included in the farm-outs,

Although we did not win, we are sure the reason behind

although they will be difficult to drill and develop due to

this was price, because we know that the prices proposed

the levels of pressure and the high temperatures. However,

by the winners were too high and this was confirmed

our performance has been solid in a considerable number

when six contracts were not signed by the winners. We

of wells in this area, and we know the region well. In the

created strong business cases for each field, and we were

Ayatsil-Tekel field, we currently have the Veracruz drilling

planning to invest between US$50-75 million in each,

rig, and hopefully soon the Tamaulipas rig will also be

increasing production from around 240b/d to aproximately

positioned in this field, so due to the level of investment

3,000b/d or more. In some cases, we may have been

we have already placed in this field, we will be evaluating

slightly conservative due to individual field characteristics,

it carefully. Ayatsil-Tekel is difficult due to the heavy oil

but ultimately our assumptions were realistic. We were

it produces, so we will need to seek the correct partner

not requesting a significant ROI on each of the fields

to ensure success in this field. We also still believe that in

and when we delivered the proposals, the numbers were

onshore, there are a significant amount of opportunities to

within the average. We are not worried at the moment

continue growing, or at least to maintain PEMEX’s current

because, although we want to become an E&P player, we

level of production.

| TECHNOLOGY SPOTLIGHT: MAPPING WHILE DRILLING SERVICE Schlumberger’s GeoSphere service uses deep, directional

drilling a tight inclination above the reservoir also makes

electromagnetic measurements to reveal subsurface-

completion operations challenging; landing too deep

bedding and fluid-contact details more than 100ft from

creates a slump in the wellbore that can lead to early

the wellborn. Allowing operators to map while drilling, this

water breakthrough or more attic oil. Furthermore, a high

service provides a depth of investigation that changes the

pressure difference between the overburden rock and the

game for steering capabilities within complex reservoirs.

top of the reservoir can lead to severe well integrity risks.

Typical logging-while-drilling measurements detect only

Due to its accurate mapping capabilities, the GeoSphere

the first nearby geological boundary, while the GeoSphere

service helps ensure optimal landing by extending the

service’s scope maps reservoir layers in the horizontal

radial depth of investigation more than 100ft around the

section over 100ft around the wellbore. In fact, operators

wellbore.

have successfully mapped the upper and lower boundaries of a reservoir simultaneously in real time. The acquired

In addition, the GeoSphere service reveals subsurface

data enables an accurate prediction of upcoming strata

layers and fluid contents at the reservoir scale, which

or formations in both high-angle and horizontal wells.

has a significant impact on field development strategies.

Geoscientists and drilling engineers can then interpret

Real-time mapping data enables operators to stay in the

reservoir data and steer wells for maximum reservoir

sweet spot by steering the well strategically and avoiding

exposure.

unplanned

reservoir

exits.

Conventionally,

logging-

while-drilling tools provide downhole measurements a The GeoSphere mapping-while-drilling service can also

few inches from the wellbore, but GeoSphere’s 100-feet

improve well-landing operations, reducing drilling risks,

scope improves reservoir characterization and reduces

eliminating the need for pilot holes, and increasing

geological uncertainties. Data provided by the service

reservoir exposure. Pilot holes are often used to evaluate

can be integrated with seismic data to help operational

formations before landing the horizontal, but this costly

engineers analyze the reservoir, adjust well paths while

method does not always mitigate risks in complex

drilling, and deliver smoother wellbores. The GeoSphere

reservoirs where shallow or deep landings can occur. In

mapping-while-drilling

the case of a shallow landing, a long part of the reservoir

details at the reservoir scale to help refine geological

section is drilled in the overburden, compromising lateral

and structural models, ultimately enabling operators to

exposure and impacting well productivity. Likewise,

maximize production.

service

reveals

subsurface

| INSIGHT

FLUIDS LIFEBLOOD OF DRILLING SERVICES A well is like the human body, and in this system, drilling fluids are often referred to as the lifeblood. In the same way that blood is needed to survive, drilling operations also require quality drilling fluids as an integral component

GUIDO RIVAS

of the system, and these drilling fluids must be correctly

Vice President of QMax

adapted to individual well conditions. One of the critical factors for success is circulation, and lost circulation is a major problem for some areas in Mexico, costing a

Moreover, Rivas believes that, with the changes in the

considerable amount of money due to the loss of thousands

Mexican oil and gas industry, PEMEX will be forced to

of cubic meters of fluid. Therefore, QMax has implemented

become more efficient in the face of increased competition.

technical efforts in order to address these problems in

This applies to all aspects of the E&P operations, including

the country, and the company has developed several

reservoir engineering and exploitation, as well as drilling,

customized solutions to manage this issue. “At the moment

whereby the NOC will be forced to drill faster, at a lower

there is a particular offshore well that is losing circulation

cost, and with the most advanced technology. “PEMEX,

and the customer is currently on the verge of replacing a

along with new players in the market, will be looking to

competitor with us due to our breadth of experience and

partner with leading companies that can help them achieve

past success,” boasts Guido Rivas, Vice President of QMax.

these new objectives,” he states. “They will be looking for

“This is the result of our focused attention to problems,

companies that can act fast in applying technology to

development of new formulations in our laboratories,

common drilling problems to lower costs and improve

country-wide distribution, and our ability to continue

efficiency.” Because of the company’s problem solving

working until an effective solution is achieved.” The focus

approach, the quality of its people, and the effectiveness

the company has on ensuring delivery of efficient services

of its infrastructure, Rivas believes QMax is an ideal partner

at the lowest possible price is a clear strength for QMax.

for both PEMEX and new companies entering the market.

The company has a total capacity of approximately

Although interested in new partnerships, Rivas concedes

23,000m3, spread over seven mud plants throughout the

that 2016 will be a difficult year and the market might be

country, but unfortunately, only around 30-40% of that

down by around 20-40% compared to 2015. “We hope

capacity is currently in use. In the past, QMax has run up

to prove our capabilities to a number of new and existing

to 80 rigs simultaneously and, although Rivas shares that

players and be able to deliver on our promises of top quality

this was challenging, he is confident of the company’s

services, lower costs, and increased efficiency,” he explains.

capability of capturing this percentage of the total market share. The landscape at the moment is incredibly difficult to negotiate across all sectors of the oil and gas industry, so Rivas believes there is a need to adjust accordingly in order to become leaner and cut costs where possible. QMax has made adjustments, not only in operations, but also in staff numbers and investments, while maintaining motivation among the workforce and technology development. “We have made some mistakes along the way, and as a result, we must continuously modify our strategy,” Rivas admits. “After the weak year in 2015, I think 2016 will follow this pattern. Consequently, we are preparing for a modest level of activity, a more aggressive level of competition, and as a result, we have placed a concerted focus on technology, processes, and development of human talent.” As an agile and flexible company, he shares that QMax is able to respond quickly to any market fluctuations and make the necessary adjustments, whereas other competitors do not have the capability to implement such a fast response.

QMax has run up to 80 rigs simultaneously

111

| VIEW FROM THE TOP

BASICS OF A SUCCESSFUL INTEGRATED PROJECT MODEL BRUNO LIMA Project Manager – Mexico Country Manager of Halliburton

112

Q: What are your service divisions structured in the

of different stakeholders, for which the customer usually

Mexican market?

is seeking to simplify the number of interfaces and ensure

A: Halliburton comprises two divisions, the Drilling and

project deliverability through an enhanced integration of

Evaluation Division, and the Completion and Production

service-quality capacities. A second tier is to naturally add

Division, with 12 product service lines (PSLs) between them.

the local knowledge on both engineering and procurement

One additional PSL, Consulting and Project Management,

to the integrated package, considering the long-term

is the nucleus of our integrated services strategy and

experience and capture of lessons learned to be deployed

works

collaborative

immediately to the project planning and execution,

early engagement and an inclusive process, our Project

across

both

shortening the learning curve and increasing overall project

Management

team

divisions. develops

Through

innovative

performance. While the previous models are usually charged

solutions to produce effective well designs and completion

and

applies

according to time and materials, there are high tiered models

plans. To achieve a detailed understanding of the challenges

for which the risk allocation is spread among the stakeholders,

at hand, the Halliburton well construction and completion

therefore capping the customer’s exposure and aligning the

project teams encompass a wide range of disciplines and

project performance to its financial outcome. Certainly, the

job functions, from geology, geophysics, and engineering

biggest value generated by the integration is the alignment

to operations, supply chain, safety, regulatory compliance,

of objectives among the stakeholders. Such alignment is key

and management. The goals of our Project Management

to controlling the project variables, such as cost, quality, and

team fall into the three main categories of improvement

schedule, and to ensuring that all stakeholders participate

of well construction rates, rigorous risk assessment and

proactively to assure optimal project performance.

mitigation process, and the reduction of non-productive time. Halliburton Project Management has already built a

Q: How could new customers originating from the Energy

network of providers, which are continuously assessed

Reform profit from the utilization of integrated projects?

on their quality assurance and quality control processes

A: There are four different outcomes that customers

and practices. The governance is exercised through a

would like to achieve during periods of low barrel prices:

bridge document, which controls the responsibility and

reduction of CAPEX and OPEX, decrease in project

accountability of the parties, and also establishes the

footprint, simplification of interfaces, and ensuring project

management of change process. Currently, in Mexico we

performance indicators are fully met without compromising

are present with high-value, high-performance, integrated

any eventual boundary condition. The Integrated Project

projects

Model generates a variety of opportunities to meet and

deepwaters,

shallow

waters,

exploration,

unconventional resources, and deep HPHT land wells.

overcome all four customer-driven challenges. Halliburton’s unique capacity and expertise in the Mexican market

Q: What is the most effective business model for an

allows our customers to better dimension their CAPEX

integrated project?

from the time of the bidding process, through exploration

A: Halliburton Project Management can tackle any phase of

execution and throughout the asset’s productive life. We

the asset life cycle, spanning from exploration to appraisal,

provide a method to acquire best-in-class technology, local

development, and lately the plugging and abandonment of

expertise, and a simplified interface with all necessary third

fields. The work is structured in a scalable fashion that can

parties for the project, while having total alignment and

encompass a single rig or entire set of assets, both onshore

trust among stakeholders. The level of synergy we have

and/or offshore The level of integration or coordination

with stakeholders allows infrastructure to be designed

required is assessed according to the customer’s needs

and built according to the required specifications, such as

for each project. The simplest model, Integrated Services,

the top tier 3600 HP rigs currently working for one of our

comprises purely the planning and operational coordination

customers in the south region of Mexico.

| INSIGHT

MEXICO’S PLACE IN THE HALLIBURTON FAMILY With a breadth of activities and a portfolio that spans the breadth of the sector, from deepwater, to mature fields, and unconventional resources, Halliburton has

JUAN CASTAÑEDA

a presence in six of the seven continents of the world.

Vice President of

Regardless, according to Juan Castañeda, the company’s

Halliburton Mexico

Vice President of Mexico, the country is one of the most significant

markets

for

Halliburton

worldwide.

“The

Halliburton Mexico team and its continuous focus on

tier drilling rigs currently deployed and drilling the deep

safety, value-driven solutions, performance and providing

HPHT wells in the south region of Mexico,” Castañeda

a lower cost per barrel for our customers is positioning

claims. These, according to the Vice President, are

Mexico for long-term growth,” he asserts.

creating groundbreaking results for well construction and operations. True to form, Halliburton has implemented

He shares that, since 2013, Halliburton Mexico has had a

innovations across all sectors of the oil and gas industry,

differentiated structure compared to other traditional

and has deployed cost saving initiatives in deepwater,

markets, which is more focused on the wide span of

shallow waters, onshore, and unconventional reservoirs.

local operational necessities and tailored to provide the support necessary to the on-going activities of Halliburton

Castañeda comments that Halliburton is working hard on the

customers in Mexico, as well as to CNH, and supporting

development of new solutions to strength these synergies,

the process of Energy Reform. “Such early engagement

as the company is continuously working to enable our

with core stakeholders and new players has allowed us

customers to maximize production from existing reservoirs,

to support our customers through the decision making

while reducing downtime and risk, therefore reducing

process with a dynamic and rapid response team in

significantly the cost per barrel. “We are innovators and

place,” Castañeda explains. Since Halliburton has had a

problem solvers, and our technologies are geared toward

long-term presence and investment in Mexico, it has been

addressing specific challenges throughout the oil and gas

able to create an infrastructure and a resource capacity

value chain,” Castañeda says of this diversified strategy.

to support the geographical and technical diversity

Another significant example of the strong synergy with

of its customers’ assets and operations. The company

its customers in Mexico is the shared vision and value of

has implemented a Journey to ZERO program, wherein

sustainability to its communities, including customers, the

it strives to eliminate safety incidents, environmental

Halliburton employee community, the local communities

incidents, and nonproductive time. “We have implemented

where we work, and the global community.

a strong cultural value proposition with our Journey to ZERO, improving our performance on key metrics, which

One of the benefits to emerge from the current environment

help generate additional savings in terms of overall cost

of capital preservation across the upstream sector has been

per barrel.” To demonstrate this, Halliburton’s business in

the ability to facilitate innovation and a deep focus on value

Mexico is American Petroleum Institute (API) Q2 certified

in a pronounced effort to reduce CAPEX and OPEX. “The

for service quality in upstream operations.

Mexican market is a leader in innovative solutions and we expect to continue to see the establishment of technology

Halliburton has had a preponderant role in Mexico’s oil

deployment,

processes,

and

integrated

solutions

and gas industry for years, and Castañeda believes the

reduce capital costs across all projects, while working

company has had a hand in shaping the industry, given its

together with our customers on innovative business

strong long-term relationship with PEMEX, which has in

models to re-shape and optimize current contractual

turn enabled the creation of new technologies, processes,

industry benchmarks,” Castañeda explains. He is confident

business models, fully integrated projects, and sustainable

that Halliburton’s presence remains strong, and shares

solutions. “Since the introduction of the Halliburton 221,

that the company prides itself on listening to customer

the first stimulation boat in Mexican waters 37 years

concerns and challenges and finding appropriate solutions.

ago, the development of solutions has evolved through

“Halliburton’s focus is on generating customer value, and we

a great number of wellbore and reservoir technologies

have structured the organization to support the historical

for drilling, logging, fracking, and pumping, as well as the

transformation that will lead to a myriad of opportunities in

engineering and construction of high-performance, high-

the Mexican market,” the Vice President concludes.

113

| VIEW FROM THE TOP

SETTING THE STANDARDS IN DRILLING FERNANDO ORTIZ Commercial Director of Seadrill

114

Q: What specific competitive advantages allowed Seadrill

Q: What factors allowed the West Pegasus platform to

to achieve 150% excess capacity?

achieve a 90% uptime, while being more reliable than

A: Seadrill has the youngest and most modern fleet among

your competition?

all drilling contractors. We operate a versatile fleet of 68 rigs

A: West Pegasus can achieve high performances and

that comprises drillships, jack-ups, and semi-submersibles,

set the record for drilling here in Mexico. Thanks to

and tender rigs for operations in shallow to ultra-deepwater

its capabilities, we were able to drill the Maximino-1

areas in harsh and benign environments. Our headquarters

well located in the Perdido area, the most challenging

are in London and we operate from six regional offices

deepwater project in the country. It was located at a

around the world. Ciudad del Carmen is our main base of

depth of 2,922m, and required the drilling of a delimiter

operations in Mexico. We work with some of the largest oil

well of 3,016m. This represents not only the deepest

and gas companies, and we have a clear goal when it comes

water well for PEMEX to date, but also for Seadrill.

to safety in the protection of our personnel. Our total injury

Maximino-1 is considered the crown jewel of deepwater

frequency is the lowest among our competitors, and this can

projects for the Mexican state-owned oil company. In

be attributed to our use of the most advanced safety tools

October 2015, the performance of West Pegasus was

in the market, and the most professional workforce in the

at 99%, practically 12 points above that of our local

country. As forecasted, we successfully achieved our goal of

competitors. The maintenance of our equipment is

a 150% surplus, which translates into the management of up

carried out above the minimum requirements, and runs

to 12 rigs in our new operational hub in Ciudad del Carmen.

at the highest standards, allowing us to avoid downtime.

It is worth mentioning that we are currently managing seven others rigs from this hub, with six located in the Gulf of Mexico

The rig has specific characteristics that allow it to reach

and one in Venezuela. Seadrill also strives to be part of the

impressive performance rates, such as its equipment

countryâ&#x20AC;&#x2122;s development, and in line with this, we are pleased

with an NOV drilling package. The derrick and top drive

to say we have achieved a level of 80% nationalization as of

are capable of lifting 1,000 short tons and utilize range 3

Q3 2015, demonstrating our commitment to Mexico and the

pipes, as well as having the ability to build stands of DP

development of local content.

or casing offline without interrupting the main operations

of the well center. This is due to the fact the drill floor is

framework, as well as the same service quality standards

equipped with two iron roughnecks and has two powered

we deliver worldwide. These companies may feel held back

mouse holes to build stands offline. This additional

by their lack of knowledge of the Mexican environment,

equipment also adds to the redundancy of the rig floor,

but we have been here since 2011 and understand the local

reducing the risk of downtime for our clients, while at the

market’s dynamics. As such, we expect our experience and

same time increasing the efficiency of the operation. The

safety operational standards to act as an advantage for

rig floor is kept over the well thanks to eight Rolls Royce

securing contracts with these IOCs.

Aquamaster azimuth thrusters operating at a constant pitch and variable speed. These are designed to maintain

Q: How is Round One affecting your company, and how

the West Pegasus drilling operations in 70 knots wind

will you manage to improve your position in the industry?

conditions and waves up to 7m high. Should there be an

A: We do not consider R1-L01 to be the disappointment it

issue with the well, it can be controlled with a 6 ram 2

has been hailed as, but rather we believe it is to be viewed

annular NOV Schaffer BOP rated for 15k pressure. The BOP

to a certain extent as a test. We were glad to see the

is connected to the subsea wellhead with a riser system

results of this phase lead to adjustments in the bidding

capable of reaching water depths of 3,000m.

process of future rounds. Even with disappointing results, it is also reassuring to observe that global players have

Q: How has your cooperation with PEMEX fared, and what

maintained their interest in the Energy Reform. Seadrill

future partnerships are you looking forward to?

has special interest in the fourth phase, which we believe

A: Our cooperation with the parastatal is an ongoing

will be successful and provide tremendous opportunities

commitment, as we are also seeking to provide continuous

for our company. Our target is to bring one of our new drill

improvements

ships to Mexico in order to show companies how much

new

PEMEX

affiliate

productive

companies, focusing on exploration and drilling. Our

money, space, and material this technology can save.

cooperation can be seen through our work standard permit authorized by PEMEX in all joint operations in

Our aim is to secure contracts with IOCs, to consistently

Mexico, as well as common drilling practices in terms of

be the region’s best deepwater performer, and sustain our

well control to optimize current operations. Just recently,

vision of “Setting the Standard in Drilling”. We aim to achieve

our West Pegasus semi-submersible deepwater rig was

the latter objective thanks to Seadrill’s three main pillars.

awarded a provisional commitment for a 2+1 year contract

We focus on people, constantly training and developing a

extension with PEMEX, despite the delicate business

safety culture within fluctuating boundaries, the technology,

environment. West Pegasus is also used as a school rig for

providing the most modern fleet and components with top

Mexican deepwater exploration.

maintenance systems in place, and the processes, which respect a strict and systematic philosophy. We persistently

Seadrill is extremely interested in securing contracts with

assess opportunities, both traditional and non-traditional,

ExxonMobil, Chevron, BP, and all other major oil companies

from a technical and commercial point of view, evaluating

investing in Mexico, as we are currently doing in other parts

partnership offers, expansion opportunities into new

of the world. Our goal is to approach foreign companies

geographical and technological markets, and keeping

and accompany them into Mexico, providing a secure

abreast of changes in global regulatory regimes.

115

| INSIGHT

REMAINING COMPETITIVE IN A LOW OIL PRICE ENVIRONMENT are primordial to its operations given the requirements of many of its customers, including PEMEX.

STEVE WALKER Managing Director of

“Our presence in Mexico is very much concentrated

Loadcraft

according to our clients’ needs, and at the moment, we are focused on the southern region. In addition to the Mexican NOC, our clients include CP Latina, IHSA, Key Energy,

116

Terry Mclver, now the owner of Loadcraft, took a leap

Petroalfa, San Antonio, Setin, and Weatherford,” Walker

of faith one day when he went to purchase a rig at a

states. At the moment, the company’s main aim is to make

repossession facility and decided to buy the entire

contact with companies in Mexico, which makes R1-L03

facility instead. From there, he then brought in two of

extremely attractive for Loadcraft. Overall, Walker believes

his sons, and his son-in-law, to work with the employees

that Round One will contribute to an increase in the demand

from the previous company that went bankrupt, and built

for the company’s rigs. “We believe companies will get

Loadcraft from scratch. “His main mantra has always been

in touch with us given our precedent for exceeding client

‘take care of your people’, and that is something he has

expectations when it comes to quality and service, which

done well,” explains Steve Walker, the firm’s Managing

we provide 24/7,” Walker clarifies. “We have found that 99%

Director. Thanks to word-of-mouth and continuous

of the time, when a client buys a rig from us, he or she will

marketing of the company’s abilities, Loadcraft was able

return.” In order to remain competitive in the current low

to sell a record 270 rigs in its ten years of experience. “At

oil prices, Loadcraft is offering its clients the opportunity

the moment we are operating in 22 countries, with a little

to purchase second-hand rigs, and if need be, to refurbish

over 270 rigs, 111 of which are located in Latin America.

them, bringing them up to today’s standards. Nonetheless,

Since 2005, we have had 27 rigs in Mexico for work-

this does not distract the company from more demanding

over and drilling,” Walker discloses. The domestic to

clients who may require rigs made on demand. “PEMEX

international distribution ratio of Loadcraft’s rigs varies

prefers the latest in draw-works, which include discs and

each year, although the past few have been difficult

design services. So far, we have designed and produced four

from the standpoint of the price of oil. “We have had to

of those rigs for the Mexican NOC,” Walker explains.

reduce our human capital due to the low oil prices, but when operating at full capacity, we can have over 300

Walker

employees,” he continues. Loadcraft’s employees are

problems, but should a client require any assistance, the

divided among the company’s two plants, one of which

company has a local partner that can respond to service

is a manufacturing plant under API 4F, and the other that

needs. Loadcraft’s Brady plant can also provide additional

manufactures draw works and operates under API 7F.

assistance when needed, as its technicians are able

The company prides itself on these certifications, which

to travel to any location in Mexico as required. Walker

claims

Loadcraft’s

rigs

seldom

experience

relishes the new importance that Mexico has gained in the international hydrocarbons industry, given its proximity to Loadcraft’s manufacturing facility. “Looking into the future, it is important to meet with new clients in Mexico, since many new companies will be entering the Mexican oil and gas market as a result of the Energy Reform and Round One. We will also strive to maintain our relationship with our existing clients, while keeping an eye open for new opportunities,” Walker asserts. In fact, the company is currently in touch with its clients right in order to better understand how it can support them during these

Since 2005, Loadcraft has had 27 rigs in Mexico for work-over and drilling

challenging times. Loadcraft’s main goal for the next few years will be to place as many rigs as possible locally to support the development of the newly open Mexican market. The company’s goal is to almost double the amount of rigs it has in Mexico, going from 27 to 54.

| INSIGHT

EXPERIENCE TURNS SERVICE COMPANY INTO MANUFACTURER Global Drilling Support (GDS) started as a service company that wanted to offer its customers a competitive

PJ PENDLEBURY

alternative to the OEMs in repairing their drilling

Vice President of Sales &

equipment, specifically top drives. The company turned

Operations at

a diverse group of technicians and experts into a team

Global Drilling Support

who were experienced in the different models of top drives, including Tesco and National Oilwell Varco. With service at the forefront and manufacturing in mind for the

asserts. The company opened an office and utilizes a fully

future, GDS focused on getting its API 8C license, QMS,

functional workshop in Villahermosa to support its current

and ISO certifications. For GDS’s Vice President of Sales &

and future operations. “Service and equipment reliability

Operations, PJ Pendlebury, shifting from a service company

are our differentiators in these market conditions, so being

to a manufacturer was a natural progression. “One of the

able to respond to our customers’ needs at all times is our

advantages in servicing different brands of top drives is

priority. PEMEX is such a prestigious and growing company

that GDS obtained a holistic look at all of the other OEMs’

with many opportunities, that we need to ensure that our

equipment from the inside out. We were able to evaluate

products and services meet the NOC’s high expectations.”

things that worked and, more importantly, things that did not work on competitor top drives,” he asserts. GDS

Mexico’s openness to technological advancements suits

was able to update the stagnant 20-year old top drive

GDS’s approach to technology, which Pendlebury says

technology, making a robust but simplistic machine that

fuels and develops the industry. As part of its pursuit for

was reliable and more capable of the current and future

innovation, the company incorporated the Global Display

drilling demands. Pendlebury claims being involved in the

Panel (GDP) touchscreen into its top drive. “The GDP has

service side and getting to know equipment from different

cutting-edge technology that helps the clients, drillers,

OEMs helped his company in building its own product.

and maintenance crews focus on their job with a smart top drive system that lets them know what needs to be

GDS’ business began to expand into Mexico in 2013 with

serviced and when,” says Pendlebury about the system,

one client, a national company, who bought over a dozen

which has built-in maintenance scheduling. Built-in alarms

top drive units. In the same year, another customer moved

provide alerts of issues or potential issues, so GDS is

several rigs to the region, which gave GDS more exposure

moving its customers from scheduled maintenance, to

to PEMEX. “The Mexican oil company liked our product,

preventive and predictive maintenance.

as the NOC saw through its rugged use in the region that it was user friendly, reliable, and performed well in the

The equipment manufacturer recently partnered with

climate. Regarding the crossover from the competitor’s

GE so that the latter can assist with remote monitoring

equipment that PEMEX was using at the time, the client

capabilities and cloud-based data collection. Powered by

found that GDS’ top drive provided a more advanced

GE’s leading Proficy® software and rugged RXi IPCs, GDS

approach to drilling,” shares Pendlebury. At the moment

Equipment Insight allows the company to securely collect

GDS has equipment with drilling contractors that work

and analyze fleet data, and then share that information

for PEMEX. “The NOC has been a solid partner that has

with key people in the organization, optimizing asset

embraced our equipment and helped us understand the

performance,

marketplace,” Pendlebury expresses and explains that his

significant technological addition to GDS’ portfolio is

company has been given a great opportunity to showcase

its Equipment Insight Solution. Pendlebury says his

the strength and the ease of using its equipment in Mexico.

company was looking for a solution that would take its

processes,

and

profitability.

Another

data management to the next level, as customers were A factor that has greatly helped GDS in Mexico is the

asking for more data and accessibility. “Equipment

Energy Reform, and Pendlebury claims that the country has

Insight allows us to bring real-time data to the right

been open to embracing new technology and upgrading

person, wherever they are, on any device. Now, we not

outdated equipment that does not meet the demands

only provide visibility on our GDP onsite, but we are able

of today’s drilling standards. “GDS has a commitment

to take it globally to maintenance crews and management

to maintaining a high level of service to our clients and

teams on computers, tablets, and phones,” Pendlebury

PEMEX as we navigate through this slowdown,” he

proudly states.

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| VIEW FROM THE TOP

TECHNOLOGIES TO REVOLUTIONIZE THE FACE OF THE INDUSTRY MYLES WOLOSHYN CEO of Turbo Drill

118

Q: What led to the foundation of Turbo Drill, and what

diamond thrust bearing for another tool and used our

gap in the market was the company addressing?

knowledge to further develop the diamond technology for

A: Turbo Drill Industries (TDI) is a manufacturing and

mud motor applications.

downhole tool technology company that was founded in 2007. The first product line offered by TDI was radial

In the past, when drilling horizontal wells, typical build

bearings for downhole mud-lubricated drilling motors

rate angles were 6° or 8° per 100ft. However, with the

and flow restrictors for oil-sealed drilling motors. In 2009,

dramatic increase in shale drilling, many US operators

we created a downhole tool rental division called Scout

wanted to get from vertical to lateral in less distance and

Downhole Inc. (SDI). SDI rents downhole drilling tools to

started planning wells with build rates of 14° to 16° per

directional drilling service companies, drilling contractors

100ft. TDI realized that the standard longer bit-to-bend

and oil, gas and geothermal operators.

motors were not designed for this application and that considerable problems would soon ensue in the drilling

Q: What makes Turbo Drill’s technology unique, and what

industry if this antiquated technology was employed. As

gap has this bridged in today’s market?

more operators designed well plans with higher build

A: We quickly realized that we had developed industry

rates, our assumptions about increased downhole failures

leading technology that lasted up to four times longer

pertaining to outdated drilling motor technology proved

than the conventional technology. Our business grew

to be correct.

rapidly and then our customers suggested that we take advantage of our vast knowledge of downhole drilling

Q: How do you assign investments for R&D in a low oil

motor technology and develop a revolutionary bearing

price environment?

and transmission assembly for the newly emerging high

A: All the companies we have created or acquired have

torque motor power sections. This led to the development

been focusing on the technologies that would be needed

of our patented diamond bearing assembly, high-torque

if the price per barrel went below US$60. The new

transmission assembly, and revolutionary fixed bend

technologies we are working on are being directly targeted

assembly. TDI's advantage was we had developed a

to the low cost drilling environment. In 2014, there were

Scout Downhole is a privately held company founded in 2009 to provide innovative oilfield products, high quality manufacturing and excellence in customer service. New product development and continuous improvement are at the heart of our business philosophy. Scout Downhole offers industry leading patented technology, encompassing comprehensive run analysis and drill system optimization.

Innovative Solutions to Downhole Problems

I TECHNOLOGY SPOTLIGHT: RELIABLE SYSTEM ELIMINATES STICK SLIP 2,000 drilling rigs operating in the US, by December 2015, there were approximately 750 rigs working, and between

Operators are familiar with the difficulties entailed in maintaining

January and February 2016, we went from 750 to 500 rigs.

steady weight on the bit when drilling long-reach horizontals,

Our projections suggest that this number will decrease to

mainly due to the interplay between drill string flexibility and

400 operating rigs in the US by the third quarter of this

wellbore friction. Stick slip occurs when uneven slack off weights

year. Nonetheless, we are increasing revenue from last year,

and drill string buckling varies the weight on the drill bit. The

which is possible due to new technology. The conventional

torsional energy variations in the drill string will reduce drilling

directional drilling technologies that are out there now

efficiency, among other factors, because the bit will drill at a

are designed for oil prices of US$70-80 per barrel, and

faster speed than it was ever designed for, ultimately turning

the only thing that will help the entire industry survive is

intermittently or no longer turning at all.

technology. There are virtually no current technologies that can be used for drilling at US$35 per barrel except the

Developed by SDI, a company of Turbo Drill Industries, the

Turbo Drill motor Lower End, and if this is combined with

Steady Scout uses a mud motor to maintain constant torque at

a gear-reduced turbine and a gear-reduced motor, we can

the bit, thus minimizing bit-induced stick slip. This instrument

obtain technologically advanced versatility.

allows operators to increase the weight on bit from surface to increase the rate of penetration. The system has a long soft

Q: What innovative technologies have you developed,

shock section to absorb the cycling forward momentum of the

and how will this mitigate the consequences of the low

drill string, and its ability to vary the weight on bit downhole

oil price environment?

maintains constant differential on the mud motor, which

A: Our Vertical Scout is the only mechanical, vertical

minimizes stick slip.

seeking tool on the market. It operates based on gravity, and no one has invented a tool like this in the past. We

The Steady Scout reacts to changes in the internal drill string

developed the first design in 2008 and by 2016 we now

pressure, and as the pressure drop across the motor fluctuates

have nine different revisions of this tool that have changed

in accordance with torque required at the bit. An increase or

it completely from when it was originally conceived. We

decrease in torque and/or pressure drop across the motor and/

are quick to identify our flaws in the first designs and then

or changes in bit weight will cause the Steady Scout to react or

we change constantly and make the technology more

extend. The result of using the Steady Scout in conjunction with a

effective.

drilling motor is constant torque, constant pressure, and constant weight on bit, which ultimately equates to a more constant RPM.

Another thing we have that other companies do not is

The benefits are simple. Less stress on the BHA components,

that our engineering team has a phenomenal background

increased ROP, reduced bit wear and damage all lead to reduced

in manufacturing, and this is the reason why we are

drilling costs and reduction in NPT. The Steady Scout is designed

able to launch new technologies with oil at US$35/b.

to be incorporated in a bottom-hole assembly with a PDC bit and

Collaboration between engineering, manufacturing, and

positive displacement drilling motor. Unlike most stroking tools,

servicing is the only formula a service company can

which extend from drilling string internal pressure, the Steady

employ to deliver revolutionary, affordable technology

Scout closes until the resisting force and hydraulic closing force

when oil is at US$35/b.

are equal.

Tel. 1-936-756-3210 | 1125 Beach Airport Road, Conroe, Texas, USA 77301

| TECHNOLOGY SPOTLIGHT: ROTATING RELIABILITY Schlumberger is placing significant efforts on improving

increased rate of penetration. The PowerDrive Archer

drilling efficiencies, for which it has developed cutting-

RSS can extend the distance to which horizontal sections

edge technology. The PowerDrive Archer RSS combines

are drilled, facilitating running casing and performing

the benefits of a motor and RSS in a single tool, which

intelligent completions. The PowerDrive Archer RSS’

delivers complex 3D well profiles while maintaining high

hybrid steering system has demonstrated reliability due to

ROP and wellbore quality. This fully-rotating system is

the fact that its moving components are internal and are

the only RSS that builds high angles from any deviation

not exposed to harsh environments. This hybrid system

in one run, increasing hydrocarbon production potential

has internal pads that push against an articulated sleeve

and reducing risk.

pivoted on a universal joint to point the bit in the desired direction. The system also enables openhole side-tracking

The PowerDrive Archer RSS assures operators that wells

at any point in the well because of reduced dependence

can be drilled with increased dogleg capability, which

on wellbore contact.

gives control in unconsolidated formations and punches through

open-hole

The fact that all the external components have rotating

sidetracking decreases rig time on multilateral wells, while

hard

stringers.

The

directional

qualities improves penetration rates, borehole quality,

the deep kick-off points enable reduction of inclination in

and hole cleaning, while reducing the risk of mechanical

unstable formations, as well as a reduction of footage to

or differential sticking. The geostationary electronics

the reservoir.

package, which relies on the PowerDrive X6 RSS control system, rotates a control valve to divert a small

The solution’s accurate and precise control allows it to

percentage of the drilling fluid to energize the internal

land the well trajectory in the reservoir’s sweet spot and

pads. The latter then pushes against the insider of the

extend the horizontal to total depth. It can also maintain

steering sleeve, which subsequently pivots on the

verticality at greater depths due to its higher build rate

universal joint to point the bit in the desired direction.

capabilities. In horizontal sections, the system can drill

Through this unique mechanism, PowerDrive Archer RSS

through hard, interbedded formations at high angles

is able to deliver high dogleg severities of up to 18°/100ft.

of incidence. High-quality wellbores produced by the

In addition, these traits allow the system to perform fast,

high build rate RSS offer reduced friction and tortuosity,

reliable open-hole sidetracks in any direction, without the

allowing a considerable weight transfer to the bit for

need for a cement plug.

| VIEW FROM THE TOP

PATHS OF SUCCESS FOR DRILLING CONTRACTORS TONY SOLIS Vice President International Sales and Operations of TSC Manufacturing and Supply

Q: How has TSC Offshore negotiated its goals with the

easily see the solutions we offer, and we can tailor those

realities of the downturn and their effect in the drilling

to fit any customer’s needs.

market? A: We have met our objectives in terms of growth in our

Q: How have you advanced with PEMEX's US$63 million

market share and visibility. Although during the past year

contract to carry out refurbishment works, mechanizations,

the price of oil has dropped drastically, we have been able

and automation on several 2000 HP land rigs?

to overcome that obstacle. We have succeeded in getting

A: We were hired to serve four land rigs. The work for each

the TSC brand recognized and accepted by most of drilling

rig is planned to be developed into four main phases: surveys,

contractors, including PEMEX. We had plans for expanding

purchases, performing the work on the rig, which includes

workforce and preparing ourselves for a couple of projects

refurbishment,

that we had in our sights. However, due to the drop in oil

delivery services. At this point, we have finished the survey

prices, we had to put those plans on hold. It is true that

phase for two of the four rigs. Due to the market conditions,

we have been affected tremendously by the drop in the oil

the project has suffered a tremendous impact in terms of

price. Since we depend highly on drilling operations, our

following the schedule. However, PEMEX has been clear in its

business suffers an immediate impact when these activities

desire to maintain this project in its priority portfolio.

modernization,

automation,

and

post-

slow down. When we detect a lag in business, which we can anticipate, we start looking for ways to reduce our costs.

When this project is completed, it will enable PEMEX to add

The type of necessary efficiencies can be mostly found in

modernized rigs to its current land drilling rig fleet. These

transportation and logistics, so we start looking for ways

modernized rigs will be more efficient, which in turn will

to consolidate shipments. This keeps our costs down and

allow PEMEX to drill wells quicker without putting safety

helps in passing on our savings to our clients.

at risk. We will continue to work closely with PEMEX, and we hope to secure other contracts in the near future. This

Q: How has your client base changed recently, and what

contract has a central effect on PEMEX’s operations, as the

are some of the most important aspects of your services

NOC has 21 rigs operating in the same conditions as the

that you highlight to new clients?

four rigs awarded in our contract. Therefore, investing in

A: Because of the downturn, we have not seen any new

its fleet and acquiring state-of-the-art technology will help

drilling contractors entering the Mexican market, or at

PEMEX improve its operational efficiency substantially,

least none that we are aware of. Our most important clients

while also having a tremendous impact on its QHSE

continue to be the main drilling contractors, specifically

variables.

CP Latina, Oro Negro, Seadrill, and Perforadora Mexico, among others. We also do quite well with a couple of

Q: What are your main objectives for 2016, and what

service companies that have maintenance contracts

upcoming projects do you have in the pipeline?

with PEMEX. TSC Offshore has helped them reduce their

A: One of our main objectives is to survive the difficult

operating costs by offering products with the benefit

environment that we are all seeing in the oil and gas market.

of superior quality, compared to what they have been

We are looking to bring a new product to market, for which

offered, at a much lower cost.

we have high expectations. We are starting to see some activity with it in the US and will soon be marketing it in

We are also offering new services, such as the new TSC

Mexico and all of Latin America. We remain optimistic about

app which gives access to an array of information. This

the market in Mexico, as we know it will gain momentum,

can be done from any smartphone or tablet device.

and when it does, we will be ready to act immediately. We

The application allows users to find TSC’s full range of

will continue to proactively promote TSC and its product and

products, news, presentations, and more. Customers can

service offerings to all our current and potential customers.

121

| VIEW FROM THE TOP

CHINESE OILFIELD SERVICE COMPANY ADAPTS TO MEXICAN MARKET WANG SHENG Marketing Manager of COSL

122

Q: As a Chinese company working in Mexico, what have

service providers, which means we offer more to our clients

been the main challenges and opportunities identified in

than specific providers could. This is also a more cost-

the local market, and what services do you offer?

effective solution, because we provide all the services our

A: China Oilfield Services, or COSL, our parent company,

clients need in a bundle and at a reasonable and competitive

is one of the leading comprehensive service providers in

price. Opting for this type of service also reduces the cost

China, where we cover almost 90% of the market share in the

in terms of management and communication, as clients

upstream oil and gas offshore services. We have four core

only have to work with a single company. With this in mind,

sections, namely Geophysical Services, Offshore Drilling

COSL believes integrated services will become increasingly

Services, Well Services, and Maritime Transport. We have

popular in the current environment in Mexico.

been in the Mexican market since 2006, offering offshore drilling equipment, employees, and crews. Developing

The second advantage we have over other market players

our activities in this region required overcoming various

is that we maintain relatively low production costs. With

challenges. Entering a new country is never easy at first, and

COSL, clients benefit from a cost reduction of at least 20%

the biggest test for COSL in Mexico was communication.

compared to established US or European firms. Thirdly,

In order to ensure an easy transition for our employees

we enjoy a good safety record and reputation throughout

to Mexico, we offer them cultural sensitivity training

the industry. Finally, because COSL is a state-owned

before they are expatriated, and since 2014, our Chinese

company, we have a healthy cash flow thanks to the strong

employees can also undertake Spanish language classes.

support from the Chinese government, allowing us to face

Another challenge we faced concerned the sourcing of

risks and challenges in unfavorable market conditions. In

human capital, but with time, we have become renowned

spite of the adversity, we will maintain our participation

in the Mexican market and no longer need to actively seek

prospects in the deepwater phase of Round One. Five

out talent. Making the most of this opportunity, we now also

years ago, our parent company started developing its own

offer HR services for new market entrants. We have worked

business in this segment, and we continue constructing

in places such as Australia, Indonesia, the Middle East, and

more and more deepwater drilling units in preparation for

Norway, allowing us to offer extensive and relevant training

better times.

programs for employees, both onshore and offshore. Rather than adopting a country-focused approach, we take

Q: Apart from relying on the financial support you receive

a global approach.

from the Chinese government, what is your strategy for continued growth?

Q: How has the low oil price impacted your offerings and

A: Our strategy is to sell one of our ideas to our international

activities?

clients. This approach began in 2014, as we had already

A: Just like it has with any company, the current oil climate

predicted the drop in oil prices to a certain extent. The idea

has brought us its share of challenges. As a response to

is that oil companies should establish close ties with offshore

the fall in oil prices and consequent budget cuts, we had to

service providers. COSL is preparing for this new structure

suspend two out of our eight offshore drilling units, leaving

of partnerships by supporting everything our client may

us with no more than six in the Gulf of Mexico. Nonetheless,

need. We are adopting a reactive approach to the fall in

we maintain a confident and optimistic attitude to the

oil prices and the ensuing budget cuts, showing our clients

future, and for this reason, we have chosen to avoid making

we understand their concerns. We now accept delayed

redundancies. In fact, we are hiring more recruits to prepare

payments, increasingly use financial programs, and help oil

for a future recovery in the market. Our four competitive

companies find financial funds or support from different

advantages allow us to adopt a strategy quite different from

institutes so our clients can maintain their business activities.

that of most companies. First of all, we are comprehensive

We strive to understand client needs and future outlooks.

| INSIGHT

WELL MAINTENANCE TO CUT COSTS More than 50% of the wells drilled in Mexico have some type of mechanical problem, which greatly impacts the day-to-day production of oil or crude. Since the drilling

JORGE GONZÁLEZ

and exploration services are the most sought after services

Director General of ALS

in the industry. According to Jorge González, Director

Wellvention

General of ALS Wellvention, while much of the industry is focusing on drilling for oil, PEMEX is beginning to place 123

importance on repairs and maintenance, with the purchase of a new coiled tubing unit due to the fact that its previous equipment was over 20 years old. Many companies like Schlumberger, Halliburton, and Weatherford have coiled tubing services, and ALS decided to bring the tools to participate in this market and focus on the repair of wells. “Once a company has finished drilling a well and prepares it for production, it will need maintenance within a year and it is easier to remove a coiled tube than a drill,” González asserts. Contrary to common misconceptions, González argues that the industry still has money, but players have begun to invest it differently. “Cash flows are prolonged, and investors have no idea how any of these tools work, focusing instead on ROI, so oil and gas companies now have to carefully analyze how and where they will invest capital,” he declares. “In Mexico, prices are highly biased, but ALS Wellvention has decided to offer an average, because our services, tools, and workforce are of high quality and we are a global company.” González claims companies with

More than 50% of the wells drilled in Mexico have some type of mechanical problem

the most economical prices do not offer the full range of services or an added value, while companies with the

targeting the repair of wells to increase the production

highest prices do not want to invest. Customers are looking

levels, and as a result, the most demanded tools right now

for more than just a quality product, but they want superior

are wellhammers, downhole motors, and shifting tools.”

customer service and support in the event of a problem or mechanical failure within the well.

Although the company is broadly known in the south of the country, the first step for Wellvention in 2016 is to create a

For González, the events in Mexico in 2015 were

greater presence and visibility in the market. Once PEMEX

unprecedented, and although there have been lows,

is aware of its services and personnel, the next step will

nothing has come close to the current landscape. A US$12

be to increase the company’s portfolio with two processes

million market share has been reduced by 70%, and many

called Coring and Omega. These present a significant

companies have been forced to halt operations, even those

opportunity that could be of considerable importance

with many years in the market. The operations PEMEX is

to the industry, as it represents a previously overlooked

currently demanding the most are well cleanings, and

market to develop and exploit. Part of the strategy is

opening and closing of the lining, but most of the focus is

bringing these two divisions to Mexico, supported by

on recovering production, even though PEMEX’s goal for

other areas like drilling. “A few months ago, we proposed

daily barrel production has been reduced. Wellvention’s

the idea of Omega to IMP, which was extremely interested

most popular tools are shifting tools, technology that

in the idea of a joint development of certain technologies,”

involves cleaning with special motors. “Two years ago,

González reveals. “This is also an attractive situation

there were bigger budgets and PEMEX was focused on

for Omega, because Mexico is a country with highly

maintenance, therefore scrappers and overshots were

experienced engineers who have developed prototypes

commonly used,” González admits. “Now, PEMEX is

for innovative tools that will transform the industry.”

| VIEW FROM THE TOP

GAINING ACCESS TO VITAL INTEGRATED SERVICES FOR NEW OPERATORS RODRIGO DE VIVANCO Co-Founder of Kratus Energy

124

Q: What are the main problems in the Mexican oil and gas

Q: What are the main challenges in ensuring that the

industry supply chain that Kratus Energy can help solve?

services offered by Kratus Energy have more value than

A: Mexico has an oil and gas industry but not an oil and gas

the sum of their parts?

market, so there are many opportunities for companies to

A: Let us say that a company needs to hire a directional

come to the country and provide different services for all

drilling contractor. If this company also needs to hire

the value chain, from geophysics to production. Kratus is

a service related to directional drilling, it might incur

trying to bring different companies that can provide the

downtime until they can get the service. Kratus will

various services needed in the energy marketâ&#x20AC;&#x2122;s activities

provide the whole package, so our model allows solving

and work as a consolidating actor for these companies as

problems faster due to our service consolidation. Our

they enter the country.

model is built in a way that allows companies to be able to collaborate with each other, since they are part of a chain.

Kratus Energy's two types of clients are the companies we

Being integrated makes it easier and it helps everyone

represent and the end customers, who are energy-related

save money and time, which is essential when drilling, or

companies. If one of these needs production-pumping

producing. Of course, a number of steps must be taken

equipment, directional drilling services, or logistics, we will

to position Kratus as the most efficient and cost effective

provide a solution. Market conditions have provided the

solutions provider in the Mexican oil and gas industry,

opportunity to consolidate these groups because money

and the first step is the platform. The companies must

is scarce at the moment in the oil and gas industry and

then optimize operations in the right way so that we can

by working together, companies can prove more cost-

provide the services on time with attractive prices and

efficient.

outstanding quality.

Q: What are the unique characteristics of your business

Q: How are you taking advantage of the entry of new

model, in which you bring together several service

operators?

providers to offer integrated services?

A: Mexico went from a single client market to a multi-client

A: We have the technical team and business acumen to

market. As blocks are awarded, many more companies

bring to successful completion many types of projects

will come. The price of oil might not recover this year.

based on more than 15 years of experience in the industry.

Regardless, oil has to be produced and companies will

Logistics will be the most difficult aspect for players

do their best to do so. With this in mind, right now costs

working in Mexican fields, where they will have to deal

are the most important aspect for these companies, and

with landowners, build roads, and be able to negotiate

the players that will enter the country will need someone

with the communities adjacent to exploration and drilling

to help them reduce costs. Kratus Energy has a unique

sites. Some of the companies we already have with us

formula for reducing costs that is built from years of

know how to deal with this, so half the work is already

experience working in the industry.

done for our end customers. Kratus can help a foreign company entering Mexico access all these services and

Kratus Energy will capture not a single company but

consolidate them, and we can also help it establish an

create a significant mass that ultimately contributes to

office in the country for its initial operations. We want

developing the domestic industry. Different sizes and

to help companies come to Mexico and start their

different profiles are in fact our advantage, if properly

business as easily as possible. Kratus is able to provide

managed. We envision private equity funds and other

the services large oilfield service companies offer at

financial institutions ultimately becoming part of the

a considerably lower cost through the integration of

platform in order to consolidate those projects that

specialty companies.

require outside investors.

| INSIGHT

IN SEARCH OF JOINT VENTURES IN NEW MARKET Oscar Suárez, Director General of DM Ingenieros, describes his business as a multifaceted company that offers a wide range of services, from outsourcing and supervision, to

OSCAR SUÁREZ

engineering development. The company is also developing

Director General of DM

a construction and infrastructure division, as part of a

Ingenieros

diversification strategy. In Suárez' view, consolidating the company’s presence in the Mexican oil and gas industry has been a difficult process. However, DM Ingenieros has a

alliances with companies that have the financial and

marketing strategy tailored to each industry, and the firm

technical capacity to tackle larger challenges. Suárez

has identified areas of opportunity as well as limitations. In

says his company is ready to compete in rounds, but he is

order to address these, DM Ingenieros seeks support from

aware that the firm requires support to achieve its goals.

companies that can provide solutions to suit its needs. Suárez tells that the company’s engineering, technical

The quest to position a company as a reliable service

assistance, and supervision activities decreased, which

provider often leads to pursue certifications. DM Ingenieros

is precisely why DM Ingenieros decided to develop other

was awarded the ISO-9000 certification for engineering

areas of expertise. “At the moment, our focus is on the

monitoring, which is divided across several branches, and

development of infrastructure, including exhaust cooling,

the firm recently received certification for the infrastructure

pig traps, and separators. These separators are used to

division, which in turn requires certification of the

dislodge contaminating elements in the crude oil, such as

components within it. Suárez explains this by using the

water, gas, sulfuric acid, and oil.”

example of the company’s separators, which are subject to the ASME stamping certification, and this includes pressure

The engineering firm offers a variety of services for

vessels. “As we broaden our specialties, we must obtain new

offshore applications. Suárez says DM Ingenieros provides

certifications, and our intention is to expand our areas where

infrastructure

engineering,

we are certified, which we have done with enthusiasm in

including design of interconnection lines and platforms.

recent years.” He adds that DM Ingenieros is in the process

“The firm can handle the construction of an entire offshore

of obtaining certification for S stamping in reference to

infrastructure, and although we still lack certain experience

steam processes, as well as for P printing of piping. “This

in terms of exploration, we have seen that greatest area of

is a transition that leads from the technical management

opportunity in the submarine division in Mexico lies in drilling

of a given project to its execution, and engineering

and production structures.” Currently, this type of platform

and supervision play essential roles in implementation,

burns large amounts of gas, meaning that great benefits

meaning that they cannot be overlooked. These areas are

could be derived from its sale, or from the generation of

complementary to our operations’ infrastructure, meaning

electricity. Another problem is the amount of operational

they must be based on international standards, and there

wells that are not connected to the network. “Due to lack

can be no doubt that, as new certifications arise, DM

of government support, the underwater lines for crude

Ingenieros will strive to meet them.” Suárez asserts

services

and

construction

oil required to carry this out have not been developed. Once new foreign companies begin entering the Mexican

Given the specifications of the contracts that PEMEX is

market, it will be more expensive, and more challenging for

issuing, mid-size companies are seeking to create alliances

companies such as DM Ingenieros to compete,” he worries.

with multinational companies that have greater financial and technical capabilities. Suárez finds the contracts

When it comes to constructing marine infrastructure,

offered to be lucrative, but these often require billions

Suárez claims DM Ingenieros is a company that generates

of dollars, forcing companies such as DM Ingenieros

fewer costs for its customers than the competition. “It is

to create alliances. “Added to this, the reluctance of

difficult to find a company operating at the levels we do,

financial institutions to provide credit plays an important

at the same competitive cost. We are a company with

role in creating strategic partnerships with international

promising development opportunities, with staff that has

companies,” he highlights. In terms of the new criteria issued

extensive industry experience, having worked in some of

regarding local content, this could present a considerable

the largest companies in the sector,” he boats, adding that

opportunity for DM Ingenieros, especially when looking to

this knowledge has allowed DM Ingenieros to consolidate

work in partnership with foreign multinationals.

125

DEVELOPMENT & PRODUCTION

The decline of Cantarell, which was Mexico’s most productive field for decades, has negatively affected the national petroleum output, but was partially compensated by production increases in other fields in PEMEX’s portfolio as a result of its diversification strategy. While Cantarell produced 227,000b/d in 2015, Ku-Maloob-Zaap remained at its production plateau and yielded 853,000b/d. The long-awaited production from Ayatsil-Tekel amounted to 3,000b/d, which serves as a starting point for a rapid production increase in 2016. Over the past year, PEMEX has focused on its most profitable and productive assets while slowing down investment in high-risk activities, such as deepwaters, in order to remain solvent in a low oil price environment. Following the launch of Round One, PEMEX is no longer solely responsible for increasing Mexico’s hydrocarbon production level as private operators will gradually bring their newly obtained fields into production.

This chapter describes Mexico’s production strategy and highlights, paying close attention to PEMEX’s priorities as a productive enterprise of the state. It will also look at the plans and operations of private companies, both operators and service providers, and how these aspire to help Mexico increase its production level.

127

| CHAPTER 5: DEVELOPMENT & PRODUCTION 130

VIEW FROM THE TOP: Juan Javier Hinojosa, PEMEX E&P

132

VIEW FROM THE TOP: Luis Vielma Lobo, CBM

133

VIEW FROM THE TOP: Vernon Murray, Emerson

134

VIEW FROM THE TOP: Lo Van Wachem, ADIL

135

INSIGHT: Edward Hernández, io Oil & Gas Consulting

136

VIEW FROM THE TOP: Carlos Sandoval, Arendal

137

INSIGHT: Juan Manuel Pineda, McDermott

138

VIEW FROM THE TOP: Peter Armstrong, HB Rentals

139

VIEW FROM THE TOP: Manuel Flores Buendía, Taylors

140

TECHNOLOGY SPOTLIGHT: Petrotek, iStore

141

VIEW FROM THE TOP: Arturo Flores, Hempel

142

VIEW FROM THE TOP: Regina Oliveira, Dow

143

INSIGHT: Richard Blackett, National Oilwell Varco

144

INSIGHT: Gabriel Dávila, Hoerbiger

145

VIEW FROM THE TOP: César Ruiz, Tekna Services

146

VIEW FROM THE TOP: Coen van Munster, Petrogas

Maurice van der Meer, Petrogas

147

INSIGHT: José Luis Uriegas, Grupo Idesa

147

PROJECT SPOTLIGHT: PB-Litoral-A, McDermott

129

| VIEW FROM THE TOP

STRIKING A PRODUCTION AND SAVINGS BALANCE JUAN JAVIER HINOJOSA Director General of PEMEX E&P

130

Q: What has been the impact of the recent budget cuts

portfolio such as deepwater assets, extra-heavy oil fields,

on PEMEX’s production outlook in the short and medium

and unconventional reservoirs, which require costly

term?

technology compared to the conventional reserves we

A: PEMEX Exploration and Production will contribute to

have in the shallow waters fields and onshore fields.

the budget cuts with a reduction of almost MX$47 billion.

PEMEX is focused on improving project execution and

Although it is a substantial reduction of our original budget

therefore is reviewing different processes in our value

the impact on oil production output has been minimized.

chain to deliver more efficiency in the execution of new

The strategy is to generate efficiencies and reduce costs

projects. For example, PEMEX is reviewing the processes

in order to allocate the budget to the most profitable

to optimize drilling cost, improve efficiency of offshore

production opportunities. The estimated production for

logistics, and increase well productivity.

2016 is 2.13 million b/d. We expect to maintain production at the current levels for the next few years but PEMEX’s

Q: What has been the evolution of PEMEX’s production

production platform will depend on the price evolution

and development costs since 2014, and how is this

and the CAPEX available. The strategy being implemented

benchmarked against IOCs and NOCs?

by PEMEX is focused on three elements. Firstly, PEMEX

A: The increment of production costs from 2010 to 2014

will develop the most attractive onshore fields, which will

was due to the high cost of services and more complexity

allow the NOC to take advantage of existing infrastructure

of the fields due to the fact that they are mature fields.

and deliver production in the short term. Secondly, the

The production cost for 2015 is almost US$10/boe,

development of recent discoveries is in the process of

an increment that is due basically to the addition of

optimization with the purposes of reducing cost and starting production in the short term. Finally, we are improving the process of reservoir management in order to mitigate the decline of base production. The program considers a strict monitoring of the reservoir and well performance as well as an intensive workover program. Q: What criteria are used in the selection of fields and projects where planned investments will be deferred to achieve MX$27.5 million cost saving without impacting the short term production? A: The selection of deferred projects considers the generation of economic value and the risk involved in its execution. We delayed activities in exploration that deliver reserves in the long term, like activities in deepwater and unconventional areas. In addition, we deferred activities in high-cost projects. The activities in the development of the Lakach deepwater gas project and extra heavy projects like Ayatsil-Tekel-Utsil were delayed until the price scenario improves. The main challenge is to develop profitable projects under the scenario of limited budget yield by low prices. Therefore, the strategy is to delay the development of the more complex reserves of PEMEX’s

a royalty that was not included prior to 2015. The total

required technology to optimize production and increase

effect of this royalty accounts for almost US$3/boe.

ultimate recovery. PEMEX’s objective is to become one of

Therefore, if we consider similar conditions for 2015 with

the main producers in deepwater in the long term, so it

respect to 2014, the production cost was almost US$7/

is looking to partner with the most important operators

boe, which is a reduction of more than US$1/boe in the

in this segment and develop the capabilities to become

production cost. These results were obtained because of

one of the main players as quickly as possible. In summary,

the optimization of several processes and we expect that

PEMEX’s strategy is to attract partners both for new

additional reductions can be obtained in the future. In

developments, which are extremely complex, and to

terms of the development cost for 2015, we expect this to

optimize production of legacy assets to increase ultimate

increase because low prices affected the new addition of

recovery. I believe there are plenty of opportunities in the

proven reserves. Once the reserves certification process is

PEMEX portfolio, and we want to take advantage of the

completed, the final cost will be released.

new mechanisms established by the Energy Reform in order to attract more partners. 131

The international benchmarking of costs has not been completed for 2015 but based on preliminary figures,

Q: What is the strategy being implemented to keep Ku-

PEMEX’s production cost will continue to be one of the

Maloob-Zaap at its current production plateau, and what

lowest in the industry. In terms of finding and development

new technologies will be implemented to achieve this

costs, we expect that PEMEX’s cost will rank in the second

objective?

quartile and the NOC’s efforts will be concentrated on

A: The main strategy is based on a strict control of

improving this. The current low price scenario represents a

reservoir and well performance in order to minimize

substantial challenge to launching new projects, so we are

decline rate of existing production. Gas reinjection will

optimizing different processes in order to execute these

be implemented as a complement to nitrogen injection

projects, add more reserves, and improve the finding and

for pressure maintenance. In addition, newly designed

development cost.

wells will be drilled in order extend their economic limit of production by delaying water or gas eruptions, and

Q: What is the possibility of PEMEX increasing its

artificial lifting methods are being optimized to keep

hydrocarbon production without farm-outs?

operations stable. Electric submersible pumps are being

A: The production increment is feasible if additional

installed, so combined with gas lifting methods, this will

execution capacity, technology, and financial capabilities

guarantee the operation of producing wells. In order to

are implemented to develop new reserves. Therefore,

improve water handling, we will install a dewatering and

the challenge is to define the opportunities that can be

desalination system with electrostatic technology, with a

developed under the current circumstances and guarantee

capacity of 200,000b/d. Finally, PEMEX is also analysing

that they are profitable under any adverse price scenario.

new potential areas that can be developed in the next year,

PEMEX can increase production, but CAPEX is limited so

and as a result the NOC acquired seismic information to

the expected growth under this situation would be very

define the areas that will be added to the development

slow. Therefore, farm-outs are a mechanism to accelerate

plan of Ku-Maloob-Zaap.

the development of new projects by bringing in new technologies that, combined with our expertise, would

Q: What will be the anticipated production contribution in

increase the economic value of our projects. In addition,

2016 of fields under development or recently producing,

increased CAPEX will be added from potential partners,

and their anticipated short and medium-term contribution

which would help to deliver production faster than PEMEX

to Mexico’s production portfolio?

could by itself.

A: The production of new fields for 2016 is minimal because

limited

CAPEX

available

for

2016,

Q: What are PEMEX’s objectives and trade-offs in selecting

development is not possible at this time. However, we

fields for farm-outs in terms of attracting investment,

expect that new discoveries will contribute in the next few

production technology, and execution capacity?

years with at least an additional 10% of current production

A: PEMEX’s strategy is to attract partners for developing

levels. Onshore fields are key assets in PEMEX’s strategy

mainly high-cost and complex reservoirs. Therefore,

for future production since there are existing facilities

PEMEX is analysing both situations. PEMEX selected

in close proximity to these fields, and taking advantage

extra heavy and deepwater fields in the first set of farm-

of this situation, PEMEX can deliver production faster in

outs, which require more technological capabilities than

onshore fields than in offshore fields. Therefore, PEMEX is

conventional reserves for development. Similarly, we

updating development plans of onshore fields in order to

chose some medium size mature fields, which are not

take advantage of all available opportunities and maintain

as important as Cantarell and Ku-Maloob-Zaap but that

competitive costs.

| VIEW FROM THE TOP

CHALLENGES AND OPPORTUNITIES WITHIN THE NEW FRAMEWORK LUIS VIELMA LOBO Director General of CBM

132

Q: When do you believe Mexico will be able to regain its

not only the right people in terms of competence, but also

production levels of 2.5 million b/d, and later 3 million?

the multidisciplinary team approach to maximize the value

A: I predict that Mexico will begin to reap the benefits of

creation of each opportunity. The same example applies to

the opening of the oil industry in around three and a half

production optimization, because that is the fundamental

years. In terms of production levels, when using Venezuela

aspect of the business. Each field has a large number of

as an example, this country required six years to reach

productive wells, but some of these wells may have various

450,000b/d under the same model, and in Colombia

problems that affect their real potential, and in many cases

and Brazil, this took six to eight years. Judging by these

the wells collapse. For that reason, monitoring is crucial

timescales, it may take Mexico around six to seven years to

and CBM has developed evaluation methodologies,

get to this level, with another year or so required to reach

engineering solutions, and repair processes. Finally CBM

an additional 1 million barrels. The target of 2.5 million is

has developed other types of projects related to talent

not considerably far off, and I predict we can reach this

development, contracting strategies, and asset evaluation,

level between 2020 and 2021. After that point, it would

among others.

depend on resources, but a conservative prediction to reach 3 million barrels would be around 2024 to 2025.

Q: In the case that PEMEX was unable to adapt adequately to the market conditions, what would be the fallout from

Q: What is the current position of Mexico in the global oil

its capitulation?

industry, and how will the opening of the industry impact

A: I believe it is going to take at least two more years for

its standing?

PEMEX management to fully understand the kind of change

A: For several years during the 1990s, the country was

the company requires to be competitive in a completely

considered within the top ten countries in terms of reserves,

new arena. International companies will be working and

production, and markets, and PEMEX was always considered

producing in close proximity to PEMEX and in some fields,

within the top ten national oil companies. Reaching a

they will act as partners through the farm-out processes.

production of 3.4 million b/d in 2004 and maintaining more

The life of the industry is cyclical, and although new players

than 3 million b/d from 2000 to 2005 have been outstanding

will come into the market, I do not believe that PEMEX will

achievements for the country. However, for the last ten

capitulate totally, but within the next three to four years, the

years, Mexico has entered a spiral of production decline

face of the company will have changed completely.

that has reduced its production capacity to 2.3 million b/d, mainly due to the extreme decline in production of its main

Q: How can the regulations facilitate processes for CBM

field, Cantarell. The reform process has placed the country

and other companies across the oil sector in Mexico?

in a state of uncertainty, because it opens the oil industry

A: Regulations are going to be the heart of the oil sector

to private investment, and restricts PEMEX obligations

development in the future. CNH has been working

to certain areas allocated to the NOC during Round Zero.

intensively to establish a complete regulatory frame that

Although PEMEX received more than 80% of the existing 2P

covers all the components of the E&P value chain, which

reserves and close to 30% of the 3P reserves, this marked

will set the practices to be followed for all the companies,

the end if its 70 year monopoly.

including PEMEX. CNH has been extremely strict with the regulations for reservoir, well drilling, well identification,

Q: What is the main focus of ongoing projects with

and well integrity in addition to all the security and

PEMEX?

environmental themes. The framework follows international

A: Mainly, the projects are related to engineering processes.

regulatory practices that will not represent any obstacles

It is important to have an adequate methodology to

for entering companies, as they are accustomed to the

develop the well planning and engineering design that has

standards in other countries and regions.

| VIEW FROM THE TOP

US EXPERTISE EXPORTED TO MEXICAN MARKET VERNON MURRAY Vice President and Director General of Emerson

Q: What are the key aspects that Emerson has used to

during the operation of Mexican fields. For this initiative,

introduce the “perfect execution” initiative?

Emerson put the instrumentation in place and organized

A: One of the keys for successfully introducing the

some training to ensure that the variables were properly

“perfect execution” approach is the early engagement

read, helping to improve the operation of the wells. In

of all the players involved in the project, including the

the national industry, it is well known that there is a high

end customers and the EPC companies. For instance,

content of water associated with the oil being extracted

the automation tasks for reconfiguring a refinery can

from mature fields. For this reason, Emerson provided

represent up to 7% of the total work needed for a project

the equipment and training solutions for measuring water

of this kind, involving the construction of several cabinets

content, allowing PEMEX to react accordingly to the

with a considerable amount of cabling and signaling that

values that are identified in a particular well.

need to be configured. With electronic marshaling, an innovative design that Emerson has been mastering for

Q: Can you provide examples of lessons learned from the

years, the refinery could significantly reduce the amount

US shale boom that Emerson can apply in Mexico?

of cabling and signaling associated with this type of

A: North Dakota is a strong base for our Rosemount

cabinet. Moreover, the system facilitates the late changes

pressure transmitters, with which we have collected

around I/O requirements that may occur at different

an important amount of knowledge about pressure

stages, saving time and avoiding startup delays.

measurement in wells. When the pressure of a well is properly measured, the well’s oil and gas extraction rate

Q: What are the lessons learned from the company’s joint

can then be incremented. Apart from North Dakota,

venture with PEMEX in this area?

we have proven our expertise in other locations with

A: There is a need to centralize the information circulating

companies such as Schlumberger and Halliburton, which

between the EPC companies, suppliers like Emerson, and

both have a strong presence in onshore sites in Mexico.

PEMEX, the end customer. If information is withheld by any

In this way, pressure measuring is one area of expertise

of the parties, the results of the project are not likely to be

that we have brought into the Mexican market. Another

favorable, so it is crucial to guarantee that the information

example of knowledge transfer is the work that we

is centralized and easily accessible to all those involved.

performed in collaboration with CNH for developing

There is strong competition among solutions providers

national parameters of measurement certainty based on

for the automation market in Mexico, but for us, being a

international standards.

trusted advisor means using our technical capabilities to advise our partners in more streamlined operations. For

One application in which our expertise can be valuable is the

example, we can advise companies on how to improve

cash registers that will be used to measure the quantities

their EOR techniques in the fields that they are going to

private companies are selling to PEMEX or placing into the

operate in Mexico since Emerson obtained a tremendous

oil and gas market, and which will need to comply with a

amount of knowledge and experience working with EOR

defined certainty level set by CNH. In this specific area,

during the shale gas boom in the US.

Emerson can help with the selection of an appropriate technology to meet the certainty guidelines provided by

Q: What are the highlights of Emerson’s participation in

CNH. The company can also conduct the installation of the

helping PEMEX improve its production levels?

equipment to ensure that this is carried out in time and

A: In Mexico, one of Emerson's initiatives consisted

with the right mechanical and structural integrity. Emerson

of highlighting the importance of measuring key well

can help the companies with the equipment startup and

parameters, such as pressure, temperature, and level

decommissioning, and provide them with all the required

flows, as it was found out that they were being neglected

life cycle services for that particular solution.

133

| VIEW FROM THE TOP

OFFERING NEW PERSPECTIVES FOR NEW FIELDS LO VAN WACHEM Vice President Mexico, and Global Manager of Projects and Developments of ADIL

134

Q: How does ADIL support newcomers in the oil and gas

that the system is rooted in our server, and we take care of

industry?

the maintenance for them.

A: ADIL is a ten-year old company that offers full life-offield consultancy services for the oil and gas industry.

Q: What would you consider some of your biggest

We offer support across all stages, from exploration,

international success stories?

through development and production operations to

A: In 2007, we deployed a five-person team in the North

decommissioning. Our clients generally have no idea how

Sea on a US$2 billion development in the harsh weather

to develop projects that could provide the greatest value,

conditions west of Shetland. The Dana-operated project

so we are present from the initial processes. The company is

sought to develop two discovered oil fields, with a subsea

relatively unusual as it does not own equities in oil and gas,

development of at least five production and four water

or participate in production itself. The assistance we offer

injection wells plus two exploration wells tied back to a

is generated from our offices in Aberdeen and London.

newly built FPSO with oil export using shuttle tankers.

Providing support for entering players usually means

ADIL worked with Dana on the project select phase,

working on limited projects that have technologically

considering a number of alternatives including tieback to

and commercially challenging fields, and in this respect,

a leased FPSO, before deciding on construction of a new

innovation helps us improve production efficiency. Lately,

build FPSO. We undertook overall management of the

there has been an increase in due diligence work requests

execution plan including supervision of construction of

around asset acquisition either in bidding rounds or expert

the FPSO in China, integration of subsurface and drilling

witnessing.

into an integrated development plan, developing the project contracting strategy, and taking responsibility for

In 2007, we deployed a five-person team in the North Sea on a US$2 billion development in the harsh weather conditions west of Shetland

subsurface, drilling and wells, subsea activity, facilities, and operations. Q: What are some of the most significant challenges operators will encounter in the development phase? A: The biggest challenges they face will be community issues, and a shortage of experienced people in Mexico is certainly problematic for companies in the industry. CNH estimates that it will need thousands of engineers in the next five years, a gap that will be difficult to satisfy. Lastly,

Q: What are the characteristics of the individualized

understanding how to access existing infrastructure and

management system that ADIL offers?

negotiate clear terms will be particularly problematic,

A: Our services are part of an exhaustive development

as players must consider the conditions, reliability, and

management program that varies from exploration to

access opportunities that are available before making

developing and operating fields, and managing partners.

an investment in order to guarantee smooth processes.

Our stage gate system is tailored toward the type of

With Mexican partners, ADIL is in the process of providing

development stage of a given client, because first time

diligent infrastructure assistance clients may have to

developments require a different approach than a billion-

use in the future in order to make sure they receive

dollar project. ADIL operates with an internal system

reasonable fees for using their equipment and include

that fits the norms of an operator. Through personal

details about maintenance, inspections, and repairs. We

experience, our company can easily teach our clients how

see considerable potential for the development industry in

to use it, with best practice procedures. Players appreciate

Mexico and we hope to be heavily involved.

| INSIGHT

A SUSTAINABLE FUTURE FOR OFFSHORE PROJECTS Io Oil & Gas Consulting is an independent entity whose recent creation came as a result of a collaboration between

EDWARD HERNÁNDEZ

McDermott and GE Oil and Gas, and it is concerned with

Vice President of Operations

grappling with the legacy of inefficiency in the planning

for the Americas of io Oil &

and execution of offshore projects. As Edward Hernández,

Gas Consulting

its Vice President of Operations for the Americas puts it, “When the market was selling oil at US$80-100 per barrel, operators could work in the same old ways but at US$30-

integral solutions package that they offer their clients.

60 a barrel companies are forced to become increasingly

"Companies

efficient and find new ways of working.”

businesses and maximizing value of capital. Operators are

are

outsourcing

operations

other

leaning toward service contracts to avoid high-capital out The firm is greatly concerned with the way offshore

of pocket investments,” Hernández explains. The routes

projects hinder the integration of their engineering and

of investment in the industry are also changing in ways

procurement planning divisions by having departments

relevant to operators and to companies such as io Oil &

and companies employed for different aspects of a

Gas Consulting. “Entities are also less likely to invest in

project’s EPC work, in what he is quick to refer to as

high development cost assets such as in remote area, oil

“silos”. This term refers to organizational structures

shales, or places with extraordinary operating conditions

of isolation that do not contemplate the way in which

without more certainty, which is exactly what io Oil & Gas

comprehensive communication between these divisions

Consulting is trying to bring to clients,” he points out.

could result in a much more needs-based and efficient approach to sourcing and design of engineering plans.

Mexico represents an important segment of activity for

As a consequence, Hernández believes, “The owner ends

io Oil & Gas Consulting, and Hernández is positive about

up having assorted teams that are devising separate

its future. “Our company views Mexico as a primary focus

strategies around subsurface, subsea, and facilities.

and as the most important Latin American market at the

Engineering companies are separated from equipment

moment.” The firm is particularly interested in the ways in

providers that have experience and know what is required

which it can assist the NOC in handling its transition into

technologically in the design. This execution philosophy

this new market. Hernández specifies, “PEMEX is facing

often causes delay and rework, and is more likely to arrive

the challenge of developing fields that have complex

at a solution that is not very cost effective.”

fluids, deeper water depth, and tougher environmental regulations. Utilizing the best technology, methodologies,

Io Oil & Gas Consulting is also identifying trends among

and industry knowledge in order to meet these challenges

offshore operators that can be implemented into the

will be key, and io Oil & Gas Consulting can offer that.”

135

| VIEW FROM THE TOP

PROVIDING INTEGRATED MEXICAN EPC SERVICES CARLOS SANDOVAL Commercial Vice President of Arendal

136

Q: Where does your main differentiator lie, and what are

Q: How do you source your employees and ensure they

your most emblematic projects?

are up to date on the latest industry standards?

A: Arendal has emblematic projects in the downstream,

A: We recently opened Oaxaca’s first school of welders for

midstream, and upstream segments. In downstream,

the use of PEMEX in conjunction with the local community.

we have two main projects, namely the ultra-low sulfur

In agreement with the NOC, we are providing all of the

diesel project that we are working on with AMEC Foster

equipment and teachers in Salina Cruz, Oaxaca. We

Wheeler for the Salina Cruz refinery, which will significantly

are effectively creating the labor force we will need to

boost economic development in the area. We are also

achieve the next step, while being socially responsible and

reconfiguring a catalytic conditioning plant in Minatitlán, and

nurturing the growth and development of a community.

although this is a medium sized project in economic terms,

Furthermore, we also have a program called Professionals

it is an extremely complex one that focuses on the heart of

in Development whereby we hire 60-70 of the brightest

the refinery. In the midstream sector, we are completing the

young professionals from various universities and allow

Los Ramones project in collaboration with an international

them to rotate throughout the various layers of our

consortium. In the upstream segment, we are working on the

company, undertaking different positions, each of which

construction of a gas collection station in Lakach, which is a

lasts six months. Our trainees can then decide in which

tie back to shore-type projects where all of the extraction is

area they would like to begin their career. Finally, last year

carried out at a depth of 1,500m and the gas is sent directly

we launched Arendal University with specialized programs

to land without having to pass through any platforms. We

to train our people.

are building the collection facility that controls, centralizes, and coordinates the gas extraction. One of our biggest

Q: What is your M&A strategy planned for the Mexican

achievements for 2015 was the acquisition of the Mexican

market and the rest of Latin America?

branch of In-Dive, an international firm specialized in

A: Arendal prefers organic growth. In this specific case,

offshore submarine construction.

we chose to carry out the acquisition of In-Dive because we needed to obtain certain capabilities in the short term.

Q: How is Arendal transitioning from an EPC company to

The timeframe that we had to develop that capability

a developer?

had passed, and we needed it to secure a certain place

A: The main challenge has been changing the perception

in the industry, which is why we turned to non-organic

of our work. As a developer, we will no longer approach

growth methods. In the future, we will not resort to this

a project as a finite job, but rather as a long-term

option for growth, but rather for the acquisition of certain

investment. This changes our areas of investment, our

capabilities within a specific timespan. We understand that

expectations, and the impact of our activities on different

we can contribute to other companies with knowledge,

stakeholders. The Energy Reform served as a catalyst for

expertise, and national content. Our focus is currently

the company’s decision to become a developer since an

on expanding our developer business in the oil and gas

open sector and the need for investment created the right

industry, and expanding our EPC presence in the offshore

scenario for us to go after this type of project. We started

market through our acquisition of In-Dive, using a pay-

out as a specialized contractor 20 years ago doing civil

by-service approach. Our main markets for expansion

work. We quickly grew in revenue and complexity, and our

will be offshore, O&M, and EPC projects, and our third

main strategy today is to undertake complicated projects,

priority will be to further our investment in the industry.

which is where we believe we can add extra value. In our

Moreover, we are going to reopen our power generation

company, we have people from various industry sectors,

and transmission segment as part of our expansion plan.

including CEMEX, Vitro, and Aeroméxico, and different

In terms of projects, we will look to undertake extremely

parts of the world.

complex developments, as this is our area of expertise.

| INSIGHT

MEXICO IS EPC’S KEY TO THE ATLANTIC MARKET With the Energy Reform looming in the mid-2000s, McDermott, a global EPC leader in offshore and subsea

JUAN MANUEL PINEDA

developments, saw an opportunity to become more

Vice President of Mexico,

competitive by serving the Atlantic market as well as

Latin America, and the

both sides of the Gulf of Mexico with a new, shore-

Caribbean of McDermott

side yard in Altamira, Tamaulipas. Juan Manuel Pineda, McDermott’s Vice President of Mexico, Latin America, and the Caribbean, stresses that Altamira plays an extremely

Out of all the projects McDermott has carried out in

important

Mexico,

role

within

the

company’s

international

Pineda

believes

the

PB-Litoral-A

platform

investment portfolio, as it is one of its three main global

in the Tsimin-Xux fields serves as the best example

pillars. The other two yards are situated in Jebel Ali, near

of the company’s capabilities. The project involved

Dubai, which principally serves the Middle East and India,

engineering, procurement, construction, transportation,

and in Batam Island, located in Indonesia, which responds

and installation, all of which was carried out directly by

to the needs of the Pacific region and Southeast Asia.

McDermott. “The basic engineering work was conducted

The Altamira yard is the company’s primary base for the

by our office in Houston, while more detailed engineering

supply of projects in the Atlantic Ocean.

was left to our Chennai office in India,” Pineda shares. Procurement was shared between the Houston and

The Mexican offshore sector will see heightened activity

Mexico offices and the fabrication was carried out entirely

due to the blocks awarded in Round Zero and Round

in the Altamira yard. The main structure was transported

One. Pineda claims that if the market were suddenly

using McDermott’s Intermac 600, and the Derrick Barge

to require more capacity, McDermott would be able to

50 was used to install the structures and execute the

nimbly respond to that need once its current projects are

float-over, a technology in which PEMEX is now investing

concluded, as the Altamira yard is being built in various

after McDermott introduced it in Mexico. “The float-over

steps. “Expanding the yard would simply require us to build

operation involves constructing the platform in the middle

on what we already have, and in fact, the engineering work

of the ocean rather than onshore. PEMEX awarded us the

is practically completed.” Although McDermott’s Altamira

first contract for float-overs at the end of 2012 for the PB-

yard is considered to have the greatest capacity in Mexico,

Litoral-A project. This allowed PEMEX to become slightly

the company is ready to invest in its expansion if needed.

more independent from its suppliers, as there are now

Pineda notes that there are yards of similar capacity in

various ways to install its platform.” The EPC company is

both Altamira and Tampico, but these do not have as

now working with PEMEX on the offshore commissioning

many prefabricated workshops, meaning that in terms of

process of the platform so that operations can soon be

productive man hours, McDermott is one step ahead.

started. “One of the particularities of this project is that McDermott was able to provide all services surrounding

The Altamira yard was built to respond to the potential

construction activities throughout the full three-year

needs of any client regarding deepwater projects, an area

duration,” highlights Pineda.

in which McDermott has plenty of international experience. Pineda explains that deepwater platforms have specific

Pineda says that McDermott’s work depends to a large

infrastructure requirements, as they need a floating part

extent on its clients and their ability to invest, a strength

called a hull. “Since these need to be built in a shipyard, a

highly linked to the price of oil, and at the moment, the

resource that Mexico does not have, they are generally

turbulent environment poses many difficulties to market

sent to us from East Asia. The superior structure is called a

players. Fortunately, McDermott signed a few contracts

topside, which consists of modules used to generate energy

back in 2012, before the price of oil fell, ensuring projects

or process oil and these components can be built in Altamira.

throughout 2015. In addition, the company was able

We expect these construction activities to begin in seven to

to renew one of its contracts with PEMEX. “We are

ten years, as there are several steps to be taken beforehand.

withstanding the storm by continuing previous projects.

Until then, we will continue our focus on shallow water

It is important for companies to realize this industry

infrastructure.” Pineda expects substantial work in the Bay of

requires a long-term focus, and in difficult circumstances,

Campeche, which has many fields, and also in all the blocks

companies must adapt and withstand the challenges,”

allocated in the different phases of Round One.

Pineda advises.

137

| VIEW FROM THE TOP

FARSTAD ALLIANCES IDENTIFY INDUSTRY LEADER PETER ARMSTRONG Former Vice President of Business Development of HB Rentals

138

Q: How have you diversified your client base in Ciudad

and it highlights the importance of successful project

del Carmen and Villahermosa?

management in the execution of offshore projects.

A: Transferring our capabilities to Mexico’s onshore sector is a diversification effort. We have one service center in

Q: What kind of projects do you hope to be working on in

Ciudad del Carmen that will easily service and support the

Mexico when industry activity regains momentum?

country’s southern region, as well as a number of centers in

A: One of the benefits for any company when going through

southern Texas that could service northern Mexico, should

a cycle like this is that it is forced to look more broadly and

opportunities arise. Given the expansion of the country’s

understand what the market opportunities might be. One

pipeline network, we believe this is a real possibility. We

of the strongest markets we have identified in the long-

opened our Ciudad del Carmen service facility in 2013, and

term might be offshore wind. This development is already

previously, we supported the local offshore industry for

relatively strong in the North Sea and is now beginning to

decades from Louisiana and Texas. We achieved a strong

grow in popularity in the eastern US. We believe it is only

volume of rental business in the offshore market to the

a matter of time before it arrives to Mexico, as the country

point where it was advantageous to expand the Ciudad del

is interested in renewable energy. Pipeline construction

Carmen facility with the goal of increasing the service level

is another opportunity that we are actively investigating,

for our rental base of offshore accommodation installations.

along with the maritime industry in general, and we have

Once we established our local base of operations we

already undertaken a variety of projects in this market. As

developed more products for the Mexican market and

Mexico goes through the transformation of deregulation,

started using them in the onshore market as well. Since

we believe the country will receive significant economic

then, we have continued to leverage and expand.

investment, which goes hand in hand with innovation. The key market driver will be cost of production, and

Q: Which creative solutions have you developed as a

in this regard, Mexico is competing with Saudi Arabia,

response to the challenging market environment?

Russia, Venezuela, and all other NOC markets. In order to

A: One example of our capabilities is the Farstad project.

compete in the global market, Mexico has to embrace new

The company took a calculated risk in winning the

technologies and lower its production cost.

inspection, maintenance, and repair bid to bring one of its vessels from port in Norway to Mexico, and contacted

Q: What could your expertise bring to the deepwater

us, among other offshore accommodation providers, so

segment?

that the vessel could be modified with a TLQ installation

A: Although there are only a handful of competitors in

upon its arrival. For this to be possible, we asked them

the offshore accommodation industry, the deepwater

to divert the Far Sentinel to Newcastle, England, which is

sector has an even more limited number of temporary

near our Aberdeen facility, to carry out a site survey. We

accommodation providers, given the strictness of the

quickly gathered the necessary technical information and

regulations and the more challenging risk factors. We

transferred it to our US facilities as the vessel was sailing

believe HB Rentals is one of the strongest, if not the

to dock at the Port of Fourchon, Louisiana, where there

strongest, when it comes to deepwater support capability.

are several offshore accommodation suppliers. Farstad

One of the aspects that makes the offshore market easier to

interviewed a number of companies and eventually

support is there are only a finite number of companies that

selected us, after undergoing a lengthy qualification

have the expertise to service it, regardless of the specific

process. We carried out the installation for the Norwegian

geographic region. As new regions and basins open up

company in the US port, which is typically a challenge

with the various rounds in Mexico, the large international

when a vessel is under contract and adhering to a strict

vessel and oil field service companies will incorporate us

schedule. The Far Sentinel project is not an isolated case,

into projects as part of their strategic supply chain.

| VIEW FROM THE TOP

CATERING TO ROUND ONE WINNERS MANUEL FLORES BUENDĂ?A Country Manager of Taylors

Q: What role does Mexico play in your global portfolio,

A: In 2015, our sales were composed of 50% PEMEX and

and how is this evolving with Round One?

50% private players, but in 2016, I believe that 30% will be

A: We operate in Mexico and in the US, and we plan to make

PEMEX and the remaining 70% of business will come from

strategic commercial alliances with the US companies

private companies. PEMEX also has multi-year contracts,

before they enter the Mexican market, therefore gaining an

and our contract runs from 2014 until 2017, but with these

advantage. Right now, the focus is on finding out PEMEXâ&#x20AC;&#x2122;s

other companies no mistakes can be made as contracts

plans, and once we have that information, we will be able

can be terminated at any point. We have a quality control

to develop the correct strategy. At the moment, we also

team that always oversees our operations, and success is

want to concentrate on those entering in Round One and

measured by baseline indicators to help us to continue

Round Two, and map the kind of participation we want to

improving our services. We are constantly striving to offer

attract for this year.

new features, with updated menus and healthier meals, while taking into account the habits and preferences of the

Q: To what extent do you take into account culture, and

workers. It also helps that we have a global presence, as

what role do you have in adapting the local offering?

generally the practices and standards on an international

A: What we offer depends on the clients, for example we

scale are much higher than those in Mexico. We have to be

cater to any dietary restrictions, and we can provide gluten

aware of the standards and requirements companies bring

free, vegetarian, and halal options. After we obtain the

with them and customize our services to those levels. In

contracts, we hold meetings with operations staff on the

terms of budget, regardless of the size of the company,

platforms in order to establish dietary requirements and

the budgetary restrictions cannot be presumed and

desired style of food based on the workforce. We agree

sometimes major companies have small budgets for these

on a meal for each day of the week from a different part

kinds of services, especially in current market conditions.

of the world, meaning that for at least one day per week, each staff member should be able to eat the type of food

Q: Speaking of the budgetary restrictions, how have

to which they are accustomed. At the end of the week, we

Mexicoâ&#x20AC;&#x2122;s recent cuts impacted your company, and which

gather feedback from the workers and substitute, when

services will see a drop in demand?

necessary, any unpopular styles of food with any requests.

A: All the companies that are entering will require catering

From the medical center, we obtain information about

services, and this is a promising opportunity for us. It is

the demographics to which we are catering, such as age,

important to create a market and generate as many clients

nationality, weight, and dietary restrictions. We also have

as possible, as the profit margin on this type of service

nutritionists designing our menus so they are carefully

is minimal. Right now, we have been affected by PEMEX

tailored to provide nutritional, tasty food for the workers.

redundancies since, of the 60 or 70 platforms that were

We redesign menus based on weather conditions, for

operating, 15 have closed, having a significant effect on

instance, and if the employees are working in extremely

offshore E&P activities. However, in 2016-17, we hope that

hot temperatures, we offer menus with a higher caloric

new companies will enter, and the demand for our services

content to compensate for the amount of energy burned

will increase with a renewed E&P focus. We also hope for

and the amount required to effectively carry out their

a greater profit margin, as PEMEX consumes extremely

work. Each week, the medics on the platforms are given

high volumes so the margins are low. Normally, the ratio in

the menus and they sign to confirm medical approval

the private market is 1:10, but with PEMEX the margins are

regarding the nutritional content.

squeezed to 1:5, so the cost to the company is extremely high. Hopefully, when the PEMEX structure is more secure,

Q: What percentage of participation do you hope to

the contracts we can offer it will be similar to the terms

achieve from PEMEX?

offered to private companies.

139

| TECHNOLOGY SPOTLIGHT: PETROTEK The lack of integration of data management tools has

optimizing decision-making, it also improves NPV. The

created many headaches across the industry, as it does

cycle time can also be reduced thanks to the facilitation

not provide easily accessible data for rapid and efficient

of collaboration and knowledge sharing across the

decision-making. Acknowledging this barrier to success,

organization, and productivity can be increased, given the

iStore created a solution that creates business value by

faster access to information. Finally, the technology allows

improving asset management and decision-making, which

firms to rapidly deliver enterprise intelligence.

then translates into tangible net benefits for production, reserves,

operational

As mentioned previously, the technology integrates

safety. The company’s PetroTek technology helps E&P

exploration,

productivity,

and

data from across the petroleum enterprise and delivers

organizations jump-start their Digital Oilfield initiatives

information via a single website, allowing for the full

easily, as it is a solution that is fast to deploy and extremely

spectrum of technical, financial, and operational data,

adaptable to each business context. The main advantage

from SCADA and facility data to documents and external

to be gained from this technology is the ability to tap

data feeds to be combined for just-in-time analysis and

hidden potential of data assets through access-in-place

decision support. This allows any user with access to the

integration and intuitive presentation.

program to monitor, report, graph, extract, and map the information the company needs to reach the next level.

iStore’s approach facilitates the speedy deployment and

This approach can be applied to many areas of a petroleum

development of business-focused decision-support tools,

firm’s activities, from operational dashboards, to drilling

including KPIs, production roll-ups, electronic well files,

operations and GIS, as well as joint-ventures and PPDM-

operations reports, and joint venture workspaces. It does

driven data management solutions. With Round One

so in six ways. With iStore’s development, companies can

and beyond, the fundamentals of providing easy access

count on an increased ROI, as it operates with minimal IT

to information from various systems and improving the

overhead. This leads to lower implementation costs while

quality of data and data management remains unchanged,

creating additional value. Enhanced decision-making

Barry Irani, istore’s CEO believes. The new challenges

is also one of the outcomes because the technology

will be working with both internal and external partners,

provides a decision-support framework, merging strategic

helping to collaborate both effectively and efficiently,

and operational decisions. By improving exploration and

and at the same time providing regulatory agencies with

production asset management, reducing cycle time, and

timely reports.

| VIEW FROM THE TOP

PROTECTING THE INDUSTRY’S INVESTMENTS ARTURO FLORES Mexico, Central America & Caribbean Sales Director of Hempel

Q: What is the role of Hempel in Mexico’s oil and gas

depths, which poses specific ultra-high pressure and ultra-

industry, and how do you plan to grow in the market?

high temperature challenges. We have also tightened

A: Our customer base extends throughout the entire

our relations with Subsea Companies that build robots,

value chain and Hempel products are available for each

flowlines Christmas trees and manifolds. One of the

industry segment. In fact, one of our main achievements

vanguard products that we have is one that offers

so far has been the securing an 85% market share in the

atmospheric protection for the parts of the infrastructure

platform coating sector. We offer added value, such as

that is not immersed in water, known as the tidal and surf

long-term anti-corrosive protection, reduced maintenance

area including the drilling equipment. This product offers

costs, ecologically responsible and versatile products, and

not only anti-corrosive protection, but also cathodic

effective communication. We have become renowned in

protection and isolating materials so that the fluid can flow

the Mexican market through our painting of the country’s

despite the very low temperature. The smallest thermal

two biggest platforms, in collaboration with the Spanish

shock could cause the pipeline to rupture. At these depths,

yard fabricator, Dragados Offshore. This capability, along

pumps also need to be included so that the crude can cool

with our established global expertise, will allow us to grow

down upon contact with water when it is drilled.

and work with international companies entering the market. Q: How is Hempel responding to the decrease in oil price, Q: What specific capabilities and skills differentiate you

and how do you plan to work with PEMEX?

from your competitors?

A: The oil price decrease has led to significant constraints

A: Hempel differentiates itself by heavy R&D investment.

in the industry, particularly for PEMEX, one of our main

We are opening new development and technology centers

clients. We work with the NOC to find the best solution

on top of the existing 11. Our latest acquisition, Jones Blair,

in terms of warranty, duration, and performance, carrying

is working on the development of fast-drying primary

out a cost analysis per year and per square foot. Paint is

epoxy-rich zinc that allows for the application of one

crucial, and only represents 5-6% of the project’s total

coat in just one day. The use of fast-drying and high-gloss

cost, a small weight in the decision-making process. This

polyurethane and polysiloxane finishing technologies

investment should last 30 years, including the pipelines.

leads to reduced waste and downtime, and to an extension

Hempel offers some middle priced coatings that have

in the asset’s lifetime. Our Hempaguard silicon technology

been tested on other projects, and would represent

for the marine sector won an award in 2014 for the best

a solid technological and economical alternative. By

technological product in the world, and it helps to avoid

contracting us, the NOC will be working with a reliable

inlay, increment speed, and reduce fuel consumption by

and trustworthy service provider, with proper capabilities

up to 8% for vessels. This translates into economic savings

in technology and technique. Rather than focusing on

and reduced emissions of CO2 into the atmosphere. In two

the price per liter, PEMEX should use a long-term, cost-

years, we have painted over 350 vessels with this coating

benefit analysis. We also provide the after service, which

at an international level. We have had a few applications of

is a key advantage that local companies cannot provide,

Hempaguard in Campeche and in the Pacific region, and

and allows PEMEX to receive global expertise, supplied

I believe this product has already started to be successful

locally.

in Mexico. Q: What offerings will allow Hempel to work with service companies in Mexico’s challenging deepwater areas? A: We are developing technologies with our alliances at a global level for equipment that can sustain extreme

Hempaguard can reduce fuel consumption by up to 8%

141

| VIEW FROM THE TOP

CHEMICAL TECHNOLOGIES ENHANCING PRODUCTIVITY REGINA OLIVEIRA Commercial Director for Oil & Gas and Mining in Latin America of Dow

142

Q: What is Mexico’s role in your portfolio of investment

the deposit and identify the type of microorganism, after

and growth, both internationally and in Latin America?

which we can suggest products for advanced sustainable

A: Dow has one of the industry’s most complete portfolios

microbial control, such as UCARCIDE™ and KATHON™,

for the oil and gas industry. The position of Mexico in

that are adapted to the well’s needs. Our product lines also

our global context is high because the country has many

include both our FILMTEC™ membranes for the sulfate

important resources when it comes to deepwater and shale

removal from injection water and our VERSENE™ products

gas. The Energy Reform also influences the importance of

for the control of incrustations through intercalations of

Mexico at Dow, as it will allow the country to improve its

different nature that are pertinent to the deposit and

production performance, opening more business areas for

its characteristics. The latter product line also offers

companies like ours. The Energy Reform will reverse the

incrustation inhibitors.

declining production and allow for the development of the country’s deepwater and shale industry in the short and

Another recently launched solution was the Embark™

medium term.

RM210 HEC Slurry, Dow's new and more sustainable rheology modifier for completion fluids. The product does

When we examine all of Latin America, Mexico is without

not harm the environment as it is biodegradable, and it has

a doubt one of the key countries where we are currently

the capacity to collapse the foam more effectively without

focusing our efforts to grow our business. Mexico also

forming lumps, thus assisting oil companies during the

plays an important role from a global perspective because

wells’ cleaning process. We believe this product will be

it holds one of the world’s largest shale reserves. The main

successful, especially since PEMEX and other companies

challenge is increasing the efficiency of production. To

are expected to increase exploration activities.

do so, it is important to use technology-based solutions, which is what Dow offers. We are hoping to place these

Q: Mexico is continuously discovering and exploiting

productivity-oriented solutions with the companies that

heavy oil deposits. What products can you offer operators

are entering Mexico as a result of Round One, which

for the extraction and processing of this challenging type

is extremely important because it defines PEMEX’s

of oil?

participation, and it opens up possibilities of increasing

A: We have solvents that are used to help dissolve paraffin

production from existing wells.

and biopanthene, depending on the type of heavy crude to be treated. Dow is strongly focused on that area and

Q: What are some of the technological advantages you

plans to introduce new products to the market soon. Our

offer in the upstream water separation area throughout

chemical technology for heavy oil is similar to the ones

the different stages of a well’s life cycle?

used for other types of crude, except they are slightly

A: In upstream crude production, we have solutions

more robust. We have some clients and operators that

that can enhance the water separation process in an

work with heavy oil and find a significant challenge in its

efficient manner. One of our most complete lines is called

transportation, for which they need thermal insulation,

DEMTROL™, which offers emulsifiers and demulsifiers for

be it onshore or offshore. In this case, our HYPERLAST™

all types of crude. It separates the crude from water and

product can fulfill this need, which is so prevalent in

produces the least amount of gas possible, thus optimizing

operations surrounding the handling of heavy oil. We have

production.

had positive experiences so far with this product in Latin America, and our aim is to transfer its success to Mexico

In addition to this leading water-separating technology,

when new projects are confirmed and their investments

we also have a complete portfolio of additional options

made. We see opportunities in offshore pipelines, where

that address this issue. Dow offers services that can map

the flow of the crude will need optimization.

| INSIGHT

REDEFINING PRODUCTION TECHNIQUES As an equipment and solutions provider, NOV focuses both on M&As, and various internal R&D initiatives for the oil and gas

RICHARD BLACKETT

industry. Currently, there are three business Segments in the

Global Account Vice President

company: NOV Rig Systems, NOV Completion & Production

for Offshore Production of

Solutions (CAPS), and NOV Wellbore Technologies. Within

National Oilwell Varco (NOV)

NOV Completion & Production Solutions the company has been actively participating in deepwater and shallow water production projects for many years. As a partner inside

each client. The company seeks to be innovative through

Mexico’s oil and gas environment for quite a few decades,

organic, as well as inorganic growth, forming strategic

NOV has established facilities throughout the country. “We

alliances with partners that are complementary to NOV’s

see a strong push toward the production market in Mexico,

business strategy. “Our research and development teams

as well as the need for drilling in areas included in the

are constantly searching for new ways to align existing

bidding round initiative,” asserts Richard Blackett, Global

products with the flow of the ever-changing oil and gas

Account Vice President for Offshore Production at NOV

industry,” Blackett shares. He explains a recent trend,

Completion & Production Solutions. NOV is eagerly awaiting

where wells are becoming deeper and more complex,

the development of the bidding rounds and the entry of the

and temperature and pressure levels are bordering what

winners for shallow water and deep-water fields.

is available using current technology. These shifts are

“We are redefining how offshore production contracts

creating demands for new technology and intelligence that can improve production levels. As a result, NOV is creating solutions that combine proven

will be written for the benefit

technologies with concepts offered across the globe. “Our

of all parties”

energy transition, specifically in shallow areas and fields that

Richard Blackett, Global Account

Vice President for Offshore Production at NOV

technology helps operators feel more confident about the need to be developed or enhanced,” says Blackett. In terms of technology, NOV offers solutions like the innovative Rig Wizard online tool that allows the customer to adapt the drilling equipment to its demands by adjusting elements such

Considering the current condition of the market, Blackett

as power, with a range of 700-3,000hp. Large, independent

finds that players are often surprised to find that investors

companies that discovered new tools after hiring NOV

are eager to invest based upon the recovery of oil prices.

as their equipment supplier are now partnering with the

“The investment community is longing to contribute

company. “Strategic alliances can save money and improve

to the oil industry, and by having well-planned shallow

production since the supplier and operator can address the

and deepwater prospects our industry will move past

needs of the field at an earlier stage,” Blackett explains.

the current downturn,” he explains. Given the elements that are required to initiate contracts, funding, and field

The NOV Completion & Production Solutions Segment is

development plans for deep and shallow water production

focusing on land, shallow water, and mature opportunities.

opportunities, a substantial amount of work is required to

“The entrance of 3D technology made the industry realize

reach first oil. However, Blackett is certain that the price per

that wells in general were only partially exploited, sometimes

barrel of oil today will not be the same as what the market

only to 10%, and an old well that was declining to the point

offers once an offshore artifact reaches the field to begin

of being shut in can be surveyed with new technology and

producing. “Having NOV as a key equipment supplier helps

operators often find new potential that was not previously

our customers attain and attract investors,” he boasts. “We

understood,” he highlights. Likewise, NOV is actively involved

are a strong company with a strong balance sheet and here

in the floating production arena. Blackett is confident that the

to help our industry thrive again.”

company’s business model defies the current, broken, and traditional system. “Simply put, we offer a different strategy

NOV distinguishes itself from its competitors by being one

that is more efficient and effective. We are redefining how

step ahead of the market, with divisions that work together

offshore production contracts will be written for the benefit

to create packaged solutions that can meet the needs of

of all parties,” he illustrates.

143

| INSIGHT

RISING DEMAND FOR ARTIFICIAL PRODUCTION SYSTEMS moment, we offer the most reliable components on the market,” the regional manager maintains. Instrumental

GABRIEL DÁVILA

to this success is the group’s R&D laboratory in Vienna,

Area Manager for Latin

in which it invests between US$17-US$23 million every

America of Hoerbiger

year in order to keep pace with the latest technological developments in the industry. The group also has a longstanding history of operations with PEMEX. Through

144

Hoerbiger Compression and Technologies is present around

its three locations across the Mexican territory, namely

the world, offering its clients cutting edge technology in

Reynosa, Villahermosa, and Mexico City, it has contributed

the fields of compression and drive technology, as well as

value to the NOC’s production. “In the first two cities, we

hydraulics. Of the four emerging areas where the company

focus entirely on exploration and production, providing

is present, Latin America generates the most business for

reciprocating compressors and gas engines, specifically

the group. Mexico, along with Brazil, Argentina, and the

with a brand called Waukesha,” Dávila explains. The group

Andean Area, are the company’s four principal pillars in

has been developing multi-year contracts in the Cinco

that region. Gabriel Dávila, Area Manager for Latin America,

Presidentes, Bellota-Jujo, and Samaria Luna fields for

believes that a major part of the company’s achievement

services for the products it has supplied to PEMEX.

can be attributed to PEMEX, as Hoerbiger has embarked on a wide array of projects with the NOC’s various divisions

The company has an extremely specific contract with PEMEX

throughout the years. “Even now, despite the NOC’s woes

in Reynosa, as well as ISHA and Tecpetrol for wellhead

and their widespread consequences for the entire industry,

compression, a technology that artificially lifts gas from the

we believe Mexico will maintain its prominent position

well. So far, it has rented 32 compressors, and Davila believes

within the Hoerbiger Group,” he posits.

that demand for this product will increase in the near future, given the rapid production decline in the majority of the wells

Dávila proudly makes it known that, “Hoerbiger has around

in Veracruz, Poza Rica, and Reynosa. “The need for artificial

15-20 brands of reciprocating compressors around the

production systems will only increase from hereon in, and

globe, 85-90% of which are directly integrated into units

in fact, we are already in touch with many of the winning

by the OEMs.” In the past decade, the group has been

companies from R1-L03 in order to offer them these types

working assiduously to develop new technologies in order

of services,” he mentions. Dávila mentions the industry’s

to maintain the inventor and pioneer image that led to its

urgent need for cost-savings, and points to the fact that,

fame in 1895, when Hanns Hoerbiger invented the steel

“Hoerbiger’s compressors allow for an extra 1.5-1.6 standard

plate valve. “We are focusing on finding new materials to

cubic feet a day more than those of its competitors, which is

increase the reliability of our products in the field. At the

a massive difference in production.”

| VIEW FROM THE TOP

INCREASED PRODUCTION WITHOUT ADDITIONAL EQUIPMENT MADE POSSIBLE CÉSAR RUIZ General Manager of Tekna Services

Q: How can Tekna Services help its partners increase

Q: How does Tekna work with heavy crudes?

production without incorporating additional equipment?

A: The difficulty in some wells with optimal conditions

A: Our approach is to initially evaluate the historical

relates to heavy and extra-heavy oil. Reservoirs with oil of

record of the well or field, which includes information

6-12° API lack enough pressure. In this cases, the solution

on operations and production. The parameters are then

involves breaking the paradigm, and one option we see

correlated to make a diagnostic on production, which

consists of taking gas from the lines or the well itself when

allows us to examine the initial conditions and determine

possible and after heating it to high temperatures and

if it is possible to reactivate the well without adding

pressurizing it, we inject it back into the well. The gas will

equipment. Sometimes it is just a matter of conditioning

not change the physical characteristics of the oil, but it will

the infrastructure already in the wellhead. These are the

make it flow easily, reducing friction and making it more

first steps in helping clients focus on optimization and

manageable. Once the oil reaches the surface, the same

improved production with minimal investments. The

technology is applied to the pipelines, and with some

collected information is also useful to model systems aimed

additional pumping, the heavy crude can be transported

at optimizing the client’s existing pieces of equipment.

to the separator or even the refineries. Other technologies

In these cases, we carry out geological studies to learn

do not use gas, using siphon-like automated mechanisms

about the well’s history. Some areas have 2,500 wells that

instead. These tools are installed in the bottom of

need to be rehabilitated, but this has to be done according

the well and allow the oil to move up, but it cannot go

to the operating conditions and the wells’ productive

back to the reservoir, so the oil accumulates, ensuring

life. Currently, operators are favoring the optimization

a constant output. This instrument reduces operation

of existing wells over the construction of new ones. It is

and maintenance costs by preventing the installation

not feasible to think about building a new well that will

of additional machinery, increasing the efficiency of

cost US$20 million without looking at ways to optimize

production. Similar technologies will not yield 60 barrels

the available resources, and a small improvement on an

as everyone would like, but they will produce an additional

existing well will yield profitable results.

10 barrels that are much appreciated in the current landscape, particularly if the production is constant.

Q: Where does secondary recovery fit in your approach to increasing production?

Q: What is the application of your microorganism-based

A: Secondary recovery comes into play when we quantify

technology?

the necessary values during a feasibility study. By running

A: This is a secondary recovery method that places

the data through specialized software, we see the reservoir’s

enzymes in the reservoirs to feed on paraffin and

development and determine if this will produce large

asphaltenes, preventing the oil from getting stuck in the

amounts of water, if it will be invaded with gas, or if the oil

pipe or the formation. As a result, production becomes

needs mechanical assistance to ensure its flow. This allows us

stable under regular conditions, artificial lifts become more

to determine if the well needs a secondary recovery method

efficient, and the flow becomes more efficient in wells

based on fluid injection or wellhead optimization. Secondary

with difficult conditions. As the microorganisms grow,

recovery has to be tailored to the well’s specific traits so that

they develop colonies that migrate where there are more

it can be done in a profitable way, since nobody will invest

nutritional resources (paraffin and asphaltene), so they

a single dollar that will not yield returns. If we understand

move adjacent reservoirs. At the moment, this approach

this and work under these market conditions, companies like

is too costly considering the industry’s situation, but it will

Tekna will be successful and over time, operators will adopt

become an important secondary recovery method soon

different business models based on efficiency. That is the

and we are already looking for wells where this technology

role of secondary recovery.

could be applied.

145

| VIEW FROM THE TOP

GAS DEHYDRATION AS TOOL FOR EFFICIENCY

Coen van Munster Manager of Petrogas for US and Latin America (CM)

Maurice van der Meer Senior Sales Engineer of Petrogas Netherlands (MM)

Dehydration Units are compact, and with a high efficiency and availability rate. We have had plenty of success stories where the use of our gas dehydration units brought about great results. For example, we have a loyal client in Oman

146

Q: What are some of the solutions Petrogas provides in

who has been using Petrogas Gas Dehydration Units for

the upstream segment?

more than 20 years and has expanded into new large

MM: In the upstream segment, we can supply Gas

fields using these same systems.

Dehydration Units. These work using glycol, which absorbs and collects moisture from the gas. The glycol absorbs

Q: How do you emphasize the value of investing in your

the water particles from the gas, thus creating wet glycol.

solutions to your clients in a low oil price environment?

We then boil the glycol to a certain temperature until it

CM: The situation is challenging at the moment, and even

becomes green glycol. In order to obtain additional purity

though a lot of low-price contractors are entering the market,

levels, we strip the glycol. The process is continuous, so we

we still focus on quality. We have had several projects where

actually have a glycol regeneration unit.

our clients went for the provider who offered the lowest price and came back to us after a year because the solution they opted for turned out to be less effective. MM: We are known for our quality and we sometimes receive requests that we have to decline because we will not be able to properly serve these clients. However, the fact that we are not a considerably large company enables us to be flexible. Q. What is your stance toward developing local talent?

The water found in gas from reservoirs can lead to problems in processing

equipment

CM: In most of the installations in which we have been involved, we have conducted training sessions with local operators. In general, we avoid bringing our own operators, since it is much easier to find the staff locally and train them properly, so that they can continue operating and maintaining the installation. Local people speak the language and know where to find any needed parts, whereas bringing people from abroad is more expensive

Failure to properly dehydrate gas creates a variety of

and does not help the local market. Wherever we go, we

consequences. The gas consumers cannot handle liquids

use local people, and even when installing abroad, we send

in the gas such as water and hydrocarbons. Therefore, it

only one or two of our site engineers and they work with

is very important that all liquids are removed from the gas

the local team, which has been a productive approach.

before it is routed to the consumers. In general, this is done at larger centralized locations where multiple gas wells

Q. In what kinds of projects would you like to be involved

meet. At the more remotes wells, small Gas Dehydration

in the Mexican energy industry?

Units are used near to the gas well. The recovered liquid

CM: We are one of the main players in the power industry, and

hydrocarbons are sent to a refinery for further processing

a lot of gas-fired power stations are being built, providing

into various hydrocarbon products.

plenty of opportunities for our company. We want to get more involved in the upstream segment, but investments in

CM: Petrogas' gas dehydration technology provides

this area are low even though the market is now open. The

plenty of additional advantages when compared to similar

cost of extracting the oil is the same as or less than the retail

products and processes in the market. The Petrogas Gas

price, which I believe will be a long-term situation.

| INSIGHT

FROM PRODUCERS TO OPERATORS Recently, Grupo Idesa, famous for its participation in Etileno XXI, entered into a joint venture with International Frontier Resources Corporation, a Canadian company Luis

JOSÉ LUIS URIEGAS

Uriegas, CEO of Grupo Idesa explains, “The group

CEO of Grupo Idesa

with

considerable

upstream

experience.

José

considers the opening of Mexico’s energy sector an extremely interesting opportunity for many companies, and particularly those that have experience locally, like

“If this venture is successful, Grupo Idesa would separate

us.” In fact, the group hopes to seize the opportunity

into two different business lines, possibly remaining

to gain experience in upstream activities, and to gain a

dependent on the same holding,” Uriegas reveals. “On

few fields in the bidding rounds, which it will develop in

the one side, we would have our petrochemical basis, and

cooperation with its new partner, upon which it will rely

on the other, we would have production of feedstocks.”

to help it understand the obstacles and challenges faced

In ten years, Grupo Idesa hopes to have grown in the

in production. “In our 60 years of experience, we have

petrochemical sector. To fuel this growth, the company

had five joint ventures, three of which are ongoing, and

has decided to issue an IPO, a plan that should start

all of these have been successful. We have dealt with a

between 2016 and 2018. Uriegas states that the group will

Brazilian partner, a German one, and a Canadian one in

only become public once Etileno XXI and the CyPlus Idesa

the past, showing we have experience in international

projects are completed. “As a capital-intensive company,

partnerships,”

when

we can no longer finance our projects through loans, as

deciding upon this joint venture, Grupo Idesa met with

Uriegas

explains.

Furthermore,

has been done in the past, and the most convenient way

International Frontier Resource Corporation and found

to receive additional capital is through an IPO,” Uriegas

that their cultures were complementary, leading to many

explains. The group has already changed its financial

synergies between both companies. “This will be an

information to become an IFRS and the CEO claims that

asset that will be invaluable when we face unavoidable

its corporate governance can be smoothly adapted to

challenges,” the CEO insists.

comply with public market requirements.

I PROJECT SPOTLIGHT: PB-LITORAL-A In January 14, 2013, McDermott announced that one of

float-over method, while the latter was used to install key

its subsidiaries was awarded a turnkey contract for the

platform components and provide additional support. It

commissioning of the PB-Litoral-A production platform

is worth pointing out that McDermott’s prides itself in its

that would be used by PEMEX E&P in the Tsimin-Xux fields

advanced float-over technology for heavy topsides, as it has

off the coast of Tabasco to produce high-quality, light oil for

proven to be a reliable and cost-effective method for topside

export. With a water depth of 85 ft, PB-Litoral-A consists of

installation. FEED and detailed engineering of the jacket and

a 13,838 ST platform, one flare tripod, and two bridges. In

topsides were carried out in Chennai, India, and Dubai, UAE.

addition to commissioning, the PB-Litoral-A project scope included the start-up of an eight-legged 1,800-tonne jacket.

The project, which had an estimated cost of US$230 million, reaffirmed the importance of McDermott’s fabrication yard

McDermott has the global resources and capabilities to

in the Altamira port in the Mexican upstream segment.

support the EPCI entailed in this project, which were further

The 4,500-tonne topsides, and 2,000 tonnes of tripods,

supported by the company’s experience designing and

bridges, and piles were manufactured in the Altamira yard.

fabricating crude oil conditioning facilities. The company

McDermott also worked on bridge and piping tie-in, as well

carried out the front-end engineering design (FEED) with a

as brownfield work on the CA-Litoral-A HP compression

float-over solution to install a 7,707-tonne production deck.

platform. The project engaged more than 550 craft

In order to complete the project, McDermott was not shy

personnel. This was the first project McDermott carried out

in employing its Intermac 600 and Derrick Barge 50 heavy-

for PEMEX, and the EPCI company also provided training to

duty vessels. The fist was used to install topsides with the

its client’s personnel for operations and maintenance.

147

SHALLOW WATER

Shallow water has long been the main focus of PEMEX’s upstream activities. Production costs amounting to less than US$10/b ensure the continued competitiveness of PEMEX’s shallow water production activities, while the fact that shallow water fields account for more than 50% of the country’s probable reserves provides the Bay of Campeche with an extended production pipeline. PEMEX is currently focusing on its most productive assets, which means shallow water fields like Ku-Maloob-Zaap, Abkatun-Pol-Chuc, Tsimin-Xux, and even the declining Cantarell, will continue to be at the core of the NOC’s activities. Two phases of Round One, L01 and L02, tendered shallow water blocks, and the Ministry of Energy has announced that the first PEMEX farm-outs will involve mature fields in shallow waters. In spite of its continued competitiveness, shallow water exploration and production needs a fresh approach in order to maintain overall production levels, increase output in mature fields, and manage the challenging heavy oil fields.

This chapter will focus on the role shallow water activities play in helping Mexico reach its production targets. We will look at the way operators and service companies of all types seize business opportunities and overcome challenges in Mexico’s most popular upstream segment.

149

151

| CHAPTER 6: SHALLOW WATER & HEAVY OIL 152

VIEW FROM THE TOP: Ulises Neri, CNH

154

VIEW FROM THE TOP: Matt McCarroll, Fieldwood Energy

156

VIEW FROM THE TOP: Jesús Patiño, Oceaneering International

158

INSIGHT: Ernesto Iniesta, FMC Technologies

159

INSIGHT: Erika Pino, Venus Offshore

160

INSIGHT: Ana Chávez, CHM Maritime

161

INSIGHT: Rudolf Hess, R.H. Shipping

162

TECHNOLOGY SPOTLIGHT: TLQs, HB Rentals

163

VIEW FROM THE TOP: Roberto Maury, Marítima Internacional

164

VIEW FROM THE TOP: Florence Kosmala, InterMoor

165

VIEW FROM THE TOP: Sergio Arroyo, OOS Mexico

167

INSIGHT: Juan Pablo Vega, Naviera Integral

| VIEW FROM THE TOP

NEW MEASUREMENTS FOR A RESTRUCTURED MARKET A: Our involvement in the commercializing of production from production-sharing agreements comes from the

ULISES NERI

fact that there is a government share, so we oversee this

Chief for the Extraction

aspect on behalf of the government. The percentage of oil

Technical Unit of CNH

production the government obtains is mostly sold through PMI. The elements pertaining to commercialization are defined according to the contracts, and there are also

152

Q: What are the duties of CNH’s Technical Extraction

tenders where specialized companies can bid for the right

Unit?

to commercialize. The law states that a company only

A: The Unit’s mission is to maximize the recovery factor

needs a contract in order to commercialize oil. However,

and economic value of hydrocarbon reservoirs by

CNH wants more details in order to have a better idea and

implementing regulations and overviewing compliance,

precise statistical information about every oil transaction

as well as addressing internal and external technical

in the country.

requirements based on the production value chain. In this sense, our main task is to provide technical assistance

Q: How advanced are you in working with PEMEX to make

to issue regulations related to the five areas of reserves,

sure that all relevant information is available for CNH?

development

and

A: As stated in the secondary legislation, CNH has access

commercialization. Likewise, our tasks include supervising

plans,

measurement,

gas

flaring,

to all the information from PEMEX on production and

the enforcement of the regulations. The Unit also follows

reserves. However, most of the information we have comes

up on PEMEX assignations and contracts from R1-L02 and

in the old format, which structured the information using

R1-L03, as the first phase is currently in the exploration

each field as the basis. The new model groups the data

stage.

according to assignations, with the main difference being that an assignation can include several fields. We are just

Q: What is the Unit’s relationship with the companies that

starting to receive data on assignations.

won contracts in the second and third phases of Round One?

In the previous model, PEMEX organized the information

A: Regarding operators from R1-L02, we are only analyzing

by asset, which could include several fields, regional

specific elements of their extraction plans, including

administrations, and even different datasets. Now, the

the reserves associated with these blocks. According to

NOC is in the process of defining the limits of each field,

each contract, operators have a certain period to submit

block, and the number of wells in each area, in addition to

a development plan after signing the contract, so we are

distributing this information. Moreover, the company has

waiting to verify the information in the aforementioned

included data on oil and gas production, sulphur contents,

plans and their compliance with the extraction regulation.

API gravity, and the different components in gas because

Conversely, we have a lot of interaction with the operators

these variables are directly linked to the fiscal terms

from R1-L03 because the first stipulation of the contracts

that the Ministry of Finance establishes. Taking this into

is related to the provisional plan. This plan helps operators

consideration, CNH is working with PEMEX, the Ministry of

maintain their production and adds certain requirements

Finance, and the Ministry of Energy to define the variables

with regards to a few key elements, such as well

that are needed to define the fiscal terms and compare

maintenance, workovers, and valves. It describes how a

these to the previous requirements, which only involved

company will act once it takes over a field, not how it plans

the field and type of hydrocarbons.

to develop the field over time, which is more complex. The development plan has the objective of maximizing the

Q: How is the process of reaching agreements on reserves

recovery factor using technical strategies. It will ultimately

between CNH and PEMEX advancing?

indicate what opportunities exist for suppliers and service

A: The new regulation on reserves is like the previous

providers that are working for the companies, according

one, but the main difference is that in the previous

to the regulation.

regulation, reserves were estimated according to the asset’s productive life, while the new one calculates

Q: What is CNH’s responsibility in the commercialization

reserves according to what can be produced in the

of oil production?

duration of the assignation. This is how it is done in other

153

countries, and the challenge for the NOC is to develop the

A: We will need expertise that complements the

resources in a determined period. We are in the process of

capabilities of our current team, which is why CNH is

communicating the benefits of this model to PEMEX, as it

considering consultancy services. We have a wide range

will be able to define the elements it needs to develop its

of consultancy companies to choose from, and we are

reserves in advance, prioritizing the most profitable fields.

identifying the agencies that have sufficient international experience. We are also looking at companies individually

Q: How have the PEMEX pipelines and metering points

because we need to ensure that their staff is prepared to

been organized in the past year to prepare the network

manage certain tasks.

to receive production from new operators? A: CNH worked with PEMEX and CRE to define the number

Ideally, every type of project will be supported by external

of metering points and fiscal points in the network. It was

consultants, but time may limit this type of flexibility. More

important to work with CRE because it has been hard

energy and resources are going to be allocated towards

to identify the limits of certain activities and the areas

companies that win bigger blocks in comparison to those

that are to be regulated by this entity or by CNH. We

that have recently won onshore projects that do not have

established 48 fiscal points or sales points, and correlated

as many details to evaluate. Another element behind

more than 200 operational points. In addition, we have

this reasoning is the amount of liability that each field

been working with CRE to determine which pipelines and

may represent, as it is not the same to have operations

facilities will be used by PEMEX and which will be used by

in deepwater or unconventional blocks. Value is also an

other operators. Let us keep in mind that PEMEX created

important piece of the puzzle, since this will vary depending

a logistics subsidiary, so we have discussed the assets

on the amount of risk involved, as in the case of deepwater

that will be used by PEMEX E&P and PEMEX Logistics.

projects where risk matches the potential value.

Another task consisted of working with CRE, PEMEX Logistics, and new operators that have signed contracts

Q: How are you working to address the new operatorsâ&#x20AC;&#x2122;

to identify the infrastructure they need and set tariffs for

main concerns?

the use of transportation infrastructure. It is necessary to

A: For the most part, operators are interested in learning

clear the big picture so that operators can get an idea of

more about our regulations. With this in mind, we are

what the new landscape will be like. It was decided that

launching a series of workshops for PEMEX, other

the infrastructure located before the fiscal metering point

operators, and services companies in order to explain

belonged to PEMEX E&P and will be monitored by CNH,

how to implement and observe the regulations. While the

while everything beyond that is part of PEMEX Logistics

information is evidently important for operators, including

and will be supervised by CRE. Other operators will be

PEMEX, services companies will be invited to learn about

able to use it under certain terms.

the procedures needed to sell their services. In addition, CNH can hold hearings with operators in order to address

Q: How is CNH going to select external assistance in new

questions on issues that concern both sides, as stated in

areas such as deepwater and shale resources?

the normativity.

| VIEW FROM THE TOP

US EXPERIENCE INVALUABLE FOR MEXICAN OFFSHORE Nevertheless, every year over the last three years, we have increased reserves and production in fields throughout

MATT MCCARROLL

the last leg. We are always finding new ways to make

President & CEO of Fieldwood

use of our older infrastructure. For example, we have tied

Energy

back many new discoveries to older platforms, which significantly reduces the amount of new capital required. Due to the commodity price environment, we are not

154

Q: What are the particular traits of Fieldwood Energy that

drilling many new wells in the US, but while we wait for

have led to the success of Fieldwood Energy?

the right opportunity, we have identified many new drilling

A: Fieldwood Energy is the largest operator in the shallow

targets in some of our existing fields. Particularly, we see

waters of the Gulf of Mexico. Our goal is not to be only

great opportunities in undrained fault blocks and salt

the largest but also the best company in this sector. The

domes, and once the oil and gas prices recover we will be

companyâ&#x20AC;&#x2122;s staff is largely composed of former Apache or

ready to develop these new opportunities.

Dynamic Offshore employees who have spent a large part of their careers working in the Gulf of Mexico. The employee

Q: How do you manage to acquire more assets and

base has grown significantly, both organically and through

maintain your productivity in the current environment?

acquisitions, increasing from three employees three years

A: We have the fortune to possess assets that have a great

ago to the current 750. We have operations in over 500

deal of proven reserves, so we have been able to maintain

leases in the Gulf of Mexico, and employ approximately

production simply by accelerating our recompletion

2,500-3,000 every day through our partnerships with

program in existing wells. Most of our fields have more

vendors and contractors. In our view, the operational

than five or ten years of proven reservoirs, and 40% of

opportunities in Mexico are similar to those of the US side

our proven reserves are identified in existing wells. When

of the Gulf. We are confident that we can apply our drilling,

a well in an existing field is depleted, we can move up hole

completion, production, and infrastructure expertise in the

and perforate or recomplete a new zone. Until we see a

US to the shallow waters of Mexico.

recovery in commodity prices, we plan to follow that strategy to maintain our production levels for the next

Q: What would be your flagship project when entering

couple of years.

new markets like Mexico? A: In the US, most of our projects are mature fields that have

Q: What is your perspective on the process and schemes

been in operation for several years. In the past five years, we

used by the Mexican government for the bidding rounds?

have made a few new discoveries, but I would say that at

A: We were first attracted to the Mexican market by the

least 80% of the productive fields we have today are fairly

opportunity to develop offshore assets that have not

mature. In the past couple of years, we have drilled new

had a great deal of capital allocated to them. PEMEX

wells in the existing fields, but for the near future, we plan

is an extremely successful company with a number

to focus on the two Area Four fields that were awarded to

of qualified staff, but we and other US operators feel

us in the bid round, which were discovered by PEMEX in the

that we have been able to implement much more

last ten years but were never developed. These fields are

efficient processes in the US. Therefore, we saw a

located at a depth of 100-150ft, so they are operationally

major opportunity to apply our expertise in the shallow

similar to those in which we work in the US. Over the next

waters off the Mexican coast. The contract for the

couple of months, we will be finalizing an appraisal plan that

Mexico properties is complicated and unlike anything

will outline our plans to drill two or three wells. Once those

we are accustomed to the US. For example, under our

wells are successfully drilled and tested, we will commence

contract for Area Four we will spend all of the money

an aggressive drilling and development program over the

upfront, recover the costs after first production, and the

next three to five years, depending on the fieldsâ&#x20AC;&#x2122; potential.

government will receive a 74% profit share thereafter. In the US, we only provide a bonus amount upfront and

Q: What has been your experience with mature field

a fixed royalty share. Although it will take some time

development in the US?

to resolve the nuances and provisions, we are excited

A: For the last 25 years, people have believed that shallow

to partner with the Mexican government to make this a

waters in the Gulf of Mexico are running out of reserves.

successful endeavor for all parties involved.

Q: What are the opportunities that you see in Mexican shallow waters that are not available in the US? A: One of the most attractive characteristics of the Mexican shallow water fields is the cost structure. Offshore fields have a high degree of fixed operating costs. In other words, it costs relatively the same amount to operate a platform producing 100b/d as one that is producing 1,000. An average Mexican well can produce up to 1,500b/d, which provides ample revenue to cover the fixed platform costs. Considering this landscape, our goal is to operate as much production as possible from as few platforms as possible. Furthermore, we expect to share some of the existing infrastructure with PEMEX, so we do not have to duplicate pipelines and facilities. The handling and disposal of the produced water is a challenging aspect of offshore oil and gas activity, but we have effective processes in place in the US to do so in an efficient manner. To our knowledge, these services are not currently available in Mexico and we feel that this is a great opportunity to introduce a more efficient process to protect the environment. Q: How has your experience with CNH and PEMEX been in terms of transparency and information sharing?

A: Our primary contact for information has been CNH,

which provided us with the initial data for our bid analysisY and we have worked directly with the agency to gainCM access to additional information. This is a new venture soMY there have been certain trials and tribulations but I feel likeCY we have solid working relationship so far. Our discussionsCMY with PEMEX have been limited as it is focused on its ownK operations. However, we see a great deal of potential to develop joint operations with the NOC as it has a number of oil fields located near ours. Although we have been extremely happy with the support that we have received from the Mexican agencies, I think all of the processes could be accelerated slightly since we did not sign the contract until about three months after the bid round. We would like more shallow water blocks to be introduced sooner to accelerate the PEMEX farm-out project opportunities, and clarity in this regard will increase activity in shallow waters. Q: What kind of reservoirs are you interested in acquiring through PEMEX farm-outs? A: Our specialty is to take mature fields, recapitalize them and increase their lifespan. We think we can apply many of our production processes to their fields in order to increase profitability. Additionally, the new seismic technology developed over the last 20 years has allowed us to fine tune our analysis and increase the amount of recoverable reserves from reservoirs. Applying our knowledge to older, existing PEMEX fields could offer a great deal of advantages. We have already identified some fields that we are interested in but we need to wait and see how the process and terms develop.

155

| VIEW FROM THE TOP

ESSENTIAL TECHNOLOGIES FOR MEXICAN SUBSEA DEVELOPMENT JESUS PATIÑO Manager of Strategy Development at Oceaneering International

156

Q: How do you see th potential in Mexicio for subsea field

controlled vessels from which an ROV or an AUV can be

production changing?

deployed. One of the main problems with subsea vehicles

A: Lakach represents Mexico’s first significant subsea field

is the impedance of the water. It is hard to send a signal to

development. We are familiar with the project and its

a vehicle through water, so without a cable that connects

challenges. The field should be producing in 2017, but we

the control with the system, it is difficult to exert control

do not expect other deepwater fields to start producing

over that system. Today, when sending an AUV to collect a

soon. We should see some drilling activity in the shallow

pipeline survey, the mission has to be preprogrammed and

water blocks awarded during R1-L02, and this prospect

the vehicle “flies” far from the seafloor in order to avoid

has already motivated companies to enquire after our

collisions. If the AUV is intelligent enough to change its

products and services. The sector, however, will receive a

trajectory and avoid those collisions independently, then

significant boost as a result of R1-L04, which will tender

it is possible to “fly” closer to the pipeline, enabling more

deepwater blocks. I expect the investment to be truly felt

precise measurements. These issues will be solved, and we

in 2018.

believe that along the way, systems such as resident ROVs will emerge onto the technology roadmap, meaning that

Q: How can your ROV and automated underwater vehicles

the intervention of vehicles will become part of the subsea

(AUV) technologies be used for the development of fields

infrastructure.

like Lakach, and how far could these technologies go when it comes to the completion of such projects?

Q: What was the initial intention behind the acquisition

A: Our vehicles and technologies are used to support

of C&C Technology? To what degree was it buying an

development activities in offshore fields. We understand,

extensive client knowledge base of the Mexican market?

however, that our customers need solutions, not only

A: Despite the fact that the presence of C&C, now known

equipment. An ROV is an asset that enables the delivery

as Oceaneering® Survey Services, was not the main driver

of those solutions subsea. Looking at the breakdown of

of the transaction, we made the decision to acquire this

capital expenditure associated with field development, 30-

company because the survey business is a clear offshoot of

40% is spent in the drilling phase, a huge upfront cost to

Oceaneering’s main business. We operate across a variety

which we have exposure through ROV and tooling services.

of niches, from drilling vessels and multi service vessels

Without taking Brazil into account, our market share in the

(MSVs) to support drilling and IMR activities. The idea was

deepwater drilling segment is about 65%, although we do

to establish a survey company in each of our markets. On

not drill, instead enabling certain operations associated

top of that, Oceaneering Survey Services is a leader in the

with this activity. We also provide Inspection, Maintenance,

AUV segment, which is the next frontier when it comes to

and Repair (IMR) services to the installed base subsea,

subsea robotics. Oceaneering Survey Services’ operation

and we manufacture umbilicals, valves, and connection

also provided us with a complement to our company in

hardware that is deployed in fields throughout the world.

Mexico, especially given the changes underway. Our team

We do not develop fields, instead supporting operators

has a solid presence and strong brand recognition. Having

by providing solutions to specific challenges ranging from

access to Oceaneering’s ROV capabilities gives clients

installation to pipeline remediation and incident response.

leverage to further develop business opportunities in the Mexican market.

Q: How is your R&D investment structured so as to reflect the expected demand in AUVs?

Q: ROV procurement and contracting are relatively

A: We are investing and developing technologies for AUVs.

expensive, particularly in the current low oil price

We also have a stake in a company called ASV, which

environment. How can the advantages of such a

makes automated surface vehicles. These are remote

technology be made attractive right now?

A: This current environment has led companies to focus

(COP) of our customersâ&#x20AC;&#x2122; operations. We offer the whole

on cost efficiency. It is easy to simply ask suppliers to

solution, from installing the communication antennas,

lower their prices, but there is only a certain amount of

all the way down to corrosion reports and maintenance

the profit margin that can be sacrificed, which is why it

programs.

is important to innovate and change the cost structure of field developments. In order to survive in a US$40

Q: What would you like to see in the Mexican market that

per barrel environment, companies have to innovate and

will facilitate the offering of your services?

change their appetite for risk.

A: The right elements are in place for positive developments in the sector. A common concern for everyone is the rule of

We believe that deepwater will be a critical component

law, and the ability of the different institutions to function

of the future energy mix. The deepwater prospective

the way they should. Compliance and safety are top

resources in Mexico are extremely attractive and we are

priorities, and therefore corruption is a big concern. Other

confident that drilling activity will be strong in the near

than that, in Mexico a great deal of competitive talent and

future. We have the capacity available to operate in this

solid infrastructure can be found. Mexico is extremely well

market, and we will encounter no difficulties in responding

positioned to attract investment in the oil and gas sector,

quickly and delivering our value proposition to the country.

and we are confident that when prices recover, we will see an increased degree of activity.

Additionally, our experience with PEMEX has been positive. Contracting with NOCs is in general more

Q: What would you like IOCs entering Mexico to know

challenging, not because of the companies themselves

about the services you can offer to them?

or their people, but mainly because the restrictive nature

A: The major IOCs know us well and we are going to

of their processes. The new legal framework and the fact

operate with the same standards as we do elsewhere.

that PEMEX is no longer the sole industry player changes

Oceaneering will be in it for the long run and we plan

the whole conversation. As suppliers are now trying to

on being relatively active. We have been present in the

position themselves strategically in anticipation of an

country long enough to understand the challenges and

upcycle in the coming years, Oceaneering will be looking

also the prospects, and we will be ready to respond when

to work with new entrants to the market as well.

the right opportunities come along.

Q: How much do you expect the inspection segment for existing subsea assets to grow? A: Most of the subsea pipelines in Mexico are buried or entrenched so there is not much for us to inspect on the seafloor without resorting to internal inspections or dredging to expose the pipelines. There are, however, many

opportunities

platform

inspection.

After

AbkatĂşn Alfa, it became clear that the existing integrity management systems can be improved, and this problem is not exclusive to Mexico. We are in the asset integrity management business because we understand that the offshore infrastructure is not only growing, it is also getting older. Our added value is being able to predict when things are going to fail, to avoid those failures, and maintain the quality of the assets beyond their design life. Our inspection and monitoring services and our technologies stand out from our competition in a number of ways. For example, through our Global Data Solutions business, we have the ability to consolidate integrity and asset tracking information to generate a Common Operating Picture

Oceaneering is connecting what is needed with what is next as the subsea connection specialist for global offshore operators seeking applied engineering expertise in dynamic and unconventional environments.

157

| INSIGHT

OPPORTUNITIES IN SHALLOW WATER EFFICIENCY generated by the farm-outs. However, sustaining 2.1-2.2

ERNESTO INIESTA

million b/d requires a lot of effort in work-over or enhanced

Commercial Director of FMC

oil production. Additionally, PEMEX’s need to reach the

Technologies Subsea Systems

necessary efficiency to develop its fields, which require

Latin America

equipment and technology, is where Iniesta sees a sizeable opportunity for FMC Technologies and the entire industry. “We estimate that PEMEX will contribute with 30% of

158

In spite of the plethora of challenges in the oil and gas

the industry’s growth over the next few years, because

arena at the moment, many companies still consider

production from the blocks awarded in Round One will not

participation in Mexico’s industry interesting. One of

start until 2017,” Iniesta predicts. “The remaining 70% will

these companies is FMC Technologies, which also sees

be brought in by efficiency improvements outside of the

opportunities in the global industry, and Ernesto Iniesta, the

traditional business.”

company’s Commercial Director, believes that companies will be excited to obtain a portion of the Perdido area

Given the conditions in which PEMEX finds itself, Iniesta

due to its production potential, although he concedes

believes PEMEX’s new Director General is taking the

that these projects will not occur for at least five to ten

company in the right direction. “One of the best decisions

years. “The IOCs are only interested in deepwater fields.

he has taken is to stop all non-profitable activities, because

When examining the results of the first three tenders of

this is the only way for PEMEX to become competitive in

Round One, the absence of most of the majors is evident,”

the open market,” he adds.

he points out. “That is perfect, because we understand that they are seeking deepwater and ultra-deepwater

Going forward, FMC Technologies has some ideas on how

opportunities and we are aligned with their thinking.”

to improve efficiency to develop some fields, especially in shallow water. “When it comes to solutions to improve

time advantage of approximately one year, and cost savings of up to 40%

We can offer a

shallow water efficiency, in terms of traditional fixed production platforms with subsea solutions, we offer a production cost that is 30-40% lower than current competition,” Iniesta boasts. Instead of building more platforms, the company connects a subsea solution and pipeline to an existing platform, and in this vein, Iniesta indicates that a reduction in its number of platforms and an increase in subsea infrastructure would be a promising strategy for PEMEX. “The arguments we plan on using to convince the NOC of the viability of our plan are early production, competitive traditional platforms, and lower costs, with a time advantage of approximately one year,

The company already has other business in Mexico, with a

and cost savings of up to 40%,” Iniesta explains.

new unit called surface integrated systems that regroups surface completion, fracking systems, and all other

In Iniesta’s opinion, when considering the capital the NOC

requirements for reaching optimal production. Although

will have to pay in the following 15 years and the size of

Iniesta admits that the company will be impacted by the

the investment ahead of it, combined with the financial

low oil prices, FMC Technologies is preparing to adapt to

support it will receive from partnering companies, PEMEX’s

the current climate and he pinpoints PEMEX as a client that

production should begin to increase in the second half of

could particularly benefit from the company’s technologies.

2017 or in early 2018. The supply chain should be turning

“We believe that we can continue working with PEMEX in

around beforehand, or else PEMEX’s production cannot

some manner, and would like to work on farm-outs with

increase. “Reducing investment related to the opportunities

other companies, supporting them,” he explains.

is necessary in order to increase production, and we will adapt to whatever is needed for this year,” Iniesta outlines.

Iniesta believes that, according to the last news on

“Next year will be about maintaining that, and in 2018, the

PEMEX, the NOC will rely a great deal on financial support

industry will begin its recovery.”

| INSIGHT

FLEXIBLE CONTAINERS FOR A CHALLENGING MARKET Being a young company with a knack for innovation, the primary motivation of Venus Offshore was the growing demand for transportation for offshore equipment. This

ERIKA PINO

was followed by the need for the structures required to

General Manager of

protect the materials, machines, and equipment during

Venus Offshore

transit. At this point, Erika Pino, General Manager of Venus Offshore, explains that the decision was made to create installations within containers, equipped with meeting

a traditional building would involve much more materials,

rooms, laboratories, offices, and dining areas, and any

consultation, and paperwork. “One company requested a

other features required by a client. Last year, the company

building consisting of four asymmetric vertically-stacked

grew by 80%, and this year it plans to triple that growth,

containers, with stairs linking the four floors, and each

fueled by its recent expansion to Tampico, and operations

one was designed for a different production segment. We

scheduled to start in Dos Bocas, Tabasco. “These are

installed facilities like sliding doors and a roof garden, but

strategic locations as they serve as the main ports in terms

we can also design simple containers if the client requires,”

of activity in Mexico, and the containers serve an essential

Pino discloses.

need for those working offshore,” Pino claims. Venus Offshore is investing in personnel and more offices in order

Despite this year’s environment of uncertainty, Pino

to be close to the client base. After the current Tampico and

shares that the company has seen a growing demand,

Dos Bocas expansions, it is looking to establish operations

mainly due to the increase of foreign companies entering

in Oaxaca and Baja California, and then it wants to begin

the market in the Yucatan. “The first thing we are doing

exporting the containers.

is preparing data based on the participants in the round, and we are arranging to visit them directly before they

Venus Offshore’s integral service means that all the

arrive in Mexico,” she asserts. “At the moment, most of

components linked to the container such as logistics

the companies have operations in Houston, and we would

assessments, electric installation, and transport services

like to establish links with these companies in anticipation

are included in the price. If the client requires maintenance

of their market entry.” Pino shares that Venus Offshore

for the container, the company provides it, at a much lower

has overcome the odds and managed to close around

cost than other suppliers. At the moment, according to Pino,

40-60% of the contracts. Given the stale prices in the

customers tend to rent the containers due to the current

market where Venus Offshore operates, Pino strives to

hostile environment and the expense of the containers at

offer a competitive pricing scale in addition to high quality

up to US$40,000. She highlights the savings clients can

customer services, for which the company’s logistics team

obtain from Venus Offshore products, as construction of

is in constant contact with the customer.

159

I INSIGHT

ANTICIPATING CUSTOMER NEEDS FOSTERS INNOVATION

ANA CHÁVEZ

adds that the situation has impacted CHM Maritime in the

General Manager of CHM

past two years. “We were only able to complete 50% of the

Maritime

projects intended for 2015. In order to adapt to this new situation, we have reviewed our prices and offered more tailored options to our customers in order to help them

160

In order to serve the increasing demand of the Mexican

obtain contracts with PEMEX.” Despite the industry turmoil,

market, Cashman Equipment, a Boston-based company

CHM Maritime is maintaining a positive outlook. At the

specialized in leasing vessels and maritime services, created

moment, the company has eight tugboats in Mexico and

CHM Maritime. Cashman manages a global fleet with bases

four barges, with an extra one to be added next year. The

in Africa, South-East Asia, Australia, the Caspian Sea,

company is currently working in structure transportation

and Kazakhstan, moving vessels according to the needs

projects, mainly with McDermott and CIPM.

identified its affiliates, such as CHM Maritime. Their role is also to anticipate long-term demand, and inform us on the

Adjusting its business model is one of the ways CHM

usage of tugboats and barges. Back in 2014, CHM Maritime

Maritime will survive the industry’s financial crisis, but

introduced new vessels to Mexico, a decision based on

innovation is at the core of its success. “In our business,

the industry’s evolution. Ana Chávez, General Manager

when there is a lack of cutting edge innovation, a company

of CHM Maritime, says this was a timely move due to the

risks being left behind, so it is our goal to continue

competition the company will now face. However, she is

innovating in the maritime industry,” states Chávez.

not worried about more players in the market because,

Cashman launched a mobile app aimed at helping clients

unlike its international competitors, CHM Maritime has

gain more operational control.

deep knowledge of the Mexican market and knows how to operate a Mexican company, two intangible assets that take

The mobile app is linked to Cashman’s website, which

time and effort to develop, according to Chávez.

holds all the documentation on the company’s vessels, be it barges, tugboats, or cranes. Chávez says this is particularly

One of CHM Maritime’s main advantages is that its vessels

useful for barges, which are operated without any people

are registered in Mexico, which enables the company to

and consequently do not hold any sort of documentation.

offer services at lower prices. In the midst of increasing

The information is available to anyone who registers. “This

competition, the company will continue working with

is an excellent marketing tool for us, as we are able to

familiar clients and partners, a strategy that has proven

gauge who has an interest in our fleet,” says Daniel Schwall,

successful in other countries where CHM Maritime operates.

Senior Vice President of Cashman. “The information that we

“Some of the companies we will continue working with

provide the industry is not just about our vessels, but also

include names such as McDermott, CIPM, and Dragados

about other players in the global market as well. Engineers

Offshore, but we are also considering smaller companies

and naval architects around the world go to our website to

that are venturing into larger projects,” says Chávez. “If, at

get information that they can use to create generic models

any point during the development of these projects, they

for their vessels.” In his view, the app eases the burden of

need the type of vessels we offer, we are confident they will

accessing information for customers, allowing them quicker

turn to us. We are also looking for other areas outside of

operational control. Although Chávez believes the Mexican

Round One where our vessels could be of use.”

market is ready for this app, some details still have to be adapted to this country. For instance, the majority of the

It is worth mentioning that CHM Maritime was not exempt

content is in English, the most commonly used language in

from the industry’s downturn. “A lot of our work across

the maritime industry. Nonetheless, the app, which is only

the globe is done with EPC contactors that work with the

available for iPhones so far, contains a significant amount

major oil companies. Any negative impact in the offshore

of information in Spanish. For Chávez, CHM Maritime has

oil industry is directly passed on to us. Today, in Mexico, our

to be more innovative, commercially aggressive, and most

clients have several projects with PEMEX, which is suffering

importantly, it has to beat the competition when it comes to

from the drop in oil prices, and this makes it difficult to

anticipating its clients’ expectations in order to overcome in

conduct any strategic planning,” comments Chávez. She

a difficult yet promising environment.

| INSIGHT

TURNING THE DOWNTURN INTO BUSINESS OPPORTUNITIES The slump in oil prices is making players think twice before entering a tender, a trend that is reinforced by the fact that people still do not know the legal and commercial

RUDOLF HESS

particularities to work with PEMEX. However, Rudolf Hess,

President and CEO

President and CEO of R.H. Shipping, believes this is just the

of R.H. Shipping

right time to enter the market because new entrants can get cheaper oil rigs and secure an advantageous position by the time the oil price goes up again. He also points out

The most significant project R.H. Shipping has been involved

that the uncertainty has generated business opportunities

in recently involved a contract with a company form India to

for consultancy services, so the current environment can

move pipes that will be used in IEnova’s Ojinaga-El Encino

be capitalized upon.

pipeline in Chihuahua. “We chased this project for a year and a half and were fortunate to secure it. We had to use

As for the transportation industry, Hess is confident that

four ships to move 10,000 tonnes and 40,000m3 of pipes

rigs and jack-ups will be moved to Mexico soon, as his

each, the equivalent of a 110km-long pipeline. The project

company has already secured four contracts for this

went perfectly and is helping us get new business. Now we

activity and is negotiating a fifth. “With the opening of

have a presentation card we can show to new entrants, as

private investment in the Mexican oil and gas industry,

we have demonstrated that R.H. Shipping can deal with any

more cargo will be moving into the country. We are

contingencies that may arise when working on a project of

ready to transport their rigs, spare parts, and to handle

this magnitude,” asserts Hess.

offshore logistics,” he boasts. Hess points out that the advantage of R.H. Shipping is that it can cater to any

Even though R.H. Shipping has had to adapt to the current

client, as it can charter a full ship or move modular oil

market conditions, the company still has competitive

rigs, semisubmersibles, and jack-ups. In the case of

advantages due to the scarcity of certain service

spare parts, which are always needed, the transportation

providers. Hess says few logistics companies specialize

company can move these in cargo containers, while

in over-dimensional projects, and there is a lack of freight

urgent cargo can be deployed by air. In this sense, R.H.

forwarders that specialize in projects on a global basis in

Shipping is a one-stop-shop that can also advise clients

a multi-modal way, like R.H. Shipping does. In addition to

on insurance, customs clearance, and all services related

covering every aspect in project, the company can offer

to the logistics industry.

competitive prices because of its network of worldwide transportation providers. “A trait I see in my company as

In 2015, R.H. Shipping managed to grow by 20% in spite

an additional advantage is the fact that we do not own

of the oil and gas industry’s downturn. “Containers

any assets. Our only asset is our people. If we owned

from Asia usually comprise 55% of our revenues, and

ships, we would have faced financial challenges by now,

freight rates in this segment have dropped dramatically,

because the ship charter market is lower than what we

ultimately impacting profit margins. Fortunately, we

would have to pay to the bank to finance ships,” Hess

were able to increase volume and a small percentage

admits.

of our gross profits,” shares Hess. The most profitable segments for R.H. Shipping, however, was the oil and gas

In his view, the most innovative aspect in his company

industry, domestic and international trucking, airfreight,

are the experts working there. When Hess started the

and ocean export. At the end of 2015, the company

company, he brought specialists from Germany, but now

moved two oil rigs, heavy boilers, and oil rig equipment

R.H. Shipping trains its employees until they become

for different companies. “We have been able to secure

experts. “I used to be the only person in my company

business that we had not been able to fix in previous

negotiating charter contracts, but now I have people I

years. Judging by the way things look, we are going to

can delegate these activities to, and the results are

have plenty of work during 2016 and the years to come,”

astonishing. People in the company are attracting new

Hess comments.

business constantly.” Now R.H. Shipping has 111 people in seven offices in Mexico, and ten in Houston. Additionally,

R.H. Shipping transported 10,000 tonnes and 40,000m3 of

the company has ten offices in China, one in Germany,

pipes, the equivalent of a 110km-long pipeline

and a global network of agents.

161

| TECHNOLOGY SPOTLIGHT: THE COMFORT IN OFFSHORE ACTIVITIES Offshore life is tough. Employees working on oil platforms

Fiberglass Stackable Modules, offer safe working, sleeping,

have to leave their families and homes to spend two to

dining, and general purpose spaces that can be installed

four weeks in facilities located in the middle of the sea. In

both in offshore and onshore settings. The steel version

addition to the demanding platform work, workers have to

is primarily intended to be used on fixed platforms and

get used to the weather, the movement of the waves, and

inland barges, while the fiberglass version is suitable for

the isolated location. To make the experience easier for

non-classed safe area use where regulatory restrictions do

their staff, oil and gas firms look for comfortable facilities

not apply or have a limited footprint.

with catering services for their offshore employees. In this regard, HB Rentals, a US company established in 1976,

HB Rentals is experienced in Mexican offshore and onshore

offers these sought-after onsite accommodations and

fields. One of the most meaningful offshore projects has

operating essentials.

been the temporary living quarters (TLQ) accommodation program developed for Far Sentinel, a 15,000 gross ton

Rentals

boasts

broad

portfolio

offshore

subsea station owned and managed by Farstad Shipping.

solutions, which includes diverse accommodation fleets,

The accommodation program consisted of facilities for 84

workspaces, and offshore services modules. The latter are

people on board, each one formed by seven A60-ABS/

divided into four designs according to the characteristics

USCG twelve-man sleeper modules and one change room

required by different segments in the oil and gas industry.

module. The TLQ supplied by HB Rentals complemented

The ABS/USGC A60 product line is designed with needs

the 130 people-on-board permanent facilities already

of offshore crews in mind, such as sleeping and dining

located in the Far Sentinel. This ambitious project was

facilities. All the products included in this line comply

particularly challenging because of the short timeframe

with various international regulatory standards, including

that Farstad had to select and install the entire complex

ABS, USGC, DNV, SOLAS, and IMO. The DNV A60 line is

and relocate it in Mexican waters. Nonetheless, the facility

also popular, and it offers various solutions for offshore

was completed in time, and HB Rentals is now offering

facilities, including linkable galley and welfare modules.

after-sales services to Farstad from its new operations and

Furthermore, DNV A60 certified modules are specially

service office in Ciudad del Carmen, which was opened

built to resist the extreme conditions found in marine

to better serve the needs of oil companies operating in

environments. The other two product lines, Steel and

Mexico.

| VIEW FROM THE TOP

DIVERSIFYING BROKERAGE SERVICES ROBERTO MAURY CEO of Marítima Internacional

Q: Which projects in the oil and gas sector best represent

Q: How will Marítima Internacional remain active until the

Marítima Internacional’s capabilities?

contracts awarded in Round One start to materialize?

A: Since its early days as a shipping agent, Marítima

A: While the projects from Round One take shape, Marítima

Internacional has been constantly learning while being

Internacional will continue seeking to collaborate with

able to create business opportunities to satisfy its clients’

PEMEX. In addition, the company is looking to diversify its

needs. Following this strategy, the company has diversified

services in order to ensure a constant cash flow regardless of

its service portfolio and has formed new enterprises to

the developments in the oil and gas industry, and this is one of

diversify its activities. One of these companies is JB del

the main reasons the company created a division dedicated

Golfo, which came into existence as a result of foreign and

to the trade and transportation of commodities. This unit is

domestic firms’ need for catering and accommodations.

currently focused on barite, which is used as an additive for

Another example is Marine Tech, a shipping company

drilling fluids for both onshore and offshore wells. Marítima

that was created using our broad experience in shipping

Internacional recognized the significant demand that

brokerage, including knowledge on vessel maintenance

exists for this product, both nationally and internationally,

and operation. A few years ago, Marítima Internacional

and decided to draft a business strategy based on the

had 20 leased vessels for its brokerage activities, and

distribution of this mineral. As a way to offer competitive

now it has 12 self-owned ships including a crew boat,

prices, the company established direct alliances with mining

supply vessels, and multipurpose vessels, which have

companies, eliminating the need for intermediaries and third

been acquired through Marine Tech over the past eight

parties, and we do not charge commission fees for the sale

years. The main advantage of our service for clients is

of this product, just the transportation costs.

the lower costs in shipping services, as a nationalized fleet eliminates higher costs associated with international

Q: How is Marítima Internacional expanding its market

transportation and foreign labor. Companies that have

presence?

a national fleet obtain protection from the Directorate

A: The company has been involved in negotiations for

General of Merchant Marine, gaining priority over foreign

several services in the Middle East, and although the

fleets in the process of being contracted, which will help

contract was not awarded, this provides evidence that

them reduce the risk in their offshore projects.

Marítima Internacional is active internationally. Regardless, the company has maintained its focus on Mexico’s marine

Q: What changes has the Energy Reform brought about

merchant sector, which is well-positioned compared to other

so that the shipping sector can adapt to the new needs of

countries, some of which are experiencing a lack of activity

the oil and gas industry?

in 90% of their fleets. In addition, Marítima Internacional

A: A regulation that protects the country’s ships and

is also exploring the option of entering the automotive

consignee agencies, and prevents the entry of foreign

industry, particularly through our logistics division, which

firms that would directly compete in the same market,

could handle importation and exportation services. As a

was finalized and published. It gives legal certainty to the

way to complement its offering, the company is currently

guidelines established in the law, which forbids foreign

analyzing the possibility of opening a customs agency, for

players from using ships in internal shipping activities and

which it is establishing alliances with customs agents to

cabotage. In addition, the local content quota covered in

provide services ranging from transportation to addressing

the Energy Reform is crucial for companies and Marítima

the necessary legal aspects involved in importing and

Internacional can offer its clients the usual services while

exporting products. Marítima Internacional already provides

helping them fulfill the requirements stated in the law.

these services through an external customs agency, but

This is one of the aspects that distresses foreign firms the

opening its own agency will allow the company to have more

most, even though it is relatively easy to comply with.

control and offer more comprehensive services.

163

| VIEW FROM THE TOP

MEXICO’S OIL AND GAS INDUSTRY OFFERS MOOR OPPORTUNITIES FLORENCE KOSMALA Global Marketing Manager of InterMoor

164

Q: Considering the opening of the upstream market, how

mooring systems and foundation piles from anchor-

important is Mexico in InterMoor’s current strategy?

handling vessels. Compared to the large construction

A: Mexico is key in our strategy, especially given its

vessels that are generally expensive, these anchor-handling

proximity to our infrastructure in the US. We have a

vessels are more cost effective for clients. The strength of

large manufacturing facility in Morgan City, Louisiana,

our company is the fact that we not only work in mooring

which comprises two buildings atop 34 acres that

systems and foundations, but also in subsea installation

specialize in the manufacture of suction piles and other

and decommissioning. In the Gulf, we decommissioned

subsea equipment. We also have a shore-based facility

the Red Hawk spar in 2014. Our knowledge on installing

in Fourchon, Louisiana. We provide the engineering, and

mooring systems also provides us with the capability of

we procure, fabricate, and install the mooring systems, as

uninstalling a facility, so this contributes to our unique

well as the foundations. Much of our work is targeted to

value proposition.

the deepwater market, so as far as the Mexican market is concerned, we are waiting for the development of

Q: What advantages do you bring to your clients that can

these fields. We are currently operating in Mexico’s only

be applied to Mexico through the Moorvision software?

deepwater field in conjunction with larger contractors

A: The Moorvision software was developed a few years

working with PEMEX, fabricating two manifold piles that

ago, providing a Google Earth interface for operators

measure 19ft in diameter at a length of 65ft, and we will

and rig owners who want to moor their rigs. In the case

also include pile tops and grillage for the Lakach project.

of an extremely congested seafloor, like that in the Gulf

Additionally, we have designed and fabricated over 100

of Mexico where there are pipelines, mud mats, manifolds,

suction piles for the same project.

and other assets installed, this helps to ensure that operators can install rigs without damaging this existing

Q: What specific capabilities will allow InterMoor to be

infrastructure. This software maps the assets, based on the

successful in the Mexican oil and gas market?

database provided by BSEE, the US regulator. As long as

A: We are fairly cost-competitive due to our far-reaching

there is similar access to a database here in Mexico, it may

expertise in establishing permanent and temporary

be something we could apply and extend.

Tecno Fire es una empresa líder a nivel nacional especializada en la venta, renta, instalación,

mantenimiento, reparación, recarga, asesoría, diseño

y certificación de sistemas de seguridad y protección contra incendios con 18 años de experiencia al

www.tecnofire.com.mx

servicio de la industria petrolera avalado por casas

certificadoras nacionales e internacionales.

| VIEW FROM THE TOP

ADDED VALUE IN FLOTEL OPERATIONS SERGIO ARROYO Former Country Manager of OOS Mexico

Q: How is the company structured in terms of operations

Q: To what extent can you help reduce operational costs

in Mexico, and how were you able to enter this market?

of clients?

A: OOS International currently has a contract in Brazil

A: The current environment breeds opportunity, and

with Petrobras, where we have two flotel vessels: OOS

those with an aim to succeed in the business should

Gretha and OOS Prometheus. The former has a unique

begin thinking about the future right now. Although this

construction, with two cranes that can operate in tandem,

can be seen as a challenging time in the oil industry, OOS

each with a capacity of 1,800 tonnes. Our participation in

International is building two new vessels, so this displays

the Dutch Trade Mission to Mexico marked an opportunity

the confidence we have in our product and our business

for us to enter the Mexican market, and to build on our

model. When we finish building the vessels, we believe

already established presence here. The opportunity we

the market will begin to regain momentum, allowing us

see with these submersible flotels is the fact that they

to enter strongly as part of the supply chain in the oil and

are designed to operate in deepwater. Here in Mexico,

gas industry, offering the most advanced products and

a plethora of pipes and connections have been laid

services at the most competitive cost.

in the oil fields, meaning that it is dangerous to have semi-submersibles in the fields, so flotels are the most

Q: What steps are you taking to become a leader in

viable option at the moment. Besides accommodation,

offshore accommodation and the construction of flotels?

OOS International strives to be a commissioning and

A: We are attempting to launch the same well-respected

decommissioning operator. As an independent company,

system we have with Petrobras here in Mexico, and the

with presence in Mexico, our model dictates that the owner

equipment we are providing is new and uses quality

deals completely with the operations and the support we

technology, so we offer the most comprehensive facilities.

need here in the country is provided by our international

Besides the previously mentioned services, OOS is

stakeholders, whether that is financial or advisory. The

one of the few shipping companies with international

process of importing technology and establishing efficient

certifications to operate flotel facilities. Therefore, we

operations is faster and more efficient as a result of our

do not only aim to provide our own equipment, but we

considerable resources.

can also operate client-owned machinery. We provide assets and support services to the oil and gas industry,

Q: What are that competitive advantages that differentiate

ranging from ships to asset management, and engineering

OOS Mexico from similar companies?

to maintenance and operational services. Based on

A: At the moment, we are building two new vessels, with

the experience we have in Brazil, we have the expertise

more lifting capacity and the ability to accommodate up

required to operate other flotels in Mexico and around

to 750 people. Our new vessels, the OOS Serooskerke

the world. In 2018, our main aims will be to bring our own

and OOS Walcheren, will be delivered in Q4 2018 and Q1

equipment and obtain contracts, or to be recruited by

2019, respectively, and will each have a capacity of 3,000

another company to operate its vessels.

tonnes, whereas the competitors we see in Mexico are using mainly older equipment. Following Round One, there will certainly be a strong demand for our services, as well as those of many other international companies. We are the only company to build the flotels with cranes, so this is a unique product that optimizes the supply chain, and can serve as a multipurpose system, providing the deck, the storage, the crane, and the accommodation with state-ofthe-art facilities.

OOS has been awarded with a rating of 8.6 for safety by Petrobras

165

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is crucial to capitalize on Mexico’s economic potential, and create new business opportunities in an unparalleled networking environment. September 7, 2016 www.mexicohealthsummit.com

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October 20, 2016 www.mexicoinfrastructureforum.com

November 9, 2016 www.mexicoaerospaceforum.com

November 23, 2016 www.mexicominingforum.com

November 24, 2016 www.mexicotalentforum.com

February 15, 2017 www.mexicoenergyforum.com

April 5, 2017 www.mexicobusinessforum.com

www.mexicobusinessevents.com

| INSIGHT

GOING WITH THE CURRENT

When it comes to Mexico’s maritime market, Juan Pablo Vega, Director General of Naviera Integral, finds it aligned with global trends. “The country has a relatively

JUAN PABLO VEGA

open market that inclines willingly toward free trade

Director General of

agreements such as the Trans-Pacific Partnership that

Naviera Integral

was recently signed,” he clarifies. He reminds that through NAFTA, Mexico voted for equally open seaports, following Canada, which also opted for the accessibility of its

shallow water operations that have geographic pivotal

harbors. “However, the free trade agreement ended up

points in Campeche, Tabasco, Veracruz, and Tamaulipas.

excluding maritime transportation articles, because of the

Vega explains that it achieves prosperity in this area thanks

US’ decision to have restricted ports in order to ensure

to avant-garde vessels that can reach the fields located

national security,” he reports.

at extremely long distances from the shore. “Nowadays, speed and autonomy are essential for industry players

Naviera Integral has been operating in the Mexican oil and

looking to integrate cost-effective production, and our

gas industry for 30 years where it has focused on assisting

line of vessels is considered as one of the most modern,”

a group of companies in different industries, especially

Vega boasts. Additionally, Naviera Integral is becoming

in maritime transportation. Vega is confident that his

a supplier of PCBs, ships that have an increased volume

company’s offering of quality, safety, efficiency, and cost-

capacity and less speed. Vega mentions that these are in

value, as well as its ability to help them meet national

demand across the entire oil industry, as they can carry all

and international norms and regulations, will attract the

types of oil and equipment.

industry’s new players to Naviera Integral. The maritime company also has experience in responding The company is constantly renovating its fleet and hiring

efficiently to accidents. “We create safety connections

specialists to show it follows the most recent trends

between the platforms and onshore operations for

among industry leaders. “The process is not fast and in

quick interventions in the case of emergencies,” Vega

certain cases, we even tailor the products according to a

announces. “Last year we were able to evacuate people

company, a state, or a port. The customization is part of

and bring machines to fight fire, all while ensuring medical

what we bring to the table for our customers that are just

assistance and managing the unexpectedly poor weather

entering the country,” Vega asserts. Naviera Integral has

conditions.” If there is a risk of adverse weather conditions,

been analyzing the profile of the winners of the different

Naviera Integral is suited to provide a large quantity of

bidding rounds, as well as their clients, in order to offer

safety vessels that are ready to intervene and transport

them customized services. It has also been working in

employees onshore if necessary.

167

DEEPWATER

Phase four is expected to be the pinnacle of Round One, as corroborated by its pseudonym, the Crown Jewel. The largely unexplored deepwater and ultradeepwater provinces on the Mexican side of the Gulf of Mexico will remain one of the last high-potential exploration opportunities in the world until new operators are expected to enter in 2017. While the authorities are drafting rules for the previously inexistent deepwater sector, IOCs are reconsidering the position of Mexico in their portfolio, and service providers are preparing to extend a warm welcome. On December 5, 2016, potential operators will find out whose bids for four blocks in Perdido Fold Belt and six in the Cuenca Salina basin will be victorious. PEMEX is expected to participate in this round, while the company will also seek partners to farm-out its already discovered deepwater fields. More than access to capital, this arrangement will grant the productive enterprise of the state access to much-needed technology to produce some of the world’s deepest fields.

This chapter will focus on the opportunities in Mexico’s deepwater areas and their importance in the country’s long-term production objectives. It compiles the perspective of various players looking to develop the Mexican deepwater segment, as well as service companies eager to apply their international experience.

169

| CHAPTER 7: DEEPWATER 172

ANALYSIS: Regulator Prepares Ground for Deepwater Round

173

EXPERT INSIGHT: Criteria Used to Shape the Deepwater Round

174

MAP: Deepwater Blocks & Wells

176

VIEW FROM THE TOP: Alberto de la Fuente, Shell Mexico

177

INSIGHT: Wallace Pescarini, Schlumberger

177

INSIGHT: Derek Woodhouse, Woodhouse Lorente Ludlow

178

VIEW FROM THE TOP: James Buis, Nalco Champion

180

VIEW FROM THE TOP: Michele McNichol, Wood Group Mustang

181

VIEW FROM THE TOP: Graham Hill, KBR

182

INSIGHT: Coen van Munster, Petrogas

183

VIEW FROM THE TOP: Ángel Mario Lozano, GDT Offshore

184

VIEW FROM THE TOP: Bruce Malcolm, Alpha Deepwater Services

185

VIEW FROM THE TOP: Octavio Navarro Sada, Heerema

186

TECHNOLOGY SPOTLIGHT: Subsea Compressors, Man Diesel & Turbo

187

VIEW FROM THE TOP: Katsuyuki Imalzumi, MODEC

189

Boyd Howell, MODEC INSIGHT: Ashit Jain, Harkand

171

| ANALYSIS

REGULATOR PREPARES GROUND FOR DEEPWATER ROUND

172

The opening of Mexico’s deepwater segment has been a

The regulations are being drafted by the Ministry of Energy,

milestone in the global industry due to the opportunities

the Ministry of Finance, and CNH with the participation

it presents to operators, but it also provides CNH with a

of other actors, such as the Ministry of Economy, which

considerable challenge. The regulator has to issue guidelines

manages matters related to national content, SEMARNAT,

to ensure that operations are done according to the highest

and ASEA. In fact, CNH's Alma América Porres says the

standards, but the fact that this is a new area for Mexico’s

Commission has worked closely with the environmental

upstream segment poses the chance of a trial-and-error

agency, helping it with the regulations for deepwater

scenario where the slightest mistake cannot be afforded.

activities. Pimentel explains that every party works in

Sergio Pimentel, Commissioner at CNH, highlights that

its domain under the Ministry of Energy’s coordination,

the authorities are not trying to reinvent the wheel when

which establishes the contracts’ terms, while the Ministry

drafting the regulations for deepwater operations, adopting

of Finance sets the economic conditions related to the

international best practices instead. For instance, the Ministry

fiscal terms, and CNH provides technical assistance in

of Energy and the Ministry of Finance opted for licensing

the selection of the blocks that will be tendered. The

contracts, which is an international practice in deepwater

contracts, as legally stated, are reviewed by the Federal

operations and is in line with the provisions allowed in the

Competency

Constitution. The licensing contracts will include large areas

information exchange between the private sector and

with the largest volume of prospective resources in the Gulf

the Ministry of Energy as a consequence of the Five Year

of Mexico: the Perdido Fold Belt and the Isthmus Basin in the

Plan. Companies of all sizes approach the Ministry to

southern portion of the Gulf’s central region.

voice interest in certain areas they find appealing, as the

Commission.

“Evidently,

there

was

Ministry can change the areas to be tendered according to Even though the market is not under ideal conditions at the

the private sector’s interests. The private sector did have

moment, Pimentel notes that the long-term scope of the

an influence in the round, as the authorities listened to

contracts makes the segment attractive to companies. “The

suggestions as stated in the law.”

current oil price is not an indicator of the interest companies could have in Mexico’s deepwater industry, as the oil price

Many wonder how CNH will prepare to manage the

will not be the same ten years from now, which is the time

deepwater round, considering that the bidding companies

it will take for the first commercial barrel to be produced in

are international experts. Commissioner Héctor Acosta

Mexican deepwaters. Furthermore, the geological conditions

comments that CNH has qualified people to deal with

in the Gulf are attractive in spite of current situation.”

the administration of these contracts and is also carrying out analyses to complement the talent it already has. The Commission will use financial resources obtained from the bidding rounds to carry out specialized consulting in order to support its activities and strengthen its capabilities as a deepwater regulator. In addition, Acosta says the authorities will continue working on adapting regulatory measures to the sector’s changing circumstances in order to avoid any conflict of interest Acosta says the fourth tender is the ultimate test for

By May 2016, 23 companies requested access to the Data Room, 22 gained access, and 15 companies began the pre-qualification requirements for R1-L04

Round One, given the characteristics of the competing firms, the level of investment, and the potential of the contractual areas, as these hold 11 billion barrels of prospective crude oil equivalent resources. “We are trying to guarantee success by bestowing as much information as possible about the contractual areas. Almost all of these have prospective resources and seismic information. In addition, we are taking a very agile approach to the modification of the tenders’ conditions in order to send signals of certainty to the market,” he comments.

| EXPERT INSIGHT

CRITERIA USED TO SHAPE THE DEEPWATER ROUND R1-L04 has taken us longer to launch, and at some

As in all the categories, we measured global

point we even questioned the viability of launching

events, and one of the things we learned from

a deepwater round with the current oil prices.

Norway is the fact that it has two types of

However, major oil companies were adamant

deepwater tenders, referred to as “known areas”,

about having the deepwater tender, as they

which includes mature fields, and “frontier areas”.

were seriously interested in spite of the oil prices

We tried to base our model on this, and there are

because of the opportunity it represents. There is

some areas like Perdido that will see great success.

a lot of excitement about coming to a newly open

Our preference can be split into two types of

area, and deepwater in Mexico is something entirely

players, those that want to be situated in locations

new. Furthermore, everybody is certain that there

close to PEMEX, as this will offer synergies in terms

is a huge unexplored potential. We decided to

of oil and gas infrastructure, and oil companies

launch some blocks and asked for feedback, since

that seek to explore areas where PEMEX has not

the law allows companies to nominate deepwater

attempted to make any advances. I feel extremely

areas. The industry suggested that some of the

proud to say that the nomination feature was

blocks we selected were not attractive enough,

something I brought to the Commission, and was

while companies also showed interested in other

subsequently incorporated into the law. Since the

areas. Everyone wanted to see blocks in Perdido,

deepwater tender has a long-term scope, we hope

but some companies pointed out that 3,000-

that the psychological effect of the oil prices will

3,500m depth would create opportunities for just

not impact the round too harshly.

Edgar René Rangel Germán Former Commissioner of CNH

Lourdes Melgar Undersecretary of Hydrocarbons at the Ministry of Energy

a few players. If we reduced water depth to 1,500m,

Some of the fields may contain gas and

we could tender deepwater blocks in Perdido but

condensate, while others may contain super-

in a more inclusive way. In addition to Perdido,

light crude oil. In a gas and condensate field,

companies wanted to see other unexplored

the condensate may have an API gravity of

frontier blocks because their geologists have data

50°, which is quite attractive and makes a good

that suggests incredible prospects. This, along

business case for a gas field. Fields such as

with the discussions we had regarding the size

Kunah, Lakach, and Piklis may be great business

of the blocks, was quite insightful. After looking

opportunities should they be consolidated and

at international standards, we decided to go for

developed in partnership with another company.

slightly larger blocks.

For PEMEX, these opportunities are very weak if they are treated as standalone projects.

Another aspect that resulted in a long discussion

Some of the more potentially lucrative areas

process was the type of contract for deepwater

have constricted PEMEX since they are ultra-

blocks, and we ultimately decided to opt for

deepwater, and in some areas, no platform in

licenses. The contract cannot look like a profit-

existence would be suitable. However, after

sharing agreement because it is not, but it cannot

the tenders and when the time to drill arrives,

be a concession either because these are not

that technology will exist. The beauty of the

allowed in the Constitution. Now the interesting

exploration stage is the fact that the real winners

aspect is defining what a license contract looks

are those companies with the most qualified

like in Mexico.

geoscientists.

173

| DEEPWATER BLOCKS & WELLS

174

Hydrocarbon fields Round zero Round 1 exploration blocks Round 2 exploration blocks Round 3 exploration blocks Round 4 exploration blocks Successfull deepwater wells Unsuccessfull deepwater wells

175

| VIEW FROM THE TOP

SHELL FOUND ITS BLACK PEARL

ALBERTO DE LA FUENTE President and Director General of Shell Mexico

176

Q: Many people would blame the results of R1-L01 on

of the contracts. We think that there is still considerable

poor terms and conditions. What contributions has Shell

room to make them easier to administer, which would

made to the improvement of this process since then?

translate into lower costs for us and greater benefits for

A: Mexico lacks the breadth of knowledge required

the government. Although the contract is a license, there

to develop the oil and gas industry, which is why I am

are still some elements that might be read as a PSC. In my

surprised by the government’s ability to learn so quickly,

mind, there is an opportunity to polish the contract and to

adapt to best practices, and continuously reshape the

confer to it a greater resemblance to a license contract.

contracts and bidding guidelines to match the industry’s

Another area that could be reviewed is the abandonment

needs. I believe the authorities’ rapid reaction time has had

of the fields, and whether that should be done from day

a positive impact on the number of companies submitting

one or later on. The latter option would allow companies

bids, as well as the quality of those bids. Ultimately,

to invest where it is needed today, instead of obliging

the government has benefited from that, because as a

them to create a fund for the long term. There are also

more competitive environment is being fostered, more

issues around corporate guarantees and ensuring that all

companies are interested in participating and placing high

companies can participate on an equal basis. I think there

bids. Shell contributes a small share like everyone else,

is also room for certain fiscal improvements to be made, as

and does so through industry bodies such as AMEXHI

the industry would like to guarantee its long-term stability

or COPARMEX. We share our views on local content and

and companies need to be made to feel more comfortable

on how these regulations were developed elsewhere,

with the new regime.

attempting to share our experience through the various channels established by the Energy Reform.

Q: To what extent do you believe that the timeline is realistic at present?

Q: What are the predominant concerns regarding the

A: More than decades can be spent analyzing opportunities,

terms and conditions established by the authorities

but we are comfortable with a nine-month window. In the

for the deepwater bidding round that still need to be

end, we will have just a little over that, and we believe that

resolved today?

is the right amount of time to come to solid conclusions.

A: The quality of the contracts has evolved significantly

The industry cannot wait for the oil prices to recover,

since the initial production-sharing agreements were

and in fact, it is not a factor that will ultimately affect

released in December 2014. Having said that, we believe that

the amount and quality of bids. Recent bidding rounds

some adjustments are still necessary in order to generate a

in Ireland, Canada, and Norway have been extremely

much more effective product, ultimately allowing for more

successful despite the low oil prices, demonstrating that

participants in the rounds. One of the areas that I believe

success does not really depend on much more than the

could be reviewed relates to the administrative simplicity

competitiveness of the contract’s terms and conditions. It

"As a more competitive environment is being fostered, more companies

is important that the Mexican government continue with the rounds, despite disparate results. Had Mexico not begun the bidding rounds last year, the country would have fewer companies interested in it, and it is critical

are interested in participating and

that the industry attract investment. For this reason, we

placing high bids"

instead of focusing on the oil prices, we want to focus on

Alberto de la Fuente,

find materiality and competitive terms and conditions,

President and Director General of Shell Mexico

are supportive of continuing the bid rounds process and the factors that we can control. I am sure that if companies Round One will be successful.

| INSIGHT

TRANSLATING INTERNATIONAL EXPERIENCE INTO ROUND ONE Wallace Pescarini, Schlumberger's President of Mexico and Central America, points out that there is a considerable difference in operating an onshore field, a shallow water well

WALLACE PESCARINI

in the Gulf of Mexico, or a deepwater project in Perdido, and

President Mexico and Central

this will be particularly evident when the winners of R1-L03

America of Schlumberger

enter the market. “We know that some young companies entering the Mexican market lack the expertise and the reservoir understanding that we have at Schlumberger,”

many challenges for deepwater production and exploration,

he explains. In an offshore field, efficiency is vital, and will

the players expected to enter in R1-L04 are those with a

require a suitable solution, and risk management, planning,

substantial deepwater portfolio and a long-term vision. “It is

and technology play a much more significant role in this

possible that the government may move the round in order

environment. In terms of deepwater, Schlumberger is a

to capitalize on a more profitable time for the industry, but

world leader in services for this segment, where the technical

in either case the round is sure to attract solid investment

and operational challenges are of a much larger scale. The

due to confidence generated by the production levels in the

company’s experience in this area includes operations in

US side of the Gulf of Mexico,” he comments.

the Gulf of Mexico, West Africa, the North Sea, and Brazil, and the company has already been working with PEMEX

“We cannot overlook the fact that PEMEX has always been,

on deepwater projects in Perdido, meaning that it is well-

and will continue to be our main client in Mexico,” says

equipped to provide solutions to the major players and IOCs.

Pescarini. Schlumberger is also conducting dialogues with the new operators with which it will be working, and has

Deepwater players do not take the short-term oil price into

disclosed that it has already closed contracts with Statoil

account, but rather tend to consider the environment in a

and other international companies for R1-L04. “We are in

time-scale of five to ten years. However, Pescarini points out

talks with all the winners of R1-L01 and R1-L02, and we are

that deepwater remains important in terms of reserves and

in a solid position to provide support to these companies,”

future production, and even though current prices present

Pescarini boasts.

| INSIGHT

PARTNERING FOR SUCCESS

Woodhouse Lorente Ludlow recently associated with CMS Cameron McKenna in Mexico. When asked why, Derek

DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow

Woodhouse, the firm’s partner, explains that it was because of CMS’s strong expertise in advising several international companies that perform deepwater exploration and

oil and gas industry players. “Because CMS has globally

production activities. “I cannot see how Mexican firms who

recognized experience and a strong client portfolio, it will

have never been involved in this arena can properly advise

only be natural for IOCs willing to enter the Mexican market

on these matters. It is an extremely complex industry,” he

to request this firm’s advisory services.” Similarly, CMS

admits. “When I was working in London for CMS I spent 12

benefits from its partnership with Woodhouse Lorente

months seconded to BP and worked with its deepwater

Ludlow, as it brings its expertise working in the Mexican

exploration and production team for Angola, and the most

market to the table. Woodhouse refers to the association

important lesson I learned from that experience is that this

as a “win-win situation”, whereby CMS obtains a presence

is an information intensive industry. Woodhouse Lorente

in Mexico, and Woodhouse Lorente Ludlow increases its

Ludlow believes that it can learn from CMS, increase its

ability to advise major oil players that want to establish

abilities in this regard, and appeal to the new deepwater

operations in the country.

177

| VIEW FROM THE TOP

PRODUCTION EFFICIENCY RESTS ON FLOW ASSURANCE JAMES BUIS District Manager Mexico of Nalco Champion

178

Q: What were the main challenges that oil and gas

have a large number of exciting products awaiting to be

companies were facing this year?

launched, and our R&D department is doing a great job

A: I would say that increasing productivity is one of the

in predicting the future needs of the sector. Our value lies

main issues for our clients. In critical times like these, all

in the fact that we have a team of experts on the front

companies look to be as efficient as possible, shifting the

line who collaborate with a global team to help companies

focus of business plans to productivity and efficiency. In

solve these problems.

this regard, we want to make sure that every dollar that our clients spend for our services contributes toward

Q: What sort of opportunities is Nalco Champion

enhancing their production rates so they can quickly

preparing to seize?

recover their investment. This year, products aiming to

A: When mixing crude oils, the focus is needed on the

improve the flow properties have been gaining momentum

properties of the crude oil. This is especially important

as they help the viscous oil to rise to the surface. Flow

when mixing crudes with varied API gravity levels, which

assurance relates directly to transporting the oil all the

can provoke certain instability with respect to flow

way from the ground reservoirs to the surface and later

management. We have already experienced this in areas

to a sales point where the first custody transfer takes

where lighter crude is blended with heavier crude oil, and

place, which can be either offshore or onshore. Afterward,

in these cases, we need to predict and monitor the flow

there is an additional stage for flow assurance in which

assurance and consider the use of products such as flow

the product is transported from the refineries to the

improvers, asphaltene inhibitors, or other similar product

barge ships or trucks. At Nalco Champion, we are mainly

that can help prevent obstructions blocking the flow or

dealing with the first stage, where the crude is taken from

incrementing the crudeâ&#x20AC;&#x2122;s viscosity, which would make

the well to the first custody transfer point. In this case,

it harder to pump. We are now involved in a couple of

our flow assurance packages ensure that all the lines can

projects for analyzing the possibility of mixing different

produce at the expected rate. We offer emulsifiers, an

crude oils. In these projects, our role is to help companies

eternally popular product that can dictate the quality of

deciding which type of crude oil has the best mixing

the crude, scale inhibitors, and asphaltene inhibitors that

potential, what the optimal mix characteristics would

keep the lines clear so production can continue flowing at

be, and the possibilities for improving flow management

an optimal rate. A company requires the entire package to

through these mixes, among other issues.

maintain the integrity of the system. Q: How is Nalco Champion preparing for the launching of Q: How does Nalco Champion help operators during the

the unconventional oil sector in Mexico?

development stages?

A: We are heavily collaborating across other areas of

A: Our goal is precisely to prevent downtime, which is why

the company that have are experienced in this kind of

we look at the asset as a whole. For deepwater projects,

projects, mainly in the US. At Nalco Champion, we have a

we assist companies with the projectsâ&#x20AC;&#x2122; FEED. We have

tremendous amount of experience in the Eagle Ford Shale

a whole team dedicated exclusively to that area, with

and other similar unconventional projects that have been

considerable expertise in identifying engineering issues.

conducted in the US. We have a broad product portfolio

Therefore, if a company is planning to design a platform

designed to specifically cover those needs. We know how

or a subsea station, we collaborate with it to identify the

to identify and address the potential problems that are

possible risks in the project, as these relate to flow and

most challenging to shale production, and we know how

asset integrity challenges. We can make predictions based

to develop a chemistry that works well for those areas.

on fluid properties. In summary, we provide companies

Our company gained plenty of experience in South Texas,

with a tailored design and treatment. Currently, we

which borders Mexico, giving us a considerable launching

point as we can bring our experience to Mexican shale

as Nalco Champion. Together with other companies’

producers.

international experiences, we can help Mexico to navigate its deepwater sector without experiencing the same

Q: What is the role of companies like Nalco Champion in

challenges that other countries have already overcome.

adding value to deepwater projects?

We are involved with the Lakach project, since we have

A: Deepwater projects will bring a different flavor to the

been collaborating with some of the companies working

Mexican oil and gas market, as well as new opportunities

in that field. In the future, I foresee the company getting

for companies with different levels of expertise to get

involved in other deepwater projects, including Perdido, as

involved. Nalco Champion had several learning experiences

I believe that we can have a positive impact in these fields.

and opportunities in deepwater fields in the Gulf of Mexico when the US started exploring this region. Therefore, we

Q: How is the Connecting Resources (CORE) knowledge-

can bring all the solved challenges and lessons learned

sharing system influencing your operations?

from the products that we have developed for this area

A: The system helps us substantially by allowing any

into the Mexican market, supporting the country’s entry

employee with internet access, regardless of location, to

into that sector

go online and solve a technical problem with the assistance of the company’s international community. The CORE tool

Currently, we have a presence in about 65-70% of the

works like an internal online forum where people can ask

deepwater platforms operating on the US side of the

questions about the different categories that we have, for

Gulf of Mexico, covering companies like Shell, Chevron,

instance, flow assurance or emulsion breakers. Afterward,

and BP. Rightfully, these companies are quite demanding

the inquiry gets circulated to our international community,

regarding asset integrity, flow management, and flow

and the person can obtain an answer from an expert

assurance. In these facilities, when there is an issue with

within hours. The longest waiting time I have seen was 24

flow management 10,000ft below the surface, it is not just

hours. Large firms like Ecolab, Nalco’s holding company,

matter of stopping production and cleaning or changing

have a significant number of employees around the world,

the pipelines, as this would cost millions of dollars.

highlighting the importance of a tool that allows this level

Deepwater projects should prevent similar incidences,

of information sharing. CORE has been fully operational

for which operators should partner with companies with

for about five years, so the database of information and

a proven track records in challenging environments, such

questions is rather extensive.

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179

| VIEW FROM THE TOP

DEEPWATER EFFICIENCY THROUGH AUTOMATION ENGINEERING MICHELE MCNICHOL CEO of Wood Group Mustang

180

Q: What are the main areas that will benefit from the main

provide a way to be efficient with the capital being put

technologies and processes you are trying to bring into

into the market. Standardization is another element that

Mexico?

will work well in the Mexican industry. Instead of having an

A: I can think of a couple areas where I our expertise

optimized design for every installation, there could be a

will come into play, particularly in deepwater activities.

portfolio of three specific platforms, and operators could

Wood Group Mustang has designed more than 60%

decide which one best fits their project. The market would

of the deepwater topsides in the Gulf of Mexico, so we

move at a more agile speed and the repeated use of the

know the Gulf well and we will be able to help a lot in

same design is a much more cost-effective methodology.

the Mexican offshore arena. Another area in which we will be able to bring technology and our worldwide expertise

Q: What are the details of the terms of the contracts you

is in pipelines, as Mexico is undergoing a conversion to

signed with PEMEX in 2015 for deepwater and extra-

transport gas in from West Texas. In the US, our pipeline

heavy oil assets?

group is the number one organization based on scale and

A: We signed a master service agreement (MSA) with

the amount of pipeline we have designed for our clients.

PEMEX, which means we have agreed rates, so PEMEX can release packages of work without having to negotiate

"We signed a master service agreement (MSA) with PEMEX, which means we have agreed rates, so PEMEX can release packages of work without having to negotiate contracts every time"

contracts every time. We have the first packages for small

Michele McNichol,

work. The real benefit comes to the operator by using the

CEO of Wood Group Mustang

same contractor repeatedly because the parties get to

operations and some studies. The MSA facilitates the execution speed of these projects because PEMEX does not have to go through a bidding process or negotiations every time. This fits into the idea I mentioned about standardization. What we will see in the market is that the owners and operators, in this case PEMEX, will have to get used to a few suppliers with whom it has an established relationship, which the MSAs foster through repetitive

know each other quite well, leading to greater efficiency. Q: How will you translate your expertise in automation design in platforms in the US side of the Gulf to projects

Q: How can PEMEX improve its efficiency in order

in Mexico?

to achieve its goals in spite of the capital issues it is

A: The key is to be as efficient as possible. We have a

experiencing?

methodology called â&#x20AC;&#x153;lightweight topsidesâ&#x20AC;? in which we

A: Everyone is undergoing a similar situation. The best

look at the platform and figure out how to optimize it in

alternative is to examine your projects and then prioritize

order to make it as light as possible. At the end of the day,

which ones will help to achieve a given goal the shortest

in the offshore arena, companies pay for the pounds of

timeframe, and then focus on just one or two big projects

steel being installed. Wood Group Mustang can bring the

as opposed to the whole portfolio. The second step is to

technology and experience that we have demonstrated

recruit the right contractor, with the appropriate expertise.

repeatedly in the US and other places around the world into

PEMEX could be struggling with prioritizing due to the

the Mexican market and contribute effectively, ensuring

large portfolio is has to evaluate, which also could explain

operators are efficient and effective. A lot of people are

why the NOC is moving at a rather slow pace. However,

interested in the deepwater round, but they do not have

if PEMEX selects one or two projects, there should be

much capital to invest in this market right now. We could

enough funding to carry them out successfully.

| VIEW FROM THE TOP

HIGH QUALITY ENGINEERING FOR DEEPWATER ASSETS GRAHAM HILL Executive Vice President of Global Business Development and Strategy of KBR

Q: What is KBR’s history regarding its involvement in

proprietary design of ours, as it was developed by GVA

Mexico, and how has it evolved to its current state?

before it was acquired by KBR in 2002. We also use these

A: In the upstream segment, KBR has a 50-50 joint

hulls for deepwater drilling rigs and production platforms.

venture with Grupo R called Mantenimiento Marino de

GVA is an important part of our overall portfolio, with a

México (MMM), focused on the maintenance of offshore

solid track record in terms of quality, safety, reliability,

oil and gas assets. Our second organization is our Western

and availability. The reason GVA is suitable for the Gulf

Hemisphere High-Value Engineering Center (HVEC) in

of Mexico is that there is a lot of stormy weather in that

Monterrey, which has been in position since 1997. More

area, be it hurricanes or tidal surges. Our hull is extremely

than a local office, it is one of our high-value engineering

robust and resilient, and is by far the best value in harsh

centers that covers all of the Americas. Any project we

circumstances and remote areas. A few years ago, when

carry out in the continent will at some point rely on the

there were many hurricanes off the coast of Texas, there

Monterrey office, as it produces high-quality results

were many problems with rigs, but ours were the most

and is extremely responsive. As a company with a well-

stable.

balanced portfolio, we develop technology in-house while also acquiring innovations from third parties. In the

Q: To what extent is implementing technology with long-

fourth quarter of 2015, we announced the simultaneous

term benefits in spite of its initial investment part of your

acquisition of three technology companies, and moving

strategy?

forward we will be acquiring more.

A: Normally, our GVA hulls are large facilities, but in deepwater, we are making a slim-line version, which leaves

Q: What is the attractiveness of deepwater projects in

a considerably smaller footprint and will carry a lighter

Mexico for KBR?

topside. The technology, robustness, and safety features

A: KBR is a prominent company in the offshore oil and gas

are identical to that of our traditional line. The product was

industry, having carried out many large, sophisticated, and

officially launched at the Offshore Technology Conference

complex projects. Since we work with all of the major oil

in Houston in May, and it will be relevant to some of the

companies around the world, we are able to evaluate the

deepwater assets in Mexico when the oil price allows this

economics of any project to make the best value decisions

technology to kick in.

with our customer, be it shallow water, semi-deepwater, or deepwater undertakings. We are currently working

Q: What are your main expectations in terms of the

with BP on the US side of the Gulf on the Mad Dog Phase

offshore market’s behavior?

2 project, which is one of the world’s largest planned

A: As the oil price goes down, the focus of attention

deepwater semi-submersible oil production platforms.

switches to producing more efficiently from existing

KBR is working toward making the project’s economics

infrastructure.

work at the lowest possible oil price.

maintenance will be required to get the most out of the

Cost-effective

and

state-of-the-art

existing assets, which we call “sweating the assets”. That is Q: Could you tell us about your GVA subsidiary and how it

the focus of our maintenance company and we expect this

is adapted to the Mexican environment?

work to continue or pick up when foreign companies enter

A: GVA is part of KBR and is a specialist naval architecture

the Mexican side of the Gulf. Whether it is for brownfields

and marine hull company. In the case of a floating

work with existing assets or greenfields work with new

production facility, the topside sits on a hull, which is a

assets, maintenance is a staple procedure.

KBR is one of the largest global EPC services and technology providers to the oil and gas industry, formerly a subsidiary of oil services giant Halliburton. Its presence in Mexico is distributed across the upstream, midstream and downstream sectors.

181

| INSIGHT

LABORATORIES HOUSE INTERNATIONAL COOPERATION capabilities in Arnhem, in the Netherlands, also operated by ProlabNL. One of the companies closely involved in the

COEN VAN MUNSTER

supply and development of the technology being tested

Manager of Petrogas for US

is Petrogas. Coen van Munster, Manager of Petrogas for

and Latin America

the US and Latin America, explains that having the best processing and separation equipment in deepwater subsea fields is an advantage because processing of

182

Despite the way in which the current oil price environment

the well fluids is often creates a bottleneck that results

has affected ongoing deepwater projects in other parts

in excessively high production costs. He adds that the

of the globe, certain diverse exploratory processes can

laboratory allows users to test these technologies at full

be undertaken during which PEMEX and more operators

scale and with “live” hydrocarbons that behave in the

can test and find the right pieces of equipment. This space

same way as actual oil and gas mixtures at high pressure

has enabled a series of notable collaborations between

conditions like those present in a real oilfield installation.

the private and public sector and between national and

All kinds of subsea installations, especially multiphase

international entities. A great example of these sorts of

separators and flow meters, will be tested in the laboratory,

ventures is the laboratory currently being installed in Boca

where it is possible to simulate every type of oil that can

del Rio, Veracruz, which will seek to test and qualify the

be extracted. This equipment will eventually be moved to

most advanced technology available for fluid separation

deepwater environments of between 1.5 and 3km below

and processing in deepwater subsea applications. These

sea level. IOCs such as Exxon Mobil are already testing

facilities are being built with ICA as the main contractor

their own equipment in these facilities, as onshore testing

and are the result of a technology-sharing agreement

in these controlled environments also prevents them for

between ProlabNL and IMP. The laboratory is considered

having to incur in the downtime necessary to field test

an exact replica of the only other one with these same

these technologies offshore.

STRATEGIC PARTNER IN MEXICO

We generate solutions and profitable business in the energy sector

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• • • • • • • • •

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• Out Of Straightness (OOS) for HT pipelines • As-builts • Pre-lay • Post-lay

PLATFORM INSTALLATION

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ROCK DUMPING

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DREDGING WORKS

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• Maintenance Dredging

• Footprint Inﬁll

• Free span correction • Backﬁll

SUBSEA PIPELINE CONSTRUCTION FLOATING PRODUCTION SYSTEMS

• FPSOs

www.gdtoffshore.com.mx

| VIEW FROM THE TOP

ALLIANCES ALLOW A SMOOTH TECHNOLOGY TRANSFER ÁNGEL MARIO LOZANO President of GDT Offshore

Q: What makes the strategic alliances formed by GDT

segment is the high levels of H2S, CO2, and heavy oil, so

Offshore so important, and what criteria define your

we are developing technologies and methods to address

selection of affiliates?

scenarios that may have been overlooked in the past.

A: The alliances are fundamental because the offshore arena is relatively small and only companies with capital,

Q: Do you see the deepwater sector, which currently lacks

experience, and aptitude can compete. We are a medium-

infrastructure, as an area of opportunity for the company?

sized company, bringing new technologies from abroad,

A: We first began to focus on Mexican deepwaters ten

and our added value lies in identifying the latest developed

years ago, and the technology we have been implementing

tools in the international oil and gas industry so that these

in the industry is actually deepwater technology applied

can be applied in Mexico. Making alliances with large

in shallow waters. Most of the companies that we are

international companies allows us to contribute to the local

allied with are major players in deepwater industry.

industry by supporting them in developing their business

GDT Offshore and our partners have been active in this

in the region. KW Limited is one of the companies with

segment, cooperating with PEMEX in the training of its

which we have an alliance. We are a client of this company

personnel, performing leading engineering activities in

and we supply directly to the end customer. This model

the Lakach field, and developing conceptual design for

speeds up the sale process, as we have a master service

new offshore fields. We do not think infrastructure is a

agreement in place with KW and we take advantage of

problem, since the Mexican offshore industry has been

our network in the local market. Our foreign partners

well established for years now. However, in terms of

save costs by avoiding administrative expenses because

regulation, serious problems can arise if the right expertise

there is no need for them to establish offices in Mexico.

in the field is missing. It is vital to understand the extent

Our international partners are also an important component

of our responsibilities as companies working within the

of our model because being in constant contact with them

deepwater oil industry.

enables us to remain up to date with any technological development or innovation, which provides us with an

Q: Where would you like to see GDT Offshore in five years,

advantage, given how quickly technology changes.

and what strategies are you implementing to achieve these goals?

Q: You have 25 years’ experience working in the industry.

A: For new oil companies entering the Mexican deepwater

What changes have you witnessed with the introduction

sector, we can offer our services to optimize costs,

of assimilation models?

establishing local content and providing our knowledge of

A: Bringing new technologies can make a considerable

logistics. We provide added value, and the companies with

difference on the way local industry operates, something

which we already work are aware of this and recommend

we have noticed particularly in the offshore pipeline sector,

us to potential clients. We also put an emphasis on local

where practices are now quite different from what was

content, since employees from Mexico know the country’s

being carried out five years ago. For instance, PEMEX is

particular environment, and although we can bring in highly

now developing oil and gas reservoirs characterized by

specialized staff from abroad, the inherent knowledge

high pressure levels and high temperatures, which creates

possessed by a Mexican employee is indispensable. We want

new challenges and forces the implementation of new

to be the leading company in our field, so we are developing

engineering solutions in the pipelines’ design, construction,

talent in the company by sending young employees abroad

and operations. We anticipate more opportunities in

to gain more knowledge and skills. GDT Offshore aims to

terms of pipeline construction and maintenance with the

reach a level where it can be seen as the most qualified

introduction of new oil companies in Mexico. Another main

provider of the type of services we offer, and the company

challenge that we have experienced recently in the upstream

seeking to excel in our field in terms of local support.

183

| VIEW FROM THE TOP

IMPROVED DRILLING METHODS TO CUT COSTS BRUCE MALCOLM Consultant at Alpha Deepwater Services

184

Q: Which sectors within the Mexican oil and gas industry

A: We have attempted to provide PEMEX with exposure

represent an attractive option for Alpha Deepwater

to the planning and execution processes used consistently

Servicesâ&#x20AC;&#x2122; involvement?

in development activities around the world, but in truth,

A: Alpha Deepwater Services has continued its advisory

we have not worked closely with PEMEX in development

services in the deepwater segment, and beginning this

execution programs. Improvements in drilling performance

year, we will expand in order to provide the same services

have been steady and extremely noticeable recently,

in shallow water and shelf drilling. We also provide

and we hope for this trend to continue as we increase

technical peer-review support to PEMEXâ&#x20AC;&#x2122;s development

our involvement in shallow waters. I think that everyone

group, developing conceptual plans for fields that have

recognizes the short term will be a difficult period for

moved from prospect to discovery, and subsequently

PEMEX, and it will take a significant amount of effort

to the development stage. We also provide continuous

both from us and from them to ensure that we maintain

support to the exploration group in identifying and

the basic core programs and mitigate interruption. There

ranking drilling prospects. We are continuing to deepen

is no easy solution to the current need to reduce capital

our relationship with PEMEX, because after seven years

expenditure, and this not only applies to PEMEX, but

of collaboration, we feel we have developed a solid

to all oil majors globally. This will provoke a much more

relationship with the various divisions within PEMEX

insightful approach to the programs that will need to be

and we are delighted that the NOC has expanded our

focused on and developed.

services into the shallow waters area. Nevertheless, we will continue to seek potential opportunities with other

Q: How has the position of Mexico in your global portfolio

companies in the Mexican oil and gas industry, but this

changed in the last year?

must be balanced with our continuing commitments

A: PEMEX has been, and we believe will continue to be, an

under our PEMEX contract, and we must ensure that

important client to Alpha Deepwater Services. However,

there is no conflict of interest in our service to other

the extent and scope of our services for PEMEX continues

prospective operators.

to change. One of the things that we have witnessed in the last year is an opportunity to provide technical support

Q: What are the main trends in the US side of the Gulf of

to PEMEX in the areas of identifying potential partners

Mexico in terms of efficiency?

and working on the necessary agreements with those

A: Most of the cost reductions come from application of

partners, whether PEMEX remains the operating partner

traditional industrial engineering methods, which entails

or becomes a non-operating partner. Outside of PEMEX,

studying the individual elements in drilling a well, finding

we expect to provide our services to oil companies coming

ways to reduce non-productive time, and developing

into Mexico through the bid rounds and to indigenous

methods to reduce the time and cost to accomplish each

Mexican oil companies that have been and are being

step in the drilling process. In offshore drilling, the cost

formed to participate in the new petroleum environment

and time decreases are rarely found in increased rate of

in Mexico. We also think we are well positioned to advise

penetration since the most time consuming part of drilling

Mexican companies on investing in and developing the

a well lies not in the drilling itself, but rather in all the

infrastructure that will be required to support the influx

ancillary activities such as running casing, tripping, and

of the exploration and production companies that will

logging.

enter the country as a result of the reform and the bidding rounds. The current infrastructure is woefully inadequate

Q: What novel approaches for shallow water field

when considering the requirements of the entering

development could you bring to the table for the Mexican

companies, and significant fortunes can be made by

industry?

prudent investment in and development of infrastructure.

| VIEW FROM THE TOP

STAGNANT ECONOMY DELAYS TENDERS OCTAVIO NAVARRO SADA Mexico Country Manager of Heerema Marine Contractors

Q: How has the last 12 months treated you in terms of

offshore installation services worldwide, and cover all

PEMEX moving forward on its projects?

demand using our four vessels. As the only country in the

A: Unfortunately, PEMEX has not undertaken any new

world with this many vessels, we seek to accommodate all

projects in the last two years. Instead, projects are

of our clients, and if necessary, we can adapt to different

nearing withdrawal, with certain companies completing

situations in different areas.

developments last year and others currently finishing others that lasted three years. This round presented

Q: How are you working with the fabrication yards to

a significant amount of opportunities for us, and for

strengthen relationships?

all companies in our sector, including those providing

A: In the case of PEMEX, we got together with some of

pipelines. The industry must restart soon since lack of

the yards it plans on working with before the design phase

activity costs a great deal of money.

began, in order to contribute as much as possible. We expect our first vessels to arrive in the country in 2020,

PEMEX needs to implement a great deal of projects, and

although this estimation depends largely on the date of

the NOC is currently mapping different potential scenarios,

the bid for deepwater fields. As there have not been any

and evaluating ways to increase oil production. Some

new contracts, we have not yet had the opportunity to

of these solutions include service contracts with groups

work with PEMEXâ&#x20AC;&#x2122;s procurement category managers. In

of companies, which will provide PEMEX with financing

essence, there is very little contact between PEMEX and

in exchange for services from the State enterprise.

installation companies for new projects. The last project

Nevertheless, only a small number of projects can be

we completed for the State enterprise ended in November

carried out in this way, such as those including operation

2014. Although we reallocated our human resources, we

and maintenance. We believe PEMEX will only implement

still have a few employees in Tampico, Ciudad del Carmen,

this strategy on non-production platforms, such as those

and Villahermosa. Things are happening at PEMEX, but

in charge of compression, habitat, or injection. Production

the migration of contracts and the establishing of farm-

platforms involve the mixing of various types of oil in

outs have been unexpectedly slow. Moreover, PEMEX is

closed valves, an activity that may present difficulties for a

not being helped by the current oil prices, a phenomenon

third party. In terms of priorities, PEMEX should be moving

from which the entire economy is suffering.

faster and take advantage of shallow water projects while production costs are still lower than the price of oil.

Q: To what extent do you think that the deepwater round

Deepwater offers few profit opportunities in the current

is delayed due to the oil price?

environment, making it difficult for a company with no

A: I believe oil prices are a large factor, and the terms and

capital to undertake projects in that area.

conditions of tenders should be adjusted to reflect this, or else the government may find itself without any bidders.

Q: Which companies are your vessels currently working

When this happens and Heerema brings a vessel back to

for and on what kind of projects?

Mexico, we will be working with the newly-formed ASEA.

A: In October 2015, we had two vessels in the Gulf of

We are a company that places considerable importance on

Mexico, one of which had just finished an important project

safety and environmental matters, and endorses all new

for Shell and was on its way to build a large 300m jacket in

regulations surrounding these matters. The International

the same area. The second vessel is working for Anadarko.

Marine Contractors Association (IMCA) has worked on

We also have a vessel working in Africa, and the last one

establishing national norms with PEMEX in the past, and

is located in Australia. We do not think projects in Mexico

I am sure it will now do the same with ASEA in order to

will start for another couple of years, and our ships will be

guarantee safety in the industry and the protection of the

made available here when they are needed. We provide

environment.

185

| TECHNOLOGY SPOTLIGHT: BREAKING RECORDS IN OIL RECOVERY Norway’s deepwaters present some of the toughest

awarded to MAN in 2010 calls for the supply of four

challenges to production on the globe. This characteristic

hermetically-sealed single HOFIM units (size RB 45), with

has led the country to become a hotbed for the

each compressor integrated with a MAN motor (size M43),

development of new subsea technology and serve

and includes long term field services and life cycle support.

as a closely-monitored area by the global oil and gas

To fit the environment, the motor had to be designed in

industry. One of the latest breakthrough technological

a way that withstood the unforgiving subsea conditions

developments can be attributed to Statoil, which, in

found 300m below sea level. After working for an extensive

September 2015, and after ten years of work, announced

amount of time on the development, qualification, and

it had created and installed the world’s first subsea gas

testing program, MAN proudly announced that its HOFIM

compression facility for the Åsgard field in the Norwegian

compressor meets all the requirements necessary for an

Sea. This field is emblematic of Norway’s oil production

operation free of maintenance on the sea bed. It features

environment, as it ranks among the largest developments

a tailored motor design, casings able to withstand 220 bar

on the Norwegian continental shelf, but its production

pressure, a 7-axis active magnetic bearing system, and

rates are dropping due to a decrease in the field’s natural

a special cooling gas extraction system. The magnetic

pressure.

bearings that will contribute to recovering additional gas

improve recovery are located on platforms, but the closer

volumes from depleting gas fields, while also helping

the reservoir is to the compression station, the more

extend the productive life of those assets. The bearing

hydrocarbons can be recovered. Statoil’s new technology

simplifies the system architecture by removing the need

follows this model and represents a quantum leap for oil

for components such as lube oil systems, gas seals, and

recovery and will shape the entire industry’s future, as it

gearbox. The magnetic bearings are integrated inside the

provides various advantages in comparison to conventional

compressor casing, preventing gas leakage and allowing a

upstream facilities on platforms or Floating Production,

smaller environmental footprint. The unit will be remotely

Storage, and Offloading (FPSOs). Not only does it reduce

controlled, encapsulated, and emission free, and will allow

investment costs, it also reduces energy consumption and

the reservoir’s productive life on the Åsgard field to be

CO2 emissions while raising recovery rates over the field’s

extended for another 15 years. Recovery from the Midgard

life. MAN Diesel & Turbo is participating in this historic

reservoir will increase from 67% to 87%, while that of the

development by providing two HOFIM motor-compressor

Mikkel reservoir will soar from 59% to 84%. Overall, this

units to Statoil’s contractor Aker Solutions. The contract

represents an additional 306 million boe.

Traditionally,

the

compressors

needed

How many contractors

does it take to design, build and install a 12,000 MT production platform?

One. If you choose wisely.

The PB-Litoral-A production platform was successfully installed at the new Litoral de Tabasco process center in the Bay of Campeche, Mexico using advanced float-over technology pioneered and perfected by McDermott.

| VIEW FROM THE TOP

FULFILLING DEMAND FOR SUBSEA INFRASTRUCTURE Katsuyuki Imaizumi Vice President of Sales and Marketing of MODEC

Boyd Howell Director of Sales of MODEC

Q: What opportunities does Round One bring for floating

included, know that these are extremely cost-effective

systems in Mexico?

solutions, and taking into consideration the equipment

BH: Deepwater is lacking in subsea pipeline infrastructure,

housed on a FPSO vessel, this complex piece of machinery

creating

Storage,

is worth its price. Price may vary according to the type

and Offloading (FPSOs), given their inherent storage

need

for

Floating

Production,

of field the FPSO is assigned to. If sweet crude is being

capabilities. We therefore expect there to be a significant

produced, it can be a simple FPSO, but if operators have to

amount of demand for vessels with ten-day storage

deal with CO2 and H2S, have to treat the gas and water, and

capacity. Mexico’s shallow water, however, have a well-

reinject the water, then the unit will be much more complex

developed pipeline system, meaning the preference will be

as it has to hold a variety of systems. Until we are given

for shallow water jackets or Floating Storage Offloading

the bidding document that has the technical description

(FSOs), but not FPSOs. Therefore, we expect our FPSO

of what we need to supply, it is difficult for us to provide

business to be more related to international players

a cost approximation. Complexity will drastically influence

entering Mexico to develop deepwater projects.

the price.

KI: For the past two years, we have been ensuring that our

Q: Which elements in your operational philosophy do you

units will be up to IOCs’ standards by meeting with the

believe provide a unique advantage for MODEC in the

individual oil companies that have expressed interest in the

FPSO market?

market and discussing ways in which we could work together

BH: At times, there are gaps between the MODEC

from an early stage. We are also considering expanding

specifications and the client specifications we get in a

this exercise to PEMEX. So far, we have had a 15-year-long

tender package. We believe that this is the band where

charter with the NOC for the supply of FSOs, which ended

costs are added, as some of the oil company specifications

in 2013. We also provided it with engineering information,

may not truly be needed, or were written when the oil price

services, and evaluations for increasing production.

was much higher, and have not yet been challenged. In all of our projects, we are able to build vessels according

Q: How do you see your strategy in Mexico moving more

to our client’s specifications, but we will always try to

towards younger fields where the technological needs of

justify the gap between their requests and our suggested

PEMEX are wider?

offering, trying to understand what is truly required. It is not

BH: The big difference between the work we carried out

uncommon for this research activity to lead to our clients

on the Ta’Kuntah FSO versus Koo-Maloob-Zaap or other

removing certain requirements, because our proposition

upcoming FPSOs is that the former was purely a FSO facility

meets what they are looking for from a technical, quality,

and we did not carry out any production onboard the unit.

and HSE point of view. By discussing options with our

For the FPSOs that will be used in Koo-Maloob-Zaap or

clients, we usually reach a lower CAPEX than they would

Ayatsil, we have to incorporate a production facility to cover

have expected. Part of that goes back to pre-FEED and

all of the eventualities that could occur over the prospective

FEED stages of a project. When an oil company like PEMEX

field life. With that, it becomes a much more sophisticated

approaches an engineering firm to obtain a FEED, it gets

unit than what we had previously in Mexico, and is more in

an engineering solution. Although there is nothing wrong

line with what we have supplied for West Africa or Brazil.

with that, it lacks the perspective of an operator. It would be much more cost-efficient for the company to initiate

Q: What role do FPSOs play in cutting costs for operators

a FEED competition between the different players in the

in this new offshore climate where the future is uncertain?

industry, like MODEC and its competitors, based on a set of

BH: We are looking to challenge the perception that FPSOs

functional specifications. This would allow us to input our

are expensive. All companies that provide FPSOs, MODEC

knowledge and save the oil company both time and money.

187

NEEDED: A subsea connection specialist with a strong safety performance record.

NEEDED: The ability to understand job requirements and identify the most effective and cost-efficient solutions.

NEEDED: Niche, best-in-class products, services, and solutions to solve subsea challenges, from routine to extreme.

NEEDED: Nimble and responsive execution of solutions to minimize risks and optimize productivity.

As the trusted subsea connection specialist, we focus intently on the many challenges that global offshore operators face—from routine to extreme. To meet those needs, we first ask, “how can we do this better?” Then we leverage our vast experience working in dynamic and unconventional environments to solve beyond the status quo. The results are innovative solutions that safely de-risk operational systems, increase reliability, and enable a lower total cost of ownership for our clients.

Connect with what’s next at Oceaneering.com/WhatsNext

| INSIGHT

GIVING AGING INFRASTRUCTURE ANOTHER CHANCE Harkand’s North American operations began in 2013, and by the end of 2014, the company had increased its revenues by 50%. The firm decided to enter Mexico in

ASHIT JAIN

2013, when it took over Veolia Marine Services’ operations

Managing Director – North

in Houston. At that time, the operations were limited

America & Africa of Harkand

to the US and part of the strategic growth plan was to expand its business geographically and given the previous experience that Ashit Jain, Harkand’s Managing Director

out that Mexico has a significant amount of talent, which

- North America & Africa, had in Mexico, this country

he has seen first-hand. However, two areas in which he

became an obvious choice.

finds Mexico still lagging in terms of skills, and where Harkand can add value and apply its experience training

“Our main motivation for entering Mexico was the fact that

employees in other countries, are ROV operations and

we specialize in inspection, repair, and maintenance (IRM)

specialized diving. “As a company that performs highly

of ageing shallow water and deepwater assets. Given the

specialized diving operations, we can bridge the training

mount of installed offshore infrastructure in shallow water

gap here in Mexico to improve the skills of an already

blocks, the country provides a considerable opportunity

talented workforce. This has always been our model

for our services,” he shares. Harkand opened an office in

when entering new markets.” Jain says there are well-

Ciudad del Carmen and in 2015, it was awarded a contract

established local diving services companies in Ciudad

by Swiber Offshore for providing diving services in the

del Carmen operating at the moment and working

Ayatsil project. Harkand’s strategy has always been to

directly with PEMEX. Larger construction projects are

work for the main contractors upon entry into the market

slightly more technically-oriented, meaning they require

in order to build a solid reputation.

significantly more engineering expertise, and this can be the niche in which Harkand differentiates itself.

The issue with aging assets in shallow waters differs greatly from aging assets in deepwaters, tells Jain. “Typically, in

Having a state-of-the-art fleet is another component

shallow waters, the life expectancy of the infrastructure

that makes a company thrive in Cuidad del Carmen,

at the point of design ranges from 15 to 20 years, but

and Harkand’s ability to maintain high-spec fleet is a

in some of the fields it can end up being used for much

byproduct of the way the company was formed. “Harkand

longer.” The fact that many of the subsea structures are

was established when subsea vessel company Iremis was

in an extremely corrosive environment results in a greater

merged with two companies based in the North Sea called

requirement for inspection and repairs to ensure there are

ISS and Andrews Survey in 2012. The company further

no losses in the structural integrity, no shift in the pipelines,

expanded by acquiring Veolia Marine Services. This buy-

and no corrosion. “Finding the problems in advance and

and-build strategy has set Harkand on the course to

implementing preventive measures before issues arise can

develop a robust fleet with a suite of complementary

help the oil and gas industry, not just in terms of economic

capabilities that benefit the other divisions while also

savings, but also by ensuring greater levels of safety and

fostering organic growth,” says Jain.

environmental responsibility,” Jain asserts. The majority of Harkand’s vessels are new, with the oldest One of Harkand’s most notable advantages is the fact

in its fleet dating back to 2008. The company has higher

that the company can provide both construction and

spec vessels, most of which are equipped with two cranes

IRM services with its own vessels, ROVs, and diving

and others have twin diving bells. While the daily cost of

teams.

reduces

twin bell vessels may be higher, when examining the time

overall risk on the project and reduces at-completion

saved in executing the project, the additional expenses

cost, thereby creating significant value for clients.

are recovered. The company will launch a newbuild dive

Harkand has a fleet of ROVs and trained personnel in

support vessel next year with capabilities for deepwater

Mexico who can carry out the necessary tasks from well

and shallow waters, the Harkand Haldane, which will be

intervention operations, hydrate remediation, chokes

equipped with diving and ROV capabilities, its own survey

replacement, and any other intervention that may be

equipment, and a 250-tonne crane that can work at a

required to ensure trouble free operations. Jain points

depth of 3,000m.

This

integrated

service

approach

189

ONSHORE & UNCONVENTIONAL RESOURCES

Mexicoâ&#x20AC;&#x2122;s onshore fields are maturing and in need of innovative EOR and IOR solutions to maximize the recovery factor and extend the productive life of these fields. The Energy Reform has made various tools available to revitalize these fields, such as licensing rounds, farm-outs, and the migrations of the COPS and CIEPS. R1-L03 successfully allocated 25 onshore blocks. The fields retained by PEMEX can benefit from new contract types to enhance their attractiveness to private investors that will contribute the necessary investments, technological capabilities, and operational expertise to optimize production. One of the anticipated changes is the migration of the CIEPS and COPS, through which

privately operated fields will contribute to national production in an almost immediate manner. Although the contract migration has been delayed due to the learning curve this process entails for all the parties involved, the authorities are speeding up efforts to complete the process before the end of 2016.

This chapter will address the plans and strategies of contract-winning firms and their potential suppliers and service providers. It will also review the applicability and feasibility of enhanced oil recovery methods and other innovative technologies that could address the challenge posed by Mexicoâ&#x20AC;&#x2122;s mature fields.

191

| CHAPTER 8: ONSHORE & UNCONVENTIONAL RESOURCES 194

VIEW FROM THE TOP: Luis Vázquez Sentíes, Grupo Diaviaz

196

VIEW FROM THE TOP: Stephen Meheen, Compañía Petrolera Perseus

197

INSIGHT: Rogelio Montemayor, Strata BPS

198

EXPERT INSIGHT: Kevin Smith, Renaissance Oil

199

VIEW FROM THE TOP: Vicente González Dávila, Geo Estratos

200

EXPERT OPINION: Thomas Tunstall, University of Texas at San Antonio

202

VIEW FROM THE TOP: Franco de la Concha Hamdan, EIM Capital

203

INSIGHT: Luis Vielma Lobo, CBM

204

VIEW FROM THE TOP: Kevin Macumber, Tellus Operating Group and Telpico

205

VIEW FROM THE TOP: William Waggoner, Mexico Petroleum Company

206

VIEW FROM THE TOP: Ignacio Filici, TrueBlackOil

207

INSIGHT: Andrew Auns, Williams Scotsman

208

TECHNOLOGY SPOTLIGHT: Thermo-Chemical Well Treatment, Tekna Services

209

INSIGHT: César Ruiz, Tekna Services

193

| VIEW FROM THE TOP

NATIONAL CHAMPION ABOUT TO BECOME AN OPERATOR LUIS VÁZQUEZ SENTÍES Chairman of the Board of Grupo Diavaz

194

Q: How is Grupo Diavaz advancing in the migration of its

to have participated in Round One R1-L01 and R1-L02,

COPF and CIEP contracts?

particularly because we would have gained much-desired

A: The Energy Reform has given us the option to migrate

knowledge and experience in operating offshore fields

our long-term contracts with PEMEX, so now we are

from our potential partner. However, the implied risks were

working on this for our Miquetla and Ébano fields. For this

too significant.

purpose, we have worked closely with PEMEX, the Ministry of Energy, and the Ministry of Finance. This is something

Players coming to Mexico do so with the intention of

that no one in Mexico had done previously, so we are

producing oil but Grupo Diavaz already has fields in

familiarizing ourselves with this new scheme. Neither

production, so the conditions are different. By failing to

the government nor our company has experience in

participate in the shallow water phase, we have had time

migrating contracts, thus the process has been somewhat

to focus on other potential projects and contractors, and

challenging, but we see this is part of moving the Energy

study other fields. Nonetheless, we participated in R1-L03,

Reform forward. PEMEX is going to be our partner, so

where we were interested in four large blocks out of the

we have had to establish the agreements, such as the

25 that were tendered. Ultimately, we won the Borcodón

percentage allocated to each company, the fiscal regime,

and Catedral fields. Grupo Diavaz could participate with

costs, and government take.

a partner, although we plan on working independently at this moment.

Out of the 22 contracts eligible for migration, two are close to completion, providing us with a precedent

In the near future, there are going to be several oil

and parameters for the migration. The authorities have

companies operating in Mexico, including companies

successfully negotiated the learning stage, and now it is

from the migrated contracts, companies that have been

time to act. Our Cuervito and Fronterizo fields will also be

awarded contracts in Round One, and PEMEX. In this sense,

migrated soon, but for now I am only referring to the other

Grupo Diavaz is preparing to become a contractor for

two contracts. One of the contracts that will be migrated

those new operators. Now, Grupo Diavaz has production

is for a gas field, and the other is an oilfield in the southern

and services divisions. Our goal is to separate the oil and

region, so the main difference will be the tax regime, which

gas division and form two companies, an operator and

differs for light oil and heavier crudes. The oilfields will have

an oilfield service company, a process on which we are

production-sharing agreements and for the gas fields, we

already working.

might be able to obtain a license, but this is still under discussion. We are excited by the possibility of becoming

We are definitely interested in participating in the farm-

a formal operator. Once our contracts are properly

outs, and we are already analyzing the opportunities. A

migrated, Grupo Diavaz will be producing 25,000b/d. It

farm-out entails partnering with PEMEX, with whom we

will take less time for this to happen than that required by

have worked for years. As opposed to Round One, the

the five winners of R1-L02 to begin production.

fields are already in production, enabling us to get started in a six-month period. There are fields we know have

Q: Why was Grupo Diavaz absent from the first two

attractive resources because we have worked in them for

phases of Round One?

some time.

A: Grupo Diavaz has limited experience operating offshore fields, although we considered entering the bidding

Q: What will be the role of your exploration division once

rounds. After thorough assessment of the tendered fields,

the two companies are created?

we decided not to participate even though we qualified

A: The exploration segment will be part of the operations

for R1-L01 and R1-L02. We would definitely have liked

company. Out of the 22 CIEPS, Ébano is the most

productive field, where Grupo Diavaz has increased

Q: What will be the pillars of Grupo Diavazâ&#x20AC;&#x2122;s mid-term

production by 10,000b/d. This is a staggering number

growth?

considering other companies increase their production by

A: We definitely want to become an operator, but

only 300b/d on average. Our success can be measured by

the migration has taken longer than expected. Once

the increase in production and reserve restitution levels.

the migration is completed, Grupo Diavaz should be

Miquetla was awarded to us a year ago, and Ă&#x2030;bano was

producing 25,000b/d, so we are eager to begin. We want

given to us on January 1, 2013. When we began operating

to win a block or two at some point in the near future

Miquetla, this field was producing 400b/d, and we have

through the tendering processes. There will be plenty of

now increased this figure to 2,600b/d. In other words, we

new and even some inexperienced players joining R1-L03,

have managed to extract more oil, and this is the same

some of which believe being an operator means having

strategy we want to apply to PEMEX tenders.

plenty of capital and subcontracting everything, which in my experience is far from the truth. Conversely, Grupo

Lifting systems will be crucial. So far, Mexico has been

Diavaz has been investing time, money, and educational

lucky in the sense that it had easily extractable oil. Now

support since 2003, when we began acting as an

that increasing production will rely on mature fields, we

improvised operator.

will need to implement artificial lifting systems and every available resource to maximize output at competitive costs.

We need to find a way to finance our growth, and that

The current oil prices will also force us to do this efficiently,

is the reason why we are restructuring the company. We

first and foremost, and at the lowest cost. Grupo Diavaz

also need to ensure the necessary talent, which is why we

has carried out various tests to find the most effective

are approaching several universities in order to influence

way to produce according to the various conditions in

the courses they offer. After all, Grupo Diavaz will need

the country. For instance, we have used vapor to extract

enough experienced personnel to operate six fields. Our

heavy oil. We are well-positioned to provide artificial

goal for ten years from now is for our new companies

lifting services in mature fields, and we are studying the 25

and subsidiaries to hold the same position in the country

blocks tendered in R1-L03 to determine where we could

as Grupo Diavaz enjoys right now as a prestigious and

increase production at the lowest cost.

knowledgeable player.

195

| VIEW FROM THE TOP

FROM MATURE FIELDS TO FLARE GAS STEVEN MEHEEN CEO of Compañía Petrolera Perseus

196

Q: When did the company come into to existence and

of ledges that PEMEX had never drilled. Nonetheless, it

what was its purpose at that time?

has a challenging social setting, as the field is located in a

A: Compañia Petrolera Perseus is part of the holding

community. Thanks to our effective bidding strategy, we

company called Interamericana, and is also a holding

were able to win the latter two fields.

company itself that encompasses the E&P energy services business, and the energy technology businesses. We also

Q: What kind of innovative technology has the group

have a small services group, which includes a supply and

created over the years that you plan on using in the

mud boat company based in Ciudad del Carmen. Our

production of these fields?

sponsors are well known Monterrey business people that

A: We predominantly license technology from other groups

are looking to advance into the energy sector. We formed

we have worked with. We licensed the complex nanofluid

the company in January 2015 with the aim of taking

technologies from FlowTech Industries in the US, which is a

advantage of the Mexican Energy Reform. The main idea

fluid for reservoir stimulation and well completions that has

behind the creation of Compañia Petrolera Perseus was

a solid track record in enhancing production in new wells

the evaluation of the bidding rounds, PEMEX farm-outs,

and renovating old ones. It will be widely used in Fortuna

and service contracts that will be migrated to production-

Nacional, but not as much in Tajón. We are also working

sharing contracts, as well as service companies, both

with PEMEX in various wells to test this technology.

offshore and onshore. We have narrowed down this

Moreover, we have agreements with Gray Rock Industries

general vision to E&P, as well as a small technology group

to liquefy gas, a technology that will be used to monetize

where we have licensed interesting oilfield technologies

flare gas. We consider this a significant opportunity, as

like Flotek and GreyRock, and with which we have

Mexico has one of the highest gas flaring rates in the world,

exclusivity in Mexico. So far, we have bid on three blocks in

and the World Bank and environmental groups are tackling

R1-L03 and were awarded two.

this practice. Our goal here is to partner with PEMEX and others to monetize the gas into a useful product. We could

Q: How did you manage to win two blocks, and what

transport gas to the GTL plant and produce low-sulphur

impeded you from winning the third block?

diesel, low-sulphur kerosene for aviation fuel, or adapt the

A: Being the first mover is always difficult, especially in

blend to spike back into the crude and reduce its gravity.

Mexico where it is necessary to perform an exploration phase. Bidding in R1-L03 carried much less uncertainty

Q: How will you ensure the national content requirements

than other bidding rounds, as there was a wealth of

work in your favor?

available data from PEMEX that CNH had included in the

Data Room and the wells had already been drilled. We

manufacturing commodities in the country, as we would

started by screening 15 out of the 25 fields offered and

like to improve the technology available in Mexico and

we narrowed down our interest to the three that we bid

subsequently import our manufacturing from Europe and

on, namely Tajón, Fortuna Nacional, and Mayacaste. We

North America. This initiative is not fueled by the national

did not bid aggressively on the latter, given its relatively

content rules, but rather because having a manufacturing

low amount of reserves. For Tajón, however, we liked the

plant would allow us to lower costs and have more

volume of the reserves, and the field’s deep wells and

control over our operations. The fact that companies are

deep traction carbonates, something we understand well

downsizing can be worrisome, but it also provides the

within our groups, so in this case, we were keen to win

newcomers in the marketplace with a pool of qualified

the field. We also decided that Fortuna Nacional was in

talent. PEMEX professionals that were let go will find

an interesting setting to redevelop, with some upsides

opportunities in the private sector and we hope to be able

around the fields with deeper horizons and some pockets

to provide them with new opportunities.

are

assessing

the

possibility

eventually

| INSIGHT

THE EARLY BIRD CATCHES THE BLOCK Strata, a familiar name in the mining industry, decided to expand its scope when the Energy Reform was announced, operator. “We began operations in Texas in order to gain

ROGELIO MONTEMAYOR

experience before delving into the Mexican market. This

Director General of Strata BPS

taking the necessary actions to become a knowledgeable

was necessary so that we could assess whether or not we wanted to participate in Mexico’s bidding rounds,” explains Rogelio Montemayor, Director General of Strata BPS. The

there are new regulators, new laws, and a new approach to

company’s shale and conventional mature field projects in

the industry as a whole, as well as a culture change from

Texas allowed it to understand how the industry functions

regulating one public entity to several private ones. Even

and to assemble its own technical team, which Rogelio

the regulators have to learn how to manage their new

believes later became a crucial element to the company’s

responsibilities, which presents a significant challenge,

successful participation in Round One.

not to mention the fact that ASEA will have to approve all the permits in a short time in order to allow companies to Mexico’s

begin production as soon as possible.” The only challenge

northerly neighbor, Strata BPS decided to participate

he is not concerned about is security, given the company’s

in Round One. “We opted for R1-L03 because moving

extensive mining experience in northern Mexico.

Having

gained

sufficient

experience

from

offshore would not make sense for a company of our size, as it would require more capital and different skillsets,”

When it comes to the future of the company, Montemayor

Montemayor clarifies. The company considered mature

indicated that it is looking into R1-L05. He even admits that

fields attractive because of their proven reserves, but also

unconventional resources might come into the plans much

because the fact that the fields were already in production

earlier, as Block 18 is not constrained in terms of depth,

reduced the financial risk, as opposed to Mexico’s

meaning Strata BPS could access a shale formation in its

shale options, in which companies will need to test the

existing fields if this makes sense financially. Depending on

formations and evaluate the resources.

the way the conditions and the fiscal terms are presented, Montemayor thinks that the unconventionals round could

When commenting on the factors that led to Strata BPS’

be attractive for a company like his. “If the authorities

success in its selection for the allocation of Block 18,

give a reasonable timeframe for the exploration phase,

Montemayor claims the quality of the company had a deep

companies will be able to adjust their strategies while the

influence in the results. “We managed to take advantage

industry’s cyclical nature helps increase the prices, making

of the industry’s downturn by putting together a team

the fields attractive by the time developments begin,” he

consisting of several talented engineers and geologists that

maintains. In addition to these opportunities, Strata BPS

were available because other companies, including PEMEX,

is considering working with PEMEX on a farm-out, but

had let them go.” Strata BPS began analyzing the blocks

the company is waiting to evaluate the structure of the

in 2014 when the tender was pre-announced. The Mexican

contractual terms before furthering its interest.

firm was one of the first three to access the data package, giving it six full months to analyze the fields and optimize the economic and the production models. Montemayor claims that Strata BPS’ early-bird status was an important factor in its success, allowing it to see opportunities and aspects of the play that later-comers may have overlooked. The contracts for the fields awarded in R1-L03 are expected to be signed in May, after which there will be a 90-day transition period before the fields are officially passed over to their respective winners. During this

“We opted for the third phase because moving offshore would not make sense for a company of our size, as it would require more capital and different skillsets”

period, Strata BPS will begin to take control of its field’s operations, a task that is far from void of challenges. Montemayor shares his concerns in this regard, “First of all,

Rogelio Montemayor,

Director General of Strata BPS

197

| EXPERT INSIGHT

WAKING THE SLEEPING GIANT An important aspect of Renaissance is that it is a small, growing company, with an exclusive focus on Mexico,

KEVIN SMITH

making each awarded property the highest priority. “Due

Vice President Business

to its size, PEMEX has had to leave behind some smaller

Development of

and medium-sized fields that are not getting much

Renaissance Oil

attention for development but are highly impactful for a company like ours,” Smith shares. Renaissance plans to develop these through the application of capital and

198

Renaissance was awarded the three fields of Topén,

new technologies. The Vice President believes that the

Mundo Nuevo, and Malva in the third phase of Round

entrance of independent companies into Mexico’s oil and

One, which involved onshore oil fields. Kevin Smith,

gas industry will kick-start the re-development of these

the company’s Vice President Business Development,

fields to the great advantage of the industry.

believes that one of the things Mexico needs above and beyond investment capital to spend on the resource base

Renaissance also has aspirations beyond conventional

is the introduction of new technology. “Since PEMEX

onshore oil fields, as the company is extremely interested

has been underfunded, it has not been able to develop

in tapping into Mexico’s shale and tight rock resources. The

technology at the same pace as oil companies in the

main difficulty, according to the Vice President, will be getting

US and Canada,” he explains, adding that Renaissance

around the lack of information, which comes from the fact

has invested heavily and put a strong emphasis on its

that Mexico has not focused enough on the development of

technical team, which has a solid track record in applying

its shale and tight-rock formations. Nonetheless, he believes

new technologies to liberate unconventional resources.

Mexico presents a unique opportunity. “Our initial analysis

For instance, the company was able to capture the core

of the unconventional opportunities in Mexico is highly

of the Mitchell Energy team, which cracked the code on

encouraging. Many of the shale basins in other jurisdictions,

commercializing gas from the Barnett Shale formation,

including Canada and the US, have already been identified

resulting in the development of shale plays in the US,

and in development for many years, making it difficult and

Canada, and elsewhere in the world. “These are the

often prohibitively expensive to acquire an entry position.

people who gave birth to a new industry,” he affirms.

With Mexico’s unconventional industry being in its infancy,

“As this innovative team is now involved in Renaissance,

we believe there is tremendous opportunity to grow with

we are able to apply its knowledge and enthusiasm to

the country in shale development,” Smith comments.

tackle Mexico’s immense unconventional opportunities.

Renaissance has been active in mapping and identifying

In addition, we can use this expertise to apply new

shale resource trends, and the company believes that there

technologies and better develop mature fields.”

is outstanding potential in the country.

Vision Combining decades of successful oil and gas experience in Mexico and the best practices of US exploration and production technology to efficiently and effectively explore and produce oil and gas in Mexico under the new Mexico Energy Reform.

www.mexicopetroleumcompany.com

529 W. San Francisco Street, Santa Fe, New Mexico 87501 Phone: (505) 699-2616 | Fax: (505) 820-9228 william.waggoner@mexicopetroleumcompany.com

| VIEW FROM THE TOP

QUADRUPLE WINNER OF R1-L03

VICENTE GONZÁLEZ DÁVILA CEO of Geo Estratos

Q: What factors led to your decision to bid for four blocks

responsibility. It would be more problematic to receive

in the Tampico-Misantla Basin, and what main challenges

existing infrastructure that requires investment to develop,

did you faced in this endeavor?

repair, and maintain, as this would be costlier than our

A: The fields we were awarded had been abandoned by

current situation. The challenge associated to property

PEMEX since 1967, and have not had any activity except

isotropy deposits, which is the property change in relation

for some marginal punctual oil extraction since then.

to horizontal and vertical distribution within the space of

As a technology-based firm with more than 20 years of

the deposit, has been well analyzed so far. The next step is

experience in those fields, we saw a real opportunity in this

to use 3D seismic technology and to reprocess information

round to prove our abilities as operators and to develop

to improve our production expectations.

Mexico’s oil production. Our business is developing technology that will confer us advantages over knowledge

Q: Given the fact that you offered a relatively high royalty

and best-practices, allowing for cost-reductions and

rate for the State, how will you ensure the company will

competitiveness in challenging areas. We are designed

be able to invest in future projects?

according to a model that gives us the capacity to be

A: We are a company that does not depend on public

competitive and produce our fields at a low cost.

funds or on financing processes from other institutions. We invest in our own projects, make money from these,

Our first challenge was not related to the database, but

and reinvest it elsewhere. The royalties that we offered

rather it was linked to succeeding in winning the four

are a reflection of the security that we obtain from being

blocks we were awarded. We had to ensure that our

a longstanding company. Unlike companies that were

technological development was sufficiently far along

created at the last minute to take advantage of the Energy

to allow us to bid high royalties without putting the

Reform, we have had the time to carry out the necessary

profitability of our projects at risk. Overall, the bidding

analyses. The rate we bid was our strategy for the future.

round was well carried out, but I think CNH should have

Going forward, we will offer lower royalties, as we will have

included many more areas in the tender, so that competing

higher control of the market. Moreover, our technological

firms could have a wider capacity for analysis. Indeed, the

capacity allows us to be efficient at the current royalty rate

excess of demand over supply complicated CNH’s work,

that we bid, and not to have to worry about relying on

even though it was transparent and just. CNH should be

corrupt processes to obtain contracts.

more aggressive and make a larger number of contractual areas available per unit of time.

Q: Now that your firm is changing, how do you hope the company will grow, and how do you hope to contribute to

Q: When will you begin operations on those fields, and

Mexico’s oil and gas energy and its production?

what first steps will you take?

A: We have been preparing to become an operator for

A: We hope to receive the fields at the start of May, despite

many years now, training our personnel with the necessary

the fact that the original contract signing date was set for

knowledge. In fact, our service company will participate

February 8, 2016. From there, we will begin activities in

as a service provider for our operator. Our vision for the

June or July. Our team and personnel are ready to start on

future is to have an operating company that is completely

that date, and our execution capacity is directed toward

independent of that of our services. We would like to

the installation of the infrastructure that our four fields are

acquire around 25 fields in the next two years. We think

currently lacking. We do not consider this a challenge, but

this will allows us to contribute 5% to national production.

rather, an opportunity, because we can plan and design

We also want to contribute through our services, and our

our own infrastructure using the latest technology. We will

main concern at the moment is to put forth a solution that

be working in a context of high security and high social

is adapted to the investment purpose of operators.

199

| EXPERT OPINION

SHALE DEVELOPMENT AND MEXICO production in Mexico poses many interesting challenges in

BY THOMAS TUNSTALL

the wake of the recently enacted Energy Reform.

Senior Research Director at the University of Texas at

On the other side of the Rio Grande River, South Texas

San Antonio - Institute for

has seen extraordinary economic activity as a result

Economic Development

of the Eagle Ford Shale. The economic impact in 2013 was estimated to be US$87 billion, supporting over 150,000 full-time jobs (Tunstall, Oyakawa et al. 2015). It

200

Opportunities for unconventional or shale oil and gas

is interesting to note that while the Eagle Ford formation

production in Mexico remain in the earliest stages of

continues well into Mexico near Monterrey and over to the

development. While shale gas production increased

east along the Gulf Coast, the production activity literally

significantly in the US since 2000, and shale oil production

stops at the river border. In the Eagle Ford, over 10,000

since 2008, no other country in the world has yet to

wells have been completed to date. In Mexico by contrast,

replicate that success. Due to its close proximity to

there have been only a handful of test wells developed.

major shale field development in South and West Texas, Mexico is particularly well-positioned to take advantage of

The Eagle Ford formation actually continues on into

unconventional extraction techniques. However, significant

Mexico. On the Mexican side of the border, there are

challenges will have to be addressed.

apparently several formations, with the Burgos Basin as perhaps the best known of all. These preliminary maps

Mexico already imports refined products and natural gas

provided by the EIA suggest that shale formations in

from the US. In 2015, Mexico imported over 1tcf of natural

Mexico extend south, well into the state of Veracruz

gas from the US, up from only 333bcf in 2010. New natural

and perhaps even beyond. The reasons that shale

gas pipeline projects have resulted in the transport of

development has flourished in the US and not elsewhere

additional supplies to Mexico. All of this while Mexico sits

to date is related to a couple of key issues. First, the US is

on top an estimated 545tcf of shale natural gas reserves.

one of the few countries in the world that allows private

Estimates for unconventional oil reserves in Mexico are

individuals to own mineral rights. In most other countries,

believed to be 13 billion barrels (EIA 2013).

private individuals may only own the surface rights to the land. Mineral rights in most countries are either owned

The importance of the Energy Reform in Mexico should

by the state, as is the case in Mexico, or the monarch, as

not be underestimated. While Mexico is a net oil exporter,

is true for the UK, or perhaps by the currently reigning

decreased production over the years has narrowed that

dictator in developing countries with despotic regimes.

margin. Mexico’s oil consumption in 2013 was 2 million b/d

Private ownership of mineral rights creates a powerful

and production was only slightly higher at approximately

incentive to develop the oil and gas resources below

2.5 billion b/d. Despite increasing amounts of investment

ground. One of the reasons the Eagle Ford could be

on exploration and production by PEMEX, oil production

developed so quickly was because E&P companies could

in the country peaked in 2004 and has been declining

negotiate and close lease and royalty agreements in a

steadily in the decade-plus since then. Were it not for the

timely manner and begin drilling operations. Working

prospect of the Energy Reform’s implementation, Mexico

with state bureaucracies, by comparison, is often a time-

would likely transform from a net exporter of crude oil to

consuming process.

a net importer within a few years. The other reason, and probably the key factor, in the US The bulk of Mexico’s shale prospects appear to lie in the

shale development, was due to the nature of companies

north and northeastern sections of the country, where

that pioneered the unconventional techniques. Shale oil

infrastructure is often largely undeveloped. This means

and gas production techniques were not pioneered by the

that in order to tap the country’s bounty of shale oil and

major oil companies. Rather, development occurred due to

gas, infrastructure such as roads, housing, rail, pipelines,

the persistence of independent oil and gas companies like

and many others will have to be built first. The ability to

Mitchell Energy targeting natural gas formations (Hinton

develop a suitably skilled workforce will be essential to

2012). These independent companies experimented and

long-term success. Security issues must also be addressed.

risked capital until they figured out how to unlock the

As such, the potential unconventional oil and gas

shale oil and gas trapped inside the rock.

The story of the prospects for the Energy Reform in Mexico

and implementation (Mills 2015). Over time, these techniques

necessarily relies on the experience north of the border, as

can be expected to significantly drive down costs and make

the US has been the only country to exploit unconventional

shale oil and gas development in challenging environments

techniques, even though shale oil and gas reserves appear

like Mexico more feasible.

to be in abundance throughout the world. The significant shift in fortunes in the US oil and gas industry as a result

The Energy Reform in Mexico will continue to play out over

of the use of unconventional techniques has been an

the coming years, but ultimate success is by no means

epochal event that has literally transformed the global

guaranteed. The passage of constitutional changes to allow

energy market. Hence, there is ready demand in many

private investment in the energy sector, coupled with the

countries for now plentiful US natural gas. The US now

enactment of secondary laws, was a significant achievement

produces more natural gas than it ever has, amounting to

to be sure. However, the next phase of implementation will

over 30tcf annually. The fact that the US has the second-

certainly prove equally or even more difficult. The prospects

lowest cost for natural gas worldwide, preceded by Qatar,

for full implementation of the Energy Reform in Mexico

has resulted in a plethora of global manufacturers setting

continue to remain promising, but the landscape will remain

up facilities in the US, representing billions of dollars more

one of continuous change. Previous experience in another

of investment. Given these recent developments in the US,

industrial sector may be instructive. For example, it is worth

it is not hard to understand why there is significant global

noting that in the automotive industry, Mexico now ranks

interest in shale oil and gas development. With extreme

as the number four manufacturer worldwide and continues

proximity to the US, particularly the Eagle Ford in South

to expand. Production in light vehicles has grown from 2.1

Texas, Mexico may have the best near-term opportunities

million units in 2008 to 3.2 million units in 2014. By 2020,

for shale development of any country if the Energy Reform

that number is expected to reach nearly 5 million units of

there can be successfully implemented.

light vehicles produced, so a worthy precedent has been established in the automotive sector.

For Mexico in the short term, there may be a shortage of suitably skilled engineers, geologists, and other experts.

For northern Mexico specifically, successful shale oil and gas

The high level of unconventional oil and gas development

development will have to be preceded by a wide range of

in the US currently limits supply. However, over the longer

infrastructure projects. Natural gas production, for example,

term, US expertise in shale technologies and techniques can

is dependent on a pipeline network that runs all the way to

be expected to be exported to Mexico, which will provide

the wellhead. Development of a suitable pipeline system

positive balance of trade benefits to its neighbor country.

will in turn require a skilled workforce, housing, roads, rail,

While Mexico is a net oil exporter, decreased production over

water supply and medical facilities to support construction

the years has narrowed that margin. Mexicoâ&#x20AC;&#x2122;s oil consumption

activities. The investment at both the state and federal

in 2013 was 2 million b/d and production was only slightly

level will be substantial, but would go a long way toward

higher at approximately 2.5 billion b/d. And as mentioned

improving the quality of life in one of the most neglected

previously, Mexicoâ&#x20AC;&#x2122;s oil production peaked in 2004 and has

areas of the county. No doubt, significant hurdles remain

been declining steadily in the decade-plus since then.

with regard to the ultimate success of Energy Reform in general, and shale oil and gas development in particular.

It is important to note that unconventional techniques vary

However, if these issues can be addressed in the coming

significantly from more traditional conventional projects.

years, Mexico is in a position to significantly improve the

The major E&P companies typically engage in capital-

quality of life of many of its citizens, as well as usher in a

intensive projects such as deepwater drilling that requires

new era of energy independence with regard to natural gas

hundreds of millions of dollars invested into a single

and remain a significant oil exporter to the world market

platform. This is a significantly different business model than the drilling-intensive operations associated with companies focusing on shale oil and gas opportunities. In fact, the use of unconventional techniques has been likened to a manufacturing process, as opposed to traditional wildcatting, where early oilmen relied not only on geology, but also intuition. E&P companies using unconventional techniques continue to adopt more systematic approaches in order to drive their completion costs down. In addition, a myriad of new technologies that involve logistics, instrumentation, chemistry, sensors, and seismic imaging, among many others, are in the early stages of development

Mexico sits on top an estimated

545tcf of shale natural gas reserves. Estimates for unconventional oil reserves in Mexico are believed to be 13 billion barrels

201

| VIEW FROM THE TOP

THE FUTURE FOR A GREEN AND POWERFUL MEXICO FRANCO DE LA CONCHA HAMDAN President of EIM Capital

Q: Why is EIM Capital interested in developing the

free market, in Mexico, it depends on the government and

country’s unconventional resources?

the policies it implements. For instance, the authorities

A: 202

believe

that

the

development

Mexico’s

will probably not release Mexico’s most promising shale

unconventional resources would have the largest impact on

basin, Tampico-Misantla, which is the area most likely to

the Mexican economy. In just a few years, this industry made

attract investment, because the government still needs to

US$500 billion per year in the US alone, with approximately

consult the local indigenous populations and confront many

US$200 billion going directly to the US Government in

misunderstandings surrounding the possible impact of the

taxes, totaling a third of the Mexican budget and half of

development of shale resources.

our GDP. Replicating this in Mexico, which is possible given we have the same amount of resources, would strongly change the face of our economy, and EIM Capital is invested in making that happen, despite the present challenges. So far, this industry has only been developed in the US, and it requires scale because the marginal product is not as high as it is in conventional oil. American Energy partnered with us to develop the Mexican shale industry, drawing from

"Mexico’s most promising shale basin, Tampico-Misantla, is the area most likely to attract investment" Franco de la Concha Hamdan,

its broad US experience, where its team was responsible

President of EIM Capital

for drilling slightly more than 10% of the shale wells. In terms of competitiveness, Mexico’s shale industry would be competing with more players than just the US. The

There

Argentinian Government has made its shale industry an

environmental impact of shale production. The main

attractive investment destination thanks to artificially higher

global issue is an excess of carbon emissions, which come

oil and gas prices. Although Argentina is well-positioned

from dirty coal-based electricity, and the solution to this

to become the next country to develop its unconventional

problem may just be the production of unconventional

resources, Mexico has many advantages, the main one being

resources. When the US developed it, it unlocked a huge

its proximity to the US. This is important in the unconventional

amount of gas, causing the prices to drop from US$10

industry given the necessity for infrastructure and services.

to US$2. Now that natural gas has become cheaper than

also

misconception

surrounding

the

coal, the US uses it in combined cycle plants to produce Q: What could be done to promote the development of

electricity,

Mexico’s shale resources?

tremendously. In terms of reducing emissions, the

A: The Government had a misconception that shale oil

development of the unconventional industry is the most

production stood at US$70, but in fact, that depends on

positive thing to have happened so far.

reducing

the

country’s

carbon

footprint

the field and well. Just like any other wells, their profitability depends on the oil price. As long as Mexico sets positive

Q: How big would be the impact of the development of

conditions and attracts the right operators, the country

Mexico’s unconventional resources?

can develop its shale industry. The challenge will be getting

A: The projected impact from the first four rounds on the

these companies to come to Mexico, as they already have

Mexican economy is US$1-2 billion per year over the next

a great deal of activity in the US. Their current idea is to

five years, while the unconventional potential could easily

ship the gas that they are producing to Mexico via pipeline,

go from zero to US$100 billion per year, depending on the

instead of producing it here directly, and the Mexican

oil price. Given that we have an estimated 60 billion boe

authorities will have to work hard to make investment

underground, this means we could produce 4 million boe

opportunities attractive. While the industry in the US is a

per day or double our production for the next 40 years.

| INSIGHT

MEXICO FACING A SLOW RECOVERY Overproduction has blighted the global oil and gas industry for much of 2014 and 2015, causing the prices of oil to drop significantly. Luis Vielma Lobo, Director General of CBM, believes that prices will remain below US$50/b for the

LUIS VIELMA LOBO

near future, specially since overproduction for the end of

Director General of CBM

2015 was around 2 million b/d. The incorporation of Iran in the market will have an additional impact because the country has a natural flow potential of 5 million barrels,

explore further down, among the Cretaceous and Jurassic

but currently it produces less than 2 million. “The wells can

formations that PEMEX explored but never exploited, with

be opened and closed like taps, it is cheap oil, and there

proven unconventional reserves, it presents an attractive

are high quantities of the resource,” Vielma states. Iraq is

opportunity for those companies.

also increasing its output and is one of the most promising countries in terms of oil production. Russia is an enigma

PEMEX is facing a perfect storm, and several factors have

in terms of production, but market experts consider that

contributed to it, according to Vielma. First of all, the oil

it may produce over 11 million b/d, a level of production

price’s deep fall and the economic crisis are impacting its

that is similar to that of Saudi Arabia. “The environment

internal prices by more than 40%. The consistent decline

of low price producers competing at this level is the worst

in production over the last ten years, equivalent to more

situation we can face and will be the key factor to keeping

than 1 million b/d, has affected the crude volume available

prices low for several years, unless an unexpected situation

for exports, thus impacting revenues. This has impacted the

occurs that pushes the prices up,” according to Vielma.

balance of the budget initially allocated by the government to political and social commitments, and therefore PEMEX’s

In addition, the unconventional oil sources in US have

budget was reduced by more than 30%, to partially support

the potential to continue growing at incredible rates,

that deficit. The country’s political situation, in particular

because specialized companies are constantly developing

the security issues, are important risk factors for potential

new innovations and technologies. This unique approach

investors. “In addition to these external factors there are

may lower the production costs to US$35/b in 2016,

other internal issues that also affect PEMEX’s strategy,

which creates an excellent opportunity for Chicontepec.

such as the reorganization process implemented before the

“Deepwater production may not be a viable business, and

reform took place and without a clear knowledge of how

that situation may create a new vision in the IOCs that gives

this process could impact PEMEX,” Vielma adds.

priority to production coming from onshore reservoirs, formations,”

Companies are now beginning to look at alternative

Vielma predicts. These factors have impacted the volume

exploration and extraction technologies, and Vielma

exported by more than 30% and obligated Mexico to

believes that this will be a positive development for

look outside the hemisphere for new costumers, mainly

Mexico’s oil industry. He asserts that there is no more

in Asia. “The discovery and development of a greenfield

effective way to extract oil than by drilling, with the second

may take up to seven years before the first hydrocarbon

most efficient approach being production optimization

molecule is extracted from the reservoirs, and in the case

through repairs or workovers of inactive wells. EOR will

of brownfields it will also take at least three to five years,

be the last option to increase production from reservoirs,

depending on the reservoir conditions, infrastructure, and

he says, and it may be more expensive than other

existing facilities for each opportunity,” warns Vielma.

alternatives. “World-class experience dictates that, in order

including

developing

non-conventional

to capitalize on EOR projects, action must be taken in the Vielma sees several similarities between Chicontepec and

early stages of production due to the fact that secondary

the fields in the Permian Basin in the US, in that they both

recovery processes are closely related to reservoir energy

contain tight oil reservoirs that require different technical

maintenance,” he expresses. If a company follows this

approaches to maximize production and recovery factors.

practice from the outset in certain types of reservoir, it

“Those companies that have been working in the Permian

may increase the recovery factor by as much as 5%, and

Basin will have a distinct advantage if they decide to come

that also includes EOR projects related to CO2 injection.

and participate in R1-L05,” he asserts. Moreover, if the

According to Vielma, one of the key aspects of this process

conditions of the contracts will allow the companies to

is maintaining the energy levels in the reservoir.

203

| VIEW FROM THE TOP

FLOODING EXPERT AWAITS SECOND CHANCE IN MEXICO KEVIN MACUMBER Engineering Manager at Tellus Operating Group and Telpico

204

Q: What motivated Telpico to enter the Mexican market?

losses and would reduce the ultimate recovery factor

A: Tellus is the parent company of Tellus Operating

from the reservoir. TOG currently has two CO2 projects it

Group (TOG), a domestic contract operator, which

operates for Tellus Energy and is about to begin a third.

has an international affiliate called Telpico. We formed

One of these is a miscible 11,000-13,000ft CO2 flood in an

Telpico Mexico to register and participate in PEMEX’s

older field, and the other involves injection of CO2 below

early licensing rounds, and as far as we know, this was

16,000ft for pressure maintenance in a newly discovered

the only US independent company that participated in

field. The third project will consist of an immiscible flood

the integrated E&P contracts of 2011 and 2012, where

for a shallow 5,000ft reservoir, as opposed to a deeper

we pursued full evaluations of four blocks, ultimately

flood in a miscible environment. There are analogues from

bidding on Tierra Blanca and San Andrés. Our main

other CO2 floods nearby that showcase the success and

motivation came from the fact that Mexico has large

the ability to recover, in general, approximately another

fields with significant volumes of hydrocarbons that have

third of the oil in the location. We also operate a water

been produced under a primary term but have not been

flood and natural gas flood. Secondary and tertiary

exploited to their maximum potential. Given our expertise

recovery is one of our strong areas and we saw a lack of

in secondary and tertiary recovery in the US, we saw an

that in some of the old fields in Mexico, so we thought

opportunity to develop these Mexican blocks. We looked

about putting our expertise to work there to turn a profit

at the first bidding round and decided not to rush into it

for us and the country.

due to some time constraints, but then we participated with R1-L02 and R1-L03. However, due to prices falling we

Q: How can you leverage on your expertise as an operator

withdrew slightly.

in the US to position yourself in Mexico? A: The direct answer is our staff knows exactly what to look

Tellus Energy is largely based on acquisitions of mature

for in terms of efficiencies, or a lack thereof, in an old field.

properties in Louisiana and Mississippi. One of the

We know how to retrofit the field and determine whether

opportunities in this business plan was to enter into the

to flood it with water, natural gas, nitrogen, or CO2, as

secondary and tertiary recovery arena to extend the

well as analyze the infrastructure and the wellbore status.

economic life of these assets. Therefore, our operating

These are the main strengths we provide as operator.

niche is achieving an increase of the recoverable oil in these reservoirs with onshore fields being our focus. As

We had a strong interest in Mexico with the first

our business model evolved to maintain that growth, we

opportunities in the integrated E&P contracts, but we

realized we had to expand into other segments, such

decided to take a step back due to the current price

as exploration and stepping out to find opportunities

regime. However, the PEMEX farm-outs present an

internationally, which led us to Colombia and Mexico.

attractive opportunity for another avenue that could work for us. With the help of Roberto Carrillo, who advises

Q: What are some EOR processes that Tellus is developing

Telpico in Mexico, we are keeping our eyes and ears to the

or implementing that could be successful in helping

ground awaiting PEMEX’s announcements regarding how

Mexico increase production?

it will offer up some of its fields and on the contractual and

A: TOG is one of two operators east of the Mississippi

legal terms. As more opportunities present themselves in

river that are actively conducting CO2 floods in this state.

mature fields we fully intend to look at them, and if the

We have a miscible gas flood that is being used in a large

contractual terms become more favorable to an operator

field in Clarke County, Mississippi, where we are using

like us, we will evaluate and see if we can find some low-

natural gas to maintain reservoir pressure so this does

hanging fruit that might work based on our successes in

not drop to a critical level, which would result in liquid

the US.

| VIEW FROM THE TOP

FROM THE PERMIAN BASIN TO MEXICO WILLIAM WAGGONER CEO of Mexico Petroleum Company

Q: How did you get involved in the Mexican Energy Sector?

A: Mexicoâ&#x20AC;&#x2122;s Energy Reform is a tremendous piece of

migration process advancing?

legislation that was seen as improbable just a few years

A: Patience and commitment are the key ingredients for

ago. The secondary legislation supporting and effecting

any company seeking to explore and produce oil and

the Constitutional Reforms is equally brilliant, as well

gas in Mexico, and this includes the migration process. I

as are the regulations that serve as the foundation for

became intimately involved with the CIEPS starting in

the secondary legislation. The next challenge, however,

2008. I discussed their viability with a variety of operators

is the greater one. It is a question of how to efficiently

and service companies in the US, as well as a number of

and effectively interplay the various roles of the different

industry leaders here in Mexico for the better part of five

agencies charged with carrying out the reform in the best

years. Their interest was sincere, but the terms were thin

interests of the people of Mexico From what I can tell, it

and modern day fracking in the US was just taking off.

has been a steep learning curve, but those charged with

However, major service companies quickly recognized that

this task are dedicated, brilliant, ethical professionals who

CIEPS were in essence just long-term service contracts

have shown commitment.

with an added small profit incentive.

Q: How can Mexico Petroleum Company translate the

In my view, the CIEPS did not achieve their purpose

experience of the Permian Basin into Mexico?

and now pale in comparison to licenses or production-

A: We have to begin by understanding Mexico and the US

sharing agreements. It is safe to say that operators,

from both sides of the border. I was born and raised in the

service companies, PEMEX, and the Mexican government

heart of the Permian Basin, which has been resurrected

agree that these CIEPS need to be migrated as soon

several times. This lifelong experience has provided me

as prudently possible. PEMEX and existing service

with the knowledge of what it takes to make some of these

companies are working hard to determine how to best

fields in Mexico economical. Our company carries out

make the transition. Regulations need to be stipulated in

artificial lifting in the Permian Basin better than anybody

order to smoothly guarantee the exit and entrance of the

and looks forward to bringing that technology and field

parties. Companies must also recognize that after PEMEX

experience to Mexico. When it comes to secondary

approves their migration terms, they will still need the

recovery techniques, our experience comes in handy

approval of CNH, the Ministry of Energy, and the Ministry

because we started to use those methods before modern

of Finance. Agencies and private parties are tirelessly

fracking came into fashion. Depending on the number

analyzing the most viable ways to create an equitable

of assets we acquire, we will determine what amount of

road that will attract foreign investors. Meanwhile, Mexico

resources we will utilize from the Permian Basin. Mexico

Petroleum Company is proud to be one initial players to

Petroleum Company is fortunate enough to have some

go through this rather daunting process.

How

Mexico

Petroleum

Companyâ&#x20AC;&#x2122;s

contract

of the best petroleum engineers in the world right here in Mexico, and we offer a compliment of Permian Basin engineers, geologists, and geophysists who bring their years of expertise and experience to the region. They are quite creative when it comes to developing and maximizing production through a variety of modalities, whether it be workovers, remediation, base optimization, or new horizontal and vertical wells, while always aware and sensitive to the environment both below and above the surface.

"All relevant parties agree that these CIEPS need to be migrated as soon as prudently possible" William Waggoner,

CEO of Mexico Petroleum Company

205

| VIEW FROM THE TOP

ONSHORE COST LIFTING SERVICES IGNACIO FILICI General Manager of TrueBlackOil

206

Q: What are TrueBlackOil’s main activities in the Mexican

cheapest options in terms of cost per barrel, and one of the

market, and what main challenges are you facing in a time

advantages of this method is the product management. The

of low oil prices?

water injected in the well can be reused once it is properly

A: TrueBlackOil is entirely focused on the onshore market

treated, as the process does not call for potable water.

in Mexico, with our main focus on lifting cost management. While a company would usually have to deal with at least

Q: How does the lower-than-expected participation in

40 different suppliers, manage them, and supervise

R1-L01 impact your brokerage activity, and what is your

the field, at TrueBlackOil, we are capable of managing

prediction for participation in the third phase?

everything in an integrated manner, saving our clients time

A: I have mixed feelings concerning R1-L01, since the

and money. At the moment, we are about to form alliances

awarding of blocks shows the reform is working, whereas

with four major companies, one of which is listed on the

the process was slow and the contract terms needed to be

NYSE, and the three others are international players. We

more competitive on an international level. A positive aspect

provide four service-lines: Operation & Maintenance,

is that CNH is already addressing this issue and attempting

Waterflooding

Business

to make the procedure easier and the terms more efficient.

Consultancy, and Onshore Rig Brokerage. Operations and

Management,

Technical

and

Concerning R1-L03, the blocks may be difficult for operators

maintenance represent between 85-90% of an onshore

to manage since there are a variety of environmental and

company’s OPEX. We focus on helping our customer

social costs required, as many of them are populated, and

operate and maintain the field, meaning we provide them

a serious cost-planning structure and cost efficiency in the

with surface oilfield services by providing technological

evaluation and development phase is required. Large IOCs

innovations, workers, vans, trucks, and chemicals.

might not be interested by this tender process.

Q: What exactly does your waterflooding technology

Q: How do you plan on developing your onshore rig

consist of, and what are the advantages of using this over

brokerage division, and what is your strategy to gain

secondary recovery chemicals or injecting gas?

contracts with existing and new players in the market?

A: Water injection is a process that increases the reservoir

A: We are already closing contracts with all rig contractor

recovery factor. Water is injected into the well, to increase

companies in Mexico through a partnership with another

the reservoir pressure to its initial level and maintain

local company. Most of the contractors have agreed to put

it near that pressure. This is a complex task, where well

most of their rigs in our system. We will provide an easy

geology, mobility ratios, reservoir pressure, and facilities

connection between supply and demand but, unless our

characteristics play a key role in efficiency. TrueBlackOil,

clients request it, we will not undertake the negotiations for

in association with an international company, provides

them. TrueBlackOil believes that, to become an important

clients with the engineering of the injection well’s design

part of the Mexican oil and gas market, it is essential for

and with the necessary equipment to carry out that

international companies to associate with local companies.

installation, such as mandrels, valves, and packers.

Although the market players may change, opening an oil and gas business in countries with a more mature sector

Nowadays, water injection is part of assisted recovery. It

is simple because the industry is consolidated. In Mexico,

is important to note that not all reservoirs have the same

however, the players are changing. This is why we believe

reactions to water, and at times it may be preferable to

companies would feel more comfortable entrusting business

provide stimulation with organic chemicals or even steam.

to a local player that understands what is happening in

Waterflooding is a cost-efficient, reliable process in many

Mexico at the moment. Our main aim for the two next years

countries and can easily be implemented in Mexico. For

is to show the market that we are managing our clients’

the kind of reserves we have, water injection is one of the

lifting cost in an efficient, reliable, and sustainable way.

| INSIGHT

MODULAR SOLUTIONS FOR OPERATIONAL OPTIMIZATION In an industry such as oil and gas, with remote, difficultto-access locations, often workers must remain onsite in

ANDREW AUNS

order to reduce the operational costs involved in employee

Vice President & General

transport. As a result, Williams Scotsman has emerged as a

Manager of Williams

market leader in modular solutions for the industry, helping

Scotsman

customers determine what type of space they need and matching it with a solution. “We coordinate and prepare everything so that it reduces the amount of time and effort the company has to invest in preparing spaces for new products,” says Andrew Auns, Vice President and General Manager of Williams Scotsman. “Our job is to ensure that the

207

buildings are ready when the company arrives to the site.” Unlike traditional spaces, Williams Scotsman modules can be taken apart and removed completely, and from an environmental perspective, the effect of the modules and mobile trailers on the land is minimal, without the need for cement or permanent foundations. Mining, oil, and gas are the company’s top three markets and Auns does not see that changing in the next three years. “The oil and gas sector will grow, especially on the midstream sector, and as a result we will see an increasing demand for our products,” he states confidently. “We are continuously investing and expanding our fleet to increment our presence in the market,” Auns asserts. “We also have strong supply partners that work to our specifications to help us construct new units in the country.” The changes in the industry have caused the

The effect of the modules and mobile trailers on the land is minimal, without the need for cement or permanent

foundations

company to optimize the running of operations, adapting its local operations and organization by offering the most

Scotsman began to identify the various needs of the

effective solutions available for the industry. This has led

customers, such as worker accommodation, whether onsite

to the creation of a brand new project management group

or offsite, and subsequently adapt more traditional solutions.

that focuses only on the design and service execution of

“Toward the end of the project, it was more about the added

projects. Williams Scotsman has national content at its

value of our product, such as being able to deliver dorms

heart, and the company prefers to hire local workers for

with all of the beds and mattresses already inside,” Auns

projects, and if forced to contract temporary workers due

expresses. When working in remote areas, with small teams

to a high demand, it also sources from the community.

of eight to 16 engineers working on a site, it is more likely

“Although we are part of a global company, here in Mexico

that a company will need a space that provides facilities for

99.9% of the workforce is Mexican and we plan on staying

sleeping, eating, and bathroom quarters in one building. This

this way by always trying to source locally,” Auns reveals.

is when companies begin to move away from the traditional construction and trailers, to more flexible methods. Williams

This year, the company developed an oil and gas project in

Scotsman has worked on concepts in which smaller modules

the north of Mexico, which started out with five locations and

are utilized, and a building with second floor dorms is

later expanded to seven. “We provided offices, cafeterias,

created, as well as an open porch area, and internal stairways,

and dormitories, and various solutions that range from

allowing companies to better control security. Conference

simple to complex products, and also customized designs to

rooms, offices, eating facilities, and service areas can also

fit the needs of our customers,” declares Auns. “One of our

be integrated in one building. “We are able to disassemble

accomplishments is that we were able to provide housing

a building like this within 48 hours, and then transfer it to

for more than 2,000 workers.” With this project Williams

another location to reassemble again,” asserts Auns.

| TECHNOLOGY SPOTLIGHT: INTENSE HEAT ENSURES A STEADY OUTPUT and

that the reaction takes place inside the reservoir and the

decreasing their environmental impact can expect uplifting

released gases do not reach the atmosphere. Furthermore,

news.

(T-CHWT)

the amount of emitted CO2 is lower than that of similar

technology can increase total daily production by lowering

thermo-chemical EOR methods. The NO2, NO, and H2 react

the crude’s viscosity and cleaning the formations’ porous

with the crude oil at high temperatures, producing N2, H2O,

areas, extending the reservoir’s productive life and making

and CO2.

Operators

interested

Thermo-Chemical

improving Well

production

Treatment

it possible to extract 70-80% of the oil in the reserve. When correlating extraction costs with production revenues,

The intense heat generated due to the chemical reaction

T-CHWT can be a profitable solution that could positively

cleanses the area from asphaltenes, tars, resins, and

impact operators’ activities. The technology operates

paraffins located in the vicinity of the reservoir. In addition,

through a chemical process that obeys the highest safety

the oil and water ratio also decreases, helping preserve

standards, and the process can be automated. Energy

the well’s integrity. Production can continue in a constant

losses are negligible and the return of investment is faster

manner for months or even a couple of years until the

than using methods such as hydraulic fracturing or steam

formation’s pores become clogged again, which would

injections.

require another T-CHWT intervention. This solution can be used until the reservoir is completely depleted, and can be

T-CHWT heats the formation to temperatures of up

used in new wells and mature fields, onshore and offshore

to 500°C or even more, although the ideal setting is to

developments, and horizontal, vertical, and injection wells

maintain temperatures around 300°C in order to lower the

at any depth and for any type of crude. Wells have been

oil’s viscosity by raising API gravity. The chemicals react

recorded to produce at least double, and sometimes

deep in the formation, generating a tremendous amount of

ten times more oil per day, depending on the geological

heat in the reservoir and producing pressure levels strong

and technical parameters. In fact, old, shut-in wells have

enough to fracture the rock. The result is an immediate,

been reactivated and made productive again by using

much quicker flow of oil to the surface. All the chemicals

this process. While this technology is still being tested in

and a small part of the crude oil convert into gases, leading

Mexico, it has a strong chance of becoming a commonly

to an artificial gas-lifting method that helps push the oil up

sought-after solution in areas such as Poza Rica and

and out of the well. The gases resulting from this process

Chicontepec, helping its supplier, Tekna Services, maintain

–mainly N2, NO2, CO2, and H2— are non-toxic, considering

its position in the country.

| INSIGHT

TECHNOLOGY LEADS TO EFFICIENCY IN DIFFICULT TIMES Some companies have made a name for themselves in an industry that was once synonymous with PEMEX, such as the technology expert Tekna Services. The company has

CÉSAR RUIZ

been of great help to the Mexican NOC, evidenced by the

General Manager of

way it has helped increase production and reduce costs

Tekna Services Group Mexico

in Cinco Presidentes and Samaria Luna. “In these fields, Tekna has worked on wells where the oil was not flowing properly, so we treated it with pressurized gas, leading to

Ohio, who are developing a microwave system to heat oil

significant results of a 150% production increase in one of

in the reservoir. “A magnetron generates a wave that makes

the wells. In another well, we reduced water production

micro antennas located at the bottom of the well heat up to

from 70% to 30%,” shares César Ruiz, the company’s

600°C. This heats the pipes and the reservoir, improving flow

General Manager. Tekna is planning some wells for Samaria

without altering the oil’s physical characteristics,” explains

Luna and improving others in Cinco Presidentes, where it

Ruiz. Now the developers have to adjust the mechanisms

is only addressing the construction of the well without

to the temperatures found at the bottom of the well. Tekna

intervening the actual reservoir. Ruiz says his team is

is financing the development of this technology and will

currently working on a model to improve flow channels

own the patent. In addition, the company is also financing

without resorting to hydraulic fracturing in this field. “The

a mechanical pumping mechanism that does not have

opportunity scope is huge, as the traditional approach

components on the surface. Ruiz says his company will soon

could cost up to US$130,000 per well but the treatment

visit IPN to negotiate a collaboration agreement in which the

we are working on costs US$10,000 per well. Clients

institute will develop technology financed by the company.

would save huge amounts that can be used to invest in

The students that work on these developments could

other areas, and that is one of the benefits Tekna offers.”

become part of the Tekna team.

The company is working on a similar scheme for Poza Rica,

In a time of economic constraints, investing in technology

where it will carry out artificial lifting without installing

seems like a risky task. Ruiz claims his company has a

additional equipment. Besides the oil type, Ruiz says the

considerable financial support that allows it to continue

main problem in Poza Rica is equipment theft. With this

helping clients reduce costs and improve production. In

in mind, Tekna is proposing an artificial lifting system

addition, Tekna is diversifying by looking into renewable

that is inserted in the bottom of the well and has minimal

energy sources, the mining industry, revamping refineries,

equipment at the surface.

and even building a port dedicated to hydrocarbon commercialization. “Tekna will look for opportunities not

Tekna is also partnering with a company form the Czech

just where we can implement new technologies, but also

Republic that operated in Russia, where there are fields

where we can adapt to the new business models that we

similar to Chicontepec. Ruiz claims this company has

see in the international energy market,” Ruiz asserts.

a technology that works in a similar way to fracking, but it injects two types of fluids, a solvent and an active ingredient. Once the fluids are mixed in the reservoir, an exothermal reaction follows and creates a type of explosion that moves through the channels and cracks the formation. This technology yields efficiency levels similar to those of fracking, but helps users save up to 70% in costs. “Our approach will be to look for companies working in Poza Rica, find wells that could use this technology, and analyze the results. If these are similar to the results that this technology has produced for Lukoil in Russia, it will provide a great alternative to fracking in Poza Rica,” comments Ruiz. Technology is at the core of Tekna’s proposal, so the company is also financing a project carried out by students based in

Treatment with pressurized gas can lead to a production

increase of 150%

209

INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE

In the wake of a recent high prevalence of accidents in Mexico, the Energy Reform promised the opportunity to tighten safety regulations. This has been seen by the overhauling of the regulatory agency PROFEPA to transfer the oversight of industry safety and the environmental performance in the hydrocarbon industry to ASEA. The new regulator is expected to review the existing regulations in various segments, as well as to draft new ones for industry segments that are opening thanks to the reform, such as deepwater and unconventional resources. PEMEX has sustained a frequency of approximately one accident every six weeks from January 2015 to May 2016, with a total of 11 incidents. The opening of the industry to private players is expected to introduce international best practices in operational risk management, more stringent safety procedures, and stateof-the-art approaches to environmental performance, while low oil prices are pushing the industry toward cost-focused operating strategies.

This chapter explores the challenges facing the industry in terms of implementation of safety and environmental standards and legislation, as well as the most suitable technologies and solutions to meet these requirements. Industry leaders will propose solutions, while also discussing ASEAâ&#x20AC;&#x2122;s new role within the industry.

211

Environmental Resources Management is a leading global provider of environmental, health, safety, risk, social consulting services and sustainability related services. We have more than 5,000 people in over 40 countries and territories working out of more than 160 offices. ERM is committed to providing a service that is consistent, professional and of the highest quality to create value for our clients. Over the past three years we have worked for more than 50% of the Global Fortune 500 delivering innovative solutions for business and selected government clients helping them understand and manage the sustainability challenges that the world is increasingly facing. In Mexico we have been very active in helping our clients during the different bidding rounds of the Energy Reform, understanding the Environmental, and Social Implications contained within the related contracts.

Why ERM? • • • •

Extensive experience in Mexico and the Gulf of Mexico Extensive experience in the O&G industry onshore and offshore in all Latin America Expertise to explain the complex marine environment to the public and regulators to support approvals H&S capabilities – we can support your understanding of local firms/fab yards HSSE capabilities, etc

Our key services are the following: • • • • • • • • • •

Non-Technical Risk Assessments Social impact assessment Permitting/environmental Site investigation and remediation Safety, security and risk assessment Noise and vibration services Compliance auditing and EHS management systems Reputation assurance Air quality management Water and wastewater treatment

| CHAPTER 9: INDUSTRIAL SAFETY & ENVIRONMENTAL PERFORMANCE 214

VIEW FROM THE TOP: Carlos de Regules, ASEA

216

VIEW FROM THE TOP: Jaime Martínez, ERM

217

INSIGHT: Gaspar Gorocica, Puesta a Punto

218

INSIGHT: Rafael Parrilha, Bureau Veritas

219

PEMEX ACCIDENTS TIMELINE

220

INSIGHT: Rodrigo Nieto, Falck

221

INSIGHT: Víctor Clavel, Dräger Safety

223

VIEW FROM THE TOP: René Alberto Calderón, Recal

224

VIEW FROM THE TOP: Juan Carlos Hernández Nájera, Industrias Energéticas

226

INSIGHT: Erick Sánchez Salas, SITec

227

INSIGHT: Eric Barry, AIRSTAR

228

VIEW FROM THE TOP: Rubén Rosiñol Abreu, Tecno Fire

228

INSIGHT: Alberto Espinosa, Ecosolutions

230 INSIGHT: Juan Gabriel Quiroz, Arigem 231

VIEW FROM THE TOP: Alejandro Hernández, CSIPA

232

INSIGHT: Alberto López, Norsafe

Enrique Echegaray, Norsafe

233

INSIGHT: Gerardo Tamayo, SUMIMSA

235

INSIGHT: Luis Gerardo González, Fire Service Plus Mexico

213

| VIEW FROM THE TOP

ASEA WORKS TO ENSURE A HEALTHY SECTOR DURING CHALLENGING TIMES CARLOS DE REGULES Executive Director of ASEA

214

Q: What progress has ASEA achieved in the Mexican oil

Q: What are the main implications of this for PEMEX and

and gas industry?

the new operators entering Mexico’s oil and gas industry?

A: ASEA began operations in March 2015 with the ample

A: The use of ASEA’s risk management model is not

mandate of supervising the activities within the entire

exclusive to new operators, therefore PEMEX is also

value chain of the hydrocarbons sector. The scope of

subjected to the new operating framework. The reason

our reach forced us to think outside of the traditional

behind this is ASEA’s aim to develop a culture of industrial

institutional model, which is why we decided to create

safety and environmental protection that respects two

an agency with a robust architecture and well-defined

main directives: performance and the compliance with

processes. One of the first actions we undertook was

international best practices.

the designing of our new risk management model based on the administration of operational risk, which

Q: What have been the main activities that ASEA

relies on five premises. Firstly, those covered by the

initiated as a regulator in the upstream, midstream, and

regulations are under the obligation to operate in

downstream segments?

accordance with the Industrial Safety and Environmental

Protection Administration System. They are also bound

Guidelines for the Establishment, Implementation, and

to meet the required guarantees to ensure their financial

Authorization of the Industrial Safety, Operational Safety,

responsibility in light of any possible accidents. The third

and Environmental Protection Administrative Systems

premise concerns the issuance of technical regulations

were published in the Federation’s Official Gazette on May

that are created according to objectives, rather than in

13, 2016. These measures aim at establishing the minimum

a prescriptive manner, and the fourth one requires the

requirements for the creation, operation, implementation,

enforcement of a legal policy that favors performance

and authorization of the Systems for the Hydrocarbon

over penalties. Finally, the model relies on the deployment

Sector’s Regulated Parties. The design of the guidelines

of risk-based programs that allow the optimization of the

comprised the creation of various technical consultations

state’s inspection resources and their complementation

with the industry and US regulators, as well as a public

with third parties.

consultation

The

General

Administrative

through

the

Dispositions

Federal

Commission

the

for

Regulatory Improvements (COFEMER) with the central The model allows us to optimize both our financial and

aim of designing regulations that would provide the

human resources while simultaneously providing certainty

hydrocarbons market with certainty, while configuring

that the operations carried out by Mexico’s various

it as the spine of an integral regulation based on risk

operators are executed in a safe and environmentally

management.

responsible manner. The Energy Reform modified the industry’s previous institutional scaffolding. The energy

We are currently working on other technical regulations

sector is now structured by a regulatory framework

based on performance, such as the guidelines for

governed by two federal laws and their respective

exploration and production activities in onshore settings,

regulations. This configuration is distinctly reflected in the

shallow

environmental sector, as ASEA operates in accordance

resources, as well as regulations for the transportation

with the legal framework of eight federal laws and nine

of hydrocarbons by pipelines, third party accreditations,

regulations. In this context, the Agency is creating a

root cause analysis, incident and accident reporting, and

regulation specialized in the hydrocarbons sector, the

insurance and guarantee guidelines. Moreover, we are

objective of which is to serve as ASEA’s operation base

working on NOM-004 for the recovery of service station

in addition to being a comprehensive document that

fumes and on NOM-005 for the design, construction,

integrates de institution’s areas of competence.

maintenance, and operation of service stations.

waters,

deepwaters,

and

unconventional

Q: Is there currently enough legal certainty for operators

contrary, it is an appropriate time to take care of what they

to find the risks associated with deepwater activities to

have, mainly a reliable operation and a stable coexistence

be acceptable, a critical success factor for R1-L04?

with the communities where they operate.

A: The Agency is currently developing a regulatory framework for deepwater operations that incorporates the

Q: Which priorities will ASEA address in 2016 in order to

best practices observed at an international scale. For this

successfully start working with private operators?

purpose, ASEA is currently working hand in hand with the

A: A challenge of the utmost importance to the Agency

industry and homologue regulatory bodies, such as the US

is to be prepared to work with private operators and to

Bureau of Safety and Environmental Enforcement (BSEE),

continue advancing with the Energy Reformâ&#x20AC;&#x2122;s objectives,

in order to generate offshore regulations that are familiar

with the intention of promoting an environment that meets

to both sides of the border, bringing certainty to the

international standards and regulations. Likewise, one of

companies interested in R1-L04. Moreover, ASEA signed

the Agencyâ&#x20AC;&#x2122;s main priorities, given the implementation

a memorandum of understanding (MOE) on May 3, 2016,

of this deep Constitutional Reform, consists of executing

with the American Petroleum Institute, aiming to access its

a regulation that allows operations which guarantee

referential norms and standards that would be applicable

industrial safety and environmental protection. In this

to the Mexican sector.

sense, the institution is focused on increasing efforts in the development of an ambitious regulatory program that brings

Q: How can the cooperation between ASEA and the

legal certainty in the operations of all the hydrocarbons value

operators assure that industrial safety and environmental

chain. For the development of the regulation pertaining

performance is not negatively affected?

to unconventional resources, a multidisciplinary work

A: The industry faces a scenario with low oil prices and

group made up of different sectors of the Federal Public

high operating costs resulting from increasing complexity,

Administration, such as the Ministry of Energy, CNH, and

great geological risks, and the value of money, as well as

CONAGUA, is operating in order to create the best possible

a growing penetration of other energy sources. Under

framework given their specific areas of expertise. The

these challenging circumstances, it is paramount that

regulation is expected to be issued for public consultation

the companies in the industry clearly understand that

in the third quarter of 2016. This expert group works with

it is not the best moment to economize at the expense

the Alberta Energy Regulator, given its broad knowledge

of industrial safety and environment protection. On the

and breath of expertise in the subject.

Providing consistent, integrated services that enable safe, reliable and enhanced performance.

215

| VIEW FROM THE TOP

FURTHER STEPS IN THE IMPROVEMENT OF SAFETY CULTURE JAIME MARTĂ?NEZ Business Development Director of ERM

216

Q: What is your current general perspective on Mexicoâ&#x20AC;&#x2122;s

has already been directed toward creating manuals and

progress in the realm of safety culture?

procedures, yet important elements such as training on the

A: In Mexico, the culture in the industry is such that there is

right behaviors are overlooked. Without a cultural change,

plenty of room for improvement in environmental, health,

the safety of the oil and gas industry will not advance.

and safety matters in the oil and gas industry. Last year there were preventable platform accidents that caused

Q: How can ERM help mitagate the environmental and

many casualties. We have to recognize that this happens

social consequences of deepwater operations?

everywhere, not just in Mexico. However, in Mexico there is an

A: People commonly believe that social studies are

urgent need for the improvement of our safety performance.

unnecessary for deepwater operations but this is not

Operators tend to know and understand health and safety

the case. Even though the platform is far away from the

management systems. Therefore, the problem is making

coastline, the operators are still interacting with the

sure that the existing policies are being implemented. On

surrounding communities due to a need for infrastructure.

paper, we know what needs to be done but transferring

Economic activities such as fishing create interactions

these goals to reality entails a cultural challenge.

that need to be included in impact assessments for new operators. New development proposals raise concerns for

Safety has always been a key component in the industry,

NGOs and society in general, and we understand those

but progress is yet to be seen. On the other hand,

worries. Firstly, developers need to know the current

environmental regulations are moving forward. The oil

conditions, and then, based on the project proposal, catch

and gas industry is a risky business for operators due

sight of possible impacts that can occur from seismic

to the extreme conditions, pressure, and temperatures.

surveys, drilling, and eventually, production. Historically,

The equipment, just like the methods and processes, is

activity from the oil and gas industry has affected the terrain.

designed with safety in mind. The challenge is translating

The new operators need to distance themselves from past

this to the day-to-day operations. Big companies that

actions that are potential liabilities. ERM accompanies

have had negative experiences in the past are well aware

them through the process and tells them freely about any

of the terrible consequences that can occur when safety

challenges that could come up such as time constraints,

is not prioritized.

while simultaneously working with government agencies.

Q: What would be the most important changes that would need to take place in the Mexican oil and gas industry to improve its safety culture? A: The industry needs to learn to work together and share experiences. A solution is to encourage operators to openly share past mistakes, facilitating the learning process in the industry. The Macondo incident provides a good example, as these type of accidents are an opportunity to teach others in the industry a few lessons. In this case, the lesson learned led to the renovation of equipment in some companies. Collaborating with other players that have already invested in safety equipment is important in order to design high safety standards. Accidents will continue to happen, however, and the aim must be zero accidents. A significant amount of money

Without a cultural change, the safety of the oil

and gas industry will not advance

| INSIGHT

TAKING SAFETY BACK TO THE PEOPLE There are three sources of accidents: those related to the system, the equipment or facility, and those caused by people. The latter amounts to 90% of all accidents,

GASPAR GOROCICA

and Gaspar Gorocica, Director General of Puesta a

Director General of

Punto, points out that 80% of the resources destined to

Puesta a Punto

accident prevention focus on equipment, procedures, or contractual requirements, but not on human error. He says people receive up to 300 hours of security training on

programs in Mexico are unengaging, which needs to

using equipment, yet people are seldom told that they are

change in order to bring knowledge closer to workers.

the key to a safe working environment. “Human prevention

In consequence, the people will take what they learn and

makes the individual the first barrier against accidents. In

spread it in the workplace, their homes, and communities.

order to achieve this, we need to increase autonomy in a person’s security approach to operations. Puesta a Punto

“The best thing a company can provide employees is

works on creating awareness that accident prevention

knowledge and culture, and when asking people what

is the individual’s responsibility, and we achieve this

are the main benefits they get from their job, these two

awareness by talking to people in a way that is accessible

aspects are not common answers. Most people do not

and easy to understand.”

feel their job is teaching them how to think,” Gorocica laments. In his view, the best way to change the way

Puesta a Punto takes existing security procedures and

workers perceive the benefits they get from their

manuals, giving them a focus on the individual so that

employer is by making the knowledge accessible and

people can adopt safety measures and make them their

easy to understand in a way that people can apply it in

responsibility. “The essence behind this approach is to

their personal lives as well. “Spreading the knowledge

re-humanize safety in projects and activities, putting

and culture of companies entering Mexico as a result

these aspects back in the hands of the people. The most

of the Energy Reform among its workers in a way that

important factor is that we teach people that safety is

increases their wellbeing is the challenge that Puesta a

useful not just at work, but also in their everyday lives,”

Punto wants to promote to truly transform the country,

explains Gorocica. He adds that most safety training

which is what the reforms intend.”

217

| INSIGHT

ALLY HELPS PEMEX COMPLY WITH REGULATIONS AND STANDARDS the industry for years to come. “Although it is well-known that PEMEX is undergoing a troubling period regarding

RAFAEL PARRILHA

cash flow, the opportunity for farm-outs and association

Director General of

schemes still remains solid. The impact of new players in

Bureau Veritas

the market will only be felt in five to ten years, once these have become mature companies that are well established in the economy, which means that short-term industry

“It is important for Mexico to develop a unified approach to

growth is in the hands of the NOC.”

introducing a comprehensive regulatory framework, and

218

the Mexican oil and gas industry is in a slow transitional

Another problem that the uncertain regulatory market

period toward achieving this objective,” says Rafael

could create may be the reluctance of investment from

Parrilha, Director General of Bureau Veritas.“The industry’s

new international players, Parrilha fears. “International

new agents are taking longer than initially predicted to

companies

introduce new regulations, but it is important to place

evaluating the different global options available. This

this fact in the general context,” he argues. “We have to

leaves Mexico in a position where it has to actively compete

understand that the previous model has been broken, and

for investment.” However, he also believes that Mexico has

creating a rupture from the past is not an easy endeavor.

an excellent offering for international companies in terms

The rhetoric from the authorities so far does not lead

of reservoirs, plus the geology is not particularly complex,

us to believe that the new regulatory framework will be

which eases and fosters investment in E&P. Moreover, the

particularly different to what currently exists on the US

internal market is in a positive state, and Mexico’s free trade

side of the Gulf of Mexico.”

agreements mean the country is very receptive to foreign

select

their

portfolio

investment

investment. “Transparency, which is a key requirement for The industry is eager for these new rules to be issued and

an effective market, has been achieved, but the lack of

published by ASEA, and until then, Parrilha believes that

definition of the regulation surrounding Mexico’s oil and

it will be difficult for the different actors in the market

gas market is creating uncertainty and is hindering it from

to have a good overview of the situation. “It remains

becoming consolidated,” Parrilha asserts.

unclear exactly how the responsibilities will be distributed among the different agents, including CNH. Its role in the

The main challenge faced by players in the market is to

establishment of safety regulations for new players is still

reduce costs, without increasing risk, while negative

undefined,” Parrilha adds. “As a certification company, it

environmental externalities are no longer acceptable.

is essential for us to understand how CNH and ASEA will

Despite the many challenges in Mexico’s oil and gas

carry out their role in this area.”

environment, Parrilha remains optimistic about the future of the sector. “The results of the second bid of Round One

Bureau Veritas has been working with PEMEX over

were extremely positive, exceeding the expectations set

the past 35 years, helping it reach a certain level of

by R1-L01 by far. This news was particularly surprising for

homogeneity in terms of regulations across its different

global investors, given the fact that just two weeks before,

areas. A few years ago, the company began an important

Brazil, a country with a similar economy to ours, had

project with the NOC to audit different assets, from

experienced a disastrous bidding round,” Parrilha conveys.

upstream to downstream activities, to verify compliance

Although Parrilha admits that many developments have

with its own standards. “This allowed us to gauge PEMEX’s

been made, he thinks that more can be done in the bidding

standards, and we found that while some abided by world-

process. “I believe Mexico is on the right path, but the

class guidelines, others showed room for improvement,”

process needs to be accelerated.” Bureau Veritas is open

Parrilhas shares. The Director General believes that the

to accepting invitations to participate more actively in this

attractiveness of Mexico’s oil and gas sector is also heavily

endeavour by helping ASEA and CNH, while also helping

reliant on PEMEX, which will keep its leading position in

them retain their independence.

Bureau Veritas is a global leader in testing, inspection, and certification. The company was founded in 1828 and aims to mitigate risk, improve performance, and promote sustainable development.

| PEMEX ACCIDENTS TIMELINE

April 1, 2015 Abkatún-A Permanente Platform (Bay of Campeche) Explosion 4 dead, 45 injured + associated losses of US$670-780 million

May 5, 2015 Troll Solution Platform (Bay of Campeche) Platform tilted 2 dead, 10 injured

August 11, 2015 Escobedo-Santa Catarina Pipeline (Nuevo León) Explosion 5 dead

June 22, 2015 Akal-H Satellite Platform (Bay of Campeche) Fire from oil and gas leak No casualties reported 219

August 27, 2015 Abkatún-A Permanente Platform (Bay of Campeche) Fire 2 dead, 9 injured

September 3, 2015 Lazaro Cardenas Refinery (Minatitlan) Fire No casualties reported

December 11, 2015 Lazaro Cardenas Refinery (Minatitlan) Fire 5 injured

November 24, 2015 Salina Cruz Refinery (Oaxaca) Fire 8 injured

January 23, 2016 Zaap E Platform (Bay of Campeche) Fire No casualties reported

February 7, 2016 Abkatún-A Permanente Platform (Bay of Campeche) Fire 2 dead, 9 injured

April 20, 2016 Coatzacoalcos Plant (Veracruz) Explosion 3 dead, 136 injured

| INSIGHT

THE HUMAN FACTOR IN INDUSTRIAL SAFETY “Our close relationships with RODRIGO NIETO General Manager of Falck Safety Services de México

Without safety, there would be no industry. This is the contention of Falck’s General Manager, Rodrigo Nieto, and the events of recent years have illustrated the merit in his claim. Disasters on oil rigs not only involve danger 220

for workers and substantial financial woes, but also have a pervasive impact on the environment, company share prices, and other far-reaching effects on a company’s

our clients allow us to obtain daily feedback in order to most appropriately position our new services. This also allows us to understand their challenges and respond to them accordingly”

health. The recent changes that occurred in the industry

Rodrigo Nieto, General Manager of

in response to the drop in oil prices, and the consequent

Falck Safety Services de México

increase in employee turnover have also negatively

Nieto acknowledges difficulties as a result of lack of clarity

impacted safety statistics in 2015.

surrounding ASEA and its issuing of regulation. “It is one thing to win a contract to be able to drill in a certain block,

According to Nieto, the biggest safety hazard is, by far,

but beginning drilling operations is another topic entirely,”

lack of knowledge. In fact, 90% of all accidents can be

Nieto warns. “As long as ASEA continues to remove red

attributed to human error, and occur predominantly due

tape and convoluted processes, this should allow for

to lack of knowledge surrounding operational safety, rig

more investment, but if it chooses instead to intensify the

evacuation procedures, or major emergency response. In

system with more bureaucratic procedures, companies are

order to address this gap, Falck has this year introduced a

expected to pull out of the bidding rounds.” In this way,

new course called Major Emergency Management, which

Nieto places great importance in ASEA’s creation of a set

Nieto believes will revolutionize the industry in Mexico.

of comprehensive, fair guidelines for the industry.

The course consists of highly specialized training, is taught by some of the world’s most qualified instructors, and

The company expects to open two or three training

includes a rig control room simulator in order to provide

centers across the country. “The locations of these

feedback on critical reactions.

centers will depend on the industry, but so far, several options have been identified, like Tabasco and Veracruz,

The variety of courses offered by Falck in Mexico are

which constitute Mexico’s future hub for deepwater

adapted to the country’s environment as a direct response

activities,” says Nieto. “Tamaulipas is also a location of

to client needs. “Our close relationships with our clients

interest, and Sonora holds promise, as Falck also offers

allow us to understand their challenges and respond to

training for the mining industry. However, the company

them accordingly,” says Nieto. Training courses are adapted

expects to maintain caution when selecting areas to

based on local industry requirements and, in Mexico, Falck

open new offices due to the high cost implication this

has also adapted to PEMEX’s unique conditions. In terms

endeavor represents.”

of Round One, Nieto has high hopes that the entry of new private players will have a positive impact on Falck’s

Although the market has seen a downturn in recent years,

business. The company is adopting a cautious strategy

Nieto is optimistic about Falck’s future in the Mexican oil

in response to the changes imposed by the reforms, and

industry. “We have all observed a decrease in industry

is currently waiting for companies to enter the market

activity, but we understand that this is an entirely cyclic

before making any decisions regarding the targeting of

situation,” Nieto asserts. “As a leader in the segment, the

new deepwater clients. “The moment any of the major

next challenge will be for the company to maintain this

IOCs come in, we will be fully prepared to attend to their

position, while simultaneously raising awareness of service

needs. Until then, we are examining different possibilities,”

provisions and gaining more contracts as the industry

he states.

recovers.”

| INSIGHT

GERMAN QUALITY EQUIPMENT TO IMPROVE SAFETY In industries such as oil and gas, where risk is omnipresent, investment in safety cannot be underestimated. Last year was challenging for PEMEX in terms of accidents, resulting

VÍCTOR CLAVEL

in casualties and financial losses, but also tarnishing its

Director of Sales & Service of

reputation. Víctor Clavel, Director of Sales and Service at

Dräger Safety

Dräger Safety, believes negligence is the main cause of incidents. Platforms have a wide range of safety devices that are designed to help prevent accidents, but when

Norwegian firm, GasSecure, which develops wireless

these fail, it is important to identify the underlying cause.

technology for fixed detection equipment,” says Clavel. This product is particularly advantageous on platforms, as

Not having the adequate equipment or a lack of

it reduces the possibility of accidents generated by cable

maintenance may not provoke fires but could delay the

sparks. Being familiar with its client base, the company

response. Clavel believes that PEMEX should focus on

pitches to firms’ technical areas and users first, allowing

increasing safety education, training, and drills, even

them to test products directly, and it is this approach that

if this interrupts production. “Daily safety checks can

allowed Dräger to sign a contract with PEMEX for certain

quickly become monotonous and be overlooked, but

equipment.

they are crucial,” he urges. “Workers must understand the importance of compliance with rules and regulations.”

Clavel believes it is Dräger’s focus on quality that allows it

Although Dräger does not sell directly to the State

to grow in the market, despite the existence of significant

enterprise, its activities often involve overseeing PEMEX's

challenges. “In 2015, the challenges facing PEMEX left the

projects and helping reinforce safety, as well as providing

company with a US$2.4million deficit, due to the lack of

support for its training centers.

activities with the NOC, but this expected loss was offset by a contract worth that same amount with Vale for H2CS.

In addition to maintaining its long-standing relationship

Last year involved a number of platform accidents, which

with PEMEX, Dräger also aims to take advantage of

led companies to reconsider their budget allocation for

the market’s opening to private investment. “We are

safety.” Despite the challenges brought by the industry-

preparing the industry for the higher standards that will

wide budget cuts in response to falling oil prices, Clavel is

be introduced by international companies through ‘The

positive the market will return to normal, and Dräger will

Academy’ division, where our employees are informing

continue to invest, although more prudently. “Our plan to

refineries across the country of our standards, allowing

open a new service center in Ciudad del Carmen in 2016

them to reach higher levels of safety and efficiency,”

to support PEMEX and its contractors will be carried out,

Clavel asserts.

but the center’s size has been reduced to adapt to our new budget,” he says.

Although Clavel admits that Dräger products may not be the cheapest option on the market, he argues that the

The company also plans on opening service centers in

company differentiates itself from competitors through

Villahermosa and two in the north in order to provide

added value, which comes in the form of reliability,

services for the refining and mining sectors. In spite of

German quality, and excellent services, outweighing the

the challenging operating environment, Clavel feels that

initial investment requirement. “Clients will find a long-

it is important for Dräger to continue investing and being

term benefit in Dräger’s durable offerings, which require

available for its clients.

less investment in maintenance over the years. Our equipment can last up to 15 years in good condition, and PEMEX has been using certain pieces for over ten years,” Clavel conveys. In addition to being a leading supplier of infrared and video-suited equipment, Dräger also offers innovative products, developed and improved by its engineering division that works toward making equipment lighter, more comfortable, and ergonomic. “We also drive innovation by acquiring leading companies, such as the

Despite the challenges met in 2015, we achieved our

growth target of 16%

221

| VIEW FROM THE TOP

PROTECTING PEMEX’S INFRASTRUCTURE RENÉ ALBERTO CALDERÓN Director General of Recal

Q: What opportunities led the company to turn to the

provide protection for 40-50 years without maintenance,

oil and gas industry, and what products have driven your

making them more suited to its new strategy than the

success in this sector?

conventional passive fire protection coatings that need to

A: Recal Coatings started gaining recognition 12 years ago

be renewed every 10-15 years.

thanks to the business generated by the construction area of Grupo Recal, which provides coating services to protect

Q: To what extent could the use of these technologies

the steel buildings built by its sister company. Although our

prevent or reduce the number of accidents?

initial focus was on the commercial and light industries,

A: In addition to preserving a company’s installations,

our offering quickly expanded to encompass other areas

the passive protection against fire also saves lives. Our

such as the oil and gas sector. Our first important project

coatings slow the heating impact of fire on steel, allowing

involved anti-corrosive and fire protection for the LNG

constructions to resist fire for three hours, and giving

plant of Samsung and Korea Gas, and Mitsui Trading in the

people more time before a building collapses. This is

port of Manzanillo. Our product offering can be divided

mainly used on marine platforms, where evacuation is

into three areas, all of which are deeply intertwined and

not a straightforward task. These technologies may not

related to the treatment of steel. We supply anti-corrosive

prevent accidents, but they can reduce the number of

protection, passive fire protection, and thermal isolation

fatalities. Our fire protective coatings primarily focus on

coatings, all of which are necessary protective measures for

security and preserving lives, but they also play a role in

any industrial project. By providing these three services as

protecting the environment, while our thermal isolation

a package, we have effectively found an interesting niche

coating is protecting workers from the heat found inside

market in the Mexican oil and gas industry. Final users strive

machinery or pipelines. At the moment, we are not

to work with the smallest number of suppliers possible,

involved in maintenance projects with PEMEX, but rather

preferring integrated services, and this has been the main

in construction activities. The projects we execute within

factor behind our growth. The clean diesel project that we

the NOC’s installations have been carried out through

delivered for ENI-CIPM in the Tula and Salamanca refineries

general contractors such as ICA-Fluor, CIPM, and Grupo

best depicts our abilities in Mexico because we were able

Dragados, who subcontract us.

to supply our three different, yet complimentary, coatings. Braskem-Idesa’s Etileno XXI is also a key project, for which

Q: As new companies entering the market create new

we are providing our passive fire protection.

opportunities, what type of projects are you looking to engage in ?

Q: What is the added value that your solutions contribute

A: Most of Mexico’s pipelines are covered with fusion bond

to a project, and how is this perceived by PEMEX?

epoxy coating or another type of specific roll coating.

A: Thermal protection, passive fire, and anti-corrosive

We have participated in this type of project, namely

protection are three technologies that will render a

with TransCanada, providing the coating for a pipeline

company’s installation operative and durable. Many of

connecting Manzanillo to Guadalajara, but this is not

PEMEX’s installations are in poor condition due to the

one of our regular activities. We are aware of the many

price, downtime, and risks incurred in the performance

new opportunities surfacing in the oil and gas industry,

of maintenance activities. In the past few years, PEMEX

not only surrounding pipeline operations, but also in the

regulations have undergone various modifications. The

offshore area. We are participating with companies such

recent reviews on the parastatal’s standards require its

as Tubacero in Los Ramones, among other projects, and

plants to be protected in a more efficient manner, with

we are involved in the engineering and tendering phases

systems that provide increased durability. PEMEX now

of the six clean diesel plants. Our participation will involve

requests coatings made from intumescent paint that

the provision of the entire range of coatings that we offer.

223

| VIEW FROM THE TOP

GREEN POWER GENERATION THROUGH MICROTURBINES JUAN CARLOS HERNÁNDEZ NÁJERA Director General of Industrias Energéticas

224

Q: What does Industrias Energéticas offer the Mexican oil

Q: How are policies and legislation increasing awareness

and gas industry, and how are you adapting to the new

in matters of environmental protection?

needs of this industry?

A: The most important aspect of our initial approach to

A: Industrias Energéticas is an arm of the Capstone Turbine

potential new clients has become the full environmentally-

Corporation specialized in the sale of microturbines,

friendly nature of our products, given the fact that they

particularly those using the air-based turbine engine

do not utilize oils, antifreeze, or grease, and that our

technology patent. Our company has been a supplier

machinery generates ultra-low emissions. Our clients also

of Capstone microturbines to the Mexican oil and gas

now pay special attention to endorsements and approvals

sector since 2006. Our participation with PEMEX includes

from all the aforementioned national and international

projects in Cantarell, Ku-Maloob-Zaap, and the PEMEX

agencies. This emphasis certainly sends a message about

compression

out

the increased awareness in the industry, and our goal to

activities such as installing custody transfer measuring

promote efficient, environmentally-friendly equipment

systems in 30 platforms producing natural gas, installing

makes us stand out in this context.

Coriolis

and

station

Ultrasonic

Samaria-Luna,

Measurement

carrying

gauges,

and

implementing engineering, procurement, installation, and

Our business line will benefit from the policies that will

testing systems.

result from the commitments Mexico made in Paris at COP21. Companies are still in the process of changing

At the present time, the market is extremely demanding

their

regarding its products and services. Capstone Turbine

cheap but polluting form of energy generation, to using

Corporation and Industrias Energéticas have prepared

equipment like the kind we make, which is clean, low-

for this new climate by engineering products whose

maintenance, and durable. Unfortunately, it will take a few

capabilities to generate clean energy have been certified at

years to materialize, as companies still prefer fast and easy

an international level by UL, the Environmental Protection

revenues over eco-friendly operations.

mentalities

and

profiles,

transitioning

from

Agency, the World Alliance for Decentralized Energy, and the Energy Solutions Center. Our products have also been

Q: Which types of units are currently the most popular,

certified at a national level by the National Commission

and what benefits do they bring to your clients?

for Efficient Energy Use (CONUEE), the Ministry of Energy,

A: All of our microturbines include top-tier technology,

SEMARNAT, and the Trust for the Saving of Electric Energy

and they all provide significant benefits to our clients.

(FIDE). Industrias Energéticas also holds an ISO 9001:2008

Microturbine models C30, C65, C200, C800, and C1000

certification awarded by DNV GL, which guarantees the

are all trustworthy pieces of equipment with low-cost

commitment and quality of our services to our clients,

maintenance and no oils, refrigerants, or additives needed

which include the installation, maintenance, and user

to generate ultra-low emissions. However, recently in

training of Capstone technology and equipment. The new

December 2015, at the PowerGen International Global

business environment will enable us to find and retain

Convention organized in Las Vegas, Capstone presented its

new clients, and to find new applications and solutions to

new unit. The Power Package C1000S introduces various

power generation issues at a notably low price. We will

upgrades in areas such as air filtration, gas escape, and

offer our products and services through an integrated

most importantly, heat recovery of up to 1.5MW in hot

package that includes the installation and activation of

water, which increases its reliability and lowers emissions

microturbines, the training of operators and maintenance

even more, allowing users to get more than 14 million

managers, and an additional maintenance plan for all

service hours. This new product series from Capstone seeks

commissioned equipment, as well as a protection plan and

to make the 1MW turbine energy system the smartest in the

extended warranties for all units in question.

global market for distributed generation.

225

Q: What has been the role of Industrias EnergĂŠticas in the

Q: How can you convince current and potential clients

development of the Los Ramones II project, and how has

of the long-term financial benefits of investing in

this contributed to the expansion of your business?

environmentally-friendly solutions?

A: Industrias EnergĂŠticas was selected by the AOT

A: Many oilfield service companies insist on using

Pipelines consortium, composed of Arendal, Odebrecht,

conventional equipment, such as diesel engines, which

and Techint, from a pool of 30 other electricity-generating

pollute and require constant maintenance and part

system suppliers to be involved in Los Ramones II, the

replacements. The financial benefits of our equipment

largest natural gas pipeline project in the country so far. Our

are evident, as it generates clean and reliable electric

role within this project is of utmost importance because

energy, and can be operated with a wide range of

of our 25 units installed in different segments of this gas

different environmentally-friendly fuels without a need

pipeline, which are divided into eleven C800 models and

to use additional materials. Furthermore, compulsory

fourteen C30 models, have been in charge of generating

maintenance is minimal. The equipment can be reviewed

electricity necessary for the continuous operation of

once a year without any need to suspend operations, thus

the compression stations and the main line valves. The

reducing downtime. The total investment on the short,

latter elevate the pressure on the fluid inside the line and

mid, and long term, including all repairs, replacements,

supply the necessary power to send the gas throughout

and maintenance for the equipment, can be amortized

the whole course of the total constructed pipeline, which

in about two to three years depending on the model

includes both phase I and II of Los Ramones and totals

being used. We have presented proposals to companies

570km. At the same time, these installed and configured

such as Baker Hughes, Schlumberger, and Weatherford

microturbines will benchmark the quality of our service

suggesting strategic electricity generation for electro-

offering as well as provide ample trust for future clients

centrifuge pumps for secondary recovery purposes. This

who wish to get involved in the low-cost generation and

energy is reliable for both onshore and offshore pieces of

management of their own power.

equipment.

| INSIGHT

POISED FOR THE ENTRY OF FOREIGN COMPETITION Peninsula. “We will be able to make a pre-emptive effort since infrastructure is required before operations can

ERICK SÁNCHEZ SALAS

begin, and therefore we will be able to capitalize on this

Country Sales Manager of

project prior to any major operators,” he shares. “This

SITec

creates an opportunity for joint ventures and associations, and we have a concerted focus on new partnerships.”

226

SITec, a Mexican company that develops fluid control

For example, SITec is currently working with 3tier, a US

solutions for the oil and gas industry enables its clients to

company focused on delivering environmental services,

stop the flow in a pipeline for maintenance activities. The

and is also working on various projects with companies

company intervenes by designing the engineering plans

from Germany and the Netherlands in pipeline maintenance

and identifying the ONIS equipment required to complete

and construction. In an increasingly competitive arena,

pipeline maintenance. “Using ONIS line blinds instead

Sánchez believes that SITec can offer competitive

of typical industry blinding solutions generates several

advantages like the company’s ten-year experience in

advantages,” explains Erick Sánchez Salas, SITec’s Country

the oil and gas industry and its seasoned knowledge of

Sales Manager “With the traditional widespread method,

the market. “The market in Mexico is complex, not only

and depending on the pipeline diameter, this type of

geologically or due to the particular characteristics of the

operation would involve 5-12 people, hydraulic machinery,

oil and gas industry, but we also have an economic and

and require 7-36 hours. With ONIS equipment, the flow

regulatory environment that can be built upon,” he asserts.

can be stopped in ten minutes or less, with no need for

“We are experienced in dealing with the economic and

more than one person, or any type of machinery. This

social environment of the country, which is an invaluable

represents several thousands of dollars saved every day.”

advantage for foreign companies in an alliance.”

The company participates mostly in areas ranging from

“We know about the significant benefits the oil and gas

production, fluids transportation, refining, petrochemicals,

industry brings to the country, but we are also aware that

and energy generation. “We have 230 different pieces of

its operations have an effect on the environment,” Sánchez

equipment installed in oil and gas projects in production

admits. Taking care of the planet is an intrinsic value at

areas, including both platforms in Gulf of Mexico and

SITEC, which is evidenced by the processes the company

land installations,” boasts Sánchez Salas. “We work

implements, such as extracting sulfuric acid from crude oil,

with clients on several solutions for natural gas, sour

optimizing the processes of water treatment plants, and

gas, oil, condensates, diesel, and fuel transportation

environmental impact reducing fracking practices. Putting

for turbo machinery. In addition, SITec cooperates with

values into practice, the company does not use chemicals

major companies such as Grupo Dragados to develop

in activities involving soil, instead using its alliance with

infrastructure that enables players in the energy sector to

3Tier to offer bacterial bio-friendly cleaning solutions and

install their own products.” Sánchez believes the company

waste management strategies.

can

capitalize

several

competitive

advantages

following the Energy Reform. “We are concentrating our

SITec’s expansion plans include establishing a new ONIS

commercial strategies on developing our position with

manufacturing plant, and Sánchez believes that Mexico is

decision makers and stakeholders in the refining industry

the ideal location for this operation. “Mexico is the second

in Mexico,” he shares. “SITec is the only company with

region in terms of ONIS accreditation, only behind the

licenses for the maintenance of ONIS equipment, which

US market,” Sánchez reveals. “Tabasco, as the oil and gas

allows PEMEX to optimize the processes, reducing time

capital of Mexico, and possibly one of the oil and gas

and costs, and provide innovative technology, which are

capitals of Latin America, could be a strategic location for

priorities for PEMEX operations.”

this plant. Mexico also has several trade agreements with the US, which allows the company to produce in Mexico

In the pipeline segment, SITec is creating dialogue with

and then sell across the continent. “For a company like

both private companies and public institutions, such

ours, Mexico is one of the most attractive countries in the

as CENAGAS. One of these will be the Mayakan pipline,

world due to its myriad of trade agreements,” conveys

connecting Macuspana in Tabasco with the Yucatan

Sánchez.

| INSIGHT

SHEDDING LIGHT ON PLATFORM SAFETY ISSUES Comparing the Latin American safety approach with that of the European continent, Eric Barry, Director General of AIRSTAR, notes that the first still has a way to go before

ERIC BARRY

achieving world-class standards in workplace safety and

Director General of AIRSTAR

workforce protection. “The first priority of industries such

Latin America Network

as mining and oil and gas, where risk is ubiquitous, should be safety,” he states. However, Barry has observed this situation changing in Latin America as companies begin to recognize the crucial role that human capital plays in the industry, and safety and security become increasingly important. The country is also changing its inherent approach to these subjects through the creation of ASEA, an organization in charge of creating adequate regulations for industrial safety in the oil and gas industry. Moreover, he expects the entrance of new private companies to bring a higher level of regulatory oversight, as international

The balloons can withstand temperatures

-40°C, higher than 80°C, and wind speeds of up to 100km/h lower than

players traditionally have extremely high safety standards. ensure the highest standards for our clients, which makes AIRSTAR is a French company with over 25 years of

us a leader in our field,” Barry asserts.

experience in the development and manufacturing of innovative lighting balloon illumination technology for

The company has several novelties in its portfolio,

industrial maintenance, as well as for industrial safety

including the development of clean technologies powered

and firemen rescue. “Our products have several technical

by renewable energy, a product that will be released in

advantages, such as the capacity to illuminate 360° in a

the future. “We are also working on hydrogen batteries,

uniform manner without shadows and without changing

but the implementation of this project has been delayed,”

shape or color,” Barry mentions, while pointing out that

Barry admits. AIRSTAR is ultimately working to become a

they are surprisingly easy to install. They also do not

more sustainable company, and is developing alternative

dazzle, do not deflate, do not explode, and are water

light sources that would require less consumption and

and wind resistant. “When working at night, these are all

provide higher efficiency. He expects their self-powered

essential factors to guarantee the safety of workers and

lights to be launched in the European market first, as it has

efficient operations,” Barry continues. In Europe and the

fewer intricacies than others. “Once the pilot project has

US, there are norms regulating lighting solutions for high-

finished, and when the products are ready for export and

risk activities, so the use of lighting balloons is dictated

sale abroad, they will immediately be available in Mexico,”

by law. Companies that use the balloons for nocturnal

he discloses. In the meantime, the French company hopes

activities receive a subsidy from social security, due to

to sign contracts with the market’s new players, and to

an awareness that the equipment will reduce workplace

cultivate links with PEMEX in order to situate lighting

accidents and social security costs.

balloons in the NOC’s fields and rigs.

AIRSTAR manufactures in France, the US, and China, and

Over the years, AIRSTAR has worked in close partnership

its stringent standards ensure the lighting balloons are

with many of the large players in the oil and gas industry,

adapted to the particularities of the 130 countries in which

such as Total, BP, Shell, and ExxonMobil. In addition to

the firm has presence, including Mexico. This country

working on its market integration in Mexico, AIRSTAR also

poses no specific challenges for the balloons, as these

seeks to cater to the needs of companies that will enter

are regularly used in areas under extreme conditions,

the market as a result of Round One. “We are preparing

such as the North Atlantic and Canada. The balloons can

for this by following the same commercial strategy that

withstand temperatures lower than -40°C and higher than

has worked so well for us in the past, which is to form

80°C, wind speeds of up to 100km/h, and can even be

and consolidate a network of distributors to serve specific

used in snowy conditions. “We have spent over 20 years

markets such as offshore, extraction, exploration, and

developing the equipment, and our qualified engineers

refining,” Barry announces.

227

| VIEW FROM THE TOP

EAGERLY ANTICIPATING THE ENTRY OF NEW PLAYERS RUBÉN ROSIÑOL ABREU Director of Tecno Fire

228

Q: How have the subjects related to security in the oil and

protection against fires. To demonstrate our commitment,

gas industry in Mexico evolved since the Energy Reform,

we invested in the creation of a training center where

and what has been Tecno Fire’s contribution?

we teach security courses from the basics of survival in

A: This industry has been evolving for a considerable

the water and fire combat, to the Helicopter Underwater

amount of time, even since before the Energy Reform.

Egress Training (HUET) simulator that trains personnel

However, with the entrance of new international players

to escape from a helicopter underwater in the case of

brought in by the bidding rounds, it is expected that

accidents.

the area of industrial security and fire protection will be subject to increased standards and continued innovations,

Q: What type of company does Tecno Fire have among its

in a constant bid for more effectiveness and efficiency.

clients, and what are some of the challenges or problems

Tecno Fire has contributed to the industry by providing

that the company helped its clients to solve in 2015?

quality services for 18 years, exceeding the expectations

A: The main companies in our portfolio are those

of clients, and remaining at the forefront of innovation and

that are primarily working within the oil sector, like

adherence to national and international regulations. The

shipping companies, perforation companies, works and

areas within the oil sector that represent the highest sales

construction companies, other service companies, and of

are the drilling platforms due to the quantity and type of

course, PEMEX itself. Installations in Mexico tend to lack a

equipment required by each platform. The company has

culture of industrial safety and hygiene, as well as failing

also created consciousness through safety training and

to comply 100% with the measures of safety established

| INSIGHT

CLEANING UP THE OIL AND GAS INDUSTRY ALBERTO ESPINOSA Director General of Ecosolutions

this issue. “PEMEX is one of the companies that focus on the environment, but there is still a long way to go in terms of the implementation of technology, while scarce investments in innovation is having a detrimental effect.”

In spite of the amount of oil entering the ocean each year, estimated at 0.25% of global production, environmental

There are many factors hampering the advancement

concerns do not seem to be at the forefront of the oil industry.

of environment performance within the industry, but he

Alberto Espinosa, Director General of Ecosolutions, believes

believes that the situation is slowly changing and the

that the oil and gas industry is still in its infancy in terms of

difference can now be seen between the companies

environmental awareness. “Factors such as regulation and

that are taking the correct measures and those that are

training about environmental protection are areas that are

not. “Many companies, especially foreign multinationals,

severely lacking in Mexico, and this is something that should

have environmental consciousness at the heart of their

be prioritized,” he believes. Although he concedes that there

operations,” he states. “Generally, these large operations

are certain companies with strict environmental controls, he

have a trickle-down effect, and more and more of the

argues that many still fail to attribute enough importance to

smaller companies are taking cues from the environmental

in the Official Mexican Norms. Tecno Fire works directly

installations that are certified by national and international

with the client through risk analysis and offering training

entities. Our installations for the provision of services are

courses with qualified trainers who have both national and

located in Ciudad del Carmen, Campeche and in the city

international certifications and experience.

of Paraiso, Tabasco, and we are in the process of opening offices in Merida, Yucatan and in Cancun, Quintana Roo. In

Tecno Fire offers a guarantee to clients that safety and

the same way, we have specialist technical personnel and

protection teams will be available at the time a fire or

a sales team to cater to the needs of new clients.

adverse event occurs. We also support clients by providing consulting services so that they have the equipment

Q: What will Tecno Fire do to take advantage of the

necessary to protect human lives and installations, without

opportunities that the opening of the oil and gas sector

damaging the environment. We reinforce this through our

will bring?

real-time database of all the systems and their components,

A: Tecno Fire will maintain its position at the forefront

which allows us to be aware of stock availability at any time,

of innovation in safety equipment and systems, while

as well as scheduling inspection and maintenance services

simultaneously continuing to develop its human capital,

on the system in an efficient manner.

which is the foundation of its services. We have the techniques, equipment, and components to cater to future

Q: How does Tecno Fire differentiate itself from other

demand. In order to maintain visibility in the Mexican oil

fire safety and protection companies in terms of its

and gas sector, Tecno Fire is present at the main national

proposition and benefits it provides to clients?

and international expositions in industrial safety and

A: Tecno Fire’s principal differentiator lies in its ethics and

fire protection so that we can familiarize ourselves with

quality in providing services, its adequate and certified

the trends and new technologies offered on the market,

installations, and its specialized staff that is certified in

updating our techniques to reflect new developments. It

national and international norms and standards. The most

is through this continuous improvement that we are able

popular service we offer is the inspection and maintenance

to revise each one of our processes and remain up to date

of fire prevention systems, and we expect the demand to

with industry trends. Tecno Fire’s main objective is to be

increase, particularly for perforation equipment as a result

the leading company in services, equipment, security

of the new players entering the fields awarded in Round

systems, and fire protection in both the commercial and

One. Moreover, Tecno Fire has the infrastructure necessary

industrial oil and gas sector across the national territory.

to meet the demand for services generated by the

We work every day to reach our objective and align these

entrance of new companies in the oil and gas sector, with

with our short, medium, and long term goals.

practices employed by the major players.” Espinosa

industry, the company is focusing on the niche industry of

believes that the creation of ASEA will create a greater

ecological oil and gas solutions.

environmental consciousness within the industry. “We consider that the creation of ASEA will strengthen all

The company has developed a great deal of technology,

our past efforts, and that the industry standards will

including a product that is 100% organic and removes

automatically be raised by its creation, as well as by the

the grease accumulated on the platform from skin,

entry of multinational companies,” he reveals.

products to eliminate odors, and ecological products for bathrooms. Moreover, Ecosolutions is developing

Ecosolutions

has

developed

groundbreaking

new

technologies to control fires, and one of its products

products focused on cleaning up oil spills and slicks. One

is of Danish origins and manufactured in Mexico, and it

of these was invented in Mexico, patented in the US, and

can proactively prevent fires in compromised areas. The

EPA approved, and is able to disperse hydrocarbons on

company’s shampoo product is already on the market, but

contact, while neutralizing their contaminating properties

it is in the process of adding new components to increase

by eliminating the three basic properties of viscosity, odor,

the potency and efficiency. “Our domestic products are

and activity. The product can also be used as a fertilizer in

extremely demanded as they address a basic need in

agricultural fields. “This product has the potential to make

a clean and environmentally friendly way, and can be

a significant impact in terms of minimizing the damage

used in a plethora of industries,” says Espinosa. “We are

of hydrocarbon spills in the Mexican offshore industry,”

constantly innovating and developing new technologies

asserts Espinosa. With more than 24 products that are

and solutions, and are at the forefront of innovation in

carefully selected to address issues within the oil and gas

terms of organic, biodegradable chemical products.”

229

| INSIGHT

IMPERMEABLE QUALITY BEYOND NATIONAL STANDARDS “We do not expect the JUAN GABRIEL QUIROZ Administrative Director of Arigem

In 2015, Arigem, a company mainly dedicated to the installation of a PVC geomembrane that retains all types of spillage to avoid subsoil contamination, set the target of increasing its sales by 30% and client satisfaction by 230

40%. The company’s Administrative Director, Juan Gabriel Quiroz, claims Arigem successfully achieved its goals, keeping up with its trend of increasing sales and client satisfaction figures. According to Quiroz, the company’s

implementation of norms by ASEA to modify our activities or the way we carry them out, because the international norms we are used to following are already higher than the ones mandated by Mexican regulators”

growth is the result of client recommendations and the

Juan Gabriel Quiroz,

professionalization of its processes, which was done with

Administrative Director of Arigem

customer satisfaction in mind. Without a doubt, the PVC geomembrane is the product that has contributed the most to Arigem’s growth. “It is used for drilling equipment,

The services surrounding the PVC geomembrane also

in operation bases, or in the transportation segment to

led to growth in sales figures, with clients requesting

avoid spillage and soil contamination when unloading

everything from syndicate administration to the supply of

trucks. The PVC geomembrane we use in the oil industry

cleaning personnel for the mats.

has a 1.5mm thickness, and protects against hydrocarbons spills and ultraviolet rays,” Quiroz explains.

Quiroz is confident that his company’s focus on safety and compliance with international regulations will be a significant

The product’s popularity is partly due to the fact that

advantage in securing contracts with the foreign companies

many projects in Tabasco require its use. Quiroz recounts

that are expected to enter the market. He believes that

that Arigem has undertaken projects with GCM for

establishing partnerships with newcomers as soon as

tertiary equipment, with Schlumberger and Halliburton on

possible is of utmost importance, so that when they seek

Mesozoic fields, and currently with Nabors in Campeche.

a consolidated local safety company, they will immediately

“Our nine-year long collaboration with these companies

turn to Arigem. “We do not expect the implementation of

is able to continue thanks to the quality of service we

norms by ASEA to modify our activities or the way we carry

provide,” boasts Quiroz. “In addition, we are constantly

them out, because the international norms we are used to

looking for new applications for the impermeable mat,

following are already higher than the ones mandated by

maintaining the quality and professionalism we brought

Mexican regulators,” Quiroz clarifies. “These traits have

to the oil sector. We recently started using Impergem, the

contributed to the company’s low accident index”.

PVC geomembrane waterproofing product we install as a complement to our mat, at a residential level.”

Globally, the oil industry is going through a difficult time, and Arigem has definitely felt changes in its

Innovation is a crucial part of the company’s strategy,

clients’ budgets. As a way to survive in this low oil-price

and since last year, it has been working on expanding the

environment, the company is improving its offering so that

applicability of its PVC geomembranes to other non-oil-

it can better service its customers once the oil price rises

related sectors. Arigem took advantage of some of its

again. “On the bright side, we are looking forward to the

partnerships in order to enter the automotive industry,

positive impact of Round One, whereby more companies

where it is present in car dealerships. The fact that

will enter the market, creating many sales opportunities

companies nowadays prefer dealing with one supplier,

for us,” shares Quiroz, who aspires for his company to

rather than ten, added to the small number of players

maintain its growth in sales and customer satisfaction,

supplying similar products, has allowed Arigem to grow.

while maintaining a low accident index.

| VIEW FROM THE TOP

MAINTAINING LEADERSHIP IN REGULATORY BENCHMARKING ALEJANDRO HERNÁNDEZ Director General of CSIPA

Q: What are the principal challenges that your customers

the risk analysis area, for which we are already certified by

will face in 2016?

TÜV Rheinland to carry out assessments, but we still need

A: For international players, the main challenges will be

to spread the word and keep training our staff in this area.

adapting quickly to the Mexican system and learning about the relevant local regulations and geographical

What

makes

CSIPA

attractive

partner

for

conditions. We believe that companies will struggle to

international companies?

understand and adapt to Mexico’s social environment,

A: Years of experience working in Mexico has given us

which is more complex than that in other countries. In

broad expertise and knowledge of the Mexican market

this area, we believe that new entrants could benefit from

and understanding of PEMEX and the most important

transparent processes and inclusive strategies that involve

governmental agencies. Furthermore, we already have

the community’s participation. We are investing in raising

international experience as we have participated as local

awareness of our products and services. Instead of cutting

representatives and distributors of international brands

costs completely, we decided to follow this strategy to

from countries such as Canada and the Netherlands.

keep track of our investments and maximize their impact.

Moreover, one of our competitive advantages is the

We believe that companies need to take calculated risks

environmental database that we have developed for the

but always using an established strategy

Mexican industrial setting, which we use to optimize the costs and times of our services.

Q: What is the role of technological innovation in your business strategy?

Q: What has been your participation in Lakach, and what

A: Technological innovation helps us position ourselves

is the current status of the project?

in the market and retain our customers, it even works as

A: We have participated as a regulator during various

a marketing strategy.

To calculate the economic value

stages of the project, and all our work has been associated

of deepwater projects in a worst case scenario, we have

with safety and environmental protection. Due to the

developed a process that uses discrete variables, and that

regulatory character of our role, the company in charge of

is more effective than the methodology used by German

the project was obliged to comply with our requirements,

companies, which is based on probability principles. For

regardless of the project’s status. We always work as

this process, we utilized a simulation methodology and our

accurately and efficiently as possible, which is particularly

environmental database to provide each environmental

important when the project is not moving as quickly as

variable with an estimated value, instead of just assuming

expected. Moreover, we have contributed to the project by

it. This process has obtained PEMEX’s approval.

offering financing and in-depth consultancy.

Q: What is the role of international cooperation in your

Q: What are the main opportunities for improvement that

business strategy?

your company has identified in PEMEX’s processes?

A: So far, we have been working with foreign employees

A: We hope that the administrative processes will be

through the collaborations we established with companies

transformed

from other countries, such as Norway and the US. At

Another important issue is the NOC’s debt that restrains it

the

employees

from investing in new processes and technologies. PEMEX

is complicated for us, but we have been successful in

has a significant amount of expertise and skills, as well

establishing partnerships with international companies. As

as qualified employees, but the administrative processes

of today, we are already specialized in certain areas, but we

reduce efficiency for the company. If the parastatal wants

want to continue learning and acquiring new skills to prepare

to compete in the new market, it definitely has to change

for the new market. As a first step, we are working to enter

its work culture and environment.

moment,

directly

hiring

international

increase

PEMEX’s

competitiveness.

231

| INSIGHT

GLOBAL QUALITY ENFORCING SAFETY REGULATIONS should be replaced by hooks that comply with the new Alberto López General Manager Mexico of Norsafe

Enrique Echegaray Operations Manager of Norsafe

specifications by July 2019. He also adds that PEMEX is implementing ship evacuation training programs for helmspersons, an area where Norsafe would like to help the NOC through its knowledgeable technicians.

Norsafe specializes in the sale of lifeboats and rescue

232

vessels, as well as providing services for these areas. The

According to Echegaray, each lifeboat has to comply with

company’s main activity consists of providing services to

Mexican and international standards, meaning the vessels

vessels, with offices in Ciudad del Carmen and Paraiso, and

have to be inspected by a certified professional. “PEMEX

a service station in San Luis Potosi. While Norsafe seldom

tends to be rather demanding, so it requires in-depth annual

engages in sales activities in Mexico, it has personnel

inspections, and it hires Norsafe for this purpose,” he shares.

dedicated to identifying the Mexican market’s needs, who

Norsafe has a globally-implemented software solution

contact their counterparts in Singapore, Spain, or China to

called Safecord that keeps a historic record of vessels and

start the sales process. Once a deal is reached, the Mexican

equipment, to which the company provides maintenance.

office takes over the maintenance of the vessels.

“When a vessel comes to Mexico and undergoes maintenance operations, we use the software to determine who provided

Alberto López, General Manager Mexico of Norsafe,

the latest maintenance service, when, and how. We then use

explains that, due to the types of services that Norsafe

the information to identify the norms and regulations with

offers and the way in which PEMEX works, the company

which the vessel complies and what remains to be done,”

has a contract with PEMEX Procurement International

details López. Following the service, Norsafe’s clients are

according to brand or patent. The contract allows PEMEX’s

invited to complete a survey, which is used by the Norway

different asset management divisions to give Norsafe

office to create a report and identify areas of improvement.

work orders for servicing equipment. Norsafe is currently negotiating the possibility of providing PEMEX with new

While the market is opening to international players,

maintenance services that follow international standards,

Mexican companies are also increasing in numbers, and

such as weekly visual inspections. Enrique Echegaray,

Echegaray expects a Mexican company to be Norsafe’s

Operations Manager of Norsafe, says inspections are

main client by 2017. “At the moment, PEMEX is our largest

the most sought-after service, followed by the sale of

client, but Grupo R is poised to become our most important

spare parts. The company will benefit from a new global

client for lifeboats, as it is expanding its fleet and it has three

regulation that requires that all hooks on rescue vessels

deepwater platforms under construction,” he concludes.

WORLD LEADER IN RESCUE EQUIPMENT We are manufacturers of Conventional Lifeboats, Fast Rescue Boats, Free Fall Lifeboats and Workboats. • Quarterly, Semi-annual, Annual and 5-year inspections according to SOLAS • Sale of new equipment • Preventive and Corrective Maintenance to Lifeboats, davits and winch • Sale and installation of spare parts • Provisions

Calle 31 No. 1201, Col. Aeropuerto, C.P.: 24119, Cd. Del Carmen, Camp., México Tel.: +52 (938) 384 2017; 111 1233. Sales.mexico@norsafe.com Service.mexico@norsafe.com www.norsafe.com

| INSIGHT

ELECTROMAGNETIC TECHNOLOGY FOR OIL AND GAS As the Mexican oil and gas industry continues to transform itself into an increasingly open market, a growing amount of opportunities will continue to be created for suppliers of basic industrial equipment and services. Some of these

GERARDO TAMAYO

fundamental industrial functions include the supply of

Director General of SUMIMSA

premium brand construction tools and the performance of everyday procedure and maintenance services, such as cable and basic component lubrication and general maintenance,

including electromagnetic technology, the measurements

along with the inspection of these same components

of which provide several advantages. “The electromagnetic

through non-destructive means. The increasing aperture

machine that we use for this analysis allows us to observe

of the Mexican oil and gas industry will also mean a higher

the fibers of the cable and provides us with a diagnosis

demand for internationally recognized standardization and

report that looks similar to an electrocardiogram. With

certification of products and services offered.

this report, it is possible to differentiate the fibers that are broken without opening the cable and decide what

SUMIMSA, a Mexican company based in the city of Tampico,

measures we will take regarding that specific cable.”

is well positioned to fulfill the aforementioned role in the Mexican oil and gas industry. Its Director General, Gerardo

SUMIMSA has managed to develop an extensive client

Tamayo, is quick to point out the important percentage of

portfolio including PEMEX Drilling and Services, and CFE

the company’s operations that are dedicated to servicing

in the public sector. In the case of private companies,

this sector. “Currently, the oil and gas industry represents

Saam Remolques, Oro Negro, and Perforadora Mexico are

the main revenue source for our company, accounting

among the company’s main clients. Tamayo also points

for around 70% of our cash inflows.” Tamayo delineates

out specific projects carried out with other companies as

the competitiveness of his company’s offering in the

examples of their diverse capabilities. “We have provided

context of the Mexican market in this way. “We have

various services to Ki Energy and Carso. In both cases, we

analyzed our competitors’ offering on a national scale,

carried out an inspection of their lifting system to identify

and we have identified that most of these companies

potential failures and suggested a replacement program

do not comply with current quality standards and the

for the damaged parts in addition to a maintenance

range of our products." Historically, even before Mexican

scheme for the rest of the system.” SUMIMSA can

oil and gas projects had to deal with this current financial

also provide integral solutions thanks to its “Tullbox”

situation, PEMEX and its suppliers existed under a culture

methodologies and software tools. Tamayo knows that

that demanded the highest of safety and maintenance

his company must prepare for a different industry over

standards, yet were prone to cutting costs in this area at the

the coming years. “The situation of the industry and the

first sight of ballooning expenses. Tamayo poses a simple

position of PEMEX have changed drastically. Therefore, we

challenge to this prevailing logic. “Firstly, it is important to

now need to analyze the new market and understand the

highlight that safety must not be compromised by budget

needs of the new players in order to adapt our services to

cuts or any other factor as it will put human lives at risk.

their requirements,” he comments.

Moreover, when companies have limited budgets, they are not in a position to buy new equipment, and this could be avoided through proper maintenance services for existing

"Currently, the oil and gas

equipment.”

industry represents the

In the case of basic maintenance services such as cable

main revenue source for

maintenance, he argues that this approach is even more important than usual. “In the case of cable inspection, providing the proper maintenance will not only ensure employee safety but will also increase the useful life of the equipment, generating savings for the company.” SUMIMSA’s cable inspection services use a variety of means to assess the integrity of the equipment in question,

our company, accounting for around 70% of our cash inflows” Gerardo Tamayo, Director General of SUMIMSA

233

| INSIGHT

A STEP AHEAD IN ACTIVE FIRE PROTECTION In Mexico, preventable economic losses form fire-related accidents in industrial settings equaled 6% of the country’s GDP, according to data from fire safety associations AMIS

LUIS GERARDO GONZÁLEZ

and AMRACI. Electrical malfunctions top the list, followed

Director General of Fire

by friction and mechanical sparks. Although strengthening

Service Plus Mexico (FSPM)

the country’s fire prevention culture is the first area that should be addressed, timely maintenance and exposure to new technologies can help a great deal. “A significant

saves money, but also time, as the latter is not wasted on

problem in the oil and gas industry is the absence of a

selecting the right type of extinguishing foam. Another

well-established fire prevention culture,” says Luis Gerardo

characteristic of FSPM’s Mexican operations is the large

González, Director General of Fire Service Plus Mexico

inventory that the company carries for emergencies,

(FSPM). “Five out of Venezuela’s eight refineries had to

allowing it to respond in a fast and efficient manner in

stop production due to delayed maintenance, and this

such cases. “We are 15 years ahead of our competitors

could soon be the case of the remaining three if preventive

in the fire extinguishing foam market, as we have been

actions are not taken.” González says PEMEX should also

complying with the 2015 PFOS regulations since the year

update its policies, since it requires workers to neutralize

2000,” says González. The company installs its equipment

gasoline with AFFF foam in some instances, and with

for its clients, and connects it to software that sends FSPM

chemical powder in others. “Fuel has polar components, a

monthly and yearly maintenance alerts. “Our certified

characteristic that also applies to gasoline even though it is

personnel carries this out onsite, and then provides our

not strictly polar in itself. Furthermore, it is now known that

clients with a report on the state of the equipment. Should

extinguishing fuel fires requires a special alcohol resistant

these be stolen or damaged, even by natural causes such

formula, with chemical powder unable to accomplish

as rust, our clients are insured to recover their losses. Our

this. PEMEX continues to employ a technology that

integral program also includes training for the use and

reduces visibility, intoxicates, possibly leads to re-ignition,

handling of our equipment,” González explains.

and expires. Sadly, the latest technology is usually not covered by local or international normativity, which further

"The latest technology is usually not covered by local

discourages companies from implementing it,” he laments.

or international normativity, which further discourages companies from implementing it. Unfortunately, until the

FPSM’s product is a double agent that combines both

authorities implement norms and regulations surrounding

AFFF foam and a wetting agent. This gives the product

these sorts of products, companies will face them with

the uncommon ability to fight five types of fires, namely

reluctance, despite the possibility for medium and

solid, polar and non-polar combustible liquids, electric,

long-term savings," González laments. He hopes that

combustible metal, and cooking oil fires. The foam is six

ASEA will elevate the current standards and the quality

times more effective than that of traditional foams. “We

requirements for products with certifications that come

recently tested our products at PEMEX and were able to

from recognized laboratories. “I trust ASEA will take an

extinguish a fire in four seconds thanks to our technology,

environmentally-friendly approach when it comes to new

while PEMEX, supported by an onsite team and firefighters,

regulations, an area that has often been neglected until

required 28 seconds to do the same. This adds an extra

now.” The regulations might change now that there is a

value to our products, as just one extra minute could allow

new environmental agency for the oil and gas sector, and

the fire to propagate at fast speed, and after four minutes,

FSPM is already making a name for itself in this industry, as

it could become uncontrollable,” González shares.

it has equipped all of ASEA’s facilities. “The organization carried out a study and found that the most advanced

González highlights the fact that FSPM foam does

equipment in Mexico was ours,” González boasts, adding

not expire and that it meets the EPA’s environmental

that FSPM has written to the Minister of Environment to

requirements in the US and those of the WGK 1 in Europe.

request the inclusion of the company in the drafting of

The company can also provide its clients with a version

new norms. “There is a basic component missing in the

of the product that does not freeze. The foam’s lifespan,

mix, which is cooperation with the Ministry of Health. This

even when mixed with water, is unlimited. Providing clients

would ensure the new regulations not only look after the

with a single solution for all of their fire problems not only

environment, but also human health,” González comments.

235

TECHNOLOGY & NATIONAL CONTENT

The supply chain of the Mexican oil and gas industry is undergoing a makeover as a result of PEMEXâ&#x20AC;&#x2122;s transformation in to a productive enterprise of the state, the shift toward a multiple operator market, the impact of the drop in oil prices, and the entry of new competitors and innovative technologies. At the same time, the Mexican government has introduced a local content requirement that stands at 25% by the end of 2015, to be increased to 35% by 2025 in order to ensure that the Energy Reform trickles down to domestic firms and detonates the national industry. The combination of the industryâ&#x20AC;&#x2122;s urgent need for innovative technology and the national content requirements is creating opportunities for joint ventures and other types of association that combine the best of both worlds. International companies are looking forward to entering and offering global expertise, working in conjunction with local companies that are familiar with the environment and can contribute to compliance with national content requirements.

The Technology & National Content chapter will focus on the global drive toward increasingly cost-effective solutions, the transformation of the Mexican supply chain following the Energy Reform, PEMEXâ&#x20AC;&#x2122;s new procurement strategy, and the ambitions of both domestic and international suppliers and service providers.

237

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The Solution

www.rosen-group.com

| CHAPTER 10: TECHNOLOGY & NATIONAL CONTENT 240

VIEW FROM THE TOP: Miguel Ángel Servín, PEMEX

242

VIEW FROM THE TOP: Ernesto Ríos, Mexican Petroleum Institute

244

VIEW FROM THE TOP: Raymundo Platas Merino, LAOGA

245 INSIGHT: Ernesto Marcos Giacoman, AMESPAC 246

INSIGHT: José Luis Zúñiga, COPARMEX

247

INSIGHT: Ricardo Ortiz, Greensill Capital

248

VIEW FROM THE TOP: Gerardo Flores, ABB

249

INSIGHT: Emmanuel Guillermo Montaño, Consorcio EMCRO

250

VIEW FROM THE TOP: Carlos Pascual, IHS Energy

253

INSIGHT: José Ornelas, MEXMOT

254

VIEW FROM THE TOP: Barry Irani, iStore

255

INSIGHT: Felipe Pacheco, Plenumsoft Energy & Sustainability

256

VIEW FROM THE TOP: Arturo Vargas, National Instruments

257 INSIGHT: David González Sánchez, Net Brains 258

VIEW FROM THE TOP: Pedro Hoyos, GlobalSat

259

INSIGHT: Jorge Villareal, Elara

260

VIEW FROM THE TOP: Baldemar Guzmán, SICK

261

VIEW FROM THE TOP: Julio Ochoa, ICORSA

239

| VIEW FROM THE TOP

PEMEX PROCUREMENT FOCUSES ON TRANSPARENCY, CERTAINTY, AND COMPETITION MIGUEL ÁNGEL SERVÍN Chief Procurement Officer of PEMEX

240

Q: What were the main objectives given to you for the

Q: Many suppliers have expressed concern over the

first six months of your new role, and why were these

difficulty to align their global equipment planning with

selected?

PEMEX’s comparatively short planning cycle. Will you

A: We are working on a new scheme for PEMEX’s

be planning procurement more in advance, and how are

procurement processes, focusing on three main goals:

you going to coordinate with PEMEX E&P and Industrial

transparency, certainty, and competition. Some important

Transformation to do this successfully?

achievements have been made under the current scheme,

A: We are taking part in working groups to prepare our

which is a centralized procurement model, but there is still

plans one year in advance. Although this is the idea, the

room for improvement. There are windows of opportunity

timeframe is subject to financial resources. The best

that we need to work on. In the area of transparency, for

practice in the world, according to the Organization for

instance, we are working on a new electronic platform

Economic Cooperation and Development (OECD), involves

that will allow us to track the entire process. PEMEX's

suppliers and users having a clear idea of what they want

Procurement Division can derive enormous benefits from

to purchase, how they want to do so, and when. For large

incorporating paperless culture into its supply chains.

projects, we will organize meetings with suppliers and

Promoting the use of an electronic platform will increase

users where we will explain the entire process and provide

security and transparency. Information will be more

them with the information they need to plan properly. This

reliable and easier to process. Participants can be sure

is a massive shift in culture at PEMEX, and we hope for it

their information is safe, as only authorized people will

to be successful.

have access to it. We are also promoting a figure called Social Witness, an independent observer that we will use in

One of the difficulties that PEMEX encountered in the past

some of our bidding processes as a strategy for improving

was a lack of communication between the procurement

transparency, impartiality, and compliance with the legal

and financial areas, and we are seeking to solve this issue.

framework. So far, these have been successful in other

The newer and stricter processes and rulings will provide

public entities, and PEMEX believes it can successfully

us certainty in financial resources for projects, allowing for

appropriate this mechanism.

more order in the company.

When it comes to promoting competition with new

Q: What should suppliers expect considering that not

participants, we consider the fact that we already have

many projects have been awarded lately and the rest of

many suppliers to be an advantage. Indeed, competition is

2016 is not looking particularly promising?

a key element to have a successful procurement process.

A: The financial situation is not the best for us, and we are

Another element we are focusing on is planning, because it

counting on executing some projects, mainly exploration

is the cornerstone that could make this process successful.

and production projects, which will be launched through

It is important to map out a strategy with the main users

bidding rounds with a focus on the promotion of open

of the procurement platform, PEMEX E&P and PEMEX

competition.

Industrial Transformation, for the procurement process to be efficient. For this, PEMEX requires time. We are

Q: What is PEMEX going to do in order to ensure that its

currently working on several strategies, all of which seek

suppliers can survive until they are paid?

to turn away from direct awarding, and looking closely at

A: We started to pay our suppliers, mainly SMEs, three

the option of tenders and bidding rounds, which could

months ago. In fact, we receive financial support from the

give us better results, help us achieve the change we are

Ministry of Finance, which goes exclusively toward paying

looking for, use our resources in a better way, and be more

this debt. At the end of the year, we expect most suppliers

efficient overall.

to be paid.

Q: How do you plan on developing your local supply

Awards have not proven to promote transparency and

chain, and how will the relationship between PEMEX and

competition amongst providers. The new scheme will not

its suppliers evolve?

only attract new players, but it will also give the industry a

A: PEMEX has a well-developed local supply chain

new perception of PEMEX.

involving companies ranging from SMEs to large suppliers. The challenge is now to maintain this local supply chain

Q: How will you work to improve the link between

given the entrance of international competitors in the

the procurement and legal divisions, which becomes

Mexican oil and gas sector. In order to maintain our local

increasingly important as PEMEX takes on riskier projects?

supply chain, we are developing initiatives regarding work

A: The legal division has an area dedicated to risk that

programs with industrial associations and chambers;

helps us plan projects and provides us with feedback. Prior

initiatives for minority groups of suppliers, such as

to any project, the legal department reviews the contracts

SMEs, women-led enterprises, and local companies;

and all possible legal implications for PEMEX and the

the coordination of petroleum clusters in regions where

potential supplier. The latter can be ensured that the

PEMEX has an important presence at all economic levels;

allocation of risk is in line with international best practices.

and specific projects for the development of suppliers,

We have redefined our early termination clause for every

such as the pilot project with CEMEFI, the Mexican

new project.

Center for Philanthropy, to encourage social responsibility among suppliers. All of these initiatives are based on a

Q: What will be the main difference between the way the

mutual benefit vision without overlooking PEMEX's legal

procurement process will operate if next year the oil price

obligations regarding national content in exploration and

is at US$30/b or US$50/b?

production.

A: The procurement process will remain the same, regardless of the oil price, with the purpose of improving

Q: How does PEMEX compare to the procurement areas of

transparency,

the IOCs, and how can you ensure a successful cooperation

amongst providers.

certainty,

and

promoting

competition

in the case of farm-outs and other associations? A: The PEMEX Procurement Office is undergoing several

Q: How will you ensure that price is not the sole focus of

changes, many of which are oriented towards facilitating

your procurement activities?

cooperation with another office. We are comparing our

A: Our increased focus on quality is evident under the new

processes with our peers, and implementing the best

scheme. We are currently in the midst of reevaluating all of

practices used by IOCs. These involve, among others,

our suppliers to ensure they comply with our new terms and

the use of the correct assignments, electronic means,

conditions, shifting the focus to take into account quality

auctions, independent observers, public consultations, and

and reliability through an overall view of business success.

the promotion of competition. The public consultations will provide us with industry feedback, allowing us to

Q: PEMEX had more than 120 procurement offices before

improve the bidding processes. We expect these new

the reform. How many do you have today, and how many

best practices to be implemented soon. We know this is

can you still remove the moment you shift to an electronic

important to guarantee success in our associations with

system?

other operators. We are also empowering our officials,

A: We have office locations around the country, each of

teaching them about the industry and training them in

which has a strategic focus. We intend to reduce that

procurement practices.

number to one that can attend all of E&P and TRI’s needs. We are looking to have local acquisition centers (CAPAs).

Q: Will the digital procurement system function in a similarly

CAPAs will be dedicated to providing acquisition,

transparent way to CNH’s portal for the licensing rounds?

management expertise, and a secure, high-quality, and

A: Yes, and the number of bidders and their economic

responsive service at a local level. The CAPAs will ensure

proposal will also be accessible, which is different to CNH’s

that

portal. The same goes for auctions. We will seek to keep

standards established in PEMEX´s acquisition program

everything as transparent as possible. We expect this to

goals, objectives, and contract requirements.

procurement

activities

meet

the

performance

be up and running in two months. Q: What can PEMEX suppliers expect from the NOC in Q: To what extent is PEMEX going to become proactive

2017 and what will you expect from them?

in its search for the best suppliers and service providers

A: We believe that our suppliers are important stakeholders.

around the world?

This demands from us a continual improvement in quality,

A: We are looking to become more proactive. PEMEX

transparency, certainty and competition. We expect to

should change the way in which it sees its suppliers. Direct

bring new players into the field.

241

| VIEW FROM THE TOP

THE TECHNOLOGICAL ARM OF MEXICO’S OIL AND GAS INDUSTRY ERNESTO RÍOS Director General of the Mexican Petroleum Institute (IMP)

242

Q: What are the main collaborations between IMP and

Q: What abilities allow IMP to collaborate with regulators

PEMEX, and in which ways does each institution benefit

like CNH or CENAGAS, and what main lessons have you

from their relationship?

learned from these endeavors?

A: The Mexican Petroleum Institute originated from

A: IMP provides human resources, products and services,

PEMEX, and the collaboration is defined by the five

strategic design, technical assistance, research, and

decades during which the Institute has provided scientific

intellectual property, among others. These are the

and technological support to PEMEX. We have carried out

capabilities that have attracted the new governmental

innumerable research and technological developments for

agencies to work with us. We have recently signed an

the NOC in order to solve various technical complexities

agreement with CENAGAS to support the natural gas

that emerge in the production chain and the processes

sector. This agreement aims at performing various joint

related to the transformation of hydrocarbons. The

actions in strategic design and institutional architecture,

decades during which we have provided our services have

engineering, technical diagnostics, skill development,

benefited not only PEMEX, but also the state.

and technical assistance, mainly in terms of inspection, maintenance, and pipeline integrity. We will also work to

As part of the collaboration between PEMEX and the IMP,

ensure the reliability of natural gas storage, transportation,

we could mention diverse projects that originated from

and distribution systems.

technological requirements at the NOC, which was seeking to improve well productivity, increase recovery factors,

In addition, IMP signed an agreement with ASEA in order

characterize wells’ formations and fluids, improve techniques

to provide technical support to the agency in the design of

to interpret seismic information, develop new abilities in

the regulations and regulatory frameworks for the industry,

deepwaters or in shale resources, process and transport

as well as the development of human capital, in line with

extra-heavy crudes, and improve the production of clean

the best international practices. It is worth mentioning

fuels. We have also helped PEMEX in areas such as industrial

that IMP designed an inspection program for ASEA, from

safety, operative improvements, engineering, and the

which 60 inspectors had graduated in May 2016. We

formation of specialized human resources. In other words,

consider that this program is relevant to overcome the

during these decades, IMP has been PEMEX’s right arm

current challenges in Mexico’s energy industry and to

when it comes to technology, as well as its strategic partner.

ensure the exploitation of technological resources and ensure sustainability in key areas such as industrial safety

Q: How will the opening of the oil and gas sector impact

and environmental protection. We also maintain a close

the Institute’s activities and the services it offers?

relationship with CNH and the new operators that have

A: The entry of new players in the Mexican oil and gas

won tenders from Round One, among others.

industry will open a great window of opportunities for IMP, as research and technological development are crucial to

Q: What is the role of the IMP in providing support to

generating economic, environmental, and social value. In

the supply chain in order to generate technology while

the new scheme, IMP must continue working on generating

creating national content?

new capabilities and assisting PEMEX, but we will also be

A: As a national institute, IMP is present across the entire

able to offer our services to private players and provide

hydrocarbons value chain, creating national content

technical support to the oil and gas industry’s regulators.

through research and developing its own highly competitive

The scientific knowledge on the hydrocarbons value chain

technologies. These are in line with the industry’s needs

the Institute has obtained throughout its existence will

and are based on innovation and the creative talent of

enable it to advise players and develop new skills that will

the institution’s employees, which support the transfer

boost the sector.

of knowledge to improve the effectiveness and efficiency

of the industry. It is important to mention that during

the risk and uncertainty in the reserve incorporation

the institute’s 50 years of experience, it has registered

process. They have generated strategic information

many patents, national and international, becoming the

that our clients use in when deciding where to allocate

institution that patents the most in Mexico.

investments in exploration projects. This was facilitated by IMP personnel, who have extensive experience in the

Q: What are the main focus areas of the IMP in the

oil and gas sector and deep knowledge of the country’s

exploration and production area?

geology. That is how our clients benefit from the IMP’s

A: The integral methodologies, technologies, and solutions

knowledge and experience in Mexico’s oil and gas

that IMP has developed for exploration and production

environment. Our technical consultancy services and

have contributed to PEMEX’s success, and this will also

competitive pricing allow for better decision-making

be the case for the new participants in Mexico’s national

within our clients’ companies, helping them to become

oil industry. These solutions include various operations

more sustainable in the exploration and production

in unconventional reservoirs from the evaluation of oil

segment in Mexico.

resources, the design of the well for its exploitation, and the development of technologies for real-time monitoring of hydraulic fracturing. In addition, the Institute has carried out evaluations of the leftover oil in naturally fractured carbonated reservoirs by using an integral solution,

243

which includes technology, tracers, petrophysics, and samples of cores and outcrops. Finally, we have worked on multistep hydraulic fracturing, which consists of real-time monitoring of hydraulic fracturing and oil production, as well as the saturation of residual oil, for which we evaluate the remaining oil in naturally fractured reservoirs, using an integral approach and enhanced oil recovery methods, among others. Q: Which technologies and processes were developed by

the

Institute

during

your

participation

the

aforementioned areas?

IMP has carried out research and technological developments in the oil and gas industry for 50 years

A: The technological services offered by the IMP have been linked to the solution lines in hydrocarbon potential

Q: How will IMP continue participating in the development

evaluation and reserve incorporation, as well as in

of Mexico’s deepwater segment?

evaluation, and the training of human resources. Some of

A: IMP will continue participating in the development of

the technologies we have developed can be found in the

Mexico’s deepwater segment. The Institute will play a key

market and are commercialized both at the national and

role, as the Deepwater Technology Center that will be

international level. These include technologies to increase

inaugurated this year will carry out related research and

well productivity, chemical products (anti-foams and anti-

provide cutting-edge technological services to public and

corrosives), and devices for wells with a high incidence of

private players in the oil and gas industry.

oil and gas. Our technologies have been tested in over 520 PEMEX wells, and in certain cases we obtained production

The Deepwater Technology Center was built using

improvements in gas of 2.472bcf/d and of 6,600b/d in oil.

resources with the Hydrocarbons Fund from the Ministry of Energy and CONACYT, as well as IMP’s own resources.

We recently tested a technology for enhanced recovery

Located in Boca del Rio, Veracruz, its goal is to increase

using microbial processes, which resulted in an oil production

knowledge that will serve in the design, development,

increase of 22%. The technologies used to characterize

and operation of deepwater and ultra-deepwater fields

the reservoir’s oil have been applied to at least 25 wells,

in the Gulf of Mexico. In its initial phase, the center will

using methods based on X-ray tomography. Likewise, we

have sixlaboratories: Technology Qualifications, Flow

successfully used the chemical products developed by IMP

Assurance, Meteocean and Hydrodynamic Phenomena

in fields such as Akal, Ku-Maloop-Zaap, Samaria, Angostura,

Numeric Simulation, Drilling Fluids, Well Cementing

and Jujo-Tecominoacán, among others.

and Completion, and Geotechnics and Floor-Structure Interaction.

The

Deepwater

Technology

Center

will

The differentiated technologies developed by IMP for

also focus on preparing skilled talent and creating

exploration and production have succeeded in reducing

methodologies and solutions for hydrocarbon production.

| VIEW FROM THE TOP

FOSTERING OIL AND GAS LINKS ACROSS THE AMERICAS RAYMUNDO PLATAS MERINO CEO of LAOGA

244

Q: Which activities and goals distinguish your organization

and requirements of the administration. It is therefore our

from others on the market performing similar functions?

duty to provide success stories and examples of the way in

A: We were founded three years ago and today we have

which the benefits of the reform can be seen. These examples

480 members. The distinguishing feature of LAOGA is

will come in the form of those first tenders awarded in the

our focus on the supply chain, as well as compliance and

first phases of Round One, and we will be working with the

certification for the major players coming to the Mexican

Offshore Committee to provide channels for dialogue with

market. The second most important point of the association

the Ministry of Economy in order to comply with those rules.

is our participation with the different committees involving

We simultaneously have an opportunity to partner these

entities such as CNH, ASEA, CENACE, CENAGAS, and

companies with suppliers, which constitutes another joint

CRE. We form a voice for the industry in order to provide

venture opportunity for the local industry.

access to the regulations and relevant information that will facilitate these companiesâ&#x20AC;&#x2122; establishment in Mexico. We

Q: How would you help entering companies identify a

partner with a variety of organizations like COPARMEX,

local supply chain?

CANACINTRA, and CONCAMIN, as well as the Chamber of

A: First and foremost, we are extremely selective in

Commerce in order to optimize processes for economics,

terms of our members, and we will continue introducing

supply chain, and political input areas. Our main focus is

new members to the association, while requiring full

working to create relationships with the Secretariats of

compliance with our policies and certifications. We

Energy in each state to effectively represent the different

work based on best global practices, especially for key

energy players within the sectors. The main goal of

accounts like operators, medium-sized companies, and

LAOGA is to have members conducting business through

service companies like Halliburton. We are also planning

the association.

to launch an application called Procurement Energy Shop, which serves as a guide or directory. We register all our

Q: What is your perception of the national content

members in this application and compile their information,

requirement, and what are the main challenges being

and through this service we are providing these details to

faced in this area?

the rest of the players in the market.

A: Firstly, I believe this requirement is necessary in order to guarantee effective technology transfer in Mexico. In

Q: In the current environment of uncertainty, what are the

the past, PEMEXâ&#x20AC;&#x2122;s monopoly has meant that technology

key milestones that you hope to surpass in 2016 as an

was not a main priority in Mexico, but with the opening

association?

of the market, this has gained a greater importance. In

A: The goal is to welcome 1,000 members by the end of 2016,

terms of the local companies within our organization, this

and we are sure we can achieve that, whether they are from

represents a promising transition for them. Many of the

Mexico or abroad. Secondly, we aim to generate at least US$2

foreign companies coming to LAOGA seeking facilitation in

billion in contracts for our members through the organization.

terms of setting up operations in Mexico want information

Thirdly, we wish to achieve an active participation in each

on the intricacies of the new contracts. Regardless of this

committee in terms of regulatory issues, and to be extremely

percentage or the joint venture structure, many of the

active within each regulatory entity. The government has

foreign companies that we have worked with have preferred

already fulfilled its responsibility in approving the Energy

to be allied with a local partner, at least initially, so this

Reform, so it is now up to organizations like ours and the rest

represents a significant opportunity for the local industry.

of the industry to participate in shaping the legislation and best practices. We have formed an alliance with the Texas

There are many questions regarding the process, and one of

Oil and Gas Association, and next year we will endeavor to

the main functions of LAOGA is to clarify the roles, duties,

create more links like these.

| INSIGHT

PRIVATE SECTOR ALLIANCES

One of the greatest questions regarding local content is

ERNESTO MARCOS GIACOMAN

how this will be measured. The Ministry of Economy has been working on this regard for some time now, and Ernesto

President of AMESPAC and

Marcos Giacoman, President of AMESPAC and Founding

Founding Partner of

Partner of Marcos y Asociados, says the methodology

Marcos y Asociados

incorporates proposals from global organizations such as the World Bank, thus it follows international best practices. He claims AMESPAC has been involved in the development

local content requirements through equipment, goods, and

of the national content measurement mechanism even

specific services, players can rely on local employment,

before the reform was passed, as this is in the association’s

infrastructure investments, personal training, and even

top priorities. “We want the development of an industry that

technological development. In the case of industrial safety,

works in parallel to operators, and some service suppliers

companies that have international certifications can validate

can become operators through migrated contracts and

those in Mexico, so they do not have to undergo a similar

farm-outs, so this subject means a lot to the association.

process in the country or change their standards. As for

Basically, we want to improve the technical and operative

the percentages required in the E&P contracts awarded at

capacities of local industries to help develop the new

the moment, Marcos Giacoman says these are realistic and

energy sector,” he shares.

operators have not voiced complaints so far.

Since the beginning, AMESPAC has developed formulae

AMESPAC is helping in the implementation of the

aimed at measuring national content efficiently. Although

methodology developed by the Ministry of the Economy

the association’s opinions were taken into account in several

in a way that enables contractors to offer services that

cases, Marcos Giacoman says some the final results turned

comply with the local content requirements for operators.

out to be different from what AMESPAC thought was

Members of AMESPAC and former PEMEX employees

best. “For instance, we wanted to include in the formula

have formed a consulting firm specialized in international

any purchase oil companies did in Mexico, even those

commerce and local content. The firm developed an

considered for exportation purposes, because we want an

information processing methodology that allows operators

internationally competitive industry. However, the authorities

and subcontractors to fulfill these requirements while

did not include this suggestion and the methodology limits

optimizing their resources. AMESPAC is also supporting

national content to products and services used in the field

the creation of a national registry of local suppliers for

that was formally assigned in a contract.” Regardless, he

the energy industry. Marcos Giacoman says PEMEX has

claims the Ministry of Economy’s methodology is quite

already developed its own system, and the Ministry of

broad and open, so even if a company cannot fulfill the

Economy is working in a more comprehensive one.

Offices Location:

Experts in providing port-to-port integral services.

Business Units

Ship Agent Crew Management Offshore Support Logistics Shipping Services Commodities Legal Advice

* Ciudad del Carmen, Mexico * Mexico City, Mexico * Altamira, Tamaulipas * Coatzacoalcos, Veracruz * Dos Bocas, Progreso, Yucatan * Seyba Playa, Tampico * Tuxpan, Veracruz * Houston, USA

Contact:

rcampero@maritima-internacional.com.mx www.maritima-internacional.com maritimamexico Maritima Internacional maritimainternacional Maritima Internacional Mexico

245

| INSIGHT

TABASCO PREPARES TO STRENGTHEN ITS SUPPLY CHAIN Investments are not limited to obtaining certifications,

JOSÉ LUIS ZÚÑIGA

as Tabasco-based companies also have to consider

President of the Tabasco

employee training and capacity building, as well as the

Energy Commission at

purchase of new equipment in their budgets. Zúñiga

COPARMEX

explains that the federal and the state government have a series of instruments through the Ministry of Economy and the National Entrepreneur Institute, where there are

When talking about Mexico’s oil and gas states, Tabasco is

initiatives that support companies in terms of training,

one of the names that top the list. In fact, 13 out of the 17

technology, and consultancy. The Energy Commission is

municipalities that form the state have oil and gas reserves,

already helping businesses access these resources.

and approximately 70% of the national production is

246

linked to Tabasco, so without a doubt, it plays a key role

A well-recognized problem in the oil and gas industry is

in the hydrocarbon sector. Given the importance of the

the coming drought of qualified personnel. Fortunately, the

oil and gas industry in this state’s economic activity and

Energy Commission is composed of many former PEMEX

the fact that this will increase due to the implementation

employees who train groups of engineers, leveraging on

of the Energy Reform, COPARMEX created the Tabasco

their specialized and sophisticated knowledge. “We see the

Energy Commission to strengthen the state’s supply chain.

coming high demand for qualified personnel as excellent

“COPARMEX forms specialized commissions in each state

news. We want this workforce to come from Tabasco, and

with the objective of connecting and developing the local

our role is to promote this talent. In order to achieve this

private industry. For the oil and gas sector, the association

objective, the Energy Commission is working closely with

participates

universities so that our engineers can help them tailor their

round

table

organized

CNH,

representing the industrial sector before regulators and

programs to the industry’s real needs,” Zúñiga shares.

other decision-makers. Following its mission, COPARMEX created the Tabasco Energy Commission to help SMEs

Helping companies obtain access to financial mechanisms

seize business opportunities with the winners of Round

and certifications is only part of the journey in helping SMEs

One,” explains José Luis Zúñiga, President of the Tabasco

improve their competiveness. The Energy Commission will

Energy Commission.

also help Tabasco-based companies by organizing a series of events, including the Petroleum Forum, where service

The Energy Commission will help companies detect

providers and suppliers can meet potential clients. In

opportunities and adjust to the emerging business

addition, the Commission also has monthly meetings with an

models in the country. The first thing the Commission

official who is directly linked with the hydrocarbon industry,

will do to help SMEs, stresses Zúñiga, is help them

and local companies can approach him to understand first-

meet the new industry standards that will be required

hand the requirements and learn what business model is

for contracting. “The Energy Reform poses a 25%

most appropriate to follow.

local content requirement per contract, which will be a considerable advantage for the companies we work

At the moment, Zúñiga says the Commission is providing

with. However, operators and large firms are clear when

training and consultancy services to get the gears moving

it comes to standards, so we are aware that we have

for Tabasco companies. He acknowledges that Tabasco

to strengthen this market to allow it to meet the new

had previously lacked an Energy Commission in spite

requirements.” He points out that some of the required

of being a prominent player in the Mexican oil and gas

standards will be ISO, SOSHA, or NOM certifications,

industry. “The Energy Commission was created as a

but additionally, some companies will have to certify

result of all the changes and reforms that the country is

their internal processes according to the nature of

undergoing, so the time was just right,” he states. Zúñiga’s

their activities. The main limitation for certifications is

main objective during his first year of tenure is to ensure

the costs, and many SMEs lack the capacity to pay for

that companies in Tabasco secure business opportunities

them. To help them overcome this barrier, the Tabasco

with operators. He concludes, “I want the SMEs from

Energy Commission is presenting an integrated plan to

Tabasco to have the opportunity to make contacts within

the government whereby the Commission can certify

the national and international industry, and that is what the

companies depending on their type and activities.

Energy Commission will work on as Round One evolves.”

| INSIGHT

BAILING OUT THE INDUSTRY

The Mexican oil and gas industry is facing an unprecedented challenge. Not only is it affected by the drop in oil prices, but also by its impact on PEMEX. Just like any other

RICARDO ORTIZ

company in the international oil and gas industry, its

Director for Latin America

budget was planned relying on a much higher price of

of Greensill Capital

oil, and the drop has led to severe payment difficulties. Mexico’s industry is particularly affected given the fact that it has been so dependent on PEMEX, and because the

supplier has received the payment from Greensill, it has no

NOC is delaying payments. “This poses serious hardship

more financial exposure to PEMEX, or any bank borrowing.

on many companies, and in particular on smaller and

“We do not require guarantees from the supplier, as we

less well-capitalized ones,” Ricardo Ortiz, Director for

manage everything through contracts. Afterwards, the

Latin America of Greensill Capital, points out. “Among its

supplier has no further responsibility regarding payments

suppliers, PEMEX has a great deal of small companies that

by PEMEX, which reduces uncertainty and allows it to

offer daily services. In the case of jack-up rig providers,

finance its working capital at a rate lower than that offered

leases can cost US$180,000 a day, creating serious

by banks.”

struggles for such companies if they are not paid on time,” he exemplifies, adding that the amount of financial distress

Mexico also has an alternative payment program called

caused by late payments would depend on the size of the

NAFIN Productive Chain Program. The Director points

company, how local it is, and how many businesses it has

out that unlike what the industry may think, these two

around the world. Ortiz believes that the most promising

are not in competition, but rather, offer completely

solution for these small and medium-sized local firms is

different services. “Greensill Capital is a private supply

supply chain financing, as it provides the working capital

chain finance program that can provide funding from

that these businesses need at a much lower cost than the

both domestic and international sources and manage

alternative options available to them.

contracts made and payable in dollars in both Mexico and abroad, but not in pesos. Although in certain cases

Greensill Capital created the PEMEX Supply Chain Finance

we can accept contracts denominated in dollars that are

Program with the Mexican NOC in order to help companies

payable in Mexican pesos, our customers need a certain

that are struggling to survive due to delayed payments.

clause in their PEMEX contracts to receive dollars,” he

“PEMEX suppliers can receive financing at 8-10% from a

advises. He explains that, on the other hand, NAFIN is

bank, but we can offer much lower rates to small suppliers,

a government productive chain program that only takes

based on the oil company’s credit rating.” The Director also

care of contracts that involve Mexican pesos. “NAFIN and

expresses surprise regarding the fact that Greensill Capital

the government are currently handling the peso financing,

has received interest from large, international suppliers

and we do not want to interfere in their area. Greensill

that he believes can easily handle 180-day payment terms.

Capital would be interested in entering this market, but

“Those large suppliers like the fact that our financing is

this is ultimately PEMEX’s decision,” he admits.

structured as non-debt and improves their cash flow,” he reasons. In order to access Supply Chain Finance Program, suppliers must meet various requirements. Ortiz explains that PEMEX must first authorize such an action for each player, after which the latter must sign an amendment to its PEMEX contract, making it eligible for the program. He continues to say that, “Subsequent to this, the supplier can ask Greensill Capital to discount its invoices, and will then receive its money after a 48-hour period. Our documentation for suppliers is easy and allows users to sell

“From a bank, PEMEX suppliers can receive financing at 8-10% but we can offer much lower rates to small suppliers, based on the credit rating of PEMEX”

their PEMEX receivables to us on a non-recourse basis for

Ricardo Ortiz,

a small discount,” Ortiz clarifies. That means that once the

Director for Latin America of Greensill Capital

247

| VIEW FROM THE TOP

INSTRUMENTATION REDEFINING VALUE CHAIN INFRASTRUCTURE GERARDO FLORES Strategic Account Manager for PEMEX at ABB Mexico

248

Q: What role has ABB played in the development of

Although this project was initially launched for economic

PEMEX’s existing infrastructure, and what have been the

reasons, stemming from the Kyoto Protocol, today, it has

main highlights of its contribution?

become a matter of survival. Now that the borders are open

A: Our relationship with PEMEX goes back 35 years, when

for the supplying of gasoline and diesel, if PEMEX does not

we were known as Taylor Instruments. As equipment

supply ultra-low sulphur diesel, it will not sell anything.

developed,

went

from

supplying

pneumatic

technology to the digital instrumentation used today,

Another opportunity for us lies in reconfigurations. There

the latest technology available in the market. We have

are still three refineries that require a process update,

worked with the NOC on service requirements, training,

because they were designed to process light oil, and

service contracts, and any other services needed to keep

Mexico’s production is largely shifting to heavy oil. However,

the systems and equipment up and running.

we are unsure whether PEMEX will move in that direction for the time being. The main reason behind our doubts is

In the past five years, we became an important part of

the removal of the US ban on crude exports, which had

PEMEX’s activities in the offshore business, because we have

been in place since the 1970s. This has allowed PEMEX to

the main three disciplines required on platforms. These are

import 100,000b/d of light oil from the US, mix it with the

instrumentation, automation, and power supply. We have

local heavy oil, and supply PEMEX’s refineries with the type

an extremely solid portfolio for those disciplines, and we

of crude they were built for. That could solve the problem

became one of the first players in that arena in conjunction

in the short term, without having to resort to refinery

with the EPC companies. We also bring value to PEMEX

reconfigurations, which cost US$3 billion each.

through work for its contractors. We built a complete platform with a local partner, Bosnor, part of Grupo R, for

Q: What new products and services do you have in the

which we developed all of the engineering for the process

pipeline for the Mexican oil and gas market?

equipment, automation, and power. Grupo R built the jacket

A: We have one specific product, for which we are

and the topside platform. The project cost US$320 million,

number one in the world, called High Voltage Direct

and was the largest we have undertaken so far. In addition,

Current (HVDC). It is a solution for providing power to

we recently delivered substation number five for PEMEX, as

platforms from the shore, instead of building generation

the original one burnt down three years ago. ABB won the

platforms offshore, which is extremely costly and difficult

bid for this project by approaching it from a predominantly

to maintain. We have developed a solution where the

technical point of view, and also by carefully considering

platform is connected to the shore through an underwater

the significance of our business with PEMEX.

cable, saving time, as all maintenance can be carried out onshore. Another advantage of our solution is that the risk

Q: To what extent has the mapping of the market segments

of having a power cut is passed on to the supplier.

ABB serves around the world uncovered business opportunities in the Mexican oil and gas industry?

We provide the power systems required to obtain the

A: Today, we have the projects that had been put on hold

energy from the transmission line, by converting it from AC

by PEMEX for many years, and we are looking forward to

to DC, sending it through the cable, and then converting it

the development of clean fuels, which are now at the diesel

back to AC at the platform. Our colleagues in Norway are

stage. There are six refineries that need to be installed with

the experts in this as they have carried out the process for

new processes that can handle ultra-low sulphur diesel. This

BP, Statoil, and ExxonMobil, among others. PEMEX has a

project has been on the table for approximately ten years,

need for this technology in the Ayatsil-Tekel-Utsil field and

and is at least six years behind schedule, but it finally looks

if they were to invest in it, it would be the first installation

like it is moving forward, despite PEMEX’s budget cuts.

of this type in the Mexican oil and gas industry.

| INSIGHT

THE CHALLENGES SMALLER PLAYERS FACE Resourceful SMEs can find a niche in the oil and gas value chain if they manage to adapt their products appropriately. Consorcio EMCRO (EMCRO) was established in 1997,

EMMANUEL GUILLERMO MONTAÑO

and its core focus has been the manufacturing of metal

Director General of

used for offshore platform

Consorcio EMCRO

containers measuring 4m

installations in Mexico’s marine region. These containers comply with PEMEX’s NRF-261-2010 norm, which is a very strict regulation concerning the logistical handling of drill

mud skips themselves, these would depreciate within ten

cuttings. Emmanuel Guillermo Montaño, Director General

years, making little sense in accounting terms.

of Consorcio EMCRO, claims competitive advantages such as certifications and reliable products have allowed the

Montaño claims players are faced with three main challenges.

company to grow to 1,000 containers and assume a market

The first concerns sources of financing. Although firms have

share of 25%. EMCRO’s main clients include Baker Hughes

access to development banks, these usually do not lend

and Qmax, and Montaño hopes Round One will bring more

more than 10-15% of the requested amount, Montaño tells.

players and prospective clients in the fluid drilling segment.

To cover their growth needs, companies then have to turn to their providers for financing. “Housing financing hovers

On top of its core business, EMCRO last year started

at around 5%, which seems incredible in comparison to the

building mud dams. Montaño explains that these are

rates in our sector. This financing should be reallocated to

much larger containers, with a capacity of about 80m , in

productive projects, especially within the energy industry.

which drilling fluids are prepared. “In 2015, we also started

Currently, the loans from development banks oscillate

constructing a drilling fluid plant in Paraiso, Tabasco,

between 18-30%. Another issue is the excessive guarantees

which we hope will be completed and handed over to

requested for financing. At times, it can reach a ratio of

Baker Hughes in December. In addition to this, we own

three to one. In my mind, the government’s monetary policy

a 4-hectare field with the corresponding permission for

must be addressed urgently.”

handling non-hazardous waste, complying with PEMEX’s previously mentioned requirement.” In addition, EMCRO

The second challenge is insecurity. “The oil-rich areas

plans on building its own drilling fluid plant, which will

surrounding the Gulf of Mexico have high insecurity rates,

have a storage capacity of 4,500-5,000m3. “This plant

and there is a strong and urgent need for the government

provides us with a strong competitive advantage, as all

to address this problem,” Montaño comments. In his view,

other plants in the area have a capacity of only 1,300m3

Mexican companies are more accustomed to working with

and are located in the API,” shares Montaño. He explains

these problems than without them, but foreign companies

that, to manufacture drilling fluid, about 70-72 different

will face an unpleasant challenge when establishing

types of chemicals are needed, some of which require a

their operations here. The final problem is infrastructure.

patent. Once EMCRO has the plant in operation, it will seek

Montaño explains that in the case of Dos Bocas, there are

to commercialize these chemical products, since there is a

no separate roads for trucks and pedestrians, leading to

demand for them in the market.

many accidents. “The infrastructure, in many places, does not align with the current and future needs, particularly

Montaño believes the local content requirements, currently

given the amount of investment to come.”

set at 25% with the possibility of increasing to 35% by 2018, will positively impact his business, as companies will

Although obstacles are evident, Montaño is confident that

opt to contract mud skips locally rather than import them

the Energy Reform and Round One will provide plenty

or build them themselves. “First of all, local hires are more

of opportunities for SMEs. EMCRO will take advantage

beneficial in relation to cost, but also because imports

of the tenders and secure contracts with the winning

would not comply with PEMEX’s NFR-261-PEMEX-2010

companies. “We are interested in the winners of R1-L02.

norm,” he explains. EMCRO enjoys an advantageous

This round concerns nine fields in the areas of Tabasco and

position because it is located only 7km away from the API

Campeche, the success rate of which is estimated at 60%

Dos Bocas dock in Paraiso, Tabasco, has a well-established

on average, meaning perforation could start much earlier.

yard with all necessary permits, and 100% Mexican capital.

We would expect to start working with them between

Montaño points out that, should companies seek to build

March and December 2016,” Montaño shares.

249

| VIEW FROM THE TOP

EASING THE TRANSITION INTO MEXICO CARLOS PASCUAL Senior Vice President of IHS Energy

250

Q: What is IHS Energyâ&#x20AC;&#x2122;s main competitive advantage, and

to companies in a way that is easily accessible, and we

how have you harnessed this in the changing face of the

present it in a format that allows them make comparisons.

energy landscape?

We have developed software capabilities in four main

A: IHS Energy has the most advanced global databases

areas: Technical, Energy Analytic Insights, Engineering

available on upstream project development and on basins

& Geoscience, and Consulting. In each of these areas we

around the world. We have also developed state-of-the-

have a number of different software products and reports

art models for cost analysis. These tools allow companies

that can help companies better understand the Mexican

and governments to understand what it will take to

environment. We work with companies in each of these

be competitive in any particular marketplace. Through

areas in order to develop the package of resources that

our office in Mexico, we have a direct relationship with

best suits their business requirements.

companies interested in the country, and also with key decision makers in the government at the federal, state,

Q: How has the insecurity in hydrocarbon-rich regions

and local levels. This allows us to understand not just the

impacted the entry or operations of IOCs in Mexico?

traditional technical issues in energy, but also many of

A: For most companies, security issues have not been

the above-ground risks that affect the viability of energy

the dominant factor affecting their investment decisions

projects.

at this stage in Mexico, especially for offshore projects. There are a number of things that can be done at a federal

Here in Mexico, our most requested services include a

and state level to help address issues related to organized

combination of technical and policy insights in analyzing

crime and to facilitate relationships with unions and

the resource potential of Mexicoâ&#x20AC;&#x2122;s oil and gas sector, the

ejidatarios. The wider development of onshore resources,

cost for development, and the competitiveness of those

especially unconventional or shale, will entail different

resources. We have also had requests to help companies

types of challenges. It will be necessary for the Mexican

understand above-ground risks, which are the political,

government to work together with companies to develop

regulatory, and economic factors and can affect the

strategies that provide a local source of security that

viability of a project. As a result, we have spent extensive

can respond rapidly with accessible protection. It is fair

time meeting with and understanding the interests of

to say that each company will have to make a security

critical players in the government at a federal level and

investment, but what is truly needed is a security umbrella

establishing contacts at a state and local level.

provided by the government. Companies could then make localized investments to support or reinforce that.

Q: What are the benefits for your clients of working with a company that provides both data and consulting

Q: What are the main challenges national companies will

services?

face in becoming operators?

A: IHS has established data exchange relationships with

A: Around the world, two of the greatest challenges for

companies all around the world, and by using the technical

any company are quality control and standardization.

and cost data provided to us by these companies, we are

Companies must be able to deliver a quality product

able to develop models that help them analyze data more

on a consistent basis in order to attract and sustain

efficiently. To do so, we receive company data on individual

contracts and partnership. IHS has the capacity and

countries, but also cost data and technical information on

experience to help companies develop these skills.

the basins our clients are developing globally. We then

Having spoken to some of these local firms, they are fully

analyze that data and help them better process it, and

aware of this challenge and are committed to developing

customers are able to update their information in our

their capabilities to reach that goal. In the matter of

database bi-annually. We then make the data available

standardization, companies will have to ensure that the

standards they pursue are congruent with both Mexican

and the materiality, meaning the scale and size, of these

and international expectations. One way to cut costs is to

resources. We have also spent time discussing this with

use standardized procedures, services, and equipment in

key players in the Mexican government so they can better

many different parts of the world. A significant challenge

grasp the perspective of foreign companies as they are

for Mexican companies as they seek to become operators

assessing the investment opportunities.

will be to demonstrate that they are able to do so in a way that conforms to international practice.

Q: What are your priorities for 2016, and how do you plan on achieving them?

The key for us is to help companies entering the country to

A: We have three main priorities. The first is to maintain the

be competitive. The first stage is to help them understand

most comprehensive analysis software of any company

the Mexican marketplace and the requirements for

in the world. The second challenge is to understand the

competing with other players. We also help companies

changing nature of technology and how this impacts

better understand the supply chain so that, if they get a

the costs of production and the available resources on

contract, they know which Mexican companies they can

the marketplace. We are in constant discussion with

work with. Finally, we provide companies with consulting

technology providers to understand the influence of recent

and advisory services on how to operate efficiently in

developments, price reductions in the financial world, and

Mexico in terms of land access, security, and environmental

the willingness of financial institutions to continue to make

questions. This knowledge allows companies to stick to

investments in technological developments.

251

schedules and, thus, reduce their costs. The third challenge is to understand the competitiveness Q: What are the main challenges in the Mexican oil and

of individual resource basins and to develop the skills and

gas sector in terms of above-ground risk, and how can

the capabilities necessary to help companies effectively

IHS Energy help in overcoming them?

develop their proposals and projects in important areas.

A: The first set of issues that companies are trying to

We believe the potential here is exceptionally high, and

understand is how competitive the offerings in Mexico are,

that it will take strong competitive terms from the Mexican

in comparison with other investment opportunities around

government to attract international investment and

the world. In order to do so, they are analyzing the fiscal

thoughtful, cost-effective proposals from companies to

terms established here, the quality of resources on offer,

ensure they can work effectively in Mexico.

MAN Diesel & Turbo, con sede principal en Augsburgo, Alemania, es el proveedor líder en el mundo de motores de combustión interna de gran calibre para aplicaciones marinas y estacionarias, así como, turbomaquinaria (compresores, turbinas de gas y de vapor) para múltiples aplicaciones industriales. MAN Diesel & Turbo cuenta con sistemas completos de propulsión marina, unidades de turbomaquinaria para el sector petróleo, gas e industrias de procesos y soluciones completas de plantas de energía. La Empresa tiene presencia en más de 100 sitios internacionales, con fábricas en Alemania, Dinamarca, Francia, Suiza, la República Checa, la India y China. En México, tenemos presencia desde el año 1905.

Para más información con gusto lo atenderemos en: MAN Diesel & Turbo México, Sierra Candela No. 111; Suite 106 Col. Lomas de Chapultepec C.P. 11000, México D.F. Tel: +52 (55) 4000 6100 Email: angelica.diaz@mx.man.eu

www.man.eu

Engineering that transforms As a General electric partners, our solutions scope are • Intelligent Platforms • Power generation (Hydroelectric and thermoelectric turnkey projects) • Electrical Distribution and Control • Field services

ventas@mexmot.com T. +52 (55) 15 18 05 46 / 0434 www.mexmot.com

| INSIGHT

DATA ANALYSIS PROVIDES NEW APPROACH TO PREVENTION Securing the services of a highly diversified international company can be like walking through a maze. For instance, each division of GE has its own terms, conditions, and ways of doing business. In today’s market, it is difficult

JOSÉ ORNELAS

to find a company that could deliver a complete solution

Director General of MEXMOT

that integrates different GE areas. Fortunately, this is exactly what is offered by MEXMOT, a company formed in 2004 by three GE employees who wanted to provide

are provided to every area in which PEMEX operates, from

system solutions for the electricity sector. MEXMOT is

production to refining, and MEXMOT can work directly for

the distribution channel with the largest amount of GE

PEMEX and other times through a contractor or an EPC

products in Mexico, as it represents several GE divisions,

company. Ornelas points out that MEXMOT can provide

such as GE Energy Connections, GE Bently Nevada, and

a solution to a problem or process and work all the way

GE Grid Solutions, among others.

to procurement, installations, and kick-starting a piece of equipment or system. One of the company’s flagship

José Ornelas, Director General of MEXMOT, explains that

projects in the oil and gas industry involved working

the company has two approaches to doing business. The

alongside Amec Foster Wheeler in the Francisco I. Madero

first involves the supply of products, and it represents 20%

refinery. “The project was intended to modernize the

of the company’s revenues, while the second consists of

cooling towers and we supplied the control mechanisms

integrated solutions that comprise the remaining 80% of

for medium and low voltage components, particularly

the business. Although MEXMOT’s main strength lies in

medium voltage metal-clad switchgear,” Ornelas explains.

power generation, the company also has a strong focus on the digital side, which some have labeled as the fourth

In spite of MEXMOT’s capabilities and expertise, Ornelas

industrial revolution. MEXMOT has an engineering base

claims business in the Mexican oil and gas sector has

that is mainly focused on programming, control, protection,

become difficult. “Right now there is a lack of knowledge

and measurements. These technicians and engineers

regarding PEMEX’s structural changes. The fact that we

receive their training directly from GE, who is always

do not know what the final structure of PEMEX will look

behind everything MEXMOT does. In fact, GE informs

like has hindered projects in this sector. We are aware that

MEXMOT about any projects in which it could participate

large foreign investments will enter the country, but we

or technologies it should look into for future applications.

have not yet identified any niche opportunities.” Ornelas is confident that the entry of new companies will create

In the digital services area, MEXMOT is migrating towards

promising business opportunities for MEXMOT, and he is

preventive maintenance through data analysis. “Even

especially excited to work with international players due to

though most companies already include SCADA and

their operating culture. “As a company that represents GE,

automation in their processes, GE is one step ahead,”

we are used to working under international standards, and

Ornelas proudly states. He explains that GE is currently

it is easier for us to follow an API or Exxon standard than

focusing on using software and algorithms to process

a PEMEX norm,” he comments, adding that several PEMEX

data and carry out a precise and extensive analysis that

norms are not aligned with international guidelines, which

can identify certain behavioral patterns in components

creates some confusion among contractors.

or critical equipment. The gathered information is then used to plan maintenance or the replacement of a part

Even if the oil and gas industry is going through a turbulent

in order to prevent accidents or malfunctions that could

time, MEXMOT can rely on GE to continue its activities. “In

result in downtime. Ornelas emphasizes that this is an area

addition to developing technology and innovations, GE

in which his company is increasingly participating hand in

is also financing projects, particularly for PEMEX and the

hand with GE.

oil and gas industry, by using its financial arm to increase its participation in the market. By financing projects, GE

For the oil and gas industry, MEXMOT offers services

is creating job opportunities for us. In turn, the fact that

related to SCADA systems, automation, turbine control,

we integrate several GE areas in our solutions helps GE’s

engine control, and vibration monitoring systems, for

financial arm plan an integrated financial solution,” Ornelas

which the company relies on Bently Nevada. These services

concludes.

253

| VIEW FROM THE TOP

SOFTWARE SOLUTIONS FOR OILFIELD DATA MANAGEMENT BARRY IRANI CEO of iStore

254

Q: Who are your main clients, and what challenges have you

A: All of our products and solutions have one fundamental

helped them to overcome in the oil and gas E&P sector?

similarity in that they connect to and leverage existing

A: iStore clients include IOCs, NOCs, and service companies.

databases and applications. PetroTrek’s capability to

iStore has been providing products and services to PEMEX

bring data together from many official systems of records

since 1997, a relationship we are proud of. We place great

spanning from corporate systems to local real time SCADA

value in our ability to support PEMEX and our other clients,

systems makes it invaluable for operations teams to monitor

and to meet their business needs over the past 20 years.

asset performance. Up-to-date information including daily

The Energy Reform in Mexico and current low oil and

reports, KPIs, alerts, and shift logs are accessible by both

gas prices make these partnerships even more important

individual engineers and managers from any location. The

and meaningful. Our products and services focus on data

major distinction in iStore’s solutions is our approach in

access, data quality, and data visualization. Our deep

viewing asset management and production operations

domain knowledge and experience enables us to develop

holistically, then adapting technology to address real

products, customized solutions, and workflows, in order

business requirements. Using new generation web-based

to meet the technical and business needs of our clients.

technology, our software and solutions complement

Most of our iStore team members come from the oil and

existing applications and systems. We integrate and

gas industry. Our products and services enable our clients

organize fragmented views into contextually rich and

to quickly and easily access data from multiple databases,

easily accessible forms, which transforms separated data

view the data in context, and be able to analyze and share

into a more useful context, providing insights from which

data in a secure web based environment.

actions can be taken to improve performance.

Q: At a time when cost is vital for the market, how do you

Q: What products and services have driven your demand

reduce downtimes when migrating customers to iStore

in the past year, and how do you expect this to change

solutions?

with the progression of Round One?

A: There are two possible areas of downtime: downtime of

A: We do not anticipate a great change since the needs

people and downtime of wells. Regarding work disruption

of the market will remain the same. Data management

of people due to systems installation and upgrades, our

activities have become more important than ever. We

web based software and solutions are delivered, installed,

expect this to continue, but in the context of specific

and implemented with no interruptions to the user

activities such as farm-outs and regulatory compliance.

community. Rapid deployment cycles have always been

Analyses will still be required, and fields will still require

key for us. We leverage our client’s existing data sources

evaluation, with operators looking to increase production

and infrastructure, enabling them to optimize the use

and cut costs. Solutions that work well with what is already

and analysis of their data. Since we adopt the federated

in place will be important, since technology budgets need

data model, meaning we connect directly to the required

to go further and contribute to short-term profitability as

data bases and do not move data. Our processes are fast,

well as long-term goals.

seamless and non-intrusive. With our systems, clients can work without disruption even if the back-end systems and

During Round One and beyond, the fundamentals of

databases are changed or migrated.

providing easy access to information from various systems and improving the quality of data and data management

Q: In which ways are you able to improve production

remains unchanged. The new challenges will be working

through

production

with both internal and external partners, helping them

operations (AMSP) solutions, and how is this done

your

asset

management

and

to collaborate effectively and efficiently, and at the same

differently to your competitors?

time providing regulatory agencies with timely reports.

| INSIGHT

INTEGRATING INNOVATION ACROSS THE INDUSTRY “Competitiveness has never been so crucial to Mexico’s oil and gas industry, as the open market will bring experienced companies from all around the globe,” warns Felipe Pacheco,

FELIPE PACHECO

CEO of Plenumsoft Energy & Sustainability (PE&S). His

CEO of Plenumsoft Energy &

company started 20 years ago as a traditional IT services

Sustainability

provider, and the Energy Reform motivated this player to strengthen its value creation for the oil and gas industry. PE&S is already investing time and talent in setting up an R&D

evaluation, is aimed at expanding user capabilities in order

team to develop specialized IT Cloud & Mobile solutions to

to gain a better understanding of certain geophysical

improve the use of hydrocarbons-related software platforms

properties in a reservoir. “We are looking to answer

in order to solve the challenges that remain unaddressed.

questions related to a site’s behavior in the case of changes in porosity, and how such changes might be felt, as well as

According to Pacheco, the company’s scientific computing

the impact of temperature changes on permeability.”

and high-quality technology will help companies optimize their processes and customize their technology with the

Pacheco highlights that innovation is at the core of PE&S.

aim of improving productivity. PE&S offers companies

In order to survive the downturn in the oil and gas industry,

interested in participating in Mexico’s oil and gas industry

the company decided to improve its innovations practices

services that provide them with integrated real-time

by implementing the Lean Startup for entrepreneurship

information, proper data management, and construction

initiatives within its engineering teams, incentivizing

applications in line with the specific needs of each firm.

them to look for fresh ideas and solutions. “We are also

CFGUARD is one of these solutions, and it was made

able to keep innovation at the core of PE&S thanks to a

to support companies in the management of data and

clever combination of expertise and recently graduated

documents during reservoir exploration studies.

engineers that bring a fresh perspective to the industry and produce creative solutions to existing challenges.”

The oil and gas industry is not entirely new to PE&S,

One of the company’s most recent and innovative projects

which has already worked with IMP in developing new

involves the development of a tool that is aimed at helping

technologies for this sector. “Four years ago we started

geoscientists support the information used in the reservoir

looking for several new applications with the main idea of

management processes. Pacheco wants to consolidate the

diversifying user interfaces away from the more traditional

company’s position as a leading supplier of technology-

3D/VR/AR solutions. We chose to explore the use of

based innovative software to clients looking to improve

haptic devices within the analysis of reservoir integration,”

their performance in oil production, drilling, reservoir

Pacheco recounts. This solution, which is currently under

simulation, logistics, and data management.

255

| VIEW FROM THE TOP

INTERCONNECTIVITY TO BOOST SECURITY ARTURO VARGAS Regional Marketing Manager for Latin America and Canada of National Instruments

256

Q: What pushed National Instruments to expand outside of

at the NOC. We are therefore focusing our strategy on

the US, and how will the company be successful in Mexico?

offering an added value to the companies that are working

A: We are industry leaders in providing platforms to bring

with or will work with the productive enterprise of the

the Internet of Things (IoT) to the oil and gas industry, and

state. These companies have already earned PEMEXâ&#x20AC;&#x2122;s

one of the most relevant applications for our solutions is the

trust and can help open the door for us by using our

implementation of the IoT in oil wells. This process implies

technology. National Instruments has already provided

the interconnection of machine condition monitoring,

solutions, such as SCADA systems, directly to PEMEX,

asset monitoring, and quality assurance, among other

which was a groundbreaking moment for the company as

services, within the whole productive chain. Another

it was our first large-scale project in the country. Before

important application is the detection and location of

then, we had only installed small-size systems for trial

leakages, one of the most urgently needed services within

testing. Moreover, we believe that times of limited budgets

the Mexican market.

are the perfect opportunity to invest in solutions that will increase profitability.

Q: How is National Instruments contributing to the enhancement of the level of technological sophistication

Q: What are the characteristics of LabVIEW that made it

of the Mexican oil industry?

so popular with PEMEX?

A: All our solutions are woven together and built upon a

A: LabVIEW is a programming software for engineering

platform-based approach that allows our clients to develop,

applications and offers a wide spectrum of functions. For

test, and prototype every solution they can imagine.

instance, it is possible to use LabVIEW to control a robot

Our platform permits the integration of IoT into industry

or to run a complex SCADA system. LabVIEW provides

operations, the added value of which is that it not only allows

the user with a graphic real-time representation of the

interconnection of all the systems of a company, but it also

functioning of the bombs, pipelines, and valves involved

permits secure verification that complies with the security

in the analyzed system to represent a control distribution

and environmental regulations and the needed certifications.

system instead of coding lines. Moreover, in the same

Our platform can handle every demand regarding robustness

environment, the conditions that require testing can be

and connectivity, while offering the client the flexibility

programmed, and this is also displayed graphically as

to develop additional solutions according to individual

interconnected blocks allowing the user to follow the

requirements. We have some products that work like this,

different signals. In this way, programming is possible

like a blender control that regulates the chemical mix that is

without the need to code text lines.

injected into an oil well, which is commercialized by one of our partners in Canada and is designed using our platform.

Another advantage of LabVIEW is its ability to connect with

Nonetheless, we prefer to offer the platform directly to the

different systems. We can offer an interconnection solution

customers so they can develop solutions according to the

for the HART protocol common in the oil and gas industry.

particular needs of their processes.

Our clients can enjoy a module and software that allows the interconnection process for the user, who only needs

Q: What strategy are you following to position National

to configure the port and run the program. Oil companies

Instruments as a leading company within the Mexican oil

with many years of experience tend to have outdated

and gas industry?

infrastructure that is still functional, so we needed to develop

A: We believe that working with PEMEX is key to securing

a tool that can be interconnected to this kind of equipment

a leading position within the industry, but despite having

to expand its lifespan cost-effectively. In this sense, the

more than 40 years of experience, National Instruments

capacity of LabVIEW to connect with existent infrastructure

is considered a new company for many people working

is one of the greatest advantages that we offer.

| INSIGHT

KNOWLEDGE MANAGEMENT: THE FUTURE OF DECISION MAKING “Net Brains worked with the PEMEX teams responsible for each project, so we got to see how each team evolved, enabling us to follow the developments in their strategies. I

DAVID GONZÁLEZ SÁNCHEZ

believe it is this experience that differentiates us from other

Managing Partner

companies in the Mexican landscape,” shares David González

of Net Brains

Sánchez, Managing Partner at Net Brains. He claims Net Brains can assess whether a company’s plan is the most appropriate or counterproductive, advising clients from a

but rather, by a geologist working in the Canadian Rockies.

geological and geophysical (G&G) engineering perspective.

Short-sightedness does not usually allow people working

“We are providing the interpretation, characterization, and

on the spot to come up with a new idea. This is how our

the general geological and geophysical aspect, after which

knowledge management system can help in exploration.”

we are able to define the desired outlook of our client’s

Net Brains’ knowledge management system allows the

optimal portfolio, an analysis few companies can complete,”

company to constantly expand its knowledge base, enabling

says González Sánchez, pointing out that this enabled the

the company to make more appropriate decisions. Given its

company to work with some of the winners of R1-L01 in

advantages, González Sánchez hopes this technology will be

assessing the tendered blocks, as well as some other blocks

of interest to PEMEX.

in the northern region. One of Net Brains’ ambitions is to be a technology and In order to address issues caused by lack of data

services partner to CNH. González believes the Commission

frequencies, Net Brains is using a tool called bandwidth

has brought in knowledgeable people throughout its

extension that can help improve the images of the

evolutions in spite of it being new and still undergoing a

subsurface. This can either be applied to the post-

learning process. “If CNH implements the ideas of its new

stacked data or the pre-stacked data to generate a

and promising hires, then the organization’s shape can

clearer image, a wider range of frequencies, and a wider

change a lot in a positive way,” he asserts. “We are seeking

range of amplitudes. “This way, we can provide tools that

to help PEMEX and CNH, and make them understand

help the companies understand which reservoirs have

that working together can go a long way. By now, both

the geological characteristics they are seeking, and many

organizations have grasped that working hand in hand is

of the features that players wanted, including images on

mutually advantageous, with PEMEX wanting to rebrand

a vertical scale and a horizontal scale,” González Sánchez

itself and forget about its old image. For its part, CNH

explains. After the interpretation, surveys that subtract

wants to show that it can properly regulate the assets it

some of the frequencies and the amplitudes can be

is managing.”

created to represent some of the geological features they are seeking. “We are using a tool from one of our partners

Deepwaters will play an important role for the company,

called geomodeling, through which spectral analysis is

which has considerable experience in interpretation,

used as the main tool, rather than the inversion, which

according to González Sánchez. He believes that the

is used as a secondary tool. With this method we can

technology it has today will be utilized broadly both by

combine the information with rock physics data to move

PEMEX and the operators that will enter the country. In

forward on the modeling that must be done.”

González’ view, his company’s services will eventually turn into a commodity, so he aims to digitalize part of

For the next three years, Net Brains will be focusing its energy

Net Brains’ intelligence. The company has been studying

on knowledge management. Net Brains does not advise

new technologies that allow for this sort of competitive

clients on investment opportunities, but rather it seeks to

offering and, in just three years, Net Brains should already

help them accurately assess the value of projects of interest,

be providing some of its services digitally and on-demand.

using hard facts and global benchmarking. In this sense, the

Only part of the process will become digitalized, with both

knowledge management system can be used for exploration,

problem identification and implementation remaining a

an area where many opportunities are left unexploited. “Take

human task, but problem solving will be done through a

the first deepwater discovery as an example,” says González

digital assistant. “Giving people fast access to data and

Sánchez. “It was not made by someone who had been

analytics empowers them to make better decisions, and

working in the deepwater fields of the Gulf for a long time,

we believe this is the future industry,” González asserts.

257

| VIEW FROM THE TOP

TELECOMMUNICATIONS FOR A STRINGENT ECONOMIC ENVIRONMENT PEDRO HOYOS Deputy Director of Marketing, Innovation, and Strategy of GlobalSat

258

Q: In what ways are the Internet of Things, SCADA, and

the diverse nature of the operations, several companies

Big Data impacting the productivity and efficiency of key

will be operating on one well, such as drilling companies,

industries in Mexico?

service providers, and maintenance staff, all of which

A: SCADA technologies require a low bandwidth, which

will require our services. One of the most important

means it is a low-cost service that enables companies to

things we are aiming to do is to provide reliable offshore

continue keeping efficient records even on a low budget.

services, and we have recently formed an alliance with

In terms of Internet of Things, much of the equipment in

CommSystems. Since we have the experience in managing

the oil and gas industry must be monitored, and a satellite

and providing the links, and this company specializes in

link ensures the continuity of the information, and in most

equipment provision for offshore facilities, we feel this will

cases it is the only option due to budget restrictions. Given

be a promising partnership. We are providing services at

the tremendous amount of equipment being connected to

a considerably lower cost than what is currently available

the web with Big Data, we have developed several effective

on the market, at easily 40% less than the average rate,

solutions for clients. When sending the data directly to

and I believe this will be an extremely successful initiative.

the client, the client installs equipment on our network

Moreover, these companies require more bandwidth every

operations center, and we process part of the information.

day, and in Mexico the options are limited.

Therefore, the client is able to isolate the important information through our systems to send to the mainframe,

There are solutions such as KA band that can provide

unloading significant capacity from its own site.

a higher bandwidth at a lower cost, but it is extremely susceptible to rainfall and adverse weather conditions,

Q: How has the drop in oil and commodity prices impacted

so it is not the most appropriate option for oil and gas

the demand for your services?

activities. However, we are working closely with Intelsat in

A: At GlobalSat, we have developed new solutions to help

order to provide services with high-throughput KU band

our clients with their economic situation. We have a tariff

satellites, which means we will be able to provide lower

where the client pays only for the amount of bandwidth

costs with coverage across all of Mexico and all over the

used, and if the initial purchase limit is exceeded, more can

Gulf, with higher bandwidths and more reliable service

be bought. We have also given clients flexibility and power

when faced with extreme weather conditions. I believe

through the cloud to login to their account to monitor

this strategy will be an attractive offering for the sector,

usage levels. The solution can be used to limit costs and

particularly for those operators in the Gulf of Mexico.

transmit only the required information instead of a steady

We have been relatively active in the onshore oil market,

stream that could not be closely controlled. Admittedly,

whereas we have not had much of a presence offshore.

pricing factors affect our industry, but we are still growing,

Therefore, this is our strategy for entering this market.

due largely to the support and services we provide. In terms of availability for links, we offer 99.5%, but the level we actually deliver is significantly higher, and it is these points of added value that fosters so much client loyalty for our company. Q: What are the main developments in the sector that you expect will bring GlobalSat business, and what steps are

"In terms of availability for links, we offer 99.5%, but the level we actually deliver is significantly higher"

you taking to make sure you capture a part of that market?

Pedro Hoyos,

A: Firstly, the new operators will enter after the

Deputy Director of Commercial, Innovation, and

concessions for the new fields are awarded, and due to

Strategy at GlobalSat

| INSIGHT

TAKING ADVANTAGE OF SATELLITE COMMUNICATION As the Mexican oil and gas industry and its most prominent operators traverse the current oil price environment, the need for projects and sites to organize and consolidate under a coordinated exploration and production strategy

JORGE VILLARREAL

becomes more urgent by the day. The effective integration

CEO of Elara

of daily operations becomes impossible without adequate communication resources. The remote worksites that characterize both the onshore and offshore landscapes of

sterling example of Elara’s technological capabilities is the

the Mexican oil and gas industry can make these resources

vital role that it plays in enabling mobile communication in

either prohibitively expensive or decidedly unreliable. An

Mexican vessels for offshore operations.

erroneous choice in this regard has consequences that go beyond an inability to integrate. Communications failures

Although Elara has focused its oil and gas operations on

in any minutely planned exploration or production activity

both PEMEX and its contractors, Mexico’s new regulatory

can not only represent an unacceptable security risk but

environment has created a spectrum of new opportunities

also easily lead to downtime that can quickly become

due to its nature as both a world class service provider and

financially untenable.

also an insightful local player knowledgeable of conditions exclusive to the Mexican market. As Villareal points out, this

The satellite communications technology provided by Elara

new regulatory environment is not limited to the provisions

Comunicaciones allows customers to drastically reduce

of the Energy Reform, as the Telecommunications Reform

costs, an advantage that cannot be overlooked in the

has allowed Elara, as a relatively small company, to move

current environment. For more than a decade, the company

quickly in taking advantage of opportunities. Despite these

has operated an internationally high-ranking teleport

new opportunities created by an increasingly multi-client

in Mexico that provides telecommunications coverage

environment, Villareal is also interested in the role the

throughout Latin America in a concerted operative effort

company wishes to play in PEMEX’s modernization. “We

with various satellites and ground-level infrastructure.

can be an invaluable asset in optimizing these networks and ensuring their more efficient operations. Therefore,

“Year on year, we have achieved greater efficiency and

as PEMEX’s landscape begins to change dramatically, we

more cost-effectiveness. Satellite technology is becoming

can provide it with the opportunity to convert itself into a

an attractive solution, especially in light of the current

much more efficient company.”

environment,” says Jorge Villarreal, CEO of Elara. He promotes satellite technology as an efficient option for

The attractiveness of satellite technology as a cost-

operators due to its remarkable development in recent

effective option for operators seeking further integration

years, “Satellite communications technology as a whole

and coordination in the pursuit of decisively more efficient

has been evolving tremendously over the last few years,

operations will only increase in the coming years, as

meaning that we have been able to provide greater

Villareal explains. “By 2017 we anticipate a major change in

efficiency and higher bandwidth to the customer at a

the satellite services that are available, and eventually the

much more competitive price.”

goal is to utilize more powerful satellites that can transmit higher MB to the customer. As a result, the cost per MB

Elara has provided, and continues to provide, important

will drop dramatically, by up to 50% in some instances,

communications and networking services for Mexican

so eventually satellite connectivity will be a much more

wells and platforms. Its oil and gas systems implement

attractive option in terms of cost of bandwidth,” he

voice and data communications over Internet Protocol

boasts. As these scenarios of technological development

(IP) and also access to File Transfer Protocol (FTP), among

unfold, Elara’s position and expertise as a communication

other services backed by its private networks connected

services provider to the Mexican oil and gas industry will

to its teleport. Villarreal highlights the technological range

continue to broaden, a position currently described by

of these systems, “We can deliver a seamless integration

Villareal in conclusive terms. “As Elara, we have been a

between the satellite and the rest of the technology, and

leader in the sector in Latin America, meaning that many

we connect our interoperable systems with a range of

service providers approach us as a platform to integrate

technologies such as fiber optic and mobile networks.” A

their solutions.”

259

| VIEW FROM THE TOP

SMART METERING ACROSS ALL INDUSTRIES BALDEMAR GUZMÁN Regional Business Manager Mexico of SICK

260

Q: What are the main product offerings SICK Mexico

provided

makes available to its clients, and what innovations do

Systems (CEMS) installed in the cement industry including

you have in the pipeline?

the meters required in the Cactus-Nuevo PEMEX metering

A: SICK’s three divisions, Factory Automation, Logistic

station, the ultrasonic meters for the second phase of the

Automation, and Process Automation, are all present in

Los Ramones project, and important projects on PEMEX

Mexico. A unique ultrasonic metering technology developed

platforms.

several

Continuous

Emissions

Monitoring

by SICK is offered for custody transfer applications, and we have 4 Path, 4+1 Path, and 4+4 Path meters available. One

Q: What are the most valuable elements of your value

of our systems is referred to as ‘4+1’ because it involves four

proposition in light of the industry-wide budget cuts?

paths and a fifth ultrasonic path within the same body, which

A: One of the main advantages of our products is the low

represent the meter and check meter, respectively. We also

maintenance requirement, as our equipment has several

have 4+4 Path meter fully redundant equipment, which

diagnostics included in the software. In terms of software,

allows the process to take two independent measurements

we offer our clients the possibility of downloading as many

in the same body for custody transfer. Combining the

copies as needed on as many computers as required,

two meters in one device reduces the spools required,

without any extra cost. We are currently working with

therefore eliminating the need to have two different meters

the main EPCs, looking for partners whose projects could

running in tandem. We offer all three models for flare

benefit from our technology offerings. We look forward to

gas measurement, as well as FS500 ultrasonic meters for

further pipeline projects, as this is the main opportunity for

downstream applications. Under our Process Automation

our custody transfer or flow products. We are also seeking

division, we also offer equipment for gas analysis. Being a

opportunities in the downstream segment for some of our

US$1.3 billion company requires constant investment, and

newly developed products. In addition to this, our products

9-10% of this figure is allocated to R&D. There are very few

can be found not only in new roads, but also new airports,

companies that dedicate this amount of resources to R&D.

including the expected new development in Mexico City.

Q: What are the main competitive advantages that allow

Q: How successful are your analytical and process

you to increase the production rates of your customers,

automation products within Mexican borders?

and improve their safety and process quality?

A: Our analytical applications allow companies to identify

A: SICK thoroughly supports technology and guarantees

their emissions levels and comply with US EPA as well

the accuracy of its products. Our equipment meets the

as with the local environmental regulations. The success

requirements of the NRF081 and all the international

of our product depends largely on the commitment of

norms for custody transfer, along with the technology

companies in following the regulations. Firms in the cement

features and benefits. The meters, meter runs, and meter

industry take these extremely seriously, and we have

tubes are calibrated, with the meter runs calibrated by a

global agreements for the sale of equipment with certain

third party according to the NRF081 to assure customers

major cement producers worldwide. An important cement

that we are in full compliance. Our company also has the

company made a substantial investment in CEMS this

unique capability of being able to handle H2S up to a

year, and SICK was awarded the contract. There are also

volume of 25%. Depending on the gas composition we can

many opportunities for our process automation products

offer different frequency settings, meaning companies are

and, in this respect, we can help customers improve their

not bound to the equipment’s default frequency setup. In

processes. SICK has the capabilities for measuring up to

addition, our transducers are made of titanium, meeting

80 different gases, and it is the only company in the world

the industry standard and allowing us to avoid weakened

with the capability to offer its own technology for gas

interaction with the H2S content. We have successfully

analyzers, dust monitors, and flow monitors.

| VIEW FROM THE TOP

PARTNERSHIPS INTEGRAL TO THE SUCCESS IN BIDDING ROUNDS JULIO OCHOA Director General of ICORSA

Q: How does your expertise in the design and manufacture

manuals are aligned with ICORSA’s current certifications,

of auxiliary systems help customers achieve their goals?

including ISO 9001:2008, ISO 14000:2004 and OHSAS

A: Our company is organized into three divisions. The

18000:2007, which means we comply with environmental

first focuses on the design and manufacture of integrated

and labour standards. We decided to invest in being socially

auxiliary systems, offering various solutions to specific SKID

responsible because we work and live in an environment

assemblies, including measurement and control systems,

that lacks this focus.

separation

systems,

pig

traps,

chemical-dosing

and

E-House systems, and air and gas compressor packages. In our second division, we provide technical services, corrective and preventive maintenance, and reliability and risk analyses. We help our customers achieve their optimal maintenance levels and avoid production losses, reducing downtime and increasing profitability. This is achieved when plants are safer and more reliable. The industry understands

261

"We help our customers achieve their optimal maintenance levels and avoid production losses" Julio Ochoa,

the importance of maintenance services with the use

Director of ICORSA

of reliability and risk methods, but that idea is not yet widespread throughout the country. We also emphasize the importance of planning and management, know the current

Q: What systems do you provide for activities at sea,

state of facilities, and properly manage maintenance plans

and how are you preparing for the potential entry of new

for industrial plants. The third division of the company refers

players in Round One L-04?

to representations and partnerships, which strengthen our

A: We believe we have the ability to deal with the offshore

position by giving us the new opportunity to expand and

activities phase of the round. We manufacture equipment for

solve problems for our customers holistically. Currently,

offshore activities and work with partners to strengthen our

we hold important relationships with major international

knowledge and product offerings. We have been preparing

companies like Emerson Process Management, PECOFacet,

for this round, adapting our strategy and increasing our

and Peroni Pompe.

chances of alliances. Perry Process Equipment, a US company with over 70 years’ experience in market filtration

ICORSA’s competitive advantages rest on four main pillars.

and separation has produced more than 2,500 separators

Firstly, we place significant emphasis on our values, which

at its plant in Queretaro. We have also established a

are professional ethics, passion, commitment, respect,

partnership with the Italian company Peroni Pompe, which

innovation, and dedication to our services. Secondly, our

has over 100 years of experience in reciprocating pumps

highly qualified personnel are an invaluable asset. The third

that operate according to API 674 and 675 standards for

and fourth pillars are our management and control systems,

highly specialized applications. Peroni Pompe is a leading

and a strong relationship with our suppliers and commercial

provider of pumps for the market in the North Sea, and

partners, respectively.

we also have a solid partnership with SICK, Instromet, and several German companies specialized in gas measuring

Q: How do you plan to increase your visibility, and how

systems. We have been working with offshore companies

are your social responsibility policies evolving?

such as Siemens, Demar and Grupo Diavaz. Furthermore,

A: In September 2015, we were exhibitors at the Mexico

we believe we are well positioned to service companies in

Gas Conference in Villahermosa, and before that, in the

the third phase, as our longstanding presence in the market

Mexican Petroleum Conference in Guadalajara. We are

allows us to understand the changes in regulations that

currently working to be a socially responsible company. Our

have been introduced.

NATURAL GAS & PIPELINES

Natural gas has gained prominence in Mexico over the past few years, as it was selected as the preferred fuel for the country’s energy transition. Even though private investment has contributed to natural gas pipelines since 1995, the Energy Reform changed the landscape by incorporating a technical system operator, CENAGAS, which will take over PEMEX’s previous responsibilities in the midstream segment. Furthermore, CFE, the other state-owned energy company, is increasing its presence in the natural gas sector in order to ensure a reliable supply of this fuel for its power generation activities. The National Infrastructure Plan contemplates the construction of more pipelines to import natural gas from the US and expand the National Natural Gas Pipeline Network by 80% by 2020, creating an array of opportunities for private companies while allowing PEMEX to focus more on its upstream activities. Nonetheless, the NOC will continue to serve as the largest natural gas producer and largest user of the natural gas pipelines in the country.

This chapter examines at the continuous development of Mexico’s natural gas pipeline system and the private sector’s contribution in this endeavor. It also delves into Mexico’s natural gas production and importation levels, while analyzing the potential consequences of the country’s plans to become an LNG exporter.

263

| CHAPTER 11: NATURAL GAS & PIPELINES 266

VIEW FROM THE TOP: David Madero Suárez, CENAGAS

268

MAP: Natural Gas Pipelines

272

ANALYSIS: Expected Developments in the National Natural Gas Pipeline System

274

VIEW FROM THE TOP: Jaime Calpe, TAG Pipelines

275

INSIGHT: Rubén Kuri, Arendal

276

VIEW FROM THE TOP: Eduardo López, EY

277

INSIGHT: Fernado Calvillo, Fermaca

278

VIEW FROM THE TOP: Alberto Escofet, Enagás

279 INSIGHT: James Delano, ATCO Mexico 280

VIEW FROM THE TOP: Octavio Pérez Salazar, AMEXGAS

282

INSIGHT: Pedro Arjona, Grupo DEISA

282

INSIGHT: Juan Fernando Ibáñez, Ibáñez Parkman

283

INSIGHT: José Ángel Gutiérrez, United Pipeline Systems

284

VIEW FROM THE TOP: José Pablo Mendoza, Octopus

286

VIEW FROM THE TOP: Coen van Munster, Petrogas

287

VIEW FROM THE TOP: Miguel Ángel Delgado, EVONIK

288

VIEW FROM THE TOP: Jan Frowijn, ROSEN Group

290

VIEW FROM THE TOP: Alejandro Lupiañez, ISI Mustang

291 INSIGHT: Antonio Nombela, Duro Felguera Oil & Gas 291

INSIGHT: Héctor García, Bechtel

265

| VIEW FROM THE TOP

TECHNICAL SYSTEM OPERATOR PRIORITIZES CERTAINTY AND A RELIABLE SUPPLY DAVID MADERO SUĂ REZ Director General of CENAGAS

Q: What have been some of the key aspects in the

needed to ensure continuous supply and consider the

development of the National Pipeline System that have

necessary precautions in case of a domestic shortage.

contributed to a steady natural gas supply in the country?

266

A: The National Pipeline System continues to be heavily

Q: What are some highlights of the Natural Gas Pipeline

invested in, and I want to emphasize the fact that we

Five Year Plan?

have increased the compression capacity of the system,

A: Firstly, the Natural Gas Pipeline Five Year Plan aims at

which allows for a larger transportation capacity north

ensuring that we will bring a sufficient natural gas supply

to south. We are simultaneously working on the final

into the country, for which there will be a considerable

details on some compression stations that run south to

increase in the importation capacity. There will also be

north, providing us with greater operational flexibility.

projects that will increase the transportation capacity

These actions, in conjunction with the start of operations

from the north to the south, and from the Gulf of Mexico

of the first phase of Los Ramones, have enabled a larger

to the western region. This will ultimately create a greater

transportation capacity of natural gas shipped to the

level of interconnection, and thus flexibility in the system,

countryâ&#x20AC;&#x2122;s central region. Consequently, we are able to

allowing us to effectively supply the country.

better manage the supply according to the demand and prevent situations that lead to critical alerts. The new

The Plan mentions the construction of an additional

institutional framework and the creation of CENAGAS

5,000km in the network, but there are also investments

have led to a multi-institutional group where the involved

that were made before 2015 and segments under

parties, including the Ministry of Energy, CRE, CENACE,

construction that are likely to be completed in 2016. The

and CENAGAS, communicate on a daily basis. This eases

majority of the 5,000km detailed in the Five Year Plan

the decision-making process to meet the target range

is being tendered or is at the project-planning stage, and they will entail investments close to US$980 million. The developments included in the Plan and the projects that are currently receiving investments will increase the pipeline network from 12,000km to 20,000km. The Plan is the most important action we have carried out to give certainty to investors. A first version was published in October 2015, and is currently undergoing revisions so that an updated version can be issued during the first half of 2016. Since the Plan clearly states the projects that are going to be developed and the order in which they will be carried out, giving companies a clear view of the way in which the National Natural Gas Pipeline System will be expanded, it can also bring certainty to companies that use natural gas in electricity generation and industrial processes. Q: What are some challenges CENAGAS will face in the short term, particularly regarding capacity? A: The main challenges for CENAGAS are granting PEMEX and CFE the capacity rights they are entitled to by law,

determining what will be done with the acquired rights that

the one that will have to deal with the transferred assets

the regulatory authorities recognized under the previous

and the payments these entail. The operator side, which

regime, and finally, implementing an Open Season scheme

is in charge of planning, tendering, and carrying out daily

so that interested parties can obtain capacity in the

management operations in the system, will not be affected

pipeline transportation system. Once this happens, those

by the aforementioned payments because inheriting

companies will be given preference in terms of capacity,

ownership of the pipelines will be profitable.

while other companies will remain under interruptible transportation conditions, which will ultimately create the

Q: How is CENAGAS preparing for the tenders it will

right incentives and send the appropriate signals. In parallel

launch in 2017?

to the modernization of the transportation scheme, there

A: By August of this year, CENAGAS needs to obtain the

will be a need to open and modernize natural gas pricing.

approval of its Administrative Board and the Ministry of

Although this is beyond CENAGAS’ scope, we believe it

Energy so that it can be in charge of tendering storage

is an essential component that will complement the total

and transportation projects that the Ministry deems

opening of the sector.

strategic. In order to prepare for this process, we are already working on the contract models and the tendering

Q: How has the transfer of PEMEX natural gas assets to

bases, as well as creating the internal organs we will need

CENAGAS advanced?

to conduct a transparent bidding process. The contracts

A: The assets have been successfully transferred to

should give certainty to participants in the sense that they

the technical system operator. The PEMEX Gas and

will not be disqualified for a non-anticipated technical or

Petrochemicals

financial issue. In turn, this should generate a favorable

October 2015, and this was later ratified by the PEMEX

environment where there is competition surrounding

Board of Directors, which in addition to the assets,

the projects, which will enable us to provide the lowest

authorized the transfer of rights and obligations related to

possible prices and tariffs. CENAGAS is working on this

PEMEX’s duties as a shipper, starting on January 1, 2016.

and it will have administrative councils to test these

CENAGAS is now operating as stated in these agreements,

documents with the ultimate goal of obtaining approval

and it also signed a contract with PEMEX, in which the

from its own Administrative Board. The law states that

State-owned

CENAGAS

Board

company

approved

will

this

operate

transaction

the

transferred

has

demonstrate

financial,

technical,

assets in their entirety on behalf of CENAGAS through

and human resource capabilities in order to carry out

a one-year-contract. We signed eight administrative

tendering processes, and we will prove these capabilities

contracts, with the largest one being that for operation

by June so that we can obtain the Ministry of Energy’s

and maintenance. Through these contracts, we ensured

authorization in August, and begin conducting these

that we can continue providing uninterrupted services

processes in late 2016 or 2017.

amid the transfer of assets with PEMEX acting as a service provider. At the end of the one year operations contract,

Q: How is CENAGAS working to become an international

CENAGAS will look for private companies interested in

benchmark as a technical system operator?

providing these services so that we can operate in the

A: Our goal of becoming a reference implies being

most efficient and safe manner. This does not mean that

internationally recognized as a trend-setting technical

we want to part ways with PEMEX on January 1, 2017, but

system operator, and it is too soon to say that CENAGAS

it means we want to look for private participation to make

meets this requirement, so we have made this a ten-

the sector competitive and generate points of reference

year objective. For us it is clear that CENAGAS has to

regarding prices, costs, and quality.

work alongside the regulator to become a strong system operator with the ability to influence the decision-making

Q: What are the financial implications of the amount

processes in the sector, leading to a reliable system. Being

CENAGAS will pay PEMEX for the transferred assets?

at the forefront entails having outstanding tendering

A: CENAGAS will pay PEMEX the recorded value of the

practices, which we have not yet had the chance to

investments made for these assets, according to CRE’s

demonstrate, and having the necessary SCADA systems

accounting registry. The technical system operator will

not just for our pipelines, but for every pipeline system

gradually pay MX$1 billion, a figure that will decrease as the

that is interconnected to ours. This would make us a

assets depreciate. For CENAGAS, this means that we will

powerful force that is capable of redirecting flows in the

own infrastructure and assets, and we will have to comply

system in order to achieve the most secure and efficient

with the payment conditions, which is a liability. CENAGAS

supply, which will happen in the medium and long term.

started out with a small estate, but we expect growth. The

Nonetheless, we are confident that we can create an

shipper side of CENAGAS, which in this case has to be

efficient natural gas system for the country, and this is

seen as separate from the technical system operator, is

where our biggest challenge lies.

267

I NATURAL GAS PIPELINES

39 7 6 8 42

41 268

Natural gas pipelines in operation Diameter (inches) 48 36

12 47

24 16 12 4 and under or unknown Natural gas pipelines planned, proposed

or under construction

Diameter (inches) 48 36

24 16 12 4 and under or unknown Natural gas processing plant LNG terminals in operation LNG terminals proposed Border crossing Natural gas power plants Natural gas power plants planned, proposed or under contrstrution

LNG terminals in operation

Natural gas processing plant

LNG terminals proposed

a. EnergĂa Costa Azul

d. Burgos

m. Salina Cruz

b. Terminal LNG de Altamira

e. Arenque

c. Manzanillo LNG

f. Poza Rica I & Poza Rica II g. Matapionche h. Pajaritos i. La Venta j. Cactus k. Nuevo PEMEX l. Ciudad PEMEX

269

22 e

53 18

23 20

24 55 25 57

56 26

27 34

g h

58 32 k

29 m

33 l

59 35

60 37

I NATURAL GAS PIPELINES MAP (Cont.) NATURAL GAS POWER PLANTS

Name

Capacity aprox (Mw)

La Rosita I

700

Presidente Juárez

Name

Capacity aprox (Mw)

Bajio

500

550

El Sauz Plant

800

Rosarito III

500

Tamazunchale

1100

147 CCC Baja California

250

Petroquímica Escolin

Presidente Juárez GT

200

Altamira Cogen

Termoeléctrica de Mexicali

500

Altamira II

500

La Rosita II

300

Altamira III & IV

1000

San Luis Río Colorado

500

Altamira V

1000

Aise México

Enertek

100

Naco-Nogales

300

Tuxpan II

500

Samalayuca

300

Tuxpan III & IV

1000

Samalayuca II

600

Tuxpan V

500

Puerto Libertad

600

Refinería Miguel Hidalgo

100

La Caridad I & II

500

LFC Distributed Generation GT

400

Hermosillo

300

PEMEX-Exploración y Producción

Huinala

500

La Costeña Jumex

Chihuahua

500

Minsa Tlanepantla

Norte II

500

Empaques Modernos

Chihuahua III

350

Durango EcoMethane LFG to Energy

El Encino Chihuahua II

200

Baja California Sur III

Modelo Anahuac

29 CCC Norte

500

Lomas de Chapultepec

Durango Kraft

Gresaise SA de CV

La Laguna II

500

Papel Bidasoa Power Plant (Teotihuacan)

Gómez Palacios

200

PEMEX- Petroquímica Complejo

Saltillo

250

Celfimex Apizaco

Ramos Arizpe Fersina

Planta Apizaco

Monterrey III

700

Ispat Mexicana

Pegi

550

500

Complejo Procesador de Gas La Venta

Monterrey II Monterrey

500

Petroquímica Morelos

150

Petroquímica Cangrejera

150

Procesador de Gas Área Coatzacoalcos

Petroquímica Pajaritos SA de CV

CPQ Cogeneration

Petroquímica Cosoleacaque

100

Refinería Gral Lázaro Cárdenas

Refinería Ing Antonio Dovali Jai

100

Nuevo PEMEX

350

Complejo Procesador de Gas Nuevo PEMEX

100

PEMEX Planta Eléctrica Cárdenas

Campeche

350

270 9

10 11

Vitro Cogen

250

Ing Hector R Lara Sosa

Planta Monterrey

Famsa-Titan

Propasa Monterrey (1103880)

Monterrey Waste

Monterrey Biogas

Promex Energía Nuevo León

Planta Nuevo León

Presidente Emilio Portes Gil (Río Bravo)

350

Río Bravo II

500

Río Bravo III

500

Río Bravo IV

500

Cantarell

500

Manzanillo I & II

1600

PEMEX Terminar Marítima Dos Bocas

150

Arancia Cpc Ingredion San Juan

Mérida III

500

LNG Antonio M Amor

Valladolid III

500

NATURAL GAS POWER PLANTS PLANNED, PROPOSED OR UNDER CONTRSTRUTION Name

Capacity aprox (Mw)

Baja California VI

500

Baja California II

300

Baja California III

300

40 41

Baja California IV

500

Baja California V

500

San Isidro-Samalayuca: July 2017

1000

Empalme I

800

Empalme II

800

Guaymas CC I

800

Noreste V

1000

Norte III & IV

1300

Norte IV Lerdo

1000

Norte VI

1000

La Paz CC

100

Baja California V

Name

Capacity aprox (Mw)

CC Mazatlán

900

Norte V

1000

Noroeste II

1000

AHMSA Monclova

150

Techint Pesquería CC

800

Noroeste (Escobedo - 1077659)

800

Dulces Nombres CC

500

Monterrey Pwr

100

Guadalajara I

500

50 51

Salamanca

600

Occidental I & II

1000

Bordo Poniente Biogas Plant

Grupak Igsapak Hidalgo

CC Centro

600

Complejo Procesador de Gas Cactus Cogen

500

Ramos Arizpe Cogen

271

Todos Santos CC

100

Topolobampo II

850

Mérida Enerkin CHP Powe Plant

Topolobampo III

700

Mérida IV

350

CC Noroeste

600

Mérida V

500

| ANALYSIS

EXPECTED DEVELOPMENTS IN THE NATIONAL NATURAL GAS PIPELINE SYSTEM CENAGAS’ Five Year Plan includes more than 5,150km

Salina Cruz-Tapachula. The last set of projects will cover

of pipelines related to projects mentioned in the

high-demand regions in Northern Mexico. The pipelines in

National Infrastructure Plan. These are divided in three

this class are San Isidro-Samalayuca, Colombia-Escobedo,

categories. The pipelines that transport natural gas from

Salamayuca-Sásabe, and Eherenberg-Algodones-San Luis

the north of the country to the central region La Laguna-

Rio Colorado.

Aguascalientes, Los Ramones-Cempoala, Suthern TexasTuxpan. The project is aimed at increasing supply capacity

The Ministry of Energy determined that the Lázaro

for the central region to compensate for fluctuations

Cárdenas-Acapulco and Salina Cruz-Tapachula pipelines

resulting from demand in the southeast, while providing

are projects of social importance, and their development

redundancy to branches in this route.

depends of the Ministry of Finance’s favorable opinion. It also deemed the following projects as strategic: Colombia-

272

The second category comprises pipelines that connect

Escobedo, Jáltipan-Salina Cruz, Southern Texas-Tuxpan,

the Gulf and the western regions, which will alleviate

Tuxpan-Tula, Tula-Villa de Reyes, Samalayuca-Sásabe,

congestion in ducts supplying the central and western

Los Ramones-Cempoala, Villa de Reyes-Aguascalientes-

regions, as well as providing redundancy in the supply for

Guadalajara, and La Laguna-Aguascalientes. Finally, the

places with significant populations and economic activity.

Ministry of Energy has instructed PEMEX and CFE to

These include Tuxpan-Tula, Tula-Villa de Reyes, Villa de

launch tenders for the Colombia-Escobedo, Tuxpan-Tula,

Reyes-Aguascalientes-Guadalajara.

Samalayuca-Sásabe, and Jáltipan-Salina Cruz pipelines.

The third class, pipelines that connect the system with

In order to determine the feasibility of the projects that

new demand hubs, are meant to expand the system’s

CENAGAS proposed to address natural gas supply needs

coverage in order to detonate new markets and contribute

in its Five Year Plan, the technical system operator relied

to their economic development. The projects included

on CRE’s assistance to create a model that assessed the

are Lázaro Cárdenas-Acapulco, Jáltipan-Salina Cruz, and

impact of the interconnection of those projects. The flow

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PROJECTS IN THE FIVE YEAR PLAN APPROVED BY THE MINISTRY OF ENERGY Project

States served

Length (km)

Estimated investment (US$ million)

Estimated date of tendering

Estimated completion date

Tuxpan-Tula

Hidalgo, Puebla, and Veracruz

263

400

2015

2017

La Laguna-Aguascalientes

Aguascalientes, Zacatecas, and Durango

600

1,000

2016

2017

Lázaro Cárdenas-Acapulco

Michoacan and Guerrero

331

456

2016

2018

Tula-Villa de Reyes

Hidalgo and San Luis Potosi

295

420

2015

2017

Villa de ReyesAguascalientes-Guadalajara

Aguascalientes, Jalisco, and San Luis Potosi

355

555

2015

2017

San Isidro-Salamayuca

Chihuahua

109

2015

2017

Salamayuca-Sásabe

Chihuahua and Sonora

650

571

2015

2017

Jáltipan-Salina Cruz

Oaxaca and Veracruz

247

643

2015

2017

Salina Cruz-Tapachula

Chiapas and Oaxaca

440

442

2016

2018

Southern Texas-Tuxpan

Tamaulipas and Veracruz

800

3,100

2015

2016

Colombia-Escobedo

Nuevo Leon

300

N/A

2016

2018

Los Ramones-Cempoala

Nuevo Leon, Tamaulipas, and Veracruz

855

1,980

2017

2019

El Cabrito Compression Station

Chihuahua and Nuevo Leon

N/A

2015

2016

Source: Ministry of Energy with information from CENEGAS, CFE, and PEMEX

model considers the current state of the National Natural

proposals, CFE decided Howard Midstream’s proposal had

Gas Pipeline System as well as existing privately owned

the most favorable technical and economic terms, as it

ducts that have an impact on the system’s conduction

represents savings of US$25 million.

capacity. The effect of pressure and velocity variations in certain segments of the pipeline system have been

The Ministry of Energy authorized the tendering of the

simulated in the model, enabling the regulators to

Southern Texas-Tuxpan project, which will be launched by

determine potential congestion points.

CFE. This project will ease demand from the Gulf section of the National Natural Gas Pipeline System and part of

The results of this exercise led the authorities to conclude

the demand estimated for the Los Ramones-Cempoala

that if the system remains as it is today, it will be necessary

pipeline, ultimately saving US$7 billion. CFE published the

to develop infrastructure to transport natural gas from

bases for the tender on October 2015, and the project will

the north of the country to the Gulf, central, and western

ideally begin commercial operations in June 2018.

tariff regions in the 2015-2020 period. Between 2016 and 2017, the capacity to import natural gas through pipelines

In August 2015, CFE issued the bidding bases for the

has to be complemented with other options, such as

Tula-Villa de Reyes and Villa de Reyes-Aguascalientes-

importing LNG, in order to ensure stability in the system.

Guadalajara pipelines, which are scheduled to start

If more pipelines are interconnected to the system before

commercial operations in 2017. In September 2015, CFE

2020, potential congestion will be reduced, supply will

launched the bases for the La Laguna-Aguascalientes

be diversified, and the system will be stable without the

pipeline and assigned the project to the consortium

need to import LNG. However, the impact on tariffs will

composed of Carso Electric and Promotora de Desarrollo

be significant.

de América Latina to provide natural gas transportation services through the Samalayuca-Sásabe pipeline.

The risk of unbalancing the system due to the time it will take for new projects to begin operations calls for

CFE awarded the contract for the construction of the

reinforcement of the supply of imported natural gas,

San Isidro-Samalayuca pipeline to Gasoductos de Agua

which is why the Colombia-Escobedo and Los Ramones-

Prieta, a subsidiary of IEnova, and operations are expected

Cempoala

CFE

to start in 2018. The Tuxpan-Tula project is still under

participated in KM and Howard Midstream Energy Partners

tendering process. In addition, CENAGAS included the El

open season schemes in the US to transport natural gas

Cabrito compression station in its project pipeline, which

from Webb County in Texas to Escobedo and Monterrey

will be located in Coahuila in order to increase natural

in Nuevo Leon. This endeavor is part of the Colombia-

gas transportation in the northern region. The Ministry of

Escobedo project. After thoroughly evaluating both

Energy assigned this project to PEMEX in July 2015.

projects

have

been

reprogrammed.

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| VIEW FROM THE TOP

TRANSLATING LOS RAMONES INTO SUCCESS JAIME CALPE Director General of TAG Pipelines

274

Q: What is TAG Pipelines role in the current gas industry?

at least five robust funds, national and foreign, that are

A: TAG, as a PEMEX affiliate, has natural gas transportation

interested in collaborating with TAG for future projects. In

contracts, for which PEMEX is the client. Those contracts

my view, the most attractive feature is the fact that Los

will be transferred to CENAGAS and operated by this

Ramones II is a reality. The Los Ramones pipeline system is

entity. Since CENAGAS will be in charge of commercializing

a milestone in Mexico’s natural gas transportation sector,

shipping capacity in projects, in this case Los Ramones, the

acting as the second backbone for the transportation

system operator will become our client, replacing PEMEX in

and supply of this fuel, and the spearhead of the Energy

those transportation contracts. It is important to point out

Reform. This historic project will mark a tendency in natural

that our interaction with CENAGAS began at the time when

gas developments in the country. When plans materialize

the system operator was created, and we have been close

and move forward, with projects being developed with the

since, as TAG acts as a shipper, developer, and strategic

highest quality standards and always seeking integrity and

consultant for energy projects. CENAGAS has expressed its

sustainability, the companies involved become attractive

interest in hiring TAG’s services for some projects related to

to others willing to collaborate.

the Five Year Plan. Q: What are the main lessons learned from your experience Q: Could you tell us about the financial scheme used in

in Los Ramones II, and how did TAG Pipelines’ interests

Los Ramones II project?

change after BlackRock and First Reserve acquired a 45%

A: TAG Pipelines was the entity in charge of coordinating

share of Los Ramones II?

the project finance for both segments of Los Ramones II,

A: After the project, TAG Pipelines ended up owning

and we were able to gather near to US$2.5 billion from both

5% of Los Ramones II Norte and Los Ramones II Sur,

commercial and development banks, with the support of

and although nothing has been decided yet, we might

our financial division and PEMEX’s Directorate of Corporate

want to monetize this share in the future. As a result of

Finance. In addition, we were backed up by Santander and

this transaction, TAG Pipelines began transforming itself

BNP, our main agents in the southern segment. Santander

from a company originally created to be an owner and

was also our agent in Los Ramones II Norte. TAG Pipelines

promoter of infrastructure, to a project developer who does

received four awards for its work in Los Ramones II Sur

not necessarily own the assets. We are now a company

from LatinFinance and IJGlobal Americas, including Deal

dedicated to project development and management,

of the Year and Infrastructure Project of the Year. This was

engineering, obtaining permits and rights of way, material

the result of joint collaborations and team effort, which

procurement, and promoting investment in infrastructure

ultimately led to the drafting of a financing scheme with

projects, mainly for PEMEX, because we are an affiliate of

competitive rates in a record time.

the NOC. However, we have begun working with industrial clients who want to undertake their own projects. The

Q: What makes TAG projects attractive for funds?

experience we gained by working in Los Ramones II, jointly

A: One of the main features is being in contact with

with the experience that TAG’s team has, enable us to offer

different projects and knowing their needs, which, rather

a wide variety of services. Overall, the sale of shares to

than being the result of its affiliation with PEMEX, is due to

these funds has had a positive impact on the company. TAG

our human resources, who know what a project requires

Pipelines now has several contracts as a service and project

and are experienced in developing and selling projects.

development company in natural gas and LNG projects in

This, paired with the experience we gained from well-

the Trans-Oceanic Belt, in the Quetzal project, which is being

crafted and finely executed EPC contracts for Los Ramones

developed to transport gas into Central America. We are

II, has made several financial institutions take interest in

beginning to work on creating alternative projects beyond

our projects in the energy infrastructure sector. There are

our first achievement, Los Ramones II.

| INSIGHT

ENGINEERING CHALLENGES IN FLAGSHIP PIPELINE The way in which business is done in Mexico has changed, and now companies have new ways of participating. Rubén Kuri, Arendal’s Director of Pipeline Commercialization,

RUBÉN KURI

explains that years ago, Mexican companies participating

Director of Pipeline

in the energy sector were known as contractors due to

Commercialization of Arendal

the dominant scheme, in which clients provided the design and materials, and contractors carried out the project following a set of rules and specifications. Later

its engineering muscle to the point of implementing a

on, companies moved from being contractors to EPC

ropeway to help install ducts in steep areas.

companies in which the only clients were State-owned companies. “Now there is a revolution taking place in the

Now Arendal is looking to become a developer and it is

energy sector, ultimately changing the rules and the way

working on several proposals to bid on CFE tenders. In the

companies can participate in the projects, including the

meantime, it is working of a branch of the Tula pipeline.

possibility of actually owning them,” Kuri says, adding that

Kuri points out that the marine duct segment is appealing

if companies do not fully understand the changes in the

to his company, and as a result Arendal acquired Cal

market, they will run out of work. “These new times call for

Dive’s Mexican operations. “Cal Dive has built a significant

a change in mentality and focus.”

percentage of Mexico’s marine ducts, so taking advantage of this experience will enable us to enter this segment,”

Arendal had the opportunity to delve into the heralded

Kuri explains.

change in mentality a while ago, and it gained the experience needed to transition from an EPC company to a developer by

Arendal has two approaches regarding its ambitions in

participating in Los Ramones II Norte. “This pipeline means a

the Mexican market. “We want to be the Mexican firm

lot to the country’s energy sector and the government, and

that develops the most kilometers worth of pipelines, and

our participation in it and our success is something we can

to be recognized for our work in these projects and be

showcase to secure new projects,” Kuri boasts. In his view,

present in bidding rounds. In addition, we want to own

the project entailed a paradigm change in the way Arendal

some transportation infrastructure for strategic reasons,

worked. “Firstly, although TAG Pipelines, the developer and

so we are looking for partnerships as this is a new business

Arendal’s main client, is partly a public company, it functions

line for us, and we want to be the owner-operator of an

as a fully private entity, which implies different rules.” The

important pipeline or at least begin with a branch,” Kuri

second challenge involved the size of the project, which

shares.

consists of 42-inch ducts and an extension of 450km. Kuri explains that Arendal’s reach two years ago prompted the company to look for partners that would allow the company to participate directly and not just as a contractor. “We found the right partners that allowed us to present the winning proposal, and this was the right strategy at the time.” As for the technical aspect, Kuri identifies two main challenges in the execution of the project, one of which was finishing on the agreed time. “In my experience, the schedules set by owners are aggressive in terms of execution, a situation that is overcome by increasing resources. For Los Ramones II Norte, thousands of pieces of equipment were brought in and over 7,000 workers were recruited.” From a construction perspective, Kuri notes that crossing the Sierra Madre mountain range was the most difficult aspect in terms of execution due to the delivery times, the presence of mountainous rocks, access issues, rain, and other factors. Arendal pushed

For Los Ramones II Norte thousands of pieces of equipment were brought in, including a ropeway, and over 7,000

workers were hired

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| VIEW FROM THE TOP

FIBRA E TO STIMULATE ENERGY INFRASTRUCTURE OPPORTUNITIES EDUARDO LÓPEZ Executive Director Oil and Gas at EY

276

Q: How do investment opportunities in Mexico’s oil and

instruments. In this vein, the new Fibra E has been designed

gas market compare globally, and which areas hold most

as a Mexico-registered trust fund, which can issue energy

promise?

certificates via the stock exchange, and which will be

A: By effectively abolishing the monopoly of the State-

backed by specific type of assets. Holders will be able to

owned oil & gas company, the new legal framework has

claim ownership over the trust fund in proportion to their

the potential to unleash significant business opportunities

investment, and hence a share over future cash flows.

for private investors, both domestic and foreign and both upstream and downstream. Moreover, the country has

A significant amount of new infrastructure remains to

one of the world’s most promising resource bases, stable

be built, and as a result, Mexico’s energy industry should

politics, and an open and large economy. Few oil-producing

become an attractive investment, especially compared

countries feature similar characteristics. Upstream activities

to developed markets like the US. According to some

hold arguably the greatest promise. Downstream areas

estimates, total investment could be as high as US$70

will also offer investment opportunities, derived from the

billion by the end of the decade, which would go a long

gradual liberalization of the retail market.

way

solving

Mexico’s

infrastructure

bottlenecks.

Processing, transportation, refining or storage of crude Q: What is your perception of the Mexico becoming Latin

oil, petroleum products or natural gas, and power

America’s powerhouse and the main economy in the

generation, transmission and distribution, among others,

region?

are the areas most likely to take advantage of the new

A: Mexico currently has the second largest economy in

instrument. The challenges will consist of selecting and

Latin America after Brazil, but whether it will become

properly structuring the assets to be monetized. PEMEX

the largest will depend on a number of domestic and

will be able to capitalize some of its existing assets and

international factors, as well as the relative performance of

eventually invest in new infrastructure. It should also be

other countries. Mexico, however, has distinct advantages

noted that the new instrument contains several fiscal

in that its economy has been opened to the world for

advantages designed to nurture long-term investments.

the past two decades, and it has become a major global trading player and strong manufacturer. In addition to this,

Q: How should PEMEX’s financial burden be adapted to

its population is young, which should help sustain growth

reflect its new position as a productive enterprise of the

for decades to come. The country is closely integrated

State?

with the US and Canada, and North America is clearly

A: Under the reform, PEMEX’s fiscal obligations will be

emerging as a dynamic economic area.

gradually lessened. In addition, the company will be able to migrate some of its upstream assets to the new contractual

Q: Which is the background of Fibra E and how has it

framework in order to benefit from the fiscal regime applied

adapted to the needs of the Mexican oil and gas industry?

to private players. As for the government’s dependence on

A: Fibra E is primarily intended to finance the construction

PEMEX revenues, it will gradually diminish as non-oil tax

of new energy infrastructure in Mexico, such as pipelines,

receipts increase and as private oil and gas players start their

terminals, power plants, and transmission lines, in order

own production. The new PEMEX administration has put in

to complement the country’s Energy Reform. Fibra E has

place a new scheme to reduce wasteful expenditures and to

largely mimicked the Master Limited Partnership (MLP),

focus on profitable operations. PEMEX has the potential to

which was launched in the US in the 1980s. In general

become a company mostly focused on upstream activities,

terms, by bundling together assets that generate stable

able to capitalize on its knowledge of the Mexican geology

cash flows, MLPs allow companies to raise capital at

and engaged in numerous joint ventures with private

lower cost and offer higher returns than traditional debt

partners, both local and international.

| INSIGHT

ROADRUNNER’S BOOST TO PIPELINE PACE With falling oil and gas prices globally, Texas’ Permian Basin seems to be the only area to emerge from the downturn relatively unscathed, with rising a production. This can be

FERNANDO CALVILLO

witnessed through OneOk’s new partnership with Fermaca

President and CEO of

to provide the Roadrunner natural gas pipeline, running from

Fermaca

Coyanosa, through the border near San Elizario, to connect with Mexico’s existing Tarahumara pipeline. Fernando Calvillo, Fermaca’s President and CEO, expects the connection to be up and running by the first quarter of 2017. “We believe that sooner or later, an integrated energy hub will come into being between Canada, the US, and Mexico, a development we hope will be facilitated by the Roadrunner project,” shares Calvillo. He predicts that access to gas

277

at a price between US$3 and even US$5 per million BTU will continue to benefit Mexico’s power producers and industrial consumers, while creating interesting markets for US gas producers just across the border. The company has also started construction on the Encino-La Laguna project that begins in the state of Chihuahua and ends in the state of Durango, and is working to meet two delivery dates. One segment should be operating by April 2016 and the second part is expected for the first quarter of 2017. The project will

Fermaca’s contracts for projects in the north of the country will lead the company to transport

delivered to the federal government on time and on budget.

3.57bcf/d through 1,412km of pipelines

As a midstream company, Fermaca is also interested in

Calvillo does not believe that operation of pipelines

crude oil and refined products. The Energy Reform, in this

would be in CFE’s best interests. That is partly why CFE

sense, will allow the company to grow and expand into new

tenders capacity and the transportation services. “Both

markets. Calvillo believes that the industry has taken an

institutions should rely substantially on private companies

interesting turn due to the lack of natural gas production

and the whole country should pay for the infrastructure,”

in Mexico, the drive to gas-fired power generation, and

offers Calvillo, using Spain’s experience as a precedent.

the pricing and availability of gas in the US. This new

The Spanish government formed an agency, and every

dynamic has allowed Fermaca to become an international

company with a promising project was able to enroll in the

company, building its first cross-border pipeline between

system. Without a need for the government to keep the

Mexico and the US.

natural gas pipeline industry, it may soon sell its assets,

employ the same and improved procedures and techniques used in the Tarahumara project, which was the first pipeline

and create tenders by sectors, allowing companies like As a result of the Reform, the role of CFE in the market

Fermaca to acquire these pipelines. At the moment, the

is changing and CENAGAS is the new system operator.

company is undergoing a restructuring and, having issued

However, Calvillo firmly thinks that CENAGAS’ activities will

its first bond, it is closer than ever to its aim of being a

not impact those of Fermaca, as both companies operate

public company. “We truly look forward to becoming

using independent systems. Financially, CFE will improve

a public company, as this would give us further growth

once fuel supplies stabilize and the infrastructure is up and

opportunities,” Calvillo reveals. However, for the moment,

running, while the new electricity market begins to operate.

the company’s main priorities are the construction of

“In the long term, perhaps it will not make too much sense

Encino-La Laguna and the Roadrunner. Fermaca also want

for the future CFE to be involved in so many activities,”

to keep its business development side focused on future

Calvillo admits. “But today, I believe CFE is doing perfectly

projects, including any new tenders from CFE, PEMEX, or

well, and that its current strategy is working.”

CENAGAS.

| VIEW FROM THE TOP

A NEW ENVIRONMENT FOR MIDSTREAM CONTRACTORS ALBERTO ESCOFET Country Manager of Enagás

278

Q: What strategies has Enagás implemented in order to

A: This project, which is currently supplying CFE’s central

excel during this complex period for the industry?

generation plant in the state of Morelos, has served as a

A: The activities we have carried out in Mexico involve

valuable learning experience for the company. There were

projects such as the gasification plant in Altamira,

several challenges to overcome, such as land management

where the results have been positive and have strongly

and the development of strong relationships with the various

contributed to the company’s success. In December

municipalities. The company was faced with the challenge of

2015, we began the operation of our compression

adapting to the new regulations spawning from the Energy

station at Soto La Marina, as well as that of the Morelos

Reform, and Enagás became the first transporter to have the

pipeline. The company is working diligently to increase its

Open Season procedure approved by CRE. .

position within the Mexican market. Our first international investment was in the Altamira regasification plant (TLA)

Q: How will the development of the Texas-Veracruz

in 2011, and from there our participation in the international

pipeline impact the country?

market has significantly increased, as we have operations

A: Enagás has vast experience working on semi-

in Chile, Peru, Sweden, and in the Trans-Adriatic Pipeline

submerged pipelines, and this project that will connect

Project (TAP), which is part of the Southern Gas Corridor.

the south of Texas with Veracruz is in our strategic

Enagás established presence in eight countries only four

five-year plan. This will be an extremely important and

years after its first international investment in Mexico.

challenging pipeline that will transfer around 106mcf/d and will demand the participation of experts. The pipeline

Q: To what extent has the Energy Reform facilitated

will have both land and underwater sections, which entails

investment

overcoming several obstacles in land rights management.

for

the

development

oil

and

gas

infrastructure?

The development of this pipeline is being promoted by

A: The regulatory framework that the Energy Reform has

CFE to supply electricity generation plants along the East

established is far more flexible and offers a larger variety

coast of Mexico. This is the missing piece to a puzzle that

of options that were not previously available. These

will facilitate the transportation of natural gas throughout

guidelines allow for greater creativity and proactivity from

Mexico and that will ensure that all of these regions have

companies like ours, and create conditions that encourage

access to this fuel, as well as increasing the network’s

the development of new projects that would have been

flexibility. Mexico is not producing enough gas to be self-

impossible in the previous scheme. Fibra E is a tool that

sufficient, but this is no longer an alarming issue because

will finance the development of new infrastructure in the

the country can benefit from its geographical position.

country, and although it may take some time before it reaches its optimal potential, it will definitely increase the

Q: What are Enagás’ goals and strategies to increase its

development of the infrastructure the country needs. The

position within the Mexican market?

companies that will benefit the most from this instrument

A: We are currently involved in the bidding process for

are the ones that already have existing infrastructure, given

various CFE projects and optimizing the usage of existing

that they can contribute their incomes into an Investment

infrastructure focused on fulfilling the current and future

and Real Estate Fund (Fibra) and recover part of the

market requirements for natural gas transportation and

investment they made to allocate it into new projects. Our

storage. Our corporate strategy seeks to consolidate

infrastructure has not yet matured enough to utilize Fibra

Enagás in Mexico as a key operator, reinforcing its long-term

E to fulfill the company’s financing requirements.

commitment to the country. Enagás will continue supporting the development of projects that help strengthen the energy

Q: What have been the lessons learned throughout the

security and sufficient gas supply in growing countries with

development of the Morelos pipeline project?

stable regulatory frameworks, such as Mexico.

| INSIGHT

WORKING WITH LOCAL COMMUNITIES FOR DEVELOPMENT “From just two employees, the company quickly grew to building mobile accommodations for the different areas it serviced in Alberta’s oil fields,” James Delano, ATCO

JAMES DELANO

Mexico’s Director General explains. ATCO Mexico is a

Director General of

subdivision of ATCO Group, a Canadian company that

ATCO Mexico

started trading modular buildings in 1947. In 1980, the company bought out Canadian Utilities, bringing in new assets and leading to the division of ATCO’s capabilities

on the market.” He believes current pollution levels could

into three main segments, namely Modular and Logistic

be reduced by 75-77% through the use of this resource.

Structures, Public Service Infrastructure, and Energy Generation. Delano asserts, “ATCO is an A-rated company

The company was considering participating in the

according to Standard and Poor’s ratings, allowing us to

construction of the large 200km pipelines in Chihuahua, but

produce a strong balance sheet and consequently grow at

as it entered the market and discovered new opportunities,

a consistent rate. Assets in which we invest are ones that

it opted to bid for the design and construction of the 16km

we will operate for the long term, which says a lot about us

Ramal Tula pipeline that would transport natural gas to

and how we build these assets.”

fuel the Francisco Pérez Ríos power plant in the state of Hidalgo, with a daily capacity of 505mcf. The natural

ATCO is present in over 100 countries, and seeks to

gas will replace the less clean and less efficient fuel oil

become a local company in each new region, hiring local

currently used to generate energy.

talent and creating long-term strategic alliances with national companies. Although the company has mostly

ATCO had just undertaken a similar project in its homeland

focused on the expansion of its modular business, its

of Canada, and saw this as a promising opportunity to

most recent venture in Mexico is part of a strategy to

participate in Mexico’s energy sector, while learning about

grow its energy sector. “The products and experience

the Mexican business environment and the Energy Reform.

that we have are ones that can strongly contribute to the

“This project was supposed to be completed in July

effectiveness of the Energy Reform,” Delano believes,

2015, but had to be extended due to some challenges,”

“Inversely, the reform creates many opportunities for us to

Delano admits. He explains this was mainly due to issues

grow.” The company is currently participating in initiatives

surrounding archeological finds and rights of way, but

surrounding the transportation of gas and electricity, and

he does not expect the delay to last much longer as the

would like to enter distribution. In addition to this, it is also

company has a vast pool of experience from Canada in

working on the production of energy in cooperation with

dealing with local communities. “ATCO prides itself upon

its partner Grupo Hermes and PEMEX.

its commitment to invest in local populations and we have a division dedicated to this activity, called ATCO

ATCO hopes to build the most efficient power plant

Sustainable Communities,” Delano explains.

in Mexico, able to generate both power and steam, at PEMEX’s Miguel Hidalgo refinery. ATCO believes that

Moreover, the company often recruits local community

Mexico holds many unexploited opportunities, and wants

members to help carry out the project in their area,

to help the country gain the globally dominant position it

providing economic growth, and Delano expects the

believes it deserves in the global energy market. “Thanks

construction of the gas duct to create over 300 jobs. ATCO

to its advantageous geographical position, Mexico has

seeks to promote the development of the communities

everything it needs to become a global hub,” Delano claims.

with which it works, and will adopt this approach in all of

Participating in the expansion of the country’s natural gas

its endeavors in Mexico and abroad, allowing the company

pipeline is part of this endeavor, as he believes one of the

to grow while respecting the locals. Collaboration with

main challenges in Mexico is that few gas-rich areas are

native communities does not only come in the form of

given the opportunity to develop their resources. “Natural

support of ATCO’s projects, but also our support of its

gas is key to the future of Mexico,” the Director General

assets. Recently, the company built a road for the Ejido

asserts. “The country is lacking energy, and developing this

Zacamulpa community in Mexico, giving it more aperture

clean and cheap resource will allow the country to grow.

to the country, while contributing to the community’s

Natural gas, in fact, is the least expensive form of energy

long-term infrastructure.

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| VIEW FROM THE TOP

LPG EAGERLY AWAITS LIBERALIZED MARKET OCTAVIO PÉREZ SALAZAR Executive President of AMEXGAS

280

Q: What situations led to the creation of AMEXGAS, and

The program is comprehensive, and the Association

what are the association’s main activities?

believes that this reform is the government’s first

A: LPG has a long-standing tradition in Mexico, and

sustainable attempt to open our market. At the moment,

LPG distributors came into existence in a complicated

imports have already been liberalized, which allows

environment back in the 1940s, when the main fuels

players to access supply sources other than PEMEX,

used for domestic consumption were wood, alcohol, and

offering gas of a different quality and even offering more

petroleum derivatives. This industry always had a close

competitive prices when possible. The rest of the market

link to PEMEX, so LPG companies saw the need to group

will be liberalized on January 1, 2017. In an open market,

in order to reach agreements with the authorities and the

consumers will have more alternatives and will be able to

NOC. The Association was formed in 1962, and its main

choose the LPG distributor that offers the best service or

purpose continues to be fostering its relationship with the

the lowest price. Companies will be able to create added

authorities.

value, which is something we could not do before because distributors sold the same product at the same price with

AMEXGAS represents 180 companies before different

reduced profit margins.

entities, participating in regulatory committees. We have close ties to ASEA, the Ministry of Energy, PROFECO,

Q: How will tariffs work while prices are liberated?

and CRE, and we also speak on behalf of our member

A: When the Energy Reform was drafted, the industry

companies through other associations when it comes

assumed the international market was more expensive

to the relationship with PEMEX, although this situation

than the domestic one because it was subsidised. However,

is changing lately. AMEXGAS has a close relationship

this situation changed three years ago when the surplus

with AMGN, since both associations participate in

production of liquefied gas in the US caused the prices to

COPARMEX’s

relationship

drop. This part of the world follows the Mont Belview gas

between these two entities has served to change the

Energy

Commission.

The

index, which is at its lowest point in years. Throughout this

existing narrative regarding the role of both fuels, which

year we will a gradual decrease in domestic prices due to

now complement each other rather than compete. LPG is

imported gas that will provide an alternative to PEMEX’s

focused on domestic consumption, whereas CNG is use

product, and similar changes in the market conditions will

for power generation and industrial purposes. AMEXGAS

eventually reduce prices. If everything goes as expected,

also provides its affiliates with legal advisory services,

the maximum price we see at the end of this year will only

information, or assistance in media-related affairs.

be a reference that will not necessarily be followed and will disappear by 2017. There are no generalized reasons

Q: How did the Energy Reform impact the LPG segment?

why prices should go up, and the way the liberalization

A: The main benefit for the LPG segment will be the price

is planned allows for a smooth transition without major

liberation. LPG distribution is an important industry at the

complications for consumers and distributors.

global level, but Mexico lags behind due to insufficient resources and a historical lack of interest from the

Q: What benefits do the new private participation

Executive power. In my view, the most harmful obstacle

schemes provide LPG distributors?

for the development of this industry has been price

A: Our relationship with PEMEX, which the law appointed

control and the way this was enforced. Therefore, it was

as the only supplier, producer, and importer, is changing.

great news to hear that common sense prevailed in the

Some parts of the chain have been liberalized for some

Energy Reform and that there was a planned schedule for

time now, such as transportation. Considering this, the

the industry’s liberalization, which includes imports, and

main change we expect to see is a diversification in the

focused subsidies for people who still use wood for fuel.

offer, so now, in addition to transporting gas between

PEMEX and distributors, companies will also be able to import gas from the US and build pipelines. Now distributors will choose if they want to buy gas from PEMEX, which produces 65% of the LPG that is consumed

Mexico is one of

in Mexico, or from other parties. PEMEX will certainly have

the largest

a competitive offer in some regions and will continue to be

consumers of LPG per capita,

an important player. Distributors will then be responsible for finding a supplier that makes them competitive. The options are being assessed already and the country will soon have a diversified offering. Consumers will also be

with consumption

able to choose between the different kinds of PEMEX gas

levels of 8.6

or HD10, HD5, or imported gas that fulfils any specifications

million tonnes annually

for determined uses, which will be new to the country. Q: How is AMEXGAS working to push the development of LPG storage projects? A: AMEXGAS has been pointing out the insufficient

population uses wood and other primary fuels that

storage capacity since its inception, as the country has a

damage people’s health and the environment. A study

storage capacity of two and a half days.. When the market

carried out by the WLPGA indicates that countries spend

becomes liberalized, businesspeople who want to invest in

more in providing healthcare for the ill and reforesting

infrastructure will be able to do so. The incoming changes

than they would if they subsidized the use of non-primary

in Mexico’s LPG industry have awakened the interest of

fuels. In line with this, LPG is the best option since it is

the international market, and I frequently meet with

not feasible to build a pipeline to take natural gas to

distributors, infrastructure companies, and investment

towns in the mountains where wood is used. Marginalized

funds that are looking for projects to invest in. Since the

segments in urban areas use wood, even though the

financial markets have not been profitable lately, these

LPG distribution system can reach every corner of the

players want to inject their capital into profitable projects,

country. If a place is not properly supplied, it is because

and the Energy Reform opened many doors for them.

the commercialization margins make the distribution

Even though storage projects are capital intensive, the

impractical. However, this will change with the new

market conditions are favorable. Mexico is one of the

scheme and distribution companies will work to take

largest consumers of LPG per capita in the world, and the

LPG everywhere it is needed. An advantage of LPG is its

country’s consumption reaches 8.6 million tonnes annually.

portability, and a small container holds a great amount of energy if measured in BTU. In this sense, acknowledging

Q: Why should the authorities consider subsidizing the

the circumstances and the fact that a subsidy is a common

LPG consumer segment?

international practice, the authorities could assist in this

A: I would rather say the authorities should consider

enterprise, which does not necessarily entail economic

subsidizing a modern fuel. More than 15% of the Mexican

assistance, as infrastructure is crucial.

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281

| INSIGHT

NATURAL GAS AS THE FUTURE OF MEXICAN ENERGY GENERATION ones,” Pedro Arjona, President of Grupo DEISA underlines. DEISA works both with the private and public sector, and it helps its customers comply with the norms that are relevant for their project, as it did during the construction

PEDRO ARJONA

of the LNG terminals of Altamira and Manzanillo, which

President of Grupo DEISA

Arjona considers as breakthrough project in terms of the complexity and the knowledge acquired. The firm also works with the regulatory authorities, and in this respect,

282

Specialized Design Engineering and Updated Systems,

Grupo DEISA’s President believes that “ASEA should draft

also known as Grupo DEISA, is a 100% Mexican company

new norms and thoroughly revise the old ones, a process in

that has more than 50 years of experience working in the

which we hope to collaborate. The existing norms must be

natural gas industry. The company has three divisions,

adapted to the national reality, and although international

namely an engineering and construction division that has

regulations are a useful reference, they must also be

been in operation for 50 years, a verification unit that has

adapted to the current state of the national industry.”

15 years as a pioneer in the sector of pipelines and facilities inspection, and a division dedicated to the operation and

Up until the opening of the energy sector to private

maintenance of gas pipelines. “We not only administrate

investment, PEMEX expected external investment to further

the technical aspects of the industry, but also the regulatory

the growth of the pipeline network, but CFE decided to

| INSIGHT

CONDITIONS DETERMINING MEXICO’S GAS PRODUCTION JUAN FERNANDO IBÁÑEZ Managing Partner of Ibáñez Parkman

For Ibáñez, it is possible that Mexico could produce its gas resources, but various factors must fall into place beforehand. “The future of Mexican gas production depends entirely on the success of this Energy Reform,

Juan Fernando Ibáñez, Managing Partner at Ibáñez

but the gas imports from the US will offset current

Parkman, illustrates how much room for growth Mexico’s

low levels of gas production.” Mexico’s shale reserves

pipeline network provides. “In Texas, there are more than

could contribute to increasing the country’s natural gas

90,000km of pipelines, but in Mexico, a territory at least

production, but developing these resources entails two

seven times the size of the southern US state, there are

challenges, in Ibáñez’s view. “There needs to be a policy

no more than 11,000km.” This may soon change thanks

that allows for the redistribution of water. In fact, starting

to the many pipeline projects that are being undertaken,

water-intensive activity in Tamaulipas and Burgos, the two

such as Los Ramones, which is only the beginning of

regions with the country’s major shale reserves, will be a

a bigger picture for Mexico in terms of infrastructure.

delicate matter due to water availability.”

Furthermore, Ibáñez provides a reminder that PPPs are instruments that could play an important role. “PPPs will

The second concern involves environmental regulations

be a vital factor in onshore, midstream and upstream

given that the extraction of shale oil and gas is done

projects with PEMEX, as well as in the transmission and

through fracking, a technique resulting in considerable

distribution segments of the electricity industry. In my

CO2 equivalent emissions. “The government needs to find

view, they are the most important sources for the power

a way to address these two issues before the extraction of

industry,” he asserts. Ibáñez points out that Mexico’s

shale resources can begin. This is time sensitive, as these

approach to clean energies will also create opportunities

reserves are estimated to be the world’s fourth largest

for all business related to gas, from extraction to

and thus represent significant resources for our country,”

conduction and distribution to storage.

Ibáñez concludes.

heavily support the development of combined cycle units

it can meet the growing demand at all times.” Additionally,

instead. This caused the demand for natural gas to grow

investment in these major projects could generate benefits

faster than its transportation system, and ultimately led

for other sectors of the economy that experience less

to a shortage in gas supply. In turn, this convinced CFE to

demand. “If we want to position the country as a leading

redirect some investment back into the pipeline network,

economy in the world, the natural gas infrastructure needs

and to connect the Mexican system with that of the US.

to be strengthened so the industry and commercial sector

Ever since, CRE has maintained its strategic investments in

can be stimulated,” Arjona continues. This represents a

gas pipelines, which are now a core part of the national gas

challenge and incentive for Grupo DEISA to participate in the

transportation system and have contributed to preventing

development of the energy sector in Mexico.

the previous shortage. Not only was the country’s gas pipeline system solely operated by PEMEX up until recently,

For the country’s pipeline network to be efficient, there are

it also suffered from a lack of investment. Arjona believes

certain features that still need to be developed, according to

that “It is imperative for PEMEX to become active in the

Arjona. “Firstly, at a national level, it is important to highlight

expansion of the natural gas transportation system, as the

that all players must comply with the Official Mexican

company has the most knowledge and experience in that

Norms (NOMs). The problem in Mexico is that regulations

sector, unrivalled by other industry players.”

are yet to be defined in certain areas, in which case it is advised to use international examples as a reference.”

This restoration and expansion must become a priority for

This is where Grupo DEISA can help the concessionaire,

the authorities, according to Arjona. “There would be no

authorities, and companies, as it is specialized in the

heavy industry without natural gas,” he explains. “Power

efficient implementation of international codes or norms.

generation and manufacturing are increasingly reliant on the

Every project is different and Grupo DEISA has experience

resource, and relevant players must safeguard supply so that

balancing local and international norms.

| INSIGHT

OPPORTUNITIES IN GASOLINE STORAGE The success of companies depends on those running their operations, their knowledge of the industry, and their long-term vision, and PEMEX is no exception to this

JOSÉ ÁNGEL GUTIÉRREZ Director of Operations at United Pipeline Systems

rule, according to United Pipeline Systems’ Director of Operations, José Ángel Gutiérrez. The company offers

as opposed to PEMEX’s previous strategy of simply

unique Tite Liner technology, and Gutiérrez shares that it

recruiting service providers without providing an incentive

is investing significantly in carbon fibers, emphasizing the

for productivity,” Gutiérrez explains.

importance of portfolio variety in providing an added value for the customer and subsequently gaining a competitive

Gutiérrez believes that the results of this reform will be

advantage. Now that the oil price has reached new lows,

seen in eight to ten years, but that the most benefit and

and the fact that PEMEX proceeds account for 30% of

improvement will be seen in the midstream and downstream

the federal budget does not create a problem, but rather

industries, rather than in upstream. Firstly, though, he

opportunities for those that choose to see them.

argues that mentalities must be changed within the sector, and instead of approaching PEMEX to repair a pipeline or

“The last three years have been challenging,” Gutiérrez

sell a valve, United Pipeline Systems aims to focus on the

concedes, “but have served as an awakening, similar to

investment and business model, serving as a partner for the

the pinnacle of the dawning of the dot com era for the

NOC. Moreover, according to Gutiérrez, an important area

Mexican energy sector.” He explains that the major returns

of opportunity for newcomers to Mexico lies in storage.

were always generated from drilling, and as a result,

“With only 78 gasoline storage facilities in the country with

PEMEX made the largest investments in this area and

a capacity of 7 million barrels, and a consumption rate of

overlooked other added-value industries in the midstream

1 million b/d, Mexico’s storage ability pales in comparison

and downstream. “Now, all parties within the sector have

to the strategic reserves of the US federal government,

motivation to make businesses profitable and sustainable,

totaling 850 million barrels,” he concludes.

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| VIEW FROM THE TOP

NO STOPPING FOR PIPELINE EXPERT JOSĂ&#x2030; PABLO MENDOZA CEO of Octopus

284

Q: What are the main changes in the market in which you

instrumentation, so when the market begins to recover, we

operate today compared to 12 months ago?

will have to reconstruct our teams for certain areas. Luckily,

A: At the moment, PEMEX is neither a direct or indirect client

we have the most qualified staff, and as a result, this is

for Octopus. Previously, most, if not all of the work we carried

something that will be possible for us. We are able to create

out involved the NOC, so that marks a considerable change

products at a much lower cost, and with world class quality,

in our operations. Fortunately, the pipeline systems demand

which is guaranteed by our past products and contracts.

products that we fabricate, so this is where our competitive advantage lies. We expected the results of Round Oneto

Q: What are the main areas on which you are working at

be announced earlier. However, since this still has not been

the moment?

resolved, we are aware that the new players will slowly

A: We have just finished a substantial project for Los

begin to enter at some point this year as a result of Round

Ramones, for AOT Pipelines, and we are in the process of

One. The reassuring aspect is that the process is beginning,

contract negotiations for more work with the company. Also,

and companies like ATCO are starting to approach us for

we are working with ATCO on the Tuxpan-Tula pipeline that

collaboration in commercial ventures, whether inside Mexico

is currently under development, and we want to participate

or abroad. I believe that when PEMEX begins to work on its

with IEnova, also on Tuxpan-Tula, with Gas Natural de la

Round Zero blocks, it will require service providers and at

Huasteca in San Isidro, and with Sempra on Gasaducto

this point we see a considerable amount of opportunity in

Aguaprieta. We are currently quoting 12 launchers and

this type of project, whether with the private sector or with

receivers for AOT, but I am unsure for which project this order

PEMEX, given that R1-L03 awarded many similar fields to new

will be used due to the companyâ&#x20AC;&#x2122;s significant workload.

private operators. These investments make economic sense regardless of the current crisis, but there is a considerable

Q: Apart from the private companies with which you are

amount of work to be done in terms of marketing on the part

collaborating, what work do you have in the pipeline for

of the winners of the Round One tenders.

public sector projects? A: We are expecting to start work with PEMEX soon. We not

Q: Which are your best positioned products, and which

only provide pig launchers and receivers, but also piping,

would you like to add in order to offer a more integrated

spooling, and in some instances we will supply packages that

service?

include measuring. Instead of selling the product, we want to

A: The area in which we see our future lies in packages and

move toward selling the integrated service. The problem lies

integrated turnkey services rather than recruiting onsite

with the new PEMEX structure, because if PEMEX E&P has no

contractors. I foresee that these will be the services requested

need to pay PEMEX Gas for the gas it consumes, attempting

by most of the new private companies entering the market

to compete with zero cost is not a viable option. ATCO is

because they are used to this way of doing business, contrary

currently moving slowly, but the company has mentioned

to the way we typically do things in Mexico. The main reason

that it wants us to provide substantial packages for projects

that Cameron, ATCO, and Sulzer have approached us is

in Pennsylvania. If that happens, we will be able to diversify

because we are one of the only companies in the country

from pipelines. I believe that the business will change greatly,

with solid experience in integrated packages. Unfortunately,

and it will be interesting and challenging to understand the

the last two years have been extremely volatile, meaning that

new outlook, and the new environment will require us to be

we have had to offload some of our departments, such as

much more assertive.

Octopus Group is a company that specializes in engineering, manufacturing, integration, and procurement within the national and international power, petroleum, petrochemical, chemical, and industrial sectors.

| VIEW FROM THE TOP

A HISTORY OF TECHNOLOGICAL EXPERTISE IN GAS PROCESSING COEN VAN MUNSTER Manager of Petrogas for US and Latin America

286

Q: What is the role of partnerships in securing your

these companies with fuel gas conditioning systems. Our

position in the Mexican market?

second targets will be in the upstream market, where we

A: We have supplied Siemens Power Generation for over

will help dry the gas and remove sulfur. In fact, we have

30 years, making Petrogas one of its main suppliers for

supplied several installations in Mexico, mainly in Mexico

fuel gas and fuel oil systems. The Mexican market is not a

City, Monterrey, and Rosarito, among other places. Most of

new one, but since it is now open, it is easier to target the

these are operated by CFE, but they have been supplied

players. In the past, we could not go to CFE or PEMEX, but

by OEMs and EPC contractors.

we could work with contractors instead. Now Petrogas is registered as an official supplier to PEMEX, but obtaining

Q: How do you foresee the market for your products

projects from the NOC at this moment is difficult because

expanding in Mexico, given the fact that the authorities

it wants its contractors to pay for the projects and

are pushing for cleaner power generation methods?

Petrogas is not an investor. Nonetheless, we are talking

A: Certain voices in the industry are commenting on the

with a Dutch investment company and we are looking

changing role for EPC contractors, particularly their possible

into a few projects in Mexico where this Dutch company is

transformation into operators and how this impacts the

bringing several suppliers together in joint ventures.

supply of turnkey solutions services in Mexico, such as the ones we supply. CFE might be the owner of a power

Q: Which of your midstream products do you expect to

station, but someone else might be buying the equipment.

be the most sought-after in the Mexican market?

CFE has an agreement with an OEM or EPC company, and

A: I am sure that our fuel gas conditioning systems, both

this company buys the components that will be used in the

for filtration and separation, will be the most popular.

site. We supply to these companies, so we do not supply

One specialized item we have is a black powder remover.

directly to CFE. With that being said, we also know that CFE

Black powder is a result of a corrosion process forming

is increasingly participating in natural gas transportation and

iron oxides and iron sulfides in pipelines, which damage

is tendering pipelines to bring gas to and from the US. The

moving equipment such as valves, compressors, and gas

main opportunities created by this development come from

turbines installed downstream along the pipeline. I do not

the fact that we are in contact with some of the pipeline

know if Mexico is suffering from this, but this has become

companies, so we are trying to attract their attention with

a huge problem in the Middle East, and at the moment

our project so that they notice our equipment and request it.

we are installing equipment in that region to solve the situation with advanced technology. Q: In addition to installing, do you carry out maintenance operation throughout the life cycle of the pipeline? A: Since our company was established in 1949, all our installations are built for plants along pipelines that are planned for anywhere from 35 to 40 years of service. Even when I visit old plants being decommissioned, our equipment still works. If we supply any equipment that is feeding a power station, after 35 years the power station will be demolished but the gas system is still fully operational. At the moment, we are targeting the electricity market. The majority of our clients are OEMs like Siemens, GE, and Alstom, or contractors like Duro Felguera, and we supply

| VIEW FROM THE TOP

NEW MATERIALS IN PIPELINE DEVELOPMENT MIGUEL Ă NGEL DELGADO Business Manager RE- High Performance Polymers at EVONIK

Q: What role does the oil and gas sector play in EVONIKâ&#x20AC;&#x2122;s

opportunity. Our product was installed by Petrobras in

expansion plans, and what products does EVONIK wants

Brazil, and there are currently about 4,000km of installed

to showcase?

flexible pipelines.

A: For the natural gas market, our main clients are the biggest gas distributors in the country such as Mexigas,

Q: What is the process of rehabilitation of pipelines, and

Gas Natural Fenosa, and Gas Natural Industrial de TorreĂłn.

what opportunities does it create for EVONIK?

Our main clients are companies interested in replacing

A: The liner technologies are designed for the rehabilitation

existing steel pipelines with thermoplastic pipelines, or

of pipelines that handle hydrocarbons and therefore

installing new lines with the capacity to obviate corrosion.

experience internal corrosion. These liners protect the duct

We use a product called polyamide 12 (PA12) VESTAMID

from corrosion without blocking the flow of the product.

NRG to handle higher pressures, and it has been designed

Normal production stops temporarily while we complete

specifically for energy-efficient gas and oil pipelines. We

installation and we usually synergize with companies

want to specialize in areas that deal with the distribution

such as UPS to complete the rehabilitation process. We

of natural gas through thermoplastic pipes, as well as

provide the materials and technology for the installation

the rehabilitation of transport pipelines using lining

of thermoplastics and then UPS installs the liners using

technology. Our linings are installed internally and allow

a technology called "roll down", which is the process of

quick repair without the need to open trenches, and

compressing the material to the adequate diameter so that

currently we are working with PEMEX on the installation

it fits within the pipeline. In the case of a straight pipeline,

of these products.

we can build up to 1.5km without having to construct a trench. It is much safer to use these products because

By taking advantage of the thermoplastic properties of

they are far more resistant and corrosion is prevented, as

the polymers, a liner is introduced, which is the insertion

well as using less intermediate welds, allowing companies

of a plastic tube inside a steel pipe. At the moment, there

to install up to 200m of continuous pipelines with

are polyethylene applications, but we are employing

thermoplastic pipe coils. Another advantage is that, since

PA12, which allows for higher temperatures and greater

the product does not require a great amount of welding, it

resistance in the management of hydrocarbons. For

lowers the installation and maintenance costs.

natural gas, the pipelines for low pressure natural gas distribution of up to seven bars use high-density

Q: What position would EVONIK like to hold in the

polyethylene. The PA12 properties are superior to those

industry, and what is being done to obtain that profile?

of low-pressure thermoplastic pipelines, and we can

A: We want to be the leaders in the installation of high-

expand that knowledge to use high-pressure pipelines and

pressure thermoplastic pipelines of a maximum capacity

distribute natural gas up to 18 bars.

of 18 bars. We collaborate with the entire supply chain, instead of only being the suppliers of the raw materials in

Q: In terms of natural gas pipelines, what opportunities

the manufacture of PA12 pipes. The biggest opportunities

are opening up for EVONIK with the new Energy Reform?

for EVONIK are the new ducts being built in the west, near

A: One of the most interesting topics at the moment is

Sonora and Jalisco. These constructions present a great

related to shale gas and the construction of new pipelines

opportunity for the installation of new lines, and potential

on the west coast of the country, where there were no

for supply to industrial parks and cities, without having to

existing installations. We can use our technology in these

create large trenches to install them. We plan on achieving

new installations for long distance transportation at

this by adapting the new thermoplastic technology, and

pressures of 14-18 bars. We are currently working with all

utilizing market expertise on polyethylene to expand our

of the natural gas distributors to take advantage of this

product portfolio in the natural gas market.

287

| VIEW FROM THE TOP

ENERGY REFORM PUTS PIPELINE INSPECTION AT THE CENTER STAGE JAN FROWIJN Managing Director for Mexico & Central America of the ROSEN Group

288

Q: How are ROSEN’s companies interlinked, and in which

common in Mexico. In addition to the technical inspection,

area does each one specialize?

there must also be a thorough evaluation of operating

A: The ROSEN Group is a truly global company, as we work

conditions, logistical challenges, customer collaboration, and

and are represented in more than 150 countries. ROSEN

partnerships. We have the necessary equipment to carry out

Mexico is responsible for both Mexico and Central America,

the inspection, but it is critical that these other factors also

where we have invested in a strong and growing local

be taken into account. We have around 150 local employees

presence, and long-term partnerships in Mexico. Together

with a breadth of experience in the industry, and we know

with COBSA and RAM-100, we form a strong alliance that

our customers, meaning we are well aware of negotiating

allows us to provide integrated products and services over

practices in the country’s business environment. Therefore,

the entire lifecycle of a given asset, mainly pipelines, but

we offer the best of both worlds by combining global-scale

also storage tanks and ships, among others. Although

technology with local knowledge and expertise.

these companies are essentially independent, we all form part of a solid team that reinforces each other’s position

Q: Now that the government is pushing to increase

in the market. ROSEN is involved in the inspection and

production, what kind of opportunities does this present

integrity management systems, and associated products

for ROSEN?

and services. COBSA specializes in the rehabilitation and

A: Lately, we have seen a pronounced increase in the

repair of pipelines, while RAM-100 provides the materials

inspection of pipelines. We believe that, as a result

for pipeline repairs.

of the Energy Reform, this activity has become a far more important requirement in Mexico. In terms of

Rather than having merged with COBSA or RAM-100,

the government’s objectives, and those of PEMEX, the

we decided to form a strong alliance in order to provide

reliability of the existing legacy network is also a priority,

high-quality products and services in the Mexican market.

both for gas and refining. Now, with PEMEX’s requirement

One of the reasons for this is that ROSEN’s ethos is based

to become more competitive and the entrance of new

on our independence as a company, which has been an

private companies, I believe the importance of this factor

important aspect in our strategy over the last 30 years.

will increase. We are seeing better planned management

This entails independence from customers, suppliers, and

in the industry, partly due to the objectives stated in the

financial institutions. In addition to giving us more access

Energy Reform aimed at pushing PEMEX to compete, not

to innovation, we feel that our previous experience as an

only at the national level but also at the international one.

independent company has served us well, and we want

This trend offers promising opportunities for ROSEN, as it

to continue with this model in the future. Although we

means that we will become involved in the process much

are always looking for partners and strategic alliances,

earlier in the asset life cycle, and we can help our customers

depending on challenges we face in a given market or

implement more effective and proactive inspections,

industry, we also highly value our independence and our

integrity management, and preventive maintenance than

long-term, innovative, and technology-driven approach.

the ones we can provide toward the end of an asset’s life cycle, representing long-term benefits for the customer.

Q: As a company that carries out inspection and integrity management, what are some of the common problems

Q: Now that Mexico has an open market and new

you encounter in Mexico?

regulators, what kinds of clients will you be looking to

A: With pipelines, there is always a combination of issues

work with?

rather than a single specific one. Sometimes it can be the

A: We always look at the market in terms of three actors:

structural integrity of the pipeline, while in other cases it can

the owner or operator of the pipeline, the regulators, and

be external or environmental conditions, which is extremely

the solutions providers, including companies like ROSEN.

The industryâ&#x20AC;&#x2122;s potential can be expanded if these three stakeholders collaborate. In Mexico, we are specifically trying to align ourselves with the market regulator and, although this strategy has been successful around the world, it has been especially challenging in this country. In our view, working with both the regulators and the owneroperators is the only way to ensure that our work yields the most value over the long term. In the future, I foresee this becoming a much more significant part of our approach. The role of the regulator in Mexico was considerably different in the past, and I believe that the industry will evolve in such a direction that the regulator will also become a stakeholder. Not only is the owner-operator interested in the long-term integrity of a particular asset now, but so is the regulator. Even though the regulator is experienced, it is facing an entirely new arena, so the role of the stakeholders is also changing. Moreover, the role of ROSEN is evolving, as we must play our part

289

in providing long-term solutions and attempting to anticipate potential challenges ten years in advance. Our short-term goals are to seek further growth and diversify as a group, both internationally and in Mexico, until we reach a stage in which we feel comfortable with our position and the solutions we can provide. In the medium term, we will focus on coming up with new and improved technologies and solutions to address our customersâ&#x20AC;&#x2122; specific needs and challenges. Lastly, our long-term objective is to help our customers to create sustainable value. Q: Given the changing landscape, where would you like Q: On which kinds of projects has ROSEN worked

the company to be positioned within the Mexican market

in Mexico, and can you provide an example of your

five years from now?

collaborations with PEMEX?

A: Companies like ROSEN are often viewed as suppliers in

A: One of the reasons we attended the Logistics for

the market, so five years from now, I would like us to be

Hydrocarbons, Oil, and Petrochemicals Congress (LHPP

seen as a stakeholder that works closely with operators

2015) is because we are focused on the inspection of

and regulators, seeking long-term added-value solutions.

loading lines, and we wanted to showcase the results of

From a business perspective, I see the company as the

the inspection we carried out in Salina Cruz on a pipeline

leading integrity partner characterized by a varied

that was out of operation. This project was carried out

portfolio in Mexico and, in the near future, Central America.

in close collaboration with PEMEX and all of its internal stakeholders, while following our integrated model. The

ROSEN is a global company, but we are also a Mexican

technology we used was only available through our

company, meaning working within the country is one of

international company, which led us to work closely with

our long-term goals. Rather than focusing on individual

our engineers in Germany, the US, and Mexico. The pipeline

projects, we are investing in Mexico as a whole, and

was inoperative for three years, and after the inspection,

one of the most important aspects for us in the country

it is now in production, transporting crude oil for PEMEX.

relates to our substantial investment in human capital. We

Operationally, the project was extremely challenging as it

are training and recruiting in Mexico, sourcing personnel

is a subsea duct, located in a harsh environment, and we

from around the world. Besides our technology and tools,

also had to take measures to minimize the impact on the

and our integrated approach, our employees are by far

population and the ecological system. This is an example

our most important asset, since they are at the core of

of our collaboration with PEMEX whereby we implemented

our assertive mindset and the key to the success of the

a novel system in Mexico and subsequently introduced it

company as a whole. I can confidently claim that we have

into other countries.

some of the most experienced people in our field.

| VIEW FROM THE TOP

A PROTECTIVE GLANCE INSIDE THE DUCTS ALEJANDRO LUPIAÑEZ VP of Operations of ISI Mustang

290

Q: How has the restructuring of ISI Mustang been carried

the benefits of technology, then educating and training

out?

them, and finally investing money in technology testing.

A: ISI Solutions was acquired by Mustang Engineering

We invest a great deal of time in testing new technologies

in December 2011, creating a new company called ISI

and ensuring that our recommendations are proven and

Mustang, which has since gone through a five-year

reliable. When there are major shifts in the industry, such

integration process that ended this year. Wood Group has

as the advent of the Ethernet, IP, virtualization, or even

three main business lines, including Wood Group Kenny for

cybersecurity, ISI Mustang revises its technology and best

subsea engineering, Wood Group PSN for field services,

practices, using the knowledge collected throughout our

and Wood Group Mustang for engineering, procurement,

offices across the world and adapting it to our Mexican

and construction management. This latter division has

clients’ requirements.

four business units, namely Offshore, Onshore Pipelines and Facilities (OPF), Process, Plant, and Industrial (PP&I),

Q: How can your products contribute to reducing damage

and Automation and Control, the segment in which ISI

to pipelines, and preventing hydrocarbon theft?

Mustang is located.

A: Our pipeline monitoring system uses fiber optics, among other technologies, to monitor any type of unusual

Q: How has the Internet of Things and Big Data changed

activity. However, we can further prevent these issues by

the way the industry works, and how is security being

working on the project from the conceptual design and

factored into this new equation?

basic engineering phase. At first sight, our systems may

A: Intelligence was previously solely found in control centers,

seem costly, but these are a long term investment, a fact

but we are increasingly seeing it move down the pyramid to

companies quickly grasp when we present them with our

the most basic pieces of equipment thanks to the advent of

design criteria, its norms compliance, and the aggregated

think lines and improved software programs. Transmitters,

value they will receive from our solution. This is a relevant

transducers, flow computers, and similar technologies

fact in an industry where contracts are made with the long

provided with increased intelligence, are able to handle

term in mind as companies will save money on total cost

IP technology, and can connect to the Ethernet. Control

of ownership, maintenance, and durability.

centers are becoming service centers because they can also take actions, operate, and monitor the facilities of an entire

Q: What new technological concepts are you currently

pipeline or process plant, in addition to overseeing many

testing?

other aspects of an operation. Little by little, information

A: ISI Mustang is constantly developing new technologies

technology (IT) is blending with the operational technology

according to our clients’ requirements. During our

(OT). IT and OT meet at level 3.5, which is where networks

participation in the Los Ramones project, we created a

from the field, the plant, and the control center separate

platform for the safe exchange of information between

through routing, switching, and firewall technologies. We

the US and Mexican parts of the project. Our current

choose to segment the networks at that point so that the

technological focus is on virtualization. This concept is not

corporate network and external access may interact in a

new, but four years ago, the Wood Group Mustang and

protected area, leaving the real-time servers, which are the

ISI Mustang started to test and validate it. Virtualization

heart of the operation, unthreatened.

eliminates the need for a great amount of hardware in control rooms, saving time, money, energy, and space,

Q: How are you working to invert the lack of trust in cyber

while improving safety and reliability and, above all,

security?

availability. Needs that used to be balanced against each

A: ISI Mustang takes a three step approach which

other, such as availability, reliability, and security, are now

involves raising awareness among our clients regarding

converging toward a harmony.

| INSIGHT

ESCO OPPORTUNITIES IN A NEW LIBERALIZED MARKET Mexico is currently switching its electricity production from fuel to natural gas, which provides a greener and more competitive alternative. Duro Felguera has

ANTONIO NOMBELA

established itself as part of this transition for a cleaner

Commercial Director of

future by developing the combined cycle plants Epalme

Duro Felguera Oil & Gas

II under the ESCO modality. This is the latest project that it has undertaken as part of its three decades serving the Mexican oil, gas, and electricity industries. “Mexico has

In Nombela’s view, his clients benefit from a contractor that

always been a key location for Duro Felguera in Latin

is able to develop turnkey ESCO projects. "Our 360-degree

America and will continue being so, especially given the

philosophy about suppliers and services allows us to guide

recent market liberalization,” says Antonio Nombela, the

our clients from the beginning of a project, at which point we

firm’s Commercial Director. Moreover, the company is also

offer services like viability studies, conceptual and property

looking into the benefits this shift in electricity presents in

engineering, and FEED, all the way to operation, labor, and

terms of infrastructure. “We currently offer every type of

maintenance,” he explains. LNG infrastructure is one of the

installation that is related to natural gas, such as liquefied

company’s areas of interest. “We are a pioneer, along with

and regasification terminals, storage, ducts, and electricity

the associated Japanese enterprise, IHI, in the development

generating plants that are fed by natural gas,” Nombela

of all types of LNG infrastructure, particularly in Mexico,

lists. “Additionally, we can set up a complete integration

where we worked on the regasification terminal in Altamira.

between two installations with the dual objective of

We are present throughout the value chain of natural gas

helping our clients achieve a more efficient generation and

and have specific technology that we want to put to the

reduce operative costs.”

service of the Mexican industry,” Nombela asserts.

| INSIGHT

TECHNOLOGY SUPPORTS SOLID TRACK RECORD Bechtel offers a full suite of services and participates in projects from the early stages of development through to the design, construction, start-up, commissioning,

HÉCTOR GARCÍA Country Manager of Bechtel

and hand-over into operations. “Our track record of performance enables us to provide certainty of delivery,

In the short-term, the most active sectors for Bechtel in

which differentiates us from competitors,” boasts Héctor

Mexico are gas pipelines and combined-cycle power plants

García, Country Manager of Bechtel. “Our customers

such as those in PEMEX’s cogeneration program, where

trust us because we deliver results, and they are keen to

the company plans to bring its global experience to local

continue working with us.” The company has over 50 years

partnerships. Bechtel has worked with Conoco in the LNG

of experience in Mexico, and García calls the country an

segment. “We have provided over a third of the world’s

important component of the global portfolio. “We have

LNG installed capacity and are currently executing around

a successful track record in energy projects, including

50% of the capacity under construction,” García asserts. In

oil and gas ventures in the Cantarell offshore field, as

the longer term, García hopes to work with new entrants

well as a number of combined cycle power projects

in production infrastructure installations, midstream, and

and gas pipelines,” he explains. Bechtel also worked on

facilities supporting import and export of fuel and other

the Mayakan pipeline in the Yucatan peninsula, one of

products. “In the current economic environment, we can

Mexico’s largest and among the first privately financed gas

help PEMEX optimize its current assets and improve

pipelines in the region. On this project, the company was

efficiency through technology solutions and pinpointed

part-owner, operator, and EPC contractor.

capital investments.”

291

REFINING & PETROCHEMICALS

Numerous new opportunities in Mexico’s downstream sector are steadily emerging as a result of the Energy Reform. There are countless possibilities for developments, given the growth stunt suffered by the downstream sector as a result of PEMEX’s decision to focus primarily on upstream activities. The reform is expected to bring access to a much-needed feedstock supply that is essential to lure private investment to the Mexican petrochemical sector. Latin America’s largest petrochemical project, Etileno XXI, has become illustrative of the opportunities that can be capitalized on in the Mexican market.

The private sector is showing interest in participating in the refining segment, mainly by getting involved in revamping and modernizing projects in PEMEX’s refineries. Furthermore, the Energy Reform created new possibilities for both PEMEX and the private industry to operate in partnership. The state-owned company would obtain much needed capital and new technology, while its partners would benefit from PEMEX’s existing infrastructure and unparalleled knowledge of the Mexican market. The following chapter explores the ways in which the private sector is seizing business opportunities in the refining and petrochemicals industries, and enlists some of the options that will be available as the sector takes off.

293

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Impulso al Sur • Marco regulatorio

La zona de Coatzacoalcos aporta el 21% de la exportación de crudo y el 97.5% de la petroquímica. Ésta produce

• Incentivos para atraer empresas

insumos para 40% ramas de actividad.

• Infraestructura Moderna y condiciones de seguridad

Con tan solo 303 kilómetros, permite unir al Golfo de

• Facilidades para el comercio exterior

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Facebook/puerto.coatzacoalcos @coatzaport www.puertocoatzacoalcos.com.mx Tel: +52 (921) 2110270

| CHAPTER 12: REFINING & PETROCHEMICALS 296

EXPERT INSIGHT: Downstream Segment Invites Private Partners

297

INSIGHT: Ovidio Noval, API Coatzacoalcos

299

INSIGHT: José Luis Uriegas, Grupo Idesa

300

VIEW FROM THE TOP: Roberto Bischoff, Braskem Idesa

302

VIEW FROM THE TOP: Sergio Saldívar, AMEC Foster Wheeler

303

INSIGHT: Oscar Scolari, Rengen Energy Solutions

304

VIEW FROM THE TOP: Abraham Baruch Zepeda, Grupo Hosto

305

VIEW FROM THE TOP: Daniel Gutiérrez, Pepperl + Fuchs

306

VIEW FROM THE TOP: Raúl Baz, Grupo Petroquímico Beta

307 INSIGHT: Gerson Moacir Secomandi, Oxiteno Mexico 307

INSIGHT: Regina Oliveira, Dow

308

INSIGHT: Mauricio Bielaz, Lamons

309

VIEW FROM THE TOP: Jaime Zubillaga, MAN Diesel and Turbo

310

VIEW FROM THE TOP: Josie Fernández, Teadit

311

VIEW FROM THE TOP: Alejandro García, Alpine Services

312

VIEW FROM THE TOP: Jorge Almanza, ALMU

313

INSIGHT: Guilibaldo Pérez, Tytal

314

VIEW FROM THE TOP: Vernon Murray, Emerson

315

INSIGHT: Mauricio Dávila, EnerChem Tek

295

| EXPERT INSIGHT

DOWNSTREAM SEGMENT INVITES PRIVATE PARTNERS

296

Lourdes Melgar, Undersecretary of Hydrocarbons,

Amidst a low oil price environment, the private

stresses the availability of opportunities to make

sector is showing interest in the refining and

PEMEX refineries more efficient, which is linked

petrochemicals segment, especially in revamping

to the implementation of the Energy Reform.

and

“PEMEX can now effectively form partnerships

downstream

with private players who are knowledgeable in

plants,

logistics, technology, and labor issues. Hopefully,

Manuél Carrera, Director of Alliances & New

PEMEX will not have to continue operating

Business at PEMEX, explains that in the current

alone, because until now the NOC has not been

environment of low oil prices, the margins of

competitive and it currently does not have the

these transformational industries have gone up.

required cash flow.” Melgar recalls PEMEX’s

“This trend can be observed in the US, where

involvement in the Deer Park refinery, where the

refining margins have increased, as have those for

NOC operated in a joint venture. “This experience

the petrochemical and gas processing industries

was one of the arguments we used to push the

thanks to the low gas prices. It is therefore no

reform, and we should find out if we can replicate

surprise that the downstream segment has

this experience in Mexico.”

become more attractive.” He says PEMEX has a

modernizing and

PEMEX’s

assets: gas

three

refineries, processing

types

petrochemical plants.

José

fair amount of assets that could be enhanced with Melgar comments that companies have visited

the capabilities, technology, and capital of third

the Ministry of Energy to present plans for

parties. “The same economic principle can be

José Manuel Carrera Corporate Director of Alliances & New Business of PEMEX

Lourdes Melgar Undersecretary of Hydrocarbons at the Ministry of Energy

establishing new refineries in Mexico without

applied to all sectors. We have assets, a market,

PEMEX, which she sees as good news because

existing infrastructure, and part of the feedstock,

it means the industry will be more diversified. “If

and we are looking for capital, technology, and

private investors are interested in this, they can

operational capacity.” Carrera emphasizes that

participate, with the only requirement being a

it is faster to join PEMEX’s operations than to

permit from the Ministry of Energy. However,

begin new ones from scratch, and this is the main

we should be careful not to grant permits to

opportunity that PEMEX presents. Even though

companies that want to establish refineries here

PEMEX and its Alliances & New Business division

in order to export production for two reasons.

are working on putting as many business plans

Firstly, we have a large market in need of supply,

on the table as possible, Carrera notes that just

as evidenced by the fact that we import 53% of

as with some fields in the upstream segment,

the gasoline we consume. Secondly, it would not

there will be some downstream facilities in which

be in our interests to grant environmental permits

PEMEX will not invest at the moment due to their

for a refinery if we do not reap any of the benefits

scale. Finally, Carrera highlights non-strategic

from this activity,” she clarifies. The state-owned

opportunities for the private sector, “The Energy

company is going through a difficult time and

Reform allows third parties to dedicate their

undergoing severe changes, and it is precisely

resources and efforts to areas of opportunity

this situation that makes Melgar optimistic about

that do not make sense for us at the moment.”

the opportunities in the downstream segment.

Nonetheless, we are trying to generate as much

As she argues, “The situation in PEMEX does not

business as possible in order to attract potential

leave room for slow progress.”

partners."

| INSIGHT

SPECIAL ECONOMIC ZONES FOR ISTHMUS OF TEHUANTEPEC Mexico has several important ports in terms of commercial load, such as Veracruz, Manzanillo, and Altamira. “If we consider total load capacity, however, the most important

OVIDIO NOVAL

one is Coatzacoalcos,” claims Ovidio Noval, Director

Director General of API

General of API Coatzacoalcos. Total load refers to both

Coatzacoalcos

the commercial capacity and that used by PEMEX. Noval explains that the port sees intense shipping activity, and accounts for approximately 22% of the NOC’s total trade,

allowing coastlines to be connected in an efficient and

including oil, gas, and aviation fuel transactions. “To put it

competitive way. The authorities are currently discussing

in numbers, this year we are expecting to close operations

the renovation of the old railroad system and the existing

with a total load of 30 million tonnes, an unmatched

highway, as well as the modernization of the infrastructure

capacity for ports in Mexico. We expect this figure to

of the existent ports.

increase in the near future, with the advent of the Special Economic Zones initiative currently being discussed in

Moreover, the Gulf of Mexico and the Pacific coastline will

Congress,” boasts Noval.

also be connected by a US$2 million pipeline constructed by PEMEX, and this is expected to create more

This proposal aims at boosting the economic development

opportunities for local industries and ports. “One of these

of the selected areas by improving their infrastructure and

pipelines is planned for the transportation of natural gas

providing incentives to encourage private investments.

to a refinery in Salina Cruz that is currently using fuel oil

“Worldwide,

special

for power generation,” Noval asserts. “The substitution

economic zones,” Noval mentions, “including some

of old fuels for natural gas will likely take place in other

extremely successful cases. For instance, Manaos, in Brazil,

industries. Another implication will be the possibility

after being named a Special Economic Zone increased its

to transport oil derivatives to that part of the country,

turnover by 300% within five years.” In order to shape this

attracting new industries to the area. This was what

initiative, the Mexican government followed the example

occurred with Braskem Idesa, the consortium in charge

set by successful cases around the world, using best

of Etileno XXI, the country’s largest polyethylene plant.

practices and creating a proposal adapted to national

The companies decided to install the manufacturing

circumstances. Three southern areas will be involved in

plant 9.5km off the port of Coatzacoalcos because of

the Special Economic Zones initiative in an attempt by

the presence of a PEMEX pipeline nearby, which eased

the authorities to balance out unequal economic growth

the delivery of the ethane gas needed for the operations.

that has benefited mostly the northern states. The areas

After the plant started operating, other plastic companies

include Puerto Chiapas, Lázaro Cárdenas, and the trans-

decided to move to the area to increase their proximity

isthmic corridor, which contains the port of Coatzacoalcos.

to their polyethylene supplier.” The availability of raw

there

are

approximately

3,500

material is particularly attractive for many international

"This year we are expecting to

companies,

close operations with a total

scheme.

load of 30 million tonnes"

Noval believes Mexico’s resource availability and incentives,

especially

when

considering

the

fiscal

benefits that can come with the Special Economic Zone

Ovidio Noval ,

in addition to the country’s location and its impact on

Director General of API Coatzacoalcos

logistics costs, could attract companies from China, one of the countries with the highest logistics costs. “The

“Of the selected economic zones, the trans-isthmic

real competition are foreign ports,” Noval admits. “Most

corridor is of special importance as it entails the

people do not know this but 70% of all Mexican imports

narrowest strip connecting the Gulf of Mexico and

are brought into the country through the Long Beach port,

the Pacific Ocean, linking the ports of Salina Cruz in

instead of being shipped directly to a national port.” In

Oaxaca and Coatzacoalcos in Veracruz,” Noval states.

order for Mexican ports to gain prominence, he believes

The Isthmus should benefit from various improvements

they should specialize to improve efficiency and become

more cost competitive.

the

communication

and

transportation

system,

297

| INSIGHT

ENCOURAGING MEXICO’S PETROCHEMICAL DEVELOPMENT Mexico’s downstream industry is familiar with the largest petrochemical project in the country, Etileno XXI, which was built by the Braskem Idesa partnership. “We started developing the project in 2011 and we hope operations will

JOSÉ LUIS URIEGAS

be running in 2016,” states José Luis Uriegas, CEO of Grupo

CEO of Grupo Idesa

Idesa. He adds that the group is carrying out the project in close collaboration with contractors, technologists, and experienced staff from both Grupo Idesa and Braskem

He also adds that certain plants will shut down due to

in order to reach the desired quality. If everything goes

outdated processes, thus ensuring constant, uninterrupted

according to plan, the plant should be producing near

growth. Uriegas does not expect to compete directly with

full capacity by 2016, which represents approximately

PEMEX in most markets, but rather with other suppliers.

900,000 tonnes of polyethylene. “Our presence in

Rather than delivering large volumes to only one region,

the Mexican market will certainly have an impact on

Grupo Idesa prefers to distribute smaller volumes to

customers, as they will be able to enjoy excellent support

different areas, so as to not hurt market statistics. Since

in technical assistance, a service which is lacking locally,”

market share increases gradually, the company only plans

Uriegas asserts.

to place 60% of next year’s production in Mexico, and the rest in other parts of the world due to significant demand

Uriegas is aware that excellent services might not be

in places such as the US, Europe, Asia, and Latin America.

sufficient to sustain a certain market share in the long

“In Mexico, we already have over 300 customers, as we

term, and explains that Grupo Idesa also benefits from

started with pre-marketing over three years ago, and the

competitive pricing, as it is located in the NAFTA region,

group of distributors that will help us with the placement

where half of the world’s polyethylene production is based.

of small volumes has also been selected. In addition to this,

This confers the Mexican producer a unique advantage, as

we already have certain customers outside of Mexico. These

the final price of the product is defined by companies in

are direct customers, traders, or distributors, depending on

North America. The fact that Mexico is one of the world’s

the region,” Uriegas details. As time passes, the group will

largest oil producers also provides the company a certain

try to increase Mexico’s share of production, aiming for 70%

advantage, as North America’s polyethylene is produced

in 2017, with the ultimate goal laying between 80-90%.

from oil, not ethane. The feedstock for Etileno XXI comes entirely from the southern part of Mexico, where the

Being aware of the difficulties entailed in training and

crude oil has properties that facilitate the production of

retaining skilled labor, Grupo Idesa is implementing an

associated gas, rich in ethane. “We believe that the new

initiative to train some of its workers to stay in the company

investment generated by the Energy Reform will raise

once the construction phase is over, and is recommending

production levels, which currently lie at 2.2 million b/d.

others to different large construction firms around Mexico.

There is already enough ethane in the region for our project

The construction stage had 17,000 workers at its peak

and its expected levels of production, but we hope for that

period, but the number reduced to 2,000 in January 2016.

level to be increased in four to six years, when we may be

“We have been informing other construction companies

thinking about expanding our cracker,” Uriegas comments.

about the expertise and professionalism of our workers,”

He also mentions that the group is looking forward to the

Uriegas reports. “Most of our workers are specialized in

coming phases of Round One, and particularly R1-L03, the

different stages of the construction process, and we have

oil from which will be available in a couple of years and will

given them certificates to corroborate the quality of their

be able to fuel Grupo Idesa’s growth.

performance when they worked with us. Our training programs focus directly on the communities where we

The global market is growing by approximately 1 million

work, as we would like to have many workers living close to

tonnes per year, and given this figure, Uriegas does not

the plant.” Uriegas hopes to retain about 800 people, half

expect the group’s added capacity to fundamentally

of which would work directly in the plant. Many of these

modify the market. “Even when the rest of the crackers

will have been trained for one or two years in plants similar

in the Gulf coast come in operation in 2018-2019, adding

to the one built in Coatzacoalcos, giving the company a

8-9 million tonnes of extra capacity over two years, the

chance to undertake further projects nationally, and even

market will not change as it will absorb this fluctuation.”

outside Mexican borders.

299

| VIEW FROM THE TOP

CHANGING THE LANDSCAPE IN THE PETROCHEMICALS SECTOR ROBERTO BISCHOFF Director General of Braskem Idesa

300

Q: What finishing touches is Braskem Idesa giving to the

On a long term basis, Brazil has not developed opportunities

Etileno XXI project?

to supply a competitive stock that is required for this type

A: Braskem Idesa was scheduled to start operating

of industry. The development of pre-salt in Brazil could

between January and the beginning of February 2016,

potentially provide enough stock for new projects, but

but we had some issues that required us to intervene

the key lies in finding a competitive equation that permits

in the importation of equipment. The original design

the long term supply of these materials. Mexico is facing a

underwent some minor changes that delayed the start of

period of reforms and changes in its own stock market that

operations, but we expect to produce our first batch of

could also generate medium and long-term opportunities

polyethylene by the second half of 2016. For the last three

for us nationally. Nevertheless, it is too early to discuss

years, we have been working on the construction of this

these types of market situations. Both Mexico and Brazil

important project that will produce 1.05 million tonnes of

have a chance of promoting the investment of long-

polyethylene annually. The project is composed of four

term projects as long as their policies are implemented

industrial units. The most important one is the cracker,

successfully, which is highly probable.

which will be the first to initiate. It has three polyethylene plants, two of which are already completed.

Q: What have been the most significant developments of Etileno XXIâ&#x20AC;&#x2122;s logistics zone facilities, and how are they

Q: What is the expected impact of reaching your market

being interconnected to the infrastructure in the Port of

share objective in the Mexican industry?

Coatzacoalcos?

A: PEMEX currently supplies 30% of the polyethylene

A: We have developed a flexible logistics strategy in

demand in the country, and Etileno XXI is poised to supply

which we decided to invest in a platform that is capable

50% of the demand in the following five years. We are

of supplying the domestic market according to new and

working closely with a new producer that will be entering

existing demands, resulting in the development of large

the market with a local product adapted to the needs of

and bulky 25kg bags to gratify the mass. In addition, we

the area. Alongside this new partner, Braskem Idesa is

have adapted our logistics platform to be able to evaluate

differentiating itself in the market by developing solutions

and explore markets competitively. Along with logistic

that will satisfy the requirements of Mexican consumers.

flexibility, we have formulated partnerships with other

This will be key, because North American companies that

companies to assess Mexican ports so that they can

currently supply PEMEX and the rest of the market do not

position themselves to export to any international market

align themselves with the demands of Mexican customers.

included in Braskem Idesaâ&#x20AC;&#x2122;s strategy.

Q: To what extent is there an opportunity for Mexico to

Q: How will the company push innovation and product

fulfill market needs in Brazil considering its low supply of

development?

raw materials?

A: Braskem Idesa is a new company that established a

A: Initially, we are going to be supplying Central America

structured long term pre-marketing program that allowed

as a key market and focusing on the US. It is important that

it to sell 100,000 tonnes last year. I would not qualify us

North America has an integrated market for polyethylene.

as an entering company because we are already present

We are also going to be supplying other regions such

and growing. A company in this situation should have a

as Europe, and the South American west coast using

strategy that allows proximity to customers, working with

the Braskem network for distribution. The polyethylene

them to develop specific solutions to fit their needs. In

market is global and tradeable, so we are going to be

this landscape, innovation plays an important role, and we

continuously assessing the needs all the regions that are

are taking advantage of the infrastructure implemented

profitable for our exports.

by Braskem in the US and Brazil, which is advanced

technologically and innovatively. In fact, our long-term

based on new price relationships between gas and oil.

goal is to integrate the company with the Braskem network

Another important factor is that the Mexican domestic

in these countries.

market is expected to grow and this will attract incoming projects. Key investment decisions will be postponed

Our plants are developing infrastructure that allows us

until companies can see how all these new factors work

to individualize the solutions we offer our clients, which

together and until prices settle in the future according to

has required millions of dollars in investments. All types of

bulk feedstocks.

solutions that may in some way alleviate our customersâ&#x20AC;&#x2122; problems are the type of investments that need to be

Q: To what extent is Etileno XXI the companyâ&#x20AC;&#x2122;s only focus,

seen at the site. This includes an integrated laboratory

and how far are you planning on continuing to invest in

that controls the quality of the production in which we

other plans and opportunities?

integrate our product development control program. Our

A: New plans depend on the feedstock availability, as

current focus is to continue developing new methods that

we do not see any opportunities in the short term. With

will improve the services we offer to customers.

the drop in oil prices, all major petroleum companies like PEMEX are facing challenges and a natural readjustment

Q: What is making the downstream sector attractive to

of budgets because the scenario is completely different,

investors, considering its financial record when compared

and this is making short term investment unattractive.

to other PEMEX subsidiaries?

Other oil companies may choose to invest but they will

A: The financial landscape is being impacted by the

do so in a selective manner because of the liabilities in

change in oil and gas prices, which is affecting the industry

the market. Braskem is always looking for opportunities

in North America and all over the world because it is a

for growth in this developing market and for potential in

globally traded product. Mexico is undergoing changes

our relationships with companies in the industry as long as

that are improving the market, and for this reason, we

the risks are minimized with stock availability.

decided to invest in 2010, even before the reform and the shale gas boom. The project was conceptualized and planned thoroughly and it has stayed competitive in the new scenario that the Energy Reform has created. Braskem Idesa will be an important player in this market and in the industry. We expect to be recognized by our capability of fulfilling the needs of both the market and our customers. We are in a position to be a key player in an important and growing sector, and preparations are being made accordingly. Braskem Idesa plans to be one of the most significant investors in Mexico and Latin America by implementing a US$329 million plan this year. The money will be allocated to completing our project and fulfilling obligations with the banks to fund some reserve accounts. Q: To what degree does Braskem Idesa anticipate the entry of new players as a result of the Energy Reform? A: The dynamic relationship between the prices of bulk feedstocks and oil has generated important fundamental changes in the petrochemical and petroleum industry. The key point of establishing opportunities for new entrants in the Mexican domestic market is the provision of competitive feedstocks that can only be seen on a longterm basis. This is a challenge considering that the shale gas revolution has generated an increase in the availability of feedstocks in North America, causing Mexico to be in constant competition with the US. The proximity between these two countries requires Mexican producers to have a competitive stock in order to engage the implementation of any type of project, otherwise it is not attractive to produce in Mexico. Stock is expected to have a minimum

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| VIEW FROM THE TOP

DEEPWATER GIANT DIVESTS INTO REFINERIES SERGIO SALDÍVAR General Manager of AMEC Foster Wheeler

302

Q: What are the main differences in the company’s

A: One of our main differentiators is that we own the

identity after the AMEC and Foster Wheeler merger?

process technology for certain plants, such as the delay

A: AMEC has plenty of experience in the upstream segment,

coking units, where we are executing the Madero and

but almost none in refining. For this reason, it is a good

Cadereyta un-heading devices projects. As stated, we

complement to Foster Wheeler. AMEC has executed major

are working in five out of the six refineries in one way or

projects in shallow water arrangements from the Houston

another, but this also entails future challenges because

office. In the UK, we also have expertise in deepwater

once these projects are completed, we might not be

fields, pipelines, and floating arrangements. Overall, we can

as active in this segment. We bring the expertise from

offer vast expertise in the upstream segment, as we have

plants around the world to these projects. Our pursuit

many different activities in our portfolio. We are working

of unique opportunities is justified by our technology

on projects for Mexico with Paris, Madrid, Houston, and

and we combine our operations here in Mexico with the

Thailand. The integration of other execution centers and

capabilities of our partners’ offices abroad. For our Salina

different capabilities to projects in Mexico has significantly

Cruz ultra-low sulfur diesel project, a large turnkey project,

strengthened our company. We now offer a wider array of

we are bringing the strength of the Madrid office and the

services and are starting to test the waters in other sectors,

Thailand office, which offer added capacity to our Mexican

as evidenced by our first project in the pharmaceutical

operations. This provides us with a combined workforce of

industry. There has also been growth in the food and

300-400 people for that specific job. By carrying out both

beverage, environmental, and infrastructure industry, and

the engineering and the construction with a joint venture

we have benefitted from a few quotations. The company

partner, we are effectively differentiating ourselves from

is undergoing a cultural shift, whereby we are gearing our

the rest of the industry. The only other company capable

mindset toward that of a much larger organization. The main

of doing this in Mexico is ICA Fluor.

changes thus far have been in terms of size and strength. Q: In which sort of projects do you still find interesting Q: What are the main projects in oil and gas that you are

enough to participate in the refining area?

working on at the moment?

A: We have a considerable backlog on refining jobs, such

reconfiguration project, which should last five or six years

as the Salina Cruz diesel project and the Madero and

and should start moving soon. We will also take part in

Cadereyta un-heading devices projects. We are also chasing

the capacity expansion of a coke plant in Cadereyta,

a significant project in the Salina Cruz reconfiguration,

and we might also do the same in Minatitlán. Given the

but the specifics are yet to be defined. Although we are

current circumstances and state of PEMEX, there is a

extremelyproud of our strong presence, it also presents a

lack of further opportunities in the refinery sector. Other

challenge for the future. We know that the end of these jobs

players entering the market may choose to set up more

marks the end of refining projects in our pipeline, which

refineries in the country, but this will not happen in the

means we must step outside of our comfort zone as soon

coming years. Mexico has always played a significant

as possible. So far, we have secured a couple of upstream

role in our company, but over the past year it has gained

engineering projects for PEMEX. In addition, we are

importance and has come to play a central role. Our CEO

preparing for the entrance of new players in the market by

is constantly looking at developments in Mexico and

working on our positioning, marketing, and development.

attending important local events with key political figures.

are

looking

forward

the

Salina

Cruz

Our leadership team has given our office aggressive Q: What are your main projects in refineries at the

targets for Mexican operations and expects high revenue

moment, and what sets you apart from other companies

figures, meaning the company should aim to double or

in your field?

triple its size over the next three years.

| INSIGHT

ADAPTING BY STRENGTHENING EPC CAPABILITIES Diversification is one of the ways in which companies adapt to ever-changing markets, and Rengen’s journey into an EPC firm is meant to secure its presence in the Mexican

OSCAR SCOLARI

energy industry. “Nowadays, purchasing a product or

Director General of Rengen

service is not enough to guarantee the clients’ satisfaction.

Energy Solutions

They require everything to be integrated, installed, and operating. In response to this trend, we decided to provide EPC services to clients in the energy sector,” shares Oscar

as gasoline, aviation fuel, and diesel will keep growing,” says

Scolari, Director General of Rengen Energy Solutions.

Scolari. He adds that PEMEX must increase the production in its six refineries to meet the demand, otherwise it will lose

“Our international partners supply us with products, as well

market share to imported products.

as supervision and quality control for the installation and operations of our EPC projects, while our local teams take

According to Scolari, players have to pay more attention

care of detailed engineering, construction and assembly,

to allocating resources where these will allow the most

start-up, and commissioning.” Scolari attributes part of the

productivity and profitability. He uses Etileno XXI as an

company’s success to the fact that it has been able to add and

example, as Braskem and Grupo Idesa joined forces to build

attract talent that makes the operations more solid. Rengen

an ethylene cracker that would have not been financially

has a specialized team dedicated to providing operation and

possible for PEMEX. Scolari points out that the petrochemical

maintenance services, which are offered under long-term

industry has been open to private participation for many

service agreements, in addition to continuous preventive

years, and many groups and companies have been involved

maintenance analysis and services. It is quite common to

in this sector for a long time. Although there are available

see Rengen performing these services in power generation,

opportunities, both PEMEX and investors have to take into

but the company also works on servicing, repairing, and

account factors such as the global supply of the products

providing long-term maintenance to PEMEX’s gas turbines.

they want to manufacture or import. In addition, Scolari

Part of Rengen’s value proposition includes training PEMEX

stresses that the petrochemicals industry also follows a

and CFE technicians in the use and maintenance of the

cycle that does not necessarily coincide with that of the

equipment the company sells, distributes, and installs. “We

refining industry. Rengen intends to participate in the Salina

do not keep the technology stored in our facilities, instead

Cruz reconfiguration project, and the company is keeping

training our clients’ technicians and operators, because at

an eye on possible developments in the Madero, Minatitlán,

the end of the day they will become our commercial ally. If

and Salamanca refineries.

they are comfortable working with our products, they will continue buying from us,” Scolari comments. The company is looking at opportunities in the downstream sector, where it is finding a new niche to prove its EPC capabilities. “We have observed growth potential in the downstream segment, which has led us to strengthen the group’s engineering division in order to compete in the refining and petrochemical sector, where we plan to participate in the revamping of facilities,” Scolari comments. He explains that the upstream segment is depressed, because in some fields, production costs are higher than the market price. Furthermore, considering the fact that the most promising fields are in deepwater reservoirs in the Gulf of Mexico, he believes the challenges to providing equipment and services will become more demanding and price sensitive. “Conversely, the refining and petrochemicals sector will benefit from the low crude prices, since the market has a real and tangible demand, and the use of products such

The refining

and petrochemicals sector will benefit from the low crude prices, since the market has a real and tangible demand

303

| VIEW FROM THE TOP

POWER, UNINTERRUPTED

ABRAHAM BARUCH ZEPEDA Commercial Director of Grupo Hosto

304

Q: What has allowed Grupo Hosto to become a leader

influenced by the development of the Mexican oil and gas

among EPC companies working in the Mexican market?

market, especially after the announcement of the Energy

A: Grupo Hosto was founded 25 years ago by Jorge Alberto

Reform. In the case of PEMEX, the liberation of the market

Zepeda Grajales. At that time, contractors were hired directly

encouraged the parastatal to invest in its infrastructure, a

by the plants, so the founder decided to start offering

situation that brought more job opportunities for Grupo

maintenance services to refinery managers, and this way,

Hosto, especially as there were few companies that could

Grupo Hosto started obtaining its first contracts. After eight

compete with us in this area.

to ten years of experience, the company finally managed to secure a contract for providing reactor maintenance,

Q: What new technologies have you brought to Mexico,

becoming the first private company in the country to

and what advantages do they provide for your clients?

offer this service. Following its successful incursion as a

A: In our recent experience, there are three technologies

provider of maintenance services for refineries, Grupo

that are especially impacting our clients’ operations. The

Hosto identified a new market niche in the construction of

first is the reactor cyclone, which is used to recover the

gas terminals. In this area, the company benefited from its

unreacted catalyst from reactors used in the gasoline

expertise in providing maintenance to refining equipment

refining processes. The use of cyclones is essential, as the

and building infrastructure projects in Mexico City, a parallel

catalyst used in this process accounts for the highest share

business Grupo Hosto had at the time. Later, during the LPG

of gasoline production costs. In order to introduce this

boom, the company managed to construct 50 gas bottling

technology in an efficient way, we decided to perform an

facilities as well as four gas shipping centers.

in-depth analysis of the cyclone equipment used in Mexico in collaboration with Buell, a leading cyclone producer

Q: What opportunities have allowed Grupo Hosto to grow

based in the US. As a result of this project, Grupo Hosto is

in the market since then?

now the only Mexican company able to produce cyclones

A: In 2002, the refining sector experienced low production

under the Buell brand.

rates, which lowered the demand for maintenance services. Nevertheless, that same year, we started collaborating

The second technology is the loading nozzles, also used

with the private sector, which represented a promising

for catalytic reactors, which have a considerable impact

opportunity for the company. In 2006, the construction of

on the equipment’s efficiency. In this case, we obtain the

new refining plants underwent a boost in the country and

technology from Technip, one of our international partners.

Grupo Hosto used its experience working with PEMEX and

The final technology that is gaining momentum among

private parties to become an EPC company. This decision

Mexican companies is the Uninterruptible Power Supplies

promoted the success of the company as the contracts

(UPS) system, which is a synchronizing machine with an

for EPC projects represented a higher influx of revenues,

inertia flywheel used to regulate voltage for avoiding power

allowing the company to improve its offering. Moreover,

outages. Besides preventing operations from halting due

we are extremely competitive in the current state of the

to power outages, using a UPS is important for protecting

industry, which we consider an excellent opportunity for

the refinery’s equipment, as the usual voltage variations

growth. In this sector, competitiveness is a function of

in the national transmission lines can cause real damage

cost, quality, and delivery time. To accomplish this balance,

in electric assets, especially in fine machinery, such as

we have been working to certify all of our value chains. We

measurement units. By installing a UPS system, the lifespan

are also able to offer our clients different schemes for up

of the equipment can be incremented from ten to 25 years

to 20 years for financing infrastructure projects, which is

while avoiding the occurrence of a power outage in the

possible due to our partnerships with banks and financial

plant. We studied this product for two years, and we finally

consortia. Overall, the company’s growth has been heavily

decided to import it from a supplier based in Germany.

| VIEW FROM THE TOP

OFFSETTING REFINING UNCERTAINTY WITH PETROCHEMICAL OPPORTUNITY DANIEL GUTIÉRREZ Director of Pepperl + Fuchs Mexico

Q: What is your approach to dealing with the uncertainty

Q: How are you expecting to fulfil your growth objectives

surrounding PEMEX’s projects?

for the coming year?

A: A starting point would be to mention that the

A: We want to expand our business, but we still need to

reconfiguration of refineries has been put on hold due

evaluate our prospects to estimate the reach we will have

to the outages of three of the main refining facilities.

this year. At the moment, we are uncertain about the future

Earlier this year, the Mexican government announced its

of some of our projects, such as the one we signed with

plans for reconfiguring the country’s main refineries, but

the refinery in Tula, which was supposed to be reconfigured

those plans currently remain on hold. Therefore, we are

this year, or the clean diesel project in Cadereyta. Once

expecting to increase our participation in maintenance

we get a clearer picture of PEMEX’s plans, we will be able

services for existing facilities at the moment, instead of

to carry out a more accurate estimation of our expected

reconfiguration and construction of new refineries. We are

growth for this year.

expecting a restructuring of the NOC's budget, which will allow us to plan our future approach.

"Petrochemicals is one of the

Q: What opportunities does the chemical industry offer

few sectors in the oil and gas

your company? A: At the moment, we are seeing great potential for entering the petrochemical sector, particularly in regions like Coatzacoalcos and Altamira. Regarding technology, we have identified a high demand for detailed solutions to reduce explosion risks. At Pepperl+Fuchs, we have strong expertise

industry that is benefitting from the drop in the prices of crude oil"

Daniel Gutiérrez,

Director of Pepperl + Fuchs

in this area, and we offer a wide range of automation and instrumentation solutions, such as ports or wireless devices. So far, we have mainly targeted private players in this sector,

Currently, we see a promising growth potential in the

with Coatzacoalcos being the most important market for us.

private industry. By the end of the year, we will measure

Right now, we consider petrochemicals as a stronger market

our success by analyzing the company’s revenues from

for us, as it is one of the few sectors in the oil and gas industry

sales as well as the money saved by applying cost

that is benefitting from the drop in the prices of crude oil.

efficiency measures. Reducing our operational costs will take particular priority this year, considering the current

Q: How is your company adapting to the new market

state of the industry. In this regard, we are analyzing the

conditions, including new customers and sectors?

most optimal strategy to allocate our resources, both

A: In the past, PEMEX represented around 60% of our

human and infrastructural, to obtain improved results

revenue share, while the remainder came from the private

without incrementing our costs.

industry. Therefore, we have employees that are already accustomed to working with private companies, which is

In this sense, one of our key strategies is to diversify, thus

highly beneficial for us. In the case of our explosion risk

lowering our dependence on the oil and gas industry.

solutions, we do not need to modify the approach we

Nonetheless we will still maintain our presence in this

used for private or state-owned companies as they are

industry, even if we try to increase our participation in other

both concerned with improving their safety standards. In

market segments. Last year was particularly difficult for

general, we believe that our human talent is our company’s

our company, but we are starting to identify new business

best assets, and we will rely on our staff’s expertise and

opportunities, such as the increment in demand for

skills to stay afloat during this transition.

maintenance services.

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| VIEW FROM THE TOP

COMPETITIVE PRICING TO INCREASE PRODUCT VALUE RAÚL BAZ Director General of Grupo Petroquímico Beta

306

Q: How is the downward curve in the price of oil impacting

A: Now, there will be a competitive price centered around

the petrochemical sector in Mexico?

bidding, where players that want to produce more will

A: The drop in oil prices is having serious consequences for all

have to pay more. This represents an increase in product

chemicals that use it as a main raw material, and these effects

price that affects the commodity industry. In Mexico,

are expanding into its derivatives. Players are becoming more

the ethylene oxide sector was essentially a commodity-

competitive while seeing less revenue, and the struggle is

driven industry, rather than a specialty-driven industry.

spreading fear and making everybody scramble to maintain

The national price for ethylene, which is 80% of that of

market share in their regions. Operators that manufacture

ethylene oxide, includes a fee that will increase the cost,

ethylene are greatly affected by the lower profit margins

meaning that economic benefits can be achieved for the

coming from the fixed costs inside the capital intensive

entire country through the new prices. Similarly, there are

industry. The impact a company experiences depends on the

opportunities in the specialty export business. In the US,

type of pricing the product sees in the market. For instance,

the cost of ethylene depends on proximity to the source

in the US, cost-plus pricing of ethylene oxide has lowered

of raw materials. Many companies use ethylene oxide

the cost, yet supply has failed to rise because of the lack

that originates from outside the area 483km around the

of manufacturing plants. From this perspective, revenues

petrochemical site. Cost is affected, but if well managed,

continue flowing. On the other hand, negative consequences

favorable circumstances could be found because the

are being generated by the price changes in raw material

cost base will remain leveled with competition in the

resulting from competition. Manufacturers can adjust by

US. The industry is moving in sync with PEMEX’s vision

fully integrating themselves and avoiding the responsibility

of privatizing petrochemicals by acquiring specialized

of having to buy their own materials.

technology. Companies that do not specialize and adapt to the changes of the landscape will be gravely affected.

Q: In what ways does the creation of PEMEX Industrial Transformation impact the petrochemical sector?

Q: What are your predictions for the development of the

A: First of all, petrochemicals were excluded from PEMEX

Mexican petrochemical sector in the coming years?

Industrial Transformation completely and were included

A: There will be more gas and oil coming out of the

under PEMEX Ethylene. As a result, all the prices of the

southeast of Mexico, and this is a highly needed

resources that PEMEX Industrial Transformation sells

development. The polyethylene industry, which makes

to PEMEX Ethylene will be at market price instead of at

up about 60-70% of the ethylene derivatives market, will

transfer price. This means that the cost base of PEMEX

not be as badly affected because it has always remained

Ethylene is going to increase as well as the market level

at market-level prices. Be that as it may, ethylene oxide

price of sold raw materials, and ethoxylate products will

products

undergo a total change. Although it not yet set in stone,

Ultimately, the availability of more specialized products

the new PEMEX perspective is predicted to allow more

centered on raw material like ethylene oxide will be a

ethylene oxide production at a higher price. It used to be

positive step for operators and the country. Ethylene oxide

based on a cost-plus priced quota that gave it an attractive

can offer a brilliant future to those willing to specialize.

price, though limited the amount. In the past, our strategy

The refining capacity of ethylene oxide in Mexico is the

was to increase our margin of specialized products, but

greatest in the continent, and even the US cannot produce

manufacturing a wide variety of products was not possible

this resource without further investment. If PEMEX is able

with the lack of ethylene oxide.

to set a market oriented price for ethylene oxide, where

are

destined

relatively

distressed.

volume defines how much one is willing to pay, operators Q: How will the developments within the petrochemical

in Mexico will be more motivated to work with specialty

sector affect the commercialization of ethylene oxide?

industries and products will have added value.

| INSIGHT

BRAZILIAN GIANT PREPARES FOR EXPANSION IN MEXICO In the last decade, Oxiteno, a Brazilian chemical company that operates worldwide, has invested in timely expansions in several regions, a strategy that has enabled

GERSON MOACIR SECOMANDI

it to anticipate growth and opportunities. Examples of

Commercial Director of

this approach can be seen in the expansion of its plant

Oxiteno Mexico

in Coatzacoalcos, where a new reactor equipped with the latest international technology was installed, and the approved investments for a new alkoxylation plant in

in the creation of 2.5 million jobs in the energy industry,

Pasadena, Texas. Today, Oxiteno has three industrial units

which will increase the GDP by 1-2%. Additionally, he

located in Coatzacoalcos, Guadalajara, and San Juan del

is confident that the chemicals sector will grow 3.8%

Rio. “Our presence is significant because, in addition to

by attracting investments of US$25 billion in the next

possessing manufacturing plants, we also use sourcing

ten years. Oxiteno secured its position as a supplier of

from other companies, be they international or local,

chemicals for the oil and gas industry in the Americas

meaning that, if needed, we may import products from

by developing solutions based on ethylene oxide and

Venezuela, Uruguay, or Brazil.” Oxiteno is present within

propylene oxide, among other specialty products. Now

many industry segments, such as home and personal

the company is looking to consolidate its position in the

care, agrochemicals, paint, pharmaceuticals, and oil and

Mexican market as a reliable supplier of innovative and

gas. Secomandi claims Mexico’s Energy Reform will result

sustainable chemical products.

| INSIGHT

ANTICIPATING GROWTH OF DOWNSTREAM COMMODITIES REGINA OLIVEIRA The downstream segment is the one where Dow Oil & Gas has experienced the most notable technological transition for the past 50 years. Regina Oliveira,

Commercial Director for Oil & Gas and Mining in Latin America for Dow

Commercial Director of Dow’s Latin American Oil & Gas and Mining division, explains that amines are a highly

contractors in order to present our Amine Management

sought-after commodity in the downstream segment, and

Program for this region,” shares Oliveira.

a significant difference can be made by using amines in a certain way to increase gas processing. With this in mind,

Dow’s participation in Mexico’s downstream segment goes

Dow developed UCARSOL™, which uses sulfur to boost

far beyond its product catalogue, as the company boasts a

production without the need for expanding capacity. The

polyurethane plant in Tlaxcala. The plant, explains Oliveira,

supply of these types of amine is accompanied by the

might be used to produce the HYPERLAST™, a polyurethane-

Amine Management Program, which allows Dow to track

based product used to provide thermal insulation for offshore

gas production and the quantity of resulting pollutants in

pipelines. “We are challenged with providing the industry

order to then suggest a solution to the refinery operator

with a product that offers thermal insulation with resistance

to enhance production.

to high temperature and high pressure, thus preventing hydrolysis of the polymer in extreme conditions. This area

Dow relies on the assistance of various laboratories, of

has great potential in Mexico’s future, particularly due to the

which the main one is located in Mexico, allowing the

fact that production is local.” The Tlaxcala plant production

company to draw support from its local and global teams

was originally directed toward other polyurethane markets,

when needed. “Gas plants are already using UCARSOL™,

but once Dow identified an opportunity for this in Mexico,

and in fact, PEMEX is in touch with us through these plants.

the company worked on the plant to ramp up capacity in

When it comes to refineries, we are working with PEMEX

order to meet local needs.

307

| INSIGHT

GETTING DOWN TO THE NUTS & BOLTS Depending on the application, there are different products the company can supply to fight and prevent

MAURICIO BIELAZ

corrosion, including bolts with different coatings and

Sales Manager Latin America

other anti-corrosive materials. Moreover, the company

of Lamons

has developed a special isolation kit called Isotek Defender Fire Safe, which is primarily used in offshore platforms and has been requested by several major

308

With integrated services becoming so important in

operators and pipeline companies. Lamons is divided

today’s hostile oil and gas industry, gasket and bolt

into commodity items, such as bolt and gaskets on one

manufacturer Lamons wants to supply its customers with

side, and engineering products on the other. “We are

a faster turnaround on products, allowing them to service

placing a strong emphasis on the engineering products

the regional end users, including PEMEX, Ecopetrol, and

because we consider this to be quite a specific market,

PDVSA, through its distribution channels. Mauricio Bielaz,

and we have the facility to manufacture and supply such

Lamons’ Sales Manager Latin America believes that this

products,” Bielaz reveals. “We plan to expand this area

will allow the company to increase its presence in the

by working with other engineering companies and end

Mexican oil and gas industry. “Our main goal was to have

users.” Customers look to Lamons to provide bolted

a strategically positioned facility to supply the Americas,

joint solutions that reduce downtime and solve leakage

which would provide us with more opportunities in terms

issues. The engineering department carries out a variety

of delivery, quality, and cost-reduction,” he explains. “We

of activities, including “lunch-and-learns”, teaching end

can easily travel to Mexico to control the operations

users to implement various gasket types and torque

and quality, whereas India or China would pose logistic

values for the different projects.

challenges and supply chain delays.” The company is working toward increasing its involvement Lamons' primary business is downstream refining and

with IMP, which could benefit Lamons’ engineering

petrochemicals. Nonetheless, Lamons continues to support

division. This group works together with IMP to present

the upstream market segment and to develop products

an overview of the Lamons product portfolio and help it

and efficiencies to accommodate the industry when the

specify new gasket and bolting technologies, allowing the

cycle recovers. “Although our main business is in the oil and

latter to understand how to develop the products. “We are

gas industry, we are trying to enter other markets such as

still in the early stages of equipping the new plant, as it

mining, paper and pulp, and pharmaceuticals, where our

has taken longer than expected for the facility in Mexico

presence is growing to compensate for the slow-down in

to reach full capacity, which we are hoping to reach by

the hydrocarbons industry.”

September 2016,” Bielaz admits.

We take your projects further mx-technip@technip.com

www.technip.com Follow us on

Energy is at core of Technip. With engineering, technologies and project management, on land and at sea, we safely deliver innovative energy solutions for our clients.

| VIEW FROM THE TOP

MID-TERM OPPORTUNITIES CREATED BY ROUND ONE JAIME ZUBILLAGA Managing Director of MAN Diesel and Turbo (MAN)

Q: How does MAN Diesel and Turbo (MAN) contribute

customers. Another advantage is the fact that we already

to the Mexican oil and gas industry, and how have the

have an established presence in the Mexican market.

bidding rounds affected your operations in Mexico?

Moreover, we differentiate ourselves from competition by

A: A considerable percentage of world trade is powered by

offering excellent after-sales services and maintenance, in

MAN, evidenced by the fact that most major cargo ships,

addition to high-quality innovative products. Our business

containers, cruise, and offshore vessels across the globe

is driven by global trends and developments, be it in local

use our engines. In order to maintain our dominant market

and worldwide transport with gas and diesel engines for

position in the two-stroke and four-stroke engines market

propulsion, in energy generation with gas engines and gas and

for marine applications, we are heavily investing in R&D.

steam turbines, or in industrial production with compressors

Our power product portfolio currently ranges from 450kW

for industrial applications. We are currently working on EOR

to 82,400kW per engine. MAN’s equipment portfolio also

systems and natural gas injection compressors that inject and

consists of compressors and steam turbines for refinery

compress the natural gas obtained from processing oil into

applications. Moreover, our recent acquisition of Cryo AB’s

the reservoirs, aiming to improve recovery. In fact, we enjoy a

Marine Fuel Gas Supply System (FGSS) business has brought

100% market share in the EOR segment. We also provide the

in capabilities in the manufacturing of cryogenic equipment

technology to inject nitrogen into the reservoir, a necessity

for the storage, distribution, and handling of liquefied gases.

in the Mexican market, given the scarcity of natural gas.

We believe this will be advantageous for the Mexican market,

For the moment, there are only two companies producing

as natural gas is rapidly gaining prominence as a fuel for the

nitrogen in the Mexican market, Praxair and Nitrógeno de

marine sector and for LNG carriers.

Cantarell, and their compressors are produced and supplied exclusively by MAN.

We now also offer our Dual Fuel engines for other gasfueled ships such as ferries, cruise ships, and offshore

Q: What is MAN Diesel & Turbo’s role in the activities of

vessels, as we plan to take part in shipbuilding activities

PEMEX?

in the country. We are expecting an increase in demand

A: We are an essential part of PEMEX’s activities, allowing

for engine and gas system packages and recently supplied

it to distribute its refined products reliably and efficiently

two accommodation vessels owned by PMI with Man

throughout the country. MAN is present across a large

GenSets. These vessels are currently under construction in

majority of operations in the six PEMEX refineries. We

the Navantia and Barreras shipyards, and we expect them

supply and manufacture equipment for refinery plants,

to arrive to Mexican waters by mid-2016. Our participation

such as compressors and steam turbines. MAN is also a

in activities related to the bidding rounds will be a medium-

partner of PEMEX’s main fleet manufacturer, and so far we

term endeavor. In four to five years, when the new private

have provided the contractor with engines for the NOC’s

players have established operations, the requirement for

16 tankers. In addition, we are currently providing the

new infrastructure will create a significant opportunity for

service and maintenance support for the main propulsion

MAN, and we will be prepared to supply operators with

engines of each tanker. When it comes to PEMEX's budget

equipment such as compressors, turbines, and engines.

cuts, we have not been overly affected so far, although we expect to feel consequences at some point. Our projects

Q: How do you plan on using your competitive advantages

with PEMEX have not all been impacted, and we are able

to attract companies entering the market as a result of

to continue our work on the ultra-low sulfur diesel project,

the Energy Reform?

manufacturing three compressor trains, with PEMEX

A: One of our benefits is our size. Because we are a relatively

Refining as the end customer. Our direct customers will

small enterprise, we can move faster than competitors

be EPC companies like ICA Fluor in Mexico and Técnicas

and offer certain flexibility, allowing us to better serve our

Reunidas in Spain.

309

| VIEW FROM THE TOP

ANTICIPATING CUSTOMERS NEEDS WITH UNEXPECTED SOLUTIONS JOSIE FERNĂ NDEZ Global Marketing & Latin America Export Manager of Teadit

Q: Having locations across the globe, why did you

of that, it allows them to save millions of liters of water

evaluate Mexico as a strategic market to enter, and how

per year, which represents not only financial savings, but

does it compare to the rest of the countries present in

also environmental savings. This is what we call a value

your portfolio?

proposal.

A: Teaditâ&#x20AC;&#x2122;s performance and strategy are global, and each

310

of our manufacturing units and distribution centers are

Q: What is the importance of R&D in your strategy, and

located in a way that enables us to service the markets in

what innovations have you developed that you believe

all five continents in an agile and effective manner. Teadit

would be pertinent to the Mexican market?

targets all markets, and analyzes them in regard to their

A: Research and development, in our view, is the heart

regional characteristics with the objective of entering and

of the industry and technological advancement. The

expanding its market share. When analyzing the global

industry's concerns have given rise to a permanent state

map of oil and gas investment, production, and potential,

of R&D, with a focus on a new solution, technology, or

Mexico represents a promising environment, compared to

procedure that will optimize processes and lower costs.

Brazil and the US, for example, where we have a great deal

Teadit has unique and patented sealing products, and

of knowledge and broad portfolios.

combined with specialized installation procedures, our service is incomparable. We have the 2238-OX packing,

Q: What is Teaditâ&#x20AC;&#x2122;s unique value proposition, and how do

for oxygen service, and 2236 packing, which is the most

you plan on emphasizing this to potential customers in

recognized worldwide for low emissions. We also supply

Mexico?

the camprofiles, double jackets, and spiral wounds in

A: Teadit is a technology-driven company with history

conventional and exotic steels, as well as the highest

of consistently investing in skills and research and

quality expanded PTFE and restructured PTFE Tealon.

development.

analysis

Other products include pure PTFE flange protectors, fire

laboratories, as well as our testing laboratories, play an

Our

chemistry

and

physics

protection, metallic and flue duct expansion joints, and

important role in our differentiating factor. We test both

ECOTape to seal high temperature joints for hydrocarbons

our products and those of our competition with advanced

and steam applications.

technology for monitoring, controls, registration, and reports. Doing so allows us to prospect, measure,

Q: What is currently lacking in Mexican petrochemicals,

achieve savings, and increase technical processes and

and why do you think the sector has largely taken a

procedures. Moreover, our specification support and

backseat in the development of the oil and gas industry

application engineers are trained to anticipate and

in Mexico?

identify needs of the end users even before the client is

A: We believe that the petrochemical sector in Mexico offers

able to do so. Our experts have developed the adequate

significant, growing, and eminent opportunities. Braskem

insight to identify the perceived value for the customer.

Idesa built the most important petrochemical complex in

For example, many times when you ask a customer "what

the Americas, was recently built, which makes us believe

is your sealing problem?", the customer says that he

this sector will have a significant growth in Mexico. We have

does not have a sealing problem. Later on, our technician

broad expertise that is not restricted to the manufacturing

realizes that the customer was a little concerned because

and supply of products for the petrochemical industry,

he had received a report that has as a goal to reduce the

but it goes far beyond that. We provide sealing solutions

water consumption during the process. Pumps consume

and the use of the best installation practices for sealing

water in the cooling of seals. Our technician would then

products. We challenge the petrochemical industry to put

propose to the customers a packing and maintenance

us to the test because we are 100% confident that we will

procedure that makes the customer save 75%, and on top

positively surprise them.

| VIEW FROM THE TOP

REFINING SECTOR SET FOR AN UPTURN ALEJANDRO GARCÍA Director General of Alpine Services

Q: How much growth opportunity has the Mexican Energy

market, which seems to be the most opportune time to

Reform created for the petrochemicals market?

carry out this type of maintenance. Projects in Tula, Cactus,

A: The Mexican industry is entering a new era, and positive

Pajaritos, and other facilities need to receive continued

changes will come with PEMEX’s new strategy and the

attention, and Mexico must focus on maintenance and

implementation of the Energy Reform. Considering that

expansions to meet capacity. In 18 months or so, once

the market was closed for over 70 years, international

Etileno XXI is brought online, we will start seeing more

and domestic companies will need time to adjust to the

activity.

newly implemented rules and regulations. Nonetheless,

311

Mexico is the best-positioned country in Latin America for

Q: How can Alpine stress the importance of investing in

growth, and at Alpine Services we see this is a tremendous

equipment upgrades to its clients?

opportunity.

A: Convincing customers who traditionally purchase lower-grade equipment or outdated technology to invest

Q: How does Alpine Services differentiate itself from

in costlier products is quite a challenge. The price of

other competitors?

upgraded valves and other oil and gas related equipment

A: Alpine Services’ core product is valves. We offer

can cost between 5-15% more than traditional ones from

specialized products using state of the art technology and

15 years ago. When it comes to technology, these price

our products have been redesigned to offer overall better

variations are normal. Even cellphones tend to be more

results. Our customers are varied, but the majority of our

expensive as new functions and technology develop. We

business has been for PEMEX. We also tend to prioritize

explain to our clients that the newer designs have gone

local participants and distributors. We differentiate

through many changes that make them lighter, safer, and

ourselves through a quality customer service that excels

increase production.

in response time. Our clients appreciate the attention and training we provide on newer and safer equipment.

Alpine

manufacturing capacity to serve the Mexican market?

Services

maintains

constant

communication

what

extent

you

plan

broadening

with the manufacturers and engineers of the valves it

A: As the opportunities grow, we increasingly invest

sells. Furthermore, Alpine Services customizes valves

in training people, and in materials and machinery. In

in reasonable quantities. Manufacturers usually do not

Germany, RITAG is expanding and developing its portfolio

customize smaller purchases and operators ultimately feel

and product designs at a brand new facility that was built to

obligated to buy more pieces than needed.

expand its engineered products. RITAG offers exceptional product quality and design. In Texas, Sunbelt Valve Services

Q: What is PEMEX doing to adapt to the new oil and gas

is participating by training qualified service technicians

landscape of Mexico?

to go offsite. The opportunities are endless, and we see

A: The environment is changing dramatically and in

potential in opening offices in Mexico in the future.

response, PEMEX’s productivity has declined. Analysts point their fingers exclusively at budget restrictions, but Alpine perceives the company as going through an adjustment period. It is making an effort to develop new strategies and evaluations that will maximize project concentrations. Everything from regulation, assessing potential areas, and new procedures are becoming key elements in operations. We have seen several upgrading and revamping projects being tendered in the refining

The price of upgraded valves and other equipment can cost between 5-15% more than traditional ones from 15 years ago

| VIEW FROM THE TOP

DRIVING TECHNOLOGY IN THE LOGISTICS AND TRANSPORT FIELDS JORGE ALMANZA Director General of ALMU

312

Q: What led to the creation of ALMU, and how have you

One will bring a stronger transportation infrastructure

come to serve the oil and gas industry?

to the country, as a result of the construction of new

A: ALMU was established 39 years ago to cater to Negromex,

refineries and oil wells that will need to be connected to

a client of Tresguerras, which needed logistics services

other facilities or areas in an efficient manner. Carriers

for a specific division of its production that Tresguerras

will have to modernize their fleet and acquire specialized

was unable to transport. ALMU was formed when a new

equipment to keep up with the new standards, something

company entered this niche market in association with

few companies will be able to do. This is where we believe

the original owner of Transportes Castores. We began

we have a significant opportunity to seize. The Energy

with the transportation of class three petrochemicals. The

Reform, however, might also have a negative impact

accumulated 60 years of experience from both companies

on our company due to its effect on the petrochemical

was fundamental to consolidating processes that would

industry. It seems that because of the opening of the

normally have been part of a long learning curve. Our

petrochemical industry, PEMEX will struggle to maintain

association with Tresguerras provides our company with

market share. The NOC’s logistics division will change

many benefits, and we always seek to transfer savings to

the company’s infrastructure to such an extent that we

our partners. In terms of our offerings to the oil and gas

could potentially become direct competitors. We also

industry, the equipment we own is able to transport fuel,

expect tariffs to drop because of an excess in the supply

solvents, lubricants, and products derived from petroleum.

of logistics. Nevertheless, we hope that new companies

We currently focus mainly on the transportation of solvents,

will arrive with higher logistics requirements, as ALMU has

which takes up 60% of our fleet capacity, while fuel and

been eagerly preparing for a year. We also hope the 2017

lubricants respectively represent 30% and 10%.

approval for gasoline transport increases our business opportunities, allowing us to buy our supplies in a direct way and at a more competitive price. Q: What is your current client base, and how do you plan on expanding it? A: Our current clients are chemical product retailers. In addition to seeking more customers, we aim to increase our present operations and the activities of our new business line. Since our strategy is to adapt to the need of our

60% of our fleet capacity is used to transport solvents while fuel and lubricants respectively represent 30% and 10%

clients, we are seeking to diversify our offering in terms of equipment. We will respond to our clients’ new demands through service contracts that would ensure a dedicated service, and also investment recovery on our side. The fact that we are officially SARI certified for the chemical industry will undoubtedly help us attract new companies by providing quality assurance and sustainability, as well as environmental responsibility. We plan to make these

Q: What opportunities do changes in the oil and gas

prospective clients aware of ALMU’s offering through

market bring for ALMU, and what other trends will play

presentations, recommendations, and access to bids.

in your favor?

Starting last year, we have been participating in various

A: It is difficult to predict the real influence changes in the

specialized forums and expositions in order to access

market will have on ALMU. Nonetheless, we believe Round

these new opportunities.

| INSIGHT

PUSHING THE LIMITS OF TRANSPORTATION TANKS “Currently, Mexico barely needs 5,000 units, since the country’s railway

GUILIBALDO PÉREZ

infrastructure is lacking, but this will grow exponentially in

President of Tytal

materials to the US, and the company sold 1,500 tank cars for hazardous materials in this country in 2013. One of the

the next few years”

riskiest endeavors the company has undertaken so far was Guilibaldo Pérez,

meeting the requirements to make a trailer categorized

President of Tytal

in the US as ‘super hazardous cargo’, which transports LPG. Due to the difficulties in manufacturing this type

Trailers y Tanques was born in 2000 as a family-owned

of tank and the security requirements entailed, no other

business when Guilibaldo Pérez, President of Tytal, decided he

company in Mexico makes it. Tytal obtained all the permits

wanted to create a company that would secure employment

and certifications needed to make this product, including

for his family. Initially, the small company built an average of

the MC331, and is already exporting these tanks to the

five tanks per month. As the company grew, Pérez looked

US. Now Tytal is selling to Saudi Aramco, in addition to

into areas where it could expand, and aluminum tanks

distributing products in Colombia, Chile, Ecuador, the US,

presented an attractive option since these were not being

and Canada. “At the moment Tytal is the largest company

built in Mexico at the time. According to Pérez, using metal

of its kind in Latin America, and the reason we are more

allows for unlimited possibilities, making it a wide sector in

successful than the competition is because we have all the

terms of opportunities. When Tytal first started working with

required certifications, enabling us to handle every type of

aluminum, this metal comprised 10% of its products, then

tank trailer,” Pérez boasts.

increased to 30%, and now the manufacturer is at 70%. “I came up with the idea when I noticed that, in other countries,

Tytal aims for a small market share in the railway sector, so

most rolling tanks were made from aluminum. Furthermore, I

it plans on manufacturing ten railcar units per day in three

noticed that rolling aluminum tanks were used in Guatemala,

years, in addition to its regular trailers and tanks. At the

where the roads can be even in poorer conditions than in

moment, the company produces an average of 1,400 car

Mexico.” A manufacturing plant was finished near Cadereyta

tanks annually. The Mexican market will grow considerably

in 2008, leading to the creation of Trailer y Tanques de

due to the Energy Reform, says Pérez, and it will require

Aluminio (Tytal).

35,000 units in the next five years. “Currently, Mexico barely needs 5,000 units, since the country’s railway

Pérez shares that he presented the end product and a few

infrastructure is lacking, but this will grow exponentially

transportation companies approached him hoping to test

in the next few years.” Of the available railcar welders,

the tanks. A few months later, a large company’s trailer

70-80% is Latin American, and 50-60% of that amount is

tank filled with turbosine was involved in an accident and

Mexican, so the labor statistics play to Tytal’s advantage.

tipped over a cliff. “The tanks were heavily dented, but it

The company currently has 600 workers and will need

did not crack and the turbosine, which cost more than the

to increase this number to 1,600 so that it can reach the

trailer, did not spill, ultimately strengthening the trust and

objective of producing ten railcar units per day across

interest clients had in Tytal,” he shares. A notable advantage

three shifts. Even though other companies are trying

for fuel transportation is that in case the trailer tips over,

to replicate Tytal’s success, Pérez says he does not pay

the aluminum will not create sparks when experiencing

attention to the activities of the competition, as he focuses

friction against the pavement, eliminating the risk of a fire

exclusively on his company and his business. Although his

or explosion. In addition, Tytal’s customers also began to

company has faced fierce competition in the US market,

realize that tanks have outstandingly low maintenance

Tytal stood its ground and maintained market share. “For

requirements. Pérez is constantly pushing the limits of

me, the company is about accomplishments. My goal is for

what his company can do. Back in 2011, Tytal was awarded

my family to follow suit and carry on with the company I

the corresponding certifications to export hazardous

have built,” Pérez shares.

313

| VIEW FROM THE TOP

TRANSLATING GLOBAL EXPERTISE IN AUTOMATION VERNON MURRAY Vice President and Director General of Emerson

314

Q: What are the main tendencies that Emerson is

and multidisciplinary teams, meaning that the employees

observing in the industry that will define its future

who execute projects for PEMEX today are not necessarily

technological portfolio?

all located in Mexico. For example, the Emerson team

A: For a long time, automation has been primarily focusing

working in the Etileno XXI project for Braskem Idesa in

on the control of different processes, so basic parameters

Coatzacoalcos is comprised of staff from Costa Rica, India,

of process control were the key area in which Emerson’s

and the US, among other countries. In this way, Emerson

solutions have been focusing. Currently, the company

brings the global experience of operating a US$22 billion

is starting to see applications for different areas that

company into the Mexican market, as well as the best

were traditionally not considered, like safety. Regarding

practices from the different players that have collaborated

automation, safety has been a taboo as any failure in this

with us. Additionally, we have observed that there is an

area can lead to fatal consequences, and as a result, plant

interesting mix of Mexican and international consortia

managers have been reluctant to try new products such

being formed to take advantage of the Energy Reform.

as wireless signaling. However, those parameters are now

We have identified that most of these consortia have

becoming less stringent and we are starting to see more

employees that were previously working for PEMEX or for

automation solutions for safety applications, from firing

international companies that have collaborated with us in

gas to emergency shutdown systems.

the past. We are proud to offer the same global standard of experience to customers in environments as diverse as

The second trend that Emerson has identified in the

Angola, Iraq, and Mexico.

industry is energy management solutions. It is not surprising that energy management is trending in the

Q: What role do your partners and distributors play in

industry considering that energy accounts for a high share

providing the service that you want to deliver?

of the expenditures in a petrochemical or any other similar

A: We are proud of the network that the company

facility. Consequently, this is one of the main applications

has built in Mexico over the past 60 years. Currently,

that are leading the way for our instrumentation and

we have more than 20 local business partners (LBP),

control systems portfolio. Finally, the last area that is

and Emerson works with the LBPs in developing their

gaining importance in the industry is environmental

capabilities from a technical, engineering, and training

management, which includes tank levels monitoring and

standpoint, and offers them certifications to encourage

water quality control.

the companies to stay updated. A great example is the Fisher certification for authorized service providers,

Q: What are you doing today to prepare your employees

and every year the certified companies undergo an

for the upcoming changes that the Energy Reform will

audit and a re-engineering training session to maintain

bring to the Mexican market?

the high standards required to hold the certification as

A: PEMEX has been one of our most loyal customers. The

an authorized service provider for Emerson’s process

parastatal has been one of the strongest participants

management. The LBP network is extremely important

at the Emerson Exchange Event, where our customers

for the company, and it will continue to have a prominent

explain how they implement our solutions in their

role in the future, as these are the people that help us to

respective fields. This close relationship has allowed us to

execute projects, whether it is a refinery reconfiguration

learn about the needs and activities of PEMEX. However,

or the rehabilitation of an offshore platform. Moreover,

it is important to keep in mind that Emerson is a global

the LBPs have been highly exposed to PEMEX’s way

company that already has experience in collaborating

of doing business, and that local expertise added to

with international companies such as Exxon, Shell, and

Emerson’s international experience makes us confident

Petrobras. Moreover, Emerson works with multicultural

of our success in this market.

| INSIGHT

AMPLE ROOM FOR GROWTH IN THE PETROCHEMICAL SECTOR While Mexico is still working its way back to the petrochemical production capabilities that it possessed in decades past, a number of recent projects have certainly put the national

MAURICIO DÁVILA

industry well on its way to being internationally competitive.

Managing Director of

There are obvious examples of these types of projects, such

EnerChem Tek

as the construction and operation of the Etileno XXI complex by the Mexican-Brazilian joint venture Braskem Idesa. However, in order for this positioning of Mexico as a major

pessimistic about the future of the role of this sector. “Mexico

global player in petrochemical production to be successful,

needs more investment in the downstream value chains and

projects of all sizes must also play a role in this transformation.

PEMEX is restructuring itself, creating new branches such as

Established in 2002 by senior experts and researchers who

PEMEX Fertilizers and PEMEX Ethylene.” EnerChem Tek is

were all originally part of the chemicals and energy practice

looking forward to a much more diversified petrochemical

of the Stanford Research Institute (SRI International) in

market, and Dávila is eager to provide examples of the

California, EnerChem Tek was originally formed to advise

opportunities for external investors that the current Mexican

the Mexican government on the possibilities and models

petrochemical situation represents. “There are no specialty

of liberalization it could contemplate for the management

polyethylene production facilities in Mexico. The door is

of what were then still exclusively PEMEX’s petrochemical

now open for new opportunities in specialties with much

assets. EnerChem Tek advised the Mexican authorities on the

higher margins compared to commodity polyethylene, such

partnerships necessary to create what would later become

as plastomers and elastomers, and ultra-high molecular

the Etileno XXI project.

weight polyethylene, not to mention other specialties such as EVA and ionomers, with applications in wire, cable, and

Mauricio Dávila, EnerChem Tek’s Managing Director,

medical, among others.”

is quick to define what in the company’s view was the most important function of the Etileno XXI project. “The

EnerChem Tek is already talking to some of these

objective was for a private sector company or companies

prospective participants. “At the moment, EnerChem Tek

to commit resources and invest in an ethane cracker and

is working with a US company that saw an opportunity

downstream plants in return for a guaranteed long-term

arising from the fact that PEMEX does not have enough

ethane supply contract at regionally competitive prices.”

ethylene oxide capacity to cover the potential demand for

Although Etileno XXI experienced almost a year of delays

the surfactants market. We are helping this client identify

in going online, Dávila proudly specifies that, “The ethane

the potential consumers in Mexico, carrying out the

cracker finally started operating in the last week of March

inventory count, evaluating future PEMEX projects, and

and it also started producing polyethylene resins in the

also including the general Mexican prospective supply and

first week of April of this year.”

demand,” Dávila shares.

“EnerChem Tek has three areas of expertise. We can help corporate clients in technology evaluation and selection, process economics, and market analysis in the case of companies involved in the hydrocarbons value chain. In addition, we help energy-intensive companies improve their energy efficiency levels.” Like many companies of its kind, the post-reform market has divided the company’s activities into single-client and multi-client services, although Dávila admits that the former is still much more popular. “A company might ask for a single-client service as a complement to ours in order to address a particular need that resulted after purchasing a multi-client study.” Dávila is direct when stating that petrochemicals is not a priority area for PEMEX. Nonetheless, he is by no means

The global ethylene

oxide market is expected to exceed 27 million tonnes by 2017

315

DOING BUSINESS & HUMAN CAPITAL

The opening of the Mexican oil and gas industry to private investment and PEMEX’s transformation into a productive enterprise of the state are destined to boost economic growth and create new business opportunities once the implementation of the Energy Reform gains momentum. New players will have to familiarize themselves with the ways in which business is carried out locally, including PEMEX’s new supplier base scheme, while national service providers will have to meet the international standards introduced by new operators. One of the main challenges is anticipating the looming shortage of skilled labor. According to the Ministry of Energy, the oil and gas industry will need an additional 500,000 professionals by 2018, while PEMEX demographics indicate that a wave of experienced employees is destined to retire in the next decade. Ensuring that the looming talent gap will not hamper the development of the industry is essential for its long-term success.

In this chapter, experts share advice on how to navigate the complex waters of the Mexican oil and gas industry. The chapter also discusses the government’s strategy to foster the human capital needed to support the development of the oil and gas industry, and the challenges Mexico’s oil and gas industry faces in terms of talent.

317

Generaciรณn de Proyectos y Soluciones Empresariales

| CHAPTER 13: DOING BUSINESS & HUMAN CAPITAL 320

VIEW FROM THE TOP: José Manuel Carrera, PEMEX

322

VIEW FROM THE TOP: Alberto Jones Tamayo, Moody’s

Rosa María Morales Cid, Moody’s

323

INSIGHT: Jaime Alatorre, Fondo de Fondos

324

VIEW FROM THE TOP: Carlos Vargas, BBVA Bancomer

325

VIEW FROM THE TOP: Palma Méndez, Wood Mackenzie

326

VIEW FROM THE TOP: Sebastián Aguayo, Marsh

Rosa Morán, Marsh

328

INSIGHT: Adam Howe, AMMIS Risk Solutions

329

VIEW FROM THE TOP: Jorge de la Fuente, Lockton

330

INSIGHT: Alejandro Hernández, Grupo Accses

Yisel Varela, Grupo Accses

331

INSIGHT: William Wood, Norton Rose Fulbright

332

INSIGHT: Graciela Álvarez Hoth, NRGI Broker

333

INSIGHT: Angélica García-Dunn, AIM Global Logistics

334

VIEW FROM THE TOP: Óscar González, ARHIP

335 INSIGHT: Gaspar Gorocica, Puesta a Punto 336

VIEW FROM THE TOP: José Luis Pérez Meseguer, UTCAM

337

PROJECT SPOTLIGHT: UTCAM

337

INSIGHT: Luis Vielma Lobo, CBM

339

INSIGHT: Raymundo Platas Merino, LAOGA

340

INSIGHT: Ignacio Cano Cervantes, ICA

341

INSIGHT: Sergio Saldívar, AMEC Foster Wheeler

342

VIEW FROM THE TOP: Nick Spies, iPS Powerful People

343

VIEW FROM THE TOP: Guido van der Zwet, iPS Powerful People

344

VIEW FROM THE TOP: Hernando Gómez de la Vega, R2M

345

VIEW FROM THE TOP: Eduardo García García, UVM

Gerardo de Alba Mora, UVM

319

| VIEW FROM THE TOP

PEMEX EXPLORES NEW OPPORTUNITIES JOSÉ MANUEL CARRERA Director of Alliances & New Business at PEMEX

320

Q: What are the main tasks and responsibilities of

brought about by the reform in this business line, including

PEMEX’s Alliances & New Business division?

farm-outs, farm-ins, JVs, and joint bidding agreements.

A: The Alliances & New Business division of PEMEX

These will allow us to reap even more advantages than

opened in July 2015. The Board of Directors authorized the

before. In addition to the traditional farm-outs, farm-ins, and

creation of this unit with the purpose of providing support

contract migrations, the law also gives us the possibility to

to PEMEX’s business lines by financially structuring the

create new contractual arrangements. One of the available

new toolkits provided by the Energy Reform. Our role is

options is to redesign service agreements in which we do

to work with the company’s various divisions in order to

not necessarily have to go all the way to a farm-out, but we

implement the new forms of associations and contractual

do not have to go to a service agreement either. We can be

arrangements resulting from the reform. This will attract

somewhere in between and have incentivized production

new investors and allow us to use our assets in an improved

contracts or profit-sharing contracts in which PEMEX can

and more efficient manner. We promote partnerships with

transfer part of the risk to a third party. The risk-based

other companies in order to bring three key elements that

service contract is a new and particularly interesting legal

will help PEMEX evolve: technology, capital, and execution

mechanism that allows PEMEX to share risks and rewards

capacity.

without giving up operatorship. We can rely on an external party to bring funding, technology, and capacity. This is

Q: Why is it important to put in place all of the new

the additional legal mechanism brought by the reform

contract types simultaneously, especially given the fact

that allows PEMEX to have a service contract structured

that it is the first time PEMEX is doing something like this?

according to its preference. We can now share operations

A: When González Anaya was appointed by President

risk, as well as other types of risk, and the investors can

Peña Nieto, he gave two instructions, one of which was

obtain compensation.

to implement all the new tools granted by the Energy Reform as quickly as possible. All of these tools are new to

The main opportunity lies in the flexibility to implement

us, and we have yet to experience the relative speed and

new arrangements. We are looking into designing these

efficiency of each one. PEMEX has the capacity to engage

and filtering them with the authorities, including CRE, the

in different initiatives simultaneously, and in fact we have

Ministry of Energy, and the Ministry of Finance, to make

always done so. We can afford to experiment with all the

sure that we comply with the law. Just like it is done

strategies at once because we are only testing each in a

around the world, Mexico can now tailor a contractual

small amount of fields, which we treat like pilot projects.

arrangement to a specific field, according to the nature of

If we were to test these schemes with all available fields,

the field and the company’s capacities.

then we would admittedly face a priority problem. One of our tasks is to start implementing all of the strategies

Q: How do you decide what new tool provided by the

so we can get to know them and develop the different

Energy Reform you will apply to each individual field?

processes for their rapid implementation. We prefer to

A: If you think of a field in the simplest possible way, it

build all processes at the same time, as it will be easier to

has two main characteristics. The first characteristic is

increase the use of each procedure when we know which

the size of the field, which strongly impacts decision-

works best, rather than doing them one by one.

making processes. The bigger the field, the more money it requires. The second characteristic is the complexity

Q: What are some of the new business models that

of the field, which refers to the level of risk and difficulty

PEMEX will benefit from?

involved in the extraction of hydrocarbons. When deciding

A: Even though the E&P area remains the most attractive,

upon the type of contract each field will be offered with,

we want to concentrate on implementing the new tools

we will consider these two variables. Complex and large

fields will usually be offered as a farm-out because PEMEX

in place, we can choose whether or not we want to be

does not have the capital, technology, or the experience

in a certain business, and we can choose which areas to

to develop them alone. We should only keep the fields

focus on. We are currently evaluating all of our activities,

that we are experts on, such as shallow waters, as we are

trying to understand what areas are worthwhile for us, and

internationally recognized for our leadership in this area,

I believe we may end up concentrating on fewer business

as well as the ones that have a strong potential to increase

lines.

national production. There are also some fields that are not in the interest of PEMEX but would be attractive for

The area that provides PEMEX with the most opportunities

investors, such as small-scale fields. These can be complex,

is certainly the E&P division. In PEMEX, just as in most

like non-conventional fields, which are also costly and

integrated oil companies, E&P is the most profitable unit.

require a team approach.

The NOC has typically dedicated 80% of its budget to this this area. Admittedly, the risk associated to E&P is

Q: Why has the industry experienced so many delays

higher, but so is the expected return. It might thus sound

when it comes to the migration of contracts?

contradictory that PEMEXâ&#x20AC;&#x2122;s E&P division was hit hardest

A: The reform allows for many new schemes. CIEPS and

by the budget cuts, but in fact areas with the most budget

COPS are some of them, although these were implemented

see the biggest reduction when a budget is slashed. We

under the old law. Those contracts worked well in the

are not trying to send a signal that we are less interested

previous legal environment. We are now trying to stretch

in E&P, as this allocation of CAPEX is simply natural. It is

the law to see how much risk could be transferred to

also important to keep in mind that the Energy Reform

another party, as the reform gives us an additional inch

allows us to bring in external capital, which will not only

of legal flexibility. According to the new law, all CIEPS and

compensate for that budget deficit, but will also provide

COPS can be migrated to a production or profit-sharing

us with a larger spending capacity than we had in the

contract. There is a process that has to go through the

past. When entering a new JV, PEMEX offers its fields,

regulators, and we are currently in the midst of it, after

expertise, operational capacity, and existing infrastructure.

which we will face three critical steps. Firstly, both parties

Our partners will bring in capital, execution capacity, and

must want to migrate. If this is the case, we change from

technology. Combining these capabilities will transform

a traditional service contract, where PEMEX bears all the

our business into a larger one.

risk, to a new contractual arrangement where the risk is shared between both parties. We have to decide how much to invest in a given field and ensure that everyone, including the state, gets a bigger share. If we have the agreement and there is a good business proposition for the government, then we can invest more together, and the authorities will allow us to migrate the contract. Instead of PEMEX paying the service contractor, we will simply share the profits of the additional production that comes from the field. There are a few factors that have caused the delays experienced in the contract migration area. Firstly, PEMEX is expected to have a final agreement with its counterpart. It is the first time that we are migrating contracts and we realize that we underestimated the time required to perform this transfer. We now better understand the path and have engaged in a constructive discussion with the regulators to increase the efficiency and speed of this scheme, both for the contactors and PEMEX. Hopefully, we will be able to carry out the first migration in 2016. Q: In which areas will PEMEX find the most attractive opportunities? A: Since PEMEX was created in 1938, our mandate has been to cover the entire value chain, regardless of our preference or capabilities. Now that the Energy Reform is

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| VIEW FROM THE TOP

PEMEX WOES EXACERBATED BY CREDIT DOWNGRADE Alberto Jones Tamayo Director General of Moody’s

Rosa María Morales Cid Senior Analyst Oil & Gas Latin America of Moody’s

the government. Therefore, we calculate that the gross financing needs will reduce to US$18 billion, which is a positive development, but is not enough to sustain the NOC. Of this amount, US$8 billion has been raised, and a further

Q: What has been the impact in the drop in oil prices for

US$10 billion is needed, and this is even after generation.

PEMEX, and on Mexico’s current credit rating?

PEMEX has the option to issue debt for US$10 billion, but

AJ: The government announced intentions to reduce

the ceiling for this year approved by Congress is around

public expenditure by around MX$147 billion, MX$100

US$18 billion incrementally.

billion of which will be borne by PEMEX. This is positive

322

for PEMEX’s credit, although it falls short of the actions

Q: How is PEMEX performing compared to other NOCs

required by the NOC, and it will help adjust the necessary

in the region?

reduction in expenditures for the year. There is a possibility

RM: All the companies in the region are facing the same

where we would consider a scenario of downgrading

problem, and several are facing greater issues wherein

Mexico’s credit in the next 18 to 24 months, considering

local prices are fixed, and due to the devaluation of

that the sovereign rating now has a negative outlook. Such

currencies, this is severely impacting cash flows. Major

a scenario will occur if the fiscal consolidation efforts of

companies such as Petrobras and Ecopetrol are benefitting

the government are stalled and if the government has to

from the diversity of the business as they are integrated

provide direct support to PEMEX or the broader public

and therefore do not depend entirely on E&P. Last year,

sector in contingent liabilities. This would entail further

Petrobras was performing more efficiently due to the

increase in debt metrics to levels beyond 40% of debt

refining segment, but then when the currency began to

to GDP and Moody's would review the plans that the

sink, so did the company’s cash flows. Petrobras now has

government would implement to address any further rise

a liquidity problem and, compared to PEMEX, this poses

in debt and the corresponding lower growth.

greater risks due to the fact that the former has no access to the markets and lacks the support of the government-

Q: To what extent do you believe that PEMEX’s Adjustment

owned banks and the general government of Brazil.

Plan could improve the NOC’s credit rating, or at least help the company in other aspects?

Q: What role do you expect Mexico to play in the global

RM: This is certainly a positive step, but more must be

oil and gas industry in the medium to long term?

done to bridge the gap created by the conditions we have

RM: We have seen a reconfiguration of the industry, not

discussed. Another factor that we did not consider at the

only in Mexico, but globally, and the companies most

beginning of the year was PEMEX’s access to markets,

affected are those rendering auxiliary services like rigs,

since we were comparing the situation to other similar

which are normally the first cost to be cut due to the lack

companies such as Petrobras that lack this characteristic.

of E&P right now. Some of the companies will even merge,

The fact that PEMEX possesses access to markets can

and this can be perceived as a positive development since

certainly be seen as a positive factor.

there was an oversupply of these companies in the past.

AJ: So far, PEMEX has been able to go to the market several

AJ: Certainly Mexico is poised to play an extremely relevant

times, both in dollars and in euros, to the equivalent of over

role, among the five most important countries in the world.

US$8 billion, and today it announced it would trade in pesos

This is a temporary situation experienced by the country,

both domestically and abroad to the equivalent of US$450

but it clearly has the right natural conditions to position

million. We have calculated that PEMEX should have a

itself at the forefront of the market. It has the correct

gross financing need of approximately US$23 billion for

economic and credit conditions and an improved legal

2016, which includes CAPEX, OPEX, and debt refinancing.

framework, which will enable the players to develop the

Roughly US$12 billion of PEMEX debt will mature this year,

industry thoroughly. I think this is what the international

the remaining US$11 billion includes CAPEX and OPEX,

investors from the bidding rounds, as well as financial

and roughly US$5-6 billion of this amount will be cut by

investors, can see when evaluating Mexico.

| INSIGHT

CONFIDENCE IN MEXICO FOR NATIONAL FUNDS As the international oil and gas industry tracks prices and assesses the minutiae of its day-to-day fluctuations,

JAIME ALATORRE

investors are compelled by this current environment to

Director of the Mexican

take a long-term view when determining which specific

Energy Fund at Fondo de

markets and projects can provide the most competitive

Fondos

ROI. It is neither convenient nor exaggerated to contend that Mexico represents an attractive option in this regard when compared to similar choices in the international

seasoned companies know that the amount they are paying

spectrum. There are a number of factors that come into

is unrelated to the current price of oil, but is related to the

play when determining its appeal, which are being carefully

strengths of the block in regards to geological information.”

considered by dedicated providers of private equity and

Alatorre’s positive outlook, rooted in a pragmatic familiarity

venture capital. Jaime Alatorre, in his capacity as Director

with the energy market, even allows him to make some

of the Mexican Energy Fund created by Fondo de Fondos,

relatively specific predictions, “The price of oil is not a

is keen to provide his perspective on these factors and

variable in this respect, because when the purchased blocks

how they influence the fund’s current operations as they

are ready for production, the price of oil will not be US$20

have evolved from its initial establishment in September

per barrel, but rather US$40-50 per barrel.”

2014 as an investment vehicle of private equity focused in the Mexican energy sector with US$100 million in capital.

Although the Mexican Energy Fund is looking forward to diversifying its portfolio within the sectors of the

Alatorre claims there is the advantage of infrastructure

Mexican oil and gas industry, its involvement up to this

transference in the Gulf of Mexico, and he is quick to

point has been focused on pipeline development and

elucidate on this geographical benefit, “The US side of the

power generation projects. Its experiences in this area

Gulf is filled with platforms and infrastructure, whereas in

prompt Alatorre to mention an example of a third factor

Mexico this infrastructure does not exist on the same scale.

that makes Mexico stand out: the new and unexpected

However, this also means that the players that enter the

opportunities created all along the energy value chain

deepwater rounds will easily be able to transport equipment

by the new post-reform legal regimes, such as the ones

from one side of the Gulf to the other.” The Mexican Energy

found in the aforementioned pipeline and gas supply

Fund does not operate within the financial scale necessary

projects. “With the awarding of these contracts comes the

to aid oil majors in this type of operations. For this reason,

obligation to supply a certain amount of gas to a given site,

Alatorre has in the past expressed reticence to comment

but there is nothing to prohibit the increase of pressure on

on the fund’s possible involvement within the deepwater

the pipelines, thus transporting more gas than required

sector. Alatorre speculates that the creation of a dedicated

by CFE. As a result, this can create an opportunity to sell

fund for oil and gas service companies will eventually

the surplus natural gas.” Alatorre further emphasizes the

facilitate their involvement in the deepwater sector, as he

obvious attractiveness of these provisions by remarking

summarizes, “With the creation of this fund, we will certainly

that the contract allows the construction and funding of

participate in deepwater in Mexico. Our fund might not be

the line, as the return is solid, and profit can be made in

large enough to work with the oil majors, so it is important

developing independent markets through the surplus.

to find companies of a size we can work with.” After evaluating these and other factors that make the A crucial second factor is timing, and the commitments

fund’s confidence in the Mexican oil and gas industry

that have been made surrounding the different phases

unwavering, Alatorre concluded his remarks by explaining

of Round One involve projects with extended timetables

how Fondo de Fondo’s performance through the Mexican

that allow for production to begin at a future time when

Energy Fund represents a strong basis for future growth.

oil prices do not represent the investment hurdle that they

“One year ago, we were just starting out with the fund,

currently do. Alatorre pins down these advantages, “The

with a commitment of US$100 million and an additional

companies entering have three years to begin production,

commitment of US$200 million. One year later, we have

leaving some lead time to prepare the block, and allowing

delivered on our commitments, and this year, we want

time for the price of oil to stabilize before extraction. I

to raise more money due to the robust pipeline and the

think the companies that participated in Round One and

opportunity to respond to new investments.”

323

| VIEW FROM THE TOP

COMPREHENSIVE FINANCIAL SUPPORT STRATEGIES CARLOS VARGAS Head of Energy and Mining of BBVA Bancomer

Q: Can you tell us about the services BBVA Bancomer

Also, one of the bank’s objectives is to offer international

offers to the Mexican oil and gas market, its current

players interested in acquiring local companies the

investment methods, and its future investment prospects?

services they might require.

A: BBVA Bancomer offers a wide range of financial products,

324

from common transactional services to assistance in M&A

Q: How will you draw from BBVA’s experience in financing

processes, which have allowed us to establish proximity to

upstream projects in the US, given the novelty of this

PEMEX, our main client in this industry. In the midstream

these transactions in Mexico?

sector where private finance is allowed, the Mexican capital

A: BBVA Bancomer’s experience in the US market puts

market will be interested in financing midstream projects

the bank in similar conditions to other major companies

via bonus that will attract new players looking for funding.

claiming to be knowledgeable in the area. In the US, there

Now that the downstream sector has opened to private

are two main ways of financing for this sector. The first is

investment, there will be a new demand for financing and

the stock market, where BBVA Bancomer has national and

assessment services for upcoming projects in this area.

international experience. The second one is private equity,

Previously, the distribution of gasoline was more of a real

and BBVA Bancomer has the ability and skills to advise

estate business with a small commercial margin. Now, there

companies on how to finance their different productive

is a consolidation effect, branding, and the construction

stages. In the case of an already productive well, the

of infrastructure for transporting and importing, an area

financing usually comes through a Reserves Base Lending

in which BBVA Bancomer could provide financing and

(RBL) mechanism, in which BBVA has strong expertise. For

assessment services. Finally, in the upstream sector, there

exploration activities, which entail a higher degree of risk,

are different stages in which we could participate, such

the financing will come from private equity means or IPOs.

as exploration activities, a business mainly financed by

In Mexico, the government is looking to adapt RBLs to the

equity. Considering that there is already an intense activity

local regulations as has been done in other countries, and

in the sector, the future Initial Public Offer (IPO) market is

this is here where our experience in US will help, even if the

likely experience significant acceleration.

regulations are not exactly the same.

Q: What is the role of the oil industry in BBVA Bancomer’s

Q: What do you think are the financial requirements that

investment portfolio?

must be modified in future rounds, and what is the role of

A: Since PEMEX has been diversifying its services and

BBVA Bancomer in this?

becoming more sophisticated, BBVA Bancomer has also

A: Since 2013, BBVA Bancomer has been liaising with

being adapting its offering to continue being able to cover

national

its needs. Currently, BBVA Bancomer has been working

investors, and authorities interested in the sector. We

with those companies that have access to bonuses in the

have perceived during this process that the license

financial market or are looking for a vehicle to access the

contract model could be the most attractive for

financial global market in order to obtain private equity or

investors, while some operators find the possibility of

other funding to operate in the industry. The collection and

participating in more interesting areas and some of the

payments involved in the downstream sector are definitely

proposed financial mechanisms appealing. The return

of interest to the bank, as it usually entails small margin

rate instead of an adjustment mechanism could result

businesses in which BBVA Bancomer could participate

in more flexibility, attracting more investors. As for the

through its platform of transactional services. For more

third phase, its financial requirements vary because the

complex services, BBVA Bancomer will be interested

necessary investments and the type of activities are also

in becoming the financial advisor of those companies

different, as these smaller fields that are suitable for Tier

looking for a market to increment their purchasing power.

2 E&P companies require less capital.

and

international

institutions,

operators,

| VIEW FROM THE TOP

LOCAL PRESENCE TO SUPPORT INVESTMENT DECISIONS PALMA MÉNDEZ Director of Mexico at Wood Mackenzie

Q: How has Wood Mackenzie influenced the Mexican

for variables such as tax regimes or price decks. Most new

petroleum industry from its Houston headquarters, and

companies do not have the knowledge or the resources to

how will the opening of an office in Mexico help increase

create this type of model, and Wood Mackenzie is a smart

its impact?

and common-sense choice to save time and get ahead of

A: Wood Mackenzie has provided its insights and experience

the curve. Secondly, our services include unlimited access

as a global and regional industry leader to key decision

to our analysts so clients can have the assurance that Wood

makers in Mexico since 2001. Over the past ten years, we

Mackenzie is available to act as an extension of their teams.

have increased our presence in the region and today have

Experts are at their fingertips, ready to support them and

more than 25 offices around the world. Our research and

answer any questions about our data and models.

325

consultancy teams are now closer to the markets in which they work. This integrated model of research and consulting,

According

Wood

Mackenzie’s

model,

what

together with our proprietary databases and global industry

challenges will PEMEX and newcomers encounter in the

knowledge, helps bring our perspective and international

Mexican oil and gas industry in the future?

best practices to the Mexican oil and gas industry. This is

A: Everyone in the industry recognizes that PEMEX's tax

important for a market opening up to the world and where

regime requires modifications. The NOC’s operations for

reliable data and strategic thinking are critical for the key

most fields are profitable even at low prices, but the story

investment decisions that both the government and players

changes once taxes are taken into account. The current

will be making in the coming years. Our offices in Mexico

fiscal regime makes most operations and investments non-

City will open in July 2016. The main idea is to be closer

profitable for PEMEX at today’s moderate to low prices,

to the clients that Wood Mackenzie has developed over

leaving the NOC at a financial disadvantage in the new

the last 15 years of doing business in the Mexican oil and

Mexican oil and gas industry.

gas sector. Our company works with every type of client across the energy sector, from IOCs to small independents,

The situation is complex and involves conflicting interests,

NOCs as well as governments, conglomerates, and financial

but the NOC has other mechanisms to try to improve the

institutions. These clients depend on our research and

situation. These include reducing costs and upgrading

consulting services to make investment decisions. Our

its portfolio. We understand PEMEX is working on cost

objective is to improve the support we provide to our

reductions. However, the magnitude of possible cost

existing and new customers, and to expand our research

reductions is limited by the present procurement processes

content as the market grows in complexity. We believe our

that it must follow and the political implications of additional

integrated approach is a key differentiator and makes us

reductions on activity in certain regions.

the provider of choice for businesses seeking world-class research and consulting services.

Q: What advice does Wood Mackenzie give to companies looking for joint ventures or partnerships with PEMEX?

Q: In what ways is your economic model different than

A: PEMEX could offer future partners the opportunity to

those provided by other companies?

participate in attractive assets and exploration activities.

A: Firstly, we offer an economic model with a proven

However, there will be challenges and potential differences in

track record of more than 20 years in the global oil and

the ways of conducting business. We advise that companies

gas industry. This model not only contains our proprietary

entering joint ventures or partnerships with PEMEX have a

data for production projections, development costs,

clear long-term strategy, leveraging the NOC's strengths. In

operational costs, and fiscal terms, but also allows clients

addition, they should build networks with key PEMEX teams

to modify variables. That means that clients can modify

and with Mexico's regulatory bodies, all of which are learning

the pre-loaded data to include their specific assumptions

how to operate in a new post-reform world.

| VIEW FROM THE TOP

CALLS FOR DEVELOPMENT OF HUMAN TALENT

Rosa Morán Oil and Gas Leader Energy Practice of Marsh

Sebastián Aguayo Marine and Aviation Leader Energy Practice of Marsh

RM: The spirit of the regulations is positive and it is certainly moving the industry in the right direction. However, the reform also presents new challenges to operators. In this regard, it is important for authorities to oversee this issue and

Q: How have you readapted Marsh’s operations for risk

increase administrative efficiency to ease the documentation

assessment and solution provision given the dramatic

process that companies have to undergo according to the

changes taking place in the national and international

new regulations. Nonetheless, our job at Marsh is to help

context?

clients to comply with the official requirements, taking that

SA: Despite the dramatic changes experienced by the

load off of their shoulders, particularly for insurance-related

national and international oil and gas markets, the

matters.

fundamentals for insurances remain practically the same. 326

All the engineering and technical aspects of exploration

SA: From the positive side, the Energy Reform has

and production are not being affected by the drop in the

created numerous opportunities for the Mexican market.

oil prices. Nonetheless, oil and gas companies now have

Furthermore, the national content rule provides an

to realign their strategies in order to decrease their OPEX

incentive for developing local talent, in terms of individuals

by up to 45%, which we believe will be the trend for the

and firms’ specialization. For instance, ten years ago,

next few years.

there was no Mexican company capable of performing an environmental baseline study, but now we have a wide

RM: We usually suggest our clients perform a risk

range of national firms with the required knowledge and

assessment in order to submit to the insurance markets

skills to do so. The same trend can be observed in other

the actual quality of the risk, which normally translates into

specialization areas, such as geological, engineering, or

a reduction in the cost of the premium. We normally see

insurance studies. Therefore, we believe that the ecosphere

this analysis as an investment rather than a cost as it also

of oil and gas production and exploration will be enriched

helps our clients to identify risks and take loss prevention

by the challenges presented by the new industry.

measures to avoid accidents. Q: In matters of human talent, what services does Marsh Q: Are there any risks that were previously important

provide to oil and gas companies?

to take into consideration, but have been eased or

RM: Mercer Marsh Benefits is the joint venture between

eliminated with the Energy Reform?

Marsh's formidable negotiation power in health and

MARSH 2016.pdf

28/03/16

11:41

MANAGE YOUR RISKS, PROTECT YOUR INVESTMENT Worldwide, Marsh's more than 300 energy professionals are primarily organized around three speciality product lines: upstream, downstream, and renewable energy, offering a deep understanding of industry issues within these segments. This wealth of expert knowledge is augmented by market leading risk engineering, project risk management, and claims services. These solutions come from our access to, and relationships with, global insurance markets in London, Continental Europe, North America, Asia, and the Middle East. By leveraging global market capacity, we help to provide favorable terms and conditions to our clients.

www.marsh.com.mx

+52 (55) 5999 4400

life insurance, and the knowledge of Mercer in Human

optimization (RFO) studies that can lead to the evaluation

Resources, in order to generate value in the creation of

of return on investments and 5-15% cost savings. Marsh

insurance and non-insurance benefit programs for oil and

Analytics combines data, technology, and analytics to

gas companies' employees.

evaluate risk and allow more strategic business decisions. Risk management has quickly shifted from a focus on limited

SA: Mercer Marsh Benefits has a comprehensive cost

data and insurance to big data and holistic risk analytics.

containment strategy focused on the needs of the Energy

With this shift, the demand for analytics-based decision-

Industry, due to the important challenges now faced by

making support tools continues to grow, and that is the

the sector. On the other hand, Mercer, a sister company

reason for the development of the Marsh Analytics platform.

of Marsh, is the authority in talent and retirement, with a focus in helping oil and gas companies to successfully

Q: What are the upcoming insurance trends you expect to

navigate the crisis by avoiding the loss of important talent

see in Mexico, and what will be Marshâ&#x20AC;&#x2122;s strategy to adapt

as a result of the transition, which is characterized by a

to this new environment?

strong workforce reduction.

RM: In the Mexican context, we are observing a growing interest in acquiring insurance programs, mainly as a result

Q: What is the role that Big Data plays in risk assessment,

of the difficult conditions faced by the oil and gas industry.

and how is this involved in Marshâ&#x20AC;&#x2122;s daily operations?

Moreover, we foresee that the production capacity of the

SA: Big Data and Analytics are important tools that need

industry will develop considerably in the short to medium

to be understood by all industries, not only insurance

term, which will force companies to analyze and design

companies. In particular, the oil and gas industry is

strategies to mitigate the risks associated with these

exposed to new risks resulting from the use of Big Data

activities.

and Analytics tools, especially as their operations have become more dependent on technological solutions such

SA: In the oil and gas industry, we identified that the most

as open architecture solutions, cloud data storage, and

visible trend in insurances and risk assessment will follow

acquisition of off-the-shelf software.

the line defined by the government with the local content rule. Until now, the industry has been mainly managed by

The insurance sector has responded by developing

multinationals and foreign companies, whereas now we

specific products addressing these issues. At Marsh,

expect to have a stronger presence of local staff and firms

we have created the Energy Cyber Gap product,

in the sector.

which is an insurance solution that helps companies to manage technology-related risks. For instance, in big

In other countries, the opening of an industrial sector to

data applications, the main risks come by storing and

private investment has created a national ecosystem of

transferring information, which can expose sensitive data

companies, service providers, and advisors, and this is

to external attacks or internal mishandling.

what we expect to see in Mexico. As a result, Marsh has been preparing for years, by increasing the share of local

RM: In addition, Marsh has designed an IT platform called

employees in our staff and enhancing our presence in the

Analytics, through which we can perform risk financing

country.

327

| INSIGHT

DAWN OF A NEW ERA IN RISK MANAGEMENT “In a globalized world, there is no reason why the

the disclosure of material information to insurers, the negotiation of policy prices, and coverage levels, among

Mexican Marine and Energy

others. The firm collects, collates, analyses, and prepares

Industry should be at a price

reinsurers, assisting the client to comply with its Duty

disadvantage against their

have both international and local experience in all areas

international competitors as a

328

of suitable insurance carriers for the risk in question,

the requisite data for presentation to insurers and their of Disclosure to underwriters. AMMIS and its partners of the intermediary chain, minimizing the amount and cost of intermediation and accessing coverage which

result of complying with local

compares favorably to that available in the international

insurance practices”

developed at the same speed as the Mexican marine and

ADAM HOWE

a valuable instrument for clients.

Director of AMMIS Risk Solutions

markets. Howe says the Mexican insurance market has not offshore industry and, as such, AMMIS’s approach proves

Howe acknowledges that lengthy intermediary chains can frustrate clients. With this in mind, AMMIS commits

“The structure of insurance legislation in Mexico creates

to detailing the intermediaries involved and their roles

a protectionist market whereby the choice of insurance

to ensure that no additional intermediation costs are

carriers for organizations operating in the country is

passed on to policy holders. In addition, AMMIS provide

restricted to domestic insurance companies,” voices

premiums with no addition intermediation fees, as it

Adam Howe, Director of AMMIS Risk Solutions. He adds

has several agreements with insurance companies and

that few Mexican insurance companies can retain these

brokers operating in Mexico. “In a globalized world, there

risks and have to seek support from international markets

is no reason why the Mexican Marine and Energy Industry

by way of reinsurance in order to be able to offer terms.

should be at a price disadvantage against its international

This generates a lengthy chain of intermediaries, which

competitors as a result of complying with local insurance

has historically been untamed and expensive. Anglo

practices,” Howe expresses.

Mexican Marine Insurance Services, also known as the AMMIS Group, is an independent insurance broker with

In Howe’s experience, the Mexican oil and gas industry

risk transfer consultancy services that specialize in the

is changing its attitude towards risk management

Mexican marine and energy industries. Some of the firm’s

advisory services. “Over the past 15 years, many PEMEX

areas of expertise include insurance for physical damage

contractors looked upon insurance as just another

and liabilities arising from the operation of marine property

expense generated by their contract with the NOC or

(vessels, rigs, docks, piers and marine installations),

with the owner of their chartered vessel. They would buy

onshore and offshore operations, and oil and gas energy

the minimum limits and conditions required to comply

installations.

with their contracts at the cheapest price with little, if any, consideration for the risk that their operation and the

Howe explains that when AMMIS was formed, a vast array

contracts expose themselves to.” Now he feels optimistic

of internationally available specialty insurance products

because he sees an increased focus on risk management

was not readily accessible to the Mexican marine and

and mitigation. “Clients want to understand what kind

offshore energy industry. In addition, foreign companies

of coverage they have, as evidenced by the fact that

working in Mexico needed assistance with the rules, laws,

responsibility of insurances has shifted from a company’s

and regulations shaping the local insurance industry.

finance division to the legal department. Cost remains an

The situation has not changed significantly, and Howe

extremely important factor for clients, but this change

says AMMIS can leverage on its international network

displays an interesting paradigm,” comments Howe. In his

to adapt existing global insurance programs to Mexico

view, these changes result from maturing process within

and offer specific coverages required for operations

the local industry with an increased focus on corporate

in the country. AMMIS guides its clients in the selection

governance.

| VIEW FROM THE TOP

INSURANCE SERVICES FOR NEW PLAYERS JORGE DE LA FUENTE Human Resources Director of Lockton

Q: What do you expect to be the effect of the Energy

Our main pillars are related to our producer model, which

Reform on the future role of the oil and gas industry?

constitute commercial and leadership responsibilities

A: Around the world, we are highly positioned in different

within Lockton. These producers are aligned with our

sectors within the property and casualty (P&C) area, and

company and, in terms of consulting, constitute highly

in Mexico we have been proudly expanding. Even though

specialized

our benefits portfolio is greater than the P&C portfolio, we

providing clients with products and services related to

would like to be better positioned in the energy industry

their needs. These specializations fall within benefits, P&C,

within the P&C business. We identify with several different

and markets. In the next year, we will still be increasing our

capabilities, and we have offices in London and the US,

participation in the P&C sector, and one of our strategies

with specializations in particular areas related to energy. In

will be to cross-sell with current clients by capitalizing on

Houston, the staff is extremely specialized in this industry,

our 95% client retention rate.

individuals

within

specific

markets

and

so partnership with this office will be vital in order to deliver products and services for the industry in Mexico. It will be

Q: Lockton is a member of the Workplace Wellness

necessary to establish a process with that office to identify

Council, and has been named a Great Place to Work.

the risks and ensure that we are identifying client needs

Which programs have you put in place to achieve these

in terms of insurance services and products. With this

accreditations?

partnership, we can become extremely competitive and

A: A strong identity within the company for many

ensure that we can outperform our rivals within the energy

employees is vital for retention of staff and to be able to

market.

maintain loyalty. The aforementioned pillars must be a part of the ethos of employees, and they must engage with the

Q: With a 95% client retention rate, which elements of

programs we run in which staff can participate in order to

your value proposition are at the core of Lockton in

make a difference to the community. Moreover, in terms of

maintaining this base?

social responsibility, employees are the actors developing

A: One of the key components in our high retention rate

the social programs and community outreach programs,

is our organizational capabilities and service. We have a

meaning that this mentality is embedded within the culture

unique service proposal, with a strong dialogue with all

of the company. With our Workplace Wellness programs,

employees regarding the expectations of clients, which

we provide consultations to our clients in order to support

not only deals with our philosophy, but also an integrated

the mitigation of risks related to employee wellbeing. We

service model. Secondly, we have considerable consulting

provide a complete program in order to make sure that

skills, and we not only act as a broker, but we also work with

employees are participating in activities that are conducive

clients to identify needs and provide high-value solutions.

to good health, such as regular doctor appointments,

Thirdly, our technology and processes are state of the art,

sporting events, and company-based nutritional guidance.

and we provide client-facing solutions such as insurance

In terms of people management, we have a performance

vehicles management and flexible benefits. Moreover, our

management program that is also extremely important

leadership pillars consist of the community, the associates,

to the company due to the establishment of individual

and the clients, so we use a multi-focused approach

employee objectives, career trajectories, and development

when doing business. In terms of associates, we focus on

of competencies. These objectives also capture our values,

development to become leaders within the global market

so this process allows leaders to establish clear goals, as

so that associates are aligned to our identity as a company.

well as a strict moral code when guiding others. People

There is a chance for Lockton to enter and work with new

are therefore more committed to their goals, and all these

clients, offering our consultant skills and innovative model

strategies we implement within our company can also be

in order to offer a partnership to insure varying needs.

applied to companies within the oil and gas arena.

329

I INSIGHT

NEW HR MODEL AWAITS NEW OPERATORS environment in the hydrocarbons industry. “We are Alejandro Hernández President of Grupo Accses

Yisel Varela CEO of Grupo Accses

encouraging companies to enter the country by informing them of the various local opportunities, for instance, by visiting various energy forums in Mexico and abroad,” he shares. “We target several chambers of commerce and the

Grupo Accses has capitalized on a gap in the market with

company is also working with investors who are not yet

the creation of its innovative business model Access to

aware of the possibilities or who are unsure about setting

Energy, which focuses on the Mexican energy sector and

up their office in the country.”

enables the rendering of smart multidisciplinary solutions.

330

After having carried out an analysis of the available data

In terms of sourcing employees, Access to Energy follows

on the hydrocarbons market and discovering that small- to

a complex process with stringent criteria including

mid-size companies in the upstream energy sector need

interviews,

professionals who support their business development in

values, and aptitude tests. The company is also creating an

the oil chain, Access to Energy services the complex needs

important database of all the workers in the energy industry,

of foreign small to mid-sized entities and entrepreneurs

using virtual interviews and psychometric assessments,

who are planning or currently running their energy

to be able to offer clients the most qualified employees.

ventures in Mexico, and is supported by several strategic

Therefore, as soon as a company begins to look for human

alliances.

capital, Access to Energy can offer a choice of potential

psychometric

assessments,

work-related

new recruits in a less time-consuming way. “The virtual Although the company’s focus is on human resources, it

interviews are a huge advantage because companies

also advises clients on tax matters, finance, bookkeeping,

can get a feel for the candidate before an interview,”

and accounting services. In fact, Access to Energy offers

says Varela. With close to 1,000 people registered on the

a diversified service for installing operations in Mexico.

platform, Access to Energy has expanded its reach with

Some of the services offered include risk studies to advise

an online university with courses to train candidates and

companies with reference to the office locations, the type

identify key qualities before the interview stage.

of international employees that will be relocated, and the activities they will be carrying out, as well as security

Both Varela and Hernández believe that recruitment with

measures to make employees as comfortable as possible.

the new Energy Reform is far from an easy task, but it

Yisel Varela, Grupo Accses’ CEO, believes that the advice

does present significant opportunities. “We must not lose

offered by the company is essential to daily operations

sight of the fact that the Energy Reform is a considerable

and recruitment budgets. “All of our alliances are aimed

challenge and a new venture in our country,” Varela warns.

at HR solutions, because we believe the most important

“The limitation for companies arises because the Energy

asset of a company is the human capital,” she declares.

Reform dictates up to 35% of national content in some

Training, recruitment, employee services, and relocation

cases. Here is where we can help, training and certifying

solutions represent a large expense for companies, and

Mexican workers in the areas that these companies need.”

within Grupo Accses’ relocation services, strategic allies

After Round One, Varela predicts a new trend toward

are used to provide integrated real estate solutions.

recruitment of staff through outsourcing, and as oil prices

Clients are offered a formal solution that allows them

rise, she believes that companies will be more comfortable

to focus on their core business, rather than operating

with permanent contracting. Hernández alludes toward

concerns.

a new environment that could be conducive to alliances and JVs. “Access to Energy hopes to create international

The biggest demand the company sees in the hydrocarbons

alliances to be able to participate in the development of

sector is for certified operative staff. The main challenge

projects between national and international companies for

when training Mexican employees is teaching them how

this year,” he declares. “After the results of Round One are

to comply with the processes of international companies,

announced, we will make another push to make ourselves

but according to Alejandro Hernández, President of Grupo

known outside of Mexico and begin to help with the HR

Accses, the company is working to foster a multicultural

and security needs of incoming companies.”

| INSIGHT

OPEN MARKET WILL FOSTER M&A ACTIVITY WILLIAM WOOD

Many players decided to come to Mexico when the energy

Head of Energy and

sector was liberalized. In the case of Norton Rose Fulbright,

Infrastructure United States,

the global law firm decided to come back to the country

and Global Head of Latin

where it once had offices because of the potential it suddenly

America at Norton Rose

has for its six areas of expertise: financial services, energy,

Fulbright

transport, life sciences and health care, technology and innovation, and infrastructure, mining, and commodities. William Wood, Head of Energy and Infrastructure United

sale of gasoline and other refined products will expand

States, and Global Head of Latin America at Norton Rose

as the market is opened, creating more opportunities for

Fulbright, says the firm also boasts significant expertise

entrepreneurship. It is likely that the new businesses will be

in global regulatory practice. Wood says the company

followed by a wave of M&As.” Additionally, he mentions that

aims to help clients in Mexico with energy transactions,

existing businesses in the oilfield services and construction

international arbitration and dispute resolution, and cross-

sectors may find attractive offers from suitors needing to

border litigation. “Although most litigation matters are filed

expand their multinational offering in Mexico.

in the US, our firm has worked on a number of significant litigation matters related to activities and operations in

Now that Norton Rose Fulbright is back in Mexico, the

Mexico over the past decade,” he clarifies.

firm wants to help clients navigate the current regulatory environment. “We can help companies manage their risks

Wood notes that the local content requirements for the E&P

in all regulatory areas because we have done this already

bidding rounds will lead to M&A activities in Mexico. “Each

in many other jurisdictions around the world, and have

time multinational entities enter a new market, companies

helped our clients with every type of legal and regulatory

that have been in the local market for decades have the

challenge facing successful businesses worldwide,” Wood

opportunity to sell their businesses. In addition, the retail

asserts.

Services Portfolio:  Training, headcount recruitment services and outsourcing employee management.  Security services, preventive and corrective security protocols, trained drivers and bodyguards, and armored vehicles for rent/buy.

YOUR BEST OPTION IN MEXICO

 Employees and companies certified according to international energy standards.  Customs services, logistics, broker, insurance, free trade zone benefits.  Immigration services & paperwork.  Leasing, purchase and management of assets.  Accounting, finance, acquisitions, budgeting, programming on the Public and Private sector.

Prol. Paseo de la Reforma 61–9A Col. Paseo de las Lomas México D.F., CP. 01330 T. +(52) 55 6270 0200 www.accesstoenergy.mx

 Tax advice, planning, defense, mediation (tax settlements) and litigation.  Incorporation of companies, by laws, shareholders meetings and minutes (regularization).  Legal services focus on energy, intellectual property, civil, commercial, administrative and criminal matters.

331

| INSIGHT

BEST PRACTICES IN INSURANCE SHAPE THE NEW OIL INDUSTRY a team, everyone’s experiences are enriched because every participant has something to offer,” expresses

GRACIELA ÁLVAREZ HOTH

Álvarez Hoth. Guidelines are currently being established

CEO of NRGI Broker

regulations involving studies that have to be carried out

that will require operators to conform to certain security before initiating production, with the objective of ensuring production is as safe as possible.

The country is developing in a new direction, so it only

332

makes sense for companies to align themselves with

“Due to the low oil price, the insurance sector is working

this new phase. This was exactly the motivation behind

in a soft market where there is plenty of capacity and few

Grupo Vitesse’s decision to create a specialized Energy

players due to companies that are unwilling to lose money

Insurance Broker "NRGI Broker." With over 25 years of

having shut down their activities, which has generated

acquired experience from PEMEX’s marine operations,

an appetite and a surplus that has not been seen in the

the company has now chosen to reinvent itself in line with

last 15 years,” Álvarez Hoth continues. This will allow new

the new trends in onshore production and gas pipelines.

operators in Mexico access to a wide variety of coverage

The experience present in NRGI Broker dates back to the

at extremely competitive prices.

days when Cantarell was booming and the company has contributed in an active way by attracting international

Providing insurance for new deepwater projects will not

market leaders to the country.

be without its challenges, assures Álvarez Hoth, but she does not expect these to overwhelm NRGI Broker. “At the

The importance of a guide to help companies comply

end of the day, insurance companies are more worried

with the new Mexican procedures implemented by the

about onshore platforms than offshore platforms because

Energy Reform is often overlooked, according to Graciela

onshore activity in Mexican territory entails various factors

Álvarez Hoth, the company’s CEO. She explains that, before

that can affect operations,” she points out. Dealing with

the reforms, PEMEX provided its contractors with wide

social aspects is difficult and the onshore segment will

coverages, so their only concern was the deductible, and as a

require a gradual learning process because operations will

result, clients became accustomed to the buffer that PEMEX

vary greatly across regions. On the other hand, offshore

represented. “Now, most of the companies are no longer

operations are identical all over the world, and although

contractors and have become operators, and naturally they

some regions like the North Sea present higher risks due to

need a broader experience in negotiating administrative

the tides. From this perspective, the Gulf of Mexico presents

hurdles with the authorities,” Álvarez explains.

relatively low risks. Deepwater operations are relatively expensive but the players are also bigger, and Álvarez Hoth

NRGI Broker takes a proactive approach to the new

predicts that companies like Shell and Exxon will enter

regulations, allocating time to dialogues with risk managers

the market when it makes sense for them from a financial

to discuss the new market rules that will be launched, even

perspective. “These operators will enter with international

if these have not yet been released. “Over the past year we

sophistication and experience from working in places with

have closely worked with the regulatory agencies in order

varying levels of infrastructure,” according to Álvarez Hoth.

to participate in the processes of issuing regulations that

“The goal is to keep track of the country’s obstacles while

are new to the country,” Álvarez Hoth asserts. By becoming

keeping in mind that these types of situations have already

part of this group, she is confident that NRGI Broker can

been encountered in other parts of the world.”

provide clients with integral and adequate solutions. “In this way, we can inform the regulators of global trends, and

Due to NRGI Broker’s breadth of experience in helping

analyze how we can apply this information to Mexican laws

companies enter new markets, Álvarez Hoth believes

and norms,” she suggests.

that the company is uniquely positioned to welcome new players that will be attracted by the Energy Reforms.

Accidents are unavoidable, but despite the fact that this

“NRGI Broker can offer these players an advisor that can

constitutes a core part of NRGI Broker’s business, the

speak their language and that deeply understand the

company takes measures to mitigate risks. “When the

country, including its laws and regulations in insurance and

insurance sector works with the regulatory agency as

surety topics,” she argues.

| INSIGHT

INVESTING IN FUTURE INDUSTRY LEADERS Oil and gas extraction is a male-dominated industry, not only in Mexico, but all over the world. According to the US Bureau of Labor Statistics, only 17.9% of those employed in

ANGELICA GARCÍA-DUNN

the industry are female, and 12.8% are of Hispanic or Latino

President of AIM Global

origins. In this way, Angelica García-Dunn, President and

Logistics

Founder of AIM Global Logistics, is breaking the mold in her ascent to the forefront of the arena. García-Dunn’s success, however, is due to hard work and dedication, and adherence

a clash. In this way, AIM essentially performs sourcing

to advice from her grandfather. “He used to always teach me

services, and this is what led to the creation of AIM Energy

to believe that ‘I put on my pants in the same way as you’,”

and Chemicals. This company is now dedicated to global

she points out. “I do not want to sell my business based

sourcing of rigs, chemicals, and machinery from all over the

on the fact that I am a woman and a minority, I base my

world, and this extends beyond the oil and gas industry, to

achievements on the fact that I know the industry, I know

segments like pharmaceuticals and automotive. Moreover,

exactly what I am doing and, often, I can outperform any of

AIM Global Logistics specializes in overweight, over

my peers, whether they are male or female.”

dimensional project cargo, especially to and from Mexico. “As a result, not only can I source the materials or the

In 2012, the company was named ‘Emerging Business of

buyers, I can also provide the transportation services,”

the Year’ by the Houston Hispanic Chamber of Commerce.

García-Dunn explains. To cater to the changing industry,

After an initial US$250,000 in sales, the business grew to

the company also offers leasing and factoring services

US$2 million, whereas now, the company is registering

through its third subsidiary AIM Global Financing.

around US$25 million. “Our status as a certified minority female-owned company has enabled us to sign contracts to

With both AIM Global Logistics and AIM Energy and

work with BP, Exxon, indirectly with PEMEX, PPI, Siemens,

Chemicals, García-Dunn plans to forge a path within

and GE,” García-Dunn boasts. In the US, especially, there is

the Mexican market. “We are in talks with GE at the

a significant push toward supplier diversity, to the extent

moment regarding distribution services, and logistics for

that the company is working with the US government, but

transporting hydraulic pumps, and in the near future, we will

also sees a lot of business in Mexico. Some of AIM Global’s

be able to enter discussions with PPI about the potential

most significant customers are freight forwarders like

to become a distributor for GE here in Mexico,” she notes.

Panalpina, Agility, Geodis, and DHL that use the company

That contract not only involves the distribution for GE, but

for most of their imports and exports, whether that is

also the installation and the maintenance at the rig site.

trucking, shipping, air freight, rail, or warehousing.

Therefore, the companies will work hand in hand. In terms of AIM Global Financing, the services would be applicable to

Mexico is gradually changing its diversity practices, and this

companies with a presence in Mexico but a base in the US.

can be seen in the requirements for Congress deputies, in that 50% must be women. However, García-Dunn believes

García-Dunn believes that, as a result of the Reform, much

that the focus should not only be on the fact that she is a

of Mexico’s infrastructure is beginning to see development,

woman, but on her qualifications, as she can contribute just

with the ports and customs systems are becoming more

as much industry knowledge as any of her male peers. “It is

structured. “On one hand, the prices may have increased

essential to have a solid knowledge base and competence

due to the fact that more players are interested in the

within the industry, and not just act as a figurehead due to

market, generating more competition, but on the other

diversity,” she asserts. “Last year, I was featured in Forbes

hand, customs brokers are beginning to realize that they

because I moved 18 rigs for PEMEX and its contractors in the

cannot maintain current operations, and that they are

last three years, which involved solid industry knowledge.”

no longer working exclusively with PEMEX, but also with international companies that will not necessarily operate

In terms of logistics services between the US and Mexico,

in the same way,” García-Dunn points out. There have

this can be problematic due to integral cultural differences,

been a lot of internal changes at PEMEX, but she sees

according to García-Dunn. For instance, in the US, the

this being beneficial for the industry. Change is difficult

turnkey solutions are what is most requested, whereas

to implement, especially for the government changing

PEMEX contracts have several intricacies that can create

PEMEX into a productive enterprise of the state.

333

| VIEW FROM THE TOP

ADAPTING STANDARDS AND TALENT TO THE REFORMED INDUSTRY ÓSCAR GONZÁLEZ President of ARHIP

Q: What market conditions led to the creation of ARHIP,

or certifications. The market still functions according to

and how has the organization changed from its inception

PEMEX, and the standards and certifications it has. The

until today?

entrance of new companies into Mexico’s oil and gas

A: The oil industry’s Association of Human Resources

industry will oblige current players to shift to international

for the Petroleum Industry (ARHIP) was established

standards.

six years ago. We created the Association because we

334

observed a lack of regulation in the compensation area

Q: How can ARHIP help companies prepare for the

of Mexico’s energy market, an issue that resulted from

changes the Mexican oil and gas industry will experience

PEMEX’s position as the main client in the industry. The

once international companies begin operations in the

NOC’s different business lines did not have a common,

country?

homologated tabulator for the private industry, leading

A: We were invited by the British Embassy to take part

to disparities in salaries. Our aim was to standardize and

in exchange sessions in London with institutions from the

regulate this aspect. A second task consisted of inviting

energy sector in order to understand their certification

companies to discuss best practices and create a portfolio

processes and training schemes. Our aim is to work with

of positions to fill vacancies.

educational institutions, governments, and the private sector to create a triple helix synergy to bring innovations

The association’s main success has been the completion

to Mexico. The triple helix synergy involves the participation

of an inquiry with over 236 positions, divided by business

of the government, the education institutions, and

lines and by matching profiles, because small companies

companies in the industry, and the general aim is to create

do not necessarily have the same salary tabulators as large

a cluster among these to foster collaborations. A concrete

ones. It is important to do so, as the same profile could be

example is the new technological innovation centers in

considered a junior for a large company, but a senior for a

Tabasco, which came into existence through cooperation

small company. We mainly worked with international firms

between the local government, the Ministry of Energy, and

to create the matching system, including AON Consulting,

private companies.

in order to gain credibility. This firm helped us collect the required information and match individuals to companies,

Q: How do you work with universities to ensure their

while the use of a third party allowed us to avoid having

students will fulfill the industry’s future needs?

to transfer and filter information between the members

A: The association works with more than 30 local

of our organization, keeping sensitive data private. AON

universities involved in the oil and gas industries. We

Consulting holds the confidential information, and directly

are pushing for educational institutes to renovate their

provides clients with reports.

teaching programs so they are aligned with current market needs. This also involves an upgrading of their facilities

Q: How is the entrance of international firms into Mexico

and equipment, and they should have simulators and well

modifying your strategy?

schools installed.

A: We have invited international players, such as Shell, BP, and Schlumberger to take part in our association. This has

ARHIP offers various sessions where we speak with students

been somewhat challenging, as we have had to tropicalize

about industry expectations and how they can meet them.

certain concepts, mainly variable compensation schemes.

We like to call these “personal branding sessions”, because

These are some of the additional benefits that foreign

students can learn how to sell themselves to the industry.

companies could bring to Mexico and currently do not

Our training courses in universities last two days, during

exist in the country. Although these do not necessary fall

which we have various panels with students about how to

under the salary area, they could be related to training

prepare to face the market after graduation.

| INSIGHT

THE BUILDING BLOCKS OF HUMAN INFRASTRUCTURE In order to capitalize on the opportunities brought about by the Energy Reform, the Mexican labor force will need to develop new skillsets. The boost of infrastructure

GASPAR GOROCICA

developments will highlight a lack of talent for the

Director General of

construction and operation phases. “If we look at the

Puesta a Punto

amount of training natural gas pipeline projects require, we will find a great opportunity to build new skills in the communities adjacent to the developments. The main

competency because a habit can be applied to several

challenge of these projects will be to translate the way in

aspects of his or her daily life, and that is why our model is

which developers work in other countries to the Mexican

based on habits,” Gorocica details.

population,” says Gaspar Gorocica, Director General of Puesta a Punto. He claims the Energy Reform is attracting

The main challenges companies in the oil and gas sector

new investments for physical infrastructure, but the

will find is attracting talent, according to Gorocica, and the

development of human infrastructure is a situation that is

shortage will be felt once the projects begin. The oil and

not being properly addressed. “I hear plenty of talk about

gas sector will have to rely on professionals from other

the talent gap, but no one talks about how to close it.”

industries, and Gorocica is sure that the most attractive companies will be those that offer a medium and long-

In the next three years, Mexico will see considerable

term career path. “Salaries are important in every industry,

investments in natural gas pipelines, ports, and offshore

but it is no longer the only important component.

projects, which will create between 800,000 and 1 million

Companies have to offer attractive career opportunities

jobs that will require specialized skills that currently do not

to workers at all levels.” Investments in the next years will

exist in the country. The demand will not be satisfied with

concentrate on building infrastructure and then on the

the Mexican education system. One of the things Puesta a

operation phase, and Gorocica claims companies with a

Punto learned for its experience in Etileno XXI is that only

medium and long-term vision will understand that labor in

15% of the people that participated in the construction

the construction stage can be trained so that it can work

stage had a degree, while only 40% had secondary

in the operation phase later in the project. “In Etileno XXI,

education. This meant that the firm had to work with

we incorporated people that stood out in the construction

people that were not used to following processes or norms.

stage by understanding and following procedures to the

Another demographic characteristic Gorocica noticed was

plant’s operation. It is a waste to have a team constructing

the age average. “Training someone between 20-30 years

and another operating, as the first already started

old who has no previous experience in a job that demands

following processes and is acquainted with the project.”

following processes requires an intensive program that helps the person understand his or her role in the project.

In the case of Los Ramones, Puesta a Punto coordinated

These people are not used to wearing security equipment

developers, construction teams, local universities, and its

because this was not imperative in their previous jobs

own staff to develop continuous training programs, which

even in the construction sector, so we cannot expect them

led to operative staff becoming supervisors and managers

to abide to ISO 9000 or OSHA norms.”

at the end of the project. “Taking full advantage of the construction stage and using it to train the people that

The challenge in Etileno XXI was to permeate a culture

will operate the projects is one of the challenges Puesta

among 27,000 people working on a project that was

a Punto works on. When I speak of human infrastructure,

only going to last for two years. Companies, Gorocica

this is exactly what I am referring to,” Gorocica concludes.

explains, can transmit a culture through a different means because they have a long-term vision, but in the case of projects with a determined duration, the best way to create a working culture is by repeating simple messages. In the case of Etileno XXI, Puesta a Punto focused on transmitting nine core habits that encouraged people to follow processes and look after themselves in terms of safety. “It is easier for someone to adopt a habit than a

15% of the people that participated in the construction stage of Etileno XXI had a degree, while only 40% had secondary education

335

| VIEW FROM THE TOP

UNIVERSITY CREATES INSTITUTIONAL BRIDGES JOSÉ LUIS PÉREZ MESEGUER Project Coordinator at UTCAM

336

Q: How popular are your degrees related to oil and gas in

the degree holds slightly less weight than a Bachelor’s

comparison to other degree courses?

degree from an academic university. There are certain

A: The demand for the courses has dropped as a result

universities that offer specific courses tailored to the

of PEMEX’s recent financial situation, since this had a

oil and gas sector, such as the Universidad Olmeca that

resounding influence on the parastatal’s surrounding

offers the Petroleum Engineering degree. We have several

areas. The greater problem is felt by indirect workforce,

agreements with these universities as evidenced by our

such as the suppliers, as they have double the amount of

partnership with the Universidad Olmeca, and we are also

workers as PEMEX. At the moment, we are in the process

about to sign a knowledge sharing agreement with the

of selecting trustworthy suppliers, and we are sharing

Universidad Juárez Autónoma de Tabasco (UJAT). As a

support, information, and expertise, almost like a small

mutually beneficial agreement, UJAT will then be able to

incubator of companies in order to improve the quality

take advantage of our facilities in Houston.

of services we provide. We are forming alliances through UTCAM USA, with universities and companies in Houston,

The budget cuts faced in the last few years have been

Texas, to promote information exchanges and dialogues

extremely tough on the industry, but the government must

related to oil and gas. We are also preparing to create links

realize that this eliminates the incentive for universities

with the new regulatory agencies such as CNH, the Ministry

to create more human talent. There is a lack of jobs at

of Energy, and ASEA, and we expect that our relationship

the moment with PEMEX redundancies, and the foreign

with CNH will begin in 2016. We will also submit proposals

companies entering the market still have not begun

to the Ministry of Energy to clarify previously undefined

operations. Unfortunately, this creates a situation where

regulations regarding environmental protection, and we

human talent is being lost since graduates are beginning

hope they will take our recommendations on board.

to seek employment opportunities overseas. I believe that the government must help ensure that the same situation

Q: What strategic alliances are you forming in order to

does not arise again. We are hopeful that by 2017, we

meet the expected growth of the oil and gas industry?

will begin to see further economic growth, but in order

A: The first responsibility of our recently opened office in

to generate this growth, the government must invest in

Houston is academic, and it will promote agreements with

PEMEX and in the infrastructure of the country.

universities and companies for the benefit of our staff and students. Secondly, the office will serve a commercial function

Q: How can the Ministry of Energy’s initiative of providing

in trying to attract companies to Mexico by promoting

60,000 grants stimulate the talent development for oil

the services offered by the university, and developing

and gas, and how can UTCAM contribute to this scheme?

relationships to help improve our position in Mexico as

A: These types of funds help by supporting investigative

an oil and gas company. There was also a Deep Offshore

development projects in oil and gas. There are several of

Technology International event in the US sponsored by

these funds available, and CONACYT also offers grants for

PEMEX, and this provided us with an interesting opportunity

certain students so that they may study a specialization

to liaise with major players within the industry. We also

abroad after graduation. Currently, there is a concerted

participated in the event, and this was extremely valuable as

emphasis on the ability to speak English, and we have an

it allowed us visibility on an international platform.

agreement with some companies to provide English classes, as well as classes in topics such as investment in English

Q: How can the government adapt educational programs

at UTCAM. There are also certain funds available from the

to the needs of the sector in the short term?

Chamber of Deputies that can contribute to projects, and

A: Our university is a technical university, which means

we want to examine the ways in which UTCAM can capitalize

that, like graduates from other technical universities,

on this money in order to improve our educational system.

| PROJECT SPOTLIGHT: UTCAM The Technological University of Campeche (UTCAM)

advantage, being an educational institute. Over the years,

understands the challenges posed by the Mexican business

the institution has gained experience in the Mexican market

environment, as well as the specific difficulties companies

that confers it capabilities to advise and support foreign

can encounter in the oil and gas industry, but most of all, the

companies entering Mexico. The institution was established

institution sees an opportunity to help toward the success

in 1997 in Ciudad del Carmen, Campeche.

of the Energy Reform. The institution of education’s latest expansion, UTCAM USA, aims to become an international

In 2005, thanks to an excellent relationship with the state

firm that brings integrated solutions to foreign firms

government and PEMEX, the institution of higher education

entering Mexico when it comes to complying with the new

was able to expand into the corporate sector, operating

regulations that stem from the reform. The institution will

as a reliable service supplier for the NOC. This ensures a

seek to provide services ranging from the processing of

high quality of teaching at the university, as the institution

government paperwork, contract management, workforce

understands the nuances and current challenges of the

solutions, and maritime law attorneys. Moreover, the services

industry, and in fact, many its graduates go on to work

offered by the institution also seek to reinforce the culture

with PEMEX. The institution already has a strong presence

surrounding work safety and health and environmental

in Mexico, having stretched its presence throughout the

protection, in line with PEMEX’s SSPA requirements.

country to the cities of Reynosa in Tamaulipas, Poza Rica in Veracruz, and Villahermosa in Tabasco, and it has now

As companies entering the market put a lot of weight

engaged in a cross-border expansion, opening a university

on transparency, UTCAM believes it boasts a certain

in The Woodlands, Texas.

| INSIGHT

FILLING THE GAP BETWEEN EXPECTATIONS AND DEMAND A recent study conducted by the Petroleum Engineers College of Mexico determined that Mexico already has 20 institutions with Petroleum Engineering programs, yet less

LUIS VIELMA LOBO Director General of CBM

than 20% of them have the capabilities to produce highquality graduates. Luis Vielma Lobo, Directo General of CBM,

and also understand rock and fluids properties, reservoir

claims that upon examination of the graduates that will be

characteristics, and effective management of the reservoirs.

generated by universities like UNAM and IPN, it is clear that there will be a shortfall in meeting the needs of the industry.

Vielma Lobo adds that the program will also target the

“Nonetheless, with a solid training strategy and investment,

extremely acute social problem related to unemployment

this obstacle can be overcome within a few years,” he

of young professionals. “There is a number of young

believes. Vielma Lobo explains that CBM is using previous

graduates that are currently underemployed, or that

experience related to price downturns to try and promote

have moved abroad to find opportunities within their

a new kind of specialized education, which will mitigate the

field,” he claims. “The program will conduct a survey

effects of another potential downturn. “This new educational

with a selection process to recruit the most promising

proposal will facilitate the recruitment of engineers of any

candidates available, and with the help of the Ministry

specialty, including mechanical, industrial, electrical, and

of Energy, CONACYT, and a fund specially created to

chemical, among others, and convert them into specialists

develop opportunities for young people, they will receive

in one of the three core process of the exploration and

financial help to make a career in the oil industry.” The

production business: Reservoir Engineering, Drilling and

program has also engendered significant interest from

Well Design, and Integrated Production Engineering. After

private institutions, with the Yucatan Technical Institute

more than 600 hours of technical and practical education,

from Merida initiating the first diploma pilot program at

the program will produce a competent professional fluent

the end of 2015. Vielma Lobo expects the program to be

in English, which is nowadays necessary to succeed within

developed in the University of Nuevo Leon in 2016. “The

an international oil company.” After the completion of the

plan is to equip more institutions with an acute knowledge

program, Vielma Lobo asserts that an engineer should be

of the requirement of the different companies that will be

able to design, supervise, and oversee drilling operations,

starting operations in the country,” he states.

337

| INSIGHT

MEASURES TO ENSURE AVAILABILITY OF TALENT In the Americas, there exist several free trade agreements, such as NAFTA and FTAA, meaning that the region export, but negotiating the technicalities and forming

RAYMUNDO PLATAS MERINO

cross-border alliances can become problematic for many

CEO of LAOGA

becomes an interesting opportunity for production and

companies. The Latin American Oil and Gas Association (LAOGA) was founded to address this issue, fostering links between oil and gas players across the Americas

negotiating what can be viewed as a considerable challenge.

and providing them with a means of creating effective

“This can be seen as a substantial opportunity for anyone

partnerships. The association also focuses on integrated

studying engineering, whether they are in public or private

education programs, with the implementation of seminars

university, and especially for the new generations,” he says.

and courses.

When the students graduate in four years’ time there is the potential for the oil prices to have somewhat recovered,

After the Energy Reform, LAOGA initiated a course on

and there may be even more lucrative opportunities

this topic, which CEO Raymundo Platas Merino believes

available for them. Several opportunities will be presented

experienced great success. The association has also made

in terms of pipelines with CFE, as there has been a boom

alliances with universities such as UNACAP, Universidad

in installation due to a government investment of US$4

de Juárez, Universidad Autónoma de Tamaulipas, the

billion. This could create a plethora of jobs in engineering

Houston Technology Center, and the University of

and pipelines, so there exists a significant opportunity for

Colombia. “We were also able to videoconference our

the education segment over the next few years, according

speakers, such as Juan Carlos Zepeda, David Madero, and

to Platas.

Enrique Ochoa, to all these sites,” boasts Platas. “That certainly sets us apart from the competition, as we are

Every year, approximately 800,000 students graduate

contributing so much content to the industry and to the

from university and college in Mexico, and the majority

different sectors.” LAOGA has also launched a course in

are engineers, which constitutes a completely separate

Procurement for the players invested in Round One, and is

market and pool of human capital for these companies.

currently working on Commercialization and Distribution,

LAOGA is working with several colleges, as well as

as well as Storage seminars. “We are also working with

collaborating with the Institute of Energy in London

PEMEX on procurement and supply chain training, as

and Rice University in order to adapt the qualifications

well as new, private players,” Platas says, alluding to a

required by them to the Mexican student body. Another

partnership with the parastatal.

step being taken is the launch of an application geared toward human capital, meaning that résumés can be

In terms of improvements to the system, Platas believes in the

uploaded to the LAOGA webpage to enable more efficient

merits of exclusive licensing agreements. Secondly, he argues

recruitment practices. Bearing in mind that members

that PEMEX should move faster in terms of allocating the

come from Europe, the US, and Latin America, this system

tenders in Round Zero, since regardless of the implications

has created global opportunities for Mexican engineering

of the Energy Reform, at the moment PEMEX remains a

graduates. “Meanwhile, PEMEX must optimize its budget

main determinant of the economy. Finally, the allocation

in order to accommodate properly for this education, and

of funds by CONACYT and the Federal Government for

the University of PEMEX is eagerly anticipated by the

provision of education within the industry should be

industry,” Platas claims.

accelerated, according to Platas, and this is currently one of the association’s priorities. “I believe the most important

LAOGA also expects to continue working on its education

aspect is allocation of these funds, since the human capital is

programs, and its two courses in oil and gas and electricity

the lynchpin that holds the industry together, and failure to

will be launched next year. Many new regulations are

address this component of the system could create delays in

being released, so the association is maintaining contact

implementation of the reform,” warns Platas.

with members on the points in order to provide feedback to the regulatory entities. “CNH, CRE, ASEA, and other

One of the main future challenges for PEMEX is going to be

regulatory agencies must inform and educate the industry,

a shortage of human capital, but LAOGA has a strategy for

so LAOGA acts as a vehicle to do so,” says Platas.

339

| INSIGHT

ADDRESSING THE HUMAN CAPITAL GAP One of the main challenges that ICA faces is the struggle

IGNACIO CANO CERVANTES

of the Mexican education platform to create the number of

Vice President of Human

according to Cano Cervantes. The educational system is

Capital at ICA

creating a lot of talent for other industries that are not

skilled engineers and technicians required by the market,

growing as much as oil and gas. It takes many years to create a curriculum that conforms to market needs, and The cyclical nature of the oil and gas sector presents many

as such, he fears that the oil and gas market will not be

challenges, and one of the main issues at the moment

provided with sufficient local talent in the near future.

is producing the right people for the main sectors of

340

activity, according to Ignacio Cano Cervantes, Vice

“Given this difficult reality, we have taken it upon ourselves

President of Human Capital at ICA. “We are not a factory

to form associations with other firms, through which

that continuously produces the same product. We are a

we interact with different universities and institutions

company that offers solutions to different sectors, relying

to create responses to the human talent challenge,” he

on various methodologies,” he claims. ICA’s main pillar lies

shares. In addition to this, ICA has also established its

in its human capital strategy, which requires understanding

own corporate university to train the market’s future

of organizational capabilities in order to discern those in

employees, and has a strong continuous training platform

need of development. Cano Cervantes believes that the

for current employees. Both of these responses to the

use of relevant technologies has allowed ICA to contribute

lack of human capital carry the same weight, and Cano

to one of the economy’s most important sectors: oil

Cervantes believes they will work to allow ICA to survive

and gas. The culture of innovation that the company

in these challenging times.

fosters is crucial to its ability to respond to all of the sector’s requirements. These innovations are consistently

Cano Cervantes identifies further challenges in keeping

enshrined in different training programs so that they can

up with the market, which has been undergoing many

be circulated throughout the company, increasing ICA’s

profound changes lately. In order to use all of the capital

overall efficiency, and even fostering new ideas.

resources needed to develop infrastructure in this new era, the company was forced to increase its debt, but

As a company that offers services, ICA places human

unfortunately, the complexity of collections processes,

capital at the heart of its success, and at the core of

the depreciation of the peso, and other factors led the

the company. “We consider talent management one of

company into a liquidity problem. ICA now plans on using

our main organizational capabilities on the same level

its assets to reduce this debt as part of a more holistic

as project finance, contract management, and project

financial restructuring process.

management, because we need to build the right talent in order to maintain our market position,” Cano Cervantes

Nonetheless, Cano Cervantes believes that the company’s

adds. “Not only do we strive to retain the right people,

survival will be highly dependent on its human capital

but we also do our utmost to retain knowledge.” ICA’s

and its ability to adapt to new circumstances. “Our main

knowledge management platform allows the company to

project managers are used to working in an environment

archive the knowledge gained during each project, and to

with a single client, which is the government and has

reapply it in the future when it is relevant. The ensuing

specific

analysis of this information provides an overview of the

points out. “Now, however, our employees are confronted

talent pool and the capabilities that can be improved

with a new industry reality in which they have to work

when undertaking or continuing a specific project.

with different private companies at the same time, who

The company’s main contributors, the Chairman of the

may demand a change halfway through the job, contracts

company, the CEO, and Cano Cervantes himself, are then in

are becoming more complex, and they need to learn to

charge of managing and developing this resource to keep

manage new risks.” He believes that employees must

up with the rapid pace of changes in the sector. “At ICA,

understand the different stakes in a project. In the past,

we do not look for incremental changes, but rather, we

project management was the most important aspect of

move with the market and continually reinvent ourselves

a project, but nowadays, Cano Cervantes attributes this

to reflect its needs,” claims Cano Cervantes.

significance to contract, financial, and client management.

contractual

arrangements,”

Cano

Cervantes

| INSIGHT

ADAPTABILITY OF EMPLOYEES IS A BONUS AMEC Foster Wheeler was born when UK consultancy, engineering,

and

project

management

firm

AMEC

acquired its Swiss rivals Foster Wheeler in a lucrative

SERGIO SALDÍVAR

takeover in late 2014. As a result of the merger, the new

General Manager of AMEC

company is prioritizing on diversifying services and

Foster Wheeler

recruiting new human capital in order to stay ahead of the future recovery of the oil and gas market. “Along with our partners in Houston, we have the necessary capabilities to

He places great importance in the ability to trust in teams,

tackle shallow waters but we also have many competitors

and change elements when necessary.

in the market, some of which are extremely experienced in this field,” explains Sergio Saldívar, the company’s General

Although one of the main concerns in the industry is a

Manager. He believes that the company’s most impacting

potential talent war, Saldívar is not worried about the

projects will come in the deepwater phase, and is preparing

company’s ability to attract the most qualified human

for R1-L04 by sending employees to execution offices in

capital due to its advantage of being an attractive

other countries and by bringing employees from abroad

brand. He compares working in the company to being

to Mexico. “We still have a lot of time before this round

employed by major players such as KBR or ICA Fluor.

to perfect our offerings and tailor them to the specifics

“Before AMEC Foster Wheeler was formed, we could not

of deepwater activities,” he shares. Although the first

afford to compete, but now we can and we are heavily

contracts will be awarded in 2016, industry experts widely

investing in this,” he reveals. “While ICA Fluor is a mature

believe that it will take a minimum of five to seven years

and established company, we are experiencing strong

before anything is built.

growth, allowing us to offer high-ranking positions from the outset.” Furthermore, he cites a formula of three

If AMEC Foster Wheeler will play against IOCs, Saldívar

components that seem to attract human capital without

expects

business

fail: competitive compensation, challenging employment,

development efforts and key accounts are handled

and provision of training programs. AMEC brought in an

within the higher levels of the company. Nonetheless, he

online training tool called “The Academy”, which contains

expects the company to constitute an important tool, as

an incredible amount of training resources, for employees.

it possesses the necessary resources in Mexico. “There

Saldívar shares that the employee feedback from staff

may be some advantages in terms of local content

testifies to the fact that AMEC Foster Wheeler jobs are

requirements, although this would not be articulated as

among the most challenging in the industry.

its

role

secondary

since

a fixed rule,” Saldívar discloses. “In terms of execution, we will play a limited role, initially only carrying out 20-30%

Although mergers can be a difficult experience for

of the job for the simple reason that we need to learn.”

employees, Saldívar believes that two factors have played

According to Saldívar, now is the most opportune time the

to the company’s favor. Most of the company’s long-

industry has seen in years for new entrants, and he looks

term employees are extremely flexible and adaptable,

forward to taking advantage of the opportunities it may

he boasts, due largely to AMEC Foster Wheeler’s long

present, despite the setbacks.

history of change, including joint ventures, mergers, and acquisitions. Another factor is AMEC relatively

The General Manager believes that his job and the way

new presence in Mexico, which largely facilitated the

in which he approaches problems have been significantly

integration with Foster Wheeler’s Mexican branch. “In

altered. Although his activities have not significantly

2020 you should be looking at a much more consolidated

changed, this has not been the case in terms of reporting

company structure,” Saldívar shares. “I hope we will be

and long-term planning. “My biggest lesson over the past

in the middle of executing very large projects, such as

few months and years concerns the importance of human

the Salina Cruz reconfiguration, which is truly one of our

capital and talent,” he asserts. “It is vital to find the right

main goals.” The General Manager would also like to be

person for a given job, and forcing someone into a position

engaged in the development of a deepwater field or a

or trying to develop them for a certain role is not feasible

large shallow water project, as well as operating units on

in this kind of environment.” Jobs must be distributed to

smaller, industrial projects in pharmaceuticals, food and

different people, he says, who must in turn be relied on.

beverages, and perhaps mining.

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| VIEW FROM THE TOP

PREPARING PERSONNEL FOR NEW OPERATORS NICK SPIES Director at iPS Powerful People

342

Q: What role does Mexico play in the history and global

Q: How has iPS Powerful Peopleâ&#x20AC;&#x2122;s global strategy evolved

strategy of iPS Powerful People?

in light of the layoffs in the global oil and gas industry?

A: We started to execute our operations in Mexico eight

A: We have been promoting our Mexican candidates to

years ago. Our incursion began due to our belief that

our overseas customers, who have become aware that

Mexico would eventually become an even more prominent

these people have a certain set of experiences and that,

player in the international oil and gas industry than it

with minimum investment, could be an asset to their

already was, particularly due to the role that it would

organizations or projects. We are additionally working

play in the infrastructure and development of reservoirs,

actively with various institutions, such as embassies

projects, and the general oil and gas offshore industry. As

and branch organizations, locally as well as overseas,

we successfully predicted, the reforms opened doors to

in order to be present at seminars and conventions to

new opportunities for Mexico as a country, to its people,

determine where possibilities may arise for this Mexican

and to its oil and gas talent. We see our presence in Mexico

workforce.

as a long-term investment that we express through our educational and training-based activities.

Q: What innovative solutions have you brought to the human capital market?

Q: How have you adapted your activities to the current

A: We use open book administration, by which we mean a

state of the industry?

transparent way of working and of being clear and open

A: As a financially independent company, it is in our nature

to personnel regarding what they exactly will receive for

to approach industry-wide challenges in the most cost-

their work in terms of wages, benefits, and contributions,

efficient and effective way. By listening to our customers,

as well as a guarantee of transparency to clients by

we have been able to provide tailor-made solutions that

showing exactly what they are paying for. There are no

have saved money without sacrificing quality, services, or

hidden agendas throughout this process, as it reflects the

the skills of the personnel. Due to our global network and

way in which iPS has always worked and what has become

presence, we are well informed of market developments

the key to our sustained success over 28 years. Open

worldwide and pro-actively adapt to these developments.

administration leads to long relationships.

LOOKING FOR P IN OIL & GAS, OFFSHORE AND

CHANCES ARE WEâ&#x20AC;&#x2122;VE ALREADY Contact us at mexico@ipspowerfulpeople.com or check www.ipspowerfulpeople.com and find out what we can do for you.

| VIEW FROM THE TOP

BRIDGING THE TALENT GAP GUIDO VAN DER ZWET Business Manager for Latin America at iPS Powerful People

Q: How are you working as a bridge between universities

few years the mix should give an opposite impression in

and companies or organizations?

its distribution, where you have 80-90% of local crew and

A: Various universities have started oil & gas related

10-20% foreign crew. In this regard, it is important to look

education. There are also various universities signing

at examples such as that of BW Offshore and the evolution

collaboration with foreign universities. The country has to

of its workforce in Mexico.

start working on international safety regulations and training, since most investment over the coming years will come from

Q: How can iPS Powerful People help PEMEX retain the

foreign investors and IOCs expecting international safety

most efficient person for a given job?

regulations that follow the international standard, instead

A: We can help PEMEX adapt to the requirements of a

of the rules that were put in place in Mexico by PEMEX

changing oil and gas market. We have a vast database

and local governments. Our role in this, as a MLC:2006

of international experienced candidates that have been

certified company, is to make sure that all personnel that

in similar situations helping companies become more

boards vessels with a MLC:2006 ratified flag have the right

efficient. We are a registered provider to PEMEX and are

education, experience, and initiation to comply. Furthermore,

showing our interest in helping the company shape up to

we are ISO 9001:2008 and OHSAS 18001:2007 certified,

become more competitive within an already increasingly

certifications which also have standards when it comes to

competitive environment.

safety, quality, and international regulations. Q: What is your general outlook regarding Mexico’s oil Q: What opportunities does Mexico’s oil and gas market

and gas future?

provide for foreign professionals in the wake of Round One?

A: Although 2016 looks like a tough year, given the current

A: When new companies arrive with their assets, they bring

price of oil and the reforms within PEMEX, we have faith

a large group of experienced professionals with them.

that the new operators will give a new boost to the market.

Most companies would start with about 80-90% of foreign

Also, we feel that PEMEX will recover through partnerships

crew on board and have only local crew on board for the

and will shape up to become a competitive company in

lower ratings. The foreigners train local crews and after a

the future.

ERSONNEL MARITIME?

FOUND THEM iPS - Powerful People Av. José Maria Rico 121 - PH - Oficina 3 México City I México I www.ipspowerfulpeople.com

343

| VIEW FROM THE TOP

PUTTING HUMANS AT THE CENTER OF RELIABILITY HERNANDO GÓMEZ DE LA VEGA President of R2M

344

Q: What makes R2M a company suited to the Mexican

success of a company. People must be capable, be given

market, and what main projects have you undertaken

resources, and be motivated. In times of crisis, companies

locally?

tend to cut training and maintenance costs first, which is

A: R2M is originally a Venezuelan company. When

not the safest approach. It reduces employee resources

considering countries for our first expansion abroad,

and capability, and ultimately motivation. We understand

Mexico clearly emerged as the best option. The nation’s

that training is costly, but it is not riskier than operating

broad cultural diversity fosters tolerance, facilitating the

in ignorance. A cutback in training and maintenance will

introduction of new technology. This culture is aligned

immediately impact the company’s finances, unlike other

with our "Leadership and Technological Differentiation”

areas, but in the long term, companies will pay at least five

strategy supported by our advisory services, expert

to ten times more as a consequence.

studies and projects, training, software, and publications, all of which have contributed to a strong brand

Q: Your solutions are based on a self-developed approach

positioning, and have been successfully replicated in

called Integral Reliability. What does this solution imply,

different markets under the current business model.

and how is it designed to improve the reliability and safety

Moreover, the growing Mexican economy is now strong

of processes and projects in the oil and gas industry?

enough to support the development of business. These

A: The heart of our Integral Reliability approach is,

three factors were our main grounds to enter the country.

again, human reliability. To apply this approach, we first

The project we are proudest of in Mexico is the execution

run a diagnosis, which takes into account each part of

of an exploitation development plan for PEMEX’s

the project before putting it through data mining and

Burgos Basin. Through our methodologies we identified

analyses. We then evaluate this information, retaining only

the headache-causing factors, allowing for excellent

what will be needed to build robust and unbiased sample

results, findings, and savings for our customers. We also

solutions, and apply mathematics formulae so we can mix

participated in Cantarell by performing a quantitative

the previously obtained hard data with expert opinions

analysis for the drilling of wells, and optimized the

and any additional information required. The statistical

drilling sequence in Ku-Maloob-Zaap thanks to a tool we

prediction obtained from this process is the basis of the

developed specifically for that project.

reliability and risk optimization solution suggested to our client.

Q: What do your methodologies entail, and how do they benefit your clients in Mexico?

Risk plays a major part in reliability and, in fact, the latter

A: Our methods take on a threefold approach to reliability,

can be equated to risk mitigation. Our integral reliability

focusing on processes, hardware, and people. The analysis

approach also has the characteristic of being dynamic.

of these three variables as a system allows us to improve

Because the conditions of a project are subject to many

reliability and revenue while reducing risk in projects. One

variations, our solution may not be valid one year later,

of the particularities of R2M is the importance attributed

particularly in the fast-evolving oil and gas industry. As

to human reliability. We consider this paramount, and in

time goes by, reliability diminishes, and risk intensifies.

fact, we believe it accounts for as much as 70-90% of the

This is why we offer our clients the option of continuous

success in a project. This is particularly important in the

monitoring or spot checks, updating our reliability

Mexican oil and gas market, where workers are experiencing

solution to the new environment, thus allowing for an

job-related stress due to the many budget cuts companies

increased probability of success in the project. We can

are enacting, with PEMEX leading the way. Our model

also oversee the project’s reliability and risk management

in human reliability focuses on the three main desired

from beginning to end, should our customer require this

aspects of an employee, all of which are primordial to the

service.

| VIEW FROM THE TOP

WORKING WITH INDUSTRY TO TAILOR LEARNING Q: How is your program adapted to provide students with the entire breadth of proficiencies required by the market, and what does the typical UVM graduate look like?

Eduardo García García Institutional Dean of Engineering, Design and Architecture of UVM

Gerardo De Alba Mora National Energy Director of UVM

EG: The international context is important for UVM. The University is part of Laureate International Universities,

EG: These councils are our way of remaining in touch

the most important Universities Network worldwide, with

with the industry’s needs, as they provide us with

a presence in 30 countries, more than 80 Institutions, and 1

constant feedback around what is happening, what is

million students. Our study plan is designed to expand our

going to occur, and how well we are doing. Additionally,

students’ vision through international exchange schemes

the links that we have developed with companies allow

and collaborations with universities abroad. In line with

us to evaluate and incorporate necessary industrial

this international approach, we place a strong emphasis

competence certifications, such as the Rig Pass and the

on the teaching of English. Soft skills are also developed in

Well Sharp. Others are required by leading companies

our courses, as we consider them just as fundamental as

such as Halliburton, Weatherford, and Schlumberger, and

technical skills such as leadership, negotiation, teamwork,

these certifications ultimately contribute to the increased

communication, and social responsibility. Looking at

employability of our students. Moreover, we are part of the

current industrial needs, we also teach classes associated

advisory councils for certain commissions of the Ministry

with safety and information technology due to the current

of Energy in topics surrounding the development of

importance of data. As a Higher Education Institution, we

talent and value chains for the entire energy sector. The

have always considered it important that our students

close relationship we are consolidating with the industry

develop these skills essential to the private industry.

also provides benefits for private companies, knowledge sharing, research on trends, and the development of

Q: How do you work with public organizations and private

talent. The oil and gas industry needs more than just

companies to ensure your teachings are in line with their

hydrocarbons

requirements?

chemical, and civil engineers to complement the talent

GA: Our model is based on skills generation. In order

required by the industry.

engineers,

also

requiring

mechanical,

to make sure that the proficiencies we are teaching our students are those that the market is looking for, we

Q: Being generally perceived as a male dominated

have developed close ties with the regulating entities

industry, how can you attract more women to work in the

because these have taken on an active role in identifying

oil and gas sector?

needs in the national oil and gas market. We then use

EG: UVM places a considerable emphasis on women,

this information to implement classes that will transfer

which is reflected in all of our advertisement platforms.

the necessary skills for these needs to our students. In

We cannot ignore the fact that women represent 52%

addition to this approach, UVM also communicates

of the workforce in Mexico, and organizations should

directly with the industry. We have created an academic

strive to take advantage of this resource. At the moment,

council formed by a majority of industry members where

the portion of women in UVM’s engineering courses is

we monitor and evaluate current teaching programs, and

17%. Our aim is to increase this figure year on year, and

identify the necessary updates in order to anticipate and

in fact, our latest oil and gas engineering promotion

cater to industry needs. We also work toward developing

has 20% female representation. UVM is striving to

entirely new study programs that we believe will be

understand what can be done to bring more women into

needed in the future. An additional way we ensure top

these traditionally male degrees, promoting our courses

quality academic programs is through our links with

through media, and also at events and forums. We were

other institutions, be they local or abroad. We are aware

present in different forums to promote the participation

that no one institution has all of the capabilities required

of women in engineering. It is not only about achieving a

by the industry, which is why we have adopted this open

gender balance, but also about taking advantage of the

approach to working with academic centers, training

competitiveness, innovation, and creativity that women

centers, and research centers.

display each day.

345

FUTURE OUTLOOK

Round One is a reality, and the market has been officially opened to private participation. However, given the delicate state of the global oil and gas industry at the moment, players are curious as to how the Mexican upstream sector will evolve in the following years. Round One has been a work in progress and all eyes are on the deepwater phase, colloquially referred to as the ‘crown jewel’. It is yet to be seen if this round meets the IOCs’ expectations and changes the future of hydrocarbon production in Mexico. The authorities have also unfrozen the fifth phase of Round One, which is expected to lead to the development of the country’s unconventional resources. Mexico is believed to hold the fourth largest shale reserves in the world, yet players wonder how the country will replicate the success of its northern neighbor in exploiting these resources. Other questions revolve around the performance of local operators, possible joint ventures with PEMEX, farm-outs, and most importantly, ensuring a profitable market in a time of low oil prices.

This last chapter discusses the impact of the Energy Reform and its impact on the position of Mexico in the international oil and gas industry. It provides crucial information that can help readers understand the future of Mexico’s oil and gas sector.

347

| CHAPTER 14: FUTURE OUTLOOK 350

VIEW FROM THE TOP: Lourdes Melgar, Ministry of Energy

352

INSIGHT: Rubén Cruz, KPMG Mexico 349

352

INSIGHT: Iván Sandrea, Sierra Oil & Gas

355

INSIGHT: Sergio Beristain, Beristain + Asociados

356

INSIGHT: Pablo Medina, Wood Mackenzie

357

VIEW FROM THE TOP: Derek Woodhouse, Woodhouse Lorente Ludlow

358

MAP: Upcoming Licensing Rounds

360

VIEW FROM THE TOP: Gustavo Hernández, PEMEX E&P

361

INSIGHT: José Antonio González Anaya, PEMEX

| VIEW FROM THE TOP

ADMINISTERING THE FUTURE OF MEXICO’S OIL AND GAS INDUSTRY LOURDES MELGAR Undersecretary of Hydrocarbons at the Ministry of Energy

Q: What is the short and medium-term impact of the

such as the decline of Cantarell. This super-field once

drop in oil prices on Mexico’s energy policy and the

produced close to 2 million b/d and now its production

implementation of the Energy Reform?

stands at 230,000b/d. In addition, other fields are reaching

A: Although the drop in oil prices affects oil companies,

the mature stage, such as Ku-Maloob-Zaap. We are in a

including PEMEX, these do not come into consideration

period during which many projects will reach maturity or

when we define the appropriate energy policies. However,

begin to decline, meaning there will be opportunities for

this factor comes into play the moment we begin working

investment in order to boost production.

on a specific bidding round, defining the areas, their terms 350

of materiality, and the selection of the type of opportunity.

While oil production is crucial, I am also concerned

For instance, today might not be best time to develop

about natural gas production. From an energy security

extra-heavy crude.

perspective, we need this resource. Less than 70% of the natural gas consumed in Mexico is produced in the

Oil and gas is a sector where we need to have the medium

country, highlighting the need to maintain and increase

and long terms in mind. The drop in oil prices has severely

production levels both to ensure energy security and our

strained both the state budget, which has undergone

independence from US exports. So far, the government has

significant adjustments, and PEMEX. That being said, low

made a great effort in attracting investments for projects

oil prices also provide opportunities. This is the case in the

aimed at importing gas from the US, but there is a limit to

electricity sector, as it was unlocked to private investment

the amount of infrastructure we can develop at one time.

by the Energy Reform. The reform also goes deep into the midstream and downstream segments, which become

Q: What is the extent of the challenge CENAGAS has, and

even more attractive areas for investment when oil prices

when should we expect to see change within the natural

are low. We are taking advantage of this situation, and it

gas market?

is something that was already included in the reform at

A: The first thing is to consider is infrastructure, because

the constitutional and legal level. Now that we are in the

no natural gas market can be created without this feature,

phase of implementation, we hope we get the attention

and so far we have been advancing well in this area. We

necessary to attract investment in these segments.

have been developing the arteries of the system and CFE has implemented an extremely efficient process through

Q: Which priorities have to be met in order to measure

the contracts. In terms of regulation, CRE is already

the success of Mexican upstream oil and gas industry?

removing a significant distortion we had in the pricing

A: The idea is to mark every item on the checklist, such as

system. Pricing was set many years ago at over US$20

increasing production, reserve replacement, value creation,

per billion BTU, meaning that PEMEX was effectively

and job creation, among others. Each ministry has its own

subsidizing the transport. This means that the production

priorities. While the one of the Ministry of Finance is to

and import of natural gas is uneconomical at the current

increase state revenue, the Ministry of Energy is seeking to

prices of US$1.7-1.8. We are now taking transportation

increase production and reserve replacement in order to

into account, which is something that has generated

ensure energy security in the country, which includes oil

complaints in certain areas. Nevertheless, even when

and gas but also condensates and other products. Mexico

taking transport into account, the price of natural gas

cannot boost its petrochemical industry without the right

remains historically low.

production of condensates. We are working on the creation of a natural gas market The decision makers want to end the country’s decline in

to be announced within the next two to three months. I

production, which stems from clear and logical factors,

view it as an important component in ensuring that the

electricity market functions efficiently. Gas and power are

their business to areas that are not necessarily related

intrinsically linked, so it is vital that both these markets

to the industry. However, with prices such as the ones

work in harmony. If the natural gas supply is controlled by

experienced today, oil companies have to go back to their

a utility, it is extremely difficult to generate competition

core business. In the case of PEMEX, these areas are E&P,

in the electricity market, so I view it as a healthy decision

refining, and hydrocarbons processing. I expect to see

to establish two markets, both run by independent

a more selective PEMEX soon, divesting from projects

system operators. This will happen before the end of this

that were recently created and are not part of its main

administration. We are aware that natural gas has other

activities.

uses apart from energy generation, and for us, as a policy maker, boosting the petrochemical industry is a priority, as

In addition, the NOC, as a productive enterprise of the

the liquids and condensates from natural gas are integral

state, has to play the same game as other oil companies,

to this process.

which is reducing costs and becoming efficient. We have been adamant about the fact that PEMEX needs to review

Q: At which level do you expect production to bottom

its benchmarks in every area, such as oil production, and

out, and what should be fueling the reversal to increase

ensure that it becomes more productive, investing where

production again?

it is more profitable. High taxation levels have definitely

A: The political concern involves a production drop below

impacted PEMEX, but the company could still do better

2 million b/d, which could occur at the end of 2016. The

in terms of production costs and efficiency in its core

following year, however, production should start ramping

activities.

up again thanks to the initial production from the blocks awarded in Round One. In addition to the first oil from

Q: Given its complexity, do you expect the tenders for R1-

these fields, farm-outs will also contribute to increasing

L05 to be released after R2-L01 and R2-L02?

production in the 2017-2018 period. The farm-outs and

A: This is likely but the names of the rounds may change.

migrated contracts should also compensate for the share

Regardless of this technicality, the importance lies in

of the drop in production led by PEMEX, a consequence of

ensuring the development of each round and maintaining

its severe investment cuts.

momentum in order to increase oil production as quickly as possible. We will continue working on the implementation

Q: What else can be done to boost the Mexican oil and

of the reform, and once we have the regulation ready,

gas industry?

the unconventionals round will be launched. R2-L01 and

A: PEMEX, the Ministry of Finance, and the Ministry of

R2-L02 will focus on shallow waters and onshore, and

Energy do not expect to see a price of US$80/b during

the latter will cover a wider area than R1-L03, with both

this administration. One of the reasons why PEMEX had to

exploration and extraction activities combined.

undergo such a severe budget cut is because its budget had been planned under the unrealistic expectation of a US$53/b scenario. The newly appointed Director General of PEMEX is aware that he is beginning his tenure at US$25/b and has adapted operations accordingly. The PEMEX Board of Directors, the Ministry of Finance,

Cantarell is a super-field that once produced close to 2 million b/d and now its production stands at 230,000b/d

and the Ministry of Energy have been working on a plan that has several components, one of which involves the

Q: What would you look forward to as the 2016 highlight

provision of more favorable fiscal terms for the NOC.

for Mexicoâ&#x20AC;&#x2122;s oil and gas industry?

The law offers different ways of achieving this, such as

A: First of all, the contracts from R1-L03 will be signed

migrating some of the entitlements to new contracts

in May. Although it would be fantastic to have all 25

types, something we are already analyzing with PEMEX.

companies sign, I would prefer it if the companies that

We have talks with the Ministry of Finance regarding

have reservations about their bids did not sign, because

issues related to the cost cap because this aspect was

we always have the second bidder as a backup option. I

established in the Law of Income from Hydrocarbons.

would rather have a company that is truly committed to

The current price cap is lower than what PEMEX had

what it offered, rather than a company that will struggle.

before, so we are seeking to give it a similar one to the

This responsibility lies with CNH, which is currently liaising

one prior to the reform.

with the contractors. R1-L04 is also upcoming, and Round Two will most likely develop in December. Additionally, we

Another aspect relates to the fact that when the oil price

are expecting to tender the farm-outs, and the contract

is high, companies are free to think about expanding

migrations, and to process both the CIEPS and COFPs.

351

| INSIGHT

PREDICTIONS FOR THE SUCCESS OF FINAL PHASES increase production in the medium and long term,” Cruz asserts.

RUBÉN CRUZ Advisory Partner, Head of

Cruz identifies the third phase of Round One is the

Energy and Natural Resources

smoothest of all the rounds in term of implementation, as

at KMPG in Mexico

licenses do not have the complexity of other contracts, and the awarded onshore fields have proven reserves and infrastructure, which decreases the investment required. Of

352

Over the past decades, PEMEX’s investments in exploration

the US$6.9 billion expected to be invested in Round One,

activities were low in comparison with industry standards,

US$1.1 billion will be channeled into the blocks awarded

particularly in deepwater and unconventional resources,

in R1-L03. Regarding the possibility of new operators

but Rubén Cruz, Advisory Partner, Head of Energy and

expanding to other areas, this could be done through

Natural Resources at KPMG Mexico, firmly believes that

partnerships with third parties, since a key limitation in

the reform will reverse this trend. “Reserves replacement

the upstream segment is financial. “Typically banks do

rates have been in the range of 65-70%, a situation that

not provide financing for exploration activities, and only

calls for urgent investment in upstream activities in order

a few private equity funds find this kind of risk attractive,”

to, firstly, elevate reserves replacement rates above

he reports. Companies that won contracts in R1-L03 will

100%, and secondly, eventually increase production,” he

gain experience as operators, but Cruz feels they will still

points out. In the past two years, production declined

lack the technology needed to exploit offshore fields,

at a 5.1% average rate per annum. The implementation

highlighting the importance of partnerships in expanding

of the reform will partially reverse this situation with the

to other segments.

entry of 30 new operators resulting from the first three phases of Round One, which have collectively committed

KPMG helps clients handle risks entailed in financial

investments of an estimated US$6.9 billion, meaning

aspects, while also helping with anti-bribery and corruption

that, at peak production, these developments could add

affairs, financial reporting best practices, audit services,

280,000 boe/d, an increase of 12.5% on current levels.

and the development of strategies so that companies can

“The fourth phase that will take place later this year, the

form strategic alliances with third parties or grow through

farm-outs, and the unconventionals rounds are critical for

M&As. “A key feature of our services is the fact that we

the discovery and development of new reservoirs that will

assist players in participating in bidding rounds, and

| INSIGHT

NEW OPERATOR LOOKING TO EXPAND ITS HORIZON IVÁN SANDREA CEO of Sierra Oil & Gas

spaces of the oil and gas value chain,” Sandrea asserts. CNH estimates that the consortium should eventually reach a production level of 23,600b/d in its Round One blocks. “We certainly intend to comply with the pre-established

Iván Sandrea, CEO of Sierra Oil & Gas (Sierra), which is part

conditions of the contract and the timetable to the letter,”

of the consortium that won two blocks in R1-L01, believes

Sandrea voices. “In fact, the data that we have collected

that getting involved right from the beginning was the right

so far provides us with a positive view of the future.”

decision. Thanks to its robust capital structure, as well as

Nonetheless, he mentions that it is important to remember

a strong team with a robust technical background, the

that the consortium’s blocks are unique in that they are

company is determined to play a growing role in the industry.

exploration blocks, which means that before any talk about

“Going forward, Sierra will continue to consolidate its

production can be had, there needs to be drilling, findings,

status as pioneer and first-mover in Mexico within different

and an accurate assessment of the volume of the reserves.

among some of our new clients are those companies that won contracts,” shares Cruz. He anticipates that the most significant risk companies will face in the upstream segment will lie in exploration activities. Another significant challenge will be accountability in terms of environmental compliance and malfunctions in facilities or equipment, he explains. “Moreover, companies are concerned about the administrative recession stated in the contracts and also about corporate guarantees, and I believe that it is highly unlikely that the majors’ holding companies will feel comfortable with these types of guarantees,” Cruz asserts. Instead, he predicts that the

areas or demands required by the guidelines. “However,

risks will ultimately be transferred to a certain degree to

players have commented that even though the assignations

companies that provide services to these large players,

are there, details on the implementation of the contracts

and they will have to find ways to mitigate these risks.

and other operational aspects are still lacking,” he states. “The regulator’ challenge will be to react at the same pace

Cruz believes that the implementation of the Energy

as that at which the reform continues to unfold.”

Reform has been carried out in an impressively short timeframe and compares it to NAFTA due to the scope

In terms of the final phases of Round One, KPMG views

of changes it will bring about in the market, and the long

the fourth phase of Round One in a positive light in spite

term results. The results of NAFTA are now tangible and

of the current low oil price. “The contract model for

positive, but if these had been measured two years after

the deepwater round was drafted in a realistic way by

the treaty was enacted, he highlights, the results would

considering the developments of the exploration stages

not have been a fair reflection of its scope, as the country

through real options, which brings increased security to

was in the midst of one of the worst economic crises

investments,” Cruz comments. He believes that the fact

in its modern history. “The Energy Reform and other

that licenses were chosen also helps because this is the

parallel reforms impact different segments and industries

contract model majors are accustomed to working with in

simultaneously, so it entails a great deal of complexity

many markets. “Companies will seriously consider entering

regarding its implementation and regulations,” Cruz

Mexico even if their budgets are cut because of the low

comments. In this sense, the main guidelines have been

oil price,” Cruz predicts. “Given the fact that Mexico is

issued and the regulators have been closely following the

competing with other upstream markets, flexibility in the

developments in order to quickly cover any existing grey

contracts and clarity regarding guarantees is important.”

Only then does Sandrea believe the group can make

respected investor and operator in Mexico. “We want

announcements about the precise production rates that

to become a partner of choice with a growing, high

it deems viable and intends to pursue. “Compared to the

quality local portfolio, and to be acknowledged as a

estimates based on indirect seismic data, the figure could

firm that excels in terms of its technical and managerial

be significantly revised upward or downward, depending

capabilities,” he adds. The company would like to have

on the findings from our exploratory efforts,” he explains.

between 200-300 million boe of net reserves in projects in the development, exploration, and production stages,

Sierra is continuously evaluating a range of opportunities,

as well as select high quality midstream assets. In the

not just through the bidding rounds. “We did not

long-term, the CEO expects his company to develop

participate in R1-L03, but we will be looking at farm-

at least two flagship upstream projects that generate

outs for R1-04 and R1-L05, should the latter go ahead,”

a significant amount of value, and are instrumental in

the CEO divulges. Looking further into the future, the

increasing the country’s oil production. Sierra would also

company believes it could potentially seize opportunities

like to contribute to modernizing and expanding Mexico’s

in R2-L01 and R2-L02. In other words, Sierra is certainly

midstream infrastructure. “In other words, we want to be

not planning on having Blocks 2 and 7 remain its sole

a posterchild, a case study of what responsible success

assets in Mexico. When looking five years into the future,

looks like for the newly opened Mexican oil and gas

Sandrea envisions Sierra consolidating its position as a

market,” Sandrea sums up.

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| INSIGHT

A COMPREHENSIVE VIEW OF THE ENERGY SECTOR New business opportunities will arise in Mexico not just for energy companies, but also for all the players that can provide peripheral and related services, particularly

SERGIO BERISTAIN

to newcomers who will have to learn the country’s

Founding Partner of Beristain

way. Sergio Beristain, Founding Partner of Beristain

+ Asociados

+ Asociados, comments that a great deal of business opportunities have opened up through the implementation of the reform, thus it is important for law firms to have a

Beristain + Asociados is eager to work with different

comprehensive global view of the energy business. Part of

types of clients in the energy industry regardless of

this knowledge involves investments in qualified personnel

their country of origin. As Beristain explains, “We have

in order to have the most effective manner of identifying

extremely competent people, with excellent training,

opportunities to provide high quality and specialized legal

from different parts of the country, and from various

services. “Experience and knowledge related to oil, gas,

backgrounds. We treat everyone equally and do not

petrochemicals, power production, and technologies are

tolerate any individualist attitudes that are noxious to the

invaluable in the midst of this transition. In this sense, the

work environment. This level of diversity makes it easy for

best positioned companies are those that have worked

us to deal with any customer, regardless of background.”

within the energy industry for a considerable time.”

The firm will continue its path in the energy industry,

Beristain uses commerce customs as an example of an

mainly by focusing on the natural gas sector, its main

area that will be impacted by the Energy Reform due to

area of expertise. In fact, the firm has started working

the increase in diesel and gasoline imports.

on projects related to pipelines and the importation of liquids. Other areas of expertise include natural gas

Law firms interested in the energy sector have to keep up

fueled power plants.

with the changes brought about by the reform. In addition to knowing their way around the new legal framework, Beristain asserts that firms need to have a positive work

environment,

extensive

relations,

competitive

compensation plans, and up-to-date training programs, among other elements. “A firm with these characteristics will be able to take on the next step, which involves receiving technical advice from the energy sector, and creating alliances with its key players, who will provide support for any legal work,” he details, adding that

"The best positioned companies are those that have worked within the energy industry for a considerable time"

Sergio Beristain,

Founding Partner at Beristain + Asociados

practices can work with their clients to understand new challenges and help them overcome them, as in the case of right of ways.

Even though it will take time for the industry to reach the desired maturity, some changes are becoming evident. “I

Entering companies can opt for a large full-service law

noticed that the industry has been adapting and preparing

firm or a specialized firm. Beristain notes that law firms

for the new conditions since January,” Beristain points

in Mexico did not have the opportunity to develop and

out. “Companies need to have a strong economic model

become as big and all-encompassing as those in the

so that they can adapt to the industry’s new international

US. Regardless, he guarantees the professionalism of

standards. Ten years from now, PEMEX will probably

Mexican firms. “Although it is important to take size

be a highly efficient company with a size that will have

into account, the most important aspect is the internal

adapted to the economic conditions and industrial

environment of the practice, as well as the quality of its

challenges. I believe that this will also be the case for

services and training.” He points out that small boutique

CFE, but it could develop a better model if it capitalizes

firms are a great solution for clients that require

on all of the opportunities related to technology and the

specialized services in energy-related matters, as they

market. “I expect to see more competition in the private

are quite dedicated and provide a full range of services

sector, which will translate into opportunities for firms

for that specific industry.

like us.”

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| INSIGHT

DEEPWATER, THE KEY TO THE FUTURE OF THE INDUSTRY with this change, will focus its attention on the upstream

PABLO MEDINA

segment,” Medina adds. The NOC’s midstream presence

Latin America Upstream

has decreased both through the sale of stakes in important

Research Analyst at Wood

pipelines and as a result of CENAGAS’s takeover of many

Mackenzie

of its midstream assets. Medina also comments that the eventual liberalization of refined product prices may well force PEMEX to re-assess which markets are still attractive

The new reality of US$40-50/b is forecasted to remain,

enough for it to participate in.

and in this likely scenario, Pablo Medina, Latin America

356

Upstream Research Analyst at Wood Mackenzie, believes

When asked about the different improvements that

that “PEMEX’s survival will very much depend on its

Mexico can expect from the upcoming deepwater bidding

ability to adapt and upgrade its portfolio by focusing all

round, Medina talks about Round One’s biggest prize. “The

of its attention on its core business areas”. In the previous

untapped potential is immense,” he prompts doubtlessly.

market environment, it was compulsory for the national oil

“On the US side of the Gulf of Mexico, no less than 1,200

company to be an expert in all areas of the hydrocarbons

deepwater exploratory wells have been drilled, but on the

industry, but the Energy Reform has wiped out this

Mexican side, unfortunately there have been fewer than

obligation. Medina sees three non-core upstream areas in

40. The participation of the most experienced deepwater

the NOC’s operations.

operators in R1-L04 will be vital for the new industry’s

On the US side of the Gulf of

1,200 deepwater exploratory wells have been Mexico,

drilled, but on the Mexican side, there have been fewer

than 40

rapid development.” Nevertheless, he reminds that it is essential to take into consideration the long lead times typically involved in these projects, which he thinks will delay any contribution to Mexico's oil production until the mid-2020s at the earliest. While waiting for the impact of deepwater operations to reach the industry as well as the economy, Medina believes that results from farm-outs could fill the gap, considerably boosting production in the medium term.

“Given the fast growing amount of cheap gas imports from the US, it is not in PEMEX's best interest to continue its

Another industry impacted by the low price of oil is without

heavy investments in areas that produce non-associated

a doubt the unconventional one, fields from which are

gas such as Burgos, Lankahuasa, or Lakach,” he reasons.

expected to be tendered in R1-L05. Medina explains that

“The marginal fields in Tampico-Misantla, which represent

the development of these resources will be challenging in

the tail of PEMEX’s portfolio, are a good example of

the current environment, and points out that these plays

this. We already saw in R1-L03 that small companies are

have rarely taken off outside North America. He sees three

eager to access such assets. Finally, Chicontepec has

main challenges to doing so in Mexico. “Firstly, the Central

yielded minimal production compared to the significant

American country has mostly found non-associated

investment in the tight-oil play arena. PEMEX would be

gas, making it hard to compete against cost-efficient

much better off establishing various partnerships with

US gas imports. Secondly, logistics create an extremely

experienced tight-oil producers to unlock the field’s

adverse situation for the development of unconventional

considerable resource base. A leaner PEMEX should focus

resources, particularly in the northern part of Mexico,

on fields in shallow water and larger onshore fields, in

because of the limited infrastructure and sparse water

both of which it has noteworthy experience.” In his mind,

availability,” Medina lists. “Finally, security is an important

the NOC could gain the expertise it needs in deepwater

concern in this region of Mexico, predominantly for

projects through joint ventures in the long term, as it seeks

smaller operators and service companies.” When prices

to tap the tremendous potential of the deepwaters of the

rebound, however, he thinks the government could create

Gulf of Mexico.

economic incentives to attract companies to develop the country’s unconventional potential, avoiding onerous

“PEMEX’s involvement in the midstream could also be

work commitments and tight timelines in order to attract

revised, given the company will become leaner, and in line

the right type of players.

| VIEW FROM THE TOP

POTENTIAL CHALLENGES IN DEEPWATER DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow

Q: What are the main concerns of IOCs entering Mexico’s

experience working with IOCs and with a good understanding

deepwater segment?

of the business will be targeted by private companies.

A: None of the IOCs entering the Mexican market anticipated

Therefore, one thing that PEMEX has to learn is how to offer

legal instruments that truly comply with international

the incentives needed to retain its employees, including an

standards and respond to the industry’s needs and

attractive salary. It can be anticipated from past experience

expectations, and they are therefore somewhat skeptical.

that PEMEX will have a troublesome time incorporating this

However, the IOCs participating in Round One are raising

approach to its corporate culture and that the NOC will be

a lot of questions, particularly because they consider that

drained of its experience. In this regard, it will be crucial for

having the legal instruments with the right structure and

PEMEX to achieve the necessary knowledge transfer soon

wording does not necessarily guarantee the success of their

and retain it within the organization.

future operations. One of the main concerns in this regard is the country’s political environment and whether or not

Q: What challenges will ASEA encounter as a regulator

the current favorable scenario will be sustained for the next

for the deepwater segment considering that the agency

couple decades. For instance, companies worry about the

has no previous experience in this area?

left-wing party winning the elections and changing the

A: Having an unexperienced entity in charge of performing

game. These are not irrational concerns, but they are not

a key role in the industry causes uncertainty regarding

extremely decisive, which is why companies must consider

its course of action. During the early stages, ASEA can

all the risks when entering a new market. Companies

take two opposing directions that could make the IOCs’

are aware that the country faces a scarcity of physical

experiences easier or more difficult. However, maintaining

infrastructure,

specialized

one of these strategies for a prolonged period may cause

professionals, which will present an extra challenge for

consultancy

services,

and

an imbalance that would be harmful to the industry or the

them once the projects get started. Of course, many of the

country in the long term.

IOCs have conducted operations in developing countries before, but Mexico is a special case because in many areas

In the beginning, it is quite likely that ASEA will take a soft

it is not considered underdeveloped. This characteristic

approach, as it will not have the means and expertise to

might take some companies by surprise. To some extent,

handle many of these savvy and experienced companies,

this challenge can be overcome by importing international

which are much too strong and know how to find their way

expertise and infrastructure, but timing is key in this sector,

around any situation. It will take time for ASEA to become

and companies will struggle to replicate their successes in

strong enough to do what similar entities do in other parts

other markets in the same timeframes. This is why many

of the world, which will probably allow the IOCs a great deal

IOCs are keen on finding local partners. National companies

of liberties in the beginning. The agency can also opt for

have a better understanding of Mexican waters and have

implementing a strict attitude from the outset, an approach

access to many of the resources that IOCs lack.

that oil companies will find difficult to handle. This strategy could delay projects and cut investments, which would be

Q: What role do you expect PEMEX to play in the

disadvantageous for all the actors involved in the sector,

deepwater segment?

including the government. I believe that the first approach

A: If PEMEX plays its cards well, it should be able to learn the

will be favored, as ASEA is aware that it does not have the

business in approximately a decade, but it must use its time

political power to play strong. It will probably decide to

wisely during the early stages and form alliances with IOCs.

start from the bottom and build up from there. I think this

One of the main challenges the NOC will face to becoming

would be a wise move because it will allow the agency to

successful in deepwater will be retaining knowledgeable

follow a learning curve to the benefit of the industry. This

people within its staff. Every PEMEX employee with

crossroad is going to be ASEA’s biggest challenge.

357

| UPCOMING LICENSING ROUNDS

358

Exploration blocks Round 1 Round 2 Round 3 Round 4 Production blocks Round 1 Round 2 Round 3 Round 4

359

| VIEW FROM THE TOP

PARTNERSHIPS CRUCIAL FOR PEMEX’S FUTURE SUCCESS GUSTAVO HERNÁNDEZ Director of Prospective Resources, Reserves, and Associations at PEMEX E&P

Q: Why have the farm-outs not been launched yet, and

in R1-L03. The farm-outs now represent 150,000b/d, which

what should the industry expect in this regard?

amounts to about 5% of the current production, and that

A: We sent a request to the Ministry of Energy, which then

should make them an interesting option for the industry.

asked for CNH’s technical opinion, resulting in a favorable

360

approval for the migration of 14 out of the 17 amended farm-

Q: What are the main traits PEMEX will look for in its

outs. Five were onshore fields: Ogarrio, Cárdenas, Mora,

partners?

Rodador, and Samaria. Four were in shallow waters, including

A: In the case of mature fields, we are looking for technical

Bolontiku, Sinan, Ek, and Balam. Three fields, Ayatsil, Tekel,

expertise and technology, along with financial muscle.

and Utsil, are extra-heavy oil producers. Finally, we proposed

In return, PEMEX is offering knowledge of the fields,

two deepwater gas fields, Piklis and Kunah. Although we

infrastructure, facilities, and the wells, areas in which we

proposed three deepwater oil fields, Trion, Exploratus, and

have made considerable investments. We have produced

Maximino, we did not submit a request for these to be

all those fields through primary recovery, and we need a

farmed-out. CNH approved the 14 fields that we requested.

partner to help us increase the recovery factor by adding

The initial idea was to have a diversified portfolio of fields to

more energy to the reservoir, which can be done by

attract different types of partnering companies. We could

injecting water or gases, such as CO2, air, or nitrogen.

attract a great deal of offshore operators, and while the cohort for shallow water would have not been as large, it

Q: What role will farm-outs play in PEMEX’s deepwater

would have included some big names. Heavy oil fields would

strategy?

attract highly specialized companies, while the deepwater

fields would bring the majors. However, we were not able to

developments on its own in order to reduce risks, so it is

take that path, and we learned from the new process. CNH

seeking to partner with majors. We have been in touch

decided to launch Round One before the farm-outs.

with the major oil companies who are interested in a

PEMEX

decided

not

carry

out

deepwater

partnership because of PEMEX’s knowledge of the basins. The onshore fields that will be farmed-out are attractive

PEMEX is trying to include fields discovered in Perdido,

enough to bring companies to work with PEMEX even in

although we have not yet submitted these to the Ministry

the current market conditions, because the lifting costs in

of Energy because we are still ending the modifying

mature fields are not so high, ranging between US$10-30

process of the entitlements. Fields from R1-L04 will take

per barrel, and could be lowered by introducing state-of-

at least ten years to stream oil, but the deepwater fields

the-art technology. In the case of offshore shallow water

from the farm-outs could be in production a little faster.

assets, incorporating water injection infrastructure will also drive the costs down. The conditions have changed greatly

We need to move all our opportunities and that means

from the time when we submitted our proposal, so we are

establishing a strategy. Part of that is not releasing fields

adjusting the farm-out opportunities to the oil price. Since

in some instances, as we need to look at the industry, the

deepwater gas, deepwater oil, and heavy oil production are

price behavior, and the price forecast. Even at US$40

linked to the oil price, we are reviewing with the Ministry of

a barrel, companies in Eagle Ford and Marcellus are

Energy if it is worth moving forward. For the other blocks, we

producing important volumes, which highlights the fact

are assessing if the budget we have makes them attractive.

that everybody is working according to a strategy. The

I find those fields appealing because the onshore fields

Energy Reform was meant to boost the country, and that

have close to 220 million barrels in 2P reserves, whereas

also includes PEMEX. We have the goal of maximizing the

the fields tendered in R1-L03 had between 60-70 million

benefits by using the tools and means derived from the

barrels. This means the onshore reserves offered in the

Energy Reform, which is as important as any other entity

farm-outs are four times larger than the reserves awarded

shaping the country’s oil and gas industry.

| INSIGHT

CHALLENGES TO PREPARE FOR FUTURE SUCCESS The opening of Mexico’s oil and gas industry was hit by a perfect storm when the oil prices toppled down to dropped to a historic low in early 2016 when it reached

JOSÉ ANTONIO GONZÁLEZ ANAYA

levels below US$30/b. The global hydrocarbon market has

Director General of PEMEX

levels not seen in decades. The American reference WTI

been trying to rectify this unfortunate situation through various meetings, the most recent of which took place in Doha in March 2016, but provided no meaningful outcome

When confronted with this reality, the NOC’s Director

due to the divergent interests of the oil producing nations.

General highlights the fact that only one of the three credit rating agencies has taken this step. “In order to rectify

When asked about Mexico’s stance in this negotiation,

this situation, we have been meeting with investors and

José Antonio González Anaya, PEMEX’s new Director

taking all necessary measures to ensure we regain our

General, comments that he is on Mexico’s side. In his view,

investor grade,” González Anaya discloses. The NOC has

the fundamental difference between Mexico and most oil

taken the decision to issue new debt both domestically

countries lies in the fact that Mexico is producing at top

and abroad, despite the recently announced government

capacity. “Although it would be beneficial for PEMEX and

support program aimed at lowering its debt requirement

the country to have higher oil prices, I want to clarify that

by US$2.7 billion.

the Mexican economy is rapidly reducing its dependency on oil revenues, which currently only represents 7-10% of

The Mexican oil company is also reviewing all of its assets

the economy. Public finances, however, are dependent

and preparing to put those that are deemed non-strategic

on oil revenues,” González Anaya admits. “It is a tricky

on the table. “PEMEX was a vertically integrated monopoly

situation but the Mexican government is making quick

for 75 years,” González Anaya reminds. “Within the new

progress and succeeding in its quest to become less

rules, there are many things that do not necessarily have

reliant on the sector.”

to be run by PEMEX.” González Anaya says he expects refining to be open to partnerships, and he anticipates

In order to survive and be successful in this new era,

that non-strategic downstream assets will be the first to

PEMEX has implemented a budget cut of approximately

undergo this change. “We will retain part of the equity, but

US$5.5 billion, counting on an oil price of US$25/b for the

it does not necessarily have to be the majority.” The NOC

Mexican Mix, or approximately US$35/b for WTI. González

also hopes to cut CAPEX by sharing it with new partners,

Anaya laments that the deep cuts do not reflect the long-

a key factor that brings González Anaya optimism about

term opportunities available, as they had to be made in

the future of the company. PEMEX hopes to leverage

order to adjust to the short-term challenges. “This leaves

on the fact that most companies do not like to enter a

PEMEX with current operating budget of about US$20.8

country without a domestic partner, creating numerous

billion, leaving sufficient room for the NOC to meet its

opportunities for the NOC.

target for this year. An idea that has crossed the minds of most industry Moreover, PEMEX is taking advantage of the tremendous

experts is the possibility of PEMEX going public as

flexibility that the Energy Reform provided it with to face

an alternative way to attract funding. This could be a

these issues,” he reassures optimistically. Indeed, one of

favorable decision, as it would raise capital, keep the

the main changes brought about by the reform is the

company from having to sell assets when the oil prices

possibility for the NOC to partner with private operators,

are low, and introduce accountability into finances and

giving it access to much-needed capital and technology.

operations. “The biggest challenge that we would face

This newly acquired flexibility allows González Anaya

in this endeavor would be transparency. It is important

to confidently claim that PEMEX could potentially still

to remember that we have been a state-owned company

survive another budget cut by further improving its

since 1938, and although we are slowly moving towards

savings and cost efficiencies.

transparency, we have not fully achieved this. As we move in that direction, however, we will become more

Despite the improvements, the results of which are yet to

accountable, allowing us to concentrate on profitable

be seen, PEMEX experienced a drop in its credit rating.

decisions and activities,” González Anaya explains.

361

| INDEX A-I ABB 248

Dräger Safety 221

ADIL 134

Duro Felguera Oil & Gas 291

AIM Global Logistics 333

Ecosolutions 228-229

AINDA Consultores 69

EIM Capital 202

AIRSTAR 227

Elara 259

ALMU 312

Emerson 133

Alpha Deepwater Services 184

Emerson 314

Alpine Services 311

EMGS 88, 89

ALS Wellvention 123

Enagás 278

AMEC Foster Wheeler 302, 341

EnerChem Tek 315

AMESPAC 38-39, 245

ERM 216

AMEXGAS 280-281

EVONIK 287

AMEXHI 35

EY 276

AMMIS Risk Solutions 328

Falck 220

API Coatzacoalcos 297

Fermaca 277

Arendal 136, 275

Fieldwood Energy 154-155

ARHIP20, 334

Fire Service Plus Mexico 235

Arigem 230

FMC Technologies 158

ASEA 214-215

Fondo de Fondos 323

ATCO Mexico 279

GDT Offshore 183

Baker & McKenzie 71

GE 117, 253

BBVA Bancomer 324

Geo Estratos 199

Bechtel 291

Geoprocesados 99

Beristain + Asociados 355

Global Drilling Support 117

Braskem Idesa 147, 297, 300-301

GlobalSat 258

Bureau Veritas 218

Goodrich, Riquelme y Asociados 30-31, 68-69

Cashman Equipment 160

Greensill Capital 247

CBM 132, 203, 337

Grupo Accses 330

CENAGAS 266-267, 272-273

Grupo DEISA 282-283

CFE 272-273

Grupo Diavaz 194-195

CGG 95

Grupo Hosto 304

CHM Maritime 160

Grupo Idesa 147, 299

Citla Energy 97

Grupo Petroquímico Beta 306

CNH

Halliburton 66-67, 112, 113

Alma América Porres 80-81, 172

Harkand 189

Edgar René Rangel Germán 13, 15, 56-57, 85, 173

HB Rentals 138, 162

Héctor Acosta 50-51, 172

Heerema 185

Nestor Martínez 16-17

Hempel 141

Oscar Roldán 84

Hoerbiger 144

Sergio Pimentel 49, 172

Ibañez Parkman 282

Ulises Neri 152-153

ICA 340

Compañía Petrolera Perseus 196

ICORSA 261

Consorcio EMCRO 249

IHS Energy 72, 250-251

COPARMEX 246

IKON Science 98

COSL 122

Industrias Energéticas 224-225

CSIPA 231

InterMoor 164

DM Ingenieros 125

Io Oil & Gas Consulting 135

DNV GL 74-75

ION Geophysical 96-97

Dow Oil & Gas 142, 307

iPS Powerful People 342, 343

| INDEX I-W ISI Mustang 290

Perforadora México 108-109

iStore 140, 254

Petricore 90

KBR 181

Petrogas 146, 182, 286

KPMG 352-353

PGS 91

Kratus Energy 124

Plenumsoft Energy & Sustainability 255

Lamons 308

Premier Oil 63

LAOGA 244, 339

Puesta a Punto 217, 335

Loadcraft 116

QMax 111

Lockton 329

R.H. Shipping 161

MAN Diesel & Turbo 186, 309

R2M 344

Marcos y Asociados 38-39, 245

Recal 223

Marítima Internacional 163

Renaissance Oil 67, 198

Marsh 74, 326-327

Rengen Energy Solutions 303

McDermott 137, 147, 160

Rodríguez Dávalos Abogados 43, 73

Mexican Petroleum Fund 21, 22-23

ROSEN Group 288-289

Mexican Petroleum Institute 242-243

Schlumberger 40-41, 87, 107, 110, 177

Mexico Petroleum Company 205

Seadrill 114-115

MEXMOT 253

Sercel 92, 101

Ministry of Energy

Shell Mexico 37, 50-51, 176

Guillermo García Alcocer 18-19, 54-55

SICK 260

Lourdes Melgar 48, 173, 296, 350-351

Sierra Oil & Gas 52, 63, 352-353

Pedro Joaquín Coldwell 8-9

SITec 226

Ministry of Finance 22-23

Strata BPS 197

MODEC 187

SUMIMSA 233

Moody’s 75, 322

TAG Pipelines 274

Nalco Champion 178-179

Talos Energy 63, 64-65

National Instruments 256

Taylors 139

National Oilwell Varco 143

Teadit 310

Naviera Integral 167

Tecno Fire 228-229

Net Brains 257

Tekna Services 145, 208, 209

Norsafe 232

Tellus Operating Group/Telpico 204

Norton Rose Fulbright 331

TGS 100

NRGI Broker 332

TrueBlackOil 206

Nuvoil 66

TSC Offshore 121

Oceaneering International 156-157

Turbo Drill 118-119, 119

Octopus 284

Tytal 313

OH Maritime 94

United Pipeline Systems 283

OOS Mexico 165

University of Georgia 42

Oxiteno Mexico 307

University of Texas at San Antonio 200-201

PEMEX

UTCAM 336, 337

Gustavo Hernández 32-33, 360

UVM 345

José Antonio Escalera 82-83

Venus Offshore 159

José Antonio González Anaya 24-25, 361

Williams Scotsman 207

José Manuel Carrera 296, 320-321

Wood Group Mustang 180

Juan Javier Hinojosa 130-131

Wood Mackenzie 19, 325, 356

Juan Pablo Newman 26-27

Woodhouse Lorente Ludlow 70, 177, 357

Miguel Ángel Servín 240-241

Paradigm 93, 99 Pepperl + Fuchs 305

| TECHNOLOGY SPOTLIGHTS Schlumberger: GeoSphere 110 Sercel: GeoTag 92 Turbo Drill: Turbo Scout 119 Schlumberger: PowerDrive Archer RSS 120 iStore: Petrotek 140 HB Rentals: TLQs 162 MAN Diesel & Turbo: Subsea Compressor 186 Tekna Services: Thermo-Chemical Well Treatment 208

| PROJECT SPOTLIGHTS McDermott: PB-Litoral-A 147 UTCAM 337

| ADVERTISING INDEX 6

SENER

186

McDermott

NALCO Champion

188

Oceaneering International

16-17 EMGS

192

NRGI Broker

198

Mexico Petroleum Company

Grupo Hosto

212

ERM

Seadrill

215

DNV GL-Oil and Gas

Nuvoil

222

Recal

Talos Energy

232

Norsafe

HB Rentals

234

Fire Service Plus Mexico

Emerson

238

Rosen Group

Taylors

245

Maritima Internacional

104

Qmax

251

MAN Diesel & Turbo

110

Williams Scotsman

252

MEXMOT

114-115 Petricore

255

Plenumsoft

118-119 Turbo Drill

264

Cummins

120

Teadit

272

GlobalSat

128

Net Brains

281

ISI Mustang

135

CBM

294

Puerto Coatzacoalcos

140

Hempel

298

Braskem IDESA

144

Icorsa

308

Technip

150

RH Shipping

318

UTCAM

155

Fieldwood Energy

326-327 MARSH

159

Goodrich, Riquelme y Asociados

331

Grupo Accses

164

Tecno Fire

338

Rengen

166

Mexico Business Events

342-343 IPS Powerful People

170

Schlumberger

348

179

Alpha Deepwater Services

354

BERISTAIN + ASOCIADOS

182

GDT Offshore

| PHOTO CREDITS Inner front cover - McDermott

EMGS

MBP

EMGS

SENER

MBP

CNH

MBP

Sercel

MBP

Paradigm

MBP

PEMEX

MBP

ARHIP

ION Geophysical

MBP

Ministry of Finance

Ikon Science

PEMEX

Geoprocesados

PEMEX

100

MBP

101

Sercel

Goodrich, Riquelme y Asociados

102

Grupo Mexico

MBP

107

MBP

108

Grupo Mexico

PEMEX

109

Grupo Mexico

SHELL

111

MBP

AMESPAC

112

Halliburton

PEMEX

113

Halliburton

MBP

114

MBP

PEMEX

116

MBP

University of Georgia

117

Global Drilling Support

Rodríguez Dávalos Abogados

119

MBP

Química Apollo

121

MBP

SENER

122

MBP

123

MBP

124

Kratus Energy

SHELL

125

DM Ingenieros

MBP

126

McDermott

CNH

130

PEMEX

130

MBP

Sierra Oil & Gas

132

MBP

Talos Energy

133

Emerson

Nuvoil

134

ADIL

Renaissance Oil

135

io Oil & Gas Consulting

Renaissance Oil

136

MBP

Goodrich, Riquelme y Asociados

137

MBP

AINDA Consultores

138

MBP

Woodhouse Lorente Ludlow

139

MBP

Baker & McKenzie

141

MBP

IHS Energy

142

Dow

Rodríguez Dávalos Abogados

143

National Oilwell Varco (NOV)

MBP

144

MBP

MARSH

145

Tekna Services

MBP

146

MBP

Moody's

147

MBP

CGG

148

Grupo Diavaz

CNH

152

CNH

MBP

153

PEMEX

CNH

154

MBP

156

MBP

157

Oceaneering International

| PHOTO CREDITS 158

FMC Technologies

228

MBP

159

Venus Offshore

230

MBP

160

CHM Maritime

231

MBP

161

RH Shipping

232

MBP

162

HB Rentals

233

MBP

163

MBP

235

MBP

164

MBP

236

Mexican Petroleum Institute

165

MBP

240

MBP

167

MBP

242

Mexican Petroleum Institute

167

DAMEN

244

MBP

168

PEMEX

245

AMESPAC

173

SENER

246

COPARMEX

173

MBP

247

MBP

176

SHELL

248

MBP

177

MBP

249

EMCRO

177

Woodhouse Lorente Ludlow

250

IHS Energy

178

MBP

253

MBP

180

MBP

254

iStore

181

KBR

255

Plenumsoft Energy & Sustainability

182 MBP

256

MBP

183

GDT Offshore

257

Net Brains

184

Alpha Deepwater Services

258

GlobalSat

185

MBP

259

MBP

187

MBP

260

MBP

189

Harkand

261

MBP

190

Grupo Mexico

262

Emerson

194

MBP

266

CENAGAS

195

Grupo Diavaz

266

Enagás

196

MBP

271

TAG Pipelines

197

MBP

274

MBP

198

Renaissance Oil

275

MBP

199

MBP

276

200

University of Texas at San Antonio

277

MBP

202

MBP

278

MBP

203

MBP

279

ATCO Mexico

204

Tellus Operating Group and Telpico

280

MBP

205

Mexico Petroleum Company

282

Grupo DEISA

206

MBP

282

Ibáñez Parkman

207

MBP

283

MBP

209

Tekna Services

284

Octopus

210

Norsafe

285

TAG Pipelines

214

ASEA

286

MBP

216

ERM

286

Rodríguez Dávalos Abogados

217

Puesta a Punto

287

EVONIK

217

PEMEX

288

ROSEN Group

219

MBP

289

ROSEN Group

220

MBP

290

MBP

221

Dräger Safety

291

MBP

223

Recal

291

Bechtel

224

MBP

292

Grupo Hosto

225

Industrias Energéticas

296

SENER

226

MBP

296

MBP

227

MBP

297

MBP

228

Tecno Fire

299

MBP

| PHOTO CREDITS 300

MBP

301

Braskem IDESA

302

MBP

303

MBP

304

MBP

305

MBP

306

MBP

307

MBP

307

Dow

308

MBP

309

MAN Diesel & Turbo

310

Teadit

311

Alpine Services

312

MBP

313

Tytal

314

Emerson

315

MBP

316

McDermott

320

MBP

321

Grupo Diavaz

322

MBP

322

Moody's

323

Fondo de Fondos

324

MBP

325

MBP

326

MARSH

329

Lockton

330

MBP

331

MBP

332

NRGI Broker

333

AIM Global Logistics

334

ARHIP

335

Puesta a Punto

336

MBP

337

MBP

339

MBP

340

MBP

341

MBP

342

MBP

343

MBP

344

MBP

345

UVM

346

Creative Commons CC0

350

SENER

352

KPMG

352

Sierra Oil & Gas

353

PEMEX

355

Beristain + Abogados

356

Wood MacKenzie

357

Woodhouse Lorente Ludlow

360

MBP

361

PEMEX

Inner back cover â&#x20AC;&#x201C; Braskem IDESA

| CREDITS EDITOR-IN-CHIEF: Jeroen Posma

COMMERCIAL DIRECTOR: Neja Brglez

SENIOR EDITOR: Wallace Porter

PUBLICATION COORDINATOR: Antoine Hurel

SENIOR EDITOR: Sara Warden

JUNIOR PUBLICATION COORDINATOR: Alberto Estrada

JOURNALIST & INDUSTRY ANALYST: Claudia Del Pozo JUNIOR EDITOR: Alejandra Gómez

DESIGN DIRECTOR: Vanessa Rocha GRAPHIC DESIGN: Marcos González

COLLABORATOR: Pedro Alcalá

WEB DEVELOPMENT: Arturo Madrazo

COLLABORATOR: Eloisa Villegas COLLABORATOR: Patricio Barrera

PUBLICATION ADMINISTRATOR: Alena Lipková

COLLABORATOR: Brenda Salas

ADMINISTRATIVE ASSISTANT: Rebeca Garduño

COLLABORATOR: Mariana Jiménez

CIRCULATION MANAGER: Ana Cristina Garantón

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