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Insight

Analyzing Mexico's Offshore Risk Management Strategy

Wed, 01/25/2012 - 17:10

“The market in Mexico for our interests is clearly energy- centric,” says Alejandro Martín Audelo Aun, Managing Director of London Offshore Consultants (LOC), a marine and engineering consultancy. He explains the role of companies like LOC in ensuring that projects are properly planned and safety standards are met: “We come to the projects because we are required to be there by the insurance interests. Sometimes, the companies or their contractors involved in the offshore developments see our participation as an intrusion. Nevertheless, we participate in some of the critical stages of an offshore construction project. If you do not approach those stages with proper planning, you can smash right into them like hitting a wall, causing problems and accidents.

“We have tried very hard to make our clients realise that our job can help them to approach those hurdles and to avoid them at any cost. It is not only a matter of who pays when an accident occurs, be it the company involved or the company that insured them, but also the company’s reputation and most regretfully people’s lives. In the early days of our Mexican operation, we faced situations in which we struggled to get our counterparts to understand that it was worth investing in diligent planning in order to avoid accidents. We believe that we have succeeded in getting our point across in the last few years.”

As an understanding of the need to insure against offshore risk has grown in Mexico, so has the integration of companies like LOC in the Mexican oil and gas industry. “In the last years there have been significant improvements regarding safety and loss prevention philosophy,” explains Audelo Aun. “Most of the advancement has come as a result of Pemex developing standards and improving procedures, or by imposing more comprehensive requirements on their contractors. The implementation of NFRs by Pemex is a good example of the standardization process that Pemex has developed in the recent years. NFRs are ‘Reference Standards’ issued by government- owned companies operating in a monopoly situation. Every standard is developed by Pemex with the collaboration of the companies related with the subject of the standard. For instance, we collaborated in the review of the NRF-041- PEMEX-2007, which relates with the ‘Loadout, Securing, Transportation and Installation of Marine Platforms.’”

As Pemex moves into deepwater, risk management becomes a more pertinent issue, given the events in the Gulf of Mexico in 2010. “The Macondo well blowout had important consequences for deepwater operations in Mexico,” explains Audelo Aun. “Now, before starting any deepwater activities, Pemex has to provide to the National Hydrocarbons Commission an exhaustive review of the risks that will be involved in any oil field development. Nobody wants another Deepwater Horizon incident. The approach from Pemex today is more professional and more preventive. Claims raise premiums, but it is also a loss in terms of the company’s reputation.”

LOC’s offshore strategy for helping Pemex reduce its risk and liability in deepwater will depend on how the NOC decides to approach risk coverage and insurance. There are two options: either Pemex will request that its contractors on deepwater projects provide the necessary insurance, or Pemex will acquire insurance on its own in order to protect the national interest. Whichever way the situation resolves, Audelo Aun believes that “the biggest challenge is to set up all the resources needed for the exploration in deepwater, as it costs much more than it does in shallow water, has more risks involved and needs more specialized personnel. One of the risks is investing too much money in drilling wells that are not productive. It is also a big challenge to carry on with that type of exploration, because the area that needs to be covered is huge - even bigger than Pemex’s onshore exploration area, and larger than the American sector of the Gulf of Mexico. The aim should be to succeed in deepwater exploration before we deplete our reserves in shallow waters.”

However, LOC Mexico’s Managing Director is optimistic about the future of deepwater development in Mexico, and believes potential gains from projects outweigh the risks. “The deepwater technology is there. Even though the industry has had setbacks like Macondo, it could be argued that this accident was not a technological setback, but the consequence of a number of shortcuts that were taken. Technologically speaking, the sky’s the limit, but the key will be to capitalize on our deepwater potential before our shallow water fields are depleted. Exploration has been relatively limited so far; less than twenty wells have been drilled, and there are another 12 wells to come. But this is nothing compared to the size of the area, and the urgency with which we have to increase Mexico’s oil production.”