The Challenges Smaller Player FaceWed, 01/20/2016 - 11:49
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, and its core focus has been the manufacturing of metal containers measuring 4m3 used for offshore platform 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 cuttings. Emmanuel Guillermo Montaño, Director General of Consorcio EMCRO, claims competitive advantages such as certifications and reliable products have allowed the company to grow to 1,000 containers and assume a market share of 25%. EMCRO’s main clients include Baker Hughes and Qmax, and Montaño hopes Round One will bring more players and prospective clients in the fluid drilling segment.
On top of its core business, EMCRO last year started building mud dams. Montaño explains that these are much larger containers, with a capacity of about 80m3, in which drilling fluids are prepared. “In 2015, we also started constructing a drilling fluid plant in Paraiso, Tabasco, which we hope will be completed and handed over to Baker Hughes in December. In addition to this, we own a 4-hectare field with the corresponding permission for handling non-hazardous waste, complying with PEMEX’s previously mentioned requirement.” In addition, EMCRO plans on building its own drilling fluid plant, which will have a storage capacity of 4,500-5,000m3. “This plant provides us with a strong competitive advantage, as all other plants in the area have a capacity of only 1,300m3 and are located in the API,” shares Montaño. He explains that, to manufacture drilling fluid, about 70-72 different types of chemicals are needed, some of which require a patent. Once EMCRO has the plant in operation, it will seek to commercialize these chemical products, since there is a demand for them in the market.
Montaño believes the local content requirements, currently set at 25% with the possibility of increasing to 35% by 2018, will positively impact his business, as companies will opt to contract mud skips locally rather than import them or build them themselves. “First of all, local hires are more beneficial in relation to cost, but also because imports would not comply with PEMEX’s NFR-261-PEMEX-2010 norm,” he explains. EMCRO enjoys an advantageous position because it is located only 7km away from the API Dos Bocas dock in Paraiso, Tabasco, has a well-established yard with all necessary permits, and 100% Mexican capital. Montaño points out that, should companies seek to build mud skips themselves, these would depreciate within ten years, making little sense in accounting terms.
Montaño claims players are faced with three main challenges. The first concerns sources of financing. Although firms have access to development banks, these usually do not lend more than 10-15% of the requested amount, Montaño tells. To cover their growth needs, companies then have to turn to their providers for financing. “Housing financing hovers at around 5%, which seems incredible in comparison to the rates in our sector. This financing should be reallocated to productive projects, especially within the energy industry. Currently, the loans from development banks oscillate between 18-30%. Another issue is the excessive guarantees requested for financing. At times, it can reach a ratio of three to one. In my mind, the government’s monetary policy must be addressed urgently.”
The second challenge is insecurity. “The oil-rich areas surrounding the Gulf of Mexico have high insecurity rates, and there is a strong and urgent need for the government to address this problem,” Montaño comments. In his view, Mexican companies are more accustomed to working with these problems than without them, but foreign companies will face an unpleasant challenge when establishing their operations here. The final problem is infrastructure. Montaño explains that in the case of Dos Bocas, there are no separate roads for trucks and pedestrians, leading to many accidents. “The infrastructure, in many places, does not align with the current and future needs, particularly given the amount of investment to come.”
Although obstacles are evident, Montaño is confident that the Energy Reform and Round One will provide plenty of opportunities for SMEs. EMCRO will take advantage of the tenders and secure contracts with the winning companies. “We are interested in the winners of R1-L02. This round concerns nine fields in the areas of Tabasco and Campeche, the success rate of which is estimated at 60% on average, meaning perforation could start much earlier. We would expect to start working with them between March and December 2016,” Montaño shares.