Horacio López Montes
General Manager
Infrastructure Consulting

Change in the Mexican Market for Infrastructure Projects

Wed, 01/25/2012 - 13:15

“Mexico’s new legal framework for oil and gas contracts will definitely help our business,” says Horacio E. López Montes, General Manager of Infrastructure Consulting, a company focused on working with companies on private and public sector infrastructure contracts. “It will provide a better environment for investment, and what we do as a company is help investment basically succeed in Mexico. Having a new legal framework was essential. It is not the best legal framework, but it is what we were able to get given the political environment and available timeframe. I think the legal framework will get better as projects move forward.”

López Montes says that the very nature of the global oil and gas industry is changing, to the extent that reserves are no longer the only way the value of an oil and gas company is measured, and that this could have implications on the attractiveness of the new integrated service contracts. “The industry itself is changing and the way in which you value an oil and gas company is evolving. Today, an IOC can be small if the company concerned is courageous enough under a different set of value rules, and starts looking into new markets. They have to be brave; however, a lot of investors are afraid of these changes, being so used to reserves being the only factor that generates value.”

One of the areas of the Mexican oil and gas industry where many people see a lot of opportunity for infrastructure investment relates to Pemex’s drive to improve its offshore equipment. López Montes’ view challenges this assumption. “Although Pemex is looking to put out new tenders for rigs and platforms, I do not think this business will really take off at any time in the next five years. Platform construction can take place practically anywhere outside of Mexico –most likely in southern Texas, but only once Pemex begins deepwater exploration and production in Mexico – regardless of where the platforms were actually built, then there will be much better opportunities. However, by the time Mexico is truly ready to get into the deepwater exploration and production business, our clients might be engaged in other, more exciting projects elsewhere in the world. In order for successful deepwater development to take place, both readiness aspects have to be aligned.”

López Montes believes that the most interesting infrastructure projects in the coming years for new players will be in marginal fields, as the integrated service contract model is better aligned to produce positive collaborations in these areas than in more risky areas such as deepwater. “These deepwater projects will take at least five years to be awarded and developed, and this provides a lot of opportunities for us in the short-term,” says López Montes.

One interesting development in the Mexican infrastructure and construction market in recent years has been the entry of Asian companies. López Montes says that Infrastructure Consulting is well-aware of the opportunities that partnering with these companies can bring: “It is not something that is on my priority list right now, but I know that I have to be a part of it, because I cannot deny the fact that Asian investment will begin to flow more readily into Mexico and other North American countries in the coming years. Even today in the US, you see a lot of investors from China that are interested in participating in construction projects.” From his previous work with Asian companies, López Montes says he believes the cultural element of business dealings should not present too much of a problem. “At the end of the day, Asian businesses are not that different from Western ones. Particularly in Mexico, considering the new public private partnership (PPP) legal framework, I think Asian business can find a home. Unlike the US, there is more room in Mexico for adaptation, which will lead to a better flow.”

Although López Montes believes that the biggest foreign investment in the oil and gas sector will come from the US and Canada over the next few years, he says that it does not mean that these countries necessarily view Mexico as the most attractive destination for their infrastructure investments. “Companies from these countries have other options and Mexico is not quite at the top of that list yet. Some companies are looking at the country because they have to - they should not rule out Mexico until they have looked at whether it can be attractive for them. However, I can say with some confidence that given the current political and economical environment in the US, service companies would still rather invest at home than in Mexico.”