Carlos Vargas
Head of Energy and Mining
BBVA Bancomer
View from the Top

Comprehensive Financial Support Strategies

Wed, 01/20/2016 - 08:40

Q: Can you tell us about the services BBVA Bancomer offers to the Mexican oil and gas market, its current investment methods, and its future investment prospects?

A: BBVA Bancomer offers a wide range of financial products, from common transactional services to assistance in M&A processes, which have allowed us to establish proximity to PEMEX, our main client in this industry. In the midstream sector where private finance is allowed, the Mexican capital market will be interested in financing midstream projects via bonus that will attract new players looking for funding. Now that the downstream sector has opened to private investment, there will be a new demand for financing and assessment services for upcoming projects in this area. Previously, the distribution of gasoline was more of a real estate business with a small commercial margin. Now, there is a consolidation effect, branding, and the construction of infrastructure for transporting and importing, an area in which BBVA Bancomer could provide financing and assessment services. Finally, in the upstream sector, there are different stages in which we could participate, such as exploration activities, a business mainly financed by equity. Considering that there is already an intense activity in the sector, the future Initial Public Offer (IPO) market is likely experience significant acceleration.

Q: What is the role of the oil industry in BBVA Bancomer’s investment portfolio?

A: Since PEMEX has been diversifying its services and becoming more sophisticated, BBVA Bancomer has also being adapting its offering to continue being able to cover its needs. Currently, BBVA Bancomer has been working with those companies that have access to bonuses in the financial market or are looking for a vehicle to access the financial global market in order to obtain private equity or other funding to operate in the industry. The collection and payments involved in the downstream sector are definitely of interest to the bank, as it usually entails small margin businesses in which BBVA Bancomer could participate through its platform of transactional services. For more complex services, BBVA Bancomer will be interested in becoming the financial advisor of those companies looking for a market to increment their purchasing power.

Also, one of the bank’s objectives is to offer international players interested in acquiring local companies the services they might require.

Q: How will you draw from BBVA’s experience in financing upstream projects in the US, given the novelty of this these transactions in Mexico?

A: BBVA Bancomer’s experience in the US market puts the bank in similar conditions to other major companies claiming to be knowledgeable in the area. In the US, there are two main ways of financing for this sector. The first is the stock market, where BBVA Bancomer has national and international experience. The second one is private equity, and BBVA Bancomer has the ability and skills to advise companies on how to finance their different productive stages. In the case of an already productive well, the financing usually comes through a Reserves Base Lending (RBL) mechanism, in which BBVA has strong expertise. For exploration activities, which entail a higher degree of risk, the financing will come from private equity means or IPOs. In Mexico, the government is looking to adapt RBLs to the local regulations as has been done in other countries, and this is here where our experience in US will help, even if the regulations are not exactly the same.

Q: What do you think are the financial requirements that must be modified in future rounds, and what is the role of BBVA Bancomer in this?

A: Since 2013, BBVA Bancomer has been liaising with national and international institutions, operators, investors, and authorities interested in the sector. We have perceived during this process that the license contract model could be the most attractive for investors, while some operators find the possibility of participating in more interesting areas and some of the proposed financial mechanisms appealing. The return rate instead of an adjustment mechanism could result in more flexibility, attracting more investors. As for the third phase, its financial requirements vary because the necessary investments and the type of activities are also different, as these smaller fields that are suitable for Tier 2 E&P companies require less capital.