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Analysis

Crucial Importance of Logistics in the Drilling Fluids Business

Wed, 01/21/2015 - 09:35

Although Prodexa is predominantly a non-metallic minerals mining company, it plays a vital role in the oil and gas industry since barite is a fundamental component of drilling fluids. The company was actually the first barite importer in Mexico and the first company to put up barite mills and processing plants in the south of the country, in order to service the South Region and the offshore oil and gas industry. Today, it is headquartered in Coatzacoalcos, Veracruz, showing its ties to the oil and gas industry. “From here, we process barite that is produced in several mines throughout Mexico,” says José Antonio Valdés, Director General of Prodexa. “Currently, our most important mining development is a barite ore project in Sonora. This open-pit mine is the biggest barite mine in Mexico and also ranks among the largest in the world. We sold about 200,000 tonnes within a year of production starting in 2013 but the project is expected to eventually yield 300,000-500,000 tonnes per year for exports.” The grand majority of the barite produced there is exported to the US, which remains the company’s largest market, but it is also seeking to extend its footprint to Colombia and Brazil. This expansion will be boosted by the new barite mines Prodexa is looking to develop in Michoacan, Puebla, Oaxaca, Zacatecas, and San Luis Potosi. When these begin producing, their ore will follow the flow of Prodexa’s existing assets, heading to Coatzacoalcos for milling before being delivered to the drilling fluids market. This vertical integration has helped the group seize a local of market share of between 35-40% in Mexico. However, as Valdés explains, the quantity of barite being produced is not as important as the logistics of this business. “Successful distribution capabilities are critical for drilling activities. Since one cannot drill without drilling fluid which cannot exist without barite, drilling sites must have the product on time, on site, and quality assured,” he states. “Onshore and offshore rigs must have barite in their silos ready to be mixed with chemicals to create a batch of drilling mud.” While chemicals can be easily transported and stored at drilling sites, several tonnes of barite are needed at any given time at a drilling operation. This means barite is handled as a bulk material, which is cheaper than transporting it in bags or sacks. Barite is not a very expensive material compared to the rest of the ingredients needed to make drilling mud, but it is important for technical reasons. That is why the price of the material is not as important as guarantees about the timely availability of barite. Furthermore, areas such as trucking and on-time delivery are essential for drilling operations to be successful. Valdés is confident that Prodexa can dominate the logistical aspect of the job as it supplies most major oil service companies, including Schlumberger, Weatherford, Baker Hughes, and Halliburton. Apart from these, it supplies large drilling fluids companies such as QMax Solutions and Grupo Protexa, and large private companies that have their own drilling fluid divisions, such as Perforadora Mexico, COSL, and iPS. With the Energy Reform allowing the drilling industry to expand, Prodexa is now preparing to have the capacity needed for this higher level of activity. According to Valdés, the company will increase its processing and storage capacity as well as its truck fleet to achieve a 10% growth rate in 2015 and 20% in years to come. This growth will also be fueled by the significant increase in drilling activities the company expects to see in shallow and deep waters in the Gulf of Mexico, as well as in the Burgos basin.