Deepwater Experts Looking Beyond PEMEXBy Peter Appleby | Mon, 05/11/2020 - 15:45
Q: How is the company’s name change reflecting its move away from providing only conventional deepwater services to PEMEX?
A: We had already expanded our services beyond conventional deepwater services. We worked with PEMEX on its shallow water jackups and on some of its unconventional projects a year ago. Our major client in Mexico has always been PEMEX but we are now working to extend our services to the Mexican independents, with whom we worked in the months immediately after companies received the licenses they won for various blocks.
However, we have found some problems with Mexican independents. Unlike the IOCs, Mexico’s independents do not appreciate that Mexico is competing in an international market. These companies often ask us to submit proposals and then tell us we are too expensive. However, we are simply charging international rates in an international market, providing international-level expertise. The fact remains that if these companies are to be successful in Mexico and improve the country’s industry, new ideas are always needed. The country’s local talent, while very strong and offering strong technical abilities, cannot provide world-class experience. Local talent has mostly worked for PEMEX and this isolation cannot provide the experience that the international workforce offers. International experience offers international expertise. This is what we offer the market.
Q: What is the value that the company can offer the private sector in Mexico?
A: We have been involved in one way or another in almost every deepwater well drilled between 2010 and 2018, when PEMEX decided to suspend deepwater exploration. This may have been well planning assistance, geological and geophysical assistance, working as a third-party reviewer of well plans and other roles. We have an extremely broad experience with the NOC and within Mexico. We understand the geology and infrastructure of the place. We understand the way work is completed in Mexico and by PEMEX, a particularly valuable resource for non-native companies. We want to use that experience in working with private companies in the country.
Q: Does geological complexity play a role in the reasons why Mexico has not had much success in deepwater?
A: Actually, PEMEX has made some very nice deepwater discoveries, but has not been able to develop them for a number of reasons. The geological complexities of Mexico’s deepwater are not so great as to be a stumbling block for international companies. There are world-class deepwater reservoirs waiting to be developed and the delays in their development tend to be due to political reasons. The previous administration was keen to use the expertise of international companies to develop deepwater finds because they saw it as a way to increase Mexico’s production. The current government has a different view and does not believe the cooperation of international companies with the state is in the best interest of the Mexican people.
International companies look for continuity in government relations and laws before they are willing to invest vast sums into the development of oil and gas fields. This change in energy approach has had a major and unfortunate impact on Mexico’s deepwater developments because they number some of the most promising in the world in terms of both oil and gas. It is a shame that they are not being developed as speedily as they could be if there was a properly regulated influx of international expertise and funds. The oil and gas industry is a very capital-intensive business and deepwater developments are among the most expensive projects within it. The heavy debt that PEMEX is toiling under does not allow for the expenditure that deepwater requires. But even with access to funds, access to additional personnel and management is required.
To have only one company developing the resources of a country slows the entire process down. This history is telling: when looking at a map of the Gulf of Mexico you can see thousands of wells drilled on the US side due to the number of companies investing money, accepting the risks and developing the resources. This has been very beneficial to the US. There is an enormous difference in the well concentration when compared to the Mexican side and shows clearly that Mexico’s resources have not been developed as they could have been and could still be. With an infusion of international capital and other resources, Mexico can still gain. The government of Mexico is the major beneficiary of Deepwater development whether it is done by PEMEX or an IOC. The revenues to the state will not take place if no outside development of the PEMEX discoveries are allowed.
Q: In what main areas does ADS help PEMEX improve its efficiency?
A: The company provides the skills to support PEMEX as it applies technology that is available to the world at large. There is a lack of clear communication across sectors because PEMEX is a large, amorphous company with a silo approach to management. What we have been able to do, and where we think we have helped the company the most, is in finding ways for those silos to work together to apply these global technologies. The truth is that new technologies are worthless if personnel in the operating silo are opposed to them or unable to use them.
From an operational standpoint, we had great success in helping improve PEMEX deepwater assets. When we began working with PEMEX, operational efficiency was dramatically behind that of most IOCs. Some of the wells PEMEX drilled were in the top quartile in performance, but on average performance was lagging. We were able to improve the company’s performance so that they were almost on par with IOCs in terms of well operations. This was a phenomenal effort on PEMEX’s part, considering the restrictions it has to work under and considering the extremity of PEMEX’s silo approach and bureaucracy.
One of PEMEX’s major boons is that, in some departments, the company has world-class managers. The PEP’s Exploration subdirector, is an excellent manager and has overseen great improvement within his organization. He worked across the lines to foster communication and forced cooperation between different groups to achieve that improvement. Generally, PEMEX has capable managers and engineers, some of whom are among the best in the world. With the right tools and environment, the company will excel. But the organization’s nature means that its separate silos cannot work together and this will continue to hinder its performance.
Q: How can PEMEX achieve improved performance without the help of further farmouts?
A: Unless PEMEX is willing to fundamentally change its approach, it will be unable to dramatically improve its performance. The problem is that neither the company nor the Mexican government has the resources to carry out a fundamental change. To alter the course of the company, capital, expertise, experience and personnel are required. At PEMEX, these needs are not being met at a fundamental level. Individual managers within the company are trying desperately but they are handicapped by the fact that they are not supported with the proper resources. Leadership may want more production, but without the resources to achieve that improvement, it cannot happen.
PEMEX’s drilling service contracts are doomed to failure because, so far, some contracts have been given to companies that have no expertise in carrying out the specific activities required. While the contract model enabled PEMEX to award the fiscal responsibility of drilling a well on a specific field, these companies have not been qualified. One of the companies that was given a drilling contract was not a drilling company. This company did not have the requisite expertise and came to us for support. Our services were rejected as too expensive. The consequence of this is that the contractor cannot drill the wells effectively and, while PEMEX is protected from financial loss, Mexico does not get its well drilled. There is no benefit to anyone and money has been wasted. This constant shifting of responsibility does not engender success.
If the Mexican government wants to improve production in Mexico then it must adopt new practices and move away from the way that it has gone about oil policy in the past. If it does not, then there will be no increase in production – it will continue to decline. PEMEX can deliver a turnaround in production if it is properly organized and incentivized.