The Delicate Art of Local Content

Q: What most excites KBR about the Mexican market?

A: The Mexican market is rich in resources. Both KBR legacy companies – Brown & Root and M.W. Kellogg – have a long history in the country. We built some of the first platforms for PEMEX in the 1970s, including EPC-1 and EPC-22, and many of the ammonia plants in Mexico were actually built with M. W. Kellogg’s technology. 

Our interest is in both upstream and downstream. The changes that have taken place from a legislative point of view and the IOCs entering the marketplace have created many opportunities for us. We have been working with these companies all over the world. We expect the scale of the projects to be much larger and the delivery capability that they will require will create many opportunities for service providers and the EPC companies entering Mexico.

Q: What is your scale of operations in Mexico?

A: We have two existing businesses in Mexico. One is our high-value engineering center in Monterrey, which has been there for almost 20 years now. It is used for export work and is part of our Houston operations. It supports us with engineering services for the execution of large-scale projects worldwide and we are actually in the process of ramping up this operation so that it can do more than just engineering. We are developing more procurement and project management capabilities in Monterrey to support projects not only internationally but also domestically. The same office and some other side locations are working with Dupont. We have a masters service agreement with Dupont for North America, which was recently expanded to include sites in Mexico as well. In fact, we are providing services to its sites in Mexico. 

In addition, we have a joint venture with Grupo R called Mantenimiento Marino de México (MMM), which provides maintenance services for PEMEX’s offshore assets. This JV has been working for 25-30 years in service provision. We are looking at establishing a new JV with a Mexican partner that will pursue onshore/offshore EPC projects in Mexico. 

Q: What do you see as the major opportunities throughout the value chain in Mexico? 

A: I think the scale of projects will be much larger, especially in deepwater. PEMEX has been carrying out shallow-water projects with simpler facilities. We now expect that, with the majors coming in and the start of deepwater exploration, the complexity of the facilities will be different. Another aspect that is evolving is how the asset is built. Rather than in the traditional manner of contracting segmented services, PEMEX is looking for more integrated solutions. Service companies must provide a more holistic approach to an asset and really be responsible for performance-based services. We are seeing more of an outcome-based service solution. It is a more sophisticated approach coming both from the PEMEX side and from international companies. 

Q: Where do you think the right balance lies between international companies and the needs of the local market in terms of national content?

demand that a company achieve 100 percent local content is difficult because there must be a balance between cost and capability. Ultimately, all the IOCs have economic decisions to make in terms of investment. If country requirements move the economic drivers downward, that puts a project on a less competitive tier while those companies have the option of investing in any location in the world. I think some countries that take extreme stances on local content initially will struggle to get projects off the ground.

A phased approach that is initially in keeping with capabilities and maintains costs at a viable level is very good. In the next phase, the country can add more local content. In the third phase, the country, when it has increased its capabilities, can actually demand up to 100 percent local content. This can become very successful, as countries such as Malaysia and Indonesia have proven.