Luis Sergio Guaso
Subdirector of Business Development

Development of PEMEX's Contracting Strategy

Tue, 01/22/2013 - 15:06

In terms of contracting, one of the biggest changes in recent years has been the introduction of integrated service contracts. Luis Sergio Guaso Montoya, Subdirector of Business Development at Pemex, explains the reasoning behind their introduction from the Pemex perspective: “One of the main levers for supporting the future development of Pemex is to attract additional capabilities in order to develop new fields, or fields where Pemex does not have enough internal development capability. The bidding rounds that have already started, and those that are planned for the future, will provide the private sector with access to opportunities in Mexico, and also address the di†erent needs and priorities of Pemex.”

Mature fields that have been left as a low priority for Pemex in the past are starting to be contracted out under the integrated services contracting model, for private operators to step in and boost production. Two contracting rounds have taken place so far for fields of this type, with the first round in Pemex’s Southern Region and the second one in the Northern Region. Analyzing the success of these contracting rounds so far, Guaso Montoya says that: “At the end of the day, we can say that the balance of results was eventually positive for the first two rounds: seven contracts were awarded out of nine, which is good by international standards. We are in the process of analysing and evaluating these contracting rounds, and implementing changes for future rounds.”

The third round of contracts will focus on Chicontepec, a challenge for both Pemex and private operators: the fields are unconventional in nature, and getting production to required levels has so far proven di·cult for the NOC. Guaso Montoya explains the changes that have been made to the structure of the contracts in order to make this third round more appealing for bidders. “Comparing the di†erent characteristics of Chicontepec with the mature fields that have previously been awarded, the model and the terms of the contracts should be adjusted, according to the characteristics of Chicontepec,” he says. “I believe that awarding the contracts at Chicontepec based only on the lowest fee-per-barrel is not the optimal criteria. On the contrary, it should be just one element, because the risk, uncertainty and cost is di·cult to manage with only a single variable. That is why we need to involve other conditions in order to evaluate what might be the best o†er for Pemex.

“One element is investment commitment,” continues Guaso Montoya. “In these di†erent areas at Chicontepec, current production is almost zero - in practical terms there is no production. In the previous two rounds of contracts, there was some production in all areas, and this represented good leverage for contractors to carry out their di†erent development programmes. At Chicontepec, this is not the case. Another way to evaluate bids, aside from investment commitment, should be social and community responsibility and local content.”

Recently, the role of contracting regimes in the development of local content has been discussed a lot in Mexico. Guaso Montoya explains that for Pemex there is only one definition of local content: the economic value created in the country by a particular company or project. “There are di†erent dimensions to this concept,” he explains. “One is the legal dimension. Mexico is part of a number of di†erent international treaties, which limits our ability, as a public sector entity, to impose local content restrictions up to a maximum figure of 40%. Only in the case of integrated contracts do we have the ability to set this minimum local content requirement.” The other element, according to Guaso Montoya, is the duration of the contracts o†ered. By o†ering longer contracts to Issuing longer term contracts is also a strategy that Pemex is using to boost the number of rigs in the country: for the last two years, Pemex has been unable to reach its drilling targets because it did not have the su·cient number of rigs contracted to complete the work. By moving from contracts that only lasted a few months to contracts that stretch to five or six years, and with the possibility of tendering for 10 year contracts also on the table, Guaso Montoya hopes that Pemex will be able to reach its drilling targets more easily.