Diversify to Survive Market ImpactWed, 01/18/2017 - 15:30
The long period of depressed prices in the oil and gas industry until 2016 delivered a stark lesson about the need to adapt and diversify, as drilling and connected services ground to a halt in many regions. Those companies that can tweak their focus will have the greatest opportunities for success, says Sergio Saldívar, Mexico Director General of London-basedEPC and consultancy firm Amec Foster Wheeler.
Saldívar speaks from experience. Amec Foster Wheeler’s Mexican unit was among those schooled by the sector’s financial woes, especially after state-owned PEMEX canceled contracts in the middle of a sharp budget reduction.
Amec Foster Wheeler holds various large EPC and project management contracts with PEMEX, including work on the Salina Cruz, Cadereyta, Madero and Salamanca refineries. Some of those were cancelled during the downturn and according to the executive, “other EPC jobs are moving at a slow pace, only requiring preservation activities. They are still active but are progressing slowly.”
Saldívar believes the industry will not see a great deal of change in 2017, spurring the firm to diversify away from downstream. “Amec Foster Wheeler is working in upstream globally and we are now bringing this to Mexico,” he says. The firm is also chasing O&M contracts across the entire value chain, relying on its North Sea experience in this area. “We also want to enter the midstream market in Mexico because this is developing at a quicker pace,” Saldívar says. This is a market where he sees considerable opportunities in fuel storage, marine terminals, transportation and even the gas station business.
The company has a key advantage over others that are only now seeing the opportunities of the Energy Reform, says Saldívar. “We have a strong presence in the country and a great deal of experience working with PEMEX. We can execute locally but we have the strength and support of a global operation.” Often, Amec Foster Wheeler shares staff between its global locations, drafting in workers from Spain, Thailand and the US to bridge knowledge gaps in its Mexican workforce.
The firm can also capitalize on existing relationships with the Majors entering in the deepwater rounds. “Operators like BP and Exxon have global agreements with Amec Foster Wheeler and we are trying to ensure those agreements are in place in Mexico,” Saldívar says.
December 2016’s deepwater licencing round brought some relief to industry players nervously watching the outcome. “This event means we are finally able to prove to our headquarters the value of the Mexican market,” he says. “The entrance of the Majors is now a reality, not just speculation.” That round, Saldívar believes, was the catalyst for the return of oil and gas activity to Mexico.
Saldívar says the biggest challenges on the horizon are underinvestment and the ballooning maintenance issues at PEMEX’s refineries resulting from budgetary restrictions. If left unaddressed, the problems will spiral. There are also issues with the unions and with assets that have not yet been reconfigured. “The competition in the fuel market came at the worst possible time for PEMEX,” Saldívar says. “But all these challenges will force the NOC to reinvent itself, both culturally and in a business sense and it will decide which assets to keep and which ones to divest.”
Going forward, more clarity would be welcome in the downstream industry. “I do not believe projects will be advancing within the year but we should at least have a better idea of what is to come,” he says. Amec Foster Wheeler wants to engage in basic planning of some midstream projects and is already working to obtain some smaller midstream contracts. “These will involve connecting marine fuel storage terminals by building pipelines or distribution networks,” he says. This will satisfy Amec Foster Wheeler’s need to keep going while it waits for the entry of the new upstream players.
But the entrance of the Majors and their complex demands could also spell trouble for smaller EPCs. “The types of demands and contracts required by the Majors will be too complicated for smaller EPC companies to meet,” Saldívar says.