Driller Survives with Cost-Efficiency, Collaboration

Put a lid on costs, use great equipment and exhibit an enviable safety record. Throw in a dollop of determination and the result is the recipe for success behind oilfield services provider COSL, one of the largest companies in a field dominated by well-known names like Schlumberger and Petrofac, among others.

The Chinese company, active in Mexico since 2007, used those ingredients to not only survive but to thrive during an industry downturn that thwarted drilling activity and squeezed its main clients’ budgets. Its efforts paid off in 2016 when it found itself among the early success stories of the Energy Reform, winning one of Mexico’s first privately tendered rig and logistics services contracts. COSL President Lai Xuanchao says it came down to the company’s costefficiency and impressive performance on safety.

The global market pinch did not, however, leave COSL unscathed. By the first half of 2016, its revenues had fallen by over 42 percent year on year to RMB6.9 billion (US$1 billion) as oil companies lowered their investments in the wake of last year’s low crude prices.

In August 2016, COSL won a contract with Hokchi Energy, a subsidiary of Pan American Energy, to provide rig and logistics services for the its operations in the shallow-water block it won in Round 1.2 in 2015. With operations now well underway, Xuanchao says three factors brought the contract home: “the quality of our equipment, our excellent operational and safety standards and our focus on cost control.”

The company designated their COSL Hunter jack-up rig for operations in the Tabasco-based field. A sixth-generation rig, the COSL Hunter boasts intelligent protection mechanisms and automated operating systems, Xuanchao says. These features raise safety and efficiency standards. In use since the beginning of 2014, the rig is virtually new, a factor that helped COSL secure the contract. The company’s effort to achieve a blemish-free safety record also played an integral role in its winning bid. “In 2016 we had a zero-accident success rate, which is always the target we aim for,” Xuanchao says. As Mexico opens its oil and gas market to private foreign investors for the first time, the stakes are high when it comes to avoiding high-profile accidents and the company benefits from an integrated management system designed to increase safety standards, he adds.

The executive points to COSL’s efforts regarding costefficiency as another factor for its success in securing the Hokchi contract. “In a low oil price environment, cost is a priority for operators,” he explains, “and COSL was born with that mentality.”

Watching every penny is certainly not new for the Chinese company, which weathered several industry downturns in the 1990s and early 2000s. Xuanchao puts the company’s ability to survive down to its birth in a struggling Chinese economy. “In the 1970s, China’s economic status was weak. For that reason, COSL instilled the mindset of costefficiency into every employee, manager and stakeholder from day one,” he says. Considering the fundamental role cost-efficiency already played in COSL’s business approach, the firm is not surprised it found success in the Mexican market, where PEMEX frequently came under criticism in the past for inefficient spending.

Cost-efficiency allows COSL to prosper in difficult times and its competitor-friendly mindset also helps the company because it considers its rivals potential collaborators. Difficult times call for more collaboration to bolster the industry’s competitiveness, Xuanchao says. Instead of competing, COSL is more interested in the benefits to be gained from actively sharing knowledge and integrating capabilities between different industry players. Paraphrasing a well-known quote, he says, “there are no eternal friends or eternal enemies, only eternal interests.”

COSL’s biggest achievement in 2016 was gaining more knowledge of the Mexican oil and gas market. It may seem modest when considering the company’s success in the Hokchi block but the long-term benefits of such local experience could go a long way in making COSL an attractive partner for newcomers.