Energy Reform Opens Path to Becoming a Full OperatorWed, 01/21/2015 - 14:44
Q: What are the effects of the Energy Reform on Grupo Diavaz’s overall strategy?
A: The Energy Reform allows companies like Grupo Diavaz, which had long-term contracts with PEMEX, to now become operating partners with the NOC. The greatest opportunity for Grupo Diavaz is the fact that the company will cease to be a contractor in order to become a full operator, which is a very important step for US. There are 22 existing Financed Public Works Contracts (COPFs) and Integrated Exploration and Production Contracts (CIEPs) that will migrate to post-Energy Reform terms without the need for a public bidding process, thus becoming joint participations between PEMEX and the private sector. Grupo Diavaz operates four such contracts, two of which were already migrated, while the other two, which relate to the Burgos basin, are to be migrated by the of 2015. The advantage of these contracts when compared to the areas tendered in Round One is that our fields are already in operation. Therefore, we will not have to wait four to five years to begin seeing results. Instead, Grupo Diavaz will focus its efforts on maximizing current production and optimizing operations to maximize recovery. Grupo Diavaz already produces almost 25,000b/d from its four fields, a significant amount when compared to the output of similar companies.
While our main focus will be on increasing production in these fields, there is a current factor playing against us, which is the falling oil price. Since we will be operating under a production-sharing agreement, we will have to negotiate the best production percentage with PEMEX, and we will have to sell barrels. Once we do sell these, we will have to divide the profit with our operating partner and we also have to go to the Treasury to put forth the government take prescribed in the contract’s terms. We still do not know how much we will have to contribute though, and are a bit concerned given the novelty of these contracts in Mexico. We will have to wait and see how this new way of doing things will work out. Overall, everyone at Grupo Diavaz is very happy about the way the Energy Reform has unfolded and we believe that the oil price will recover during the year. Given how the industry works, we believe this is just another cycle.
Q: What is Grupo Diavaz’s take on forming possible operating partnerships?
A: There are two sets of contracts that provide interesting opportunities that we are now able to seize in partnership with other companies. The first set consists of PEMEX’s farm-outs, so we are currently looking at possible profitably fields in which we could operate profitable. After carefully studying the first 14 farm-out options, we will deem which ones are attractive for us to participate in. Regarding the other blocks included in Round One, if we feel the need to include a partner due to the magnitude of a project, we will find the best company to associate with. It is important to mention that Grupo Diavaz will not act as a financial partner. The company is interested in playing a critical role in the overall operation of its fields. Even if a possible partner acts as the operator, Grupo Diavaz wants to be able to contribute with technical expertise and be deeply involved in the decision-making processes. Fortunately, we have already spotted quite a few companies that have expressed their interest in working under such partnership terms.
Q: What characterizes the blocks that Grupo Diavaz is interested in during Round One?
A: Our participation will be predominantly focused on onshore blocks, while we intend to learn and expand our offshore capabilities. We will progressively increase our participation until we are fully capable of handling more operational aspects. Since we have already operated successfully in the Chicontepec region, we are interested in bidding for these fields independently. While we may invite a company to partner with us, be it PEMEX or a private player, we will be the operator in such partnership. Apart from having extensive knowledge of Chicontepec’s geology, the experience in dealing with people in that region is a definite competitive advantage for Grupo Diavaz. Handling our large operations in this area has enabled us to really understand the factors at play when developing a project, and I feel confident that we will be able to continue having a good relationship with the communities adjacent to our fields and facilities.
As for the shallow water fields that will be tendered, we are looking at the blocks in Round One from a strategic perspective. As part of our strategy, we have already secured access to the Data Room so that we can delve into the technical aspects in order to understand the true potential of these blocks. Prior to gaining access to technical data, Grupo Diavaz found that seven of these areas have potential for the company, as their lower risk factors are within our target range. Nonetheless, as we take a look at more aspects relevant to each of these areas, we will be able to fully determine which opportunities are most attractive for us to bid on. Grupo Diavaz might not necessarily act as the operator in these blocks, but we would like to have an arrangement similar to the one we are aiming for in the PEMEX farm-outs. With this in mind, we could end up partnering with PEMEX and another company in one or more of the shallow water areas to be tendered. We are aware that the NOC has very knowledgeable people that can really help us in the future. Given that we have worked closely with PEMEX for over four decades, we consider it a good partner.
Q: Which route will Grupo Diavaz’s oilfield services business take over the coming years?
A: PEMEX will continue to be a good client in this business line during the next two to three years. However, we are also aware that we will have to decide whether we want to dedicate our activities to being an operator or a service company. Thinking ahead, it is not wise for the company to do everything. Perhaps we will continue providing services for our own fields over the coming years, but we will focus all of our efforts on becoming a strong operator while outsourcing services. While being an oilfield services company has allowed us to learn many things over the years, we feel that it is the right time to make this change and leverage our acquired technical expertise in oil and gas operations in order to reach our long-term objectives.
Q: What role can national content requirements play in the attractiveness of Grupo Diavaz as a partner for foreign operators entering Mexico?
A: This will be very important for Grupo Diavaz and we intend to further increase our participation in this area. Essentially, we are not looking for partners that will simply benefit from the fact that we can fulfill their local content requirements, but rather for companies that are seeking a strong Mexican counterpart that will foster a well-balanced joint venture. Not only are we aiming for our partnerships to be mutually beneficial in terms of expertise and knowhow, but we are also interested in having a significant participation in any joint development. I had the chance to talk to Shell and I was impressed about their potential bidding plans on the first set of shallow water blocks. The possibility of participating together could potentially be positive for both companies.
Q: What is the company’s outlook on human talent development and availability in the coming years?
A: Human talent is one of the biggest challenges Grupo Diavaz and many other companies will face in the near future. Technology and training personnel to be ready to meet the industry’s demands will be among our top priorities. Highly-skilled workers in the Mexican oil and gas industry have been mainly restricted to PEMEX’s operations and therefore private players are facing such scarcity given the recent nature of the country’s opening.
Since its inception as a diving company in 1973, Grupo Diavaz has required its personnel to be very well-trained because offshore activity was limited at that moment. After the discovery of Cantarell in 1976, diving activities quickly gained prominence. Grupo Diavaz started out with 15 divers, but after 1976, the company’s diving division began growing. We began hiring foreigners who had the skills and knowhow to train our Mexican divers. Shortly after, we opened a diving school in Tuxpan that would handle these training activities. By 1979, our crew grew to 500 divers and we became the second largest diving company in the world. Even though we only have around 140 divers as of today, I can tell you that most divers working in Mexico were trained by Grupo Diavaz. Being a company that has been offering a wide range of oil and gas services since 2003, Grupo Diavaz has been able to gain ground and train personnel. Anticipating the need for qualified professionals, we created our own university in order to hire and train young engineers hailing from universities in the country’s most important oil regions, such as Tampico and Villahermosa. So far, we have hand-picked 20 bright individuals who are set to undergo a two-year training program at our university.
First, they will be exposed to the areas of work pertinent to each region, such as compression activities in Villahermosa, drilling operations in Tampico, as well as offshore maintenance and construction endeavors. They will then complement their experience with technical sessions at our campus. Once they arrive at their respective work areas, they will be assigned specific tasks to begin their training process. This makes on-site training a real-life operational scenario where students are able to build on their engineering capabilities. After this first part of the program, trainees are exposed to lectures by experienced engineers from countries that hold invaluable technical knowledge, be it from Mexico, the US, Canada, Venezuela, or Argentina. We would like to replicate the success story of our diving division within Diavaz University, where we hope to be able to train the future local leaders of the country’s oil and gas industry.