Sergio Dan Saldivar Valdéz
NorthAm Engineering

From Engineering to EPC

Tue, 01/22/2013 - 12:12

Last year, Mexican engineering companies made important progress in competing increasingly effectively with their international counterparts. Sergio Dan Saldivar Valdés, CEO of NorthAm Engineering, explains how his company was part of this trend and acquired new contracts for production facilities and infrastructure, and what challenges it faces to continue its expansion. These new opportunities have allowed the company to expand in multiple sectors, but most importantly its expansion in the oil and gas market was driven by the opening of new offices in Poza Rica, Reynosa, and Veracruz. “The focus has been on expanding our local presence in the main oil regions, but we are still headquartered in Monterrey, where we have strong execution capacity. Even though we are planning to remain based in Monterrey in the near future, our expansion is guided towards Mexico City and the oil towns,” Saldivar Valdés explains.

“The strategy of moving into the main Mexican oil towns has been very successful, because it has allowed NorthAm Engineering to be closer to Pemex, other private companies, and the oil fields, but also because it has increased the company’s chances of becoming the engineering firm of choice in the various regions,” says Saldivar Valdés. “For example, the company is currently executing small projects, totaling over 50,000 man-hours, in the Aguacate field in Poza Rica. It is a complete development with a pipeline, compression station, separation batteries, and sweetening. This is something we would not have been able to achieve without our local office.”

On the other hand, even though many Mexican engineering companies have been successful in acquiring contracts for shallow water infrastructure projects, there are still limitations on their potential participation in offshore engineering projects. This is the case because all engineering work for such projects is included in engineering, procurement and construction (EPC) contracts, which creates a situation where fabrication yards rather than engineering companies are best positioned to win the contract. Saldivar Valdés believes this will continue to limit the opportunities for shallow water engineering projects for NorthAm Engineering because EPC companies will continue to be awarded projects over engineering companies.

Therefore, NorthAm Engineering will focus on taking advantage of the opportunities in other areas, such as downstream. Projects like the Tula Refinery, the Salamanca Reconfiguration, and also smaller projects offer great potential. “There will be a big jump in engineering for these contracts in late 2013, 2014, and even in 2015, since the Salamanca Reconfiguration and the Tula Refinery will enter the EPC phase most likely by the end of this year,” Saldivar Valdés emphasizes. However, since its main opportunities are in basic engineering rather than the EPC phase, one of the main focuses of NorthAm Engineering is acquiring the financial strength that is crucial to eventually become an EPC company. However, Saldivar Valdés believes it also needs to partner with other companies that already have EPC capabilities to start bargaining for the engineering and some procurement work, and eventually move into construction.” Since there are only a handful of companies that are capable of executing large EPC projects in Mexico, Saldivar Valdés is focused on creating strategic alliances with these companies as a means to acquire the necessary skills, and capabilities to eventually become a successful EPC company.

The other important part of NorthAm Engineering portfolio of services is providing basic engineering services to fabrication yards: “There is significant fabrication capacity in Mexico compared to other countries. Nonetheless, with all the work that is coming the EPC companies will get swamped very fast, leaving limited execution capability for large platforms anywhere in Mexico,” Saldivar Valdés emphasizes. “It is necessary to increase yard capacity nationwide in order to increase Mexico’s production volume and offer more opportunities to Mexican engineering companies”. He believes this will not be a challenge, because in the next five to ten years fabrication yards in Mexico are expected to grow drastically, partially driven by the fact that high labor costs are constraining the growth of fabrication yards in the US. “The cost of labor intensive fabrication work in the US Gulf Coast significantly exceeds Mexico’s cost level because of high salaries. Since the other cost drivers, such as materials, procurement, and equipment, are subject to global market prices, more and more Mexican yards will use this competitive edge to go after projects elsewhere in the world,” he concludes.