Evolution of Pemex Contractors

Q: How has Pemex’s relationship with its contractors evolved over the last decade?

A: Over the past decade, the relationship between Pemex and its contractors changed in nature after 30 years of close partnering. This has complicated relationships between the two sides. The perspective that should prevail in the Pemex-contractor relationship is of mutual benefit: to work jointly in order to improve the industry. At the moment we sign a contract, we should see each other as partners, and we have expectations that this government will help to foster this kind of relationship.

Q: How will Pemex’s restructuring aect the relationship that the company has with its contractors?

A: I think Pemex will return to work under the same principles it was working 40 years ago, and this implies that the relationship will get better again. Partner consolidation should be a priority, and with the new attitude that Pemex has garnered during the past months, I think it will be easier to achieve. Grupo Diavaz will continue to o†er its services for any project or contract that could be tendered, eager to participate in the development of the Mexican oil and gas industry. We are clear that a big opening of the sector will not necessarily take place, but we want to continue advancing the System 1 contracting model to support Pemex’s maintenance performance.

Q: Grupo Diavaz has used the partnership model with national and international companies in order to grow. How has this played out in the Mexican context?

A: Our strategy at Grupo Diavaz has been based on partnerships with companies from di†erent countries, such as China, Brazil, and the Netherlands. We have the expectation of continuing to participate with them in the multiple service contracts, for example at Burgos, an asset for which we hope Pemex will award integrated service contracts in the future.

We are currently working at two onshore fields, Cuervito and Fronterizo, with Petrobras and we are trying to change the contract into an integrated service contract. To move to this stage, we have studied the first six years of operations that we performed in Burgos, which were really beneficial both for our company and for Pemex, in terms of proving the reserves and optimizing the way oil and gas is produced to lower costs.

In terms of operation, it has been a profitability project for us. This opens the door to a production increase in the long-term since we know there is unconventional gas and condensates in those fields, and there might even be shale gas. The challenges related to producing this kind of resources has driven Pemex to migrate from multiple service contracts to integrated service contracts, and we believe that whoever does not adapt will get its contract terminated and substituted by Pemex.

Q: You were actively trying to participate in the ISC contracts last year. Why did Grupo Diavaz not win any of the blocks tendered?

A: We tried to be actively involved with some of the Villahermosa blocks, with Weatherford and Sinopec as partners, but we experienced a lot of problems amongst ourselves. First, Sinopec believed that the price at which we wanted to bid was not su·ciently attractive. The discussions started between us and, one week before the final o†ers were to be submitted, we decided to withdraw our bid. We believe that we should have submitted a bid ourselves and at the determined price without Sinopec. However, in retrospect, it was not such a bad idea to not bid, since our price of around US$12 per barrel was not competitive enough compared to the winners of the field who bid around US$7 per barrel.

Q: How did you translate these experiences into lessons and what would you advise the winners of the ISC, based on your experiences?

A: We consider the integrated service contracts to have two big problems: the low prices that the contracts ended up having, and the total rejection of oil companies by the local communities. One clear example of the problems with communities is happening at Carrizo. Companies have not been allowed to set foot there; they are completely blocked from accessing the place. Petrofac experiences some variation of the same problem. It is an international service company that does not have the know-how of Mexico and its circumstances, which will give them a rough start. That was the main setback we had with our seismic exploration company, and there was no way of fixing it: even after we talked with the relevant authorities and Senate representatives, we could not make any progress. This is a really di·cult place to operate, where success depends a lot on the people.

Q: Are you interested in competing for contracts in the next ISC round through a partnership?

A: Of course. We are open to working through partnerships because it constitutes a win-win situation for all involved. We believe that we provide additional value for companies coming from abroad that lack the experience of working in the oil business in Mexico by being the only certified Mexican operators.

At the same time, our Ébano operation will continue to boost the local economy and generate new local employment. Our improved understanding of the operating environment at Ébano will also help us to figure out a better cost-benefit ratio that enables us to become one of the awarded operators at Chicontepec.