Luis Lauro Moreno
Grupo Merco
View from the Top

Faith in Being a Local Service Provider

Wed, 01/21/2015 - 13:07

Q: How did Grupo Merco make the shift from the agriculture business to the oil and gas sector?

A: Merco Group started off in Reynosa, Tamaulipas, as a producer of sorghum and corn. However, since the region is so gas-rich, we witnessed how small and unexperienced companies started operating large gas projects. With our deep local knowledge, we soon became familiar with the Tamaulipas fields, began looking at what PEMEX was doing in the region, and started bidding on progressively larger contracts. It took a while as we submitted nearly 40 bids before being awarded our first contract through Merco Engineering. I hired engineers and oil and gas professionals to join my group and we were eventually tasked with supervising works at the Burgos basin. Over three and a half years, we acted as supervisors for PEMEX for all the contracts it had with service companies. This gave us plenty of knowledge and experience in all the aspects of governing bidding, contracting, operating, how to turn a profit, and where to invest.

Q: How have you adapted to the contracting slowdown in the Mexican oil and gas industry over the past years?

A: We have undergone very difficult times since PEMEX began changing at the end of the previous administration and resulting in a dramatic slowdown in the awarding of contracts. Grupo Merco used to operate exclusively in the North Region, from Veracruz to Tamaulipas. However, the Burgos basin and Chicontepec were the regions most affected by the budget cuts and reallocation. Today, these regions are largely desolate as many companies went bankrupt. When the new administration took over, this issue started to be addressed but this settlement period has still been very hard for us. We currently have two contracts with PEMEX: a leasing contract for drilling services and another contract for civil engineering and infrastructure in Chicontepec. Both of them are nearing completion, so we are analyzing new opportunities. Our conclusion is that we want to become operators in different areas and being part of a consortium will enable us to achieve this. As a Mexican company, our knowledge of the country’s fields stands us in good stead. We have thoroughly observed and analyzed the reforms from a local point of view. We can offer our knowledge in areas such as tender participation, technological needs assessment, and investment facilitation. Merco Group is not a company created by the Reform. We have been in the industry for many years, beginning with very simple contracts for civil works, roads, earthworks, and moving on to leasing, drilling, and field maintenance.

Q: What are some of the most common obstacles that foreign operators have to face when entering the Mexican oil and gas industry?

A: One of the most serious challenges has to do with security and organized crime although this problem has been somewhat magnified by the media. When we go abroad, we see that many industry professionals are afraid to go to Mexico. Another issue is the way the regulators operate in Mexico, which is still an unknown factor. In the US, contracts are quite short and compact but, in Mexico, these can stretch to 1,500 pages. A lack of knowledge regarding Mexico’s precise regulations and the international media’s portrayal of the country make people think that Mexico is far more corrupt and violent than it actually is. Fortunately, this is gradually changing. Tamaulipas has a reputation for being particularly unsafe but it holds one of the world’s largest shale gas reserves and an economic boom is expected in the region. A lot of investments will flow toward that state, and once the security issue is under control, it could become an economic hotspot.

Q: Is the volatility of the oil price a defining factor in the company’s plans to invest in the sector?

A: Merco Group has been in the commodities business since its early days in the grain industry. We are used to the volatility of prices as we have gone through low and high periods. What matters to me is Mexico’s need to produce what it consumes, which does not necessarily mean this is more profitable than importing. Perhaps the low oil prices will discourage certain companies from participating in Mexico at this moment. This is particularly true for companies that are traversing a rough patch in other parts of the world. Nevertheless, as always happens, new opportunities appear. From my point of view, Mexico has the consumer market, the capital attraction capacity, and the reserves to make investments profitable.