The Future of an Industry MainstayTue, 01/21/2020 - 17:00
Q: Given Grupo Protexa’s extensive history, how would you describe the state of the Mexican oil and gas industry?
A: We’re living a challenging moment due to the decrease in oil prices and the change of government; which has a different vision. Our company and the rest of the companies in the sector must tackle challenges and let the industry know that Mexican companies are capable of satisfying what the industry demands.
Q: What is Grupo Protexa’s contribution to the development of the Mexican oil and gas industry?
A: We made an arrangement with Grupo R involving the Tolteca vessel that got them started in the offshore industry. We contracted Grupo Diavaz to provide diving services and helped them to develop the necessary capabilities through the Arctic Seal vessel that enabled them to handle this contract directly. Cotemar was started by my brother in law, who worked at Grupo Protexa before spinning off. Even Arendal and CCC Fabricación y Construcciones were created by former Grupo Protexa employees who started working directly for PEMEX.
In short, most of the leading Mexican offshore service companies were either spin-offs from Grupo Protexa, were created by former Grupo Protexa employees, or were started in partnership with Grupo Protexa. The other main contribution is that we have always been a frontrunner in bringing innovations to the Mexican market. We brought the first pipelaying vessel, the first jack-up drilling rig and the first dynamic positioning vessel to Mexico. We conducted the first offshore platform installation in Mexico and constructed the largest platforms in the country.
Q: What is the secret to staying successful over so many decades while helping to set up your own competitors?
A: There are two major factors. First of all, forward thinking to anticipate the needs and exceed the expectations of our clients through innovation. We were the first one to do many things which means that we are innovative. A good example is that we were the first company to build computers for use in Mexico’s oil and gas sector, which we started doing in 1974. We were also the first company in Mexico, besides Telmex, to establish our own cellular phone network in the country’s northeastern region.
Q: What are the most important ways in which Grupo Protexa has reacted to the decade of change in Mexico’s oil and gas industry?
A: In 1981, oil prices began a decrease that took the price per barrel from US$36 to, eventually, almost US$7. This created an enormous crisis. It is all about understanding and adapting to the market cycles. We have always managed to position the company in a way that enabled us to maintain our market position throughout these times, and we have the resilience to remain, or get back up, on our feet. We entered this last decade having just come out of one of these troublesome times, during which we had to reengineer a lot of our processes. In 2014, we began reconstituting our corporate governance, so that by 2015, when the oil price began its downward trajectory, we were in a great position thanks to the many internal controls that we had developed. This allowed us to survive very well.
It resulted in us going up while everybody was going down. During the last five years, we have been delivering our projects not just in time but ahead of time, which nobody else in this market has managed to do, at least not as far as I know. In fact, on one occasion, one PEMEX executive explained that, due to the fact that the project was delivered in advanced it generated enough extra profits for the entire cost of the contract.
Achieving this is not based on cutting corners but on investing resources in order to anticipate our clients’ needs. This includes having detailed knowledge about the supply lines available to you. If you are going to need materials that are going to need a certain amount of time to ship or procure, you need to make sure to have that supply chain ready and its timeframes taken into account by the time you are awarded the contract in question. If you start making these orders after the contract is awarded, you are going to be late. We learned that through experience.
You have to get ahead of the game and take the financial risk of betting on a contract. The worst-case scenario is that the contract is awarded to somebody else, in which case you can offer them the orders that you have already made. This also allows us to make lower bids because we have arranged for the materials needed to be already available to us. For new oil companies entering the Mexican market and looking for a good performer, our track record for the last four or five years give us an enormous advantage over other companies that have been late or have even dropped jobs and left them unfinished.
Q: How would you respond to questions regarding the financial risks you have taken in the bidding processes?
A: Throughout the last five years and two presidential administrations, we have bet on winning and being awarded these contracts. We were betting on specific and strategically chosen projects, based on the lowest prices and the best performance that we can offer. We were not free to make these bets comfortably, but instead made them based on research and the alignment of our capabilities with the clients’ needs. They were good bets but also carefully made bets, and that is why they paid off.
Q: Where do you see the strongest increase in demand coming from in the future in terms of services to PEMEX?
A: I would advise to the decision makers to look at performance. Paquete A and Paquete B that were awarded to us are being delivered ahead of time yet again. We only have to wait for the structures to be hooked up but the main job of delivering all the pipelines is done. Taking this into account, who do you give the next job to? I think there is going to be serious demand for the type of performance that we have delivered. Beyond that, we are now being approached to fulfill many more integrated contracts. We used to deliver all projects through separate contracts, but the shift towards integrated contracts is offering new opportunities.
If we continue to outperform on these integrated contracts, then we will continue to be the best choice not only for PEMEX but also for international companies entering the market. Non-PEMEX oil producers are going to be more active in their search for reliable Mexican contractors that can deliver projects matching the high international standard that they are used to, and we are going to stand out. In the end, both PEMEX and the international operators will be looking for companies that can achieve the necessary efficiency, and more, faster than the rest.
Q: To what degree is there a limit in your execution capacity regarding the work you could do for PEMEX?
A: There is always a limit but this limit depends on our managerial capabilities. Our procedures are very detailed to ensure the successful completion of crucial tasks and be able to take on more and more responsibilities. For example, we expended the fleet we are using from three to 28 vessels and we have had no problem at all. The limit could be 35 or 60, or it could be more than 60. As long as we continue to be able to handle the work available to us, the limit remains unknown. Again, this is all achievable through good corporate governance and good procedures. That is the road to success.
Q: What are the most important questions that you are getting from new operators when introducing Grupo Protexa?
A: They will ask similar questions to those you are asking now. What are your capabilities in terms of human resources, finance and equipment or instruments such as vessels? We have to be clear with them so that we can part ways on friendly terms if our capabilities are not aligned with their needs. Our internal risk committees will not allow us to pursue projects that we cannot deliver without taking excessive risk.
As a result, our progress with the international operators has been good. We have been in contact with over 90 percent of the private operators, we have registered as a supplier and we are ready to bid for any tender that they will make available. They know that we are cost competitive; which is confirmed by the relatively limited number of nonMexican contractors participating in these tenders. The only barrier could be trust; international operators might prefer bringing in their preferred international contractors despite the enormous increase in cost that this would represent. That is fine since we respect that it is their money that is being spent at the end of the day.
Q: How would you describe your dreams and ambitions for Grupo Protexa in the future?
A: The next couple of years is too short of a timeframe to make a forecast; most of what will happen in the next couple of years has to be more or less established by now. We need to have a conversation about where we see ourselves in 10 years. In three years, I see Grupo Protexa getting involved in integrated service contracts for PEMEX which contemplate all the steps of field development. In 10 years, I want Grupo Protexa to be a fully-fledged oil company, applying the best available knowledge and technology by contributing to Mexico’s production increase in order to help both the government and PEMEX increase their returns. We see it as a win-win situation.
Grupo Protexa is a major Mexican infrastructure and engineering company that has been at the forefront of the country’s oil and gas development throughout the last seven decades.