Alfredo Carvallo
Director General
View from the Top

Global EPCI Bets on Mexican Market

Wed, 01/18/2017 - 09:18

Q: What are McDermott’s expectations for the Mexican oil and gas market in 2017?

A: Mexico is a very important market for McDermott, partly due to its proximity to North America. We normally run one or two projects per year in the country, with only one in 2016 because of the industry slowdown. That was PEMEX’s Abkatún platform, which at its peak will provide 2,000 jobs and is worth US$450 million, with completion set for December 2018. Like other companies in Mexico, we are carefully monitoring the progress of new regulations and the different government announcements, such as the possibility of future PEMEX farm-outs.

McDermott hopes to see the first changes in 2018 and 2019 at the earliest. The complete licensing rounds will initially begin with exploration. Many of the winners of the different blocks expect to have the first physical infrastructure in place by late 2018 or early 2019. For that reason, McDermott’s focus in 2017 will remain on PEMEX, which we consider to be one of our top clients worldwide and certainly very important in Latin America. PEMEX has provided McDermott with over US$1 billion worth of projects in the past three or four years. The key right now is to deliver everything on time to PEMEX, within budget and with the highest safety standards. In this era of low oil prices, it helps PEMEX when projects are executed according to plan so it can achieve its operational objectives.

Q: What opportunities does McDermott envision as a result of the past licensing rounds?

A: It is too early to say but the winners of Round 1.1 and 1.2 are focused at this point on increasing their knowledge of the fields by doing further analysis of data and field drilling. Depending on the results, they will decide whether to move forward with the development of the fields. McDermott comes in later when the strategy for development of the field is completed. We will have to wait until the drilling, assessment, seismic and analysis phases are completed.

Despite the early stage the projects are in, McDermott is still active with the new players. We already have the capabilities to start helping companies before the physical development of infrastructure. Later on, however, we will have a more concrete role in the definition of the fields’ size, location and technology.

Q: What gives McDermott a competitive advantage over international entities offering similar services?

A: McDermott has been present in Mexico for many years working with PEMEX. We know the environment and the quality of resources available in the country. We are in a position to supply trained personnel that delivers solutions in a timely manner and within the agreed budget.

Since McDermott uses the engineering, procurement, construction and installation (EPCI) model, we provide a complete vertically integrated service. This is a blessing for newcomers in the Mexican oil and gas market because they do not need to develop all these aspects upon entering the country. McDermott can help because few companies have the complete set of skills required, from engineering to installation.

Everyone is wondering how big the reform will turn out to be and how much investment it will generate but we will have to wait until 2025 to answer those questions. Many companies believe the low cost of production in Mexico will allow them to be competitive. We are investing a lot in Mexico because we believe the country is going to be our center of excellence for engineering and manufacturing.

Q: How has Altamira’s status as a free trade zone affected McDermott’s business in Mexico?

A: It has many benefits, particularly when a project has a nonMexican destination. Many materials can be sourced within Mexico but a lot comes from abroad. The concept is of a maquila, where all the work is done in Mexico and then the manufactured asset is exported. Taxes are only paid on the value that was added locally. This is a big advantage for a global customer. The strategic idea behind the development of the Altamira yard was for it to become a manufacturing hub in the Gulf of Mexico for the Americas, Europe and Africa.

Q: Which flagship projects best illustrate the capabilities of McDermott’s Altamira manufacturing facility?

A: Our PB-Litoral-A and Ayatsil-C projects are good examples of the Altamira facility’s capabilities, from where we recently launched the jacket. Now, we are also focusing on the Abkatún-A2 platform, which is a very large structure with a combined weight of around 25,000 tons between the jacket and the top side. It processes around 220,000b/d of oil and 350mcf of gas.

Abkatún-A2 will incorporate the latest technologies available to improve reliability and safety. Our people understand what PEMEX wants, and due to our global nature we will be incorporating lessons learned from other projects to improve reliability and safety. Right now, our target is to reduce the time of the project, again with the objective of supporting the customer.

Q: What elements must be taken into account when hiring a Mexican workforce?

A: A vital factor is knowledge and experience in the job, their willingness to get the work done on time, in the right way and with safety a top priority. Mexico still has a long way to go in the development of its oil and gas industry but one thing we already have is a friendly working environment. McDermott is expanding its engineering capabilities in Mexico and the country will join the Middle East and India to become one of our three main global engineering centers. Our choice of Mexico says a lot about the quality of the people you can find in this country, especially in Mexico City, where the prestigious universities provide us with a pipeline of engineers. McDermott will be making agreements with universities in Mexico.

Q: What role will Mexico’s oil and gas industry play in McDermott’s operations in the next five years?

A: Right now, PEMEX is one of our key customers in the Americas and we believe this will continue. McDermott is still participating in many projects, which we hope to win, and we have a lot of faith in Mexico. PEMEX’s restructuring and budget cuts have people wondering how things will work out but out of every crisis, opportunities are born. New players will come with their own operational models and national companies will emulate them to stay competitive, resulting in a cycle of improvement for the industry