Growth Ambitions of a Mexican Drilling Company

Q: What is the key to Perforadora México’s success in shallow water drilling in Mexico?

A: Our human resources play a key part in our shallow water success. We have a very good recruitment process and are always looking for alternatives to minimize turnover. To achieve this, the company has implemented a very attractive incentive program for our personnel. When a rig reaches 96% efficiency or more, each of the workers involved with that rig receives a bonus that is paid in two parts: the first is paid immediately while the other is paid six months later. The objective of this lag time is to ensure that the workers stay long enough to receive their pay. Some might argue that economic factors are paramount, but personnel retention requires a mix of elements. Perforadora México has considerable growth ambitions, so it is normal for our staff to feel invested in a company that has an honest interest in developing their potential as professionals. Oftentimes, this is more important for certain people than a 10% to 30% difference in salary. Another component of our success consists of learning from mistakes, both our own and those of other companies. For example, we learned of a company that was having problems with a broken top drive. It halted the rig’s operations for several months, resulting in significant financial losses. To avoid a similar scenario, we bought a spare top drive in case the same fate should befall us. In case of malfunction or failure, it would only take us a day to install the top drive, as opposed to several months of lost operations. Additionally, we analyze each factor responsible for downtime on a monthly basis and seek to prevent them from happening again.

Q: How will the entry of private operators affect market rates and the conditions required to win contracts in Mexico?

A: The market will dominate much more than before. Perforadora México has faced challenges in the past, such as when PEMEX was offering very low rates for the jackups, but we were able to convince PEMEX that the only way to bring this type of equipment to Mexico was to get closer to international market rates. I think PEMEX and all the companies that enter Mexico will keep the market competitive. Otherwise, some of them will not get the equipment they need and will suffer to fulfill their mid-term objectives. After the Reform, PEMEX will have an easier time establishing rates in accordance with international standards. Previously, it was not offering the market rate, leading to companies bidding much lower than they should have because they wanted to get business without risking too much capital. The fact that the government’s auditing department was assessing these companies created a difficult situation for PEMEX executives.

Q: What is the outlook for jack-up and platform rig demand?

A: PEMEX needs both kinds of rigs for different reasons. Platform rigs are usually more useful for major well repairs and for locations that are difficult to reach. PEMEX already fulfilled its entire jack-up short-term needs. However, it is struggling because platform rigs are customized, thus involving more risk for companies. Furthermore, there are very few yards building this kind of equipment. Even though investment in jack-ups has decreased, there are short-term opportunities to invest in platform rigs. In our case, we know that PEMEX no longer needs additional jack-ups, therefore our strategy is focused around platform rigs.

Q: How far ahead does your company plan regarding vertical integration?

A: We will be integrating in what we consider to be the core aspects of drilling. If additional services are needed, we will partner with other companies or select the best supplier to help us out. Perforadora México is already an integrated firm, but if another player can outperform us in terms of technology or costs, we will choose them as partners. Our strategy is to incorporate all exploration-related services to supply integrated service packages. The market is large enough, so I do not see a conflict of interests occurring when providing services to our competition. Furthermore, if Grupo México decides to secure one or more of the licenses that the government will be tendering after the Reform, Perforadora México will seek to become the drilling company for these licenses, although nothing is set in stone.

Q: Is Perforadora México planning to expand to international markets?

A: Considering the current changes, our focus is exclusively on Mexico. When Perforadora México grows and increases its significance as a company, we will identify opportunities in international markets and examine the possibility of moving to where opportunities match our expansion goals. Last year we analyzed some opportunities in the US side of the Gulf of Mexico, but these did not materialize. If the company decides to enter other markets in the future, we will likely focus on the Americas. This would follow the experience of our mining division, which has operations and developments in Mexico, the US, Peru, Argentina, Chile, and Brazil.