Harnessing Data for Comprehensive, Value-adding InsightBy Peter Appleby | Fri, 04/03/2020 - 14:53
Q: How have IHS Markit’s macro insights changed over the past 12 to 18 months?
A: Though Mexico’s upstream opportunities have been suspended for the present, IHS Markit’s clients are active and are moving forward with their developments from previous bidding rounds. There are still many operational questions to consider and new themes are emerging, including gas import and trading, which is particularly interesting due to the competitiveness of the US gas market and the access Mexico has to it. Certainly, our hands are being kept busy with these market issues and with helping our clients.
While there are no new opportunities for investment in exploration and production, there are many opportunities to invest in the midstream and downstream sections of the market, so much so that upstream operators are now looking at the midstream for activities like processing gas and alternative transport methods to deliver their products. There is still a great deal of room for IHS Markit to support its clients on these challenging issues.
We believe that Mexico’s production outputs will be impacted by recent governmental decisions. Whatever Mexico is not doing today will be felt in the next five years. Our effort has therefore been to adapt to the administration’s outlook and identify the best opportunities in this new arena, including the potential for PEMEX, which requires insights into the market’s workings within Mexico and on the global level.
Investment funds are gaining importance in the midstream and downstream while avoiding the upstream due to the high competitivity of the sector and the falling rate of returns in comparison to other industries, including digitalization or telecommunications. The competitivity of upstream is affecting everything, including PEMEX, which needs to understand its priorities for generating higher profitability and greater returns. PEMEX must be more efficient, and tools including those provided by IHS Markit are a part of this. Global issues like climate change, with decarbonization investments or even moving into renewables are options that PEMEX could consider, just like other oil and gas players are doing.
Q: How do IHS Markit’s products enhance efficiency for companies as vast as PEMEX, through the aggregation and analysis of data?
A: The major value offerings of IHS Markit’s products are their ability to aggregate, process and handle vast amounts of information that can be translated into dynamic platforms for multiple uses. For example, information can be passed easily between petroleum engineers, geologists and to the financing division so that decisions can be made. We provide very easy-to-understand platforms that enable communication throughout the life cycle of a process.
Our products can help evaluate exploratory opportunities that can include such variables as cost, investment considerations and project economics. The intention is to provide a bridge between these otherwise distinct areas, which, when brought together, provide comprehensive oversights, comparisons and the ability to manipulate outcomes. Our products enhance communication and ensure each distinct area is speaking the same language. Internal communication, and the freeing of its pathways is vital.
This is what we are bringing to PEMEX. We work very closely with departments within the NOC, and in particular, we are helping them understand the relation of their position to global issues and trends and how its position in the Mexican market is impacted. As a national oil company, and particularly during the current administration, which is very focused on the national setting, PEMEX can easily lose sight of how global trends impact the Mexican environment and the markets that it must work within.
Q: What are the Mexico-specific challenges that clients like PEMEX have in turning data into a value-adding resource?
A: Data is only useful if it is able to be understood and a company has the capacity to process it quickly. Without this ability, data cannot be utilized. Therefore, changing the way a company does business, including the habitual handling of data, can be challenging. Applying new technological changes within PEMEX is complicated, in part because of its size. But the change in the energy outlook every six years with a new federal administration is also problematic for the continuity of a transformation that takes time. There must be certainty in a strategy so that it can be taken to its fulfilment and the benefits can be seen. Innovation cannot be implemented in an environment that does not settle. Equally, innovation is difficult to achieve in an environment where people may be unwilling to voice opinion and suggest new ways of doing things. This is not only PEMEX-specific but also refers to any company. Long-term strategy, with all that implies, is very important.
Many new technologies are focused around the midstream segment and the use of existing infrastructure for tie-back projects. The innovations here are less in the digital realm and more in areas like fluid-flow improvements, infrastructure connections and subsea engineering. These are more practical, material-based points of innovation and these are equally as important in increasing efficiency and driving down cost. These are also areas where PEMEX could benefit.
Q: Which IHS Markit products deliver the best value offering to private players?
A: Our star product is QUE$TOR. It is an exceptional tool for evaluating cost and planning investments, as well as proving different development concepts and benchmarks. Other tools, like Vantage, are very useful for playing with fiscal terms and investment decision-making and is more suited to evaluating potential opportunities. While this is popular for clients working in Mexico and considering opportunities abroad, there are fewer opportunities to use it here.
Our tools include all factors that impact the market. For example, the coronavirus is included in our insights. Our tools are updated at least quarterly and we provide short-term outlooks (two years) and long-term outlooks of up to 25 years. Our oil and gas risk tool takes macro issues, such as regional insecurity or political issues into account. For example, we have generated alternative scenarios for how the functioning of Dos Bocas will play out, how it will impact prices, internal competition and other issues. The key issue is whether PEMEX will operate on a level playing field.
IHS Markit also acquired Oil Price Information Service (OPIS) in 2016. While OPIS traditionally focused on the US, we have since extended its remit into Mexico. We are seeing this tool coming into its own in Mexico with the new fuel market opening up here. OPIS’ rack price index is ideal for this configurating market, particularly as transparency is more difficult to come by following the government’s removal of the PEMEX asymmetric gas regulation. Having a market tool that helps clients understand the regional dynamics of price fluctuations is useful, and will become more so once the new fuel market begins to consolidate and act like a mature market.
Q: IHS Markit measures, analyzes and provides insight for many markets. What are the metrics it uses to measure its own performance?
A: Revenue, the number of clients and, as a public company, our stock price are the focal points. In February 2019, our stock price went above US$80, so we have grown dramatically over the last year. Our philosophy is never to sit still, to always move forward. The IHS Markit philosophy is to improve our products constantly. QUE$TOR is an example of this, which at its beginning, assessed 50 components along the oil and gas value chain. Now, it analyzes so much more, including 60,000 cost points.