Healthy Core Business Key in Surviving Disruptions

Q: How is Oceaneering planning to deal with depressed oil prices in Mexico at the moment?

A: We are re-forecasting our business based on the global economic disruption. Paying close attention to our historically strong balance sheet is imperative and we have to save cash and be financially conservative. We plan for different scenarios, ranging from worst to best case. If we plan well, we can survive the disruptions, which are affecting everyone and creating a variety of scenarios. We have to plan for the dramatic impact to reduced demand and will do so continuously now and through the end of the year in this very fluid environment. We play a big role in maintaining our customers operating assets and our customers will continue to operate albeit at dramatically reduced levels.  All the major operators are decreasing their capital budgets.

Unfortunately, we will see a decrease in operations in the near future, based on our customers’ plans. We can only depend on what our customers say and that will give us a better understanding of what our future will look like. This is why more than ever we are in constant communication with them. They know what outside issues will affect them. Safety, for instance, will remain at the forefront. Process safety and keeping the equipment performing at optimal levels is a big component of our work. Customers still rely on our inspections and nondestructive examinations. For us, it is important to act quickly and have appropriate plans in place.

Q: What parts of the business do you focus on so you can react quickly to your client´s requests?

A: I think there are tradeoffs for companies both small and big. One positive for us is that we are a large company with a global footprint that knows local markets very well. This helps us understand our customers. The industry relies on our technicians, experts and specialists all the time, and the mobility of our people is a key concern. Obviously the travel restriction have changed what we can do and where with countries closing their borders for non-essential travel due to COVID-19. We are dealing with these issues as we speak. Being a big company allows us to do certain things well. We hope to help our workers through the uncertainty with good communication. The situation breeds fear regarding the future, but we try to be transparent and visible as leaders.

Q: Operators have contractual obligations to Mexico. Does this give Oceaneering a sense of certainty, despite budgetary restrictions?

A: I think operators, such as our customers, will strictly prioritize their spending in the next few months. It will cause a ripple effect, meaning that lower priority activities will be curtailed, postponed or even canceled. Customers have announced they are cutting back on development activities. Even world-class deepwater discoveries, which have been in development as fast as possible have to be reviewed since the industry has been turned upside down. So, even our customers are in a quandary about what to prioritize and how to manage their contractual obligations. In Mexico, there is the possibility that these developments could suspend or dramatically delay progress on developments both for shallow water and deep water. Everyone in the industry, including the operators, will have to examine how to operate based on cash flow and maintaining liquidity on the balance sheet. Each of the leases that Mexico made, however, came with contractual obligations to develop and explore these resources. To what extent they re-negotiate these terms will just have to play out, considering these unforeseen circumstances. Oil companies are in the same situation that we are in, trying to figure out what US$25 oil mean for now and in the future. They face cash flow problems. I think there will be many discussions on how to manage projects and we will be in the middle of some of those talks.

Q: How will you apply your success when working with operators in Mexico?

A: I think the core of our company is healthy. Our customers are mostly in deepwater. We can bring engineered solutions to customers that always face different challenges in new areas in deepwater. Typically, our ROV and our survey businesses are deployed on deepwater rigs and vessels because operators with a new lease do site characterization surveys first. This is the type of work we have done in Mexico. Our asset integrity business has been strong in Mexico in terms of inspections. It continues to work well there. We can provide services related to field development. We also offer equipment and hardware, such as our umbilical and connectors businesses, service technology, rentals and completion services. These begin to accelerate as developments occur. But in the early stages of new lease areas and exploration drilling, it is primarily the other parts of the business.

Q: How has Oceaneering consolidated its position as a market leader in Mexico?

A: Mexico has been defined by fits and starts in our case. We are primarily a deepwater, upstream services company. Although we offer services in shallow waters and onshore, deepwater is where our strength lies. Our hope has always been that we would be well-positioned to fully participate in Mexico’s deepwater development. The truth is that this process has taken a long time. It takes a long time anywhere, even in mature basins, but Mexico has had its interest in the area for a long time. Of course, the change to the constitution and toward production licensing has been the game changer. It is unfortunate that this disruption will likely impact the timing once again. Truthfully, what Mexico needs for development is a stable future for the oil commodity price. People can then make commitments and fund developments and investments can be more certain.

Before the recent crash, the oil price had already softened in 2019. I think it has been a setback for Mexico as well. The 2015-2020 period saw major oil companies only develop where they had infrastructure and could tie back. Quality over quantity and advantaged oil were the buzzwords. What this meant basically was that they would develop low-risk opportunities that did not require much capital investment and could be delivered with a low break-even cost. This does not bode well for Mexico developing greenfield deepwater. Only the best of this made the cut in the operators’ capital plans. Like in Guyana, Senegal and Mozambique, only the absolute best reservoirs justify the high capital investment. And this was before the crash. Unfortunately, I think it will cause another ripple of delay in what was looking to be a promising market. Projections were positive not long ago, now we have felt the effects as well.