David Johnson
Chairman
Alpha Deepwater Services
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View from the Top

Helping Pemex Navigate the Deep

Wed, 04/12/2017 - 08:42

Q: What spurred your focus on Mexico and how do you help PEMEX specifically?

A: PEMEX needed help in capturing the tremendous potential in Mexico’s deepwater. We have extensive experience in all aspects of deepwater exploration, coming from Shell, ConocoPhillips and other IOCs. When we first made our pitch to Carlos Morales, the former CEO of PEP, it was a pretty simple pitch. We told him that we have been involved in all the mistakes made by other companies, and we can promise to help PEMEX avoid repeating them. In that sense, we are a boutique, exclusive, consulting group. The company does not consist of masses of people sitting at work stations but rather E&P executives who can recognize a good prospect and know what to do with it. We help PEMEX in the risk game and the drilling schedule, prioritizing and ranking what it does and how it does it. We also provide significant advice in drill planning and execution as well as development.

Q: What has PEMEX learned from working with your team over the past eight years?

A: I think PEMEX has improved its drilling quite a bit and I think it has learned a lot about deepwater, which we have helped teach them. We provide world-class explorers and world-class technologists for PEMEX at its request or at our suggestion to help it learn, train its people and become independently capable in different aspects of deepwater exploration or in whatever area we work with it. Looking forward, the focus should be on attracting several more international players to PEMEX’s organization and to reach a successful cumulative track record in the NOC’s deepwater fields. We know it has the capacity and are confident PEMEX will meet the deepwater success it needs just as it did with its onshore fields. It all comes down to changing the mindset. Mexico is sitting on sizable amounts of gas which can be developed at prices cheaper than imports. It needs to figure out what to do with it.

Q: How do you think your role will change now that PEMEX is partnering with international oil and gas companies and their experienced teams?

A: PEMEX never has had to partner before. We have been helpful in teaching it how to deal with and interact with partners. The whole business of working with partners in a typical oil company includes a vast number of people, such as the billing department, the lawyers who craft the agreements and the engineers who work on joint teams and manage teams. Also, how decisions are made in a partnership is very structured and detailed. Joint operating agreements are extremely difficult documents to negotiate and to work with and we have been in the process of helping PEMEX do that. PEMEX is catching on quickly but it has had no experience working with partners and it is going to take them a few years to get up to speed.

For example, PEMEX has had to learn how to bid in a licensing round, whereas previously it had the whole country at its disposal. Now there is a need to bid, to value prospects, to compete, to form different bidding strategies and many other important details. We have been helping it with everything from business relationships and how to make deals, to partnering strategies and identifying its best partner. We have also demonstrated the strategies it can use in the event a desired partner is reluctant to work together. PEMEX has been shielded from these kinds of activities for many years and it now must learn. It has some very good people who would make it into high-level positions in any international oil company but there are not enough of these people yet. 

Q: What do you consider to be the characteristics of a perfect partner for PEMEX in deepwater? 

A: The perfect partner for PEMEX is a company that knows how to develop a deepwater field and will value PEMEX’s contribution. The NOC has extremely detailed knowledge of its basins and more data than anyone else. It has a very good track record and is a world-class company, particularly in shallow water. The perfect partner for PEMEX would be a mid to large international oil company with people who know how to work with a partner that is still learning about the segment. The partner has to be cooperative and willing to teach PEMEX how to become a better partner. 

Q: Where do you think deepwater activity will be focused in the coming five years?

 A: I think there will be a lot of activity in the Salinas basin, in the Bay of Campeche area and on the continental shelf, as well as in the Mesozoic plays. Mexico is unique in those plays and PEMEX has a great understanding of them. There are not too many places in the world where so much oil can be found in these kinds of plays. I continue to see these areas as fundamental for PEMEX’s strategy. 

My recommendation is usually that PEMEX should take 100 percent of the best prospects and partner on the riskier ones, even if that is in deepwater. The NOC can develop deepwater prospects right now. If necessary, it can seek our help but I believe the company is more than capable of doing the technical work, albeit with significant changes to its operating style. I think PEMEX could be very competitive. 

Q: What is the importance of PEMEX’s internationalization?

A: PEMEX’s production is declining and it is now facing stiff competition internally. In the first couple of licensing rounds, PEMEX has been somewhat successful but not successful enough. It needs a series of new prospects every year. If a company does not have a ready pipeline of new prospects coming in, there is no long-term future for that company. If PEMEX continues in this same vein, it is just a question of how long it can survive until it runs out of prospects. It is therefore critical that it becomes successful in the licensing rounds and critical it becomes a successful international explorer as well as continuing to dominate certain areas in Mexico. PEMEX is skilled in a couple of areas such as shallow water but it needs to dominate these completely. The Bay of Campeche is a place where the NOC can dominate and I think the Perdido basin is another. There are few places in the world with Mexico’s potential, especially for exploration activity. Looking outward, there are several logical expansion choices, the US being first in line.

Q: What is your assessment of PEMEX’s human talent?

A: PEMEX’s staff includes outstanding talented people across all levels. Beyond increasing its workforce, which also numbers among the NOC’s primary necessities, it needs to foster a diversity of ideas, bring in experienced executives who have held different key positions and who have accumulated experience in the Middle East, Africa or Russia, locations with tenured hydrocarbon experience that PEMEX would eventually be interested in. Bringing that skill in is critical for PEMEX because it takes too long to learn. Injecting know-how regarding different operating procedures in drilling and development and intoducing management techniques tailor-made for large developments would be extremely beneficial to PEMEX. The absolute key to success is good people.