Néstor Martínez
View from the Top

Implementing a National System of Economical Value Creation

Wed, 01/18/2017 - 23:08

Q: How much progress has been made toward the reform’s long-term objectives?

A: Numerous operators have entered the reformed national oil industry. They are analyzing the specificities of the oil fields to engineer exploitation plans. Once the exploitation plan is operational, we will get the tangible version of the expected benefits, primarily through variables like increased employment and investment in Mexico. This process gives us time as a country to mobilize the possibilities of the industry. Universities and academic institutions will be major players as they train the industry experts operators need to maximize the industry’s value.

Regulations support this by requiring 25 percent national content, which eventually will rise to 35 percent. CNH projects the industry will develop in such a way that the national content percentage will increase far beyond these numbers. Our research has been focused on the operators’ particular needs, primarily related to oil well operations and surface hydrocarbon production as revealed in their engineering development plans. These plans give us a clear understanding of what they will require over time. From a business perspective, services need to be competitive compared to those available from abroad.

A key element is human capital. The Ministry of Energy regularly publishes statistics about the number of people a particular project may require based on certain premises, which include tangible oil resources available in exploration areas, a development level that allows stable hydrocarbon prices and the possibility of increasing oil reserves. Beyond the quantity of human resources, quality is critical. The issue can be divided into two main axes: personnel required by operators and the trained professionals the government needs. The government and operators are partners in this business so both sides need high-quality staff. Operators are  in line with what the market dictates to obtain the best people, while the state is constrained by salary provisions, inhibiting competition with operators in terms of personnel. Changes in this regard need to be made. PEMEX already stepped in with regulatory modifications to allow differentiated salaries but the state at all levels does not allow this. We need to move toward what I call a National System of Economical Value Creation, similar to the academic National System of Researchers that provides an additional salary to researchers in academia to be internationally competitive. The approach is the same. This new system would endorse state employees that add value through their work to gain additional monetary gain and compete with the salaries of the private sphere.

Q: What will be the role of the different generations in the development of the industry?

A: I do not see these divisions. In my previous experience, I have noticed young people who had better professional competence than older people. Seniority does not necessarily mean quality. These young people exhibit better performance than those in the 50 to 60-year range. The opposite is also true, with some unqualified young people surpassed by highly competent senior professionals. Our goal is not centered on managing generational gaps but, rather, to oversee working groups integrated by both experienced and inexperienced people so that expertise spills across the group. There should also be a platform for new entrants to propose new ideas and changing paradigms.

This is how I frame my proposed National System of Economical Value Creation: creating additional benefits together with a tutoring obligation. Generational gaps cannot be managed as independent receptacles. Everything has to be integrated within this human resource organization where everyone can and must share ideas and knowledge. This organization has to maintain an open system, without feeling that ideas and tutoring must be done because of the boss’ orders. This is CNH’s differentiating factor compared to other public institutions.

Q: How should the private sector participate in preparing future professionals?

A: The private sector must prepare to satisfy the operators’ needs. It should examine how to do business with the operators while being competitive against the products and services offered abroad. Private companies play a fundamental role because they have the economic resources and knowledge to enhance the industry’s value. Some can close partnerships with foreign companies to bring service manufacturing to Mexico. The oil industry generates a considerable value but everything surrounding the oil industry represents an even greater value for the country. Who will generate all this value outside the oil industry? The private sphere. There is a continuous effort from private players to determine ways to invest to guarantee their business an acceptable success rate. Many private individuals are eager to enter but the picture is not clear for them yet. The government can help through what CNH is doing for future business.

Q: How can operators participate in this process?

A: Most major operators and service companies have a foothold in academia, through collaboration agreements in which they offer scholarships and free software, for example. This virtuous circle provides universities with otherwise expensive software, technology and information unavailable in books and helps private companies to identify the best talent universities have to offer and hire them. Some small operators enroll their employees in postgraduate programs, just like PEMEX, Exxon or BP. Unfortunately, the process is still in an early stage. Further down the road, groups like AMEXHI, constituted by all the major operator companies, along with associations regrouping smaller operators, will work together to design projects that can be developed with universities and bring people in to develop new ideas for the company. These are small investments, adding value to the industry, that flourish into great benefits.

Q: How does CNH help ensure the new operators meet the local content requirements?

A: We have direct contact with the Ministry of Economy, although we are the ones managing contracts. Part of what the contract stipulates is this 25 percent local content initial provision that will eventually increase to 35 percent. We only verify the provision is duly outlined. The Ministry of Economy oversees the details, such as invoices or any other data operators provide to satisfy the ministry’s internal requirements to comply with local content. CNH wants a more proactive role in this process. We want to go further in our attributes, beyond assessing operators in future market requirements and confirming the Mexican component of the operators’ staff.

Q: What actions do you take when an operator does not meet local content requirements?

A: We work to anticipate these scenarios since it would mean a contract breach. Noncompliance triggers the payment of 199 the missing percentage in local content. In the end, CNH and the operators are partners: they take special care in complying with all our provisions, just as we are diligent in making sure they comply. We can anticipate noncompliance and warn our operators whenever we detect imminent infringements.

Q: Which role will national champions that rose from the Energy Reform play in the development of the industry?

A: Among these national champions, the crown jewel will still be PEMEX for some time. I do not discern a second place champion as of yet. As a country, it is in our best interest to have not one or two but many national champions. Small operators that increased an oil field recovery by 15 percent also fit into this category. Fundamentally, our major problem is gas related. Small operators can offer a more adequate solution for this issue. Major operators will aim for high profitability but small operators, even though they invest and gain comparatively small amounts, in aggregate they weigh as much as a single champion.