National Champion Moves from Mines to Oil Fields

Q: How do the different activities within Grupo Mexico, such as mining and drilling support your ambitions as an oil and gas operator?

A: We have people with vast experience and knowhow in drilling and added value services, and we will be transferring those resources and skills to other areas. We are one of the lowest-cost mining companies in the world and we have the largest certified copper reserves of any company listed on the stock market. All this experience in an extractive industry such as mining can be transferred into oil and gas. After that, through a joint venture with a successful oil company, our subsidiary, Perforadora Mexico, can be transformed into a real oil and gas player. Furthermore, Grupo Mexico has a track record of successfully diversifying its businesses. On one hand, we have 56 years of experience in providing PEMEX with drilling services, including cementation, drilling fluids, and directional drilling. Furthermore, through careful associations, we are building up our experience in fracking for onshore operations. Finally, our long mining experience will also be useful for oil and gas operations, although the technologies used are different. Overall, Grupo Mexico is diversified in different business areas, it has financial strength, the potential to create alliances, a track record in creating successful companies, and a high organizational capacity oriented toward efficiency and low costs.

Q: How are the current low oil prices and PEMEX’s budget cuts affecting your medium and long-term strategies?

A: The drop in oil prices is much the same as what has happened in mining following the drop in mineral prices: the development of projects slows down, less capital is available, and risk increases while prices stay steady. However, I believe that in difficult times, one can create strategies to capitalize on new growth possibilities, since a crisis generates opportunities. At the end of the day, what matters in oil and gas is much the same as what matters in mining: having profitable deposits and the ability to be a low-cost producer. In collaboration with PEMEX, we are coming up with new schemes to help the NOC navigate these difficult times. PEMEX is obviously an important client, for whom we have provided services during the good times and the bad.

Q: Apart from supplying PEMEX, what are your ambitions to become an operator, and what opportunities do you see for Grupo Mexico in the initial phases of the bidding rounds?

A: Our plan is to transform from having a drilling company with integrated services to having a company that can handle oil exploration and production. This conversion has to be done by forging alliances with companies that are experienced in this area. One opportunity may come from PEMEX looking to sign incentive-based contracts measured by an increase in efficiency and oil production. Besides this, we are considering the possibility of entering Round One for the mature fields that were tendered on April 30, 2015. If we do, we would not participate only for the sake of winning, we would look to actively generate value and get a return on investment. We will move one step at a time while always looking for profitability.

Q: Which role does Grupo Mexico aspire to play in the future of the Mexican oil and gas industry?

A: With the pressure that PEMEX is under to increase production, many unforeseen opportunities will soon arise. Across the fields that PEMEX has discovered, only around 20% of the oil has been extracted, which means there are many great things to come. As for Grupo Mexico, our plan is to gradually become an oil producer. We want to see solid, sustainable growth and enter the big tenders. We have the intention of entering deepwater although we might initially do so as a supplier of drilling services. After all, we first ventured progressively and carefully into railroads and energy. Our approach to business in the oil and gas sector must also be based on thorough analysis and intelligent alliances that provide us with the necessary technology, since we do not have experience in exploration, development, and production. We see ourselves as an important Mexican player in the oil and gas industry within the next 15-20 years.