Ricardo Arce
CEO
Perforadora México
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View from the Top

New Opportunities for Mexican Drilling Company

Tue, 01/21/2020 - 16:42

Q: What were the most important changes and developments for your fleet during 2019?

A: We have six offshore units currently working. Two of these units are big JU-2000E jackups, called Tabasco and Campeche, and are working on medium to longterm contracts. Another two are Super M2 jackups, called Chihuahua and Zacatecas, which are able to go up to almost 100m of water depth. The last two are platform rigs, called Tamaulipas and Veracruz. All of them are working with PEMEX. We have only two contracts expiring early into 2020, specifically in January, which are those tied to the Chihuahua and Zacatecas rigs. Nevertheless, we are continuing discussions with PEMEX to have these contracts renewed shortly. We proposed the Zacatecas rig for work recently tendered by PEMEX and we believe we have a good chance of being awarded this contract shortly, which would extend its work schedule by a year and a half. In general, PEMEX is experiencing high rig demand and we expect the Chihuahua rig to address this demand, thus also extending its work schedule approximately an additional year and a half. Taking this into account, hopefully we will not have any issues keeping the Chihuahua rig working. With that being said, we must mention that PEMEX is planning to make some modifications to the contracts. We are not completely sure as to the exact nature of these modifications and to which contracts they will apply, although we are aware of some of the modifications. For example, it wants to differentiate the rig’s day rates, so that a different rate applies depending on whether the rig is working, moving or not working for reasons not related to us. That is a challenge for us because, as I have been telling PEMEX, being able to provide better rates in the second and third cases, meaning when the rig is being moved or suspended, might not be a matter within our control. Also, we are analyzing the relevant statistics to see how this rate differentiation could impact us, so we can decide if these provisions are something we can accept or not. This might be the only challenge we will face when it comes to successfully renewing and positioning the Chihuahua rig. Hopefully, we can be awarded the contract for the Zacatecas rig, in which case we will not have to enter into these types of discussions for that rig as well.

Q: Are new drilling contract negotiations factoring in the possibility of a performance bonus so that you can see an upside to these downsides?

A: Yes, PEMEX is planning to provide some sort of similar incentive but it is still in the planning stages when it comes to how this will work. The main problem is the large variety of very different contracts that PEMEX currently has in place. For example, our contract is under what PEMEX calls its “REMI” modality, so it only contemplates the rent of the rig. From there, it has to contemplate the hiring of all the different services, plus PEMEX is in charge of the rig’s operation, so the main challenge is for PEMEX to give an incentive of around 25 percent if we can reduce the time to perform each well. For that to be achieved, PEMEX, us and the other companies involved have to work as a team. PEMEX has to give these same incentives to the other companies as well. With this in mind, the main issue for PEMEX will be how to manage these incentive schemes internally. My suggestion to PEMEX is to move our contracts from the “REMI” modality to the “REMI-MIXTO” modality as a first step, which would put us in charge of the rig’s operation as well. That would make it is easier for us to work as a team with other companies and service providers so that all parties involved can have a good shot at the bonus. If PEMEX is kept in the middle, it will make this much more difficult. To be honest, I have yet to see that kind of modification within the contracts. It is also planning to implement a penalty, but, again, it is only now beginning to see how it will implement all of this into its contracting models. As an example, in cases in which a rig stops working because of something that is our fault, this would result in a 25 percent reduction of our rate. This would be a huge benefit for us because usually, when our equipment stops working because of something that is our fault, PEMEX pays us zero percent of our rate. Now, it is telling me that in these cases we can expect 75 percent of our rate instead. Again, I say this as an example of the fact that it is now only beginning the process of designing these contract modifications. It is still figuring it out.

Q: What are your priorities for 2020 assuming you can secure work for all of your rigs?

A: We have two goals for next year. The first is that we really want to participate in these new integrated contracts that PEMEX will be offering. We submitted bids for all of them this year and, as I have been telling everybody internally, we were the eternal second place. We had a chance to match prices in three of these tenders, but ultimately, we were not able to do it. In another one of these cases, in which I was sure we were going to win the contract, we were pretty much disqualified due to a typo or some other sort of similar mistake that took place during the capturing of the numbers. To be honest, we are happy now that we did not win any one of these contracts because all the actual winners are currently suffering. With that being said, however, I do personally feel a chip on my shoulder over not being able to win any. What we were planning to do was to bring in new equipment from Asia, either Singapore or China depending on the type of tender process that we participated in, and to participate together with Schlumberger in a 50-50 partnership where we provided the rigs and the cementing services and they did the rest. This strategy made us quite different from our competitors in these tenders, including the winners, because all of them were participating on their own, expecting to subcontract all the necessary services to a range of different companies, including Schlumberger and Halliburton.

This partnership provided advantages that a model based in subcontracting could not provide. We plan to participate with Schlumberger once more this coming year, but we still need to discuss this possibility with them. Given the poor results that companies have had so far working on their own under these contracts, it makes sense for us to try once more with this partnership-based strategy. The second goal for next year is to increase the vertical integration of our services. In the past we had additional contracts covering other types of services within the drilling category, such as cementing, directional drilling and supply of drilling fluids. Of these, we only have active contracts for cementing services, but we want to go back to providing the full range of services for both offshore and onshore operations. Thankfully, with all of our rigs working, we can plan for a better tomorrow, rather than simply survival, which was the case in previous years.

Perforadora Mexico, or PEMSA, a Grupo México company, was founded in 1959 to conduct exploratory drilling, development and other services inherent to the oil and gas industry, including the construction of oil and gas pipelines.