Oil Operator ‘A La Mexicana’

Q: How will the Energy Reform impact how Grupo Diavaz finds opportunities in the Mexican oil and gas industry?

A: The new market will be limited only by what technologies or strategies companies bring to the table, or by their ability to find the right partners. In the past, whenever we had a new idea, we had to run it by PEMEX and the company’s executives would decide whether to use it or not. It will now come down to companies bringing new technologies and for others to decide if they want to use them or not. This will allow us to be more efficient when operating.

Q: What are the main threats to Grupo Diavaz’ strong position in Mexico?

A: We are not facing any significant disadvantages, only an influx of new competitors who might also bring in their own subcontractors. What can we do to prevent this from happening? We have to make sure that Mexican service companies working for oil operators offer the highest quality at a fair price, all while abiding by international standards. Grupo Diavaz is already doing this but we may need to prove ourselves once more among all the oil companies entering the Mexican market. We will have to show them which kind of company we are and the quality of the services we provide. We are confident that Grupo Diavaz will be able to qualify under their requirements. On the upside, we will all share in the advantages of having a wider service market and a larger demand that will bring higher standards.

Q: How has the company prepared itself to compete with these international operators?

A: We have already talked with several oil companies that are interested in entering Mexico by partnering with an established company. Their interest grows when they see our track record. They were impressed with the fact that Grupo Diavaz was an operator ‘a la mexicana’ for a long time and is now an operator in the complete sense of the word. The fact that the Energy Reform allowed profitsharing contracts, PSAs and licenses has only enhanced their interest. I believe we hold an advantage of being a Mexican company, in every sense. Our costs are in pesos, while many other companies are invoicing their services in US dollars.

Q: Which types of partners would be most suitable to form a consortium with Grupo Diavaz?

A: Grupo Diavaz is working in four different fields, two of which are operated by our company. We decided to go in on our own on the second of these, Miquetla, instead of going with a partner. Under the new contracting models, we are assessing how to move forward: there are definitely some fields we will bid for in Round One and Round Two. When the proper data packages are released, we will assess the projects’ dimensions and decide whether we need help or we whether can do it on our own, like in Miquetla. We might partner for technological reasons or in order to get additional resources. We are already anticipating the arrival of medium-sized oil companies in Mexico, specifically those that have contacted us. We believe we have proven ourselves enough to be the operators in potential partnerships with such companies. The other option we are considering would be to team up with an investment fund that is looking to seize opportunities. These companies look at Grupo Diavaz as a good option to invest in Mexico. Investment funds do not only consist in the provision of funds and capital as they also bring in the expertise of oil companies from all over the world. Even if these funds do not act as operators, they are filled with people that have enough technological expertise to be a player, and not just an investment partner.

Q: Which types of fields that will be tendered to private operators are the best matches for Grupo Diavaz?

A: We are interested in two fields, an onshore field near Cinco Presidentes and a larger offshore field in Mexican shallow waters. Another option we might try is to partner with PEMEX to work on one or two fields as partners, with Grupo Diavaz as the operator. We believe we could show PEMEX how a smaller oil company works, as well as the efficiency that a boutique company can bring to the table. We are already talking to PEMEX’s executives in this regard, but nothing formal has come out of it yet. They are really interesting in learning how we operate, though.

Q: Which advantages has Grupo Diavaz gained from working with Petrobras, SINOPEC, and other international companies in Mexico?

A: We are partners with Petrobras, and we will continue working as their subcontractor in several of the services we provide. Back in 2003, when the industry first tried to open up through MSCs in Reynosa, we saw the opportunity to partner with an operator in order to start learning the hardships of the trade. We went with Petrobras as the operator of our venture, and we learned about the differences between being operators and service providers. The next time we decided to wager on a field, we partnered with SINOPEC but with Grupo Diavaz being the operator even though SINOPEC is larger than Petrobras. When the MSCs evolved into 30-year ISCs, we already had a year-and-a-half of experience as operators. We are now both a formal operator and a service company, which are two completely different sides of the same coin.

Q: What advantages does Grupo Diavaz enjoy as a Mexican operator in understanding the social implications of working in certain regions?

A: Ébano is the oldest oil field in Mexico, which Grupo Diavaz is privileged to be managing. In 1904, Ébano was producing a lot of oil but when Grupo Diavaz started operating there, all that was left was practically an abandoned town with low economic expectations. We made a choice to help the town grow through our necessities. For instance, the diesel distributor of the town used to sell only 100 liters, today he sells over 1,000. We needed places to stay and eat, so we convinced the local businesspeople to build hotels and restaurants. An old building used to host the oil companies’ offices over 100 years ago, so we asked the local government to let us refurbish it and lease it for six years. An abandoned little marketplace has been turned into our local center of operations. We aim to do the same in Miquetla, we want to partner with local people so they can grow their businesses and provide the services Grupo Diavaz requires In the past, communities would demand certain things in the wrong way, ending up in bribes and corrupt practices. Grupo Diavaz talks to them beforehand to look for ways to improve their quality of life. Grupo Diavaz and the local communities jointly promote the construction of additional infrastructure that could improve their situation.

Q: How do you expect Grupo Diavaz’s international partnerships to evolve as a result of the Energy Reform?

A: We are in constant dialogue with international companies to see if they want to partner with us now that the industry framework allows it. We are an oil company looking to grow and develop beyond our current experiences. Petrobras is having some financial trouble and wants to expand outside of Brazil. We have also been in touch with SINOPEC’s executives to see if they want to participate with us in fields larger than Miquetla. We have other allies, such as the Dutch company Fugro, with which we have worked for 22 years already. We are planning to create a 50-50 partnership with Fugro, called Diavaz-Fugro, which will allow us to take advantage of all the services this company offers, including in entirely new areas of business.

Q: Are there other plans to use this partnership model to directly benefit PEMEX?

A: We have had some conversations with PEMEX, but everything remains at an initial stage. We have already proposed going to the US with PEMEX to operate fields that Petrobras no longer wants to be involved in. We want to continue seizing the benefits of this partnership business model with different companies. During 41 years, we have seen the opportunities that PEMEX has provided for Grupo Diavaz from being partners in many different projects. Today, the government will be the one tendering these opportunities. But given our shared history, if there is an opportunity to partner with PEMEX to operate somewhere else, we are willing to do it.

Q: How does Grupo Diavaz plan to lead by example when it comes to the development of Mexican operators?

A: We have proven that Grupo Diavaz is now an oil operator that can compete by itself on any given tender and win it. The example our company has set is not only about one day deciding to turn ourselves into an oil company. We invested 12 years of effort and resources to achieve this. Grupo Diavaz is the best example that, when effort is put into it, things can be achieved in Mexico. On the other side, we have been in constant dialogue with several companies that are looking at venturing into the oil business. Large companies, such as Grupo México, have approached us to get to know the market, as well as learning from our strategies and targets. We are showing them the way, to ensure that more and more Mexican companies can be successful in the oil business.