Opportunities in the Mexican Market in Times of TurmoilWed, 01/21/2015 - 09:47
Q: What aspects could help strengthen Mexico’s new regulatory framework for the upstream oil and gas industry?
A: There are certain elements we would like to see in the new regulatory framework in order to make tenders competitive and attractive for Shell to participate in. Simplicity is important to us. We expect all of the country’s regulatory agencies to work together and cooperate to avoid the creation of an endless bureaucratic cycle, which is off-putting to the private sector. This is definitely a challenge because new agencies, like ASEA, will work alongside established organisms that have developed competencies over the years, like CNH. At the same time, CRE, SENER, and the Treasury, among others, are part of the regulatory suite that now makes up the Mexican oil and gas industry. In order to carry out a project, a company must deal with all of the country’s regulators. Unless these are well-trained, prepared, and coordinate thoroughly amongst themselves, there is a potential risk that delays will happen. We do believe in having strong regulators and we see their roles as being important to the oil and gas sector. Nevertheless, we would appreciate it if their interactions could be made simple so that processes can flow smoothly. Paired with this, another key factor is transparency. At Shell, we have been very pleased with the emphasis the government has placed on this issue so far.
Q: To what extent has the drop in oil prices changed Shell’s perspective on the opportunities in Mexico?
A: The recent decrease in oil prices is a good reminder of this industry’s volatility. In times like these, solid project management abilities and solid financial discipline become crucial when developing projects. Shell has been a company that traditionally emphasizes costs and financial discipline. We have a strong balance sheet that allows us to weather the storm better than other companies. This aspect should be taken into account by the Mexican government as it puts forth its upcoming bidding terms. At Shell, we always look at projects from a long-term perspective. We have analyzed the supply-demand balance worldwide for the next few years, which leads us to believe that oil prices will not remain at the current levels. In fact, there is substantial evidence that they will increase at some point. Opportunities in Mexico will still be benchmarked against other countries in Shell’s global portfolio. Given the current oil prices, deepwater and unconventional projects do not make much sense. However, if these are looked at in the medium and long-term, they could be considered to be good opportunities. I want to point out that Shell is in a good position because it has expertise in almost all types of assets, including deepwater and even unconventional fields. The company is able to look at all of the opportunities being offered and decide which are best.
Q: What opportunities do you see to intensify cooperation with PEMEX in the downstream segment?
A: The market for refining and related segments is very complex worldwide. Shell is constantly reviewing its portfolio of refineries and we have identified a model that has worked quite well in recent years. This involves betting on large refineries that are able to process different materials and are close to consumer markets. After analyzing refineries in Mexico, I do not feel Shell is ready to move into this market. One element does seem clear: Mexican refineries have room for improvement in order to catch up with international standards and become more competitive. Even though PEMEX is undergoing a reform process, it is still making investments and it should perhaps begin looking for partners to develop its refining assets. Given our relationship with PEMEX at the Deer Park refinery in Texas, we are in constant communication and share our experiences in refineries around the world so that PEMEX can benefit from the lessons we have learned.
Q: How will Shell deal with the competition for highly-skilled talent in a more competitive Mexican oil and gas industry?
A: In times like these, the market gets shaky because there is not enough talent to meet demand. In fact, skilled labor jumps from one company to another. At Shell, we recognize that our most important asset is our people. That is why we have been working on our value proposition so that we may provide our employees with a complete compensation package that, in addition to salary, includes training and development opportunities. We do not believe paying the highest salaries in the current scenario is the best approach. Instead, we would rather focus on employees that add value to the company in a more intricate way.