Persistence Provides a Mexican FootholdWed, 01/18/2017 - 15:12
Q: What have been the highlights for TSC since its entry into the Mexican market four years ago?
A: TSC began operations in Mexico in 2013, looking to become a major player for the various drilling contractors in the country, with the long-term goal of forming a partnership with PEMEX. After years of negotiating with the Mexican NOC from our Houston offices, we finally won a contract with the company to refurbish, modernize and automate four land drilling rigs. In 2015, this project was put on hold due to the market downturn. Fortunately, we took its budget restrictions into account and secured the continuation of the contract, which has been reduced to three drilling rigs with a narrower scope as a base but with the opportunity to expand the scope in the future. We are in the procurement stage now, which involves purchasing the necessary equipment for replacements. Now we want to increase our market share in Mexico.
Q: What does your project with PEMEX specifically involve?
A: It involves the execution of four main stages. During the first stage we are responsible for a full evaluation and diagnosis of the rigs on-site. As a result we delivered a document showing the details of each rig, providing a recommended action plan to refurbish, modernize and automate the rig, taking current technologies into account. The second stage is when procurement and manufacturing of the recommended equipment takes place. The third stage concerns installation and testing of the selected equipment and finally the fourth stage refers to all afterdelivery services such as training, technical services and maintenance services. Ultimately PEMEX decides what to repair or replace, taking into account TSC’s proposal. In the end it will receive updated, near-new rigs with automated components that increase efficiency and safety standards.
Q: How did you convince PEMEX to continue with the project?
A: When PEMEX began to cut spending, its intent was to cancel the entire project. The problem was that it was contractually bound to pay TSC a certain minimum amount even if the work did not go ahead. Rather than having the company pay us for nothing we renegotiated the deal to three rigs. It was a long process involving several trips to Mexico City to reach a conciliation agreement. The importance of the project for us was the chance to get TSC’s brand recognized by PEMEX.
Q: What challenges will new players entering the Mexican market face?
A: Players will face several challenges as they enter the Mexican oil and gas market for the first time. A major one will be PEMEX’s unfamiliarity with their brand and obtaining acceptance from the NOC. From the very beginning, TSC faced an uphill battle. TSC is a US company but apart from a small fraction that is done in Houston, the UK and the Middle East, the vast majority of our manufacturing is done in China. We knew that years ago PEMEX had bad experiences with Chinese-manufactured equipment. To convince the NOC of the quality of TSC’s products we invited PEMEX to visit our Chinese shipyard. It saw firsthand our quality-control processes.
Another factor that helped us was that indirectly it was already using our products. TSC provided products to service companies with PEMEX maintenance contracts, so it was using our equipment without realizing it. When we made the company aware of this, our brand gained approval more quickly. Unless PEMEX knows a company, it is very tough to begin working with it. One factor that will play a major role in PEMEX’s success in the new-look market is its ability to be flexible and open with new brands, equipment and technology. If it does not meet these requirements, the company will end up in last place because new players will take advantage of all the innovative solutions.
Q: What percentage of your activity in Mexico in the past year centered on the project with PEMEX?
A: TSC’s main source of revenue in Mexico comes from nonPEMEX drilling contractors. We fulfill orders for customers like Seadrill, Perforadora Mexico, Central and CP Latina on a weekly, if not daily, basis. 2017 will be a different story, as most of our revenue will come from the project with PEMEX, due to its size. As new operators enter the market, we hope to see more avenues to generate new revenue. Now that we have opened the door with PEMEX, we are considering participating in other bids for larger projects, perhaps offshore jack-ups or modular rigs.
Q: How did TSC confront the drilling slowdown in 2016?
A: We had to cut back to deal with the lack of drilling activity in the industry. This included letting go of five of the six employees in Villahermosa, leaving us with one person who is overlooking the PEMEX project. As a manufacturer we use our distributors as our ears and eyes in the market, so we don’t need a large workforce.
Q: What benefits does TSC’s Total Solutions approach provide to your clients?
A: TSC stands for Total Solutions Company and this is the promise we make to our customers. Whatever their needs are, we try to find a solution by tailoring our service to the situation at hand, offering flexibility on a case by case basis. Since the market is stagnant and there is an abundance of used rigs available it is virtually impossible to sell a new rig in Mexico. Instead our goal is to offer value-added solutions.
Q: What innovations is TSC Group working on?
A: TSC Group is considering introducing completely new products to the market on a global scale. Rather than simply providing drilling products, we will also supply pressure pumps. We started developing the models two years ago but weren’t able to get them out to the customer because of the market slowdown. Now the timing is almost perfect to add them to our product line. We expect to see the first sales in 2017 and they can be used for a variety of tasks such as salt water injection and fracturing.
Q: How important is Mexico in TSC’s global growth strategy?
A: Mexico is definitely in the top two on our global growth priority list. We are seeing a lot of growth in Venezuela too, but due to our recent success with PEMEX we expect the most growth to happen in Mexico over the next three to five years.
Q: How will TSC’s previous experience with large IOCs benefit you in the new-look market?
A: Once other customers know that we have had success in dealing with Mexico’s state-owned oil company, I think they will begin taking TSC much more seriously as an option. Although we are a small player, as far as capabilities go we can provide the same services as NOV or Cameron. In fact, our small size is a huge benefit because there is less red tape involved in our processes. This makes TSC an attractive alternative.
Q: How will TSC Mexico look in a year?
A: We have very high expectations that 2017 will be a turning point for the oil and gas market in Mexico. This is one of the reasons we opened operations here. Behind our offices in Ciudad del Carmen, we have reserved another building for possible future use as a repair facility. We will be able to do repairs on mud pumps, top drives and draw works, for example. We will either open the facility in Ciudad del Carmen or Dos Bocas. The latter would be more focused on the offshore sector, covering major repairs for jack-up rigs. Our CEO is really betting on Mexico.