David González
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Project Evaluators Face Uncertain Outcomes

By Pedro Alcalá | Tue, 11/17/2020 - 10:29

Q: How has Net Brains dealt with the changes that have taken place in the industry since 2018?

A: The industry has definitely transformed since 2018. One of the most important changes has been the cancellation of all bidding rounds until further notice. This represented a lack of incentives for further participation from the major players with a strong presence in Mexico. At some point, investors were thinking about returning their blocks because they could not see a light at the end of the tunnel and their outlook was uncertain. This situation particularly affected companies that had signed long-term leases for drilling platforms, which had no future prospects without bidding rounds. This situation has changed the general dynamic of their business strategies, particularly the services that we offer. PEMEX has been dealing with significant budget cuts while making the Dos Bocas refinery project a priority. All of this has represented significant cuts in exploration, production and development, especially given the fact that there is a lack of available funds to cover standing debts or to pay for new services. All of these industry changes have coincided with the circumstances created by the new oil price environment.

In sum, these factors have become defining circumstances for the Mexican oil and gas industry: the cancellation of bidding rounds, PEMEX’s budget cuts and low oil prices. This does not include the COVID-19 pandemic. All of this means that the industry has been dealing with complicated changes that have affected business. Considering this, the incentive of the government’s prioritization of oil and gas development remains. Unfortunately, when the announcement was first made that the bidding rounds would be canceled, a number of large investment funds signaled their withdrawal from the Mexican market.

Q: What are the most important changes that have taken place in your client and project portfolios over the last few months?

A: We have primarily focused on areas related to geosciences and the industry’s digital transformation. Our services portfolio continuous to focus on exploration data interpretation, reservoir characterization and simulations. However, these categories have suffered significant setbacks due to the lack of new projects. Meanwhile, in terms of digitalization, we continue to offer services such as digital analogues for both PEMEX and CNH. CNH might have to take into account the possibility of considerable budget cuts in its immediate future. The question of whether or not they will continue to be the industry’s main regulators is still up in the air given that their main function is the evaluation of new projects that are currently limited given the industry’s circumstances. As a result of all of these changes, we find ourselves waiting to see what the government's agenda for the sector will be. At the same time, we have managed to hold onto multiannual contracts for upstream analysis and activity with PEMEX in relation to production and productive assets.

However, we still do not know how PEMEX will handle the budget that is assigned to them. We are a company that focuses on technology, technological expertise, remote technologies, cloud computing and automation. The pandemic has opened up new opportunities for us and for our clients, including PEMEX. In that sense, in 2021 we likely will focus more on technological advancements and the opportunities they generate with our present clients.     

Q: How have recent developments in Mexico’s deepwater sector changed your perspective regarding this subsector’s potential?

A: We have encountered two situations with deepwater operators. The first is that operators have their own methods for evaluating suppliers and service providers. We are familiar with these methods and comply with the requirements for the most part. The problem is that they tend to benefit international companies over their national counterparts. This, unfortunately, places us at a disadvantage when participating in plays and projects. I hope these issues do not amount to a negative outlook for the Mexican oil and gas industry. Nevertheless, we have to be realistic about the fact that without new projects, the industry’s investment landscape will remain relatively inactive.

 

Net Brains is a specialized consultancy focused on optimization of corporate investment through the acquisition of hi-tech solutions, ensuring the quality of the selection, implementation and startup processes of new technologies.

Pedro Alcalá Pedro Alcalá Journalist and Industry Analyst

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