Recovering Key Efficiencies Through Local Content Focus

Q: How have success factors changed for national companies in the last two years?

A: As context, I would begin by saying that although the Energy Reform was famously passed on December 2013, we had not really visualized the complete participation or market entry of foreign companies until 2018. This pertains in particular to certain companies. What we have been dismayed to discover amid all this movement is that there is a great deal of foreign competition now entering the market. These foreign companies are offering their services at excessively high prices, which many large companies are willing to pay because of the European DNVGL-ST-E271 2.7-1 certificate. This certificate differs from the API and PEMEX NRF-261 certificates that we possess in that they call for the use of grade 50 steel for their lifting points. The success factors for companies like ours have changed in that we have had to adapt to these standards introduced by foreign companies even if these standards make no sense in the Gulf of Mexico region.

The fabrication standards of our containers are essential to keeping offshore worksites safe. This is why refocusing local content, not only in terms of products and personnel but also service providers and the standard that they abide by is so important for the industry’s growth. We can manufacture and lease these products at a standard directly comparable, if not superior, to that of our competitors.

Q: How are you aligning your strategy with these new factors?

A: First is the optimization of our manufacturing capacity. We have increased capacity 30 percent in the last one to two years, despite the fact that this time period was one of the most difficult in recent memory for the offshore sector. In a way, it was the extension and deepening of the depression that started with the downturn in the 2015-2016 period. Many national service providers disappeared in 2018 because they were unable to sustain the capital-intensive process necessary to survive such a bad year. We used this time to better our fabrication capabilities and also, starting in May 2019, to update our capabilities so that we could be able to manufacture the containers up to that DNVGL-ST-E271 2.7-1 standard. We might not agree with the setting of this standard but we still need to maintain our market position within our sector.

Our talks with DNV GL have been extensive and meticulous. We had to go to England and work directly with foreign technicians to certify ourselves, so this all represented a significant investment for us. However, it has brought about great results: our first prototype with a patented design and structural calculation approved by DNV GL is to be presented in June and begin mass production in January 2020.

Q: How are responsibilities divided between the public and private sectors when it comes to achieving a re-centering of national content?

A: From the perspective of the private sector, we must begin by making sure our operations are aligned with these concerns. For example, we maximize our national content percentages in terms of both material and certified personnel. Unfortunately, the grade 50 steel needed for the DNV GL containers does have to be imported, along with the equipment needed for its welding, so we cannot reach 100 percent national content given these circumstances but we are definitely above 90 percent. We also need to make an active effort to present the importance of national content to the foreign operators ourselves.

From the perspective of the public sector, I would insist that the Ministry of Economy and PEMEX itself double down in their efforts to enforce the percentages agreed upon within the regulatory framework of the Energy Reform, which calls for a minimum of 25 percent of national content in all contracted work as part of the first phase of development, which stretches to 2025. After 2025, those percentages are to go up to 35 percent. I personally find that the Ministry of Economy, and to a certain extent PEMEX, need to increase its involvement in this matter.

Consorcio EMCRO is a Mexico City-based manufacturer and leaser of certified steel containers for the oil and gas
industry. It also builds plants and provides related services for waste processing.