César García Brena
Partner
Bremass Energy Advisors
/
View from the Top

Roadmap for Streamlining PEMEX’s Decision-Making

Wed, 01/21/2015 - 13:02

Q: How is the restructuring of PEMEX, going from four divisions to two, going to affect the cultural transformation process that Bremass is supporting?

A: The first major trend is the centralization of PEMEX’s decision-making process. We see that, at the corporate level, a lot of the decisions that were taken regionally are being centralized. That is understandable, as PEMEX E&P needs some sort of standardization in the way things are run among its regional operations. At the moment, every asset leader imposes their own personal style, which creates a loss of continuity when people rotate. However, we believe that centralization will allow local operations to have access to the services and technologies they need to increase effectiveness in their operations.

Q: What progress has PEMEX made in increasing efficiency and reducing bureaucracy over the last year?

A: PEMEX’s restructuring has made it complicated to increase efficiency or streamline any processes. One of the NOC’s most urgent needs is to improve decision-making processes at the regional level, as well as to begin operating as a productive enterprise of the state rather than as an oil ministry. For example, a number of new asset managers have been sorting out which service providers add most value to PEMEX’s operations. There has been a cleanup of companies that were not adding value, which is a positive move. To an extent, PEMEX had become addicted to certain service providers, without considering which were truly essential. Another trend has been a switch in mentality from thinking in terms of barrels to thinking in terms of pesos. In the past, the guidelines handed down to PEMEX by SENER told it to produce as much as it could, without worrying about cost. Shifting from a volumetric targets to a profitable vision is a true paradigm shift in the way that PEMEX operates. This is going to be a big challenge as many of PEMEX’s engineers are not geared to this strategy. Bremass will be helping PEMEX to undergo this true cultural revolution. Our main advice is that PEMEX should aim to standardize its budget and align its KPIs toward financial measures instead of volumetric indicators, as well as employ more sophisticated methods for forecasting and planning capital investments. Nowadays, most oil companies around the world use complex methodologies to determine when investments should be made, postponed, or continued. Statistical simulations can also be used to make better forecasts. In such a scenario, a company needs input from experts at different assets. These might not make the big financial decisions, but they are in contact with the reality of local operations and can help to tailor the model to their needs. With the current low oil prices, PEMEX might cut any short-term investments but it is not relying on methodology that could advise against cutting certain investments that have long-term importance.

Q: Are the PEMEX budget cuts an accelerator or an obstacle to cultural change within the NOC?

A: The budget cuts are forcing PEMEX to evolve. Unfortunately, most of the cuts are affecting its CAPEX and the service providers, with only 16% being achieved by reducing the unionized workforce. The problem with removing so many suppliers so drastically is that many of these provide specialty services that cannot be easily replaced. It will take time for PEMEX to develop these capabilities, and it will be all the more challenging to do so without a robust technology and knowhow transfer plan in place. One way to accelerate this process would be to open PEMEX up to foreign talent as running the company with Mexican staff alone is nonsensical. Another way will be to focus on those service providers that are committed to knowledge-transfer, rather than those who just provide outsourcing. Either way, there has to be a very strong and definite plan to transfer knowhow and technology into the company. It is no longer about hiring service providers to do the work, but about teaching PEMEX staff how to do things.

Q: What are the key aspects that companies need to scrutinize for alliances with PEMEX to work?

A: PEMEX is going to divide into two types of operations. There will be legacy projects where PEMEX is likely to maintain its old culture and keep exploiting its current fields, at least those awarded in Round Zero. However, a new PEMEX will have to emerge with the capability to work with majors and independents. The latter is another area where Bremass will be able to help, as we can help translate PEMEX’s culture into the way independents and majors operate. We are in a perfect position to help these alliances work better in terms of cultural fit.