Alfredo Carvallo
Director General Mexico
View from the Top

Shallow-Water Activity to Pick Up Pace Near Term

Sat, 03/11/2017 - 09:01

Q: What timeline do you see for the creation of subsea infrastructure on the Mexican side of the Gulf of Mexico?

A: If we look at the beginning of the Energy Reform in 2015, when the first contracts were awarded for Rounds 1.1, 1.2 and 1.3, McDermott was already seeing activity emerging from the operators in those areas. Some of the fields are a little bit behind but everybody saw the news of the large discoveries made by ENI and Talos Energy. Fieldwood has also completed one of its wells and is in the process of completing the second. The operator’s development plan is where McDermott comes into the picture. We are already seeing the extension of international tenders for 2018 from one of the operators. Another player will probably be extending other tenders in the first half of 2018 and then some exploration contracts will emerge toward the end of 2018. The activity is already present. 

Round 2.1 work will be similar to what we saw in Rounds 1.1 and 1.2. It is taking the operators two years to evaluate the fields, to do the drilling and to evaluate what they have found. Only then will they potentially enter the development phase. I believe that 2018, 2019 and 2020 will be years full of activity in shallow waters. Taking into account that operators just signed the licensing areas auctioned in Round 2.1, in 2018, I expect additional players to start operating their projects.

Deepwater is a different story. I expect that deepwater operators may do some preliminary drilling from 2018 to 2020 and then it will take two to three years for them to complete their field development strategies and decide what they are going to do. I believe we will start seeing some activity on the eight blocks that were licensed in Round 1.4 somewhere between 2021 and 2023. My perception is that when CNH executes licensing rounds 2.4 and 3.1, we will see an acceleration of activity, provided it can assign a significant percentage of those blocks. That would mean a quick payback for the government and everybody else involved. 

PEMEX is a little different because I think it will continue working with a reduced budget. But, when considering all the fields and blocks it can potentially farm out, there could still be a lot of movement there too. I think there is going to be steady activity throughout the next five years. Mexico is an important market for McDermott.

Q: How would you evaluate the activity at McDermott’s Altamira construction yard?

A: We are in the middle of the assembly of PEMEX’s Abkatún-A2 platform. That platform has to be up and running by December 2018 and we expect to launch that delivery in the second half of 2018. Right now, we are building a platform and a jacket to be shipped to Trinidad and Tobago for BP. We are busy at the moment and currently have around 2,500 employees working in our Altamira yard.

Q: What services does McDermott offer before the development phase of a field?

A: An important initiative is related to Front-End Engineering Design (FEED) engineering and conceptual work. Right now, we are formulating proposals for one of our potential clients on the best way to develop the field to get the most out of its investment. We have a team that does geological studies so we can provide recommendations on how our clients should develop field strategies, what topology for the surface is the most economical way to develop the field and so on. At the end of the day, everything comes down to a financial analysis: what is the best way to recover most of the investment and maximize the value of the field. If the client wants, it can decide later whether to follow our recommendation or launch an Engineering, Procurement, Construction and Installation (EPCI) tender.

Q: How does McDermott weather the boom-bust cycles of the oil and gas industry?

A: When oil prices were high, few people were thinking about innovation and new technologies. As prices went down it forced people to rethink their processes and find better ways to collaborate. In the last two years, we have been undertaking many initiatives to become more efficient. Two years ago, everybody was talking about how it was unthinkable to develop a deepwater field with oil prices at US$50/b. Now people are saying that maybe there are opportunities at that price. We have been very active in thinking about how to do more with less and in a shorter time frame, and we are perfecting processes to better ensure that work tasks are carried out correctly the first time. We are working to create a “digital” vessel so that we can see what is going on in real time to compress the execution of a project at sea. This would help to predict maintenance requirements and plan operations. In the middle of the ocean the costs are substantially greater as compared to onshore. Anything that can be done to bridge uncertainty and to reduce risks in that part of the project is critical, so we have been very focused on that.