Sie7e Energy Brings Foreign Investment to Mexican ShoresBy Peter Appleby | Wed, 05/27/2020 - 09:07
Q: How was Sie7e Energy founded and for what purpose?
A: Sie7e Energy is a new company that was founded in June 2019. We are focused on identifying opportunities for financing energy projects. We believe this is viable because we have seen that in Mexico in general there are many opportunities across the energy sector, not only in oil and gas. The company is in the process of identifying the projects that Mexico wants to develop to attract financial interest from different parts of the world. Currently, our finance portfolio ranges from the UK, China and the US. We are also moving into the project management services market and real-time monitoring for drilling oil wells.
Q: Why is investment needed in the Mexican market?
A: Sie7e Energy has seen that the long wait times for payments from PEMEX to service providers have not improved Mexico’s attractiveness. Service providers are often paying their own operations from their own pockets and PEMEX payment times are getting longer. Therefore, some companies are falling behind on the payments they have to make. Sie7e Energy believes that, due to these factors, oil and gas projects being a contractor are not an attractive investment opportunity in Mexico at the moment.
All the companies that came to Mexico after the bidding rounds brought their own financing, so there is no clear opportunity among operators. The opportunities, instead, are with smaller service companies and projects. As PEMEX transfers project risk to service companies through new contracts, we are evaluating companies included in projects through this new model. Currently in Mexico, there are many projects in the energy sector, such as storage terminals, solar fields, renewables, among others, but there is financing capacity.
Q: How attractive is Mexico for financial investment in comparison to other regional markets?
A: Mexico’s decision to buy insurance against oil price fluctuations was a sound one, but it is not the solution for everything. Mexico needs a deep change and improvement in the fiscal regime of the industry in Mexico. This must be done to improve the country’s competitivity against other regional powers, and those of the world. The country must understand that there are extremely strong competitors, including Brazil and Guyana. In fact, Mexico has fallen eight positions within tables of investment competitivity. Any way you look at it, investment capital is vital for Mexico and the fiscal regime that governs the oil and gas industry permits FDI. But investment possibilities must be fortified with more bidding rounds. This will assure investment for the long term. Those rounds that have been contracted are focusing on the short and medium terms. With further bidding rounds, Mexico can guarantee activity for the long term.
One other way to improve Mexico´s competitivity would be to reduce the demands stated in the industry’s regulation. The industry’s regulations, including the local content rates, are too restrictive. By lifting these regulations, more interest will be generated for investment into the country. There are examples to support this, including the case of Brazil, where the local content rate was 70 percent. Mexico’s, in comparison, is more easily achieved and there are calls to increase the rate. However, Mexico does not include local content rates in all segments of the industry, and this could be dangerous in the future. The subsea industry, for example, does not exist in Mexico. Nor do we have a steel industry able to construct necessary assets for subsea teams. Therefore, Mexico must implement public policies to incentivize investment into these industries and improve their technologies. We believe that Mexico has the chance to convert itself into one of the premier countries in the world for service providers with sound commercial opportunities and infrastructure. But it must consider its fiscal regime and how to bring it into line with other countries.
Q: Could regulations be adapted to improve Mexico’s attraction for financial investment?
A: In the past, PEMEX auto-regulated. However, times have now changed and regulators are catching up to that. Mexico could benefit if processes were made more flexible, coupled with regulation. For example, applications for drilling were 30 pages in the past. Right now, they are 3,000 pages long. This is one small aspect of a development but it has a massive impact on the workings of operators. Meeting regulations can be extremely demanding in Mexico. We can learn a great deal from best international practices: they are useful to look for ways to improve Mexico’s processes.
Q: How does Sie7e Energy view the 2020 pandemic and oil price crisis in contrast to 2014, and how will it impact Mexico’s energy plans?
A: These are two distinct situations. In 2014, when oil prices plunged, the only operator in Mexico was PEMEX. PEMEX stopped investing and the consequences of this were felt by the service providers. The process of ratifying the Energy Reform, which began in 2013 and went into 2014, also reduced activity. Six years later, we have another price collapse due to COVID-19 but there are far more operators. However, many people do not know that operators here are still at the beginning of their contracts and many were coming toward the end of their exploration periods when the crisis hit.
But the exploration stage does not provide enough business to reactivate the entire supply chain of service providers. Hokchi, Eni, Fieldwood and Talos Energy are the only operators in development phase, which is the stage that provides the maximum level of investment. But four operators cannot carry the entire weight of a country’s industry either. In my opinion, the industry is still between five and 10 years away from hitting peak investment and activity. By the time that this happens there will be another administration. But this is why it is important that bidding rounds do not end, so that there is sufficient investment prior to this peak period.
Sie7e Energy was founded in 2019 by Alfredo García and business partners. García brings with him over 17 years of experience as VP of Operations in BP Mexico. Sie7e Energy supports the Mexican energy sector by bringing international financial investment to projects.