Iván Sandrea
Sierra Oil & Gas
View from the Top

Size Does Not Matter for Early Birds

Wed, 01/21/2015 - 12:32

Q: Is Mexico a good place to start a company like Sierra Oil & Gas at this moment?

A: Sierra was created with the long-term motivation of building a business in a country that is opening up. It presented an opportunity for innovation and growth, and to bring new skills. The catalyst was the Energy Reform process, which we are very optimistic about. Mexico has learned important lessons from other countries and it has very good people to make this reform a reality. Sierra was founded immediately after the Energy Reform but we had many years to prepare, consolidate our presence, and evaluate opportunities. Furthermore, the current low oil prices are positive for us as they create a less competitive environment and bring costs down. Finally, we are seeing positive trends from regulatory bodies in terms of adjusting contract models that were born in Mexico to reflect international standards and best practices. All of this makes it the right time to start an E&P company in Mexico.

Q: Why is it important that Mexican independent operators enter the market in addition to more experienced international operators?

A: This goes back to a simple truth. Innovation for oil and gas exploration has become far more difficult over the past 15 years. Big companies all behave in the same way. They require big projects and giant reservoirs, and only a few have actually participated in new discoveries. They are very strong in certain aspects of the value chain, but small companies tend to be innovators that pursue technical excellence. This has been proven true by the companies created during the shale gas revolution in the US, and by small companies that have made substantial discoveries in Brazil, Africa, and the Mediterranean. Mexico brings similar opportunities for such players. The second factor is that SMEs are active, thus providing more employment and opportunities than big companies that outsource from London or Houston. Overall, I believe that well-capitalized companies of any size with the right technical and managerial teams have the same chance of creating value, growth, and employment in Mexico as anyone else. Sierra is positioned as a mediumsized company that will participate in important projects and will build a diverse portfolio.

Q: Which steps have you have to take to ensure that Sierra will be a competitive participant in Round One?

A: Sierra has been laying down the groundwork since long before the Data Room was opened to potential bidders. We have used public information, academic research, and our own expertise to create our own databases and maps. We have also been working with a strong focus on regional geology, mainly in the characteristics of the basins. This enables us to pick the right blocks to bid on. This has led to a real competitive advantage for Sierra as our team has years of experience working in Mexico and abroad. In terms of bidding, we need to see a combination of many factors before deciding to seek out a block. Sierra is not desperate to bid just for the sake of it, and if we do not find a pertinent offer, we can wait for the next round. We are going to bid where we believe we can add value, where the rewards are balanced, and where we see an area of great opportunity for Sierra and its partners. At this stage, we are definitely gearing up and preparing to enter the game, but we are building the business for the long run. It is one of our strongest traits that we have been looking for the perfect opportunity to bid for a long time, unlike many companies that take care of this process at the last minute.

Q: What makes Sierra an attractive partner for companies with relevant upstream experience seeking to partner in Round One?

A: Sierra was formed with an immediate understanding of the technical challenges and opportunities that Mexico presents. We also have a good knowledge of the commercial and fiscal regimes governing the industry as well as the legal dimensions. Partners see in Sierra a company that has technical advantages and understands the way business is done in Mexico. We are now helping our partners to build up that knowledge and better prepare their operations.