Bernardo Cardona
Partner - Energy and Resources Industry Leader
Deloitte
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Insight

Transformation Consultants Take the Wide View

Wed, 01/18/2017 - 11:44

The changes brought about by the Energy Reform directly impacted every aspect of Mexico’s oil and gas industry, both upstream through CNH’s revolutionary licensing rounds and downstream with the competitive opening of the distribution market. But even as the shift affects the whole industry, different sectors are developing at different rates, says Bernardo Cardona, Partner and Energy and Resources Industry Leader at Deloitte Consulting Mexico. “There is a natural life cycle to the development of any market, including the embryonic, development, maturation and decline stage,” he says.

Deloitte’s role in that development cycle focuses on offering objective, technical based opinions that its clients and partners use in their own decision-making processes. The firm’s goal is to aid oil and gas companies to form “executable strategies” that translate into real transformation. “We roll up our sleeves and really get down to the nitty-gritty to see what is going to work for our clients in terms of strategy and execution,” Cardona adds.

Cardona highlights three key characteristics that define the progress of the Energy Reform: the creation of a competitive and open market, access to capital and technology and finally judicial and regulatory transparency to provide certainty to the market. Those three critical success factors have been best showcased in upstream, Cardona says. “In upstream we are now dealing with solid facts, strengthened by a series of historic milestones in the past year. They include the international participation in December 2016’s deepwater round, the appearance of new Mexican operators like Sierra Oil & Gas and PEMEX’s farmout on the Trion block with BHP Billiton.”

Due to the relevance of upstream activity in terms of capital, technology and global reach, forming and implementing the correct strategy is extremely important, says Cardona. “Upstream companies need to focus on their strategic portfolios, which means knowing their strengths and focusing on them, then forming partnerships to fill the gaps where they lack expertise and hence share the risk.” In PEMEX’s case, this translates into focusing on its capacity in shallow water and conventional onshore fields and seeking alliances to access the capital and technology needed for deepwater and unconventional field development, the consultant expert says. Additional technology and capital is also increasingly required for the continued exploitation of maturing fields such as Cantarell and Ku-Maloob-Zaap.

The company’s approach to consultancy will be particularly applicable to the downstream sector in the near future, as gas station owners get to grips with the implications of the transformation on their businesses. Rather than simply selling fuel at a set price as in the past, fuel station operators will have to learn vital new skills in price fluctuation and management while providing a differential value proposition to their customers if they want to remain competitive. On top of that, Cardona predicts a complete transformation of the status of gas stations in Mexico. “Gas stations will no longer be primarily focused on buying fuel. As the market becomes competitive, they will turn into shopping centers and hubs for social interaction.” It is this strategic implementation process that Deloitte can help with, drawing on its knowledge of other markets where gasoline stations are already competitive hubs.

Mexico’s new oil and gas regulators bear the responsibility of assisting PEMEX and other new operators as they begin developing work plans for the blocks won in Round One, Cardona continues. Praising the transparency and consolidation of CNH’s licensing round process, Cardona says the regulator’s next challenge is to manage and administrate the contracts resulting from the first four bids of Round One and to launch the next rounds. “CNH needs to keep the contract administration process simple, to avoid creating an administrative burden.” Its flexibility regarding the adaptation of the contracts was promising, he says, showing the regulator’s willingness to listen to market concerns.

The regulators have been busy drafting up new rulebooks and contractual terms to keep up with the swift implementation of the Energy Reform, and in Cardona’s eyes, they have done well so far. “ASEA released its environmental and safety regulations before the deepwater round, to give participants the clearest view of regulations before placing bids.”