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Analysis

Turning PEMEX into a Deepwater Competitor

Wed, 01/22/2014 - 12:50

As the time for the first block auctions and bidding rounds for deepwater development in Mexico approaches, it is undeniable that PEMEX must eventually face a sobering reality, regardless of whether or not the results of the Round Zero allow them to keep the sections of deepwater reserves they have requested. If the contracting terms and requirements under which the Mexican government will auction off these blocks is comparable to the requirements that PEMEX asked from ISC recipients (which, according to the Energy Reform, is very much the case), then PEMEX will not be able to participate and compete as an independent contractor and operator in the first few of these rounds. In other words, if the Mexican government is going to require future deepwater contractors and operators to have extensive previous experience in this field of work and the technological capabilities to operate at full capacity while undertaking these sorts of production activities, then PEMEX will be by definition unable to participate, at least on its own.

PEMEX lacks access to or experience with the full breadth of deepwater production technology necessary to successfully develop a project on its own. As pointed out by Ernesto Iniesta, Commercial Director for the Subsea Division of FMC Technologies. PEMEX has to become competitive not only in terms of technology but also in terms of processes. It has to work on making its bureaucracy faster and more agile in order to adjust to the needs and the rhythm of the deepwater industry.” In order to get PEMEX up to speed in this regard, many possible alternatives have been offered by significant industry figures in both the private and public sectors. One of the more radical scenarios and, paradoxically, perhaps also one of the most suitable ideas (at least when considered in the abstract) that has been brainstormed and promoted by industry experts such as David Enriquez from Goodrich, Riquelme y Asociados and Iniesta himself is the creation of a separate entity or PEMEX subsidiary dedicated entirely to deepwater activities; Iniesta even goes as far as to say that an additional separate entity for shale gas would be a good idea as well. The logic behind this possible strategy dictates that its separation from the general and governmentassociated PEMEX organizational and operational framework would grant this hypothetical new division the flexibility to navigate the international financial markets and the freedom to execute projects without the need to drag the institutional weight of PEMEX and its rigid methodologies.

Whether or not PEMEX decides to go ahead in the near or far future with a plan this radical, what is most important is to find a way to convert it into a competitive deepwater entity in time for the later bidding rounds. This could be accomplished through the correct administration of associations and through the correct design of supply chains with service providers. PEMEX must design its contracts and collaborations with these smaller and larger entities so as to benefit from them as much as possible and grow its technical and execution capabilities as a result. That must be its most important priority when designing its entrance strategy into this complicated market.