Alejandra León
Director of Latin America Upstream
IHS Markit
View from the Top

Upstream Business Trickles Down

Wed, 01/18/2017 - 11:33

Q: How will advisers like IHS benefit from new companies entering the upstream and downstream markets?

A: We are very busy at the moment talking to new players. We are advising a lot of companies in both upstream and downstream, trying to evaluate opportunities. Downstream is becoming a popular topic because there is a lot of uncertainty and it is usually a local market. Now that there are more players in the upstream sector, the interest in our geological evaluation and project economics software has increased. Our data services have been welcomed by new players. We are also supporting the government, mostly via collaborative discussions to understand the international market, new trends and very specific projects. IHS is one of the companies best positioned for this because we have the international experience, specialized people and a strong presence in Mexico.

Q: What did the government, PEMEX and private companies learn from Round One and what could be improved?

A: The government needs to moderate its ambitions and offer blocks according to the real capability and capacity of its institutions. Another point of improvement concerns the kind of information provided. Success is not measured by how many blocks are awarded, nor by a high government stake. The success of each round will be seen in the long term, when it becomes clear whether the companies are operating appropriately, making discoveries and generating value for the country. Awarding blocks is a good start but now the challenge is to develop projects on schedule while adhering to industrial safety standards and operating in an environmentally friendly way.

Q: What will be PEMEX’s role in the development of the Energy Reform in the coming years?

A: This reform cannot be a success if PEMEX is not a strong company. One of the motivations for the reform was to improve PEMEX and make it a successful company. The entire existing oil infrastructure in Mexico belongs to PEMEX, so it is also important for new companies that PEMEX is efficient and productive. They must cooperate with PEMEX and help it address concerns. It is not an easy task to solve deep-rooted issues but a good start would be to evaluate the company, project by project, and determine which ones are profitable. This not only applies to E&P but also to refining, petrochemicals, transportation and trade.

The Ministry of Finance’s decision in 2016 to inject money into PEMEX so it could pay suppliers was positive but not a definitive solution. It is a positive sign that PEMEX is cooperating with the government but we need to see that the company is changing and the money will be put to good use. It is a matter of how a business evaluates its portfolio and decides where to make changes. Trion’s farm-out is another good start because it means PEMEX is starting to seize the opportunities resulting from the reform. But it is still a single project and we need to start seeing similar decisive actions. If we continue seeing business as usual, the company will not change no matter how much money is injected into PEMEX.

Q: How could PEMEX benefit from drafting in a younger workforce with a fresh approach?

A: There are still many experienced people at PEMEX so it needs to strike a balance between hiring a younger workforce and retaining experienced people. Corrupt people need to be removed from the company but corruption does not depend on age. It is about finding the right people who work ethically. You can start changing corrupt views by having the right incentives for the right people. A labor policy that really focuses on evaluation and recognizing good work is the kind of mentality that could reduce unethical practices at PEMEX. Something we criticize are union positions that guarantee a job for life, because then there is no incentive to improve. If you look at the average salary for union workers, it is not high but it has the allure of job security. Reforming labor policies is necessary and the setting of goals and good management are required to achieve it.