Working Across Value Chain Brings Tangible Results

Q: Why should E&P operators invest in Mexico’s oil and gas fields?

A: This is a complex question that these companies must ask themselves on a daily basis. The answer will differ depending on their portfolio strategy and specialization, meaning that there is no single answer. The first element to consider is their international or local business development goals. International E&P operators have a specific portfolio strategy and their goal is to include assets according to that strategy, whether those are onshore, offshore, shallow, deepwater, unconventional or exploration or production assets. Mexico is in a privileged position. Through CNH’s licensing rounds, the country has been able to offer an excellent mix of these types of assets for both national and international players interested in diversifying and expanding their portfolios.

A second element to consider is risk. These assets represent large capital investments in what operators expect will be longterm businesses, so they want to protect those investments as much as possible. In terms of country risk, Mexico has a good structure, with the appropriate social, economic and political elements in place for investors to feel secure.

Finally, there is the legal framework. This is closely related to country risk as it provides investors with legal certainty, ensuring the security of their investments. The Energy Reform has been successful in providing companies with that legal certainty by ensuring transparent and open procedures. Mexico is attractive for investment, and the numbers speak for themselves. We now have 155 companies from 25 countries, of which 64 have been awarded blocks; the rounds are attracting US$161 billion in investment, which will detonate economies of scale; and the country has seen several initial success stories, such as Zama, Ixachi and Amoca.

Q: Why is it important to have a strong local value chain in Mexico capable of supporting the activities of IOCs? A: When entering a country, operators need to know that the execution of their plans is going to lead to profitability. That is related to the capacity of local companies to provide human capital, resources and technology application; if they cannot, then operators will have to import those specialized elements at a cost. Mexico already has a strong oil and gas industry, especially considering the excellent human capital that PEMEX or companies working in the Mexican industry have trained. This is the foundation for profitable execution. The more solidified the country’s procurement base, the more trust the country instills in potential investors and the bigger the investment opportunities that can be developed in the country, which also means that more money will stay here. But we also have to admit that most of that capacity is related to performing general services. The country requires greater capacity to perform specialized jobs. Many of those jobs are now performed by foreigners with technology brought from abroad, which in the end increases the cost of operations and decreases the attractiveness of the country. National content requirements exist to fuel the development of a stronger value chain with more specialized local players.

Q: How can Mexico strengthen its local value chain for the benefit of the oil and gas industry?

A: Oil and gas and renewable energy are industries for which technology advancements are fundamental. Mexico has been, in general, a technology adopter. This is natural, as technology advancements require strong capital investments and new technologies need to be tested under real conditions. Fortunately, the country has trained a strong workforce that applies technologies effectively but we should do more. Mexico should focus its efforts on becoming a powerhouse for technology development in specific areas that are critical for the national industry. A big step was taken in that direction by the IMP when it created the Deepwater Technology Center, which has the potential to become a strategic hub for the development of specialized local content and technologies to better develop deepwater fields in Mexico.

Deloitte Consulting Mexico is a consultancy that provides support in the areas of human capital, strategy, operations, technology, financial advisory, auditing, assurance, risk assessment and tax.