How Mexican Energy Reforms Have Affected the Service Sector

Of all the attention generated over the opening of the Mexican oil and gas sector to the outside world, one consideration has been largely left out of the discussion: What does it all mean for service companies?

The energy reforms that became law in 2013 did not specifically address how service companies will run their businesses. And unlike the exploration and production sector, which was monopolized by Pemex for more than 75 years, the service sector in Mexico has long been open to many foreign and domestic companies.

However, the mere fact that there are now a number of new exploration and production companies coming to Mexico means change to the service sector is also coming. Iain Cook, vice president of secure drilling services at Weatherford, spoke on a panel at OTC that addressed what impact the reforms may have on service companies such as his.

Cook struck an optimistic tone with regard to the size of the prize in Mexico and was especially upbeat about the deepwater arena, which is seen by many as virgin territory with the most potential.

“If you draw a comparison between the US Gulf of Mexico and what has been drilled offshore Mexico, there are more deepwater and ultradeepwater wells drilled in the US waters compared to all offshore wells in Mexico,” he said. “So there is a tremendous opportunity for the deepwater drillers, a tremendous opportunity for the service companies, and a tremendous opportunity for technology implementation as we go forward.”

The panel discussion also focused on contracting schemes and how they might change. Cook said operators in Mexico, both foreign and domestic, could draw on some of the lessons learned in Iraq and Brazil—two countries that have undergone similar transitions as Mexico.

In Iraq, many contracts awarded were based on a cost-recovery system that typically rewards service companies on a fee-per-barrel rate. Cook said this system creates more risk for service companies and leads to less technology deployment.

By contrast, when Brazil opened up its offshore sector to international companies to tackle the challenges associated with tapping into pre-salt reservoirs, many of the contracts were production-sharing agreements. Cook said this approach resulted in more capital and more technology being used and very little risk for the service company.

Sergio Aceves, vice president of business development at Mexican service company Diavez, said one challenge for companies such as his will be overcoming the growing pains associated with transitioning into a business that owns and operates fields outright. Diavez is one of a number of Mexican companies who have worked for Pemex for years and were awarded onshore fields to operate last year.

Aceves also noted that Mexican service companies once wholly reliant on Pemex must find ways to adapt to their new ecosystem, which will involve building relationships with new partners who have different expectations.

And now that operators can effectively own and sell Mexican-produced hydrocarbons, they will press service companies to drive down costs in order to achieve wider margins than what may have been acceptable in the Pemex-monopoly era.

Luis Escalante, director and general manager of FMC Technologies’ Mexico business, said during his remarks that the reforms represent an opportunity for service companies to expand their locations to serve more customers, optimize their supply chain strategies, and develop a “culture of innovation.”

How Mexican Energy Reforms Have Affected the Service Sector

Trent Jacobs, JPT Senior Technology Writer

01 July 2016

Volume: 68 | Issue: 7

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