Adrian Mascheroni – General Manager, AESA, Argentina
The general manager of AESA, one of Argentina’s largest EPC companies and fully owned by YPF, reviews current challenges in the industry and elaborates AESA’s unique offering complemented by a strong service segment. Moreover, he elaborates on the potential offered by Argentina’s ambitions to enhance its renewable energy sector.
You have been general manager for AESA since February 2013, how would you define the role AESA plays in Argentina today?
“Having vast human resources available allows us to be highly flexible thus guaranteeing a stable business; we work on the OPEX side of upstream, midstream and downstream activities of oil and gas players, hence why we need to be able to offer sustainability.”
AESA today has four different business units: The manufacturing department, which generates about ten percent of our revenues, the engineering and construction department, which combined generates about 45 percent of revenues and our service department, which generates another 45 percent of revenues. In between 2008 and 2012, the Argentinian oil and gas industry had stagnated hence why we expanded our scope to other countries in Latin America, significantly contributing to the development of significant oil and gas structures across the region. In 2012, however, YPF became a new management and the government became the majority shareholder of the company. As a result, YPF decided to start investing significantly in the Argentinian oil and gas sector and we refocused our capacities on supporting YPF’s efforts, consequently closing down all of our international operations. The work we have done for YPF ever since has demanded almost all of our capacities.
How has the size of the company developed in light of supporting YPF’s national ambitions?
Last year, we grew to approximately 6000 employees of which 2200 are dedicated to our service unit. Having vast human resources available allows us to be highly flexible thus guaranteeing a stable business; we work on the OPEX side of upstream, midstream and downstream activities of oil and gas players, hence why we need to be able to offer sustainability. In 2015, we have reached revenues of USD 650 million USD – a record high for the company. This was the result of strong activity within the oil and gas industry, 80 percent of the service projects carried our were for YPF, 20 percent for others; in pure EPC, 99 percent of our capacities were used for YPF with only our engineering department serving other clients.
To what extend are you a captive company of YPF?
In 2012, YPF decided to reinvest a significant amount in the domestic up- and downstream segment. Knowing that there will not be enough companies to support the EPC side of these efforts, YPF needed to rely on us as strategic execution partner for the largest of these projects. This situation, however, has changed due to the global landslide in commodity prices which led to the complete value chain to follow a cost reduction strategy. This issue is especially severe in Argentina, where companies face paramount CAPEX and OPEX costs! One of the reasons is the high pressure of the unions which hinder significant cost reductions for all players involved. As AESA, we therefore need to broaden the scope of seeking business activities and we have identified significant potential in the electricity and power generation business, especially in thermal and renewable power generation. The government is working tirelessly on attracting foreign as well as local investors into this segment and I am confident this will be the opportunity of the future for AESA.
Is AESA ready to move into the renewable energy segment?
We are working on enhancing our capabilities to fully support projects in the electricity and power generation segment. Two or three years ago, we had already participated in a project in Brazil where we were involved in constructing wind generators; unfortunately, due to a lack of resources, this project had to be put down and we decided to wait for this segment to pick up and concentrate on our core competences—the oil and gas segment—in the meantime. However, the energy sector is highlighted here by all significant stakeholders, hence why we’re confident that now is the right time to move in this segment once again!
The landslide in global commodity prices has let the global industry to follow a cost containment strategy. How has this affected AESA’s operations?
Especially on the service side we receive significant pressure to reduce costs. This comes to no surprise, given the aforementioned unusual high OPEX costs in Argentina; in the last fifteen years OPEX costs of oil and gas players have multiplied by seven on average—a significant challenge. Therefore, as company, we need to redefine some of our services in collaboration with the clients. The biggest hurdle to overcome is the strong pressure of the unions because—especially in construction services such as maintenance—the only way to reduce operational costs is to reduce human capital. If you don’t have new areas of development the unions pose a serious challenge to navigate.
Is it advantageous to belong to YPF?
I witness strong advantages of being with YPF! Being part of YPF enhanced our financial capabilities significantly, reaching a level exceeding most of our competition. Given the longstanding history of YPF in the country, being part of this organization gives a certain level of warranty which is very important to clients. I have never witnessed a client in the last three years saying that he does not want to work with YPF; quite the contrary, they see the advantages of YPF’s ownership. Often, the clients already work with YPF on certain upstream projects so they naturally want to extend the working relationship to us. Moreover, just because we’re owned by YPF does not mean we automatically win the projects; we still participate in the tender process as any other company does. In some cases, YPF chooses us as default EPC company due to the strategic significance of the project, in others we partake in the normal tender process for a project of YPF. The guide for YPF is to treat AESA just as any other supplier within the industry.
How challenging is the tender system in Argentina to AESA?
That always depends in the individual company and its contract model. I witness that some companies are not realizing its contractors as genuine partners yet – which is a problem. Contractors and clients should collaborate on an equal partner basis, however, more often than not 100 percent of the risk is put on the supplier which cannot work in the long term, as potentially this risk will retaliate on the client. As contractors, we simply cannot assume the same risk as oil and gas companies! I believe the tender system at large is not an issue at all, however, I would wish that the mindset of all clients would shift towards a partner relationship rather than a supplier–client relationship.
What are the key assets of AESA?
We offer EPC and services, which are two separate worlds. Within our service segment, one of the most significant strengths is the wide array of services offered scattered across the country with operational base’s in Mendoza, Neuquén, Santa Cruz and more. We are present in all geographies of Argentina’s upstream segment, hence why it is simple to deploy our services to all clients. Furthermore, we maintain a splendid relationship with the union; numerous of our employees in the service segment are part of a Union, hence why we are very well accustomed to deal with the unions, find common ground and thus find solutions. The experience with Unions is coming from a multitude of different Unions we work with on a daily basis due to our complex offering and geographic presence across the country. Another strength is our continuous drive for self-development, exploring new areas of service on a constant basis. For instance, three years ago we started working in the area of digital oilfields, environmental services and specific services to refineries. We are constantly looking at other options of developing our business offering and we are committed to continuing to do so in the future. This will also enable us to focus on more types of clients; all in an effort to increase the value of AESA as company, which is important to all stakeholders in the country.
In a nutshell: What differentiates AESA from its competition?
One of the most distinguishing characteristics is, that we complement our EPC offering with our own manufacturing, which is highly unusual in the industry. It allows us to offer the complete package making us a one stop shop! Moreover, AESA is a company of modern management. We develop new ideas and new solutions for our clients and ourselves on a constant basis; Argentina is a complex country with complex challenges and it needs innovative thinking to master these challenges. It is not only Unions which are a unique challenge, it also includes society at large which has changed significantly. This requires innovative thinking, flexibility and –of course— technical innovation on a constant basis. This mindset is embedded within AESA!