Ernesto Iniesta, Commercial Director, Subsea Division, FMC Technologies, Mexico
“There are 26 secondary laws to be drafted or adjusted by the late April deadline. Despite the momentous challenges ahead, I am confident that all of the relevant government, regulatory and political figures involved in this process are working diligently towards that goal. These laws will define the regulatory framework on which future investment opportunities hinge.” Ernesto Iniesta, Commercial Director, Subsea Division, FMC Technologies, Mexico.
How has the strategic importance for FMC Technologies operations in Mexico changed over the years?
In assessing our company’s local strategic heading, it’s important to see how Petróleos Mexicanos (Pemex), as the main issuer of contracts, is moving along. Among others, the state-owned petroleum company’s primary objective is to achieve increased oil and gas production targets. In line with these goals, we are in turn focusing on those projects that would maximize both profitability and efficiency for Pemex.
On the offshore side, some seven years ago, these projects included the world famous Cantarell field, the expanding Ku-Maloob-Zaap field in the Bay of Campeche, as well as others in the Litoral Tabasco region. At the same time, several discoveries in the Chicontepec Basin promised to further boost production levels, however the project ran into a number of technical issues associated with drilling the wells and establishing production that were too complex for the time.
The above areas currently represent growth hot spots where Pemex is looking to increase production. We have been concentrating on establishing a presence there that would allow us to support Pemex in its efforts and seize the opportunities as they arise. Indeed, these areas offer ample growth opportunities for businesses across the entire value chain, regardless of their complexity. For instance, although evaluation of certain areas initially indicated that conventional systems would suffice, the high levels of sulfuric’s and carbon dioxide present required that high pressure, high temperature (HP/HT) equipment be used for the project to be feasible. FMC Technologies recognized those challenges and helped Pemex take that project forward using our specially manufactured equipment. As a global market leader in this area, FMC Technologies has also supported Pemex’s production development plans in other areas like the Litoral Tabasco area.
With an already admirable track record in the country, what are some of FMC Technologies’ proudest achievements in Mexico?
In 2007, we were able to help Pemex deploy the first subsea completions in Mexico. We delivered the first 14 subsea trees for shallow water, including all of the complementary equipment, which included umbilicals and controls as well as flow lines. This project was developed in collaboration with Grupo Diavaz, a leading local player, where we worked on the drilling and construction side together. The good news for Pemex was that our technology helped raise the average production of each of the 14 wells to around 6,500 barrels per day (bpd). In addition to this, our technologies also enabled the extraction of oil in a shorter timeframe than any traditional fixed production platform.
More recently, we have been exploring the opportunity to further develop those fields with well tie-ins, among other solutions, in order to boost their production. Ultimately, however, how this project advances will depend on Pemex’s development strategy in that area.
In another area, we helped Pemex evaluate the general concepts to develop various projects including, the deepwater Perdido and Lakach fields, the shallow water Ayin field, heavy oil projects in the southern Gulf of Mexico and Kosni in the Lankahuasa area in the north of the country. The objective here was to explore how to implement in Mexico the technology and experience we have accumulated in the subsea developments around the world as well as the Perdido project in the US Gulf of Mexico with Shell, BP and Chevron. As you might know, Perdido is the world’s deepest offshore oil drilling and production platform in a water depth of some 2,450 metres (8,000 feet). Because the US and Mexican sides of the Gulf are one and the same in terms of geology and so on, we are looking to leverage the experience we gained in that project and apply that here in Mexico.
With different challenges presented by shallow and deepwater developments, where do you see the greatest growth potential for FMC Technologies in the offshore sector?
The magnitude of opportunities is indeed tremendous, not only for FMC Technologies but also for all sorts of service providers that can contribute towards production and operational efficiency.
Over the past few years, Pemex has become proficient in shallow water projects through decades of experience. For instance, the drilling of wells is more efficient than years ago, and as a result, Pemex has been able to improve the drilling time, utilizing more efficient programs, sophisticated rigs and advanced equipment. The advanced equipment provided by FMC Technologies has contributed substantially to reducing rig time in the well completion phase also.
In terms of deepwater, there are numerous technologies and solutions out there that can help Pemex improve its return on investment (ROI) on its projects. We also help Pemex increase the recovery of its shallow water fields. Working closely with them, we are analyzing the different options and strategies available to redevelop the fields not only with traditional fixed platforms, but also with subsea solutions for shallow and semi-deep waters or even cutting edge solutions like subsea separation.
As is often the case, all of this is easier said than done. As the market becomes more liberalized, Pemex is more likely to use a combination of traditional and new technologies to develop their projects. In the same way that Pemex introduced the first FPSO concept in 2007 to overcome the challenges of the Ku-Maloob-Zaap field in Mexico‘s Bay of Campeche, we expect them to also look to the latest in subsea solutions to efficiently develop other projects. Mexico, for example, has vast heavy-oil reserves that are difficult to process. With the objective of increasing efficiency and effectiveness, FMC Technologies’ subsea trees could be used here to initially test the prospective fields before pushing ahead with a full investment in its development. A similar thing is happening right now in the Chicontepec Formation, which initially presented a number of developmental challenges. Pemex is still in the process of evaluating various technologies and strategies to improve production in that area, working closely with a range of leading international oil services companies. This demonstrates Pemex’s new approach to field development in an attempt to improve its return on investment and productivity.
Speaking of the transformations taking place as a result of the energy reforms, are the secondary legislations the final hurdle that stands before unlocking Mexico’s energy potential, or is there more?
There are 26 secondary laws to be drafted or adjusted by the late April deadline. Despite the momentous challenges ahead, I am confident that all of the relevant government, regulatory and political figures involved in this process are working diligently towards that goal. These laws will define the regulatory framework on which future investment opportunities hinge.
After the passing of the secondary laws, there will probably be a window of time to negotiate with investors the best practices employed by international players around the world and fine tune the secondary legislations. The complexity and vast scope of this task leads me to believe that the initial laws could very well undergo further adjustments over time in order to more effectively attract foreign participation.
What about Pemex’s ability to change its processes and its culture that have persisted for over seven decades?
Having been closely following Emilio Lozoya’s actions, the current CEO of Pemex, I have full confidence in his ability to recognize the issue and bring about a transformation that would adapt the organization to its new environment.
On several occasions, I have publicly stated in industry forums that Pemex will need to ready its people’s negotiation skills. This could relate to, for instance, negotiating potential blocks or fields, or negotiating potential partnerships with international companies for various projects. No matter which way you choose to look at it, Pemex needs to be the best it can be to at least continue supporting production until the international oil companies (IOCs) begin to contribute to production from new projects some five to ten years from now.
Considering Pemex’s shallow water expertise, it is very likely to retain those fields during the so-called ‘round zero’, while engaging in partnerships for shale oil and gas formations. Eventually, Pemex could, in turn, become knowledgeable enough to be a participant, or major operator, of subsea projects.
In your efforts to develop FMC Technologies’ business in the country, what do you make of the business environment in Mexico?
First and foremost, success in Mexico demands you understand perfectly the rules of the game and how business is done here. In parallel, it is equally imperative that you understand Pemex’s current and future objectives and align yourself with that. If you can demonstrate to Pemex how you and your products can help streamline their operations, you are in a favorable position to win contracts. More often than not, this relates to technologies and how they improve operational efficiency. If you have the right technology, the right people and properly communicate the benefits of the technology to Pemex, the state company will be keen to move forward in that direction.
At its core, business development in Mexico is centered on your capacity to help the customer improve their efficiency.
In 2012, FMC Technologies won the largest order in its history with the US$1.5 billion Petrobras pre-salt subsea tree contract. Given your success in the region, do you see Mexico as a source of similarly significant contracts?
Our growth expectations for Mexico are not newly founded and were formulated many years ago. Since the very beginning, our strategic direction has clearly sought to establish a firm presence in Mexico. For the time being, in these times of transformation, we are awaiting the outcome of the secondary legislations to properly assess and respond to the available opportunities. Similarly, our international customers in other countries have demonstrated an interest in Mexico and we are in contact with them to evaluate how we can best cater to their needs in the Mexican context. To a large degree, this will depend on the definition of local content concepts set forth by the secondary laws.
Until the secondary legislations are made public, nothing is guaranteed. We are waiting for these laws to determine precisely how much we will invest in the future of Mexico, and at what time. Having witnessed the generally disappointing 2008 energy reforms, it is reassuring to see that the policy makers have learned from their past experiences and are now far better informed about the industry, its challenges and the different approaches to address these challenges. They are well supported by industry experts in making their decisions and I expect that the final outcome will mirror international standards and best practices in many ways. The success of the reforms will largely depend on how well aligned these latest efforts are with investors’ hopes and expectations.
How well prepared is FMC Technologies in Mexico to cater to the expected growth in demand?
As a front runner in the subsea business, particularly in deepwater, I am confident FMC Technologies will align its global strategies and alliances to the needs of our clients, including in Mexico. Factoring in the huge investments we already have in Houston, and those we eventually plan on making here, FMC Technologies is well positioned to seamlessly support any prospective projects in the Gulf of Mexico.
Moreover, as the only company in the world with experience in getting ultra-deepwater production up and running in the US Gulf of Mexico, FMC Technologies’ prospects in the geologically similar Mexican side of the Gulf are further enhanced.
During these times of radical change, what do you want Mexico to mean for FMC Technologies, and similarly, what would you like FMC Technologies to mean for Mexico?
One of the primary tasks assigned to me when I first came to Mexico City was to become positioned with the relevant market players—from government regulators and Pemex, to all the integrated oil and service companies and everyone else in between. In addition to building trust with the various industry leaders, we are also demonstrating our capabilities by providing advisory services on deepwater project developments. We will be sure to leverage our presence in Mexico’s northern neighbor and the experiences we have gained in the US Gulf of Mexico in order to hit the ground running when project activity begins to take off.
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