Offshore Consultants (LOC) Group – Bruno Portilla Piris, General Manager – Mexico
The General Manager of a British success story describes how the Mexican oil and gas sector is becoming increasingly aligned with international norms from a warranty perspective and sheds light on the challenges of planning and executing a market entry strategy.
LOC entered the Mexican market in 2004, primarily to provide marine warranty services for the Ku-Maloob-Zaap (KuMaZa) project. What have been the major flagship projects and developments since?
Marine warranty services (MWS) remain the core of our Mexican business. This involves providing independent third-party review and approval of high value and high-risk marine construction and transportation projects from the planning to the execution stages. Right now, we continue to assist Pemex with its KuMaZa offshore field development campaign as well as on newer fields. Pemex actually has an ongoing shallow water development programme running from 2011 to 2017 aimed at installing 60 new platforms and associated pipelines and we have been providing MWS for the construction risk policy that covers this work.
For a number of years, Pemex has demonstrated increased willingness to commission outside expertise and this has translated into a roughly three-fold rise in the volume of LOC’s Mexican workload. The reforms will no doubt generate even more business so we plan to continue being very busy. The challenge will, of course, be to recruit the human capital to be able to keep pace with rising levels of demand.
On a worldwide level, MWS represents only around half of LOC group’s revenues, but in Mexico the figure has been higher. Have you been taking any steps to diversify your portfolio of services?
At a global level, LOC group delivers multi-disciplinary marine and engineering consultancy and survey services to a broad range of shipping and offshore energy actors. For example, we have been at the forefront of responding to marine casualties worldwide and have provided expert advice at all stages of the marine claims and disputes process including marine accident investigation.
In Mexico, we have certainly been making efforts to diversify into the shipping and transportation surveys segment and have been broadening our client base to include P&I clubs, marine and energy insurers and ship charterers and owners. In many areas, we have been making a lot of headway and now possess new capabilities to cover casualties and rig transportation consultancy. Nevertheless our MWS activities have been growing at an even faster rate to the extent that the marine warranty component still comprises the majority of our local revenues.
By broadening our activities in the local market we have also made our Mexican office more versatile. Marine warranty generally involves very methodical, considered work, whereas shipping consultancy is much more dynamic with shorter project timeframes. The two sides of the business therefore complement each other and make for a well-rounded and capable workforce.
What is the significance of being based in Tampico? We have been hearing in the press recently that Tamaulipas is now being hailed as the new Campeche, given the state’s proximity to many of the deeper water fields that are now opening up to foreign investment.
Tamaulipas is certainly growing in relevance for the oil and gas sector because of that proximity to deep water reserves. What’s more, the Tampico area concentrates most of the fabrication jobs in Mexico. Marine warranty surveyors need to maintain close contact with the fabricators of the rigs during the planning of the marine operations that will ultimately be assessed and approved, so it made sense to base the office out of Tamaulipas. Though the most exciting part of our work occurs offshore with the inspections, a large chunk of what we do happens in the fabrication yards and offices reviewing documentation and evaluating engineering support activities.
The location is not without its drawbacks – namely the security scenario. Many of the other international companies based in Tampico have to pay substantial risk premiums to their foreign personnel because of the region’s reputation for violent crime and this adds considerably to their overheads. Our strategy has been to remain close to our client base and keep a low profile locally. Luckily we arrived well before the peak in violence around 2010 and had time to settle into the local context. Already by 2008, we had established a virtually 100 percent Mexican workforce and seldom had to rely on foreign employees. As locals, we understand the contextual environment and know how to take care of ourselves.
How strategically important are the Mexican operations to LOC group’s global and regional growth prospects?
LOC group’s regional headquarters are located in Houston. In Mexico, we currently maintain two offices: the main one in Tampico and an additional operations coordination hub in Ciudad del Carmen. Mexico has been, and will continue to be used by LOC group as a platform for exploring new opportunities across Central America, Colombia and Venezuela where we, from time to time, conduct one-off projects. Quite frankly, however, Mexico is by a long way the most exciting place to be at the moment and we foresee a considerable rise in demand right on our doorstep.
You mentioned that the future growth of LOC in Mexico will depend upon the ability of the firm to source and retain high skilled category labour. How are you responding to this challenge?
Our employees tend to need to be a mix of master mariners, naval architects and marine, civil and mechanical engineers with experience in offshore industry. Finding the right profiles of expertise on the local market can be challenging. One solution, therefore, is to identify the expertise that we require from within LOC group worldwide and to have experts drafted out to the Mexico office to train up one or more of our local employees over a period of a number of months. In this way, we run a number of secondments to and from our office.
We also conduct in-house professional development in other ways by sourcing fresh graduates from the engineering faculty of the university in Tampico and the naval architecture college of Veracruz and putting them through a rigorous training program lasting several months in which they acquire first hand practical experience.
From a warranty perspective, what are the main concerns on the part of underwriters about the Mexican oil and gas industry? And which are the areas where improvement is needed?
Underwriters don’t regard Mexico as a special case anymore, because the country is becoming ever more closely aligned with international norms and standards on quality and safety. There used to be quite an issue over the use of substandard vessels or ones simply ill-suited to our tropical environment, but Pemex has put a lot of pressure on its contractors to improve that and is increasingly stringent about the types of vessels that are permitted to be deployed in the carrying out of service contracts. The challenges that local market actors are facing are generally the same sorts of issues confronted by the industry across the world such as how to operate safely and effectively at ever greater depths. Mexico is increasingly linked in to global forces and technology as the industry matures and this is having a very positive impact on quality standards.
How do you evaluate LOC’s future outlook?
We are set to cope with a demand for warranty services in deep water development because most of the companies that attend to these sorts of areas already know us and work with us elsewhere in the world. We have a global brand that is recognised for its quality and therefore our clients are aware that, even when we are undertaking a higher volume of work, we will never compromise in terms of integrity and standards. At present most of our MWS work is assigned by the insurance that Pemex provides for projects, but this is set to change. We will, of course, continue to work with Mexico’s NOC just as before, but there will be additional demand from the newcomers. We also expect to be doing much more in the shipping consultancy and marine casualty domains as we forge ahead with new diversifications.
Firstly they must be willing to engage local talent because that is the only way they will be able to understand the local dynamics and unique methods of Mexican entities such as Pemex. Secondly they must be very attentive to the type of local talent that they are seeking to collaborate with. LOC’s success today is partly attributable to having done the right preparatory groundwork prior to market entry. We actually made the decision to enter Mexico as long ago as 2000, but it took a full four years to build effective contact networks, to identify a suitable local team that could be relied upon to establish the office, and to source appropriate technical experts to drive the business forward.