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David Pring, Country Manager, PETROLEUM GEO-SERVICES (PGS), Mexico

22.05.2014 / Energyboardroom

The Country Manager of a leading provider of seismic services speaks about the cyclical nature of the industry segment and how the second round of bidding for offshore deep water blocks will necessitate undertaking comprehensive geophysical studies. He also discusses the superiority of cutting-edge GeoStreamer techniques and puts forward a robust case for why the Mexican energy sector needs local content requirements.

When we spoke to your predecessor, Ignacio Orozco, back in 2007, he was anticipating a lot of business in the transition zone in terms of integration of the marine environment with onshore basins. A lot has changed since then with PGS selling its onshore assets to Geokinetics in 2010 and consolidating itself as a marine geophysical company. Can you please bring us up to speed with the major milestones and developments?

Since the sale of PGS’s onshore assets to Geokinetics, I was appointed to bridge the gap that was left by Ignacio Orozco and his local management group departing. My core mission was essentially to focus on setting up the first available opportunity to bring our seismic acquisition vessels back into the country, while at the same time concentrating on what we were contracted to do which was data processing and imaging. Since 2010 we’ve   transitioned from being a shop window for Houston enabling direct local client contact to becoming a self-sufficient processing centre. We now have around twenty geo-scientists onsite and thus have the capability to produce high-end imaging.

A key aspect of the way that we have developed the centre has been to utilize local content by bringing in talented Mexican graduates alongside our foreign expertise. The number of people available in Mexico tends to be quite limited with simply not enough graduates leaving the universities with the right disciplines which explain why Pemex has established its own university. We are complementing these sorts of initiatives by putting a lot of emphasis on training up and developing a Mexican workforce which is aimed at compliance with anticipated local content rules that will be part of the Energy Reform’s secondary legislation.

We consider local content rules as a natural process that needs to be put in place if Mexico is going to cultivate a local industry. In the Mexican instance this assumes greater importance than equivalent cases such as that of Brazil because of the proximity to Texas. If local content is not encouraged by legislation then there are risks that  activities will be conducted remotely from Houston and that won’t benefit the Mexican economy. We’ve had great success in utilizing a model that harnesses a local workforce in Brazil and this is something we have been actively endeavoring to emulate here in Mexico.

Post-2010, PGS was restructured across four different product lines: Imaging and Engineering, Marine Contract, Multi-client, and Operations. Where does the Mexican office fit within that mix?

Since PGS no longer conducts any on-land acquisition activity, everything is generally orientated towards the offshore geophysics. Here in Mexico however we are currently focused on providing service via the imagining and engineering group and this actually includes an important amount of very successful onshore imaging as well as marine based projects. The Centre technical manager essentially guides the geophysicists that we have here onsite, while I deliver business support and fly the flag for PGS across the board. If we’re talking about marine issues then that may entail bringing in specialists from Houston. When it is about multi-client possibilities, which represent a highly interesting prospect for the Mexican market, then that again may mean importing specialists from elsewhere in the company. This function may well change with time, as might the physical location which at the moment isVillahermosa, as PGS responds to the changes occurring across the sector as a result of the reforms.

We are living in interesting times and much of what is happening remains fluid and open to change. Earlier this year the Pemex multi-year marine acquisition contract which had be conducted by our competitors came to an end; this would normally be followed up by a new round of bidding and opportunities for tender. As it happens, all of this is currently on hold as Pemex goes about defining the areas in which it will retain future presence under the so-called Round Zero process.

We notice that PGS returned to the Gulf of Mexico (GoM) for the first time in 8 years at the end of last year with the commencement of the TRITON GeoStreamer Full Azimuth survey. What are the linkages between the American and Mexican spheres of the GoM?

The linkage is an understanding of how to tackle complex geology. The business environment right now in Mexico is in flux. Some of what we consider to be potential clients are presently being serviced by the Houston office and whether or not we end up dealing with them locally from this office is wholly dependent on whether the conditions are going to be attractive enough for them to set up operations in the Mexican sphere of the GoM. At the moment, it is very much a waiting game for all concerned. We don’t really understand how the various pieces are going to fit together and my task has been to set up PGS Mexico with an in-built flexibility ready to respond to whatever circumstances materialize. Our antennas are up, so to speak, both here and in Houston so that we can grasp early mover advantage as soon as the full effects of the reform process become known.

This high-tech, multi-client, full azimuth survey is really quite phenomenal. It involves five vessels and incredibly long offsets to produce an image for an area of the GoM that has historically been very difficult to resolve. The solution that we are putting forward is in many ways directly applicable to certain areas that we already know about in Mexican waters. I am confident to say that what we are doing in US waters will one day directly translate to what is required for a number of Mexican deep water plays.

We now hold seven years’ experience in GeoStreamer ® technology which affords us a significant edge over our competitors and we’ve had much validation of the technique by others trying to replicate what we have achieved. It’s fair to say that the whole broadband element to seismic studies actually came about through the wider acceptance of the superiority of GeoStreamer Data. While the hardware elements of our vessels and streamers are always being refined and optimized, when it comes to extracting value for the client it is really all down to the quality of the data and that is where the impact of Geostreamer is felt. It not only produces more efficient recording operation due to the deep tow, it also harnesses dual sensor data that enable many more options when processing, imaging and interpreting.

In terms of global strategy, PGS has been rebalancing the weighting of its activities more towards the multi-client side. Can you please elaborate on the potential for multi-client opportunities in Mexico?

With the structure of Mexican energy shifting from Pemex being in charge of everything to SENER and CNH taking over and sharing that role, there’s going to be an open market to invite in the international players. Those players are obviously going to want to see the existing data prior to committing resources and investment, and that’s going to lead to increased demand for more up-to-date and technologically advanced studies. We will be looking to collaborate directly with SENER and CNH with a view to performing exactly the sorts of activities we carry out in other locations round the world which is multi-client surveys.

Some of the finer details, however, still have to be ironed out because of the way existing laws are structured in Mexico with regard to ownership of data. We are confident that this can be easily resolved under licensing agreements, but this is something that very much needs to be put in place. In an operational sense it is well understood what we can and can’t do and we know exactly what is required so it is more a question of establishing a suitable legal framework.

Industry commentators expect a wealth of opportunities to be unlocked across the value chain, especially in E&P. AT Kearney, for example, has predicted that the geophysical services segment will be the ‘big winners’ from the reforms. Do you agree with this perspective? What opportunities do you anticipate?

It is very exciting for us to transition from catering purely to the needs of Pemex to having to service a whole array of new clients. For PGS Mexico this represents a quantum leap. However we are not starting from the position of companies that are strictly local and don’t possess any the experience of open markets. Our global footprint ensures we already have that first-hand experience of how to interact with international clients and are familiar with the standards at which such firms operate and this of course puts us in an advantageous position. The repercussions of the reform will inherently pose a greater challenge for local oilfield services providers than global enterprises such as PGS.

Because we are so far out on the leading edge of the exploration cycle, any slowdown will ordinarily hit us before it strikes anyone else. Much of my attention at the moment is focused on achieving continuity and stability as we ride out the cycle. The fact that bidding is currently on hold therefore affects us in the short term, but once we have traversed this period of uncertainty, we do forecast a lot of light at the end of the tunnel. Because we have along established history of understanding the geology, a core section of the new customer base is going to be extremely interested in using our services. We already know how to use the data here and that is not necessarily the case for equivalent processing houses in Houston or London for example. The extremely complex geology her in Mexico is everyday bread and butter to us.

Looking forward, we are very keen to bring the fleet in and are expecting a cycle of multi-client work in which we would be employed directly by CNH and SENER to set the scene for maybe the second bidding round of blocks. Whereas first round bids will likely rely mostly on the existing geophysical data, by the time of the second round there will be a significant demand to redo many of the studies because there is not yet any GeoStreamer data in Mexican waters. A whole world of new generation data is out there waiting to be shot. This opportunity, combined with our intricate knowledge of the local geology, cultural system and regulatory requirements give us much reason to be confident.

What, to your mind, are the most significant characteristics of the reform process? And what advice would you give international entrepreneurs considering engagement with the Mexican energy sector.

When you analyze the Mexican hydrocarbon sector, you could say that the government has acted just in the nick of time given the speed at which many economies are transitioning towards renewables. Had the reforms been delayed another five to ten years, then factoring in an additional ten year cycle for developing deep water, the economic rationale for extracting the hydrocarbons from difficult plays could well have been invalidated.

By acting now, Mexico should be able to enjoy its natural resource windfall, though the full effects will likely take a few years to reach fruition considering the habitual pace of the industry. Though technology can move very fast, people generally take longer to adjust. The oil majors will not come charging in on white stallions. Instead the process will evolve gradually most likely with one of the major players first dipping its toes in the deep water.

Nevertheless, because of the restrictions that Pemex has been operating under to date, Mexico is massively under-explored for such a centrally placed and well known location. This is no obscure outback and yet there are fields that have been discovered, but never developed because Pemex was overstretched. Huge quantities of reserves have literally been by-passed. This presents tremendous opportunities on a par with anything on offer elsewhere. This really is a land of opportunity, but patience and engagement on a deeper level is required to fully understand the hidden riches here.

To read more interviews and articles on Mexico, and to download the latest free report on the country, click here.



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