MEX­ICO’S OPEN

Planned re­forms in­tended to help re­store oil, nat­u­ral gas

The Oklahoman - - BUSINESS - BY JACK MONEY Busi­ness Writer jmoney@ok­la­homan.com

Mex­ico’s oil in­dus­try is hun­gry for change.

And Ok­la­homa oil and gas com­pany ex­ec­u­tives who do busi­ness or want to do busi­ness there wouldn’t mind see­ing more im­prove­ments, ei­ther.

Is­sues the coun­try faces, re­forms it al­ready has made and the goals of a new ad­min­is­tra­tion un­der Pres­i­dent-elect An­drés Manuel López Obrador were dis­cussed this week at an Ok­la­homa Depart­ment of Com­merce event. State oil and gas com­pany rep­re­sen­ta­tives were in­vited to hear from Luis Domenech, di­rec­tor of the agency’s Ok­la­homa In­ter­na­tional Trade Of­fice in Mex­ico.

“The coun­try is mak­ing cuts to lower its spend­ing, and it plans to use those dollars to boost the na­tion’s in­fras­truc­ture,” Domenech told rep­re­sen­ta­tives of the about a half-dozen com­pa­nies that at­tended.

Mex­ico, he said, would wel­come the help.

“They want you to in­vest in a plant in Mex­ico and sell equip­ment made in Mex­ico. They want you to cre­ate jobs in Mex­ico,” Domenech said. “We have seen sev­eral com­pa­nies suc­ceed in this.

“Selling to Mex­ico’s oil and gas sec­tor can be done. You will find a lot of op­por­tu­ni­ties, if you en­ter into part­ner­ships with lo­cal play­ers that will com­pli­ment your equip­ment.”

Chal­lenges re­main

Mex­ico, he ob­served, faces many chal­lenges re­lated to ev­ery seg­ment of its oil and nat­u­ral gas in­dus­try, even with en­ergy re­forms ap­proved in 2013 by the coun­try’s congress and out­go­ing ad­min­is­tra­tion.

He said the coun­try’s oil pro­duc­tion has fallen to 1.8 bil­lion bar­rels of oil per day, the low­est since 1980, and that its shal­low-wa­ter mega field Cantarell is now a mar­ginal field, while the Ku-Maloob-Zaap field also is de­clin­ing.

Domenech said Mex­ico’s re­fin­ery sys­tem is outdated and in­ef­fi­cient (it, like most

U.S. re­finer­ies, isn’t engi­neered to han­dle the oil the coun­try pro­duces) and hasn’t un­der­gone any mod­ern­iza­tion work in more than 10 years.

Data shows Mex­ico im­ports 73 per­cent of its fu­els, 69 per­cent of its diesel and 73 per­cent of its nat­u­ral gas, cre­at­ing an an­nual trade deficit near­ing $20 bil­lion.

Domenech said pre­vi­ous poli­cies had pri­or­i­tized im­ports over in­vest­ments.

That meant Pe­mex, the coun­try’s na­tional oil com­pany (Domenech said it still owns 83 per­cent of the coun­try’s prospec­tive re­sources), faced sig­nif­i­cant fi­nan­cial chal­lenges that forced it to stop its ex­plo­ration and devel­op­ment projects so that it could try to main­tain its pro­duc­ing as­sets.

Domenech said there are un­con­ven­tional pro­duc­tion

ar­eas both on- and off­shore in Mex­ico that could pro­vide the coun­try with sig­nif­i­cant new sources of oil and nat­u­ral gas.

And while he said the gov­ern­ment has en­tered into con­tracts over the past sev­eral years with more than 100 other ex­plo­ration and pro­duc­tion com­pa­nies to be­gin new devel­op­ment projects, he also said those still are in early stages of needed work.

“Un­der en­ergy re­form, Pe­mex went through a cy­cle of not hav­ing money,” Domenech said. “But we want to de­crease our de­pen­dence on en­ergy im­ports.

“We have gone from be­ing a net ex­porter, to be­ing an im­porter.”

New ini­tia­tives

Un­der Obrador, he said it is ex­pected the gov­ern­ment will boost Pe­mex’s avail­able funds in 2019 by $4 bil­lion for new devel­op­ment projects.

Or­brador’s ad­min­is­tra­tion, which takes of­fice in De­cem­ber, also has said it in­tends to re­vamp ser­vices con­tracts so that Pe­mex will have au­ton­omy to se­lect its ser­vice sup­pli­ers and busi­ness part­ners and hopes to embark on en­hanced oil re­cov­ery projects in­volv­ing sev­eral on­shore fields.

The en­ergy re­form pack­age also cre­ated a new state-run com­pany to op­er­ate and main­tain the coun­try’s pipe­line and tank in­fras­truc­ture sys­tem for oil and nat­u­ral gas. That firm has part­nered with nu­mer­ous out­side com­pa­nies to more than dou­ble the sys­tem’s pipe­line miles.

Obrador also seeks to re­vamp the coun­try’s re­fin­ing ca­pac­ity, with plans to spend $2.7 bil­lion to mod­ern­ize ex­ist­ing re­finer­ies and to spend billions of dollars more to build two more.

As for the near fu­ture, Domenech pre­dicted Mex­ico’s up­stream mar­ket

will be dynamic as new drilling projects and en­hanced oil re­cov­ery tech­nolo­gies are in­tro­duced into le­gacy fields.

He said he ex­pects to see a strong de­mand for pro­cess­ing and re­fin­ing equip­ment, too, with po­ten­tial deals in­volv­ing the in­te­gra­tion of lo­cal com­po­nents and raw ma­te­ri­als get­ting pref­er­ence from reg­u­la­tors.

“The op­por­tu­ni­ties we see ... will drive in­vest­ment in needed equip­ment and in­fras­truc­ture faster,” he said.

“The big dif­fer­ence is that, be­fore re­form, Pe­mex could not of­fer part­ner­ing firms a share pro­duc­tion or field ben­e­fits. Now, it can, so we ex­pect that will pro­vide some ben­e­fi­cial in­cen­tives to part­ner­ing firms.

“The num­ber of op­por­tu­ni­ties for Ok­la­homa com­pa­nies (es­pe­cially those that make gear for down­stream ap­pli­ca­tions) are mul­ti­ply­ing in the com­ing years,”

Domenech said. “I be­lieve it is great news.”

Lo­cal takes

Ok­la­homa Ci­ty­based Kim­ray Corp., which man­u­fac­tures oil and nat­u­ral gas con­trol equip­ment, ex­ports to part­ner­ing dis­trib­u­tors in Canada, Ger­many, Aus­tralia, South Amer­ica, the Mid­dle East and Mex­ico.

In Mex­ico, the com­pany dis­trib­utes its prod­ucts to field op­er­a­tors through a firm called Flow Con­trol & Mea­sure­ment.

A rep­re­sen­ta­tive of Kim­ray’s in­ter­na­tional trade unit at­tended the Com­merce Depart­ment event.

Dustin An­der­son, Kim­ray’s vice pres­i­dent of sales and mar­ket­ing, said his firm has seen a nice in­crease in the amount of busi­ness it has been do­ing in the coun­try in the past year, fol­low­ing sev­eral pre­vi­ous years of tougher times.

To­tal sales there for

new Kim­ray equip­ment and re­pairs through FCM had climbed by 300 per­cent dur­ing that time, he said.

An­der­son said FCM also has in­formed Kim­ray that Pe­mex seeks to mod­ern­ize one of its older, on­shore fields, mean­ing more po­ten­tial busi­ness.

“Re­vamp­ing older fields is a big op­por­tu­nity for us,” An­der­son said.

An­other firm check­ing out this week’s event was Ok­la­homa City-based Echo En­ergy.

Cory King, the com­pany’s in­side coun­sel, said the grow­ing firm sought to learn more about po­ten­tial op­por­tu­ni­ties south of the bor­der.

“We are in­ter­ested in what’s go­ing on in the in­dus­try, where the needs are and what the sup­ply is to meet the de­mands,” King said.

“We want to be at the fore­front ... value adders in ev­ery­thing we do, so that we can dis­rupt the mar­ket in pos­i­tive ways.”

[AP PHOTO]

A truck passes by a giant re­fin­ery in Sala­manca, 170 miles north­west of Mex­ico City. Mex­ico’s state-run oil com­pany, long viewed as an over­grown, waste­ful di­nosaur, has grand plans for a more ef­fi­cient, prof­itable fu­ture.

[PHOTO BY STEVE SISNEY, THE OK­LA­HOMAN]

Work­ers as­sem­ble valves at Kim­ray in 2017. The com­pany part­ners with Flow Con­trol & Mea­sure­ment in Mex­ico to sell and main­tain its prod­ucts there.

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