Oil and Gas Mexico report 2013 part 3

1

MexicoOil & Gas report part 3April 2013

2

Acknowledgements

Special thanks to

Ing. Telesforo Segura and PEMEX for the information and contacts

provided.

Thank you to all the companies who supported the production of this

report.

3

This report was prepared by Focus ReportsPublisher: Ines M Nandin;Project Director: Leonardo Barquero; Project Coordinator: Maria Elena Gomez Alvarez

CopyrightAll rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports.While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.

contents

InteRVIeWs

2 ACknowleDgemenTs

5 winDs oF ChAnge: mexiCo’s hyDRoCARbon RenAissAnCe

6 DeFining ChAnge

10 new DisCoveRies begeT new ChAllenges

12 who is emilio lozoyA AusTin ?

14 PATChing uP A bRoken neTwoRk

15 The shAle gAs CARRoT sTiCk

19 smes leADing mexiCAn RevoluTion

20 new beginnings

26 IntervIew wIth Carlos Sandoval – General Director, Grupo ORSAN

28 IntervIew wIth Fernando Balderas – General Manager, Grupo SSC

30 IntervIew wIth Jaime Gallegos – CEO, Share Oil Services

32 IntervIew wIth Javier Campos – General Manager, SITRASA

34 IntervIew wIth John Lawrence - CEO, DTK Group

4

CarCosl_OGFJ_1304 1 3/26/13 4:18 PMCarCosl_OGFJ_1304 1 3/26/13 4:18 PM

This sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Editor: Eric Watkins. Project & Editorial Director: James Waddell. Project Coordinators: Chiraz Bensemmane, Zuzana Kudelova. Editorial Researcher: Cameron Rochette. For exclusive interviews and more info, plus log onto

www.energy.focusreports.net or write to [email protected]

MEXICO’S HYDROCARBON RENAISSANCE

In the hands of its new steward, Mexico seems to be at the brim of a prodigious reincarnation that promises to usher in an era of wealth and a better life for Mexicans. While such pledges are ubiquitous in the political rhetoric of this country, the first five months of Enrique Peña Nieto’s

presidency have revealed a decisive leader willing to rattle the status quo and initiate changes that could drag the country out of economic stagnation illustrated by its average .7% annual growth over the last decade. Criticized by some for his manicured playboy charms and a passion for populist theatrics, the new president and his posse are hardly histrionic in recognizing the need to jumpstart Mexico’s economy by transforming its state-controlled oil sector that generates one-third of the nation’s income. His presidential platform focused on constructing a more competitive Mexico, partly through a reform of the energy sector, PEMEX included, by allowing greater participation of

WINDS OF CHANGE

Cover Mexican Catrina

CHANGEWINDSOF

Mexico’s Hydrocarbon Renaissance

www.ogfj.com • Oil & Gas Financial Journal April 2013 energy.focusreports.net 3

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CarCosl_OGFJ_1304 1 3/26/13 4:18 PMCarCosl_OGFJ_1304 1 3/26/13 4:18 PM

This sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Editor: Eric Watkins. Project & Editorial Director: James Waddell. Project Coordinators: Chiraz Bensemmane, Zuzana Kudelova. Editorial Researcher: Cameron Rochette. For exclusive interviews and more info, plus log onto

www.energy.focusreports.net or write to [email protected]

MEXICO’S HYDROCARBON RENAISSANCE

In the hands of its new steward, Mexico seems to be at the brim of a prodigious reincarnation that promises to usher in an era of wealth and a better life for Mexicans. While such pledges are ubiquitous in the political rhetoric of this country, the first five months of Enrique Peña Nieto’s

presidency have revealed a decisive leader willing to rattle the status quo and initiate changes that could drag the country out of economic stagnation illustrated by its average .7% annual growth over the last decade. Criticized by some for his manicured playboy charms and a passion for populist theatrics, the new president and his posse are hardly histrionic in recognizing the need to jumpstart Mexico’s economy by transforming its state-controlled oil sector that generates one-third of the nation’s income. His presidential platform focused on constructing a more competitive Mexico, partly through a reform of the energy sector, PEMEX included, by allowing greater participation of

WINDS OF CHANGE

Cover Mexican Catrina

CHANGEWINDSOF

Mexico’s Hydrocarbon Renaissance


advertisement

6

4 energy.focusreports.net April 2013 Oil & Gas Financial Journal • www.ogfj.com

In the hands of its new stew-

ard, Mexico seems to be at the

brim of a prodigious reincarna-

tion that promises to usher in an

era of wealth and a better life for

Mexicans. While such pledges are

ubiquitous in the political rhetoric

of this country, the first five months

of Enrique Peña Nieto’s presidency

have revealed a decisive leader will-

ing to rattle the status quo and ini-

tiate changes that could drag the

country out of economic stagna-

tion illustrated by its average .7%

annual growth over the last decade.

Criticized by some for his mani-

cured playboy charms and a pas-

sion for populist theatrics, the new

president and his posse are hardly

histrionic in recognizing the need

to jumpstart Mexico’s economy by

transforming its state-controlled oil

sector that generates one-third of

the nation’s income. His presidential

platform focused on constructing a

more competitive Mexico, partly

through a reform of the energy

sector, PEMEX included, by allow-

ing greater participation of private

companies in order to generate effi-

ciencies through competition.

Being the world’s fourth larg-

est oil producer, PEMEX has fallen

from grace over the last few years

due to a deadly cocktail of declin-

ing production, failed exploration

attempts, mismanagement of funds

and assets, and an inability to curb a

local black market of crude oil. For

the past five years the company has been reaping in losses financed by the state. As if by divine

intervention, in October and November 2012 PEMEX announced three new discoveries – two in

deepwater and one onshore – holding a combined estimated 27.5 billion barrels of oil.

The opportune news is bolstered by the new political wave which could possibly be the

springboard for PEMEX to rise above and beyond all expectations. Indeed, Mexicans are

familiar with celebrating death in order to revere new beginnings, such as through the popular

dia de los muertos celebrations. These recent changes appear to be chanting: “out with the

old, in with the new PEMEX”. The mythical phoenix rising out of the ashes.

Defining ChangeSure, this is easier said than done. Mostly because Mexico’s oil belongs to the people of

Mexico, as established by the constitution, causing labor unions and leftist political factions to

condemn Peña Nieto’s energy reform as an attempt to privatize PEMEX and sell off that which

belongs to the people. On the other hand, there is great support from the private sector

who understands the immeasurable opportunities that would emerge from an aperture in the

state’s control of the oil & gas market.

“The energy sector needs a lot of media coverage to be fully understood. I think the energy

reform should take place, but at the ministerial level, not at the level of PEMEX. The main

Crude oil production

3,000

2,500

2,000

1,500

1,000

500

0

Tho

usan

ds

of

bar

rels

per

day

E J JF M MA A S O N D E EJ JF M MA A S O N D

2011 2012 2013

Total Heavy Light Superlight

Enrique Peña Nieto,President of Mexico

This sponsored supplement was produced by Focus Reports. Publisher: Ines M Nandin;Project Director:

Leonardo Barquero; Project Coordinator: Maria Elena Gomez Alvarez. For exclusive interviews and

more info, please visit energy.focusreports.net or write to [email protected]

CarDTK_OGFJ_1304 1 3/26/13 11:22 AMwww.ogfj.com • Oil & Gas Financial Journal April 2013 energy.focusreports.net 5

point is that PEMEX should be left alone to do its work, as it has never failed in its mission to

provide the country with fuel”, states Oscar Vazquez, founder and general manager of Grupo

Diavaz. With more than 40 years experience, Grupo Diavaz is one of the most prominent

and respected Mexican service providers to the oil & gas sector. The company specializes

in submarine construction and engineering

projects, but offers a portfolio of services

that spans the entire value chain, from assist-

ing production to the transportation and dis-

tribution of hydrocarbons.

As a key player in the industry, Mr. Vazquez

agrees that a reform is in need, however, he

affirms that any changes should not affect

PEMEX’s operational capacity, particularly

in exploration and production. “We need

a good reform in Mexico, starting with the

National Hydrocarbons Commission (CNH).

The Commission should be reinforced to

generate competition in the sector; this

should not be up to PEMEX. It is essential

that we allow PEMEX to continue their regu-

lar work, while companies like ours can be

assigned to do the specialized work under

Export of crude oil, Jauary 2013

Maya76%

America79%

Olmeca14%

Europe19%Istmo

10%Others

2%

Thousands of barrels per day

Total1,289

7

CarDTK_OGFJ_1304 1 3/26/13 11:22 AMwww.ogfj.com • Oil & Gas Financial Journal April 2013 energy.focusreports.net 5

point is that PEMEX should be left alone to do its work, as it has never failed in its mission to

provide the country with fuel”, states Oscar Vazquez, founder and general manager of Grupo

Diavaz. With more than 40 years experience, Grupo Diavaz is one of the most prominent

and respected Mexican service providers to the oil & gas sector. The company specializes

in submarine construction and engineering

projects, but offers a portfolio of services

that spans the entire value chain, from assist-

ing production to the transportation and dis-

tribution of hydrocarbons.

As a key player in the industry, Mr. Vazquez

agrees that a reform is in need, however, he

affirms that any changes should not affect

PEMEX’s operational capacity, particularly

in exploration and production. “We need

a good reform in Mexico, starting with the

National Hydrocarbons Commission (CNH).

The Commission should be reinforced to

generate competition in the sector; this

should not be up to PEMEX. It is essential

that we allow PEMEX to continue their regu-

lar work, while companies like ours can be

assigned to do the specialized work under

Export of crude oil, Jauary 2013

Maya76%

America79%

Olmeca14%

Europe19%Istmo

10%Others

2%

Thousands of barrels per day

Total1,289

8

chemicals and Petrochemicals. Indeed, one of the first targets of the

energy reform is to streamline this structure by amalgamating the

four entities into one giant PEMEX as a means to gain greater control

over decision-making processes.

“I believe we are currently experiencing a generational change in

the industry, not only here in Mexico but throughout the world”, says

Jaime Gallegos, founder and ceo of Share Oil Services. As a Harvard

MBA graduate and innate entrepreneur, Gallegos founded Share Oil

Services in 2011 in direct response to the needs of the Mexican indus-

try that generally lacks the technology and expertise to tackle chal-

lenges such as mature fields and new offshore discoveries.

Share Oil began as a service provider that uses computer and

mathematical models to find solutions to their client’s operational

problems – whether technical or administrative. “The group today

has four main divisions: our drilling services unit, another dedicated

to the creation of software, another to simulation and modeling that

also offers consulting services, and finally our human resources devel-

opment section that serves mostly as a training center”, boasts Gal-

CarSha_OGFJ_1304 1 4/1/13 11:31 AM

the supervision of the CNH.”

The CNH was established in 2008

as an independent and objective

entity that would advise PEMEX

and the government in the devel-

opment of the national oil & gas

sector. “Everyone knows that

PEMEX is not perfect, but we must

still support it in its mission as the

national oil company. I like to think of PEMEX as an unattractive wife,

whom we must love and kiss on a daily basis, even if it is not appeal-

ing to us”, concludes Vazquez.

After all, it makes sense that local giants such as Diavaz welcome

the increased participation of private companies as they would surely

be able to fare well in the ensuing competition. Nonetheless, local

newcomers are also embracing the idea that PEMEX delegate more

of its operations, which today are divided amongst four subsidiary

entities: Exploration & Production, Refining, Gas and Basic Petro-

Oscar Vazquez, CEO, Grupo Diavaz

9

and Colombia, have achieved with their NOCs, and gather the best

practices from those experiences and apply them to the Mexican con-

text. “With the new presidential administration, maybe we will emu-

late the Brazilian model which will allow PEMEX to focus much more

on core business and on having a reduction in their production and

extraction costs, and a huge improvement in terms of storage and

distribution”, opines Carlos Sandoval, president of the ORSAN group

of companies. ORSAN started out a single gas station in the northern

city of Monterrey and today comprises several business, including

the storage and transportation of diesel and a chain of convenience

stores for their 110 gas stations throughout the country. Sandoval is

certain his company could assist PEMEX in becoming more efficient

by taking over some of their distribution activities. “We don’t want

PEMEX to lose control of the oil but we know that they can sell it in

a slightly different way. This would involve the private sector to help

PEMEX with the storage and distribution of their oil”, he concludes.

It is evident that hopes are high for a reform to take place, and

as of early March Peña Nieto was greasing the cogs of change by

legos. As part of his strategy, he has

opted not to serve PEMEX directly

and only to work for contractors.

The proposed energy reform would

only mean an increased client base

for him.

The idea of an energy reform

is no novelty. Former President

Calderon initiated this trend in 2008

when his administration devised a system of incentivized contracts for

third parties to assist PEMEX in E&P. These contracts were created to

attract private investment with the promise of greater payouts when

production objectives were surpassed by the contractor – hence the

incentive to produce as much as possible. Global players, such as

Petrofac, sprung at the first glimpse of a more open and competitive

Mexico. The model is largely hailed as a success, but is perceived only

as a small step in a long journey to fully transforming the industry.

Today’s trend is to look at what regional counterparts, such as Brazil

CarSha_OGFJ_1304 1 4/1/13 11:31 AM

Jaime Gallegos, CEO, Share Oil

10

11


deepwater, which only reinforces the need for foreign assistance and

investment.

Slowly this expertise has been seeping into the country by way of

entrepreneurial outfits mostly run by expats, but this will hardly be

enough for what lies ahead. DTK Group, for example, emerged from

a group of engineers, geologists and businessmen with extensive

experience in the hydrocarbon sector. “We developed our company

with 3 main business lines; initially we were just material suppliers

to the drilling business; then, in 2010, we started to do mud log-

ging and, finally, in 2011, we got back into the lab services business”,

recounts Englishman John Lawrence, ceo of DTK-Group. “We are not

a drilling company, we support those companies by monitoring the

drilling operations and providing technology to support drilling ser-

vices in terms of evaluating the conditions of rocks or fluids in the

rocks, all of which is meant to increase the overall efficiency. We have

done many projects related to the offshore wells. As we speak, we

hold the contract for the core analysis of several offshore wells and

that gives us the opportunity to be part of amazing on-site discover-

ies and to be the first to provide fresh information coming out of

these wells.”

It is technology such as this that has assisted PEMEX in more suc-

cessful exploration efforts such as in the new deepwater discover-

ies. DTK-Group is now betting on their experimental technology

“E-Core”, that allows for modeling of rock formations from tiny

samples. Lawrence describes it as the “microscopic imaging of the

internal structure of the rock after which these images are converted

into mathematical models. The internal structure and the models are

scaled up to represent a full sized piece of rock and the analysis is

done on the model instead of being done on the original piece of

rock.” Such innovation will certainly

push exploration efforts to new

bounds, but the needed technolo-

gies for production will only come

once the sector has been opened

up to major investors.

In the meantime, medium-sized

international service providers are

already flocking to Mexico to capi-

talize on the country’s potential

to become a true global oil & gas

powerhouse. Petrolink is an oilfield

support company dedicated to

managing data in order to optimize

the performance of production

wells. By aggregating data from

multiple sources and IT platforms,

Petrolink can seamlessly deliver

the information to any location in

the world so that decisions can be

made remotely.

“We like to think of Mexico as the opportunity of endless opportu-

nities, because technologies such as ours are only in their early stages

here and generally this is a massive market. Especially now at this

time that PEMEX is initiating a transformation, we look forward to

becoming a strategic ally to newcomers in the industry”, states Pablo

Perez, Mexico country manager for Petrolink. “As PEMEX develops

CarBim_OGFJ_1304 1 3/26/13 12:09 PM

John D. Lawrence, CEO, DTK-Group

Pablo Perez, Country Manager Mexico, Petrolink

12


new methods of operating, such as for deepwater and horizontal drilling, our added value will

become more evident. Ultimately, our products and services exist to prevent any preventable

eventuality that could affect operations and cost our clients millions of dollars. With opera-

tions in over 40 markets across the globe, we have the advantage of our experiences in all

possible conditions and terrains. This knowledge is something that we would like to bring to

PEMEX in order for them to attain their full potential.”

Not surprisingly, some of the first multinational companies to bet on the resurgence of

Mexico’s oil & gas industry are coming from cash-flush China. China Oilfield Services Limited

(COSL) first entered the Mexican market in 2007 when speak of an energy reform was already

beginning to brew and PEMEX was heightening its offshore exploration. As the leading inte-

grated oilfield service provider in China’s offshore segment, COSL’s expertise is precisely the

kind of collaboration that PEMEX needs to succeed in unchartered deep waters.

“Since the beginning, our strategy has been to bring the best equipment to Mexico

because this is where COSL can add value to local exploration. We have steadily been mak-

ing ourselves known and currently have four offshore modular and two self-elevating rigs

CarMex_OGFJ_1304 1 3/26/13 12:00 PM

WHO IS EMILIO LOZOYA AUSTIN?

With a mere 37 years of age, Emilio Lozoya Austin,

has been charged with the arduous task of leading

PEMEX into its new incarnation. While the newcomer has little

experience within Mexico’s political ranks, he is his family’s

third generation to embrace public office and assert himself a

part of the milieu.

Having achieved a Bachelor’s degree in Economics and a

law degree from Mexican academic institutions, Lozoya Austin later went on to

obtain a Master’s in International Development and Public Administration from

Harvard. Notable work experiences include being an analyst for the Central

Bank of Mexico and serving as the Director for Latin America at the World

Economic Forum (WEF). It was in his role at the WEF that he was able to work

closely with now President Enrique Peña Nieto, to collaborate in bringing inves-

tors to the State of Mexico while Peña Nieto served as its governor.

More recently, Lozoya Austin founded Luxemburg-based investment fund, JH

Holding, where he was able to swell his portfolio from 50 million Euros to 1.2

billion Euros in little over a year. With a deep understanding of global macro-

economics, great things are expected of PEMEX’s new general director, who will

certainly aim at streamlining Mexico’s oil & gas sector to make it as profitable

as possible. If his investment track record is any indication, PEMEX should soon

become a central piece of the world’s oil and gas arena.

Emilio Lozoya Austin, Director General, PEMEX

13


new methods of operating, such as for deepwater and horizontal drilling, our added value will

become more evident. Ultimately, our products and services exist to prevent any preventable

eventuality that could affect operations and cost our clients millions of dollars. With opera-

tions in over 40 markets across the globe, we have the advantage of our experiences in all

possible conditions and terrains. This knowledge is something that we would like to bring to

PEMEX in order for them to attain their full potential.”

Not surprisingly, some of the first multinational companies to bet on the resurgence of

Mexico’s oil & gas industry are coming from cash-flush China. China Oilfield Services Limited

(COSL) first entered the Mexican market in 2007 when speak of an energy reform was already

beginning to brew and PEMEX was heightening its offshore exploration. As the leading inte-

grated oilfield service provider in China’s offshore segment, COSL’s expertise is precisely the

kind of collaboration that PEMEX needs to succeed in unchartered deep waters.

“Since the beginning, our strategy has been to bring the best equipment to Mexico

because this is where COSL can add value to local exploration. We have steadily been mak-

ing ourselves known and currently have four offshore modular and two self-elevating rigs

CarMex_OGFJ_1304 1 3/26/13 12:00 PM

WHO IS EMILIO LOZOYA AUSTIN?

With a mere 37 years of age, Emilio Lozoya Austin,

has been charged with the arduous task of leading

PEMEX into its new incarnation. While the newcomer has little

experience within Mexico’s political ranks, he is his family’s

third generation to embrace public office and assert himself a

part of the milieu.

Having achieved a Bachelor’s degree in Economics and a

law degree from Mexican academic institutions, Lozoya Austin later went on to

obtain a Master’s in International Development and Public Administration from

Harvard. Notable work experiences include being an analyst for the Central

Bank of Mexico and serving as the Director for Latin America at the World

Economic Forum (WEF). It was in his role at the WEF that he was able to work

closely with now President Enrique Peña Nieto, to collaborate in bringing inves-

tors to the State of Mexico while Peña Nieto served as its governor.

More recently, Lozoya Austin founded Luxemburg-based investment fund, JH

Holding, where he was able to swell his portfolio from 50 million Euros to 1.2

billion Euros in little over a year. With a deep understanding of global macro-

economics, great things are expected of PEMEX’s new general director, who will

certainly aim at streamlining Mexico’s oil & gas sector to make it as profitable

as possible. If his investment track record is any indication, PEMEX should soon

become a central piece of the world’s oil and gas arena.

Emilio Lozoya Austin, Director General, PEMEX

CarPaeg_OGFJ_1304 1 3/26/13 11:38 AM

14

CarCob_OGFJ_1304 1 3/26/13 11:48 AM12 energy.focusreports.net April 2013 Oil & Gas Financial Journal • www.ogfj.com

and overbearing. With greater international collaboration, I have no

doubt that most of PEMEX’s challenges could be leveled over time.”

Indeed, global majors are sitting at the edge of their seats lingering

on Mexico’s next move to boost its oil & gas industry.

Patching Up a Broken NetworkSetting E&P aside, PEMEX’s other weakness lies in its inadequate

refining and distribution infrastructure. Mexico currently exports part

of its oil production to the US for refinement only to then import

the finished product. Over 52% of the country’s reserves are consid-

ered to be heavy oil, which only exacerbates the need to install new

refineries and pipelines and revamp ageing infrastructure as produc-

tion is set to increase. “PEMEX’s problem was that they didn’t know

anything about their own assets. Nevertheless, I believe that nowa-

days PEMEX recognizes its mistakes and already knows what has

to be done”, opines Victor Mackissack, president of Enduro Pipe-

lines Mexico. Last year PEMEX increased its investments in refining

infrastructure by 24% - a clear indication that they are now trying

operating in Mexican waters. We

also expect to bring our semi-sub-

mersible rigs to Mexico in the near

future”, says MingChuan Deng,

president of COSL Mexico. “COSL

is very pleased to assist PEMEX in

its search for new oil reserves and

to share our knowledge and exper-

tise with them. Now that the com-

pany has announced the impressive

new discoveries, we are looking forward to be a partner in their deep-

water ventures.”

Even though Deng is generally optimistic about COSL’s future in

Mexico, he also concedes that “the country needs to open itself up

to greater foreign participation and investment. We understand that

this is not a simple process and will not happen overnight, but it is

something that most companies around the world are anticipating.

Currently, some of the regulations of the industry can be confusing

MingChuan Deng, President of COSL Mexico


to catch up with lost time. PEMEX’s

new general director, Lozoya Aus-

tin, has also stated that increasing

distribution and refining capacity

is a major priority for the company.

Whether these projects will be car-

ried out entirely by PEMEX or if

some of them will be handed over

to the private sector is something

that many are anxious to discover.

Mackissack founded Enduro Pipe-

lines, a pipeline inspection company, in 2011 after realizing that

PEMEX’s pipeline infrastructure had been neglected for years, and

that many new hydrocarbon transportation projects were soon to be

developed. Most notable is the Los Ramones gas pipeline stretching

over 1,100 kilometers from the border of the US all the way to the

state of Aguascalientes. In total, PEMEX is planning an investment of

US$8 billion in extending its pipelines network over the next years.

“We are an inspection company, who sees a big opportunity in the

market that exists in Mexico, mainly with PEMEX. Pipeline inspection

has to do with environment security, which has a big impact, and also

with city security, because many of the pipelines run through the cit-

ies and it is evident that inspection is a high risk job. After analyzing

PEMEX’ needs and some of our competitors, I should emphasize that

we can cover a 15% of the mechanic inspection market, which means

that the market is sufficient in Mexico, especially when you count with

new technologies such as ours. Enduro uses Magnetic Flux Leakage

(MFL) inspection tools and we are also implementing ultrasonic test-

ing (UT) inspection tools. Nowadays, PEMEX has around 65.000 km

of pipelines and 60% of these, according to for PEMEX head Reyes

Heroles, should be replaced within approximately 5 to 6 years.”

The offshore discoveries will also require new pipelines to be built

in order to transport the crude oil to refining facilities. Recubrimien-

tos Integrales del Norte SA (RINSA), a pipe coating and welding spe-

cialist, has identified this as their target niche that they are looking

to conquer by partnering up with a Canadian company that will pro-

vide them with innovative technologies. “In 2005 when the company

was created, the coating market was entirely dominated by interna-

tional players because Mexican companies didn’t have the appro-

priate technology. In just 7 years we have been able to take 80%

THE SHALE GAS CARROT STICK

Led by the American example of a shale gas boom, Mexico is

restless to exploit its own shale gas deposits that promise to

reverse its status as a net importer of energy. In late October 2012,

the country announced its discovery of vast shale gas reserves in the

northeastern part of the country, which could double Mexico’s cur-

rent gas production. Conservative estimates on behalf of the govern-

ment have declared that the country counts with 297 trillion cubic

feet of shale gas reserves. It is presumed that shale deposits span

through the states of Chihuahua, Coahuila, Nuevo Leon, Tamaulipas,

Veracruz and San Luis Potosi.

Similar to the recent deepwater discoveries, PEMEX is only at its

infancy in acquiring the knowledge and expertise to drill shale gas

wells. So far the company has successfully drilled four wells in the

Burro-Picachos field that presumably taps into the same reserves

found at Eagle Ford in Texas.

In order to hasten its exploration of shale gas, PEMEX will have to

collaborate with foreign companies under its incentivized contract

scheme, as they are the only ones that can provide the necessary

technology within a short timeframe. Beyond technology sharing,

the country will also have to inject considerable amounts of capital

into its shale gas endeavors – former Secretary of Energy Herrera

estimated an average of US$10 billion annually. As of March 2013,

there were plans to drill between 20-25 new shale gas wells this year

alone, but PEMEX will also require partners to invest in these new

sites.

Ultimately, the shale gas storm is also betting on Peña Nietos

energy reforms to allow for quicker and greater participation of for-

eign capital in shale gas exploration. With the recent trend of gas

prices increasing, the pressure to tap into these resources is mount-

ing as the gas import bills pile up. Higher gas prices, however, also

mean that the costly drilling of new shale gas wells are justified and

welcome investments as they will bring greater returns.

Victor Mackissack, Director, Enduro Mexico

15

CarCob_OGFJ_1304 1 3/26/13 11:48 AM12 energy.focusreports.net April 2013 Oil & Gas Financial Journal • www.ogfj.com

and overbearing. With greater international collaboration, I have no

doubt that most of PEMEX’s challenges could be leveled over time.”

Indeed, global majors are sitting at the edge of their seats lingering

on Mexico’s next move to boost its oil & gas industry.

Patching Up a Broken NetworkSetting E&P aside, PEMEX’s other weakness lies in its inadequate

refining and distribution infrastructure. Mexico currently exports part

of its oil production to the US for refinement only to then import

the finished product. Over 52% of the country’s reserves are consid-

ered to be heavy oil, which only exacerbates the need to install new

refineries and pipelines and revamp ageing infrastructure as produc-

tion is set to increase. “PEMEX’s problem was that they didn’t know

anything about their own assets. Nevertheless, I believe that nowa-

days PEMEX recognizes its mistakes and already knows what has

to be done”, opines Victor Mackissack, president of Enduro Pipe-

lines Mexico. Last year PEMEX increased its investments in refining

infrastructure by 24% - a clear indication that they are now trying

operating in Mexican waters. We

also expect to bring our semi-sub-

mersible rigs to Mexico in the near

future”, says MingChuan Deng,

president of COSL Mexico. “COSL

is very pleased to assist PEMEX in

its search for new oil reserves and

to share our knowledge and exper-

tise with them. Now that the com-

pany has announced the impressive

new discoveries, we are looking forward to be a partner in their deep-

water ventures.”

Even though Deng is generally optimistic about COSL’s future in

Mexico, he also concedes that “the country needs to open itself up

to greater foreign participation and investment. We understand that

this is not a simple process and will not happen overnight, but it is

something that most companies around the world are anticipating.

Currently, some of the regulations of the industry can be confusing

MingChuan Deng, President of COSL Mexico


to catch up with lost time. PEMEX’s

new general director, Lozoya Aus-

tin, has also stated that increasing

distribution and refining capacity

is a major priority for the company.

Whether these projects will be car-

ried out entirely by PEMEX or if

some of them will be handed over

to the private sector is something

that many are anxious to discover.

Mackissack founded Enduro Pipe-

lines, a pipeline inspection company, in 2011 after realizing that

PEMEX’s pipeline infrastructure had been neglected for years, and

that many new hydrocarbon transportation projects were soon to be

developed. Most notable is the Los Ramones gas pipeline stretching

over 1,100 kilometers from the border of the US all the way to the

state of Aguascalientes. In total, PEMEX is planning an investment of

US$8 billion in extending its pipelines network over the next years.

“We are an inspection company, who sees a big opportunity in the

market that exists in Mexico, mainly with PEMEX. Pipeline inspection

has to do with environment security, which has a big impact, and also

with city security, because many of the pipelines run through the cit-

ies and it is evident that inspection is a high risk job. After analyzing

PEMEX’ needs and some of our competitors, I should emphasize that

we can cover a 15% of the mechanic inspection market, which means

that the market is sufficient in Mexico, especially when you count with

new technologies such as ours. Enduro uses Magnetic Flux Leakage

(MFL) inspection tools and we are also implementing ultrasonic test-

ing (UT) inspection tools. Nowadays, PEMEX has around 65.000 km

of pipelines and 60% of these, according to for PEMEX head Reyes

Heroles, should be replaced within approximately 5 to 6 years.”

The offshore discoveries will also require new pipelines to be built

in order to transport the crude oil to refining facilities. Recubrimien-

tos Integrales del Norte SA (RINSA), a pipe coating and welding spe-

cialist, has identified this as their target niche that they are looking

to conquer by partnering up with a Canadian company that will pro-

vide them with innovative technologies. “In 2005 when the company

was created, the coating market was entirely dominated by interna-

tional players because Mexican companies didn’t have the appro-

priate technology. In just 7 years we have been able to take 80%

THE SHALE GAS CARROT STICK

Led by the American example of a shale gas boom, Mexico is

restless to exploit its own shale gas deposits that promise to

reverse its status as a net importer of energy. In late October 2012,

the country announced its discovery of vast shale gas reserves in the

northeastern part of the country, which could double Mexico’s cur-

rent gas production. Conservative estimates on behalf of the govern-

ment have declared that the country counts with 297 trillion cubic

feet of shale gas reserves. It is presumed that shale deposits span

through the states of Chihuahua, Coahuila, Nuevo Leon, Tamaulipas,

Veracruz and San Luis Potosi.

Similar to the recent deepwater discoveries, PEMEX is only at its

infancy in acquiring the knowledge and expertise to drill shale gas

wells. So far the company has successfully drilled four wells in the

Burro-Picachos field that presumably taps into the same reserves

found at Eagle Ford in Texas.

In order to hasten its exploration of shale gas, PEMEX will have to

collaborate with foreign companies under its incentivized contract

scheme, as they are the only ones that can provide the necessary

technology within a short timeframe. Beyond technology sharing,

the country will also have to inject considerable amounts of capital

into its shale gas endeavors – former Secretary of Energy Herrera

estimated an average of US$10 billion annually. As of March 2013,

there were plans to drill between 20-25 new shale gas wells this year

alone, but PEMEX will also require partners to invest in these new

sites.

Ultimately, the shale gas storm is also betting on Peña Nietos

energy reforms to allow for quicker and greater participation of for-

eign capital in shale gas exploration. With the recent trend of gas

prices increasing, the pressure to tap into these resources is mount-

ing as the gas import bills pile up. Higher gas prices, however, also

mean that the costly drilling of new shale gas wells are justified and

welcome investments as they will bring greater returns.

Victor Mackissack, Director, Enduro Mexico

16


of the coating market share due to

our competitive pricing”, recounts

Lazaro Martinez, production and

sales manager of RINSA. “We are

aware that times will soon change

and that we will be facing increased

competition once the market has

been opened up to foreign partici-

pation. This is precisely why we are

looking to forge international part-

nerships at this time, so that we can be prepared once the energy

reform follows through. It is essential for us to be at the cutting edge

of coating technology to offer PEMEX the best products with the

highest safety and performance benchmarks.”

It has only been until recently that concerns for safety standards

and adequate maintenance of pipelines have taken center-stage.

This is particularly true in light of a pervasive black market for fuel

that involves thousands of clandestine tapping points across PEMEX’s

pipeline network. This black market is so entrenched into daily oper-

ations that even companies such as Shell and ConocoPhillips have

been charged with being involved in the trade of stolen fuel in one

way or another.

Aside from the estimated US$1 billion in lost revenues this repre-

sents, the illegal tapping of pipes is mostly detrimental in the safety

hazards they pose causing fires and explosions that have claimed

lives, as well as leaks that contaminate land and water sources. In

some cases, environmental remediation costs are likely to be higher

than the price of the stolen fuel. Overall, PEMEX’s safety record is

far from admirable and has recently been placed on the spotlight

after an explosion that rocked the company’s headquarters in Mex-

ico City on January 31st leaving 38 dead.

“What has been discovered throughout the years is that much

of the clandestine sale of fuel was happening with assistance from

within PEMEX at different levels of the organization”, explains Share

Oil’s Gallegos. “One innovative project that we came up with for

PEMEX is a remote monitoring network that serves to alert whether

there are any disruptions in the flow of hydrocarbons. We devised

software that collects and compiles all the monitoring data from

all the sensors throughout their network. This software connects to

PEMEX’s IT network in order to have 24-hour supervision of the

pipelines. As soon as there is any disruption, the system automati-

cally alerts the necessary people via email or other methods, so that

the problem can be solved immediately. This also assists in increas-

ing transparency throughout the company”.

CarOrs_OGFJ_1304 1 3/26/13 12:07 PM

Lazaro Martinez, Production and Sales Manager, Rinsa

Ciudad Pemex, Tabasco, courtesy of Pemex


tors to oversee the management

of pipes during construction and

operation. At the site of instal-

lation, we test for areas to repair

damage caused during the trans-

port or handling of the pipes. We

also offer comprehensive coating

of welding points making the coat-

ing uniform so that area does not

become a point of corrosion or

leakage in the future.”

Undoubtedly, an added benefit of the proposed energy reforms

is the development of a national industry that until now has been

somewhat shy to express its full potential, not only locally but also

on an international scale. Being a part of the OECD and the 13th

largest economy in the world, it would only seem natural that Mexi-

can companies would be more visible and vibrant in the global

Companies such as Enduro and Share Oil illustrate that Mexican

entrepreneurs are not only embracing a reform of the sector, but

are in many ways the vehicles of change themselves. “Everything

that allows for the best and most profitable exploitation of natural

resources in the country is welcome. If the government determines

that the participation of foreign companies is needed in some areas,

then this should be under clearly defined rules. For RAM-100 the

most important element is that pipeline expansion plans and the

maintenance and rehabilitation of the national pipeline network is

unhindered”, states Teodoro Gutierrez, general manager of RAM-

100 del Sureste.

RAM-100 is specialized in everything related to pipes, from anti-

corrosive coatings and welding to the installation of over and under-

ground pipelines. In line with current conditions, “we have devel-

oped an aggressive marketing plan to demonstrate to engineering

firms and end users that RAM-100 offers the most comprehensive

warranty in the market and we have the service of qualified inspec-

Teodoro Gutierrez, Director, Ram 100 del Sureste

CarRam_OGFJ_1304 1 3/26/13 12:03 PM

17


tors to oversee the management

of pipes during construction and

operation. At the site of instal-

lation, we test for areas to repair

damage caused during the trans-

port or handling of the pipes. We

also offer comprehensive coating

of welding points making the coat-

ing uniform so that area does not

become a point of corrosion or

leakage in the future.”

Undoubtedly, an added benefit of the proposed energy reforms

is the development of a national industry that until now has been

somewhat shy to express its full potential, not only locally but also

on an international scale. Being a part of the OECD and the 13th

largest economy in the world, it would only seem natural that Mexi-

can companies would be more visible and vibrant in the global

Companies such as Enduro and Share Oil illustrate that Mexican

entrepreneurs are not only embracing a reform of the sector, but

are in many ways the vehicles of change themselves. “Everything

that allows for the best and most profitable exploitation of natural

resources in the country is welcome. If the government determines

that the participation of foreign companies is needed in some areas,

then this should be under clearly defined rules. For RAM-100 the

most important element is that pipeline expansion plans and the

maintenance and rehabilitation of the national pipeline network is

unhindered”, states Teodoro Gutierrez, general manager of RAM-

100 del Sureste.

RAM-100 is specialized in everything related to pipes, from anti-

corrosive coatings and welding to the installation of over and under-

ground pipelines. In line with current conditions, “we have devel-

oped an aggressive marketing plan to demonstrate to engineering

firms and end users that RAM-100 offers the most comprehensive

warranty in the market and we have the service of qualified inspec-

Teodoro Gutierrez, Director, Ram 100 del Sureste

CarRam_OGFJ_1304 1 3/26/13 12:03 PM

18


ket growth and economic development, while

at the same time raising the standards under

which companies will operate, especially in the

aspect of quality, safety and environmental pro-

tection”, explains Telesforo Segura, founder

and ceo of Consultoria en Obras SA (COBSA).

As an engineering and construction firm dedi-

cated to the oil & gas sector, COBSA is betting

on the surge of new infrastructure projects for

its future growth. They also embrace an energy

reform as the defining moment for Mexico’s

hydrocarbon development. “This is the turn-

ing point, and it will require not only intensive

capital but also the will of all those involved in

this industry. Otherwise we would be living just

one more false episode like many that continu-

ally happen in our country”, concludes Segura.

Beyond the financial opportunities that will

come with a greater openness of the market,

Peña Nieto’s reform is serving as a catalyst to

shape up and improve Mexican businesses

so that they may compete at an international

level. From environmental awareness to qual-

ity standards and human resources practices,

there is a tangible renovation of the local

industry that will also attract investment in the

form of international partnerships and joint

ventures. Segura believes that “it is very impor-

tant to lead by example. As a company active

in the Mexican Chamber of the Construction

Industry, we continually express the benefits of

being a human-minded company that is also

concerned about our environment. We trans-

mit these values by actively participating in

seminars and congresses across the country.

This ensures a permeability of this culture in the

industry – not only in the construction industry

– but also in all other sectors and in society in

general.”

arena. “I would like to see Mexican companies compete with the giants. I believe one prob-

lem we as Mexicans have is fear. We should have more vision to provide quality jobs for our

people and accept more challenges as business men, because we certainly have the potential to

be a global power”, declares Enduro’s Mackissack. If any single sector of Mexico’s economy has

the capacity to make this leap, it would be that of the oil & gas industry.

“The government's strategy is to leverage private investment in PEMEX to achieve greater

development and to enhance the ability of the Mexican state. These investments will foster mar-

CarSSC_OGFJ_1304 1 3/26/13 11:12 AM

19


ket growth and economic development, while

at the same time raising the standards under

which companies will operate, especially in the

aspect of quality, safety and environmental pro-

tection”, explains Telesforo Segura, founder

and ceo of Consultoria en Obras SA (COBSA).

As an engineering and construction firm dedi-

cated to the oil & gas sector, COBSA is betting

on the surge of new infrastructure projects for

its future growth. They also embrace an energy

reform as the defining moment for Mexico’s

hydrocarbon development. “This is the turn-

ing point, and it will require not only intensive

capital but also the will of all those involved in

this industry. Otherwise we would be living just

one more false episode like many that continu-

ally happen in our country”, concludes Segura.

Beyond the financial opportunities that will

come with a greater openness of the market,

Peña Nieto’s reform is serving as a catalyst to

shape up and improve Mexican businesses

so that they may compete at an international

level. From environmental awareness to qual-

ity standards and human resources practices,

there is a tangible renovation of the local

industry that will also attract investment in the

form of international partnerships and joint

ventures. Segura believes that “it is very impor-

tant to lead by example. As a company active

in the Mexican Chamber of the Construction

Industry, we continually express the benefits of

being a human-minded company that is also

concerned about our environment. We trans-

mit these values by actively participating in

seminars and congresses across the country.

This ensures a permeability of this culture in the

industry – not only in the construction industry

– but also in all other sectors and in society in

general.”

arena. “I would like to see Mexican companies compete with the giants. I believe one prob-

lem we as Mexicans have is fear. We should have more vision to provide quality jobs for our

people and accept more challenges as business men, because we certainly have the potential to

be a global power”, declares Enduro’s Mackissack. If any single sector of Mexico’s economy has

the capacity to make this leap, it would be that of the oil & gas industry.

“The government's strategy is to leverage private investment in PEMEX to achieve greater

development and to enhance the ability of the Mexican state. These investments will foster mar-

CarSSC_OGFJ_1304 1 3/26/13 11:12 AM

CarAlba_OGFJ_1304 1 3/26/13 11:57 AM


SME’S LEADING A MEXICAN REVOLUTION

Based out of colonial San Miguel de Allende, Grupo SSC is a

pioneer in modeling and monitoring technologies that can

be applied to foresee potential operational challenges before they

even emerge. While the company’s origins date back 23 years, it

has only been in the last five years that they emerged a champion

in the Mexican oil & gas industry, bringing to the sector world-class

expertise that highlights the capabilities of local entrepreneurs.

Fernando Balderas, director general of Grupo SSC, speaks of his

journey to success:.

How did you adapt to specialize on providing services to the oil & gas industry?

We tried to attract PEMEX as a client for many years, but our approach was incorrect. We

discovered that PEMEX does not have an engineering department; it is an operational

company, so what we had to do, was to provide solutions rather than simply try to sell

them a product for them to implement. Therefore what we offer today is a package

development of state-of-the-art thermodynamic, rheological and numerical technology,

in order to give PEMEX added value. We also provide solutions that demonstrate perfor-

mance through numerical profiling. With this technology, not only is equipment perfor-

mance enhanced but also operational conditions.

With such unique technology there is no doubt that there will be heightened inter-

est in your company, even in the form of M&As. What are your thoughts on such

opportunities?

Grupo SSC is not for sale. We don’t want to change the direction of our work and we

would hate to see all these years of effort disappear. All along we have desired to build a

sustainable project that continuously evolves. We want to make little big steps.

We are a small company with huge ambitions and we are really excited with all the busi-

ness opportunities and technology that are developed in-house, including the evolution

and training of our people. Some of the things that we have learnt and that define Grupo

SSC are that we love big challenges and we still believe that this is the right way. We will

take these on.

We also have to be thankful for PEMEX, because they are the ones that require these

types of solutions, therefore opening doors for us. There is no question that much of

Mexico’s wealth comes from the oil and gas industry. Obviously, PEMEX is not our only

client but it is our main and key one, therefore we have to look for solutions to help this

good and beautiful company that has always contributed to the welfare of our country.

Fernando Bal-deras, General Manager, Grupo SSC

20


New beginningsNow more than ever, Mexicans are embracing their full capabilities and

building the necessary confidence to take greater risks that will acceler-

ate economic and industrial development. Entrepreneurs are becoming

more bold and visible.

We have to position ourselves at the highest level by understanding

what are the needs that our country has,” says Marcial Meneces, founder

and general director of Bombas Industriales Mexicanas SA (BIMSA).

Meneces created BIMSA and starting designing and manufacturing

pumps on his own after realizing that foreign companies were over-

charging PEMEX for something that could easily be made in Mexico.

“We must take to the field and get off our desks to really feel what we

can do for PEMEX and Mexico as a whole. Many of our oilfields have

matured and therefore the process to extract this oil is different than

before. This will require new technologies, new pumps that perhaps the

Germans or the French are very good at manufacturing, but I must then

take the extra step to design my own pumps that will be made in Mex-

ico. I will prove that they work just as well as the European counterparts

and they will cost a fraction of the price.”

Even though BIMSA is already a trusted supplier to PEMEX, Meneces

wants to keep focusing on the Mexican market rather than taking his

innovations abroad. “I have a very particular way of thinking, because

I know most businessmen want to make as much money as possible

and take their companies abroad, but

this is not my objective. I am of the opin-

ion that we should keep doing more

things locally so that the money stays in

the country and we can therefore cre-

ate more jobs. As businessmen is our

responsibility to give back to our coun-

try before we think of filling our pockets

with cash.”

CarPet_OGFJ_1304 1 3/26/13 11:46 AM

Marcial Meneces, Director, Bimsa

21


New beginningsNow more than ever, Mexicans are embracing their full capabilities and

building the necessary confidence to take greater risks that will acceler-

ate economic and industrial development. Entrepreneurs are becoming

more bold and visible.

We have to position ourselves at the highest level by understanding

what are the needs that our country has,” says Marcial Meneces, founder

and general director of Bombas Industriales Mexicanas SA (BIMSA).

Meneces created BIMSA and starting designing and manufacturing

pumps on his own after realizing that foreign companies were over-

charging PEMEX for something that could easily be made in Mexico.

“We must take to the field and get off our desks to really feel what we

can do for PEMEX and Mexico as a whole. Many of our oilfields have

matured and therefore the process to extract this oil is different than

before. This will require new technologies, new pumps that perhaps the

Germans or the French are very good at manufacturing, but I must then

take the extra step to design my own pumps that will be made in Mex-

ico. I will prove that they work just as well as the European counterparts

and they will cost a fraction of the price.”

Even though BIMSA is already a trusted supplier to PEMEX, Meneces

wants to keep focusing on the Mexican market rather than taking his

innovations abroad. “I have a very particular way of thinking, because

I know most businessmen want to make as much money as possible

and take their companies abroad, but

this is not my objective. I am of the opin-

ion that we should keep doing more

things locally so that the money stays in

the country and we can therefore cre-

ate more jobs. As businessmen is our

responsibility to give back to our coun-

try before we think of filling our pockets

with cash.”

CarPet_OGFJ_1304 1 3/26/13 11:46 AM

Marcial Meneces, Director, Bimsa

CarGrup_OGFJ_1304 1 3/26/13 11:36 AM

22

Floating Production Storage and Offloading, FPSO, courtesy of Pemex


In contrast, Fernando Saldivar, general manager of helicoidal steel pipe-maker Forza Steel, tells

of his success in turning around his company that suffered greatly during the financial crisis of

2008. “We were originally in the business of selling steel slabs to the automotive industry, but

then when the crisis hit our sales dwindled. At that time I realized that perhaps the only industry

that will always grow despite economic hardships is the energy sector, and so we shifted our

entire business model to sell steel pipes to this market.” They first began importing the pipes to

then distribute them locally, but business was so good that they decided to manufacture their

own pipes.

So far business has been steadily growing and they set up an office in Houston 2 years ago to

launch their international expansion. They are soon looking to target South American markets and

demonstrate that Mexico can be an important player in the production of steel pipes. Saldivar’s

vision is ambitious but not naïve. “As the next step of our expansion, we are planning to build a

plant for coating our pipes so that we can sell a fully finished product that will be ready to install.

Currently we must depend on other companies to apply these coatings”. The new state-of-the-

art plant is being built under international standards in order to prepare for their international

exports.

Another segment of the oil & gas sector that is resurging due to international influence is that

of environmental standards and technologies. “Mexico right now is in the spotlight of the world

due to its healthy economy and higher expected growth rates in the coming years, similar to what

happened to Brazil 8 or 9 years ago. All this expected growth will be translated in an increasing

and stronger demand for responsible environmental services of all types, as well as the develop-

ment of new or emerging sectors in Mexico like used-oil re-refining, battery recycling, indus-

trial waste water treatment among other. The combination of the current solid foundations for a

strong development of the environmental industry and the good moment of Mexico represent

a big business opportunity for international players if they are able to identify good local part-

ners”, elucidates Javier Campos, founder and general manager of SITRASA. Sitrasa offers a wide

array of services to the oil & gas industry, including the handling of their hazardous and industrial

CarRins_OGFJ_1304 1 3/26/13 12:02 PM


“We perceive that the oil & gas market has a lot of potential for us, and

that's because of the new environmental regulations created by the gov-

ernment. Generally, we are witnessing a shift away from older methods

of operating, which are harsher to the environment”, says Juan Carlos

Hernandez of Industrias Energeticas. His company provides service solu-

tions in the technological application of integrated power generation

and electricity through the use of microturbines that are manufactured

by US-based Capstone Turbine Corportation. “We are considered to

be a clean company; the percentage of carbon dioxide emitted by our

microturbines is really low. This is because our products don't use any

oils or lubricants whatsoever, nor any liquid for that matter; their system

is based on air bearing technology, with frictionless motion and, pro-

viding very low noise levels, zero vibration and very low maintenance

costs.”

“The only downside to bringing innovative products like this is that

many people are not willing to investment in them initially since they are

more expensive than the regular technologies. It's something in the way

non hazardous waste streams for recy-

cling, revalorization or stabilization and

treatment for ultimate disposal. They

also offer customized on-site services of

sludge and waste water treatment.

At the core of the company’s strategy

is to bring European technology to Mex-

ico, including for the recycling of batter-

ies and fluorescent lamps. They are the

first company in Latin America approved

under international standards to recycle these materials safely. “From

my own perspective, the development of the environmental industry in

Mexico has taken more time, than what probably took in other countries,

but today I believe we are finally at a point where we have solid founda-

tions for a strong development, like good laws, fairly good enforcement,

more ethical competition, increasing corporate responsibility, amongst

others”, concludes Campos.

CarEndu_OGFJ_1304 1 3/26/13 11:39 AM

Juan Carlos Hernandez, General Manager, Industrias Energeticas

23


“We perceive that the oil & gas market has a lot of potential for us, and

that's because of the new environmental regulations created by the gov-

ernment. Generally, we are witnessing a shift away from older methods

of operating, which are harsher to the environment”, says Juan Carlos

Hernandez of Industrias Energeticas. His company provides service solu-

tions in the technological application of integrated power generation

and electricity through the use of microturbines that are manufactured

by US-based Capstone Turbine Corportation. “We are considered to

be a clean company; the percentage of carbon dioxide emitted by our

microturbines is really low. This is because our products don't use any

oils or lubricants whatsoever, nor any liquid for that matter; their system

is based on air bearing technology, with frictionless motion and, pro-

viding very low noise levels, zero vibration and very low maintenance

costs.”

“The only downside to bringing innovative products like this is that

many people are not willing to investment in them initially since they are

more expensive than the regular technologies. It's something in the way

non hazardous waste streams for recy-

cling, revalorization or stabilization and

treatment for ultimate disposal. They

also offer customized on-site services of

sludge and waste water treatment.

At the core of the company’s strategy

is to bring European technology to Mex-

ico, including for the recycling of batter-

ies and fluorescent lamps. They are the

first company in Latin America approved

under international standards to recycle these materials safely. “From

my own perspective, the development of the environmental industry in

Mexico has taken more time, than what probably took in other countries,

but today I believe we are finally at a point where we have solid founda-

tions for a strong development, like good laws, fairly good enforcement,

more ethical competition, increasing corporate responsibility, amongst

others”, concludes Campos.

CarEndu_OGFJ_1304 1 3/26/13 11:39 AM

Juan Carlos Hernandez, General Manager, Industrias Energeticas

24


that offer complete solutions for oil &

gas companies to enter this market,”

explains Jalil Alva, general director of

the group.

Many international companies

complain that PEMEX is an incom-

prehensible behemoth that can be

extremely daunting to approach. Any

seasoned businessman will be quick

to tell you that the only way to do

business with PEMEX as a foreigner is to find yourself a Mexican partner

that has close ties to the company. Alva alleges that he has “access to all

the right people at PEMEX and this is precisely what our foreign clients

need to be successful in this market, at least at the initial stages. No one

can assure the kind of access to the Mexican market that Grupo Alba

does, and this is the edge that we have compared to any other event

organizer, whether foreign or local. In this way, we informally became the

people think that needs to change towards a cleaner and more envi-

ronmental friendly method. Over time, we are confident that the big

companies and the people in charge of the machinery will be convinced

that the quality of the energy, the maintenance, and the technologies

are worth the extra investment.” Industrias Energeticas is also betting

on PEMEX’s need to fulfill recent environmental requirements in order to

have their microturbines become staples on offshore platforms.

Beyond bringing new technology and products to Mexico, other

companies thrive on enticing foreign companies to come to this market

and set up local operations. Grupo ALBA is a unique marketing agency

that is entirely devoted to the oil & gas sector. “Our concept today is

to serve as a bridge between international companies and PEMEX, by

providing all kinds of communication and marketing services to them.

From organizing meetings to discuss business opportunities, to design-

ing and building stands for conferences and events, today we are capa-

ble of fulfilling all the communication needs of a company interested

in Mexico. Ultimately, we think of ourselves as networking specialists

CarIndu_OGFJ_1304 1 3/26/13 11:42 AM

Jalil G. Alva, CEO, Grupo Comunicador Alba

25


that offer complete solutions for oil &

gas companies to enter this market,”

explains Jalil Alva, general director of

the group.

Many international companies

complain that PEMEX is an incom-

prehensible behemoth that can be

extremely daunting to approach. Any

seasoned businessman will be quick

to tell you that the only way to do

business with PEMEX as a foreigner is to find yourself a Mexican partner

that has close ties to the company. Alva alleges that he has “access to all

the right people at PEMEX and this is precisely what our foreign clients

need to be successful in this market, at least at the initial stages. No one

can assure the kind of access to the Mexican market that Grupo Alba

does, and this is the edge that we have compared to any other event

organizer, whether foreign or local. In this way, we informally became the

people think that needs to change towards a cleaner and more envi-

ronmental friendly method. Over time, we are confident that the big

companies and the people in charge of the machinery will be convinced

that the quality of the energy, the maintenance, and the technologies

are worth the extra investment.” Industrias Energeticas is also betting

on PEMEX’s need to fulfill recent environmental requirements in order to

have their microturbines become staples on offshore platforms.

Beyond bringing new technology and products to Mexico, other

companies thrive on enticing foreign companies to come to this market

and set up local operations. Grupo ALBA is a unique marketing agency

that is entirely devoted to the oil & gas sector. “Our concept today is

to serve as a bridge between international companies and PEMEX, by

providing all kinds of communication and marketing services to them.

From organizing meetings to discuss business opportunities, to design-

ing and building stands for conferences and events, today we are capa-

ble of fulfilling all the communication needs of a company interested

in Mexico. Ultimately, we think of ourselves as networking specialists

CarIndu_OGFJ_1304 1 3/26/13 11:42 AM

Jalil G. Alva, CEO, Grupo Comunicador Alba


local representatives for those foreign companies as we would link them

together with the right people in the industry, especially at PEMEX.”

With promises of a new PEMEX and an incursion of foreign investors,

several Mexican companies are devoting themselves entirely to the

business of easing this transition. This is particularly so regarding the

availability of experienced and well-trained human resources that can

take on the new challenges of deepwater, shale gas and modern hydro-

carbon infrastructure. In fact, most companies express human resources

scarcity as one of the industry’s greatest obstacles for development.

Compounded with an insufficiency of adequate technologies, the lack

of capable engineers has forced some companies to take on the educa-

tion of their own people.

Balderas of Grupo SSC claims that “one of our big advantages is that

we train our own people and that we count with research and devel-

opment teams in order to keep

the position that we have right

now. We have actually set up a

technological university, called

Instituto Tecnológico Sanmiguel-

ense de Estudios Superiores,

where we train and educate most

of our recruited employees. After

the studies, 100% of our students

already have a job position assured

in Grupo SSC and sometimes our

clients want to take them to their companies. We are firm believers that

we grow through our people.”

On the other hand, other companies have made it their core business

to recruit and retain the right employees for the oil & gas industry. Grupo

PAE, is a human resource expert that offers a wide range of services,

from headhunting and payroll management to catering services. “The

company began providing outsourcing services to a number of indus-

tries, because in Mexico an employer’s responsibility is very complex.

When you take into account your payroll, social security, all these sorts of

issue, it can be a discouraging experience for newcomers. All this creates

a significant administrative burden for the employer and for the resource

provider, so we try to address that problem through our services”, says

Ulises Muñiz, vice president for North America of Grupo PAE. “We like

to use our local knowledge to make way for people who come to invest

seriously in Mexico. Many foreign-

ers are unaware of the problems, in

terms of human resources, that they

will encounter when coming here.”

Rather than acting as a passive

outsourcing firm, Grupo PAE likes to

think of themselves as active partners

and collaborators to their clients.

“The idea is that we grow hand-in-

hand with our clients and anticipate

their needs so that they can focus

entirely on their core business. This is in fact how our catering services

emerged, because we realized that one of our clients could not cope

with the logistics of feeding its people on the field on a daily basis. We

took on the burden and now have

a subsidiary that only provides

these types of services. As a next

step, we are looking to find and

offer continental services, allow-

ing us to explore international

markets. This will happen when

one of our clients here in Mexico

is satisfied enough with our per-

formance that they request us to

provide the same services to their

international operations. Many customers have told us that our services

are more expensive than our competitors, but they are glad to pay them

because they solve all their problems. Based on these examples I can

safely say that we have achieved our goal and vision.”

Clearly, efforts such as those of Grupo Alba and Grupo PAE are only

small steps to attracting relevant foreign investors to Mexico’s oil & gas

sector. The emergence of a business-savvy Mexican industry is certainly

necessary to assist PEMEX in its transformation to become a globally

admired NOC, but it will not be enough unless politics governing the

industry follow through with a radical reform. In a country where prom-

ises are made a dime a dozen, 2013 will prove to be a decisive year

for the future of PEMEX and for the leaders of Mexico. All heads are

now turned towards President Peña Nieto, anxious to issue a verdict on

whether his lofty words are more than just another Mexican letdown.

Ulises Muñiz, Vice President of North America of Grupo PAE

SCADA, courtesy of Pemex

26interview with Carlos sandoval - general Director of grupo oRsAn

IntervIew wIth:

Carlos Sandoval – General Director, Grupo OrSAn

Interview with Carlos Sandoval – General Director, of Grupo orSAN

Focus Reports: Can you provide our readers with a description of the ORSAN group?CaRlos sandoval: We are a 100% Mexican company with more than 40 years of expe-rience. Our main activity is selling and mar-keting oil, we also deal with its storage, transport and distribution. Currently, we work in 10 states of Mexico. Our company started back 1968 as a single gas station in Monterrey, Nuevo León, Mexico.

In 1977, we expanded to other areas in the country, we opened our fuel distribution business (ECNORSA), which provides diesel to companies such as Haliburton and PEMEX. In 1993 we launched our first con-venience store and, in 1995, we provided an electronic Wallet (eWallet) that provides our clients much more control of their transac-tions. Today we count with a total of 110 gas stations throughout the country.

FR: What is the next step that you envision for ORSAN?CaRlos sandoval: I think that PEMEX will try to make the transportation of oil more efficient by creating alternative backup ter-minals to help them with the distribution and management of their pipelines where there is not enough oil or where the costs are too high.

With that in mind, with the new presi-dential administration, maybe we will emu-late the Brazilian model which will allow PEMEX to focus much more on core busi-ness and on having a reduction in their pro-duction and extraction costs, to improve their storage and distribution. We don’t want PEMEX to lose control of the oil but we know that they can sell it in a slightly

different way. A great idea to develop would involve the private sector by helping them with the storage and distribution of their oil.

FR: Opening up the storage and distribution segment will mean greater competition for you. How are you preparing for this?CaRlos sandoval: Arefinery’s importance depends on the supply chain. So, if, for example, you have a terminal but no cus-tomers or, in the other hand, you have a refinery but not a brand of our own, most likely your profitability won’t be as good. A clear example can be found in the south of Texas, there is a refinery that makes “unbranded” products which have a lower cost.

My suggestion would be to have low stor-age costs so that the petroleum distribution won’t hurt the bank. From the investor’s point of view, you should care about how your product will be moved and distributed, and from the dealer’s point of view, you should look for a partnership so you can enter a win-win situation that will be con-venient for both sides.

PEMEX will always play the role of the main producer in the country, that’s a given; also, we know that the government will set the rates. I suggest that partnership to be followed by a strong brand and product dif-ferentiation. Then we could import oil from other places but without squandering it and selling it at the same rate than the national oil. We also want to take advantage of the 27th article of the constitution so, as I men-tioned before, PEMEX can be divided for its own benefit.

27

Interview with Carlos Sandoval – General Director, of Grupo orSAN

FR: Is Brazil’s model really the way to go for Mex-ico? CaRlos sandoval: In terms of distribution, I think that we will follow the road already traveled by Colombia, where a partnership of independent gas station owners created a new brand called “BRIO” along with their president, Alvaro Uribe (who controlled the rates). They were not affected by external conditions since everything was under con-trol.

The previous case is far from being similar to Mexico’s because 3 or 4 different compa-nies were involved in that partnership. Here in Mexico, there is only one company, but we have already taken the first step in the pro-cess by releasing several brands of petroleum oils. In my own perspective, PEMEX should take care of the extraction and the produc-tion and leave the distribution to third party companies.

Ultimately, the private sector should co-invest with PEMEX in the storage, transpor-tation and distribution aspects of the oil business. As far as I can see, PEMEX is start-ing to reintegrate (instead of separating) and that is a good thing. They will create a new branch for extraction and production and another branch for industrial processing (refining, gas and petrochemicals).

FR: What are the main challenges for your com-pany in this era of constant change? CaRlos sandoval: I think that the supply of oil could be much better. There is a certain aspect of political territoriality that should be avoided and replaced by commercial regu-lations (for example, you rarely see a McDon-ald’s next to another). We should create com-mercial maps and a consumption forecast; we need a more efficient distribution without hurting free enterprise.

To give you a clear example, Japan is a small island compared to México, but they created all the necessary regulations to design the number of gas stations that can exist in that country. Let’s say that they can

only have 5000 gas stations, so, by trial and error they can seek for the best areas to place the stations (if someone doesn’t succeed with his gas station, he will leave the space open for someone else to try better luck within that 5000 limit.

FR: Now that the market is slowly opening it’s doors to private investment, do you think that such a system will work in the future?CaRlos sandoval: Certainly, by the creation of several brands, a positive competition would start. Maybe we can’t change the rates and the quality of the product since it is pro-vided by a single government source, but we can provide the customers with other bene-fits such as earning points, other interesting services.

FR: Other opportunities lie in the construction of new pipelines and refineries. Will ORSAN be involved in those projects?CaRlos sandoval: It is certainly an area of opportunity but, we really don’t want to get involved in the construction of those pipe-lines. Instead we look to be in the stations that receive the final product of those pipe-lines. The private industry should help with the network of pipelines. The level of imported gasoline is growing every day. Before 2004 we were self-sufficient, so I think we also have our part to play to make this a reality again.

FR: What are your main objectives for ORSAN in the near future?CaRlos sandoval: The goal is to become inter-nationally known and be listed on the New York Stock Exchange.

PEMEX should take care of the extraction and the production and leave the distribution to third party companies.

28interview with Fernando balderas - general manager of grupo ssC

IntervIew wIth:

Fernando Balderas – General Manager, Grupo SSC

Fernando Balderas - General Manager, of Grupo SSC

Focus Reports: What are the origins of Grupo SSC?FeRnando BaldeRas: Grupo SSC is a 100% Mex-ican company with more than 23 years work-ing in the oil & gas sector. We began our oper-ations in the 90s in the city of Queretaro, and after 4 years transferred our offices to San Miguel de Allende, where I was born.

In 1990, Grupo SSC got the distribution license for Ansys’ software, which is used to perform numeric simulations of all type of phenomena. Ansys is an American company that we exclusively represent in Mexico and Central America and the company stands out at a global level as a leading firm in simulation software. Consequently, we have been able to establish many clients in a variety of indus-trial sectors, including oil & gas, automotive, aeronautic, heavy machinery, household equipment, etc. For many years our business related to the oil and gas industry was dedi-cated entirely to the sale of Ansys’ software. We have evolved from that and today we also provide integral solutions, such as training, technical support, and everything needed so that the company takes all the advantages of this software.

A few years ago, we also decided to launch a variety of other business lines for the oil and gas industry, such as monitoring services, which has allowed Grupo SSC to grow consid-erably, not only financially, but also our over-all presence in the market and the impact we have.

FR: What is the structure of your income according to your different business lines?FeRnando BaldeRas: In the past, the main activity of our company was the sale of Ansys’ software. When we started increasing our consultancy services, everything changed.

Now I could say that a 70% of our income comes from consultancy and monitoring ser-vices and 30% from the software sales. We have experienced a strong growth rate every year, with a minimum annual growth of 50%. Today, close to 60% or 70% of Mexican oil goes through processes designed by Grupo SSC in order to be sold within the specified requirements.

FR: What lead you to focus on monitoring ser-vices?FeRnando BaldeRas: Back in 2008, it became evident to us that the oil and gas industry has a lot of monitoring needs, especially in oil fields where there is a great prevalence of salts, water, sands and viscous oil, which have to be addressed with specific engineer-ing solutions. Nowadays, the hydrocarbon is not just extracted and sold in its raw form, but rather it must be conditioned to meet cer-tain requirements before it can be used. Our advantage is that we count with state-of-the-art technologies in order to meet the engi-neering requirements to be able to condition hydrocarbons of different qualities and com-positions.

Simulation is a key component to obtain-ing sellable petroleum. Essentially the way it works is that you model something numeri-cally, apply some conditions and variable to it and verify if it is going to work or not. Based on our simulations and monitoring services, we work together with the industry to provide operational solutions. We provide results to our clients.

FR: How have you been funding the company’s growth? FeRnando BaldeRas: We are entirely self-

29

Fernando Balderas - General Manager, of Grupo SSC

funded. This means that we have to limit our growth-rate at certain points, yet we are still able to make decisions in a quick and eco-nomical way. Such is true for the efficient acquisition of new equipment, the recruit-ment of personnel, the implementation of new technologies and the acceptance of new and different projects.

Furthermore, not many companies have the same equipment as Grupo SSC does. Right now, we have a processing cluster with more than 1000 cores and we are aware that it is difficult for companies and investigation cen-ters to obtain this computer equipment; there-fore, we offer our clients the use of our tech-nology base.

FR: What was the turning point that finally led you to hook PEMEX as a major client?FeRnando BaldeRas: It took many years of training our colleagues, recruiting new people with different initiatives and a lot of effort. Grupo SSC has a research and development center in Mexico City, dedicated only to the development of thermodynamic, rheological and mathematical models. Essentially, we elaborate custom-made solutions for PEMEX’s operational problems. One of our advantages is that currently no other company in Mexico, or in the world, has same level of modeling capacity and experience that Grupo SSC has to attack these types of phenomena.

FR: What is your expansion strategy for the near future? FeRnando BaldeRas: We never close ourselves to any opportunity. We are constantly travel-ing and knocking on people’s doors to offer our services, because Grupo SSC believes it is not healthy to be attached just to one client. Indeed, our main client is PEMEX; however part of our investment plans is to continue working with other companies, because we want to expand our market. We are also look-ing beyond the national level and would like to become increasingly involved in other mar-kets. Right now, in our search for new possi-

bilities, we are turning to the big Latin-Amer-ican oil & gas markets.

FR: How will your sustain your development with Mexico’s limited human resources?FeRnando BaldeRas: One of our big advantages is that we train our own people and that we count with research and development teams in order to keep the position that we have right now. We have actually set up a technological university, called Instituto Tecnológico San-miguelense de Estudios Superiores, where we train and educate most of our employees. After their studies, 100% of our students already have a job position assured in Grupo SSC and sometimes our clients want to take them to their companies.

The University was inaugurated in 2004. Grupo SSC noticed that one of the big deficien-cies that all universities have is the lack of links between the academy and the industry, so we created a university with a DNA tailored to our company.

FR: Let’s talk about the future, what is Grupo SSC’s vision in the coming years?FeRnando BaldeRas: Firstly, Grupo SSC’s vision is to increase the investment of its research and development areas and applied technolo-gies. The research expansion will mostly focus on hydrocarbon, polymer and numerical areas as these are the bases to our work and success.

This sort of research is extremely advanced and unique given that there is hardly any research being done in these areas around the world. To many, our studies seem abstract and intangible. We envision addressing these sub-jects directly by building up R&D centers ded-icated to hydrocarbon mixing systems, poly-mer mixing systems, thermodynamic systems in polymers, in numerical investigation, in experimental investigation of hydrocarbons and in experimental investigation of poly-mers. After the development of these centers we will have to implement the new models in the oil and gas industry to provide operational solutions to our clients.

30interview with Jaime gallegos - Ceo of share oil services

IntervIew wIth:

Jaime Gallegos – CeO, Share Oil Services

Jaime Gallegos – CEO, of ShAre oil ServiCeS

Focus Reports: What was the vision you had when founded Share Oil Services?Jaime GalleGos: I started off as a researcher in Merida and had the good fortune to inter-act with some of Mexico’s best IT minds. There I exercised my creative mind to come up with analytical projects for which I would create models to find solutions to problems. I set up my research center in Merida and was invited to participate in a global science and technology competition where 562 proj-ects all competed for a single prize. After such success I applied to the Harvard MBA program and was offered a full scholarship.

In the meantime I had set up a car dealer-ship in Merida in order to pay for my bills and my family’s needs while I was at Har-vard. While at Harvard, I invented several new models and had some brilliant ideas – many of which I was able to patent in the US, with a total of 64 patents today. Having com-pleted the program, I decided to go back to my research that I had started in Merida, where we began working with two contracts for the oil & gas industry in 2011, whereas now we have 25 contracts. The group today has four main divisions: our drilling services unit, another dedicated to the creation of software, another to simulation and model-ing that also offers consulting services, and finally our human resources development section that serves mostly as a training cen-ter.

FR: Where would you like to Share Oil in the near future?Jaime GalleGos: My vision for this company is that the possibilities are endless as long as we keep attracting bright minds and fos-ter them to develop their ideas. There will

be a constant evolution, and my experience serves as an example that a career develop-ment and business opportunities are as lim-itless as our own thoughts.

I don’t see ShareOil simply as a company, but rather I see it as a model for developing human capital and talent, as this is the main focus of the company. When I created the company I made sure to set up a board of external advisors with a lot more experience in the oil & gas industry, so that this would counterbalance the relatively young age of the people that I wanted to hire in the com-pany.

The second element of my strategy is not to work for PEMEX directly for to develop projects for private companies that then pro-vide to PEMEX. Those companies also prefer our people because as fresh and young engi-neers they can easily adapt to their company culture and understand their needs com-pared to someone who is already used to work in a specific way.

Finally, another unique element of Sha-reOil, and one that will determine its devel-opment in the years to come, is our philoso-phy to offer our clients a fully integrated service to solve whatever problem they may have. If this means that we need to set up new business lines or develop expertise that we currently don’t have, then we are willing to do that in collaboration with the client.

FR: Which of Share Oil’s projects are you most proud of?Jaime GalleGos: I always like to speak about our partnership with Schlumberger with whom we have been working with since the beginning. Through my relationship with the general director of Schlumberger I found

31

Jaime Gallegos – CEO, of ShAre oil ServiCeS

out that their marine presence in Mexico is very limited and that this was an opportu-nity they were willing to explore. He then asked me to come up with strategy as to how they could enter the marine segment in a short amount of time. Today Schlumberger is by far the leading company in this sector; overall we were able to contribute US$70 million to their revenue within a period of 6 months.

It was through this success story that we were approached by some of our biggest cli-ents, including Halliburton who then asked me to conduct a study to determine what was lacking for them to become more com-petitive in this market. We then discovered that their situation could greatly improve if they dedicated more time to finding the right human capital and cultivating it. They asked us to help them with this, which is how we developed our human resources sec-tion. Our system is based on a coaching and mentoring model through which we allow brilliant minds to grow.

FR: What criteria do you use to determine which engineers have the right profile to be successful?Jaime GalleGos: The first element at the heart of our success is the environment of our cul-ture that has been built specifically to attract the brightest and most innovative minds. Over the years I have discovered that setting incentives to attract the right kind of people is basic and necessary for any company. Offering incentives can be as simple as cre-ating a pleasant office environment with the right facilities and a beautiful setting. Another incentive is to base remuneration on productivity, so if a newcomer comes to be with a bright idea that is later imple-mented as a business line, than he will be promoted and earn accordingly, despite his years of experience in the company. In this way we are sure to reward innovation, which in turn motivates people to create and see their project through until completion.

FR: What sorts of unique solutions have your

engineers created address the problems of local clients?Jaime GalleGos: One innovative project that we came up with for PEMEX is the remote monitoring network that serves to alert whether there are any disruptions in the flow of hydrocarbons. As you are probably aware, PEMEX has a huge problem with ille-gal tapping of their pipelines that costs them thousands if not millions of dollars annu-ally. To address this, we devised software that collects and compiles all the monitoring data from all the sensors throughout their network. As soon as there is any disruption, the system automatically alerts the neces-sary people via email or other methods, so that the problem can be solved immediately. This also assists in increasing transparency throughout the company, because what has been discovered throughout the years is that much of the clandestine sale of fuel was hap-pening with assistance from within PEMEX at different levels.

FR: What are you expectations of the Mexican oil & gas industry for the years to come?Jaime GalleGos: I believe we are currently experiencing a generational change in the industry, not only here in Mexico but throughout the world. Ultimately, the important thing to highlight is that human talent is the most valuable asset any com-pany can have, and if we have achieved what we have in such a short amount of time, than anyone can do the same.

I don’t see ShareOil simply as a company, but rather I see it as a model for developing human capital and talent

32interview with Javier Campos - general manager of siTRAsA

IntervIew wIth:

Javier Campos – General Manager, SItrASA

Javier Campos – General Manager, of SiTrASA

Focus Reports: How did you become involved in the environmental industry?SITRASA has been around for 10 years but our team has more than 25 years of experi-ence in the waste management industry; many of us, pioneers in Mexico in different sectors of the industry. After working together in different companies and experi-ence ups and downs, the current team decided to start SITRASA as a response to the market demand for a company that could fill a specific niche of waste treatment (reval-orization) and waste recovery.

Today, SITRASA is part of Grupo Mex Ambiental, the only independent waste man-agement group in Mexico, with the capacity to service small, medium and big waste gen-erators. Being part of Grup Mex Ambiental has given SITRASA the possibility to provide, a wider array of customers, complete environ-mental solutions for their industrial wastes; by leveraging the capacities of the group’s dif-ferent companies: SITRASA (Treatment, Revalorizarion and Recovery), EK AMBIEN-TAL (Washing Machine parts and Used Oil collection services), JCB IMPULSORA (non-hazardous industrial waste landfill).

FR: What are the main services that you offer the oil & gas industry?Sitrasa offers a wide array of services to the oil & gas industry, the simplest one being the handling of their hazardous and industrial non hazardous waste streams for recycling, revalorization or stabilization and treatment for ultimate disposal. Another is our custom-ized on-site services of sludge and waste water treatment.

In general one of our main services is the “stabilization” of wastes. For example, if we

have an alkaline residue, we will treat it with other waste (this method is called “waste to waste”). We also recover a lot of industrial water with primary processes.

Another important area for SITRASA is the recovery of metals and other materials contained in batteries which are considered to be hazardous waste in Mexico. Destruction and recovery of mercury and metals in fluo-rescent lamps is another line of our business. Actually, we are the first company in Latin America with the proper authorization for the treatment and recycling of all type of batter-ies and fluorescent lamps. We have recently began recovering electric vehicle batteries (lithium-ion) amongst others.

Through one of our sister companies we also represent the main direct collector of used lubricant oil in Mexico, collecting on a monthly basis to thousands of small, medium and large generators across the country; which SITRASA transforms into energy (fuels). Along this line, and as another service associated with the oil and gas industry, as a group, we see a big opportunity in the potential development of the re-refining of used lubricant industry in Mexico.

FR: Now, let’s talk about the energy industry and PEMEX. What are your main projects within this industry?Today, in the oil & gas sector we mostly do a lot of work for PEMEX, onsite and handling some of their hazardous and special waste (industrial not considered hazardous). Our main project is to expand innovation in cus-tomizing on-site handling of various waste streams generated in this industry. Certainly we have done great innovations regarding waste sludge generated from various Pemex

33

Javier Campos – General Manager, of SiTrASA

processes. For example, they use to use a decanting process separate waste streams and dispose these somewhere. Now, what we do is to set up a plant inside PEMEX and then we do separate the water and sludge, and remove from the facility only what needs to be treated and/or disposed externally, saving them more than 50% in transportation. We want to continue being technically – cost and environmentally creative.

FR: What percentage of SITRASA’s revenues comes from the oil & gas sector?PEMEX alone represents between 15 to 20% of our total revenue, but much less in terms of net income. This is because we don’t want to take large risks by focusing on a single cli-ent, so we try to diversify our income sources by targeting the private sector. It’s well known around the world that the oil industry generates more waste than any other. This means that, companies like ours, always want to be involved in this area of industry; we can call it an “endless job supplier” to our com-pany.

FR: How do you rate PEMEX’s approach towards environmental issues? Contrary to popular belief, PEMEX takes great care to protect the environment, at least within their refining business, which is where we are most active. As a state-owned enterprise they need to lead by example and abide by the government’s environmental laws. Since the law was implemented in 1995, they have strengthened their measures towards taking good care of our planet. In a general sense, we don’t have any issues with PEMEX because they know the environmen-tal legislation better than anyone. Our rela-tionship with international oil & gas compa-nies is similar because they have global standards to follow

FR: What exactly makes you stand out from the competition?I would say three things: a) Our approach to

reuse, recycle and revalorization of waste, b) by being part of Grupo Mex Ambiental we are vertically integrated and we control our collection, transportation, treatment and final disposal, and c) we are the only company filling the gap between the big companies and the small local companies; bottom line we are able to provide environmental solutions like a big company and we are agile to react to customer needs like a small company.

FR: Can you give our non-Mexican readers your point of view of the environmental sector in Mex-ico and its trajectory?From my own perspective, the development of the environmental industry in Mexico has taken more time, than what probably took in other countries, but today I believe we are finally at a point where we have solid founda-tions for a strong development, like good laws, fairly good enforcement, more ethical competition, increasing corporate responsi-bility, among other. Still there is a lot of work to do from the public and private sector.

In parallel Mexico right now is in the spot-light of the world due to its healthy economy and higher expected growth rates in the com-ing years, similar to what happened to Brazil 8 or 9 years ago. All this expected growth will be translated in an increasing and stronger demand for responsible environmental ser-vices of all types, as well as the development of new or emerging sectors in Mexico like used-oil re-refining, battery recycling, indus-trial waste water treatment among other.

The combination of the current solid foun-dations for a strong development of the envi-ronmental industry and the good moment of Mexico represent a big business opportunity for international players if they are able to identify good local partners.

It’s well known around the world that the oil industry generates more waste than any other.

34interview with John lawrence - Ceo of the DTk group

IntervIew wIth:

John Lawrence - CeO, DtK Group

John Lawrence - CEO, of The DTK Group

Focus Reports: How did you become involved in the environmental industry?John lawRenCe: SITRASA has been around for 10 years but our team has more than 25 years of experience in the waste management industry; many of us, pioneers in Mexico in different sectors of the industry. After work-ing together in different companies and expe-rience ups and downs, the current team decided to start SITRASA as a response to the market demand for a company that could fill a specific niche of waste treatment (reval-orization) and waste recovery.

Today, SITRASA is part of Grupo Mex Ambiental, the only independent waste man-agement group in Mexico, with the capacity to service small, medium and big waste gen-erators. Being part of Grup Mex Ambiental has given SITRASA the possibility to provide, a wider array of customers, complete environ-mental solutions for their industrial wastes; by leveraging the capacities of the group’s dif-ferent companies: SITRASA (Treatment, Revalorizarion and Recovery), EK AMBIEN-TAL (Washing Machine parts and Used Oil collection services), JCB IMPULSORA (non-hazardous industrial waste landfill).

FR: What are the main services that you offer the oil & gas industry?John lawRenCe: Sitrasa offers a wide array of services to the oil & gas industry, the sim-plest one being the handling of their hazard-ous and industrial non hazardous waste streams for recycling, revalorization or sta-bilization and treatment for ultimate dis-posal. Another is our customized on-site ser-vices of sludge and waste water treatment.

In general one of our main services is the “stabilization” of wastes. For example, if we

have an alkaline residue, we will treat it with other waste (this method is called “waste to waste”). We also recover a lot of industrial water with primary processes.

Another important area for SITRASA is the recovery of metals and other materials contained in batteries which are considered to be hazardous waste in Mexico. Destruc-tion and recovery of mercury and metals in fluorescent lamps is another line of our busi-ness. Actually, we are the first company in Latin America with the proper authorization for the treatment and recycling of all type of batteries and fluorescent lamps. We have recently began recovering electric vehicle batteries (lithium-ion) amongst others.

Through one of our sister companies we also represent the main direct collector of used lubricant oil in Mexico, collecting on a monthly basis to thousands of small, medium and large generators across the country; which SITRASA transforms into energy (fuels). Along this line, and as another service associated with the oil and gas industry, as a group, we see a big opportunity in the poten-tial development of the re-refining of used lubricant industry in Mexico.

FR: Now, let’s talk about the energy industry and PEMEX. What are your main projects within this industry?John lawRenCe: Today, in the oil & gas sector we mostly do a lot of work for PEMEX, onsite and handling some of their hazardous and special waste (industrial not considered haz-ardous). Our main project is to expand inno-vation in customizing on-site handling of var-ious waste streams generated in this industry. Certainly we have done great innovations regarding waste sludge generated from vari-

35

John Lawrence - CEO, of The DTK Group

ous Pemex processes. For example, they use to use a decanting process separate waste streams and dispose these somewhere. Now, what we do is to set up a plant inside PEMEX and then we do separate the water and sludge, and remove from the facility only what needs to be treated and/or disposed externally, sav-ing them more than 50% in transportation. We want to continue being technically – cost and environmentally creative.

FR: What percentage of SITRASA’s revenues comes from the oil & gas sector?John lawRenCe: PEMEX alone represents between 15 to 20% of our total revenue, but much less in terms of net income. This is because we don’t want to take large risks by focusing on a single client, so we try to diver-sify our income sources by targeting the pri-vate sector. It’s well known around the world that the oil industry generates more waste than any other. This means that, companies like ours, always want to be involved in this area of industry; we can call it an “endless job supplier” to our company.

FR: How do you rate PEMEX’s approach towards environmental issues? John lawRenCe: Contrary to popular belief, PEMEX takes great care to protect the envi-ronment, at least within their refining busi-ness, which is where we are most active. As a state-owned enterprise they need to lead by example and abide by the government’s envi-ronmental laws. Since the law was imple-mented in 1995, they have strengthened their measures towards taking good care of our planet. In a general sense, we don’t have any issues with PEMEX because they know the environmental legislation better than anyone. Our relationship with international oil & gas companies is similar because they have global standards to follow

FR: What exactly makes you stand out from the competition?I would say three things: a) Our approach to

reuse, recycle and revalorization of waste, b) by being part of Grupo Mex Ambiental we are vertically integrated and we control our collection, transportation, treatment and final disposal, and c) we are the only company filling the gap between the big companies and the small local companies; bottom line we are able to provide environmental solutions like a big company and we are agile to react to customer needs like a small company.

FR: Can you give our non-Mexican readers your point of view of the environmental sector in Mex-ico and its trajectory?John lawRenCe: From my own perspective, the development of the environmental indus-try in Mexico has taken more time, than what probably took in other countries, but today I believe we are finally at a point where we have solid foundations for a strong devel-opment, like good laws, fairly good enforce-ment, more ethical competition, increasing corporate responsibility, among other. Still there is a lot of work to do from the public and private sector.

In parallel Mexico right now is in the spot-light of the world due to its healthy economy and higher expected growth rates in the com-ing years, similar to what happened to Brazil 8 or 9 years ago. All this expected growth will be translated in an increasing and stronger demand for responsible environmental ser-vices of all types, as well as the development of new or emerging sectors in Mexico like used-oil re-refining, battery recycling, indus-trial waste water treatment among other.

The combination of the current solid foun-dations for a strong development of the envi-ronmental industry and the good moment of Mexico represent a big business opportunity for international players if they are able to identify good local partners.

It’s well known around the world that the oil industry generates more waste than any other.

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PAst rePOrts

FOCUS REPORTS 1January 2012 1

South AfricaEnergy reportAUGUST 2012

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http://issuu.com/focusreports/docs/mexico_ogfj_2012

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http://issuu.com/focusreports/docs/oil_gas_peru_2011

37

Company index

Bombas Internacionales Mexicanas (BIMSA) ........................................... 20

Comisión Nacional de Hidrocarburos (CNH) .............................................. 7, 8

Consultoría en Obra (COBSA) ........18

COSL Mexico ..........................4, 12, 14

DTK Group ............................ 11, 34, 35

Enduro Pipelines Mexico ................... ..........................................14, 15, 17, 18

Forza Steel .................................10, 22

Grupo Alba ...........................19, 24, 25

Grupo Diavaz .................................. 7, 8

Grupo ORSAN ............................26, 27

Grupo PAE ....................................... 25

Grupo SSC ..................................28, 29

Industrias Energéticas ...............23, 24

Petrofac .............................................. 9

Petrolink ...........................................11

RAM-100 del Sureste .......................17

Recubrimientos Integrales del Norte

(RINSA) .......................................15, 16

Share Oil Services ..8, 9, 16, 17, 30, 31

Sistemas de Tratamiento Ambiental

(SITRASA) ...................................32, 33

Documents

Oil and Gas Mexico report 2013 part 3