mexico part 3
TRANSCRIPT
August 2007 Oil & Gas Financial Journal • www.ogfj.com www.focusreports.net 83
MexicoNew times, new opportunities
Since March 18, 1938, the day that President Cárdenas
declared the nationalization of Mexican petroleum and
the expropriation of the foreign oil companies operating
in Mexico, the country’s politics have been deeply intertwined with
the oil and gas industry. Over the years, PEMEX, Mexico’s national oil
company, has become the piggy bank for the government as almost
40 percent of the federal budget is generated through the taxation
of PEMEX. In 2006, the NOC’s revenue reached US$97 billion, of
which US$79 billion went the Mexican treasury. Given that President
Calderon is battling to get a key fiscal reform proposal through Con-
gress aimed at reducing Mexico’s economic dependence on oil export
revenues, this situation might change in the near future.
Pt.3
This supplement was produced by Focus Reports LLC. For more
information and exclusive interviews, log on to www.focusreports.net.
Text and research: Jeroen Posma Project coordination: Ines Nandin
84 www.focusreports.net August 2007 Oil & Gas Financial Journal • www.ogfj.com
The political factor in Mexican oilThe future of the Mexican oil and gas industry will be greatly impacted
by the fiscal, legal and regulatory reforms that President Calderon will
pass through Congress before the end of his term in 2012. On the day
of the election, July 2, 2006, the Federal Electoral Institute announced
that the race was too close to call and decided not to reveal the results
of its exit poll. After all votes were counted the top two candidates
were Mr Calderon with 15,000,284 votes and López Obrador who
received 14,756,350 votes. The difference of 243,934 votes resulted
in a 35.89% over 35.31% victory for Felipe Calderon, who took office
on December 1. Since then, President Calderon’s approval rating has
surged to 65 percent, supported by the success of the war on crime
and drug trafficking, which he launched by sending thousands of sol-
diers and federal police to combat well-armed cartels.
Cross-party collaboration will be essential to accomplish Presi-
dent Calderon’s ambitious reform package. Following the deep
divisions that erupted after the July elections, President Calderon
will have to prove his ability to build agreements in Congress where
his National Action Party is the biggest party but lacks a majority.
“Changes in the budgetary situation of PEMEX and the relationship
of PEMEX with the Ministry of Finance and the government budget
can only be achieved through large scale consensus,” confirmed
Mario Gabriel Budebo. Mexico’s Undersecretary for Hydrocarbons
continued that these changes are not something that can be pro-
posed lightly but will have to be constructed through cooperation
between the different political forces in Mexico. In March, Mexico
witnessed the first results from cross-party collaboration when Con-
gress passed a pension reform bill, the first major reform approved
under the conservative President Felipe Calderon.
The necessity of change is underscored by a recent World Bank
analysis of the Mexican economy which indicated that both the tax sys-
tem and the energy sector are in need of reform. Energy reform, which
could include legal reform allowing private investment in the oil and gas
industry, seems to be one bridge too far for President Calderon at this
moment. A broad public opinion survey conducted last year by CIDE
and the Mexican Council on Foreign Affairs revealed that 76 percent of
Mexicans oppose foreign investment in oil.
Fiscal reform: a first step forwardWith energy reform out of reach, President Calderon has opted to pur-
sue fiscal reform. Six days before the Mexican government presented
its fiscal reform plan to Congress on Wednesday June 20, Alan Green-
span, the former Federal Reserve chairman, warned that declining oil
output in Mexico could spark a major fiscal crisis in the country. Accord-
ing to Luis Ramirez Corzo, former Director General of PEMEX, the Can-
tarell field is likely to decline by 14% per year on average between 2007
and 2015. One week after presenting the fiscal reform plan, President
Calderon confirmed that he expectes Mexico’s crude oil exports to slip
further this year and next, emphasizing the need for a fiscal reform to
make the country less dependent on oil revenues.
“Starting in 2006, the volume of our oil exports has been falling
at an alarming rate and from what we have observed up until now,
Will the declining crude oil output at Mexico’s huge but aging Cantarell off-
shore field influence the pace of reforms pursued by President Calderon?
August 2007 Oil & Gas Financial Journal • www.ogfj.com www.focusreports.net 85
this year and the next will be no excep-
tion,” Calderon stated at a banking event.
In 2006, Mexico’s oil exports decreased by
1.3 percent to an average of 1.793 million
bbl/day, largely due to declining production
in the Cantarell field. In the first five months
of 2007, exports decreased by another 4.4
percent compared to the average 2006
export volume,
or 11.4 percent
compared to the
first five months
of 2006, and reached 1.714 million bbl/day.
According to official statements, PEMEX has
a target to keep oil exports above 1.648 mil-
lion bbl/day throughout 2007. Nevertheless,
the declining export volumes in conjunc-
tion with volatile oil prices provide strong
incentives to transform Mexico’s depen-
dence on oil and find more stable sources
of public financing. “We will do whatever it
takes, together with all parties involved, to
optimize the energy sector’s positioning as a
contributor to economic growth and genera-
tor of employment in Mexico. These are
the main objectives of President Calderon,”
added Mario Gabriel Budebo.
Over the next few months, Calderon will
go to great lengths to get the key fiscal reform
proposal approved by Congress before Sep-
tember, to ensure its inclusion in the govern-
ment’s 2008 budget. In addition to reducing
Mexico’s economic dependence on oil export
revenues, the proposed reform is designed
to raise the government’s tax take from 10.2
percent of gross domestic product today to 13
percent by 2012.
While PEMEX’s fiscal contribution has
prevented the company from setting an
autonomous business strategy, the institu-
tional and regulatory frameworks for the
energy sector do not allow PEMEX to attract
private investment that would accelerate the
expansion of its exploration and production
activities. The fiscal reform should enable
PEMEX to retain more capital and invest its
after-tax revenue in essential exploration
and production activities. Between 2001
and 2005, taxation of PEMEX’s revenue has
averaged US$3.8 billion more than the com-
pany’s pre-tax income. As a result, PEMEX
has been unable to increase investment,
while according to the Energy Information
Administration, PEMEX may need to invest
Mario Gabriel Budebo, Under-secretary of Hydrocarbons for
the Ministry of Energy
as much as US$32 billion annually in exploration and production to
prevent a sharp decline in oil production. The ideal outcome is that
Mexico’s three dominant parties – Felipe Calderon’s PAN, Lopez
Obrador’s PRD, and the PRI that ruled Mexico for seven decades
until 2000 – agree on a viable fiscal reform that will enable PEMEX to
operate like a real oil company while meeting the needs of both the
Mexican economy and the Mexican people.
Beris_OGFJ_0708 1 7/18/07 9:57:47 AM
86 www.focusreports.net August 2007 Oil & Gas Financial Journal • www.ogfj.com
Energy reform and fiscal reform“Mexico needs both a fiscal reform and an
energy reform,” stated Francisco Salazar.
The President of the Comision Regula-
dora de Energia, Mexico’s autonomous
downstream regulatory body, noted that
an energy reform without a fiscal reform
would result in an open, but very weak
sector. “Mexico needs a strong NOC that
is internationally competitive and enters
into strategic alliances with other IOCs,”
he added. “Of course you could open
the energy market without doing a fiscal
reform but it will be a waste of money and
is probably not in the best interests of the country. On the other
hand, a fiscal reform without an energy reform is a perfect recipe
for inefficiency. You would not have competition in areas where it
would bring efficiency; you would not have diversification of risk and
there would not be sufficient investment. Even if PEMEX had more
resources from now on, would they be willing to run all the risks by
themselves? I don’t think so.” This underscores that the proposed
fiscal reform is a step in the right direction, but not yet a giant leap
forward for the Mexican oil and gas industry.
A legal perspectiveMexican law firms specialized in the oil and
gas industry look beyond the fiscal reform
to the potential energy sector reform that
would have a much larger impact on their
clients. “PEMEX’s monopoly restricts the
development of the sector,” confirmed
Marcelo Paramo-Fernandez, Partner at
Haynes & Boone, a Texas-based interna-
tional law firm. “Something had to be done
to open up the industry to make it more
reliable, productive, and efficient. You prob-
ably know that this issue has been a politi-
cal battle and for us practitioners it is really
frustrating. Political parties are looking after
their political agenda rather than the future
of the oil and gas industry, or the country.
The people in general are not knowledge-
able of the problems that this industry is
facing, but want to keep the industry under
the Mexican ‘national’ umbrella. It’s really
unfortunate.”
“Mexico has a legal framework that is
quite difficult to understand since parts of
the law dates back to the 1930s and 1950s,” noted Jesús Rodríguez
Dávalos, Founding Partner of Rodriguez Davalos y Asociados. For
example, there is a regulation that states that PEMEX has a monop-
oly on the transportation of gasoline through pipelines, but the
private sector can perform this function with trucks. “I think that we
are going to see changes to the legal framework in the near future.
Maybe it won’t be a constitutional reform, but Mexico needs a
modernization of the law,” forecasted Mr Rodriguez Davalos.” I think
the political will is there to make the essential changes to the legal
and regulatory framework. This will make a lot of projects financially
viable and bankable, projects that Mexico really needs.”
It is interesting to see how the different markets, such as natural
gas, have matured over the years. “E&P in natural gas would attract
greater interest from the majors if certain small changes would be
made in the legal framework,” assessed Mr Rodriguez Davalos.
“However, I think that the majors are first of all interested in offshore
oil and gas exploration and production activities. I also see a lot of
opportunities for small and medium sized firms to do E&P work in
the north of Mexico and Tabasco. I think that we could see Mexican
E&P companies emerge, as we have seen in South America. Today
there is a very large group of Mexican companies that have been
providing many types of E&P services to PEMEX. The next step for
these companies is to move into E&P as Mexican juniors.”
In anticipation of reform in the energy sector that would open
op these opportunities, law firms operating in Mexico will continue
to support Mexican and international oil and gas companies in
optimizing their development within the current legal framework,
while keeping a close eye on the potential implications of an energy
reform.
Being both partners and lawyers“As in any human activity, you must have
a lot of experience to be a good lawyer,”
started Sergio Beristain Souza. In 1978 he
started his career working at the Labour
Court. Subsequently, Mr Beristain found
a new challenge as an associate, and later
partner, at one of Mexico’s established
law firms, focusing on important civil,
mercantile and administrative cases. While
working on labour issues and dealing with
the Labour Unions, he started developing
a special interest for the energy sector. “In
the years, that followed I really explored
this sector through all the amendments that changed the energy
sector over the past decades,” noted Sergio Beristain. However, it
was not before 1999 that he founded his own law firm that is highly
specialized in the energy sector: Beristain + Asociados.
“Lawyers practicing in this field could be divided between ex-
PEMEX and ex-CFE lawyers on the one hand, and lawyers special-
ized in the civil, commercial, labour and administrative areas on the
other hand,” he stated while explaining the market opportunity that
induced him to create Beristain + Asociados. His firm, operating
across the entire value chain of the oil and gas industry, strives to
mix an energy practice with expertise in civil, mercantile adminis-
trative and constitutional litigation, thereby providing a complete
service to the energy companies operating in Mexico.
Explaining his competitive edge, Sergio Beristain noted that
the thirty years of experience that enable Beristain + Asociados
to understand its clients can hardly be matched by former PEMEX
Francisco X. Salazar, President of the Comision
Reguladora de Energia
Marcelo Paramo-Fernandez, Partner at Haynes & Boone Sergio Beristain Souza,
Founding Partner of Beristain + Asociados
Jesús Rodríguez Dávalos, Founding Partner of Rodriguez
Davalos y Asociados
Osisoft_OGFJ_0708 1 7/16/07 6:32:19 PM
88 www.focusreports.net August 2007 Oil & Gas Financial Journal • www.ogfj.com
OSIsoft is truly focused on real time
platform infrastructure, while automation
and process control companies design and
build devices to control various processes,
some of which require real time data com-
ing from the plant floor. These applications
run on top of OSIsoft’s software platform.
“PI is robust set of software modules, run-
ning on Microsoft infrastructure, designed
for secure plant wide monitoring and analy-
sis,” stated Javier Sanchez. The collected
real time information can be shared and
integrated with other data sources, such as data from financial sys-
tems, ERPs or relational databases, to optimize real time decisions.
Mr Sanchez, OSIsoft’s Country Manager for Mexico, explained that
OSIsoft’s software platform for real time monitoring and analysis is
split in three different groups: the server, the analytics and the visu-
als. “This data collection process allows for the use of accurate data
as a weapon and enables our customers to continuously improve
their business performance,” he boasted. Predicting problems is dif-
ficult because by essence, there might be multiple variables causing
them. However, the benefits of preventing problems by using real
time and historical data, forecasting, analysing the history of the
data, are undeniable. These days, many oil and gas companies moni-
tor their operations with PI.
OSIsoft has implemented its Real-time Performance Management
(RtPM) system at PEMEX Exploration and Production (PEP). OSIsoft’s
RtPM platform implementation for PEP provided this PEMEX divi-
sion with the ability to continue to integrate additional products and
solutions within the existing enterprise architecture. According to
information provided by Microsoft, OSIsoft’s technology partner, the
real-time operational data is collected from sensors on well-heads,
compressors and pipelines and is integrated with information from
control systems, consolidating all operational data into a single
location. The RtPM platform at Pemex PEP is transforming millions
of data points into powerful role-based information that can be
analyzed by equipment, by well, by reservoir, by field, by business
unit or by enterprise. This enables team members to access a “single
version of the truth” for faster, better-informed decision making.
In addition, PEMEX DCO (Direccion Corporativa de Operaciones)
is currently using our technology to monitor the performance of
their pipelines, while PEMEX Refining has also implemented our
systems,” noted Mr Sanchez. “At OSIsoft’s Annual Users Conference
this August, these two PEMEX divisions will be giving presentations
showing the way they use our technology and the benefits they have
obtained.” In addition to giving presentations, this conference also
provides OSIsoft’s clients with the opportunity to talk with represen-
tatives of other companies and check if they are heading in the right
direction. “PEMEX is eager to know what is new in the market and
looks for tools and technologies that may make their job easier and
the company more competitive,” added Javier Sanchez. Covering
not only Mexico, but also Central American and the Andean coun-
tries’ markets from his Mexico City office, he is destined to be a busy
advocate of OSIsoft’s technology solutions over the coming years.
lawyers who have a background in a different corporative culture.
Sitting behind a desk in his Mexico City office, Mr Beristain empha-
sized that visiting oil fields, refineries, power plants and construction
sites, as well as local authorities, around the country is essential to
provide an optimal service to clients in the energy sector. “You have
to understand all the aspects that influence the business of your
clients and understand how they really work,” he elaborated. “When
changes to the legal framework, or a new authority criterion, start
to become a headache for our clients, then we are committed to
developing a way to resolve these issues with appropriate solutions
in accordance with Mexico’s complex legal system.”
As in any country, operating within the boundaries of the law is a
prerequisite for long term success in the Mexican market. “We have
the key to doing successful business in Mexico, without corruption
and with all the benefits of the law and the legal protection that are
available,” emphasized Mr Beristain. “I think that any foreign company
operating in the Mexican energy sector could be successful if they
have the appropriate legal protection and support. We already try to
provide this to our clients. We provide solutions to feared issues such
as corruption and the complexity of working with PEMEX, CFE, or the
Mexican government. Our contribution is really enabling our clients to
work in Mexico while avoiding serious problems in their most important
projects. For me this is a very important contribution. In the end, we are
both partners and lawyers for our clients.”
Using accurate data as a weaponDuring his career as a chemical engineer, Javier Sanchez realized
that globalization forces Mexican industry to be efficient and com-
petitive, turning technology into an important tool to survive. Before
joining OSIsoft, he was working as private consultant in the field of
automation and advanced process control. At that time OSIsoft, pre-
viously Oil Systems, had already developed its PI System, a software
product that gathers, archives, and processes operational data from
automation and control systems for delivery to users at all levels of
the company for process analysis.
Beristain + Asociados: Héctor Beristain Souza, Aldo David Acevedo Paredes, Adriana Maria Silva Ordaz and Sergio Beristain Souza
Javier Sanchez, Country Man-ager for Mexico, OSIsoft
August 2007 Oil & Gas Financial Journal • www.ogfj.com www.focusreports.net 89Ciateq_OGFJ_0708 1 7/16/07 6:44:03 PM
Technology transfer: a win-win situationSantiago de Querétaro, founded in 1531, is the capital of the Mexi-
can state of Querétaro. Its historic centre is a World Heritage Site,
while at present, the city of Queretaro boasts more than 30 research
centres, making the city one of the most important technological
research hubs in the country. One of its most prominent research
institutions is CIATEQ, which employs over 500 people. “We are not
a basic research centre; we are a technological research centre with
a main focus on integrating technical solutions for industry,” started
Victor Lizardi. Since he became Director General in 2001, CIATEQ’s
focus has increasingly shifted from the automotive to the oil and gas
industry. This development was not a coincidence; the energy sector
was already defined as a target market a decade ago.
A very important strength of CIATEQ is in fluid flow measure-
ment, which is directly applied to oil and gas flows. In addition,
we are a centre of excellence for SCADA systems,” explained Mr
Lizardi. Since 1998, CIATEQ has been working with PEMEX and
over the years PEMEX Gas has become CIATEQ’s main client, while
the research institution completed projects for PEMEX Refining and
PEMEX Exploration & Production.
CIATEQ has distinct advantage over foreign research institu-
tions. “As a public research centre we are part of the federal
administration, and between federal entities such as PEMEX and
CIATEQ there can be an interchange of services outside of the
bidding processes”, expanded Mr. Lizardi. “We take advantage
of that by performing projects for PEMEX, CFE, ASA (Aeropuer-
tos y Servicios Auxiliares) and another federal and local entities,
projects than foster CIATEQ´s technological strengths. In order
to meet PEMEX’s needs for large natural gas flow measurement
installations, CIATEQ has entered into partnerships with big
institutes in the United States and Canada, such as Southwest
Research Institute and Transcanada, which complement its capa-
bilities and enable CIATEQ to execute these large projects for
PEMEX.
CIATEQ is an interesting partner for large international
research institutes, as well as international service providers
to the oil and gas industry, because it provides them with the
opportunity to introduce their technologies in the Mexican oil and
gas industry through direct access to PEMEX and CFE. “While
we promote them in Mexico we have access to the state of the
art technology and the opportunity to benefit from technology
transfer during the development of the projects. This is clearly a
win-win situation,” emphasized Victor Lizardi.
Also PEMEX is stimulating international oil and gas companies
and service providers to invest in the development of the industry.
For this purpose, PEMEX established a technology transfer man-
agement division in 1996. Sergio Berumen Campos, Technology
Transfer Manager at PEMEX, emphasized that promoting open
communication between PEMEX and technology companies
is key priority. ”We need new technology. We must reach all
companies who offer new and different technologies, and in some
cases make investments in specific technologies which we need to
develop,” he added. It looks like Victor Lizardi’s win-win situation
actually offers triple advantages.
Victor Lizardi, Director General, CIATEQ
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Grupo_OGFJ_0708 1 7/17/07 11:04:24 AM
The power of peopleCIATEQ pursues the development of
products and solutions that facilitate the
technological advancement of the Mexican
oil and gas industry, but one should never
forget that also people are fundamental to
the industry’s success.
When Ramiro Guerrero founded Grupo
AIH in 2000, his initial ambition was to
create an outsourcing company that would
provide job opportunities and social stabil-
ity for the Mexican people. He believed
that offering the Mexican people employ-
ment opportunities in their own country could deduce their desire
to go abroad in the pursuit of financial gain. Based on his employee
oriented philosophy, Mr Guerrero consistently strived to developed
Grupo AIH company that gives freedom to the Mexican people.
While small and medium size Mexican companies were the first
ones to benefit from outsourcing their human resources manage-
ment, Grupo AIH now also provides its services to international
companies that are entering the Mexican market. After having opti-
mized its business model in the hotel industry, Grupo AIH expanded
its focus into industries such as wine & liquor and spas. “We are now
very interested in the oil and gas industry, especially with the indus-
try’s growth we are expecting,” stated Ramiro Guerrero. “The new
President, Felipe Calderon, is pushing Mexico’s economic develop-
ment and as Mexicans we want to contribute to the future success of
the Mexican oil and gas industry. We would be out of business if we
did not capitalize on the opportunities presented by the growth of
the oil and gas industry, the main driver of the Mexican economy.”
Foreign companies entering Mexico generally do not have a thor-
ough understanding of the business culture, legal framework and fiscal
climate. This lack of knowledge tends to raise their operating costs.
Grupo AIH supports these newcomers by offering accounting, legal
and fiscal support as well as advice on insurance and of course human
resources, allowing their clients to focus on establishing their business.
President Calderon recently put in place tax incentives aimed at
helping young professionals and recent graduates to find employ-
ment with new companies entering the market. “This is a great
advantage for international companies entering the Mexican
market since they are able to employ highly skilled people who
are acquainted with their business area, full of energy and ready to
adapt to the international culture of such companies,” analyzed Mr
Guerrero. “This tax reduction plan for new graduates is a very good
incentive that international companies are eager to take advantage
of.”
J. Ramiro Guerrero M., Direc-tor General of Grupo AIH
August 2007 Oil & Gas Financial Journal • www.ogfj.com www.focusreports.net 91
clients for the telecommunications industry.
The second market is the construction of new pipelines for PEMEX.
“We expect important investments to be made over the coming years
as more exploration and productions efforts shift from offshore to
on-shore,” explained Alejandro Gutiérrez. “On-shore, one of PEMEX’s
most promising alternatives is the Chicontepec field, where more than
15,000 wells need to be drilled by some estimates.”
Finally, the third area of focus is the Tite Liner system, a world
Challenges or opportunities in the pipelineWhen benchmarking the condition of PEMEX’s pipeline systems to
international standards, one has to be very careful to always recog-
nize that within PEMEX there are significant differences. “The stan-
dards of PEMEX Gas in terms of pipeline maintenance and pipeline
operation are very good, I would say in some aspects world class,”
stated Jesús Reyes Heroles. “Taking advantage of this competence,
PEMEX Petrochemicals has passed the management and operation
of all its pipelines to PEMEX Gas. However,
when you turn to the other two subsidiaries,
especially PEMEX Refining, the manage-
ment and operation of all the pipelines is
problematic,” continued Mr Reyes Heroles
He is not the first Director General of
PEMEX who is confronted with the neces-
sity to optimize the company’s pipeline
maintenance strategy. In 1992 there was
a big pipeline explosion in Guadalajara.
Apparently, while doing various works, the
municipality of Guadalajara caused damage
to one of PEMEX’s gasoline pipelines and the
fuel spilled into the sewage system causing
a terrible explosion. This unfortunate event
not only had the positive effect of creating
increased awareness about the importance
of maintaining pipelines, but also resulted in
Miller de Mexico’s first contract with PEMEX
to protect a fuel-oil pipeline in Manzanillo.
Within a short amount of time, the
company, headed by brothers Jose and
Alejandro Gutierrez, was also able to secure
a multi-annual contract with CFE to detect
and repair gas leaks in the Monterrey
Natural Gas Grid, the largest grid in Mexico
serving more than 350,000 customers. Dur-
ing the grid assessment, Southern Califor-
nia Gas discovered over 25,000 undetected
leaks. With its partners’ technology, Miller
Pipeline was able to detect, pinpoint and
fix a large portion of these leaks in a safe
and cost effective way. “In the 6 years we
worked with CFE, our company managed
to pinpoint and perform live-repairs of
more than 15,000 leaks without a single
accident,” noted Alejandro Gutiérrez,
Director General of both Miller Pipeline de
Mexico and United Pipeline de Mexico.
Since then the company has continued
to grow, by leveraging its partner’s tech-
nologies, in three main areas of operation
and focus. The first area of operations is
the construction of utilities and pipelines
for natural gas companies - such as Sempra
Energy, Gaz de France, and Tractebel - and
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leading polyethylene lining system for internally protecting oil and
gas pipelines from abrasion and internal corrosion. The Tite Liner
system was introduced in the Mexican market in partnership with
United Pipeline Systems, the subsidiary of Insituform Technolo-
gies, Inc. that developed this technology. “Mexico mainly produces
oil and gas that is sour or mixed with water. These components
provide for huge internal pipeline corrosion problems and create an
interesting market for us,” explained Alejandro Gutiérrez. By reha-
bilitating as opposed to replacing existing pipeline infrastructure,
the Tite Liner system has enabled PEMEX to save millions of dollars.
“Our relationship with United evolved based on the substantial
amount of work we were able to secure with PEMEX installing a
system Miller Pipeline decided to discontinue and which led to the
creation of United Pipeline
de Mexico - a joint venture
between Insituform Technolo-
gies and our company,” stated
Alejandro Gutiérrez.
To install the Tite Liner
system in an existing pipeline,
the pipeline is cut in sections
of up to 1.5 kilometres. Then,
a pig is used to calibrate the
pipeline and check if it was
built correctly, while in the
meantime the High Density
Polyethylene pipe is fused in
equivalent sections. “Once
everything is ready, our system
is pulled inside the pipeline
while compressing the poly-
ethylene liner into the steel
pipeline. With our system, the
liner has an external diameter
which is larger than the internal
diameter of the steel pipe.
After the liner is pulled, we
end up with a compression fit
between the plastic and steel
pipes,” explained Alejandro
Gutiérrez. “Once we reconnect
the pipeline, the end result is
a steel pipe which is internally
protected by a smooth and
tight plastic liner which isolates the corrosive product from the steel
walls. In terms of speed, the majority of our time is spent preparing
the work, but in general it is a fast and cost effective process. It will
usually take us a fraction of the time and money to rehabilitate a
pipeline with the Tite Liner system compared to what PEMEX would
spend building a substitute pipeline.”
Giving a practical example, his brother, José Angel Gutiérrez, Oper-
ation Director, noted that last year the company rehabilitated a critical
16 inch, 10km pipeline which transported crude from a production
field to a processing plant in Southern Mexico. “In the 3 years since the
pipeline was built in 2003, it had already suffered 50% wall-loss due to
internal corrosion. The estimate cost of replacing this critical pipeline
was estimated at 90 million pesos (US$9 million), and construction was
scheduled to take two years due to the complexity of the area. Our
company rehabilitated this pipeline in four months for close to 15% of
the replacement cost and PEMEX now has a pipeline transporting sour
crude, which will give years of trouble free service.”
In addition to rehabilitation, the Tite Liner system can also be
applied to protect pipelines that are expected to encounter internal
corrosion problems, like water injection lines, CO2 lines and sour
lines. “In the case of Chicontepec, for example, PEMEX knows for a
fact that there is going to be an internal corrosion issue in many of
the new pipelines, so they might as well build them to last,” noted
Alejandro Gutiérrez.
“Since our first Tite Liner
installation eleven years ago,
PEMEX has tried various
technologies, ranging from
fibreglass pipes to painting
the inside of pipelines, to stop
internal pipeline corrosion,”
noted Alejandro Gutiérrez. “In
the end, I believe time has been
our best ally. Today, every single
meter of Tite Liner installed over
the past eleven years is operat-
ing without any problems, while
many other alternatives have
failed to deliver even acceptable
results,” he emphasized.
José Angel Gutiérrez also
identified the natural gas
transport market as a future
opportunity. Given the grow-
ing energy needs of Mexico,
various estimates show that
this country will need a mini-
mum of US$5 billion invest-
ment in natural gas transport
pipelines within the next 10
to 15 years. Along with this,
PEMEX’s restricted budget
and the pressure it is facing
to invest almost exclusively in
E&P activities, implies that the market for new natural gas transport
pipelines will have to be filled by the private sector. “Given this sce-
nario, we see many opportunities for the construction as well as the
ownership of large, medium and small pipeline transport systems,”
underlined José Angel Gutiérrez.
Looking for niches opportunities that make financial sense enables
the Gutiérrez brothers to target many projects within the US$ 5-15 mil-
lion range that large corporations would never consider. “How much
value you offer and how you are rewarded for it will determine your
level of success,” concluded Alejandro Gutiérrez.
Alejandro (right) and José Angel Gutiérrez, Director General and
Operations Director of both Miller Pipeline de Mexico and
United Pipeline de Mexico
United States:United Pipeline Systems135 Turner Dr.Durango Colorado 81303US Tel: (970) 259-0354Web: www.unitedpipeline.com
Canada:United Pipeline Systems7605-18 StreetEdmonton, Alberta T6P 1N9(780) 440-1188
South America:United Sistema de Tuberias Ltda.Puerta de Sol No. 55 of No. 111Las CondesSantiago, Chile(56-2) 207-4966
Mexico:United Pipeline de MexicoOleoducto No. 5Zona Industrial Carrillo PuertoQueretaro, Queretaro 76138Tel: (52-442) 497-6500
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MilPip_OGFJ_0708 1 7/16/07 6:40:31 PM
94 www.focusreports.net August 2007 Oil & Gas Financial Journal • www.ogfj.com
Virtues of a family business“Padre noble, hijo rico, nieto pobre” is a famous saying about fam-
ily owned business in Mexico. It implies that the noble father is the
founder of the business, the son takes over and enjoys the wealth
but is not able to grow the business, while the grandson inherits a
business that is going downhill and might eventually be heading for
bankruptcy. While Miller Pipeline is a first generation company that
might become a family business, Heliservicios is a second generation
family business that is well on its way towards defying the prophecy
of this Mexican saying.
Since their father retired in 1975, engineer Guillermo Ortega Garza
and Captain Carlos Ortega Garza have been determined to maintain the
family tradition. Their father was involved in a US Petroleum company
from La Fayette named Petroleum Helicopters. Using this experience as
a stepping stone he started his own business, which got involved all over
Latin America. When Guillermo and Carlos took over the business they
started with a construction company and identified the opportunity of
complementing the construction services with aviation services.
New technology: hydrocarbon leak detection by helicopterHeliservicios is offering an integral service based on its core activities:
detecting pipes, spills and leaks, and maintaining ducts. Using highly
specialized helicopters, Heliservicios is able to offer unique services
such as aerial geophysics, using magnetometry systems for the prepara-
tion of digital mapping of underground pipelines. “Many pipelines are
old and no one knows where they are precisely, so we detect them
with our equipment,” stated Guillermo Ortega Garza. “Considering
the environmental cost of having leaks to the cost of exploration, it is
clear that the service we offer is vital for all countries,” noted Guillermo
Ortega. “Our mission is detecting hydrocarbon leaks, through the use
of radiometry, thereby managing their impact on the environment.”
While Heliservicios’ new technologies
have been tested and proven in countries
such as Canada and US, Latin Americans still
find it hard to embrace the advantages of
these innovative technologies. Although a
small leak can be transformed into a major
problem within few days, Heliservicios is still
raising awareness of the efficiency and cost-
effectiveness of its technology to increase
its industry acceptance. “Our equipment
detects the emanation of the hydrocarbon
as the helicopter flies on above them. Our
GPS detects the positioning, a process
that is referred to as geo referencing, and
exact data regarding the positioning of the
problem is collected,” explained Guillermo
Ortega. The pilot and the technical operator
cooperate to send real-time information on
the pipelines, which allows the duct person-
nel in PEMEX to take fast decisions. After
a problem is detected the location data, as
well as pictures and videos of the exact posi-
tion, are transmitted to the terrestrial that is equipped to repair the
pipeline, protect the area, and remove the contaminated soil.
“In the construction of new pipelines, we use the LIDAR system
with laser beam technology which digitalizes the geography,” stated
Cap. Carlos Ortega Garza. Heliservicios has the capability to conduct
400 kilometres of topographic survey a day. This digital information,
which identifies topographic curves with one centimetre precision,
can be applied to predict the flow of a crude spill, determine the
vegetation density for environmental impact studies and forecast
water levels in case of river floods, thereby identifying the optimal
route to construct new pipelines and ducts. “We also calculate the
height of trees, or electric lines that can impact on the duct or inter-
fere in the construction of it,” added Carlos Ortega. “We provide a
digital image of any territory that we can survey with our helicopters,
that’s a strong tool.” Environmental impact has also become a major
issue in project development, besides the need to consider indig-
enous people living on certain territories. “Deforestation impact and
culture contamination can be contemplated with the information we
provide contributed,” Ing Guillermo Ortega Garza.
Besides the application of new concepts and technologies,
Heliservicios differentiates itself from the competition through own-
ership of its fleet of helicopters. Through joint ventures with Cana-
dian partners, Heliservicios stays at the leading edge of technology
by introducing the latest advances in the equipment. By considering
helicopters as fast and efficient tools rather than luxury means of
transportation, Heliservicios has turned its global vision into an inter-
national presence based on successful projects in Mexico, Canada,
Nicaragua, Panama, Colombia, Peru and Ecuador. “There are many
opportunities both in Mexico and around the world,” concluded
Carlos Ortega. It seems like the grandchildren of the Heliservicios’
founder will not be inheriting a business heading for bankruptcy – a
Mexican saying might be ready for revision.
Guillermo Ortega Garza (centre left) and Carlos Ortega Garza (centre right) and the next generation that is destined to lead Heliservicios into the future
Helise_OGFJ_0708 1 7/16/07 6:38:25 PM
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Lifting Mexico a little higherAfter the financial and economic crisis in
1982, which roots lay in the oil boom of
the late 1970s, Mexico vowed to make
significant investments to establish sustain-
able economic growth. At that moment,
Ing. Reynaldo Santos de la Cruz decided
to start his own business. “Two years after
the crisis I bought the first crane and began
what Eseasa is today, since then we grew in
a straight line through hard work and com-
mitment,” he reflected.
Having started operations in the southern
tip of the State of Tamaulipas, meeting the
specific heavy lifting requirements of clients across the municipalities
of Tampico, Madero and Altamira, ESEASA has grown to become
Mexico’s leader in heavy lifting. “Through the continuous acquisition
of equipment from abroad, Eseasa has become the company with the
most modern fleet and the largest cranes in Mexico,” boasted Reynaldo
Santos de la Cruz. “Ongoing investment in renovation and maintenance
of our equipment ensures that our fleet remains equivalent to the fleets
of any European or American company.”
While quality and service have proved to be critical success factors,
ESEASA takes particular pride in its ability to offer an integral heavy lift-
ing service. “We provide the engineers, the riggers and all of the equip-
ment,” noted Mr Santos de la Cruz. Rather than charging for each dif-
ferent service, ESEASA works in terms of projects and charges per ton.
According to its President, this approach enables ESEASA to always
be on time or ahead of schedule. “Our strategy is delivering the best
service in combination with the highest safety standards,” he added.
“Taking into account the high number and volume of lifts and rigging
maneuvers we have completed, our safety record is outstanding.”
In recent years, ESEASA completed several flagship projects
that strengthened its reputation in the Mexican oil and gas industry.
These included heavy lifting work for the construction of offshore
oil platforms and combined cycle thermoelectric plants. “We have
started the heavy lifting work for the majority of the thermoelectric
plants in the country, together with Alstom, Iberdrola and ICA Fluor.
Also, we were involved in most of the work at the petrochemical
plants, as well as in the Minatitlán’s refinery reconfiguration, where
we are in charge of 75% of the heavy lifting work. At the moment
we have around 140 cranes working there,” highlighted Reynaldo
Santos de la Cruz. “Our integral service, safety standards, commit-
ment, experience and cost competitiveness have turned ESEASA
into Mexico’ preferred heavy lifting partner,” he boasted.
Going abroad, staying MexicanTo pursue even stronger growth, ESEASA is expanding its pres-
ence according to the market developments, globalization and free
trade agreements. In 1997, Eseasa established its US operations as
a supplier for quality lifting accessories, spare parts for machinery
and equipment and as a representative office for the international
market. After establishing a solid position in the US market the next
step will be further expansion in Latin America.
In addition to being a 100% Mexican company, ESEASA is also
becoming a family business. “I am looking forward to retiring in
the coming years as my sons are taking over the management of
Eseasa,” explained Mr Santos de la Cruz. He expects that his sons
will encounter great opportunities rather than limits, as they lead
ESEASA into the future. “México has to take decisions that will
strengthen the oil and gas and infrastructure industries, which are
core parts of the Mexican economy. Eseasa will grow together with
these sectors, continuing on our historic growth path. I love and
trust my country, but we need to work hard to leave a strong and
successful México to our children and the next generations. We are
ready for any challenge that comes with the future opportunities.”
Scaffolding, from Aztecs to PEMEXTenochtitlan, inhabited by 300,000 people in the early 16th century,
was built upon an island in Lake Tetzcoco, which at the time occu-
pied a large portion of the Central Valley of Mexico. Today, the lake
is drained and the ruins of the Aztec capitol lie beneath downtown
Mexico City, but before Hernan Cortés defeated the Aztec war-
lords in the summer of 1521 it was the political, religious and civic
centre of the Aztec empire. In Tenochtitlan, among the royal palace,
temples, pyramids, council-houses and other buildings, there stood
tall scaffolding bearing thousands of skulls of the Aztec’s enemies.
These were offerings to the gods of the Aztecs and served as a
reminder of the military power of Tenochtitlan’s Aztec rulers.
At present, scaffolding is still widely used in Mexico, although
the Mexican construction and oil and gas industries are putting it to
more peaceful use. Operating from its Mexico City headquarters,
only several kilometres away from the ruins of the Temple Mayor, the
main temple of the Aztec capital of Tenochtitlan, Andamios Atlas
grown to become Mexico’s leading provider of scaffolding equip-
ment and services since its foundation in 1965.
Twenty three years ago, Ing. Mario Bertran Marce joined Anda-
mios Atlas. Before 1993, the company was mainly dedicated to the
construction business. “When we entered the oil and gas industry
we did not lose any market share in the construction business,”
recalled Mr Bertran. Despite Andamios Atlas’ diversification into oil
and gas, its market share in the construction industry is larger today
then it was in 1993. “We maintained that business with specialized
shoring and formwork equipment, while we added specialized busi-
ness lines like scaffolding for offshore platforms and petrochemical
plans, which we call ‘total systems’, “ continued Andamios Atlas’
former Director General. Andemios Atlas gradually diversified its
products and is currently collaborating with PEMEX to optimize the
utilization of specialized scaffolding for the maintenance of petro-
chemical plants and offshore installations.
Back in 1993, Andamios Atlas was the first company to introduce
these kinds of systems in Mexico in response to PEMEX’s interest in
raising the security level on its platforms. “In the past, PEMEX was using
just ropes and wooden structures to reach remote locations on the oil
rigs for maintenance work,” explained Mario Bertran. “We designed
special applications for different parts of the oil rigs. Nowadays, PEMEX
requires all contractors and sub-contractors to use our systems and, of
course, we are the main suppliers of this kind of equipment to PEMEX.”
Ing. Reynaldo Santos de la Cruz, President of ESEASA
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AndAtl_OGFJ_0708 1 7/17/07 10:25:22 AM
These developments took place before Jorge Larrea Molina was
appointed as Director General of the company, following in the foot-
steps of his father who was one of the founders of the company. He
now oversees a company that has two special divisions, the scaffold-
ing division and the shoring equipment division. Its sixteen branches
cover all Mexican territory. Andamios Atlas, which is ISO 9001:2000
certified, has particularly strong branches in PEMEX’s special
development areas. “About 85% or 90% of the income of our key
branches in Villahermosa, Coatzacoalcos, Ciudad del Carmen and
Altamira comes from PEMEX and companies related to PEMEX,”
confirmed Mr Larrea. “Our distribution network and on-time deliv-
ery, in combination with the engineering service that we provide,
give us a competitive edge over our competitors,” he continued.
About 25% of Andamios Atlas’ net income comes from selling
equipment, which implies that the rental business, which is made up
of 40% total systems and 60% construction industry, still dominate
the company’s activities. Ing. Mario Bertran Marce has a clear vision
on the rent or buy trade-off that his clients are facing. “Everybody
has to do what they are supposed to do,” he stressed. “Our clients
have to produce oil and we want them to produce oil, and they
want us to build the scaffolding. That is the reason why we recom-
mend renting. It is more efficient for our clients and it is much more
efficient for us.”Jorge Larrea Molina (left) Mario Bertran Marce, Director General and former Director General of Andamios Atlas