o&g mexico 2007 part 3

MexicoEnergy reportAugust 2007

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?


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


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


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


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


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

RodDav_OGFJ_0708 1 7/17/07 10:27:25 AM


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

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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


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


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

Esea_OGFJ_0708 1 7/16/07 6:34:20 PM


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

email: [email protected]

o&g mexico 2007 part 3

Documents

oil gas financial journal

mr calderon

president crdenas

mexicos national oil

oil export revenues

mexican economy

foreign oil companies

mexican treasury