David palacios Hernandez of Pemex Logistica

We need an efficient company dedicated to its core business, and for that, it needs a significant amount of resources.

David PALACIOS HERNÁNDEZ General Director PEMEX LOGÍSTICA

Pemex in partnership

March 2, 2018

David Palacios Hernández, general director of Pemex Logística, talks to TOGY about Pemex’s restructuring process and the opportunities opening to the NOC via partnerships in several sectors. Palacios served as Pemex's chief alliance and new business officer until he was appointed to his new position in February 2018.

On strengths and weaknesses: “Pemex has two great advantages: installed infrastructure and human resources. There is a lot of experience. People come here to see how we work. However, we do not know some of the other processes, such as the development of deepwater areas and unconventionals. Therefore, we are trying to find partners that have been involved in these activities.”

On beneficial alliances: “Pemex will not be able to have enough capital to exploit all of its assets. We need these alliances. All our exploitation contracts have transfer of knowledge. It is important to learn how to exploit these new types of resources. In this way, we can keep producing in an effective and competitive manner.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with David Palacios Hernández below.

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What has Pemex’s Alliance and New Business Division been working on over the past year?
We have been dedicated to connecting production companies and the outside world. The oil and gas world is changing a lot. Mexico is confronting several challenges.
A few years ago, we had issues with the drop in oil prices that put us in a very complicated situation. However, we were able to overcome this for two reasons. First, the energy reform has allowed us to enter new lines of business. Second, there was an internal restructuring of the company. The latter has forced us to have lines of business for every productive company.

What steps has Pemex taken to overcome these challenges?
We went outside looking for partners and markets. Farm-outs are a great example. We look for partners that have experience, efficiency and capital. Financing is very important for us at the moment.
Pemex has two great advantages: installed infrastructure and human resources. There is a lot of experience. People come here to see how we work. However, we do not know some of the other processes, such as the development of deepwater areas and unconventionals. Therefore, we are trying to find partners that have been involved in these activities.
We now have a contract for shale exploitation at the Olmos field, in the state of Coahuila. This will allow us to place the company in the sector with competitive advantages.

How has the energy reform affected the way Pemex does business?
The energy reform has been very positive. It has forced us to improve. We have to find new technologies and partnerships.
We have partnership at the Tula refinery with Air Liquide. We are about to start on that project. Pemex started looking at companies that used to outsource hydrogen and brought partners to Tula. We worked for about a year to find the right partner. Today, this partnership offers us the service more cheaply and with guarantees 24 hours a day, seven days a week.
Hydrogen will not be a problem again; the same hydrogen supply strategy is being developed in the Cadereyta and Madero refineries. Pemex is about to formalise partnerships in the short term. One of our premises for our 2017-2021 plan is to dedicate the company to our core business. We are looking at alliances in all the different services to find efficiency.
Our main business is to extract crude. We have several wells that are naturally declining. We cannot handle secondary recovery investments, but we know that there are reserves. Those wells have been chosen for farm-outs. Partners bring new technologies and knowledge. We have the infrastructure and human resources, so we share risks through these alliances. It is a win-win situation. This is our main objective in the oil and gas sector.

 

How is Pemex going about its partnerships in the upstream sector?
This is the future. We are constantly looking at numbers and trying to find a balance for the fields. We look at the investment and technologies required. Once you put out a field, you find partners that value that asset in the same way that you do.
Ogarrio showed us that there was a partner out there that could see the potential and that had the technology and knowledge to exploit it. We were surprised with a great offer to work together with DEA Deutsche Erdoel. Pemex will still have control of that well, but there is now a partner with capital and new technologies that will help in obtaining more production.
Pemex will not be able to have enough capital to exploit all of its assets. We need these alliances. All our exploitation contracts have transfer of knowledge. It is important to learn how to exploit these new types of resources. In this way, we can keep producing in an effective and competitive manner.
At the same time, it builds the base for our engineers and technicians to understand these wells. In the future, we might work on some of them alone, but first we need to decompress the budget and provide the tools to obtain the largest number of alliances.

In what other business areas is Pemex considering alliances to make operations more efficient?
We are working on cogeneration. A refinery needs water, vapour and electricity. We have our own installations at the moment. After the earthquakes [in September 2017], the Salina Cruz refinery had to stop operating. It took so long to restart operations because of the power plant. This should not be an issue.
When these refineries started up, it was not possible to use the regular network. We are now looking for partners that are dedicated to cogeneration to secure our vapour and electricity supply. When you generate vapour, you generate more electricity. We could sell the rest. The company’s vision is different now. We will participate in the cogeneration business, but we will not be a cogeneration company.
In certain areas, it will be better to use the regular network. Previously, Pemex could not do this because it has its own plants and had to use them. For 30 years it was not a problem, but they are not working that well anymore, which causes problems. It is not our core business.

What specific measures is Pemex taking to optimise its refining operations?
In the reconfiguration plan for our refineries, we brought in coker projects. We are also looking for partners in this area. We are moving into the second phase. We started with 40 interested parties. We have already signed 17 confidentiality agreements to share information. We are moving into the final phase.
Pemex started its own process of building a coker plant at the Tula refinery. We want to finalise it and start working together with our new partner. In this way, Pemex can concentrate on its core business.
By the end of the first quarter of 2018, we will have probably signed all the contracts for partnerships at hydrogen plants. The advantage of all this is that there are three companies involved, which are dedicated to that sector. We will be able to see with which one we work better with in terms of efficiency.
The rates are different for several reasons. The characteristics, location and progress of each plant are different. It has been a complex process that has taken one year. We have already walked an important part of the way, as we have already formalised contracts in Tula with Air Liquide, while Cadereyta and Madero are in the final phase of the process.
All these businesses are new for Pemex as well. We are learning together with the world how to do all these things. This is why our alliances take a long time. Every time we start a new project, we find out that there are issues and things to be considered.
In refining we now have three lines of business: hydrogen, cracking and service contracts. We understand the business and we are not afraid. We need to exchange knowledge. Once these new structures gives results, we will know how to operate these businesses. It is about adjusting ourselves to reality.

How does the Alliances and New Business Ventures Division assess the progress of Pemex’s restructuring?
We will keep looking for efficiency and new schemes. We need the company to lose its fear. The alliance management area has been doing this. It was created two years ago as a result of the energy reform.
It is very complicated to restructure a company. All the people in my area are very qualified and are ready for the new structure, but there are 300,000 employees. It is complicated. We are moving forward step by step. We need an efficient company dedicated to its core business, and for that, it needs a significant amount of resources. It also needs to be working at the global level in new areas. We are learning.
The biggest advantage or added value is that we all conduct business at an international standard. We will be able to be more efficient. We will all find our opportunities. Our main objective is for Pemex to do well for everybody. We believe that there is still a lot to discover and we are very positive.

For more information on Pemex’s new partnerships, such as with BHP Billiton in Trion, see our business intelligence platform, TOGYiN.
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