Sustainability in the slowdown

Mexico

Grupo Altavista president and CEO Ricardo Orrantia talks to TOGY about how oil and gas companies in Mexico have been impacted by both lower oil prices and the country’s energy reform. He also provides insight into how his company is weathering these circumstances. Grupo Altavista is a provider of technology and services to increase production in mature fields.

Can you provide an overview of Grupo Altavista and the services it offers?
Grupo Altavista is a Mexican company with more than 25 years of experience in the oil and gas industry. In Mexico, Grupo Altavista has facilities in more than 10 states and a network of 800 collaborators and prestigious international partners. The company focuses in the integration of customised solutions based on the needs of its clients. Altavista’s service portfolio includes financing, the execution of turn-key projects, automation solutions, monitoring and measurement, development and supply of chemicals for hydrocarbons recovery, as well as leasing and civil works, among others. Grupo Altavista is one of the main suppliers of automation systems for Pemex.

What projects and contracts that you have been working on in the past 12 months?
In the past 12 months, we have been working on security projects in strategic installations, principally for fire detection. The other contract that we are working on right now is one with Pemex for chemicals and injection to incentivise production.
Despite the current situation of low oil prices, we are looking to develop and design technologies that help incentivise production. There is a scenario of low prices and the best thing to do is look for things to contribute to efficiency and lower costs. We haven’t left this area in particular. In two of our business units, Pemex is our main client.

What is the effect of the fall in oil prices on this sector and on Grupo Altavista?
Obviously, it affects the entire world. The effect is a fall in revenue and a rise in the price of the dollar. The effect on the whole industry is tremendous. Investments have gone down in the sector. This is another consequence that, for us, has reduced our investments by 20%.
As a consequence, it has an effect on many sectors across the economy. The oil and gas industry drags down other sectors that depend on the investments made by Pemex. We all know that there are problems of great magnitude in countries such as Venezuela or Russia, where the fall in prices has affected them in every way, or even Brazil. On a national scale, we are directly and immediately affected by Pemex decreasing its investments.

What are the key challenges and opportunities related to Pemex’s transformation, given the downturn in oil prices?
What was done with this reform is something we all know that everyone wanted. Unfortunately, the timing of low oil prices doesn’t let us see the reform as it is. The transformation itself creates favourable terms for the country in the coming years. It’s something we all know, but we live in the short term.
It’s something needed to heal the finances of the most important company in the country. Definitely, what we need to do is give the industry more time to recoup. It is a question of timing. We are in oil and gas. We want to be here, and we need to extend our vision forward and wait for results in the long term, not in the short term.

What is your opinion about the Secretariat of Finance and Public Credit’s signal to provide a backup for Pemex, and what is the significance of that to the industry?
For Mexico, the treasury is assuming the responsibility to enter and prevent Pemex’s credit rating from falling. When rating agencies such as Fitch and S&P give you an AAA, A+, or ABB rating, it costs a lot to the government to qualify them. If the qualification falls, it costs them a lot more money.
The other thing is that obvious is that we are intertwined. When providers have problems, we have problems. Imagine that each link of the chain has problems and all of them affect the economy. The institutions are available, intelligent and necessary for the government.

What is the significance of chemicals used to increase recovery in mature fields and optimisation systems right now in this industry?
When we have a barrel at USD 20, there is no additional solution that can help. The cost of recovering a barrel of oil in a mature field is USD 20, or USD 22. All these methods can raise the cost a little bit, but there is a point at which the price of a barrel costs too much. If the oil price is less than USD 20, I don’t think the market can maintain it for very long.
Obviously, above USD 20, it becomes important to be able to apply the technical solutions to incentivise production. If you imagine a barrel price of USD 15 when it costs USD 20 to get the oil out, you are losing money. What costs less than USD 20 to get out is not located in mature fields. Mature fields are a matter of a little investment, and it isn’t economical now.
When you have countries whose cost per barrel is USD 3 or 4, there is no need for Mexico. Most of our oil exports come from offshore. This puts us in a financial problem for production.
For us, in order to incentivise production, it has to have a nice price per barrel, otherwise it won’t help. It might help you get more oil out of the ground, but the costs won’t make it worth it. When business with Pemex comes in, if the extraction cost is around USD 20. It’s not a sustainable price.

What opportunities will companies such as Grupo Altavista have in the next few years?
It is concurrent with the situation. The opportunities in the short term are reduced with this price. If you get out of the industry because of this situation, you will have trouble getting back in. In this situation, we have to endure, and that is the strategy. We must lower our prices, just as many oilfield services companies have done. They have done some trimming.

How does Grupo Altavista plan to weather this period of low oil prices?
As a group, we have other business units, which are going to sustain us through this period. For us, our level of diversification is essential. We depend on its permanence in these situations. Currently, no one is entering the market. They are leaving. What we are looking to do is stay in, and to stay in at the minimum cost.
Pemex is primary. Where there is the necessity and the price, we have to look into maintenance, security, distribution and logistics. This is what we are doing now that the price of the barrel is lower. These types of activities are essential for the industry. As a company, we are choosing this focus while waiting for better conditions to advance in other areas of the industry.

For more news and features on Mexico, click here.

Read our latest insights on:

• Brazil
• Mexico
• Russia