News commentary: OTC 2013 — Day 1

HOUSTON, May 7, 2013—Every year, in the first week of May, Houston becomes the Party Town of the global oil and gas industry. For the 80,000 people who attend the event, as delegates, speakers and exhibitors, there are invitations to breakfasts, receptions and special events throughout the week.

Offshore Technology Conference (OTC) is the premier venue for the global oil and gas conversation. The three themes of the week are sales, networking and professional training. In my case, I also look for both learning and teaching moments.

CONTENTS

OTC – DAY ONE
    Breakfast sponsored by the British Consulate
    Pemex stand inauguration
    Gas Marketing
    BP reception for the Fourth Estate
    Canadian Reception
OTC – DAYS TWO & THREE

OTC – DAY ONE

Yesterday, I attended one such breakfast, one special event and two receptions (the last one with a parking ticket waiting for me when I left the downtown Aquarium at 9:30 pm). I also caught the last few minutes of a panel on the role of the states in energy policy, and the panelists included no fewer than six sitting governors, plus two substitutes for governors who could not attend. Texas Governor Rick Perry had the final word: “God bless George Mitchell.”

The events that I attended on Day One were the following: The breakfast that was sponsored by the British Consulate in Houston. The special event was the inauguration of the new, significantly upgraded (compared to the year before) Pemex stand. The receptions were those offered to the “Fourth Estate” by BP at the Reliant Stadium, also the Canadian reception which was held at the Aquarium.

Breakfast sponsored by the British Consulate

At the breakfast sponsored by the British Consulate, the first speaker after the welcome by the consul general was the Lord Mayor of Aberdeen, a post established in the 13th century. The Lord Mayor told the audience of the infrastructure plans that would make Aberdeen an even more attractive business destination.

The next speaker was a public affairs officer of BP, who made the interesting observation that many of BP’s corporate roots are in the U.S. and that these antedate BP itself: ARCO, Standard of Ohio and Amoco, which are now BP units, were in operation long before 1909 when the Anglo-Persian Oil Company was founded.

There was a panel with speakers from Infield Systems (www.infield.com/) and IHS (www.ihs.com/). The presentations took the form of carefully plotted trajectories of rig counts, tonnage, production, reserves and prices (and anything else that could be put onto a PPT slide). One message was that shallow-water production in the US Gulf of Mexico would continue its decline, as deepwater plays would take on greater importance. Another message was that, thanks to the numerous onshore shale plays, investments onshore were now competing for investment capital with the offshore.

Some of the slides plotted trends, and the speakers pointed out how Macondo incident of 2010 affected permits and drilling, among other metrics. A speaker noted that since Macondo there had been notable innovations in facilities and topsides, subsea completions and processing, seismic resolution and safety and risk management.

I had been encouraged, previously, by the panel’s moderator to ask a question during the Q&A (to make sure that there would be at least one question). There were two. Mine was the first, the gist and tone of which was this:

I have an observation and a question. The observation is one that deals with semantics. It’s about the use of the word “Macondo,” which now, it seems, has become a term of statistical convenience, a way to label data points. In Houston, and throughout the Gulf states, Macondo was a tremendous, horrific event. Something seems amiss when we can use that word without crossing ourselves [persignarse], so to say.

My question is this: Can you tell us what has been the most important innovation since Macondo regarding safety and risk management?

The panelists had no comment about my “observation”; but one of them said that since Macondo the matter of H&S [health and safety] had come back to the center of corporate attention. The other panelist said that he was not familiar with specific technologies related to safety issues.

The second question from the floor asked the panelists to identify a new emerging technology in the oil industry. A panelist replied that in his view the biggest advances involved system integration.

We were told that the slides (very polished) would available online. We were also invited to return at 6:30 for a reception, which would also take place at the Hilton on Post Oak.

As everyone was preparing to leave, the person seated on my left tapped my shoulder and said, “That was a good question. I was thinking the same thing; but if I had asked the question my language would have been harsher. Eleven lives were lost at that ‘statistical inflection point,’ and the lives of thousands of others were turned upside down. You had a point in using the phrase ‘crossing yourself.’”

He asked what my interest in the topic. I replied that as the Macondo event unfolded, I was preparing a report in my mind to be called “Macondo to Mexico: Are You Ready?” I wanted to identify those issues that would need attention in Mexico for that answer to be affirmative.

I left the Hilton for OTC. This time, instead of waiting in a long line and paying $10 to park at the Reliant Stadium, I drove to the Metro parking area off Highway 610 and, parking for $3, bought a $2.50 round-trip ticket, which in just one stop put me within easy walking distance to OTC.

Pemex stand inauguration

The word circulated among the Mexico crowd at OTC that Director General Emilio Lozoya would speak at the Pemex stand at the inauguration ceremony. In anticipation of this event, there were some 200 (some said 300) people gathered at the Pemex stand—a number by far larger than the crowd at any other station.

The Pemex stand and program were also upgraded from the previous year, when there had been no program at all of technical presentations, and when the amenities were minimal. This year, delegates were offered coffee (including cappuccino), wine and tequila, among other choices. Also there were nuts and pretzels, and an interesting lagniappe in the form of a device that would hold one’s cellphone to the dashboard of one’s vehicle.

We waited over an hour for him to make his remarks. The assembled delegates represented the Who’s Who of Mexican Oil in Houston. In the crowd were the country representatives of at least two IOCs with offices in Mexico. There were commissioners and staff from the CNH, the director general of the Mexican Petroleum Institute, officials from the Pemex’s Public Affairs and Legal Departments also Department of Business Development, including its director and assistant director. The head of PGPB’s gas marketing office was there with several members of his staff. Business development managers from some of Pemex’s MSC contractors were also present. Plus attorneys, contractors, consultants, Pemex and oilfield service company ex-employees and retirees (some now employed elsewhere) and vendors of all stripes.

One of the ex-Pemex employees shared with me the good news that her legal complaint of wrongful termination of employment had been validated by the court of first review. The question ahead would be whether Pemex would appeal the case. “I’d like to negotiate and bring this matter to a close,” she said, noting that if Pemex appealed the ruling the case could drag out several more years.

Of persons with press badges, I saw only one other: the irrepressible Luis Carriles, a friend of many years (www.redpolitica.mx/autor/luis-carriles).

Luis introduced me to a young attorney—is it OK to add the modifier “pretty”?—who said that her idea of energy reform would be to allow companies to build refineries at their expense and to be paid a fee for their services, with all the refined products remaining the property of Petróleos Mexicanos (This exact idea had been proposed by the Calderón administration in February 2008). I replied that my view was exactly the opposite: the starting point for any reform was the reestablishment of the legal figure of the private oil mineral interest. Our conversation got cut short when there seemed to be some movement in the tight knot of people who were huddled around the front of the Pemex booth.

I got a glimpse of Emilio Lozoya as he quickly left the stand followed by a train of staff assistants and hangers-on. The remarks that everyone were expecting, along the lines of—

Good morning everyone. Thanks for coming to the inauguration of the 2013 Pemex stand at OTC. This is my first time at first OTC. It’s an amazing concentration of the energy of the global oil industry.

As you see, here at the Pemex stand, we are offering a program of technical sessions for each morning of OTC, and I invite you to return and listen in.

As many of you know, the Mexican government is presently developing ideas and legislation for an energy reform, so I also hope to see you in Mexico a year from now as new investment opportunities are opened up.

The reform package will also, we hope, allow us to have better and deeper commercial relationships with international companies; and we in Pemex look forward to these future opportunities.

Thanks again for coming to the Pemex booth. Do come back. Over the summer and fall, do pay close attention to the energy reform that my government will announce. And let’s find new ways to do business together.

Hasta luego, which, in both Texan and Mexican Spanish means ‘until then.’

—were not given. To the disappointment of everyone present, the director general left the premises without a word of welcome or appreciation.

In conversation with someone from Pemex’s Public Affairs Department, I roundly faulted the DG’s advisors and anyone related to international communication in Pemex for this incident of misplaced expectations. I did not think at the time of the phrase “bait and switch,” which refers to a well-known sales tactic where the customer comes in the store expecting one thing, but is told that the item or discount is no long available. Instead, he is offered a substitute product at a higher price. In the present case, upwards of 200 senior people came to offer the new DG the courtesy of their presence at an event that was important to Pemex (there were many technical papers, panels and exhibits where, easily, those present could have chosen to attend). The asymmetry of gestures of courtesy was striking.

Gas Marketing

In conversation shortly afterward with the director of gas marketing of PGPB, whose name I did not catch, he explained that presently only the electric sector had open access on Pemex’s lines. I asked about a future moment in which a market in secondary capacity might emerge. He replied that a secondary market could only come to exist after a system of open access had been established, adding that Pemex had been ready for a dozen years for this new arrangement, but there were still bottlenecks in regulation. (I did not add that this interpretation of the current situation was exactly the opposite of what is held in the CRE.) The manager rightly observed that it would take time for a secondary market to emerge as customers were presently unfamiliar with matters of the logistics and scheduling of transactions in secondary capacity markets.

I mentioned that I had known Felipe Luna when he was in this position more than a dozen years before. I said that I had in recent memory spoken with Felipe, and had expressed my view that all of the “PMI” branded entities who do not have anything to do with product trading should be renamed and expelled from the PMI Group of Companies. Their behavior in recent years—I was thinking primarily of the controversial purchase of an additional 5% of Repsol shares in 2011–has only served to discredit the high reputation that PMI has earned as a trading house in petroleum products. I added that Felipe had strongly disagreed with my view of things: “Rebranding those companies is not the solution,” he had told me.

BP reception for the Fourth Estate

While in the OTC Press Office around 4 p.m., BP’s press officer announced to “Members of the Fourth Estate” who were present, that there would be a reception for the press that would begin shortly and to which the members of the press were cordially invited.

The event was located in Reliant Stadium, in one of the private VIP areas. There were upwards of fifty people present, many from BP. I fell into conversation with someone from my generation. One of his early experiences in the oil industry was working for Cameron, Inc. (www.c-a-m.com), manufacturers of blow-out preventers (BOP) among many other products. As with Macondo, it had been a Cameron BOP that had failed to close the blow-out at Ixtoc-1 in 1979. He added that afterwards Cameron designed a BOP that would cut through a drill-string collar, but that the design was never commercially accepted. I mentioned that I had written a paper with the title “Have the Deepwater Lessons of Deepwater Horizon Been Learned?” He said that he had read it, but offered no comment.

I asked if the failure of the BOP on the Deepwater Horizon was an issue of the inability of the shears to cut a collar. My interlocutor (as we say in Mexico) allowed that this could have played a part, but there were other matters—the possibility that there had been two pipes, a contingency that the shears had not been designed for.

A senior energy journalist was there who, acidly observed that “the BP people don’t want to talk to me. The only one in BP with whom I have an open relationship is Bob Dudley.” It was perhaps in this conversation that the observation was made that if ExxonMobil had not immediately dispatched its vessels and a rig to drill a relief well at the Macondo site the situation would have been much worse.

There were three young women who were BP employees who were not engaging with the press representatives and who were talking among themselves, and checking their emails on their smart phones. Uninvited, I joined their conversation. With Macondo still on my mind, I tried to elicit views on BP’s advances after this incident. I expressed the view that a central problem on Deepwater Horizon was the “get-along, go-along’ culture, in which everyone, unconsciously, wants to protect his boss by keeping silent. It was this silence, I said, that was responsible for the loss of life and billions of dollars of costs, both out-of-pock and those of opportunity.

One of the BP employees said that her background was in the defense industry where, also, there was the sociological phenomenon of the get-along, go-along culture. “So to the extent that this issue was involved in the Macondo accident, it was not a factor unique to BP or even to the oil industry; it’s a much bigger issue.” Good point, I thought; but the ‘get-along, go-along’ component of the Macondo accident is not one that BP or another oil company has thus far been willing to acknowledge.

Canadian Reception

As usual, the Canadian OTC reception was an even for some 500 guests, and organized principally by María Bofil, a long-time staff officer who is originally from Mexico. I fell into conversation with two guests from Chevron, and told them about my paper on “Vronche and the Seven Dwarfs,” which was written as a medieval fairy tale, and which was about the disappointment felt in Pemex and the Mexican government when it was learned that Chevron would not bid on the Arenque offshore field in 2012. I was asked about why there was such a disappointment. I replied that they had Chevron.

Later in the evening several people arrived from the reception sponsored by Chevron Africa and Latin America; I had known of this event, and had even been encouraged to attend, but for not having received an invitation chose to go directly to the Canadian reception.

OTC – Days Two & Three

he time it has taken me to write up these notes from Day One of OTC has consumed the time that I could have been at an OTC panel where Pemex’s Carlos Morales was a member of a panel on “Global Energy Outlook: Shaping the Future!” and which lasted from 9-12:00 a.m. I recall attending a panel of a similar kind at OTC 2012 on which Carlos was also a member. He remarks over the several hours of the panel were about trends in NOC strategies and the evolving relationships with IOCs. The words “Mexico” and “Pemex” did not figure into his remarks. Tomorrow, however, there is a “Pemex breakfast,” and Carlos is the speaker. A member of the press may attend such meal-events without cost (but no breakfast) or for $50 attend with breakfast. The tickets, however, by this time will have probably all been bought by the same crowd that had waited patiently for Carlos’s nominal boss).

As the Pemex DG could have said, “stay tuned.”


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Mexico Energy Intelligence

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.

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