Interview with Luis Vielma Lobo for Global Business

Originally published in Global Business

“I am rather impressed with both the dimension and comprehensiveness of the energy reforms approved by congress. Mexico’s energy reforms encompass all of the critical elements that any transformation of the sector will require in any country.”

CBM was originally born as an upstream engineering processes consultancy in 2003. What are your service lines and how do CBM’s services assist clients in their ongoing quest for efficiency and higher margins?

To begin with, an important and distinctive attribute of CBM is that we are defined as a conglomerate of practitioners. In other words, the professionals that make up CBM possess a high degree of knowledge and practical experience in their respective fields. This is in sharp contrast to consultants who may indeed have the knowledge, but might lack the hands-on experience of working in various parts of the industry value chain.

When we first came to Mexico, we made the decision to bring along with us many talents with a long track record at Petróleos de Venezuela S.A. (PDVSA), across the entire hydrocarbons value chain. In this respect, CBM is effectively a small Exploration and Production (E&P) company, with the difference being that we are more of a technical center than an operator. We do not yet operate or provide operating support in the upstream business.

Currently, CBM is composed of about 200 professionals, with an average of 22 years’ experience in their respective fields that provide support and technical assistance to the wider energy sector. We have collaborated not only with PEMEX, but also with the Secretary of Energy (SENER) and the National Hydrocarbons Commission (CNH), as well as a number of oilfield service companies (OFS) and academic institutions.

Hence, the experience we have as practitioners has enabled us to build a unique Mexican firm that has defined its own methodologies in each of the areas we support our customers in. Working together with our clients, we apply our own methodologies and in the process, transfer the knowledge of the practitioner and the methodology to the customer, creating long-term value. This is our differentiation strategy and competitive advantage.

What is important about this concept is that some of our clients, including Pemex, still continue to use the methodologies as internal practices of their organizations. Hence, we are not only responsible for helping our clients realize their goals; we also have the important role of transferring our knowledge and competencies. This enables them to learn and apply some of the best industry practices in a continuous and productive manner, on their own and well into the future.

Which project would you highlight, past or present, as the one that best embodies what CBM is and how it supports its client’s ambitions?

We are proud of several methodologies we have implemented at the beginning with PEMEX and that were then used by the people as a practice; we are referring to the well´s design VCD methodology that we formulated which encompasses the Visualization, Conceptualization, Definition, Follow-up and Evaluation of well designs. The sheer value of our approach is in the fact that PEMEX has been using it internally for the well design of the wells in different assets, since we began to work jointly with PEMEX engineers some eight years ago. Considering the importance of well design to maximize production results, this is a critically important step in the E&P value chain, and we are proud that we have been able to achieve such a success alongside PEMEX.

In doing so, we organized a number of workshops with Pemex’s people to familiarize them with the details of our methodologies and also work with them on particular well designs under the approach “learning while doing it”. Today, PEMEX has established its own well drilling centers for its engineers to assure that well drilling operations follow the engineering program while reducing risk during the operation. As today CBM´s role is basically mentoring the process, to ensure the value proposal for each project PEMEX pursues. Needless to say, we play a more engaging and active role in those projects where PEMEX lacks the adequate competencies.

On the other hand, looking at the organizational dimension, we have also made some significant contributions in the human resources space. More specifically, we have helped PEMEX define a methodology that would maximize its talent development efforts. The goal is to ensure the competencies and talents of each of its engineers. The scope of this project, from 2004 to 2008, allowed the competence measurement of more than 6,000 engineers, establishing educational programs to close gaps of each one of the engineers with respect to their position and also with the role-playing in multidisciplinary teams.

This practice has allowed PEMEX to review on a continuous basis the engineer’s competence and enabled them to map and pinpoint each of the competencies they have, across all of their Production Assets. Based on this information, PEMEX has in turn been able to effectively plan the future development of their professionals in accordance with their product portfolio and organizational vision.

What do you make of the historic energy reforms headlining the news locally and internationally? Is this what is needed to really unlock Mexico’s energy potential, or is there more?

Let us put it this way. If someone were to tell me, or anyone else in the Mexican energy industry for that matter, three month ago that the congress would approve the deep and multidimensional energy reforms that they did with such swiftness and few alterations on December 16th, I would have struggled to believe them. I would have quickly disregarded these claims as implausible and I am adamant that my industry colleagues share this view as well.

I am rather impressed with both the dimension and comprehensiveness of the energy reforms approved by congress. Mexico’s energy reforms encompass all of the critical elements that any transformation of the sector will require in any country. In particular, this involves adapting the constitution, secondary laws and regulations to steer all of the processes, the clear definition of who the resource owners are, as well as outlining what sort of company they want their national oil company to be. In addition to this, ensuring transparency in the sector is paramount for attracting international investors, considering some of the adverse practices plaguing the region.

The reform document also considers specific types of contracts that will be used in the various regions of the country and an Economic Fund that will save surplus income base on certain considerations tied to windfall profits. This fund will be administered by the Bank of Mexico, a decentralized institution that has the highest reputation within the Mexican society, and finally the preservation of the environment and the implementation of sustainable business practices will allow a seamless transformation process.

In sum, the constitutional phase of the reform has been cleared, and now the focus lies on the estimated 28 secondary laws and regulations that will be (re-)defined and have to be ready by the end of April. We realize that government and industry have taken a holistic approach that touch upon the industry’s main components, spanning from organizational to regulatory considerations, as well as environmental and sustainability concerns. The job done, sends a clear message to investors worldwide about what they can expect if they choose to pursue opportunities in Mexico’s energy sector, and in turn, what Mexico expects from them too.

It’s clear that PEMEX can’t do everything by itself, so where should it focus its efforts in order to maximize its value? And what part of the oil and gas value chain should be left to the international players?

It should be noted that PEMEX as an organization is awash with highly skilled and experienced people, both in the technical and strategic domains. These are people who are well versed in their business and are also highly committed to the company and the country; an attribute I have come to admire greatly in my Mexican colleagues.

As per my experience, one of the core issues at PEMEX today is related to the execution capacity that it has. In this context, we define execution capacity not only as the number of professionals required to achieve a certain task or project, but also the financial resources needed for further development, the dimension of the areas assigned to them as well as the equipment and technology available to them.

With that backdrop, one of the key objectives the energy reforms have targeted was changing the status of the state-owned company from an efficient institution, into a so-called ‘public productive company’. The government is effectively centralizing PEMEX, in a similar manner as they did with the Bank of Mexico. In other words, they are providing PEMEX with the tools to tackle the issues it has with its execution capacity.

The so-called “round zero” gives PEMEX first rights to explore and produce hydrocarbons at the country’s onshore and offshore fields, either by itself or in association with other companies. PEMEX will therefore explicitly define the projects it aims to retain in the future, and those it will seek partnerships in, based on the execution capacity they have. In this regard, I believe that PEMEX is being challenged, for the first time, to carefully select those resources it can effectively and efficiently exploit. It is required to do so by law.

How can we expect to see you evolve and grow the company? What are your personal ambitions?

Mexico is on the verge of a great transformation. With these reforms, many investors across the globe are turning their attention to Mexico. Against that backdrop, CBM is a unique company that might be of great value to potential investors or participants that will look to leverage the tremendous experience and network we have amassed in the country over the past decade.

Our intimate knowledge of the oil industry extends beyond the surface processes, but also at the variety of geological and sub-surface realities as well. We also have a good grasp of what technologies work in specific areas, and which do not. In this respect, we have all the tools and knowledge needed to enable potential investors effectively capitalize on the specific opportunities they seek, in whatever domain or area of the Mexican industry. CBM, in other words, is the perfect partner that can convey new entrants with a steep learning curve.

Adding up our decade long experience and track record in the local industry and its oil fields, together with the past experience of operating oil fields, CBM is undoubtedly very well positioned to grow in parallel with its partners and clients.

Over the long run, we do have a strong interest in establishing a locally based oil and gas operating company that can benefit from our collective experience in the actual operations of fields. Although financing such an endeavor can be a monumental task, we are on the lookout for the right partner that will be able to complement our strengths in order to successfully grow a junior operating company together.