Mexico: BP - The Comeback of a Giant?

First published in the Spanish version of Petróleo y Energía Magazine?

First established in 1908, in Iran as Anglo-Persian Oil Company, BP has an estimated value of one hundred thousand million dollars ("mdd"), employing 85 thousand people, with an annual turnover of 220 thousand million dollars. The Giant has sought for more than fifty years to establish itself in Mexico, penetrating beyond the mere sale of lubricants and petrochemicals. You see: giants have forgotten art of patience.

Comeback or Reappearance?

Although BP has never really been gone... It has been in Mexico since the 1960s. At that time, the oil company began, shyly, with the marketing and distribution of Castrol (motor) lubricants. "Expropriation" winds were still blowing and that's why in those days, being already a giant, it decided to be a giant in discreet disguise.

Now, in 2017, with the opening of the Energy market through the Energy Reform, BP participates in our refined product and oil markets, trying to take advantage of generous slices of the national energy pie, as it corresponds to its gigantism.

Its market "hunger" includes leadership in the segment of synthetic lubricants, natural gas, liquefied natural gas and, of course, crude oil and fuel retail segment. Not bad for a champ comeback or a triumphant comeback in the three segments of the hydrocarbons sector.

Leading Role Reappearance

As in the best circuses of the world, the giant oil company returns with a leading role, in the three "tracks" of the industry, namely: upstream, midstream and downstream.

Regarding Upstream activities, BP, the world's fifth-largest oil sales company - the eighth in crude oil production - won two blocks in Cuenca Salina, and was allowed to offer more than $600 million for the Trion joint venture with Pemex, only a few Mdd below the winning proposal of PHP Billiton.

Despite its defeat, it made the sector feel the power of the emporium. BP continues to participate actively in obtaining storage capacity to be able to import eight billion litres of gasoline. BP Estaciones y Servicios Energéticos, S.A. de C.V., its Mexican subsidiary or affiliate obtained the third or fourth more generous permit issued by SENER for that purpose- and that is getting ready to inject into the market.

This would position it as an important midstream and, no doubt, downstream player.

Continuing with Downstream segment, the oil company has been present for decades, perhaps discreetly and indirectly, with a service station in one of Mexico City's traditional areas, the neighborhood of Mixcoac. The abysmal or huge difference is that it will now commercialize the fuel, which will be steadily imported from the US, taking advantage of its huge production of gasoline. This will be seasoned with its "Active Technology" -the house seasoning, which promises to protect the engines from any impurity, before being dispatched, at franchised stations under its own brand.

BP will -therefore- reach a market of fuel retail stations whose annual sales generated, between 2011 and 2015, the not contemptible amount of 20 thousand million dollars. This market will be shared with other giants such as OxxoGas, Gulf, Petro Seven, Hidrosina, G500, Pemex itself; and in the foreseeable future with Texaco and Costcom, which has just opened its first service station in San Luis Potosí. BP's commitment is not small. It has committed to install by 2022, a thousand service stations...roughly 10 percent of those that exist today. The picture in this regard is more than flattering for the oil company if it manages to replicate, even in the slightest way, the overwhelming success of its first station, in front of the emblematic "Satellite Towers", one of the city landmarks.

All this factors will interplay with Pemex's national downstream sector, until recently exclusive territory of Pemex. It is a touchstone for the private sector and an indicator of the effectiveness of the Energy Reform. This area is where its fruits are best perceived. The segment goes through an impasse with an uncertain forecast: It has not been easy for the Productive Company of the Mexican State to pass from being authority to convert itself into a player, after seven decades of status quo, notwithstanding the advantage it received with Round Zero.

At first glance, its corporate practices could had used a little revamping: Pemex's refineries were subject to maintenance cycles that had little or nothing to do with the curves of consumer demand; the transportation infrastructure needed a good amount of work in terms of maintenance and physical security; its fleet of pipes -an atavistic means of distribution, with inherent problems- not always succeeded in supplying its eleven thousand service stations, scattered over two million square kilometres of territory, for 130 million inhabitants.

Continuing with the simile, not only BP is like "Goliat", but also the national "David" will have to equip itself to defend its piece of territory.

But what are the giant's feet made of?

BP has put on the table approximately a little more than a trillion USD, a lot distributed in different projects. And as it is has been said, the Giant will have to defeat others than the national "David".

Numbers and prospects of this size would let us assume that the oil company is aware of its obligations and in control of its assets. However, a cloud of legal contingency is suggested and it appears to be consolidating judicially in state courts of the Northern neighbour.

It should be noted the fact that BP remains committed to working with the communities in which it operates to improve the quality of life of its inhabitants. It basically does so through various educational programs. In 2012, BP established the BP-Anahuac Strategic Studies course with the Anahuac University of Mexico City, with a view to "contributing to greater security of energy", according to its page [...] from internet.

However, paradoxically, the company has been attributed with certain corporate cost-cutting policies. These policies oriented to raise productivity have impacted mainly two areas: The press reported that the oil company could have avoided the eleven deaths caused by the sinking of the Deepwater Horizon drilling rig as well as the thousands of victims, both Nationals and North Americans, affected by the oil spill of Macondo that contaminated expansively the Gulf of Mexico.

* * *

A long time ago, Nebuchadnezzar, king of Babylon had dreamt the statue of a giant. In his dream, the giant had the head made of gold, the breast and arms of silver, the belly and the thighs of copper, the legs of iron, and the feet of clay. In his dream -or should we say nightmare- the monument was destroyed by the action of a pebble that in an oversight came off the top of the mountain and on its way down unleashed an avalanche that impacted the feet of the giant. We all know the tragic outcome.

Champions of business intelligence and aware of what the Mexican market, the 14th world economy, will bring, the oil giant will tackle the pebble, in an expeditious and timely damage control, which will mark its corporate practices.

And indeed, BP will surely use the particular moment and circumstance to deny misconceptions or ideas and erase the stigma that may have been perceived on giving unequal treatment to the Mexican survivors of Macondo, in relation to their American companions of misfortune, preserving their reputation before the national market. A country, that once again welcomes it and which represents an almost inexhaustible source of wealth.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official opinion or position or institutional view of Rodríguez Dávalos Abogados.

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