FTI: Communication is Key to Managing Risk in Mexico’s Oil, Gas Market

By: Karen Boman

Effective communication by oil and gas investors with Mexican authorities – and investor knowledge on finding the right partners to achieve the best results – will be critical for oil and gas companies, oilfield service companies and investors and others looking to participate in Mexico’s reformed energy sector.

Addressing the challenges of Mexico’s regulatory and legal environment and risks presented by political opposition to energy reform and public opinion requires companies to have a comprehensive approach to public affairs, according to a January 2015 paper by FTI Consulting on Mexico’s oil and gas investment opportunity.

Knowing how to send the right message through the appropriate channel to agencies such as the National Hydrocarbons Commission and National Safety Energy and Environmental Agency, which are building the Mexican oil and gas sector’s new regulatory landscape, will be critical to ensure regulations don’t set standards that make operations a logistical and bureaucratic nightmare. Monitoring on-the-record activities of key public officials to gauge progress of the reforms and detect policy changes also will be important.

“Failing to engage closely with government regulators can create miscommunications and lead to missed opportunities,” according to FTI.

Oil and gas companies will need to implement a successful communication strategy to deal with local environmental and social groups, and address land use issues along with left of center political opposition which continues to express strong sentiment against Mexico’s energy reform. In Mexico, land on the outskirts of communities traditionally has gone to public uses, and local activists could gain broad support by protesting against foreign companies instead of the Mexican government of state energy company Petroleos Mexicanos (Pemex).

Companies will also need to be ready to deal with public protests during construction of infrastructure, and operations such as onshore well installation and hydraulic fracturing. The end of term limits this year in Mexico’s political system means that members of Mexico’s Congress will be campaigning to keep their seats, and are expected to be more responsive to their constituents. Their dissatisfaction, amplified through mass communications and social media, could create controversy for and potentially unseat congress members who support energy reform.

Any combination of these developments makes it critical for oil and gas companies to develop a proactive strategy that drives positive news coverage and quickly rebuts factual errors in the press. This strategy includes building a power public coalition that will allow companies to speak out without being singled out. A successful coalition should focus on the positive and community-building impact that expanded oil and gas production will bring Mexico.

“Social responsibility programs, on top of the jobs issue, also can be part of a program for private companies to give local communities a stake in the private sector’s success.”

Implementing a strategic communications program as quickly as possible allows for companies to set the terms for future debates ahead of the opposition’s efforts to do the same, FTI noted. Key elements for building supportive coalitions and quickly responding to opposition include website resources that can serve as a clearinghouse for facts, figures and information; looking for opportunities to engage with key target audiences on Facebook, Twitter and online social networks; monitoring media quickly to respond to misinformation; an aggressive strategy on “letters to the editor”, comments and story development; getting to know and assisting reporters; and preparing documents with research and messages that are easy to understand and actionable.

“Across industries and countries, organizations that have failed to define themselves first will be defined by opponents – even when the government is on their side,” said FTI. “A solid reputation is built over time but can be lost overnight.”

Despite corruption, political unrest and extreme drug cartel violence, the reform of Mexico’s energy sector and Mexico’s Round One opportunity of 3.782 billion barrels of oil equivalent (Bboe) in proven and probable reserves and an additional 14.606 Bboe have failed to shake the confidence of interested parties.

The study authors shied away from saying that companies need to ramp up social media spending, but to spend as much as they need to address issues in Mexico.

It would be naïve to think that smaller companies won’t be affected by low oil prices, but energy companies that have been waiting for a long time to establish a footprint in Mexico won’t be deterred, the authors noted. Oil companies experienced at working around the world have a high tolerance for risk, and know how to mitigate issues such as security, and know what they need to do in Mexico. While companies will likely have to change their business strategies in light of oil prices, the Mexican government will have to show some flexibility in making terms and contracts as attractive as possible to foreign and private investors.

Rigzone

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