Towards a Brazilian model for Petroleos Mexicanos?

This week we are pleased to feature a guest post by our colleague Agathe Vigne, a trade consultant specialized in the oil and gas industry.

The times they are a changin'
The times they are a changin'

Mexico’s national oil and gas company Petroleos Mexicanos (Pemex) has represented a dilemma for Mexican governments over the past decades. Every proposed reform is subject to a large debate throughout society on whether or not to privatize the “national treasure.”

While Vicente Fox sagely compared Pemex to the Virgin of Guadalupe, both “symbols for Mexicans that should be handled with care,” President Felipe Calderon tried a more direct approach with 2008’s energy reform. Debate over the bill came to its peak with the occupation of the national assembly and the subsequent withdrawal of the most controversial aspects of the text.

While on an official visit to Brazil this past September 19, President-elect Enrique Peña Nieto (EPN) has again mentioned the possibility of a reform that would allow for more private investment in the company. “What I am suggesting is Pemex’s modernization,” he said, “It is not about privatization, it is a mechanism that facitilitates private sector participation.”  His idea is to increase the national company’s competitiveness through a gradual partial opening to international stock markets. (El Universal, September 20, 2012)

This declaration follows the opinion expressed by Pemex’s general director  Juan Jose Suarez Coppel on the eve of the Mexican Oil Congress, that took place from September 10 to September 15.  Suarez Coppel brought up three options for Pemex’s future:

–          the “Banxico option,” that consists of removing Pemex from the national budget and giving it financial autonomy. This option wouldn’t change much of the company’s functionning, and the only way for the private sector to intervene in the company would be via incentive-based contracts. These have proved to be insufficient in the case of complex or risky projects such as shale gas or deepwater exploration.

–          the “Saudi Aramco option,” which consists of privatizing the company. This would require a constitutional modification, with a two-thirds majority in Congress and would create an uproar in the population.

–          the “Petrobras option,” which seems to be what EPN has in mind. This would consist of creating a mixed company that would be able to compete and associate with international oil majors.  Such a reform would also require a two-thirds majority in Congress but would be less controversial, given the Brazilian and Colombian success stories. (Business News Americas, September 10, 2012)

These recent announcements show that Pemex has no choice but to evolve quickly. Indeed, the company is confronted by a very high debt due to wrong choices in financing (pidiregas), very high tax rates, pension liabilities up to 800 billion pesos (US$62 billion), technology transfer issues, and general lack of capacities to exploit complex oil and gas fields.

The example of deepwater exploration is striking.  Juan Carlos Zepeda, president of the National Hydrocarbons Commission, underscored that Pemex does not have the equipment, material, personnel, security policies or technology to exploit deepwater fields.  Such projects generally require the association of three to five oil companies, in order to reduce risks and implement the best possible practices.

This year’s Mexican Oil Congress put Chevron in a place of honor with a long conference on its deepwater projects around the world.  Most international oil majors were present in the trade show, almost eclipsing Pemex’s traditional partners — oil services companies such as Schlumberger or Halliburton. The sign of a change towards a Brazilian model?

Agathe VIGNE

Trade Consultant for Oil and Gas

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