Mexico Pemex opens doors to more private oil investors

For many decades, Mexico has shunned private investments on its oil and gas sector. More recently, however, state-run Petroleos Mexicanos (Pemex) seemed to open its doors anew to potential private investors. Enrique Pena Nieto of the Institutional Revolutionary Party emphasized that involvement of private and foreign firms in Pemex would certainly boost oil production.

The company has been a source of pride among the citizens of Mexico. However, this public sentiment is slowly being overshadowed by the company’s failure to perform on target, owing to lack of substantial funds flowing into the company and cutting-edge technology to explore deepwater oil fields.

Despite being the third Latin American country with respect to highest oil reserves (pegged at 13.81 billion barrels), and owning 18 deepwater exploration facilities, it still hasn’t made any significant oil find. Additionally, production has declined to 2.55 million bpd, down from a peak of 3.38 million bpd, prompting a Houston-based University to predict that Mexico may soon find itself importing oil despite high crude oil prices.

A few years ago, Mexico had made small headways by accepting private and foreign investments, although the country ensured that control over oil reserves were never part of the deals. This year, the state is seen to take bigger strides when it offered six more oil fields to private and foreign investors. Transactions will be performance based, but some say that a JV agreement would be more appropriate.  Performance based arrangements have less appeal among investors, this could lower Pemex’ chances of raising additional capital for investment in oil exploration.

Jordy Herrera, Mexico’s oil minister, said that Pemex is burdened by being run like a government institution. It is beset with state-led budget cuts as well as huge tax expense. He stressed that Pemex must push for modification of existing laws to be able to draw more funds and adopt a model comparable to Petrobas, Brazil’s state-backed oil firm.

Brazil’s Petroleo Brasileiro SA had successfully offered shares to the public in the 1950s, and has since grown six-fold. In 2010, it was able to raise $70B and utilized these funds to augment budgetary requirements of vast oil exploration ventures in the Americas.

Nieto said that amending current laws, thereby allowing Pemex to accommodate new private investment “would be my signature issue.” “We can do what Brazil did for its oil company, not at the beginning but later, if we open shares to the public,” Nieto added.