Mexicanos, or PEMEX, Mexico’s state run oil company and the world’s 5th
largest producer of crude, announces that it will begin its first joint venture
as early as this year, this from its Chief Executive Officer Emilio
Lozoya. The decision by the Mexican
Congress to end the countries 75-year-old monopoly in the oil industry
means the Mexican energy business is in for boom times.
"It's a paradigm shift, a jump to modernity that should have happened
decades ago," says Lozoya. "Normally,
monopolies don't want competition. We believe competition is the best thing
that can happen to PEMEX.” Although
Lozoya is just 39 years old, his background and experience in investment
banking give him the credentials to turn the Mexican oil business around.
PEMEX is also the third largest exporter of crude oil to the United
Even so, it has seen output drop for the last nine years. The problem isn’t what lies beneath, it’s
getting at it. This is why Mexico
is putting an end to its decades-old monopoly and calling for outside investment. Companies in both Canada
and the United States
stand to gain from these new joint ventures, but no one will gain more than Mexico
Export levels to the US
have dropped to 2.52 million from 3.3 mmbopd
2004. The new joint venture initiative,
backed by none other than Mexican President Enrique Pena Nieto himself, intends
to boost that same production to 4 mmbopd
by the year
“We are already having important discussions with players, not only in deep
water, but in mature fields and other areas in Mexico
Lozoya said. “We hope to be announcing some deals towards the end of 2014,
looks toward deep waters
It’s deepwater drilling indeed where Mexico
looks to find its greatest resources.
The problem is that it doesn’t have the technology to do so. The Perdido find of anywhere from 150 million
to 200 million bbl is where Mexico is looking to partner-up with both American
and Canadian companies to develop these deepwater fields in the Gulf of Mexico
just east of the Texas-Mexico border.
Lozoya believes if the US, Canada
together, North America
will become the world’s cheapest
source of energy. According to the Oil & Gas Journal
, proven oil
reserves in Mexico
are 12.4 billion barrels. Those same
reserves are estimated at 10.3 billion barrels by the US Energy Information
As of 2006, Mexico
was the world’s sixth largest oil producing country in the world at 3.25 mmbopd
, but these levels are in decline due to decaying
infrastructure and out-of-date technologies.
Now for the first time since the country nationalized the oil business back in
1938, private firms will be allowed to not just explore but produce oil.
Proponents of the new bill say it will also
bring in billions in foreign investment.
is predicted by many industry
leaders to become the world’s largest exporter of oil and gas by the year 2025
to play a major role in this boom. The
bill itself is expected to receive little resistance and should be signed into
law by the Mexican legislature as early as the beginning of next year.
For the country’s state-run PEMEX company, with oil sales of $130 billion in
2012, this means more than just getting at the oil-rich reserves in Perdido,
but the ability to ship it out through new pipelines. Beefing up the oil and gas infrastructure as
well as new technologies is all part of the plan.
fire, but sticking to his guns
Lozoya is the youngest ever head of PEMEX.
At only 28 years old, his new vision is right in line with that of the
young president of Mexico
. While the nationalization of oil fiends made sense
75 years ago, bringing in foreign investment and know-how is the way to turn
the country’s nine year slide around.
"It's very exciting. But the challenge now is execution. We
delivered on the legislative side, now we need to execute," said Mr.
Lozoya has a master’s degree in economics from Harvard
and has managed
investment funds before. He is the son
of a one-time Mexico
energy minister. The face of Mexican
politics and business have taken on a more youthful look. This new look has now turned to foreign
sources to help the Mexican oil business grow in the decades to come.
currently has some of the strictest laws in the world when it comes to the energy
business. Not only are outside interests
not allowed to explore or produce oil, PEMEX has a monopoly on gas stations in
the country as well. The new law will
allow for outside companies to even run their own gas stations.
It’s not just changes to the law in general that’s surprising to most industry
analysts. The sweeping changes in PEMEX,
which employs 160,000 people and provides for as much as one-third of all
government revenues, even has industry insiders taken aback.
But not everyone is on board with the proposed changes. The Party of the Democratic Revolution, a
left-leaning organization, voted against changes in the current law, going as
far as to call them “treasonous.” The
party has even tried to block the upcoming vote, wanting to push it back to
later in 2015. The Mexican Supreme Court
will make the ultimate decision on whether or not the referendum will move
forward as scheduled.
Any hold-up in the new law could make investors standoffish, but PEMEX chief
Loyoza doesn’t believe there will be any delay.
"We are completely certain the constitutional change and
implementing laws give full legal certainty to PEMEX and the industry,"
says Loyoza. "We don't believe
investors will need to hold back."
PEMEX now on the
If the proposed rule changes move ahead as scheduled, PEMEX will have just
two years to completely revamp its focus from solely a tax revenue stream for
the government to a commercial entity competing in the world market. The changes would give PEMEX complete
autonomy over its fiscal budget and begin weaning off the government’s
over-dependency on oil subsidies.
What this means for PEMEX is an increase in its investment budget from $25
billion a year now to as much as $35 billion.
The new influx of investment will help the company to realize greater
E&P for the Perdido reserves as well as other projects like hydraulic
What this means for the United States and Canadian companies is a potential increase
in output from the North American region to 20 million barrels a day by the end
of the decade, this according to Citigroup
, the Canadian Association of Petroleum Producers
the US Energy Information Administration
What this means for the United States
in particular is a move in the right direction toward energy independence. Over the last 20 years, the Mexican and
American economies have become more intertwined than ever. It only makes sense that the two should be
working closer when it comes to oil production.
This is not just an opportunity for American companies to become more
involved in the Mexican oil business, but to boost profits as well. Increased profits mean more high-paying jobs
for Americans in the already booming energy business.
Large American oil companies like
Chevron already do a brisk business in South American countries like Brazil
. Moving the focus toward Mexico
now brings that even closer to home and energy independency for North
. The new law could
mean an increase in Mexican refining which in turn would mean an increase in
gasoline imports for the United States
currently imports half its gasoline due to inadequacies in its oil refining
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