The Mexican state oil company, Pemex, is in a time of profound change. When a public company performs the type of restructure that Pemex is making, it is common for the company’s shares to rise or fall according to how shareholders perceive the change.
The case of Pemex is different because of the nature of the company; it is owned by the government of Mexico with no private investors, and it is also the largest company in the country, being responsible for producing 30 percent of the annual budget of Mexico.
The profound change to which I refer is the new Pemex legal framework, with which they want to attract foreign private investment for their new exploration projects. Pemex production declined in recent years and because it is such an important part of the annual budget for Mexico, the government saw the need for a change in the structure of the oil company.
Legal Framework
Changing all the legal framework that has been in effect for over 30 years can be seen as a necessary move, or even a desperate one, by the government.
It can also be seen as an entrepreneurial strategy. With this change of the legal framework, Pemex has developed an entrepreneurial spirit and changed the company in order to explore oil in deep waters. They also needed to have allies to give them experience and technology; major companies showed interest in investing in and partnering with Pemex to make oil exploration in deep waters possible.
2015 Budget
The 2015 budget for Pemex has already been approved; it is four billion six hundred ninety-four thousand pesos—an increase from the approved 2014 budget.
Pemex is different from most companies in the world as it is a state oil company, which means that they had delayed reactions to situations and different scenarios. In a private company, these decisions can be performed quickly as there is no government bureaucracy.
All legal and structural changes that took place within Pemex in 2014 were done just to predict these events and ensure that Pemex will be able to work with an entrepreneurial spirit and able to adapt to changes in the economy. As a result, Pemex will not be one-step behind when adjustments are needed within the company.
Pemex has upgraded their refinery capacity and fuel production forecasts based on Pemex’s infrastructure spending plan. Pemex is preparing for a broad increase in total production with respect to both upstream and downstream operations. This program has drawn international interest from private oil and gas investors from around the world.
The news of Pemex processing less oil in 2015 due to refinery maintenance hasn’t affected the interest of foreign investors in their new exploration plans, even though Pemex will process 4 percent less crude oil in 2015 compared to this year’s forecast.
This will be the lowest anticipated production since 2011 and Pemex will have to import gasoline and diesel for domestic consumption.
The maintenance covers over five dozen major units at the company’s six domestic refineries. These refineries are expected to process seventy-six percent of their combined capacity.
Pemex had to boost their gasoline and diesel imports, because the volume in Mexico has slipped from a peak of more than one thousand million in 2004.
The imports of refined fuels has doubled in a decade because the oil production in Mexico has been declining. A big part of the volume of fuel imports will be determined by the maintenance plans.
How The Reform Started
In 2013, Mexico’s energy reform was signed; this operation was known as Round Zero. This indicated which assets were awarded to Pemex and moved to a new type of contract.
Pemex also announced their first ever bidding round were areas no longer under Pemex ownership will be offered directly by the State.
This report provides a detailed update on these events explaining the results of Round Zero, information about Pemex’s assets with new contracts, and the assets that the state is seeking to farm out. It also provides insight into the areas that will be offered in the first bidding round in 2015. Additionally, the report explains the main type of contracts, including the new fiscal terms.
The types of new contracts to be used by Pemex are the following: profit sharing contracts, service contracts, licenses, and production sharing contracts.
Hydrocarbon activity tax, royalty rates, corporate income tax, exploration fees, and landowner compensation fees are the main levies payable under the new contracts
The new era of Pemex, now functioning more as a company with entrepreneurial spirit, will be very interesting to follow and see their results in 2015.
This article was written by Adolfo Ramirez, a writer and former PR Manager for Hidrocarbon Exploration PLC. He lives in Bolivia.
