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Fresh Energy at the Helm of Pemex

José Antonio González Anaya - PEMEX
Director General

STORY INLINE POST

Tue, 11/01/2016 - 14:44

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Q: As the new Director General of PEMEX, what are the key objectives for the company’s transformation?

A: PEMEX’s transformation is a necessary step to ensure the company’s viability and the generation of value for the country. We are shaping a new stage in the history of the National Oil Company (NOC). Our main objective is to become a profitable and highly competitive company that plays a prominent role in developing Mexico’s energy industry, while strengthening our position as a productive enterprise of the state to consolidate PEMEX as one of the most important oil companies in the world. The cultural shift of all PEMEX employees and the implementation of a new work system, which is based on a more efficient use of assets and infrastructure, will translate into higher operational excellence. The ultimate objective is to generate more revenue from production, processing, transportation, distribution and commercialization activities for the benefit of the Mexican people. In the short term, PEMEX will have a flexible and agile organizational structure that, through corporate governance practices, will guarantee an efficient and transparent management.

Q: What is PEMEX’s production strategy, given the company’s budget restrictions?

A: Taking the current oil price into account, we will delay or re-evaluate certain investment projects, such as deepwater developments and fields that are not profitable at the moment due to high-production costs. In addition, we can take advantage of the tools provided by the Energy Reform, which allows PEMEX to form strategic alliances and access improved technologies while sharing risks. PEMEX, as the main oil and gas company in Mexico, is an attractive partner when it comes to investing in the country due to its infrastructure and proven reserves, as well as the accumulated experience of its engineers and technicians. These elements will underpin our negotiations with qualifying companies as we strive to find prime partners and to obtain the best conditions for the country.

BUDGET ADJUSTMENT PLAN ( BUDGET ADJUSTMENT PLAN (MX$ billion) MX$ billion)

In this way, PEMEX will attract a third party’s resources, share the risks and thus increase production levels. Costs will be ultimately reduced by operating according to the highest international industrial standards that, under shared plans, will allow us to generate revenue and maximize the country’s resources.

2016 BUDGET ADJUSTMENT

Q: How is PEMEX facing the global market downturn resulting from low oil prices?

A: The global oil and gas industry is going through a difficult time and PEMEX is not exempt. Just like other companies in the sector, PEMEX has had to adopt stringent measures to guarantee its viability. The company’s financial priority is to consolidate its structure to ensure stability and credibility in the market. We have insisted that the NOC is facing a liquidity issue but not solvency, so its viability is safe. Just like in other low-price cycles, PEMEX is addressing a challenging scenario responsibly, adjusting its budget by MX$100 billion (US$5.2 billion). This adjustment has been implemented and several anticipated programs have been shut but it will not have a negative impact on the company in the long term. Most importantly, the adopted measures will not affect the NOC’s employees and facilities. I would like to stress PEMEX’s commitment to our financial and work-related obligations.

Q: How has the budget cut impacted PEMEX’s operations?

A: Far from weakening the company, it makes us stronger by forcing us to accelerate the necessary changes and restructure costs and efficiencies. PEMEX will take advantage of the flexibility offered by the Energy Reform and implement instruments such as contract migrations and farm-outs, which will allow us to attract financial resources, technology, processes and experience.

EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN KEY ACTIVITIES

To complement the budgetary adjustment presented in February 2016, we are directing PEMEX to improve its financial indicators through concrete actions, such as the savings strategies the company implemented last year by changing its pension plan. We already are generating efficiencies. We have reduced administrative costs by merging three supporting areas in the Director General’s office into one and eliminating two corporate divisions, human resources and technological research and development, which were reassigned to the corporate administrative division and PEMEX E&P respectively. In addition, we have reduced overall expenditure and expenses related to personal services, traveling allowances and general expenses, which alleviates the company’s liquidity.

PRICE EVOLUTION OF THE MEXICAN CRUDE OIL MIX (US$ billion)

Q: What strategies has the government put in place to assist PEMEX?

A: The NOC received MX$73 billion (US$3.8 billion) from the federal government in April 2016. Considering this significant capitalization and with previous approval of its Board of Directors, PEMEX committed to clear and normalized payments to suppliers and contractors in the short term so that current liabilities can be aligned with the company’s operations. With an additional credit line of MX$15 billion (US$789 million) from the Mexican development bank NAFIN, PEMEX paid its 2015 debt according to the schedule agreed with its clients.

Since the government’s support considers the strengthening of PEMEX’s assets, the NOC’s fiscal regime has been modified, resulting in more cost deductions and lower taxes, which are estimated at MX$50 billion (US$2.6 billion) for the 2016 fiscal year. This will lead to a stronger cash balance and higher liquidity, as well as an improved capital structure and debt track record for the rest of the year. All these measurements, paired with a lower amount of debt, improve the company’s capital structure as it faces the challenge of adjusting its costs and its business strategy to the current reality as quickly as possible.

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