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Analysis

López Obrador’s PEMEX Pillars

By Pedro Alcalá | Tue, 01/21/2020 - 21:07

While his ties to PEMEX were never direct in a personal sense, meaning he maintained no significant political relationship with the people chosen to fulfill its management positions, his base of supporters from his home state of Tabasco have shared close connections to the oil and gas giant. At the same time, he campaigned extensively to defend PEMEX from what he and his supporters perceived as an attempt to weaken it through the redistribution of powers and responsibilities enacted in President Peña Nieto’s 2013 Energy Reform. López Obrador’s support of PEMEX is based on the following four pillars.

Production 

Increasing PEMEX’s production and national production levels are two objectives that seem fused in López Obrador’s agenda. One of the main goals is to return PEMEX to a previous state of global relevance in the industry. The commercialization of a larger volume of production also plays an integral part in the administration’s plans for the financing of its general economic development agenda. 

“These (23) strategic fields alone could contribute up to 1.6MMb/d to national production by 2022, which would help us meet our goal of 2.48MMb/d in yearly average production for 2024, with a final production level of 2.654MMb/d by the end of that year.” At a tour of the Ixachi field, May 21, 2019

“We do not want to overexploit our reserves. There must be replacements. We have to understand that crude is not a renewable resource and that we must ensure that future generations have access to this wealth that belongs to all Mexicans.” At the presentation of the National Refining Plan, May 26, 2019

“We will continue to support PEMEX during the first three years of our government through budget increases and tax reductions so that it may have more resources at its disposal for investment. As a result, we can expect higher returns through increased production in the last three years of our administration, which we can use to contribute to Mexico’s development. In other words, we plant the seeds for oil, so to speak. Reducing PEMEX’s fiscal burden is fundamental in that process.” At the presentation of the PEMEX Business Plan, July 16, 2019

“We have now halted the decrease in oil production. We have stabilized these levels and we can now look forward to the beginning of a steady increase starting next year.” During a visit to the Xikin offshore field, Dec. 7, 2019 

“If we did not intervene with urgency, not only would oil production continue to fall, but so would the entire national economy.” At a morning press conference, Dec. 13, 2019

Private Operators & Contractors 

The president’s rhetoric toward private operators can appear a lot more heated than his actions would suggest. After a year in government, he has made it clear that he respects the boundaries set out by bidding round contracts and that no attempt to intervene in privately managed oil and gas blocks will be attempted. However, his statements on the subject appear to sometimes carry the implication that those blocks would be better managed and in safer hands if they were under PEMEX’s jurisdiction. As the budgeting realities of the NOC continue to set in, it can be expected that this approach will continue to soften further. 

“We will not cancel any document signed with private companies, both national and foreign. We instead want to motivate those who received these contracts to invest, produce and compete because they have not done so yet.” At a morning press conference, March 18, 2019 

“There has been too much external contracting, which has demonstrated a lack of efficiency.” At the presentation of the National Refining Plan, May 26, 2019

“The contracts will not be canceled because we do not want to pick fights. Fortunately, those 107 contracts involve, at the most, 20 percent of all oil and gas areas in Mexico, 80 percent of which continues to belong to the nation for the benefit of all Mexicans.” At the presentation of the National Refining Plan, May 26, 2019

“We are now investing where the oil is actually located. What they used to do is they used to invest in the north, in deepwater, because they were not interested in production, they were interested in handing out contracts.” During a visit to the Xikin offshore field, Dec. 7, 2019 

“Technocrats are very limited and, contrary to popular belief, very inefficient. They assumed that public investment in PEMEX was no longer necessary because their reform would attract an abundance of foreign and private investment, but it never arrived.” At a morning press conference, Dec. 13, 2019

Finance

Hand in hand with his prioritization of PEMEX’s production goals is the president’s view on how best to handle the NOC’s financial issues. While some have criticized the López Obrador’s plans for the oil giant as being filled with unnecessary expenses that risk pushing the company’s balance sheet into an even more precarious position, he has made it clear that paying off debt step by step is rigidly calculated into his plans, while allowing a decrease in PEMEX’s tax burden is also an essential part of his strategy to give the NOC space to allow for necessary internal investment.   

“Those who claim that PEMEX is doing very badly, financially speaking, are playing the game of betting on speculation. The truth is that PEMEX is heavily supported by the federal government.” At a morning press conference, March 18, 2019 

“We have made the commitment to not increase public debt in real terms during our administration, and we will keep it.” At the signing of a refinancing agreement for PEMEX with HSBC, JP Morgan and Mizuho Securities, May 13, 2019

“We are convinced of the importance of rescuing PEMEX because if we rescue PEMEX and we rescue the energy sector, we will rescue Mexico. PEMEX must be the platform for national development.” At the presentation of the National Refining Plan, May 26, 2019

“This business plan demonstrates that a different management model is possible, one that is based on innovation, efficiency and, above all, the absence of corruption.” At the presentation of the PEMEX Business Plan, July 16, 2019

“Imagine the profit that the Quesqui field represents for the nation. Rockefeller used to say that oil was the greatest business in the world and that the second greatest was mismanaged oil. We are managing it correctly, so we will be able to use it to push the country forward.” During a visit to the Xikin offshore field, Dec. 7, 2019 

Refining

The Dos Bocas refinery has arguably been the flagship infrastructure project of this administration, but it is also an expression of how President López Obrador feels that Mexico should approach the larger issue of refining operations within PEMEX. To him, importing too much fuel to make up for the refining system’s shortcomings amounts to cheating PEMEX out of fulfilling what should be one of its central functions: providing a widely available engine for development through cheap and nationally produced fuel. 

“It is an absurd contradiction that Mexico has not built a single new refinery in the last 40 years and that we are now buying gasoline while continuing to produce crude.” At a morning press conference, May 9, 2019 

“Dos Bocas represents a return to a time when the government could directly manage and execute public works and construction of infrastructure independently.” At a morning press conference, May 9, 2019 

“Dos Bocas will cost us US$8.5 billion over three years, no more. So, it will come online on schedule. This budget contemplates the extensive use of national content throughout the entire project.” At a morning press conference, May 9, 2019

“External companies reconfigured three of the six existing refineries, and yet the three that were not reconfigured in this manner are producing more. ... (Corruption) was a factor.” At the presentation of the National Refining Plan, May 26, 2019

“Previous strategies were based on selling raw materials, but now we want to add value to those same raw materials. This is why we chose to build this new refinery in this strategic location, because Dos Bocas is a terminal for offshore production that receives 100,000 oil barrels from shallow water wells in Tabasco and Campeche.” During a visit to the Dos Bocas construction site, Dec. 7, 2019

Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst