New Corporate Structure

Wed, 01/21/2015 - 13:26

Mexico’s national oil company faces the challenge of shifting to a value-driven model. Given the scope of this transformation, one of the first steps to be taken was reorganizing the company so that its new structure would be more aligned with the objectives of a productive enterprise of the state. Following the transitory articles of the PEMEX Law, on November 18, 2014, the Board of Directors of PEMEX approved a proposal to transform the four existing subsidiaries into two new subsidiary companies. The new enterprises will have legal personality, their own budget, and technical and operative autonomy, which will be subjected to PEMEX’s central management, strategic direction, and coordination. The subsidiary companies will have the objective of creating value and being profitable, for which they will be allowed to carry out activities in Mexico and abroad. The first, PEMEX Exploration & Production, will be in charge of exploration, production, and development activities related to the country’s hydrocarbon resources. The second, PEMEX Industrial Transformation, will merge the activities, responsibilities, and assets of PEMEX Refining, PEMEX Gas and Basic Petrochemicals, and PEMEX Petrochemicals.

In addition to the two subsidiary companies, the Board of Directors also approved the creation of five new subsidiary entities or branches, which had not been formally created by May 2015. PEMEX Drilling and Services is expected to include certain assets from PEMEX E&P and will offer drilling services to both PEMEX and other participants in the market. Logistics will be separated from the traditional industrial transformation segment, leading to the creation of PEMEX Logistics. This branch will provide land, marine, and pipeline transportation to both PEMEX and other players. PEMEX Cogeneration and Services will maximize energy use in the NOC’s operations by utilizing heat and steam generated from the oil company’s industrial processes to generate electricity. PEMEX Fertilizers will be created to integrate the ammonia production chain up to the point of sale of fertilizers, separating this business from the previously-existing PEMEX Petrochemicals. Finally, PEMEX Ethylene will be responsible for the ethylene business previously operated by PEMEX Petrochemicals in order to take advantage of the integration of the ethylene production chain. Once formally created, the new branches will take on the rights and obligations of the existing subsidiaries.

As part of its strategy to streamline processes, PEMEX created the Corporate Office of Procurement and Supply (DCPA), a new division with the aim of centralizing the procurement activities. On January 19, 2015, PEMEX announced that it expects to save MX$21.3 billion by 2018 through initiatives to consolidate the procurement process, including a reduction in the number of procurement offices. DCPA has also begun developing a database to register and evaluate suppliers and contractors. PEMEX will also count on PMI, its international commercial branch, and its corporate offices to properly administer the newly integrated company.

Prior to the enactment of the PEMEX Law, the Board of Directors consisted of 15 members, six of whom were Mexican Government representatives, including the Minister of Energy, five were selected by the Petroleum Workers’ Union, and the remaining four were professional board members appointed by the President of Mexico and ratified by the Senate. Under the PEMEX Law, PEMEX is governed by a ten member board of directors composed of the Minister of Energy, who serves as the chairperson and has the right to cast a tiebreaking vote, the Minister of Finance and Public Credit, three Mexican Government representatives, who are appointed by the President of Mexico, and five independent board members appointed by the President of Mexico, subject to ratification by the Senate. Independent board members perform their duties on a part-time basis, are not public officials, and have not been employed by PEMEX or any of the subsidiary entities during the two years prior to their appointment.