PEMEX Need Not Be Alone

It has been six years since the implementation of the Energy Reform and for Sergio Pimentel, Commissioner at CNH, it is time to stop talking about it. “A reform implies something new, which is not the case for this legal framework anymore,” he said during the closing speech of Mexico Oil & Gas Summit 2019 at the Sheraton Maria Isabel hotel in Mexico City on Thursday.

The Energy Reform granted CNH, CRE and ASEA the same level of authority as any other ministry in the country, which avoided having a single dependency that centralized enough power to be influenced by corruption and have a negative impact on the national industry. According to Pimentel, this was decided to ensure that the hydrocarbons under the Earth remained the property of the nation, but would also serve the purpose stated in the Constitution of ensuring Mexico’s long-term development through effective exploration and extraction activities. This was also the reason why commissioners for CNH and CRE were no longer designated by the president but by at least two-thirds of Congress.

However, Pimentel highlighted a contradiction in CNH’s calling and the country’s reality. “Governments have a short-term vision. Campaigns are built on a social and economic plan that seeks to keep people in the government, but exploration and extraction activities require long-term planning,” he said.

Pimentel also referred to CNH’s responsibilities, which he narrowed to five: develop information and knowledge regarding the Mexican subsoil, regulate and supervise exploratory activities, tender and grant contracts, manage those contracts and all of PEMEX’s assignations and be SENER’s technical adviser. Based on these, it is incorrect to assume that CNH’s obligations stopped just because the bidding rounds were canceled and it is because of this that CNH is in the best position to share the results brought by the contracts and assignations following the Energy Reform.

According to Pimentel, all these schemes have translated to production of 73.7Mb/d as of May 2019 between private companies and PEMEX as a contractor. “This is 4 percent of the national production and represents US$3.4 billion in revenue for the state,” he said. It should be considered, Pimentel warned, that these results have been obtained while most of the 111 awarded contracts have been in exploratory and evaluation phases. As projects advance, estimations show the country could receive US$12.1 billion between 2019 and 2024. “Because of bidding round cancellations, though, the country has stopped generating more of these resources that cost nothing for the government or PEMEX,” he said.

Based on the approved exploration, evaluation, provisional and development plans and the reactivation of bidding rounds starting in June 2020, CNH has already made two estimates of how the national industry could develop by the end of President López Obrador’s term. The first considers no budgetary restrictions for PEMEX, which could result in 2.3MMb/d of production by 2024 and an average annual investment in PEMEX of US$25.7 million. “However, considering this year’s budget of US$13.5 billion, this seems a bit unrealistic,” said Pimentel. As an alternative, the commission built another scenario with a budget constraint for PEMEX, which resulted in production of 2.08MMb/d by the end of 2024 with an average investment in PEMEX of US$18.3 billion.

Pimentel does see an opportunity to reach President López Obrador’s goal of 2.6MMb/d but only by 2028. Furthermore, the only way for this to happen is to reactivate the bidding rounds and sharing the risk of exploration activities with private third parties, he said. “Asking PEMEX to do everything and to do it alone is a mistake. The legal framework allows PEMEX to ally with third parties, participate in tenders and use tools that were not accessible to the company five years ago. There is no longer a political cost for the reform. Talking about it right now is no longer of use; it is already the legal reality in the country. Why not use it?”