Solving the PEMEX Puzzle

Q: What has been your contribution to PEMEX’s development in the five years you have worked together?

A: As a result of the Energy Reform, PEMEX needs to understand what constitutes a competitive marketplace. Our role includes helping PEMEX in that regard and also how it can participate and what sorts of processes and procedures it might consider to be effective. It is not surprising that the Energy Reform was needed. Rather than being an imposition, it was a necessity for the Mexican economy. PEMEX was afflicted with the same problems that most national oil companies have: it had become an entity of tremendous wealth and revenue for the country, but as a result of the outflow of money into the public purse, there was not a significant enough budget for it to expand, maintain or repair production infrastructure or to focus on the growth and replacement of reserves. As a result, PEMEX experienced a precipitous production decline. 

PA has stepped in and worked with PEMEX to assist in understanding what a competitive market is and what a NOC needs to be if it is to be competitive. We have helped the company look at areas of the operation that need to change as a result of having other players participating in the Mexican oil and gas market. 

Q: What would be a good example of this learning process?

A: Before the Energy Reform there was no need for a tariff of any significance because PEMEX owned the pipelines and the production. This meant that, between PEMEX Exploración y Producción (PEP) and PEMEX Logística, the true owner of the NOC’s pipeline network, it was less important to have tariff structures that really recognized the value of transporting through the pipes themselves since both were owned by PEMEX. Going forward, with international participants operating offshore platforms and facilities, it is reasonable to expect that they will want to transport their product through those pipelines. PEMEX needs to understand what a realistic tariff level is and how industry pipelines operate as a provider of transportation services, as opposed to being part of a completely integrated NOC operation. 

When advising PEMEX on its transportation tariff structure, we relied on our expertise related to the development and use of transportation tariffs on pipelines from our business in the US. Much of our business in terms of pipelines that once were part of PEMEX is very much akin to the business in the US. For example, PEMEX’s natural gas pipeline infrastructure is now managed by an independent institution, CENAGAS, which is charged not only with managing the existing pipelines, but also with improving how pipelines operate. SISTRANGAS, the pipeline system managed by CENAGAS, not only contains the former PEMEX pipelines but also seven independent pipeline operators. This is reminiscent of the pipeline network in the US. 

Q: What should new participants entering the Mexican oil and gas industry know about doing business in Mexico?

A: New participants should know that the way of doing business in Mexico is much slower, decisions take more time and can be much more methodical than what might be seen in other competitive oil and gas markets, such as the US. It is also important for new participants to understand that in Mexico business is highly relationship based. 

In Mexico, participants need to understand that PEMEX, as a result of the Energy Reform, now has different business units, with individually-focused business goals. Each unit may stay under the PEMEX umbrella or may be removed. PEP and PEMEX Logística, for example, used to be essentially departments and now they are standalone businesses charged with their own profitability. Helping them understand how to be paid for services that until now had just been a pass-through charge is a fairly daunting task that we have been working on. I think for entrants that are coming into the Mexican market it is important to understand these different segments.