Emilio Lozoya
View from the Top

Taking the Reins for a New Era at PEMEX

Wed, 01/22/2014 - 14:22

Q: In what ways can increased budgetary and administrative autonomy enable Pemex to optimize its profitability and success in creating economic value?

A: One way to measure the value of an oil company is through its sales, and the benefits that these sales generate. Pemex, compared with other oil companies, makes a high profit before taxes and operates at relatively low production costs. For this reason, Pemex should have management autonomy and be subjected to a fiscal regime that allows it to invest more in order to produce more, and thus pay more taxes. While other oil companies pay around 35% of their revenue in taxes, Pemex pays over 70%. Management and budgetary autonomy would allow Pemex to operate with far greater e·ciency by reducing bureaucracy, and to respond to changing market circumstances with more agility. Pemex should be seen as an engine of economic growth, through which Mexico can attract investment and technological development while strengthening the domestic supply chain.

Q: What are the main pillars of Pemex’s strategy to increase oil production to between 2.7 and 3 million b/d by 2017, and what is your approach to help Pemex to reach that goal?

A: Unlike in recent history, Pemex now has a broader portfolio of exploration and production activities. We are currently working on 20 new projects, both o†shore and onshore, to increase production. However, it is imperative for Pemex to have partners with whom we can share risks, because Mexico’s energy future lies in deepwater exploration and production, where projects require larger investments. Oil companies around the world, including state-owned oil companies, diversify risks without losing the ownership of the hydrocarbons. Mexico has 30 years of oil production guaranteed at the current production rate, but if you want to exploit unconventional resources it is necessary to drill thousands of wells, and partners are required to do that, not only from a budget and technological perspective but also to meet the organizational and logistical requirements of such an undertaking. Also, by working with partners Pemex will be stimulating the development of the oil services industry by bringing new players into Mexico.

Q: The energy reform envisions the participation of the private sector in non-essential activities of Pemex. Which activities of Pemex do you consider to be essential?

A: The aim of the reform is to exploit Mexico’s hydrocarbon wealth in a way that enables Pemex to stop being a source of foreign currency and start becoming a company that produces more hydrocarbons in a cheaper and cleaner way, while creating high quality jobs and generating more tax revenue. All of Pemex’s activities are important because they are part of a production chain that starts with exploration and finishes with the delivery of the end product to the client. However, the priority for Pemex at this moment is exploration and production of hydrocarbons in order to advance the entire production chain of the company.

Q: What would be the impact of spinning o non-essential activities on Pemex’s performance in core activities?

A: Pemex is the seventh largest oil company in the world and has large hydrocarbon reserves. However, Mexico is forced to import gasoline and gas. The fact that Pemex represents around a third of Mexico’s federal revenue limits its ability to maneuver and exploit other business areas or invest in modern technology. As I said before, the entire production chain is important. We need to increase oil and gas production, we need to make substantial investments in refining to refined product imports, especially gasoline and diesel, and we need to increase gas production and build more transportation infrastructure to increase the competitiveness of the manufacturing industry, and seize opportunities in petrochemicals. As emphasized in the Pact for Mexico, we will be looking for the participation of new players in the oil and gas industry, both individualy and in partnership with Pemex, in many of these areas. Pemex is seeking to attract resources from other players to accelerate the development and exploitation of Mexico’s hydrocarbon resources.

Q: What do you consider to be the main opportunities for enhancing operating performance through organizational restructuring?

A: First of all, our intention is to emphasize the corporate ethics and social responsibility of our company. Therefore, Pemex should be transparent and operate based on a permanent system of accountability. Mexico has the most restrictive regulatory framework in the world, and we have to make this framework more competitive because the oil and gas industry is global. A company that does not see su·cient return on its investments in Mexico will go to another country. There are more favorable conditions available around the world, and this is a critical point that must be addressed. A new organizational structure should improve decision-making and increase operational e·ciency, which in return will require the advancement of corporate governance best practices. This is an area we are studying and we expect to see the results soon.

Q: What will be the respective roles of Pemex and external partners in introducing advanced technology and developing expertise to address the unique challenges faced in Mexico?

A: Technology is one of the most important variables that determine the success of a company. Today, Pemex is working with the best and most innovative technologies on the market; however, we still have a lot to do. One of the main instruments in allowing Pemex to meet its strategic goals is to promote technological development and human capital development. To achieve this goal, Pemex has agreements with various universities and institutes. Additionally, we have been signing technological cooperation agreements with various international companies. Recently, we renewed our agreement with Statoil, which allows us to advance the acquisition of technology and establish new ways of working in accordance with international best practices. Furthermore, Pemex has signed cooperation agreements with eight international oil companies, such as Exxon, Shell, Chevron, Statoil and Petrobras, with regard to research, technological development, scientific cooperation, and training in the areas of exploration, drilling, and the production of hydrocarbons. These agreements with operators enable our people to participate in technology research projects and geological analysis programs, and learn about research and the application of new technologies, and to conduct analyses of geological conditions or new ways of completing wells. We have also been looking for ways to develop our sta† through postgraduate programs in Mexico and abroad. This has allowed us to strengthen our project execution capacity in exploration and production projects

Q: What is your perspective on the success of the first two rounds of Integrated Services Contracts (ISC), and what are your expectations for the upcoming third round in Chicontepec and a future round in deepwater?

A: In early March, we held an informative workshop about the third round of integrated service contracts, during which it became evident that there was great interest among the companies participating in the Chicontepec bidding round, despite the fields’ complexity and the degree of specialization required for their successful exploitation. Based on our experience from the last two rounds of ISCs we are looking for honest and open dialogue with organizations that are interested in bidding in the third round. The fields in Chicontepec will be awarded in July 2013. We still have not established the correct scheme for deepwater, but it will be completely in line with the current regulatory framework.

The integrated service contracts have allowed us to invest resources in fields that were previously inactive. In addition to the nine integrated service contracts that were tendered in the first two rounds, we have signed over 200 framework agreements, in line with the new legal framework, for the procurement of equipment and services in areas such as drilling, pipeline and platform construction.