News

Falling crude oil production, falling refined product output and falling income have led many to believe that the sky is falling on Mexico’s state-owned oil company Pemex. The perilous situation for Mexico’s energy industry — and Pemex is Mexico’s energy industry — has not been lost on officials who are trying to reform the company and, by extension, the nation’s energy landscape. Mexican officials have long argued that a strong Pemex would be a major feature of its energy reform. The company, they said, would metamorphose into an efficient, market-oriented, financially autonomous state enterprise that is able to compete on equal terms with international majors in the private sector. Unfortunately, the deep dive in the price of oil has put Pemex on an even shakier footing, with the company now losing money on crude production, its core business, for the first time since it emerged as a major producer in the late 1970s. For years, the profitable upstream division of Pemex shouldered the losses of petrochemicals, refining and other businesses. No longer, says Arturo Carranza, senior analyst of the Mexico City-based Solana consultancy. “To my surprise, during the first three quarters of 2015, the upstream division was making a loss, just like the others,” Carranza said. Including all its divisions, Pemex had net losses of almost $10 billion in the first three quarters of last year. But turning around a state-run enterprise with 77 years of inertia behind it, can’t happen overnight and while steps are slowly being taken to turn things around, more pain is likely. The first barrels of oil from private-sector newcomers following Round One of the reform effort are not expected until at least 2018. This makes arresting steadily falling crude production difficult as low oil prices have deprived Pemex of investment capital of its own. Mexico’s crude oil production fell to 2.275 million b/d in December, down nearly 12% from 2010, according to Pemex data. Pemex is not only starved for E&P money, all segments of the company are looking for investment dollars. This is why Pemex recently opened up most aspects of the company, from storage and distribution terminals to pipelines, refineries, and petrochemical plants to outside investors. Pemex paying price for years of regret Unfortunately for Pemex, the need for investors comes when asset prices are low due to low commodity prices and the company’s hardware likely needs plenty of upgrades to bring...