A new drive by Mexico to boost production by its state oil company, Pemex, will have a ripple effect throughout the economy, finance minister Ernesto Cordero said yesterday.
“The new stage at Pemex is very important. The service contracts are ready and this new stage will mean greater productivity for the company,” Cordero told Emerging Markets.
“Pemex’s earnings help improve the Mexican government’s revenue and so any improvement in Pemex production improves the public finances. It provides a more stable macroeconomic context, lower interest rates, greater levels of investment and more employment,” he added.
Pemex has adopted a new strategy aimed at increasing production to 3 million barrels/day by 2015. Production in 2010 was 2.57 million barrels/day, substantially lower than the all-time high reached in 2004. But last year the reserves replacement rate was more than 100% of the oil produced, for the first time since 1979.
Pemex contributes one-third of public revenue and nearly 5% of GDP. Major changes in its fortunes could mean a boom or a bust for the country.
High oil prices, which the company expects to fluctuate between $80 and $100 for the next five years, are being complemented by the first licensing agreements in the company’s history.
Pemex has been running a road show for three mature fields in the Tabasco state. It intends to bring in international partners on risk-service contracts.
Pemex has presented to oil firms in Houston and Calgary, and is expected to take the presentation to Argentina. Two of the wells are in production while one is idle.
Pemex is looking to partner with companies producing at least 5,000 barrels/ day for the Tabasco wells. Other tenders will include a mature field in the north, followed by the Chicontepec basin and deep-water deposits in the Gulf of Mexico.
Pemex CEO Juan Jose Suarez-Coppell said the new environment is the result of legislative changes implemented in 2008 that allowed the company to change the way it does business, opening a window to outside participation in the market.
“The reform gave us mechanisms and flexibility. We now have elements to create value in the short run,” he said. “The mandate is for use to create revenue for all Mexicans.”
While there has been some opposition in the country to bringing in outside partners, Suarez said he was confident that the contract framework is such that the population will quickly see the benefits to Pemex and the government’s overall economic performance.
“One of the most important things for us is to have the resources required to operate as we should. The price of crude is good and the peso is strong, but we need resources to guarantee reserves and production,” he said.
Suarez said the contracts will provide resources for upstream investment, improvements at refineries and plans for treating sulfur in gas and diesel. While saying he could not go into specifics, he said the company was looking at opportunities “in the largest and most liquid market in the world, which just happens to be our neighbour”.
David Nygaard, trade representative in the commercial office of Canada’s embassy in Mexico City, said the decline in production is what has led Pemex to initiate the contract process, “but it recognizes that idea is creating a virtuous circle that is good for Pemex and the partner company”.