The Future of Mexican Oil and Gas
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Transcript of The Future of Mexican Oil and Gas
The Future of MexicanOil & Gas
…with or without Pemex
presented by:
Edgar Saldivar
BoyarMiller832.615.4276
HYLA - CLE July 26, 2012
Mexican Oil & Gas Matters
Top Reasons:
Stimulate Mexican economy Pemex is inefficient Mexican Presidential elections Shale oil & gas Brazil model U.S. energy security
“Things are always more complex than they appear”
One of the most restrictive oil industries in the world All minerals belong to the Nation per the Constitution Constitutional change is necessary Major changes have occurred, but not in oil policy
WHY? History & culture The Mexican Constitution Presidential politics
WHAT’S NEXT? Peña Nieto’s promises Shale oil & gas potential Petrobras model?
A Brief History of Mexican Oil Chapopote – the use of asphalt since the Aztecs 1917 Constitution – mineral rights belong to state March 18, 1938 – Expropriation by Cardenas That same year – creation of Pemex 1973 – OPEC created 1976 – Cantarell discovered 1979 – Iranian Revolution 1982 – Economic crisis Reform not a priority afterward
Petróleos Mexicanos (Pemex)… Mexico’s ATM
3rd largest foreign crude oil supplier to the U.S. World’s 2nd largest non-publicly listed company Total assets worth $415.75 billion Provides approx. 35% of total government revenues Sustains a costly public administration Both a cash cow and a political tool for the government
Constitución Política de los Estados Unidos Mexicanos
“The Nation owns … all the oil and all solid, liquid, and gaseous hydrocarbons.” Article 27 of the Mexican Constitution
“[T]he Nation’s domain shall not be transferred to others and will be, therefore, permanent.” Id.
“[O]il and other hydrocarbons; basic petrochemical industry,” among other industries, will not be considered monopolies
Amendment requires at least 2/3rd of the national legislatures and more than 1/2 of state chambers
Ley Reglamentaria del Articulo 27 Constitucional “[O]nly the Nation may carry
out the various oil holdings, which constitute the oil industry”
Article 6: payment of a contract will always be in cash and the property of reserves cannot be used to pay any contract
The Cultural Legacy of Expropriation Key role in consolidating
post-revolutionary government
Helped drive industrialization
Symbol of national pride and independence
Visible legacy of the Mexican Revolution
Lázaro Cárdenas is a national hero
Carlos Salinas de Gortari President 1988-94; most aggressive reformer Negotiated and signed NAFTA Did not attempt to open Pemex Oil reform was not popular Change Constitution to end ejidos In retrospect, important 1st step if
opening up oil industry
Ernesto Zedillo President from 1994-2000; inherited an economic crisis Unable to implement major reforms even if he wanted There were no incentives Minor reform in oil policy in 1996
Vicente Fox President from 2000-06; first non-PRI president in
70 years Mexico had increased oil production and prices Few incentives for oil reforms Focused on making Pemex more efficient
and modern through management
Felipe Calderón President from 2006-present Politically weak Did not want to face opposition from unions Busy waging war against drug cartels Though he wanted to make major reforms, he
could not 2008 regulations – authorized new type
of risk contracts Created National Hydrocarbons
Commission
Enrique Peña Nieto Declared winner of the July 1, 2012 presidential
election Wants partial privatization of Mexico’s petroleum and
electricity industries “Signature issue” Contested election and lack of control
of congress may be a hindrance Takes office December 1, 2012
Change in Policy is Inevitable Arturo Sarukhán, Mexican Ambassador
to the U.S.: a 2nd round of oil reforms is inevitable
President Fox in Houston: – need to emulate the Petrobras
model– all political parties announced
platforms with promises of opening up Mexico’s oil industry to stimulate the economy
Petróleo Brasileiro S.A. (Petrobras) Semi-public multinational energy corp. Founded in 1953; ceased being legal
monopoly in 1997 Brazilian government now owns 54%
of common shares with voting rights
Private shares are publicly traded Largest company in the Southern
Hemisphere Largest company in Latin America 4th largest company in the world
Why Now? Output from Cantarell is shrinking 5 consecutive years of losses Huge international interest Boost to Mexican economy Cross-party and union support Continued drops in production by
Pemex could hamper energy security in U.S.
The Eagle Ford Shale Play U.S. oil & gas industry (i.e., Houston) positioned to supply services,
resources and expertise
The Phenomenon of Shale Development The exploration and production from shale plays is booming Hydraulic fracking is key Houston has been a bailout for the U.S. Texas’ Eagle Ford Shale formation
extends across much of South Texas, into Mexico
Eagle Ford Shale has created boon in Texas:
– Housing, retail, industrial, roads, finance, legal services, etc.
550 wells using fracturing are producing oil in the U.S.
Pemex has drilled only 5 exploratory wells Potentially 4th largest reserves of non-conventional fuel
What Needs to Change Article 27 of the Mexican Constitution Mexican tax system and labor laws Partial privatization of Pemex using Petrobras model Ability for foreign companies to obtain mineral rights from Mexican
government Consensus among the public and multiple interested parties Drug violence in Mexico Public morale about 2012 election President willing to take political risks
and challenge opposing interests
The Future: Mexico with AND without Pemex Likely Scenario:
– second round of reforms setting the groundwork for partial privatization
– “real” opening of Mexico’s oil sector may come slowly
Pemex will remain the “pride of Mexico and oil workers” if it embraces the need for partial privatization to improve efficiency, earnings and production
Obvious benefits for Houston and, thus, the American economy
Questions?
Edgar Saldivar
BoyarMiller832.615.4276
http://www.linkedin.com/in/saldivar https://twitter.com/edgar_saldivar