High hopes for growth

April 22, 2014

Pemex CEO Emilio Lozoya Austin speaking at CERAWeek 2014. Photo by Audrey Leon/OE.

Mexico’s road to passing recent energy reforms was forged by much needed collaboration in order to fix the country’s productivity growth, which has been stagnating for nearly 30 years, Pemex CEO Emilio Lozoya told an IHS CERAWeek audience in early March. Audrey Leon listened in.

The passage of recent reforms in Mexico was a perfect storm, a rare event where the three main political parties (PAN, PRI, PRD) were able to put aside differences to do what is best for the country, forming the Pacto por México (Pact for Mexico).

“The three main parties agreed on 95% of issues including energy challenges,” Pemex CEO Emilio Lozoya (pictured) said. “The political leadership of the president (Enrique Peña Nieto) and the three parties were key. After 75 years, it was quite a historic occasion.”

The main focus of the energy reforms, Lozoya said, was to tackle a paradox. “Mexico has abundant reserves, but high High hopes for growth energy cost,” he said. “Mexico pays 70% higher electricity costs than US (its main trading partner.

“The main aim of the reform is to have new policy that allows Mexico to have competitive energy prices, and at the same time ramp up hydrocarbon production, especially oil, which has been in decline,” Lozoya said.

Lozoya told Pulitzer Prize-winning American author, speaker, and economic researcher Daniel Yergin that the shale gas opportunity in the US, which has spurred tremendous job growth, had an impact on Mexico’s government officials.

“Clearly what’s happening in the US opened the eyes of our politicians,” he said. “To the extent that Mexico can replicate (that success), in a regulatory environment that is conducive, is appealing. Cheap natural gas prices are re-industrializing some sectors of the economy. Mexico has a similar opportunity. We’re committed to delivering on that.”

Lozoya tweeted shortly before his CERAWeek speech that Mexico needs to invest in energy, at double the amount Pemex will invest this year. This year Pemex is due to spend US$27.7 billion, 85% of which will be spent on production and exploration. By 2018, Pemex hopes to increase total annual investment to $31.3 billion.

When asked about the lack of shale development, Lozoya said: “Mexico hasn’t developed it because we have plenty of more practical and profitable opportunities. Mature fields are the immediate opportunity.”

Mexico hopes to launch its Round Zero soon, which Lozoya said will be a great opportunity for private investors. Currently, Mexico’s congress is waiting on Pemex to submit its list of fields that it wants to keep for exploration and production. The assets not on the list will be given up for sale. Pemex has until 21 March to submit its wish list.

Lozoya said Pemex is targeting 3MMb/d of oil production by 2018. It currently sits about 2.52MMb/d.

According to a January 2014 investor relations presentation, Pemex said it recognized the opportunity in deepwater Gulf of Mexico. Already, the company has acquired 124,790sq km of 3D seismic.

“When we look at the offshore opportunity, if you think about shallow water, Pemex has tremendous infrastructure there,” Lozoya said. “Deepwater, in the northern area of Mexican territory, it is easy to use US infrastructure to get oil to market.

“The benefit of North American energy infrastructure is huge. Shale extends into Mexico, and US deepwater is similar to that of Mexico,” he said, continuing that shared infrastructure could be key to development, but there would also be a learning curve.

Another aspect of the energy reforms will be a new Pemex. Lozoya said that after 75 years, Pemex will change its corporate governing structure to include a new board, with five independent members. Additionally, Lozoya said that the company will now be able to compensate workers with industry-competitive salaries. “This represents a way to develop and keep staff,” he said.

Lozoya also discussed the opening of new subsidiaries, and the possibility of splitting the business into upstream and downstream sections. The company already opened a new procurement office in the US last year.