At the end of last century, state-run oil firm Petróleos Mexicanos (Pemex) filled the third spot in the most prestigious ranking of the world’s major integrated oil companies, that is published annually by Petroleum Intelligence Weekly (PIW). It has now fallen to the 20th position.
CDP, an international non-profit organisation that recently published a ranking of the 24 global oil and gas majors that are readying for the transition to a low-carbon economy, has the state oil companies of China, Russia and Brazil on that list. Pemex is absent.
For decades, in the ranking of Expansión magazine, Pemex was, by far, the number one of Mexico’s 500 major companies. It no longer holds that position. In year 2004, Pemex produced more than 3.4 million barrels a day of crude oil. Today it produces less than half of that amount.
Meanwhile, Pemex has become the most indebted oil company in the world, according to ratings agencies, with US $114 billion of debt and US $70 billion of labor liabilities. Nowadays, Mexico imports close to two thirds of the gasoline and the liquid petroleum gas (LPG) that it consumes, which contrasts with the relative self-sufficiency in such products that existed in the 1990s.
The question is: what went wrong? What can explain this failure at Pemex in the first two decades of this century? How is it that Pemex could, by guaranteeing its revenues, save the Mexican economy from the “December error” in public finances in the mid-1990s, yet now it has become a burden and a systemic risk to the country´s finances?
If we look back to the year 2000 in search of answers, it was in that year when the Pemexgate scandal occurred, mixing politics, ideology, labor union affairs and corruption. Ever since then, political maneuvering and corruption, the bleeding of its finances, chronic inefficiencies, improvisation and unprofitable projects have been undermining Pemex.
Why did oil production decline so rapidly at the supergiant Cantarell oil field, the second biggest field in the world? There has never been a satisfactory official explanation. Past governments made enormous expenditures with little production on the Chicontepec Project and with no production at all in deep water. Giant oil finds, like Lankahuasa and Noxal, were announced, but never produced any oil. The development of others, such as Trión and Lakach, was not completed. The reconfiguration of refineries provided poor results. Were they administrative or technical failures, or both?
The current government does not seem much different. It has announced his own giant fields: Ixachi, Quesqui, Dzimpona, which are more fiction than reality. Pemex still shows a poor performance overall. Its production and debt crises continue to worsen. It does not take advantage of the country’s major geological and competitive advantages.
The President wants to run the Pemex himself. He refuses to downsize or make it more efficient, appoints improvised directors and board members, he does not want open markets and rejects support from the private sector and imposes his own peculiar, personal ideas, such as the creation of Gas Bienestar (the “wellbeing” gas company), the purchase of Deer Park refinery, no to deep water production, no to fracking, no to clean energy. In other countries, executives must have 20 or 30 years of experience in order to take charge of major oil companies.
Rogelio Ramírez de la O, Mexico’s new Finance Minister, will now have the task of rescuing Pemex and the expectation is that he will convert part of its liabilities into sovereign debt, thus trying to armor-plate the company’s finances.
This “rescue mission” will be of no use, if it is not accompanied by radical, incisive changes in the operation and administration of Pemex, because the company would continue to run up losses and because it could increase the country risk and drag national finances into the same black hole.
It is urgent to analyze in a rigorous, impartial and honest manner, what have been the root causes of failure at Pemex. Only with a correct diagnosis and willpower can the situation be rectified. If Ramirez de la O does not demand major changes, he will be simply another contributor to this debacle. But will he try to convince the President?