When oil prices collapsed in 2014, it was a hard blow to the whole oil industry. Countries such as Saudi Arabia, Arab Emirates, China and Colombia took action to restructure and reinvent their national oil companies, redefining their relationship with investors and with the global market.
Mexico did not do so. The top directors at Mexico’s state-run oil firm Petróleos Mexicanos (Pemex), headed by Emilio Lozoya, did not know what to do and, in any case, they were busy with corruption. On another level, the Peña Nieto administration enacted an energy reform, which gave priority to oil auctions and created a parallel private-sector oil business aside from Pemex.
Thus President Andrés Manuel López Obrador took charge of a weakened, highly indebted Pemex, that was in very bad shape. Tragically, he and his government have had no idea of how to implement sweeping changes that would improve the company’s outlook.
The current Mexican government’s oil policy is inward-looking. It is neither creative nor visionary. It does not look out towards the world, but rather has a slogan of self-sufficiency, an unfeasible fallacy. It exploits oilfields with limited potential and, as it look only at the short term, it does not explore in undeveloped regions of the country. It proposes maximum austerity in administrative matters, but spends massively on an unnecessary new refinery. Pemex has not undergone a major restructuring, has not reduced personnel, is not looking for new alliances, does not apply pro-environmental criteria, records losses, and its debt keeps growing.
Now, oil prices have gone up, the global oil industry is recovering, but Pemex is still in trouble. Its most recent report has accounting anomalies intended to feign cash-flow generation, by recording condensates as crude oil and cash injections of public funds as revenue. No, Pemex is not doing well.
López Obrador and his team at Pemex, encapsulated in their leftist ideology, do not want to see that it is practically the only big national oil company that is not seeking to open up to better options of financing and to joint ventures.
They do not want to look, for instance, at Aramco, the national oil company of Saudi Arabia, which raised US $29 billion in capital in 2019, in what was the biggest initial public offering in history, in its search for foreign investors for joint ventures in politically less sensitive operations in gas, refineries and smaller oilfields. Aramco is now signaling to the market that it wishes to attract another US $133 billion in foreign investment in the next 10 years, without privatizing any of its core business.
Pemex could look at PetroChina, a state-owned affiliate company, created to raise capital on the stock market and which has now become one of the world’s biggest oil companies. PetroChina has shown that it is posible to launch an IPO in a very short period of time. Pemex could still do it in the current government term.
Petroleo Brasileiro (Petrobras) did something similar years ago, without the Brazilian state giving up control over the company. At one point, it had assets, office or representation in almost 30 countries. Later, its performance was severely damaged by populist governments, but it survived thanks to having stock-market capital in its financial structure.
Indeed, in the 1990s, Petróleos de Venezuela (PDVSA) was strong due to oil auctions and joint ventures, but then the authoritarian governments of Chávez and Maduro completely destroyed that national oil company. However, it now seems that Maduro wants to court investors again.
López Obrador and his Pemex team have not been able to stem the deterioration they inherited. Their phobia towards private investment and joint ventures is irrational and backward-looking. Instead of promoting a progressive nationalism, Pemex just looks at its navel, has almost no allies and is even in arrears on payments to its own contractors.
There may still be an opportunity to rescue Pemex by emulating other countries, but unfortunately it remains a taboo to talk about this at the National Palace (President López Obrador’s residence). By not doing so, the risk is that Pemex may end up suffering an implosion and may no longer even be able to supply the domestic market. This Mexican government could still do something good for Pemex, but it would be required that the President and his advisers open up their eyes to other options.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
