Mexico looking beyond Pemex
For years, Pemex has been one of the biggest sacred cows in the world. It's no coincidence that the Pemex tower stands in Mexico City for everyone to see.
For some, it is a symbol of the Mexican revolution.
For many others, it is a symbol of corruption and ineffectiveness. Please add me to this group.
In recent years, President Peña-Nieto has been trying to reform Pemex. It appears that he may have found a way of going around Pemex's rigid rules and bringing much necessary foreign investment.
It looks as though Mexico's promising Shale Region is showing the way, according to this interesting article by Jamie Horgan:
Don't look now, but Mexico is hoping that its recent energy reforms will turn the shale boom from a uniquely American phenomenon into a uniquely North American one. This summer, Mexico opened up onshore blocks of its Burgos basin region, just south of Texas.
To date, the country's state-owned oil company Pemex has been unable to successfully start commercial production in the basin, in part due to geology but certainly also the result of the company's lack of expertise in shale.
Now that Mexico's oil and gas reserves are being opened up to private (and foreign) companies, there's an opportunity for firms with the personnel, the experience, the equipment, and the culture necessary to get the country's shale production up off (or maybe more accurately out of) the ground.
Prior to Mexico's market reforms, Pemex was in a tailspin. The company was running the Red Queen's race, spending more money and hiring more personnel while seeing production fall precipitously as fields matured. President Enrique Peña Nieto pushed through unpopular reforms to open Mexico's struggling oil and gas industry up to competition, and after some fits and starts he's seen that effort rewarded: on one day in July, there was a "world-class" oil discovery in the Gulf of Mexico by a group of private companies, a major increase in the estimated potential of another offshore field, and the successful sale of 21 out of 24 other offshore blocks on auction.
In other words, there's a lot of momentum building up in Mexico's offshore hydrocarbon industry.
Onshore, progress has been slower, but Mexican shale -- especially in the Burgos basin -- looks to be a winner.
We hope it is a winner, indeed.
Mexico is the ultimate underachiever when it comes to energy. It started in the 1930s, when President Lazaro Cardenas nationalized foreign oil companies. Unfortunately, Pemex grew over the years into a corrupt enterprise. It is not very good at finding oil, as just about any Mexican will privately admit. Instead, it is a state agency that abuses small companies, hires for purely political reasons, and has kept Mexico as an undeveloped country.
As I told a group of Mexicans at a U.S.-Mexico Chamber meeting a few years ago: "privatize Pemex, and you will quickly run out of hotel rooms in Mexico. In other words, you won't be able to lodge all the investors looking to invest in Mexico."
After my talk, a couple of Mexican businessmen shook my hand and agreed with my assessment. However, one whispered in my ear: "Vaca sagrada, amigo, vaca sagrada." (In Spanish, sacred cow, my friend, sacred cow.)
Hopefully, shale oil will start the crackup of Mexico's sacred cow. It would be the start of turning Mexico into the economy that most of us believe it should be.
Of course, it will be hard, but shale oil development may just be the light at the end of the tunnel.
P.S. You can listen to my show (Canto Talk) and follow me on Twitter.