New CEO José Antonio González Anaya believes Pemex will be an attractive partner for new foreign investors in Mexico’s oil industry, given its professional experience, vast infrastructure and accumulated knowledge of the oil and gas sector
The global petroleum industry faces a complicated future due to the dramatic fall in oil prices, and as a result, oil and gas companies have been forced to take drastic measures to ensure their survival.
Many oil fields which were operating in times of high prices are no longer profitable and large-scale projects have been cancelled or postponed across the entire industry.
Petróleos Mexicanos (Pemex) has not been immune to the trend and is dealing with the challenge in a decisive and serious manner. The adjustments include a major overhaul to maintain its viability as a productive state-owned enterprise and continue as a key player in the development of Mexico’s economy.
Mexico will face this global challenge backed by comprehensive reform of the country’s energy sector. Passed as law in December 2013, it will provide the country’s oil and gas industry with the necessary tools to reduce costs and optimize expenditures.
At the same time, the reforms will boost its competitiveness with unprecedented flexibility. For the first time, it will allow Pemex to compete in a more open oil and gas market, securing its future viability.
This year’s budget is based on an average crude oil price of $50 per barrel. However, given the current conditions in the international market, an average price between $25 and $30 is expected for the year, which has already triggered a liquidity problem. Thus, the Mexican government addressed the issue by cutting 100 billion pesos ($5.7 billion) in costs, as well as putting off some planned projects.
The biggest challenge for Pemex is carrying out this reduction in a way that does not affect production over the short and mid-term, while at the same time, maintaining the company’s financial health over the long-term.
Pemex’s new CEO José Antonio González Anaya has promised that these steps will have no effect on employee safety or in company facilities, and will honor prior labor and financial commitments. The measures announced by the chief executive include boosting efficiency by reducing administrative costs and current expenditures, and focusing only on production which is profitable, while postponing or reassessing investment plans guided by the energy reform promoted by President Enrique Peña Nieto.
These measures will further incentivize Pemex to seek strategic partners in a bid to stabilize production. Mr. González Anaya stressed that with these partnerships, the company will have additional access to better technology and will be able to share financial risks.
This means Pemex will generate additional resources for the country, under a more flexible and agile operating scheme that improves the company’s profitability and maximizes the value of hydrocarbons for the benefit of all Mexicans.
For Mr. González Anaya, only a financially sound Pemex can successfully deal with the challenges of the future. On several occasions, he has emphasized that to carry out this mission; the company must update its entire model; become more transparent and efficient; and make a major contribution to the development of the energy sector and the economy.
The CEO believes that given its professional experience, the company’s vast infrastructure and accumulated knowledge of the oil and gas industry, as well as its proven reserves, Pemex will be the partner of choice for those who seek to invest in Mexico. In any case, he said, the company will choose ideal partners through transparent and competitive negotiations, in order to find the best deals for Pemex and for Mexico.
Joint ventures will be a crucial aspect of Pemex’s capital-intensive strategy, in upstream, midstream and downstream activities, it will need to look for partners in order to diversify the allocation of resources into profitable projects.
Furthermore, Pemex is also developing environmental actions, such as the clean fuel projects for all of its six refineries, as well as water and air quality remediation, as part of its commitment with communities and to social responsibility.
For Mr. González Anaya, the protection and preservation of the environment and the fight against climate change must not only be commitments to the nation, but also a way to strengthen the company’s position in domestic and global markets.
Hence, one of the most important projects is clean fuels, as Pemex achieves the goal of distributing ultra-low sulfur all over the country this year.
With an investment of almost $6 billion, the idea is to fulfill the new requirements under Mexican regulations through strategic partnerships.
Current plans for this clean fuel project call for expanding distribution to the entire country which will reduce greenhouse gas emissions by more than 90% and eliminate 12 million tons of sulfur dioxide annually in the atmosphere.