In a session titled, “Mexico Energy Reform: Challenges and Opportunities,” Gustavo Hernández García, state oil company Pemex acting director of exploration and production, spoke about the future of the company.
In light of the energy reform measures now being discussed by Mexico’s Congress, Pemex has embarked on a program to transform “from a state-controlled industry to a state-owned productive company” and, in the process, embrace partnerships with foreign companies and even foreign operators, he said.
Mexico has begun the reform in large part because of the country’s decline in production over the past several years. Domestic demand for petroleum has remained steady, but the drop in production threatens the country’s growth and has highlighted the fact that Pemex does not have the resources to develop the country’s rich reserves. Deep water, shallow water heavy oil, shale, and enhanced oil recovery in mature fields are four places where Hernández García said the company plans to capitalize on opening up certain leases to outside operators and partners. According to Hernández García, Mexico still has 13 billion bbl of proven reserves in place, not counting prospective resources.
Pemex recently submitted to the government a list of the areas it wants to reserve for itself. After that process is complete, the company will pursue joint ventures with outside companies and, eventually, bidding rounds will take place where leases will be granted exclusively to outside operatorship, he said.
Hernández García described the aggressive 24-month schedule, launched in December of 2013, to change Mexico’s longtime national oil company into a company that no longer functions as a branch of the Mexican federal government—a significant economic and political distinction. The transformation will introduce competition into the Mexican energy sector and will yield plentiful benefits, including a concentration upon value-driven enterprises, an enhancement of Pemex’s technical competencies as partnerships are created with other entities, and a transparency of processes that will attract further investment. However, Hernández García explained, this transformation means an enormous amount of work as well as potential political and social tests.
In addition to the heavy legislative work that will shift the relationship between Pemex and international companies, Pemex itself faces a number of challenging internal tasks, including restructuring of its remuneration and salary schemes—a step that will affect, among others, the 61,000 Pemex employees in exploration and production alone—and placing emphasis on recruiting and hiring large numbers of talented technical personnel required by expanding partnerships with international oil companies.
“We want to remain a top employer in a competitive environment and are committed to retaining talent,” Hernández García said. The organizational changes will involve much deeper shifts than those affecting organizational charts or constitutional mandates, however; Hernández García went on to describe a necessary “change in our culture and mindset to become a results-oriented one” better able to operate in what he called an “increasingly technically complex environment.”
In discussing the possibilities of partnerships with international oil companies, he said Pemex does have a number of well-established technical competencies, including in conventional onshore oil and gas as well as shallow-water production, but Hernández García said that Pemex knows it must encourage partnerships to best develop new expertise and to exploit Mexico’s abundant unconventional resources better. These unconventional resources offer an enticing opportunity to the private sector; as an example, Hernández García cited the expanding operations in the Mexican portion of the Eagle Ford formation.