NGI Mexico GPI / E&P / Producción / NGI All News Access

Pressure Builds for Pemex IPO as Analysts Urge Focus on Value Rather than Volume

As world oil prices have risen, so too have suggestions of an initial public offering of shares in the Mexican state oil company, Petroleos Mexicanos (Pemex).

The suggestions have come from big hitters in the nation's political and economic spheres, as well as a chorus of newspaper columnists and participants in energy forums.

Jesus Reyes Heroles, led the charge in favor of a Pemex IPO. Reyes Heroles is a former Energy minister and ex-director general of Pemex, as well as having been Mexico's ambassador to Washington.

A similar view pro-IPO was voiced recently by Juan Carlos Zepeda, the president of the upstream regulator, the National Hydrocarbons Commission (CNH), who occupies a nodal point within the structure of the energy reform.

Now Carlos Trevino, the current head of Pemex, has joined in the chorus, though with a difference. During a visit to London a few days ago, he said he agreed in principle with an IPO for Pemex, but added that he could not foresee it happening within less than seven or so years from now -- a timespan that would stretch beyond not only that of the administration due to be elected in Mexico's presidential and Congressional elections on July 1, but also the administration after that.

Critics of the energy reform, such as the left-wing nationalist Andres Manuel Lopez Obrador, have long argued against an IPO because it would amount to privatization of Pemex.

Last week, Mexico's leading business daily El Financiero published an opinion poll in conjunction with the Brookings Institution, the independent think tank. The editorialists of El Financiero have long, and often fiercely, defended the energy reform.

Yet the opinion poll, showed that Mexicans, by a majority of 47% to 41%, said that there was no need for the reform, much less the privatization of an IPO.

An IPO could advance the reform considerably, it would not of itself turn Pemex from what many consider to be the reform's ugly duckling into a glamorous state-owned but very attractive swan such as Norway's Statoil.

Many state-owned oil companies, such as Statoil, Malaysia's Petronas and Colombia's Ecopetrol have shown they are the equals of many of their private-sector equivalents, roaming the world for upstream business opportunities.

By contrast, at least in recent years, Pemex has never conducted overseas operations. Its workforce is some 120,000. Chevron, has only half as many. Ecopetrol has less than 10,000 employees. Pemex has more medical staff alone than the whole Ecopetrol workforce.

In other words, Pemex should strive to match the efficiency, productivity and profitability of international companies, both state and private sector.

The problem is that Pemex is not really a company at all but rather a government department. The real chairman of the board is the nation's president, who can hire and fire the top executives.

Pemex directors-general are removed usually within two or three years, and almost none of them have had any previous experience in the oil industry.

Ecopetrol is 88% owned by the Colombian state. Its CEO, Felipe Bayon, is an engineer with 20 years of past experience with BP in Latin America. Last month Ecopetrol paid an annual dividend of $153 million to its minority shareholders. The government received $1.17 billion for its shares.

Over the last five years, Ecopetrol's crude production has risen 38% from 376,000 b/d to 520,000 b/d. Pablo Zarate of Pulso Energetico, an independent think tank supported by the Mexican Association of the Hydrocarbons Industry (Amexhi), points out that in 1Q2012, Pemex produced 2.5 million b/d of crude and its refineries processed 1.3 million b/d of products. Crude was selling at about $100/bbl in world markets, and Pemex made a $2.6 billion net profit.

Examining the same period this year. Crude prices stood at about $60/bbl, production of crude was down 28% from the 2012 level, while Pemex refineries processed 53% less.

However, the net profit registered by Pemex in the first quarter was $6.2 billion, almost two-and-a-half times more than 1Q2012, when market conditions were much more favorable.

Zarate says $400 million of the 2018 profit was attributable to a favorable exchange rate. But there is more to it. “Pemex has improved the efficiency of its operations, and it's been favored by the structural changes of the reform. It no longer has to swallow the logistical expenses," he writes. “Unfortunately, that doesn't mean that Pemex is out of the hole excavated by its leaders and by the previous model's demands," Zarate adds.

Even so, if Pemex does better when it produces less, as this year's first quarter results appear to indicate, why the continued obsession with the volume of barrels and molecules, Zarate asks.

"Would it not be more reasonable to present a strategy to optimize the company's portfolio with a focus solely on the creation of value?"

The candidate of the Morena left-wing nationalist party, Andres Manuel Lopez Obrador, continues to enjoy a healthy 48% lead in the most recent opinion poll by the daily Reforma published Wednesday on voters' preferences for the July 1 presidential election.

Lopez Obrador's lead was unchanged since the last Reforma poll, but his closest rival Ricardo Anaya, rose by 6 points to 30%, presumably on the basis of his feisty showing in the campaign's first televised debate. Anaya is the candidate of the alliance of the conservative National Action Party (PAN) and the moderate leftist Party of the Democratic Revolution (PRD).

The candidate of the ruling Institutional Revolutionary Party (PRI), Jose Antonio Meade is languishing at third place at 17%.

Recent Articles by Ronald Buchanan

Comments powered by Disqus