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Pemex Official Sees New 'Fiscal Regime' by September

May 30, 2005
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Mexico's state-owned oil and natural gas company, Petroleos Mexicanos (Pemex), may have a "different fiscal regime" by September, with more of a corporate structure, a Pemex official said last week.

Esteban Levin, who heads Pemex's investor relations, said Tuesday that "the most important thing happening in the country today is the discussion around what to do with Pemex in the coming years." He was explaining the expected changes at the UBS Global Oil & Gas Conference in Austin, TX.

"The discussion has been growing substantially, especially this year," said Levin. "Two years ago, it was practically inconceivable to talk about changes in the structure of Pemex. But this year, we had a significant improvement in the dialogue."

Levin said one of the first big changes occurred when Pemex was able to implement multiple service contracts (MSC) more than two years ago (see NGI, Oct. 21, 2002). Basically, MSCs allow private investment in the country's natural gas infrastructure, and they avoid conflicting with the constitution, which does not allow outside companies to "own" oil and gas leases.

"Multiple service contracts were the first phase of trying to move around the legal framework in a see how we could extract the most value without having to change the bylaws," said Levin. "The MSCs were an attempt to move within the framework of the law. We were working with our hands tied behind our back, and we believe MSCs have been a very good experience to set up framework for extracting the most value from our assets."

Levin said Pemex has learned "a lot of lessons...from the experience, and they also opened up the debate in Mexico, not only about natural gas production but crude oil production, about whether a more open regime is needed or not."

This year has been pivotal in moving Pemex to a more corporate structure designed to make money and improve production, he explained. "The Senate has actually approved a fiscal regime, and it has been sent to the lower House, and that's where we are today. We believe we will have a fiscal regime change by September." The House is making some changes, which will have to be approved by the Senate before passage, "but the main point here is that with all of the discussions, there is a lot more flexibility than there was a couple of years back. We've opened up talking about corporate governance changes, changing the board structure."

The Pemex board currently is composed of six government officials and five union members. "The talk around Congress today is how we can give Pemex more flexibility, and include independent members of board, set up audit committees, compensation committees and the like."

Levin admitted that there remain some "pretty sensitive political ideas," but most of the changes have been agreed to by the country's political parties. "One thing from a senator would allow issuance of nonvoting shares for Pemex, which could trigger changes in Pemex to be run more like a company. These changes have not yet been approved, but they are well received by both political parties."

In terms of production, Pemex's goal for 2008 is to be producing close to 4 million bbl/d of crude oil and 7-8 Bcf/d of natural gas. The capital expenditure budget also will greatly increase to about $10 billion "from this point onward," said Levin. "Pemex has invested more in the past five years in this administration [President Vicente Fox] than very long ago. The capital expenditure figures we're talking about today are up from an average of $3 billion a year in the 1980s and early '90s."

The central Pemex problem is that much of its revenue goes to sustain the Mexican government instead of being invested in developing new production, and the exclusion of outside ownership of reserves also drives away outside investment.

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