Former Pemex CEO weighs in on reform

Speaking at Tuesday's 2014 Deloitte Oil & Gas Conference in Houston, former Petroleos Mexicanos (Pemex) CEO Dr. Jesus Reyes-Heroles weighed in on the country's historic energy reform.

Reyes-Heroles said that he expects the Mexican energy reform to impact the GDP by 4.7-5.2% by 2019.

Reyes-Heroles, also a former secretary of energy, is currently the executive president of StructurA, an organization that holds multiple different consulting firms. He offered his perspective on various aspects of the reform at the day-long conference.

Of all of the reforms passed in Mexican President Enrique Pena Nieto’s administration, he said that the energy reform was the most far-reaching and was the most central to his economic policy.

“The only way to accelerate Mexico’s growth is through this reform,” he said.

He expressed that Mexico was progressing through its post-reform landscape at a very accelerated pace, calling the process’ momentum “very interesting and intense.”

With Round Zero in Mexico’s rearview mirror, he said the offshore sections of Round One would begin this month when terms for the shallow water areas are to be released. He expected awards to be granted in May 2015.

Extra heavy oil areas will begin this December, he continued, with the publishing of fiscal terms, followed by open registration in May 2015 and the award of contracts in September 2015.

Deepwater blocks are planned to follow suit beginning in March 2015, with registration starting in May 2015 and contracts awarded in September 2015.

Unlike Petrobras who must maintain a stake in all projects, Pemex is not mandated to participate in all projects under the new reform, Reyes-Heroles explained, giving private sector ample opportunity to develop business in Mexico.

He also detailed some of the challenges the North American nation is facing. The most important weakness within the reform was the failure to disengage Pemex and national electricity provider CFE from the national treasury. The treasury will continue to define what the national firm will pay the government, and will continue to approve Pemex’s budgetary objectives.

He showed that, historically, taxes and duties paid by Pemex to the government were higher than the company’s EBITDA."

“The net result is in red,” he said. “This will have to change."

Additionally, he expressed disappointment in the function of the newly-created Mexican oil fund. While hopes were high that the fund would be similar to that of Norway, he said the fund was actually a “heavy bureaucratic burden" that is less of a fund for projects or savings, and more of a mechanism to distribute payments to contractors and the payments to the state.

Pemex also needs to make up for its underinvestment in infrastructure and storage, he says.

Finally, security was another pressing issue. Of the 16 states that comprise Mexico, there are an average of 920 homicides per state per year during the current administration. The homicide rate in five of these states is worsening. Additionally, many of the states that house oil activity are areas with high homicide rates that are trending still higher. However, he noted, companies that operate in the areas “know how to work in these circumstances; they are not scared.”

Ultimately, he said, Mexico was learning as it carried through this unprecedented progress.

“This is a complex and ambitious process that opens up Mexican private sector,” he said. “We will have to learn by doing it.”

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