Latin Finance - March/April 2011 - 48

mexico oil

is that production sharing agreements are the best way to operate, as is the case in the rest of the industry, but that the constitution in Mexico does not permit this. A production sharing agreement involves the oil company producing a field, and taking exploration risk. If oil is discovered, the company uses money from the oil produced to cover the costs incurred and the profit is usually split, with 80% usually going to the government and 20% to the company.

oil is committed to the US. “The supply Mexico can provide is not at the levels the Chinese want,” says Coleman.

Beaten by Brazil

However, analysts still say Pemex is well managed. “Despite its fiscal challenges, Mexico did a good job of managing itself through the downturn by hedging its oil exports at a reasonable price,” says Not Flexible Enough Conway. Although the new contracts are a Other concerns are that the considerable improvement on company has become highly the prior rigid arrangements, Pemex Crude Oil Output (m bpd) leveraged, says Coleman. “Debt says Ramírez, there is Trying to halt a decline has gone up significantly, which uncertainty about the level 3.5 is a concern,” he says. Coleman of interest they will attract. adds that the company is “The contractual framework is 3 working on internal governance still very limited compared to to try to make it more efficient most other countries in Latin 2.5 and streamline the decision America,” says Conway. making process. The new performance 2 Total debt for first three contracts only offer fixed fee quarters of 2010 was $52.2 arrangements, which analysts 1.5 billion, up from $50.6 billion say will not be sufficiently in the corresponding period of attractive for big oil producers, 1 2009. In the 2005-2008 period it as reserves are not big enough. averaged $49.9 billion annually. However there is likely to be 0.5 The impact of Mexico’s greater interest from service increasingly violent drug wars companies and smaller 0 2006 2007 2008 2009 2010 is also a potential concern. independent companies, says Estimate “Following Calderón’s surge Conway. Source: Pemex against the cartels they have “Major oil firms have begun to target the oil sector and worked with Pemex, but they its personnel, which is a critical issue when do not give them enough incentives Petrobras, is still able to retain a certain it comes to approaching companies about to keep them interested, especially as degree of dominance, but the system new opportunities,” says Conway. other countries are opening up the oil allows for substantial benefit for the Alazraki says that the violence has sector,” says Thomas Coleman, senior private sector, as a result of reforms. not affected production. But Pemex has vice president in the oil & gas group at Petrobras has more of a framework and a boosted security for the protection of staff, Moody’s. program in place to develop its oil sector particularly in the north of the country, He adds that big oil companies, like than Pemex, says Coleman. Burgos and in the south, Chiapas and Statoil have been in discussions with Colombia’s production growth and Tabasco. Pemex over potential agreements, but oil sector investment is also considered With uncertainty over how long none had been reached as of February exemplary by analysts. Before reform in since terms were not attractive enough. the late 1990s to increase competitiveness, Mexico can maintain production at current levels, Mexico needs to go a lot “Big companies want the reserves and production had peaked and started to they want to be able to sell the oil,” he decline. The reforms included the creation further with reforms to open up the oil sector. But with legal challenges as well adds. of concession contracts, favored by the as popular sentiment standing in the way, Regarding a relationship with private sector, because it can put barrels output may have to drop to dire levels China, Coleman adds that Chinese on its books, and not just receive a service before the government commits to serious, investors would not lend unless they got fee. As a result of this, the production substantial supply, but a lot of Mexico’s trajectory and investment in the sector has far reaching reforms. LF

Pemex pales in comparison to other LatAm national oil companies. Brazil opened up the sector to private investment in 1997, with the oil law that was passed, in which it gave concession contracts and created an independent regulator, through which it held licensing rounds for offshore drilling. Through this, the upstream sector was able to attract investment, and therefore increase production growth. In Brazil the national oil company,

increased since reforms were passed. But Pemex is widely seen as the Mexican crown jewel and there is fierce popular resistance to selling any of it. Asked in February whether Pemex would be listed in Mexico any time soon, finance minister Ernesto Cordero said this would not be the case, citing the constitution.

Smart Hedging

48 LatinFinance

March/April 2011



Latin Finance - March/April 2011

Table of Contents for the Digital Edition of Latin Finance - March/April 2011

Latin Finance - March/April 2011
Contents
The Argentine Comeback
Argentina Commodity Investment
Man of the Year
Central America-China
Finance Minister Scorecards
Apax Profile
Chile Retail Sector
Innovations in Infrastructure Finance
New Rules for Corporate Debt Buyers
Inside the Creaking Airport Sector
Mortgage Market Needs Facelift
Violence Weighs on GDP
Latin Finance - March/April 2011 - Latin Finance - March/April 2011
Latin Finance - March/April 2011 - Cover2
Latin Finance - March/April 2011 - 1
Latin Finance - March/April 2011 - Contents
Latin Finance - March/April 2011 - 3
Latin Finance - March/April 2011 - 4
Latin Finance - March/April 2011 - 5
Latin Finance - March/April 2011 - 6
Latin Finance - March/April 2011 - 7
Latin Finance - March/April 2011 - 8
Latin Finance - March/April 2011 - 9
Latin Finance - March/April 2011 - 10
Latin Finance - March/April 2011 - 11
Latin Finance - March/April 2011 - 12
Latin Finance - March/April 2011 - 13
Latin Finance - March/April 2011 - The Argentine Comeback
Latin Finance - March/April 2011 - 15
Latin Finance - March/April 2011 - 16
Latin Finance - March/April 2011 - 17
Latin Finance - March/April 2011 - 18
Latin Finance - March/April 2011 - 19
Latin Finance - March/April 2011 - 20
Latin Finance - March/April 2011 - 21
Latin Finance - March/April 2011 - 22
Latin Finance - March/April 2011 - 23
Latin Finance - March/April 2011 - Argentina Commodity Investment
Latin Finance - March/April 2011 - 25
Latin Finance - March/April 2011 - 26
Latin Finance - March/April 2011 - 27
Latin Finance - March/April 2011 - Man of the Year
Latin Finance - March/April 2011 - 29
Latin Finance - March/April 2011 - 30
Latin Finance - March/April 2011 - Central America-China
Latin Finance - March/April 2011 - 32
Latin Finance - March/April 2011 - 33
Latin Finance - March/April 2011 - 34
Latin Finance - March/April 2011 - 35
Latin Finance - March/April 2011 - 36
Latin Finance - March/April 2011 - Finance Minister Scorecards
Latin Finance - March/April 2011 - 38
Latin Finance - March/April 2011 - 39
Latin Finance - March/April 2011 - Apax Profile
Latin Finance - March/April 2011 - 41
Latin Finance - March/April 2011 - 42
Latin Finance - March/April 2011 - 43
Latin Finance - March/April 2011 - 44
Latin Finance - March/April 2011 - 45
Latin Finance - March/April 2011 - 46
Latin Finance - March/April 2011 - 47
Latin Finance - March/April 2011 - 48
Latin Finance - March/April 2011 - 49
Latin Finance - March/April 2011 - Chile Retail Sector
Latin Finance - March/April 2011 - 51
Latin Finance - March/April 2011 - 52
Latin Finance - March/April 2011 - 53
Latin Finance - March/April 2011 - 54
Latin Finance - March/April 2011 - Innovations in Infrastructure Finance
Latin Finance - March/April 2011 - 56
Latin Finance - March/April 2011 - 57
Latin Finance - March/April 2011 - 58
Latin Finance - March/April 2011 - 59
Latin Finance - March/April 2011 - New Rules for Corporate Debt Buyers
Latin Finance - March/April 2011 - 61
Latin Finance - March/April 2011 - 62
Latin Finance - March/April 2011 - 63
Latin Finance - March/April 2011 - 64
Latin Finance - March/April 2011 - 65
Latin Finance - March/April 2011 - Inside the Creaking Airport Sector
Latin Finance - March/April 2011 - 67
Latin Finance - March/April 2011 - 68
Latin Finance - March/April 2011 - 69
Latin Finance - March/April 2011 - 70
Latin Finance - March/April 2011 - 71
Latin Finance - March/April 2011 - 72
Latin Finance - March/April 2011 - Mortgage Market Needs Facelift
Latin Finance - March/April 2011 - 74
Latin Finance - March/April 2011 - 75
Latin Finance - March/April 2011 - Violence Weighs on GDP
Latin Finance - March/April 2011 - 77
Latin Finance - March/April 2011 - 78
Latin Finance - March/April 2011 - 79
Latin Finance - March/April 2011 - 80
Latin Finance - March/April 2011 - 81
Latin Finance - March/April 2011 - 82
Latin Finance - March/April 2011 - 83
Latin Finance - March/April 2011 - 84
Latin Finance - March/April 2011 - 85
Latin Finance - March/April 2011 - 86
Latin Finance - March/April 2011 - 87
Latin Finance - March/April 2011 - 88
Latin Finance - March/April 2011 - Cover3
Latin Finance - March/April 2011 - Cover4
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