LatinFinance - March/April 2014 - 53

than a corporation, with politics and state
revenue concerns dictating what would
otherwise be business decisions.
"Successive administrations, presidents
going back to carlos Salinas de Gortari [19881994], have been trying to reform energy
law," says Samples. "it's been a long time
coming and it's way overdue."
While efficient politicking from Peña
nieto's PRi party finally pushed the reform
through, the bleak outlook for the industry
also acted as a spur. Pemex is hyper-efficient
as a driller in shallow waters, where it
produces 1.9 million barrels of crude daily.

Capital market openings
Reform to the energy sector will have implications for mexico's financial markets, too.
Until now, almost all energy financing in
mexico has been done through debt issues
from Pemex. now new alternatives, including the equity markets, will be needed to
finance future projects with private players.
marco oviedo, chief economist for mexico at Barclays, thinks local companies will
be the first to explore new energy financing approaches in mexico. "it's going to be
positive for the financial sector because new
operators, most of all local conglomerates,
mining companies, industrial groups, that
are interested in investing in the sector will
have to place shares on the stock market,"
he says.
"that combined with recent financial reform that makes issuing equity on the stock
market easier we're going to see someone
like carlos Slim's Grupo carso, Grupo alfa,
or Grupo méxico issuing shares via subsidiaries that are in the energy sector."
it is not just local firms, however. california's Sempra energy launched the first iPo
of an energy company on BmV, the mexican
stock exchange with its subsidiary ienova
in march 2013. Since its iPo, its stock is up
76% to 60 pesos ($4.51) a share after winning
pipeline contracts from the government
tim Samples, legal studies professor specializing in the energy sector at the University of Georgia, says it is possible more foreign
companies will follow Sempra, and create
domestically listed subsidiaries for the purpose of bidding and winning contracts.
"mexico has well established capital
markets relative to other oil jurisdictions
around the world," says Samples. "mexico
has a lot of upside, in terms of its financial
infrastructure."
as part of the reforms, Pemex itself will
change radically. the state-owned company
has long looked more like a ministry of oil

NEW RULE BOOK: Pemex CEO Emilio
Lozoya prepares for reform

behind american drillers there. While thousands of wells are drilled annually in the US,
mexico has drilled less than 25 exploratory
wells in shale.
Pemex has failed to invest in its refining
business, which lost more than $10 billion in
2011 and 2012 while tallying a negative margin on each barrel of oil refined in the of four
2013 quarters. its gas and petrochemicals
businesses were also in the red in 2011 and
2012.
Burdened with providing more than a
third of mexico's federal tax revenue annually, the firm is incapable of reinvesting.
advocates of the reforms say letting in
private firms is consistent with the spirit of
the reform, which will classify Pemex as a
"productive state
enterprise" (empresa productiva del
estado) with looser
links to the government and budget
and management
autonomy.
the firm's main
priority will be to
maximize profit, not
meet public needs.
But not everyone
is fully satisfied with
the reforms. fluvio
Ruiz, one of the four
professional members of Pemex's
board of directors,
says the bill explained how the new competitive oil sector would work but failed to detail
Pemex's future.
"the government showed no explicit will
to lower Pemex's tax burden nor did they
guarantee that there won't be fiscal or regulatory asymmetry. that's the big absence
in the bill," he says. He also suggests there
is little point in lowering the tax burden if
Pemex does not have true budgetary autonomy.
Beauregard says he expects Pemex's tax
burden to decrease gradually and organically. "to the extent that other players begin
to generate resources for the federal government, and not just Pemex, our expectation is
that Pemex will be left with more resources
for its own operations," he says. He does not
expect a tax decrease in the short term.
Pemex's first challenge as a "productive state
enterprise" will be how to stake its claim in
upstream in a preliminary licensing round,
before those involving private players begin.
Continued on page 57
Source: MarcoBernalG

industrial y de Protección al medio ambiente del Sector de Hidrocarburos).
the other is an independent system
operator for the country's natural gas pipelines, the national center of natural Gas
control (centro nacional de control del Gas
natural - cncGn).
mexico hopes to take some of the shortsightedness out of the state's management
of oil revenues by creating a sovereign
wealth fund, the mexican Petroleum fund,
to manage and reinvest the state's revenues
and profits from the sector, with the central
bank, Banco de méxico, acting as trustee.

it has some of the lowest exploration and
development costs in the world at $10.97 per
barrel, according to Barclays.
But Beauregard says that being the sole
operator in mexico is a handicap in that Pemex is obligated to do everything. "in some
activities, we're not efficient. We don't have a
competitive advantage," he says.
moving away from the shallow water,
Pemex's performance begins to lag. Pemex
trails far behind the US in development of
deepwater and unconventional basins. While
lobbying for reform, energy minister Pedro
Joaquín coldwell pointed out that on the
US side of the Gulf of mexico 137 deepwater
wells were drilled in 2012 while only six were
drilled in mexico. Pemex has yet to produce a
single barrel of oil from deepwater.
Missed opportunities
according to the US energy information
administration, mexico holds the world's
sixth largest shale gas reserves and shares the
eagle ford basin with texas, but it is also well

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