OBG talks to Emilio Lozoya Austin, Director-General, Petróleos Mexicanos (PEMEX)

Interview: Emilio Lozoya Austin

How drastically could the planned energy reforms affect the sector and PEMEX?

EMILIO LOZOYA AUSTIN: The energy reform will open Mexico’s oil and gas industry to a competitive market for the first time in 75 years. This will make PEMEX’s corporate structure, unchanged since 1992, obsolete. To adapt, PEMEX needs to undergo restructuring to become a more efficient and transparent company. The energy bill also opens the sector to investments from international oil companies (IOCs) in many ways, such as service, share benefit or share production contracts, as well as licences, depending on the particularities of each exploration field. Yet at the same time, the government remains the sole owner of all hydrocarbons harvested on its territory, thus maximising their benefits. As promising as this reform is, there is still a need for secondary legislation to help define the length and scope of these contracts. The truth is that the era of easy oil is coming to an end and Mexican oil and gas companies need to partner with foreign companies to share experience, risks and technologies, and thus ensure that Mexican hydrocarbons remain competitive on the global market.

Will PEMEX expand its operations internationally?

LOZOYA: At PEMEX we believe the expanse of Mexican oil reserves, the geological potential and the energy reform make Mexico an attractive destination for IOCs to invest. PEMEX will remain the sole extractor in these fields where we have proven potential and will apply in round zero to those that we believe could be exploitable. Those fields with higher risks will be available to foreign firms, either alone or in joint ventures with PEMEX. We expect to see the first investments and partnerships with IOCs as early as 2015.

Although PEMEX always looks for new investment opportunities, we are focusing on Mexico due to its significant resources and untapped potential. When we do decide to internationalise, it will most probably be in North America due to the similarities in the exploration fields and their success in extracting shale gas.

What is the future of Mexico’s shale gas reserves?

LOZOYA: There is no doubt that non-conventional resources play an important part in providing Mexico with energy security. The country holds the sixth-largest shale gas reserves in the world and non-conventional hydrocarbons resources equivalent to 100bn barrels of oil. However, we need to be careful because deepwater drilling and shale gas extraction entail technological difficulties and can have a great environmental impact. This is where IOCs can prove very useful, bringing efficient and more eco-friendly techniques such as waterless fracking. Although we must proceed with caution, we recognise the importance of unconventional resources and their potential to reduce energy costs.

How big are the potential benefits of a lower tax burden for PEMEX?

LOZOYA: With the current legislation, PEMEX accounts for a third of national fiscal revenues. Under the reforms, PEMEX will pay 70% of its income in taxes – the world average – compared to the 120% we paid last year. Lower taxes will spur new foreign and domestic investments, and provide greater capacity for PEMEX to invest, bringing higher oil and gas revenues for the state.

At what point will the petrochemicals industry be able to capitalise on the legislative changes?

LOZOYA: Mexico’s first goal in the petrochemicals industry needs to be reducing imports, which currently stand at close to 65%. Even though the sector has been an open market since 2008, its development has been handicapped due to over-regulation. We need to create strategic alliances between national and international companies to reactivate and boost the production of petrochemicals such as urea, sodium cyanide, ethylene oxide and low-density polyethylene, thus increasing the profitability of the chain of value. The agriculture sector will benefit most from the growth of the petrochemicals industry, with better quality and cheaper fertilisers that will make land more productive.