Mexico’s Pemex Lands Pipeline Deal With BlackRock, First Reserve
Project will bring cheap U.S. natural gas to central Mexico
Pemex has landed a major investment deal for a natural-gas pipeline. PHOTO: BLOOMBERG NEWS
March 26, 2015 5:33 p.m. ET
MEXICO CITY—National oil company Petróleos Mexicanos has landed its first major investment since an overhaul opened the energy sector to private investors last year, with U.S.-based BlackRock Inc. and First Reserve Corp. putting up about $900 million for a 45% stake in a pipeline project that will bring U.S. natural gas to central Mexico, the companies said on Thursday.
The investment—and similar deals being pursued by Pemex—will help ease the effects of a planned $4 billion in budget cuts at the company this year because of lower oil prices, Pemex officials said.
It also marks the beginning of a new era for the oil company after nearly eight decades as a government monopoly in charge of everything from offshore oil exploration to gasoline sales.
“This is certainly a landmark,” said José Manuel Carrera, head of PMI, Pemex’s international unit. “It’s the first material implementation of the energy reform in Mexico. This is the start of what we believe is going to be a long series of investments by these and other investors who might follow,” he said in an interview.
The project is crucial for Mexico’s manufacturing industry, the most dynamic sector of the country’s economy. Cheaper natural-gas imports from the U.S. are part of an ambitious effort to lower manufacturing and electricity costs and boost the competitiveness of Mexican exports against global rivals that lack such access. Mexico is the world’s fourth-largest exporter of cars after Germany, Japan and South Korea.
BlackRock, one of the world’s largest money managers, is the lead investor on the deal. The investment gives BlackRock and First Reserve a 25-year gas transportation agreement for the Los Ramones II pipeline, which will run 430 miles in two sections from northern to central Mexico with capacity of 1.4 billion cubic feet of gas a day.
Construction of the pipeline is already under way, and completion is expected by the end of 2016. The project was a direct result of years of critical natural-gas shortages as pipeline capacity from the U.S. failed to keep up with Mexico’s growing industrial demand for the fuel and Pemex focused mostly on more profitable oil production.
Pemex has inaugurated separate sections of the pipeline not included in the private-equity deal that bring natural gas into northern Mexico from south Texas. Pemex runs Mexico’s national pipeline network and has contracted all of Los Ramones II’s capacity.
The Pemex deal is BlackRock’s first infrastructure project in Mexico as it seeks to expand its infrastructure equity business globally, company officials said. “When you look at the main needs of our clients globally—including pension plans, insurance companies and sovereign-wealth funds—they’re looking for long-term investments,” said Armando Senra, head of BlackRock Latin America & Iberia. “So building our infrastructure platform is a priority for the firm.”
Mexico’s energy overhaul, which involved amending the Constitution in 2013 to open up the government-run oil and electricity sectors, has intensified interest in Mexican infrastructure, said Jim Barry, global head of BlackRock’s infrastructure investment group.
“Mexico, on the back of its constitutional reform, has put itself on the global map in a substantial way,” said Mr. Barry. The investment firm is interested in water and wastewater projects, toll roads, hospitals and possibly liquefied natural gas. Infrastructure equity is lower risk than private equity in general, he added, and the Los Ramones project offers long-term returns.
William E. Macaulay, chairman and co-CEO of First Reserve, said the company already has a wind-power facility in southern Mexico and is looking at another electricity-generation project in the northern part of the country.
Mexico’s energy overhaul has opened up huge opportunities, he said in an interview. “Just if you take pipelines, for example, Mexico has 10% of the natural-gas pipelines that the state of Texas has.”
Mr. Macaulay also sees opportunities in upstream and downstream oil projects in light of the energy overhaul.
For Pemex, the deal provides financial relief at a time of lower oil prices and slipping production. The company said in mid-March that 2015 crude oil output could fall by 100,000 barrels a day from last year to 2.3 million barrels a day because of the budget cuts. However, alliances with private firms could prevent that slippage, since it would cushion the blow to its investment budget, officials say.
Pemex has signed private partnerships for electricity production using the heat and steam from its industrial processes, known as cogeneration. But it had to cancel refinery work to remove sulfur from motor fuels because of the budget cuts. Finding partners could change that, officials say.
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