Challenges approach Petrobras and Pemex

02/17/2017 | News release

On some walls in the less affluent neighborhoods of the Mexican capital it is still possible to see graffiti with the slogans ‘Down the Gasolinezo’. About a month ago, in early January, popular protests spread across the country against a 20% price increase in gasoline prices and left six people dead during clashes with the police. In line with Pemex’s new business plan, which aims to eliminate refining losses and achieve a ‘financial balance’ by 2019, the release of fuel prices in Mexico comes months after Petrobras announces its new prices based on parity with international prices.

State-owned symbols of national sovereignty and major oil producers in their respective countries follow business plans focused on debt control and the practice of market prices. For much more than the similarity of names, Petroleo Brasileiro (Petrobras) and Petróleos Mexicanos (Pemex) go through a very similar restructuring period.

With limitations on the ability to raise funds, the two companies seek partners with whom to share heavy investments in deep waters, at a time when the oil and gas industry, both in Mexico and Brazil, reopen for foreign oil companies.

Companies focus on costly deepwater projects to compensate for declining production. Latin American sisters, Petrobras and Pemex share the challenges of renewing their production. Both companies are investing in costly deepwater projects to compensate for declining production from their main production sources: the Campos Basin post-salt in the case of Brazil, and Pemex’s Cantarell field, which has already reached to be one of the largest in the world with a production of 2 million barrels per day in 2004, but which today produces around 200,000 barrels per day of oil.

To extend the field life, Pemex invested in the installation of a new platform with gas compression technology in place. The unit was named ‘August 12′, a tribute to the day Mexican President Enrique Nieto enacted the law that put an end to Pemex’s monopoly in 2014 and reopened Mexico’s closed oil and gas market since nationalist 1938

In addition to promoting rounds of bidding for exploratory blocks, the Mexican government has sought to attract private investments also from a partnership program with Pemex. With no resources to invest in deep water, the Mexican state-owned company has resorted to alliances with new partners, such as Petrobras’ asset sales and partnerships program.

In December last year, Pemex entered into a $ 624 million agreement with BHP Billiton to sell a 60% stake in the Trion area in the Gulf of Mexico as well as partnerships with Chevron and Inpex to participate in auctions in the country. Petrobras, in turn, has entered into agreements with France’s Total to sell stake and joint investments in Iara (pre-salt of the Santos Basin) and with the Norwegian company Statoil to evaluate investment opportunities in the recovery of mature fields.

The big oil companies have less cash to invest and Brazil and Mexico compete for investments ‘Without a doubt the timing of the two countries is very similar, but it is impressive how the process of opening the sector in Mexico happens at a faster rate than in other countries’ , Says Alexandro Berentsen, director of Siemens Oil and Gas in Mexico.

Brazil and Mexico live a moment of reopening of the sector and has fomented a recent competition for investments.

The Brazilian government intends to promote two auctions this year, the first after the end of the monopoly of the Petrobras operation in the operation of the fields auctioned under a sharing regime.

Mexico is promising to hold its second round of bids after the success of the first edition, which attracted more than $ 1.5 billion in investment commitments from major international oil companies such as Total, Chevron, Statoil and ExxonMobil.

Pablo Medina, an analyst at Wood Mackenzie, explains that in a scenario of lower industry prices like today, oil companies have less cash to invest and Brazil and Mexico are competing for investments. He points out that, geologically, the pre-salt is very attractive, but he reminds us that the Brazilian government needs to present a convincing edict and give positive regulatory signals. The inspiration, according to the consultant, should be precisely Mexico.

“The market opening in Mexico was largely inspired by Brazil, but it had the merit of adapting quickly and made the rules more attractive to investments after the falling price of the barrel, working, for example, with more local content requirements. “Medina said, recalling the Brazilian failure to attract investment during the 13th Round, in 2015, due to the lack of an announcement that was more appropriate to the reality of the market at the time.

Source: Valor Econômico


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