Seeing ourselves in PEMEX’s mirror

OB-YG355_3pemex_P_20130719165128 Pity Mexico’s oil sector reformers. After a bitter, hard-fought, multi-decade campaign to open the oil sector to foreign investment, they put together a landmark auction…and the thing flops. 

The Mexican government had hoped that its first-ever auction of shallow-water exploration blocks in the Gulf of Mexico would successfully launch the modernisation of its energy industry. In the run-up to the bidding, Mexico had sought to be as accommodating as its historic dislike for foreign oil companies allowed it to be. Juan Carlos Zepeda, head of the National Hydrocarbons Commission, the regulator, had put a premium on transparency, saying there was “zero room” for favouritism.

When prices of Mexican crude were above $100 a barrel last year (now they are around $50), the government had spoken optimistically of a bonanza. It had predicted that four to six blocks would be sold, based on international norms.

It did not turn out that way. The results fell well short of the government’s hopes and underscore how residual resource nationalism continues to plague the Latin American oil industry. Only two of 14 exploration blocks were awarded, both going to the same Mexican-led trio of energy firms. Officials blamed the disappointing outcome on the sagging international oil market, but their own insecurity about appearing to sell the country’s oil too cheap may also have been to blame, according to industry experts. On the day of the auction, the finance ministry set minimum-bid requirements that some considered onerously high; bids for four blocks were disqualified because they failed to reach the official floor.

You can rant about “residual resource nationalism” all day, and I’m sure that didn’t help. But the real story here is simpler: the financial arithmetic facing a potential investor has been totally upended by the collapse of oil prices. Projects that were a slam-dunk a year ago have become distinctly dodgy propositions.

This is a dynamic Venezuelans have barely woken up to. We still tend to think we’re the bee’s wax in terms of oil sector investibility just because there’s so damn much of the stuff under the Orinoco Basin. But things have changed. Low prices leave more and more countries fighting to attract a dwindling pool of investment funds. (And did you notice? Iran just came into the market too…)

This is why the appointment of a relative pragmatist like Eulogio del Pino to the PDVSA presidency means so little. Two years ago, putting a guy like del Pino in charge of PDVSA might’ve been enough to attract big-time investment into the Venezuelan sector. Insane leadership was a serious limiting factor back then.

These days?

International investors have 99 problems and who runs PDVSA is not one of them.

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